Pro Rata

For a long time, YC founders (and other investors) have asked us why we don't continue to financially support our companies after our initial investment by doing our pro rata in future rounds.  Many new investors really like to see the support of existing investors.

There were a lot of reasons why we couldn’t do this in the past. But starting in the Summer of 2014, we added a pro rata provision to our standard investment documents, and starting now, we're going to aim to support all these companies in future financing rounds by doing our pro rata. We will try to do this for every company in every round with a post-money valuation of $250 million or less.

To make it extra-clear, we're not going to lead any of these rounds or set the terms, just follow other investors.  And by doing this in every YC company, there will be no signaling issue of us supporting some companies and not others.

YC Fellowship

Ten years ago, Paul Graham said there could be ten times as many startups if more people realized they could try. Thanks to the work he, Jessica, Trevor and Robert helped do, that’s become true.

We think there is still room for another ten-fold increase in the number of (good) startups. But even now, a lot of good founders never get started because they can’t scrape together a relatively small sum of money at the idea stage.

So we’re going to try a new experiment, which we’re calling the YC Fellowship. This is targeted at teams that are very, very early.

Like YC, we will accept applications and evaluate both the team and the idea. We expect these startups to be early–a prototype is more than enough (though we expect you to have an idea). In order to have the most impact, we’re only considering companies that haven’t yet raised money from investors. Unlike companies that YC funds, YC Fellows won’t have to move to the Bay Area (though we strongly encourage they do). For this experiment, we’re willing to try office hours over video chat.

YC Fellows will receive $12,000 per team as a grant (though if this continues past this test run, we will probably do a more traditional investment with equity for future Fellows) and access to advice from the YC community.

The program will be much lighter weight than YC, but we’ll still try to help you a lot. A dedicated partner will advise YC Fellows and be available for office hours. Fellowship recipients will have a kickoff day and an end event in Mountain View, and we’ll pay for remote teams to fly out for these. We’ll also make some things from YC available to YC Fellows, like AWS and Microsoft hosting credits. We’ll encourage but not require that Fellows later apply to Y Combinator.

The program runs for 8 weeks, from mid-September to mid-November. You should expect to work full-time on your project for those 8 weeks.

Also, this doesn’t have to be a one-time thing. If you fail but seem good, we’ll happily consider you again with a new idea.

We understand that $12,000 is not a lot of money, and this won’t make sense for everyone. But for some people, it may be the difference between going to work at a big company and starting the next Airbnb. Those are the people we hope to help here.

Applications are open now and are due July 27th at 8pm PT. That’s not a lot of time, but it should be enough – the right teams are likely already tinkering with ideas.

Although this is an experiment, if it seems promising we’ll iterate quickly just like any good startup. Our goal at YC is to enable as much innovation as we can. Someday if it works, we’d love to fund 1,000 companies per year like this.

Apply to the YC Fellowship here

Welcome Amy, Susan, Colleen, and Steven

I’m delighted to announce four new additions to the YC team.

Amy Buechler is joining us as an associate, working closely with founders in the current investment cycle.  Previously, she got an M.A. in Counseling Psychology at the Wright Institute, led study abroad programs through the Bali Institute, and managed commercial real estate. 

Susan Hobbs is joining us as Director of Events.  Previously, she was at TechCrunch for four years where she focused on programming for the TechCrunch events, including Disrupt.  Before that, Susan was the first non-engineering hire at both Codian and at CoTweet.

Colleen Taylor is joining us as Editorial Director.  Colleen was most recently at TechCrunch, where she served as the editorial director for TechCrunch TV.  Previously, she worked as a reporter at GigaOM, the Financial Times' Mergermarket newswire, and the semiconductor industry newsletter Electronic News. 

Steven Pham is joining us as our office manager.   Steven was formerly Garry Tan’s Chief of Staff and has a BS in Biomedical Engineering.

Welcome to YC!

One surprising hack to get into YC!

People often ask us what they can do to improve their chances of getting into YC.  The truth is there isn’t much other than “have a good idea, a market that may become huge, and a great team”.

However, there is one thing that helps, and so we’re making it official.

If you’ve worked at a YC company, and get a good recommendation from the founder of that company, we’ll give your YC application extra consideration.  References are very helpful in any decision about who to work with—there’s so much value in understanding how someone performs and improves over years on a job. 

You certainly don’t need to do this, of course.  Most of the founders we fund are totally unknown to any YC partner and have never worked at a YC company.  The fact that we are willing to look at people totally unknown to us is key to why we do well, and not something we’ll ever stop doing.

(If you’re an engineer interested in working at a YC startup, go here:

Welcome Luke and Rick

We are happy to announce two new additions to the YC team.

Rick Morrison is joining us as a part-time partner.  Rick is the founder and CEO of Comprehend Systems.  Comprehend makes multi-datasource analytics and collaboration tools for the life sciences industry.  Rick will focus on advising our enterprise companies.

Luke Iseman is joining us to help our hardware companies.  He was the cofounder of Edyn from W2014, and he cofounded the boxhouse open-source shipping container home project.  Luke will be responsible for all of our hardware partnerships as well as advising hardware companies on how to get their prototypes and products built.

Welcome, Luke and Rick!

New Hacker News Guideline

The HN team members are some of the most thoughtful people about online communities I’ve ever met. So I’m always excited when they have a new idea to try.

This idea is simple. We’re updating the guidelines to add: "Avoid gratuitous negativity."

Critical thinking is good; shallow cynicism, on the other hand, adds nothing of value to the community. It is unpleasant to read and detracts from actual work. If you have something important but negative to say, that's fine, but say it in a respectful way. 

Negativity isn't the problem--gratuitous negativity is. By that we mean negativity that adds nothing of substance to a comment. This includes all forms of meanness.

Sharp readers may point out that the HN guidelines have always excluded those things. That's true. But it's still enough of a problem in HN threads that this is a clarification worth making. We tried it out last year when we released special guidelines for Show HNs. It worked well there, so we're extending it to the whole site.

New work and new ideas are fragile. Too much gratuitous negativity might be the difference between someone giving up on a crazy idea and building the next Airbnb. Obviously, we want Hacker News to help startups and people doing new work, not hurt them. Building stuff is hard, and you'll always need a thick skin. But we see no need for Hacker News to make the problem worse.
The human trait of being unhappy with other people's success is something we’ve all felt and should all try to avoid. Similarly for piling on to others' mistakes. These things feel good in the moment, but they're harmful and lazy. HN is a community of smart people. Let's all apply our smartness to *not* being like that, and see what new and interesting things emerge.
How are we going to enforce this? By asking the community to do so. Gentle reminders by peers are the best way we know to make the culture better.
HN can never be all things to all people. If you want to be relentlessly negative on the internet, there are other places you can go to do that.
I’m excited about this change; the increase in gratuitous negativity as Hacker News has gotten bigger is the thing I’ve liked the least.
To support this, Daniel and the HN team are working on another new idea I'm very excited about--code-named "Modnesty"--to turn more moderation power over to the community. We'll be sharing more on that in the coming months.

Welcome Peter

I’m delighted to announce Peter Thiel is joining YC as one of the (now 10!) part-time partners. 

In addition to founding PayPal and Palantir and being the first investor in Facebook, Peter has been involved with many of the most important technology companies of the last 15 years, both personally and through Founders Fund, and the founders of those companies will generally tell you he has been their best source of strategic advice.  He already works with a number of YC companies, and we’re very happy he’ll be working with more.

We generally won’t bring on people that are involved with other investing firms given the obvious conflict, but Peter is so good we felt like we had to make an exception.  Peter won’t invest in any companies while they’re in YC or for 3 months after they present at Demo Day (this will apply to Peter’s investment entities as well), which should eliminate any unfair advantage.  We’re pretty paranoid about potential conflicts, and we’ll continually evaluate this and change it if it’s not working.

On a personal note, Peter is one of the two people (along with PG) who has taught me the most about how to invest in startups.  I am confident that Peter joining will be great for YC.

Advice for Early-Stage Hardware Startups

This is a guest post from Luke Iseman and Jeff Chang.

Hardware Is Easy

As we slog away at our soldering irons, it’s become de rigueur in the early-stage hardware startup world for us to wearily mutter: “Hardware is hard.” Our software-centric compatriots are understandably worried that we might weld their MacBooks shut if they mention their fifth multivariate test of the day.

But compared to any other time in history, hardware is easy.  Finding product-market fit remains as tricky as ever, but prototyping new physical things is faster and cheaper than ever before. Here are some guidelines we’ve picked up so far:

1.     Form A Posse.  Hardware is the Wild West: we’re just getting started in the quest to make smarter things faster, now that every material (and everybody) is at most a mouse click away.  Nobody yet knows the full potential of this exponentially growing community.  But you’ve got to take advantage: Join or start a Hackerspace, work from Techshop, contact makers who post interesting projects: find people working on hardware like yours and ask how they dealt with challenges you’re facing.  These conversations have led to me discovering faster and cheaper ways to make SMD stencils, casting aluminum parts from 3D prints, sourcing cheap components direct from China at in-country prices, and taught me everything I know about making things.

2.     Interview Your Industry.  After 5+ years of working on smarter gardens, I finally met with a giant gardening supply company. I learned more about what customers will actually buy (aka what I should build) in half a day than in half a decade. Figuring out what real people actually purchase at quantity is infinitely more useful than another coffee with another potential investor.

3.     Fast Over Fancy.  The speed at which new components are released, hardware devkits kickstarted, and novel 3D printer filaments formulated is gradually nearing the speed of software.  Just like with programming languages & frameworks, there will always be newer faster better tinkering toys, and you can spend forever researching them.  Instead, find things that work and use them to build a functioning prototype.  Nobody cares if you’re using an Intel Edison or a 555 to blink the LED in the prototype you show them: people care about whether you’ve made something that they want.

4.     Separate Prototypes.  I’ve used too many glue sticks and hours stuffing components into decent-looking half-functional prototypes.  Instead, make these 2 different objects.  Make an ugly black box ‘works like’ prototype, and create an entirely non-functional ‘looks like.’  Add a reasonable story for how you’ll get the black box shrunken down to fit in a manufacturable version of the sexy enclosure, and start selling.

5.     Finite Iteration.  Break down the elements of your separate prototypes further, and iterate on the most discrete units of functionality that you can.  Do a majority of the people you ask to play with your prototype tell you that the button is awkward?  Getting buttons with the right click-feel is one discrete element to iterate on, button placement is another.  Well-designed products don’t just pop from Steve Jobs’ brain into mass production: they’re iterated into existence through many rounds of fast experimentation on each element that matters.

6.     Selective Inattention.  Pre-selling an impossible product will get your project pulled and company sued, if anybody even bothers pledging towards it.  Having a million units ready to ship prior to telling anybody what you’ve built will make you bankrupt just as fast.  I think you’re ready to start to scale (meaning raising $ to fund production, from investors or crowdfunding) when many people who see your prototype want to buy one.  If you’ve got a data-driven story about why you should raise money or begin production at a different point in time, try and convince your team that it makes sense. If they’re sold on the idea, then go for it.  Just be ready to defend your variance.

7.     Achievably Exceptional.  I can make a reasonable argument about why I will be the first to make something new, maybe even spinning a sound story about why people will buy this new thing.  If I’m particularly lucky, I can find others to spend time/money on this vision.  This can add up to a believable pitch about why I’m going to be the exception, the startup that doesn’t go to 0 within a year.  However, it’s absurd to imbue myself with magical powers that defy the realities of global supply chains.  Look at the hardware kickstarters you’ve backed, and add a buffer.

Manufacturing guys smarter than me say it’s at least a year from locked-down, working prototype to delivery to customers at any significant scale.  Unless you’re doing under 1,000 units, you should have a really compelling argument for why you’re better at manufacturing than the 50+ kickstarters I’ve backed and waited too long to receive. If you’re making less than 1,000 units and they are not nuclear reactors, ask yourself if it’s worth your time.

Hardware is easy, and hardware is a complicated minefield of company-killing disasters.  This has led to most of your entrepreneurial competition staying in the purely digital world.  Meanwhile, many talented engineers had their desire to make physical things scared out of them by an education insisting everything they build be as reliable as a bridge.

It’s wide-open here in hardware startup country, full of opportunities to do things worth failing at.  The Nests and Teslas of the world are just starting to skim the surface of what we can make in our connected, sensor-filled, AI-enhanced meatspace.  Set aside your keyboard, and get to work remaking the real world as dramatically as we’ve reinvented the digital one.

- Luke Iseman (ex-Edyn, W14) makes smarter gardens and tiny homes

Hardware is Easy … Except For the Hard Stuff

Alright, you’ve got your production-ready prototype built, you’ve got some investor or Kickstarter money in the bank, and after talking with a few hundred customers, you’ve got a good idea of how to make ‘em really happy.  Now you’re looking to build, test & ship 1,000, 10,000 or 100,000 pieces of your product.

This is where Fitbit and many others almost died -- for Fitbit, the 15 months of turmoil in the manufacturing & QA abyss, the lots of times they were “pretty close to being dead.”  But in the past seven years, these hardware startups have paved the way -- they’ve made it much easier for the rest of us to scale hardware.

1.     Don’t do it from scratch.  Hundreds of resources, extensive manufacturing & fulfillment infrastructure, & consultancies already exist.  Don’t jump in with the first solution you find, no matter how easy they may make it seem.  If you don’t know enough to question them & keep on top of things at every turn, they’ll often take you for a ride or get you bogged down in an endless series of delays and bottlenecks.  Before you begin, talk with as many hardware startup founders, consultancies & manufacturers as possible.  After you start, talk with as many founders, consultancies & manufacturers as possible.  Learn enough to get a sense of the many things you don’t know and need to find out.

2.     Don’t forget the certifications -- they each cost at least a couple thousand bucks, and some of them require bunches of pre-testing & carrier testing.  Make sure to get started on necessary certifications early, and skip the nice-to-haves.  Especially when cash is short & you need a shippable product yesterday, use easy-to-substitute off-the-shelf and pre-certified components wherever possible.  Extra certification costs don’t help you build a better product, and you need every dollar working to make your startup a success.

3.     Always think about bringing your capabilities in-house, if still outsourced -- EE, ME, firmware, ID, apps, frontend & backend dev.  Search for, or wait for, the right person -- put out your feelers (, job postings, HN if you’re part of YC, friends of friends & friends of first employees), and whenever you can afford it, put candidates through trial projects and start hiring the best.

4.     Realize it’s not cheaper to hire people (unless you’re comparing with high-end design firm pricing), but things move a lot faster in-house, especially for fast prototyping & debugging.  Once you’ve been through the “our firmware designer’s in Europe, and build testing’s in Shenzhen” mess, you realize that a single email a day from each consultant can’t cut it -- it’s delaying your progress by months.  And a successful company is always prototyping & debugging -- once the first iteration’s out the door, you’ve got to start revising the next production run & prototyping future iterations.  While you’re head-down blinders-on busy preparing production runs & iterations, don’t forget to anticipate & create where the market’s headed – it can easily leave you behind, if you don’t imagine & build new awesome products when the time is right.

5.     Trial projects for candidates will help you understand your own business better too -- just like with a rubber ducky, the act of explaining your hardware or firmware to someone will help you understand it better.  Not to mention, your candidate should hopefully know a whole host of things about their field that you don’t.  Versus a consultant (especially for firmware), where you often only know that it’s done once it’s done, and learn almost nothing about how it works.

6.     Hardware costs are very spiky -- and with each revision, mistake, or market shift, those costs will rise.  This will be particularly distressing to those of us accustomed to software startups, since your burn rate may swing wildly month to month.

From talking with founders of many hardware startups, there’s no hard & fast rule on hardware vs. people costs.  You’ll spend more on hardware, if you’ve got a remarkably innovative and complex product, if your tooling goes south, if your first couple manufacturers screw you over, or if you decide to go the high-end design firm route.  You’ll spend much more on people, if you have the capital to bring your team in-house, if you share equipment for prototyping, if you need to spend several years iterating prior to launch, or if you find an efficient & responsive manufacturer right off the bat for production and QA.

7.     With every startup, the people are key. No matter how much your hardware costs, the hardware isn't more important.  An awesome team can do wonders with a run-of-the-mill concept, while an average team will tend to pull failure from even the most brilliant idea.  Your hardware’s being designed and built, app bugs are being caught and fixed, marketing copy’s being created and fine-tuned -- all by the people on your team.  No matter how complex your hardware is or how many patents you might have, a dozen other teams are probably building something similar.  Your team is what makes the difference.

Of course, don’t forget QA, distribution & fulfillment, custom packaging, the right kind of sales team for your product, and customer relationships.  Nice thing about being a part of YC – there’s a YC startup for each of these things.  If you’re a YC startup that provides services for other startups, you can rustle up dozens of interested new customers with an email.  Building a company that makes hardware creation better?  Consider applying to YC.

Finally, standard rules of building a company never expire.  If you want to become a good CEO or CTO, read awesome books & blogs, go implement & see which ideas work in your startup, read some more, learn from an executive coach, ask everyone you meet lots of questions, and listen more than you speak.  Not to get too Zen, but the mind can be either a full or empty cup, and full cups don’t do too well.  Only someone who always keeps a bit of the newbie mindset can continually adapt and build an incredible organization.

Always remember, you’re not building this organization, or even your own product – that’s up to the people you hire.  The lone inventor model almost never works.  Yes, you’re building a product, but the company is all about the people, not the hardware.  Eventually, you probably won’t even be deciding the vision -- just hiring the best people in the world to hash out the details for you.  So really focus on perfecting your hiring processes, spend the time to create & live out your culture, do your best to keep everyone on the same page, and just keep the boat moving forward.  And don’t forget -- the Pareto principle applies to everything.  So do what matters, and ignore the rest.

Our world is made of physical objects, stuff you can touch & manipulate.  Bytes are awesome, but many of the world’s biggest ideas need a tight weave of both hardware & software.  All of the largest Internet-based companies are now building hardware – this is where the next Google, Facebook or Amazon will arise.  How will your team help create our future?

  • Jeff Chang (Doblet, S14) is building a network of portable batteries for your phone

$500k of Azure credit for YC startups

Over the last month, we’ve announced special deals to help YC biotech and hardware companies.

But we don’t want to leave YC software companies out. 

We are happy to announce the Microsoft will be giving $500,000 of free Azure hosting credit to YC startups in our Winter 2015 batch and future batches.  This is a big deal for many startups—it’s common for hosting to be the second largest expense after salaries.  Microsoft is also giving YC startups three years of Office 365, access to Microsoft developer staff, and one year of free CloudFlare enterprise services and DataStax software.

This brings the total value of special offers extended to each YC company to well over $1,000,000.  The relentless nagging from partners to grow faster we throw in for free.