Y Combinator Boosts Startup Payout, Keeps Equity the Same Why? Bay Area rents are too damn high.

By Laura Entis

Opinions expressed by Entrepreneur contributors are their own.

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.

Related: Paul Graham Steps Down as President of Y Combinator

Laura Entis is a reporter for Fortune.com's Venture section.

Editor's Pick

Related Topics

Business News

'Please Fix This': Elon Musk Frantically Emails Employees During Livestream Glitch

Musk attempted to livestream his visit to the U.S.-Mexico border.

Business News

Costco Isn't Facing Devastating Surges in Theft Like Target and Walmart — and the Reason Is Very Simple

The retailer's CFO revealed its strategy during a fourth-quarter-earnings call.

Business News

These NYC Roommates Created a Fake Restaurant and Accidentally Garnered a 2,000-Person Waitlist — So They Opened a Pop-up for Real.

The Gen Z'ers dubbed their apartment "Mehran's Steak House" on Google Maps during the pandemic.

Branding

Want to Improve Your Brand's Storytelling? Shift Your POV to Tell a Better Narrative. Here's How.

In a crowded digital media environment of voluntary engagement, brand storytelling isn't enough to grab attention. You must approach the story from the right perspective — your customer's.

Personal Finance

5 Entrepreneurial Mindset Principles That Empower Financial Literacy

Adopting the right mindset is key to financial literacy. Follow these five guiding principles to enhance your understanding of wealth creation and growth.

Business News

Video: Mass Flooding Takes Over NYC Streets, Subways and Parks

All of New York City is under a state of emergency.