Panel: 'Seed Combinators: Startup Incubators 2.0'
Participants: Naval Ravikant, chairman at Vast.com Inc.; Marc Nathan, ChaiONE; David Cohen, TechStars; Paul Graham, YCombinator; Joshua Baer, OtherInbox

Does location matter? How do you get noticed and get a project funded? These questions weren't brought up during a SXSW music panel, but during an interactive panel on seed combinatory funds.

Why You Should Care:
The seed combinatory is to tech start-ups what indie labels are to record labels: vital to entrepreneurship, the earliest to invest and spot new trends, mentor to the inexperienced.

Around the country, combinators are helping early stage start-ups hone their ideas and prepare for later stage investments. Combinators help many start-ups involved with social media and on occasion will fund a music company.

TechStars, for example, chose music analytics start-up Next Big Sound to participate in its program. Y Combinator has invested in Ticketstumbler and Songkick. For these types of angel investors, the goal is to create an environment outside of traditional angel investing that encourages greater entrepreneurship.

Y Combinator, for example, hosts a three-month incubation programs in Silicon Valley and Boston each year. Participants get mentoring as well as access to Y Combinator's network of executives, investors and insiders.

The Takeaways:

Relationships Are Important
People are more important than ideas. Graham said the relationship between co-founders is important. "We pick people we want to be around," Graham said. They need to be dedicated to the start-up and have the right attitude. "We have to like you," Baer said. Cohen noted that half of the companies will change, so the idea is not as important as the people creating the idea. Baer pointed out that he wants people who are trying to solve valuable problems and wants to know the applicant is the right person to solve it.

Changes In Getting Money
Combinators are changing how start-ups can get money. It's much easier to get money for seed round because people are spreading their investments. But the middle ground is getting lost. Barriers to entry are lower for many products, which is driving costs down, which drives down amounts of funding that needs to be raised. Most importantly, combinators act as a filter for later-stage investors. "Combinators have changed the landscape so they can pay attention to what's coming out," Cohen said.

The Importance Of Location
Location is still important, but not always the most important thing. These are winner-takes-all companies, Ravikant explained, so for many companies it pays to be in Silicon Valley. Baer said there are many advantages to being outside of Silicon Valley. "It's easier to stick out, and there are different skill sets," he said. A city like Austin or Boulder has mentorship and resources, Cohen said. "Every community has its advantages and disadvantages."

Start-up Cost Is Low
Start-ups today don't cost much. The cost of doing a start-up is low, Graham said, and might actually save people money because they won't have time for leisure activities. The cost of finding a market, however, can be much more tricky. "Press is negative ROI for most start-ups," Ravikant said. Tech blogs are better because investors read it.

Billboard.biz Panel Rating?
Three of four! Lots of practical advice by seasoned veterans. Plenty of pointed, practical questions from the audience. And a fast pace that kept things from getting boring.

Follow Billboard.biz on Twitter and visit Billboard.biz/SXSW for full coverage of this year's festival.

Questions? Comments? Let us know: @billboardbiz

Print