This article is written by Jonathan Moed, founder of Startup Universal and was originally published on Forbes. Reproduced with the author’s permission here.

Why Y Combinator? ZOE JURKOWSKI

Y Combinator (YC), the world-renowned startup accelerator program in Mountain View, California, looks very different today from when it was founded in 2005. It has significantly grown its team, extended network, and the scope of services it offers. This evolution has, in turn, broadened the types of startups who apply and are accepted to the program. Given these changing dynamics, it’s worthwhile to examine the impact of Y Combinator not as it once was, but as it is today. This impact differs for each of the participating companies, depending on its motivations for joining YC and its experiences during the program. I set out to answer the question of ‘why Y Combinator in 2019-2020?’ (and by extension, ‘what value can and should other accelerator programs strive to offer startups?’) by speaking with several notable companies that recently graduated from the program’s Summer 2019 batch.

Y Combinator Today

Although based in Northern California, Y Combinator is by no means a program only for Silicon Valley startups and entrepreneurs. The program has begun to invest more heavily in its international footprint and attracting a more geographically diverse pool of companies, focusing on emerging markets like India and Latin America. In the Summer 2019 batch, 27 countries were represented, and 38% of companies were based outside of the U.S. India alone represented 12 companies in the batch.

Y Combinator has also extended the scope of services it provides on top of its core 3-month seed accelerator program, from continuing education and programming for startups outside of the seed stage (last year, Y Combinator launched a Series A Program), to publicly available resources such as the Startup School online course.

As the services and support offered by Y Combinator have grown beyond the traditional capital-for-equity model (Y Combinator offers its companies US$150,000 in exchange for 7% equity), so has the size of each batch of companies. The Summer 2019 batch, running from June-August, included 196 companies divided into four large groups. The batch featured a mix of repeat-founders and first-time founders and companies that ranged from a few weeks old to a few years old. Each company was looking for and found value from the program in different ways, so to identify the impact of YC today and what separates it from other accelerator programs, it’s important to first understand the motivations of different companies for joining, and what their experiences are during their time in the program.

Motivations for Joining

YC batches include companies with a broad spectrum of motivations for joining, and the Summer 2019 batch was no different. These motivations were primarily driven by the level of experience of the founders, and the level of maturity of the home markets of the companies.

Eric Futoran, co-founder of Embrace, a performance monitoring & debugging platform for mobile apps, already had several years of experience at a thriving startup by the time he applied to YC. Futoran previously co-founded and helped build gaming startup Scopely into a leading games publisher responsible for top mobile games like Yahtzee, Walking Dead, and Wheel of Fortune. What drew Futoran and his team to the program was YC’s experience and the success of its portfolio specifically within the mobile analytics and developer tools spaces, with alumni including Heap (Series C), Parse (acquired by Facebook), Docker (Series E), Pagerduty (IPO), and others. The Embrace team also appreciated the structure and defined timing of the 3-month program, as it provided natural milestones to build toward.

Fredric Newberg (left) and Eric Futoran (right) co-founders, Embrace FREDRIC NEWBERG

On the other side of the experience spectrum in the batch were first-time founders, many of them recent college graduates or dropouts, who approached YC as a life experience–an opportunity at the beginning of their careers to immerse themselves in a learning environment surrounded by powerful technology changemakers. Some of these young founders did not have a business in place when they first set their sights on YC, and the hope of being accepted to the program was a catalyst for creating a business. This was the case for Emerson Hsieh, the 20-year-old co-founder of Waves, a dating app matching users based on sexual compatibility. Back in 2011, when Hsieh was 11 years old, he came across the essays of Paul Graham, who founded Y Combinator. Since then, Hsieh wanted to one day join the program and was accepted to the Summer 2019 batch on his second application attempt.

Emerson Hsieh and his brother/co-founder Morris Hsieh pitching Waves during YC Demo Day MORRIS HSIEH

Ben Stanfield, co-founder of Project Wren, a ClimateTech startup aiming to make carbon offsets more accessible to individual consumers, is another young entrepreneur who joined YC for the experience itself. As Stanfield, who recently graduated USC, noted, for a young person with an interest in technology and entrepreneurship and a compelling idea to pursue, “why not apply?” He pointed to the value of even the application process, from working on a video submission to preparing for a 10-minute interview with the program team.

Project Wren’s founding team (from left to right): Landon Brand, Mimi Tran Zambetti, Ben Stanfield BEN STANFIELD

For the batch’s international companies coming from relatively less mature ecosystems, another motivating factor was joining a U.S. based program with a deep network of investors and other entrepreneurs. Jani Pasha, co-founder of Lokal, a hyper-localized news app catering to India’s 900 million non-English speakers, and Ignacio Martinez, co-founder of Alana, a blue-collar jobs marketplace for Latin America, both stressed the credibility and network of a prestigious program like YC.

Lokal founders Jani Pasha (left) and Vipul Chaudhary (right) JANI PASHA

This means access to entrepreneurs who have built successful companies, and investors focused on long-term growth rather than exclusively on short-term profit. Importantly, it also provides access to an exclusive community of local YC alumni–Martinez noted the tight bond of the community of Latin American YC alumni. For many international founders, YC offers the type of “validation” they’re not able to receive in their native country.

Alana’s founding team in front of YC headquarters IGNACIO MARTINEZ

The Accelerator Program Experience

Company motivations for joining Y Combinator dictate how companies experience the program and where they invest their time. The structure of the 3-month program is fairly open-ended: following an orientation boot camp the first week of the program, there are a couple of intermediate checkpoints culminating in “Demo Day”–a 2-day pitch event where each company presents to an audience of YC alumni and investors. Apart from this event, for which real preparation doesn’t begin until 2 weeks before the date, the program is shaped around regular “office hours” with YC partners (each group of companies is assigned 4 dedicated partners), feedback-sessions with other companies, and a weekly dinner featuring a guest speaker (often a successful YC alum).

As several Summer 2019 founders pointed out, founders must be proactive in seeking out the counsel of partners and in structuring company work during each week. Taking advantage of office hours and all that YC has to offer can prove difficult especially for companies not based in the Bay Area. While many companies pack up and move to the Bay Area for the duration of the program, others commute. Eric Futoran of Embrace traveled back and forth to Los Angeles each week, only spending 2-3 days a week in Mountain View, as did Ignacio Martinez while traveling back and forth to Mexico City. Founders based in Eastern countries like India had to navigate an even longer distance and spent significant time traveling back and forth. For Pulkit Sharma, co-founder of Khabri, a local language podcast platform in India, participating in YC meant having his co-founders stay back in India while he moved to California. As Alana’s Martinez pointed out, part of the challenge of being an international company in YC is “devoting time to your users and clients while also making the most of your time in-person in YC.”

Khabri founder Pulkit Sharma at YC Demo Day PULKIT SHARMA

Company experiences also depend heavily on where each company is in its stage of development. While some companies enter the program having already achieved product/market fit and are able to focus on growth for the full 3 months, others enter the program earlier in their evolution. Moreover, the rate of growth is very different for hardware companies or biotech companies as opposed to software companies. At the beginning of the program, companies are encouraged to pick a single performance metric to focus on and build momentum for Demo Day. While most software-based companies focus on growing active users, non-software companies evaluate their YC growth differently. Noah Debrincat, co-founder of SannTek Labs, a startup that developed a cannabis breathalyzer device, spent countless hours during the program speaking to police departments and businesses that do drug testing-as-a-service. Debrincat and team tracked the number of conversations and subsequent letters-of-intent during the program.

Other companies enter YC while in the process of pivoting to a new business model or a new business entirely. The aforementioned Waves and Project Wren are two examples of Summer 2019 companies who pivoted during the program. Both were accepted to YC with an initial business concept but were subsequently encouraged by the program to try a new idea with more potential for scalability. These pivots resulted in businesses that radically differed from their predecessors (the Waves team pivoted from a medical focused consumer website–a better version of WebMD–to a dating app, while the Project Wren team pivoted twice from an enterprise HR platform to a cloud kitchen business, to a ClimateTech business). In practice, this meant that much of the first half of the program was spent by these teams locking-into and validating an idea (with the help of their Y Combinator partners). As Ben Stanfield of Project Wren noted, pivoting mid-batch has become “more of a norm for YC,” as more examples of successful YC pivots like Brex emerge.

Demo Day

All the preparation and hard work come to a head when companies pitch themselves to investors during the Demo Day event. In the couple of weeks leading up to Demo Day, each company works with their group partners to refine their 2-minute pitch presentation, and to work on a fundraising strategy (for the most part, the program recommends holding off on conversations with investors until close to or after Demo Day). The goal is for each company to convey 3 key bullets encapsulating their company’s value. The week before the event, YC partners spend virtually the full week in the office offering guidance to companies. Partner support during this week was recognized by all of the founders I spoke with as particularly valuable.

For the Summer 2019 batch, the event took place on August 18th-20th. On August 18th, each company partaking in Demo Day presented in front of YC alumni–a “dry run.” Over the course of the following couple of days, each company then had the opportunity to present in front of investors, who are able to signal their interest in a particular company by “liking” the company on an internal YC app.

YC Demo Day Summer 2019 ALBERT LAW

As with the rest of the program experience, there is no single measure of success for companies on Demo Day. For many of the Summer 2019 companies, the goal of Demo Day was to successfully attract the right types of strategic investors to raise a seed round. For others, like Embrace, which had already raised a seed round prior to the program, the primary goal was to build awareness for their product. Companies also have been known to use Demo Day (and the general YC program) as a means of showcasing their company to potential customers–alumni or even other companies in the batch.

SannTek Labs pitching at Demo Day NOAH DEBRINCAT

Why Y Combinator?

With an understanding of the different motivations of companies in joining YC, as well as their experiences during the program as seen through the lens of the Summer 2019 batch, it’s now possible to distinguish the real value that YC provides to its participating companies.

Most founders I spoke with listed the Y Combinator alumni and investor network as the most valuable asset the program provides. The value of this network is demonstrated not only through fundraising, but through a willingness to make introductions, and shared knowledge of the pitfalls of starting up. As several international founders noted, on a practical level, the diligence and fundraising cycles in the U.S. are much faster than in other countries, and having many investors assembled in one place at the same time for Demo Day optimizes the fundraising process. Interestingly, the younger founders I spoke with stressed the value of the community of other founders–of like-minded peers. For founders like Emerson Hsieh and his co-founder and brother Morris, being surrounded by others like them made the difference. As the Hsieh brothers explained: “the founder journey is a long and lonely journey and because we’re young, it’s so great to find others doing the same thing. This value isn’t emphasized enough.”

Another primary point of value is a shift in mindset. The value of this shift is particularly pronounced for international founders. As Alana co-founder Ignacio Martinez explained, “YC instills in you a shift in mindset in terms of ambition. The biggest thing I learned was not hard skills, but a new mindset–a mindset not to be afraid to break stuff.” Noah Debrincat of SannTek Labs echoed this sentiment. As Debrincat relayed, a month before Demo Day, SannTek had spoken with 500 police departments, and YC wanted the company to hit 1000 conversations. Five days before Demo Day, YC encouraged Debrincat and the SannTek team to head to Anaheim for one of the biggest police conferences surrounding driving and impairment. As Debrincat noted: “YC doesn’t build your business for you; it gives you a framework for thinking that allows you to do seemingly impossible things.”

The final point of value that came up in discussion is the structure that YC provides for companies to grow the “right way.” Khabri co-founder Pulkit Sharma described this value as “giving you the right template to ask the right questions, identify the right metrics, think through the right things to work on, and put everything else aside.” This template is crucial for founders with less experience. As much as the program invests in a founder’s business, it makes its bets based on the talent of the founder. This is why companies are able and even encouraged, to pivot their businesses. What Y Combinator stresses is a process to push founders to optimize their talent and validate their ideas–if this is achieved, there’s a much greater chance that whatever business follows will be commercially successful.

In reality, each company in YC experiences every type of value listed above to varying degrees. The secret to YC’s success has been maintaining the value it’s able to provide every one of its companies despite the growing diversity of companies, each with its own specific needs. As a result of its vast network (including the partners as well as each partner’s network) and tried and true methodologies, YC is able to deliver accelerated growth for all flavors of companies. In the case of Indian localized news platform Lokal, this growth meant jumping from 350,000 monthly active users to 1 million monthly active users during the course of the program. Project Wren, which was still defining its idea at the beginning of the summer, ended YC with 600 paying monthly subscribers each paying US$20/month. Latin American jobs marketplace Alana grew its revenue 5x in the short duration of the program. Regardless of where companies started in June, and where they ended in August, all agreed that what YC provided them and their business well exceeded their expectations.

What Happens Post-YC

For some companies, the value they hope to acquire from Y Combinator has already been actualized in the aftermath of Demo Day–the 3 months of the program propel company growth, and Demo Day provides a slate of interested investors enabling companies to efficiently close seed funding shortly afterwards (most companies stick around California for a few weeks post-YC to finalize fundraising, with some even relocating permanently to the area).

This is the traditional value model of seed accelerator programs: upfront capital, short-term guidance, and facilitated fundraising. The model is transactional, and the output of the experience is the amount of capital raised. But, this is a limited view. In fact, historically there is a lack of correlation between the companies that raise the most money coming out of the YC program and the eventual commercial success of those companies.

Today more than ever before, with high-quality publicly available courses (including those offered by YC) and increased options to raise capital, the differentiated value that Y Combinator provides–the types of value listed above from network to mindset that separate it from other accelerator programs–is activated once the seed program has finished. For graduating companies, the days following Demo Day represent the first days of the rest of their lives. This is the period of time when the real work begins now that a course has been set, and the value of the YC program is in planting the seeds for long-term success. Many of the Summer 2019 companies I spoke with emphasized that they are looking for partners to work with long-term in achieving their vision rather than simply seeking seed-round investors, even if those relationships aren’t solidified until several years from now. For Lokal, the ultimate vision is to build an internet platform for India’s 900 million non-English speakers. Alana’s vision is to build a LinkedIn for blue-collar workers in Latin America and de-commoditize blue-collar industries.

These companies are now getting ready for the long journey ahead, and they’re excited by the knowledge that they’ve become lifelong members of a community that is able to indefinitely offer much of the same support and guidance they received during the program. As the Summer 2019 companies expressed, there really isn’t such a thing as “post-Y Combinator.”

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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