What Happens At Y Combinator




What Happens At Y Combinator

Paul Graham
updated Oct 2013

Y Combinator runs two three-month funding cycles a year, one from January through March and one from June through August. We ask the founders of each startup we fund to move to the Bay Area for the duration of their cycle, during which we work intensively with them to get the company into the best shape possible. Each cycle culminates in an event called Demo Day, at which the startups present to an audience that now includes most of the world's top startup investors.

Dinners

During each cycle we host a dinner once a week at Y Combinator and invite some eminent person from the startup world to speak. It's a bit misleading to call these events "dinners" though, because they last half a day.

People start to show up for dinners around 6 pm. We encourage founders to treat each dinner as a mini Demo Day and to show each other and us what they've built that week. We've found these weekly deadlines tend to push people to finish things in order to show them off.

The time before dinner is a chance for founders to talk to one another and to us in an unstructured way. Dinner itself happens around 7:15. Everyone eats together at long white tables designed by our architect Kate Courteau. The general atmosphere is like a modernist version of an Oxford college dining hall, but without a high table. [1]

The speaker usually shows up before 7 and talks informally with the founders before dinner. The actual talk happens over dessert. Most speakers are successful startup founders, and the talks are usually about the inside story of what happened in their startup(s). Talks are strictly off the record to encourage candor, because the inside story of most startups is more colorful than the one presented later to the public. Because YC has been around so long and we have personal relationships with most of the speakers, they trust that what they say won't get out and tell us a lot of medium-secret stuff.

I didn't consciously realize how much speakers at more public events censored themselves till I was able to compare the same people speaking off the record at YC dinners and on the record at Startup School. YC dinner talks are much more useful, because the details people omit in more public talks tend to be the most interesting parts of their stories. About half the interesting things I know about famous startups, I learned at YC dinners.

One founder wrote:

Most of the practical advice is redundant, but there's value in it even as such—if you hear the same things over and over again from different angles, especially from prominent people, it tends to sink in more. The stories tend to be galvanizing though, especially hearing about the screw ups. That's the actual beauty in the off-the-record-ness: you hear just how screwed up most of these successful startups were on the way up.
It's a shame the only record of all the YC talks over the years is in the memories and notes of founders who heard them. It seems inefficient that only the founders in that specific batch and a handful of alumni guests get to hear each talk. We often think about this problem but there seems no way around it. If we broadcast or even recorded the talks, the speakers would clam up.

Talks end with a period of usually quite intense Q&A, after which everyone gets up and breaks into smaller informal groups, like before dinner. Nearly all speakers hang around for a while, talking to individual founders. We make a point of introducing speakers to those who particularly want to talk to them. Sometimes founders and speakers exchange contact info to talk more later. But the speakers are not the people responsible for advising the startups. They're just an added bonus. The startups are advised by us, and sometimes also by alumni.

Office Hours

Half of YC is events in which all the startups participate. The other half happens in individual conversations with us. There are 9 of us who advise startups full-time: Paul Buchheit, Kevin Hale, Aaron Harris, Carolynn Levy, Jessica Livingston, Kirsty Nathoo, Geoff Ralston, Garry Tan, and me. There are also 8 part-time partners: Sam Altman, Dalton Caldwell, Justin Kan, Andrew Mason, Emmett Shear, Michael Seibel, Harj Taggar, and Qasar Younis. Two other YC partners, Robert Morris (also a professor at MIT) and Trevor Blackwell, advise startups on technical matters.

We have two lawyers who give the startups legal advice and do their basic legal work for free: Carolynn and Jon Levy. Startups usually get their own lawyers when they're about to raise a large round; up till that time the Levys can handle most of their legal problems.

The individual conversations with the startups happen during office hours they book online. There's no limit to the number of office hours they can book; startups talk to us as often as they want, which in practice varies enormously depending on the startup and where we are in the cycle. The office hour software is designed not just to book slots, but to show us if startups are getting enough time with us. The office hour request queue shows us how many founders need to talk to us; when it gets long, we schedule more blocks of office hours.

What we talk about at office hours also depends on the startup and where we are in the cycle. Usually we talk about whatever is the most urgent question right now. Sometimes, especially early on, the most urgent question is to figure out what the most urgent question should be. That's less trivial than it sounds; we spend a lot of time telling founders what not to worry about.

(About 10% of the time we talk not about immediate problems but about the big vision for the company. You don't have to be bound by this, but it's good to have one. Some startups arrive with a big vision already, but most don't. It's a useful exercise to spend some time thinking about what the path would be from what a startup is doing now to a giant company, even if that's not the current goal of the founders. Helping founders come up with these big visions is one of our strengths, because we've explored so much of the space of startup ideas that we know what's over each hill.)

If the startup either hasn't decided what to work on or wants to change their idea, then we talk about what the company should do. That usually means satisfying two constraints: something (1) users would want, that (2) the founders of this startup would be good at building. We have these types of conversations surprisingly often. Startups modify or even replace their ideas much more than outsiders realize. By Demo Day perhaps 15% are working on new ideas that grew out of conversations during office hours. Some of the most successful startups we've funded have.

If the question of what the company should do is settled, the most urgent question tends to be what to build first. Usually we advise startups to launch fast and iterate. This doesn't apply to all startups (Clustrix, for example), but it works for most. The reason we advise startups to launch fast is that till you launch you're designing for hypothetical or at best tame users, instead of actual ones. Once you launch you begin the conversation with real users, whose often surprising reactions to your product teach you what you should have been building.

Usually we advise startups to launch when they've built something with a quantum of utility—when they've built something sufficiently better than existing options that at least some users would say "I'm glad this appeared, because now I can finally do x." If what you've built is a subset of existing technology at the same price, then users have no reason to try it, which means you don't get to start the conversation with them. You need a quantum of utility to get a toehold.

Since there are a large number of points on the perimeter of most existing technologies at which one could push outward to create a quantum blister, what to build first is one of the most important questions we talk about. The general answer is to pick something where the product of how fast it can be built and how excited users would be about it is high. (How excited is distinct from how many would be excited.) But in practice the answer tends to be very specific to each startup. The goal is for office hours to end with the founders having a clear direction and saying "OK, we'll go build x." That goal is almost always achieved, though in practice about 10% of the time x turns out to be a bad idea and we have to go back to the drawing board.

Deciding what to build is not simply a technical question, because a startup is a company, not just a piece of software. The larval product should also have a larval business model. Like the product, this can change, but there should usually be an initial hypothesis about who to charge, how much to charge them, and how to reach them.

If a startup has built something that's ready to launch, then the conversations at office hours tend to be about how to launch it. That's two questions: how to present it to users, and how to present it to the press and investors. If the startup has a web site, we try to ensure it's at least above a basic threshold of usability. Startup web sites tend to be confusing to users who show up for the first time with no idea what the company is doing (and not caring that much either), so it's critical the site convey clearly and briefly what it is. Two partners, Garry Tan and Kevin Hale, are designers who can give advice about site design. As a writer, I can often help startups come up with a concise explanation of what they do.

The second half of launching, explaining the company to the press, is also the beginning of explaining it to investors. When each startup is ready to launch, they stand in front of a whiteboard with a YC partner and figure out what the basic pitch should be. The founders usually photograph this and email it to the partner, who on the day they launch turns it into an email to whatever publication they've chosen (most often TechCrunch). They're free to contact the publication themselves, of course, but the reasons we usually write this email are that (a) we use plain language instead of the marketing-speak even technical founders often revert to when describing their own companies, and (b) journalists know we can't bullshit them, or they'll stop believing us.

The whiteboard pitch is useful for more than just launching. It becomes the basis of how the company will describe itself, particularly to investors. In fact it usually helps the founders themselves both clarify and agree with one another about the vision for the company.

If a company is launched (about a quarter are before they come to YC), then the conversations at office hours tend to be about the various things that happen to actually launched companies. Most things that happen to newly launched startups are bad. But paradoxically, these disasters are precisely the reason to launch fast: they all represent problems you're going to need to solve eventually, and the only way even to find out what they are is to launch. In practice they vary from technological bottlenecks to threats of lawsuits, but the most common problem is that users don't like the product enough.

This is normal; it's to learn where your initial hypothesis is wrong that you launch. Now at least you have some evidence to analyze. So for companies at this stage, the conversations at office hours tend to be about how to figure out from available evidence what users want, how to get more data about what they want, and how to reach more of them. It's similar to the initial phase when we're trying to figure out where on the perimeter of existing technology to break out, particularly in the sense that the search space is huge. Fortunately this is an area where our experience advising so many startups is especially useful. This is detective work, and we are experienced detectives.

As the 3 month cycle progresses, conversations at office hours start to be about investors as well as the company. Some questions all startups have, like what the fundraising strategy should be. How much should they raise, and from whom, and when should they start? The answers depend on the startup. Some startups are immediately attractive, and they'll find it easy to raise money. Others are ugly ducklings, who will grow into swans in time, but initially should try to raise a comparatively small amount of angel money and use that to get the company to a more swanlike stage.

(Being an ugly duckling is not a bad thing. Microsoft would have been one, 3 months in, when their product was a Basic interpreter for the Altair. If the equivalent company tried to raise money today, most VCs would reject them on the grounds that their market was too small, though some angels would probably say yes on the grounds that the founders seemed smart and the domain worth exploring.)

It's important for a startup to have an accurate estimate of their fundraising potential, because raising money is like choosing an angle of attack for a plane. If you try to climb too steeply you just stall. Similarly, if you try to raise too much for the stage you're at, you'll not only waste lots of time and end up with nothing to show for it, you'll even jeopardize your chances of raising a smaller amount, because your initial leads will cool as you start to seem shelfworn. Fortunately this is another area where our experience helps. We can predict based on data about hundreds of previous startups what investors' reactions to you will be and suggest an appropriate strategy.

Once fundraising starts, the conversations about it at office hours shift from the strategic to the tactical. Raising money is, unfortunately, usually a question of breaking deadlocks. Once you start to get hard commitments from investors, more investors want in. So the most important tactical question is usually who to close first, and how to convince them. This again is something where our experience helps, because we know a lot of the investors' personalities from previous interactions. At this stage we do more than advise, though: we also talk directly to investors to help convince them. As with press launches, we can often do this more credibly than the founders themselves could, because we have to tell the truth; if we bullshit investors, they'll stop believing us.

The goal of course is not just to get the startup money, but to get it from the investors who will help them most. Our knowledge of investors helps us identify those as well as convince them.

As Demo Day approaches, conversations at office hours start to be dominated by questions about presentations. This is the busiest part of the cycle for us. Since the startups are at different stages, they need to talk to us different amounts the rest of the cycle. But the week before Demo Day they all need to talk to us about what to say on Demo Day. So during that week office hours run together into one long rehearsal. We're there most days well into the night as founders come in and rehearse successive versions of their presentations.

Usually we begin with a whiteboard conversation like the one before launching, during which we figure out the most important points to convey. Then the startup makes a presentation based on that, we (and whatever other founders are around) watch it, and then they fix what's broken and try again. These sessions make the presentations markedly better than they'd otherwise have been. Startups who come to YC a lot the week before Demo Day always have better presentations than the ones who for whatever reason don't, even if their companies aren't actually as good.

Office hours don't stop after the 3 month cycle ends. In fact, the only thing that stops at the end of the 3 month cycle is the dinners. We have office hours year round, and startups from all previous cycles can book time whenever they want. (Except during interviews, and the first week of each cycle and the week before Demo Day, which we reserve for the startups in that cycle.) We still talk regularly with founders from the first YC batch in the summer of 2005.

Eventually we may hit some kind of limit on the number of people we can advise, but we haven't hit it yet. There are only 4 weeks a year (2 each cycle) when so many people want office hours that we have to limit them to startups in the current batch. And the length of the office hour request queue shows us that, as of now at least, we're never so overloaded that we can't satisfy everyone who wants to talk to us.

Demo Day

Demo Day has become a big deal. From the first one, which had 15 investors, it has grown into a day-long event for about 450 investors. The important thing is not the size of the audience, however, but who those 450 people are. [2] I doubt there's another occasion when such a large percentage of the top startup investors are all in one place.

There's no specific thing startups are expected to be able to present on Demo Day. The startups we fund are all at different stages when the 3 months start, and some reset the clock by changing their idea. So the goal on Demo Day is simply for startups to be as convincing as they can for the stage they're at. There are investors ready to invest at all the different stages, if the startup seems promising enough.

Between and after the presentations on Demo Day, founders and investors mingle and talk further. Investors don't literally write checks on Demo Day. The goal is not to convince investors on the spot, but just for startups to introduce themselves. Occasionally investors will say "I'm in" at Demo Day, but most of the convincing happens in subsequent meetings.

At the end of Demo Day what the startups usually have is a bunch of potential leads. Our default advice is to do a breadth first search, weighted by expected value. E.g. an angel who will decide quickly but will invest a small amount might have the same expected value as a VC who would invest a lot, but could take weeks to make up their minds. Whereas an angel who will only invest a small amount and will take weeks to make up his mind has a lower expected value and should be put on the back burner. Fortunately because we not only know the investors but can predict their reaction to each specific startup, we can tell the startups what the weight should be for each lead. There are a few investors for whom it should be zero, and we can tell startups about those too.

After Demo Day we keep in close touch with the startups as they negotiate the fundraising maze, and help them decipher the real messages in investors' sometimes deliberately ambiguous responses. Often we talk to the investors ourselves, both to find out what they're really thinking and when possible to help convince them to invest.

Because YC-funded startups are a known quantity to investors and get introduced to enough of them to create serious price competition, companies tend to get higher valuations than they might otherwise. One founder wrote:

I would bet any day that my cap was significantly higher (probably 2x) as a direct result of being part of YC.
Though probably more important than valuation is that startups get the investors they want.

We're in favor of startups raising some angel (size) money before Demo Day if they can do it without taking too much time away from working on the company. [3]

Other Events

We have several other events during each cycle. The first, Prototype Day, happens about 2 weeks in. At Prototype Day all the startups present to one another for the first time. The goals are (a) to make sure everyone knows what everyone else is working on, in case they can help, and (b) to get the founders to start thinking about how to present what they're doing. At this stage, though, the founders should still be focusing more on building than pitching, so we suggest they not spend too much time on their presentations, and to keep the pressure low, no one except the current batch of startups gets to see them.

After Prototype Day we ask all the founders to vote on which of the other startups they'd want to invest in if they were investors. We do this not to reward those who win, but to get the founders thinking about how startups look from an investor's point of view.

A week before Demo Day we have another event called Rehearsal Day. The format is just like Prototype Day, except now the presentations are supposed to be the first drafts of the startups' actual Demo Day presentations. As at Prototype Day, the founders all vote on which seems the best investment.

Just before Demo Day we bring in 5 or 6 of the best fundraisers from among the alumni to talk candidly about their experiences and give advice to the startups about what they should do. There is a certain kind of brutal candor only peers can deliver, and if there's one topic where it's warranted, this is it.

Now that there are so many alumni, we can have entire conferences where the speakers and the audience are all YC alumni. This makes it possible to talk about controversial things without worrying they'll be repeated. These are not part of any specific cycle, but when one occurs during a cycle the startups in it are of course invited.

The day before Demo Day we run an event called Alumni Demo Day, which has the same format, but is for an audience of just alumni. The goal is to iron the last bugs out of everyone's presentations in front of a friendly audience. Afterward the alumni all vote on which startups they'd most like to invest in, just as they used to after presentations in their own batch.

Foundations

The least exciting but not the least valuable thing we do is ensure that companies are set up properly, with all the right paperwork. That means not just incorporation but all the other agreements startups need, e.g. for vesting and IP. This process has already begun when founders fill out the application form, because some of the questions are there to discover problems that might harm the company later if uncorrected.

Getting a startup set up correctly is a nontrivial problem. It's not something you can safely entrust to your uncle who's a lawyer (unless of course he works for one of the firms that specializes in startups). Our own startup, Viaweb, ran into near-fatal legal problems because of things we overlooked when setting up the company. We wouldn't have if we'd been funded by YC.

It's easier for YC-funded companies to raise money than it is for random startups, because investors know they're set up correctly. Investors only have to worry about the risk that the company will do badly, and not that there's some horror lurking in their paperwork. This is a big deal for angel investors, because they don't want to do the sort of exhaustive due diligence a VC might do for a series A round. For angels, investing in YC-funded startups is safe in the same way buying name-brand products is. That means more demand, which means higher valuations.

That's not the main reason we organize people's paperwork, though. The main reason we do it is to enable the founders to focus on other things. For most founders, all the stuff one has to do to set up a startup is completely unfamiliar, and thus distracting. It's better if they can spend their time working on the company. Every aspect of YC is designed with that goal in mind.

A related type of work we do is mediating disputes between founders. These are more common than anyone realizes, because the parties involved generally try to keep them quiet, but they occur in even the most successful startups. We're now very good at dealing with them because we're not only neutral, but have enough experience to tell which disputes are serious, and for those not serious enough to warrant a divorce, to figure out how to fix the underlying problem.

Alumni

As YC continues to fund startups, the value of the alumni network becomes an increasingly large component of what we offer. It was zero at first because there were no alumni yet. I don't think we even realized that as a byproduct of funding startups every 6 months, we'd be creating an alumni network. But within a year that became very clear, and it's one of the reasons we decided to grow instead of staying a constant size. The more startups we fund, the faster the alumni network grows.

Now, 8 years later, the YC alumni network is probably the most powerful network in the startup world. It's powerful not just because of its size, but also because its members have such a strong commitment to helping one another.

That commitment was initially a byproduct of the cooperative spirit we tried to encourage within each batch. Starting a startup was a very lonely undertaking when we did it ourselves in Boston in 1995. One of the goals of YC's batch model was to fix that, by giving founders the colleagues one would otherwise lack as companies with just 2 or 3 people.

When people get funded by YC, they discover the alumni network has structure. The innermost ring is the founders in the same batch. They do a lot to help one another, from being one another's beta users and helping them with specialized technical expertise to letting one another stay at their places and helping them move. They also tend to become good friends. A lot of founders' closest friends are people who were in the same YC batch with them, just as happens in school.

It was natural for the cooperative spirit we encourage within batches to spread between batches once there started to be more of them. And once we realized that was happening, we started to encourage it by creating connections between new startups and more established alumni who could help them.

One of the more successful alumni wrote:

I am excited when a start up reaches out to me because (a) I now have a lot of knowledge to share with them, and (b) I have a burning desire to give back. One recent alum got a wealth of introductions from me because I feel indebted to the 'family.' The family (you and the previous alums) were our lifelines early on. One doesn't forget that.
The alumni aren't blindly loyal though. Ultimately what holds this network together is the quality of the people in it. As another wrote:
I am willing to intro a YC founder to pretty much anyone based on the fact that they passed your selection filter.
Now that we've been doing YC for 7 years, some of the more established alumni are getting pretty established. Initially startups used the alumni network to find people who knew the people they wanted to reach. But increasingly the people they want to reach are the alumni themselves.

I'll give a couple examples of alumni who've been particularly helpful to other startups. The founders of Cloudkick are sysadmin gods who within the alumni network play the same role for servers that The Wolf in Pulp Fiction played for the back seats of cars. When a startup experiences sudden growth and their servers are melting, we call in the Cloudkicks and they fix the problem.

Two other alumni who've been particularly helpful are Sam Altman of Loopt and James Lindenbaum of Heroku. They are both extraordinarily knowledgeable about fundraising—more knowledgeable than me about many aspects of it—and they have helped lots of startups with tactical advice.

But now I'm thinking of all the other alumni who've helped lots of other startups, and feeling bad I can't list them all. There are so many, and most of what they do for one another I don't even hear about. At this point the chain reaction has become self-sustaining.

We in turn have focused increasingly on things we can do to help the alumni. The conferences we organize are one example. But since the biggest problem the alumni have is hiring, helping them with that has been our main focus, both in individual cases and through YC-wide projects like Work at a Startup, and Hacker News jobs page.

Reddit (YC S05) founder Alexis Ohanian is YC's Ambassador to the East. Among other things he helps give companies that move back to the East Coast after YC the kind of support YC gives those who stay in the Valley.

Silicon Valley

The outer ring of support is Silicon Valley itself, and the value it adds is significant. There's no question you can start a successful startup elsewhere. There are plenty of examples to prove that. But even the most ardent boosters of other cities wouldn't claim they're at parity with the Bay Area. All other things being equal, Silicon Valley is the best place to start a startup.

Most of the YC-like organizations that have appeared in recent years have been created with the goal of enriching the startup community in some particular town. That's a significant difference, because that was never our goal with Y Combinator. When we started it, in Boston, our goal was to help founders, not to help Boston. Which is why after the first cycle we immediately branched out to Silicon Valley.

I know how much better the Valley is than Boston because for the first several years YC alternated between them every 6 months. Founders from other places are almost always surprised when they get here by the breadth and depth of support for startups. The Bay Area is for startups what LA is for the film industry. Large numbers of the people you meet by chance have some connection to it.

But actually I'd rather leave aside the question of whether it's better to base a startup in the Bay Area or elsewhere, because that's not the question one is deciding when deciding whether to apply to something like Y Combinator.

Y Combinator only takes 3 months—less than any school—and afterward startups can go wherever they want. So I honestly believe the optimal plan for a startup that wants to be based in some other town is to come to the Bay Area for YC, then go home afterward, just as the optimal plan for ambitious students is often to go to, say, Boston for school, then come home afterward. Founders should at least take the measure of the Bay Area, so they can be sure that if they base their company in some other town, it's by choice and not by default.

Intros and Connections

I hesitate to make too much of this, because a lot of potential applicants overestimate the degree to which the value of YC is in the introductions we can provide, but the fact is that we are now pretty well connected.

Startups benefit from these connections in several different ways. One is that between our own connections and those of the alumni we can arrange intros to almost anyone. One founder wrote:

Last week I spent over 3 days searching in my own non-YC network, which includes PayPal mafia mind you, for a contact at some really random data company. No results. Then I emailed the YC list, and in 5 minutes, someone offered a 2nd degree connection. In under 24 hours, someone offered a 1st degree connection.
We have deals of varying degrees of formality with many companies in the technology world either to give free services or special access to YC-funded startups. We're not supposed to talk about some of them, but if you ask any YC alum they'll confirm their existence.

We also have connections to most companies that could be described as "platform companies," which enable us to smooth out difficulties that arise for startups building stuff on their platforms. We often host events where they send people to talk to YC startups.

The reason we have such good connections is not that we're particularly good schmoozers. [4] It's because we have a large number of really good portfolio companies. So any company that wants to engage with the startup community can just plug right into us and get access to hundreds of high-quality startups in one shot. Similarly, reporters writing about anything to do with startups know they can call us and odds are we'll be able to give them intros to multiple examples of whatever they're writing about, whether it's companies writing iPad applications or companies sharing office space.

Because the alumni network is so large and tightly knit, investors or companies who try to maltreat a YC-funded startup can usually be made to stop. [5] But because everyone in the Valley understands the power of this network, most of its value is in deterrence: in practice people rarely do try to maltreat YC-funded companies, because they know it wouldn't be worth it. The kind of horror stories you hear about investors screwing over startups rarely happen to those we fund. We almost never see broken termsheets.

Social Events

Initially the only social events were the weekly dinners. We've gradually added more, and I think now we have enough. We don't want to have too many. Though founders often become close friends through YC, that's not its primary purpose. Plus social events organized by sponsoring institutions are often lame; in a true community people organize their own.

In the first week or two of each cycle we host a party for all the founders in that batch and their SOs, so everyone can get to know one another. There is another usually somewhat less restrained party at the other end of the cycle, after the investors leave on the last day of Demo Day. We also occasionally host happy hours at nearby bars.

We host a reunion dinner for every batch at YC. Because the time scale is so fast in the startup world, we don't wait a year: the reunion dinner is usually about 6 weeks after the end of the cycle, because that's when startups running into headwinds start to get discouraged and need cheering up.

We encourage founders to organize their own social events as well, and they often do. These usually persist past the end of the YC cycle. The last couple batches have organized their own regularly scheduled dinners to replace the YC dinners once the cycle ended.

There's a natural tendency for founders to stick together after the cycle ends, because as well as having been through the same experiences together, they have a lot in common as people. As one founder put it:

One of my goals since my last job was to stop working with mediocrity and find/surround myself with people smarter than I. YC definitely provided the quality of people I needed to be around.

Size

We fund a lot more startups than we used to. The first YC cycle in summer 2005 had 8 startups. The most recent, in summer 2013, had 52.

There are two reasons we've chosen to grow: that it's better for the startups, and that it's better for us. It's better for the startups because a lot of the benefit startups get from YC is from the other startups—both those in the same batch and the alumni—and the more startups there are, the more help a new startup can get from them. The more startups there are, the greater the chance there's another that's the intended user of whatever you're building, or that has a founder who is an expert on some problem you need to solve, or knows someone (or is someone) you need to reach.

Being big also helps the startups indirectly, because it makes other people and organizations more willing to engage with us and thus with them. Famous people are more willing to come and speak when audiences are bigger. Investors are more interested in coming to Demo Day when there are more companies presenting. Other companies are more interested in partnering with us, reporters more interested in talking to us, etc, etc.

The other advantage of being big is that it helps us learn faster. The more startups we fund, the more knowledge we get not only about startups but investors. We've now observed the trajectories of hundreds of startups, and seen the results of thousands of interactions between startups and investors. This lets us predict outcomes even in quite rare situations.

This effect is compounded by the fact that at YC the startups are advised by a small number of people doing it full-time. Because we've not only funded such a large number of startups, but also advised them all ourselves, we may now have more data in our heads about early stage startups than anyone else. The only person who's funded more is Ron Conway, and he may not have had such close interactions with all of them.

The danger of being big is that we might get spread too thin. We're acutely aware of this danger, because we've had 8 years' practice growing, and at each point in our growth we've thought about it. We've been careful not just to eliminate bottlenecks as they appear, but also to monitor whether startups are getting enough attention. That's why for example we wrote the office hour booking software in a way that shows how well demand is satisfied.

Of course the best test of whether we can handle our scale is how well the startups do when they come out the other side. That's the ultimate measure of our performance, and certainly the one applicants should care most about. Fortunately at each Demo Day the consensus among investors has been that the startups were the best yet. So whatever the limit of our model is, we still haven't hit it. [6]

We can speak from experience about being both big and small, because we were small before we got big. Big is better.

The Goal

The overall goal of YC is to help startups really take off. They arrive at YC at all different stages. Some haven't even started working yet, and others have been launched for a year or more. But whatever stage a startup is at when they arrive, our goal is to help them to be in dramatically better shape 3 months later.

For most startups, better shape translates into two things: to have a better product with more users, and to have more options for raising money. The ratio varies depending on where the company is. A startup that's just starting will want to work more on the product, while one that's already launched will usually want to focus more on investors.

But startups at all stages benefit from the intensity of YC. That's probably the best word to describe the atmosphere. For 3 months, it's all startup, all the time. Everyone around you—us, the other founders in your batch, the alumni, the speakers, the investors, and the Valley itself—wants to help your startup succeed. In that atmosphere it's hard not to be highly motivated. And that kind of extraordinary motivation is what one needs to do something as difficult as starting a startup.

As one alum wrote after reading an earlier draft:

It's a pity that the piece can't convey the buzz of walking into Y Combinator on Tuesday evening, and the general energy/excitement of the founders. That's what comes to mind for me when I think of YC, and it's what I describe to others when they ask why they should do YC.
Many founders describe the 11 weeks leading up to Demo Day as the most productive period in their lives. Though YC continues after the 3 month cycle, and the alumni network is an increasingly valuable resource, those 11 weeks are still the most important thing. You can't make people something they're not, but the right conditions can bring out the best in them. And since most people have way more potential than they realize, they're often surprised what they're capable of.










Notes

[1] There was some debate whether to keep this analogy, lest it seem a pretentious comparison, but I kept it after Harj, who went to college there, insisted the atmosphere was in fact very similar.

[2] If we opened Demo Day to the general public we'd have much larger audiences, if only because hundreds of other startup founders would come for the opportunity to meet such a large concentration of investors. Which is why Demo Day is not open to the general public. If it were, the audience would be full of other companies competing for the investors' attention.

[3] On rare occasions, startups attract so much investor attention before Demo Day that they don't present because they already have a VC deal with a "no shop" clause. That has happened three times so far, with Heroku, Airbnb, and Humble Bundle.

Though it might seem great to raise series A before Demo Day, we don't encourage most companies to try. It's risky to get into series A negotiations too early, because these draw the founders' attention away from working on the company and often end in a no, whereupon the company would be screwed on Demo Day because they'd have neither a deal nor impressive progress on the company to present. But if VC interest crosses a certain threshold, we'll advise a company to risk it and seek series A, whereupon we shift into introducing them to VCs.

[4] Actually we are now much better schmoozers since we hired Harj, who is among other things in charge of relationships with other companies.

[5] Except for the record labels, which are effectively a rogue state with nuclear weapons. There is nothing we or anyone else can do to protect you from them, except warn you not to start startups that touch label music.

[6] It's true that because YC batches are now so big, the founders don't each get to know all the other founders in their batch, like they used to. But they still get to know about the same number of people; that number is just a smaller percentage of the total.


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