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I was in the S12 batch. A couple years later we were demonstrably failing. I emailed the general YC advice line or something similar with a question, and pg responded with a thoughtful comment that was genuinely useful

I don’t think there’s any chance he saw any economic value in us, he took that time because he cared about startups and well-meaning failures like us

It’s a small thing, yes, but I’ve always thought it said a lot about him

Agreed. In a similar vein, when our YC company was failing I had a great call with Jessica Livingston, and looking back it was purely moral support and not anything economically motivated.

Why does everything need to scale? Why couldn't they stick to taking a few high quality companies every year? There was enough money to be made that way. Seems the belief is that everything needs to scale until it doesn't work anymore.

So you're saying the "Peter principle" extends beyond tech employee performance and to tech company funding.

If the Peter principle is just “you succeed until you don’t” then it’s tautological and applies in all contexts.

no, it's not the Peter Principle.

The Peter Principle is pointing out that if you keep getting promoted by doing an exceptional job, and you stop getting promoted when you stop, that you have ended up leaving a job you were exceptional at, and landing in a job you are not good at. In a certain sense it's saying "you should be demoted back to your last job that you were exceptional at"; it's not suggesting that, it's suggesting a sort of snarky "this whole system is set up to fail" because it's from a "isn't capitalism grubby" perspective.

None of this flavor is in the general YC scaling case, though you may be able to find it in various places within that.

I think you'd be hard-pressed to make a case that VC-motivated business scaling does not consistently overinflate the businesses which are artificially propped up by investor cash. There are a bunch of companies, existing and dead, that show the folly of growth-at-high-cost.

that's not the Peter Principle

As much as I resonate with your sentiment, it's the incentives that investors have that cause them to behave this way, not an inherent belief in scale at all costs.

Keep in mind, YC is very early stage. Asking them to pick only winners based on an application and short interview process would be a fool's errand. I believe their acceptance rates tend to be around 2%, so it's not like they aren't being selective up front—it just takes time to really get signal on who is executing and finding traction. Startup investment is high risk and justified by the outliers, so they have every incentive to find them early, it only makes sense that they would give more support to their winners as they emerge.

As the article states, YC’s key asset is their deal flow. You simply don’t get that if you only write 1% of the best seed checks.

If you don’t eat the pie, someone else will. If someone else eats more pie than you, they will be stronger than you and eat your pie.

Switching analogies, unless you have a defensible niche with a wide moat, your position of power is an unstable equilibrium; in the open market only a monopoly is a stable attractor state.

>Why couldn't they stick to taking a few high quality companies every year?

Because they don't actually have the ability to pick high-quality companies.

The need to scale is inevitable if you consider 2 trends: startups have become mainstream and the internet is orders of magnitude bigger. When YC applications consisted mostly of PG essay readers the chance of success per company was higher. Also some niche ideas can now work because of a more developed communications infrastructure, easy payments, better targeting, etc.

And knowing which companies are high quality is almost impossible at the early stages.

Neither of those lead to a need to scale. Those are enabling factors, at best.

There needs to be an ROI, YC isn't funding companies out of the goodness of their hearts. So the additional size means they have to bet on Uber and Lyft and Flywheel and every other competitor in that space in order to guarantee a return, because they only win if they bet on every horse. You can't do that if you keep small since the number of entrants got bigger. Hence scaling is necessary for them.

Sure, but that's not the argument that was being made. This is just generically: VC works by power laws so larger portfolios are generally preferable to smaller ones.

To venture capitalists, “enough money” is a nonsense phrase, much in the same way that a typical computer enthusiast would see the phrase “enough RAM.”

It wouldn’t have to scale, but I’m glad that it did. It’s likely that there’s been somewhat more innovation and economic growth in the world over the last ~decade than there would have been if YC stayed smaller.

Capitalism baby, you always need to grow to increase share holder value.

I think they do this for any portfolio company and nothing is special about AdGrok here, if that’s what you imply with “good graces”. It’s a total power flex move that keeps the valley in check. If they allow this to take place they will have all their portfolio companies consumed in legal disputes in no time. They went after both the company and the VCs to send a message that this behavior won’t be tolerated. Word like this spreads.

I'd love to know who "wins" in a scaled YC vs. the oceanic tide that is the SP500 and it's capital sucking and brain sucking ways. A Google can stop 10000 potential startups simply with RSUs and cap another 10000 by buying them out (which is kinda good for YC but not really... they'd rather own a chunk of a Google).

I think you’re vastly underestimating how hard it is to pick winners and stifle competition.

Using your logic, if it was so easy why didn’t Google stop OpenAI? Meta? Perplexity?

Maybe they killed a hundred similar companies and those three slipped through?

Hundreds of Facebooks?

Very unlikely

https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitio...

I think that maybe we underestimate how hard it is to choose the right companies to “kill” when you’re a competitor. The default mode is to say that they won’t go anywhere because of many factors (they don’t have the resources, the access, the capability, etc). But sometimes they do. And in restrospect it’s obvious, but it’s not by the time you had the chance to stop it. And I think it’s probably good.

Also hard to marshal the resources you need internally to "kill" a competitor. Sometimes the way to handicap a startup rival is to build the feature / product yourself, but then the bigtech firm runs into the challenges of moving a large org quickly.

> why didn’t Google

Because hubris.

One glaring flaw of well-capitalized large tech (perhaps the only one) is thinking they can build something better internally, when they have enough cash to simply buy best of breed off the market.

At times Google understood this: Android 2005, YouTube 2006, Writely/GoogleDocs 2006, DoubleClick 2007, Motorola Mobility 2012, Waze 2013, DeepMind 2014

Either thinking they can build something better internally, thinking the new thing doesn't matter, or realizing that it does matter but not having the ability to move fast and commercialize it.

e.g. Microsoft circa 2000 didn't think they could build a better internet. They just thought that the internet didn't really matter that much. Google in 2022 knew that LLMs mattered, and had spent a ton of money, but OpenAI just got a better product to market faster.

I'd add HTC's mobile phone unit to the list of strategically important Google acquisitions (and prehaps Dropcam, too). Without either of those -- even with all the fits & starts, they'd never have gotten to where they are today, building pretty great hardware with pretty good support and a decent supply chain, and largely with "good" software on top.

I think they are both winning. Googling gives "The 2024 Y Combinator (YC) top companies have a combined valuation of $458 billion. In 2023, these companies generated a total revenue of $57.2 billion." Which is not bad starting from basically nothing 20 years ago. I don't think the S&P is doing badly either.

Plot a graph of the companies against their revenue and profit numbers and you'll end up with 2 massively skewed incline curves. Plot a graph of their companies which are public, and they're mostly trading below their debut.

YC did do the right thing (investing in super early stage startups) at the right time (ZIRP environment), but now with the proliferation of too many startups and applicants, I'm not so certain on how much of a future it has with getting the next best thing. Already seeing quite a few startups that either bootstrapped or raised without YC, while a number of YC companies are stuck in pivot loops.

I like this metric. YC doesn't own all of that but that doesn't matter for this exercise. That $458 billion is disjointed. It cannot move as one (when needed) like say Microsoft can. It cannot buy GitHub or OpenAI. But then it wont self distruct either. That is both a plus and minus.

Yeah. I think YC's ownership is of the order of 3%.

If you make buyout offers to 10000 startups, how many of those say "no" to those offers? Not everybody is willing to send an "our incredible journey" post to all their users.

> A Google can stop 10000 potential startups simply with RSUs

The real killer here is the Bay Area housing market. You need those RSUs to pay for a place to stay.

If the engineers are just middlemen for plumbing that money to property owners, seems like owning property in the Bay Area might be a good idea.

older generations did just that. In the Internet boom, people commonly talked about "place being obsolete" and other detached thinking.. perhaps lessening the emphasis on buying real property nearby. Of course, not everyone played by the same rule book. Observe the result.

That was the policy intention in the 70s. Prop 13 plus zoning most land area for SFH ensured that boomer property owners could get rich. Back then it wasn't clear just how rich, though.

It seems there is the opportunity to disrupt that market, so that tech companies can pay property owners directly, without the middlemen.

That's not nearly disruptive enough. I'm raising seed rounds for HackerRV - a high end, compact RV rentals for knowledge workers that does away with the need for houses. Starlink comes standard, with additional subscriptions available for showers at aelect locations, and mail delivery addresses. Our previous venture (BackyardBnB) was scuttled by literal NIMBYs.

Or they can disrupt the actual middleman, which is the property owners. The land is there regardless of who owns it, it turns out.

Sure I'd rather have $1m in FAANG shares than SF real estate over 10 years but maybe I am wrong.

Especially as SF real estate relies on NIMBYism that might change whereas FAANG relies on an enormous brain trust, branding and monopolies.

You don't have to live in Bay Area to run startup?..

I think it massive improves your odds of a unicorn. But a regular old business aiming for a humble $10m valuation based on profits, of course not.

I always wonder how it feels to be in one of the companies who compete against each other in the same domain. I think they funded 3 AI code editors as once, how do you know the others aren't getting preferential help

Scaling is not a right, nor a duty, nor an inevitability.

agreed, this is not too controversial; it is the only way to scale. Time is a big investment for such accelerators and as such, diligently choosing which companies to invest time into is their most valuable decision.

I do agree. But the thing I would add though is that at least when I was there (W2012 - we were in the same batch!) YC and PG in particular were vocal about principles they believed in, especially the idea that naive young founders get kicked around in Silicon Valley and ought to be treated fairly. PG talked about this constantly and of course it’s a big theme of his essays. I remember one particular instance where a potential investor was behaving questionably and PG offered to step in and talk to them if they crossed a certain line (which they did not in the end). He was clear about what he concerned acceptable and unacceptable and why. And we were nowhere near the cool end of the batch.

Yes YC acts in its interests but in my experience they live by good principles and that makes all the difference. The Chaos Monkeys anecdote is an example of that. So I don’t agree with the article’s framing that they throw their weight around to simply exercise whatever power they have over others for financial gain.

for companies YC likes and believes in post-accelerator. YC definitely discriminates from that perspective- they choose which startups they think have the most promise during any given batch, and they give those founders preferential treatment.

Based on what I’ve read, this seems backwards, I think YC chooses founders with the most promise and gives their companies preferential treatment because promise is only the ability to do things.

But I could be wrong and probably am.

IME the earlier a company is in their lifecycle the more the team matters than the idea. So, choosing founders seems The Right Way

> How else can you scale an accelerator?

I mean, you could delegate the scaling to the startups you're investing in.

If I'm gambling at the horse races, should I bet $100 on every horse to make my gambling scalable and diversified, because I don't feel I can pick winners with any reliability?

That is the game though. If I bet $100k on each of 10 contestants. That’s $1m total. With odds of 1000:1, a single win pays $100m enough to cover all bets and leave a huge profit.

If the horse race has 10 contestants why would the odds be 1000:1?

Because it's an imperfect metaphor for how VC investing works to further enrich the wealthy.

Not everyone is competing.

In the economy as a whole how many people are even business owners? Most people go to work and price take at their job without negotiating, without even moving area, without even studying, etc.

You also have multi-company-monopoly effects for lack of a better term, e.g. if there are 10 competitors that make semiconductors - _everyone_ needs semiconductors, then if you pick the appropriate balance and don't buy in at an overvalued time you can invest in all ten and still make money because there is a net flow of funds into the system from outside of it.

Is "oligopoly" the word you were looking for?

Even on their best day a punter is still a punter. The money in horse racing is in breeding.