My Previous Post: How YC Became The Dominant Accelerator and Why all VCs Are Trying to Copy prompted a lot of great questions from readers, and I wanted to give some of the questions I was asked some additional thought:

Question: I would be curious to hear your thoughts on whether the gold-rush towards accelerator model is just to copy YC's success, or is part of a general re-orientation towards early stage rounds as the highest-performing investments when compared to growth rounds. Eager to learn more!

Answer:

I believe most VCs have different reasons for doing this.

There are two things happening:

When times take a turn for the worse, the common reaction is to focus inward. No new deals, and invest more money to carry the deals the fund has previously done. So most larger funds have decided to take larger dollar amounts to carry their previous investments farther, rather than invest in new deals. The accelerator gives those funds a clever opportunity to get new deals at a lower cost in order to find new “winners” to double down on.
The quick answer to your question is “yes,” everyone wants to experiment with YC’s success. For some reason, most people feel now is the time, driven by the harder fundraising market.

Question: Other people had come up with convertible equity. Why are you giving “orginal creator” status to YCombinator?

Answer:

I feel fairly safe in stating that YC was the creator and inventor of the YC SAFE.

The concept of convertible equity wasn't the valuable part of it. The valuable part of it was standardization across the entire VC industry. Which at that time, only YCombinator could do.

There had been similar structures attempted previously, but YCombinator had an incredible blend of “Great distribution” and “Founder Friendly” that allowed the shift from convertible notes to SAFEs to happen. The true benefit of the document was to not have any debt for the startups, which is a net good thing I think.

Question: Why did investments go from $15k to $500k, it seems like a huge leap in valuation?

Answer:

It is a huge jump in valuation. I wrote a blog post on this last year, when they announced their $500k investment shift… and this happened a few months after we changed the deal at Boost VC to $500k.

To answer the question directly, $500k is better for the startup. You end up enabling each team with enough money to last longer for a similar piece of equity. YC historically has done a great job focusing on what the startup founder needs and scaling it.

*Originally published on Adam’s Substack - https://www.adamdraper.vc/

Q&A: How YC Became the Dominant Accelerator