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I really don't understand why people get so hung up on the 5-10% thing. This is seriously a bargain, to the point where all the YC founders are arguably actuall

I really don't understand why people get so hung up on the 5-10% thing. This is seriously a bargain, to the point where all the YC founders are arguably actually ripping pg off. He only gets 5-10% of your current company, while you get his help, a ton of connections, and the YC networks and friendships for life

pvg 17y ago
Oh please. It's a big chunk of equity. It's not a bargain and nobody is ripping pg off. It's great that pg is helping startups on terms that both he and the startups that accept the investment understand. Portraying it as charity or martyrdom is absurd, though. YC themselves don't.
- tolmasky 17y ago
  I never said it was charity, I simply said that in my opinion the terms are better for the founders. I don't think there's a single YC founder that would disagree with me. And I'm sure there isn't a single successful YC founder that would disagree with me (which is the theoretical point where the equity would come back to bite you). If your company is already doing amazing or you're already some sort of super hot shot, then of course its not a good deal. Jeff Bezos does not need to go through the YC program. But I don't see a bunch of Balmers and Bezos' complaining about the YC terms, I see a bunch of people that need precisely what YC provides.
  - pvg 17y ago
    I simply said that in my opinion the terms are better for the founders Right, I simply said that opinion is absurd and flies in the face of the very idea of running a business like YC. And it is a business, right, we agree on that? And I'm sure there isn't a single successful YC founder that would disagree Why on earth would a successful YC founder disagree? They've been successful. This is the definition of selection bias.
    - tolmasky 17y ago
      Why on earth would a successful YC founder disagree? They've been successful. This is the definition of selection bias. Wow. I can't believe I have to explain this. As I already explained in my previous post, this is simply the only truly useful metric, not selection bias. People care about equity after they succeed, not when they fail. No one sits around crying that they wished they had a larger percentage of nothing. In fact, you know what, I bet pg would be willing to make an agreement with you that after you officially close your company he'll gladly give you that 5-10% back, that way you'll be happy either way. Go and ask any YC founder who is currently successful, whether its chugging along fine or had any form of exit, I don't think you'll find any of them worrying about those percentage points. The ones who've failed clearly don't care and certainly don't ridiculously blame their failure on YC taking too much of their company. Better yet, they're making use of those same connections and opportunities on the next startup they're working on, and for free this time.
      - pvg 17y ago
        Wow. I can't believe I have to explain this. You do, because it's silly. By the same token go and ask any founder who did not take YC funding and was successful. People care about equity well before they succeed. Talk to any investor. Go and ask any YC founder who is currently successful Explain to me, again, how this is not selection bias?
- coryl 17y ago
  At 6% for $17k, a two founder startup is valued at $283,000 by YC. Thats a huge over valuation. Ideas aren't worth a quarter million dollars on paper. It is NOT a big chunk of equity for startups. If you think it is, you haven't failed enough times to know better. Cause when you fail, you get to keep 100% of nothing.
  - pvg 17y ago
    It's a big chunk of equity for the money. Now, you can argue YC invests in very early stage, very high risk companies and the big chunk of equity is warranted and that's fair enough. It's still a big chunk of equity. How much equity did Andy Bechtolsheim get for his famous $100k cheque to the Google founders?
    - coryl 17y ago
      Friend, hindsight is always 20/20. We don't know for a fact whether or not Google would be worth billions if they didn't get angel investing, so that example is moot. But we do know the rate at which startups fail. We see that everyday. If you've been involved in startups, you've experienced it. The problem is, your looking at equity as a piece of the pie, trying to keep as much pie to yourself as possible. The relative size of your slice doesn't matter. Its the absolute size of the pie that matters.
      - pvg 17y ago
        It's a big chunk of equity for the money. That was the point. Either dispute it by facts or don't. But don't weasel around calling me friend, pal.
        coryl 17y ago
        Woah now. Okay, I apologize for calling you "friend". Fact is, we all have different risk tolerances. I can tell you to play your pocket aces aggressively, but if you want to slow play them, thats up to you. I did my best to rationalize with you why the numbers don't matter in the big picture. The best question to ask yourself is: can I create more value than the value of the stake that I give up? If the answers yes, then give up the stake, whatever the number. Most of us believe we'll get at least equal value, and that giving up 5%-10% is worth it. Thats why the numbers mean nothing to us, we don't equate 5% to being a lot because we know our new 95% will be worth more than the previous 100%.
dnsworks 17y ago
Deja vu. "and friendships for life" I've heard this same exact argument from friends who were justifying why they were hazing for fraternities in college. Not a criticism, just an observation.
- tolmasky 17y ago
  The for life was meant to apply to all the things listed. The point being, you'll probably form more than one startup in your career, and the connections will be just as good after YC as during.
jeff18 17y ago
To clarify, I think YC makes a lot of sense for a lot of startups. However, I am not sure if my startup would be a good fit for YC. It is slightly older, already profitable, etc. YC seems to invest really, really early on, which is why 5-10% and a small amount of cash makes sense. However, even though I am not part of YC, I'd love to meet up with fellow SF startups -- I have never found an online community I identify more with than HN. Also, surely many people who give advice to YC startups are not on the payroll and would be happy to talk to me, if I had their contact info. Maybe I'm wrong since I'm not part of the group, but I feel like the identity of "young, full-time startup" is much more important than "young, full-time startup [yc funded]".
gyardley 17y ago
Well, if your startup starts to generate significant cash, giving up even a fraction of a percentage of equity as preferred stock (with typical preferred stock rights) is the difference between paying yourself a startup founder's salary and paying yourself as much as you possibly can. In other words, you're shutting the door on a very common way of getting wealthy, the one the vast majority of successful small business owners use. Certain things about taking investment are binary - percentage ownership is nothing, investor's rights are everything.
- aberman 17y ago
  I believe YC takes common stock, not preferred stock.
  - gyardley 17y ago
    I've heard that this is so. I've also heard that a YC investment also carries certain contractual terms that approximate the investor's rights that come with preferred stock. I'd have to see actual deal docs to judge. If YC is truly taking only common stock and has only the rights of a common stockholder, it's a good deal.

pvg 17y ago

Oh please. It's a big chunk of equity. It's not a bargain and nobody is ripping pg off. It's great that pg is helping startups on terms that both he and the startups that accept the investment understand. Portraying it as charity or martyrdom is absurd, though. YC themselves don't.

tolmasky 17y ago
I never said it was charity, I simply said that in my opinion the terms are better for the founders. I don't think there's a single YC founder that would disagree with me. And I'm sure there isn't a single successful YC founder that would disagree with me (which is the theoretical point where the equity would come back to bite you). If your company is already doing amazing or you're already some sort of super hot shot, then of course its not a good deal. Jeff Bezos does not need to go through the YC program. But I don't see a bunch of Balmers and Bezos' complaining about the YC terms, I see a bunch of people that need precisely what YC provides.
- pvg 17y ago
  I simply said that in my opinion the terms are better for the founders Right, I simply said that opinion is absurd and flies in the face of the very idea of running a business like YC. And it is a business, right, we agree on that? And I'm sure there isn't a single successful YC founder that would disagree Why on earth would a successful YC founder disagree? They've been successful. This is the definition of selection bias.
  - tolmasky 17y ago
    Why on earth would a successful YC founder disagree? They've been successful. This is the definition of selection bias. Wow. I can't believe I have to explain this. As I already explained in my previous post, this is simply the only truly useful metric, not selection bias. People care about equity after they succeed, not when they fail. No one sits around crying that they wished they had a larger percentage of nothing. In fact, you know what, I bet pg would be willing to make an agreement with you that after you officially close your company he'll gladly give you that 5-10% back, that way you'll be happy either way. Go and ask any YC founder who is currently successful, whether its chugging along fine or had any form of exit, I don't think you'll find any of them worrying about those percentage points. The ones who've failed clearly don't care and certainly don't ridiculously blame their failure on YC taking too much of their company. Better yet, they're making use of those same connections and opportunities on the next startup they're working on, and for free this time.
    - pvg 17y ago
      Wow. I can't believe I have to explain this. You do, because it's silly. By the same token go and ask any founder who did not take YC funding and was successful. People care about equity well before they succeed. Talk to any investor. Go and ask any YC founder who is currently successful Explain to me, again, how this is not selection bias?
coryl 17y ago
At 6% for $17k, a two founder startup is valued at $283,000 by YC. Thats a huge over valuation. Ideas aren't worth a quarter million dollars on paper. It is NOT a big chunk of equity for startups. If you think it is, you haven't failed enough times to know better. Cause when you fail, you get to keep 100% of nothing.
- pvg 17y ago
  It's a big chunk of equity for the money. Now, you can argue YC invests in very early stage, very high risk companies and the big chunk of equity is warranted and that's fair enough. It's still a big chunk of equity. How much equity did Andy Bechtolsheim get for his famous $100k cheque to the Google founders?
  - coryl 17y ago
    Friend, hindsight is always 20/20. We don't know for a fact whether or not Google would be worth billions if they didn't get angel investing, so that example is moot. But we do know the rate at which startups fail. We see that everyday. If you've been involved in startups, you've experienced it. The problem is, your looking at equity as a piece of the pie, trying to keep as much pie to yourself as possible. The relative size of your slice doesn't matter. Its the absolute size of the pie that matters.
    - pvg 17y ago
      It's a big chunk of equity for the money. That was the point. Either dispute it by facts or don't. But don't weasel around calling me friend, pal.
      - coryl 17y ago
        Woah now. Okay, I apologize for calling you "friend". Fact is, we all have different risk tolerances. I can tell you to play your pocket aces aggressively, but if you want to slow play them, thats up to you. I did my best to rationalize with you why the numbers don't matter in the big picture. The best question to ask yourself is: can I create more value than the value of the stake that I give up? If the answers yes, then give up the stake, whatever the number. Most of us believe we'll get at least equal value, and that giving up 5%-10% is worth it. Thats why the numbers mean nothing to us, we don't equate 5% to being a lot because we know our new 95% will be worth more than the previous 100%.

dnsworks 17y ago

Deja vu. "and friendships for life" I've heard this same exact argument from friends who were justifying why they were hazing for fraternities in college. Not a criticism, just an observation.

tolmasky 17y ago
The for life was meant to apply to all the things listed. The point being, you'll probably form more than one startup in your career, and the connections will be just as good after YC as during.

jeff18 17y ago

To clarify, I think YC makes a lot of sense for a lot of startups. However, I am not sure if my startup would be a good fit for YC. It is slightly older, already profitable, etc. YC seems to invest really, really early on, which is why 5-10% and a small amount of cash makes sense. However, even though I am not part of YC, I'd love to meet up with fellow SF startups -- I have never found an online community I identify more with than HN. Also, surely many people who give advice to YC startups are not on the payroll and would be happy to talk to me, if I had their contact info. Maybe I'm wrong since I'm not part of the group, but I feel like the identity of "young, full-time startup" is much more important than "young, full-time startup [yc funded]".

gyardley 17y ago

Well, if your startup starts to generate significant cash, giving up even a fraction of a percentage of equity as preferred stock (with typical preferred stock rights) is the difference between paying yourself a startup founder's salary and paying yourself as much as you possibly can. In other words, you're shutting the door on a very common way of getting wealthy, the one the vast majority of successful small business owners use. Certain things about taking investment are binary - percentage ownership is nothing, investor's rights are everything.

aberman 17y ago
I believe YC takes common stock, not preferred stock.
- gyardley 17y ago
  I've heard that this is so. I've also heard that a YC investment also carries certain contractual terms that approximate the investor's rights that come with preferred stock. I'd have to see actual deal docs to judge. If YC is truly taking only common stock and has only the rights of a common stockholder, it's a good deal.