- Michael Saibel and Dalton Caldwell discuss the misconceptions and feedback they have received about Y Combinator (YC) from founders in a recent batch.
- Many founders were unaware of the various benefits and resources offered by YC, such as follow-on investing, help with raising Series A funding, and access to a hiring platform.
- YC is often mistaken for a university or school, but it is actually a product that constantly evolves and offers personalized support and resources to ambitious founders.
- YC has been accused of being like a mafia, as it provides privileges and protection to its members, but it is not a mafia.
- One misconception is that investors make a company great, but YC emphasizes that founders are the ones doing the work and YC provides a supportive environment and network.
- Another misconception is that companies need to be far along in their development to join YC, but many successful companies have joined with just an idea or while still working other jobs.
- YC prefers to fund new companies that are enthusiastic and starting fresh, rather than ones that have already gone through multiple pivots and raised pre-seed funding.

- The speaker discusses the misconception that companies should go to Y Combinator (YC) once they are ready to scale, and highlights the importance of joining YC early on.
- They emphasize that starting a company from scratch with a clean slate and enthusiastic founders is more likely to succeed than a company that has already gone through multiple pivots and raised funding.
- The speaker explains the benefits of joining YC, such as having an amazing peer group, avoiding being taken advantage of by investors, receiving honest feedback, and being able to extract value from the program like many successful companies have done.
- They criticize those who try to convince founders that YC is bad without offering a valid alternative.
- The speaker then discusses the experiences of YC companies in terms of valuations, speed of investor meetings, and terms, noting that there hasn't been much change compared to previous batches.
- They caution against relying on anecdotes or TechCrunch articles to determine the ease or difficulty of fundraising, and emphasize that YC's funding ecosystem operates separately from the general market.
- The speaker highlights the power of running an auction during fundraising, where YC companies can name their own price and receive inbound offers from investors.
- They mention that many founders have had a different fundraising experience after joining YC compared to before, and draw parallels between the exploitative nature of the entertainment industry and certain individuals in Silicon Valley.
- The speaker concludes by emphasizing the importance of being cautious and discerning when dealing with certain individuals in the startup ecosystem.

- The speaker shares horror stories of founders' experiences with fundraising before joining Y Combinator (YC)
- One founder had a fake advisor who took 2% of the company and sabotaged their fundraising round, but existing inside investors saved them
- Another founder raised a significant amount of money from an investor who bought over a third of the company, leading to high dilution and difficulty in raising later stage rounds
- Founders often believe certain talking points pushed by investors, such as needing to own a certain percentage or have a board seat, which can be disadvantageous for them
- Other horror stories include investors charging high legal fees for priced rounds and making arbitrary rules for investing
- The speaker emphasizes that YC founders are often shocked by the investor-friendly terms offered by YC investors, as they are not exposed to these horror stories beforehand
- The speaker also criticizes the content marketing from the venture capital industry that convinces founders they need to raise money immediately, while YC encourages starting a company without raising money
- The speaker concludes by praising the founders in the batch and expressing gratitude for the opportunity to interact with them in person.

- Michael Saibel and Dalton Caldwell discuss the misconceptions and feedback about Y Combinator (YC) from founders in a recent batch.
- Many founders were unaware of the benefits and resources offered by YC, such as follow-on investing, help with raising Series A funding, and access to a hiring platform.
- YC is not a university or school but a constantly evolving product that offers personalized support and resources to founders.
- YC has been accused of being like a mafia, but it is not.
- YC emphasizes that founders are the ones doing the work and provides a supportive environment and network.
- Companies don't need to be far along in their development to join YC.
- YC prefers to fund new companies that are enthusiastic and starting fresh.
- Joining YC early on is important for success.
- Benefits of joining YC include an amazing peer group, avoiding exploitation by investors, receiving honest feedback, and extracting value from the program.
- Relying on anecdotes or media articles to determine fundraising difficulty is not accurate.
- Running an auction during fundraising is powerful for YC companies.
- Founders share horror stories of fundraising experiences before joining YC.
- YC founders are often shocked by investor-friendly terms.
- YC encourages starting a company without raising money immediately.
- The speaker praises the founders in the batch and expresses gratitude.

With the YC S22 batch coming to a close, Dalton Caldwell and Michael Seibel reflect on the recent batch and their experience fundraising. The two group partners also clear up some misconceptions about Y Combinator based on feedback from founders.

Apply to Y Combinator: https://yc.link/DandM-apply
Work at a Startup: https://yc.link/DandM-jobs

Chapters (Powered by https://bit.ly/chapterme-yc) - 
00:00 - Introduction
00:27 - Expectations
01:56 - Secret YC perks
04:57 - Not a mafia
06:08 - Misconceptions
07:02 - Investors
08:05 - Direct experience
08:51 - The scale lie
11:11 - Why to do YC
12:33 - Recent batch
15:08 - Running an auction
16:45 - Fake advisors
20:33 - Horror stories

#startups #entrepreneur #tech

I love the like, well, I've watched all your videos, so we kind of get YC.

So this is Michael Saibel with Dalton Caldwell.

And today, we just finished up a YC batch and we're getting a ton of feedback.

We thought it'd be great to talk to you all about that.

I would argue this is something that YC does poorly that they very clearly pointed out, they were like, when we applied to YC, we really didn't know what we were applying for.

1 founder said to me, we just thought it was a three-month program.

We had no idea that you follow on investing companies later, that you have programs for helping me raise a Series A or for helping me as I'm scaling.

Another founder said to me, we didn't even understand how YC was organized.

We thought it was just going to be some big online lecture.

We didn't know we would be assigned a group partner.

We didn't know we'd be put into groups and sections.

We get to meet with small groups of companies that are in our area.

I think sometimes we assume people know, but a lot of these founders were like, well, I applied to YC because I talked to alums and they really liked it.

And then when I got here, I was like, oh, shit.

1 founder was like, dude, we didn't even know that you helped us hire.

And then today there was a meeting about the YC hiring platform and we were like, oh, we didn't know.

We spent 7%, we had no idea what we were getting for it.

I don't know, why do you think we suck at that though, Dalton, like it's pretty obvious we're bad at it.

And so people know about the batch because they heard, you know, Oh, it's a 3 month program.

Oh, you moved to the Bay area and you spend time.

It's like, yeah, no, like you get to know us in person.

Sometimes you're like surprised that it's really you and me that you mean.

They think we're like paid actors or something.

How many accept calls do you do where they're like, so am I going to get to work with like you?

We're the higher ed, we're the YouTubers.

And so I think they know about the program.

I think they may have heard something about Demo Day, but it's always way more impressive than they expect.

And then they have no idea that we keep talking to the companies for a while.

And there's all this other crazy stuff we do to give people an edge.

A lot of which we kind of don't slash can't talk about.

And so I think that's part of the reason we don't market it as well is a bunch of the stuff we do is meant to be secret.

And there's just a lot of data that we keep secret unless you're in YC and that is like gonna stay that way.

You know the other thing that makes it hard, I've started to realize this.

It's too easy to think of YC as a university.

And when I think back, you know, I'm sure Yale has changed a couple of ways in the last 20 years since I went, but it's not changed that much, right?

I'm sure Stanford's changed some ways since you went, but it's not changed that much.

And I think that when we think about a university, we're preconditioned to think it's probably 99% the same year over year.

And I think what people don't think about YC is a product.

If you were to look at Instagram day 1 and look at Instagram now, it's completely different.

You would expect the product to change all the time.

And I think people's misconception is YC is a university or a school.

I think they think we have some lessons we're gonna teach you or something.

I love the like, well I've watched all your videos, so we kinda get YC.

So it's not like a school where we're like, here's our syllabus, we're going to read you.

Here's lecture for how to get That ain't it.

It's more like you're in the club and you get access to the resources.

And if you are ambitious and you are smart, The sky is the limit.

If you actually work with people that know what they're doing, there's doors that opens.

And the bigger your ambition is, the more doors are gonna open.

You know, this is why it's a little dangerous.

You know, we've been accused of being a mafia and we're not a mafia, right?

We don't break anyone's legs or anything like that.

Like if you're like made in the mafia, you do get privileges that normal people don't.

And like, when you get to go through I see you get accesses, like you said to resources that other people don't, right?

And so, and there's a little slightly different way, it's a little bit like the mafia.

You know, like when you're in the mafia, like someone's not going to rob you, Right?

Like when you're YC, VCs don't rip you off.

Like, and so I'm not saying it's a mafia, right?

We just have these very clear similarities to what I've seen on Mafia TV.

Anyways, so this part of the feedback that we got from founders, it had 2 elements.

1 was, we didn't really understand the benefits that YC had when we were applying.

It also had this aspect of, there were some really serious misconceptions that we had about YC that didn't get cleared up until we got in?

1 was this misconception around like, are we actually gonna get to work with you personally?

Like, is there actual structure to this thing where we feel like we're getting really personalized support?

But what are some of the other misconceptions that you saw that were, you know, obviously, I mean, I would argue like obviously designed to try to convince people to not do YC.

Trying to encourage founders to think that investors are what makes your company great and that you could get product ideas and product market fit based on who you let on your cap table.

So you'd be like, If I get this investor, they'll do this for me.

And it's like, guys, the way you build a company is not, you're not baking a cake where you sprinkle in 3 different investors and then a cake pops out.

Like, that's like the stupidest thing I've ever heard.

This is a really common misconception out there, which is like, I hate to break it to you.

The reason to do YC is not that we're going to do the work for you.

It's that it's a great environment to do this with other peers and founders and get access to these resources while you're the 1 baking the cake.

And the amount of resources you get in this network way trumps the resources you get from some random small check, like similar size check.

I think another big misconception was just folks, a lot of folks that apparently have the strongest opinions of telling people about YC never actually were in a batch.

Cause you know, it's, you don't try to, like, I had this founder in my group, this badge, and he was like, well, yeah, everyone that was in YC was like, you should definitely do YC.

And the people not in YC were like, oh, it's not worth it.

And he was like, in retrospect, he's like, now that I think about it.

Everyone who ever used my product had opinions about it and everyone who didn't use my products had different opinions and I weighed them equally.

You know, the last 1 for me is this crazy misconception about how far along you have to be.

And like, What pains me about this misconception is that it can be destroyed through basic research.

It's like, look at the companies who've done YC, who've been successful, and look at how far along they were when they applied.

Yet over and over again, people will tell founders like, oh, unless you have this much revenue or unless you're live, or unless you've been doing something for this period of time, or like, YC's for scaling, but it's not for starting.

Like literally 40% of the last batch came in with just an idea.

Most of them were working when they applied, were at work, working jobs when they applied.

And again, let me just say the brutal truth.

Some company that their idea to start was to first raise a pre-seed round and sell 30% to some random investor, have some co-founder who lasted a year, and then they had to fire them, and now they have a bunch of equity, who's gone through 3 pivots and burned half a million dollars and applies to YC, Michael, would you rather fund that or the brand new company that started a month ago, they just quit their jobs, the crap table is completely clean, and the founders are just like totally jazzed and ready to start a company.

Like, who do you think is more likely to succeed?

Yeah, you know, you know, I think if you look at the last batch, it's very clear where our preferences lie.

And so again, people that, their idea that you've, you know, go to YC once you're ready to scale or once you've done all the stuff and after, you know, exactly wrong?

Dude, how many companies we've funded the past few batches that they have to change their idea, which is fine.

But they've already raised and they already have all this hair on the company and they think they're really far along.

How much harder is it to change your idea once you have a bunch of hair on the company because you thought you were ready to scale?

I think that like, you know, it's so funny, but in my mind, it's so clear.

You do YC because You want an amazing peer group.

You do YC because you want to not be screwed over by investors.

You do YC because you want honest feedback and you want to take responsibility for the win or loss of your company.

And you do YC because so many other great companies did YC and extracted value out of it that you should be confident that if you're a great founder, you can extract value out of it as well.

And like So many people that convince founders that YC is bad, they can't explain why taking their money or doing their program or doing their thing is better.

And like, if you ever see someone making an argument that's 100% ripping something else down and 0% explaining why their thing is good, if all of your talking points is the alternative is bad, Like, you know, like maybe all you're selling is fear because that's all you have to sell.

And like maybe that's your business model is selling fear.

Not the kind of investor I want on my cap table.

Like inside of YC, if you're a YC company, if you're in the batch.

If you're getting the advice from us to prepare for demo day, how'd it go, Michael?

I think everyone was nervous that valuations this summer would come way down.

Wasn't it like hashtag VC summer vacation or some shit like that was going on where no 1 was around?

Prices are almost exactly the same as they were during the last batch when it was like VC heaven on earth and money was flowing like crazy.

We saw 15 to 25, some companies raised at 30.

You know, we saw investors going from meeting to commitment within 1 to 2 meetings.

Like, you know, investors weren't demanding board seats or weird craziness.

And I think this is like an evergreen lesson for everybody.

YC alums or people not in YC is it's too easy to take an anecdote that you heard from people or stuff people are saying in the group chat and think it applies to you.

Like 1 of the classic mistakes we see from later stage YC companies is they base how easy or hard they think their fundraisers will be based on TechCrunch articles they read of other people raising.

They're like, hey, so-and-so just raised, so I'm going to be able to raise at the same valuation.

And think about how much time you and I have to talk people off the ledge on how like some random company in Europe raising for like some AI, whatever, doesn't magically mean their fundraising be easy, right?

Like you're it's like bad data, like garbage in garbage out.

Okay, So again, the advice for folks is your mileage may vary.

I'm sure there are people out there having a harder time fundraise.

I'm not saying my experiences, the experiences YC companies have the same as yours, but this is sort of the meta point I'm making, which is too many folks think fundraising is a market like the stock market and that there's like graphs and charts you can have and it all operates like an efficient market instead of what it actually is, which is like 10 different things, right, Michael?

Like The YC funding ecosystem is like its own little universe.

It operates separately than this other stuff.

A lot of what people don't understand is the power of running an auction.

It's so rare that you really get to run an auction.

You know, most founders, early stage founders are not running an auction.

Like When you're in an auction, you get to do things like name your own price.

Like YC companies say to investors, we're raising this much money at this price.

That's a foreign language to people who've like, most people who've raised around, oh, we need to lead to prices.

I think the other thing that happens when you're running an auction that people don't understand is you get inbound offers.

Like A typical company in this batch got between 10 and I've seen 60 or 70 investors cold emailing them wanting to learn about investing in their company.

I got founders messaging me on Slack, Michael, what's going on?

And I'm like, oh yeah, no, this is just how...

Nobody told you this is what happened at YC?

Yeah, investors cold email you, you don't cold email investors.

So I think that's what's so funny is that we talked to so many founders who had such a different experience fundraising, often from the same funds, before doing YC than after doing YC.

I think you have this great analogy around this early stage investing environment.

My first company was in the music industry for better or worse.

And so I learned a lot about, in the 8 years I worked on it, I learned a lot about how the music industry works and how Hollywood works in general.

And I started to see a lot of parallels between those industries and Silicon Valley.

Again, kind of depressingly, if I'm honest with you.

A lot of the folks who are most approachable when you're a first timer or when you're just moving to the area or you're trying to break into the industry, the friendly people that wanna talk to you are often the most exploitative and they're the people whose business model is just like squeeze you and like pull you up the funnel to someone else and that

and the folks that you feel like they're doing you a favor while doing

yeah right they're like they're gatekeepers but they're really friendly.

Whatever it is, there's folks who really aggressively sell themselves to newcomers.

And part of the pitch is, oh, I'm really important.

You know, here's some other people that I know.

Like there's all these like kind of promises.

And sadly, the story with a lot of folks, you know, in the entertainment business is you learn the hard way that those you want to not talk to those people.

Or you want to understand there's you want to make it to the to the big leagues and get again, if we're talking about agents or something, to the extent you can get a really good well-known agent that's like a large agency like CAA or something.

Anyway, I don't want to get too deep in the Hollywood stuff, but there's commonalities across these industries.

And the thing I noticed in Silicon Valley in my startup experience was a lot of the characters that came out of the woodwork and that they were the most successful to me as a first-time founder, in retrospect, were not great.

Like, hey, give me advisor shares to introduce you to someone.

Hey, you know, like all these angles that weren't great.

And what's weird is a lot of the people, were like medium famous and had like some social media clout like they did enough to seem successful or drive fancy cars or seem rich that you would think they did actually know people.

I mean, you had this too with like fake advisors, right?

I had a fake advisor who literally took 2% of our company to help us fail at raising a round that was rescued by our existing inside investors.

But like, you signed this thing or what about my consideration?

And so I think this is like, what's interesting is when talking to YC founders, they have so many of these horror stories of these kinds of experiences fundraising before YC.

And then they're shocked when an investor's like, sure, I'll sign a safe.

And it's like, and I think that it'd be helpful for us to talk about some of those specific horror stories that they tell us about, right?

Company in my group that raised money, they were desperate.

They raised a good chunk of money from an investor who put in hundreds of thousands of dollars and bought over a third of the company straight away.

And what they didn't tell that founder is that every subsequent investor would say to themselves, huh, this investor put in a relatively small amount of capital, bought so much of the company that the founders are going to get so diluted that They're not going to end up owning anything and it's going to shut off later stage rounds completely.

And, you know, these founders, of course, a couple of hundred thousand, it wasn't enough.

They came in YC with almost 50% dilution.

And it's like from an investor who knows better, but who saw that they could get leverage over a founder and so they took it.

This leverage point is fascinating because so much of when you talk to founders that go out to do a lot of fundraising, there's a lot of talking points that get beat into your head.

Oh, if you raise it too high of a valuation, it's bad.

Oh, like and when you think about it, those are actually very, you know, clever talking points from the investor perspective.

And again, so many of the memes out there about fundraising that are being pushed by folks where it's convenient.

Do you see how it's actually convenient to be like, prices are down and founders should give up more rights than they used to give during the economy?

I mean, I had 1 where the investor, the founder was like, hey, when we previously went out, we wanted to raise a million dollars and the investor wanted us to do it as a price round and to pay for $50,000 of their legal fees.

And I'm like, companies raise on safes and pay nothing.

On this situation, you hand 50K And the even more criminal thing is, great, you want to do a priced round.

It shouldn't cost $50,000 to do a priced round.

There are other situations where someone is basically like, oh, I'm committing to be in your round, but I need to be the last money in.

But like you have to, and you have to leave room for me.

We got another 1 where it'll be like someone saying, all right, I'm committing 500,000 of your $2 million round.

You just have to go raise that another 1.5 million.

Like these were like all horror stories over and over from founders in this batch talking to us about fundraising before doing YC.

And it's like, I know why they were shell shocked.

I know why they were shocked when they did fundraising during YC.

And what's tough is when you think about it, to just go back to the music industry metaphor, the entertainment industry metaphor, For a lot of folks, they were, they would have been better off or people would say I was, I would have been better off just like waiting longer to get better, a better agent, or like, be not having like a bad agent, just having no agent or having a bad manager who like stole the masters from me, maybe having...

this is what's weird is a lot of the content marketing we get from the venture capital industry is to convince people they need it and want it immediately.

It's like the message that you're brainwashed with as a founder is like, you can't even start without raising a pre-seed round.

And we're in the business of pre-seed round, blah, blah, blah, blah, blah, right?

And again, I hope people never hear that from YC or they don't get that from us.

If you watch our other videos, we're like, yeah, like you don't actually need to go raise money to like start a company and to like get customers.

Like This is deeply part of the YC mantra, which is if your idea for how you start a startup is to first create a pitch deck and go pitch VCs, you're setting yourself up to get screwed.

You're setting yourself up to get taken advantage of by people who are gonna have 20 different ways to rip you off versus if you do something cool, you're gonna have a lot more leverage, right?

Anyways, This was an amazing batch and I don't want YC to take too much credit here.

The founders did the work like we said, the founders did the work.

To 1 of the points you made earlier, being able to see everyone in person, this batch was also just amazing.

It was 1 of the things that reminded me about why this is such a fun job is being able to see everyone and Interact with them throughout the batch.

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