1,000 companies per Y Combinator batch? RIP Y Combinator

OSTN Staff

Don’t worry, Y Combinator fans, you’ll be able to write off this entire opinion piece as the disgruntled musings of “a failed startup founder who was never able to get into Y Combinator,” because seen through one lens, that’s exactly what I am. But, damn it, for a while there, being a Y Combinator company meant something. People who’d gone through Y Combinator spoke through it in hushed tones, as if God’s own light had shined upon them, and they had been touched by the wings of an angel.

Truth is, for a lot of companies, being part of Y Combinator was a huge breakthrough, and getting the YC stamp of approval meant something. The selection criteria were stringent, and whenever there was a YC demo day, the entire startup ecosystem would be wafting themselves with a sense of arousal and excitement. The press would be sharpening its proverbial pencils, and investors would be clamoring for the most promising startups. Both groups did that for the same reason: To make it through the YC selection process and survive it through the end of the program meant that the companies at least reached a basic level of competence. 

People who don’t know much about martial arts think that earning a black belt is a big deal. It is — but in most systems, it shows just that you have basic proficiency, and that you can be trusted to practice with some level of safety and competency. People who understand martial arts understand that the true deep study starts at the black-belt level. In a way, the same was true for Y Combinator: Get accepted and work your way through the program, and you’ve got your black belt. Congrats, pop some champagne, pat yourself on the back. Now the real work begins.

So when Y Combinator’s new boss Geoff Ralston says he can see Y Combinator fund 1,000 companies per batch at some point in the none-too-distant future, my read is that the firm is tooling up to change from being a boutique martial arts gym to a mass-market dojo that’s trying to train a ludicrous number of founders into fighting-fit karate kids. Although, if you remember “Karate Kid,” the smaller, scrappier gym was, ultimately, a better place to be.

The move would make a lot of sense for Y Combinator — if, as Ralston claims, they will be able to keep the quality of founders and the selection criteria at a high level, the firm is effectively creating an index fund of startups. At the stage Y Combinator invests, they can pick up a not-insignificant percentage of the companies for not a lot of money. If 1‰ (that’s 1 out of a thousand) startups turn into an Airbnb, DoorDash, Coinbase, GitLab, Dropbox, Amplitude, Matterport, PagerDuty, Stripe, Instacart, Cruise, Brex, Reddit, Zapier, Gusto, Flexport, Monzo, Mux or Rippling, it’s a hell of a business model. That impressive list of startups isn’t a coincidence; those are all companies you’ve probably heard of, and all Y Combinator portfolio companies.

The problem isn’t for the investors; they’re going to be just fine. The challenge is for the startups. Some will argue that network effects get better when the network gets bigger; and that might be true — but that is an incredibly hard problem to solve. Not least because the very best founders don’t have time to actually participate in the network; especially in the early days, they’re heads down building their startups, not rolling up their sleeves to help other founders.

As a founder, I’d question whether it’s worthwhile to be a part of a 1,000-strong cohort. Will the Y Combinator badge of honor help you get a meeting with an investor? Will it help you get bumped to the top of a journalist’s email inbox? Or will it simply cease to be valuable as a filter to the outside world, and drastically reduce the value of having been a Y Combinator alum in the first place?

My personal suspicion is that Y Combinator becoming huge(r) is great for YC and its limited partners (i.e. the people investing into YC). For the startups, there’s a point of diminishing returns. I think that point was a while back when the cohorts ballooned to 377 startups and became completely unwieldy for anyone who was trying to keep an overview of what was happening inside its rapidly expanding walls.

It’s only a question of time before someone starts offering the service and exclusivity of what YC did in the early days — there are already a few contenders in the running — and when one of them starts gaining traction and building up a portfolio of its own, YC would be left with an index fund of the also-rans. I would be delighted to be wrong, but it feels like this is the beginning of the end of the Silicon Valley institution.

Powered by WPeMatico

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.