Welcome back to The Sunstone Way.
I’ve found that one of the keys to success has always been to study others who have been successful. That’s been true in many endeavors, from athletics to economic development to management.
If you want to build a great team from the bottom up, look at the long-term success of the Los Angeles Dodgers or the St. Louis Cardinals in baseball – their farm systems have kept them competitive for decades. We can build that same type of foundation.
Watching Y Combinator
So it should come as no surprise that I’ve studied and admired the pioneering Y Combinator in the venture capital field. When Y Combinator was created in 2005, its model of combining technical and intellectual support with significant investment was brand new. The concept of a business accelerator as a step beyond a business incubator started with them.
Paul Graham, who founded Y Combinator along with partners Robert Morris, Jessica Livingston and Trevor Blackwell, has been a startup guru since before the turn of the century. A Renaissance Man after my own heart, Graham is a programmer, writer, painter and investor with an art degree and a PhD in computer science.
All of the founders had experience starting their own businesses, so they knew how hard that is to do. They also knew how much founders needed mentors, capital access and technical assistance, so they shaped Y Combinator to meet those needs.
Refining The Model
Y Combinator started with programs on both coasts, but quickly decided it was better to concentrate on one area, and settled outside San Francisco, an early tenant of Silicon Valley.
By 2011, Y Combinator was investing in every company that joined the program, and the three-month series format had solidified. More advisors and partners – most successful startup founders themselves – were brought on board, and the number of applications to be part of a YC “batch” exploded.
One of the highlights of the Y Combinator program is the return of successful alumni for talks, dinners and one-on-one conversations. And there is plenty of star power in that group. Companies started with Y Combinator’s help include Airbnb, Coinbase, Cruise, DoorDash, Dropbox, Reddit and more.
Today’s Model
All four of the original founders are now listed as retired, but remain active. Fun fact — Graham and Livingston married in 2008. In January this year, Garry Tan became president and CEO – he was a Y Combinator partner from 2011 to 2015 and a co-founder of Initialized Capital and Posterous.
To date, more than 4,000 companies have gone through the Y Combinator course – the winter 2023 batch includes 282 companies, with tech and artificial intelligence the most common business sectors. Those 4,000 companies combine for a valuation of more than $600 billion. Currently, each company in the program receives $500,000 in investment.
Y Combinator has added programs to its basic accelerator, including a fund that supports and invests in some startups that have graduated from the accelerator. The Demo Days at the end of each three-month batch are among the hottest tickets among investors in Silicon Valley.
Stepping Up
We’ve aligned our processes with Y Combinator – in a small way to them, a big way to us. In 2022, one Y Combinator graduate became a Sunstone portfolio company. This year, funds we managed have added 10 more Y Combinator companies.
And we will continue to look at startups coming out of the prestigious accelerator.
What We’ve Learned
Many of the Y Combinator approaches were integrated into the Long Beach Accelerator when we helped start it in 2019. We’re clearly much smaller – those cohorts are around 10 businesses each – but that allows for personal attention to every founder.
Sunstone finds investment capital for every LBA cohort member, and we’ve expanded that model to Lair East Labs in New York City. And we are building alumni networks in partnership with both accelerators, with many coming back to speak to new founders.
Perhaps most importantly, we have adopted the goals Y Combinator espouses – to help startups really take off and succeed in the business world. That’s The Sunstone Way.
And as always, be a Sunstone!
John Keisler
CEO & Managing Partner
Sunstone Management, Inc.
Tell your friends and colleagues about The Sunstone Way and the insights it provides. To receive a copy each week, sign up at the link.
Have a comment about this topic, or want to suggest topics for future blogs? Click here.
###
Note: This blog post is for information purposes only and is not intended as an offer to sell securities or the solicitation of an offer to buy securities. Such offers are made solely pursuant to formal offering and subscription documentation in an investment fund (“Fund”).
More About Sunstone Management
Sunstone Management is a diversified private capital sponsor firm headquartered in Southern California that invests in diverse early-stage technology entrepreneurs who seek to build great companies. We believe in the aspirational power of the American economy to attract and inspire investors and entrepreneurs from throughout the world. We deliver new and exciting opportunities for economic growth through the creation of innovative public-private partnerships, and our unique experience across government, education, and private sectors. Identified by Financial Times as one of America’s Fastest Growing Companies three years in a row. In the second quarter of 2023, PitchBook ranked Sunstone the seventh most active early-stage venture capital firm in the country, and 18th overall.
© Sunstone Management Inc., 2023