Why The Y Combinator Model Does Not Work In India
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YC is an evolved system. It's probably better suited for Silicon Valley in 2011 than New York 1997 or Curitiba in 2025. That shouldn't be a surprise.
That doesn't mean that Curitiba in 2025 is or is not a good place and time for a YC-like creature to exist. Certain types of people, investors, exits, consumers... make it a good place for certain types of founders abc to receive xyz in exchange for 123. India is very different and obviously the local version at its best would need some adaptations. Who knows what those are.
India's opportunities are lots of programmers. Talent available at very low costs. BTW, a local hirer would be able to get much better work for his $25 per hour than a New Yorker can get via elance. A 10 person team could potentially have a burn rate under that of a two person team in California. They have under-served markets. Ballooning markets and they are potentially better placed to understand under-served ballooning markets elsewhere.
Anyway, the two conditions that supposedly don't exist in India either do or don't actually need to exist in India depending on how you interpret them. I'm nowhere near an expert and they seem silly to me. (1)Big exits are international. Maybe Facebook would be more open to buying promising small team for $2.5m locally but once you get to $250m you're not going to be off the radar anywhere. (2) Why does the market need to be able to support 2-3 large players in every market. That's not a requisite. It needs to be able to support players in some markets. Luckily some (many) markets are international and can be accessed from anywhere. And India is a large market for plenty of things.
India needs a little more infrastructure in its diet. That doesn't mean it stops needing the other stuff.
Anyway all this "India needs x" is not the useful way of looking at things. Think "Can x succeed in India? How?"
That said over here, the risks to failure are higher for startups due to having to overcome the lack of infrastructure - which means more support work is required for each hour of work spent on the actual product. Just getting a good internet connection, or even electricity, can be hugely difficult, adding to the chores which an entrepreneur will get out of his way, before he can focus on his product. This is one of the reasons, India has far more successful service companies than product companies.
To me this means that a product/service has to have a much higher chance of succeeding (risk reduction) or higher pay off when it takes off, to make seed funding viable in the first place.
If infrastructure is built though, then costs are lowered, and risk/cost of failure goes down. Especially risk brought on by external factors not related to the team, market, service or product.
Please note: I am not saying that failure doesn't hurt in San Francisco or America. I am saying that in comparison, you would rather fail in the states, than you would in India.
1. Big exits, outside digital, do happen here. They need not always be international.
2. 2-3 players show a healthy and probably growing market. Ability to attract investment is always tied to the potential of the market and ability of the company to bite into it.
No doubt about the market size in India, the question is about the right approach to unlock it.
The problem of why ycombinator model has not worked in India is the same as why other ycombinator copycats in other parts of the world have failed too. (Besides TechStars, I can't think of very many successful ycombinators in other parts of the world - including Canada and Europe and Australia.)
The reason is: these copy cats have not cracked the code of attracting and accepting awesome startups. The success of ycombinator is mainly based on the success of its startup selection.
You need someone like Paul Graham to attract a lot of startups. You then need to be good at filtering out and select only the startups that show promise. And you then need to help these startups with huge demo days.
Who else has managed to crack this? No one. If you see the Indian and other ycombinator copy cats, you will still see such a high degree of crappy startup acceptance rate. Fix that, and you will have a successful ycombinator copy cat.
Because the market is global.
However you can hire an Indian team from the US in any case. I personally have 45 staff in 9 different countries. Thinking about your business in terms of "I'm in country X and I hire from country X" is a 20th century outdated way of thinking.
Excellent point, and the one I came here to make. I think you're off, though, on the reason YC companies are so successful.
It's not the quality of the startups or the quality of the talent. It's the connections and exposure that YC comes with that gives them such a huge advantage.
Imagine if your little one-man company could land itself on TechCrunch whenever you wanted. If you had reporters at Inc. magazine using you as examples in articles related to your industry (or writing articles about your industry specifically so they could drop your name). If you could call in favors from pretty much anybody in the tech world.
That would be pretty cool. Way cooler than $30k (plus 150k), and certainly worth 6% of your thing. At this point, YC companies are successful because YC companies are successful. It's so self-reinforcing it's essentially a tautology.
Talent happens everywhere, and the knowledge and advice that they give is freely available to anybody with access to Google. So why, given two teams with equal talent and equal guidance, would the YC company do so much better in the general case?
If you look at the link you referenced, you'll notice that every single one of them is about connecting YC startups with important people (including VCs, the YC team, other YC companies, angels, tech press, and Silicon Valley as a whole).
It's a good thing, by the way.
The knowledge and advice that they give is freely available to anybody with access to Google
Definitely not. They're not giving general advice -- that's already been given in the form of PG's essays, etc.
They give detailed, specific information for each company. From what I understand, it includes everything from tactical information on exactly when to launch or what features to cut, to longer term product and UI design to long-term strategic advice for the company. Also, they have expertise in everything from team dynamics to product development to knowledge of the press and funding, etc. With hundreds of companies as YC alums, the YC folks have an unrivaled amount of experience -- whatever your situation, they've probably seen something like it and can give you great advice.
I think there are very few other advisors who could give really good advice on all these fronts.
If you look at the link you referenced, you'll notice that every single one of them is about connecting YC startups with important people
What? Maybe half of it is, but did you miss the whole "office hours" section?
I'm trying to point out the underlying fundamentals, other than the above factors: Supply of quality stat-ups, the size of the investments and market sizing.
Yeah, and you know what? McDonalds doesn't try to sell Big Macs to Indians either. They sell them Chicken Majaraca Macs.
So there's not a market for software for rich lazy people like there is in the U.S. It's not like there's not money in India. The marketing channels are different. The payment channels are different. Peoples' needs are different.
Maybe Y Combinator (incubator for rich people problems) won't specifically work. But Y Combinator (funding model for lean, adaptive startups) surely would. I think the problem is that the OP isn't thinking adaptively enough.
India is not that evolved and there is a shortage of good ideas. Even when you get good ideas you may not have a market to sell it to, thus making it necessary that you have more than a YC-level round to get it going.
The McDonalds comparison is valid only to an extent. They did not launch in India with funding the size of YC round, which is my point in the previous paragraph - it needs a lot of money, you will often be opening up markets on your own and that is not cheap.
Indians are more focused on making the quick buck, rather than working on a product for the long haul, and actually developing something new, unique and innovative. Unless this mentality changes, there will not be a market for YC type shops in India.
Disclaimer: Born and raised in Calcutta, but in the valley now.
Almost all Chinese web startups which are making huge IPO exits these days are direct ripoffs of successful American web companies.
But then there's also an empowerment issue - or so I have come to believe - which is that non-Western companies are loathe to empower their lower-ranking employees to make decisions of any kind.
If I get on the phone to call a bank's customer service centre, and I get put through to an outsource call centre in Dublin or Glasgow I am a HAPPY man. I know the person on the other end of the phone has been given buttons they can press to make my life better. I know that if I explain a situation well enough, and am persuasive enough, that that person probably DOES have the power to change things.
If I ring up my airline to beg for a status upgrade because I got 290 points instead of 300 last year, and I am put through to someone in a Western country, I know that they will be empowered to say "OK", and to help me out.
If I ring up anywhere, and am put through to India, or Egypt, or Qatar, I know I'm fucked. I know that the person on the other end of the phone is not allowed to make decisions. That they have just a script. That they have not been trusted with the authority to help me out...
Once I went into the city (Pune) and was informed that nothing (given, in a certain area) would be open until 11am. Every day. How can you expect markets to grow in such an environment? India really needs to catch a wake up and start implementing viable infrastructure and services. Until that happens, I don't see how people would have a use for technology (X) when they don't have access to the basics.
I'm guessing this was a while back.
I live in Pune right now. Yesterday I bought supplies from the supermarket, got a haircut, and bought breakfast all before catching an auto to my office at about 8:45AM. Admittedly, my building's gym opens up relatively late (7:15).
Is there a national sense in individuals in India that if it was communicated to them that its their family-cultural duty to empower business without corruption that one would make progress in this?
The obstacle seems to be cultural dynamics, Or am I miss-understanding the situation?
Corruption here is part of life. It is understood that things will not get done properly unless you pay someone. This includes most administrative tasks as well as the justice system.
The police routinely stop drivers and hold their licenses until a bribe is paid.
To give you an idea, a primary school teacher in an average school makes about $200-$300/month. With this type of pay scale for most middle class professions, there will be corruption. A traffic cop can make 3 months salary by pulling over a few guys speeding in their BMW's and taking a bribe from them, so why won't he, especially since the current system supports it.
Also, our judicial system in India is broken; it takes years(5-10) for any court case to get resolved, which is another problem since the corrupt don't get prosecuted in a timely manner.
In order for either of these points (your two points seem to have been joined here) to be interesting for answering the why you need to look at Indian companies that would have been bought in the US but weren't (presumably) because they were Indian. Whatever the reason, if it is endemic, could be a why.
As is, you kind of end just observing that YC like investors or YC like startups don't often exist (or maybe succeed) in India but aren't really commenting on why.
I don't think the point is that Indian companies don't get bought in the US.
I work at a startup, but since its not famous in the country, when I mention it to some of my in-law's friends, I can actually see their face drop "she married him? why?". I'm fortunate to have supportive/unconcerned friends, but feedback like that can be hugely discouraging in a society where people are not highly individualistic.
On top of that, your chances of getting a job elsewhere are drastically reduced if your startup gig doesn't pan out. "where did you work?" leads to an answer that most HR departments wouldn't really care about. This makes the opportunity cost of losing a normal job higher,especially if you could make it to a brand name firm.
I'd argue that in India, you need to become an entrepreneur later (perhaps at 40-50), when you have connections, and a larger network to fall back on to make things happen.
To give you an idea of what its like to be in one of the better cities in the country, NYT had a great article. It really helps to show at what stage India is currently mired in, and the issues aside from your product you have to deal with. http://www.nytimes.com/2011/06/09/world/asia/09gurgaon.html?...
A lot of these issues you will face in India, need larger firms to help you solve them.
Hell, as late as 2010, a friend of mine who is a VC partner said that "YC has lots of nice names in its portfolio, but it is unclear whether it is going to succeed financially". And about 6 months later, his VC started a YC-inspired fund.
The Silicon Valley has a classic chicken-egg situation where companies are chasing investors and investors chasing companies. Both are equally responsible for the valley's ecosystem and it took it a great deal of time and struggle to become what it is today.
Whining every other day that "OMG my country is so not valley, nothing will work here, we're screwed big time" helps no one. Be ready to take big risks. Be ready to grab every little opportunity. There's no reason why every emerging economy can't have its own Silicon Valley in the near future.
I'm not saying we are screwed big time, if that is how the post appears to you, I need to apologize for the way that I put it across. My intention is this - what we are doing now is not working, let us try something different as the potential is certainly there.
One way out is for the rich expatriates in the US to invest back in their countries, which is happening for India and China.
The problem is also proportional to how many new technologies are coming out of India. How many companies / hackers are hosting open source projects on Github, Google Code etc.
I think the problem is not with the market. Its that the culture is not sufficiently mature. When you build products for India, you tap the whole developing world market - Asia (other than Japan / China), Africa and South America. English is a barrier but so is the lack of good solutions.