Y Combinator will now invest $500,000 in accelerator companies

Startup accelerator Y Combinator announced this morning that it has updated its terms, providing participating companies with more total cash. The group will now invest $500,000 in batch startups.

The money comes in two different forms. The first is the well-known Y Combinator equity deal, worth $125,000 for 7% of accelerated startups. The group will now also offer $375,000 in the form of an uncapped SAFE note — a simple agreement for future equity — with a “most favored nation” clause.

Uncapped means that there is no defined maximum price at which the $375,000 SAFE will convert to shares, while the “most favored nation” language ensures that Y Combinator gets as good a deal as anyone else in a later conversion.

That Y Combinator is now offering more capital to startups is not surprising; indeed, that it took this long for the group to update its terms is the bigger surprise. Still, a half-million dollars is much more in keeping with where the pre-seed and seed-stage investing markets have headed in recent years, namely to larger dollar amounts at higher prices.

The updated terms do not mean that the accelerator itself will have any less preserved upside in portfolio companies. In fact, you could argue that Y Combinator’s updated terms are defensive in that it is offering more capital in addition, but not in place of, its traditional equity stake in companies that pass through its doors. So the accelerator may be better able to attract the best early-stage startups with larger checks, even as it puts its initial equity investment to work at a price point that has proven historically lucrative.

As an institution, Y Combinator has been updating itself as the startup market has evolved. From a focus on in-person work, YC went remote during the pandemic. The result of that switch was more participating startups from other countries and markets, by TechCrunch reckoning. The group has also moved to remote demo days, something that we’ve appreciated here at TechCrunch as we no longer have to drive down from San Francisco to a large room with too few chairs.

It will be interesting to see how rival accelerators react, if at all, to Y Combinator’s updated terms set.