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> investing $150,000 in exchange for 7 percent of each company The article makes this sound like these are unfavourable terms that come back to bite founders.

by dpwm 8y ago

> investing $150,000 in exchange for 7 percent of each company The article makes this sound like these are unfavourable terms that come back to bite founders. But surely at the stage YC invests these are higher-risk startups – where 7% for 150k seems somewhat more fair. In any case, I thought the whole thing with YC was that it invested at a stage when VC funding wasn't typically available for things that can't be bootstrapped – where 93% of something is a lot better than 100% of nothing.

ElBarto 8y ago
"investing $150,000 in exchange for 7 percent of each company — a stake that it can maintain throughout the company’s life it it so chooses, per its pact with its founders." I think the issue might be the second part as, if I understand correctly, it means that YC is insulated against dilution without having to invest a penny more. Considering how many startups apply I would say that more than enough people are happy with those terms, though.
- wjossey 8y ago
  I’m not a YC company founder but that’s not how I understand their terms to work. They can follow in subsequent rounds to maintain their percentages but they aren’t “locked in” at 7%. —-Edit—— Yeah. They have pro rata rights to follow in their agreement.
  - jtbayly 8y ago
    So... which is it? I don't know what "pro rata rights to follow in their agreement" means. Are they "locked in" at 7% regardless of other funding rounds or do they have the option to buy in to future rounds to keep 7% ownership?
    - wjossey 8y ago
      They have an option to buy to maintain their stake. They are not locked in and get diluted like everyone else.
      - jtbayly 8y ago
        Thanks for the answer. And wow. This is the first time I've been downvoted for asking a serious question.
        wjossey 8y ago
        How dare you not know what pro rata means! :) Happy to help. Be well!
- sjbp 8y ago
  I think that refers to standard pro rata rights, which gives the right to invest in subsequent rounds of funding to maintain their ownership. So they would have to invest their pennies :)
- ganeshkrishnan 8y ago
  >I think the issue might be the second part as, if I understand correctly, it means that YC is insulated against dilution without having to invest a penny more. No this is incorrect. They have the ability to top off their investment to maintain their stake. Implicitly this investment would be at lower valuation. This is a standard procedure for most 'early stage' accelerators although yc is hardly early stage
ganeshkrishnan 8y ago
YC doesn't seem to invest in higher risk startups anymore (except exciting moonshots). They used to invest like an accelerator but recently they are more like a VC (More traction required before they even consider you) AND also has to be billion dollar target market. If you want bootstrap money you are better off applying to local accelerators or incubators. That said, with their signalling , 7% for $150k is a generous offer and not at all un-favourable.
- ryanwaggoner 8y ago
  Hmm, that’s not my impression. I’m constantly seeing YC startups “in the wild” that seem pretty damn niche. Maybe they did pitch with some path to a billion dollars but it’s not at all clear how that would ever realistically happen.
  - ganeshkrishnan 8y ago
    They used to be early stage. Our startup has records of some sort for being rejected most times by YC and I always chat with those who made it and those who didn't. Traction was where all the action was. That's what most VC's care too (apart from other VCs investing). All the vision, values bullshit is just fluff talk from them.
- DamnYuppie 8y ago
  I don't agree with the notion that you need lots of traction to get into YC. I was part of the W18 batch and I can only think of a few of the 100+ companies who had revenue streams. Some had $1M+ Annual Re-occurring Revenue but the vast majority were under $5k Monthly Re-occurring Revenue most were at $0. It was fun to watch many of them really ratchet up their sales in the 3 months of the program. As I recall there were quite few in the bio/pharam/med space and they were mostly dependent upon grants at the time of joining YC and were still years away from true profitability. My exposure and knowledge of all local accelerators/incubators is obviously limited. Yet I have not seen or head of any local accelerators or incubators that have anything that comes close to YC's demo day. It is a value unto its own and quite the spectacle.

by dpwm 8y ago

ElBarto 8y ago

"investing $150,000 in exchange for 7 percent of each company — a stake that it can maintain throughout the company’s life it it so chooses, per its pact with its founders." I think the issue might be the second part as, if I understand correctly, it means that YC is insulated against dilution without having to invest a penny more. Considering how many startups apply I would say that more than enough people are happy with those terms, though.

wjossey 8y ago
I’m not a YC company founder but that’s not how I understand their terms to work. They can follow in subsequent rounds to maintain their percentages but they aren’t “locked in” at 7%. —-Edit—— Yeah. They have pro rata rights to follow in their agreement.
- jtbayly 8y ago
  So... which is it? I don't know what "pro rata rights to follow in their agreement" means. Are they "locked in" at 7% regardless of other funding rounds or do they have the option to buy in to future rounds to keep 7% ownership?
  - wjossey 8y ago
    They have an option to buy to maintain their stake. They are not locked in and get diluted like everyone else.
    - jtbayly 8y ago
      Thanks for the answer. And wow. This is the first time I've been downvoted for asking a serious question.
      - wjossey 8y ago
        How dare you not know what pro rata means! :) Happy to help. Be well!
sjbp 8y ago
I think that refers to standard pro rata rights, which gives the right to invest in subsequent rounds of funding to maintain their ownership. So they would have to invest their pennies :)
ganeshkrishnan 8y ago
>I think the issue might be the second part as, if I understand correctly, it means that YC is insulated against dilution without having to invest a penny more. No this is incorrect. They have the ability to top off their investment to maintain their stake. Implicitly this investment would be at lower valuation. This is a standard procedure for most 'early stage' accelerators although yc is hardly early stage

ganeshkrishnan 8y ago

YC doesn't seem to invest in higher risk startups anymore (except exciting moonshots). They used to invest like an accelerator but recently they are more like a VC (More traction required before they even consider you) AND also has to be billion dollar target market. If you want bootstrap money you are better off applying to local accelerators or incubators. That said, with their signalling , 7% for $150k is a generous offer and not at all un-favourable.

ryanwaggoner 8y ago
Hmm, that’s not my impression. I’m constantly seeing YC startups “in the wild” that seem pretty damn niche. Maybe they did pitch with some path to a billion dollars but it’s not at all clear how that would ever realistically happen.
- ganeshkrishnan 8y ago
  They used to be early stage. Our startup has records of some sort for being rejected most times by YC and I always chat with those who made it and those who didn't. Traction was where all the action was. That's what most VC's care too (apart from other VCs investing). All the vision, values bullshit is just fluff talk from them.
DamnYuppie 8y ago
I don't agree with the notion that you need lots of traction to get into YC. I was part of the W18 batch and I can only think of a few of the 100+ companies who had revenue streams. Some had $1M+ Annual Re-occurring Revenue but the vast majority were under $5k Monthly Re-occurring Revenue most were at $0. It was fun to watch many of them really ratchet up their sales in the 3 months of the program. As I recall there were quite few in the bio/pharam/med space and they were mostly dependent upon grants at the time of joining YC and were still years away from true profitability. My exposure and knowledge of all local accelerators/incubators is obviously limited. Yet I have not seen or head of any local accelerators or incubators that have anything that comes close to YC's demo day. It is a value unto its own and quite the spectacle.