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Dear awesome startups, don’t join an accelerator, unless… (pandodaily.com)
85 points by yesplorer on Feb 17, 2013 | hide | past | web | favorite | 36 comments

Of the twelve startups founded since 2007 that have reached a billion dollar valuation, two of them were funded by YC and another of them was founded by a YC alumni. It's crazy to say that's a bad outcome.

It's a mistake to think getting into an accelerator is about getting access to VC. VCs are probably the most connected people in the startup industry, pretty much anyone with a good startup can get an intro to any VC they want within two degrees of separation.

The point about pivoting is particularly wrong, a substantial number of YC funded startups have pivoted during their YC period and raised successfully on or before demoday.

Someone who argues mentors are no use while you're in the process of building your startup has obviously never built a startup.

Can you list these 12 companies? (Which one was founded by a YC alumni?)

Instagram, Pinterest, Square, Dropbox, Evernote, Yammer, Groupon, AirBnB, Gilt, LivingSocial, Nicira and Zynga

(Although depending on your criteria you might want to include Hulu, Vancl, Rovio and Wonga in that list too taking it to 16)

Pinterest founder Ben Silbermann previously founded MightyQuiz (YC W08).

I noticed that we were missing some b2b companies, Yammer being one. Not sure how many more there are.


Is it true that Dropbox/AirBNB make up most of YC's (monetary) value? I know they're the big ones, but it still sounds fishy. What about Reddit, for example? Heroku? The company that built Draw Something? (I forget their name).

Also, many of the 400 companies who have been through YC are very recent, and simply haven't had a chance to grow as much as Dropbox has.

Other than these questions, I think the article does make a few valid points - it does seem to me that there are a lot of programs around, and I'm not sure they are worth the time for most people. I'd be interested to know if the prevailing sentiment among VCs really is that most seed accelerators don't matter (discluding YC).

1) Yes. It's true of angel investments generally too, the top companies form a disproportionately large percentage of the value.

2) Yes, you basically need to do cohort analysis for meaningful results.

3) It depends what you mean by "most seed accelerators don't matter", certainly there's a big drop-off in quality in startups as you go further down the rankings of seed accelerators and VCs pay less attention to them. That doesn't mean that the accelerators aren't adding value to the startups though.

Yes, it turns out the article is correct (see also frankdenbow's helpful comment below).

Follow-up question/observation: the article makes it see like only Dropbox and AirBNB were "winners", which I understood to mean they were the only 2 that gave YC a return. Here's the quote from the article:

'And even though most YC companies have no problems raising additional capital, the program has only produced two big “winners.” Dropbox and Airbnb make up three quarters of the value of Y Combinator’s $10 billion portfolio. That’s two huge successes out of something like 400 companies.'

Is this only true because Dropbox and Airbnb are spectacularly successful? E.g., if another YC company became the next Google next year, would the article have said "YC has produced only 1 success", and Drobpox/Airbnb would be relegated to "not as good as the Google-sized success"?

Yes, PG talks about it here http://paulgraham.com/swan.html

>The company that built Draw Something? (I forget their name).


What is telling to me is that nobody, not PG or anybody else could have predicted which of the 400 ended up to be billion dollar companies. But for those two that made it to that magical marker being in YC made all the difference.

> And even though most YC companies have no problems raising additional capital, the program has only produced two big “winners.”

The word 'only' has no place in that sentence, it is a pretty good record for early stage investing, and it does not take into account stripe, heroku and others.

The nature of power-law distributions is that there will be a few exceptional outliers. If you set your definition of what a "big winner" is on those outliers, of course you will only have a few.

The article mentions that most of YC's value is in just two companies (Dropbox, AirBNB) out of some 400 funded. That would be awful performance for a traditional VC, but the amount of time and money put in by YC into each of those 400 companies is between 1/100 and 1/1000 of how much a traditional VC would put into a deal.

So, if you're comparing to a traditional VC model, compare YC to one that has made e.g. 10 investments. And to have Dropbox, AirBNB as two of your ten (regardless of all others), is something every VC would envy.

Apples (VCs) to oranges (seed investors / incubators).

For a VC 2 out of 400 would be spectacularly bad, for an incubator to have 2 winners of that magnitude is actually really good and there are a few others that have already exited (Heroku, YC08 iirc for instance) that increase that even further.

Add in stripe and the current crop of 'hot' stuff and YC is looking pretty good.

But you still can't compare it with a VC, it's a different model, different risk/reward.

Incubators and VCs may be oranges and apples, but YC started a new kind of incubation system, to which the name "accelerator" (which is in common use) is more fitting than "incubator".

A traditional VC, compared to an incubator, was able to offer access to bigger money in the next rounds (whether the VC's own, or other funds it co-invests in), and networking.

But YC (and other accelerators) actually give you everything a traditional VC does. The main difference is bureaucracy & first round size: A traditional VC spends 2-3 whole months trying to decide if to take a deal or not; therefore it makes no sense to invest anything less than $500K (and often no less than $2M), and you have 1-2 investments/year/partner.

YC and other accelerators invest ~$20K, with (comparatively) no overhead, but otherwise give the same access to networking and future money.

It's apples to oranges only in the sense that when you're hungry, either one will help you get through the hunger. For one of them, you have to wait much longer in line, and it keeps your hunger at bay for longer.

I'm curious now, whats the median valuation of YC companies?

yeah I was thinking the same. 400(well, 398) worth 2 billion still gives you something like 500k per company. When considering the 15k invested, sounds like a winner to me. Obviously this is averaging but still.

The mean helps put it in perspective, but the exponential distribution is perhaps more telling. If, say, 50% of the wealth is accounted for by 15% of the companies, the mean doesn’t give you any intuition for how the game actually works.

Not only that, there is also a need to understand that not every student coming out of a primary school is a topper. Especially, when you've a single point index to measure that success - in this case, a billion dollars. But every student is an important part of the system.

A program like YC or 500Startups has a solid name because of the quality of its guides, support system, value system, knowledge, experience and pretty much everything else that one can think of.

Keep the money aside, tell me one VC that compares on those metrics?

(Disclosure: I am not a part of any accelerator program.)

"Accelerators need the good companies more than the good companies need the accelerators."

I remember a talk by Joi Ito, where he reasoned all his pro bono activities in a similar way: You want to be in the room when the next Google takes the stage - because they will chose their investors, not the other way round.

I don't think anyone who hasn't started a company is qualified to write an article like this.

If there’s a chance you’ll pivot halfway through the program and demo a one-month-old idea to a crowd of investors and media, you’re not going to win.

This is just flat-out wrong... Greplin, Codeacademy, Meteor all come to mind. Most companies don't pivot, but the ones that do, often end up doing the best (at least in YC history).

The OP's point is that the major benefits of accelerators don't always align with the needs of a given company. It's probably a fair point - Demo Day happens on Demo Day, not on the one day that happens to be ideal for all the companies.

"So don’t join an accelerator unless you can win it." So we're basically in a situation in which self-selection rules now. In the future, if you made it through an accelerator and "won" it you were already in a position to do so. That means that the benefit of actually winning the round from the accelerator was minimal since you most likely would have succeeded anyway.

Given the massive difference in funding between an accelerator seed (tens of thousands) and the first raised round (millions) it seems like the accelerators disproportionately gain from having these self selected success stories.

Accelerators, more recently, really seem to provide business direction and a stream of well documented CEO advice which, for a lot of these startups, solves zero of their engineering or customer problems. It's not that the mentorship provided at the labs is not useful but rather that it seems to solve a less important part of the overall problems early companies have.

And to top it off, like the article mentions, the effort rewarded during an accelerator is often related to pizzaz, flash, and cool demos rather than core product. I hope the accelerators look to strengthen their offerings to seed companies and really incubate them rather than slip further towards the "gateway to VCs" which, at times, seems like the predominant movement.

I think the biggest problem is not so much the equity that you can lose, but also the time startups lose, especially in many of the newly created accelerators. I have seen founders being obligated to attend 9-5 in poorly designed co-working office-spaces when their own arrangements are much more efficient, having to pitch daily to people that have no impact on your success and having to attend day-long workshops on subjects they already master or are irrelevant to their challenges. In that way I have seen startups join accelerators and wasting a lot of time boosting the accelerators themselves (especially if they are corporate-driven) but decelerating themselves. When it comes to Demoday, there suddenly are few investors and even fewer press. The key thing that new accelerators don't realize is that YC did this for many, many years until their current status quo. Many accelerators think that just by calling a demo-day and showing ten startups that they pumped a total of $500K in, they will be the next YC. If they don't have the track-record yet, they better have 200K of followup cash ready for each startup to show that they really mean it and that their curation process resulted in a meaningful selection.

I'll call hogwash. This article, I think, is missing the point by a thousand miles.

I don't think that YC invests in guys who want to draw cats for you (no offense to Mr. Cuban). That's the first layer.

I've been to pitch events where within the first 11.3 words you know that it is going to go nowhere. And then you learn that someone threw money at them.

What percentage of startups have a chance --purely on the nature of the business they propose to attack-- to reach a billion dollars. Is it 1%, 2%, 10% or 0.1%?

I would venture to guess that, YC or not, if you took all startups launching in the US, a very small number of them have a shot at a billion dollars.

No, not because there might be execution problems or anything like that.

Markets with billion dollar potential are relatively scarce when compared to, say, $25MM, $50MM or even $100MM markets.

And, even if you found one, there's the very real possibility of it being a displacement market rather than virgin territory ready for the taking. In other words, you have to share the cake with n players. More accurately, you have to STEAL cake from others. Chances are you are going to get poked in the eyes and kicked out of the room before that happens.

If the market is only good for a billion dollars total and there are ten players already in it, what are the chances of you capturing 100% of it? Right.

This means that, in order to even have a shot at a billion dollars you have to look for a market that is large. Huge large. If, for easy numbers, you identify a $100bn market, now you only have to steal 1% of the cake. And, while I am not saying that this is easy, it would be far more plausible than capturing 100% of a billion dollar market.

This is a insightful and interesting article but for a lot of folks I think accelerators are Extremely helpful.

(A) Lot of accelerators are readily accepting foreign companies and entrepreneurs. Helping provide them a base and also help with visa issues. Which would be very tough on their own.

(B) Many of these ideas are not well polished and need to refined further and converted into a viable business. And accelerators also help founders hyper-focus on the product.

With that said if you have a little cash for a few months time, have already started to work on your MVP and have decent connections in the industry. Then working in a co-working space and hacking your product is the best thing to do.

But each case is unique IMHO.

There is a fundamental disconnect with the concept of an Accelerator and the concept of a Disruptive Startup. If you do the math, honestly, they are a really crappy deal for the Startup. The "acceleration" they provide is little more than standard information, standard anecdote experiences, and standard MBA advice. If what they offered actually had they value they claim, they would be creating a startup themselves. Accelerators are parasites on your ambition and capability. Trust yourself, trust your team, and be adult enough to not sign up for a nanny program that is just going to treat you like children and take a portion of your equity for it.

It the beginning, yc had much more interaction with their startups and it's clear that they wanted the startup to survive at any cost. Once the model grew larger there were just too many startups to mentor. Then, pg wanted them to fail as quickly as they could if they could not make something of their company quickly. That way yc would only have to mentor what he considered the strong companies.

healthenclave: your comments are dead, looks like you've been hellbanned. Can't quite tell why since you literally only have that one comment.

I have no idea :( and it's my 1st comment

This is the ultimate linkbait title: "Sentence that is completed only if you ...".

I actually read the entire article and still not sure how to finish that sentence. Her main conclusion is "hustle", which has nothing to do with joining an accelerator.

I thought it was "don't join an accelerator unless... you can be the best company there" which is also a bit silly in my opinion (I think she said "win it" at one stage).

it sounds like this is an interesting article, but on my android this website was barely usable. the feed on the right took up more space than the actual article and the header was huge. maybe it renders better on other phones, but for a site of the size of pando, they really should address a broader base for usability

this was a great read.

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