Can The Y Combinator Idea Turn Into A Movement?
Most readers of this blog know what Y Combinator is. Hell, last month two of the top five referrers were affiliated with Y Combinator. But for those who don’t know, Y Combinator was started by Paul Graham and now runs two programs a year in which about twenty teams (each program) are funded with enough money to pay for food and rent for roughly three months while they build and launch a web application.
With the announcement last night of Google App Engine, it’s literally possible to build your entire web app on top of Google’s vaunted infrastructure. It’s already been possible to do that on top of Amazon’s for some time now.
So it’s not surprising to me that the Y Combinator model is being adopted and adapted by others. Last summer my friend Brad Feld helped sponsor TechStars in Boulder Colorado and a number of interesting startups have come out of that program.
I was at a meeting recently where a University was considering starting a venture fund to back companies coming out of their school. I encouraged them to look at the Y Combinator model for inspiration and suggested that they back 10 teams at $25k each instead of one team at $250k. Two reasons. First it’s hard to know who will get it right, by backing 10 opportunities instead of one, you vastly increase your chances of success. And second, you can get a lot done on $25k now, particularly if you back young software engineers right out of school (or even in school) who can live for at least six months on $25k.
This stuff is transformative. I’ll leave you with a part of a comment from phbradley in response to my recent post on the decline of the firm.
bioanalogy – (if) firms are breaking up into smaller, agile units, the
economy will resemble the human brain – dense, dispersed clusters of
small inter-related units (neurons!) forming transient, agile patterns,
constantly being remodelled.
There are 4 components to the
system you could copy: 1) be a neuron – basically small firms,
startups, road warrior consultants and creatives; 2) be a synapse
between neurons: the service that lets neurons talk to one another,
form temporary networks and memories; 3) be the extracellular matrix –
half incubator, half director, it’s the YCombinator of the brain on
which every neuron finds its position and develops under its occasional
signals. 4) be the blood supply – the main supply of resources
(multimillion VC?), but *not* directly involved with neurons. Often
aligned with the neurons via the extracellular matrix. 5) be the skull
(i think government’s already got that one figured out pretty good)
if you factor in the gloom-and-doom reports from foremski et al about the dangers facing the Valley’s angel investor ecosystem (see below), it’s hard not to see YCombinator, and similar models, as incredibly important going forwards.- Phil (twt: @flipbrad)http://www.siliconvalleywat…http://www.siliconvalleywat…
Right – its just an example of the restructuring of the VC model in response to the reduction in transaction costs across the “startup supply chain”. A Coasian no-brainer – whether the brain is standalone, integrated, diffused or whatever 😉
A coasian no brainer! That’s a good one.
$25k is a bit low. Should be at least double.
There is no question the YC people make a big difference here as well as the “incuvestor” infrastructure… There is no substitute for truly battle tested C level experienced angels as opposed to functional or mid level stock option millionaires…BUT Im thinking it might be wise to review history and “idealab”… YC has the risk exposure and ROI calcs down better.. but the reality is when “quick” M & A and series A exits dry up because bubble or general economic factors push people again to start asking the “whats the business model” and “how do you make money” questions. They may hit a bit of a wall, hopefully one they can climb over by tweaking their model a bit
glad you noticed the phbradley comment… i just chased after his link to find out who he is … i liked the comment a lotbioanalogy is a great term… the same can be said using “consciousness analogy”,… technology (the brain too, but that is another subject) is the out-picturing of what consciousness can already do (see patanjili’s yoga sutras, third chapter, on the powers of consciousness, it’s short) …. and when we use the nature and structure of the brain, or of consciousness, to analyze human systems, it becomes easier to see what is comingi think umair was just born knowing this stuff, probably a yogi in his last lifetime, the rest of us need to do some meditation
Blogging, reading blogs like umairs, and listening to people powered radio at the same time is my meditation
How much do the people behind YCombinator and the ecosystem they create influence the success rate? The YCombinator team seems to have a talent for picking capable teams and then molding them into a company that can create change – Boston and Sil Valley are also great places to start companies. What is necessary for this investment model be successful in a place like Charlotte?
I think the people behind the effort are hugely important. But there are people in charlotte who have a clue. They may not be as good as paul and jessica, but given the small amount of dollars/risk we are talking about, they may still be able to produce interesting results with this modelFred
Y Comb is special, quite. Alot of its uniqueness comes from Paul and Jessica, et al. So, while it may be a movement, I think it is one because of the passion and personality they put behind it. Anyone who has seen how they watch the demo day presentations with nervous anticipation can attest to that. I don’t know it that can be replicated, and so I don’t know if Y Comb can be replicated.
I agree that YC is special and cannot be replicated. Like google is special and it can’t be replicated. But google showed many waht was possible with lighweight web services and paul and jessica have shown us that two smart web developers and six months of rent and food can create some extraordinary thingsThat’s the movement I’m talkking aboutFred
“shown us that two smart web developers and six months of rent and food can create some extraordinary things”Paul/Jessica etc have an extraordinary ability to find those two smart developers, but yes the movement is in place. You know we’re trying something here too.
i think thats is part of the reason why it appeals to a younger audience. this doesnt hold in some cases, but younger founders are better able to bear the risk of a startup. we don’t have families to support, etc. if nothing materializes after 6mo of food and rent, it won’t materially alter our lives.
I have felt that YC is great for truly in the garage start up stories consisting of two single college students, which for me has put me out in the cold from pursuing them. Their requirements to move down to Silicon Valley and leave my other business concerns behind are too disruptive.So that leaves me with hundreds of other sources to fund our bootstrapped to date efforts in make an amazing growth story from.
I like the idea and was toying with it myself. On the way toward doing it I had one BIG idea which sidetracked me. Now I’m a slave to it for the next 5 years. I was asked to joined Julius Genachowski’s group as an advisor a few months back. I may still do it if the offer still stands. I think we need one great incubator in NYC. The web isn’t going away.
The Ycombinator model was way forward looking. Back in 2004-5, Paul Graham saw that the NRE and RE were on a declining path. Not everyone agreed. For a neat look into the inside of Ycombinator, and one of their vaunted charges, take a look at this video blog post of the now famous Justin Khan and Emmet Shear, who went after selling Kiko, a Ycombinator venture, to found JustinTV. Here are two links:http://bizcast.typepad.com/…http://bizcast.typepad.com/…
i dont know what the numbers look like, but im guessing that most, if not all of the companies are started by first time founders. thats a big deal. there are a lot of people who have ideas or a small prototype built that don’t know how to take it to the next level. the guidance that you receive at ycombinator or similar programs is invaluable.
I think “startupping events” and competitions need to be considered in the same vein here too. When we ran the Rails Rumble (http://www.railsrumble.com) last year, over 100 teams of developer/designers signed on to literally build startups in a weekend. Some of the results were downright impressive, and more than I could even have hoped for.Imagine the possibilities if some sort of fund wanted to make micro-investments in the winners of such competitions, based on the first complete “deliverable” that a team can put together in, say, 1-2 weeks. The proof is in the pudding. Mix with a tiny bit of ramen + sofa cash, the kind of superb business mentorship that someone like Paul Graham can offer, and an incubator-style environment, and you have a whole new kind of startup model.It’s never been easier to launch a startup. Google knows that, and they want to position themselves to easily acquire the developers of the Next Big Idea.
There you go banging the ‘go young’ drum again. I’ll make this quick.1) just because someone is young doesn’t mean they should be paid less. 2) just because someone is young and you can pay them less doesn’t mean their idea is any more likely to succeed.and semantically, I don’t see a group of 3 or 4 software engineers living on 25k for 6 months.
I’ve always thought YC’s focus on age was interesting. And now that I’m over the average age (30) I find it kind of humorous that it should work against me in the application process.I understand the reasoning; younger people are less likely to be “encumbered” by family, mortgages, and prior commitments, and more likely to be able to focus entirely on a venture (and be willing to scrape by on ramen noodles and a shared 4-person apartment for that matter). However, this certainly isn’t true of everyone young, or everyone older, for that matter.*shrug*
it doesn’t work against you. There were a lot of founders in their 30s in the last batch. Two were approaching 40.
I suppose you’re right and that I misspoke, my apologies for that; I’ve never seen it mentioned that it worked against you. But the average age of people that have received funding is 25 (note that that’s not average applicant age). I’d love to see some stats from their applicant pool at some point. Think it would be incredibly interesting to see what kind of diverse backgrounds are applying (and their success ratios, although those are obviously pendant on ideas and such as well).
I had a conversation with a VC, a good friend, who is in the middle of switching firms and a new country. We talked about three general issues:1) VCs being addicted to mgmt fees and not so much carry and therefore raising larger and larger funds. 2) Market becoming more and more efficient with firms that have achieved “traction”3) Nobody really knows whats going to make it big esp in the web world where continous product iterations and slight product adjustments can lead to massive market traction. The last point was esp critical and I quoted your arguments with SAI.I suggested starting the YC model in India (the region that he was moving to). Essentially, start a program of investing in firms of about $50k or so (btw $50k goes a long way in India) along the YC/TechStars model. My argument was there was no way that anybody, even if you do this stuff daily, knows whats going to hit (what was the famous Hollywood saying :)… So, Perhaps, YC’s intelligent “spray and pray” probabilistic approach is the way to superior returns…Anyways, after reading this article, I sent him the following note:===================Here is the key quote from perhaps the smartest consumer internet VC:”I encouraged them to look at the Y Combinator model for inspiration and suggested that they back 10 teams at $25k each instead of one team at $250k. Two reasons. First it’s hard to know who will get it right, by backing 10 opportunities instead of one, you vastly increase your chances of success.”If Fred Wilson, who breathes this stuff day in and day out, believes its difficult to predict whats really going to take off then what are the chances that anybody else can get it right…===================
“the smartest consumer internet VC” is flattering but probably not accurate. Now I have another goal to achieve!Thanksfred
The Y-Combinator model is a unique combination of talents and perspectives. The Philadelphia version has just kicked off at http://www.DreamitVentures.com – bringing its own style to this new model.I’ve always loved “bioanalogies” … thanks. From a synapse…- Skip
so good thanks – been talking to brad about techstars phoenix
A similar program http://www.dreamitventures.com was launched in Philadelphia last week in first class fashion. The kickoff party included the Mayor of Philadelphia and Josh Kopleman as the keynote speaker on Friday. The Saturday session was an orientation/introduction between the 12 teams that were selected from 200 applicants and their mentors/service providers/strategists. DreamIt lined up the top local entrepreneurs, startup lawyers, finance people and VC’s in the area to help promote the concept and support the teams. This one looks very promising. About 100 people invested their Saturday to nurture the program and the startups. They are off to a great start and I am looking forward to helping them succeed in whatever way I can.
Josh is a great person to be involved. He’s a winner and he can pick winnersFred
Fred, how much have you looked at the program and what’s your opinion of it?My roommates are one of the groups, and according to them, dreamit looked at a lot of complaints about y-combinator and tried to fix them. They’re definitely doing some cool stuff. For example, each group gives up a % of their company for a common pot that everyone has a stake in. So you’re vested in all the other groups and it becomes a community / encourages collaboration. My roomies are now in the process of courting advisors–finance, legal, and strategy guys. All of the potential advisors have pretty solid CVs.I was pretty impressed from everything I’ve heard about the program so far, given that it’s in it’s first year. I can’t wait to see what comes out of it.
Seattle has it’s own version at http://www.founderscoop.com/, started earlier this week by Andy Sack and Chris DeVore from Judy’s Book. It’s nice to see the model replicate itself here in the Pacific NW. From everything Tony Wright’s told me about the Y Combinator experience, the network you are tapped into seems to be as valuable as the money you get.
There is also the Women 2.0 Business Plan Competition — http://pitch.women2.orgDeadline to enter is April 15, 2008 — prize includes a meeting with the iconic Esther Dyson!
If you look closely at the YCombinator system it really is focused on developers right out of college — $5k for 3 months spent in either Boston or SF is just not a form of support that is remotely useful for someone with a family. The other aspects of the model — mentoring and advice — would be invaluable for a much wider group of entrepreneurs. The field is wide open for other applications of the same general idea.
What do you mean can it become a movement — it already has! Besides Y Combinator and TechStars, projects like these are popping up all over the map.In the US there are [email protected] and the recent Amazon’s AWS Startup Challenge; Europe has seen Y Europe in Vienna and Seedcamp in London, with more planned for the future. And of course there are related projects — some admittedly more serious than others — like Startup Weekend, You Be the VC and The Next Internet Millionaire.
speaking of ycombinator fred – take a look at getdropbox.com. i’ve been using their service for 8 hours and i’m absolutely blown away. these guys are solving a major pain point in file sharing and synchronization.(i didn’t read all the other comments, so someone may have already mentioned this)
I’d love to hear your thoughts about http://www.youbethevc.com
I like drop box.I believe they raised VC moneyReally nice service.I think they nailed itfred
would YCombinator be successful with ‘outposts’ or franchises in other parts of the world?possibly not, of course. perhaps PG is a key ingredient, a ‘Dear Leader’
This structure makes a lot of sense in a university setting. There are so many great ideas generated in universities that are simply never developed. Schools are realizing this, e.g., Columbia SEAS just created a new entrepreneurship minor. CU has been amazing at monetizing its patents, but has put out significantly more i-bankers then start-ups.I’ve actually been tossing around the idea with other alums in the start-up space of a putting forward a proposal for a YC like fund at Columbia. Columbia has helped the start-up community in nyc, but has never really taken a lead…
Yeah. Hmm… Y combinator and university focused startups are all age (and experience) biased. Not sure that’s a great way to go…
All this discussion leads me to think back to E. F. Schumacher book Small is Beautiful Schumacher was involved in helping Germany rebuild its economic powerhorse after the WWII. It is well worth a read if your interested in this area.
Long response here:http://www.pchristensen.com…
Another competitor is DreamIt Ventures from Philadephia – http://www.cheaprevolution….. They emulated YC’s model except they actually end of getting more equity bc they take 4 to 5% post-funding.