"One investor who has spoken to companies in this Y Combinator group and who didn’t want to be identified said he estimates that the pre-money valuations on this batch will average $10 million."

I don't care how good a crop of candidates YC attracts - that type of pre-money valuation can't be for any _particular_ startup, rationally supported in just 90 days of work with a small team.

The following possibilities come to mind:

  A) The investor who was not named was pulling numbers
     out of their ass and couldn't back them up.

  B) The current crop has been working on their ideas for 
     a lot longer than 90 days

  C) We've reached a bubble in valuations.

  D) There is an expectation of at least one multi-billion
     dollar hit that will make up for the losses on the 
     other 40 or so misses. 

  E) I'm wrong, and the current batch of YC start-ups
     truly do deserve $10 Million pre-money valuations.

Valuation is based on expected value. How much time they spent on the startup is irrelevant. For example, if a startup has a 1% chance of being worth $1B, then it's worth about $10M (very rough math since actual outcomes aren't quite that binary).

Also, many companies are raising at lower valuations.

No arguments whatsoever. I think you are reformulating my "Option D" - there is a small expectation of a few big hits that will make up for the many losses, and the investors go in realizing that not every startup with a $10 Million valuation, has a high chance of being $10 Million or more.

Another way of saying this, is that these types of investments are clearly _not_ for the conservative investor who can only afford to invest in one company.

Has anyone ever said that startup investing is appropriate for conservative investors who can only make one investment?

In fact, the only bold text on my blog post about startup investing says exactly the opposite of that: http://paulbuchheit.blogspot.com/2011/01/angel-investing-my-...

BTW, in case my "many companies are raising at lower valuations" statement isn't clear enough, the supposed $10M median valuation is not accurate.

What this also means is that YC adds/gets 35x value (w/ assumption $17k for 6%) out of the door.

Deserve's Got Nothing To Do With It. - Clint Eastwood, Unforgiven.

A.

@Harjeet "@pkedrosky that's false. the median will definitely not be $10m" http://twitter.com/#!/Harjeet/statuses/50831305084112896

B)

I'm not entirely in the know, but I'd be willing to wager the average time working (in some cases full-time) on an idea pre-YC would be approaching one year at least.

Two things, one, a $10 Million valuation for an angel round is really high. I'm suspecting that the real statement was something more like "one of the YC companies even got a $10 Million pre-money valuation" rather than the average.

Second, Paul Buchheit is investing in some of the YC companies in addition to his participation as a partner? Will that create signaling issues? I know he knows the YC companies better than other startups, but if he doesn't invest, it means he passed? Same thing happened with VC's doing angel rounds then if they don't follow up, they're leaving the startup in the lurch?