Y-Combinator Contracts Investment Size Amidst Thriving Economy

    America-based startup accelerator, Y Combinator has reduced the size of its investment to $125k due to unstated reasons, although, most likely as a result of COVID-19 impact

    The US-based seed-stage accelerator in the latest development is cutting down its standard investment offering by $25,000 to stand at $125,000 from the initial $150,000 while maintaining its 7% equity stake in backed startups.

    The new development was made known after the applications for the winter 2021 batch was declared open via the accelerator Twitter account adding that there has been a change to the “standard deal”.

    Prior to the announcement on Twitter, Y-Combinator President, Geoff Ralston have initially made the new development known in a blog post whose link was attached to the Twitter post.

    According to Ralston, “ we are making two changes to our standard deal in conjunction with a recent fundraiser. Starting with the Winter 2021 batch, our deal will be 125,000 for 7% equity on a post-money safe” he said.

    Additionally, there has been a reduction in the pro-rata right rate to 4% which is applicable to follow up rounds. Following the explanation of a reliable source; the implication of the reduction in pro-rata right to 4% is that “if a YC-backed startup is raising a subsequent round, the accelerator has a 4% participation right to invest in that startup.

    “However, YC’s 7% stake will reduce after that round and when the accelerator stake in a startup goes below 4%, say 2.5%, the pro-rata right of YC drops to 2.5%.” the source added.

    While there has been a lot of speculations that the reduction in the investmet size was largely due to the current thriving economy due to the global health crisis, the accelerator’s president is rather of the opinion that the action was taken to enable them to fund as many as 3,000 more companies in the future.

    For the record, this is not the first time the YC is modifying its investment standards; back in 2005 when it was founded, its investment size started at $20,000 for 6% equity; six years after, the investment size grew to $150,000 with the same equity stake, however, reduced to $100,000 for 7% sometimes in 2014, after which the ticket size later move up to $120,000 and $150,000 subsequently, before the latest modification.

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    According to a spokeswoman, “The future of the economy is unpredictable, and we feel it is prudent during these times to switch to a leaner model.”

    For Ralston, this won’t be the last time the accelerator will change its standard deal, “but we do feel this is the right place to be for the next several years,” he said.

     

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