Y Combinator gets a $2M shot in the arm from Sequoia, angels

Seed-stage venture firm Y Combinator is branching out in its funding strategy today, raising about $2 million from Sequoia Capital and a handful of angel investors. Previously, the firm was funded solely by founders Paul Graham, Robert Morris, Jessica Livingston and Trevor Blackwell.

The money from Sequoia will be funneled into a new investment arm of Y Combinator, which will increase the number of companies it can fund each year from 40 to about 60. With an average investment of $15,000 in each startup, the $2 million should sustain the firm for the next two years. In the past, it gave out funds in mostly $5,000 chunks in exchange for six percent in equity. Aside from upping the amount and number of portfolio companies, the new funds won’t change how Y Combinator does business, the firm says.

Y Combinator’s expansion sounds like good news for the tech community at large. It’s done a particularly good job of calling winners early since it started in 2005, including Reddit, ClickPass, Xobni, Backtype and Auctomatic. And several of its investments have already been acquired by big fish, like Zenter (by Google) and Omnisio (by YouTube). Of course, leaving the starting gate with Y Combinator’s stamp of approval gives even idea-stage companies a major boost. In addition to funds, they also get guidance from the firm’s advising team and more opportunities to pitch angel investors and VCs on demo days hosted twice a year.

Partner Greg McAdoo led the investment from Sequoia, and the angels who chipped in were Ron Conway (the anointed “Godfather of Silicon Valley“), FriendFeed co-founder Paul Buchheit and Felicis Ventures founder Aydin Senkut. The incubator has backed 118 startups to date. Its current class includes recognizable names like Loopt, Scribd, Clustrix, Dropbox, Disqus, OMGPOP, Justin.TV, Heroku, Posterous, ZumoDrive and more.