Fund: Y Combinator
Posted by Anonymous on 2011-08-31
I was familiar with Y Combinator through their portfolio and through their affiliated news aggregator/discussion site "news.ycombinator.com".
The application process casts a much wider net than the average seed investor or angel -- applications are through an online form (2000+ globally in the Summer 2011 batch), narrowed down to about 150 on-site interviews in Mountain View, CA. These interviews are about five minutes long, with the full partnership. A flexible number of groups are accepted (the bar is absolute quality vs. a curve to a specific number), but is roughly 25-50%, so the big filter function is getting an in-person interview.
The YC deal terms, if taken as just cash for equity, are pretty horrible (effectively, a pre-money valuation of around USD 200k-500k). The $150k START Note from SV Angel and Yuri/DST makes it less so, but the value of YC has never been the initial capital provided. Some external criticism has been of these deal terms, but they are largely in-line with other incubators, and coupled with the value-add provided during the YC session and on an ongoing basis by the YC partners and YC alumni, it is an excellent value for most startups. The possible exception would be a startup which has already raised substantial (>$1mm) equity investment and has an extensive network of investors and customers, and even in those cases, the equity taken by YC might raise odds of long-term success.
Another criticism of YC is that it has grown too large -- 64 companies in the Summer 2011 batch. From what YC founders have said, this has not been a problem. The YC partnership has grown, and become even more "full time" for the partners, so each startup receives plenty of assistance. The YC alumni network has continued to grow, with major successes like AirBNB, Dropbox, and Heroku, so the value of that network is substantial as well. The new YC partners are very execution-focused, with specific skills and experience in design, legal, fundraising, and development, broadening the appeal.
YC is fairly biased (through experience) against solo founders, especially those who neither plan to bring in additional cofounders, and especially those who are not developers themselves; they dislike the "idea guy who will hire some outsourced developers to build a site" model of entrepreneurship.
Anyone applying to YC should read Paul Graham's essays (http://www.paulgraham.com/articles.html)PRIVATE: Members Only (1537 Characters)