Considering Y Combinator (or any seed funding)?

[Timely note! We're hosting a Y Combinator Meetup in Seattle on Thursday Feb 25... details here!]

March 3 is the deadline for YC’s Summer 2010 session. I figured that I ought to throw my thoughts out there on the decisions that lead up to the application, the app itself, and the interview process that follows (if your app makes the cut!).

Making the Decision to Apply

  • First off, I think the most important thing to emphasize as an entrepreneur is that you should optimize for your chance of success a meaningful exit, NOT the magnitude of it, should it happen. It may seem like selling for millions to Google is a foregone conclusion given how brilliant you are, but it’s not. Startup success is a tough slog with lots of randomness outside of your control. If you can trade a little bit of equity to nudge up your shot at success by a few percentage points, you should do so. Thankfully, YC from this perspective is a no-brainer. No one can argue that it doesn’t improve your shot (with the amazing mentoring they provide, the investor introductions/credibility, and PR bump), and if you calculate YC’s take is if you sell for $100m (divided by the number of founders), it isn’t too painful.
  • Think about what you’re building, what market you’re playing in, and whether it’s appropriate for venture financing. I think I recall reading about someone applying who was proposing to build an app to manage Dungeons and Dragons campaigns. While there’s probably a business there, it’s pretty unlikely that the pen-and-paper RPG market is going to be the next big thing to change the world. Pick a big market– or better yet, pick a small market that can eventually morph into a huge market (like classifieds for San Francisco, selling books online, or an online garage sale).
  • Read everything here and make sure you agree with some of it, but don’t be afraid to disagree with some of it either!
  • Do something bold. You aren’t going to be thinking to yourself on your deathbed that you really should’ve taken less risks. YC is a blast. You get to meet amazing mentors, other great startup founders, and a few fairly impressive robots.
  • Consider how committed you are to your idea/market, your company, and your co-founders. YC has plenty of flips, but the majority of ‘em seem to be going concerns for years. Can you get excited about what you’re doing (and who you’re doing it with) for 7 years?
  • Do a gut-check on your team. Do they have the rough ingredients necessary to kick ass? If the better mousetrap you propose to build is going to be better because of an amazing UI, make sure you have a great UI guy. If you’re doing a vertical search/UGC play, make sure someone is at least a little interested in SEO. If you’re going to sell software to businesses, make sure someone is willing to sell stuff. And, of course, if you’re tackling something with big technical challenges (like most of us are) make sure you have some great hackers.

The Application Process

  • Read Paul’s essays. It provides good insight into what’s important to him (and YC). Reading Founders at Work is a good idea, too. It’s a great book and shows you some patterns for startup success.
  • Remember that the app is a sales pitch and focus your answers on the things that are important to YC. The biggest risks to YC are:
    • That you don’t have the chops to build something good. The best way to deal with this concern is to show them something good that you’ve built. Preferably several things, and preferably things that you’ve built with your co-founders.
    • That you’ll get bored/discouraged and quit. So try to work in examples of times when you’ve persevered despite significant obstacles.
    • That you’ll fail to make something that people want. So do what you can to show that you’re in tune with the market you’re proposing to serve. You can be a badass hacker with unflagging dedication, but if you don’t/can’t understand your users, you’re probably not going to be a big win for YC.
  • Don’t be too shy or too arrogant to sell. I remember reading a comment on Hacker News that said, “My code speaks for itself.” No, it doesn’t. At least, not to investors, customers, employees, reporters, and the zillions of other people out there you’re going to have to sell to.
  • Get working on your software ASAP. If you apply with a functional product (or even a launched product that people love), you remove a lot of the risks listed above.
  • Get working on the YC app ASAP. If you’re unsure, apply! The app takes a few hours and it’ll help focus your thinking if nothing else.
  • If possible, make sure that your whole team is ready to dive in whole hog. Starting something up is a commitment to your founders and to your new investors. Having a team member who has other commitments can be a source of contention.
  • Hack the system! Every session I get emails from people asking me to review their apps. I usually do. I can’t imagine why you wouldn’t do this… YC founders are people who wrote successful applications and spent at least 3 months getting repeatedly kicked in the junk by Paul Graham and friends. I’m sure we must know something about how YC thinks that might not be obvious. If you can’t bring yourself to ask a stranger for some time, how are you going to raise money after YC? How are you going to hire your first employee?

The Interview

I don’t recall the stats on how many applications make the cut, but if you get asked in for an interview, congratulations! Now get to work building something (hopefully you already have).

  • Get started on a demo. If you walk in and start monologuing, you’ll fairly quickly get interrupted and asked to start showing stuff.
  • The “demo” will be less like Steve Jobs and more like Guantanamo Bay. You’ll be derailed almost instantly and peppered with questions and objections.
  • Have a backup idea that you’re comfortable talking about. I know several founders who were essentially told, “we don’t like that idea. Do you have any others?” This may be a test of how much you love your idea as much as anything else. Founders who refuse to pivot often die from it. It also might be a test of your ability to have good ideas. If they don’t like your idea OR your backup, they might los faith in your ability to grok what people want.
  • Practice. Ask 10 smart people to name 10 things that will make your idea fail. Have good responses for those objections. Don’t practice a speech. Don’t practice a 10 minute demo, practice little 1-2 minute chunks of a demo that you can string together if they leave you alone. Practice individual talking points and responses.
  • Be willing to be wrong but also be willing to disagree. YC doesn’t want lapdog PG fanboys(and girls!), but they also want people who are coachable and willing to learn. Don’t be afraid to say, “That’s one of the things we’re going to have to figure out, but we have a few ideas.”
  • Be dynamic and energetic. You’re a storyteller here. Your job is to get YC excited about your business. Make them believe that it (and YOU) are an investment opportunity. Work on eye contact, not talking to too fast, and thinking on your feet. Have someone role-play an aggressive interviewer.
  • That’s about all the advice I have. I’d close with this point– very very very few YC founders wouldn’t do it again in a heartbeat. It’s a killer experience and it’s certainly a needle-mover during the most fragile part of your new company’s life. Applying is cheap in terms of time and rewarding even if you don’t get asked in for an interview. Do it!

  • Recurly

    A solid post for anyone thinking about applying to Y-combinator- or any other- incubators program. From a lot of the entrepreneurs I speak to thinking about applying to Y-combi, many stumble on making the decision to apply or not. The key portions being willingness to take risk, commit to an idea for 7 years, and making sure the entire team has that passion. Beyond that, a lot of the questions come around executing on that bold vision.

    I'm excited to check out demo day this year and am looking forward on what's to come for these companies. This post helps make sure the new crop of applicants gets started by focusing on the right things. Thanks for the great post!
    -Tim

  • http://danzambonini.com spxdcz

    Thanks so much for the advice – some of this actually answered some of the niggling questions I had about the process.

  • http://evanmeagher.net/ Evan Meagher

    Thank you for writing this. A good complement to your thoughts from the YC panel at the Seattle Tech Startups meeting a few weeks ago. I'll definitely keep this bookmarked to check back on when I decide to apply.

  • http://www.rescuetime.com webwright

    The deadline is March 3, I believe if you want to toss in an application. I was recently told that the majority of the apps come in the last couple of days!

  • http://blog.tumbledesign.com/ Nicky Hajal

    Hey Tony,

    Thanks for the tips! I submitted our application to this Summer’s YC about a week ago; luckily the system allows you to resubmit, I may make some edits with your article in mind.

    The biggest challenge for me, by far, is staying concise.

    I’m also preparing a pitch for an episode of Dart Boston’s Capitalize. (http://capitalize.dartboston.com) Watching some of the older episodes, I notice how VCs ask questions immediately as the pitch begins.

    I’ve never given a presentation in that way, so I love your suggestion to practice 1-2 minute chunks.

    Will be reading more of your blog,
    Nicky

  • Jason Tan

    Haha, Tony. Didn't get enough at the UW startup talk, huh? :-P

    In all seriousness, Y Combinator seems like a no-brainer for young entrepreneurs without all the resources already at the finger tips (99% of us).

  • http://www.rescuetime.com webwright

    I'm a glutton for punishment.

    Truth be told, I think it's a no-brainer for anyone who DOES have resources at their fingertips. Look at it this way– you're giving up 6% or so of a company that barely exists. In exchange, you get PR that you couldn't buy for tens of thousands of dollars, advice that could make or break your business, credibility that will drive up your valuation (likely more than compensating for the 6% you give up), investor introductions that shorten your fundraising time and make fundraising more competitive (for the investors!), and YC in your corner making sure that investment terms aren't predatory.

    Sure, if Bill Gates wanted to spin up a startup, he probably wouldn't need YC. But if you don't having funding in your pocket, I think it's a no-brainer wherever you are.

  • http://www.rescuetime.com webwright

    Great to hear! There are a lot of posts like this out there– I tried to add a few tips/thoughts I hadn't read before. Holler if there are other niggling questions.

  • http://blog.aisleten.com MicahWedemeyer

    I’m the guy who runs the D&D management website – http://www.obsidianportal.com. Like you say, we actually did find a business in this area and we’ve bootstrapped ourselves into a good spot.

    We may not change the world, but we’ve definitely change the RPG world. That’s enough for me :)

  • http://www.rescuetime.com webwright

    Rock on, Micah! I hope you didn't take my remark as disparaging. I'm an
    old-school pen and paper guy myself (though it's been a few years). It's a
    cool space.

    I think there are two spectrums to worry about as an entrepreneur. Chance
    of viability and chance of “blow up to be HUGE”. Lots of very viable
    businesses have functionally zero chance for venture-sized returns. Lots of
    monster-potential startups have nearly zero chance to be viable (they are
    “all or nothing” plays). VCs would rather fund 10 companies and have 9 fail
    (but the other one be Google) than funding 10 companies and have all 10 look
    like your company (or mine– right now! :-) ).

    Check out the end of this second:
    http://www.seomoz.org/blog/seomozs-venture-capi… for
    a great rundown about this. The whole post is fabulous if you have the
    time!

    To say that a business isn't right for venture financing isn't a bad thing.
    In fact, a lot of high-chance-of-viability business are a helluva lot more
    admirable and impressive to me than a lot of “shoot the moon” bullshit
    startups.

    Grats on your success!

  • http://blog.aisleten.com MicahWedemeyer

    I'm proud to count myself as a “lifestyle entrepreneur” these days. I once dreamed of VC funding and those sort of things, but now all I want is to work on what I like. My chances of getting rich are pretty low, but my chances of permanently saying goodbye to the average work world are looking better every day.

  • premierinterns

    My business partner and I launched PremierInterns.com in the fourth quarter of 2009 and have been growing in a snails pace. The reason being is because we have been bootstrapping the entire project. We're at the point of maybe trying to reach out to angel investors or joining an incubator. I'm kind of curious to see if PremierInterns.com will qualify to be part of Y Combinator. If so, I hope they have a branch in San Diego, CA.

  • http://www.rescuetime.com webwright

    Hey there– YC is strictly Silicon Valley, though I'd guess that 50% or more of the founders fly in and set up shop to do it (we relocated temporarily from Seattle). It's very much worth it.

    Lots of details are available at http://www.ycombinator.com

  • http://www.scottberkun.com/ Scott Berkun

    Just fyi: you have a typo in the first bullet

    “NOT the magnitude of your it should it happen.”

  • http://twitter.com/webwright Tony Wright

    Fixed– thanks Scott! That's why I'm a blogger and you're an author. :-)

  • http://www.scottberkun.com/ Scott Berkun

    Just fyi: you have a typo in the first bullet

    “NOT the magnitude of your it should it happen.”

  • http://twitter.com/webwright Tony Wright

    Fixed– thanks Scott! That's why I'm a blogger and you're an author. :-)