a quick demo day. It’s sort of like going to a private college. If the price tag is high and people are still applying, they’re interested. And not just people who are like, “Let’s try this, what the hell, why not.”
X: Do you think these specific companies are ones that you will be able to help, and come out the end of that nine-month process with something really great?
JH: We are not going to pick them unless we think we can add value. It’s a two-way thing. We have actually seen a couple of startups that were great, but we had to ask, why are we going to be able to help you? We select them out.
PR: I will give you a concrete example. A very good team, they wanted to do SnapChat for South America. This model of taking a model that worked in the US and taking it to other countries has worked. We thought it was a fantastic idea. We researched it. It probably was a good investment for us. But we couldn’t figure out how to help these guys. They were going to do a lot of marketing and localization. We had to turn it down, even though at a financial level it was probably pretty attractive.
JH: On the other hand, one of the great examples is two of these kids who are doing this tutoring thing. And they’re in Iowa. One of them’s got a PhD and one of them just dropped out of a PhD program. But these are off-the-charts brilliant guys. They got something up and working. But they are in the middle of Iowa. The first time I met them, I said “These guys are great, but they are out in the middle of nowhere with no possible way to start a company.” They looked at this and it was like they’d died and gone to heaven.
PR: They had even raised half a million dollars, but they said “We just cannot do it sitting where we do. We don’t have the connections. We need to be in Silicon Valley.” They are called TutorUniverse. It’s microtutoring on mobile. When you have an assignment, you don’t have time to go hire a tutor and schedule a session, so you take a photo of your assignment, you stick it in the cloud, and a tutor says I can help you with that. Think of it as Airbnb for tutoring.
X: So you guys can’t do South America, but you can do mobile, you can do gaming, you can do big data, wearables.
PR: Basically any field, but we can’t do these localization plays. Because we are not trying to build a pipeline of 100 companies, we can afford to say “We love you, but we don’t think it makes sense.”
JH: One of the other reasons that this model works is, we do a lot of selection before they come in. We have a highly selected group and we have them for a longer period of time. That will have a higher result at the other end. Nothing against the YC model. If I were an investor putting money into YC, the expected returns are not bad. But it’s a different approach—take a whole bunch of stuff and throw it against the wall and see what sticks.
PR: I think YC’s true contribution to the startup community was getting young people who are hackers out of colleges to really go into technology startups. That is important for the general ambiance of innovation. I remember when I was 21 and got out of college, I didn’t know anything. There was no such system. Now there is a whole ecosystem. What YC has done is create a platform where two guys from MIT can say “Let’s go do something.”
JH: But I think you have to be careful. You can look at the ecosystem from a lot of different viewpoints. I advise a lot of people. I give career advice to kids and to people who have been CEOs of companies, every week. And when I talk to young kids coming out of college, most of them, for nine out of 10 of them I tell them, “Your best bet is to go work for a big company. Go get some experience in a big company before you go do anything.”
And if you think about it, from an individual college student’s point of view, if they think they can go out and start a company and be successful, they are mostly wrong. Yeah they can go get into Y Combinator, or any of the 120 other accelerators. They can get some funding and work for three months on that, but after a year, they’ll usually fail. They will have learned something. It’s okay to fail. But would they have been better off going and chipping away at something for a couple of years and getting a little grounding? There is a lot to learn.
For most people who go through these programs, it’s not the right thing for them. The outcome for the individual is different from the outcome for the investor. I would separate Y Combinator out, because they are one of the ones that has done really well. But for the 120, most of those are actually doing a disservice to the kids. What we are trying to do is be highly selective, so that most of the kids coming into our program end up better off at the end. I would say that’s a far better model.
