On the Y Combinator “premium” (2022 update)

One of the most common complaints I hear amongst Y Combinator startup investors is their sky-high valuations. It’s not uncommon for YC startups to raise capital at 2-3 times the valuation of their non-YC peers at a similar stage, which begs the question “Are they really worth it?”

Since at Rebel Fund we invest exclusively into Y Combinator-backed startups and founders, this question cuts to the very core of our investment thesis, so we try to answer it as objectively and accurately as possible. The purpose of this post is to share some of our findings.

I wrote a previous post On the Y Combinator “premium” in 2018 and this post is essentially an update. Since Rebel has built the most comprehensive database that exists of YC startups and founders outside of YC itself, we’re now able to take a simpler and more direct approach to addressing this question than I could a few years ago, but the answer is the same: YC startups are definitely worth the premium.

The chart below shows the average valuation growth¹ of YC startups by batch year since 2012. If we assume an average $15M seed-stage valuation for YC companies from 2013–2017, startups in these vintages² have achieved a 20x average gross valuation growth³ from seed-stage to present.

For context, the median gross return multiple for a 500+ startup portfolio is only about ~3x (see A Tale of Two Squirrels). So, while YC startups may cost 2-3 times as much as their non-YC peers to investors, they’re worth 6–7 times as much in terms of expected investor returns. So yes, they’re worth the premium.

¹We don’t know the latest valuation of all YC startups, but can accurately estimate the valuation of all the companies on YC’s published Top Companies list (see On 101 Y Combinator Unicorns) which drive the vast majority of all YC startup value. We assume a 1x valuation growth multiple for the other YC companies, essentially assuming that non-Top Companies valuation growth and losses cancel each other out, which is a conservative assumption

²We looked at the 2013–2017 vintages for this analysis because they’re old enough to be fairly mature, yet young enough to reflect the YC program in its current incarnation

³Yes, this means a theoretical YC startup “index” would have achieved a 20x gross return over this time period (excluding dilution, fees and expenses). However, since 1) no such index exists and 2) a small minority of YC startups account for the overwhelming majority of the valuation growth, to actually achieve such returns, an investor must be very good at startup selection and access