This week two tech giants debuted on the stock market: Airbnb and DoorDash, with both companies soaring on their first day of trading — DoorDash shares jumping more than 85% from their IPO price, and then Airbnb more than doubling yesterday.
Whether we're in a stock market bubble is, unfortunately, a story for another day, because apart from soaring valuations these 2 companies have something else in common: both were backed by the prolific start-up accelerator Y Combinator.
Darts at the board
The start-up directory on the Y Combinator website suggests that, since its first cohort in 2005, YC has invested in more than 2400 companies, with Dropbox, Stripe, Twitch, Reddit&The Athletic among some of the most valuable and well known of their investments to date.
For their latest batches, YC offers a set investment of $125k in return for 7% equity in the start-up, terms that have changed over the years and were initially just $20k for 6% of a company.
The YC model of making lots of "little bets" perfectly encapsulates investing in risky start-up companies at the early stage: many will fail, most will be unspectacular and a handful will (hopefully) produce returns that pay for all of the other investments combined.
Take YC's investment in Airbnb. Although Y Combinator's equity stake will have been heavily diluted throughout the years, even owning 1% of Airbnb at today's prices would be enough to pay for literally every other seed investment they have ever made - and more.
More to come
Perhaps what's most interesting about the YC portfolio is that the majority of the biggest hits they've had are 6, 7, 8 or 10+ years old — when the YC cohorts every year were closer to 50-100 companies, and not the 350-400 they've been doing in the last few years. Safe to say there will be another DoorDash, and probably another Airbnb, in those latest batches.
