Was Y Combinator Worth It?
techcrunch.com
techcrunch.com
The first thing is there is an extremely important causation effect, the more investors you have, the easier it is to get more people to invest (social proof).
So, inbound vs outbound:
If you have a lot more investors already committed, you have a lot more social proof. Naturally if you have more investors, you will have a lot investors talking about your deal to other investors. Thus, the people who contact you inbound want to invest. However, it has nothing to do with the fact that they are inbound, it is just that by the time they are contacting you, your fundraising already was dripping with social proof.
Conversely, at the beginning when you have no investors, you likely are going to have to contact some of them. This is obviously going to have a much lower conversion rate, because you have no social proof!
Taken to the logical extreme, if inbound investors are so much more valuable than outbound, when you start fundraising you should just sit next to your telephone and wait for investors to call you. But of course that won't work, because it isn't inbound investors that actually matter. It is all about building social proof, and then once you have that, a lot of good things are going to happen. For example, YC is very powerful indication of social proof, and look how much easier fundraising became!
Basically, people who read this TC article: if you are interested in fundraising, PG wrote the canonical piece about it, http://paulgraham.com/fr.html
This post is fun, and I congratulate you on raising your round, but this data isn't predictive or useful.
Yeah, "get inbound investor attention" is the worst advice ever; by definition, it's impossible. Trying to make people like you tends to have the opposite effect. It's like telling an awkward 17-year-old that he'll solve all his problems with women if he gets laid by a supermodel.
The fatalism is important. I'm glad that someone on the inside has the courage to point it out. The extremely low rate of success for outbound traffic, especially pre-YC, confirms the fatalistic view of the Valley that is, IMO, the right one. If you're born into connections, you're solid. If you have enough before-age-of-carefulness dirt on important people while at Stanford and got in The Club, you'll never have to raise money; you'll be in the position to turn it away. If you're anyone else, though, the best advice regarding SillyCon Valley is just to sit this lifetime out, because the factors that matter most are those you can't do anything about.
Or just start building your company without anybody else's money at all, or money raised outside of SV... and then become, as they say, "so good they can't ignore you." At the end of the day, these people are pragmatic... get enough traction and I'm pretty sure the "in the club or not" distinction disappears in the wash.
Of course, the best scenario is one where you never wind up needing VC money at all, whether it's from the Valley or elsewhere. But that might not work for everybody. Still, you can start without those guys in most industries, especially if you can code and are building a software product.
Obviously if you're doing a pharma play or something with huge initial capital costs, the equation changes, but I doubt the majority of this audience (HN readers) are founding pharmaceutical companies...
Isn't part of the appeal of starting a web business the low costs required to do so? It sure as hell was for me when I started out.
I have an app that I go months without doing anything with (touching the code base, answering customers, ect.) and yet it still earns me a constant flow of income. In other words my profit margins are absurd (>90%). That's pretty cool if you ask me.
Of course I won't be earning millions from it but I earn enough money and I maintain full autonomy. I frequent places like hacker-news to learn things and to stay connected with the community but I have absolutely no interest networking with investors or taking money from an seed/accelerator firm.
I look at the entire VC model and see it as a huge waste of most entrepreneurs' time and energy. Why entrepreneurs seek validation from accelerators, investors, and the media is beyond me. The usual response is that to build an enormous company at a very high growth rate requires a ton of money and doing anything other than that is mailing it in infamous lifestyle business approach. I reject that entire premise- you can make quite a large dent in the world, build a large business, and generate a big income by bootstrapping in one niche market after another- the major tradeoff is time.
People want to see how well you play the cards that you're dealt. If you can make something happen starting from nothing, then they figure that once they give you some cards to play with, you'll do even better from that. If you can't make something happen with limited resources, what makes you think that more resources will magically fix things?
This applies to a lot of other things as well - most of the time, when you start at a new job you have to start small, because people who control the resources want to see that you can work effectively on a small project before they give you a big mission-critical project. I've seen people get hired into Google at T4 (nowadays, virtually everybody is hired into T4 or below) and then work their way up to T9 because every time they're given a more ambitious challenge they master it in short order.
That's a terrible worldview. Trying to get people to like you does not tend to have the opposite effect, at least not when coupled with actual, real steps in learning how to get people to like you.
Say what you want about things like Pick Up Artists, etc., but they are effective. There is a world of advice one can give to an awkward 17-year-old that will actually help them.
Or you can opt out of the silicon valley game of what is essentially arbitrage and instead grow a tech company the proper way which is by bootstrapping and eventually accumulate enough profit to have that aspect of your life sorted out. And you will have done it without all the headaches and bullshit that comes along with investors.
I get some variation of this question a lot. I assume that all recent YC alumni do. I always talk about (a) the intense focus that YC gives it's founders, (b) the positive pressure that the partners, the dinners, and the batch provides, and (c) the incredibly supportive guild of alumni.
YC helps founders build companies that are valuable. VCs and angels know that.
It helps for those that don't make it, too. Just going through the application process helps vet out viability (of the idea(s), of the founders, of the tech, ...).
As someone who was trying desperately to raise money in 2008 (from the Midwest, no less), just wanted to note that this is false. I contacted several dozen VCs and literally zero were interested in hearing a pitch.
This was for a company that had thousands of users and won a $50k business plan competition, so it's not like we were a joke company on the "almost any entrepreneur" spectrum.
Sure, it was 2008, and sure, we were nowhere near Sand Hill Road, but I wouldn't want people getting the impression that it's trivial for non-YC companies to get in the room with VCs anytime they please. It's not.
VC's will at least meet with most companies if they play their game. Think of the introduction game as a captcha on the company level.
OTOH as the OP says, the chances of getting funded by anyone you meet that way are vanishingly small. But if you do truly impress anyone, they are quite likely to introduce you to other people. And those people can wind up being either investors or introducers to investors. Think of the LinkedIn mining as a way of bootstrapping your VC network.
To me this is the most important sentence in the article. Just under 2/3 of their meetings, 65% resulted in no deal. That is 78 well placed, well funded, fully informed NO's. In the end though none of those Nos matter.
I think people overlook that aspect and just see the yes'. Congrats to EasyPost for all their success.
edit Since my point appears to be unclear to some: "Don't be discouraged by rejection"
You realize that most people in the VC-funded world would suck Hitler's cock to have a 35% "Yes" rate, right? That's two orders of magnitude better than what non-connected plebes like most of us face.
If I recall correctly, the average acceptance rate is well under 1%.
For outbound, an eventually-surviving solid startup has to pitch ~ 60 times if doing it in an semi-targeted manner with a little experience. Cisco pitched 100+.
The bottom line is that interest-based snap judgements are unreliable. There are very few people with the both the experience AND the laser-guided trend-seeking intuition to know what has a shot.
Here's the kicker for entrepreneurs: ideas don't matter, execution somewhat matters. Serially building as many companies as one can to a reasonable level of quality service and sustainability for as cheap as possible seems far more likely to land a hit. That means cash-flow positive, lower the overhead, the better. No white elephant apps guzzling $100k/month in AWS bills. Think cheap on yourself, but as quality as possible to the customer for what you can: really lean.
Getting into YC reduces perceived investor risk. Full stop. It doesn't reduce the actual risk that the investment won't fail, but it's much easier on our brains to say "Well these guys are a YC company and YC companies tend to do well. If they don't do well, there is at least a support network of partners/alumni to ease the pain".
There is nothing worse for an investor to speak to someone they don't know, or don't have any connection to.
There are two simple ways to increase your chances of funding: (1) get so much traction without funding that any investor would be dumb to pass you up or (2) be massively connected. Both aren't easy but they are by far the strongest signals right now to investors.
So is any incubator "worth it"? For many early stage startups, the answer is categorically - "yes". If you break down the cost-to-benefit ratio, the cost of doing an incubator is usually very low, while the benefit can be and normally is very high.
Last note - people often neglect the notion of high profile investor's ability to "cast a wider net". This is one of the huge benefits to YC. Getting a good investor on board isn't always just about capital. They can prove to be a huge part of your marketing plan.
It pretty much argues for having an inbound-only strategy, and some low-stress easy way to filter those (e.g. "I'll pick up the phone for {pg, pmarca, cdixon, fredwilson, ...}, "this set of people go to weekly-batch email response time", "these people are sent to /dev/null"). A decent profile on a place like AngelList, but not much else.
Thanks for the gratuitous kick in the nuts.
Did you consider that maybe the fact your meetings with VCs didn't result in good outcomes might be a signal of something else?
Having done both, running a company is definitely more work at the peak, but being a great VC is a ton of work, too.
You've got a lot to learn about VCs if you think we meet with you so we can go night skiing. Or that any VC goes night skiing.
<edit for tone at expense of humor >
It's impossible to distinguish the impact that YC had on your second go around at fundraising versus the impressive progress that EasyPost had made as a company.
YC definitely helps with fundraising--it's a strong signal of social proof and it can generate a sense of urgency in investors--but growth metrics and traction are usually the most important things.
Whether (disproportional) funding focus is a problem in the valley depends on who you're talking to. There are a lot of people who view startups as a path to riches - for whom a good product is only means to an end - a good payday. There are others for whom good product is a passion, and money is mostly irrelevant.
The occam's razor explanation: stories about cash mountains have much wider appeal than those about niche product development - so more of those stories get written.
Y Combinator is a brilliant idea. Paul Graham was something that would be a rarity now, and probably always has been-- a smart, good, straight-shooter who made it big. That made him a really attractive personality, especially to the young, and the fact that he's a good writer didn't hurt either.
YC enabled him to turn that reputation into gold: because the benefit of a startup being YC-approved turned out to be so vast, he can get an early percentage at a low valuation. To be clear about it, his startups benefit as much as he does. He's not screwing them over in any way.
This is probably why I have to deal with the rankban/slowban treatment. I'm a thread. I'm a smart, good guy, and not a bad writer either, who did the startup thing (twice) and found it utterly worthless. (I'm PG's Antichrist.) There are hundreds like me, in fact, but most people who fail at something slink away in shame, like it was their fault even if the game was totally rigged. Not me. I have to go back and warn the others, no matter how much I am to be punished for the service.
Is Y Combinator worth it? Hell yeah. I'd argue, at this point, that it's not worth it to take on the Valley if you're not backed by YC. The pipeline has been established, the game is over, the land has been mapped and the good gold mines are known. Whatever is the mid-21st-century's engine of innovation, it will be far the fuck away from SillyCon Valley. In the mean time, VC-funded startups are the new I-banking and if you can get the acceleration that comes from the YC stamp of approval, you should absolutely do it. That's not how I would like the world to be; but that's how it is.
It's a shame, though, that this subsociety (Silicon Valley) that claims to be advanced and futuristic is still, in truth, a feudalistic reputation economy in which who you know matters a hundred times more than what you know. ("What you know" only matters in terms of the savoir-faire needed to acquire backers.) It's not about technical excellence any more and hasn't been for some time.
Not to dogpile you for daring to insult the Dear Leader, but can you elaborate on this? You go on to say,
> Paul Graham was something that would be a rarity now, and probably always has been-- a smart, good, straight-shooter who made it big.
Looking at some of the other stuff you have to say, it looks like your problem with him is that he portrays Silicon Valley like the American Dream of yesterday - "Anyone can make it big here if they're smart and hardworking enough" when it's not necessarily true. You have your own experiences to back this up, and I guess you feel kind of cheated.
I'm a complete outsider, (Military currently, although I'll probably be working for Intel in a few months) so this side of things interests me. The contrast of PG saying, "Lots of people should try startups" and the fact that the vast majority of startups fail is kind of weird.
They're not logically distinct, however, if (like PG) you think that you're better off trying for success via the YC model.
Bad idea to list these names. Some of the listed parties are individuals, small investors, who will surely want their status as speculative investors to be kept confidential.
And maybe you should consider thinking a bit more deeply. First, what value does an exhaustive list of investors add to the article? Second, do you really think it's in the interest of a small investor to have his name be associated with a particular speculative investment in this way?
If an investor's specific choices are known, he will be approached by people who know how to pitch a given project in a way calculated for maximum effect. This distorts the investment process. It's the equivalent of SEO for investors.
> and has vastly superior knowledge of what they want than you do.
If that were true, he wouldn't be an applicant, he would be an investor. And to think, if you thought a bit more deeply before posting, this obvious fact would have occurred to you.
Most of the investors I googled were already specifically known to have been investors in easypost. This should not surprise you, most startup angels and seed investors do not hide their investments, and they are routinely named in press releases and media stories.
And I was obviously referring to what they want in this particular matter. Though I'm quite confident he knows more about what they want in general than you do, too, since you routinely show yourself to be horrendously out of touch with your fellow humans.
Address the topic or stop posting. I'm not the topic.
> I'm quite confident he knows more about what they want in general than you do ...
As an investor, I have to say you have no idea what you're talking about -- not a clue. And you certainly have no idea to whom you are speaking.
> since you routinely show yourself to be horrendously out of touch with your fellow humans.
Yep, of course. That would explain my multi-decade, very successful career as a software developer and investor. You need a reality check.
Why bother? I just used crystal clear prose to make a legitimate point about investors' understandable wish to avoid pointless and undermining publicity, and got downvoted by people who obviously didn't understand what I was saying, not for lack of clear prose on my part, but because of a lack of real-world experience on theirs.
> You don't come across very well here and nknighthb's point is both argued better and more logically backed.
Nonsense. I addressed the topic, and nknighthb tried to make me the topic. That's not only trolling and ineffective communication, it's a logical error.
> It seems very clear that those names would not be published in a high visibility public relations press release like this one without contractual agreement.
That may seem clear to you, but it's also obviously and transparently false. With the exception of corporate VC entities, individual investors are naturally protective of their privacy and would prefer it if their choices were not made a matter of public record.
My experience in this area goes back to the early days at Apple Computer, where we had to be very careful how we described the handful of angel investors who considered backing what at that time were almost two guys in a garage. Look -- this is investment 101. I don't know how to make this clear to you, but listing investors is a tricky business, not to be taken lightly. It's more political than it is logical, and it's not remotely like writing software.
Which doesn't have any bearing on your ability to read these investor's minds. Unless you're saying you tapped their phones, hacked their email accounts, and followed them around in public and determined they never gave permission to publicize the investment.
And your "investment 101" comes from a different century. It's sad that you're so firmly convinced we're still in the 1970s. 2014 is much better.
I know exactly who I'm speaking to, Paul. It doesn't matter. Financial success is not authority, and age is not omniscience. You are mortal and fallible. That you would even play this card shows how pathetic you have become.
You're right that people treat this with a lot of sensitivity, but you're overestimating how much effort it requires to have a column in a spreadsheet.
This is one of the many "quirky rituals around fundraising" which AngelList is busy automating. I am of the impression that "AngelList official" is now understandable with regards to an investment like "FaceBook official" is understandable with regards to an engagement.