New investments by Y Combinator will now each receive $120k directly from Y Combinator. Y Combinator has also ended the YCVC Program. YCVC was an $80k convertible note investment available to every YC startup beginning with YC W13. YCVC replaced the Start Fund, which was a $150k convertible note available since YC W11. The rumor that YCVC would end was initially reported a month ago by Dan Primack on Fortune.com. I also have written several posts explaining that Y Combinator’s previous investment terms were increasingly irrational.
Y Combinator’s “New Deal”
Y Combinator’s new deal is $120k for 7% of equity, according to the announcement. The $120k investment is a fixed amount regardless of the quantity of the startup’s founders. Previously, Y Combinator invested an initial $11k and $3k per founder at a maximum of 3 founders. Y Combinator will continue to invest directly rather than through limited partnerships. However, a portion of Y Combinator’s investment will now be from a YC-managed fund that does have limited partnerships.
Nonprofits Will Also Receive More Money
Nonprofit that go through Y Combinator will also get more money. Nonprofit will continue to receive a $50k donation from Y Combinator. However, Teespring will also provide nonprofits with an additional donation of $50k.
Rational Terms For Modern Times
Y Combinator’s new investment terms are a refreshing change for a startup landscape that’s changed considerably in the last nine years. Y Combinator started in 2005 by investing in two semi-annual batches of eight companies. New batches now average more than 50 companies. Scaling to this new size has required restructuring at Y Combinator, along with new investment policies and changes in management. During this same nine year time period, the Bay Area cost of living has increased dramatically. Prior to the revisions announced today, Y Combinator has not fundamentally altered its investment terms since 2005. This new deal by Y Combinator acknowledges the current economic reality in the Bay Area, providing startups with enough money to not merely pay rent but also have working capital to flourish.
Sam Altman’s complete announcement regarding Y Combinator’s new investment terms is available on the official Y Combinator blog.