In recent years, technology giants Apple and Google have hogged the technology limelight, including waxing lyrical on their respective impacts on the United States economy. However, an overlooked ingredient of the primordial soup of innovation in Silicon Valley are the accelerator programs, particularly the influential Y Combinator.
YC has had a significant impact on the national economy since its launch in 2005. Started by Paul Graham, Jessica Livingston, Trevor Blackwell and Robert Morris, the program has gone on to invest in over 500 startup companies while guiding many more through their information offerings online.
On average, the accelerator has invested between $15,000 to $20,000 in each company participating in their program (an incomplete list can be found: here), with roughly 2-3 founders in most cases. In the wider context of the economy, the effects on job creation, company growth and innovation have been substantial.
Paul Graham released the value of Y Combinator’s portfolio (Y Combinator Numbers) and we have peered beyond these valuations to observe Y Combinator through the prism of it’s investments’ impacts on those companies, jobs created, and the economy as a whole.
Using publicly available data (Linkedin, Crunchbase, company websites, press releases, angel list, the HWOL database, and web search) we ascertained employee count; current staff recruitment targets (including position type); increases in technology jobs since YC was started and we estimated salaries at startups with announced funding.
Based on specific macroeconomic assumptions, we calculate an economic value of around $6.1 bn added since the accelerator was founded in 2005. YCombinator’s direct impact on the US economy is vivid, with a cool 3,000 jobs created in the US alone and over 800 job postings on YC backed companies websites. To put this into context, this is comparable to the market capitalization of Akami or Rackspace (or twice as large as EA), with a staff count nearing Facebook proportions.
More broadly, software tools like Heroku (eventually acquired by Salesforce at a value of $250m in 2010) have allowed millions of apps to be built by developers across the globe, home owners have been able to unlock value in their spare room or couch (Airbnb), car owners can rent out their vehicles (Flightcar) and even jellyfish aficionados can now satisfy their desires online (Jellyfish Art). The infrastructure that has been created by these big and small businesses is creating new opportunities in the US economy for everyone.
A number of similar accelerators have since been set up all over the US, giving renewed credibility to the accelerator/incubator model as evidenced by the doubling in the US alone from 34 to 64 incubators in 2013. In particular, copy-cat funding services have boomed as epitomised by the global tentacles of the Samwer brothers Rocket Internet. The value of these microcosms and resource sharing networks of companies is difficult to quantify but YCombinator can certainly lay claim to indirectly influencing their growth.
The effect Paul Graham and the other partners have had has been far greater than simply the value of their fund and more diffuse than many traditional venture capitalists on account of its wide distribution by volume and geography. Furthermore, the immeasurable trickle down effect for other industries, from support roles to software resellers, is powerful.
According to The Kauffman Foundation’s 2013 State of Entrepreneurship, America saw declining rates of entrepreneurial activity during the recession of 2007-2009 but has since witnessed “intense entrepreneurial activity in ... Silicon Valley”. In fact, according to a report by Babson College, from a low of 7.8% in 2008, 12.3%, or over 29 million Americans, are now involved in entrepreneurial activity.
The future impact of the YC ‘experiment’ will likely be even greater, having spurred an entire generation of new entrepreneurs to develop products and services based on methodologies developed in Mountain View. In an epoch of global economic turmoil, YC will act as a beacon for entrepreneurs from across the globe to come and build their businesses in the US. Innovation is classically the greatest creator of new jobs, and YCombinator has created a microcosm of innovation.
Over the course of the last two and a half years since YC backed Siasto and it’s drive to bring simplicity to project management software, the tenets of the program have been profoundly assimilated by my company and by me. The focus on fast iteration, customer feedback, and building what people want, has driven my direction and strategy and I now bear the same standard when proffering advice to peers who are exploring their own projects.
Encouraging entrepreneurs to focus on their customer’s problems and engineering features to solve those problems has proved a unique approach for YC, pushing businesses to build initial traction for their products while often deferring the broader revenue opportunity. Nonetheless, impressive and profitable businesses have consistently emerged from their process.