Most incubators aim to help startups land funding for their ideas, but one healthcare technology startup is aiming to change this model. Prebacked hosts pre-incubation programs that get customers (large enterprises, such as Fortune 500 companies) to pitch the problems they are facing to early-stage startup teams, rather than the other way around.

The teams then build innovative, scalable solutions to solve these challenges. Winners land a revenue-generating contract with the enterprise.

“We call ourselves a reverse hackathon because we source together talented teams and pair them up with major enterprise clients,” its co-founder and former healthcare strategy consultant Chris Edell said in an interview with VentureBeat. “Our goal is new disruptive innovations and to act as a pipeline for the best talent.”

This past weekend Prebacked hosted 25 teams of three to five people, recruited from hackathons and code-a-thons, at one of its reverse hackathons in Campbell, Calif. Prebacked pitched three problems to the groups to solve. Prebacked judges will analyze the teams’ presentations on May 11. A 90-day incubation period follows, along with an integration stage in which enterprise will sign a major contract with the winning startup(s).

Hackathon program

Sameer Sonalkar, chief technology officer of the health insurance company Wellmark, works with Prebacked to select winners and come up with healthcare problems to solve.

“Because of healthcare reform, the industry is going through significant challenges,” Sonalkar said in an interview with VentureBeat. “The operating models are going to change; prices are going to change. We will need to adopt systems and solutions to help communities.”

Edell added that it also provides Wellmark with an incredible innovation channel at low price.

After being selected, Wellmark writes the team a letter of intent that indicates it is interested in seeing what the team can produce during the incubation period. These teams are also invited to weekly private events, dinners and mixed with top industry and venture capital (VC) executives.

“This attracts micro VCs and sends a signal that you’re a startup close to landing major deal with large enterprise,” Edell said.

An example of a past challenge Prebacked worked on was how technology lowers costs for the disabled/handicapped. The Prebacked team, which eventually became Benevolent Technologies For Health (BETH), built a low-cost prosthetic.  The team built a mold using coffee grounds and ground walnut shells, which conform to the body. The company is now in discussions with Band of Angels and other VCs.

Prebacked also poses questions like this one: “Different health care providers often charge different rates for the same procedure. Members are unaware since they only pay a flat co-pay per visit. There is no incentive to ‘shop around,’ contributing to excess health spend. What technologies can you build to: increase transparency of costs to our members and actively engage them to ‘shop around’?” Solutions could garner up to $100,000 rewards.

“Prebacked, at its core, stems out of Chris and I realizing it’s critical that we get enterprise and startup people talking,” said Prebacked co-founder and startup veteran Garrett Dunham in an interview with VentureBeat. “Coming from oil and water, we still are able to mix. Other people are doing it wrong by focusing on one to the extreme; it’s about having a balancing act between the two.”

Dunham said they also hope to alleviate some entrepreneurs’ fears of navigating the territory of acronyms, $1 million fines, regulations and a massive industry with insane amount of capital.

Competitors include 2020 VC and TechStars. Prebacked was founded in March 2012 and their first successful event was in October 2012.

The May 4 and 5 event included three C-suite executives from health insurance, three Blue Cross Blue Shield plans participating, five partners from Venture Capital firms and over 100 attendees.

Top image: Prebacked founders: Garrett Dunham (left) and Chris Edell (right). Photo credit: Courtesy

And, while founders are seeing evidence of an A-round crunch, angels and accelerators are picking up the slack.

Mark Cannice, professor of entrepreneurship and innovate at the University of San Francisco, recently completed his 37th consecutive survey of Silicon Valley venture capitalist confidence. And VC confidence is up for each of the last three quarters, hitting 3.73 on a 5-point scale.

This quarter, even the depressed exit market for venture-backed firms typified by Zynga and Groupon was not enough to dampen VCs’ increasingly rose-tinted view of the future.

I talked to Cannice this morning.

VentureBeat: VC confidence is up. Why?

Cannice: It runs a little bit counter to some of the quantitative numbers that have come out recently, however, there’s confidence in the future over the 6-18 months.

Part of the reason is that VCs tend to have a longer-term horizon, they look further down the road, so even though current measures of performance for Q1 aren’t that good, it looks like some of the pressures on the VC model will ease somewhat, and acquisitions from corporations are likely to pick up.

VentureBeat: Which Q1 measures aren’t good?

Cannice: The national VC association measures each quarter for IPOs and fundraising, and they found that for fundraising the amount raised is not that different from a year ago, but the number of funds is down.

What that points to is a concentration in funds which corresponds to a lot of funds closing up over the last year or so.

In addition, acquisitions and IPOs of venture-backed firms and capital raised is down significantly over the last year.

VentureBeat: Which Q1 measures aren’t good?

Cannice: Particularly in life-sciences … some of the regulatory hurdles have tightened up over the last few years. That extends the time for approval, and extends the time for medical device and life science companies to appear to be good investments. And, of course, it requires more money.

When you change the structure … then the finance and metrics may not work. As a result, most of the funds are not able to perform as well; therefore the LP investors are started to draw the purse strings tighter.

The long-term effect is less private capital available for some life science related new ventures, and this will have an impact on the level of innovation in life-sciences.

In clean-tech … some of the headlines like Solyndra have had a negative impact.

But some of the lower venture captial requirement industries like software have been more effective.

VentureBeat: We’ve been hearing in the last few months about an A-round crunch. What’s going on?

Cannice: There’s a few things at work here.

Over the last few years the overall return on funds hasn’t been great. So while there’s more money going into venture capital, it’s tending to concentrate into fewer, name-brand funds.

But that requires some of those funds to make larger investment than if they were smaller, so some of the dynamics are working to necessitate larger investments … which tends to squeeze out some of the earlier, lower capital needs business.

Which has opened up a opportunity for smaller, angel-type funds and accelerators to replace them – angel groups are filling the hole.

VentureBeat: VC confidence has been boomeranging around the last few years. Why?

Cannice: There’s a clear correlation with the macro-economic environment, which has boomeranged too.

And there’s also — from a government point of view — the oversight of the industry is not necessarily as popular as it could be.  When there’s external influences that has a negative impact on any part of the VC business model, that tends to find its way into the confidence levels.

VentureBeat: What’s the take-away for founders and entrepreneurs?

Cannice: What I’ve seen really consistently is while there’s waves of positive and negative sentiment related to macro-economic factors, throughout all that, I’ve always seen confidence in both venture capitalists and entrepreneurs.

That’s never wavered.

And that’s the hope for the future, that Silicon Valley continues to attract many of the best and brightest of the entrepreneurs around the world.

photo credit: dariusmonsef via photopin cc

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ForSight Vision5, a mysterious eye technology startup from the incubator ForSight Labs, has raised $8 million in new funding, according to a new SEC filing.

Menlo Park, Calif.-based ForSight Labs has spun off several startups, all of which aim to make life better for the vision-impaired. It was originally launched by Morgenthaler Ventures, Split Rock Partners, and Versant Ventures.

The company’s latest project is ForSight Vision5, which carries this description on its website: “ForSight Vision5 is evaluating a variety of technologies to address important unmet patient needs in key ophthalmic markets.”

ForSight Vision5 has no significant other presence online besides that description and a handful of job listings. That said, most of the startups coming out of ForSight Labs focus on the creation of eye drugs and delivery methods, so it’s fair to assume Vision5 will also be working on these types of products.

Before today, ForSight Vision5 had raised $8 million and $6 million rounds of funding, according to SEC documents. ForSight has never announced these funding rounds officially in press releases.

Prior to Vision5, ForSight Labs launched ForSight Vision4 with $6 million of funding on hand back in 2009.

Technological eye image via Shutterstock

Ed-tech entrepreneurs will be spoiled for choice when it comes to picking an accelerator or incubator program.

Education’s old guard Kaplan and Pearson unveiled their new startup programs in a bid to stay relevant. This immediately led to commentators questioning whether these companies are too “corporate” to guide startups in the right direction.

As GigaOm points out, a deluge of new ed-tech accelerators have launched in recent weeks, including Boston’s LearnLaunchX and New York’s Socratic Labs (check out EdSurge’s interactive map of ed-tech startups here). Last year, there was only one: Imagine K-12.

Pearson is channeling behemoths like SAP and Microsoft with their loyalty building startup initiatives. The company won’t take any equity, but the program’s participants will have access to product experts and tools, the opportunity to present at a demo day, and a $10,000 travel stipend.

Meanwhile, Kaplan’s accelerator follows the usual model. The test prep giant is teaming up with TechStars (which is providing $20,000 in funding to each of the founding teams in exchange for equity), and entrepreneurs will spend three months intensively working in New York City with mentors from a lineup that includes Kaplan CEO Andy Rosen, Treehouse CEO Ryan Carson, and Washington Post chairman Don Graham.

For companies like Kaplan and Pearson, this is an opportunity to be part of the future of education-technology, whether it’s developer tools, online learning initiatives, or brain training games.

“Teams aren’t limited to traditional classroom education nor K-12,” TechStars’ CEO David Cohen said in a blog post. “We’re looking for teams that are thinking outside of the box on a big scale.”

However, Dan Carroll, cofounder of ed-tech startup Clever, said he’s seen plenty of ed-tech companies “fizzle out” in recent years because they didn’t communicate well with teachers and schools.

“If education-specific accelerators follow in the path of Imagine K-12 and do a great job connecting startups with savvy pilot schools and teachers, they can add a ton of value,” said Carroll, a former teacher and alumni of elite accelerator Y Combinator. He suggests that Pearson and Kaplan use their “district sales expertise” to benefit the startup ecosystem.

At the very least, these accelerators will generate a good deal of hype around the ed-tech space. But commentators remain unconvinced that it will be generate a slew of high-quality startups led by experienced entrepreneurs. It’s worth noting that these accelerators haven’t invited teachers to come on board in any official capacity.

Faculty associate at Berkman Center for Internet and Society professor Rey Junco made the case that ed-tech founders rarely consult educators when they are designing their products for classrooms. He remarked in a recent post on VentureBeat about the failings of ed-tech startups — many of them venture-backed:

“Startups in other fields don’t behave this way. Imagine a genomics startup that didn’t talk to medical researchers and didn’t base their products on research in the biotech field. Such a company would never exist, let alone be funded by a venture capital firm.”

Likewise ed-tech writer Audrey Watters has already expressed distaste about the new crop of ed-tech accelerator programs.

Kaplan and Pearson incubating edu startups. Gross.

— Audrey Watters (@audreywatters) February 20, 2013

So what are your thoughts? Will these lead to a flooded market of cash flush, poor-quality startups? Or are these new accelerator programs a positive development? Leave a comment below.

Frankly, tech incubators are getting too ubiquitous for their own good. Why do we need yet another Y-Combinator or 500 TechStars imitator?

But when Silicon Valley’s newest accelerator, Alchemist, launched its first class of startups this week, investors opened their check books.

The startups that have been selected for the first class are far from sexy — unless a “software-defined infrastructure platform for heterogeneous computing” does it for you – but they’re all generating revenues. What they have in common is that they target their products at businesses, not consumers.

Ravi Belani, the program’s managing director, has introduced the program at the perfect time. Part of Alchemist’s appeal is that investors are wary of consumer-facing mobile apps and social games, which have millions of users who won’t fork over a dime. As a result, this year’s hot investing targets are business-to-business (“B2B” or “enterprise”) startups.

General Catalyst is just one of the venture capital firms that is keeping a close eye on Alchemist’s seed-stage startups. “Incubators have historically worked well in the consumer internet space,” noted Deepak Jeevankumar, an enterprise-focused VC at the firm. “With the right access to mentorship and design customers, Alchemist is well-positioned to guide enterprise startups,” he said.

Already, Andreessen Horowitz, Citrix’s Accelerator, True Ventures, Greylock Partners, and Founders Fund have invested in the program’s startups. Alchemist provides the startups with about $30,000 in initial funding, which is a larger sum than alternative programs such as Y Combinator.

“I think what Ravi is doing is exceptionally interesting,” said Kevin Spain, a partner at Emergence Capital.

At Alchemist’s packed Demo Day in Mountain View, Calif.

“There’s a real need for enterprise-focused accelerators in the market,” said Spain, explaining that B2B companies have a whole different set of requirements than consumer startups to get their products off the ground.

Lightspeed‘s Bipul Sinha, an investor with a focus on the enterprise, agrees that it makes far more sense for enterprise-focused startups to enroll in an accelerator. In an interview, he said the “product building and sales process” are very different from the consumer space. He added, “there is a need for mentorship and education.”

Belani isn’t surprised that investors have been so receptive. After all, VCs are beholden to their limited partners (LPs), who expect to see solid returns. “It’s fun to build stuff and make money,” said Belani. “And in the enterprise, your first customers will write million-dollar checks.”

During their six months at the accelerator (a typical accelerator program lasts three months), Alchemist connects the founders with chief information officers at Fortune 500 companies, and they learn how to present a compelling sales pitch. Most of the entrepreneurs have a strong technical background, so this education in marketing and business is vital.

To ensure the startups get the attention they need, Belani will only take on 10 teams per quarter. Belani has already raised enough money to fund 90 companies in the next two years, but won’t yet disclose the amount. The big picture vision is to foster a stronger relationship between Silicon Valley’s enterprise tech startups and key decision-makers at Fortune 500 companies. The current class met with top executives at Procter & Gamble, Best Buy, and Dell.

Ravi Belani, the managing director of Alchemist’s Accelerator.

“We have different needs than guys in a garage building a social game,” said Ryan Nichols, founder of Tylr Mobile, a startup targeting sales professionals that raised $500,000 last month. The serial entrepreneur, who spent four years at SAP, saw a lot of value in the program, which fronted about half of his startup’s seed round. ”I don’t need business 101 advice, but I’m absolutely hungry for expertise in making enterprise sales and help finding development customers with specific needs.”

Mark Trang, cofounder of Social Pandas (pictured above, flanked by his cofounders), heads one of Alchemist’s venture-funded startups. He said he tapped Belani’s “network of experts,” including former Oracle-on-Demand CEO Timothy Chou and DFJ’s Tim Draper, for advice on hiring, research and development, and PR. With its social tools for salespeople, Social Pandas has already raised a sizable $1.5 million seed round.

Related: In 2013, analysts predict that 80 percent of the companies that will go public are B2B.

When Balani hatched the idea for the new model accelerator, he had no trouble convincing Khosla Ventures, Cisco, SAP Ventures, US Venture Partners, and his former VC firm, DFJ, to underwrite the fund. This is an impressive feat. With a few notable exceptions, said Belani, “Venture funds do not fund another instrument that is funding startups.”

Alchemist spun out of the Harvard Club in San Francisco, where Belani brought in top speakers to meet with talented college students. Likewise, the first batch of startups in Alchemist’s program met with entrepreneurs and visionaries like Adam Pisoni, Yammer’s cofounder and CTO; Melinda Gates; and Box’s 27-year-old CEO, Aaron Levie.

At a launch party for Cambrian Genomics, one of the startups enrolled in the accelerator.

At a recent get-together with the founders, I noticed an unusually large number of female entrepreneurs and developers. In another unusual twist, about half of the class are recent college grads, which suggests that the growing interest in enterprise-technology is permeating the top universities.

Andrea Faz is the twenty-something cofounder of ConnectBright, which offers a directory of reviews of B2B companies. Given her lack of real-world corporate experience, the mentorship was invaluable.

“We all unite on this common ground of innovating the sexiest industry [and that's the] enterprise,” said Faz.

With an explosion of seed-stage companies, and a relatively steady supply of first-round capital, it seems pragmatic to teach entrepreneurs how to make money. Alchemst’s founders will be in a strong position when they decide to raise, if they need VC funding at all.

In their own words, the first batch of startups are:

• SendTask, a next generation enterprise task management platform.
• Social Pandas, a social selling platform to help salespeople close deals.
• Xockets, a software-defined intfrastructure platform for heterogeneous computing cofounded by a former Cisco engineer.
• JyMob, a platform to choose the best people for your jobs.
• Selligy, a mobile service helping salespeople with their primary activity, sales meetings [Editor's note: Selligy was a finalist at VentureBeat's Mobile Innovation competition.]
• Active Scaler, a storage-load balancer for network driver enterprise storage.
• ConnectBright, an advocacy empowerment platform for B2B service providers.
• Cambrian Genomics, a DNA laser printer.
• MobileSpan, a BYOD platform for enterprises.

Y Combinator, one of Silicon Valley’s most well-known startup incubators, is tightening the purse strings. It announced today that it is decreasing the $150,000 investments startups get for graduating the program down to $80,000, saying the original amount was just too much.

In the past, startups who joined YC received $150,000 from famed investors Yuri Milner of DST Global, Ron Conway of SV Angel, and more recently, Andreessen-Horowitz. YC said in a blog post that it “ended up de facto managing [the investments], and it was awkward to manage something we hadn’t started.” Thus was born The YC VC Program, which now will give startups $80,000 and asks the investors to spend quality time in “office hours” with the entrepreneurs as a consolation prize.

General Catalyst and Maverick Capital will join Yuri Milner and Andreessen-Horowitz to each invest $20,000. It looks like Ron Conway has backed out of the investment pool. We’ve gotten in touch with Ron Conway about why this is; we’ve also reached out to reps from Andreessen and YC and will update this post upon hearing back.

YC went on to explain in its blog post that the $150,000 amount was actually causing problems for those startups that didn’t “make it” and was too much money for the ones who went on to become profitable. By halving the amount invested, the incubators hopes it will also “make [the problems] at most half as bad.”

As usual, the $80,000 will be given to the startups as convertible notes that YC says have no valuation cap and no discount.

Money image via Shutterstock

Silicon Valley hotdog Dave McClure and his incubator, 500 Startups, are looking to the Indian subcontinent for a new wave of entrepreneurship, according to a recently filed Form D.

McClure filed with the SEC to form a new, $5 million limited partnership VC fund called 500 StartupWallah.

“Wallah” is a common Indian suffix used to convey the kind of work you do. E.g., a chai-wallah is someone who serves tea; a bottley-wallah is someone who does recycling; a startup-wallah is someone who does startups.

The fund has yet to make its first sale of securities (i.e., raise its hoped-for $5 million). But with McClure’s provenance and connections (remember, he’s one of the Paypal Mafia), $5 million should be small, easily gathered potatoes.

We’ve been in touch with McClure about the filing; due to the extremely early nature of the fund, he’s unable to offer any comment.

But if you follow McClure’s other money, it’s clear he’s looking into a number of regions where technology is huge and in a position to have a large impact on sometimes-struggling economies and even democratize social strata.

Earlier this year, he took part in a super-angel, pan-Asian project called Jungle Ventures. He also acquired a Mexican VC fund outright, giving 500 Startups a foothold in Latin America.

Even the current 500 Startups application process is geared toward finding talent outside the Valley, and in its most recent batch, 57 percent of the incubator’s teams were international.

Put it altogether, and whaddaya get? McClure’s going for India and the rest of the world, obvs.

Additional reporting by VentureBeat writer Rebecca Grant.

Google is the latest to jump on board with new Berlin tech hub The Factory. The company has pledged €1 million ($1.27M) over three years through its “Google for Entrepreneurs” program.

The yet-to-be-completed Factory is a 12,000 square meter property development in central Berlin, which aims to bring established companies and new startups together in a unique (to Berlin) work-play environment. Confirmed tenants include Berliners SoundCloud, 6Wunderkinder, Versus IO and Toast, as well as global web non-profit Mozilla.

The funds Google has pledged will be allocated through The Factory and are earmarked for training, mentoring, events, and other programs to support startup development.

The Factory is backed by JMES Investments, an investor in several Berlin startups, in partnership with s+p Real Estate.

“Compared to London, we’ll still in kindergarten in Berlin.”

In terms of contacts, reputation, and funds, Google’s support is a significant boost in The Factory’s bid to help local startups grow to compete internationally. “Compared to London, we’ll still in kindergarten in Berlin,” JMES partner Simon Schafer said today, pointing to the tendency for Berlin Internet companies to exit at lower valuations to those in London. “We’re just at the beginning of the innovation process.”

He added that Berlin companies are also less likely to be in it for the money than some of their international peers.

For Google, the deal is more about goodwill than a direct bid to capitalize on talent in Berlin. The Factory will be enforcing a “no recruitment” policy on campus, and Google will not be directly investing in startups supported by its funds.

While Google’s pledge to The Factory is far behind its commitment to Google Campus in London, it’s a sign of growing interest in Berlin. Other recent Google initiatives for German startups include Grunder Garage in partnership with Indiegogo.

Additional reporting by Michelle Kuepper.

A version of this story appeared today on VentureVillage, VentureBeat’s Europe-based syndication partner.

NEW YORK — In a city that’s no stranger to startup incubators and accelerators, how do you do something different? The cofounders of IncubateNYC, Brian Shields and Marcus Mayo, are taking up that challenge with an early-stage business program that offers a community support structure, workshops, and a mentor network for budding entrepreneurs.

Participants have to apply for the IncubateNYC program and pay a $50 monthly fee, but unlike accelerators, you don’t have to give up any equity in your company. (On the flip side, you don’t get any seed funding from IncubateNYC.) In exchange, you get access to a group of like-minded entrepreneurs and advisers to help you develop your business idea.

“The moment you stop thinking about your idea is when your business dies,” Shields said at the IncubateNYC launch party last night, held at Google’s headquarters in the city. “We’re trying to save ideas and businesses out here.”

Ultimately, the goal of IncubateNYC is to make entrepreneurship more accessible, Shields said. The program consists of a five-week intensive workshop, followed up with weekly meetings to keep participants on track. IncubateNYC also continues to help out participants after they launch their businesses (this is where the mentor network becomes really helpful). It has partnered with Google and Columbia University, and it currently operates out of Harlem and Manhattan.

In more than one way, IncubateNYC resembles a startup version of a book club — other members in your class hold you accountable for work you promised to do, and they also collaborate with you on the viability of your business direction.

Shields acknowledges that they may not be able to attract the same level of startup that NYC’s many incubators do, like Entrepreneurs Roundtable Accelerator and TechStars. But from what I gathered at the launch event last night, IncubateNYC is far more interested in helping entrepreneurs develop their ideas, instead of being focused on building the next Facebook.

After all, not every startup can be massively successful — but plenty of them can still be viable businesses.

IncubateNYC’s generally inclusive attitude on entrepreneurs also makes it the most diverse startup group I’ve seen in the city. Instead of being overrun by white men, the program’s participants so far have included plenty of minority and women entrepreneurs.

“Usually you invest in a business, sometimes you invest in a plan, but it has to be pretty good and well baked. But in this case a bunch of people came together and invested in a vision, and second in Brian and Marcus,” said IncubateNYC investor and adviser Jurgen Leijdekker, who also serves as a senior operating executive at Welsh, Carson, Anderson & Stowe. “Our big bet is that this is a generation of entrepreneurs … that wants to strike their own path, is disenchanted with the corporate world, and is willing to take that risk.”

One of the first entrepreneurs to go through IncubateNYC’s pilot program was Eric Ho (above, together with Brian Shields), creator of Husky Chat, a Chrome app that lets you chat with other people on any website. Even though he had a working version of the chat service before he joined IncubateNYC, Ho says he received plenty of helpful advice from others in the program. In particular, he appreciated the structure and diverse community from Incubate NYC.

“A lot of the accelerators are industry focused, you’re kind of talking to yourself,” Ho said. “I look at incubateNYC as my Alcoholics Anonymous.”

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Having a big brand behind your startup can do a lot for a company’s name. Pepsi — one of the biggest names in the world — launched an incubator in Brazil today, helping local entrepreneurs create companies, while using their sprightly teams for PepsiCo-brand marketing projects.

The incubator program is called PepsiCo10 and will accept business proposals from students to businessmen who provide “emerging technologies that can be applied to brands to engage consumers in new ways to help drive sales.” The program was originally launched in 2010 in the United States and was later expanded into the United Kingdom and broader Europe.

If you’re interested in submitting your business idea, fill out the form here. The last day to apply is October 27, after which a number of judges will review the submissions through December and choose the first five companies to join the incubator. From there, the five startups will work with a PepsiCo brand, such as Doritos or Gatorade, on a marketing project. A second phase involving the same process will determine the last five companies to be admitted into the program. All those chosen will receive an all-expenses paid trip to New York City for some networking time.

PepsiCo isn’t the only one giving love to the South American country. A number of venture capitalists have also taken interest in Brazil. Well-known venture firms such as Sequoia Capital already have funds dedicated to the country. Redpoint e.ventures recently announced that it too would launch its own fund targeted at Brazilian startups. The $130 million fund focuses on early-stage companies. Co-founder Mathias Schilling told VentureBeat at the time that Redpoint e.ventures is particularly interested in commerce companies in Brazil.

The PepsiCo incubator is particularly interested in the sustainability, entertainment, mobile, and retail industries.

DEMO, the product launch conference co-produced by VentureBeat, announced last year that it was holding a conference for burgeoning companies in Brazil as well.

Brazil face image via Shutterstock

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If Paul Graham likes your company enough to take you into Y Combinator, his prestigious startup incubator, your company might be worth as little as $200,000 on your first term sheet. Or it might be worth as much as $400,000 — and that’s if you’ve got a team of five and previous experience building a company.

Yet Graham this week called out other investors for “lowball” funding deals.

In a leaked memo, Graham cautioned Y Combinator companies not to accept deals from Google Ventures, calling that firm’s funding term sheets lowball offers.

But in talking with a slew of Y Combinator alumni from the past three years of YC batches, we found that Graham himself takes between 5 percent and 7 percent of companies for amounts ranging between $12,000 and $20,000. Those amounts aren’t any great secret; YC publishes approximations on its own site. But while the founders said YC insisted that these terms had nothing to do with their companies’ actual valuations, on paper, it made the startups worth between $228,000 and $287,000 on the high end.

“We’d had our first product on the market for four or five months; we’d been incorporated for a year and had already taken angel money,” said one YC alum we spoke to. “So the valuation, did that make sense? Absolutely not.”

This founder, whom we’ll call Tom Green, said that while exact dollar amounts and percentages fluctuated slightly based on how many founders a company had and how experienced those founders were (younger founders lost 1 percent or 2 percent more in equity for the same amounts of money), most of the deals were structured to favor Y Combinator with the assumption that most of the teams were just starting out and were likely to fail.

Unlike full-fledged investment firms, Y Combinator doesn’t do research or due diligence — not in the traditional sense, at least. Graham has seen thousands of products and teams in his time in the Valley, and YC alums tell us he’s got a strong sense for pattern-matching. He’ll make a one-meeting deal based on his gut, but he likes to bet on teams, not business plans. For YC’s mammoth classes of startups, which are sometimes 60 or 80 teams strong, this approach is the only one that scales. And granted, many of its companies are very early-stage startups that aren’t likely to command particularly big valuations anywhere. Still, its one-size-fits-all approach does lead Y Combinator to undervalue some of its companies.

“I would have loved for YC to sit down with us for three days and evaluate our product … and say, ‘We should really cut down our take or give you a lot more money,’” said Green. “But I don’t think that would scale for them.”

Why the lowballing is OK

YC offers the same funding, more or less, to every startup. It’s pretty upfront about the deals, and all incoming founders know what they’re getting into: a package deal based on a one-time gut reaction to the product and/or the team. There are enough repeat YC founders that we can safely assume most alums don’t feel they’re getting screwed in the process.

We can’t fault Graham and Co. for structuring YC’s deals this way. The incubator puts around $2 million into its teams each year, and the vast majority of them fizzle out quickly. Relatively few are acquired or go on to make significant profits, and because the teams are in such nascent stages during their YC months, getting to an exit or profitability can take years.

If YC’s deals were anything other than lowball deals, Graham and the other partners wouldn’t be able to continue doing business.

Besides, as every YC alum we spoke to attested, Graham gives a lot more than a few thousand dollars in exchange for equity. YC alumni have a huge network of peers and mentors, access to influential VCs, and a large megaphone to talk to press and the public.

In many ways, in fact, the YC network and opportunities mirrors what we’ve seen happen at Google Ventures.

In a recent in-depth investigation of the firm, we found that while its deal amounts were relatively small (also being rather early-stage deals, though not as early as Graham’s), what the firm really brings is its network of engineers, designers, product experts, PR professionals, recruiters, and co-investing VCs. Arguably, the Google Ventures team’s nonfinancial assets far outweigh those of Y Combinator’s.

When we spoke to Google Ventures about the leaked memo, the team was taken aback. Graham’s words caught the partners totally by surprise. But it didn’t upset them much, either.

“I’m fine with that headline, that Google Ventures doesn’t write blank checks to YC companies … that Google Ventures negotiates and invests wisely,” said Google Ventures partner Bill Maris in a phone call.

In our talk, Maris noted the obvious: Investors outside of the mass-incubator scenario are obliged to do due diligence, research, and analysis on their companies, and they’re entitled to offer whatever terms they feel are fair. And startup founders are likewise entitled to turn down an offer if they think it’s not adequate.

Also, Google Ventures has invested in multiple YC companies, some as recently as a few weeks ago. Moreover, Google itself has acquired YC companies.

YC alums who go to Google Ventures

Tikhon Bernstam might know better than anyone else exactly what both entities have to offer. A two-time YC alum, he took Scribd through the program in 2006 as one of 11 startups in the batch. He returned for another round with Parse in 2011 as part of a 63-company class. Then, Parse took a round of funding from Google Ventures.

When we talked to Bernstam last year, he, like every other YC alum, was positive about the incubator.

“The number one complaint people have about Y Combinator is that … the valuations are relatively low,” he said during our interview. “But the value-add is so high. … It’s well worth the five, six, seven points you give.”

In a phone conversation yesterday, Bernstam reiterated his belief that the YC experience and network were worth the equity — and he said the same about the Google Ventures deal. “There are a lot of investors out there who are just a check, but that is not the case for either YC or Google Ventures,” he said. [Disclosure: Bernstam has invested in YC and non-YC companies.]

And as far as valuations are concerned, Bernstam echoed the sentiments we heard from Google Ventures partners, saying, “The companies that are the hottest in the YC batch can often raise on those [high valuation] terms — Parse did actually. … When the best of the best come out of the batch … a lot of investors will not invest on those terms, but a lot will.” He felt that both YC and Google Ventures were fair in their dealings with his company.

As far as Bernstam knows, all the YC alums who later took money from Google Ventures have been happy with their deals; he was quite surprised to read about the “lowball” news, especially since YC advises a lot of first-time fundraisers.

Big picture: Graham has a problem with Google Ventures

Stepping back for a moment, we have to acknowledge the obvious: Both entities are here to make money from the labor and success of entrepreneurs, essentially operating in a predatory role. Both entities gamble, although YC takes more risk and gives less money, because of its earlier-stage deals. But both investment firms are essentially the same, especially since they both put more influence on the table than money.

The two entities are exactly alike in their core philosophy: They feel that successful investing has less to do with picking the right company than with nurturing the right people. That’s why both place such emphasis on their capabilities to nurture companies, not just fund them.

So what makes Google Ventures a “lowball” firm, in Graham’s opinion?

In an email exchange I had with Graham last night, and in a public thread on YC-controlled news aggregator Hacker News, he said his original memo only applied to capped debt financing with subsequent decreasing caps (keep in mind, caps have no impact on valuation, and debt financing is quite popular for very early rounds at very young startups*).

Graham’s contention is that YC startups are taking a higher cap in a first round of debt financing, and then Google Ventures is offering a lower cap in a second round of debt financing.

From VCs and YC alumni, we’ve heard YC partners recommend setting debt financing caps at $10 million. Apparently, some investors, including Google Ventures partners, are signing up for those deals. Other investors, including Google Ventures partners, are trying to negotiate for what they consider a more fair cap.

“The problem is not that the valuation caps GV asked for were low in themselves,” Graham said via email. “The problem is simply that they were lower than the caps at which the startups had already raised money, which can cause complications.”

In debt financing, most rounds have multiple caps (this fact, in addition to being common knowledge, is one we’ve heard from both founders and VCs who’ve spoken on background about this specific case). The caps will range depending on the founder’s relationship with the VC and what he thinks the VC can offer in addition to cash.

This “lowballing” accusation has everything to do with business, but not the business of how either Graham or Google are structuring their deals.

We asked Graham to clarify the basic question of valuations and whether both YC and Google Ventures give startup teams a fair idea of what their companies are actually worth. Graham responded, “I don’t think valuations matter that much,” and that in general, he doesn’t have a problem with Google Ventures’ valuations.

“The most important thing to remember about fundraising is to get it over with and get back to working on the company.”

Considering this comes from a man who just asked his portfolio to blacklist an entire venture firm, this might read as a rather contradictory statement.

On the other hand, with two new deals per week, a focus on seed deals under $250,000, and a new startup lab focused on incubating the best teams, Google Ventures has perhaps become more of a competitor to Y Combinator than an asset. Under those conditions, Graham’s original accusation makes perfect sense; he’s trying to keep his money-makers from defecting to a competitor.

The kicker, and the truly poetic part of all this, is, as Graham hints, that all these valuations are made up, anyhow. They’re all high-powered guesswork. With no users, shells of products, and no employees beyond a founding team, these companies’ valuations are entirely hypothetical.

It’s a lot of sound and fury to start an investor battle over, but in this valley of braggadocio and egos, wars have been fought over much less.

Top image courtesy of Jolie O’Dell

*Here’s a primer on debt rounds and why convertible notes with caps have become so important.

The industry calls them debt rounds because they’re actually loans. The loan amount is later converted into equity when the company goes on to raise its Series A round (equity funding) from venture capitalists.

The advantage of this debt financing is huge for the entrepreneur. It avoids a lot of paperwork and haggling with investors over setting a valuation, a requirement of taking an equity round. By agreeing to a loan round, the entrepreneur and investors are agreeing to let the valuation be determined in the next round. If a company is successful, it’s great for them. They can command a higher valuation and give away less of their company per dollar invested.

But many investors don’t like debt rounds. If company goes on to raise the next round at a high valuation, the investor doesn’t get any increase in that value. That’s why they sometimes ask for a cap, which sets a ceiling on the value of the price they pay for their share of the company in the next round.

Still confused or need more detail? Here’s more on valuation caps and how they work. Fred Wilson also has a good explanation of convertible debt.

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Big Data and Predictive/Real-time Analytics startups: Are you looking to jumpstart development & accelerate market traction? Sign up for the SAP Startup Focus program to receive technology, support, resources and community to help you develop new applications on SAP HANA, a cutting edge database platform. Get started here, and enter promo code “VB2013″ on the form.

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Sept. 9 - 10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Salesforce’s Desk.com has partnered with notable incubators Y Combinator, TechStars, 500 Startups, FounderFuel, and more to give a ton of startups six months of free software designed to help with customer service and support.

As we wrote when Desk.com launched in January, the service competes with Zendesk and TalkDesk to give small and medium-sized companies cloud-based customer support management. With the desktop or mobile apps, business can field queries through phone, email, web, Twitter, Facebook, and other channels.

Basically, Desk.com is the sort of critical software that can make sure your startup is actually being responsive to precious early customers. Y Combinator, FounderFuel, and other incubators/accelerators that partnered with Desk.com already give their startups perks like seed funding, mentoring, and space to work, but they also toss in things like software to make their programs more attractive.

Montreal’s FounderFuel, for example, gives startups a $25,000 investment for 6 percent equity. It also has partnerships with Rackspace and Amazon Web Services for free cloud hosting and SendGrid for free transaction email support. Now it can add Desk.com to that list.

“We see great value with the partnerships we have in place,” FounderFuel general manager Ian Jeffery told VentureBeat. “It’s difficult to get into accelerators like ours. These companies are carefully selected.”

Desk.com, which was previously Assistly, knows about the challenges of being a startup. While it wasn’t part of an incubator, the company saw the things that could go right or wrong as a small San Francisco-based company.

“Even though we are part of Salesforce, we still consider ourselves to be a startup in many ways,” Desk.com vice president and general manager Alex Bard told us. “We had a lot of help from the community and now we’re giving back. Sometimes we give talks to incubators, and we do webinars for startups.”

Of course, Desk.com has self-serving reasons for giving away six months of free software. First, it wants to create paying customers from an elite group of startups that have already been vetted. And second, giving away the service creates goodwill and word-of-mouth with the influential and talkative startup scene.

On a related note, Desk.com is also a sponsor of The Startup Pizza Fund, cash dedicated to events hosted by cool early-stage startups. The Startup Pizza Fund gives a pizza party to one group a month.

Check out some of the other incubators Desk.com will provide its software to below:

Photo credit: Desk.com

After playing coy and dropping hints for weeks, Microsoft has finally announced its newest incubator, the Bing Fund.

The Bing Fund will invest $50,000-$100,000 in early-stage startups, through standard convertible notes (loans that convert to equity at Microsoft’s option). Additionally, Microsoft will provide its startups with four to eight months of advice, design and development help, discounted access to Microsoft’s Azure Data Marketplace APIs, and introductions to potential partners or customers. The startups will also have the option of using office space on Microsoft’s Bellevue, Wash. campus, in a special section nicknamed the “Bingcubator.”

“Our intent is to roll up our sleeves and help entrepreneurs take their early-stage prototypes to scalable products,” said Rahul Sood, the general manager of the Bing Fund, in an interview with VentureBeat yesterday.

By offering more than just cash, the Bing Fund joins an increasingly large array of incubators and accelerators aimed at helping entrepreneurs get off the ground. The success of accelerators like Y Combinator, 500 Startups, TechStars, and others have given rise to many regional and company-specific spinoffs. Microsoft, with its huge pools of talent and other resources, is in a good position to jump on this trend.

The Bingcubator is separated from the rest of the Microsoft campus and will have separate keycard access, so startups won’t be completely assimilated into the Borg. That’s an important requirement for Sood, who says he wants the startups to maintain their own, independent cultures. However, one of the advantages of Bing Fund investment is that Sood will set up a network of mentors for each startup, drawing from experts across Microsoft, including product experts, marketing experts, or scientists in Microsoft Research.

At the end of the incubation period, Microsoft hopes to help the companies find their first round of venture funding through its venture capital partners — or perhaps acquire them itself.

Sood and his team of about a dozen people are looking for companies in the online space that have a working prototype and a small team in place and that are ready to expand. Many will have completed programs at accelerators like TechStars or Y Combinator, and in fact Sood says he’s currently considering two or three companies in Microsoft’s Kinect accelerator. Despite the name, the Bing Fund doesn’t require its companies to work with the Bing search engine or the technologies associated with Bing, including speech recognition, image processing, video, local/geo/map technologies, and so forth.

“We will invest in startups that we feel are doing disruptive things online,” Sood said. Additionally, he’s looking for companies that have a long-term potential to be Microsoft partners or acquisitions.

“We’re not going to take on someone’s landscaping business or invest in a carwash,” he said.

The Fund is the brainchild of Sood, who joined Microsoft in January, 2011. Earlier, Sood was working for Hewlett-Packard, which had acquired his company VoodooPC, a boutique maker of high-end gaming computers, in 2006.

I asked Sood if it was a little odd that he found himself working for Microsoft after all these years. Voodoo made its reputation with aggressively-styled PCs, emblazoned with tribal tattoo-like designs and bright colors. It was fiercely independent, and was, until its HP acquisition, one of the few PC makers still assembling computers in North America. After being an independent entrepreneur for years, how does he feel going to work for a giant, decidedly un-cool corporation like Microsoft?

“I was completely blown away. This company is unbelievable. There are so many smart people here,” Sood said. “The perception of Microsoft on the outside is completely different from what it’s like on the inside.”

“I think the number one reason I love Microsoft is we have a living founder and chairman who’s dedicated his life to making the world better,” Sood said. “His legacy and energy still walks the halls of this company. Microsoft is really good about letting entrepreneurs find their way in the company — you just have to figure it out. But once you do, this place is amazing.”

Microsoft is preparing to unveil a new investment arm called the Bing Fund.

The company hasn’t made an official announcement, but ZDNet’s Mary Jo Foley put together a variety of public pieces to assemble the picture.

• There’s a public Bing Fund Twitter account, which so far seems to consist mostly of bland haiku about entrepreneurship. (Sample tweet: “Want to change the world? / First, you must believe you can. / We believe you will.”)
• There’s a placeholder web site at BingFund.com, which simply says “thanks for stopping by” and promises more information “soon.”
• VoodooPC founder Rahul Sood, who ran the boutique PC maker until it was sold to HP in 2006, is now stating on his LinkedIn profile that he is the GM/Partner of the Bing Fund.
• And Microsoft has posted a job opening for the creative director of the Bing Fund.

BingFund.com doesn’t have much useful information yet.

In other words, Microsoft isn’t trying to hide the existence of the Bing Fund. It is, however, being coy about what exactly the fund will do. Given the amount of infrastructure and the job postings around the Bing Fund, it seems likely that it will include incubation features as well as monetary investment.

Foley notes another job posting for an engineer, which suggests that Microsoft won’t be limiting itself to investing in companies that use Microsoft technologies exclusively. Instead, it is looking for someone who has experience with

Microsoft’s web/cloud stack (C#, ASP.NET, Azure), HTML/Javascript/jQuery, as well as one or more popular startup stacks (LAMP, Ruby on Rails, PHP, AWS, Heroku, Google App Engine etc.)

That’s smart: Microsoft, if nothing else, is highly practical, and limiting its focus to Microsoft-only shops would be like shooting itself in the foot right now. That’s because many startups actively avoid Microsoft technologies — be they consumer-facing ones like Office or back-end technologies like .NET and Azure — preferring to focus on more open-source Internet technologies.

However, Foley speculates that the name of the fund might imply a requirement that funded startups use Microsoft’s Bing search engine somehow.

Update 7/9/2012: We asked Microsoft representatives for more details, and got a non-response: “At this time we have nothing to share, but stay tuned.”

Top photo of Rahul Sood from Rahul Sood’s Facebook page

Does it matter whether your fledgling company spends a stint in an incubator? Does it ever! Forbes‘ recent ranking of incubators around the country found that the average Y Combinator company is worth $45.2 million. Just try doing that on your own.

That’s the average across 172 companies, mind you: The total value of all Y Combinator companies is $7.8 billion. “The data is of course skewed by certain large companies,” Forbes admits, among them Dropbox and Airbnb, although Mountain View, Calif.-based Y Combinator didn’t spell out how much each of its alumni are worth.

As the article notes, Andreessen Horowitz, Yuri Milner, and Ron Conway together have provided a guarantee of $150,000 in funding for every company accepted to the prestigious club. Sequoia Capital — another big Silicon Valley name — is an investor in Y Combinator’s main funds. But the real value is in the other entrepreneurs as well as investors who are plugged in to Y Combinator’s now-potent network.

The number-two incubator on the list is TechStars, which started in Boulder, Colo., and now has spaces in New York, Seattle, Boston, and San Antonio, Texas. TechStars has hosted 114 companies to date, and while the Forbes story doesn’t say what their total worth is, it does note that 73 of the companies have raised a total of $134 million in venture capital so far.

“It’s become a new college for entrepreneurs because we’re so selective on front end,” said TechStars founder David Cohen, of the incubator model. Sure: If colleges paid you six figures instead of the other way around, and if you came out of college owning a significant chunk of a multimillion-dollar company instead of owning a ZipCar membership and a handful of maxed-out credit cards, then the analogy is a good one.

DreamIt Ventures (Philadelphia, New York, and Israel), AngelPad (San Francisco), and LaunchPad LA round out the top 5 in Forbes’ list.

Via Forbes

Updated 5/1/2012 to correctly reflect Sequoia’s involvement as a Y Combinator investor.

Photo credit: Al Abut/Flickr

DreamIt Ventures is also moving into the old office of Fab.com, following in the footsteps of TechStars, who took Foursquare’s former office in search of some magic startup mojo.

Five of the companies selected are part of the DreamIt Access program, a dedicated effort to launch 15 minority-led startups over the next 12 months. Comcast Ventures, the venture capital affiliate of Comcast Corporation, is an investor in the DreamIt Access program.

Additionally, five of the companies participating in DreamIt NYC are part of the inaugural class of DreamIt Israel, the first Israel-US accelerator.  DreamIt Israel helps Israeli startups expand into U.S. and Global Markets. The DreamIt Israel program is already underway in Tel Aviv, and the Israeli startups will be in New York City working alongside the companies in DreamIt NYC beginning May 14th.

The companies are:

Bazaart, Haifa, Israel: personalized fashion catalogs for tablets

CallTrackingFox, New York, NY: data-driven inbound marketing platform

CampGurus, New York, NY: clearinghouse for kids programs

Cubiez, Tel Aviv, Israel: platform delivering desktop apps with a mobile user experience

FirstCrush, Boston, MA: personalized wine subscription service

Giver, Tel Aviv, Israel: turning employees to community through gamified solutions

Indiewalls, New York, NY: online marketplace connecting local artists and venues

JustUs, Tel Aviv, Israel: Weesh app helps romantic couples share mutual experiences

Saborstudio, Alajuela, Costa Rica: location-aware mobile games

Tripl, Stockholm, Sweden and New York, NY: connecting people through travel

Urban Cargo, New York, NY: personalized grooming product recommendations for men

Vantageous Video, Ithaca NY: apps for multi-angle video creation

Winston, Boulder, CO: a personalized social newscast

Are you bursting with big-think ideas that could change the world? Can you take those ideas and actually, you know, build something tangible? If so, there’s a new matchmaker in Silicon Valley that wants to fund you, mentor you, and set you on a path to solve the specific challenges of enterprise partners.

That’s the premise of 2020, a new seed fund started by Gaye Beceren and Shani Shoham. Last week I attended 2020’s kickoff in downtown Palo Alto, where more than 250 entrepreneurs heard presenters from Cisco Systems, Nice Systems, Faurecia, and Nokia Siemens Networks talk about the challenges they hope to solve.

If this sounds like other incubators, there is a twist: 2020 isn’t looking for startups that already have a product or technology. Instead, Beceren and Shoham figure everything will fall into place once they’ve identified the right people.

“We don’t take existing startups,” Shoham told me before the event. “We are more focused on finding talented entrepreneurs, even before they have ideas.”

The fund announced today that it has started accepting applications from interested entrepreneurs.

Here’s how it works: 2020 will spend four days screening each applicant, assessing their personalities and their skills, and then testing them in a hackathon. After that, Beceren and Shoham will put together teams, give them seed funding over two rounds, and provide six months of mentoring.

“We will narrow it down to 12 teams for our entrepreneur-in-residence program, and from there it’s six months of mentoring as each team works on a specific need,” Beceren told me. “We can have multiple teams working on a specific need.”

In general, 2020 expects to invest $50,000 in each team, in two stages. New teams will receive $25,000 in the “ideation” phase, for which 2020 will receive a 10 percent stake in the startup. Teams will get the second round after they develop a preliminary prototype, for which 2020 gets an additional 5 percent stake.

“What’s unique with us is we qualify the teams,” said Beceren.  “So we lower the financial risk for the enterprises and lower the market risk for the enterprises.“

And what problems are their enterprise partners looking to solve? At Cisco, the new mantra is “focus.” Instead of the 30 adjacencies (read: anything that drives demand for networking gear) that CEO John Chambers has talked about for years, the networking giant has narrowed its focus to five priorities: its core networking businesses, collaboration, data center technologies (including virtualization and cloud computing), video, and smart communities.

“What we care about right now is new business models,” said Chris Thompson, senior director of business incubation and emerging technologies at Cisco. “When you think about technologies, think about those five areas.”

Nice Systems wants to make it easier for call center customers to monitor and interact with customers over both traditional and social channels.  (A message we’ve been hearing for a while from Salesforce.com, among other CRM vendors.) As a result, Nice wants entrepreneurs who understand the issues of big data, cloud-based infrastructures, predictive analytics, and reducing call-center costs, said Paul Melmon, vice president of engineering.

Chances are, you’ve never heard of Faurecia, among of the world’s biggest automotive parts suppliers. “We are like the Intel of the automotive industry, minus the branding,” Faurecia’s enterprise-in-residence Steffen Bartschat told the audience.

Faurecia’s goal: To find innovations in other industries that enable cars that are smaller, lighter, more efficient — yet forge an emotional connection with their owners.

At Nokia Siemens Networks, the challenge is the cloud, said Tuuli Ahava, head of Nokia’s Silicon Valley Innovation Center.

Entrepreneurs will learn more about each partner’s specific challenge during the vetting process, sad Beceren. The fund will begin accepting applications in the new few days.

Beceren and Shoham are still acquiring investors, but expect to start with a $10 million fund, eventually growing to $40 million.

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Big Data and Predictive/Real-time Analytics startups: Are you looking to jumpstart development & accelerate market traction? Sign up for the SAP Startup Focus program to receive technology, support, resources and community to help you develop new applications on SAP HANA, a cutting edge database platform. Get started here, and enter promo code “VB2013″ on the form.

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The event, dubbed Double Demo Day, brings together a couple of the most interesting personalities in tech funding: Peter Relan (pictured right), chairman of YouWeb, and Howard Marks (pictured below), founder of Los Angeles-based StartEngine.

Relan made his mark in social gaming by spinning out or starting companies such as OpenFeint, Sibblingz (now Spaceport.io), CrowdStar, and iSwifter. Marks, the former chief executive of Activision, was an executive at Playdom and served as CEO at Acclaim Games and eMind.

The demos will take place on May 1 at YouWeb’s headquarters in Menlo Park, Calif. The invite-only event will feature presentations from a variety of startups, including a number that are in stealth mode. The companies hail from industries including mobile, social, gaming, education, entertainment, and e-commerce.

“This is Hollywood and Silicon Valley actually working together,” said YouWeb Chairman Peter Relan. “We think that StartEngine taps into a different eco-system that complements ours here in Silicon Valley. In fact, our event is a vanguard of the inevitable convergence of technology, education, entertainment, and gaming.”

Relan said he believes that education, entertainment, and gaming will all converge soon, and that’s another reason for the alliance.

YouWeb was founded in 2007 and focuses on gaming, education, and entertainment ventures. It sold OpenFeint to Japan’s Gree for $104 million.

[Photo credits: Dean Takahashi and Liz H. Kelly]

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your early-bird tickets here.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Just a few years ago, may of the simplest online opportunities were still viable for new entrants with relatively little capital. Today, I see excessive competition everywhere I look, and nearly every niche seems to have at least 1 or 2 well-funded competitors. The other day I was joking with my wife about the issue, and we came up with a business idea (as a joke) that we thought would be a good litmus test — a dating CRM. Afterall, a busy dating pro needs to keep track of all their dates right? (joke). So we looked online, and to our horror, there were several, one of which appeared to be a serious product.

This kind of crowding isn’t what you want to see if you’re about to take a major career gamble.

So why has the market become so congested? Consider what has happened with venture capital investments in Internet startups. Only a decade ago, the expense of getting a startup off the ground was very high. With the cost of servers, and having to write all the low-level code from scratch, it was entirely likely to require millions of dollars to get a company off the ground. As hardware commoditized and foundational software became open source, the cost and time to get off the ground has reduced substantially. Investor Mark Suster wrote an interesting piece on this topic, suggesting that the capital cost of launching a new startup has gone from a million dollars to only $50,000.

I’ve heard it said anecdotally that only 1 in 1,000 Silicon Valley startups would be considered a “success” five years later. A little more promising, I also heard Founder Institute CEO Adeo Ressi indicate that startup success was closer to 3%. I don’t know what the actual number is, but this serves to illustrate just how high the risk is and why the lower cost of investment for VCs is such a good thing. Rather than spending a million dollars on a single business, you can spread that same million dollars across many young startups and significantly increase your odds of reaching positive ROI. That’s why we saw Y-Combinator launch a few years ago to provide early-stage mentorship and $20,000 of investment for college students who want to take a chance on a startup.

The Y­‐Combinator model has proven so successful that it has attracted much more money into the ecosystem and there has been an absolute explosion of startup accelerators across the country, all proliferating the same mentorship + seed capital model. The net result is that you have often multiple tech entrepreneurship factories churning 20-50 out cohorts of new startups every quarter.

With geek now being chic and success stories such as Facebook and Google inspiring movies and careers around the world, the allure of becoming a startup millionaire is today’s equivalent of becoming a rock star. And the Internet has torn down many physical barriers that once precluded other nations from competing. Now you see merchants selling directly from China on eBay, and SaaS companies providing compelling online software solutions directly from India and Eastern Europe. No wonder it feels so crowded!

But let’s focus back on the maturing of capital markets and their contribution to this phenomenon. In the traditional investing cycle, initially, a few investors would reluctantly invest a little money in a company that already had a proven model and track record. With a nearly guaranteed return on investment, they saw healthy returns and confidence built. In the next cycle, more investors observed this success and tried to step ahead of the conservative late-stage investors to get in on the easy money. They accepted more risk and lower returns. This process continued until we had a very mature market in which too much money was chasing too few ideas, all trying to step ahead of one another. And eventually we got to where we are today — money being thrown at every college kid with an idea and no track record. Now imagine what happens with the newly passed JOBS Act, that will make it easier for small businesses to attract angel funding from non-accredited investors, particularly through crowd-funding.

But everything goes in cycles, and I can’t help but wonder if this wave is already cresting. While there’s been opportunity for venture capital firms to spread their risk across numerous startups and increase their odds, doesn’t the proliferation of incubated startups actually challenge the success potential of each one of them? And how long does it take for the aggregate return-on-investment to once again find its historic equilibrium?

It was less than a decade ago that Wall Street was touting financial innovation and Congress was touting easy lending that would make it possible for more Americans to become homebuyers. This, of course, opened up capital to home buyers and investors that created the housing boom and eventual bust. But all it really did was bring more people into the market place and temporarily distort opportunities; a distortion resolved a few years later.

So how long will it take for this bubble to correct? As aggregate returns begin to marginalize and the over-supply of startups begin to cannibalize one another, other investment opportunities such as real estate may become more attractive again and provide healthier alternatives for the early ‘smart money’. The ultimate consequence is going to be a downward leg for a number of years for startups. It won’t be the end of the world, but it will mark the end of an easy-money cycle and a period of exaggerated perceived opportunity.

For would-be entrepreneurs looking to invest in a startup today, it may be worth taking a hard look at whether this is the best time to take the plunge. Isn’t it after all the height of a market cycle when the opportunity looks the best and when everyone is convinced that ‘things are different this time’?

Neal Cabage is a software developer and entrepreneur. He has previously created and sold two startups and is currently the founder of Enlogica, a web and mobile consultancy, which has helped enterprise and startup clients alike in the development of interactive media and software.

[Top image credit: xavier gallego morell/Shutterstock]

First of all, these programs are venture funds at the core. They can help you develop as an entrepreneur, but ultimately they’re designed to make money for their investors. No doubt the mentors, advisors, and VCs involved enjoy working with entrepreneurs and early-stage companies. But the truth is, like any investor, they require a return on their investment of time, money, and connections. This point should go without saying, and it actually helps align your incentives to build a successful company. But, don’t be surprised if you experience “tough love” in the program—it may be personal, but it’s definitely business. Think boot camp, not band camp, and be prepared for rigorous feedback over an intense few months.

This brings me to my second point, which is: haters are going to hate, and advisors are going to advise. One of the common pain points I’ve heard from friends in all the top accelerators is that they get tons of feedback, much of which is confusing and even conflicting. If you ask for a critique, you get criticized—and knowing what to filter is on you. Have conviction in your decision-making, or risk paralysis by analysis. Never have I taken so many meetings in such a condensed timeframe or chatted so much about Dibsie and social commerce. And some folks just don’t get it (which has sometimes made me wonder if I do). But what I’ve learned is to seek out the folks that really understand our space and our goals, and to elevate their feedback above the noise.

Accelerator programs tend to do exactly what they advertise—they accelerate your business. The downside is that they don’t promise which direction that acceleration will work in. Accelerators are in the business of picking strong entrepreneurs and strong ideas that (hopefully) can become strong companies. But as I said, this is business—and I’ve had plenty of advisors tell us what won’t work, and when we’re wasting our time. If your concept holds water, you should emerge a stronger company than when you entered. If your model is weak, try to fail quickly and pivot.

I’m not sure who decided that three months was a magic number for accelerator programs. In my opinion, the number seems arbitrary, and it presents challenges. Three months is not much time to grow your fledgling user base, close huge deals, or in some cases raise money—especially if you’re still iterating on the product development side. Your time in the incubator can provide a good window to hone your pitch and stress-test your hypothesis, but it’s helpful to go in to the program with your idea as well-formed as possible. Move as fast as you can, and start gathering metrics early so you have the building blocks to demonstrate progress. Blink, and your three months can be over.

Whether you’re ready or not, “Demo Day” waits for no one. All programs culminate in a one to two-day pitch event (ahem, looking at you 500 Startups and Y-Combinator) with graduating companies announcing all of the great progress they’ve made in the previous three months. Demo Day typically draws a phenomenal lineup of professional investors who want to review multiple companies and founders in one efficient presentation. It’s a great opportunity for companies like Dibsie to kick-off discussions with a number of potential investors—but there are drawbacks to keep in mind.

For one thing, Demo Day builds transparency into the market, which can be both a good and bad thing. Investors get a look at who’s attending, who’s interested—and who’s not. Companies can showcase their product and business to a large audience, but give up the option of working in stealth. Demo Days also dictate timing in ways that can prove challenging. In most cases, they build in a free time-option, since investors have low incentive to commit ahead of Demo Day presentations. On the upside, they can provide a useful catalyst for your investment round. The challenge and the goal should be to make the schedule work for you.

Net-net, accelerators are an amazing addition to the startup landscape. They provide some timely capital, and amazing access to top investors, advisors and industry professionals. It’s tough to downplay one-on-one access to figures like Fred Wilson, Peter Stern, and Chris Dixon—all of which I’ve had the pleasure of pitching at ERA. But remember these folks also regularly attend meetups, conferences, and post blogs and videos online—and therefore, should not be the sole reason you apply. Programs are not about idea validation, personal recognition, group dinners, or speakers. Accelerators are about building a successful business. Or as Ronnie Coleman so eloquently puts it: if you want to be a bodybuilder, “you gotta lift that heavy-ass weight”.

Garren Givens is co-founder and CEO of Dibsie (http://dibsie.com), a social shopping site you browse and curate with friends.  He previously co-founded CampusDibs, the first daily deal site focused on students.  You can check out his writing here (http://garren.me).

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Brooklyn Beta, a conference in New York focused on the intersection of design and development, is launching a new incubator today to connect those two classes of software creators.

The program, called Brooklyn Beta SummerCamp, has some big names behind it, including Fred Wilson, Tim O’Reilly, and Betaworks (CEO John Borthwick pictured), with sponsorship from Etsy, EngineYard, and MailChimp.

“The process of building software is getting cheaper and cheaper,” said Borthwick, who pointed us to a letter he wrote to shareholders on the topic, (embedded below.) “The production buzzwords of our era — ‘betas,’ ‘agile development,’ and ‘pivots’ — are all an outgrowth of micro-development, which makes it less expensive to build more. As the cost of building and operating software-based businesses decreases, increasing value will accrue to design.”

Brooklyn Beta’s SummerCamp is recruiting a class of designer-developer teams that can build new companies from the ground up with that focus.

Each startup will get $25,000 in exchange for 6 percent equity. The teams will also have access to a group of mentors who will help them build their business. Advisors like Joe Gebbia from Airbnb and Charles Adler from Kickstarter highlight designers who worked alongside developers as co-founders at a startup. Other advisors include Liz Danzico, who created the department of Interaction Design at SVA; Ben Pieratt, the co-founder of Svpply; Michael Galpert, co-founder of Aviary; Randy Hunt, creative director at Etsy; and Wilson Miner, head of design at Rdio.

“I have been a fan of the Brooklyn Beta community for several years,” said Wilson. “It represents a design-centric view of building software and companies, and its base in Brooklyn speaks to the emergence of that borough as a leader in this movement.”

While the program will be based in Brooklyn, the incubator is unique in that it doesn’t insist startups move from their hometowns to participate. “We find that a lot of designers are older and more risk-averse than developers,” said Cameron Koczon, one of the founders of Brooklyn Beta. “So we wanted to create a program they could participate in without having to leave their families behind.”

Koczon hopes Brooklyn Beta will do for designers what Y-Combinator did for hackers. “The reality is, developers get paid better than designers, and they are more likely to create startups. How do you change that? It used to be you could pitch a company with just a business idea. Now you can’t get investors without producing a strong CTO or development team. Our goal is to make sure that people put the same emphasis on having a great designer as part of the founding team.”

Applications for the first class are due on May 31, 2012. Interested startups can apply here.

“In a world of plentiful options for hardware and software, a product that is just good enough will not suffice,” said Brothwick in his letter to shareholders. “Technical barriers to entry are so low and the number of providers is so high that users expect more than just functionality. They are drawn to and demand excellent product design.

“Design drives the optimization of experiences for specific devices/mediums/interactions. Different types of media (web app, SMS, email, PC, tablet, phone) demand targeted design experiences, not generic reprints. End-to-end, human centered design is a discipline, a process, and a function that this new world demands.”

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David Cohen,  founder of TechStars, a well-known incubator of start-ups, has emerged as one of them — and he’s doing it by focusing his energies outside of Silicon Valley.

He’s just finished raising his own second seed fund, totaling $28M, which like his first fund is completely independent from TechStars.

TechStars has its own funding program, which awards every start-up in its program $118,000 in seed funding.

Cohen’s separate, private fund gives him a lot of fresh capital to invest both in TechStar companies, and non-Techstar companies, as he wishes. The second fund gives him considerably more fire power than the small $5m personal fund he’d raised in 2009, which is still so young that it is only now bearing fruit.

Techstars was an early player in the incubator craze. Paul Graham’s  Y Combinator, now based in Silicon Valley, was early and has generated incredible buzz here. Techstars has a slightly lower profile, perhaps in part because its activities are so widely distributed geographically — but its reputation is also solid. Cohen himself has also been low-key. Go to the TechStars site, and you’ll have a hard time finding a picture of him, or even a reference to him, after clicking around for a while. He’s developed a record of being a steady player, focusing all of his attention on the companies he backs.

Nine of the first 30 TechStar companies have seen an “exit,” according to Cohen, in an interview with VentureBeat. These include Brightkite (bought by Limbo), Filtrbox (bought by Jive, now public), Intense Debate (Automattic/Wordpress), madKast (ShareThis), SocialThing (AOL), DailyBurn (IAC/Mindspark),  OneForty (HubSpot), and Sensobi (GroupMe).  Occipital sold “RedLaser” to eBay, but still operates as an independent company otherwise.

Other TechStar companies include SendGrid, Orbotix, Next Big Sound, CrowdTwist, OnSwipe, CourseKit, and Localytics — all apparently growing and well funded.

As for Cohen’s personal record outside of the TechStars activities, he invested “single-digit” millions in the group-messaging app, GroupMe, which was a big success. Founded in mid 2010, it was acquired barely a year later by Skype for a reported $85 million. He also backed SimpleGeo, which was sold to Urban Airship. He had another exit, which has not yet been disclosed by the company.

Other non-TechStar companies he has backed include Uber, YesWare, BigDoor, and Twilio. TechStars companies he has also backed with his personal fund include SendGrid, Next Big Sound, and Orbotix.

TechStars operates in five markets, NYC, Boston, Seattle, Boulder, and  Texas (which is where TechStars’ ”cloud” focused program is based).

Last year, TechStars announced that a syndicate of a dozen VCs had agreed to back each TechStar companies with a check of $100,000, on top of the $18,000 note that TechStars’s own fund gives each company — meaning that each TechStar company now gets a $118,000 check. That check converts into equity when the company goes on to raise a series A.

[Update: This story originally incorrectly reported how much TechStars' own fund provides each company.]

Dollar Shave Club, another startup from L.A.-based incubator Science, begins with a simple premise: They send all the dandy shave-oholics out there who love the idea of a close shave but hate the idea of spending a horrendous amount each month, a basket of high-quality disposable razors.

We know, we know — it sounds silly. But investors didn’t think it was so silly.

In fact, Silicon Valley fat cats at Kleiner Perkins, Andreesen Horowitz, Shasta Ventures, Felicis Ventures*, Forerunner Ventures, and a handful of well-known individuals have contributed to a $1 million dollar first round of funding.

Science companies are, more often than not, based on the very simple but very real concept of finding gaps in a marketplace. The incubator first launched Eventup, a site that helps you find cool and unique event venues. Its next launches were Wittlebee, a mom-commerce subscription service, and Dog Vacay, an Airbnb for dogs whose “parents” need to get out of town.

None of these are incredibly high-tech ideas. But for Science co-founders Mike Jones (MySpace’s former CEO) and Peter Pham (who co-founded Color), tech is almost beside the point. They’re looking for opportunities to profit, and a great idea beautifully executed is, for them, like apples of gold in pictures of silver. It fits their idea of an L.A. startup’s hustle-heavy business model.

So, for Dollar Shave Club, Science is again investing in subscription commerce for an item a lot of people need to use (and usually need to throw away and buy over and over again). We’ve seen a ton of subscription commerce models, and this is one that makes a ton of sense.

Here’s co-founder Michael Dubin explaining why it makes sense to him in an Old Spice Guy-reminiscent commercial spot that’s way more entertaining than most startup demo videos (hint: our headline came from this video, in case you were beginning to speculate that we just enjoy being randomly offensive around here):

“The shave game has gotten totally out of control, and it’s time someone brought sanity back to the price and the process,” said Dubin in a statement released today.

DSC’s prices are rock-bottom low. As a non-hairy-legged-type lady, I can vouch for that; it’s not uncommon to drop between $8 and $20 per month on razors, depending on how fancy one is feeling.

DSC packages, on the other hand, start at just $1 per month plus $2 for shipping charges. That’ll get you “The Humble Twin,” a package that includes a standard two-blade razor. The “4x” package will get you a four-blade razor, and “The Executive” is the monster truck of razors: six blades and lubricating strips with aloe, Vitamin E, and lavender. The latter packages are $6 and $9 per month respectively. Each package includes a compatible handle (heads can be swapped out), and all the heads pivot.

You can cancel your subscription or upgrade or downgrade your preferred razor package at any time.

If we have one beef with Dollar Shave Club, it’s the site’s unrelenting manliness. C’mon Dubin et al.: Guys usually just shave their faces. Most ladies, on the other hand, have so much more real estate to cover. Should your checkin button really read “real men click” when ladies have a lot more shavin’ (and household shopping) going on?

Other than that, it’s a gorgeous design and a simple plan — and DSC helps us understand more and more the DNA of a Science company.

* Disclosure: Aydin Senkut of Felicis Ventures is an investor in VentureBeat.

We took some time over the past couple of weeks to talk with Pham and Jones, as well as at least one entrepreneur who’s working with the Science team on a new startup.

As a longtime veteran of the LA startup world, your correspondent sensed a distinctly new energy during these conversations. There’s more organization, more optimism, and more stability than ever before from the tech scene to the south.

“Science is bringing infrastructure to LA that hasn’t been there before, including access to capital,” said Tony Adam in a recent trip to VentureBeat’s San Francisco office. Adam is head of Eventup, the first Science startup to reach a public launch.

Science, still a small outfit with a $10 million fund, is launching a string of startups this year, and each one has solid revenue potential. It could be the start of a new era for Los Angeles tech — and a new opportunity for NorCal investors to take the area a bit more seriously.

From MySpace’s ashes

The Los Angeles community is replete with former MySpacers, and Science itself is built from a tight-knit cadre of onetime MySpace executives still loyal to Jones. Adam is among that group, as are Science partners Mike Macadaan and Sean Percival.

But this isn’t just croneyism at work; MySpace accounted for a lot of the LA-based tech talent pool. And as the larger community evolves past MySpace, former MySpacers are taking on new roles, building new companies, and continuing to push the area forward into the technology fray.

“These are guys that I fell in love with,” said Jones in a phone conversation with VentureBeat. “I’ve worked with them for years. Coming out of MySpace … these are the guys I love to work with.”

“The alumni network [from MySpace] is actually pretty large,” said Pham, one of a few Science affiliates who wasn’t involved in the social network. “Those folks are re-participating in the community.”

Jones emphasized that the painful experience of taking a once-strong company through layoffs and a fire sale was a trial by fire for all parties involved, but that it made the core team of his confidants stronger.

“These guys understand the landscape,” he said. “They’ve been through the ups and they’ve been through the downs … and they can build the next generation of fantastic businesses.”

Money talks, empty tech walks

Noting that yes, of course, San Francisco still trumps LA when it comes to the sheer size of its talent pool, Jones countered, “In LA, there’s not that many large tech companies, so there’s not too many opportunities to build out your team. But there’s more opportunity to build out your revenue … People here want to build real businesses with profit.”

Jones advocates what appears to be a prominent theme among LA startups: real revenue from the get-go. You’re likely to see fewer tech platforms down south, but much more likely to see actual businesses with consumer-level customers either waiting in the wings or already putting their money down for product.

“We’re gonna build a whole breed of businesses over the next year that are incredibly successful,” Jones said. “I think Science will be a conduit for Silicon Valley investors to feel comfortable investing in Los Angeles.”

A conduit for cash

Bringing San Francisco’s capital down to LA’s entrepreneurs was a theme that came up frequently when VentureBeat talked in person with Pham, as well.

“A personal mission of mine is to get some larger firms to open up offices down there, to bring down a partner to invest personally,” Pham told us.

“Right now, though, I want $250 million of Sand Hill money coming down to LA, and it’s starting.”

Pham rattles off a string of recent LA-based startups that have raised money from top-tier Silicon Valley firms. “I’m getting amazing committments and term sheets being signed for deals,” he said, speaking with the energy and confidence of someone who was born for this job.

“Our plan for Science is … to bring cash in and actually start other funds down in LA,” Pham continued. “It’s starting with pockets of angel investing, and there will be a billion-dollar fund in LA within the next three to five years.”

The money from Silicon Valley to Los Angeles has been a trickle; Pham is convinced it will become a flood. All that’s needed in order to turn that vision into a reality is a bit more structure of the kind Science is providing.

“What’s been lacking is guidance and leadership,” he concluded, “and we think Science can be a tent pole.”

(Editor’s note: VentureBeat is partnering with Science on Feb 23, in our quest to find great companies to write about, as well as to invite to DEMO.)

Y Combinator founder Paul Graham announced the addition of Ralston in a blog post yesterday, writing that Ralston is “a perfect match for YC because he’s smart and energetic, and yet informal and a super nice guy.”

Graham told VentureBeat via email that Ralston will be a full partner in Y Combinator, but will continue to be a partner in Imagine K12, the educational technology incubator Ralston founded. Like other Y Combinator partners, he won’t take any board seats in the incubator’s portfolio companies.

Y Combinator is a startup incubator and investment fund that has produced many success stories including Dropbox, Reddit, Scribd, AirBnB, and Justin.tv. The organization typically invests a small amount of money and puts the companies it selects through a three-month training program. It has been so successful that SV Angels, DST, and Andreessen Horowitz have together pledged to put a combined $150,000 into each company chosen for the program. In addition, Sequoia Capital is a limited partner and lead participant in Y Combinator’s fund. Graham says that Y Combinator has invested in 383 companies since it started in 2005. It just started accepting applications for its summer 2012 funding cycle; applications are due March 28.

Ralston has been an angel investor for the past several years and also invested in Y Combinator’s $8.25 million fund in 2010.

Ralston has a deep history in Silicon Valley, going back to the pre-PC days. He has a degree in computer science from Dartmouth and worked for Hewlett Packard in the 1980s on the HP 2000 and HP 9000 systems. In 1994, he left HP to work on an internet startup that eventually became Four11.com. Yahoo purchased Four11 in 1997, turning its core product, RocketMail, into the foundation for Yahoo Mail. After nine years at Yahoo, Ralston left to do angel investing, then took the chief executive job at Lala.com, which eventually sold to Apple in 2009. He’s been angel investing as a “hobby” since then, typically investing an average of $50,000 in very early-stage companies.

He wrote in a 2010 interview that angel investing was more of a hobby than a vocation for him:

I’m not really trying to earn my keep doing this. I do it because I love working with entrepreneurs. I love working with people who are passionate and who have an idea and who want to change the world. And I think it’s usually important for Silicon Valley and for the world and for the economy. I just really like it.

Ralston said in 2010 that he got much of his deal flow from Y Combinator events, so the move to partner is probably a natural one, and was in the works for awhile.

Also in that interview, Ralston indicated that Lala was his most lucrative exit. The Lala sale was considered a “fire sale” at the time, but apparently some investors made out okay.

“I think science speaks to the theory we’re going after,” said Jones (pictured right) in an interview with VentureBeat. “Scaling these businesses is much more a science than an art.”

Science is aiming to be the gateway for venture capitalists into the LA tech scene, by finding and producing great companies through a three step process. First, ideas and companies coming into Science will be incubated; second, they will be injected with strategic and operational advice; and third, exposed to late stage investments. Currently, the company has raised $10 million and is focused on funding the incubated companies themselves.

Jones doesn’t want Science to be like Silicon Valley accelerators such as 500 Startups or Y Combinator.

“A traditional incubator or accelerator is great for training entrepreneurs for three month class cycles, but at the end of the day when they walk out of the door with $50,000 in financing…that’s a tough place to be,” said Jones. “They’re still going to need structure around them.”

Science will be focused on smaller classes of potential companies, and is interested in verticals including e-commerce, mobile and social.

Jones was hush-hush on the companies currently in Science’s cycle, and perhaps for good reason. It appears that Jones may have filled out his first class roster with companies headed up by past MySpace executives, including Sean Percival, Tony Adam, and Mike Macadaan. According to sources, these executives’ companies have all recently received funding from Jones, and at least two of their startups fit into Science’s stated verticals of interest.

When asked, Science representatives declined to comment on whether the company has invested in the former MySpace executives. The company did say, however, that it finds startups through “various relationships they have with [their] investors, VCs, and fellow entrepreneurs.” Startups also introduce themselves to Science.

Jones is otherwise excited about the LA community and believes we’ll see a big, $1 billion initial public offering come out of the region soon. He recognizes the pitfalls LA has to work on, however, such as a lack of an angel investing community which keeps startups alive after traditional incubation. He sees Science making a difference in that community, and believes as Science grows, so too will the community of early stage investors.

See also:

• Los Angeles startup accelerator Start Engine opens for applications
• Full of hustle, Los Angeles tech takes on Silicon Valley

Weissman’s move, first reported by Betabeat, is yet another interesting development for Union Square, which we learned yesterday was raising a fourth investment fund worth between $150 million and $200 million.

Weissman was previously in charge of Betaworks’ investment portfolio. Now the company plans to shift its focus, as co-founder John Borthwick wrote in his email to employees yesterday: “We are now ready to move into the next generation of betaworks, #betanext, which is betaworks as an operating company.  Though we will continue to do seed stage investments, our primary focus will be on building the core capabilities of the companies that we acquire and grow in-house.”

As All Things Digital points out, the news follows a plan by Weissman and Borthwick earlier this year to raise a “sidecar fund” that would essentially divide Betaworks into an operating company and seed VC outfit. But that plan fell through partially due to resistance from Betaworks investors, which include RRE Ventures, the New York Times and AOL.

In a comment at All Things Digital, Union Square partner Fred Wilson welcomed Weissman to the fold: “We have huge respect for Betaworks. It is one of the crown jewels of NYC’s tech community. John and Andy are thought leaders and business builders. Union Square Ventures is very fortunate to be able to add Andy Weissman to our partnership and we think he is a perfect fit for the entrepreneurs we want to work with and the sectors we want to participate in.”

The move was first reported in The New York Times and was then confirmed on Twitter by Pishevar himself.

He’s is a much-liked and much-respected figure on the startup scene. In addition to starting SGN (which was acquired in April by MySpace co-founder Chris DeWolfe’s social gaming company MindJolt), Pishevar also founded publishing startup Webs, and he’s an angel investor who has backed startups, according to The Times. I was most impressed at the Launch conference when, after some egging from conference organizer Jason Calacanis and the audience, Pishevar committed on-stage to invest in gamification company GreenGoose.

Menlo, meanwhile, has quite a few successful companies in its portfolio, but no social networking home runs. It sounds like the firm wants to change that by hiring Pishevar, who also told The Times that he hopes to start a “people-focused” incubation programming at the firm, a program whose mentors will include a “Jedi council of incredible entrepreneurs.”

In a blog post today, partner Paul Graham announced that Loopt founder Sam Altman (pictured), Justin.tv founders Emmett Shear and Justin Kan, and Posterous founder Garry Tan are all joining as “part-time partners” who will “do the same sort of work regular YC partners do advising startups, but only 1/5 of their time.” Three of these partners (Altman, Shear, and Kan) were part of Y Combinator’s first class of startups in 2005, while Tan joined in 2008 — when the program had grown, but hadn’t quite reached its current fame.

Many incubators already have mentor programs to connect startups with experienced, active entrepreneurs , but this sounds like a way to add a little more structure (and financial incentive) to the relationship.

So how will this affect the partners’ current companies? Tan had already left his full-time role at Posterous to become designer-in-residence at the incubator. Kan and Shear still hold positions at Justin.tv (president and chief technology officer, respectively). And Altman, who is CEO at Loopt, told me this might actually be good for his location social networking company:

I’m a huge believer in YC — watching the transformation in company quality between the beginning of the cycle and demo day is amazing. I’ve been informally helping out for a long time, and I’d guess that I’ve helped about 100 YC companies in some small way. This is a more formal/more involved way of doing it. The biggest change is I’m involved in the interview process now and hold office hours on Saturday afternoons. The only effect on my role at Loopt should be a positive one–in fact, I hope that my experience at Loopt is helpful to YC cos, and certainly I’ve already had some good new ideas about things we can do better at Loopt from the startups.

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Big Data and Predictive/Real-time Analytics startups: Are you looking to jumpstart development & accelerate market traction? Sign up for the SAP Startup Focus program to receive technology, support, resources and community to help you develop new applications on SAP HANA, a cutting edge database platform. Get started here, and enter promo code “VB2013″ on the form.

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500 Startups was founded by “super angel” Dave McClure, who previously ran the fBFund incubator for Facebook startups. The company makes normal seed investments, but also combines those investments with hosting and mentorship through its 500 Startups Accelerator.

We’ve seen a bunch of incubators emerge in the last few years, but McClure’s incubator stands out with its focus on design, distribution, and the lean startup methodology.

Of the 12 incubated startups that we saw today, three of them were big standouts:

Visual.ly — Visual.ly gives publishers and advertisers a way to quickly get a hold of data for infographics — and contract the work out to designers. Most major publications like the Huffington Post and Gawker regularly publish infographics as a way to get a reader’s attention. Publishers pay a recurring subscription fee to Visual.ly to get a hold of data and get access to analysts and designers to create an infographic custom suited for their needs. The team is from Mint.com’s award-winning blog,which gets 1 million page-views every day.

YongoPal — YongoPal is basically a photo-sharing application that is designed to inspire communication between two individuals in completely different companies. The service was originally launched to connect Korean students with English-speaking students to help the Korean students learn English. The mobile app gives individuals a prompt — like “What are you haivng for dinner?” — and asks them to take a photo to start a conversation. The original application picked up 23,500 downloads from university students in 3 months without promotion.

Baydin — Offers tools to manage your inbox. Some of those tools make answering emails a little easier, for example by scheduling a time to re-receive an email that you can’t deal with at the moment. More ambitously, it has also created a gaming framework around email, to keep you motivated to plow through your inbox and not spend too much time on any individual message.

Outside of our favorites, there were a number of companies pitching products that sounded promising and that we might actually use. Here are short descriptions of the other demonstrators:

InternMatch — InternMatch aims to simplify the internship-seeking process. There are basic search options for both students looking for internships and companies looking for interns, as well as tools like resume guides to help students app. Companies pay to use the service, but there’s a money-back guarantee if they don’t find someone who meets their needs.

Spoondate — Helps people get together for meals. Users announce the kind of food they’re craving, then they can connect for one-on-one or group gatherings. The site will also offer ways for restaurants to reach out to potential customers. Apparently the company started out as a dating site, but it now aims to be a broader social service, especially for professional women.

Punchd — Punchd lets businesses transplant their “buy 10 get one free” cards onto the smartphones of customers. The businesses that sign up with Punchd also get access to analytics that describe what kind of customers they have. Any business can sign up for the service through the web, but they still have to be manually approved for now. 60 companies have signed up for the service and are on a wait list now. The company launched its service at three college campuses and saw more than 7,000 “punches” on those virtual buy-ten-get-one-free cards.

Rewardli — Rewardli brings small businesses together to make large group purchases so they can take advantage of group buying discounts. That can include services like Expedia — where companies can get discounts for buying plane tickets in bulk. Rewardli tacks onto a web browser to keep track of how much money a company saved by purchasing with a group discount. The app also indicates how much more money a company could have saved by adding additional companies to the buying pool — and offers a suggestion to invite moe people. The company has raised $100,000 from 500 Startups and Real Ventures.

Wednesdays — Wednesdays is an online application that handles all the nitty-gritty details to schedule business lunches. The app connects users with LinkedIn and Facebook connections to generate “groups” that companies can use to schedule tailored lunch meetings. That means scheduling a lunch meeting with specific roles — like sales associates or programmers — with other individuals. The back-end process is more similar to filling seats on an airplane because it fills up lunch meetings based on certain conditions rather than just haphazardly scheduling lunch meetings. The service automatically slaps those lunch meetings onto calendar programs.

Ninua — Ninua is a news-sharing application for Facebook that recommends stories based on three conditions: whether it’s mainstream, whether it’s niche and whether a user’s friends are reading it. That gives users the chance to automatically curate what kind of stories that appear in front of them based on their own interests and their friends’ interests. Ninua signs up blogs to help them pick up some additional publicity and find new readers based on the content they produce as well. The service already has 1.7 million active users, and it’s now launching a mobile application.

CrowdRally — CrowdRally connects to YouTube and other social media sites to show what a user’s friends are watching. It creates a queue of videos that friends have watched and lets users give suggestions about videos to watch. “Influencers” that can generate a lot of traffic for a video can sign up and share videos on the service as well — such as a movie trailer or a music video. They then get paid based on the number of views they bring to the video.

SpeakerGram — Has created a new way to manage speaking engagements. A hot company like Foursquare is bombarded with speaking requests for conferences and elsewhere (VentureBeat has done its share of bombarding), and most of that comes in the form of email. With SpeakerGram, companies can just add a “request to speak” button to their site, asking event organizers to provide relevant information. Then the potential speakers can just log in to the system and go through the requests in an organized way.

Motion Math — Creates educational games for tablets. The idea is to use tablets’ touch interface and accelerometer to make difficult concepts (like fractions, which were the subject of Motion Math’s first game) fun and visceral.

The 500 Startups Demo Day also included portfolio companies that weren’t part of the accelerator, but we’ve covered a number of those startups before. So instead of describing all of them, we’ll just write individual posts about companies that strike our fancy.