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So can we itemize the exact benefits of this type of deal versus taking a somewhat bigger stake up front? I can think of a couple: 1. In the case of a sub-$100
by abalone 11y ago
So can we itemize the exact benefits of this type of deal versus taking a somewhat bigger stake up front? I can think of a couple:
1. In the case of a sub-$100M exit, where perhaps founders are getting squeezed, every little bit of extra equity counts. YC graciously forgoes their stake in the company. That's unquestionably good.
2. In the case of a big exit, YC essentially bypasses dilution and targets a fixed post-dilution equity stake, regardless of how much subsequent investment the company took on.
That lets founders retain more equity early on and thus be that much less diluted, while still getting YC ballpark what they'd like to get in the end. So that's nice.
But how might subsequent investors feel about YC getting the same fixed percentage of a IPO'ing Series B vs. Series E stage company? Could this possibly complicate funding down the line? Is it "too good" of a deal for YC in the Series E case?
(I admit the absolute amount here is fairly low, and YC is "special" in the industry. But I'd want to sketch out the consequences in detail before taking the deal.. someone "pays" for these founder and YC benefits.)
Another (scary?) thought: might more investors demand this sort of deal down the line? Would a seed or Series A or Series B investor ask for fixed percentages of IPO/acquisitions? I can't even fathom how that would scale or complicate taking on investors.. Does this only work of it's a special one-time thing?
- exw 11y ago> But how might subsequent investors feel about YC getting the same fixed percentage of a IPO'ing Series B vs. Series E stage company? Could this possibly complicate funding down the line? Is it "too good" of a deal for YC in the Series E case? They won't care. Basically all later investors have anti-dilution provisions, to they get exactly the same deal (though they have to pay for it, while YC gets it "for free") - put a different way, if the company is doing well (and they would have to be for potential $100M+ exits), all they care about is that they have a certain % of the company to make their economics work, so YC getting 1.5% of proceeds won't matter to them.
- 50CNT 11y agoMy guess is, the brand of YC on your startup will more than offset the complications these terms create. Being a YC company is a strong qualifier in this magical world of unicorns and angelic investment. I'm fairly certain that there will be investors mimicking this deal structure, but whether there will be founders willing to take it is another question. Just because YC can get away with it doesn't mean Joe IPO can.
- tim333 11y agoAs an occasional investor 1.5% dilution is nothing. I'd much rather invest in a company where YC gets 1.5% than one in which they are not involved. YC not being involved increases your chances of dumb stuff causing a 100% loss rather than 1.5%.