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March 2012  
  
Y Combinator's 7th birthday was March 11. As usual we were so busy we didn't
notice till a few days after. I don't think we've ever managed to remember our
birthday on our birthday.  On March 11 2005, Jessica and I were walking home
from dinner in Harvard Square. Jessica was working at an investment bank at
the time, but she didn't like it much, so she had interviewed for a job as
director of marketing at a Boston VC fund. The VC fund was doing what now
seems a comically familiar thing for a VC fund to do: taking a long time to
make up their mind. Meanwhile I had been telling Jessica all the things they
should change about the VC business  essentially the ideas now underlying Y
Combinator: investors should be making more, smaller investments, they should
be funding hackers instead of suits, they should be willing to fund younger
founders, etc.  At the time I had been thinking about doing some angel
investing. I had just given a talk to the undergraduate computer club at
Harvard about how to start a startup, and it hit me afterward that although I
had always meant to do angel investing, 7 years had now passed since I got
enough money to do it, and I still hadn't started. I had also been thinking
about ways to work with Robert Morris and Trevor Blackwell again. A few hours
before I had sent them an email trying to figure out what we could do
together.  Between Harvard Square and my house the idea gelled. We'd start our
own investment firm and Jessica could work for that instead. As we turned onto
Walker Street we decided to do it. I agreed to put $100k into the new fund and
Jessica agreed to quit her job to work for it. Over the next couple days I
recruited Robert and Trevor, who put in another $50k each. So YC started with
$200k.  Jessica was so happy to be able to quit her job and start her own
company that I took her picture when we got home.  The company wasn't called Y
Combinator yet. At first we called it Cambridge Seed. But that name never saw
the light of day, because by the time we announced it a few days later, we'd
changed the name to Y Combinator. We realized early on that what we were doing
could be national in scope and we didn't want a name that tied us to one
place.  Initially we only had part of the idea. We were going to do seed
funding with standardized terms. Before YC, seed funding was very haphazard.
You'd get that first $10k from your friend's rich uncle. The deal terms were
often a disaster; often neither the investor nor the founders nor the lawyer
knew what the documents should look like. Facebook's early history as a
Florida LLC shows how random things could be in those days. We were going to
be something there had not been before: a standard source of seed funding.  We
modelled YC on the seed funding we ourselves had taken when we started Viaweb.
We started Viaweb with $10k we got from our friend Julian Weber, the husband
of Idelle Weber, whose painting class I took as a grad student at Harvard.
Julian knew about business, but you would not describe him as a suit. Among
other things he'd been president of the _National Lampoon_. He was also a
lawyer, and got all our paperwork set up properly. In return for $10k, getting
us set up as a company, teaching us what business was about, and remaining
calm in times of crisis, Julian got 10% of Viaweb. I remember thinking once
what a good deal Julian got. And then a second later I realized that without
Julian, Viaweb would never have made it. So even though it was a good deal for
him, it was a good deal for us too. That's why I knew there was room for
something like Y Combinator.  Initially we didn't have what turned out to be
the most important idea: funding startups synchronously, instead of
asynchronously as it had always been done before. Or rather we had the idea,
but we didn't realize its significance. We decided very early that the first
thing we'd do would be to fund a bunch of startups over the coming summer. But
we didn't realize initially that this would be the way we'd do all our
investing. The reason we began by funding a bunch of startups at once was not
that we thought it would be a better way to fund startups, but simply because
we wanted to learn how to be angel investors, and a summer program for
undergrads seemed the fastest way to do it. No one takes summer jobs that
seriously. The opportunity cost for a bunch of undergrads to spend a summer
working on startups was low enough that we wouldn't feel guilty encouraging
them to do it.  We knew students would already be making plans for the summer,
so we did what we're always telling startups to do: we launched fast. Here are
the initial announcement and description of what was at the time called the
Summer Founders Program.  We got lucky in that the length and structure of a
summer program turns out to be perfect for what we do. The structure of the YC
cycle is still almost identical to what it was that first summer.  We also got
lucky in who the first batch of founders were. We never expected to make any
money from that first batch. We thought of the money we were investing as a
combination of an educational expense and a charitable donation. But the
founders in the first batch turned out to be surprisingly good. And great
people too. We're still friends with a lot of them today.  It's hard for
people to realize now how inconsequential YC seemed at the time. I can't blame
people who didn't take us seriously, because we ourselves didn't take that
first summer program seriously in the very beginning. But as the summer
progressed we were increasingly impressed by how well the startups were doing.
Other people started to be impressed too. Jessica and I invented a term, "the
Y Combinator effect," to describe the moment when the realization hit someone
that YC was not totally lame. When people came to YC to speak at the dinners
that first summer, they came in the spirit of someone coming to address a Boy
Scout troop. By the time they left the building they were all saying some
variant of "Wow, these companies might actually succeed."  Now YC is well
enough known that people are no longer surprised when the companies we fund
are legit, but it took a while for reputation to catch up with reality. That's
one of the reasons we especially like funding ideas that might be dismissed as
"toys"  because YC itself was dismissed as one initially.  When we saw how
well it worked to fund companies synchronously, we decided we'd keep doing
that. We'd fund two batches of startups a year.  We funded the second batch in
Silicon Valley. That was a last minute decision. In retrospect I think what
pushed me over the edge was going to Foo Camp that fall. The density of
startup people in the Bay Area was so much greater than in Boston, and the
weather was so nice. I remembered that from living there in the 90s. Plus I
didn't want someone else to copy us and describe it as the Y Combinator of
Silicon Valley. I wanted YC to be the Y Combinator of Silicon Valley. So doing
the winter batch in California seemed like one of those rare cases where the
self-indulgent choice and the ambitious one were the same.  If we'd had enough
time to do what we wanted, Y Combinator would have been in Berkeley. That was
our favorite part of the Bay Area. But we didn't have time to get a building
in Berkeley. We didn't have time to get our own building anywhere. The only
way to get enough space in time was to convince Trevor to let us take over
part of his (as it then seemed) giant building in Mountain View. Yet again we
lucked out, because Mountain View turned out to be the ideal place to put
something like YC. But even then we barely made it. The first dinner in
California, we had to warn all the founders not to touch the walls, because
the paint was still wet.  
  
  
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