Part 3 is a bit boring, so posting on a Sunday morning.
This document is intended to describe all the different aspects involved with creating a Y-Combinator style startup incubator, sometimes called a startup accelerator. This should be considered a living document, to be shared and improved upon by anyone reading it. Edit the document here. I've attempted to break things down into discrete buckets: Sponsors and Investors, Investment Thesis, Application and Interviews, Founding Team, Investment Terms, Office Requirements, Mentorship, Partners and Advisors, Speakers, Demo Day, Post-incubator experience, Community Building, and When Things Go Wrong.
Read Part 1.
Read Part 2.
Application, Interviews, and Founding Team
What are the most important questions to ask on an application and during an interview? Many VCs say that the founding team is more important than the idea, and many strong founding teams bounce from one idea to another before settling on a winner. So what makes a strong founding team?
For Internet companies, the two most important roles are product design and engineering. The product person needs to know how to understand customers, see opportunities, build a fantastic solution, and respond to feedback. The engineer needs to know how to do everything, from network infrastructure to database administration to HTML, Javascript, and CSS. This person needs to understand scaling and system architecture. And most importantly, these people must be willing to iterate, pivot, and understand that "perfection is the enemy of good". There needs to be a clear CEO, usually the product person. And that's it. 2-3 people is the ideal size. Teams that are larger have higher coordination costs (more meetings), higher capital requirements, and can be slower to react and execute.
Investment Terms
The standard terms for startup incubators are $5000 per founder plus $5000 for the company for a 3 month program. The startups also receive free legal and accounting services for the duration of the program, although certain requests like patent applications are not covered. In return, the program receives 6% common stock (no preferential or voting rights).
Two questions come to mind: Is $5000 the right amount, given the cost of living? Is a duration of 3 months optimal, given the program's business model?
I would also recommend providing design services (or consulting) in addition to legal and accounting services. Design is a crucial part of making great first impressions and creating lasting passionate users. It's not something the Y-Combinator model offers, but I think it's just as important.
Office Requirements
The following make an ideal office:
- Fast, reliable internet
- Easy access to lots of power outlets
- 24 hr access (or close to it)
- Tons of whiteboards and supplies
- Guaranteed access to conference rooms (with conference phones and whiteboards and internet)
- Printer, scanner, fax, phone
There has been some debate over having an open room vs separate offices. An open room encourages more collaboration between teams and there is more peer pressure to continue working when you can see the other teams still hard at work. Separate offices more easily provides large spans of uninterrupted work time, which are crucial. Personally, I prefer an open room with clusters of tables, one team per cluster, with the teams spaced far enough apart to avoid disruptive conversations. This does necessitate enclosed conference rooms with conference phones, whiteboards, and internet access.
Mentorship
Having a great mentor can make or break a startup. A great mentor has serious dedication to the team: they can meet in person, once a week, they will travel to the team, and will always take emails and phone calls. A great mentor has relevant experience, especially in areas where the founding team is naturally weak. Generally, this will be in the business end of things: commercialization, marketing, sales, and biz-dev. The goal of the mentor is to provide perspective and pull teams "out of the weeds". Many product + engineering strong teams get so enamored with building the product that they forget to do marketing and sales. Mentors should not be compensated with cash, although it is interesting to consider a small equity grant.
Partners and Advisors
The culture of the program starts with the partners. The commitment and work ethic of the partners will rub off on the younger teams. If the partners are around, they can more easily answer questions and provide guidance. The partners can also more easily gauge the progress of the various teams. Are any in danger of failing?
It can also be beneficial to have a pool of advisors, available to all teams, each with a different specialty and connections. While these advisors are not expected to put forward the same level of commitment as the mentors, they can have valuable domain expertise in areas like banking, community management, sales, fundraising, etc.
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