Mr. Graham got the idea for starting Y Combinator after giving a talk to student entrepreneurs at Harvard, where he received his Ph.D. in computer science. He told them to look for seed money from rich people they knew, preferably ones who had made their wealth from technology. "Then I said, 'Not me, ' and they all looked kind of downcast and then I felt like a jerk, " he said. Then, on reflection, Mr. Graham thought, why shouldn't he try to support young hackers?
From an NY Times article on the Y Combinator