[djnliung]

YC has nothing to do with replacing the traditional corporation. To do that YC companies would have to have sustainable business models and actually make a profit.

How many YC companies have ever made a real profit before being bought? How is the YC model sustainable without existing large corporations like Google or Yahoo or Linkedin waiting to buy out the startups?

YC is about grooming startups ready to be bought out in talent acquisitions after a period of rapid growth, not about creating sustainable businesses with viable products.

[pg]

I remember people saying things like this in the first few years but it's surprising to encounter it now.

If people who think we're in the business of grooming startups for HR acquisitions stopped to do the math, they'd realize we'd be acting against our own interests if we focused on that. Essentially all the returns in startup investing (for us as for any investor) come from the big successes. Whereas we often make zero from early acquisitions.

[meanguy]

Ok, I'll bite Mr. Corporation Replacer. Where does the long-term R&D investment come from?

Microsoft Research alone outspends Y Combinator by a factor of 50,000,000. And they're thinking 10+ years out. Money aside, their internal expertise and contact network far exceeds "the guy who made Django."

Kudos for what you've done, but when you start talking this way I feel obligated to point out that you're a grain of sand on the beach compared to the Fortune 50--or even CMU/Berkeley/MIT.

You're doing something totally different. Own it. Say what you're for, not what you're against. Say what you're building, not what you're killing.

The fact that people who interview you keep painting you into these corners means that the general public still doesn't understand what's going on with YC. Less hyperbole, more concise vision. Your essays often achieve this, your PR should too.

[andrewem]

Microsoft Research was founded in 1991, 16 years after Microsoft itself was founded in 1975 (1, 2). Y Combinator was founded in 2005, 30 years after Microsoft. So I'd be surprised if with a 30 year head start Microsoft didn't have more long-term R&D investment, for pretty much any definition one chooses.

1. http://en.wikipedia.org/wiki/Microsoft_Research 2. http://en.wikipedia.org/wiki/Microsoft

[pg]

Where does the long-term R&D investment come from?

Mostly from the same place Microsoft's R&D budget comes from: the companies' own revenues.

[davidw]

But if they're small, lean companies, is there room for people to just go off and do random things with little eye to profits?

An example would be someone like Simon Peyton-Jones at Microsoft:

http://research.microsoft.com/en-us/people/simonpj/

Much of what he does may eventually filter down to the rest of the company, but there's a real risk that some of it won't, or that it'll be picked up by someone outside of Microsoft, etc...

How does that sort of thing work out with a number of small companies networked together?

[pg]

I've seen some very small companies do things that would count as research projects in some places. E.g. Etherpad.

[jules]

While Etherpad is somewhat research-y, it is a product. The difference between Etherpad and what SPJ does is about as big as between a mathematician working on car collision simulation and one working on abstract algebra.

[wingo]

Dunno, Paul. While SPJ does have a lot of relevance to current computing, his work is not a product like Etherpad was. I haven't seen YC companies moving towards or staying with fringe languages -- not that I criticize that business decision.

Maybe the YC model will reach that "how will we be computing in 10 years" phase at some point. But (perhaps with good reason?) it does not seem to be there yet.

[davidw]

Etherpad came and went pretty quickly though, at least in its initial incarnation - correct? Simon has been at Microsoft for quite a while. You can certainly do interesting things in a brief period, but some stuff requires just requires more time/capital/materials.

[krunaldo]

Storm is another good example of small projects going big (perhaps not research wise, but building new stuff).

https://github.com/nathanmarz/storm

They did some other stuff to accommodate their needs.

[jpdoctor]

> Mostly from the same place Microsoft's R&D budget comes from: the companies' own revenues.

Really? So those YC acquisitions deals are all-cash?

[neilk]

I think a startup is pretty much 100% R&D. It's just not pure research.

Maybe you can't build a fusion reactor on a YC-style seed investment, but Etherpad, AirBnB, and Reddit have done more for my life than fusion research has, so far.

[joshu]

in 2004 i turned down a job with MSR because they had no compelling story about how the stuff they design turns into shipped product.

[david927]

That's too bad. I mean, yes, MSR is notorious for being a black hole for great talent. But look at PARC. They innovated the next 40 years yet didn't really ship any of it. Personally, I spent 15 years on my own research without knowing how to productize it until the end, and it needed all of that time.

You, personally, were able to innovate and productize immediately, but that's not the norm. For most people the choice comes down to: Do you want a nice car or you want to change the world?

[gsharm]

Big successes and sustainable businesses aren't necessarily the same thing. This is an important distinction because a sustainable business is a viable option for many, and "big success" isn't. And the biggest ones are going to leapfrog such schemes anyway. It's like American Idol for programmers. What you're doing is interesting, but it's questionable whether it's promoting the right values.

[robryan]

Seems more like the big goal is to become a big success in their own right. If that doesn't come about then either a fairly big exit or a talent acquisition is much better for all parties than calling it quits.

[pg]

Big successes and sustainable businesses aren't necessarily the same thing.

I'm not sure what you mean by "sustainable businesses," but if you mean profitable businesses, big successes necessarily are that.

[enjo]

Is that true? Was Photobucket or MySpace a "big success"? They certainly sold for a lots of money, but profitable was never a strong suit was it?

[pg]

By big successes I mean companies big enough to go public.

[tatsuke95]

Honest question: by that definition, how many YC companies have been big successes?

I scanned this list, and don't see many public companies... http://yclist.com/

[gsharm]

Yes, but profitable businesses aren't necessarily big successes.

[justin]

The comments in this thread are painful and seem to be based on a lack of understanding of investor motivations and basic spreadsheet math. YC (and the rest of Silicon Valley)'s biggest successes are companies that make money and have real, innovative business models and products. Talent acquisitions almost always happen before companies reach this stage, and while they get a lot of attention because they are "news", they aren't where investors make the most money.

Investors aren't investing in technology companies in the hopes they get acquired for $10m in Google or Facebook stock -- they are looking for large sustainable companies that generate revenue (and profits). The difference between YC and traditional investors is that YC doesn't block founders from taking talent acquisitions, which may be one reason it seems like there are more of them.

[rewind]

Did you even read the article? The "replacement" part is replacing the large internal network of connections at a company with the network of connections to YC alumni.

[paulhauggis]

I think we can say this if any of the YC companies are still around in 10 years and profitable.

[jot]

YC has the sustainable business model and does make a profit.

How many teams within traditional corporations are profitable? How many new products that traditional corporations launch are profitable?

[djnliung]

YC can't replace the traditional corporation when the traditional corporation is the customer that buys their product.

[jot]

The most successful (profitable) YC "products", Heroku, Dropbox and Airbnb, have very sound business models with tens of thousands of customers that are not "traditional corporations".

[ryanisinallofus]

Heroku was acquired and is an excellent example of YC startups being the product traditional corporations purchase.

[runako]

Is the fact that Heroku was acquired the rationale for calling it the 'product' purchased by 'traditional corporations'? If so, what threshold would you apply for when a company can be considered successful before it gets acquired? As companies of all sizes get acquired, aren't they all then 'product' that wasn't successful until a real company bought them?