Because we expect more from YC. No one doubts that YC has been a hugely positive impact in the startup world. It seems below YC's standard to share selective metrics that might not tell the whole story.
If the accelerator business on the whole is terrible, what sets Y Combinator apart and makes it a good company in a bad market - earning at 10% annual returns, 30% IRR as noted further up in the thread?
Is it YC's human resources, position in the market, branding, some combination?
It's got to be the position in the market at this point (though probably started out as human capital to get to that point). They're seeing most of the good deals for early stage companies because they're so far ahead anyone else in the space, which is obviously in your best interest in something where the best deals are several orders of magnitude better than a merely good deal and the average case is failure.
The great majority of companies we fund, even in recent batches, have effectively zero revenue when we fund them. But certainly more have a product and users than they used to, which is why we're doing the fellowship.
I have no inside info, but I think YC Fellowship could be a startup lead generation system: when you get a Fellowship grant and your company begins to work out, you will probably apply to YC and get accepted. Then YC receives equity (and only the equity of the huge winners matter financially).
You will see many coming back stronger for YC W16 application: 2015 is big time in a lot of fields. The YC ecosystem (alumni and network) is so diverse and lively nowadays that it could even generate self-sustaining innovation, more than universities and corporations.
I've always wondered if this is truly the case. If the tech is proven to work, it'll leak eventually, and make its way across the world. Some countries might enforce patents on it, but most wouldn't (especially those with the greatest energy demands, India and China).
I could see Netflix doing better in a recession, a few bucks a month for the entertainment it provides vs the cost of going to the cinema (two good cinema tickets here costs ~4 months netflix subscription).
I wouldn't say that any of these are bad based on TechCrunch; I mean more that there were something like 3 products that sell machines that sell food, and there's a chance in 10 years we'll say "there was no way that a food-machine product could have become a large business". And regardless of how hard they all work, I don't think it's possible that there will be 3 different "billion-dollar businesses" here.
First I agree with you that I don't get a lot of YC startups, including the food selling machines at their current state. I do think that one of the more inefficient aspects of life is how humans handle food, from producing, transporting, storing to cooking/eating. There are just too much waste in every step of that chains. More depressingly, this is waste that doesn't necessarily go back to support the environment like the salmon leftover from the bears. Improving efficiency in any step in this chain is huge for humankind, and potentially worth a lot of money too. I don't know if the YC food startups have that goal in mind, or they are more going for the "oh this is cool" aspect.
In the world of business, good ideas are literally priceless - in that they have literally no value. Good ideas aren't even that important to a business. Good execution is what matters. Even sub-optimal ideas can be billion dollar businesses. I still think that the basic idea behind twitter is only mediocre, but it is so excellently executed that it is a joy to use. The same applies for pinterest. They are just not great "ideas." But the execution is phenomenal.
Let's put it another way. When you say:
>It would be interesting to put together a list of these "good idea, but poor execution" ideas.
>It would be interesting to put together a list of these "execution plans but poor execution" ideas.
There is absolutely no way to separate out the "good idea" from the "good idea but poor execution" because business is the art of execution.
yes and no. If as a game you were given eight years to read and learn (but not take with you) whatever documentation you wanted about technical knowledge (only), and then sent back to New York in 1860 with $1,000,000 in 1860 bills and the goal of the game is to make as large a fortune as you can in 20 years... then it should be obvious to anyone that the ideas you would have are incredibly valuable...literally priceless. They represent without exaggeration trillions of dollars of research over 155 years.
You can patent entire industries and fundamental advances. The hard part is just choosing what to focus on, that you can actually do in 1860 starting with $1,000,000 and maybe the patent system (though it's probably unfair that you're using a time machine - this is likely quite immoral as you're not the true inventor of anything.)
And then doing it.
In other words: the outcome of the game is about execution. But what you're executing is idea. The two go hand in hand. You have a real chance to become worth 2015$ 1 trillion within the 20 years - or generate a one-million fold return on the million. You can be worth as much as entire continents. But you have to do it right.
For starters, you have to be someone whose brain can ship those technical ideas back to 1860 in one piece. This is quite similar to someone with an idea today. Not everyone qualifies.
While you are mechanically correct, your ideas would absolutely be hugely valuable, you have the benefit of already knowing what macroeconomic trends and historical events will happen.
Put another way, you could probably make exactly the same amount of money, if not more, with a "back to the future 2" scenario where you had zero ideas, but had a chart of various events that you could wager on or invest based on.
When we look at it from that perspective, it's only execution - can you correctly execute about the information you already have.
Soooo - yeah, it's not a great analogy. In general, having a perfect knowledge of what happens makes for bad analogies.
Well, I said you can only use technical knowledge. If you really want to be anal about the analogy then the game is you can only dictate technical knowledge to someone in 1860 (or I guess show them diagrams, but only of technical things - you are not allowed to talk about anything else) and give them starting capital. Then how well you do at the game depends on the ability of the person you picked to...execute. (As well as understand the technical knowledge they've been dictated/shown) It's not hard to understand what I'm getting at. But if you pick someone who can't understand the ideas, you won't do well at the revised game.
Why this is a workable analogy is because this really is similar to the position that founders with technical ideas are in. They have this vision that something can more or less work - but even if it does they still have to execute on it. That's my point.
Everything you dictate in this revised game is 100% guaranteed to work, because you're reading it straight out of technical manuals for the scientists who build these things today. But that still doesn't make a company that manufacture these things pop out of thin air. You can transfer a very large part of a $1 trillion in R&D back in time -- the ideas; but you won't suddenly have a company as a result. Someone still has to make it all and sell it all.
As an example, even if Babbage had invented modern transistors, he didn't "almost" create Intel and IBM. These companies as such are quite separate from the idea.
Luck and timing no doubt play a very important role in addition to simply poor execution. Also even excellent execution doesn't take into account how the market will respond to what you are making or trying to sell which can't always be determined prior to actually going through the motions.
Don't you feel the least bit of reservation selling young kids on the idea that they're likely to create a "multi-billion dollar business" by running through a grist-mill of a program that -- by your own admission -- isn't sustainable for most of them?
The vast majority will not achieve that goal (you don't need them to, either -- for sustainability, all you need is a few winners), and in the process, I can't help but feel that they're stunting their career, technical, and personal growth by approaching critical period of their lives with the belief that your economic model of the universe applies equally to them.
We try to be up front that they have a high chance of failure. But I truly believe that there is nothing better for their career, technical, and personal growth than doing a startup they're passionate about (we try to filter out the people that want to do a startup for a resume item).
Also, one of the advantage of YC is that if the startup doesn't work out, founders have made a lot of connections in the network and can usually find something interesting to do next.
As I've said before, I think the actual risky path is not pursuing what you really want to do and then spending the rest of your life regretting it.
I had an idea 5 years ago for a company. When I had built the right experience and the legal environment changed to support the business I left my job and pursued it relentlessly.
We added a few people (part-time) raised a little money, but ultimately we couldn't get the product market fit we needed to feel comfortable that we could grow and keep our integrity (we were a financial product). A few weeks ago I shut down the business and I'm about to find something new.
The fact that I lost a year of income is completely irrelevant vs the regret I would have faced had I never made the leap. Even without YC my network has strengthened considerably and I learned more in a year than I thought possible.
I have read a ton, watched all the startup school videos, talked to a lot of founders and tried to understand how to do this well. The fake work problem is real and even while paying extreme attention to it, often times I would waste a few hours doing something that would not increase the probability of success.
Code and talk to customers. It's so, so crucial.
Starting a fast growth company is not for everyone, but for those that want to do it, YC's information is gold. Thanks for everything you guys have put out.
My impression of YC's marketing is an appeal to hubris (and often, the hubris of youth). Most will fail, but none believe it will be them, and in the process, they position themselves outside of an environment in which they'd otherwise have access to people with technical and sustainable business experience from which they can learn what (and what not) to do.
I'm a lot happier having spent 10 years building a sustainable company doing what I really want to do, than I ever was at exciting startups during the v1 .com bubble.
Getting to that point, however, required putting in a lot more than 3 months -- or 3 years -- of backbreaking effort.
sama's response is correct. There's no real downside to doing YC when you're young. If you succeed, you get rich. If you don't, you can probably find work at another YC company that is succeeding. If you can't, then having YC on your resume will probably help you land a job at another startup. No YC founder will ever go hungry.
There's a long, long road between not "going hungry" and maximizing your individual potential, and anyone that survived the first .com bubble unscathed knows that the latter has far more lasting power.
I don't think it's fair to use the term slacking here. At worst they're people who focus on the wrong things and don't prioritize their resources optimally. Considering the number who burnout, they're likely working very hard, just not on the things that will matter in the end.
I don't think migrating from Angular to React is real work. If it takes a long time, it's probably best to stay with Angular. A failed company using Angular is the same as a failed company using React. Better to spend your time iterating on the product and acquiring customers. If you succeed you can always migrate later. It will cost more, but you will have more resources too. Doing something like that in an early stage startup just has too high of an opportunity cost. It's exactly the kind of fake work Altman is talking about.
I was hoping you were being sarcastic. The trouble with sarcasm is it's indistinguishable from foolish sincerity, which abounds on the interwebs. Without facial or voice cues, there's no way to know. That's why you have to use the /sarcasm tag.
The median age of YC founders is 30. These aren't the pliable, simple-minded children of your caricature. Many of them are accomplished entrepreneurs who understand power law dynamics perfectly.
Further, I think nearly every founder who has gone through YC would report that, succeed or fail, they are net-benefited by the experience. Rather than stunting an individual, the exercise of founding a startup is probably one of the best ways to rapidly increase your skill-set over a short time frame.
I would agree with you that attempting a startup is a net positive career, and even life, experience.
I would disagree that you should grind away for it on years. If YC is confident that hustle/effort is the problem, they should be hiring engineers directly, pay them market rate, and keep all of the equity in their projects to themselves instead of having founders shoulder the risk.
I think a lot of your replies and central argument is very thoughtful, but the one thing to consider is that successful startups are the result of unreasonable exertions of will, unreasonable amounts of luck, and an unreasonable amount of risk.
If it were reasonable, I don't think the value created would be so great.
While I don't disagree with your points on a macro, startups are very specific entities, and their success is contingent upon founders (and team members) who are willing to do unreasonable things. And also be extremely lucky.
The people he's telling to grind are those that have millions in funding. So you work hard, pay yourself, and if it fails you had a great job and a great experience, and you can go get a better job than you could have when you started.
Sure, you worked harder than someone who has a boring 9-5, but you're not turning yourself an indentured servant until the end of time. Your only risk is the additional time/effort.