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Y Combinator: The Power In An Accelerator Is Not The Cash

Ycombinator,startups,startup accelerator,Paul Graham,Ron ConwayStartups around the world, who’ve had their eyes set on Y Combinator, have all been scratching their heads over the past two days while stomaching a major change in the way the accelerator program at Y Combinator is run.

Two years ago Russian venture capitalist Yuri Milner and Ron Conway, principal at SV Angels, decided that they would invest $150,000 in seed money to each of Y Combinator’s startups. In a blog post Monday Y Combinator said that they often ended up managing the investments and the program, which was awkward because they hadn’t actually started it.

Y Combinator has announced a new program called YCVC where four Yuri Milner and three other firms will join together to invest $80,000 in each of the startups as opposed to the $150,000 figure. Joining Milner are Andreessen Horowitz, General Catalyst and Maverick Capital. Absent from this program is Conway and SV Angels.

Graham explained to Forbes magazine that while SV Angels fund doesn’t fit into the new mold of the program, Conway is still one of YC’s “favorite investors”

So what’s going on?

Startup spinmasters everywhere are wondering why this change in investment strategy. Some worry does this have to do with the bubble bursting? Others wonder if it has to do with the general trend in consumer tech investing going down? While others understand that cash isn’t the core to a good accelerator program.

That’s just what YC has said as well.

By decreasing the actual cash investment in the startups, YC is asking that the investors take a more active interest in the program itself. Each of the investors will participate in office hours helping to cultivate the startups in the program. Graham, along with the powers that be at YC are hoping that this invaluable investment with time will more than compensate for the decrease in seed funding.

YC also says that $150,000 may not have been the optimal investment. In some cases a seed investment that size was too much for a new startup.

“$150k was more than the successful startups needed, and it sometimes caused messy disputes in the unsuccessful ones. Switching from $150k to $80k may not completely eliminate such problems, but it will make them at most half as bad.” YC posted on their blog.

YC is confident that even in Silicon Valley $80,000 should be more than adequate to give startup founders about a year to work on their idea, and live financially above water.

Many successful accelerators across the country including MassChallenge, DreamIt Ventures, TechWildCatters and even the Brandery have been making do with substantially less seed funding for startups, and more active programs.

Some startups feel that having a name like Y Combinator, 500 Startups or TechStars behind them is enough to help them get ahead. Others really want the opportunity to work the program, beef up their contacts, and learn from the triumphs and failures of the top shelf mentors associated with funds like those backing the newest program at Y Combinator.

What do you think, tell us in comments.

Linkage:

YC’s original blog post

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