Often, when I tell someone that our company, Ginzametrics, has received funding from both Y Combinator and 500 Startups, they are surprised.
This is partly because both funds run an accelerator program that lasts three months and ends with a demo day. At Y Combinator, that's how all of the companies they fund participate in the portfolio. At 500 Startups, however, they do both accelerator investments and traditional investments in companies they want to have in their portfolio. So we went through the Y Combinator program in the Summer of 2010 and have received funding from 500 Startups but did not participate in the 500 Startups accelerator program.
To my knowledge, there are a dozen or so other Y Combinator startups that have also received investment from 500 Startups, none of whom participated in the accelerator.
So, our initial experience with 500 Startups is different than those startups that have gone through their accelerator program and I can't comment on that directly (although I will provide some arms-length commentary below). I can, however, comment directly to how 500 Startups works for companies in their portfolio as a whole. I'll explain the funding process for both groups and then talk about some interesting cultural and organizational differences.
Y Combinator and 500 Startups funding process
Y Combinator's funding process is pretty well-known. You can apply for entrance into one of their three month-long programs that run in the winter and summer. If they like you, you're invited for an interview, which lasts 10 minutes. If you get accepted, they let you know that day and you are expected to live in Silicon Valley for the duration of their program. There are lots of blog posts about what exactly they look for. Mostly, YCombinator looks for outliers, because outliers, by definition, are going to completely bomb or be a huge success. They are less interested in funding companies that will look like your average, bootstrapped business.
500 Startups has a funding process that is a little less well-known, primarily because they are much newer and also because it is based much more on relationships with their mentorship network. In order to get funded by 500 Startups, you need to either be really lucky at getting the attention of one of the partners or principals (Dave, Christine or Paul), or you can go through their preferred approach: the mentor network. What they want to see is that at least two or three other mentors in the network have spent some time with the startup, vetted their idea and believe in the team. Ideally, if the mentors also do angel investing, they have committed some initial capital and gotten skin in the game.
What both YC and 500 Startups look for is traction. Gone are the days (if they ever existed) where you could be a relatively inexperienced kid with a crappy demo and expect to get funded by by either group. The level of competition and professional polish on incoming startups in both groups is intense. Every time I attend a demo day at either YC or 500 Startups, I'm blown away by the quality of execution by almost every team involved.
There are some interesting personality differences between YC and 500 Startups and these differences are due, I believe, to how different Paul Graham and Dave McClure are from each other. They are both amazing people that I respect immensely and I always get a kick out of watching them in action.
Paul Graham is a hacker. He builds things. He would never use something like Basecamp to manage projects at Y Combinator. Instead, he wrote his own software to manage Y Combinator, in a programming language that he also invented, a dialect of Lisp. Things at YC are very structured, from office hours to every minute detail at Demo Day. Paul is the quintessential product guy and the insights that he is able to give his startups about what will work and not work have saved all of us, literally, decades of mistakes and hard lessons learned.
Dave McClure is a hustler. He doesn't sleep. (It's true, ask anyone.) He can often be found in remote locations around the world, from India to Brazil to Japan. He is focused very strongly both on the US market and also international markets. There is no scheduling of office hours with Dave. If you happen to catch him on a rare moment at the office, just grab him and see if he has time for a beer. Dave can see markets. He knows what to look for when it comes to hacking distribution in order to gain access to those markets. He's a connector and will help any company in his portfolio raise money and meet important people.
I personally have learned a ton from both Paul and Dave. I've always been more of a hacker but, through Dave and others like him, I'm learning how to hustle. From Paul, I've learned about persistence, making users happy and focusing on traction over all else.
So, as a startup, which one should you choose? I personally think you should apply to both. There is no guarantee that you will get into either one so it only helps your chances of getting into at least one of them. The nice thing about 500 Startups is that they will (sometimes, and rarely) also fund YC startups after they have "graduated" so it is possible to be part of both groups (as we are). But both accelerators have their own unique advantages and personality and you should think about which one either has the most to teach you or which one is most compatible with your particular style.