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One thing that confuses me about YC is that they're an accelerator rather an incubator. In particular, this article talks about revenue growth which is an accel

One thing that confuses me about YC is that they're an accelerator rather an incubator. In particular, this article talks about revenue growth which is an acceleration stage metric. Seed stage needs seed money to prove a hypothesis. Acceleration stage needs A money to accelerate. Stressing revenue growth at seed stage seems like it could be dangerous to a startup's health. (Yeah, ideally you would want the seed/acceleration transition to be c2 continuous.) YC offers seed money for seed percentage, $120k in return for 7%, and attaches accelerator metrics. This transaction just doesn't make sense to me at all. Clearly it makes sense to others, given the number of YC applications.

apsec112 10y ago
I think the history of YC explains the confusion. YC was originally a seed-stage incubator (although they disliked that term, as they were very different from the 1990s "incubator" stereotype). As it became more famous, it focused more and more on later-stage companies, and the investment sizes also grew. From 2005 to now, the fraction of very early stage companies (pre-incorporation) has gone from 100% to ~12%, and the investment amount has increased from ~$20K to $120K. However, YC has (AFAIK) never explicitly acknowledged its transition to accelerator, and much of the writing on YC is years old, which creates some misunderstandings.
- ProblemFactory 10y ago
  > As it became more famous, it focused more and more on later-stage companies, and the investment sizes also grew. Something I've wondered: was this focus change deliberate? Or is it just a result of becoming more famous, attracting many more applicants, and accepting more mature companies since their success to date looks better?
  - apsec112 10y ago
    Good question, I don't know. If anyone knows anything about this, I'd be very curious to hear.
  - clay_to_n 10y ago
    Another explanation is they may have realized that the pre-incorporation "super early" startups were a riskier bet, and moved their sweet spot preference just a little bit past that based on the success metrics of their previous classes.
  - tyre 10y ago
    (Recent YC founder) This looks confusing if you consider YC to be an accelerator or incubator, labels which they hate. If you look at them as a seed stage investor, their shifting focus makes sense. They give $120k for 7% of the company. Since the deal is set, the only variable, to maximize shareholder return, is the companies they accept. Since they are an investor, they're going to pick the best investments. How do they know the "best" investment? Past history helps, so (relatively) later stage companies will have an advantage. Revenue, team, traction, etc. are all good indicators. If you look at YC as just a seed stage VC, their actions are pretty consistent and logical.
    - CalChris 10y ago
      If you view them as just a seed stage VC then is 7% for $120,000 reasonable? Seems that if someone thinks $120,000 is a lot of money (cuz 7% is a hefty percentage) they're desperate. If they think the YC Rolodex will make them, they're desperate. I'm not getting the value. Yes, YC has a brand and they can command this and their actions are indeed pretty consistent and logical. But it doesn't make sense from the other side of the transaction at least to me.
      - uiri 10y ago
        Won't YC get diluted along with the founders? That 7% will end up being less than 5% after a few rounds of VC when the founders' collective share of the company is 40-60%. 7% for $120k is a pre-money valuation of ~$1.6M. The value of a startup is not just its present value but also includes its expected future value. If you believe that your startup is worth less than that before YC, it makes sense to sell as much as possible at that valuation. On the flip side, that is a post-money (and post-YC) valuation of over $1.7M. I think any reasonable founder would expect their startup to be worth at least $2M after going through YC - for the Rolodex and for the 3 months of heads down focus that it forces you to do.
      - mbesto 10y ago
        > But it doesn't make sense from the other side of the transaction at least to me. It does make sense, because YC is effectively help price a round. What doesn't make sense is that most companies that go through YC are getting convertible notes from non-YC seed stage investors, while YC itself as an equivocal seed stage investor is getting equity. This is where the waters get a bit muddy.
Lordarminius 10y ago
> This transaction just doesn't make sense to me at all. As a YC applicant I feel I am in a position to offer an explanation. Money is very hard to raise for many first time founders; 120k is a fortune at this early stage. YC offers access to its rolodex and being accepted (whether the startup succeeds or not) is a badge of validation that opens many doors internationally. The trade-off is worth it.
- Hydraulix989 10y ago
  Also, the YC badge allows founders to raise a round at Demo Day at a MUCH higher valuation than even the 2nd best accelerator (and this has been shown to be true for almost every single company in each batch) -- the difference is staggering.
  - saycheese 10y ago
    Source/data?
    - lpolovets 10y ago
      I've attended dozens of YC and non-YC demo days as an investor. I can vouch for the grandparent's comment. YC companies have valuations that are 1.5-2.5x higher than elsewhere, but (in my opinion) have outcomes that are 3x+ larger on average. So they are expensive investments on the surface, but still relatively great deals.
      - kriro 10y ago
        As a complete outsider who has never raised money or set foot in the valley my feeling is that without data this sounds like some sort of buddy-buddy system. Where's the data to back this up? Basically the way I read this is if I have a business model that is likely to require a series A eventually (i.e. not profit oriented) if I won't apply to YC I'm setting myself up for a massively worse deal later?
        10y ago

apsec112 10y ago

I think the history of YC explains the confusion. YC was originally a seed-stage incubator (although they disliked that term, as they were very different from the 1990s "incubator" stereotype). As it became more famous, it focused more and more on later-stage companies, and the investment sizes also grew. From 2005 to now, the fraction of very early stage companies (pre-incorporation) has gone from 100% to ~12%, and the investment amount has increased from ~$20K to $120K. However, YC has (AFAIK) never explicitly acknowledged its transition to accelerator, and much of the writing on YC is years old, which creates some misunderstandings.

ProblemFactory 10y ago
> As it became more famous, it focused more and more on later-stage companies, and the investment sizes also grew. Something I've wondered: was this focus change deliberate? Or is it just a result of becoming more famous, attracting many more applicants, and accepting more mature companies since their success to date looks better?
- apsec112 10y ago
  Good question, I don't know. If anyone knows anything about this, I'd be very curious to hear.
- clay_to_n 10y ago
  Another explanation is they may have realized that the pre-incorporation "super early" startups were a riskier bet, and moved their sweet spot preference just a little bit past that based on the success metrics of their previous classes.
- tyre 10y ago
  (Recent YC founder) This looks confusing if you consider YC to be an accelerator or incubator, labels which they hate. If you look at them as a seed stage investor, their shifting focus makes sense. They give $120k for 7% of the company. Since the deal is set, the only variable, to maximize shareholder return, is the companies they accept. Since they are an investor, they're going to pick the best investments. How do they know the "best" investment? Past history helps, so (relatively) later stage companies will have an advantage. Revenue, team, traction, etc. are all good indicators. If you look at YC as just a seed stage VC, their actions are pretty consistent and logical.
  - CalChris 10y ago
    If you view them as just a seed stage VC then is 7% for $120,000 reasonable? Seems that if someone thinks $120,000 is a lot of money (cuz 7% is a hefty percentage) they're desperate. If they think the YC Rolodex will make them, they're desperate. I'm not getting the value. Yes, YC has a brand and they can command this and their actions are indeed pretty consistent and logical. But it doesn't make sense from the other side of the transaction at least to me.
    - uiri 10y ago
      Won't YC get diluted along with the founders? That 7% will end up being less than 5% after a few rounds of VC when the founders' collective share of the company is 40-60%. 7% for $120k is a pre-money valuation of ~$1.6M. The value of a startup is not just its present value but also includes its expected future value. If you believe that your startup is worth less than that before YC, it makes sense to sell as much as possible at that valuation. On the flip side, that is a post-money (and post-YC) valuation of over $1.7M. I think any reasonable founder would expect their startup to be worth at least $2M after going through YC - for the Rolodex and for the 3 months of heads down focus that it forces you to do.
    - mbesto 10y ago
      > But it doesn't make sense from the other side of the transaction at least to me. It does make sense, because YC is effectively help price a round. What doesn't make sense is that most companies that go through YC are getting convertible notes from non-YC seed stage investors, while YC itself as an equivocal seed stage investor is getting equity. This is where the waters get a bit muddy.

Lordarminius 10y ago

> This transaction just doesn't make sense to me at all. As a YC applicant I feel I am in a position to offer an explanation. Money is very hard to raise for many first time founders; 120k is a fortune at this early stage. YC offers access to its rolodex and being accepted (whether the startup succeeds or not) is a badge of validation that opens many doors internationally. The trade-off is worth it.

Hydraulix989 10y ago
Also, the YC badge allows founders to raise a round at Demo Day at a MUCH higher valuation than even the 2nd best accelerator (and this has been shown to be true for almost every single company in each batch) -- the difference is staggering.
- saycheese 10y ago
  Source/data?
  - lpolovets 10y ago
    I've attended dozens of YC and non-YC demo days as an investor. I can vouch for the grandparent's comment. YC companies have valuations that are 1.5-2.5x higher than elsewhere, but (in my opinion) have outcomes that are 3x+ larger on average. So they are expensive investments on the surface, but still relatively great deals.
    - kriro 10y ago
      As a complete outsider who has never raised money or set foot in the valley my feeling is that without data this sounds like some sort of buddy-buddy system. Where's the data to back this up? Basically the way I read this is if I have a business model that is likely to require a series A eventually (i.e. not profit oriented) if I won't apply to YC I'm setting myself up for a massively worse deal later?
      - 10y ago