1. There is a risk of activist or corporate acquirers getting a substantial share of YC after buying out startups. Contract clauses can eliminate that, and prevent dilution, but value of extended network advocacy is lost too.
2. Do dead startups lose their share? If they do, you would see more zombies, which is not ideal. If they don’t who keeps the equity when founders part ways? If it’s the founders based on equity share - see (B)
3. Competing startups could have shares in the successful one, and potential vote, which leads Oracle/Salesforce type battles. Potential swinging votes during corporate governance, but also potential helpful behavior, which while nice could be seen collusion by regulators at scale. That said, startups win with monopoly characteristics, so that may be less of an issue.
B. If you give the equity to individual members:
1. There is selection bias where alumnae help friends and go through the program multiple times - you risk having portfolio maximization and groups voting buddies in for control over YC. Even if you don’t see clique battles, there will still be: Vote these guys in because they were Stanford alumns too. Over time you will lose even more diversity in the network and a broader network that captures the next wave of breakouts not seen by the less diverse YC will gain speed.
2. The resume stuffing and portfolio padding motif to join YC will be dominant to the “let’s build a unicorn” motif. People who pursue status and do YC as the next Harvard will have more easy access (B1) and more reason to go for it.
3. To boost the unicorn incentive the above equity distribution needs to continue only if you have a startup within YC that is actively growing by certain criteria or has had a meaningful exit for the YC network. Another way to protect integrity of the network, is to allow equity in YC to be stacked only if the person has been a founder of more than one startup still growing or with a meaningful exit. This scenario may be enhanced with some incentive for people who join other YC startups meaningfully, but how complicated a structure will be too complicated for investors in the YC startups themselves?
This is first layer of brainstorming with minimal info.
That'll be expensive. On the order of 100's of millions per year at that scale. 15,000 * 1000 = 15 M / month for an amount that would move the needle, but still not enough to live off.
You're right and maybe its more about providing the YC participants with a vested interest in the overall success of all the YC companies than providing them with a guaranteed income for life.
You'd want to size it to provide enough equity to turn the 15,000 participants into active evangelists of the larger network of YC companies than just their own individual startup.
And yes it is expensive. There are definitely significant parallels in that sense to the larger UBI discussion :)
> You'd want to size it to provide enough equity to turn the 15,000 people into active evangelists of the larger network of YC companies than just their own individual startup.
They already do this, for free. The YC alumni network is a vast resource and a substantial force behind the recruitment of new start-ups.
Roughly, yes YClist has 1280 of them, and every half year there are more. And at 10 FTE / company average the GGGP's 15,000 FTE total is believable. It could easily be more than that.
I'm reminded of an amusing projection of telephone switchboard operator jobs (from the early 1900s) soon occupying half the US population, but can't find it right now.
1) UBI (or anything similar) in Oakland is expensive. Back of the napkin calculation: $1,000/month/person = $12,000 = you need about $0.5M in capital to maintain that level of basic income without reducing the capital over time (I am applying the usual 4% interest on capital, for passive income - the number might be wrong or might change in the future (see Piketty) but let's use it for now).
Instead, UBI in other regions of the world can be a small fraction of it (I can easily imagine 1/10th of what it costs in Oakland = $50,000).
2) You have ~15,000 YC alumni. Ask each one of them to commit at least 50k each (or multiples of it), to offer UBI to 15,000 people in a developing country. In exchange for that, you might give them a tiny share of YC (not equivalent to 50k, but perhaps a smaller amount). It shouldn't be seen as a great investment for them; it should be instead done mostly out of altruism.
3) UBI provided to 15,000 people (or possibly more) is the right type of experiment, at a big enough size. It's essentially a big village, or a number of small villages. It's also good to see this applied in a developing country: the impact can really be seen and observed properly.
4) I am pretty sure that there would be a number of volunteers willing to commit their time to observing and measuring the experiment, wherever it will be (however, I suggest to pick an English-speaking developing country, as it makes many other things easier).
When calculating the capital needed to live off the interest, you need to subtract inflation from the interest, as 1000$ will be worth less and less every month. What you need to survive is "equivalent to 1000$ today", not "1000$".
The safe withdrawal rate of 4% (or whichever figure you pick) already includes inflation.
The rule is supposed to be that you have a high probability of withdrawing $X per year, each year, adjusting for inflation, where $X is 4% of your initial starting sum.
This micro-UBI thing is a bad experiment with good intentions.
UBI only works if it's fairly 'U'.
If you give UBI to 'one village' - that village will have tremendous leverage over the surrounding villages. Any rational application of commercial knowledge will - knowingly or unwittingly - drive competitors out of business, and that 'UBI village' could theoretically come to control a lot.
It only took a very small marginal advantage in transport costs for Oil companies to put others out of business and to create massive monopolies.
If you run a little 'sim village' experiment on that, you might find the UBI village owning all the regional real-estate over time and just extracting rent.
Another way of saying: a consistent, stable fixed income, even a not very big one, can be a powerful asset.
In the beginning YC kind of was a UBI experiment. $20k isn’t enough for more than living expenses for some amount of time. Of course, $120k is a bit more, but in my mind YC was a very successful implementation of UBI.
It was a BI experiment, the U being eliminated by heavy selection. Xerox PARC started that way as well - select very talented people, then give them money to work. UBI presumes you are ready to give the guy begging on the street with an alcohol habit the same check you'd give Drew Houston.
A company can pick its most favorable market to make a profit (people with money to invest then boost the companies with most favorable returns). Government is a silent partner in all commercial transactions because it has to serve all of the other citizens too at a basic level (it can't just pick and choose). Non-profits get a pass on taxation by the government to serve the markets missed by profit-makers.
This is a reason I like paying attention to Sam, looks like he has an experimental streak and is not motivated primarily by greed but instead shows a benevolent or generous approach.
Unfortunately such an approach is not shared by the majority of well-heeled capitalists who are interested and available to supply the next round of funding for the growing number of the very entrepreneurs that he helps to get off the ground. This puts him in a unique position to see the effect first hand and looks like it's getting him started at a young age seeking solutions which could maximize the return from scarce resources (or in his case more abundant financial resources), one of the most important of which is to reduce the suction of pure greed from the mix.
Seems to me it is exactly that suction on what is supposed to be the most prosperous and promising nation that keeps there from being enough to go around anyway.
Then again I have always done the math a little differently than most economists, but I sure have been doing it a lot longer than the vast majority.
So I think it would add up better for a greater number of less privileged citizens if the bar were lowered for entrepreneurs and raised for follow-up VC's first and foremost on the greed factor itself, and this is something that YC for one can implement on it's own, at least within its growing sphere of influence. If Sam is not yet capable of accomplishing this just by saying the word, I hope that does occur during my remaining lifetime. This could be gradually accomplished, and if momentum is not lost along the way, taken to its logical conclusion from this one seed it could end up becoming more universal than anything anyone has seen before.
It's impossible to put numbers to the difference between committing resources to a less financially capable entrepreneur with an apparently weaker idea and market, versus an alternative that rings all the bells for the majority of VC's even when you try to include greed as the realistically destructive factor that it has always been.
Therefore you just have to do more advanced math without using numbers or prosperity will never become as universal as it could be.
When you leverage greed, you are only going to get more greed in return.
So it might be more accurate to restate this little problem as "Too many greedy VC's are investing in otherwise promising YC companies, and that keeps some of the most ideal investments for less greedy VC's from moving in the direction of YC to begin with".
“a less financially capable entrepreneur with an apparently weaker idea and market, versus an alternative that rings all the bells for the majority of VC's”
You are assuming those variables have any correlation whatsoever, and I’d argue they don’t. If YC was to decouple them in their decisions, they would see a lot more returns. If they could provide more info, so VCs could decouple them you would see a new golden age for Silicon Valley. Less financially endowed entrepreneurs who persist nonetheless can have resourcefulness or insights into bottom of the market ideas that can make a huge return with small improvements (Whatsapp). They often lack the wealthy network for similarly less burdened cofounders and investor intro and advantageous information often distributed at top schools with most affluent founder candidates (each top school takes pride in sharing nonpublic insights with their disciples from VC network tips, to the personal preferences of each judge in the supreme court).
YC has the network to beat all advantages provided by pedigreee schooling which means they can venture far beyond Stanford grads and invest in less trite and privilidged ideas that have actual potential to change the world. The founder disadvantages could be mitigated with a standard toolbook and the network. YC could play Moneyball for early stage startups, but they don’t seem to just yet.
The quotes you provided in the article weren't clear on this: did you mean to say that some of these companies don't deserve funding or that it would be a better choice for them to continue to grow and operate without raising capital?
