When Graham started Y Combinator, most of the investors at Demo Day were old friends from Yahoo and Viaweb. Now, Demo Day draws representatives from the top U.S. venture capital firms. "Y Combinator is transformative," says the venture capitalist and blogger Fred Wilson, whose New York City–based firm, Union Square Ventures, has made investments in Twitter and two Y Combinator companies, Disqus and Heyzap. Wilson says Graham's model takes some of the risk out of starting a company. "Paul gives these kids money, but he also gives them a methodology and a value system," he says. "I don't mean this in a negative way, but Y Combinator is more like a cult than a venture capital fund. And Paul is the cult leader."
On a chilly Tuesday night in early April, the members of Y Combinator's winter class gather for their final meal together. Demo Day has already passed, and the evening has taken on a somewhat celebratory quality, which means that a few founders have decided that they can afford to indulge in a mug of beer. Most are staying sober so they can squeeze in a few hours of work after the meal. Some are simply underage.
Because Graham works mostly at home -- he and his wife, Jessica Livingston, are the only full-time employees -- Y Combinator's headquarters isn't much to look at. There's a small private space where Graham holds "office hours" -- short weekly meetings with founders -- and a large, brightly lit dining room in which everyone gathers once a week for dinner. The space is painted orange, and its walls are covered with spiky soundproofing foam to keep the volume down. An enormous wooden table spans the length of the room.
When I arrive, I find Graham standing in the parking lot, chatting with a group of young people. I introduce myself, and he looks back blankly. "What's your story about again?" he asks. Graham tends to have an air of impatience, as if even a momentary distraction is too much to bear. He keeps meetings short and makes investment decisions based on a single 10-minute interview. Before I have a chance to answer his question, he grabs the shoulder of the nearest twentysomething and, as he steers me inside, introduces us. "You should give Max a demo," Graham says.
The entrepreneur is Alex Polvi, a recent graduate of Oregon State University who wears horn-rimmed glasses and has an unkempt mass of curly dark hair. His start-up, Cloudkick, helps companies manage cloud-computing servers. "We've built a unified interface for working with different providers," Polvi says, looking at me with the satisfied expression of someone who has just made a great deal of sense. Before I fully understand what he's talking about, two more entrepreneurs sidle up, each eagerly awaiting a chance to pitch me.
That Polvi's elevator pitch is a little rough is no accident. Graham encourages founders to spend all their energy on product development, not on PR. In most cases, companies are expected to release a finished version of something -- whether it be an iPhone app or a photo-sharing widget -- before the three-month program is over. That's an incredibly short amount of time for a two- or three-person team. It requires that founders work more or less around the clock while ignoring pedestrian concerns like cash flow or hygiene. The dinners provide a welcome respite from the frantic pace.
Tonight's feast consists of mountains of white rice and a ketchup-hued chili served out of several large electric Crock-Pots. The founders eat standing up or hunched over laptop screens. A quick scan of the Y Combinator pantry, which includes six gallon-size cans of pinto beans, seven large cans of sloppy joe sauce, and a copious amount of canned tomatoes, confirms that the meal is typical. "Goop on rice -- the same every week," Graham says with a smile, as he shovels the stuff into his mouth. He used to cook the meals himself but recently ceded that duty to a professional cook.
Cheap meals are, in a strange way, part of Y Combinator's formula for start-up success. Graham wants founders to spend as little money as possible. Live cheaply enough, he believes, and you can become cash-flow positive without going on a lot of sales calls or spending too much time talking to investors. Graham calls this "ramen profitability" and says it allows companies to say no to bad investment terms and forces them to think about long-term viability. It also ensures that most Y Combinator founders are in their 20s -- or, for the few who happen to be older, that they are capable of living in dormlike conditions. "That culture of frugality and discipline is really important for the Y Combinator mindset," says Sam Altman, founder of Loopt, a graduate of Y Combinator's first class. "The start-ups that do well are the ones that are working all the time."
Like many software entrepreneurs, Graham has been writing code since his teenage years, but he also has a range of interests not common among computer geeks. He was an aspiring short-story writer as a high school student and majored in philosophy at Cornell as an undergraduate. After deciding that he found philosophy incomprehensible, Graham landed in a computer science Ph.D. program at Harvard. He excelled as a programmer, but about halfway through graduate school, he started taking classes in Harvard's art department. After receiving his doctorate, he enrolled at the Rhode Island School of Design with a plan to become a painter. He took classes at RISD that summer and in the fall enrolled at Florence's Accademia di Belle Arti, a nearly 500-year-old art school founded during the Renaissance. When I suggest to Graham that this was a weird life plan for someone with a computer science degree from Harvard, he says simply, "I never cared about the official rules."
