TechCrunch reports that Ycombinator, the really-early-seed-capital guys, have received some additional funding ($2 million) from Sequoia.
Ycombinator only invests small amounts ($5,000 + $5,000/founder) in exchange for around 6% of equity and has invested in around 118 startups since their foundation in 2005. Some of their startups have been acquired (Reddit, Omnisio, Zenter, ClickPass, Auctomatic) and others are doing well (Scribd, Loopt, Dropbox).
It’s obviously not just about the money which probably provides a conservative 2-3 months of free development time – they get mentoring and polish from the Ycombinator principals who had previously invested all their own money – and are honed to pitch at later stage VCs and angel investors.
I was saying recently that development time for ideas really depends on the amount of time the creators can dedicate to it and the initial idea that you might get 3 months sold work into something can work wonders. This is one of the funding gaps we have – we have very little in this really early stage where you can make a huge difference with minimal outlay.
This additional funding from Sequoia means that YCombinator will be able to leverage a better cash flow and increase the number of investments from 40 per year to 60 per year – which should see them secure for another couple of years. Spreading the investment like that is the safest way to invest – as it only takes one success to make up for a large number of duds. That’s not to say that startups who don’t make it big through YCombinator are duds – it’s just one more piece of the puzzle.
I spoke with a friend recently about what I’d do if I had £100K to invest – I’d pretty much do a YCombinator style investment plan. We have the entrepreneurs, techies and dreamers here in Northern Ireland. We just don’t have the funding.