Taking part in Y Combinator from Europe: is it worth it?
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The nice thing about YC is that you're not investing your cash, but equity. If you have the right business/team/timing/execution, then the cost of equity will be high, but you'll do better than you ever expected so it's all good. And if you don't do well, then your equity wasn't worth much to start with, and you essentially got the HBS experience for free without any of the debt.
Sure, there are things that you get frustrated at (like some 20 year old telling you, at 40, how to do finance, when you would rather be building) but it sounds like the biggest thing is the culture and being prepared to delegate a lot of what you think you know to the way YC tell you to do it. I think a lot of Entrepreneur types don't like being told that their way is not correct!
Once you go through YC once, you have access to all the information and alumni community in perpetuity (via Bookface). I think it's natural to want to go through YC again as a form of reciprocation (for all the value you received the first time), but you might find that the value-maximizing route is to take capital from other sources if you go to bat again.
Something tells me this information isn’t so scientifically based and cited as it could be. I wonder just how much of this contributes to the business monoculture we see today.
What really is important is connection to other people, when you are starting a B2B saas companies for example the people you are talking with on BookFace, are all potential customers, and can make your first customers easier to find.
That doesn't mean their advice is always right, but it does mean they have both the capability to quickly discover when they're wrong, and a powerful motivation to quickly correct their mistakes. So at any given time, we should expect the advice YC gives its portfolio companies to be pretty good.
Given that, it's worth considering whether what's perceived as "business monoculture" might actually be better described as "set of business practices that have been shown to actually work pretty well in the real world".
That might be what's best for a given founder or company, but it may very well might not be. You will have to be proactive and assertive in what works for you to avoid being bullied into the standard YC/Silicon Valley gamblers' playground point of view.
You're right that YC's business depends on high-growth wins. But YC knows that only a few of the startups it funds will reach that state. Where the two outcomes—high-growth win vs. what the founders want—end up conflicting, YC has always advised the latter.
If you think about it, there isn't a conflict anyhow, because no startup is going to become a high-growth win if the founders feel it doesn't work for them. What works for founders is what's best for YC, generally speaking, and the company has been organized around that principle from the beginning. Founders that want to be a high-growth win, and show progress, get a lot of help with that, but people aren't pushed to do that if they don't want to. The optimization is global, not local.
(Btw, although I work for YC, I refer to it in the third person when describing the investment business because I'm not really part of the investment business and have mostly just observed it as an outsider - albeit inside the wall, if that makes sense.)
There's a whole world of PE that will acquire business for 5-15x EBITDA, but you won't hear anyone at YC talking about that even though those sort of outcomes are life changing for first-time founders.
Curious about your thoughts there.
My understanding of the world was bootstrap - bought by mom and pop outfit or slightly larger competitor vs VC - series A-Z or burn out
I agree that this is indeed YC's bias, but it's incorrect that they will always advise founders in this direction. That claim is inconsistent both with my direct personal experience as a YC founder, and also with the experiences of other YC founders who I know intimately and have spoken to about these sorts of questions.
The fundamental reason claims of "being bullied" and similar are incorrect is that there's another major component to YC's incentives. Namely, YC loses out on an enormous number of great startups if there's even the slightest justified perception that they do anything close to bullying their founders.
YC's time horizon is naturally long: their biggest investments pay off over a 7-12 year time scale and almost all of their portfolio is extremely illiquid at any given time. That means they're especially culturally sensitive to actions that carry the risk of long-term negative effects, even if those actions also have positive short-term effects. Bullying founders into risking it all is just such an action, so they'd default to avoiding it even if it worked (which, by and large, it does not).
Are there instances where it makes sense to step on the gas? Of course. Are YC valuations high, leading to large rounds and plenty of liquidity? Yes. And yet, nobody at YC will tell you to scale before you find your PMF.
I furthermore admit that my opinion is heavily influenced particularly by that last component; I find pg's seemingly rational exhortations of "how to be successful" to be slanted and self-serving. They are excellent logical argumentative essays that assume a limited definition of success and guide the reader inexorably to the best way to achieve that particular flavor of success while ignoring (and subtly implying the nonexistence of) others. I may be inferring too much about YC's actual behavior from what I glean from those (otherwise excellent) essays.
That's the worst criteria that I've ever seen for science. Placebos work, but aren't science. And even if you do science perfectly, you aren't guaranteed of success. And most advice that you encounter will work for some people but not others. Does that make whether or not it is science depend on the audience?
No, science is a particular process and methodology supported by a set of norms that enable us to continue building a fact based picture of reality. Doing science gets good results. But science is not defined by the quality of its results.
> And most advice that you encounter will work for some people but not others. Does that make whether or not it is science depend on the audience?
The question is whether or not it works in aggregate, i.e. for most people to whom the advice could apply. If it doesn't, then we would say it's not scientifically sound advice.
> science is a particular process and methodology supported by a set of norms that enable us to continue building a fact based picture of reality.
Science is not one process or methodology; there is the scientific method, but not all science uses it. For example, paleontologists cannot form an experiment to test a hypothesis of what killed the dinosaurs. But science can still give us a fairly accurate picture of what probably killed them.
Sort of like this comic:
I would suggest that "science" is loosely based around the idea that objective truth can be derived through collection of empirical evidence by attempting to reject null hypotheses.
Of course it is incredibly limited and we ascribe credit to "science" for a lot of things which are not "science".
I think the use-case is more based on company X struggling with a particular problem (e.g. how do you please the mass market) and finding someone who has faced the same problem and learned some stuff along the way.
Business is an inherently social phenomenon. Going to people who know something about business because they have firsthand experience with business seems to be an industry gold standard for how you pass on useful knowledge.
YC's 7% is the difference between founders vs VCs having control after two rounds assuming good growth. The issue is that the best startups like early stage MS Amazon Google Facebook don't need help attracting access and information. The 90% failed startups get the merit badge which will help you in your future career as a non-founder. And then there's good startups like Roam, which YC is not smart enough to detect. What's left is controversials like Airbnb, which never exists without YC. Are you Airbnb? And is YC smart enough to see that?
"Why raise a seed round of more than $1.3M? If I can't build a business with 1.3M, then it's not a business worth building!"
"What's the problem with [name of a top tier VC fund] being in my seed round? If they actually choose not to do our A round, then it's not a good business to start with!"
The problem with all these statements is that you're looking at this from an overly idealized perspective where things always happen for a reason and there are no oh-shit moments. But the real world is messy and sometimes not rational. Perhaps your VC won't take your A simply because they already did two As that same year, and they are stretched beyond their limits. And perhaps your bigger competitor will sue you and suddenly your $1.3M will no longer be enough (at that point it's too late to raise again).
So going back to your original statement "best startups don't need help attracting access and information" - so you're saying best startups always go from bootstrapped to a high valuation A without any seed checks in between? I mean, even Google took a bunch of seed checks, and it doesn't get more disruptive than two Stanford PhDs building a better search engine with patented IP. By the time all those seed checks, lower-than-otherwise valuation, and various not-super-clean deal terms (was Eric Schmidt really necessary and how much did he cost in cash and equity?) are factored in, the YC route turns out to be net positive even for the best startups with first-time founders. The only exception might be a serial founder with a prior exit and strong VC connections, eg Max Levchin.
This called my attention, as I imagine that a US-registered company with European founders would be a headache. Is this a requirement for YC companies? If so, could someone explain why? I can imagine several plausible reasons, but I'd like to know what the official one is.
This is because all of the laws around founding, investing, selling, etc. a company are extremely well-trodden in Delaware, and there are very few question marks as to how some strange eventuality or disagreement might be handled.
Since startups are already incredibly difficult, this is a way of normalizing away some of the weird situations that could cause a startup to fail (and likely would never cause them to succeed), so that everyone is putting energy into the real unknown unknowns around the startup.
YC hates anything specialized about a company re: this sort of thing - hence no special deals, etc., so I'd bet more on other normalization factors rather than no normalization.
If you haven't reached market-fit yet, then a mentorship could be useful if you don't have such skills in your networks.
Pay back the loan whilst increasing revenue and keep the entire company to yourself/team. The additional revenue can offset the expenses which were taken care of by the loan.
If you think Google was a fast follower you are incorrect. There are patterns to how these types of company crop up and they are about revolutions in how a field is done rather than "copy AltaVista" and see if you can catch them. Nobody succeeds at copying a company that has a genuine mission to accomplish.
I'm not saying it's impossible to build a company that happens to do the same thing as say Substack but you have to build it for the correct reasons and fast followers are generally always compromised in some way.
Your glib suggestion that Google, a once per decade company, is a follower of AltaVista really doesn't do any of what Google accomplished justice.
Have they finished displacing Medium yet? Who in turn only appeared a few years ago?
Have any normal people even heard of these companies?
Medium went for a bottom-up approach, trying to monetize the content of the crowd. Substack is going for a top-down approach, grabbing writers with an existing large following and paying them top rates, which are justified by the conversion rates for their well-known creators.
Normal people might not have heard of these companies, but niche audiences certainly follow some of the specific authors/columnists/influencers and are following them onto substack with paid subscriptions.
Is that a moat, or will they jump to the next platform? A few have been poached by the NYT and other venues, so maybe the moat isn't that big.
Utterly bizarre, they weren't listening to a word I said yet wanted me to lead one of their companies?!
Not saying that is a good way to run a business or the one I would personally prefer.
There is also: 5% of a high growth, negative profit, thriving company that can rather trivially raise additional capital to keep pushing growth faster.
Hundreds of start-up companies have fit that model over the last 10-20 years.
See: Facebook, Airbnb, Zoom, Twilio, Square, Stripe, DigitalOcean, Cloudflare, Fastly, DocuSign, Teladoc, Datadog, Coinbase, Etsy, Lyft, Uber, DoorDash, Pinterest, Twitter, Snapchat, Okta, Zscaler, Hubspot, CrowdStrike, Palo Alto Networks, Splunk, Workday, ServiceNow, The Trade Desk, Snowflake, Roku, Unity Software, MongoDB, Robinhood, Palantir, Roblox, Veeva Systems, Wayfair, Peloton, UiPath (Romania originally), Anaplan, Qualtrics, Asana, RingCentral, Zendesk, Dropbox, Appian, Bumble, Smartsheet, Stitch Fix, C3 AI, Affirm, JFrog, Box, BigCommerce, Sumo Logic, FireEye, Qualys.
Along with dozens of other prominent and smaller companies. And although not US companies, Shopify, Atlassian, Elastic, Wix, MercadoLibre and Spotify are also in that same bucket (and were funded by US venture capital). China also has a ton of thriving companies funded in a similar model (Alibaba, Pinduoduo, ByteDance, Didi, JD, Tencent, etc).
These are significant companies that all followed that model - to one degree or another - and have IPO'd in the past decade (even Tesla's IPO was just 11 years ago, they exist courtesy of the same model).
Salesforce lost money for a very long time. They were founded in 1999, and didn't reliably turn an operating profit until just a few years ago. In a few years they'll be larger than SAP.
I.e. facebook cannot even copy snapchat and they have INFINTE resources, and 2B users.
Also, Markets today are so huge, nobody dominating anything.
These people are in the business of making money, which means growth at all costs and at a huge ROI, especially since insane valuations and going public is creating crazy returns for investors.
And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.
They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it.
Larry Page: “I think we should look into acquiring YouTube” (2005) - https://news.ycombinator.com/item?id=28424339 - Sept 2021 (245 comments)
FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples.
This sequence of tweets kind of confirms that:
https://twitter.com/JGamblin/status/1433847336459964420
https://twitter.com/jhuber/status/1433863045613174784
https://twitter.com/JGamblin/status/1433865429932462083
https://twitter.com/jhuber/status/1433866494752935938
(the last one is the important one but the sequence is amusing)
Well, the actual fact is that Youtube was a great product with twice as many features as Google Videos as documented in the San Jose Mercury News diagrams published at the time. And growing faster.
So however Google discussed (underestimated) it at the time, Youtube was not only a credible product, but a better one, which was understood by Google, if unstated.
IOW, Google might have been arrogant about the difficulty of building a similar product, but that doesn't change reality that they didn't.
> They acquired it because a) the team was local and b) because sequoia invested in it.
That might be what the initial reasons were. But after Youtube won the eyeballs, Google paid a market rate for network effects and eyeballs to monetize at 1000x their initial valuation estimate.
Also, Sequoia's funding meant that Youtube would continue to grow exponentially and stay ahead of Google Videos. So it's true that SV VCs are incestuaous across boards, but their funding also in reality builds out competitors.
Similar situations are when Microsoft also chased Hotmail and Facebook as they climbed in value, far greater than MS' initial valuations and offers.
Ballmer actually tried to motivate Zuck by saying he could buy a private jet if he took MS' offer. It's one of the most Ballmer things I've ever heard. The second-most is when he said he'd stay on the board for a year but bought a sports team instead - taking his toys and going home.
Obviously there are a variety of caveats, such as voting issues and time investment.
Personally, I suspect most founders are at a negotiating disadvantage (knowledge, power and bargaining asymmetries), and think it would be easy to get an extra 7% by having YC on your side of the table.
Also see https://www.ycombinator.com/deal/ for details.