Silicon Valley-based tech accelerator Y Combinator (YC) has announced that it will quadruple the amount that it invests in participating startups.
YC will now invest $500,000 USD in each of the companies selected to its program. This total will consist of YC’s traditional $125,000 for a 7 percent equity stake, along with an additional $375,000 in the form of an uncapped simple agreement for future equity (SAFE) note.
The deal will provide early-stage startups participating in YC with more money up front to focus on building their companies, rather than fundraising.
The move, which YC President Geoff Ralston announced today in a blog post, will provide early-stage startups participating in YC with more money up front to focus on building their companies, rather than fundraising.
“This sum will enable founders to focus on launching, building, and scaling their company,” wrote Ralston. “It will remove the immediate pressure to fundraise and accept less than favorable terms.”
Although YC is based in the United States, the tech accelerator’s recent cohorts have drawn a growing number of Canadian entrants. YC saw a new record of 16 Canadian companies to its Summer 2021 Demo Day, hosting a list that included Toronto-based Bedrock AI, Vancouver-based Matidor, and Calgary-based CostCertified. Previous Canadian YC graduates include Faire, Bonfire, and PartnerStack.
This uncapped SAFE note will carry “most favoured nation” (MFN) terms, meaning that it will take on the terms of the lowest cap SAFE or other most favourable terms issued between the start of the YC batch and the participating startup’s next equity round. This structure will give companies money up front, at terms subject to negotiation with future investors.
According to Ralston, YC has wanted to offer its founders this type of deal for years, and is now equipped to do so following the recent success of YC graduates, 10 of which went public last year.
Hard to see any accelerator matching this at scale and also disruptive to Angel/pre-seed phase. Overall pretty impressive power move.
— Isaac Souweine (@sonofsarah) January 10, 2022
The increase follows a rise in the size of startup funding rounds. On Twitter, some entrepreneurs have called the new deal more appealing to founders, as under YC’s previous terms, it made less sense to give up so much equity for so little investment amid the current venture financing environment.
Meanwhile, some investors have characterized the move as disruptive to the angel and pre-seed investment phases.
It remains to be seen how other accelerators will react to YC’s decision.
The new standard deal comes as YC launches its Winter 2022 cohort.
Feature image courtesy of Y Combinator