Since 2005, Y Combinator has been assisting entrepreneurs with the earliest stages of turning a raw idea into something useful. The Mountain View, California-based accelerator makes a modest seed investment (now typically $120,000) in return for a small stake (7%) in a brand new company. More important, it offers a three-month Bay Area experience in which batches of founders receive advice from YC partners, outside guests, and fellow members of the batch; get assistance with essentials such as presentation skills and incorporation paperwork; and have the opportunity to pitch investors during a Demo Day. Over 1,500 companies have been through this process, including some that went on to become phenomenons, such as Airbnb, Dropbox, Instacart, Reddit, and Twitch.
In 2015, Y Combinator expanded its investment activities by appointing Ali Rowghani, a veteran of Twitter and Pixar, to run Y Combinator Continuity, an arm that writes checks of $15 million to $50 million to get a piece of larger companies. Generally, they’re graduates of its accelerator that are well along the journey of turning a useful product or service into a big, sustainable business.
But Rowghani found that his time investing in these growing concerns hasn’t just shown that the YC acceleration process is a good way to hatch high-potential startups. It’s also reinforced that there’s a lot of vital knowledge that founders don’t develop during their three months in the program and its aftermath.
“If phase one is about building a product, phase two is about building a company,” he says. “It’s about attracting all these strangers that you’ve never met before and getting them aligned and focused and rowing in the same direction, so they can scale into the latent demand that you’ve found and figure out new areas to continue to expand.”
Last spring, Y Combinator turned this fact into a pilot program. Conversation over meals has been an important part of the YC ritual dating back to the days when the chow in question consisted of cofounder Paul Graham’s homemade chili. So the firm invited founders—mostly, but not entirely, veterans of the YC accelerator—to meet for weekly dinners. Sessions were devoted to curated topics such as scaling yourself as a CEO, and featured guest experts who included Dropbox’s Drew Houston, Stripe’s Patrick Collison, and Twilio’s Jeff Lawson.
The experiment went well—so much so that Y Combinator is formalizing it with a new Growth Stage Program overseen by Rowghani and Anu Hariharan, his fellow YC Continuity partner. Picking up on the college-like flavor of its classic program, it likens this one to a grad school, aimed at companies that have gone through the Series A funding stage and have 50-100 employees or thereabouts. The firm is currently evaluating candidates; starting in April, the first batch of founder/CEOs it picks will meet—generally weekly—for dinners over the course of two months. They’ll learn from each other, YC partners, and invited guests who have gone through the same growing-company problems that participants are in the process of tackling.
The idea is to keep going with additional batches until every Y Combinator company that’s scaled up and wants to participate gets the chance. (Companies with no previous YC association may also apply.) The program is free, but it’s a commitment: Y Combinator only wants people to sign up for if they’re actually going to attend. One absence is acceptable—hey, entrepreneurs are busy folks—but only one. And dialing in is not an option.
“A big part of the experience is the relationship and bonds you build with the people who are in the room,” Rowghani says. “We just felt that we have to be strict, both around the attendance and the in-person participation.”
Beyond The Beginning
As useful as Y Combinator’s traditional form of entrepreneurial community is, it doesn’t scale as a startup gains traction—at least without significant tweaks. For every YC company that becomes a blockbuster, many others either stumble along or simply fail. As a result, the founders who see their ideas take flight have less and less in common with most of their fellow alumni. It can get lonely.
And at some point, Rowghani says, a realization sets in: “Oh, my God. Everything I was doing to get me to this point, those aren’t the things I need to be doing to get me to the next level.”
Fortunately, he adds, “The best founders show an incredible desire and bandwidth to learn. They’re just sponges.” With the Growth Stage Program, YC is giving them that opportunity by re-batching them into new groups with others who are facing roughly the same issues at roughly the same time.
“It helps when you have peers who are going through the same problems,” says Hariharan. “And in a way where you don’t feel you’re being judged or evaluated.”
Y Combinator has long been associated with startups that initially consist of a couple of young, technical people who are willing to devote their entire existence to their brainchild—which grinds down operating costs and allows them to reach what Graham famously called “ramen profitability.” By the time a company is a candidate for the Growth Stage Program, the important thing is to realize you can’t do everything yourself. But even if an entrepreneur gets that—and has raised enough money to recruit top talent—staffing up is a daunting new challenge.
Many of the people the Growth Stage Program targets “are first-time founders,” says Hariharan. “And the only thing they’ve probably done is be an engineer. They have never been a CMO, they have never been a CFO, they have never been a CTO. So how do you hire for these roles? How do you build a team when you don’t know what those roles really entail?”
The program’s dinners will let founders gain insight from CEOs who figured out how to hire great people (and, inevitably, made mistakes along the way). But they’ll also hear from heads of HR and other areas who know their domains in ways that a CEO doesn’t. For the pilot dinners, “we brought in that sort of senior expert a lot, that practitioner who does it day-to-day,” Hariharan says. “And the feedback we got from our founders after the dinner was that was actually incredibly helpful.”
Peter Reinhardt, the CEO of Segment, was among the participants in Y Combinator’s pilot program. A builder of tools that help companies wrangle customer data, his startup is the sort of behind-the-scenes player that isn’t destined to become a household name à la Airbnb or Reddit. But since emerging from a Y Combinator batch in 2011, it’s acquired many of the earmarks of a business that’s going places, including more than $100 million in funding (some of which came from YC Continuity) and a sprawling, funky San Francisco office with 175 employees (out of a total of 200) and room for more.
Every time Segment got a bit bigger, Reinhardt found that processes that had been working started to break down. For instance, “We were feeling like product development was slowing down for us, over a six-month period,” he says.
At a YC dinner during the pilot program, he was inspired by a development strategy laid out by Jeff Lawson, the founder/CEO of Twilio, which has grown tenfold to 900 employees over the past six years. “Product managers aren’t exactly fighting for resources, but they’re making the case for their projects as opposed to more of a top-down planning model,” Reinhardt explains. “So we switched gears dramatically towards that, and it’s going well.”
Exchanging product-development best practices is one thing, but for both particpants and the invited experts from larger companies, the pilot-program dinners were also an opportunity to open up in a way they’d be unlikely to do via a blog, Twitter, or other venues where the whole world is watching. “It’s hard for those companies to talk publicly about the problems they’re facing,” Reinhardt says. “And they’ll start thinking more carefully about their brand. Having a more private venue where those companies can help each other and learn from the folks that went through it and are now 1,000 [employees] plus is really impactful.”
At one meal, he recounts, “there was this moment at the end where one of these more experienced CEO’s was like, ‘One thing I’d really recommend is having a psychologist or a psychotherapist.’ That’s sort of taboo in our society, right? All of a sudden, the other three larger CEO’s are like, ‘Yeah, it’s pretty awesome, we highly recommend it.’ And then half of the other CEOs are in the room are like, ‘Yeah!'”
If the Growth Stage Program takes off, its benefits for founders will be obvious and lasting. But the effort is also designed to fundamentally change Y Combinator itself, a firm whose tight relationship with startups has stemmed from the fact that it gets involved with them before it’s clear to everyone that they have the right stuff.
“Sam [Altman, YC’s president] says that your emotional attachment to your investors is greatest for your first and a little less for your second,” says Rowghani. “You have no emotional attachment at all to the hedge fund advisors, if you’re a public company … When your future was the most uncertain, YC believed in it. And you’ll always remember that.”
With the Growth Stage Program, Y Combinator will mean something to entrepreneurs who have already proven themselves, in a way it couldn’t accomplish simply by giving them larger chunks of cash through YC Continuity. As Rowghani puts it, the effort is about ensuring that the firm “isn’t just this fun memory in the rear-view mirror—but more of a reality that continues to help and support you.”