In Silicon Valley, the dream is to build a game-changing tech startup that revolutionizes industries and makes its founders billionaires. Many entrepreneurs chase this dream by applying to Y Combinator (YC), the prestigious startup accelerator that helped launch massive companies like Airbnb, Coinbase, and Stripe.

However, a recent deep dive into YC’s startup data has uncovered an unexpected trend: YC doesn’t always prioritize unique ideas. Instead, it frequently backs startups that are strikingly similar or even direct competitors to companies already in its network. From AI code editors to restaurant point-of-sale systems, the YC portfolio is filled with startups offering almost identical products, sparking an important question: Is competition really a bad thing?

The Surprising Truth About YC’s Investment Strategy

YC is known for helping launch world-changing startups, but what might surprise you is how many of those startups are building products that are far from original. Many YC-backed companies are duplicates or variations of previous YC graduates. They might target a new market, such as a different geography or a specific industry, but the core product is often very similar.

This pattern recently came under scrutiny during the controversy surrounding PearAI, a YC-backed startup offering an AI code editor. Critics argued that PearAI was simply a clone of Continue, another YC-backed company with a similar product. PearAI’s founder even admitted to the resemblance, and the backlash led the company to rethink its approach.

Despite the controversy, YC’s CEO Garry Tan defended the accelerator’s approach, emphasizing that having more choices for consumers is beneficial. Tan posted on X (formerly Twitter), saying, “People building is good. If you don’t like it, don’t use it.”

Why Does YC Back Competing Startups?

YC’s investment strategy revolves around people, not ideas. According to a YC spokesperson, the accelerator is more interested in founders with vision, resilience, and the ability to execute than in the uniqueness of the business idea itself. The focus is on identifying promising founders who have the potential to build transformative companies.

This approach has led to YC funding multiple companies with overlapping products. Bryan Onel, founder of security startup Oneleet, shared his thoughts on this practice. He believes that direct competition between YC startups is a good thing, especially when both companies share the same YC partner. Onel, who previously co-founded Tile, a company that took on Apple’s AirTags, argued that investors who work with competing companies have a deeper understanding of the market, which ultimately benefits all involved.

For some founders, competition breeds innovation and pushes them to refine their products and offer better solutions to customers.

How Common Is This Trend?

Research by Deckmatch, a data analysis startup, reveals that YC frequently accepts companies with similar products. Deckmatch analyzed YC’s nearly 5,000 startups and found several product categories where multiple startups are building nearly identical products. Here are some of the most common:

1. AI Code Editors

One of the biggest trends in recent years has been the rise of AI-powered code editors. Between 2022 and 2024, over a dozen AI code editor startups were accepted into YC, including PearAI, Continue, and others like Void and EasyCode. These startups are all competing in the same space, each trying to provide a better tool for software developers.

2. Restaurant Point-of-Sale Systems

The restaurant point-of-sale (PoS) system market has also attracted a lot of attention from YC, with startups like Avocado, Dripos, and Polo (a Latin American startup) entering the accelerator. These companies aim to streamline operations for restaurants, yet they all share the same basic goal of simplifying payment and order management.

3. Business Finance and Payroll Solutions

With the success of companies like Gusto and Rippling, YC has seen a surge of competitors targeting the business finance and payroll space. Newcomers such as Warp and Zeal are aiming to capture different international markets by offering similar solutions to these established giants.

4. AI Sales and CRM Tools

The AI-driven sales and customer relationship management (CRM) tools market is also booming. YC has backed companies like Apten, Persana AI, and Topo, all of which are trying to use artificial intelligence to help businesses improve customer engagement and sales processes.

5. AI Meeting Assistants

The rise of AI meeting assistants is another hot trend. YC has funded multiple startups, such as Circleback, Sonnet, and Spinach AI, that are working on automating meeting summaries, scheduling, and other tasks to improve productivity.

6. AI Legal Assistants

The legal industry isn’t left out either, with startups like Dioptra, Leya, and Tower building AI tools to assist lawyers with document review, case management, and legal research.

Which Sectors Have Seen Less Attention?

Some markets, once popular at YC, have recently cooled down. For example, the crypto trading platform space saw a lot of action following Coinbase’s success, but the number of new crypto-related YC startups has decreased since 2022. Similarly, e-commerce platforms and corporate expense cards have seen less interest after initial YC-backed success stories like Brex and Shopify.

Why It’s Not All Bad: The Power of YC’s Network

Despite the risks of competition, many YC alums believe that being surrounded by like-minded founders can be incredibly beneficial. Nick Evans, co-founder of Avocado, a restaurant PoS system, sees competition as an opportunity to push for innovation rather than an obstacle. After all, in the world of startups, success often comes down to execution rather than originality.

Evans’ previous success with Tile, which took on Apple’s AirTags and was later sold for $205 million, shows that competing in a crowded market doesn’t necessarily spell failure. As long as a startup can differentiate and execute well, competition can drive growth.

What Does This Mean for Startup Founders?

For entrepreneurs, YC’s willingness to back competing ideas is both an opportunity and a challenge. On the one hand, it shows that unique ideas may not always be necessary for success—what matters is the founder’s ability to deliver on their vision. On the other hand, direct competition can drive innovation and push you to make your product better than the alternatives.

Conclusion: Is YC’s Strategy a Game Changer?

YC’s approach to funding startups that often build similar products may seem surprising at first, but it reflects a deeper focus on people over ideas. For founders, the opportunity to work within YC’s supportive network and benefit from its ecosystem can often outweigh concerns about competition. Whether it’s in AI tools, business software, or restaurant systems, YC’s strategy shows that success isn’t about being the first mover—it’s about being the best mover.

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