https://threadreaderapp.com/thread/1487500943511932941.html

I was in an incubator program, and there were two serious problems with it, which if you join YC are potential problems too:

Problem 1. The belief by founders that they could get good advice from others. This is a dangerous attitude to have programmed into yourself, because when starting a business you must stand on your own feet and trust your own opinions. Listening to others is fine, but it is to easy to cripple yourself by believing in the advice of successful people, and listening to the wrong advice. You need to make your own mistakes. That tightrope is an essential skill as an owner, and I don’t know how it is taught, especially to neophytes. I saw other founders learn to doubt themselves because they were not subject experts in so many areas of their business, and that doubt was damaging to them and their businesses. Yes Listen; yes respect the advice of others; no do not take advice without being careful to validate it for your businesses’ needs. I did also see some founders ignore excellent advice, but at least their businesses died honest deaths without interference!

Problem 2. Incubators push businesses to get funded. The push is probably mostly organically due to the atmosphere of competition between founders, plus the expectation that it is just what you do, but also the incubator chiefs push for it. I saw many other companies take money to grow, and then lose control and end up with no meaningful return for their efforts. The problem with all investors I have seen in my country is that they push companies in queer directions, because VC tends to be ego driven: VC investors in New Zealand have strong opinions and they often kill companies. We bootstrapped, which has limited the size of the businesss, but bootstrapping de-risked our returns and we have comfortable lifestyles (albeit without the potential for superyachts and blow).

I agree that giving away 1[0-9]% to YC is a lot, but getting $500k of distraction free money is a mighty big carrot. https://randle.substack.com/p/playing-different-games (scroll down to meme of VC with knife behind back, and read below) talks about the benefits of Tiger Global’s hands-off approach to founders where they don’t take board seats. “[Tiger Global] lacks the potential downside that comes from a new highly-involved investor who ends up being more of a drag than a help, or even worse ends up being actively malignant to the board and business.“.

One benefit of YC that is not mentioned is bargaining power: if you are using a growth funding model, and you are successful enough to get to the later stages, I would hope that having YC on your side would give you fantastic leverage. Maybe YC’s ownership is not large, but it is enough that they will will avoid the vultures. Also the VCs know that screwing over YC is a high risk manoeuvre because it affects the VC’s other investments or potential for investments - if you are a successful startup without backing then your business could easily become another lonely victim.

One thing I am unsure about is the rules for YC dilution: I think that YC is undiluted at your first round, which is not in alignment with founders. I presume after the first round that YC dilution matches founder dilution. Another aspect is that YC shares are preferential, while founders and options are common shares. So YC incentives can be mismatched with founders. The only thing keeping YC honest is the internal integrity of the YC business, and YC’s care for their own reputation for integrity (not shafting founders).