March 2012Y Combinator's 7th birthday was March 11. As usual we were sobusy we didn't notice till a few days after. I don't think we'veever managed to remember our birthday on our birthday.On March 11 2005, Jessica and I were walking home from dinner inHarvard Square. Jessica was working at an investment bank at thetime, but she didn't like it much, so she had interviewed for a jobas director of marketing at a Boston VC fund. The VC fund was doingwhat now seems a comically familiar thing for a VC fund to do:taking a long time to make up their mind. Meanwhile I had beentelling Jessica all the things they should change about the VCbusiness — essentially the ideas now underlying Y Combinator:investorsshould be making more, smaller investments, they should be fundinghackers instead of suits, they should be willing to fund youngerfounders, etc.At the time I had been thinking about doing some angel investing. Ihad just given a talk to the undergraduate computer club at Harvardabouthow to start astartup, and ithit me afterward that although I had alwaysmeant to do angel investing, 7 years had now passed since I gotenough money to do it, and I still hadn't started. I had alsobeen thinking about ways to work with Robert Morris and TrevorBlackwell again. A few hours before I hadsent them an email trying to figure out what we could do together.Between Harvard Square and my house the idea gelled. We'd startour own investment firm and Jessica could work for that instead.As we turned onto Walker Street we decided to do it. I agreed toput $100k into the new fund and Jessica agreed to quit her job towork for it. Over the next couple days I recruited Robertand Trevor, who put in another $50k each. So YCstarted with $200k.Jessica was so happy to be able to quit her job and start her owncompany that I took her picture when we got home.The company wasn't called Y Combinator yet. At first we called itCambridge Seed. But that name never saw the light of day, becauseby the time we announced it a few days later, we'd changed the nameto Y Combinator. We realized early on that what we were doing couldbe national in scope and we didn't want a name that tied us to oneplace.Initially we only had part of the idea. We were going to doseed funding with standardized terms. Before YC, seed funding wasvery haphazard. You'd get that first $10k from your friend's richuncle. The deal terms were often a disaster; often neither theinvestor nor the founders nor the lawyer knew what the documentsshould look like. Facebook's early history as a Florida LLC showshow random things could be in those days. We were going to besomething there had not been before: a standard source of seedfunding.We modelled YC on the seed funding we ourselves had takenwhen we started Viaweb. We started Viaweb with $10k we got fromour friend Julian Weber,the husband of Idelle Weber, whosepainting class I took as a grad student at Harvard. Julian knewabout business, but you would not describe him as a suit. Amongother things he'd been president of the National Lampoon. He wasalso a lawyer, and got all our paperwork set up properly. In returnfor $10k, getting us set up as a company, teaching us whatbusiness was about, and remaining calm in times of crisis, Juliangot 10% of Viaweb. I remember thinking once what a good dealJulian got. And then a second later I realized that withoutJulian, Viaweb would never have made it. So even though it was agood deal for him, it was a good deal for us too. That's why Iknew there was room for something like Y Combinator.Initially we didn't have what turned out to be the most importantidea: funding startups synchronously, instead of asynchronously asit had always been done before. Or rather we had the idea, but wedidn't realize its significance. We decided very early that the first thing we'd do wouldbe to fund a bunch of startups over the coming summer. But wedidn't realize initially that this would be the way we'd do all ourinvesting. The reason we began by funding a bunch of startups atonce was not that we thought it would be a better way to fundstartups, but simply because we wanted to learn how to be angelinvestors, and a summer program for undergrads seemed the fastestway to do it. No one takes summer jobs that seriously. Theopportunity cost for a bunch of undergrads to spend a summer workingon startups was low enough that we wouldn't feel guilty encouragingthem to do it.We knew students would already be making plans for the summer, sowe did what we're always telling startups to do: we launched fast.Here are theinitial announcementand description of whatwas at the time called the Summer Founders Program.We got lucky in that the length and structure of a summer programturns out to be perfect for what we do.The structure of the YC cycle is still almost identical to whatit was that first summer.We also got lucky in who the first batch of founders were. We neverexpected to make any money from that first batch. We thought ofthe money we were investing as a combination of an educational expenseand a charitable donation. But thefounders 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 thetime. I can't blame people who didn't take us seriously, becausewe ourselves didn't take that first summer program seriously in thevery beginning. But as the summer progressed we were increasinglyimpressed by how well the startups were doing. Other people startedto be impressed too. Jessica and I invented a term, "the Y Combinatoreffect," to describe the moment when the realization hit someonethat YC was not totally lame. When people came to YC to speakat the dinners that first summer, they came in the spirit of someonecoming to address a Boy Scout troop. By the time they left thebuilding they were all saying some variant of "Wow, thesecompanies might actually succeed."Now YC is well enough known that people are no longer surprisedwhen the companies we fund are legit, but it took awhile for reputation to catch up with reality. That's one of thereasons we especially like funding ideas that might be dismissedas "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 ofstartups a year.We funded the second batch in Silicon Valley. That wasa last minute decision. In retrospect I think what pushed me overthe edge was going to Foo Camp that fall. The density of startuppeople in the Bay Area was so much greater than in Boston, and theweather was so nice. I remembered that from living there in the90s. Plus I didn't want someone else to copy us and describe itas the Y Combinator of Silicon Valley. I wanted YC to be the Y Combinator of Silicon Valley. So doing the winter batch in Californiaseemed like one of those rare cases where the self-indulgent choiceand the ambitious one were the same.If we'd had enough time to do what we wanted, Y Combinator wouldhave 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'thave time to get our own building anywhere. The only way to getenough space in time was to convince Trevor to let us take overpart of his (as it then seemed) giant building in Mountain View.Yet again we lucked out, because Mountain View turned out to be theideal place to put something like YC. But even then we barely madeit. The first dinner in California, we had to warn all the foundersnot to touch the walls, because the paint was still wet.
