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How is YC doing financially?

YC is fine.

Also I note that this is not YC money that is being cut back. This is YC asking outside investors to give YC companies less money up front before they have proven themselves.

Very well. From last year: http://ycombinator.com/nums.html

The other thing to remember is that YC is growing. Even if YC isn't getting any better at this despite lots of experience, bigger team, etc., they're investing in larger batches (even the most recent decline to <50 is still bigger than until W11). So, assuming a constant distribution of AirBnBs and Dropboxes and Herokus and Cloudkicks and Wufoos, there should be a lot of great companies still in play. (I think Stripe is clearly one of those; Parse and Meteor may be others).

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