Back in 2008, three young men applied to Y Combinator (YC), a school for startups, looking for help with their tiny firm, AirBed and Breakfast, a website that helped people rent out inflatable mattresses in their living rooms during conferences. YC helped them to refine their idea and meet early investors. Today, Airbnb, as their firm is known now, rents whole apartments in 190 countries and is valued at $25.5 billion.
Since 2005, YC has taken on batches of promising founders and this month they celebrated the funding of its 1000th. startup. About half have failed, but the successes are quite remarkable. Eight of these YC firms have become what Silicon Valley calls “unicorns”, valued at $1 billion or more. Examples:
- Airbnb (joined in 2009),
- Dropbox (valuation at $10B, 2007),
- Stripe (value $5B, 2010),
- Zenefits (value $4.5B, 2013),
- Instacart (value $2B, 2012),
- Docker (value $1.1B, 2010).
Combined, the companies YC has invested in are worth around $65 billion, although YC’s share is only a small fraction, maybe $1-2B.
So what is YC’s magic? YC melds the best of an investment firm and a university providing coaching on how to refine the product and create a viable business plan. It puts in a small investment (typically $120,000 in return for a 7% stake) and has produced a group of successful alumni. It has helped popularize the idea that startups are a viable career. Thousands of aspiring entrepreneurs apply to attend the 3-month YC program, mostly because of the networking potential with investors and other attendees. For its spring 2015 class, YC received more than 6700 applications and accepted around 1.6% of them, better record than Harvard University.
YC has a small campus in Mountain View, close to Googleplex. At the end of the three months, entrepreneurs deliver a presentation about their business to a group of Silicon valley’s top investors. This event is called the Demo day, where new ideas can be demonstrated to investors.
There are many “accelerators” like YC around the world (they have replicated YC’s investment and training philosophy), but none has achieved YC’s brand or its record.