
Fellowship V2 - philip1209
http://blog.ycombinator.com/fellowship-v2
======
startupfounder
This is going back to YC's roots and I love it!

If you are scrappy, $20k can get you extremely far at a cost that is
"basically" zero (1.5% stake that only converts upon a liquidity event of
$100M+ or IPO).

Remember, PG "...started Viaweb with $10k..."[0] in 1995 and "Julian got 10%
of Viaweb" for that investment. Viaweb sold to Yahoo! for $49M[1]. The whole
reason why YC exists is because PG got a $10k investment!

Back in 2005, pre YC, PG started the Summer Founders Program and invested $20k
in each group. "Another of our hypotheses was that you can start a startup on
less money than most people think. Other investors were surprised to hear the
most we gave any group was $20,000. But we knew it was possible to start on
that little because we started Viaweb on $10,000."[2]

The first version of Viaweb.[3]

I keep finding examples of the seeds of YC and they get me really excited. You
can see a photo from 2005 from the SFP and YC's roots here[4]

[0]
[http://old.ycombinator.com/start.html](http://old.ycombinator.com/start.html)

[1]
[https://en.wikipedia.org/wiki/Viaweb](https://en.wikipedia.org/wiki/Viaweb)

[2] [http://paulgraham.com/sfp.html](http://paulgraham.com/sfp.html)

[3]
[http://web.archive.org/web/19961120231442/http://www.viaweb....](http://web.archive.org/web/19961120231442/http://www.viaweb.com/)

[4]
[http://ep.yimg.com/ty/cdn/paulgraham/sfptable.jpg](http://ep.yimg.com/ty/cdn/paulgraham/sfptable.jpg)

~~~
nightski
Or it's one-two months of consulting income post-tax for a single developer.
Bootstrapping is incredibly easy nowadays.

~~~
vinceguidry
Consulting on the side isn't bootstrapping. Bootstrapping is funding your
business development with revenue _from that business_. Bootstrapping a
startup, keep in mind that a startup is a business designed to grow very fast,
is very, very difficult, requiring a certain kind of consumer-facing business
model.

Consulting on the side is a time sink that takes resources away from your
enterprise. That's all but incompatible with growing fast.

There are plenty of other kinds of businesses you can bootstrap. But startups
are particularly hard, which is why so many of them rely on venture funding.

~~~
vadym909
What if you are not the consultant? Find a consultant, place him/her on a gig
and charge the client a 20% markup. Place 5 consultants and you make 100% of a
consultant salary with no time sink.

~~~
Radim
This is charmingly naive.

Why not find 10,000 consultants, make them manage each other, become rich like
Zuckerberg instantly? With no "time sink"!

 _" How to draw an owl? Draw two circles; draw the rest of the damn owl"_
[http://sethgodin.typepad.com/seths_blog/2014/01/how-to-
draw-...](http://sethgodin.typepad.com/seths_blog/2014/01/how-to-draw-an-
owl.html)

------
sethbannon
Interesting choice on the equity side. If I'm reading this correctly, and YC
gets 1.5% when the company IPOs or has a $100M or more funding event then,
functionally, it's as if YC is taking much more than 1.5% now, because they're
not taking on the dilution they would otherwise be as the company went through
successive rounds of financing.

~~~
jparker165
Right. All equity sold until this triggers takes a haircut.

This is especially weird if the 1.5% is taken post-money: companies will want
to trigger the conversion as soon as they can reach the $100M valuation (or
IPO in Canada even sooner).

~~~
tomblomfield
Yes - I was confused about this as well.

I would guess that YC's traditioanl initial 7% equity stake would typically be
diluted to around 3-5% by the time a company sells or IPOs.

So 1.5% of sale/IPO is clearly less than that, but it still feels a bit weird.

~~~
wasd
Given the number of companies exit at 100m vs exit 1-99m is huge. They're
taking a bet at the earliest possible time and are only making money in the
case of extreme success.

~~~
mikekchar
It's a 75:1 return on investment for those that make it to a 100M exit. They
just need to make sure that they can pick better than 1 in 75 to break even.
If they can get 1 in 25 they'll get a 300% ROI. If they can get an exit within
5-10 years, then that's very competitive against other investments.

------
tptacek
If a company "graduates" from YC Fellowship to YC Core, will YC be taking the
standard YC Core equity on top of the 1.5%, or will it be some different
number?

~~~
exw
That is a great question - my guess is that they will just revert to the
standard YC Core terms, given that YC states in their Fellowship terms that
they are hoping that Fellowship companies will then also go through the YC
core program.

Put a different way, I am assuming that YC believes that a company that also
goes through the core program would have a higher chance of success, so they
would not want to provide a disincentive that would reduce the chance of a
Fellowship company also going through YC core...

------
bjornsing
> Instead of taking our equity up front, we’re going to be issuing a
> convertible security that only converts into shares when the company 1) goes
> IPO or 2) has a funding event or acquisition that values the company at
> $100M or higher. [...] it’s both founder friendly [...]

Is it (founder friendly)? It places YC (even more) firmly on the VC side of
the classic VC/founder conflict: VCs want founders to go big or go home, or as
pg puts it "VCs want to blow you up, in one sense of the phrase or the other."
[1] Not that I don't think YC can handle it, but still.

1\. [http://paulgraham.com/aord.html](http://paulgraham.com/aord.html)

~~~
jrowley
I wonder if YC will see accept any companies/ideas that have a low probability
of of reaching IPO / acquisition at >= $100M. Plenty of good companies aren't
going to reach this scale but could certainly use their expertise and cash.

~~~
kevin
This is not something we actively try to predict, even with the Core program.
Airbnb, for instance, would have been missed if we thought like this. As ever,
we primarily optimize for funding great founders.

~~~
j45
Really like this. If a great founder switches ideas while in their fellowship
based on advice and market conversations, it seems like there would be no
issue with doing so.

------
abalone
So can we itemize the exact benefits of this type of deal versus taking a
somewhat bigger stake up front? I can think of a couple:

1\. In the case of a sub-$100M exit, where perhaps founders are getting
squeezed, every little bit of extra equity counts. YC graciously forgoes their
stake in the company. That's unquestionably good.

2\. In the case of a big exit, YC essentially bypasses dilution and targets a
_fixed_ post-dilution equity stake, regardless of how much subsequent
investment the company took on.

That lets founders retain more equity early on and thus be that much less
diluted, while still getting YC ballpark what they'd like to get in the end.
So that's nice.

But how might subsequent investors feel about YC getting the same fixed
percentage of a IPO'ing Series B vs. Series E stage company? Could this
possibly complicate funding down the line? Is it "too good" of a deal for YC
in the Series E case?

(I admit the absolute amount here is fairly low, and YC is "special" in the
industry. But I'd want to sketch out the consequences in detail before taking
the deal.. someone "pays" for these founder and YC benefits.)

Another (scary?) thought: might more investors demand this sort of deal down
the line? Would a seed or Series A or Series B investor ask for fixed
percentages of IPO/acquisitions? I can't even fathom how that would scale or
complicate taking on investors.. Does this only work of it's a special one-
time thing?

~~~
tim333
As an occasional investor 1.5% dilution is nothing. I'd much rather invest in
a company where YC gets 1.5% than one in which they are not involved. YC not
being involved increases your chances of dumb stuff causing a 100% loss rather
than 1.5%.

------
jukeinst
Can someone explain what are the differences between a YC Fellowship and a YC
Core company? Is it metrics, how far they are along, founders, etc.?

Are there different things that YC looks for when evaluating a company for one
vs another? What constitutes as a company being ready for YC Core? Thanks!

------
zura
Regarding applying without an idea:
[https://fellowship.ycombinator.com/faq/#noidea](https://fellowship.ycombinator.com/faq/#noidea)

"We tried this once with YC, and it didn't work well."

Any post-mortems about this?

~~~
danieltillett
Given this it is strange the conventional wisdom is ideas are cheap. Why let
evidence get in the way of ideology.

~~~
garry
Ideas remain a multiplier on execution. This illustrates a different
phenomenon we encountered: Founders with no ideas at all often fail to come up
with a compelling one when prompted.

~~~
danieltillett
This means that ideas must be more than a multiplier - they must be a
requirement of success just like execution.

It does illustrate that good ideas really are not cheap.

------
wesleyfsmith
So I take it then that working remote with founders was actually much more
successful than the folks at YC originally thought it would be? Because I
remember sama saying that he was very skeptical the remote thing would work.

~~~
ryanSrich
Indeed...

> Many people say we don’t need immigration reform because people can work
> remotely. While remote working works well for a lot of companies, and I
> expect it to continue to work better as time goes on, it doesn’t work well
> for all companies (for example, it would not work for YC), and it shouldn’t
> be the only option. It also sends money and competency out of our economy.
> The common answer of “let the US companies open overseas offices” always
> sounds to me like “further slow US economic growth and long-term viability”.

\- [http://blog.samaltman.com/policy-for-growth-and-
innovation](http://blog.samaltman.com/policy-for-growth-and-innovation)

------
lettergram
How would applying for both work?

i.e. First, we review the app for YC Core, then we review it for fellowship if
they aren't accepted to YC Core?

Or is it a single review, then bucketed into two categories.

Or is it one quick glance, bucketing, then review.

I ask because each one can pretty dramatically impact the outcome. For full
disclosure, I'll be applying to both anyways, but I am curious.

------
staunch
Despite what some confused people say, there's actually not enough seed
funding. Many thousands more teams would try their hand at creating something,
given the kind of help that successful startups have all required. Most would
fail and try again. A few of them would change the world.

A team of skilled and committed people should not have difficulty raising $50k
to work on something important. When the same team can easily get paid
$500k+/yr working for existing companies, but can't raise seed funding,
there's a big opportunity being missed.

The big shift in Silicon Valley will come when a firm decides to fund every
worthy startup on their merits alone, doing away with the "culture fit" based
screening process that everyone uses today.

Any top investor could raise a large fund and back every single worthy
startup.

~~~
garry
I agree that there is a big opportunity here but suspect long term this will
be solved in a different way: more great benevolent former founder seed
investors will emerge and more startups will be funded.

------
datamoshr
This is fantastic! In particular I think the remote aspect is one of it's
greatest selling points. While I agree there's a certain upside to being based
close to your investors, the upside of reduced living/travel costs makes this
greatly accessible. The equity structure also seems greatly in line with some
of the inherently low cost startups that this will bring to the table.

I'm excited to see what comes out of these early batches.

------
teej
Playing devils advocate - how is this program supposed to be considered in
context of "don't join an accelerator to get into YC"? From 1000 feet away it
reads as "don't join another accelerator except for YC".

~~~
katm
The point of that piece was that joining another accelerator isn't a pre-
requisite to applying to yc.

~~~
tomasien
At least the ostensible point was that an accelerator that tells you it can
help you get into YC is not telling the truth.

FWIW there's an incubator in my hometown that takes 0 equity that has had an
amazing track record of getting companies into other accelerators (including
YC) so I'm not sure it's universally true.

------
vruiz
I'm almost tempted to apply, but the application form is really discouraging
for single founders.

~~~
pedalpete
I'm also a single founder, but apply anyway. Are you averse to finding co-
founders? I haven't found any yet, and I might or might not. I'm open to the
possibility, and I believe YC may be a great place to make connections to
finding a co-founder.

~~~
vruiz
I usually have strong opinions on how to run things, and one of the main
reasons I've been investing time, money and effort into building a prototype
is precisely to be able to put my own ideas to test.

~~~
pedalpete
I've been in great and poor working relationships.

I've had co-workers who either don't add anything, or who actually reduce the
amount of work or direction a project can progress.

I've also had (far fewer) working relationships where the you 'leap-frog' each
other, pushing the entire project forward in leaps and bounds.

It's the second thing that I'm looking for in a co-founder. This is why I
think being a part of yc or a fellowship might help. YC is apparently expert
at picking great people, so it is a pre-filter of amazing people,who likely
have a further network of amazing people. (not that my network isn't great,
but most of my people don't share my interests).

------
unexpand
Great news. What are your minimum expectations for one to qualify ?

update this answers my question:
[https://fellowship.ycombinator.com/faq/#who](https://fellowship.ycombinator.com/faq/#who)

~~~
robotnoises
This is a good high-level overview of the sort of people/things they are
looking for:
[http://www.ycombinator.com/apply/#whowefund](http://www.ycombinator.com/apply/#whowefund)

~~~
unexpand
Thanks. That was what I guessed. When it comes to funding just ideas, it tends
to be only about the team.

------
Kinnard
I think this changes the market dynamics for startups.

All of the wannabe accelerator out their are going to have to double, or in
some cases up by an order of magnitude, their deals.

It might dramatically incentivize people who were on the brink to start
companies.

I'm curious what this'll mean for the culture of entrepreneurship.

~~~
mej10
It is also far more family friendly. It is almost impossible for someone with
a family to do YC Core without substantial savings and financial stability.

YC Fellowship adds an additional stepping stone.

No idea if this was intentional, but it is very welcome either way.

~~~
j45
No 2 businesses were built the exact same way and I think a program like this
does open the door wider to those who may not be able to make the YC Core
door.

------
TheBiv
Great format!

$20k for 1.5% if the company ever IPO's or becomes more valuable than $100MM.
I wonder what YC's normal stake is in a company after a company is valued at
more than $100MM.

~~~
philip1209
I wonder whether the converted equity includes pro rata rights, too

~~~
mattkrisiloff
It does not include pro rata rights. The convertible security is a version 1
though, so it's possible we'll iterate on it for future batches.

------
Serow225
Awesome. At the super-early stage, 20kUSD can be huge boost compared to the
amount of time/work/pain trying to secure similar funding from traditional
institutions that don't understand startups at all. Maybe someone will have
time to update the fellowship page[1] with these new details, since they're
quite different? [1]
[https://fellowship.ycombinator.com](https://fellowship.ycombinator.com)

------
ulasbilgen
Is there any specific reason that there're not much YC companies working on
gaming? I can only assume that the gaming startups maybe seen as less
predictable than the tech ones, but seeing all entreprenourship and indie
gaming booming and they're not meeting, makes me wonder.

My opinion is that nobody yet able to crack the gaming funding as YC did for
tech startups.

~~~
melling
Isn't it a very competitive market with low margins? Lots of companies already
make games. It's well established. Maybe you have better insight on the
market? Where are the $100 million to $1 billion dollar companies? What can be
done differently? I know we had one big ipo last year. Don't most end up like
Zynga?

~~~
meric
I don't think investing in gaming startups is about getting a return from a
100m or 1b company.

It's about investing in _games_. I think an individual _game_ is analogous to
the typical startup. Minecraft is a $2.5b one[1].

Here's a list of 11 games grossing $3b or more:
[http://www.businessinsider.com.au/the-11-top-grossing-
video-...](http://www.businessinsider.com.au/the-11-top-grossing-video-games-
of-all-time-2015-8?r=US&IR=T#/#2-pac-man-arcadeconsolesmobilepc-1980--
128-billion-111110).

Riot Games had $1.3b revenue in 2015, and has had VC funding. I think that's
what you're asking for.

[1] [http://recode.net/2014/09/09/game-on-why-
microsofts-2-5-bill...](http://recode.net/2014/09/09/game-on-why-
microsofts-2-5-billion-minecraft-deal-could-be-a-steal/)

[2]
[https://en.wikipedia.org/wiki/Riot_Games](https://en.wikipedia.org/wiki/Riot_Games)

~~~
ulasbilgen
You put it in a much better way :) As you said it's about investing in games,
but expecting to create a financially successful game on the first try is
kinda unrealistic. So I think the better plan is to invest in a team that has
a methodolgy to build games that have chance to be financially successfull,
and let them build and test at least 5-6 games. This is like a startup
pivoting and trying to find the product market fit. In gaming business this
confirmation is quite straightforward, you do limited play testing for a
prototype, and decide if you'll continue develop the game according to test
results. If you do continue to develop, you release the game for soft launch
with limited features and limited marketing budget. If the game has enough
retention, you have a game that can become financially successfull. The studio
follows this procedure and iterare till finds a game market fit :)

------
hydandata
This is amazing news! I was really worried about how the first run was going,
because this format is just so great! It just makes sense. Kudos to all the
teams for their performance, I am sure that had something to do with YC
considering to do this again. I am super excited, and I really hope to apply
this time.

------
arcanus
Assuming one hit in the entire fellowship program, at which point:

1.5e6/2e4 = 75 fellowships

So each 100MM 'hit' funds 75 fellows. Would be hard to imagine they expect to
do much better than that in terms of hit rate, so naively, the program seems
to mostly be revenue neutral.

~~~
andreasklinger
plus it is very good leadgen for core

plus it helps to avoid that people run into very bad decisions at early stage

plus it keeps yc interesting for early stage startups even though core expects
more and more advanced startups

------
BinaryIdiot
I was fully expecting the fellowship to eventually go down the path of equity
but these terms sound far better than I would have expected. Nice job.

I'm curious how the option to choose what you're applying for will work out.
What if someone selects just YC Core and, while reviewing, a reviewer thinks
they would be a really, really good fit for fellowship instead? Do those
simply get tossed out? Seems like if you're reviewing all of them anyway you
could ask the applicate for their preference (so a slight rewording) and still
talk to them if they're willing to do a fellowship instead of core, etc.

Just a thought.

~~~
mattkrisiloff
Likely we would still ask the team if they're interested in doing Fellowship
-- it would definitely be better if they indicated it upfront though; there's
no cost to applying to both.

~~~
BinaryIdiot
> Likely we would still ask the team if they're interested in doing Fellowship

Good to know. I'd hate for someone to miss out because they hit the wrong
option in the drop down (though I certainly agree you might as well apply to
both).

------
pedalpete
I guess this is also the announcement that YC applications are open. Is this
earlier than normal? I was preparing to fill out the application toward mid-
March for the Summer YC batch, but stoked to learn about the fellowship which
is a better fit for me at this stage.

Also good to see the 'thing you hacked' question had been removed, I never
liked that one when I had applied in the past (it's been a few years though,
so maybe that was removed a while ago).

------
neuromancer2701
How would the fellowship apply to hardware startups? I am a in the basement
hacker working on my idea. Even with 20k, I can't quite my 9-5 job. I would
think after I have finished the Fellowship( in parallel with my job) the idea
would be flushed out enough that I would be more comfortable of going all in,
e.g. committing into YC core. What about a longer time frame for these types
of ideas? especially considering hardware lead times, etc.

------
dineshp2
Very excited to hear that YC is continuing the fellowship program and the
changes they have made continue to remain founder friendly.

It would be interesting to see how this model involving remotely located teams
and small amounts of funding is implemented/replicated by the other early
stage accelerators.

------
wellboy
Hmm! Thinking about this from a UX perspective, does it make sense for
applicants to apply for YC core, but not for the fellowship. Is there an
upside to that that makes sense or wouldn't it be better to put startups into
fellowship by default if they are more suitable to that at that stage.

------
robotnoises
So excited to see another round of YC Fellowship! Excited to get a chance to
apply, but more excited that this likely means that the Round 1 experiment has
worked to a degree.

------
hkhanna
Will YC be publishing a copy of the convertible equity instrument? If not, can
you tell us if it expected to be a SAFE, or will it take the form of a
convertible note?

------
Inthenameofmine
Is it global or US-only? I guess US C Corp needed for this?

~~~
giarc
The first fellowship did not require incorporation, I imagine V3 will be the
same.

~~~
n00b101
How can there be a convertible note without incorporation?

~~~
Kinnard
You don't have to be incorporated to apply and be selected. But you do have to
be incorporated to accept the deal and the money.

~~~
Inthenameofmine
Aah, this makes a lot more sense. Still, the questions remains. Does it need
to be a US C Corp?

~~~
Kinnard
That's still unclear from
[https://news.ycombinator.com/item?id=10975187](https://news.ycombinator.com/item?id=10975187)
I'd guess yes but perhaps Kevin can ring in.

~~~
mattkrisiloff
Teams have to incorporate, though they don't have to be incorporated yet to
apply. There are a couple instances with F2 where we've allowed international
teams to keep their pre-existing co structure, but it's still strongly
preferred that teams are Delaware C Corporations.

------
karlcoelho1
The working remote idea is really good, since rent becomes a lot cheaper (SV
is overpriced). Because of that, the $20k will last way longer for the teams!

------
audace
What are the dates for this batch? I can't seem to find it on the fellowship
page as it hasn't been updated.

------
chm
When is the third batch starting? I'm about to finish school and considering
giving it a shot.

~~~
kevin
It's not definitively decided, but the third batch will probably start in
July.

~~~
pcmaffey
So if applying to both, the expectation is you'd do one or the either, as the
programs are concurrent...right?

So then applying to both essentially means: hope for YC CORE, default to
Fellowship?

~~~
chm
Personally I'm not interested in YC Core. The fellowship is perfect, its deal
much better suited to my goals.

------
jgord
As a practical experiment in Inequality, I invite YC to expand your incredible
program into a third group : invite some college graduates from the poorest
and most violent neighborhoods in america, fund them to work in small teams on
their startup.

~~~
tim333
Though I don't think they are dissuading people from poor and violent
neighborhoods from applying at the moment.

~~~
erikpukinskis
True, but they're not marketing to them. They're marketing to rich people, by
using HN, the tech sphere, etc. If YC was interested in poor people they
wouldn't do marketing the way they do.

They also gear the application to rich people by making it just a form on the
Internet. That's perfect for people who have enough privilege to figure out
what an application should look like but it doesn't work for people who don't
yet know what to say to someone like YC, or that YC even exists. That suggests
YC only wants applicants who are already connected to their social network, or
have close cultural ties to the YC community.

Of course a poor person could technically apply. YC just isn't doing the work
to make that probable. It's the difference between mechanical possibility and
psycho-social possibility.

~~~
chaostheory
Young poor people have access to the Internet, with that they also would have
access to YC; even a lot of homeless people have Internet access.

The only poor people without Internet access are poor, older people, which is
due to a combination of ignorance and indifference.

> YC just isn't doing the work to make that probable.

I could be wrong but regardless of background, YC is looking for people who
overcome obstacles. Internet access in the 1st world is one of the easier
obstacles to overcome.

~~~
erikpukinskis
I'm not talking about Internet access. You can get that for free at the
library. I'm talking about cultural knowledge and norms required to become
aware of, and then signal competency to, YC.

~~~
chaostheory
> cultural knowledge and norms required to become aware of, and then signal
> competency to, YC.

If the core problem is the poor's lack of skill in signally competency, how
would it matter if the application was online or not (e.g. a mail in form)?

I feel that YC programs that target specific minorities also already try to
account for this issue in an efficient way, though I may wrong.

------
pyb
Great ! Have you got a target number of startups in this 3rd batch ?

~~~
kevin
Like the core program we don't really have targets. We're still playing it by
ear.

~~~
pyb
Fair enough, perhaps I should have asked for an order of magnitude ... is it
still ~ 30 startups ? 100 ? 300 ?

------
bchjam
How would this work for people considering non-profits?

~~~
kevin
The fellowship program is currently not available to nonprofits at this time.

------
hhw3h
typo in the first paragraph--"annoucements" should be "announcements"

------
aerovistae
Awesome!

