But is this another sign of a bubble, particularly on the investing side? Why would angels invest in companies that are not vetted by Y Combinator?
There's a very valid reason to invest in companies that aren't YC companies. The $150K burden that most of the YC W11 companies took is one reason. If a company has $150K to play with out the door, it's not exactly bootstrapping it. If a company isn't bootstrapping things, it can have deluded visions of grandeur and won't always build an efficient or sustainable product. Money can buy hype in the short-term but hype doesn't build value in the long term.
In other words, YC isn't about scrappy underdogs any more. And if there is one thing the valley can always make room for, it's the scrappy underdog.
I thought the article was fairly straight forward until I got to the point you quoted. It's as if the attitude is that YC picks all the great startups and non-YC companies are second-rate throw aways that are destined to fail.
While I personally think YC is a great program with a lot to offer, which is why I applied, they don't have the resources to take on every group that applies. It also wouldn't be in their best interest. I was skeptical about YC Reject at first and wasn't sure about applying or looking for work and working on my startup part-time but I'm considering it more and more now.
The problem here is that everyone is looking at acceptance/rejection as bi-implication when it's not. Getting in implies you're probably good, but getting rejected doesn't imply you're probably bad.
Getting rejected doesn't in itself imply you're probably bad, but it doesn't imply you're good either. And if all an investor knows is that you're a founder or team that wants to do a startup, the odds are that you're no good. The problem is that the prior probability that you're good is already very low, not that the conditional probability that you're good given that you're rejected by YC is any lower.
So the real question here is, can these people learn to first evaluate their applicants, and then support the ones they fund, anywhere near as well as YC does? I think the YC formula is not going to be anywhere near as easy to duplicate as they seem to think.
Sure, I think it's fair to say YC skims good teams off the top and the average goodness of the remaining pool is decreased. I'm not disputing that. I'm disputing the idea that the negative signaling for a team that doesn't make it in is as strong as the positive signaling for a team that does.
And if all an investor knows is that you're a founder or team that wants to do a startup, the odds are that you're no good.
So the investor's knowledge about your project determines the founder or teams quality? YC applicants disclose more than that they want to do a startup, does that the automatically improve the odds that they're good? What specifically makes them "good" anyhow? YC Rejects would be disclosing more than they want to do a startup and in fact it's been noted that the angel would review applicants and determine who gets in.
The problem is that the prior probability that you're good is already low, not that the conditional probability that you're good given that you're rejected by YC is any lower.
Based on what exactly? Why is it more likely that your not good to begin with?
So the real question here is, can these people learn to first evaluate their applicants, and then support the ones they fund, anywhere near as well as YC does? I think the YC formula is nit going to be anywhere near as easy to duplicate as they seem to think.
It doesn't have to duplicate the YC formula in order to be successful as even YC proves that their formula doesn't automatically lead to successful startups. I do think that the YC staff and alumni network is a huge asset but that doesn't preclude others from providing valuable resources. The rest remains to be seen.
So the investor's knowledge about your project determines the founder or teams quality?
Sorry, I guess I was a little too cryptic. No, the investor's state of knowledge doesn't determine the team's quality; it determines the investor's estimate of the team's quality, and thus the likelihood that the investor will invest.
Why is it more likely that you're not good to begin with?
Simple: most startups fail. The vast majority, in fact.
It doesn't have to duplicate the YC formula in order to be successful
Perhaps not, but note that YC has been considerably more successful than most angel groups. There must be something out of the ordinary they're doing.
Most startups do fail. Most new businesses fail though unfortunately. That doesn't mean the team wasn't any good. There are so many dynamics involved. One of course is the quality of the product being developed by the team. Another being the marketing strategy, including pricing. And another being market acceptance.
I'm curious how you're defining YC's success compared to other angel groups. YC is a pretty amazing group, no doubt, but being great at publicizing and helping storm up investor interest in a startup can't be the only measure. Not that I'm trying to insinuate that's all YC is good at because I'm not.
"I thought the article was fairly straight forward until I got to the point you quoted. It's as if the attitude is that YC picks all the great startups and non-YC companies are second-rate throw aways that are destined to fail."
Huh?! That's putting a lot of words into the author's mouth. These companies may or may not be great, but it's true that they are not vetted in any way other than they've heard of YC and took some time to fill out an app. I hope they all succeed, but it doesn't seem out of line to suggest that companies NOT accepted/interviewed by YC aren't inherently fundworthy when compared to those that are.
I disagree, I didn't put words in the author's mouth. I didn't chose the questions or the framing. I also disagree, it is out of line to suggest that. Startups existed before YC. YC does not hold a monopoly on determining or ensuring success. Their "rejection" letter alludes to this fact.
YC has a tremendous amount of experience and their intuition and insight I'm sure leads to better decisions regarding startups, but they're in no way infallible.
I suppose my main point is that there are plenty of good companies that are fund worthy that don't get into YC for various reasons. One of those reasons being that YC doesn't have the time or resources to take them in. The YC model has been successful but there is still an underserved market here and that is why others are popping up, not that there is a bubble necessarily as the author suggests. There's no reason why angels wouldn't "invest in companies that are not vetted by Y Combinator?".
Keep in mind that YC didn't exist when Facebook, Microsoft, and Apple were started. It's quite possible that the next wave of those companies will be part of YC or are already part of YC.
The point is, granted that YC will improve your chances of success, just like being on american idol will help make you a success, but most stars next year will not be from american idol or from YC.
What concerns me about this YCReject project is that is for people who didn't even make the interview process (apologies if this isn't true, this is to the best of my knowledge).
I consider the YC interview process to be a useful filter. Anyone can apply to YC and anyone can be rejected. I applied 2-3 years ago and was rejected. Last year, my cofounder and I got the interview but didn't get into the program. To me, getting the interview means that the YC folks thought there was something interesting in the proposal, but decided not to fund the company because of limited space for the round or the personalities of the founders.
If YCReject was oriented at people who got the interviews but not the program, that would at least be an interesting signal. It might tell investors that these people garnered YC's interest and might be worth a second look. However, I don't see how letting everyone who's application was rejected into an alternate program provides any kind of useful filter at all.
I don't think the goal is a filter at the level your thinking about. The real question is simply is are YC rejects a better pool to consider than the random ideas they are already receiving.
On the upside, they are looking at a pool of people that got it together enough to apply to YC with 1 or 2 ideas, got rejected and still want to give it a go. That means they are a least willing to push back a setback and not simply spamming ideas looking for money. On the down side, some of the best people / ideas have been removed. Overall it's probably a better group of people and ideas than would apply to a less well known funding source.
I applied and didn't get an interview. And I agree that a filter of some sort is needed for YCReject to be meaningful. I'll persist in my efforts, but that doesn't imply I will be successful.
More to the point, though, I think much of the value of YC is in the network of alums and mentors they provide. Unless there is some buyin from those mentors (or others of their value) then I don't think there's much point to YCReject except as a team to cheer you through the low points.
I think failing a YC interview is much worse than failing the application, you are scrutinized far more in an interview than your application is scrutinized.
However, I don't see how letting everyone who's application was rejected into an alternate program provides any kind of useful filter at all.
If you don't see any value in this group, just don't invest in any of the companies... other people might, most won't. The market is - in the end - the only filter that matters. What is there to be concerned about?
For me, YC & the rest of the seed funds have seemed to light a fire under would-be entrepreneurs, which is great. It's opened up lots of doors and spurred on innovation, which is the whole point. PG & co deserve a round of applause.
But I find it bizarre and a bit upsetting that YC has become the be-all, end-all (at least on HN). There were great startups before YC and there will be great ones after YC. I'd like to echo the sentiment of others who have said the following: If getting into YC (or TechStars or whatever else there is) was part of your strategy, then you're probably not going to succeed. The value they add is immense, but they are by no means king makers. Many YC companies will fail, and some will succeed and those that succeed might just as well have done so without YC.
I have mixed feelings about this. With YC, it's not just about the money or the weekly speakers. It's about Paul Graham's experience as a mentor and Silicon Valley connections.
That said, though, there are many of us with good ideas that are asking ourselves right after YC application decisions "What now?" Similar programs that we can immediately start pursuing after being rejected from Y Combinator at least offers a back-up plan.
One of the important benefits of YC is that meeting every week with a group of like-minded founders forces you do some kind of work on your startup. Even if you are demoralized, you would feel pretty stupid if you didn't have anything new to show after a week.
Everybody asked that question in the late 90's about tech stocks, and in the 00's about Real Estate. I don't know of a time when everyone was asking "is this a bubble?" when it wasn't in fact exactly that.
If the quality of YC startups is improving every round that means that more and more companies YC would have previously invested in are missing out. What's to say you won't find a dropbox or heuroku out of the rejects group that would have made it into previous rounds?
It's going to come down to determination of the group, and it's hard to gauge that in an application or interview process. I'm in the process of gathering more information about groups that applied to YC/TS/500 that were rejected but eventually became successful. If you know of any, please let me know. allan@ycreject.com
Does it bother anyone else that YC has become so important that it's being covered in Forbes? I appreciate the attention that the startup community has been getting these days, but I'm sure many of you likewise enjoyed the underdog status we had.
If I was pg I'd be closely monitoring these developments, this may make an even bigger mess of funding and financing as he mentioned in one of his latest essays.
There's a very valid reason to invest in companies that aren't YC companies. The $150K burden that most of the YC W11 companies took is one reason. If a company has $150K to play with out the door, it's not exactly bootstrapping it. If a company isn't bootstrapping things, it can have deluded visions of grandeur and won't always build an efficient or sustainable product. Money can buy hype in the short-term but hype doesn't build value in the long term.
In other words, YC isn't about scrappy underdogs any more. And if there is one thing the valley can always make room for, it's the scrappy underdog.