Wednesday, 2 December 2009

Analyzing Y Combinator


[Author's note: If you're just interested in the end result, feel free to skip to the conclusion at the bottom.]

This winter marks Y Combinator's tenth investment season, yet even with their reputation as the world's leading early stage venture fund their success rate (much like that of their competitors) has remained for the most part private.

The lack of transparency among early stage venture funds is bad for competition and for the global start-up scene as a whole. One of the most frequent criticisms placed against such funds is that they loudly broadcast their successes and brush their failures under the carpet. Even if done unintentionally this behaviour has a strong "selection bias" tendency which many have argued can make funds seem more successful than they actually are.

To combat this I'm undertaking a detailed analysis of these funds with the aim to publicly produce data showing both the success rates and the failure rates of firms invested in by these funds.

My original plan was to complete my analysis before posting about it, however, due to the number of requests I've had for the data I've decided to publish it as I go along.

The first step of my analysis is found below: An Analysis of Y Combinator.


Methodology


I've attempted to track down every start-up Y Combinator has funded from a wide range of sources including CrunchBase, news articles, and discussions on Hacker News.

While YC does not maintain a public list of start-ups they've fund they do however maintain a count on their about page and have done since the Summer 07 season. Prior to this it seems even their internal tracking was somewhat lax.

Using archive.org I was able to retrieve historical counts and from these deduce the number of start-ups financed each year. I was able to use this information to identify the seasons where I had missed start-ups and attempt to track them down. Using this information I believe I have tracked down all but 3 of the Y Combinator start-ups (1 from S07 and 2 from W08) from those seasons prior to S09. I've made the assumption that the 3 I've been unable to track down failed to launch.

I've avoided naming those companies from S09 who are still in stealth mode.

There has been some inconsistency in the usage of the common YC terminology of Sxx and Wxx when referring to summer and winter seasons of funding. Some sources use W08 for the Winter 07/08 season while others use it for the Winter 08/09 season. I believe the official stance is the earlier example and that's how I'll be using it here.

This convention has only been widely adopted since 2007, which has meant prior to that point it was often unclear which season a start-up belonged to. I've tried to use funding dates, demo days, and blog/news articles about YC funding to associate start-ups with the correct season. While I believe most have been associated correctly some of them may be off by a season.

Following S09 YC's current about page has a count of 144 start-ups that they've invested in. My final list has 145 (taking into account the three I know I'm missing). I suspect the reason for this inconsistency is Kiko/Justin.tv (both of which were founded by the same team but both companies took separate YC rounds of funding) which I've counted as two companies but YC might have counted as one.

While I've listed further funding rounds for many of the companies, this is based upon public data, it's likely that many of the other active companies have received further funding privately in order to be able to continue operation.

The criteria used to decide if a start-up has failed is the following: if it's been publicly declared as closed, if the founders now list a different employer (on linkedin, HN, etc) , if there's been no activity in the six months and if their sites show signs of abandonment. In the case where it seemed ambiguous I've marked the start-ups status as unknown.

Any suggestions to improve the methodology or corrections for the data are of course very welcome.


Overview of YC Companies

  • 82 - Active (24 having received further public investment rounds)
  • 33 - Failed (25 closed after launching, 7 failed to launch)
  • 14 - Acquired (2 of which are suspected to be low value <$250k share deals)
  • 9 - Stealth
  • 5 - Unknown (in a stage where it's unclear if still active or failed)
  • 2 - Other (1 merger, 1 where YC sold it's stake to a private investor)

Summary by season

  • YC S05 - 1 Active /3 Failed / 2 Acquired / 2 Other
  • YC W06 - 5 Active /1 Failed / 2 Acquired
  • YC S06 - 3 Active /6 Failed / 1 Unknown
  • YC W07 - 5 Active /4 Failed / 4 Acquired / 2 Unknown
  • YC S07 - 12 Active /4 Failed / 3 Acquired
  • YC W08 - 9 Active /10 Failed / 1 Acquired / 1 Unknown
  • YC S08 - 17 Active /3 Failed / 1 Acquired / 1 Unknown
  • YC W09 - 14 Active /1 Failed / 1 Stealth
  • YC S09 - 16 Active /1 Acquired /9 Stealth

Full Breakdown


YC S05

  • Reddit - Acquired by Conde Nast.
  • Kiko - Acquired by Tucows.
  • Loopt - Active. Raised 15million in Series A and B financing.
  • Simmery - Closed.
  • Infogami - Merged with Reddit.
  • MemAmp - Never launched.
  • FireCrawl - Never launched.
  • ClickFacts - Ycombinator stake acquired by private investors.

YC W06

  • TextPayMe - Acquired by Amazon.
  • Inkling - Active.
  • Flagr - Active.
  • Infinity Box / Wufoo - Active. Raised 100k in angel funding.
  • i'minlikewithyou - Active. Raised 6.5 million in Series A and B financing.
  • Sprout / Clustrix - Active. Raised VC financing from Sequoia, USVP, ATA Ventures.
  • AudioBeta - Closed.
  • Web Shaka / YouOS / Project Wedding - Acquired by eHarmony.

YC S06

  • Jamglue - Active.
  • Scribd - Active. Raised 12.7 million in Series A and B financing.
  • Xobni - Active. Raised 16.4 million in Series A and B financing.
  • JumpChat - Closed.
  • UZ Labs / Pollground - Closed.
  • Shoutfit - Closed.
  • Talkito - Closed.
  • Thinkature - Closed.
  • Mod Four - Closed.
  • LikeBetter - Unknown.

YC W07

  • Parakey - Acquired by Facebook (July 2007).
  • Heysan - Acquired by Good Technology (May 2009).
  • Zenter - Acquired by Google (June 2007).
  • Boso / Auctomatic - Acquired by Live Current Media for 5 million.
  • Octopart - Active.
  • Virtualmin - Active.
  • Snipshot / Pixoh / Tripfly - Active.
  • Buxfer - Active. Raised 300k in angel funding.
  • Weebly - Active. Raised 650k in angel funding.
  • View3 - Closed.
  • Whitenoise Networks - Closed.
  • writewith - Closed.
  • Socialmoth - Unknown.
  • tsumobi - Unknown.

YC S07

  • SocialPicks - Acquired by FinancialContent in (May 2009).
  • Anywhere.FM - Acquired by imeem in January 2008.
  • Clickpass - Acquired by SynthaSite.
  • Adpinion - Active.
  • Bountii - Active.
  • Disqus - Active.
  • Faux Labs / Splashup - Active.
  • AppJet / EtherPad - Active.
  • Zecter / Versionate / ZumoDrive - Active. Raised $1M from Tandem Entrepreneurs(November 2007).
  • Songkick - Active. Raised 1 million Angel round, 3.5 million Series A financing.
  • Dropbox - Active. Raised 7.2 million in Series A and B financing.
  • Justin.tv - Active. Raised VC financing from Alsop-Louie Partners.
  • Biographicon - Closed.
  • Blue Frog Gaming / DraftMix - Active.
  • Habit Industries / Fuzzwich - Active.
  • Reble - Closed.
  • SlapVid - Closed.
  • iJigg - Active.

YC W08

  • Omnisio - Acquired by Google for $15 million (July 2008)
  • 280 North - Active
  • BaseShield / Ninite - Active
  • Insoshi - Active
  • MightyQuiz - Active
  • Wundrbar - Active
  • Heroku - Active. Raised 3 million in Series A
  • WebMynd - Active. Raised 400k Angel round
  • RescueTime - Active. Raised 900k in Series A
  • 8aweek / SocialBrowse - Active
  • Chatterous - Closed
  • Kirkland North - Closed
  • Mixwit - Closed
  • Snaptalent - Closed
  • Tipjoy - Closed
  • YumDots - Closed
  • Deluux - Never launched
  • Joberator - Never launched
  • Addmired - Unknown

YC S08

  • slinkset - Acquired by Posterous (June 2009)
  • Cloudant - Active
  • Anyvite - Active
  • CO2Stats - Active
  • Frogmetrics - Active
  • Jobsyndicate / Startuply - Active
  • Meetcast - Active
  • Poll Everywhere - Active
  • PopCuts - Active
  • Snipd - Active
  • Picwing - Active
  • ContestMachine - Active
  • TeamApart / Meetcast - Active
  • TicketStumbler - Active
  • BackType - Active. Raised 300k seed funding
  • Fliggo - Active. Raised 500k Angel round (as Vidly)
  • Posterous - Active. Raised 725k Angel round
  • Scoopler - Active. Raised 750k in seed funding
  • ididwork - Closed
  • Urbantakeover / lolcathost3000 - Closed
  • People & Pages - Never launched
  • Youlicit - Unknown

YC W09

  • CloudKick - Active
  • Echodio - Active
  • Foodoro - Active
  • Voxli - Active
  • AirBnB - Active
  • ReMail - Active
  • DivvyShot - Active
  • Picurio - Active
  • thesixtyone - Active
  • Wattvision - Active
  • FathomDB - Active
  • HeyZap - Active. Raised 650k in seed funding
  • SkySheet - Active. Unlaunched.
  • Nambii / pocketfungames - Active
  • Propable - Closed

YC S09

  • GraffitiGeo - Acquired by Loopt (October 2009)
  • Directed Edge - Active
  • FanChatter - Active
  • Highlightcam - Active
  • RethinkDB - Active
  • JobPic - Active
  • MixPanel - Active
  • JobSpice - Active
  • Olark - Active
  • RentHop - Active
  • WakeMate - Active
  • InstantQ - Active
  • Plurchase - Active
  • DailyBooth - Active. Raised 1 million in Angel funding
  • Listia - Active. Raised 400k in seed funding
  • FlightCaster - Active. Raised 1.3 million in Series A
  • Bump Technologies - Active. Raised 3 million in Series A

Conclusion

As Y Combinator is the first fund I've analyzed it's obviously not possible to compare it to other funds at this stage. However we can compare it to the performance of angel investors.

According to the NESTA report the average return for an angel investor after 3.5 years is 2.2x in the UK and 2.6x in the US. On this basis for Y Combinator to make an above average return they need to see an average exit of 650,000 per start-up (based on 15k invested for 6%).

There have been two seasons which are more than 3.5 years old S05 and W05. For these to have made above average returns exits would need to have a value of over 13 million dollars. It's probable that the acquisitions of Reddit, Kiko, and TextPayMe from these seasons comfortably surpassed this amount.

Looking over all 145 start-ups, total exits would have to be worth over 95 million to represent a return of 2.6x. Mid-point estimates of exits would place the value of existing YC exits in the region of 40-50 million (a follow up post will break this down in detail).

Given that three YC companies (Scribd, Loopt, Xobni) have raised 45 million in VC financing between them, it seems highly likely the current market value of the 80 active companies in YC portfolio is worth significantly in excess of the remaining 45 million required for YC to be performing better than the average angel investor.




31 comments:

  1. chatterous is still active as far as I know

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  2. You could also try to email the founders and ask them about their company's status...

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  3. Since Kiko was auctioned on ebay the price should be public. If I recall it was 38k or so.

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  4. echodio (W09) was acquired in Q2 09. Email the founders for confirmation

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  5. I did a big project on YC and similar seed accelerator programs this summer. My data (for comparison's sake) can be found here:

    http://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1Vnl5NmZjaTBNQWlJYVozMEE&hl=en

    My main post is here:
    http://blog.jedchristiansen.com/2009/09/21/copying-y-combinator-why-and-how/

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  6. Imran,
    since you already did all this hard work, could you possibly post job creation metrics? i.e. for every dollar YC invested how many jobs were created? In these tough times, these metrics (I predict they will be astonishing vs. other types of investments) can get some people to take action, i.e. to invest more.

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  7. Nice work! ReMail has been acquired

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  8. Outstanding work, Imran. This is an important contribution. It's probably the first statistical validation of the accelerator model.

    Based on my understanding of your statistics, I think the results are probably much better than the average angel investor and far above the returns of traditional venture capitals funds of the same vintage.

    My belief is based on the 10% exit rate at 5 years.

    As the Y-Combinator portfolio matures, I believe the IRR numbers will continue to improve.

    It would be fascinating to apply a standard fund return methodology to see just how impressive the YC numbers are - I think the results would surprise us all.

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  9. Thanks, Imran. It looks like you inspired TechStars to release analysis of their companies too. http://www.techstars.org/2010/03/12/techstars-historical-results/

    Interesting to see the aggregate results.

    Cheers!

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  10. on another note, it would be interesting to understand how "active" companies are, beyond just running the site. wonder if alexa webstats or something similar would work to analyze this..

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  12. one thought: your calculation assumes that Y-Combinator maintains the 6% equity share until the exit - is that right?

    cheers,
    Benjamin

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  20. Evidence solves arguments. Well done, I'm sure this research took 50,000% more effort than the average internet essay.

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