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As much as I like YC and this particular board, their standard deal is $120K for 7% of the company. That amount of money is so ridiculously low for almost any s

As much as I like YC and this particular board, their standard deal is $120K for 7% of the company. That amount of money is so ridiculously low for almost any serious hardware project. Just consider what $120K buys you. Barely one mid-level engineer for a year (don't forget the taxes, social security). In that year you would have to create and mass-produce and sell the product, just to keep paying the salary. I'm surprised YC doesn't offer something like $500K for 50% of the company.

jayjay71 10y ago
This is a misunderstanding of fundraising. If you give up 50% of your company, no investor will touch you unless you're already profitable or growing like Uber. So unless you believe you can go from zero to unicorn with $500k, giving up such enormous equity is doom for the company. That $120k is intended to last 3 months, not 1 year. And afterwards most companies go on to raise 7 digits for much less than 50% of their companies.
nostrademons 10y ago
I think what YC gives you is primarily ideas on how to get a minimal proof point out without hiring that one engineer.
tlb 10y ago
The typical trajectory is to take YC's $120k for 7%, gather some evidence that the idea will work, then raise $1-2M for 15%, then get it really working at small scale, then raise $10-20M for 25%, then scale up. The farther along you are, the more money you can raise for a given amount of equity, so it makes sense to raise money in stages.
- rebillionizer 10y ago
  Why would this be a better path than using SBIR/STTR funding and the associated ecosystem for proof of concept? Unlike YC it is non-dilutive. It's something I've long wondered but it's never been answered to my satisfaction.
  - themikemachine 10y ago
    SBIR/STTR funding is non-dilutive but it is far from free. To apply, you: (1) Spend 1+ month on writing the grant, doing all the paperwork, getting letters of support, etc. (2) Wait up to a year to see if you got the money. The hit rate is often 15% (on average you need to apply 6 times to get 1). (3) Get ~$150K if you're lucky for phase 1, and this money is only for research. You cannot use it on lawyers or keep it in a bank. You also have to spend the money in 8 months. And write a report on your progress. (4) Then apply for Phase II, which can be up to $1M. Even if everything goes right, it will take at the least 2 years since you start applying to get a phase II application. It's great money if you have all the time in the world and really like writing grants. Or if you have no other choice. But you will pay for it with your time. Also, you will be at a huge disadvantage unless you have a PhD and university contacts. Writing successful grants is a difficult skill that takes a lot of practice, and you will be competing with people that ONLY write grants.
wanderingjew 10y ago
The value of YC isn't the money, it's the publicity. Just look at the front page of Hacker News - I've seen 8/10 of the top stories related to YC companies. Demo days give you immediate access to the press.

jayjay71 10y ago

This is a misunderstanding of fundraising. If you give up 50% of your company, no investor will touch you unless you're already profitable or growing like Uber. So unless you believe you can go from zero to unicorn with $500k, giving up such enormous equity is doom for the company. That $120k is intended to last 3 months, not 1 year. And afterwards most companies go on to raise 7 digits for much less than 50% of their companies.

nostrademons 10y ago

I think what YC gives you is primarily ideas on how to get a minimal proof point out without hiring that one engineer.

tlb 10y ago

The typical trajectory is to take YC's $120k for 7%, gather some evidence that the idea will work, then raise $1-2M for 15%, then get it really working at small scale, then raise $10-20M for 25%, then scale up. The farther along you are, the more money you can raise for a given amount of equity, so it makes sense to raise money in stages.

rebillionizer 10y ago
Why would this be a better path than using SBIR/STTR funding and the associated ecosystem for proof of concept? Unlike YC it is non-dilutive. It's something I've long wondered but it's never been answered to my satisfaction.
- themikemachine 10y ago
  SBIR/STTR funding is non-dilutive but it is far from free. To apply, you: (1) Spend 1+ month on writing the grant, doing all the paperwork, getting letters of support, etc. (2) Wait up to a year to see if you got the money. The hit rate is often 15% (on average you need to apply 6 times to get 1). (3) Get ~$150K if you're lucky for phase 1, and this money is only for research. You cannot use it on lawyers or keep it in a bank. You also have to spend the money in 8 months. And write a report on your progress. (4) Then apply for Phase II, which can be up to $1M. Even if everything goes right, it will take at the least 2 years since you start applying to get a phase II application. It's great money if you have all the time in the world and really like writing grants. Or if you have no other choice. But you will pay for it with your time. Also, you will be at a huge disadvantage unless you have a PhD and university contacts. Writing successful grants is a difficult skill that takes a lot of practice, and you will be competing with people that ONLY write grants.

wanderingjew 10y ago

The value of YC isn't the money, it's the publicity. Just look at the front page of Hacker News - I've seen 8/10 of the top stories related to YC companies. Demo days give you immediate access to the press.