Interview: Y Combinator Founder Jessica Livingston
Not so long ago high-tech startup funding came in only two flavours; flashy venture capital deals which were all about exit strategies and the "jet money" or the friends and family fund. Enter seed capital fund Y Combinator which invests small "seed" amounts in batches of startups, puts the selected startups through an intense 3-month program to develop a prototype and introduced the founders to an ecosystem of investors, experts and other startups. Y Combinator has now funded about 145 startups and the funding model has been copied by firms such as TechStars in the US and Seedcamp in Europe.
Ciara Byrne of TheNextWomen talked to author and Y Combinator founder Jessica Livingston about founders and startups.
You are one of the founders of Y Combinator and published a book of interviews with startup founders (Founders at Work). Where did your fascination with early stage companies come from?
I was working at an investment bank in Boston. It focused on emerging growth companies so we were supposed to understand technology startups. At the same time I had several friends who had founded startups, and the stories they told seemed completely different from the picture we had of startups at work. Comically “unbusinesslike” behavior struck me as actually critical to the success of a startup. So I thought that the earliest stage of startups was a mostly misunderstood and yet very important area.
Did any patterns emerge from the stories the founders told you and do you apply any of them in Y Combinator?
Founders were often very uncertain at first, either about starting a company or about what their product should be. Another pattern was that they generally persisted despite many rejections. Determination was probably the most consistent pattern among the founders.
One of the interesting snippets in Founders at Work is about the wives of some Xerox executives loving a demonstration of new Xerox PARC (legendary research lab) technology. Do you think that high-tech startups would look very different if there were more women involved in them?
It’s hard to say, but maybe not that different, because the most successful startups are more a reflection of the needs of their users than the personalities of their founders. Would Google be any different if the founders were women? I don’t know. It’s critical for founders to have empathy for their users - especially in the early days as they begin to develop the product. It's even better if the founders are trying to solve a problem they themselves have.
What proportion of the companies you work with at Y Combinator have a female founder?
So far, 10 out of 145, or about 7%. This ratio is reflective of our applicant pool. Of course, I’m hoping this number will increase.
From your experience with Y Combinator, do you find that male and female founders approach things in a different way or are they more similar than different?
Practically all the female founders we’ve funded so far focused on design or sales/marketing rather than programming. So while there has been a difference, it’s hard to say how much of it is due to male/female differences and how much is the difference between technical and nontechnical founders. In my experience, the technical vs. nontechnical difference seems to be the biggest.
Why did you choose the “little for many” funding model that Y Combinator uses?
We’re trying to be “first gear” of funding. We’re not expecting the money we invest to be the last a startup ever raises. It’s just to get them going. And we want to get as many startups going as we can. The good news is that most of the startups we’ve funded are either profitable or have successfully gone on to raise more money.
Do you think there is still a funding gap in the startup market, e.g. outside of VCs and angels?
Yes, there seems to be a gap around $200-300k. It can be hard to raise that much from angels, and VCs rarely invest at such a low level.
One of the advantages you give for Y Combinator is that the small investment allows the startup to sell early. When do you think it makes sense to do this?
It makes sense if the founders want to. Different people have different circumstances and different attitudes toward risk. Given the same offer, one group might play it safe and take it, and another might decide to keep going. These days it can be so inexpensive to run a web-based startup. If a YC company becomes “ramen profitable” without taking additional funding, then an early acquisition might seem like an attractive option to them.
Do you think there is a downside to way that web-based startup culture focuses on the exit? Shouldn’t we also be trying to start companies that endure as stand-alone entities like Google?
Of course as investors we’d love it if everyone we funded kept working on their company till it was as big as Google. We’d make a lot more that way. But we don’t try to force them to. Part of our philosophy is to let founders do what they want, and when a founder with few assets gets an offer worth millions of dollars, it can be hard to say no.
What advice would you give to somebody wanting to start a web-based startup right now?
Apply to Y Combinator! Sorry, I couldn’t resist, though I would actually give that advice. In general I’d say not to be afraid to do it if you want to, especially if you’re young enough to stand the risk financially. Even if you don’t ultimately succeed, you’ll learn a lot.
I would also tell people to pay attention to users. You can't build a successful technology company without making something that makes users' lives significantly better. If you succeed in doing that, it's hard for anyone to stop you. So I would say look around and ask yourself: "What could I make that doesn't exist yet, but would make people's lives better?"
Republished from CEO seeks startup.
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