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Paul, but the YC sample docs give YC a veto over change of control as well. It's not just the VCs who want that power. Now, you may never have - and state tha

Paul, but the YC sample docs give YC a veto over change of control as well. It's not just the VCs who want that power. Now, you may never have - and state that you never will - exercise that right, but if so, then why is it in there?

mattmaroon 18y ago
What's to stop you from taking YC's money, then selling the company to your wife for $1, assets included, and then shutting down? YC is very lax in what they allow. There are definitely some deals they've approved that I suspect a normal angel would have blocked in order to hold out for more. But they still need protection from unscrupulous founders.
- sachinag 18y ago
  You have a fiduciary duty to your minority investors. They can sue your ass if you try this. Look, I understand - if I was going to do it all over again, I'd go through the YC process. But I still do not understand what the purpose of that term is if they're never going to exercise it.
  - mattmaroon 18y ago
    Fiduciary duties are murky, and what exactly would Y Combinator sue for? They'd spend 20x more in legal fees than they invested, and after they won, what would they get? None of their $15-20k back (would be gone in legal fees from the startup they sued, if it weren't already wasted) and control of a company that was comprised of 2 or 3 founders who are now gone for obvious reasons. In the end they'd end up spending a couple hundred grand on a mediocre domain name. Doesn't it seem far better to just have that provision? I have no doubt they'll exercise that provision if they have to. Having that provision ensures they won't. It's like mutually assured destruction, in that having a large nuclear arsenal prevents both sides from ever using it.
- bk 18y ago
  Relationships. Why would you go through applying, having smart enough things to say to get chosen, and then "run off" with a "bounty" of 10-15k, while at the same time burning bridges to an extremely helpful and influential network of people (and possible future investors)? YC's benefits are scarcely about the money.
fizx 18y ago
The YC application allowed for a veto at less than 3x. I haven't looked at the sample docs, but that seemed reasonable.
pg 18y ago
The docs he linked to are the Series AA docs we commissioned for YC alumni to use to when raising money from later stage investors. They're not the docs YC itself uses. In our agreement the clause about change of control is more limited. We only have a veto over selling the company for less than 3x the valuation we invest at. The point of that kind of clause is not to ensure returns (on average, a 3x exit would make us the massive sum of $35k) but to prevent abuse-- e.g. someone selling the company to his brother for $1. Any subscription agreement will have at least that kind of restriction in it.
- sachinag 18y ago
  That's more than fair; I appreciate the note. Good to know what to expect when I apply after we exit from Dawdle. :)

mattmaroon 18y ago

What's to stop you from taking YC's money, then selling the company to your wife for $1, assets included, and then shutting down? YC is very lax in what they allow. There are definitely some deals they've approved that I suspect a normal angel would have blocked in order to hold out for more. But they still need protection from unscrupulous founders.

sachinag 18y ago
You have a fiduciary duty to your minority investors. They can sue your ass if you try this. Look, I understand - if I was going to do it all over again, I'd go through the YC process. But I still do not understand what the purpose of that term is if they're never going to exercise it.
- mattmaroon 18y ago
  Fiduciary duties are murky, and what exactly would Y Combinator sue for? They'd spend 20x more in legal fees than they invested, and after they won, what would they get? None of their $15-20k back (would be gone in legal fees from the startup they sued, if it weren't already wasted) and control of a company that was comprised of 2 or 3 founders who are now gone for obvious reasons. In the end they'd end up spending a couple hundred grand on a mediocre domain name. Doesn't it seem far better to just have that provision? I have no doubt they'll exercise that provision if they have to. Having that provision ensures they won't. It's like mutually assured destruction, in that having a large nuclear arsenal prevents both sides from ever using it.
bk 18y ago
Relationships. Why would you go through applying, having smart enough things to say to get chosen, and then "run off" with a "bounty" of 10-15k, while at the same time burning bridges to an extremely helpful and influential network of people (and possible future investors)? YC's benefits are scarcely about the money.

fizx 18y ago

The YC application allowed for a veto at less than 3x. I haven't looked at the sample docs, but that seemed reasonable.

pg 18y ago

The docs he linked to are the Series AA docs we commissioned for YC alumni to use to when raising money from later stage investors. They're not the docs YC itself uses. In our agreement the clause about change of control is more limited. We only have a veto over selling the company for less than 3x the valuation we invest at. The point of that kind of clause is not to ensure returns (on average, a 3x exit would make us the massive sum of $35k) but to prevent abuse-- e.g. someone selling the company to his brother for $1. Any subscription agreement will have at least that kind of restriction in it.

sachinag 18y ago
That's more than fair; I appreciate the note. Good to know what to expect when I apply after we exit from Dawdle. :)