Y Combinator

Based on Wikipedia: Y Combinator

In the summer of 2005, something strange happened in the world of technology funding. Instead of the usual ritual—entrepreneurs in suits pitching to gray-haired venture capitalists in glass-walled conference rooms—a programmer named Paul Graham invited a bunch of college-age hackers to Cambridge, Massachusetts, handed them small checks, and told them to build something people want.

That was the first batch of Y Combinator. Twenty years later, the companies that have passed through this program read like a list of the services that now structure daily life: Airbnb for travel, DoorDash for food delivery, Stripe for online payments, Dropbox for file storage, Reddit for internet culture, Twitch for live streaming, Coinbase for cryptocurrency. The combined valuation of Y Combinator companies now exceeds six hundred billion dollars.

How did a small experiment become the most influential institution in startup culture?

The Founding Insight

Y Combinator's name comes from a concept in computer science—a fixed-point combinator that allows anonymous functions to call themselves recursively. It's the kind of clever, nerdy reference that signals exactly who this organization was built for: hackers who happened to want to start companies, not businesspeople who happened to need technology.

Paul Graham, the most visible founder, had already made money in the first dot-com boom by selling his company to Yahoo. But he's primarily an essayist, someone who thinks in public through long-form writing. His essays on startups, programming languages, and contrarian thinking built an audience of ambitious technical people years before Y Combinator existed.

What's often overlooked in the origin story is Jessica Livingston's role. She co-founded Y Combinator alongside Graham, Robert Tappan Morris (famous for creating the first internet worm in 1988), and Trevor Blackwell (a robotics expert). Livingston ran the day-to-day operations and, crucially, helped select which founders to accept. Her instinct for character proved essential—she could spot which twenty-two-year-olds would actually follow through on ambitious plans.

The original model was simple, almost comically so. Give founders a small amount of money—enough to live on for three months but not enough to get comfortable. Put them all in the same physical space so they can learn from each other. Connect them with people who've done it before. Then, at the end, parade them in front of investors.

This last part, Demo Day, would become legendary in Silicon Valley. Twice a year, hundreds of investors crowd into an auditorium to watch back-to-back startup pitches. The founders have exactly two and a half minutes each. The competition for attention is fierce, and the stakes are high—the money raised on and immediately after Demo Day often determines whether a company survives.

The Mechanics of Making Startups

To understand Y Combinator, you need to understand what it actually does with the companies it accepts.

The program now runs four batches per year. Each company receives five hundred thousand dollars in funding. This breaks down into two parts: one hundred twenty-five thousand dollars in exchange for seven percent of the company, and three hundred seventy-five thousand dollars as what's called an uncapped SAFE with a most favored nation clause.

Let me translate that financial jargon.

A SAFE—Simple Agreement for Future Equity—is a document that says "I'm giving you money now, and later, when you raise a proper funding round, this money converts into ownership shares." The "uncapped" part means there's no ceiling on your company's valuation when that conversion happens. The "most favored nation" clause means that if you give better terms to any other investor before that conversion, Y Combinator automatically gets those better terms too.

For non-profit organizations, the deal is simpler: a one hundred thousand dollar donation with no ownership stakes involved.

During the program, founders participate in what Y Combinator calls "office hours"—regular one-on-one meetings with partners who've either built successful companies themselves or spent years coaching those who have. There are also weekly dinners where successful entrepreneurs, venture capitalists, and other figures from the startup world share advice and war stories.

The curriculum focuses on a small number of things that matter enormously. How do you figure out what people actually want? How do you get your first customers? How do you know when you've found product-market fit—that magical moment when demand for what you're building starts to pull you along rather than requiring you to push? How do you hire people when you can't afford to pay market salaries?

None of this is revolutionary knowledge. Most of it could be found in blog posts. What Y Combinator provides is the combination of money, community, and credibility. Being "a Y Combinator company" opens doors that would otherwise remain shut.

The Growth Years

Y Combinator initially ran two programs simultaneously—one in Cambridge, Massachusetts, and one in Mountain View, California. This proved unwieldy. In January 2009, the Cambridge program closed, and everything consolidated in Silicon Valley.

That same year, Sequoia Capital—one of the most storied venture capital firms, with early investments in Apple, Google, and Cisco—put two million dollars into Y Combinator itself. This wasn't an investment in any particular startup but in the organization's ability to find and cultivate startups. A year later, Sequoia added another eight and a quarter million.

The logic was compelling. Y Combinator was becoming a filter, sorting through thousands of applications to find the most promising founders. For a venture capital firm, having a close relationship with that filter meant early access to the best deals.

In 2011, an even stranger arrangement emerged. Yuri Milner, a Russian billionaire investor, and SV Angel offered every single Y Combinator company a one hundred fifty thousand dollar convertible note investment—no questions asked, automatic, for anyone who wanted it. This was later adjusted to eighty thousand dollars when the program was renewed, but the principle remained remarkable: investors were essentially paying for the right to be in every Y Combinator company, treating the batch itself as a diversified portfolio.

The Altman Era

Sam Altman's trajectory through Y Combinator tells you something about how the organization identifies talent. He went through the program as a founder in its very first batch in 2005, when he was nineteen years old. His company, Loopt, a location-based social networking app, wasn't a runaway success, but Altman himself clearly was.

In 2014, Paul Graham appointed Altman as Y Combinator's president. It was an unusual move—picking someone whose startup hadn't become huge to run an organization devoted to creating huge startups. But Graham's bet was on the person, not the track record.

Under Altman, Y Combinator became more ambitious and more global. In 2016, partners visited eleven countries—Nigeria, Denmark, Portugal, Sweden, Germany, Russia, Argentina, Chile, Mexico, Israel, and India—meeting with founders and studying local startup scenes. The goal was both to recruit internationally and to understand how entrepreneurship worked differently around the world.

Altman also introduced Y Combinator to non-profits. Starting in 2013 with Watsi, a crowdfunding platform for healthcare, the program began accepting organizations that weren't designed to make their investors rich. This expanded to include Women Who Code, 80,000 Hours (a career advisory organization focused on social impact), and Our World in Data (a research publication on global development).

But perhaps Altman's most consequential move happened in 2015, when Y Combinator created YC Research. The first project it funded was something called OpenAI.

The OpenAI Connection

The history of artificial intelligence's current moment is inseparable from Y Combinator's influence. OpenAI launched in late 2015 as a non-profit research lab, initially funded in part through YC Research, with Altman deeply involved. When Altman stepped back from running Y Combinator in 2016, he returned as a founder working on OpenAI.

The parallels between Y Combinator's philosophy and OpenAI's early culture are striking. Both organizations bet on giving talented people resources and freedom rather than micromanaging their work. Both operated with the conviction that small teams could achieve outsized results if pointed at the right problems. Both cultivated a sense of mission that attracted people willing to work extraordinarily hard.

YC Research also funded other ambitious projects. One studied basic income—the idea of giving people unconditional cash payments. Another researched new approaches to city building. A project called HARC, the Human Advancement Research Community, explored software visualization and new programming paradigms. Inspired by a conversation between Altman and computing pioneer Alan Kay, HARC included Kay himself along with interface designer Bret Victor and mathematician Vi Hart.

Most of these projects eventually wound down or spun out. HARC shut down in 2017. YC Research disaffiliated from Y Combinator entirely in 2020, rebranding as Open Research. But the impulse they represented—using Y Combinator's resources to fund fundamental research with unclear commercial applications—showed how the organization's ambitions had grown beyond just launching startups.

Growing Pains

Not everything Y Combinator touched succeeded.

In 2018, the organization attempted to expand into China, appointing Qi Lu—a former CEO of both Bing and Baidu—to run YC China. Within months, the initiative collapsed. The official explanation cited operational difficulties, but the timing coincided with rising tensions between the United States and China over technology competition. YC China later transformed into MiraclePlus, an independent accelerator with Lu still leading it, but the Y Combinator brand was gone.

That same year produced one of the more embarrassing episodes in Y Combinator's history. After accepting applications for Startup School, an online program for early-stage founders, a software bug sent acceptance emails to all fifteen thousand applicants. Hours later, those same founders received rejections.

The outcry was significant. Telling fifteen thousand people they were accepted, then telling them they weren't, created both practical problems (some had made decisions based on the acceptance) and emotional ones (the experience of having something given and then taken away). Y Combinator's response was to accept all fifteen thousand companies into the program anyway—an expensive way to fix a technical mistake, but one that preserved the organization's reputation for treating founders fairly.

The Pandemic Pivot

When COVID-19 made in-person gatherings impossible in early 2020, Y Combinator faced an existential question. So much of its value came from putting founders in the same room together—the hallway conversations, the informal dinners, the serendipitous connections. Could that magic transfer to video calls?

The summer 2020 batch ran entirely online. By most accounts, it worked better than expected. Founders could participate from anywhere in the world without relocating to San Francisco. The scheduled components of the program—office hours, speaker sessions—translated reasonably well to remote formats. What was lost was harder to measure: the spontaneous collaborations, the support networks formed over late-night coding sessions, the sense of shared struggle.

The experience accelerated Y Combinator's thinking about physical presence. The organization had been considering moving from Mountain View to San Francisco since 2019. In 2023, they finally did it, relocating headquarters to the city proper.

The Economics Today

Y Combinator's current financial terms reflect two decades of experimentation.

The five hundred thousand dollar investment—introduced in January 2022—is significantly larger than the original checks Graham wrote to the 2005 batch. Inflation accounts for some of this, but the bigger factor is competition. Other accelerators now exist, and founders have options. To attract the best companies, Y Combinator has had to offer more money.

The seven percent equity stake has remained relatively stable over the years, though the structure around it has evolved. Using SAFEs rather than traditional equity simplifies the legal process and defers valuation questions until later funding rounds. The most favored nation clause protects Y Combinator from being diluted more than subsequent investors.

Beyond the initial investment, Y Combinator operates several follow-on programs. The Series A Program helps companies raise their first major funding round after the accelerator. The YC Growth Program supports companies raising between twenty and one hundred million dollars for their Series B. For a while, a fund called YC Continuity made pro-rata investments in alumni companies—meaning Y Combinator could maintain its ownership percentage as companies raised more money. That fund was discontinued in 2023 when Garry Tan took over as president and CEO.

Leadership Transitions

Y Combinator has now had four presidents: Paul Graham, Sam Altman, Geoff Ralston, and Garry Tan.

Each transition reflected both the organization's evolution and broader shifts in Silicon Valley. Graham's departure in 2014 moved Y Combinator from its founding era into professionalization. Altman's partial departure in 2016 to focus on OpenAI foreshadowed AI's coming dominance of technology discourse. Ralston's tenure through 2022 covered the pandemic and the remote work revolution. Tan's arrival in 2023 brought a return to a more founder-centric leadership style—Tan himself had been a Y Combinator founder and later a venture capitalist at Initialized Capital.

The most recent major change came in March 2024, when Michael Seibel stepped down as managing director. Seibel, who joined Y Combinator in 2013 and led its core program for years, was one of the most visible figures associated with the organization. His departure marked the end of an era in which the people who had built Y Combinator's modern form still ran its daily operations.

What Y Combinator Actually Creates

Beyond individual companies, Y Combinator has created something more diffuse but perhaps more influential: a philosophy of how startups should work.

That philosophy emphasizes speed over polish. Build something quickly, get it to users, learn from their reactions, iterate. Don't spend months perfecting a product that nobody wants.

It emphasizes frugality. Raising too much money too early can be as dangerous as raising too little. High burn rates create pressure to grow faster than a business can sustain.

It emphasizes focus. Do one thing well before expanding. The companies that try to be everything at once usually end up being nothing.

And it emphasizes a certain kind of founder—technical, ambitious, slightly obsessive, willing to work on a problem far longer than seems reasonable. Y Combinator has never been a finishing school for MBAs. Its culture comes from hackers who happened to start companies, and it continues to select for that archetype.

Whether this philosophy produces the best companies, or merely a certain kind of company, remains an open question. The Y Combinator model works extraordinarily well for software startups targeting young, technically sophisticated users. Whether it works as well for hardware, regulated industries, or markets outside the English-speaking world is less clear.

The Hacker News Effect

Y Combinator also runs Hacker News, a link aggregation and discussion site that has become one of the most influential forums in technology. Originally created as a side project, Hacker News now functions as both a recruiting tool for Y Combinator and a cultural barometer for Silicon Valley.

The site's minimalist design—orange-tinted, text-based, almost aggressively plain—reflects the hacker aesthetic that Y Combinator cultivates. Its content skews toward programming, startups, and contrarian ideas. The comments sections, moderated with a light touch, often feature substantive debates between knowledgeable participants.

For companies going through Y Combinator, a front-page post on Hacker News can mean thousands of early users. For the broader technology industry, the site shapes which ideas get attention and which get ignored. This creates a feedback loop: Y Combinator's cultural preferences become the technology industry's cultural preferences, which then filter back into who applies to Y Combinator.

The Broader Ecosystem

Y Combinator is no longer alone in the accelerator business. Techstars, 500 Startups, Entrepreneurs Roundtable Accelerator, and dozens of other programs now offer similar services. Some focus on specific industries (healthcare, clean energy). Some focus on specific regions. Some focus on specific founder demographics.

Competition has forced Y Combinator to keep improving its offering—hence the rising investment amounts and the expansion into growth-stage support. But the network effects remain powerful. Being "a YC company" still carries more weight with investors than any alternative credential. The alumni network of over five thousand companies creates opportunities for collaboration, hiring, and customer acquisition that no competitor can match.

Whether this concentration of influence is good for innovation is debatable. On one hand, Y Combinator's quality control has helped prevent the startup world from devolving into pure speculation. On the other hand, its preferences—for software over hardware, for move-fast-and-break-things over careful deliberation, for certain personality types over others—may have narrowed what gets built.

Twenty Years On

In 2025, Y Combinator has invested in over five thousand companies. Some became giants. Most failed. A few became moderately successful businesses that never made headlines. This is the normal distribution of startup outcomes, concentrated and accelerated.

What Y Combinator has proven is that entrepreneurship can be systematized—not completely, but enough to improve the odds. By standardizing the early-stage funding process, by creating structured programs for founder development, by building a community that extends beyond any individual company, Y Combinator turned startup creation from an art into something closer to a craft.

The organization that began as four people in 2005, handing small checks to college students with ideas, now anchors an ecosystem that generates billions of dollars in value annually. Its founders are scattered—Graham writing essays in England, Livingston less visible publicly, Morris teaching at MIT, Blackwell building robots. The institution they created has become bigger than any of them.

That, perhaps, is the most Y Combinator outcome of all: building something that scales beyond its creators, that takes on a life of its own, that becomes so embedded in its industry that imagining the alternative requires real effort. They built a startup factory. And the factory works.