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What numbers and a new book tell us about the Y Combinator way

It seems like incubator and accelerator programs are a dime a dozen these days. But it was Y Combinator, co-founded in 2005 by investor Paul Graham, that paved the way for these other programs, proving its success with the incubation of companies like AirBnB and Dropbox. So what’s the secret to Graham’s success and what does it take to earn admission to his storied program?

A new book, The Launch Pad: Inside Silicon Valley’s Most Exclusive Startup Accelerator, attempts to look behind-the-secenes at the Y Combinator method, showing what it takes for startups to get from YC admission to demo day to launching a successful company. Author Randall Stross, a columnist for the New York Times and business professor at San Jose State University, received approval from Graham and the YC partners to follow the summer 2011 batch of startups from initial interviews to demo day. The book will be published Sept. 27, but we got an early look at the text.

Launch Pad doesn’t reveal many shocking secrets about the program — much of the wisdom about how YC works is probably already well-known to avid readers of Quora or Hacker News. And most of the interesting quotes from Graham on his startup philosophies come from his published essays available online.

But the book does provide an interesting glimpse into the mentorship style of the YC partners, and shows just how many companies and founders have actually successfully come through YC’s doors. To me, it’s remarkable how many of those startups struggled mightily during the first three months to come up with a solid idea, and how many pitch ideas at demo day that are only a few weeks old. The book is as much a story of the startup struggle as it is a profile of Graham or his organization.

So what are some of the interesting nuggets from the book? Here are a few that caught our eye:

  • Forgo the hipster city: Graham tells the founders to live in Mountain View, even if it’s boring, because the proximity to YC is a key to success. He tells them they can go be hipsters in San Francisco once demo day is over.
  • 24/7: Graham recommends that founders dedicate all their time to programming, sleeping, eating, and exercise. His wife and co-founder Jessica Livingston notes that a few particularly successful founders each lost 15 pounds eating Lean Cuisine and playing tennis when they weren’t working.
  • Lack of ladies: Only four percent of founders through YC’s winter 2011 class were female, Livingston estimated. Only two of the 160 summer 2011 batch were female. Graham attributes this to several things, including the idea that boys are more likely to begin hacking as young children than girls are, that fewer female founders apply to the program, and that founders are most likely to co-found with friends, who are likely to be of their same gender. When the book was written, six years after YC was founded, only one group of co-founders out of more than 300 funded were entirely female.
  • Jargon watch: While many people use the terms “incubator,” “accelerator,” and “seed fund” interchangeably, Graham says he prefers “seed fund.” Part of that is because he describes “incubators” as programs that offer office space, which is an idea he’s opposed to (because true hackers wouldn’t appreciate being told where to work, anyway).
  • Face-to-face: Even though he works with founders building high-tech solutions, Graham is borderline obsessed with face-to-face interactions. He frowns on people Skyping into meetings, and thinks personal interaction holds founders more accountable to their work. Even demo day, where he puts founders and investors in the same room together, goes back to this belief.
  • First impressions count: The point of demo day is to get investors interested enough in a startup to circle it on their list of presenters and go talk to the founders afterwards, the partners say. Many investors will use the demo presentations as time to check their Blackberrys. Many will only remember a single word from the demo, as in, “something about groceries.” The importance of making a good first impression is huge.
  • Skip the cheap shots: Avoid things like using photos of beautiful women in your demo, says Graham, who says that the typically male audience will get distracted. This is the opposite approach of new investors like Dave McClure, who emphasizes doing presentations that involve one of three things: sex, money or power.
  • The day after: The hacker culture of YC, which is so important to Graham, doesn’t always prepare founders for interacting with investors, who tend to look less fondly on unfinished ideas or imperfect products. This can be a surprising realization for hackers at demo day and in conversations with investors afterward.
  • The odds: Participation in YC doesn’t guarantee funding success — about 12 of the 63 startups in the summer 2011 batch either didn’t try to raise funding or didn’t succeed, and seven of the 63 raised between $15,000 and $60,000. However, of the 51 companies that did receive investments, the median amount raised was $850,000 (apart from the funding offered in connection with YC.)

7 Responses to “What numbers and a new book tell us about the Y Combinator way”

  1. Darin John Cessario

    Why would such a high percentage of coveted YC startups not even try to raise funding? Is demo day critique so final as to accelerate an idea so far from the idea with which they applied? Can you get in with an idea so bad you dump it on the spot? Do theese founders get snached up by other YC startups?…

  2. Steve Bennet

    Surprised you were surprised that many of the ideas pitched at Demo Day are only a few weeks ago. It is obvious to most of us investors in the room that many of these ideas aren’t even half-baked and a lot go nowhere post demo day. It’s hard to do the customer development work in that short a period to have a business in 90 days that supports the valuation expectations set by YC.

    • These days all of YC startups get funds of around $300,000 from an assortment of funds which is something that should be enough for them to prove out their models etc., or at least that’s the logic.

  3. Dave McClure

    um, to be clear: emphasizing behavioral psychology fundamentals in presentations does NOT mean “put pictures of beautiful women in your demo”… seriously Eliza, that’s super-demeaning and oversimplifying what books like The Mating Mind and Spent talk about.

    while *my* presentations may go overboard and out of bounds on Comic Sans and red bold fonts, we tell our companies to TELL A STORY and CONNECT WITH HUMAN EMOTION, not just “put sexy pics of chicks in there”.

    (in any case, appreciate the mention, even if slightly not the branding we prefer ;)


    • Marcus Estes

      Advising start-ups to utilizing the EP motivators explored in Spent and Mating Mind is a dodgy business – a lot of what Miller advises is that we learn to filter out calls to these instincts. It’s an interesting topic. Dave, can you point us to a longer piece on your views in this area?

      • Dave McClure

        @marcus: we aren’t explicitly advising them to USE any of those motivators, however we are emphasizing and explaining that those principles are what drive people to connect, make decisions. it’s up to them to decide what if any of such motivators the companies want to use in their pitch or other materials.

        again: all we suggest is that it’s important to tell a good story, and good stories are driven by biological and evolutionary foundations. nothing nefarious or underhanded beyond that.