interviewed me about Y Combinator, but edited
the questions and answers so much that the sense was often changed.
Here are my original answers. I've used their new questions
whenever possible, but kept the original ones when they'd changed
so much that my answer became mysterious.)
F|R: What is the mathematical function from which Y Combinator
takes its name, and why did you choose this?
Graham: It's a function that builds recursive functions without
them needing to have names. The Y Combinator is one of those things
that seems miraculous when you first encounter it. You wouldn't
necessarily have expected such a thing to be possible. We named
the company after it partly because we thought it was such a cool
concept, and partly as a secret signal to the kind of people we
hoped would apply.
F|R: How quickly can you now tell whether a start-up will make it?
And what are the key characteristics that indicate potential success
to Y Combinator?
Graham: We can never tell for sure. No investor can. But we are
trying hard to get better at predicting.
I think the key quality is determination. The founders who do the
best are the type of people who just refuse to fail. Most startups
have at least one low point where any reasonable person would give
up. That bottleneck is the reason there are so few successful
startups. The only people who get through it are the ones who have
an unreasonable aversion to failing.
F|R: Several copycat incubators have sprung up since Y Combinator
launched in 2005 (TechStars, Y Europe, Seedcamp, BoostPhase). Can
your model be replicated?
Graham: There are a few things they haven't copied correctly, but
really it's not our model that distinguishes us. It's the people
that make the difference—not just us, but the 250 or so founders
we've now funded. The amount of knowledge accumulated in all these
heads is remarkable.
F|R: I read that when you call Y Combinator winners, the founders
have only five minutes to accept. ("If people turn us down," he
says, "as far as we're concerned they've failed an IQ test.") Have
startups turned you down? Are there any that have turned Y Combinator
down and still gone on to succeed with a liquidity event?
Graham: You're confusing two separate things. The reason people
are supposed to decide quickly whether or not to accept is that
they already know everything except the percent we'll ask for.
They've already seen the deal terms, and they already know as much
as they're going to know about YC before actually working with us.
So they should already know when we call what percentage they'd be
ok with. Since all they have to do is subtract one integer from
another, five minutes should be enough.
The "IQ test" quote refers not to how fast they have to decide, but
the amount of equity we usually ask for. In the median case it's
6%. If we take 6%, we have to improve a startup's outcome by 6.4%
for them to end up net ahead. That's a ridiculously low bar. So
the IQ test is whether they grasp that.
There was one startup that turned us down because they received an
acquisition offer during the weekend when we did interviews. It
was a pretty good offer. I'd have taken it in their position, and
they did. But other than that I don't know of anyone who turned
us down and went on to succeed. There have only been about three
others who turned us down.
F|R: How did you determine the 12-week term of each Y Combinator
class? Why is two months too short, or six months too long to
"incubate" a startup?
Graham: We discovered it by accident. When we first started YC,
we began with a summer program. We were trying to learn how to be
investors, so we invited college students to come to Cambridge and
start startups instead of getting summer jobs.
Now we're looking for founders who consider the startup as a real
job, not just a summer one. But we kept the 3 month cycle because
it is a good length of time to build a version 1. Some startups
may not be able to launch in such a short time, but they should all
be able to build something impressive.
F|R: Name one thing founders can do to increase their odds of being
selected by Y Combinator. Is Andreessen right that "the market"
matters more than the idea, the tech, and even the talent?
Graham: Get good cofounders. You can't change who you are, at least
not in a short time. And the idea doesn't matter to us as much as
the people. So the best thing any indvidual can do is find good
people to work with.
I think Marc may be right that market is the biggest determinant
in the outcome of successful startups. But that's not unrelated
to the qualities of the founders. Smart people will find big