YC Updates and Additions
blog.ycombinator.com
blog.ycombinator.com
With Alphabet, Inc., Google is in the process of decentralizing itself into a version of YC. They're essentially VCs now. At some point someone (maybe Alphabet) is going copy the YC model effectively and scale it up to tens of thousands of startups. It's just too damn profitable and efficient to not become the standard way Silicon Valley works.
It would be neat if in a few years all the big tech companies are basically YC alternatives and most people work for a small startup that actually makes something.
... but the competitor does need them?
Zero is the number of companies I've talked to who have ever mentioned competition with other tech companies as a recruiting concern. I'm sure that's A Thing That Happens, particularly in executive hiring, but I don't think most companies are hoovering up developers so they can hoard them.
Can you give any details/examples of what these 'specific kinds of engineers' are?
A small fraction of Google's employees are responsible for all of its revenue.
They use those profits to help ensure their longevity. One way to do that is to keep people from competing with them, so they liberally hire and attempt to acquire anyone that's a potential threat.
It's not the only reason they hire so many people. Wall Street rewards headcount and tech companies have such great profit margins that it actually makes a lot of sense. What else are they going to do with all those profits?
OK, so what if 20% of Google's engineers generate 80% of the value? As long as either the other 20% of the value breaks even with the cost of the other 80% of engineers, or there's potential for explosive growth somewhere in the 80% of work that's being done outside of the core business, it's a smart decision. Google's not going to stop Microsoft from hiring enough engineers to make Bing just as good of a search engine. And if that's all they wanted to do, they could just go on LinkedIn and offer to double the salary of everyone in the Bing division and it would still cost less.
Therefore, everyone tries to make their project too big to fail. It doesn't matter whether the organization as a whole benefits.
Speaking generally, I don't think startups think about it very much but it seems that the "very top" companies do/did.
Feel free to let me know if I'm wrong. I only have a general understanding of what you mean and the lawsuit.
The largesse worried existing softies so much that someone created the "Mini MSFT" movement, culminating in the blog: http://minimsft.blogspot.com/
They are a company, that buys, (hopefully) improves, and then sells companies. For example, a PE Firm might have some expertise in mining. They hear about a company that builds some sort of mining technology. They've done pretty well so far but they've really leveled out. The PE Firm decides to buy them, install a new CEO, revise some business practices to help cut costs, and now as the same business they bought but with a better bottom-line. They then sell it.
What you're describing is like an earlier stage PE firm.
Not sure I agree with that assertion. While YC companies market cap is approx $30B (a recent Bloomberg cited estimate), the profits of these companies are minuscule.
The public tech giants do need to show profits for all their efforts. So this model works only so long as all these "experiments" aka start ups are relatively inexpensive to run and don't chip away at the bottom line too much.
I'd like to the "slugging percentage" be higher, but I think the hit rate is perhaps already too high.
Do you think that if a business like YC were to commit to funding "safe" options that good founders would create safe businesses that could achieve returns in aggregate that would rival the high risk / high failure model?
As for returns, the average value of YC companies that are more than two years old is over $100M. I'm not aware of any other model that even comes close to that.
If anything, I'd like to find more ways to fund even more extreme moonshots (e.g. http://techcrunch.com/2014/08/14/y-combinator-and-mithril-in...). Funding an actual, literal moonshot would be wonderful.
I see this effect here in Australia where founders and startups are trying to follow the YC model to success despite the ecosystem here being really different. The thing I really love about YC (apart from HN) is that you guys are trying to do things differently - the last thing the world needs is a 1000 YC clones all following your lead and nobody trying different approaches.
I too would like to see a literal moonshot. I have thought a lot about this topic over the years and I think everyone is stuck because they have been concentrating on the wrong area. The cheapest component in the whole process is the humans - the way to get a real moonshot off the ground (sorry for the pun) is to put risk back. There are plenty of people willing to be heroes so why not optimise everything around that - the engineering costs go way down if you are willing to tolerate a high failure rate.
A fairer complaint to make is about the tension between investors/founders and employees.
This is all neither here nor there, though, because whatever kind of founder you are, you are vastly more likely to get external financing in the post-YC era than you were before YC happen. YC funds all kinds of companies that aren't immediately on a moonshot trajectory. VC firms as a rule don't.
I am not a YC booster, but I've been in startups since '95, and there is just no comparison. YC has made things significantly better for founders everywhere.
In accelerators, that means having more consistency in what factors work, and more selectiveness. Take things that repeatably work and use that.
In my opinion, companies like Google build one hit after another, internally, by re-using their internal platform and users and virality. There are failures but not as much as with startups. But it all benefits from internal resources, server farms, infrastructure, user base etc.
If you are outside such a company, use an open source platform that worked for others. We are working on such a platform and will probably take partners in a couple years, to build apps for our several million users, and provide them with all the infrastructure to try things out and take a % if it works out.
Innovation is not zero-sum, but if you create a monoculture of "what works", then what will almost certainly eventually work in the market is something different than the monoculture. An interesting analogy here is Feyerabend's take on creativity in science, "Against Method."
Also, I strongly disagree that Google has figured out a process for innovation. Google does not have "one hit after another." They have a hit here and there in a sea of failure, just like Microsoft did. IBM, on the other hand, had one hit after another, until the market figured out how to "disrupt" them, and did.
As an investor I've spent much of the last twenty years trying to figure out how to make a better risk-adjusted return. Either I'm a complete idiot, or it's not as easy as it sounds.
These are not mutually exclusive :)
More seriously, you do make a really good point. Innovation is hard and making money from it is even harder.
There is a huge difference though. Google has the resources and network to push things towards success. There are so many different reasons why a startup may fail, but Google is able to avoid many of these issues because they are google. Not a good comparison IMO.
Wait, what? Do you have any idea how many ideas they've churned through to get the relatively few hits they've had? Wave didn't do all that well. Orkut had a decent run before they dissolved it (almost 11 years) G+ is still in question.
Yes, they've had some success with some products. And made some excellent purchase decisions (you didn't think they wrote everything they released, did you? Urchin? Writely?).
They've also killed software instead of fully developing it: notebook, reader.
And that is to say nothing of the large numbers of 20% projects. I've personally heard engineers (as a whole) at Google being chastised because the success rate of 20% projects was too high.
You can keep a low hit-rate and focus on giant returns by playing the lottery, but fortunes are built on compound interest and diversified portfolios.
Reducing the number of failures does not mean getting rid of the big winners. It could mean focusing on large existing industries over speculative, pie-in-the-sky trends.
Think about ZenPayroll (disclaimer: early employee there, biased.) Product-focused payroll is not sexy, but the impact is massive and a tremendous business opportunity. We're now building software for local governments. Not sexy, huge market, huge impact on humans, clear path to single, double, and home-run.
My biggest frustration with looking for founding teams chasing these speculative bets is the sheer waste of human talent. I don't want to see another all-star team waste their time on bitcoin and food-delivery.
There are real, serious problems with the same upside but whose "failure" scenario may be a $25m business.
This makes sense to me more on the scale of a single company. Put together a great team and focus them on a long-term problem. Their year-over-year drive and passion will outlast the rollercoaster of starting a company, leading to a much better shot of those huge returns.
Rather than going all in on the flavor-of-the-week, I agree with the focus on radical improvements to existing markets. It's far more likely—which does not mean less impactful—that we can fix known problems than fix as-yet-unknown problems.
The companies that get into YC are often speculative in their ideas. Maybe it is devaluing the idea over the execution. Maybe it is the belief that getting in early to a growing trend is more valuable than reinventing an existing idea.
Regardless, the result is great teams of founders who think the key to success is a crazy idea. Sometimes crazy ideas work (AirBnB was kinda nuts at the time) but there seems to be a heavy weight in companies funded towards those types of investments versus the ZenPayrolls. Which tends to attract the same.
* They were Switchboard Labs at the time, doing something totally different.
Nevertheless, the fact that yc invested pre-pivot only reinforces my point, as ZP wouldn't even exist had YC not taken a chance on the team and then helped them find a more promising idea.
I see your point, that the team is the most important part and YC invested in that. My feeling is that YC can be more effective at funding those types of ideas and teams. That the hit rate can be higher by focusing on a different class of idea. Perhaps that means more pivots or different ideas accepted at the start. I'll try to flesh this out more.
P.S. Unrelated, but thank you for sharing your thoughts. I appreciate it
There's always room to improve, but it's likely they are making fewer mistakes than you think.
AirBnb was almost dead when they got into YC. Nobody would fund them, and Nate had moved to Boston to get a real job.
Airbnb is actually still nuts. They probably aren't even to the half-way point in terms of where they need to be to be actually mainstream.
http://www.paulgraham.com/airbnb.html
And that's just one public example. (Chris Sacca also turned them down.)
Empirically it would be shocking if they were the only 2 investors who had the opportunity to invest but didn't.
I think it's great that you believe in what you are doing versus what other "all-star" teams may choose to do but your comment is equally frustrating, IMO.
When you talk with them, they never say (or say without knowing it) that their biggest problem is financial transparency. Or that customers want to buy but want an anonymous currency. Or that they need to switch between many different currencies. BTC has always felt like a solution in search of a problem. The blockchain is wonderful technology as well, but that's not the hardest part of most startups.
The best way of doing this would be to pull the random companies out of the good, but not good enough to fund, pile. I am sure YC has little problem telling a good startup from a bad one, but I bet they have real problem picking the excellent from the good. Trying to pick the excellent out of the good is where you are most likely to run into unconscious biases.
Yes; they've said as much.
One of the challenges with this business is that our decisions look foolish at the time, and then obvious and easy with hindsight :)
(Although parent didn't mention AirBnB?)
In retrospect AirBnB could have been more accurately pitched as a better VRBO but there still isn't an obvious reason why that would have been a good investment.
A typical McDonalds costs $3 million to open. They reheat burgers.
I might recalibrate on whether a YC company counts as enormously resourced.
Compared to other incubators I don't think it's a stretch at all to consider them extremely well resourced.
No comment on the hit rate.
Sure, you could argue that being a YC alum helps you raise that first round, but even YC companies that raise smaller-ish rounds fail all the time.
I feel like people think if you're in YC you're a sure bet. That's not the case at all. First and foremost you need a product that's going to be better than anything that currently exists. At the end of the day YC is just an angel investment firm with a great track record.
Did not mean to imply I feel YC makes success a sure bet, that is obviously and demonstrably false.
That said; non-monetary resources made available to YC companies are 'mostly' available to every startup? Really?[0]
-Regular founders dinners(networking, helps with initial traction)
-Free legal counsel
-AWS/Azure credit well above what the respective companies offer non-yc startups.
-Being YC alum helps with future funding rounds.
->but even YC companies that raise smaller-ish rounds fail all the time.
Yes...Of course they do, that's the point of VC
Yes blog posts and AMA's are great learning material, but I'd argue they aren't nearly as valuable as regular 1on1's with the people that wrote them.
I'm not trying to say YC is a magic bullet or that YC alum 'have it easy', it's hard as hell to create a successful startup. I am saying that there are not-so-trivial advantages to being incubated at/by YC
[0]http://www.fastcompany.com/3042861/the-y-combinator-chronicl...
(n.b. Some of this is fronted by McDonalds, some by the franchisee. McDonalds has an interesting model where they insist on the franchisee being a tenant of theirs, at least domestically -- this turns them into one of the largest commercial real estate options in the world.)
The resources are mainly non-cash, yes. And the YC cachet (an extremely valuable asset) helps out in the fundraising.
Getting a higher hit rate probably means investing in fewer less-young companies, like a traditional VC. The companies that attract VCs are more proven, but investing like this is antithetical to the accelerator model.
Personally, I think it's great that YC is growing by trying new things (like YC Fellowship and YC Research) rather than only trying to do a better job at existing things, like being VCs.
I used to be able to place most or even all of you on a mental map but I really lost track.
Keep at it, you're doing great!
How long until the 1,000th YC company?
(silly base 10 sentiment, but still it would be quite a milestone)
https://twitter.com/sama/status/664484490060795904
Wow. I remember the 500 mark and how long that took. I thought it would happen in 2016, very surprised the milestone is already passed.
Might help to clarify some of those "who owns what" questions by putting them into a wiki that everyone at YC has access to via Slack. We're working on a bot to automate the updating of content too.
I'm sure you already have something internally for a wiki at YC but thought I'd post here just in case it helps.
I guess one measure for YC and the funded companies, is when major mistakes get repeated because the solution is not communicated to startups requesting advice.
Hoping some biochemists and petroleum engineers added to the team. Would make YC very all-encompassing.
Physics+EECS seem plentiful.
Biochem/pharma/subsea-hydrology seem to be only areas lacking in expertise.
Having conglomerate and/or parent corporations to organize the different goals of a company is nothing new, even in the world of startups.
If anything, it's surprising that Google didn't make the change earlier, given how unrelated many of their projects are (self-driving cars, search, and mobile operating systems, just to name three).
pg's biggest contribution to YC may be finding sama and giving him the reins.
A few weeks ago I submitted this article https://news.ycombinator.com/item?id=10213547 about one of Peter Thiel's biotech investments and the top comment asked "How does someone very intelligent like Peter Thiel make investment decisions in an area where he lacks a huge amount of background knowledge?". I'm curious how you personally and YC as a whole goes about making investments in areas where you don't have great expertise. For example, how do you evaluate biotech markets and the YC biotech companies? How did you evaluate your energy investments?
2) A lot of what makes a startup good or bad translates across different domains, so even if you can't evaluate the technology yourself, you can still evaluate other things (e.g. how well the founders communicate, how quickly they get things done, etc.)