Y Combinator Boosts Startup Payout, Keeps Equity the Same Why? Bay Area rents are too damn high.
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Y Combinator, the Harvard of tech incubators whose notable alums include Dropbox, Airbnb and Reddit, is upping the amount of money it will invest in its startups, while taking the same percentage of equity.
Its next batch of fledgling companies will each receive a total of $120,000 for 7 percent in equity. Previously, the Mountain View, Calif.-based incubator offered startups approximately $17,000 for the same percent of equity, plus an $80,000 note from a group of venture investors and firms.
This means, of course, that the valuation of each startup is going up – from $1.4 million to $1.7 million.
Why give invest more money? Essentially, it's because in San Francisco, the rent is too damn high. "$97k was about right at the time, but the cost of living in the Bay Area has gone up substantially," the incubator's president, Sam Altman, wrote in a blog post announcing the changes. "So we're increasing the total to $120k, which we hope is enough for the founders to run their business and pay their living expenses for at least 6 months, and sometimes longer."
Automatic investments from Andreessen Horowitz, General Catalyst, Maverick Capital and Khosla Ventures will also end, and the new structure gets rid of convertible notes. For more details on the changes, here's Altman's full blog post.