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.



Demo Days Are The Worst Source Of Deal Flow? Mark Suster Says Yes

YCombinator,Paul Graham,Mark Suster, Demo Day,startup,acceleratorSince starting our nibletz sneaker strapped startup road trip last year we’ve seen hundreds of startups pitch at countless demo days. Nick and I were finally relaxing with one of our advisors, Patrick Woods’ with a>m ventures, on the last night of SXSW and we had counted over 65 startups that we saw pitch through a variety of demo events at the annual festival.

We’ve also seen countless accelerator demo days and with it being May and most of the spring accelerators graduating this month, we’re on track to enjoy another dozen or so before we get to the thick of the summer. Speaking of summer, last August their were three accelerator demo days in Tennessee alone.

Startup community members and leaders are constantly debating “the rise of the accelerator” and where accelerators should focus their resources. Is the best accelerator model general tech and cohort based? Or vertical and rolling? Who knows, it will take several more iterations until each community finds the accelerator model that works best for them.

But what about demo day?

On Friday Business Insider ran this piece which references an indepth article about YCombinator and it’s historic demo day from the New York Times.  In it, author Nathaniel Rich, quotes an investor saying that YC’s demo day, often thought of as the super bowl of demo days, “used to be a can’t-miss event, but that’s not so anymore. It’s a different vibe. Some major investors are starting to skip it.”

Rich points out that one investor said that YC Demo Day used to be a feeding frenzy for deal flow and it’s just not anymore.

Of course YC’s demo day is all the way at one end of the spectrum. Y combinator is said to take the best of the best and with hits like DropBox and Airbnb, the newer teams know they can set their valuations and standards higher, pricing a lot of smaller VC firms out of the deal. This either leaves VC’s empty handed or startups empty handed.

“The only way for a company to be overvalued is if there’s someone willing to pay that price,” Graham told the NYT. “So what they’re saying is: Going through Y.C. causes companies to raise money on better terms than they would have otherwise. We wouldn’t have the barefacedness to make that claim ourselves!”

Graham acknowledges that YC does take some bad startups though, saying sometimes investors can’t pick out the good startups; “Well, it’s not because the good start-ups look bad,” Graham says. “It’s because the bad start-ups look good! Which means we’re doing our job.”

Business Insider recently shared some of Mark Suster’s, a VC with GRP Partners and the founder of LaunchPad LA, best and worst sources of deal flow from his personal blog.

Surprisingly, blogging was revealed to be the best source of deal flow available. “The sheer number of relationships I’ve built through being public, transparent and being willing to engage in comments and through social media has enabled me to get to know entrepreneurs even before they launch their next company,” Suster said on his blog.

Investment bankers were said to be bad sources of deal flow, but the worst? Demo Day.

“Getting excited about a company at a conference and investing is a sucker’s bet,” Suster writes. “Entrepreneurs raising at prices not normally supported by progress face risks downstream when they have to raise more capital. And that fund raising is part of the job of being an entrepreneur – not something that gets in the way of your doing your job.”

Startup accelerators everywhere else are having a hard enough time getting investors in the door for demo day as it is. One accelerator participant in the middle of the country told us “outside of the investors that had a stake already in the cohort, no investors came to our demo day last year.” That can be hard to swallow.

As to the blogging, we have a handful of angels and VC’s that email us from time to time to get the vibe on some startup we wrote about. We also get thank you cards in the mail from startups that have gone on to raise money after getting their first piece of press from nibletz. To that end, we live off of our crowdfunding so to help out the everywhere else cause, click here.


See Dave Tisch’s biggest pet peeve when VC’s are talking to women entrepreneurs.


Pittsburgh Startup PayTango Will Make Sure You Never Lose Your Wallet Again

Paytango,Pittsburgh Startup,YCombinator,TechCrunch DisruptLast month we brought you this story about Pittsburgh startup, turned Y-Combinator company, PayTango. They were one of the first in the biometric wallet space.

When we spoke with PayTango co-founder Brian Groudan at TechCrunch Disrupt he acknowledged how crowded the biometric mobile wallet space has gotten after their videos and pitch decks started popping up online. We talked about New Jersey startup PulseWallet, that we met at CES 2013 and Groudan pointed out another biometric mobile wallet startup that was also in the Startup Alley at Disrupt.

PayTango was one of the first in the space and for now they are focused on smaller networks where they can really get a feel for the technology and what it can do.

What is PayTango and a biometric wallet?

Well by now everyone has heard the term mobile wallet. We all know that you can use your NFC enabled phone and other forms of mobile commerce without having to bring credit cards along. What PayTango and other startups in their space hope to do, is to eliminate the wallet altogether and use your finger print as your wallet.

Using a biometric wallet is not just easier and more convenient but it’s a lot safer when it comes to fraud.

PayTango tested on the campus of Carnegie Mellon University and has also tested in some health clubs as well. While students who signed up for the beta can use their finger print to pay for meals, there’s also the capacity to store your entire academic history in the cloud, accessible by finger print.

While only saying that PayTango is looking at a lot of different uses, it’s easy to see that the team behind PayTango is looking at a much bigger picture than just syncing your American Express card with your index finger.

Groudan was actually excited about all the competitors in the space because it gives PayTango more market validation.

Check out our interview with Groudan below and for more info visit paytango.com

We’ve got more startup coverage from TechCrunch Disrupt NY 2013 here.


In The Wake Of The Boston Marathon Bombings Paul Graham Turned To Watsi, And Then Took His First Board Seat On Their Board

Watsi,YCombinator,Paul Graham,Startup

Chase Adam founder of Watsi (photo: Jim Wilson/New York Times)

Y Combinator founder Paul Graham is a busy man. Based on the West Coast, when America’s hearts turned to the Boston Marathon bombings, his did as well. Being so far away there wasn’t much he could do to help the situation in Boston so he turned to Watsi.

Graham tweeted on Monday “When terrible things happen to people I can’t help, I go to watsi.org and help people I can”.

grahamtweetWatsi is a crowdfunding platform that allows users to connect with patients with real serious needs for low cost medical care and enables users to fund high impact treatments.

For example the Watsi home page shows Eliazar a young Guatemalan man who had to have his right arm amputated after gang members threw a grenade into his home. For just $650 he can get a prosthetic device that will help him perform simple daily tasks that are impossible at the moment. He is just $205 away from that goal.

Currently Eliazar is the only fundraising patient on the site, to date they’ve funded over 300 patients and helped them get their much needed medical attention.  Now you can see why Graham would choose such a service to actually help people.

It was this revolutionary new concept in crowdfunding for social good that motivated Graham to invite the founders out to Silicon Valley for a meeting and then invite them into Y-Combinator as the accelerator’s first ever non-profit startup.

Like many Silicon Valley power players, Graham is a very busy man. He enjoys helping and nurturing the startups that are in the YC program and serves as a “father figure” to many of them, well beyond their YC days. He’s known for going to bat for his startups with other power players in the investment community, like the ever so famous Paul Graham, Fred Wilson debate over Airbnb.

grahamtweet2While many power player’s resumes include laundry lists of board seats that they serve on, until now Graham has never taken a board seat.   Just like Watsi was the first ever non-profit in the Y-Combinator program, it was also the first startup that Graham has ever decided to take a board seat on.

Graham will now provide guidance to the young company that money can’t even buy.  With that in mind you also have to consider the fact that this is a non-profit so Graham can’t expect a large return, if any at all.

For decades, heart wrenching commercials have shown up on the TV urging people to sponsor kids in foreign countries for education, clothing and food. For just $.25 a day you can make a difference. While those programs are great, most people receive a photo in the mail of one kid and aren’t clear on where their money actually went. With Watsi it’s very clear. Of course they are also vetting the patients’ stories as well to make sure the money goes in the right place.

With all that’s going on in the world today, this is just a great story to share on a Sunday. Share it below!