Y Combinator Matures: 1/4 of Startups Funded Before They Finish the Program

When I think Y Combinator, I think a couple of scrappy college dropout co-founders for whom living on ramen is more than proverbial and coding is life. They pitch an idea, come out to California, drink in some startupy goodness and maybe make something of it.

But that incubator model, now five years old and widely replicated, is changing. At today’s Demo Day, Y Combinator’s “here’s what I did with my three months” set of presentations given to a group mainly composed of angel investors, a quarter of the 26 participating companies already had funding in the bank in addition to what Y Combinator gave them, said co-founder Jessica Livingston.

Others in the group have funding committed in the form of term sheets, to the point where some were turning away investors. One, Cardpool, which Om recently profiled, declined to give out growth stats out of a stated concern that they would be too impressive and encourage competition. “We’re just about to close our round and we’re massively oversubscribed,” said the company’s presenter. Some angel investors grumbled to me that they felt left out of the party, having not had a chance to get their hands on the startups before today.

There were also quite a few Y Combinator presenters in Mountain View today who looked nothing like scrappy college dropouts. One, James Felix Black of video playlist creator Nowmov, was a former senior video software engineer for the iTunes Store at Apple, and owned up to being 38 and having a life of his own in San Francisco. Others ran through credentials like making BusinessWeek’s Top 25 Entrepreneurs Under 25 list or leading a part of the Obama campaign’s tech team. CHROMAom, a site devoted to color, said it gets 6.5 million page views a month, is profitable, and has been a Webby award nominee for best community on the web for the past three years running.

Zencoder, another presenting startup, powers cloud-based video encoding for On2, which was recently bought by Google (s GOOG). That’s a pretty huge hookup to have, especially on the eve of Google presumably releasing an open-source video codec to compete with H.264 and make HTML 5 video viable. So why did 2-year-old Zencoder join Y Combinator, I asked co-founder Brandon Arbini. He said because he’s from Madison, WI, and his co-founders are spread around the country. They did Y Combinator for the introductions to the Silicon Valley technology scene.

Nowmov’s Black said the same thing, gesturing to the nearby swarm of investors including Ron Conway and Ashton Kutcher. And there will be two more encore Demo Day sessions for additional investors tomorrow. Maybe it’s increasing confidence in the economy, maybe it’s that effervescent Silicon Valley frothiness, maybe it’s just that Y Combinator has had a nice string of exits like reMail and AppJet. Livingston said that one thing Y Combinator had done differently with this session versus others before it was to match companies with angel advisors for regular check-ins. Those relationships may not have become direct investments but often resulted in introductions to other investors.

But if you looked hard enough today you could still find an iconic young founder living by the seat of his pants. Daniel Gross, an 18-year-old Israeli, presented Greplin, a unified search engine for users’ personal data and communications stored in the cloud. Multiple investors told me they thought it was one of the most promising ideas they heard. But as was whispered by his cohorts at the reception after the presentations, Gross admitted to me that he was working on a completely different project until all of three days ago (I loved his crossed-out name tag, pictured above). He switched ideas, honed his pitch, is counting the positive response today as market research, and will now gun for an angel round. A web app should be ready by next week, he said.