How Y Combinator went from a summer experiment to Airbnb and Stripe

Transcript

In the summer of 2005, a programmer named Paul Graham, ran what he assumed would be a one-off experiment. He handed eight groups of young people a few thousand dollars each and invited them to dinner once a week. One of those eight groups built Reddit. Two decades later, the same program has produced Airbnb, Stripe, Dropbox, DoorDash, and Coinbase. And it now rejects roughly 99 of every hundred people who apply. It is several times harder to enter than Harvard. You might say founders are chasing the money, but the money is the least attractive part of the offer. Why, Commonator, takes around seven percent of a company for a check that a promising startup could beat elsewhere without giving up nearly as much. Founders who have other options routinely accept the more expensive deal on purpose. So to understand what is actually happening, you have to ask what they are buying instead. And the answer is sitting in the vocabulary in plain sight. They are not called portfolio companies. They are called batches. The people who finish are not called founders. They are called alumni. The program ends with Demo Day. And throughout it, the partners hold what they refer to as office hours. No investment firm on Earth holds office hours. That is a professor's phrase. Why Commonator borrowed the language of a university because a university is precisely what Paul Graham built, which reframes everything. Because consider what a university actually sells. It is not the teaching. Why Commonator gives its entire curriculum away. The essays are free. The lectures are free. The startup library is published online for anyone who wants it. If the knowledge were the product, nobody would need to attend. What a university sells is a filter. And a room full of the people who passed it. A degree from Oxford does not make a graduate clever than they were on the day they arrived. It certifies that a very selective process chose them. And it seats them besides several hundred others who were chosen by the same process. That certification then travels with them for the rest of their lives. Why Commonator functions in exactly the same way? When an investor sees it on a pitch deck, that investor stops asking certain questions because somebody else has already asked them. So the three months were never really the education. They were the entrance exam. And what a founder walks out holding is not the money or the advice or even the network. It is the ability to walk into a room and never again have to prove they deserve to be in it.

Transcribed automatically from the video, so small errors are possible.