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Regarding class size, the incentives are not aligned between the incubator and the startups. For the incubator, the marginal cost of adding one more startup is

Regarding class size, the incentives are not aligned between the incubator and the startups. For the incubator, the marginal cost of adding one more startup is almost zero, but the chance that you might miss out on the next unicorn is big. So you grow your class size. For the entrepreneur, the larger class size dilutes you. Yes, the incubator can scale mentoring reasonably well, but the visibility and prestige of pitching at Demo Day is going down. If YC is graduating 400 startups per year, it's fair to say hundreds of them will not lead to anything. I don't have a good solution for this, each actor is trying to maximize their self-interest.

jedberg 8y ago
> For the entrepreneur, the larger class size dilutes you. Yes, the incubator can scale mentoring reasonably well, but the visibility and prestige of pitching at Demo Day is going down. I don't think that's true. For one, as an entrepreneur, you get access to a bunch of people going through the same things you are, but in totally different areas, so you get a greater diversity of opinion. And as for dilution, I don't think that's the case either. They have a lot more investors now, more than they can accommodate, so there is no shortage of attention.
jonathankoren 8y ago
The value YC sells for $120k and 7% (the standard YC deal) is “exposure”. It’s been YC’s justification for this staggeringly expensive proposition for over a decade. Having more companies in the cohort, means less exposure, and thus even less upside. It’s a market. YC isn’t the only accelerator out there, and if the proposition is returning less than before, then the correct solution is to not accept the YC deal. Startups get a better experience, and Sam Altman learns the lesson about overextending. Eventually, the market will correct. cue the problem solved song
rhizome 8y ago
but the chance that you might miss out on the next unicorn is big If selection skill counts for nothing, sure, but by your logic why not fund all comers? Where do you draw the FOMO line?
prickledpear 8y ago
This is only true to the extent that YC is a monopoly. If other accelerators compete with YC, entrepreneurs may choose to do business with an accelerator that selects smaller classes.
- alexpetralia 8y ago
  Are there any other accelerators that have the same cachet as Y Combinator however? The only other one I've really heard of is TechStars.
  - capocannoniere 8y ago
    Erik Torenberg's Village Global [1] was started fairly recently and is already extremely highly regarded in the start-up community. Much more so than Techstars or any other non-YC accelerator in my impression. [1] https://www.villageglobal.vc/ https://www.villageglobal.vc/ https://www.villageglobal.vc/network-catalyst/ https://www.villageglobal.vc/network-catalyst/
  - rococode 8y ago
    500 Startups and AngelPad also seem fairly well-known. I'd love to hear from someone more involved in the VC community about how those two accelerators are generally regarded.
temp1928384 8y ago
There are new funding models that have popped up just in the last month or so e.g. Earnest Capital and TinySeed. I suspect for many of these companies they would be better served by those models, which vary but are essentially designed with no expectation that the company must march toward "Unicorn" status to be considered a success.
seizethecheese 8y ago
The marginal cost of an additional startup through YC is definitely not zero. Just look at how many more partners there are now compared to when batch sizes were smaller. You’re right that it might be lower than average cost, otherwise batching wouldnt make sense.

jedberg 8y ago

> For the entrepreneur, the larger class size dilutes you. Yes, the incubator can scale mentoring reasonably well, but the visibility and prestige of pitching at Demo Day is going down. I don't think that's true. For one, as an entrepreneur, you get access to a bunch of people going through the same things you are, but in totally different areas, so you get a greater diversity of opinion. And as for dilution, I don't think that's the case either. They have a lot more investors now, more than they can accommodate, so there is no shortage of attention.

jonathankoren 8y ago

The value YC sells for $120k and 7% (the standard YC deal) is “exposure”. It’s been YC’s justification for this staggeringly expensive proposition for over a decade. Having more companies in the cohort, means less exposure, and thus even less upside. It’s a market. YC isn’t the only accelerator out there, and if the proposition is returning less than before, then the correct solution is to not accept the YC deal. Startups get a better experience, and Sam Altman learns the lesson about overextending. Eventually, the market will correct. cue the problem solved song

rhizome 8y ago

but the chance that you might miss out on the next unicorn is big If selection skill counts for nothing, sure, but by your logic why not fund all comers? Where do you draw the FOMO line?

prickledpear 8y ago

This is only true to the extent that YC is a monopoly. If other accelerators compete with YC, entrepreneurs may choose to do business with an accelerator that selects smaller classes.

alexpetralia 8y ago
Are there any other accelerators that have the same cachet as Y Combinator however? The only other one I've really heard of is TechStars.
- capocannoniere 8y ago
  Erik Torenberg's Village Global [1] was started fairly recently and is already extremely highly regarded in the start-up community. Much more so than Techstars or any other non-YC accelerator in my impression. [1] https://www.villageglobal.vc/ https://www.villageglobal.vc/ https://www.villageglobal.vc/network-catalyst/ https://www.villageglobal.vc/network-catalyst/
- rococode 8y ago
  500 Startups and AngelPad also seem fairly well-known. I'd love to hear from someone more involved in the VC community about how those two accelerators are generally regarded.

temp1928384 8y ago

There are new funding models that have popped up just in the last month or so e.g. Earnest Capital and TinySeed. I suspect for many of these companies they would be better served by those models, which vary but are essentially designed with no expectation that the company must march toward "Unicorn" status to be considered a success.

seizethecheese 8y ago

The marginal cost of an additional startup through YC is definitely not zero. Just look at how many more partners there are now compared to when batch sizes were smaller. You’re right that it might be lower than average cost, otherwise batching wouldnt make sense.