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"If people turn us down," PG says, "as far as we're concerned they've failed an IQ test." Has anyone read Axelrod's The Emergence of Cooperation? Looking at th

by ced 19y ago

"If people turn us down," PG says, "as far as we're concerned they've failed an IQ test." Has anyone read Axelrod's The Emergence of Cooperation? Looking at the above quote with that book in mind, I'd say that PG is trying his best to establish his reputation as a bully. Yes, probably all founders would be stupid to pass up on his offer, no matter how low. However, given that, at the offer stage, he has already spent some time (and money) for the interview, he's partially invested in the startup. Thus, he would also be "stupid" to reject a counteroffer that was somewhat more favorable to the founders. But then he would ruin his reputation as a bully, and open the door for more negociations. So he won't negociate at all. It's his best strategy. It's not necessarily a bad thing for us, as long as he still makes a fair offer, but the way he says it makes me cringe. He's using the applicant's ego. Who here would like to fail PG's IQ test?

pg 19y ago
The reason we don't negotiate is that the most significant thing we offer, our advice and connections, we offer a constant amount of to everyone. For the thousandth time, it's not about the money... Here's why it's an IQ test. One should give up n% of one's co for something that will make the remaining 100-n% worth more than 100. So you should give YC 6% if you think we can improve your prospects by 7%. Do we? Easily. And someone who doesn't get that even after talking to us in person is not very perceptive.
- ralph 19y ago
  So you should give YC 6% if you think we can improve your prospects by 7% Not if you think someone else will improve your prospects by a bigger ratio compared to the cut they're taking though. Don't know of anyone like that, just being pedantic.
  - nostrademons 19y ago
    I can think of several situations where that 6% could get a better return than YCombinator: If it's the difference between attracting a top-notch cofounder and a take-what-he-can-get cofounder. PG isn't going to write your code for you. If it goes to an angel investor with even more experience and connections than YCombinator. I'd take Ram Shriram or Peter Thiel over Paul Graham any day...not that I could get them, but apparently I can't get PG either. ;-) If it lets you hire key early employees. For an employee, the difference between 1% and 3% of equity is huge, and you'll be able to attract much more talented people if you give them more equity. A team of 5 "A" players will likely beat a team of 2 "A" players, 3 "B" players, and YCombinator. I agree that it's silly to turn down YC just because the money/equity ratio is fairly low. But YC's not the be-all-and-end-all of seed funding: there are other resources out there where your equity may get better returns.
  - pg 19y ago
    Yes, true. What I actually said was that if anyone turns us down simply due to the implicit valuation, they've failed an IQ test, but these things get compressed when reduced to one sentence quotes.
    - budu3 19y ago
      What was your exact quote? Where does the 5 mins come in?
      - jey 19y ago
        By the time you're at your YC interview, you already know all of the terms of the deal except for one variable: the percentage of the company taken by YC. So if you're accepted, PG calls and gives you this one piece of missing info, and you and your cofounders get 5 minutes to decide whether it's acceptable.
- asher_gm 19y ago
  I guess the issue I have with the quote is that it ignores all the other variables that can contribute to a person's decision. You are arguably correct that turning down an offer with reasonable terms would indicate a low IQ, but its also a personality litmus. I don't see how after completing the necessary steps to even get in a position where they could even entertain the idea of accepting an offer they would turn it down. Especially considering that the general structure of the offer is already a known factor before they even walk in the door. So IQ couldn't be the only determining factor, in fact it can't even really be on the plate. Verily, denying a YC offer should be a DSM-IV criterion for a major psychosis. With a nod to ecuzzillo - They're just crazy.
  - ecuzzillo 19y ago
    So, in other words, they're not stupid, they're crazy? You could have just said that, you know.
    - asher_gm 19y ago
      I had to give that a point. I guess what I'm trying to say is that there must be a deep personality flaw with someone that takes all the necessary steps and then refuses to go with it.
      - ralph 19y ago
        Interviews are two way things. Perhaps the interviewee isn't so keen having had more contact in person, or doesn't like the suggestion of dropping their idea and going with an alternative. Perhaps they just think the gasps of admiration and amazement from the interviewers means it's a can't fail idea that they're already executing well. Saying it's an IQ test is wrong IMHO. But it may be a good negotiating stance.
- ced 19y ago
  Sure, your advice and connections are worth more than the 15K. Let's say they're worth 100 thousand. Then, you're giving away 115K in exchange for x% of the company. x would still be negotiatable in a normal setting. Some startups are worth more than others. Ralph is right. You are providing a service for startups. Right now, you have a monopoly on that market, but eventually, other YCs will rise up, and you might have to lower the amount of equity you take. Competition. I'm not even saying that YC is being unfair. I think it's a great deal. But the "IQ test" bit reminds me of something you wrote about Viaweb: "My message to potential customers was: you'd be stupid not to sell online, and if you sell online you'd be stupid to use anyone else's software. Both statements were true, but that's not the way to convince people."
  - ced 19y ago
    hmmaa, I don't like what I wrote (upmodded? why?) If ever YC started abusing their spring chicks, the argument would deserve to be brought up, but since YC alumni seem very happy about the deal they got, it's all rather pointless. Ah, la la.
nikmac 19y ago
Well soon they ll mention http://teenwag.com http://teenwag.com :) thanks pg for all ur fun

by ced 19y ago

pg 19y ago

The reason we don't negotiate is that the most significant thing we offer, our advice and connections, we offer a constant amount of to everyone. For the thousandth time, it's not about the money... Here's why it's an IQ test. One should give up n% of one's co for something that will make the remaining 100-n% worth more than 100. So you should give YC 6% if you think we can improve your prospects by 7%. Do we? Easily. And someone who doesn't get that even after talking to us in person is not very perceptive.

ralph 19y ago
So you should give YC 6% if you think we can improve your prospects by 7% Not if you think someone else will improve your prospects by a bigger ratio compared to the cut they're taking though. Don't know of anyone like that, just being pedantic.
- nostrademons 19y ago
  I can think of several situations where that 6% could get a better return than YCombinator: If it's the difference between attracting a top-notch cofounder and a take-what-he-can-get cofounder. PG isn't going to write your code for you. If it goes to an angel investor with even more experience and connections than YCombinator. I'd take Ram Shriram or Peter Thiel over Paul Graham any day...not that I could get them, but apparently I can't get PG either. ;-) If it lets you hire key early employees. For an employee, the difference between 1% and 3% of equity is huge, and you'll be able to attract much more talented people if you give them more equity. A team of 5 "A" players will likely beat a team of 2 "A" players, 3 "B" players, and YCombinator. I agree that it's silly to turn down YC just because the money/equity ratio is fairly low. But YC's not the be-all-and-end-all of seed funding: there are other resources out there where your equity may get better returns.
- pg 19y ago
  Yes, true. What I actually said was that if anyone turns us down simply due to the implicit valuation, they've failed an IQ test, but these things get compressed when reduced to one sentence quotes.
  - budu3 19y ago
    What was your exact quote? Where does the 5 mins come in?
    - jey 19y ago
      By the time you're at your YC interview, you already know all of the terms of the deal except for one variable: the percentage of the company taken by YC. So if you're accepted, PG calls and gives you this one piece of missing info, and you and your cofounders get 5 minutes to decide whether it's acceptable.
asher_gm 19y ago
I guess the issue I have with the quote is that it ignores all the other variables that can contribute to a person's decision. You are arguably correct that turning down an offer with reasonable terms would indicate a low IQ, but its also a personality litmus. I don't see how after completing the necessary steps to even get in a position where they could even entertain the idea of accepting an offer they would turn it down. Especially considering that the general structure of the offer is already a known factor before they even walk in the door. So IQ couldn't be the only determining factor, in fact it can't even really be on the plate. Verily, denying a YC offer should be a DSM-IV criterion for a major psychosis. With a nod to ecuzzillo - They're just crazy.
- ecuzzillo 19y ago
  So, in other words, they're not stupid, they're crazy? You could have just said that, you know.
  - asher_gm 19y ago
    I had to give that a point. I guess what I'm trying to say is that there must be a deep personality flaw with someone that takes all the necessary steps and then refuses to go with it.
    - ralph 19y ago
      Interviews are two way things. Perhaps the interviewee isn't so keen having had more contact in person, or doesn't like the suggestion of dropping their idea and going with an alternative. Perhaps they just think the gasps of admiration and amazement from the interviewers means it's a can't fail idea that they're already executing well. Saying it's an IQ test is wrong IMHO. But it may be a good negotiating stance.
ced 19y ago
Sure, your advice and connections are worth more than the 15K. Let's say they're worth 100 thousand. Then, you're giving away 115K in exchange for x% of the company. x would still be negotiatable in a normal setting. Some startups are worth more than others. Ralph is right. You are providing a service for startups. Right now, you have a monopoly on that market, but eventually, other YCs will rise up, and you might have to lower the amount of equity you take. Competition. I'm not even saying that YC is being unfair. I think it's a great deal. But the "IQ test" bit reminds me of something you wrote about Viaweb: "My message to potential customers was: you'd be stupid not to sell online, and if you sell online you'd be stupid to use anyone else's software. Both statements were true, but that's not the way to convince people."
- ced 19y ago
  hmmaa, I don't like what I wrote (upmodded? why?) If ever YC started abusing their spring chicks, the argument would deserve to be brought up, but since YC alumni seem very happy about the deal they got, it's all rather pointless. Ah, la la.

nikmac 19y ago

Well soon they ll mention http://teenwag.com http://teenwag.com :) thanks pg for all ur fun