I summarize Y Combinator’s selection criteria as: “Young, Smart, Cheap, Determined, Acquirable”.
Smart, cheap, and determined, yes. Young doesn't matter except insofar as it helps cheap (and sometimes determined).
The point about being "acquirable" suggests a misunderstanding of how startups work. Startups almost invariably take one of 3 routes: (a) failure, (b) acquisition, or (c) IPO. Every one that takes (c) gets acquisition offers along the way, but turns them down. So "acquirable" simply reduces to "succesful." Which of course investors want.
And once you have that in the list, the entire list simplifies to "successful."
Young was just correlated with being cheap (I'm 27 with 2 kids and a mortgage. 5 years ago I was cheap but definitely not now). Also I remember you wrote that you wanted to test the lower bound of how old a startup founder could be. Your interest in undergrads was unusual when you started (maybe not so unusual now due to your success).
I chose acquirable as opposed to profitable because of the emphasis on creating great technology and great products, and worrying about monetizing and business plans later. Having a profitable business acquire you frees you from worrying about it at all. Being profitable doesn't hurt, but you've said over and over again that if you have a product that users love, you can find a way to make money.
With respect, many startups simply persist, some profitably, some at breakeven. Many founders would rather be in control than wealthy (or working for someone else). Doubtless you screen out folks who favor control over wealth so you don't see them. It's taken me a long time to understand that while every founder "wants to grow" many don't want to grow beyond where they can still be in charge.
Many startups become small businesses. Some are called "the living dead" operating at break-even. There are a variety of reasons. One can be that the founders are comfortable with the current size. See http://www.investorhome.com/vc.htm for an example breakdown of outcomes from VC investment:
"VC firms typically manage multiple funds formed over intervals of several years. Funds are illiquid but as companies in the portfolio go public or are sold, the investors realize their returns. Funds typically consist of limited partnerships invested in a number of companies. A general rule for the breakdown of returns among VC company investments is 40% will be complete losses, 30% will be "living dead," with the remaining 30% generating substantial returns on the original investment. The big winners yield 10 or more times the original investment."
This article supposes a competition. Why is it a competition if the essence of creating a startup is creating wealth? If more companies get off the ground, then more total wealth will be created. The more startups that are created, then the more total wealth will be created. Startups are the antithesis of a zero sum game.
And, if YCombinator is starting startups, then it is a wealth creation machine. How will that be "beat" or competed against?
Also, I don't get the impression from PG that YC is out to dominate the startup market. I do get the impression that they started YC because it was an irresistible hack. That is, they set out to hack the economics of startup creation. And, if another entity comes out and has a greater success ratio, or greater volume of startups created, then I daresay that it is an ultimate success of PG and crew. Why?
Dang it, I fell in to the trap (again) of not distinguishing my opinions from a summary of the opinions I've read on the web. You'd have a hard time finding a bigger fan of the "wealth creation" view than me, but most people don't think that way.
I'm sure many (most?) investors and observers think there are a fixed number of potential successful startup founders and that if YC gets all the good ones, then there will be none left. pg takes the opposite approach, trying to grow the pool of founders through his writing and community efforts. His anti-job, anti-BigCo essays are eye openers to a lot of people (myself included) who had never thought there was another way.
pg is definitely not out to dominate the market - I pointed out that he purposely ignores a large part of the market to focus on the niche he's interested in.
This is a great post, but mis-titled. "Does success of Y combinator point to existence of many alternate investing and incubation models" (in addition to traditional VC, Angel, and office space based incubators).
There are several very thought provoking ideas in his list of alternatives, in particular: A FPGA centric fund (certainly Xilinx, Altera, Actel might sponsor), revenue generating startups with a dividend focus (or venture buyout/buyback, especially if YC2 puts last investment dollar in and doesn't have to worry about dilution), mixed business and technical teams, more experienced professionals.
Right, but titles never have been completely about accuracy, have they? I save my precise, rational arguments for after my title has them fired up enough to click on the link :)
I thought it was odd (plus I was a little jealous that I couldn't apply - married, grad school, lots of debt, etc). But the blogosphere and all the talking heads went crazy about pg forcing the children to drop out of school and move to Boston, giving them peanuts to take an unfair share of their equity, etc. People didn't get it so they attacked it. Looks like some things never change (Arc, caged lions, etc)
For a startup, the real value of YC is in the ‘network effect’ (as a business grad friend of mine calls it) and the ‘know how’ (the whole advisory package) of building a business around an idea; that is hard to beat even with time, particularly with time.
Nitpick: "know economics" sounds bad. It sounds like "I know programming" or "I know physics" or something like that. Adding a "something about" in there would make it work better.
Smart, cheap, and determined, yes. Young doesn't matter except insofar as it helps cheap (and sometimes determined).
The point about being "acquirable" suggests a misunderstanding of how startups work. Startups almost invariably take one of 3 routes: (a) failure, (b) acquisition, or (c) IPO. Every one that takes (c) gets acquisition offers along the way, but turns them down. So "acquirable" simply reduces to "succesful." Which of course investors want.
And once you have that in the list, the entire list simplifies to "successful."