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Doesn’t Y Combinator get 7% of every business for only $125,000? How are they not flush with cash?
by dqpb 4y ago
Doesn’t Y Combinator get 7% of every business for only $125,000? How are they not flush with cash?
- tfehring 4y ago$125k * 400 companies/batch * 2 batches/year = ~$100 million/year deployed just during the batches. On top of that, they often participate in later funding rounds to maintain their 7% stake. Also, it takes a long time for those investments to generate cash. Many of the most valuable YC-funded companies are still private, and even for the public ones I doubt YC unloads its whole stake as soon as it can post-IPO.
- lumost 4y agoIsn’t there also a large risk to YC in the event their private unicorns see substantial valuation revisions?
- political12345 4y agoyea...
- tfehring 4y agoThere's definitely risk in the sense that YC invests in relatively risky companies, and anything that negatively impacts the long-term value of those businesses ultimately impacts YC. From, like, an accounting perspective, I have no idea when YC marks gains or losses to market or whether that timing coincides with other market participants or the companies themselves. Either way, in the context of the top-level commenter's question, it's worth emphasizing that a change in valuation isn't a cash flow. YC doesn't get an influx of cash to invest when the value of its portfolio companies goes up, and it doesn't have to give up cash that it could otherwise invest when those companies' valuations go down.
- hmryehbut 4y agoJIT economics are not just for toilet paper
- solarmist 4y agoIt’s $500k now.
- yunohn 4y agoNo, it’s still 125k for 7%, with an option for an additional 375k on an uncapped safe. Source: https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/
- supernova87a 4y agoWhat is a "safe"? I have never heard that term in this usage before.
- yunohn 4y agoSimple Agreement for Future Equity: https://www.ycombinator.com/documents https://www.ycombinator.com/documents
- dstick 4y agoTrue but from a practical standpoint they risk a full $500.000 upfront: “Both investments happen at the same time; they are not contingent on any milestones.” So from a founder perspective, that’s very friendly.
- yunohn 4y agoThat is true, but the comment I was replying to was implying that you get 500k at 7%, which is wrong.
- ec109685 4y agoIf you ever finance again you have to take the note, right?
- yunohn 4y agoThat’s actually a good question, the language isn’t clear on whether the 325k note is mandatory or not.