Y Combinator Batch Size Concerns - 1,000 Companies?
The Shifting Significance of Y Combinator
Many followers of Y Combinator may dismiss this commentary as the perspective of an unsuccessful entrepreneur who was never accepted into the program. However, the prestige associated with being a Y Combinator-backed company once held considerable weight.
A Previous Standard of Excellence
For numerous ventures, inclusion in Y Combinator represented a significant achievement, and the YC endorsement carried substantial meaning. Selection processes were rigorous, and YC Demo Day consistently generated excitement within the startup community.
The media prepared to report, and investors eagerly sought out the most promising companies. This interest stemmed from the understanding that successfully navigating the YC selection and completion of the program indicated a foundational level of competence.
YC as a Foundation, Not the Pinnacle
Similar to earning a black belt in martial arts – which signifies basic proficiency and safe practice – acceptance into Y Combinator marked a crucial first step. Those with martial arts knowledge recognize that the black belt represents the commencement of true, in-depth study.
Likewise, Y Combinator acceptance and program completion signified a foundational achievement. It was a moment for celebration, but also a signal that the most challenging work lay ahead.
Scaling and Potential Dilution
When Y Combinator’s current president, Geoff Ralston, suggests the possibility of funding 1,000 companies per batch, it indicates a shift in strategy. The firm appears to be evolving from a specialized training facility to a larger-scale operation aiming to prepare a significantly greater number of founders.
However, one might recall that the smaller, more focused training environment in “The Karate Kid” ultimately proved more effective.
The Index Fund Model
This expansion would be strategically sound for Y Combinator, provided they maintain high standards for founder quality and selection. Effectively, they would be constructing an index fund of startups.
At the early investment stage, Y Combinator can acquire a substantial stake in numerous companies for a relatively modest investment. A single successful outcome – akin to Airbnb, DoorDash, or Stripe – can yield significant returns, making it a highly profitable model.
The list of successful Y Combinator portfolio companies – including Coinbase, GitLab, and Dropbox – is not accidental; these are widely recognized and successful businesses.
Challenges for Startups in a Larger Cohort
While investors are likely to benefit, the primary challenge lies with the startups themselves. Some argue that larger networks offer increased benefits, but this is a complex issue to resolve.
The most successful founders are often deeply focused on building their companies and have limited time to actively participate in network activities, particularly during the crucial early stages.
Diminishing Returns of the YC Badge
Founders should consider the value of being part of a 1,000-company cohort. Will the Y Combinator affiliation still guarantee meetings with investors?
Will it ensure priority in a journalist’s inbox? Or will the badge lose its significance as a reliable indicator of quality, thereby diminishing the value of being a Y Combinator alumnus?
A Potential Turning Point
The expansion of Y Combinator, particularly with cohorts exceeding 377 startups, has already created challenges in maintaining oversight and a cohesive environment. This growth benefits YC and its investors.
However, for the startups themselves, there is a point of diminishing returns. It is likely that this point was reached some time ago.
The Rise of Alternatives
It is inevitable that new organizations will emerge, offering the exclusivity and focused support that Y Combinator once provided. Several contenders are already appearing.
When one of these alternatives gains momentum and builds a successful portfolio, Y Combinator risks being left with a collection of less competitive ventures. It is possible that this signals the beginning of the end for this Silicon Valley institution.
