How far can investors influence startup creation?

By February 24, 2015
Requests for Startups

Californian incubator Y Combinator recently began publishing a newsletter on its site where investors can suggest ideas for technological areas or business projects for would-be startup entrepreneurs.

Coming up with a business idea is not too difficult in itself for anyone who has some entrepreneurial blood in his/her veins. In general, would-be entrepreneurs have at least one new idea up their sleeve. However, once the company has been founded, you have to carry the idea through – putting together a team, raising funds to finance development and so on. The original idea may go through many iterations before the founding team decide to push the ‘OK’ button, not least positioning the new product in order to launch on the market at the most auspicious moment. Today the whole idea of entrepreneurship has the wind in its sails, especially in the fields of connected health, leisure and entertainment, financial services and education, and barriers to entry are coming down all the time. Nevertheless, the products being developed do not necessarily meet the needs of consumers and many of them simply seem designed to solve a non-existent ‘problem’. Now however, the new section on the Y Combinator website, called Requests for Startups (RFS) is intended to turn the situation on its head, enabling venture capital firms and business angels to set out the ideas that they would like to see new startups develop. 

Ideas investors have been awaiting for years

It seems perfectly logical to pump-prime development in those areas where need for innovation and disruptive products is high by laying ideas in front of people who have the desire and drive to make them work profitably.  This is more or less the aim of YC’s Requests for Startups.  Nevertheless the RFS section clearly underlines that “you shouldn’t start a company just because it’s on this list. It’s mostly here to help stimulate you to think about ideas.” In fact the list provided by Y Combinator is a pretty big one, covering the main technology trends in fields where the iconic incubator/accelerator hopes new companies will spring up. At the moment the list includes twelve major areas, including artificial intelligence, augmented reality and virtual reality; transportation and housing; and robotics. In the energy field, for example, visitors to the YC site will see that investors are most interested in reducing the cost of energy and ensuring better energy resource management by, inter alia, improving energy storage especially with new types of batteries. 

In these fields, Y Combinator is hoping first and foremost to encourage technological advances that will then gradually foster practical innovations in the sector. On the other hand, some of the areas on the RFS list – including augmented reality and virtual reality – are already trendy, but it is not yet clear which way the market will go. Here investors are simply waiting for new trial products.

...Versus ideas that can still surprise

Clearly YC’s purpose is not to stifle entrepreneurial creativity or straightjacket would-be startup founders but rather to encourage them to think about some new ideas in promising fields. Nor is it a given that an entrepreneur who launches into one of these fields will automatically obtain financing from the investors who put forward the idea. “We don’t expect that responses to RFS will ever be more than a fraction of the applications we accept. We wouldn’t want them to be. Most good ideas should be ones that surprise us, not ones we’re waiting for,” states the website. After all the basic principle of disruption is an unforeseen idea that comes along and shakes up a market and what tech investor wants to miss out on that kind of opportunity? Basically, investors putting forward ideas on the RFS section are not looking for a large number of funding applications but hoping to get in touch with a startup team who are passionate about one of the listed fields. Requests for Startup has also recently been highlighted, and received high approval, on the Product Hunt website, which provides curation of apps, sites and products and is one of the startups in the 2014-2015 Y Combinator batch.

Meanwhile, in addition to investors, a number of pro-active startups have already formulated requests on RFS. This kind of move should help entrepreneurs to find the most suitable financing conditions for their particular startup. Leading US venture capital fund Andreessen Horowitz has also published its own list of ‘16 Things’ it sees as the hottest tech trends in the world today. Meanwhile YC is thinking about opening up its request list to ‘influencers’ and other individuals, as it makes sense for the startup ecosystem to work in both ‘push’ mode, like Product Hunt, and ‘pull’ mode, the basic idea behind Requests for Startups.

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