Think you have a billion dollar idea? Pitch it correctly to Aaron Harris, and your dream just might come true. Harris is a partner at Y Combinator, a Silicon Valley seed accelerator, and convincing him could potentially earn entrepreneurs $120,000 in initial seed money as well as a spot in one of the accelerator's intensive training camps in the greater San Francisco area, access to expert advice in any field, and priceless networking opportunities. Yes, you will be part of a group whose sum is greater than its startup parts. Y Combinator, or YC as it has come to be known, created a new model for funding early stage startups: Twice a year it invests $120,000 in 100 startups simultaneously, and the companies move to Silicon Valley for three months, where YC executives work closely with entrepreneurs to create better investor presentations. The "training" ends with two days of presentations before a carefully selected group of investors. But the program does not end there: Graduates become part of a network that continues to assist the startups throughout their life cycle. Some may need further funding, perhaps even multiple fundraising rounds, and each case is decided upon on case-by-case merit. Harris, who visited Israel last week, explains that Y Combinator aims to "counsel entrepreneurs in the early stages, meaning getting them to a point where they have something impressive enough to warrant significant financing. Next they can be introduced to more progressive stages, and sometimes to investors who will acquire their startup. Some investors offer assistance as well as funds. Y Combinator sees early stage funding as a small part of the bigger picture." Q: What does the program include? "The most important thing we do is work with entrepreneurs on their ideas. We're hackers ourselves, and we spent a long time trying to figure out what people want, so we can see fairly quickly in which direction a small idea can go. Questions at this stage can range from coming up with a company name to long-term aspirations and world domination. In the course of three months we usually manage to help entrepreneurs find answers to all these questions." A different approach Y Combinator took its first step 10 years ago, when its founders wanted to learn how to invest in startups wisely and essentially started brainstorming groups. Harris says then even then, "It was different than other things," meaning YC was willing to bankroll ideas large investment firms would dismiss. Over the years, several companies that participated in the program had successful exits, and the program grew accordingly. Harris joined YC three years ago, after it financed Tutorspree, a company he founded. YC is open to financing every type of enterprise, but it is particularly interested in internet and mobile applications. "The second most important thing we do is help entrepreneurs deal with investors and acquisitions. We can get acquainted, but that's the easy part. We put a lot of time into teaching entrepreneurs how to pitch their company to investors, and how to close a deal once they generated interest. The second stage [of the program] provides not just advice, but also protection. Prospective investors will treat you differently if you arrive with us, because the way they treat you will determine whether we alert them to [investment] opportunities in the future or choose to keep our distance," he explains. "We also help companies incorporate properly, getting all the necessary paperwork to avoid potential issues that could hinder them down the road. We introduce entrepreneurs to lawyers, who often agree to defer payment for legal services. We help companies find and hire their first employees, and assist in patents registration and the protection of intellectual assets. "One of the things we do that isn't well known is settling disputes among the entrepreneurs themselves. No startup company thinks it needs it, but most of them do at some point." Q: How is that different from other accelerators- "Approaching us is different. Rather than presenting a business plan or giving a presentation, you fill out an application form. We invite most of the promising teams to a personal meeting, and decide on the financing immediately afterward," he says. "Every Tuesday during their three months in Silicon Valley, we have the entrepreneurs over for a dinner, where they listen to a lecture by an expert on one of the aspects relevant to startup companies. Guest lecturers are usually company founders, venture capitalists, and executives at known technology firms. Some speakers will usually end up investing in the participating companies themselves." According to Harris, the program's alumni network is an essential part of it, and companies are expected to lend each other a helping hand. "If you need a focus group for your product, a place to stay when you visit another city, fixing a browser bug, or finding a contact at a particular company, there's a good chance someone in the network can help you out," he said. Q: How involved are you with the work of the companies you finance- "In any startup company, the first two months are usually the most productive -- this is the time that shapes the company -- so anything that can maximize the impact this time has on the company would be great. We try to intervene as little as possible, and we don't demand a seat on the board of directors. We offer advice, but you don't have to take our advice. We understand that independence is one of the main motivations for people who want to launch a startup company. Investors who intervene could end up toppling startups." The early bird gets the exit Y Combinator is not very famous in Israel, despite the considerable attention the company garnered in Silicon Valley, having backed companies such as Airbnb, an online marketplace that enables people to list, find and rent vacation homes for a processing fee, and Dropbox, which is a file hosting service. Both companies are now worth over $1 billion. Now, YC is in the market for Israeli firms, which according to Harris should aspire to be billion-dollar companies. Q: Are you looking only for potential billion-dollar companies- "Yes. Venture capital funds focus on companies that can potentially be worth several billions, and this is what we want to find. It's not a question of what type of company, but more a question of the connection between the founders and the idea, i.e., whether it has a chance of reaching a billion-dollar value." Q: With an investment of just $120,000, you have to get in the very early stages. "Yes. We go in very early; it's very effective for companies in their early stages, and for them, the initial capital is very high. It can allow founders to devote two or three months to promoting their ideas full-time. For companies that are at the later stages, it's less about the money and more about accessing a network of over 1,000 technology companies. "YC holds two financing rounds a year, from January to March, and through July and August. We fund 100 companies at any given time, $120,000 for 7% of the company. Over the course of three months, we meet every week, then there are 'office hours,' when [entrepreneurs] come to talk to the professor, and we learn what needs to be done. "At the end of the [three-month] period we have two days of demonstrations, when we gather together 500 of the best investors in the world, and they listen to 2½-minute presentations by each entrepreneur. This allows each company to raise between $100,000 and five or $10 million, depending on their stage of development and their needs." Given YC's diverse investment portfolio, what grabbed its attention in Israel was the abundance of local talent. "In Tel Aviv you can't walk a few feet without encountering an entrepreneur with an interesting idea," he said. "The level of ambition and willingness to work hard are amazing. There's truth to the term 'startup nation.' When you meet the founders of these companies, you see it's not just cyber or corporate software-focused, despite the fact that there's plenty of room for billion-dollar companies in these fields. "It's a little bit of everything. You build your company here and then move from the relatively small Israeli market to Europe, Africa, Asia, the United States -- everywhere in the world is just a flight away, but online, these places are just a click away. It's amazing. By the way, not every company is better off moving to Silicon Valley. Sometimes it's better to set your sights on Europe or the Far East. " Q: How can you make a mobile application go viral- "I don't know. It's not the same for everyone. Every company should determine its strategy for global distribution. I think that if people want what you built, they will tell their friends, because it solves a real problem for them. This is what software should do." The 100-user mark One of the challenges entrepreneurs face today is the difference between their perception of the product and end-user feedback. Harris argues that "it's impossible to do everything end-users want because it only breeds chaos. It's better to do something that 100 people like than something in which millions of people have no more than a passing interest." Q: But don't you just end up with 100 clients? "No. Those 100 people become your evangelists. This is what happened with Gmail. The guy who developed it for Google worked very hard to get a result that 100 people really liked, and look at it today -- it's everywhere. If you focus on finding people who love what you do, 100 regular people to be your focus group, you'll see how the number of clients will increase. " Q: What other fields should startup companies aspire to branch into- "Artificial intelligence is a safe bet. The world is still far from where we can go in this area." Q: Is there a place for hardware developers- "I think what's interesting with hardware is that you need to develop software elements to protect the hardware, otherwise some factory in China would be able to produce it faster and cheaper than you can. But the relationship between China and Israel is such that you could develop it here and manufacture it there, so within a month you could get a working prototype," he said. Asked how many Israeli companies Y Combinator is looking for, Harris prefers not to use numbers. "We'll finance any company we think is good enough to work with. Every application is read by at least 10 people, which increases [applicants'] chances greatly." Q: What about post-program funding? "Presentation day is an opportunity to attract additional investments. We also just set up another fund that further invests in companies we had previously invested in." Q: How long does YC support companies it invested in- "Forever," he said. "As long as the entrepreneurs want us around."
