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Why The Y Combinator Model Does Not Work In India (frontiernxt.com)
62 points by skbohra123 on June 11, 2011 | hide | past | web | favorite | 53 comments

Imagine a puddle waking up one morning and thinking, "This is an interesting world I find myself in — an interesting hole I find myself in — fits me rather neatly, doesn't it? In fact it fits me staggeringly well, must have been made to have me in it!"

- Douglas Adams -

YC is an evolved system. It's probably better suited for Silicon Valley in 2011 than New York 1997 or Curitiba in 2025. That shouldn't be a surprise.

That doesn't mean that Curitiba in 2025 is or is not a good place and time for a YC-like creature to exist. Certain types of people, investors, exits, consumers... make it a good place for certain types of founders abc to receive xyz in exchange for 123. India is very different and obviously the local version at its best would need some adaptations. Who knows what those are.

India's opportunities are lots of programmers. Talent available at very low costs. BTW, a local hirer would be able to get much better work for his $25 per hour than a New Yorker can get via elance. A 10 person team could potentially have a burn rate under that of a two person team in California. They have under-served markets. Ballooning markets and they are potentially better placed to understand under-served ballooning markets elsewhere.

Anyway, the two conditions that supposedly don't exist in India either do or don't actually need to exist in India depending on how you interpret them. I'm nowhere near an expert and they seem silly to me. (1)Big exits are international. Maybe Facebook would be more open to buying promising small team for $2.5m locally but once you get to $250m you're not going to be off the radar anywhere. (2) Why does the market need to be able to support 2-3 large players in every market. That's not a requisite. It needs to be able to support players in some markets. Luckily some (many) markets are international and can be accessed from anywhere. And India is a large market for plenty of things.

Nice! Continuing on the same thread; India is a huge market for Infrastructure and Manufacturing right now(Power plants, roads, rail, clothing etc), so people are putting their money and their brains into those markets, rather than working on a world changing technology. That money is easier to get than the world changing technology money.

I wouldn't say those things aren't part of or can't include world changing technology.

This. India doesn't need a tech based YC, thats why tech startups can't gain as much traction here. The issues we face were the ones faced by other nations a while ago - building infrastructure, and improving governance.

Nations face multiple issues at once. Almost all large countries need infrastructure, health, science, tech, manufacturing, etc. etc. to thrive economically.

India needs a little more infrastructure in its diet. That doesn't mean it stops needing the other stuff.

Anyway all this "India needs x" is not the useful way of looking at things. Think "Can x succeed in India? How?"

I never said that India doesn't face multiple issues, if that was suggested from my comment, it was misleading and I apologize.

That said over here, the risks to failure are higher for startups due to having to overcome the lack of infrastructure - which means more support work is required for each hour of work spent on the actual product. Just getting a good internet connection, or even electricity, can be hugely difficult, adding to the chores which an entrepreneur will get out of his way, before he can focus on his product. This is one of the reasons, India has far more successful service companies than product companies.

To me this means that a product/service has to have a much higher chance of succeeding (risk reduction) or higher pay off when it takes off, to make seed funding viable in the first place.

If infrastructure is built though, then costs are lowered, and risk/cost of failure goes down. Especially risk brought on by external factors not related to the team, market, service or product.

Please note: I am not saying that failure doesn't hurt in San Francisco or America. I am saying that in comparison, you would rather fail in the states, than you would in India.

I think its just your style of writing. Also I think you are writing from a political perspective rather than an entrepreneurial one. Nothing wrong with that. Most people here are neither Indian politicians or entrepreneurs, it's just that this forum is biased to one perspective.

Lots of programmers need not equate to programmers who can build products. It is a mindset thing. The lower burn rate theory has already been tested with a company called True Sparrow Systems in Pune, who were the building team behind SocialMedian. The cheaper programmers angle eventually slides further towards the service model, which is good, but not very good if you are looking to put together companies that build products.

1. Big exits, outside digital, do happen here. They need not always be international.

2. 2-3 players show a healthy and probably growing market. Ability to attract investment is always tied to the potential of the market and ability of the company to bite into it.

No doubt about the market size in India, the question is about the right approach to unlock it.

The market is not limited to India. The market is global. There is no reason why Indian startups cannot have global clients and be acquired by a non-Indian company. Sure the legal costs will be slightly higher during the exit, but thats not a deterrent.

The problem of why ycombinator model has not worked in India is the same as why other ycombinator copycats in other parts of the world have failed too. (Besides TechStars, I can't think of very many successful ycombinators in other parts of the world - including Canada and Europe and Australia.)

The reason is: these copy cats have not cracked the code of attracting and accepting awesome startups. The success of ycombinator is mainly based on the success of its startup selection.

You need someone like Paul Graham to attract a lot of startups. You then need to be good at filtering out and select only the startups that show promise. And you then need to help these startups with huge demo days.

Who else has managed to crack this? No one. If you see the Indian and other ycombinator copy cats, you will still see such a high degree of crappy startup acceptance rate. Fix that, and you will have a successful ycombinator copy cat.

Because the market is global.

The market is global

Excellent point, and the one I came here to make. I think you're off, though, on the reason YC companies are so successful.

It's not the quality of the startups or the quality of the talent. It's the connections and exposure that YC comes with that gives them such a huge advantage.

Imagine if your little one-man company could land itself on TechCrunch whenever you wanted. If you had reporters at Inc. magazine using you as examples in articles related to your industry (or writing articles about your industry specifically so they could drop your name). If you could call in favors from pretty much anybody in the tech world.

That would be pretty cool. Way cooler than $30k (plus 150k), and certainly worth 6% of your thing. At this point, YC companies are successful because YC companies are successful. It's so self-reinforcing it's essentially a tautology.

PG has repeatedly said that connections and exposure are NOT the biggest advantage. It is the talent that matters, AND the fact that YC can provide extremely relevant and detailed guidance on all aspects of startupping.


Do you believe that though?

Talent happens everywhere, and the knowledge and advice that they give is freely available to anybody with access to Google. So why, given two teams with equal talent and equal guidance, would the YC company do so much better in the general case?

If you look at the link you referenced, you'll notice that every single one of them is about connecting YC startups with important people (including VCs, the YC team, other YC companies, angels, tech press, and Silicon Valley as a whole).

It's a good thing, by the way.

I definitely believe it.

The knowledge and advice that they give is freely available to anybody with access to Google

Definitely not. They're not giving general advice -- that's already been given in the form of PG's essays, etc.

They give detailed, specific information for each company. From what I understand, it includes everything from tactical information on exactly when to launch or what features to cut, to longer term product and UI design to long-term strategic advice for the company. Also, they have expertise in everything from team dynamics to product development to knowledge of the press and funding, etc. With hundreds of companies as YC alums, the YC folks have an unrivaled amount of experience -- whatever your situation, they've probably seen something like it and can give you great advice.

I think there are very few other advisors who could give really good advice on all these fronts.

If you look at the link you referenced, you'll notice that every single one of them is about connecting YC startups with important people

What? Maybe half of it is, but did you miss the whole "office hours" section?

I don't believe it. For e.g. Banks in India gave 84% of loans to http://en.wikipedia.org/wiki/Forward_caste community

Totally agree. The point is that you can have the talent in India and service the US or any market.

However you can hire an Indian team from the US in any case. I personally have 45 staff in 9 different countries. Thinking about your business in terms of "I'm in country X and I hire from country X" is a 20th century outdated way of thinking.

Agreed that the market is global and that PG, the team and the philosophy is a major factor.

I'm trying to point out the underlying fundamentals, other than the above factors: Supply of quality stat-ups, the size of the investments and market sizing.

The main problem is that the Indian market for digital goods and services is tiny. In a non-existent market, neither product finesse nor pricing can make much of a difference.

Yeah, and you know what? McDonalds doesn't try to sell Big Macs to Indians either. They sell them Chicken Majaraca Macs.

So there's not a market for software for rich lazy people like there is in the U.S. It's not like there's not money in India. The marketing channels are different. The payment channels are different. Peoples' needs are different.

Maybe Y Combinator (incubator for rich people problems) won't specifically work. But Y Combinator (funding model for lean, adaptive startups) surely would. I think the problem is that the OP isn't thinking adaptively enough.

YCombinator works in very mature and evolved market/ecosystem where efficiency and filtering provides a major advantage as there is an oversupply of decent concepts. Thus the money invested itself is only a relatively minor factor, compared o the speed up that YC brings to both companies and investors.

India is not that evolved and there is a shortage of good ideas. Even when you get good ideas you may not have a market to sell it to, thus making it necessary that you have more than a YC-level round to get it going.

The McDonalds comparison is valid only to an extent. They did not launch in India with funding the size of YC round, which is my point in the previous paragraph - it needs a lot of money, you will often be opening up markets on your own and that is not cheap.


The issue with Indian tech startups is the they are mostly knock offs of already successful US based companies. i.e yelp knockoffs, ebay knockoffs etc.

Indians are more focused on making the quick buck, rather than working on a product for the long haul, and actually developing something new, unique and innovative. Unless this mentality changes, there will not be a market for YC type shops in India.

Disclaimer: Born and raised in Calcutta, but in the valley now.

Well there's that, and the license raj...

But then there's also an empowerment issue - or so I have come to believe - which is that non-Western companies are loathe to empower their lower-ranking employees to make decisions of any kind.

If I get on the phone to call a bank's customer service centre, and I get put through to an outsource call centre in Dublin or Glasgow I am a HAPPY man. I know the person on the other end of the phone has been given buttons they can press to make my life better. I know that if I explain a situation well enough, and am persuasive enough, that that person probably DOES have the power to change things.

If I ring up my airline to beg for a status upgrade because I got 290 points instead of 300 last year, and I am put through to someone in a Western country, I know that they will be empowered to say "OK", and to help me out.

If I ring up anywhere, and am put through to India, or Egypt, or Qatar, I know I'm fucked. I know that the person on the other end of the phone is not allowed to make decisions. That they have just a script. That they have not been trusted with the authority to help me out...

India has a huge untapped market so there's definitely a place for Indian knockoffs of ebay/amazon/groupon etc. Nothing wrong in it.

Almost all Chinese web startups which are making huge IPO exits these days are direct ripoffs of successful American web companies.

I agree that there is nothing wrong in it. However the Indian market and Chinese market are different in this regard. For example there is no need for an Indian language based search(since most people use English), there is no need for an Indian facebook(since people are allowed to use facebook). My point is that in a lot of cases, the US based product just works out of the box for the Indian market, whereas that's not the case in the Chinese market(due to language, culture etc.), so there is much less upside in an Indian knockoff than a Chinese one.

Actually it's true with entire subcontinent. In Pakistan we have been facing similar problems where people feel good in typical 9-5 Job yet few startups are trying to make efforts. For instance http://idress.pk is a new startup which helps women to design their stuff by using a simple wizard. I think each country should focus its local market as well because when you live there, you know the mindset of the people. Something you can't claim for entire world.

Idd, that's also my current (very limited) view.

As a 5th generation Indian ex-pat, I can say that that when I first landed in India, I was _appalled_ . There are so many factors holding this country back, it's not even funny. A lot of it has to do with mentality, corruption, illiteracy and a general sense of lethargy which pervades existence here.

Once I went into the city (Pune) and was informed that nothing (given, in a certain area) would be open until 11am. Every day. How can you expect markets to grow in such an environment? India really needs to catch a wake up and start implementing viable infrastructure and services. Until that happens, I don't see how people would have a use for technology (X) when they don't have access to the basics.

Once I went into the city (Pune) and was informed that nothing (given, in a certain area) would be open until 11am.

I'm guessing this was a while back.

I live in Pune right now. Yesterday I bought supplies from the supermarket, got a haircut, and bought breakfast all before catching an auto to my office at about 8:45AM. Admittedly, my building's gym opens up relatively late (7:15).

Admittedly, this was in the Camp area.

a question..

Is there a national sense in individuals in India that if it was communicated to them that its their family-cultural duty to empower business without corruption that one would make progress in this?

The obstacle seems to be cultural dynamics, Or am I miss-understanding the situation?

42% of the worlds poor live in India. There is very cheap labour, and extreme social inequality.

To give you an idea, a primary school teacher in an average school makes about $200-$300/month. With this type of pay scale for most middle class professions, there will be corruption. A traffic cop can make 3 months salary by pulling over a few guys speeding in their BMW's and taking a bribe from them, so why won't he, especially since the current system supports it.

Also, our judicial system in India is broken; it takes years(5-10) for any court case to get resolved, which is another problem since the corrupt don't get prosecuted in a timely manner.

An attempt at an answer :)

Corruption here is part of life. It is understood that things will not get done properly unless you pay someone. This includes most administrative tasks as well as the justice system.

The police routinely stop drivers and hold their licenses until a bribe is paid.

This assumes that for an Indian startup, the domain of potential users, investors and acquiring companies is limited to India. This is not true for most promising startups in India, especially web-based ones. The only pre-requisite for a YC-type model is a pool of talented potential founders, and that seems to be pretty big in India.

I'm the author of that post, can't recollect many exits from web-based companies in India to companies from outside in India. You could, I guess, point at sosasta.com (acquired by Groupon), but the deal flow certainly is not there.

Whats the fuss about exits? Why not focus on revenues? Do Redbus, Cleartrip and Flipkart need to be sold before they're worth doing?

they do need to be sold before they are worth investing in as an institutional investor

With that explanation, you are implying that your post is observational only. IE, you could drop the "why" from the title and gain accuracy in describing the post.

In order for either of these points (your two points seem to have been joined here) to be interesting for answering the why you need to look at Indian companies that would have been bought in the US but weren't (presumably) because they were Indian. Whatever the reason, if it is endemic, could be a why.

As is, you kind of end just observing that YC like investors or YC like startups don't often exist (or maybe succeed) in India but aren't really commenting on why.

If you are talking about the post here, it was not made by me, so not sure how the title can be edited. I don't see a problem with it, though.

I don't think the point is that Indian companies don't get bought in the US.

One more point - In India, a startup has HIGHER risk associated with and higher opportunity costs. A failed startup means - "oh you were such a smart kid, see, you wasted your time! why didnt you do TCS or Wipro?"

I work at a startup, but since its not famous in the country, when I mention it to some of my in-law's friends, I can actually see their face drop "she married him? why?". I'm fortunate to have supportive/unconcerned friends, but feedback like that can be hugely discouraging in a society where people are not highly individualistic.

On top of that, your chances of getting a job elsewhere are drastically reduced if your startup gig doesn't pan out. "where did you work?" leads to an answer that most HR departments wouldn't really care about. This makes the opportunity cost of losing a normal job higher,especially if you could make it to a brand name firm.

I'd argue that in India, you need to become an entrepreneur later (perhaps at 40-50), when you have connections, and a larger network to fall back on to make things happen.

To give you an idea of what its like to be in one of the better cities in the country, NYT had a great article. It really helps to show at what stage India is currently mired in, and the issues aside from your product you have to deal with. http://www.nytimes.com/2011/06/09/world/asia/09gurgaon.html?...

A lot of these issues you will face in India, need larger firms to help you solve them.

Well, I remember that when pg et al started YC, there was a general sentiment that the Y Combinator model cannot work in the US either.

Hell, as late as 2010, a friend of mine who is a VC partner said that "YC has lots of nice names in its portfolio, but it is unclear whether it is going to succeed financially". And about 6 months later, his VC started a YC-inspired fund.

The title should be Why the Y Combinator model doesn't work in India YET.

The Silicon Valley has a classic chicken-egg situation where companies are chasing investors and investors chasing companies. Both are equally responsible for the valley's ecosystem and it took it a great deal of time and struggle to become what it is today.

Whining every other day that "OMG my country is so not valley, nothing will work here, we're screwed big time" helps no one. Be ready to take big risks. Be ready to grab every little opportunity. There's no reason why every emerging economy can't have its own Silicon Valley in the near future.

Quite presumptuous is it not to say that nobody is grabbing every little opportunity here? I quit a well-paying job during the downturn to explore this side of life, so, yes, risks are being taken, but that is not my point.

I'm not saying we are screwed big time, if that is how the post appears to you, I need to apologize for the way that I put it across. My intention is this - what we are doing now is not working, let us try something different as the potential is certainly there.

Apologies if I sounded rude. It's just that there has been increasing number of blog posts lately by Indian entrepreneurs comparing India with Silicon Valley and expressing overt pessimism. No offence was directed at you.

The problems described (mainly, VC's to support exiting companies from incubators and large customer base willing to spend money on new stuff) here are true to varying degrees for all countries other than the US, I think, i.e. it's not unique to India. The produce a chicken and egg problem, since in the US many startup are fed by rich, knowledgeable people from earlier successful start ups.

One way out is for the rich expatriates in the US to invest back in their countries, which is happening for India and China.

I think the problem is also with the lack of US style Universities. Most of the good quality successes from the US come from Stanford, Harvard and the likes. It is this entrepreneurial and enlightened culture that YC taps into to get quality of startup it has along with the exits. YC is only the finishing school for such startups considering their strict selection norms.

The problem is also proportional to how many new technologies are coming out of India. How many companies / hackers are hosting open source projects on Github, Google Code etc.

I think the problem is not with the market. Its that the culture is not sufficiently mature. When you build products for India, you tap the whole developing world market - Asia (other than Japan / China), Africa and South America. English is a barrier but so is the lack of good solutions.

India follows the "Sheep Herd" mentality. The whole country's economy is based on people getting into "Profitable" domains mostly following the success of a pioneer in the field. The most recent example of this ideology is the "Business Process Outsourcing" industry. New BPO units are propping up here and there at a dime a dozen leading to a quality deterioration in the final deliverable. This process will continue till a saturation level is reached and then they will wait till another "Killer" domain picks up momentum. Till then India will be in a so called "Calm Period" where nothing great and major takes place.

Its a lot of fun and provides intellectual satisfaction to make theories on why something would not work. You can make a convincing argument for the statement "Why Startups does not not work in India". or better yet, You can write a series on "Why X does not work in India" - replace X with anything that was/is successful in US, (Obama, Microsoft, Google, Skype)

Another problem is lack of angels who can feed off from seed funds like YC. There's a gap. The startups who come out of seed funds are not yet there to qualify for VC funding.

Shouldn't the title be , 'Why The Y Combinator Model Will Not Work in India'?

Does anybody else get a redirect loop?

very interested to see PG's comment over this.

Hasn't YCs withdrawal from Boston shown PG thinks it can't work as well outside the valley, much less in another country?

I remember PG writing that YC withdrew from Boston because he thought Mountain View was a better place to raise his family. He wrote Mountain View was also a better place to have startups, but that wasn't an important concern.

There's an interview in which PG say that if YC had stayed in Boston, then some other firm would have become the YC of Silicon Valley, but PG wanted YC to be the YC of Silicon Valley.

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