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The Start-up Guru

Y Combinator can already claim credit for creating about 500 jobs, a number that will probably grow rapidly as the start-ups, most of which are less than two years old, mature. This success has made a session at Y Combinator a hot ticket for anybody with dreams of launching something big. "I would have given up almost anything to work with Paul," says Sam Odio. In December, the 24-year-old entrepreneur packed up all his possessions and drove west to claim a $10,000 investment in his new venture, Divvyshot. Three months later, Divvyshot had a product -- a photo-sharing website for groups of people -- and Odio presented his company at Y Combinator's Demo Day, a two-day event held at the end of each class at which start-ups pitch angel investors and VCs.

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.

Read more:

10 Questions for Paul Graham

Paul Graham’s 13 Pointers for Launching a Successful Startup

Thinking Small

Top 30 Entrepreneurs Under 30 - Sam Altman, Loopt

30 Under 30 2009 - JustinTV Profile - Matt Seibel, Justin Kan, Emmett Shear, Kyle Vogt

Max Chafkin

Senior writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin