
Was Y Combinator Worth It? - chengyinliu
http://techcrunch.com/2014/02/15/was-y-combinator-worth-it/
======
birken
I think you are mixing up a correlation vs causation effect.

The first thing is there is an extremely important causation effect, the more
investors you have, the easier it is to get more people to invest (social
proof).

So, inbound vs outbound:

If you have a lot more investors already committed, you have a lot more social
proof. Naturally if you have more investors, you will have a lot investors
talking about your deal to other investors. Thus, the people who contact you
inbound want to invest. However, it has nothing to do with the fact that they
are inbound, it is just that by the time they are contacting you, your
fundraising already was dripping with social proof.

Conversely, at the beginning when you have no investors, you likely are going
to have to contact some of them. This is obviously going to have a much lower
conversion rate, because you have no social proof!

Taken to the logical extreme, if inbound investors are so much more valuable
than outbound, when you start fundraising you should just sit next to your
telephone and wait for investors to call you. But of course that won't work,
because it isn't inbound investors that actually matter. It is all about
building social proof, and then once you have that, a lot of good things are
going to happen. For example, YC is very powerful indication of social proof,
and look how much easier fundraising became!

Basically, people who read this TC article: if you are interested in
fundraising, PG wrote the canonical piece about it,
[http://paulgraham.com/fr.html](http://paulgraham.com/fr.html)

This post is fun, and I congratulate you on raising your round, but this data
isn't predictive or useful.

~~~
michaelochurch
_This post is fun, and I congratulate you on raising your round, but this data
isn 't predictive or useful._

Yeah, "get inbound investor attention" is the worst advice ever; by
definition, it's impossible. Trying to make people like you tends to have the
opposite effect. It's like telling an awkward 17-year-old that he'll solve all
his problems with women if he gets laid by a supermodel.

The fatalism is important. I'm glad that someone on the inside has the courage
to point it out. The extremely low rate of success for outbound traffic,
especially pre-YC, confirms the fatalistic view of the Valley that is, IMO,
the right one. If you're born into connections, you're solid. If you have
enough before-age-of-carefulness dirt on important people while at Stanford
and got in The Club, you'll never have to raise money; you'll be in the
position to turn it away. If you're anyone else, though, the best advice
regarding SillyCon Valley is just to sit this lifetime out, because the
factors that matter most are those you can't do anything about.

~~~
nostrademons
Y'know what's universally unattractive to both investors and women? Fatalism.

People want to see how well you play the cards that you're dealt. If you can
make something happen starting from nothing, then they figure that once they
give you some cards to play with, you'll do even better from that. If you _can
't_ make something happen with limited resources, what makes you think that
more resources will magically fix things?

This applies to a lot of other things as well - most of the time, when you
start at a new job you have to start small, because people who control the
resources want to see that you can work effectively on a small project before
they give you a big mission-critical project. I've seen people get hired into
Google at T4 (nowadays, virtually everybody is hired into T4 or below) and
then work their way up to T9 because every time they're given a more ambitious
challenge they master it in short order.

~~~
rahimnathwani
Can you translate T4 and T9 into something a non-Googler can understand? Maybe
to what would be on that person's business card?

~~~
nostrademons
T4 = Software Engineer III, T9 = Distinguished Engineer. I'm not sure if other
places have Distinguished Engineer titles, but it's basically the engineering
ladder equivalent of a high-level eng Director or low-level VP, supposedly
"People who have made critical contributions to Google or industry-changing
software developments." Basically Jeff Dean level post-Bigtable.

------
zt
I always think that speculation about YC's fundraising value obscures the
correct causal link. YC doesn't make fundraising easier, per se, it makes you
build a more valuable company. That makes fundraising easier.

I get some variation of this question a lot. I assume that all recent YC
alumni do. I always talk about (a) the intense focus that YC gives it's
founders, (b) the positive pressure that the partners, the dinners, and the
batch provides, and (c) the incredibly supportive guild of alumni.

YC helps founders build companies that are valuable. VCs and angels know that.

~~~
aelaguiz
Totally true. I'd add though that there definitely is a level of initial
respect you get as a YC company. It doesn't help close the deal, but it will
generally keep you out of associate land.

------
rtfeldman
> One last point on this, almost any VC will take a meeting with almost any
> entrepreneur.

As someone who was trying desperately to raise money in 2008 (from the
Midwest, no less), just wanted to note that this is false. I contacted several
dozen VCs and literally zero were interested in hearing a pitch.

This was for a company that had thousands of users and won a $50k business
plan competition, so it's not like we were a joke company on the "almost any
entrepreneur" spectrum.

Sure, it was 2008, and sure, we were nowhere near Sand Hill Road, but I
wouldn't want people getting the impression that it's trivial for non-YC
companies to get in the room with VCs anytime they please. It's not.

~~~
abat
You can't directly contact VCs unless they already know you, you need an
introduction from someone on their radar. Notice the company in the article
refers to meetings via introductions as "outbound."

VC's will at least meet with most companies if they play their game. Think of
the introduction game as a captcha on the company level.

~~~
lampington
+1 to that. If you want intros to VCs then identify target companies, then
mine LinkedIn to find out who you know who knows people there. If you're not
just starting out in your career, you're likely to find a bunch of avenues.
And they'll probably lead to meetings. This would have been harder in 2008, of
course, so I understand that it wouldn't have worked for the GP. But for
people starting now it should work.

OTOH as the OP says, the chances of getting funded by anyone you meet that way
are vanishingly small. But if you do truly impress anyone, they are quite
likely to introduce you to other people. And those people can wind up being
either investors or introducers to investors. Think of the LinkedIn mining as
a way of bootstrapping your VC network.

------
AndrewKemendo
_In total we took 121 calls /meetings with potential investors, and received a
check from 43 of them._

To me this is the most important sentence in the article. Just under 2/3 of
their meetings, 65% resulted in no deal. That is 78 well placed, well funded,
fully informed NO's. In the end though none of those Nos matter.

I think people overlook that aspect and just see the yes'. Congrats to
EasyPost for all their success.

 _edit_ Since my point appears to be unclear to some: "Don't be discouraged by
rejection"

~~~
michaelochurch
_To me this is the most important sentence in the article. Just under 2 /3 of
their meetings, 65% resulted in no deal. That is 78 well placed, well funded,
fully informed NO's. In the end though none of those Nos matter._

You realize that most people in the VC-funded world would suck Hitler's cock
to have a 35% "Yes" rate, right? That's two orders of magnitude better than
what non-connected plebes like most of us face.

If I recall correctly, the average acceptance rate is well under 1%.

~~~
redler
This is an interesting discussion, but as a side note, I have to say that is
the one of the less likely Godwinnings I've seen in some time.

~~~
StavrosK
It's not a Godwinning per se; Hitler just had a notoriously bad-tasting cock.

------
mbesto
Let's simplify this even more - risk.

Getting into YC reduces perceived investor risk. Full stop. It doesn't reduce
the actual risk that the investment won't fail, but it's much easier on our
brains to say "Well these guys are a YC company and YC companies tend to do
well. If they don't do well, there is at least a support network of
partners/alumni to ease the pain".

There is nothing worse for an investor to speak to someone they don't know, or
don't have any connection to.

There are two simple ways to increase your chances of funding: (1) get so much
traction without funding that any investor would be dumb to pass you up or (2)
be massively connected. Both aren't easy but they are by far the strongest
signals right now to investors.

So is any incubator "worth it"? For many early stage startups, the answer is
categorically - "yes". If you break down the cost-to-benefit ratio, the cost
of doing an incubator is usually very low, while the benefit can be and
normally is very high.

Last note - people often neglect the notion of high profile investor's ability
to "cast a wider net". This is one of the huge benefits to YC. Getting a good
investor on board isn't _always_ just about capital. They can prove to be a
huge part of your marketing plan.

------
rdl
The really interesting thing here is how essentially worthless "please
introduce me to your investor; I'd like to talk to them" is.

It pretty much argues for having an inbound-only strategy, and some low-stress
easy way to filter those (e.g. "I'll pick up the phone for {pg, pmarca,
cdixon, fredwilson, ...}, "this set of people go to weekly-batch email
response time", "these people are sent to /dev/null"). A decent profile on a
place like AngelList, but not much else.

------
jdh
" Why? Because that’s their job, to meet with entrepreneurs. It also means
that if they schedule it on, say a Friday in SF at 11am, they can: a) avoid
driving down to Sand Hill altogether, and b) arrive in Tahoe in time for a few
evening runs. Be wary in thinking it’s anything more than that."

Thanks for the gratuitous kick in the nuts.

Did you consider that maybe the fact your meetings with VCs didn't result in
good outcomes might be a signal of something else?

Having done both, running a company is definitely more work at the peak, but
being a great VC is a ton of work, too.

You've got a lot to learn about VCs if you think we meet with you so we can go
night skiing. Or that any VC goes night skiing.

<edit for tone at expense of humor >

------
abiekatz
Interesting look into your fundraising process Jarrett.

It's impossible to distinguish the impact that YC had on your second go around
at fundraising versus the impressive progress that EasyPost had made as a
company.

YC definitely helps with fundraising--it's a strong signal of social proof and
it can generate a sense of urgency in investors--but growth metrics and
traction are usually the most important things.

------
tjcelaya
The result is not totally surprising but it's nice to see some numbers to
quantify it. The only negative thing I see is the fact that the only comments
so far are complaining about identifying investors.

------
manas2004
Hundreds of calls and meetings. When does one work on the product? I'm a bit
disillusioned by the apparent focus on funding over product in the valley. I
hope it is a misconception of mine.

~~~
RickS
Ideally, there's no "one" working on the product. This is the value of a non-
technical cofounder - their job is to adeptly handle the logistics that guys
like us find burdensome, minimizing distraction.

Whether (disproportional) funding focus is a problem in the valley depends on
who you're talking to. There are a lot of people who view startups as a path
to riches - for whom a good product is only means to an end - a good payday.
There are others for whom good product is a passion, and money is mostly
irrelevant.

The occam's razor explanation: stories about cash mountains have much wider
appeal than those about niche product development - so more of those stories
get written.

------
michaelochurch
I'm not a fan of Paul Graham, but is Y Combinator worth it? Absolutely. It'd
be worth it to give up _30_ percent of your business to get into The Club,
much less then 6-10% YC reportedly takes.

Y Combinator is a brilliant idea. Paul Graham was something that would be a
rarity now, and probably always has been-- a smart, good, straight-shooter who
made it big. That made him a really attractive personality, especially to the
young, and the fact that he's a good writer didn't hurt either.

YC enabled him to turn that reputation into gold: because the benefit of a
startup being YC-approved turned out to be so vast, he can get an early
percentage at a low valuation. To be clear about it, his startups benefit as
much as he does. He's not screwing them over in any way.

This is probably why I have to deal with the rankban/slowban treatment. I'm a
thread. I'm a smart, good guy, and not a bad writer either, who did the
startup thing (twice) and found it utterly worthless. (I'm PG's Antichrist.)
There are hundreds like me, in fact, but most people who fail at something
slink away in shame, like it was their fault even if the game was totally
rigged. Not me. I have to go back and warn the others, no matter how much I am
to be punished for the service.

Is Y Combinator worth it? Hell yeah. I'd argue, at this point, that it's _not_
worth it to take on the Valley if you're not backed by YC. The pipeline has
been established, the game is over, the land has been mapped and the good gold
mines are known. Whatever is the mid-21st-century's engine of innovation, it
will be far the fuck away from SillyCon Valley. In the mean time, VC-funded
startups are the new I-banking and if you can get the acceleration that comes
from the YC stamp of approval, you should absolutely do it. That's not how I
would like the world to be; but that's how it is.

It's a shame, though, that this subsociety (Silicon Valley) that claims to be
advanced and futuristic is still, in truth, a feudalistic reputation economy
in which who you know matters a hundred times more than what you know. ("What
you know" only matters in terms of the savoir-faire needed to acquire
backers.) It's not about technical excellence any more and hasn't been for
some time.

~~~
omegaham
> I'm not a fan of Paul Graham

Not to dogpile you for daring to insult the Dear Leader, but can you elaborate
on this? You go on to say,

> Paul Graham was something that would be a rarity now, and probably always
> has been-- a smart, good, straight-shooter who made it big.

Looking at some of the other stuff you have to say, it looks like your problem
with him is that he portrays Silicon Valley like the American Dream of
yesterday - "Anyone can make it big here if they're smart and hardworking
enough" when it's not necessarily true. You have your own experiences to back
this up, and I guess you feel kind of cheated.

I'm a complete outsider, (Military currently, although I'll probably be
working for Intel in a few months) so this side of things interests me. The
contrast of PG saying, "Lots of people should try startups" and the fact that
the vast majority of startups fail is kind of weird.

~~~
jfb
_The contrast of PG saying, "Lots of people should try startups" and the fact
that the vast majority of startups fail is kind of weird._

They're not logically distinct, however, if (like PG) you think that you're
better off trying for success via the YC model.

------
lutusp
Quote "To date we’ve raised $3 million from ..." (long list of names of VCs
and individual investors.)

Bad idea to list these names. Some of the listed parties are individuals,
small investors, who will surely want their status as speculative investors to
be kept confidential.

~~~
jstreebin
I left off the ones that wouldn't appreciate it

~~~
lutusp
How did you decide which people wouldn't mind -- did you ask each one? Also,
perhaps more to the point, what value does it add to the article?

~~~
cowsandmilk
being able to list someone as an investor should be part of your investment
agreement. I've only dealt with large firms, not individuals, but it is in all
my agreements whether I may use their names.

