Xconomy Q&A with Y Combinator Founder Paul Graham

This e-mail Q&A with Y Combinator founder Paul Graham, conducted by Xconomy founder Bob Buderi, is worth a read.

I found it aggravating in lots of ways, but am trying to consider if there are some useful criticisms in there.

Graham repeatedly characterizes Boston as a city of ideas, which makes it sound like the only thing here is academia and research. (Don't we occasionally turn those ideas into companies, whether Akamai or Genzyme or A123 Systems or Boston Scientific?) He makes this assertion, without backing it up with any kind of data: "Stanford students are all thinking about startups. MIT students mostly think of getting jobs at Microsoft or Google." Investors here are not more prudent, he also opines, but rather "less confident" than investors in Silicon Valley.

Interesting that Graham's biggest entrepreneurial success, Viaweb, was founded in Cambridge. (Many of the Viaweb founders now work with Graham on Y Combinator.) Maybe all the reasons Boston is a bad place for start-ups were not true in the 1990s, when that company was hatched?

Y Combinator Decamps from Cambridge

I don't think there's a glass-half-full way to look at Paul Graham's announcement this week that his Y Combinator start-up program will now take place in Silicon Valley year-round, rather than alternating between Cambridge and Silicon Valley.

Graham is a prickly personality, and he hasn't always had the best relationship with investors here in Boston, but Y Combinator was a net positive for the area: it exposed energetic young entrepreneurs to Boston investors, and vice versa.... even if Graham was never a strong advocate to his entrepreneurs of remaining in Boston once they had completed the Y Combinator program.

Here are the toughest two sentences in Graham's announcement:

Boston just doesn't have the startup culture that the Valley does. It has more startup culture than anywhere else, but the gap between number 1 and number 2 is huge; nothing makes that clearer than alternating between them.

That's not just his opinion... it's reality... and we ought to be addressing it head-on.

Some more coverage:

- Sad day for Boston as Y Combinator pulls up stakes and moves to Silicon Valley

- Paul Graham, Y Combinator exits Mass. for Silicon Valley

- Paul Graham and Y Combinator to Leave Cambridge, Stay in Silicon Valley Year Round

- Y Combinator Pulls Up Stakes on East Coast

- Y Combinator plants permanent roots in Bay Area

Y Combinator's August 2008 Demo Day in Cambridge

Here are the three things that hit me hardest about today's Y Combinator Demo Day in Cambridge.

1. The Boston VC community has finally woken up to this event, and the promise (and engineering skillz) that many of the YC start-ups show. Represented in the audience today were Matrix, Sigma, Kepha Partners, Spark Capital, and a zillion others -- many of whom weren't present last August. General Catalyst sent at least three folks, including co-founder Joel Cutler. More conspicuous this year were the VC firms who didn't sent a partner or associate, like Polaris, Prism, Highland, North Bridge, and some alleged early-stage funds like .406 Ventures and DACE Ventures.

2. Many of the start-ups were focused on radically simplifying the sign-up process to use a new Web service, or set up a new blog or Web page. I found myself wondering, "When will a YC start-up figure out how to enable me to join a new service before I've even heard of it?" Maybe in the Spring 09 crop...

3. I think Paul Graham is the Schumpeter of the 21st century. Every start-up seemed to be trying to destroy (or at least improve upon) something that has been around for a couple years....including Evite, Monster.com, Reddit, Blogger, existing digital photo frames, and Tumblr. That's a good thing, but it was funny to hear Posterous, the first start-up to present, diss Tumblr with Tumblr investors (two guys from Spark) in the audience.

Here's the video I shot at the event, followed by some notes on all of the non-stealth companies that demoed. (Video includes TicketStumbler, Fliggo, Picwing, MeetCast, CO2Stats, Job Alchemist, Slinkset, Frogmetrics, Anyvite, Popcuts, Snipd, and Ididwork -- though not in that order. There's also a brief cameo from John Puskarich, co-founder of Bountii -- a Y Combinator alum.)



- Posterous was first out of the gate, and impressed a lot of people. A slick, simple way to start and maintain a blog using only your phone (or any device that can send an e-mail). Handles photos, MP3s, and video really well. Great company name, too. Already covered by TechCrunch and VentureBeat.

- TicketStumbler is, simply, Kayak for sports tickets, searching lots of sites across the Web and then helping you sort the options, for instance, that exist for seeing the Red Sox game. (Where do you want to sit, and how much do you want to pay?) Covered by TechCrunch here. They say they are already profitable.

- Fliggo runs an existing video-sharing community ... planning to introduce something new soon, geared to people who're dissatisfied with YouTube. A bit more about what they're up to is in the video, above.

- Picwing is trying to do for photo frames what Apple did for MP3 players... marry nicely-designed hardware with easy-to-use software. Frame is $249, and has a Linux computer inside. Their demo involved shooting a (blurry) pic of the audience and then having it appear a few seconds later on the frame. Neat! The somewhat cyncial VC next to me seemed ready to place his order.

- MeetCast: trying to make Web conferencing simpler than WebEx yet more sophisticated than Tokbox. Start a conference in a few seconds... invite people to call in or participate via video... or share presentations or docs from their desktops. This was one of those apps that you really want to get your hands on to see if it's actually as easy-to-use as the demo made it seem.

- CO2Stats felt like the most mature start-up of the bunch. And they have an actual business model that involves people paying money for a valuable service, not simply placing "targeted ads" on Web pages, or hoping someone will buy them before it becomes obvious they can't produce revenue. They certify that a Web site is run with green power, and will actually sell the site renewable energy credits to offset the site's carbon footprint. Already profitable, apparently the early leader in its space, and just signed IBM as a customer. I suspect they will be acquired before 2008 is out...

- Youlicit: Trying to best Mahalo and Squidoo by using algorithms rather than human editors to create guides to a given topic (like "picking up girls".) The results are similar to the topical directories that humans built for Yahoo in the mid 1990s. Maybe Yahoo should throw everything away and simply buy Youlicit? They'd hardly have to change the ticker symbol...

- Job Alchemist: Helping blog publishers make more money by putting targeted job listings on their sites... and collecting a bounty when a candidate gets the job. Also makes setting up niche job boards easier. Can't wait to try this.

- Create Digg-like rating systems, or votable lists, in a few minutes with Slinkset. Another thing I need to tinker with for InnoEco.com.

- Frogmetrics uses Nokia N810 devices (about $350 each) to collect survey data from consumers after they've engaged in transactions. Six employees.... they say they're already profitable... and just landed a Fortune 150 client. They say their survey response rates are better than 90 percent... and that they use the N810 because they think people are less likely to swipe it than an iPod touch, which is cheaper. Establishments can collect e-mail addresses from their customers, and also analyze how people rate individual employees or product quality at a particular time of the week. Like, does a restaurant's food get bad ratings on Sunday night, but great ones on Monday? They've been testing it in two Cambridge restaurants, which they wouldn't name.

- Anyvite is yet another Evite-killer. Focused in part on making invitations easy to create and respond to on mobile phones. Covered here on TechCrunch.

- Snipd is doing content-sharing/social bookmarking, with a focus on honing in on specific passages of an article, or segments of a video, that users find most interesting. That lets other users hone in on the "hot zones" of a video -- the part that other users found most compelling.

- Ididwork allows employees to track what they've accomplished, and publish it to a Facebook-style feed page. Managers can also use the system to review employees, giving them more frequent feedback than the quarterly review. Already profiled on TechCrunch.

- Backtype wants to be Google for comments, hunting down blog comments and making them searchable and trackable (so you could track all of my comment posts across any site, or create alerts about a given company that may be mentioned in comments.)

- Popcuts is a bit like the music site AmieStreet, except they reward people who purchase music early (and presumably tell their friends about it) by giving them a cut of future sales. If a song takes off, not only could you have the 99 cent purchase price refunded, but you could earn a return for being a "taste-maker."

A few other presenters are still in stealth mode, and we were asked to leave their presentations off-the-record. We'll see if folks do that...

Here are some of the people I saw in attendance:

David Beisel of Venrock, Don Dodge of Microsoft, Bijan Sabet and Rob Go of Spark Capital, Jeff Yolen of Sphere, Saar Gur from the California office of Charles River Ventures, Steve McCormack from Commonwealth Capital, Margaret Lawrence from Pilot House Ventures, Matt Witheiler from Flybridge, Tali Rappaport from Matrix, David Baum from Stage 1 Ventures, Jonathan Golden from Greylock, Jonathan Seelig from Akamai, Bill Warner of Warner Research, David Hornik from August Capital, Rich Levandov from Avalon, Neil Sequiera, David Orfao, and Joel Cutler from General Catalyst, Matt Hjerpe from Atlas, Jeff Glass from Bain Capital Ventures, Roger Krakoff from Sigma, Fred Wilson from Union Square, Dharmesh Shah from HubSpot, and Jo Tango from Kepha.

Also saw John Puskarich from the shopping search site Bountii, a Y Combinator graduate from a previous class. They've gotten some angel funding. John, an MIT alum, has been working in Cambridge, with his co-founder Samir Meghani in the Bay Area. Sadly, John told me today he's heading west soon to keep building the company out there.

We'll see if some Boston investors put money into this summer's batch of start-ups...and maybe keep them around the neighborhood. So far, Bijan Sabet of Spark is the one Boston-area VC to put money into a YC company, I'm In Like With You, which is actually based in NYC.

Here's some previous InnoEco coverage of Y Combinator and video with Paul Graham.

Sunday's Globe column: Y Combinator & New England VCs

Yesterday's Globe column explored the question of why start-ups that go through the Y Combinator "boot camp" seem to get funded by west coast VCs, but not VCs here in New England.

Probably it is the youth and inexperience of the founders. Twenty-somethings often fail the first time they try to start a company. (Of course, when they succeed, look out: Microsoft, Yahoo, Facebook, Google, Apple, iRobot, etc.)

Massachusetts venture capitalists, Y Combinator co-founder Paul Graham told me recently, think "like bureaucrats."

"Bad VCs think about covering their a**es if things go wrong. They want to minimize the downside. Good VCs chase high returns," he says.

"Silicon Valley investors know about Y Combinator and take it more seriously. They're much more curious about new things." In Silicon Valley, firms send partners to the YC demo days, where start-ups show what they've been working on. Here in Boston, he says, they send associates.

"I worry about the future of the city," says Graham. "What makes Boston not just Baltimore is technology. If Boston falls behind in investing, the city will fall behind." Each year, the Y Combinator team questions whether they should continue to hold their summer program in Cambridge, but Graham says, "I think we'll keep doing it in Boston." Getting investment from East Coast VCs isn't essential to the program's success, he adds, because the summer crop of start-ups also take a trip west to pitch investors there. (No YC company has yet gotten investment from a Boston-area investor.)

He gets more into these issues, and his advice for entrepreneurs, in the video clip below:

Paul Graham on 'Why There Aren't More Googles'

Y Combinator co-founder Paul Graham writes one or two essays a month. (They're much more thoughtful and elegantly written than the typical blog post.)

The latest one is on 'Why There Aren't More Googles.'

From the piece:

[Computer science pioneer] Howard Aiken said "Don't worry about people stealing your ideas. If your ideas are any good, you'll have to ram them down people's throats." I have a similar feeling when I'm trying to convince VCs to invest in startups Y Combinator has funded. They're terrified of really novel ideas, unless the founders are good enough salesmen to compensate.

But it's the bold ideas that generate the biggest returns. Any really good new idea will seem bad to most people; otherwise someone would already be doing it. And yet most VCs are driven by consensus, not just within their firms, but within the VC community. The biggest factor determining how a VC will feel about your startup is how other VCs feel about it. I doubt they realize it, but this algorithm guarantees they'll miss all the very best ideas. The more people who have to like a new idea, the more outliers you lose.

Given that Graham and Y Combinator need to work with VCs -- the start-ups that Y Combinator funds typically rely on VCs for a next stage of funding -- his candor is refreshing (and a bit surprising).

Pop Quiz: How Many of Y Combinator's Latest Start-Ups Got Funding from Boston VCs?

I was chatting this afternoon with Y Combinator co-founder and big thinker Paul Graham this afternoon, for my Sunday Globe column.

Y Combinator runs two three-month-long workshops each year for start-ups, one in Palo Alto in the winter and one in Cambridge in the summer. The firm also makes small investments, usually less than $20K, in the start-ups that it selects for these workshops. At the end of each workshop, they hold a Demo Day, where the entrepreneurs show their prototypes to a group of VCs and established entrepreneurs.

I'd been hearing rumors this fall that Y Combinator might stop doing its summer Cambridge workshop. But Graham told me that isn't happening. Rather, this year, they took the Cambridge class of start-ups to do a second demo session in Silicon Valley, a few days after they'd presented locally. (Interestingly, they don't ship the Palo Alto entrepreneurs out east for a second show-and-tell day.) That seemed to solve a problem Graham had noticed, which was that the East Coast group weren't getting as much funding action as the Palo Alto crew.

So what were the results of this first-year experiment with taking the East Coast cohort for a West Coast field trip? Graham says that not one of the 19 start-ups from the summer workshop has yet been funded by an investor in the Northeast. But about half got funding from an investor in Silicon Valley.

What's the meaning of that? You be the judge...

Go West, Young Start-Up

I can't explain why this speech from Y Combinator founder Paul Graham aggravates me.

Graham writes:

There is now a whole neighborhood of [Y Combinator funded start-ups] in San Franscisco. If you move there, the peer pressure that made you work harder all summer will continue to operate.

Wait, I know why it aggravates me. There are three reasons.

Graham's company, the pioneering online shopping start-up Viaweb, was based in Cambridge until it was sold to Yahoo for $49 million. It had just 21 employees.

Second reason is that Y Combinator holds a summer camp for start-ups it funds in Cambridge, and a winter university for them in Silicon Valley.

What's the difference between a summer camp and a university? Almost no one sticks around in the place where their summer camp is located after camp is over...but lots of people stick around after they've graduated from college.

Reason #3: while I wish that Graham and Y Combinator would be more encouraging about planting a start-up in the Boston area, most of their companies could be described as Web 2.0 apps, destined to be acquired by someone else. (Google, Yahoo, eBay, etc.) And I must acknowledge that it can be easier to get the attention of the relevant acquirers if you're in the Valley.

Your thoughts?

'Founders at Work: Stories of Startups' Early Days'

Just finished reading Jessica Livingston's 'Founders at Work' over the weekend. It's a compilation of interviews with enterpreneurs -- many of them from the Boston area.

So few books are published that deal with building companies here...and Jessica gets into the nitty-gritty: relationships with co-founders, negotiations with VCs, competing with bigger players.

The Boston entrepreneurs interviewed in the book include:

- Dan Bricklin, Software Arts (VisiCalc spreadsheet)
- Mitchell Kapor, Lotus Development Corp.
- Ray Ozzie, Groove Networks (Ray is now chief software architect of Microsoft)
- Paul Graham, Viaweb (Graham went on to start Y Combinator, the early stage venture firm in Cambridge, where Livingston works)
- Philip Greenspun, ArsDigita (now a blogger and flight instructor)
- Stephen Kaufer, TripAdvisor
- Ron Gruner, Alliant Computer Systems and Shareholder.com
- James Currier, Tickle (Tickle was founded in Boston as Emode, and then moved out to San Francisco before being acquired by Monster.com)
- Bob Davis, Lycos (now a VC at Highland Capital Partners in Lexington)

Amazingly, there's a blurb on the back cover from Bill Kaiser of the venture firm Greylock Partners, which was involved in a very public battle with ArsDigita founder Philip Greenspun (it's recounted in Greenspun's chapter, in piquant detail)