On Internet Business

Big start-ups with small funding

Posted by Michael under Business Growth, Entrepreneur Resources

Y Combinator is venture capital with a difference. Founded by Paul Graham in 2005 it offers seed funding, advice and networking opportunities, largely to technology based start-ups in the USA.

Named after a theoretical functional programming concept, it believes that creation of businesses in the internet-based world is based less on money and more on networking and peer review to drive creativity and functionality.

It has funded nearly 120 start-ups, at an accelerating rate, from eight in 2005 to 26 in 2009. So successful is it that similar start-up/venture capital incubators have now been launched across America and in London too.

How Y Combinator works

People travel from across the USA to spend time at the three month program where they receive a tiny amount of funding and rub shoulders with a whole batch of other similarly funded entrepreneurs.

Y Combinator runs its programs out of Silicon Valley, providing heaven-sent opportunities for tech start-ups to rub shoulders with Silicon Millionairs.

Because it’s based in the USA, the start-ups have to be USA based, but that wouldn’t stop other nationalities taking part: as long as you can get a residence permit and live in the somewhat Spartan conditions the program offers, you just have to convince Graham, in ten minutes, that you deserve a place and you’re in.

What makes it different?

The Y Combinator program gives successful entrants some money, some space to work and crash (and rather bad food, by all accounts) and they then work night and day to get their product ready in three months. After Demo Day, when investors respond to each team’s three month residency output, Y Combinator takes around 6% in common stock of the companies that obtain funding from the wider venture capital community, although this varies from up to 10% and down to 1.5%

Companies Y Combinator has funded

Reddit; Loopt and Posterous are the household names, but there are a number of other bubbling-under ventures like Justin.tv that are ready to break through as big business any day

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