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YCombinator has almost become a benchmark in seed stage investing. They have invested in a lot of companies, and many of their companies are doing exceptionally well. Scribd, a YCombinator funded company is recently generating a lot of buzz. Loopt has already raised $5 million in VC funding from Sequoia Capital and New Enterprise Associates, and Reddit got acquired. With so much going on, its all but natural that others start to replicate what they are doing. According to Paul Graham’s own words:

… it was inevitable that people would copy us. People don’t copy you if you are not successful. It is also a sign that it is working…

TechStars was the first startup fund/incubator that imitate the YCombinator model. Like YCombinator, TechStars look out for entrepreneurs with just a good startup idea. They take applications once a year every summer and select ten winners. The winning teams will have to travel to Colorado and spend the summer in Boulder working on their ideas. TechStars invests $15,000 in each startup as seed funding and take 5% of the equity. TechStars help the startups in finding housing, and is backed by war hardened investors including David Cohen, Brad Feld, Jared Polis and David Brown. There is also a long list of mentors who will be chipping in with valuable advice.

A video introduction of TechStars is embedded below

Charles River Ventures (QuickStart) have also put their leg into this game by launching a project called “Quick Start“. The project will be headed by George Zachary and Bill Tai and they anticipate to do 25-50 small deals in the next couple of years. With QuickStart, CRV has created a template for seed investing, and look to invest around $250,000 in debt which converts in an equity financing or acquisition. The debt will convert at a discount to the amount new investors are paying, at a rate of 5% for every month till the new investment is made. If this got complicated, take a look at an example from their website:

if CRV loans your company $100,000 with a six percent interest rate, and six months later the company closed a Series A round, at that point the loan balance (with interest) would convert at a 25% discount (value = loan dollar amount plus interest / .75) into $137,333.33 worth of Series A stock. Given that seed funding amounts are typically very small compared to the amounts one might expect to raise in a Series A round, as the example illustrates, the aggregate discount amount, in this case $37K, is a tiny fraction of what tends to be a multimillion dollar Series A financing.

However Josh Kopelman thinks that CRV will face trouble switching gears as they are not ideally positioned to give too much attention that is typically needed in initial stages. Fred Wilson thinks that an investment from CRV will create investor “lock in” since they reserve an option to invest upto 50% in the Series A round. Do read there FAQ and make sure you understand it in-and-out before making your mind.

Another thing that struck me is this statement on their website “CRV reserves the right to terminate, suspend, or modify the QuickStart program at any time, without prior notice. All decisions of CRV are final”. This means that they could actually leave you in the middle of no where and cut and run, if and when they want to.

YEurope, a new incubator from Europe, that launched this week has amused many people with their attention to detail in copying YCombinator. The European incubator has copied the name, the website, the amount of investment (5000€ per founder), the size of equity demanded in return for the investment (2-10%), and even the application form. In fact the person behind the initiative has Paul (Paul Böhm) as his first name. It is so similar to YCombinator that when I encountered the site yesterday I thought its some sort of a joke. The launch triggered a heated discussion on the YCombinator news site. Paul Böhm in his defense has quoted a recent study by Aho Group, headed by the former Finnish Prime Minister, which highlights the fact that although Europe is at par with U.S. in terms of Science and Technology education, its economy dwarfs in comparison because of a lack of entrepreneurial spirit and environment. Paul Böhm wants to be the person to actually do something about it, and his idea of ripping off YCombinator has really paid off as a great marketing strategy to generate buzz quickly.

Y2Combinator is the latest YCombinator Gunner that just launched a little while back and according to their site:

“Y2 Combinator is a new kind of firm: a company that starts companies that starts companies. We help company-starting companies through what is for many the hardest step, copying the Y Combinator site without making silly mistakes.
‘A lot of people look at the ever-increasing number of startup starters and think “this can’t continue.’ Implicit in their thinking is a fallacy: that there is some limit on the number of startup starters there could be.” – Paul Blackwell
‘Like everything else in technology, the cost of starting a startup starter has decreased dramatically. Now it’s so low that it has disappeared into the noise.’ – Trevor Graham”

Y2Combinator will ensure that there could be plenty of companies like the ones we have mentioned above. A little competition is always good for consumers, which in this case are the founders.

Update: Some people think that I thought Y2Combinator is a legit seed stage funding company. This is not quiet true, I put it in here to share my part in this joke.

Embedded below is a slideshow taken from the website of Y2Combinator.