Y Combinator And Used Cars

Since 2005, investors have generally regarded companies graduating YC with the same confidence a single parent places in a certified used car.

Half the companies graduating from YC will still be around in 5 years. Four percent of those companies will become unicorns. That is better than non-YC companies.

Accelerators

In 2017, a company I co-founded was selected to attend an accelerator through the University of North Carolina at Chapel Hill. While far from YC, the accelerator did provide us with pitching and financial knowledge. However, their brand recognition did not help us add zeros to our valuation.

Lifespan

Every company has a lifespan. Jeff Bezos famously talks about Amazon's lifespan. Kongo Gumi, a Japanese construction company, lasted over 1,400 years until it was absorbed by another firm in 2006. However, most do not make it ten years.

Exit

Founders must understand that regardless of success, their company will only last for a while. Perhaps it has three years, five, or twenty before it is no longer relevant or has to change into something entirely different. Knowing this at the start helps to make a better exit plan.

Valuation

Early-stage valuations are calculated differently than those of established companies. Most of it involves guesswork about the future state of the market they are in now and what other markets they can realistically enter. Thus, the future state heavily depends on the quality of the founding team.

Founders

This is why a company graduating from YC or another big-name accelerator gets a better valuation. Their founding team has already been vetted by people most investors trust. I cannot overstress the importance of the founders for a new business.

Ivy League

Getting the right founding team is challenging because the qualities that make them promising leaders also give them other opportunities. In my companies, I have had Berkeley, Harvard, Wharton, MIT, and several other big-name graduates join only to leave for greener pastures once things got hard.

Conclusion

The founding team must have the talent and be humble enough to endure hard times. This is very difficult for people who are used to always winning, especially when money is tight, and recruiters are calling.