Welcome Peter

I’m delighted to announce Peter Thiel is joining YC as one of the (now 10!) part-time partners. 

In addition to founding PayPal and Palantir and being the first investor in Facebook, Peter has been involved with many of the most important technology companies of the last 15 years, both personally and through Founders Fund, and the founders of those companies will generally tell you he has been their best source of strategic advice.  He already works with a number of YC companies, and we’re very happy he’ll be working with more.

We generally won’t bring on people that are involved with other investing firms given the obvious conflict, but Peter is so good we felt like we had to make an exception.  Peter won’t invest in any companies while they’re in YC or for 3 months after they present at Demo Day (this will apply to Peter’s investment entities as well), which should eliminate any unfair advantage.  We’re pretty paranoid about potential conflicts, and we’ll continually evaluate this and change it if it’s not working.

On a personal note, Peter is one of the two people (along with PG) who has taught me the most about how to invest in startups.  I am confident that Peter joining will be great for YC.

YC Open-Source Sales Agreement

We've just open-sourced a sales agreement any company can use.

Though obviously you should use this at your own risk, we've had a lot of experience with what makes good and bad sales agreements.

Special thanks to Tyler Bosmeny, James Riley, and Carolynn and Jon Levy for all their work on this!  We hope it helps.

Advice for Early-Stage Hardware Startups

This is a guest post from Luke Iseman and Jeff Chang.

Hardware Is Easy

As we slog away at our soldering irons, it’s become de rigueur in the early-stage hardware startup world for us to wearily mutter: “Hardware is hard.” Our software-centric compatriots are understandably worried that we might weld their MacBooks shut if they mention their fifth multivariate test of the day.

But compared to any other time in history, hardware is easy.  Finding product-market fit remains as tricky as ever, but prototyping new physical things is faster and cheaper than ever before. Here are some guidelines we’ve picked up so far:

1.     Form A Posse.  Hardware is the Wild West: we’re just getting started in the quest to make smarter things faster, now that every material (and everybody) is at most a mouse click away.  Nobody yet knows the full potential of this exponentially growing community.  But you’ve got to take advantage: Join or start a Hackerspace, work from Techshop, contact makers who post interesting projects: find people working on hardware like yours and ask how they dealt with challenges you’re facing.  These conversations have led to me discovering faster and cheaper ways to make SMD stencils, casting aluminum parts from 3D prints, sourcing cheap components direct from China at in-country prices, and taught me everything I know about making things.

2.     Interview Your Industry.  After 5+ years of working on smarter gardens, I finally met with a giant gardening supply company. I learned more about what customers will actually buy (aka what I should build) in half a day than in half a decade. Figuring out what real people actually purchase at quantity is infinitely more useful than another coffee with another potential investor.

3.     Fast Over Fancy.  The speed at which new components are released, hardware devkits kickstarted, and novel 3D printer filaments formulated is gradually nearing the speed of software.  Just like with programming languages & frameworks, there will always be newer faster better tinkering toys, and you can spend forever researching them.  Instead, find things that work and use them to build a functioning prototype.  Nobody cares if you’re using an Intel Edison or a 555 to blink the LED in the prototype you show them: people care about whether you’ve made something that they want.

4.     Separate Prototypes.  I’ve used too many glue sticks and hours stuffing components into decent-looking half-functional prototypes.  Instead, make these 2 different objects.  Make an ugly black box ‘works like’ prototype, and create an entirely non-functional ‘looks like.’  Add a reasonable story for how you’ll get the black box shrunken down to fit in a manufacturable version of the sexy enclosure, and start selling.

5.     Finite Iteration.  Break down the elements of your separate prototypes further, and iterate on the most discrete units of functionality that you can.  Do a majority of the people you ask to play with your prototype tell you that the button is awkward?  Getting buttons with the right click-feel is one discrete element to iterate on, button placement is another.  Well-designed products don’t just pop from Steve Jobs’ brain into mass production: they’re iterated into existence through many rounds of fast experimentation on each element that matters.

6.     Selective Inattention.  Pre-selling an impossible product will get your project pulled and company sued, if anybody even bothers pledging towards it.  Having a million units ready to ship prior to telling anybody what you’ve built will make you bankrupt just as fast.  I think you’re ready to start to scale (meaning raising $ to fund production, from investors or crowdfunding) when many people who see your prototype want to buy one.  If you’ve got a data-driven story about why you should raise money or begin production at a different point in time, try and convince your team that it makes sense. If they’re sold on the idea, then go for it.  Just be ready to defend your variance.

7.     Achievably Exceptional.  I can make a reasonable argument about why I will be the first to make something new, maybe even spinning a sound story about why people will buy this new thing.  If I’m particularly lucky, I can find others to spend time/money on this vision.  This can add up to a believable pitch about why I’m going to be the exception, the startup that doesn’t go to 0 within a year.  However, it’s absurd to imbue myself with magical powers that defy the realities of global supply chains.  Look at the hardware kickstarters you’ve backed, and add a buffer.

Manufacturing guys smarter than me say it’s at least a year from locked-down, working prototype to delivery to customers at any significant scale.  Unless you’re doing under 1,000 units, you should have a really compelling argument for why you’re better at manufacturing than the 50+ kickstarters I’ve backed and waited too long to receive. If you’re making less than 1,000 units and they are not nuclear reactors, ask yourself if it’s worth your time.

Hardware is easy, and hardware is a complicated minefield of company-killing disasters.  This has led to most of your entrepreneurial competition staying in the purely digital world.  Meanwhile, many talented engineers had their desire to make physical things scared out of them by an education insisting everything they build be as reliable as a bridge.

It’s wide-open here in hardware startup country, full of opportunities to do things worth failing at.  The Nests and Teslas of the world are just starting to skim the surface of what we can make in our connected, sensor-filled, AI-enhanced meatspace.  Set aside your keyboard, and get to work remaking the real world as dramatically as we’ve reinvented the digital one.

- Luke Iseman (ex-Edyn, W14) makes smarter gardens and tiny homes

Hardware is Easy … Except For the Hard Stuff

Alright, you’ve got your production-ready prototype built, you’ve got some investor or Kickstarter money in the bank, and after talking with a few hundred customers, you’ve got a good idea of how to make ‘em really happy.  Now you’re looking to build, test & ship 1,000, 10,000 or 100,000 pieces of your product.

This is where Fitbit and many others almost died -- for Fitbit, the 15 months of turmoil in the manufacturing & QA abyss, the lots of times they were “pretty close to being dead.”  But in the past seven years, these hardware startups have paved the way -- they’ve made it much easier for the rest of us to scale hardware.

1.     Don’t do it from scratch.  Hundreds of resources, extensive manufacturing & fulfillment infrastructure, & consultancies already exist.  Don’t jump in with the first solution you find, no matter how easy they may make it seem.  If you don’t know enough to question them & keep on top of things at every turn, they’ll often take you for a ride or get you bogged down in an endless series of delays and bottlenecks.  Before you begin, talk with as many hardware startup founders, consultancies & manufacturers as possible.  After you start, talk with as many founders, consultancies & manufacturers as possible.  Learn enough to get a sense of the many things you don’t know and need to find out.

2.     Don’t forget the certifications -- they each cost at least a couple thousand bucks, and some of them require bunches of pre-testing & carrier testing.  Make sure to get started on necessary certifications early, and skip the nice-to-haves.  Especially when cash is short & you need a shippable product yesterday, use easy-to-substitute off-the-shelf and pre-certified components wherever possible.  Extra certification costs don’t help you build a better product, and you need every dollar working to make your startup a success.

3.     Always think about bringing your capabilities in-house, if still outsourced -- EE, ME, firmware, ID, apps, frontend & backend dev.  Search for, or wait for, the right person -- put out your feelers (Angel.co, job postings, HN if you’re part of YC, friends of friends & friends of first employees), and whenever you can afford it, put candidates through trial projects and start hiring the best.

4.     Realize it’s not cheaper to hire people (unless you’re comparing with high-end design firm pricing), but things move a lot faster in-house, especially for fast prototyping & debugging.  Once you’ve been through the “our firmware designer’s in Europe, and build testing’s in Shenzhen” mess, you realize that a single email a day from each consultant can’t cut it -- it’s delaying your progress by months.  And a successful company is always prototyping & debugging -- once the first iteration’s out the door, you’ve got to start revising the next production run & prototyping future iterations.  While you’re head-down blinders-on busy preparing production runs & iterations, don’t forget to anticipate & create where the market’s headed – it can easily leave you behind, if you don’t imagine & build new awesome products when the time is right.

5.     Trial projects for candidates will help you understand your own business better too -- just like with a rubber ducky, the act of explaining your hardware or firmware to someone will help you understand it better.  Not to mention, your candidate should hopefully know a whole host of things about their field that you don’t.  Versus a consultant (especially for firmware), where you often only know that it’s done once it’s done, and learn almost nothing about how it works.

6.     Hardware costs are very spiky -- and with each revision, mistake, or market shift, those costs will rise.  This will be particularly distressing to those of us accustomed to software startups, since your burn rate may swing wildly month to month.

From talking with founders of many hardware startups, there’s no hard & fast rule on hardware vs. people costs.  You’ll spend more on hardware, if you’ve got a remarkably innovative and complex product, if your tooling goes south, if your first couple manufacturers screw you over, or if you decide to go the high-end design firm route.  You’ll spend much more on people, if you have the capital to bring your team in-house, if you share equipment for prototyping, if you need to spend several years iterating prior to launch, or if you find an efficient & responsive manufacturer right off the bat for production and QA.

7.     With every startup, the people are key. No matter how much your hardware costs, the hardware isn't more important.  An awesome team can do wonders with a run-of-the-mill concept, while an average team will tend to pull failure from even the most brilliant idea.  Your hardware’s being designed and built, app bugs are being caught and fixed, marketing copy’s being created and fine-tuned -- all by the people on your team.  No matter how complex your hardware is or how many patents you might have, a dozen other teams are probably building something similar.  Your team is what makes the difference.

Of course, don’t forget QA, distribution & fulfillment, custom packaging, the right kind of sales team for your product, and customer relationships.  Nice thing about being a part of YC – there’s a YC startup for each of these things.  If you’re a YC startup that provides services for other startups, you can rustle up dozens of interested new customers with an email.  Building a company that makes hardware creation better?  Consider applying to YC.

Finally, standard rules of building a company never expire.  If you want to become a good CEO or CTO, read awesome books & blogs, go implement & see which ideas work in your startup, read some more, learn from an executive coach, ask everyone you meet lots of questions, and listen more than you speak.  Not to get too Zen, but the mind can be either a full or empty cup, and full cups don’t do too well.  Only someone who always keeps a bit of the newbie mindset can continually adapt and build an incredible organization.

Always remember, you’re not building this organization, or even your own product – that’s up to the people you hire.  The lone inventor model almost never works.  Yes, you’re building a product, but the company is all about the people, not the hardware.  Eventually, you probably won’t even be deciding the vision -- just hiring the best people in the world to hash out the details for you.  So really focus on perfecting your hiring processes, spend the time to create & live out your culture, do your best to keep everyone on the same page, and just keep the boat moving forward.  And don’t forget -- the Pareto principle applies to everything.  So do what matters, and ignore the rest.

Our world is made of physical objects, stuff you can touch & manipulate.  Bytes are awesome, but many of the world’s biggest ideas need a tight weave of both hardware & software.  All of the largest Internet-based companies are now building hardware – this is where the next Google, Facebook or Amazon will arise.  How will your team help create our future?

  • Jeff Chang (Doblet, S14) is building a network of portable batteries for your phone

$500k of Azure credit for YC startups

Over the last month, we’ve announced special deals to help YC biotech and hardware companies.

But we don’t want to leave YC software companies out. 

We are happy to announce the Microsoft will be giving $500,000 of free Azure hosting credit to YC startups in our Winter 2015 batch and future batches.  This is a big deal for many startups—it’s common for hosting to be the second largest expense after salaries.  Microsoft is also giving YC startups three years of Office 365, access to Microsoft developer staff, and one year of free CloudFlare enterprise services and DataStax software.

This brings the total value of special offers extended to each YC company to well over $1,000,000.  The relentless nagging from partners to grow faster we throw in for free.

YC for Hardware

As YC has grown, we’ve funded more and more hardware companies.  Hardware companies have very different needs from pure software companies, and we’re delighted to announce a number of new resources for YC hardware companies. 

First, we’re excited to announce a partnership with Bolt, which we kicked off a couple of days ago.  Bolt’s partners and engineering staff will advise YC hardware companies on product development and manufacturing.  Bolt's partners are some of the best hardware people I've ever met.

Second, we’re also happy to announce a number of new deals for our hardware startups--across-the-board discounts & expedited services, free consultations and prototyping, and volume pricing for YC startups.  These range from 3D printing and rapid injection molding, to PCB fab & assembly, metalworking, design expertise, RF and carrier testing, early access to dev kits, product photography & international scaling.

Some of our deal partners include Novatel, Proto Services, The Build Shop, Jatco, Studio Fathom, Fictiv, DIX Metals, The Collaborationist, and Tempo Automation, and YC startups CircuitHub, Octopart, Tilt and Upverter.  YC hardware startups Pebble, SoundFocus, MadeSolid, Cruise and Rigetti Computing have offered to help out with machine & equipment needs.  And we’ll be working on many more deals for YC hardware startups in the coming months; please get in touch with if you can help our startups make better hardware faster.

Third, we’re building a mini-electronics prototyping shop in Mountain View, to supplement the much larger Pier 9 lab on the Embarcadero.  This way, hardware startups can do some quick PCB rework as needed, or make a 3D print anytime during the week.

Our hope is that all of these together will make the YC experience much more valuable for hardware startups.

We’ll be posting some new hardware RFSs as well--we’re happy to see all sorts of hardware companies, but we especially like the ones that are fundamentally new ideas that Kickstarter might not support (and we don’t shy away from expensive hardware--we’ve funded companies building things like nuclear reactors and rockets, which will require hundreds of millions of dollars in funding to succeed).

Finally, I’d like to thank Luke Iseman and Jeff Chang, both YC alumni, for all the work they’ve done to make all this happen.  We’re lucky to have them in the alumni network.  As part of an effort to publish more advice for hardware startups, they’ll be putting up a “How to Start a Hardware Startup” blog post soon.

Demo Days

There are 114 companies in the current YC batch.  We’ve grown too big for them to all present on one day.

So, for the first time, we are going to have two Demo Days, March 23 and 24.  We’re also going to break the companies into categories—biotech, enterprise, consumer, etc—so that investors can focus on what they’re interested in.

We expect that most attendees will attend both days, but if for some reason you can’t, we’ll have option to register for just one day.  Also, videos of the presentations from both days will be available to approved invitees for one week.

You can request an invitation here: http://ycombinator.com/demoday.

Transcriptic for YC biotech startups

Reducing cost and cycle time as much as possible is one of the highest-leverage things anyone can do to help startups.  A few years ago, we rolled out deals with Amazon, Heroku, Microsoft, and Rackspace to make web hosting available for free to the startups we fund.

As we expand into new areas, we’ll put similar relationships in place.

I’m happy to announce a partnership with Transcriptic for our biotech companies.

YC biotech companies will get $20,000 of free credit from Transcriptic to run experiments on their platform.  Transcriptic is a remote, robotic life science research lab that lets a user type an experiment into a web browser and run it in the real world.  Transcriptic will hopefully do for biotech startups what AWS has done for web startups.

(In the interest of disclosure, Transcriptic is also in the upcoming YC batch.) 

We’ll be doing sharing some news along the same lines for hardware startups soon, and as we continue to expand into new areas we’ll continue to add new partnerships. 

Welcome Michael, Jon, and Ilya

I’m delighted to share that Michael Seibel (formerly a part-time partner at YC) and Jon Levy (formerly a part-time lawyer for YC) are becoming partners.

Additionally, Ilya Sukhar (CEO of Parse, which was acquired by Facebook) is becoming a part-time partner. 

Previously, Michael was a co-founder and CEO Justin.tv and the co-founder and CEO of Socialcam (YC S2012, acquired by Autodesk).  In 2014 Justin.tv became Twitch Interactive and under the leadership of Emmett Shear Kevin Lin sold to Amazon for $970MM.  Michael graduated from Yale University with a bachelor’s degree in political science.  

Jon Levy previously counseled public and private companies as an attorney for WSGR and began consulting with Y Combinator in 2008.  Jon also worked in investment banking for many years.  Over the past several years, Jon has become one of the most trusted advisors to many YC startups.  Jon earned a J.D. from the University of Michigan Law School and B.A. in English Literature and Religious Studies from Wesleyan University.

Ilya is cofounder and CEO of Parse (YC S2011) which was acquired by Facebook in 2013. He continues to run the company as a subsidiary of Facebook and also works on other platform projects there. Prior to Parse, Ilya was the first employee at Etacts (YC W10, acquired by Salesforce) and an early employee at Ooyala.  He studied Computer Science and Operations Research at Cornell.

An Update on Hacker News

I frequently get asked about the changes we’ve made and are making to Hacker News, so I wanted to share some updates.  A lot of people feel strongly about HN.  It’s an important part of the startup community and we want it to be both the best source of news and discussion about technology and startups and also welcoming for everyone, especially groups that have historically been marginalized in the tech industry.

First, I want to thank the community for all the work people have done over the past six months to downvote, flag, and comment on content that doesn’t fit the site guidelines.  It’s a lot of work, but it has a huge impact and we hope users will continue to do it. I’d also like to thank dang and sctb for all the work they’ve done as moderators and with software to increase story and comment quality.

Traffic is up about 30% over this period, and we'd like to think that the increase in quality and decrease in toxic comments is the main reason.

There is much more to do, of course, and there are still comments that have no place on HN, but we’re happy that we've heard from so many users that feel the quality has increased.

I'm sometimes asked how historically marginalized users can help shape the HN community when the karma threshold for down voting inappropriate comments is high. It's a fair question, and we are experimenting with lowering the downvoting threshold.  Also, the best way to deal with inappropriate comments is to flag them.  To do so, click "link" next to the comment timestamp and then "flag".  The threshold for flagging is low (only 30 karma), so nearly everyone can help there.

To prevent abuse, moderators review flagged stories and comments and revoke flagging privileges from users who flag inappropriately.

We changed two things about flagging recently. First, we lowered the threshold for flags to kill inappropriate comments. We're watching the data closely in order to unkill comments that have been flagged unfairly, but there are few such cases.  Most of the time this only happens to comments none of us want on the site.

Second, we've started indicating in the UI which comments/stories have been killed by user flags.

A third experiment didn't go so well: we briefly made the software kill comments that had been sufficiently downvoted. Many users objected, arguing that killing downvoted comments is too harsh a punishment for unpopular opinions, especially since downvoted comments get faded to begin with.  We heard that and reversed the change.

In general, though, these experiments in community moderation seem to be succeeding, and we plan to do more of them.

Welcome, Ali

I'm delighted to announce that Ali Rowghani is joining YC as a part-time partner.  He will mostly focus on helping our alumni that are a few years out of YC scale their companies, but I’m sure the current batch will enjoy getting to know him as well.

Though we've traditionally focused on helping very early-stage companies, our successful companies have asked for help on topics like scaling operations, managing hypergrowth, building out management teams, etc.

Ali is a perfect fit for helping YC companies with these scaling questions.  Ali was the CFO at Pixar, where he spent 9 years working closely with Ed Catmull and Steve Jobs.  In 2010, he joined Twitter as its first CFO, at a time when Twitter had about 100 employees, 20 million users, and virtually no revenue.  In late 2012, he became Twitter's COO and took on many additional responsibilities within the company.

Welcome, Ali!