Difference between Y Combinator and Techstars
Anyone who is looking to start a business or make a significant investment will have to consult with venture capital firms at some point, and Y Combinator and TechStars are two of the most respected. Both offering numerous services that may be of use to practically anyone who is looking for capital, these services are compared in this article.
Y Combinator is a seed-stage startup funding company based in the United States. Founded by Paul Graham, Robert Morris, Trevor Blackwell, and Jessica Livingston in 2005, the company provides seed money, financial advice, and even connections in two annual 3-month programs. In return for its services, the company takes an average of 6% of the equity in the company.
TechStars is a seed stage investment fund established by David Cohen, Brad Feld, Jared Polis and David Brown in 2006. A mentorship-driven program, TechStars primarily provides seed funding for people developing Web and/or software companies. The organization's programs are mainly located in Boulder, Boston, Massachusetts, Seattle, and New York City. The companies then provide their customers with access to mentors and develop means of funding by way of venture capital firms and angel investors.
Y Combinator was formed as the result of a talk given by one of its founders, Paul Graham, in Harvard University, where he obtained a PhD in Computer Science. The talk was entitled "How to Start a Startup", and during the course of it, Graham encouraged entrepreneurs to seek seed funding from angel investors that were focused primarily on technology. Graham jokingly said that these entrepreneurs should seek funding from sources other than himself, although he later felt guilty about his statement and soon started up Y Combinator as an avenue for seed funding for startups.
TechStars was established in 2006. Among its founders are David Cohen, Brad Feld, Jared Polis and David Brown.
Unlike many other startup funds, Y Combinator actually provides relatively small amounts of funds for startups, with $17,000 provided to firms with 2 founders and $20,000 for those with 3 or more founders. This policy is reflective of Graham's idea that free software, dynamic languages, the Web, and Moore's Law have all resulted in a marked decrease in the cost of funding startups. The company is actually named after a theory of functional programming construct called the "Y combinator".
TechStars works to provide seed funding and three month mentorship programs to its customers. In return, the company gets a 6% stake in each company. All companies under the TechStars program get up to $18,000 in seed funding. At present, as many as 70% of all companies funded by TechStars have either raised outside funds or have become financially self-sustaining. In general, TechStars has a much higher rate of success compared to seed funds such as YCombinator.
Similarities and Differences
- A seed-stage startup funding company
- Provides seed money, financial advice, and even connections in two annual 3-month programs
- Takes an average of 6% of the equity in the company
- A seed stage investment fund
- Provides seed funding for people developing Web and/or software companies