I will miss the old Y Combinator

One thing I love about Y Combinator before today is its austereness. Walk into InDinero’s original office, for instance, and you’ll see it actually is a house, where several people live, which keeps costs way down. This is typical for a Y Combinator company. The $17,000 they usually gave companies just doesn’t go far in expensive Silicon Valley.

Lately, however, companies like InDinero have been getting $1 to $5 million in angel or A rounds, which lets them get a real office. So, I’ve already noticed that I’m seeing fewer Y Combinator companies in low-cost situations like what I saw at InDinero.

Today, it was announced that Y Combinator companies could get a loan of $150,000 from Ron Conway’s SV Angel and Yuri Milner.

No longer will we hear stories like we heard from Airbnb’s founders of surviving off of cereal or “ramen.”

That bums me out, because struggle and sacrifice makes for great stories.

Comments

  1. I’m certain this is not such a bad thing. Others will move into the space Y Combinator (micro-edition) occupied. Even incubators have to scale up eventually ;) Leaves for for further innovation in the area and more great tech to get us excited.

  2. Yeah, it may make for great *stories* but does it make great *businesses* that can disrupt dinosaurs like Yahoo, Microsoft, or Oracle? Especially Oracle – there are some database things happening in the open source software world that could make Larry Ellison weep but without capital they aren’t going to disrupt anything!

  3. Perhaps the struggle and sacrifice make the founders persist longer and create a better product and excess resources too early will actually be detrimental. It will be interesting to see how this plays out. Hopefully CrunchBase will have accurate stats on funding where an analysis can be performed in the years ahead.

    1. Well, let’s apply the same criteria to both sides. Too much wealth by investors makes them lazy and corrupt. Taxing earnings at 90% or having them donate to charity will make them better people, just as YC companies struggling to survive makes them better people as you say.

  4. $150,000K is not that much money if you’re the type of company that wants to have several employees making product for a long time without immediate profits. Even with the cash, you might still need to share a house and live off cheap food for a while. Instead of springing for an office and other amenities, spring for the extra engineer or two. This is more an affirmation of the filtering mechanism of Y-Combinator and the frothy market than the demise of the scrappy startup.

    1. I agree completely. The requirement that a 2 person startup from Texas move to the valley is a big one. For most people the $17k funding doesn’t even cover the difference in living expenses between Texas and San Francisco during the period. For many founders with really good ideas it makes more sense to stay where they are and fund living expenses via credit cards. $17k lasts a few months at most in the Valley, but that same $17k on a credit card could fund a new company in a rural town for a couple of years. As far as meeting with VCs, bus fare is cheap, and not meeting with VCs before prototype stage means there is more time spent on the product. VC meetings are a majorly distracting time and attention sink that destroys lots of products.

  5. the test is for the founders.Do they choose to be frugal or splurge on their debt ? We have heard of so many success stories where founders used credit cards. If you choose to look at it as a credit card that is to be used in desperate situations. this is a Win-Win. I hope there is sufficient flexibility to take/not take and how much one takes. This will help, definitely.

    1. The problem with this analysis is that moving to the valley isn’t a frugal move. Frugal startups locate in places where the cost of living is cheap. You can live pretty well in much of America for a fraction of the cost that it takes to live as well as a homeless grad student in the Valley, which is one of the most expensive places on earth to live. It’s very strange hearing about frugality when the base requirement is that one move to one of the most expensive areas in the world.

  6. That’s scoblizer- people should suffer so it makes for great *stories*. This explains why you were so happy to see that congresswoman nearly murdered…. let you spread your propaganda.

  7. “That bums me out, because struggle and sacrifice makes for great stories.”

    it’s true, limited resources lead to more efficient use of resources on hand.

    It’s more inspirational when someone with very little becomes so much and then the perception of becoming successful seems more possible to less privileged people.

    PS : i’m in the cupboards looking for canned goods and had peanut butter and jelly for breakfast.

  8. PBJ is a lifestyle, but that doesn’t have to change after $150k. The companies that will be successful after securing those loans will be the ones who still eat PBJ, but as JJaeger said invest in the second engineer. And then the third, while simultaneously moving up to Ramen.

  9. I tend to agree here. Learning to be frugal early on in a business can certainly pay off down the road (more cash, better spending habits, etc). Startups don’t need to burn through their cash reserves just because they have it. I believe this teaches a level of discipline they wouldn’t otherwise have. You may not be able to continue being frugal in many areas of the business long-term, but certainly early on in the startup phase you should be.

  10. Previous batches ate ramen?! Decadence! Last night’s canapes were the first thing some of this batch had eaten in weeks! :P

    On a more serious note, $150,000 does not get you offices and fancy stuff. What it does get you is runway, acceleration and opportunity. Combined with the names behind this fund, this is epic for YC. No lamenting necessary :)

    (Jof – YC W11)

  11. It takes a while to raise money. Having $150k lets the companies keep that early momentum going for longer and prove more assumptions before raising a Series A round. Maybe you are lamenting the lack of bootstrapping, but otherwise a $150k loan seems like a fiscally conservative decision to me.

  12. You really want people to have to survive on Ramen?

    This is a huge win for all Y Combinator companies in allowing them to build out their products without having to go raise money right away. I suspect most will either continue to eat their version of left over Obama O’s and Ramen but now have more time to build out and test their ideas.

    Read Paul Stamatiou’s post Startup Fundraising is a Time Sink to see what a Y Combinator company no longer has to go through.

  13. I think it is just the natural course any company/institution go through. They have good ideas, doing great, growing in size and move forward to a different level. If they leave a void behind, I believe newcomers will rise up and fill it up.
    Having funds is certainly not a bad thing for a developing startup. But one thing I think is very important is the austere mindset. You don’t need to literally survive on Ramen, but you should have the mental capability to do so. One thing I really really not appreciate (from personal experience) is that CEOs go slurping using company funds on totally meaningless things. Example, sending employees fruit baskets for new year!

  14. I have to think that these startups have a mindset that will lead them to use the $150K very wisely and very frugally.

    Prudence in the use of your resources isn’t all about the amount of money you have, but how you use it.