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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

by 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.
    - Liron 5y ago
      Wow people are struggling to realize that this deal is over twice as good of a deal as before (and the corollary that YC was previously lowballing). It's not a big mystery what the SAFE valuation cap is going to be. Post-YC valuations are generally $20M+ these days, and having $500k in the bank would presumably make them higher, which means the $375k will convert to 1.875% of the company or less.
      - gkop 5y ago
        It’s twice (more than twice really) as good only at the marginal percentage ownership beyond 7%, it’s not twice as good of a deal in absolute terms. It reminds me of “buy one get one half off” - no, I’d like just one, for 25% off its list price, please. If YC revised their terms to 125K for 3.5%, that would be twice as good a deal.
        Liron 5y ago
        Every company that applies to YC can expect to want $500k+ of capital at some point. It's extremely rare for them not to. The "no, I'd like just one" reaction doesn't make sense for a company that's aiming for a $billion+ valuation, and those are the only companies that YC accepts.
        gkop 5y ago
        This makes sense if you wanted to sell YC 7% or more of your company. Some of us want the benefit of YC without giving up so much of our company, and the new standard deal doesn't do anything for us.
zffr 5y ago
Maybe it valued some companies at below market for $1.8M, but YC also accepts pre-revenue and sometimes pre-product companies. Surely their market value is below $1.8M.
- Liron 5y ago
  No, it's not. Show me a team of smart founders pre-product who are telling a coherent value prop story [0] and I'll show you a check for $125k at a $5M cap. [0] https://medium.com/bloated-mvp/how-to-sanity-check-your-startup-idea-dbb3ad4c9888 https://medium.com/bloated-mvp/how-to-sanity-check-your-star...
  - jimhi 5y ago
    Many, many people are not in the Silicon Valley bubble and don’t get lucky enough to break in. I know tons of smart, coherent teams who struggle to this day or gave up. Every time I came into YC to interview (when it was in person) who did not get funded, in startup school, and all over SE Asia.
    - Liron 5y ago
      I'm just talking factually about the capital market. Plenty of funds would accept a deal of automatically funding all YC-accepted companies at a $5M valuation. I would take it myself as an angel investor. And now YC is taking it instead of lowballing.
      - jimhi 5y ago
        For reference, my company was only able to raise 10k at our demo day with a 6M Cap in 2018. This deal would have kept my cofounder and I from maxing out our credit cards & sleeping on our office floor for a year. We got acquired and I did well anyway but regardless...

by Liron 5y ago

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.
  - Liron 5y ago
    Wow people are struggling to realize that this deal is over twice as good of a deal as before (and the corollary that YC was previously lowballing). It's not a big mystery what the SAFE valuation cap is going to be. Post-YC valuations are generally $20M+ these days, and having $500k in the bank would presumably make them higher, which means the $375k will convert to 1.875% of the company or less.
    - gkop 5y ago
      It’s twice (more than twice really) as good only at the marginal percentage ownership beyond 7%, it’s not twice as good of a deal in absolute terms. It reminds me of “buy one get one half off” - no, I’d like just one, for 25% off its list price, please. If YC revised their terms to 125K for 3.5%, that would be twice as good a deal.
      - Liron 5y ago
        Every company that applies to YC can expect to want $500k+ of capital at some point. It's extremely rare for them not to. The "no, I'd like just one" reaction doesn't make sense for a company that's aiming for a $billion+ valuation, and those are the only companies that YC accepts.
        gkop 5y ago
        This makes sense if you wanted to sell YC 7% or more of your company. Some of us want the benefit of YC without giving up so much of our company, and the new standard deal doesn't do anything for us.

zffr 5y ago

Maybe it valued some companies at below market for $1.8M, but YC also accepts pre-revenue and sometimes pre-product companies. Surely their market value is below $1.8M.

Liron 5y ago
No, it's not. Show me a team of smart founders pre-product who are telling a coherent value prop story [0] and I'll show you a check for $125k at a $5M cap. [0] https://medium.com/bloated-mvp/how-to-sanity-check-your-startup-idea-dbb3ad4c9888 https://medium.com/bloated-mvp/how-to-sanity-check-your-star...
- jimhi 5y ago
  Many, many people are not in the Silicon Valley bubble and don’t get lucky enough to break in. I know tons of smart, coherent teams who struggle to this day or gave up. Every time I came into YC to interview (when it was in person) who did not get funded, in startup school, and all over SE Asia.
  - Liron 5y ago
    I'm just talking factually about the capital market. Plenty of funds would accept a deal of automatically funding all YC-accepted companies at a $5M valuation. I would take it myself as an angel investor. And now YC is taking it instead of lowballing.
    - jimhi 5y ago
      For reference, my company was only able to raise 10k at our demo day with a 6M Cap in 2018. This deal would have kept my cofounder and I from maxing out our credit cards & sleeping on our office floor for a year. We got acquired and I did well anyway but regardless...