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codesuela

I think incubators (except for truly valuable ones) are doomed because have these options:

a) raise seed money from an angel

b) develop a mvp, show some traction and raise money from VCs

c) bootstrap a profitable product

or d) go to an accelerator

from my expirience almost all accelerators have will present you with a bad deal (say 10-20k and office space) and claim to provide you with more value by helping you out with their expertise in other areas. In exchange they want a 20-30% equity cut. BUT the value add through their network (for most accelerators) will be negligible that's why it is a bad deal. Every other option is better:

a) Angel -> can be a vocal defender and loyal partner or early adopter of your product

b) VC -> You get money at a fair valuation

c) Bootstrap -> Keep all the equity and stay hungry

So for what it's worth I think reducing the number of accelerators would not be a bad thing for the startup eco system.

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Really? The first accelerator, the most prestigious, exclusive and selective asks for 6-10% and there are others asking for 30%? No wonder Thiel said getting into another accelerator was a negative signal.

It doesn't surprise me at all. Just like lower-tier universities have harsher rules for students, or cheap hotels have to ask for a larger % as a deposit, the more exclusive you are, the more you can trust the people you choose.

If you have the pick of the best people, you don't need to take a big cut to show a return.

I saw one accelerator in the UK that takes a 75% cut. (Not joking).

I was thinking of HackFWD though to be fair after a quick Google check they offer you about 70k for a one person, 110k for 2 people, 160k for 3 people in exchange for 30% equity. [1] https://hackfwd.s3.amazonaws.com/system/documents/4bd586/e2e... [2] http://hackfwd.com/

You should also do the quick calculation:

YC originally gave something like 10K for roughly 6%, giving a rough valuation in the 180K range. HackFWD is giving, for two people, 110K for 30% which implies a value of roughly 370K. On the numbers alone the deal isn't as bad as it sounds.

true, but my point is that YC will add WAY more value then the 190K diff.

Yeah; I covered this in a review of YC on Quora (open link, no login required): http://qr.ae/TAGtX

YC is basically 6-7% now, and bumps your valuation by (what appears to be) >100%, so it's a no-brainer for that reason.

Do you have numbers / proof of that claim?

The only first-hand data I have is seeing the valuations YC companies raise on their notes, vs. what I consider to be fairly comparable teams (if not companies) from 500 Startups and no incubator. The YC companies are maybe 2x 500 Startups, and 3-4x people from outside the Bay Area. Given that a lot of YC teams weren't bay area insiders when they joined YC, it's a no-brainer. (and I'd consider 500 Startups worthwhile in general as well; I just think YC is better)

I think a top FB/Google tech lead who knows investors who leaves to go do a related startup probably doesn't see as much of a bump in valuation from YC as someone who just dropped out of U of Michigan and is living in Ann Arbor, but there are plenty of other reasons why giving up 2-10% to YC is more than worthwhile.

"I think a top FB/Google tech lead who knows investors who leaves to go do a related startup "

I suspect there's a strong selection bias in YC and other incubators (take dropbox, for which Drew is an MIT grad), which probably makes my request for numbers somewhat foolhardy.

I believe the YC application process is an effective filter, but I don't think it particularly needs to be -- I'd be willing to bet that the marginal admit and marginal reject are close enough in quality that YC and its benefits are a major difference in outcome. (It might be a harder problem than elite college admissions, since while you can pretty readily identify top credentials and signs of failure, successful startups are more frequently hidden behind cosmetic flaws (or personal biases) than successful students are hidden in with C/D students with a bad GPA.)

YC has gotten pretty big now relative to a certain part of the startup ecosystem, but look back in 2005-2008 for when YC was smaller, and the success rate of YC companies vs. non-YC companies of that time. It seems pretty good, which warrants the valuations.

@niggler, I guess it's kind of hard to provide such a number but let's see:

- Just entering YC will generate promo for your product, it will put you in-front of the eyes of thousand of tech focused people.

- Free job postings on HN

- Incredible alumni network of actually successful founders

- Demo day will be covered by major news outlets and attended by lots of investors

- 150k of convertible credit [1]

- Only 10 percent don't raise any money after graduating [1]

- 90% raise an average of 700k USD [1]

- "The average valuation of Y Combinator-backed companies, according to co-founder Paul Graham, is $45.2 million." [2]

Looks way more valuable then 170k of dumb money to me.

[1] http://blogs.wsj.com/venturecapital/2011/02/01/y-combinators...

[2] https://en.wikipedia.org/wiki/Y_Combinator_(company)

EDIT: I'm not saying HackFWD is dumb money, with regards to money smartness they are definitely better then most other European accelerators. My original (GP) statement is not about HackFWD but accelerators in general.

You're still assuming that HackFWD is dumb money. From what I can tell, they have expertise in European markets that probably surpasses YC and they give a much longer runway to develop without funding pressures (full year as opposed to a few months). There's no constant pressure to prepare for demo day.

I'm not saying there isn't a value-add to YC, but rather that its bad to assume other programs don't have value.

There's an argument to be made that longer runways don't help.

YC arguably made a mistake for many companies by going from 20k to 20+150k, because with 170k you can waste a lot of time and also there's a lot left to fight over if it fails early. This is mostly why YC went to 20+80k now.

I think the right thing is probably 50-100k plus a low-hassle way to get another 250-300k, and then 1-2mm. So, something like YC plus non-stupid early investors and something like a raise shortly after Demo Day. (If I had a 10-20mm fund, I'd love to fill in the 250-300k gap)

There's a difference between monetary runway and time runway. YC solved the money problem but didn't solve the time problem with throwing more money.

To put it different, you can throw billions of dollars at a company, but they'll still operate in stress mode if you tell them a demo is due in a few months.

What they should have done is extended the program length while giving more money.

I think there are probably two distinct types of company. One where you do a 1 month dev, 1 month launch, and can have traction; another where having a year helps (hardware, or some enterprisey stuff, or some platforms).

There is a strong bias toward "having launched at Demo Day". If I had two things to work on, and got into YC, I'd absolutely pick the one I could get launched before Demo Day.

There are some companies which think they're type 2 but really have elements of type 1, and should do those elements first. (which is kind of what my company did; we wanted to do generalized secure/trustworthy cloud computing, and should have focused on specific applications of that technology, which is what we're doing now)

It's probably a net win for society and for an accelerator if they push some of the "fake type 2" into type 1 even at the cost of excluding some genuine type 2.

An easy hack for YC would be to have companies accepted into YC but let them choose to defer until the following Demo Day. You do need the initial 20-50k ASAP to get corp formation and other things done on a good foundation, but most of the "genuine type 2" companies are founded by people who can float their own living expenses for a year or two (or do very low time commitment consulting to do so), so it doesn't need to be more money.

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