Y Combinator’s new 8.25 million USD fund shows that it’s funding model is definitely successful, but the question is can it transfer to other industries?

While Y Combinator may be focused on the web (and by we include mobile as the lines are ever more blurry), this new 8.25M fund shows that Y Combinator’s new approach to investment shows merit. The question however is, can those similar practices be transferable to other industries?

Typically an investment of up to $20k ($5,000 + $5,000 per founder) isn’t exactly big bucks and typically won’t provide sufficient capital to hire a team, program whatever, and devise a strong media campaign. What it does is give the founders of said startup enough cash to live for three months and develop the idea while having their hands held by the incubator.

Specialized business training on the go, or more likely during the building stages? Absolutely, look at the successful entrants, all programmers with little to no business experience, but now with successful companies, Reddit, ClickPass, Zenter.

However, this is the web, where businesses are easily and quickly scalable, but how about if we were to apply the same model to clean tech, could a micro investment also work?

Aside from what is undoubtedly the higher cost of a prototype, the model should be transferrable. Why? Because the recipe is the same.

Inexperienced Engineer in Business + Good Scalable Idea + Capable Mentoring = Higher probability of success

The only difference then is, how much money will a non-web company need, and what is the exit?

First off, we are definitely looking at larger figures of 50-100k+ per clean tech project total seed investment – longer lead times, longer, development times, and longer to market times. Not to mention of course that sales and profit generating activities typically will require more effort but should those same hand holding techniques be applied to a different tech sector we could very well see a paradigm shift in the way we go from prototype to market, and more so how early stage non web companies get financed.

Would be interesting to see if anyone will pick up on such a model in the coming 3 years.

BY F3FUNDIT

Part 1 of 2

You’ve been working for days on end, the business plan is more or less finished, you’ve started developing your product, and still putting some polish onto the conceptual side of things. You figure you can get the basics up and running, or simply put you’re at a wall, and the best way, and only way to get over it is cash.

Every business hits a lack of funding wall, and while small business loans are great for a number of SME’s and start ups alike, certain companies need an injection of capital to materialize and start seeing those revenues that are slated for years 3+ on the estimated cash flows of the business plan.
But the question then presents itself – how do I manage to do this?

First, is the three F’s – like in property – Location, Location, Location, is key, so in start ups Friends, Family and Fools are just as important. When you’re starting up, your personal network is key to sustaining your business – talk to family, talk to friends about investing – if need be sell shares, or bonds, you need little else than a piece of plain white paper, and a notary to make it legit. If you’re looking for a formal doc, a Google Search will provide you with the documentation you need.

But FFF’s can only take you so far – and depending if your business is capital investment heavy or not, you most likely WILL need investment capital.

So how do you go about getting it? First thing is first. Find out if you’re ready. Venture Navigator has online assessments that you can take to gage the state of your idea, online surveys such as the “General Business Viability” and “Investment Readiness” among others will give you a good insight into whether or not approaching investors is a good idea.

If your results are favorable, or even if you’re determined the next step is identifying those individuals who want to invest. The best way of doing this is to network, see if you know someone who knows someone. If this isn’t on your plate – check for any Business Incubators in your area, they are often associated with universities, and are private, your local government office will probably know of ones in your area. If they don’t call up the local universities, business schools and asks to talk to entrepreneurship professors. The whole thing about the entrepreneurship community is that entrepreneurs are very keen on spreading best practices, and helping each other out. Also try looking for groups of people who are interested in start up activity – the OpenCoffee Club is great for this and they’re very international and pretty much all over the place. This is a GOOD Idea – your network is key!

Once you’ve been networking, got some good contacts, and ins into individuals at seed funds, and incubators, the next step is presenting your idea to people who will in all likelihood be your first real investors. They will inject anywhere from $, €, £20-500k depending on your location, and your idea. They will also take your hand and provide advice, help you source individuals whose skills will help you grow your idea and company, and put you in touch with someone who will most likely be a mentor (more on mentors in future articles) and help provide you with the type of knowledge only an industry specialist can provide. Like everything in life, this isn’t free and expect to give up anywhere from 8-50% of your company. Nonetheless, should you get funding you’ll be well on your way to building that business you’ve always dreamt about.

In the next article in the series – we’ll be covering Angel and Venture Capital sourcing, funding, presenting do’s and dont’s as well as what you should expect. As an added bonus, I’ll also provide you with some useful links to Angel, VC, and Seed networks in the U.S., U.K., and Spain