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Silicon Valley’s venture capitalists make their money by funding ideas that disrupt established industries. But these gatekeepers of the technology business are now being challenged themselves.

A fast and furious new funding model is funneling money to young company founders, asking relatively little in return. Startup-incubator programs—Y Combinator is the most prominent—now put founders through a kind of tech-industry boot camp in exchange for a small stake in their company. For many, the next stop is ­AngelList, a social network for angel investors and entrepreneurs where young people can shop for financing without spending years developing contacts in the old-boy network of venture capital. AngelList’s cofounder Naval Ravikant explained to Technology Review’s IT editor Tom Simonite how the next generation of Silicon Valley CEOs is getting a business education on the fly.

TR: What are you trying to do with AngelList?

Ravikant: We’re trying to democratize access to capital and bring the Silicon Valley ecosystem online. It shouldn’t be about who you know. It shouldn’t be a painful one- or two-year process building connections, contacts, and credibility. Rather, you should be able to take your work, throw it out there for the world to see and decide if it’s great. Investors should be able to find you. We have 20,000 startup profiles on the site, and one or two raise money every day.

Many of the most talked-about companies in Silicon Valley came out of incubators. Why have they been so successful at attracting entrepreneurs?

The cost of building a company has collapsed. Now your average 22-year-old can start a company without much money, just some time and effort. But you also need to know how to set up a company, how to find investors, how to recruit, to know best practices and design. I look at incubators as sort of a very quick vocational school.

Are founders of technology startups getting younger as a result?

Yes. They were always capable of it, there’s no magic, but now they have the means and the tools. Almost all the great companies were started by very inexperienced entrepreneurs—Steve Jobs, Larry Ellison, and Bill Gates. A lot of these people coming out of college are actually fully capable of being entrepreneurs; they just need that last little bit of vocational training.

What about business school?

I think incubators are just replacing it wholesale. The theory was you go to business school to learn entrepreneurship. But the reality is they’re going to spend two years and $200,000 learning from some guy who’s never started a company in his life. Things move very, very quickly today. At an incubator, you’re going to learn fast in a community of your peers in an environment where there’s pressure on deliverables and shipping schedules.

Longer term, will these young founders become the new venture capitalists?

That’s already happening. As they make money as they’re younger and younger, you will have younger VCs and younger people with broad relationship networks. They don’t want to go join some bigger, old VC firm. They want to do their own thing. The so-called super-angel or seed funds—many of them are started by people who were a little young to be in a traditional VC crowd.

Is there an unsustainable bubble of young founders and companies?

The number of competitors has gone up so much that it suddenly looks very crowded. Some people are saying that there’s a lot of noise and a lot of them are going to fail. But the cost of failure is incredibly low, so what do they lose? They just go get another job or start another company.

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Credit: Tim Wagner/ZUMA Press/Corbis

Tagged: Business, Business Impact, business

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