Does it always mean that something went wrong if you passed on an eventually successful startup? That seems like an assumption baked into the question and your answer.

At the end of the day you are taking a calculated risk. The interesting question isn't whether you wished you had funded them, because that is asking you to make a risk-free (in hindsight) decision. The real questions is how you decide whether a missed opportunity indicates a lapse in the way you calculated risk/reward, or simply a bet you ended up on the wrong side of despite it being the right bet at the time.

That's the question I'd really be interested in hearing the answer to. How do you decide whether a missed opportunity represents an error in your process?

As far as we're concerned, missing a good startup is by definition an error in our process. We may never get our error rate down to zero, but we can try. And it's reasonable to assume we have a lot of room to, considering how early we are.

Having funded 465 startups over 7 years may not sound early, and I suppose it isn't in a relative sense, but it is in an absolute one. Society in general and we in particular are still learning how to predict which startups will succeed.

But surely there are success stories which are outliers/anomalies/red herrings, that you really don't want to try and replicate?

To say that every missed opportunity is a failure is like saying that every CA lottery I didn't buy a ticket for was a mistake. That strategy risks over-fitting to successful fluke's, to people who made bad bets that happened to work out. There is enough loose money floating around today that some people out there are going to make bad bets and succeed.

I don't see why you/YC wouldn't focus on bets where you have an unfair advantage over the market and feel fine passing those up where you don't, even if they have some non-zero probability of success.

Startup success is a reflexive (from social theory) process, not a scientific one. As in economics, successful long-term predictions would, by definition, beat the market. Its impossible for "society in general" to learn how to do that.

If you guys ever figure that out please share it with the rest of us :)

Sorry about the obvious and slightly more controversial question, but are there any startups that you regret having funded?

In particular from the non-economic perspective.

I'm hoping he regretted funding 9GAG. It's one of the most unethical companies I've ever come across. This post on /r/4chan details some of their misdeeds:

http://www.reddit.com/r/4chan/comments/zacju/9gag_repost_mac...

This may seem obvious, but don't believe everything you read on the Internet.

The post I linked to is just a fairly comprehensive example of a widely-known phenomenon. While some details in that post may be erroneous, the overall picture is not and has been independently arrived at by many different people. 9GAG reposts content from other sites. Fine. I'm not concerned about that. I'm concerned about the dishonesty with which they do it, and the claiming of others' content as their own. I don't even care that they use dummy accounts to make the community appear more involved than it is, after all that's how reddit started out, as well. I care that it's those dummy repost accounts that are responsible for some of the more egregious acts of plagiarism.

Lots of redditors will repost a picture and claim it as their own, but this is both frowned upon and the doing of users, not admins. 9GAG admins themselves are the ones guilty of plagiarism, and that's where they cross the line.

I didn't know about 9GAG, but unethical behavior is exactly the kind of reason for regretting funding that I had in mind with my question.

Barely anything on reddit is original content, I don't think the users should complain about reposts on other sites. If it keeps certain demographics away, it might even be a good thing for reddit's content/comment quality.

There's a difference between posting something from another site, even if it's a screenshot, and scrubbing the watermark then adding your own in an attempt to claim authorship. Reddit does the former, 9GAG the latter.

> Barely anything on reddit is original content

On the contrary, Reddit (and particularly smaller subreddits) contain some of the most active and intelligent conversation available to vast general audiences on the web. AMAs alone spark a lot of interesting dialogue. Nick Eftiamiades' yesterday was really enlightening (http://www.reddit.com/r/IAmA/comments/zchnb/ive_appeared_on_...). The hivemind can be embarrassing, but there's still a lot to glean from such a userbase.

Never mind 9GAG, what about Zynga?

Outside of Zynga's acquisition of OMGPOP, I don't believe YC has any ties to them. I could be wrong.

How do you decide/realize you "missed a good startup"? Profits? Traction?

You can never find out a private company's revenues, so the best we can do is to go by approximations like how frequently we hear about them, later funding rounds, etc.

Interesting. In Sweden the high level information about a private company is publicly available. Several websites like allabolag.se lives from aggregating this data and reselling it.

In Sweden all salaries are made public too, so that's not particularly surprising. ;-)

Sweden sounds like a very rational place.

Is there nothing more to it than revenues? [that's not intended to be snarky and rhetorical however it sounds in your head!] Like do you think "Wow, sorry we missed them, they're making awesome stuff" or is it primarily financial.

This kinda fits in with the Kickstarter discussion, scale is entirely different of course.

I guess in short is business more about making money or about creating value.

Note that a rejected applicant will have learned from the failed YC interview and adjust his presentation accordingly when applying to another incubator.

Kudos for your postmortem optimization feedback loop. This is one of the non visible features of YC that could explain the difference. Do you record the presentations for later review in such case ?

For the applicants, this gives the hint that they should apply to many different incubators and angels before applying to YC so that they can learn from their rejection how to optimize their submission. ;)

Thanks PG !