Here is a really interesting post I found today about what this author calls the so called ‘death’ of the Y-Combinator model. For those of you that do not know what Y-combinator is, it’s a start up incubator that basically takes good ideas with strong passionate teams, gives them a bit of money to build a prototype so they can then go out and raise a real round. However, this author thinks that this model is no longer valid and gives some rather … interesting suggestions. Read more at the link below
Y-Combinator is Dead: James Siminoff
Sadly, and I truly mean that, I believe that the Y Combinator model is dead. The idea that you can put something out there on the cheap, get traction and then raise a quick “real” round no longer seems to be valid. While there will always be exceptions to this rule, from what I can see the market for these companies to the VC’s is mostly dead.
I read an interesting post on the Ycombinator forums today about Yossi Vardi, who is the biggest Angel Investor of internet start-up`s in Israel today. Considering Israel is thriving with young and reputable strart-up companies, the money man behind them is definitely an interesting person to take cues from. He states:
“When I hear a pitch by an entrepreneur I look for a few things in them. First, they have to be very talented. I’m not interested in good or great entrepreneurs. I want them excellent. They have to be nice people, since some investments don’t ripe in early stages. I always tell my wife that in case the investment fails in early stages, at least we gave a “scholarship” to a good guy and not to some idiot. Moreover, they have to be focused on the arena I like which is the internet. If they meet those criterias, there is a good chance I will invest in them. What exactly they are doing is less important. Business plans are a wonderful part of science-fiction. They are developed for people who love sausages and don’t know what are they made of. How can one conduct a ‘due diligence’ on something that is only in his mind.”
What I find interesting here is that:
a.) He looks at his money and his investments as scholarships. He is giving someone he truly believes in an opportunity and even if it does not work out he is happy because he gave that person a chance to learn a valuabe lesson. I love that!
b.) He doesn`t care about the business plan because the business plan is always going to change. Anyone who has been part of a startup before knows that what you originally plan out never sticks. All too often I speak to young entrepreneurs who havea great idea and get hung up on the idea of getting the business plan done. This is not to say that the business plan is useless. Outlining and organizing your thoughts is essential to keeping yourself sane and making sure there are no holes in your idea. However, investors and entrepreneurs alike must know that situations change and ideas evolve. The great entrepreneur can think on his toes and adapt given positive opportunity or even tricky situation.
The first step is to truly prove your greatness, get an unreal demo together or a killer team that you know will inspire anyone, don`t just sit there trying to cram all your thoughts into a set number of pages.
This is a guy who knows what it takes to run a company and build a great success. Business plans always change and sometimes the idea is a winner and sometimes its not. However, if you put your eggs in the basket that is being held by the guys and girls who are truly passionate, smart and hungry for success you wlll always come out on top; even if the eggs break.
Given the financial turmoil that is hitting international markets (especially the US), it is not surprising that Techcrunch posted and article delving into the issue of venture capital in this tumultuous time. I agree with the majority of the article, except I think that there is another angle in play.
The general market turmoil caused by the credit crunch is certainly going to reduce the number of wealthy investors that are throwing money into VC funds. However, at the same time we are witnessing a sharp shift in the perception of risk associated with hedge funds and other leveraged investing strategies. As investors withdraw their money from those funds there is definitely the potential that some of that money will in turn flow into venture funds that are now perceived as slightly less risky than before, on a comparison basis.
The article is definitely worth a read. Check it out below and leave your comments here.
VC’s (and Startups) Won’t Be Immune to the Credit Crisis: Techcrunch
So far the downward spiral of credit and financial markets seems to have left venture capital firms and startups relatively unharmed. Even though the IPO market closed completely in the second quarter (and opened again only slightly in the third), venture capital firms continue to raise money and invest in startups at a healthy pace. During the first half of the year, venture capital firms raised about $16 billion in 141 funds and invested about $15 billion in nearly 2,000 deals.