Is Y Combinator Worth It [in 2023]?
I did Y Combinator in Summer 2011 for my startup CryptoSeal. I’d previously founded some “weird” tech businesses, and contracted at a few venture-funded startups, but never been a founder in a traditional Silicon Valley startup, and was 32 years old, moving to the Bay Area after nearly decade in Iraq, Afghanistan, Kuwait, Qatar, and UAE. While 2011 seems like forever ago now, it was also only a couple years after the “Great Recession” and it was still unclear what the economy was like (in retrospect, in tech, it was the beginning of a long bull market).
The company was co-founded with a couple of my friends — Tom Sparks, who I’d known since EFnet #gothic on IRC in the early/mid 1990s, and with whom I’d worked on a bunch of tech projects including assistance with networking for HavenCo, my offshore datahaven startup 1999-2002, and some of the networking for my conflict zone satellite networking company Blue Iraq 2004-2008, and Erik Berks, a NetBSD developer and former Googler.
We had a decent idea that I’d wanted to build for about 15 years — trustworthy and confidential cloud computing, enabled by processor security technologies like Intel TXT, the Trusted Platform Module (TPM), and what later became Intel SGX — and some of the technical expertise to build it. We didn’t have any real experience raising venture funds (I’d raised a few million from friends back in 1999 for HavenCo, but that was an entirely different time and market), and we were all physically living in the Bay Area at the time (which at the time was the tech epicenter of the world), so doing Y Combinator really was an obvious choice.
Back then, being in the Bay Area was a plus (in every way except for cost, but we’d all found ways to live there relatively inexpensively), and for a technology and enterprise company, Y Combinator was a clear value add — great community, product and business advice from amazing founders, etc. The economics of the deal had recently been improved by Yuri Milner/DST adding a follow-on SAFE on incredibly generous terms to the initial YC investment, and for us, everything worked out great. I met an amazing group of people in the program (and am still friends with many), rapidly accelerated our progress, and got us to an initial product and eventual sale of the business to Cloudflare a few years later. Tom went to work for Y Combinator itself, and Tom and I especially did a lot of Y Combinator related volunteer labor over the next years (outreach and screening initial submissions.). I would absolutely recommend any tech or b2b startup already based in the Bay Area in 2009-2012 to do Y Combinator in retrospect, although if you’ve got only one shot in a time machine, just buy Bitcoin back then instead.
My take on Y Combinator became a bit less universal in the following years. While YC community and economics remained pretty strong (the valuation increase more than covers the dilution), some of the value of the program was reduced for a lot of different types of startups. It was a 100% obvious choice if your startup sold to tech companies or other YC-community-like entities. It was a pretty obvious choice if your startup was going to be based in the Bay Area anyway (which, at the time, was the best choice for global consumer stuff like the next Twitter or Facebook).
YC didn’t make as much sense for geographically-strong startups for markets outside the Bay Area — either because the majority of the team was based in some other place, or because all the customers were there. In some cases it probably still made sense, but it wasn’t a completely obvious choice. China was one market where it almost certainly wouldn’t have made sense to relocate the founders to the Bay Area for 3 months and then return; the world would have changed in those 3 months.
YC also was (in my option; people might disagree) much stronger for SaaS or software in general than it was for other kinds of businesses, although there were a lot of efforts to expand YC to other types of businesses (and there were some successes).
The biggest drawback for YC in my opinion in 2016-2020 was pretty clear, though: San Francisco. Both within the Bay Area (lots of YC companies migrated to San Francisco itself, vs. the Peninsula), and the entire Bay Area (and California generally), went from being “obvious choice” to “strong positives and negatives” to “ugh”. There is value to something like YC having all the people in physical proximity a lot of the time, but there was increasing negative to the Bay Area as a place to be — incredibly expensive, distracting, and generally becoming horrible.
I probably would have still recommended YC to “startup selling stuff to tech companies”, but for a consumer company, something geo focused anywhere but the Bay Area, an established org with a strong non-Bay-Area team, etc., I wouldn’t have recommended it without reservations.
Covid sucked in so many ways for so many people, and tech people who were generally young, wealthy, and could work remotely/from anywhere suffered the least, but there were some changes to many things as a result, some of which were very positive. Y Combinator became remote-only and then (now) is “remote friendly)”. A company I’m talking to had actually discounted the idea of doing Y Combinator because they’re older people with established lives who didn’t want to uproot and live in the Bay Area for a summer, but due to the “remote friendly” program, it’s totally possible for them to visit the Bay Area 2-6 times in the summer instead. They’re more selling to large enterprise and government rather than startup/tech companies, but there’s a strong consumer product style focus for the tool, so it makes sense to learn the YC lessons, and the network, economics, etc. all make plenty of sense.
Another reason why I’m super bullish on YC now compared to before is YC has brought back one of the best people I’ve ever encountered through the broader YC community — Garry Tan — to run Y Combinator. I loved having Paul Graham involved with YC back when I did it, but Garry is of comparable excellence.
With this “remote friendly” option, I think I’d go back to “YC probably makes sense for almost all startups” — so I’d encourage them to apply.