Jeff Amerine

Techpreneurship, with Jeff Amerine

(Jeff Amerine is an IA advisor and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)

So what’s a Y Combinator??  Sounds like some esoteric genetic process mere mortals couldn’t possibly understand, doesn’t it?

Well, it turns out that Y Combinator is a seed-stage funding source based in Silicon Valley.  The company was founded by Paul Graham, a successful serial software entrepreneur (or I should say ”hacker,” as he would rather be called).

Y Combinator approaches investment in a very different way.  They typically don’t invest more than $20K in a given deal, and they only look for a very small percentage ownership in exchange for their investment.

The Y Combinator force multiplier is that they couple-seed investment with something of much greater value – proven expertise.  In a sense, they really are an incubator, startup boot camp, or strategy gauntlet for the best and brightest software developers.

Paul Graham says that they are more interested in the strength of the startup’s technical talent and ideas than the depth of their business plan.

Check out their website and a recent Youtube video from Startup School 2009.  The video has some interesting soundbytes from the founder of Twitter, the developers of Facebook game Farmville and many others.

Unconventional?  Absolutely.  Proven?  Without a doubt.  Could it work in Arkansas?

I’d be interested in your thoughts.  Fire away!

9 Responses to “Techpreneurship: Y Combinator – Could Its Model Work in Arkansas?”

1. jamerine says:

   November 26, 2009 at 12:03 pm

   Folks

   The commentary on the Y Combinator discussion has been outstanding. We need non-conventional, non-status quo thinking to really move Arkansas forward toward a real culture of technology innovation. As we begin to pull together some innovative funding and support models here in the state, you can be sure I will be contacting several of you. Fresh ideas not mired in the old ways are exactly what we need. Thanks again for the great interaction. Let’s keep the dialog moving!

   Jeff
2. Brant Collins says:

   November 19, 2009 at 11:48 am

   Great article and very interesting funding model.
3. Jeff Amerine and Arkansas Innovation | Innovate Arkansas says:

   November 18, 2009 at 5:15 pm

   [...] this blog know, is author of the soon-to-be renowned (it’s still too new to be renowned) Techpreneurship series that appears in INOV8 each Thursday. He got pulled away unexpectedly last week, but [...]
4. Dustin Henderson says:

   November 18, 2009 at 11:26 am

   Jeff,

   Thanks for the article. This is a great conversation. I have met a few savvy entrepreneurs in Arkansas who are thinking about putting together just such a program. As the founder of MeritBuilder.com and a person intently interested in seeing this state reach its potential, I make the following observations:

   “We don’t plant stuff that does not grow.” Perhaps it is our agrarian roots, but we don’t encourage our children to fail. We ask leading questions like “what are you good at.” When we should be asking what are you passion about. I am good at addition, but I am passionate about transforming corporate cultures. I could be a successful bank teller with the former or I could change the world pursuing the later. One path is inherently more risky than the other! On path produces employees the other produces companies.

   We keep our successes to ourselves. Our children (in primary school, secondary school, and college) tend to look at their feet when they say they are from Arkansas -like it is some sort of disability to be overcome. Arkansas has a great and powerful story to tell. But, these stories must not be told second hand. It is not enough to be in the textbooks (George Washington is in text books). The leaders of companies grossing 100M and starting in the basement should be paraded (live and in person) in front of our children preaching: “It was not in spite of Arkansas but because of it!” [For an example listen to the ETL podcasts coming out of Stanford]

   Clients are better than money. I have received money from Angels and the State of Arkansas. I am thankful for both. MeritBuilder would not exist without their support. But, I would prefer warm introductions to clients. I would like Arkansas companies to consider supporting (by using) homegrown products. I would like an Arkansas based angel network that mentored me and introduced me to my first five clients. If an Angel, VC, or State Agency cannot do that – then they should not fund the company. Harsh I know… but leveraging this rule will provide a clear vision of what can get funded here in Arkansas and make the best use of a scarce resource. [if done correctly this does not conflict with a product that requires a long-term vision]

   The pie is infinite! We, as a people, must understand that making one piece of the pie bigger does not mean making another smaller. This is NOT the case with me-too companies. They are trying to take from the existing pie. But companies that truly innovate… that expand the pie require a long-term commitment from investors and a supportive environment in which to grow. We express our vision for the future by the companies we choose to fund.

   People who have got it must think like entrepreneurs again. If one has a few million jingling around in their pocket (or even a 100K), then stop talking about what Arkansas needs to do. Just do it!

   Go to UALR, UA, and the Technical Schools. Advertise a 2-day start up fair. The first prizewinner gets to work with the sponsor and will receive $xxx,xxx to get started. The runner-ups can get a few bucks too. Then communicate the crap out of the process… go to schools, talk to the press. Let people know that it will happen again next year. Tell them what is needed to win… and see what happens next. Two points from this: It is OK to pick winners & we are defined by the stories we tell.

   Nothing draws a crowd like a crowd… we can get more people or make the room smaller. Bad metaphor: But, the more coverage we get from the mainstream press… the more crowed our room will look and that will draw more people. Let’s leverage the size of Arkansas small social network to create a crowd.

   R.D.H.
5. John R says:

   November 16, 2009 at 12:44 am

   I am glad that people with actual experience chimed in. Good reads.

   I considered commenting earlier, but without experience, I would have risked just being a Debbie Downer. (You all should comment more, by the by. I’m sure there are lurkers out there.)

   Arkansans, in general, think small. It’s indicative of a few things: culture, ruralness, industries in the state, education levels,etc.

   I went to high school at the Math and Science School, and I was around some of the most incredible minds in the state. There are tons of evidence I could give you: classmates beating college students in programming competitions, kids scoring perfects on the SAT IIs, a group of my friends designing a rail gun (which requires high level electromagnetism physics understanding), and tons of other examples. As far as raw IQ, a few of these people were up there.

   But here’s the dilemma: most of them didn’t have the savvy, sense, or discipline to parlay their talents into something greater. I have a few theories. ASMSA, contrary to conventional wisdom, had high rates of students from poor homes–some 60%+ would qualify for “free and reduced lunch.” In other words, these were very talented kids from very isolated regions of the state that have low levels of education, low levels of industry. Their parents were middle/working class–not professionals. How does this come into play? When your parents are professionals (or more educated), or you are around knowledge industries, or are in more cosmopolitan areas, then you are more likely to be conscious of what it takes to succeed at higher levels. Your home is also more likely to be stable.

   I now go to a good University, and though the average ability of the students is overall significantly higher than that of ASMSA, there are a few ASMSA students who I feel more than have the ability to perform with the best at this University. The difference is that the students here have a calculated awareness of their abilities, of what they’re capable of, and how far they can go. The University students are savvy, in other words. Their parents are almost always professionals, and they have been raised to discipline and good guidance on what steps they need to take to succeed. Their homes are also stable.

   So as others have said, there is a significant potential to be tapped within Arkansas. Are savvy and sense teachable? I don’t know. They better be. And to a certain extent, I’m sure they are. There needs to be more hand guidance.

   That said, there are other factors that make the task difficult: the state has a low population to begin with, and there are low levels of education within the population. Though the ability may be there, this (where this = education levels, ruralness, etc) often results in a lack of savvy as to what to do with that ability. There are also low levels of knowledge industry. Knowledge industries attract intelligent people, who spawn, well, more intelligent people. This is one of my more less diplomatic points–but it is true: knowledge industries, as we know, are not equally dispersed around the nation.

   This organization (IA) is a step in the right direction: it has a very direct and audacious goal of organizing Arkansas innovators. That is needed–it would have been too vague if it were called something like “Technology for Arkansas.” The Y Combinator could help as well…I’m sure there are even more lurkers out there with more concrete ideas as to how it would be realized.
6. John James says:

   November 13, 2009 at 11:22 am

   Jeff,

   I had the privilege of meeting Matt Price this weekend… he directed me to your post.

   After reading your article and meeting Matt, I am excited to say that for the first time in my 13 years as a serial technology entrepreneur in Arkansas, I’ve found two people from our fine state who actually “get it.”

   The problem in the Arkansas startup/angel/ venture captial community is NOT a lack of capital. It is a lack of focus… there is a terrible lack of connection between young wanna-be entrepreneurs who understand the “virtual world” and the monied elite who have no clue how explosively profitable this world can be.

   It no longer takes millions of dollars to start a hugely profitable company. I speak from experience – here are a couple examples dear to my heart:

   In 2001, while a Family Practice resident, I started an ecommerce company with a $49.00 investment. We grew the business to nearly $20 million in annual revenue requiring only the initial $49 infusion of capital.

   My next venture was even more “virtual”… It focused on the arbitrage of internet advertising, and required a whopping $250 to get off the ground. This venture generated 65% net profit and was responsible for 1.4% of Google’s partner driven revenue on their 10-Q statement before their IPO.

   Both of these businesses were run out of my basement. In Arkansas.

   There are hundreds of of talented “geeks” just like me IN ARKANSAS. To achieve similar success they need a support system and need enough capital to achieve, as Graham says, “Raman Noodle Profitability.”

   To start an internet business capable of reaching $20 million, $100 million, or more these wunderkinds need two things: enough cash to pay for Raman Noodles, Red Bull, and a single bedroom apartment for 6 months; AND (more importantly) a mentor with some business sense who can help them turn their raw web products into a viable business.

   I’ve personally funded a few projects for talented 20 somethings… at 33, I’m hardly mentor material, but I do my best.

   One final point: I will disagree with Web’s statement that “118 businesses at $20,00 each” is “big bucks.” That is a mere $2.4 million. In the investment community, that money can be raised with a single well placed phone call (even in Arkansas.)

   The unfortunate reality is that the Arkansas investment community would rather plunk down $2.4 million on a single slow growth manufacturer, rather than invest in 118 talented, young “geeks”…

   Jeff, if you need some help launching a Y! Combinator type fund in Arkansas COUNT ME IN. I’ll bring the “geeks” with me.
7. Matt Price says:

   November 6, 2009 at 4:06 pm

   I appreciate your post about Y Combinator. Couldn’t agree with the concept more. Paul Graham’s “essays” on the startup community are fantastic and really guide the industry conversation on these issues.

   I think the biggest problem with something like this in Arkansas, is unfortunately Arkansans. Being one, I can say this confidently, we think small.

   For something like Y Combinator to really be successful we all have to learn to think big and challenge business norms. That means we need to encourage people to take the leap into entrepreneurship. We need to encourage our colleagues and business partners to work with start-ups, buy from startups, and search out new and innovative ways to do business.

   I think for Arkansas to take giant strides in the startup world there must be a change in thinking, I encourage all of us to think BIG!
8. jamerine says:

   November 6, 2009 at 9:28 am

   Web

   As always I really appreciate your timely and spot-on feedback. The funding for Y Combinator largely came from the partners/founders. That is one tremendous advantage Silicon Valley has over most anywhere else, i.e. a bunch of cashed out entrepreneurs looking to spawn other ventures.

   As to what we can do in Arkansas, a bunch of us around the state are having fairly serious albeit early discussions about creating a couple of new early-stage angel funds. The objectives are two-fold. 1) provide additional sources of very early stage capital and 2) begin to get some more experience in running early stage funds here in the state.

   The concept at this point is for the new fund or funds to deliver more than money just as Y Combinator does. The members of the fund will be invited in based on having broad/deep technical or business subject matter expertise that can bring real, strategic value to the entrepreneurs.

   We are trying to also figure out creative ways to involve MBA students or possibly senior level undergrads in the administration of the fund so we can begin to grow some of our own VCs who might decide to stick around Arkansas or will at least come back at some point to be fund managers.

   I’d be very interested in your thoughts as this moves forward. Thanks again for the feedback and by the way – your book is a required text in my Entrepreneurship class this spring. I am looking forward to having you in as a guest speaker at some convenient point between January – May.

   Jeff
9. G. Web Ross says:

   November 6, 2009 at 1:14 am

   Jeff. I think this is a terrific idea and yes I think it could work in Arkansas, although Arkansas is not Silicon Valley and I think you would want to support a different type entrepreneur. The Country desperately needs startup money for new businesses. The stimulus has not provided this help and the banks aren’t either, so this could play an important source for small new business ventures. They said they had provided seed money for 118 businesses this year. At $20,000 each that is pretty big bucks. I am not sure how this is financed? It seems to me financing has to come from someone that is more interested in helping the country than making a profit. People like Wal-Mart and Tyson may be potential backers?
   One other thing, I just finished a two hour seminar on using YouTube for video presentations. One of their points was to make sure you frame your subjects well. They did a terrible job here, a lot of their speakers heads were cut off. Frankly I didn’t like the video at all. It just seemed disjoined.
   Anyway thanks for sharing this idea with us, now all you have to do is find someone to spearhead it. G. Web Ross