YC's Move to 4 Batches is a Win for Founders
Last week, the world’s top accelerator, Y Combinator, announced that it is doubling the number of cohorts it runs each year — from two to four:
As with any move YC makes, this one was immediately scrutinized across the tech industry. It’s bold! It’s absurd! It’s good! It’s bad! Not to mention this beauty:
Uh…sure…
So what’s behind the move and why is it good for founders?
How Accelerators Work
Let’s start with how accelerators work.
Back in its heyday, I was a Venture Partner/EIR at 500 Startups and helped run its flagship San Francisco accelerator. Over the years, I’ve spent a lot of time working with accelerators around the world. All accelerators operate with a very similar, batch-driven schedule:
Pre-Marketing (activities to promote the upcoming batch)
Review Applications (after applications open, review and filter them to determine who gets interviews)
Interviews and Company Selection
Legal and Administrative (diligence, funding, etc.)
The Batch!
Demo Day
Rinse-and-Repeat
For founders and the public at large, the batch and demo day are the two most visible aspects of an accelerator. But the activities that surround each batch actually take far more effort than running the batch itself. Believe it or not, the majority of accelerators have more behind-the-scenes staff handling administrative and other activities than they do personnel who directly interact with founders (and that’s without higher-level responsibilities like fundraising, investor relations, HR, etc.).
Why More Batches is Better for Founders
A key aspect of Y Combinator’s announcement is that it is not increasing the number of companies it invests in each year:
“…the total number of startups going through the program each year will hold steady at about 500…”
In other words, by doubling the number of batches, YC is effectively decreasing the cohort size by 50% (from ~250 companies per batch to ~125).
This is likely to be a significant improvement for founders for the same reason that we benefit from smaller class sizes at other types of schools:
A smaller class size means a higher “teacher-to-student” ratio (which leads to better results)
A smaller class size increases the connectivity between the students
(This latter point is particularly significant for startup accelerators, where peer pressure amongst founders has a significant impact on company performance during the batch and, ultimately, fund returns.)
The shift to smaller cohorts should enable YC to provide more hands-on guidance to each company (including more opportunities for founders to benefit from partners other than their lead), while giving founders the opportunity to get to know more of their batchmates.
Why More Batches is Better for YC
It shouldn’t surprise you that Y Combinator isn’t doing this purely out of the goodness of their hearts.
There are at least two significant reasons why more batches with fewer participants makes sense from YC’s perspective:
1. Fewer “Misses”
Investor-company fit is an important thing. Accelerator-company fit even more so.
If a company joins an accelerator too early, it might not be ready to fully reap the benefits of the program. It might even distract the founders to such an extent as to be detrimental to the company (which is definitely not good from an investor’s perspective). As a result, it is incredibly common for startups to be rejected by an accelerator not because the investors don’t like the company or founders, but because they know it’s too early for their program.
However, anytime you reject a company, there’s the risk that you’ll lose the opportunity to invest in them entirely.
Founders who are rejected by an accelerator don’t sit around waiting for the next application to open. They’re marching forward, making progress and, in many cases, securing investment elsewhere. Once you’ve got a couple million dollars in the bank, it’s hard to justify giving up 7% (+ MFN) to join an accelerator.
By running programs all year long, YC can ensure that the time between applications is only 2-3 months, increasing the likelihood that the founders that they like but who are too early will re-apply before they raise another round.
2. Reducing Demo Day Fatigue
To say that Y Combinator’s recent demo days have been a marathon would be an understatement.
A packed room for YC’s demo day
When I was at 500, we got feedback from investors that it was challenging for them to stay focused with 30 - 40 pitches in one day. To genuinely pay attention to ~250 pitches over two days takes serious dedication. By the time you hear the 13th pitch of a company that started as X but pivoted mid-batch into an AI-powered Y (or whatever the current trend is), it’s sincerely hard to keep track.
An inability of demo day attendees to focus on all of the presenting companies has real implications for an accelerator, including:
A decrease in the average number of investor meetings per company (which has significant implications for the long tail of companies in each batch)
Fewer companies who get press coverage
Less compelling press coverage for those who do get it
Ensuring that the batch size remains “digestible” by both investors and the media is very much in YC’s best interests.
Why Doesn’t Every Accelerator Run Year-Round?
If running year-round batches is such an obvious win for both accelerators and founders, why doesn’t every accelerator do it?
It goes back to my earlier overview of how accelerators work. Each batch takes a lot of effort to run and requires significant administrative resources (both human and financial). Replacing one accelerator batch of X companies with two batches of X/2 startups is costly.
If you only run one or two batches a year, you have plenty of time to market, source companies, evaluate potential investments and deliver programming. After each batch, staff has time to decompress and debrief. Scheduling vacations is easy (seriously).
When you run three or four programs each year, suddenly you start to get overlap. Partners have to juggle working with companies in-batch and interviewing founders for the next batch. Vacations have to be scheduled more carefully. Administrative roles — like finance, legal and HR — need to be staffed up. When 500 Startups moved to 4 batches per year, it staffed up 2 full teams to support accelerator batches (alternating between locations in San Francisco and Mountain View).
So when Garry Tan says that, “…all the YC partners worked with me very closely to make this happen…,” he means it. This was likely not an easy decision.
The Bottom Line
Y Combinator doubling the number of batches while reducing the cohort size is a clear win for founders. It provides them with more frequent opportunities to apply to the world’s leading accelerator and a better experience when they are accepted.
It’s also sure to be a win for YC (though likely one that will include a few growing pains along the way).
The only ones who it’s not good news for? Early-stage investors competing for founder mindshare.
…wait. That’s me. 🤦♂️