The Real Innovation Happening at Y Combinator

While the media debates the recent billion plus dollar valuations being thrown at Y Combinator alums AirBnB and Dropbox, they’re missing an opportunity to discuss what I see as the most interesting innovation happening among Y Combinator startups.

This profile of Weebly in The San Francisco Chronicle touches ever so slightly on it:

Despite significant user growth since 2007, Weebly is run by a team of just 13 people, in a space only slightly larger than the Penn State dorm room where founders conceived it. Fanini, the chief technical officer, still works in a closet

On less than $700,000 raised to date, Weebly has built a thriving and profitable business. This growth and profitability positioned them well to raise a significant round of funding at a healthy valuation that will allow them to really scale out their service.

In the traditional venture landscape where “success” is often measured by how much venture capital a startup can raise, Y Combinator is grooming a new generation of entrepreneurs on the fundamental principles of doing more with less and building products based on profitable business models from the outset. Raising as little capital as possible to discover a market then raising less dilutive capital once it’s been found.

As a result, both Dropbox and AirBnB were able to command billion dollar valuations after having raised only a relatively small amount of venture capital ($7M and $8M respectively). Contrast that with other web startups who raised significantly more money to before crossing over into the billion dollar club- Square ($65M), Twitter ($55M) and Facebook ($40M).

Training a generation of entrepreneurs to live as cash efficiently as possible during the market discovery phase of a startup, to me, is the biggest innovation happening at Y Combinator these days. And its clearly paying off.