I Don’t Understand Y Combinator Hate

I think part of the reason for the Y Combinator hate is that the valuations YC offers are so low and it's not clear whether YC significantly helps the teams it funds. Wait, don't throw those tomatoes, let me explain!<p>The valuation YC offers -- a median of 250k for a two-person team -- would be absurdly high if it was being offered to <i>any</i> team of two recent college graduates; but YC doesn't make offers to just any team. YC only picks the best teams (about 5% of applicants if I'm remembering the statistics correctly)... and it's not unreasonable to expect that the top 5% of teams are worth far more than average.<p>Similarly, the chance of a YC-funded team succeeding (for whatever definition of "success" you choose) is much higher than the chance of a non-YC-funded team succeeding -- but this doesn't necessarily imply that YC is helping the companies it funds. It might just be that YC is very good at picking winning teams.<p>This isn't to say that YC is making all of its money by taking advantage of the people it funds, though: Simply by selecting those top 5% of teams, YC provides a very valuable service -- distinguishing teams which have a 50%+ chance of success from those with a 5% chance of success, and encouraging the teams with a 50%+ chance, is certainly economically useful; and the profit which accrues to YC as a result of that is not qualitatively different from the profits which any other smart investor makes by figuring out that a stock is undervalued -- in both cases, the investor is doing work to increase the efficiency of a market.<p>The economist in me wishes that we could experimentally separate the selection process from the 3 month YC program in order to determine their relative importance -- but somehow I doubt the YC crew would be interested in running an experiment where they either (a) pick good teams and only fund half of them (in order to determine whether the teams they identified as good were likely to succeed with or without YC), or (b) fund a "good cohort" and a "bad cohort" of applicants simultaneously (in order to determine if being funded by YC is enough to make anybody successful).<p>(In addition to the difficulty of running such an experiment, the YC crew might not want to have this question answered: They probably don't want to be confronted by teams saying "well, <i>were</i> interested in being funded at a valuation of $200k -- but knowing that YC thinks that we're a strong team has resulted in us increasing our self-valuation to $800k".)<p>But in the absence of experimental data, the question remains open, with all the attached room for anti-capitalist hatred: Does YC help the teams it funds... or are they just shrewd investors?

Note that Lacy's original post contains links to and descriptions of current YCombinator companies.<p>TechCrunch also usually covers every YC project as it launches.<p>This is the main value of YCombinator: It provides guidance and media exposure that would otherwise take years to achieve, if at all - how many people can say that every project they do will get a story on TechCrunch?<p>Judging it as a VC company is misguided. The money involved is less than a year's tuition in many US colleges, and the recipients are mostly young enough to just live with their parents for a few months, and not need it anyway. The funding is minor, but the other parts - startups <i>pay</i>, a lot, to get this level of publicity and consulting.<p>I'd go with the "record label" metaphor instead of Lacy's American Idol one (I'm older ;)): Find talent, give them some producer and studio hours to record a single, then use your connections with DJs to get it some airplay hope it will catch on. Watch "24 Hour Party People" for more details :)<p>The one piece missing here, though, is the fact that ultimately the public (pre-mp3) was paying money for the singles. YC's audience is big companies with money to spend - it may prove less sustainable in the long run.

With all due respect to the talents of the best and brightest college grads, 250K, or 125K per head seems about right when compared to the starting salary those grads could get at a MS or Google. YC puts up a bit of funding and takes a small cut.<p>More importantly, I think is that it's giving young programmers a big leg up in understanding how the VC game is played and an opportunity to build a software career that is very independent. For really good programmers I suppose there is always demand, always a place to work and more or less define your own path. But if you sell your company for 15 mill, you get a nice piece of what I like to call FU money.<p>I've sort of followed this YC project from the beginning as an outsider and my sense is that the folks behind YC are putting back some of their good fortunes. It's a cool way to spend some of their money and possibly grow it even more.<p>All the negative press and trash talk about burned out programmers, etc. looks to me like a good measure of success. The others are looking at the backs of your sneakers

BTW, if anyone is wondering why Arrington is making a big deal over a moderately negative article, it's been rewritten since it was originally posted and most of the more egregious mistakes removed.

"<i>Remember, these startups are usually 2-3 people with little more than an idea. Generally speaking there are few other investors who will be willing to invest in them until they have some sort of code written or an initial product out the door.</i>"<p>That's not exactly true. I think majority of the startups were launched or had extensive prototypes before they joined YC.<p>This makes sense, because it filters out the people who are too lazy or not motivated enough to build an amazing product. (But it also filters out very smart and motivated people with awesome ideas who are too busy, as many smart people are.)<p>In any case, the risk that YC takes isn't quite as big as investing in two kids with a pipe dream. All of the founders seem to be carefully selected for their propensity towards success.

Sarah Lacy writes fantasy, not journalism. Ah, I suppose I should say more. For the technical co-founder (the person who writes the code) YC offers the opportunity to complete avoid the "professionals" that are brought in to run things (often into the ground). Sarah makes her living writing PR fluff to support those same people. YC is a direct threat to her source of income, and thus needs to be attacked.

Most YC companies seem not to be technically revolutionary, but applying existing technology to solve real problems (not a criticism, an observation - after all, there is great opportunity there for making money).<p>- Are there any technology-based startups funded by YC?<p>- A proxy could be patent applications: how many YC startups have filed for patents?

I don't get it either. It's a good thing to see a new model of investment in small startups and the education / training that apparently comes along with YC investment is practically unheard of (in my experience, anyway) in other VC firms.<p>Most of the criticism that I've seen seems to come from, well, critics, and not people who actually build stuff so that may have something to do with it.

I think much of what we see here is the media engaging in the age-old sensationalist tradition of turning on its darlings.<p>However, I think there is some legitimate discussion going on in these anti-YC articles.<p>For example, it is an interesting and open question whether it's wise or healthy for the market to develop so-called "built to flip" companies. While YC isn't exclusively in the built-to-flip business, it happens to be a vocal advocate for this model where there once was none.<p>Generally, PG (chief ideologist for YC) is interested in doing disruptive things in the realm of startup funding. Disruptive people tend to often be both spectacularly right and spectacularly wrong -- PG no exception -- and I think that traits make a person more polarizing.<p>I don't think it's necessarily a knee-jerk to dislike a company because you disagree with it's chief ideologist. Look at Apple and Steve Jobs -- it seems to me that everything about the guy permeates every nook of the company. If you don't like him, you're probably not going to love Apple products.

the original post on Sarah Lacy's blog is atrocious, I can see why MA responded...

Honestly, I didn't know there was any Y Combinator hate... I suspect that particular attitude might be local to the start-up center of the US where Y Combinator is direct competition for the other residents.<p>I'd like to say that I have learned a LOT from reading the contents of this site. I'd imagine any YC hatred is a sign that YC is actually do it's job well!

I guess I've been living under a rock lately... I've only seen one article so far

so the answer is to write ... an article whining about the whiners???