Startup = Growth Want to start a startup? Get funded by Y Combinator . A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth. If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face. Redwoods Let's start with a distinction that should be obvious but is often overlooked: not every newly founded company is a startup. Millions of companies are started in the . Only a tiny fraction are startups. Most are service businesses - restaurants, barbershops, plumbers, and so on. These are not startups, except in a few unusual cases. A barbershop isn't designed to grow fast. Whereas a search engine, for example, is. When I say startups are designed to grow fast, I mean it in two senses. Partly I mean designed in the sense of intended, because most startups fail. But I also mean startups are different by nature, in the same way a redwood seedling has a different destiny from a bean sprout. That difference is why there's a distinct word, "startup," for companies designed to grow fast. If all companies were essentially similar, but some through luck or the efforts of their founders ended up growing very fast, we wouldn't need a separate word. We could just talk about super-successful companies and less successful ones. But in fact startups do have a different sort of DNA from other businesses. Google is not just a barbershop whose founders were unusually lucky and hard-working. Google was different from the beginning. To grow rapidly, you need to make something you can sell to a big market. That's the difference between Google and a barbershop. A barbershop doesn't scale. For a company to grow really big, it must (a) make something lots of people want, and (b) reach and serve all those people. Barbershops are doing fine in the (a) department. Almost everyone needs their hair cut. The problem for a barbershop, as for any retail establishment, is (b). A barbershop serves customers in person, and few will travel far for a haircut. And even if they did, the barbershop couldn't accomodate them. [ 1 ] Writing software is a great way to solve (b), but you can still end up constrained in (a). If you write software to teach to speakers, you'll be able to reach most of the people who want it, but there won't be many of them. If you make software to teach English to speakers, however, you're in startup territory. Most businesses are tightly constrained in (a) or (b). The distinctive feature of successful startups is that they're not. Ideas It might seem that it would always be better to start a startup than an ordinary business. If you're going to start a company, why not start the type with the most potential? The catch is that this is a (fairly) efficient market. If you write software to teach to , you won't have much competition. If you write software to teach English to speakers, you'll face ferocious competition, precisely because that's such a larger prize. [ 2 ] The constraints that limit ordinary companies also protect them. That's the tradeoff. If you start a barbershop, you only have to compete with other local barbers. If you start a search engine you have to compete with the whole world. The most important thing that the constraints on a normal business protect it from is not competition, however, but the difficulty of coming up with new ideas. If you open a bar in a particular neighborhood, as well as limiting your potential and protecting you from competitors, that geographic constraint also helps define your company. Bar + neighborhood is a sufficient idea for a small business. Similarly for companies constrained in (a). Your niche both protects and defines you. Whereas if you want to start a startup, you're probably going to have to think of something fairly novel. A startup has to make something it can deliver to a large market, and ideas of that type are so valuable that all the obvious ones are already taken. That space of ideas has been so thoroughly picked over that a startup generally has to work on something everyone else has overlooked. I was going to write that one has to make a conscious effort to find ideas everyone else has overlooked. But that's not how most startups get started. Usually successful startups happen because the founders are sufficiently different from other people that ideas few others can see seem obvious to them. Perhaps later they step back and notice they've found an idea in everyone else's blind spot, and from that point make a deliberate effort to stay there. [ 3 ] But at the moment when successful startups get started, much of the innovation is unconscious. What's different about successful founders is that they can see different problems. It's a particularly good combination both to be good at technology and to face problems that can be solved by it, because technology changes so rapidly that formerly bad ideas often become good without anyone noticing. problem was that he wanted his own computer. That was an unusual problem to have in . But technological change was about to make it a much more common one. Because he not only wanted a computer but knew how to build them, was able to make himself one. And the problem he solved for himself became one that Apple solved for millions of people in . But by the time it was obvious to ordinary people that this was a big market, Apple was already established. Google has similar origins. and wanted to search the web. But unlike most people they had the technical expertise both to notice that existing search engines were not as good as they could be, and to know how to improve them. Over their problem became everyone's problem, as the web grew to a size where you didn't have to be a picky search expert to notice the old algorithms weren't good enough. But as happened with Apple, by the time everyone else realized how important search was, Google was entrenched. That's one connection between startup ideas and technology. Rapid change in one area uncovers big, soluble problems in other areas. Sometimes the changes are advances, and what they change is solubility. That was the kind of change that yielded Apple; advances in chip technology finally let design a computer he could afford. But in Google's case the most important change was the growth of the web. What changed there was not solubility but bigness. The other connection between startups and technology is that startups create new ways of doing things, and new ways of doing things are, in the broader sense of the word, new technology. When a startup both begins with an idea exposed by technological change and makes a product consisting of technology in the narrower sense (what used to be called "high technology"), it's easy to conflate the two. But the two connections are distinct and in principle one could start a startup that was neither driven by technological change, nor whose product consisted of technology except in the broader sense. [ 4 ] Rate How fast does a company have to grow to be considered a startup? There's no precise answer to that. "Startup" is a pole, not a threshold. Starting one is at first no more than a declaration of one's ambitions. You're committing not just to starting a company, but to starting a fast growing one, and you're thus committing to search for one of the rare ideas of that type. But at first you have no more than commitment. Starting a startup is like being an actor in that respect. "Actor" too is a pole rather than a threshold. At the beginning of his career, an actor is a waiter who goes to auditions. Getting work makes him a successful actor, but he doesn't only become an actor when he's successful. So the real question is not what growth rate makes a company a startup, but what growth rate successful startups tend to have. For founders that's more than a theoretical question, because it's equivalent to asking if they're on the right path. The growth of a successful startup usually has three phases: There's an initial period of slow or no growth while the startup tries to figure out what it's doing. As the startup figures out how to make something lots of people want and how to reach those people, there's a period of rapid growth. Eventually a successful startup will grow into a big company. Growth will slow, partly due to internal limits and partly because the company is starting to bump up against the limits of the markets it serves. [ 5 ] Together these three phases produce an S-curve. The phase whose growth defines the startup is the second one, the ascent. Its length and slope determine how big the company will be. The slope is the company's growth rate. If there's one number every founder should always know, it's the company's growth rate. That's the measure of a startup. If you don't know that number, you don't even know if you're doing well or badly. When I first meet founders and ask what their growth rate is, sometimes they tell me "we get about a hundred new customers ." That's not a rate. What matters is not the absolute number of new customers, but the ratio of new customers to existing ones. If you're really getting a constant number of new customers , you're in trouble, because that means your growth rate is decreasing. During Y Combinator we measure growth rate per week, partly because there is so little time before Demo Day, and partly because startups early on need frequent feedback from their users to tweak what they're doing. [ 6 ] A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing. The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users. That's a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users. [ 7 ] Compass We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is "just." If they decide to grow at 7% a week and they hit that number, they're successful for . There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed. Programmers will recognize what we're doing here. We're turning starting a startup into an optimization problem. And anyone who has tried optimizing code knows how wonderfully effective that sort of narrow focus can be. Optimizing code means taking an existing program and changing it to use less of something, usually time or memory. You don't have to think about what the program should do, just make it faster. For most programmers this is very satisfying work. The narrow focus makes it a sort of puzzle, and you're generally surprised how fast you can solve it. Focusing on hitting a growth rate reduces the otherwise bewilderingly multifarious problem of starting a startup to a single problem. You can use that target growth rate to make all your decisions for you; anything that gets you the growth you need is ipso facto right. Should you spend at a conference? Should you hire another programmer? Should you focus more on marketing? Should you spend time courting some big customer? Should you add x feature? Whatever gets you your target growth rate. [ 8 ] Judging yourself by growth doesn't mean you can look no more than a week ahead. Once you experience the pain of missing your target (it was the only thing that mattered, and you failed at it), you become interested in anything that could spare you such pain in the future. So you'll be willing for example to hire another programmer, who won't contribute to this 's growth but perhaps in will have implemented some new feature that will get you more users. But only if (a) the distraction of hiring someone won't make you miss your numbers in the short term, and (b) you're sufficiently worried about whether you can keep hitting your numbers without hiring someone new. It's not that you don't think about the future, just that you think about it no more than necessary. In theory this sort of hill-climbing could get a startup into trouble. They could end up on a local maximum. But in practice that never happens. Having to hit a growth number every week forces founders to act, and acting versus not acting is the high bit of succeeding. Nine times out of ten, sitting around strategizing is just a form of procrastination. Whereas founders' intuitions about which hill to climb are usually better than they realize. Plus the maxima in the space of startup ideas are not spiky and isolated. Most fairly good ideas are adjacent to even better ones. The fascinating thing about optimizing for growth is that it can actually discover startup ideas. You can use the need for growth as a form of evolutionary pressure. If you start out with some initial plan and modify it as necessary to keep hitting, say, 10% growth, you may end up with a quite different company than you meant to start. But anything that grows consistently at 10% a week is almost certainly a better idea than you started with. There's a parallel here to small businesses. Just as the constraint of being located in a particular neighborhood helps define a bar, the constraint of growing at a certain rate can help define a startup. You'll generally do best to follow that constraint wherever it leads rather than being influenced by some initial vision, just as a scientist is better off following the truth wherever it leads rather than being influenced by what he wishes were the case. When said that the imagination of nature was greater than the imagination of man, he meant that if you just keep following the truth you'll discover cooler things than you could ever have made up. For startups, growth is a constraint much like truth. Every successful startup is at least partly a product of the imagination of growth. [ 9 ] Value It's hard to find something that grows consistently at several percent , but if you do you may have found something surprisingly valuable. If we project forward we see why. yearly 1% 1.7x 2% 2.8x 5% 12.6x 7% 33.7x 10% 142.0x A company that grows at 1% a week will grow 1.7x a year, whereas a company that grows at 5% a week will grow . A company making $1000 a month (a typical number early in YC) and growing at 1% a week will be making $7900 a month, which is less than a good programmer makes in salary in . A startup that grows at 5% a week will in be making $25 million a month. [ 10 ] Our ancestors must rarely have encountered cases of exponential growth, because our intuitions are no guide here. What happens to fast growing startups tends to surprise even the founders. Small variations in growth rate produce qualitatively different outcomes. That's why there's a separate word for startups, and why startups do things that ordinary companies don't, like raising money and getting acquired. And, strangely enough, it's also why they fail so frequently. Considering how valuable a successful startup can become, anyone familiar with the concept of expected value would be surprised if the failure rate weren't high. If a successful startup could make a founder $100 million, then even if the chance of succeeding were only 1%, the expected value of starting one would be $1 million. And the probability of a group of sufficiently smart and determined founders succeeding on that scale might be significantly over 1%. For the right people - e.g. the young - the probability might be 20% or even 50%. So it's not surprising that so many want to take a shot at it. In an efficient market, the number of failed startups should be proportionate to the size of the successes. And since the latter is huge the former should be too. [ 11 ] What this means is that at any given time, the great majority of startups will be working on something that's never going to go anywhere, and yet glorifying their doomed efforts with the grandiose title of "startup." This doesn't bother me. It's the same with other high-beta vocations, like being an actor or a novelist. I've long since gotten used to it. But it seems to bother a lot of people, particularly those who've started ordinary businesses. Many are annoyed that these so-called startups get all the attention, when hardly any of them will amount to anything. If they stepped back and looked at the whole picture they might be less indignant. The mistake they're making is that by basing their opinions on anecdotal evidence they're implicitly judging by the median rather than the average. If you judge by the median startup, the whole concept of a startup seems like a fraud. You have to invent a bubble to explain why founders want to start them or investors want to fund them. But it's a mistake to use the median in a domain with so much variation. If you look at the average outcome rather than the median, you can understand why investors like them, and why, if they aren't median people, it's a rational choice for founders to start them. Deals Why do investors like startups so much? Why are they so hot to invest in photo-sharing apps, rather than solid money-making businesses? Not only for the obvious reason. The test of any investment is the ratio of return to risk. Startups pass that test because although they're appallingly risky, the returns when they do succeed are so high. But that's not the only reason investors like startups. An ordinary slower-growing business might have just as good a ratio of return to risk, if both were lower. So why are VCs interested only in high-growth companies? The reason is that they get paid by getting their capital back, ideally after the startup IPOs, or failing that when it's acquired. The other way to get returns from an investment is in the form of dividends. Why isn't there a parallel VC industry that invests in ordinary companies in return for a percentage of their profits? Because it's too easy for people who control a private company to funnel its revenues to themselves (e.g. by buying overpriced components from a supplier they control) while making it look like the company is making little profit. Anyone who invested in private companies in return for dividends would have to pay close attention to their books. The reason VCs like to invest in startups is not simply the returns, but also because such investments are so easy to oversee. The founders can't enrich themselves without also enriching the investors. [ 12 ] Why do founders want to take the VCs' money? Growth, again. The constraint between good ideas and growth operates in both directions. It's not merely that you need a scalable idea to grow. If you have such an idea and don't grow fast enough, competitors will. Growing too slowly is particularly dangerous in a business with network effects, which the best startups usually have to some degree. Almost every company needs some amount of funding to get started. But startups often raise money even when they are or could be profitable. It might seem foolish to sell stock in a profitable company for less than you think it will later be worth, but it's no more foolish than buying insurance. Fundamentally that's how the most successful startups view fundraising. They could grow the company on its own revenues, but the extra money and help supplied by VCs will let them grow even faster. Raising money lets you choose your growth rate. Money to grow faster is always at the command of the most successful startups, because the VCs need them more than they need the VCs. A profitable startup could if it wanted just grow on its own revenues. Growing slower might be slightly dangerous, but chances are it wouldn't kill them. Whereas VCs need to invest in startups, and in particular the most successful startups, or they'll be out of business. Which means that any sufficiently promising startup will be offered money on terms they'd be crazy to refuse. And yet because of the scale of the successes in the startup business, VCs can still make money from such investments. You'd have to be crazy to believe your company was going to become as valuable as a high growth rate can make it, but some do. Pretty much every successful startup will get acquisition offers too. Why? What is it about startups that makes other companies want to buy them? [ 13 ] Fundamentally the same thing that makes everyone else want the stock of successful startups: a rapidly growing company is valuable. It's a good thing eBay bought Paypal, for example, because Paypal is now responsible for 43% of their sales and probably more of their growth. But acquirers have an additional reason to want startups. A rapidly growing company is not merely valuable, but dangerous. If it keeps expanding, it might expand into the acquirer's own territory. Most product acquisitions have some component of fear. Even if an acquirer isn't threatened by the startup itself, they might be alarmed at the thought of what a competitor could do with it. And because startups are in this sense doubly valuable to acquirers, acquirers will often pay more than an ordinary investor would. [ 14 ] Understand The combination of founders, investors, and acquirers forms a natural ecosystem. It works so well that those who don't understand it are driven to invent conspiracy theories to explain how neatly things sometimes turn out. Just as our ancestors did to explain the apparently too neat workings of the natural world. But there is no secret cabal making it all work. If you start from the mistaken assumption that Instagram was worthless, you have to invent a secret boss to force to buy it. To anyone who knows , that is the reductio ad absurdum of the initial assumption. The reason he bought Instagram was that it was valuable and dangerous, and what made it so was growth. If you want to understand startups, understand growth. Growth drives everything in this world. Growth is why startups usually work on technology - because ideas for fast growing companies are so rare that the best way to find new ones is to discover those recently made viable by change, and technology is the best source of rapid change. Growth is why it's a rational choice economically for so many founders to try starting a startup: growth makes the successful companies so valuable that the expected value is high even though the risk is too. Growth is why VCs want to invest in startups: not just because the returns are high but also because generating returns from capital gains is easier to manage than generating returns from dividends. Growth explains why the most successful startups take VC money even if they don't need to: it lets them choose their growth rate. And growth explains why successful startups almost invariably get acquisition offers. To acquirers a fast-growing company is not merely valuable but dangerous too. It's not just that if you want to succeed in some domain, you have to understand the forces driving it. Understanding growth is what starting a startup consists of. What you're really doing (and to the dismay of some observers, all you're really doing) when you start a startup is committing to solve a harder type of problem than ordinary businesses do. You're committing to search for one of the rare ideas that generates rapid growth. Because these ideas are so valuable, finding one is hard. The startup is the embodiment of your discoveries so far. Starting a startup is thus very much like deciding to be a research scientist: you're not committing to solve any specific problem; you don't know for sure which problems are soluble; but you're committing to try to discover something no one knew before. A startup founder is in effect an economic research scientist. Most don't discover anything that remarkable, but some discover relativity. Notes [ 1 ] Strictly speaking it's not lots of customers you need but a big market, meaning a high product of number of customers times how much they'll pay. But it's dangerous to have too few customers even if they pay a lot, or the power that individual customers have over you could turn you into a de facto consulting firm. So whatever market you're in, you'll usually do best to err on the side of making the broadest type of product for it. [ 2 ] at Startup School encouraged programmers who wanted to start businesses to use a restaurant as a model. What he meant, I believe, is that it's fine to start software companies constrained in (a) in the same way a restaurant is constrained in (b). I agree. Most people should not try to start startups. [ 3 ] That sort of stepping back is one of the things we focus on at Y Combinator. It's common for founders to have discovered something intuitively without understanding all its implications. That's probably true of the biggest discoveries in any field. [ 4 ] I got it wrong in "How to Make Wealth" when I said that a startup was a small company that takes on a hard technical problem. That is the most common recipe but not the only one. [ 5 ] In principle companies aren't limited by the size of the markets they serve, because they could just expand into new markets. But there seem to be limits on the ability of big companies to do that. Which means the slowdown that comes from bumping up against the limits of one's markets is ultimately just another way in which internal limits are expressed. It may be that some of these limits could be overcome by changing the shape of the organization - specifically by sharding it. [ 6 ] This is, obviously, only for startups that have already launched or can launch during YC. A startup building a new database will probably not do that. On the other hand, launching something small and then using growth rate as evolutionary pressure is such a valuable technique that any company that could start this way probably should. [ 7 ] If the startup is taking the Facebook/Twitter route and building something they hope will be very popular but from which they don't yet have a definite plan to make money, the growth rate has to be higher, even though it's a proxy for revenue growth, because such companies need huge numbers of users to succeed at all. Beware too of the edge case where something spreads rapidly but the churn is high as well, so that you have good net growth till you run through all the potential users, at which point it suddenly stops. [ 8 ] Within YC when we say it's ipso facto right to do whatever gets you growth, it's implicit that this excludes trickery like buying users for more than their lifetime value, counting users as active when they're really not, bleeding out invites at a regularly increasing rate to manufacture a perfect growth curve, etc. Even if you were able to fool investors with such tricks, you'd ultimately be hurting yourself, because you're throwing off your own compass. [ 9 ] Which is why it's such a dangerous mistake to believe that successful startups are simply the embodiment of some brilliant initial idea. What you're looking for initially is not so much a great idea as an idea that could evolve into a great one. The danger is that promising ideas are not merely blurry versions of great ones. They're often different in kind, because the early adopters you evolve the idea upon have different needs from the rest of the market. For example, the idea that evolves into Facebook isn't merely a subset of Facebook; the idea that evolves into Facebook is a site for Harvard undergrads. [ 10 ] What if a company grew at for a really long time? Could it not grow just as big as any successful startup? In principle yes, of course. If our hypothetical company making $1000 a month grew at 1% a week for , it would grow as big as a company growing at 5% a week for . But while such trajectories may be common in, say, real estate development, you don't see them much in the technology business. In technology, companies that grow slowly tend not to grow as big. [ 11 ] Any expected value calculation varies from person to person depending on their utility function for money. I.e. the first million is worth more to most people than subsequent millions. How much more depends on the person. For founders who are younger or more ambitious the utility function is flatter. Which is probably part of the reason the founders of the most successful startups of all tend to be on the young side. [ 12 ] More precisely, this is the case in the biggest winners, which is where all the returns come from. A startup founder could pull the same trick of enriching himself at the company's expense by selling them overpriced components. But it wouldn't be worth it for the founders of Google to do that. Only founders of failing startups would even be tempted, but those are writeoffs from the VCs' point of view anyway. [ 13 ] Acquisitions fall into two categories: those where the acquirer wants the business, and those where the acquirer just wants the employees. The latter type is sometimes called an HR acquisition. Though nominally acquisitions and sometimes on a scale that has a significant effect on the expected value calculation for potential founders, HR acquisitions are viewed by acquirers as more akin to hiring bonuses. [ 14 ] I once explained this to some founders who had recently arrived from . They found it novel that if you threatened a company they'd pay a premium for you. "In they just kill you," they said, and they were only partly joking. Economically, the fact that established companies can't simply eliminate new competitors may be one of the most valuable aspects of the rule of law. And so to the extent we see incumbents suppressing competitors via regulations or patent suits, we should worry, not because it's a departure from the rule of law per se but from what the rule of law is aiming at. Thanks to , , , , , , and Harj Taggar for reading drafts of this. Arabic Translation Estonian Translation Portuguese Translation Italian Translation


The Top of My Todo List A palliative care nurse called Bronnie Ware made a list of the biggest regrets of the dying . Her list seems plausible. I could see myself - can see myself - making at least 4 of these 5 mistakes. If you had to compress them into a single piece of advice, it might be: don't be a cog. The 5 regrets paint a portrait of post-industrial man, who shrinks himself into a shape that fits his circumstances, then turns dutifully till he stops. The alarming thing is, the mistakes that produce these regrets are all errors of omission. You forget your dreams, ignore your family, suppress your feelings, neglect your friends, and forget to be happy. Errors of omission are a particularly dangerous type of mistake, because you make them by default. I would like to avoid making these mistakes. But how do you avoid mistakes you make by default? Ideally you transform your life so it has other defaults. But it may not be possible to do that completely. As long as these mistakes happen by default, you probably have to be reminded not to make them. So I inverted the 5 regrets, yielding a list of 5 commands Don't ignore your dreams; don't work too much; say what you think; cultivate friendships; be happy. which I then put at the top of the file I use as a todo list. Translation


How Y Combinator Started Y Combinator's 7th birthday was . As usual we were so busy we didn't notice till after. I don't think we've ever managed to remember our birthday on our birthday. On , and I were walking home from dinner in . was working at an investment bank at the time, but she didn't like it much, so she had interviewed for a job as director of marketing at a Boston VC fund. The VC fund was doing what now seems a comically familiar thing for a VC fund to do: taking a long time to make up their mind. Meanwhile I had been telling all the things they should change about the VC business essentially the ideas now underlying Y Combinator: investors should be making more, smaller investments, they should be funding hackers instead of suits, they should be willing to fund younger founders, etc. At the time I had been thinking about doing some angel investing. I had just given a talk to the undergraduate computer club at Harvard about how to start a startup , and it hit me afterward that although I had always meant to do angel investing, had now passed since I got enough money to do it, and I still hadn't started. I had also been thinking about ways to work with and again. before I had sent them an email trying to figure out what we could do together. and my house the idea gelled. We'd start our own investment firm and Jessica could work for that instead. As we turned onto we decided to do it. I agreed to put $100k into the new fund and Jessica agreed to quit her job to work for it. Over I recruited and , who put in another $50k each. So YC started with $200k. was so happy to be able to quit her job and start her own company that I took her picture when we got home. The company wasn't called Y Combinator yet. At first we called it Cambridge Seed. But that name never saw the light of day, because by the time we announced it , we'd changed the name to Y Combinator. We realized early on that what we were doing could be national in scope and we didn't want a name that tied us to one place. Initially we only had part of the idea. We were going to do seed funding with standardized terms. Before YC, seed funding was very haphazard. You'd get that first $10k from your friend's rich uncle. The deal terms were often a disaster; often neither the investor nor the founders nor the lawyer knew what the documents should look like. Facebook's early history as a LLC shows how random things could be in . We were going to be something there had not been before: a standard source of seed funding. We modelled YC on the seed funding we ourselves had taken when we started . We started with $10k we got from our friend , the husband of , whose painting class I took as a grad student at Harvard. knew about business, but you would not describe him as a suit. Among other things he'd been president of the National Lampoon . He was also a lawyer, and got all our paperwork set up properly. In return for $10k, getting us set up as a company, teaching us what business was about, and remaining calm in times of crisis, got 10% of . I remember thinking once what a good deal got. And then a second later I realized that without , would never have made it. So even though it was a good deal for him, it was a good deal for us too. That's why I knew there was room for something like Y Combinator. Initially we didn't have what turned out to be the most important idea: funding startups synchronously, instead of asynchronously as it had always been done before. Or rather we had the idea, but we didn't realize its significance. We decided very early that the first thing we'd do would be to fund a bunch of startups over . But we didn't realize initially that this would be the way we'd do all our investing. The reason we began by funding a bunch of startups at once was not that we thought it would be a better way to fund startups, but simply because we wanted to learn how to be angel investors, and a program for undergrads seemed the fastest way to do it. No one takes jobs that seriously. The opportunity cost for a bunch of undergrads to spend a summer working on startups was low enough that we wouldn't feel guilty encouraging them to do it. We knew students would already be making plans for , so we did what we're always telling startups to do: we launched fast. Here are the initial announcement and description of what was at the time called the Summer Founders Program. We got lucky in that the length and structure of a program turns out to be perfect for what we do. The structure of the YC cycle is still almost identical to what it was that first summer. We also got lucky in who the first batch of founders were. We never expected to make any money from that first batch. We thought of the money we were investing as a combination of an educational expense and a charitable donation. But the founders in the first batch turned out to be surprisingly good. And great people too. We're still friends with a lot of them . It's hard for people to realize now how inconsequential YC seemed at the time. I can't blame people who didn't take us seriously, because we ourselves didn't take program seriously in the very beginning. But as progressed we were increasingly impressed by how well the startups were doing. Other people started to be impressed too. and I invented a term, "the Y Combinator effect," to describe the moment when the realization hit someone that YC was not totally lame. When people came to YC to speak at the dinners that first summer, they came in the spirit of someone coming to address a troop. By the time they left the building they were all saying some variant of "Wow, these companies might actually succeed." Now YC is well enough known that people are no longer surprised when the companies we fund are legit, but it took a while for reputation to catch up with reality. That's one of the reasons we especially like funding ideas that might be dismissed as "toys" because YC itself was dismissed as one initially. When we saw how well it worked to fund companies synchronously, we decided we'd keep doing that. We'd fund two batches of startups . We funded the second batch in . That was a last minute decision. In retrospect I think what pushed me over the edge was going to Foo Camp that fall. The density of startup people in was so much greater than in , and the weather was so nice. I remembered that from living there in . Plus I didn't want someone else to copy us and describe it as the Y Combinator of . I wanted YC to be the Y Combinator of . So doing the batch in seemed like one of those rare cases where the self-indulgent choice and the ambitious one were the same. If we'd had enough time to do what we wanted, Y Combinator would have been in . That was our favorite part of . But we didn't have time to get a building in . We didn't have time to get our own building anywhere. The only way to get enough space in time was to convince to let us take over part of his (as it then seemed) giant building in . Yet again we lucked out, because turned out to be the ideal place to put something like YC. But even then we barely made it. The first dinner in , we had to warn all the founders not to touch the walls, because the paint was still wet.


Defining Property As a child I read a book of stories about a famous judge in called . One of the cases he decided was brought by the owner of a food shop. A poor student who could afford only rice was eating his rice while enjoying the delicious cooking smells coming from the food shop. The owner wanted the student to pay for the smells he was enjoying. The student was stealing his smells! This story often comes to mind when I hear the RIAA and MPAA accusing people of stealing music and movies. It sounds ridiculous to us to treat smells as property. But I can imagine scenarios in which one could charge for smells. Imagine we were living on a moon base where we had to buy air by the liter. I could imagine air suppliers adding scents at an extra charge. The reason it seems ridiculous to us to treat smells as property is that it wouldn't work to. It would work on a moon base, though. What counts as property depends on what works to treat as property. And that not only can change, but has changed. Humans may always (for some definition of human and always) have treated small items carried on one's person as property. But hunter gatherers didn't treat land, for example, as property in the way we do. [ 1 ] The reason so many people think of property as having a single unchanging definition is that its definition changes very slowly. [ 2 ] But we are in the midst of such a change now. The record labels and movie studios used to distribute what they made like air shipped through tubes on a moon base. But with the arrival of networks, it's as if we've moved to a planet with a breathable atmosphere. Data moves like smells now. And through a combination of wishful thinking and short-term greed, the labels and studios have put themselves in the position of the food shop owner, accusing us all of stealing their smells. (The reason I say short-term greed is that the underlying problem with the labels and studios is that the people who run them are driven by bonuses rather than equity. If they were driven by equity they'd be looking for ways to take advantage of technological change instead of fighting it. But building new things takes too long. Their bonuses depend on this 's revenues, and the best way to increase those is to extract more money from stuff they do already.) So what does this mean? Should people not be able to charge for content? There's not a single yes or no answer to that question. People should be able to charge for content when it works to charge for content. But by "works" I mean something more subtle than "when they can get away with it." I mean when people can charge for content without warping society in order to do it. After all, the companies selling smells on the moon base could continue to sell them on the , if they lobbied successfully for laws requiring us all to continue to breathe through tubes down here too, even though we no longer needed to. The crazy legal measures that the labels and studios have been taking have a lot of that flavor. Newspapers and magazines are just as screwed, but they are at least declining gracefully. The RIAA and MPAA would make us breathe through tubes if they could. Ultimately it comes down to common sense. When you're abusing the legal system by trying to use mass lawsuits against randomly chosen people as a form of exemplary punishment, or lobbying for laws that would break the Internet if they passed, that's ipso facto evidence you're using a definition of property that doesn't work. This is where it's helpful to have working democracies and multiple sovereign countries. If the world had a single, autocratic government, the labels and studios could buy laws making the definition of property be whatever they wanted. But fortunately there are still some countries that are not copyright colonies of the , and even in the , politicians still seem to be afraid of actual voters, in sufficient numbers. [ 3 ] The people running the may not like it when voters or other countries refuse to bend to their will, but ultimately it's in all our interest that there's not a single point of attack for people trying to warp the law to serve their own purposes. Private property is an extremely useful idea - arguably one of our greatest inventions. So far, each new definition of it has brought us increasing material wealth. [ 4 ] It seems reasonable to suppose the newest one will too. It would be a disaster if we all had to keep running an obsolete version just because a few powerful people were too lazy to upgrade. Notes [ 1 ] If you want to learn more about hunter gatherers I strongly recommend The Harmless People and The Old Way . [ 2 ] Change in the definition of property is driven mostly by technological progress, however, and since technological progress is accelerating, so presumably will the rate of change in the definition of property. Which means it's all the more important for societies to be able to respond gracefully to such changes, because they will come at an ever increasing rate. [ 3 ] As far as I know, the term "copyright colony" was first used by . [ 4 ] The state of technology isn't simply a function of the definition of property. They each constrain the other. But that being so, you can't mess with the definition of property without affecting (and probably harming) the state of technology. The history of the offers a vivid illustration of that. Thanks to and for reading drafts of this. Translation


Schlep Blindness Want to start a startup? Get funded by Y Combinator . There are great startup ideas lying around unexploited right under our noses. One reason we don't see them is a phenomenon I call schlep blindness . Schlep was originally a word but has passed into general use in the . It means a tedious, unpleasant task. No one likes schleps, but hackers especially dislike them. Most hackers who start startups wish they could do it by just writing some clever software, putting it on a server somewhere, and watching the money roll in-without ever having to talk to users, or negotiate with other companies, or deal with other people's broken code. Maybe that's possible, but I haven't seen it. One of the many things we do at Y Combinator is teach hackers about the inevitability of schleps. No, you can't start a startup by just writing code. I remember going through this realization myself. There was a point in when I was still trying to convince myself I could start a company by just writing code. But I soon learned from experience that schleps are not merely inevitable, but pretty much what business consists of. A company is defined by the schleps it will undertake. And schleps should be dealt with the same way you'd deal with a cold swimming pool: just jump in. Which is not to say you should seek out unpleasant work per se, but that you should never shrink from it if it's on the path to something great. The most dangerous thing about our dislike of schleps is that much of it is unconscious. Your unconscious won't even let you see ideas that involve painful schleps. That's schlep blindness. The phenomenon isn't limited to startups. Most people don't consciously decide not to be in as good physical shape as athletes, for example. Their unconscious mind decides for them, shrinking from the work involved. The most striking example I know of schlep blindness is Stripe , or rather Stripe's idea. For , every hacker who'd ever had to process payments online knew how painful the experience was. Thousands of people must have known about this problem. And yet when they started startups, they decided to build recipe sites, or aggregators for local events. Why? Why work on problems few care much about and no one will pay for, when you could fix one of the most important components of the world's infrastructure? Because schlep blindness prevented people from even considering the idea of fixing payments. Probably no one who applied to Y Combinator to work on a recipe site began by asking "should we fix payments, or build a recipe site?" and chose the recipe site. Though the idea of fixing payments was right there in plain sight, they never saw it, because their unconscious mind shrank from the complications involved. You'd have to make deals with banks. How do you do that? Plus you're moving money, so you're going to have to deal with fraud, and people trying to break into your servers. Plus there are probably all sorts of regulations to comply with. It's a lot more intimidating to start a startup like this than a recipe site. That scariness makes ambitious ideas doubly valuable. In addition to their intrinsic value, they're like undervalued stocks in the sense that there's less demand for them among founders. If you pick an ambitious idea, you'll have less competition, because everyone else will have been frightened off by the challenges involved. (This is also true of starting a startup generally.) How do you overcome schlep blindness? Frankly, the most valuable antidote to schlep blindness is probably ignorance. Most successful founders would probably say that if they'd known when they were starting their company about the obstacles they'd have to overcome, they might never have started it. Maybe that's one reason the most successful startups of all so often have young founders. In practice the founders grow with the problems. But no one seems able to foresee that, not even older, more experienced founders. So the reason younger founders have an advantage is that they make two mistakes that cancel each other out. They don't know how much they can grow, but they also don't know how much they'll need to. Older founders only make the first mistake. Ignorance can't solve everything though. Some ideas so obviously entail alarming schleps that anyone can see them. How do you see ideas like that? The trick I recommend is to take yourself out of the picture. Instead of asking "what problem should I solve?" ask "what problem do I wish someone else would solve for me?" If someone who had to process payments before Stripe had tried asking that, would have been one of the first things they wished for. It's too late now to be Stripe, but there's plenty still broken in the world, if you know how to see it. Thanks to , , , , , , and Harj Taggar for reading drafts of this.


Snapshot: , before the Yahoo acquisition was announced in I took a snapshot of 's site . I thought it might be interesting to look at . The first thing one notices is is how tiny the pages are. Screens were a lot smaller in . If I remember correctly, our frontpage used to just fit in the size window people typically used then. Browsers then (IE 6 was still in the future) had few fonts and they weren't antialiased. If you wanted to make pages that looked good, you had to render display text as images. You may notice a certain similarity between the and Y Combinator logos. We did that as an inside joke when we started YC. Considering how basic a red circle is, it seemed surprising to me when we started how few other companies used one as their logo. A bit later I realized why . On the Company page you'll notice a mysterious individual called . (aka Rtm) was so publicity averse after the Worm that he didn't want his name on the site. I managed to get him to agree to a compromise: we could use his bio but not his name. He has since relaxed a bit on that point. graduated at about the same time the acquisition closed, so in the course of he went from impecunious grad student to millionaire PhD. The culmination of my career as a writer of press releases was one celebrating his graduation , illustrated with a drawing I did of him during a meeting. ( also appears as in our directory of web designers merchants could hire to build stores for them. We inserted him as a ringer in case some competitor tried to spam our web designers. We assumed his logo would deter any actual customers, but it did not.) Back in , to get users you had to get mentioned in magazines and newspapers. There were not the same ways to get found online that there are . So we used to pay a PR firm $16000 a month to get us mentioned in the press. Fortunately reporters liked us . In our advice about getting traffic from search engines (I don't think the term SEO had been coined yet), we say there are only 7 that matter: Yahoo, AltaVista, Excite, WebCrawler, InfoSeek, , and HotBot. Notice anything missing? Google was incorporated that . We supported online transactions via a company called Cybercash , since if we lacked that feature we'd have gotten beaten up in product comparisons. But was so bad and most stores' order volumes were so low that it was better if merchants processed orders like phone orders. We had a page in our site trying to talk merchants out of doing real time authorizations . The whole site was organized like a funnel, directing people to the test drive . It was a novel thing to be able to try out software online. We put cgi-bin in our dynamic urls to fool competitors about how our software worked. We had some well known users . Needless to say, 's of got the most traffic. We charged a flat fee of $300/month for big stores, so it was a little alarming to have users who got lots of traffic. I once calculated how much 's was costing us in bandwidth, and it was about $300/month. Since we hosted all the stores, which together were getting just over 10 million page views per month in , we consumed what at the time seemed a lot of bandwidth. We had 2 T1s (3 Mb/sec) coming into our offices. In there was no AWS. Even colocating servers seemed too risky, considering how often things went wrong with them. So we had our servers in our offices. Or more precisely, in 's office. In return for the unique privilege of sharing his office with no other humans, he had to share it with 6 shrieking tower servers. His office was nicknamed the Hot Tub on account of the heat they generated. his stack of window air conditioners could keep up. For describing pages, we had a template language called RTML , which supposedly stood for something, but which in fact I named after Rtm. RTML was Common Lisp augmented by some macros and libraries, and concealed under a structure editor that made it look like it had syntax. Since we did continuous releases, our software didn't actually have versions. But in the trade press expected versions, so we made them up. If we wanted to get lots of attention, we made the version number an integer . That "version 4.0" icon was generated by our own button generator, incidentally. The whole site was made with our software, even though it wasn't an online store, because we wanted to experience what our users did. At , we released a general purpose shopping search engine called Shopfind . It was pretty advanced for the time. It had a programmable crawler that could crawl most of the different stores online and pick out the products.


Why Startup Hubs Work Want to start a startup? Get funded by Y Combinator . If you look at a list of cities sorted by population, the number of successful startups per capita varies by orders of magnitude. Somehow it's as if most places were sprayed with startupicide. I wondered about this for . I could see the average town was like a roach motel for startup ambitions: smart, ambitious people went in, but no startups came out. But I was never able to figure out exactly what happened inside the motel-exactly what was killing all the potential startups. [ 1 ] I finally figured it out. I was framing the question wrong. The problem is not that most towns kill startups. It's that death is the default for startups, and most towns don't save them. Instead of thinking of most places as being sprayed with startupicide, it's more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote. Startups in other places are just doing what startups naturally do: fail. The real question is, what's saving startups in places like ? [ 2 ] Environment I think there are two components to the antidote: being in a place where startups are the cool thing to do, and chance meetings with people who can help you. And what drives them both is the number of startup people around you. The first component is particularly helpful in the first stage of a startup's life, when you go from merely having an interest in starting a company to actually doing it. It's quite a leap to start a startup. It's an unusual thing to do. But in it seems normal. [ 3 ] In most places, if you start a startup, people treat you as if you're unemployed. People in the aren't automatically impressed with you just because you're starting a company, but they pay attention. Anyone who's been here any amount of time knows not to default to skepticism, no matter how inexperienced you seem or how unpromising your idea sounds at first, because they've all seen inexperienced founders with unpromising sounding ideas who were billionaires. Having people around you care about what you're doing is an extraordinarily powerful force. Even the most willful people are susceptible to it. after we started Y Combinator I said something to a partner at a well known VC firm that gave him the (mistaken) impression I was considering starting another startup. He responded so eagerly that for about half a second I found myself considering doing it. In most other cities, the prospect of starting a startup just doesn't seem real. In the it's not only real but fashionable. That no doubt causes a lot of people to start startups who shouldn't. But I think that's ok. Few people are suited to running a startup, and it's very hard to predict beforehand which are (as I know all too well from being in the business of trying to predict beforehand), so lots of people starting startups who shouldn't is probably the optimal state of affairs. As long as you're at a point in your life when you can bear the risk of failure, the best way to find out if you're suited to running a startup is to try it . Chance The second component of the antidote is chance meetings with people who can help you. This force works in both phases: both in the transition from the desire to start a startup to starting one, and the transition from starting a company to succeeding. The power of chance meetings is more variable than people around you caring about startups, which is like a sort of background radiation that affects everyone equally, but at its strongest it is far stronger. Chance meetings produce miracles to compensate for the disasters that characteristically befall startups. In the , terrible things happen to startups all the time, just like they do to startups everywhere. The reason startups are more likely to make it here is that great things happen to them too. In the , lightning has a sign bit. For example, you start a site for college students and you decide to move to the for to work on it. And then on a random suburban street in you happen to run into , who understands the domain really well because he started a similar startup himself, and also knows all the investors. And moreover has advanced views, for , on founders retaining control of their companies. You can't say precisely what the miracle will be, or even for sure that one will happen. The best one can say is: if you're in a startup hub, unexpected good things will probably happen to you, especially if you deserve them. I bet this is true even for startups we fund. Even with us working to make things happen for them on purpose rather than by accident, the frequency of helpful chance meetings in the is so high that it's still a significant increment on what we can deliver. Chance meetings play a role like the role relaxation plays in having ideas. Most people have had the experience of working hard on some problem, not being able to solve it, giving up and going to bed, and then thinking of the answer in the shower in the morning. What makes the answer appear is letting your thoughts drift a bit-and thus drift off the wrong path you'd been pursuing and onto the right one adjacent to it. Chance meetings let your acquaintance drift in the same way taking a shower lets your thoughts drift. The critical thing in both cases is that they drift just the right amount. The meeting between and was a good example. They let their acquaintance drift, but only a little; they were both meeting someone they had a lot in common with. For the most important component of the antidote was , and vice versa. The antidote is people . It's not the physical infrastructure of that makes it work, or the weather, or anything like that. Those helped get it started, but now that the reaction is self-sustaining what drives it is the people. Many observers have noticed that one of the most distinctive things about startup hubs is the degree to which people help one another out, with no expectation of getting anything in return. I'm not sure why this is so. Perhaps it's because startups are less of a zero sum game than most types of business; they are rarely killed by competitors. Or perhaps it's because so many startup founders have backgrounds in the sciences, where collaboration is encouraged. A large part of YC's function is to accelerate that process. We're a sort of within the , where the density of people working on startups and their willingness to help one another are both artificially amplified. Numbers Both components of the antidote-an environment that encourages startups, and chance meetings with people who help you-are driven by the same underlying cause: the number of startup people around you. To make a startup hub, you need a lot of people interested in startups. There are three reasons. The first, obviously, is that if you don't have enough density, the chance meetings don't happen. [ 4 ] The second is that different startups need such different things, so you need a lot of people to supply each startup with what they need most. was exactly what Facebook needed in . Another startup might have needed a database guy, or someone with connections in the movie business. This is one of the reasons we fund such a large number of companies, incidentally. The bigger the community, the greater the chance it will contain the person who has that one thing you need most. The third reason you need a lot of people to make a startup hub is that once you have enough people interested in the same problem, they start to set the social norms. And it is a particularly valuable thing when the atmosphere around you encourages you to do something that would otherwise seem too ambitious. In most places the atmosphere pulls you back toward the mean. I flew into . I notice this every time I fly over the : somehow you can sense something is going on. Obviously you can sense prosperity in how well kept a place looks. But there are different kinds of prosperity. doesn't look like , or , or , or . I tried asking myself what word I'd use to describe the feeling the radiated, and the word that came to mind was optimism. Notes [ 1 ] I'm not saying it's impossible to succeed in a city with few other startups, just harder. If you're sufficiently good at generating your own morale, you can survive without external encouragement. Wufoo was based in and they succeeded. But the are exceptionally disciplined. [ 2 ] Incidentally, this phenomenon is not limited to startups. Most unusual ambitions fail, unless the person who has them manages to find the right sort of community. [ 3 ] Starting a company is common, but starting a startup is rare. I've talked about the distinction between the two elsewhere, but essentially a startup is a new business designed for scale. Most new businesses are service businesses and except in rare cases those don't scale. [ 4 ] As I was writing this, I had a demonstration of the density of startup people in the . and I bicycled to University Ave in to have lunch at the fabulous 's Hummus. As we walked in, we met sitting near the door. stopped to say hello on her way out. Then came in to pick up a take out order. After lunch we went to get frozen yogurt. On the way we met . When we got to the yogurt place, we found there, and as we walked out we ran into . We walked with him for a block or so and we ran into , and then a block later we met . This is everyday life in . I wasn't trying to meet people; I was just having lunch. And I'm sure for every startup founder or investor I saw that I knew, there were 5 more I didn't. If had been with us he would have met 30 people he knew. Thanks to , , , and Harj Taggar for reading drafts of this.


The Patent Pledge I realized recently that we may be able to solve part of the patent problem without waiting for the government. I've never been 100% sure whether patents help or hinder technological progress. When I was a kid I thought they helped. I thought they protected inventors from having their ideas stolen by big companies. Maybe that was truer in the past, when more things were physical. But regardless of whether patents are in general a good thing, there do seem to be bad ways of using them. And since bad uses of patents seem to be increasing, there is an increasing call for patent reform. The problem with patent reform is that it has to go through the government. That tends to be slow. But recently I realized we can also attack the problem downstream. As well as pinching off the stream of patents at the point where they're issued, we may in some cases be able to pinch it off at the point where they're used. One way of using patents that clearly does not encourage innovation is when established companies with bad products use patents to suppress small competitors with good products. This is the type of abuse we may be able to decrease without having to go through the government. The way to do it is to get the companies that are above pulling this sort of trick to pledge publicly not to. Then the ones that won't make such a pledge will be very conspicuous. Potential employees won't want to work for them. And investors, too, will be able to see that they're the sort of company that competes by litigation rather than by making good products. Here's the pledge: No first use of software patents against companies with less than 25 people. I've deliberately traded precision for brevity. The patent pledge is not legally binding. It's like Google's "Don't be evil." They don't define what evil is, but by publicly saying that, they're saying they're willing to be held to a standard that, say, Altria is not. And though constraining, "Don't be evil" has been good for Google. Technology companies win by attracting the most productive people, and the most productive people are attracted to employers who hold themselves to a higher standard than the law requires. [ 1 ] The patent pledge is in effect a narrower but open source "Don't be evil." I encourage every technology company to adopt it. If you want to help fix patents, encourage your employer to. Already most technology companies wouldn't sink to using patents on startups. You don't see Google or Facebook suing startups for patent infringement. They don't need to. So for the better technology companies, the patent pledge requires no change in behavior. They're just promising to do what they'd do anyway. And when all the companies that won't use patents on startups have said so, the holdouts will be very conspicuous. The patent pledge doesn't fix every problem with patents. It won't stop patent trolls, for example; they're already pariahs. But the problem the patent pledge does fix may be more serious than the problem of patent trolls. Patent trolls are just parasites. A clumsy parasite may occasionally kill the host, but that's not its goal. Whereas companies that sue startups for patent infringement generally do it with explicit goal of keeping their product off the market. Companies that use patents on startups are attacking innovation at the root. Now there's something any individual can do about this problem, without waiting for the government: ask companies where they stand. Patent Pledge Site Notes: [ 1 ] Because the pledge is deliberately vague, we're going to need common sense when intepreting it. And even more vice versa: the pledge is vague in order to make people use common sense when interpreting it. So for example I've deliberately avoided saying whether the 25 people have to be employees, or whether contractors count too. If a company has to split hairs that fine about whether a suit would violate the patent pledge, it's probably still a dick move. The Investment That Didn't Happen


Subject: Airbnb March published a remarkable post about missing Airbnb . VCs miss good startups all the time, but it's extraordinarily rare for one to talk about it publicly till long afterward. So that post is further evidence what a rare bird is. He's probably the nicest I know. Reading 's post made me go back and look at the emails I exchanged with him at the time, trying to convince him to invest in Airbnb. It was quite interesting to read. You can see 's mind at work as he circles the deal. and the Airbnb founders have generously agreed to let me publish this email exchange (with one sentence redacted about something that's strategically important to Airbnb and not an important part of the conversation). It's an interesting illustration of an element of the startup ecosystem that few except the participants ever see: investors trying to convince one another to invest in their portfolio companies. Hundreds if not thousands of conversations of this type are happening now, but if one has ever been published, I haven't seen it. The Airbnbs themselves never even saw these emails at the time. We do a lot of this behind the scenes stuff at YC, because we invest in such a large number of companies, and we invest so early that investors sometimes need a lot of convincing to see their merits. I don't always try as hard as this though. must have found me quite annoying. from: to: , AirBedAndBreakfast Founders date: at subject: meet the airbeds One of the startups from the batch that just started, AirbedAndBreakfast, is in right now meeting their users. ( is their biggest market.) I'd recommend meeting them if your schedule allows. I'd been thinking to myself that though these guys were going to do really well, I should introduce them to angels, because VCs would never go for it. But then I thought maybe I should give you more credit. You'll certainly like meeting them. Be sure to ask about how they funded themselves with breakfast cereal. There's no reason this couldn't be as big as Ebay. And this team is the right one to do it. --pg from: to: cc: , date: at subject: Re: meet the airbeds PG, Thanks for the intro! from: to: cc: , date: at subject: Re: meet the airbeds It's a longshot, at this stage, but if there was any VC who'd get you guys, it would be . He is the least suburban-golf-playing VC I know. He likes to observe startups for a while before acting, so don't be bummed if he seems ambivalent. --pg from: to: , date: , at subject: Re: meet the airbeds Thanks We are having a bit of a debate inside our partnership about the airbed concept. We'll finish that debate in our meeting and get back to you with our thoughts Thanks from: to: date: , at subject: Re: meet the airbeds I'd recommend having the debate after meeting them instead of before. We had big doubts about this idea, but they vanished on meeting the guys. from: to: date: Mon, Jan 26, at subject: RE: meet the airbeds We are still very suspect of this idea but will take a meeting as you suggest Thanks fred from: to: , AirBedAndBreakfast Founders date: Mon, Jan 26, at subject: RE: meet the airbeds Airbed team - Are you still in ? We'd like to meet if you are Thanks fred from: to: date: Mon, Jan 26, at subject: Re: meet the airbeds Ideas can morph. Practically every really big startup could say, , "believe it or not, we started out doing ___." It just seemed a very good sign to me that these guys were actually on the ground in hunting down (and understanding) their users. On top of several previous good signs. --pg from: to: date: Sun, at subject: Re: meet the airbeds It's interesting Our two junior team members were enthusiastic The three "old guys" didn't get it from: to: date: at subject: airbnb The Airbeds just won the first poll among all the YC startups in their batch by a landslide. In the past this has not been a 100% indicator of success (if only anything were) but much better than random. --pg from: to: date: at subject: Re: airbnb I met them They have an interesting business I'm just not sure how big it's going to be fred from: to: date: Sat, at subject: Re: airbnb Did they explain the long-term goal of being the market in accommodation the way eBay is in stuff? That seems like it would be huge. Hotels now are like airlines in before they figured out how to increase their load factors. from: to: date: at subject: Re: airbnb They did but I am not sure I buy that ABNB reminds me of Etsy in that it facilitates real commerce in a marketplace model directly between two people So I think it can scale all the way to the bed and breakfast market But I am not sure they can take on the hotel market I could be wrong But even so, if you include short term room rental, second home rental, bed and breakfast, and other similar classes of accommodations, you get to a pretty big opportunity fred from: to: date: at subject: Re: airbnb So invest in them! They're very capital efficient. They would make an investor's money go a long way. It's also counter-cyclical. They just arrived back from , and when I asked them what was the most significant thing they'd observed, it was how many of their users actually needed to do these rentals to pay their rents. --pg from: to: date: at subject: Re: airbnb There's a lot to like I've done a few things, like intro it to my friends at who were investors in Service Metrics and understand this model I am also talking to my friend who had an idea like this a few years ago. So we are working on it Thanks for the lead from: to: date: at subject: airbnb already spreading to pros I know you're skeptical they'll ever get hotels, but there's a continuum between private sofas and hotel rooms, and they just moved one step further along it. [link to an airbnb user] This is after . I bet you they will get hotels eventually. It will start with small ones. Just wait till all the 10-room pensiones in discover this site. And once it spreads to hotels, where is the point (in size of chain) at which it stops? Once something becomes a big marketplace, you ignore it at your peril. --pg from: to: date: Sat, <DATE_TIME>, at subject: Re: airbnb already spreading to pros That's true. It's also true that there are quite a few marketplaces out there that serve this same market If you look at many of the people who list at ABNB, they list elsewhere too I am not negative on this one, I am interested, but we are still in the gathering data phase.


Founder to start a startup? Get funded by Y Combinator . Someone we funded is talking to VCs now, and asked me how common it was for a startup's founders to retain control of the board after a series A round. He said VCs told him this almost never happened. that was true. In the past, founders rarely kept control of the board through a series A. The traditional series A board consisted of two founders, two VCs, and one independent member. More recently the recipe is often one founder, one VC, and one independent. In either case the founders lose their majority. But not always. kept control of Facebook's board through the series A and still has it . has kept control of Zynga's too. But are these just outliers? How common is it for founders to keep control after an A round? I'd heard of several cases among the companies we've funded, but I wasn't sure how many there were, so I emailed the ycfounders list. The replies surprised me. In a dozen companies we've funded, the founders still had a majority of the board seats after the series A round. I feel like we're at a tipping point here. A lot of VCs still act as if founders retaining board control after a series A is unheard-of. A lot of them try to make you feel bad if you even ask - as if you're a noob or a control freak for wanting such a thing. But the founders I heard from aren't noobs or control freaks. Or if they are, they are, like , the kind of noobs and control freaks VCs should be trying to fund more of. Founders retaining control after a series A is clearly heard-of. And barring financial catastrophe, I think in it will become the norm. Control of a company is a more complicated matter than simply outvoting other parties in board meetings. Investors usually get vetos over certain big decisions, like selling the company, regardless of how many board seats they have. And board votes are rarely split. Matters are decided in the discussion preceding the vote, not in the vote itself, which is usually unanimous. But if opinion is divided in such discussions, the side that knows it would lose in a vote will tend to be less insistent. That's what board control means in practice. You don't simply get to do whatever you want; the board still has to act in the interest of the shareholders; but if you have a majority of board seats, then your opinion about what's in the interest of the shareholders will tend to prevail. So while board control is not total control, it's not imaginary either. There's inevitably a difference in how things feel within the company. Which means if it becomes the norm for founders to retain board control after a series A, that will change the way things feel in the whole startup world. The switch to the new norm may be surprisingly fast, because the startups that can retain control tend to be the best ones. They're the ones that set the trends, both for other startups and for VCs. A lot of the reason VCs are harsh when negotiating with startups is that they're embarrassed to go back to their partners looking like they got beaten. When they sign a termsheet, they want to be able to brag about the good terms they got. A lot of them don't care that much personally about whether founders keep board control. They just don't want to seem like they had to make concessions. Which means if letting the founders keep control stops being perceived as a concession, it will rapidly become much more common. Like a lot of changes that have been forced on VCs, this change won't turn out to be as big a problem as they might think. VCs will still be able to convince; they just won't be able to compel. And the startups where they have to resort to compulsion are not the ones that matter anyway. VCs make most of their money from a few big hits, and those aren't them. Knowing that founders will keep control of the board may even help VCs pick better. If they know they can't fire the founders, they'll have to choose founders they can trust. And that's who they should have been choosing all along. Thanks to , , , , , , , , , , and for reading drafts of this.


Tablets I was thinking recently how inconvenient it was not to have a general term for iPhones, iPads, and the corresponding things running Android. The closest to a general term seems to be "mobile devices," but that (a) applies to any mobile phone, and (b) doesn't really capture what's distinctive about the iPad. After it struck me that what we'll end up calling these things is tablets. The only reason we even consider calling them "mobile devices" is that the iPhone preceded the iPad. If the iPad had come first, we wouldn't think of the iPhone as a phone; we'd think of it as a tablet small enough to hold up to your ear. The iPhone isn't so much a phone as a replacement for a phone. That's an important distinction, because it's an early instance of what will become a common pattern. Many if not most of the special-purpose objects around us are going to be replaced by apps running on tablets. This is already clear in cases like GPSes, music players, and cameras. But I think it will surprise people how many things are going to get replaced. We funded one startup that's replacing keys . The fact that you can change font sizes easily means the iPad effectively replaces reading glasses. I wouldn't be surprised if by playing some clever tricks with the accelerometer you could even replace the bathroom scale. The advantages of doing things in software on a single device are so great that everything that can get turned into software will. So for , a good recipe for startups will be to look around you for things that people haven't realized yet can be made unnecessary by a tablet app. In coined the term ephemeralization to describe the increasing tendency of physical machinery to be replaced by what we would now call software. The reason tablets are going to take over the world is not (just) that and Co are industrial design wizards, but because they have this force behind them. The iPhone and the iPad have effectively drilled a hole that will allow ephemeralization to flow into a lot of new areas. No one who has studied the history of technology would want to underestimate the power of that force. I worry about the power Apple could have with this force behind them. I don't want to see another era of client monoculture like the Microsoft one in . But if ephemeralization is one of the main forces driving the spread of tablets, that suggests a way to compete with Apple: be a better platform for it. It has turned out to be a great thing that Apple tablets have accelerometers in them. Developers have used the accelerometer in ways Apple could never have imagined. That's the nature of platforms. The more versatile the tool, the less you can predict how people will use it. So tablet makers should be thinking: what else can we put in there? Not merely hardware, but software too. What else can we give developers access to? Give hackers an inch and they'll take you a mile. Thanks to , , , and for reading drafts of this.


What We Look for in Founders Want to start a startup? Get funded by Y Combinator . (I wrote this for Forbes, who asked me to write something about the qualities we look for in founders. In print they had to cut the last item because they didn't have room.) 1. Determination This has turned out to be the most important quality in startup founders. We thought when we started Y Combinator that the most important quality would be intelligence. That's the myth in the . And certainly you don't want founders to be stupid. But as long as you're over a certain threshold of intelligence, what matters most is determination. You're going to hit a lot of obstacles. You can't be the sort of person who gets demoralized easily. and of are a good example. They're doing a finance startup, which means endless negotiations with big, bureaucratic companies. When you're starting a startup that depends on deals with big companies to exist, it often feels like they're trying to ignore you out of existence. But when starts calling you, you may as well do what he asks, because he is not going away. 2. Flexibility You do not however want the sort of determination implied by phrases like "don't give up on your dreams." The world of startups is so unpredictable that you need to be able to modify your dreams on the fly. The best metaphor I've found for the combination of determination and flexibility you need is a running back . He's determined to get downfield, but at any given moment he may need to go sideways or even backwards to get there. The current record holder for flexibility may be of . He applied to YC with some bad ecommerce idea. We told him we'd fund him if he did something else. He thought for a second, and said ok. He then went through two more ideas before settling on . He'd only been working on it for when he presented to investors at , but he got a lot of interest. He always seems to land on his feet. 3. Imagination Intelligence does matter a lot of course. It seems like the type that matters most is imagination. It's not so important to be able to solve predefined problems quickly as to be able to come up with surprising new ideas. In the startup world, most good ideas seem bad initially. If they were obviously good, someone would already be doing them. So you need the kind of intelligence that produces ideas with just the right level of craziness. Airbnb is that kind of idea. In fact, when we funded Airbnb, we thought it was too crazy. We couldn't believe large numbers of people would want to stay in other people's places. We funded them because we liked the founders so much. As soon as we heard they'd been supporting themselves by selling and branded breakfast cereal, they were in. And it turned out the idea was on the right side of crazy after all. 4. Naughtiness Though the most successful founders are usually good people, they tend to have a piratical gleam in their eye. They're not Goody Two-Shoes type good. Morally, they care about getting the big questions right, but not about observing proprieties. That's why I'd use the word naughty rather than evil. They delight in breaking rules , but not rules that matter. This quality may be redundant though; it may be implied by imagination. of is one of the most successful alumni, so we asked him what question we could put on the Y Combinator application that would help us discover more people like him. He said to ask about a time when they'd hacked something to their advantage-hacked in the sense of beating the system, not breaking into computers. It has become one of the questions we pay most attention to when judging applications. 5. Friendship Empirically it seems to be hard to start a startup with just one founder . Most of the big successes have two or three. And the relationship between the founders has to be strong. They must genuinely like one another, and work well together. Startups do to the relationship between the founders what a dog does to a sock: if it can be pulled apart, it will be. and of are a good example of close friends who work well together. They've known each other since second grade. They can practically read one another's minds. I'm sure they argue, like all founders, but I have never once sensed any unresolved tension between them. Thanks to and for reading drafts of this.