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I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deser

I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes. What exactly is the problem being solved by having a standard deal which almost everybody gets?

steveklabnik 13y ago
If they valued different companies differently, then it sends a certain kind of signal. The ones with the better valuation would end up getting a disproportionate amount of follow-on funding. Now, that may be a good thing, but it also might be a bad thing. At a certain point, this is a numbers game, and you want the market to sort things out, not YC management.
- tptacek 13y ago
  Didn't Altman just say that they sometimes do value companies differently? What was bad about the signaling problem with YCVC was that it probably often had nothing whatsoever to do with the value of the company, and was instead just an artifact of circumstance. But other investors might not be savvy enough (or just might not have the time to think through it) to understand that that was all that was happening.
  - steveklabnik 13y ago
    Maybe? I don't remember, but I may have just missed it.
  - morgante 13y ago
    > Didn't Altman just say that they sometimes do value companies differently? It seems like they're planning to significantly decrease that variation. Almost all companies will give 7%, and a few exceptional cases might give less. This move eliminates all signaling risks (7% is now standard, so it's not a mark against companies, and any deviation is likely upwards).
tptacek 13y ago
If you're trying to fund 30+ companies per batch, having valuation negotiations with each of them is probably a dealbreaker in terms of overhead.
- cperciva 13y ago
  Has YC ever had valuation negotiations? I've never been through the process, but if PG's past essays and comments are to be trusted, they started out by making offers for different amounts of equity from different companies -- but those were still take-it-or-leave-it offers.
deleted 13y ago
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sama 13y ago
very few people do YC primarily for the money (though, as i said in the post, more money for less equity is definitely better than the opposite!), and whether a company is brand new or 6 months old, we think we can increase their valuation by more than 7%.
- mcherm 13y ago
  ...or more specifically, if you CANNOT increase their valuation by more than 7% then they probably should be looking elsewhere, to someone who CAN increase their value substantially.
- blazespin 13y ago
  The money matters, of course. But I think you are attracting a certain stage company that is somewhere in the ballpark of your standard offer + what they expect you to accelerate. Companies outside that ballpark, should probably look elsewhere. Also, it must be thrilling that other accelerators are competing with you guys. YCombinator has birthed a very critical industry to the new economy. Exciting times.
- eloff 13y ago
  What about a startup that comes to YC with a product and customers already as opposed to just an idea? Surely they give up less than 7% equity? The risk for YC is maybe an order of magnitude less and the equity % should reflect that lowered risk (not saying .7% either, but lower.)
  - IgorPartola 13y ago
    Why would a company like that approach YC and not raise a round on their own? Or better yet, reinvest every penny back into the business without giving up any equity? Won't these companies just self filter?
    - wpietri 13y ago
      Because it would be substantially easier to raise money with the YC stamp of approval.
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jonknee 13y ago
YC is meant for very early stages (with an idea and not much else). Stripe wasn't worth much when it was just an idea--a better payment gateway--but is now worth a lot because they executed. YC wants to help teams better execute and starts things off with enough money to let the team live in the Bay area for a short time.
- nedwin 13y ago
  More and more they're funding startups that have traction, customers, revenue - sometimes substantial revenue.
  - mikeg8 13y ago
    Can you cite a few examples of companies they funded with substantial revenue? I'm very curious to learn about which ones they were.
    - simonw 13y ago
      Many (most?) of the companies that presented at the most recent YC demo day had substantial revenue, and many of those were already making revenue before they joined YC. (That's a big difference from the YC batch I went through back in Winter 2011)
btrautsc 13y ago
Echoed from other places - but doing YC shouldn't be about the money or percentage ownership. Yes, one day you'll look at the cap table and say, "man it would be great to have that x% to give to employees" - but very likely you're company will be in a dramatically different place progress-wise and valuation-wise, so it's a major net-gain. Companies come into YC with nothing but wireframes and companies come in with six digit revenues. Both will exit dramatically further along, hyper-focused, and with higher valuations (in my experience). Companies that are unicorns or growing like crazy or have crazy utility get even higher valuations, and it all works out pretty well. IMO standard deal makes things incredible simple and easy on the front end, without the massive majority of potential pitfalls (signaling, jealousy, negotiating time, etc)
- paulhauggis 13y ago
  "Echoed from other places - but doing YC shouldn't be about the money or percentage ownership" If starting a business is not at least somewhat about the money, why not just have everything a non-profit? I've gotten told this very thing, only to have a business-minded company use it to make money on my hard work and effort (you should be happy you get to work on something you enjoy..for 1/2 market value and 50+ hours/week)
  - rahimnathwani 13y ago
    I think he means the decision to do YC shouldn't be driven primarily by the benefit of the cash investment. Yes, the company should be driven to make money, but the transaction between the company and YC should be driven by the overall impact (on the company being able to make money), not on the investment amount itself. No one (I think) is suggesting that you start a business without the intention to make money.
  - btrautsc 13y ago
    rahimnathwani is spot on with my interpretation. Absolutely only start a business because you are driven to make something people want, customers & users love, and to create wealth for you, your partners/ shareholders/ stakeholders involved. My point re YC is that decision should not be made by weighing the pro's and con's of the money and equity stake you will give up for it (vs other investors for example). The investment money is a tiny fraction of the total value/ resources that YC brings to the table.
GFK_of_xmaspast 13y ago
"a standard deal which almost everybody gets" Worked for Henry Ford.
diziet 13y ago
There are many, many great companies of a certain age or size that will do yc for free. In fact, due to the equity piece companies are 'paying' to get into yc. If you are going for venture / seed funding, the stamp and brand is quite worth it.

steveklabnik 13y ago

If they valued different companies differently, then it sends a certain kind of signal. The ones with the better valuation would end up getting a disproportionate amount of follow-on funding. Now, that may be a good thing, but it also might be a bad thing. At a certain point, this is a numbers game, and you want the market to sort things out, not YC management.

tptacek 13y ago
Didn't Altman just say that they sometimes do value companies differently? What was bad about the signaling problem with YCVC was that it probably often had nothing whatsoever to do with the value of the company, and was instead just an artifact of circumstance. But other investors might not be savvy enough (or just might not have the time to think through it) to understand that that was all that was happening.
- steveklabnik 13y ago
  Maybe? I don't remember, but I may have just missed it.
- morgante 13y ago
  > Didn't Altman just say that they sometimes do value companies differently? It seems like they're planning to significantly decrease that variation. Almost all companies will give 7%, and a few exceptional cases might give less. This move eliminates all signaling risks (7% is now standard, so it's not a mark against companies, and any deviation is likely upwards).

tptacek 13y ago

If you're trying to fund 30+ companies per batch, having valuation negotiations with each of them is probably a dealbreaker in terms of overhead.

cperciva 13y ago
Has YC ever had valuation negotiations? I've never been through the process, but if PG's past essays and comments are to be trusted, they started out by making offers for different amounts of equity from different companies -- but those were still take-it-or-leave-it offers.

deleted 13y ago

[deleted]

sama 13y ago

very few people do YC primarily for the money (though, as i said in the post, more money for less equity is definitely better than the opposite!), and whether a company is brand new or 6 months old, we think we can increase their valuation by more than 7%.

mcherm 13y ago
...or more specifically, if you CANNOT increase their valuation by more than 7% then they probably should be looking elsewhere, to someone who CAN increase their value substantially.
blazespin 13y ago
The money matters, of course. But I think you are attracting a certain stage company that is somewhere in the ballpark of your standard offer + what they expect you to accelerate. Companies outside that ballpark, should probably look elsewhere. Also, it must be thrilling that other accelerators are competing with you guys. YCombinator has birthed a very critical industry to the new economy. Exciting times.
eloff 13y ago
What about a startup that comes to YC with a product and customers already as opposed to just an idea? Surely they give up less than 7% equity? The risk for YC is maybe an order of magnitude less and the equity % should reflect that lowered risk (not saying .7% either, but lower.)
- IgorPartola 13y ago
  Why would a company like that approach YC and not raise a round on their own? Or better yet, reinvest every penny back into the business without giving up any equity? Won't these companies just self filter?
  - wpietri 13y ago
    Because it would be substantially easier to raise money with the YC stamp of approval.

deleted 13y ago

[deleted]

jonknee 13y ago

YC is meant for very early stages (with an idea and not much else). Stripe wasn't worth much when it was just an idea--a better payment gateway--but is now worth a lot because they executed. YC wants to help teams better execute and starts things off with enough money to let the team live in the Bay area for a short time.

nedwin 13y ago
More and more they're funding startups that have traction, customers, revenue - sometimes substantial revenue.
- mikeg8 13y ago
  Can you cite a few examples of companies they funded with substantial revenue? I'm very curious to learn about which ones they were.
  - simonw 13y ago
    Many (most?) of the companies that presented at the most recent YC demo day had substantial revenue, and many of those were already making revenue before they joined YC. (That's a big difference from the YC batch I went through back in Winter 2011)

btrautsc 13y ago

Echoed from other places - but doing YC shouldn't be about the money or percentage ownership. Yes, one day you'll look at the cap table and say, "man it would be great to have that x% to give to employees" - but very likely you're company will be in a dramatically different place progress-wise and valuation-wise, so it's a major net-gain. Companies come into YC with nothing but wireframes and companies come in with six digit revenues. Both will exit dramatically further along, hyper-focused, and with higher valuations (in my experience). Companies that are unicorns or growing like crazy or have crazy utility get even higher valuations, and it all works out pretty well. IMO standard deal makes things incredible simple and easy on the front end, without the massive majority of potential pitfalls (signaling, jealousy, negotiating time, etc)

paulhauggis 13y ago
"Echoed from other places - but doing YC shouldn't be about the money or percentage ownership" If starting a business is not at least somewhat about the money, why not just have everything a non-profit? I've gotten told this very thing, only to have a business-minded company use it to make money on my hard work and effort (you should be happy you get to work on something you enjoy..for 1/2 market value and 50+ hours/week)
- rahimnathwani 13y ago
  I think he means the decision to do YC shouldn't be driven primarily by the benefit of the cash investment. Yes, the company should be driven to make money, but the transaction between the company and YC should be driven by the overall impact (on the company being able to make money), not on the investment amount itself. No one (I think) is suggesting that you start a business without the intention to make money.
- btrautsc 13y ago
  rahimnathwani is spot on with my interpretation. Absolutely only start a business because you are driven to make something people want, customers & users love, and to create wealth for you, your partners/ shareholders/ stakeholders involved. My point re YC is that decision should not be made by weighing the pro's and con's of the money and equity stake you will give up for it (vs other investors for example). The investment money is a tiny fraction of the total value/ resources that YC brings to the table.

GFK_of_xmaspast 13y ago

"a standard deal which almost everybody gets" Worked for Henry Ford.

diziet 13y ago

There are many, many great companies of a certain age or size that will do yc for free. In fact, due to the equity piece companies are 'paying' to get into yc. If you are going for venture / seed funding, the stamp and brand is quite worth it.