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## Introduction and summary

We’re interested in estimating how much tech entrepreneurs earn, since it’s one of our top recommended careers, partly because of its earnings. Big earners can create a lot of economic value and can sometimes become big donors. We wanted to find out: *if you get into Y Combinator, how much will you earn?* We’re interested in Y Combinator because it’s the best known seed accelerator, and the data is available. Here’s what we found:

- The total value of Y Combinator companies is $26 billion, of which the founders own $8 billion.
- Most of the returns have gone to a tiny minority of super-successes. The founders of AirBnB, Dropbox and Stripe are worth about US$7 billion, about 80% of all founders’ equity, although they account for 0.5% of the companies.
- Outside of the most successful companies, it was still possible to earn significant returns. 12% of companies from the first five years of Y Combinator are now worth US$40 million or more, and a further 10% have sold for US$5-40 million. The remainder probably earned little more than their (low) salaries.
**On average, founders from the first five years of Y Combinator are now worth US$18 million after 5-9 years, meaning that their average net worth has increased by US$2.5 million per year**- When it invests in its companies, Y Combinator values them at US$1.7 million, of which each founding team owns $1.6 million. This means that for average team sizes, each founder owns $700,000 of equity. So founders must earn (in cash or equity) substantially more than $100,000 per year, on average.
- We expect the average earnings (in cash or equity) going forward to be less than $2.5 million per founder per year because of competitors to Y Combinator and regression to the mean.
- Y Combinator accepts 2.5% of applications.
- Your personal expected earnings from applying to Y Combinator depend on your chance of being accepted and your chance of creating the next AirBnB or Dropbox.

The rest of this post will:

- Estimate the value of Y Combinator startups so far
- Study the historical earnings of Y Combinator startups including i) average earnings, ii) mid-range outcomes and iii) failures
- Discuss the likely earnings of future Y Combinator founders

## What are Y Combinator startups worth so far?

As of April 2014, the total value of the 634 startups that have passed through Y Combinator is over US$26 billion. Two years ago, Forbes estimated the total value of Y Combinator companies at US$7.8 billion^{1}, but this year, their value has skyrocketed due to its largest companies receiving big valuations in their latest funding rounds:

- Dropbox was valued US$10 billion.
- Stripe was valued at US$1.75 billion.
- AirBnB was valued at US$10 billion.

Seed-DB estimates that the total of all companies that have exited is US$1.3 billion^{2}. The rest of operating companies are probably worth another few billion^{3}. So of the total of US$26 billion, the overwhelming majority comes from the three top companies.

Paul Graham has previously noted how unintuitive startup investing can be:

“Effectively all the returns are concentrated in a few big winners. The total value of the companies we’ve funded is around US$10 billion, give or take a few. But just two companies, Dropbox and Airbnb, account for about three quarters of it.”

Investing in startups is risky. However, founding them is even riskier, because founders can’t diversify their equity across multiple firms. Of founders backed by venture capital, the top 2% get half of the equity. Of Y Combinator founders, the top 0.5% have 80% of the total equity^{4}. Essentially, Drew Houston from Dropbox has put all his eggs in one basket and it has paid off.

Whether this bet will appeal to you depends on what you plan to do with the money. As Bill Gates points out, if you spend millions of dollars on yourself, they soon reach diminishing returns:

“I can understand wanting to have millions of dollars, there’s a certain freedom, meaningful freedom, that comes with that. But once you get much beyond that, I have to tell you,

it’s the same hamburger. Dick’s [the Seattle fast food chain] has not raised their prices enough.”

In contrast, giving can scale. As our researcher Carl Shulman put it: *What would I do with a tenth Ferrari? Not much. But with my tenth vaccine… I can vaccinate another kid.* So if you can think of good things to do with a billion dollars, or if earning that billion dollars indicates you created a lot of economic value, entering Y Combinator becomes more desirable.

## How much do Y Combinator founders earn?

The total earnings of all Y Combinator founders is around US$9 billion, which makes the average founding team worth US$14 million. Together, the founding teams of AirBnB and Dropbox are worth about US$6 billion. Stripe’s founding team is probably worth another billion dollars^{5}. On my previous estimate, the remainder of Y Combinator companies are worth US$4.25 billion. Of this, the founders probably only own $2 billion.^{6} This gives a grand total of $9 billion of founder-equity, representing 35% of the total value of Y Combinator companies.

The problem with averaging across all Y Combinator companies is that some of them are too young to have achieved much growth.

To get a less conservative estimate, we can focus on the older companies. The total net worth of founders from the first 5 years of Y Combinator’s operations (2005-09) is about $7 billion^{7} or $48 million per founding team^{8}. This estimate depends a little on which exact year you cut it off. From 05-08, the total net worth is US$3 billion, or US$30 million per founding team. Let’s split the difference and say that the average founding team from Y Combinator’s heyday has earned US$39 million. Assuming typically-sized teams, this is $18 million per founder. As 5-9 years have passed since the graduation of these companies, they have earned about US$2.5 million per founder per year over this time^{9}

To get a more conservative estimate, we can see what Y Combinator pays to invest in companies. Y Combinator recently increased their standard investment to US$120,000, valuing each company at US$1.7 million, of which each founding team owns $1.6 million^{10}. At this valuation, each founder stands to earn US$100,000 per year (in cash or equity).^{11} However, this estimate will be low because Y Combinator’s business model depends on investing at a discount rate in exchange for training and access to further investment.

### What about founders that didn’t win big?

For the overwhelming majority of founders, their basket of eggs does not turn to gold. This leaves a range of possibilities. Looking again at graduates from the first five years of Y Combinator, 55 (38%) of these companies are now dead, 38 (26%) have been sold and 52 (36%) continue to operate. Paul Graham recently said that 18 (12%) of the startups from this period have been sold or valued at US$40 million^{12}. I count 6 companies that have sold for that much,^{13} leaving 12 in operation. I count a further 15 companies that have sold for between US$5 and US$40 million^{14}. So here is how it all breaks down:

So most of these companies have died or are struggling on with low valuations. A few still stand a chance at making it big, and a substantial minority have made small exits. These small (US$0-40m) exits are smaller than they may seem because a) the founding team only owns a portion of the equity, b) this must be divided between the founders, c) it will be taxed and d) it is achieved by years of hard work with minimal salary.

### What about the companies that died?

The founders whose companies die usually only earn small salaries. Before being admitted to Y Combinator, founders usually live off savings or taking loans. During the Y Combinator program, they use a one-off seed investment from Y Combinator of US$120,000 to pay living and business expenses^{15}. If they go on to receive angel investment, they can pay themselves about $50,000 per year. With venture capital funding, this tends to increase to about US$100,000 per year^{16}.

## How much could you expect to earn going forward?

### Will Y Combinator’s results project into the future?

So should we expect founders earnings to continue at their historical average? There are some reasons to suspect that they will not. First, the valuation environment for technology companies may worsen. Second, competing seed accelerators have arisen and so some of Y Combinator’s founders and venture capitalists may leave. Third, there is a selection effect at play. There is a lot of unpredictable variation in the performance of incubators. We have studied Y Combinator because of its fame and success, but some of the early teams may have been lucky, upwardly distorting our estimates^{17}. Over time, we should expect performance to regress to the mean. All things considered, these factors make US$2.5 million per founder per year an optimistic forward estimate.

### What are my chances of being accepted by Y Combinator?

The next part of the equation is your chance of being accepted. Y Combinator informs me that they have accepted 2.5% of their latest batch of applicants, with a few late applications still pending^{18}.

It is hard to estimate the chance of being accepted to Y Combinator for a particular individual. The competition is exceptionally intelligent, determined, and technically able. Your chance of getting accepted will depend on personality traits, the strength of your cofounders, and the quality of your product. Mostly, Y Combinator invests in internet technology startups but they are also starting to fund biotechnology and nonprofits.

### What are my expected earnings once I get into Y Combinator?

Almost all of the expected earnings of Y Combinator founders are concentrated in the tail – in the AirBnBs and Dropboxes. So your expected earnings in Y Combinator depend on the extent to which your company resembles these big successes. For a lot of people, whether to enter Y Combinator, and entrepreneurship in general, hinges on the answer to this hard question.

So what predicts big success? Well, venture capitalists think they know something about this – some companies find it relatively easy to get their funding and others struggle. We’ve only reviewed a little of the relevant literature, but it appears that intelligence is at least somewhat predictive of success. Typically, the most successful founders are more ambitious than average, have technical expertise, have a strong team, and have entered a top university (though have not necessarily finished). For marginal founders who would not find it easy to get funding and do not resemble the super-successes, it may not be good to enter Y Combinator. On the other hand, individuals who possess more of the traits of successful entrepreneurs can plausibly claim that if they pass the application, they will earn – on expectations – millions of dollars per year. There is plenty of opportunity for more research here.

The bottom line is that we expect future Y Combinator founders to make an average of US$700,000-18 million, or US$100,000-2.5 million per year, and the chance of being accepted is 2.5%. What you personally can expect to earn by applying to Y Combinator depends on:

- How likely you are to get accepted into Y Combinator, and
- How likely you are to go on to create the next AirBnB or Dropbox (2 companies among hundreds).