4 ms·

What you suggested is a terrible thought. Because in the early stage of a startup, some (small amount of money + great alumni network + access to a pool of nota

by jw2013 13y ago

What you suggested is a terrible thought. Because in the early stage of a startup, some (small amount of money + great alumni network + access to a pool of notable investor) will propels the growth so much more than the equity you gave up. "In the general case, if n is the fraction of the company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n). For example, suppose Y Combinator offers to fund you in return for 6% of your company. In this case, n is .06 and 1/(1 - n) is 1.064. So you should take the deal if you believe we can improve your average outcome by more than 6.4%. If we improve your outcome by 10%, you're net ahead, because the remaining .94 you hold is worth .94 x 1.1 = 1.034." Source: http://paulgraham.com/equity.html http://paulgraham.com/equity.html

nawitus 13y ago
"the deal is a good one if it makes the company worth more than" Sure, if we assume that other deals are impossible. Which is a false assumption.
- jaredsohn 13y ago
  No. By saying it is a "good deal", the GP is just saying that your average outcome would be better than doing nothing. It is still theoretically possible for better deals to exist. Edit: You aren't understanding my post; I just said that something can be a "good deal" compared to doing nothing regardless of what other options are available; i.e. YC offers a positive value proposition.
  - nawitus 13y ago
    Yes, YC is a good deal in an alternative reality where YC is the only choice. However, I talked about doing YC in the real world, where other alternatives exist.
    - jw2013 13y ago
      But the 1/(1-n) equation is still true no matter how many alternatives you have. The only change is if you have an alternative, say 10% for 1M from some VC, then you would ask yourself after I got 1M and the help VC, would the investment from YC still help my startup grow 6.4%? I think you are missing my assumption in my OP "in the early stage of a startup". In fact at that stage of startup, even if you have a better deal than YC, you might still want to do YC (so you would take both two deals) because even after your take the better deal, YC can still gives your startup >6.4% growth.

by jw2013 13y ago

nawitus 13y ago

"the deal is a good one if it makes the company worth more than" Sure, if we assume that other deals are impossible. Which is a false assumption.

jaredsohn 13y ago
No. By saying it is a "good deal", the GP is just saying that your average outcome would be better than doing nothing. It is still theoretically possible for better deals to exist. Edit: You aren't understanding my post; I just said that something can be a "good deal" compared to doing nothing regardless of what other options are available; i.e. YC offers a positive value proposition.
- nawitus 13y ago
  Yes, YC is a good deal in an alternative reality where YC is the only choice. However, I talked about doing YC in the real world, where other alternatives exist.
  - jw2013 13y ago
    But the 1/(1-n) equation is still true no matter how many alternatives you have. The only change is if you have an alternative, say 10% for 1M from some VC, then you would ask yourself after I got 1M and the help VC, would the investment from YC still help my startup grow 6.4%? I think you are missing my assumption in my OP "in the early stage of a startup". In fact at that stage of startup, even if you have a better deal than YC, you might still want to do YC (so you would take both two deals) because even after your take the better deal, YC can still gives your startup >6.4% growth.