Startup accelerators like Y Combinator, 500 Startups, and TechStars are churning out young companies left and right.
Some people say there are too many startups and not enough investors to support them.
There are two big related forces driving change in startup investing, Graham writes on his blog. It’s cheaper to start a company and it’s also becoming more commonplace to do so.
Here’s what that means for investors, according to Graham:
- Founders are more in control now. Because it’s becoming cheaper to start a company, founders increasingly have the upper hand over investors. That means founders will get to keep a larger share of the stock and investors will have less control.
- Investors won’t necessarily make less money. Right now, the limiting factor on the number of successful startups is the number of good founders out there, Graham says. He expects that number to increase.
- Top VC firms will make more money than they have in the past. That’s because there will theoretically be more great startups to invest in.
- The number of big hits probably won’t grow linearly with the total number of new startups. The cost of failing is much lower and a lot of startups will try to tackle the same problem at the same time.
- There will be more opportunities for new investors to invest at an early stage. More startups means more investment opportunities.
- An angel-sized investment made quickly is a huge unexploited opportunity. The current high cost of fundraising means there is room for low-cost investors to undercut the rest,” Graham writes. “And in this context, low-cost means deciding quickly.”
- VCs need to stop investing too much in a startup’s series A round because founders prefer to sell less equity. “The first VC to break ranks and start to do Series A rounds for as much equity as the founders want to sell (and with no ‘option pool’ that comes only from the founders’ shares) stands to reap huge benefits.”
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.