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There's a pretty interesting lesson for potential YC candidates, particularly the ones that get turned down, here. When you interview a startup and think "they

by mixmax 14y ago

There's a pretty interesting lesson for potential YC candidates, particularly the ones that get turned down, here. When you interview a startup and think "they seem likely to succeed," it's hard not to fund them. And yet, financially at least, there is only one kind of success: they're either going to be one of the really big winners or not, and if not it doesn't matter whether you fund them, because even if they succeed the effect on your returns will be insignificant. What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in. But you and your startup are in a different business: Your measure of success isn't the same as Ycombinators. If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. But as the post points out that won't be enough for YC since they need to fund a lot of other startups that will inevitably fail out of their minority share. Thus they need a much bigger success. If you get turned down for YC it might well be that your idea is just a sound business idea that YC doesn't consider just crazy enough that it might make them a billion dollars. But that doesn't mean that it won't make you a million.

robryan 14y ago
At the same time YC doesn't mind those businesses and certainly ha a lot to offer them. Just when defining success of the fund as a whole these businesses at comparatively little to that. Granted when they initially pick your business it is probably by because you explained what a great lifestyle business it will be.
thaumaturgy 14y ago
That was my knee-jerk reaction to it too, but I re-read it more carefully and paid attention to the parts that specifically say that that's not what they're looking for. e.g.: > I'm not saying that the big winners are all that matters, just that they're all that matters financially for investors. Since we're not doing YC mainly for financial reasons, the big winners aren't all that matters to us. Also, > If we ever got to the point where 100% of the startups we funded were able to raise money after Demo Day, it would almost certainly mean we were being too conservative. (and the entire rest of that section talking about how they can afford to take huge risks, and should be.) On the whole, this piece sounds like some observations and thoughts from pg, and nothing more. I think founders shouldn't try to read too much into it, specifically whether or not YC would be interested in their business. YC might choose to fund you just because they like you.
yesimahuman 14y ago
I've been rejected from YC several times, two of which were in interviews. The most recent rejection was supposedly because they thought it was unclear we could become a large venture backed company. I've also had YC founders trying to hire my co-founder and I, questioning why we were still running our company after the rejection. Despite the rejection we are growing each month, turning down acquisition offers, our customers love our products, and at 24 years old, we are learning a ton. We have no investors, are profitable, and have a lot of time to grow the company and work on crazy ideas. I am having the time of my life. It's really important to understand the business YC is in, and to separate your self-worth from it. It's also important to not hold any negative feelings towards them, since they are merely trying to maximize their outcomes, and they know the market quite well. Go follow your passions and make stuff people love. The rest will follow.
deleted 14y ago
[deleted]
a45l98 14y ago
But you have to convey the sense that annual profits of one million is not your idea of "success". Because if that is your idea of success, you will not likely be the "big winner" that YC is looking for. Put an evil twinkle in your eye and make internet VC think you want to rule the world and will lie, cheat and steal to achieve this, when truly you're just an honest kid with good morals who'd be happy living a modest but financially secure lifestyle. Founder 1 Internet VC 0
pmarca 14y ago
> If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. I see this a lot from various corners of the startup ecosystem, particularly 37 Signals and their followers. The problem is that it's not really true, by which I mean there are not very many examples of it begin true, and there is an excellent reason to believe that it may never be true. Which is: you need to find a market big enough to support "lifestyle income" (or your million dollars a year) but not big enough that a startup or growth technology company that is really good at doing things at scale isn't just going to eat it, and kill you in the process. One of the reasons Jason Fried needs to yell so loudly about 37 Signals being the model for lots of other companies is because it's really not -- it's really rare to find a lifestyle technology business.
- dbul 14y ago
  One of the reasons Jason Fried needs to yell so loudly... Another reason: marketing. People don't get that.
- patio11 14y ago
  it's really rare to find a lifestyle technology business. The traditional challenge you'd level here is "Name three" (37signals, Fog Creek, Balsamiq) but, due to the type of people I hang out with, I could get to fifty before having to slow down and start checking my Gmail. A friend of mine who is in the selling shovels business estimated that there are 30,000 firms selling SaaS. (That number struck me as crazy until I realized that, oh yeah, I'm routinely in rooms with several hundred of them at once.) The overwhelming majority will never raise outside capital.
  - dirtyaura 14y ago
    Are those fifty making 1 million dollars a year (per founder) from products? I mean it's obvious that you can make a good living in tech by consulting, but I'm curious how many "lifestyle" product companies are out there that make profit in millions.
    - deleted 14y ago
greendestiny 14y ago
"What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in." I think it means more than this - it means if you invest in companies the homeruns will dominate your returns no matter your preferences for it to be otherwise. So there might be no model of systematic investment that makes sense investing in companies with no homerun potential. At least at the risk levels of software startups.
aptwebapps 14y ago
"What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in." Not really. He's saying that going by the numbers _should_ be only looking for homeruns but, for a number of different reasons, they don't do that.

by mixmax 14y ago

robryan 14y ago

At the same time YC doesn't mind those businesses and certainly ha a lot to offer them. Just when defining success of the fund as a whole these businesses at comparatively little to that. Granted when they initially pick your business it is probably by because you explained what a great lifestyle business it will be.

thaumaturgy 14y ago

That was my knee-jerk reaction to it too, but I re-read it more carefully and paid attention to the parts that specifically say that that's not what they're looking for. e.g.: > I'm not saying that the big winners are all that matters, just that they're all that matters financially for investors. Since we're not doing YC mainly for financial reasons, the big winners aren't all that matters to us. Also, > If we ever got to the point where 100% of the startups we funded were able to raise money after Demo Day, it would almost certainly mean we were being too conservative. (and the entire rest of that section talking about how they can afford to take huge risks, and should be.) On the whole, this piece sounds like some observations and thoughts from pg, and nothing more. I think founders shouldn't try to read too much into it, specifically whether or not YC would be interested in their business. YC might choose to fund you just because they like you.

yesimahuman 14y ago

I've been rejected from YC several times, two of which were in interviews. The most recent rejection was supposedly because they thought it was unclear we could become a large venture backed company. I've also had YC founders trying to hire my co-founder and I, questioning why we were still running our company after the rejection. Despite the rejection we are growing each month, turning down acquisition offers, our customers love our products, and at 24 years old, we are learning a ton. We have no investors, are profitable, and have a lot of time to grow the company and work on crazy ideas. I am having the time of my life. It's really important to understand the business YC is in, and to separate your self-worth from it. It's also important to not hold any negative feelings towards them, since they are merely trying to maximize their outcomes, and they know the market quite well. Go follow your passions and make stuff people love. The rest will follow.

deleted 14y ago

[deleted]

a45l98 14y ago

But you have to convey the sense that annual profits of one million is not your idea of "success". Because if that is your idea of success, you will not likely be the "big winner" that YC is looking for. Put an evil twinkle in your eye and make internet VC think you want to rule the world and will lie, cheat and steal to achieve this, when truly you're just an honest kid with good morals who'd be happy living a modest but financially secure lifestyle. Founder 1 Internet VC 0

pmarca 14y ago

> If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. I see this a lot from various corners of the startup ecosystem, particularly 37 Signals and their followers. The problem is that it's not really true, by which I mean there are not very many examples of it begin true, and there is an excellent reason to believe that it may never be true. Which is: you need to find a market big enough to support "lifestyle income" (or your million dollars a year) but not big enough that a startup or growth technology company that is really good at doing things at scale isn't just going to eat it, and kill you in the process. One of the reasons Jason Fried needs to yell so loudly about 37 Signals being the model for lots of other companies is because it's really not -- it's really rare to find a lifestyle technology business.

dbul 14y ago
One of the reasons Jason Fried needs to yell so loudly... Another reason: marketing. People don't get that.
patio11 14y ago
it's really rare to find a lifestyle technology business. The traditional challenge you'd level here is "Name three" (37signals, Fog Creek, Balsamiq) but, due to the type of people I hang out with, I could get to fifty before having to slow down and start checking my Gmail. A friend of mine who is in the selling shovels business estimated that there are 30,000 firms selling SaaS. (That number struck me as crazy until I realized that, oh yeah, I'm routinely in rooms with several hundred of them at once.) The overwhelming majority will never raise outside capital.
- dirtyaura 14y ago
  Are those fifty making 1 million dollars a year (per founder) from products? I mean it's obvious that you can make a good living in tech by consulting, but I'm curious how many "lifestyle" product companies are out there that make profit in millions.
  - deleted 14y ago

greendestiny 14y ago

"What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in." I think it means more than this - it means if you invest in companies the homeruns will dominate your returns no matter your preferences for it to be otherwise. So there might be no model of systematic investment that makes sense investing in companies with no homerun potential. At least at the risk levels of software startups.

aptwebapps 14y ago

"What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in." Not really. He's saying that going by the numbers _should_ be only looking for homeruns but, for a number of different reasons, they don't do that.