Secret weapon is the perfect phrase to describe Kirsty. She handles everything to do with money and investors at YC, and the situations she has to unravel, dealing with early stage startups, are often appallingly complicated. Considering the number of startups we fund, I bet there is no one in the world who understands more about the intricacies of early stage startup finances.
Probably not as much as Y Combinator enjoys making millions off of her knowledge. It's a competitive edge so i doubt that it will come out until after everyone else figures it out.
Or that her competitive edge would be lost. If anything, she'd be more valuable, as (many) of the startups would know what she wants them to be doing, and investors will know what to expect.
I don't think YC is in only to 'make millions'. I also don't think pg would be writing essays or fostering a community like HN just for commercial interest, startups are a way to make the world better.
While I don't disagree with the point that pg is not out to just make loads of money -- he's obviously a really smart guy who has richer pleasures to enjoy than what money can provide, I do disagree with the stated premise that pg does not have a commercial interest in fostering a community like HN. Whether intended or not, it's probably a profoundly important component to yc's branding. Not to mention, it is an absolute goldmine for attracting developers for the startups yc funds (it's not a stretch to see jobs posts as ads of sorts -- the higher the quality of HN's userbase, the higher the quality of potential candidates). It is also an avenue for the startups it funds to gain recognition (e.g., Priceonomics recently started a blog that arguably caters to a very HN-minded audience, indeed starting a blog is an extraordinarily compelling method of advertising the existence of something).
Not that I have a problem with any of that of course -- so long as there's interesting content for me to read I'll stick around. :)
While not partners, Renee Robinson and Audrey Kim are also a big part of what keeps YC running. The two of them still help us out quite often and kick-ass at what they do.
We provide online data organizer software to organize, manage and share data for team collaboration. I will contact Kirsty to find out more about how we can help.
Thanks,
Neal (MyDataOrganizer.com)
There's a story in the article about Kirsty meeting a founder with a wad of cash at SFO. She did exactly the same for me when I arrived: waiting at the airport with a check so I could pay rent my first day in MV. Except this was on New Year's day, and my flight was delayed two hours. Thanks Kirsty!
> Nathoo tells us that the last of the Sequoia money was used in the Summer 2012 class. Now Y Combinator is completely self funded through the money the incubator has made through its investments in startups (i.e. exits)
This sounds like an amazing accomplishment! Was this seen as a big milestone for YC?
What surprised me is the claim "Y Combinator and most investors will only invest in companies that have been in incorporated in Delaware, and many founders don’t know this."
This was quite surprising. PG: is this actually a criteria instead of a just preference? Or did TC get it wrong?
Serious question here. Does YC get audited? Who verifies that the right thing is happening with your money? I'm basing this question by the way on my many many years in business in seeing what happens when the type of trust that you seem to put in Kirsty is displayed and all she does for YC. (This is not specific to her integrity since I don't know her other than what I read in the article).
Applying to YC as a non-DE company does not reduce your chances of being interviewed or accepted. However for us to be able to invest in so many companies in such a short time frame, we do require you to convert to a DE C-Corp if we agree to fund you. I'll help you with that though, if the time comes!
Kirsty ~ Do you allow your startups to execute the formation/conversion documents with electronic signature services like HelloSign & Echosign or do you require actual hard signatures?
We try to do everything through e-signatures - less chances of PDFs getting lost than bits of paper. And of course at all opportunities I tell founders to use Hellosign :-)
The only document that is wet signed is the 83(b) election that is sent to the IRS since they not sure yet about e-signatures.
It seem strange that you should select Delaware as your standard, given that you require your companies to be in California -- incorporating in Delaware is dishonest when you are not actually there.
Incorporating in Delaware is standard practice for any US corporation. Not only are there tax and legal advantages, but since everyone else incorporates in Delaware, Delaware case law is extraordinarily mature, so legal risks are minimized. It may seem dishonest to the uninitiated, but the people who specialize in such things are well aware of Delaware.
Companies can incorporate wherever works for them ie Delaware. If they are actually doing business in CA then they register as a foreign entity with CA (Foreign because they incorporated in DE) so there is nothing dishonest about it.
Is there a similar preference for investing in European startups? Do VCs and/or angel investors strongly prefer to invest in e.g. a UK Ltd. instead of a company incorporated in the Netherlands?
YC(ie kirsty) will make you change to a delaware C-corp, possibly with your existing non-US company as a subsidiary. The Levys will make you transfer all IP to the new corp.
I like Kirsty's quote: "I was shocked at the amount of trust that was being placed on me at first." It reminds me of how when I started at my current job, our head of engineering gave me logins and passwords for every piece of software we had. In my first meeting with her and my manager, my manager says, "Woah, I don't even have access to half this stuff." It was really inspiring to know they trusted me enough with the keys to the kingdom, and it made life so much easier than the previous companies where I had to fill out a form for access to just about anything. More companies could do well to place more trust in their employees like this.
People often underestimate how important the "back office" things are and how much help you get from an incubator. Apart from Kirsty, we've gotten a great amount of help from Jon Levy (YC lawyer) on legal stuff and of course Kirsty who's always sending us e-mail reminding us of taxes etc.
As my cofounder and I like to tell people, Kirsty is one of the world's foremost experts on startup formation / founder issues. It's hard to imagine finding someone who helps more startups with as wide a range of issues as she does. This article is definitely spot on and well-deserved!
"Another role Nathoo takes on with founders and startups is an accounting advisor. She’ll ensure that every company incorporates in the state of Delaware, and if they haven’t done this, she’ll help with that process. Y Combinator and most investors will only invest in companies that have been in incorporated in Delaware, and many founders don’t know this. Nathoo says that of the current class of 47 startups at Y Combinator, only one company’s incorporation documents were problem-free when joining the program."
If Kirsty were willing to publicly share any part of her accumulated knowledge in this area, I'm sure I wouldn't be the only one to appreciate it.
When we agree to fund companies, they fall into one of three buckets:
1) not incorporated at all
2) Incorporated outside Delaware and / or as an LLC
3) Incorporated in Delaware already
Those in 1) are by far the easiest to deal with - we have a standard process to get everyone set up so that going forward there won't be any problems.
Those in 2) start to get a bit more complicated and we have to work with the founders to convert to a DE C-Corp. Sometimes that means just starting anew with a new company and sometimes, if there is too much corporate history, converting the companies. This takes up some time and depending on the original state can be costly and time-consuming. But it all works out in the end...
Those in 3) are the ones that are often the hardest! There can be problems around only some of the paperwork being completed or signed, founders don't have vesting on their stock, uneven stock splits between founders (a strong indicator of future founder breakups), needlessly complicated cap tables, not enough stock authorised for us to buy our shares - the list goes on. All this can be fixed too!
The founder that says to me "we're incorporated in Delaware so you can invest in us straightaway" is usually the one that becomes one of the most complicated companies for us to invest in.
My advice would be that if you're applying to YC, then don't incorporate unless there is a specific reason to. It is much easier and cheaper for you in the long run to use our process.
uneven stock splits between founders (a strong indicator of future founder breakups)
I've heard lots of stories about this issue, but I think you're the first person to actually have a statistically significant amount of data to back up what you're saying.
Can you elaborate on this point a bit? In particular, I'm wondering if it's the uneven stock split which is the problem, or if that and founder breakups are merely both symptoms of an underlying issue -- say, different levels of commitment from the founders, or unequal status levels.
Or put another way: If a team applies to YC and says that they plan on a 67/33 equity split, would you convincing them to change to a 50/50 split improve their chances of success, or are they still at a disadvantage compared to teams which originally planned on a 50/50 split?
The reasons I hear often for uneven stock splits are because one founder came up with the idea, or has been working on it for a month longer etc etc. When a company is in its absolute infancy, this seems like a logical conclusion but what about when the company is 5 years old? What we see is that even after only 3 months of YC when the founders are all working as hard as each other under stress and often the idea bears no resemblance to the original idea, that this starts to become a problem. The founder with less stock starts to feel like this is not such a good deal for him / her and it can lead to problems.
There are other reasons for uneven stock and as you mention, different levels of commitment or unequal status levels cause problems too. This is something that we would seek to understand more during the applications process when we see it and to try to make sure the founders have really thought through whether this is what they want. The key to a lot of this is open communication between the founders.
Of course, there are some situations where an uneven split does work. An example would be a founder has a mortgage and a family to support and therefore takes more salary in exchange for less stock.
We do not insist on an even split in any situation but I do always make sure that the founders think through their decision carefully.
There's one other source for this data - Noam Wasserman at HBS did an extensive study of startups. His data (in The Founder's Dilemmas) shows that companies that make a "quick and easy" decision to split 50/50 received significantly lower first round valuations than teams that spent more time debating the split (although it then made no difference if the long-negotiated split was equal or unequal). He also believes anecdotally (but doesn't have data) that the quick-equal teams are less successful long term.
Great book, incidentally - this is from page 163, I highly recommend the whole thing.
We had the pleasure of being in the first YC class when Kirsty started. She was very helpful throughout the entire process of the program. I think she even has her own office hours now!
Way before I read the last line of the article I was convinced that she had one of the best jobs in the world - she's surrounded by [presumably] really smart and passionate people, solves problems of varying nature and challenge, and has immediate impact. It's weird because I always thought of accounting as an uninspiring and crushingly boring field, but obviously I've been wrong.
It seems to me that every organisation has 2-3 people who keep all the balls in the air. The company I work at certain does. They don't rank highly job title / power wise...but if they get hit by a bus...heaven help us. e.g. We've got one person coordinating about 300 people's schedules.
I am constantly being surprised by YC. They are moving quickly and I love it. A few months ago pg talked about trying to fix some of the scaling woes and you can already catch a glimpse of some of that work in articles about YC.
A few months back I was sort of afraid to write to PG/YC directly. We were putting in our first submission on HN (our web app) when we found that the domain name we held was somehow in HN's blocked-list.
After some hesitation I wrote a short mail (with etiquette of writing to busy people) on YC's email address and within seconds Kirsty replied to me. It made me feel good when she told us that "if it is blocked, avoid posting it again on HN. Have patience, PG will unblock it in a few minutes."
After sometime I received an email nod from PG too. From that point I just fell in love with Hacker News.
Sorry, why exactly would you be afraid of emailing PG/YC? Is it the 'fame' thing? It's a common misconception, in my experience, that people who are considered 'important' hate to be contacted by people like you and me. Not to mention that the importance of YC/PG is certainly community-based - not to take anything away from them, but my mother has no idea who PG is. :)
I guess this has something to do with being self-critical. Especially, when you're a stranger introducing yourself to someone accomplished with a 'problem' that you're currently facing. I didn't inadvertently want to cross the line in excitement or fear, but right as you said my fears were almost certainly unwarranted.
