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Y Combinator often backs startups that duplicate other YC companies, data shows

389 points by isaacfrond 2y ago

deleted 2y ago
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bwb 2y ago
In executing on an idea, the end result is often very different from where you started. They might look similar now, but in 5 years one went enterprise on feature set and the other consumer etc etc.
- blitzar 2y ago
  So true, all the Blockchain startups are now LLM startups.
  - thih9 2y ago
    You mean there is a trend in existing blockchain startups pivoting to LLMs? Is there a source / more details?
0points 2y ago
reinforcement learning done right, amirite?
- deleted 2y ago
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cadamsau 2y ago
Seems like a great idea! Stirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition. My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.
serial_dev 2y ago
It makes sense as an investor, doesn't it, you identify markets you see an opening, you check which companies are in that domain, pick the ones where they can execute and have good people on their team. It would worry me as a startup company, who knows where the information I share with them will end up...
- soco 2y ago
  A more interesting question is, do you as a startup company have any information worth sharing? Ideas are dime a dozen and like you just said, the differentiator is the capabilities of those people. And that is not something that can be shared, and no other startup can benefit of it.
  - srameshc 2y ago
    It's not always about ideas. Growing startups often have proprietary information they can't share with competitors.
    - deleted 2y ago
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onion2k 2y ago
I think there's something missing from this analysis - YC companies might duplicate one another's products but that doesn't say anything at all about their target markets, route to market, product focus, etc. As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.) You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.
- meiraleal 2y ago
  That's not the case for most dev tools YC startup, they are targeting the same HN users/ other YC startups (trying to sell shovels)
  - fidotron 2y ago
    The great suspicion with YC is what proportion of YC companies have all their customers being a mix of other YC companies and those with shared investors? There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
    - cudgy 2y ago
      > There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated. So, you don’t think that is already the case?
      - fidotron 2y ago
        It was nothing like as bad as this 10 years ago, no. Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.
newsclues 2y ago
Investing in a market opportunity rather than a company or person.
aabhay 2y ago
One of the reasons that YC is so great is that they back founders, not ideas. YC has never backed the same founder twice in a batch to my knowledge, and doing so is antithetical to its values.
blitzar 2y ago
VC sees buzzword in pitch and throws money at it, data shows.
- lccerina 2y ago
  This! Other comments imply some kind of strategy from YC, but it's likely a VC bias and/or a lack of communication inside YC.
paxys 2y ago
> Yet, a deep dive into the data from all of the nearly 5,000 companies YC has backed to date [...] The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.
Ballas 2y ago
It makes sense. If you are an investor and have a strong belief that a specific product or idea is a good one - you might want to decouple your odds of success from the people/team/company executing that idea.
- bingemaker 2y ago
  YC also says that they don't believe in the idea, but the founders ¯\_(ツ)_/¯
  - ethagknight 2y ago
    Seems reasonable to pick two horses in a race you believe is worth running
    - billy-ilograph 2y ago
      This creates an extremely obvious conflict of interest.
      - pavlov 2y ago
        The conflict of interest is simply dead and forgotten in an era where the president-elect has his own cryptocoin, his own social media company, and appoints his billionaire supporters to improve efficiency in the parts of government that directly oversee those billionaires’ own businesses.
        xpe 2y ago
        Yes, political corruption is a drag/loss on everyone except the corrupt ones. Worse, it can shift a system out of its viable operating zone. Corrupt individuals in a market can destroy the market. But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.
wslh 2y ago
That approach is perfectly valid and could even be smarter than other VCs that avoid funding competing projects. I also think that, since YC operates at an earlier stage than major funds like Sequoia, different heuristics could apply. Ultimately, it's about balancing risk and reward—duplicating efforts can increase the chances of success while mitigating risks. Of course, it's not easy to establish processes that help competing companies in the same space without inadvertently favoring one over the other.
phyzome 2y ago
It's interesting how many of the commenters are starting from the assumption that this is both intentional and desirable (or in some other way smart on the part of YC) and then reasoning only on that basis. (Or maybe it's not interesting, since this is on YC's own site... :-P)
- Gormo 2y ago
  Concluding that it's not intentional depends on the premise that they don't know they're doing it, which seems unlikely.
  - smt88 2y ago
    There's an enormous amount of evidence that almost no VC knows what they're doing (almost none beat index funds in the long run). YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy. Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
    - empath75 2y ago
      > Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't. This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket. What VCs do is allocate capital in a way that mitigates risk for themselves. There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company. The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.
mailarchis 2y ago
this was true 17 years back too. dropbox and zumodrive were both in same batch and were tackling the same problem with different approaches. P.S. Not saying its a bad thing. Early stage startups evolve and like YC has shared a lot of the early bet is on the founders.
_heimdall 2y ago
This isn't anything new. Heck, the first season of Silicon Valley called this out with Peter Gregory backing a number of compression startups. Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.
- MrMcCall 2y ago
  It makes sense to scatter a bunch of seeds on fertile ground, and then pick the strongest plant that shows the most growth. There are many kinds of smart, ambitious people; some will form teams that succeed, others will fall prey to unforeseen impediments, and not.
ChrisMarshallNY 2y ago
This isn't really a big deal. Usually, obvious market opportunities have multiple organizations, trying to enter, and it makes sense for an investor to diversify. That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs. A classic Microsoft joke (hope you like Comic Sans): https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM
zitterbewegung 2y ago
Just because you have similar or the same idea doesn’t mean at the end you have a sustainable one. Also, companies get bought out but while ideas are the same execution and scope can change given the level of technology available .
throwaway984393 2y ago
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mst 2y ago
If nothing else, having competition helps validate the market. Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all." e.g. for a lot of business SaaS the only enemy worth caring about is Excel. (I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)
- xpe 2y ago
  Yes, this can happen. How often and under what conditions I’m not sure. I’ll give some other lenses: 1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem. 2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
  - mst 2y ago
    Yes, and as a variant on (1) from the point of view of potential *customers* it makes adoption (at least feel) less risky because if your original chosen supplier goos *poof* there'll be another one to switch to rather than you having to re-adjust your internal processes to go without. (I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
- snarf21 2y ago
  I see it more as more of a hedge. If you believe in the opportunity, placing extra bets makes sense. Uber and Lyft weren't the only ride share companies but sometimes luck wins out and sometimes execution does. Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.
MaxPock 2y ago
Reminds me of some German guys who specialise in copying successful companies and have made billions in the process . https://en.m.wikipedia.org/wiki/Rocket_Internet https://en.m.wikipedia.org/wiki/Rocket_Internet
ninth_ant 2y ago
Of course YC backs multiple companies in the same spaces, they have for quite some time if not from the start. The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.
addcn 2y ago
Useful here-say from some investors at the last few demo days: not all of the companies that are "copiers" apply + are accepted with the "copying" idea. Many founding teams end up pivoting during the batch and scramble to get proof points on the board before demo day. They're most likely to end up pivoting to well-known problems, therefore the clustering around a few common themes. It doesn't explain all of the data, but it's a big part of it. When you have to come up with a fundable new idea in a week and prove it out in a month this can happen...
- svnt 2y ago
  Not to be pedantic but maybe it will help in the future: it is spelled hearsay. You heard someone say it.
gwbas1c 2y ago
> YC commonly accepts startups that are building similar or nearly identical products to previous YC grads. Some of them are direct competitors; others differ slightly by targeting a new geography (Asia or Latin America), or are a subset of a larger market (point-of-sale software for bars versus coffee shops). If you're going "by the book" with Crossing The Chasm, (https://en.wikipedia.org/wiki/Crossing_the_Chasm https://en.wikipedia.org/wiki/Crossing_the_Chasm), all startups need to conquer a niche before they can own an entire market. It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.
- BeefWellington 2y ago
  It seems pretty obvious to me that in modern times successful companies pick a segment of business to build expertise in and then expand outward from there. Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.
T4iga 2y ago
This is reads as if that is negative an unusual. One might think supporting copycats is bad but obviously a company cannot simply be copied and is more than just its product. While a product might be, you can still outclass your competitors with better engineering, or sourcing of materials or marketing. You wonder if this is a telling story about YC or just one about the startup space in general. Possible outcomes include: 1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats. 2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats. 3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be
dangoodmanUT 2y ago
And Garry apologized for being wrong shortly after, but that’s not mentioned?
light_triad 2y ago
> YC startups don’t have to be unique. Far from it. Slow news day. YC has made it clear over the years it's almost all about the founders not the idea. It's almost impossible to know if an idea is good at the early stages, and ideas change, startups pivot, often the timing is wrong, and the market unproven etc. More often than not most of what startups do is not unique, otherwise there's no market for it. A new take on an old idea has a much higher chance of success than something totally new that ends up being too early.
- JumpCrisscross 2y ago
  > More often than not most of what startups do is not unique The message is also that if your start-up is based on deep tech moats choose another seed. (Think of YC's home runs. None had an industry secret/IP secret sauce.)
  - light_triad 2y ago
    YC's roots are definitely the software hacker/painter/kill FAANG from a coffee shop type founders, although they've shown that deep tech teams can make interesting progress without years of R&D. Finding investors that get your idea and can help with their network is paramount. YC might not be the best fit in all cases.
  - j45 2y ago
    YC is more focused on B2B now, so this will change.
  - jedberg 2y ago
    YC has only been investing in deep tech for about a decade, I'm not sure that's long enough for them to have had a home run yet. For example, Boom Supersonic was founded 10 years ago, and just this summer completed their second test flight. They are scheduled to launch commercial operations in 2029. Lucid bots was founded in 2018, and just did their Series A to fund their growth of their autonomous drone fleet. I wouldn't count YC out of the deep tech game just yet.
bhouston 2y ago
I think this is actually okay. Execution matters, not the idea. Also if YC was trying to do coordination between its portfolio companies, it would be against the interests of the founders themselves because the founders do not care if another company in the YC batch succeeds or fails - they don't have a stake in that other company.
- typeofhuman 2y ago
  > Execution matters, not the idea. Execution matters _as much as_ the idea. A good idea executed poorly produces bad results. A bad idea executed well produces bad results. This is what YC is hedging (was it the execution or idea) by investing in duplicative startups.
  - bhouston 2y ago
    I guess I am saying that ideas are a dime a dozen. Every idea will likely get executed by multiple teams - it is incredibly rare for an idea to only get explored by a single team. Those teams that succeed did so because of execution.
  - _fizz_buzz_ 2y ago
    It's more like 90/10. 90% execution and 10% idea. And actually almost all successful startups didn't have "original" ideas: - google wasn't the first search engine - facebook wasn't the first social network - tesla wasn't the first electric car - ChatGPT wasn't the first chat bot
    - deleted 2y ago
      [deleted]
  - snarf21 2y ago
    I disagree. True "good execution" will not produce bad results over the medium and long term but that is what good execution is actually solving for. Good execution should recognize when/how pivots should be made to produce value.
mhh__ 2y ago
Hedge funds that use a "pod" structure (Chinese walled groups of traders) will hire one pod to mimic another pods strategy. Not hard to guess why.
petesergeant 2y ago
I don’t mean this in a bad way, but like, at this point YC’s business model is spray and pray right? They weed out obvious losers, and then use vibes to pick a section of the rest, push them through a standard accelerator program, and demo day at the end, and this works because having been accepted into YC is like being able to say you went to a fancy university: no guarantees on future performance, but you’re probably not an idiot. They should be (and are — YC Fall Batch!) trying to maximise the number of companies they take on while not diminishing returns below their cost of capital and brand dilution. This is not a boutique investment shop.
RecycledEle 2y ago
YC should back duplicate startups because each startup's chance of success is low. If it makes sense to back a startup with a 10% chance of being a big company later, then a second such startup also makes sense, even if there is a 1% chance that they both make it and one of them is not needed. The problem is when someone says the quiet part out loud, and the duplicate startups start talking to each other. The people at one startup refuse to do useful work because they incorrectly believe the other startup have a better idea. You want to leave those decisions to senior management, who can move technologies to make one company successful. Have you ever suddenly received an influx of employees because someone jast realized that there was a duplicate company doing the same thing (fake gasp) and that it was time to combine the best parts of both the get a product? Somehow, despite nobody knowing there were duplicate startups, a proof of concepts has been working for a few months combining the best bits from each of 3 (fake gasp) startups, and the third one had very little to contribute so you will not see their people around. I'm sorry if my post hurts anyone's plans. Fell free to delete it.
whoknowsidont 2y ago
I think a different, perhaps weird, way of looking at this is that YC looks at the founders first and then market opportunity ("idea") secondly as justification. YC doesn't need a single version of an idea to "win", and it's often stated plainly it doesn't even necessarily value the "idea" behind a lot of these investments but the founders themselves. If you look at it that way, it's no surprise that multiple startups are working at the same market opportunity ("idea"), and that YC actually just wanted the founders themselves regardless of whose execution of the "idea" ends up winning (if any).
- paulryanrogers 2y ago
  The cynic in me wonders if one of their goals is to keep the most talented people away from the competition, as cheaply as possible. With the goal of preventing independent competition, which could be seen as a greater threat to their golden boys.
jjulius 2y ago
Pardon my ignorance, but is it wrong for my reaction to this piece to essentially be, "... okay, and?". If we're being honest with ourselves, platitudes are just platitudes and the ultimate point of YC is to further enrich investors, and to enrich founders. Of course they're going to try everything they can to make that happen. It's not like YC's #1 mission is, "Do original, world-changing things", no, it's, "We want more money".
oceanplexian 2y ago
There are a lot of people who seem to think that zero-sum economics is how businesses work when it couldn’t be farther from the truth. For example, if I open a bar downtown it may attract 100 customers. But if two entrepreneurs open two bars next to each other, they might attract 300 customers between them. The same can apply to entire market segments.
neallindsay 2y ago
Making lots of bets is a core part of the venture capital model.
swaptr 2y ago
Not surprising. This reminds me of HBO's Silicon Valley: Ron LaFlamme: So Pied Piper, You're one of Peter's compression plays, huh? Richard: One of? How many does he have? Ron LaFlamme: Not too many, like six or eight. Richard: Okay. Why are there so many? Ron LaFlamme: You know how sea turtles have a s*t ton of babies because most of them die on their way to the water? Peter just wants to make sure that his money makes it to the ocean.
pilingual 2y ago
"Y Combinator seems to be the perfect place for mergers. Every winter for the past three winters, Y Combinator has funded a podcasting company. In winter 2017, Breaker. In winter 2018, The Podcast App. And in winter 2019, Brew." https://dan.bulwinkle.net/blog/there-should-be-more-mergers/ https://dan.bulwinkle.net/blog/there-should-be-more-mergers/
- joshdavham 2y ago
  Any idea why mergers aren’t more common? The article doesn’t really seem to have an answer to that.
  - debacle 2y ago
    How much should one company with a 40mm valuation and no revenue pay for another company with a 25mm valuation and no revenue?
    - joshdavham 2y ago
      Great point. I guess to say it more explicitly, the problem is that the companies are likely over-valued at the early stage and investors would see a merger as a sort of failure?
- josh2600 2y ago
  Mergers in business are like dating. You can't just throw random people in a room and expect that they're going to like one another. It's about establishing shared context. Mergers happen because there is a shared vision that is greater than the two separate companies. Smart entrepreneurs look at the mission and identify the roadblocks to that. Business is a collaborative endeavor. There are very few times in business where there is no way out (and in those moments, it's simply that a thesis was incorrect). You can always run a new experiment. I am reminded of this fine line from Sasha Shulgin "There are no casual experiments." Too often startup folk seek the easy way out instead of the path of least resistance. Be like water.
cynicalpeace 2y ago
"That is already being done" is a good sign in the world of startups. It means there is a market. It's hilariously used to shoot down startup ideas.
Jabbs 2y ago
Does anyone know the best alternatives to YC?
jakubmazanec 2y ago
Is this surprising? almost 10 years ago even Silicon Valley (the TV show) made fun of the fact that the main guys' company was only one of many compression startups their investor invested in.
frigidnonce 2y ago
Diversification is a hedge against ignorance. Investors are always more ignorant than founders to begin with (breadth vs depth), and at the stage YC backs most companies at, even the founders don’t have much of a clue how successful they will be. This is the “correct” investment behavior.
dowager_dan99 2y ago
>> The Silicon Valley dream is to build a tech startup that is such a unique idea it alters the commercial universe and turns its founders into billionaires. The headline is a false assumption. While there are still people who are trying to build off unique ideas to change the world, it seems very few of them are motivated by becoming billionaires. The latter have no intention or particular desire to create a sea change, and actively look to (at best) have a "X for Y" strategy. Even more are "Yet another <already successful> X".
postit 2y ago
To be honest, I would do the same. If it’s a good idea, maybe the only difference between It’s succeeding or fail is the team executing it. So in order to maximize the outcome, you double the bet and it’s even better than have someone doing it outside your control
AlwaysRock 2y ago
I dont think the headline is all that surprising. YC makes a lot of investments and most start ups fail. They are hedging their bets. The more surprising thing about this article is that one YC company blatantly copied anothers product. To the point where the founder said they would start over and build their own product.
logtrees 2y ago
Makes sense. That way it reinforces those accumulated companies so they remain best in class.
tptacek 2y ago
And? As the article says, they've funded thousands of companies. Of course there's overlap. It would be weirder, much weirder, if they kept a conflict list like a law firm and avoided funding things that intersected their portfolio. It's hard to emphasize enough how little YC knows about the companies they fund, and how little influence they have over the companies once they've funded them. Often, there's barely a company at all, just a small team that YC takes a shine to. Even if YC wanted to keep a conflict list, they couldn't: companies joint the program with one idea and launch with another. To have a problem with that is to have a problem with the entire concept of YC; this is the process they invented, that they're notorious for.
- fsckboy 2y ago
  >It would be weirder, much weirder, if they kept a conflict list like a law firm modern portfolio theory (MPT) is the only acceptable measure of investment performance, and calculating co-variance is the salient feature of MPT, so no, it would not be weird to track overlap. to sum it up in a single sentence, is OpenAI a good investment for you at $50 a share? Without even knowing anything else about the company, if the rest of your portfolio is already 100% shares of OpenAI, or even AI companies, no, for you, probably this would not be a good investment: the market does not reward diversifiable risk.
  - tptacek 2y ago
    At 5000 companies this is a little like saying that investors should avoid the S&P 500 because it includes both Coke and Pepsi.
    - fsckboy 2y ago
      it's a good point you raise, you are definitely paying attentiong, but no, that's literally not the right interpretation of what it says. it says you should own both Coke and Pepsi instead of either one exclusively; you actually want Coke, Pepsi, and 7up and Polar and Canada Dry and/or Dr. Pepper and/or whatever else is an independent company. In what proportions should you own them? weighted by their market caps. but you also want to own every other company as well, weighted by their market cap. Wilshire 5000 >> S&P 500 The reason to avoid the S&P is not because it contains competitors, it's because it does not include 4500 other companies. But that aspect of investing is CAPM. Portfolio theory refers to your own portfolio. Never think "I made a great investment in Company X earlier this year." why? because what was the rest of your money in, you didn't put it all in X, did you? And what was your money in when it wasn't in X? You must always look at your entire portfolio, and you must always look all the time. Nobody cares if you won a hand of poker, the question is, how do you do on average and over time.
seizethecheese 2y ago
It’s clear why this is good for YC, but it’s probably also not terrible for founders. I’ve heard of funds that avoid funding competitors passing in investments because they didn’t want to be locked out of other startups in the space. This removes the perverse incentive that the better your idea, the more scrutinized you might be as a founder.This also allows YC to be fund a lot more companies than otherwise.
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nextworddev 2y ago
It’s more the case of YC batch members often copying fellow batch or older batch’s standouts usually
josh_carterPDX 2y ago
We took our startup through Techstars in 2016. The next year they took a very similar company that ended up getting more funding and attention. We didn't understand it at first, but looking back it was definitely because they were the better team. In the end, both teams failed to scale so it ended up being the wrong platform at the wrong time, but if one of them could have taken off then the bet they made would have paid off.
anthomtb 2y ago
Have we forgotten how venture capital (VC) is supposed to work? A new technology comes out. The new tech has high startup costs and low marginal costs. You invest in 10 companies developing this new tech. 8 go bankrupt, one hangs on by a thread, the last one returns 1000x on what you invested. Last I checked, Y-Combinator is still considered a VC firm. Investing in a bunch of firms doing the same or very similar things is what YC should be doing.
- dehrmann 2y ago
  They're really just keeping multiple irons in the fire. If the space is a winner, another player increases YC's chance of betting on the winner. More players also means the space gets explored in different ways.
- frigidnonce 2y ago
  > Last I checked, Y-Combinator is still considered a VC firm. There was a time when pg would come out swinging and say that YC invests their own money which is very different from a VC firm. Well, it did make YC different in the past: they took bets no one else would, which they could afford because of such a position. Is that still true? I’m not sure.
bookofjoe 2y ago
https://news.ycombinator.com/item?id=42235793 https://news.ycombinator.com/item?id=42235793
j45 2y ago
The idea doesn't have to be special, who you are and how you case can be.
jrvarela56 2y ago
I think it's a Jeff Bezos quote, but forgot the source: "I'd rather have 2 of something than 0"
ginkgotree 2y ago
Besides YC investing in founders first (which I do believe is correct, having gone thru 2 batches), to quote the fictional S. R. Hadden from the book and movie "Contact," by the late, great Carl Sagan: "First rule of government spending, 'Why buy one when you can buy two at twice the price'." In other words, I believe this is also a strategy in maximizing investment exposure to great ideas. YC Invested in _both_ Box.net and Dropbox.
SpaceManNabs 2y ago
Investors diversifying into your competition should not be a surprised. And that adversarial reason isn't even the reason YC does this it seems. I think YC is a bit glorified (for good and bad reasons), but "even I" admit a hit piece when I see one.
kittikitti 2y ago
Y Combinator startups are overhyped and the founders need to just look like the VC's grandkid to get money.
- oooGuy 2y ago
  Surprised to see this comment alive. The lazy mod *dang* does not seem to censor this comment.
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389 points by isaacfrond 2y ago

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bwb 2y ago

In executing on an idea, the end result is often very different from where you started. They might look similar now, but in 5 years one went enterprise on feature set and the other consumer etc etc.

blitzar 2y ago
So true, all the Blockchain startups are now LLM startups.
- thih9 2y ago
  You mean there is a trend in existing blockchain startups pivoting to LLMs? Is there a source / more details?

0points 2y ago

reinforcement learning done right, amirite?

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cadamsau 2y ago

Seems like a great idea! Stirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition. My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.

serial_dev 2y ago

It makes sense as an investor, doesn't it, you identify markets you see an opening, you check which companies are in that domain, pick the ones where they can execute and have good people on their team. It would worry me as a startup company, who knows where the information I share with them will end up...

soco 2y ago
A more interesting question is, do you as a startup company have any information worth sharing? Ideas are dime a dozen and like you just said, the differentiator is the capabilities of those people. And that is not something that can be shared, and no other startup can benefit of it.
- srameshc 2y ago
  It's not always about ideas. Growing startups often have proprietary information they can't share with competitors.
  - deleted 2y ago
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onion2k 2y ago

I think there's something missing from this analysis - YC companies might duplicate one another's products but that doesn't say anything at all about their target markets, route to market, product focus, etc. As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.) You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.

meiraleal 2y ago
That's not the case for most dev tools YC startup, they are targeting the same HN users/ other YC startups (trying to sell shovels)
- fidotron 2y ago
  The great suspicion with YC is what proportion of YC companies have all their customers being a mix of other YC companies and those with shared investors? There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
  - cudgy 2y ago
    > There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated. So, you don’t think that is already the case?
    - fidotron 2y ago
      It was nothing like as bad as this 10 years ago, no. Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.

newsclues 2y ago

Investing in a market opportunity rather than a company or person.

aabhay 2y ago

One of the reasons that YC is so great is that they back founders, not ideas. YC has never backed the same founder twice in a batch to my knowledge, and doing so is antithetical to its values.

blitzar 2y ago

VC sees buzzword in pitch and throws money at it, data shows.

lccerina 2y ago
This! Other comments imply some kind of strategy from YC, but it's likely a VC bias and/or a lack of communication inside YC.

paxys 2y ago

> Yet, a deep dive into the data from all of the nearly 5,000 companies YC has backed to date [...] The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.

Ballas 2y ago

It makes sense. If you are an investor and have a strong belief that a specific product or idea is a good one - you might want to decouple your odds of success from the people/team/company executing that idea.

bingemaker 2y ago
YC also says that they don't believe in the idea, but the founders ¯\_(ツ)_/¯
- ethagknight 2y ago
  Seems reasonable to pick two horses in a race you believe is worth running
  - billy-ilograph 2y ago
    This creates an extremely obvious conflict of interest.
    - pavlov 2y ago
      The conflict of interest is simply dead and forgotten in an era where the president-elect has his own cryptocoin, his own social media company, and appoints his billionaire supporters to improve efficiency in the parts of government that directly oversee those billionaires’ own businesses.
      - xpe 2y ago
        Yes, political corruption is a drag/loss on everyone except the corrupt ones. Worse, it can shift a system out of its viable operating zone. Corrupt individuals in a market can destroy the market. But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.

wslh 2y ago

That approach is perfectly valid and could even be smarter than other VCs that avoid funding competing projects. I also think that, since YC operates at an earlier stage than major funds like Sequoia, different heuristics could apply. Ultimately, it's about balancing risk and reward—duplicating efforts can increase the chances of success while mitigating risks. Of course, it's not easy to establish processes that help competing companies in the same space without inadvertently favoring one over the other.

phyzome 2y ago

It's interesting how many of the commenters are starting from the assumption that this is both intentional and desirable (or in some other way smart on the part of YC) and then reasoning only on that basis. (Or maybe it's not interesting, since this is on YC's own site... :-P)

Gormo 2y ago
Concluding that it's not intentional depends on the premise that they don't know they're doing it, which seems unlikely.
- smt88 2y ago
  There's an enormous amount of evidence that almost no VC knows what they're doing (almost none beat index funds in the long run). YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy. Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
  - empath75 2y ago
    > Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't. This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket. What VCs do is allocate capital in a way that mitigates risk for themselves. There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company. The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.

mailarchis 2y ago

this was true 17 years back too. dropbox and zumodrive were both in same batch and were tackling the same problem with different approaches. P.S. Not saying its a bad thing. Early stage startups evolve and like YC has shared a lot of the early bet is on the founders.

_heimdall 2y ago

This isn't anything new. Heck, the first season of Silicon Valley called this out with Peter Gregory backing a number of compression startups. Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.

MrMcCall 2y ago
It makes sense to scatter a bunch of seeds on fertile ground, and then pick the strongest plant that shows the most growth. There are many kinds of smart, ambitious people; some will form teams that succeed, others will fall prey to unforeseen impediments, and not.

ChrisMarshallNY 2y ago

This isn't really a big deal. Usually, obvious market opportunities have multiple organizations, trying to enter, and it makes sense for an investor to diversify. That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs. A classic Microsoft joke (hope you like Comic Sans): https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM

zitterbewegung 2y ago

Just because you have similar or the same idea doesn’t mean at the end you have a sustainable one. Also, companies get bought out but while ideas are the same execution and scope can change given the level of technology available .

throwaway984393 2y ago

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mst 2y ago

If nothing else, having competition helps validate the market. Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all." e.g. for a lot of business SaaS the only enemy worth caring about is Excel. (I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)

xpe 2y ago
Yes, this can happen. How often and under what conditions I’m not sure. I’ll give some other lenses: 1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem. 2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
- mst 2y ago
  Yes, and as a variant on (1) from the point of view of potential *customers* it makes adoption (at least feel) less risky because if your original chosen supplier goos *poof* there'll be another one to switch to rather than you having to re-adjust your internal processes to go without. (I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
snarf21 2y ago
I see it more as more of a hedge. If you believe in the opportunity, placing extra bets makes sense. Uber and Lyft weren't the only ride share companies but sometimes luck wins out and sometimes execution does. Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.

MaxPock 2y ago

Reminds me of some German guys who specialise in copying successful companies and have made billions in the process . https://en.m.wikipedia.org/wiki/Rocket_Internet https://en.m.wikipedia.org/wiki/Rocket_Internet

ninth_ant 2y ago

Of course YC backs multiple companies in the same spaces, they have for quite some time if not from the start. The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.

addcn 2y ago

Useful here-say from some investors at the last few demo days: not all of the companies that are "copiers" apply + are accepted with the "copying" idea. Many founding teams end up pivoting during the batch and scramble to get proof points on the board before demo day. They're most likely to end up pivoting to well-known problems, therefore the clustering around a few common themes. It doesn't explain all of the data, but it's a big part of it. When you have to come up with a fundable new idea in a week and prove it out in a month this can happen...

svnt 2y ago
Not to be pedantic but maybe it will help in the future: it is spelled hearsay. You heard someone say it.

gwbas1c 2y ago

> YC commonly accepts startups that are building similar or nearly identical products to previous YC grads. Some of them are direct competitors; others differ slightly by targeting a new geography (Asia or Latin America), or are a subset of a larger market (point-of-sale software for bars versus coffee shops). If you're going "by the book" with Crossing The Chasm, (https://en.wikipedia.org/wiki/Crossing_the_Chasm https://en.wikipedia.org/wiki/Crossing_the_Chasm), all startups need to conquer a niche before they can own an entire market. It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.

BeefWellington 2y ago
It seems pretty obvious to me that in modern times successful companies pick a segment of business to build expertise in and then expand outward from there. Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.

T4iga 2y ago

This is reads as if that is negative an unusual. One might think supporting copycats is bad but obviously a company cannot simply be copied and is more than just its product. While a product might be, you can still outclass your competitors with better engineering, or sourcing of materials or marketing. You wonder if this is a telling story about YC or just one about the startup space in general. Possible outcomes include: 1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats. 2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats. 3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be

dangoodmanUT 2y ago

And Garry apologized for being wrong shortly after, but that’s not mentioned?

light_triad 2y ago

> YC startups don’t have to be unique. Far from it. Slow news day. YC has made it clear over the years it's almost all about the founders not the idea. It's almost impossible to know if an idea is good at the early stages, and ideas change, startups pivot, often the timing is wrong, and the market unproven etc. More often than not most of what startups do is not unique, otherwise there's no market for it. A new take on an old idea has a much higher chance of success than something totally new that ends up being too early.

JumpCrisscross 2y ago
> More often than not most of what startups do is not unique The message is also that if your start-up is based on deep tech moats choose another seed. (Think of YC's home runs. None had an industry secret/IP secret sauce.)
- light_triad 2y ago
  YC's roots are definitely the software hacker/painter/kill FAANG from a coffee shop type founders, although they've shown that deep tech teams can make interesting progress without years of R&D. Finding investors that get your idea and can help with their network is paramount. YC might not be the best fit in all cases.
- j45 2y ago
  YC is more focused on B2B now, so this will change.
- jedberg 2y ago
  YC has only been investing in deep tech for about a decade, I'm not sure that's long enough for them to have had a home run yet. For example, Boom Supersonic was founded 10 years ago, and just this summer completed their second test flight. They are scheduled to launch commercial operations in 2029. Lucid bots was founded in 2018, and just did their Series A to fund their growth of their autonomous drone fleet. I wouldn't count YC out of the deep tech game just yet.

bhouston 2y ago

I think this is actually okay. Execution matters, not the idea. Also if YC was trying to do coordination between its portfolio companies, it would be against the interests of the founders themselves because the founders do not care if another company in the YC batch succeeds or fails - they don't have a stake in that other company.

typeofhuman 2y ago
> Execution matters, not the idea. Execution matters _as much as_ the idea. A good idea executed poorly produces bad results. A bad idea executed well produces bad results. This is what YC is hedging (was it the execution or idea) by investing in duplicative startups.
- bhouston 2y ago
  I guess I am saying that ideas are a dime a dozen. Every idea will likely get executed by multiple teams - it is incredibly rare for an idea to only get explored by a single team. Those teams that succeed did so because of execution.
- _fizz_buzz_ 2y ago
  It's more like 90/10. 90% execution and 10% idea. And actually almost all successful startups didn't have "original" ideas: - google wasn't the first search engine - facebook wasn't the first social network - tesla wasn't the first electric car - ChatGPT wasn't the first chat bot
  - deleted 2y ago
    [deleted]
- snarf21 2y ago
  I disagree. True "good execution" will not produce bad results over the medium and long term but that is what good execution is actually solving for. Good execution should recognize when/how pivots should be made to produce value.

mhh__ 2y ago

Hedge funds that use a "pod" structure (Chinese walled groups of traders) will hire one pod to mimic another pods strategy. Not hard to guess why.

petesergeant 2y ago

I don’t mean this in a bad way, but like, at this point YC’s business model is spray and pray right? They weed out obvious losers, and then use vibes to pick a section of the rest, push them through a standard accelerator program, and demo day at the end, and this works because having been accepted into YC is like being able to say you went to a fancy university: no guarantees on future performance, but you’re probably not an idiot. They should be (and are — YC Fall Batch!) trying to maximise the number of companies they take on while not diminishing returns below their cost of capital and brand dilution. This is not a boutique investment shop.

RecycledEle 2y ago

YC should back duplicate startups because each startup's chance of success is low. If it makes sense to back a startup with a 10% chance of being a big company later, then a second such startup also makes sense, even if there is a 1% chance that they both make it and one of them is not needed. The problem is when someone says the quiet part out loud, and the duplicate startups start talking to each other. The people at one startup refuse to do useful work because they incorrectly believe the other startup have a better idea. You want to leave those decisions to senior management, who can move technologies to make one company successful. Have you ever suddenly received an influx of employees because someone jast realized that there was a duplicate company doing the same thing (fake gasp) and that it was time to combine the best parts of both the get a product? Somehow, despite nobody knowing there were duplicate startups, a proof of concepts has been working for a few months combining the best bits from each of 3 (fake gasp) startups, and the third one had very little to contribute so you will not see their people around. I'm sorry if my post hurts anyone's plans. Fell free to delete it.

whoknowsidont 2y ago

I think a different, perhaps weird, way of looking at this is that YC looks at the founders first and then market opportunity ("idea") secondly as justification. YC doesn't need a single version of an idea to "win", and it's often stated plainly it doesn't even necessarily value the "idea" behind a lot of these investments but the founders themselves. If you look at it that way, it's no surprise that multiple startups are working at the same market opportunity ("idea"), and that YC actually just wanted the founders themselves regardless of whose execution of the "idea" ends up winning (if any).

paulryanrogers 2y ago
The cynic in me wonders if one of their goals is to keep the most talented people away from the competition, as cheaply as possible. With the goal of preventing independent competition, which could be seen as a greater threat to their golden boys.

jjulius 2y ago

Pardon my ignorance, but is it wrong for my reaction to this piece to essentially be, "... okay, and?". If we're being honest with ourselves, platitudes are just platitudes and the ultimate point of YC is to further enrich investors, and to enrich founders. Of course they're going to try everything they can to make that happen. It's not like YC's #1 mission is, "Do original, world-changing things", no, it's, "We want more money".

oceanplexian 2y ago

There are a lot of people who seem to think that zero-sum economics is how businesses work when it couldn’t be farther from the truth. For example, if I open a bar downtown it may attract 100 customers. But if two entrepreneurs open two bars next to each other, they might attract 300 customers between them. The same can apply to entire market segments.

neallindsay 2y ago

Making lots of bets is a core part of the venture capital model.

swaptr 2y ago

Not surprising. This reminds me of HBO's Silicon Valley: Ron LaFlamme: So Pied Piper, You're one of Peter's compression plays, huh? Richard: One of? How many does he have? Ron LaFlamme: Not too many, like six or eight. Richard: Okay. Why are there so many? Ron LaFlamme: You know how sea turtles have a s*t ton of babies because most of them die on their way to the water? Peter just wants to make sure that his money makes it to the ocean.

pilingual 2y ago

"Y Combinator seems to be the perfect place for mergers. Every winter for the past three winters, Y Combinator has funded a podcasting company. In winter 2017, Breaker. In winter 2018, The Podcast App. And in winter 2019, Brew." https://dan.bulwinkle.net/blog/there-should-be-more-mergers/ https://dan.bulwinkle.net/blog/there-should-be-more-mergers/

joshdavham 2y ago
Any idea why mergers aren’t more common? The article doesn’t really seem to have an answer to that.
- debacle 2y ago
  How much should one company with a 40mm valuation and no revenue pay for another company with a 25mm valuation and no revenue?
  - joshdavham 2y ago
    Great point. I guess to say it more explicitly, the problem is that the companies are likely over-valued at the early stage and investors would see a merger as a sort of failure?
josh2600 2y ago
Mergers in business are like dating. You can't just throw random people in a room and expect that they're going to like one another. It's about establishing shared context. Mergers happen because there is a shared vision that is greater than the two separate companies. Smart entrepreneurs look at the mission and identify the roadblocks to that. Business is a collaborative endeavor. There are very few times in business where there is no way out (and in those moments, it's simply that a thesis was incorrect). You can always run a new experiment. I am reminded of this fine line from Sasha Shulgin "There are no casual experiments." Too often startup folk seek the easy way out instead of the path of least resistance. Be like water.

cynicalpeace 2y ago

"That is already being done" is a good sign in the world of startups. It means there is a market. It's hilariously used to shoot down startup ideas.

Jabbs 2y ago

Does anyone know the best alternatives to YC?

jakubmazanec 2y ago

Is this surprising? almost 10 years ago even Silicon Valley (the TV show) made fun of the fact that the main guys' company was only one of many compression startups their investor invested in.

frigidnonce 2y ago

Diversification is a hedge against ignorance. Investors are always more ignorant than founders to begin with (breadth vs depth), and at the stage YC backs most companies at, even the founders don’t have much of a clue how successful they will be. This is the “correct” investment behavior.

dowager_dan99 2y ago

>> The Silicon Valley dream is to build a tech startup that is such a unique idea it alters the commercial universe and turns its founders into billionaires. The headline is a false assumption. While there are still people who are trying to build off unique ideas to change the world, it seems very few of them are motivated by becoming billionaires. The latter have no intention or particular desire to create a sea change, and actively look to (at best) have a "X for Y" strategy. Even more are "Yet another <already successful> X".

postit 2y ago

To be honest, I would do the same. If it’s a good idea, maybe the only difference between It’s succeeding or fail is the team executing it. So in order to maximize the outcome, you double the bet and it’s even better than have someone doing it outside your control

AlwaysRock 2y ago

I dont think the headline is all that surprising. YC makes a lot of investments and most start ups fail. They are hedging their bets. The more surprising thing about this article is that one YC company blatantly copied anothers product. To the point where the founder said they would start over and build their own product.

logtrees 2y ago

Makes sense. That way it reinforces those accumulated companies so they remain best in class.

tptacek 2y ago

And? As the article says, they've funded thousands of companies. Of course there's overlap. It would be weirder, much weirder, if they kept a conflict list like a law firm and avoided funding things that intersected their portfolio. It's hard to emphasize enough how little YC knows about the companies they fund, and how little influence they have over the companies once they've funded them. Often, there's barely a company at all, just a small team that YC takes a shine to. Even if YC wanted to keep a conflict list, they couldn't: companies joint the program with one idea and launch with another. To have a problem with that is to have a problem with the entire concept of YC; this is the process they invented, that they're notorious for.

fsckboy 2y ago
>It would be weirder, much weirder, if they kept a conflict list like a law firm modern portfolio theory (MPT) is the only acceptable measure of investment performance, and calculating co-variance is the salient feature of MPT, so no, it would not be weird to track overlap. to sum it up in a single sentence, is OpenAI a good investment for you at $50 a share? Without even knowing anything else about the company, if the rest of your portfolio is already 100% shares of OpenAI, or even AI companies, no, for you, probably this would not be a good investment: the market does not reward diversifiable risk.
- tptacek 2y ago
  At 5000 companies this is a little like saying that investors should avoid the S&P 500 because it includes both Coke and Pepsi.
  - fsckboy 2y ago
    it's a good point you raise, you are definitely paying attentiong, but no, that's literally not the right interpretation of what it says. it says you should own both Coke and Pepsi instead of either one exclusively; you actually want Coke, Pepsi, and 7up and Polar and Canada Dry and/or Dr. Pepper and/or whatever else is an independent company. In what proportions should you own them? weighted by their market caps. but you also want to own every other company as well, weighted by their market cap. Wilshire 5000 >> S&P 500 The reason to avoid the S&P is not because it contains competitors, it's because it does not include 4500 other companies. But that aspect of investing is CAPM. Portfolio theory refers to your own portfolio. Never think "I made a great investment in Company X earlier this year." why? because what was the rest of your money in, you didn't put it all in X, did you? And what was your money in when it wasn't in X? You must always look at your entire portfolio, and you must always look all the time. Nobody cares if you won a hand of poker, the question is, how do you do on average and over time.

seizethecheese 2y ago

It’s clear why this is good for YC, but it’s probably also not terrible for founders. I’ve heard of funds that avoid funding competitors passing in investments because they didn’t want to be locked out of other startups in the space. This removes the perverse incentive that the better your idea, the more scrutinized you might be as a founder.This also allows YC to be fund a lot more companies than otherwise.

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nextworddev 2y ago

It’s more the case of YC batch members often copying fellow batch or older batch’s standouts usually

josh_carterPDX 2y ago

We took our startup through Techstars in 2016. The next year they took a very similar company that ended up getting more funding and attention. We didn't understand it at first, but looking back it was definitely because they were the better team. In the end, both teams failed to scale so it ended up being the wrong platform at the wrong time, but if one of them could have taken off then the bet they made would have paid off.

anthomtb 2y ago

Have we forgotten how venture capital (VC) is supposed to work? A new technology comes out. The new tech has high startup costs and low marginal costs. You invest in 10 companies developing this new tech. 8 go bankrupt, one hangs on by a thread, the last one returns 1000x on what you invested. Last I checked, Y-Combinator is still considered a VC firm. Investing in a bunch of firms doing the same or very similar things is what YC should be doing.

dehrmann 2y ago
They're really just keeping multiple irons in the fire. If the space is a winner, another player increases YC's chance of betting on the winner. More players also means the space gets explored in different ways.
frigidnonce 2y ago
> Last I checked, Y-Combinator is still considered a VC firm. There was a time when pg would come out swinging and say that YC invests their own money which is very different from a VC firm. Well, it did make YC different in the past: they took bets no one else would, which they could afford because of such a position. Is that still true? I’m not sure.

bookofjoe 2y ago

https://news.ycombinator.com/item?id=42235793 https://news.ycombinator.com/item?id=42235793

j45 2y ago

The idea doesn't have to be special, who you are and how you case can be.

jrvarela56 2y ago

I think it's a Jeff Bezos quote, but forgot the source: "I'd rather have 2 of something than 0"

ginkgotree 2y ago

Besides YC investing in founders first (which I do believe is correct, having gone thru 2 batches), to quote the fictional S. R. Hadden from the book and movie "Contact," by the late, great Carl Sagan: "First rule of government spending, 'Why buy one when you can buy two at twice the price'." In other words, I believe this is also a strategy in maximizing investment exposure to great ideas. YC Invested in _both_ Box.net and Dropbox.

SpaceManNabs 2y ago

Investors diversifying into your competition should not be a surprised. And that adversarial reason isn't even the reason YC does this it seems. I think YC is a bit glorified (for good and bad reasons), but "even I" admit a hit piece when I see one.

kittikitti 2y ago

Y Combinator startups are overhyped and the founders need to just look like the VC's grandkid to get money.

oooGuy 2y ago
Surprised to see this comment alive. The lazy mod *dang* does not seem to censor this comment.

deleted 2y ago

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