YC's Scaling Problem

disclaimer

I am not affiliated with YC or have any personal insight into the inner workings of YC. It is hard to track YC’s success (with precision) as those metrics are largely not public, and this article is mainly a speculative guess based on limited history.

the thesis

Generally, the YC thesis makes a lot of sense. Remove the barrier to entry and networking required to get VC funding and fund smart (curious) people. The requirement for this to work is that YC must be run by smart people with experience. Until now, smart (curious) people have attracted smart (curious) people who in turn attract more smart (curious) people, leading to a sort of snowball effect. Interestingly, this leads to a market where YC is heavily dominant over even the second-best pre-seed specialists, as all the smart people go to YC.

the problem

The issue is that the first premise (“Until now, smart (curious) people have attracted smart people…leading to a sort of snowball effect.”) is at least weaker now, specifically the “curious” part.

When YC was less prestigious/known/successful, the only people applying were genuine hackers–people who are “curious”. People who like to build. You really just had to carefully filter for people who are smart. The fakers/non-hackers were relatively easy to filter out. YC was generally unattractive/unknown to normal smart people.

I think YC has recently seen a large increase in smart people who apply who really have no interest in hacking but who are really interested in the idea of a startup and the YC prestige and ethos. Everyone wants to be Zuckerberg; no one has built CourseMatch (or the countless other projects before Facebook). It’s not entirely YC’s fault that “doing startups” has been excessively mythologized and enveloped in an odd (for the lack of a better term) hyperreality[1][2]; they simply happen to be the best at startups. A good microcosm of this hyperreality is whatever is happening on Twitter. Although, they have been doing a lot of marketing on YouTube and other such platforms. As YC scales, this problem only becomes worse, as more of the wrong type of people will apply.

The reason is, smart, non-hackers’ heuristics have landed on doing “startups” and applying to YC as their next step. It’s the same drive as wanting to go to a good college; the main driver is prestige. This type of person tends to be really really good at dressing up to be something in a way that seems appealing. They excel with checkboxes that lead to rewards, like tests. In fact, Gen Z has been trained to do this via the insidious college application cycle.[3] Since most of the YC philosophy/what they look for is public (via their marketing), those people now have their (albeit, somewhat non-useful) checkboxes. Of course, you can’t fake users loving your product, but this makes it harder to judge pre-product companies and identify promising teams. Generally, you can tell if you have fallen to this if you start with “getting into YC” as the primary goal of your startup.[4]

This problem is worse with young people, as we have been practically raised to put on an insane song and dance for getting admitted to college. Also, young people have not had time to develop the pedigree of past projects to accurately judge whether they can “build” or not. There is an opportunity cost in waiting for young people to develop and build stuff, so it is in YC’s best interest to try and get in early, which is getting increasingly harder.

YC was built by hackers for hackers, and only works if they keep attracting hackers.

[1] I really don’t understand this. In an effort to dispel the aura around startups, I will provide a few observations. Most of the rich people I know got rich doing really boring things, live quiet lives, and are happier. Most startups fail, their founders wasting a lot of focused, hard work. Most successful startup founders are considered negatively in the general social consciousness. Most venture-backed startups have founders owning less than 30% of the business at exit, and VCs (usually) get paid first in a liquidation event. Slaving for a decade, not being able to beat your last oversubscribed round on exit, and VCs getting tens of millions while you get nothing is not uncommon. If you are smart, there are so many better “+EV” paths to make money. Don’t get caught up in the startup romanticism and distance yourself from “being cracked” or prestige.

[2] Hyperreality is an often misunderstood concept. I am using it wrongly (colloquially) here and not in a baudrillardian way simply because I can’t think of a better word.

[3] I swear, I saw a tweet from maybe Garry Tan or someone else who said something along the lines of “we are trying to filter out people who treat applying to YC like applying to college”. I can’t find it now; if someone does, please email me and I will add it.

[4] There are, admittedly, some exceptions. A very small minority of people follow this path: I want to get rich -> I will create a startup, and actually succeed. I think the percentage of these people who apply to YC is rapidly declining and being replaced by the people described in this essay. This is also different (probably even better) from being prestige-obsessed.