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Is Y Combinator Obsolete (For the funding portion at least)?
After applying, getting called in, and finally being turned down for an early round of YC funding, I emailed Paul Graham last spring about a new project I was working on.. I already had a prototype and some Alpha testers and was looking to form a company so I asked Paul if I could get YC a la carte.. Hold the cash and the move to the Bay area.. Extra on the top lawyers and maybe sprinkle on some sage advice.. Paul said the project looked interesting and encouraged me to apply to the formal program as the YC system only scaled when done in batches..
So I applied, (lonely single founder at the time) and got back a response turning down the project.. At the end of the email was the following:
"We're trying to get better at this, but it's practically certain that groups we rejected will go on to create successful startups. If you do, we'd appreciate it if you'd send us an email telling us about it; we want to learn from our mistakes."
Now of course, I plan to send Paul that email one of these days, but the recent Kickstarter phenomenom has me wondering if it is my project that they got wrong, or is the whole idea even necessary any more?
A little networking and I got a good firm to defer our legal fees for company formation and I'm not too far removed from some pretty successful entrpreneurs who offer sound advice whenever I ask, so I think that just might happen naturally.. But now with Kickstarter, we were able to raise $6k and counting with no strings or equity lost: http://kck.st/9Kgf6O.. And this is from the only investors that really count.. Users!
What do you all think?
- bl4k 16y agoOne aspect of this is that PG and YC have shown themselves to be very understanding investors. I would rather sell stock to somebody understanding in that way than to deal with a multitude of people who I don't know telling me what I am doing right or wrong. The first time I raised money I made the mistake of not knowing two of the investors well enough, but I took their money anyway and they ended up being complete assholes. I will never live that decision down, because of how much damage and wasted time it caused (much more than what they themselves invested). I have no experience with Kickstarter, but you could see some examples of that with Diaspora - people putting pressure on the company to go one way or another because 'hey, we funded this thing! listen to us!'. It sounds like potentially having hundreds of asshole investors (I know they don't get stock, but that doesn't effect some persons right to think and behave like they do). YC is also a shortcut into the SV network, which can be very important depending on your plans for the company. The experience PG et al bring etc. doesn't need repeating. So based on what I know and what I saw with Diaspora (YMMV etc.) I would definitely choose YC over KS if I was raising money.
- modkit 16y agoVery good points.. As far as the hundreds of annoying investors, I never really thought of it.. But I guess that happens anyway whenever you take any customer's money.. Except in the Diaspora case, they took the money in advance of development with an expectation that what they were building would satisfy each user which is an impossible scenario from the outset.. Plus the project was open source which I don't think is exactly the norm for a YC investment.. But I think in the end, Diaspora is a fluke.. Statistically and Culturally.. Statistically, it's outcome was not representative of a typical Kickstarter Funding process.. Culturally it was the result of some backlash against Facebook.. That means some of the backers were already pissed off and the open source focus means the some were likely quite vocal to begin with.. I think the combination of these factors and the fact that the funders came in before anything was built leads to the scenario you mention.. Our product was already quite built out before we came to kickstarter and users were pledging for Alpha access and other near future products.. Interestingly enough, we got a front page post on Sparkfun.com today and there were a few non-backers who had something to say about how we should build our project.. The fact that it IS already a project means that they can criticize without making the mistake of backing us and feeling swindled that we don't share their vision.. A few times, the complaint was that we should turn our web based product open source even when they criticized our design.. I think complainers will complain no matter what, and the question of ownership and control is very important as in the case of your investor..
- wmf 16y agoYC hasn't been about the funding for a while, so saying the funding part of YC is obsolete doesn't mean much. The "convincing people that it's not that hard to start a startup" part of YC is also obsolete now that people are shouting this message from the rooftops, but people are still applying like crazy. Also, good for you that you got people to donate $6,000 to your for-profit company, but if that happens too often it's going to create a backlash.
- modkit 16y agoOf course.. I applied so it's clear there is a perceived value.. But putting a little rubber to the road (which is a good exercise for any entrepreneur) and each piece of the YC package can be had a la carte.. We have advice, early users, legal counsel, and some "User Money" (worth 5x investor money in most cases)
- modkit 16y agoOh and they didn't donate.. They get access now and in some cases also a presale.. This more than anything proves user demand which is so important to flush out early.. It's funny you wrote that they donated.. One of the sparkfun commenters said he would not fund a for profit project.. I hope he has a farm because he wouldn't be able to buy much ;)