I've attended dozens of YC and non-YC demo days as an investor. I can vouch for the grandparent's comment. YC companies have valuations that are 1.5-2.5x higher than elsewhere, but (in my opinion) have outcomes that are 3x+ larger on average. So they are expensive investments on the surface, but still relatively great deals.
As a complete outsider who has never raised money or set foot in the valley my feeling is that without data this sounds like some sort of buddy-buddy system. Where's the data to back this up?
Basically the way I read this is if I have a business model that is likely to require a series A eventually (i.e. not profit oriented) if I won't apply to YC I'm setting myself up for a massively worse deal later?
1) I have anecdata about returns: my first fund wrapped up earlier this year. About 30% of our investments were in YC companies. Based on investment multiples, 3 of the top 6 companies in the portfolio were YC. This is based on multiples, not absolute valuations.
2) Investors are strongly incentivized to be greedy, so buddy-buddy systems are not in their self-interest. Most funds take a 20% cut of the profits they generate, so they are typically investing in YC companies only if they think those returns will be as good as lower-valued non-YC companies
3) FWIW, the valuations are only substantially higher for YC, and not for other accelerators (many of which are quite good). I think that is also evidence against a buddy-buddy conspiracy.
As to your question about Series As, I don't think YC has a huge effect on Series A valuations, although I haven't looked at the data there. The effect is mostly on seed valuations. I think of the YC badge as similar to a going to Harvard. When it comes to getting your first job (seed round), having a Harvard diploma is a great signal of your potential and might get you a higher starting salary. When it comes to future jobs (Series A and later), people will look more at what you've done since graduating than where you went to school.
Well, it could be the case that companies that get into YC are already "good enough" to already have higher valuations in the first place.
I suspect there's a bit of groupthink involved though, creating a feedback loop. (Well, of course there is, VC investment decisions and valuations are based on signaling from other investors!)
So, building your company, maybe not massively worse, but yes, probably at least somewhat worse. It's a tough Valley out there.
