- The name “Y Combinator” is derived from the concept of the Y combinator, a powerful programming construct in computer science, symbolising the company’s mission of helping start and support new companies through funding and guidance.
- Y Combinator offers “seed funding” of $20,000 or less to early-stage companies, in exchange for a small percentage of equity in the startup. They may also provide additional funding of $150,000 for high-quality projects.
- Y Combinator has a loose yet stringent admission criteria, allowing even recent university graduates to receive funding. Their partners conduct interviews themselves, and the incubation program has incubated over 2,000 startups with a total valuation exceeding $100 billion.
Y Combinator, renowned for its seed funding and incubation accelerator, is the common early investor behind these 10 globally top-notch unicorn companies: Airbnb, Stripe, Instacart, Coinbase, DoorDash, Cruise, OpenSea, Faire, Brex, and Reddit. This blog post answers questions about where Y Combinator got its name and how it operates.
Introduction to Y Combinator
Y Combinator is a venture capital firm and a prominent investment service platform for internet startups in the United States. The company focuses on providing funding and strategic guidance to early-stage companies in the global internet startup, biotechnology, healthcare, and intelligent services industries.
Unlike other venture capital firms, Y Combinator typically offers “seed funding” of $20,000 or less to entrepreneurs in exchange for a small percentage of equity in the startup (usually around 6-7%). Prior to incubating a project, Y Combinator enters into an agreement with the startup team to purchase approximately 6-7% of the company’s shares for $20,000. Additionally, high-quality startup projects may receive $150,000 in advance from Y Combinator to purchase shares after the team’s next round of financing, with the condition that YC is entitled to a discount on its equity stake in the next funding round.
As of late 2023, Y Combinator has invested in over 4,000 companies, predominantly for-profit, with a combined valuation of $600 billion. While the main focus is on for-profit ventures, Y Combinator does provide an opportunity for non-profit organisations to participate in their program. Although the number of non-profits accepted has been relatively low in recent years, notable examples include Watsi, Women Who Code, New Story, SIRUM, Zidisha, 80,000 Hours, and Our World in Data.
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Why is it called Y Combinator?
The name “Y Combinator” is derived from the concept of the Y combinator in computer science. The Y combinator is a powerful programming construct that allows programs to call themselves recursively. In the context of Y Combinator, it serves as a metaphor for what the company does – helping start and grow new companies. Similar to how the Y Combinator is a program that runs programs, Y Combinator is a company that helps start and support startup companies.
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Loose yet stringent admission criteria
Y Combinator has its own unique admission criteria. It only makes very early-stage investments, and entrepreneurs do not need to have a track record of successful entrepreneurship. As long as their projects pass scrutiny, they can receive startup funding. However, Y Combinator has strict selection criteria for projects. They do not rely on analysts or third parties to evaluate projects; instead, the 18 partners conduct interviews themselves, with no shortcuts available.
The partners at Y Combinator have entrepreneurial experience and are highly successful. For example, Michael Seibel, co-founder of Twitch, is the CEO responsible for overseeing Y Combinator’s incubation projects. This lenient yet stringent approach allows even recent university graduates to have the opportunity to receive funding from Y Combinator, while also requiring projects to withstand rigorous testing.
Currently, Y Combinator has invested in over 2,000 startups globally. The total valuation of these companies has exceeded $100 billion, with 18 companies valued at over $1 billion and a total funding size exceeding $25 billion. Among them are some “super unicorns,” such as Dropbox, a pioneer in cloud storage services founded in 2007, which is now a publicly traded company with a market capitalisation of nearly $10 billion.
Two different incubation formats targeting different groups
Y Combinator has two specific incubation programs:
YC Fellowship
This program is specifically designed for first-time entrepreneurs. Each year, over 250 teams benefit from this program. Once accepted, Y Combinator invests $20,000 in the first-time startup teams and provides them with advice and guidance from the YC community, including a dedicated partner (similar to a mentor). The teams in the YC Fellowship program are not required to relocate to the Bay Area (the incubation location) and Y Combinator is willing to spend a significant amount of time helping the teams remotely through video and voice calls. Founders are expected to turn their business idea into a functioning company within eight weeks based on the advice of their YC mentors. After the eight weeks, outstanding teams have the opportunity to enter the YC accelerator program.
Acceleration Program
The YC Acceleration Program is for more mature startups. Y Combinator has consistently supported early-stage companies through this program, which involves two three-month startup boot camps held at their headquarters in Mountain View, California. Startups receive hands-on guidance and a $120,000 investment from Y Combinator in exchange for 7% equity in the company – a relatively low equity stake. The entire program takes place in the Bay Area and includes weekly dinners with special guests and the highly anticipated Demo Day, where startups showcase their products and services to potential investors and advisors. The startups in this program primarily come from the software, hardware, education technology, and biotech sectors. Y Combinator’s strategy of investing smaller amounts into early-stage projects at a larger scale has contributed to its success in incubating numerous unicorn companies.
