

I Don’t Understand Y Combinator Hate - gaz
http://www.techcrunch.com/2008/08/18/i-dont-understand-y-combinator-hate/

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cperciva
I think part of the reason for the Y Combinator hate is that the valuations YC
offers are so low and it's not clear whether YC significantly helps the teams
it funds. Wait, don't throw those tomatoes, let me explain!

The valuation YC offers -- a median of 250k for a two-person team -- would be
absurdly high if it was being offered to _any_ team of two recent college
graduates; but YC doesn't make offers to just any team. YC only picks the best
teams (about 5% of applicants if I'm remembering the statistics correctly)...
and it's not unreasonable to expect that the top 5% of teams are worth far
more than average.

Similarly, the chance of a YC-funded team succeeding (for whatever definition
of "success" you choose) is much higher than the chance of a non-YC-funded
team succeeding -- but this doesn't necessarily imply that YC is helping the
companies it funds. It might just be that YC is very good at picking winning
teams.

This isn't to say that YC is making all of its money by taking advantage of
the people it funds, though: Simply by selecting those top 5% of teams, YC
provides a very valuable service -- distinguishing teams which have a 50%+
chance of success from those with a 5% chance of success, and encouraging the
teams with a 50%+ chance, is certainly economically useful; and the profit
which accrues to YC as a result of that is not qualitatively different from
the profits which any other smart investor makes by figuring out that a stock
is undervalued -- in both cases, the investor is doing work to increase the
efficiency of a market.

The economist in me wishes that we could experimentally separate the selection
process from the 3 month YC program in order to determine their relative
importance -- but somehow I doubt the YC crew would be interested in running
an experiment where they either (a) pick good teams and only fund half of them
(in order to determine whether the teams they identified as good were likely
to succeed with or without YC), or (b) fund a "good cohort" and a "bad cohort"
of applicants simultaneously (in order to determine if being funded by YC is
enough to make anybody successful).

(In addition to the difficulty of running such an experiment, the YC crew
might not want to have this question answered: They probably don't want to be
confronted by teams saying "well, _were_ interested in being funded at a
valuation of $200k -- but knowing that YC thinks that we're a strong team has
resulted in us increasing our self-valuation to $800k".)

But in the absence of experimental data, the question remains open, with all
the attached room for anti-capitalist hatred: Does YC help the teams it
funds... or are they just shrewd investors?

~~~
pg
I think the explanation usually is more emotional and less analytical. People
start to dislike anything that gets a lot of publicity. Everyone is
susceptible to this to some degree, but some people more than others.

As for the question of whether we help people or not, I don't think many
people who know what goes on inside YC would argue that we didn't improve
startups' prospects by 6.4%, which is what we have to do to earn our keep.
Considering the amount of effort we put into it, we'd have to be pretty
ineffective not to manage that.

~~~
shafqat
PG - I think no matter how well or how often you try to explain this point,
the real haters don't understand the derivation nor the impact of the 6.4%
figure. If they did, it would be a moot point!

~~~
bootload
_"... I think the explanation usually is more emotional and less analytical.
People start to dislike anything that gets a lot of publicity ..."_

No but explaining this might help HN readers to resist posting these types of
stories.

Competition of any sort generates _"trash-talk"_ from competitors and the
like. Joel has a nice explanation in _"Fire & motion"_ ~
<http://www.joelonsoftware.com/articles/fog0000000339.html> why competitors
might do this. HN readers are ( _"unnecessarily"_ ) getting caught up in the
cross-fire.

------
nir
Note that Lacy's original post contains links to and descriptions of current
YCombinator companies.

TechCrunch also usually covers every YC project as it launches.

This is the main value of YCombinator: It provides guidance and media exposure
that would otherwise take years to achieve, if at all - how many people can
say that every project they do will get a story on TechCrunch?

Judging it as a VC company is misguided. The money involved is less than a
year's tuition in many US colleges, and the recipients are mostly young enough
to just live with their parents for a few months, and not need it anyway. The
funding is minor, but the other parts - startups _pay_ , a lot, to get this
level of publicity and consulting.

I'd go with the "record label" metaphor instead of Lacy's American Idol one
(I'm older ;)): Find talent, give them some producer and studio hours to
record a single, then use your connections with DJs to get it some airplay
hope it will catch on. Watch "24 Hour Party People" for more details :)

The one piece missing here, though, is the fact that ultimately the public
(pre-mp3) was paying money for the singles. YC's audience is big companies
with money to spend - it may prove less sustainable in the long run.

~~~
pchristensen
Why would big companies with money to spend be a less sustainable customer
than music single consumers?

~~~
nir
Because there are less of them, and the value they get out of buying companies
- especially companies who don't earn money - isn't completely clear. (I'm not
saying there isn't any, just that it may be harder to explain to stock owners
in a down market)

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bitdiddle
With all due respect to the talents of the best and brightest college grads,
250K, or 125K per head seems about right when compared to the starting salary
those grads could get at a MS or Google. YC puts up a bit of funding and takes
a small cut.

More importantly, I think is that it's giving young programmers a big leg up
in understanding how the VC game is played and an opportunity to build a
software career that is very independent. For really good programmers I
suppose there is always demand, always a place to work and more or less define
your own path. But if you sell your company for 15 mill, you get a nice piece
of what I like to call FU money.

I've sort of followed this YC project from the beginning as an outsider and my
sense is that the folks behind YC are putting back some of their good
fortunes. It's a cool way to spend some of their money and possibly grow it
even more.

All the negative press and trash talk about burned out programmers, etc. looks
to me like a good measure of success. The others are looking at the backs of
your sneakers

------
pg
BTW, if anyone is wondering why Arrington is making a big deal over a
moderately negative article, it's been rewritten since it was originally
posted and most of the more egregious mistakes removed.

~~~
gruseom
I was wondering that a little, since the article (by the time I got to it)
didn't seem particularly hateful. But it didn't seem very insightful either.
It's pleasing (and a healthy sign) that it hasn't gotten any traction on News
YC.

------
dcurtis
" _Remember, these startups are usually 2-3 people with little more than an
idea. Generally speaking there are few other investors who will be willing to
invest in them until they have some sort of code written or an initial product
out the door._ "

That's not exactly true. I think majority of the startups were launched or had
extensive prototypes before they joined YC.

This makes sense, because it filters out the people who are too lazy or not
motivated enough to build an amazing product. (But it also filters out very
smart and motivated people with awesome ideas who are too busy, as many smart
people are.)

In any case, the risk that YC takes isn't quite as big as investing in two
kids with a pipe dream. All of the founders seem to be carefully selected for
their propensity towards success.

~~~
mattmaroon
That seems to only be true of the last batch or two.

------
ojbyrne
Sarah Lacy writes fantasy, not journalism. Ah, I suppose I should say more.
For the technical co-founder (the person who writes the code) YC offers the
opportunity to complete avoid the "professionals" that are brought in to run
things (often into the ground). Sarah makes her living writing PR fluff to
support those same people. YC is a direct threat to her source of income, and
thus needs to be attacked.

------
13ren
Most YC companies seem not to be technically revolutionary, but applying
existing technology to solve real problems (not a criticism, an observation -
after all, there is great opportunity there for making money).

\- Are there any technology-based startups funded by YC?

\- A proxy could be patent applications: how many YC startups have filed for
patents?

~~~
emmett
YC startups are often technology companies; I'd argue Justin.tv, where we
wrote our own video server software from scratch, would count. The ones who
file patents tend to be slow burn, and are still under the radar.

~~~
13ren
Thanks for explaining the slow-burn/patent correlation.

I'm looking at Justin.tv, and I've never seen smooth live video online before.
It's consistently smooth (though minor freeze-frames every so often). Your
implementation is a better method for live video.

Is this because your implementation is coded better - tighter, more efficient,
cleverer - or is there a fundamental new insight behind it, that makes it
faster?

~~~
emmett
It's just better coded, for the most part. It was actually better before we
started growing a lot; now we have scaling problems. We're working on
smoothing everything out now.

Of course, there have also been insights that I think may be fundamental, but
they aren't patentable as far as we know.

~~~
13ren
Whenever clever people work on new problem-spaces (ie. not yet mined-out),
they have good chances of being the ones to have the fundamentally new
insights; so your odds are good.

But the two kinds of technology-based businesses make me think of Google's
technology: server implementation (fast results) and pagerank (relevant
results).

------
rgrieselhuber
I don't get it either. It's a good thing to see a new model of investment in
small startups and the education / training that apparently comes along with
YC investment is practically unheard of (in my experience, anyway) in other VC
firms.

Most of the criticism that I've seen seems to come from, well, critics, and
not people who actually build stuff so that may have something to do with it.

------
jnovek
I think much of what we see here is the media engaging in the age-old
sensationalist tradition of turning on its darlings.

However, I think there is some legitimate discussion going on in these anti-YC
articles.

For example, it is an interesting and open question whether it's wise or
healthy for the market to develop so-called "built to flip" companies. While
YC isn't exclusively in the built-to-flip business, it happens to be a vocal
advocate for this model where there once was none.

Generally, PG (chief ideologist for YC) is interested in doing disruptive
things in the realm of startup funding. Disruptive people tend to often be
both spectacularly right and spectacularly wrong -- PG no exception -- and I
think that traits make a person more polarizing.

I don't think it's necessarily a knee-jerk to dislike a company because you
disagree with it's chief ideologist. Look at Apple and Steve Jobs -- it seems
to me that everything about the guy permeates every nook of the company. If
you don't like him, you're probably not going to love Apple products.

------
colortone
the original post on Sarah Lacy's blog is atrocious, I can see why MA
responded...

~~~
raganwald
If I may agree with your sentiment, while disagreeing with your conclusion:

 _the original post on Sarah Lacy's blog is atrocious, I can't see why MA
bothered to respond_

It seems like publishing link bait never fails to garner an undue amount of
attention.

------
j2d2
Honestly, I didn't know there was any Y Combinator hate... I suspect that
particular attitude might be local to the start-up center of the US where Y
Combinator is direct competition for the other residents.

I'd like to say that I have learned a LOT from reading the contents of this
site. I'd imagine any YC hatred is a sign that YC is actually do it's job
well!

------
chaostheory
I guess I've been living under a rock lately... I've only seen one article so
far

------
demandred
so the answer is to write ... an article whining about the whiners???

~~~
danielha
He isn't whining in the least bit. I think it's a perfectly fine Sunday night
article, given how apparent it is to anyone reading TC's article comments how
many people are especially critical of YC companies and YC itself.

It's true that YC companies receive more exposure than similarly-early non-YC
companies. Well, that's one of the benefits. With YC acting as some sort of
filter for minimum quality, blogs like TechCrunch know there's at least
something worth looking at.

