Loopt. Reddit. Xobni. Bump.
Paul Graham--and the seed-stage venture firm he co-founded, Y Combinator--have been there at the start of all of them. And now Y Combinator is growing, too. In the last two years, the Silicon Valley funding group doubled its number of active startups to 40 and brought in a prominent new partner, Gmail's lead developer (and Xoogler) Paul Buchheit. We asked Graham to give up the goods: How exactly do you spot the next big thing?
What's most essential for a successful startup?
The founders. We've learned in the six years of doing Y Combinator to look at the founders--not the business ideas--because the earlier you invest, the more you're investing in the people. When Bill Gates was starting Microsoft, the idea that he had then involved a small-time microcomputer called the Altair. That didn't seem very promising, so you had to see that this 19-year-old kid was going places.
What do you look for?
Determination. When we started, we thought we were looking for smart people, but it turned out that intelligence was not as important as we expected. If you imagine someone with 100 percent determination and 100 percent intelligence, you can discard a lot of intelligence before they stop succeeding. But if you start discarding determination, you very quickly get an ineffectual and perpetual grad student.
So how do you determine determination?
When we interview, we decide in 10 minutes whether to fund people. We talk about their ideas, because that's the best way to figure out what kind of people they are.
What impresses you?
Knowing the business. If we ask a bunch of questions and they have the answers at their fingertips because they understand the domain really well, that's a good sign. Being concise is important, too. If you really understand something, you can say it in the fewest words, instead of thrashing about.
How do you spot a great idea?
It often sounds like a bad idea. When Facebook first started, and it was just a social directory for undergrads at Harvard, it would have seemed like such a bad startup idea, like some student side project. Or when Google started, there were eight to 10 successful established search engines already, and search was so uncool that they were trying to get people to call them "portals."
But return is always proportional to risk, so what that means is: The very best startup ideas, the ones that are the biggest successes, tend to be the ideas that you don't know are even going to work.
And you can see where that line is?
Well, this is why we pick based on founders.
This article was originally published in the March 2011 print edition of Entrepreneur with the headline: Money Man.
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Comments:
"There's nothing wrong with Dumb !" wow, you are really into that point ! So, is there anything smart about a business with no business model for four years ? Hit me with some brilliant stuff, kid. Tell me, exactly, what you would do if you were Bump, Disqus etc. Is there a penny of value to be extracted by the founders/investors from these two "successful" projects ? (crickets...)
Did you see the quotes around "dumb"? Do you think that means I agree with them being called "dumb"? Did you read the rest of my comment? Keep thinking, you'll get it!
I don't know, Matt, you sound too intelligent for me to rebut. "Dumb? What's the matter with dumb?" Wow, I can't top that, man...
OK, then what's the model for anything other than dropbox and wufoo. School me RJ, you captain of industry, you. How does Bump make money ? Cool technology... but what's the model ? Paul is truly one of the great business model bloggers, has been for many years... the title of this piece is called "Money Man", after all. But he seems to be professing an allergy to common sense with this "screw the idea, fund the team". So give it up, RJ, tell me why Disqus is going to be a billion dollar business someday. Anyone? Click to examine from the source the utter lack of a business model for the forseeable future for Bump: http://www.quora.com/What-is-Bumps-business-model And a hilariously blank screen for Disqus: http://www.quora.com/What-is-the-business-model-of-Disqus?q=what+is+disqus I'm 100% aware. There is no model. You are the one that's unaware, RJ.
It's a good question - will you, as much as you enjoy Disqus, pay them a penny for their service, ever ? Will a webmaster, with free Facebook comments as an alternative, pay Disqus a penny for their service, ever ? Is this Disqus thing a hobby ? A business model for Bump looks pretty far out, too, and these are the strongest of the hobby crop YC seems to fund. We'll see if money can paper over "no business model whatsoever". Perhaps money is attracted to such things, much as Carnegie enjoyed funding public libraries after he retired...
No tape deck for you !
With a attitude like that... TinyVox will fail for all the wrong reasons!
Often the business model emerges after the idea has been thoroughly developed and a user base has emerged. For instance, the very comments on this blog are powered by Disqus which is a Y Combinator startup. It has been integrated into so many blogs that if they started charging (even a small nominal fee) they'd make a killing. With fairly low start-up and running costs, the risk/reward to VCs like Paul is quite appealing.
So? What's the problem with a bunch of "dumb" startups? I don't see why it's bad to let some young people run with an idea, even if they can't "monitize" it immediately. Even if it's a horrible idea and they fail after a year, it's a year and they'll learn a lot and move onto something else.
Just because you are unaware of the model, does not mean they are lacking one.
I agree, Paul Graham's "founder" spiel is why there are so many dumb startups cropping up all over the place lol
Why do so many YC startups have no real business model? Other than dropbox and wufoo, it's very vague how these companies like Bump are going to monetize. It just seems very groupthink up there, while real startups scrap for every sale from launch these YC startups get a padded balance. It seems to me like the major labels in the 80s-90s, who will never sign nirvana until after they get big on their own.