5 ms·

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.
lleims 5y ago
They're still going to get 7% for $125k. The $375k extra will convert on the same terms of the next financing.
- throw1234651234 5y ago
  I don't understand at all. I know nothing about startups - so is it an additional 7% that YC owns for every additional 125k, so 28% for 500k? Disclosure - I did not watch the SAFE video.
  - sokoloff 5y ago
    Roughly: The additional converts at the best deal another investor gets at/before the next priced round. If the next priced round is at $7.5M, their $375K converts at that price (so it buys them another 5%). If your next round is not above $1.8M, it’s already an unfavorable sign. The only downside I see is it doesn’t let you raise another small amount without valuing YC’s follow-on $375K. You might want to do such a raise for strategic rather than financial reasons and this would be an overhang against that. (I don’t think it’s that big a deal in practice and the additional committed money is probably better by way more than this detriment.)
    - vl 5y ago
      In practice for small round you will be raising SAFEs instead anyway, so it might be fine for early companies.
    - mizzao 5y ago
      I think you can just do more MFN SAFEs for small follow-on, if an investor is willing (maybe not though if there is no discount)
  - istinetz 5y ago
    Nope. It's $125k for 7%; then the 375k are on terms of next equity round. So the first tranche values your company at 1.78 million; if, afterwards, you raise more money at 6 million valuation, YC gets another 6.25% for 375k. Correct me if I'm wrong.
lmeyerov 5y ago
It took me a second to work through. Basically, they just said they will always do some of their effective pro rata. So more weight on the cap table. Hopefully it isn't required, bc sometimes there isn't a lot of room, and their value goes down the further out you are. But for weaker companies, for helping their rounds kick off, can be good.
- dannyw 5y ago
  Nope. They still retain their perpetual, unlimited 4% pro rata in addition to the 375k most favorable note. This is extra pro rata.
  - lmeyerov 5y ago
    Yep, and apparently forced bc they give the $ on day 1. That's a lot of %, and before most founders understand what is happening, esp. in their target demographic....
yawnxyz 5y ago
that's interesting- we decided to take around that figure in non-dilutive grant funding instead of YC. Compared to grants, that's pretty expensive

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.

lleims 5y ago

They're still going to get 7% for $125k. The $375k extra will convert on the same terms of the next financing.

throw1234651234 5y ago
I don't understand at all. I know nothing about startups - so is it an additional 7% that YC owns for every additional 125k, so 28% for 500k? Disclosure - I did not watch the SAFE video.
- sokoloff 5y ago
  Roughly: The additional converts at the best deal another investor gets at/before the next priced round. If the next priced round is at $7.5M, their $375K converts at that price (so it buys them another 5%). If your next round is not above $1.8M, it’s already an unfavorable sign. The only downside I see is it doesn’t let you raise another small amount without valuing YC’s follow-on $375K. You might want to do such a raise for strategic rather than financial reasons and this would be an overhang against that. (I don’t think it’s that big a deal in practice and the additional committed money is probably better by way more than this detriment.)
  - vl 5y ago
    In practice for small round you will be raising SAFEs instead anyway, so it might be fine for early companies.
  - mizzao 5y ago
    I think you can just do more MFN SAFEs for small follow-on, if an investor is willing (maybe not though if there is no discount)
- istinetz 5y ago
  Nope. It's $125k for 7%; then the 375k are on terms of next equity round. So the first tranche values your company at 1.78 million; if, afterwards, you raise more money at 6 million valuation, YC gets another 6.25% for 375k. Correct me if I'm wrong.

lmeyerov 5y ago

It took me a second to work through. Basically, they just said they will always do some of their effective pro rata. So more weight on the cap table. Hopefully it isn't required, bc sometimes there isn't a lot of room, and their value goes down the further out you are. But for weaker companies, for helping their rounds kick off, can be good.

dannyw 5y ago
Nope. They still retain their perpetual, unlimited 4% pro rata in addition to the 375k most favorable note. This is extra pro rata.
- lmeyerov 5y ago
  Yep, and apparently forced bc they give the $ on day 1. That's a lot of %, and before most founders understand what is happening, esp. in their target demographic....

yawnxyz 5y ago

that's interesting- we decided to take around that figure in non-dilutive grant funding instead of YC. Compared to grants, that's pretty expensive