Pioneering Tech Accelerator Programs
In 2005, Paul Graham serendipitously founded “the first of a new type of incubator”. Inspired by Harvard computer science undergraduates, he offered to invest in a handful of Harvard student startup ideas and mentor them through a summer program close to campus. Graham had always wanted to do angel investing, but found something inadequate about the state of venture capital and angel investment at the time. Graham believed that “investors should be making more, smaller investments, they should be funding hackers instead of suits, they should be willing to fund younger founders, etc.” (Graham, 2012). Thus, Graham deduced that the most efficient way of being an angel investor was to advise and mentor the group of startup teams synchronously, or in batches, during the summer. Together with his partners Jessica Livingston, Trevor Blackwell, and Robert Morris, the first program was held in Cambridge, MA during the summer of 2005. They named this program Y Combinator.
The success of the first Y Combinator (YC) program surprised Graham and those close to the program. Graham knew that what he had created would resonate in the entrepreneurship community on a national scale and that it could transform investment and incubation models for developing early-stage startups. He moved the program to Mountain View, CA to be closer to a larger density of technology startups in Silicon Valley, so as not to miss the opportunity to be the Y Combinator of Silicon Valley. Today, as of this writing, Y Combinator runs two programs per year for a three-month period, has an acceptance rate between one and three percent, provides an initial $120,000 in seed funding in exchange for a 7% equity stake in the startup, and culminates in Demo Day where the startups pitch their ideas to an audience full of potential investors. They have funded over 800 startups, including the now renowned Dropbox, Airbnb, Reddit, and Scribd.
As Graham anticipated, the Y Combinator model was adopted by a host of other wealthy individuals and organizations around the United States, most notably, Techstars, AngelPad, and 500 Startups have been recognized as best practice accelerator programs. This new model of investing in and incubating startups was termed a business accelerator or seed accelerator by popular sources because the programs target startups in the seed phase, or initial phase, of financing and development, and it accelerates the startup process (i.e. idea generation, developing and testing the product, and securing resources) into just a few months.