Y Combinator Accelerates Startup Exchange
YC Partners give some great advice to ambitious students
Have an idea for a startup? Then just get out there and build something!
That was something that I learned today while listening to Y Combinator partners Kevin Hale, Michael Seibel, and Kat Manalac speak to Georgia Tech students at the Garage Under Tech Square. Thanks to Startup Exchange, the student entrepreneurship hub at Georgia Tech, over 50 students were able to ask the partners their burning questions about startups, Y Combinator, entrepreneur life, and what to do when shit hits the fan. So, what did they talk about exactly?
Here’s the recap.
The event kicked off with the YC partners introducing themselves. Kevin Hale is the cofounder of Wufoo, which was funded by Y Combinator in 2006 in their second batch and acquired by SurveyMonkey in 2011. Michael Seibel was the cofounder and CEO of Justin.tv, which later became Twitch.tv, and Socialcam. Kat Manalac was the Chief of Staff to Reddit cofounder Alexis Ohanian before joining YC as its Director of Outreach.
The YC partners first gave a brief introduction into Y Combinator. A startup fund created in 2005 by Paul Graham who envisioned a program where people could get money and a little advice from veteran entrepreneurs for their startups, Y Combinator has been described as “the world’s most powerful start-up incubator”. Kevin Hale also runs a program called the Y Combinator Fellowship, a new experimental YC program with a smaller investment.
After the introduction, the event began in earnest.
YC Partners Share Their Startup Stories
Before the Q&A, Michael and Kevin told their humble startup stories, back when their hugely successful companies were nothing more than shit-shows powered by sweat equity and air. Michael spoke about scrappiness and the ability to make something out of nothing, and Kevin discussed the importance of listening to your users, no matter how few or many there are.
Michael talked about Justin.tv, which was a company that “live-streamed reality TV” back when live streaming had just been born. And Michael agreed: the idea was as horrible as it sounded. Then he told the story of one of the company’s first deals. During the early days of the company, Michael and his co-founders needed to bring aboard a Content Delivery Network, or CDN, in order to have content to live stream. So they managed to secure a month-long contract with a CDN that would cost them $40K…when they only had $10K. Michael expressed the thoughts running through his head at the time:
“Well, guess we’re out of business.”
But instead of accepting failure (and consequently bankruptcy), Michael and his cofounders decided to call the company and tell them that they wanted to extend the contract to a year. The CDN would get full exclusivity and would lock in Justin.tv for a full year…but Justin.tv would not have to pay for the first three months, which afterwards they would have to pay $2K per month following the initial period. Then, after a couple of months, the CDN was actually bought by another company, and a period of internal turmoil ensued. Michael later called the old office to try to cancel their contract, only to discover that the contract details had conveniently disappeared.
So Justin.Tv, later Twitch.tv, didn’t have to pay a dime for their first product.
Kevin talked about Wufoo, an online web form creator back when nothing else of the sort existed. Kevin described himself as “an arrogant, entitled shit who thought his product was God’s gift to humanity.” He described the story of the first few days of the company, when they were trying to build their user base in Florida. Kevin was in charge of designing the user interface and experience of Wufoo, but whenever anyone had a problem or question, the inquiry would go straight to customer support (his cofounder), who would then be berated for hours and blamed for the entire problem. After a couple of weeks, the entire team decided to split the customer support work evenly. So it was then that Kevin first began to hear the complaints about the product he had designed: “where is the button to submit”, “why does it keep crashing”, and “how do I get access to the other pages”.
Kevin’s initial response: “What kind of fucking users do we have?”
At first, he thought nothing of them. After all, he was the designer. Everything he made was beautiful. But then, after weeks of being customer support, Kevin began to actually listen to their comments. He noticed a few areas where the product could improve and began to change the code little by little, slowly releasing new iterations of Wufoo. After a while, the complaints began to die down…and Wufoo began to take off.
Advice From Y Combinator
After Kevin and Michael told their stories, the topic shifted to Y Combinator. First thing they talked about: Why is it so successful?
Y Combinator focuses on the founder team. The idea and business plan is extremely important, but the team is what makes or breaks a startup. In addition, the resources and community YC companies has access to is incredibly valuable. While it is true that you can build a startup in any city anywhere in the world, YC gives founders a unique experience by creating a community of entrepreneurs, mentors, and investors that the founders can draw upon for advice and more. It can be lonely running a startup sometimes, with just you and your cofounders, so YC puts your team and other teams in the same program and same place so that you can have the feeling that you’re all in this together and you’re all fighting the same fight.
The audience members had a lot of questions, and the YC Partners fielded them all, but they also made sure to address some other concerns about Y Combinator and some of the myths surrounding the application process and the program.
Here‘s their advice.
Highlights
“You don’t even have to have a working prototype to apply to Y Combinator. You could even have just an idea, so as long as you have a solid business plan and a solid team with you.”
“People think that YC companies are all SaaS businesses, or they’re all consumer-facing. Look, the last batch we had at YC had 30 hardware startups. We get everything from SaaS to biotech to financial services to hardware to publishing platforms and so much more. It doesn’t matter what your idea is; just apply.”
“Your application to Y Combinator has to be clear, concise, and memorable. You know your company is a good one if you bring it up at the dinner table with some friends and suddenly it’s the main topic for the entire dinner. That means they got it quickly and they remembered. Word-of-mouth marketing is the best type of marketing, after all. So when you apply to Y Combinator, cut the fat out and give us something we’ll remember.”
“The cofounder team is everything. At Y Combinator, we don’t believe in the ‘I found my cofounder at a networking event and a week later we’re working together on a startup’. Whether you know your cofounder professionally or socially, you have to have some history of a relationship with them, because when shit hits the fan, you’ll abandon someone you’ve only known for three months faster than you’ll abandon someone you’ve known for three years.”
“In a team of cofounders, everyone has to have equal equity. Let’s face it: you’re in it for the long haul. Just because you started six months earlier, doesn’t mean that you get 90% equity and your other cofounder gets 10%.”
“When you apply, both of your applications are actually submitted to the Y Combinator core program and the YC Fellowship. After that, it’s on our plate to see if you can join us and which program will be better for you.”
“At the YC Fellowship, we only take 1.5% equity because we don’t want it to be some cheap, half-assed version of the Y Combinator core program. We’re giving you money, access to the community, and our resources so that we can help you to the best of our ability. There’s a provision in the contract that states we can only cash out when there is an IPO or an exit event where the valuation exceeds $100 million. In other words, we only make money if you make it big. That’s incentive for us to work hard with you.”
“Some people think that because they applied in the past, they probably won’t get it in the future. That’s definitely not the case. Actually, you might actually have better chances the second time, because that gives us the opportunity to compare your application with your previous one and see how much you’ve grown.”
“Anyone can apply to Y Combinator, even if you’re a single, non-technical founder with no history of starting any company. We get people all the time who say they are not qualified enough to apply, but, in reality, they are often more qualified than the thousands who do apply.”
After questions about Y Combinator, it was time for general Q&A.
YC Partners Impart Words of Wisdom
The questions couldn’t come fast enough. Students, some with their own startups and some with only a vague idea, rushed to garner advice from the YC parters: “What do I do when there is conflict between me and my cofounders?”, “Do I need to go to Silicon Valley?”, “When is it a good time to keep things secret and who should I watch out for?”, “When should I pivot?”
Kat, Kevin, and Michael answered every question fully. They even added their own nuggets of wisdom to the conversation.
Highlights
“Having a cofounder is like being married, except you see them much more often. Before you have a conflict, you have to define borders and implicitly trust your cofounder that he/she has everyone’s best interest in mind. Cofounder breakup is the number one startup killer.”
“Stop trying to hide your ideas. No one is going to steal your idea. The steady state of a startup is failure. Even if someone takes your idea, they’re probably going to fail.”
“Stop focusing on what your competitors do. Also, it doesn’t matter if you decide to have a conversation with your competitor. Who cares if you’re associating with someone who’s working against you? You’re a failure talking to a failure.”
“When you talk to investors, they can figure out right away whether you have an actual product with an actual user base or if you’re just full of shit. Real investors don’t invest in a slide deck.”
“There is no other place on Earth where there are investors with an appetite for risk like there are in Silicon Valley.”
“People talk about pivoting nowadays as if it’s just a normal thing you do in the daily life of your startup. When you pivot, you are essentially saying that your initial business idea has failed and you now need to look in a different direction. Pivoting is a last resort, something you only do when you have exhausted every single possible option and uncovered every rock in the field.”
“Very rarely is there a single conflict or emergency that can break a startup. In reality, you can sleep on most of your problems. Except when your servers are down, or when the billing/payment system is broken. Then, yeah, work day and night until that shit is fixed.”
“When you are young, you don’t often think that there’s a gray area in things. You’re used to things being black and white, and that holds people back a lot because they don’t really know how to deal with failure other than saying ‘well, that’s it, it’s over.’ But in the real world, very rarely do you really get to that point, so you always have to think about the next step up and out.”
After an hour of Q&A, the event was over. Startup Exchange’s Chintan Parikh and Sandbox ATL Founder Scott Henderson came onto the stage to thank the Y Combinator partners for their time. Then the event officially ended, and everyone began to get out of their seats…only to form a long line in front of each of the YC partners, everyone eager to have some personal Q&A with Kat, Kevin, and Michael (I was also one of them).
It was one of the most insightful events that I have ever been to. Today, I learned about everything from founder conflict to the similarity of founder relationships to marriage to the fact that every startup needs to focus on their users first. Here was my takeaway for the whole thing:
Starting a startup isn’t the hard part. It’s the marathon afterwards.
Now go start something.
-Indra
