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Paul Graham: Why Y Combinator Replaces The Traditional Corporation

If Y Combinator is the next PayPal Mafia, then Paul Graham is Silicon Valley's godfather. Graham is the cofounder of Y Combinator, the investment firm that plugs seed money ($18,000 on average) into early stage startups in exchange for mentorship and access to its ever-growing network of alumni.

It's the latter benefit that's truly made Y Combinator a Valley powerhouse—YC's vast network of influential entrepreneurs that includes breakout Valley stars such as the founders of Dropbox and Airbnb. (We attempted to capture this network on our list of the Most Innovative Companies in Business with this fantastic infographic.) Early on, Graham envisioned this network as a "replacement for the traditional corporation."

"You know what’s great about the YC network? It gives the benefit of being part of a large company without being part of a big company," Graham says. "The problem with doing a startup—even though it’s better in almost every other respect—is that you don’t have the resources of a big company to draw on. It’s very lonely; you have no one to give you advice or help you out. In a big company, you might be horribly constrained, but there are like 1,000 other people you can go to to deal with any number of problems. Now [with YC] you have 1,000 people you can go to to deal with problems, and you don’t have all the restrictions of a big company."

The YC network, he says, now operates as a "distributed peer-to-peer replacement" for the traditional company. Comparing himself to an air-traffic controller, Graham says much of his time is spend making introductions and helping the YC community solve problems within the network. "Simon Willison, for example, the guy who wrote Django, was in a batch I think a year ago," Graham says. "So when someone had a problem with Django, we just introduced them directly to Simon Willison, and they’re like, 'Holy shit!'"

"As YC grows, the number of startups we’ve funded in the past keeps getting bigger," Graham continues. "This latest batch now has 317 startups-worth of people they can ask for help...It's very helpful for the founders. It didn’t really exist before. There are so many YC founders around now. It’s a small world: If I go to San Francisco and walk down the street for a few blocks, I will run into someone we funded."

Read more about Y Combinator and check out our infographic about the next Silicon Valley from our list of the Most Innovative Companies in Business.

[Image: Flickr user Mark Sebastian ; Thumbnail: Flickr user Al Abut]