Turning my gaze a little bit on VC funding; they are expecting a “winter chill” in start-up funding.
So-called accelerators live at the sharpest end of the start-up funding ecosystem, backing ideas that may not yet be products. Few make it to the next round of funding. The rise of software companies that do not carry big upfront costs has made the business of early-stage investing more lucrative. But if venture capital firms reconsider their investment plans, accelerators could struggle to sell their start-up stakes.
There’s a lot of hype built around the earlier bets of YCombinator, but by “crowdsourcing” ideas and “demo-days”, they get incredible insights into start-up ecosystems and possibly provide a direction to their “research efforts”. Most start-ups usually have software as a focus and are slicing or dicing market approaches to build credible businesses. Yet, there is a huge potential for failure, because none of the investments flow into manufacturing, which provides more credible returns.
For example, my interest in mechanical keyboards was an eye opener for the hardware industry. This is a niche market, because no mass market buyer appreciates efficiency gains in lubed key switches or wireless keyboards. While they have been relegated to the “gaming”, but offers a superlative typing experience. I don’t see any potential disruptor or start-up venture in this field. A few niche players offer “builds” but that requires building up a community (and people who speak about it).
Manufacturing is tough; software is expendable.
YC is facing some heat:
As more rivals have appeared, it has sought to differentiate itself by offering more money. In January it announced it would update its terms, providing companies with $500,000. In addition to offering $125,000 for 7 per cent of equity, it offers $375,000 in the form of notes that convert to equity. It has also increased the size of its intake. A decade of ago, Y Combinator would take on just a handful of start-ups twice a year. Its last batch had more than 400.
Hacker News (for example) as a community around YC appears to magnify it’s sheen. It is a smart strategy to aggregate the smartest minds on a single platform, and that increases the recall value of the VC firm – even if its just one of the many in the valley.