There are plenty of companies around here who could swing the money to fund YC-sized groups at YC-sized investments. But YC is extracting 6% from promising startups for the same reason that 37signals is extracting millions of dollars for a web-based bulletin board: the total package is compelling.
In YC's case, you're getting access to a hands-on software startup fanatic who's words you already hang on, plus the network of VC's his team has built up over the last N years. Part of the YC pitch, whether Graham says it or not, is that it ends in a showcase "demo day" which seems to improve your odds of scoring an "angel round". And in Autumn of '09, it's hard to get around the brand value that YC has. Getting "accepted" into YC is a marketing win.
I don't think cloning YC is a smart play for Chicago. It's possible to not like what YC stands for: the notion, implied or stated, that starting a company is similar to applying for college. There's got to be another way to nurture startups in Chicago, one better suited to the climate that we have here: hard workers flying under the radar independent of financiers and other gatekeepers.
Maybe there's some kind of umbrella contracting thing that we can come up with.
But YC is extracting 6% from promising startups for the same reason that 37signals is extracting millions of dollars for a web-based bulletin board: the total package is compelling.
In YC's case, you're getting access to a hands-on software startup fanatic who's words you already hang on, plus the network of VC's his team has built up over the last N years. "
which is why the "Indian Y-Combinator"(http://news.ycombinator.com/item?id=842150) will (eventually) fail as well.(besides the fact that they won't attract smart people with stuff like how they micromanage the 10,000$ they might give you for 10% of your company - Founders can't operate the bank account, and apparently need a board meeting to decide on line item expenses! See http://news.ycombinator.com/item?id=842882 for details).
Cloning the legal/financial structure isn't enough. YC succeeds because it has very high calibre people leading it, not because it has a specific "algorithm" that others can copy.
"YC succeeds because it has very high calibre people leading it, not because it has a specific "algorithm" that others can copy."
Why are you assuming the "algorithm" just includes the finance bits? It also includes the people involved (mentors, investors, community). Why wouldn't that be replicable in other cities outside the Valley? As long as they have both the financial capital and the social capital I don't see why it couldn't be successfully duplicated.
TechStars seems to be doing well in Boulder and Boston. Seedcamp seems to be doing well in London. Launchbox seems to be doing pretty well in DC. DreamIt seems to be working well for Philly. Someone could do it in Chicago (or any other moderately sized city with some semblance of a tech community already, some willing investors (or the ability to attract investors from other parts of the world), and a few nearby universities) with the right network.
Obviously something like YC could in principle work outside the Valley, because YC itself used to be. We had to fly startups from Boston cycles to present to investors in Silicon Valley, though, and the more prominent clones do as well, so I think you have to take that as a given.
Probably the biggest disadvantage for startups in Boston cycles was the scarcity of experienced founders there. In our Boston cycles, we considered ourselves lucky to get 2 or 3 speakers of the caliber we get in SV cycles (http://ycombinator.com/w9speakers.html). I would guess this problem is even worse in other towns.
It won't work in Chicago because $20,000 and some "mentoring" is not worth 6% of any company founded by someone who can execute on a tech startup in Chicago.
YC has two things that YC'/Chicago can't have: access to a very active pool of local angel investors and tier-1 VCs, and a brand built in part by several years of passing on hundreds of (probably solid) applications.
Completing YC'/Chicago might teach you something about business or about shipping product, but it won't get you funded (you are not getting funded in Chicago) and it won't get you written up just for getting in.
At the end of the day, if you can't get angel money - and I reiterate, there is no active angel money in Chicago, only a bunch of self-proclaimed angels that don't cut checks - a YC-style program won't work. What's the point of having a program in Chicago, or Cambridge, or Northern Virginia if you have to fly everyone out to the Valley anyway for a Demo Day?
If you can forswear ever, ever raising money, sure, do your company here. Chicago's the best city on earth. But if you need the option value of maybe raising money someday, you should go West. (And if you want to start a YC company, contact me. I'm in the market for a technical co-founder for the Winter 2010 batch.)
IllinoisVENTURES is still going, as far as I know. IllinoisVENTURES iVentures10. iventures10.com
They are the only YC pseudo-clone that I have heard actual horror stories about. They give terrible deals to the academics commercializing research they normally fund and can be outright abusive with the micro seed stage program. Stay away.
The article is correct in noting that there is a huge tech community in the chicago area. Some of it is rather unique in the financial sector--trading, options, financial (more so than new york).
But as a distant observer to YC, isn't a key factor in YC's success the culture of the surrounding community (as indicated by the move from Boston, which is certainly more high-tech than Chicago to the valley) and the particular knowledge that YC has in doing this sort of thing?
And from what I have read of Jason's posts, he doesn't seem to think that building a company to be acquired is what he would recommend (in particular, his post regarding the selling of mint to quicken). I would think that would be part of what a YC-like outfit would need to have in its bag of tricks.
And, from a distance, there just seems to be this startup fever in the valley, not something that is really evident here in the chicago area.
I tend to agree with this user. I don't think there is a startup culture or mentality here in Chicago. Most people who want to start tech startups move out to CA.
I think YC probably takes all the people interested in something like YC already, so starting something else "like" it won't ever be successful. It's not about the location, it's about the connections that YC has.
Otherwise, Chicago is a fine place for an Internet-based startup. We have Internet access just like San Francisco :)
It's a really bad place from which to seek funding, YC or not. Sachin overemphasizes the Chicago financing community, but it's worth knowing that most VCs, even outside Sand Hill and Waltham, aren't going to be happy funding a company in Chicago.
And they're right. It's easier to flip a company in San Mateo, where a bizdev meeting is just a 15 minute drive to Palo Alto, than it is in Chicago where the same meeting is a 3-day trip arranged 2 weeks in advance.
It's just not easier enough to matter for a founder, who is so unlikely to get a real round in the first place, and then so unlikely to get the B round, and then so unlikely to wind up with something that can be flipped at a huge profit, that this is just not something worth optimizing for. That's hyperbole, of course, but not by much.
If you have data that proves that I've overemphasizing how bad financing is here, please provide it. I am more than happy to consider additional data. Being able to provide a HOWTO that's more than "for God's sake, move to the Valley" would make me thrilled.
I think there's more to it than this point, but I'll the easy argument to articulate here is, "you can get funded as a company domiciled in Chicago by a firm or investor that isn't local to Chicago".
Well, sure. But I believe that the traction/revenue/user bar to do so is much higher here than it is in a more robust funding environment. Also, it's much, much harder to get a deal syndicated here.
There are plenty of companies around here who could swing the money to fund YC-sized groups at YC-sized investments. But YC is extracting 6% from promising startups for the same reason that 37signals is extracting millions of dollars for a web-based bulletin board: the total package is compelling.
In YC's case, you're getting access to a hands-on software startup fanatic who's words you already hang on, plus the network of VC's his team has built up over the last N years. Part of the YC pitch, whether Graham says it or not, is that it ends in a showcase "demo day" which seems to improve your odds of scoring an "angel round". And in Autumn of '09, it's hard to get around the brand value that YC has. Getting "accepted" into YC is a marketing win.
I don't think cloning YC is a smart play for Chicago. It's possible to not like what YC stands for: the notion, implied or stated, that starting a company is similar to applying for college. There's got to be another way to nurture startups in Chicago, one better suited to the climate that we have here: hard workers flying under the radar independent of financiers and other gatekeepers.
Maybe there's some kind of umbrella contracting thing that we can come up with.