15 ms·

Exploding Offers Suck

414 points by lalwanivikas 12y ago

ivankirigin 12y ago
Is this a change for YC? YC previously required getting an answer the day you're accepted because "you have all the information". So this is an update to allow people time to decide, right? I always found the justification of having all the information a bit self centered. Founders have all the information... about YC, but not about other options. That said, as a YC alum, I think you should almost certainly say yes if accepted.
- sama 12y ago
  only in the early years of YC did we require an answer right away. as much time as the founders want has been the unofficial policy for awhile, but i thought it was time to share it.
  - areyousure 12y ago
    I don't believe that is correct. A page that asks to be kept confidential from one year ago (S13) clearly indicates that founders are to decide the same evening that they receive a call back. Am I missing something?
  - mrbird 12y ago
    > only in the early years of YC did we require an answer right away. I think the post would be stronger if it acknowledged this fact.
  - diminish 12y ago
    I think it's a good opportunity for YC to improve the acceptance process. Why don't you review the applications in a FIFO basis and give an immediate green light to invitations? If they are ready for an interview why not have weekly interviews till the deadline? Clearly the waiting isn't founder-friendly neither..
    - jacquesm 12y ago
      At a guess because that would eliminate the largest advantage the classes system gives: batch acceptance gives YC the opportunity to evaluate all the potentials against the backdrop of every other entry. If they start accepting along the line then they're going to disadvantage themselves because there is only a limited number of slots for interviews. So by sorting them in decreasing order they operate more efficiently.
  - smcl 12y ago
    It seems a wee bit disingenuous that YC are claiming a sort of moral high ground over other companies who are doing exactly what YC were doing.
    - judk 12y ago
      I hope you enjoyed today's lesson about how business works.
ISL 12y ago
Academic here: Doesn't this post state that the offer has a 45-day duration? Are offers that "explode" only a few days in duration?
- endersshadow 12y ago
  Clearly, no offer (in any realm) will ever be perpetually valid. Giving a reasonable amount of time to evaluate options and make a better decision is considerably less explosive than one that puts an artificially tight deadline on the decision.
- waylandsmithers 12y ago
  I would think it odd for any kind of business deal to be extended and awaiting a response without any kind of deadline at all. I think exploding in this sense is more "this offer comes off the table at midnight" kind of stuff.
- malgorithms 12y ago
  The distinction is this: "exploding" typically refers to a very short period of time, designed to prevent shopping the deal, extensive legal review or advice, or exploring other options. A legitimate deadline for an offer wouldn't be called exploding if it spans many weeks and lets a participant fully understand it.
typpo 12y ago
This seems like a step forward. Exploding offers are generally unpleasant, usually a power play from the side that has less to lose. It's also common practice for companies to extend exploding offers to new hires. Replace "accelerators" with "companies" and "founders" with "hires" and you get a very similar argument for not forcing people to take a job until they've completed their own decisionmaking process (this ultimately benefits the company as well, in my opinion).
- nilsimsa 12y ago
  I've used it for new hires. Helps get quick closure on those whose decision is right on the edge. Also you get to know how strong an interest they have. But if they ask for more time, I usually give it. They just have to be confident enough to ask.
DanBlake 12y ago
It is pretty clear to see whats going on: It is without question that most people applying to incubators apply to a few of them, in case they don't get into the (obviously) best one, YC. Its my guess that some of the less exciting incubators give these exploding term sheets to make the founder think: "Damn, I got into Incubator X but I have to say yes in 48 hours. I wonder if I will get accepted into YC also when answers go out in 2 weeks. Should I risk walking away with nothing, or just take the offer I have now..." Would not be surprised to see more incubators doing this anyways, with or without exploding term sheets. They will likely just move up the dates their sessions start (and the date you need to say yes by), to make sure its before YC answers go out. On the same hand, I am not sure what you expect other incubators to do. YC is hands down the most prestigious incubator to get into and everyone knows that. So, you have a bunch of other incubators that have to think scrappy to get people into their programs. These guys don't just want YC's cast-offs, after all. If YC was to start doing rolling acceptances for a start date, it would solve the issue of other people doing exploding term sheets. If I apply to YC today for the winter batch and can interview and get a yes in a few weeks, then the motivation for other incubators to do this behavior is gone. YC partners need to realize they are the cause of other incubators giving out exploding term sheets. I know YC likes to make a event of doing all the interviews/acceptances on one day, but it would certainly be much more entrepreneur friendly to have it be rolling admissions. The start dates for sessions can still remain the same of course.
- TheMakeA 12y ago
  I'd love to see YC innovate in this area rather than shame other incubators into better behavior. Accepting applications on a rolling basis instead of once every 3 months with a 2 month wait, for example. I'm not sure how well that idea would work, but I'm sure there's something that could be done.
  - brm 12y ago
    What about the equivalent of an 'early decision' application like in US colleges?
    - 12y ago
malgorithms 12y ago
A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does is verbally reject the deadline. And the second thing he does is ignore the deadline and offer feedback only after it has passed. I've seen him employ this many times in practice and it has always worked out. I don't want to be responsible for anyone losing a deal, but remember: when someone offers you an exploding offer, it's because they really, really want you to take it. If anything, it should be a sign there's (a) more time to be had, and (b) plenty of room on the terms. Any deadline claim has to be concrete and believable. The start of the YC program is a good example.
- tieTYT 12y ago
  > when someone offers you an exploding offer, it's because they really, really want you to take it. Couldn't it be because they've got a lot on their plate and after a certain period of time they want to free up their brain cycles and stop wondering if you're going to accept that deal? Couldn't it be that you're barely preferred and making the deadline shows them that you're excited about the offer? Missing the deadline shows that you're not excited and they'll know to go with the second best candidate? FWIW, I'm relating this to exploding job offers as I have no direct VC experience.
  - wisty 12y ago
    If they don't really want you, they'll tend to give vague and noncommittal timeframes so they can check out other options. A job offer might be time limited if there's a planned start date though.
  - eli 12y ago
    It seems unlikely that someone would instantly flip from wanting to do a deal to refusing to do a deal just because it drags on a little longer than they wanted. But anything's possible. If you're happy with the offer and don't want to risk losing it, take it!
  - malgorithms 12y ago
    It's imaginable that there's a very short-term deadline affecting a deal. But remember: that puts the side with the deadline at a disadvantage, not an advantage. Consider these examples: really needing to sell something for the money, desperately needing someone to fill a job, needing to use a scarce item in the short term, etc. If one of these is happening for real, then the offer they make will have to be compellingly high and convincing, demonstrating their position of weakness. If someone offered you 5X your normal rate and explained they needed a job done this weekend, that's not a negotiation strategy on their part. But feigning indifference and giving you a short-term deadline for an offer you're unsure you can beat -- that's just a negotiation move, and personally, I would call them on it. Again, I don't want to be responsible for failed application of this :-)
lukasm 12y ago
What if you accept the exploding offer and then break the contract or avoid to sign it?
- deleted 12y ago
  [deleted]
  - parfe 12y ago
    This post exemplifies why you don't take legal advice from strangers on the internet.
    - balls187 12y ago
      Is there case law that shows verbal acceptance of contracts are legally binding?
      - bduerst 12y ago
        Email and Oral acceptance of terms can be legally binding in contractual agreements. You don't need to dig up a civil court case to know that verbally accepting a contract without intending to fulfill it is naive and potentially dangerous.
        balls187 12y ago
        > Email and Oral acceptance of terms can be legally binding in contractual agreements. It looks like (from basic research) that verbal acceptance IS legally binding (in the US anyway). The trouble with verbal agreements is they can be problematic to enforce.
        eru 12y ago
        Not so much enforce, but it's often hard to prove the details.
      - jacalata 12y ago
clamprecht 12y ago
It seems like the other accelerators are doing this so they don't end up with only YC-rejects. Since YC is probably considered the top accelerator, it's also better for YC to have other accelerators not give exploding offers. Because then the few companies that would have accepted the exploding offers AND also would have gotten into YC, can now actually go to YC instead of accepting an exploding offer. If I missed something, I'm sure you'll point it out ;)
chrisbennet 12y ago
In general, if someone wants me to agree to something "big" immediately, I figure that they don't want me to have time to consider it carefully. If you don't want me to think about something, I figure you know I would probably decide against your offer (if I did think about it).
- serve_yay 12y ago
  I agree, but exploding offers tend to explode sometime after "immediately". i.e., the deadline can be enough time to think everything through and do your due diligence. Still an exploding offer.
JOnAgain 12y ago
It's a little different for a lot of other accelerators. YC takes batches of, what? like 40 companies or so in a batch? Most other accelerators are smaller with class sizes around 10. If YC is shooting for 40, and gets 37, it's maybe not a huge deal (8% under target). You could even make 42 or 44 offers and plan for a certain acceptance rate, end up with 44 probably isn't the end of the world (110% capacity). If another is shooting for 10 and gets 7, that's a 30% drop which is probably enough to mess with the economics of the accelerator. Similarly, if they make 12 offers planning for a certain acceptance rate and end up with all 12, they're at 120% capacity, which also might be enough to mess with the economics. I still think exploding offers suck, but YC is in a much stronger position to be relaxed about them than others.
- sroussey 12y ago
  I agree. Also, it is not like they house the people, which is more complicated that office hours. In this case, they are talking a negative about YC and spinning it into a positive.
far33d 12y ago
This is true for ALL exploding offers. Not just accelerators or investment term sheets, but for employment as well.
- Qantourisc 12y ago
  Indeed exploding offers for me is like: "Lets double, triple check this, this is fishy."
calpaterson 12y ago
Cool change of policy. Brian Chesky says in this video that Y Combinator gave AirBNB an exploding offer back in 2009: http://youtu.be/6yPfxcqEXhE?t=53m6s http://youtu.be/6yPfxcqEXhE?t=53m6s
- sanjayparekh 12y ago
  When I was reading this I thought to myself "wait, didn't YC have exploding offers before"? Glad you dug this up. It was widely known back then that PG viewed it as a "intelligence test" if you didn't accept on the spot. If you didn't, he didn't want you. So I guess now the tide has turned. That all said, I'm very much against exploding offers. The person offering the deal may have a reason to do so but you should resist the urge to rush to a decision.
  - geebee 12y ago
    Here's the write up from the pg's essay site. http://www.paulgraham.com/frinterview.html http://www.paulgraham.com/frinterview.html
    - dmoney 12y ago
      The relevant bit: F|R: I read that when you call Y Combinator winners, the founders have only five minutes to accept. ("If people turn us down," he says, "as far as we're concerned they've failed an IQ test.") Have startups turned you down? Are there any that have turned Y Combinator down and still gone on to succeed with a liquidity event? Graham: You're confusing two separate things. The reason people are supposed to decide quickly whether or not to accept is that they already know everything except the percent we'll ask for. They've already seen the deal terms, and they already know as much as they're going to know about YC before actually working with us. So they should already know when we call what percentage they'd be ok with. Since all they have to do is subtract one integer from another, five minutes should be enough. The "IQ test" quote refers not to how fast they have to decide, but the amount of equity we usually ask for. In the median case it's 6%. If we take 6%, we have to improve a startup's outcome by 6.4% for them to end up net ahead. That's a ridiculously low bar. So the IQ test is whether they grasp that. There was one startup that turned us down because they received an acquisition offer during the weekend when we did interviews. It was a pretty good offer. I'd have taken it in their position, and they did. But other than that I don't know of anyone who turned us down and went on to succeed. There have only been about three others who turned us down.
MarkPNeyer 12y ago
> It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders. isn't that 'not the best thing for accelerators' in the long run as well? if you're using a strategy which is clearly not win-win, you're going to lose _good_ deals to people who aren't doing that - so you'll get stuck with a portfolio of companies run by founders not smart enough to see this for what it is. enjoy, sucker!
the_cat_kittles 12y ago
the solution: a centralized clearinghouse that uses the gale shapely deferred acceptance algorithm
jpetersonmn 12y ago
Exploding offers make perfect sense in situations like this. Especially if you're given 48 hours, that's plenty of time to accept/decline. And if it's not enough time then you weren't ready to play ball yet anyway. If I'm making someone an offer, I'm not giving them weeks to decide so that they can go shop around for something better.
dmourati 12y ago
I got an exploding offer for employment and came to the same conclusion. The company is called Loyal3: https://www.loyal3.com/ https://www.loyal3.com/ Steer clear of them. "Senator? You can have my answer now, if you like."
- fecak 12y ago
  Employment offers tend to be exploding because a company has a single need and doesn't want to lose every candidate because they are waiting for their top choice. Almost every offer of every kind 'explodes' at some point. It's the duration until the explosion that varies. I'm sure YC will make you reapply for future consideration, just as companies can not be expected to honor your employment offer if you defer for a year.
  - mrfusion 12y ago
    What's a normal period for exploding employment offers? Is 2 days a lot or a little?
    - fecak 12y ago
      In my experience two days is low. 5-10 days is more common, and most companies are fairly willing to negotiate beyond that given some circumstances. It's not common to see candidates rejected if they try to accept an offer after it explodes.
      - mrfusion 12y ago
        Thanks. Also wondering: should more senior people be offended by exploding offers. Architects, team leads, etc?
        fecak 12y ago
        I'm not sure anyone 'should' be offended by an exploding offer. There are lots of potential factors at play. You only see people talking about exploding offers of employment when the window is relatively small - no one bats an eye when given 45 days to accept a job offer, as that should give plenty of time to find other competitive offers. It's those 3-5 day figures where candidates tend to think they smell a rat. No one wants to be forced into a decision at gunpoint, which is essentially what a short notice exploding offer becomes. Part of this is also dependent upon the length of the interview process and how much detail is given. If you interview with a company 10 times over a 6 week period, I don't think a short window for acceptance is overly limiting for most candidates. We often see candidates trying to expedite the offer process in order to receive offers around the same time. Candidates are at their most advantageous position when they hold multiple active job offers, and they have the opportunity to leverage them off each other (I'm not suggesting this tactic). Yet when companies try to expedite the acceptance process, suddenly we feel that there is something dubious at play. Candidates want companies to make quick (and positive) hiring decisions, yet want to take their time to maximize their ability to shop for offers. More senior talent is less of a commodity than an entry-level candidate, so you might expect more junior level candidates will see exploding offers more often than senior candidates. Senior talent can also leverage their experience a bit more in order to get windows increased if necessary. I don't think they should be offended as much as they should be curious as to why the company employs such tactics (assuming again that the window is short).
teachingaway 12y ago
There's a balance between "exploding" offers and hang-around-forever offers. You don't want someone to come back 6 months later and say they're finally ready to accept your offer. Its not difficult to balance these factors. Just ask, "how long do you need to consider this deal?" "Two weeks? Four weeks?" "If you need more time, just give me a call."
jgalt212 12y ago
Most exploding offers don't represent credible threats. That being said, if someone jumped at one of my exploding offers, I'd definitely try to negotiate a better price ex post facto given my read that the counterparty is so jumpy.
kordless 12y ago
I accepted an exploding offer. It was a harbinger to a larger detonation. There's a simple way of looking at this type of behavior: If someone is willing to go negative on you at the beginning (evidenced by 'denying' you an investment because you didn't take it when they wanted you to take it) then you should assume they will be willing to go negative on something else of a similar or greater magnitude at a later date.
- pmarca 12y ago
  Yep.
seats 12y ago
I'm an MD for Techstars and I completely agree. This is the approach we've always taken for the programs that I've run, (Techstars Cloud and the Austin TS program). In several cases, just as a consequence of the calendar, the timing of when we've given offers out can create tension for a company, particularly if it lands in between the YC interview notification and the actual YC interview. When it's come up in the past I've aways encouraged founders to notify YC and see if they can either take the interview early or if our timeline permits, to let them take their YC interview knowing that they have a standing offer from me regardless. I've had some people mention to me that this is merely bolstering these companies' applications to YC, but I don't view it that way and regardless of which program they end up in, it's the right thing to do imo. It's actually worked out quite well and I'm happy with the companies that chose Techstars in those scenarios over YC, and also completely happy for the companies that chose YC.
- zaidf 12y ago
  I went through YC in '07. But prior to getting into YC, I got into Techstars' very first class. David was a total class act in letting me go through the YC interview process before making a decision and completely understanding when I decided to go with YC. Although I went with YC(and would do so again), that one experience left a positive impression in my mind of TS.
kazinator 12y ago
> It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders. Why should accelerators should do what is best for someone else, not themselves? The world is full of expiring offers of all kinds; they are everywhere. Rarely does any kind of offer stand for as long as we would like. Expiry of offers is the norm. Also, Golden Rule: he who has the gold, sets the rules.
rickdale 12y ago
This is a tactic I see used on the micro level on Shark Tank where usually Mark Cuban will be like "25 second shot clock, you gotta decide right now." Being a Shark Tank and Dragons Den addict (both Canada and UK versions) I can say the greatest difference between the US version and the others is this tactic. I have never seen any of the Canadian or UK investors do anything remotely similar. Usually they are more impressed by companies that take the time to think about the offers. Just an observation.
- vxNsr 12y ago
  Just a point about Shark Tank and similar shows: the actual meeting is a lot longer than the ~6 minutes that they show you. Some go on for hours, and they just cut to the interesting bits, so that 30 sec shot clock thing is often just theatrics, they've been discussing things for a while and know before whether they're gonna say yes.
  - maxbrown 12y ago
    I learned this recently, the most interesting part of which was that the founders stand silent in front of the investors for at least a few minutes while the lighting and sounds and such are set. I wonder, don't you think the shot clock offer is real even though they've been talking longer than we've seen?
    - vxNsr 12y ago
      It might be kinda real, but I think it's a lot easier to see coming and prepare for than the show implies. I've only watched the last two seasons of shark tank, but from what I remember the offer always seems to come out of left field, Mark doesn't appear interested and then he suddenly makes an offer. I don't think it's usually like that, but it makes for some great television.
rdl 12y ago
I'd feel a bit more ok with exploding offers for organizations where there are a finite number of slots -- e.g. if an accelerator is very small and capital or other resource constrained, or has a hardware lab and limit space, or something like that. None of that applies to YC, of course.
govindkabra31 12y ago
A good alternative for YC to consider is to change to a 'continuous' mode.. where you incubate companies on 1st Tue of every month. The companies in a batch are already in variety of stages, some just starting with an idea, some with some market validation done, some may even have raised $500K round before. This is very much unlike a college or a vocational class, where all participants are in more or less same stage.
andykmaguire 12y ago
Sam - This is standard fare not just for accelerators but VC term sheets as well. Curious if you apply your logic in that case as well?
mathattack 12y ago
It's not the same as job interview exploding offers, but the thought process behind it is the same. http://www.joelonsoftware.com/items/2008/11/26.html http://www.joelonsoftware.com/items/2008/11/26.html
mathattack 12y ago
A couple observations... 1 - If you're good enough to be accepted by one incubator, you have an incubator-worthy idea and team. If they go away, another will arrive. 2 - The person forcing your hand is trying to use their temporary leverage over you until you have leverage over them. It sets the tone of the relationship on leverage. 3 - That said, people with lower acceptance rates (whether it's accelerators, colleges, etc) have to play yield games. Harvard yields ~80% of admits so they can wait their time because they are confident of admits, and it won't impact their capacity. Amherst accepts ~40%, so they have to play the waiting-list game. The 2nd tier accelerators have to play waiting list games, and that's what drives this behavior. 48 hours is unreasonable, but a few weeks isn't. (Or having a formalized waiting list too)
legohead 12y ago
exploding offers call for exploding counter-offers
- maxbrown 12y ago
  "You have 24 hours to give me more than 24 hours" ?
  - legohead 12y ago
    I agree to your terms but you get half equity.
jacquesm 12y ago
It's simple: if you're being pressured just say 'no'. There is no upside to negotiations under pressure, only downsides. Likely the pressure is there because if you thought about it long enough you'd refuse the deal anyway, so you might as well refuse it right off the bat and tell the counterparty the time-limit is what caused you to refuse. If you have no other options then likely you already made a series of mistakes. Exceptions exist but don't happen often enough to go and make a series of qualifications here, adding pressure is similar to being blackmailed, the only reasonable course is to refuse to play.
- danshapiro 12y ago
  Actually, if you're being pressured, a better response is, "If you need an answer now, it's going to have to be 'no', so I hope you can adjust your schedule so we can consider your offer more fully." Exploding offers are unfortunate and a significant negative data point about the behavior of the organization but they are not the only data point. The above answer will defuse the threat and give you the upper hand in the negotiation so you can make the right decision for your team, whether it's 'yes' or 'no'. This is helpful for exploding offers in any circumstance - jobs, M&A, etc. As a side note, while short-horizon offers are terrible, it is reasonable to have some expiration date. Techstars Seattle, for example, has 10 slots and while they might be able to add an extra one or two, logistics don't allow for the kind of flexibility that YC has[1]. I believe there's a good way for an accelerator to handle this ethically: 1) Tell applicants when the decision date is when they apply (so they can plan accordingly) rather than surprising it on them as a negotiating tactic 2) Provide all relevant information when they apply, so they can consider the possibilities in advance, versus (for example) springing restrictions, valuations, or fees on them when they get the offer 3) Allowing enough time between the acceptance and the notification for the team to make a good decision - a week seems reasonable. YC's behavior is exemplary here; their model and position in the industry lets them be super-flexible. Other programs may not have the ability to be quite as flexible but that doesn't mean they're unethical if they're thoughtful about their implementation. [1] My understanding as a mentor for the program - I don't have inside knowledge
  - jacquesm 12y ago
nihaar 12y ago
When my co-founders and I were applying to accelerators in 2008, we had been accepted into a Philadelphia based accelerator called DreamIt shortly before our YC interviews. Not knowing if we would get into YC, we accepted with DreamIt as it was an exploding offer. A few weeks later we found that we got accepted by YC. After deliberating it for sometime, we went back to the DreamIt team and told them that we wished to rescind our acceptance. This started a shitstorm with the DreamIt team as they seemed to take this very personally. It was the first year of doing the accelerator and they went as far as threatening to take legal action. Not knowing what to do, we turned to PG and Jessica for help, a bit hesitantly, as we were afraid of what they would say. PG expressed his extreme disappointment with how DreamIt had reacted to this and was supportive of our situation. He send them an email telling them to back off and that this was not an acceptable way to be treating founders. Just one anecdote out of many of how YC has gone to many lengths to protect founders. Since that experience, I've realized that it really doesn't do accelerators any good to introduce these conditions in their funding offers. It creates a bad reputation amongst founders in the increasingly competitive field of accelerators. And founders ultimately need to pick based on what they think will have the most impact to their business. Compete on benefits you can offer to founders, not legalese.
- lquist 12y ago
  So basically you made an agreement with one set of investors and then went back on your word because another, "better" set of investors wanted to put money in? Maybe it's just me, but this doesn't reflect that well on you.
  - compare 12y ago
    The effectiveness of the relationship between investors and startups in SV is built on upon being upstanding and not being overly manipulative. Founder/Investor agreements that are born from the manipulation of unexperienced founders always should be EXPECTED to turn out badly. There's a child-like expectation that once the deal is signed or agreement is made that it's over. It never is, that's just the beginning. If you're expecting that everything is finalized as soon as an agreement is made, regardless of the conditions, then you're simply bad at business and taking risks that you haven't yet realized. (Of course this isn't true in Europe. They love taking contracts extremely literally, and their economies suffer enormously for it.)
deleted 12y ago
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jusben1369 12y ago
I'm sure Sam's heart is in the right place but I'm not sure I agree with him here: "Exploding offers suck. Founders should be able to choose the investor they want to work with, not have to make a decision based on time pressure." and investors should be able to choose the founders they want to work with. And accelerators are the one's who make it all about the calendar. So they inject the notion of time and deadlines (YCSpring12 etc) "where an accelerator tries to force a company to make a decision about a funding offer before the company has a chance to finish talking to other accelerators." The risk here is that sounds like sour grapes. "after we make you an offer, we’ll give you until the beginning of our program to decide (though most companies accept quickly, because you can’t start having office hours with us and participating in other ways until you accept). We ask companies to be transparent with us about needing more time--we won't rescind our offer. It’s usually about 45 days from interview to the start of the batch." - We use "soft" deadlines. You don't get access to important resources until you say yes. And yes look we have 45 days from interview to the start of the batch (there's that pesky calendar coming into play) "We encourage all other accelerators to join us on this. It should be an easy yes. Exploding offers are the wrong thing for founders, and an accelerator that does the wrong thing for founders will not last long." - We're the pre-eminent accelerator and other accelerators should play by the same rules as that way we'll stay the pre-eminent accelerator! "And founders should think very hard about joining an accelerator that puts forth a short-fuse offer." Once again makes me feel like they're losing out to this tactic and it's hurting. And a bit of FUD? Are you creating startups that have to go out and compete in a very competitive world? Seems like insulating them from making important business decisions is a little counter intuitive. Again, I'm sure Sam's motives are pure. This is a little tin can ear to me and whiny.
VarunMKhona 12y ago
This is sensible and good for the entrepreneur. If its good for the entrepreneur, its good for the prospective accelerator, its good for the prospective investors and so on and so forth. The virtuous cycle is for real. The issue is the not-so-famous accelerators bear the brunt because almost all applicants are awaiting response from YC and not the other way around. If the conclusion of this is you give you short-term exploding offer, the accelerators have got it all wrong. Instead, the right perspective is that they need to make their value prop as strong as a YC. Glass half-full/half-empty, remember?
Grae 12y ago
While I agree with the points made in this post, it's important to note that the strategy of condemning offers with a short term plays in the favor of YC and other established/larger accelerators and to the detriment of newer/smaller accelerators. As others have noted, there may be compelling reasons to require an offer be accepted on a short timeline or not at all. In fact, as raised elsewhere in this thread, YC itself used to require acceptance the same day the offer was made. From an entrepreneur's perspective, given two offers at equivalent valuations and terms it's rational to take the offer at the more established accelerator (e.g. YC) over a less well known one. It's also less important for large accelerators to allocate each open position in each cohort, and thus easier for larger accelerators (e.g. YC) to tolerate losing a few deals last minute. Again, I agree with the points made in the post, but it's important to note that making longer term offers the norm plays in YC's favor.
deleted 12y ago
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vvimal 12y ago
negotiation is all about context. Knowing your BATNA is the first step. That will give you a baseline for your negotiation. Like in trading, you only hear about the success stories about top notch negotiators. The reality is much more nuanced than that.
rjf1331 12y ago
I agree with the concept for the most part, but have a few gripes. First, the desk space argument is very real. Y Combinator takes 60+ companies and has no real space constraints since they do not offer office space. Other accelerators take far fewer companies and do have office space, so they need to know ahead of time 1) that their batch will be full and 2) that each company has passed their own due diligence process. Also, as with term sheets, founders can take their offer from one accelerator and shop it to others. It's happened before (with people I know), who take an offer from one accelerator and use it to trigger FOMO from the other. Couldn't an accelerator just position it's start date before Y Combinator's decision date, and therefore not need an exploding offer but have the same effect? Exploding offers should be reasonable, and I'm not against being fair to founders. But doesn't democratizing this essentially involve accelerators colluding to have the same offer/acceptance date?
dazhangdong 12y ago
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dazhangdong 12y ago
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beat 12y ago
I used an exploding offer effectively once. I was buying a house in 2002, during the crazy bull market on housing. Houses in the neighborhoods we were shopping regularly went for more than list, with competing bids. We finally found a house, at the very top of our price range, and put an offer in for it just a few hours after it first listed - for list price. The seller's agent was furious! She really wanted to drag it out to the weekend and get a bidding war, which we absolutely could not afford. But what were they going to do... turn down a list price offer? Why not just sell it at a higher price, then? We still have that house, 12 years later. It's finally worth what we paid for it again. Sigh.

414 points by lalwanivikas 12y ago

Is this a change for YC? YC previously required getting an answer the day you're accepted because "you have all the information". So this is an update to allow people time to decide, right? I always found the justification of having all the information a bit self centered. Founders have all the information... about YC, but not about other options. That said, as a YC alum, I think you should almost certainly say yes if accepted.

sama 12y ago
only in the early years of YC did we require an answer right away. as much time as the founders want has been the unofficial policy for awhile, but i thought it was time to share it.
- areyousure 12y ago
  I don't believe that is correct. A page that asks to be kept confidential from one year ago (S13) clearly indicates that founders are to decide the same evening that they receive a call back. Am I missing something?
- mrbird 12y ago
  > only in the early years of YC did we require an answer right away. I think the post would be stronger if it acknowledged this fact.
- diminish 12y ago
  I think it's a good opportunity for YC to improve the acceptance process. Why don't you review the applications in a FIFO basis and give an immediate green light to invitations? If they are ready for an interview why not have weekly interviews till the deadline? Clearly the waiting isn't founder-friendly neither..
  - jacquesm 12y ago
    At a guess because that would eliminate the largest advantage the classes system gives: batch acceptance gives YC the opportunity to evaluate all the potentials against the backdrop of every other entry. If they start accepting along the line then they're going to disadvantage themselves because there is only a limited number of slots for interviews. So by sorting them in decreasing order they operate more efficiently.
- smcl 12y ago
  It seems a wee bit disingenuous that YC are claiming a sort of moral high ground over other companies who are doing exactly what YC were doing.
  - judk 12y ago
    I hope you enjoyed today's lesson about how business works.

ISL 12y ago

Academic here: Doesn't this post state that the offer has a 45-day duration? Are offers that "explode" only a few days in duration?

endersshadow 12y ago
Clearly, no offer (in any realm) will ever be perpetually valid. Giving a reasonable amount of time to evaluate options and make a better decision is considerably less explosive than one that puts an artificially tight deadline on the decision.
waylandsmithers 12y ago
I would think it odd for any kind of business deal to be extended and awaiting a response without any kind of deadline at all. I think exploding in this sense is more "this offer comes off the table at midnight" kind of stuff.
malgorithms 12y ago
The distinction is this: "exploding" typically refers to a very short period of time, designed to prevent shopping the deal, extensive legal review or advice, or exploring other options. A legitimate deadline for an offer wouldn't be called exploding if it spans many weeks and lets a participant fully understand it.

typpo 12y ago

This seems like a step forward. Exploding offers are generally unpleasant, usually a power play from the side that has less to lose. It's also common practice for companies to extend exploding offers to new hires. Replace "accelerators" with "companies" and "founders" with "hires" and you get a very similar argument for not forcing people to take a job until they've completed their own decisionmaking process (this ultimately benefits the company as well, in my opinion).

nilsimsa 12y ago
I've used it for new hires. Helps get quick closure on those whose decision is right on the edge. Also you get to know how strong an interest they have. But if they ask for more time, I usually give it. They just have to be confident enough to ask.

DanBlake 12y ago

It is pretty clear to see whats going on: It is without question that most people applying to incubators apply to a few of them, in case they don't get into the (obviously) best one, YC. Its my guess that some of the less exciting incubators give these exploding term sheets to make the founder think: "Damn, I got into Incubator X but I have to say yes in 48 hours. I wonder if I will get accepted into YC also when answers go out in 2 weeks. Should I risk walking away with nothing, or just take the offer I have now..." Would not be surprised to see more incubators doing this anyways, with or without exploding term sheets. They will likely just move up the dates their sessions start (and the date you need to say yes by), to make sure its before YC answers go out. On the same hand, I am not sure what you expect other incubators to do. YC is hands down the most prestigious incubator to get into and everyone knows that. So, you have a bunch of other incubators that have to think scrappy to get people into their programs. These guys don't just want YC's cast-offs, after all. If YC was to start doing rolling acceptances for a start date, it would solve the issue of other people doing exploding term sheets. If I apply to YC today for the winter batch and can interview and get a yes in a few weeks, then the motivation for other incubators to do this behavior is gone. YC partners need to realize they are the cause of other incubators giving out exploding term sheets. I know YC likes to make a event of doing all the interviews/acceptances on one day, but it would certainly be much more entrepreneur friendly to have it be rolling admissions. The start dates for sessions can still remain the same of course.

TheMakeA 12y ago
I'd love to see YC innovate in this area rather than shame other incubators into better behavior. Accepting applications on a rolling basis instead of once every 3 months with a 2 month wait, for example. I'm not sure how well that idea would work, but I'm sure there's something that could be done.
- brm 12y ago
  What about the equivalent of an 'early decision' application like in US colleges?
  - 12y ago

malgorithms 12y ago

A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does is verbally reject the deadline. And the second thing he does is ignore the deadline and offer feedback only after it has passed. I've seen him employ this many times in practice and it has always worked out. I don't want to be responsible for anyone losing a deal, but remember: when someone offers you an exploding offer, it's because they really, really want you to take it. If anything, it should be a sign there's (a) more time to be had, and (b) plenty of room on the terms. Any deadline claim has to be concrete and believable. The start of the YC program is a good example.

tieTYT 12y ago
> when someone offers you an exploding offer, it's because they really, really want you to take it. Couldn't it be because they've got a lot on their plate and after a certain period of time they want to free up their brain cycles and stop wondering if you're going to accept that deal? Couldn't it be that you're barely preferred and making the deadline shows them that you're excited about the offer? Missing the deadline shows that you're not excited and they'll know to go with the second best candidate? FWIW, I'm relating this to exploding job offers as I have no direct VC experience.
- wisty 12y ago
  If they don't really want you, they'll tend to give vague and noncommittal timeframes so they can check out other options. A job offer might be time limited if there's a planned start date though.
- eli 12y ago
  It seems unlikely that someone would instantly flip from wanting to do a deal to refusing to do a deal just because it drags on a little longer than they wanted. But anything's possible. If you're happy with the offer and don't want to risk losing it, take it!
- malgorithms 12y ago
  It's imaginable that there's a very short-term deadline affecting a deal. But remember: that puts the side with the deadline at a disadvantage, not an advantage. Consider these examples: really needing to sell something for the money, desperately needing someone to fill a job, needing to use a scarce item in the short term, etc. If one of these is happening for real, then the offer they make will have to be compellingly high and convincing, demonstrating their position of weakness. If someone offered you 5X your normal rate and explained they needed a job done this weekend, that's not a negotiation strategy on their part. But feigning indifference and giving you a short-term deadline for an offer you're unsure you can beat -- that's just a negotiation move, and personally, I would call them on it. Again, I don't want to be responsible for failed application of this :-)

lukasm 12y ago

What if you accept the exploding offer and then break the contract or avoid to sign it?

deleted 12y ago
[deleted]
- parfe 12y ago
  This post exemplifies why you don't take legal advice from strangers on the internet.
  - balls187 12y ago
    Is there case law that shows verbal acceptance of contracts are legally binding?
    - bduerst 12y ago
      Email and Oral acceptance of terms can be legally binding in contractual agreements. You don't need to dig up a civil court case to know that verbally accepting a contract without intending to fulfill it is naive and potentially dangerous.
      - balls187 12y ago
        > Email and Oral acceptance of terms can be legally binding in contractual agreements. It looks like (from basic research) that verbal acceptance IS legally binding (in the US anyway). The trouble with verbal agreements is they can be problematic to enforce.
        eru 12y ago
        Not so much enforce, but it's often hard to prove the details.
    - jacalata 12y ago

clamprecht 12y ago

It seems like the other accelerators are doing this so they don't end up with only YC-rejects. Since YC is probably considered the top accelerator, it's also better for YC to have other accelerators not give exploding offers. Because then the few companies that would have accepted the exploding offers AND also would have gotten into YC, can now actually go to YC instead of accepting an exploding offer. If I missed something, I'm sure you'll point it out ;)

chrisbennet 12y ago

In general, if someone wants me to agree to something "big" immediately, I figure that they don't want me to have time to consider it carefully. If you don't want me to think about something, I figure you know I would probably decide against your offer (if I did think about it).

serve_yay 12y ago
I agree, but exploding offers tend to explode sometime after "immediately". i.e., the deadline can be enough time to think everything through and do your due diligence. Still an exploding offer.

JOnAgain 12y ago

It's a little different for a lot of other accelerators. YC takes batches of, what? like 40 companies or so in a batch? Most other accelerators are smaller with class sizes around 10. If YC is shooting for 40, and gets 37, it's maybe not a huge deal (8% under target). You could even make 42 or 44 offers and plan for a certain acceptance rate, end up with 44 probably isn't the end of the world (110% capacity). If another is shooting for 10 and gets 7, that's a 30% drop which is probably enough to mess with the economics of the accelerator. Similarly, if they make 12 offers planning for a certain acceptance rate and end up with all 12, they're at 120% capacity, which also might be enough to mess with the economics. I still think exploding offers suck, but YC is in a much stronger position to be relaxed about them than others.

sroussey 12y ago
I agree. Also, it is not like they house the people, which is more complicated that office hours. In this case, they are talking a negative about YC and spinning it into a positive.

far33d 12y ago

This is true for ALL exploding offers. Not just accelerators or investment term sheets, but for employment as well.

Qantourisc 12y ago
Indeed exploding offers for me is like: "Lets double, triple check this, this is fishy."

calpaterson 12y ago

Cool change of policy. Brian Chesky says in this video that Y Combinator gave AirBNB an exploding offer back in 2009: http://youtu.be/6yPfxcqEXhE?t=53m6s http://youtu.be/6yPfxcqEXhE?t=53m6s

sanjayparekh 12y ago
When I was reading this I thought to myself "wait, didn't YC have exploding offers before"? Glad you dug this up. It was widely known back then that PG viewed it as a "intelligence test" if you didn't accept on the spot. If you didn't, he didn't want you. So I guess now the tide has turned. That all said, I'm very much against exploding offers. The person offering the deal may have a reason to do so but you should resist the urge to rush to a decision.
- geebee 12y ago
  Here's the write up from the pg's essay site. http://www.paulgraham.com/frinterview.html http://www.paulgraham.com/frinterview.html
  - dmoney 12y ago
    The relevant bit: F|R: I read that when you call Y Combinator winners, the founders have only five minutes to accept. ("If people turn us down," he says, "as far as we're concerned they've failed an IQ test.") Have startups turned you down? Are there any that have turned Y Combinator down and still gone on to succeed with a liquidity event? Graham: You're confusing two separate things. The reason people are supposed to decide quickly whether or not to accept is that they already know everything except the percent we'll ask for. They've already seen the deal terms, and they already know as much as they're going to know about YC before actually working with us. So they should already know when we call what percentage they'd be ok with. Since all they have to do is subtract one integer from another, five minutes should be enough. The "IQ test" quote refers not to how fast they have to decide, but the amount of equity we usually ask for. In the median case it's 6%. If we take 6%, we have to improve a startup's outcome by 6.4% for them to end up net ahead. That's a ridiculously low bar. So the IQ test is whether they grasp that. There was one startup that turned us down because they received an acquisition offer during the weekend when we did interviews. It was a pretty good offer. I'd have taken it in their position, and they did. But other than that I don't know of anyone who turned us down and went on to succeed. There have only been about three others who turned us down.

MarkPNeyer 12y ago

> It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders. isn't that 'not the best thing for accelerators' in the long run as well? if you're using a strategy which is clearly not win-win, you're going to lose _good_ deals to people who aren't doing that - so you'll get stuck with a portfolio of companies run by founders not smart enough to see this for what it is. enjoy, sucker!

the_cat_kittles 12y ago

the solution: a centralized clearinghouse that uses the gale shapely deferred acceptance algorithm

jpetersonmn 12y ago

Exploding offers make perfect sense in situations like this. Especially if you're given 48 hours, that's plenty of time to accept/decline. And if it's not enough time then you weren't ready to play ball yet anyway. If I'm making someone an offer, I'm not giving them weeks to decide so that they can go shop around for something better.

dmourati 12y ago

I got an exploding offer for employment and came to the same conclusion. The company is called Loyal3: https://www.loyal3.com/ https://www.loyal3.com/ Steer clear of them. "Senator? You can have my answer now, if you like."

fecak 12y ago
Employment offers tend to be exploding because a company has a single need and doesn't want to lose every candidate because they are waiting for their top choice. Almost every offer of every kind 'explodes' at some point. It's the duration until the explosion that varies. I'm sure YC will make you reapply for future consideration, just as companies can not be expected to honor your employment offer if you defer for a year.
- mrfusion 12y ago
  What's a normal period for exploding employment offers? Is 2 days a lot or a little?
  - fecak 12y ago
    In my experience two days is low. 5-10 days is more common, and most companies are fairly willing to negotiate beyond that given some circumstances. It's not common to see candidates rejected if they try to accept an offer after it explodes.
    - mrfusion 12y ago
      Thanks. Also wondering: should more senior people be offended by exploding offers. Architects, team leads, etc?
      - fecak 12y ago
        I'm not sure anyone 'should' be offended by an exploding offer. There are lots of potential factors at play. You only see people talking about exploding offers of employment when the window is relatively small - no one bats an eye when given 45 days to accept a job offer, as that should give plenty of time to find other competitive offers. It's those 3-5 day figures where candidates tend to think they smell a rat. No one wants to be forced into a decision at gunpoint, which is essentially what a short notice exploding offer becomes. Part of this is also dependent upon the length of the interview process and how much detail is given. If you interview with a company 10 times over a 6 week period, I don't think a short window for acceptance is overly limiting for most candidates. We often see candidates trying to expedite the offer process in order to receive offers around the same time. Candidates are at their most advantageous position when they hold multiple active job offers, and they have the opportunity to leverage them off each other (I'm not suggesting this tactic). Yet when companies try to expedite the acceptance process, suddenly we feel that there is something dubious at play. Candidates want companies to make quick (and positive) hiring decisions, yet want to take their time to maximize their ability to shop for offers. More senior talent is less of a commodity than an entry-level candidate, so you might expect more junior level candidates will see exploding offers more often than senior candidates. Senior talent can also leverage their experience a bit more in order to get windows increased if necessary. I don't think they should be offended as much as they should be curious as to why the company employs such tactics (assuming again that the window is short).

teachingaway 12y ago

There's a balance between "exploding" offers and hang-around-forever offers. You don't want someone to come back 6 months later and say they're finally ready to accept your offer. Its not difficult to balance these factors. Just ask, "how long do you need to consider this deal?" "Two weeks? Four weeks?" "If you need more time, just give me a call."

jgalt212 12y ago

Most exploding offers don't represent credible threats. That being said, if someone jumped at one of my exploding offers, I'd definitely try to negotiate a better price ex post facto given my read that the counterparty is so jumpy.

kordless 12y ago

I accepted an exploding offer. It was a harbinger to a larger detonation. There's a simple way of looking at this type of behavior: If someone is willing to go negative on you at the beginning (evidenced by 'denying' you an investment because you didn't take it when they wanted you to take it) then you should assume they will be willing to go negative on something else of a similar or greater magnitude at a later date.

pmarca 12y ago
Yep.

seats 12y ago

I'm an MD for Techstars and I completely agree. This is the approach we've always taken for the programs that I've run, (Techstars Cloud and the Austin TS program). In several cases, just as a consequence of the calendar, the timing of when we've given offers out can create tension for a company, particularly if it lands in between the YC interview notification and the actual YC interview. When it's come up in the past I've aways encouraged founders to notify YC and see if they can either take the interview early or if our timeline permits, to let them take their YC interview knowing that they have a standing offer from me regardless. I've had some people mention to me that this is merely bolstering these companies' applications to YC, but I don't view it that way and regardless of which program they end up in, it's the right thing to do imo. It's actually worked out quite well and I'm happy with the companies that chose Techstars in those scenarios over YC, and also completely happy for the companies that chose YC.

zaidf 12y ago
I went through YC in '07. But prior to getting into YC, I got into Techstars' very first class. David was a total class act in letting me go through the YC interview process before making a decision and completely understanding when I decided to go with YC. Although I went with YC(and would do so again), that one experience left a positive impression in my mind of TS.

kazinator 12y ago

> It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders. Why should accelerators should do what is best for someone else, not themselves? The world is full of expiring offers of all kinds; they are everywhere. Rarely does any kind of offer stand for as long as we would like. Expiry of offers is the norm. Also, Golden Rule: he who has the gold, sets the rules.

rickdale 12y ago

This is a tactic I see used on the micro level on Shark Tank where usually Mark Cuban will be like "25 second shot clock, you gotta decide right now." Being a Shark Tank and Dragons Den addict (both Canada and UK versions) I can say the greatest difference between the US version and the others is this tactic. I have never seen any of the Canadian or UK investors do anything remotely similar. Usually they are more impressed by companies that take the time to think about the offers. Just an observation.

vxNsr 12y ago
Just a point about Shark Tank and similar shows: the actual meeting is a lot longer than the ~6 minutes that they show you. Some go on for hours, and they just cut to the interesting bits, so that 30 sec shot clock thing is often just theatrics, they've been discussing things for a while and know before whether they're gonna say yes.
- maxbrown 12y ago
  I learned this recently, the most interesting part of which was that the founders stand silent in front of the investors for at least a few minutes while the lighting and sounds and such are set. I wonder, don't you think the shot clock offer is real even though they've been talking longer than we've seen?
  - vxNsr 12y ago
    It might be kinda real, but I think it's a lot easier to see coming and prepare for than the show implies. I've only watched the last two seasons of shark tank, but from what I remember the offer always seems to come out of left field, Mark doesn't appear interested and then he suddenly makes an offer. I don't think it's usually like that, but it makes for some great television.

rdl 12y ago

I'd feel a bit more ok with exploding offers for organizations where there are a finite number of slots -- e.g. if an accelerator is very small and capital or other resource constrained, or has a hardware lab and limit space, or something like that. None of that applies to YC, of course.

govindkabra31 12y ago

A good alternative for YC to consider is to change to a 'continuous' mode.. where you incubate companies on 1st Tue of every month. The companies in a batch are already in variety of stages, some just starting with an idea, some with some market validation done, some may even have raised $500K round before. This is very much unlike a college or a vocational class, where all participants are in more or less same stage.

andykmaguire 12y ago

Sam - This is standard fare not just for accelerators but VC term sheets as well. Curious if you apply your logic in that case as well?

mathattack 12y ago

It's not the same as job interview exploding offers, but the thought process behind it is the same. http://www.joelonsoftware.com/items/2008/11/26.html http://www.joelonsoftware.com/items/2008/11/26.html

mathattack 12y ago

A couple observations... 1 - If you're good enough to be accepted by one incubator, you have an incubator-worthy idea and team. If they go away, another will arrive. 2 - The person forcing your hand is trying to use their temporary leverage over you until you have leverage over them. It sets the tone of the relationship on leverage. 3 - That said, people with lower acceptance rates (whether it's accelerators, colleges, etc) have to play yield games. Harvard yields ~80% of admits so they can wait their time because they are confident of admits, and it won't impact their capacity. Amherst accepts ~40%, so they have to play the waiting-list game. The 2nd tier accelerators have to play waiting list games, and that's what drives this behavior. 48 hours is unreasonable, but a few weeks isn't. (Or having a formalized waiting list too)

legohead 12y ago

exploding offers call for exploding counter-offers

maxbrown 12y ago
"You have 24 hours to give me more than 24 hours" ?
- legohead 12y ago
  I agree to your terms but you get half equity.

jacquesm 12y ago

It's simple: if you're being pressured just say 'no'. There is no upside to negotiations under pressure, only downsides. Likely the pressure is there because if you thought about it long enough you'd refuse the deal anyway, so you might as well refuse it right off the bat and tell the counterparty the time-limit is what caused you to refuse. If you have no other options then likely you already made a series of mistakes. Exceptions exist but don't happen often enough to go and make a series of qualifications here, adding pressure is similar to being blackmailed, the only reasonable course is to refuse to play.

danshapiro 12y ago
Actually, if you're being pressured, a better response is, "If you need an answer now, it's going to have to be 'no', so I hope you can adjust your schedule so we can consider your offer more fully." Exploding offers are unfortunate and a significant negative data point about the behavior of the organization but they are not the only data point. The above answer will defuse the threat and give you the upper hand in the negotiation so you can make the right decision for your team, whether it's 'yes' or 'no'. This is helpful for exploding offers in any circumstance - jobs, M&A, etc. As a side note, while short-horizon offers are terrible, it is reasonable to have some expiration date. Techstars Seattle, for example, has 10 slots and while they might be able to add an extra one or two, logistics don't allow for the kind of flexibility that YC has[1]. I believe there's a good way for an accelerator to handle this ethically: 1) Tell applicants when the decision date is when they apply (so they can plan accordingly) rather than surprising it on them as a negotiating tactic 2) Provide all relevant information when they apply, so they can consider the possibilities in advance, versus (for example) springing restrictions, valuations, or fees on them when they get the offer 3) Allowing enough time between the acceptance and the notification for the team to make a good decision - a week seems reasonable. YC's behavior is exemplary here; their model and position in the industry lets them be super-flexible. Other programs may not have the ability to be quite as flexible but that doesn't mean they're unethical if they're thoughtful about their implementation. [1] My understanding as a mentor for the program - I don't have inside knowledge
- jacquesm 12y ago

nihaar 12y ago

When my co-founders and I were applying to accelerators in 2008, we had been accepted into a Philadelphia based accelerator called DreamIt shortly before our YC interviews. Not knowing if we would get into YC, we accepted with DreamIt as it was an exploding offer. A few weeks later we found that we got accepted by YC. After deliberating it for sometime, we went back to the DreamIt team and told them that we wished to rescind our acceptance. This started a shitstorm with the DreamIt team as they seemed to take this very personally. It was the first year of doing the accelerator and they went as far as threatening to take legal action. Not knowing what to do, we turned to PG and Jessica for help, a bit hesitantly, as we were afraid of what they would say. PG expressed his extreme disappointment with how DreamIt had reacted to this and was supportive of our situation. He send them an email telling them to back off and that this was not an acceptable way to be treating founders. Just one anecdote out of many of how YC has gone to many lengths to protect founders. Since that experience, I've realized that it really doesn't do accelerators any good to introduce these conditions in their funding offers. It creates a bad reputation amongst founders in the increasingly competitive field of accelerators. And founders ultimately need to pick based on what they think will have the most impact to their business. Compete on benefits you can offer to founders, not legalese.

lquist 12y ago
So basically you made an agreement with one set of investors and then went back on your word because another, "better" set of investors wanted to put money in? Maybe it's just me, but this doesn't reflect that well on you.
- compare 12y ago
  The effectiveness of the relationship between investors and startups in SV is built on upon being upstanding and not being overly manipulative. Founder/Investor agreements that are born from the manipulation of unexperienced founders always should be EXPECTED to turn out badly. There's a child-like expectation that once the deal is signed or agreement is made that it's over. It never is, that's just the beginning. If you're expecting that everything is finalized as soon as an agreement is made, regardless of the conditions, then you're simply bad at business and taking risks that you haven't yet realized. (Of course this isn't true in Europe. They love taking contracts extremely literally, and their economies suffer enormously for it.)

deleted 12y ago

[deleted]

jusben1369 12y ago

I'm sure Sam's heart is in the right place but I'm not sure I agree with him here: "Exploding offers suck. Founders should be able to choose the investor they want to work with, not have to make a decision based on time pressure." and investors should be able to choose the founders they want to work with. And accelerators are the one's who make it all about the calendar. So they inject the notion of time and deadlines (YCSpring12 etc) "where an accelerator tries to force a company to make a decision about a funding offer before the company has a chance to finish talking to other accelerators." The risk here is that sounds like sour grapes. "after we make you an offer, we’ll give you until the beginning of our program to decide (though most companies accept quickly, because you can’t start having office hours with us and participating in other ways until you accept). We ask companies to be transparent with us about needing more time--we won't rescind our offer. It’s usually about 45 days from interview to the start of the batch." - We use "soft" deadlines. You don't get access to important resources until you say yes. And yes look we have 45 days from interview to the start of the batch (there's that pesky calendar coming into play) "We encourage all other accelerators to join us on this. It should be an easy yes. Exploding offers are the wrong thing for founders, and an accelerator that does the wrong thing for founders will not last long." - We're the pre-eminent accelerator and other accelerators should play by the same rules as that way we'll stay the pre-eminent accelerator! "And founders should think very hard about joining an accelerator that puts forth a short-fuse offer." Once again makes me feel like they're losing out to this tactic and it's hurting. And a bit of FUD? Are you creating startups that have to go out and compete in a very competitive world? Seems like insulating them from making important business decisions is a little counter intuitive. Again, I'm sure Sam's motives are pure. This is a little tin can ear to me and whiny.

VarunMKhona 12y ago

This is sensible and good for the entrepreneur. If its good for the entrepreneur, its good for the prospective accelerator, its good for the prospective investors and so on and so forth. The virtuous cycle is for real. The issue is the not-so-famous accelerators bear the brunt because almost all applicants are awaiting response from YC and not the other way around. If the conclusion of this is you give you short-term exploding offer, the accelerators have got it all wrong. Instead, the right perspective is that they need to make their value prop as strong as a YC. Glass half-full/half-empty, remember?

Grae 12y ago

While I agree with the points made in this post, it's important to note that the strategy of condemning offers with a short term plays in the favor of YC and other established/larger accelerators and to the detriment of newer/smaller accelerators. As others have noted, there may be compelling reasons to require an offer be accepted on a short timeline or not at all. In fact, as raised elsewhere in this thread, YC itself used to require acceptance the same day the offer was made. From an entrepreneur's perspective, given two offers at equivalent valuations and terms it's rational to take the offer at the more established accelerator (e.g. YC) over a less well known one. It's also less important for large accelerators to allocate each open position in each cohort, and thus easier for larger accelerators (e.g. YC) to tolerate losing a few deals last minute. Again, I agree with the points made in the post, but it's important to note that making longer term offers the norm plays in YC's favor.

deleted 12y ago

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vvimal 12y ago

negotiation is all about context. Knowing your BATNA is the first step. That will give you a baseline for your negotiation. Like in trading, you only hear about the success stories about top notch negotiators. The reality is much more nuanced than that.

rjf1331 12y ago

I agree with the concept for the most part, but have a few gripes. First, the desk space argument is very real. Y Combinator takes 60+ companies and has no real space constraints since they do not offer office space. Other accelerators take far fewer companies and do have office space, so they need to know ahead of time 1) that their batch will be full and 2) that each company has passed their own due diligence process. Also, as with term sheets, founders can take their offer from one accelerator and shop it to others. It's happened before (with people I know), who take an offer from one accelerator and use it to trigger FOMO from the other. Couldn't an accelerator just position it's start date before Y Combinator's decision date, and therefore not need an exploding offer but have the same effect? Exploding offers should be reasonable, and I'm not against being fair to founders. But doesn't democratizing this essentially involve accelerators colluding to have the same offer/acceptance date?

dazhangdong 12y ago

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dazhangdong 12y ago

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beat 12y ago

I used an exploding offer effectively once. I was buying a house in 2002, during the crazy bull market on housing. Houses in the neighborhoods we were shopping regularly went for more than list, with competing bids. We finally found a house, at the very top of our price range, and put an offer in for it just a few hours after it first listed - for list price. The seller's agent was furious! She really wanted to drag it out to the weekend and get a bidding war, which we absolutely could not afford. But what were they going to do... turn down a list price offer? Why not just sell it at a higher price, then? We still have that house, 12 years later. It's finally worth what we paid for it again. Sigh.