Exploding Offers Suck

Exploding offers suck.  Founders should be able to choose the investor they want to work with, not have to make a decision based on time pressure.

As the world of accelerators gets more and more competitive, we’re seeing more and more exploding offers where an accelerator tries to force a company to make a decision about a funding offer before the company has a chance to finish talking to other accelerators.

This is terrible behavior.  It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders. 

I want to make our stance on this public: after we make you an offer, we’ll give you until the beginning of our program to decide (though most companies accept quickly, because you can’t start having office hours with us and participating in other ways until you accept).  We ask companies to be transparent with us about needing more time--we won't rescind our offer.  It’s usually about 45 days from interview to the start of the batch.

Some accelerators use a line about needing to make an announcement about who is in the upcoming batch—which, again, is maybe in the interest of the accelerator but the company should launch when it’s ready.  Sometimes they say they have a fixed amount of desk space, but in practice, if a good company wants to join late, they always make room.

We encourage all other accelerators to join us on this.  It should be an easy yes.  Exploding offers are the wrong thing for founders, and an accelerator that does the wrong thing for founders will not last long.

And founders should think very hard about joining an accelerator that puts forth a short-fuse offer.

YC Investment Policy and Email List

We’re making a change to the rule for YC partners making follow-on investments.  Previously, partners could invest in companies after they had either raised $500k or 3 weeks after Demo Day.  This reduced a lot of the conflict and signaling issues, but not enough—partners investing during the batch still caused issues.  So the new rule is that partners can only invest some amount of time after Demo Day (we’ll experiment a little to figure out exactly how long) or as part of a Series A. 

Our hope is that this will further reduce investors looking for signal from YC partners.

We put this policy in place for the summer 2014 batch, and it seems to be working well.

We will continue to make exceptions to the investing rules when a company is running out of money and about to die, but we think they are good and no one else wants to invest.  We may make other exceptions, which uninvolved partners will approve on a case-by-case basis.

While I’m on the topic of reducing conflicts, I also want to talk about our relationship with VCs.  Over the years, we’ve had direct LP (with Sequoia) or LP-like (with Andreessen Horowitz, Maverick Capital, SV Angel, Yuri Milner, General Catalyst, and Khosla Ventures) relationships with several VC firms.  This caused other investors a lot of consternation.

We still like all those firms a lot, and they continue to invest in a lot of our companies.  But they no longer have LP relationships with us, and no information rights or anything like that.  We do still have some VCs come in and meet companies about 10 days before Demo Day so they can get some pitch practice.  We expect to rotate through a list of trusted investors for different batches.

In the interest of a level playing field, we have created a new email distribution list that we will use for all of our companies raising rounds outside of Demo Day (before or after).  We'll use this email list instead of individual introductions so that we don't unintentionally miss an investor who might be really interested in a company.

The rules for membership are simple—5 total investments in YC companies of any size or 2 big ones, a positive reputation among our alumni, and no history of bad behavior like breaking term sheets without great cause, pressuring founders into advisor shares in addition to an investment alongside others in a round, etc.

We will of course continue to make introductions to newer investors not on this list as it makes sense.  In fact, some day, we’d like to have a larger distribution channel for all interested investors that we’d send companies to and integrate with some crowdfunding companies.  But we have to sort through the rules around that first.

In general, we don’t start introducing startups to investors until a maximum of 10 days before Demo Day (and most wait until Demo Day).  We also suggest startups take at least about 10 days to get to know major investors before making a decision.  We appreciate investors cooperating with us on this; it’s in everyone’s best interest for the startups to be able to focus on their product during the YC batch.

This should address all of the issues around investing we’re currently aware of at YC.

Demo Day Online

Our summer batch is big this year – approximately 85 startups will be presenting their products and services at our Demo Day next month.  We know that not everyone we’ve invited to Demo Day will be able to attend for the entire day (or at all), so we plan to put videos of the presentations online shortly after Demo Day so that invitees can watch any presentations they miss.  The videos will only be available to Demo Day invitees and password-protected, but ideally someday we can make Demo Day presentations available to a wider audience.

Diversity and Startups

Sexism in tech is real.  One of the most insidious things happening in the debate is people claiming versions of “other industries may have problems with sexism, but our industry doesn’t.”  Both men and women claim this, even though it keeps getting harder to do in the face of shocks like the Tinder texts.  We know there is a problem, especially when it comes to starting companies, and we think YC can do something about it.

I’m willing to believe it’s worse in other industries [1], but it’s still very bad in our own industry.  Debating how to fix it is important, but debating whether or not sexism actually exists trivializes the problem in a toxic way.  A lot of women may not experience sexism, a lot of women may experience it but not talk about it, and a lot of men aren’t sexist.  Saying “There isn’t any sexism in tech” in the face of a mountain of data hurts things in subtle and not-so-subtle ways.

Although the current debate is mostly focused on gender, and I think women face some of the worst discrimination in tech, they are certainly not the only group that faces discrimination.

We—the tech industry as a whole—need to fix this.  Most importantly, it’s an ethical issue.  And speaking for YC, it’s also in our best interest.  People who are not white males will start many of the best companies of the future, and we’d like to fund them.  (White men will start many of the best companies, and we’d like to fund those too.) 

We have continued to listen to the community and are trying to understand what we can do to help.  Realizing that it’s hard to speak with much authority here as a white guy, I’d still like to share some current data about YC and also talk about what we’ve been doing and will do to improve the situation.

We think YC can help drive real change, and we hope lots of other organizations will join.

Some YC diversity data

It’s hard to put exact numbers on this because we don’t have a precise definition for “technical” and we don’t ask for gender on the application form, but it appears we fund technical women that apply to YC at a slightly higher rate than technical men that apply to YC for at least the last few years. [2] However, a lower percentage of women than men that apply are technical.

We can get more precise number when we disregard background and just look at the gender of applicants (based on looking at the application videos)—19.5% of the startups we have funded this year have women on the founding team compared to approximately 24.3% of startups that applied, based on a random sample of a few hundred applications.

As a side note, even though it will break backwards compatibility, we are considering changing how we look at this to the percentage of all founders that are women instead of the percentage of companies with a female founder.  Encouragingly, the percentage of women applying continues to trend up year after year.

10% of our companies currently worth more than $100 million are now run by women.  These women aren’t just on the founding team—they’re the CEOs.  While this number is still much smaller than we’d like, and I believe we can do more to make it higher, it’s a big improvement from 0% a few years ago and well above the industry average.

39.6% of the founders in our current batch were not born in the US, representing  27 different countries.

We have four female full-time partners (and in addition to advising startups, to a large extent they run YC).

What we’re doing 

One of the most-repeated things we’ve heard from our founders and others is that in addition to holding focused events like the Female Founders Conference, it’s important to make sure we have women speaking at all of our conferences and during our batches, which we’ve been doing.  We’re also showcasing more women and people of different ages and races on our website.  Positive role models are wonderfully effective, and we have more and more successful women who can inspire the next generation of founders

We will continue to ask our successful female founders to spend some of their time telling their story and being role models.  They, and others, can also talk about the challenges women face running startups far more authoritatively than I ever can. 

One thing I’ve heard again and again is that the hardest challenges are not the obvious ones.  Yes, it’s awful to hear the horror stories of wildly inappropriate behavior from investors to the entrepreneurs pitching them. (Unfortunately, stories like these are not super rare, but because there’s a big cost to going public with them, most never get told.  My hope is that YC has enough leverage at this point to make it clear that this is unacceptable and we will not continue to work with investors who do it.)  The thing I didn’t appreciate until I spent a lot of time talking to female founders is that unlike the occasional terrible incidents, there are frequent minor incidents—to stick with the fundraising example, many women told stories of investors only talking to their male founders in the room.  And more generally, many just don’t feel like they belong in the startup culture.

We won’t be able to stop all bad behavior, of course, but I do think we’ll be able to help reduce it.

Nearly all of the women I’ve spoken to feel that Hacker News has improved a great deal—and even when jerks write nasty comments, they usually get a lot of responses of the type we like to see.  But there is still more we can do, even though we’ll probably never be able to rid ourselves of Internet trolls completely.  Specifically, we’d like the community to help by downvoting comments that make HN an unwelcoming place to anyone.  We made a significant change to the downvoting algorithm a few months ago.  When we see comments that are threatening or worse, we ban the accounts and say on the thread that we don’t tolerate the behavior.  We are also working on new guidelines for HN comments.

We’re encouraging our startups to get HR infrastructure in place earlier.  Many startups wait until they have 50 or so employees before thinking about this; our sense is that many will benefit by doing it earlier.  Traditionally, startups have thought of HR as a drag on moving fast and openness, but a well-running team is one of the best assets a company can ever have.  We’re working on some projects here but aren’t ready to share details yet.

Another thing that we’ve heard is a belief that YC prefers companies with technical talent on the founding team.  This is true.  Based on all the data we’ve seen, it seems like a smart thing to prefer.  We’ll make exceptions—not every company needs complex technology to win, and not all leaders have to be expert coders.  But this is part of our DNA, and what makes us work—it’s a challenge to have a software company without at least one cofounder who can write software and evaluate and attract other coders.  This isn’t unique to tech; movie people should probably run movie companies.

Even if founders don’t code day-to-day—I didn’t after the first couple of years of my startup—a deep understanding of technology is still very valuable for leaders of technology companies.

So we’re especially excited by efforts to make learning to code more accessible.  Teaching people to code is not the only thing we need to do.  In addition to taking a long time to effect change, there are other problems in the industry like the attrition rate of women and minorities in tech that we need to fix.  But anyone who wants to learn to code should be able, with lots of encouragement along the way (this goes for any sort of engineering, of course.)  It’s an important long-term step to take.

Not everyone wants to learn to code—there are plenty of other interesting things to learn, and plenty of other ways to contribute value to a startup—but our sense is that a lot more people would be interested in it if they thought software development was a viable career path.

Google’s recent work here is great, as is the work of YC companies like Hacker School, Codecademy and MakeGamesWithUs.  YC also funds companies that help people learn to code, and we are especially interested in funding non-profits trying to help make STEM education more available and the tech world more inclusive.  We also try to host, judge, and help fundraise for hackathons and other tech events designed to broaden the community.

Teaching people who want to learn to code how to do so, ideally at a young age, is one of the most important things the world can do to increase the pool of potential startup founders, even though this will take a very long time to produce change.  Teaching people about startups is probably less important than teaching people how to code, but still a valuable thing to do.  We’re planning to put more resources online to help people learn how to start startups.  More good startups will be good for everyone. 

We—the industry as a whole—still have a huge amount of work to do, and we need a lot of organizations to be involved.  We hope what we’re doing will help.  This will be an ongoing process for YC, and as always please keep sharing your feedback.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

 


[1] My mom is a doctor.  When I was maybe 12 years old, I went with her on a Saturday to the hospital and we went into the doctor’s lounge.  My mom pointed out to me there was a men’s bathroom but no women’s bathroom.  I thought (and still think) my mom was the best doctor ever.  I remember being incensed by this in the weeks after and the image is still very clear in my mind.

This was the late 1990s in Missouri, which is certainly different than the 2010s in California but not wildly so.    

[2] My guess for the explanation here is that it’s easier to start a startup as a man than a woman, and so the talent pool is more concentrated on the side of women who start startups.

Welcome Scott, Dalton, Adora, Brett, Nicole, Alexis, and Qasar

We have a bunch of new additions to the YC team to announce.

Scott Bell is joining the YC software team.  He was a co-founder of Skysheet from YC W09. He’s coming to YC from Houston where he was doing consulting and Lisp hacking.

Dalton Caldwell is becoming a partner.  He was the cofounder and CEO of imeem (acquired by MySpace in 2009), and the cofounder and CEO of App.net.  He has a BS in Symbolic Systems and a BA in Psychology from Stanford University.

Adora Cheung is joining as a part-time partner.  She is the cofounder and CEO of Homejoy.  Previously, she studied computer science at Clemson University and was the cofounder of Task.FM.

Brett Gibson is joining the YC software team.  He was cofounder of Slinkset and Posterous, both funded by Y Combinator in 2008 with the latter acquired by Twitter in 2012. He later founded Posthaven with fellow Posterous cofounder Garry Tan.

Nicole Lazar is joining YC as our first batch manager.  She’ll be responsible for helping the founders in the current batch and making sure everything runs smoothly.  Previously, she worked at Andreessen Horowitz.

Alexis Ohanian is becoming a partner.  Alexis cofounded reddit, which was funded by Y Combinator in 2005 acquired by Condé Nast in 2006 and he's now on the Board of Directors. He then launched hipmunk (YC 2010) and ran marketing + PR until leaving to fight SOPA & PIPA.  He has a BA in history and BS in commerce from University of Virginia.

Qasar Younis is becoming a partner.  He was the founder and CEO of TalkBin, which was funded by Y Combinator and acquired by Google. At Google, Qasar went on to be the product lead for business facing product.  He has a BS in Mechanical Engineering from Kettering University and a MBA from Harvard. 

Welcome to the team!

(Dalton and Qasar were already part-time partners, and Alexis was our ambassador to the east.)

YC Portfolio Stats

We get asked a lot for statistics on the YC portfolio.  Even though some of these aren’t that helpful [1], here is the latest update on the numbers we get asked about the most.  As always, all the credit goes to the founders. 

Total market cap of all YC companies: >$30 billion

Total money raised by all YC companies: >$3 billion

Number of YC companies worth more than $1 billion: 3 [2]

Number of YC companies worth more than $100 million: >20 [3]

Number of companies funded by YC so far: 716

Number of companies in the current batch: 85

Acceptance rate of the current batch: <3%

Number of nuclear energy companies in the current batch: 2


[1] Intermediate valuations aren’t worth very much, for example.  But we don’t keep statistics on total revenue or jobs created, though I expect both numbers would be impressive.

 [2] This is how many companies are currently worth over $1 billion, but even if we never funded another company I think it would at least double and probably triple or quadruple.

 [3] Similar to the note above, this number should go up a lot just from our current portfolio—it generally takes companies a few years to get above this threshold.

New RFS: One Million Jobs

We want to fund companies that have the potential to create a million jobs.  There are a lot of areas where it makes sense to divide labor between humans and computers—we are very good at some things computers are terrible at and vice versa—and some of these require huge amounts of human resources.

This is both good for the world and likely a good business strategy—as existing jobs go away, a company that creates a lot of new jobs should be able to get a lot of talented people.

(We aren't looking for companies that plan to have a million employees.  Probably the easiest way to do this is to create a platform that lets a million people create their own jobs.  Uber may do this, for example.  Healthcare or education platforms that let people provide services are other examples of what might work.)

View other Requests for Startups.

The YC Board of Overseers

I’m delighted to announce the new Board of Overseers for Y Combinator.

The members are: Brian Chesky, Adora Cheung, John Collison, Patrick Collison, Drew Houston, Jessica Livingston, David Rusenko, Emmett Shear, and me.

I’ve worked with everyone on this list.  They are all great and care deeply about YC—we're very lucky to have them.  They'll help ensure YC thrives for a long time.

The Board will be responsible for hiring and firing the YC President, and occasionally helping with strategic direction.  Hopefully it doesn’t have to meet very often.

Quora in the next YC batch

This month, YC will be participating in Quora's most recent investment round and Quora will be joining this summer's YC batch.  This is a new experiment for us; we've funded later-stage companies before, but none close to Quora's stage.  Our hope is that both the company and the YC community will get a lot of value out of this.

We're not sure if it's something we'll do again; some of our experiments have worked and some of them haven't.  But Adam D'Angelo is awesome, and we're big Quora fans, so we're very excited to welcome Quora to the YC community.

Since it seems out of character for us, we thought we should say something about it.  Also, we won’t count Quora when we periodically announce stats on the YC portfolio.  Although they’re participating in the batch like any other company, they’re already so far along it doesn’t seem fair to include them.