Y Combinator Inspires Imitators

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Y Combinator's Paul Graham with two cofounders of Octopart, a vertical search engine for electronic components.

The weekly dinners Y Combinator hosts are a welcome respite for many of the program's participants.

The cofounders of Fauxto make their pitch to investors at a Y Combinator demo day. Jessica Livingston

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Cohen says he's already fielded inquiries from angel investors in 20-odd cities, all interested in starting similar programs of their own. "You're going to see a massive proliferation of this model," he predicts.

Graham, a widely read essayist who has written prolifically on topics like "What Business Can Learn From Open Source," isn't flattered by the unauthorized open-sourcing of his own model—including one clone in Vienna shamelessly named YEurope. (His opinion about such copycats is made clear on Y Combinator's FAQ. Question: "Will you help us set up something like Y Combinator in our town?" The answer: "There already is a Y Combinator in your town: Y Combinator.")

Why Reinvent the Wheel?

Many of Graham's admirers, however, say they respectfully disagree. Among them is Web industry veteran Saul Klein (BusinessWeek, 6/7/07), a partner at London venture capital firm Index Ventures and a former executive at Skype (EBAY). Klein helms the most prominent Y Combinator lookalike in Europe thus far: the London-based Seedcamp, which launched in September. In a slightly novel twist, Seedcamp began its competition by bringing 20 startups—plucked from an application pool of 268—for an "unconference" (BusinessWeek, 5/14/07) before selecting six companies to participate in the three-month program. Each of the six companies received €50,000 (about $70,614) in seed money—a considerably heftier sum than other Y Combinator-like programs—with Seedcamp taking a larger, 10%, stake in each.

And bona fide venture hubs like London aren't the only place the Y Combinator model is attracting interest. Cities such as Lexington, Ky., and Milwaukee are taking note, too. In Atlanta, a small group of angel investors hopes to replicate the Y Combinator model with a program called BoostPhase. Co-founder Wayt King says he envisions BoostPhase, set to launch this fall, as "a Y Combinator for the Southeast."

"We have huge respect for Paul Graham and what he's done, and we figured there's not much sense in reinventing the wheel," King says—adding that he doesn't see BoostPhase as competition for Graham's original. "There are a lot of entrepreneurs who don't want to or simply can't move to Silicon Valley or Boston."

Standing Out from the Crowd

TechStars' Cohen says he's not worried about the competition. "There's a pretty clear demand for this," Cohen says, noting that the 10 startups TechStars funded represented only 26 of 302 applicants. Y Combinator accepted an even smaller number for its summer 2007 round—19 of 435 applicants—making an applicant's chances of getting tapped for Y Combinator (4.4%) only slightly higher than those of the brainiacs vying for a Rhodes scholarship (last year's acceptance rate: 3.6%).

For participants, the real draw of a program like Y Combinator isn't the money, it's credibility—and not just with investors. The traffic bump from an early mention about getting funded on an influential blog like TechCrunch can be just as crucial as a Series-A round in helping a Web startup gain traction over its rivals. And by adding structure to an otherwise nebulous pursuit, Y Combinator also makes a startup a less risky endeavor for entrepreneurs themselves—both practically and psychologically. "Y Combinator provided a socially acceptable way to drop out or postpone my college education and focus on the company full-time," says Kevin Fischer, a 21-year-old industrial engineering student at the University of Pittsburgh who applied to both Y Combinator and TechStars. Plus, he adds, "It seems like even the people that fail still go on to jobs at Google—no one does too badly."

Miller is a reporter with BusinessWeek.com in New York .