Adam Hardej

May 04, 2023·Newsletter

Is YC Worth It?

Is YC Worth It?

This writeup was originally a Twitter Thread and a LinkedIn Post. But I think it's worth bringing you those same thoughts here since people seem to appreciate it. Some really high level points before I share the full post:

  • YC cohort graduates effectively skip Pre-Seed.
  • YC startups get Seed round values even if the company is 3 months old.
  • That's ok because they historically matriculate to Series A at same rate.
  • Therefore, YC is an accelerator in the truest sense.
  • Seed stage YC startups are also 1.6x more likely to become unicorns.

Okie Doke - let's get into it:

We invested in 35 startups from the most recent Y Combinator W23 batch. Here are some averages:

Average Round Size = $2,032,857

Average Round Value = $20,571,429

(anonymized screenshot below)

Is that a lot? Is the Most Favored Nation (MFN) clause drama warranted?

Ehhhn... I don't think so (it's a long one) 👇

This isn't our first time doing this. We did this for S22 (that was the first time). Here are those averages and a writeup of our process:

Average Round Size = $2,222,857

Average Round Value = $25,514,286

(anonymized screenshot below)

Here's the writeup.

More context before I go further since you probably won't read that writeup: It's an index. We write $50k checks. We follow. We do not have valuation rules (clearly). We invest in everything accept biotech. We prioritize 2nd time founders, rev traction, and fancy co-investors.

The basic thought here is that an index of the top ~15% of a batch as we see it at that time will perform well compared to the Seed landscape at large.

I'm not sure where these stats will sit post-2021-mania, but I think it's fair to say the density of winners is unmatched:

Ok but what's the actual premium you pay on these Seed rounds?

AngelList does a great job sharing data so we can compare these averages to the broader Seed landscape.

For YC S22 let's look at Q4 '22 Seed averages:

"Average seed-stage valuations declined by 13.9% to $24M"

For W23 let's look at Q1 '23:

"Aside from pre-seed, average startup valuations declined at every fundraising stage relative to the previous quarter in 1Q23. Seed-stage valuations declined by 5.7% to $22.5M"

To summarize:

S22 Average Round Value = $25,514,286

AL Q4 '22 Seed Average Value = $24,000,000

W23 Average Round Value = $20,571,429

AL Q1 '23 Seed Average Value = $22,500,000

Given this breakdown it all looks pretty straightforward and "fair".

BUT... some spice 👇

Are these really Seed rounds?

What's the actual difference between a Pre-Seed and a Seed stage company?

One thing is that valuation doubles (pre seed avg was $10M in Q1) but your still in the very early stages before there are clear benchmarks.

There's not much to really define besides that.

Maybe team size? In my opinion the spectrum of traction metrics is too wide to pinpoint meaningful averages.


"42% of YC's billion dollar companies applied with only an idea." - YC website

I'm pretty sure I saw a stat from Garry Tan around these recent batches having similar percentages of "applied with an idea" and idk how they count mid-batch pivots, but I think it's fair to roughly say that ~50% of YC companies come into their YC batch with an idea (or pivot)


From idea to Seed in 3 months??? Who needs Pre-seed anyways.

Talk about accelerating! (accelerator joke)

In conclusion👇

The argument to be made about YC valuations it's not that their Seed valuations are unfair/high it's actually that most of the batch is really in the Pre-Seed phase raising at Seed valuations.

If you put it in that context you're actually paying ~100% premium.

But it still works.

It works because:

• 39% of YC companies have raised a Series A

• 18% of YC companies are valued at $100M+

• 4% of YC companies have become billion dollar companies

Meanwhile on AngelList (to compare)...

"According to AngelList data, a venture-backed seed-stage startup has an estimated 1 in 40 shot—or 2.5% chance—of becoming a unicorn today."

So this would suggest that a YC Startup is 1.6x more likely (4%➗2.5%) to become a unicorn.

Reliable Seed to Series A matriculation stats are hard to come by (if you have some please share), but a quick google search surfaces a range of about 20% to 40% success rate.

40% seems high post bull run, but even then YC would be in lockstep with "normal" Seed-to-A expectations.

Ultimately the YC magic seems to boil down to two things:

1. They enable founders to reliably skip from idea to Seed.

2. YC founders are 1.6x more likely to be unicorns than avg.

Therefore, the MFN drama was dumb and I plan to keep investing in YC batches aggressively 🤓

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