In 2024, many Y Combinator startups only want tiny seed rounds — but there’s a catch

YC startups favor smaller seed rounds, challenging traditional VC funding expectations.

: In 2024, many Y Combinator startups are opting for smaller seed rounds, typically between $1.5 to $2 million, with less equity dilution, often bypassing traditional institutional investors. This shift reflects both the influence of higher initial valuations and YC's encouragement to minimize fundraising early on. However, this strategy could lead to challenges in raising further funds without committed lead investors, potentially impacting future growth.

Many 2024 Y Combinator startups are raising smaller seed rounds, giving up approximately 10% equity for rounds of $1.5 to $2 million, a dynamic partially driven by YC's increased funding of $500,000 as part of their standard deal. These startups, compared to their counterparts outside of YC, are seeking higher valuations which persists even amidst a tougher funding environment that devalues past YC cohorts' inflated valuations.

Startups not pursuing traditional seed investors who typically seek around 20% equity risk facing capital shortages for future growth, especially without a lead investor who can facilitate additional fundraising. This change in funding strategy is leading many to reconsider the traditional role of institutional investors in early-stage startups, and some may face difficulties in meeting the expectations of Series A investors without sufficient capital or guidance from a significant institutional partner.

While YC promotes raising just enough capital to grow and sustains a belief in minimal early dilution, the approach is contributing to an evolving seed funding environment where startups and investors alike must adapt strategies. YC president Garry Tan emphasizes that survival and success rely primarily on creating products people want, not the prominence of investors, suggesting a shift towards performance over pedigree in startup cultures.