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Inside a training hotbed for tech entrepreneurs

Randall Stross is the first author to attend a full three-month session at Y Combinator, where 60 teams are chosen to participate out of thousands of applicants.

September 16, 2012|By Tim Bradshaw

When history comes to assess the present era of Silicon Valley, several chapters will be dedicated to Y Combinator.

A start-up investment and training program masterminded by former entrepreneur Paul Graham, Y Combinator appeared at just the right moment: in 2005, when social media were emerging, the cost of launching an Internet company was falling and investors' appetite for risk was returning.

In 2000, Randall Stross, a New York Times columnist and business professor at San Jose State University, published "eBoys," an account of Benchmark Capital, one of the first signature investments firms of the dot-com boom. Now he is the first author to sit in on a Y Combinator "session" for the full three months, chronicling Graham's hard-worn start-up wisdom and the highs and lows of life as a novice entrepreneur.

Stross is the author of "The Launch Pad: Silicon Valley's Most Exclusive School for Startups," published by Portfolio. In it, he compares Y Combinator to writing a graduate school dissertation, an intense period of study and activity with little formal structure or curriculum.

Sixty teams — to call them companies would suggest they begin with as much as a fully formed product idea, let alone something customers are using or buying — are selected from thousands of applications.

Graham offers $11,000 to $20,000 for a 6% to 7% share of each company. But the real value comes not from his cash but from his unmatched network of technology veterans and investors, who speak at weekly dinners and can be called upon for advice.

Stross calls his book "The Launch Pad," but Y Combinator has little of the scientific precision of a flight deck.

With its original Silicon Valley location on Pioneer Way, amid car repair shops, Y Combinator can seem more like a Henry Ford production line, industrializing the start-up cottage industry.

Graham trusts his instinct and encourages his pupils to do the same, investing more in people than ideas. His investments are in part reliant on the statistical probability that a handful will become knockout successes, such as digital storage service Dropbox or Airbnb, a private accommodation rental site.

These two graduates have achieved multibillion-dollar valuations in the private markets, while several others have been sold for tens or even hundreds of millions of dollars.

"More than half of you will fail," Graham tells each batch at the outset, just one of the many ways in which he punctures the romance of a start-up.

No office space is provided to the entrepreneurs, who are all encouraged to live nearby, stock up on ramen noodles and cut off their friends and family for the duration. Most of the hopefuls are young, male and white.

This lack of cultural and ethnic diversity is one of the few areas where Stross challenges Graham and his pattern recognition.

The book would have benefited from more critical thinking, especially in examining the real returns from Y Combinator. Financial outcomes are dealt with in just a handful of pages, because Graham "does not reveal data" on his investments.

Instead, "The Launch Pad" has a linear narrative, following several teams from application through to Demo Day, when the founders present their creations to outside investors.

From the likes of CampusCred, the daily deals site for students; MongoHQ, a cloud-based database hosting service; Rap Genius, a lyrics site; or Opez, a service professionals' recommendation site — and Graham's critiques of their products, moneymaking ideas or presentational skills — there emerges plenty of timeless start-up wisdom.

Stross peppers the book with his mottoes: "Make something people want," "Launch fast." "Write code and talk to customers."

If not the definitive history of this explosion in technology start-ups, Stross at least provides lively source material.

Bradshaw is a San Francisco correspondent for the Financial Times of London, in which this review first appeared.

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