Late last week we reported that Paul Graham’s YCombinator was changing it’s seed investment structure going into the “Winter 2013” class of startups. What began as power angels Ron Conway and Yuri Milner investing $150,000 into each of the YCombinator startups has been reduced to a seed investment of $80,000 with four stake holders, further diluting the risk.
When Graham started YCombinator it was (and still is) one of the best startup accelerators in the country. Graham and the YC team made it big, big, big. Big money, big names, big startups. After two years though, it seems that Graham and his cohorts are honing in on the things that really matter. While their first class was 66 startups and their next class was 84 startups, you still needed to be the “best of the best”, for your team to get in.
Of course with 84 teams, there were even some bad apples in the “best of the best”. Graham reports in this blog post that:
“The reason we accepted fewer applications was that in summer 2012 we grew too fast. We had 66 companies in winter 2012, and that was fine, but for some reason more things than usual broke when we jumped from 66 to 84.”
While some may suggest the reduction in class size this time around is about stacking the deck, what YCombinator is really trying to do is weed out as much possible failure as they can. This way they can focus on growing the best of the best, to be, well, the best. Graham says to do that they needed to start looking at the predictors of failure rather than the predictors of success.
They’ve finished the interviews for the Winter class and right now have less than 50 startups signed up. That doesn’t mean that number will stay the same. As Graham explains there are startups that get in after the interview process and others that drop out or fall apart before they can be funded. He’s also quick to point out that this number may not stay the same. As odd it it may be to hear, YCombinator, is itself still a startup and they’re still iterating themselvers.