

A modest proposal for 500 Y Combinators - jasonmcalacanis
http://launch.is/blog/2011/1/21/l005-a-modest-proposal-for-america-build-500-accelerators.html
I'm sure some of the best feedback to this piece a will occur here. Interested to hear people's thoughts.
======
marcamillion
How is this suggestion any different than telling the gov't to choose
industries?

i.e. invest in 'clean tech' or 'electric cars' or 'the internet' or 'nuclear
energy' or whatever.

The point of the free market is that no one knows where the next major
innovation will come from.

Y Combinator is a product of the free market working. Not some government
bureaucracy. Encouraging incubators is a bad, bad idea because all that will
happen is that a lot of money will be wasted very quickly.

Just simplify the tax code, reduce the marginal corporate tax rate and get out
of the way.

Let the private sector handle the rest.

Regulate the industries that need to be regulated of course - finance, health
care, etc. But even then, loosen up where is reasonable.

FWIW, I am not a 'political conservative', just a government skeptic. I would
much rather the free market decide who the winners are, than some gov't
bureaucrat.

This reminds me of trying to 'buy' the top Digg users. Or buy your way onto
the 'suggested list' at Twitter. Lame and won't work in the long run.

Edit: Also, when the government 'encourages' Accelerators, then the focus
shifts from the entrepreneur to the fund manager (that is essentially what PG,
and the partners are). In other words, people stop wanting to start their own
company and want to start their own accelerator and they figure out how to
game the system so that they can make their 2 & 20\. Basically, it becomes
another bubble and valuations would sky rocket. You think we are seeing frothy
valuations now? HAH!

~~~
ramanujan
> Regulate the industries that need to be regulated of course - finance,
> health care, etc.

Well, most regulation is really about building Maginot lines. Sarbox didn't
prevent the financial crisis, and Finreg is unlikely to prevent the next one.

Similarly, health care regulation can't solve the fundamental problem, which
is that we have access to life-saving technologies (like heart transplantation
and brain surgery) which require too much in the way of hard-to-make machines
and highly trained personnel for us to mass produce on a very large scale.

Over time, cutting edge technology becomes mass produced/cheap (like cars,
cell phones, computers), but with health care it particularly stings when you
can't afford the latest model. Note that routine healthcare checkups which are
based on direct patient-to-doctor payments have always been affordable -- it's
the high-tech stuff that can be priced out of reach.

Regulation can't solve that fundamental problem of scarcity, and causes many
structural changes that are likely to make it much worse.

Here is a great example:

[http://mobihealthnews.com/6932/interview-the-iphone-
medical-...](http://mobihealthnews.com/6932/interview-the-iphone-medical-app-
denied-510k/)

    
    
      “We have determined the device is not substantially
      equivalent to devices marketed in interstate commerce
      prior to May 28, 1976, the enactment date of the Medical
      Device Amendments, or to any device which has been
      reclassified into class I (General Controls) or class II
      (Special Controls).
    
      This decision is based on the fact that your device has a 
      new indication for displaying medical images for 
      diagnostic use on a mobile/portable device…that alters the 
      diagnostic effect, impacting safety and effectiveness, and 
      is therefore a new intended use.
    
      Furthermore, your device has new technological 
      characteristics that could adversely affect safety and 
      effectiveness and raise new types of safety and 
      effectiveness questions…
    
      Therefore, this device is classified by statute into class  
      III (Premarket Approval), under Section 513(f) of the 
      Federal Food, Drug, and Cosmetic Act (Act).”
    

For those who don't speak FDA-ese, what they are saying is that a simple
iPhone interface to an existing, FDA-cleared piece of imaging software will
require class III approval -- the highest regulatory bar, the same bar as
pacemakers and implantable devices, costing more than $250,000 in application
fees alone plus countless millions in regulatory consultants.

All this for a free iPhone app which won the WWDC 2008 award.

Obviously it's not worth it for the developers to pursue that kind of
clearance, as few iPhone apps will gross enough to justify a $250,000
investment, let alone a multimillion dollar one. Moreover, if you noticed, the
FDA language is all based on "precedent" -- so once you take the hit and push
something through class III for tens of millions, someone can follow your
precedent and get class II clearance for "only" a few million.

So that's a concrete example of structural disincentives to innovation caused
by regulation.

And the following study by Stanford professors shows that this kind of action
by the FDA is more the rule than the exception:

[http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-...](http://www.advamed.org/NR/rdonlyres/040E6C33-380B-4F6B-AB58-9AB1C0A7A3CF/0/makowerreportfinal.pdf)

~~~
marcamillion
I don't think regulation can solve those problems, but there is no doubt that
Regulation helps stop things like virus outbreaks and companies from doing
anything they want - like putting the cheapest paint (with the highest
concentration of lead) on kid's toys.

Not saying the gov't should regulate everything, obviously not, but there
should be some regulation on somethings.

Things to do with health, finance, and food are clear ones. Especially given
the current structure of the tax code that provides subsidies and tax
incentives/distortions to politically connected parties.

As Milton Friedman says, big business hates the free market. So the government
has to protect it - by regulating lightly.

Edit: Btw, your example about the iPhone app, drives my original point home
even more. The government is incompetent when trying to pick winners. Their
job is to protect wider society from things that can threaten health (cancer
causing additives, wide spread infections, virii - not the computer type,
etc.). Although, there could be an argument for allowing the companies to do
whatever they want and let the market handle them. If a drug company releases
a drug that kills a bunch of people, I think that pretty much decides the fate
of that company - however, that is predicated on the fact that the drug
industry is indeed free and firms can enter and leave at will (without
barriers). The issue with that though, is that is politically impossible to
have a government stand by and do nothing when 10 - 50 people have been killed
by a drug put out by a company. So no politician would dare do that....even
though it might work out better for society, assuming of course, that we can
avoid those 'fringe' cases where drugs create an infectious disease that kills
millions and spreads like crazy (possibly creating zombies, although that
would be a pretty Epic scenario IRL assuming I am not one of those zombies and
I have a shotgun with unlimited ammo :) )

------
trotsky
Most of the value in YC is in their partners and their alumni network. While
there is no question that the YC model can be duplicated, I'd be surprised if
500 clones would result in anything close to 500 able competitors. When you're
giving away 10% of your company for $20k and advice, you'd better make sure
the advice is top notch. Or at least that you're buying into a helpful brand
name.

~~~
jonathanjaeger
You can't discount the filtering mechanism of Y-combinator that easily ups the
valuations of the companies that participate and later seek funding. I'm sure
the 2-10% equity stake is largely made up for because of this.

Edit: If there were many more accelerators, they wouldn't all have the same
degree of filtering, and thus the valuations companies would get wouldn't be
as inflated. It wouldn't be justifiable long-term.

------
seanmccann
Jason, in your newsletter in November you said:

 _As these programs have expanded, I’ve found that the level of intensity and
savvy of the founders has come down a notch. Basically, there are a lot of
open seats in these programs, so some of the B-level students are getting in.

With the addition of more programs will come the placement of C-level
founders, which are basically in the category of “not fundable.”_

So with that said, what's the point of starting 500 accelerators when only the
about the top 5 matter. I understand the education aspect, but with 500
accelerators the majority of the "mentors" will just be wantrapreneurs.

~~~
jasonmcalacanis
What I've come to realize is that the "B-level" folks are really close to
A-level, and if you look at the incubators not as a replacement for VC-
fundable companies, but as a training system for YC/TechStars/Fundable
startups then they are a huge success.

For example, Founders Institute isn't the same level as TechStars or
YCombinator overall, but the progress the individuals make over 12 weeks is
STUNNING. Like really STUNNING.

I look at this 500 accelerators as a training program for the top 25!

In other words, go the Founders Institute and then apply to techstars.

Thanks for pointing out my change of heart... I put myself out there and 50%
of what i say is wrong.... then i get fact-checked and smarten up! :-p

~~~
kirinkalia
In the research process we also found an interesting program called FastTrac
from the Kauffman Foundation (<http://fasttrac.org/>), known for its
dedication to entrepreneurship. The program has been around since the late
1980s/early 1990s.

Now, there is a cost ($700 to $1200), but FastTrac is available in 49 states
and Puerto Rico, making it a much more realistic option for folks of all ages
who want to get their own business launched.

The FastTrac TechVenture program, which started in 2006 and is meant for tech
and science-oriented businesses, is in 25 states. FastTrac President Alana
Muller shared the following in an email to me:

<<FastTrac TechVenture is not a competitor to incubators/accelerators.
Instead, it is complementary to incubators/accelerators and provides the
requisite ecosystem – information, resources, networking contacts, frameworks,
etc. that an entrepreneur needs in order to know how to get a business
started.>>

------
jasonlbaptiste
Not sustainable. They key to the accelerators is actually what happens after:
ie- how to grow from 18k + simeple product to more people, funding, and a
network. That requires yc tuesday dinners, techstars mentor meetings, demo day
allocations, etc. Just not possible to have the people that need to be
involved there spread out across 500 accelerators.

~~~
jasonmcalacanis
Solid point, and agree.

With open angel forum in 12 cities now we might be able to help fund maybe two
or three dozen of these accelerators--but not much more.

The good news is that if even only 1 of 50 companies out of a University
accelerator is successful--and the other 49 serve as an education--it's still
well worth doing.

the goal of these is to inspire and educate--not have the same batting average
as YC or TS.

~~~
jasonlbaptiste
Another useful resource would be something along the lines of "funded
founders" dinners with companies you've invested in or really like in order to
help them deal with growing the company. YC helps going from zero to funded,
but what about after? The zero to funded is a 3 month process thing, but the
growing after funded is an indefinite time period. Progression I see being
useful:

YC/TechStars

OAF

What I described above.

~~~
wavesplash
I hear FoundersTable will be kicking off again in 2011. That covers the gap
you were discussing: <http://stirr.net/founders-table/>

------
jon_dahl
Overheard at a 500 Startups event: _500 startups isn't cool. You know what's
cool? A billion startups._

------
j_baker
I admit to only skimming this, but it doesn't seem to be satirical. Is this
actually meant to literally be a modest proposal, or is it a "modest proposal"
in the Swiftian sense?

~~~
redthrowaway
I think he's being genuine. Remember, he isn't limiting this to the US. Half
of current accelerators are outside the US. Projecting 250 by 2016, and the
active participation of universities, it's not unreasonable to suppose 500
global accelerators in the foreseeable future.

Now, as alluded to above, the value of YC and the like lie not in their
process, but in the experience and expertise that they bring to the table. I
honestly doubt there's enough dedicated people in academia with extensive
entrepreneurial experience to support jason's vision. It'd be nice to see
accelerators at most of the major business and tech schools, but I don't think
it's feasible to suppose it will be a ubiquitous phenomenon.

------
GerardoRitchey
There's always going to be debate over whether how involved the Government
should be in the private sector. On it's merit, to be honest, I don't think
that Jason's proposal goes far enough. He's definitely got his eye on an
undercurrent that could be a problem if we don't try and do something about
it.

The real issue at hand is what's the real expectancy of college. Is college
supposed to teach you to think, and make your more well rounded or is it
supposed to turn you into a ninja in your space? I always understood that it's
academia's responsibility to teach you to think and give you fundamentals that
you can take to the market, and have the market shape you. Obviously that's
archaic.

My generation (I'm 26) is, in general, a disaster coming out of college now,
and it's because they spent 4 years learning the applied physics of throwing a
ping pong ball across and 8 foot table and driving vaporizer innovation. Don't
get me wrong, there are tons that are graduating, and are doing awesome things
right now, but I bet that most of them had some sort of taste of what it was
like to work in their space while they were in school.

I think that students would leave school significantly better equipped, if we
found a way to make it so that you can't get your degree without spending the
last 18 months of college if you don't go work full-time in a startup-like
scenario, whether it's an actual startup or something like a Y Combinator. How
you pay for it and make sure that students aren't free labor and a tax break
for a startup, will be an issue, but overall this would end up being a net-
benefit for the economy.

The last 3 years in school, while I was getting my BA in English, I worked at
a tech startup, and very quickly I had to come to grips with the brutal
reality of where I was, what I knew, and what I had to learn- and quickly.
Those three years were a fundamentally life changing experience for me. I was
hired to do user quality assurance and content development, and by the time I
left, I was the de-facto project coordinator, because I was the one writing
all the python to make sure that everyone's content and art assets made it
into the system, so the developers could tackle implementing the new features
of the software.

The real key to make this proposal work, although funding is important, is the
quality of mentorship that is available to students who participate. I'm
freelancing now, but I've been able to pay my mortgage for the last 2 years
because the lead developer and CTO of that company decided that investing 20
minutes of their day, having lunch and sipping cups of coffee with me was a
worthwhile investment of their time. If the quality mentorship component is
there, programs like this will be able to help students really step it up a
notch or three.

------
davidedicillo
While I love the idea, the problems is that the key of success for these
accelerators is finding people who really have experience and can help, money
isn't enough.

In Miami we see these happening a lot. People from completely other
businesses, such as real estate, are jumping in this startup accelerators game
without a real direct experience, with the only goal of taking advantage of
inexperience young entrepreneurs.

The money isn't the problem, neither creating accelerators. The problem is
finding people like PG or you that have a real experience and that are willing
to share it, outside of the few well known tech hubs, like SF, NY or Boston.

------
jawn
And here I was thinking that someone would propose YC founders eat their
children.

------
T-R
Was anyone else, after seeing the title, expecting a satirical piece about
eating babies?

------
gomery
Are there enough raw materials to support an infrastructure of 500
accelerators? From investment pool to mentors, is that spreading the butter
too thin? Let's take my home state of Louisiana for example. There are several
"incubators" in the state. Office space and computer services offered, but few
mentoring relationships are build. I don't know of any true accelerators. The
incubator success rate is definitely up for argument. They tend to succeed
more at wooing startups to move to the region, than really cultivating an
educational growth program. It's a mindset that is not as prevalent in the
region. I think the OA forum has a better chance of successful ventures, let's
say in Baton Rouge, LA, than an accelerator would in the same location. Great
ideas exist all over the country, but the quality infrastructure to build
these into successes is extremely thin.

------
gojomo
Calacanis to McClure: "I'll see your 500startups, and raise you
500seedAccelerators."

~~~
jasonmcalacanis
+1 for funny

~~~
alnayyir
I don't think they like you chief.

------
jayp
Why only 500? Why not 5000? Or even 50,000 accelerators?

After all, as the author simply claims that, "it depends" if 500 accelerators
can actually succeed.

And if we are going bet, let's bet high. No point playing Roulette and betting
on black or red. Let's go with the double 0s. So, I propose that "America"
launches 500,000 accelerators. (Each unemployed person in the city of Los
Angeles can be made a CEO.) Since, "it depends".

------
gyardley
Jason - this is an interesting article, but why not release the dataset you
used to make your graphs and charts?

A simple listing of accelerators along with website, location, average
investment, equity stake, and length of class would be valuable to a lot of
people.

------
Detrus
YC always seemed like a plan to reorganize corporations.

In Capitalism Hits the Fan lecture
[http://www.reddit.com/r/Documentaries/comments/f35gs/capital...](http://www.reddit.com/r/Documentaries/comments/f35gs/capitalism_hits_the_fan_professor_richard_wolff/)
the professor concludes that startups are really communism, because the
workers own the "means of production" and directly benefit from the profits
made. So capitalism doesn't deserve credit for much of our technological
progress.

Startups are also the only solution he knows for fixing what's wrong with the
US economy. Bailouts, tax-breaks, regulation and deregulation won't help. The
conclusion in his lecture sounds funny and simplistic but 500 startup
incubators agrees with his basic premise.

~~~
klbarry
I don't mean to derail the thread, and the content of this news is great. But
to respond to your post, that's only true in the loosest, vaguest sense of the
word communism.

First of all, it's only true in digital start-ups, because once you make the
product you can copy it for free forever. In any other start-up you're still
paying someone to do the other work.

In every start-up you're also counting on the idea of "property rights", or
the right to keep the money you earn, the right to your software, etc. You're
still looking to make a profit that's more than the work you actually did, or
else you wouldn't be working. In communism, you would be thanked for your
contribution and still make as much as a doctor, at most, because that would
be "fair". I could go on...

~~~
Detrus
I think he uses the word communism to show a contrast with our current form of
capitalism. In the current system established corporations keep increasing
their profits while keeping the workers' wages flat since 1970. Because of
computers, outsourcing, there is a surplus of workers, who generate increasing
profits for the corporations. Much of the profits go to a small board of
directors, who in turn use them to undermine government that was expected to
look out for the workers.

Startups are a holy grail because they share profits with more workers,
supposedly.

I'm just summarizing his emotionally charged lecture here, I don't fully agree
with his premise, but it's an interesting perspective.

------
jonny_eh
500 Accelerators? Sure, why not? It's a big world. But 500 Y Combinators?
There can be only one!

------
klbarry
Has anyone thought of paying something like Y Combinator $20,000 instead of
going to college? It seems the value extracted is enormous...

