All posts filed under “Geeking out

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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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Cambridge Tech Demo Night – 10 September – CALL FOR DEMOS

After the success of the last Cambridge Tech Demo Night, we’re going to do it again! The next Demo Night will be on Thursday, September 10th, and will be held at Judge Business School at the University of Cambridge.

But we need demos!

Requirements include:

  • Technology-based product
  • Connection to Cambridge; ideally founded or located in Cambridge
  • Able to demo in 7 minutes or less
  • You MUST show the product working
  • Hardware-based products/services highly encouraged. Simply demo as much functionality as you have.

I’d like to have 5-6 demos for the night, each lasting 7 minutes. All in all, one hour celebrating brilliant Cambridge tech.

Info for the night:

DATE: Thursday, September 10th
TIME: 6:30pm meet & greet, 7pm Demo’s start
PLACE: Judge Business School, Trumpington Street, Cambridge
RSVP: Will be posted once demo’ers confirmed

For the companies looking to demo, you’ll have seven minutes in which to show off your product (hardware, software… doesn’t matter) in front of a group of people that want to help you succeed. Find early adopters, investors, promoters, collaborators and potential hires.

For everyone else, get a fantastic look into the technology that’s being designed and built in Cambridge, and the people behind it. Find out the new, interesting tech before anyone else.

Last time we saw demos from Broadersheet, Timetric and True Knowledge. Who’s next?

(Please feel free to comment here, e-mail me at jed.christiansen@gmail.com, or get in touch via twitter at http://twitter.com/jedc)

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My dissertation – Ycombinator & its spawn – How to do it right

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.


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:

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

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?


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!