What's so special about Y Combinator?
Published by Martin Kleppmann on 15 Mar 2011.
Since we joined Y Combinator’s Summer 2010 funding cycle, I keep
getting asked how much value we got from it, and whether I would do it again.
tl;dr The short answer: we got a huge amount of value during the three-month main
programme, and we are continuing to benefit all the time from being part of YC.
And yes, I would do it again without a moment’s doubt.
The long answer deserves a bit more explanation.
On the surface, it seems like the Y Combinator formula is “money and mentoring for equity”. That
seems like a simple enough formula, and clones around the world are rushing to replicate it.
Unfortunately I think they mostly miss the point, because there is so much more to YC which the
When we applied to YC, we had already launched
and didn’t really need the $20k they were offering (investors had started contacting us from the
day that Rapportive first hit the press). Looking at the other startups who joined YC at the same
time of us, most of them got profitable or secured substantial angel/VC funding at good valuations
soon afterwards. So although the money is nice, it’s probably not the main attraction.
As to mentoring, press and investor contacts… as an entrepreneur, you’re probably already quite
good at getting attention and feedback from relevant people, using your personal network. How much
more value could you get?
Network and knowledge
The things that are really special about Y Combinator, in my opinion, are less frequently talked
There is a genuine, strong sense of camaraderie and mutual support amongst YC alumni. Many organisations
claim to have strong alumni networks, but I have often found these claims to be empty words:
often, the only participants in these networks are those who want to take, not those who want
to give, because those who have something to give feel their time is wasted. It is hard to
maintain a high standard in a network, and YC’s is the only example I have seen where
the high standard is consistently upheld. Even the most busy founders of the most successful startups
are genuinely supportive, and will spend surprisingly large amounts of time to answer questions,
give practical advice, make introductions and recommendations, etc. They are real friends, not
just utilitarian business contacts. This culture is truly remarkable.
It sounds trite, but the YC partners are all really great people. They are exceptionally
bright and talented, outspoken, honest, straight-to-the-point and totally bullshit-free –
hardly anyone else I know even comes near in terms of these qualities. They have lots of time
for their companies (surprisingly, given the number of companies they’ve funded), and I have
only ever seen them do things that are good for founders. It seems altruistic, but Paul Graham
maintains that it’s simply the best business strategy for YC.
Between them, the YC partners have seen it all. They’ve seen big exits and small exits,
profitable companies and train-wrecks, fast growth and slow growth, dream teams and founder
disputes, and all manner of great ideas and screw-ups. Startups are unpredictable; you never
know what surprises lie around the next corner. When we talk to YC, no matter whether we have
good news or bad news, chances are that they’ve seen the situation before, and their
pattern-matching will enable them to make good predictions.
The YC team know everybody who’s worth knowing in the startup scene, and everyone respects them.
This makes them ideally placed for introducing you to the kind of people you want to meet.
Demo Day is one aspect of this, a maximum-efficiency batch process for introducing startups and
investors to each other, but YC also make individual introductions all the time. They also know
who is worth talking to, who is actively investing, and which people are just fishing for
If there is a change in the startup ecosystem, YC are
amongst the first to see it — because they have insight into a uniquely high proportion of
startup deals, and they work actively to spot patterns and learn from them. As a YC startup,
you get to hear about these changes first, something that you can use to your advantage.
If you are new to Silicon Valley, like we were, YC is a fantastic way to get yourself
established and find your feet. They are welcoming to outsiders, and you can bootstrap your valley
network from those who already know their way around. You can celebrate with them when things
go well, and to get encouragement from them in hard times. You couldn’t ask for a better group
of people to hang out with.
Because YC has a proven track record of funding great companies, being accepted to YC carries a
strong signalling effect, making it more likely for others to
that you are doing something interesting by default.
Being part of the best
A lot of the points above are remarkable, but not intrinsically unique to Y Combinator; what’s
particularly special about YC is that it is simply
Being number one is very different from being number two or any number below.
One friend from our YC batch remarked at Demo Day: “This room contains the future of the IT
industry.” He was right. Since many of the world’s best startups go through YC, they collectively
form a force which has the power and drive to shape the entire industry for many years to come.
That’s not because there is any centralised agenda; it’s more comparable to being a graduate from
one of the top universities in the world.
Ever wonder why so many leading figures in business, science and politics are graduates of
Harvard, Yale, Cambridge, Oxford, MIT or Stanford? I don’t think their teaching is really that
much better than any other university, or than reading the textbooks by yourself. But you do
get two valuable things from a top university:
- a signalling effect: other people can see that a reputable organisation thinks that at one
point in your life (when you took your exams), you were reasonably motivated and not entirely stupid;
- you build a network of talented people.
I think we are seeing something similar with YC. The fact that YC has brought forth a number of
successful startups is merely a correlation; by itself it doesn’t say anything about cause and
effect. But when people see a correlation, it has a signalling effect nevertheless. (The reputation
of a good university is also mostly due to the observed correlation between its graduates and their
Startups are risky and full of unknowns, and you as startup founder are in the business of
convincing everyone that you are going to be the big, successful one. You need all the positive
signals you can get.
But is it worth the cost?
Y Combinator takes 2–10% of your company’s equity. How do you figure out whether the value you
get from YC is worth the cost? If you are wondering whether to apply for YC, this is probably the
question you’re trying to answer.
Firstly, note this: dilution makes an incremental difference to your outcome: if you sell
5% of the company to an investor, you reduce your pay-out by 5% if you sell the company. However,
whether you have or don’t have an investor can make a huge difference. Say you give 5% of the
- someone who later makes that one critical introduction that leads to the deal which saves your
- someone who helps you negotiate with your acquirer and doubles the value of your exit.
- someone who encourages you to make a particular pivot, which turns out to unlock a
- someone who prevents you from making a stupid mistake that would have set you back by 12 months.
Whether any of these scenarios will actually happen is unknown in advance, but my point is:
probability of success tends to move in discontinuous jumps. An extra per cent of equity may make
absolutely no difference at all to your success, or it may turn out to make the difference between
epic fail and massive win. A bit of equity may buy you an “unfair advantage”, or it may be a
You need to figure out which investors might make the big difference, and which probably won’t.
Your job as founder is to figure out how to play your cards such as to maximise the chances of
massive win. Dilution changes incrementally, but probability of success is much more variable.
Therefore, if you can figure out a way of substantially increasing your chances of success
(putting yourself on the good side of some of those discontinuities), the equity cost is
secondary. It’s not irrelevant, but as long as it’s in the right ballpark, it’s ok.
Of course you should be prudent to whom you give equity, but I would argue that if someone can
give you “unfair advantages”, it’s well worth bringing them on board and not worrying too much
about the cost.
So, does Y Combinator give you that big advantage which has a disproportionately large positive
impact on your chances of success?
I’d say yes. If you don’t need any of the benefits mentioned above, maybe not… but honestly, I’d
be very surprised if your network and your group of advisors is already so perfect that you
wouldn’t benefit from YC. Whether you’ve already launched or not makes very little difference.
YC is a package consisting of a variety of good things. In principle you may be able to assemble
yourself a similar package from component parts — e.g. using AngelList for
your investor intros, asking around to find suitable advisors, and spending lots of time networking
and taking speculative meetings. But somehow that feels to me like buying individual CPUs and RAM
and rack-mount cases to assemble your servers, when you could just spend 10 minutes to buy
computing resources from Heroku, EC2 or Rackspace. It might make sense for some people, but for
most of us, the time saving and assured quality you get from a good pre-built package is well
worth a bit of extra cost. (That doesn’t mean you can’t use component parts as well – for
example, we used AngelList to fill up our
I hope you find this useful when deciding whether to apply to YC. :)