Without doubt, the incubator flavor of the year is Y Combinator. Few of its companies have matured enough to judge its success, but we’re seeing promising ideas emerge. Reddit, for example, was sold to Wired parent, Conde Nast. Its guiding light is l…

http://venturebeat.com/2007/04/16/y-combinator-continued/

A number of reasons stand out:

a) They have created and are perpetuating a mythology (thanks in a large part to the Livingston book) and an environment to attract a top class of hundreds of qualified applicants.

b) With their tiny funding model, a much smaller percentage of successes are required than traditional VC and last-generation incubators.

c) Hackers whose ideas aren’t as good can be shepherded to any number of those whose are — so top talent is easily found. And ideas, concepts and methods can be re-used and transformed. Don’t know this for a fact, but I would guess there is a vibrant “intra-Combinator” open-source model being employed.

c) They seem to have a focus on social networking (at least now), where new grads have more intuition and hands-on experience than traditional entrepreneurs. Their tiny seed funding model targets those very founders — who are just fine living on Kraft Easy Mac and who haven’t yet received a corporate paycheck to change that lifestyle.

By “nailing it”, implicit is that the expenses are low, the incubation time is properly short (intended merely to risk mitigate and seed teams, rather than do multiple iterations of things that don’t sell, nor preordaining who succeeds after admission to the program), and the critical aspects of teaming and motivation are enhanced by their methods.

Money is not the (only) magic sauce in startup viability, and many ventures use fundraising successes, as an excuse to hide their lack of ability to develop, field and sell a product.

There are numerous examples of $100m plus “funding successes” that never made it to ship a product – even larger funding examples of comparable failures.

Y-Combinator is a good balance to a not so rare type of silly and often futile exercise in overfunded failure.

IE $ raised is not a validation of product nor business success, as some might well understand.

Product revenue, successful product development and customers are real validation of success.

Incubators properly give teams a chance, the more the merrier and the cheaper the better. And yes prescreen for substance, concept and team, at minimal cost, as Y-Combinator does.

Giving enthusiastic, talented yet mostly inexperienced teams a chance, is the true calling of cost effective incubation – a means of natural selection, unfettered by artifacts of merely knowing the right folks, or having attended the “right” school.

How many of those failed? Probably little different than those far better funded, nor any worse than pedigrees that might on paper be stellar. Success in startups is not equated to scholarly skills, nor financing success.

Startup success often draws upon unique hard to quantify soft skills, after some modest amount of hard skills are present. Pragmatic deep expertise, efficiency, motivation, persistence, teaming and commercial focus come to mind. Aside from the core of the product…(ie if you build it will they come, or will your marketing bear fruit)

In the end, academic pedigree (as contrasted vs. academic performance) is not a strong predictor of entrepreneurial success, albeit it can be helpful, it is not the only predictor of commercial product development viability nor business success.

An example of the power of inexperience was the success of Digital Instruments which grew from 0->$60m sales in 10 years, on peak employment of 100 folks, with little seed money other than the founders $50k, and mostly inexperienced staff, some right out of school.

Firm quickly developed an interim revenue generating product, that fed capital needs until the first DSP based digital control scanning probe (tunnneling) microscope was fielded – and then led the world market for the scanning probe instruments by over 50% global market share nearly continuously, where otherwise the Japanese might have dominated this product segment.

The 40+ patents granted might have had something to do with this, as the founders insistence to not ship any new product until it works – since you have many chances to ruin your reputation with bad products….

The firm’s sales to Japan for quite some time constituted some 50% of sales dollar volume.

And later acquired for about $150m in stock by Veeco. All the while in most prior years spinning off about 30-40% profits on sales for close to 10 years…

Key there was the team took no salary till shipments generated revenue, and was largely made up of the students who had been in the President’s graduate level instrumentation program at UCSB.

Motivation is quite powerful.

Y-Combinator feeds motivated teams of mostly students to give them a chance. Occams Razor definition of incubator mission and practiced at Y-Combinator.

That is the true calling of incubators, not as a business model.

And my guess is that the eggs hatched at Y-Combinator will be very prodigious … near the best in the true meaning of culture of startups.

Kudos to the team behind Y-Combinator !! and best of luck to the hatchlings.

really what have they done other than one small dinky exit exit – how can you say they nailed it? once again bad journalism and hype coming from silicon valley reporters.

you cant even compare them to idealab that started companies in the internet era that returned billions of dollars to the investors including idealab , which unfortunately squandered its gains, and now has had a great deal of success in the clean tech era.

I’d liken Y Combinator’s approach to that of Google – create an environment in which many good ideas can blossom and then step back and see which ones catch on. It’s surprising that by this point in time more large companies don’t take this approach.