Y-Combinator Is NOT The Guarantee Some Think, Two 2011 Startups Close Up Shop

YCombinator, TutorSpree, Leaky, startupsIt’s no secret that startups fail, and they fail in large numbers. It may seem like startups “everywhere else” have the deck stacked against them from the beginning, because they do. Access to capital, mentors, and talent are three of the biggest road blocks to startups outside the major tech hubs. That’s one of the big things that will be discussed at Everywhere Else Cincinnati.

There are startup accelerators everywhere. Some of them are naturally better than others. Some accelerators focus on a theme, like the Brandery on branding and ZeroTo510 which is solely for medical device startups. Others, like Techstars and Y-Combinator have huge brand equity.

Even after a demo day at an accelerator, many startups have trouble locking up follow-on funding. Some are able to raise a decent seed or Series A round and then run out of steam.  While we hear these stories all the time from everywhere, there are still some founders and entrepreneurs who believe Y-Combinator, 500 Startups, and Techstars companies don’t shut down. It seems we believe there is some kind of fairy dust sprinkled on the co-founders, while others feel that Valley based accelerators have to be great because they’re in the Valley.

Y-Combinator is often thought of as the creme de la creme when it comes to startup accelerators. It’s the first application startups from everywhere fill out in hopes they’ll get into Paul Graham’s highly esteemed program and then be on “autopilot.”

Well we’ve learned this week that this couldn’t be further from the truth. Sure there are a ton of startups that went through Y-combinator and failed, but we rarely hear those stories. This week we’ve heard two.

On Monday PandoDaily’s Carmel Deamicis pointed out that Spring 2011 YC graduate Leaky has shut it’s doors. The company offered a price comparison web platform for finding the best insurance quote. Call it Kayak for car insurance if you wish. It seemed like a good idea.

That was until the founders decided that rather than building lasting partnerships with auto-insurance companies, they wanted to take the disruptive way. Co-founder Jason Traff and his team weren’t patient enough to build those vital partnerships. Instead, according to PandoDaily and Greg Isaacs the President of competing startup CoverHound, the team at Leaky actually scrubbed the insurance carriers’ websites without their permission and then published the information.

Without the blessings of the insurance companies, the startup was doomed. This is despite raising over $600,000 in a seed round from YC, 500 Startups, and Box Group. As soon as they started publishing rate information without permission they were served with cease & desist notifications.

The Leaky team came up with a way to circumvent the insurance companies based on the fact that insurance companies had to publicly report how they came up with their data and pricing. Leaky built its models around that information, but that too failed.

On Sunday, TechCrunch’s Colleen Taylor reported on the untimely demise of Tutorspree, a Winter 2011 graduate from Y-Combinator. That startup was often dubbed the “Airbnb of tutoring”

After graduating from Y-Combinator TutorSpree went on to raise $1.8 million dollars from investors including Sequoia Capital. They also bulked up their staff to ten to help develop the product that matched students with high quality local tutors.

TutorSpree didn’t go into specifics as to why they shut down. The company’s three co-founders Ryan Bednar, Aaron Harris, and Josh Abrams said:

Ultimately, we learned about the challenges of willing a company into existence, of building an incredible and unique team to tackle constantly shifting challenges. And finally, we learned about how to make the toughest decision of all – to shut Tutorspree down, not because it was not a business, but because we could not make it the company we wanted.

In an email to TechCrunch, Tutorspree CEO Harris added, “We built something we were incredibly proud of, but got to the point where we realized it would not scale in a way that would meet our goals. It was a tough decision emotionally, but it was the right move from the rational perspective.”

We talk startup failure with Lucas Rayala the founder of Altsie, a startup that failed last year. As they failed Rayala chronicled the experience on TechCrunch. See Rayala speak at Everywhere Else Cincinnati.




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