Posts Tagged ‘accelerator’

On startup factories

I read with great zeal the article about Y Combinator in the NYT titled: Silicon Valley’s Start-Up Machine. I think there are a few important takeaways, especially with people trying to build this kind of thing elsewhere.

  1. People take the $100,000 at a 7% stake because of the whole experience. Advice from seasoned entrepreneurs (like pitch improvements, etc.). The importance of the network they bring (which is hugely underestimated by many clones). Dumb money remains dumb.
  2. “The general public doesn’t understand start-ups at all,” Buchheit said. “They’re mystified how a company with no revenue can be worth a billion dollars. It’s because of this power law: If a company has a 1 percent chance of being a hundred-billion-dollar company, then it’s worth about a billion dollars. That kind of thing doesn’t happen in your normal life experience. If I get a cup of tea, it’s a cup of tea — there isn’t a chance that it’s actually made out of solid gold. But that’s how this works.” – direct quote from Paul Buchheit
  3. “One of the reasons,” he said, “is because there’s nothing else to invest in. If you have money, there’s nothing to put it in. Bonds return nothing. And the stock market — what public company do you feel reasonably assured is going to go up at historical norms of 8 percent a year? It could all just fall apart. . . .” If, on the other hand, you discover the next Google, you can increase your investment by “a thousand X.”

Nothing else to invest in. Interest rates in the USA are low. In Malaysia (or Singapore), you have property as an investment that should return more than 8% per annum. Refer to my old post about the startup ecosystem in Malaysia.

Its nice to see lots of funds and accelerators pop up, but without the experience, the lack of vision, and other investment vehicles that return sufficiently, I’m not sure how even the angel incentives help.