The Y Combinator-denied fly to YC Reject

Startup boom is so explosive that even incubators seem too exclusive: one entrepreneur responds

“24 hours ago, it was just an idea. And now, I really understand virality on the Internet.”

So said an incredulous Allan Teruel to me over the phone late Sunday night. He’s no Rebecca Black--not yet anyway--but he is well on his way due to a little thing called YC Reject.

YC Reject, a project still deep in its infancy, is designed to be a fallback option for five or so startups that didn’t make the cut for Y Combinator. The weekly dinners, the talks from successful and experienced founders, the investor and press-loaded demo days, even the funding--Teruel wants YC Reject to emulate everything great about the real YC.

The original half-decade old seed-stage firm, which has invested funding as well as mentorship resources in several up and coming Web services (like Airbnb, Dropbox and Posterous), saw as many as 2,500 applications from startups for its upcoming summer program. And though that’s just a rumored number floating around, there’s little doubt that Y Combinator, which can only afford to admit a handful of lucky applicants, leaves many great businesses out in the cold, rejected.

Teruel himself applied to Y Combinator hoping the program could help him further develop his own business, PRORumors.com, a volunteer-written baseball-centric online newspaper that’s personalized for readers based on their favorite team. But, like anyone with entrepreneurship flowing in his blood, Teruel took his rejection as a beginning for something else.

“It started off as an idea, a reaction to being rejected,” he explained. On Saturday night, he made his ideas public on the Internet via a blog post, on a whim, and by Sunday, the site had reached thousands of page views.

Not only that, but besides all the applications from startups he’s been receiving, Teruel also received an email from an investor looking to fund companies from YC Reject.

Teruel tells me the investor-to-be is an individual angel, but likely not one we would know by name. And this angel wants to help fund the YC Reject inaugural class with terms comparable to those received by actual Y Combinator startups: $12,000-20,000 in exchange for a six percent stake of the company. Assuming the class is five startups-large, as Teruel initially intended, that’s a good chunk of money coming from one angel, but not at all unbelievable.

And the investor has an even bigger class size in mind, Teruel says.

Normally, Teruel would be waking up Monday morning to keep working on PRORumors, but with so much interest swirling around YC Reject, that’s where his energy will be directed this week. It’s definitely a grassroots effort and it will certainly take a lot of time and sweat to actually create, but YC Reject just might be the coolest startup program slated for the summer.