[...] [C]ompanies that Y Combinator is funding are at a 60x discount to what a VC is funding companies at. [...]
I am also a big fan of Paul’s writings and Y combinators’ concept in general but this model seems to exploit the entrepreneurs. Paying $2000 for living expenses and giving only 3 months to develop the idea, means that these folks are putting in long hours and are under tremendous pressure to complete the project while living in quite poor conditions! It is great for Y combinator as they are able to spread the risk and play with very little money on each project but I am not sure if this is such a good deal for the entrepreneurs.
But I guess these kids (21-25 years old) do not have other options since they do not have personal savings and are hoping to leverage Y combinator’s contacts to get follow on rounds or get acquired. But it does smell like exploitation to me as they are getting paid less than minimum wage if you take into the account the extra hours they are putting in.
Chris,
We have been asked this many times. Really what it comes down to is a group’s financial situation and comfort level with getting in to the deal. It’s true yCombinator doesn’t give much money, but they also don’t take a big equity stake in the company either. We’re “boot-strapping” the company now and making enough we haven’t had to go out for additional VC funding, so the yCombinator model worked very well for us. So for Inkling, it wasn’t really the money we were getting, it was about:
- overcoming the inertia of being in very well paid jobs at Accenture and Digital River
- a validation of our idea and approach
- making tremendous connections
- namebrand recognition associated with Paul Graham. This is less important now but as any startup knows, in the beginning, gaining legitimacy is extremely important. We met the O’Reilly folks while out in California during our development period. Working with that first brandname got us started in being able to talk to others about the work we were doing. When someone looks at a list of your clients and sees names they recognize, it makes them feel more comfortable working with you because others are sharing in the risk.
So if you are talking strictly money, sure, it’s not much, but we felt there was enough upside with what they offered otherwise, that it wasn’t an issue. And frankly, we’ve met plenty of start-ups who have gotten big VC funding and they’ve lost their focus and fail. If our business doesn’t do well, we don’t eat and pay our mortgages. That keeps us focused.
“It’s true yCombinator doesn’t give much money, but they also don’t take a big equity stake in the company either.”
Important precision.
I wish you well, and I also wish well to all of your competitors.
If the field of prediction markets expands like crazy soon, all consultant and providers will be able to profit from it.
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