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I think you're right on many counts. As far as YC is concerned, I want to emphasize that I have no problem with what they do. It's an engineer's approach to e

I think you're right on many counts. As far as YC is concerned, I want to emphasize that I have no problem with what they do. It's an engineer's approach to entrepreneurship: quantify, then scale. I get that. I respect it. What concerns me, however, is the broader market trend that it represents. Like any successful business, YC spawned copycats. YC alone has funded 316 companies, and the copycats have funded many more. At that scale, you simply aren't betting on world-changers. You're betting on flippers. Flippers are your bread and butter; they're what keep the incubators going. It's the $20MM acquisitions that keep you going for the next round, and that make kids rich. Here on HN we see a fair number of stories of the form, "We demo'd as x, pivoted to y, and sold to z for $25MM 18 months later. Here's how." I'm happy for the founders' success, and I'm happy for YC's success, but it all seems so...shallow. There's no substance there. Granted, those involved in the deal would likely disagree, but it feels like the commoditization of startups have cheapened them and changed the motivations of founders. The trend I see is a broad one and not limited to one company or YC as a whole, but the ecosystem in general. It just leaves a bad taste in my mouth.

projectileboy 15y ago
If we view "flipping" as simply big companies paying for features and/or people that they would have spent more time and/or money building themselves, then why is this bad? Seems more sensible than the offshore outsourcing model that big companies have tried previously.
6ren 15y ago
I don't think you need to worry. In the bigger picture, there are many more startups than there used to be (and therefore more "deep" ones, in absolute terms). It's partly due to the cheapness of the technology, though there's also been a social/economic/political shift away from the paternal corporation; and YC itself also definitely helps. Even if most of the startups are shallow (I'm not convinced that's true, but just for the purposes of argument), I think that there are now more "deep" startups than there used to be. As for the startups that don't eventually hit on a real problem to solve, or somehow don't manage to execute, or get blinded-sided by a competitor or otherwise luck out - is it really worse for society that they do this, instead of working at a law firm, or merchant bank, or financial analyst etc? Might they not learn something valuable, that will later benefit society? Can you imagine better training, for initiative, getting things done, working with others, exercising self-discipline than a startup? But I think the bottom line is that if they are getting $25MM payouts, then that shows that our market society is valuing what they're doing. Now, possibly the acquirers are wrong; but that is a fault of our society, not of the startups. And if the acquirers are wrong, it will likely be corrected before long. And, if it isn't, we economically we will be overtaken by a society with healthier, more grounded values - perhaps China. The problem is with "what buyers want", not with the startups who make it. BTW: I totally prefer meaningful startups - both in a technical sense, and in a making things better sense. (e.g. HP put making money as a means to fund technical contribution; and it worked out well for them.) I think that ultimately they will have the greater success, so I think it will all work out in the end.
pg 15y ago
At that scale, you simply aren't betting on world-changers. You're betting on flippers. Flippers are your bread and butter That's false. Effectively all our returns come from the big successes. HR acquisition valuations are rounding error by comparison. Which is why for example when I recently estimated the total value of all the companies we'd funded, I ignored the bottom 90%.
- redthrowaway 15y ago
  At a 6% stake, even a $15MM acquisition leaves you with $900k, or enough money to fund 50 new startups (almost a full YC round). Are you saying these acquisitions have little to no impact on your bottom line?
  - pg 15y ago
    Companies won't pay 15m for HR acquisitions. Try 3-5. But yes, statistically, even 15m exits don't affect our returns much. (Your hypothetical case is also off, because you forget dilution and operating expenses. A 15m acquisition would fund less than a third of a batch.)
- fijiaaron 15y ago
  People also need to realize that Y Combinator is really just a monetization of Paul Grahams blog that he has worked very hard at for over a decade. There haven't been any serious companies (or acquisitions) created through YC as yet. What's the most successful YC company? reddit/hackernews -- which is either an extension of Paul's blog or a digg/slashdot clone depending on how you look at it, and either way, a content delivery website. What Y Combinator has been successful at is attracting money to Y Combinator -- in other words, banking on Paul's reputation established through his long-running blog.

projectileboy 15y ago

If we view "flipping" as simply big companies paying for features and/or people that they would have spent more time and/or money building themselves, then why is this bad? Seems more sensible than the offshore outsourcing model that big companies have tried previously.

6ren 15y ago

I don't think you need to worry. In the bigger picture, there are many more startups than there used to be (and therefore more "deep" ones, in absolute terms). It's partly due to the cheapness of the technology, though there's also been a social/economic/political shift away from the paternal corporation; and YC itself also definitely helps. Even if most of the startups are shallow (I'm not convinced that's true, but just for the purposes of argument), I think that there are now more "deep" startups than there used to be. As for the startups that don't eventually hit on a real problem to solve, or somehow don't manage to execute, or get blinded-sided by a competitor or otherwise luck out - is it really worse for society that they do this, instead of working at a law firm, or merchant bank, or financial analyst etc? Might they not learn something valuable, that will later benefit society? Can you imagine better training, for initiative, getting things done, working with others, exercising self-discipline than a startup? But I think the bottom line is that if they are getting $25MM payouts, then that shows that our market society is valuing what they're doing. Now, possibly the acquirers are wrong; but that is a fault of our society, not of the startups. And if the acquirers are wrong, it will likely be corrected before long. And, if it isn't, we economically we will be overtaken by a society with healthier, more grounded values - perhaps China. The problem is with "what buyers want", not with the startups who make it. BTW: I totally prefer meaningful startups - both in a technical sense, and in a making things better sense. (e.g. HP put making money as a means to fund technical contribution; and it worked out well for them.) I think that ultimately they will have the greater success, so I think it will all work out in the end.

pg 15y ago

At that scale, you simply aren't betting on world-changers. You're betting on flippers. Flippers are your bread and butter That's false. Effectively all our returns come from the big successes. HR acquisition valuations are rounding error by comparison. Which is why for example when I recently estimated the total value of all the companies we'd funded, I ignored the bottom 90%.

redthrowaway 15y ago
At a 6% stake, even a $15MM acquisition leaves you with $900k, or enough money to fund 50 new startups (almost a full YC round). Are you saying these acquisitions have little to no impact on your bottom line?
- pg 15y ago
  Companies won't pay 15m for HR acquisitions. Try 3-5. But yes, statistically, even 15m exits don't affect our returns much. (Your hypothetical case is also off, because you forget dilution and operating expenses. A 15m acquisition would fund less than a third of a batch.)
fijiaaron 15y ago
People also need to realize that Y Combinator is really just a monetization of Paul Grahams blog that he has worked very hard at for over a decade. There haven't been any serious companies (or acquisitions) created through YC as yet. What's the most successful YC company? reddit/hackernews -- which is either an extension of Paul's blog or a digg/slashdot clone depending on how you look at it, and either way, a content delivery website. What Y Combinator has been successful at is attracting money to Y Combinator -- in other words, banking on Paul's reputation established through his long-running blog.