Do you use Reddit, Scribd, Disqus, Dropbox? All these popular internet services were funded by Y Combinator. Based in Mountain View, California, it provides seed money, advice and connections to start-ups.
Its website says:
Twice a year we invest a small amount of money (average $18k) in a large number of startups (most recently 84).
Founder Paul Graham adds:
Y Combinator runs two three-month funding cycles a year, one from January through March and one from June through August. We ask the founders of each startup we fund to move to the Bay Area for the duration of their cycle, during which we work intensively with them to get the company into the best shape possible. Each cycle culminates in an event called Demo Day, at which the startups present to an audience that now includes most of the world’s top startup investors.
He is not kidding. Marc Andreessen, who co-authored Mosaic, the first widely used web browser as co-founder of Netscape, is among the audience when the YC-funded start-ups make their pitch to investors on Demo Day.
Randall Stross describes the scene vividly in The Launch Pad, an account of the start-ups and their founders who were funded by Y Combinator in the summer of 2011.
You will enjoy reading this book if you like technology and its creators. Andreessen is not the only notable here. There is Tikhon Bernstam, who co-founded Scribd, and Graham makes a great impression as a charismatic personality.
Stross, who writes the Digital Domain column for the New York Times and is a professor of business at San Jose State University, writes intimately about the startups and their founders – almost as if he were a fly on the wall noting everything that was going on. He was given full access to the Y Combinator programme, he says.
So you can read about what investors like Graham look for when they decide which start-ups to fund. Graham is more interested in the people behind the start-ups than their business ideas. The successful applicants – for there is an application and selection process – are likely to be groups of two or three people, at least one of whom is a hacker, fresh out of college.
Graham prefers to fund young graduates because they can find some other work if their startup fails. There are exceptions, though – kids still in high college or college as well as thirtysomethings who end up in the programme. It includes graduates from leading American universities – Harvard, Yale, Stanford, MIT, Princeton, UCLA, Berkeley – as well as from India, Britain, Australia and Scandinavia.
The participants selected may start with one business idea and end up doing something else. Ross writes about how Graham and his associates guide the participants during the programme, advising them what may work and what may not in the market.
Of course, they are taking a chance. Not everyone is as successful as Andrew Houston who founded Dropbox. Investors like Graham put in small amounts in many startups, knowing some will fail but hoping others will make good their losses.
“I think you only need two kinds of people to create a technology hub: rich people and nerds,” wrote Graham in 2006. He brings them through Y Combinator. The Launch Pad tells what the nerds have to go through. It tells how startups, websites and apps are created.