How has Y Combinator's investment strategy evolved in recent years?

Hey there! When it comes to the changes at Y Combinator (YC) over the past few years, there's quite a lot to talk about. If you had asked me a few years ago, I might have described it as a standardized "startup bootcamp," but now, it's more like an ever-evolving behemoth. In my opinion, there have been several major shifts:

1. The Funding Model Has Changed: More Generous and More "Savvy"

Previously, YC's deal was classic: $125,000 for 7% equity in your company. Simple, straightforward, and fair to all.

But now, their "standard deal" has been upgraded: they give you a total of $500,000. However, this $500,000 is split:

• Part One: Still $125,000 for 7% equity; this part remains unchanged.
• Part Two: An additional $375,000. This money isn't directly exchanged for equity but is a "coupon for future investment" (technically called a SAFE). Simply put, YC commits to investing another $375,000 in your next funding round at a more favorable valuation.

What does this mean for founders? On one hand, you get more money upfront, which can be a lifeline in today's challenging fundraising environment. On the other hand, YC also secures the right to double down on their investment at a favorable price when your company is performing best. To use an analogy, before, they gave you a ticket; now, they not only give you a ticket but also reserve a VIP pass for your next concert.

2. From "Small Class" to "Super University"

In earlier years, a YC batch might have had only a few dozen companies. Partners (mentors) could get to know each company deeply and provide hands-on guidance.

Now? A batch often consists of two or three hundred startups, or even more. This brings about two extremes:

• The upside is network effects: Your alumni network instantly expands hundreds of times over. You can find YC alumni from all industries to help and connect with. This network is one of YC's most valuable assets.
• The downside is reduced individual attention: It's like moving from a small class of 20 students to a large lecture hall with 300. The instructor can no longer call on you by name, and you need to be more proactive in "grabbing" resources and scheduling time with mentors. For more introverted founders or those with less mainstream ideas, it might feel overwhelming.

3. From "Silicon Valley-Centric" to "Globalization," Then "Back to Silicon Valley"

During the pandemic, YC ran several fully online incubation batches, giving entrepreneurs worldwide a chance to join. The proportion of international teams surged, especially from India, Latin America, and Africa, making YC highly globalized.

However, since YC alumnus Garry Tan returned as CEO, the direction has shifted again. He strongly emphasizes in-person interaction and Silicon Valley's "startup density," strongly recommending, even requiring, accepted teams to move to the Bay Area. So now it's an interesting hybrid state: global admissions, but encouraging everyone to "attend class" in Silicon Valley. He believes that the sparks generated by face-to-face interaction cannot be replicated online.

4. Investment Trend: All In AI

In the past, YC's mantra was "make something people want," with no strong industry preference. Whether it was SaaS software, e-commerce, or rockets, as long as there was a market, it was fair game.

But ever since ChatGPT took off, YC's compass has pointed squarely towards AI. Now, if you look at their projects each batch, AI-related companies account for half, or even more. They openly state, "We are looking for founders in the AI space." This shows that YC highly values major trends of the era and will concentrate its efforts on catching the "big fish" in the next wave. If you're working on an AI project now, your chances of getting into YC are significantly higher.

5. Strategic Contraction: Cutting Later-Stage Investments, Focusing More on the "Very Beginning"

YC previously had a later-stage fund called the "Continuity Fund," specifically designed to invest in highly successful alumni companies that graduated from YC, for example, by co-investing in their Series B or C rounds.

However, after Garry Tan took over, he cut this later-stage fund. This move is quite significant. His message is clear: YC should focus on what it does best and what is most core to its mission – providing the first capital to a company at its "nothing-yet" seed stage, helping it go from 0 to 1. The later stages should be left to professional venture capital (VC) firms.

This clarifies YC's positioning: "We are the best 'kindergarten' and 'elementary school,' responsible for initial enlightenment and laying the foundation, rather than aiming to be a full-suite educational group from kindergarten to post-doc." This also improves their relationship with subsequent VCs, as there's no longer a competitive dynamic.

Overall, you can see that YC is actively adapting to a more complex, more expensive, and more globalized startup world. It's no longer the small, charming "workshop" it once was, but has transformed into a scaled, industrialized "unicorn production line." Its core philosophy remains unchanged, but the methods and strategies for achieving that philosophy have undergone tremendous transformation.