An Easy Way To Make Money: Hand Kids Checks For $20,000

paul graham y combinator

Photo: Bloomberg TV

Y Combinator, the granddaddy of startup accelerators, now has a flurry of copycats. The Journal mentions a few.They seem to fall into a few buckets:

  • Genuine startup accelerators. Some of them, like TechStars, which recently funded a bunch of New York startups, and the accelerator program of controversial micro-VC Dave McClure’s 500 Startups, are well regarded. The Journal story doesn’t mention SeedCamp, which started out in London and now has outposts as far as Singapore and Johannesburg.
  • Region-specific accelerators. These are designed more to help a specific city or region than to boost startups per se, and often get public funding. The Journal mentions new incubators in Portland and Ohio. There’s also the excellent Le Camping program in Paris.
  • Vertical accelerators, like Rock Health, sponsored by the Mayo Clinic, for healthcare technology, or NewME for minority entrepreneurs.

It’s easy to cry bubble bubble here. Incubators were a feature of the dotcom bubble and accelerators can seem like incubators 2.0. Like with any boom, there will be losers, but no, we’re not in a bubble.

When it comes down to it, the fundamentals behind the incubator boom are strong:

  • It’s cheaper and faster than ever to launch a product and get traction. Thanks to the cloud, open source tools and viral distribution on social networks, a $20,000 and a few months is enough to test an idea, validate it and get to a point where you’re a real, albeit fledgling, company.
  • There will always be small acquisitions that drive good ROI for accelerators. An accelerator that invests $20,000 into a company that sells for a few million dollars can make money. A VC can’t. Incubators can generate a really high ROI for investors even with small acquisitions. You can debate whether Facebook is really worth $80 billion or Groupon $25 billion, but there will always be big companies willing to pony up seven or eight figures for a great team, product or business.

Now, don’t miss this great interview of Y Combinator founder Paul Graham →

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