Interview With The Y Combinator

Tech Crunch has posted an interview with Paul Graham, partner at VC firm Y Combinator. Mr. Graham believes we’re not in an internet bubble, that startups shouldn’t worry about their business models and the best companies are the ones with potential to kill old monopolies. That sounds good to me. Except I don’t entirely buy the don’t worry about the business model bit. Here’s a quote.

You mentioned Digg as an example of a company that took VC money. They took $2.8 million, whereas reddit, their closest competitor, has taken only $88,000. (I know because Y Combinator funded them.) And yet reddit is not only able to compete, but has a visibly more authentic, participatory feeling. I read that the top 100 Digg users submit 56% of the frontpage stories. The frontpage stories on reddit are much more widely distributed. And that may be because reddit grew organically, through word of mouth, like Flickr and did.

Whatever the causes, it’s an interesting data point that a company with $88,000 in funding can even compete against one with $2.8 million. That could not have happened before the web.

The interview highlights the new shift happening in VC funding. VCs are no longer looking for the mega $10 million funding deal – because the new breed of sites starting up doesn’t need that much money. The barriers of entry are now so low that all it takes to be the next Dot Com Mogul is a notebook and an internet connection.

Now why didn’t reddit came to me for funding? I would have given them $88,000! Oh wait. I’m not a Venture Capitalist.