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The New Deal

blog.ycombinator.com

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11–20 of 194 posts

Re: The New Deal

#11

Post by Beliavsky »

I have wondered if affluent parents can replicate at least the money part of Y Combinator.

$120K is about the list price of two years of Harvard/MIT/Stanford . With a son who loves to program, I have wondered if sending him to a cheaper school and giving him the difference in installments after he graduates is better than paying for a "name" school. It depends on the quality of the cheaper school, of course. And I think school prestige matters more for investment banking than tech, so I'd be less inclined to suggest a cheaper school to a budding banker.

Re: The New Deal

#12

Post by sama »

tc_ wrote: post #6

sama: While you have our attention, you might as well explain the details about the $120k/7% happening in two chunks. [Edit 1:] Thanks; OK. I had read it as potentially indicating the money came at two different times rather than just from two different sources. All clear now.

not much to explain--the reason for this is so that YC itself still has no LPs, and can do new things like fund non-profits without being restricted by an LPA. mechanically, the company gets two separate checks form two separate legal entities--one for 20k and one for 100k--but they work with YC for both of them.

Re: The New Deal

#13

Post by tptacek »

steveklabnik wrote: post #8
cperciva wrote: post #4

I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes. What exactly is the problem being…

If they valued different companies differently, then it sends a certain kind of signal. The ones with the better valuation would end up getting a disproportionate amount of follow-on funding. Now, that may be a good thing, but it also might be a bad thing. At a certain point, this is a numbers game, and you want the market to sort things out, not YC management.

Didn't Altman just say that they sometimes do value companies differently?

What was bad about the signaling problem with YCVC was that it probably often had nothing whatsoever to do with the value of the company, and was instead just an artifact of circumstance. But other investors might not be savvy enough (or just might not have the time to think through it) to understand that that was all that was happening.

Re: The New Deal

#14

Post by [deleted] »

cperciva wrote: post #4

I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes. What exactly is the problem being…

[deleted]

Re: The New Deal

#15

Post by tptacek »

Beliavsky wrote: post #11

I have wondered if affluent parents can replicate at least the money part of Y Combinator. $120K is about the list price of two years of Harvard/MIT/Stanford . With a son who loves to program, I have wondered if sending him to a cheaper school and giving him the difference in installments after he graduates is better than paying for a "name" school. It depends on the quality of the cheaper school, of course. And I th…

They obviously can, the same way that they can offset the dollars by paying for their childrens' living expenses. But $120k is just not a lot of money. The real value of YC is the signal that getting accepted sends to other seed investors.

Re: The New Deal

#16

Post by sama »

cperciva wrote: post #4

I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes. What exactly is the problem being…

very few people do YC primarily for the money (though, as i said in the post, more money for less equity is definitely better than the opposite!), and whether a company is brand new or 6 months old, we think we can increase their valuation by more than 7%.

Re: The New Deal

#19

Post by cperciva »

tptacek wrote: post #9
cperciva wrote: post #4

I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes. What exactly is the problem being…

If you're trying to fund 30+ companies per batch, having valuation negotiations with each of them is probably a dealbreaker in terms of overhead.

Has YC ever had valuation negotiations? I've never been through the process, but if PG's past essays and comments are to be trusted, they started out by making offers for different amounts of equity from different companies -- but those were still take-it-or-leave-it offers.

Re: The New Deal

#20

Post by chimeracoder »

I predict that this is going to lead to an increase in the number of applicants who have already raised some money (though not a full round).

> Most people don’t do YC for the financial investment—they do it because they want the advice, the help of the network, the benefits of the program, etc. But still, more money for less equity is definitely better.

This is good news for people who've issued convertible notes before YC, since the implicit valuation is now $1.7MM instead of ~$300K. This is great for PR purposes (read: bragging rights), but can also have concrete implications:

I know at least one company that had a sticky situation[0] when they were accepted into an accelerator after already raising money from an angel investor - the investor ended up owning a huge chunk (the majority?) of the company on paper, because the note converted[1]. They didn't even need the money (it was just a standard part of the accelerator).

[0] it was resolved in the end - but it caused extra headache and legal costs

[1] A well-written conversion clause in original note can also avoid this problem (e.g. by including a threshold), but hindsight is 20/20 - I know a number of companies that would have been impacted in a similar way.

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