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Recap of feedback on “Copying Y Combinator”

[UPDATE]– I’ve written an update 1.5 years later on the original post: “Looking back – 1.5 years since ‘Copying Y Combinator'”

Last week I finally posted my Cambridge MBA dissertation/individual project on the web. I was amazed at the traffic it brought! But I also wanted to address some of the things that people brought up in the discussions.

Traffic

According to Google Analytics, that post alone received over 2600 pageviews. Over 1200 of those came from Hacker News alone. Though the link was tweeted and re-tweeted all over (just check out the comments section to see the list), I got less than 200 page views from Twitter. It also got bookmarked 45 times on Delicious.

I’m honestly just really happy that people found it interesting! I post the stats above because I think it’s useful to have some data points about where traffic does & can come from.

Strategic Level vs. Tactical Level

In hindsight, I didn’t distinguish as much as I could have between the strategic choices in starting a new seed accelerator program and the tactical choices. This is where perhaps some of the comments/criticism/mis-understanding came from.

The Strategic choice has to do with the most basic analysis of what resources you have available, and how you can structure the program to take advantage of them. Your goal should be a program that is strong enough to be essentially independent of location; it should instead be dependent on the people and resources (connections to appropriate investors, customers, advisors) available. Startups working in your defined niche should want to come to your program above all others, no matter where it’s located.

Now while I’m not saying that a pure Y Combinator clone in Wyoming will never work, just that it will never be competitive with the real Y Combinator unless the resources provided to entrepreneurs are better than they could get through Y Combinator. Now the goal may not be financial success, but building an ecosystem. But even if that’s the goal, local startups have an incentive to go where they have the greatest chance of success. If that’s not your program, then you’ll only be helping a lesser quality company.

The Tactical choices are pretty much everything else. Once a seed accelerator founders have identified a focus where they have a true competitive advantage, then they can decide elements such as program length, investment and equity size, office space, etc. It’s important to recognize these as tactical decisions, versus the strategic focus decisions.

Thanks to everyone that read, linked to and commented on my paper and post. I really appreciate it!

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Copying Y Combinator – WHY and HOW

[UPDATE]– I’ve written an update 1.5 years later on the original post: “Looking back – 1.5 years since ‘Copying Y Combinator'”

Have you thought about starting a program like Y Combinator in your city? That doing so would not only build a startup ecosystem but would also bring a good financial return? I studied Y Combinator, TechStars, Seedcamp, and many more programs to develop a framework for “Copying Y Combinator”.

(With apologies to Chuck Palahniuk…)

  • The first rule of copying Y Combinator is: Do Not copy Y Combinator.
  • The second rule of copying Y Combinator is: DO NOT COPY Y COMBINATOR.

The key to copying Y Combinator is to figure out how you can be just as good, but in a different way, than Y Combinator.


Background

This last year I’ve been an MBA student at Cambridge University. In order to complete the degree we had to do a substantial piece of research, and I chose to do it on the rise of Y Combinator and similar “seed accelerator” programs. My hypothesis was that a lot of people/organizations are starting seed accelerators without really examining the full scope of innovations they need to think about in order to achieve their goals.

I wanted to take the opportunity to look into why entrepreneurs choose to go into a seed accelerator, why individuals choose to start a seed accelerator, and then propose a framework for designing new programs.

Key results are described in this post, and the full paper is embedded via Scribd (a Y Combinator company) below.

Data

The very first step in examining these programs is to get data; it’s almost all posted somewhere, but isn’t consolidated. Between the data that each program publishes on their website, press on the various programme Demo Days, and Crunchbase, I built a list of virtually every startup funded by every seed accelerator.

Click this link to see the spreadsheet on Google Docs.

The only accelerator where this data isn’t as comprehensive is for Y Combinator; I’ve put in placeholders where known (ie, 8 companies in cohort X but only 5 have launched). That said, it should only be missing a handful of companies at most. And please note that nearly all exit values are purely speculation, though educated speculation based on exits of similar companies.

I also surveyed the founders of companies that have either been funded by accelerators or are looking to be funded by accelerators (Y Combinator and others). Specifically, I wanted to find out what they cared about when choosing a seed accelerator. The results are as follows:

  • Connections to future capital: 8.51
  • Brand/Alumni connections: 7.83
  • Business support: 7.42
  • Product support: 7.13
  • Pre-money valuation: 5.25
  • Level of funding: 4.14

These numbers did vary somewhat between different programs and non-funded companies. (For example, the average Y Combinator founder valued Brand/Alumni connections much higher than the average respondent.) But the trends show that entrepreneurs value the elements of programs that give them long-term chances for success: connections to investors, other connections, and product/business support.

Financial Results

Since seed accelerators are still in their early days, it’s too early to make a definitive verdict on their success. But the early data is promising.

Y Combinator and TechStars are two of the oldest seed accelerators, and are the only two to have had substantial exits. The TechStars exits have likely already generated a profit, and there are several companies that may still exit at some point in the future. The Y Combinator company exits have likely already brought Y Combinator to break-even, even after having funded over 100 companies. More impressive is that there are a good number of companies in the portfolio that could reach substantial exits at some point in the future. (And potentially a handful that could reach the vaunted $1billion+ exit.)

Recommendations – How to Copy Y Combinator

The bulk of my paper goes through the elements that are involved in a seed accelerator program. But the fundamental decisions that can define the potential success of a program are simple.

Success derives from the program’s founders and focus; together they must create a distinctive and compelling reason for entrepreneurs to join them.

There will always be entrepreneurs looking for funding; what a seed accelerator should provide is the right match of resources for those entrepreneurs. If the resources that entrepreneurs get by participating aren’t compelling, the program simply won’t get the highest quality applicants, and thus will not achieve maximum success.

This is why there has been little true competition for Y Combinator thus far: they simply have truly compelling resources to offer through PG and the other Y Combinator founders, the YC alumni network, and the combined program network. Until another program can be more compelling than Y Combinator, they will attract the best startups. (See rules 1 & 2 at top about copying Y Combinator.)

The key when constructing a seed accelerator is to look critically (and honestly) about the resources a founder has available; the founders’ experience and the expertise available to the entrepreneurs. Find the focus point that is different from Y Combinator that makes it distinctive and compelling. For example, FbFund REV accelerates companies building applications on Facebook. The new Springboard program in Cambridge (UK) is focused on B2B software applications.

Maybe your expertise is in mobile technology, maybe it’s in medical devices or maybe its in enterprise software. The key is that the founders and the mentors they assemble for a program in that focus area are a distinctive and compelling reason for entrepreneurs to apply and attend. Once the founders and focus are decided, many other decisions fall into place. For example, the program length and funding level will need to be adjusted so that companies can reach a significant development milestone during the program. Just because Y Combinator is three months long doesn’t mean that your program can’t be 9 months long, provided that’s right for the companies involved.

The full paper has far more detail, the point to take away is that the founders and focus must align, and must align to create a programme where an entrepreneur would travel from around the world in order to participate. (Even if there was an accelerator in their own backyard.) The potential to do this in the field of web applications is diminishing quickly.

Final Thanks

I want to say a specific thank you to the program founders that agreed to be interviewed: Paul Graham, David Cohen and Reshma Sohoni. And a huge thank you to the people that commented on my blog posts and Hacker News posts over the summer and took the survey I described above; your feedback was invaluable!


The Documents

Copying Y Combinator

 

Appendix A – List of Seed Accelerators

Click here to view the list of seed accelerators. Only seed accelerator programs are listed; see main paper for details.

 

Appendix B – Example Seed Accelerator financial model

 

Appendix C – List of all companies founded by Seed Accelerators

 

OR

Click here to view the list via Google Docs.

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Y combinator – dissertation and request for help!

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.

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Thursday, June 18th – Announcing Cambridge Tech DEMO Night

Cambridge, UK is known for top science and engineering talent and research. More exciting is that many of these innovations and ideas are leaving the lab and are being commercialized by startups created in Cambridge.

I’m pleased to announce the first Cambridge Technology Demo Night, on Thursday, June 18th. It will feature seven-minute demo’s from four great Cambridge startups:

After the demos there will be a reception to be able to learn more about these companies and perhaps find opportunities to collaborate.

Register: Book your free tickets here!


Important Info

Date: Thursday, June 18th
Time: 6:30pm for a 7pm (strict!) start at Anglia Ruskin University.
Demo Night will take place in Lecture Room Cos124 in the Coslett Building. (Please note: this is about a 5minute walk from the East Road main entrance.)
Register: Book your free tickets here!


Goals

The initial goals for this Demo Night are:

  • DEMOnstrate to the Cambridge and UK tech community the great products and companies coming out of Cambridge
  • DEMOnstrate several technologies/products around a common theme to provoke new thinking in the sector
  • make connections between startups, their local community, and potential partners/investors/advisors

The Demo Night is NOT:

  • death-by-powerpoint and/or investment pitches
  • networking without a focus
  • boring speakers about macro-scale “industry trends”

I’m really excited about this! What started with the founding of OpenCoffeeCambridge in February has quickly grown into this. It’s our first attempt at this, and I would appreciate any and all feedback. (To include format, a better name, or anything else.) With all the great startups in Cambridge, I hope this will become a regular event. I think we could get a night focused on mobile/sensor technology and another night focused on healthcare/biotech.

Finally, I’d like to thank Chris Mitchell of Audio Analytic for his help in arranging the venue! And I’d like to thank Prof. Stuart Wall for his assistance at Anglia Ruskin, too. (They’ve kindly sponsored refreshments for post-Demo reception.)

Register: Book your free tickets here!