Editor’s note: Guest author Chris Yeh is an independent angel investor and VP of Marketing for PBworks, one of his investments. He has been involved with Internet startups since 1995. His Twitter handle is @chrisyeh.
Update: This post originally referred to DST as the investor in Start Fund when it actually is Yuri Milner personally investing, along with Ron Conway’s fund SV Angel.
Update II: This has been corrected below.
The big news this morning is Yuri Milner’s announcement that he and Ron Conway will be investing $150,000 in *every* Y Combinator startup on a no-discount, no-cap convertible loan.
Many people have already weighed in with instant reactions—”It’s a bubble!” “It’s the greatest thing to happen to the US economy!” As usual, these off-the-cuff reactions focus on a single part of the story, rather than looking at the big picture.
Let’s walk through the news, step-by-step, and see what it really means. Ultimately, my take is that it’s good for Y Combinator and Milner, but bad for the rest of Silicon Valley.
1) “Yuri is a fool who believes he can sell to a greater fool.”
Many people mocked DST when it began investing in companies like Facebook at “outlandish” valuations. DST invested in Facebook at a $10 billion valuation; with the valuation now above $50 billion, I’d say Yuri is having the last laugh (for now).
If Milner is investing in YC companies on these terms, it’s because Milner believes it can make money on these terms (more on this later).
2) “I can’t believe all the money going into YC’s dipshit companies.”
Once upon a time, Y Combinator’s companies were features masquerading as companies. But anyone who still thinks that isn’t paying attention. The quality of YC companies has risen considerably; the companies graduating from YC these days are much more polished and accomplished. And with monster successes like Dropbox and AirBnB (along with Heroku’s exit), YC’s company quality is looking better and better.
3) “Finally, someone who’s willing to take risks, unlike today’s pantywaist angels and VCs!”
Now we’re getting to something more substantive. There seems to be a feeling among entrepreneurs that investors are no longer willing to take risks, and that no one is willing to invest in ideas any more. My response to that is simple—if startups are really so low-risk, why is it that only a tiny fraction of the companies that do get funded (which are presumably “no-brainer” investments for all the cautious VCs) actually return any money to investors?
Of course I try to invest in companies that I expect to be “sure things,” but I also know that history predicts that at least 60% of my investments are going to be complete financial failures. The reason Milner is willing to take on such risk is simple—in addition to the actual investment, it’s also buying option value.
Option value is what makes the VC system work—by investing in stages, investors are able to abandon companies that don’t look likely to succeed. This is why startups are so much more effective than big companies at innovation—a big company’s internal politics make it difficult to try lots of things that will probably fail. Milner has additional option value available to them that traditional angels do not because of its ability to invest at later stages. By investing in the seed round, Yuri – and DST – gets the inside track on any future financings.
Let’s say that I was lucky enough to invest in Facebook’s seed round (I wasn’t). As the company raised further rounds of funding at $100 million and $10 billion valuations, I would have to come up with increasingly large checks to maintain my ownership position. Buying 0.1% of the company is pretty easy at a $5 million valuation (that’s just $5,000). It gets harder at $100 million ($100,000) and $10 billion ($10,000,000).
For Milner, however, investing a few million in YC companies is well worth it if it gives him the inside track to do a $100 million expansion round in the future. Moreover, is Milner really making it easier for entrepreneurs to raise money? I was not under the impression that YC grads were having difficulties raising money. It’s not like Milner is giving $150K to anyone who asks—the investment is reserved for companies which pass YC’s rigorous screening process.
4) Okay, Mr. Smarty-Pants, why is this bad for Silicon Valley then?
In the TechCrunch comments, Ted Rheingold of Dogster fame says simply, “This is not going to be healthy for the ecosystem.” I think he’s right, but the reasons he’s right are subtle. Allow me to explain.
a) Independent angel investors need to be able to invest at reasonable valuations.
As I explained in (3) above, folks like me need to be able to invest at reasonable valuations. That means either priced rounds or convertibles with valuation caps, and seed round valuations of $1-3 million. We don’t have the money to stay in the game with the VCs and DSTs of the world, so if seed funding shifted to a model of no-cap convertibles, we would be priced out of the ecosystem.
In today’s environment, many companies skip straight from a seed round to $20 million+ valuations, and angels simply won’t get rewarded for the extra risk they assume without priced rounds or caps.
b) The Milner/YC partnership could end up upsetting this delicate balance
As I’ve argued in the past, angel investing is a fragmented game. No one has enough power to collude on valuations. However, someone who is influential enough can influence what is and isn’t considered “standard.”
Once upon a time, there was no such thing as a convertible note with a cap. There were convertible notes, and there were priced rounds, and nothing in between. Then a few years ago, a number of prominent players in the ecosystem (YC included) began pushing the concept of a capped convertible. Today, even though there are plenty of angels who despise any kind of convertible note, capped or not, the capped convertible is pretty much the standard seed financing instrument.
Now imagine the impact of YC, the most influential incubator, standardizing on uncapped, no-discount convertibles. It’s not difficult to envision a scenario in which the entire industry moves in this direction. The problem is that this shift eliminates the incentive for independent angels to participate in the ecosystem.
Angels play an important part in the ecosystem because we are willing to take on more risk than the VCs. Some of that is non-economic behavior, but some of that is also due to the fact that we get compensated for that risk-taking with much lower valuations. Eliminating that compensation will surely reduce the number of independent angel investments.
The irony is that the Milner/YC deal didn’t have to cause problems for independent angel investors. If Milner committed to providing $150K to every YC company, at whatever terms were determined by the lead investor in the syndicate, he wouldn’t be pricing the angels out of the ecosystem.
c) Removing independent angel investors from the ecosystem is a bad idea
Naturally, angels like me will be upset about getting shut out of the ecosystem, but why is that bad for Silicon Valley? After all, between YC, TechStars, the Founders Institute, and all the other incubators and quasi-incubators, who needs us? Let the incubators pick the winners, and let the DSTs fund them.
The problem is that the chaotic, fragmented, Darwinian nature of Silicon Valley is an integral part of what makes it great. We need those random mutations to generate innovation, especially breakthrough innovation.
If we concentrate the decision-making on who does and doesn’t get funding in the hands of a small number of institutions, we hurt Silicon Valley as a whole, no matter how smart those institutions are.
I tell many people that Paul Graham is a genius. He saw the opportunity to start YC, and he’s done the Valley a huge favor by broadening the pool of company founders. But I don’t want Paul to be one of a small group of people who decides which companies get funding—not because he isn’t smart (he is) or a great guy (he is). When it comes to innovation, central decision-making is bad, no matter how good the decision-makers are.
For all our flaws, independent angels serve the important role of enabling the “genetic diversity” of the startup population. That diversity is at the heart of Silicon Valley’s success, and that’s something we don’t want to lose.
Republican bigwigs vote for a new party chairman Friday. With Michael Steele on the ropes, who’s likely to emerge as top dog? The Daily Beast previews the contenders. Plus, what black Republicans think about Steele.
Republican National Committee members are gathering in Michael Steele’s backyard Friday afternoon, hunkering down in a Maryland hotel to decide the fate of the controversial RNC leader. But the former Maryland lieutenant governor has little reason to feel comfortable, even with the home cooking.
Clockwise, from top left: Maria Cino, Saul Anuzis, Ann Wagner, and Reince Priebus.
According to early vote counts, Steele is on his way out the door. During his two years at the helm of the GOP fundraising machine, the 52-year-old sometime lawyer has been criticized by party elders for turning the RNC into a den of debt and delinquency. Remember that whole West Hollywood sex club fiasco?
Well, the 168 RNC members voting today certainly do. Here are the leading candidates to replace Steele. All are party insiders with deep experience in Republican organizing.
Reince Priebus
Reince Priebus, the Wisconsin Republican Party chairman, likely presents the strongest inside challenge to Steele. In December, Priebus resigned from his position as top legal counsel at the RNC to take a run at Steele. For some, the biggest knock on Priebus is his relationship to Mississippi Gov. Haley Barbour and his political operative nephew Henry. Some critics, like right-wing blogger Dan Riehl, see Priebus as a mere stalking horse for Barbour’s presidential pretensions. Also joining Team Priebus is Republican big brain Paul Ryan, who was making calls for the candidate this week. Priebus also has the support of newly elected Wisconsin Sen. Ron Johnson, whose victory over liberal lion Russ Feingold in November was a highlight for the GOP.
Ann Wagner
Ann Wagner jumped into the RNC race early. If she can pull out a victory (or rival Maria Cino), she’ll be the first woman elected to head the RNC. As chairwoman of the Missouri Republican Party, she is credited with turning the state legislature from blue to red, winning statewide races and crucial votes for George W. Bush in 2000 and 2004. Coming off those victories, she became the RNC co-chairwoman before Bush appointed her to be ambassador to Luxembourg. In an interview with The Daily Beast Wagner gave a not-so-subtle dig to the chairman she hopes to replace and explained why she'll be better at raising money, "It's not just restoring a certain level of credibility in being good stewards of our donors' investments," she said, "but frankly just going out and making the ask." Wagner is still fighting an uphill battle. She’s got an ally in fellow Missourian, former U.S. Attorney General John Ashcroft.
Maria Cino
Maria Cino, a lobbyist for the pharmaceutical industry and a former Bush administration official, is hoping to ride a number of prominent endorsements to victory in the RNC race. She honed her election skills as political director of Bush's 2000 campaign and later became deputy chair of the RNC, also tasked with political operations. Her work has brought her some powerful friends over the years—she has the backing of former Vice President Dick Cheney and recently scored a coveted endorsement from Speaker of the House John Boehner. It's unclear how much influence outside backing has on the more insular RNC, however. “Cino’s establishment cred could cut both ways,” Politico's Chris Frates wrote after she announced. “As a GOP insider and Pfizer lobbyist, Cino will likely take heat from the Tea Party wing of the party.
Saul Anuzis
Saul Anuzis is no stranger to the RNC race, having lost to Michael Steele in 2009. The former chairman of the Michigan Republican Party remains a GOP heavyweight and is popular with the conservative grassroots. Anuzis has pledged to rededicate the RNC to fundraising, where it's seen an exodus of major donors under Steele. "I think that overall my message is that different circumstances and different challenges require a different chairman," Anuzis told The Daily Beast in a recent interview. "In the last cycle we were looking for a national spokesperson, somebody to be the face and voice of the party, but this cycle we need someone to make the trains run on time and get the money to implement our ground game." Anuzis is still considered an underdog in the race, if a formidable one.
Like The Daily Beast on Facebook and follow us on Twitter for updates all day long.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
bench craft company reviews
AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
benchcraft company scam
Editor’s note: Guest author Chris Yeh is an independent angel investor and VP of Marketing for PBworks, one of his investments. He has been involved with Internet startups since 1995. His Twitter handle is @chrisyeh.
Update: This post originally referred to DST as the investor in Start Fund when it actually is Yuri Milner personally investing, along with Ron Conway’s fund SV Angel.
Update II: This has been corrected below.
The big news this morning is Yuri Milner’s announcement that he and Ron Conway will be investing $150,000 in *every* Y Combinator startup on a no-discount, no-cap convertible loan.
Many people have already weighed in with instant reactions—”It’s a bubble!” “It’s the greatest thing to happen to the US economy!” As usual, these off-the-cuff reactions focus on a single part of the story, rather than looking at the big picture.
Let’s walk through the news, step-by-step, and see what it really means. Ultimately, my take is that it’s good for Y Combinator and Milner, but bad for the rest of Silicon Valley.
1) “Yuri is a fool who believes he can sell to a greater fool.”
Many people mocked DST when it began investing in companies like Facebook at “outlandish” valuations. DST invested in Facebook at a $10 billion valuation; with the valuation now above $50 billion, I’d say Yuri is having the last laugh (for now).
If Milner is investing in YC companies on these terms, it’s because Milner believes it can make money on these terms (more on this later).
2) “I can’t believe all the money going into YC’s dipshit companies.”
Once upon a time, Y Combinator’s companies were features masquerading as companies. But anyone who still thinks that isn’t paying attention. The quality of YC companies has risen considerably; the companies graduating from YC these days are much more polished and accomplished. And with monster successes like Dropbox and AirBnB (along with Heroku’s exit), YC’s company quality is looking better and better.
3) “Finally, someone who’s willing to take risks, unlike today’s pantywaist angels and VCs!”
Now we’re getting to something more substantive. There seems to be a feeling among entrepreneurs that investors are no longer willing to take risks, and that no one is willing to invest in ideas any more. My response to that is simple—if startups are really so low-risk, why is it that only a tiny fraction of the companies that do get funded (which are presumably “no-brainer” investments for all the cautious VCs) actually return any money to investors?
Of course I try to invest in companies that I expect to be “sure things,” but I also know that history predicts that at least 60% of my investments are going to be complete financial failures. The reason Milner is willing to take on such risk is simple—in addition to the actual investment, it’s also buying option value.
Option value is what makes the VC system work—by investing in stages, investors are able to abandon companies that don’t look likely to succeed. This is why startups are so much more effective than big companies at innovation—a big company’s internal politics make it difficult to try lots of things that will probably fail. Milner has additional option value available to them that traditional angels do not because of its ability to invest at later stages. By investing in the seed round, Yuri – and DST – gets the inside track on any future financings.
Let’s say that I was lucky enough to invest in Facebook’s seed round (I wasn’t). As the company raised further rounds of funding at $100 million and $10 billion valuations, I would have to come up with increasingly large checks to maintain my ownership position. Buying 0.1% of the company is pretty easy at a $5 million valuation (that’s just $5,000). It gets harder at $100 million ($100,000) and $10 billion ($10,000,000).
For Milner, however, investing a few million in YC companies is well worth it if it gives him the inside track to do a $100 million expansion round in the future. Moreover, is Milner really making it easier for entrepreneurs to raise money? I was not under the impression that YC grads were having difficulties raising money. It’s not like Milner is giving $150K to anyone who asks—the investment is reserved for companies which pass YC’s rigorous screening process.
4) Okay, Mr. Smarty-Pants, why is this bad for Silicon Valley then?
In the TechCrunch comments, Ted Rheingold of Dogster fame says simply, “This is not going to be healthy for the ecosystem.” I think he’s right, but the reasons he’s right are subtle. Allow me to explain.
a) Independent angel investors need to be able to invest at reasonable valuations.
As I explained in (3) above, folks like me need to be able to invest at reasonable valuations. That means either priced rounds or convertibles with valuation caps, and seed round valuations of $1-3 million. We don’t have the money to stay in the game with the VCs and DSTs of the world, so if seed funding shifted to a model of no-cap convertibles, we would be priced out of the ecosystem.
In today’s environment, many companies skip straight from a seed round to $20 million+ valuations, and angels simply won’t get rewarded for the extra risk they assume without priced rounds or caps.
b) The Milner/YC partnership could end up upsetting this delicate balance
As I’ve argued in the past, angel investing is a fragmented game. No one has enough power to collude on valuations. However, someone who is influential enough can influence what is and isn’t considered “standard.”
Once upon a time, there was no such thing as a convertible note with a cap. There were convertible notes, and there were priced rounds, and nothing in between. Then a few years ago, a number of prominent players in the ecosystem (YC included) began pushing the concept of a capped convertible. Today, even though there are plenty of angels who despise any kind of convertible note, capped or not, the capped convertible is pretty much the standard seed financing instrument.
Now imagine the impact of YC, the most influential incubator, standardizing on uncapped, no-discount convertibles. It’s not difficult to envision a scenario in which the entire industry moves in this direction. The problem is that this shift eliminates the incentive for independent angels to participate in the ecosystem.
Angels play an important part in the ecosystem because we are willing to take on more risk than the VCs. Some of that is non-economic behavior, but some of that is also due to the fact that we get compensated for that risk-taking with much lower valuations. Eliminating that compensation will surely reduce the number of independent angel investments.
The irony is that the Milner/YC deal didn’t have to cause problems for independent angel investors. If Milner committed to providing $150K to every YC company, at whatever terms were determined by the lead investor in the syndicate, he wouldn’t be pricing the angels out of the ecosystem.
c) Removing independent angel investors from the ecosystem is a bad idea
Naturally, angels like me will be upset about getting shut out of the ecosystem, but why is that bad for Silicon Valley? After all, between YC, TechStars, the Founders Institute, and all the other incubators and quasi-incubators, who needs us? Let the incubators pick the winners, and let the DSTs fund them.
The problem is that the chaotic, fragmented, Darwinian nature of Silicon Valley is an integral part of what makes it great. We need those random mutations to generate innovation, especially breakthrough innovation.
If we concentrate the decision-making on who does and doesn’t get funding in the hands of a small number of institutions, we hurt Silicon Valley as a whole, no matter how smart those institutions are.
I tell many people that Paul Graham is a genius. He saw the opportunity to start YC, and he’s done the Valley a huge favor by broadening the pool of company founders. But I don’t want Paul to be one of a small group of people who decides which companies get funding—not because he isn’t smart (he is) or a great guy (he is). When it comes to innovation, central decision-making is bad, no matter how good the decision-makers are.
For all our flaws, independent angels serve the important role of enabling the “genetic diversity” of the startup population. That diversity is at the heart of Silicon Valley’s success, and that’s something we don’t want to lose.
Republican bigwigs vote for a new party chairman Friday. With Michael Steele on the ropes, who’s likely to emerge as top dog? The Daily Beast previews the contenders. Plus, what black Republicans think about Steele.
Republican National Committee members are gathering in Michael Steele’s backyard Friday afternoon, hunkering down in a Maryland hotel to decide the fate of the controversial RNC leader. But the former Maryland lieutenant governor has little reason to feel comfortable, even with the home cooking.
Clockwise, from top left: Maria Cino, Saul Anuzis, Ann Wagner, and Reince Priebus.
According to early vote counts, Steele is on his way out the door. During his two years at the helm of the GOP fundraising machine, the 52-year-old sometime lawyer has been criticized by party elders for turning the RNC into a den of debt and delinquency. Remember that whole West Hollywood sex club fiasco?
Well, the 168 RNC members voting today certainly do. Here are the leading candidates to replace Steele. All are party insiders with deep experience in Republican organizing.
Reince Priebus
Reince Priebus, the Wisconsin Republican Party chairman, likely presents the strongest inside challenge to Steele. In December, Priebus resigned from his position as top legal counsel at the RNC to take a run at Steele. For some, the biggest knock on Priebus is his relationship to Mississippi Gov. Haley Barbour and his political operative nephew Henry. Some critics, like right-wing blogger Dan Riehl, see Priebus as a mere stalking horse for Barbour’s presidential pretensions. Also joining Team Priebus is Republican big brain Paul Ryan, who was making calls for the candidate this week. Priebus also has the support of newly elected Wisconsin Sen. Ron Johnson, whose victory over liberal lion Russ Feingold in November was a highlight for the GOP.
Ann Wagner
Ann Wagner jumped into the RNC race early. If she can pull out a victory (or rival Maria Cino), she’ll be the first woman elected to head the RNC. As chairwoman of the Missouri Republican Party, she is credited with turning the state legislature from blue to red, winning statewide races and crucial votes for George W. Bush in 2000 and 2004. Coming off those victories, she became the RNC co-chairwoman before Bush appointed her to be ambassador to Luxembourg. In an interview with The Daily Beast Wagner gave a not-so-subtle dig to the chairman she hopes to replace and explained why she'll be better at raising money, "It's not just restoring a certain level of credibility in being good stewards of our donors' investments," she said, "but frankly just going out and making the ask." Wagner is still fighting an uphill battle. She’s got an ally in fellow Missourian, former U.S. Attorney General John Ashcroft.
Maria Cino
Maria Cino, a lobbyist for the pharmaceutical industry and a former Bush administration official, is hoping to ride a number of prominent endorsements to victory in the RNC race. She honed her election skills as political director of Bush's 2000 campaign and later became deputy chair of the RNC, also tasked with political operations. Her work has brought her some powerful friends over the years—she has the backing of former Vice President Dick Cheney and recently scored a coveted endorsement from Speaker of the House John Boehner. It's unclear how much influence outside backing has on the more insular RNC, however. “Cino’s establishment cred could cut both ways,” Politico's Chris Frates wrote after she announced. “As a GOP insider and Pfizer lobbyist, Cino will likely take heat from the Tea Party wing of the party.
Saul Anuzis
Saul Anuzis is no stranger to the RNC race, having lost to Michael Steele in 2009. The former chairman of the Michigan Republican Party remains a GOP heavyweight and is popular with the conservative grassroots. Anuzis has pledged to rededicate the RNC to fundraising, where it's seen an exodus of major donors under Steele. "I think that overall my message is that different circumstances and different challenges require a different chairman," Anuzis told The Daily Beast in a recent interview. "In the last cycle we were looking for a national spokesperson, somebody to be the face and voice of the party, but this cycle we need someone to make the trains run on time and get the money to implement our ground game." Anuzis is still considered an underdog in the race, if a formidable one.
Like The Daily Beast on Facebook and follow us on Twitter for updates all day long.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
benchcraft company scam
AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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bench craft company reviews
AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
benchcraft company scam
Editor’s note: Guest author Chris Yeh is an independent angel investor and VP of Marketing for PBworks, one of his investments. He has been involved with Internet startups since 1995. His Twitter handle is @chrisyeh.
Update: This post originally referred to DST as the investor in Start Fund when it actually is Yuri Milner personally investing, along with Ron Conway’s fund SV Angel.
Update II: This has been corrected below.
The big news this morning is Yuri Milner’s announcement that he and Ron Conway will be investing $150,000 in *every* Y Combinator startup on a no-discount, no-cap convertible loan.
Many people have already weighed in with instant reactions—”It’s a bubble!” “It’s the greatest thing to happen to the US economy!” As usual, these off-the-cuff reactions focus on a single part of the story, rather than looking at the big picture.
Let’s walk through the news, step-by-step, and see what it really means. Ultimately, my take is that it’s good for Y Combinator and Milner, but bad for the rest of Silicon Valley.
1) “Yuri is a fool who believes he can sell to a greater fool.”
Many people mocked DST when it began investing in companies like Facebook at “outlandish” valuations. DST invested in Facebook at a $10 billion valuation; with the valuation now above $50 billion, I’d say Yuri is having the last laugh (for now).
If Milner is investing in YC companies on these terms, it’s because Milner believes it can make money on these terms (more on this later).
2) “I can’t believe all the money going into YC’s dipshit companies.”
Once upon a time, Y Combinator’s companies were features masquerading as companies. But anyone who still thinks that isn’t paying attention. The quality of YC companies has risen considerably; the companies graduating from YC these days are much more polished and accomplished. And with monster successes like Dropbox and AirBnB (along with Heroku’s exit), YC’s company quality is looking better and better.
3) “Finally, someone who’s willing to take risks, unlike today’s pantywaist angels and VCs!”
Now we’re getting to something more substantive. There seems to be a feeling among entrepreneurs that investors are no longer willing to take risks, and that no one is willing to invest in ideas any more. My response to that is simple—if startups are really so low-risk, why is it that only a tiny fraction of the companies that do get funded (which are presumably “no-brainer” investments for all the cautious VCs) actually return any money to investors?
Of course I try to invest in companies that I expect to be “sure things,” but I also know that history predicts that at least 60% of my investments are going to be complete financial failures. The reason Milner is willing to take on such risk is simple—in addition to the actual investment, it’s also buying option value.
Option value is what makes the VC system work—by investing in stages, investors are able to abandon companies that don’t look likely to succeed. This is why startups are so much more effective than big companies at innovation—a big company’s internal politics make it difficult to try lots of things that will probably fail. Milner has additional option value available to them that traditional angels do not because of its ability to invest at later stages. By investing in the seed round, Yuri – and DST – gets the inside track on any future financings.
Let’s say that I was lucky enough to invest in Facebook’s seed round (I wasn’t). As the company raised further rounds of funding at $100 million and $10 billion valuations, I would have to come up with increasingly large checks to maintain my ownership position. Buying 0.1% of the company is pretty easy at a $5 million valuation (that’s just $5,000). It gets harder at $100 million ($100,000) and $10 billion ($10,000,000).
For Milner, however, investing a few million in YC companies is well worth it if it gives him the inside track to do a $100 million expansion round in the future. Moreover, is Milner really making it easier for entrepreneurs to raise money? I was not under the impression that YC grads were having difficulties raising money. It’s not like Milner is giving $150K to anyone who asks—the investment is reserved for companies which pass YC’s rigorous screening process.
4) Okay, Mr. Smarty-Pants, why is this bad for Silicon Valley then?
In the TechCrunch comments, Ted Rheingold of Dogster fame says simply, “This is not going to be healthy for the ecosystem.” I think he’s right, but the reasons he’s right are subtle. Allow me to explain.
a) Independent angel investors need to be able to invest at reasonable valuations.
As I explained in (3) above, folks like me need to be able to invest at reasonable valuations. That means either priced rounds or convertibles with valuation caps, and seed round valuations of $1-3 million. We don’t have the money to stay in the game with the VCs and DSTs of the world, so if seed funding shifted to a model of no-cap convertibles, we would be priced out of the ecosystem.
In today’s environment, many companies skip straight from a seed round to $20 million+ valuations, and angels simply won’t get rewarded for the extra risk they assume without priced rounds or caps.
b) The Milner/YC partnership could end up upsetting this delicate balance
As I’ve argued in the past, angel investing is a fragmented game. No one has enough power to collude on valuations. However, someone who is influential enough can influence what is and isn’t considered “standard.”
Once upon a time, there was no such thing as a convertible note with a cap. There were convertible notes, and there were priced rounds, and nothing in between. Then a few years ago, a number of prominent players in the ecosystem (YC included) began pushing the concept of a capped convertible. Today, even though there are plenty of angels who despise any kind of convertible note, capped or not, the capped convertible is pretty much the standard seed financing instrument.
Now imagine the impact of YC, the most influential incubator, standardizing on uncapped, no-discount convertibles. It’s not difficult to envision a scenario in which the entire industry moves in this direction. The problem is that this shift eliminates the incentive for independent angels to participate in the ecosystem.
Angels play an important part in the ecosystem because we are willing to take on more risk than the VCs. Some of that is non-economic behavior, but some of that is also due to the fact that we get compensated for that risk-taking with much lower valuations. Eliminating that compensation will surely reduce the number of independent angel investments.
The irony is that the Milner/YC deal didn’t have to cause problems for independent angel investors. If Milner committed to providing $150K to every YC company, at whatever terms were determined by the lead investor in the syndicate, he wouldn’t be pricing the angels out of the ecosystem.
c) Removing independent angel investors from the ecosystem is a bad idea
Naturally, angels like me will be upset about getting shut out of the ecosystem, but why is that bad for Silicon Valley? After all, between YC, TechStars, the Founders Institute, and all the other incubators and quasi-incubators, who needs us? Let the incubators pick the winners, and let the DSTs fund them.
The problem is that the chaotic, fragmented, Darwinian nature of Silicon Valley is an integral part of what makes it great. We need those random mutations to generate innovation, especially breakthrough innovation.
If we concentrate the decision-making on who does and doesn’t get funding in the hands of a small number of institutions, we hurt Silicon Valley as a whole, no matter how smart those institutions are.
I tell many people that Paul Graham is a genius. He saw the opportunity to start YC, and he’s done the Valley a huge favor by broadening the pool of company founders. But I don’t want Paul to be one of a small group of people who decides which companies get funding—not because he isn’t smart (he is) or a great guy (he is). When it comes to innovation, central decision-making is bad, no matter how good the decision-makers are.
For all our flaws, independent angels serve the important role of enabling the “genetic diversity” of the startup population. That diversity is at the heart of Silicon Valley’s success, and that’s something we don’t want to lose.
Republican bigwigs vote for a new party chairman Friday. With Michael Steele on the ropes, who’s likely to emerge as top dog? The Daily Beast previews the contenders. Plus, what black Republicans think about Steele.
Republican National Committee members are gathering in Michael Steele’s backyard Friday afternoon, hunkering down in a Maryland hotel to decide the fate of the controversial RNC leader. But the former Maryland lieutenant governor has little reason to feel comfortable, even with the home cooking.
Clockwise, from top left: Maria Cino, Saul Anuzis, Ann Wagner, and Reince Priebus.
According to early vote counts, Steele is on his way out the door. During his two years at the helm of the GOP fundraising machine, the 52-year-old sometime lawyer has been criticized by party elders for turning the RNC into a den of debt and delinquency. Remember that whole West Hollywood sex club fiasco?
Well, the 168 RNC members voting today certainly do. Here are the leading candidates to replace Steele. All are party insiders with deep experience in Republican organizing.
Reince Priebus
Reince Priebus, the Wisconsin Republican Party chairman, likely presents the strongest inside challenge to Steele. In December, Priebus resigned from his position as top legal counsel at the RNC to take a run at Steele. For some, the biggest knock on Priebus is his relationship to Mississippi Gov. Haley Barbour and his political operative nephew Henry. Some critics, like right-wing blogger Dan Riehl, see Priebus as a mere stalking horse for Barbour’s presidential pretensions. Also joining Team Priebus is Republican big brain Paul Ryan, who was making calls for the candidate this week. Priebus also has the support of newly elected Wisconsin Sen. Ron Johnson, whose victory over liberal lion Russ Feingold in November was a highlight for the GOP.
Ann Wagner
Ann Wagner jumped into the RNC race early. If she can pull out a victory (or rival Maria Cino), she’ll be the first woman elected to head the RNC. As chairwoman of the Missouri Republican Party, she is credited with turning the state legislature from blue to red, winning statewide races and crucial votes for George W. Bush in 2000 and 2004. Coming off those victories, she became the RNC co-chairwoman before Bush appointed her to be ambassador to Luxembourg. In an interview with The Daily Beast Wagner gave a not-so-subtle dig to the chairman she hopes to replace and explained why she'll be better at raising money, "It's not just restoring a certain level of credibility in being good stewards of our donors' investments," she said, "but frankly just going out and making the ask." Wagner is still fighting an uphill battle. She’s got an ally in fellow Missourian, former U.S. Attorney General John Ashcroft.
Maria Cino
Maria Cino, a lobbyist for the pharmaceutical industry and a former Bush administration official, is hoping to ride a number of prominent endorsements to victory in the RNC race. She honed her election skills as political director of Bush's 2000 campaign and later became deputy chair of the RNC, also tasked with political operations. Her work has brought her some powerful friends over the years—she has the backing of former Vice President Dick Cheney and recently scored a coveted endorsement from Speaker of the House John Boehner. It's unclear how much influence outside backing has on the more insular RNC, however. “Cino’s establishment cred could cut both ways,” Politico's Chris Frates wrote after she announced. “As a GOP insider and Pfizer lobbyist, Cino will likely take heat from the Tea Party wing of the party.
Saul Anuzis
Saul Anuzis is no stranger to the RNC race, having lost to Michael Steele in 2009. The former chairman of the Michigan Republican Party remains a GOP heavyweight and is popular with the conservative grassroots. Anuzis has pledged to rededicate the RNC to fundraising, where it's seen an exodus of major donors under Steele. "I think that overall my message is that different circumstances and different challenges require a different chairman," Anuzis told The Daily Beast in a recent interview. "In the last cycle we were looking for a national spokesperson, somebody to be the face and voice of the party, but this cycle we need someone to make the trains run on time and get the money to implement our ground game." Anuzis is still considered an underdog in the race, if a formidable one.
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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Making money online myths abound. Myths about earning money online include that of making big money. For any man or woman who is making money on the Internet or has a money making business from home, you certainly know what these myths are.
I earn money online (making money writing), and I also have a money making business from home that's offline (freelance editorial work), and quite frankly, I'm a little fed up with myths that surround men and women who are making money online from a home based business.
Myth # 1
Men and women who work from home earn big money. Where did this work myth come from anyways? Though many money making opportunities and money making scams claim to be home-based, this doesn't mean that stay-at-home money making ideas translate into big money. Just the opposite may be true, when you consider that the home-based office often lacks the tools necessary to carry out big business. Many work at home men, women and moms must invest 10-12 hours a day in their business just to pay basic bills.
Myth # 2
Men and women who work from home have lots of free time. Yeah, right. Maybe you've heard those money making secrets radio ads in which some fluffy voiced woman claims she makes $5,000 a month working only nine hours a week. She's a paid voice-over reading a script. These radio ad people speak beautifully: no stammering, tripping over words or other speech mishaps that a real interviewee would exhibit. That's how you can tell they're fake.
Myth # 3
Men and women who work from home feel socially cut off from the community and isolated. This is so untrue. In fact, a person at a regular job may feel isolated, working in a cubicle with no windows. Any time the home-based workers wishes for human contact, they can step outside and walk down the street and start conversation with the first person they see. Or they can head for the gym or park in the middle of the day.
Myth # 4
Men and women who work from home are lonely. The home-based worker has more freedom to take a break and socialize, than a person who's trapped inside a building in a traditional office job, or a person who's in a car, van or truck all day making deliveries or performing services.
Myth # 5
Men and women who work from home miss out on intellectual stimulation. I am more intellectually stimulated making money writing from home than I was listening to the mindless drivel of co-workers at the Denver Post where I used to work.
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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AMERICAblog <b>News</b>: BREAKING: Mubarak resigns as head of his party
News and opinion about US politics from a liberal perspective.
Bad <b>News</b>: New Book Probes Role of Press in Financial Crisis
Given that some economists still debate the root causes of the Great Depression, little wonder that a multitude of competing stories still vies for affirmation as explanation for the financial crisis of 2008.
Reducing salt in teen diet could have big impact on future health <b>...</b>
Cutting back on salt in teenagers' diets by as little as one-half teaspoon, or three grams, a day, could reduce the number of young adults with high blood pressure by 44 to 63 percent, according to new research presented Sunday, Nov. ...
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