Startup founders are increasingly curious about the Y Combinator program and with such an impressive reputation, it’s easy to understand why. For instance, AirBnB, Stripe and Dropbox are just three of thousands of startups that have thrived beyond expectations through this process.
But what is Y Combinator exactly?
Y Combinator is a program that provides seed funding and support in the early stages of a startup. In return for this investment, the program receives a stake in the startup and this happens on two occasions during each calendar year. At the same time, this only begins to explain what happens during the process and in this article, we discuss the true benefits, mistakes that have been made recently and reasons why startups are still so interested in the Y Combinator.
Along with covering the cost of getting started, Y Combinator helps startups with various aspects of the business from paperwork and accounting to avoiding legal issues and common pitfalls.
For this reason, Y Combinator is an accelerator for startups and just so you know, this program is responsible for more than 2,000 successful businesses. What’s more, there are now more than 500 successful founders in the community and these individuals use their experience to help streamline member startups and position them better for long-term growth.
What could possibly go wrong, right?
It’s true, Y Combinator is an incredibly powerful support network which enables startups to connect with top investors in their respective industry.
As part of the process, founders will also travel to Silicon Valley for several months during which they help these startups refine their business plan and strategy. Afterward, the company will provide a presentation on “Demo Day” and a group of investors will sit down to assess and provide feedback on the project.
But that’s only where the benefits of Y Combinator begin…
Some of the Many Benefits of the Y Combinator Program
As you can imagine, this kind of financial assistance is invaluable to a startup and helps alleviate many headaches that restrict companies that work within a tight budget.
Social Capital – When accepted to the Y Combinator program, startups have immediate access to hundreds of companies and influential founders. For this reason, the process opens doors for the startup and presents opportunities that would not have existed without the program. In case you might be asking yourself, even companies like Google and Facebook are included in this impressive support network.
Financial Mentorship – Member founders can assist Y Combinator startups with any financing issues. In fact, the program is often construed as a mentor program for equity but this is merely one of many benefits.
Connecting Founders – Y Combinator accepts up to one hundred companies and several hundred founders from within these organizations. Founders get to connect and meet other founders which makes this community a great sounding board for ideas or problems. It’s true, many of these founders are competition to each other but most members insist that the community is always helpful as opposed to overly-competitive.
Adapting to Change – Whenever a major shift takes place in any industry, Y Combinator members are among the first to notice and adjust accordingly. After all, these members are well accustomed to the start-up scene and can identify patterns a lot faster than those who might be new to the process.
Hidden Value – Y Combinator requires up to 10% ownership of the startup but the return on this cost in impressive. For example, you can reduce any pay out fees by this amount and the benefits on this list should be more than enough to explain what you receive in return for this percentage.
Bookface – You may not know about this but the Y Combinator program provides access to an internal platform called Bookface. In many ways, this platform is like an internal Likediin or Facebook on which users can connect with the founders, investors and other startups. But more on this in a moment.
Establishing Credibility – For many startups, lack of brand awareness can pose a challenge when it comes to converting new customers. However, participating companies will often become the first customers for these startups which not only helps them get started but also gives the credibility of these startups a major boost.
Hiring Staff – Choosing the right people is an incredibly important task for a startup. While the most talented individuals will be just as picky about their chosen workplace, Y Combinator startups are far more attractive to these talented candidates as they know that only the best companies are chosen for this program.
Ongoing Support and the Importance of Bookface
As already mentioned, you receive access to a platform called “Bookface” upon entry to the program. At this point, startups can create a profile and connect with other members of the community. What’s more, this is where startups can ask questions or request feedback, and the advice that follows is most often exceptional.
Think about it:
If you want feedback on a product, you have instance access to experienced founders in the same industry who make every effort to provide guidance. Similarly, insurance questions, account problems and general startup questions can be quickly answered within this community but those who have already navigated the same issues.
Needless to say, you just cannot find this extensive support within similar platforms like Linkedin or Facebook, while the motivation to assist you is often absent on such platforms in the first place.
With that said, it has not all been smooth sailing and many mistakes have been made.
When Sam Altman decided to step down as president of Y Combinator, questions were being asked about the future of the program. However, any concerns were quickly alleviated as Altman was moving to another role within the company and being provided with more time to work on an independent project.
Interestingly, this announcement was “small potatoes” compared to a glaring mistake made by the company this year in which thousands of applicants were admitted to a prestigious online school by accident. In fact, this was the first of several lessons that Y Combinator was to learn in the past 18 months….
Accidentally Admitting 15,000 Applicants (Mistake)
Believe it or not, Y Combinator really did admit 15,000 people to a 3,000-person online program. It was a technical glitch and a hugely embarrassing mistake that would prove stressful for the founders involved.
You see, these individuals are often considered vulnerable and the program was left with the unfortunate task of disappointing these eager founders. However, in a twist of fate, the Startup School decided to proceed with this immense number of applicants which inevitably led to great difficulties for organizers.
In case you might be asking yourself, this ten-week online program provided online lectures and discussion groups with other founders. It was also intended as a highly selective process until this mistake which essentially turned the program into an open online course. Given the prestige associated with Y Combinator, this was thought to have devalued the startups that were using the name for leverage.
What Lesson Was Learned?
First of all, Y Combinator will be sure not to make the same mistake again. Also, the pressure on those facilitating the process was immense and many aspects of the program did not work as planned. At the same time, there are now more applications that ever for the program and the size of the school has multiplied four times over. Either way, despite the critics and challenges, it would seem that Y Combinator took yet another risk and the return on investment has paid-off once again.
Immense Growth and Variety in the new Cohort (Success and Mistake)
Y Combinator released the details of this much-anticipated cohort and the figures were nothing short of astounding. For example, there were 189 companies involved which was 25% more than the previous year and 40% of these startups are based outside of the United States.
Now, that’s not to say that everything was impressive about these statistics, for there was still a significant absence of companies with female founders. What’s more, this number had dropped by 4% since the previous summer which led to questions around the selection process.
According to that same report, when it came to companies with a male and female co-founder, 80% of pitches on demo day were performed by the male. From this statistic, it would seem that the female founder is still rarely placed front and center in modern day startups which seems politically incorrect.
What Lesson Was Learned?
While little attention was paid to the small number of female led companies last year, it would seem that no real effort has been made to increase this particular number. For this reason, all eyes will be on next years cohort and Y Combinator will be aware that people are paying attention to this element of the report.
Success Stories for Y Combinator Startups
We simply cannot talk about the success of Y Combinator without talking about some of the impressive startups to pass through the program. After all, these startups are the foundation upon which the company is built and reasons why the program continues to grow in stature:
More than 80 million freelancers exist in the United States alone and this number is only expected to rise as time goes on. However, most of these workers do not have access to employer benefits which leaves these individuals with a greater sense of uncertainty and stress.
Catch is a platform that facilitates personal benefits such as time off, health insurance or taxes, and ensures these benefits can be accessed and transferred whenever a freelancer moves from one role to another. Needless to say, this process is also intended to reduce stress and provide more security.
VanGo is often described as “Uber for Kids” and this app was created by a founder who wanted to create an easy way for mothers to get their children to school. As a rule, the main difference with this app is the fact that all drivers are female and fully vetted. Also, these drivers must have more than three years of experience in childcare. Although now focused on the school run, the company also wants to provide assistance to mothers for daily tasks associated with the kids such as food prep and homework.
Lumos was created by a former Google engineer who noticed the increasing number of search queries by doctors and medical professionals. In other words, these doctors were using Google to research symptoms and possibly help with diagnosing patients.
While there is no major issue with this approach, the engineer also realized that Google provides the lowest common denominator which means that the initial search results are not by medical experts. For this reason, Lumos was created as a platform that could outperform humans in terms of questions or answers from medical experts in particular.
For many founders, becoming a member of the Y Combinator program is the ultimate benchmark for their startup. Indeed, there are many incredible benefits including investor capital, while the support network is second-to-none and arguably the most significant reason to apply for entry. When you consider the long line of successful startups that achieved greatness through the process, it should also go without saying that the Y Combinator program is a chance to excel and most definitely an opportunity to accelerate the startup process.