5 ms·
What do you guys think about the terms of the deal? Isn't 15% a lot to give out for just 150k?
by deathflute 13y ago
What do you guys think about the terms of the deal? Isn't 15% a lot to give out for just 150k?
- minimaxir 13y agoY Combinator is $20k (+ $80k maybe) for ~6% equity.
- jahewson 13y agoThe $80k is a convertible note though, so expect it to be converted into another ~25% equity at that valuation.
- deathflute 13y agoI thought the convertible note is to be converted to equity in series A. If the company did well, it would presumably have a higher valuation, and they would have to give away far less than 25%.
- pg 13y agoIt doesn't convert at that valuation. It converts in a future equity round, usually the series A, valuations for which are on average over $10 million lately.
- deathflute 13y agoThanks for the clarification. Thats what I thought. So convertible note is much better for the entrepreneur. It retains the optionality of doing well and consequently giving out less equity.
- pg 13y agoNotes aren't always better. It depends on the valuation cap at which they convert. A note with a low cap is just as dilutive as an equity investment at a low valuation. The YCVC note is uncapped, however, which means it's like getting part of your eventual equity round in advance.
- 6cxs2hd6 13y agoIIUC a convertible note better for the investor in less-good outcomes because it's a note -- it's debt, not equity. In a bankruptcy equity holders are S.O.L. Creditors get to divvy up whatever is left. Which may not be much, but it's > 0 and they have a voice at the table.
- jahewson 13y agoOk I see, so it's more like 8% at $10m.
- michaelochurch 13y agoYC gets those terms because of what it does for a company's reputation, and the contacts made through YC itself.