4 ms·
In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value.
by beambot 12y ago
In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value. The founders' 87.51% is vastly more valuable for Company B (85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M).
If you're concerned with value, then the % you own is not the only key factor. I.e. 10% of a $1B company is more valuable than 50% of a $100M company. PG's equity equation (the source of 1/(1-n)) deals with value: http://paulgraham.com/equity.html http://paulgraham.com/equity.html
- jacquesm 12y agoAt some point the nasty matter of 'control' will rear its head and you might regret selling any shares early on. Some shares may turn out to be much more valuable than you ever thought they would be.
- beambot 12y agoControl is a separate concern that could (indeed) play into how you "justify YC". I'm just saying: If you use "dollar-value of equity" as the metric to justify YC, OP's calculations are wrong. If you use "percent ownership", then it's fine.
- jacquesm 12y agoWhat I'm getting at, in case it isn't clear that in the end those few shares that you sold cheap can come back to haunt you in later years. So dilute if you have to or want to but be very careful about the terms.
- brudgers 12y agoMy hunch is that there are worse initial 7% equity holders than YC should control become an issue down the road...which is to say I haven't read about YC screwing people over control, not that founders have nit perceived such actions.
- jacquesm 12y agoAbsolutely but the next round or the one after that might push you over the 50 border and it need not be YC that does the screwing, that could easily be a later investor.
- staunch 12y agoAt successful startups, the board controls the company and the founders control the board. Equity mostly a separate issue.
- brudgers 12y agoOf course. I guess there might be soft advantages from YC's participation that reduce the probability of getting into a bad situation, e.g. access to investors less likely to throw founders overboard and a network which may make questionable investor behavior higher profile.
- jacquesm 12y agoThat is probably a really nice side effect, something akin to a vaccination. Excellent observation.
- neurotech1 12y agoInvestors would think twice about "screwing" a YC backed company. PG has clearly stated that they would blacklist VCs for various not-so-ethical practices.
- paulsutter 12y agoActually, money losing companies are controlled by their investors, and companies that make money are controlled by management. This is a pragmatic truth that stems from board dynamics, personal risk tradeoffs for investors, etc. Most of the fears around ownership percentage, board seats, etc, are misplaced.
- ivankirigin 12y agoThe two companies are different in lots of ways, this being one of them. We're not disagreeing. You simply rephrased my point that the company needs to be this valuable to match the dilution. And thanks for finding that PG post, it influenced the thinking here. At the end of the post, we come to the same conclusion: YC is worth it if it makes your company more likely to succeed.