150K x 43 = 6,450,000.
I'm guessing that there is a fair chance that at least one of the 43 companies alone will allow them to break even on their investment. They should end up doing extremely well on the deal.
90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
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Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#22Can anyone explain the terms "no cap" and "no discount" in "$150,000 in convertible debt. With no cap and no discount."? I understand what a debt is, so how is "no cap and no discount debt" different from a regular debt? Also why would you as a startup would want to take a debt? Another question - what's the point of Yuri giving the debt, it seems he's not even asking for equity in return?
When offering convertible debt, the investor accepts the valuation at the next round of investments (in this case series A).
The risk for the convertible debt investor is that this valuation will be very high and the series A can take a long time.
To limit this risk convertible debt investors negotiate valuation caps and discounts.
Cap: The convertible debt gets converted at min=[series A valuation, cap]. Discount: The convertible debt gets converted at series A valuation * (1- discount)
(Obviously, when both cap and discount apply, the valuation for conversion becomes min = [series A valuation * (1 - discount), cap].)
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#23Amateurs. Why not wait a week or two, explore options, see who else is going to respond to this?
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#24Can anyone explain the terms "no cap" and "no discount" in "$150,000 in convertible debt. With no cap and no discount."? I understand what a debt is, so how is "no cap and no discount debt" different from a regular debt? Also why would you as a startup would want to take a debt? Another question - what's the point of Yuri giving the debt, it seems he's not even asking for equity in return?
Quick answer - he does get equity at the next funding round. What he gets is the amount of equity that $150,000 would buy at that valuation.
So if someone else invests $250,000 for 25%, that's a valuation of $1m. Yuri would get 15% at that valuation. He'd get 7.5% at a $2m valuation and so forth.
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#25Can anyone explain the terms "no cap" and "no discount" in "$150,000 in convertible debt. With no cap and no discount."? I understand what a debt is, so how is "no cap and no discount debt" different from a regular debt? Also why would you as a startup would want to take a debt? Another question - what's the point of Yuri giving the debt, it seems he's not even asking for equity in return?
Quick answer - he does get equity at the next funding round. What he gets is the amount of equity that $150,000 would buy at that valuation. So if someone else invests $250,000 for 25%, that's a valuation of $1m. Yuri would get 15% at that valuation. He'd get 7.5% at a $2m valuation and so forth.
What happens if there is no next funding round (startup fails)? Do the startup founders have to return the debt?
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#26They'd be crazy not to, it basically boosts whatever runway they had by a considerably amount. What's more interesting than those that took it is those who didn't and if in the end there will be any that won't take it at all and what their reasons are. Likely the number will be '0'.
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#27Going off on a tangent, one of the comments on the TC article seemed really odd - even by TC's standards for terrible comments. Am I the only one who finds Y combinator predatory? It preys on 20 year old kids who think they're building the next google. Am I crazy? On the actual subject of the article - if any of the four startups that haven't (yet) signed the paperwork don't end up accepting the offer, I hope they sh…
Some people believe that in every economic transaction, at least one party must be exploited, no matter how wildly beneficial the deal is to both sides. It's actually a natural implication of the idea that wealth is never created, only reallocated. Unfortunate to see that view among TechCrunch readers, who have evidence to the contrary presented to them every day.
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Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#28Can anyone explain the terms "no cap" and "no discount" in "$150,000 in convertible debt. With no cap and no discount."? I understand what a debt is, so how is "no cap and no discount debt" different from a regular debt? Also why would you as a startup would want to take a debt? Another question - what's the point of Yuri giving the debt, it seems he's not even asking for equity in return?
When offering convertible debt, the investor accepts the valuation at the next round of investments (in this case series A). The risk for the convertible debt investor is that this valuation will be very high and the series A can take a long time. To limit this risk convertible debt investors negotiate valuation caps and discounts. Cap: The convertible debt gets converted at min=[series A valuation, cap]. Discount: T…
I think you mean min(series A valuation, cap).
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#29Amateurs. Why not wait a week or two, explore options, see who else is going to respond to this?
Because there's no downside. You can take the $150k and stick it in a bank account and still be better off.
Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer
#30Earlier quoted context omitted.
Quick answer - he does get equity at the next funding round. What he gets is the amount of equity that $150,000 would buy at that valuation. So if someone else invests $250,000 for 25%, that's a valuation of $1m. Yuri would get 15% at that valuation. He'd get 7.5% at a $2m valuation and so forth.
What happens if there is no next funding round (startup fails)? Do the startup founders have to return the debt?
Generally not, and I'm quite sure they wouldn't have to for this deal.
Obviously any exit event would be a valuation and Yuri would get a cut. But in case of failure, everyone walks away empty-handed.