Unless you get incredibly lucky (remember, there are already many factors going against you), you’ll need to have at least built something people want before you can get your first round of funding. The application process varies, but most accelerators follow Y Combinator’s lead and start with a written application (submitted online, of course) followed by offers for in-person interviews. I’m biased, but not only did Y Combinator create the blueprint, they also set the standard. So at least for as long as they’re doing that, let’s use them as a benchmark.
If you get in to Y Combinator, you’ll trade some equity (typically between 2 percent and 10 percent, but usually between 6 percent and 7 percent) for somewhere around eighteen thousand dollars (on average) in funding and their three-month program. If you can’t ship something in that period, you’ve got to hard reset.
What if you don’t? Or don’t want to? Well, you’re not alone, as most of the successes in our Internet industry never went through an accelerator.
The cost of starting a company falls every day as the costs of hosting your website fall. When we started reddit, we ordered our servers online, as parts, and assembled them in our living room before schlepping them down to the co-location facility (a big room full of servers where you can rent space to put in your own). Just a few years later, Amazon launched a brilliant cloud computing service that did away with our need to ever see our servers-;all it takes is a credit card, and your site can be up and running for a pittance (a price that heads down every month). Hosting a website is now essentially a utility.
When you’re not dealing with inventory, or a retail location, the barriers to entry plummet, and businesses can start from dorm rooms and coffee-shop tables. As long as you can cover rent and keep food in your belly (this is what Paul Graham means when he says that all startups aspire to be “ramen profitable”–that is, profitable enough to keep the founders living in their frugal, college-like lifestyle, with a roof over their heads and ramen in their bellies), you can keep your business going-;and growing-;long enough to get that next round of funding.
This funding may come from friends and family, or it may come from wealthy individuals known as angel investors. The phrase is rather generous; I prefer to think of them as wearing monocles and top hats.
The breadpig above captures exactly what I look like at the moment I’m deciding whether or not to invest in a startup. In fact, all investors look exactly like this. No halos or wings, just monocles and top hats.
But the idea is that these investors are willing to take a big chance on a very early-stage company in the hope that they’ll get in on the ground floor of something huge. I’ve done more than sixty of these early-stage investments since selling reddit. For many of us, investing in an early-stage company is a risky investment strategy, but it’s something we do because we were entrepreneurs ourselves once. We think of it as startup karma-;a way to give back to the community and honor all the folks who took a chance on us.
Additionally, young founders are challenged by a lack of connections and the appearance of youth, which in many industries, unfortunately, correlates with a lack of legitimacy. Adam Goldstein at hipmunk, then twenty-two, overcame these hurdles through sheer determination. Many other founders do their business development over the phone first, where one is only judged by one’s voice and one’s choice of words. Then when it comes time for an in-person interview, one’s youth becomes an asset, as the executives who would’ve once been skeptical are now impressed.
Unless you’ve got a rich and generous uncle, you’re going to have to be resourceful. Actually, even with a rich and generous uncle, you’d still better be relentlessly resourceful, because in this industry, if you’re not making something people want, you’re hosed.
Excerpted from WITHOUT THEIR PERMISSION: How The 21st Century Will Be Made, Not Managed, by Alexis Ohanian. Copyright 2013. Reprinted by permission of the publisher, Business Plus. All rights reserved.