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Growth As A False Signal In Y Combinator Startups
[Image: gettyimages-180478521.jpg?w=738]

One has to appreciate how Paul Graham built Y Combinator into the world’s flagship accelerator and handed it off to others to continue its impressive run at the top of the heap. In fact, I have yet to meet a founder who regrets joining the program.
But after stepping away from the YC scene for five years* and then returning to observe the last two demo days, I now wonder if some of the views Paul shared in his original, widely read Essays are being taken to absurd extremes. The evolution of his take on startup growth serves as an excellent example.
Revenue growth as a divining rod

Paul says in short that “a good growth rate during YC is 5-7% a week” and that “the best thing to measure the growth rate of is revenue.” He goes on to explain that successful startups follow an “S-curve.” Founders hope to have exited an initial period of slow growth by demo day, showing that they’re just starting to climb the steep slope of that curve. If all goes well, growth will not slow down until their company matures years later.
Indeed, the conventional line of thinking now appears to be that a member of this “5% Club” is in great shape and that everything else should just fall in line. So many founders do everything they can to show that they’ve achieved this milestone by their demo day. This is not just the case with Y Combinator startups of course; it has become a common ritual across accelerator programs everywhere.
Revenue growth has become, in essence, the presumed divining rod of a startup’s success. Much as farmers have used forked sticks over the ages to identify the location of water under their properties, investors are using early revenue growth to identify which fledgling startups will become the long-term winners. And this is despite the explicit efforts of Sam Altman and others at Y Combinator to caution against a “growth at all costs” approach.
This increasingly heavy focus at demo day on growth, and growth alone, by investors and founders alike, has become absurd and unrealistic. It results in a false signal that will lead to disappointment and investment losses more often than not. Perhaps a look at what the actual revenue growth numbers look like will help everyone realize the magnitude of this absurdity.
Running the numbers

Let’s take a look at the exact revenue growth Y Combinator startups claimed at the most recent demo day in August. We ran the numbers on the 22 companies** in the group that shared their revenue and revenue growth metrics.
[Image: yc-growth-metrics-001.jpeg]
These companies reported month-over-month revenue growth rates ranging from 6-200 percent. The average was 60 percent and the median was 41 percent. Six companies reported at least a doubling of their revenues each month.
[Image: yc-growth-metrics-002.jpeg]

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