Tech Billionaire Boot Camp

theodp writes "Forget the Summer of Code. If you've got a hot idea for a start-up, Newsweek says Y-Combinator, the boot camp where Silicon Valley meets 'American Idol', is the place you should be. 'Some critics scoff that Y Combinator's investment is peanuts for that amount of equity. But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track to the top angel investors and venture-capital funds. When Graham calls the winners, the founders have only five minutes to accept. "If people turn us down," he says, "as far as we're concerned they've failed an IQ test."'" We've previously discussed the program on the site, just over a year ago.

Comments

Graham?

[Anonymous Coward]

Forget the Summer of Code. If you've got a hot idea for a start-up, Newsweek says Y-Combinator, the boot camp where Silicon Valley meets 'American Idol', is the place you should be. 'Some critics scoff that Y Combinator's investment is peanuts for that amount of equity. But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track...

Graham? Who the fuck is Graham? If you're going to cut-and-paste a summary, you should proofread it first to make sure it doesn't reference names, acronyms, etc. from the bits that you left out.

Re:Graham?

[tansey]

The "Graham" is Paul Graham. From his website bio:

Paul Graham is an essayist, programmer, and programming language designer. In 1995 he developed with Robert Morris the first web-based application, Viaweb, which was acquired by Yahoo in 1998...

He has a really interesting essay-blog at his website which is worth checking out.

Re:Graham?

[Anonymous Coward]

He's a guy who got lucky that wannabes look up to just because he writes rants in his blog. There are plenty of people who did more interesting work and got more money who aren't blowhards like Graham.

Re:Graham?

[Anonymous Coward]

Isn't a bit premature for PG to start calling himself a language designer? As far as I know the only language he's "designed" has been Arc, a LISP dialect in the works for so many years that even PG himself must be starting to realize that he doesn't actually have magical programming powers that allow him to instantly solve all the language design issues others have encountered with so many languages before him.

Barely an investment

[Anarchysoft]

How much do you usually invest?
Usually $5000 + $5000 per founder. So $15,000 for two founders, $20,000 for three. Occasionally we invest more. The goal is usually to give you enough money to build an impressive prototype or version 1, which you can then use to get further funding. This is peanuts. If this is all the money you're going to get, it's probably a better use of your efforts to keep your day job and do your startup on your own spare time.

Re:Barely an investment

[Zeinfeld]

This is peanuts. If this is all the money you're going to get, it's probably a better use of your efforts to keep your day job and do your startup on your own spare time.

Hence the hard sell. This is not a particularly high powered bunch by Valley standards.

Graham probably hurt the spam world as much as he helped. He thought Bayesian filtering was a silver bullet, it isn't.

$20K for 6%? Thats idiotic. A VC looking at that type of deal is not going to be impressed. $20K should buy no more than a thenth that amount, and thats expensive.

Re:Barely an investment

[jackb_guppy]

OH the money is for:
        This money covers lodging, food and equipment during the program.
For 3 months in SV. Where are these guys going to live?

Re:Barely an investment

[ShakaUVM]

He also didn't invent Bayesian filtering. I open sourced a similar statistical spam filter a year or two before he wrote the plan for spam. And I didn't invent it either.

Re:Barely an investment

[Anarchysoft]

OH the money is for: This money covers lodging, food and equipment during the program. For 3 months in SV. Where are these guys going to live?

What do you mean? There's plenty of housing. :|

Re:Barely an investment

[Breakfast Pants]

What was the name of it? Link?

Re:Barely an investment

[Anonymous Coward]

http://www-cse.ucsd.edu/~wkerney/spamfilter.README
http://www-cse.ucsd.edu/~wkerney/spamfilter.tar.gz

Re:Barely an investment

[martin-boundary]

Silver bullet for what? Bayesian filtering simply works. The thing is, lots of people want a single filter to work for more than one person, and then of course you'll get issues: What's interesting/spam for one person is not the same as what's interesting/spam for another person, so why should a single filter know?

But for those who use Bayesian filtering as intended (one filter per person, teaching about errors when needed) there's no spam problem to speak of, and there hasn't been for years.

Re:Barely an investment

[Breakfast Pants]

Paul Graham is the same guy who said he could calculate whether the patent system was a net win if given a couple weeks. This is something I've read more than one Ph.D. thesis on, but sure, a couple weeks sounds completely reasonable, Paul.

Re:Barely an investment

[Anarchysoft]

Paul Graham is the same guy who said he could calculate whether the patent system was a net win if given a couple weeks. This is something I've read more than one Ph.D. thesis on, but sure, a couple weeks sounds completely reasonable, Paul. A couple of weeks? Hmm.. if only he had 5000 dollars to pay his expenses while he worked out version 1.0.

Re:Barely an investment

[Zeinfeld]

Silver bullet for what? Bayesian filtering simply works. The thing is, lots of people want a single filter to work for more than one person, and then of course you'll get issues: What's interesting/spam for one person is not the same as what's interesting/spam for another person, so why should a single filter know?

Bayesian filtering does not come close to the effectiveness of most of the commercial schemes I have used. Since I get over 3,500 spams a day (and 500 legitimate mails) I could not possibly tollerate even a 1% false positive rate. Currently I have less than 30 false negatives and essentially zero false positives. I do not check my junk mail folder, simply can't afford to.

Content analysis as pushed by Graham is much less effective than looking at other message features such as the headers, timing, etc. Bayesian learning is much less effective than other strategies.

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

Re:Barely an investment

[xenocide2]

...and essentially zero false positives. I do not check my junk mail folder, simply can't afford to.

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

I'm pretty sure the first thing to do when measuring false positives is to count them. Maybe that paper has some insight on how to do that without looking at them, but I'm still waiting for the .iso they distribute the proceedings by to finish downloading. But you're welcome to continue the faith that your software is clearly working correctly simply because you paid for it.

And, you do realize that Graham's paper specifically cited headers as a reason Bayesian techniques in the past had failed, right? I'm not sure how timing etc plays into it; I get valid emails at all times of the day -- some students are up as late as I am, some are early risers, and sometimes I get mail from my boss during the day. Really, it all depends on the person. If your use doesn't engage the public much, you could probably get away with white lists. If you're part of a large company, you'll have access to a lot of email for known good and labelled junk mail. By the amount of mail I get with no obvious purpose, I surmise that some statistical analysis tools are working.

Re:Barely an investment

[martin-boundary]

Content analysis as pushed by Graham is much less effective than looking at other message features such as the headers, timing, etc. Bayesian learning is much less effective than other strategies.

You don't know what you're talking about. If you knew anything about Bayesian filters, you'd know that all information in a message is/can be used: that includes headers, time stamps, etc. Even the spacing between words might be used depending on the filter.

Bayesian filtering does not come close to the effectiveness of most of the commercial schemes I have used. Since I get over 3,500 spams a day (and 500

Yadda yadda. You claim it doesn't come close, I claim it's way better than anything I've used. I get 5000 mails a day, around half is spam, there's mailing lists and messages etc, and I simply don't worry about false positives because they're so low. There, that's a competing anecdote.

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

Great rhetorical point! You can gain geek cred by namedropping a conference and pretending you understood some rough calculation an undergrad presented, when in that same conference other _phds_ actually showed the opposite with actual test data (gasp!).

I suggest you educate yourself: start by looking at the performance of spam filters that get regularly _and scientifically_ tested by NIST (National Institute of Standards and Technology, there I'm namedropping too) instead of believing in commercial press releases.

Re:Barely an investment

[dubl-u]

$20K for 6%? Thats idiotic. A VC looking at that type of deal is not going to be impressed.

6% for $20K plus a seal of approval and a summer of mentoring and promotion from a guy who clearly knows how to toot horns, if mainly his own.

It's still not a deal I'd take. But it probably makes sense for some.

$20K should buy no more than a thenth that amount, and thats expensive.

Seriously? His valuation for some kids who have an idea and half-built prototype is circa $0.3m, which I agree is low. You're suggesting that it's low to put a $3m valuation on 20kloc, a neat notion, and people with no startup experience? If you think that's a good deal, I'll tell you where to send the checks, as I'm sure I can find you plenty of those.

Re:Barely an investment

[ShakaUVM]

We just called it Spamfilter.

Readme:
http://www-cse.ucsd.edu/~wkerney/spamfilter.README

Download:
http://www-cse.ucsd.edu/~wkerney/spamfilter.tar.gz

Re:Barely an investment

[cliffski]

or remortgage your house. I'd never invest my money in a company where the founder wasn't prepared to risk his house to promote the company. If he doesn't believe in it that much, and it's *his company* why would anyone else go near it?

Re:Barely an investment

[Anonymous Coward]

Indeed. If your idea is good enough you'll be able to find decent investment yourself without all this mucking about at two week "boot camps" for a paltry $20k for 6%

When I started to write my business plan I spent some time looking at the venture capital world, particularly IT sector VCs, and Grahams name would come up often. Now that I've had more time and have actually started to engage VCs and potential investors it is very clear that Y-Combinator and Graham are just fluff. It mostly seems to be a mechanism for Graham to stroke his own ego, but the money being invested is nothing. Barely seed capital.

Some investors think that seed capital and living like a pauper for the first year of business is a requirement of any "real" business, which is bollocks. I've continued to work in my full time job while building my management team, writing the plan and seeking investors; I'll quit when we're within sight of some real investment. What I wouldn't do is leave my wife and go on a jolly for two weeks in the hope of quiting my job for a whole $10k and the expectation that I work my ass off for the next six to twelve months doing what I could be doing if I'd just stayed in my full-time job (Hint: once you're at the stage where you have to deal with other people, there is a lot of waiting around. A lot of tasks can't be parallelised.) The only time that sort of strategy makes sense is if you need to build sales or perform R&D, typically tasks which don't fully apply at that stage for software companies!

Here is my advice to anyone who is thinking of starting their own software company: don't get sucked in by people like Graham. Don't believe people who tell you can't work on your plan and build your business in your spare time: you can. Quitting a full-time job because you might secure investment at some unknown point in the future is crazy (As Graham would say, you fail the IQ test). You won't build a successful business from a cardboard box under the flyover. Don't fall into the trap of thinking you need a huge personal network of contacts. Contacts are important, but you should concentrate on working with one or two people who are already well connected. In other words, find yourself an established business person who will act as your mentor, and use their contacts list.

Oh and finally, you'll need balls. This is by far the hardest part for me, and I suspect many geeks (We are after all typically social maladjusts!). But you'll need to start by approaching people "cold" and getting them interested (Not always hard; tell them how much money they can make). You'll need to start talking to people in suits about things you may not fully understand (Hands up if you know everything about financing, or employment law, or marketing. You'll need to start learning.) and you'll need to sit down and talk as a peer, or sometimes as a salesman. You'll need to get over your fears and be prepared to admit you don't know something, sometimes.

Re:Barely an investment

[moranar]

"currently I have less than 30 false negatives and essentially zero false positives. I do not check my junk mail folder, simply can't afford to."

So you actually don't know what the % of false positives is, you just popped a number. I assume you say it is "essentially zero" because nobody tells you of mail you missed.

Re:Barely an investment

[JimbleBimble]

I do not check my junk mail folder, simply can't afford to.

Yeah, I guess with all this Slashdotting, you're time must really be at a premium.

Re:Barely an investment

[siriuskase]

Any engineer that can't write himself or herself a $5000 free for a year loan off their credit card doesn't have the financial IQ to start a company. Anyone who gives away equity for that paultry sum flunks that test. If the prototype is a success, you can always mortgage the house. If you can't do it in your spare time, take a leave or a long vacation.

Re:Barely an investment

[Zeinfeld]

You don't know what you're talking about. If you knew anything about Bayesian filters, you'd know that all information in a message is/can be used: that includes headers, time stamps, etc. Even the spacing between words might be used depending on the filter.

The claim made by Graham was that personal filtering based on Bayesian learning was the silver bullet. It isn't.

The performance of filters of the type described by Graham is considerably worse, orders of magnitude in fact, than filters that do not rely on personalized learning. In particular Bayesian strategies are less effective than other learning strategies.

The point about timing is that bulk spam tools have distinctive packet arrival time signatures.

Paul Graham is like the viliage idot who stops a car to tell the passengers about how he has just invented the wheel and the horse buggy will change everything. He was not the first to propose filtering, Bayesian filtering and other learning strategies have proved more effective.

We don't live in a Bayesian world. Spam in particular is aggressively non-Bayesian.

Re:Barely an investment

[Zeinfeld]

So you actually don't know what the % of false positives is, you just popped a number. I assume you say it is "essentially zero" because nobody tells you of mail you missed.

I examine a sample of mail every so often. But 99% is deleted unchecked.

Re:Barely an investment

[EPAstor]

That's strange - I've been running a pure Bayesian filtering system (POPFile) for years now, and I haven't had to touch the training in ages... I'd say maybe one or two false negatives a month on a comcast.net account, and zero false positives. Personally, I highly recommend POPFile, and hence probably other Bayesian filtering systems for e-mail processing... It's about 90% effective after a few days of training, and after additional training, we reach multiple-9's success rate VERY quickly.

Re:Barely an investment

[Anonymous Coward]

Best paper at Graham's first spam conference was by an MIT undergrad from course 6 who completely debunked the whole notion with some rudimentary statistical analysis.

Is that paper available online? Got a link?

Re:Barely an investment

[huckamania]

Looks interesting, but doesn't sound Bayesian if you hard coded the filter to look for the number of capital letters in a row or the word money. Bayesian filtering doesn't work because spam producers don't follow predictive patterns i.e m0ney, m.o.n.e.y, $$$, etc. It's going to take a lot of software to be better than a semi-trained human eye at recognizing spam.

Re:Barely an investment

[Anonymous Coward]

Since I get over 3,500 spams a day (and 500 legitimate mails) I could not possibly tollerate even a 1% false positive rate.

You can't tolerate 35 spam emails per day? You don't have to read them, you know-- most of the time you can tell from just the title that it's spam, and if not then a glance at the content will tell you for sure. So we're talking about a few seconds per spam, max. Times 35 gives maybe a couple of minutes per day spent dealing with spam, and that's if you're really slow. You claim you can't spare this much time, yet you're on slashdot? Get over yourself.

Re:Barely an investment

[SwellJoe]

Most live in San Francisco sharing ~$2700 2 bedroom apartments. I rented a house in Mountain View for $2000/month, because I have a girlfriend and a big dog and they like to have a little room (and my co-founder already leases a town home in Santa Clara and has a family). My cut of our $15k would cover three months of that along with my food and other expenses (just barely). It's entirely possible for folks who live frugally to live in the valley for three months for $7500. I lived a bit rich, by choosing a house instead of an apartment.

Since you aren't going out drinking at night (you've got work to do), you're eating in mostly (you've got work to do), you aren't dating (you've got work to do), and you don't even need a car (you're centrally located, so you can share a Zip car with other founders or ride the train or walk to the weekly dinners), you don't have a lot of expenses. Mostly these are Web 2.0 companies, where the biggest expense is ~$100/month for a server.

Re:Barely an investment

[SwellJoe]

Actually, many investors in the valley wouldn't think very highly of your business acumen if you risked your house. Part of what investors look for is someone that is capable of recognizing low risk opportunities at low cost (the bigger the opportunity, the more risk and cost they're will to accept). Mortgaging ones house is a high cost and high risk action, with no solid upside. I'm not saying its the wrong way to fund a company, if you really have strong indications that it will pay off big, but I am saying that it is not something investors are going to look favorably on--in fact, I wouldn't mention it if you decide to talk to investors. Self-funding is fine, if you've got some money you can risk--I funded my first company with ~40 grand I made in the stock market, which isn't a problem. Then I occasionally funded it with credit card debt, when things got tight. In hindsight, I see that was a mistake...I should have been seeking outside funding before it got so tight. Things would have turned out better with that business had I done so (it fizzled out with moderate grace...having paid me a salary for seven years and bought me a nice car, I closed up shop at the end of 2005, and no one really noticed).

Re:Barely an investment

[CopaceticOpus]

Even better, he says he gets "under 30" spam messages a day. So he can tolerate 25 spam messages just fine, but 35 would be soul-crushing.

Re:Barely an investment

[Zeinfeld]

-Since I get over 3,500 spams a day (and 500 legitimate mails) I could not possibly tollerate even a 1% false positive rate.

You can't tolerate 35 spam emails per day?

A false positive is a message that is wrongly marked as spam. I cannot afford to lose 5 legitimate messages a day, I can't afford to lose one. I can't spend the time to read the junk mail folder.

So I have my spam filter tuned so I get 0% false positives which results in somewhat less than 1% false negatives (about 30) which I can live with.

Re:Barely an investment

[cliffski]

the very last thing I would ever do is sell off part of my company to someone else to get a few pennies to grow it. There are plenty of sources (house included) that will lend you money without strings attached. If I wanted to make other people rich, I'd work for them, the whole point of having my own company is for me to be in charge, and me to benefit.

Re:Barely an investment

[BitGeek]

Sigh... this is what passes for intelligence in "the valley":
"many investors in the valley wouldn't think very highly of your business acumen risked your house."

When you buy a house you have a mortgage on it. Right off the bat you have "risked your house" and you haven't evne started a job.

When you borrow against the equity in your house, you're borrowing money at a reasonable interest rate, probably %8 or less.

On the other hand, when you borrow money from a venture capitalsit, you have to pay it back at a rate of %350 or so-- about %50 for the "interest" on their "loan" (which they will tell you is an investment, of course) whereby after 12 months they start charging interest on the investment that has to be paid back in case of a liquidity event... and %300 "interest" in the form of all the preferences they get-- usually 2-3 times liquidation preferences, along with options, warrants and other little sweetheart deals they write into their term sheets...

And worse, when you borrow against your house, you are not giving up equity in your business. VCs expect you to not only give them equity-- the "investment equity"... but they also demand that you start vesting your equity-- they want it all. So when you take their money, you start off with zero ownership in your business and have to earn it back via vesting.

God forbid they might try to replace you now that they control the board, and then you get nothing, or a pittance.

Bottom line, you just quoted some common "intelligence" that shows just exactly how asinine and stupid the thinking in the valley is.

And you are a YC backed founder-- this goes directly to the generalization that YC is putting its businesses on a bad path.

You think paying %350 or more for your money is better than paying %8? Really?

This is not valuable advice!

Re:Barely an investment

[ShakaUVM]

No, the things like numbers of caps, etc., were all factors (whereas Graham's model only uses words). All of the factors were put into a large statistical space, from which it carved up the space into spam and not-spam regions. The only thing I'd have done differently was to allow arbitrary tokens, which I didn't need for the project since the spam database I was using already had the interesting tokens extracted. Someone else took my code and extended it for arbitrary tokens.

The reason it worked better than the Plan for Spam's model was because he actually threw out useful information. While he was right, that trying to hard code for that stuff is impossible to get right, it's actually wrong to throw out information that can be processed by your statistical method.

If one of your input factors is simply the percentage of words which don't match a dictionary, that can be tremendously powerful at filtering spam. You run into issue with HTML if you don't understand it, but I mainly consider HTML emails to be spam-ish anyway, but I could have rewritten the lexer to deal with that cleanly.

Re:Barely an investment

[BitGeek]

Anybody who build their business on nights and weekends while working a fulltime job is someone who has shown a great deal of commitment. I've done this, its damn hard... its hard not to let the startup wither away because you're too busy with your day job, and its hard not to loose interest after even 3 months of spending all your time on your job or your other job with little time for anything else.

Show me someone who built thier company that way, and I'll be interested in putting money in.

YC seems to attract and be geared for, kids in college who want a summer job with the prospect of glamorous VC money afterwards. It doesn't matter to them that they might get a raw deal-- cause they don't have much invested in it in the first place. And ther's nothing wrong with that.

The problem is that these kids are so adamant and smug that this is The One True Way To Do A Tech Startup-- that making these foolish short term choices in pursuit of a billion dollar dream is obviously right... and building a net worth of $10M by building a $3M/a year real buisiness is a "lifestyle" business-- a failure in their eyes. They are naieve and strident and there is no getting thru to them because Paul Graham has them mezmerized by the tune he's playing.

YC is a great summer camp for entreprenurial college students. But all the bashing of other ways of going about it that they do are so misguided... and the focus on only high risk, low probability business models seems misguided.

Makes absolutely no sense

[Robert1]

'Some critics scoff that Y Combinator's investment is peanuts for that amount of equity. But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track to the top angel investors and venture-capital funds. When Graham calls the winners, the founders have only five minutes to accept. "If people turn us down," he says, "as far as we're concerned they've failed an IQ test.'

What the hell does that even mean? What utterly horrible editing.

Re:Makes absolutely no sense

[Anonymous Coward]

That's not the ending... there are 3 more pages, bud.

Living in the past

[geek]

I was immersed heavily in SV startup hell back in 1995-2001. I will happily admit that I would now fail hs IQ test. I wouldn't touch that dead horse with a ten foot pole. These guys are living in the past. SV is no longer the hub it once was, nor should it be. The boom that happened there KILLED their cost of living. Firefighters and teachers were living in homeless shelters because the cost of living got so high. People are tired of that shit. Seriously, just move on. Branch out. There is no reason for every tech related startup to be cenetered in one tiny little community.

Re:Living in the past

[The Vulture]

I work at a Silicon Valley startup that has been in existence for four years now.

It's funny in that the engineering team that I work with (who cannot afford a house) agree with your sentiment, but of course, the management team (who do have houses) refuse to even consider relocating the company (or a part of it). My informal poll has showed that everybody in the engineering team would gladly pick up and move if given the chance. This company has no need to be in the Valley, the customers that we are going after are either outside of the United States, or have offices nationwide, which are generally not in the Valley. The company founder could easily save money by relocating us.

I would gladly take a small pay cut to live and work in a nicer area with a lower cost of living, and be able to lead a better life. After this job, I'm out of the Valley, and not looking to return. There's too much BS in the Valley, and California as a whole.

-- Joe

Re:Living in the past

[achacha]

Then this is what you should do. There are plenty of tech friendly cities with affordable housing and relatively low cost of living. Portland, OR; Austin, TX; Vancouver, BC; Raleigh-Durham, NC; Heck even Boston, Seattle and New York City are a steal compared to SV (if you live in one of the suburbs nearby). I lived in SV for 5 years and could not reasonably afford a house and family with developer salary (pure interest loans never sounded good to me); so I moved to Austin and managed to buy a house without much trouble and enjoy it a lot and glad I moved away from the valley (not to mention all the fun life outside of work which the valley sorely lacks unless you want to drive to SF every night).

Re:Living in the past

[spads]

"I would gladly take a small pay cut to live and work in a nicer area with a lower cost of living, and be able to lead a better life. After this job, I'm out of the Valley, and not looking to return. There's too much BS in the Valley, and California as a whole." I fled that area five years ago, with no work prospects, to an area where my open source orientation web orientation was decidedly in the minority. Even though I had to work outside of my field at subsistence level for several years, it was the best thing I ever did. Though I miss the CA countryside dearly, the CAns could suck the chrome off a trailer hitch, as far as I'm concerned. That jackass talking about failing an IQ test, that's nothing but egomaniacal money-grubbing chutzpah. Anyone who falls for that line deserves to have their IT brainchild raped up the ass.

Re:Living in the past

[paitre]

You also forget the Baltimore-Washington area which is just filled with contractors and IT services positions, primarily with the government as their customers.

CoL is kinda shitty, but it's comparable to the Boston and NYC suburbs.

Re:Living in the past

[markov_chain]

Do you know anyone with Raleigh-Durham experience? What's the area like, how annoying is the 4-hour drive to the ocean, what kind of fields are represented..

Re:Living in the past

[Achromatic1978]

Agreed. My wife and I are in Tacoma, I work in Redmond (yes yes, evil empire, etc). I commute, not too horribly, thanks to carpooling and HOV loans. I can leave home at 8, be at work by 9. I also just put down a deposit on a two story four-bedroom home for $1400/month.

Re:Living in the past

[Comatose51]

I guess the grass is always greener. I just moved to SV from Dallas and I love it here. The cost of living is a little higher but not that much worse than what it had cost me to live in Uptown Dallas. I like being able to do things outdoors here and being able to commute to work on my bike. I don't work at a startup but at a well established company so maybe that plays a part in our different experiences. Austin isn't that much cheaper than SV but you do have the no income tax advantage in TX. For me SV is perfect precisely because everything is so concentrated here. Maybe it's a difference of personality or maybe I haven't been here long enough.

Re:Living in the past

[achacha]

Few friends moved from Bay area to R-D and Charlotte, all 3 got salaries about 5%-10% lower than the valley and with cost of living about 40% lower and reasonable real estate prices, they are all happy so far. The toughest part is job hunting (implied move) and physically deciding to pickup your family and moving (much easier if you are single of course). The one in Charlotte actually told the company he will move himself knowing that they would almost match his salary and that housing costs are about half, so it required a small investment into the actual move but I think it was worth it for him.

Re:Living in the past

[Stu Charlton]

What, Joe, you don't like gov'nor Arnold? :D

I think I'd move back to the Valley if I had a good enough opportunity, but I must admit that if I started a company (which is a serious possibility), I likely would stay in Toronto. There's a good community of VC's, engineering talent, etc. The cost of living isn't great (houses average C$ 350k), but it's better than Cali. And I'd probably find ways to use people in lower-cost areas where there's local talent, like Sudbury, North Bay, Ottawa, etc., though it depends on the business model as to whether that would work.

Re:Living in the past

[Rac3r5]

I think you are a bit misinformed. Vancouver, BC has no affordable housing, houses get more affordable as you move to the suburbs, but Van is still expensive. The suburbs are slowly getting more and more expensive.

Re:Living in the past

[KillerCow]

Then this is what you should do. There are plenty of tech friendly cities with affordable housing and relatively low cost of living. Portland, OR; Austin, TX; Vancouver, BC;

Sorry, Vancouver hasn't been affordable for at least the last 2 years when the housing market heated up ahead of the Olympics in 2010.

A 700 sq foot condo downtown goes for at least 500,000. A house anywhere near downtown is at least a million. Even condos in the suburbs are going for 300,000 now.

Vancouver is the second most expensive city in Canada. I suspect that it will surpass Toronto within the next two years.

Re:Living in the past

[Anonymous Coward]

but of course, the management team (who do have houses) refuse to even consider relocating the company

Guess what dude, the managers are more of a replaceable cog than you are. You at least have some of the IP in your head. PHBs are a dime a dozen.

Re:Living in the past

[BitGeek]

WTF? You must have some really nice taste. The cost of living in the Bay Area, compared to Texas, is really dramatic. Its a hell of a lot more expensive.

And I understand if you just moved to the bay area you may like it-- I say, give it a year and you'll be ready to leave.

I lived there 3 months and I quickly learned why it sucked... now I can barely make it 3 days on a business trip before I'm pissed off and ready to fly the hell out of there.

ITs a hellhole... .and california is a state that is seriously in the decline. The golden years were teh 1970s... the whole state is goign to hell. Yeah, there's a lot of VC money in the valley... but the hangover is going to be one hell of a bitch.

Re:Living in the past

[BitGeek]

Yeah, TO has an active startup scene-- I can see that and I've never even visited.

YC would say you're foolish.

But the reality is Paul Graham has only ever lived in Massachussetts and California-- the two places that YC advocates people relocate.

I don't think that in california they have discovered that there are investors outside of the bay area.

The Paul Graham Business Plan

[Anonymous Coward]

Some business are like donkeys chasing a carrot on a stick. They just keep on walking, never getting any closer to the carrot, but expending a lot of energy. They need some company to come along and give them the carrot.

This is called "The Paul Graham Business Plan".

Too Late for Spring...Wait for Winter

[Listen Up]

"If you want to apply, please submit your application online by midnight PST on Monday, April 2, 2007. Groups that submit early have a slight advantage because we have more time to read their applications."

Good timing for this article...

Re:Too Late for Spring...Wait for Winter

[hansamurai]

Unless your hot idea is time traveling.

Re:Too Late for Spring...Wait for Winter

[shri]

In which case, you're probably not too concerned about failing an IQ test.

Wonder why they could not get a serious group of VCs to back their oh so original idea.

Seriously though, not impressed with the list of partners. One would have to be spectacularly desperate to go into this sort of scheme.

Re:Too Late for Spring...Wait for Winter

[illuminatedwax]

That was my bright idea. Fortunately I used my invention to tell me joining Y Combinator was not a good idea (hint: cyborgs)

Re:Too Late for Spring...Wait for Winter

[zolaar]

It just so happens that it is time travel, poncho! Wanna know the best part? Since I'm obviously going to succeed -- I mean, come on -- I don't have to start principal research or development for like years!!!!

Suckers!

What a load

[GeorgiaCodeMonkey]

So for $5000, they get 5% of a startup that could be worth millions. Yeah--the math on that sounds fan-freaking-tastic. This sounds like IT's answer to Tony Robins, part self-help program and part scam.

Re:What a load

[TodMinuit]

Agreed. Paul Graham isn't a computer nerd or a business man. He's a late night startup infomercial. "I got rich on startups and you can too! Just follow my 10 easy steps!"

Re:What a load

[Dunbal]

So for $5000, they get 5% of a startup that could be worth millions.

      Yes it _could_ be worth millions. Probability is against that, however. Otherwise getting rich would be easy.

Re:What a load

[GeorgiaCodeMonkey]

Yeah, but Graham is playing the numbers. Assume he has ten "winners" who get the $5,000 investment--let's make it a grand total of $100,000 rather than $50,000 in case a few of them have two or more owners. If only one of them winds up with a net worth of $10 million (which is not all that much for a company), his investment across ten companies is now worth $500,000. And that's only if every other one completely bombs. And this isn't a blind investment--the entire "program" consists of him hearing what their business plan is and helping them tweak it to make it better. By the time they become a "winner," Graham already knows if they have something potentially profitable or a complete bomb and a great deal about the wannabe CEOs. In the end, this just winds up being a sweetheart deal for Graham.

Peanuts

[Opportunist]

20k bucks? That's it?

Seriously, if you don't have 20k bucks yourself or could finance it somehow, drop the idea or try to pass a hat around. Handing out equity for 20k just shows that you definitly failed the IQ test and that you have no idea about business.

Hmm, a bit like "We don't do NDAs"...

[DamonHD]

A lot of VCs said rude/stupid/wrong/bulling/snide/nasty/thoughtless things during the dot-com boom because they could get away with it, such as one of my all-time-favourite turn-offs as a serial recipient of VC money: "We don't do NDAs", ie "Your ideas are not important so me might be careless with them"...

What was more interesting was that these jerks weren't around during after dot-bomb, but money still was, and I got some of it.

These people might be fine, but anyone whose view of me is based on "He said no to me so he MUST be dumb" is likely to be someone I don't want to work with. I hate conflict and CEO-style sociopathic posturing. So in fact it all works out.

Rgds

Damon

Re:Hmm, a bit like "We don't do NDAs"...

[bladesjester]

I can agree with that.

I'm a very level-headed, even-handed person and I have fired clients who started down the abusive path.

I just don't do toxic relationships. They cause a lot more harm than good.

Re:Hmm, a bit like "We don't do NDAs"...

[dmoore]

Funny you should mention NDAs. This is from the Y Combinator FAQ:

Will you sign an NDA? How do I know you won't steal my idea?

No, we won't sign an NDA. No venture firm would at this stage. The informal commitment to secrecy on our application form is more than any VC would make.

Re:Hmm, a bit like "We don't do NDAs"...

[BitGeek]

The real problem here is that VCs in the bay area are totally indiscrete.

EVERYONE there knows every other companies business and secrets, their major customers, who they are talking to what their idea is, how far along they are (Even if they are in stealth mode.)

The VCs are veritable houses of gossip and just hanging out in the bay area you quickly learn what everyone's doing.

So, if you're Tivo and you come up with a great idea, well, ReplayTV has heard about it and has enough time to implement it in *their* DVR and publicize it before you can even get a patent out.

VCs are the conduits of all this information.

So, while I think NDAs are overused and VCs would be in a tough spot if they signed them anyway... the real problem is that VCs in the valley are totally indiscreet.

They're just lemmings and they have to talk to each other to figure out where the pack is going so that they can all go in that direction.

Failed an IQ test - depends on perspective

[Anonymous Coward]

"If people turn us down," he says, "as far as we're concerned they've failed an IQ test."

In other words, if you say no, or demand to "think about it for 24 hours", you probably might have an IQ that is too high to allow them to take advantage of you, and thus makes you ineligible to be one of their patsies.

The smart people are the ones that after receiving the call, say no, realizing that the idea has been vetted as having potential, and should run with it on their own.

Everything that is wrong with Venture Capital

[Sanity]

"[if founders turn us down] as far as we're concerned they've failed an IQ test."

Yeah, they scored too high and thus know better than to sell their equity for peanuts. I mean, wealthy or not, what an arrogant twat.

total immersion into Silicon Valley start-up culture

I can imagine few worse things for starting a technology business than to be immersed in the incestuous and insular world of Silicon Valley. Most Internet users don't live in Silicon Valley, why would it be an advantage to be isolated from them?

When Graham calls the winners, the founders have only five minutes to accept.

And they are willing to admit such underhanded pressure tactics? Sounds like these guys are everything that is wrong with venture capital.

Re:Everything that is wrong with Venture Capital

[Dunbal]

what an arrogant twat.

      Yet there are always plenty of people with money prepared to hand it over to, or on the say so of, an arrogant twat. "Oooohh isn't he aggressive Mildred? I like THAT, excuse me sir, how many millions did you say you needed?"

Re:Everything that is wrong with Venture Capital

[Anonymous Coward]

When Graham calls the winners, the founders have only five minutes to accept.

And they are willing to admit such underhanded pressure tactics? Sounds like these guys are everything that is wrong with venture capital.

If you're not capable of anticipating that "yes or no" decision, you've failed my IQ test. You have put yourself in a situation where you are hoping for that call with that exact offer presented. Why shouldn't you have your answer ready?

Re:Everything that is wrong with Venture Capital

[Sanity]

Why shouldn't you have your answer ready?

Why impose such a melodramatic time limit?

Re:Everything that is wrong with Venture Capital

[Anonymous Coward]

Why impose such a melodramatic time limit?

To screen people who can't commit to decisions they've already made?

Words of code?

[Anarchysoft]

Graham loves it when his little chicks take on the big birds. "These guys have written 40,000 words of code in three months!" he crows. "You never see that in a big company!" Who counts by 'words' of code? Working for big companies, I've written several thousand lines of code in a day many times. It's not typical, but it's not quite rare either. Of course, after a writing flurry I'd usually spend the rest of the week pulling my hair out because of the bugs I had added. ;)

Re:Words of code?

[Dunbal]

Heck when I get inspired I can easily write 40,000 WORDS of code in a weekend...

Re:Words of code?

[Breakfast Pants]

If you've written several thousand lines of code in a day, it is safe to say you have seriously neglected something.

Re:Words of code?

[Anarchysoft]

If you've written several thousand lines of code in a day, it is safe to say you have seriously neglected something. What do you mean? My copy/paste keys are working perfectly? :)
Seriously, the busiest days are when I simply don't sleep but have worked through the entire night into the next day and then sometimes through the next night as well. Does that still count for SLOC in a day? :)

Re:Words of code?

[setagllib]

The math for that is pretty reasonable. It's pretty easy to type that fast. However, most code time is spent thinking, testing, editing, refactoring, etc. and any code which doesn't have a good application of these habits is not worth writing. You're seriously better off doing things in smaller increments, especially with how human memory works. That's not always possible of course, but preferrable. I'd rather spend two days writing code than one day writing and the next three days fixing. It's especially discouraging to have unworking code for days at a time, and this is known to kill many otherwise promising projects, even open source ones.

Re:Words of code?

[Anarchysoft]

The math for that is pretty reasonable. It's pretty easy to type that fast. However, most code time is spent thinking, testing, editing, refactoring, etc. and any code which doesn't have a good application of these habits is not worth writing. You're seriously better off doing things in smaller increments, especially with how human memory works. That's not always possible of course, but preferrable. I'd rather spend two days writing code than one day writing and the next three days fixing. It's especially discouraging to have unworking code for days at a time, and this is known to kill many otherwise promising projects, even open source ones. As general advice, I think that's solid. There are times when the moon is just right and the focus is 100% that you can code in a sustained, brilliant way for many, many hours and actually produce better code than the usual 8-hour shift (with 2-3 hours of actual coding for most people.) I don't think I've ever experienced that hacker mind while physically at a traditional business office, but I've lucked into it many times at home. It really is a great experience.

Re:Words of code?

[innocent_white_lamb]

Back in the mid-80's I was working on a truly fascinating program (a survey instrument data massaging thing). I started working on it on Friday evening. After working on it for a while, I realized that I felt sick. I wondered why; what's wrong with me... I ultimately realized that it was late Sunday evening and I had worked on this for the whole weekend, never leaving my basement and not eating or sleeping (or anything) for the whole time. I went out to the restaurant down the street and had something to eat and immediately felt much better.

Re:Words of code?

[joss]

I'm more proud of myself when I manage to remove more than a 1000 lines
in a day.

Re:Words of code?

[Anonymous Coward]

I can write one line of code to generate 40000 lines of code in a matter of seconds. Granted it's useless code, but code none the less!! So what do I win :-)

40000.times { |line| eval 'puts "Line: " + (line + 1).to_s' }

$20k , ridiculous.

[adam]

You're completely correct. First of all, the phrase "angel investor" should never be used to accompany a five digit figure --even "venture capital" is kindof out of place. Secondly, if they're investing (up to) $20k into a startup, it is they who are failing the IQ test. [in my experience] Serious venture investors want to see startups that have already bootstrapped a significant amount of funding (at least six if not seven figures), have PhDs onboard, etc. Now, obviously some industries and ideas have a much larger barrier to entry than others. For instance, I'm in the cinema field, where a cutting edge product might cost between $50k (low end) and $1M (high end). So designing, manufacturing (etc) these products has a much larger barrier than say, the guy who has a bright idea for the next digg.com or whatever web-two-point-oh site is hot this week (where $20k might actually pay a brilliant developer to write much of the code needed). But, even using the American Idol analogy-- if you were going to invest in a singer, someone who doesn't have any sofware/hardware development needed, just needs the cash to get into a studio and get recorded, that alone would cost more than $20k.

Twenty grand really is peanuts. Hell, some venture capital groups have proposal fees that can easily run a few thousand dollars (that the startup needs to pay just to present the business plan to them), not to mention cookie-cutter research for business plans alone can easily run $5-10k (I won't even get into custom research).

My advice if you need $20k of investment capital? Put it on your Visa (worked for Under Armor). Selling off a chunk of anything you genuinely believe to be a good idea should only be considered when you have no other available means to bring that idea to fruition.

Re:$20k , ridiculous.

[Z0mb1eman]

Serious venture investors want to see startups that have already bootstrapped a significant amount of funding (at least six if not seven figures), have PhDs onboard, etc. That's exactly the point of YCombinator - to get your startup to the stage where serious investors will even look at you.

The biggest draw is not the money, it's the connections, the advice, the hype and recognition you get for being a YCombinator grad, and the investor meetings they set up for you.

Precisely because the barrier to entry is so low on the web, getting people to take your idea seriously can be very valuable. I believe one of Paul Graham's arguments in favour of YCombinator is - which would you rather do, keep the 2-10% of a company that has few chances of succeeding, or give away 2-10% of a company with higher chances of success?

Most of the YCombinator projects are run by people in their mid-20s - not exactly experienced at running a business, and this is the point in life where connections and advice can be more valuable than standard of living.

Is it worth it for everyone? If you already have capital, connections, and a rock-solid business plan, no way. If you have a great idea and lots of energy, but you're not actually sure how to make it work, then it might be.

And yes, my co-founder for "the next digg.com or whatever web-two-point-oh site is hot this week" (see my signature) flew down to San Francisco about a month ago to pitch our site to Paul Graham & co. for this year's summer YCombinator. And no, we didn't get it (we weren't expecting to :p). It was a valuable experience nonetheless, we're working on something a bit more original now :p

Re:$20k , ridiculous.

[BitGeek]

I guess there are people out there who are inexperienced enough to think that "connections" are actually valuable. The reality is, if you build it, they will come- if its worth funding. Hell, I know billionaires and the ones who are open to funding new ideas are interested in hearing new ideas... you don't need "connections". And anyway, if you're building a web app, you do not need funding... the barrier for entry is so low these days all you need is a job delivering Pizza for your founders to cover the rent.

Trading in "connections" is the kind of ivy league old-school, old-economy BS that we have gotten past. Sure, many VC firms are stuck in it-- but this is a blessing in disguise-- VC firms will give you absolutely bad advice, charge you too much for your equity and then make you earn your ownership back-- the idea of founder vesting is so asinine that its amazing that people fall for it-- Venture capital is a total rip off. And they can get away with it because they are investing dumb money in dumb companies and getting dumb returns-- during the boom you would have done better investing in core tech stocks than in even the best VC funds which returned 2-3X over 7 years.

And as for the value of the advice: YC insists that you move to Cambridge or Silicon Valley-- the two places Paul Graham has lived. This isn't "Advice" this is laziness. The idea that you have to be in either of those places is absurd to anyone with a lick of business sense. If you're building a new business the last thing you want to do is go where the money is expensive, the offices are expensive and there are a thousand others trying to poach your employees, whom you have to pay top dollar to on top of top equity because the living costs are so high and the competition is so high.

But they are great places for getting venture capital and participating in the trade in "connections".

YC is popular among the people who have not yet realized that these activities are bad for business, not essential to it.

But they will learn-- move to Silicon Valley and pitch VCs for a few months. You'll surely get money, but if you are smart, you'll realize that the money will do more damage than good because the person giving it to you has no clue, and they will get control over your board.

The failures of the late 1990s are directly due to easy money from idiot VCs. Not bad management at startups-- bad advice from "venture capitalists" (who are generally people who went to harvard and have a sub 100 IQ.) The idea that VCs are smart or shrewedi s a carefully cultivated fallacy. The people you meet at VC firms are either 20 something fratboys who can barely operate a computer, or old guys who were funding oil companies back in teh 1970s and know even less about technology.

And you want to give these idiots control over your company, and a big chunk of the equity you built?

Re:$20k , ridiculous.

[Kevin143]

I've got some brilliant ideas, billion dollar ideas, in software. Right now I'm bootstrapping a biotech startup.

Want to hook me up with some of your billionaire friends? Send me an email and I'll share my ideas.

kfischer at g mail dot com

Re:$20k , ridiculous.

[aalu.paneer]

When I am starting up, $20K is least of my draws. I am more interested in the advice, discipline connections and visibility!

Re:$20k , ridiculous.

[Achromatic1978]

Hell, I know billionaires and the ones who are open to funding new ideas are interested in hearing new ideas

A few moments elementary Googling, you're in Bellevue, Washington, so sure, you're in proximity to at least four of America's 372 billionaires.

But you post on YC's site, and comment about how it's bad that Bay Area women are "skinnier (but more expensive)", of those that "want to date geeks". Complaining about women with expensive tastes isn't really the mark of someone has really climbed the financial walls of success.

So I'm really kinda curious, how many billionaires do you know, and how well do you know them?

Re:$20k , ridiculous.

[Anonymous Coward]

Twenty grand really is peanuts.

You've obviously never worked for a Silicon Valley startup. I have. Twenty grand buys you your office, bedroom and transportation in one multi-functional device that the rest of the world calls "an automobile."

Re:$20k , ridiculous.

[funfail]

Complaining about women with expensive tastes isn't really the mark of someone has really climbed the financial walls of success.

He is not complaining. He mentioned them among the pros of Bay area, not cons.

Re:$20k , ridiculous.

[Anonymous Coward]

Come now, you don't really know any billionaries, do you? You haven't really started any successful companies yourself, have you?

Your bitterness is so evident in every single line of your post that it's impossible to take you seriously, even though you had a few valid points. When you start whining about VCs having sub-100 IQs, you've lost any audience you might have had a long time ago. People want to read something seriously reasoned, not transcribed temper tantrums by someone who never got his own company off the ground.

PS. The two VCs I know both have degrees in math or physics. Not that I really think you care.

Re:$20k , ridiculous.

[phasm42]

You misread his (typo'ed) comment. He's not saying he knows them personally; he's saying that he knows (as in believes to be a fact) that billionaires are (this is the typo, in place of "and") the ones open to funding new ideas.

Re:$20k , ridiculous.

[Anonymous Coward]

It's true that if you end up with a crappy VC firm, you get crappy advice, but good VCs generally have a lot of operational experience and a good address book. An address book is important for landing key customers, and establishing relationships with suppliers, vendors and partners.

As for living in Cambridge or SV, there's a very good reason for this. First, around 40% of the VC money in the world is concentrated in these two areas (30% in SV). Secondly, SV in particular has an economy and culture which is conducive to starting a company: fluid, highly educated work force, high tolerance for failure, culture of collaboration between competitors, etc. There's a great book called "Regional Advantage" by AnnaLee Saxenian which discusses this in detail.

I agree that avoiding anything but top-tier VCs is probably a good idea though, and I certainly think that you don't get enough from YC to justify 5-6% equity. I would turn them down. VCs are indeed easy to meet if you have a good idea.

Re:$20k , ridiculous.

[Acer500]

I guess there are people out there who are inexperienced enough to think that "connections" are actually valuable.

Trading in "connections" is the kind of ivy league old-school, old-economy BS that we have gotten past. I don't live in the US, but while I hope that connections aren't as valuable as they used to be, I wouldn't underrate them if I were you.

Personally, I wouldn't know where to start if I wanted to get a foot on the door of a mid-sized or large company, which are the ones you want to sell to (assuming you have a decent product/service).

The value of each additional connection after the first one drops off because once you have a large satisfied customer, you can leverage that since other companies think that if you're good enough for "Y", you're good enough for them.

Having connections (in a good sense, I'm not thinking shady dealings) is so valuable because the only other way you could grab customers is by advertising (and you know how expensive that is).

Re:$20k , ridiculous.

[BitGeek]

I do know billionaires, more than one. Some of them are open to funding companies, but not all. (One is really just retired and winding down his commitments.) One, for instance, who is open to funding new ideas is actively looking for them and talking to people about them.

So, if someone had a good idea and had moved it along to the point where it was worth funding, it would not be hard to talk to this guy.

No, I'm not interested in making connections or introducing anybody... my point is that this isn't necessary.

The money is readily available if you want it.... its only a position of ignorance or belief in the myth of connections that lets people think that in order to suceed you have to be introduced to the right people.

Re:$20k , ridiculous.

[BitGeek]

Actually, I think its only those without money who find the prospect of gold diggers to be exciting.

the reality is, the higher your net worth, the more shallow (skinny) vapid women and men there are... the more you have to deal with idiots who have dollar signs in their eyes.

I know, your fantasy that as a millionaire you'll be able to keep a trophy wife is probably a key motivating factor in your life.

But if you ever achieve it you'll realize that, after taking half your net worth, the money you lost was the least expensive damage they did. (And before you jump to another idiotic conclusion- no, I've never been married nor fell for a gold digger.)

By the way, your googling-fu is so manly powerful! I be very intimidated! Jesus, man, who do you think you're impressing?

Re:$20k , ridiculous.

[BitGeek]

Ok, its clear to me that you haven't met many VCs. You think I'm just talking about the "bad" VCs. Sorry, they are all bad.

Do some research and if you can get unbiased information about the "top tier" VCs, you'll find out I'm right there.

Furthermore, you really shouldn't be seeking VC money, unless you need to build a manufacturing facility. If you don't, you can bootstrap far more effecively. Truthfully, the bad advice from VCs will hurt you more than their money helps.

That "fluid highly educated workforce" is not an advantage of the valley- it means you pay a lot to keep your developers and you will lose them once they can become a founder of their own company.

You're looking at only one side of the equation and ignoring the costs. This is typical -- you've been sold a story and you believe it because you are *invested* in it being true.

Getting sufficient money is trivially easy outside the valley. In my experience, not even being in the state of california has not been a problem for raising money in the valley. But if you're smart, you're not raising VC money anyway.

Hell, the advice to put your company in the valley is just one of the really stupid bits of advice you get from VCs which will cost you far more than any supposed advantage at raising money by being htere--- doubling or tripling your costs mean you need twice or three times as much money for the same amount of value addition to your valuation or customers.

If VCs were recommending tech companies relocate to sacramento-- close enough for conveneint board meetings but with a much lower cost basis-- then they would go up a bit in my estimation.

But the reality is-- VCs really DON'T give a shit about your company... they don't need you to be a success... they just need one of 20 investments to be a huge success... they are gambling and playing the odds.

Thus they will maike you take long shot positions-- go after very highly risky low probability super high payoff choices-- evne when low risk, high payoff choices are present.

This is the real lesson of the 90s that nobody seems to have learned.

And, as a founder you're much better off owning %33 of a $30 million dollar company than %3 of a $300,000 VC backed company sold at a garage sale. In one case, your net worth is around $10M, and in the other its $0. You won't evne get %3 of the sales price.

Hell, if a VC backed company sells for $30M, you won't even get 3% then because the VCs have double dipped so many times that there's nothing left to split up after they are paid off.

People really are not looking at these VC deals with the terms that are totally asinine-- like making founders earn back their equity.

Re:$20k , ridiculous.

[BitGeek]

Ad hominem. Argue againt my points if you wish, but since I wasn't making argument from authority, my status as authority is irrelevant.

Re:$20k , ridiculous.

[BitGeek]

This is why, if you ever start a startup, you really need to hire a really good salesguy. ITs clear to me that you don't know how to get your foot in the door of a mid-sized company-- even though I just told you in my original post in this thread. (Here's the secret- you call them. And I don't mean cold calling every c ompany in the book-- but identifying the businesses that are key and investing time in them.)

Really, every business that is likely a potential customer of yours is likely also never going to have heard of YC. YC helps you with awareness in VC circles... those are the connections they give. (They are totally geared towards getting people on the Silicon Valley VC treadmill.)

So, its not even sales connections that you're getting.

I don't know what country you are in. In some countries you need connections just to get permission from the governemnt to run your business. But YC would say your business is dead on arrival simply because you aren't in the USA. I think that's asinine... I think the opposite is true-- I think there are many countries where the people are keen to have economic development and a startup that's a success three would be the big fish in a small pond-- and everybody would be wanting to help in their own way because its good for the town, good for the country... in the bay area, you're just antoher of a million startups and you will lose half your employees each year unless you pay them outrageous sums.

One key lesson in business is buy low, sell high. Get your services at low cost-- including investment, but also employees-- relative to their quality. The bay area is the land if high cost, low quality.

Re:$20k , ridiculous.

[Achromatic1978]

the reality is, the higher your net worth, the more shallow (skinny) vapid women and men there are... the more you have to deal with idiots who have dollar signs in their eyes.

That I do not even remotely contest.

I know, your fantasy that as a millionaire you'll be able to keep a trophy wife is probably a key motivating factor in your life.

Happily married to a woman I met when I was earning less than half of what I earn now.

By the way, your googling-fu is so manly powerful! I be very intimidated! Jesus, man, who do you think you're impressing?

Who do you think was trying to impress anyone? I even described it as "a few moments elementary Googling", not being all mysterious and giving out your home number (which I didn't get, as I said, a few moments elementary Googling). Why wouldn't I search for you? By your own words, you are personal acquaintances, if not friends, with multiple billionaires. Given that most billionaires exist in fairly rarefied atmospheres, and seldom with us mere mortals, and that there are less than 200 under the age of 65 in the US, someone who knows multiple billionaires is a rare find indeed. I am, of course, presuming that by "know" you mean more than "once was in a room with", as I have been in a room with three billionaires but that doesn't count.

All in all a fairly good job of misinterpreting what would be a fairly legitimate query.

Re:$20k , ridiculous.

[Anonymous Coward]

Ad hominem.

You said you knew a lot of billionaries, I challenged that claim. You were making ridiculous generalizations regarding all VCs, and I challenged that claim too. Neither is an ad hominem. Besides, the Slashdot method of argumentation - trying to fit every wrong argument into the straightjacket of some logical fallacy with a cool sounding latin name - is really lame. Have you ever heard anyone argue that way except on Internet message boards?

Argue againt my points if you wish, but since I wasn't making argument from authority, my status as authority is irrelevant.

Authority is sometimes relevant. In a perfect world, you could just make logical inferences from obvious facts, but in the messy real world, most people have an agenda of some sort, and you can't objectively and independently evaluate all statements they make. Such is the case with your post. For example, I don't have the means to do a large scale study on the IQs of VCs, so I have to go with a) my estimation of the intelligence of the VCs I've come into contact with, and b) my estimation of your bitterness with VCs, which likely influences your ability or interest in being truthful. Makes sense?

Taking VC is almost guaranteed to screw you

[kcbrown]

But the opportunity is unparalleled -- total immersion into Silicon Valley start-up culture, advice from Graham and a fast track to the top angel investors and venture-capital funds.

Make no mistake: if you take VC funds, they, not you, get into the driver's seat. And it means that their priorities, not yours, are what will drive the company.

Back in the dotcom days, before the crash, it generally meant the VCs would attempt to groom the company for a quick IPO. That meant growing the company quickly and sacrificing the long-term viability of the company in order to do it.

It was common for the original founders of the company to be booted from the company or otherwise sidelined. The VCs would bring in their own executive management teams, all the way up to the CEO, which would answer only to the VCs, of course.

The end result is that the startups were unable to maintain their focus on their original mission and were vastly over-committed compared with their needs. And predictably, most of them tanked shortly after their IPO. The VCs usually made a nice profit when the companies IPO'd, but once stock investors finally realized what was going on, IPOs suddenly became worthless. And thus the dot-bomb ensued.

If I were the founder of a startup, the last thing I would do is take the money of a VC. That money is heavily tainted. Taking it would be akin to committing suicide. The only way I would take it is if it came with a contract that clearly stated that I would remain in complete control of the company as if I had not taken the funds at all. And I doubt any VC would ever sign such an agreement.

Re:Taking VC is almost guaranteed to screw you

[smallpaul]

If I were the founder of a startup, the last thing I would do is take the money of a VC. That money is heavily tainted. Taking it would be akin to committing suicide. The only way I would take it is if it came with a contract that clearly stated that I would remain in complete control of the company as if I had not taken the funds at all. And I doubt any VC would ever sign such an agreement.

VCs sign such agreements all of the time. By definition if outside investors have less than 50% of the voting stock of the company then they do not have control. If you read the article you'll see that Graham gets 5-6% of the company. This means that he is very far away from having control of the company. I don't believe that Y Combinator has ever replaced the management of a company that they ran and I don't see how they could with such little equity.

Even in a more normal situation where a VC might want control of the company, there are many, many circumstances where their interests and those of the founders align. They do not always align, but they often do. People accepting VC money are not necessarily stupid. They take a risk to get money that they might not be able to succeed without. If your competitors are using VC money to grow much more quickly than you are then it makes more sense to shop around for VCs you can work with than to let them crush you through better capitalized marketing or a larger sales force. Google is a perfect example of one of these "VC-suicides" you talk about.

Re:Taking VC is almost guaranteed to screw you

[BitGeek]

LOL, clearly you've never taken VC funds. Go get yourself a term sheet and then read the contract that comes with it when they get really serious.

Also, your citcation of google is asinine.

Its not the size of the sales force that determines the success of a Web business.

Hell, Google spent nothing on marketing and had no sales force. QED.

Re:Taking VC is almost guaranteed to screw you

[GWBasic]

If I were the founder of a startup, the last thing I would do is take the money of a VC. That money is heavily tainted. Taking it would be akin to committing suicide. The only way I would take it is if it came with a contract that clearly stated that I would remain in complete control of the company as if I had not taken the funds at all. And I doubt any VC would ever sign such an agreement.

With VC money comes VC experience, provided the startup chooses wisely, the experience is more valuable then complete control.

Another trick that worked for Google is that they took money from TWO VCs. This is the exception, not the rule.

Bad idea.

[TheSlashaway]

As many others point out, $10k-$25k for 5% in your company is ridiculous. It doesn't fund the company at all and they take a good percent of it. It's for suckers. A better deal would be something like $250,000 for 1-2 percent of the company plus resources. Then you could at least try.

Re:Bad idea.

[rossifer]

$250,000 for 1-2 percent of the company plus resources.

$250k for 2% means a $12.5 million pre-money valuation. 1% is a $25 million pre-money valuation. For two no-name kids before the prototype? You're smoking crack. One thing that I think you've overlooked is that ideas aren't worth much by themselves. An idea along with the will and ability to build a company is what's worth something.

Now, I'm completely aware that early stage valuation is largely speculation and hand-waving, but I have yet to see a pre-prototype, non good-old-boy management team valuation of over $2 million. The one valuation close to $2 million that I know of was back when VC's were throwing money at anything (and these were some very stupid VC's).

You've got to come up with one hell of a story to explain why this bright idea (and only the bright idea) is worth $12.5 million. That is one hell of a good story. Somehow, I don't think you're going to figure out a story quite that good.

Ross

Re:Bad idea.

[ez76]

That would be a better deal, and with capital like that, you'd be able to both live and work in Fantasyland.

a word of advice

[Anonymous Coward]

If you're ever placed in a position where you're offered a deal that doesn't sound so hot, but

1) the surroundings are hyped up, for example a "boot camp for Web 2.0 entrepreneurs" that is a "combination of Silicon Valley and American Idol";

2) you are given a ridiculously short time limit to make up your mind, let's say five minutes

and

3) if you don't accept, you "fail the IQ test" in the eyes of the people making the offer

then grab your shit and head out the door as fast as possible. Don't forget your cell phone.

(following Harvey Mackay).

IQ Test

[ShakaUVM]

As far as I can tell, Paul Graham is a hustler.

Taking 5% of a company for TWENTY THOUSAND DOLLARS? Anyone who accepts that deal should be shot. Saying that "they failed an IQ test" just makes Graham out to be a fraud.

Also, and this is a personal pet peeve for me, he wrote "The Plan for Spam" in August 2002. Bob Boyer and I (Bill Kerney) while grad students at UC San Diego wrote a very similar statistical spam filter, which we open sourced and released in December 2000 (and which some people took and continued working on it). And we didn't invent the idea either -- we based our work on the UC Irvine Machine Learning Database.

And yet somehow he never corrects the notion that he invented the idea.

Re:IQ Test

[Dunbal]

Taking 5% of a company for TWENTY THOUSAND DOLLARS? Anyone who accepts that deal should be shot

      Oh but I'm sure this type of hustler will be quick to point out that if he takes 5% of your company for 20k, that means he thinks you are really worth FOUR HUNDRED THOUSAND DOLLARS! Isn't that amazing!? And that's without doing anything at all! Imagine what you will be worth in just a few years... etc, ad nauseam

Re:IQ Test

[Breakfast Pants]

Considering all the risks he takes on you, that means he potentially thinks you are worth millions. Not a terrible valuation for a bunch of kids just out of college.

Re:IQ Test

[homer_s]

Here is a passage from one of his essays (which I think are very insightful):

A while ago an eminent VC firm offered a series A round to a startup we'd seed funded. Then they heard a rival VC firm was also interested. They were so afraid that they'd be rejected in favor of this other firm that they gave the startup what's known as an "exploding termsheet." They had, I think, 24 hours to say yes or no, or the deal was off. Exploding termsheets are a somewhat dubious device, but not uncommon. What surprised me was their reaction when I called to talk about it. I asked if they'd still be interested in the startup if the rival VC didn't end up making an offer, and they said no. What rational basis could they have had for saying that? If they thought the startup was worth investing in, what difference should it make what some other VC thought? Surely it was their duty to their limited partners simply to invest in the best opportunities they found; they should be delighted if the other VC said no, because it would mean they'd overlooked a good opportunity. But of course there was no rational basis for their decision. They just couldn't stand the idea of taking this rival firm's rejects.

Re:IQ Test

[Anonymous Coward]

Considering all the risks he takes on you

All the risks? What? He takes $20k risk. As someone else who did the math pointed out, he breaks even when you hit $400k, nowhere near your "millions".

Re:IQ Test

[HiddenBek]

Taking 5% of a company for TWENTY THOUSAND DOLLARS?

This is misleading. Y Combinator is not proposing to buy 5% of your company for $20,000, as that company doesn't even exist when the agreement is made. Rather, they provide the means to bootstrap an idea with no risk to yourself, then let you keep 95% of the result.

Anyone who accepts that deal should be shot.

Ok, so what's the alternative? How should a smart person with big ideas but no money go about starting a company?

Reddit was formed in 2005 by two 22 year old students during the first YC founders program. In 2006 they were acquired by Wired, almost certainly making them millionaires. YC, with their percentage, must have done well too. Sounds like a good deal for everyone.

Getting a company off the ground has traditionally been difficult, which is probably why so few people attempt it. For most folks it either means a tremendous leap of faith (quit job, mortgage house, cross fingers), or limiting yourself to evenings and weekends while you do something else to pay the bills. Y Combinator was designed to make forming a startup more accessible, and shouldn't be viewed as an alternative to traditional VC funding. It's an alternative to a regular job.

Re:IQ Test

[xenocide2]

I'm sure there are plenty of dorm room nerds who could make something valuable for 20 thousand but can't convince the local bank to make a business loan for what amounts to a website. And a few might even take the deal. But you're right. This is the kind of cash I could come up with as a grad student. There's no point in taking the money if I believe the idea has wheels. If that's the kind of bad businesmen they're after, well then maybe Morris hasn't quite fully recovered from prison.

Graham selling tactic in the past was that it was closer in nature to an internship in entrepreneurship. It'd have to be, if the net value is four hundred thousand. But the idea of using it as an IQ test has some (perhaps unintentional) merit: don't turn away a guy with money interested in funding your ideas, negiotiate.

Re:IQ Test

[ShakaUVM]

>>that means he thinks you are really worth FOUR HUNDRED THOUSAND DOLLARS! Isn't that amazing!?

Note this is after you've already (from what I can tell from TFA) put together a business idea and they picked the top whatever percent of ideas. He's buying a chunk of your company for a couple pennies and a slap on the back, and then insulting people that don't think that's a great idea. It's not the offer that's necessarily insulting -- perhaps you really might only be worth a half million or so -- but calling people stupid for rejecting his offer, when they might have done the math and realized he's offering them a crap deal.

Re:IQ Test

[Breakfast Pants]

Sorry, looks like I worded it wrong. 'That means he potentially thinks you are worth millions' should have been 'That means he thinks you are potentially worth millions'. Yes, he breaks even at $400k, but to balance out the risk that you go for nothing at all, he is betting that you will go for much more than 400k.

Re:IQ Test

[Anonymous Coward]

Well, I "invented" some things, too... A* Pathfinding for example while I wrote some experimental RTS for DOS. People reinvent the wheel (as some would say) all the time; afaik even quantum mechanics were discovered by two different guys at the same time not knowing each other.

Re:IQ Test

[ergo98]

Ok, so what's the alternative? How should a smart person with big ideas but no money go about starting a company?

Reddit could have been rolled out with a $60/month dedicated machine contract. The amount of code to build the early version (or the current version for that matter) could have been built in a few nights.

Indeed, Reddit -- the only "success" story of Graham's that I've heard of -- is pretty much the antithesis of his model: It is exactly the sort of solution that any chump with a small amount of free time can easily build and roll out with the funds earned running a paper route, scaling up with revenue.

There is no grand capital investment for a site like that (or most sites for that matter). There was no long development period for something so enormously trivial.

In 2006 they were acquired by Wired, almost certainly making them millionaires.

Strange, don't you think, that no one has ever given solid numbers (or *any* numbers) when it comes to Reddit? Everyone grins and makes subtle commentary, but there's zero reason why these numbers would be confidential....unless they are embarrassing for Paul and crew. Instead we're left with Paul fans presuming that the Reddit crew are millionaires, despite one of them crashing out (after being forced on the other two), and the other two operating as corporate drones of Conde Naste.

i mostly agree with you.

[Anonymous Coward]

for the most part, what you say I believe to be true. Bringing on any investor means that person now has a commitment to your project, and will feel an emotional and financial bond, one that will lead them to want to 'steer the ship' so to speak-- so one should be smart about entering into these relationships, especially with investors who may have desires and styles very divergent from your own.

The one place I disagree with your characterization is the presumption that anyone can sell a stake in their company and easily lose control. The investor has as much control as you give them. If you sell a 10% stake for $X, they are going to have 10% voting rights at board meetings. You might even create a second class of stock (without voting rights), although I don't expect any savvy investor would agree to this. Then again, most VC types want a majority stake, so perhaps that was implied (51%+ ownership) in your last statement. Either way, I wanted to point out for everyone else, that just because someone invests in your comapny, they don't have default control of it.. you just have to be careful about how much you sell off, and what control that stake gives to the buyer.

Y Stealer

[Anonymous Coward]

I was once turned down by Y Combinator, I met Paul Graham, he is arrogant and thinks he's the smartest guy in the world. I applied them because I was living outside USA, so it could be a good opportunity for me. But after coming to Silicon Valley, I saw that things are not so hard, you can easily access people you want here, so you don't need to give 10% of your company to this asshole (I respect his articles though). I'm very happy now that I was turned down, it allowed me to protect my shares.

For a guy who lives in USA, Y Combinator is purely stupid. I talked with many VCs and that's what they think too. Look at Y's current investments, which ones succeed? Loopt, Scribd got the investment in a few months, do you think it's Y Combinator who gave them this mojo, they could do it by themselves too. With Y Combinator, you fail without learning anything. If you are without him, at least you fail by learning something.

Don't jump the gun now...

[Anonymous Coward]

As a Y-Combinator funded company, I can tell you that it's not about the money. The money is sufficient to get a prototype for real investments from Angels/VC's. The justification for the low valuation (~400k) is that it isn't a valuation. The 5% of equity is in exchange for a community of incredibly intelligent, passionate peers who are similarly coding for their lives and guidance from someone who knows the startup industry inside and out. PG is also incredibly well-connected; he'll get you in a room with Sequoia on a dime and instant publicity.

In response to 'just keep your day job and just work on the side' - sorry, that just doesn't work. If you're dedicated enough to an idea, you'll quit your day job. If you're not living on the edge, you'll live the rest of your life dreaming of what could have been.

Re:Don't jump the gun now...

[ez76]

If you're dedicated enough to an idea, you'll quit your day job. If you're not living on the edge, you'll live the rest of your life dreaming of what could have been.

That would be inspiring if your next sentence wasn't "... and that's why I spent my life savings to found FerretTube."

Re:Don't jump the gun now...

[Anonymous Coward]

The 5% of equity is in exchange for a community of incredibly intelligent, passionate peers who are similarly coding for their lives and guidance from someone who knows the startup industry inside and out.

I'm not starting a business to join a social club.

PG is also incredibly well-connected; he'll get you in a room with Sequoia on a dime and instant publicity.

So? If your idea is good enough, that will get you into a room with Sequoia.

In response to 'just keep your day job and just work on the side' - sorry, that just doesn't work. If you're dedicated enough to an idea, you'll quit your day job.

Horeshit. If you need to quit your day job to write a business plan and secure investors, you're doing it wrong. If you think living in poverty for the next twelve months makes you a "real" business, you're an idiot. If you think a potential investor will be impressed because you quit your day job, think again: only schnoorers like Graham care.

If your idea is good, you've done your homework and you've got a solid plan with some management backing, you don't need snake oil salesmen like Graham. You talk about "living on the edge" but then you want someone like Graham to hold your hand?

Re:Don't jump the gun now...

[BitGeek]

"In response to 'just keep your day job and just work on the side' - sorry, that just doesn't work. If you're dedicated enough to an idea, you'll quit your day job. If you're not living on the edge, you'll live the rest of your life dreaming of what could have been."

This smug arrogance is whats so offensive about the YC cult. You presume that anyone who doesn't go your path is just a dreamer whose not committed.

I say the reverse is true-- the guy who builds his business on the side is FAR more committed than a college student who "does a startup" for YC for his summer gig.

boot camp?

[Urza9814]

Didn't apple already do this?

Re:boot camp?

[Joe The Dragon]

The us army did long before apple was even around.

Re:boot camp?

[Inthewire]

US Army trains recruits. USMC trains boots.

I attended their event at Stanford...

[leather_helmet]

a couple of months back - A lot of great speakers in additional to the panel of startups that were funded (reddit, justintv, scribd..) - Anyhow, from my perspective a majority of the crowd was/is gay for Paul Graham - A lot of interesting conversations regarding the nominal amount of cash they inject - To a guy from Ohio or Minnesota, etc., they would jump at the chance to move out to SV for the $5k carrots dangled in front of each founders (For example reddit is a bunch of guys from V-tech - whom, as many of you know, were purchased by Conde Nast) - Anyhow, I see Y-Combinator as more of an incubation program for geeks that have no clue regarding business and provides them a great incentive to move out to California - in addition, the halo effect of Paul Graham may not hurt - Pros and cons both ways

As for myself, my startup is further along than most as we are self-sustaining with a handful of clients - It was great to learn from the speakers and meet some other like minded and entrepreneurial folks

Re:I attended their event at Stanford...

[Anonymous Coward]

Hey, I've lived in Minnesota, and I now live in Ohio, and I'll tell you this much:

I don't know anyone who wants to live in Silicon Valley, much less California, and I know none of my friends or co-workers would even raise an eyebrow for $5,000.

What a load of arrogance. Just remember, the country as a whole doesn't give a rat's ass about the happenings in California. We're putting our $5,000 towards North Carolina.

An old scam for a new generation

[cstec]

"When Graham calls the winners, the founders have only five minutes to accept. "If people turn us down," he says, "as far as we're concerned they've failed an IQ test."

If you accept in 5 minutes, you've failed an IQ test. These people are not that important, regardless of what they tell you, and neither is the amount of money they have on the table. This is an attempt at simple manipulation on the part of older investors looking for wage slaves that will ask how high when told to jump. Unfortunately, if you're a 20-something, they're targeting you.

Understand the strength of your signature and the committment it represents. Never, EVER, be afraid to walk away from a deal. It's a big planet and there are plenty of legitimate people to do business with.

Re:An old scam for a new generation

[Anonymous Coward]

The only variables on the deal are amount invested and valuation. It's pretty clear that you'd certainly be an idiot to have not decided on your bounds before getting the call. After having made that decision, who cares if you're allowed 5 minutes or 3 seconds?

Re:An old scam for a new generation

[cstec]

Contracts are as variable as human beings and as random as a floating point value. Every term means something, and has some price. You will never know the specifics until they are finally laid out in front of you, cast in eternal, damming words and signed by both parties. You can't know the bounds on an N-dimensional equation in advance. You can work out where you stand, but that doesn't eliminate variables. The only way to decide in 3 seconds is to ignore aspects of the proposition laid before you. Either you understand the folly of skipping the fine print, or you will.

Re:An old scam for a new generation

[Anonymous Coward]

The only variables on the deal are amount invested and valuation. It's pretty clear that you'd certainly be an idiot to have not decided on your bounds before getting the call. After having made that decision, who cares if you're allowed 5 minutes or 3 seconds? It's an excellent sign that they're trying to scam you in some way. Someone offering you a good deal doesn't have to use sleazy high-pressure sales tactics.

Re:An old scam for a new generation

[gad_zuki!]

Yeah, in 5 minutes you cant really consult with a lawyer/business savvy friend. Sounds like hustling to me.

universal channel?

[Ep0xi]

does anyone remember who invented the "universal channel"? it was a model and an electronic design which were intended to be used for trasmitting up to six audio channels within the same phisical medium which in that time were copper telephone lines. the system used the sideband to trasmit the channels "encoded" in different frequencies and two modems by each ending were connected to amplifiers which were designed by the same guy and connected to speakers to choose and hear the channel of standard music you wanted. In those times there were not the "idea" of a copyrighted "model" of system but now we use it often in patents. Tere were two kind of patents one kind "legal" and the other kind "moral" think what would have been of the world if Einsteins E=MC2 were patented first by other guy in other country?... The invention i named earlier was the first and previous approach to the actual internet. When this guy "the inventor" actually saw the "Internet" he died almost instantly of cancer, because he never patented his invention and left his family in povery because the country in which he was born used to gift patents to the US. This is just a part of my lifestory to you actually meet what could be a real patenting system which could be internationally accepted as law for every country.

Guy Kawasaki tried this

[Animats]

Guy Kawasaki has been doing something like this for years, with Garage.com. Their biggest success was Claria, which distributed adware. Not a great track record there.

BUT HE SOLD VIAWEB

[Anonymous Coward]

You would know that if you read any article by him, he mentions it several times.

Oh and that he wrote viaweb in Lisp so he's 10x smarter than you.

IQ tests

[Anonymous Coward]

Anyone who signs stuff under pressure, or who agrees to even deal with someone who requires a decision within five minutes, has failed an IQ test.

Correct: "Take your time to look this over. Discuss it with your advisors. We need to make a decision quickly, so this expires in three days, but that should be enough time for you to fully understand it and come to an informed decision."

Incorrect: "Sign here in five minutes! Sign! Sign it now you idiot!"

Anyone who is putting that much pressure is doing a scam, in my experience. Maybe these guys are the one exception to that rule, but agreeing to things under pressure is generally a bad habit.

yeah it's an IQ test

[Anonymous Coward]

"If people turn us down," he says, "as far as we're concerned they've failed an IQ test."'"

If anyone falls for their arrogant short bus riding bullshit, THEY HAVE failed an IQ test.

CambrianHouse works too

[amyrmidon]

Cambrian House is another way to throw start up ideas around. At least at Cambrian House you can get some feedback and people to collaborate on your idea - not just five minutes :P. But Having a chance to just experience a startup with some guidance would be great.

Wow, I think every single person here misses the..

[dumbfounder]

point. Most of these companies are just at the idea stage. Most companies at the idea stage would give out 5% just for Paul Graham to be on their board of directors, which opens up Paul Graham's rolodex for making contacts in the industry. For kids coming out of college to get funded in this way is a huge springboard for their careers. It is a HUGE opportunity for these (mostly) kids that I thought the slashdot crowd would have some amount of respect for. Yes, it isn't a lot of money, and it is meant to put a lot of pressure on these guys to get a product together ASAP. Which is a GOOD thing for a tiny startup.

Re:First Post

[Anonymous Coward]

What is the purpose of a bunch of ACs making a thread of redundant or offtopic posts that all get modded down to -1 so no one will ever read them? Seems like a waste of time.

There's a good reason for "We don't do NDAs"...

[homb]

A lot of VCs said rude/stupid/wrong/bulling/snide/nasty/thoughtless things during the dot-com boom because they could get away with it, such as one of my all-time-favourite turn-offs as a serial recipient of VC money: "We don't do NDAs", ie "Your ideas are not important so me might be careless with them"... There's a very valid reason why VCs do that. I've had my share of working with VCs, and while I despise them in general, the "We don't do NDA" reasoning is sound: put yourself in a VC's shoes for a minute. Your job is to look at business plans and invest in ones that look interesting to you. So you will read hundreds of plans, speak with thousands of people who all come to tell you their idea. If you were to sign an NDA with every single one of them, you statistically are guaranteed to either infringe on it, or be perceived as infringing.

Take the following example: X comes to you with an idea. You reject X because the management team is weak (another perfectly valid reason). A few months later, Y comes to you with a very very similar idea. You like Y's management team and invest in it. As Y grows and becomes publicized, X reads about it, sees that you invested in it, and gets pissed off that "you stole X's idea!" Lawsuit.
Another example: You've been focusing on a certain field, say the Web 2.0 crap. You've by now gotten so much info, you've discussed it with so many companies, that when you're talking to X that came to pitch its idea, when you tell them why it'll fail you're probably going to say something that was covered under one of the dozens of NDAs you signed in the past year, but how are you going to know?

Signing NDAs would completely obliterate a VC's ability to operate. The problem is that most entrepreneurs are so obsessed about their idea being the one-and-only greatest thing ever that they aren't able to see the issue from a VC's perspective.

A different way to go from nothing to something

[ScottV]

If you've got an established business and you need funding to go to the next level YC isn't right for you. That's when you need VC investment. If you've got nothing and you want some cash to build that very first version then YC probably makes good sense. Starting up in your spare time has a fairly low probability of success and maxing out your credit card is fairly high risk. Additionally a more thoroughly developed product after YC funding is likely to give away less equity if further VC investments are required. The real benefit isn't 'contacts' as everyone here has dismissed, but the involvement and personal investment of experienced people. Another benefit of a low valuation is that your company doesn't have to become the next google for the investors to get a return on their money. This means they won't be pushing you to take the ridiculous long shot options if you don't want to. I think its far too easy to see equity as a precious resource to horde, sometimes you have to realize owning a smaller piece of a bigger pie is preferable.

VC 101 For the /. Developer

[mpapet]

Here's a quick and dirty run down of what one SHOULD do if they want to start a business.

There's a fork at the beginning of the road: Quit your job or keep your job and commit to your startup as best you can.

For the Quitting My Job crowd:
1. Make an actual living at it ASAP. If you can't, then forget it. If others around you are, and you can't for some reason, there simply isn't the time to learn the hard knocks. Either way, you have about 12 months. You should, after 12 or so months, have a good idea if it's gonna work. If you can't make that decision on your own, then you are in dire need of some Management. You don't need to go to Paul Graham to get it.

2. AFTER you are making some money with a workable widget 2.0. reassess. From here, you work with a great clarity that is not available to a Paul Graham graduate. If you want the big VC $$ it will take a great deal of time, effort and money to get. In fact, it's probably a full-time job on its own.

For the Moonlighting crowd:
You will need to work MUCH more smartly than the Quitting My Job starter because the pace of "ground breaking innovative Widget 2.0" is limited. If you are good at whatever you want to start, then there should be success despite the Job Quitter that is competing against you.

Your success STILL needs to be measured in dollars. Forget Youtube style VC burn for now, but concentrate on generating revenue. Despite working less at it, it MUST make money with a pretty clear path to replacing your salary and benefits.

________Tips for either group_________
You must know what you need and how much you are willing to give away to get it. Hint: 5% is a whole heck of a lot of equity to put on the table.

Grow on your own revenue. Don't be tempted by the other ways to do it. If you have a good business, it will grow on its own.

There are too many barriers to youtube-like startups in the U.S. Seriously consider starting it someplace you'd like to emigrate. VC capital is wasted largely on lawyers in some way, shape or form in the U.S. If you are tempted by the conventional public offering, the amount of money the banks sucks up is absolutely shocking. This is one reason why Google cut some of the bankers out in their IPO.

Stay flexible. Chances are excellent what you started out doing for money will be somewhat different than what actually brings the money in.

Re:VC 101 For the /. Developer

[Anonymous Coward]

I'd like to add something of my own, if I may, and that is Open Source developers have an easier time of it. You can work on your project in your spare time and get it into a semi-usable state before you even need to start thinking about the business side of things. This is a great advantage, because it's much easier to keep your day job and develop your business at the same time; after all, your product is already well into it's development.

If you've got a community of users already you'll also be in the happy position of having a good idea of who your potential market is and what the size of that market may be. You can also use them to bounce ideas off, or ask questions outright I.e. "If I were to offer commercial support, would you be interested? Would you pay $nnn per. year?"

Basically you can do things in the "wrong" order, where many VCs still consider the traditional "Idea, research, fund, develop, sell" model the "right" order.

Bravo

[Anonymous Coward]

Great post there. They give enough investment to barely cover the cost of the move plus a couple months expenses in a place like SF for a couple of developers. Only goobers fall for this. You're also correct about the non-value of connections. If you have confidence and some social skills you can meet all these people without some woow-woow intermediaries to help you.

Sign in five minutes. Only naive people fall for this thing.

Re:IQ Test...Mod parent up.

[Bamafan77]

Great excerpt and you should be modded up. Hypocrisy is such an easy disease to catch. I'd love to hear how Paul Graham reconciles his current actions against his owns words. No doubt referring to his own exploding termsheet as an "IQ Test" helps quell the cognative dissonance.

5 Minutes - stupid if you accept!

[Anonymous Coward]

Putting somebody under artificial time pressure to sell a significant %age of their business for peanuts just goes to show that he does not want people to seriously think about what they are signing up to. Smells like a total rip-off to me.

I co-founded a company funded by Y Combinator

[SwellJoe]

Alright, there's a lot of misapprehension, and perhaps willful ignorance, of nearly every aspect of the Y Combinator model. I'm the co-founder of a company that was funded during the Winter Founders Program documented in the linked article (my company is Virtualmin, Inc., co-founded with Jamie Cameron).

First up, about the equity. YC asks for between 2% and 10%. Mostly, it's 5 or 6 percent. The companies funded are all quite early stage. It's very rare for one to be launched, and even moreso for it to be profitable. In some cases, it's no more than a mocked up demo. YC are very early stage investors, usually getting involved before anyone else will touch it--they invest in smart people, not really ideas or businesses. In the three months I've spent meeting once a week with the other founders, no one has ever even hinted that they regret giving up equity to YC. We certainly don't, and we're one of the few that had a launched product and paying customers.

The "5 minute IQ test" is being misconstrued. Applicants know well in advance exactly what the terms are going to look like. You don't bother applying if you don't like the terms, so you never get to the yes/no IQ test. I don't think anyone has ever turned them down at that stage. It's a good punchline, and makes for good magazine copy, nothing more.

Paul Graham is extremely smart. Wherever he goes crowds gather round, and it's not just for his boyish good looks. He's got a touch of ADD, at this point, due to his popularity, but we've never had trouble getting advice when we needed it, and his advice has generally been spot-on. YC has three other partners, two of whom (Jessica and Trevor) were as deeply involved as Paul during WFP. Paul's celebrity leads to a ridiculous array of speakers at the weekly dinners...He has an uncanny knack for bringing in the most interesting people in the valley: Joe Kraus (Excite, JotSpot), Evan Williams (Blogger, Twitter), Paul Buchheit (Gmail), Greg McAdoo (Sequoia), Ron Conway (largest angel investor in the world), etc.

Which brings me to contacts. If you believe contacts don't mean anything, you're fooling yourself. I started a business outside of the valley in 1999, and now I've started one in the valley. Big difference. I paid my bills and bought myself a nice car with my previous business. I have much higher expectations with my current business, and a large percentage of those expectations have been brought nearer by our affiliation with YC. Try dropping a random investor an email sometime, to arrange a meeting to tell them about your great business. We've never received a "no thanks" to such a meeting, and I've been hearing from fellow YC'ers that they've always gotten the meetings they wanted (not just random VCs...they're talking to exactly the people they want to talk to). We're in talks with our first choice VC and it's going very well, and at least three of the other companies have already closed rounds. If you are in Y Combinator you increase your chances of getting funded by a good investor by a huge amount (and let's be clear: A bad investor brings nothing but money and disaster will follow...the right investor brings more contacts, good advice, expertise in the right areas, and also money...with the right investor your odds of explosive success are remarkably higher). YC brings the best contacts in the industry.

Some other bits that aren't obvious unless you think it through and actually read the YC information on their page:

YC pays for the incorporation and all legal stuff for issuing shares. It's about ten grand worth of legal work from a top valley firm.

YC feeds the company founders every Tuesday night for three months. Paul cooks the meals personally (I've seen it with my own two eyes). These dinners are the single most valuable aspect of the program (aside from providing the motivation needed to get people out to the valley). Chatting with fellow founders every week about what you're working on, what they're working on, and exchanging ide

Re:I co-founded a company funded by Y Combinator

[nmoog]

Ummmm, did you just say "boyish good looks"?

Re:I co-founded a company funded by Y Combinator

[SwellJoe]

Why, yes, I did. Thanks for asking.

Re:I co-founded a company funded by Y Combinator

[BitGeek]

Ah, yes, one of the members of the cult comes here and tells us that we're all stupid and of course, the only reason we would disagree with the preaching of the cult is because we were turned down for membership.

Well, sorry to burst your bubble, but there is no way I would have applied to YC, so there's no way I could be jealous of having been turned down. (Plus, $15,000 is less than I have in cash on hand, not a meaninful equity investment.)

"It's about ten grand worth of legal work from a top valley firm."

This, and virtually everything else you say, along wiht the monotanous repetition of the same things from other YC koolaid drinkers convinces me that you really are so inexperienced that maybe the hand holding you guys get is worth it to you. That's fine-- if you're that clueless, get your hand held.

But please, stop with the "Paul Graham is the second coming of Steve Jobs" BS. Stop with the patronizing arrogant BS you guys constantly spout, based on your abject ignorance of the business world and the tech industry.

Jesus, you value "contacts" and you seek venture capital-- its obvious you don't know what your'e doing.

We're telling you that you're going the wrong way-- but you've drunk the koolaide and you are so young that you know everything so there's no point in wasting time with you.

I guarantee you in 5 years your perspective will be different. (And my business's valuation will be an order of magnitude bigger... as will my percentage ownerhsip.)

Re:I co-founded a company funded by Y Combinator

[SwellJoe]

I guarantee you in 5 years your perspective will be different. (And my business's valuation will be an order of magnitude bigger... as will my percentage ownerhsip.)

Care to make it interesting? Your $15k "cash on hand" might be a good starting point for a wager. ;-)

There's no good reason for "We don't do NDAs"!

[DamonHD]

Hi,

I understand that VCs can be in an awkward position with thousands of headstrong idiots with vast egos and marginal me-too ideas.

But all the VCs that I've has money out of have signed an NDA or equivalent, so some of them clearly are able to get over this problem, which seems to me a very fundamental issue when effectively trading in IP.

Sorry, but it's the VC's problem, not mine, if they won't even make an effort to keep up their side of the due diligence.

Rgds

Damon

Re:There's no good reason for "We don't do NDAs"!

[homb]

The VC is generally trustworthy on that particular subject, because it's in his/her best interest not to be known as someone who leaks sensitive info.

It's a pretty small community of people who know each other rather well. If the VC leaks or misuses confidential info, he'll lose trust and won't get in on the juiciest deals, which is what he's aiming for.

Generally the entrepreneur worries too much about people stealing his ideas, and not enough about how good the idea is, and how well it can be implemented.

Re:There's no good reason for "We don't do NDAs"!

[BitGeek]

Generally entrepreneurs Do worry too much about peopel stealing their ideas.

But VCs are NOT trustworthy. The idea that its in their interest to be descreet is pure fantasy put out by their PR departments and apologists.

They tell each other whats going on, and when you present at one end of Sand Hill road in the morning, by the time you get to the other, you might have your meeting cancelled because they know exactly how your presentation went, what your business is, and that the VCs you met with earlier are passing... conversely if they are investing, your meeting will go much better because this VC wants in on the deal too.

They are lemmings and lemmings have ot know where the pack is going.

Go spend a few months in the bay area and you'll quickly learn what everyone is doing-- all the stealth companies and what they are up to-- if you're at all connected.

Another reason not to relocate there.

Re:Wow, I think every single person here misses th

[emcmanus]

I'm glad to see that someone pointed this out. It's true that YC makes very low valuations, but that is because the expected success rate for such early-stage companies is quite low.

I've had the pleasure of meeting a few YC backed founders and I can say with absolute certainty that they are not dumb guys who are clueless about business. If anything, the selected few know the true value of strategic support -- YC selection almost guarantees that you will be a highly discussed start-up and provides the necessary fire under one's ass to build the company on a shoestring budget and according to Paul Graham's (PG) philosophies (not a bad thing).

If you look at Guy Koswaski's portfolio (garage.com), you'll see that early-stage seed funding is not about cash. Guy's portfolio sucks. If anything, such large angel infusions work AGAINST the start-up ethic and creates the same false sense of security which cripples most large organizations.

Lastly 5% is NOT alot of equity for companies at the idea stage. More mature companies receive higher valuations, sometimes leading YC to only ask for 2% equity. Clearly not a controlling stage (and YC's official stance is that they will not fight for control of your company). As PG will be quick to point out, to justify selling 6% of the company's equity you only need to increase the value of your company by 7% -- something it is not tough to do at such an early stage.

kek @ "Business Angels"

[Anonymous Coward]

Believe me, those guys are anything but angels. It's the term you use for rich people with ambitions who are too stupid to innovate by themselves.

More fitting term would be "Business Dominatrix Ass-raper".

My first read was ...

[Anonymous Coward]

Tech Billionare Boob Camp :)

On Paul Graham

[Anonymous Brave Guy]

It's still not a deal I'd take. But it probably makes sense for some.

I'm not sure I can think of anyone for whom this would be a good deal, unless they knew pretty much for certain that their business would fail anyway. The kind of money involved is nothing in business, so it's all about the support and "mentor effect", and I rather doubt this is the right mentor for anyone who wants to become a tech billionaire. (Remind me again how many of today's top 100 tech start-ups Graham has helped to set up, and how many billions are in his personal fortune right now?)

If he has to justify his hard sell with an accusation that anyone who doesn't take it in five minutes has failed an intelligence test, then I'd suggest he's just a salesman with snake oil trying to intimidate young, enthusiastic, but naive people into giving him a better deal than he deserves.

As far as I'm concerned, anyone who does make such a crucial decision about the future of their business within five minutes must have failed the intelligence test. But then again, anyone smart would have read the background on Y Combinator, known what they were likely to be offered at best, and then walked away without ever taking part...

Does anyone else think that Paul Graham has a lot in common with people like Joel Spolsky: a pretty good writer, worth reading for some interesting ideas, but with rather too much ego given the real significance of their achievements?

Re:On Paul Graham

[encoderer]

They don't cold-call people. You have to pitch them first. So it's disingenuous to say that they're asking you to make a "crucial decision about the future of their business within five minutes." By that stage you've presumably given it some serious thought. Most likely, you wouldn't pitch to them if you weren't going to accept their offer. They've made it known how they invest their money. Nobody is pitching to Y-Comb expecting $2MM.

Furthermore, the notion that a $300k valuation at such an early stage is inappropriate, I think, is bubble-talk. Only in the .com bubble would anyone scoff at the notion that an idea, a couple twentysomethings, and some code is worth ONLY $350,000. These are people in the absolute beginning. This isn't an "early round" of financing. This is the EARLIEST ROUND. This is just north of the "lets meet after work at my place and we can write code until 11PM" stage.

Re:On Paul Graham

[Anonymous Brave Guy]

I acknowledged the issue about smart people thinking about it before getting in touch with Y Combinator before. However, I think perhaps you miss my point: what they're offering, in real financial terms, isn't enough to make or break a business. As investments go, it's a low risk. But if a business does take off, the Y Combinator folks have a big profit on their hands for negligible investment. Is their advice really worth it? I'm not convinced, but hey, I'd turn down Y Combinator funding, so obviously I'm stupid.

Re:On Paul Graham

[dubl-u]

I'm not sure I can think of anyone for whom this would be a good deal, unless they knew pretty much for certain that their business would fail anyway.

Silicon Valley is a very connections-driven game. If the numbers quoted in the article are right, then the cost could be worth it for these guys, as connections with the right funding sources can make the difference between success and failure for some. And even if you end up failing, you could make connections that would be valuable.

That's only for companies that only make sense as VC-funded, though. Anybody with a shot at real revenue should certainly steer clear, though.

Does anyone else think that Paul Graham has a lot in common with people like Joel Spolsky: a pretty good writer, worth reading for some interesting ideas, but with rather too much ego given the real significance of their achievements?

The main difference between him and a number of other SV types is that he is a pretty good writer.

Yes, I find him irritating and arrogant all out of proportion with his actual accomplishments. But I regret to say that can be a useful trait in business. I know plenty of people who are really smart and reasonably modest, and almost all of them end up working for arrogant idiots.

If these fresh-out-of-college dreamers only learn how to get somewhere without getting taken for a ride by some relentless self-promoter like Graham, it'll be well worth six percent of their first company.

from the author of the article

[steven]

Glad to see this comment, as it explains stuff that I couldn't get into in detail in my limited space for the story. Interesting how the slashdotters have seized on this aspect of it. I'd heard the outsider criticism that Y Combinator takes too much for its monetary investment, but I talked to every company in this year's program and a bunch from previous programs and not one person regretted it. To the contrary, everyone seems to enthusiastically endorse the process. As noted, it isn't the money but the advice and connection to investors that matters, as well as an environment where you can focus totally on your product.

Three things you need.

[mcguyver]

Three things you need.
1) People
2) Ideas
3) Capital

Every startup needs these ingredients. Good people, good ideas & capital are in short supply. I left out technology because it's is a commodity. Throw enough money at a technical problem and it gets solved. YC doesn't seem ideal for everyone but can still be valuable and help hone your people & ideas. $20k is a paltry amount but legal fee's are included. Advice among your peers and veterans in the industry would be invaluable.

Value

[Anonymous Coward]

$20,000 for 5% = a valuation of $1,000,000. Who here really thinks every idea,a nd yes, it is uasually JUST an idea, is worth $1,000,000?

If you do, well, you are pretty much nuts!