YC President Geoff Ralston says he isn't worried about the competition.
There are two things that I disagree with in this post, just as an N of 1 --
"Venture firms are expected to help out the company for as long as the company exists and certainly for the first couple of years. YC meanwhile promises intense instruction for a few months and then leans on the broader network to support its portfolio companies."
I have found YC's ongoing value-add, post YC, to be higher than many or even most venture investors, and I think most YC founders you speak with would say the same.
"As a startup founder, why go to YC when you can raise a funding round directly at more favorable terms? YC would argue that it provides advice and connections that a traditional investor simply can’t match — but it’s far less flexible on deal terms."
It's a huge mistake to do YC for the $125k you get from them -- math doesn't add up, as you say. The biggest reason to do YC IMHO is not financial -- it's the rigor of the 3 month program and the urgency it creates within your company. I truly believe that's the biggest value of the program -- but, most ppl, having not experienced it, will not believe that.
If you want to look at it financially, everyone is going to raise on better terms, post-YC, having been in YC, than they would have on their own. I don't care who you are or how connected you are -- you will have a better fundraising outcome if you do YC than if you did not do it, and that effect persists IMHO beyond seed rounds to series A, B, until you get into real late-stage financing territory. The really interesting thing about this is that, effectively, all the *other* investors in sillicon valley are subsidizing YC's business model. You aren't giving YC 7% b/c of the $125k they give you. It's b/c of the millions more dollars you'll raise from other investors, for the same dilution, because you went through YC.
When I went through YC the second time with Rippling, I could have raised seed financing on my own. In fact, early in the program, I raised ~ $7mm in seed financing on what were then considered great terms, mostly from investors in my previous co. That would have happened without YC, if I hadn't done the program. But *then,* what most ppl don't know, is that immediately after that seed round, I was able to raise *another* $10mm in seed financing, uncapped, at a discount to the next round price, for a total seed raise of $17mm. Uncapped financing is an incredible deal for the company (and in this case, at least so far, it ended up being a great deal for the investors as well). But there is *no way* I would have been able to do that without YC....