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Amateurs. 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.
Amateurs. Why not wait a week or two, explore options, see who else is going to respond to this?
Convertible debt paperwork is really only a few pages... Heck, they might've used YC's boilerplate docs to simplify things.
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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 exit or "liquidity event", but the startup is profitable and never takes additional funding? When does the $150K become equity?
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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 exit or "liquidity event", but the startup is profitable and never takes additional funding? When does the $150K become equity?
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Because there's no downside. You can take the $150k and stick it in a bank account and still be better off.
I always hesitate when someone says there's "no downside" to accepting large sums of money.
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Everyone starting startups, joining startups, or wanting to do one of those. The majority of people working for peanuts, in hopes of future riches, spurred on by stories of a few people making it big, obscenely big . Businesses with vague business plans, and sales pitches full of jargon intermixed with good ideas but for the most boiling down to "we're on the internet!". Investors getting excited about an industry th…
All of this fueled by long nights pulled by young kids who's bodies can take the caffeine abuse for a while. Don't doubt for a minute that some of us old farts are staying up late, downing obscene amounts of coffee, Red Bull, Monster drinks, etc., trying to get in on things. Hell, if anything, when you start getting older, and you look around and realize "I haven't done anything yet" a certain sense of, hmmm... I won…
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If those big companies continue to grow though there is no reason why they won't continue to make the acquisition's. For all the small acquisition's though your also generating new big companies that will be acquiring companies in the future. A few years back there was no big social gaming company, now you have zynga cashed up and acquiring companies. Same thing could happen in the mobile space, a company that gets r…
I guess I could see Rovio go on an acquisition spree. Still, I think any market predicated upon acquisition rather than growth and profitability is inherently unstable. That instability allows for rapid growth, but it also allows for rapid and catastrophic failure, as we saw in the Banking industry.
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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…
Can somebody give me an advice. We have a two person startup, that is making about 20k/mo and it's growing. I am the founder. The thing is, I do not currently plan to raise VC money. My goal is to achieve revenue of 200k/mo by 2013. It is very realistic, but the problem is that as the service grows, we spend more and more time on operations, since certain things were not timely automated. We need about 300k , so that…
Not sure if it's possible to get $300k on $20k/month revenue, though.
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I always hesitate when someone says there's "no downside" to accepting large sums of money.
I don't understand. They aren't diluting shares, they aren't liable if the company fails to reach Series A, and by all accounts there do not seem to be any strings attached with regard to oversight (ie. the founders don't need to "answer to" the investor in any way). All they are doing is giving a portion of their future shares to that investor now, at the same value as they would later . It's a no-brainer - what is…
I trust Paul implicitly, and I suspect most YC Founders do, and that probably has a lot to do with the acceptance rate. I wasn't in the meeting obviously, so I can't know how I would have reacted to the specifics, but I can say knowing only what I know now I probably would have at least taken the weekend to do my homework.
Earlier quoted context omitted.
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…
Can somebody give me an advice. We have a two person startup, that is making about 20k/mo and it's growing. I am the founder. The thing is, I do not currently plan to raise VC money. My goal is to achieve revenue of 200k/mo by 2013. It is very realistic, but the problem is that as the service grows, we spend more and more time on operations, since certain things were not timely automated. We need about 300k , so that…
If you don't do a series A the valuation of the sale of the company will be taken. A sale without investments in between would mean a debt investor only gets his money back + interest.
Given your situation, the debt investor might negotiate a time limit for the conversion (and either a cap or a formula for the valuation at that point).