According to numerous sources close to the company, Yahoo is offering to pay $30 million to $40 million for the maker of address book apps and plugins.

That’s below the more than $40 million raised by the San Francisco-based startup from a variety of venture capitalists, including First Round Capital, Baseline Ventures and Khosla Ventures. Launched in 2008, Xobni — which is “inbox” spelled backwards — received its initial round of funding in 2006 from Y Combinator.

Sources inside Yahoo said that, as envisioned at the current acquisition offer, Xobni common shareholders might not get any of their investment back over preferred ones, which might hold up or even scotch any deal. Yahoo could certainly offer more, although sources said that seemed unlikely.

As with most of these purchases, any deal might also simply fall apart. But other sources noted that the company has been shopped to several different companies and that Yahoo has offered the best price and is the most natural home for it, given its strong email offerings.

Sources said the deal was of particular interest of Yahoo co-founder David Filo, who still plays a key tech role at Yahoo and has worked previously with Xobni’s CEO Jeff Bonforte. Before he headed Xobni, Bonforte was VP of social search and the real-time communications for Yahoo.

Bonforte would certainly be a nice re-hire for the Silicon Valley Internet giant, which is in need of leadership in the key communications area.

AllThingsD.com had previously reported on Yahoo’s interest in Xobni. It has been mulling the company — as well as a spate of others all over the tech landscape — for a while.

As Liz Gannes noted, Xobni “could be a fit for Yahoo’s mail and productivity tools, as it neatly creates automated profiles for each email contact with correspondence history and social network data.” Its products have expanded from just an Microsoft Outlook plugin to supporting Google’s Gmail, Yahoo Mail and Apple’s iCloud, and it also offers Smartr Contacts apps for Android and iPhone.

If the deal is complete, it continues Yahoo’s buying binge under CEO Marissa Mayer, who appears to be using M&A as a talent recruitment tool — essentially, if you can’t hire them, buy their company.

Among her recent purchases are a spate of mobile app companies, for which she has only spent $16 million in total, with the exception of Summly for a lot more. And, of course, she also bought Tumblr for cool $1.1 billion.

For now, there’s no reason to worry about surreptitious Meta usage in bars and locker rooms.

The latest is Meta, an immersive 3-D headset layered on top of the real world. Meta wearers can interact with virtual games, architectural renderings and other 3-D objects by using their hands. The device captures gestures with an outward-facing camera (similar to Kinect or Leap Motion).

Meta launches on Kickstarter today, and is also announcing that it will be participating in the next Y Combinator batch out in Mountain View, Calif. Backers who commit $750 will be promised an early version to be shipped in September of this year.

Meta is a young company developed primarily by a Columbia University undergrad student and his adviser, with 12 more employees recently hired. But it is getting a leg up through compatibility with widely used 3-D game-engine maker Unity Technology, and it has a hardware partnership with Epson, and it aims to get devices to buyers this year. (Correction: An earlier version of this story said Meta already had a partnership with Unity. It does not currently.)

Meta will support the popular Unity 3-D software, so other developers will be able to build applications in an environment where they’re already comfortable. A developer kit is available today.

A Meta rendering shows a wearer adjusting 3-D landscaping in front of a virtual building.

If Google Glass brings your phone to your face, Meta aims to bring the computing power of a PC to your face, said Meta founder and CEO Meron Gribetz. “Before you can have the phone, you should have the PC,” he argued.

The “meta1” is not pretty; it definitely looks like a camera mounted to giant wraparound stereoscopic glasses. But it does seem like it’s at least close to working. Yesterday, I briefly tried a demo version that was tethered to Gribetz’s laptop, and there seemed to be minimal latency between me wiggling my fingers and moving my hands farther and closer to interact with the virtual spaceships and hovering balls I was seeing.

Gribetz said he is launching the Kickstarter campaign primarily to build awareness of the device, so he set his goal at a relatively low $100,000 in order to sell a few hundred or a thousand of them.

Airware, a startup that is creating a software platform for commercial drones, said it had raised $10.7 million in a Series A funding round led by Andreessen Horowitz. Google Ventures also participated. As part of the deal, Andreessen Horowitz partner Chris Dixon will join Airware’s board.

The Newport Beach, Calif., company said it would use the money to expand staff for its universal development platform as the market for non-military drones expands.

Airware founder and CEO Jonathan Downey said that uses of drones will be increasing for a wide range of purposes, from checking infrastructure to monitoring mining operations to preventing poaching.

In an interview, Downey said that he expects to compete with a range of ex-military efforts, but that the most successful companies will be those that provide a platform to allow for the widest range of innovations.

“This is going to be about a lot more than we know or can guess,” he said. “The industry is at its very beginnings.”

Dixon agrees. “Hardware is the new software,” he said about the investment in Airware, which he said he discovered after attending conferences about the fast-moving drones business, noting that the overall field of robotics has “overpromised and underdelivered.”

Airware came out of both the Lemnos Labs and Y Combinator incubators and had raised seed financing from First Round Capital, Firelake Capital, RRE Ventures, Shasta Ventures, Promus Ventures and several Y Combinator partners.

Right? Right. That’s the premise behind Science Exchange, a Palo Alto-based startup that lets researchers buy or sell access to people and equipment they can use to run lab tests and experiments.

Scientists are already used to outsourcing certain kinds of work, either because they don’t have the time or the resources to do it themselves. So Science Exchange isn’t trying to reinvent the wheel — they’re just digitizing it and putting it up for bid on the Web, like everything else.

“We’re not creating an entirely new behavior,” said co-founder Dan Knox. “We’re just making it easier to do.”

So far, Knox said, the thesis is proving out. Since launching in the summer of 2011, the startup has helped people conduct 1,000 transactions, and the volume is ramping up. Four months into 2013, Science Exchange has already equaled its volume from 2012, Knox said.

Since these deals involve expensive machines and/or trained people, they tend to run a lot higher than your average Etsy transaction: Knox said they average $3,000 a pop, with Science Exchange taking between 3 percent and 9 percent for brokering the deal.

Those numbers have been enough to help the company land a $3 million Series A round, led by Union Square Ventures, along with O’Reilly AlphaTech Ventures. Earlier investors who had helped the Y Combinator company raise a $1.5 million seed round are also back; they include Yuri Milner, Lerer Ventures and XG Ventures.

And if it works, it might have the most emotional resonance of anything out there.

StoryWorth aims to create archives of personal stories told between generations. The premise starts with the question, “How well do you know your parents?”

And the answer, for nearly everyone, is: I could know them better. For people with elderly parents, that’s all the more acute.

After a parent-child pair (or some other similar relationship) signs up for StoryWorth together, the site emails out questions like, “What were your grandparents like?” and “What was your first car?” Then the older user replies via email or phone recording. And a family archive begins.

Here’s another weird bit for an Internet startup: StoryWorth will cost $49 a year after a free month.

That’s to send a message that the site is secure and reliable, and will never carry advertising, according to founder Nick Baum. “It’s important to charge to have permanence, since it’s family stories,” Baum said.

Baum, who was previously a Google product manager for things like Google Reader (insert permanence lament here), created the entire StoryWorth site himself, after pivoting out of an idea he and a co-founder created for Y Combinator. That was called WhereBerry — which was, ironically enough, exactly the opposite of StoryWorth: An app for urbanites to find and plan social activities.

As for StoryWorth, “This isn’t a trendy product; it’s a good product,” he said.

Baum thinks sharing and recording intergenerational stories is something most everyone wants to do, but many people won’t get to it without a little nudge.

And, he notes, “I’m not charging for your stories — you can download them at any time. The value I’m giving is the process, the technology, and hosting to make it super easy to do this.”

StoryWorth is an extremely basic product at the moment. Baum said this simplicity is by design, but he also hopes to add photos, transcription, editing, maps, chronologies and snail-mail support in the future.

None of these are going to save the world, but perhaps they’ll save a headache or two.

Here are examples:

Wevorce: A divorce planning site with templates and online experts to help split up families without going to court. Starts at $3,500.

SimplyInsured: An insurance comparison shopping site that promises fast, paperless transactions.

Zaranga: Calls itself “Airbnb for the other half of the market,” a.k.a. professionally managed properties.

Microryza: Calls itself “Kickstarter for science,” aims to take research funding out of institutions and into people’s hands. This was actually just one of three different Kickstarter-related projects, including the non-profit Watsi (which we’ve already covered and was a real crowd favorite today) and Backerkit for crowdfunded projects to maintain relationships with their backer.

BuildZoom: Calls itself “Yelp for contractors” (are you sensing a theme here?), aims to be the brand for finding people to remodel homes, with a 7 percent commission.

“We believe being a single founder is one factor that makes it more difficult to succeed … [because] there is just so much to do at a startup,” said Y Combinator partner Jessica Livingston, who estimates that fewer than 10 percent of companies accepted and funded by the accelerator are led by solo founders. “Also, the moral weight of starting a company can be very hard to bear alone.”

Read the rest of this post on the original site »

There were, of course, the questions on his famously huge Facebook investment many years ago, and why he’s put money in Y Combinator to spur startup innovation.

But it’s clear from his mainstage interview at the SXSW interactive festival in Austin this morning that high-profile Russian investor Yuri Milner of DST Global has been striving to think much bigger thoughts of late.

While he’s gotten a lot of attention for his big bets in the social networking site, as well as with Twitter, Spotify, Airbnb and many others, he’s slowed his investing in the U.S. considerably to focus more on what he and many others in Silicon Valley are calling “moon shot” ideas.

“Somehow, we have lost interest in big ideas,” said Milner, in an onstage interview with Vanity Fair contributing editor Bethany McLean about shifting away from thinking — which he has funded, in part — that has gotten more short-term and pragmatic. “I think we still have a destiny as human beings.”

That has included starting up his Fundamental Physics Prize, which has now become the priciest academic award, last year. And, more recently — with Facebook co-founder Mark Zuckerberg, Google co-founder Sergey Brin, and Genentech mogul and Apple Chairman Art Levinson, among others — the launch of the Breakthrough Prize in Life Sciences Foundation.

As Mike Isaac wrote when that initiative was announced less than a month ago:

“The first round of prize recipients includes 11 scientists from a range of research disciplines, including studies in genetics, cancer research and neural behavior. Each of the 11 prize winners will receive a $3 million award for their work, and Brin, Zuckerberg, Milner and the rest of the sponsors have agreed to a five-year commitment to awarding prizes.”

Milner, who was a physicist in his early career, said onstage that he has been disheartened to see that not enough younger people choose to go into fundamental science anymore. Thus he is aming to make it more attractive via his prizes.

“We don’t have enough heroes who are admired by a large portion of the population due to their scientific achievements,” he said, noting that it will require rewarding individuals in a “disproportionate manner.”

Still, in the Q&A session, the crowd in the Austin Convention Center wanted to know mostly about more earthbound questions, such as what tech company would last 100 years, as IBM has.

According to Milner: Google, Facebook and Wikipedia, due to network effects.

Another attendee wanted to know what he thought it takes to be an entrepreneur these days.

“It’s almost a heroic effort, and kind of goes against set ways of doing things,” answered Milner.

Then someone wanted to know how the political arena could be similarly transformed.

“That, I don’t know,” said Milner.

Moon shot, indeed.

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At least that’s the premise of FlightCar, which is launching today at San Francisco International Airport.

FlightCar is similar to other car-sharing services like RelayRides — for instance, it also has a $1 million insurance policy to cover damage, which seems pretty important when total strangers borrow your car.

However, there are some additional incentives for drivers who participate in this airport-specific shared economy:

• FlightCar will meet you at short-term parking at the airport with a valet driver when you depart and return.
• Parking is free for the full time you’re gone.
• You get paid if someone borrows your car.
• And your car gets washed every time.

FlightCar was founded last year by a trio of 18-year-olds — so, coincidentally, they’re below the minimum age to rent from Hertz and Avis and the rest.

The company is currently part of the Y Combinator startup program and has just raised $650,000 in seed investment from SV Angel and others. Co-founder Shri Ganeshram said FlightCar has set up operations at a warehouse near SFO and plans to expand to other airports once it has figured the first market out.

“I’ve never been so excited about anything we’ve funded,” Y Combinator chief Paul Graham wrote in a post about Watsi today.

Watsi is a peer-to-peer platform that connects medical patients to donors and sends 100 percent of donations through. The organization’s own costs are covered by separate donors.

Graham said he first found the site on the YC-run news aggregator Hacker News, where Watsi pitched itself to readers last August and received much acclaim.

Watsi co-founder Chase Adam said he didn’t think to apply for Y Combinator, but was approached directly by Graham and his partner Jessica Livingston. His team is currently participating in the winter 2013 batch, which began earlier this month.

Because Watsi is a registered nonprofit, it couldn’t offer Y Combinator any startup equity, so Y Combinator made a charitable donation instead of an investment.

Watsi has funded 70 treatments over the past six months, based on $55,000 in donations from 1,300 donors. Donations are currently growing 28 percent per week, Adam said.

There’s obviously not going to be an IPO down the road for Watsi, but, as Adam put it, Y Combinator is looking for a “social return on investment,” rather than a financial one.

In most ways, Watsi has more in common with Web startups than with nonprofits, Adam argued. It’s not like Watsi is the first nonprofit to put a picture of a person in need next to their request.

But rather, “We’re structured like a startup, and we take lean startup methodology,” Adam said. “We focus on transparency, which is really important to donors. And user experience is really important to us, something a lot of nonprofits don’t invest in.”

Joe Lin Daily Muse co-founders Alex Cavoulacos, Kathryn Minshew and Melissa McCreery

The Muse — formerly known as The Daily Muse — is a hybrid career advice and job search service focused on roles in marketing, sales and engineering. “It’s not just a job hunt, it’s a career hunt,” is how co-founder and CEO Kathryn Minshew puts it.

The site now has 700,000 monthly active users. And it’s making money. A wide range of companies, many of them from the tech industry, pay as much as $60,000 per year to be included on the platform.

The Muse was founded by a trio of young women, none of them technical, making them an extremely rare fit for the Y Combinator startup program in California, which has become a mecca for ambitious coders, who often tend to be dudes.

After finishing Y Combinator, Minshew and her co-founders, Alex Cavoulacos and Melissa McCreery, moved most of the nine-person company back to New York — another play that ran counter to Silicon Valley startup culture.

(Also, it’s not like being a “non-technical” person is a genetic decree; Cavoulacos and McCreery now code for the site.)

The Muse’s seed funding comes from investors including 500 Startups, Great Oaks Ventures, Eric Ries, Gordon Crawford, Cathie Black and Thomas Lehrman.

Let’s take a step back to set this up. Lots of startup types go about their lives in search of something they can fix. “Banking!” they think. “Banking sucks! I hate all the fees and unfriendliness.”

But then they realize that banking is really hard. To do it right, you have to actually officially be a bank, which takes years, even if you can find an existing bank to buy. So startups like WePay and BankSimple (now Simple, if that tells you anything) have historically partnered with banks and offered user interfaces layered on top.

GoBank promises that it can fully bridge the two worlds. That’s because prepaid card provider Green Dot actually bought an FDIC-insured bank in Utah back in 2011, after two years of regulatory hurdles.

Then, in March, Green Dot bought Loopt, an early mobile location app maker that never had a ton of usage. But Loopt had a team of mobile developers and a strong leader in Sam Altman, one of the earliest participants in Y Combinator and a significant influence on the famous startup program as a part-time partner.

Altman said in an interview yesterday that he’s seen many a startup apply to YC over the years, trying to be a bank. But none of them were equipped to do it. “This is a product I’ve always wanted to build,” he said, “and it was just starting up when we were talking to Green Dot.”

Altman said it should take approximately four minutes to set up a GoBank account, and it can be done from a mobile phone. Starting today, GoBank plans to let 10,000 U.S. users in for a beta test, and expand from there.

GoBank charges for just four things: Putting a personal photo on your debit card ($9), going to an out-of-network ATM ($2.50), spending money in another country (3 percent), and paying your membership fee (whatever you want, a la Radiohead or Humble Bundle).

But it promises that it has a huge network of fee-free ATMs — 40,000, more than twice as many as Chase and Bank of America.

The iPhone and Android apps also include budget tools (including a silly “fortune teller” feature that makes judgment calls on new purchases), an option to see your balance without logging in, bill payments and ways to send money to people outside the network through PayPal. Savings accounts and mobile alerts are also included.

The idea of allowing people to pay whatever they want for banking is an odd one. It might make sense in the context of thinking about the human appreciation you have for an artist like Radiohead, but this is a bank we’re talking about. Users can pay anywhere from $0 to $9 per month.

Altman said he likes the challenge. “We’re accountable to deliver a service that users think is worth something.”

Their success kicked off a global movement of institutions that combined funding and education for entrepreneurs, commonly known now as seed accelerators. Seed accelerators are invaluable to generating economic growth and fostering entrepreneurial culture in communities. To demonstrate their importance, I created Seed-DB to track programs and the companies that have graduated from them. As of today, we’re tracking 134 seed accelerators in 33 countries. These accelerators have funded over 2000 start-ups, and seed companies have raised over $1.6 billion in funding. One hundred of these companies have already sold for an estimated total of over $1 billion.

In a thesis I wrote on seed accelerators in 2009, I surveyed entrepreneurs who had gone through seed accelerators. One of the more interesting results was that the funding they received was the least important aspect of the program. What mattered more was the community they were accepted into via the accelerator. As more and more start-ups go through each program, the alumni network becomes bigger, more diverse, and stronger. Thus, each class of start-ups receives more value than the class before it, building a virtuous circle.

Seed accelerators also affect their local economies through job creation. New jobs in the SMB sector are very important to society: Between 1980 and 2005, all net job growth came from firms younger than five years old. And in times of economic downturns, small businesses can buck overall trends by creating new opportunities instead of scaling back.

The start-ups that have gone through seed accelerators have created over 4800 jobs. These are brand-new, high-value knowledge worker jobs. And even if an individual start-up fails, founders’ experiences will be very valuable to traditional corporate employers.

Though the data in Seed-DB isn’t 100 percent complete (it relies on start-ups self-reporting), some important conclusions can be made. Seed accelerators are a new kind of institution that promote and celebrate a culture of entrepreneurship. Most programs fund 10 to 20 start-ups per year, educating between 20 and 50 entrepreneurs. Programs and entrepreneurs support each other through challenges, make key introductions for each other, and build communities that give start-ups the best chance of success. Were all accelerators to self-report, I estimate the number of jobs created would be more than 7000.

From just one accelerator in 2005, to a handful in 2007, to over 130 around the world today, seed accelerators — and the jobs they create — are a positive change in the economic infrastructure of the technology industry.

Jed Christiansen is Head of Channel Sales for Emerging Markets at Google and founder of Seed-DB.

But growth wasn’t easy for the company, Silbermann told a rapt audience at Y Combinator’s Startup School at Stanford University on Saturday.

The way Pinterest grew had little to do with Silicon Valley wisdom. It was about marketing — mostly grassroots marketing — not better algorithms.

In 2010, three months after Pinterest launched, the site had only 3,000 users. But some of them were active users, and those people loved the site — and both of those categories included Silbermann himself.

“Instead of changing the product, I thought maybe I could just find people like me,” he said.

So Pinterest started to have meet-ups at local boutiques, and to take fun pictures of people who attended them, and to engage with bloggers to do invitation campaigns like “Pin It Forward,” where bloggers got more invites to the site by spreading the world.

Silbermann said he realized the strategy might just be working when he heard people at a meetup having real conversations with each other about their creative projects, rather than the BS that might come from a superficial relationship on Twitter or Facebook.

“A lot of people in Silicon Valley didn’t get, and I don’t know if they still get, Pinterest,” Silbermann said. “The fact that it made sense to someone is what really mattered to me.”

In its earlier days, most investors weren’t willing to buy into Pinterest and its non-technical founders. (These days, that’s no longer the case.) “There are lots of ways for investors to say no to you, and I’m pretty sure I’ve heard every single one,” Silbermann said.

Investors did want to offer all sorts of feedback about what Pinterest should change. A few years ago, VCs wanted things to be text-oriented and real-time, while Pinterest is visual and more timeless.

Silbermann told the founders and would-be founders at Startup School that they shouldn’t take VC advice and buy into Silicon Valley groupthink, an argument he has made before.

“Fundamentally, the future is unwritten. If they knew, they would be done,” Silbermann said.

Still, Silbermann added that he himself thought for a while that the secret to Pinterest’s growth woes would be finding some undiscovered Stanford grad student to build a better algorithm.

But ultimately, Pinterest didn’t need better engineering, said Silbermann. It needed better distribution.

And so if there’s any broadly applicable lesson from Pinterest’s success, he said, it’s that there are many ways to succeed.

Asa Mathat / AllThingsD.com

To do that, CEO Mark Zuckerberg said, the company needed to test its mettle against its existing competitors. And back then, those weren’t MySpace or Friendster, but the existing social networks inside U.S. universities.

“We first went to schools that were hardest to succeed at,” Zuckerberg said on Saturday morning, kicking off the Y Combinator Startup School event in Palo Alto, California. “If we had a product that was better than others, it would be worth investing in.”

Zuckerberg spoke to a packed house in the Stanford Memorial Hall auditorium, with an audience mostly composed of twentysomethings, the veritable next wave of young Silicon Valley entrepreneurs. The conference is geared toward the young and idealistic, those who may build the Facebooks or Twitters of tomorrow. Hence, Zuckerberg focused on the challenges of turning a rough-and-tumble outfit into the 1-billion-user-strong social giant it is today.

So if you’ll hearken back to 2004, Facebook’s first days were limited to college students alone, those who had verified university email addresses. It was a play for an early conception of true online identity; unlike other existing networks, you were supposed to be yourself on Facebook.

After first growing Facebook inside of Harvard’s network, then, the plan was essentially to go hard or go home — to launch the network at universities like Columbia, Stanford and Yale. These were the schools, Zuckerberg said, that had the most integrated social networks campus-wide. If Facebook caught on here, it’d be safer to assume that scaling to less-integrated schools would be a downhill battle.

That’s exactly what happened. Facebook spread from school to school, moving slowly to cope with the early scaling issues that popular services often face (Twitter and the Fail Whale, anyone?).

Much of the other advice Zuckerberg offered to the young crowd was the usual platitudes — listen to your users, stay simple, be reliable.

But his most important point was clear: Punch above your weight class. If your product is better than anything out there, the users will let you know it.

The preeminent three-month start-up accelerator program gets book-length treatment in Randall Stross’s new book, “The Launch Pad,” to be released this Thursday.

Stross is a New York Times columnist whose last book about the start-up world was “eBoys,” a profile of Benchmark Capital during the dot-com boom.

Y Combinator gave Stross extensive access as he followed the summer 2011 “batch” of 64 companies (including one that dropped out) through the application process, to receiving an automatic $150,000 in funding from top venture capitalists, through their business and strategy decisions, and culminating with their investor pitches on “Demo Day” at the end of the session.

Via email, Y Combinator leader Paul Graham called the book “remarkably accurate.”

Graham gave me his capsule review: “I think people will find it interesting. It has all three of the things that make a book interesting in my opinion: It’s (a) based on close, first-hand observation (b) of something that’s unfamiliar to most people and yet (c) has broader implications.”

After reading the book myself, my take would be that “The Launch Pad” lacks a major breakout storyline, but it’s full of meaty conversations about start-up strategy that could be applicable to anyone starting a company.

Having dipped in on Y Combinator events more than a few times myself, I was interested to hear more about what Stross thought and saw of the program from the inside. Here’s a lightly edited transcript of our phone conversation:

Liz Gannes: What do you think is the broader applicability of the Y Combinator story? I saw the book excerpt in Vanity Fair ran with the title “Who Wants to be a Billionaire,” and maybe that appeals to a broad audience as an aspirational thing. But I wonder if this underlying idea about the potential for start-ups as an economic force is something that you think is a mass message.

Randall Stross: I don’t think the YC founders think of themselves as working on the ticket to become a billionaire. That was Vanity Fair’s choice of word. I think what is driving these founders is the chance to work on their own projects without being an employee. The autonomy that is possible in start-ups excites them and, potentially, the rest of us.

Now, YC, by its nature, is an accelerator that prizes hacking skills, and most of the teams are all technical. So, in that aspect, they don’t hold out a model for those of us who are not going to be a technical co-founder. But, then again, that summer batch did have [online coding school] Codecademy, which taps into the wishes of non-technical people following the start-up scene.

Randall Stross

Let’s talk about Codecademy for a moment. It seemed like Codecademy was one of the most interesting stories in the book, in that they broke all sorts of rules and expectations because they really didn’t know what they were doing, but then emerged to be one of the most promising companies right at the end of the batch.

Yes, one of the things I didn’t expect was how much experimentation with ideas took place during the YC session. A number of the companies changed ideas during the session, a few have changed them even after Demo Day and fundraising, and investors seemed to accept that this is to be expected.

That you didn’t lose your headstart by being a late bloomer?

Right, and that’s one of the most interesting developments that makes the scene today different than it was in the late 1990s, when I was working on my book about venture capital and start-ups, “eBoys.” Then, the initial funding would be $5 million to $20 million, and it would take longer to prove out the idea, much longer. And it would take all that money, because you were writing out big checks to the Oracles and the Suns to get started.

And now you can start with the most modest of sums, and not even use all of that up in the course of discovering that idea isn’t going to pan out and you should try something else.

Have you been back to Benchmark Capital at all? How do you think they’re relevant in a world with Y Combinator and lower start-up costs in general?

I haven’t been back to Benchmark, but what has happened is, since then, this layer between individual investors and venture capital firms that specialize in early-stage investing. There’s this other world that has appeared — Y Combinator, 500 Startups, TechStars — that didn’t exist before, that is funding seeds on a much larger scale than an individual angel would be able to do.

Even though we talk about early-stage venture capital, that adjective, “early,” turns out to need some modification, and so we see venture capital firms, like Benchmark, Andreessen Horowitz and all the rest, being kind of follow-on investors.

Or paying to get involved in every YC company, like Andreessen Horowitz and Yuri Milner and SV Angel now do.

Right — which means they’re no longer attempting to choose.

One of the criticisms of Y Combinator is that it seems a bit cultish, with people becoming worshipful of Paul Graham and his teachings. Did you feel sucked into that at all?

As I say in the book, the founders quickly discover that, for some things, Paul Graham is the person to go to, especially for coming up with very grand ideas. And for other aspects, other questions, particularly marketing or design, there are other partners who are the ones that they choose to go to, so within Y Combinator there isn’t a single voice, they do have different strengths.

Paul Graham

I was thinking not just Paul Graham, but the larger phenomenon of Y Combinator.

You know, what it reminds me of is the kind of loyalty you’ll see at a highly selective college. You’re kind of blind to the virtues of other schools, once you’re in.

It seemed like the thing that you challenged Y Combinator on the most was the lack of women founders. Were you not convinced by YC’s rationale about the lack of female participants being essentially out of their control?

I actually buy the rationale about the makeup of the applicants. Ultimately, the only way there are going to be a lot more of any group that’s underrepresented at YC, is when those groups are well-represented among the ranks of applicants.

Another thing I observed from the book is there’s really such a focus on funding, with all the mentors priming the start-ups for how they will be perceived by venture capitalists.

It’s interesting that you remarked on that, because I hadn’t been aware of that impression being left, but I see where you get that. The book wants to give readers a sense of the entire class, and the main occasions when that happens is when they’re getting advice about their presentation for investors at the end. That’s just an artifice of my storytelling; it’s the only way I could get everyone in the same frame.

You had to stop observing at some point, and write and edit and turn in the book. In retrospect, is there anything more you would have asked?

What I want to see, Y Combinator can’t supply me right now, which is how these 63 stories turn out. I can only tell the beginnings of these stories — so what one wants to know is what happens. Because each member of the class has raised $150,000, they still have runway.

[Before the guaranteed funding started last year] Demo Day was the do-or-die moment, either you raise money or you were done. Had I written the book then, I could have written a coda: These companies lived, these companies died. But today the whole class has an opportunity to try.

Some people enjoy shopping. I am not one of those people.

The time it takes me to drive to the grocery store, figure out what I want, wait in line to buy it and drive home always feels like an unnecessary waste of time. I could be using that hour for far more rewarding activities, such as watching BattleBots clips on YouTube writing.

Imagine my elation, then, when I heard about Instacart, an iPhone app that promises cheap grocery delivery to your door.

The start-up is part of a bigger phenomenon of apps that get others to do mundane tasks for you, such as the more high-profile TaskRabbit.

In Instacart’s case, you browse through the app’s categories, pick what you want, and indicate if you want your groceries delivered within the next three hours (for $3.99) or in the next hour (for $9.99). Or, you can pay $99 a year for free, unlimited three-hour delivery.

This annual plan may sound a bit familiar to those with subscriptions to Amazon Prime, which charges $79 annually for free, two-day delivery of most items in the online retail giant’s warehouses.

Instacart CEO Apoorva Mehta

And the similarities are not mere coincidence. Instacart’s CEO is Apoorva Mehta, formerly an Amazon supply-chain engineer.

But the two services aren’t the same. Amazon, of course, can offer items at very low prices, because it owns and operates huge distribution warehouses worldwide. Instacart, part of the current crop at Y Combinator, works around the need to have high inventory costs entirely.

If this reminds you of the Web 1.0 flameout Kozmo.com — the much-hyped instant delivery service that was partially funded by Amazon, in fact — you would not be completely off base.

In Instacart’s case, orders sent through the app (which is invite-only for now, and available only in San Francisco, Mountain View and Palo Alto) are then assigned to a driver, who finds whatever you ordered at a nearby store and brings it to you.

There are competitors in the delivery area, such as Peapod mobile, which requires you to make an account before you can see what’s available; there is also MyGofer, which offers delivery from local Kmart stores.

Instacart’s take is for users to open up a Pinterest-like grid of popular items (including Oreos and beer). When you tap on the picture of an item and say how many you want to add to your cart, you’re then taken back to the grid to buy more stuff.

There is also browsing by departments such as “Beverages” and “Deli,” which open into yet another grid of the most popular items.

After looking through all the departments and searching for things I couldn’t find easily, I assembled a full shopping list: More than 15 items, including orange juice, soup, bananas, soda and, of course, beer (but no Oreos).

Instacart offers free three-hour delivery with app users’ first order. My stuff was delivered about two hours after I ordered.

Well, most of the order was. That’s another issue with such services right now. Since Instacart doesn’t have a formal relationship with any stores, the drivers are left to their own wits to find what they can, and Instacart refunds users for the price of whatever they can’t find. This underlines the disadvantages of blindly sending someone else off with your shopping list, and no way to contact them.

Prices are also higher. Besides an invisible convenience fee on top of what Safeway — where my driver shopped — charged, all together my groceries were $20 more than if I had shopped myself.

Coinbase not only believes so, but it has talked investors into giving it some start-up capital to build a much easier way for nontechnical users to pay with Bitcoin.

For those of you who don’t know (and let’s assume that’s a lot of you), Bitcoin is an Internet-created digital currency designed to avoid fees for transferring money and to eliminate the need for credit card companies.

Instead of being backed by gold or a government entity, Bitcoin is a bit of a rogue movement that creates value by solving mathematical calculations. The difficulty of solving the problems is what triggers the value, because of scarcity.

Since the open source concept was started in 2009, Bitcoin has experienced a wild ride.

On one side of the coin, it has been reported that Europeans have turned to the currency in fear of losing their savings in the collapse of countries like Greece and Spain. But on the flip side, the currency’s underlying value has fluctuated dramatically, and security breaches have occurred. Frankly, the whole thing could collapse if the community no longer decided to support it.

But this story isn’t about Bitcoin.

It’s about Coinbase, the company founded by Brian Armstrong, who is part of the current class of start-ups being incubated at Y Combinator. Armstrong has three months to get his company off the ground, at which point he will have the opportunity to pitch a roomful of investors on why Coinbase is worth putting even more money into. So far, he has raised $164,000.

“YC’s investment is a signal that legit investors are taking Bitcoin seriously, and I think it has a real chance of disrupting the payments industry,” he said.

The idea behind Coinbase is to make it a lot easier for less technical users to exchange coins.

It’s a bit like PayPal, where you can send and receive money using an email address, which is connected directly to your bank account. Armstrong also plans on making it easy for the functionality to be integrated into a shopping cart, or “buy” buttons on the Internet. He said merchants will be willing to adopt it, because it will reduce transaction fees.

Right now, transferring Bitcoins pretty much requires a PhD, or something close to it.

Armstrong knows that all too well. On a recent occasion, a bar in San Francisco’s Mission neighborhood hosted a meet-up to buy a beer with Bitcoin. “It was not as easy as it should have been,” admitted Armstrong, who said it required accessing Coinbase on his mobile browser and then copying and pasting a QR code from an app into the mobile browser.

In the end, he paid one Bitcoin for one beer — roughly $6.50 for a beer that normally costs less than five dollars (without a tip).

“It was kind of cool, but it was probably impractical,” he said. “We are making the long-term bet that a digital currency is going to be powering the transactions in the future.”

Niall Kennedy

Paul Graham of Y Combinator

The risk, as Graham lays it out, is that companies who have been valued highly may have to raise “down rounds” the next time they need money, which look bad for companies and dilute founders.

It’s an interesting move for Graham to cry wolf now, as Y Combinator has in recent years set the tone for Silicon Valley start-ups, and lately has been known for the funding frenzy around its companies.

Graham’s message is mainly about fiscal responsibility, but the fact that he said anything at all is a negative indicator in and of itself.

A somewhat similar warning from Sequoia Capital to its portfolio companies back in 2008 has become emblematic of that particular downturn. In a presentation called “RIP Good Times,” Sequoia told start-ups to cut costs.

Graham does hedge his warning, saying he’s not sure how much the Facebook IPO’s performance will affect the early-stage market.

He writes:

The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don’t be that startup.

The warning came in the form of a private letter that was published by a user on Hacker News, a widely read aggregation site managed by Y Combinator. It also appeared on Business Insider. Graham confirmed the letter’s validity via email to AllThingsD.

Asked whether he assumed his letter would become public, Graham replied, “No. I never thought anyone would care enough to treat this as news. The email is mostly fairly technical stuff about what to do if the funding market turns bad.”

Here’s the full text:

Jessica and I had dinner recently with a prominent investor. He seemed sure the bad performance of the Facebook IPO will hurt the funding market for earlier stage startups. But no one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle.

What does this mean for you? If it means new startups raise their first money on worse terms than they would have a few months ago, that’s not the end of the world, because by historical standards valuations had been high. Airbnb and Dropbox prove you can raise money at a fraction of recent valuations and do just fine. What I do worry about is (a) it may be harder to raise money at all, regardless of price and (b) that companies that previously raised money at high valuations will now face “down rounds,” which can be damaging.

What to do?

If you haven’t raised money yet, lower your expectations for fundraising. How much should you lower them? We don’t know yet how hard it will be to raise money or what will happen to valuations for those who do. Which means it’s more important than ever to be flexible about the valuation you expect and the amount you want to raise (which, odd as it may seem, are connected). First talk to investors about whether they want to invest at all, then negotiate price.

If you raised money on a convertible note with a high cap, you may be about to get an illustration of the difference between a valuation cap on a note and an actual valuation. I.e. when you do raise an equity round, the valuation may be below the cap. I don’t think this is a problem, except for the possibility that your previous high cap will cause the round to seem to potential investors like a down one. If that’s a problem, the solution is not to emphasize that number in conversations with potential investors in an equity round.

If you raised money in an equity round at a high valuation, you may find that if you need money you can only get it at a lower one. Which is bad, because “down rounds” not only dilute you horribly, but make you seem and perhaps even feel like damaged goods.

The best solution is not to need money. The less you need investor money, (a) the more investors like you, in all markets, and (b) the less you’re harmed by bad markets.

I often tell startups after raising money that they should act as if it’s the last they’re ever going to get. In the past that has been a useful heuristic, because doing that is the best way to ensure it’s easy to raise more. But if the funding market tanks, it’s going to be more than a heuristic.

The startups that really get hosed are going to be the ones that have easy money built into the structure of their company: the ones that raise a lot on easy terms, and are then led thereby to spend a lot, and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up. So don’t be that startup. If you’ve raised a lot, don’t spend it; not merely for the obvious reason that you’ll run out faster, but because it will turn you into the wrong sort of company to thrive in bad times.

–pg

27-year-old Danielle Morrill is co-founder and CEO of the new start-up Referly.

Referly aims to introduce incentives into discussions by regular people about regular things, by embedding affiliate links in their conversations. At launch today, it is a link shortener that appends an affiliate tracking code.

Many other companies, including MyLikes and Klout, try to reward people for their social media participation, but Morrill said she thinks they end up rewarding self-promoters and scammers rather than average people.

Referly has already raised seed funding and been accepted into the next Y Combinator round, and since then Morrill convinced her husband, Kevin Morrill, to join as co-founder and CTO from an engineering role at HelloFax, she said. Designer Al Abut, formerly of AOL, is also a co-founder.

Twilio recently hired former Jive exec Lynda Smith as chief marketing officer.