What is the effect of this on Demo Day? Is Demo Day less relevant (since lean companies might just skip it)? Isn't the Demo Day a motivational deadline that adds value to the YC experience, so it reduces the weight of the "acceleration" part of the program?
I don't know those answers, just wondering in the hope that someone from YC comments on that.
Most companies in YC these days raise over $1M at demo day, so no, I don't think many companies are likely to skip demo day as a result of this.
Our goal instead is to make companies more successful at demo day. Now they'll have more capital to use to grow during the batch, and they'll have more leverage to negotiate with demo day investors because they are better capitalized going into their fundraise.
Founders will sometimes say "if I can't build this company with no more than a million dollars, it's not worth building it at all." In isolation, that thinking may not be wrong, since it highlights the importance of frugality and the product market fit. But in connection with the easiest influx of capital you will ever experience in the lifecycle of your company, paired with valuations that are super high on a risk-adjusted basis, it would be insane not to say yes to a war chest of a few million dollars that you put away for the rainy day.
So no, I don't think that YC companies will raise any less, or will be any less concerned about being ready for Demo Day. The one thing that might happen is that the earliest investors will see a hike in valuations. In the past, investors with the strongest value add (reputation/brand/connections/etc) were able to get in a few weeks before Demo Day at a discount. Since Demo Day investments are characterized by a very weak signal-to-noise ratio, knowing that a reputable investor is bullish on a startup tends to increase the demand to such an extend that the resulting higher valuation more than makes up for that initial discount.
Now that this additional $500k is going to be valued against the lowest valuation, it will increase the barrier for giving discounted deals.
> Founders will sometimes say "if I can't build this company with no more than a million dollars, it's not worth building it at all."
I feel like this became such a big meme, that it actually hurt innovation. With lots of founders (me included) adopting the "Lean Startup" mindset, it's much easier to build a "single-feature company" that does something slightly mundane, then get acquired/acquihired because what you're doing is just so easy to reproduce. In my mind, that explains why most Unicorns these days are stuff like debit cards for companies, yet another task manager or note taking app, etc.
tl;dr I think true innovation requires [capital & research & time], and feel like we've replaced that pyramid with [quick iteration & extreme scrappiness & failing fast], maybe a bit too much.
I don’t think this has any real impact on Demo Day. Seed rounds have inflated so dramatically at this point that $500k is just a drop in the bucket. Most venture scale companies (which if you’re in YC you most likely are) are raising $3-$5m seed, and then $10-$20m Series A. Of course, this is pushing valuations to astronomical levels.
I don't know those answers, just wondering in the hope that someone from YC comments on that.