> YC startups don’t have to be unique. Far from it.
Slow news day. YC has made it clear over the years it's almost all about the founders not the idea. It's almost impossible to know if an idea is good at the early stages, and ideas change, startups pivot, often the timing is wrong, and the market unproven etc. More often than not most of what startups do is not unique, otherwise there's no market for it. A new take on an old idea has a much higher chance of success than something totally new that ends up being too early.
Steve Jobs or maybe just Apple used to pit teams against each other to develop a solution to a problem and then pick the strongest of the two.
It also offers a convenient way to pull investment out early if the doppelganger startup isn't meeting targets. Just get the original startup to buy them out.
It's not something that is a negative for YC, but it could be for the startups they back.
Worked for a major ecommerce company that did this too - It was extremely unpleasant to work under (yet profitable if you won) and I don't like the practice but it was pretty effective. I'd guess that YC would take the "sea turtle" reproduction pattern here of hatching a bunch of mostly similar turtles and hoping a couple of them make it to sea. Stinks for the small guys that don't make it though.
Truly curious, why does it "stink" for the loser? Being funded with pay to pursue a failing business venture with a chance at wild financial success seems like a pretty good gig.
From the perspective of people with capital, it doesn't. From the perspective of a loser it sucks because they may or may not have invested significant emotional, financial, and otherwise non-fungible capital into a future that relied on the success of this venture (and also the people they employed), and I can tell you from personal experience being an underling when this kind of venture collapses really sucks. Maybe not for founders, but for everyone else it definitely does.
... but still, they have just about as much chance as the other guys, no?
Competition is a given usually anyway.
Maybe even in the same batch having very similar companies makes sense -- see the recent rush of YC funded companies that build on whatever OpenAI released -- because different founders/teams can be introduced to different contacts in the YC network.
I can hypothesize that it may give startups the incentive to behave in reckless ways (e.g. pursue the MVP instead of the MVSP); think of the modern distortion of "ask for forgiveness, not permission" [0]:
> So “Ask forgiveness, not permission” meant:
Do the right thing within the organization, whether or not they know it. That way you can help the people that you work for.
> It did NOT mean:
Move the extrinsic cost to the public domain so that we can profit.
Agree. I have watched several YC videos where they state this again and again. What they are less specific about is how precisely founders are selected.
I think at this point in time most founders should try to avoid accelerators and things like YC especially if their goal is to just be a business owner of a sustainable company rather than climbing the VC funding ladder hoping to win the founder lottery.
YC and all similar accelerators are an investment tool for its owners and investors, and they really don’t have any financial incentive to ensure that its founders achieve the best outcome for themselves.
I think this is what happened with the Dune PC game. They both turned out pretty well so they released the second one as Dune II. A 'sequel' despite the fact that it was not a follow-on, nor did it bear any similarity to the other contender. I'm not sure which game was more commercially successful but Dune II was certainly the most influential, launching the modern realtime strategy format onto the PC.
Reminds me of how pelicans will raise two chicks and then kick the weakest of the two out of the nest and devote all future resources to foster the stronger of the two. YCombinator as convergent evolution, I guess.
> how pelicans will raise two chicks and then kick the weakest
there is a youtube video ( pls don’t watch ) that gave me nightmares for days on end. i had completely forgotten about those pelicans and now you had to bring it up again in the comments. the little pelican had a broken leg. It was limping, so mom and brother together pushed it out of the nest. Very cruel.
For sure... but birds in general are surprisingly smart if you really pay attention. Even chickens are smarter than they usually get credit for. Chickens mostly lack the opportunity to learn...chickens raised in a completely open environment develop surprising behaviors and show unexpected insight.
Im guessing that pelicans, being predators, are probably much smarter.
> More often than not most of what startups do is not unique
The message is also that if your start-up is based on deep tech moats choose another seed. (Think of YC's home runs. None had an industry secret/IP secret sauce.)
YC has only been investing in deep tech for about a decade, I'm not sure that's long enough for them to have had a home run yet.
For example, Boom Supersonic was founded 10 years ago, and just this summer completed their second test flight. They are scheduled to launch commercial operations in 2029.
Lucid bots was founded in 2018, and just did their Series A to fund their growth of their autonomous drone fleet.
I wouldn't count YC out of the deep tech game just yet.
YC's roots are definitely the software hacker/painter/kill FAANG from a coffee shop type founders, although they've shown that deep tech teams can make interesting progress without years of R&D. Finding investors that get your idea and can help with their network is paramount. YC might not be the best fit in all cases.
The article lists a few, none of which were unique - coinbase? Cryptocurrency exchanges already existed. AirBnB? Booking.com and other hotel or bed-and-breakfast booking websites already existed. Stripe? Yet another payment provider. Reddit? A Digg clone. Dropbox? rsync. etc.
Airbnb was basically a monetized form of Couchsurfing, not a hotel alternative. It only later turned into a direct hotel competitor. To my knowledge there was no similar service at the time.
>> - Popularized the idea of sharing a space when the host is there
this was not a popular option, and I don't believe was ever intended to be. It also opened the door for VRBO to gain traction explicitly marketing NOT sharing accommodation. The "rent out your spare bedroom" has never been a major component; it was a fake-out to counter the regulatory & licensing complaints they were facing.
In addition to the sibling comment saying that it was a major marketing focus, it was also an internal culture focus for some time - the archetypal host as discussed internally was something like a 50+ couple that just sent their kid off to college and had a spare bedroom and some free time. I didn't work there, but based on what I saw there was a genuine focus on "non-professional" hosts. If this was an intentional ploy to fool the world, they were also doing a very good job of fooling themselves too.
I'm not debating that professional, non-resident hosts were and are the majority of the platform, just that it wasn't the original intent.
It was a huge focus of their early marketing, to the point where I was surprised to find out later that people were just renting out the properties vrbo style.
It's also quite literally in the name - 'bnb' - which necessarily implies the hosts are there with you.
I agree with the reasons for their success, but I don't believe that any of those alternatives allowed you to book a room/couch in someone's apartment. They were merely ways to either use properties for vacations (VRBO), semi-hotels like beds and breakfasts, or just regular renting space (Craigslist) for short/long term. Not the same thing as AirBnb at all.
What do you mean no similar service? You put it in your own sentence. couchsurfing.com was founded in 1999, launched the website in 2004, and still exists. It was, of course, a nonprofit founded on a principle of reciprocal generosity, not a way to make money, so it might be fair to say no similar service existed for homeowners looking to rent out spare rooms without a formal lease agreement or people looking to turn property into a hotel without it being zoned or licensed for that.
But AirBnb didn't "completely solve" the hotel industry, and hotels still exist. If anything, they seem to still basically be operating in the same space as they started: owner-based rentals, for both individual rooms and entire properties.
Well, one data point: Airbnb cheap rooms allowed me to travel widely while in my twenties. I definitely couldn’t have done so if I needed to pay for hotels. This very much changed the trajectory of my life.
That said, I was an active member of couchsurfing.org prior to Airbnb eating its lunch, so maybe you could make the argument that we’d be off better as a whole with a free community-oriented platform.
It disrupted it in the way of bringing new inventory online, and owning demand search for lodging while travelling, without owning any assets like hotels.
This pattern, of owning demand for food (instacart), transport (uber, etc), delivery (uber eats, etc) is a different model that doesn't own the assets outright and facilitates it instead.
The CEO of YC gave a talk about how you should first assemble a founding team and THEN come up with an idea. The idea seems way less important than identifying founders they want to back.
What is wrong with selecting founders who attended a prestigious university? It seems like an excellent signal. Also: "Come from wealth" might be useful if their idea will take a bit longer to germinate. They can survive longer in "ramen profitable" mode.
One could imagine a more equitable society where startups weren't solely (hyperbole) reserved for those who come from wealth and privilege. Nothing wrong with prestigious schools until that's the only metric you're looking at when you could also evaluate on sound fundamentals, ability and technical competence.
Of course modern investors (or a least the ones at VC) probably aren't qualified to judge applicants on merit.
Where do you see that it's reserved? I get that it's a hyperbole, but startups are the best, most used and most successful tool for upwards social mobility. Nothing has changed the life of so many people, no amount of taxes or regulations was able to improve lives of so many, so much.
Picking people is also hard, but if you narrow it down to:
1) folks who follow the directions on the application, 2) have the technical ability to build, 3) demonstrate high achievement in school/career, 4) show commitment/persistence, 5) have an idea that makes some sense, 6) are able to clearly communicate the idea, 7) have good team dynamics, 8) have some plausible strategy for growth
AND are willing to sell 7% of their startup for 125K
then the resulting pool of startups is probably smaller than you would think.
but YC has always been pretty vocal that they can identify the right people. And their results seem to bear that out at least to some degree (or maybe it's all just scale, and giving opportunities to enough people means you'll give opportunities to the right people often enough to balance out the cost of the wrong people)
The idea of a VC firm investing in something because the founders are just swell fellas isn't easily acceptable as a premise. If you're prompting a move fast and break things culture, you can't then excuse your mediocrity with a "new take on old things" excuse. Pick a lane.
Yeah, YC definitely has a soft spot for familiar ideas, but they’ve also backed some pretty unique companies that came out of left-field.
Our startup, The Ac28R, is a good example of this. It’s a whole new approach to specifying and developing software - way more accurately than LLMs like ChatGPT, thanks to it being a new kind of AI. So even if it doesn’t really fit into any typical category, we still believe that any idea will find its audience, if it is strong enough.
I can see that it has already eaten both your participles and your punctuation. Your user name couldn't be more apropo. However your sycophantic ramblings will not likely enhance your own bank account.
They have shifting and conflicting and nonsensical reasons for what they do. Just like PG lambasting someone as being too stupid to see when they asked why so many YC companies are things that should just be features on other software.
I think there's something missing from this analysis - YC companies might duplicate one another's products but that doesn't say anything at all about their target markets, route to market, product focus, etc.
As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.)
You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.
The great suspicion with YC is what proportion of YC companies have all their customers being a mix of other YC companies and those with shared investors?
There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
> There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
It was nothing like as bad as this 10 years ago, no.
Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.
Ten years ago was 2014 - Sun, HP, Apple and Google were all very much "old hat" and entrenched. Hell, HP was in the process of significantly cutting back it's business and eliminating jobs[1] (34,000 lost jobs in 2013 and ~16,000 in 2014 is an interesting "positive externality" lol). There was no ecosystem producing them, they were the people who were either running SV, or realizing that their time in the sun was coming to an end.
Yes it was like this for Apple, Microsoft, Google, Facebook. The difference is that at that time the genius youngster (which is just the son of some already successful people) creating startups were cool. Now nobody wants to make or watch a movie about Sam Altman and OpenAI.
This can be a good thing. One of the hardest things about building new software products is getting initial customers to discover your bugs, missed requirements etc and also add credibility.
As an enterprises SaaS buyer, I'd much rather use a code documentation tool that'd been circle jerked around a YC batch a few times compared to one with no prior customers.
Incidentally, if anyone else wants to reinvent IBM DOORS for ~1000-requirements fields, email me. There's a vast market out there for combined hardware/software shops that are in the no man's land of "not designing an entire literal train from top to bottom" and "not just hiding a Raspberry Pi in a trench coat".
They could, but it's IBM so any 'lite' version wouldn't stay lite for very long. They mostly excel at making huge, complicated things to sell to other huge, complicated businesses. They aren't very interested in, or very good at, making small things they need to sell lots of (and, to their credit, they recognize that and stick to what they're good at.)
Well they clearly have the potential to sell the same but without any of the add ons, or most of the support or guarantees, and with functionality restricfed.
Wouldn’t they do so once they notice there is a serious challenger?
That's the famous innovator's dilemma. It's very hard for a company to sell a product that undercuts a product that makes a lot of revenue for them, even if it's the "right" play. So that wouldn't be a risk I'd worry about in practice.
It would be a cheaper alternative for at least some use cases. At least some companies that were currently using the big version would switch to the lite version.
Yes, they are. But it's very hard for a company to sign off on releasing a product that's going to cost them sales of their big money-maker, even if in reality those sales are going to be lost to an outside competitor anyway.
1 times a large sale is still most times better than 10 small sales, if your company is focused on larger sales. Smaller sales are a whole different thing and needs a different (organizational) architecture.
Yes, I agree and would add other reasons. It's always seemed obvious to me that YC would invest in multiple startups working on the same problem space for these reasons:
First, compared to a traditional VC, YC is micro-investing in far more startups and doing so faster and more frequently.
Second, YC highly prioritizes founder/team quality over ideas but teams come to YC by pitching an idea. I just read an article yesterday citing evidence that in the last 10-15 years the diversity of startup ideas has declined significantly. This makes sense. Enormous amounts of information about what other very early stage startups are doing as well as which areas are currently being funded is readily available in near real-time. As a serial entrepreneur who did my first startup in the 80s, second in the 90s and third in the early 00s, I can attest we had nothing like this visibility in earlier eras. Ideas which are getting funded and which sound like good ideas in hot areas are obviously going to influence founder idea selection and cause clustering.
Third, YC knows that many startup teams will pivot away from their initial idea once they engage with real customers in real markets. So much so, YC considers it a sign of a smart team working well together. However, like all VCs, at any given time YC has broad sector themes it considers especially ripe for various reasons ranging from new technologies enabling disruption to expected high growth in an emerging sector.
Fourth, is the reason you identified. Having a good enough high-concept idea is necessary but far from sufficient for startup success. In addition to the execution details like go to market that you mentioned there's also timing. Even being 12 months earlier or later can make a difference toward making it. Finally, there's the luck factor. While it's true that quality teams are better able to maximize good luck when it happens and also have a tendency to increase their overall odds too, luck still matters. In my successes we had to get a lot of things right but there were also three or four serendipitous things that made a big difference at important moments. The only way for YC to solve for both the micro-timing and luck factors is betting on multiple similar startups around the same time.
I wonder how successful market pivots are, on average.
Seems like flailing to me.
How can one take money to achieve x, build plans and hire people to achieve x, and then do y instead and not fall down in the necessary interval, unless the y product happens to be a side effect of x?
It's true that some startups just randomly try other ideas when the first one doesn't work - and some of those incorrectly call that flailing a "pivot." However, that isn't the actual concept behind pivoting.
Pivots are a thing because early stage startups are often pursuing an opportunity space they are betting is just emerging. Because of this there's often little data to go on when they start and they're making educated guesses about a bunch of things from product features, primary customer, go to market and business model. The concept is that a startup should very quickly develop an MVP which enables engaging with actual customers. That engagement often reveals which initial assumptions were incorrect. Hopefully they were incorrect not because they made a dumb mistake but because the correct answer was unknowable without testing.
That testing also sometimes reveals completely new customer and/or market information about a bigger opportunity in that area leading to a pivot. This is akin to sinking temporary test wells before building an oil derrick and pipeline. Even the best geology analysis can only give a probability of oil being found in a given location. Sometimes sinking test wells reveals the oil is actually a quarter mile to the East. That isn't really a pivot but more like product/market tuning. A surprising number of times, the process of sinking those test wells to discover oil leads to discovering something different but just as good like natural gas or something even better like gold. That's a canonical pivot. Experienced founders and VCs can pretty easily tell the difference between flailing and a pivot because the pivot is motivated by actual real-world customer/market response encountered while validating the first idea.
An example might be a startup whose first guess at the right product and customer was "An expense tracking program for sales people." After building a prototype or MVP and putting it the hands of some actual salespeople, they discover that, while nice to have, it's not compelling enough to buy. However, during their field visits to observe customers using the MVP they learn that field service engineers have a different but related problem in tracking parts inventory which is a major pain point.
In Steve Blank's legendary startup class at Stanford he teaches that initially a startup should be thought of as "a temporary experiment to discover a viable business." Once product/market fit and go to market are sufficiently validated with an MVP, then the process of building the real product and company begins.
If nothing else, having competition helps validate the market.
Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all."
e.g. for a lot of business SaaS the only enemy worth caring about is Excel.
(I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)
I see it more as more of a hedge. If you believe in the opportunity, placing extra bets makes sense. Uber and Lyft weren't the only ride share companies but sometimes luck wins out and sometimes execution does.
Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.
Exactly right. Traditional VCs come up with a thesis and then buy 20% of the company they think will be the winner who fits that thesis when they're at like $1M to 10M revenue (series A)
YC can instead get ~10% of every plausible winner they come across when they're at $0 revenue
As noted elsethread, I think that almost certainly *is* what's going on; I was explaining why it's probably a good thing from (at least many of) the companies' perspectives too.
Yes, this can happen. How often and under what conditions I’m not sure.
I’ll give some other lenses:
1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem.
2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
Yes, and as a variant on (1) from the point of view of potential *customers* it makes adoption (at least feel) less risky because if your original chosen supplier goos *poof* there'll be another one to switch to rather than you having to re-adjust your internal processes to go without.
(I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
It makes sense. If you are an investor and have a strong belief that a specific product or idea is a good one - you might want to decouple your odds of success from the people/team/company executing that idea.
What's interesting is that the people who are able to predict and come up with the idea (e.g. a researcher using AI in 2021) are often not the best ones to execute on it (typically, lack of experience or capacity to handle the pain of growth while marketing).
What's most interesting is that most people aren't just "one type". In your life you go through multiple roles. Just like how most people, regardless of their income at age 20 will be earning top 35% income by age 35, people move up in their roles (and struggle at a young age to understand that this will happen to them). It's all about timing and age.
I believe some investors go for multiple teams purely because the ratio of those types is different - like a different risk profile. They invest in one with 80% AI boffins, and one with 80% business folks, and one will likely win in the circumstance of the moment (in the ChatGPT era - mostly the business folks. In the data driven AI era - mostly the AI boffins)
The general is that income, like wealth, is correlated with age, not ransom. Most workers under 18 will be making near minimum wage. Workers in their 20s are probably still starting their careers. People fall off again when they are older, as they either retire early or in some professions just become less capable.
So when you put it all together, a lot of people with an under average career will have an over average income at 35: Just not an over average income within the cadre of 35 year olds.
The lack of correlation with income at 20 comes from how many careers require training that doesn't give good early income. A future doctor, barista or AI programmer are not likely to have. a great income at 20, but their incomes and wealth diverge rapidly as some have longer training with different outcomes. The doctor will hit the 1% after residency. The AI expert might start making money earlier. The barista is probably ahead in his 20s, but it's unlikely their income grew quite as much, although many a barista is working on doing something else. So again, looking just at percentile of income at different ages is going to lead to mistakes as different life curves are being aggregated together.
Yep. I have responded in another post with some stats/surveys. Exactly, the aggregation of people hides the trends, and the fact that a 35 year old is not competing with other 35 year olds, but also with other 21 year olds working at cafes, contributes to this.
Human beings are the only creatures capable of self-evolution, using our minds to analyse the world around us and the world we have nurtured within us. Over time, we can stagnate into ossified animalistic patterns of selfishness, or we can expand our curiosity, consciousness, and, hopefully, our realization that compassion for others is the source of our own happiness. We can either find ways to better integrate ourselves into a better future for those around us, or wall ourselves off from the world around us. We would do well to remember that carpenters don't make hammers, nor computer scientists their own food, soil, packaging, tractors, or trains.
The use of the vast sums available to successful tech investors gives them a greater point of leverage than the rest of us not so endowed. And the more power is given, the responsibility is required, though few acknowledge or heed such wisdom.
At the end of the day, no matter how confident many folks are, who really has the humility and intelligence to know if a person is a genius? Very few, I guess. Very, very few, indeed.
"Most people will be earning top 35% income by age 35" seems like a patently false statement. Clearly more than 35% of the working population is over 35.
- Firstly, I admit I can't find where I heard the age 35 specific claim to reference it. I have listed two sources below and found an even stronger claim by Thomas Sowell (that most people at one year of their life in America earn top 20% income), but it wasn't that statement I was looking for, so I will keep try to find it. But income decile movement surveys in the UK supports this, as do dynamic income surveys conducted in the US, so I'll share those to you:
- Income is highly mobile. When tracking what income groups have, within groups there is great variation. Half the people with top 20% of income drop out of the top 20% over 5 year periods, with a significant proportion of those dropping out (30%) dropping to below average income. In other words 15% of the people earning the top quintile of income will earn below average income in 5 years time.
... Meanwhile, showing upwards mobility, 20% of the people earning the 20% lowest in the UK moved to the top 40% of income by just 5 years later in this study (Figure 19 / corresponding table) - https://www.gov.uk/government/statistics/income-dynamics-201...
- You seem to assume income goes up over time, however in western countries, income tends to peak at 30-50, hence 35 in the stat. It peaks at age 37 and stays flatish until it declines from age 44 in the UK, for example: https://www.statista.com/statistics/824464/mean-disposable-i...
- Historically, older people earned more in the 40s and 50s, but due to COVID or the simple growth in proportion of people economically inactive or in part time roles at those ages, you can see how in the UK in the last 20 years that trend disappeared: https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
- Children and pensioners essentially earn nothing for the purposes of this stat, but as they still spend (or indirectly through parents consume) money, they're in this total. Pensioners are reasonably part of this stat because they are spending in the economy, but are seldom members of the "working population"
The main resource I would suggest on income mobility is "Chasing the American Dream: Understanding What Shapes Our Fortunes" which is based on the Panel Study of Income Dynamics (PSID) [https://onlinelibrary.wiley.com/doi/abs/10.1111/jacc.12716] - it does date to the 70s/80s, but it focuses on: can you achieve top income, can you have income security. Their major finding is that A) Most people through randomness and effort end up earning above-average incomes during the middle stage of their life, and that B) Wealth, but not income, is cumulative.
This is also historically constant, for example Thomas Sowell wrote about how most Americans at the time would be in the top 20% of income for at least one year of their life in "Economic Facts and Fallacies" and "Basic Economics". (obviously the UK quintile study notes decreased lower income exit mobility which is bad for poorer people and means dynamic income mobility is reducing).
Exactly. I think this is a brilliant strategy by YC. They know that some ideas have great potential. They just back multiple teams and hope that one of them will win with their execution.
We need to define conflict of interest. Question: is an investor who gives money to one organization, but is not involved in the decision-making, conflicted if they give money to another organization? Are they self-conflicted (undermining their own likelihood of success)? Are they contractually or legally conflicted? Have they breached the trust of people they invested in? Are they ethically conflicted?
Answers to these questions are non-obvious. Attempts to simplify the set of relevant questions means imposing a worldview.
On the ethical question, a consequentialist would say it depends on the outcomes. Like many consequentialist analyses, this is complicated. Consider this: Investing in a similar company might validate the market and make it more likely for the company and/or its people to reach viability.
>This creates an extremely obvious conflict of interest.
That's not necessarily bad though. People like to throw out these terms that sometimes have negative connotation as if they are inherently negative. If you think the conflict of interest is a bad thing, you need to elaborate on why you feel it's bad, not just pretend it's prima facia bad.
It’s not a marriage. Have you ever watched any racing of any sort? One team frequently has multiple contestants. First and third is better than just third.
The conflict of interest is simply dead and forgotten in an era where the president-elect has his own cryptocoin, his own social media company, and appoints his billionaire supporters to improve efficiency in the parts of government that directly oversee those billionaires’ own businesses.
Yes, political corruption is a drag/loss on everyone except the corrupt ones. Worse, it can shift a system out of its viable operating zone. Corrupt individuals in a market can destroy the market.
But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.
I think it's reasonably straightforward they were making the point that conflict of interests are no longer taken seriously, along with many other related things. Politics tends to be a trailer of social views, not a leader.
Individuals who voted for Trump don’t necessarily want to throw away a social contract. Many of them do support societal norms, albeit different ones. And some don’t even think in these terms; they are more motivated by other factors.
Along with many, I think their collective actions point in a direction that (a) undermines democratic rule and (b) enables Trump’s corruption, but they seem to be relatively unaware or disagree with such effects.
Many of them think Trump will combat one some types of corruption (the “deep state”).
Overall, I’m more inclined to think many/most Trump supporters have reasonable core values, especially at the individual and family levels, but due to their information sources and mental processing, their overall choices don’t bode well for us, together. The biggest breakdown I think has to do with epistemic values: how does one find truth.
I don’t think most people, of any party, have the individual ability and discipline to make sense of a modern world in a rational, scientific manner. This isn’t something easily achieved, after all.
About me: I strive to not “blame” individuals in the traditional sense, because I reject free will as a meaningful concept. (Roll back the clock and a person will the behave the same in a deterministic universe. And if the universe has intrinsic randomness, we can’t ascribe free will to that randomness.)
So instead of blaming individuals, I focus on systems and their statistical effects.
I don’t think I made the assertion that anyone wants to throw away a social contract.
I said it was in the bin — it has been thrown away, and not by recent Trump voters, but it started long before that, maybe when ethics became something you didn’t learn until or unless you went through a professional program.
Having talked with a few religious Trump voters that I consider intelligent, they have a larger picture of the world, whereas I think a lot of Harris voters (being vaguely irreligious/atheist) are implicitly making the USA their whole world. Trump voters do not see the risk the same way, and have faith elsewhere. For many Harris voters this was an existential issue. That all said, those Trump voters I spoke with still seemed apologetic.
However it came about, there clearly is a misalignment in the stated social values world, and that is why that social contract doesn’t exist anymore. Whether that is because family forces, or tribal forces, or identity forces, or something else carried the day instead, well, maybe the future historians can sort out.
Two key points, which we probably agree on: (A) There are various flavors of social contracts. (B) Acceptance of any one social contract is a statistical thing, not a binary thing.
The most basic idea of a social contract is the legitimacy of a government to exist and function. This might mean to carry out various agreed-upon roles. And/or it might mean to operate according to some defined procedures, like the rule of law. The vast majority of people either consciously accept this or live as though they do. Of course there is variation on the proper role of government: does it include national defense, maintaining order, creating fair markets, collecting taxes, protecting civil liberties, internalizing economic externalities, investing in R&D, providing a healthcare floor, fighting corruption, etc?
If that were true, there'd be no point in ever applying a second time to YC.
Anecdotally, people do get accepted after 2-4 failures. Maybe YC was on the fence about those founders and their willingness to slam themselves against a wall repeatedly tipped the scales, or maybe they invest in a certain kind of founder and when they run out of those they invest in "promising" ideas.
Have we forgotten how venture capital (VC) is supposed to work?
A new technology comes out. The new tech has high startup costs and low marginal costs. You invest in 10 companies developing this new tech. 8 go bankrupt, one hangs on by a thread, the last one returns 1000x on what you invested.
Last I checked, Y-Combinator is still considered a VC firm. Investing in a bunch of firms doing the same or very similar things is what YC should be doing.
They're really just keeping multiple irons in the fire. If the space is a winner, another player increases YC's chance of betting on the winner. More players also means the space gets explored in different ways.
> Last I checked, Y-Combinator is still considered a VC firm.
There was a time when pg would come out swinging and say that YC invests their own money which is very different from a VC firm.
Well, it did make YC different in the past: they took bets no one else would, which they could afford because of such a position. Is that still true? I’m not sure.
It makes sense as an investor, doesn't it, you identify markets you see an opening, you check which companies are in that domain, pick the ones where they can execute and have good people on their team.
It would worry me as a startup company, who knows where the information I share with them will end up...
A more interesting question is, do you as a startup company have any information worth sharing? Ideas are dime a dozen and like you just said, the differentiator is the capabilities of those people. And that is not something that can be shared, and no other startup can benefit of it.
Besides YC investing in founders first (which I do believe is correct, having gone thru 2 batches), to quote the fictional S. R. Hadden from the book and movie "Contact," by the late, great Carl Sagan:
"First rule of government spending, 'Why buy one when you can buy two at twice the price'."
In other words, I believe this is also a strategy in maximizing investment exposure to great ideas. YC Invested in _both_ Box.net and Dropbox.
> YC commonly accepts startups that are building similar or nearly identical products to previous YC grads. Some of them are direct competitors; others differ slightly by targeting a new geography (Asia or Latin America), or are a subset of a larger market (point-of-sale software for bars versus coffee shops).
It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.
It seems pretty obvious to me that in modern times successful companies pick a segment of business to build expertise in and then expand outward from there.
Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.
Stirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition.
My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.
"Y Combinator seems to be the perfect place for mergers. Every winter for the past three winters, Y Combinator has funded a podcasting company. In winter 2017, Breaker. In winter 2018, The Podcast App. And in winter 2019, Brew."
Mergers in business are like dating. You can't just throw random people in a room and expect that they're going to like one another. It's about establishing shared context.
Mergers happen because there is a shared vision that is greater than the two separate companies. Smart entrepreneurs look at the mission and identify the roadblocks to that. Business is a collaborative endeavor.
There are very few times in business where there is no way out (and in those moments, it's simply that a thesis was incorrect). You can always run a new experiment.
I am reminded of this fine line from Sasha Shulgin "There are no casual experiments."
Too often startup folk seek the easy way out instead of the path of least resistance.
I guess to say it more explicitly, the problem is that the companies are likely over-valued at the early stage and investors would see a merger as a sort of failure?
There are a lot of people who seem to think that zero-sum economics is how businesses work when it couldn’t be farther from the truth.
For example, if I open a bar downtown it may attract 100 customers. But if two entrepreneurs open two bars next to each other, they might attract 300 customers between them. The same can apply to entire market segments.
We took our startup through Techstars in 2016. The next year they took a very similar company that ended up getting more funding and attention. We didn't understand it at first, but looking back it was definitely because they were the better team.
In the end, both teams failed to scale so it ended up being the wrong platform at the wrong time, but if one of them could have taken off then the bet they made would have paid off.
I think this is actually okay. Execution matters, not the idea. Also if YC was trying to do coordination between its portfolio companies, it would be against the interests of the founders themselves because the founders do not care if another company in the YC batch succeeds or fails - they don't have a stake in that other company.
> This is the core ethos driving Chinese manufacturers to rip off anything and everything they can
I think everyone does this. We just like to focus only on Chinese companies when they do it, because many times when Chinese companies do it, they do it so well that it is a threat.
I guess I am saying that ideas are a dime a dozen. Every idea will likely get executed by multiple teams - it is incredibly rare for an idea to only get explored by a single team. Those teams that succeed did so because of execution.
I disagree. True "good execution" will not produce bad results over the medium and long term but that is what good execution is actually solving for. Good execution should recognize when/how pivots should be made to produce value.
Not surprising. This reminds me of HBO's Silicon Valley:
Ron LaFlamme: So Pied Piper, You're one of Peter's compression plays, huh?
Richard: One of? How many does he have?
Ron LaFlamme: Not too many, like six or eight.
Richard: Okay. Why are there so many?
Ron LaFlamme: You know how sea turtles have a s*t ton of babies because most of them die on their way to the water? Peter just wants to make sure that his money makes it to the ocean.
Diversification is a hedge against ignorance. Investors are always more ignorant than founders to begin with (breadth vs depth), and at the stage YC backs most companies at, even the founders don’t have much of a clue how successful they will be.
This isn't really a big deal. Usually, obvious market opportunities have multiple organizations, trying to enter, and it makes sense for an investor to diversify.
That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs.
> Yet, a deep dive into the data from all of the nearly 5,000 companies YC has backed to date [...]
The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.
I think a different, perhaps weird, way of looking at this is that YC looks at the founders first and then market opportunity ("idea") secondly as justification.
YC doesn't need a single version of an idea to "win", and it's often stated plainly it doesn't even necessarily value the "idea" behind a lot of these investments but the founders themselves.
If you look at it that way, it's no surprise that multiple startups are working at the same market opportunity ("idea"), and that YC actually just wanted the founders themselves regardless of whose execution of the "idea" ends up winning (if any).
The cynic in me wonders if one of their goals is to keep the most talented people away from the competition, as cheaply as possible. With the goal of preventing independent competition, which could be seen as a greater threat to their golden boys.
I don’t mean this in a bad way, but like, at this point YC’s business model is spray and pray right? They weed out obvious losers, and then use vibes to pick a section of the rest, push them through a standard accelerator program, and demo day at the end, and this works because having been accepted into YC is like being able to say you went to a fancy university: no guarantees on future performance, but you’re probably not an idiot.
They should be (and are — YC Fall Batch!) trying to maximise the number of companies they take on while not diminishing returns below their cost of capital and brand dilution.
Useful here-say from some investors at the last few demo days: not all of the companies that are "copiers" apply + are accepted with the "copying" idea. Many founding teams end up pivoting during the batch and scramble to get proof points on the board before demo day. They're most likely to end up pivoting to well-known problems, therefore the clustering around a few common themes. It doesn't explain all of the data, but it's a big part of it. When you have to come up with a fundable new idea in a week and prove it out in a month this can happen...
That approach is perfectly valid and could even be smarter than other VCs that avoid funding competing projects. I also think that, since YC operates at an earlier stage than major funds like Sequoia, different heuristics could apply. Ultimately, it's about balancing risk and reward—duplicating efforts can increase the chances of success while mitigating risks. Of course, it's not easy to establish processes that help competing companies in the same space without inadvertently favoring one over the other.
It’s clear why this is good for YC, but it’s probably also not terrible for founders. I’ve heard of funds that avoid funding competitors passing in investments because they didn’t want to be locked out of other startups in the space. This removes the perverse incentive that the better your idea, the more scrutinized you might be as a founder.This also allows YC to be fund a lot more companies than otherwise.
Of course YC backs multiple companies in the same spaces, they have for quite some time if not from the start.
The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.
It's interesting how many of the commenters are starting from the assumption that this is both intentional and desirable (or in some other way smart on the part of YC) and then reasoning only on that basis.
(Or maybe it's not interesting, since this is on YC's own site... :-P)
Why is that interesting to you? Do you have a contrasting point of view to share? Do you have experience with startups and/or venture capital?
I have no involvement with YC, but with a little startup and VC pitching experience, I can tell you that in my experience, lots of VCs like the idea of founders doing something incremental that builds on successful ideas. The article notably did not compare YC to any other VCs, but the truth is likely that all VCs “often” back startups that duplicate others in some way. VCs will tell you not to build something original, because there’s no demonstrated market for it. And statistically they’re right, your chances of success with an unproven idea are lower than with an incremental change to something people already buy. The article also notably did not talk about how often startups duplicate other businesses on their own, before there’s VC involvement. In that sense, despite the claim in the title that there’s data, the article is unscientific.
This article struck me as one of those “studies” that shows something everyone already knows, and the title kinda seems designed to sound dramatic and/or accusatory to appeal to readers drawn to controversy even if there isn’t really any controversy there.
There's an enormous amount of evidence that almost no VC knows what they're doing (almost none beat index funds in the long run).
YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy.
Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
> Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket.
What VCs do is allocate capital in a way that mitigates risk for themselves.
There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company.
The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.
Your description of a VC's value is describing them as an index fund of startups, and I suppose you could say YC has moved in that direction.
But most VCs are paid to make bets on which companies are most likely to succeed. I never said they're supposed to know with certainty. That's a silly straw man that no one who understands basic finance would suggest.
But they spend much of their time supposedly screening deals to find good ones, and there is a preponderance of evidence that they're worse at it than a dumb index fund.
There have even been experiments to automate picking deals, and even a fairly naive algorithm is better than most VCs.
Only people on the VC side of the table think they have any added value other than lucking into being trusted to invest other people's money.
This isn't anything new. Heck, the first season of Silicon Valley called this out with Peter Gregory backing a number of compression startups.
Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.
It makes sense to scatter a bunch of seeds on fertile ground, and then pick the strongest plant that shows the most growth. There are many kinds of smart, ambitious people; some will form teams that succeed, others will fall prey to unforeseen impediments, and not.
Just because you have similar or the same idea doesn’t mean at the end you have a sustainable one. Also, companies get bought out but while ideas are the same execution and scope can change given the level of technology available .
In executing on an idea, the end result is often very different from where you started. They might look similar now, but in 5 years one went enterprise on feature set and the other consumer etc etc.
Pardon my ignorance, but is it wrong for my reaction to this piece to essentially be, "... okay, and?".
If we're being honest with ourselves, platitudes are just platitudes and the ultimate point of YC is to further enrich investors, and to enrich founders. Of course they're going to try everything they can to make that happen.
It's not like YC's #1 mission is, "Do original, world-changing things", no, it's, "We want more money".
YC should back duplicate startups because each startup's chance of success is low. If it makes sense to back a startup with a 10% chance of being a big company later, then a second such startup also makes sense, even if there is a 1% chance that they both make it and one of them is not needed.
The problem is when someone says the quiet part out loud, and the duplicate startups start talking to each other. The people at one startup refuse to do useful work because they incorrectly believe the other startup have a better idea. You want to leave those decisions to senior management, who can move technologies to make one company successful.
Have you ever suddenly received an influx of employees because someone jast realized that there was a duplicate company doing the same thing (fake gasp) and that it was time to combine the best parts of both the get a product? Somehow, despite nobody knowing there were duplicate startups, a proof of concepts has been working for a few months combining the best bits from each of 3 (fake gasp) startups, and the third one had very little to contribute so you will not see their people around.
I'm sorry if my post hurts anyone's plans. Fell free to delete it.
One of the reasons that YC is so great is that they back founders, not ideas. YC has never backed the same founder twice in a batch to my knowledge, and doing so is antithetical to its values.
And? As the article says, they've funded thousands of companies. Of course there's overlap. It would be weirder, much weirder, if they kept a conflict list like a law firm and avoided funding things that intersected their portfolio.
It's hard to emphasize enough how little YC knows about the companies they fund, and how little influence they have over the companies once they've funded them. Often, there's barely a company at all, just a small team that YC takes a shine to. Even if YC wanted to keep a conflict list, they couldn't: companies joint the program with one idea and launch with another.
To have a problem with that is to have a problem with the entire concept of YC; this is the process they invented, that they're notorious for.
>It would be weirder, much weirder, if they kept a conflict list like a law firm
modern portfolio theory (MPT) is the only acceptable measure of investment performance, and calculating co-variance is the salient feature of MPT, so no, it would not be weird to track overlap.
to sum it up in a single sentence, is OpenAI a good investment for you at $50 a share? Without even knowing anything else about the company, if the rest of your portfolio is already 100% shares of OpenAI, or even AI companies, no, for you, probably this would not be a good investment: the market does not reward diversifiable risk.
it's a good point you raise, you are definitely paying attentiong, but no, that's literally not the right interpretation of what it says.
it says you should own both Coke and Pepsi instead of either one exclusively; you actually want Coke, Pepsi, and 7up and Polar and Canada Dry and/or Dr. Pepper and/or whatever else is an independent company. In what proportions should you own them? weighted by their market caps.
but you also want to own every other company as well, weighted by their market cap.
Wilshire 5000 >> S&P 500
The reason to avoid the S&P is not because it contains competitors, it's because it does not include 4500 other companies. But that aspect of investing is CAPM.
Portfolio theory refers to your own portfolio. Never think "I made a great investment in Company X earlier this year." why? because what was the rest of your money in, you didn't put it all in X, did you? And what was your money in when it wasn't in X? You must always look at your entire portfolio, and you must always look all the time. Nobody cares if you won a hand of poker, the question is, how do you do on average and over time.
This is reads as if that is negative an unusual. One might think supporting copycats is bad but obviously a company cannot simply be copied and is more than just its product. While a product might be, you can still outclass your competitors with better engineering, or sourcing of materials or marketing.
You wonder if this is a telling story about YC or just one about the startup space in general.
Possible outcomes include:
1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats.
2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats.
3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be
I dont think the headline is all that surprising. YC makes a lot of investments and most start ups fail. They are hedging their bets.
The more surprising thing about this article is that one YC company blatantly copied anothers product. To the point where the founder said they would start over and build their own product.
Is this surprising? almost 10 years ago even Silicon Valley (the TV show) made fun of the fact that the main guys' company was only one of many compression startups their investor invested in.
>> The Silicon Valley dream is to build a tech startup that is such a unique idea it alters the commercial universe and turns its founders into billionaires.
The headline is a false assumption. While there are still people who are trying to build off unique ideas to change the world, it seems very few of them are motivated by becoming billionaires. The latter have no intention or particular desire to create a sea change, and actively look to (at best) have a "X for Y" strategy. Even more are "Yet another <already successful> X".
> YC startups don’t have to be unique. Far from it.
Slow news day. YC has made it clear over the years it's almost all about the founders not the idea. It's almost impossible to know if an idea is good at the early stages, and ideas change, startups pivot, often the timing is wrong, and the market unproven etc. More often than not most of what startups do is not unique, otherwise there's no market for it. A new take on an old idea has a much higher chance of success than something totally new that ends up being too early.
Steve Jobs or maybe just Apple used to pit teams against each other to develop a solution to a problem and then pick the strongest of the two.
It also offers a convenient way to pull investment out early if the doppelganger startup isn't meeting targets. Just get the original startup to buy them out.
It's not something that is a negative for YC, but it could be for the startups they back.
Worked for a major ecommerce company that did this too - It was extremely unpleasant to work under (yet profitable if you won) and I don't like the practice but it was pretty effective. I'd guess that YC would take the "sea turtle" reproduction pattern here of hatching a bunch of mostly similar turtles and hoping a couple of them make it to sea. Stinks for the small guys that don't make it though.
Truly curious, why does it "stink" for the loser? Being funded with pay to pursue a failing business venture with a chance at wild financial success seems like a pretty good gig.
From the perspective of people with capital, it doesn't. From the perspective of a loser it sucks because they may or may not have invested significant emotional, financial, and otherwise non-fungible capital into a future that relied on the success of this venture (and also the people they employed), and I can tell you from personal experience being an underling when this kind of venture collapses really sucks. Maybe not for founders, but for everyone else it definitely does.
... but still, they have just about as much chance as the other guys, no?
Competition is a given usually anyway.
Maybe even in the same batch having very similar companies makes sense -- see the recent rush of YC funded companies that build on whatever OpenAI released -- because different founders/teams can be introduced to different contacts in the YC network.
I can hypothesize that it may give startups the incentive to behave in reckless ways (e.g. pursue the MVP instead of the MVSP); think of the modern distortion of "ask for forgiveness, not permission" [0]:
> So “Ask forgiveness, not permission” meant:
> It did NOT mean: [0]: https://changelog.com/posts/what-admiral-grace-hopper-really...You can do the same thing by working a temporary contractor role and playing the local lottery.
Even today there are decent odds that within Apple the macOS and iOS groups are locked in a multi-decade long fight in which one may prevail...
Agree. I have watched several YC videos where they state this again and again. What they are less specific about is how precisely founders are selected.
last time I read it's concentrated to a few elite school graduates
I think that's the old criteria, doesn't the newer one forgive lesser schools if AI buzzwords are present?
>Steve Jobs or maybe just Apple used to pit teams against each other to develop a solution to a problem and then pick the strongest of the two.
probably that's Apple. Steve Jobs is more famous for jumping from the failing project (Lisa) onto the winning team (Macintosh)
Macintosh was, by all financial accounts, a failure; at least the first iteration. That's what got him fired.
https://www.latimes.com/business/technology/la-fi-tn-how-the...
if they were firing him for failures, he would already have been fired for Apple 3 and then Lisa
the Apple /// shocked people when announced, instead of being a 6809 or 68000, it was... two 6502's? what? who does that
but you're making the same point, he was casting about for success, not predicting the future.
I think at this point in time most founders should try to avoid accelerators and things like YC especially if their goal is to just be a business owner of a sustainable company rather than climbing the VC funding ladder hoping to win the founder lottery.
YC and all similar accelerators are an investment tool for its owners and investors, and they really don’t have any financial incentive to ensure that its founders achieve the best outcome for themselves.
I think this is what happened with the Dune PC game. They both turned out pretty well so they released the second one as Dune II. A 'sequel' despite the fact that it was not a follow-on, nor did it bear any similarity to the other contender. I'm not sure which game was more commercially successful but Dune II was certainly the most influential, launching the modern realtime strategy format onto the PC.
Reminds me of how pelicans will raise two chicks and then kick the weakest of the two out of the nest and devote all future resources to foster the stronger of the two. YCombinator as convergent evolution, I guess.
> how pelicans will raise two chicks and then kick the weakest
there is a youtube video ( pls don’t watch ) that gave me nightmares for days on end. i had completely forgotten about those pelicans and now you had to bring it up again in the comments. the little pelican had a broken leg. It was limping, so mom and brother together pushed it out of the nest. Very cruel.
Pelicans are brutal mindless beasts. They are known to fly to neighbour nests and eat other birds, sometimes other pelicans.
So similar to companies.
Or, maybe they know exactly what they are doing.
Nature has a tendency to ignore human ideas of justice and ethics.
The will of the stronger is the primary “law” of nature.
Having evolutionary success does not mean having intelligence.
For sure... but birds in general are surprisingly smart if you really pay attention. Even chickens are smarter than they usually get credit for. Chickens mostly lack the opportunity to learn...chickens raised in a completely open environment develop surprising behaviors and show unexpected insight.
Im guessing that pelicans, being predators, are probably much smarter.
Bird intelligence is popular culture. Parrots, crows, even seagulls.
Not pelicans. Pelicans are dumb.
Could be. Not that well aquatinted. But whenever I take the time, birds tend to surprise me.
> More often than not most of what startups do is not unique
The message is also that if your start-up is based on deep tech moats choose another seed. (Think of YC's home runs. None had an industry secret/IP secret sauce.)
YC has only been investing in deep tech for about a decade, I'm not sure that's long enough for them to have had a home run yet.
For example, Boom Supersonic was founded 10 years ago, and just this summer completed their second test flight. They are scheduled to launch commercial operations in 2029.
Lucid bots was founded in 2018, and just did their Series A to fund their growth of their autonomous drone fleet.
I wouldn't count YC out of the deep tech game just yet.
What is "deep tech"?
Things that are difficult to do in tech, e.g. AI/ML that's in-house (not using an API).
YC's roots are definitely the software hacker/painter/kill FAANG from a coffee shop type founders, although they've shown that deep tech teams can make interesting progress without years of R&D. Finding investors that get your idea and can help with their network is paramount. YC might not be the best fit in all cases.
YC is more focused on B2B now, so this will change.
They say that, but what if the opposite was the actual truth?
Look every VC is "founder friendly" because without founders there's no deal flow. At the end of the day though every VC is optimizing for exit value.
So it makes sense to bet on the same idea twice. If Founder A screws the pooch, you've still got Founder B.
This matches typical VC investment patterns.
The article lists a few, none of which were unique - coinbase? Cryptocurrency exchanges already existed. AirBnB? Booking.com and other hotel or bed-and-breakfast booking websites already existed. Stripe? Yet another payment provider. Reddit? A Digg clone. Dropbox? rsync. etc.
Airbnb was basically a monetized form of Couchsurfing, not a hotel alternative. It only later turned into a direct hotel competitor. To my knowledge there was no similar service at the time.
Folks had been using alternatives to rent space like HomeAway.com, VRBO.com, BedandBreakfast.com and Craigslist for years.
Airbnb won because:
- Better design, easy to use, nice pictures they took themselves at first (per PG's advice)
- Integrated payments and reviews in a seamless experience
- Popularized the idea of sharing a space when the host is there
- Offered unique accommodations in urban places
- Lots of buzz about treehouses, castles, teepees, shipping containers, etc.
- Their timing benefited from the Great Recession
- Very good at promoting their rag to riches story with YC's help
- Also you didn't need to constantly repost like Craigslist, just post once
>> - Popularized the idea of sharing a space when the host is there
this was not a popular option, and I don't believe was ever intended to be. It also opened the door for VRBO to gain traction explicitly marketing NOT sharing accommodation. The "rent out your spare bedroom" has never been a major component; it was a fake-out to counter the regulatory & licensing complaints they were facing.
In addition to the sibling comment saying that it was a major marketing focus, it was also an internal culture focus for some time - the archetypal host as discussed internally was something like a 50+ couple that just sent their kid off to college and had a spare bedroom and some free time. I didn't work there, but based on what I saw there was a genuine focus on "non-professional" hosts. If this was an intentional ploy to fool the world, they were also doing a very good job of fooling themselves too.
I'm not debating that professional, non-resident hosts were and are the majority of the platform, just that it wasn't the original intent.
It was a huge focus of their early marketing, to the point where I was surprised to find out later that people were just renting out the properties vrbo style.
It's also quite literally in the name - 'bnb' - which necessarily implies the hosts are there with you.
I agree with the reasons for their success, but I don't believe that any of those alternatives allowed you to book a room/couch in someone's apartment. They were merely ways to either use properties for vacations (VRBO), semi-hotels like beds and breakfasts, or just regular renting space (Craigslist) for short/long term. Not the same thing as AirBnb at all.
What do you mean no similar service? You put it in your own sentence. couchsurfing.com was founded in 1999, launched the website in 2004, and still exists. It was, of course, a nonprofit founded on a principle of reciprocal generosity, not a way to make money, so it might be fair to say no similar service existed for homeowners looking to rent out spare rooms without a formal lease agreement or people looking to turn property into a hotel without it being zoned or licensed for that.
I literally mentioned couchsurfing in the previous sentence, so yes, that is obviously what I meant: no similar business services existed.
The first resonating problem you solve is rarely the bigger problem you end up completely solving.
But AirBnb didn't "completely solve" the hotel industry, and hotels still exist. If anything, they seem to still basically be operating in the same space as they started: owner-based rentals, for both individual rooms and entire properties.
Ignoring local regulations, like Uber also was an "innovation".
Uber is a net good since it reduces drunk driving. Not sure about Airbnb destroying the rental market...
Well, one data point: Airbnb cheap rooms allowed me to travel widely while in my twenties. I definitely couldn’t have done so if I needed to pay for hotels. This very much changed the trajectory of my life.
That said, I was an active member of couchsurfing.org prior to Airbnb eating its lunch, so maybe you could make the argument that we’d be off better as a whole with a free community-oriented platform.
It disrupted it in the way of bringing new inventory online, and owning demand search for lodging while travelling, without owning any assets like hotels.
This pattern, of owning demand for food (instacart), transport (uber, etc), delivery (uber eats, etc) is a different model that doesn't own the assets outright and facilitates it instead.
Yeah, back then Booking was hotels only, not people's apartments or couches.
The CEO of YC gave a talk about how you should first assemble a founding team and THEN come up with an idea. The idea seems way less important than identifying founders they want to back.
>The idea seems way less important than identifying founders they want to back.
Especially when you can take an idea you like from a team you don't, and give it to a team you do!
>It's almost impossible to know if an idea is good at the early stages
But identifying the "right" people is easy?
Spoiler alert: it's "easy" when you narrow down to applications who come from wealth and/or went to a prestigious university.
What is wrong with selecting founders who attended a prestigious university? It seems like an excellent signal. Also: "Come from wealth" might be useful if their idea will take a bit longer to germinate. They can survive longer in "ramen profitable" mode.
One could imagine a more equitable society where startups weren't solely (hyperbole) reserved for those who come from wealth and privilege. Nothing wrong with prestigious schools until that's the only metric you're looking at when you could also evaluate on sound fundamentals, ability and technical competence.
Of course modern investors (or a least the ones at VC) probably aren't qualified to judge applicants on merit.
Where do you see that it's reserved? I get that it's a hyperbole, but startups are the best, most used and most successful tool for upwards social mobility. Nothing has changed the life of so many people, no amount of taxes or regulations was able to improve lives of so many, so much.
A good idea will not scale if the founder and founding team are bad, and a mediocre idea will scale if the founder and founding team are good.
Picking people is also hard, but if you narrow it down to:
1) folks who follow the directions on the application, 2) have the technical ability to build, 3) demonstrate high achievement in school/career, 4) show commitment/persistence, 5) have an idea that makes some sense, 6) are able to clearly communicate the idea, 7) have good team dynamics, 8) have some plausible strategy for growth
AND are willing to sell 7% of their startup for 125K
then the resulting pool of startups is probably smaller than you would think.
It's not, but that's ycs entire business model
i don't think it is either. at least not for me.
but YC has always been pretty vocal that they can identify the right people. And their results seem to bear that out at least to some degree (or maybe it's all just scale, and giving opportunities to enough people means you'll give opportunities to the right people often enough to balance out the cost of the wrong people)
The idea of a VC firm investing in something because the founders are just swell fellas isn't easily acceptable as a premise. If you're prompting a move fast and break things culture, you can't then excuse your mediocrity with a "new take on old things" excuse. Pick a lane.
Sounds like you're describing complicated nepotism.
Theoretically, if I as an investor, believe strongly in a given thesis, it would be prudent to place bets that address it from multiple angles.
Yeah, YC definitely has a soft spot for familiar ideas, but they’ve also backed some pretty unique companies that came out of left-field.
Our startup, The Ac28R, is a good example of this. It’s a whole new approach to specifying and developing software - way more accurately than LLMs like ChatGPT, thanks to it being a new kind of AI. So even if it doesn’t really fit into any typical category, we still believe that any idea will find its audience, if it is strong enough.
"Don't have to be unique" is very different than "actively trying to copy".
HN has turned into an anti-billionaire, anti-VC, anti-success cesspool. It's a very dangerous echo chamber that'll destroy within
I can see that it has already eaten both your participles and your punctuation. Your user name couldn't be more apropo. However your sycophantic ramblings will not likely enhance your own bank account.
They have shifting and conflicting and nonsensical reasons for what they do. Just like PG lambasting someone as being too stupid to see when they asked why so many YC companies are things that should just be features on other software.
You mean they're just a bunch of people working on a complicated problem? Why, I never.
I think there's something missing from this analysis - YC companies might duplicate one another's products but that doesn't say anything at all about their target markets, route to market, product focus, etc.
As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.)
You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.
That's not the case for most dev tools YC startup, they are targeting the same HN users/ other YC startups (trying to sell shovels)
The great suspicion with YC is what proportion of YC companies have all their customers being a mix of other YC companies and those with shared investors?
There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
> There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
So, you don’t think that is already the case?
It was nothing like as bad as this 10 years ago, no.
Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.
Ten years ago was 2014 - Sun, HP, Apple and Google were all very much "old hat" and entrenched. Hell, HP was in the process of significantly cutting back it's business and eliminating jobs[1] (34,000 lost jobs in 2013 and ~16,000 in 2014 is an interesting "positive externality" lol). There was no ecosystem producing them, they were the people who were either running SV, or realizing that their time in the sun was coming to an end.
[1]https://en.wikipedia.org/wiki/Hewlett-Packard
Yes it was like this for Apple, Microsoft, Google, Facebook. The difference is that at that time the genius youngster (which is just the son of some already successful people) creating startups were cool. Now nobody wants to make or watch a movie about Sam Altman and OpenAI.
Did anyone think Zuckerberg was cool?
Even the movie about him seems to have made him seem more antisocial and nerdy than he really is. (Based on 3rd party reports about him)
This can be a good thing. One of the hardest things about building new software products is getting initial customers to discover your bugs, missed requirements etc and also add credibility.
As an enterprises SaaS buyer, I'd much rather use a code documentation tool that'd been circle jerked around a YC batch a few times compared to one with no prior customers.
Incidentally, if anyone else wants to reinvent IBM DOORS for ~1000-requirements fields, email me. There's a vast market out there for combined hardware/software shops that are in the no man's land of "not designing an entire literal train from top to bottom" and "not just hiding a Raspberry Pi in a trench coat".
Why can’t IBM just sell a watered down “DOORS-lite”?
They could, but it's IBM so any 'lite' version wouldn't stay lite for very long. They mostly excel at making huge, complicated things to sell to other huge, complicated businesses. They aren't very interested in, or very good at, making small things they need to sell lots of (and, to their credit, they recognize that and stick to what they're good at.)
Well they clearly have the potential to sell the same but without any of the add ons, or most of the support or guarantees, and with functionality restricfed.
Wouldn’t they do so once they notice there is a serious challenger?
That's the famous innovator's dilemma. It's very hard for a company to sell a product that undercuts a product that makes a lot of revenue for them, even if it's the "right" play. So that wouldn't be a risk I'd worry about in practice.
Well in this case it wouldn’t be undercutting, since the lite version would be totally unusuable for a big complex company.
It would be a cheaper alternative for at least some use cases. At least some companies that were currently using the big version would switch to the lite version.
Then they would have been viable customers for a smaller challenger…?
Yes, they are. But it's very hard for a company to sign off on releasing a product that's going to cost them sales of their big money-maker, even if in reality those sales are going to be lost to an outside competitor anyway.
1 times a large sale is still most times better than 10 small sales, if your company is focused on larger sales. Smaller sales are a whole different thing and needs a different (organizational) architecture.
Yes, I agree and would add other reasons. It's always seemed obvious to me that YC would invest in multiple startups working on the same problem space for these reasons:
First, compared to a traditional VC, YC is micro-investing in far more startups and doing so faster and more frequently.
Second, YC highly prioritizes founder/team quality over ideas but teams come to YC by pitching an idea. I just read an article yesterday citing evidence that in the last 10-15 years the diversity of startup ideas has declined significantly. This makes sense. Enormous amounts of information about what other very early stage startups are doing as well as which areas are currently being funded is readily available in near real-time. As a serial entrepreneur who did my first startup in the 80s, second in the 90s and third in the early 00s, I can attest we had nothing like this visibility in earlier eras. Ideas which are getting funded and which sound like good ideas in hot areas are obviously going to influence founder idea selection and cause clustering.
Third, YC knows that many startup teams will pivot away from their initial idea once they engage with real customers in real markets. So much so, YC considers it a sign of a smart team working well together. However, like all VCs, at any given time YC has broad sector themes it considers especially ripe for various reasons ranging from new technologies enabling disruption to expected high growth in an emerging sector.
Fourth, is the reason you identified. Having a good enough high-concept idea is necessary but far from sufficient for startup success. In addition to the execution details like go to market that you mentioned there's also timing. Even being 12 months earlier or later can make a difference toward making it. Finally, there's the luck factor. While it's true that quality teams are better able to maximize good luck when it happens and also have a tendency to increase their overall odds too, luck still matters. In my successes we had to get a lot of things right but there were also three or four serendipitous things that made a big difference at important moments. The only way for YC to solve for both the micro-timing and luck factors is betting on multiple similar startups around the same time.
I wonder how successful market pivots are, on average. Seems like flailing to me. How can one take money to achieve x, build plans and hire people to achieve x, and then do y instead and not fall down in the necessary interval, unless the y product happens to be a side effect of x?
It's true that some startups just randomly try other ideas when the first one doesn't work - and some of those incorrectly call that flailing a "pivot." However, that isn't the actual concept behind pivoting.
Pivots are a thing because early stage startups are often pursuing an opportunity space they are betting is just emerging. Because of this there's often little data to go on when they start and they're making educated guesses about a bunch of things from product features, primary customer, go to market and business model. The concept is that a startup should very quickly develop an MVP which enables engaging with actual customers. That engagement often reveals which initial assumptions were incorrect. Hopefully they were incorrect not because they made a dumb mistake but because the correct answer was unknowable without testing.
That testing also sometimes reveals completely new customer and/or market information about a bigger opportunity in that area leading to a pivot. This is akin to sinking temporary test wells before building an oil derrick and pipeline. Even the best geology analysis can only give a probability of oil being found in a given location. Sometimes sinking test wells reveals the oil is actually a quarter mile to the East. That isn't really a pivot but more like product/market tuning. A surprising number of times, the process of sinking those test wells to discover oil leads to discovering something different but just as good like natural gas or something even better like gold. That's a canonical pivot. Experienced founders and VCs can pretty easily tell the difference between flailing and a pivot because the pivot is motivated by actual real-world customer/market response encountered while validating the first idea.
An example might be a startup whose first guess at the right product and customer was "An expense tracking program for sales people." After building a prototype or MVP and putting it the hands of some actual salespeople, they discover that, while nice to have, it's not compelling enough to buy. However, during their field visits to observe customers using the MVP they learn that field service engineers have a different but related problem in tracking parts inventory which is a major pain point.
In Steve Blank's legendary startup class at Stanford he teaches that initially a startup should be thought of as "a temporary experiment to discover a viable business." Once product/market fit and go to market are sufficiently validated with an MVP, then the process of building the real product and company begins.
If nothing else, having competition helps validate the market.
Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all."
e.g. for a lot of business SaaS the only enemy worth caring about is Excel.
(I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)
I see it more as more of a hedge. If you believe in the opportunity, placing extra bets makes sense. Uber and Lyft weren't the only ride share companies but sometimes luck wins out and sometimes execution does.
Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.
Sure, though I'm not sure that "I see it more as" makes sense in context given -
You're talking about how YC sees it.
I was talking about how it affects things from the companies's point of view when YC does that.
As such, so far as I can see our actual statements about the upshot of the situation are probably both correct :)
Exactly right. Traditional VCs come up with a thesis and then buy 20% of the company they think will be the winner who fits that thesis when they're at like $1M to 10M revenue (series A)
YC can instead get ~10% of every plausible winner they come across when they're at $0 revenue
As noted elsethread, I think that almost certainly *is* what's going on; I was explaining why it's probably a good thing from (at least many of) the companies' perspectives too.
Yes, this can happen. How often and under what conditions I’m not sure.
I’ll give some other lenses:
1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem.
2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
Yes, and as a variant on (1) from the point of view of potential *customers* it makes adoption (at least feel) less risky because if your original chosen supplier goos *poof* there'll be another one to switch to rather than you having to re-adjust your internal processes to go without.
(I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
It makes sense. If you are an investor and have a strong belief that a specific product or idea is a good one - you might want to decouple your odds of success from the people/team/company executing that idea.
What's interesting is that the people who are able to predict and come up with the idea (e.g. a researcher using AI in 2021) are often not the best ones to execute on it (typically, lack of experience or capacity to handle the pain of growth while marketing).
What's most interesting is that most people aren't just "one type". In your life you go through multiple roles. Just like how most people, regardless of their income at age 20 will be earning top 35% income by age 35, people move up in their roles (and struggle at a young age to understand that this will happen to them). It's all about timing and age.
I believe some investors go for multiple teams purely because the ratio of those types is different - like a different risk profile. They invest in one with 80% AI boffins, and one with 80% business folks, and one will likely win in the circumstance of the moment (in the ChatGPT era - mostly the business folks. In the data driven AI era - mostly the AI boffins)
"Just like how most people, regardless of their income at age 20 will be earning top 35% income by age 35"
Could you say more about this, or perhaps provide a link where we can read more?
The general is that income, like wealth, is correlated with age, not ransom. Most workers under 18 will be making near minimum wage. Workers in their 20s are probably still starting their careers. People fall off again when they are older, as they either retire early or in some professions just become less capable.
So when you put it all together, a lot of people with an under average career will have an over average income at 35: Just not an over average income within the cadre of 35 year olds.
The lack of correlation with income at 20 comes from how many careers require training that doesn't give good early income. A future doctor, barista or AI programmer are not likely to have. a great income at 20, but their incomes and wealth diverge rapidly as some have longer training with different outcomes. The doctor will hit the 1% after residency. The AI expert might start making money earlier. The barista is probably ahead in his 20s, but it's unlikely their income grew quite as much, although many a barista is working on doing something else. So again, looking just at percentile of income at different ages is going to lead to mistakes as different life curves are being aggregated together.
Yep. I have responded in another post with some stats/surveys. Exactly, the aggregation of people hides the trends, and the fact that a 35 year old is not competing with other 35 year olds, but also with other 21 year olds working at cafes, contributes to this.
Human beings are the only creatures capable of self-evolution, using our minds to analyse the world around us and the world we have nurtured within us. Over time, we can stagnate into ossified animalistic patterns of selfishness, or we can expand our curiosity, consciousness, and, hopefully, our realization that compassion for others is the source of our own happiness. We can either find ways to better integrate ourselves into a better future for those around us, or wall ourselves off from the world around us. We would do well to remember that carpenters don't make hammers, nor computer scientists their own food, soil, packaging, tractors, or trains.
The use of the vast sums available to successful tech investors gives them a greater point of leverage than the rest of us not so endowed. And the more power is given, the responsibility is required, though few acknowledge or heed such wisdom.
At the end of the day, no matter how confident many folks are, who really has the humility and intelligence to know if a person is a genius? Very few, I guess. Very, very few, indeed.
"Most people will be earning top 35% income by age 35" seems like a patently false statement. Clearly more than 35% of the working population is over 35.
A few things here and a few stats:
- Firstly, I admit I can't find where I heard the age 35 specific claim to reference it. I have listed two sources below and found an even stronger claim by Thomas Sowell (that most people at one year of their life in America earn top 20% income), but it wasn't that statement I was looking for, so I will keep try to find it. But income decile movement surveys in the UK supports this, as do dynamic income surveys conducted in the US, so I'll share those to you:
- Income is highly mobile. When tracking what income groups have, within groups there is great variation. Half the people with top 20% of income drop out of the top 20% over 5 year periods, with a significant proportion of those dropping out (30%) dropping to below average income. In other words 15% of the people earning the top quintile of income will earn below average income in 5 years time.
... Meanwhile, showing upwards mobility, 20% of the people earning the 20% lowest in the UK moved to the top 40% of income by just 5 years later in this study (Figure 19 / corresponding table) - https://www.gov.uk/government/statistics/income-dynamics-201...
- You seem to assume income goes up over time, however in western countries, income tends to peak at 30-50, hence 35 in the stat. It peaks at age 37 and stays flatish until it declines from age 44 in the UK, for example: https://www.statista.com/statistics/824464/mean-disposable-i...
- Historically, older people earned more in the 40s and 50s, but due to COVID or the simple growth in proportion of people economically inactive or in part time roles at those ages, you can see how in the UK in the last 20 years that trend disappeared: https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
- Children and pensioners essentially earn nothing for the purposes of this stat, but as they still spend (or indirectly through parents consume) money, they're in this total. Pensioners are reasonably part of this stat because they are spending in the economy, but are seldom members of the "working population"
The main resource I would suggest on income mobility is "Chasing the American Dream: Understanding What Shapes Our Fortunes" which is based on the Panel Study of Income Dynamics (PSID) [https://onlinelibrary.wiley.com/doi/abs/10.1111/jacc.12716] - it does date to the 70s/80s, but it focuses on: can you achieve top income, can you have income security. Their major finding is that A) Most people through randomness and effort end up earning above-average incomes during the middle stage of their life, and that B) Wealth, but not income, is cumulative.
This is also historically constant, for example Thomas Sowell wrote about how most Americans at the time would be in the top 20% of income for at least one year of their life in "Economic Facts and Fallacies" and "Basic Economics". (obviously the UK quintile study notes decreased lower income exit mobility which is bad for poorer people and means dynamic income mobility is reducing).
Exactly. I think this is a brilliant strategy by YC. They know that some ideas have great potential. They just back multiple teams and hope that one of them will win with their execution.
YC also says that they don't believe in the idea, but the founders ¯\_(ツ)_/¯
Seems reasonable to pick two horses in a race you believe is worth running
This creates an extremely obvious conflict of interest.
We need to define conflict of interest. Question: is an investor who gives money to one organization, but is not involved in the decision-making, conflicted if they give money to another organization? Are they self-conflicted (undermining their own likelihood of success)? Are they contractually or legally conflicted? Have they breached the trust of people they invested in? Are they ethically conflicted?
Answers to these questions are non-obvious. Attempts to simplify the set of relevant questions means imposing a worldview.
On the ethical question, a consequentialist would say it depends on the outcomes. Like many consequentialist analyses, this is complicated. Consider this: Investing in a similar company might validate the market and make it more likely for the company and/or its people to reach viability.
>This creates an extremely obvious conflict of interest.
That's not necessarily bad though. People like to throw out these terms that sometimes have negative connotation as if they are inherently negative. If you think the conflict of interest is a bad thing, you need to elaborate on why you feel it's bad, not just pretend it's prima facia bad.
but two horses can still win though. One can come in first and the other come in second. That's two wins.
It’s not a marriage. Have you ever watched any racing of any sort? One team frequently has multiple contestants. First and third is better than just third.
The conflict of interest is simply dead and forgotten in an era where the president-elect has his own cryptocoin, his own social media company, and appoints his billionaire supporters to improve efficiency in the parts of government that directly oversee those billionaires’ own businesses.
Yes, political corruption is a drag/loss on everyone except the corrupt ones. Worse, it can shift a system out of its viable operating zone. Corrupt individuals in a market can destroy the market.
But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.
I think it's reasonably straightforward they were making the point that conflict of interests are no longer taken seriously, along with many other related things. Politics tends to be a trailer of social views, not a leader.
The connection is that the conflict of interest being discussed was only ever a social/ethical contract.
That social contract is in the bin right now, so the question is moot.
Individuals who voted for Trump don’t necessarily want to throw away a social contract. Many of them do support societal norms, albeit different ones. And some don’t even think in these terms; they are more motivated by other factors.
Along with many, I think their collective actions point in a direction that (a) undermines democratic rule and (b) enables Trump’s corruption, but they seem to be relatively unaware or disagree with such effects.
Many of them think Trump will combat one some types of corruption (the “deep state”).
Overall, I’m more inclined to think many/most Trump supporters have reasonable core values, especially at the individual and family levels, but due to their information sources and mental processing, their overall choices don’t bode well for us, together. The biggest breakdown I think has to do with epistemic values: how does one find truth.
I don’t think most people, of any party, have the individual ability and discipline to make sense of a modern world in a rational, scientific manner. This isn’t something easily achieved, after all.
About me: I strive to not “blame” individuals in the traditional sense, because I reject free will as a meaningful concept. (Roll back the clock and a person will the behave the same in a deterministic universe. And if the universe has intrinsic randomness, we can’t ascribe free will to that randomness.)
So instead of blaming individuals, I focus on systems and their statistical effects.
I don’t think I made the assertion that anyone wants to throw away a social contract.
I said it was in the bin — it has been thrown away, and not by recent Trump voters, but it started long before that, maybe when ethics became something you didn’t learn until or unless you went through a professional program.
Having talked with a few religious Trump voters that I consider intelligent, they have a larger picture of the world, whereas I think a lot of Harris voters (being vaguely irreligious/atheist) are implicitly making the USA their whole world. Trump voters do not see the risk the same way, and have faith elsewhere. For many Harris voters this was an existential issue. That all said, those Trump voters I spoke with still seemed apologetic.
However it came about, there clearly is a misalignment in the stated social values world, and that is why that social contract doesn’t exist anymore. Whether that is because family forces, or tribal forces, or identity forces, or something else carried the day instead, well, maybe the future historians can sort out.
Two key points, which we probably agree on: (A) There are various flavors of social contracts. (B) Acceptance of any one social contract is a statistical thing, not a binary thing.
The most basic idea of a social contract is the legitimacy of a government to exist and function. This might mean to carry out various agreed-upon roles. And/or it might mean to operate according to some defined procedures, like the rule of law. The vast majority of people either consciously accept this or live as though they do. Of course there is variation on the proper role of government: does it include national defense, maintaining order, creating fair markets, collecting taxes, protecting civil liberties, internalizing economic externalities, investing in R&D, providing a healthcare floor, fighting corruption, etc?
If that were true, there'd be no point in ever applying a second time to YC.
Anecdotally, people do get accepted after 2-4 failures. Maybe YC was on the fence about those founders and their willingness to slam themselves against a wall repeatedly tipped the scales, or maybe they invest in a certain kind of founder and when they run out of those they invest in "promising" ideas.
> YC also says that they don't believe in the idea, but the founders ¯\_(ツ)_/¯
That still doesn't preclude them backing two founder groups that have similar ideas.
Have we forgotten how venture capital (VC) is supposed to work?
A new technology comes out. The new tech has high startup costs and low marginal costs. You invest in 10 companies developing this new tech. 8 go bankrupt, one hangs on by a thread, the last one returns 1000x on what you invested.
Last I checked, Y-Combinator is still considered a VC firm. Investing in a bunch of firms doing the same or very similar things is what YC should be doing.
They're really just keeping multiple irons in the fire. If the space is a winner, another player increases YC's chance of betting on the winner. More players also means the space gets explored in different ways.
> Last I checked, Y-Combinator is still considered a VC firm.
There was a time when pg would come out swinging and say that YC invests their own money which is very different from a VC firm.
Well, it did make YC different in the past: they took bets no one else would, which they could afford because of such a position. Is that still true? I’m not sure.
It makes sense as an investor, doesn't it, you identify markets you see an opening, you check which companies are in that domain, pick the ones where they can execute and have good people on their team.
It would worry me as a startup company, who knows where the information I share with them will end up...
A more interesting question is, do you as a startup company have any information worth sharing? Ideas are dime a dozen and like you just said, the differentiator is the capabilities of those people. And that is not something that can be shared, and no other startup can benefit of it.
It's not always about ideas. Growing startups often have proprietary information they can't share with competitors.
Besides YC investing in founders first (which I do believe is correct, having gone thru 2 batches), to quote the fictional S. R. Hadden from the book and movie "Contact," by the late, great Carl Sagan: "First rule of government spending, 'Why buy one when you can buy two at twice the price'." In other words, I believe this is also a strategy in maximizing investment exposure to great ideas. YC Invested in _both_ Box.net and Dropbox.
> YC commonly accepts startups that are building similar or nearly identical products to previous YC grads. Some of them are direct competitors; others differ slightly by targeting a new geography (Asia or Latin America), or are a subset of a larger market (point-of-sale software for bars versus coffee shops).
If you're going "by the book" with Crossing The Chasm, (https://en.wikipedia.org/wiki/Crossing_the_Chasm), all startups need to conquer a niche before they can own an entire market.
It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.
It seems pretty obvious to me that in modern times successful companies pick a segment of business to build expertise in and then expand outward from there.
Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.
Seems like a great idea!
Stirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition.
My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.
"Y Combinator seems to be the perfect place for mergers. Every winter for the past three winters, Y Combinator has funded a podcasting company. In winter 2017, Breaker. In winter 2018, The Podcast App. And in winter 2019, Brew."
https://dan.bulwinkle.net/blog/there-should-be-more-mergers/
Mergers in business are like dating. You can't just throw random people in a room and expect that they're going to like one another. It's about establishing shared context.
Mergers happen because there is a shared vision that is greater than the two separate companies. Smart entrepreneurs look at the mission and identify the roadblocks to that. Business is a collaborative endeavor.
There are very few times in business where there is no way out (and in those moments, it's simply that a thesis was incorrect). You can always run a new experiment.
I am reminded of this fine line from Sasha Shulgin "There are no casual experiments."
Too often startup folk seek the easy way out instead of the path of least resistance.
Be like water.
Any idea why mergers aren’t more common? The article doesn’t really seem to have an answer to that.
How much should one company with a 40mm valuation and no revenue pay for another company with a 25mm valuation and no revenue?
Great point.
I guess to say it more explicitly, the problem is that the companies are likely over-valued at the early stage and investors would see a merger as a sort of failure?
There are a lot of people who seem to think that zero-sum economics is how businesses work when it couldn’t be farther from the truth.
For example, if I open a bar downtown it may attract 100 customers. But if two entrepreneurs open two bars next to each other, they might attract 300 customers between them. The same can apply to entire market segments.
We took our startup through Techstars in 2016. The next year they took a very similar company that ended up getting more funding and attention. We didn't understand it at first, but looking back it was definitely because they were the better team.
In the end, both teams failed to scale so it ended up being the wrong platform at the wrong time, but if one of them could have taken off then the bet they made would have paid off.
I think this is actually okay. Execution matters, not the idea. Also if YC was trying to do coordination between its portfolio companies, it would be against the interests of the founders themselves because the founders do not care if another company in the YC batch succeeds or fails - they don't have a stake in that other company.
> Execution matters, not the idea.
This is the core ethos driving Chinese manufacturers to rip off anything and everything they can
> This is the core ethos driving Chinese manufacturers to rip off anything and everything they can
I think everyone does this. We just like to focus only on Chinese companies when they do it, because many times when Chinese companies do it, they do it so well that it is a threat.
> Execution matters, not the idea.
Execution matters _as much as_ the idea.
A good idea executed poorly produces bad results.
A bad idea executed well produces bad results.
This is what YC is hedging (was it the execution or idea) by investing in duplicative startups.
It's more like 90/10. 90% execution and 10% idea. And actually almost all successful startups didn't have "original" ideas:
- google wasn't the first search engine
- facebook wasn't the first social network
- tesla wasn't the first electric car
- ChatGPT wasn't the first chat bot
I guess I am saying that ideas are a dime a dozen. Every idea will likely get executed by multiple teams - it is incredibly rare for an idea to only get explored by a single team. Those teams that succeed did so because of execution.
I disagree. True "good execution" will not produce bad results over the medium and long term but that is what good execution is actually solving for. Good execution should recognize when/how pivots should be made to produce value.
So is it possible for good execution to fail? Is it only good in hindsight?
Not surprising. This reminds me of HBO's Silicon Valley:
Ron LaFlamme: So Pied Piper, You're one of Peter's compression plays, huh?
Richard: One of? How many does he have?
Ron LaFlamme: Not too many, like six or eight.
Richard: Okay. Why are there so many?
Ron LaFlamme: You know how sea turtles have a s*t ton of babies because most of them die on their way to the water? Peter just wants to make sure that his money makes it to the ocean.
Diversification is a hedge against ignorance. Investors are always more ignorant than founders to begin with (breadth vs depth), and at the stage YC backs most companies at, even the founders don’t have much of a clue how successful they will be.
This is the “correct” investment behavior.
VC sees buzzword in pitch and throws money at it, data shows.
This! Other comments imply some kind of strategy from YC, but it's likely a VC bias and/or a lack of communication inside YC.
This isn't really a big deal. Usually, obvious market opportunities have multiple organizations, trying to enter, and it makes sense for an investor to diversify.
That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs.
A classic Microsoft joke (hope you like Comic Sans): https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM
> Yet, a deep dive into the data from all of the nearly 5,000 companies YC has backed to date [...]
The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.
"That is already being done" is a good sign in the world of startups. It means there is a market.
It's hilariously used to shoot down startup ideas.
this was true 17 years back too. dropbox and zumodrive were both in same batch and were tackling the same problem with different approaches.
P.S. Not saying its a bad thing. Early stage startups evolve and like YC has shared a lot of the early bet is on the founders.
I think a different, perhaps weird, way of looking at this is that YC looks at the founders first and then market opportunity ("idea") secondly as justification.
YC doesn't need a single version of an idea to "win", and it's often stated plainly it doesn't even necessarily value the "idea" behind a lot of these investments but the founders themselves.
If you look at it that way, it's no surprise that multiple startups are working at the same market opportunity ("idea"), and that YC actually just wanted the founders themselves regardless of whose execution of the "idea" ends up winning (if any).
The cynic in me wonders if one of their goals is to keep the most talented people away from the competition, as cheaply as possible. With the goal of preventing independent competition, which could be seen as a greater threat to their golden boys.
I don’t mean this in a bad way, but like, at this point YC’s business model is spray and pray right? They weed out obvious losers, and then use vibes to pick a section of the rest, push them through a standard accelerator program, and demo day at the end, and this works because having been accepted into YC is like being able to say you went to a fancy university: no guarantees on future performance, but you’re probably not an idiot.
They should be (and are — YC Fall Batch!) trying to maximise the number of companies they take on while not diminishing returns below their cost of capital and brand dilution.
This is not a boutique investment shop.
Useful here-say from some investors at the last few demo days: not all of the companies that are "copiers" apply + are accepted with the "copying" idea. Many founding teams end up pivoting during the batch and scramble to get proof points on the board before demo day. They're most likely to end up pivoting to well-known problems, therefore the clustering around a few common themes. It doesn't explain all of the data, but it's a big part of it. When you have to come up with a fundable new idea in a week and prove it out in a month this can happen...
Not to be pedantic but maybe it will help in the future: it is spelled hearsay. You heard someone say it.
That approach is perfectly valid and could even be smarter than other VCs that avoid funding competing projects. I also think that, since YC operates at an earlier stage than major funds like Sequoia, different heuristics could apply. Ultimately, it's about balancing risk and reward—duplicating efforts can increase the chances of success while mitigating risks. Of course, it's not easy to establish processes that help competing companies in the same space without inadvertently favoring one over the other.
It’s clear why this is good for YC, but it’s probably also not terrible for founders. I’ve heard of funds that avoid funding competitors passing in investments because they didn’t want to be locked out of other startups in the space. This removes the perverse incentive that the better your idea, the more scrutinized you might be as a founder.This also allows YC to be fund a lot more companies than otherwise.
Of course YC backs multiple companies in the same spaces, they have for quite some time if not from the start.
The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.
It's interesting how many of the commenters are starting from the assumption that this is both intentional and desirable (or in some other way smart on the part of YC) and then reasoning only on that basis.
(Or maybe it's not interesting, since this is on YC's own site... :-P)
Why is that interesting to you? Do you have a contrasting point of view to share? Do you have experience with startups and/or venture capital?
I have no involvement with YC, but with a little startup and VC pitching experience, I can tell you that in my experience, lots of VCs like the idea of founders doing something incremental that builds on successful ideas. The article notably did not compare YC to any other VCs, but the truth is likely that all VCs “often” back startups that duplicate others in some way. VCs will tell you not to build something original, because there’s no demonstrated market for it. And statistically they’re right, your chances of success with an unproven idea are lower than with an incremental change to something people already buy. The article also notably did not talk about how often startups duplicate other businesses on their own, before there’s VC involvement. In that sense, despite the claim in the title that there’s data, the article is unscientific.
This article struck me as one of those “studies” that shows something everyone already knows, and the title kinda seems designed to sound dramatic and/or accusatory to appeal to readers drawn to controversy even if there isn’t really any controversy there.
Concluding that it's not intentional depends on the premise that they don't know they're doing it, which seems unlikely.
There's an enormous amount of evidence that almost no VC knows what they're doing (almost none beat index funds in the long run).
YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy.
Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
> Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket.
What VCs do is allocate capital in a way that mitigates risk for themselves.
There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company.
The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.
Your description of a VC's value is describing them as an index fund of startups, and I suppose you could say YC has moved in that direction.
But most VCs are paid to make bets on which companies are most likely to succeed. I never said they're supposed to know with certainty. That's a silly straw man that no one who understands basic finance would suggest.
But they spend much of their time supposedly screening deals to find good ones, and there is a preponderance of evidence that they're worse at it than a dumb index fund.
There have even been experiments to automate picking deals, and even a fairly naive algorithm is better than most VCs.
Only people on the VC side of the table think they have any added value other than lucking into being trusted to invest other people's money.
> VCs and early hires are taking a massive amount of personal risk.
I think you meant “Founders and early hires” here?
Reminds me of some German guys who specialise in copying successful companies and have made billions in the process .
https://en.m.wikipedia.org/wiki/Rocket_Internet
Investors diversifying into your competition should not be a surprised. And that adversarial reason isn't even the reason YC does this it seems.
I think YC is a bit glorified (for good and bad reasons), but "even I" admit a hit piece when I see one.
This isn't anything new. Heck, the first season of Silicon Valley called this out with Peter Gregory backing a number of compression startups.
Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.
It makes sense to scatter a bunch of seeds on fertile ground, and then pick the strongest plant that shows the most growth. There are many kinds of smart, ambitious people; some will form teams that succeed, others will fall prey to unforeseen impediments, and not.
To be honest, I would do the same.
If it’s a good idea, maybe the only difference between It’s succeeding or fail is the team executing it.
So in order to maximize the outcome, you double the bet and it’s even better than have someone doing it outside your control
Just because you have similar or the same idea doesn’t mean at the end you have a sustainable one. Also, companies get bought out but while ideas are the same execution and scope can change given the level of technology available .
In executing on an idea, the end result is often very different from where you started. They might look similar now, but in 5 years one went enterprise on feature set and the other consumer etc etc.
So true, all the Blockchain startups are now LLM startups.
You mean there is a trend in existing blockchain startups pivoting to LLMs? Is there a source / more details?
Investing in a market opportunity rather than a company or person.
Making lots of bets is a core part of the venture capital model.
Hedge funds that use a "pod" structure (Chinese walled groups of traders) will hire one pod to mimic another pods strategy. Not hard to guess why.
https://news.ycombinator.com/item?id=42235793
Y Combinator startups are overhyped and the founders need to just look like the VC's grandkid to get money.
Surprised to see this comment alive. The lazy mod *dang* does not seem to censor this comment.
It’s more the case of YC batch members often copying fellow batch or older batch’s standouts usually
I think it's a Jeff Bezos quote, but forgot the source:
"I'd rather have 2 of something than 0"
Makes sense. That way it reinforces those accumulated companies so they remain best in class.
The idea doesn't have to be special, who you are and how you case can be.
Pardon my ignorance, but is it wrong for my reaction to this piece to essentially be, "... okay, and?".
If we're being honest with ourselves, platitudes are just platitudes and the ultimate point of YC is to further enrich investors, and to enrich founders. Of course they're going to try everything they can to make that happen.
It's not like YC's #1 mission is, "Do original, world-changing things", no, it's, "We want more money".
And Garry apologized for being wrong shortly after, but that’s not mentioned?
YC should back duplicate startups because each startup's chance of success is low. If it makes sense to back a startup with a 10% chance of being a big company later, then a second such startup also makes sense, even if there is a 1% chance that they both make it and one of them is not needed.
The problem is when someone says the quiet part out loud, and the duplicate startups start talking to each other. The people at one startup refuse to do useful work because they incorrectly believe the other startup have a better idea. You want to leave those decisions to senior management, who can move technologies to make one company successful.
Have you ever suddenly received an influx of employees because someone jast realized that there was a duplicate company doing the same thing (fake gasp) and that it was time to combine the best parts of both the get a product? Somehow, despite nobody knowing there were duplicate startups, a proof of concepts has been working for a few months combining the best bits from each of 3 (fake gasp) startups, and the third one had very little to contribute so you will not see their people around.
I'm sorry if my post hurts anyone's plans. Fell free to delete it.
One of the reasons that YC is so great is that they back founders, not ideas. YC has never backed the same founder twice in a batch to my knowledge, and doing so is antithetical to its values.
And? As the article says, they've funded thousands of companies. Of course there's overlap. It would be weirder, much weirder, if they kept a conflict list like a law firm and avoided funding things that intersected their portfolio.
It's hard to emphasize enough how little YC knows about the companies they fund, and how little influence they have over the companies once they've funded them. Often, there's barely a company at all, just a small team that YC takes a shine to. Even if YC wanted to keep a conflict list, they couldn't: companies joint the program with one idea and launch with another.
To have a problem with that is to have a problem with the entire concept of YC; this is the process they invented, that they're notorious for.
>It would be weirder, much weirder, if they kept a conflict list like a law firm
modern portfolio theory (MPT) is the only acceptable measure of investment performance, and calculating co-variance is the salient feature of MPT, so no, it would not be weird to track overlap.
to sum it up in a single sentence, is OpenAI a good investment for you at $50 a share? Without even knowing anything else about the company, if the rest of your portfolio is already 100% shares of OpenAI, or even AI companies, no, for you, probably this would not be a good investment: the market does not reward diversifiable risk.
At 5000 companies this is a little like saying that investors should avoid the S&P 500 because it includes both Coke and Pepsi.
it's a good point you raise, you are definitely paying attentiong, but no, that's literally not the right interpretation of what it says.
it says you should own both Coke and Pepsi instead of either one exclusively; you actually want Coke, Pepsi, and 7up and Polar and Canada Dry and/or Dr. Pepper and/or whatever else is an independent company. In what proportions should you own them? weighted by their market caps.
but you also want to own every other company as well, weighted by their market cap.
Wilshire 5000 >> S&P 500
The reason to avoid the S&P is not because it contains competitors, it's because it does not include 4500 other companies. But that aspect of investing is CAPM.
Portfolio theory refers to your own portfolio. Never think "I made a great investment in Company X earlier this year." why? because what was the rest of your money in, you didn't put it all in X, did you? And what was your money in when it wasn't in X? You must always look at your entire portfolio, and you must always look all the time. Nobody cares if you won a hand of poker, the question is, how do you do on average and over time.
Does anyone know the best alternatives to YC?
This is reads as if that is negative an unusual. One might think supporting copycats is bad but obviously a company cannot simply be copied and is more than just its product. While a product might be, you can still outclass your competitors with better engineering, or sourcing of materials or marketing.
You wonder if this is a telling story about YC or just one about the startup space in general.
Possible outcomes include:
1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats.
2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats.
3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be
I dont think the headline is all that surprising. YC makes a lot of investments and most start ups fail. They are hedging their bets.
The more surprising thing about this article is that one YC company blatantly copied anothers product. To the point where the founder said they would start over and build their own product.
reinforcement learning done right, amirite?
Is this surprising? almost 10 years ago even Silicon Valley (the TV show) made fun of the fact that the main guys' company was only one of many compression startups their investor invested in.
>> The Silicon Valley dream is to build a tech startup that is such a unique idea it alters the commercial universe and turns its founders into billionaires.
The headline is a false assumption. While there are still people who are trying to build off unique ideas to change the world, it seems very few of them are motivated by becoming billionaires. The latter have no intention or particular desire to create a sea change, and actively look to (at best) have a "X for Y" strategy. Even more are "Yet another <already successful> X".
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