Y Combinator Is A Stupid Idea

I wanted to call this entry “Y Combinator Is A Bullshit Idea” but the ads on the side wouldn’t have displayed due to the “bullshit” in the title.

So, I just read the Christopher Steiner article “The Disruptor In The Valley” at Forbes.com (which is about Paul Graham and his company Y Combinator) and I immediately thought of the bit from “The Simpsons” (Season 12 – Episode 9) when Homer is undergoing medical experiments for money. He tries an appetite suppressant:

1000Memories, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Bin 38, Bob Davis, Brad Feld, Brian Kempner, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Dave McClure, David Brown, David Cohen, Demi Moore, Demo Day, Diego Gutierrez, Edmond Yue, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Poch, Greg McAdoo, Harjeet Taggar, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jeff Weiner, Jessica Livingston, Jessica Mah, Jill Kennedy, John Hsin, John Palfrey, Jr., Justin Kan, Justin.tv, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Loopt, Manish Patel, Manka Bros., Mark Zuckerberg, Matt Nichols, Michael Arrington, Michael Gaiss, Nick Marsh, OnMedea, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Bell, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Robert Morris, Ron Conway, Rudy Adler, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Tapzilla, TechCrunch, TechStars, TextPayMe, Trevor Blackwell, Y CombinatorHOMER: “I’m BLIND!”
SCIENTIST #1: “Who’s gonna buy a pill that makes you blind?”
SCIENTIST #2: “We’ll let marketing worry about that!”

Y Combinator is basically offering Silicon Valley a pill that makes them blind (but marketing will fix it).

They offer a little bit cash to grab a whole lot of equity in these tiny start-ups – most which are not even close to being ready for that kind of exposure (or financial decision).

However, with the right spin, PR and influence behind them, they (apparently) ARE ready for the additional money that others might throw their way (for another giant chunk of equity)… IF they can manage to get through the grueling YC BOOTCAMP.

So many of these companies just aren’t ready and, frankly, just aren’t necessary.

It’s like the YouTube star who gets a small role on “The Big Bang Theory” and can barely speak because they’re so nervous and everyone realizes they have no acting skills whatsoever.

This is not to say that there aren’t a lot of geniuses out there with a lot of great ideas. There are. Most are much smarter than me (but not as smart as Khan Manka, Jr.I’m under order to say).

But these geniuses (and mostly non-geniuses, let’s be serious) are being exploited by Paul Graham and company and tossed to these VC wolves who will eat many a carcass to get to the next Facebook (which MUST BE STOPPED… but I digress).

Seriously, in another Hollywood analogy, any start-up attempting to get their business going through Y Combinator is like the screenwriter in Los Angeles who will pay people to read their script because they “work at a studio.”

The chances of success in one of these cattle call models is virtually zero.

Zero for everyone except Paul Graham (and partners).

As a quick primer, allow me a paragraph (from Wikipedia) to explain Y Combinator to those who may not know what it is:

1000Memories, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Bin 38, Bob Davis, Brad Feld, Brian Kempner, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Dave McClure, David Brown, David Cohen, Demi Moore, Demo Day, Diego Gutierrez, Edmond Yue, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Poch, Greg McAdoo, Harjeet Taggar, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jeff Weiner, Jessica Livingston, Jessica Mah, Jill Kennedy, John Hsin, John Palfrey, Jr., Justin Kan, Justin.tv, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Loopt, Manish Patel, Manka Bros., Mark Zuckerberg, Matt Nichols, Michael Arrington, Michael Gaiss, Nick Marsh, OnMedea, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Bell, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Robert Morris, Ron Conway, Rudy Adler, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Tapzilla, TechCrunch, TechStars, TextPayMe, Trevor Blackwell, Y CombinatorY Combinator is an American seed-stage startup funding firm, started in 2005 by Paul Graham, Robert Morris, Trevor Blackwell, and Jessica Livingston. Y Combinator provides seed money, advice, and connections at 3-month programs. In exchange, they take an average of about 6% of the company’s equity.

Compared to other startup funds, Y Combinator provides very little money ($17,000 for startups with two founders and $20,000 for those of three or more). This reflects Graham’s theory that between free software, dynamic languages, the web, and Moore’s Law, the cost of founding a startup has greatly decreased.

1000Memories, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Bin 38, Bob Davis, Brad Feld, Brian Kempner, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Dave McClure, David Brown, David Cohen, Demi Moore, Demo Day, Diego Gutierrez, Edmond Yue, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Poch, Greg McAdoo, Harjeet Taggar, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jeff Weiner, Jessica Livingston, Jessica Mah, Jill Kennedy, John Hsin, John Palfrey, Jr., Justin Kan, Justin.tv, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Loopt, Manish Patel, Manka Bros., Mark Zuckerberg, Matt Nichols, Michael Arrington, Michael Gaiss, Nick Marsh, OnMedea, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Bell, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Robert Morris, Ron Conway, Rudy Adler, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Tapzilla, TechCrunch, TechStars, TextPayMe, Trevor Blackwell, Y CombinatorIn other words, throw a bunch of shit on the wall and see what sticks.

Great for Paul Graham (based on his idea, Y Combinator would have gotten $20,000 from Y Combinator), but terrible for almost all of those thousands who apply to his program every year just in the hope of getting the YC stamp of approval (and 60 lbs of chili).

So Y Combinator is a Venture Capitalist that funds your start-up so that your start-up can get funded by another Venture Capitalist.

Enough with these f-ing VCs, man.

Whatever happened to creating a company, becoming successful and growing it based on that initial success?

Success because you have a product that people really (REALLY) want.

Thousands of techies are just sitting around coffee shops and cafes in all the “Silicon Valleys of the world” trying to think up new ideas that Paul Graham (and others like him) might like.

Not because it’s an idea that the start-up founder actually believes in anymore – but because it’s one that might get funding.

I mean, fuck passion, right?

These days it’s not whether your company succeeds or fails, it’s whether it gets funded in the first place and a mention on TechCrunch.

1000Memories, Amish Jani, Andrew Hyde, Andrew Mason, Andy Sack, Ashton Kutcher, Aydin Senkut, Bin 38, Bob Davis, Brad Feld, Brian Kempner, Christopher Steiner, Dan Nova, Daniel Gaisin, Danielle Hootnick, Dave McClure, David Brown, David Cohen, Demi Moore, Demo Day, Diego Gutierrez, Edmond Yue, Emmett Shear, Eric Lefkofsky, Fergal Mullen, FirstMark Capital, Founders At Work, Francis Duong, Gaurav Tewari, Gerald Poch, Greg McAdoo, Harjeet Taggar, Highland Capital Partners, Irena Goldenberg, Jared Polis, Jeff Weiner, Jessica Livingston, Jessica Mah, Jill Kennedy, John Hsin, John Palfrey, Jr., Justin Kan, Justin.tv, Khan Manka, Larry Wilson, Laurence Albukerk, Lawrence Lenihan, Loopt, Manish Patel, Manka Bros., Mark Zuckerberg, Matt Nichols, Michael Arrington, Michael Gaiss, Nick Marsh, OnMedea, Paul Buchheit, Paul Cianciolo, Paul Graham, Peter Bell, Reddit, Richard de Silva, Richard Heitzman, Rick Heitzmann, Robert Morris, Ron Conway, Rudy Adler, Sand Hill Road, Scott Shane, Scott Switzer, Sequoia Capital, Sergey Nazarov, Shabbir Dahod, Shawn Broderick, Sheryl Sandberg, Sterling Phillips, Tapzilla, TechCrunch, TechStars, TextPayMe, Trevor Blackwell, Y CombinatorJill Kennedy – OnMedea

P.S. – Also Digg is dead – R.I.P.so is Electus and Comic-Con but I digress… again.

89 comments

  1. Lord Farquaad · November 3, 2010

    I think you fail to realize the value that a lot of these companies actually have. Take DropBox, for example. Now, according to Snow, they are definitely not worth 1b+. Interesting, considering the actual numbers:

    Drobpox has over 25 million users, as announced in April. I would say more than any other freemium service, and after a while users need to go pro if they’re using it for work and are serious about storage/backups (which I assume many users are).

    **Now take a deep breath, here is some HUGE back of a tissue accounting to break it down.

    At the end of 2010 they had 100 million in revenue, in Feb of 2010 they had 4 million users and in April 2011 they had 25 million users, as announced. That’s 21 million users in just 14 months, so they were adding roughly 1.5 million users per month if it was linear (it wasn’t, if you were wondering). Were now 3 months on, we can assume that they have probably added an additional 6 million (with viriality increasing the growth) to be at around 31 million members.

    In December, 2010, they had roughly 19 million members using this same technique and therefore 100 million in revenue. Let’s again make another assumption and say all premium users average 10 dollars per subscription; they therefore have ROUGHLY a 4.5% conversion of free to paid users or 850,000 paying subscribers/8.5 million a month revenue.

    Ok, so here’s the fun bit. Assuming 31 million members at 4.5% conversion, that’s 1.4 million paying subscribers or 14 million dollars monthly revenue. Totalling 170 million yearly revenue at current run rate. Its therefore easy to assume they will hit over 200 million this year, perhaps 250 million in revenue.

    We are therefore looking at 20x multiple on year end projected revenue at a 5billion valuation. If I had the money, I’d invest. Assuming none of my 100 assumptions are wrong, of course.

    Regardless of my mathematical abilities, can you really say they aren’t worth 1 billion dollars?

    • Jill Kennedy · November 3, 2010

      Yes, I can say they are not worth $1 billion. My original post was about Y Combinator and not about the individual companies. Yes, you throw 100 companies against the wall – 1 or 2 will stand out and make it. My beef is more with Paul Graham and the fact that he’s taking advantage of a lot of people. But I digress… more to your point…

      Here’s the thing. If Dropbox attempts to move people to the pay model – they will lose a lot customers initially and there are a lot of people out there with big file storage capabilities. Price wars will begin once big dollars comes into play. Companies will undercut monthly pricing… eventually it will become a jumbled area like Web Hosting companies, etc. Lots of companies out there with lots of servers.

      The current advantage Dropbox has is that it’s free. Bring subscription into the mix and there’s a lot more competition. That said, they do have value. I just don’t understand why every freakin’ pre-IPO company has to get to that magic number of $1 billion or you’re a loser. What’s wrong with a $250 million valuation?

  2. Jayesh · November 3, 2010

    This post is written by a person who hates YC and got his idea rejected by YC.
    Poor Guy 🙁

    • Jill Kennedy · November 3, 2010

      That’s bubble talk, loser. I don’t have an idea that would be accepted or rejected by YC. But I do see how Paul Graham is playing all of you and laughing behind your backs for being so naive and lame.

  3. Robert Oschler · November 3, 2010

    The most important thing to remember is that during the gold rush, the people who made the most money were the ones selling the pans and pick axes to the miners, not the miners.

    • Jill Kennedy · November 3, 2010

      You got that right, Robert! Excellent point. It’s stunning how Paul Graham is being allowed to walk around, holding court like a modern day guru. I just wish people could see the bullshit.

  4. Jill Kennedy · November 3, 2010

    You’re right, Ben. Where has the integrity and honesty of the internet gone? The only decent and honest company out there now is Y Combinator.

  5. Fred · November 3, 2010

    You can’t blame these young guys for taking the cash upfront. It’s exciting to hear that pitch and believe that you’re on your way to a $1 billion valuation. It happens so rarely but it’s fun to believe the hype. And what 20 year old doesn’t need $17,000 or, now, I think, it’s higher than that – probably from Paul Graham guilt over only giving $17,000 for a nice chunk of the companies he is incubating. I blame the VCs for funding such underdeveloped ideas just because, like you said, Jill, it’s a very low cost for them to throw shit at the wall to see what sticks.

  6. Jake the Entrepreneur · November 3, 2010

    I would rather have $18K – is that all? – than zero. but my ideas tend to cost a lot more than that to get going.

  7. J.carlos Cortes (enterpreneur= · November 3, 2010

    Hi! very interesting article form someone like me that I still thinking to send my application to Y.Combinator….but what would you do if you have a greta idea …a great project but no sources….and where I live t, here is not way to find the way for an start up ….any advice?.

    • Jill Kennedy · November 3, 2010

      Hi J. Carlos,

      Yes, I have advice. Send in your application to Y Combinator. If you are accepted, then you have a decision to make and a choice about the direction you want to go. Personally, I feel if you have a great idea – truly great and unique (there are practically none of those left) – I would avoid Y Combinator. From what I’ve seen, they take really good ideas that are already established, give them a catchy name (or sometimes not catchy – I think Airbnb sucks), and put them out in the market like it has never been done before. If you have a really great idea – I think this is what could happen to you (without it being your product). Of course, this is only my opinion. Most great ideas in the internet/tech space can find a way to be successful on a shoe string budget. Thousands before Y Combinator managed to do it. Now they get $150K, ping pong tables and 60 lbs of chili. I’m not sure that’s really motivating – but to each his own.

      • David · November 3, 2010

        they take really good ideas that are already established, give them a catchy name (or sometimes not catchy – I think Airbnb sucks), and put them out in the market like it has never been done before.

        – hey, stop, so, Y Combinator is Apple?

        • Jill Kennedy · November 3, 2010

          Paul sure wishes that, doesn’t he? If you consider Paul Graham the equivalent of Steve Jobs – then go ahead and make that comparison. I don’t make that comparison.

    • Misty Lackie · November 3, 2010

      If you have a really great idea, know how to program and know there is a demand for it, you don’t need much money to get started. Just a lot of hard work and time. It’s so cheap now to get an internet business off the ground especially if you know how to program. The main “sources” you need are paying customers. You can do this through the internet by learning how to target correctly. It won’t matter where you live.

      $15k to $20k is nothing for giving up 8% equity. If your idea is great, you can make that within a few months after launch and keep full ownership of your company. A great idea should easily be able to make over $200k its first year if you focus on building a great product that people want to pay for and you learn how to market it and target your ideal customer.

      I wish more startups would focus on building businesses rather than these short lived startups. Just my 2 cents.

  8. Javin Paul · November 3, 2010

    Eye opener, I was thinking Y Combinator quite a success before reading your article.

  9. FDR · November 3, 2010

    “Eye opener, I was thinking Y Combinator quite a success before reading your article.”

    It is, for Paul G and other investors.

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    • Rosa · November 3, 2010

      When I first saw the Y in an orange box, I was all wtf and shrguged a bit when I looked up Y Combinator as a math reference. But you know, I knew instantly that Paul Graham was about being different that what was on the current menu. And that was a good thing that made me listen more closely to what he had to say and what the organization would become. Good stuff.

  11. Iyan · November 3, 2010

    “Thousands of techies are just sitting around coffee shops and cafes in all the “Silicon Valleys of the world” trying to think up new ideas that Paul Graham (and others like him) might like.” part is really hitting me right in my face!
    Thanks for the article, it gives me different perspective with this startup thinggy

  12. David · November 3, 2010

    With all due respect, mate, you got it all backwards.

    Sure Graham is a parasite, but he sucks from the other side of the line – from VCs.

    For startuppers personally, it’s OK – Graham gives them 7k/face for learning the basics of business making for the summer. Most people elsewhere pay for it themselves. Heck, if those “startuppers” just call it quits after his bootcamp, they basically just got paid for learning some lessons and meeting some powerful people.
    Honestly, you’re gonna have hard times criticizing this.

    Successful start-ups normally get rich enough that Graham’s share doesn’t exactly cut a hole in their food stamp pocket 😛

    Who end up paying for YC’s marketing are another VC firms which are too lazy to do the work with “100% green startuppers” themselves.
    They invest at higher valuations cuz of “YC’s stamp of approval”, e.g. pay more for the same. Which too ends up in founders and Graham’s pockets.

    But hey, unlike poor boys starting, venture firms are big guys loaded with millions. They hardly need your protection, bro – if they are dumb enough to keep YC scam up on their asses, so be it.

  13. Bob · November 3, 2010

    You made a great point: Facebook must go.
    Other than that, I don’t agree with your points.

    YC offers a choice to start-ups, and people are lining up to compete to be able to make that choice. They don’t have to take YC money and give away half their company; the chosen few choose to accept.

    Options for start-ups are good. Therefore YC is good.

    Now you may think it’s predatory, like the predatory lending practices of the corner Payday Loan store. Personally, I would never go to get a payday loan. But I am glad that others have that option. Options are good.

    • Jill Kennedy · November 3, 2010

      I understand your point, bob. It is a choice that is offered to start-ups. It’s not like there is a gun to their head (at least I don’t think there is a gun to their head). They choose to go along with YC. I just think it’s bad for innovation. They are dream killers. They say “your idea is fine – but… it could be better. It could really be shaped – in the ‘Paul Graham let’s make a billion dollars way’.” It’s that factory, cookie cutter mentality that I think kills real innovation. He says they have freedom to create – but they really don’t. In the end, it’s Paul’s way or the highway. I think that’s the way he likes it. And that’s just… no good.

  14. Steve · November 3, 2010

    The game is rigged in the Valley just like it’s rigged on Wall Street. Just another “tool” being used.

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