Fellowship V2
blog.ycombinator.com
blog.ycombinator.com
If you are scrappy, $20k can get you extremely far at a cost that is "basically" zero (1.5% stake that only converts upon a liquidity event of $100M+ or IPO).
Remember, PG "...started Viaweb with $10k..."[0] in 1995 and "Julian got 10% of Viaweb" for that investment. Viaweb sold to Yahoo! for $49M[1]. The whole reason why YC exists is because PG got a $10k investment!
Back in 2005, pre YC, PG started the Summer Founders Program and invested $20k in each group. "Another of our hypotheses was that you can start a startup on less money than most people think. Other investors were surprised to hear the most we gave any group was $20,000. But we knew it was possible to start on that little because we started Viaweb on $10,000."[2]
The first version of Viaweb.[3]
I keep finding examples of the seeds of YC and they get me really excited. You can see a photo from 2005 from the SFP and YC's roots here[4]
[0] http://old.ycombinator.com/start.html
[1] https://en.wikipedia.org/wiki/Viaweb
[2] http://paulgraham.com/sfp.html
[3] http://web.archive.org/web/19961120231442/http://www.viaweb....
Consulting on the side is a time sink that takes resources away from your enterprise. That's all but incompatible with growing fast.
There are plenty of other kinds of businesses you can bootstrap. But startups are particularly hard, which is why so many of them rely on venture funding.
Given, YC might not like it, but I bet they like the business going under a lot less.
But it's not a startup.
> I bet they like the business going under a lot less.
You would be wrong. They would much rather see you shut down a company that fails to find traction and come up with a new idea and new team and get fresh funding than they would you tying yourself up for 10+ years in what they would term a lifestyle business. They didn't give you that money to sit on, they gave it to you to change the world.
While helping customers solve problems in their industry, you are effectively paid to do market research to find the gaps and find a product need that the existing customers are willing to start paying for immediately.
The challenge can be is maintaining some sort of balance, but there is plenty to learn from in terms of market and product needs from consulting. I am a better product developer because of it.
I'd argue lessened time sink, not none. Still requires management, communication, etc. depending on the setup.
Why not find 10,000 consultants, make them manage each other, become rich like Zuckerberg instantly? With no "time sink"!
"How to draw an owl? Draw two circles; draw the rest of the damn owl" http://sethgodin.typepad.com/seths_blog/2014/01/how-to-draw-...
- you are only as good as the people you find. Or, you are as weak as your weakest person.
- hiring in any specialized field, including consulting can be difficult to scale into a large product, because 10x consultants seem to know what they're worth (and make it) a lot more than 10x developers.
- the overhead in managing 5 other people to do things also can add up.
The positive? If you do find a few of these people, all at the same time in life, and all available and interested, you can have some pretty remarkable progress and profit, where part time consultants get more done than full time folks.
So I'd argue that consulting on the side is bootstrapping for many founders; it's just one of the many ways to weather those first few months of product development and sales. Another way is to be independently wealthy enough to keep the lights on until the product starts selling.
Others - like YC applicants - spend time looking for outside money. There is no universally right answer for every business.
Do whatever you can to survive: ie. bootstrapping.
> In the end, the pair remarkably sold more than $30,000 worth of themed cereal, nearly pulling themselves entirely out of debt. Chesky had to convince his mom at the time that he was still in the short-term rental business, and not running a cereal startup.
Full read - https://pando.com/2013/01/10/brian-chesky-i-lived-on-capn-mc...
In the early stages of bootstrapping the only goal is to nail down what customers will pay for. Spending as little as possible to reach such a lightbulb is bootstrapping in my experience.
It's easy to get distracted with too much free time and funding on one's hands, especially in the hands of an inexperienced founder with little to no business experience.
Bootstrapping also necessarily doesn't need to grow fast. YC itself also says to start small and get the business down before focusing on growth.
Lots of businesses are self-funded and start as a freelance -> part time -> full time.
Here's an article about how 98% of Canadians fund their startups. It's pretty funny considering how we think it's 98% not this way based on the marketing of the 2%.
http://www.techvibes.com/blog/how-canadian-entrepreneurs-fin...
Also, I don't know if there are any geographic restrictions to this program, but 20K could keep a 3-4 people company alive for a year or more in many parts of the world. And saving that much would be non-trivial in those places.
This is especially weird if the 1.5% is taken post-money: companies will want to trigger the conversion as soon as they can reach the $100M valuation (or IPO in Canada even sooner).
I would guess that YC's traditioanl initial 7% equity stake would typically be diluted to around 3-5% by the time a company sells or IPOs.
So 1.5% of sale/IPO is clearly less than that, but it still feels a bit weird.
Put a different way, I am assuming that YC believes that a company that also goes through the core program would have a higher chance of success, so they would not want to provide a disincentive that would reduce the chance of a Fellowship company also going through YC core...
Is it (founder friendly)? It places YC (even more) firmly on the VC side of the classic VC/founder conflict: VCs want founders to go big or go home, or as pg puts it "VCs want to blow you up, in one sense of the phrase or the other." [1] Not that I don't think YC can handle it, but still.
Also, at 1.5% equity and no effective shares till that valuation threshold, we don't have enough equity to force companies to do anything they don't want. That's also part of our philosophy anyway.
True. That's why I said you guys can handle it. ;)
In my experience that happens very rarely. If the board votes at all, and especially if in a direction that the CEO doesn't want to go, then it's usually a vote to dismiss the CEO.
But the people you surround yourself with (and their incentives) do matter. "Control" is a lot more subtle and social than you might expect.
In that sense, we are saying the same thing. I agree that "control" does not require voting by the board. I do assert that investors with board seats exert far more control that those without, and investors with higher equity positions exert more control than those with less. I also assert that an equity stake of 1.5% exerts very little control. Again, YC exerts _influence_ (call it control if you want) simply because of their reputation for being good at what they do, but 1.5% ownership barely changes that equation.
If they just put the cash up for people to work on interesting things and it helps grow the YC network and feed some interesting companies into the YC Core program, then it's probably worth it without any equity compensation.
But that model wouldn't look so great if the next Google comes out of the program but doesn't do the YC Core program, resulting in a massive outcome that YC doesn't get to participate in.
This model supports the former and protects against the latter, in a way that seems really founder-friendly to me. Founders could take the money and build a small business, go to YC Core, give up altogether, or leave the YC ecosystem and build a massive company – and regardless which path they take, this capital won't cost them anything unless they build something massive.
Anyway, my gut suggests that pressure cooking a company to go public or raise a big round for the sake of a possibility of $1.5 million probably isn't highly ranked among the ways YC can direct effort for return on capital. That YC won't have a stake in a $50 million dollar acquisition may indicate how pennies and nickels are seen by YC.
1. In the case of a sub-$100M exit, where perhaps founders are getting squeezed, every little bit of extra equity counts. YC graciously forgoes their stake in the company. That's unquestionably good.
2. In the case of a big exit, YC essentially bypasses dilution and targets a fixed post-dilution equity stake, regardless of how much subsequent investment the company took on.
That lets founders retain more equity early on and thus be that much less diluted, while still getting YC ballpark what they'd like to get in the end. So that's nice.
But how might subsequent investors feel about YC getting the same fixed percentage of a IPO'ing Series B vs. Series E stage company? Could this possibly complicate funding down the line? Is it "too good" of a deal for YC in the Series E case?
(I admit the absolute amount here is fairly low, and YC is "special" in the industry. But I'd want to sketch out the consequences in detail before taking the deal.. someone "pays" for these founder and YC benefits.)
Another (scary?) thought: might more investors demand this sort of deal down the line? Would a seed or Series A or Series B investor ask for fixed percentages of IPO/acquisitions? I can't even fathom how that would scale or complicate taking on investors.. Does this only work of it's a special one-time thing?
They won't care. Basically all later investors have anti-dilution provisions, to they get exactly the same deal (though they have to pay for it, while YC gets it "for free") - put a different way, if the company is doing well (and they would have to be for potential $100M+ exits), all they care about is that they have a certain % of the company to make their economics work, so YC getting 1.5% of proceeds won't matter to them.
I'm fairly certain that there will be investors mimicking this deal structure, but whether there will be founders willing to take it is another question. Just because YC can get away with it doesn't mean Joe IPO can.
Are there different things that YC looks for when evaluating a company for one vs another? What constitutes as a company being ready for YC Core? Thanks!
"We tried this once with YC, and it didn't work well."
Any post-mortems about this?
Without conviction, the founder(s) will arguably be less motivated and thus less effective.
My limited observation is there is little correlation between the quality of the idea and how hard a startup team works.
It does illustrate that good ideas really are not cheap.
> Many people say we don’t need immigration reform because people can work remotely. While remote working works well for a lot of companies, and I expect it to continue to work better as time goes on, it doesn’t work well for all companies (for example, it would not work for YC), and it shouldn’t be the only option. It also sends money and competency out of our economy. The common answer of “let the US companies open overseas offices” always sounds to me like “further slow US economic growth and long-term viability”.
- http://blog.samaltman.com/policy-for-growth-and-innovation
i.e. First, we review the app for YC Core, then we review it for fellowship if they aren't accepted to YC Core?
Or is it a single review, then bucketed into two categories.
Or is it one quick glance, bucketing, then review.
I ask because each one can pretty dramatically impact the outcome. For full disclosure, I'll be applying to both anyways, but I am curious.
A team of skilled and committed people should not have difficulty raising $50k to work on something important. When the same team can easily get paid $500k+/yr working for existing companies, but can't raise seed funding, there's a big opportunity being missed.
The big shift in Silicon Valley will come when a firm decides to fund every worthy startup on their merits alone, doing away with the "culture fit" based screening process that everyone uses today.
Any top investor could raise a large fund and back every single worthy startup.
I'm excited to see what comes out of these early batches.
FWIW there's an incubator in my hometown that takes 0 equity that has had an amazing track record of getting companies into other accelerators (including YC) so I'm not sure it's universally true.
I've had co-workers who either don't add anything, or who actually reduce the amount of work or direction a project can progress.
I've also had (far fewer) working relationships where the you 'leap-frog' each other, pushing the entire project forward in leaps and bounds.
It's the second thing that I'm looking for in a co-founder. This is why I think being a part of yc or a fellowship might help. YC is apparently expert at picking great people, so it is a pre-filter of amazing people,who likely have a further network of amazing people. (not that my network isn't great, but most of my people don't share my interests).
update this answers my question: https://fellowship.ycombinator.com/faq/#who
All of the wannabe accelerator out their are going to have to double, or in some cases up by an order of magnitude, their deals.
It might dramatically incentivize people who were on the brink to start companies.
I'm curious what this'll mean for the culture of entrepreneurship.
YC Fellowship adds an additional stepping stone.
No idea if this was intentional, but it is very welcome either way.
$20k for 1.5% if the company ever IPO's or becomes more valuable than $100MM. I wonder what YC's normal stake is in a company after a company is valued at more than $100MM.
Would be interested to see how this is written into the contract - implied valuation of $100m through funding could be squirrely.
My opinion is that nobody yet able to crack the gaming funding as YC did for tech startups.
It's about investing in games. I think an individual game is analogous to the typical startup. Minecraft is a $2.5b one[1].
Here's a list of 11 games grossing $3b or more: http://www.businessinsider.com.au/the-11-top-grossing-video-....
Riot Games had $1.3b revenue in 2015, and has had VC funding. I think that's what you're asking for.
[1] http://recode.net/2014/09/09/game-on-why-microsofts-2-5-bill...
1.5e6/2e4 = 75 fellowships
So each 100MM 'hit' funds 75 fellows. Would be hard to imagine they expect to do much better than that in terms of hit rate, so naively, the program seems to mostly be revenue neutral.
plus it helps to avoid that people run into very bad decisions at early stage
plus it keeps yc interesting for early stage startups even though core expects more and more advanced startups
I'm curious how the option to choose what you're applying for will work out. What if someone selects just YC Core and, while reviewing, a reviewer thinks they would be a really, really good fit for fellowship instead? Do those simply get tossed out? Seems like if you're reviewing all of them anyway you could ask the applicate for their preference (so a slight rewording) and still talk to them if they're willing to do a fellowship instead of core, etc.
Just a thought.
Good to know. I'd hate for someone to miss out because they hit the wrong option in the drop down (though I certainly agree you might as well apply to both).
Also good to see the 'thing you hacked' question had been removed, I never liked that one when I had applied in the past (it's been a few years though, so maybe that was removed a while ago).
It would be interesting to see how this model involving remotely located teams and small amounts of funding is implemented/replicated by the other early stage accelerators.
So then applying to both essentially means: hope for YC CORE, default to Fellowship?
here: https://apply.ycombinator.com/ (Mar 24)
and here: http://www.ycombinator.com/apply/ (Mar 27)
Please just pick the latter.
Also, if it starts in July, why not make apps due in April?
They also gear the application to rich people by making it just a form on the Internet. That's perfect for people who have enough privilege to figure out what an application should look like but it doesn't work for people who don't yet know what to say to someone like YC, or that YC even exists. That suggests YC only wants applicants who are already connected to their social network, or have close cultural ties to the YC community.
Of course a poor person could technically apply. YC just isn't doing the work to make that probable. It's the difference between mechanical possibility and psycho-social possibility.
The only poor people without Internet access are poor, older people, which is due to a combination of ignorance and indifference.
> YC just isn't doing the work to make that probable.
I could be wrong but regardless of background, YC is looking for people who overcome obstacles. Internet access in the 1st world is one of the easier obstacles to overcome.
If the core problem is the poor's lack of skill in signally competency, how would it matter if the application was online or not (e.g. a mail in form)?
I feel that YC programs that target specific minorities also already try to account for this issue in an efficient way, though I may wrong.