Thu. Jan 20th, 2022

Startup accelerator Y Combinator announced this morning that it has updated its terms and conditions, giving participating companies more money. The group will now invest $500,000 in batch startups.

The money comes in two different forms. The first is the well-known Y Combinator stock deal, worth $125,000 for 7% of accelerated startups. The group will also now offer $375,000 in the form of an uncapped SAFE note – a simple agreement for future equity – with a “most favored nation” clause.

Uncapped means there is no set maximum price at which the $375,000 SAFE will be converted into stock, while the “most favored nation” language ensures that Y Combinator will get a deal just as good as anyone else on a later conversion.

It is not surprising that Y Combinator now offers more capital to startups; indeed, that it took the group so long to update its terms is the bigger surprise. Still, half a million dollars is much more in line with where the pre-seed and seed-stage investment markets have moved in recent years, which is to larger dollar amounts at higher prices.

The updated conditions do not mean that the accelerator itself will be less positive in portfolio companies. You could even argue that Y Combinator’s updated terms are defensive in that it offers more capital in addition to, but not in lieu of, its traditional equity stake in companies passing through its doors. So the accelerator may be better able to attract the best early-stage startups with greater controls, even as it puts its initial equity investment to work at a price that has historically proven lucrative.

As an institution, Y Combinator has updated itself as the startup market has evolved. From a focus on personal work, YC went a long way during the pandemic. The result of that switch, according to BestFitnessBands, was more participating startups from other countries and markets. The group has also moved into remote demo days, something we’ve appreciated here at BestFitnessBands, as we no longer have to drive from San Francisco to a large room with too few seats.

It will be interesting to see how competing accelerators respond, if at all, to Y Combinator’s updated terms.

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