Y Combinator Success Leads To Copycats, Incubator Raiders
blogs.wsj.com
blogs.wsj.com
"The so-called Y Combinator model, in which small amounts of money as well as office space, mentoring and networking opportunities are sprinkled among a dozen or more promising businesses, is gaining more attention from investors."
Y Combinator is extremely explicit about NOT giving office space to its startups. Why does every article get this wrong? Presumably because so many clones get it wrong too?
(Though, I hope there is some kind of internal-to-YC bulletin board of housing, though, because I really need to find a place to live, ideally in Mountain View.)
Working out of an office takes away some of the urgency and gives you a more laissez-faire approach to building the company as well as clear work/life separation, which isn't really a good thing very early on in a company's life.
My takeaway is that YC would rather each individual company decide with whom and where to work – it's all in the spirit of encouraging entrepreneurs and not forcing them down a predefined path.
The best reason I can think of for this phenomenon is that for a program that has yet to establish its sense of community, the physical space acts as a rallying point, and helps project its "presence" amongst entrepreneurs, investors, what have you.
Whether or not it's the best move for a struggling company to get shared office space is a different discussion entirely - but it may well be the best move for a "struggling incubator" (so to speak) to have a vibrant, bubbling shared space to show off to would-be investors, the press, etc.
Or, of course, it may be that lots of incubator program heads simply disagree with Y Combinator. But I have trouble believing the Y Combinator view is that extreme that so few incubators would at least try it their way. The logic behind it is reasonable enough, and the results speak for themselves.
So, in a sense, you get the ability to have an office (or at least the ability to lie about having an office so you can push through Official Srs Business Paperwork).
The issue that's being ignored by this article is that there is an explosion of interest in technological entrepreneurship, and because of Angel List and many other factors, a much more efficient market for early startup equity than has ever existed.
The fact YC has thousands of applicants for only 40 slots, and the fact that Angel List has helped get 280 companies funded in the past year means that the YC model isn't scaling to meet the demand both on the investor side and on the founder side.
There are holes in the market that are being filled with competing incubators, and as with any market, I believe that competition and innovation is a good thing.
<rant>But, "Copycats and Incubator Raiders"??? Really? Since Murdoch took oer the WSJ, there has been a marked decrease in quality of writing.</rant>
The founder side "demand" isn't (at least not in the usual economic sense of "supply and demand"). The founders supply risk. YC has limited demand for risk. For all we know, out of these thousands, only 80 are going to have positive returns. There could be millions, and still only 80 worth funding.
It only makes sense for YC to scale up if they lose out on supply for "positive return" risk. While it is clear that there are great companies applying to YC all the time and getting rejected, it is not at all clear that YC can be more successful (by some metric they care about) than they are now.