34 CHAPTER 1 The Revolution Is Just Beginning
INSIGHT ON BUSINESS
STARTUP BOOT CAMP
By now we’ve all heard the story of
some lines of code written by Mark
Zuckerberg in a Harvard dorm room
blossoming into a multi-billion dollar
business. These days, it’s harder than ever
to keep track of all the tech start-ups being
valued at millions and even billions of dollars,
often even without a cent of revenue to show for
themselves. A number of them have something in
common—they have been nurtured, and in some
cases, whipped into shape, with the help of an
“incubator.”
As entrepreneurs continue to launch a growing
number of e-commerce companies, incubators have
come to occupy a vital role in Silicon Valley, helping
new businesses move from little more than a great
idea to an established, vibrant business. Founded in
2005 by programmer and venture capitalist Paul
Graham, Y Combinator (YC) is Silicon Valley’s best
known incubator. Twice a year the company pro-
vides a three-month boot camp, complete with seed
funding and mentorship from an extensive network
of highly regarded tech entrepreneurs. Every boot
camp ends with a demonstration day, known as
Demo Day or D Day, where all of the entrepre-
neurs, known as “founders,” pitch their fledgling
businesses to a group of wealthy venture capitalists
hoping to unearth the next Facebook or Google. In
2014, Graham stepped down from a leadership role
at the company, replaced by Sam Altman, former
CEO of Loopt, a location-based mobile services
provider and a successful YC graduate company.
Altman is aiming to expand YC’s focus beyond the
Internet to energy, biotechnology, medical devices,
and other “hard technology” startups that solve
concrete problems.
When companies are admitted to YC after
a rigorous selection progress (typically less than
2% of applicants are accepted), they are given
$120,000 in cash in exchange for a 7% stake in
the company. Founders have regular meetings with
YC partners, and have free access to technology,
technical advice, emotional support, and lessons in
salesmanship. As of September 2016, Y Combinator
has helped launch almost 1,400 start-up compa-
nies, which together have a market capitalization
of more than $70 billion. Its graduates have raised
more than $10 billion, and ten of them have attained
once rare, but now increasingly common, “unicorn”
status, with a valuation in excess of $1 billion. More
than 50 are worth over $100 million.
YC has been so successful that it is sometimes
referred to as a “unicorn breeder.” Graduates that
have achieved unicorn status include Airbnb, an
on-demand room rental service (with a valuation
of $30 billion); Dropbox, a cloud-based file storage
service ($10 billion); Stripe, a digital payment
infrastructure company ($5 billion); MZ (Machine
Zone), a massively multi-player online gaming
company ($3 billion); Zenefits, a cloud-based
employee benefits manager ($2 billion); Instacart,
an on-demand grocery delivery service ($2 billion);
Twitch, a streaming video game network (acquired
by Amazon for $1 billion); Docker, an open source
software company ($1 billion), and Cruise, which
develops self-driving car technology (acquired by
GM for $ 1 billion). Other well-known graduates
include Reddit, a social news site; Weebly, a website
building platform; Coinbase, a Bitcoin wallet; Scribd,
a digital library subscription service; and Codecad-
emy, an online education service that teaches people
how to program.
YC’s Winter 2016 class featured 127 startups
that launched during its March 2016 Demo Days.
While YC is increasingly focused on startups that
are aiming to solve pervasive problems in the world
rather than the next big gaming or to-do list app, it
still accepts a number of startups seeking to make
their mark in the e-commerce arena. For instance,
Restocks is a mobile app that helps consumers
 E-commerce: A Brief History 35

track and buy hard-to-find, limited release prod-
ucts. Subscribers to Restocks’ service receive push
notification when brands such as Nike release or
restock those products. Restocks had its genesis in
founder Luke Miles’ frustration with his inability
to find and purchase some “hot” Supreme-brand
t-shirts. Miles wrote some code that sent him an
e-mail when the products showed up as restocked on
the brand’s website and then realized that it could
be a useful tool for other products as well. Although
Restocks faces competition from individual brands
that may offer apps with a similar functionality,
such as Nike’s SNKRs app, Restocks differentiates
itself by aggregating dozens of brands.
Among other startups from the Winter 2016
class tabbed by analysts as particularly promising
were Cover (an app that enables users to obtain
insurance just by taking a photo), Castle.io (behav-
ior-based online security), Yardbook (a cloud soft-
ware system for the landscaping industry), Mux (a
Netflix-like streaming service for business looking
to deliver online video to customers), and Chatfuel
(an automated chat tool for WhatsApp and other
platforms).
YC also accepts startups that are focused on
markets outside the United States. The Winter 2016
class included Paystack, an online payments pro-
vider for African businesses; Kisan Network, which
provides an online marketplace in India for farmers
to sell directly to institutional buyers; Rappi, an
on-demand service company focused on grocery
delivery in Colombia; Shypmate, which offers a
platform to facilitate person-to-person shipping to
Africa; Lynks, an e-commerce logistics infrastruc-
ture company for countries that are less developed;
and GoLorry, a mobile app that provides
trucking logistics in India.
Not every company that makes it through
YC’s boot camp is successful. Companies that fail
to attract sufficient investor interest at Demo Day
can try again with a different company or go their
own way and “grow organically.” Some skeptics
believe that incubators like YC might not be the
best idea for every startup. For startups with solid,
but not eye-popping products, services, or growth
metrics, YC’s D Day might actually hurt their
chances of getting funding. Having to compete
against an extremely qualified field of startup
companies diminishes the appeal for less flashy
businesses. Once you’ve failed at acquiring funding
at YC, other prospective investors might become
concerned. There is also the concern founders may
fixate on raising more money in seed funding rounds
than necessary. According to Altman, founders
should initially focus on making their company work
on as little capital as possible, and YC’s best com-
panies have been able to make great strides even
with just relatively small amounts of seed funding.
As part of its own continuing evolution, YC
announced in 2015 that it would begin to make
later-stage investments in its graduates as well.
Together with Stanford University’s endowment fund
and Willett Advisors, YC has created a new $700
million Continuity Fund. YC has said that it hopes
to participate in later funding rounds for all of its
graduates that are being valued in funding at $300
million or less to help further guide them as they
mature. In 2016, background screening software
maker Checkr was one of the first to benefit, raising
$40 million in funding led by the Continuity Fund.

SOURCES: “Press,” Y.combinator.com/press, accessed November 11, 2016; “Get Hype Brands at Retail with Restocks,” by Matthew Panzarino,
Techcrunch.com, April 19, 2016; “Inside Silicon Valley’s Big Pitch Day,” by Anna Wiener, The Atlantic, March 29, 2016; “4 Cloud Startups to Watch from Y
Combinator,” by Tess Townsend, Inc.com, March 24, 2016; “The Top 8 Startups from Y Combinator Winter ’16 Demo Day 2,” by Josh Constine, Techcrunch.
com, March 24, 2016; “The Top 7 Startups From Y Combinator Winter ’16 Demo Day 1,” by Josh Constine, Techcrunch.com, March 23, 2016; “Checkr Raises
$40 Million Series B Led by Y Combinator Continuity Fund,” Ivp.com, March 23, 2016; “Stanford, Michael Bloomberg Now Back Every Y Combinator Startup,”
by Douglas Macmillan, Wall Street Journal, October 15, 2015; “Y Combinator Will Fund Later-Stage Companies,” by Mike Isaac, New York Times, October
15, 2015; “Meet Y Combinator’s Bold Whiz Kid Boss,” by Jason Ankeny, Entrepreneur.com, April 25, 2015; “The Y Combinator Chronicles: Y Combinator
President Sam Altman Is Dreaming Big,” by Max Chafkin, Fastcompany.com, April 16, 2015; “Y Combinator Known for Picking Winners,” by Heather Somer-
ville, San Jose Mercury News, May 8, 2014; “Y Combinator’s New Deal for Startups: More Money, Same 7% Equity,” by Kia Kokalitcheva, Venturebeat.com,
April 22, 2014; “The New Deal,” by Sam Altman, Blog.ycombinator.com, April 22, 2014; “Silicon Valley’s Start-up Machine,” by Nathaniel Rich, New York
Times, May 2, 2013; “What’s the Secret Behind Y Combinator’s Success?,” by Drew Hansen, Forbes.com, February 18, 2013.