10 ms·

What's Y Combinator's conversion rate?

148 points by RA_Fisher 9y ago

timcederman 9y ago
I found YCList to be out of date and inaccurate for the handful of companies I've looked for on there in the past. Not sure about its general overall accuracy though.
- RA_Fisher 9y ago
  It was accurate for all the exits I looked at. Would be cool to have a GitHub hosted source csv so we could all keep it accurate. It's pretty easy to re-run the analysis if anyone finds a mistake: https://github.com/statwonk/yc?files=1 https://github.com/statwonk/yc?files=1
  - Judgmentality 9y ago
    YC publishes their own database for this. http://www.ycombinator.com/companies/ http://www.ycombinator.com/companies/
    - RA_Fisher 9y ago
      Awesome!! I had no idea. Edit: no exit info though. :(
    - sillysaurus3 9y ago
      No statuses (acquired, dead, etc) so it's not very useful except as a starting point for a useful database.
      - Judgmentality 9y ago
        The dead links are dead companies. But you are correct they don't identify exits.
- nicholasjbs 9y ago
  It's very inaccurate for my batch (S10) at least, for which I know of about twice as many exits as are listed. And as others have mentioned, the bigger challenge is that "exits" aren't a good metric for either gauging YC's success or for making founders rich. The companies that have "failed" to convert (i.e., exit) from S10 include Stripe, PagerDuty, and Docker.
  - justonepost 9y ago
    Sure, but that error rate is probably relatively consistent. Probably exits aren't listed for earlier years either. Unless everyone is getting more secretive about exits, which is interesting in itself. Anyways, maybe someone from YC will comment. They know the truth and it's a worthwhile figure to publish.
    - lelandbatey 9y ago
      It is probably not that exits are more secret and more that since YC has scaled up the number of entrants, so the number of exits that people care to publisize becomes a smaller and smaller percent of the total number of members in a batch.
deleted 9y ago
[deleted]
vqc 9y ago
I think it'd be interesting to see the rate of success for rejected companies.
blazespin 9y ago
Your conclusion is odd about 15% over 10 years. The conversion rate is declining. Doesn't that mean ycombinator is failing? I mean worse than being stagnant, the value of ycombinator to startups is declining over time. The conversion rate is going to zero, if you ask me.
- RA_Fisher 9y ago
  Yeah, more recent vintages 2012-2015 have had much lower conversion rates. These batches will probably peak out closer to 10% after a decade.
- randall 9y ago
  The goal of a VC is not to have a high conversion rate... it's to find the big winners. Airbnb + other 'big wins' are 1 in 1500 or higher, but account for the vast majority of returns. YC started out with a sub-dozen class size. Now it has more than a hundred per batch. The conversion rate is going down, but the hit rate, which is all that matters, likely is going up. More hits with more failure == more success for yc.
  - deleted 9y ago
    [deleted]
  - orthoganol 9y ago
    You're excluding brand dilution as a function of class size. Knowing you are going to be one of 100+ companies going through the program each semester makes you less enthusiastic to join if you already have a very promising or successful company, and it makes it harder for VCs to determine signal; "It's from YC" stops being good enough. A big reason for the class size explosion is almost certainly for network effects, a fleet of ready customers who support YC and drive growth out of the gates. It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable?
    - toomuchtodo 9y ago
      > It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable? What would the attributes be of an elite founder?
paul 9y ago
This is a very poor metric. Companies running out of money and doing a small exit counts as "good" ("conversion") while a successful and growing company is interpreted as something negative (no exit).
- seizethecheese 9y ago
  Basically, you can't create an easy algorithm for something that's illegible.
- marcell 9y ago
  More relevant for employees who care about a liquidity event, even if it is at a lower price, vs. investors who are willing to sit for 10 years and write off a loss on 90% of their portfolio.
- justonepost 9y ago
  It's a terrific metric for founders who would like an exit. Statistically, a smaller exit works out much better for a founder than an IPO. Doesn't work for the VC so much. Maybe YC is anti founder?
  - syedkarim 9y ago
    By small exit, I believe the parent is referring to an acquihire with a multi-year earn out for the founders. The point of such exits is to return investor capital.
    - justonepost 9y ago
      That's better than nothing. I've looked at these numbers before in other places. It's pretty obvious the average quality of either YC advice or founder is declining. I suspect SS (as a feeder) is an answer to this problem. Ok, point made below, possibility is that environment has got more startups in general and more competitive.
  - nopinsight 9y ago
    Now successful companies can provide "minor" liquidity events for founders and key employees. Depending on the level of success, the "minor" amount could still be larger than some exits. If anyone could inform us more about these pre-exit liquidity events, such as conditions and amount for different roles, many people would be interested.
namank 9y ago
"Conversion" rate, as defined here, doesn't make sense for YC's (or any startup investors') financial model. Valuation could be useful. Maybe track the change in the companys' valuation over time.
- hn_throwaway_99 9y ago
  But I don't think the point of this is to look at it from the investors' point of view. The point is to look at it from the founders' point of view. That is, as a founder, what's your basic (binary) chance of your company being a success? Founders don't get the chance to diversify across many companies - all of their eggs are in one (their own company's) basket. Thus, for them, a "percentage chance of a positive outcome" is an important metric.
  - namank 9y ago
    Then why doesn't the metric account for companies that have not shutdown and not exited, i.e. have grown beyond a certain value? Isn't that closer to the most favorable founder outcome?
    - hn_throwaway_99 9y ago
      That metric (grown beyond a certain value) is much harder to get for private companies, and private valuations are all pretty fuzzy anyway. Exits represent a real, verifiable, concrete event. I don't think his metric is perfect, and there are other ones (how many companies just shut down and returned what was left to investors) you can look at, but overall I think it's a good proxy for "what percentage of ycom companies have a positive outcome".
blacksmythe 9y ago
Not sure that the conversion rate is the most important metric. http://fortune.com/2014/05/05/each-new-y-combinator-class-worth-more-than-a-billion-dollars-president-says/ http://fortune.com/2014/05/05/each-new-y-combinator-class-wo... >> Y Combinator... creates more than a billion dollars of value with each class it graduates...
minimaxir 9y ago
[deleted]
- RA_Fisher 9y ago
  Not sure I understand. These are the default survival::survfit CIs. I'd be very interested to hear why they're a poor choice in this case (I don't think they are) https://stat.ethz.ch/R-manual/R-devel/library/survival/html/survfit.formula.html https://stat.ethz.ch/R-manual/R-devel/library/survival/html/... Also, I have to address the claim of small samples. There is no sample size inherently too small. We make estimates of uncertainty given information. We might wish to extract more certainty (statistical efficiency per n), but that's part of the art. Smaller sample sizes are more work for the statistician but not less valid in any way.
  - gwern 9y ago
    At least one issue is that since the survival curves are different for each batch (as established by your final 'Y Combinator conversion rates by vintage' section), your data is not i.i.d, the K-m curves are changing over time, and so the overall survival curve and its accompany CIs isn't really meaningful: it's sort of the weighted average of the nonparametric K-M curves of each batch further weighted by right-censoring of more recent batches... or something like that. You could try instead showing stratified curves by year, or directly modeling how the hazard rates change over real time. 'survival' claims to support the latter by the 'crazy clock' method (but when I tried doing that in https://www.gwern.net/Google%20shutdowns https://www.gwern.net/Google%20shutdowns I never could figure out how it worked). One thing I wonder is whether YC is scraping the bottom of the barrel and this is why the conversion rates get so much worse, or if it has become more difficult in general to be acquired; if the former, perhaps including the size of the batch as a covariate would be a meaningful test? Data quality might also be an issue from the other comments, and you could try auditing it by picking a few supposed non-exits and researching them intensively to estimate how much measurement error you have. It might also be interesting to see if the survival curves look more like type I, II, or III curves or what parametric distribution might fit best - looks like it could just be exponential/memoryless which is interesting.
justonepost 9y ago
Worth reading about the early exits movement: https://capitalandgrowth.org/page/unicorns https://capitalandgrowth.org/page/unicorns
blizkreeg 9y ago
I realize the conversation in the thread pertains to exits and funded companies. But I keep thinking why is there a general negative perception or often a sense of ignorance/neglect towards successful, ongoing, revenue-generating businesses (that haven't taken any or very little funding before reaching profitability) whereas even a minor exit (acqui-hire) will often put you in the metaphorical league of 'successful' founders?
- danieltillett 9y ago
  There are plenty of us here running profitable tech companies bopping along doing our thing and who don't have to deal with investors. While the perception is HC as a community is negative towards these sort of companies, the reality (at least from my experience) is it is pretty interested and supportive of such startups.
- mgalka 9y ago
  Agree, there seems to be a standard path that startups are "supposed" to follow. Though in this case, I imagine it is probably just because any other measure of success would be difficult to measure.
- justonepost 9y ago
  Where do you see that? I don't see that anywhere! Obviously, the higher the exit the more successful you are. However, exiting once and getting fyou money (e.g., PG and viaweb) makes a lot of sense. Once you have bank then you can spend the rest of your life working for an IPO. It's really up to you.
  - skinnymuch 9y ago
    The OP said: > whereas even a minor exit (acqui-hire) How is viaweb anything like that? First off. Compared to the avg modern startup, in pretty sure viaweb took little in funding so founders likely had most of the ownership. And they got $50M in stock of a company that would keep going up for another 1.5 years. And $50M back then is like $75M or more in today's value. That's not an acquire or even a small/minor exit. Also you said fyou money. A minor/small exit wouldn't give you that. A million or two isn't fyou money.
mgalka 9y ago
Surprising. I would have expected the success of YC startups to have increased with time -- more selective program, higher prestige value, bigger network of fellow YC startups to work with.
- onion2k 9y ago
  If your metric is exits then obviously newer companies are going to be 'worse'. It takes time to build something valuable.
sanbor 9y ago
I'm not familiar with the term "conversion rate" in this context. Conversion rate in marketing is someone that sees your ad and buys the product. For the post and the comments here conversion rate means rate of startups that have exited. From where does that meaning comes from? I googled but only found references to the marketing business.
mshrewd 9y ago
Well, you can't harsh these findings too hard. Considering yc is a pretty successful unicorn hunter, having many exiting startups in their portfolio is par for the course. I suppose the board at yc would rather see a bunch of exits and a few IPOs than one Uber and a bunch of "great ideas".
- icebraining 9y ago
  Considering yc is a pretty successful unicorn hunter Is it? Based on what? 0.73% of their companies are unicorns, is that a lot?
  - mshrewd 9y ago
    https://en.m.wikipedia.org/wiki/Unicorn_(finance) https://en.m.wikipedia.org/wiki/Unicorn_(finance)
    - icebraining 9y ago
      I know what an unicorn is.

148 points by RA_Fisher 9y ago

I found YCList to be out of date and inaccurate for the handful of companies I've looked for on there in the past. Not sure about its general overall accuracy though.

RA_Fisher 9y ago
It was accurate for all the exits I looked at. Would be cool to have a GitHub hosted source csv so we could all keep it accurate. It's pretty easy to re-run the analysis if anyone finds a mistake: https://github.com/statwonk/yc?files=1 https://github.com/statwonk/yc?files=1
- Judgmentality 9y ago
  YC publishes their own database for this. http://www.ycombinator.com/companies/ http://www.ycombinator.com/companies/
  - RA_Fisher 9y ago
    Awesome!! I had no idea. Edit: no exit info though. :(
  - sillysaurus3 9y ago
    No statuses (acquired, dead, etc) so it's not very useful except as a starting point for a useful database.
    - Judgmentality 9y ago
      The dead links are dead companies. But you are correct they don't identify exits.
nicholasjbs 9y ago
It's very inaccurate for my batch (S10) at least, for which I know of about twice as many exits as are listed. And as others have mentioned, the bigger challenge is that "exits" aren't a good metric for either gauging YC's success or for making founders rich. The companies that have "failed" to convert (i.e., exit) from S10 include Stripe, PagerDuty, and Docker.
- justonepost 9y ago
  Sure, but that error rate is probably relatively consistent. Probably exits aren't listed for earlier years either. Unless everyone is getting more secretive about exits, which is interesting in itself. Anyways, maybe someone from YC will comment. They know the truth and it's a worthwhile figure to publish.
  - lelandbatey 9y ago
    It is probably not that exits are more secret and more that since YC has scaled up the number of entrants, so the number of exits that people care to publisize becomes a smaller and smaller percent of the total number of members in a batch.

deleted 9y ago

[deleted]

vqc 9y ago

I think it'd be interesting to see the rate of success for rejected companies.

blazespin 9y ago

Your conclusion is odd about 15% over 10 years. The conversion rate is declining. Doesn't that mean ycombinator is failing? I mean worse than being stagnant, the value of ycombinator to startups is declining over time. The conversion rate is going to zero, if you ask me.

RA_Fisher 9y ago
Yeah, more recent vintages 2012-2015 have had much lower conversion rates. These batches will probably peak out closer to 10% after a decade.
randall 9y ago
The goal of a VC is not to have a high conversion rate... it's to find the big winners. Airbnb + other 'big wins' are 1 in 1500 or higher, but account for the vast majority of returns. YC started out with a sub-dozen class size. Now it has more than a hundred per batch. The conversion rate is going down, but the hit rate, which is all that matters, likely is going up. More hits with more failure == more success for yc.
- deleted 9y ago
  [deleted]
- orthoganol 9y ago
  You're excluding brand dilution as a function of class size. Knowing you are going to be one of 100+ companies going through the program each semester makes you less enthusiastic to join if you already have a very promising or successful company, and it makes it harder for VCs to determine signal; "It's from YC" stops being good enough. A big reason for the class size explosion is almost certainly for network effects, a fleet of ready customers who support YC and drive growth out of the gates. It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable?
  - toomuchtodo 9y ago
    > It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable? What would the attributes be of an elite founder?

paul 9y ago

This is a very poor metric. Companies running out of money and doing a small exit counts as "good" ("conversion") while a successful and growing company is interpreted as something negative (no exit).

seizethecheese 9y ago
Basically, you can't create an easy algorithm for something that's illegible.
marcell 9y ago
More relevant for employees who care about a liquidity event, even if it is at a lower price, vs. investors who are willing to sit for 10 years and write off a loss on 90% of their portfolio.
justonepost 9y ago
It's a terrific metric for founders who would like an exit. Statistically, a smaller exit works out much better for a founder than an IPO. Doesn't work for the VC so much. Maybe YC is anti founder?
- syedkarim 9y ago
  By small exit, I believe the parent is referring to an acquihire with a multi-year earn out for the founders. The point of such exits is to return investor capital.
  - justonepost 9y ago
    That's better than nothing. I've looked at these numbers before in other places. It's pretty obvious the average quality of either YC advice or founder is declining. I suspect SS (as a feeder) is an answer to this problem. Ok, point made below, possibility is that environment has got more startups in general and more competitive.
- nopinsight 9y ago
  Now successful companies can provide "minor" liquidity events for founders and key employees. Depending on the level of success, the "minor" amount could still be larger than some exits. If anyone could inform us more about these pre-exit liquidity events, such as conditions and amount for different roles, many people would be interested.

namank 9y ago

"Conversion" rate, as defined here, doesn't make sense for YC's (or any startup investors') financial model. Valuation could be useful. Maybe track the change in the companys' valuation over time.

hn_throwaway_99 9y ago
But I don't think the point of this is to look at it from the investors' point of view. The point is to look at it from the founders' point of view. That is, as a founder, what's your basic (binary) chance of your company being a success? Founders don't get the chance to diversify across many companies - all of their eggs are in one (their own company's) basket. Thus, for them, a "percentage chance of a positive outcome" is an important metric.
- namank 9y ago
  Then why doesn't the metric account for companies that have not shutdown and not exited, i.e. have grown beyond a certain value? Isn't that closer to the most favorable founder outcome?
  - hn_throwaway_99 9y ago
    That metric (grown beyond a certain value) is much harder to get for private companies, and private valuations are all pretty fuzzy anyway. Exits represent a real, verifiable, concrete event. I don't think his metric is perfect, and there are other ones (how many companies just shut down and returned what was left to investors) you can look at, but overall I think it's a good proxy for "what percentage of ycom companies have a positive outcome".

blacksmythe 9y ago

Not sure that the conversion rate is the most important metric. http://fortune.com/2014/05/05/each-new-y-combinator-class-worth-more-than-a-billion-dollars-president-says/ http://fortune.com/2014/05/05/each-new-y-combinator-class-wo... >> Y Combinator... creates more than a billion dollars of value with each class it graduates...

minimaxir 9y ago

[deleted]

RA_Fisher 9y ago
Not sure I understand. These are the default survival::survfit CIs. I'd be very interested to hear why they're a poor choice in this case (I don't think they are) https://stat.ethz.ch/R-manual/R-devel/library/survival/html/survfit.formula.html https://stat.ethz.ch/R-manual/R-devel/library/survival/html/... Also, I have to address the claim of small samples. There is no sample size inherently too small. We make estimates of uncertainty given information. We might wish to extract more certainty (statistical efficiency per n), but that's part of the art. Smaller sample sizes are more work for the statistician but not less valid in any way.
- gwern 9y ago
  At least one issue is that since the survival curves are different for each batch (as established by your final 'Y Combinator conversion rates by vintage' section), your data is not i.i.d, the K-m curves are changing over time, and so the overall survival curve and its accompany CIs isn't really meaningful: it's sort of the weighted average of the nonparametric K-M curves of each batch further weighted by right-censoring of more recent batches... or something like that. You could try instead showing stratified curves by year, or directly modeling how the hazard rates change over real time. 'survival' claims to support the latter by the 'crazy clock' method (but when I tried doing that in https://www.gwern.net/Google%20shutdowns https://www.gwern.net/Google%20shutdowns I never could figure out how it worked). One thing I wonder is whether YC is scraping the bottom of the barrel and this is why the conversion rates get so much worse, or if it has become more difficult in general to be acquired; if the former, perhaps including the size of the batch as a covariate would be a meaningful test? Data quality might also be an issue from the other comments, and you could try auditing it by picking a few supposed non-exits and researching them intensively to estimate how much measurement error you have. It might also be interesting to see if the survival curves look more like type I, II, or III curves or what parametric distribution might fit best - looks like it could just be exponential/memoryless which is interesting.

justonepost 9y ago

Worth reading about the early exits movement: https://capitalandgrowth.org/page/unicorns https://capitalandgrowth.org/page/unicorns

blizkreeg 9y ago

I realize the conversation in the thread pertains to exits and funded companies. But I keep thinking why is there a general negative perception or often a sense of ignorance/neglect towards successful, ongoing, revenue-generating businesses (that haven't taken any or very little funding before reaching profitability) whereas even a minor exit (acqui-hire) will often put you in the metaphorical league of 'successful' founders?

danieltillett 9y ago
There are plenty of us here running profitable tech companies bopping along doing our thing and who don't have to deal with investors. While the perception is HC as a community is negative towards these sort of companies, the reality (at least from my experience) is it is pretty interested and supportive of such startups.
mgalka 9y ago
Agree, there seems to be a standard path that startups are "supposed" to follow. Though in this case, I imagine it is probably just because any other measure of success would be difficult to measure.
justonepost 9y ago
Where do you see that? I don't see that anywhere! Obviously, the higher the exit the more successful you are. However, exiting once and getting fyou money (e.g., PG and viaweb) makes a lot of sense. Once you have bank then you can spend the rest of your life working for an IPO. It's really up to you.
- skinnymuch 9y ago
  The OP said: > whereas even a minor exit (acqui-hire) How is viaweb anything like that? First off. Compared to the avg modern startup, in pretty sure viaweb took little in funding so founders likely had most of the ownership. And they got $50M in stock of a company that would keep going up for another 1.5 years. And $50M back then is like $75M or more in today's value. That's not an acquire or even a small/minor exit. Also you said fyou money. A minor/small exit wouldn't give you that. A million or two isn't fyou money.

mgalka 9y ago

Surprising. I would have expected the success of YC startups to have increased with time -- more selective program, higher prestige value, bigger network of fellow YC startups to work with.

onion2k 9y ago
If your metric is exits then obviously newer companies are going to be 'worse'. It takes time to build something valuable.

sanbor 9y ago

I'm not familiar with the term "conversion rate" in this context. Conversion rate in marketing is someone that sees your ad and buys the product. For the post and the comments here conversion rate means rate of startups that have exited. From where does that meaning comes from? I googled but only found references to the marketing business.

mshrewd 9y ago

Well, you can't harsh these findings too hard. Considering yc is a pretty successful unicorn hunter, having many exiting startups in their portfolio is par for the course. I suppose the board at yc would rather see a bunch of exits and a few IPOs than one Uber and a bunch of "great ideas".

icebraining 9y ago
Considering yc is a pretty successful unicorn hunter Is it? Based on what? 0.73% of their companies are unicorns, is that a lot?
- mshrewd 9y ago
  https://en.m.wikipedia.org/wiki/Unicorn_(finance) https://en.m.wikipedia.org/wiki/Unicorn_(finance)
  - icebraining 9y ago
    I know what an unicorn is.