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Comment by pg | Hacker News Reader

We have no idea how much money something like YC might make long term. VC is a well understood business, but this is completely new. We're in the black at the moment, but not buying jets.

We lost money on Kiko, incidentally. Their later stage investors got paid back, and the founders made a little, but YC got 38 cents on the dollar.

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In the black already...with more companies in the pipeline...seems like a great place to be!

What's so new about this model? Tapping into an under-exploited resource (hackers)? Or the economics of micro-seed funding?

Shooting in the dark, I'd say one big difference is the focus on the founders, rather than just throwing money in and hoping for something valuable to pop out. You can see that in the YC application--very different from a request for a business plan.

The VC model encourages/forces founders to go for huge exits. You can't do a series A round and then sell the company for 10 million. Probably not even 20. The VCs won't let you. So they're more likely to get the giant outcomes that make up for the losses on the rest of their portfolio. Whereas there's nothing to prevent the founders of a startup we fund selling early for comparatively little.

Also, VCs have leverage working for them. They get a percentage of the returns on other people's money. We're using only our own.

Smaller principal x lower returns = less profit. Probably. But we're hoping to make enough that we can at least keep doing this.

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