
What's Y Combinator's conversion rate? - RA_Fisher
http://statwonk.com/yc.nb.html
======
paul
This is a very poor metric. Companies running out of money and doing a small
exit counts as "good" ("conversion") while a successful and growing company is
interpreted as something negative (no exit).

~~~
justonepost
It's a terrific metric for founders who would like an exit. Statistically, a
smaller exit works out much better for a founder than an IPO. Doesn't work for
the VC so much. Maybe YC is anti founder?

~~~
sillysaurus3
This seems to have changed over the last several years. YC used to be very
pro-founder in this regard, from an outsider perspective.

There's a pg essay that I can't find, but in essence states: Our rule is that
it's up to the founder. If they want to aim small, that's fine. We ourselves
aimed small with Viaweb. We didn't want to work on it the rest of our lives.
It would be pretty lame to push founders into doing something that we didn't
want to do. (EDIT: Found it:
[http://www.paulgraham.com/swan.html#f1n](http://www.paulgraham.com/swan.html#f1n))

Contrast that with the recent Paul B interview:
[https://blog.ycombinator.com/paul-buchheit-on-lessons-
learne...](https://blog.ycombinator.com/paul-buchheit-on-lessons-learned-from-
investing-in-200-startups/)

> Jasper: Sam Altman has said that the only criterion Y Combinator uses to
> evaluate applying companies is, “Can this be a $10 billion plus company?”
> like Airbnb and Dropbox. While this model works great for a fund, there is
> an Early Exits movement that suggests individual entrepreneurs have a much
> higher likelihood of success when they raise less capital and target exits
> in the $20 million range. What do you think this view?

> Paul: The math does not support this strategy but if other investors want to
> try it that’s fine. Also, it is not just returns we are looking for but
> really impactful companies. When you sell too early you don’t realize the
> full potential.

> For example, Facebook had an offer from Yahoo for a billion dollars, which
> everyone told Zuck to take. Fortunately, he said no. Had he said yes, it
> would have been another failed Yahoo acquisition and Facebook would not have
> nearly as much impact. The reason we have these big and influential
> companies is the founders believed in a long- term vision.

I think all YC companies have always aimed big, but some, like Zenter, were
fine with being acquired by Google for a smaller amount. And YC was fine with
that outcome in the sense that there weren't any institutional forces set up
to discourage founders from pursuing it.

YC's signals now seem to say, "A small exit is equal to failure." And while
that's true for YC as an investor, I'm not sure it was true for YC's
institutional forces until the last few years. If you're in an environment
where all of your peers consider you a failure if you sell for a few million,
are you going to want to resist that peer pressure? Especially when they're
your friends and mentors?

I want to be very clear that all of this is an outsider's perspective.
Hopefully someone in YC will issue a smackdown if it's mistaken. I was just
giving some supporting data for why people are feeling this way.

~~~
tomhoward
I think you're drawing a false dichotomy here.

As a founder of a YC company, I can tell you there's no signal from YC that "a
small exit is equal to failure".

From personal experience, I can tell you that YC holds the wellbeing of the
founders it funds as a top priority, even if it might seem to be against YC's
own short-term interests.

It's true that YC's economic model is to fund companies that _can_ be $10B+
successes, because having a few companies that make it into that league
enables them to fund all the other companies that _don 't_ make it that big.

But they're still happy for founders who don't achieve "unicorn" status but
make an exit that yields them a life-changing amount of money, or indeed any
outcome that leaves them better off than they were before.

Still, they'll encourage all their founders to _try_ to build a breakout
company, because by doing that, even a "small" exit will often be much bigger
than the exit you'd make if you started out with deliberately modest
ambitions.

~~~
sillysaurus3
I see. Thanks for the clarification. It's a topic I've wondered about for some
time.

------
blizkreeg
I realize the conversation in the thread pertains to exits and funded
companies. But I keep thinking why is there a general negative perception or
often a sense of ignorance/neglect towards successful, ongoing, revenue-
generating businesses (that haven't taken any or very little funding before
reaching profitability) whereas even a minor exit (acqui-hire) will often put
you in the metaphorical league of 'successful' founders?

~~~
Mahn
Because most tech start ups in the valley are funded by private investors, and
for them usually the best outcome is either an exit or an IPO. When the
industry is dominated and controlled by this kind of funding, these goals end
up idolized because that's just what rules the land. The VC wants to flip it
to Google, the entrepreneur just hopes that he doesn't fuck up and that his
investor gets his outcome.

~~~
tptacek
The dynamic you're talking about is intrinsic to the mathematics of funding
startups. It's not a value judgement.

------
timcederman
I found YCList to be out of date and inaccurate for the handful of companies
I've looked for on there in the past. Not sure about its general overall
accuracy though.

~~~
nicholasjbs
It's very inaccurate for my batch (S10) at least, for which I know of about
twice as many exits as are listed.

And as others have mentioned, the bigger challenge is that "exits" aren't a
good metric for either gauging YC's success or for making founders rich. The
companies that have "failed" to convert (i.e., exit) from S10 include Stripe,
PagerDuty, and Docker.

~~~
justonepost
Sure, but that error rate is probably relatively consistent. Probably exits
aren't listed for earlier years either. Unless everyone is getting more
secretive about exits, which is interesting in itself.

Anyways, maybe someone from YC will comment. They know the truth and it's a
worthwhile figure to publish.

~~~
lelandbatey
It is probably not that exits are more secret and more that since YC has
scaled up the number of entrants, so the number of exits that people care to
publisize becomes a smaller and smaller percent of the total number of members
in a batch.

------
vqc
I think it'd be interesting to see the rate of success for rejected companies.

------
namank
"Conversion" rate, as defined here, doesn't make sense for YC's (or any
startup investors') financial model.

Valuation could be useful. Maybe track the change in the companys' valuation
over time.

~~~
hn_throwaway_99
But I don't think the point of this is to look at it from the investors' point
of view. The point is to look at it from the founders' point of view. That is,
as a founder, what's your basic (binary) chance of your company being a
success? Founders don't get the chance to diversify across many companies -
all of their eggs are in one (their own company's) basket. Thus, for them, a
"percentage chance of a positive outcome" is an important metric.

~~~
namank
Then why doesn't the metric account for companies that have not shutdown and
not exited, i.e. have grown beyond a certain value? Isn't that closer to the
most favorable founder outcome?

~~~
hn_throwaway_99
That metric (grown beyond a certain value) is much harder to get for private
companies, and private valuations are all pretty fuzzy anyway. Exits represent
a real, verifiable, concrete event.

I don't think his metric is perfect, and there are other ones (how many
companies just shut down and returned what was left to investors) you can look
at, but overall I think it's a good proxy for "what percentage of ycom
companies have a positive outcome".

------
mgalka
Surprising. I would have expected the success of YC startups to have increased
with time -- more selective program, higher prestige value, bigger network of
fellow YC startups to work with.

~~~
onion2k
If your metric is exits then obviously newer companies are going to be
'worse'. It takes time to build something valuable.

------
sanbor
I'm not familiar with the term "conversion rate" in this context. Conversion
rate in marketing is someone that sees your ad and buys the product. For the
post and the comments here conversion rate means rate of startups that have
exited. From where does that meaning comes from? I googled but only found
references to the marketing business.

------
blazespin
Your conclusion is odd about 15% over 10 years. The conversion rate is
declining. Doesn't that mean ycombinator is failing? I mean worse than being
stagnant, the value of ycombinator to startups is declining over time. The
conversion rate is going to zero, if you ask me.

~~~
randall
The goal of a VC is not to have a high conversion rate... it's to find the big
winners. Airbnb + other 'big wins' are 1 in 1500 or higher, but account for
the vast majority of returns.

YC started out with a sub-dozen class size. Now it has more than a hundred per
batch. The conversion rate is going down, but the hit rate, which is all that
matters, likely is going up. More hits with more failure == more success for
yc.

~~~
orthoganol
You're excluding brand dilution as a function of class size. Knowing you are
going to be one of 100+ companies going through the program each semester
makes you less enthusiastic to join if you already have a very promising or
successful company, and it makes it harder for VCs to determine signal; "It's
from YC" stops being good enough.

A big reason for the class size explosion is almost certainly for network
effects, a fleet of ready customers who support YC and drive growth out of the
gates.

It creates the space for another brilliant investor to launch a rival YC that
caters to a small size of elite founders. Isn't that almost inevitable?

~~~
toomuchtodo
> It creates the space for another brilliant investor to launch a rival YC
> that caters to a small size of elite founders. Isn't that almost inevitable?

What would the attributes be of an elite founder?

~~~
omarchowdhury
Sell their startup for an outsized sum during a bubble to a failing giant only
for it to be defunct within a short time? Just to go by viaweb's example.

That would put at least Mark Cuban in the contending since they both sold to
the same failing giant.

------
justonepost
Worth reading about the early exits movement:
[https://capitalandgrowth.org/page/unicorns](https://capitalandgrowth.org/page/unicorns)

------
blacksmythe
Not sure that the conversion rate is the most important metric.

[http://fortune.com/2014/05/05/each-new-y-combinator-class-
wo...](http://fortune.com/2014/05/05/each-new-y-combinator-class-worth-more-
than-a-billion-dollars-president-says/)

    
    
      >>  Y Combinator... creates more than a billion dollars of value with each class it graduates...

------
mshrewd
Well, you can't harsh these findings too hard. Considering yc is a pretty
successful unicorn hunter, having many exiting startups in their portfolio is
par for the course. I suppose the board at yc would rather see a bunch of
exits and a few IPOs than one Uber and a bunch of "great ideas".

~~~
icebraining
_Considering yc is a pretty successful unicorn hunter_

Is it? Based on what? 0.73% of their companies are unicorns, is that a lot?

~~~
mshrewd
[https://en.m.wikipedia.org/wiki/Unicorn_(finance)](https://en.m.wikipedia.org/wiki/Unicorn_\(finance\))

~~~
icebraining
I know what an unicorn is.

------
minimaxir
[deleted]

~~~
RA_Fisher
Not sure I understand. These are the default survival::survfit CIs. I'd be
very interested to hear why they're a poor choice in this case (I don't think
they are)
[https://stat.ethz.ch/R-manual/R-devel/library/survival/html/...](https://stat.ethz.ch/R-manual/R-devel/library/survival/html/survfit.formula.html)

Also, I have to address the claim of small samples. There is no sample size
inherently too small. We make estimates of uncertainty given information. We
might wish to extract more certainty (statistical efficiency per n), but
that's part of the art. Smaller sample sizes are more work for the
statistician but not less valid in any way.

~~~
gwern
At least one issue is that since the survival curves are different for each
batch (as established by your final 'Y Combinator conversion rates by vintage'
section), your data is not i.i.d, the K-m curves are changing over time, and
so the overall survival curve and its accompany CIs isn't really meaningful:
it's sort of the weighted average of the nonparametric K-M curves of each
batch further weighted by right-censoring of more recent batches... or
something like that.

You could try instead showing stratified curves by year, or directly modeling
how the hazard rates change over real time. 'survival' claims to support the
latter by the 'crazy clock' method (but when I tried doing that in
[https://www.gwern.net/Google%20shutdowns](https://www.gwern.net/Google%20shutdowns)
I never could figure out how it worked).

One thing I wonder is whether YC is scraping the bottom of the barrel and this
is why the conversion rates get so much worse, or if it has become more
difficult in general to be acquired; if the former, perhaps including the size
of the batch as a covariate would be a meaningful test? Data quality might
also be an issue from the other comments, and you could try auditing it by
picking a few supposed non-exits and researching them intensively to estimate
how much measurement error you have.

It might also be interesting to see if the survival curves look more like type
I, II, or III curves or what parametric distribution might fit best - looks
like it could just be exponential/memoryless which is interesting.

~~~
RA_Fisher
Right on! Great feedback! I was also thinking about using competing risks to
introduce company foldings.

Also parametric modeling as you mention. Try out the Gamma and see which of
the family it divines.

~~~
gwern
Yeah, you could do competing risks. I see yclist.com does distinguish between
'dead' and 'exit', although your CSV doesn't. You can use 'comprsk', I
remember it as being no harder to use than 'survival' when I tried it out
briefly for
[https://www.gwern.net/DNM%20survival](https://www.gwern.net/DNM%20survival) .
Any competing-risks model going to be very imprecise, though, since if you
can't estimate the overall survival curve very precisely, you definitely can't
estimate it split into multiple outcomes.

