7 ms·

Y Combinator is predicated on startups that require low capitalization

177 points by Apocryphon 2y ago

benoau 2y ago
Of course it is, the whole thing with the internet is a small group of people can reach a disproportionately massive number of people who can pay with their money or data. Startups with massive upfront costs that can also achieve that are increasing the risk not the upside.
- janalsncm 2y ago
  But why should VC money be limited to Internet technologies?
  - benoau 2y ago
    They're just trying to carve out a disproportionate ROI. Internet is one of the easiest ways to do it, and when you look at what else can: movies/tv shows, games, medicine, medical devices etc, a smash-hit AAA game or movie can generate a billion in revenue in week 1 but it takes them 4 years and over a hundred million to get there.
minimaxir 2y ago
From their Twitter writing style, I can tell YC founders prefer low capitalization.
- deleted 2y ago
  [deleted]
- adastra22 2y ago
  took me a moment to get this one well done
- carabiner 2y ago
  https://lowercasecapital.com https://lowercasecapital.com
breck 2y ago
Comparing 15 year old companies to 5 year old companies is Apples to Oranges. Compounding makes that sort of meaningless. But if we wanted to offer constructive criticism to YC, mine would be: 1. Stop downplaying the importance of craftsmanship. 2. Stop downplaying the contributions of batchmates and overplaying the impact of YC partners/office hours. 3. Stop mooching off public domain without contributing much back. 4. Learn to understand the speed benefits of public domain development/build in public. 5. Stop it with the secrecy; an outdated model. Speed >> secrecy. 6. Stop the censorship! Or in humorous form: https://www.youtube.com/watch?v=MpuVyEbqbgU https://www.youtube.com/watch?v=MpuVyEbqbgU
- high_na_euv 2y ago
  >Stop downplaying the importance of craftsmanship. Why?
  - breck 2y ago
    Craftsmanship is the most important thing and the key component in all their most successful startups. Oftentimes people enter YC who are still early in their journeys and should be focusing on improving their craftsmanship, rather than focused on raising money.
    - eichi 2y ago
      They like hackers and craftsmanship. It's about positioning. We cannot compete with large companies on Pokemon battle, i.e who are more competitive or knowledgeable. We should throwaway craftsmanship and stay focusing on solving the problem. That's the few ways we can survive.
beaglesss 2y ago
Agreed, The low hanging fruit has been grabbed. The remainder is mostly gonna be regulatory arbitrage or low margin niche fields that a large company can't exploit. The neighborhood liquor store, or the grey market handyman. That's the remaining low cap fronts.
- JumpCrisscross 2y ago
  > low hanging fruit has been grabbed I don't believe this. But let's assume it's true. We still have the Barksdale binary: business comes down to bundling and unbundling [1]. After the fall of the USSR the world went unipolar. The Internet was spreading and bundling was business. Now we're Balkanising. Factories and servers on one side of the planet no longer look as reliable from the other. Unbundling, now, is business. Even if you believe the fruit has been picked, it hasn't been picked everywhere. We have a generation's work replicating Chinese dependencies in America (and vice versa), with the same applying to India and Europe. [1] https://hbr.org/2014/06/how-to-succeed-in-business-by-bundling-and-unbundling https://hbr.org/2014/06/how-to-succeed-in-business-by-bundli...
  - janalsncm 2y ago
    Those aren’t low capex at all. They require integrating with a global supply chain at competitive prices. You’ll have to work international markets and potentially domestic politics to make it work. Just standing up a factory is extremely hard in the US.
    - linotype 2y ago
      Is there any place building a factory is easy?
      - nateglims 2y ago
        There's been places where capital is the main issue. Like Chinese SEZs attracting foreign capital with low regulation, low labor costs, cheap land, etc.
jsyang00 2y ago
Most companies which required billions in startup capital were engineered out of larger established organizations. Or they evolve naturally - nobody set out to build any of the top 3 cloud hyperscalers as they exist today.
- adastra22 2y ago
  Many companies which require billions in startup capital began as startups. Just not from startup accelerators like YC. There's a lot of deep tech startups out there with high capital requirements. Dozens of fusion and space launch companies, for example.
JumpCrisscross 2y ago
> Post 2015 that “tech seed corn” had been used up, leaving just difficult deep tech startups around that need very high capitalization and a focus on developing hard, risky technology Let's ignore LLMs, where tens of billions of dollars are being competitively poured into models and platforms on top of which presumably value can be built and focus on their secondary effects. Ever-more powerful GPUs being pushed out to the periphery, upgrading the parallel-processing power of every phone, laptop and server. Semiconductor manufacturing building hundreds of billions of dollars worth of de novo fabrication capacity. And I'm not even touching the platform advances in space travel and bioengineering we're in the midst of. If you're looking to build the next website or iPhone app, yes, the ship has sailed. The rinse-and-repeat "put a subscrpition on it" playbook has played out. But I can't say history has had this much variety in scalable tinkering territory before.
- alephnerd 2y ago
  Don't forget productionizing UAVs for both Defense and non-defense usecases over the past decade; mRNA vaccines actually becoming a thing; biofermented textiles; the proliferation of avionics, power engineering, nuclear engineering, and biopharma knowledge globally; etc! HN feels like it's become much more negative, but there's a whole lot of innovation on the verge of being unlocked, and the 2030s are going to be interesting to say the least, especially now that innovation capacity has diffused globally > If you're looking to build the next website or iPhone app, yes, the ship has sailed. The rinse-and-repeat "put a subscrpition on it" playbook has played out Imo, Semi-generalizable ML models (colloquially "LLMs") have the potential of having a similar impact depending on the problem space. There's a lot of interesting work being done in actually leveraging these kinds of foundational models to automate or at least minimize additional rework or glue needed (not talking about code generation per say, but stuff like simplified information retrival, simplified auto-reasoning, etc) It's still the equivalent of the mid-2000s rn for foundational models and their applications, but it actually looks promising (aside from the BS hype cashing in on the AI hype train)
  - mitthrowaway2 2y ago
    Is nuclear engineering a low-capex opportunity, in your view?
keepamovin 2y ago
But what about the compact nuclear reactors startup?
- JumpCrisscross 2y ago
  > what about the compact nuclear reactors startup? Nuclear energy is the textbook definition of start-ups "that need very high capitalization" with "a focus on developing hard, risky technology."
  - SoftTalker 2y ago
    It's not really hard or risky (in the sense that we don't know how to do it -- there is regulatory and political risk though). It just needs a lot of money.
    - janalsncm 2y ago
      By definition creating a new technology is difficult. Most of the startups YC funds are based on small variations to proven technologies. At the point they’ve been funded, you’re not doing fundamental research.
    - JumpCrisscross 2y ago
      > not really hard or risky (in the sense that we don't know how to do it One, regulatory and political risks are real. And two, we don’t know how to do it. Not economically. There is a massive search space and no guarantees that the part you’re shining a light on is where the goods are.
- lumost 2y ago
  Likely an attempt to break out of the mold. It's possible to adjust YC style incubators to work on harder problems that require more capitalization - but the milestones look different. You wouldn't encourage a nuclear reactor startup to go straight for revenue and commercial deployment with a tiny reactor on 500k. But building a team, research roadmap, and fundable "milestones"? Sure - it's possible the right team could use 500k to get to an initial funding round from a power company, GE, or someone similar.
nsedlet 2y ago
It takes time to build a company to significant revenue. I'd be curious to rule that out as the primary explanation before reading too much else into this.
dools 2y ago
I think it's actually predicated more on hiring the type of people that will be easily parachuted into FAANG companies through acquihires. I had long conceived of YC as basically a glorified recruitment channel for FAANG but when YC said they'll accept founders without an idea it cemented this view for me. That they get lucky with a handful of companies as well is a nice to have but liquidity events provided by acqui-hires can't be ignored as their bread n butter surely.
- telotortium 2y ago
  Interesting - I wonder if anyone has done the data analysis to see if this is plausible.
  - tyre 2y ago
    Acquihires are bad for investors. Most of the negotiation happens around the comp for the employees, not the price of the acquisition. YC makes money off of huge wins like Stripe, Airbnb, etc.
- tptacek 2y ago
  How is it that you think YC makes money in a body shop acquihire deal? People talk about acquihires all the time but I think the bottom line to them is "most startups fail". YC isn't a fix for this; it simply accounts for the phenomenon by funding way more startups than other investors. There's a fun "human capital" vs. "signaling" argument to have here --- shocked, shocked! that YC would manage to re-invent the core controversy of higher education --- but just drastically increasing luck surface area is a pretty powerful idea, or seems that way. Maybe it'll be less effective in this coming season of high-capital companies, or maybe that narrative will turn out to be overblown when someone figures out how to make $40Bn on international benefits management or something.
  - throwup238 2y ago
    > How is it that you think YC makes money in a body shop acquihire deal? Liquidation preference.
notamy 2y ago
https://xcancel.com/bradneuberg/status/1835680235049869495 https://xcancel.com/bradneuberg/status/1835680235049869495
giansegato 2y ago
I don't think there's anything about YC inherently misaligned with the next startup era — in fact, they're adapting their model accordingly, hedging their bets + investing in harder tech with higher capex and longer feedback loops. It's gonna take a while to see the new strategy play out, much longer than before in fact. That said, agreed with the general point that the model is changing and the old playbook is not working anymore. I published 5000 words last month that try to analyze this trend within an economics framework: https://giansegato.com/essays/dawn-new-startup-era https://giansegato.com/essays/dawn-new-startup-era
- mattmaroon 2y ago
  Right, the model YC used in 2007 won’t work now which is why they don’t do it anymore.
yieldcrv 2y ago
angel investor makes angel investments
colechristensen 2y ago
Isn’t this just an effect of high interest rates?
- rr808 2y ago
  No, this is a bit of a myth. In the dotcom boom in the 90s mortgage rates were higher than today. In 2010-2015 rates were zero but no tech boom.
  - Apocryphon 2y ago
    > 2010-2015 rates were zero but no tech boom ?
janalsncm 2y ago
I think very relevant is this broader analysis: https://news.ycombinator.com/item?id=41562321 https://news.ycombinator.com/item?id=41562321 YC isn’t to blame here. It’s a microcosm of the incentives that have been set up. Unfortunately most of the game-changing tech isn’t going to be low capex moving forward. We are moving past the “Airbnb for dogs” era and into the “build a better quantum computer” era.
- godelski 2y ago
  > China leads or is on par with global leaders in commercial nuclear power and electric vehicles and batteries. It lags behind for now in other key sectors, including robotics, biopharmaceuticals, chemicals, and AI. But it is making rapid progress. I'm not sure why this is relevant. They're still behind in the primary sectors that Y-Combinator invests in: software. Certainly China is catching up and it would be naive to sleep on them, but it is magnitudes easier to catch up than it is to lead (e.g. it is magnitudes easier to learn calculus than to invent it). It is hard to make serious predictions without understanding how to lead in certain niches and a broad overview of the economy will not tell us too much about specific sectors. There's plenty of niches that Europe leads the US (and China) in too. But the conversation is all pretty complicated. And success in one sector or niche does not seem to be a strong predictor of innovation in others. Similarly success in catching up does not seem to be a strong predictor of ability to lead. This is all related to the Middle Income trap and China has probably come out the other side but it's not clear yet and this is all very fuzzy. FWIW, I want to see more competition on the global scale. Everyone benefits if there is healthy competition. Though this can also lead to war if things get too competitive. But if our main method of "war" is "making shit better and cheaper so everyone buys from us" then bring it on! (Maybe we can get a "war" where countries flaunt their impressiveness by bringing about post scarcity. I'm certain that that country and leader will be remembered all throughout history as one who set forth an entirely new paradigm of human civilization. AND this is /reasonably/ feasible, though no easy task)
  - nateglims 2y ago
    How does that kind of competition settle disputes that lead to wars?
ezxs 2y ago
Technology goes in waves, when a large breakthrough in technology then opens up an opportunity for a lot of small applications of that technology. I wrote some thoughts on Web 2.0 / SaaS startup wave: https://mikebz.com/tech-startups-and-railroad-tracks-d1d5948c16fb https://mikebz.com/tech-startups-and-railroad-tracks-d1d5948... The Mobile wave and SaaS wave are gone, it's possible that AI will open up a lot of small applications or AI Bot economy, but we will see. The low capitalization means that you are mostly writing gluecode and winning on UX, not really doing breakthrough technology innovation that has no revenue for 5-7 years.
- janalsncm 2y ago
  Yes, and the US basically missed the battery wave. CATL and other Chinese companies own that now.
- NetOpWibby 2y ago
  > not really doing breakthrough technology innovation that has no revenue for 5-7 years Everything that gets popular on Product Hunt
tptacek 2y ago
I don't understand the premise of this claim. YC has never really been about getting companies to growth stage. It doesn't make sense to compare YC's investment to the funding needed to, say, compete with OpenAI. If that's what you're trying to do, you'd go to YC to streamline the process of closing a priced round. The way this thread reads, he's not so much taking issue with YC as with the idea of seed capital. Some of us have the experience of operating in a startup marketplace without routine, standardized seed funding. That's how funding worked in the 1990s and early 2000s. It's not great!
- edanm 2y ago
  Did you read the parent tweet? (I missed it at first.) I think there's an empirical claim being made - YC has produced less successful startups in the last ten years, so something must be wrong, and this is a guess as to what the problem is. I'm not convinced the empirical claim is true, though, personally. Of course you'll have less successes given shorter timespans, and not recognizing that is a common failure mode for these kinds of analyses.
  - fakedang 2y ago
    > YC has produced less successful startups in the last ten years, so something must be wrong, and this is a guess as to what the problem is. I would certainly assume it's PG's eventual retreat and finally exit, and the Altman years. Contrast PG's reasonably close contact with YC startups vs Altman's looser approach. It's kind of stark that some of the startups that I assumed would be obvious fits for the YC model are not YC companies.
    - fakedang 2y ago
      Edit: some of the startup successes that I assumed*
    - pedrolinoni 2y ago
      Where did you take this information?
fra 2y ago
That idea that only deep tech opportunities are left is false and IMO completely undermines the OP. Our batch (W19) has produced several great software companies that are growing incredibly fast, you just haven't heard of them ... yet!
- LunaSea 2y ago
  If you haven't heard of a company 5 years after inception, it's not a great look
  - fra 2y ago
    First: you've heard of at least one of these companies. Second: some of them are very well known in their vertical, just not yet household names. Third: you have no idea what you're talking about. E.g. Hubspot was founded in 2006, I guarantee nobody here who isn't a marketer had heard of them in 2011.
    - LunaSea 2y ago
      We're on HN and talking about YC companies. If they are unknown to a lot of us that's a bad sign. Get of your high horse.
  - tim333 2y ago
    Our World in Data is quite well known https://www.ycombinator.com/blog/9-companies-from-the-yc-w19-batch https://www.ycombinator.com/blog/9-companies-from-the-yc-w19...
orasis 2y ago
This is absurd. There is just as much AI low hanging fruit today as there was mobile low hanging fruit 10 years ago as there was web 10 years before that.
eyphka 2y ago
Simple reason for bad 10 years - pg stepped away from day to day 2014
- deleted 2y ago
  [deleted]
chambers 2y ago
I wonder if the author's observation has something to do with the tension between Research and Development, ala R&D. YCombinator seemed effective in funding the latter, but the first half seem to be higher risk, more expensive, and much longer to market (if at all). Is my impression correct? I recall YC Research was pitched a few years ago but I think it politely imploded into a small nonprofit.
troupo 2y ago
Y Combinator is predicted on two kinds of startups: - unprofitable startups that can be sold to the highest bidder within a few years - unprofitable startups that can be subsidized to the tune of billions of dollars a year in hopes of capturing the market through price dumping and borderline illegal practices There are one or two that break the mould and become, you know, actual businesses.
7e 2y ago
Of course this is true, YC is a sweatshop explotation model which works on finding winning lottery tickets through a "million monkeys" method. They can't afford to give anyone much money, they spread their bets thin. That's why they fund anyone with a pulse, and most of these founders will end up trashing their careers on failure.
- tim333 2y ago
  I saw some stats that about 40% of YC companies are successful and those make an average of $40m or some such. So much better than lottery tickets. Of those that fail I'd imagine a lot go on to FAANGs or other startups rather than career failure.
lmeyerov 2y ago
*Whoosh* The takeaway from many folks successfully capitalizing on many tech commoditization trends isn't that old one being mined out means game over... ... but this pattern keeps happening, so go and identify the current wave and ride it the most obvious commoditization breakthrough right now is LLMs, but there are a bunch of other 10X's happening too
aaron695 2y ago
[dead]
mrkramer 2y ago
In the early days you needed only 2 or 3 programmers to get your site going and a cheap server to host it and if the website and its concept caught on you raised money to buy more servers and hire more people(the most famous example being Facebook). Nowadays you need to have a really good prototype and if you want to do something really amazing you probably need a lot of computational power in order to expand it and scale it. Also the complexity of software development is greater. In reality Moore's law made computational power more cheaper so actually it shouldn't be really a problem but startups overall burn a lot of money on computational power(hosting, bandwidth etc.) Back on the early days; YouTube co-founder Jawed Karim said in 2006 [0] that perhaps any CS undergrad could've coded any of the internet's early killer apps in a few weeks but the scaling them would be whole another problem, scaling in this context meaning acquiring users. My opinion is that you can still spin an amazing website relatively fast but then you need to improve UX, create your mobile presence(make mobile apps) etc. etc. Whole lot more hassle than it was in the early days when mobile phone internet and mobile apps were irrelevant. Good example is also Instagram which was natively and exclusively mobile app which allowed them to improve their product faster and scale the app faster. [0] https://youtu.be/XAJEXUNmP5M?t=613 https://youtu.be/XAJEXUNmP5M?t=613
- vb-8448 2y ago
  > Also the complexity of software development is greater. Definitely agree, we have LLMs, more advanced/powerful tools but somehow the entropy increased so much that all advantage we have compared to 15 years ago vanished.
  - mrkramer 2y ago
    Nowadays it is definitely way more easier but there are so many distribution platforms on which you are supposed to be present e.g. PC, Web, Mobile phones, Smart TV, Smart Watches etc. My best advice would be to pick one platform and focus on it and then slowly expand to another platforms. Btw Facebook's early codebase was spaghetti code PHP and look where they are today.
    - mrkramer 2y ago
enslavedrobot 2y ago
If you're a deeptech founder Y Combinator is not for you. Recommend something like an NSF Activate grant instead. Commercialization of hardware takes an average of 15 years. If you can't get dilution free funding for the first 5 or so, you'll end up giving up so much equity that you'll be an employee of your own company. Most successful hardware founders have deep pockets or huge grant supports.

177 points by Apocryphon 2y ago

Of course it is, the whole thing with the internet is a small group of people can reach a disproportionately massive number of people who can pay with their money or data. Startups with massive upfront costs that can also achieve that are increasing the risk not the upside.

janalsncm 2y ago
But why should VC money be limited to Internet technologies?
- benoau 2y ago
  They're just trying to carve out a disproportionate ROI. Internet is one of the easiest ways to do it, and when you look at what else can: movies/tv shows, games, medicine, medical devices etc, a smash-hit AAA game or movie can generate a billion in revenue in week 1 but it takes them 4 years and over a hundred million to get there.

minimaxir 2y ago

From their Twitter writing style, I can tell YC founders prefer low capitalization.

deleted 2y ago
[deleted]
adastra22 2y ago
took me a moment to get this one well done
carabiner 2y ago
https://lowercasecapital.com https://lowercasecapital.com

breck 2y ago

Comparing 15 year old companies to 5 year old companies is Apples to Oranges. Compounding makes that sort of meaningless. But if we wanted to offer constructive criticism to YC, mine would be: 1. Stop downplaying the importance of craftsmanship. 2. Stop downplaying the contributions of batchmates and overplaying the impact of YC partners/office hours. 3. Stop mooching off public domain without contributing much back. 4. Learn to understand the speed benefits of public domain development/build in public. 5. Stop it with the secrecy; an outdated model. Speed >> secrecy. 6. Stop the censorship! Or in humorous form: https://www.youtube.com/watch?v=MpuVyEbqbgU https://www.youtube.com/watch?v=MpuVyEbqbgU

high_na_euv 2y ago
>Stop downplaying the importance of craftsmanship. Why?
- breck 2y ago
  Craftsmanship is the most important thing and the key component in all their most successful startups. Oftentimes people enter YC who are still early in their journeys and should be focusing on improving their craftsmanship, rather than focused on raising money.
  - eichi 2y ago
    They like hackers and craftsmanship. It's about positioning. We cannot compete with large companies on Pokemon battle, i.e who are more competitive or knowledgeable. We should throwaway craftsmanship and stay focusing on solving the problem. That's the few ways we can survive.

beaglesss 2y ago

Agreed, The low hanging fruit has been grabbed. The remainder is mostly gonna be regulatory arbitrage or low margin niche fields that a large company can't exploit. The neighborhood liquor store, or the grey market handyman. That's the remaining low cap fronts.

JumpCrisscross 2y ago
> low hanging fruit has been grabbed I don't believe this. But let's assume it's true. We still have the Barksdale binary: business comes down to bundling and unbundling [1]. After the fall of the USSR the world went unipolar. The Internet was spreading and bundling was business. Now we're Balkanising. Factories and servers on one side of the planet no longer look as reliable from the other. Unbundling, now, is business. Even if you believe the fruit has been picked, it hasn't been picked everywhere. We have a generation's work replicating Chinese dependencies in America (and vice versa), with the same applying to India and Europe. [1] https://hbr.org/2014/06/how-to-succeed-in-business-by-bundling-and-unbundling https://hbr.org/2014/06/how-to-succeed-in-business-by-bundli...
- janalsncm 2y ago
  Those aren’t low capex at all. They require integrating with a global supply chain at competitive prices. You’ll have to work international markets and potentially domestic politics to make it work. Just standing up a factory is extremely hard in the US.
  - linotype 2y ago
    Is there any place building a factory is easy?
    - nateglims 2y ago
      There's been places where capital is the main issue. Like Chinese SEZs attracting foreign capital with low regulation, low labor costs, cheap land, etc.

jsyang00 2y ago

Most companies which required billions in startup capital were engineered out of larger established organizations. Or they evolve naturally - nobody set out to build any of the top 3 cloud hyperscalers as they exist today.

adastra22 2y ago
Many companies which require billions in startup capital began as startups. Just not from startup accelerators like YC. There's a lot of deep tech startups out there with high capital requirements. Dozens of fusion and space launch companies, for example.

JumpCrisscross 2y ago

> Post 2015 that “tech seed corn” had been used up, leaving just difficult deep tech startups around that need very high capitalization and a focus on developing hard, risky technology Let's ignore LLMs, where tens of billions of dollars are being competitively poured into models and platforms on top of which presumably value can be built and focus on their secondary effects. Ever-more powerful GPUs being pushed out to the periphery, upgrading the parallel-processing power of every phone, laptop and server. Semiconductor manufacturing building hundreds of billions of dollars worth of de novo fabrication capacity. And I'm not even touching the platform advances in space travel and bioengineering we're in the midst of. If you're looking to build the next website or iPhone app, yes, the ship has sailed. The rinse-and-repeat "put a subscrpition on it" playbook has played out. But I can't say history has had this much variety in scalable tinkering territory before.

alephnerd 2y ago
Don't forget productionizing UAVs for both Defense and non-defense usecases over the past decade; mRNA vaccines actually becoming a thing; biofermented textiles; the proliferation of avionics, power engineering, nuclear engineering, and biopharma knowledge globally; etc! HN feels like it's become much more negative, but there's a whole lot of innovation on the verge of being unlocked, and the 2030s are going to be interesting to say the least, especially now that innovation capacity has diffused globally > If you're looking to build the next website or iPhone app, yes, the ship has sailed. The rinse-and-repeat "put a subscrpition on it" playbook has played out Imo, Semi-generalizable ML models (colloquially "LLMs") have the potential of having a similar impact depending on the problem space. There's a lot of interesting work being done in actually leveraging these kinds of foundational models to automate or at least minimize additional rework or glue needed (not talking about code generation per say, but stuff like simplified information retrival, simplified auto-reasoning, etc) It's still the equivalent of the mid-2000s rn for foundational models and their applications, but it actually looks promising (aside from the BS hype cashing in on the AI hype train)
- mitthrowaway2 2y ago
  Is nuclear engineering a low-capex opportunity, in your view?

keepamovin 2y ago

But what about the compact nuclear reactors startup?

JumpCrisscross 2y ago
> what about the compact nuclear reactors startup? Nuclear energy is the textbook definition of start-ups "that need very high capitalization" with "a focus on developing hard, risky technology."
- SoftTalker 2y ago
  It's not really hard or risky (in the sense that we don't know how to do it -- there is regulatory and political risk though). It just needs a lot of money.
  - janalsncm 2y ago
    By definition creating a new technology is difficult. Most of the startups YC funds are based on small variations to proven technologies. At the point they’ve been funded, you’re not doing fundamental research.
  - JumpCrisscross 2y ago
    > not really hard or risky (in the sense that we don't know how to do it One, regulatory and political risks are real. And two, we don’t know how to do it. Not economically. There is a massive search space and no guarantees that the part you’re shining a light on is where the goods are.
lumost 2y ago
Likely an attempt to break out of the mold. It's possible to adjust YC style incubators to work on harder problems that require more capitalization - but the milestones look different. You wouldn't encourage a nuclear reactor startup to go straight for revenue and commercial deployment with a tiny reactor on 500k. But building a team, research roadmap, and fundable "milestones"? Sure - it's possible the right team could use 500k to get to an initial funding round from a power company, GE, or someone similar.

nsedlet 2y ago

It takes time to build a company to significant revenue. I'd be curious to rule that out as the primary explanation before reading too much else into this.

dools 2y ago

I think it's actually predicated more on hiring the type of people that will be easily parachuted into FAANG companies through acquihires. I had long conceived of YC as basically a glorified recruitment channel for FAANG but when YC said they'll accept founders without an idea it cemented this view for me. That they get lucky with a handful of companies as well is a nice to have but liquidity events provided by acqui-hires can't be ignored as their bread n butter surely.

telotortium 2y ago
Interesting - I wonder if anyone has done the data analysis to see if this is plausible.
- tyre 2y ago
  Acquihires are bad for investors. Most of the negotiation happens around the comp for the employees, not the price of the acquisition. YC makes money off of huge wins like Stripe, Airbnb, etc.
tptacek 2y ago
How is it that you think YC makes money in a body shop acquihire deal? People talk about acquihires all the time but I think the bottom line to them is "most startups fail". YC isn't a fix for this; it simply accounts for the phenomenon by funding way more startups than other investors. There's a fun "human capital" vs. "signaling" argument to have here --- shocked, shocked! that YC would manage to re-invent the core controversy of higher education --- but just drastically increasing luck surface area is a pretty powerful idea, or seems that way. Maybe it'll be less effective in this coming season of high-capital companies, or maybe that narrative will turn out to be overblown when someone figures out how to make $40Bn on international benefits management or something.
- throwup238 2y ago
  > How is it that you think YC makes money in a body shop acquihire deal? Liquidation preference.

notamy 2y ago

https://xcancel.com/bradneuberg/status/1835680235049869495 https://xcancel.com/bradneuberg/status/1835680235049869495

giansegato 2y ago

I don't think there's anything about YC inherently misaligned with the next startup era — in fact, they're adapting their model accordingly, hedging their bets + investing in harder tech with higher capex and longer feedback loops. It's gonna take a while to see the new strategy play out, much longer than before in fact. That said, agreed with the general point that the model is changing and the old playbook is not working anymore. I published 5000 words last month that try to analyze this trend within an economics framework: https://giansegato.com/essays/dawn-new-startup-era https://giansegato.com/essays/dawn-new-startup-era

mattmaroon 2y ago
Right, the model YC used in 2007 won’t work now which is why they don’t do it anymore.

yieldcrv 2y ago

angel investor makes angel investments

colechristensen 2y ago

Isn’t this just an effect of high interest rates?

rr808 2y ago
No, this is a bit of a myth. In the dotcom boom in the 90s mortgage rates were higher than today. In 2010-2015 rates were zero but no tech boom.
- Apocryphon 2y ago
  > 2010-2015 rates were zero but no tech boom ?

janalsncm 2y ago

I think very relevant is this broader analysis: https://news.ycombinator.com/item?id=41562321 https://news.ycombinator.com/item?id=41562321 YC isn’t to blame here. It’s a microcosm of the incentives that have been set up. Unfortunately most of the game-changing tech isn’t going to be low capex moving forward. We are moving past the “Airbnb for dogs” era and into the “build a better quantum computer” era.

godelski 2y ago
> China leads or is on par with global leaders in commercial nuclear power and electric vehicles and batteries. It lags behind for now in other key sectors, including robotics, biopharmaceuticals, chemicals, and AI. But it is making rapid progress. I'm not sure why this is relevant. They're still behind in the primary sectors that Y-Combinator invests in: software. Certainly China is catching up and it would be naive to sleep on them, but it is magnitudes easier to catch up than it is to lead (e.g. it is magnitudes easier to learn calculus than to invent it). It is hard to make serious predictions without understanding how to lead in certain niches and a broad overview of the economy will not tell us too much about specific sectors. There's plenty of niches that Europe leads the US (and China) in too. But the conversation is all pretty complicated. And success in one sector or niche does not seem to be a strong predictor of innovation in others. Similarly success in catching up does not seem to be a strong predictor of ability to lead. This is all related to the Middle Income trap and China has probably come out the other side but it's not clear yet and this is all very fuzzy. FWIW, I want to see more competition on the global scale. Everyone benefits if there is healthy competition. Though this can also lead to war if things get too competitive. But if our main method of "war" is "making shit better and cheaper so everyone buys from us" then bring it on! (Maybe we can get a "war" where countries flaunt their impressiveness by bringing about post scarcity. I'm certain that that country and leader will be remembered all throughout history as one who set forth an entirely new paradigm of human civilization. AND this is /reasonably/ feasible, though no easy task)
- nateglims 2y ago
  How does that kind of competition settle disputes that lead to wars?

ezxs 2y ago

Technology goes in waves, when a large breakthrough in technology then opens up an opportunity for a lot of small applications of that technology. I wrote some thoughts on Web 2.0 / SaaS startup wave: https://mikebz.com/tech-startups-and-railroad-tracks-d1d5948c16fb https://mikebz.com/tech-startups-and-railroad-tracks-d1d5948... The Mobile wave and SaaS wave are gone, it's possible that AI will open up a lot of small applications or AI Bot economy, but we will see. The low capitalization means that you are mostly writing gluecode and winning on UX, not really doing breakthrough technology innovation that has no revenue for 5-7 years.

janalsncm 2y ago
Yes, and the US basically missed the battery wave. CATL and other Chinese companies own that now.
NetOpWibby 2y ago
> not really doing breakthrough technology innovation that has no revenue for 5-7 years Everything that gets popular on Product Hunt

tptacek 2y ago

I don't understand the premise of this claim. YC has never really been about getting companies to growth stage. It doesn't make sense to compare YC's investment to the funding needed to, say, compete with OpenAI. If that's what you're trying to do, you'd go to YC to streamline the process of closing a priced round. The way this thread reads, he's not so much taking issue with YC as with the idea of seed capital. Some of us have the experience of operating in a startup marketplace without routine, standardized seed funding. That's how funding worked in the 1990s and early 2000s. It's not great!

edanm 2y ago
Did you read the parent tweet? (I missed it at first.) I think there's an empirical claim being made - YC has produced less successful startups in the last ten years, so something must be wrong, and this is a guess as to what the problem is. I'm not convinced the empirical claim is true, though, personally. Of course you'll have less successes given shorter timespans, and not recognizing that is a common failure mode for these kinds of analyses.
- fakedang 2y ago
  > YC has produced less successful startups in the last ten years, so something must be wrong, and this is a guess as to what the problem is. I would certainly assume it's PG's eventual retreat and finally exit, and the Altman years. Contrast PG's reasonably close contact with YC startups vs Altman's looser approach. It's kind of stark that some of the startups that I assumed would be obvious fits for the YC model are not YC companies.
  - fakedang 2y ago
    Edit: some of the startup successes that I assumed*
  - pedrolinoni 2y ago
    Where did you take this information?

fra 2y ago

That idea that only deep tech opportunities are left is false and IMO completely undermines the OP. Our batch (W19) has produced several great software companies that are growing incredibly fast, you just haven't heard of them ... yet!

LunaSea 2y ago
If you haven't heard of a company 5 years after inception, it's not a great look
- fra 2y ago
  First: you've heard of at least one of these companies. Second: some of them are very well known in their vertical, just not yet household names. Third: you have no idea what you're talking about. E.g. Hubspot was founded in 2006, I guarantee nobody here who isn't a marketer had heard of them in 2011.
  - LunaSea 2y ago
    We're on HN and talking about YC companies. If they are unknown to a lot of us that's a bad sign. Get of your high horse.
- tim333 2y ago
  Our World in Data is quite well known https://www.ycombinator.com/blog/9-companies-from-the-yc-w19-batch https://www.ycombinator.com/blog/9-companies-from-the-yc-w19...

orasis 2y ago

This is absurd. There is just as much AI low hanging fruit today as there was mobile low hanging fruit 10 years ago as there was web 10 years before that.

eyphka 2y ago

Simple reason for bad 10 years - pg stepped away from day to day 2014

deleted 2y ago
[deleted]

chambers 2y ago

I wonder if the author's observation has something to do with the tension between Research and Development, ala R&D. YCombinator seemed effective in funding the latter, but the first half seem to be higher risk, more expensive, and much longer to market (if at all). Is my impression correct? I recall YC Research was pitched a few years ago but I think it politely imploded into a small nonprofit.

troupo 2y ago

Y Combinator is predicted on two kinds of startups: - unprofitable startups that can be sold to the highest bidder within a few years - unprofitable startups that can be subsidized to the tune of billions of dollars a year in hopes of capturing the market through price dumping and borderline illegal practices There are one or two that break the mould and become, you know, actual businesses.

7e 2y ago

Of course this is true, YC is a sweatshop explotation model which works on finding winning lottery tickets through a "million monkeys" method. They can't afford to give anyone much money, they spread their bets thin. That's why they fund anyone with a pulse, and most of these founders will end up trashing their careers on failure.

tim333 2y ago
I saw some stats that about 40% of YC companies are successful and those make an average of $40m or some such. So much better than lottery tickets. Of those that fail I'd imagine a lot go on to FAANGs or other startups rather than career failure.

lmeyerov 2y ago

*Whoosh* The takeaway from many folks successfully capitalizing on many tech commoditization trends isn't that old one being mined out means game over... ... but this pattern keeps happening, so go and identify the current wave and ride it the most obvious commoditization breakthrough right now is LLMs, but there are a bunch of other 10X's happening too

aaron695 2y ago

[dead]

mrkramer 2y ago

In the early days you needed only 2 or 3 programmers to get your site going and a cheap server to host it and if the website and its concept caught on you raised money to buy more servers and hire more people(the most famous example being Facebook). Nowadays you need to have a really good prototype and if you want to do something really amazing you probably need a lot of computational power in order to expand it and scale it. Also the complexity of software development is greater. In reality Moore's law made computational power more cheaper so actually it shouldn't be really a problem but startups overall burn a lot of money on computational power(hosting, bandwidth etc.) Back on the early days; YouTube co-founder Jawed Karim said in 2006 [0] that perhaps any CS undergrad could've coded any of the internet's early killer apps in a few weeks but the scaling them would be whole another problem, scaling in this context meaning acquiring users. My opinion is that you can still spin an amazing website relatively fast but then you need to improve UX, create your mobile presence(make mobile apps) etc. etc. Whole lot more hassle than it was in the early days when mobile phone internet and mobile apps were irrelevant. Good example is also Instagram which was natively and exclusively mobile app which allowed them to improve their product faster and scale the app faster. [0] https://youtu.be/XAJEXUNmP5M?t=613 https://youtu.be/XAJEXUNmP5M?t=613

vb-8448 2y ago
> Also the complexity of software development is greater. Definitely agree, we have LLMs, more advanced/powerful tools but somehow the entropy increased so much that all advantage we have compared to 15 years ago vanished.
- mrkramer 2y ago
  Nowadays it is definitely way more easier but there are so many distribution platforms on which you are supposed to be present e.g. PC, Web, Mobile phones, Smart TV, Smart Watches etc. My best advice would be to pick one platform and focus on it and then slowly expand to another platforms. Btw Facebook's early codebase was spaghetti code PHP and look where they are today.
  - mrkramer 2y ago

enslavedrobot 2y ago

If you're a deeptech founder Y Combinator is not for you. Recommend something like an NSF Activate grant instead. Commercialization of hardware takes an average of 15 years. If you can't get dilution free funding for the first 5 or so, you'll end up giving up so much equity that you'll be an employee of your own company. Most successful hardware founders have deep pockets or huge grant supports.