
Why I turned down my Y Combinator interview - rsweeney21
https://www.facetdev.com/blog/posts/why-i-turned-down-my-y-combinator-interview/
======
chubot
Joel Spolsky wrote about this 16 years ago:

[https://www.joelonsoftware.com/2003/06/03/fixing-venture-
cap...](https://www.joelonsoftware.com/2003/06/03/fixing-venture-capital/)

 _The fundamental reason is that VCs do not have goals that are aligned with
the goals of the company founders. This creates a built-in source of stress in
the relationship. Specifically, founders would prefer reasonable success with
high probability, while VCs are looking for fantastic hit-it-out-of-the-
ballpark success with low probability._

...

 _Even though the second model has a lower expected return, it is vastly
preferable to most founders, who can’t diversify away the risk, while VCs who
invest in dozens of businesses would prefer the first model because it has a
greater return. This is just Econ 101; it’s the same reason you buy car
insurance and Hertz doesn’t._

Though to be fair, he also explained why he took VC for StackOverflow at
Startup School 2012. Basically this:

[https://www.joelonsoftware.com/2000/05/12/strategy-
letter-i-...](https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-ben-
and-jerrys-vs-amazon/)

tl;dr StackOverflow has a network effect and needed to scale fast.

------
arciini
A lot of points resonate with me, but here are some counterarguments to me
that resonated quite well:

1\. As a first-time founder, YC (the community + the program itself) is a
great education. I've learned a ton about different growth channels at a
"growth bootcamp", about different possible business models (through the
companies that have come and done talks and those in our small group), and
about the pitfalls of a startup (through the former founders who are both in
the batch and presenting at the talk). All of these have compressed a lot of
informal learning into formal/less-informal lessons

2\. You still get to choose how to run your company, unless you give up
majority voting shares of your company and/or board control. Even that
decision is ultimately up to you. It's important to go into every conversation
having a good idea of what is best for you and your company, and then to
consider what is best for the investor. You will face pressure, but it's
essential to have your own perspective in mind and be steadfast in crucial
circumstances

3\. The community and credentialing is amazing. YC has a reputation that helps
to hire and partner with other important companies and people

4\. I put this last, but to some founders, this is the most important part. If
you are raising money, Demo Day is just a completely unique circumstance to do
it

I definitely don't regret doing YC, but I seriously considered not doing it
before. I'd bootstrapped all of my past companies, but points 1 and 2 here
were the ones my friends mentioned that convinced me to do it

------
m_ke
These days going through Y Combinator practically guarantees success for
B2B/SaaS startups. Their network is so big now that you can hit growth targets
that most VCs look for just by selling to other YC companies. Then you can
throw the late stage logos on your landing page and use that to lure in
enterprise customers.

~~~
edouard-harris
Among many of YC's advantages, they do signal boost your company in a lot of
important ways. But if you don't make something people want, no accelerator in
the world will save your company from dying.

~~~
m_ke
My statement was conditioned on getting into YC, which is really hard to do if
your product sucks or has no traction.

Even with a weak product you'll be in a much better position because you'll
able to meet with a lot of other founders/potential customers and get valuable
feedback.

~~~
tptacek
Oh, I don't think that's true. From what I can see and what I've heard from
friends that have been through YC, they take a lot of flyers. That's part of
the point.

------
tin7in
"Venture capital gets so much attention in the media that it’s easy to forget
that it’s not actually necessary."

I'm running a small bootstrapped company and am helping a friend's project
with fundraising. Some of my friends are also VCs in London, so I see both
sides of the table. Very often I am part of discussions about fundraising with
founders who barely have any traction with their products but are obsessed
with fundraising.

I wish there are more stories about actual product building instead of people
closing funding rounds.

~~~
stevoski
If you are looking for people who discuss startups they are building without
VCs and fundraising, some of us are here:
[https://discuss.bootstrapped.fm](https://discuss.bootstrapped.fm)

------
shafyy
I was expecting a shitty article after a clickbaity title, but was positively
surprised. Not new information, but well argued!

~~~
fictionfuture
I agree. To support it, my first company was bootstrapped and did around $10m
in revenues but then was ultimately killed by competition and ecosystem
issues.

I pocketed most this money (after taxes) ... had I raised money I'd be broke
right now...

~~~
grwthckrmstr
Kudos to you for building a company to $10mn revenues. I hope to achieve
similar success in the coming years and honestly, I'd pat myself on the back
of I just hit $1mn revenues with decent profits.

------
kerng
Over the years there was a shift from let's change the world by creating great
technology to let's make a quick buck.

The motivation seems to have changed, and its showing...

~~~
xiphias2
I believe ,,let's change the world'' was most of the time a way for
employers/shareholders to make employees work insane hours.

Elon Musk is changing the world, works insane hours, but still lives the
billionaire lifestyle by lending against his Tesla stock, while the other
employees just get the insane hours part.

~~~
randomsearch
Fair point, but bad example.

------
danvoell
I don't view YC as a VC, am I wrong? This whole post is about VCs pushing you
to the brink. YC doesn't push companies too hard, do they? Why not do YC and
NOT raise VC money afterward but take advantage of the network?

~~~
rsweeney21
YC is a non-traditional VC, but still a VC. VCs expect a certain growth rate
(2-3x annually for the first five years) that almost always requires follow on
funding.

You could do what you are describing, but if you are up-front with your plans
to grow slowly, most VCs will pass on you.

~~~
ksikka
1\. What are you basing this answer on? 2\. If you don't want to meet their
expectations, what can they actually do?

~~~
rsweeney21
1\. Hundreds of pitch meetings with VCs. Plus they are pretty open about their
expectations.

2\. Fire you. Sue you for fraud. Talk badly about you in the media. Not saying
they would, but there is a lot a deep pocketed VC could do to make your life
miserable. It's generally a bad idea to lie to your investors. :)

------
muzani
VCs are useful in the longer scale of things. Sure you can build a $100M
company or so bootstrapped, but by that time your competitor will be at $1B.

Whether or not you want this depends on the product you're doing. Several
companies tried to make an operating system for touchphones. Out of them only
Android was acquired and successful in the long run. Plenty of digital game
distribution platforms tried to grow, but were choked out of the market by
Steam.

The author is working on contracting specializing in American companies. The
market for that is big enough. Or if you were, say, a community based baby
stuff e-commerce, which can compete with Amazon, that works too.

The other thing to note is that YC partners say they go big to have the most
impact on society.

------
lnsru
Good luck bootstrapping biotech or robotics company! Of course it’s better to
be sole owner, but it does not work when building product takes years.

~~~
JabavuAdams
What about subcomponents? I.e. becoming a supplier for these industries? Can
you bootstrap an actuator company?

~~~
lnsru
I am currently analyzing how to launch robot affector business in Germany.
With physical goods I must be present during sales pitch, video is not enough.
It collides with my current corporate job, but it is doable. What kind of
actuators do you sell?

~~~
JabavuAdams
I don't sell any. I just went back to school for Physics and am finishing up
first course on EM. I'd like to simulate and build motors from scratch.

~~~
lnsru
You need decent manufacturing capability for decent motors like these:
[https://www.siemens.com/press/en/feature/2015/corporate/2015...](https://www.siemens.com/press/en/feature/2015/corporate/2015-03-electromotor.php?content%5B%5D=Corp)

------
eerburu
But how are the chances of an exit with a company of that scale?

How big is the market for "niche" companies being acquired for USD 50m, if it
was bootstrapped? It seems that there are a lot of acquisitions or acquihires
in that range if you are VC funded and are working on innovative tech that
makes sense for bigger companies to acquire. But if you are focusing on
revenue/profits, and lets say you get to $6-$10m usd in revenue, who are gonna
buy you? And an IPO doesn't seem factible since you are not big enough. And if
you are outside USA its even a harder sell. I guess it could happen that a lot
of transactions of "niche" companies exists in that price range but they are
not publicized by journalism because they lack relevance, and that would give
you a biased perspective of lower sales of companies, but I wouldn't be that
sure of that hypothesis. So, what do you think about the odds of exits
strategies for a $30-50m bootstrapped startup?

~~~
rsweeney21
If you are profitable, there are a truckload of people that will want to buy
you. Private equity, other companies, holding companies.

Look at it this way - say I'm super wealthy and I have $100M sitting in my
bank account. It earns a tiny interest rate at the bank. Where can I put it to
work for me so that it's growing? One option is to buy a company for $100M.
For $100M I can buy a company that produces $10M/year in profit (roughly
speaking). Now I'm earning a 10% annual return on my investment. I might even
be able to grow the company, so when I sell it 5 years later, I sell it for
$200M. So I've taken my $100M and turned it in to $250M.

That's the great thing about profitable companies. There is almost always a
buyer.

------
lettergram
It really depends on your business. My company is building a system _for
businesses_ and working with VCs (or YC, if accepted) would be valuable for
us. It’s a sales tool, essentially.

In addition, there are cases such as building rockets or a factory or other
regulated industries where you need capital. If you can bootstrap, do it.
However, many people don’t have the upfront investment, connections, or
education (in the case of YC).

I agree with the author if we were discussing standard “dumb money” VCs. But
in this case, we are discussing YC, it’s community, reputation, and
educational resources. You don’t technically need to take more money, just
take the 7% hit and gain access to more resources. It may be worth it (it also
may not), it depends on the situation.

------
tzhenghao
I think the case for taking VC money is because some startups have hard and
expensive products that require huge upfront capital to realize. This could
mean hiring a team of engineers with significant expertise in the area as well
as purchasing hardware that aren't entirely off-the-shelf. If you want to
build flying motorcycles [1] or rockets, chances are you need some financial
aid unless you're Elon Musk.

Aside from that, bootstrapping and not raising money could work for you.

[1] - [https://techcrunch.com/2019/03/07/ycs-latest-moonshot-bet-
is...](https://techcrunch.com/2019/03/07/ycs-latest-moonshot-bet-is-a-startup-
building-a-380k-flying-motorcycle/)

------
jasode
_> Venture backed companies only have about a 1% chance of reaching a $1B
valuation. [...] I’m sorry, but you aren’t the 1. You are the 99 and your
startup isn’t going to become a unicorn. [...] Why play a game that has such
terrible odds of winning?_

Because people have _always_ liked to pursue things that interest them
_regardless of the odds_.

(cue Han Solo's _" Don't tell me the odds!"_)

Why do aspiring writers work on novels with long odds of it ever being a
bestseller on NYTimes -- or even being published by a reputable publisher for
that matter? Because, writing is what that person wants to do. Telling them
it's a "waste of time" isn't going to change their mind if writing is what
makes them happy.

Why does the high-school basketball player keep working on his jump shot even
though the odds of NCAA players getting picked in one of the 60 slots of the
NBA draft is ~1%? It's because playing basketball is what interests him.

Same for aspiring actors pursuing Hollywood fame that probably won't happen,
researchers toiling away on scientific breakthoughs that may never
materialize, startup founders building elusive unicorns, etc.

Yes, the similar DHH essays promoting "bootstrapping" and "slow growth" are
always highly upvoted on HN because VCs are widely perceived as detrimental.
However, both your and DHH's philosophy leaves out a crucial detail: _What is
the entrepreneur interested in working on?_

If the interests happens to be a business that can be bootstrapped, then
great. Pursue that option. However, if it's a business that requires millions
to build out infrastructure (e.g. many consumer-facing websites), somebody
with deep pockets (e.g. VCs) is the typical financing option since banks won't
provide loans.

~~~
rsweeney21
There are many ways to bootstrap consumer facing websites and other businesses
that require a lot of early capital, you just have to be creative. I'm just
trying to get people to think outside the "VC is the way" mindset because it
burned me and because the experience wasn't what was promised.

~~~
jasode
_> There are many ways to bootstrap consumer facing websites and other
businesses that require a lot of early capital, you just have to be creative._

Yes but other financing options such as crowdsourcing (e.g. Kickstarter, or
blockchain initial coin offerings), or charging consumers via subscription
payments ... all have their disadvantages compared to VCs.

Another factor that may handicap your business is how your _competition is
financed_. E.g. if your competition has $10 million in VC money but your
business sticks to "bootstrapping" out of principle to stay anti-VC, you will
be outspent in scaling out and may fail anyway.

Really, the critical advice is to be _smart_ about analyzing the VCs and their
financial terms before accepting their money. If VCs don't make sense for your
particular business, don't do it.

~~~
rsweeney21
Exactly. Venture capital is not bad. There are pros and cons.

------
docker_up
I think the biggest difference between today and 20 years ago when I first go
into Silicon Valley is that most founders are generally already planning their
exit. There are a lot of startups whose mentality is "get big quick enough so
that we can get bought out by Google/Facebook/Amazon/etc". And unfortunately
this is a legitimate play because it leads to quick payouts so it motivates
founders and VCs alike.

It's a fair mentality but it changes the nature of the game because most
founders back in the 20th century wanted to helm their company until their
last dying breath. So the fact that this person is already targeting a $50M
exit makes it less interesting to me. I just don't think I would get excited
working for someone I know with that short term of a mentality.

~~~
reaperducer
_There are a lot of startups whose mentality is "get big quick enough so that
we can get bought out by Google/Facebook/Amazon/etc"_

Yep. I worked with a startup that, after a few months, obviously had this as
its primary motive. They made an app similar to another big-name (at the time)
app, with the intent of having that bigger app buy them out.

When the big fish didn't swallow their little fish they blew all of their
remaining cash on a big party in New York and flew in all kinds of bold-faced
names to bring attention to themselves. And it worked. A few months later they
were eaten by another company, everyone lost their jobs, and the founders
retired at 31.

The irony is that a few months after that, its only competitor "pivoted" and
abandoned the space it was competing in. If the small fish had held on, it
would have owned that market.

~~~
lozzo
It's hard to fully appreciate this story without you naming names. Any reason
why not to ?

~~~
reaperducer
Basic human tact. If I was mad at the company, I would probably overcome
decorum and dish. But I wasn't an employee, just someone involved with the
company.

I gave them data from my company, and they gave me things in return. Through a
bunch of sales that database ended up being the core of a large mobile app
that's a household name, but you'd never know it from the outside.

------
pbreit
Not compelling.

1) Go for the experience. If you get accepted, take the $100k+ and invaluable
mentoring.

2) There is no requirement to play the VC's game. Take the money and play your
own game.

~~~
liamcardenas
It is my understanding that YC only funds companies that have a shot at being
unicorns (I am happy to be corrected here). If you are aware of this fact, and
a "lifestyle" business is your goal -- is it not dishonest to accept YC money?

~~~
dgudkov
>Take the money and play your own game.

Any example here?

~~~
pbreit
Minority investors have zero control over you. People think they have to play
the VC's game and they simply do not.

~~~
avinium
As with everything, the devil's in the details.

If your funding arrangement allows a minority investor to veto future
fundraising, subordinate liquidation preferences, etc etc, they can kill your
company.

Of course, most deals aren't on such onerous terms - but they do happen.

------
idlewords
I would add two things to this argument for building a normal business:

* You can make something lasting

* If you dislike authority, and like independence, this is the way to go

------
_bxg1
I'm not an economist, but the SV economy (which has become a nontrivial chunk
of the US economy) just doesn't seem like it can keep doing this forever. The
driving ethos is to throw everything related to building a sustainable
business out the window, in the interest of cashing-out as fast as possible.
Slash-and-burn capitalism. That's not how you create jobs. That's not how you
grow an economy. That's how a few people get very rich very quickly. "Move
fast and break things", as it were.

~~~
anonuser123456
Those few people only get rich by providing useful services at scale, and
those useful services definitely cause the economy to grow.

------
setgree
"There are other things that are important to me that I didn’t want to give
up, like

* I have total control over my company

* I can’t be fired"

I know what this author is getting at, but as an employee, I _like_ that my
boss could be fired if they, e.g., were sexually harassing employees.

------
EGreg
Can someone elaborate on this? It makes no sense to me:

 _The risk profile of your company increases dramatically when you take VC
funding. You start spending more money than you are earning, your focus shifts
to raising your next round, and your VC now has veto authority over the sale
of your company. Your company is now a ticking time-bomb._

You can literally NOT do those things. All the VC has is signaling. Theh can’t
block your future raises, only have drag/tag along rights, first refusal or
whatever.

~~~
rsweeney21
VCs purchase a different class of stock than you have as a founder, called
preferred shares. It is standard to require a majority of the preferred shares
to authorize a sale of the company.

See this article for a standard, clean series A term sheet.
[https://blog.ycombinator.com/a-standard-and-clean-series-
a-t...](https://blog.ycombinator.com/a-standard-and-clean-series-a-term-
sheet/)

~~~
CalChris
_Approval of the Preferred Majority required to ... including a Company Sale._

However, that is a Series A term sheet. When you turned down YC, wasn't that
at the seed stage? You would have still retained control until you converted
later.

But are you saying that even only accepting a SAFE puts you on an inevitable
path?

~~~
rsweeney21
If you raise seed funding, the expectation is that you will continue to raise
money to fuel your growth. Even if your SAFE or convertible note doesn't have
those terms in it, your first priced round will and all previous investors
will inherit those rights through their preferred stock.

~~~
CalChris
_Expectation_ is one thing and _Term_ is another. Is it possible to raise seed
funds with the expectation of early profitability? This is very much like your
approach but still with a seed investment just without Series A handcuff
terms.

Google did something like this. They wanted to avoid VC as much as possible
and when they did get an A round it was on their terms.

------
thisisit
I think the amount of VC bashing in the post is unwarranted. It makes it sound
like VCs make fat salaries on the backs of other people - either in form of
investment or startup founder's hard work.

The fact is that some founders, including the author, feel that VC
confirmation is a validation of their idea/business. So, while founders
shouldn't raise huge amount of money for niche projects they do it anyways
because that's how they see validation of their idea.

~~~
throw8585851
>It makes it sound like VCs make fat salaries on the backs of other people

B..but that's what they're doing

They're betting with demands

------
iamkoby
YC is not a VC, they are more of a community.

------
akkadak
I think you have fear of failure.

------
sacheendra
One of the requirement listed to apply via the author's company is native
fluency in English. How do they evaluate that? If it's some test, I am not
aware of any test which measures this. If it depends on where you are born? Is
that kind of stratification legal?

~~~
doughj3
[https://en.wikipedia.org/wiki/Test_of_English_as_a_Foreign_L...](https://en.wikipedia.org/wiki/Test_of_English_as_a_Foreign_Language)

I have seen this used in Grad school applications by ESL students.

~~~
hiccuphippo
There's also the ECPE [https://michiganassessment.org/test-
takers/tests/ecpe/](https://michiganassessment.org/test-takers/tests/ecpe/)

But neither test "native"-ness. Just fluency.

