Summary:

Y Combinator will be scaling back the size and funding for startups this winter, reducing the class size to less than 50, down from 84 funded companies that launched at this summer’s demo day. YC’s Paul Graham said they’re continually tweaking the recipe for success.

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Y Combinator, which launched more than 80 startups at its demo day this summer, is taking a step back with this winter’s class in both funding and size. The famed Silicon Valley incubator has accepted fewer than 50 startups for the winter 2013 class, down dramatically from the 84 of this summer, because “we grew too fast,” YC co-founder and leader Paul Graham wrote in a blog post Sunday. The change will likely lower already minuscule admission rates, and represents an interesting scale back by what is arguably the most-watched incubator around.

On Monday, Y Combinator announced that it would be restructuring how the startups in each class are funded, dropping the amount of funding for each startup from $150,000 to $80,000. The change was primarily to cut back on founder disagreements if the founders part ways, and to more accurately fit the needs of early-stage startups, Graham wrote in a post.

Graham wrote in his blog post Sunday that they’re always tweaking the recipe for success and found that the jump from 66 startups in winter 2012 to 84 this summer was too great. He said they worked to identify factors of success in some of their most promising investments in the past, and then identify those traits among applicants for the winter:

The reason we accepted fewer applications was that in summer 2012 we grew too fast. We had 66 companies in winter 2012, and that was fine, but for some reason more things than usual broke when we jumped from 66 to 84.

Things are always breaking at YC, because our strategy is to find bottlenecks by hitting them. That may sound irresponsible, but in practice it’s the way most complex systems get optimized.

Plenty of people have complained that YC has become too large in recent years, a change detailed in Randal Stross’s book about the group, so it will be interesting to see if a return to smaller class sizes and less funding will change the incubator’s recipe for success.

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