Understanding & gaming the selection process at incubators (like Y Combinator, 500Startups and Techstars)

Having run the LAUNCH Festival for almost a decade, and the LAUNCH Incubator for just over a year now (with 27 of 29 startups graduating), I’ve learned a lot about how people are selected for events and incubators.

Not only did I write the book on this kind of thing, starting with my “Ready, Set, Pitch event!” in New York City in 1997, I’m literally writing a book about it right now (book announcement coming soon!).

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In this quick post I’m going to explain to you how the first round of sorting works for incubators like Y Combinator, Techstars and LAUNCH Incubator (which is almost identical for events like DEMO, TechCrunch Disrupt and LAUNCH Festival).

After you apply to an incubator you are put into one of three buckets:  NFW, HFS and MAYBE.

Depending on the dealflow of an event or incubator, there are different percentages in each group, but for argument’s sake here is the rough breakdown:

50%: “No f@#$ing way!” bucket
25%: “Holy f@#$ing s@#t!” bucket
25%: Maybe

Your goal is to be so awesome that one of the reviewers says “Holy f@#$ing s@#t this is cool!” In the past couple of years I’ve had this experience a number of times, including when I saw Mint.com, CafeX, FitBit, Zembula and Yammer.

It was just obvious that those products were hot. Why? Well, they were all designed well and they solved an obviously large problem.

Let’s look at how each of those got into the HFS! bucket:

  1. Mint.com was stunning and the heads-up display it created for your mulitple financial accounts was obviously valuable.
  2. CafeX is a robotic coffee machine that makes coffee that is much better than Starbucks, and we all know how big Starbucks is.
  3. FitBit had a stunning little belt clip and an awesomely huge market: fat people who want to lose weight and healthy people who want to revel in their fitness (i.e., everyone).
  4. Zembula, which just graduated from the LAUNCH Incubator, had amazing clients, an “HFS” revenue run rate in a big market with a good-looking product.
  5. Yammer was Twitter but for inside your company at a time when everyone was going crazy for Twitter.

If you want to be in the HFS bucket you need to have some combination of:

  1. Elite design (All of the five here have it)
  2. Revenue or customers (Zembula, Yammer)
  3. An obviously huge market (FitBit, CafeX)
  4. A “Wow!” Moment (Mint, CafeX)

Many of the startups I review for LAUNCH Festival and LAUNCH Incubator have OK to good design.

Some have users but most don’t have customers, and it’s really easy to know the difference: one group costs you money and the other gives you money.

Many have narrowed down their market for good reason, like they are a SaaS product for inside sales teams (which is good), but oftentimes they have artificially limited themselves. For example, we get tons of pitches for group chat, so while it’s nice you’re focused on “group chat for college kids,” keep in mind that people leave college quickly.

Now, having a “Wow!” moment is a very complex topic which I will leave for another blog post (come back tomorrow or Monday).

However, A, B and C are very, very easy for you to optimize, so before you apply to an incubator I suggest you spend $1,000 upgrading your design, force five users to give you money and become a “customer,” and then think about how to present the biggest market you can — even if you have a beachhead you’re going after first (i.e., we’re starting at colleges, but quickly moving to small businesses).

OK, we just broke 500 words so I’m back to work on Inside.com, which added 1,000 folks to the mailing list in 48 hours, was recently redesigned, is launching its monetization engine in a week and is the one email everyone in the United States should get every day (see what I did there?).

Go team! Sign up for Inside.com and hit reply and tell me what you think of it (I get 100% of the feedback and respond to each email).

Best @jason

PS – LAUNCH Incubator applications are due on April 10th and the class starts on April 21st.

PPS – We are doing a webinar on “How to get into a great incubator like 500 Startups, Y Combinator, Techstars, or the LAUNCH Incubator” tomorrow (Friday, April 7th). It’s free but we only have 50 seats. Sign up now. [ Update: Today’s webinar is oversubscribed. Due to popular demand, Jason will host it again next week on Wednesday 4/13, 1pm PT. Sign up HERE.]

PPPS – The LAUNCH Angel Summit will be July 12-14th (location TBD). Angel investors should apply now!