For Stripe Cofounders, Y Combinator Supplies Far More Than Mentoring

Brothers Patrick and John Collison built their first startup at Y Combinator in 2007, and sold it for millions. Now, the YC alums have branched out on their own for their second company, white-hot payments startup Stripe.

Stripe cofounders (and brothers) John and Patrick Collison, are two of the most successful entrepreneurs to come out of Y Combinator's accelerator program. The natives of Limerick, Ireland built their first startup, Auctomatic, at Y Combinator in 2007—and they sold it for millions. Now, the YC alums have branched out on their own for their second company, white-hot payments startup Stripe, which raised a $20 million Series B round of financing in July at a reported valuation of as much as $500 million. Clearly, the lessons John and Patrick, 22 and 23 respectively, learned from Y Combinator are paying off.

In our conversation below, the brothers Collison talk about the benefits of Y Combinators and accelerators in general. The conversation is part of our ongoing Fast Talk series on accelerators in the September issue. In addition to YC's Harj Taggar, we've already spoken with TechStars' David Tisch. Later this week we'll hear from SeedCamp and Tech Wildcatters. If you're an entrepreneur who has ever wondered about the pros and cons of entering an accelerator, you'll want to pay attention.

Collison Brothers
FAST COMPANY: Why did you apply to Y Combinator for your first startup?

Patrick Collison: Well, it seemed obvious to us that we needed to be in the Valley.

John Collison: Coming from Ireland, it's quite hard to do a startup because you're culturally so far away from what everyone else is doing. In the Bay Area, it's much easier. It's the equivalent of the actor or actress moving to Hollywood.

PATRICK: We definitely knew of YC and [cofounder] Paul Graham. Reddit had gone through YC, and they were building a pretty successful product. It seemed pretty clear to me that YC just got it. And we were almost the prototypical YC founders: We were highly technical but had never done a tech startup before. We also didn't know anyone in the Valley—investors, other entrepreneurs, potential hires. YC seemed like a great way to bootstrap that network. We had dinners every Tuesday; we hung out a lot; and many of my good friends here now are folks we originally knew from YC.

JOHN: The value of that peer group is surprisingly profound, even just for personal reasons. It's very tricky coming out to a new area and trying to set up both a business and a life from scratch. So it does make an awful lot of difference working alongside of a bunch of other people rather than if you raise traditional money, you're very much on the outside. Plus, we really liked the ethos of YC, which is this move-fast-and-break-things approach.

Did you look at other accelerators?

PATRICK: Actually, at that time in 2007, there weren't any other accelerators, at least that I was aware of. I don't think people realize this now, but YC invented this model. That summer, I remember a bunch of accelerators started springing up that literally copied YC's application, and just replaced the city with 'Boulder' or 'New York' or wherever. I actually made a website called Y2 Combinator, which was the Y Combinator that starts Y Combinator clones. There's a very clear difference in the quality between the companies that come from YC and the companies that don't.

You've raised traditional capital for Stripe, your second startup. How does that compare to going through YC? Does it feel lonelier on your own?

PATRICK: We definitely don't feel on our own. I mean, from a personal standpoint, for our first company we worked pretty closely with Paul and the folks at YC; and with Stripe, we worked pretty closely with Paul and the folks at YC. We did not feel outside of that circle. Perhaps there's very little difference with Stripe, except that we didn't happen to go to the dinners or to demo day.

JOHN: I mean, with YC, they didn't provide office space because their philosophy around this is that you're going to deal with a whole load of challenges and dreadfully hard things. So if you can't sort out office space, then you really have bigger issues. They try not to encourage a culture where everything is provided for you. So while they do have the camaraderie, you're still very much left to your own devices. And with YC, it's designed to be advice-on-demand, where you can book time with any of the partners.

Did YC help you connect with investors for Stripe?

PATRICK: I think that having the YC stamp-of-approval may make it easier to get a meeting with an investor, but I don't think they're going to invest because you're YC. I don't think investors outsource much of their thinking to YC.

Accelerators are popular so popular everywhere around the world now. If you were doing your first startup again in 2012, would you consider staying in Ireland?

JOHN: I think you'd need a good reason to justify not being in the Bay Area.

PATRICK: You almost certainly want to be in the Bay Area or New York—that's way more important factor than which accelerator you go through. Seed funding is not a regional business, and it's not a viable approach to say, 'We're like YC, but we're in Chicago.'

What about vertical accelerators that focus on particular fields?

JOHN: I don't think vertical-specific accelerators are that important. For example, we're not building a payments company; we're building a product and technology company. I mean, we have an office on the fourth floor, but we didn't look for an incubator that helps you build a company with an office on the fourth floor. The hard part about what we're doing is hiring really great engineers and building really great product, and a a large part of that is being around people who are working on the same thing as you are.

Would you recommend an accelerator to up-and-coming entrepreneurs?

PATRICK: Every good accelerator company applies to YC. Do I think a YC company is more likely than average to succeed? I think that's empirically the case. Empirically it's now the case that YC can produce enormously success companies like Airbnb and Dropbox. So no, I would not recommend they go to an accelerator. I would recommend they do YC.

[Image: Flickr user Steve2358]

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