In March 2012, as Y Combinator quietly marked its 7th birthday, it was a moment for reflection on humble beginnings. The genesis of YC wasn’t a grand plan, but rather a series of conversations and observations that sparked an idea during a simple walk home in March 2005.
The co-founders, Jessica Livingston and Paul Graham, were at a career crossroads. Jessica, working in investment banking but seeking more fulfilling work, had interviewed for a marketing director position at a Boston VC firm. Meanwhile, Paul, after giving a talk on how to start a startup at Harvard, realized his own ambition to angel invest had remained unfulfilled for years. He had also been contemplating ways to collaborate again with Robert Morris and Trevor Blackwell.
The seeds of Y Combinator were sown during these reflections. Paul had been sharing his critiques of the traditional VC model with Jessica, advocating for more frequent, smaller investments in “hackers” and younger founders. This conversation continued as they walked home one evening from Harvard Square.
It was on this walk, turning onto Walker Street, that the idea crystallized: they would create their own investment firm. Jessica could lead it, focusing on a new approach to early-stage funding. Paul committed $100,000 to the venture, and Jessica agreed to leave her job. Within days, Robert and Trevor joined, each contributing $50,000, bringing YC’s initial capital to $200,000.
Initially dubbed “Cambridge Seed,” the name quickly evolved to Y Combinator, reflecting a broader, national ambition beyond its Boston roots. The initial concept was to standardize seed funding, which at the time was a disorganized landscape often relying on informal networks and unclear terms. YC aimed to be a consistent, reliable source of early capital with standardized agreements.
The Viaweb Model: Inspiration for YC’s Foundation
The model for Y Combinator was inspired by Paul, Robert, and Trevor’s own experience with Viaweb, their startup. They had received crucial early support from Julian Weber, who invested $10,000 in Viaweb. Julian, with his business acumen and legal background, not only provided capital but also mentorship and stability during the company’s formative stages. This experience highlighted the value of early-stage support that went beyond just funding. The Viaweb experience demonstrated that even a seemingly generous deal for the initial investor could be equally beneficial, if not more so, for the startup. This understanding became a cornerstone of the Y Combinator philosophy.
The Accidental Innovation: Funding Startups Synchronously
Interestingly, one of Y Combinator’s most defining features – funding startups in batches, synchronously – was not initially a deliberate strategy. The founders planned a summer program to fund multiple startups at once, primarily as a way to learn the ropes of angel investing quickly. Focusing on undergraduate summer projects seemed like a low-risk way to experiment and gain experience. The initial Summer Founders Program, as it was called, was announced and described with a fast launch, embodying the startup advice YC would later become known for.
The structure of a summer program, with its defined timeframe and intensive nature, unexpectedly proved to be perfectly suited for the YC model. The rhythm and structure established in that first summer remain remarkably similar to the YC cycles today.
The quality of the first batch of founders also exceeded expectations. YC initially viewed its investment as more of an educational and philanthropic endeavor. However, the early startups showed surprising promise, leading to the realization of what became known as “the Y Combinator effect.” This term described the shift in perception when observers began to recognize YC’s potential impact. Speakers invited to address the startups during that first summer often arrived with modest expectations but left impressed by the ambition and progress of the young companies.
From “Toy” to Trendsetter: Overcoming Initial Skepticism
In the early days, Y Combinator was often underestimated, perceived as inconsequential or a “toy.” This initial dismissal became a point of empathy for YC, fostering an appreciation for ideas initially deemed frivolous. The program’s demonstrable success in its early batches, however, gradually shifted perceptions.
The effectiveness of synchronous funding led to the decision to continue with batches twice a year. The second batch marked a significant shift geographically to Silicon Valley. A visit to Foo Camp in the fall of that year highlighted the vibrant startup density of the Bay Area and its appealing climate, reminiscent of Paul’s time there in the 90s. There was also a strategic consideration: to preemptively establish YC’s presence in Silicon Valley, rather than risk being seen as a copycat.
While Berkeley was initially favored, time constraints led to a rapid decision to occupy space in Trevor’s building in Mountain View. This, too, proved to be a stroke of luck, as Mountain View became an ideal location for YC. The move was so rushed that founders at the first California dinner were cautioned not to touch the walls due to wet paint.
From a casual dinner conversation to a pioneering startup accelerator, the story of How Y Combinator started is one of serendipity, adaptation, and a fundamental belief in backing promising founders with a novel approach to early-stage investment.
