Year: 2009

As I wrote in my last post, I am writing my master’s dissertation on Y combinator and the similar programs it has spawned. Y combinator is a really interesting program, but I think simply copying it and starting it in a different city isn’t the best way to do it.

This post will detail how I’ve structured the dissertation thus far, and ask for your help!

Request for help

Are you interested in startups, or have you been involved in a startup? Then I would love it if you could take my survey. I’m looking to get some data around what people really want out of a program like Y combinator.

*** Please click here to take the (very short) survey! ***

Secondly, in my draft papers I’ve been using the words “startup incubator” but really don’t like that term. Incubator implies a central office space, which isn’t part of some of these programs. I’ve also thought of “startup accelerator”, “startup boot camp”, but they don’t seem quite right.

If you have any suggestions for a better general name for these programs, please let me know in the comments section below!

My dissertation

The first step in the project was to get a handle on what programmes exist, how they’re structured, what companies they’ve funded and what kind (if any) exits they’ve had. It’s taken a lot of research, but I’ve developed the following files:

List of programmes — https://docs.google.com/Doc?docid=0AUkhSN3vaY4jZG1xenptZ18xMmZjcDdnN2M4&hl=en
List of funded companies — https://spreadsheets.google.com/ccc?key=0AkkhSN3vaY4jdF90b1l1Vnl5NmZjaTBNQWlJYVozMEE&hl=en

The biggest “holes” in the data are some missing company names from Y combinator, and a general lack of awareness of follow-on funding from all programmes (except TechStars and Seedcamp).

My goal is to establish a framework for thinking about startup incubator programmes. To do that, I’ve evaluated the needs of both types of participants: the programme founders and the entrepreneurs. What I’ve developed is this:

Entrepreneurs want:

• Seed funding / Financial support
• Product support (making product better)
• Business support (how to run a business)
• Connections to future sources of capital
• Brand connections (and alumni connections)

Programme Founders want:

• Financial return
• To enjoy startups without the same risk/working hours
• Local/regional influence
• High-quality deal flow

(I’m currently working to verify and quantify these assumptions, and would appreciate any feedback in the comments below.)

There are a number of complications in setting up these programs, however. Mainly:

• Non-financial goals (on part of programme founders) –
• Particularly when a significant part of the funding comes from the government which has clear non-financial goals.
• Location: where people want to live/work (and where they’re legally able to live/work) –
• This is a question of desires in personal life versus efficiency and opportunities in business life.
• Follow-on funding, where programme founders fund some of their companies but not all for further development –
• This is a serious consideration depending on the angels/VCs involved and the structure of the program.

That said, there are a lot of areas for innovation when setting up future startup incubator programmes. Namely:

• Focus on industry vertical or particular scope of technology
• Length of programme
• Funding level
• Scope of education programme

Where this is all going to lead is a framework and recommendations for people or groups that want to start a startup incubator.

My biggest recommendation thus far is straightforward. What will make a new programme so compelling that founders would want to choose it over any other? That likely will not be because of the location, despite the fact that most Y combinator clones seem to be just that: Y combinator in a different city. But if a new programme can do something unique, like build an incubator around database technology, or sensing technology, or enterprise customers, or something else it could be a very compelling opportunity for entrepreneurs.

Decisions around industry verticals or technologies then lead into decisions on levels of funding and length of programme. While most programmes have copied Y combinator’s $15–25k for 5–10% equity, there is a lot of scope to change this when the programme isn’t just funding web applications.

Summary

This is what I’ve written thus far, and look forward to your comments and suggestions! If you’d like to get in touch with me privately, please contact me by clicking here.

I, like many geeks, love the Ycombinator programme. It was really the first of its kind, and was started by Paul Graham and his friends in 2005.

About YCombinator (YC)

What is it? A three-month long programme to help start startups. Founders (you) get ~$15–20k in “seed” cash so they can live without any other commitments for the three months, in return for ~6% equity in the business. (Thus, being accepted immediately values your business at ~$300k, not that this really matters.)

During those three months there are weekly dinners with the ~15–30 other companies accepted into the programme. YC specifically doesn’t offer office space, but these regular dinners and office hours with Paul Graham provide regular contact and guidance from other startups going through the same issues you are. These dinners also feature guests/speakers from across the startup/tech industry.

At the end of the three months is a Demo Day, which is attended by some of the top VC’s and angel investors in the US. (I’ve heard anecdotally that as YC has established its brand, Demo Days have become much better attended.) So in addition to helping get your startup and demo ready, YC puts you in touch with an incredibly ecosystem of VC’s and advisors to take you to the next stage.

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My dissertation

Since Ycombinator became successful, there have been efforts around the world to try and copy the “secret sauce” which makes YC a success. These include:

• TechStars
• SeedCamp
• DreamIt Ventures
• Capital Factory
• LaunchBox
• OpenFund

But while each of these other programmes are broadly similar to YC, they’re actually fairly different. What I consider to be broadly similar is:

• For small teams of startup founders to work on their own ideas
• Defined term of programme
• Funding — for living expenses while on programme
• Education — intense period of product & business advice
• Contacts — help you make appropriate contacts to help you in the next stage
• Demo Day — opportunity to pitch to potential funding sources and advisors

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My Goal

I am writing my dissertation in order to put a “framework” around the YC “special sauce.” If you’re thinking about setting up something like YC, what do you need to include and what do you need to avoid? How do your goals for the programme help or hurt its eventual chance for success? What will truly help entrepreneurs, and how do you make sure you do that in the programme?

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Summary

So this is what I’m going to be spending a lot of time on this summer. I hope to release an early draft or two openly to get comments, and then release my final paper when it’s finished at the end of August. I hope that providing a way to think about YC will help other people as they set up similar programmes, hopefully world-wide!