"If people turn us down," PG says, "as far as we're concerned they've failed an IQ test."
Has anyone read Axelrod's The Emergence of Cooperation? Looking at the above quote with that book in mind, I'd say that PG is trying his best to establish his reputation as a bully. Yes, probably all founders would be stupid to pass up on his offer, no matter how low. However, given that, at the offer stage, he has already spent some time (and money) for the interview, he's partially invested in the startup. Thus, he would also be "stupid" to reject a counteroffer that was somewhat more favorable to the founders. But then he would ruin his reputation as a bully, and open the door for more negociations. So he won't negociate at all. It's his best strategy.
It's not necessarily a bad thing for us, as long as he still makes a fair offer, but the way he says it makes me cringe. He's using the applicant's ego. Who here would like to fail PG's IQ test?
The reason we don't negotiate is that the most significant thing we offer, our advice and connections, we offer a constant amount of to everyone.
For the thousandth time, it's not about the money...
Here's why it's an IQ test. One should give up n% of one's co for something that will make the remaining 100-n% worth more than 100. So you should give YC 6% if you think we can improve your prospects by 7%. Do we? Easily. And someone who doesn't get that even after talking to us in person is not very perceptive.
Sure, your advice and connections are worth more than the 15K. Let's say they're worth 100 thousand. Then, you're giving away 115K in exchange for x% of the company. x would still be negotiatable in a normal setting. Some startups are worth more than others.
Ralph is right. You are providing a service for startups. Right now, you have a monopoly on that market, but eventually, other YCs will rise up, and you might have to lower the amount of equity you take. Competition.
I'm not even saying that YC is being unfair. I think it's a great deal. But the "IQ test" bit reminds me of something you wrote about Viaweb: "My message to potential customers was: you'd be stupid not to sell online, and if you sell online you'd be stupid to use anyone else's software. Both statements were true, but that's not the way to convince people."
If ever YC started abusing their spring chicks, the argument would deserve to be brought up, but since YC alumni seem very happy about the deal they got, it's all rather pointless.
Yes, true. What I actually said was that if anyone turns us down simply due to the implicit valuation, they've failed an IQ test, but these things get compressed when reduced to one sentence quotes.
By the time you're at your YC interview, you already know all of the terms of the deal except for one variable: the percentage of the company taken by YC. So if you're accepted, PG calls and gives you this one piece of missing info, and you and your cofounders get 5 minutes to decide whether it's acceptable.
I can think of several situations where that 6% could get a better return than YCombinator:
If it's the difference between attracting a top-notch cofounder and a take-what-he-can-get cofounder. PG isn't going to write your code for you.
If it goes to an angel investor with even more experience and connections than YCombinator. I'd take Ram Shriram or Peter Thiel over Paul Graham any day...not that I could get them, but apparently I can't get PG either. ;-)
If it lets you hire key early employees. For an employee, the difference between 1% and 3% of equity is huge, and you'll be able to attract much more talented people if you give them more equity. A team of 5 "A" players will likely beat a team of 2 "A" players, 3 "B" players, and YCombinator.
I agree that it's silly to turn down YC just because the money/equity ratio is fairly low. But YC's not the be-all-and-end-all of seed funding: there are other resources out there where your equity may get better returns.
I guess the issue I have with the quote is that it ignores all the other variables that can contribute to a person's decision. You are arguably correct that turning down an offer with reasonable terms would indicate a low IQ, but its also a personality litmus. I don't see how after completing the necessary steps to even get in a position where they could even entertain the idea of accepting an offer they would turn it down. Especially considering that the general structure of the offer is already a known factor before they even walk in the door. So IQ couldn't be the only determining factor, in fact it can't even really be on the plate. Verily, denying a YC offer should be a DSM-IV criterion for a major psychosis.
I had to give that a point. I guess what I'm trying to say is that there must be a deep personality flaw with someone that takes all the necessary steps and then refuses to go with it.
Interviews are two way things. Perhaps the interviewee isn't so keen having had more contact in person, or doesn't like the suggestion of dropping their idea and going with an alternative. Perhaps they just think the gasps of admiration and amazement from the interviewers means it's a can't fail idea that they're already executing well.
Saying it's an IQ test is wrong IMHO. But it may be a good negotiating stance.
I'm quite impressed that Steven Levy wrote about YC. I know him from "Hackers: Heroes of the Computer Revolution", and "Artificial Life" - two of my favorite books.
And there's a book about crypto that he wrote too.
Hackers: Heroes of the Computer Revolution was well written and enlightening. If only the rest of the mass media could figure out what the word hacker actually means.
Reading that article, I can't help but feel like the reporter had decided what he would find before he actually looked for it.
The wording is very strong, and the imagery is picturesque, it just doesn't really seem to square with what I've read here and in pg's articles (that the input and advice they give is important, but not controlling some how doesn't conjure the image of a bootcamp in my mind...).
I personally thought it was the best article about Y Combinator that covered everything from start to finish of the ones posted here before. I think the bootcamp analogy refers to how fast everything happens over a period of a couple of months when you first join the military, after which it is usually less hectic. That's a good way of explaining Y Combinator to MSN readers, even if startups continue to have hectic lives for a longer time than that, while somebody could go to an officer school for 13 weeks and then go straight to being responsible for 20-200 adults much older than they are, while startups are still trying to get going. Other than that, I think the article explained very well that most people came up with their own ideas.
Steven Levy was present at about a third of the dinners during WFP 2007. He did serious research for the article. It is a fair presentation, with a bit of hyperbole thrown in (most likely to satisfy editors).
And, he is no mere "reporter". He is Steven Levy, who is among the best technology writers.
Reading that article, I can't help but feel like the reporter had decided what he would find before he actually looked for it. The wording is very strong, and the imagery is picturesque [...]
This is just how reporters work... after all, they are out to sell a story.
Low millions probably means low ones-of-millions, which is non-fuck-you money in return for a situation which you'd probably want to say fuck-you to, at least if you believe the general sense around here that Google's status as the ultimate hacker's mecca has begun to fade.
Low ones-of-millions - say $2M - is still enough to last 20 years at $100K/year (not counting taxes, but also not counting interest). Most decent entrepreneurs ought to be able to come up with another viable startup within 20 years, so for most practical purposes, it basically is fuck-you money. You won't be able to never work again, but you have enough of a financial cushion that you never have to work for another person again.
Yeah, but startups, for most founders, are a HUGE schlep. And, the return on the schlep is nonlinear in the size of the schlep; it's more like exponential, assuming you keep winning your rolls of the dice. And, the n+1th roll of the dice has a much higher expectation than the nth. In other words, they've come all this way, and they're ALMOST at fuck-you money-- they wouldn't want to come back 20 years later and go through the whole process again.
I got rejected by the YC and it still annoys me ever now and then, but the article is good and right. Ok maybe sayuing billionaires is a bit too much, maybe most of them will sell for a few millions but if you think about it when they start they second with the money form the first, they will have better chances at making billions. GO YC. And next time invite me to San Fran
We're so young that we all have a very long time to make billions of dollars. We have a lifetime to get there. It also gets easier as the dollar becomes more and more worthless.
The dollar recently hit a 26-year low against sterling and an all-time low against the euro. Just about everything is pointing to a lower dollar. US growth is disappointing (YC excepted ;-) and is set to underperform Europe [IMF]. US rates are expected to be cut later in the year whilst the UK and Eurozone are set to rise. The UK rate is already higher than the US, normally a predictor of bad things to come. US inflation is a bit high which lessens the dollar's appeal as a holding asset.
The US deficit, still 6%, is depending on the sale of US Gov. bonds. Oil producing nations are buying, and so are Asian central banks because they want to see their exports look cheap in USD. (Doesn't China hold USD1.2 trillion?)
The dollar looks set to drift lower. If holders get concerned they have too many and dump some of their wedge it'll plummet.
Interesting times. You could all be millionaires real easily. ;-)
Actually, older people have a higher chance of becoming or already being millionaires, as long as they've already been an entrepreneur for 20 years. While your attitude is helpful when you're first starting out ("it might take me 10 years to make millions, and that's fine!", which is the attitude I had/have, and it's important), the older people actually realize they don't have as much time, and will use their connections and experience to launch a company in 6 months. So, older entrepreneurs have three advantages--connections, experience, AND time pressure. So I think if one wants to compete with ALL entrepreneurs, including those that will inevitably try to copy your ideas and those started by non-technical founders who have resources, thinking that one has 20 years to become a millionaire is not going to be helpful. I think for a young person, having the ability to work on a new idea all day, PLUS thinking that they have only 3 months (the same a 60 year old would think) to launch a web service, would be a useful paradigm. The advantage of 24 year olds is that we don't have money tied up and don't have to shut it down if it doesn't work out after 3 months. Also, it's not like Y Combinator companies have something better to do with their time, and can continue to improve their idea even if it doesn't show any profits, taking advantage of publicity that 24 year olds can get just for being 24 years old. But, the idea must be done (in other words, released) as soon as possible--a week, a month, three months from now. So, while you take one idea and try to spend ten years to make it work, you have to be on the lookout for better opportunities that might only take you one week to do.
When the Weeblies show up for the meeting, they pull up Maples's Web site and, using their software, clone it almost instantly. Then they show him how he can use Weebly to tweak it easily and even redesign it. Maples's eyes open wide. Later he will explain that at that moment, he was determined to help fund the Weebly team.
i just think that is an assumption by the reader that these companies in (even these companies in their present form) will make the founders billionaires. I think it is safer to assume that the experience gained is more likely to lead them to be come billionaires in future endeavors rather than in these companies or even their next.
Has anyone read Axelrod's The Emergence of Cooperation? Looking at the above quote with that book in mind, I'd say that PG is trying his best to establish his reputation as a bully. Yes, probably all founders would be stupid to pass up on his offer, no matter how low. However, given that, at the offer stage, he has already spent some time (and money) for the interview, he's partially invested in the startup. Thus, he would also be "stupid" to reject a counteroffer that was somewhat more favorable to the founders. But then he would ruin his reputation as a bully, and open the door for more negociations. So he won't negociate at all. It's his best strategy.
It's not necessarily a bad thing for us, as long as he still makes a fair offer, but the way he says it makes me cringe. He's using the applicant's ego. Who here would like to fail PG's IQ test?