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There are not just startups that become unicorns and startups that fold.

Investors' worst nightmare is if you just make enough money to keep going, but you don't grow ("lifestyle business" as they use it is a derogatory term).

That's because they prefer a sudden death where they can write down the investment and deduct their loss from taxes than an investment where they never see any money again.

And then there are "acquisitions" that are really "acui-hires" dressed up as acquisitions to get the people (more common) or to buy an asset in a limited shell package (less common) after things did/may have (but people were to tempted to take the offer) or did not pan/panned out. Some people consider anything <$50m as a "failure", because that's roughly the sum that many corporations can spend without calling the bigshots for a board meeting to decide.

Worse than becoming lifestyle company is becoming a zombie startup.

Zombie is when founders get rid of almost everyone except what they need to give the impression of effort, do little work, but draw an income and slowly spend down the money they raised until it’s gone.

I was one of the very few survivors at a startup that turned into a zombie in 2020 (went from 100+ employees to 10 in a matter of weeks).

In some ways it was a cushy job and a privilege, just wish I realized the founders didn’t truly care about success. Cause then I could have shared the mindset and better prepared myself and my skills for life after.

IMO that’s not a zombie because it has an expiration date (when the money raised runs out).

A proper zombie is a lifestyle company without the lifestyle — enough revenue to maintain an eternal startup crunch and trying to make a product work, but without the resources to actually grow. Doesn’t die, doesn’t quite live.

I’m honestly not sure what it is.

Hindsight is 20\20, the company probably would have been better off thawing itself until lockdown ended then going right back to what it was doing (that’s what their main competitor did, and while rumors of their demise always abound, externally they’ve grown and raised more rounds).

One of the founders is a niche big-shot in the VC world and well connected. I assume eventually they’ll be acquired for an undisclosed amount of $0. It’s been a year since I left and until this post I’ve been shocked it’s yet to happen. Now I wonder if they are waiting until they payed out all the money they raised as salary to play that card because otherwise they need to give the money up for no real benefit other than continued employment.

I question your read on what happens here. At most startups the investors control the board (there are a few where a charismatic founder manages to retain control, but that's rare).

If the board thought the founder was just transferring the remaining investment to himself slowly they'd fire him and replace him with someone to wind operations down.

Like most zombie startups, reason board doesn’t do anything is the amount of money is negligible to them. Even if it isn’t to you or me.

Plus the possibility they do hit it big is always there. It’s not like they aren’t putting in any effort and collecting a salary. They just aren’t grinding.

Then there are the personal relationships.

Nothing stops them from selling you back their share at close to zero if they really want to right it off.

That does happen, but not for taxes. They do it to close out the fund which has (usually) a ten year life.

They might have to prove to the IRS the share was actually worth that. Whereas if the business is bankrupt, it's obvious.

No - that’s true if you are trying to determine if you can write it off, but if you actually sell it back for $1, you can take the loss.

Not if the fair market value can be proven otherwise. It’s just fraud

It's not inherently fraudulent to sell something for below market value.

If I sell something I bought for $1 million for $1 in an arm's length transaction, I'm realizing a loss of $999,999 even if the asset was worth $500,000. And it'd be a rational decision if it cost me $5 million in opportunity costs to do that $500k sale.

That's not how US capital gains tax law works. It's legal to sell something at below market value, but you have to use the fair market value when calculating a loss for tax purposes. Of course some people cheat.

I'm reading the IRS website and it says:

https://www.irs.gov/taxtopics/tc409

> When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.

Am I misinterpreting this?

Should be easy to determine when a 409a evaluation was done.

how many vc investors are in the class of people that get audited by the IRS?

If VC investors have high income, they are the class of people that get audited the most. By a lot, like 25x more likely than someone with median income.

https://www.nolo.com/legal-encyclopedia/irs-tax-audits-trigg...

"Investors' worst nightmare" seems very off. Most SAFE notes give you dividends that are on par with how corporations issue dividends. Assuming there is cash flow, you should be getting dividends.

If the dividends are so low that you will never be reasonably paid back you can often negotiate to get out in some form. Very low cash flow only with no growth seems to be the only exception...which I'd guess would only exist if something such as high revenue or some unique IP existed to make the equity very valuable and therefore the company worth running.

With a convertible note as opposed to a SAFE, you either need to extend the maturity date or get paid back your note with interest.

Both SAFEs and convertible notes seems to have a path to exit in some reasonable form.

The only time I've seen "nightmare" situations occur is when the investor themselves makes it a nightmare i.e. https://www.cnbc.com/2025/01/07/tech-investor-denis-grosz-or...

...and that's a nightmare for the company, not the investor.

If there’s enough money to pay the founders salaries, but not so much for dividends, this doesn’t help.

There are two direct ways to return money to the founders - salaries and dividends. In the U.S. there is a tax advantage to dividends, over an amount anyway. This is not true of all countries.

Neat edge case! Perhaps SAFE notes or other dividend-paying instruments should account for this by capping executive salaries or trigger dividend payouts at a certain salary dollar amount. Though, admittedly, I've never heard of a founder or executive using their salary instead of taking dividends as an end run around paying everyone their fair share of dividends. It seems possible though.

There already is a cap. Founders have a fiduciary duty to their shareholders and can't pay themselves unreasonably. Lots of gray area, but there is a limit.

> Very low cash flow only with no growth

This is very typical in startups, where making revenue at all may be rare in many categories (social media for example), and a startup is either wildly successful or nobody uses it.

Hopefully, the startup is about to be wildly successful, but it's easy to end up in a situation where some funding was raised, the product has reached a dead end, but the founders continue to "try to make it work". Whether they are doing this to "draw a salary", are earnestly trying to make it work, or a little bit of both, there isn't much legal recourse for investors if they aren't doing anything worse than not being very successful.

> Very low cash flow only with no growth seems to be the only exception..

That's not an exception. That's the norm. Most start-ups fail.

They literally burn down the investors' money and that's it.

That’s not what a lifestyle business is. Unless your lifestyle is eating ramen

Sure it is. If your business nets 3 million a year, it takes 5 people to run it, and your customer base is steady, that's lifestyle. Sucks for investors, pretty nice for you if you can keep it running.

In other sectors that's just called a "small business" and celebrated as the fullest expression of the American dream. I've always found it funny that tech treats the idea of a going concern with such distaste.

My favorite video game company is a little Japanese outfit called Nihon Falcom. They've been around since 1981, have about 65 employees, release exactly one new game a year, and if you've played any of their games, you can tell they're all made on absolutely shoestring budgets. They have also never posted a loss and have an absolutely bonkers amount of cash on hand (enough to keep the company going for several years on their current budget IIRC).

They also make the best story-driven RPGs I've played in my life. And they specifically went the story-driven route because it's cheaper to hire good writers than it is to wow people with AAA graphics or a giant open world or whatever.

More video game companies should be like Falcom.

Ahh good old dragon slayer iv in the MSX

While I do agree with you, if it took tens of millions of dollars in initial capital to get there, which hasn’t been returned, it’s quite a different thing to the standard small businesses model.

So ... is a restaurant considered a small business? Where do you draw the line on initial investment?

Depends on what kind of restaurant.

But the point is that a business model that is "profitable" but actually took millions in initial capital and has no provision for debt service isn't an actually profitable business model.

That’s what I’m asking. Most businesses take startup capital, but where do you draw the line?

If it takes 10mil of funding to get off the ground and it would also take any competitor that to catch up… then you have a moat and can basically make money forever.

Even if you wanted to get into money transfers, the licensing alone is around 1million, and you haven’t even written any software yet or gotten any infrastructure. You can also “rent” someone else’s license but then your margins go out the window.

So, I’m not sure what the point is here. Some types of businesses require capital to start, even if they never scale.

The point is that capital has a cost.

If you’re not carrying the cost of that capital on the books you’re not “making money” at all.

What kind of restaurant takes tens of millions to start? Most estimates I'm aware of are less than 1 or 2 million at the very most.

I imagine some of the themed restaurants in Disney cost at least that much.

Having worked at those, they are shoestring to the core. Guests see beauty, behind it is paper mache and $8/hr college students whose wages are garnished for rent and class fees.

At Disneyland? Where there’s a union for food and beverage workers?

> We perform everything from preparing and creating treats like turkey legs and churros to serving grant and exquisite meals at the famous and exclusive Club 33. If you are eating in the parks, our members are making that happen.

https://workersunited.org/joint-boards/local-50

Disney college program makes up a good portion of workers, and they are not a part of the union.

Edit - looks like 5% but they can only work the unskilled food service etc

A themed restaurant at Disney isn't exactly a small business...

Depending on the restaurant, those may not be independent businesses at all - they may just be one of the attractions at the park.

10x return

I think people are overly fixated on the fact that a successful small business isn't a workable VC investment target (the winners have to pay for the losers, and even with a conservative portfolio of startups, most are going to lose) and they're working everything back from that.

I know a guy who sells kitchens for a living and makes around $2-3 million per year with a profit margin of 60% or so.

But he didn’t spend 10s of million dollars to get there.

This is kind of like tech sales at huge tech old-cos. Sales people there can pull down insane comp if aligned to the right account with way less work than a traditional sales grind.

Even if he did, that’s not such a bad deal.

Particularly if the brand has value when he’s ready to move on and can be sold.

Or bar owners pulling down similar amounts.

The VERY lucky ones that have been around a long while and own their building, sure.

Also lucky to not get robbed by mafia

Specifically investors, not "all of tech". And to be fair to them, if a company doesn't grow, your investment is wasted in that company, right? No shade to good small businesses, but they may not be worth investing in?

Venture Capitalists, not all investors.

See https://codiesanchez.com/book/ or https://store.hbr.org/product/hbr-guide-to-buying-a-small-bu...

When you see how VC-funded AI startups market their products ("eliminate artists/editors/paralegals"), it's not surprising that they wouldn't be happy with dividends from a profitable business that employs people. Better to throw the money into a "moonshot" company that perennially loses money until BigCo buys them out to acquire their IP and fire everybody.

Other sectors are filled with far fewer people with low empathy for other humans.

Not none, of course. It's just not a near-requirement.

But in a case like that eventually (once the business has become "sustainable") we will be speaking of 1.5 founders (some full-time founder and some guy who just holds some stock because they started together/knows some know-how) and 3.5 Indians/Ukrainians at $40 an hour. With like 60% of cash going to the main guy, domicile in some tax haven and probably that principal founder living in some tax haven, too, pocketing some 1.5M a year after all (minuscule) taxes. Good lifestyle!

I thought that was called sustainable.

Is it sustainable, if it took millions to bootstrap? I mean I guess if it can just keep running, but the investors might not agree if they need to wait 15 years to make their money back.

What choice do they have? If they shot the enterprise down, they got nothing.

I think someone else pointed this out as well, but if the business fail, they can most likely do a tax write-off.

Sell the company to the founder(s) for $1 and write off the rest?

Any startup investment that doesn't return, I don't know, like 5-10x "sucks" in the sense that it's not making the portfolio successful, but that's most investments in the portfolio. Beyond that: what sucks about this outcome? If your business has just 5 employees, chances are your investor doesn't have a board seat; it's not costing them much, they can just hang around on the off chance that you turn the knobs right and find a breakout success down the line.

It's true that investors aren't going to invest in your startup if you tell them that your likely outcome is a healthy, stable 3MM/year. And it would be unethical to tell an investor you were swinging for the fences when your true intention was to bank the money and bunt. But if you really do take a big swing, and end up settling in a comfortable spot, how pissed do you think investors are really? You swung, you missed, that's life in the National Football League.

A real false start on that baseball metaphor.

Just enough to keep going is different from a lifestyle business. Ramen/support low margins != a good lifestyle

3 million a year for 5 person is something like 400k/person after corporate tax. Which is pretty high and low at the same time(unless it is just freelancing). High in the sense that there would be competition and the other company will have more budget to reduce the price and make the entire segment unprofitable till you die. Low in the sense that you would likely make the same or higher in corporate if you are that skilled to net 3 million/year.

Once the competition has initially shaken out in a new category, minority players can hang on for years. Their product could be perfect for their customers in ways that the big guns don't accommodate.

The thing I don't like about the term "lifestyle business" is that it imprecisely mixes 2 very different things. It's like grouping students who were accepted at Harvard and chose not to go, with students who flunked out of school, as "not Harvard." Imagine if you were presented with a group that was 50/50 for example and had to draw conclusions about it. Really those are just two dissimilar groups that were lumped together, that shouldn't be bucketed together.

In the case of "lifestyle business," it includes businesses that tried their best to expand but hit a ceiling. They failed, basically, to return their investment in any meaningful way. Or to put it even more simply, they failed. At the same time, "lifestyle business" includes businesses that are tremendously strong and could be 10 or even 100x bigger, but aren't due to owner's choice. It mixes together businesses that are capable of being Fortune 500 with those that are almost the inverse. In that sense it's confusing and unhelpful.

Enough money to keep going doesn't mean just enough money to cover the costs. It means being able to continue paying yourself and all your employees their salaries, meet costs and make a small minimum profit.

Aren't salaries considered to be part of the costs?

Yea, I meant more pay all the other bills like AWS, etc. But yea, salaries are defo costs.

Employee salary is definitely cost. Founder/owner salary is more complicated.

You have to add “and return initial capital” to that list. That’s usually what’s at issue here.

The reason that is the issue is because that is not something they actually need to do. It's something the investors want but not generally required as they expect an exit of some sort.

I personally know the founders of three YC startups that are functionally dead (raised capital, not developing anything, basically laid off everyone but the founder(s)) but are not on this list. I'd bet it's at least twice that number.

I can think of at least one YC startup -- one that was relatively high-profile, for a hot minute, at least in the developer space -- that just shut down, period, that doesn't seem to be on the list, because I worked there. One extra irony point for its absence: it was basically across the street from Y Combinator's office in Mountain View at the time. :)

I'm curious, what do ex-founders generally do after their startup is dead? For me I just got a job after my first few ones died, until I was able to succeed at my current ones, but I'm sure many might just continue working a job indefinitely.

I know some (YC and others) who float around doing nothing on $200k a year in salary because no investor cares enough, or has the legal right, to get their money back. Not sure what their long-term game plan is.

The others end up at another Series B+ startup or go to a MANGA company if they can grind leetcode for a bit and get an interview.

They pay themselves 200k/y in a pre-market fit startup? That's insane and I guess on the investors for going over the traditional preseed amounts.

Or do you mean that they're zombie startups that make enough to pay the founder 200k/year?

I think a lot of gen z founders see nothing wrong with paying themselves a FAANG salary. My generation, not so much (I’m 45).

I worked at a startup where the founders were your age and paid themselves that much while holding their majority stake in stock.

We had open salary bands so we were all paid OK - especially our couple ~entry level folks at $100-120k. It was strange times in my eyes, though. They hired an HR person whose first act was to raise the c-suite salaries to market rate ($200k+) while the business still had negligible income but closed a round.

It is good to be in the owner class, I guess.

What a sweet position to be in. All the upside of the potential stock valuation windfall while none of the downside of putting your career and income on the line.

I mean, when your dad knows the right guy at a prestigious bank, and your mom is a VP in a prestigious biotech firm, and they bought you your spot at Stanford, you kind of deserve it, right?

Easy to say that at 45, you can afford to do so, college education costs have increased in multiples since your generation graduated. Younger founders today have to factor in rents in bay area, cost of health-care and insurance and crippling student debt and after taxes that 200k is not make it rich quick numbers, even my generation (36) find it hard to be founders.

The LP has 20 startups they can afford it, we on the other hand have lot more skin in the game than they, and not being able to afford say proper health-care or having to commute 2+ hours everyday affects the success of the startup lot more than extra 50-100k extra is going to cost the fund in a meaningful way.

At a more fundamental level, it an agency problem found in any management compensation theory. Investors/Shareholders need to keep the management motivated and vested in the success of the organization, if that means 200k salaries today it doesn't really matter.

My previous startup wiped my net worth, and I still wouldn’t be comfortable paying myself more than 50k/year at any age as a pre-series A founder.

Not an expert myself, but I don’t believe $200k/year counts as a “FAANG salary” for anyone with founder-level responsibility.

I'd argue there there aren't any single positions at large tech companies with founder level responsibility by design.

It's a pretty decent compensation though. The base salary of a mid-level position at Amazon with substantially better equity terms (no cliff, no one deciding your bonus will be cut without your input, etc). It's a far cry from the PG ideal of salaryless founders surviving on instant ramen in their garage.

I think the parent's point is that $200K would be the base in FANG, but you're missing on massive RSUs as the founder in a startup.

Yes, I got that. What I'm pointing out is that your upside isn't capped compared to a place like Amazon where your bonus will get cut if the RSUs do too well and you have some degree of control over any compensation shenanigans and layoffs.

It's not unequivocally better, but it's certainly a trade-off that some people would be willing to make.

I had no idea this could happen. How is the bonus capped if RSUs do too well?

I wonder if it's related to the social phenomenon of Gen X and the older half of Millennials having a sharply negative view of "selling out", whereas many younger folks don't appear to even be familiar with that concept.

What do you see wrong with it? There's no social contract any more, where people are expected to be nice and save each other money. Everyone's in it for themselves, and the VC/investment side started that trend first.

Things are more expensive now.

Yep. The former. Maybe they make $50k in revenue, have a few products still officially available, and raised a couple million dollars.

They're just cosplaying being a startup founder at that point.

Depends on your money raised and your leverage. YC companies are typically top tier founders with tons of leverage and capital options.

> some (YC and others) who float around doing nothing on $200k a year in salary

So, not "functionally dead" then. ;)

I don't think a lot of founders actually write code, but I did, I just realized my startup was probably going to be illegal soon and also that it wasn't going to get the funding it needed. I just kept writing code for whoever wanted to pay. It's fairly lucrative.

Looking back, maybe I should have just done the illegal thing and gotten pardoned.

Gotta love the jumping on the criminality bandwagon... Louis Brandeis says hello.

https://www.azquotes.com/quote/1062178

Fun fact: my kibbutz is named after him. He bought the land from the local Palestinians.

now I'm curious about the illegal thing

Seems like Bitcoin casino (from bio)

Might have worked in a different jurisdiction. If you look at valve and the CSGO controversy.

Need to also consider the ones that had a qualified exit event and then the product got axed (e.g. aquihire or just customer acquisition). It’s a very different graveyard but in many cases has similar impact on the non-Founders (especially the IC SWEs).

I know a similar number but they were "acquihired" to essentially return money to investors and get the founders promotions at their former companies. So an exit on paper even if it's not necessarily so in practice.

I love seeing the 'YC Graveyard' project. It’s a great reminder of the incredible ideas and effort behind each startup, even if things didn’t pan out. We’ve been working on giving some of these inactive startups a second chance by acquiring them and exploring ways to repurpose or revive their tech.

If anyone’s been involved with an inactive YC project and wants to chat about what’s possible, I’d love to connect.

I’d love to read more about this.

Looking through the list, my reaction to some was “of course that OpenAI wrapper failed” but others sounded compelling. It’s logical that some of those failed companies have a viable product but failed for other reasons. Maybe combining the IP of similar companies could breed a winner. It’s an interesting concept and I’m curious if it works.

Sometimes the right idea is tried at the wrong time. It is a decent idea to at least keep an eye on these.

And all inventory of the defunct startups goes here: https://svdisposition.com/auctions

It was interesting to dig through and consider if it was the idea, the timing or the execution that lead to the failure.

I'm onehundertpercent pissed off with YC:

* The modal win for a founder is $0.00

* PG makes big talk about winner's average returns... Yayyyyy..... However YC gets preferential shares; YC is not aligned with the common shareholders (founders; builders). YC builds a story that they support creators however YC doesn't sit on the same table-side as creators.

* I actually believe YC is worthwhile, but I wonder if Ize just been brainwashed?

(reëdited for clarity)

> However YC gets preferential shares; YC is not aligned with the common shareholders (founders; builders).

YC invests on a SAFE, the terms are public.[0]

For most companies, pre-seed SAFEs don't end up much above common.

[0] https://www.ycombinator.com/deal

> For most companies, pre-seed SAFEs don't end up much above common.

I'm not sure that is correct.

AFAIK the modern YCombinator post-money SAFE [1] converts to the exact same share class as the VC investment round. The bookface document[2] says "when the company decides to sell shares of preferred stock in a priced round (an 'Equity Financing'), the outstanding safes will convert into shares of preferred stock" and also says elsewhere "then the safe holder will receive shares of Standard Preferred Stock".

I know nothing - so could be completely wrong!!! Complicated stuff LOL

[1] https://www.ycombinator.com/documents/

[2] https://bookface-static.ycombinator.com/assets/ycdc/Website%...

>However YC gets preferential shares;

It's not that YC specifically gets "preferred shares" -- it's that investors in general insist on liquidation preferences when buying non-liquid shares in unproven private companies.

How would an alternative scenario of investors buying common shares of illiquid stock in a private company actually be realistic? Maybe the startup founders could hypothetically insist on selling only common shares and never preferred shares as a condition of investment?!? But what investors (other than family relatives) would put in money in that case?

Or put another way, let's say we create a brand new VC fund to invest in startups and one of the novel concepts is that the fund only buys common shares to be more "founder friendly". The problem is that hypothetical VC fund will attract no rational limited partners with money because they know that startup founders can just take their invested dollars with no payback protection. Such a VC fund with no investors and no money to invest would be a moot point. The general partner of such a VC fund would be considered a "financial idiot" for buying common shares in startups.

In the end, the "preferred shares" is the market's "risk premium" that investors charge as an offsetting factor for losing 100% of their money. If startup founders can't find a way to convince investors to accept illiquid common stock instead of preferred shares, they need to avoid investors altogether and self-fund via bootstrapping.

Why is the risk being taken by investors greater than the one being taken by employees and founders?

If anything, employees are taking a greater risk because you can replace money far more easily than years of your life.

One is risking money, one time, and the money is what could possibly get paid back.

If you can find money that doesn't insist on preferred liquidation, good on you. But those with the money tend to have a lot of say on giving it away.

For what it’s worth, which isn’t much, I see signs this precept is changing because of the huge amounts of investible capital fighting for opportunities as the thaw progresses. It’s not going to be a widespread change, though, most will stick with what they’ve known.

The level of risk is irrelevant. What matters in access to capital is negotiating power. This isn't a charity. If employees want lower risk then they can go work somewhere else.

Likewise, if investors want to invest (deploy capital) they will adapt. There is more balanced leverage recently.

He didn’t claim YC does this where others don’t, his gripe is with the narrative YC pushes and how they seem incongruent to how they currently operate.

preferred shares prevent cookie cutter founder fraud. Founder raises $1M at 10 post. Founder decides to sell 6 months later for 2 mil. Investors get 200k back founder gets 1.8 mil. Now run this math for AI unicorns.

This is a valid concern. But shifting risk entirely to those without preferential shares (typically employees) is also unfair.

different share classes trade at different prices. Employee NSO/ISO strike price at seed stage (i.e. on a SAFE) are typically priced at a FMV of 10% (!!) of the SAFE's postmoney valuation. Also, your use here of the word "fair" has triggered a personal tick of mine so I must direct you to https://quotefancy.com/quote/3709551/Chris-Voss-The-F-word-F...

Why would investors care whether a particular capital structure is "fair" to employees? As long as the company is able to recruit and retain qualified employees, any fairness or lack thereof is entirely irrelevant.

But as a potential employee interviewing for a new job, if you're being offered equity compensation then you might want to inquire about share classes and liquidation preferences. It could be a factor in your decision if you have multiple options.

Or to make it even more obvious: Founder raises $1MM then immediately sells the company for $900k :)

Some terms are going to need to exist to prevent that, so the investor shares will always be preferred. Beyond that there are in fact a lot of other terms that are in some deals but not others (2x preference, pro rata, etc..)

> The problem is that hypothetical VC fund will attract no rational limited partners with money because they know that startup founders can just take their invested dollars with no payback protection.

YC famously claims it is not a VC fund because it invests their own money, they wouldn’t have this problem.

>YC famously claims it is not a VC fund because it invests their own money,

Th label "VC fund" can be imprecise because YC itself has changed its structure over the years.

The original 2005 YCombinator where Paul Graham & Friends used some of their personal Yahoo wealth from selling ViaWeb ... instead of raising outside money from "limited partners" ... was the period when they were more like "angel investors".

Today, YC is more institutionalized and has different funds that raise money from outside investors as limited partners -- very much like traditional VC funds. (https://www.google.com/search?q=YC+new+funds+raise+billions)

But YC still doesn't do all the typical "vc fund" procedures such as take a board seat or negotiate a different % with each startup founder on a case-by-case basis. The VC funds like Sequoia/a16z/etc will require a board seat and negotiate different ownership percentages.

So today's YC is a "semi" VC fund depending which aspects are salient to you.

Check the Principal-Agent problem in game theory, that's what's going on

Welcome to capitalism. Of course there is an asymmetry between individual founders and one of the, if not the most famous VC firm on the planet. It's an individual decision to determine whether YC is worthwhile. If it wouldn't be, it wouldn't work.

Is it still? Or was that true 10 years ago.

Not sure if I’ve changed or the landscape has.

Silicon Valley is not capitalism, it's financier-ism. It isn't about finding a gap in the market and providing a profitable service, but bandwagoning behind the latest trends so as to chase "scalability" and later using financial/political muscle to weaken regulations so as to better "disrupt" the market. Profits? That's a problem for whoever they manage to dump their shares on.

What do you think capitalism is, if not that? "Those with capital use their money to make the rules so they make more money."

Many people think capitalism is simply a market economy. It's not. You can have a market economy without "capital" (investors) having special privileges that make all the money flow to them.

That's capitalism.

The quality bar for YC has been at an all time low. Hence why lots of “startups” are getting accepted into YC in 2024 screaming about AI and some that compete against each other over the same idea, but “open source”.

> I actually believe YC is worthwhile, but I wonder if Ize just been brainwashed?

Ask yourself, if you really need VC money in the first place.

The moment you go to YC, they become your new boss and always win and you get to laugh at all of us HNers in this secret club called bookface [0]. (Yes, that hidden version of HN and part of YC)

Very unlikely to change anytime soon, but the SVB collapse should have taught us something.

[0] https://bookface.ycombinator.com/

The quality bar of pretty much all seed stage investors has always been extremely low. That is simply the nature of the business. At that stage the signal-to-noise ratio is very low. There just isn't enough data to make reliable determinations, hence the emphasis on quantity of deals over quality.

There is nothing to learn from the SVB collapse. They mismanaged interest rate risk and overextended. So what.

> The quality bar of pretty much all seed stage investors has always been extremely low. That is simply the nature of the business.

Of course it is. That is why I said the quality bar it is at an "all time low".

> There is nothing to learn from the SVB collapse. They mismanaged interest rate risk and overextended. So what.

Ah yes, why not tell those same so-called "AI startups" to repeat that same mistakes again in 2023 and also continue to burn lots of that money and we'll see yet again widespread massive panic, downrounds on this site like we did before.

The startups that got complacent over believing that VCs will just throw money into their startup forever (until they don't) are the ones that will be added into that inactive directory unfortunately.

So as soon as this AI bubble collapses with a new surprise catalyst, I won't be surprised to see YC directly caught in the contagion because they threw themselves into hundreds of low-quality startups, unable to make money and they are cloned and raced to zero.

Since you probably already have this information, it would be interesting to have the "death date", with a link to the announcement or however you gathered the information.

There's not really such a thing as a concrete "date of death" in many cases, and very rarely will there be a public one -- I'm familiar with a few names on this list that never actually made a formal public announcement and kept the website running for months to well over a year after everyone was laid off

The methodology of the aggregator might have been as simple as "ping every YC company's listed website, check the response" with some light hand curation, which suggests that the number presented is just a lower bound on the number of dead YC startups

The methodology is just this list filtered for companies tagged "Inactive": https://www.ycombinator.com/companies

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Damn my dead YC startup didn’t even make it into the graveyard

“Better to have launched and lost than never to have launched at all”

Spoken like someone that uses other people‘s money. I think the statement would be different if it was their own money being lost for the startup or interest rates weren’t 0%.

Yeah, that's the point. Frankly, why do you care so much about rich people (who know full well the risks, and generally come out ahead regardless) losing their investment in one of their many portfolio startups? There are so many mechanisms to ensure that investors are made whole whenever possible.

I've also been tracking the 'path to graveyard' for the startups from the last 3 years here https://pivots.fyi/

this is very interesting!

though i noticed some outdated info for most companies (last updated >2 months ago).

There was a similar project a few months ago that tracked changes/pivots/shutdowns in startups. It was a very light site, unfortunately I lost the bookmark or forgot to bookmark it. Can anyone help me here?

Ha, I finally found it myself: http://pivots.fyi

Where does the money go ? Especially for startups dead 6 months after investing

To other YC companies via premium subscriptions

All about capital recycling and consolidation within the ecosystem.

Salaries and rent, probably.

YC and an average Seed round only gives you enough money for a small team for 18 months.

Anyone who is half-decent is going to be expensive.

Is it common for landlords to invest in YC companies?

Hookers and blow.

1980 called and said they're now selling OnlyFans subscriptions and ketamine.

Many founders realize its not for them, and return the remaining money.

If you didn’t become a unicorn, but have a steady income, is it possible to buy out equity?

Usually it doesn't work out for these types of companies because its better for the VC to state losses bigger than you would be able to pay for on their tax bill.

Scrolling through this quickly, I notice that I have not heard of a single one of these companies.

I’m not sure I can assign any meaning to that. Just my immediate observation.

how many YC startups are there?

wiki says 4K, so 821/4K = 20%. not too bad. I expected much worse.

It's certainly much worse. It's often difficult to tell when a company is dead unless they announce it.

Many other failures (likely most of YC's portfolio) will have died by being acquired for less than the most recent valuation, meaning YC lost money on the deal. These sometimes look like successful exits unless you know the details.

Companies also almost never announce their death. Startups go to die quietly. Paul Graham says the best indicator is they don't reply to emails, but this is usually something that's not very visible.

https://www.paulgraham.com/die.html

That's one signal, but it's surprising how many established companies that appear to still be going concerns also don't reply to emails even when I literally ask about buying something. And I'm not talking about my own little consumer purchases, I mean emails from my work account to vendors with the potential for significant ongoing revenue. Strange.

Also, it's not counting many of the startups from the last few years which haven't had enough time to fail. If the denominator is the total number of exits then it's probably much lower than 4k.

> will have died by being acquired for less than the most recent valuation, meaning YC lost money on the deal

Does YC really lose money on all acquihires ?

Because it seems like most of the batches look to be purpose built for it.

I'm sure they build the investing deal where they get all the money and the founders get a token amount.

Most YC companies are zombies. There are a lot of 3-5 person startups still "active", some of them since a decade ago.

What’s going on there? Are they profitable but just not scaling, or taking no salary?

Zombie mode: "Others are stuck in “zombie” mode — surviving but unable to grow. They can muddle along like that for years, investors said, but will most likely struggle to raise more money."

https://archive.is/HNJoo "From Unicorns to Zombies: Tech Startups Run Out of Time and Money"

Discussed at HN: https://news.ycombinator.com/item?id=38554608

(I also wondered what it was)

My uncle has had his startup kickstart with investors money and then paid them back. Now he is slowly growing but not expanding the company only the assets. I wouldnt call this dead. Its just sometimes you hit a ceiling for expansion

Would it be possible add an "expand all" option? I am searching through them with ctrl+f, to figure out which of them are similar to other ideas that are being considered today :D

const divs = document.querySelectorAll('button.h-full');

divs.forEach(div => { div.click(); // Trigger a click on the div });

My company is on the list (S20). Several founders from my batch did really amazing stuff (Supabase, ZIP), others got acqu-hired. It's pretty interesting how the paths have developed over the years.

I am still very bullish on YC. If you have a startup and have an opportunity with an interview / ability to attend the batch, you should definitely do it.

Is YC better than other incubators, percentage wise?

I would imagine so.

a) Almost all of the other incubators are just awful. Either they are predatory, ineptly managed or simply not well capitalised enough to offer a competitive product.

b) YC is able to rest on its laurels i.e. they can/do market how well AirBnb, Stripe etc have done. And so their funnel of talent is by far the best.

c) That said, YC is the worst I've ever seen it. And Garry Tan is mostly to blame although it's been trending downwards for a while. It's now as if Jake Paul ran an incubator: very hype driven, cynical, focused on easily exploitable young 20s males.

I might regret saying this here, if it causes a negative change, but I find that a lot of the text materials YC and startup school have retain a lot of PG-era advice and can be a goldmine of wisdom. Most of the negative influence of post-PG operation has been on the video and audio content marketing side of things (and of course, the accelerator itself). Perhaps it is just harder to have certain things come across as sincere in text format.

YC has probably become worse then most of the other (really bad) incubators

Started with Sam now with Garry Tan it is really going in the gutter.

How, exactly?

Worst based on what, exactly?

If you look at the batch data [1] it is very clear that there is either an investment thesis or some inherent bias in how they choose startups. Since Garry Tan took over it is now heavily favoured towards (a) SF based, (b) young, (c) AI centric.

And if you look at the partner YouTube videos you see why. There is a concerning lack of diversity in how they see the world i.e. they are all very much the e/acc types.

[1] https://www.walturn.com/insights/in-depth-analysis-trends-in...

How is that worse, as a VC firm?

If I was betting on technology right now, I would bet on SF-in person teams with young founders and a focus on AI. Sounds like the perfect target.

I have zero issue with YC's investment thesis.

I have an issue with the way they continue to market themselves as being altruistic and a defender of startup founders everywhere rather than your run of the mill predatory, self-interested SF VC.

But again, what exactly is it about their approach/thesis that's "predatory"?

Google spreadsheet version of this, may be somebody needs. Also, it has more data: https://docs.google.com/spreadsheets/d/1iIu8JATRDfJ91PS_rscS...

Unfortunately the sheet seems to be not public

sorry, changed to "Anyone on the internet with the link can view" now... please check

It's not public, need to request access

Perhaps my math is off, but I thought there would’ve been more?

YC has often talked about how the average YC startup ‘dies’ and yet I’m sure they’ve funded at least double the number of startups on this list. Is ‘dying’ also synonymous with ended up becoming a ‘lifestyle business’? Clarity would be appreciated on this!

So, question, how many YC startups have been successful? (broad strokes, let's say above 2x or break-even).

While this is interesting it would be more trustworthy if, when you clicked a name, it showed you evidence for why the site thinks they are inactive. A founder quote, a date, a news story, something. Right now, aside from the title, it's no different from a list of active YC companies.

If anyone’s interested, here’s a relevant video that goes a little deeper into the details of some failed YC startups: https://m.youtube.com/watch?v=rSY2sUPTDDc

Wth. Blume benefits sounds like a really useful thing ? Wonder what happened.

A) If being useful were enough to make a product successful, we'd still have Google Reader

B) We have no way of knowing how well Blume's product actually worked

C) Health insurance is heavily regulated, which means it's not a great target market for AI

> A) If being useful were enough to make a product successful, we'd still have Google Reader

Yeah bad example, Google Reader was extremely successful, so much so that it’s demise was enough for _many_ companies to be very financially successful by taking Reader’s customers.

Generally the ones that don't sound useful do better. Why Stripe? Why Airbnb? Why Twitter? There's less competition and winner takes all.

How do stripe and Airbnb not sound useful? "Need to get paid" and "find accomodation" are among the oldest business models on the internet.

Paypal was dominant then. Stripe was PayPal with simpler onboarding.

Airbnb is a favorite textbook example of VCs being wrong. They were rejected early on because people were thinking it's risky to rent out your house to strangers, and well, motels exist. But I think that's always been a blind spot with VCs - they just don't understand what it's like to be broke. Airbnb pivoted quite a bit from what made them big; they used to have top tier hosts and hospitality for much cheaper, now they're just alternative motels with no free breakfast.

There were plenty of ways to get paid on the internet before stripe. On paper it didn’t look like they were doing anything new. They just did it better.

Airbnb… idk. Who wants to rent their house out to total strangers? I wouldn’t. I wouldn’t have thought it would take off like it did.

Airbnb is mostly commercial listings that are basically unlicensed hotel rooms / appartments. I don't think people renting out their personal living spaces is a big part of their income. It's just a story they use to get around regulations.

That's true now, but not when they first took off.

None of that existed when they first started. The pitch was to rent out your house while you're out of town.

But they only got big when the commercial "hotels" came on and saw they could "work around" laws like that.

Yes... later. They couldn't have predicted it when they started. It sounded like a stupid idea when they started.

That's the point--their utility wasn't obvious at first, until a new market showed up.

It was commercial version of couch surfing and/or web2.0 version of vrbo. I was highly skeptical of it taking off because it was “a copycat”! How wrong I was…

Man, I used to use couchsurfing.org to get free places to crash in grad school.

Target audience is very niche

Hmm. Charge high, better profit margins. To me that sounds exactly like the sort of thing a startup should do. Maybe my instincts are off.

What does it mean to be inactive? I see Pigeonly (W15) on the list, but they are still active as far as their website is concerned.

I'd be more interested to see the stats over time. I get the sense that YC used to be a lot more selective in a time gone by

The list is missing stock trading platform Cera. These clowns were absolute scammers with a buggy app and zero customer support.

"Cera: Invest with Stablecoins" -- with that elevator pitch, how could they possibly NOT be clowns and absolute scammers and incompetent software developers who hold their customers in contempt? And how could YC possibly be fooled by that, unless they were maliciously and unethically intending to make money by financing fraud? I hope the leopards ate their faces off and peed on their couch.

Another example of objectively obvious fraud that is on the graveyard list is "NFTScoring". Yeah, just what kind of people aspire to tell other people which NFTs to buy (professional shills and get-rich-quick ponzi pyramid scheme scammers, that's who), and what kind of people knowingly invest in them, or recommend them after performing due shilligence?

Why do you say were? The site still seems active?

Founder sent out service shutdown email back on December 30, 2024. I guess they're too lazy to update their website.

this is not actually an accurate list

> Better to have launched and lost than never to have launched at all

...yet when Google does this, people are up in arms and insist they should run their products forever, even if they have no product market fit.

That is different. Google get heat because they have poor management flailing on a huge budget when they have more important things to be working on.

These startups are flailing with poor management, but the blast radius is small because of their limited resources and nobody has a better idea for what they should have been working on. And flailing startup management is expected in a way that Google has no excuse for.

Google launches, people start using it, and then they just turn it off.

Sometimes customers just can't grasp simple concepts, and people are morons who don't understand how really great Google products are. /s

A Pissed Off Tutorial For Google Wave:

https://www.youtube.com/watch?v=4Z4RKRLaSug

In the long term, Google's better off focusing their efforts optimizing the AI and UI behind their "I'm Feeling Lucky" button.

Any companies in here where AI would have potentially changed the outcome?

821 out of how many in total?

What’s the method used here? “Finary” website still looks pretty good

Something is blocking the UI (loading the images?) but cool site!

if this app would have provided links to the startup it would be so much better even if they were defunct one could easily search more about them.

Filestack YCS12 is a mistake, it's very active.

Filestack was acquired by Scaleworks: https://www.scaleworks.com/companies

It’s not really dead, but not really a “startup” in the traditional sense anymore either.

Same for Tandem

there’s one in ‘19 and a new one in ‘24, which Tandem are you referring to? I just checked and the one listed in this page is YC’19 it looks zombie-ish, both founders moved on quietly according to LinkedIn

Looks like the site is down. : (

And yet they’ve rejected my startup ideas several times. (:

If you need to put your mind at rest change the words around and have a Stanford alum send it next time.

LMAO thank you

Now do a podcast series interviewing founders on what went wrong

There's a brewery owner named Kelly Meyer who does this for breweries. It's extremely educational. One for startups would be an awesome listen

Only 821?