CHEESE AND CRACKERS. Startup godfather Paul Graham was in town this week to promote Y Combinator, the accelerater program that remains the gold standard despite the fact that it does not have its own TV show. Living in New York makes his upper lip sweat, he shared, indicating a YC branch in the city is not in the cards. Entrepreneurs were salivating over the chance to meet the jolly and gracious Mr. Graham–”never seen so many dudes in a line” as someone on Twttr, we can’t remember who, tweeted. But Mr. Graham is not as beloved when it comes to the investor community. A notoriously fierce advocate of founder power, Mr. Graham pushes for extremely favorable investment terms for YC companies–namely in the form of uncapped notes, whereby the stake in the seed round converts to a proportionate amount of stock in the next round. “Angels and super-angels tend not to like uncapped notes,” Mr. Graham has written. “They have no idea how much of the company they’re buying. If the company does well and the valuation of the next round is high, they may end up with only a sliver of it.”
The main problem with this, one investor told Betabeat, is that Mr. Graham takes a straight six percent stake in YC companies even as he waxes righteous when those companies go out to raise. Entrepreneurs defer to Mr. Graham’s advice, this source said, even when there’s another investor they’d like to work with. “He’s protecting those two blockbusters,” this source said, referring to the relatively small number of mega-breakout YC startups such as Airbnb and Heroku.
It’s fine by some investors if Mr. Graham wants his companies to talk a big game, our source said–personally, this source plans to clean up by investing in YC companies later when they “have to do a down round” after the inevitable failure to meet their investors’ artificially inflated expectations.
Paul Graham surprised us at Y Combinator’s first ever Manhattan meetup tonight. In town for the innagural YC in NYC, Mr. Graham recalled that when he set out to build his first startup, he was living in New York. It was the dot-com boom, and even though he hated the weather, and how sweaty it made his upper lip, he could see that New York would eventually surpass Boston. “New York investors had balls that folks from Boston didn’t.”
But the sudden prominence of New York has left Mr. Graham questioning his universe. “Will New York catch up to the Valley, will it surpass us?” he asked the hundreds of local hopefuls gathered at the Metropolitan Pavilion. He had long wondered why certain cities seemed to seemed to be poison for startups. “I realized I was asking the wrong question. Startups die naturally and certain cities are the antidote.”
Is there anything Paul Graham can’t do? He developed the first ever web app, co-founded Y Combinator, knows how to be zen about the competition, and now, Mr. Graham has figured out a way to stop the patent wars–without waiting around for Uncle Sam. Rather than rely on federal reform around the way patents are issued, Mr. Graham suggests interceding further downstream at the the point where the patents are being used.
And what better way to do that by making any would-be patent trolls publicly accountable?
Parsing Pauly G
Twenty-four-year old digital information activist and Reddit alumnus Aaron Swartz, in the news lately due to extreme charges of cyber crime, says on his website that he “co-founded the online news site Reddit.”
The problem? Reddit co-founders Steve Huffman and Alexis Ohanian don’t agree–and both sides cite the same Paul Graham quote as evidence.
Mr. Huffman, Mr. Ohanian and Mr. Swartz were members of the same Y Combinator class, where Mr. Huffman and Mr. Ohanian were working on Reddit and Mr. Swartz was working on a start-up called Infogami. According to Mr. Ohanian, Mr. Swartz joined the two founders six months into Reddit, and a new entity was formed called “Not A Bug,” the company that later sold to Conde Nast. Mr. Swartz is a co-founder of Not A Bug, says Mr. Ohanian, but it’s not accurate to call him a founder of Reddit.
On The Calendar
This is a guest post from Gary Sharma (aka “The Guy with the Red Tie”), founder & CEO of GarysGuide and mentor at ER Accelerator. You can reach him at gary [at] garysguide.org.
So, on Aug 15, incubator impressario Paul Graham (or as I like to call him “Pauly G”) tweeted out that Y Combinator will be doing its first official New York City meetup on Sep 26. Ten minutes later the NYC twittersphere exploded with a slew of soul-searching, thought-provoking questions …. Is YC opening an NYC chapter? Is this just a recruiting thing? Does this finally put Silicon Alley on the map?? Should I reschedule my wedding?? What does it all mean?!
To find out what it all means, sign up here. And now, onto this week’s boozing and schmoozing roundup …
When the Y Combinator accelerator program was founded, sessions alternated locations between Cambridge and the Valley. But when Mr. Graham decided to settle in Palo Alto after his wife got pregnant, he decided he wanted his YC babies there, too. It’s just a better place for kids, you know? But today came the announcement: the first official Y Combinator meetup, a “hybrid of reception and conference,” in New York will take place in September.
The meetup doesn’t mean Y Combinator is going to open a New York branch the way TechStars (Boulder, CO) and DreamIt (Philly) have, Mr. Graham indicated, it’s just an introductory session to recruit more entrepreneurs into the program. If they decide to stay in California, that’s cool. If they move back to New York after demo day, that’s cool too.
Airbnb CEO Brian Chesky’s first statement on the highly-publicized matter of the user whose home was burglarized and ransacked by an Airbnb guest was measured, mildly sympathetic, and denied any wrongdoing. The statement he just posted on Airbnb’s blog–”Our Commitment to Trust and Safety”–is just about the opposite.
“Earlier this week, I wrote a blog post trying to explain the situation, but it didn’t reflect my true feelings,” he writes, and goes on to intimate that he either second-guessed himself when responding to the complaint or got some bad advice (perhaps from the usually-infallible Paul Graham, who insists Airbnb did nothing wrong?).
“In the last few days we have had a crash course in crisis management,” Mr. Chesky writes. “I hope this can be a valuable lesson to other businesses about what not to do in a time of crisis, and why you should always uphold your values and trust your instincts.”
. . . And was Reddit his birthday present?
FROM THE DEPT. OF KARMA. “Reddit Co-Founder Charged With Data Theft,” Timesman Nick Bilton blogged Tuesday at Bits, and hearts stopped across the web: Redditors feared for the fate of Steve Huffman and Alexis Ohanian, the people they knew as Reddit’s founders through the forums.
But the Times’s headline was actually referring to Aaron Swartz, the 24-year old who was just arrested and federally indicted on charges of computer hacking for downloading millions of articles from MIT and could face up to $1 million in fines and 35 years in jail. The headline was changed after protests from commenters and Reddit’s Alexis Ohanian, to “Internet Activist Charged in M.I.T. Data Theft“ but the URL is still the same.
Once upon a time, Mr. Swartz was a contemporary of Reddit’s Alexis Ohanian and Steve Huffman at Y Combinator, working on a start-up called Infogami, a wiki/blog platform. Reddit and Infogami “merged,” a new company was formed and the trio made some agreement to call themselves “co-founders.” Mr. Swartz refers to himself as a founder here and here, although he said he’d be “happy to stop if Steve and Alexis wanted.” Paul Graham himself weighed in when the issue came up four years ago. “Aaron’s not wrong to call himself one of the founders,” he wrote on Reddit. “The company behind Reddit was a merger of two startups, one that made Reddit and one that made Infogami, and in that situation the founders of both startups are considered founders of the combined company.”
But Mr. Ohanian and Mr. Huffman–undisputed Reddit founders–don’t agree.
During an interview with Bloomberg West this week, YCombinator’s Paul Graham weighed in on the start-up carnage lying around from the last two weeks. First from Apple’s WWDC keynote, which made a land-grab for territory previously held by some of its third-party iOS developers and then with the news that Facebook Read More
Paul Graham just hosted office hours on stage at TechCrunch Disrupt, soulsearching with six founders in a public, 8-minute version of the sessions he has with companies at Y Combinator. “What’s special about you?” “Who needs your product most?” “Above all, you need to get people actually using it.” “I’m worried,” he told New York entrepreneur Philipp Tsipman, a protege of Joel Spolsky who continues to work out of Fog Creek’s office even though he’s working on his start-up, DataCurious, full time.