Goldenson.com

The most important resource in entrepreneurship is people: co-founders, engineers, investors, partners, and anyone else willing to help your cause. The adage that it’s not what you know but who you know is true.

How do you meet great people? Networking.

This guy knew how to network

What is the best way to network? I’d say it’s a freemium model.

Freemium means offering something for free to show your value, then asking payment for extra value. In networking, too many people ask for what they want before demonstrating any value:

“I’m Chip Meekbottom, VP of Sales at Crapster, and I’d love to talk your ear off for two hours about our new doohickey.”

This is like trying to sleep with someone five minutes into the first date. It just causes shields up.

Better is to offer value first, and the best way to offer value is to understand needs:

“I’m Chip Meekbottom, what do you do?” “You sell enterprise hardware? Could you use contacts at Cisco? I know some folks there.”

Offering value first is not only kind, it creates goodwill and shows you are someone worth knowing. Once there’s a relationship, you are also more likely to receive reciprocity, though you shouldn’t demand or expect it.

What can you offer? There are several common needs that business people have:

-Potential clients and partners
-Good employees, especially engineers
-Investor contacts, especially for startups
-Product feedback
-Press awareness

The same is true for investors. Investors spend many of their meetings assaulted by strangers with lofty talk and requests. “Our team believes it can do X and wants $Y million.” Often the hardest decision for investors is execution risk: deciding whether an unproven team can do what it claims.

How can you reduce the perception of this risk? By showing competency as early as you can without asking for anything.

I setup investor meetings as soon as I can, even pre-prototype, to form the relationship and show value. I make any commitments I can of what we will build and when, then meet those milestones to demonstrate the team can execute. I also mention any interesting ideas or teams I’ve seen. It’s empathy for the investor’s dilemma; don’t pitch, show.

Even if you have no connections or value to offer a certain contact, just showing genuine interest in people makes them genuinely interested in you. As a side effect, asking nothing from someone who is frequently hounded piques interest. Ask a super attractive woman; the guys who are unfazed, confident in what they bring, and form a friendship first are more likely to be the keepers.

When I meet new folks or reconnect with old ones, I try to ask how I can be helpful. It’s good business, good karma, and feels good.

How can I be helpful to you?

Mark Goldenson Entrepreneurship

The traditional steps of startups are: find something people want, build it, tell them about it, then charge for it.

The internet has radically changed this. It is now easy enough to churn out experiments, and it’s cheap enough that you don’t need to charge much, if at all.

For a lot of web markets, the steps are now: build it, tell people about it, learn if they want it, then maybe charge for it. 

The hardest step of this is usually telling people about it. The downside of cheap and easy development is that others can do the same, cluttering the web with competitors for attention. It sounds counter-intuitive but it’s usually better to create a product with uncertain demand and killer marketing than a product with certain demand and costly marketing.

Succinctly, on the web, market risk is better than marketing risk. 

Market risk is uncertainty of whether people want your product:

-How many people want your product? 
-How much do they want it? 
-How much will they pay for it?
-How many times or how long?
-How fast is that demand growing?
-Is competition saturating demand? (This could be separated into competitive risk.) 

Marketing risk is uncertainty of whether people will learn about and try your product:

-Where can you reach your target users?
-How much will it cost to acquire a user?
-Is your product inherently viral or word-of-mouth viral? 
-Is it new and sexy or old and boring?
-Is it easy or hard to understand?

While an idea’s risks depend greatly on the details, they tend to fall today into a matrix:

From worst to best types:

High market and marketing risk: these are the worst type of ideas. Not only are you unsure people want the product given alternatives, even if they do, it’s costly to get them using it. For instance, there are a ton of search engines, people are generally happy with their current one, and search isn’t viral. That’s why Microsoft is spending $100 million to market its new shiny toy. This type needs to be really useful and well-funded/well-marketed.

High marketing risk, low market risk: these are typically large and established markets where it’s clear people have a deep demand or like innovation, but they aren’t viral and have a lot of competitors. People will want porn, gambling, and dating until the end of time, but because these ideas monetize well, incumbents are well-funded and targeted marketing is expensive. If a marketplace gets initial users, more come and the network effect takes over, but getting initial users is often tough.

High market risk, low marketing risk: these are experimental ideas that are inherently viral or have strong word-of-mouth. When the Facebook platform launched, developers launched a flood of programs to figure out what would stick.  When Twitter launched, it was unclear people wanted it, but its virality took over once it was clear people did. If your idea is a unique twist of this type and can be created quickly, it’s worth trying.

Low marketing and market risk: this is the promised land. Niche services can often fill an ignored need and are cheaper to market due to fewer competitors and a focused audience. Copyrighted content is in high demand and goes viral, as it did on Youtube, but has high legal risk. 

If your idea has low market and marketing risk, it’s a good candidate to start today.

Mark Goldenson Entrepreneurship

Ever since I can remember, I’ve had chronic muscle tension. It’s caused a good deal of pain, voice hoarseness, and unnecessary stress. One thing that has helped is yoga.

One of my favorite yoga teachers, Kevin at YogaSource, has taught me some lessons for outside the studio.

1. Relax while working to the edge: Kevin will guide us into a pose - my favorite is Warrior II - then say, “Where can you now relax? Where can you push the edge without panic?”

I have seen myself and other Valley folks believe that working hard means working panicked. That if you’re sleeping more than three hours a night, drinking less than four cups of coffee per day, and aren’t sweating bullets, you’re not working to your edge. It’s a poisonous belief.

We can sometimes increase short-term productivity with extreme stress, but we suffer mentally and physically. Investors and managers who aren’t satisfied unless you’re stressed are reaping your short-term gains while saddling you with long-term costs.

The mind and body function optimally when there is a reasonable amount of eustress - positive and achievable challenges - than distress. Kevin’s advice has reminded me to identify where my edges are and how to relax to expand them.

2. Stress is perceived challenges minus perceived resources: Kevin reminds us that yoga is super simple because it starts with breath, not Scorpion pose. Yoga sounds mystical and tortuous to novices who envision bending into pretzels. That perceived challenge plus poor flexibility can cause first-timers to quit.

Stress is fascinating because it stems from perception, not reality. Our minds model what might threaten us based on values, beliefs, biases, and memories. In the most popular class at Stanford, Robert Sapolsky’s Bio 150, he notes primates are the only species that literally makes themselves sick with imagined stress. You can see this among yogis who feel the inability to do a split is a mark of failure.

There are two ways to deal with this:

-Reduce our perceived challenges. What percentage of our stressors are really dangerous to our welfare? Maybe 5%? Insults, losing things, sports defeats are examples of stressors that are really rounding errors on our welfare, but we perceive as worse because of unhealthy beliefs. “If X says I’m dumb, I’m no good”, “If I lose in soccer, I’m a loser.”

Cognitive behavioral therapy (CBT) helps people correct these faulty perceptions.  It is the gold standard of therapy with the most scientific evidence of effectiveness.

-Increase our perceived resources. Some threats really are serious - cancer, losing a job - but can be managed with coping mechanisms. Cancer patients with strong peer support improve at higher rates. Laid-off workers with a strong network regain employment faster. People who meditate have lower cortisol levels.

Again, many of these solutions don’t increase tangible resources like food or money, but our perceived resources of safety and connectedness.

3. Contentment is not a competition. Most yoga studios have mirrors to help students improve form. Unfortunately this also causes students to compare themselves to others. You’d think men gawking at women in tight spandex is yoga’s most common voyeruism, but it’s really everyone envying the most advanced yogi in the room.

Kevin probably harps the most on this knowing his Silicon Valley audience. “We aren’t competing here, folks.” Some students close their eyes once in a pose to temper the urge to compare. Kevin will lay out levels of difficulty for each pose so that novices can find their own edge instead of adopt someone else’s. For example, here are three levels of backbend:

If you haven’t tried yoga, I highly recommend it. If you’re in the Bay Area, YogaSource has been deservedly voted the best studio in the Valley for ten years running. It’s a wonderful community.

Mark Goldenson Random

In a recent coffee with Steve Blank, the topic of entrepreneurial personality traits came up. We talked about the Myers-Briggs scale, which classifies our preferences and tendencies on a spectrum of four traits:

-Extroversion (E) vs. Introversion (I): Where do you put your social attention and get your energy? Extroverts get it from socializing, introverts from being alone or in small groups. Introverts are not necessarily shy; they just enjoy solitude more. 

-Intuition (N) vs. Sensation (S): Where do you put your mental attention and how do you process information? Intuits favor patterns, theory, and focusing on the future. Sensates favor details, sensations, and focusing on the past and present.

-Thinking (T) vs. Feeling (F): How do you make decisions? Thinkers favor facts and principles, feelers favor personal concerns and harmony. 

-Probing (P) vs. Judging (J): How do you organize your life? Probers are more spontaneous and flexible, judgers are more deliberate and structured.

Myers-Briggs doesn’t say people are all one side of the spectrum or the other. It posits we have natural set points for each trait, and while we can exert effort to temporarily be more one way or the other, at rest we tend to resort to our set point.  

Controversially, it does say people should strengthen these tendencies and find the best environmental fits rather than try moving to the center on all traits and being all things. For example, introverts shouldn’t try to gain energy from socializing, but strengthen their ability to reflect and enjoy solitude.

What set of traits do you think most favors entrepreneurialism? While any combination can succeed, I think there’s a clear combination most predisposed to startups: ENTPs. These folks are only ~3% of the population and classified as Inventors: 

“Inventors are keenly pragmatic, and often become expert at devising the most effective means to accomplish their ends. They are the most reluctant of all the types to do things in a particular manner just because that’s the way they have been done. As a result, they often bring fresh, new approaches to their work and play.

They are intensely curious and continuously probe for possibilities, especially when trying to solve complex problems. Inventors are filled with ideas, but value ideas only when they make possible actions and objects. Thus they see product design not as an end in itself, but as a means to an end, as a way of devising the prototype that works and that can be brought to market.

Inventors are confident in their pragmatism, counting on their ability to find effective ways and means when they need them, rather than making a detailed blueprint in advance. A rough idea is all they need to feel ready to proceed into action.”

Steve and I discussed the importance of both intuition and sensation for his concept of customer development. Steve says entrepreneurs should start with a vision (intuition), then collect data to validate their hypothesis and revamp the vision (sensation). Entrepreneurs without intuition will get lost in data and miss valuable patterns; entrepreneurs without sensation will chase ideas without supporting data and produce unwanted products. It’s a tough balance.

As a dyed-in-the-wool ENTP, I have felt the temptation to brainstorm in a dark room without customer data. I am good at seeing patterns of behavior and needs people may have, but I need to focus more on confirming these ideas by getting outside my head and the building, as Steve would say. 

It’s worth noting Myers-Briggs is itself the product of intuition. It is based on Carl Jung’s theories, which relied primarily on anecdote instead of controlled studies. Another prominent personality tool used to diagnose mental illness, the Minnesota Multiphasic Personality Inventory, is entirely empirical with no initial theory. The creators just posed a list of 600+ questions to people and observed what answers correlated to diagnosed mental illnesses. It is a sensate method.

Of course, any psychological theory is a simplification compared to the complexity of actual people. Yet, my (intuitive) observations are that ENTPs have an inherent advantage in entrepreneurship, and are at the very least, a lot of fun to be around.

P.S. I’m mainly focusing on the traits of founders. Early employees in other roles are probably optimized by other combinations, like architects (INTPs) and salespeople (ESTPs).

Mark Goldenson Entrepreneurship

Phone trees are almost universally hated; one survey of Americans found they topped a list of the most frustrating technologies. 

One of my duties at PayPal was supporting our call center technology, so I became a bit familiar with phone trees (Interactive Voice Response, or IVR). Implemented well, they do cut costs and help a majority of callers get service faster given agent restraints. They are rarely implemented well.

I was reminded of this when I called a support center recently and went through three stupid processes in a row:

1. “Please note our options have changed.” How many times have you heard this at the start of a call? Who on earth is memorizing phone tree options? Even if a few OCD callers remember the options and press the wrong one, it’s not a big deal. They can hit * to go back or call again. Yet, every single caller has to waste a few seconds listening to this.

It seems like some manager decided years ago this would be a good idea and companies have been blindly following ever since. 

2. “Please enter your account number.” Quick: what’s your bank account number?  I’m not asking because I’m a fraudster. I ask because chances are you have no idea. You’d have to look at a check. But plenty of phone trees ask for authentication information you don’t readily know - account #s, company IDs  - when there’s no need to. Most companies have plenty of unique, easily remembered information about you: name, phone #, date of birth, address digits. Most can be entered quickly on a keypad. 

Instead, many companies self-centeredly ask for the IDs they’ve issued, which requires users to search for documentation and again increases frustration and call times.

3. “Please tell us everything we just asked you again.” The coup de grace is when you finally get a human and they ask you for all the same information again. At PayPal, after the IVR asked users to enter a phone #, the first thing a human agent would do is ask for it again. Why? Because our legal guy wanted to make sure the user talking to the agent was the same user who keyed in the info.

Now, I appreciate that PayPal has to take greater security measures than many, but we were wasting 1-2 minutes on every call asking for info (that we shouldn’t have been requiring in the first place) because of this corner case: a user calls PayPal, enters their phone #, and while on hold, a thief steals the phone and continues the call. 

Seriously, if product managers and lawyers could channel this kind of imagination into creating useful products, every company could be an Apple. (The kicker is that by smart design, PayPal service agents can change relatively little on an account even if a caller is authorized, so the extra verification was doubly unnecessary.)

The sad part is that all of these decisions damage both users and the company. There’s no exploitation for gain here, just dumb inefficiency. It’s no wonder a few startups are solely dedicated to navigating around phone trees. Unfortunately, like most human failures, this is a problem best solved from within.

Mark Goldenson Rants

Who is more important in a business transaction: the buyer or the seller? It is tempting to believe they are equally important, but I will argue that buyers are a lot more important.

A thought experiment: go to a street corner and try to sell a bag of snot for $1,000. Would you have any takers?

From the same corner, offer $1,000 for a bag of snot. What would happen? You’d have people lining up for half a mile sneezing into bags.

This is a bit misleading because a bag of snot has a market value of almost zero, unless perhaps it’s celebrity snot. If you substituted “bag of snot” with “cure for cancer”, no credible research firm would accept a buyer’s offer of $1,000. The market value for a cancer cure would take a novelty-sized check to print.

The examples illustrate the source of power in business: demand. Buyers drive markets. 

A definition of a market by Merriam-Webster is the extend of demand for a product or service, not how much of it can be supplied. Sellers can influence demand, as the $100 billion TV ad market tries. They can even occasionally create demand, as much of the beauty industry tells you happiness is just a body wash, tummy tuck, or dick pill away. But this is very expensive. Sellers still primarily follow where demand leads them.

This is true even if there is scarcity or monopoly on a low-demand good. If you are the only person on the planet that can create a bag of snot, the demand for it is still limited to its novelty value, which is likely small (but probably above zero; items like Christ-shaped potato chips have a few buyers seeking entertainment, status, or some unique need).

Perhaps sellers had more power in earlier times when the means of production were limited. For our cavemen ancestors, food, water, and shelter were in high demand and low supply. If you could have created a paleolithic bed and breakfast, you’d have been the first billionaire. Today, demand is more varied but our means and productivity are even deeper, fostering multiple competitors in almost every market. Demand is scarcer and more valuable.

The implications of this are critical for entrepreneurs. The most important is to build something people want. The most common entrepreneurial mistake may be creating something just because it can be, not because there’s actual demand beyond the entrepreneur’s market of one. 

There’s also an important implication for creators of marketplaces, which have a chicken-and-egg problem of attracting buyers and sellers simultaneously and balancing their interests. Because buyers drive markets, they are generally the more key element in the long-run.

That doesn’t mean buyers are the best group to target first. One seller can serve many buyers. When Josh Kopelman started Half.com, he convinced dozens of book sellers to upload their inventory for potential leads. Those dozens let him launch Half.com with a million books, giving incoming buyers a lot to browse once they came.

Sellers are also easier to find: there’s literally an alphabetical list of sellers for most items, but unfortunately not the same for buyers. 

eBay reocgnizes the importance of buyers and has favored them with a host of policies, such as light penalties for non-paying bidders and only allowing sellers to leave positive feedback on buyers. It raises seller ire but without the cash of buyers, transaction fees wouldn’t be an issue because sales would be zero. 

It’s become a fashion to attack companies for selling something stupid, unhealthy, or over-priced, but no matter how true those complaints are, it’s worth remembering demand is the real source of business power.

Mark Goldenson Entrepreneurship

When Dev and I began exploring ideas after PlayCafe, I considered what I would personally want to use. One idea immediately came to mind: an eHarmony for travel.

I am seriously considering living abroad. I’ve been in the Valley for 12 years now and while I love it, I feel some wanderlust. My criteria for a new place are:

• Within 5 minutes of a beach, preferably warm-water
• English-speaking, since the only other language I know more than ten words in is dead
• Relatively low cost of living
• Safe and somewhat modern

The question is, what are all the cities in the world that match this? The answer is surprisingly hard to find.

Travel booking sites like Expedia and travel guides like LonelyPlanet assume you know your destination. Travel social networks like Tripwolf have people to ask, but that’s manual and hit-or-miss. You can Google terms and guess like I did - New Zealand and Australia fit - but that’s inefficient. It took my roommate to suggest Costa Rica.

What’s needed is a data-driven, travel-matching system that shows you which cities match your needs.  eHarmony does this for dating: tell it who you are and it shows you matches. Travel sites do the equivalent of asking you possible names of who you’d like to date. When a search engine asks you for more information than you have, it’s not doing its job.

Market
Travel is a $100 billion market and not going away even in a recession. A friend in the industry says about 70% of travel is for business and non-discretionary, and of the 30% consumer market, about 70% goes to top 20 cities. Assuming this search engine wouldn’t change top 20 behavior much, that means the long tail of consumer travel is about 9% of the total travel market, or $9 billion. That’s still pretty big.

Note this will be useful for both the vacation and permanent moving market. The latter is especially valuable since people spend tens of thousands moving and that decision must be vetted more.

Product
The site could collect however much information travelers want to give:

• Environment: temperature, humidity, rainfall, landscape types
• Culture: languages spoken, religions, ethnic diversity, openness to foreigners
• Government: tax rates, type of system, economic and social freedoms
• Safety: crime rates and types, natural disaster patterns
• Things to do: popular sports, activities, night life, cuisine options, tourist spots
• Price: cost of airfare, hotel, car, food, rent, activities, schooling, housing prices, health care

Some travelers will only need one or two search filters; some will have highly detailed needs. The site can offer wizards to guide choices,  wikis for user reviews and content, and forums to connect with other searchers.

Business model
Anything that gets people to travel is lucrative. A typical one-person, three-day trip costs about $1,000 in airfare, hotel, car, food, and activity packages. Longer or family trips are at least several thousand. Each booked item can earn a commission of $20-200+; lead-generation in travel is big business.

The site’s search and data APIs could create demand and convert uncertain buyers for several types of partners:

• Travel booking sites that can increase purchases by showing travellers their best matches. An Expedia VP said their users visit 10-15 times before buying. Reduce that just a few visits and Expedia will be thrilled.

• Transportation vendors such as airlines, hotels, cars, and cruise ships that want to spark demand.

• Travel guide sites that want to suggest your best destinations to sell relevant guides and ads.

• Even weather sites that want to monetize their information better. “It’s 72′ and sunny in Hawaii today. See if Hawaii is right for you!”

Partnerships are essential for this idea to gain scale. Travel is too crowded a market to compete without a lot of partners or a ton of funding. Fortunately this offering is unique and valuable enough to gain partner interest. When I interviewed a VP at Expedia on this, he was ecstatic at the prospect, offered access to Expedia data, and began selling me on why I needed to start this.

Competition
Because travel is big business, it’s very crowded. Travel keywords cost tens of dollars per click on AdWords. Hundreds of sites focus on SEO to get a sliver of Google juice. There isn’t that much innovation in travel but it’s still a ruthless market.

There isn’t much out there that is a direct competitor.

• Uptake has some matching features and categories of vacations you can choose, but still requires you to name a destination city, defeating the whole purpose of matching.

• City-data.com has a lot of detailed data on cities and a surprising 6 million monthly visits, but no matching system and an awful interface straight from the playbook of Craigslist.

• MyIdealBeach is a nice matching pilot from Orbitz, but only shows beach destinations from a limited set. Says Orbitz’s press release:  “Our research has shown us travelers want a different, better way to search for complex trips than by dates and destinations.”

Has anyone seen anything else like this?

Execution
Starting this is a bit time-consuming but fairly straight-forward.

• Find reliable sources for the above data. Start with a few main traits, then expand as users tell you their needs. The Weather Channel, Expedia, Fodor’s, the CIA factbook, and many other sites have this data and some already have APIs.

• Build a basic search engine to query the data on keywords and pre-set options.

• Build an intuitive interface. Kayak’s is nice and could be easily copied.

That would yield a usable beta. You could then add social networking and wikis, build APIs, integrate commission programs, develop partnerships, and watch the dollars fly in.

Why we didn’t do it
Dev and I were open to starting this, but had a few key concerns:

• Most people don’t move or take vacations often. We’d be lucky to have visitors return every six months. High user churn means constantly having to find new ones or targeting the small sliver of frequent, high-end travelers.

• Search engines are a pain to market. This one is actually a little word-of-mouth viral in that people often travel together and may share search results and itineraries. Still, gaining search share is a bitch when Google looms.

• Barriers to entry are low. Any of the major travel sites could copy this in a few months if they woke up. If this site got traction, they might be more likely to buy us than build but that still sets a ceiling on potential acquisition values. The site would need to cultivate sticky content like reviews or a social network to create a barrier.

I do believe just moderately good execution could make this a $5-20M business. What do you think?

P.S. I’m openly releasing this idea into the wild. If you steal it and strike it rich, you owe me lunch.

Mark Goldenson Ideas

I have been exploring names for my new venture and thought of a question: what is the worst domain name for a successful company?

Let’s define some traits of a bad domain:

-Difficult to spell
-Confusing or unrelated to its topic
-Contains hyphens or numbers
-Not a .com, making it difficult to remember
-Long (>10 letters)

Looking at the Quantcast top 100 sites, a few candidates emerge:

-#14: craigslist.org
-#50: merriam-webster.com
-#57: ezinearticles.com 
-#96: city-data.com

Craigslist took a while to establish its brand since it’s undescriptive and started as a .org. Merriam-Webster’s spelling and hyphen are problematic but it had an existing brand. City-data also has the hyphen, but at least it’s descriptive.

My choice for worst successful domain name is ezinearticles.com. It’s long and complex, seems like it might have a hyphen, and has a tacky leading “e”. Yet, it receives 16 million visits a month. Like an ugly guy who still manages to get the hot girl, that’s fairly impressive.

Honorable mention: #1 Google, for misspelling their name.

Mark Goldenson Entrepreneurship

I love Y Combinator. They are scrappy, innovative, entrepreneur-friendly, and created a model that VCs originally laughed at but are now copying. I love Paul Graham’s essays and I like him personally.

Y Combinator invests ~$12k in early stage teams in return for ~6% of the company, implying a typical valuation of about $200k.  Paul Graham says this is a good deal because Y Combinator can increase your value by at least 6%.

While I think that’s true, that’s not the right question. The right question is whether YC’s deal is better than alternatives.

A typical $50k seed-stage angel investment for a team with a prototype, even in this crappy market, is at $1M-$3M pre-money in an equity round and as high as $5-6M if you use convertible debt. PlayCafe originally raised $250,000 of convertible debt with a $6M cap. (We eventually switched to a complete equity round when First Round Capital invested.)

Let’s compare the numbers:

A $50k angel investment is almost ten times the better financial deal (9.6 to be exact).

YC argues their advice and connections are worth this premium. I respectfully disagree. Advice and connections for even idea-stage entrepreneurs are easy to find with a little initiative, and if you don’t have that, you’ll fail as an entrepreneur. YC’s connections, Demo Day, and brand are indeed value-added, but it’s hard to argue they’re worth ten times an angel and free advice and connections.

YC supporters say their teams are little more than first-time entrepreneurs with ideas. That’s generally true, but YC’s hackers are able to build most prototypes in 3 months anyway. Is it worth 3 months working by yourself to get 10x a better deal? I think so.

One could say it may be a bad deal but the equity involved is relatively minor. I am open to this point. 6% equity can be quite a lot - it’s $120,000 on a $2M pre-money valuation, or enough equity for 6-10 early hires - but I’d agree it’s not a massive amount. Spending $150 for a restaurant dinner that you can create for $30 may be a bad deal, even considering the value of ambiance, but it’s not a disaster. Small stakes excuse small errors.

How much equity should Y Combinator take? I’d say the fairest method is punting on this question and using a convertible note, which would determine YC’s stake at the Series A valuation. The problem for YC is that $12,000 into a typical Series A pre-money valuation of $3M translates into a paltry 0.4% equity.

One partial solution is warrants that give YC the right to invest more money at a pre-set Series A valuation, such as $200,000 at a valuation of no more than $4M, yielding about 5% equity. We did this with First Round Capital to compensate for the dilution that they would suffer in later rounds.

Thus, recognizing that YC deserves at least a few points of equity, my real suggestion is that Y Combinator should invest more, which given their success so far and a recent $2M infusion from Sequoia, should be more than feasible. If Y Combinator just set their valuations at one-half market value instead of one-tenth, that would suggest Y Combinator invest $60,000 instead of $12,000.

Graham believes that $12,000 is enough to keep founders alive for three months, but I would argue is sub-par for early marketing and development. A good domain name alone can cost $2,000-$20,000+ and is painful to change after release. Getting good early design can cost another $2-5k.

I should note that I may be biased because I am not YC’s market. I have been doing startups for a while and am fortunate to have a decent entrepreneurial network. YC provides a faster lane for first-time founders than I had.

I do think the most important metric is how Y Combinator alumni feel about the terms afterward. The majority seem quite happy with it. Y Combinator is empowering hundreds of entrepreneurs and some very cool startups, and for that, I cheer them whole-heartedly.

Update: I see Sarah Lacy makes a similar argument. Interesting to see the backlash. Hope I don’t get the same.

Mark Goldenson Entrepreneurship

Thanks to all who came! These are the slides and video (the audio is a little choppy).

Mark Goldenson Entrepreneurship