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Is Y Combinator worth the money (equity)? Brutally honest review of W22 batch experience
A marvelous dream for many, can it possibly be a solution to all your worries?
1. My impression is based purely on my own experience working on a particular company (Suggestr) in a particular industry (AI+ecommerce) while going through a particular batch (W22). The impression will be different for every founder, especially now after Covid, when the program is back to being in-person.
2. The article is a translation from the original I wrote back in the end of the batch.
3. I don’t try to censure bad because YC are the ones who teach how important is negative feedback for improvement.
TLDR: The overall impression you get is that the program has turned into a conveyor, pushing everyone through the same pipeline, which doesn't allow it to give a decent value to each individual company. It’s hardly surprising given a) a lot of companies, b) all at different stages, c) all in different industries. At the same time, the same theory is given to everyone, and the partner, on average, is one for 20 companies. But now, let's look individually at each component that makes up the value of any accelerator:
1.1. Network of founders, community, safe space – ★★★☆☆
Due to the fact that the entire program (was) remote, the founders are at different stages, and there is no dependency on each other in any way—no relationship or a sense of community is formed.
There are just too many companies to meet them all. I’ve heard the intro of ~60 companies in our group once, and for the rest of the 340 companies in our batch, I haven’t even seen them. YC tried to split the teams into even smaller groups, but due to the fact that everyone is relatively independent and doesn’t have much in common, neither mutual interest nor connection is built.
You can try to get to know all the batchmates, but given their large number and constant lack of time, it is nearly impossible.
Moreover, if you’re located in an inconvenient timezone, don’t expect SF people to adapt, you will sleep on the calls or skip half of them. (We had the calls at 2 am and 8 am right after it, and we chose to sleep.)
On the positive side, there were local dinners organized so that people could meet up in person. But, if you are not in SF or NY, expect very few people to show up. We met only 2-3 new companies at the local meet-ups in Singapore.
There is also an internal forum called Bookface, but it serves more as an abstract omniscient brain. It is really good for searching for specific questions, and it does contain a lot of first-hand information that cannot be found anywhere else, but it’s not a tool for live communication, and since your questions are tied to your profile and are seen by everyone, it’s unlikely you will want to use it for particularly dumb or personal questions.
1.2. Network of clients/partners – ★☆☆☆☆
First, it really depends on the industry. If you sell to startups, for example, you have a dev tool, or analytics SaaS, then there is a puddle of clients for you. But, you are not alone in that puddle. Again, due to the fact that there are not 20, but 400 companies, it will be difficult to sell even within the batch, because other members are already overloaded with unique offers from other YC companies.
What I received the most during the whole program was spam from YC companies! After the first ten, you stop opening them.
But at the same time, if you sell to more mature companies, then you can use Bookface to find leads or ask YC community for an intro to the customers. It works, but again, depending on the industry and the person you ask.
I’ve seen enough cases when saying “oh, I’m also from YC” didn’t move the needle.
In our case, we got acquainted with all the e-commerce startups working on Shopify, had interesting conversations, but eventually, it didn't affect our business much.
If you have some kind of b2c or Enterprise business, all you will get is a knowledge exchange with homies. YC does not have any industrial partners, and YC partners themselves will not do external intros to clients/investors for you! (Maybe investors, in rare cases, but under the table).
2. Knowledge and YC Advice – ★★★☆☆
This is a debatable topic since there is one set of theory, but it’s useful to different people differently. In general, there is an evident focus on the very early stage without a product. The main theory and advice are about how to figure out what to do, how to build an MVP, how to launch, how to talk to customers, where to find the first 10 customers, how to raise the first money, and so on. Needless to say, for companies with tens or even hundreds of thousands in revenue it won’t be very valuable. In addition, all of it can be found publicly in the Startup School directory, Youtube, or other sources (in our case, we’ve covered it all in Entrepreneur First).
Talking about positives, there is a Knowledge Base on the Bookface with articles from people from YC on all possible topics around the startup building: Hiring, Legal, Taxes, Fundraising, Sales, you name it, and even growth at later stages.
Months after the program I still find answers to my questions there and I’m nowhere near exhausting it. This is a very useful and really ground-breaking resource.
Live presentations (which took place in Zoom for 800+ participants) at the same time do not come close to it, in 90% of cases covering stories of successful success from the founders (which you can watch on Youtube if you want a boost of motivation).
As for personal Office Hours with partners, they didn't help us much. Firstly, there are not so many of them and they’re difficult to book, secondly, the expertise of the partners is more generic, and thirdly, when everything is just working but slowly, you may not have specific questions or problems to ask about. In our case, we went through all the consultations with two tips: “send more emails (like really more)” and “don't call your subscription revenue MRR because you don't have MRR", that was it.
Wow, you’re still here! There may be something special between us. Let’s explore it further:
In general, there was this feeling in the air that they want to cram everyone into their framework, and any attempts to go beyond the framework are quickly suppressed. In their picture of the world, you, the founders, should only build a product and talk to customers, everything else is superfluous and waste of time. Hiring is waste of time, paid advertising is waste of time, content is waste of time, talking to investors is waste of time, getting media coverage is waste of time.
Their logic can be understood: make a good product, and the rest will catch up. But in real life marketing and hype really matters, and when everyone does these things while you naively sit and code, they get an advantage in the market, and you get your cool product.
Even when it came to fundraising, all the YC’s advice came down not to how to raise smarter and more, but to the fact that everyone needs to follow their simple framework, not try to shine too much, not try to choose the right words, wash off all the makeup, put on a gray uniform, and present dry facts—how much money customers already paid you, what the size of the market, if you count all the units you can sell, what you have actually built and what is working today. And this will always sound bad for anyone, it just can't sound good in the early days. And what actually works is storytelling, confident vision, committed revenue, and all these subtle things. It looks as if they are trying to make the selection process among 400 companies easier for the investors, and cover their own reputational risks, instead of trying to wrap each company in a beautiful wrapper and help it to raise easier.
3. Fundraising – ★★★★☆
Demo day is where YC generates its main value, and what people go to YC for. Undoubtedly, YC companies receive extra attention from investors and the very fact of their pre-selection by YC makes the deal hotter and increases its valuation.
However, now this trend is fading, and the valuations of YC startups do not go very far from the valuations of outside companies. Undoubtedly, a large number of companies in the batch and dilution of the YC brand work against it.
Moreover, do not expect YC to guarantee that you will raise only from tier-1 funds. The best funds make 10-15 investments in a batch maximum, therefore, all others go on the market, and raise from the same VC they were talking to even before YC.
Where the benefit of YC really feels is: publicity, more inbound from small funds, more opportunities to find an intro to anyone, and never again write cold emails, a slightly higher valuation.
Now let’s talk about the Demo Day. According to rumors, good companies close the round a week before the demo day, or at least they get a lead, and at DD only get the follow-ons. (You can see the conflict between YC advice and reality). Why is it happening? High-quality funds do not need a demo day, their only job is to scout great startups, and of course, they will want to start a relationship earlier, rather than later, when the queue is already lined up. Demo day can attract only micro-funds and angels who do not have the resources to scout and who learn about companies on the demo day.
Don't expect big players to reach out to you after the demo day. They know about you, if they haven't reached out yet it means they're not interested.
4. Money – ★★☆☆☆
Back in the day, I would say “forget it, what money are you even talking about? If this is not the first money for the company, then it’s a spare change you won’t even notice.” Now, with a 500k deal, the amount is more substantial, but in turn, its terms are not super funder-friendly. Imho, the previous 125k deal was better for the founders since once the company gets accepted to YC it can raise easily a lot more money and on better terms.
On the other hand, in the reality of the current environment, getting 500k quickly, without extra overhead, can be a good deal that defines companies life or death, and a little extra dilution may be a reasonable price to pay.
When should one go to Y Combinator?
My subjective opinion is that it makes sense to do if you:
A) A super young team of 2-3 people, with burning eyes, a crazy idea, but without experience and resources, and you want someone to give you a kick and help build up the moment.
B) Sell your product to startups and see a lot of benefits from gaining access to the YC network.
What it doesn't make sense to go for:
Purely for the money
For new founder-friends and a support group
For rare and unique knowledge
Is participation in YC worth 7%+?
Considering that for the majority the main benefit of YC concentrates around fundraising, it can be easily estimated by doing simple cap table modeling: what valuation will you raise the next round at and what will be your final dilution “with” and “without” YC? If you save 2% in the next round and get no business benefit, but give away 7% for it, then well...
In the end, YC is an investor, an investor with a strong reputation, who is now sitting in a very comfortable chair and can select the best startups and invest in them at a meager price, while standardizing all its value-add so much that it soon can be outsourced.
Remember: accelerators and their help are temporary but the equity you give away forever
P.S.: In the end, I’m thankful to YC for the experience and discipline it gave us. In the hindsight, we got more out of it than the average company, as the constant comparison and growth benchmarking triggered us to look differently at our business and we decided to wind up its operation right after the Demo Day. YC teaches you one thing well—startups are all about growth, and if you didn’t grow today, it’s on you to find out how to grow tomorrow.
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