Most of the value in YC is in their partners and their alumni network. While there is no question that the YC model can be duplicated, I'd be surprised if 500 clones would result in anything close to 500 able competitors. When you're giving away 10% of your company for $20k and advice, you'd better make sure the advice is top notch. Or at least that you're buying into a helpful brand name.
You can't discount the filtering mechanism of Y-combinator that easily ups the valuations of the companies that participate and later seek funding. I'm sure the 2-10% equity stake is largely made up for because of this.
Edit: If there were many more accelerators, they wouldn't all have the same degree of filtering, and thus the valuations companies would get wouldn't be as inflated. It wouldn't be justifiable long-term.
How is this suggestion any different than telling the gov't to choose industries?
i.e. invest in 'clean tech' or 'electric cars' or 'the internet' or 'nuclear energy' or whatever.
The point of the free market is that no one knows where the next major innovation will come from.
Y Combinator is a product of the free market working. Not some government bureaucracy. Encouraging incubators is a bad, bad idea because all that will happen is that a lot of money will be wasted very quickly.
Just simplify the tax code, reduce the marginal corporate tax rate and get out of the way.
Let the private sector handle the rest.
Regulate the industries that need to be regulated of course - finance, health care, etc. But even then, loosen up where is reasonable.
FWIW, I am not a 'political conservative', just a government skeptic. I would much rather the free market decide who the winners are, than some gov't bureaucrat.
This reminds me of trying to 'buy' the top Digg users. Or buy your way onto the 'suggested list' at Twitter. Lame and won't work in the long run.
Edit: Also, when the government 'encourages' Accelerators, then the focus shifts from the entrepreneur to the fund manager (that is essentially what PG, and the partners are). In other words, people stop wanting to start their own company and want to start their own accelerator and they figure out how to game the system so that they can make their 2 & 20. Basically, it becomes another bubble and valuations would sky rocket. You think we are seeing frothy valuations now? HAH!
> Regulate the industries that need to be regulated of course - finance, health care, etc.
Well, most regulation is really about building Maginot lines. Sarbox didn't prevent the financial crisis, and Finreg is unlikely to prevent the next one.
Similarly, health care regulation can't solve the fundamental problem, which is that we have access to life-saving technologies (like heart transplantation and brain surgery) which require too much in the way of hard-to-make machines and highly trained personnel for us to mass produce on a very large scale.
Over time, cutting edge technology becomes mass produced/cheap (like cars, cell phones, computers), but with health care it particularly stings when you can't afford the latest model. Note that routine healthcare checkups which are based on direct patient-to-doctor payments have always been affordable -- it's the high-tech stuff that can be priced out of reach.
Regulation can't solve that fundamental problem of scarcity, and causes many structural changes that are likely to make it much worse.
“We have determined the device is not substantially
equivalent to devices marketed in interstate commerce
prior to May 28, 1976, the enactment date of the Medical
Device Amendments, or to any device which has been
reclassified into class I (General Controls) or class II
(Special Controls).
This decision is based on the fact that your device has a
new indication for displaying medical images for
diagnostic use on a mobile/portable device…that alters the
diagnostic effect, impacting safety and effectiveness, and
is therefore a new intended use.
Furthermore, your device has new technological
characteristics that could adversely affect safety and
effectiveness and raise new types of safety and
effectiveness questions…
Therefore, this device is classified by statute into class
III (Premarket Approval), under Section 513(f) of the
Federal Food, Drug, and Cosmetic Act (Act).”
For those who don't speak FDA-ese, what they are saying is that a simple iPhone interface to an existing, FDA-cleared piece of imaging software will require class III approval -- the highest regulatory bar, the same bar as pacemakers and implantable devices, costing more than $250,000 in application fees alone plus countless millions in regulatory consultants.
All this for a free iPhone app which won the WWDC 2008 award.
Obviously it's not worth it for the developers to pursue that kind of clearance, as few iPhone apps will gross enough to justify a $250,000 investment, let alone a multimillion dollar one. Moreover, if you noticed, the FDA language is all based on "precedent" -- so once you take the hit and push something through class III for tens of millions, someone can follow your precedent and get class II clearance for "only" a few million.
So that's a concrete example of structural disincentives to innovation caused by regulation.
And the following study by Stanford professors shows that this kind of action by the FDA is more the rule than the exception:
I don't think regulation can solve those problems, but there is no doubt that Regulation helps stop things like virus outbreaks and companies from doing anything they want - like putting the cheapest paint (with the highest concentration of lead) on kid's toys.
Not saying the gov't should regulate everything, obviously not, but there should be some regulation on somethings.
Things to do with health, finance, and food are clear ones. Especially given the current structure of the tax code that provides subsidies and tax incentives/distortions to politically connected parties.
As Milton Friedman says, big business hates the free market. So the government has to protect it - by regulating lightly.
Edit: Btw, your example about the iPhone app, drives my original point home even more. The government is incompetent when trying to pick winners. Their job is to protect wider society from things that can threaten health (cancer causing additives, wide spread infections, virii - not the computer type, etc.). Although, there could be an argument for allowing the companies to do whatever they want and let the market handle them. If a drug company releases a drug that kills a bunch of people, I think that pretty much decides the fate of that company - however, that is predicated on the fact that the drug industry is indeed free and firms can enter and leave at will (without barriers). The issue with that though, is that is politically impossible to have a government stand by and do nothing when 10 - 50 people have been killed by a drug put out by a company. So no politician would dare do that....even though it might work out better for society, assuming of course, that we can avoid those 'fringe' cases where drugs create an infectious disease that kills millions and spreads like crazy (possibly creating zombies, although that would be a pretty Epic scenario IRL assuming I am not one of those zombies and I have a shotgun with unlimited ammo :) )
As these programs have expanded, I’ve found that the level of intensity and savvy of the founders has come down a notch. Basically, there are a lot of open seats in these programs, so some of the B-level students are getting in.
With the addition of more programs will come the placement of C-level founders, which are basically in the category of “not fundable.”
So with that said, what's the point of starting 500 accelerators when only the about the top 5 matter. I understand the education aspect, but with 500 accelerators the majority of the "mentors" will just be wantrapreneurs.
What I've come to realize is that the "B-level" folks are really close to A-level, and if you look at the incubators not as a replacement for VC-fundable companies, but as a training system for YC/TechStars/Fundable startups then they are a huge success.
For example, Founders Institute isn't the same level as TechStars or YCombinator overall, but the progress the individuals make over 12 weeks is STUNNING. Like really STUNNING.
I look at this 500 accelerators as a training program for the top 25!
In other words, go the Founders Institute and then apply to techstars.
Thanks for pointing out my change of heart... I put myself out there and 50% of what i say is wrong.... then i get fact-checked and smarten up! :-p
In the research process we also found an interesting program called FastTrac from the Kauffman Foundation (http://fasttrac.org/), known for its dedication to entrepreneurship. The program has been around since the late 1980s/early 1990s.
Now, there is a cost ($700 to $1200), but FastTrac is available in 49 states and Puerto Rico, making it a much more realistic option for folks of all ages who want to get their own business launched.
The FastTrac TechVenture program, which started in 2006 and is meant for tech and science-oriented businesses, is in 25 states. FastTrac President Alana Muller shared the following in an email to me:
<<FastTrac TechVenture is not a competitor to incubators/accelerators. Instead, it is complementary to incubators/accelerators and provides the requisite ecosystem – information, resources, networking contacts, frameworks, etc. that an entrepreneur needs in order to know how to get a business started.>>
Not sustainable. They key to the accelerators is actually what happens after: ie- how to grow from 18k + simeple product to more people, funding, and a network. That requires yc tuesday dinners, techstars mentor meetings, demo day allocations, etc. Just not possible to have the people that need to be involved there spread out across 500 accelerators.
With open angel forum in 12 cities now we might be able to help fund maybe two or three dozen of these accelerators--but not much more.
The good news is that if even only 1 of 50 companies out of a University accelerator is successful--and the other 49 serve as an education--it's still well worth doing.
the goal of these is to inspire and educate--not have the same batting average as YC or TS.
Another useful resource would be something along the lines of "funded founders" dinners with companies you've invested in or really like in order to help them deal with growing the company. YC helps going from zero to funded, but what about after? The zero to funded is a 3 month process thing, but the growing after funded is an indefinite time period. Progression I see being useful:
There's a lot to be said for going to an Ivy League school, it definitely gives you a head start in a lot of fields - the connections you can make while at school, the brilliant people you'll learn from, and the vast support network you'll have when you get out are not matched at the thousands of lesser schools across the country, and the extra kick you'll receive from being at an Ivy will be most useful right after you graduate.
But the fact that the "lesser" schools can't quite give you that same push doesn't mean that they shouldn't exist, or that you might not be helped immensely by going to one of them.
Not sustainable, sure - YC is the elite of elite accelerators, obviously it's going to be extremely difficult to reproduce its success. But there's still room to grow here, and a lot of people going it on their own that can't get into one of the elite accelerators (if I'm correct YC now accepts a vastly smaller percentage of applicants than Yale or Harvard) but would greatly benefit from some funding, advice, and being helped through some of the unfamiliar business dealings while they focused on their products.
Maybe 500 accelerators is a bit much, but I'd imagine that we could certainly do with a few more, unless we've already reached a point where spots are going unfilled...
I admit to only skimming this, but it doesn't seem to be satirical. Is this actually meant to literally be a modest proposal, or is it a "modest proposal" in the Swiftian sense?
I think he's being genuine. Remember, he isn't limiting this to the US. Half of current accelerators are outside the US. Projecting 250 by 2016, and the active participation of universities, it's not unreasonable to suppose 500 global accelerators in the foreseeable future.
Now, as alluded to above, the value of YC and the like lie not in their process, but in the experience and expertise that they bring to the table. I honestly doubt there's enough dedicated people in academia with extensive entrepreneurial experience to support jason's vision. It'd be nice to see accelerators at most of the major business and tech schools, but I don't think it's feasible to suppose it will be a ubiquitous phenomenon.
While I love the idea, the problems is that the key of success for these accelerators is finding people who really have experience and can help, money isn't enough.
In Miami we see these happening a lot. People from completely other businesses, such as real estate, are jumping in this startup accelerators game without a real direct experience, with the only goal of taking advantage of inexperience young entrepreneurs.
The money isn't the problem, neither creating accelerators. The problem is finding people like PG or you that have a real experience and that are willing to share it, outside of the few well known tech hubs, like SF, NY or Boston.
Are there enough raw materials to support an infrastructure of 500 accelerators? From investment pool to mentors, is that spreading the butter too thin? Let's take my home state of Louisiana for example. There are several "incubators" in the state. Office space and computer services offered, but few mentoring relationships are build. I don't know of any true accelerators. The incubator success rate is definitely up for argument. They tend to succeed more at wooing startups to move to the region, than really cultivating an educational growth program. It's a mindset that is not as prevalent in the region. I think the OA forum has a better chance of successful ventures, let's say in Baton Rouge, LA, than an accelerator would in the same location. Great ideas exist all over the country, but the quality infrastructure to build these into successes is extremely thin.
Why only 500? Why not 5000? Or even 50,000 accelerators?
After all, as the author simply claims that, "it depends" if 500 accelerators can actually succeed.
And if we are going bet, let's bet high. No point playing Roulette and betting on black or red. Let's go with the double 0s. So, I propose that "America" launches 500,000 accelerators. (Each unemployed person in the city of Los Angeles can be made a CEO.) Since, "it depends".
Jason - this is an interesting article, but why not release the dataset you used to make your graphs and charts?
A simple listing of accelerators along with website, location, average investment, equity stake, and length of class would be valuable to a lot of people.
YC always seemed like a plan to reorganize corporations.
In Capitalism Hits the Fan lecture http://www.reddit.com/r/Documentaries/comments/f35gs/capital... the professor concludes that startups are really communism, because the workers own the "means of production" and directly benefit from the profits made. So capitalism doesn't deserve credit for much of our technological progress.
Startups are also the only solution he knows for fixing what's wrong with the US economy. Bailouts, tax-breaks, regulation and deregulation won't help. The conclusion in his lecture sounds funny and simplistic but 500 startup incubators agrees with his basic premise.
I don't have the expertise to debate the definition of communism, etc. but I was personally inspired to become an entrepreneur after reading Marx. It explained much of the frustration I had previously experienced as an employee.
I don't mean to derail the thread, and the content of this news is great. But to respond to your post, that's only true in the loosest, vaguest sense of the word communism.
First of all, it's only true in digital start-ups, because once you make the product you can copy it for free forever. In any other start-up you're still paying someone to do the other work.
In every start-up you're also counting on the idea of "property rights", or the right to keep the money you earn, the right to your software, etc. You're still looking to make a profit that's more than the work you actually did, or else you wouldn't be working. In communism, you would be thanked for your contribution and still make as much as a doctor, at most, because that would be "fair". I could go on...
I think he uses the word communism to show a contrast with our current form of capitalism. In the current system established corporations keep increasing their profits while keeping the workers' wages flat since 1970. Because of computers, outsourcing, there is a surplus of workers, who generate increasing profits for the corporations. Much of the profits go to a small board of directors, who in turn use them to undermine government that was expected to look out for the workers.
Startups are a holy grail because they share profits with more workers, supposedly.
I'm just summarizing his emotionally charged lecture here, I don't fully agree with his premise, but it's an interesting perspective.
There's always going to be debate over whether how involved the Government should be in the private sector. On it's merit, to be honest, I don't think that Jason's proposal goes far enough. He's definitely got his eye on an undercurrent that could be a problem if we don't try and do something about it.
The real issue at hand is what's the real expectancy of college. Is college supposed to teach you to think, and make your more well rounded or is it supposed to turn you into a ninja in your space? I always understood that it's academia's responsibility to teach you to think and give you fundamentals that you can take to the market, and have the market shape you. Obviously that's archaic.
My generation (I'm 26) is, in general, a disaster coming out of college now, and it's because they spent 4 years learning the applied physics of throwing a ping pong ball across and 8 foot table and driving vaporizer innovation. Don't get me wrong, there are tons that are graduating, and are doing awesome things right now, but I bet that most of them had some sort of taste of what it was like to work in their space while they were in school.
I think that students would leave school significantly better equipped, if we found a way to make it so that you can't get your degree without spending the last 18 months of college if you don't go work full-time in a startup-like scenario, whether it's an actual startup or something like a Y Combinator. How you pay for it and make sure that students aren't free labor and a tax break for a startup, will be an issue, but overall this would end up being a net-benefit for the economy.
The last 3 years in school, while I was getting my BA in English, I worked at a tech startup, and very quickly I had to come to grips with the brutal reality of where I was, what I knew, and what I had to learn- and quickly. Those three years were a fundamentally life changing experience for me. I was hired to do user quality assurance and content development, and by the time I left, I was the de-facto project coordinator, because I was the one writing all the python to make sure that everyone's content and art assets made it into the system, so the developers could tackle implementing the new features of the software.
The real key to make this proposal work, although funding is important, is the quality of mentorship that is available to students who participate. I'm freelancing now, but I've been able to pay my mortgage for the last 2 years because the lead developer and CTO of that company decided that investing 20 minutes of their day, having lunch and sipping cups of coffee with me was a worthwhile investment of their time. If the quality mentorship component is there, programs like this will be able to help students really step it up a notch or three.
