YC was started as a way for PG and Jessica to learn about angel investing. They originally gave teams like $20k for the summer and positioned it as alternative to a summer internship. They told students that if they decided at the end of the summer to quit the startup and go back to school, that was ok. They expected the cost of this education on angel investing would be some failed investments in startups. Most people back then apparently thought they were crazy for writing checks to undergrads and having them start companies -- this was in 2005, before zuckerberg, right after the dot com crash, when the world was a different place. I'm sure the YC founders thought in the back of their minds that their startups would succeed, but they probably were hesitant to say that out loud.

It's easy to take the YC model for granted today, but back then what they were doing was sort of crazy. Their insight was that these young founders were diamonds in the rough, and their brilliance was fighting for these founders when no one else would

http://old.ycombinator.com/start.html

http://paulgraham.com/summerfounder.html

http://old.ycombinator.com/old/sfp.html

Edit: readability, more links

We thought they'd be successful, but it's very rare for a company to be this successful.

The original idea was to make a summer camp alternative for students so that they didn't have to be interns at big tech companies. I think YC was first called "Summer Founders Program."

Funding a company that IPOs is pretty wild when you think about it in that context.

Don't forget that YC was started mostly with money that came from PG and Trevor and RTM selling Viaweb to Yahoo. Most exits then and today were sales to bigger companies. The expectation was that most of the companies would fail and maybe one or two would sell to a big company for a life-changing amount of money for the founders and nice return for YC.

You don't need to have an IPO to be a successful venture??

Some ventures get acquired. That can be a path to success, too.

Bacardi does revenues of 5 billion plus and they're private. I'd say that's a successful business.

Samsung is privately held as well.

~$300bn revenue.

Samsung isn't privately held. It's listed in the Seoul market as KRX:005930

Thanks. I also found this: "the Samsung Group comprised 59 unlisted companies and 19 listed companies"

A lot of them sellout.

I think they mean that Paul Graham et. al launched YC as a small, cheap experiment, and never imagined they would have success like this.

I could be wrong, but wouldn't VCs prefer some type of large acquisition, a la WhatsApp, as opposed to an IPO?

Why would there be a difference? They're both liquidity events.

Both parties have a lot more flexibility with M&A (this includes vested partners) — meaning private deals have far better conditions if the deal isn't a saving grace.

IPOs can have lengthy lock up periods and are generally much worse for leadership than acquisition (disclosure of personal information like compensation).

180 day lock up probably for employees mostly.. maybe founders are included in that.

IPO's tend to be bigger paydays even if they are more risky so I would assume they prefer IPO's.

I think you're simultaneously reading too much and too little into it. I think when they first started it they didn't even know if the premise would catch on. But also a lot of startups fail or get acquired and acquisitions are also a favourable outcome for YC.