4 ms·

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

by 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.
- eloff 13y ago
  Well maybe my example is unlikely, although one could argue that the YC brand is worth something in that it will let you raise more from other investors. However, it doesn't need to be so extreme, just that companies that are further along are less risky to YC and it seems strange for YC to artificially offer higher than market prices to said company thus lowering demand. Why would YC want fewer lower risk companies and more high risk ones? The incentives don't seem rational to me.
  - IgorPartola 13y ago
    I see this often, but I am starting to think this is a fallacy. A company can be further along down the wrong path, making it harder to undo the bad things it had done up to that point. A company can be based on an unsustainable idea and no amount of work put into it will ever make it viable. I have a feeling that real-world data is much more interesting than this. I imagine the risk curves are not strictly decreasing with progress from idea to product with users, and I bet YC could shed some light on this by showing when companies actually close down vs when they start at YC.
- mikeg8 13y ago
  The 120k for 7% is a great middle ground. Trying to raise that amount on your own isn't going to be easy or net you nearly the same valuation as this deal and re-investing every penny is wise but it may take several months/a year to equate to 120k.

by eloff 13y ago

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.
eloff 13y ago
Well maybe my example is unlikely, although one could argue that the YC brand is worth something in that it will let you raise more from other investors. However, it doesn't need to be so extreme, just that companies that are further along are less risky to YC and it seems strange for YC to artificially offer higher than market prices to said company thus lowering demand. Why would YC want fewer lower risk companies and more high risk ones? The incentives don't seem rational to me.
- IgorPartola 13y ago
  I see this often, but I am starting to think this is a fallacy. A company can be further along down the wrong path, making it harder to undo the bad things it had done up to that point. A company can be based on an unsustainable idea and no amount of work put into it will ever make it viable. I have a feeling that real-world data is much more interesting than this. I imagine the risk curves are not strictly decreasing with progress from idea to product with users, and I bet YC could shed some light on this by showing when companies actually close down vs when they start at YC.
mikeg8 13y ago
The 120k for 7% is a great middle ground. Trying to raise that amount on your own isn't going to be easy or net you nearly the same valuation as this deal and re-investing every penny is wise but it may take several months/a year to equate to 120k.