Liz Gannes

Recent Posts by Liz Gannes

Q&A: Randall Stross on the World of Y Combinator

Y Combinator is a topic of much fascination in Silicon Valley and the greater aspirational world of start-ups. Whether it can grab the imagination of a larger audience is yet to be seen.

The preeminent three-month start-up accelerator program gets book-length treatment in Randall Stross’s new book, “The Launch Pad,” to be released this Thursday.

Stross is a New York Times columnist whose last book about the start-up world was “eBoys,” a profile of Benchmark Capital during the dot-com boom.

Y Combinator gave Stross extensive access as he followed the summer 2011 “batch” of 64 companies (including one that dropped out) through the application process, to receiving an automatic $150,000 in funding from top venture capitalists, through their business and strategy decisions, and culminating with their investor pitches on “Demo Day” at the end of the session.

Via email, Y Combinator leader Paul Graham called the book “remarkably accurate.”

Graham gave me his capsule review: “I think people will find it interesting. It has all three of the things that make a book interesting in my opinion: It’s (a) based on close, first-hand observation (b) of something that’s unfamiliar to most people and yet (c) has broader implications.”

After reading the book myself, my take would be that “The Launch Pad” lacks a major breakout storyline, but it’s full of meaty conversations about start-up strategy that could be applicable to anyone starting a company.

Having dipped in on Y Combinator events more than a few times myself, I was interested to hear more about what Stross thought and saw of the program from the inside. Here’s a lightly edited transcript of our phone conversation:

Liz Gannes: What do you think is the broader applicability of the Y Combinator story? I saw the book excerpt in Vanity Fair ran with the title “Who Wants to be a Billionaire,” and maybe that appeals to a broad audience as an aspirational thing. But I wonder if this underlying idea about the potential for start-ups as an economic force is something that you think is a mass message.

Randall Stross: I don’t think the YC founders think of themselves as working on the ticket to become a billionaire. That was Vanity Fair’s choice of word. I think what is driving these founders is the chance to work on their own projects without being an employee. The autonomy that is possible in start-ups excites them and, potentially, the rest of us.

Now, YC, by its nature, is an accelerator that prizes hacking skills, and most of the teams are all technical. So, in that aspect, they don’t hold out a model for those of us who are not going to be a technical co-founder. But, then again, that summer batch did have [online coding school] Codecademy, which taps into the wishes of non-technical people following the start-up scene.

Randall Stross

Let’s talk about Codecademy for a moment. It seemed like Codecademy was one of the most interesting stories in the book, in that they broke all sorts of rules and expectations because they really didn’t know what they were doing, but then emerged to be one of the most promising companies right at the end of the batch.

Yes, one of the things I didn’t expect was how much experimentation with ideas took place during the YC session. A number of the companies changed ideas during the session, a few have changed them even after Demo Day and fundraising, and investors seemed to accept that this is to be expected.

That you didn’t lose your headstart by being a late bloomer?

Right, and that’s one of the most interesting developments that makes the scene today different than it was in the late 1990s, when I was working on my book about venture capital and start-ups, “eBoys.” Then, the initial funding would be $5 million to $20 million, and it would take longer to prove out the idea, much longer. And it would take all that money, because you were writing out big checks to the Oracles and the Suns to get started.

And now you can start with the most modest of sums, and not even use all of that up in the course of discovering that idea isn’t going to pan out and you should try something else.

Have you been back to Benchmark Capital at all? How do you think they’re relevant in a world with Y Combinator and lower start-up costs in general?

I haven’t been back to Benchmark, but what has happened is, since then, this layer between individual investors and venture capital firms that specialize in early-stage investing. There’s this other world that has appeared — Y Combinator, 500 Startups, TechStars — that didn’t exist before, that is funding seeds on a much larger scale than an individual angel would be able to do.

Even though we talk about early-stage venture capital, that adjective, “early,” turns out to need some modification, and so we see venture capital firms, like Benchmark, Andreessen Horowitz and all the rest, being kind of follow-on investors.

Or paying to get involved in every YC company, like Andreessen Horowitz and Yuri Milner and SV Angel now do.

Right — which means they’re no longer attempting to choose.

One of the criticisms of Y Combinator is that it seems a bit cultish, with people becoming worshipful of Paul Graham and his teachings. Did you feel sucked into that at all?

As I say in the book, the founders quickly discover that, for some things, Paul Graham is the person to go to, especially for coming up with very grand ideas. And for other aspects, other questions, particularly marketing or design, there are other partners who are the ones that they choose to go to, so within Y Combinator there isn’t a single voice, they do have different strengths.

Paul Graham

I was thinking not just Paul Graham, but the larger phenomenon of Y Combinator.

You know, what it reminds me of is the kind of loyalty you’ll see at a highly selective college. You’re kind of blind to the virtues of other schools, once you’re in.

It seemed like the thing that you challenged Y Combinator on the most was the lack of women founders. Were you not convinced by YC’s rationale about the lack of female participants being essentially out of their control?

I actually buy the rationale about the makeup of the applicants. Ultimately, the only way there are going to be a lot more of any group that’s underrepresented at YC, is when those groups are well-represented among the ranks of applicants.

Another thing I observed from the book is there’s really such a focus on funding, with all the mentors priming the start-ups for how they will be perceived by venture capitalists.

It’s interesting that you remarked on that, because I hadn’t been aware of that impression being left, but I see where you get that. The book wants to give readers a sense of the entire class, and the main occasions when that happens is when they’re getting advice about their presentation for investors at the end. That’s just an artifice of my storytelling; it’s the only way I could get everyone in the same frame.

You had to stop observing at some point, and write and edit and turn in the book. In retrospect, is there anything more you would have asked?

What I want to see, Y Combinator can’t supply me right now, which is how these 63 stories turn out. I can only tell the beginnings of these stories — so what one wants to know is what happens. Because each member of the class has raised $150,000, they still have runway.

[Before the guaranteed funding started last year] Demo Day was the do-or-die moment, either you raise money or you were done. Had I written the book then, I could have written a coda: These companies lived, these companies died. But today the whole class has an opportunity to try.

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