Y Combinator Gears Up for Startup Summer

3/20/08Follow @wroush

Time’s a wastin’ for East Coast technology entrepreneurs who want help from Y Combinator, investor Paul Graham’s startup camp, which returns to Cambridge for its fourth year this summer. Applications for summer 2008 funding are due April 2.

Y Combinator winters in Mountain View, CA, where it just held its semi-annual Demo Day, its equivalent of the end-of-the-semester dance recital. Attended by venture capitalists, angel investors, and technology heavy-hitters such as Lotus founder Mitch Kapor, the event took place on Tuesday and included presentations by 19 companies, two of them native to the Boston area (Tipjoy, which is working on a system for online gratuity micropayments, and Kirkland North, which is commercializing a mixed online/outdoor mapping and strategy game similar to Risk). Scott Kirsner from the Boston Globe and Anthony Ha from Silicon Valley technology blog VentureBeat both attended Demo Day and published rundowns of the most interesting companies on Tuesday and Wednesday, respectively.

Graham and Y Combinator have gained notice in the Web world for helping new companies navigate their critical early months, when a few thousand dollars of startup support and the advice of experienced entrepreneurs and software engineers can be invaluable. It’s been the launchpad for a gaggle of Web 2.0 businesses, a few of which, including Reddit and Justin.TV, have generated significant buzz. But Y Combinator isn’t a venture capital firm, nor is it an incubator. As Graham explains in a Web essay published this month, the organization “represents a new, smaller kind of animal—so much smaller that all the rules are different.”

Companies accepted into the Y Combinator startup boot camp receive cash investments just large enough to pay the founding members’ living expenses—usually, a base of $5,000 plus another $5,000 for every member of the founding team—while they spend three months working closely with Graham and his network of visiting experts and speakers to solidify their business ideas and get enough of the kinks out of their products that they have something real to show to later-stage investors. In return, Y Combinator asks for an ownership stake averaging around 6 percent of each company. The founders are required to move to Cambridge (or Mountain View) for the duration of the program.

The way Graham explains it, Y Combinator “occupies the earliest end of the spectrum” in the investment process, “at least one and generally two steps before VC funding.” At this stage, what companies really need more than anything else, Graham believes, is good advice—advice of the sort that his own company, ViaWeb, didn’t get when he and co-founder Robert T. Morris started it in 1995. (The e-commerce platform company found its way to success anyway; Graham and Morris sold ViaWeb to Yahoo in 1998 for about $45 million.)

“If there are tensions between cofounders we help sort them out,” Graham writes. “We get all the paperwork set up properly so there are no nasty surprises later. If the founders aren’t sure what to focus on first, we try to figure that out. If there is some obstacle right in front of them, we either try to remove it, or shift the startup sideways. The goal is to get every distraction out of the way so the founders can use that time to build (or finish building) something impressive. And then near the end of the three months we push the button on the steam catapult in the form of Demo Day.”

Graham’s website says that applications for the summer Y Combinator program will be reviewed the weekend of April 9 and that finalists will be invited to travel to Mountain View for interviews the weekend of April 25-27. Winners convene here in Cambridge from June to August.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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