Y Combinator is a company responsible for creating an entirely new model to fund early stage startups. They invest a small sum of money two times a year in a large number of startups. To explain it shortly, the selected startups then relocate to Silicon Valley for 3 months, and work with Y Combinator and get their company in the best possible shape for future investors. After which they reach Demo Day, where startups get the chance to showcase their companies to an invite-only audience.
Since Y Combinator’s inception in 2005, they have funded more than 2,000 startups. They have created a community which includes over 4000 founders and their companies have a combined valuation for more than $100 billion.
What Does Y Combinator Do?
In a nutshell, Y Combinator gives startups seed funding, which is the first stage of venture funding. This means companies get their expenses paid off when they are starting out. Each startup is different. Some may not need anything more than seed funding, whereas other companies could need several rounds. The amount of funding startups need depends on the type of company that one starts.
Y Combinator helps startups get to the point they have made something that can raise money on a much bigger scale to help them meet later stage investors or acquirers, if needed.
Y Combinator is About More Than Just Money
Startups need more than just money. When it comes to Y Combinator, the funding is one of the smaller components in what they do for their companies. Most startups don’t even need the money. They take it so that their expenses are taken care of while Y Combinator is happening.
So what exactly happens at Y Combinator?
Y Combinator works with startups on their ideas. They have the experience to know which direction a startup should expand in. They work to answer all sorts of questions – at any given scale. Over three months, the initial answers to the company’s identity, product and direction all get answered.
Y Combinator also helps startups deal with investors and acquirers. This is more than just introductiions. During the three month program, company founders learn how to pitch and close their deals with investors.
They also help companies they fund get incorporated with all the paperwork. All legalities are taken care of. The founders get introduced to lawyers through Y Combinator, and the comany also helps with intellectual property and mediation of dispute between founders. They also help in the hiring process.
How Does the Y Combinator Funding Process Work?
Y Combinator funds startups two times a year. The process of funding in batches is more efficient for the company as well as the startups because they get the chance to work alongside like-minded founders and helping them grow with each other.
The first batch is from January through March and the second one is June through August. It is very easy to apply. All companies have to do is fill out an application form. The ones that are selected are then invited to meet the founders of Y Combinator in person, and funding decisions are made immediately after.
After the selection, the founders and the CEO move to the Bay Area till the batch ends and during those three months, the founders take part in group office hours every two weeks. They can also meet other partners and experts for office hours whenever they deem necessary.
Y Combinator hosts a weekly dinner for the batch and invites an expert in some field of startups as a speaker. The speaker list consists of other startup founders, venture capitalists, journalists and other known executives from tech companies. They often end up advising the startups or investing in them when they meet them at these dinners.
After ten weeks of the batch, the startups participate in Demo Day where they present their products or services to a carefully selected audience made up of investors and press.
Due to the large scale of startups that are funded each year, Y Combinator has managed to create a big alumni network, so whatever the newest startups could possibly need help with, they can always find a helping hand in the alumni.
The Y Combinator Philosophy
The main objective of the batches is to create a space where founders can focus solely on creating their product or service and talking to users. The ten weeks help startups be more productive, learn and grow along with their companies. Y Combinator has little interference with the process. They give advice whenever needed and respect the independence creators need to be able to build their company.
Why Do Startups Opt for Y Combinator?
Their Alumni Network
After funding over 2,000 companies and 4,000 founders, Y Combinator has become synonymous with being a helping hand. Founders know that if they need help with any challenges they face they have a wide spectrum of people to rely on and help them. This culture is a big reason why startups often apply to Y Combinator.
Their Bookface Forum and Expertise Database
Bookface is a forum, not unlike Facebook or LinkedIn, that founders use to stay connected with each other. They can post any queries, use it to broaden their connections, and learn through the vast number of experts in any and all industries on the platform.
Y Combinator hosts a gathering with their alumni from every batch each year. The thought behind is to bring founders together so they can all grow together. Founders share ideas, make deals, solve problems and more.
Office Hours With Domain Experts
During the three month period at Y Combinator, founders are supposed to participate in group office hours every other week. In these sessions, all the selected founders sit with other companies in their batch to help them get used to reporting their numbers regularly and taking accountability in front of a large group. Founders discuss the challenges they face and learn from their peers.
Y Combinator offers a seed funding of $150 thousand to companies in return for 7% of the company. They also continue to support the company when it undergoes the priced equity round, and all following financing rounds. They do this by investing more money in the companies during these rounds to keep their 7% ownership.
Building Brand Credibility
Investors, press and early adopters are more keen on observing the startups selected by Y Combinator because of their strong track record for many years. This helps in maintaining the strength of the community they have built as well.
Other Benefits of Being a Part of Y Combinator Startups
Y Combinator also helps out founders and their companies by assisting them with the incorporation process, giving them sound legal advice, helping with the hiring processes, and providing the companies with resources for many industries such as hardware, biotech, education, among many more.
The Top Companies by Valuation for Y Combinator – 2019
As of October 2019, here are some of the best Y Combinator companies by valuation. The total valuation of the top hundred companies valued at $150 million was more than $155 billion.
The founders for Stripe are Patrick Collison and John Collison. Stripe is a part of the financial technologies and services industry. The company creates economic infrastructure for the internet. All businesses of varying size can use Stripe’s software to accept online payments and run technically sophisticated financial operations. The software is fully functional in more than a hundred countries. The software was built to help new companies get started on as well as grow their revenues It also helps businesses that are already established to accelerate into newer markets and launch more business models.
Airbnb was made so that people can travel more easily. Their concept was to make a world where anybody had the freedom to travel anywhere, stay anywhere, and to prove that travel can be healthy, authentic, local, diverse, inclusive as well as sustainable. People are now free to monetize their real estate and become hospitality entrepreneurs. Airbnb has more than 6 million homes listed across more than 100,00 cities, all run by hosts. The company’s founders are Brian Chesky, Joe Gebbia and Nathan Blecharczyk.
Kyle Vogt and Daniel Kan started Cruise in the automotive industry to build the most advanced, electric, self-driving car technology. This will help people connect with places, things and all the experiences they care about, along with the added benefits of self-driving cars, which can possibly help save lives, reimagine cities and redefine transit. General Motors acquired Cruise in 2016.
DoorDash was founded by Tony Xu, Andy Fang, Stanley Tang. It is a food delivery service company that uses logistics services and works with restaurants and kitchens to deliver food on-demand. It was made to help local businesses compete.
With the increase in popularity of cryptocurrencies, founders Brian Armstrong and Fred Ehrsam created Coinbase as a platform to make managing cryptocurrency easy. Users can buy, sell and manage their cryptocurrencies. Coinbase also offers products for individual investors and active traders in the industry, among other businesses and institutions. It is the world’s biggest compliant crypto company with more than 30 million accounts spanning across 100 countries.
Instacart is the pioneer in grocery delivery in North America as well as one of the fastest-growing companies in e-commerce, founded by Apoorva Mehta, Max Mullen and Brandon Leonardo. Their groceries come with the same-day delivery option. They also have pick up services that bring fresh groceries home along with all daily essentials to families across the United States and Canada. They have tied up with more than 20,000 local stores across over 5,500 cities in North America.
Drew Houston and Arash Ferdowsi founded Dropbox and made it into a leading global collaboration platform. It has managed to transform the ways in which people collaborate, reaching businesses of all sizes be it the smallest business or the largest enterprise. Dropbox has over 500 million registered users across 180 countries. They strive to create a more enlightened way of working. Dropbox went public in 2018.
Ginkgo Bioworks was founded by Reshma Shetty, Austin Che, Barry Canton, Tom Knight and Jason Kelly in Boston, Massachusetts. It is a biotech company that can programs cells as per requirements for their customers across multiple markets.
Josh Reeves, Eddie Kim and Tomer London started Gusto to make it into a people platform for all small scale businesses. Gusto provides these businesses all that they could need to take care of their teams. This includes payroll, health insurance benefits, employee self on-boarding, 401(K), time off requests, time tracking, and more. The human resources platform is currently used by more than 100,000 small businesses across the United States.
Ryan Peterson understood the importance of freight forwarding for global trade. He considers it international trade’s circulatory system. The issue with freight forwarding is that the processes still mainly run on paper. To combat this issue, he created Flexport. Flexport creates a strategic operating model for modern businesses in the freight forwarding industry that can use it to make global supply chains that are more transparent, agile, efficient, and more profitable.
Some of the other popular startups that have made it big and fall under the Y Combinator Startups list are Rappi, an on-demand delivery and financial services platform for people living in Latin America, Brex a financial technology and services company that does corporate credit cards, the all-time favourite Reddit, a network of communities where individuals can find, create, publish and curate experiences built around their interests, hobbies and passions. There is also GitLab, which is a total DevOps platform, with over 100,000 organizations from startups to global enterprise organizations who trust the company to deliver phenomenal software at faster speeds.
Some more noteworthy companies include PagerDuty, Inc., Checkr, Inc, Segment, Docker, Scale, Faire, and more. The list includes more than 2000 companies, and it keeps growing each day. Y Combinator is one of the best platforms to help entrepreneurs, developers and founders create something they truly want without any restraints.
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