Meet the Next Billionaires

As a result, when it comes to funding, "$500,000 is the new $5 million," says tech investor Mike Maples. It's several weeks into the program, and Maples is in a Palo Alto, Calif., coffeehouse for a meeting with the Weeblies. He sees a lot of people barely out of their teens. The old wisdom for investors in start-ups said you needed an experienced hand as a CEO. The Valley's new wisdom: don't fund anyone over 30. The average age of Y Combinator founders is 25.

When the Weeblies show up for the meeting, they pull up Maples's Web site and, using their software, clone it almost instantly. Then they show him how he can use Weebly to tweak it easily and even redesign it. Maples's eyes open wide. Later he will explain that at that moment, he was determined to help fund the Weebly team.

Connections with top investors are common for Y Combinator start-ups. In May 2006, Condé Nast bought Reddit, a user-generated news site from YC's initial summer 2005 group. The amount wasn't announced, but Graham says the founders could live off it for the rest of their days—and they're only 23. "Before the Reddit sale there were questions about the Y Combinator model," says Mike Arrington, editor of TechCrunch, the unofficial racing form for Silicon Valley start-up news. Around the same time, another YC company also sold to a bigger one, but it wasn't publicly announced. Between the two sales, seven black T shirts were distributed. Others among YC's 38 companies so far have gotten hefty angel rounds and multimillion venture-capital deals.

By the middle of the winter session, tension is building for the start-ups, which are preparing for the upcoming Demo Day, when the room will be filled with investors. It is not uncommon for Y Combinator start-ups to hit the restart button and drastically change its approach as D-Day nears. One group originally planned to make online-based publishing software. After Graham's suggestions, it shifted the focus to collaborative word processing and changed the name of the company to WriteWith. Another start-up called Socialmoth set out to have people share personal secrets confidentially; the new idea was a place where people in corporations could anonymously post gripes and suggestions, allegedly leading to improved practices. (New name: overhear.us.)

No company feels more under the gun than Zenter, formed by Wayne Crosby, 29, a former Amazon.com project manager living in Phoenix, and Robbie Walker, 23, a programmer in Texas. Last summer the two chums cast around for an idea for a start-up and decided to develop a totally Web-based PowerPoint-style application—it would be the Gmail of presentations.

Graham loves it when his little chicks take on the big birds. "These guys have written 40,000 lines of code in three months!" he crows. "You never see that in a big company!" The Zenters did it by living a spartan existence, sharing a threadbare apartment a five-minute walk from Y Combinator. This was especially tough for Crosby, who had left his pregnant wife behind in Arizona (the couple kept in touch by video Web chats). Their diet consisted of Lean Cuisine, with the exception of some frozen steaks that Crosby's father sent them. The Styrofoam box in which the steaks were shipped became their coffee table.