Software is moving to the web and as it does, tech companies are becoming easier than ever to launch. One of the most notable changes to the tech industry of late has been the emergence of a significant number of startups that have succeeded after raising only hundreds of thousands of dollars. Joe Kraus, CEO of recently acquired JotSpot was able to bring them to market on $100,000. Reddit took even less money and were just acquired by Conde Nast. Reddit’s primary backer, Paul Graham’s fund Y Combinator, has become the poster child for making a successful startup with only tens of thousands of dollars in funding. Charles River has also scaled back the size of some of their investments as entrepreneurs are willing to take less money in exchange for more control.
Y Combinator primarily invests in software and web services. Twice a year (Fall and Spring), teams submit applications about their ideas, focusing less on business models and more on vision and the founders themselves. Summer teams interview during the Spring in San Francisco, while Winter teams interview during the Fall in Cambridge. If selected, the Summer teams work in Cambridge, while the Winter teams work out of the Bay Area. The last application drive was Oct 18th, with interviews happening this past weekend. Startups are usually funded 3 months living expenses, or $6,000 a person. Y Combinator’s investment is not so much in money as it is in the experience and connections the group provides to the teams, often shared over their weekly dinners. The money teams get is a bare minimum, often stretched by living and working in an apartment or moving in with friends and family. The young teams (usually around 23 yrs. old) may be under-funded compared to investments by other funds, but companies such as Thinkature and JumpChat have shown themselves formidable competitors to larger startups.
While the Y Combinator team ponders what they saw in last weekend’s interviews for the next round of funding, we thought now would be a good time to take a look at the last batch of Y Combinator companies. Many of these companies are still in heavy development, but if you’re wondering what kinds of services are receiving funding from this innovative fund – here are some short introductions.
JamGlue – An online application to mix and share music tracks online. The site features an online audio editor that allows you to clip tracks, control their speed and volume, and nest tracks in other mashups. They are currently in private beta.
JumpChat – A platform bridging mobile text messages, email, and IM communication without needing to download anything. Users can send mass messages on any of the platforms and JumpChat will send it to the platform the receiver activates. They are currently focusing on mass mobile messaging, where users can shoot off mass messages to the groups they define.
LikeBetter – An online personality test game, where you look at two photos and choose which one you “Like Better”. After a few responses, Like Better makes some guesses about your personality, ranging from political preferences to your income bracket. They also have a “bizzaro” version called HateMore.
Pollground – A social polling site. Pollground allows you to easily create surveys and allow the “wisdom of the crowd” to answer your questions. Questions and comments can be posted anonymously.
Shoutfit – A “fashion related community”. More to come in the future.
Talkito – A service that enables its users to meet and chat when they visit the same websites.
Thinkature – This recently launched online collaboration environment allows users to chat and draw diagrams on a shared whiteboard. See our review of Thinkature yesterday.
Xobni – An Outlook plugin that tracks all kinds of email analytics. They’ll track all kinds of email time and quantity analytics tied to specific contacts, threads, or times of day.
“Social Documents” (name TBA) – A site that promises to be the YouTube of documents. They allow you to transcode doc, text, and html files into pdfs, and share an embeddable version online. They will be launching within the next couple of weeks.
Woohoo! First one to comment! Actually, I’m in MA right now and I can say that Y Combinator has some great businesses in development. Companies like Thinkature are just the beginning. Olin College is developing great ideas and they will naturally gravitate to a support system/resource like Y Combinator.
All VCs who are reading this should learn from Mr. Graham and think about incubating smaller companies like Y Combinator is doing. There is a SEVERE lack of capital for early stage companies like these and Y Combinator is getting to these companies before anyone else.
In addition, angel investment just doesn’t cut it…
Its absolutely incredible how cheap it is to pull together the necessary resources to start up a tech company now a days. A year ago I began planning my first web startup and planned the death out of the project in the hopes of using my plans to raise cash. I exercised two development options (outsourcing and hiring local workers) and have gone with the outsourcing option. The level of quality and the value I am getting for my money is astonishing. Yes, it may take a bit longer to get what you really want done, but its absolutely dirt cheap to get a product to market. Netus.com is going to be moving into beta in January and we have only spent a total of 15k so far
Too bad this article came after the deadline, when does the application process start again? and any other such (nice) VCs out there?
You forgot about Snipshot! Ahhhh…ONe of Y Combinator’s best – this is a site that I visit daily for cropping and resizing images, and lets me avoid opening Photoshop, Image Ready or Fireworks.
http://www.mini...e-photo-editing
Y Combinator is getting a lot of press lately which is great, they have a very pragmatic model that can keep young companies extremely focused. The next wave needs to be more seed funds for different industry niches. Y Combinator seems to play mostly in the Consumer Web App space, it would be great to see other specialized funds emerge.
JamGlue – RIAA lawsuit bait
JumpChat – Spambot 2.0
LikeBetter – You know it’s a tech bubble when companies based on projects that sound like something an IT undergrad hacked up in his spare time are getting funded.
Pollground – “Wisdom of the crowd?” More like idiocy of the internets.
Shoutfit – “More to come in the future”. Like some sort of business plan, hopefully.
Talkito – Right, like I want to talk to all the other people who are checking out lesbian MILF porn sites. And what’s with the company name? Brings to mind a cell phone wrapped in a tortilla.
Thinkature – No idea what to make of this one. Is there actually a market for that kind of service? Truly we live in an age of wonders.
Xobni – Oh goody. Now I can make a pie chart of all the different ways spammers obfuscate the spelling of the word “Viagra”. Can “Xobni” actually be pronounced by humans? I’m skeptical.
Xobni should have named their company !Xobile
ginchy, are you some sort of pessimist or something! ;P
Didn’t they do Wufoo as well.
its a good way to pimp the college kids. my start up http://www.tamago.us (Tamago) actually does stuff, has customers, and makes a little bit of money. Its sad, but its damn hard to get money (seed) for anything. I made Tamago myself, just because its totally new technology. So far, we’ve (other people as well) have put about 150k into the business; and 50k of that went for 5 patents. We’re drawing interest from several investors…we’ll see how that goes; i’m not a young kid though; and this game is geared toward the young. Its a good model though, you pay little, and once in a while, a diamond in the rough is found. The VC modle is the same, except, their old…and only want to bet on something which really doesn’t need funding. Angel groups are a joke. They want the same things VCs want, another youTube. Anyway. Anyone wanna invest in the world’s first/only peer-to-peer market place?
Y Combinator a ‘farm team’ seed funder for greenhorns all of which are Web 2.0 wannabes that would have no chance of making it without a ’seed hedge fund’ manager.
Not dissing….just calling Y Combinator for what it really it is !
I’m calling it here . . . JamGlue will be huge.
@JamGlue will be huge.
you’re a fucking idiot.
http://www.flstudio.com/
I admire Paul Graham, except when he is preaching Lisp, particularly his “Anyone who doesn’t use Lisp or worse, uses *gasp* Java, is a moron” – he seems to have stopped that lately, so I can admire him even more
I am sure he realizes that the choice of programming language has little or no influence on success of a venture – OK, don’t start coding web apps in assembly (or Lisp for that matter, sorry, Paul!), but within reason, any of the popular languages will suffice.
Y-Combinator is a seriously smart idea. And Paul’s essays (mostly) rock …
DJ — good call on Snipshot. It is, imo, the strongest of the bunch listed here. Very basic, simple and easy to use.
Another acquisition in the making…
Y Combinator may be able to get college students excited about $2000/mo in living expenses, but it costs quite a bit more than that to attract trained professionals and to prototype products that are more capital intensive to build. If you can build a product in three months for $10,000, so can a lot of other people, which is not so interesting from a competitive standpoint.
I am all for cutting costs, but as a business owner, I like to pay people well, and hire people who can do the job well (and am happy to pay for competent help). In the US, you really need to budget at least $10,000/month per full-time employee (for salary, benefits, overhead), otherwise you’re cutting corners and will get what you pay for (like full-time “employees” who moonlight to pay the bills, and therefore aren’t focused on your product).
Y Combinator might find a few hits with this strategy, but Charles River’s new program is more realistic. It takes time to get most products right, and even with a small team, say 5 full-time employees, you’ll probably need $500,000 to make it for 12 months, assuming almost all of your overhead is for employees and associated costs.
PS – when I moved to SF in the mid-90s after college, my first job paid $2800 pre-tax, and even back then before the real estate boom, I was forced to live in a crappy apartment in the Tenderloin. I left that job the first chance I had.
Ginchy works for DFJ, so it should make sense his hostility. Y-Combinator is the future.
Baby’s First Start-Up
I am also a big fan of Paul’s writings and Y combinators’ concept in general but this model seems to exploit the entrepreneurs. Paying $2000 for living expenses and giving only 3 months to develop the idea, means that these folks are putting in long hours and are under tremendous pressure to complete the project while living in quite poor conditions! It is great for Y combinator as they are able to spread the risk and play with very little money on each project but I am not sure if this is such a good deal for the entrepreneurs.
But I guess these kids (21-25 years old) do not have other options since they do not have personal savings and are hoping to leverage Y combinator’s contacts to get follow on rounds or get acquired. But it does smell like exploitation to me as they are getting paid less than minimum wage if you take into the account the extra hours they are putting in.
I don’t know. I lived the first round of the 23 year old tech CEO back in 1998. It didn’t end well.
Just kidding. It’s a cool idea.
I don’t think people should be so quick to dismiss this model of funding. It is set up for the purpose of having young entrepreneurs with fresh ideas get their feet wet, and interact with other people like themselves.
Having said that, I do agree with Brian and Sudhir above, in that it would be nice to have a little more time and money to really develop the idea and make it much more refined.
Y Combinator is a business, but it’s also not a sweat shop. They take 2-10% of the company, meaning the founders are primarily working for equity in their own company (http://ycombina...or.com/faq.html).
Also you have to note that Y Combinator is all about finding diamonds in the rough. Frankly, the way the web is going, barriers to entry are falling like crazy, and simply having “x” numbers of years of work experience doesn’t neccessarily mean a startup is more likely to succeed.
Y Combinator is seed money, meant to get the project going. These companies probably go out for an angel round when they show a proof of concept.
Why do they hate spaces so much?!
@I am not sure if this is such a good deal for the entrepreneurs.
welcome to the real world.
My company just got funding from YC. We are extremely happy about this. You have to remember the position that us 20-somethings are in:
- no inside connections
- no proven credibility/track record
- able to live on the cheap
The reason why so many people my age try to get YC funding is because they offer us relatively more than anyone else.
And frankly, they give a shit about our types and a lot of VCs and angels don’t.
The $2000 per month for living expenses is low, but it does give young people the opportunity to test their ideas with very low risk. What would be the alternative? Working for another company and spending evenings and weekends on your own project. While this is doable, having 3 months to get the idea off the ground is worth gold. Also, getting in contact with experienced entrepreneurs through the YC network is also extremely valuable.
I would go for this funding model if I was fresh out of college (unfortunately now I am too old and have gotten used to a certain standard of living).
Pretty cool. I’ve heard of one or two of those companies and I think the Outlook plug-in sounds cool, though I don’t know how practically useable it will be.
There are two more Y-combinator funded, Olin College (www.olin.edu) student powered startups : Flagr (www.flagr.com), a social mapping site that is API agnostic, and another startup (in private beta) working on social shopping.
LikeBetter must still in a training mode. It guessed that I’m a single twenty-something… I’m married and 43.
Im not saying anything here; Just a little question – I went to (2) of the sites that are “pimped” here as “MY site is making money… blah blah” I went there and the page rank was 0 on both of them?
hmm, If my site on Pallet Jacks can get a PR 5 and roughly pull about 20k a month in sales … uh – lol Never mind -
_rbowles
TextPayMe is a YCombinator startup.
If I were these kids I’d just work at a coffee shop 20 hours a week and work on the app the rest of the time. What’s the point of giving 10% of your idea up for six thousand dollars?
I am a Y Combinator reject. I intervied this round. I fucked up th e interview and didn’t explain my vision properly.
I know how to monetize the Web Service Operating System _right now_. It involves targeting to a currently untapped market and spreading the monopoly from there.
If you’re interested in hearing about this and you have money, please get in touch with me, contact information on my web site.
Also, I have inside infomration, I will out current Y Combinator companies for money or links from high page rank sites.
@Ethan
No, TextPayMe was started by ex-Microsoft project managers, hence the easy access to XBox promo offers.
I was wondering if anyone can help. I am setting up a venture. I am the only share holder at this stage.
Someone else is working on this project providing their technical expertise, which I have been paying them for. I would like to have someone with their technical know how on board and give them some shares. They have expressed an interest in getting involved like this.
I realise this question may be arbitrary at this stage – What would be a reasonable amount of equity to offer?
Here’s a video interview of the reddit folks pre-acquisition
http://knotlion...pers-interview/
They talk a little about the Y-Combinator experience and provide some insight into what it’s like to go from school > startup.
More to come…
- Ben
@Kevin Fischer:
I am a Y-Combinator reject. I got over it.
I suggest you do what I did — date someone who DID get accepted. It’s really the way to go. All of the excitement and none of the work!
To answer some of the questions about why someone would want to do this, let me give some insight. I’m 22 and preparing my idea for the next round. Two of us are currently putting my project idea together. I like the idea of getting connections in other places, developing a site, and moving on. There’s nothing in Tucson, who the hell from Tucson is going to invest in me? I need connections and if Y Combinator can give me that at $2000, that beats the $1800 I make now as a web developer. Not to mention that competitive wage web development jobs here are extremely rare. Work full time on a web idea for $2000 a month or work full time for $1800 and work on the project at home? Hmm, that’s a tough one.
I have nothing to lose to go live in an apt for 3 months. I live in an apt now and im working my ass off for nothing that Y Combinator can offer. I can gain connections, friends, and probably have fun doing it. I gain more in that 3 months than what I lost after leaving my web development job after 2 years. They mention 6% in the company. Let me point you to the creator of CraigsList, he could have so much more money but he decides he has enough. Once I have enough money, I imagine a majority ownership percentage of millions of dollars would be enough, I would be damn proud. If my idea doesn’t even last after 3 months then I come back to Tucson or find a job where I’m at. I lost nothing, had fun, and get a job again…big deal. It’s a lot easier when your younger when you have no commitments. I dont mind working my ass off for 3 months even if you compare it to a sweat shop. I’ve worked as a cook and writing lines of code is a hell of a lot better than working in a damn restaurant. I do this crap for fun, money isn’t what I care about. And besides, my idea solves a problem I have and makes my existance more fun which is the real reason I would be willing to pursue.
How is JumpChat different from MessageBlaster (now known as EnvoyWorldWide) or MessageMachines (acquired by NMS Communications)?
http://www.envoyworldwide.com/
http://www.nmsc...unications.com/
US Patents 6,999,565 6,564,264 6,938,087
US Patent Application 20020087704
Hmm, I have an idea for an MTV “real world” like show. Put a bunch of kids together in a high pressure environment, and put cameras on them, and watch what happens when people stop being polite, and started getting real! I think Joel tried to do a summer movie in a similar vein
This is really a great deal for young people starting up thier first company. I think a lot of people forget how far you can stretch 2k a month when your young.
For older more established people theres almost no reason to take seed/angel/VC money these days until after launch if youve built a great team of partners/people who share the same goals. And then only to finanance expansion.
Diluting your equity and dealing with someones fingers in your pie just isnt worth it in the long term. But Y-combinator seems to solve this and the guys articles are great for people just starting out. They dont seem to be the types that are encouraging startup’ers to blow through thier cash so they can take more funding.
What CRV is doing in the 250-500k space is much more valuable in that it allows for focused work by the team post launch.
/self promotion on
PS: Any CRV guys reading this feel free to email me: gamemarketmetrics.com
/self promotion off
So the question is not really IF you take money but WHEN you take money and on who’s terms (sheets).
@Brandon
Also much of this is location, dont feel bad about the Tuscon location, even 100 miles from silicon valley here in Sacramento, its no different, 100 miles may as well be 1,000 miles for all anyone who lives in SV cares.
On the other hand outside SV people generally deal in “old school” realistic terms like profitability and business plans…..
Is there a ycombinator like thing in asia ?
@Seattlite
TextPayMe is a Y Combinator startup and a good service. It is possible to be both ex-MS and Y Combinator funded.
Celebrity news you get to choose and vote
jumpchat.com still says “Stay tuned, we’re launching mid-November 2006.”
way to run a company
very useful stuff over here. thanx. http://order-xanax.da.cx
People keep saying how great it is that they can stretch 2k, but 2k in SF and Boston doesn’t go very far.