In executing on an idea, the end result is often very different from where you started. They might look similar now, but in 5 years one went enterprise on feature set and the other consumer etc etc.
Stirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition.
My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.
It makes sense as an investor, doesn't it, you identify markets you see an opening, you check which companies are in that domain, pick the ones where they can execute and have good people on their team.
It would worry me as a startup company, who knows where the information I share with them will end up...
A more interesting question is, do you as a startup company have any information worth sharing? Ideas are dime a dozen and like you just said, the differentiator is the capabilities of those people. And that is not something that can be shared, and no other startup can benefit of it.
I think there's something missing from this analysis - YC companies might duplicate one another's products but that doesn't say anything at all about their target markets, route to market, product focus, etc.
As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.)
You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.
The great suspicion with YC is what proportion of YC companies have all their customers being a mix of other YC companies and those with shared investors?
There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
> There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
It was nothing like as bad as this 10 years ago, no.
Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.
Yes it was like this for Apple, Microsoft, Google, Facebook. The difference is that at that time the genius youngster (which is just the son of some already successful people) creating startups were cool. Now nobody wants to make or watch a movie about Sam Altman and OpenAI.
Ten years ago was 2014 - Sun, HP, Apple and Google were all very much "old hat" and entrenched. Hell, HP was in the process of significantly cutting back it's business and eliminating jobs[1] (34,000 lost jobs in 2013 and ~16,000 in 2014 is an interesting "positive externality" lol). There was no ecosystem producing them, they were the people who were either running SV, or realizing that their time in the sun was coming to an end.
This can be a good thing. One of the hardest things about building new software products is getting initial customers to discover your bugs, missed requirements etc and also add credibility.
As an enterprises SaaS buyer, I'd much rather use a code documentation tool that'd been circle jerked around a YC batch a few times compared to one with no prior customers.
Incidentally, if anyone else wants to reinvent IBM DOORS for ~1000-requirements fields, email me. There's a vast market out there for combined hardware/software shops that are in the no man's land of "not designing an entire literal train from top to bottom" and "not just hiding a Raspberry Pi in a trench coat".
They could, but it's IBM so any 'lite' version wouldn't stay lite for very long. They mostly excel at making huge, complicated things to sell to other huge, complicated businesses. They aren't very interested in, or very good at, making small things they need to sell lots of (and, to their credit, they recognize that and stick to what they're good at.)
Well they clearly have the potential to sell the same but without any of the add ons, or most of the support or guarantees, and with functionality restricfed.
Wouldn’t they do so once they notice there is a serious challenger?
That's the famous innovator's dilemma. It's very hard for a company to sell a product that undercuts a product that makes a lot of revenue for them, even if it's the "right" play. So that wouldn't be a risk I'd worry about in practice.
It would be a cheaper alternative for at least some use cases. At least some companies that were currently using the big version would switch to the lite version.
Yes, they are. But it's very hard for a company to sign off on releasing a product that's going to cost them sales of their big money-maker, even if in reality those sales are going to be lost to an outside competitor anyway.
1 times a large sale is still most times better than 10 small sales, if your company is focused on larger sales. Smaller sales are a whole different thing and needs a different (organizational) architecture.
Yes, I agree and would add other reasons. It's always seemed obvious to me that YC would invest in multiple startups working on the same problem space for these reasons:
First, compared to a traditional VC, YC is micro-investing in far more startups and doing so faster and more frequently.
Second, YC highly prioritizes founder/team quality over ideas but teams come to YC by pitching an idea. I just read an article yesterday citing evidence that in the last 10-15 years the diversity of startup ideas has declined significantly. This makes sense. Enormous amounts of information about what other very early stage startups are doing as well as which areas are currently being funded is readily available in near real-time. As a serial entrepreneur who did my first startup in the 80s, second in the 90s and third in the early 00s, I can attest we had nothing like this visibility in earlier eras. Ideas which are getting funded and which sound like good ideas in hot areas are obviously going to influence founder idea selection and cause clustering.
Third, YC knows that many startup teams will pivot away from their initial idea once they engage with real customers in real markets. So much so, YC considers it a sign of a smart team working well together. However, like all VCs, at any given time YC has broad sector themes it considers especially ripe for various reasons ranging from new technologies enabling disruption to expected high growth in an emerging sector.
Fourth, is the reason you identified. Having a good enough high-concept idea is necessary but far from sufficient for startup success. In addition to the execution details like go to market that you mentioned there's also timing. Even being 12 months earlier or later can make a difference toward making it. Finally, there's the luck factor. While it's true that quality teams are better able to maximize good luck when it happens and also have a tendency to increase their overall odds too, luck still matters. In my successes we had to get a lot of things right but there were also three or four serendipitous things that made a big difference at important moments. The only way for YC to solve for both the micro-timing and luck factors is betting on multiple similar startups around the same time.
I wonder how successful market pivots are, on average.
Seems like flailing to me.
How can one take money to achieve x, build plans and hire people to achieve x, and then do y instead and not fall down in the necessary interval, unless the y product happens to be a side effect of x?
It's true that some startups just randomly try other ideas when the first one doesn't work - and some of those incorrectly call that flailing a "pivot." However, that isn't the actual concept behind pivoting.
Pivots are a thing because early stage startups are often pursuing an opportunity space they are betting is just emerging. Because of this there's often little data to go on when they start and they're making educated guesses about a bunch of things from product features, primary customer, go to market and business model. The concept is that a startup should very quickly develop an MVP which enables engaging with actual customers. That engagement often reveals which initial assumptions were incorrect. Hopefully they were incorrect not because they made a dumb mistake but because the correct answer was unknowable without testing.
That testing also sometimes reveals completely new customer and/or market information about a bigger opportunity in that area leading to a pivot. This is akin to sinking temporary test wells before building an oil derrick and pipeline. Even the best geology analysis can only give a probability of oil being found in a given location. Sometimes sinking test wells reveals the oil is actually a quarter mile to the East. That isn't really a pivot but more like product/market tuning. A surprising number of times, the process of sinking those test wells to discover oil leads to discovering something else just as good or even better (ie gold). That's a canonical pivot. Experienced founders and VCs can pretty easily tell the difference between flailing and a pivot because the pivot is motivated by actual real-world customer/market response encountered while validating the first idea.
An example might be a startup whose first guess at the right product and customer was "An expense tracking program for sales people." After building a prototype or MVP and putting it the hands of some actual salespeople, they discover that, while nice to have, it's not compelling enough to buy. However, during their field visits to observe customers using the MVP they learn that field service engineers have a different but related problem in tracking parts inventory which is a major pain point.
In Steve Blank's legendary startup class at Stanford he teaches that initially a startup should be thought of as "a temporary experiment to discover a viable business." Once product/market fit and go to market are sufficiently validated with an MVP, then the process of building the real product and company begins.
One of the reasons that YC is so great is that they back founders, not ideas. YC has never backed the same founder twice in a batch to my knowledge, and doing so is antithetical to its values.
> Yet, a deep dive into the data from all of the nearly 5,000 companies YC has backed to date [...]
The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.
It makes sense. If you are an investor and have a strong belief that a specific product or idea is a good one - you might want to decouple your odds of success from the people/team/company executing that idea.
The conflict of interest is simply dead and forgotten in an era where the president-elect has his own cryptocoin, his own social media company, and appoints his billionaire supporters to improve efficiency in the parts of government that directly oversee those billionaires’ own businesses.
Yes, political corruption is a drag/loss on everyone except the corrupt ones. Worse, it can shift a system out of its viable operating zone. Corrupt individuals in a market can destroy the market.
But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.
I think it's reasonably straightforward they were making the point that conflict of interests are no longer taken seriously, along with many other related things. Politics tends to be a trailer of social views, not a leader.
Individuals who voted for Trump don’t necessarily want to throw away a social contract. Many of them do support societal norms, albeit different ones. And some don’t even think in these terms; they are more motivated by other factors.
Along with many, I think their collective actions point in a direction that (a) undermines democratic rule and (b) enables Trump’s corruption, but they seem to be relatively unaware or disagree with such effects.
Many of them think Trump will combat one some types of corruption (the “deep state”).
Overall, I’m more inclined to think many/most Trump supporters have reasonable core values, especially at the individual and family levels, but due to their information sources and mental processing, their overall choices don’t bode well for us, together. The biggest breakdown I think has to do with epistemic values: how does one find truth.
I don’t think most people, of any party, have the individual ability and discipline to make sense of a modern world in a rational, scientific manner. This isn’t something easily achieved, after all.
About me: I strive to not “blame” individuals in the traditional sense, because I reject free will as a meaningful concept. (Roll back the clock and a person will the behave the same in a deterministic universe. And if the universe has intrinsic randomness, we can’t ascribe free will to that randomness.)
So instead of blaming individuals, I focus on systems and their statistical effects.
I don’t think I made the assertion that anyone wants to throw away a social contract.
I said it was in the bin — it has been thrown away, and not by recent Trump voters, but it started long before that, maybe when ethics became something you didn’t learn until or unless you went through a professional program.
Having talked with a few religious Trump voters that I consider intelligent, they have a larger picture of the world, whereas I think a lot of Harris voters (being vaguely irreligious/atheist) are implicitly making the USA their whole world. Trump voters do not see the risk the same way, and have faith elsewhere. For many Harris voters this was an existential issue. That all said, those Trump voters I spoke with still seemed apologetic.
However it came about, there clearly is a misalignment in the stated social values world, and that is why that social contract doesn’t exist anymore. Whether that is because family forces, or tribal forces, or identity forces, or something else carried the day instead, well, maybe the future historians can sort out.
Two key points, which we probably agree on: (A) There are various flavors of social contracts. (B) Acceptance of any one social contract is a statistical thing, not a binary thing.
The most basic idea of a social contract is the legitimacy of a government to exist and function. This might mean to carry out various agreed-upon roles. And/or it might mean to operate according to some defined procedures, like the rule of law. The vast majority of people either consciously accept this or live as though they do. Of course there is variation on the proper role of government: does it include national defense, maintaining order, creating fair markets, collecting taxes, protecting civil liberties, internalizing economic externalities, investing in R&D, providing a healthcare floor, fighting corruption, etc?
We need to define conflict of interest. Question: is an investor who gives money to one organization, but is not involved in the decision-making, conflicted if they give money to another organization? Are they self-conflicted (undermining their own likelihood of success)? Are they contractually or legally conflicted? Have they breached the trust of people they invested in? Are they ethically conflicted?
Answers to these questions are non-obvious. Attempts to simplify the set of relevant questions means imposing a worldview.
On the ethical question, a consequentialist would say it depends on the outcomes. Like many consequentialist analyses, this is complicated. Consider this: Investing in a similar company might validate the market and make it more likely for the company and/or its people to reach viability.
>This creates an extremely obvious conflict of interest.
That's not necessarily bad though. People like to throw out these terms that sometimes have negative connotation as if they are inherently negative. If you think the conflict of interest is a bad thing, you need to elaborate on why you feel it's bad, not just pretend it's prima facia bad.
It’s not a marriage. Have you ever watched any racing of any sort? One team frequently has multiple contestants. First and third is better than just third.
If that were true, there'd be no point in ever applying a second time to YC.
Anecdotally, people do get accepted after 2-4 failures. Maybe YC was on the fence about those founders and their willingness to slam themselves against a wall repeatedly tipped the scales, or maybe they invest in a certain kind of founder and when they run out of those they invest in "promising" ideas.
What's interesting is that the people who are able to predict and come up with the idea (e.g. a researcher using AI in 2021) are often not the best ones to execute on it (typically, lack of experience or capacity to handle the pain of growth while marketing).
What's most interesting is that most people aren't just "one type". In your life you go through multiple roles. Just like how most people, regardless of their income at age 20 will be earning top 35% income by age 35, people move up in their roles (and struggle at a young age to understand that this will happen to them). It's all about timing and age.
I believe some investors go for multiple teams purely because the ratio of those types is different - like a different risk profile. They invest in one with 80% AI boffins, and one with 80% business folks, and one will likely win in the circumstance of the moment (in the ChatGPT era - mostly the business folks. In the data driven AI era - mostly the AI boffins)
Human beings are the only creatures capable of self-evolution, using our minds to analyse the world around us and the world we have nurtured within us. Over time, we can stagnate into ossified animalistic patterns of selfishness, or we can expand our curiosity, consciousness, and, hopefully, our realization that compassion for others is the source of our own happiness. We can either find ways to better integrate ourselves into a better future for those around us, or wall ourselves off from the world around us. We would do well to remember that carpenters don't make hammers, nor computer scientists their own food, soil, packaging, tractors, or trains.
The use of the vast sums available to successful tech investors gives them a greater point of leverage than the rest of us not so endowed. And the more power is given, the responsibility is required, though few acknowledge or heed such wisdom.
At the end of the day, no matter how confident many folks are, who really has the humility and intelligence to know if a person is a genius? Very few, I guess. Very, very few, indeed.
The general is that income, like wealth, is correlated with age, not ransom. Most workers under 18 will be making near minimum wage. Workers in their 20s are probably still starting their careers. People fall off again when they are older, as they either retire early or in some professions just become less capable.
So when you put it all together, a lot of people with an under average career will have an over average income at 35: Just not an over average income within the cadre of 35 year olds.
The lack of correlation with income at 20 comes from how many careers require training that doesn't give good early income. A future doctor, barista or AI programmer are not likely to have. a great income at 20, but their incomes and wealth diverge rapidly as some have longer training with different outcomes. The doctor will hit the 1% after residency. The AI expert might start making money earlier. The barista is probably ahead in his 20s, but it's unlikely their income grew quite as much, although many a barista is working on doing something else. So again, looking just at percentile of income at different ages is going to lead to mistakes as different life curves are being aggregated together.
Yep. I have responded in another post with some stats/surveys. Exactly, the aggregation of people hides the trends, and the fact that a 35 year old is not competing with other 35 year olds, but also with other 21 year olds working at cafes, contributes to this.
"Most people will be earning top 35% income by age 35" seems like a patently false statement. Clearly more than 35% of the working population is over 35.
- Firstly, I admit I can't find where I heard the age 35 specific claim to reference it. I have listed two sources below and found an even stronger claim by Thomas Sowell (that most people at one year of their life in America earn top 20% income), but it wasn't that statement I was looking for, so I will keep try to find it. But income decile movement surveys in the UK supports this, as do dynamic income surveys conducted in the US, so I'll share those to you:
- Income is highly mobile. When tracking what income groups have, within groups there is great variation. Half the people with top 20% of income drop out of the top 20% over 5 year periods, with a significant proportion of those dropping out (30%) dropping to below average income. In other words 15% of the people earning the top quintile of income will earn below average income in 5 years time.
... Meanwhile, showing upwards mobility, 20% of the people earning the 20% lowest in the UK moved to the top 40% of income by just 5 years later in this study (Figure 19 / corresponding table) - https://www.gov.uk/government/statistics/income-dynamics-201...
- You seem to assume income goes up over time, however in western countries, income tends to peak at 30-50, hence 35 in the stat. It peaks at age 37 and stays flatish until it declines from age 44 in the UK, for example: https://www.statista.com/statistics/824464/mean-disposable-i...
- Historically, older people earned more in the 40s and 50s, but due to COVID or the simple growth in proportion of people economically inactive or in part time roles at those ages, you can see how in the UK in the last 20 years that trend disappeared: https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
- Children and pensioners essentially earn nothing for the purposes of this stat, but as they still spend (or indirectly through parents consume) money, they're in this total. Pensioners are reasonably part of this stat because they are spending in the economy, but are seldom members of the "working population"
The main resource I would suggest on income mobility is "Chasing the American Dream: Understanding What Shapes Our Fortunes" which is based on the Panel Study of Income Dynamics (PSID) [https://onlinelibrary.wiley.com/doi/abs/10.1111/jacc.12716] - it does date to the 70s/80s, but it focuses on: can you achieve top income, can you have income security. Their major finding is that A) Most people through randomness and effort end up earning above-average incomes during the middle stage of their life, and that B) Wealth, but not income, is cumulative.
This is also historically constant, for example Thomas Sowell wrote about how most Americans at the time would be in the top 20% of income for at least one year of their life in "Economic Facts and Fallacies" and "Basic Economics". (obviously the UK quintile study notes decreased lower income exit mobility which is bad for poorer people and means dynamic income mobility is reducing).
Exactly. I think this is a brilliant strategy by YC. They know that some ideas have great potential. They just back multiple teams and hope that one of them will win with their execution.
That approach is perfectly valid and could even be smarter than other VCs that avoid funding competing projects. I also think that, since YC operates at an earlier stage than major funds like Sequoia, different heuristics could apply. Ultimately, it's about balancing risk and reward—duplicating efforts can increase the chances of success while mitigating risks. Of course, it's not easy to establish processes that help competing companies in the same space without inadvertently favoring one over the other.
It's interesting how many of the commenters are starting from the assumption that this is both intentional and desirable (or in some other way smart on the part of YC) and then reasoning only on that basis.
(Or maybe it's not interesting, since this is on YC's own site... :-P)
There's an enormous amount of evidence that almost no VC knows what they're doing (almost none beat index funds in the long run).
YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy.
Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
> Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket.
What VCs do is allocate capital in a way that mitigates risk for themselves.
There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company.
The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.
Your description of a VC's value is describing them as an index fund of startups, and I suppose you could say YC has moved in that direction.
But most VCs are paid to make bets on which companies are most likely to succeed. I never said they're supposed to know with certainty. That's a silly straw man that no one who understands basic finance would suggest.
But they spend much of their time supposedly screening deals to find good ones, and there is a preponderance of evidence that they're worse at it than a dumb index fund.
There have even been experiments to automate picking deals, and even a fairly naive algorithm is better than most VCs.
Only people on the VC side of the table think they have any added value other than lucking into being trusted to invest other people's money.
Why is that interesting to you? Do you have a contrasting point of view to share? Do you have experience with startups and/or venture capital?
I have no involvement with YC, but with a little startup and VC pitching experience, I can tell you that in my experience, lots of VCs like the idea of founders doing something incremental that builds on successful ideas. The article notably did not compare YC to any other VCs, but the truth is likely that all VCs “often” back startups that duplicate others in some way. VCs will tell you not to build something original, because there’s no demonstrated market for it. And statistically they’re right, your chances of success with an unproven idea are lower than with an incremental change to something people already buy. The article also notably did not talk about how often startups duplicate other businesses on their own, before there’s VC involvement. In that sense, despite the claim in the title that there’s data, the article is unscientific.
This article struck me as one of those “studies” that shows something everyone already knows, and the title kinda seems designed to sound dramatic and/or accusatory to appeal to readers drawn to controversy even if there isn’t really any controversy there.
This isn't anything new. Heck, the first season of Silicon Valley called this out with Peter Gregory backing a number of compression startups.
Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.
It makes sense to scatter a bunch of seeds on fertile ground, and then pick the strongest plant that shows the most growth. There are many kinds of smart, ambitious people; some will form teams that succeed, others will fall prey to unforeseen impediments, and not.
This isn't really a big deal. Usually, obvious market opportunities have multiple organizations, trying to enter, and it makes sense for an investor to diversify.
That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs.
Just because you have similar or the same idea doesn’t mean at the end you have a sustainable one. Also, companies get bought out but while ideas are the same execution and scope can change given the level of technology available .
If nothing else, having competition helps validate the market.
Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all."
e.g. for a lot of business SaaS the only enemy worth caring about is Excel.
(I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)
Yes, this can happen. How often and under what conditions I’m not sure.
I’ll give some other lenses:
1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem.
2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
Yes, and as a variant on (1) from the point of view of potential *customers* it makes adoption (at least feel) less risky because if your original chosen supplier goos *poof* there'll be another one to switch to rather than you having to re-adjust your internal processes to go without.
(I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
I see it more as more of a hedge. If you believe in the opportunity, placing extra bets makes sense. Uber and Lyft weren't the only ride share companies but sometimes luck wins out and sometimes execution does.
Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.
Exactly right. Traditional VCs come up with a thesis and then buy 20% of the company they think will be the winner who fits that thesis when they're at like $1M to 10M revenue (series A)
YC can instead get ~10% of every plausible winner they come across when they're at $0 revenue
As noted elsethread, I think that almost certainly *is* what's going on; I was explaining why it's probably a good thing from (at least many of) the companies' perspectives too.
Of course YC backs multiple companies in the same spaces, they have for quite some time if not from the start.
The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.
Useful here-say from some investors at the last few demo days: not all of the companies that are "copiers" apply + are accepted with the "copying" idea. Many founding teams end up pivoting during the batch and scramble to get proof points on the board before demo day. They're most likely to end up pivoting to well-known problems, therefore the clustering around a few common themes. It doesn't explain all of the data, but it's a big part of it. When you have to come up with a fundable new idea in a week and prove it out in a month this can happen...
> YC commonly accepts startups that are building similar or nearly identical products to previous YC grads. Some of them are direct competitors; others differ slightly by targeting a new geography (Asia or Latin America), or are a subset of a larger market (point-of-sale software for bars versus coffee shops).
It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.
It seems pretty obvious to me that in modern times successful companies pick a segment of business to build expertise in and then expand outward from there.
Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.
This is reads as if that is negative an unusual. One might think supporting copycats is bad but obviously a company cannot simply be copied and is more than just its product. While a product might be, you can still outclass your competitors with better engineering, or sourcing of materials or marketing.
You wonder if this is a telling story about YC or just one about the startup space in general.
Possible outcomes include:
1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats.
2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats.
3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be
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[ 2.8 ms ] story [ 246 ms ] threadStirs up competition within a cohort and there’s bound to be idea sharing between teams. YC claims to bet on people not ideas, so as another commenter pointed out, if a team pivots there’s no longer a competition.
My guess is YC also believes in simultaneous invention: the same idea coming from multiple places at once implies said idea’s time has come, while any team wanting to work on it must have already done the work to hit that forefront, making them great people to bet on.
It would worry me as a startup company, who knows where the information I share with them will end up...
As an example, my first startup was a requirements management app that, on paper at least, was a copy of IBM DOORS. Except DOORS is a massive enterprise app targeted at companies who are building a new airplane that has 250,000 technical requirements that need fully traceability, and my app was aimed at small businesses doing software projects with 1000 requirements. I was not competing with IBM; I was trying to apply the value of that app to much smaller projects (the end goal might have been to become a competitor one day but we failed long before then.)
You can't just say "These two products do the same thing so the companies are dupes." It's far more complicated than that.
There is a real danger with current era Bay Area tech that it is just a game of musical chairs played with money, with remarkably little external value being generated.
So, you don’t think that is already the case?
Just look at the state of successful exits - it is awful. This is not the same as an ecosystem producing Sun, HP, Apple or even Google, which all had enormous positive externalities.
Even the movie about him seems to have made him seem more antisocial and nerdy than he really is. (Based on 3rd party reports about him)
[1]https://en.wikipedia.org/wiki/Hewlett-Packard
As an enterprises SaaS buyer, I'd much rather use a code documentation tool that'd been circle jerked around a YC batch a few times compared to one with no prior customers.
Wouldn’t they do so once they notice there is a serious challenger?
First, compared to a traditional VC, YC is micro-investing in far more startups and doing so faster and more frequently.
Second, YC highly prioritizes founder/team quality over ideas but teams come to YC by pitching an idea. I just read an article yesterday citing evidence that in the last 10-15 years the diversity of startup ideas has declined significantly. This makes sense. Enormous amounts of information about what other very early stage startups are doing as well as which areas are currently being funded is readily available in near real-time. As a serial entrepreneur who did my first startup in the 80s, second in the 90s and third in the early 00s, I can attest we had nothing like this visibility in earlier eras. Ideas which are getting funded and which sound like good ideas in hot areas are obviously going to influence founder idea selection and cause clustering.
Third, YC knows that many startup teams will pivot away from their initial idea once they engage with real customers in real markets. So much so, YC considers it a sign of a smart team working well together. However, like all VCs, at any given time YC has broad sector themes it considers especially ripe for various reasons ranging from new technologies enabling disruption to expected high growth in an emerging sector.
Fourth, is the reason you identified. Having a good enough high-concept idea is necessary but far from sufficient for startup success. In addition to the execution details like go to market that you mentioned there's also timing. Even being 12 months earlier or later can make a difference toward making it. Finally, there's the luck factor. While it's true that quality teams are better able to maximize good luck when it happens and also have a tendency to increase their overall odds too, luck still matters. In my successes we had to get a lot of things right but there were also three or four serendipitous things that made a big difference at important moments. The only way for YC to solve for both the micro-timing and luck factors is betting on multiple similar startups around the same time.
Pivots are a thing because early stage startups are often pursuing an opportunity space they are betting is just emerging. Because of this there's often little data to go on when they start and they're making educated guesses about a bunch of things from product features, primary customer, go to market and business model. The concept is that a startup should very quickly develop an MVP which enables engaging with actual customers. That engagement often reveals which initial assumptions were incorrect. Hopefully they were incorrect not because they made a dumb mistake but because the correct answer was unknowable without testing.
That testing also sometimes reveals completely new customer and/or market information about a bigger opportunity in that area leading to a pivot. This is akin to sinking temporary test wells before building an oil derrick and pipeline. Even the best geology analysis can only give a probability of oil being found in a given location. Sometimes sinking test wells reveals the oil is actually a quarter mile to the East. That isn't really a pivot but more like product/market tuning. A surprising number of times, the process of sinking those test wells to discover oil leads to discovering something else just as good or even better (ie gold). That's a canonical pivot. Experienced founders and VCs can pretty easily tell the difference between flailing and a pivot because the pivot is motivated by actual real-world customer/market response encountered while validating the first idea.
An example might be a startup whose first guess at the right product and customer was "An expense tracking program for sales people." After building a prototype or MVP and putting it the hands of some actual salespeople, they discover that, while nice to have, it's not compelling enough to buy. However, during their field visits to observe customers using the MVP they learn that field service engineers have a different but related problem in tracking parts inventory which is a major pain point.
In Steve Blank's legendary startup class at Stanford he teaches that initially a startup should be thought of as "a temporary experiment to discover a viable business." Once product/market fit and go to market are sufficiently validated with an MVP, then the process of building the real product and company begins.
The answer is in that number. YC is a startup accelerator. These days they back 500-1000 companies every year. There is no intention of having only one horse in every race. At that volume that is impossible. Their funding model allows them to bet on as many horses as possible to increase their own chances of success.
But what is the connection to the parent comment? No matter how corrupt one part of government or a market becomes, it doesn’t excuse further corruption. If anything, more corruption makes additional corruption more likely to break the whole system.
That social contract is in the bin right now, so the question is moot.
Along with many, I think their collective actions point in a direction that (a) undermines democratic rule and (b) enables Trump’s corruption, but they seem to be relatively unaware or disagree with such effects.
Many of them think Trump will combat one some types of corruption (the “deep state”).
Overall, I’m more inclined to think many/most Trump supporters have reasonable core values, especially at the individual and family levels, but due to their information sources and mental processing, their overall choices don’t bode well for us, together. The biggest breakdown I think has to do with epistemic values: how does one find truth.
I don’t think most people, of any party, have the individual ability and discipline to make sense of a modern world in a rational, scientific manner. This isn’t something easily achieved, after all.
About me: I strive to not “blame” individuals in the traditional sense, because I reject free will as a meaningful concept. (Roll back the clock and a person will the behave the same in a deterministic universe. And if the universe has intrinsic randomness, we can’t ascribe free will to that randomness.)
So instead of blaming individuals, I focus on systems and their statistical effects.
I said it was in the bin — it has been thrown away, and not by recent Trump voters, but it started long before that, maybe when ethics became something you didn’t learn until or unless you went through a professional program.
Having talked with a few religious Trump voters that I consider intelligent, they have a larger picture of the world, whereas I think a lot of Harris voters (being vaguely irreligious/atheist) are implicitly making the USA their whole world. Trump voters do not see the risk the same way, and have faith elsewhere. For many Harris voters this was an existential issue. That all said, those Trump voters I spoke with still seemed apologetic.
However it came about, there clearly is a misalignment in the stated social values world, and that is why that social contract doesn’t exist anymore. Whether that is because family forces, or tribal forces, or identity forces, or something else carried the day instead, well, maybe the future historians can sort out.
The most basic idea of a social contract is the legitimacy of a government to exist and function. This might mean to carry out various agreed-upon roles. And/or it might mean to operate according to some defined procedures, like the rule of law. The vast majority of people either consciously accept this or live as though they do. Of course there is variation on the proper role of government: does it include national defense, maintaining order, creating fair markets, collecting taxes, protecting civil liberties, internalizing economic externalities, investing in R&D, providing a healthcare floor, fighting corruption, etc?
Answers to these questions are non-obvious. Attempts to simplify the set of relevant questions means imposing a worldview.
On the ethical question, a consequentialist would say it depends on the outcomes. Like many consequentialist analyses, this is complicated. Consider this: Investing in a similar company might validate the market and make it more likely for the company and/or its people to reach viability.
That's not necessarily bad though. People like to throw out these terms that sometimes have negative connotation as if they are inherently negative. If you think the conflict of interest is a bad thing, you need to elaborate on why you feel it's bad, not just pretend it's prima facia bad.
That still doesn't preclude them backing two founder groups that have similar ideas.
Anecdotally, people do get accepted after 2-4 failures. Maybe YC was on the fence about those founders and their willingness to slam themselves against a wall repeatedly tipped the scales, or maybe they invest in a certain kind of founder and when they run out of those they invest in "promising" ideas.
What's most interesting is that most people aren't just "one type". In your life you go through multiple roles. Just like how most people, regardless of their income at age 20 will be earning top 35% income by age 35, people move up in their roles (and struggle at a young age to understand that this will happen to them). It's all about timing and age.
I believe some investors go for multiple teams purely because the ratio of those types is different - like a different risk profile. They invest in one with 80% AI boffins, and one with 80% business folks, and one will likely win in the circumstance of the moment (in the ChatGPT era - mostly the business folks. In the data driven AI era - mostly the AI boffins)
The use of the vast sums available to successful tech investors gives them a greater point of leverage than the rest of us not so endowed. And the more power is given, the responsibility is required, though few acknowledge or heed such wisdom.
At the end of the day, no matter how confident many folks are, who really has the humility and intelligence to know if a person is a genius? Very few, I guess. Very, very few, indeed.
Could you say more about this, or perhaps provide a link where we can read more?
So when you put it all together, a lot of people with an under average career will have an over average income at 35: Just not an over average income within the cadre of 35 year olds.
The lack of correlation with income at 20 comes from how many careers require training that doesn't give good early income. A future doctor, barista or AI programmer are not likely to have. a great income at 20, but their incomes and wealth diverge rapidly as some have longer training with different outcomes. The doctor will hit the 1% after residency. The AI expert might start making money earlier. The barista is probably ahead in his 20s, but it's unlikely their income grew quite as much, although many a barista is working on doing something else. So again, looking just at percentile of income at different ages is going to lead to mistakes as different life curves are being aggregated together.
- Firstly, I admit I can't find where I heard the age 35 specific claim to reference it. I have listed two sources below and found an even stronger claim by Thomas Sowell (that most people at one year of their life in America earn top 20% income), but it wasn't that statement I was looking for, so I will keep try to find it. But income decile movement surveys in the UK supports this, as do dynamic income surveys conducted in the US, so I'll share those to you:
- Income is highly mobile. When tracking what income groups have, within groups there is great variation. Half the people with top 20% of income drop out of the top 20% over 5 year periods, with a significant proportion of those dropping out (30%) dropping to below average income. In other words 15% of the people earning the top quintile of income will earn below average income in 5 years time.
... Meanwhile, showing upwards mobility, 20% of the people earning the 20% lowest in the UK moved to the top 40% of income by just 5 years later in this study (Figure 19 / corresponding table) - https://www.gov.uk/government/statistics/income-dynamics-201...
- You seem to assume income goes up over time, however in western countries, income tends to peak at 30-50, hence 35 in the stat. It peaks at age 37 and stays flatish until it declines from age 44 in the UK, for example: https://www.statista.com/statistics/824464/mean-disposable-i...
- Historically, older people earned more in the 40s and 50s, but due to COVID or the simple growth in proportion of people economically inactive or in part time roles at those ages, you can see how in the UK in the last 20 years that trend disappeared: https://www.ons.gov.uk/peoplepopulationandcommunity/personal...
- Children and pensioners essentially earn nothing for the purposes of this stat, but as they still spend (or indirectly through parents consume) money, they're in this total. Pensioners are reasonably part of this stat because they are spending in the economy, but are seldom members of the "working population"
The main resource I would suggest on income mobility is "Chasing the American Dream: Understanding What Shapes Our Fortunes" which is based on the Panel Study of Income Dynamics (PSID) [https://onlinelibrary.wiley.com/doi/abs/10.1111/jacc.12716] - it does date to the 70s/80s, but it focuses on: can you achieve top income, can you have income security. Their major finding is that A) Most people through randomness and effort end up earning above-average incomes during the middle stage of their life, and that B) Wealth, but not income, is cumulative.
This is also historically constant, for example Thomas Sowell wrote about how most Americans at the time would be in the top 20% of income for at least one year of their life in "Economic Facts and Fallacies" and "Basic Economics". (obviously the UK quintile study notes decreased lower income exit mobility which is bad for poorer people and means dynamic income mobility is reducing).
(Or maybe it's not interesting, since this is on YC's own site... :-P)
YC seems to have a spray-and-pray approach, and it used to be run by Sam Altman who has repeatedly failed upward, so I think it's very reasonable to assume this is either not a conscious strategy or it's just a bad strategy.
Either way, the VC's value is to be able to predict whether Dropbox or Zumodrive deserves their bet, and they clearly couldn't.
This is an extremely wrong-headed view of what VCs do, and one thing investors do _in general_ is to have a strong idea of what they know and don't know, and in particular, what _nobody_ knows is which companies or products in particular will succeed or fail. If they knew that, they'd put all their eggs in one basket.
What VCs do is allocate capital in a way that mitigates risk for themselves.
There's actually a _really_ interesting way to think about what VCs do, which is that they _offload_ their own risk onto founders and early hires of startups. VCs invest their money across a broad basket of investments, founders invest all their time and money into _one_. VCs and early hires are taking a massive amount of personal risk. Almost all of the profits of VCs come from what is essentially a risk arbitrage -- they get more profits than they should be from the smaller risk they're taking by investing in a startup, and founders and early hires get less profits than they should be from the personal risk they're taking by starting a company.
The structure of investment deals is often setup in such a way that even events that "feel" like they should be a payday for the founders, such as a funding round or even a sale, could end up with them getting nothing because their shares get diluted, because they have lower priority ownership stakes than the VCs do.
But most VCs are paid to make bets on which companies are most likely to succeed. I never said they're supposed to know with certainty. That's a silly straw man that no one who understands basic finance would suggest.
But they spend much of their time supposedly screening deals to find good ones, and there is a preponderance of evidence that they're worse at it than a dumb index fund.
There have even been experiments to automate picking deals, and even a fairly naive algorithm is better than most VCs.
Only people on the VC side of the table think they have any added value other than lucking into being trusted to invest other people's money.
I think you meant “Founders and early hires” here?
I have no involvement with YC, but with a little startup and VC pitching experience, I can tell you that in my experience, lots of VCs like the idea of founders doing something incremental that builds on successful ideas. The article notably did not compare YC to any other VCs, but the truth is likely that all VCs “often” back startups that duplicate others in some way. VCs will tell you not to build something original, because there’s no demonstrated market for it. And statistically they’re right, your chances of success with an unproven idea are lower than with an incremental change to something people already buy. The article also notably did not talk about how often startups duplicate other businesses on their own, before there’s VC involvement. In that sense, despite the claim in the title that there’s data, the article is unscientific.
This article struck me as one of those “studies” that shows something everyone already knows, and the title kinda seems designed to sound dramatic and/or accusatory to appeal to readers drawn to controversy even if there isn’t really any controversy there.
P.S. Not saying its a bad thing. Early stage startups evolve and like YC has shared a lot of the early bet is on the founders.
Interestingly for the OP, that same season featured Tech Crunch Disrupt. It's a bit ironic to see TC publishing this concept now as though it is a new revelation.
That's different, from Amazon and Microsoft, who used the data they gathered during their work with smaller orgs, to then actively compete with those orgs.
A classic Microsoft joke (hope you like Comic Sans): https://www.davar.net/HUMOR/STORIES/MS-CUISN.HTM
Which is often an advantage to all companies involved - a lot of the time, you're only notionally competing with each other, your main enemy is "people not using a product in that space at all."
e.g. for a lot of business SaaS the only enemy worth caring about is Excel.
(I've more than once been involved with companies where the "competitors" were all on friendly terms because convincing people that using *some* product in that space was a good idea expanded everybody's addressable market)
I’ll give some other lenses:
1. From the point of view of an individual person, growth in the overall market is often an advantage. If one company doesn’t survive, there will be probably be others. Your skills and connections can help in a similar organization with a slightly different angle on the problem.
2. From the point of view of memetics, good business ideas are likely to appear and survive and take many forms in many niches. If you find yourself with competition, this can suggest that the underlying ideas are suited to the current environment. (Warning: this tendency can be distorted by irrational herd behavior and intentional gaming.)
(I'm not sure under what conditions either, I mostly know this from having lived it and I wasn't on the business side in any such cases so)
Additionally, if one seems to be winning, you just acqui-hire the "loser" in the winner, use that problem space expertise to scale faster AND you still get to claim a higher exit rate even if it was just to yourself.
YC can instead get ~10% of every plausible winner they come across when they're at $0 revenue
You're talking about how YC sees it.
I was talking about how it affects things from the companies's point of view when YC does that.
As such, so far as I can see our actual statements about the upshot of the situation are probably both correct :)
https://en.m.wikipedia.org/wiki/Rocket_Internet
The controversy with pearai was not because it competed the market space of another YC company, but that it had the appearance of being a direct clone of the exact product of another YC company.
If you're going "by the book" with Crossing The Chasm, (https://en.wikipedia.org/wiki/Crossing_the_Chasm), all startups need to conquer a niche before they can own an entire market.
It seems like a wise strategy to, if an investment does well (or otherwise proves a market) in one niche, to invest in another niche. It certainly increases the odds that you've invested in whoever will become the dominant player.
Your ability to understand a specific client's business is usually gonna be your key differentiator against large incumbents.
You wonder if this is a telling story about YC or just one about the startup space in general.
Possible outcomes include:
1. There is little unique ideas going around. YC is truely and knowingly funding blatant copycats.
2. There is little unique ideas going around. Due to the large amount of duplicates, all accelerators invariably invest in mostly copycats.
3. There is unique ideas going around, they are just not popular with YC. This could have various reasons. I wonder what they might be