Love this article. I had a chance to go through YC S20 and it's been life changing for me. As someone who lives in a non-target city (Charlotte, NC) and with no connections to SV and not having a fancy degree, getting into YC opened so many doors for me. As a first-time founder, the 7% that YC takes seems like almost nothing when in return you get access to very valuable information and network. If I was to start a new company again, I'd still apply for YC again.
The challenge of a random company posting about their experience at YC is the same as what you'll hear about HBS - it's always anecdotal and tied to the personal outcome of the writer. Are there people who spend a shit ton on HBS and don't return that investment soon enough? Sure. Would it make sense to go to HBS? Depending on where you net out, it can be the best or the worst investment you've ever made.
The nice thing about YC is that you're not investing your cash, but equity. If you have the right business/team/timing/execution, then the cost of equity will be high, but you'll do better than you ever expected so it's all good. And if you don't do well, then your equity wasn't worth much to start with, and you essentially got the HBS experience for free without any of the debt.
I don't think you can lose with HBS. If you want to talk scaling and on speak eye to eye with VC's and don't think entrepreneurship is a lottery, then a business school always makes sense. This comes with a but... BUT only if you plan to lead or scale your enterprise. It's only what I see from the outside so far, since I'm just getting ready to dip my toes. Ideas are ideas, everyone has one, like a netherhole. The ability to execute is the determining factor.
> If I was to start a new company again, I'd still apply for YC again.
Once you go through YC once, you have access to all the information and alumni community in perpetuity (via Bookface). I think it's natural to want to go through YC again as a form of reciprocation (for all the value you received the first time), but you might find that the value-maximizing route is to take capital from other sources if you go to bat again.
I'd apply not just for that but the access to group partners who know your business in and out is worth a lot to me. There were several instances where I needed advice from people who had experience my group partners helped.
Definitely understand the appeal for first time founders, and founders who are early in their careers so don't have contacts in the industry they are building products for, but having gone through an accelerator myself, I can't really imagine going through an accelerator a second time. Maybe for second time it still makes it easier to get introductions for b2b customers? But the accelerator I went through also taught a ton of strategies/tools for getting early customers without depending on just other companies in the network using each others products.
I think it is fair to say that YC are not just "an accelerator", they have a massive pool of investors and advisors. I too was in an accelerator but although famous, was nowhere near as potent as YC.
Sure, there are things that you get frustrated at (like some 20 year old telling you, at 40, how to do finance, when you would rather be building) but it sounds like the biggest thing is the culture and being prepared to delegate a lot of what you think you know to the way YC tell you to do it. I think a lot of Entrepreneur types don't like being told that their way is not correct!
There are many reasons - (1) the halo effect for future rounds of funding, not to mention Demo Day itself; (2) access to absolute god-tier advisors in areas that even though you're not a first-timer, you may not have experience with (e.g. you founded a B2B SaaS company before but now are trying a B2C thing); (3) help with hiring (YMMV on this). Also the nature of a highly focused sprint for 90 days to see if something is ready to take-off can be a great forcing function too (maybe on its own that's not compelling enough, but across these various items it seems reasonable to do it again).
> Bookface is YC’s knowledge base, and it answers 80% of the questions a founder can have about building and selling a product, be it to clients, candidates or investors. It’s the most valuable content I’ve ever read.
Something tells me this information isn’t so scientifically based and cited as it could be. I wonder just how much of this contributes to the business monoculture we see today.
The advice on Bookface certainly isn't scientifically based in the strict sense of having been compiled through double-blinded, controlled studies. But the writer and publisher of this content (the YC team) has both 1) intimate access to the largest single dataset of startups that has ever existed; and 2) an extraordinarily strong financial incentive to give consistently excellent advice to its portfolio companies.
That doesn't mean their advice is always right, but it does mean they have both the capability to quickly discover when they're wrong, and a powerful motivation to quickly correct their mistakes. So at any given time, we should expect the advice YC gives its portfolio companies to be pretty good.
Given that, it's worth considering whether what's perceived as "business monoculture" might actually be better described as "set of business practices that have been shown to actually work pretty well in the real world".
From what I've seen, YC will always advise going for a high-growth, high-risk strategy, and their advice and knowledge base will always push in that direction because that's what is best for YC.
That might be what's best for a given founder or company, but it may very well might not be. You will have to be proactive and assertive in what works for you to avoid being bullied into the standard YC/Silicon Valley gamblers' playground point of view.
That's not quite accurate. YC's approach has always been to encourage founders to do what's best for them. This was actually something that sharply distinguished YC from the rest of the investment world in the beginning. Industry insiders couldn't believe that YC would leave money on the table when the founders wanted to do something else. I remember one person talking about puzzling over the paperwork going "why would they do this?" Even today, when things have shifted in a founder-friendly direction (thanks in part to YC), it still stands out that way.
You're right that YC's business depends on high-growth wins. But YC knows that only a few of the startups it funds will reach that state. Where the two outcomes—high-growth win vs. what the founders want—end up conflicting, YC has always advised the latter.
If you think about it, there isn't a conflict anyhow, because no startup is going to become a high-growth win if the founders feel it doesn't work for them. What works for founders is what's best for YC, generally speaking, and the company has been organized around that principle from the beginning. Founders that want to be a high-growth win, and show progress, get a lot of help with that, but people aren't pushed to do that if they don't want to. The optimization is global, not local.
(Btw, although I work for YC, I refer to it in the third person when describing the investment business because I'm not really part of the investment business and have mostly just observed it as an outsider - albeit inside the wall, if that makes sense.)
One thing that's bothered me is that YC doesn't actively help its founders pursue early exits. YC will support your decision to take an early exit if you find one, but they rarely help you find your way to one.
There's a whole world of PE that will acquire business for 5-15x EBITDA, but you won't hear anyone at YC talking about that even though those sort of outcomes are life changing for first-time founders.
> YC will always advise going for a high-growth, high-risk strategy
I agree that this is indeed YC's bias, but it's incorrect that they will always advise founders in this direction. That claim is inconsistent both with my direct personal experience as a YC founder, and also with the experiences of other YC founders who I know intimately and have spoken to about these sorts of questions.
The fundamental reason claims of "being bullied" and similar are incorrect is that there's another major component to YC's incentives. Namely, YC loses out on an enormous number of great startups if there's even the slightest justified perception that they do anything close to bullying their founders.
YC's time horizon is naturally long: their biggest investments pay off over a 7-12 year time scale and almost all of their portfolio is extremely illiquid at any given time. That means they're especially culturally sensitive to actions that carry the risk of long-term negative effects, even if those actions also have positive short-term effects. Bullying founders into risking it all is just such an action, so they'd default to avoiding it even if it worked (which, by and large, it does not).
I would love to see where you've seen that. Ramen profitability is one of the most often quoted principles at YC. It's easy to make assumptions and pad them with "from what I've seen," but it's not helpful to other founders.
Are there instances where it makes sense to step on the gas? Of course. Are YC valuations high, leading to large rounds and plenty of liquidity? Yes. And yet, nobody at YC will tell you to scale before you find your PMF.
That's fair, since I am not a founder and have no direct personal experience with YC (nor interest in gaining such). My "from what I've seen" is based on reading HN, talking to a friend who was accepted into YC but turned it down, and pg's essays. As such, I will confess that this is a bit of an uninformed cheap shot -- but given the confirmation bias of current and "successful" founders and the political/social pressure on all founders, I'm not sure this viewpoint would be exposed if it existed.
I furthermore admit that my opinion is heavily influenced particularly by that last component; I find pg's seemingly rational exhortations of "how to be successful" to be slanted and self-serving. They are excellent logical argumentative essays that assume a limited definition of success and guide the reader inexorably to the best way to achieve that particular flavor of success while ignoring (and subtly implying the nonexistence of) others. I may be inferring too much about YC's actual behavior from what I glean from those (otherwise excellent) essays.
If it works, it's science. If it doesn't work, it's not science. That's not the part I'm concerned about -- it seems much less important whether a given practice will net you money, than whether said practice is actually a good thing to do. The business types have difficulty distinguishing "good advice" and "advice that makes you rich right now" as it is.
If it works, it's science. If it doesn't work, it's not science.
That's the worst criteria that I've ever seen for science. Placebos work, but aren't science. And even if you do science perfectly, you aren't guaranteed of success. And most advice that you encounter will work for some people but not others. Does that make whether or not it is science depend on the audience?
No, science is a particular process and methodology supported by a set of norms that enable us to continue building a fact based picture of reality. Doing science gets good results. But science is not defined by the quality of its results.
This is obviously a matter of deep and extensive philosophical debate, and I'll admit my definition isn't perfect, but to address your comment:
> And most advice that you encounter will work for some people but not others. Does that make whether or not it is science depend on the audience?
The question is whether or not it works in aggregate, i.e. for most people to whom the advice could apply. If it doesn't, then we would say it's not scientifically sound advice.
> science is a particular process and methodology supported by a set of norms that enable us to continue building a fact based picture of reality.
Science is not one process or methodology; there is the scientific method, but not all science uses it. For example, paleontologists cannot form an experiment to test a hypothesis of what killed the dinosaurs. But science can still give us a fairly accurate picture of what probably killed them.
I think there is a spectrum of how “science-y” a claim is, based on how much or how rigorous use of the scientific method is used to come to the conclusion.
> If it works, it's science. If it doesn't work, it's not science.
I would suggest that "science" is loosely based around the idea that objective truth can be derived through collection of empirical evidence by attempting to reject null hypotheses.
Of course it is incredibly limited and we ascribe credit to "science" for a lot of things which are not "science".
Social things are inherently hard to study "scientifically."
Business is an inherently social phenomenon. Going to people who know something about business because they have firsthand experience with business seems to be an industry gold standard for how you pass on useful knowledge.
When you are accepted at YC you are already a team which is autonomous and capable. With or without Bookface information things will not change much. Maybe you can save an afternoon because the information is easier to access and already curated. But nothing life changing for sure.
What really is important is connection to other people, when you are starting a B2B saas companies for example the people you are talking with on BookFace, are all potential customers, and can make your first customers easier to find.
The ultimate skill of the CEO is looking at what is and isn't working and adapting. If you read an article A about how Air BnB worked out by visiting every customer and taking photos, you have to decide whether that translates to your business as a way to fix your troubles or not.
I think the use-case is more based on company X struggling with a particular problem (e.g. how do you please the mass market) and finding someone who has faced the same problem and learned some stuff along the way.
If the advice at YC was the same as what you get at HBS, we would have plenty of people who know how to scale but not how to start. And no, the art of starting something is neither well researched nor well understood, beyond of what you'll learn at YC. They really have formulated that field better than anyone else, however scientifically (or not) that knowledge was created.
I would argue that this is a bit like suggesting that "having bricks complying with [some safety standard] is a reasonable-enough proxy for being 'actually structurally sound' as opposed to liable to collapse and kill you in the middle of the night"
YC's 7% is the difference between founders vs VCs having control after two rounds assuming good growth. The issue is that the best startups like early stage MS Amazon Google Facebook don't need help attracting access and information. The 90% failed startups get the merit badge which will help you in your future career as a non-founder. And then there's good startups like Roam, which YC is not smart enough to detect. What's left is controversials like Airbnb, which never exists without YC. Are you Airbnb? And is YC smart enough to see that?
I would group this together with two other statements I heard that seem logical on the surface but ignore the reality of the market:
"Why raise a seed round of more than $1.3M? If I can't build a business with 1.3M, then it's not a business worth building!"
"What's the problem with [name of a top tier VC fund] being in my seed round? If they actually choose not to do our A round, then it's not a good business to start with!"
The problem with all these statements is that you're looking at this from an overly idealized perspective where things always happen for a reason and there are no oh-shit moments. But the real world is messy and sometimes not rational. Perhaps your VC won't take your A simply because they already did two As that same year, and they are stretched beyond their limits. And perhaps your bigger competitor will sue you and suddenly your $1.3M will no longer be enough (at that point it's too late to raise again).
So going back to your original statement "best startups don't need help attracting access and information" - so you're saying best startups always go from bootstrapped to a high valuation A without any seed checks in between? I mean, even Google took a bunch of seed checks, and it doesn't get more disruptive than two Stanford PhDs building a better search engine with patented IP. By the time all those seed checks, lower-than-otherwise valuation, and various not-super-clean deal terms (was Eric Schmidt really necessary and how much did he cost in cash and equity?) are factored in, the YC route turns out to be net positive even for the best startups with first-time founders. The only exception might be a serial founder with a prior exit and strong VC connections, eg Max Levchin.
> Hundreds of pages of paperwork to register the company in the US
This called my attention, as I imagine that a US-registered company with European founders would be a headache. Is this a requirement for YC companies? If so, could someone explain why? I can imagine several plausible reasons, but I'd like to know what the official one is.
Its so investors can leverage the massive tax breaks available when investing in US based startups. Hence why YC also lets you found in tax havens like the Cayman Islands. Note this is probably not the official reason, as it's generally frowned upon internationally to encourage tax avoidance.
The simpler, less cynical answer is that it's not just a US-based company, it has to be a Delaware-based company.
This is because all of the laws around founding, investing, selling, etc. a company are extremely well-trodden in Delaware, and there are very few question marks as to how some strange eventuality or disagreement might be handled.
Since startups are already incredibly difficult, this is a way of normalizing away some of the weird situations that could cause a startup to fail (and likely would never cause them to succeed), so that everyone is putting energy into the real unknown unknowns around the startup.
My take is indeed probably more cynical and you're very correct about Delaware being well-trodden, but it does raise the question why the FAQs mention a bunch of well known corporate tax havens [0](Cayman Islands and Singapore) and not other well-trodden territories such as the UK, which has a really straightforward and efficient ecosystem surrounding startup law and incorporation (SeedLegals etc.) and plenty of history to extrapolate from. Also the FAQs mention nothing about having to be in Delaware, perhaps they should be updated?
It's an interesting question, but I suspect that there are other, easier ways of normalizing companies from those regions to be Delaware-based (or something that prevents it, perhaps in Singapore's case, not sure), whereas outside of those there's really only this nuclear "company flip" option.
YC hates anything specialized about a company re: this sort of thing - hence no special deals, etc., so I'd bet more on other normalization factors rather than no normalization.
I did Antler in the EU recently: going in pretty much thinking it would not be beneficial, but it was. So going to say yes: for the mentoring and contacts it will be, even if you already have a bunch of startups under your belt.
I always just think about the investors you get access to if you do YC, and the network of people. I think if you are on an exponential growth curve but want the YC experience I think it would be worth discussing that 7%, I believe it's not set in stone and exceptions can be made. Why wouldn't YC want a smaller percentage of something that was clearly already going to be huge...
And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.
I think it's worth looking at the leaked emails from when Google acquired YT.
They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it.
FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples.
The real reason was that YouTube had become the number two search engine on the Internet. Nobody in Corp dev acquires a company simply because of who invested in it.
> They didn't acquire it because they thought their tech was great or that they had a great product.
Well, the actual fact is that Youtube was a great product with twice as many features as Google Videos as documented in the San Jose Mercury News diagrams published at the time. And growing faster.
So however Google discussed (underestimated) it at the time, Youtube was not only a credible product, but a better one, which was understood by Google, if unstated.
IOW, Google might have been arrogant about the difficulty of building a similar product, but that doesn't change reality that they didn't.
> They acquired it because a) the team was local and b) because sequoia invested in it.
That might be what the initial reasons were. But after Youtube won the eyeballs, Google paid a market rate for network effects and eyeballs to monetize at 1000x their initial valuation estimate.
Also, Sequoia's funding meant that Youtube would continue to grow exponentially and stay ahead of Google Videos. So it's true that SV VCs are incestuaous across boards, but their funding also in reality builds out competitors.
Similar situations are when Microsoft also chased Hotmail and Facebook as they climbed in value, far greater than MS' initial valuations and offers.
Ballmer actually tried to motivate Zuck by saying he could buy a private jet if he took MS' offer. It's one of the most Ballmer things I've ever heard. The second-most is when he said he'd stay on the board for a year but bought a sports team instead - taking his toys and going home.
FWIW I'm pretty sure YC just offers a standard deal and doesn't make exceptions. For one thing it's way too hard to manage negotiations when working with so many startups (they fund close to 800 a year these days, and consider many more). Maybe there are exceptions (I don't know) but they'd be extremely rare.
Fair play, I just seem to remember reading it somewhere that it wasn’t set in stone. Maybe that’s either changed or I misunderstood what I read or I’m remembering wrong (tried to Google for it but no luck). Clearly your knowledge of the matter takes precedence and my comments around the 7% should be disregarded.
Actually I don't know any more about it than you do :) - other than I vaguely remember a couple cases where founders tried to negotiate the 7% and just ended up coming across as irritating. But probably they didn't have the goods to justify it...if it's big enough, why not? but in that case maybe it wouldn't make sense to apply to YC in the first place.
I mean it depends, maybe you are bad at getting equity and don’t have a feel for what a good deal is. Also I would think having the catharsis of people who have suffered through exponential growth and your company nearly dying many times would be very helpful. If there’s a choice between doing YC and having great examples who have done it all before I’d personally be happy with the 7% just knowing I had people to reach out to with the same war stories.
Giving up that 7% functionally doubles the valuation you can justify at a seed stage and saves you months in fundraising efforts. That time is valuable and if you plan to raise a lot having a low dilution matters quite a bit.
If it has revenue and is growing then I would look to get a loan to double down on what is working.
Pay back the loan whilst increasing revenue and keep the entire company to yourself/team. The additional revenue can offset the expenses which were taken care of by the loan.
By which time an American company will have copied your business model and plow 10x anything you could ever dream of raising in Europe into dominating your market.
Sometime this happened. I would prefer to own 100% of a smaller but profitable company instead of 5% of a high-growth/negative profits and starving for the next funding to survive.
There is also: 5% of a high growth, negative profit, thriving company that can rather trivially raise additional capital to keep pushing growth faster.
Hundreds of start-up companies have fit that model over the last 10-20 years.
Along with dozens of other prominent and smaller companies. And although not US companies, Shopify, Atlassian, Elastic, Wix, MercadoLibre and Spotify are also in that same bucket (and were funded by US venture capital). China also has a ton of thriving companies funded in a similar model (Alibaba, Pinduoduo, ByteDance, Didi, JD, Tencent, etc).
These are significant companies that all followed that model - to one degree or another - and have IPO'd in the past decade (even Tesla's IPO was just 11 years ago, they exist courtesy of the same model).
Salesforce lost money for a very long time. They were founded in 1999, and didn't reliably turn an operating profit until just a few years ago. In a few years they'll be larger than SAP.
Surely the aim of the game is not to be left holding the bag when the music stops. In that situation you would need to be making sure your own financial position no longer depended upon that of the continued success of the company.
Not saying that is a good way to run a business or the one I would personally prefer.
Yes, I’d like to see some examples of this, I’ve never heard of the fast follow working but happy to be corrected. The thing is they will not have access to your metrics to know the rate of growth and as we all know most amazing startups look like bad ideas on the surface. Take for example something like Substack - it should be easy to copy but they already have a moat in terms of mindshare with writers so I’d say there isn’t much point. Basically by the time you’re thinking about copying something that has product market fit it’s already too late for you to be the incumbent.
I'm no expert here but I thought it was the other way around. I remember seeing Rocket Internet clone several US based startups in the European market successfully. Either in selling them back to the original startup or dominating the market e.g. Zalando
I worked for Rocket Internet for 6 months one year and if you get beaten by them you deserve to lose. You can safely forget about them if you are good.
I was approached by Rocket internet to be a CEO of one of their companies and after asking me the type of company I wouldn't be interested in (I said "health/beauty, B2C") they still went on to offer me the role of CEO of a B2C teeth straightening company
Utterly bizarre, they weren't listening to a word I said yet wanted me to lead one of their companies?!
Substack is winning because of business model innovation, and also because of market timing. Their technology isn't really an advantage compared to legacy CMS platforms - how they are employing that technology is the difference.
Medium went for a bottom-up approach, trying to monetize the content of the crowd. Substack is going for a top-down approach, grabbing writers with an existing large following and paying them top rates, which are justified by the conversion rates for their well-known creators.
Normal people might not have heard of these companies, but niche audiences certainly follow some of the specific authors/columnists/influencers and are following them onto substack with paid subscriptions.
Is that a moat, or will they jump to the next platform? A few have been poached by the NYT and other venues, so maybe the moat isn't that big.
Ask any writer you know about substack, they have mind share that the competition will struggle to catch. It's a moving target remember, first you have to launch, then you have to get a load of a-list writers on your platform, then you have to figure what new thing is going to get you users. This will take you at least 6 months maybe longer. By then Substack should be at least 6 months ahead of you maybe more.
It's actually much more complex than a post on hacker news could summarise here, but I will say AltaVista tried to compete with Yahoo and add features rather than compete with Google.
If you think Google was a fast follower you are incorrect. There are patterns to how these types of company crop up and they are about revolutions in how a field is done rather than "copy AltaVista" and see if you can catch them. Nobody succeeds at copying a company that has a genuine mission to accomplish.
I'm not saying it's impossible to build a company that happens to do the same thing as say Substack but you have to build it for the correct reasons and fast followers are generally always compromised in some way.
Your glib suggestion that Google, a once per decade company, is a follower of AltaVista really doesn't do any of what Google accomplished justice.
More VC money is NOT always better. Instagram, WhatsApp, and other unicorns were built with extremely small teams. Latest case in point: Mailchimp, built with 0 VC funding.
These people are in the business of making money, which means growth at all costs and at a huge ROI, especially since insane valuations and going public is creating crazy returns for investors.
I think it's more complex than that. I would recommend everyone to join YC. It helps with customers and investors. Most likely your company valuation will go up more than you'd need to compensate for the 7%.
If the effects of joining YCombinator increases your final valuation by more than 7%, then on a purely financial basis you should join YC because even though you have given them 7%, you end up more wealthy than you would have. Ignoring dilution.
Obviously there are a variety of caveats, such as voting issues and time investment.
Personally, I suspect most founders are at a negotiating disadvantage (knowledge, power and bargaining asymmetries), and think it would be easy to get an extra 7% by having YC on your side of the table.
Everything is becoming more remote friendly, YC isn't fighting against that trend. And their track record and prestige speaks for itself. "It's not what you know but who you know". But why ask that question on this site? Do you honestly believe someone will say 'No', give credible information, and not be down-voted or shouted over to oblivion?
What I don't understand is why they complain about the high costs of setting up a business in the US (tens of thousands of dollars). Shouldn't this be pretty cheap with Stripe Atlas?
