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Paul Graham: Why Y Combinator Replaces The Traditional Corporation

215 points by turoczy 15y ago

djnliung 15y ago
YC has nothing to do with replacing the traditional corporation. To do that YC companies would have to have sustainable business models and actually make a profit. How many YC companies have ever made a real profit before being bought? How is the YC model sustainable without existing large corporations like Google or Yahoo or Linkedin waiting to buy out the startups? YC is about grooming startups ready to be bought out in talent acquisitions after a period of rapid growth, not about creating sustainable businesses with viable products.
- jot 15y ago
  YC has the sustainable business model and does make a profit. How many teams within traditional corporations are profitable? How many new products that traditional corporations launch are profitable?
  - djnliung 15y ago
    YC can't replace the traditional corporation when the traditional corporation is the customer that buys their product.
    - jot 15y ago
      The most successful (profitable) YC "products", Heroku, Dropbox and Airbnb, have very sound business models with tens of thousands of customers that are not "traditional corporations".
      - ryanisinallofus 15y ago
        Heroku was acquired and is an excellent example of YC startups being the product traditional corporations purchase.
        runako 15y ago
        Is the fact that Heroku was acquired the rationale for calling it the 'product' purchased by 'traditional corporations'? If so, what threshold would you apply for when a company can be considered successful before it gets acquired? As companies of all sizes get acquired, aren't they all then 'product' that wasn't successful until a real company bought them?
- rewind 15y ago
  Did you even read the article? The "replacement" part is replacing the large internal network of connections at a company with the network of connections to YC alumni.
  - paulhauggis 15y ago
    I think we can say this if any of the YC companies are still around in 10 years and profitable.
- pg 15y ago
  I remember people saying things like this in the first few years but it's surprising to encounter it now. If people who think we're in the business of grooming startups for HR acquisitions stopped to do the math, they'd realize we'd be acting against our own interests if we focused on that. Essentially all the returns in startup investing (for us as for any investor) come from the big successes. Whereas we often make zero from early acquisitions.
  - gsharm 15y ago
    Big successes and sustainable businesses aren't necessarily the same thing. This is an important distinction because a sustainable business is a viable option for many, and "big success" isn't. And the biggest ones are going to leapfrog such schemes anyway. It's like American Idol for programmers. What you're doing is interesting, but it's questionable whether it's promoting the right values.
    - robryan 15y ago
      Seems more like the big goal is to become a big success in their own right. If that doesn't come about then either a fairly big exit or a talent acquisition is much better for all parties than calling it quits.
    - pg 15y ago
      Big successes and sustainable businesses aren't necessarily the same thing. I'm not sure what you mean by "sustainable businesses," but if you mean profitable businesses, big successes necessarily are that.
      - enjo 15y ago
        Is that true? Was Photobucket or MySpace a "big success"? They certainly sold for a lots of money, but profitable was never a strong suit was it?
        pg 15y ago
        By big successes I mean companies big enough to go public.
- justin 15y ago
  The comments in this thread are painful and seem to be based on a lack of understanding of investor motivations and basic spreadsheet math. YC (and the rest of Silicon Valley)'s biggest successes are companies that make money and have real, innovative business models and products. Talent acquisitions almost always happen before companies reach this stage, and while they get a lot of attention because they are "news", they aren't where investors make the most money. Investors aren't investing in technology companies in the hopes they get acquired for $10m in Google or Facebook stock -- they are looking for large sustainable companies that generate revenue (and profits). The difference between YC and traditional investors is that YC doesn't block founders from taking talent acquisitions, which may be one reason it seems like there are more of them.
jot 15y ago
Coworking communities around the world are having a very similar effect.
jkeel 15y ago
I'd like to add that I think and hope that the trend is for traditional corporations to keep getting replaced by a larger number of lean companies (where's it's possible). The larger the corporation (by total employee count) the less nimble they become. I think companies consisting of a small number of highly skilled individuals can focus on what they do best and work with other small companies on the work they need. For example, traditional corporations I've worked for have had large HR departments. Now where I work (with 40 employees) we use another company to handle most of the HR functions. This allows us to focus on our core business model.
- cop359 15y ago
  "The larger the corporation (by total employee count) the less nimble they become." That's because of antiquated management structures. Look at Gore and Associates (makers of Goretex) for a modern corporate structure. Elements of a corporation should be almost completely independent and the only reason they are part of one entity is because of synergies and cooperation. To give a toy example, McDonalds might grow and slaughter their own cows because they can better place them near their distribution facilities. Buying from a third party might create unnecessary overhead. I'm sorta oversimplifying things, but I'd recommend reading "Re-Creating the Corporation" by the late Russell Ackoff to appreciate why corporations exist (and why sometimes they shouldn't) http://www.amazon.com/Re-Creating-Corporation-Design-Organizations-Century/dp/0195123875/ref=sr_1_1?ie=UTF8&qid=1329944656&sr=8-1 http://www.amazon.com/Re-Creating-Corporation-Design-Organiz...
  - jkeel 15y ago
    Thanks for the book reference. Looks interesting. If it's one thing I believe it's that there is not a single approach to anything. This seems like a good book for me I do believe there are things that large corporations can do well and they do have their place. I hope that with technology advancements smaller companies can compete is some spaces traditionally well suited to these larger organizations.
  - gregpilling 15y ago
    In-n-Out Burgers does run their own butcher department. The company structure worked pretty well too, since the company did not stumble when a big chunk of the executive team and the CEO died in a plane crash. see http://fora.tv/2009/07/14/In-N-Out_Burger_Stacy_Perman#History_of_Tragedy_Behind_Iconic_In-N-Out_Burger_Chain http://fora.tv/2009/07/14/In-N-Out_Burger_Stacy_Perman#Histo...
rdl 15y ago
Didn't Ronald Coase's theory of the firm predict this, right after the first world war? (As transaction costs (search costs, costs to contract, costs to outsource, etc.) go down, optimal firm size goes down. In an efficient market for contracting, like IT, tiny startups turn into long-term profitable small-headcount companies (dropbox has, what, 70 people?). In inefficient markets, you end up with huge or state-owned companies, like in natural resource exploitation or the third world.)
- pg 15y ago
  I've been told Coase not only foresaw the present trend towards more, smaller companies but also figured out the underlying dynamics. But I admit I haven't actually gotten around to reading "The Nature of the Firm."
  - davidw 15y ago
    He also predicted the first Gulf War, the election of Obama and the Great Fire of London. Wait, wrong guy... In all seriousness though, while the technology factors certainly enable some 'shrinkage' of the firm, human factors change less, which to me indicates that YC like agglomerations will not replace the corporation in many circumstances. In other words, it's easier to find people these days, but as contractors, are they really still going to slog it out for a company day in and day out for years? Most people out there are not like YC founders, would be my bet, and are reasonably happy with their 9/5 jobs, and with not having to hustle to find the next gig. On the positive side, these people will also retain the tacit knowledge inherent in many human activities, and provide a sense of continuity that a shifting network might have trouble fostering outside a small core. Apple, for instance, has 60,000+ employees, according to the web page - that's not what I'd consider a small core + network, even though they certainly outsource a lot. So... trend, yes, but fairly slow once the low-hanging fruit that tech can provide has been integrated. The other big question I have in this vein is whether it will remain so cheap to create a company, or if it's an anomaly, and in the future more capital will be required for anything serious. My guess is that the long term is towards cheaper, but who knows what may happen. BTW, Wikipedia says it's just an article, and here's the summary for those interested: http://en.wikipedia.org/wiki/The_Nature_of_the_Firm http://en.wikipedia.org/wiki/The_Nature_of_the_Firm
ccc3 15y ago
This was an interesting point in the context of comparing YC to a large company: Comparing himself to an air-traffic controller, Graham says much of his time is spend making introductions and helping the YC community solve problems within the network Most of the large companies I've worked with are missing somebody in the "air-traffic controller" role. It can be very difficult for individual employees to understand all the resources that are available within the company, or who they should contact with a particular question. YC might actually have an advantage in this area.
- jpdoctor 15y ago
  > Most of the large companies I've worked with are missing somebody in the "air-traffic controller" role. I've worked for 3 large companies, and have had the opposite experience. The problem is that everyone is trying to be an air-traffic controller. So much so, that honest work is being avoided.
  - deleted 15y ago
    [deleted]
  - velshin 15y ago
    Deep corporate hierarchies encourage politics and associated power struggles. Part of moving up in that environment is to have others perceive you as an "air-traffic controller" of a segment of the company, a master of your domain. This sometimes results in people in "manager" roles with 1 or 2 direct reports, where the "manager" does no actual work, but spends inordinate amounts of time coordinating with other teams or politicking. Honest work avoided. I'm not excusing that behaviour but if you've spent enough time at a big company, you'll see motivations for it. Contrast that to pg's air-traffic controller role in the YC network, providing value to all the startup people he connects. It will be interesting to see how well pg's positive influence scales as YC continues to grow.
  - yajoe 15y ago
    One reason for this is that many companies review and reward employees based on their "influence" or "visibility" -- what better way to maximize both than be in the air-traffic controller role? I can attest to this firsthand at both Microsoft and IBM.
heyrhett 15y ago
Being part of community of talented people is a great thing. In addition to having a large pool of people to ask for help though, I think a great benefit is that YC companies help each other out without being directly asked. For example, other YC companies might try to make a conscious effort to use Hipmunk to buy flights, or Airbnb. In addition to trying to use each others' services, YC companies will probably often give each other feedback about what could be improved about each other's services. Compare this to the alternative of trying to launch a new service, gain customers, and get feedback on your own.
praxeologist 15y ago
I like the idea of replacing traditional corporations, and YC is certainly good at what they do, but how much of this success is just a result of internet startups having no physical products? I'd like to see more places like Incubation Station come about - http://www.theincubationstation.com http://www.theincubationstation.com - or hear about similar incubators for consumer products if anyone knows any.
Rajiv_N 15y ago
"Graham is the cofounder of Y Combinator, the investment firm that plugs seed money ($18,000 on average) into early stage startups in exchange for mentorship and access to its ever-growing network of alumni." Maybe I'm not understanding this right, but the phrase "in exchange for", seems like it should have read "in addition to". Can someone please clarify?
- gigantor 15y ago
  Maybe not the most clear sentence since it leaves out the equity part; it's conveying that it provides seed money plus mentorship/networking in exchange for a modest equity from the startup. Could be better organized as: "... Y Combinator, the investment firm that plugs seed money (~$18,800) into early stage startups and offers mentorship and access to its ever-growing network of alumni, in exchange for a modest equity (~7%) of the startup."
  - Rajiv_N 15y ago
    Aha! Thanks for the explanation. Now I get it.
jacques_chester 15y ago
The description given reminds me somewhat of Keiretsu, the successors of the old Zaibatsu. The Keiretsu are families of companies interlocked through personal relationships between executives, mutual interlocking share holdings and secondment of workers -- tied together around a bank or finance company. I believe KPCB were referred to as a Keiretsu for encouraging their portfolio to buy from each other -- eg, getting Netscape to buy servers from Sun etc.
- jpdoctor 15y ago
  > I believe KPCB were referred to as a Keiretsu There was a time when it was fashionable to imitate Japanese business, so VCs actively pursued this type of PR. So it's more likely that KPCB issued PR about itself calling itself a Keiretsu, having the added benefit of seeming much larger than they are. (The Keiretsu were large conglomerations.) Now, not so much of that PR is being created. EDIT: I thought I remembered them self-referencing keiretsu. This is from 2001, look at the bottom: http://web.archive.org/web/200012122131/http://www.kpcb.com/ http://web.archive.org/web/200012122131/http://www.kpcb.com/? Arrogance was a strong suit. Last I knew, IRRs from funds in that timeframe were negative and that included Google!.
  - jacques_chester 15y ago
    Interesting point. I was a kid in the 80s, but I certainly remember the mild hysteria about needing to be More Like The Japanese.
  - jacques_chester 15y ago
    Following your edit, I find it remarkable that they referred to themselves as Keiretsu well into the "Lost Decade".
neilk 15y ago
Maybe I don't know what it's like to be a YC founder, but couldn't you say the exact same thing about just being in San Francisco? What's more, the SF network extends to people who are not just in startups, but also established companies, universities, and even unrelated things (like the Because We Can people, who are making a business out of custom CNC products.) Or do YC people collaborate more closely than that? Give up their time more freely to a fellow YC'er?
- kapilkale 15y ago
  I feel a personal obligation to meet with any YC company that wants to meet with me, the same way I would if a good friend asked me to meet with someone. I've taken enough from that network that I want to give back. If someone cold-emails me, or has a mutual acquantance do an introduction, I usually don't feel as obliged.
  - neilk 15y ago
    But I'm not talking about cold-emailing -- I'm talking about personal relationships. They just aren't defined by having the same seed funder. When I walk down the street in SOMA or the Mission, I too am likely to run into a developer that I know. And I'm not even a very social person. But I've been around the Valley & SF for almost six years now. Maybe YC gets you off the ground faster, maybe you get that in year one. Still, I hope you are also reaching out to make connections with non-YCers.
  - deleted 15y ago
    [deleted]
alexatkeplar 15y ago
I wouldn't bet against the underlying trend (keiretsu collectives of innovative, smaller companies outcompeting traditional corporations), but Y Combinator is the wrong posterchild for this movement, for a couple of reasons: 1. Y Combinator's success criteria for its startups involves a liquidity event - there's no mention of a company staying privately owned and profitable as being a successful outcome (http://ycombinator.com/about.html http://ycombinator.com/about.html). This is unsurpising given that pg himself exited to Yahoo 2. To date, YC liquidity events have all been sales to medium-to-large companies (http://yclist.com/ http://yclist.com/). There may be a couple of big IPOs on the horizon, which is great, but the general trend is for Y Combinator-funded startups to be acquired by big corporations, which boosts those large companies' competitiveness and innovation capability So I would certainly say that Y Combinator's structure is unusual and admirable - but de facto it acts much more like a pilot fish for traditional corporations (creating some kind of new, syncretic innovation model for them), rather than as a replacement for them. Do I think a r/evolution of the Y Combinator model could replace the traditional corporation? Certainly, but this will be done by "slowcubators" rather than by traditional incubators. A slowcubator looks like this: 1. No expectation of a liquidity event in the child companies. It's expected instead for the child companies to become self-sustaining, profitable businesses a la GitHub or Plenty of Fish 2. Significant shared tech IP - this is something a Y Combinator can't do, because shared tech IP makes it impossible to acquire a startup. But it makes huge sense for a slowcubator, because a) acquisitions are the exception, not the norm, and b) there are huge cost savings to be made by sharing tech IP across properties (think private PAAS, Chef recipes, AdWords automation tools etc). Joltid is the posterchild of shared tech IP driving multiple successful startups 3. Staff incentives which are not structured around focusing 100% on one product until it exits or dies, but instead encourage staff to rotate within the slowcubator's companies to where they are currently needed most. It's great that the Django creator can answer a YCfounder's questions over some beer and pizza, but in a slowcubator he would be hands-on helping multiple products to be as good as they can be (as DHH does at 37signals) In the same way that the startup acquisitions of the past decade shaped the incubator model that we see today (and is exemplified by YC), I fully expect the bootstrapped successes that we are seeing today to give rise to a wave of slowcubators - the best of which will indeed rival (if not replace) the big corporation.
- 15y ago

215 points by turoczy 15y ago

YC has nothing to do with replacing the traditional corporation. To do that YC companies would have to have sustainable business models and actually make a profit. How many YC companies have ever made a real profit before being bought? How is the YC model sustainable without existing large corporations like Google or Yahoo or Linkedin waiting to buy out the startups? YC is about grooming startups ready to be bought out in talent acquisitions after a period of rapid growth, not about creating sustainable businesses with viable products.

jot 15y ago
YC has the sustainable business model and does make a profit. How many teams within traditional corporations are profitable? How many new products that traditional corporations launch are profitable?
- djnliung 15y ago
  YC can't replace the traditional corporation when the traditional corporation is the customer that buys their product.
  - jot 15y ago
    The most successful (profitable) YC "products", Heroku, Dropbox and Airbnb, have very sound business models with tens of thousands of customers that are not "traditional corporations".
    - ryanisinallofus 15y ago
      Heroku was acquired and is an excellent example of YC startups being the product traditional corporations purchase.
      - runako 15y ago
        Is the fact that Heroku was acquired the rationale for calling it the 'product' purchased by 'traditional corporations'? If so, what threshold would you apply for when a company can be considered successful before it gets acquired? As companies of all sizes get acquired, aren't they all then 'product' that wasn't successful until a real company bought them?
rewind 15y ago
Did you even read the article? The "replacement" part is replacing the large internal network of connections at a company with the network of connections to YC alumni.
- paulhauggis 15y ago
  I think we can say this if any of the YC companies are still around in 10 years and profitable.
pg 15y ago
I remember people saying things like this in the first few years but it's surprising to encounter it now. If people who think we're in the business of grooming startups for HR acquisitions stopped to do the math, they'd realize we'd be acting against our own interests if we focused on that. Essentially all the returns in startup investing (for us as for any investor) come from the big successes. Whereas we often make zero from early acquisitions.
- gsharm 15y ago
  Big successes and sustainable businesses aren't necessarily the same thing. This is an important distinction because a sustainable business is a viable option for many, and "big success" isn't. And the biggest ones are going to leapfrog such schemes anyway. It's like American Idol for programmers. What you're doing is interesting, but it's questionable whether it's promoting the right values.
  - robryan 15y ago
    Seems more like the big goal is to become a big success in their own right. If that doesn't come about then either a fairly big exit or a talent acquisition is much better for all parties than calling it quits.
  - pg 15y ago
    Big successes and sustainable businesses aren't necessarily the same thing. I'm not sure what you mean by "sustainable businesses," but if you mean profitable businesses, big successes necessarily are that.
    - enjo 15y ago
      Is that true? Was Photobucket or MySpace a "big success"? They certainly sold for a lots of money, but profitable was never a strong suit was it?
      - pg 15y ago
        By big successes I mean companies big enough to go public.
justin 15y ago
The comments in this thread are painful and seem to be based on a lack of understanding of investor motivations and basic spreadsheet math. YC (and the rest of Silicon Valley)'s biggest successes are companies that make money and have real, innovative business models and products. Talent acquisitions almost always happen before companies reach this stage, and while they get a lot of attention because they are "news", they aren't where investors make the most money. Investors aren't investing in technology companies in the hopes they get acquired for $10m in Google or Facebook stock -- they are looking for large sustainable companies that generate revenue (and profits). The difference between YC and traditional investors is that YC doesn't block founders from taking talent acquisitions, which may be one reason it seems like there are more of them.

jot 15y ago

Coworking communities around the world are having a very similar effect.

jkeel 15y ago

I'd like to add that I think and hope that the trend is for traditional corporations to keep getting replaced by a larger number of lean companies (where's it's possible). The larger the corporation (by total employee count) the less nimble they become. I think companies consisting of a small number of highly skilled individuals can focus on what they do best and work with other small companies on the work they need. For example, traditional corporations I've worked for have had large HR departments. Now where I work (with 40 employees) we use another company to handle most of the HR functions. This allows us to focus on our core business model.

cop359 15y ago
"The larger the corporation (by total employee count) the less nimble they become." That's because of antiquated management structures. Look at Gore and Associates (makers of Goretex) for a modern corporate structure. Elements of a corporation should be almost completely independent and the only reason they are part of one entity is because of synergies and cooperation. To give a toy example, McDonalds might grow and slaughter their own cows because they can better place them near their distribution facilities. Buying from a third party might create unnecessary overhead. I'm sorta oversimplifying things, but I'd recommend reading "Re-Creating the Corporation" by the late Russell Ackoff to appreciate why corporations exist (and why sometimes they shouldn't) http://www.amazon.com/Re-Creating-Corporation-Design-Organizations-Century/dp/0195123875/ref=sr_1_1?ie=UTF8&qid=1329944656&sr=8-1 http://www.amazon.com/Re-Creating-Corporation-Design-Organiz...
- jkeel 15y ago
  Thanks for the book reference. Looks interesting. If it's one thing I believe it's that there is not a single approach to anything. This seems like a good book for me I do believe there are things that large corporations can do well and they do have their place. I hope that with technology advancements smaller companies can compete is some spaces traditionally well suited to these larger organizations.
- gregpilling 15y ago
  In-n-Out Burgers does run their own butcher department. The company structure worked pretty well too, since the company did not stumble when a big chunk of the executive team and the CEO died in a plane crash. see http://fora.tv/2009/07/14/In-N-Out_Burger_Stacy_Perman#History_of_Tragedy_Behind_Iconic_In-N-Out_Burger_Chain http://fora.tv/2009/07/14/In-N-Out_Burger_Stacy_Perman#Histo...

rdl 15y ago

Didn't Ronald Coase's theory of the firm predict this, right after the first world war? (As transaction costs (search costs, costs to contract, costs to outsource, etc.) go down, optimal firm size goes down. In an efficient market for contracting, like IT, tiny startups turn into long-term profitable small-headcount companies (dropbox has, what, 70 people?). In inefficient markets, you end up with huge or state-owned companies, like in natural resource exploitation or the third world.)

pg 15y ago
I've been told Coase not only foresaw the present trend towards more, smaller companies but also figured out the underlying dynamics. But I admit I haven't actually gotten around to reading "The Nature of the Firm."
- davidw 15y ago
  He also predicted the first Gulf War, the election of Obama and the Great Fire of London. Wait, wrong guy... In all seriousness though, while the technology factors certainly enable some 'shrinkage' of the firm, human factors change less, which to me indicates that YC like agglomerations will not replace the corporation in many circumstances. In other words, it's easier to find people these days, but as contractors, are they really still going to slog it out for a company day in and day out for years? Most people out there are not like YC founders, would be my bet, and are reasonably happy with their 9/5 jobs, and with not having to hustle to find the next gig. On the positive side, these people will also retain the tacit knowledge inherent in many human activities, and provide a sense of continuity that a shifting network might have trouble fostering outside a small core. Apple, for instance, has 60,000+ employees, according to the web page - that's not what I'd consider a small core + network, even though they certainly outsource a lot. So... trend, yes, but fairly slow once the low-hanging fruit that tech can provide has been integrated. The other big question I have in this vein is whether it will remain so cheap to create a company, or if it's an anomaly, and in the future more capital will be required for anything serious. My guess is that the long term is towards cheaper, but who knows what may happen. BTW, Wikipedia says it's just an article, and here's the summary for those interested: http://en.wikipedia.org/wiki/The_Nature_of_the_Firm http://en.wikipedia.org/wiki/The_Nature_of_the_Firm

ccc3 15y ago

This was an interesting point in the context of comparing YC to a large company: Comparing himself to an air-traffic controller, Graham says much of his time is spend making introductions and helping the YC community solve problems within the network Most of the large companies I've worked with are missing somebody in the "air-traffic controller" role. It can be very difficult for individual employees to understand all the resources that are available within the company, or who they should contact with a particular question. YC might actually have an advantage in this area.

jpdoctor 15y ago
> Most of the large companies I've worked with are missing somebody in the "air-traffic controller" role. I've worked for 3 large companies, and have had the opposite experience. The problem is that everyone is trying to be an air-traffic controller. So much so, that honest work is being avoided.
- deleted 15y ago
  [deleted]
- velshin 15y ago
  Deep corporate hierarchies encourage politics and associated power struggles. Part of moving up in that environment is to have others perceive you as an "air-traffic controller" of a segment of the company, a master of your domain. This sometimes results in people in "manager" roles with 1 or 2 direct reports, where the "manager" does no actual work, but spends inordinate amounts of time coordinating with other teams or politicking. Honest work avoided. I'm not excusing that behaviour but if you've spent enough time at a big company, you'll see motivations for it. Contrast that to pg's air-traffic controller role in the YC network, providing value to all the startup people he connects. It will be interesting to see how well pg's positive influence scales as YC continues to grow.
- yajoe 15y ago
  One reason for this is that many companies review and reward employees based on their "influence" or "visibility" -- what better way to maximize both than be in the air-traffic controller role? I can attest to this firsthand at both Microsoft and IBM.

heyrhett 15y ago

Being part of community of talented people is a great thing. In addition to having a large pool of people to ask for help though, I think a great benefit is that YC companies help each other out without being directly asked. For example, other YC companies might try to make a conscious effort to use Hipmunk to buy flights, or Airbnb. In addition to trying to use each others' services, YC companies will probably often give each other feedback about what could be improved about each other's services. Compare this to the alternative of trying to launch a new service, gain customers, and get feedback on your own.

praxeologist 15y ago

I like the idea of replacing traditional corporations, and YC is certainly good at what they do, but how much of this success is just a result of internet startups having no physical products? I'd like to see more places like Incubation Station come about - http://www.theincubationstation.com http://www.theincubationstation.com - or hear about similar incubators for consumer products if anyone knows any.

Rajiv_N 15y ago

"Graham is the cofounder of Y Combinator, the investment firm that plugs seed money ($18,000 on average) into early stage startups in exchange for mentorship and access to its ever-growing network of alumni." Maybe I'm not understanding this right, but the phrase "in exchange for", seems like it should have read "in addition to". Can someone please clarify?

gigantor 15y ago
Maybe not the most clear sentence since it leaves out the equity part; it's conveying that it provides seed money plus mentorship/networking in exchange for a modest equity from the startup. Could be better organized as: "... Y Combinator, the investment firm that plugs seed money (~$18,800) into early stage startups and offers mentorship and access to its ever-growing network of alumni, in exchange for a modest equity (~7%) of the startup."
- Rajiv_N 15y ago
  Aha! Thanks for the explanation. Now I get it.

jacques_chester 15y ago

The description given reminds me somewhat of Keiretsu, the successors of the old Zaibatsu. The Keiretsu are families of companies interlocked through personal relationships between executives, mutual interlocking share holdings and secondment of workers -- tied together around a bank or finance company. I believe KPCB were referred to as a Keiretsu for encouraging their portfolio to buy from each other -- eg, getting Netscape to buy servers from Sun etc.

jpdoctor 15y ago
> I believe KPCB were referred to as a Keiretsu There was a time when it was fashionable to imitate Japanese business, so VCs actively pursued this type of PR. So it's more likely that KPCB issued PR about itself calling itself a Keiretsu, having the added benefit of seeming much larger than they are. (The Keiretsu were large conglomerations.) Now, not so much of that PR is being created. EDIT: I thought I remembered them self-referencing keiretsu. This is from 2001, look at the bottom: http://web.archive.org/web/200012122131/http://www.kpcb.com/ http://web.archive.org/web/200012122131/http://www.kpcb.com/? Arrogance was a strong suit. Last I knew, IRRs from funds in that timeframe were negative and that included Google!.
- jacques_chester 15y ago
  Interesting point. I was a kid in the 80s, but I certainly remember the mild hysteria about needing to be More Like The Japanese.
- jacques_chester 15y ago
  Following your edit, I find it remarkable that they referred to themselves as Keiretsu well into the "Lost Decade".

neilk 15y ago

Maybe I don't know what it's like to be a YC founder, but couldn't you say the exact same thing about just being in San Francisco? What's more, the SF network extends to people who are not just in startups, but also established companies, universities, and even unrelated things (like the Because We Can people, who are making a business out of custom CNC products.) Or do YC people collaborate more closely than that? Give up their time more freely to a fellow YC'er?

kapilkale 15y ago
I feel a personal obligation to meet with any YC company that wants to meet with me, the same way I would if a good friend asked me to meet with someone. I've taken enough from that network that I want to give back. If someone cold-emails me, or has a mutual acquantance do an introduction, I usually don't feel as obliged.
- neilk 15y ago
  But I'm not talking about cold-emailing -- I'm talking about personal relationships. They just aren't defined by having the same seed funder. When I walk down the street in SOMA or the Mission, I too am likely to run into a developer that I know. And I'm not even a very social person. But I've been around the Valley & SF for almost six years now. Maybe YC gets you off the ground faster, maybe you get that in year one. Still, I hope you are also reaching out to make connections with non-YCers.
- deleted 15y ago
  [deleted]

alexatkeplar 15y ago

I wouldn't bet against the underlying trend (keiretsu collectives of innovative, smaller companies outcompeting traditional corporations), but Y Combinator is the wrong posterchild for this movement, for a couple of reasons: 1. Y Combinator's success criteria for its startups involves a liquidity event - there's no mention of a company staying privately owned and profitable as being a successful outcome (http://ycombinator.com/about.html http://ycombinator.com/about.html). This is unsurpising given that pg himself exited to Yahoo 2. To date, YC liquidity events have all been sales to medium-to-large companies (http://yclist.com/ http://yclist.com/). There may be a couple of big IPOs on the horizon, which is great, but the general trend is for Y Combinator-funded startups to be acquired by big corporations, which boosts those large companies' competitiveness and innovation capability So I would certainly say that Y Combinator's structure is unusual and admirable - but de facto it acts much more like a pilot fish for traditional corporations (creating some kind of new, syncretic innovation model for them), rather than as a replacement for them. Do I think a r/evolution of the Y Combinator model could replace the traditional corporation? Certainly, but this will be done by "slowcubators" rather than by traditional incubators. A slowcubator looks like this: 1. No expectation of a liquidity event in the child companies. It's expected instead for the child companies to become self-sustaining, profitable businesses a la GitHub or Plenty of Fish 2. Significant shared tech IP - this is something a Y Combinator can't do, because shared tech IP makes it impossible to acquire a startup. But it makes huge sense for a slowcubator, because a) acquisitions are the exception, not the norm, and b) there are huge cost savings to be made by sharing tech IP across properties (think private PAAS, Chef recipes, AdWords automation tools etc). Joltid is the posterchild of shared tech IP driving multiple successful startups 3. Staff incentives which are not structured around focusing 100% on one product until it exits or dies, but instead encourage staff to rotate within the slowcubator's companies to where they are currently needed most. It's great that the Django creator can answer a YCfounder's questions over some beer and pizza, but in a slowcubator he would be hands-on helping multiple products to be as good as they can be (as DHH does at 37signals) In the same way that the startup acquisitions of the past decade shaped the incubator model that we see today (and is exemplified by YC), I fully expect the bootstrapped successes that we are seeing today to give rise to a wave of slowcubators - the best of which will indeed rival (if not replace) the big corporation.

15y ago