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Do You Have a Great Business Idea and Need Funding?

Updated on February 16, 2011

Do You Have a Great Business Idea and Need Funding?

Do you have a great business idea which you need funding for? Perhaps you need guidance and mentorship to start and succeed your business more than you need the funding. Either way (or both) - there is a company who can help you. I came across this company because I was looking for funding for my business idea. I've applied for the March round so we'll see how that goes!

A group called Y Combinator offer startups with a great business idea an average of $11,000 per person (and $3,000 for additional members) to get started. As at January 2011, one of their investment angels will also offer each approved start up with Y Combinator an additional $150,000 loan to get the ball rolling with your excellent idea. No questions asked.

Y Combinator accept intakes twice a year and the deadline for the summer intake is 20 March 2011, so fill in the application form and get cracking on your excellent business idea today.

Businesses that Y Combinator has Funded

Since 2005 Y Combinator has funded over 250 startups - including some of the most popular companies on the internet today such as Loopt, Reddit, Clustrix, Wufoo, Scribd, Xobni, Weebly, Songkick, Disqus, Dropbox, ZumoDrive,, Heroku, Posterous, Airbnb, Heyzap, Cloudkick, DailyBooth, WePay, and Bump.

So What's the Catch?

Your business idea needs to be internet-based or tech-based. You can apply from anywhere in the world and be eligible for acceptance. If you do get accepted, all you must be able to do is to move to Silicon Valley for 3 months, during which time Y Combinator will work intensively with you to get your company into the best possible shape.

Wherever you live in the world, if you get accepted and you BELIEVE in the potential of your idea, it's probably a good idea to beg or borrow to get the money together for a temporary move. If you are accepted, as soon as your company exists, they'll write a check to you for the investment. You can spend the money however you want. They will assist you to refine your business pitch to investors if you require further capital in addition to the amount they and their investors are alreading offering ($150,000+).

In exchange for their funding and mentorship, Y Combinator will expect stock in your startup, from 2-10% of it. Usually 6 or 7%. I wouldn't call that a catch however, that's purely a business transaction. Y Combinator won't do all the work for you, but they will hold your hand the whole way. They have the knowledge and the resources and the reputation to be able to succeed your business.

Application Form and Tips

Y Combinator is now accepting applications for the summer 2011 funding cycle.

Here are the application instructions:

1. If you want to apply, submit your application online by 8 pm PT on March 20, 2011. Groups that submit early have a significant advantage because they have more time to read their applications.

2. On April 7, Y Combinator will invite the groups that seem most promising to meet them in Mountain View during April 23-28. They will reimburse up to $600 per group for travel expenses.

3. Y Combinator decide who to fund after each day of interviews. Yes decisions will include the amount they'll invest and the percent of the company they'd want for it. They usually invest $11,000 + $3000n, where n is the number of participating founders, up to 3 (i.e. 2 founders get $17,000, 3 or more get $20,000), in return for between 2% and 10% of the company. The average is 7%.

4. If Y Combinator invest in you, your group is expected to move to the Bay Area for June through August 2011. (You can of course leave afterward if you want, but it's a good place for a startup to be.)

5. After you're accepted, they'll immediately get to work helping you set up your company, if it isn't set up already. As soon as your company exists, they'll write a check to it for the investment which you can spend however you want.

6. Y Combinator is not an incubator. They have space you can use if you need to, but they expect you to work out of wherever you find to live. It is no coincidence that so many successful startups have started this way; it's the ideal setup for the initial phase.

7. From June through August they hold dinners every Tuesday for all the founders. At each dinner they invite an expert in some aspect of startups to speak.

8. They have regular office hours year round for startups who want to talk about what they're building, or get advice on dealing with investors.

9. During and after the 3 months they will introduce startups individually to people who could help them. The founders of other YC-funded companies tend to be especially helpful. There are now around 500 of them, and they're usually very willing to give advice or make introductions.

10. About 10 weeks in, they will organize an event called Demo Day at which the startups present to later stage investors. You can of course seek additional funding from any investor whenever you want.

11. YC doesn't end after 3 months; only the dinners do. They will continue to give advice and make introductions as long as founders need.

How does Y Combinator choose who to fund? The people in your group are what matter most. They look for brains, motivation, and a sense of design. Experience is helpful but not critical.

Your idea is important too, but mainly as evidence that you can have good ideas. Most successful startups change their idea substantially.

They're more likely to fund people they know are smart from their submissions and comments on Hacker News. In fact, that was one of the main reasons they wrote it: so that they could get to know people before they applied.

The ideal company would have two or three founders. They will consider those with four or five however they're reluctant to accept one-person companies, though they have funded a couple.

How Much Money Will Y Combinator Give Me?

Approximately $11,000 + $3,000 for each additional member of your business (capped at 3 members). As at January 2011, Y Combinator's investor 'angels' are offering an additional $150,000 loan to each successful Y Combinator applicant.

That'll go a long way to helping your business get off the ground!

What Kind of Help Does Y Combinator Offer?

Well aside from the obvious - the money and mentorship, Y Combinator will help you with things such as:

- Legal Advice. The staff at Y Combinator will introduce you to top Silicone Valley lawyers, who, because of the YC relationship, will (most often) offer you deferred fees.

- Full time mentorship and support - There's no limit to the number of office hours you can book.

- They'll help you with immediate problems, and also about the big vision for the company.

- They'll assist you with advice on what to do first.

- They'll ensure that your company is set up properly, with all the right paperwork.

- How to launch your idea - How to present it to users and how to present it to the press

- How to present your idea to investors (if you require more money). They will talk directly to investors to help convince them as they have close relationships with Y Combinator investors.

- They will help you all the way to get ready for Demo Day where you pitch your idea to the public and investors.

Office hours don't stop after the 3 month cycle ends. In fact, the only thing that stops at the end of the 3 month cycle is the dinners. Y Combinator have office hours year round, and startups from all previous cycles can book time whenever they want.

The People Behind Y Combinator - the Founders and Partners

The following people are responsible for making Y Combinator happen.

- Paul Buchheit is the creator of GMail.

- Trevor Blackwell is the founder of Anybots, where he developed the first dynamically balancing biped robot.

- Paul Graham is the author of On Lisp, ANSI Common Lisp and Hackers & Painters. In 1995, he and Robert Morris started Viaweb, the first ASP, which in became Yahoo! Store. In 2002 he discovered a simple spam filtering algorithm that inspired the current generation of filters.

- Jessica Livingston was previously VP of marketing at investment bank Adams Harkness, where she managed an award-winning rebranding of the company. She is the author of Founders at Work, a book of interviews with startup founders.

- Robert Morris is an associate professor of computer science at MIT. He has published extensively on wireless networks, distributed operating systems, and peer-to-peer applications. In 1988 his discovery of buffer overflow first brought the Internet to the attention of the general public. He has an AB and PhD in Computer Science from Harvard.

- Harj Taggar was previously founder of Auctomatic, which was funded by Y Combinator in 2007 and was acquired by Live Current Media in 2008.

Why Does Y Combinator Have Such Great Connections?

The reason Y Combinator have such good connections is not that they're particularly good schmoozers. It's because they have a large number of really good portfolio companies. They have an excellent track record in establishing startups who have nothing more than a great idea.

How Do I Apply to Y Combinator?

It's very simple. By filling in an application form and sending in a 1 minute video introducing yourself. That's it. Of course you can make yourself stand out of the pack by the way that you do this - but really all you need is a great idea and an ability to move to the Bay Area for three months and a dedication to your business.

How Many People Will Y Combinator Fund?

There's no limit. Y Combinator funds more startups than they used to. The first YC cycle in summer 2005 they had 8 startups. The most recent, in summer 2010, they funded 36 startups.

What Others Have To Say About Y Combinator

"The opportunity is unparalleled."

- Newsweek

"This is the new model."

- Bradley Horowitz, VP of Product Management, Google

"Tech incubators are hot these days. Y Combinator is the most successful of the new breed."

- Wired

"With us and many other angel groups, Y Combinator startups get moved to the top of the list automatically."

- Ron Conway, Silicon Valley's most prominent angel investor

"Y Combinator is a big change from the way business is usually done in tech circles."

- USA Today

"I love everything about Y Combinator. It captures the essence of Silicon Valley."

- Michael Arrington, Editor, TechCrunch

"If it is possible to systematize the archetypal two guys in a garage (and they are generally guys), the year-old Y Combinator wants to do it."

- New York Times

"Y Combinator gets it. When talented people are allowed to focus on their core competency without distraction, cool things happen."

- Chris Sacca, Free Radical

"Y Combinator really understands what a company needs in its first three months."

- Sam Altman, Founder, Loopt

Startups in 13 Sentences

1. Pick good cofounders.

Cofounders are for a startup what location is for real estate. You can change anything about a house except where it is. In a startup you can change your idea easily, but changing your cofounders is hard. And the success of a startup is almost always a function of its founders.

2. Launch fast.

The reason to launch fast is not so much that it's critical to get your product to market early, but that you haven't really started working on it till you've launched. Launching teaches you what you should have been building. Till you know that you're wasting your time. So the main value of whatever you launch with is as a pretext for engaging users.

3. Let your idea evolve.

This is the second half of launching fast. Launch fast and iterate. It's a big mistake to treat a startup as if it were merely a matter of implementing some brilliant initial idea. As in an essay, most of the ideas appear in the implementing.

4. Understand your users.

You can envision the wealth created by a startup as a rectangle, where one side is the number of users and the other is how much you improve their lives. The second dimension is the one you have most control over. And indeed, the growth in the first will be driven by how well you do in the second. As in science, the hard part is not answering questions but asking them: the hard part is seeing something new that users lack. The better you understand them the better the odds of doing that. That's why so many successful startups make something the founders needed.

5. Better to make a few users love you than a lot ambivalent.

Ideally you want to make large numbers of users love you, but you can't expect to hit that right away. Initially you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It's easier to expand userwise than satisfactionwise. And perhaps more importantly, it's harder to lie to yourself. If you think you're 85% of the way to a great product, how do you know it's not 70%? Or 10%? Whereas it's easy to know how many users you have.

6. Offer surprisingly good customer service.

Customers are used to being maltreated. Most of the companies they deal with are quasi-monopolies that get away with atrocious customer service. Your own ideas about what's possible have been unconsciously lowered by such experiences. Try making your customer service not merely good, but surprisingly good. Go out of your way to make people happy. They'll be overwhelmed; you'll see. In the earliest stages of a startup, it pays to offer customer service on a level that wouldn't scale, because it's a way of learning about your users.

7. You make what you measure.

I learned this one from Joe Kraus. Merely measuring something has an uncanny tendency to improve it. If you want to make your user numbers go up, put a big piece of paper on your wall and every day plot the number of users. You'll be delighted when it goes up and disappointed when it goes down. Pretty soon you'll start noticing what makes the number go up, and you'll start to do more of that. Corollary: be careful what you measure.

8. Spend little.

I can't emphasize enough how important it is for a startup to be cheap. Most startups fail before they make something people want, and the most common form of failure is running out of money. So being cheap is (almost) interchangeable with iterating rapidly. But it's more than that. A culture of cheapness keeps companies young in something like the way exercise keeps people young.

9. Get ramen profitable.

"Ramen profitable" means a startup makes just enough to pay the founders' living expenses. It's not rapid prototyping for business models (though it can be), but more a way of hacking the investment process. Once you cross over into ramen profitable, it completely changes your relationship with investors. It's also great for morale.

10. Avoid distractions.

Nothing kills startups like distractions. The worst type are those that pay money: day jobs, consulting, profitable side-projects. The startup may have more long-term potential, but you'll always interrupt working on it to answer calls from people paying you now. Paradoxically, fundraising is this type of distraction, so try to minimize that too.

11. Don't get demoralized.

Though the immediate cause of death in a startup tends to be running out of money, the underlying cause is usually lack of focus. Either the company is run by stupid people (which can't be fixed with advice) or the people are smart but got demoralized. Starting a startup is a huge moral weight. Understand this and make a conscious effort not to be ground down by it, just as you'd be careful to bend at the knees when picking up a heavy box.

12. Don't give up.

Even if you get demoralized, don't give up. You can get surprisingly far by just not giving up. This isn't true in all fields. There are a lot of people who couldn't become good mathematicians no matter how long they persisted. But startups aren't like that. Sheer effort is usually enough, so long as you keep morphing your idea.

13. Deals fall through.

One of the most useful skills we learned from Viaweb was not getting our hopes up. We probably had 20 deals of various types fall through. After the first 10 or so we learned to treat deals as background processes that we should ignore till they terminated. It's very dangerous to morale to start to depend on deals closing, not just because they so often don't, but because it makes them less likely to.

Having gotten it down to 13 sentences, I asked myself which I'd choose if I could only keep one.

Understand your users. That's the key. The essential task in a startup is to create wealth; the dimension of wealth you have most control over is how much you improve users' lives; and the hardest part of that is knowing what to make for them. Once you know what to make, it's mere effort to make it, and most decent hackers are capable of that.

Understanding your users is part of half the principles in this list. That's the reason to launch early, to understand your users. Evolving your idea is the embodiment of understanding your users. Understanding your users well will tend to push you toward making something that makes a few people deeply happy. The most important reason for having surprisingly good customer service is that it helps you understand your users. And understanding your users will even ensure your morale, because when everything else is collapsing around you, having just ten users who love you will keep you going.

- By Paul Graham - Startups in 13 Sentences

Would You Apply to Y Combinator for Funding?

If you had a great business idea, would you apply for Y Combinator for mentorship and funding?

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Hopefully this information helped you if you (or someone you know) has a great business idea. Maybe it just inspired you to think of one! It goes to show, anytime we need help with any area - including financing a great idea - there is help to be found.

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