Silicon Valley startup accelerator Y Combinator (YC) will put more money to work in startups for the same equity stake that it normally takes,the accelerator’s new president Sam Altman announced yesterday in a blog post. It will now put $120,000 to work in each startup in lieu of a 7 per cent stake. Earlier, the accelerator’s standard deal was $17,000 for 7 per cent, plus a safe that converted at the terms of the next money raised for another $80,000.
“The investment will come in two chunks, which together will represent a flat 7% of the company. Although YC itself continues to have no LPs (and that way we have the flexibility to do things like fund non-profits), a portion of the investment is from a fund YC manages that does have LPs.
Most people don’t do YC for the financial investment—they do it because they want the advice, the help of the network, the benefits of the program, etc. But still, more money for less equity is definitely better.”
Sam Altman, YC Blog
The other big change is that the new investment model will not include any venture capital investors. Venture capital investors started getting involved in deals in 2011 with Yuri Milner and SV Angel offering $150,000 to every startup that YC invested in on an uncapped convertible note. This eventually came to be known as YCVC and the $150,000 was later reduced to $80,000. The way it worked was that YC would invest $17,000 and the venture capital investors would bring in the remaining $80,000. The last batch at the accelerator involved four venture capital firms — Andreessen Horowitz, General Catalyst, Maverick Capital, and Khosla Ventures.
“This also marks the end of the automatic investments from the four firms mentioned above. As YC has become a larger and larger part of the startup ecosystem, we had to deal with things like signaling risk (e.g. a YCVC investor not making a follow on investment in a company caused some other investors to think the company may not be good) and information issues. All of these issues were issues of perception—the YCVC investors are great firms that always behaved really well, and we’re going to continue to work with them very closely. But we hate complication, and we hate anything that causes issues for our startups, even if it’s just an issue of perception. This should help level the playing field.”
Sam Altman, YC Blog
Altman took over as president of YC in March from founder Paul Graham. Graham, who started the accelerator in 2005, has stepped down from his leadership role but continues to do office hours with startups.
The accelerator invests in a large number of startups twice a year and works with them for three months to get them into the best possible shape and refine their pitch to investors. Each cycle culminates in a Demo Day, when the startups present their business plans to a carefully selected, invite-only audience. Since inception, the accelerator has funded over 630 startups including.
The original post was published here.