26 ms·

YC’s $500k Standard Deal

• pyb 5y ago
  Would YC have to shrink the batches to implement this change?
• ngoel36 5y ago
  Is it required to take the $375k note? If so, definitely a bad deal for some, and disincentivizes taking on early angels at an attractive cap.
  • mizzao 5y ago
    Couldn't you just offer an uncapped SAFE/MFN to your angels as well?
    • loceng 5y ago
      I imagine that'd not be what YC would expect but good question if they'd accept it.
  • gumby 5y ago
    It’s uncapped. Why would you ever prefer a capped note? Doing a deal with YC never excludes you from doing a separate deal with someone else as well.
    • ngoel36 5y ago
      No reason to prefer the capped, but I definitely might prefer to not take the note at all.
    • tyre 5y ago
      You would prefer a capped note if you think you'll raise at lower caps. If you think you'll raise at a $10m post-money cap then a SAFE with a $20m cap is better than an MFN SAFE
      • gumby 5y ago
        I don't understand. When would a company ever want a capped note? It only provides a benefit to an investor, at the company's expense.
        • danr4 5y ago
          with MFN clause, it is capped to your next SAFE cap. YC probably expects most of the companies to raise a SAFE round after YC.
  • ghshephard 5y ago
    Can you explain how it could be a bad deal for some - I'm struggling to understand what at all could be negative - this feels like 100% upside for the founders.
    • ngoel36 5y ago
      It's upside if you need the money right away. It's a bad deal if you have other willing investors. Let's say you exit YC and have a helpful angel (or many) who want to invest. Without the YC note, you may choose to let them invest $20-50k checks at a good deal, say (just example numbers) $12-15M post, before you raise a proper seed at $20M+ post. In that scenario, the YC note converts with the helpful angels. In another scenario, let's say you get a term sheet for your seed at demo day, $3M @ $20M post from a firm that wants 15%. Then you add in another $1M from angels (5%) and the mandatory $375k from YC (1.8%) and you're at 21.8% dilution. Or you take $375k less and cut out angels you wanted on the cap table.
      • ghshephard 5y ago
        I've read this post probably 20 times in the last day or so (honestly) - and I'm still trying to puzzle through what the possible negative elements are. I think the idea is that the VC is coming in at $20M valuation, but the angels are coming in at $12M valuation, and you want the angels money (for their connections/assistance) - but only want, say, $150K of their money at $12M valuation. But, if you accept their money at $12M, then you also have to accept YC @ $375K as well - which leads to greater dilution than you want. You would prefer to take: VC: $20M Valuation - $3M Invested Angel: $12M Valuation - $150K Invested Did I get that correct?
• pyb 5y ago
  That looks like an incredibly founder-friendly deal, and such a huge change wrt the current YC offer !
• clpm4j 5y ago
  The W22 batch is only 65 companies? Am I reading/filtering the Startup Directory correctly? This would be a huge reduction from the ~300 companies per batch of late. https://www.ycombinator.com/companies/?batch=W22 https://www.ycombinator.com/companies/?batch=W22
  • Jaxkr 5y ago
    *65 companies that have publicly announced their inclusion in YC so far. Companies get to keep their acceptance a secret until they’re ready to publicize it. There are many more companies that haven’t announced yet.
  • OJFord 5y ago
    Applications open until 19 July though? Even S22 still open through to March, unless I'm misreading/years aren't shown and it means last year?
    • clpm4j 5y ago
      I think Winter 22 would be the batch that runs from January-March of 22. *Jaxkr's comment above answers my question. I just looked again and now the directory shows 68 companies, so it's just a matter of not having the full list of companies in the directory yet.
      • OJFord 5y ago
        I was referring to this: https://blog.ycombinator.com/early-deadline-for-yc-winter-2022/ https://blog.ycombinator.com/early-deadline-for-yc-winter-20... But looking again now I see that was posted 30 June 2021; so it means 19 July 2021 (just doesn't specify the year and I didn't notice a published-at date before).
• everhard_ 5y ago
  MFN Clause: In a most favored nation (MFN) clause, if subsequent convertible securities are issued to future investors at better terms (e.g., a lower valuation cap), the better terms will automatically apply to the investor's SAFE. This clause falls away on conversion of the SAFE into company stock.
  • throwawaybbqed 5y ago
    What is a SAFE? Any newbie reads? I got the 7% equity part, but some examples could be useful for the code monks amongst us.
    • feross 5y ago
      This video "Understanding SAFEs and Priced Equity Rounds" from YC is a great resource: https://www.ycombinator.com/library/6m-understanding-safes-and-priced-equity-rounds https://www.ycombinator.com/library/6m-understanding-safes-a...
    • sokoloff 5y ago
      It’s a home-cooking (but I think accurate and clear) description: https://www.ycombinator.com/documents/ https://www.ycombinator.com/documents/
    • devmunchies 5y ago
      Basically a contract that the investor will give you money now and be given equity in the next financing round in the future. S.A.F.E = Simple agreement for future equity It's like a "preorder for investors"
    • fourseventy 5y ago
      Its a Simple Agreement to Future Equity. It's a fundraising instrument where the investor agrees to give the company money in exchange for some amount of equity to be decided at a future date. It's designed to make it easier for founders to get capital at the early stages without having to negotiate valuation.
    • dlevine 5y ago
• sokoloff 5y ago
  This seems crazy, crazy good for founders (and difficult for many other incubators to match).
  • peterhunt 5y ago
    You think? I actually have the opposite impression. This takes away control from the founders and makes it harder to precisely control dilution, which is very important at the early stages.
    • freeqaz 5y ago
      A SAFE without a cap is nice though for an early company, especially if it's optional. A SAFE like this means that you're effectively raising at a Series A valuation but during your pre-seed stage. The most obvious effect of this to me is that it will gives your Series A investors a little less, either that or you'll take more dilution at Series A if your investors won't budge. Is that what you mean by "precisily controlling dilution"? That's counteracted, fortunately, because at the current valuations that many companies are raising a Series A at, $375k isn't a big hit. (I've seen Series As from 20m up to 150m these days) What I see as the major upside here is: Companies gain the ability to take a little less $ when raising pre-seed/seed SAFEs with harsher restrictions. Most SAFEs at that stage have some sort of investor incentive either as a "valuation cap" or a "discount" (at least the standard YC SAFEs[0]). For many companies, at least pre-pandemic, these caps were usually around $10-15m post-money (you raise $1m at $10m post-money, your investors get 10%, so you're saying your company is worth $9m). Of course, SAFEs can screw you too if you don't hit your valuation goals. So YCs $375k SAFE, if you have to raise a Series A at a low valuation, will hurt you more because you might have specific $ goals in mind that you can't budge on. But, at least having an extra $375k early on will help more companies, on average, avoid these "Series A downrounds" more frequently by giving them more runway. There is always going to be pros/cons when raising investment. At least with this, I feel like this makes the world a little more founder-friendly for early stage companies. Is my take approximately in-line with what you're thinking? 0: https://www.ycombinator.com/documents/ https://www.ycombinator.com/documents/
    • tptacek 5y ago
• 0xB31B1B 5y ago
  Seems like a step in the right direction here. 125k for 7% is still extremely steep in todays market.
  • sudhirj 5y ago
    Steep as in it's too cheap? If you get into YC they're instantly valuing your company at over $1.7 million, which seems very founder friendly to me.
    • OnlineGladiator 5y ago
      I think YC is great for founders (I actually went through a batch many years ago), but it's worth mentioning many of the startups are not really that early. Some were going straight to an A round instead of a seed round, many (maybe most) had already raised money, some had already raised money at significantly higher valuations. The advice I give to 99% of people is if you get into YC you should definitely do it, but the valuation is not necessarily high.
      • sudhirj 5y ago
        Do companies that already have millions in revenue (or feel that's inevitable) get the same terms? It would be interesting to see who accepts that — they probably see something worth it in YC to give a discount on equity.
        • OnlineGladiator 5y ago
          I went through YC years ago so maybe it's changed, but at the time I think it was ~1 company per batch would get better terms. In other words, it wasn't negotiable. This wasn't baked in, their stance was "we don't negotiate" and only in truly extraordinary cases would they make an exception. The reason to go through YC is, quite simply, they will increase the value of your company by significantly more than 7%. If you don't believe they can add that much value, then you shouldn't do it. There aren't many people who don't think YC can add that though, just the valuation bump you'll get while fundraising is significantly greater. And on top of that they really do a great job of actually helping you, which alone is worth the 7% in my opinion.
• mritchie712 5y ago
  This makes it much easier to get to profitability[0] and never raise again after YC (especially as a SaaS). I wonder how this will impact the decision to raise money after YC. 0 - Including paying the founders a reasonable salary
  • the-dude 5y ago
    Are you sure this is how it would work? From the post I read the remaing 375k will be invested at the next equity round.
    • _xnmw 5y ago
      The full $500k is upfront. Quote: > Simply put, we’re giving the company money now but at terms you’ll negotiate with future investors.
    • uranium 5y ago
      The terms are set at the next equity round. The money comes in right away. See the footnote: "Simply put, we’re giving the company money now but at terms you’ll negotiate with future investors."
    • aripickar 5y ago
      Not quite. The way that it works is that the 375k is invested now, but at terms that are determined in the next equity round. If the next round values the company at 10 million, then the 375k would be 3.75% of the company.
      • ketzo 5y ago
        Woah, okay, didn't totally understand that until you put some numbers on it. That's... almost unbelievably founder-favored, yeah? Neat.
        • mritchie712 5y ago
          Not unbelievably, just happens to be a win-win. The founder likely wants the capital now and YC wants more ownership.
• throwaway879080 5y ago
  awesome, we might consider YC after all
• ignoramous 5y ago
  YC has to react to VCs entering early stage investment. Accel in India grants upto $250K to startup founders (no strings attached) [0], while Sequoia seeds select startups with $1M in capital [1]. In India, $250K's roughly worth what ~$4M would be in the US. Just to put the amount in perspective: Our team of 3 engs in India got a generous $12K grant from Mozilla in June 2020, which has kept lights on our toy project for 2 years now. I think we can stretch that budget to 3. YC $500K is a total game changer for startups overseas (esp in countries with lower cost of living). [0] https://atoms.accel.com/ https://atoms.accel.com/ [1] https://surgeahead.com/ https://surgeahead.com/
  • tedivm 5y ago
    A startup I was at had plans to apply to join YC but then pulled in $4.5m in funding as a seed round. There's just so much money out there right now, I can't imagine giving up 7% for what amounts to pennies. Admittedly joining YC in theory has knock off benefits like AWS credits, but the reality is most companies willing to give you discounts or credits because of YC will give you that same discount just for getting funding. You're basically giving up that equity for networking.
  • PragmaticPulp 5y ago
    YC’s value is still in the networking and signaling aspects. I’ve interviewed and worked with a surprisingly large number of YC founders whose startups didn’t go anywhere. It’s amazing how much weight the YC founder background carriers in tech circles. For the one person I’m most familiar with, their YC startup went nowhere, they didn’t even get a prototype put together, and the team fell apart because they couldn’t get along with each other. Yet just mentioning their YC founder background or putting it in a resume (or Twitter bio) grants them instant credibility and a huge reputation boost. It’s fascinating to watch. On the other hand, the VCs I’m still in touch with seem well aware of how this game is played. They still have a lot of respect for the top founders and companies coming out of YC, but it’s also understood that YC is kind of a numbers game these days and just getting accepted to YC (or other top accelerators) doesn’t mean much on its own.
    • 5y ago
• lifeisstillgood 5y ago
  Going by my memory, when YC started they invested 5K per founder. It was, either by accident or design, focused on 20-somethings eating ramen and dreaming big. You could not do much else on 5K. There may have been many (myself included) who thought "give up a cushty job, and even if I get in, don't get back much more than the cost of flights to Boston" Does this signal that its harder to find those young hungry geniuses? Or that other stages of life are now predominating? I would be fascinated to see a demographic breakdown of YC / SV founders ... Edit: the thing is it breaks my clever idea of A Million Startups. So i had a clever idea a while back, (I think when Softbank wrote off 10BN?). 10BN is about the right amount to fund a million startups. 100K in India, 100K in SE Asia etc etc. You could assume a 50% fail rate at each "stage" and put in 5K to each of a million startups, and then 2.5BN, then 1.5BN etc etc. I am not sure what kicking off a million bright young things would do to the world, but I think it is a worthwhile way to waste 10BN
  • newsclues 5y ago
    Most low hanging fruit has been picked.
    • jessaustin 5y ago
      This has been claimed more often than it has been true.
  • cjameskeller 5y ago
    I wonder if this kind of program could/has attracted any interest from the Effective Altruism folks?
  • ricardobayes 5y ago
    From what I see around me, people with little to no 'real-life' experience rarely make it in startup world. On the contrary, people with proven track record in an industry have a jolly great time fundraising and building companies. That's just my experience, also I am a good few years older when I was doing the 'ramen and think big' thing.
  • 5y ago
• solaarphunk 5y ago
  YC is trying to buy more pro rata with this deal, which is what a ton of YC founders complain about in later rounds. This will make things worse.
  • tnorthcutt 5y ago
    I'm not very familiar with VC funding/equity structures; would you mind expanding on this?
    • gringoDan 5y ago
      Not OP, but in one sentence: YC will give you an additional $375k now, in exchange for the promise to give them equity at the same terms you give other investors when you raise your next round of funding. The criticism here is that you need to give up a higher % of your company down the road.
      • lupire 5y ago
        How so? Because later investors force more cash than founders need?
      • mcv 5y ago
        Why would you need to give up a higher percentage of your company? Can't you just give those later investors a smaller share in exchange for $375k less money? And getting the money now instead of later sounds to me like an amazing deal; you can continue for longer before you need to find those later investors, and by that time, you'll be worth more and get a better deal from them, and therefore also get a better deal from YC. I don't know much about startup financing, but to my layman's eyes, this sounds like a good deal.
  • dalton 5y ago
    Hi there - this is not a pro-rata investment, we are investing this 375K right away
    • 5y ago
• sgt 5y ago
  Out of interest sake, how much importance does YC place on actually having existing users (not necessarily a lot of revenue, but hundreds of users) as opposed to not? It sounds like a non-brainer question but YC is a bit different than other funds.
  • reducesuffering 5y ago
    Not sure you're going to get an answer from someone more knowledgeable at this point, but from my understanding, the answer is "some." Obviously, the more users the better. You have more traction and a bigger base to get feedback and improve your product. However, YC has still publicly stated that they do fund people based on an idea or MVP without any users, but you'll need a stronger founder profile / problem with unique perspective / MVP to compensate.
• lpolovets 5y ago
  Pretty interesting move. Great for founders raising seed rounds after YC. Great for YC. Not sure if it's as great for founders who want to raise a little at a pre-seed price (e.g. $1m at $10m post) because now there's $375k extra converting at whatever valuation you raise at.
  • reducesuffering 5y ago
    If you wanted to raise $1m at $10m post, well, you already have the $375k, so you can just raise $625k at 10m post now and your outcome is the same as the prior YC arrangement.
• vl 5y ago
  Inflation?
  • ketzo 5y ago
    Not exactly, although clearly this is in some part a reaction to the kind of insane amount of VC sloshing around. They're not offering "more money for the same thing" (i.e. inflation). Instead, YC is offering its old deal – 125k for 7% – plus a bunch more up-front cash for a (to my eyes) very reasonable adjustable equity stake to be named later.
• _xnmw 5y ago
  Question for YC: if a solo founder fully intends never to take additional funding after YC, is that considered defrauding YC (or at least a bad faith application)? I thought YC only invests in companies which it expects to go "VC-scale big", i.e. multiple series of follow-on funding to hit $100M+ annual revenue targets and huge teams?
  • sjroot 5y ago
    I’ve been in this position myself. To be fair, you aren’t bootstrapping if you’re taking YC funds, right? They are seeking returns on this investment in the magnitude seen in previous YC company IPOs, as mentioned in the article. Is a bootstrapped company likely to have that outcome? Possibly, but much less likely than those that have swelled with additional funding rounds and more rapid/predictable public interest.
    • _xnmw 5y ago
      Exactly, so if I apply to YC while intending to go big, but not raise additional funding rounds, am I defrauding them with a bad-faith application?
      • Kevin_S 5y ago
        Surely not. If you don't raise another round, YC may just write off this as a cost of doing business (similar to failed startups they've invested). It may be written into the terms some other backup for this situation.
  • ketzo 5y ago
    This is a super valid question that I have seen asked multiple times with no clear answer. I don't really care what YC is expecting; I think that is already extremely clear. They're expecting VC unicorns. The question is what is legal, and what would be breach-of-contract or fraud? I think the answer to those questions 1) probably should not come from an internet forum comment 2) requires the actual documents in question.
  • snowmaker 5y ago
• Finbarr 5y ago
  Very curious to see what kind of pricing pressure this puts on seed investors who traditionally invest after YC. The dynamics seem likely to swing even more in favor of founders.
  • blast 5y ago
    > The dynamics seem likely to swing even more in favor of founders. What makes you say that?
    • Finbarr 5y ago
      There isn't the same pressure on founders to raise a seed round as they are likely to exit YC with significant capital and runway. Seed investors still have capital allocation targets and are likely to improve their offers to encourage founders to accept investment.
      • tmcneal 5y ago
        This also incentivizes founders to raise at a higher cap to minimize the dilution from the $375k. I imagine it'll be harder for investors to negotiate a lower cap or get a discount.
      • Grustaf 5y ago
        I wouldn't call 400-500k a significant runway, but it should have some effect, since you can put of fund raising for at least a few months, maybe even 2 years if you're frugal. At that time you are hopefully further along.
        • Grustaf 5y ago
          put *off
    • colinmhayes 5y ago
      They can wait longer before seeking funding. And since the terms for the 375k are based off the first funding round it makes sense to wait until the last second to minimize the percentage that goes to yc.
• smashah 5y ago
  Meanwhile in London founders are expected to take £6k at > 0%
  • dzonga 5y ago
    which london accelerator gives startups 6k ? unless it's a wannabe accelerator
• daolf 5y ago
  So what happens to the $375k if you don't raise after YC? Let's say you exit 1 year after YC at a $5m valuation With the MFN, does that mean that YC get 28% of the sale instead of the initial 7%?
  • jonathanpeterwu 5y ago
    That seems to be the suggestion with MFN, it gets priced at the lowest term sheet so in this case the sale term sheet
  • rexreed 5y ago
    I posed the exact question here and got the non-answer that an unconverted SAFE is just debt, but it's not just debt. My understanding is that the valuation is not meaningful on an uncapped SAFE where there's no subsequent round. So 7% equity is what they have regardless of a $5M valuation as determined by... who?
    • jeff18 5y ago
      My understanding is that YC would get 7% ($350k) and would also receive $375k from this new SAFE. So YC would have put in $500k and gotten $675k back.
• supernova87a 5y ago
  More than the specific $ figure or % ownership etc (these are all minor details), what I'm interested in is the "general goal" of YC's approach. What the YC approach is aimed at creating and incentivizing founders to do, and how it might be different from other VCs. PG himself wrote about the dysfunctions of ("typical") VCs here: http://www.paulgraham.com/venturecapital.html http://www.paulgraham.com/venturecapital.html i.e. emphasizing and incentivizing growth at all costs, stealing ideas, interfering with intelligent (but slower) management of a company. I assume that by contrast (if he's writing that), YC must take a different or better approach or philosophy. Is that true? edit: I'm being downvoted for asking an important but I guess slightly uncomfortable question?
• badcede 5y ago
  I love the comments saying that giving $500k instead of $125k will make things worse. Clearly YC should have made things better instead, by giving less! Why stop there though? If YC really cared about founders, they'd give them nothing. Better yet, make them pay - now that would have been helpful! But no. Clearly YC doesn't care about founders. YC really ought to stop making things worse for founders like this. I mean how dare they.
  • rfw300 5y ago
    We can call it a tuition fee!
    • gotsa 5y ago
      This is brilliant.
• cedricd 5y ago
  I'd be curious to see if YC founders, for whatever reason, are able to choose to opt out of the 375. Overall I think this is a great move, and it's good for founders going through the batch. But they could have reasons to not want to give more equity to YC (maybe have more room in SAFEs for strategic angels, stuff like that). edit: I originally called 'more equity' pro rata, which is not correct at all.
  • ketzo 5y ago
    Just as a point of technicality, this is not pro rata for YC, right? > a pro rata clause in an investment agreement gives the investor a right (but not the obligation) to participate in one or more future financing rounds to maintain their percentage stake in the company. This deal explicitly says "hey, here's 375k; we'll take whatever share of your company that is next time you raise." That's not maintaining percentage stake; it's actually agreeing to the possibility of a fairly small stake.
    • cedricd 5y ago
      That's true. I wasn't sure what else to call it. I guess it's more investment upfront at a later valuation. It's almost like a SAFE where the next SAFE acts like a priced round. It's a non-trivial amount though -- it's probably the case that the next funding round for most YC companies gets low millions. So that's a nice chunk of the round. Getting it upfront is unique though, and really quite valuable at this early stage. Still curious if YC will allow opting out -- I don't think I would have -- but still curious.
• dqpb 5y ago
  Is it just me or is $125k for 7% a terrible deal? Is the idea that the networking perks make up for it?
  • sandruso 5y ago
    Money is only one aspect of the deal. There is wide network of existing companies, investors, etc. Value of these varies according to type of the company.
  • reducesuffering 5y ago
    For some companies existing for a couple years, sure. For others, they just gave a person with an idea a 1.66m company (93% of a suddenly worth 1.785m idea).
• dannyw 5y ago
  In 2020, YC cut the standard deal from 150k to 125k, while still preserving the 7% equity (and the 4% pro rata). To sell a solution, first create a problem ;)
  • nrudrapp 5y ago
    Such a good catch. Let's see that with an example. A startup on demo day raises $25m post. 7% on 150k means it's 11.7 multiple. And 7% on 125k means its 14.7 multiple. That's +3x jump on every deal. Now let's say company exited at $1b.. the difference in multiple is +100x!! Give that person a raise YC, whoever suggested to go down to $125k. As somebody else has suggested below. This 375k is mostly cheaper way of buying prorata at series A
• andrewmcwatters 5y ago
  I've always been casually curious about applying to YC, but I'm allergic to the terms because they are not in plain English. I'm not interested in learning about SAFEs or cap tables or any of that. I'm interested in running profitable businesses with basic P&L statements and not owing anyone anything. If you immediately value my business at $1.7 million, I should probably in the next 12 months be making $1.7 million in revenue as a baseline. So how is Y Combinator going to help me do that? Engineers are expensive. How is Y Combinator going to help me sell my product and grow so I can pay my staff? Why would I not just take a bet on a PR firm[1] since advertising is a total wash for small businesses? [1]: http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html Edit: I'm very happy for you that you think SAFE and maybe valuation cap, discount (without context), MFN, pro rata, "high resolution fundraising" are basic terms, but for most US citizens they are not, and for non-US citizens even less so. Y Combinator goes to great lengths to attempt to describe these concepts, at least one of them they introduced and didn't exist anywhere else in fundraising prior, but they go to little to no lengths to explain how they will help you grow your business.
  • corry 5y ago
    Re: "not plain English" - YC is BY FAR the most transparent and founder-friendly VC seed investor and goes to great lengths to educate founders. This is as clear language as financings get in startup land. If you're unwilling to learn basic terms and concepts of equity financings, than building a company using VC is probably not for you (which you seem to already know, given your "I'm interested in running a profitable business... and not owing anyone anything"). If, however, you have an idea that you think could be massive, and are therefore considering raising money from VC to get there faster, then you could start in no better place than YC.
  • bretpiatt 5y ago
    Based on your statement of "...not interested in learning about SAFEs...and not owing anyone anything" you are not interested in running a venture investor backed business. You want to bootstrap[1]. [1] https://en.wikipedia.org/wiki/Entrepreneurship#Bootstrapping https://en.wikipedia.org/wiki/Entrepreneurship#Bootstrapping
  • 5y ago
• lvl100 5y ago
  Am I the only one who thinks this is a bad deal in 2022? $500K is not much and you’re effectively giving up a big chunk of your equity for reputation and “access”.
  • mattnewton 5y ago
    My impression has always been that you are paying a premium to have the YC partners, and their network, spend part of their day thinking about how to make your company succeed. That "access" seems pretty valuable? I have no idea how to value it though.
    • R0b0t1 5y ago
      I'm not really sure I could launch a non-SaaS tech company on $500k, or rather, if I could, I could just not take their money and keep 7%.
      • hiptobecubic 5y ago
        Well first, "I could just bankroll myself and save 7%!" is not how risk management works. Second, the level of privilege in this comment is astounding. $500k is a lot of money if you didn't grow up elite.
        • R0b0t1 5y ago
          $500k is a lot of money but arguably not enough (for most things not strictly SaaS). So either the idea is small enough that it seems you don't need $500k and could probably bootstrap yourself or you're too big for YC and will never happen anyway. The privilege is assuming that your experience with SWE projects maps to everything worth doing.
        • lvl100 5y ago
          That’s not fair and I didn’t mean to come across that way. But a good portion of people who worked 5-7 years in SV (or in other tech hubs such as Boston, NYC, Seattle/PDX) have $$$ in the bank.
• pyb 5y ago
  BTW, is YC going to open up their early application process this month?
  • sandslash 5y ago
    We'll be announcing the early application process for S22 soon!
• nrmitchi 5y ago
  I *think* that this is overall a good thing, but does it not implicitly create a floor for what a future funding round would be able to raise at? My basic back-of-the-envelope math looks like this makes raising a future round at anything < 5M pretty impractical? This obvious doesn't affect the big-wins from YC (at which point the additional equity from the 375k is likely trivial anyways). I know that YC (like any VC) is really betting on it's unicorn outliers for it's returns, and this is likely a big win for middle-of-the-pack companies as well, but could easily lead to many "smaller" outcomes being unable to raise and forced to shut down, no?
  • freeqaz 5y ago
    I definitely agree with you here. If you aren't doing so hot and you have to raise at a low valuation with an extra $375k to "convert" at that low valuation, then you'll be hit with a ton of dilution. Fortunately, I think this is balanced by the fact that it will give more runway to companies before they have to deal with that, so hopefully more companies can move towards the "middle of the pack" tier before being eaten. (And to be quite frank, if you have YC on your investor list, there are many investors that are happy to invest in you just because of that. You're likely already "middle of the pack" just by virtue of that.)
    • nrmitchi 5y ago
      > Fortunately, I think this is balanced by the fact that it will give more runway to companies before they have to deal with that Complete agree, which is why I'm leaning in favor of it being a good thing. If the funds weren't available immediately it would be a different story. > You're likely already "middle of the pack" just by virtue of that I also agree with this, but I think we're using different definitions. I meant "middle of the YC pack", which isn't the same as "middle of the start up pack". Either way, I still think this change is going to (note that all percentages are guesstimated): - Have minimal impact to the top 5% of YC companies that raise (relatively) huge follow-on rounds - Be a slight consideration for the "middle" 50% of YC companies (will have to consider a couple extra points on their cap table) - Effectively drive the bottom 25% out of business, or prevent growth, by preventing them from being able to raise
• didip 5y ago
  No more aiming for Ramen Profitable, I see. Is this forced evolution due to other VCs entering the early stage market?
• wantsanagent 5y ago
  Is this an experiment? Is there a set of metrics being tracked which will inform continuation or reconsideration of this plan?
• rexreed 5y ago
  How does a "$375,000 is on an uncapped safe with “Most Favored Nation” (MFN) terms" work when the company doesn't raise a subsequent round? Say, they get acquired or go bust or something else happens?
  • jmacd 5y ago
    It is just debt then.
    • rexreed 5y ago
      But under what required re-payment terms? My understanding is that SAFEs are not really meant to be debt instruments, and that they are highly unsecured / non-collateralized forms of debt. I was recently screwed over as an angel investor in a SAFE deal where the startup got acquired before their Series A, and I was just completely out of luck. "Thanks for the money, sucka" said the startup. Not verbatim, but that was the idea. Startup got the seed money, founders got the acqui-cash, angel investor chumps got nada. As to debt, you might want to read this: https://www.upcounsel.com/safe-notes https://www.upcounsel.com/safe-notes "Startups may prefer SAFE notes because, unlike convertible notes, they are not debt and therefore do not accrue interest."
      • tptacek 5y ago
        This is common to all sorts of funding arrangements (the classic example is departed cofounders). The moral of the story is that startups are generally either runaway successes, and everyone gets paid, or they're not, in which case the best case is that a subset of the operators and employees get a soft landing. If you're investing at the seed stage, presumably you should not be expecting to recoup on acquihires.
        • rexreed 5y ago
          The acquihire situation happens a lot more than might be anticipated, and usually it's the angel investors left holding the bag. Startups anticipating an acquihire in their future should really look for grants, SBIRs, or other similar funding arrangements because as an angel investor, I have to tell you that the loosey-goosey nature of SAFEs have put me off investing in seed stage startups altogether. I certainly have felt like a chump and not a winner, and I couldn't really celebrate for the startup's "success" as an acquihire. In fact, the increased size of this SAFE will guarantee more situations where startups exit before the next priced round. The more money that's put into early non-priced / non-secured rounds, the more you open up the door to early exits. This is because you're providing more runway. More runway means more time to develop the business, which also means more opportunities and time to exit before a first round.
• sneak 5y ago
  > Dalton Caldwell, YC’s Managing Director, Architect, and long-term Group Partner, who first suggested that now was the right time to make this change, also pointed out that if founders stay lean, this is more than enough capital to survive for years, regardless of the economic environment. I'm all for being scrappy, but unless the definition of "years" is precisely 24 months, this isn't much money split between 3 or 4 people, unless they're all living in Kansas City or something. It's my belief that anyone talented enough to start a startup in earnest and be worth investing in has job opportunities worth enough these days that this is almost a ridiculous claim (narrowly escaping being such by use of the term "survive", apparently in earnest). I am reminded of the jwz nscpdorm disclaimer. Of course founders earn less in salary than they would get as wages as non-founders, but to think that this is a lot of money to a 3 or 4 person founding team "regardless of the economic environment" in the middle of the highest inflation of my entire life is a little... misleading?
• divbzero 5y ago
  Are there considerations to make YC permanently remote? Or does the traditional in-person requirement offer benefits that will be worth reinstating in the future?
  • deleted 5y ago
    [deleted]
• zuhayeer 5y ago
  I like that the new terms are backwards compatible with people doing YC now. If you’re currently in YC or just graduated and need some money, it might be worth asking for the $375k note.
• Liron 5y ago
  This is great. YC used to value companies below-market at $1.8M, and now it's effectively valuing them fairly at $5M+. I now feel good about recommending YC to founders. The argument that YC deserved to take 7% for $125k because it improved a company's prospects more than 7% stopped making sense when the ecosystem became increasingly full of helpful angels willing to pay $500k-1M for that same 7%.
  • CoffeeOnWrite 5y ago
    Did you read the same post I read? 7% for $125K is not changing. Third sentence.
    • deleted 5y ago
      [deleted]
    • Liron 5y ago
      Did you read that they're giving $375k on an uncapped note? That's $500k for (7% + ?) of the company. When you realize that ? is only 1-2%, you realize YC thinks the company is currently worth $5M+. This is what's really going on: YC was bidding too low for companies, and now they're bidding higher so they don't lose out. They did a great job having people not think of it that way.
      • CoffeeOnWrite 5y ago
        Without knowing the valuation that the SAFE converts at, there’s no way to tell what percentage ownership YC will get for the $375K. So to recap, what we know is they get the usual 7% for $125K, plus whatever they get from the SAFE. You say this yourself with “That's $500k for (7% + ?) of the company.” Bidding higher would mean more money for the same equity or less equity for the same money. That’s not what’s happening here. To be clear, the new YC standard deal is strictly better than the old one, because you don’t have to take the SAFE. But it’s not dramatically better. For many of us the 7% for $125K remains a nonstarter.
        • 5y ago
• dang 5y ago
  A significant part of how YC thinks about this deal has not yet been articulated in the thread. (This is just my personal interpretation, not anything official.) Some comments are describing $500k as "not much". Most people would gasp at hearing that. Only a tiny slice of humans are a position to think that way—for example, people who have family wealth (or maybe an elite educational credential) to fall back on, or who have already managed to break into the fundraising scene (or maybe a FAANG job) and have gotten used to comparing themselves to all the $multimillion deals they keep hearing about. A big part of what YC is about is to be a bridge for everybody else to enter this space—no matter who they are or where they live or what demographic they belong to. YC has a long track record, right from the beginning, of funding founders who never would be given a chance by more mainstream institutions [1]. The new YC deal is particularly important for these sorts of founders. Geoff said it in the post, but I haven't seen anyone pick up on this yet: We also hope that this deal will encourage more founders of any age and from every demographic group and geographic location to take the leap into the startup world. YC does that because it's in its interest to do it and because it's good for the world. The idea that those two things go together, and that the way to maximize them is to help founders as much as possible, is in YC's DNA: https://www.ycombinator.com/principles/ https://www.ycombinator.com/principles/. Capital-rich climates notwithstanding, many founders are not necessarily in a position to step out of YC and raise millions right away. Geographic and demographic disadvantages don't suddenly disappear. (And let's not forget the disadvantage of just working on something weird.) Being in YC helps, of course, but all the same imbalances are still in play. For those founders, YC going from $125k to a $500k deal is a gamechanger because it gives them a lot more runway—more time to build, to grow, and prove what they can do, before stepping back into fundraising. Then they can hopefully raise from a position of strength instead of potentially having to accept less favorable terms. [1] Me, for example. I wouldn't be here right now if it weren't for that, and I could tell a long story about how most investors weren't interested in us even after we got into YC.
  • ano88888 5y ago
    Hi, Dang, really glad to hear about YC being the bridge for everybody else to enter startup space. Does YC accept applications from South East Asia ? This is the place where there will be a lot of growth opportunities but very few funding options. Should people register the company in Singapore to make it easier to apply to YC?
• yaseer 5y ago
  YC was a no-brainer value-add for us, even without this deal. It's still a no-brainer for any founder, regardless of batch size or remote vs in-person. This new deal simply cements that. Well done to the YC team.
  • 762236 5y ago
    Apparently it isn't no brainer, since I don't understand what is the benefit received for 7% of the company. Could you explain?
    • pyb 5y ago
      You get 500k investment, and you get to participate in the YC accelerator.
    • exolymph 5y ago
      The money is helpful if you're close to seed stage, but the network and brand cachet are invaluable. For example, recruiting is crucial for early-stage startups, and it is MUCH easier to recruit high-level talent (and get them to accept more equity in lieu of more cash) when you have a name-brand VC committed.
      • skeeter2020 5y ago
        >> brand cachet are invaluable. This was much more a value when there was only a handful of companies in each cohort. Now there's 3 groups: * YC~low number~ that I've heard of: Original signalling value * YC~low number~ that I've never heard of: zombie * YC~high number~ : new batch of spray and pray This is unfair but my initial reaction
        • tinco 5y ago
          So you invest in less YC companies than you did in earlier batches?
        • exolymph 5y ago
          Be that as it may, I speak from experience, the label and logo help a lot with recruiting.
• deleted 5y ago
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• legutierr 5y ago
  Does anyone know if YC has published a model version of the "uncapped safe with an MFN" mentioned in the blog post?
• nkotov 5y ago
  This is such a good change. Fundraising is such a time sink for founders that it takes time away from everything else that matters. I went through YC in S20 and only raised $500k and that helped our team go through without the need for additional funding for almost two years.
• devy 5y ago
  The amount of money that's flowing into the VC since the pandemic is insane! [1] Thanks to Fed's unlimited QE, investors can borrow almost free cash from the feds and pour them into the VC funds for investments. Great times to be an entrepreneur! However, this reminds me of the dot com bubble years. When is this going to end? A lot scary to think about the consequences if that were to happen... [1]: https://news.ycombinator.com/item?id=29880132 https://news.ycombinator.com/item?id=29880132
  • kevinventullo 5y ago
    I think I have a pretty good idea of exactly which sub-sector of Tech right now is most likely to be a bubble…
    • mizzao 5y ago
      The one that causes repeated flamewars on HN?
  • deleted 5y ago
    [deleted]
  • itsoktocry 5y ago
    >Thanks to Fed's unlimited QE, investors can borrow almost free cash from the feds and pour them into the VC funds for investments. Yes, there is a surplus of capital (and has been for a few years), so it's cheap. No, there isn't unlimited QE, and no investors are borrowing from the Fed.
    • robocat 5y ago
      > no investors are borrowing from the Fed. Some of the borrowing is indirect. Let’s say you have a portfolio that includes property. Inflation is high and the current 15 year interest rates are low, so you might increase your mortgage to the maximum. You then put that money into other investments, including VC. This opportunity is even available to many home owners in the US.
• pipnonsense 5y ago
  What is the effect of this on Demo Day? Is Demo Day less relevant (since lean companies might just skip it)? Isn't the Demo Day a motivational deadline that adds value to the YC experience, so it reduces the weight of the "acceleration" part of the program? I don't know those answers, just wondering in the hope that someone from YC comments on that.
  • ryanSrich 5y ago
    I don’t think this has any real impact on Demo Day. Seed rounds have inflated so dramatically at this point that $500k is just a drop in the bucket. Most venture scale companies (which if you’re in YC you most likely are) are raising $3-$5m seed, and then $10-$20m Series A. Of course, this is pushing valuations to astronomical levels.
  • snowmaker 5y ago
    Most companies in YC these days raise over $1M at demo day, so no, I don't think many companies are likely to skip demo day as a result of this. Our goal instead is to make companies more successful at demo day. Now they'll have more capital to use to grow during the batch, and they'll have more leverage to negotiate with demo day investors because they are better capitalized going into their fundraise.
  • aerosmile 5y ago
    Founders will sometimes say "if I can't build this company with no more than a million dollars, it's not worth building it at all." In isolation, that thinking may not be wrong, since it highlights the importance of frugality and the product market fit. But in connection with the easiest influx of capital you will ever experience in the lifecycle of your company, paired with valuations that are super high on a risk-adjusted basis, it would be insane not to say yes to a war chest of a few million dollars that you put away for the rainy day. So no, I don't think that YC companies will raise any less, or will be any less concerned about being ready for Demo Day. The one thing that might happen is that the earliest investors will see a hike in valuations. In the past, investors with the strongest value add (reputation/brand/connections/etc) were able to get in a few weeks before Demo Day at a discount. Since Demo Day investments are characterized by a very weak signal-to-noise ratio, knowing that a reputable investor is bullish on a startup tends to increase the demand to such an extend that the resulting higher valuation more than makes up for that initial discount. Now that this additional $500k is going to be valued against the lowest valuation, it will increase the barrier for giving discounted deals.
• 11thEarlOfMar 5y ago
  From YC's perspective, it's protection against dilution at the 2nd round. Also shows additional confidence in selecting a winning cohort.
• robertlagrant 5y ago
  This is a great step forward, particularly for countries with low costs of living. However, here in the UK where costs are reasonably high, I would think it wouldn't give a lot of room for working before needing to re-raise. Are there any good strategies for this?
• devops000 5y ago
  Is it not better to bootstrap a company ?
• truthwhisperer 5y ago
• deleted 5y ago
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• 1024core 5y ago
  Is there a spreadsheet somewhere of all the companies that YC has invested in over the years, and what their current status is?
  • redact207 5y ago
    https://www.ycombinator.com/companies/ https://www.ycombinator.com/companies/
    • athrowawayyc987 5y ago
      This does not include the YC company that I am an employee at (maybe because we are still in "stealth mode" after two years)
    • 1024core 5y ago
      Is there a machine-readable form? A database or a spreadsheet perhaps?
• jakeinspace 5y ago
  Could someone who has a better grasp of corporate/securities law explain to me why the following is illegal/impossible: conspiring with an investor to get a small follow-up investment round with an inflated valuation, thus reducing the dilution of the $375k? For example, after the initial $500k from YC, you get your VC buddy to invest $50k at 0.1% for a total valuation of $50M, diluting the $375k to a mere 0.75% stake. This feels fraudulent to me, and there’s probably some language that YC uses to prevent this, but would is this otherwise illegal?
  • ReaLNero 5y ago
    I doubt PG is hastily rewriting all of YC's investment agreements as we speak to resolve this loophole! This very much depends on the contract that was signed between the company and YC. Most likely, the founder has a fiduciary duty to represent the stakeholders' financial interests. By maliciously diluting their equity, this would breach the contract, opening up the founder to lawsuits. A very relevant case is that of Eduardo Saverin's equity in Facebook getting diluted [0]. [0]: https://en.wikipedia.org/wiki/Eduardo_Saverin#Career https://en.wikipedia.org/wiki/Eduardo_Saverin#Career
  • chemeng 5y ago
    Pro-rata rights prevent this, but it's an interesting question of whether it would be illegal.
  • aripickar 5y ago
    It's less that it's illegal/impossible and more that it's not in the interests of the company in the long run. Say you do that, then what? If you screw over the seed investors, they are probably are going to tell the series A (and B, C, etc) investors that you screwed them over, and its going to be a lot harder to impossible to raise the next rounds. Plus who would want to invest in a company when the founder already screwed over the last investors. The only way that it could work is if you are able to grow the company indefinitely without raising more money (See Toptal). Basically, you are exchanging all the goodwill and ability to raise in the future for a small percentage of equity. Not a great trade, if you ask me.
• arrel 5y ago
  Didn’t YC already try this with Yuri Milner ten or so years ago? From what I remember they canceled it because it was creating zombie companies, where the founders felt like they couldn’t give up on a bad idea because they still had so much runway.
  • tabbott 5y ago
    I have no inside information on this but I think it may have had more to do with concerns about whether they wanted to be encouraging every YC company to take Yuri Milner's money. See e.g.: https://www.nytimes.com/2017/11/05/world/yuri-milner-facebook-twitter-russia.html https://www.nytimes.com/2017/11/05/world/yuri-milner-faceboo... Also the total funds at the time was ~$150K, aka roughly what YC was doing before this announcement: https://techcrunch.com/2011/01/28/yuri-milner-sv-angel-offer-every-new-y-combinator-startup-150k/ https://techcrunch.com/2011/01/28/yuri-milner-sv-angel-offer... (I believe the history is that at the time, YC didn't have the free cash flow themselves to invest in every YC startup).
  • Liron 5y ago
    I'm confident that the Ron Conway / Yuri Milner "Start Fund" idea worked out great financially, although I think one difference is that it was optional while this new deal is mandatory, so there might have been a significant selection effect (positive or negative), e.g. I'm not sure if Coinbase (YC S12) took the deal and that would matter a lot to the returns.
• ramraj07 5y ago
  This is great news, but is there any special considerations for biotech? I have an idea but the minimum investment for a basic prototype instrument will itself eat up this money!
  • snowmaker 5y ago
    (I work with YC's biotech companies). I'm particularly excited about what this deal means for biotech companies. YC's previous deal of $125K was always a bit light for companies doing wetlab biotech, which is still expensive compared to building software. $500K is a much better fit for the needs of most new biotech companies.
• scottiebarnes 5y ago
  Can anyone list the 10 IPOs of 2021 that were YC companies?
  • reducesuffering 5y ago
    Coinbase, Ginkgo Bioworks, Gitlab, Amplitude, Matterport, Embark Trucks, Weave, Lucira Health
• sudosteph 5y ago
  The entire reason I didn't apply last season was because despite being my startup looking for funding, and despite us having our best traction to date (functional MVP deployed in big retail partner, making sales) - the $125k (minus the cost of uprooting our team and product to CA) was just a bad deal. We've been in talks with some angel groups with 500K being the ask for the pre-seed, and that has been well received. So I think 500K is right on the money for now. It's a good change to see!
  • mesozoic 5y ago
    What kind of percentage range was that 500k preseed at?
    • sudosteph 5y ago
      SAFE with a cap of 5mil. So at least 10%.
• mesozoic 5y ago
  How can you get involved with YC as an angel investor?
• jayzalowitz 5y ago
  I hate this. Can they update the MFN to post YC acceptance date? If I take early money I now have to give YC a super good deal too. Incentivizes not raising money before YC.
  • emmett 5y ago
    That's not what the SAFE says. It's only on subsequent securities, not prior ones. "If the Company issues any Subsequent Convertible Securities with terms more favorable than those of this Safe (including, without limitation, a valuation cap and/or discount) prior to termination of this Safe, the Company will promptly provide the Investor with written notice thereof, together with a copy of such Subsequent Convertible Securities (the “MFN Notice”) and, upon written request of the Investor, any additional information related to such Subsequent Convertible Securities as may be reasonably requested by the Investor." https://www.ycombinator.com/documents/ https://www.ycombinator.com/documents/
  • whiddershins 5y ago
    It’s on your next round.
• jrochkind1 5y ago
  > also pointed out that if founders stay lean, this is more than enough capital to survive for years, regardless of the economic environment. What does this look like? I'm thinking 2 people's salary and overhead at say $110K each -- including employer's taxes, healthcare, and all benefits, that's maybe salaries of like $75-85K? Which is of course not a lot of money at all by software engineer standards (or to live near YC HQ), but is that still more than YC means by "lean"? Because after two years that's $440K, leaving $30K/year for any infrastructure (like, that your software runs on) or marketting, or any other overhead at all. So, yeah, that's lasting for "years" (2, which is I guess the minimum amount of "for years"), with exactly two founder employees, but it definitely seems very very lean to me. How do you think YC is thinking about it, about like that, or I guess, even less take-home for the founders? Or is this not supposed to include the founders supporting themselves for those two years, is that not how it works? Or is the assumption they'd have at least a couple hundred thousand of revenue in those years too? Or thinking they will surely get some additional investment? (but that doens't seem to be what "this is more than enough capital to survive for years" suggests). I'm not saying 500K is "not a lot of money", of course it is! I'm just saying it's not clear to me how it's enough money to run a business "for years", even "leanly". Just curious how they're thinking about it like that, how I'm thinking about it wrong/different. I figure I don't know what I'm talking about, hoping someone will explain how it works!
  • chubs 5y ago
    I've also pondered how these sorts of VC things work. Are they just targeted towards people fresh out of university who can afford to live cheaply? Seems a lost opportunity to hire experienced (expensive) people who can execute with no problems. For instance, what if say 2 experienced people went in on a startup, simply paying themselves out of eg that 500k - 125k each per year? For instance in australia that'd almost be competitive vs just taking a normal software job if you're experienced. I'm just curious how these things work :)
    • tppiotrowski 5y ago
      You take a pay cut. In return you get to be a decision maker and drive the mission of the company. I worked a few years at a high paying job (about $100K), am single and can forgo some luxuries. I did a startup with some friends because we enjoyed hanging out and could afford to work for free. I worked on contract for $6K a month. No benefits.
• SubuSS 5y ago
  Are there terms around how the money is spent / how much founders get paid? Also is there some kind of yc health insurance? I see mention of 40k/founder/yr - imo that leaves out the huge demographic of folks with kids.
• hooch 5y ago
  wtf is an MFN and why can't you spell it the fuck out
  • hooch 5y ago
    if it needs to be hidden behind an acronym, then it must be some suspicious fine print full of dilution shit
    • reducesuffering 5y ago
      There is literally a clickable addendum leading you right to a sentence that spells out what it means by "Most Favored Nation." Or maybe you just prefer to spell out HTTP every time you're in code review.
• pog92 5y ago
  We also hope that this "deal will encourage more founders of any age and from every demographic group and geographic location to take the leap into the startup world." Guys, after reading the first lines of the blogpost I seriously thought for the first time I could take the leap
• EGreg 5y ago
  We’ve applied to YC for ten years straight with Qbix Inc (https://qbix.com https://qbix.com) always filling out our latest progress and achievements… We always got rejected!! I can share the application, if interested. Actually, we never wound up raising VC. We did get a bunch of friends and family, and angels, made around a million dollars in revenues, and reinvested it all into the https://github.com/Qbix/Platform https://github.com/Qbix/Platform - an open source alternative to Facebook et al. Got 10 million users in 95+ countries to download our apps in the stores, translated the apps into 15 languages, and spun out another company called Intercoin. We’re on the east coast and children of immigrants, so we didn’t have a strong network. Maybe that has something to do with it. I guess the stuff we’re building (open source, decentralized social platforms) just isn’t exciting for VCs, who would prefer we focus on one application, getting a hockey stick and not giving away the source code. But we wound up “building things people want” and then some… the David Heinemeier Hansson / Basecamp way (anyone remember his lectures about not taking VC?) PS: Okay, well… NOW it seems funds like Alexis Ohanian’s and Polygon team up and have set aside $200MM for decentralized social networks, which we probably have an 8-10 year head start on everyone else with. PPS: In 2018 we spun out https://intercoin.org https://intercoin.org (much better looking site) same approach but in the Web3 space instead of Web2. Once again, people who throw money at NFTs and memecoins all day long wouldn’t give us a dollar. They at least considered us and told us our goals were too big. We still ended up raising over half a million dollars, but from individual angels who care about things like social impact and universal basic income. All the code is at https://github.com/Intercoin https://github.com/Intercoin Should we apply to YC again? We like YC, but it doesn’t seem to like us…
  • reducesuffering 5y ago
    You're 10 years in but with revenue of $1m. You're surprised YC didn't give you $125k through 10 years of illiquidity for that? YC-funded Amplitude is 10 years old with $150m in revenue. > I guess the stuff we’re building (open source, decentralized social platforms) just isn’t exciting for VC Elasticsearch, MongoDb, Gitlab, HashiCorp, etc, etc. Wrong. Plenty of open source has VC funding, you just have very few github stars and a couple devs. > prefer we focus on one application Yes that seems to help with... > getting a hockey stick Which is what a VC funded business is trying to do. But unfortunately, rather than introspect deeper, you end up blaming > We’re on the east coast and children of immigrants Ignoring the massive amount of YC startups all over the US (you're in NYC, that is... not an excuse), other countries, and by immigrants.
• aksgoel 5y ago
  The two safe combo is brilliant win-win for YC and the startup. I wonder if the uncapped MFN safe from YC will set a precedent and encourage startups to ask for more uncapped safes from other investors? And what are the negative effects of this. I think there YC could create a new safe category and have this as “combo safe”. Portion of the moneys come capped and the rest come uncapped. Will be win win for future safe investors and startups.
• bufferoverflow 5y ago
  What do you do with $500K? It's such a small amount. If you want to hire a single great developer, that amount will buy you his time for a year, maybe two.
  • sgustard 5y ago
    Maybe your company's not a good investment if its business plan requires hiring a single magic employee for a half million dollars.
  • DevoAKA 5y ago
    We take pay cuts to work at a startup in favour of equity, not every startup needs a former FAANG Staff engineer in SF, and the idea is for the money to last about a year. If it’s lasting two, investors will be upset the company is turning into a lifestyle business. Get traction and re-raise. They made it work with $125k, I don’t understand the push back with 3x as much money.
    • deltaonefour 5y ago
      And let's face it. 500k salaries are definitely overpaid. No one in the world other than FAANG engineers get that salary and they are definitely not the best software engineers out there.
• opportune 5y ago
  Very happy with this because it makes raising from YC valuable in terms of the money raised; $125k was not much any more. With $500k you can actually hire one or two (or many more depending on location. Imagine India…) full time employees with > 1 year of runway. Or you can bootstrap a few founders for multiple years. Personally I know many people in my area and age range (mid 20s Bay Area) who would and could put up $125k to self fund their startup, but not many who would put up $500k, even if they technically could.
• new_realist 5y ago
  $125,000 for 7% is still exploitative, not even considering the inflation of the money supply we’re seen recently. So much money chasing deals and this term hasn’t budged.
  • RayVR 5y ago
    First, no one is forcing anyone to take this money. You should only take the deal if you think it makes your company more valuable. Anecdotally, I was offered $125k with similar terms from someone after they saw a prototype of a product I'm building. This person isn't a professional investor, doesn't have a network that adds value in this case, and doesn't have any name recognition. It was easy to turn down the money, although I did thank them and offer to reach out to them in a future fundraising round. YC has an extensive investor database and a ton of name recognition. Every founder I've spoken to or heard from that went into YC says it was 100% the right trade to make. Some founders have said that the moment they could say YC invested in them, they're hiring problems were dramatically reduced. Others have said they would have given up 7% just for the access to the advice and data they received as part of being in YC, plus the name recognition. If you've built companies before I'd love to hear your take on fundraising and what you would consider fair.
• soheil 5y ago
  Will this attract people who try to game the application and the interview process just to get in? Does this in effect force YC to adjust their interview process and possibly make it harder for anyone to get in? I wonder if there are unforeseen side effects beyond just the increased figure.
• w22_throwaway 5y ago
  I'm currently in the W22 batch. There's some heavy skepticism in this thread, so I want to add perspective from someone actually in the current batch (throwaway because we haven't announced our funding yet). The additional $375k (+$125k OG deal = $500k) that YC is offering is an optional and uncapped SAFE. I think of this as YC being an investor in our next round, except I can receive and deploy the cash now with no premium paid to YC. This is extremely founder friendly, and is in addition to what YC had already agreed to invest in us. The terms on this SAFE are much better than what I could have negotiated on my own, and it comes with zero fundraising effort. Because of this, I'm able to go into pitch meetings with investors around demo day in March with more leverage – I no longer need capital from them to keep the company moving in the short term. I can also make capital intensive moves I otherwise would have waited to do. As to whether YC is a value add for us with the dilution it incurs: yes, absolutely. The valuation cap we're raising at has doubled, we have access to a great network of people and companies (this has a real and significant effect), and we were able to convince someone with the YC funding to leave their stable and well paying job to join us. This is all in the context of a US based developer tools startup that already has a top-tier university signal (Stanford), co-founders with FAANG offers on the table, and a co-founder with years of experience working (but not as a founder) at two startups that were acquired. I'm sure some others have better fundraising opportunities, but there is a reason many founders like myself still choose to go through YC.
  • eloff 5y ago
    I'm curious what your startup is. I'm in the devtools space as well. My email is in my profile, contact me if you're willing to share what you're working on in private.
• jpglegal 5y ago
  This is a lot of money, but the way this additional safe works is a bit scary. It takes on the terms of the lowest cap safe or convertible note between "when you're accepted to Y Combinator" and when you raise a priced round. Obviously the $125k Y Combinator safe is issued after you're accepted, so its cap should be one of the options for the MFN cap based on that wording. I believe Y Combinator's $125k for 7% is a post-money cap safe, which means the cap should be $1,785,714. This is a pretty low cap and a startup is unlikely to raise more seed rounds at an even lower cap than that, though it could happen. So once you raise a priced round, Y Combinator's additional $375k converts into, at best, 21% of your company, or an even higher percentage if you raise additional safes or convertible notes at a lower cap. This means that as long as you raise a priced round or hit a liquidity event, Y Combinator will own 28% of your company or more in exchange for $500,000. It's not a terrible deal, but it's a massive chunk of your company. To me, if you've already given up 28% of your company long before you've raised $1 million, you're setting yourself up to eventually have the founders' share of equity at mid-to-high single digits by the time your company IPOs or is acquired as a unicorn. You're basically setting yourself up to be like the Box co-founders, on the opposite end of the spectrum from a high-equity founder group like that of Square (34% at IPO despite raising $500 million in equity financing). Somebody tell me if I'm wrong about the terms here. I'm a lawyer, but not a venture capital lawyer.
  • jpglegal 5y ago
    Okay, I'm being told that Y Combinator's $125k safe for the 7% doesn't have a cap. Sorry for not realizing that, they don't seem to mention the lack of a cap in their "deal" descriptions. If that's the case, then it shouldn't affect the MFN safe. Though it's possible that they've modified the $125k safe to have a cap now.
• NetOpWibby 5y ago
  Thanks to all the comments here, I just applied. I'm building a registry[0] and registrar[1] for my portfolio of Handshake[2] names. I have no idea if it'll be interesting to them but it doesn't hurt to try. Regardless of the outcome, I intend to release by end of Q1 of this year. After the codebases are stable I'm gonna open-source everything. The $500k will just enable me to work on it full-time, eliminate minor debt, and allow me to release faster. I'm in no rush though. - [0]: https://twitter.com/Neuenet https://twitter.com/Neuenet | https://neuenet.com https://neuenet.com - [1]: https://twitter.com/beachfront_ https://twitter.com/beachfront_ - [2]: https://handshake.org https://handshake.org