Jason Calacanis' Warning To Y Combinator Startups [video]

http://www.youtube.com/watch?v=2cdrCYrZIvI&feature=channelhttp://www.youtube.com/watch?v=2cdrCYrZIvI&feature=channel

by hajrice • 16 years ago

209 116 16 years ago

It's amazing what high production quality on audio and video does for credibility.

moe3• 16 years ago

Not sure if we watched the same video, but what I just saw was a yuppie in a pink shirt, struggling so hard to project an image of self-importance that it's bordering on slapstick.

jacquesm12• 16 years ago

I think you missed the sarcasm tags on the GP.

randomwalker2• 16 years ago

For those who prefer reading, or can't reach Youtube, etc.

"This is a message to YCombinator companies and hopefuls: if you tell Facebook about your startup before you reach critical mass and you get found by Facebook in any way you're an idiot. They will steal your company's ideas and try to get you to take a small price for your company and vision and take a job at Facebook. Which by the way is going to be a job that sucks. Don't do it. It's a scam. It's a trap. It's a trap. It's a trap. Insert Star Wars quip here. It's a trap. IT'S. A. TRAP. End of message."

strlen4• 16 years ago

This sounds completely bizarre. If your ideas are such that they can be stolen and executed upon by others trivially, than a job at Facebook (with a signing bonus) is pretty damn impressive exit.

tptacek7• 16 years ago

Say what? Posterous isn't rocket science, but I'm pretty sure they wouldn't consider a signing bonus at Facebook impressive.

coryl• 16 years ago

Not completely true, sometimes being first matters.

abraham3• 16 years ago

Facebook has the money and scale to implement anything they choose to. Trivially or not.

randomwalker2• 16 years ago

Given the timing I think it is pretty clear that he is talking specifically about YCRFS7. If you're building something on top of a platform there is always the danger that the platform provider will decide to incorporate your product as a feature. There is certainly a lot of precedent for this — in recent years Apple, Twitter, and Facebook have all done it.

javajones2• 16 years ago

Ideas can always be stolen. We've had so called investors try to rip us off left and right. Don't think Facebook isn't capable of the same.

MichaelApproved3• 16 years ago

If you want a job at Facebook then apply directly. Building an entire business just to get hired at a company seems excessive and contrary to the reason most people start their own business.

jasonmcalacanis5• 16 years ago

here is the full clip: http://www.youtube.com/watch?v=AWJAkjF9qnY#t=1h14m44s

pingswept• 16 years ago

Minor correction.

s/you get found by Facebook/you get involved with Facebook/

tptacek7• 16 years ago

As viscerally unappealing as it is to find myself agreeing with Calacanis, I'll note that Facebook doesn't even need to intend to trap YC companies for the net effect to be negative. The problem is the same as with "strategic investors": an early, quasi-structural relationship with a potential acquirer may be perceived as a de facto right of first refusal to the rest of the industry. It can be a trap even if it wasn't designed to be!

I sort of watched this happen with a friend's company.

Obvious caveats apply: (a) I'm not a social networking entrepreneur and don't know the space that well, (b) you have to balance the risk --- and the opportunity cost of another business in a different market --- against the benefit of collaborating with Facebook, (c) to whatever extent Facebook benefits unreasonably from this program, YC probably suffers.

jmtame• 16 years ago

jason is making it sound as if he personally knows someone who made this mistake. i think you're claiming the same, and based on how many (few) acquisitions facebook makes, it's possible that you both know the same person who feels they were "trapped." can you say who it is, or did you intentionally leave out the name of the person you know?

edit: sorry if i misread this part to imply it had to do with facebook: I sort of watched this happen with a friend's company.

tptacek7• 16 years ago

I don't know anyone who's been scammed by Facebook. I like Facebook.

pg• 16 years ago

If a bunch of startups that might have grown big were nipped in the bud by Facebook, it would be as bad for YC as for them. So Jason is essentially claiming that by agreeing to let YC-funded startups get early access to Instant Personalization (which is all this deal amounts to), we were acting against our own interest.

That should at least make one skeptical about his claims. It is possible that we've done something that wasn't in our interest, but surely by default one should assume we understand and care about our interests more than Jason does.

Or to put it more briefly: this is mere linkbait.

wheaties• 16 years ago

What's your taken on Foursquare and Facebook's own entry into the same sorts of space? Could you write up something about competing with an incumbent who already has the captured audience effect going for them?

skmurphy• 16 years ago

Facebook is not an investor like Sequoia, they have a primary business to run and there is some merit to Jason's warning, linkbait or not. How would you judge a year from now if this was a mistake? What criteria are you going to use to assess whether or not the deal met your goals?

dchest• 16 years ago

I think calling it linkbait is dishonest to Jason. While he's known for such things, it looks like his genuine opinion on the deal, and not an attempt to get more [page]views.

jacquesm12• 16 years ago

You do have to keep in mind that Calacanis and YC are to some extent in competition, so it's not like he has no stake in making YC look bad and 'warning' potential YC applicants off like this means they'll have to go elsewhere.

jacquesm12• 16 years ago

I think that the perception is that YC may be acting in its own interest but not in the interest of the founders. This is strange, because after all, once you are 'on board' anything that is good for YC is good for the founders.

Unless it is about increasing your 'batting average' by having a series of smaller but more-or-less guaranteed exits. In that case your goals would not be aligned.

enjo• 16 years ago

That's a fallacy in the broad sense. I've had investors who had very different goals for my company than I did. Investors, YC included, are after liquidity events.. plain and simple. As a founder, that's not always the case (and the desired timeline is almost always drastically different).

In the YC case, as a relatively small (very) early stage investor... they might very well benefit from a lot of very quick exits. Before additional investor dollars and the resulting dilution that accompanies it. It's plausible that this deal with Facebook is designed to achieve that. Essentially giving Facebook early insight into these companies and that ability to pick them up for cheap ($2M-$10M), which might actually be advantageous for YC.

I'm not saying that's what is happening here. I really have no idea. I'm merely point out that Calcanais might have a strong point.

tptacek7• 16 years ago

That doesn't really make sense. A YC-backed exit that nets a "nice signing bonus" doesn't move the dials for YC, and the perception that YC is a farm team for Facebook and Google hiring doesn't help them either.

I don't know if this is what Calacanis is saying (I kind of doubt it), but the risk is that YC is acting against interests inadvertantly. And, again, probably not so much by Facebook stealing! your! ideas! so much as by creating a single locked-up railroad track for bizdev, putting FB at/near the center of a startup's solar system.

dasht2• 16 years ago

With due respect, pg:

The game of building a facebook dependent start-up has many possible outcomes but we could break them down this way:

1. Destined to lose. Nobody wins, not FB, not YC, not founders. All three parties joined in making a mistake. Oops. Boring case.

1a. Destined to win barely. Maybe YC finds a break-even exit. FB is incrementally helped. Maybe the founders are happy or maybe restless. Boring case.

2. Destined to win big by unique, non-replaceable opportunity. E.g., Founders have an exclusive contract with Bob Dylan and their product is going to go big... they can stay independent. They've got an "f.u." contract with Dylan. FB wins a little on the margins of the revenues of the new firm. YC and the founders win really big. The only problem is, such unique, exclusive opportunities are rare.

3. The start-up OR AN UPSTART COMPETITOR (most often Facebook itself or a better "friend of FB") will win big and it's winner take all. This is half of the case that has Jason Calacanis' panties twisted. FB can often (we presume, act as if we knew to be true) brute force the firm out of the market by replacement or force them into an early acquisition with the threat of replacement.

There are two sub-cases:

3a) Facebook's dominance as market-maker cum market-player is hostile towards YC and the start-up. FB wins. YC and founders essentially break even or worse.

3b) Facebook is in a cooperative mode (e.g., FB invests products and services in the YC firms and then dominates by friendly acquisition or similar). FB wins big - low stakes and high return on their perceived value as market maker. YC wins non-stellar but more reliable returns: a respectable interest rate on 20K outlays. That's a sweet spot for YC (they aren't playing the lottery, they're managing a fund). Founders get, in effect, a very modest bonus and then either a (likely crappy, per Jason) job or just a nice bullet point on their C.V.

Uncompressed, Jason has a reasonable concern I think. There's a new case where founders barely win and wonder if the struggle was worth it, while YC and FB are quite happy.

And, nobody asked, but I think YC's fundamental mistake is interest in funding FB-related start-ups at all. The problematics of letting one particularly odd firm create and dominate a market like that are such that I think YC should generally shun the unfathomable risks and complexities.

I see the deal as YC submitting a bit to FB's domineering tendencies because by submitting on these terms, YC does OK and the founders aren't creamed. A better solution (in my biased view) would have been to decide just to not fund anything that cares about FB's actions at all.

nl2• 16 years ago

4) You build a win-big type company that is outside Facebook's area-of-expertise but leverages the advantage the Facebook's platform give you.

Takes games for example. Facebook itself doesn't seem interested in writing games for it's platform. Yes, it's true they want you to use their in-game currency, but that's just a platform tax, not competition against your business.

I suspect location-based-services are similar. I doubt Facebook wants to compete with the game-based mechanics Four Square is building. There is still a question as to if Facebook will go after the coupon market, though.

There are also businesses where you may be able to build traction on the Facebook platform, and then pivot off it if required.

tptacek7• 16 years ago

Linkbait or not, just because you don't plan to act against your own interests doesn't mean your actions won't break that way in the long run. Your heart is pretty clearly in the right place, but you're not good at hearing criticism.

The FB/YC thing looks like a net win for YC companies, but it's just not valid to say it isn't at all fraught.

Tichy• 16 years ago

While I think YC is way cooler than Facebook, I suspect from the perspective of Facebook YC is just a little ant below their feet. What incentive do they have to play fair with you?

From across the pond I am willing to assume that you are all really good friends in the valley and that things work out fine. But I also have to admit that Jason might at least have the hint of a point.

Or in other words - YC is about the only entity in this whole game that I personally trust. This is simply the reputation you have built. I don't trust Facebook.

On the other hand, it probably doesn't matter to FB at what stage they see a startup's idea. They'll clone it when it is successful.

jasonmcalacanis5• 16 years ago

Paul,

Respectfully, it is not linkbait.

This is my honest opinion based on Facebook's track record. I would give the same advice to any startup: don't trust Facebook and don't give them any access to your startup or plans.

Period. End of story.

If an entrepreneur needs any evidence of the trustworthiness of Facebook, simply talk to folks inside of Quora, FourSquare, Twitter and Zynga (among others). I'm sure you've spoken to folks inside these companies, like I have, who are infuriated with Zuckerberg's blatant stealing (without innovation).

At every chance they can get, Facebook has simply stolen. Given their scale, bringing them inside the incubators is, well, mind boggling.

If you're a startup company you should be avoiding Facebook and their staffers.

I'm sure you have great intentions PG, and you know I respect all that you've accomplished, but don't dismiss me. I really don't need press because, to a certain extent, I am press.

Add to that the fact that I'm massively overexposed (especially here on HN), and you're claim that I'm link-baiting feels disingenuous.

Like you, I love startups and entrepreneurship. I only want to see folks do well and not get ripped off by Facebook, which I consider the most unethical company in technology.

One only need to look at the mountain of lawsuits they've generated for proof of this. Facebook's long list of lawsuits are not from ambulance-chasing law firms mind you, they are by PARTNERS and FRIENDS of Zuckerberg's! Oh yeah, a lot of the lawsuits and complaints are also by privacy groups and government agencies trying to protect citizens.

If Zuckerberg has no problem screwing his friends, partners and customers, what do you think he will do to a three-person startup that might innovate its way into being competition for him?

I fear you've made a big mistake letting the fox into the henhouse.

Startups: listen to PG on everything since he's brilliant--but take my advice on this one. :-)

best jason

moe3• 16 years ago

but take my advice on this one. :-)

Why, on earth, should anyone listen to you?

Did you provide data? No. Did you provide facts? No. Do you have any kind of credibility whatsoever? No.

All you have is a pink blouse and a pathological case of Narcissistic Personality Disorder that you unfortunately feel obliged to broadcast in HD at the slightest opportunity.

And by the way, do you know what will happen when facebook/YC screws people over? The word will spread like wildfire. Because people have their own little voices around here. We don't need you and your pink blouse to save us.

elai2• 16 years ago

Many of these features are not hard to implement. Did google backstab twitter when they invented buzz? Did twitter and foursquare enter any sort of partnership or contract other than automatic api access with facebook?

j_baker3• 16 years ago

I understand what you're getting at, but I also think that pg was justified in taking offense to your claims. What you're offering the startup community is speculation. What you're suggesting is plausible, but you haven't really backed it up with logic suggesting it's probable. Startups need more than the opinions of a few disgruntled competitors to base their decisions off of.

Think about it. There are two possibilities:

1) Facebook is trying to ensnare startups into its web of twisted lies so it can destroy them.

2) Facebook is just trying to work out a mutually beneficial deal with startups that want to leverage their technologies.

While #1 is possible, you have to admit that #2 is the more likely situation. It's like Sagan said: "Extraordinary claims require extraordinary evidence."

I'm sure you know what you're talking about, so this should be pretty easy. Give the startup community sound logic rather than speculation.

shareme• 16 years ago

Paul, how would it be linkbait as Jason already has enough of an audience..

I could see your claim if Jason was arguing up against someone with a dramatic more of an audience..however that s is not the case as both of you have about the same numbers in audience..

Not to say that you do not have some points.. just put in better form than the linkbait argument

codexon5• 16 years ago

It is important to consider Zuckerberg's history. Given his history of screwing over business partners and friends, it's almost a certainty it will happen. There is already a negative image of him in the startup community, so Facebook doesn't really lose much by stifling the growth of YC startups that he could argue would never have succeeded without Facebook.

The only question now is: what negative impact will this have on the startups? If you take a look at the recent squabble with Zynga and the introduction of credits, you'll see that Zuckerberg is bold enough demand 30% of revenue for a Paypal clone. Given Zuckerberg's history of changing policies like privacy for the worst, it wouldn't even be a surprise if he raised that to 50%. Would investing in YC startups be profitable if their valuations where cut by 50%? Would they even be worth that much knowing that Zuckerberg could clone it or demand even higher margins on a whim?

Instant personalization will likely see similar fees once YC is hooked on it. Though past performance is not an indication of future results, I have to say the future looks very bad for anyone embracing the Facebook ecosystem.

elai2• 16 years ago

I think zuckerberg realized it when he looked at what the app store was charging, realized he was in a similar position and realized that it could work.

ErrantX• 16 years ago

I don't like Jason much, and I think his argument is unconvincing.

But when I heard of the YC/Facebook stuff it struck me immediately as a bad idea. It feels like a shift towards lock in. It's encouraging startups to build on a specific platform rather than supporting more open standards.

It also feels a lot like the idea that YC is aiming for the social "Facebook app" space; which, I agree, is a great (and fast) money spinner, but it's hardly revolutionary :)

Just my 2p.

startupcto• 16 years ago

Really?? A facebook acquisition is usually 5m - 10m, how is that against YC interest.

bosch2• 16 years ago

I trust Zuckerberg to not steal my ideas - just like I trust Calacanas to not run a spammy bot created website!

In other words: It takes a rat to know one...

ashishk• 16 years ago

Sorry, I meant to downvote (not upvote) you.

bl4k• 16 years ago

Paul, Jason is right, because it happen to a company I was involved with a few years ago. Facebook was in it's early days (I am trying to be as vague here as possible because I do not want to give away who was involved), and they had a problem to solve that was getting worse as they grew quickly. This company had a solution - it had been developed by a small, but smart, team over a relatively short period of time (9-12 months) and was proven to work well with this companies customers.

Facebook called in a meeting with this company, and talked to them a lot about acquiring the company for Facebook stock. They offered the staff roles within Facebook, and the negotiations were well advanced. During due diligence, one of the tech guys sat down with one of the Facebook execs/engineers and described how the system worked, how some features were implemented and ideas they had for future features.

Not long after Facebook cut off all contact, ended up developing their own solution, ended up implementing a lot of these features, and ended up shafting this company. It is a shame that Facebook is so narrow in their thinking, because the execs at this company really could have helped Facebook avoid some of the troubles they had.

sbarre• 16 years ago

I would say like any other commentary on the web, consider the source!

Jason makes some good (if generic) points about any industry where large incumbents will try to absorb or nullify innovative competitors or startups.

Microsoft did it in the 90s and 2000s as well..

But we all know how much Jason hates Facebook, so he's using them as the bogeyman in this example, because, well, he hates Facebook!

Mapquest learned this the hard way when they got stomped by Google Maps.. If your product doesn't have built-in "hard to replicate" or proprietary features (or data), then a better-funded competitor can just buy their way past you by using more resources to replicate what you have.

ephermata• 16 years ago

Maps are an interesting example because map data is actually hard to replicate. Google went ahead and built their own database anyway, after several years of licensing from NavTeq and then Tele Atlas. http://blog.daveburrows.com/2009/10/08/google-drops-teleatla...

This allows Google to do whatever they like with the data, including offering turn by turn directions on Android.

marcamillion2• 16 years ago

I understand what Jason is saying here...but to be honest, it's hard to tell someone that is used to living on $40k/year, that they shouldn't take an offer of $20M - that instantly makes them a millionaire.

Ofcourse, once you make that first sale and have the FU money to fall back on, it makes gambling (i.e. growing to IPO) much easier.

I am a little skeptical of Zuck too though.

bconway• 16 years ago

Sure, but a sub-$2M sale for a company still in embryo stage is a very different proposition.

MichaelApproved3• 16 years ago

$20mil from a company that isn't public yet isn't as good as it sounds. Who knows what the vesting terms are as well.

Yes, it's still a lot and there are ways to sell the stock but that's assuming they even get $20 million.

marcamillion2• 16 years ago

You say it's not 'as good as it sounds', it all depends on your perspective.

If you are earning $40k - $60k/year - which many young founders were likely earning before joining YC - even if after multiple dilutive rounds of financing you end up with 10% of the company, in a $20M exit....that's still $2M.

Sure, you can't buy Fiji....but you are literally going from a bank account with a few hundred/thousand/tens of thousands, to literally hundreds of thousands/millions.

That is VERY major the first time it happens.

I guess the point I am making is, the jump from having $10K in the bank to $1M in the bank, is SOOOO much bigger than from $1M to $100M - because it impacts your life much more.

erikstarck• 16 years ago

I listened to a podcast where Jason was a guest not that many months ago (2-3 perhaps). He wasn't aware of the concept MVP ("minimum viable product") which kind of surprised me.

Sorry, don't remember the name of the podcast.

quellhorst• 16 years ago

This is mostly Jason Calacanis doing linkbaiting.

c1sc02• 16 years ago

I'm sorry, but even on HN I feel it is appropriate to reply to this jackass with only two characters: FU [Edit: the downvotes be damned]

raganwald• 16 years ago

Try placing a higher value on your time and energy. If something isn't worth an upmod, how is it worth a comment?

c1sc02• 16 years ago

Maybe it's just hat I believe those two characters represent an appropriate response to that king of linkbait? Two more characters come to mind: PC.

MichaelApproved3• 16 years ago

Didn't this exact thing happen with divvyshot? Facebook bought them, shutdown the company and had them working on image functions within the site.

From what it seemed they didn't get paid much since they were mostly after what the guys learned from the site. Meaning it sounded like they were just after talent and not technology or user base. Can't imagine that would be a multimillion dollar deal.

http://techcrunch.com/2010/04/02/facebook-buys-up-divvyshot-...

j_baker3• 16 years ago

So it was an HR acquisition? Point me towards a big tech company that hasn't done an acquisition like this.

jacquesm12• 16 years ago

That's not exactly a trap though, is it now? After all I take it they did that deal willingly.

RBr2• 16 years ago

I think that Jason says a lot of stuff to be sensational. He's building an audience of subscribers for his ThisWeekIn network of video podcasts. He's really good at thinking of sensational stuff to say in order to get people to look at what he's doing. "SEO Is Dead" comes to mind.

Jason could honestly feel that a company or two has received a lower valuation then they deserved, but isn't that the early stage VC game in a nutshell? Investors trade time for value - they invest early in something they think will succeed. In the end, early stage investing isn't a bad route for people to take. Sometimes, it's the best (or the only) way for a product to get off of the ground.

j_baker3• 16 years ago

I strongly disagree with what he's saying, but I don't think that's a fair way of characterizing Calcanis. To me, it seems as though he trusts his gut instinct. Nothing wrong with that until you trust gut instinct at the expense of sound logic.

RBr2• 16 years ago

I'm not saying this haphazardly or even negatively. I'm not one to ever jump on the "bash Jason" train because I think that he is a smart guy working hard to figure out how to be successful.

However, one of his core strengths is talking. He knows what to say and when to say it and how in order to attract people. He is using this issue as a platform to reach his existing audience while attracting new people.

I'm not saying that he's right OR wrong about the issue itself. What I'm saying is that he uses topics like this as a platform to further his own influence. The proof is in the pudding... this is a hot story on HN and hundreds of new potential viewers have checked out the clip and likely the entire show.

Menamena• 16 years ago

Who cares who really said it, I saw the Techcrunch post on this and I had the same concern before seeing this. I think i posted - I hope Facebook doesn't ruin YC.

middayc• 16 years ago

link to a more verbose opinion before and after the cut: http://www.youtube.com/watch?v=AWJAkjF9qnY#t=1h14m44s

elvirs• 16 years ago

i think he did this to get some traffic for show.

znmeb• 16 years ago

Paul, Jason: I think Silicon Valley has a huge problem, and this whole Facebook / YCombinator thing is a symptom. Silicon Valley's problem is that it values only dollars and code. Silicon Valley has become a world where the hacker culture, lifestyle, behavior and attitudes are the norm - a world where gladiatorial combat in code has replaced the discipline of software engineering.

paul• 16 years ago

It's sad that this troll gets more upvotes here than the original announcement did.

Obviously every startup needs to be mindful of the potential for competition from larger, more established companies, but avoiding all the opportunities they create is even riskier.

If you want to be really sure that nobody ever "steals" your great idea, target an obscure platform (Linux desktop?), stay in stealth mode, blackout your windows, and keep all of your computers in a faraday cage. However, if you want to to build something that matters, you're going to have to take some risks and get a little closer to the fire.

malbiniak• 16 years ago

I loosely know of Jason Calacanis and don't know what credibilty he has to base these statements on, but it he does raise any interesting point.

What precedent does Facebook have to support the 3rd party developer ecosystem on apps.facebook? /me points at http://developers.facebook.com/docs/api*.

I'd be really interested to see what other HNers have to say about what I think is the main issue: given you don't think becoming a facebook fte is your desired exit strategy, what would you do to protect your IP from Facebook?

Reply

10ren6• 16 years ago

product -> platform -> library -> standard library -> language -> OS -> FPGA -> ASIC -> SoC

"Reaching critical mass" [so customers identify you with the technology/idea] is one way to avoid this.

Reply

maddalab• 16 years ago

Social media start ups or otherwise, it is rarely about the idea, it is about the execution. If you cannot execute better than facebook you should probably consider selling to them, if you can no amount of idea stealing should prevent you from growing your start up.

And as part of the execution you guard against being locked in to a specific platform.

Reply

robryan• 16 years ago

It also depends on how a business uses the access to instant personalization. I would use it as a way to generate fast growth but also focus on segregating this growth from facebook reliance, as Zynga has done to an extent.

This way if the relationship remains good you can continue to reap the benefits, if it goes sour you have your own userbase with some separation from facebook.

It depends though, plenty of developers are happy to put all their eggs in the Apple app store basket because the benefit now outweighs to potential downside later. This would be the same here.

Jason Calacanis' Warning To Y Combinator Startups [video]

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