Y Combinator To Shrink Investments In 2013

It seems like new tech startups are popping up every day. One day everyone’s on Instagram, the next, they’re on Snapchat or AirBNB. As consumers, we couldn’t be happier with the situation. New innovation is great! It gives us more tools and services to make our lives easier or more entertaining.

Like most companies, tech startups come about through a lot of work, some luck, and venture capital. Every business needs investors, and tech companies are no exception. There are a number of venture firms in the industry, among the most famous are A16Z, Sequoia Capital, Google Ventures, and Y Combinator.

Y Combinator, which gets a lot of attention through its social media site, Hacker News, takes on a class of new startups twice a year to fund and coach. In the last round of funding, it invested $150,000 into 84 companies. For winter 2013, as its founder Paul Graham announced, it will only take on 50 companies and each startup will only receive $80,000. While an investment of that size is still nothing to sneeze at, it begs the question: what’s going on?

Graham revealed two responses that don’t explain much:

For whatever reason, the larger amount of funding had previously caused animosity between companies. The nature of the issue is still relatively unknown, but he said:

“The new version involves less money and more engagement. The VCs will invest $80k in each startup instead of $150k, and we’ll organize sessions of office hours in which partners from the VC firms advise the startups in each batch.”

As for the smaller investment class, Graham stated:

“The reason we accepted fewer applications was that in summer 2012 we grew too fast. We had 66 companies in winter 2012, and that was fine, but for some reason more things than usual broke when we jumped from 66 to 84.”

There is no explanation as to what “broke” but clearly something wasn’t working.

I’ve been speculating for a while now that we would start seeing things like this. I’ve even gone so far as to call this another tech bubble. My predictions may be exaggerated or even premature, but one thing is clear: news like this from Y Combinator is not good news for tech startups.