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Silicon Valley Guru Blasts Y Combinator Hype

Legendary venture capitalist Vinod Khosla says the accelerator boosts valuations too high for reasonable investments.

Y Combinator founder Paul Graham has been making waves recently with controversial pronouncements on start-up valuations (lower, thanks to the Facebook IPO) and Google Ventures (a supposed source of 'lowball' offers).

Now one prominent Silicon Valley venture capitalist is taking aim at Graham's own start-up program.

During his TechCrunch Disrupt talk on Wednesday, Vinod Khosla, founder of venture capital firm Khosla Ventures, criticized Y Combinator and similar accelerators for causing excessive valuations in the companies they mentor.

When companies leave Y Combinator, they have "so much hype that they get valuations [that] no one who will help the team are going to pay," Khosla said.

Khosla said he wasn't criticizing Y Combinator companies per se, just their inflated evaluations. Having such high valuations at such an early stage can repel VCs from investing in a start-up, he said.

Khosla's remarks came hours before before Disrupt announced the winner of its Startup Battlefield competition--which, it turned out, was Y Combinator-backed company YourMechanic, a web-service that connects car owners with local auto mechanics. In addition to the coveted Disrupt Cup, YourMechanic received $50,000.

The choice of winner raised an eyebrow or two: The decidedly more high-tech second-place finisher, Lit Motors, had created an all-electric "gyroscopically stabilized" motorcycle that's incapable of tipping over.

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Last updated: Sep 13, 2012

JOHN MCDERMOTT | Staff Writer

John McDermott is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com.




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