9 ms·

Y Combinator’s Paul Graham: We’re Looking For People Like Us

188 points by cwan 15y ago

zachallaun 15y ago
> "YC has invested a total of around $5 million" It's incredible to think of the value that has been added to so many companies for the price of a single large series A.
- patio11 15y ago
  It's amazing how much you can do when you start unbreaking things. Edit: That was excessively brief. So many parts about the whole investment cycle were broken. Some are marginally less broken now. Having a negotiation between a fresh engineering graduate who does not know what "pre-money valuation" means and the principal of a firm with 9 figures under management, and expecting that negotiation to produce an equitable or efficient outcome, is broken. Contacting angels serially is broken. Using who has attended a dinner party with your buddies as the most efficient screening method available for predicting skill with conversion rate optimization is broken. Investment outcomes where the company succeeds and founders do not end up rich is broken. The work culture in Silicon Valley is insanely broken. etc, etc YC has unbroken some of these. It turns out that an application process and a few weeks with a team scalably works as a decently efficient proxy for success. It turns out founders can be taught what pre-money valuation means and when they know this they get screwed less often. It turns out that spending half of one's time raising money is, as expected, just a deadweight loss.
  - lurker19 15y ago
    Your comment made me look at YC as an extended extremely thorough onsite interview, and it really clicked. But then I remembered that YC companies pitch demo day to a bunch of relative strangers-to-the-teams, not the YC investors themselves. Or do Demo Day investors get quality time with the teams during the season? Of course YC is overall a mix of interview and internship and summer camp and summer classes and more. The above is an attempt to think through one of the threads.
    - patio11 15y ago
      The angels get one extraordinarily significant bit about all presenters prior to the Demo Day presentation: they were in YC. That is a very significant bit relative to another similarly situated twenty-something which a gleam in their eye and prototype on their MacBook. It used to be implicit that some angels were saying "If you're good enough to be in YC, you're good enough to get investment from me." That is now 100% explicit for at least one deal. The vetting is getting outsourced, streamlined, and productized.
  - lurker19 15y ago
    This is a good point, but to your original point: "invest in me just because I impressed PG (plus more good reasons that may be true but the investor cannot see)" does not fall into your category of "unbreaking things" like the rest, especially at the start of YC. By now YC has certainly built institutional credibility, but even that can be broken if one day PG turns evil and sells out the brand like Pyrex or show or a grade-inflating college.
    - blacksmythe 15y ago
      >> turns evil and sells out the brand Doesn't seem like in his best interest. His present model has been incredibly successful, and what he is selling is a pre-screened class. I imagine that his applicant pool is becoming more and more qualified over time, giving him a graduating 'class' that is constantly improving.
      - btilly 15y ago
        His interest is actually the same as for any kind of certification, and that is to increase the number of people getting certified for as long as the certification is seen as having value. Thus it is a little scary that every Y-combinator class is bigger than the previous one. However he is also figuring out how to scale the model and provide more assistance. For example current graduates benefit from finer tuned screening, have more kinds of assistance available, better assistance (pg knows more than he did when he started), a bigger network to draw on, and save more otherwise wasted fundraising time. On balance the result is that classes seem to be getting better, not worse. However I guarantee that a point will be reached where the Y-combinator model can't keep improving and growing at the same time. At that point his personal financial interest will still be to keep growing the program. It will be interesting to see what happens then.
- michaelbuckbee 15y ago
  That's definitely true, but what that doesn't accurately capture is the time / mentorships and introductions that the YC team invests in all of their startups.
  - kylemathews 15y ago
    Ok, double that 5 million then to 10 million (a very generous assessment of their time). It's still an incredible return.
    - lurker19 15y ago
      5ish years for 5ish people, some of whom could draw quite a fine salary in the M&A division of a big company or hedge fund or VC firm, and $5M doesn't seem too very generous an estimate. It is close to dead-on.
      - btilly 15y ago
        All of whom have relevant knowledge and experience which tends to only be acquired by making enough money that they don't have to work again. Care to revise your estimate of the money it would take to hire them upwards?
askar_yu 15y ago
is there a video of this interview?
revorad 15y ago
Video: http://www.ustream.tv/recorded/14928956 http://www.ustream.tv/recorded/14928956
- deleted 15y ago
  [deleted]
- joeyespo 15y ago
  The video puts the quotes into a much better context.
- vegashacker 15y ago
  Thanks. What about the PG "office hours" that was supposed to happen? It sounded like it'd be really interesting to watch.
- gnufs 15y ago
  You can directly download the video file at http://ustream.vo.llnwd.net/pd14/0/1/14/14928/14928956/1_8193296_14928956.flv http://ustream.vo.llnwd.net/pd14/0/1/14/14928/14928956/1_819...
norswap 15y ago
Hey, there's a nice photo of the interviewer and interviewee shoes in there !
jonathanberger 15y ago
It's interesting to see pg's opinion about what is important in founders evolve over the years. When I applied to YC in late 2008, I was told by alumni that YC was "looking for smart people." Although he's talked about discipline and determination as early as May 2004 in his essays those words were most commonly found next to the words "talent," "skill," or "smart," as if the two qualities were equally important. Now it seems that YC has learned empirically that determination is the more important predictor of success (see intro to The Anatomy of Determination). A concern for YC might be: with this new emphasis on determination, it might become the next thing applicants try to "fake" to get accepted?
- RyanMcGreal 15y ago
  Maybe they've figured out that there are plenty of smart people, but not as many truly determined people. Determination then becomes the limiting factor once smartness has been established.
  - freshfunk 15y ago
    This reminds me of Outliers when Gladwell talks about concert violinists. "All of the violinists had started playing at around age five, and they all played about two or three hours a week during the first few years. However, around the age of eight, an important difference began to emerge in the amount of hours they each practiced. By age 20, the stars in the group had all totaled 10,000 hours of practice over the course of their lives; the “good” students had totaled 8,000 hours; and the future music teachers just over 4,000 hours. What the research suggested was that once you have enough talent to get into a top music school, the thing that distinguishes one performer from another is how hard he or she works." Being in Silicon Valley, I meet smart entrepreneurs all the time. Many of them come from places like Stanford. I think many pass the basic threshold of intelligence. In fact, this is more than passing considering that it doesn't take an elite education to create a good company IMO. Obviously, not all these people succeed and so the other factor behind success is likely to be what you said: determination.
  - deleted 15y ago
    [deleted]
kemiller 15y ago
This is probably the single most discouraging thing I've ever read about startups, but at least it's honest. Entitlement? "Naughtiness"? I think after Google, the idea got out there that it's possible to succeed by just being good. Technically and morally. This sounds like a return to status quo. Not saying he's wrong. He's almost certainly right, it's just depressing.
- tlb 15y ago
  The Google founders were more than simply good. They were determined to be #1. Most people aren't.
  - bad_user 15y ago
    You're saying it like faith is involved. Success is a combination of many factors, including but not limited to talent, luck, education, environment, persistence, social skills and ability to adapt. Some people are born with some of these factors, but the truth of the matter is that persistence matters most and if you are persistent most other things can fall into place or be balanced by other factors. Lots of people are as smart as the Google founders, lots of people have similar educational background. Superstar co-founders, much as athletes, are people too. The major difference between them and you is that they continuously try to do the best they can do and do not quit when the going gets tough.
  - geebee 15y ago
    They are now, but were they at the start? I remember a PG essay where the google guys were held up as an example of how even those developers with amazing potential can still be hesitant at the beginning, unsure of whether they want to or even can run a company. <edit> I think this is the quote I remember...: from http://paulgraham.com/notnot.html http://paulgraham.com/notnot.html "There's nothing wrong with being unsure. If you're a hacker thinking about starting a startup and hesitating before taking the leap, you're part of a grand tradition. Larry and Sergey seem to have felt the same before they started Google, and so did Jerry and Filo before they started Yahoo. In fact, I'd guess the most successful startups are the ones started by uncertain hackers rather than gung-ho business guys."
deleted 15y ago
[deleted]
JulianMorrison 15y ago
I like that idea of treating raters as candidate black-box predictors.
rubashov 15y ago
Is the sandals with socks thing some sort of deliberate middle-finger? In NYC on a stage, no less.
- metra 15y ago
  Birkenstocks with socks is okay: http://www.gq.com/style/style-guy/shoes/200309/birkenstocks http://www.gq.com/style/style-guy/shoes/200309/birkenstocks
  - rubashov 15y ago
    Birkenstocks are never OK.
    - pjscott 15y ago
      And fashion snobbery is? Birkenstocks are a kind of footwear. Lots of people like them. What's the point of getting affronted by this? Does it make the world anything other than worse?
      - samlevine 15y ago
        Clothing communicates information. Although this information is highly contextual, it is still information. Understanding that people judge you by how you dress isn't snobbery, it's accepting reality.
    - btilly 15y ago
      I use my footwear as a test. If you don't like me simply because I'm wearing comfortable sandals, then I wouldn't have liked you either and I've saved us both a spot of trouble.
      - thomasgerbe 15y ago
        He didn't say he didn't like him. He just doesn't like a facet of his fashion. I don't like Crocs or Uggs. I don't think people look good while wearing them. But that doesn't mean I don't like them.
citizenkeys 15y ago
Meh... Y Combinator is a potential source of start-up funding. Just as important, Y Combinator is not exclusive of any other source of funding. The difference between YC and other sources of funding is that YC funds a lot of companies twice a year rather than on an as-needed basis so the whole process is very eventful. As YC funds more companies, the value of the "We're a YC company" branding diminishes faster. Whatsmore, there's some curious economics in how YC companies do business with other YC companies. If the bulk of customers of YC companies are other YC companies, then you what you have is basically just a pyramid scheme. It's also kinda lame to hear Paul Graham play favorites and talk about how great Sam Altman is all the time.
- jdp23 15y ago
  Very good point about the economics of YC companies doing business with each other, and I would extend that to their investors' circles as well. It's worked so far ...
- justin 15y ago
  Most YC companies sell their initial product to other YC companies (whether it is consumer or enterprise) because that is what everyone does when they start out: sell to people in their personal social circles -- that's who you have access to as a nobody with no sales force that is just initially developing a product. This is hardly a conspiracy; as with all products sold to friends and family, the initial customer set will give the product a shot, but won't continue to use it long just because a friend sold it to them. YC companies that are successful break out of this initial customer base and sell to people outside the YC network. This is a must for any company that wants to grow past its founders. The YC brand has improved over time drastically despite the increase in companies. When I started in the first YC batch, there were only 8 companies but the only angels that could bother to show up to demo day were just some of PG's friends. Now, demo day is a who's who of SV investors, even though they have to sit through 5x as many presentations!
- chegra 15y ago
  I know you think you have a better way of running an accelerator and that is fine. At the same time, you can't look at someone who is successful and diminish their success with mere words. If you have a point to prove, do it with your own success and point out the flaws in this model through your model that is contradictory to his, but until such a time, please applause.
yumraj 15y ago
So at roughly a stake of 6% which YC takes, at a total $3 billion valuation, YC's stake is worth $180 million, from an investment of just $5 million. Not a bad payoff, surely to make a lot of Angels and VCs very envious.
- staunch 15y ago
  They have less than 6% of most of the most valued companies. They suffer dilution when these companies raised money. YC doesn't do follow-on rounds. Then again the companies will probably be worth even more by the time they reach liquidity.
natural219 15y ago
5 million seems like an incredibly low figure. Just goes to show the power of smart money.
clarebear 15y ago
"we’re not looking for people who did what they were told in life.” seems like a useful heuristic beyond just start ups.
magellan 15y ago
Everyone loves to hate on MBA's it seems. Have there been any yc companies started by mbas?
- nxrfe 15y ago
  yes - there are a few. See Custora and Fivestars Card
fleitz 15y ago
"The total value of YC companies is now around $3 billion — YC has invested a total of around $5 million." Damn, that's a good return, if you assume all positions were held and an 8% stake taken then that should yield $240 million, or an ROI (CAGR) of 116% since 2005. (This assumes the 5 million was all invested in 2005). Anyone have a good metric to factor dilution from future rounds?
- pg 15y ago
  We assume (probably conservatively) that we'll end up with 2% after dilution.
  - pja 15y ago
    Given that you can achieve 12x return on equity within YC, the obvious follow-on is: can YC itself scale, or does it depend on the few individuals currently running it for its success? I know other YC-a-like organisations have started up elsewhere: have any of them been running long enough to get any idea of long term success yet?
MenaMena123 15y ago
I like the video every time Paul Graham says "I dont know" "I dont know". Seems like a good guy. He's a kid himself, I like it.
6ren 15y ago
Dropbox, the startup that most easily came to pg's mind, began with a single founder, who didn't already have a relationship with his co-founders. It was also a great idea, well-worked out from the beginning. Not undermining the five points, just saying that they're more guidelines. It's crucial to look at the founders, because that's what does the work. Just as Catmull says of movies, a successful startup is made of many creative ideas; also, many implementation challenges, flexible adaptations and tests of determination that is very hard for one person to handle. A startup is an on-going process, not a one-off event.
ChuckFrank 15y ago
I think what Mr. Graham is saying is not only natural, but inspiring. Firstly success and opportunity generates itself, and the best way to generate that is to look for patterns. So if people like us are successful, then in looking for more success, we should look for people like us. Secondly, the fact that 'naughtiness' is one way to look outside of the status quo, doesn't diminish all the other ways of looking for solutions. Mr. Graham celebrates 'naughtiness', other 'like us' traits could include tenacity, perseverance, team oriented, data driven, and humility. So this is not about following the rules versus not following the rules, it's about being able to distinguish between necessary, even essential rules and problematic rules. Today Mr. Graham exhorts us to celebrate naughtiness in our quests, tomorrow we can celebrate mischievousness. There's plenty of time, and plenty of traits to success.
Geekette 15y ago
PG!!! Socks & sandals? Nooo... ;) Aside from the visual violation, nobody should hide their digits under socks in spring/summertime. All feet look good; nothing a good pedicure can't fix.
niqolas 15y ago
Consider the stats at the end of the article for a moment. The total value of YC companies is $3 billion. While, the total amount invested by YC is $5 million. Very impressive results when you consider that YC takes about a 6% stake for its initial investment. Congratulations to all involved.
6ren 15y ago
Determination, Flexibility, Imagination, Naughtiness, Friendship http://www.forbes.com/forbes/2010/1108/best-small-companies-10-y-combinator-paul-graham-ask-an-expert_print.html http://www.forbes.com/forbes/2010/1108/best-small-companies-...
- 6ren 15y ago
  ndiff
bhoung 15y ago
Would love to hear more about things you've learnt about rejecting companies which later go on to be successful beyond rtm marking harshly.

188 points by cwan 15y ago

> "YC has invested a total of around $5 million" It's incredible to think of the value that has been added to so many companies for the price of a single large series A.

patio11 15y ago
It's amazing how much you can do when you start unbreaking things. Edit: That was excessively brief. So many parts about the whole investment cycle were broken. Some are marginally less broken now. Having a negotiation between a fresh engineering graduate who does not know what "pre-money valuation" means and the principal of a firm with 9 figures under management, and expecting that negotiation to produce an equitable or efficient outcome, is broken. Contacting angels serially is broken. Using who has attended a dinner party with your buddies as the most efficient screening method available for predicting skill with conversion rate optimization is broken. Investment outcomes where the company succeeds and founders do not end up rich is broken. The work culture in Silicon Valley is insanely broken. etc, etc YC has unbroken some of these. It turns out that an application process and a few weeks with a team scalably works as a decently efficient proxy for success. It turns out founders can be taught what pre-money valuation means and when they know this they get screwed less often. It turns out that spending half of one's time raising money is, as expected, just a deadweight loss.
- lurker19 15y ago
  Your comment made me look at YC as an extended extremely thorough onsite interview, and it really clicked. But then I remembered that YC companies pitch demo day to a bunch of relative strangers-to-the-teams, not the YC investors themselves. Or do Demo Day investors get quality time with the teams during the season? Of course YC is overall a mix of interview and internship and summer camp and summer classes and more. The above is an attempt to think through one of the threads.
  - patio11 15y ago
    The angels get one extraordinarily significant bit about all presenters prior to the Demo Day presentation: they were in YC. That is a very significant bit relative to another similarly situated twenty-something which a gleam in their eye and prototype on their MacBook. It used to be implicit that some angels were saying "If you're good enough to be in YC, you're good enough to get investment from me." That is now 100% explicit for at least one deal. The vetting is getting outsourced, streamlined, and productized.
- lurker19 15y ago
  This is a good point, but to your original point: "invest in me just because I impressed PG (plus more good reasons that may be true but the investor cannot see)" does not fall into your category of "unbreaking things" like the rest, especially at the start of YC. By now YC has certainly built institutional credibility, but even that can be broken if one day PG turns evil and sells out the brand like Pyrex or show or a grade-inflating college.
  - blacksmythe 15y ago
    >> turns evil and sells out the brand Doesn't seem like in his best interest. His present model has been incredibly successful, and what he is selling is a pre-screened class. I imagine that his applicant pool is becoming more and more qualified over time, giving him a graduating 'class' that is constantly improving.
    - btilly 15y ago
      His interest is actually the same as for any kind of certification, and that is to increase the number of people getting certified for as long as the certification is seen as having value. Thus it is a little scary that every Y-combinator class is bigger than the previous one. However he is also figuring out how to scale the model and provide more assistance. For example current graduates benefit from finer tuned screening, have more kinds of assistance available, better assistance (pg knows more than he did when he started), a bigger network to draw on, and save more otherwise wasted fundraising time. On balance the result is that classes seem to be getting better, not worse. However I guarantee that a point will be reached where the Y-combinator model can't keep improving and growing at the same time. At that point his personal financial interest will still be to keep growing the program. It will be interesting to see what happens then.
michaelbuckbee 15y ago
That's definitely true, but what that doesn't accurately capture is the time / mentorships and introductions that the YC team invests in all of their startups.
- kylemathews 15y ago
  Ok, double that 5 million then to 10 million (a very generous assessment of their time). It's still an incredible return.
  - lurker19 15y ago
    5ish years for 5ish people, some of whom could draw quite a fine salary in the M&A division of a big company or hedge fund or VC firm, and $5M doesn't seem too very generous an estimate. It is close to dead-on.
    - btilly 15y ago
      All of whom have relevant knowledge and experience which tends to only be acquired by making enough money that they don't have to work again. Care to revise your estimate of the money it would take to hire them upwards?

askar_yu 15y ago

is there a video of this interview?

revorad 15y ago

Video: http://www.ustream.tv/recorded/14928956 http://www.ustream.tv/recorded/14928956

deleted 15y ago
[deleted]
joeyespo 15y ago
The video puts the quotes into a much better context.
vegashacker 15y ago
Thanks. What about the PG "office hours" that was supposed to happen? It sounded like it'd be really interesting to watch.
gnufs 15y ago
You can directly download the video file at http://ustream.vo.llnwd.net/pd14/0/1/14/14928/14928956/1_8193296_14928956.flv http://ustream.vo.llnwd.net/pd14/0/1/14/14928/14928956/1_819...

norswap 15y ago

Hey, there's a nice photo of the interviewer and interviewee shoes in there !

jonathanberger 15y ago

It's interesting to see pg's opinion about what is important in founders evolve over the years. When I applied to YC in late 2008, I was told by alumni that YC was "looking for smart people." Although he's talked about discipline and determination as early as May 2004 in his essays those words were most commonly found next to the words "talent," "skill," or "smart," as if the two qualities were equally important. Now it seems that YC has learned empirically that determination is the more important predictor of success (see intro to The Anatomy of Determination). A concern for YC might be: with this new emphasis on determination, it might become the next thing applicants try to "fake" to get accepted?

RyanMcGreal 15y ago
Maybe they've figured out that there are plenty of smart people, but not as many truly determined people. Determination then becomes the limiting factor once smartness has been established.
- freshfunk 15y ago
  This reminds me of Outliers when Gladwell talks about concert violinists. "All of the violinists had started playing at around age five, and they all played about two or three hours a week during the first few years. However, around the age of eight, an important difference began to emerge in the amount of hours they each practiced. By age 20, the stars in the group had all totaled 10,000 hours of practice over the course of their lives; the “good” students had totaled 8,000 hours; and the future music teachers just over 4,000 hours. What the research suggested was that once you have enough talent to get into a top music school, the thing that distinguishes one performer from another is how hard he or she works." Being in Silicon Valley, I meet smart entrepreneurs all the time. Many of them come from places like Stanford. I think many pass the basic threshold of intelligence. In fact, this is more than passing considering that it doesn't take an elite education to create a good company IMO. Obviously, not all these people succeed and so the other factor behind success is likely to be what you said: determination.
- deleted 15y ago
  [deleted]

kemiller 15y ago

This is probably the single most discouraging thing I've ever read about startups, but at least it's honest. Entitlement? "Naughtiness"? I think after Google, the idea got out there that it's possible to succeed by just being good. Technically and morally. This sounds like a return to status quo. Not saying he's wrong. He's almost certainly right, it's just depressing.

tlb 15y ago
The Google founders were more than simply good. They were determined to be #1. Most people aren't.
- bad_user 15y ago
  You're saying it like faith is involved. Success is a combination of many factors, including but not limited to talent, luck, education, environment, persistence, social skills and ability to adapt. Some people are born with some of these factors, but the truth of the matter is that persistence matters most and if you are persistent most other things can fall into place or be balanced by other factors. Lots of people are as smart as the Google founders, lots of people have similar educational background. Superstar co-founders, much as athletes, are people too. The major difference between them and you is that they continuously try to do the best they can do and do not quit when the going gets tough.
- geebee 15y ago
  They are now, but were they at the start? I remember a PG essay where the google guys were held up as an example of how even those developers with amazing potential can still be hesitant at the beginning, unsure of whether they want to or even can run a company. <edit> I think this is the quote I remember...: from http://paulgraham.com/notnot.html http://paulgraham.com/notnot.html "There's nothing wrong with being unsure. If you're a hacker thinking about starting a startup and hesitating before taking the leap, you're part of a grand tradition. Larry and Sergey seem to have felt the same before they started Google, and so did Jerry and Filo before they started Yahoo. In fact, I'd guess the most successful startups are the ones started by uncertain hackers rather than gung-ho business guys."

deleted 15y ago

[deleted]

JulianMorrison 15y ago

I like that idea of treating raters as candidate black-box predictors.

rubashov 15y ago

Is the sandals with socks thing some sort of deliberate middle-finger? In NYC on a stage, no less.

metra 15y ago
Birkenstocks with socks is okay: http://www.gq.com/style/style-guy/shoes/200309/birkenstocks http://www.gq.com/style/style-guy/shoes/200309/birkenstocks
- rubashov 15y ago
  Birkenstocks are never OK.
  - pjscott 15y ago
    And fashion snobbery is? Birkenstocks are a kind of footwear. Lots of people like them. What's the point of getting affronted by this? Does it make the world anything other than worse?
    - samlevine 15y ago
      Clothing communicates information. Although this information is highly contextual, it is still information. Understanding that people judge you by how you dress isn't snobbery, it's accepting reality.
  - btilly 15y ago
    I use my footwear as a test. If you don't like me simply because I'm wearing comfortable sandals, then I wouldn't have liked you either and I've saved us both a spot of trouble.
    - thomasgerbe 15y ago
      He didn't say he didn't like him. He just doesn't like a facet of his fashion. I don't like Crocs or Uggs. I don't think people look good while wearing them. But that doesn't mean I don't like them.

citizenkeys 15y ago

Meh... Y Combinator is a potential source of start-up funding. Just as important, Y Combinator is not exclusive of any other source of funding. The difference between YC and other sources of funding is that YC funds a lot of companies twice a year rather than on an as-needed basis so the whole process is very eventful. As YC funds more companies, the value of the "We're a YC company" branding diminishes faster. Whatsmore, there's some curious economics in how YC companies do business with other YC companies. If the bulk of customers of YC companies are other YC companies, then you what you have is basically just a pyramid scheme. It's also kinda lame to hear Paul Graham play favorites and talk about how great Sam Altman is all the time.

jdp23 15y ago
Very good point about the economics of YC companies doing business with each other, and I would extend that to their investors' circles as well. It's worked so far ...
justin 15y ago
Most YC companies sell their initial product to other YC companies (whether it is consumer or enterprise) because that is what everyone does when they start out: sell to people in their personal social circles -- that's who you have access to as a nobody with no sales force that is just initially developing a product. This is hardly a conspiracy; as with all products sold to friends and family, the initial customer set will give the product a shot, but won't continue to use it long just because a friend sold it to them. YC companies that are successful break out of this initial customer base and sell to people outside the YC network. This is a must for any company that wants to grow past its founders. The YC brand has improved over time drastically despite the increase in companies. When I started in the first YC batch, there were only 8 companies but the only angels that could bother to show up to demo day were just some of PG's friends. Now, demo day is a who's who of SV investors, even though they have to sit through 5x as many presentations!
chegra 15y ago
I know you think you have a better way of running an accelerator and that is fine. At the same time, you can't look at someone who is successful and diminish their success with mere words. If you have a point to prove, do it with your own success and point out the flaws in this model through your model that is contradictory to his, but until such a time, please applause.

yumraj 15y ago

So at roughly a stake of 6% which YC takes, at a total $3 billion valuation, YC's stake is worth $180 million, from an investment of just $5 million. Not a bad payoff, surely to make a lot of Angels and VCs very envious.

staunch 15y ago
They have less than 6% of most of the most valued companies. They suffer dilution when these companies raised money. YC doesn't do follow-on rounds. Then again the companies will probably be worth even more by the time they reach liquidity.

natural219 15y ago

5 million seems like an incredibly low figure. Just goes to show the power of smart money.

clarebear 15y ago

"we’re not looking for people who did what they were told in life.” seems like a useful heuristic beyond just start ups.

magellan 15y ago

Everyone loves to hate on MBA's it seems. Have there been any yc companies started by mbas?

nxrfe 15y ago
yes - there are a few. See Custora and Fivestars Card

fleitz 15y ago

"The total value of YC companies is now around $3 billion — YC has invested a total of around $5 million." Damn, that's a good return, if you assume all positions were held and an 8% stake taken then that should yield $240 million, or an ROI (CAGR) of 116% since 2005. (This assumes the 5 million was all invested in 2005). Anyone have a good metric to factor dilution from future rounds?

pg 15y ago
We assume (probably conservatively) that we'll end up with 2% after dilution.
- pja 15y ago
  Given that you can achieve 12x return on equity within YC, the obvious follow-on is: can YC itself scale, or does it depend on the few individuals currently running it for its success? I know other YC-a-like organisations have started up elsewhere: have any of them been running long enough to get any idea of long term success yet?

MenaMena123 15y ago

I like the video every time Paul Graham says "I dont know" "I dont know". Seems like a good guy. He's a kid himself, I like it.

6ren 15y ago

Dropbox, the startup that most easily came to pg's mind, began with a single founder, who didn't already have a relationship with his co-founders. It was also a great idea, well-worked out from the beginning. Not undermining the five points, just saying that they're more guidelines. It's crucial to look at the founders, because that's what does the work. Just as Catmull says of movies, a successful startup is made of many creative ideas; also, many implementation challenges, flexible adaptations and tests of determination that is very hard for one person to handle. A startup is an on-going process, not a one-off event.

ChuckFrank 15y ago

I think what Mr. Graham is saying is not only natural, but inspiring. Firstly success and opportunity generates itself, and the best way to generate that is to look for patterns. So if people like us are successful, then in looking for more success, we should look for people like us. Secondly, the fact that 'naughtiness' is one way to look outside of the status quo, doesn't diminish all the other ways of looking for solutions. Mr. Graham celebrates 'naughtiness', other 'like us' traits could include tenacity, perseverance, team oriented, data driven, and humility. So this is not about following the rules versus not following the rules, it's about being able to distinguish between necessary, even essential rules and problematic rules. Today Mr. Graham exhorts us to celebrate naughtiness in our quests, tomorrow we can celebrate mischievousness. There's plenty of time, and plenty of traits to success.

Geekette 15y ago

PG!!! Socks & sandals? Nooo... ;) Aside from the visual violation, nobody should hide their digits under socks in spring/summertime. All feet look good; nothing a good pedicure can't fix.

niqolas 15y ago

Consider the stats at the end of the article for a moment. The total value of YC companies is $3 billion. While, the total amount invested by YC is $5 million. Very impressive results when you consider that YC takes about a 6% stake for its initial investment. Congratulations to all involved.

6ren 15y ago

Determination, Flexibility, Imagination, Naughtiness, Friendship http://www.forbes.com/forbes/2010/1108/best-small-companies-10-y-combinator-paul-graham-ask-an-expert_print.html http://www.forbes.com/forbes/2010/1108/best-small-companies-...

6ren 15y ago
ndiff

bhoung 15y ago

Would love to hear more about things you've learnt about rejecting companies which later go on to be successful beyond rtm marking harshly.