In an interview with TechCrunch, Atman talks about YC’s Fellowship program:
I think we all get a little screwed up in the way we think about money in Silicon Valley sometimes; $12k is actually a lot of money to most people. It should be enough to live on, build a product, and get initial users. I think it’s fair to say that YCF is targeting people with low personal burn rates. These are often younger, but certainly not always. And I’ve met some 24 year old Google engineers that get their personal burn rates up pretty high…
On giving advice to startups:
We usually (but certainly not always!) give good advice. This is surprisingly hard to get for startup founders… The general principle is to identify the startup’s single biggest current problem, and help them figure out how to solve that. This is hard because a) most startups have a lot of problems and b) most founders are bad at knowing what actual problems vs fake problems are. For example, most founders worry a lot about competitors, but not much about users not staying engaged.
Altman announces the launch of YC Fellowship, a program aimed at prep-seed ventures that have not received any prior funding. The eight-week program will give out advice to participating startups and $12,000 in grants — although regular venture investments could become the standard in the future. Companies will not have to move to the Bay Area. Applications open July 27. Altman writes in a blog post:
Ten years ago, Paul Graham said there could be ten times as many startups if more people realized they could try. Thanks to the work he, Jessica, Trevor and Robert helped do, that’s become true. We think there is still room for another ten-fold increase in the number of (good) startups. But even now, a lot of good founders never get started because they can’t scrape together a relatively small sum of money at the idea stage. So we’re going to try a new experiment, which we’re calling the YC Fellowship. This is targeted at teams that are very, very early…Although this is an experiment, if it seems promising we’ll iterate quickly just like any good startup. Our goal at YC is to enable as much innovation as we can. Someday if it works, we’d love to fund 1,000 companies per year like this.
Thiel joins YC on Altman’s invitiation. Altman says Thiel won’t be able to invest in any companies while they’re in YC, or for 3 months after they present at Demo Day. Altman:
I’m delighted to announce Peter Thiel is joining YC as one of the (now 10!) part-time partners…He already works with a number of YC companies, and we’re very happy he’ll be working with more…We generally won’t bring on people that are involved with other investing firms given the obvious conflict, but Peter is so good we felt like we had to make an exception. We’re pretty paranoid about potential conflicts, and we’ll continually evaluate this and change it if it’s not working…On a personal note, Peter is one of the two people (along with PG) who has taught me the most about how to invest in startups. I am confident that Peter joining will be great for YC.
Livingston talks about not investing in Indiegogo:
We didn’t interview Indiegogo when they applied to YC back in 2007 or 2006. We didn’t even invite them to interview, so I guess that would be a dumb business move. In our defense, they were raising funding for indie movie projects, so it isn’t the same thing as it is now. But I really love their founder, Danae Ringelmann. I think she’s awesome. So I’m equally sad that we didn’t fund her, from a personal perspective.
Altman delivers the first lecture:
…if you try to do these things in a lot of big companies or non-startups, it won’t work.
Altman announces Y Combinator will hold an online course through a partnership with Stanford University, where the class will be called CS183B, or How to Start a Startup. This opens up access to people who don’t make it into the program, and anyone else, including people in other countries:
At Y Combinator we are limited by class size, and in the people we can fund
Hoover joins the summer intake. Hoover:
I was actually not intending to apply to Y Combinator. Product Hunt started surfacing during the previous Y Combinator batch because founders told each other to upvote their products. Nicolas [Dessaigne] from Algolia DM’d me and said ‘hey, some of the partners — like Garry Tan — want to meet you.’
Altman invites the question-and-answer site to be the first late-stage participant:
I don’t know if [Quora] will develop a new product that they did not already have in the works as a result of being at Y Combinator…But we think we can help them with certain areas like hiring… And we think they can help our community a great deal.
Altman discusses whether Y Combinator has a monopoly on early-stage startups with former TechCrunch editor Michael Arrington. Arrington:
You consider yourself a monopoly
Altman announces that the firm is taking on between 80 and 85 startups in the summer, its biggest intake since Graham reduced intake size in 2012. The increased number of partners will help cope with the higher intake, and it is also changing the system:
[Previously,] every partner was talking to every company
Altman announces the company is increasing the amount it provides to approved startups. In return, it will take a slightly larger equity stake of 7%.
$97k was about right at the time, but the cost of living in the Bay Area has gone up substantially. So we’re increasing the total to $120k, which we hope is enough for the founders to run their business and pay their living expenses for at least six months, and sometimes longer.
The crowd-funding platform that aims to pay for medical procedures for those who cannot afford them is Y Combinator’s first non-profit. Graham and other Hacker News users spot the company from a discussion thread, and Watsi becomes part of the 2012/13 intake. Graham:
I’ve never been so excited about anything we’ve funded
Altman talks about meeting Steve Jobs, working with startups in the risky early stages, and the challenge Y Combinator faces in convincing people to start their own companies instead of joining Facebook and Google:
How do we convince that brilliant engineer that has the idea he’s really passionate about, that can change the world, to start a startup and not go work as an engineer at a big company?
Graham announces that he is stepping down from his day-to-day role, and Altman will take over.
It has nothing to do with the current startup environment. I started trying to recruit Sam to take over back in 2012…I’m just not much good at running the sort of (comparatively) large organization YC is going to have to become. Sam will be much better at that.
He will stay on as an advisor and will work with startups at Office Hours.
Graham and Altman host a chat with three Y Combinator startups: George Saines and Nick Winter of Code Combat, a way to learn code though gaming; Karen Cheng and Finbarr Taylor, of giveit100.com, a site where users share their progress at different skills, and Ryan Petersen of Flexport, a digitized customs brokerage.
In an interview with Ryan Lawler of TechCrunch, Graham discusses the value of the YC investments, how the accelerator dealt with too many companies in a previous batch, and why venture capitalists should move quickly:
Well VCs have financial models for how much they need to invest, and what percentage of the company they need to buy for it, in order to get positive returns. And they’re really nervous, somewhat justifiably so, because if you’re going to lose money as a VC firm you wont know it til about six to eight years later. So these models, they become sort of religious about them. But, they really feel like they can’t buy less than 20% of the company in the Series A round…and in a competitive deal since that number can’t move, then the only number that can move is the valuation.. That means that the amount invested increases, arbitrarily. These companies would like to sell half as much stock for half as much money, but that’s not one of the options. If there was a VC that broke ranks and said they would give companies the money they actually need instead of it being determined by random external forces, they would get all the good startups.
Graham says that 37 Y Combinator companies have valuations of, or have sold for, at least $40 million.
The newspaper profiles the firm’s Demo Day, speaking with Graham, Altman, and Livingston about the company’s strategy for picking startups to support. Graham:
Imagine an assembly line where Facebooks and Googles come along every few years. You can either pick that cookie off the assembly line or not. If you pick it off, it’s market price, which varies. But if you don’t pick it off, you’re out of the game.
Graham says Y Combinator is now focusing more on people than ideas, as a team of founders who have been friends for some time will keep what seems like a difficult idea alive in order to not let each other down:
At the stage we’re funding people, at the beginning, the founder is more important than the idea…We’re looking for people who have been friends for a while and worked together on things…Almost every startup has some point where it seems like the startup is doomed, the startup is worthless
Conway talks about the defining qualities of entrepreneurs, his early days at Altos Computer, PTS, and Snocap. Thinking big is a must:
Many, many of our companies don’t think big enough…there’s some big companies, it could be bigger so as ambitious as you want to be, go for it.
Y Combinator founders receive $150,000 each via Milner and Conway’s Start Fund. The investment will be convertible debt, which converts into equity in later rounds, with no cap and discount, the most entrepreneur-friendly terms.
Arrington posts about a meeting of angel investors at Bin 38 in San Francisco, who account for ‘nearly 100 percent of early stage start-up deals in Silicon Valley‘. He doesn’t identify the people at the meeting, but says sources give him information on what the meeting is about:
- Complaints about Y Combinator’s growing power, and how to counteract competitiveness in Y Combinator deals
- Complaints about rising deal valuations and they can act as a group to reduce those valuations
- How the group can act together to keep traditional venture capitalists out of deals entirely
- How the group can act together to keep out new angel investors invading the market and driving up valuations.
- More mundane things, like agreeing as a group not to accept convertible notes in deals (an entrepreneur-friendly type of deal).
- One source has also said that there is a wiki of some sort that the group has that explicitly talks about how the group should act as one to keep deal valuations down.
He says the meeting raises serious concerns:
Collusion and price fixing, that’s what. It is absolutely unlawful for competitors to act together to keep other competitors out of the market, or to discuss ways to keep prices under control. And that appears to be exactly what this group is doing. This isn’t minor league stuff. We’re talking about federal crimes and civil prosecutions if in fact that’s what they’re doing.
Livingston says Y Combinator reached out to Conway in its early stages, but wasn’t able to communicate to him what the firm did.
He said, “Is this in Boston? I stick mainly local.” I replied, “No, we’re in Mountain View and we’d love for you to come to Demo Day.” He said, “Is this a chance to invest in the incubator?” I replied, “No, we don’t want you to invest in us. It’s a chance to invest in the individual startups.” Then he told us he’d circle back, since he was jammed. We got the “am jammed now” from Ronco—it was so embarrassing.
She says Conway did end up coming to Demo Day in 2006, and returned to talk at the next year’s winter event.
Loopt joins the inaugural batch and receives a reported $6,000. Altman says the money-saving culture at Y Combinator, which extends to things like readymade meals, helps develop the location-based mobile app company develop:
That culture of frugality and discipline is really important for the Y Combinator mindset. The start-ups that do well are the ones that are working all the time.