Especially if your startup isn't purely software, and involves some operational or hardware expenses, $500K is a no-go.
It's also the ballpark of what 2 technical founders could easily make by working for ~6 months in the bay area, and not have to give away any equity at all.
So if you're doing it for $500K, I'd say there are better ways to get $500K than giving up 7% of your company.
Now if YC handed out $2M and cut their batch size by a factor of 4 (being more selective in their applications), I think it'd be a really good play for them.
I think you're assuming the two founders don't need to pay rent or taxes.
"We have an idea that's not materialized yet, give us money so we can live comfortably and reap all benefits it it works out and not lose anything if it doesn't." - sounds like a wishful thinking.
No, it is risky, and you want to actively eliminate as many of the risks as possible. Having a decent sized pile of cash is one way out of several of the risks. Supply chain shortages, founder medical expenses, mishaps and accidents, rising costs of living, personal emergencies happening to founders or employees requiring leave, there are a million things that will bite you if you don't have cash and runway.
"Supposed to be risky" isn't a good way to think about it, IMO. A lot of the time you'll hear people romanticize a couple of fresh graduates living on couches in a garage, living on ramen, and building a unicorn, but the reality is that most billion-dollar companies weren't actually built that way, and it isn't the best way to optimize your chances of success.
For example, if you graduate with an engineering degree, can code, and don't have any grave medical conditions or loans to repay, I'd wholeheartedly encourage trying to start a company if you want to. It's risky in that the company would have a 95% chance of failing, but in that case you still learn a lot and it's fairly easy to land a job if you keep up your technical skills.
If you're stably married, your partner earns a high income in a stable job, and is supportive, that's another case where I'd say go for it, take the calculated risk.
In a lot of other cases, such as if you're knee deep in student debt, or (live in the US + have a medical condition + not a lot of savings), I'd advise building up a modest amount of savings first.
It really depends.
Do you think this is realistic getting access to these just by living in the Bay? I don't think so.
Yes, if (a) you're nice and approachable (b) you're working on something interesting (c) are reasonably good at socializing, it's pretty easy to ask around and get looped in on such events. People here are pretty open about having interesting friends-of-friends show up to house parties.
Guess I need to (b), get more internet cred, and actually branch out to internet people rather than familiar territory.
If it weren't for YC one would have to spend 50% of their working hours having coffee chats and preparing demos, since investors generally had their own contorted idea of what a good demo is before they would invest, and it was usually not what the customer wanted. Being able to get twice as much work done in return for 7% was a good deal.
I don't think that applies anymore, sadly, with the large batch sizes they accept now. Nowadays you'll have to waste half your summer having coffee, not have guaranteed investment, and still give away 7%. Not a good deal.
Also, if you live in the bay area, it's fairly easy to come across most YC advice and get investor intros just by going to enough house parties with seasoned founder attendees.