Slashdot Mirror
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.
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.
Hax-fu?
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.
"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...
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
http://m.earth.org.uk/
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!"
I wonder if I use bold in my signature, people will notice my posts.
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.
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.
Hax-fu?
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.
I am Jack's complete lack of surprise.
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.
Use 'slashdot stuff' in the subject line in any email you send me if you want to get past the spam filter.
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.
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).
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.
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.
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.
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.
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.
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.
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.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
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.
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