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5 Years of Y Combinator Investing: What's Really Changed

I've been investing in Y Combinator companies since 2020, and the accelerator has transformed dramatically over the past five years. What started as a relatively predictable cohort process has evolved into something altogether different—faster, more competitive dynamics for the top companies; increasing bifurcation between those that can raise a lot and those that can’t raise at all. With Gary Tan taking the helm as CEO, we've witnessed both deliberate strategic changes and organic shifts driven by broader market forces. 

The most significant change Gary implemented was expanding YC from two annual batches to four. YC now runs Winter, Spring, Summer, and Fall cohorts—effectively doubling their output while halving individual batch sizes to around 100 startups each.

For founders, it means more frequent entry points and reduced waiting periods. Instead of potentially waiting six months for the next batch, entrepreneurs can now apply quarterly. The smaller cohorts theoretically enable more personalized attention from YC partners and create tighter-knit founder communities.

From an investor perspective, this change has accelerated everything. We're now evaluating deals year-round instead of having concentrated periods of activity. The constant flow of companies means spending more time in YC and more pressure to make quick decisions for the outliers in each batch. 

While Gary's batch restructuring was intentional, other shifts have occurred organically. The AI boom has reshaped the startup landscape, with Y Combinator riding this wave. The proliferation of specialized YC-focused funds has created a feeding frenzy well before demo day. And there’s more. 

With that, let’s get into trends I’m observing…

1. Valuation Cap Inflation Has Reached Higher Levels

The speed at which valuations escalate is more frequent and steep for the top companies. I regularly see the best companies go from $15M-$20M valuations to $35M-$40M valuations by the time Demo Day hits. One recent example was a company that accepted a term sheet at a $15M cap is now collecting commitments at a $50M cap, with investors not really flinching. Investors have become more insensitive to price for the best with the outcome potential perceived as much higher than ever before. This isn’t unique to YC however. 

These rolling caps benefit founders in the short term—more money, less perceived dilution—but the implications for future rounds are concerning. When you're raising $5-$10m at rolling caps up to $50M cap or uncapped with minimal traction, you're setting an extremely high bar for your Series A. Founders who don't understand the dilution mathematics of taking money at inflated valuations may find themselves in difficult positions down the road - if their Series A is priced at $10m on $40m post, suddenly investors have half your company (or more) after Series A.

2. The YC Premium Is Real and Substantial

If you're an outlier founder, YC will likely pay for itself through valuation premiums alone.

Non-YC seed rounds typically price between $8M-15M caps for strong companies. Most YC companies start at $15M and regularly reach $30M-50M+ valuations for outliers. The brand premium is substantial and immediate for the outlier businesses.

The math is straightforward: even after giving up 7% equity to YC, great founders often end up with higher ownership percentages due to the valuation lift. Plus, the accelerated fundraising timeline means less time spent pitching and more time building.

3. Culture of Helping

YC founders are exceptionally committed to helping each other - both within their batch and across different cohorts. It's like university alumni networks but significantly more active. I regularly receive introductions to YC founders from other YC founders who are fundraising. This batch alone, founders from multiple portfolio companies proactively sent me lists of 1-4+ other interesting companies they could connect me with. This goes well beyond what's expected and clearly reflects the program's collaborative culture.

4. The Rise of Fast YC Funds

Y Combinator focused funds have been rampant for some time now (e.g. Liquid2, Soma, etc.), and I want to be clear—this isn't necessarily a criticism. Some funds have found success with this strategy as YC has historically had amazing returns, and there's logic to betting on YC's selection process rather than deep diligence at this stage. But the execution of the newer funds has become increasingly loose from what I’m hearing. While rare still, I’m hearing (now frequently) direct founder stories of funds signing SAFEs without ever holding a call with a founder. This dynamic helps explain how the most in demand founders can now dictate terms so effectively. 

5. Higher Founder Attrition

Something I never personally witnessed, although I’m sure it definitely happened, that I’m starting to see is some founders throwing in the towel quicker. Not pivoting - walking away from their companies. 

In the last YC batch, I was evaluating a company when one of the co-founders simply left. Another company in the current batch told me they're stopping their fundraise because they're considering ending the company entirely. Again, I have no doubt this always happened, but for whatever reason I’m starting to see it more before demo day even starts. It’s still very infrequent, but the fact that it’s happening is interesting. 

The increase in batch frequency may be contributing to this. With more opportunities to get into YC, the barrier to entry feels lower. Alternatively, the pressure-cooker environment of rapid scaling expectations might be burning out founders faster.

6. The AI Monoculture

It feels like 70%+ of YC companies now position themselves as AI application companies. This isn't entirely their fault—investors are actively seeking AI exposure, and market conditions reward AI narratives with higher valuations, and the winners in this space are scaling faster than ever before. But the homogenization is stark compared to earlier batches. The earlier YC cohorts felt more diverse. 

To Conclude…

I’m very interested to see how these cohorts work out for investors. For YC, given their economics, I’m sure it will work out amazing. But for the YC oriented funds, I’m less certain - they’re often paying double the price than a normal Seed. A couple outliers could prove me wrong very quickly (and candidly I hope it does!), but if you’re one of these YC only funds investing in 50 YC companies a year from caps from $15m to $50m and you have a 3-year fund (so ~150 companies out of a fund), you really need a $30 billion+ outcome to have a 3x+ fund (assume 60%+ dilution and no follow-on), which feels like a total crap shoot. Meaning you could have a $10B winner and still only just return the fund - that’s not great. Here’s the back of the napkin math: 

Fund 

• $30M fund ÷ 150 companies = $200K average check

• $200K into $25M post-money = 0.8% initial ownership

• After 60% dilution = ~0.32% final ownership

For 3x return ($90M return):

• Need: $90M ÷ 0.32% = $28B exit value

Hit $10B outcome:

• $10B × 0.32% = $32M return

• That's only 1.07x the fund - barely breaking even

Even worse math: You need a $28B+ outcome just to hit 3x. That's bigger than most public companies. Even with a massive $10B exit (which almost never happens), you're barely returning capital. These assumptions are actually generous. Management fees (typically 2-2.5% annually) eat into returns significantly, so you may need more than $30B in distributions just to deliver 3x net returns to LPs after all fees and expenses.

If you enjoyed this article, feel free to view our prior posts on adjacent topics 

• Why Syndicate Leads Don’t Survive 

• The Syndicate LP Churn Problem 

• What Really Drives Investment Interest in SPVs

Last Money in is Powered by Sydecar

Sydecar empowers syndicate leads to manage their investments more effectively. Organize, manage, and engage your investor network effortlessly with Sydecar’s management and communication tools. Their platform also automates banking, compliance, contracts, tax, and reporting, freeing up syndicate leads to focus on securing deals and strengthening investor relations. Elevate your syndicate operations with Sydecar.

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✍️ Written by Zachary and Alex