For an entrepreneur, getting accepted into the start-up school Y Combinator is like getting into Harvard or Stanford: Since admission is ultra competitive, it gives your start-up validation and entrance into an invaluable alumni network.
There's the money, too. Y Combinator gives start-up teams $120,000 in return for seven percent of the company's equity.
Since opening in 2005, Y Combinator has funded almost 1,500 startups. Those companies are worth more than $80 billion. By the end of this year, "assuming there is not a macroeconomic meltdown," the collective total valuation of the Y Combinator portfolio will surpass $100 billion, says Sam Altman, president of Y Combinator's parent company, in his recent annual letter.
Runaway successes including Airbnb, Reddit, Dropbox and Stripe are all Y Combinator alumni. More than 50 Y Combinator start-ups are worth more than $100 million each, Altman says.
So, what does does it take to get into the elusive Silicon Valley start-up school? Altman says Y Combinator looks to answer four questions.
1) Will this company build something lots of people really love?
Y Combinator is not looking to fund niche start-ups. It's interested in start-ups that serve a large audience and have the potential to make a lot of money, Altman says.
2) Will this company be easy to copy?
Entrepreneurs that Y Combinator invest in have some specific knowledge set or expertise. "The most successful companies I've worked with have a significant competitive advantage — network effect, proprietary technology, complex coordination, or barrier to entry of some other sort," says Altman.
"I understand in theory it's possible to build a very successful commodity company, but I don't know how to do it."