"How far along are you? Do you have a beta yet? If not, when will you? Are you launched? If so, how many users do you have? Do you have revenue? If so, how much? If you're launched, what is your monthly growth rate (in users or revenue or both)?"
The above question popped out at me this year.
I don't know a lot about the groups that YC accepts, except what I read in the occasional press-release or HN post. But I have noticed a pattern: it seems that many (and perhaps most?) of the YC companies I've read about recently had already launched and found success prior to YC, sometimes years prior.
This pattern might only indicate that I'm reading about those kinds of YC startups, and that completely new companies that launched post-YC don't get as much of my attention.
Nonetheless, I've found this pattern to be at odds with what I thought YC was about — pre-launch investment and mentoring of brand new companies.
It makes sense to invest in people and companies that have already found success. Even if such companies pivot to something completely new, they have a track record and a user base to work from.
Has YC made an informal pivot itself, to funding companies that have already launched and found traction rather than in great teams of founders that probably aren't even incorporated yet?
We've had already launched companies applying almost since the beginning of YC. Airbnb, which was in the winter 2009 batch, had been launched for over a year.
We make a conscious effort not to be influenced by early progress though, because there is no correlation between how far along a company is when they apply to YC and how well they end up doing.
We make a conscious effort not to be influenced by early progress though, because there is no correlation between how far along a company is when they apply to YC and how well they end up doing.
Given how many reapplications YC gets, it seems that it should only invest in companies it thinks would do so well in the next 6 months that they won't apply in the next round.
If YC is getting fewer misses on companies that are rejected but go on to do well, how much of that do you ascribe to the selection process and how much do you ascribe to YC's increasing ability to get multiple passes at startups?
There's a well known and clearly visible trend that more institutional (i.e. not friends and family) investment is moving later stage for "normal" software businesses.
The reasons are well known: the cost of developing software (at least the initial prototype) have dropped far enough that a great many people can afford to build a prototype themselves.
Further, the cost of market validation has also dropped enough such that a great many companies can achieve some market validation without outside capital.
Put together, it's a reasonable expectation that a dedicated entrepreneur will put in both the minimal time and money to both build a prototype and prove that real customers exist who view the solution as valuable.
However, the cost of building a big business is still high. Specifically, ramping up development, hosting, marketing (team and spend), sales, etc. still costs enough money that outside capital helps.
This last point is key and answers the question of "why would I raise capital if I did all of the work of building a prototype and getting my initial customers?".
Lastly, the ultimate goal is to succeed. There are a number of different paths to success, but one of the worst failures is not outright failure of a company.
If you think about the possible outcomes of a business, there are basically 3:
1. Complete failure...business shuts down
2. Moderate success...$2 million, $5 million up to maybe $25 million
3. Success... $25 million plus with the ultimate goal of doing 9 or 10 figures a year
#1 sucks. Maybe more without venture capital as its your money you lost, but it's good in no way.
#3 is great whether or not you get venture financing. Depending on your financing, you'll walk away with $5 million or more personally.
#2 can either be a wonderful success, or the worst failure (worse than #1). #2 is great if you bootstrapped. If you bootstrapped, you'll walk away with $5 million or more in your pocket. If you grow to $10M+ in revenue, then you're financially free.
However, #2 sucks if you raised significant capital. Most likely, you hate the company because you'll walk away will nothing even though the company has had some success. Investors will hate the company because the investment is sucking up time, focus and will never be a winner.
In this light, waiting to raise capital until a company is a little bit more mature is a boon for entrepreneurs. If you have a #1 then kill it and move onto the next opportunity. If you have a #3, then go raise (or don't).
But, if you have a #2 then you know you can get rich by bootstrapping, which will prevent you from making the mistake of raising capital for a non-venture fundable business.
There's a well known and clearly visible trend that more institutional (i.e. not friends and family) investment is moving later stage for "normal" software businesses.
Actually the trend in the venture business is actually the opposite. The biggest change in the last few years has been the increase in pre-series A investments, both by "super-angels" (which are structurally mini VC funds) and existing VC firms.
I may have done a poor job of wording as I used the word stage which has a specific meaning. What I meant was the first investment (seed) has moved from idea stage to prototype.
With the clarification, do you think it is accurate?
I haven't noticed any change. We've always hoped people would at least make some sort of prototype. That's how one explores ideas, or at least ideas about software.
The above question popped out at me this year.
I don't know a lot about the groups that YC accepts, except what I read in the occasional press-release or HN post. But I have noticed a pattern: it seems that many (and perhaps most?) of the YC companies I've read about recently had already launched and found success prior to YC, sometimes years prior.
This pattern might only indicate that I'm reading about those kinds of YC startups, and that completely new companies that launched post-YC don't get as much of my attention.
Nonetheless, I've found this pattern to be at odds with what I thought YC was about — pre-launch investment and mentoring of brand new companies.
It makes sense to invest in people and companies that have already found success. Even if such companies pivot to something completely new, they have a track record and a user base to work from.
Has YC made an informal pivot itself, to funding companies that have already launched and found traction rather than in great teams of founders that probably aren't even incorporated yet?