Y Combinator Alters Investment Package to Avoid “Contested Divorces”

11/26/12Follow @wroush

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need that much, and unsuccessful ones just end up arguing over it.

“When Yuri and Ron were talking about how much they wanted to invest between them, if I remember correctly the original number they were talking about was even higher,” Graham says. “I said no, all you need is enough to keep the founders working for a year. The funny thing is that the $150,000 amount was designed to help the groups that are in the middle”—the ugly ducklings—“but where it was causing us trouble, and made us decrease the amount, was in the third case, where things are falling apart.”

Along with reducing the size of the outside investments, YC announced some changes to the way the new “YC VC” program will be run. SV Angel is out of the picture; Graham said in a comment on YC’s Hacker News website that “it just didn’t make sense with their fund size to keep doing these investments” at the new amount. The money will now come equally from Yuri Milner, Andreessen Horowitz, General Catalyst, and Maverick Capital. YC itself will handle the money and the associated paperwork—something that was already happening in a de facto way with Start Fund, Graham says.

On top of that, the four outside investors will hold formal office hours to meet with startups. “Last batch, we tried this experiment where we invited a bunch of VCs to do office ours, and we rewrote our [scheduling] software so that third parties could use it, and that worked really well,” Graham says. “So as long we were redesigning this thing, we decided to make that part of it.”

I asked Graham whether halving the size of the investment package offered to YC startups might make the program less attractive to founders. For most startups that apply to the accelerator, he says, the money is a secondary consideration. “After Yuri and Ron start doing this, I asked the second batch of startups, on the day after we had accepted them, how many of them knew about the Start Fund. Only about half of them even knew about it. So it might be a factor for some startups, but I don’t think so for most.”

Graham says he hopes $80,000—which will still be offered as convertible notes with no valuation cap—“will still be enough to pay the living expenses of the guys in the ugly duckling case, and decrease as much as possible the contested divorce case.” But YC might raise or lower the amount in the future depending on what it learns from the incoming batch of startups. Interviews for the Winter 2013 batch start tomorrow.

Wade Roush is Chief Correspondent and Editor At Large at Xconomy. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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