Yeah, the change from $125k to $500k is a huge difference. $500k is enough money for a team with multiple founders who are OK with living on a graduate student

Yeah, the change from $125k to $500k is a huge difference. $500k is enough money for a team with multiple founders who are OK with living on a graduate student budget of ~$30-40k/person/year (as my friends were, inflation adjusted, when we dropped out of graduate school to found Ksplice) to pay their expenses for multiple years, and still have plenty of money for hardware, hiring people to do specialty work they aren't good at, etc. $125k is not, which means this change is a big shift in what is possible for a company raising money only from YC. What this change means is that it's now more realistic for a team without any personal capital to start a startup and then bootstrap it from there, without raising capital from anyone other than YC (which I believe is experientially pretty different from having VC investors). Prior to this announcement, the main way to raise that kind of capital without angels/VCs on your cap table was the NSF's SBIR program. Due to the selection process, companies accepted into YC generally are those that planning to raise a big funding round just after Demo Day, but I know a lot of folks who didn't succeed in doing so (some of whose companies are still in business 10 years later). This change in how much money YC offers means that failing to raise a satisfactory round at Demo Day does not mean they need to give up -- teams can spend a couple years figuring out their business if they think doing so is warranted. (I have no YC affiliation other than having invested in many YC companies in the past).