Y Combinator for Founders: The Deal, the Application and Your Numbers

Y Combinator is a startup accelerator in San Francisco that invests $500,000 in every company it accepts and runs a three-month programme to help it grow. It's the best-known accelerator in the world: Y Combinator companies include Airbnb, Stripe and Dropbox, and from India, Razorpay and Meesho. This guide explains the deal in plain numbers, what YC looks for, how to apply, and how to plan your money whether you get in or not.

What Y Combinator is

An accelerator invests a small amount of money early, then helps you move fast for a few months. YC started in 2005 and has funded thousands of startups since.

The programme lasts about three months and happens in person in San Francisco. It starts with a retreat, then weekly meetings with YC partners and the other founders in your batch. It ends with Demo Day, when each company presents to a room full of investors.

YC now runs four batches a year: Winter, Spring, Summer and Fall. You'll see batches written as a letter and a year, so W15 means Winter 2015 and S16 means Summer 2016.

The Y Combinator deal in plain numbers

YC's standard deal is $500,000, in two parts:

• $125,000 for 7% of your company, on a post-money SAFE.
• $375,000 on an uncapped SAFE with a "most favoured nation" (MFN) clause.

A SAFE (simple agreement for future equity) is money now in exchange for shares later, usually when you raise a priced round. It isn't a loan. There's no interest and no repayment date.

The first part is simple: YC pays $125,000 and gets 7%. The second part has no price of its own. The MFN clause means it converts on the same terms as the best deal you later give other SAFE investors, which in practice means the lowest valuation cap. So what the $375,000 costs you depends on your next raise.

These figures are simplified, and a real round shifts them a little. The lesson holds, though: the higher your next valuation, the less YC's second cheque costs you. Read the current deal on YC's own site, and ask a startup lawyer to walk you through it before you sign.

How far $500,000 goes

The size of the cheque matters less than how long it lasts. That depends on your monthly burn: what you spend each month, minus what you earn.

Many YC companies raise more money around Demo Day. Plan as if you won't. If your plan only works with a second raise in month six, one slow quarter turns into an emergency. Our guide to burn rate and runway shows how to work out your own numbers, and the free runway calculator does it in a minute.

What Y Combinator companies had when they got in

It's easy to look at famous YC companies and assume you need a big head start. YC's own numbers say otherwise: on average, about 40% of the companies in each batch are just an idea when they're accepted, and most have no revenue.

A few well-known YC companies and the batch they joined:

The full list lives on YC's own directory at ycombinator.com/companies, where you can filter by batch, industry and country, including India. Third-party lists of ycombinator companies often go out of date, so start there.

What YC looks for is less about money and more about the founders: how fast you build, how well you understand the problem, and whether anyone wants what you're making.

How to apply to Y Combinator

Applying is free and done online:

1. Fill in the application at ycombinator.com/apply. It asks what you're building, who the founders are, and what progress you've made.
2. Record a one-minute founder video. Just the founders, talking plainly. No slides, no production.
3. Interview. If YC is interested, you're invited to a short interview with YC partners, usually about ten minutes.
4. Decision. You usually hear back quickly, often on the same day.
5. Money. YC commits to the investment on the day you're accepted. It also helps founders from outside the US with visas and with setting up a US company.

You can apply with just an idea. YC accepts solo founders, though it suggests having a co-founder. And you can apply again: plenty of founders get in on a later try, after showing what changed since their last application.

The numbers to know before you apply

YC's application is a form, not a business plan. But a few numbers make your answers sharper, and they often come up in the interview:

• What you'd spend the money on in the next 18 months: people, tools and marketing.
• Your monthly burn, today and after the investment.
• Your runway: how many months the money lasts at that burn.
• Your traction: users, revenue or pre-sales, and how fast they're growing.
• Your price and your cost to serve: what you charge, and what one customer costs you.

If you can answer each of those in a sentence, you'll sound like a founder who knows the business, because you will. startzero.money builds all five from six plain questions, so you can walk into the interview with numbers you've checked, not guessed.

If Y Combinator says no

Most applicants are turned down, including many who go on to build good companies. A no usually means "not yet" or "not for us", not "this can't work".

What to do next:

• Keep building and reapply with visible progress since your last application: more users, revenue or pre-sales.
• Sell before you raise. Pre-sales and founding-member pricing fund the first version without giving up any of your company. Our guide to validating an idea with pre-sales shows how.
• Look at other routes: other accelerators, angel investors, grants and lifetime deals. Our startup funding guide compares them.
• Ask whether you need investors at all. Many good businesses never raise. Bootstrapping vs venture capital helps you choose.

YC's money is useful. Customers' money is better: it proves people want what you're building, and it never costs you a share of the company.