Y Combinator, one of the most prominent startup accelerators in the world, is changing the way they invest in startups.
The company announced this morning that it has updated its investment terms, and will now offer startups a lot more cash than before — investing a total of US$500,000 in startups that make it into their accelerator program.
Compared to before, startups will now receive the funds in 2 tranches — $125,000 for 7% equityat the start, and an additional $375,000 in the form of an uncapped SAFE note with a "Most Favored Nation" (MFN) clause.
What this means is that there is no maximum price in which the $375,000 SAFE will convert into shares, while the MFN clause will take on the terms of the lowest cap safe (or other most favorable terms) that is issued between the start of the batch and the next equity round.
The full update can be viewed in a Y Combinator official blog post:
We have a new standard deal at Y Combinator. When a company is accepted into the YC batch program, we now invest a total of $500,000. We still invest $125,000 for 7% and now also invest an additional $375,000 on an uncapped safe with an MFN1.
This is the type of deal that we have wanted to offer YC founders for years — and with the recent success of YC companies, including ten IPOs in 2021 and more to come this year, we are now able to do so. This sum will enable founders to focus on launching, building, and scaling their company. It will remove the immediate pressure to fundraise and accept less than favorable terms.
Incidentally, we also hope that this deal will encourage more founders of any age and from every demographic group and geographic location to take the leap into the startup world, apply to YC, and build their own successful startup.
Dalton Caldwell, YC’s Managing Director, Architect, and long-term Group Partner, who first suggested that now was the right time to make this change, also pointed out that if founders stay lean, this is more than enough capital to survive for years, regardless of the economic environment.
Our founding principles state that YC’s value is “the number of startups we help times how much we help them.” More startups in the world is a good thing — and for the founders of those startups, we’re always iterating to improve our program. This terrific deal will make it even more likely that they find product market fit, raise a successful seed round, and build a world-changing technology company.