
What Happens At Y Combinator - pg
http://ycombinator.com/atyc.html
======
swombat
If you were to start YC again, from scratch - i.e. if your brain was
teleported into your body 5 years ago - what would you do differently? Would
you start it directly in SV instead of Boston? Would you focus more on
building the alumni network from day one?

There must have been many mistakes along the way, while this article talks
mostly about the successes. I'm curious what mistakes you made and avoided...
maybe that's a topic for another article though.

~~~
pg
Very interesting question. I would do it more emphatically, for one. The first
couple batches we were pretty tentative, because we didn't know it was going
to work.

It's painful to consider whether it would have been best to do YC in SV year
round from the start. I loved alternating between the two places. I still miss
living in Cambridge. And yet the founders in the Boston batches probably were
getting short shrift. The startup community in Boston is so much smaller. We
could never have organized something like Angel Day; there just aren't enough
good angels. We wouldn't even have had enough alumni in Boston, because most
of the successful ones used to move to the Valley.

You can figure out what we'd do differently by what we've changed. We give
startups more money on average, but we don't give them any more for having
more than 3 founders. Jessica now _strongly_ encourages vesting, not to
protect us, but to give startups a predefined way to deal with founders
leaving. Interviews and Demo Day presentations are now much shorter, and I'd
keep both short even if it weren't necessary for scale. We look more at the
people and less at the idea when making funding decisions. We've added a bunch
of protections against good groups falling through the cracks in applications.
But we haven't changed that much structurally. We've made a lot of mistakes,
but they've mostly been one-offs, like funding startups we shouldn't have, or
not funding startups we should.

~~~
jacquesm
> like funding startups we shouldn't have, or not funding startups we should.

Examples?

------
pg
This was an attempt to describe everything we do, so if there's anything I
didn't cover, please let me know.

(Sorry it's so long. I was surprised myself how long it turned out, but we do
a lot.)

~~~
robg
Besides music labels, are there other industries you try to steer startups
away from, either through not accepting them or through nudging them in other
directions? I'm looking specifically at medical applications, but I imagine
there are others too.

~~~
pg
No others are quite as bad. We'd be dubious about startups building stuff for
the government, for example, because there is such a horrible mismatch between
startup culture and government culture. But we'd still fund a startup building
stuff for the government if they weren't naive about what selling to the
government would entail.

~~~
robg
Thanks and agreed. I'm surprised I haven't seen many (any?) medical
applications from YC companies given the margins available over consumer
applications. Do you think it is the uncertainty of the FDA regulations or
just a space that Silicon Valley doesn't tend to mine as frequently? Make
something _patients_ want is particularly alluring to me.

~~~
yoden
I think it's mostly just not something typical YC applicants are interested...
which is really weird, because health issues are going to be a huge concern in
the western world for the next 50 years at least.

Part of it may be that you need medical connections to do the much of the
work. We work directly with a ton of different doctors/hospitals (for a team
of only ~15 devs), and still have issues with building the right things, 510k
submissions, etc...

But yeah, medical applications are getting neglected by the startup community
at the moment.

~~~
skowmunk
That's true, the health care industry is a massive opportunity waiting to be
tapped. Not just in the western world, even in the developing world, where the
incidence of insurance is increasing.

Many developing countries have had none or next to nothing health insurance
till recently. But the market penetration of the healthy insurance is
increasing (but still very low now). Because of that more people who could not
afford advanced diagnosis or treatments earlier are able to afford them now.

Imagine the potential size of the industry when 1 billion people in India and
1.4 people in China (not to mention a billion or more in other developing
countries) can afford as good health care as the 300 million in US, the 450
million in Europe, etc

~~~
aaronblohowiak
Telemedicine, decision support and more favorable regulatory environment could
be a VERY interesting mix for 2nd / 3rd world (and rural medicine
domestically.)

------
philwelch
Some of my favorite (unintentionally?) humorous bits:

 _We have to recruit the largest founders in each batch to act like Tokyo
subway pushers and herd all the investors back to their seats._

 _The founders of Cloudkick are sysadmin gods who within the alumni network
play the same role for servers that The Wolf in Pulp Fiction played for the
back seats of cars._

~~~
ABrandt
Upvote for bringing the Tarantino reference to my attention; I missed that one
somehow. I'd be hard pressed to find a more perfect analogy for the way I
think about server issues.

If you're not familiar: <http://www.youtube.com/watch?v=wWmRTjLRMfU>

~~~
kn0thing
I've also found myself leaning on this analogy to describe the ideal non-
technical co-founder. When it comes to dealing with any non-technical problem,
you'd damn well better be Mr Wolf and just get shit done.

------
raminf
I've always thought of YC as more of an incubator for young 20-somethings
trying to get an idea off the ground. The impression has been fortified by the
reported small amounts of 'seed' that is given out. I know a lot of people in
older age brackets (30s-40s-50s) with a family and Silicon Valley mortgage who
have great ideas and experience but wouldn't even consider approaching YC.

My one suggestion is if you want to expand your age/experience bracket and get
these people to apply, you may want to address issues directly relevant to
them. One suggestion is to relabel the investment to something more like a
'stipend' and explain clearly that it's not expected to cover salary and life
expenses, but only to help defer company expenses. That way, people know that
they need to set aside enough savings to cover their family.

The other is to spell out clearly the policy of working on outside projects
(to bring in some money) during the YC 3-month period. Leaving it ambiguous
keeps out people who need a part-time gig to bring in some money but could
spend the rest of their waking time working on a cool product.

I know people who work as consultants and make $10K-$25K in a month. To these
people, the YC 'investment' is more of a deterrent. The main attraction would
be to get wired into the network and tap into the experience YC and its alumni
can offer. It would be good if you could clarify whether it makes sense for
them to apply or not.

Overall though, a good write-up with a decent level of detail. Thanks for
putting it up.

~~~
nl
You may find "Doing Y Combinator in your 30s" useful & interesting:
[http://zencoder.com/encoder-blog/2010/09/21/doing-y-
combinat...](http://zencoder.com/encoder-blog/2010/09/21/doing-y-combinator-
in-your-30s/)

------
zzleeper
Thanks for the insight Paul. As an outsider, it's quite interesting to
understand how (successful) startups get formed.

It's funny that in my field (economics/finance) we treat startups as black
boxes, and we have no clue about how they work. We argue that they are
"crucial to the economy and to growth", but yet we haven't made any progress
at understanding [1] them.

Do you guys think that we (academy) have any chance at finally
understanding/modelling what you do?

[1] "Understanding" = Either writing a mathematical model, or test some
hypothesis with a few regressions.

~~~
johnglasgow
Paul was interviewed at CrunchUp this summer, and he briefly talked about what
they have learned works and doesn't work. The video can be found on
TechCrunch.

\- 2 founders is best \- founders should have known each other for a while
before starting the company \- team is much more important then idea

~~~
pg
2 or 3 founders is best.

------
edanm
Great article, thanks a lot for posting this.

I do have one question: is the goal of _all_ the companies to raise addition
funding rounds? Or, do some startups still want to work without raising the
extra capital, but rather grow organically (37 signals style). I guess another
way to ask is: do you _force_ (or even strongly expect) companies to get extra
funding on demo day, do you let them choose (and they always choose to get
more funding), or do some startups actually _not_ get extra funding?

I ask because, from your article, it seems like most of the latter part of the
cycle is geared towards raising capital, and I had always assumed that _not_
raising capital was also a viable option for startups.

~~~
pg
No, not all of them. Some are already profitable when they apply, and a few
more make it to profitability just on what we give them. But the distinction
is not a sharp one: most of the profitable companies would take money on
sufficiently good terms.

Though I don't mention this explicitly in the article, Demo Day isn't just for
raising money. It's a good way to get mindshare too, because the people in the
audience are so influential. So even the startups for whom raising money is
not a top priority usually try hard to be impressive on DDay.

------
danilocampos
Makes me wonder about how selection criteria shifts based on maturity of the
company.

What signaling does YC look for in a company whose idea was birthed a week
before applying, versus one who applies while their beta is in progress? Is it
as simple as "these guys are smart" in both cases?

I've met lots of guys way smarter than me with less motivation, so there's got
to be more to it.

~~~
pg
Mostly we care about the people, regardless of how far along the company is.
Which can be a problem, actually, because startups that have been running for
a while generally overestimate the percentage of the work that's behind them.

For us the most important thing about the company having been running for a
while is that it gives us more information about the founders. E.g. we can ask
them "what have you learned from your users?"

------
fatjonny
I enjoyed reading it. It is nice to read about what the startups in Y
Combinator go through.

Minor typos I noticed (since you seem like you want the feedback):

missing 'the': "to get the company into best shape possible"

spelling of predict: "know the investors but can preditct their reaction to
each specific startup"

see instead of seem: "no one except the current batch of startups gets to seem
them"

~~~
pg
Thanks; fixed.

------
bkudria
This is very interesting, but the topics covered make it seem like YC is only
focused on advising companies how to raise more money.

~~~
pg
Hrm, that's not good. Most of the convos are actually about the product. We
only switch to talking about investors towards the end of the 3 months, and
even then we talk more about the product.

Maybe it seems that way because this talks about all the stuff that's common
to all the startups, and the things to do with the product are usually more
startup-specific than those to do with investors.

~~~
bkudria
Right - my point isn't: YC only advises on investment topics, but: This
overview makes it look like YC only advises on investment topics.

I'm the last person to give you writing advice, but maybe some examples would
help.

------
guelo
The main insight I took from this was the quip about "investing in YC-funded
startups is safe in the same way buying name-brand products is".

Like many people I sometimes feel ripped off when I pay 50% more for that box
of Kellogs cereal or whatever. I imagine the same feeling might be the
motivation behind AngelGate.

~~~
shykes
There's a difference: YC's brand is not based purely on marketing. It's based
on the success rate of past YC companies, which is objectively higher than
average.

From an angel's point of view, YC is a deal refinery. Raw deals come in. High-
quality, refined deals come out. Many investors will gladly pay a premium for
those, because much of the early risk has been taken out: do the founders get
along? Do they crack under pressure? Can they ship something? Can they adapt
to changing circonstances?

YC figured out a repeatable, streamlined formula for a process which was
previously a black art. They industrialized the gut feeling. And they deserve
every bit of recognition they got for it.

~~~
ghshephard
re: "YC figured out a repeatable, streamlined formula for a process which was
previously a black art. They industrialized the gut feeling."

That's not my understanding. I don't think they have any formula other than
"We recognize great entrepreneurs when we see them" - It's not something they
can write down in a book and sell to other people - so, in that sense, not
industrialized. Still a gut feeling.

I could be wrong though - happy to hear otherwise.

~~~
shykes
You're leaving out an important part of the equation: the sheer number of
deals that went through YC, and the data associated with them. When you know
the complete story on 500+ founders, and look at which ones were successful,
patterns emerge. These patterns can be used to make better decisions and give
better advice.

Anybody who's talked to PG will tell you he is a walking database of startup
patterns. "I've seen X and Y do this and they failed. Don't do it". I'm sure
as YC scales, that database will be externalized to a medium other than PG's
brain :)

So, yes, there is a formula: it's called data.

------
someone_here
How much larger can Y Combinator get? 36 start ups is already a huge number.

~~~
pg
I don't know. One of our general principles with YC is to apply software
techniques to startup funding. So we approach scaling YC the way you'd
approach scaling software: we scale up till we hit a bottleneck, then we
remove that bottleneck and keep going.

Funding 36 startups at a time would have seemed impossible back when we were
doing 8. And in fact it would have been impossible to do 36 the way we
operated then. So how many will we be able to fund at once, after we've taken
advantage of whatever new techniques we discover for scaling? We can't say,
because we haven't discovered them yet.

~~~
davidw
I'm curious whether, and how, you're going to start pulling in alumni to scale
it up, and how that will turn out.

~~~
pg
Yes, in several ways. We hired Harj and Alexis, who are alums. We have some of
the alumni read the applications, in case we overlook any good ones. And the
alumni who come in to give advice about funding are fabulous.

~~~
davidw
In order to be self-replicating, you'd have to have alumni with relatively
large exits who then participate on more or less equal terms... is that
something you foresee, or is it going to just be too messy to add people that
way?

~~~
pg
I haven't thought too much about it. I usually focus on the bottleneck
immediately in front of us. But what we do is pretty parallelizable.

~~~
SkyMarshal
Maybe an eventual next step is creating a YCombinator for YCombinators - a
program to help your successful alumni do what you did and become successful
incubators/angels/VCs, while keeping them under the overall YC umbrella.

~~~
pg
I don't think you need multiple YCs though. All our experience so far suggests
it's better to have one big YC. Maybe there's some limit to scale, but the
optimistic hacker in me would rather prove that by hitting it than assume it's
there.

------
smountcastle
"At the end of Demo Day what the startups usually have is a bunch of potential
leads. Our default advice is to do a breadth first search, weighted by
expected value. ... There are a few investors for whom it should be zero, and
we can tell startups about those too."

Interesting. If you know beforehand that those investors' expected value is 0,
why invite them?

~~~
pg
It would be too much of a deliberate affront to refuse to let them even
attend. And not all the leads startups have are from the audience at DDay.
Since there are so many investors here, they often get introed to investors
before DDay through some other connection.

Also, zero is probably an overstatement. It would have been better to say
epsilon. Because most of these investors I would take money from if the
alternative would be to shut down the company.

~~~
aspir
How often do those situations happen (ie- take money from a low quality
individual or close the doors)? Startup sucess rattes are very low as a whole,
so it seems as if there may be a culture of "vulture" investors in SV to prey
on entrepreneurs who just need cash. It'd be good to know the warning signs.

~~~
pg
Maybe once per cycle. There doesn't seem to be a culture of bad investors;
they're all bad in their own ways.

~~~
davi
Reminds me of the opening to Anna Karenina: "Happy families are all alike;
every unhappy family is unhappy in its own way."

------
andrewacove
How frequently do companies grow (hire, add a cofounder) during the YC term?
Does that ever happen? Is advising on that ever part of the YC
role/conversation?

~~~
pg
Maybe 15-20% do. And yes, we care a lot about that, and often help not only in
advising but in recruiting.

~~~
StavrosK
Do you generally advise single-founder companies to add cofounders (it does
have its benefits), or do you think single founders are fine if they pass the
filter?

I guess my question is, do you see single-founder companies as missing
something (a cofounder), or does it depend on the founder?

~~~
pg
Yes, usually, though we don't insist on it. I think most single founders would
be better off with cofounders, but it's not worth taking someone mediocre just
to have a cofounder.

~~~
budu3
Have you ever had any successful single founder company came out of the other
end of the YC process?

------
jbgregg
Thank you Paul. It is great to have this detailed information that fills in
all the gaps I have wondered about.

------
fredliu
Great article! (it surprised me that I read the whole article in one shot
without evening noticing it was that long!)

One question (maybe a bit sensitive): all the glory of successful YC startups
aside, what are the "failure rate" for YC funded startups? What situation
would you consider a "total fail", if that ever happened?

And another related question is based on which criterion would you consider a
YC graduate successful? user base? the amount of money raise? financially
break even? profitability?

thanks.

------
YuriNiyazov
I found the following sentence to be hard to parse:

"The general answer is to pick something where the product of how fast it can
be built and how excited users would be about it is high."

~~~
Swizec

        x = speed-of-implementation(idea)
        y = usefulness(idea)
        rank(x,y) = x*y
    

Something like that I think.

~~~
patio11
That is accurate parse as written. I think the even more dramatic conclusion
suggested by Lean Startup is it is probably max(y1..yN)*C^(90/x), where y1 is
the utility of your first idea and x is average number of days it takes you to
learn one important thing (a full cycle through the idea, implement, measure,
conclude loop).

Scary stuff starts happening in any business when you take the limit as x
approaches zero. (This came up in client work today.)

~~~
budu3
What is C?

~~~
patio11
A constant, for simplicity. Call it your lower threshold of the impact one
good idea makes on your business. (I have a mental target at C = 1.05 but at
YC stages there is almost certainly a company with C = staggering.)

------
jeremydavid
If a YC startup was to never be acquired, what sort of dividend structure
would you think is ideal? What sort of returns would you consider a
"successful" investment?

------
adlep
This may be too direct question to ask, but I will anyway to have some points
of reference...

1\. What do you - at YCombinator consider to be your best example of a
successful start-up? If you can name that company, that would be awesome and
appreciated.

2\. On the other hand, what do you consider to be a flat out failure? An
example of an idea that totally did not work? If you could name this venture,
it would be appreciated too.

~~~
pg
I can't pick favorites, but it's pretty easy to see what the most prominent
YC-funded startups are.

One good example of a bad idea that I can quote without hurting anyone's
feelings is Artix: <http://paulgraham.com/bronze.html>

------
tgriesser
In your essay about the application process you discuss figuring out what the
combination of founders are (e.g. two hackers, one business one hacker, two
hackers one business...different stages of their careers) and you have seen
about 20 or 30 different founder combinations.

Have you noticed any particular combination that seems to work better than the
others across the board, or does it depend on the startup?

------
hyad
Great article! Just reading this finally motivated me enough to create an
account here and seriously think about applying for winter 2011. After some
reconsideration though, I'm not quite sure I'd be willing to quit my day job
just yet. I have a few ideas for startups and one project I've been working on
in my spare time that is interesting but nowhere near complete. Would it be
worth to apply anyway? Perhaps I could list all the ideas I have or maybe just
the best one? I was also thinking about applying to the YCommonApp. But I'd
prefer to target my resume to specific companies just because that has worked
for me the best in the past. Anyone have advice on what might be a good route
to take? YCombinator funding? YCommonApp? Both or neither?

~~~
hyad
To reply to my own comment: I probably should have signed up to attend this -
www.startupschool.org The deadline was 3 days ago. D'oh! If anyone who had
signed up is reading this and has to cancel, let me know if I can take your
spot. :)

------
cperciva
_It's a bit misleading to call these events "dinners" though, because they
last half a day.

People start to show up for dinners around 6 pm._

This seems wrong, unless the YC dinners conclude at 6 AM.

~~~
pg
I meant half a _waking_ day, cperciva. When someone says "I spent half a day
trying to find that bug," they don't mean 12 hours.

~~~
cperciva
_I meant half a waking day, cperciva._

Huh. That never occurred to me as an interpretation.

I wonder if this is a British vs. American vs. Canadian English issue, or if
I'm just slower than usual today.

~~~
ghshephard
I'm from British Columbia originally, Half a Day (in the dinner context) is 12
Hours to me. I'll do a sample of the Indians, Canadians, and Americans in the
office and get back to you.

This may be another of those "organ-eye-zation" versus "organ-eh-zation"
things that pop up form time to time.

~~~
lincolnq
American here. To claim that something takes me half a day, I would usually
interpret that as half a working day, so 4-5 hours. I brew beer, and I tell
people that "beer brewing takes a full day" -- if I start brewing at 8:30 then
I get done before 5. Yeah I could do some other stuff afterwards.

Oh, and it's "organ-eh-zation" through and through. :)

------
andjones
How exportable is YCombinator? Much of YCombinator depends on people being in
the same geography. I understand that to be the reason why founders are
required to move to Mountain View.

Do you think it would be possible to start YCombinator prime elsewhere in the
country? If we put together many of the same factors, angels, infrastructure,
good mentors, could this be replicated, albeit on a smaller scale?

~~~
adbachman
He's written about this in the past. "Can You Buy a Silicon Valley? Maybe."
<http://paulgraham.com/maybe.html> and "How to Be Silicon Valley"
<http://paulgraham.com/siliconvalley.html>. He trends towards, "go to them",
though: <http://paulgraham.com/startuphubs.html>

It comes down to people, money, and time. Exporting Silicon Valley might be
the wrong approach. Another place must have its own culture and value system
in order to survive and those qualities can't be borrowed.

Boulder, Boston, Austin, and to some extent NYC and a few other east coast (of
the US) cities (my heart belongs to Baltimore) have burgeoning scenes, but
each is different than SV. Where they don't try to simply mimic, I think
they're more likely to find success.

------
sperry
Very impressive. I hope to someday apply, but being a very novice technical
founder, that day may be much farther down the road.

------
jbhelms
What do you recommend to the founders that can't move to the bay area? Like
people who own homes, have a family, etc? I know the YC requires it. I once
emailed and asked about commuting because my co-founder and I both live in
Sacramento, but the person who answered my email basically said that commuting
is not feasible.

~~~
pg
We funded some guys from the Central Valley once, with houses and families.
They rented a place in SV for 3 months, and they'd go home on weekends to
visit their families.

------
r00k
Typo: "We make a point of introducing speakers to those who particularly want
to them."

~~~
pg
Thanks; fixed.

------
pclark
> Dinner itself happens around 7:15. Everyone eats together at long white
> tables designed by our architect Kate Courteau. The general atmos is like a
> modernist version of an Oxford college dining hall, but without a high table

seriously?

~~~
barry-cotter
[1] There was some debate whether to keep this analogy, lest it seem a
pretentious comparison, but I kept it after Harj, who went to college there,
insisted the atmos was in fact very similar.

------
nileshtrivedi
_If we broadcast or even recorded the talks, the speakers would clam up._

How about anonymizing it by removing the names of the startups/founders before
publishing ?

~~~
barry-cotter
It took less than an hour for someone to figure out the Partner and Venture
Firm Steve Blank was referring to in his post that was approximately called
"You're Just the Founder". Now admittedly he tagged the post with the name of
the company so it was easier, but still.

 _Anonymising information while leaving it usable is hard to the point of
(near?)impossibility_

~~~
eru
How about recording (with permission), and asking in a few years time whether
you can publish it? Some issues just need to cool down.

------
dzlobin
_If the startup either hasn't decided what to work on_

Approximately what percentage of startups do you accept that apply with no
particular idea?

~~~
pg
Nearly all have some idea or ideas. Some make it clear that they're not wedded
to their idea, which is fine with us, actually.

~~~
HectorRamos
I've been eyeing YC for a while and this post has convinced me to apply.

I quit my job three months ago and have been doing consulting work in order to
generate enough runway to finally dedicate ourselves fully to our own product.

I think we will be done with all of our current gigs by november, so the
Winter YC cycle looks VERY attractive right now. We have a couple of ideas,
and it seems like we might have enough time to get started on them before YC,
but still be flexible enough when the cycle starts.

~~~
nitrogen
I hope you are able to finish your consulting when you expect, but it's my
experience that it almost always takes longer.

------
rafaelc
Are there any downsides to being in Y Combinator?

~~~
pg
There are two I can think of: you have to move, and you have to give us some
stock. But I'm pretty confident that in both cases what you get in return more
than compensates.

------
paramendra
This is an amazing piece of writing by Graham. If he is as good a coder as he
is a writer, he must be really good. <http://goo.gl/fb/sfxTi>

------
abbe
stays at Y Combinator!!

------
Johngibb
Stays at YCombinator?

------
eduardoflores
Awesome, I envy you

------
gosuri
Stays at Y Combinator

