This is a very poor metric. Companies running out of money and doing a small exit counts as "good" ("conversion") while a successful and growing company is interpreted as something negative (no exit).
More relevant for employees who care about a liquidity event, even if it is at a lower price, vs. investors who are willing to sit for 10 years and write off a loss on 90% of their portfolio.
It's a terrific metric for founders who would like an exit. Statistically, a smaller exit works out much better for a founder than an IPO. Doesn't work for the VC so much. Maybe YC is anti founder?
I am the founder of Zip Phone (S14), the only company from that batch to have had an exit so far according to yclist. This is my quick story - joined YC in the summer of 2014 with a product that I had been working on in my spare time. Spent my 3 months in Mountain View, but just did not have the traction to make an impact on demo day. Discussed it with my group partners (qasar, pb, dalton etc.) and they recommended that I defer my presentation to the next batch. Came back to India to continue working on the product, and meanwhile got an acquihire offer from a local company. The offer wasn't impressive by YC standards at all, and I reached out to the partners for more advice.
This is what they basically said - Do whatever you want, we'll back you up. No ifs and buts. No conditions. Pretty much unconditional support.
The acquisition finally did go ahead, and YC essentially just got their money back. But at no point did I feel pressured to do anything. Even when things weren't rosy, YC was always there for support, but never any undue pressure.
Needless to say I suppose, but I'm a fan. I'm working on a new startup now, and hopefully will apply soon again to YC!
By small exit, I believe the parent is referring to an acquihire with a multi-year earn out for the founders. The point of such exits is to return investor capital.
That's better than nothing. I've looked at these numbers before in other places. It's pretty obvious the average quality of either YC advice or founder is declining. I suspect SS (as a feeder) is an answer to this problem.
Ok, point made below, possibility is that environment has got more startups in general and more competitive.
Now successful companies can provide "minor" liquidity events for founders and key employees. Depending on the level of success, the "minor" amount could still be larger than some exits.
If anyone could inform us more about these pre-exit liquidity events, such as conditions and amount for different roles, many people would be interested.
This seems to have changed over the last several years. YC used to be very pro-founder in this regard, from an outsider perspective.
There's a pg essay that I can't find, but in essence states: Our rule is that it's up to the founder. If they want to aim small, that's fine. We ourselves aimed small with Viaweb. We didn't want to work on it the rest of our lives. It would be pretty lame to push founders into doing something that we didn't want to do. (EDIT: Found it: http://www.paulgraham.com/swan.html#f1n)
> Jasper: Sam Altman has said that the only criterion Y Combinator uses to evaluate applying companies is, “Can this be a $10 billion plus company?” like Airbnb and Dropbox. While this model works great for a fund, there is an Early Exits movement that suggests individual entrepreneurs have a much higher likelihood of success when they raise less capital and target exits in the $20 million range. What do you think this view?
> Paul: The math does not support this strategy but if other investors want to try it that’s fine. Also, it is not just returns we are looking for but really impactful companies. When you sell too early you don’t realize the full potential.
> For example, Facebook had an offer from Yahoo for a billion dollars, which everyone told Zuck to take. Fortunately, he said no. Had he said yes, it would have been another failed Yahoo acquisition and Facebook would not have nearly as much impact. The reason we have these big and influential companies is the founders believed in a long- term vision.
I think all YC companies have always aimed big, but some, like Zenter, were fine with being acquired by Google for a smaller amount. And YC was fine with that outcome in the sense that there weren't any institutional forces set up to discourage founders from pursuing it.
YC's signals now seem to say, "A small exit is equal to failure." And while that's true for YC as an investor, I'm not sure it was true for YC's institutional forces until the last few years. If you're in an environment where all of your peers consider you a failure if you sell for a few million, are you going to want to resist that peer pressure? Especially when they're your friends and mentors?
I want to be very clear that all of this is an outsider's perspective. Hopefully someone in YC will issue a smackdown if it's mistaken. I was just giving some supporting data for why people are feeling this way.
As a founder of a YC company, I can tell you there's no signal from YC that "a small exit is equal to failure".
From personal experience, I can tell you that YC holds the wellbeing of the founders it funds as a top priority, even if it might seem to be against YC's own short-term interests.
It's true that YC's economic model is to fund companies that can be $10B+ successes, because having a few companies that make it into that league enables them to fund all the other companies that don't make it that big.
But they're still happy for founders who don't achieve "unicorn" status but make an exit that yields them a life-changing amount of money, or indeed any outcome that leaves them better off than they were before.
Still, they'll encourage all their founders to try to build a breakout company, because by doing that, even a "small" exit will often be much bigger than the exit you'd make if you started out with deliberately modest ambitions.
> “Can this be a $10 billion plus company?” like Airbnb and Dropbox
I have said it before and I will say it again: this nonsense is going to be the death[1] of YC. Airbnb/DropBox/Stripe/Twitch would not stand a chance getting funding from YC today.
They fell into the same trap that kills innovation like everyone else: as they grew bigger they started taking less risks.
What makes you think YC takes fewer risks today than they did before? Going through the list of companies on yclist.com for the most recent batch, there seem like quite a few companies I'd consider risky, even compared to a nascent airbnb, dropbox, stripe, or twitch.
Like blizkreeg said in another parent post, minor/small exit likely means acquihire. Which is technically better than nothing but sometimes the founders get nothing out of it except maybe a pay bump compared to peers if they remain at the acquiring company long enough. That's a potential negative along with the positive.
I'll look for references for my side. Do you have any for yours? When I see an acquihire and the price is clearly low. To the point where you know almost all that money has to go back to investors, how would the founders get a million a piece?
I was always curious about this too. Sam Altman sold Loopt for less than all the funding he got, and yet he still says in multiple places that he was able to pocket a couple million.
The Loopt deal seemed sketchy from the get go. And was one of the first concrete tangible things that made me start to think YC isn't much different than the rest of Silicon Valley in not being a meritocracy, the opposite frequently.
Loopt was effectively dead in the water when it got bought. It was a geo location app. But it got bought by Green Dot. A frequently despised (look at their reviews) finance/prepaid card company. Loopt and Green Dot happen to share connections like Sequoia. Once Loopt is acquired, nothing is done with it. Or its tech. I highly doubt they would want to spend $40M+ to acquihire however many people came over, and not even the founder. Unless Sam did?
I hate turning this into a rant, but YC's treatment of Maciej [Cegłowski]/Pinboard and the way they took back their word..eh I could say harsher things, but I'll regret it. But their handling of the community supposedly choosing a few people for F3 last year was not cool. YC seemed just like the rest of SV. https://news.ycombinator.com/item?id=11633270 is an example of the incident.
That makes me think even more firmly that the Loopt deal was done by connected people exchanging hand shakes and favors.
Er no that's not often true. I guess it depends on what you mean by "better" and "small" exit but often an acquihire or low cash exit isn't better than if the company ipos. Consider liquidation preferences, ratchets etc.
Clearly if you get to choose, choose to IPO :). I think the idea here is that many founders would be better taking $5-20M acquisitions along the way than shooting for the moon- shooting for the moon is better for investors, as they have a portfolio and are looking for black swans to pay for it. But founders usually only have one startup at a time.
I realize the conversation in the thread pertains to exits and funded companies. But I keep thinking why is there a general negative perception or often a sense of ignorance/neglect towards successful, ongoing, revenue-generating businesses (that haven't taken any or very little funding before reaching profitability) whereas even a minor exit (acqui-hire) will often put you in the metaphorical league of 'successful' founders?
Because most tech start ups in the valley are funded by private investors, and for them usually the best outcome is either an exit or an IPO. When the industry is dominated and controlled by this kind of funding, these goals end up idolized because that's just what rules the land. The VC wants to flip it to Google, the entrepreneur just hopes that he doesn't fuck up and that his investor gets his outcome.
There are plenty of us here running profitable tech companies bopping along doing our thing and who don't have to deal with investors.
While the perception is HC as a community is negative towards these sort of companies, the reality (at least from my experience) is it is pretty interested and supportive of such startups.
Agree, there seems to be a standard path that startups are "supposed" to follow. Though in this case, I imagine it is probably just because any other measure of success would be difficult to measure.
Where do you see that? I don't see that anywhere! Obviously, the higher the exit the more successful you are. However, exiting once and getting fyou money (e.g., PG and viaweb) makes a lot of sense. Once you have bank then you can spend the rest of your life working for an IPO. It's really up to you.
How is viaweb anything like that? First off. Compared to the avg modern startup, in pretty sure viaweb took little in funding so founders likely had most of the ownership. And they got $50M in stock of a company that would keep going up for another 1.5 years. And $50M back then is like $75M or more in today's value. That's not an acquire or even a small/minor exit.
Also you said fyou money. A minor/small exit wouldn't give you that. A million or two isn't fyou money.
I found YCList to be out of date and inaccurate for the handful of companies I've looked for on there in the past. Not sure about its general overall accuracy though.
It's very inaccurate for my batch (S10) at least, for which I know of about twice as many exits as are listed.
And as others have mentioned, the bigger challenge is that "exits" aren't a good metric for either gauging YC's success or for making founders rich. The companies that have "failed" to convert (i.e., exit) from S10 include Stripe, PagerDuty, and Docker.
Sure, but that error rate is probably relatively consistent. Probably exits aren't listed for earlier years either. Unless everyone is getting more secretive about exits, which is interesting in itself.
Anyways, maybe someone from YC will comment. They know the truth and it's a worthwhile figure to publish.
It is probably not that exits are more secret and more that since YC has scaled up the number of entrants, so the number of exits that people care to publisize becomes a smaller and smaller percent of the total number of members in a batch.
But I don't think the point of this is to look at it from the investors' point of view. The point is to look at it from the founders' point of view. That is, as a founder, what's your basic (binary) chance of your company being a success? Founders don't get the chance to diversify across many companies - all of their eggs are in one (their own company's) basket. Thus, for them, a "percentage chance of a positive outcome" is an important metric.
Then why doesn't the metric account for companies that have not shutdown and not exited, i.e. have grown beyond a certain value? Isn't that closer to the most favorable founder outcome?
That metric (grown beyond a certain value) is much harder to get for private companies, and private valuations are all pretty fuzzy anyway. Exits represent a real, verifiable, concrete event.
I don't think his metric is perfect, and there are other ones (how many companies just shut down and returned what was left to investors) you can look at, but overall I think it's a good proxy for "what percentage of ycom companies have a positive outcome".
Surprising. I would have expected the success of YC startups to have increased with time -- more selective program, higher prestige value, bigger network of fellow YC startups to work with.
I'm not familiar with the term "conversion rate" in this context. Conversion rate in marketing is someone that sees your ad and buys the product. For the post and the comments here conversion rate means rate of startups that have exited. From where does that meaning comes from? I googled but only found references to the marketing business.
Your conclusion is odd about 15% over 10 years. The conversion rate is declining. Doesn't that mean ycombinator is failing? I mean worse than being stagnant, the value of ycombinator to startups is declining over time. The conversion rate is going to zero, if you ask me.
The goal of a VC is not to have a high conversion rate... it's to find the big winners. Airbnb + other 'big wins' are 1 in 1500 or higher, but account for the vast majority of returns.
YC started out with a sub-dozen class size. Now it has more than a hundred per batch. The conversion rate is going down, but the hit rate, which is all that matters, likely is going up. More hits with more failure == more success for yc.
You're excluding brand dilution as a function of class size. Knowing you are going to be one of 100+ companies going through the program each semester makes you less enthusiastic to join if you already have a very promising or successful company, and it makes it harder for VCs to determine signal; "It's from YC" stops being good enough.
A big reason for the class size explosion is almost certainly for network effects, a fleet of ready customers who support YC and drive growth out of the gates.
It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable?
> It creates the space for another brilliant investor to launch a rival YC that caters to a small size of elite founders. Isn't that almost inevitable?
Sell their startup for an outsized sum during a bubble to a failing giant only for it to be defunct within a short time? Just to go by viaweb's example.
That would put at least Mark Cuban in the contending since they both sold to the same failing giant.
They let in far more companies now and have different tracks available than before. Is a lower conversion rate worse? I think the true judge of that would be is the overall ROI going down.
It's only failing if the absolute number of the pool of cash YC swims in is smaller than it would have been if invested elsewhere like stock market indexes. Returns always fall as you get larger, but you're making even more money. Far better to have 10% ROI on a billion dollars than 10000% ROI on a few bucks. The question is not what the average is, but what the alternatives are.
Well, you can't harsh these findings too hard. Considering yc is a pretty successful unicorn hunter, having many exiting startups in their portfolio is par for the course. I suppose the board at yc would rather see a bunch of exits and a few IPOs than one Uber and a bunch of "great ideas".
Also, I have to address the claim of small samples. There is no sample size inherently too small. We make estimates of uncertainty given information. We might wish to extract more certainty (statistical efficiency per n), but that's part of the art. Smaller sample sizes are more work for the statistician but not less valid in any way.
At least one issue is that since the survival curves are different for each batch (as established by your final 'Y Combinator conversion rates by vintage' section), your data is not i.i.d, the K-m curves are changing over time, and so the overall survival curve and its accompany CIs isn't really meaningful: it's sort of the weighted average of the nonparametric K-M curves of each batch further weighted by right-censoring of more recent batches... or something like that.
You could try instead showing stratified curves by year, or directly modeling how the hazard rates change over real time. 'survival' claims to support the latter by the 'crazy clock' method (but when I tried doing that in https://www.gwern.net/Google%20shutdowns I never could figure out how it worked).
One thing I wonder is whether YC is scraping the bottom of the barrel and this is why the conversion rates get so much worse, or if it has become more difficult in general to be acquired; if the former, perhaps including the size of the batch as a covariate would be a meaningful test? Data quality might also be an issue from the other comments, and you could try auditing it by picking a few supposed non-exits and researching them intensively to estimate how much measurement error you have.
It might also be interesting to see if the survival curves look more like type I, II, or III curves or what parametric distribution might fit best - looks like it could just be exponential/memoryless which is interesting.
Yeah, you could do competing risks. I see yclist.com does distinguish between 'dead' and 'exit', although your CSV doesn't. You can use 'comprsk', I remember it as being no harder to use than 'survival' when I tried it out briefly for https://www.gwern.net/DNM%20survival . Any competing-risks model going to be very imprecise, though, since if you can't estimate the overall survival curve very precisely, you definitely can't estimate it split into multiple outcomes.
