While it sure is generous and I'm sure the founders appreciate it, a couple of months worth of rent and ramen noodle money isn't really funding a company. What you describe is already what YC is- it's just making sure that you are available full-time to really do something about the advice and contacts. :)
Yeah, given the amount YC gives it's as if they just want to make sure poorer founders won't have to get day jobs in the time they've alloted to impart advice.
That's exactly how we look at it: the most important thing we offer is advice and connections, and the money is just to pay your living expenses so that you can focus entirely on the startup for long enough to get it properly launched.
It always annoys us when people say YC is a ripoff because we want an avg of 6% of a co for $15-20k. One reason we don't argue (much) with people who say that is that we treat the question as a sort of preliminary IQ test in the application process.
hoarding your equity like it's gold dust is a typical mistake of inexperienced founders. we did exactly the same and it got us nowhere. when we realised our equity was worthless unless it was held by the right people, with the right connections, things moved far more smoothly.
Sound good in principle but there are a lot of people who want advice. You need to find a way to prioritise who would benefit most from your advice and connections. What better way to decide than to ask yourself "Who would I invest in?". Then you're back at the YCombinator model.
If someone can figure out how to make this work then great. I'm not sure YC will work without you narrowing applicants down and giving them money.
Perhaps instead of having a single team who advise founders you could have a self supporting community. Put all the startups in a coworking/barcamp like environment for a summer and tell them to help each other out and to share connections. It would be interesting to see how well they could do on their own. You still have the problem of where they would get money to stay alive without funding.
[sorry if this is incoherent, I'm sleepy. Will edit to make sense in the morning]
Because (a) putting our own money in is a test of our commitment and forces us to pay attention, and (b) a lot of the founders would be distracted by money issues and wouldn't be able to focus on their startups.
1.) Y Combinator's advice and connections are a limited resource. There are only so many phone calls their partners can make in a day. Y Combinator's business is not scalable unless they generate more y combinators.
2.) Y Combinator's application process allows them to invest in startups that are most likely to succeed. If they spread their resources around a larger base of companies, they would be investing in startups less likely to success. With more failures, their return on investment would fall, not rise.
Actually the scalability of YC is a fascinating question. As hackers we're always thinking about that. And of course as hackers we have ideas about how to do it. We've been gradually growing the number of startups in each batch. But we often speculate about what we'd have to do to fund, say, 1000 startups per year. There has to be some way to do it. Whatever the answer is, it would be something to see, wouldn't it?
I think the reason everyone is applying to YC is because of networking and connections which is really valuable. Now, if there were 1000 companies being funded by YC it means there would be so many people with access to these connections. Which means the value of YC's network would drop. A lot of people then wouldn't feel really erged to apply while this competition the are feeling among them when applying, would be lost, if anyone with iq higher than 130 was getting funded...
*update:
more people getting funded = (lim markets - shrinks/saturation) => probability people fail > probability people succeed => bubble breaks
this will be the feelings and hopes bubble, and not investments bubble, because obviously whereas with the same money (e.g. 1 million USD) invested during 1999 only 1 company could appear, using YC's approach with the same money, more startups are given birth.
Thus this is the bubble also but not in investors return (because the rate of propability increases using YC's approach) but in founders feelings...
VCs = Angels = YC = Agents They all finance and support young entities for a % of a future asset.
Compare a very scalable model, IMG Worldwide. Take baseball for comparison sake.
Talent Scout = PG colleague who reviews applications using performance criteria = bank using advanced credit scoring system to approve or reject loans
Reddit = Alfonso Soriano = Successful loan applicant
Paul Allen = PG = Drew Rosenhaus
YC is popular not because they aren't a VC but because they are a VC who provides more perceived value for what they charge. That means just like IMG, their model is scalable as long as their value proposition is maintained and continues to be favored. All YC needs to do to fund 1,000 companies next year is to hire/acquire/develop 50 more PGs with specialties in more focused markets and sub-markets. Not simple but definitately doable. Also fully automate the application and evaluation process so that "people" only touch the top 3%. Continue to be careful with funding amounts but generous with time and connections. Continue to distribute and increase your value through your customers by financing their meeting each other and adding value to each other. Basically, YC is a social network with most of the value right now distributed offline through their customers. News@YC will change that to be sure. I think it's not only possible to grow up real big, but the direction you are already headed. Just make sure your scalability has a bit of Ben & Jerry's thrown in, they did a great job of keeping their value system in place long after they grew. PG, you mentioned it's the scaling of the partners responsibilities that is hard. If the partners maintain the integrity of the barriers to entry (active role in developing and maintaining your application evaluation tool) and support (ensuring key events and high-level connections are solid and cascaded down from their organizations to yours) you can do it. Just my $.02.
So what your suggesting is creating mini YCs with specialist interests?
For example you could have a mobile apps 'agent'. This person would seek out the best ideas for mobile apps, find the best teams, maintain connections with mobile blogs & mobile network operators and pass the best teams back up to main YC.
O'r you could have geographical specialists who, for example, look out for startups in the UK and send the most promising over to Boston/Mountain View.
Yeah Dan, that's right on. The basic business practices employed today would flow through to the tentacles of specialization and the over reaching controls and management would still reside at the top like any other holding company structure. It's likely you could improve on the typical holding company structure but something along those lines. I work at the Group level of a global financial services firm and I think my stripes are showing a bit here :) Not just mobile apps but also a p2p apps expert, b2b apps expert, transaction processing expert...the options are as broad as the marketplace. I'm thinking big.
The issue with scalability is the same problem many corporations faced 50 years ago. This was before Ray Kroc turned McDonalds into a "turn-key" operation. This model provides the franchisee licensed trademark along with tried and proven methods of doing that particular business; which, in our case, involves establishing mini-YC companies to fund startups.
For scalability, YC will need to experiment with establishing several offices around the country and then provide guidance, connections, and resources from the central office to all the smaller branches. The essence of turn-key operations is to work on building a business rather than the product.
I don't claim to know much about this. So if anyone is interested, they should check out "The E-Myth Revisited".
How about inserting a clause in your funding agreement? Any company that you fund should provide a small percentage of profits + time to help new founders.
This small percentage of profits would be given to YC, on condition that YC would use it exclusively to fund new companies. Of course, 'profit' implies that YC would be able to fund 1000 startups a year only if its existing investments are successful. Essentially, YC would earn the opportunity to increase the # of companies it funds based on the success of its previous investments.
And as for the founders time, it seems you already have that covered.
The most limited resource seems to be your time. I don't think there's an easy answer to that one. You may need to expand your partnership....
The question for me is: are there even 1000 companies worth funding every year? That would be cool to see. Perhaps some of the profits could be directed towards developing the base of potential entrepreneurs.
How about hooking up previously-successful YC entrepeneurs with new applicants? At this point, I'd value the Reddit guys as much as mentors as you or RTM (no offense).
YC would then grow like a B-tree. In the beginning, all founders are on the same "page". As the page grows beyond its size limits, the page is split, successful founders are promoted up to the parent level, and there's more room to new founders at the leaves.
You'd need to run it by former YC-entrepeneurs, and it'll probably be a few years until their startups are self-sustaining (or bust) enough for them to take on other projects. But if they're like other entrepeneurs at all, they'd probably love to take a role in mentoring new YC applicants.
We already do this. We actively introduce new founders to "alumni" that can help them. There are now a lot of them. At the first dinner, instead of having an outside expert speak, we invite all the alumni. This time there were more speakers than audience at that dinner.
The peer-to-peer aspect of YC already scales. The hard part to scale is what we partners do.
Considering that what the partners do is the most valuable aspect of YC, I don't see this scaling without adding more partners. This begs the question of what YC is: is it a company that forms more companies, or is it an angel-firm that creates more angel-firms?
The latter can work only by forming these new angel-firms in different startup-beds. There are only a limited number of startup-beds, and a limited number of connections that can be used by partners. When these resources are used up, the only choice is to move to another area and start again.
The former is what YC already does, within the limits of the partners. Adding new partners could increase the number of companies funded each year, but only to a limited extent. Finding a partner is hard because it needs to be someone that won't disturb the current dynamic and who will bring in new connections/resources that aren't currently represented.
Frankly, I don't see any way to truly scale what YC does. Encouraging startups to form is limited by its very nature to within bounds formed by the market. These bounds have not yet been reached, but still exist.
Thousands of little YC hatchlings would be incredible. I suppose YC news could be seen as one way of trying to scale the process of information sharing. It also covers advice in that you can pose a question to the community and get good answers usually.
Now how could the connection sharing be scaled? I wonder what would happen if someone was to post "I need introductions to VC's" or "Know any good lawyers?" to YC news. Would they get the help they needed?
I don't think the money is the issue here, which results to many companies being funded because of the relatively low cost for them to bring up to life startups, comparing to VCs.
So, they invest enough money to get u going. Their actual contribution is their network and their guidance, which isw hat consumes their time and what everyone applying wants.
So, the quantity and the limit of the "many people" is relevant to how big YC is and how many people they find worthful to invest.
YC-organized Startup School supplies advice to a larger audience, along with a chance for connections. I'd also contend that news.yc is another such tool offered by YC.
The summer/winter batches are a chance for picked companies to receive specialized attention. YC can't do that for everybody.
I myself rank advice and connections a little more important than the money itself. That's what really pulled me here to Y Combinator in the first place.
