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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

#71

Post by imkevingao »

Na i'd take that money any day. First it's good to have Yuri Milner and Ron Conway on your team.

43 startups @ 150k is only 6.45million, which is typical funding for one venture capital company. Except it's diversified into 43 of them, so that if one of them advances to a series C, they can probably get it all back.

I guess the only problem would be if you try to get a Series A from DST, then you might possibly not get an ultra high valuation, but then again, DST seems to be throwing money at startups after their lustful experiences with Zynga/Groupon/Facebook

This just toughens up the next round of YC applications, which is a bummer. But i'm really interested to see how this will work out.

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#72

Post by pg »

mcmc wrote: post #69

I was curious about the potential for returns so I considered a scenario: the successful YC companies take series A investment at an average $10 mm pre-money valuation (which is reasonable for a YC company starting off with $150k), and no series B is ever needed before exit. This gives the original investors a 1.5% stake at the time of exit. In order to return the $6 mm there needs to be $400 mm of exits. But I don't…

In your model you may have neglected to consider that they'll have pro-rata rights.

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#73

Post by ssebro »

Does anyone else see that this offer will drastically change the tone and success rate of YC startups?

Constraints (in the form of funding and time) were a large part of YC. Entrants got a low (but livable) amount of money and 3 months to come up with something great. That something would either sink or swim on demo day.(for more on how constraints help creativity: http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1530) Within those constraints, past YC classes did pretty well, and came up with amazing companies. Those that didn't failed quickly, and could go on to bigger and better things. But YC is now throwing those constraints away.

Because the $150k offer is guaranteed runway, it fundamentally changes the behavioral economics behind startups participating in YC. Products no longer have to be demoable by demo day, and startups won't have to think about profitability/funding, in the short term. This means that we should expect YC startups to dream -and fail- bigger in the future.

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#74

Post by cperciva »

waterlesscloud wrote: post #41
cperciva wrote: post #29

Earlier quoted context omitted.

Because there's no downside. You can take the $150k and stick it in a bank account and still be better off.

What's the downside to thinking about it for a week or two to see if there are any non-obvious problems?

He might change his mind.

(Or he might die of a heart attack, or the Russian government might seize his assets, or any number of other unlikely scenarios might make him unable to close the deal.)

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#77

Post by zackattack »

cft wrote: post #40
ebaysucks wrote: post #22

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…

Out of curiosity what is your startup? If you don't want to post publicly can you edit your profile to include contact information?

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#78

Post by hugh3 »

2arrs2ells wrote: post #48
cft wrote: post #40

Earlier quoted context omitted.

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…

I think what you're looking for is a loan . Not sure if it's possible to get $300k on $20k/month revenue, though.

Not unless you're willing to put up (say) your house against it. If I were a bank I wouldn't be willing to take the risk that your business will go under before it ever pays back the $300K.

Basically you need a small-scale VC or large-scale angel investment... or else to continue to bootstrap.

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#79

Post by hugh3 »

liamk wrote: post #21

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.

Numbers missing: what is the typical valuation at Series A for a company coming out of YC? If it's $2 million then he'll wind up with (on average) 7.5% of each company (similar to what YC itself gets for about eight times less money), so to break even on one exit it'll have to be a $100+ million exit, which would be bigger than any YC exit so far as far as I know.

Re: 90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

#80

Post by cft »

2arrs2ells wrote: post #48
cft wrote: post #40

Earlier quoted context omitted.

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…

I think what you're looking for is a loan . Not sure if it's possible to get $300k on $20k/month revenue, though.

FYI: Last time I stopped at the bank where I opened business checking account 2+ years ago (Wells Fargo), they sat me down and offered a 100K line of credit (the interest rate was unknown unless I applied, but she said it would be around 7-8%). The service is poorly monetized ( disproportionately high hosting fees + new hardware expenses / revenue). Until recently I was putting all these hosting related expenses on a single US Bank credit card (and paying it off monthly). In response, they raised the credit line to 40k at 8% yearly interest. This is less however than the 300k, that I think is needed. Additionally, I would prefer to use this kind bank debt financing only in an emergency, because I suppose that unlike a savvy investor, Wells Fargo and US Bank would be absolutely inflexible if I say need slightly more time, and would drive the company into default by their blanket policy, regardless of the specific circumstances.
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