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The New Deal

blog.ycombinator.com

141–150 of 194 posts

Re: The New Deal

#141

Earlier quoted context omitted.

Echoed from other places - but doing YC shouldn't be about the money or percentage ownership. Yes, one day you'll look at the cap table and say, "man it would be great to have that x% to give to employees" - but very likely you're company will be in a dramatically different place progress-wise and valuation-wise, so it's a major net-gain. Companies come into YC with nothing but wireframes and companies come in with s…

"Echoed from other places - but doing YC shouldn't be about the money or percentage ownership" If starting a business is not at least somewhat about the money, why not just have everything a non-profit? I've gotten told this very thing, only to have a business-minded company use it to make money on my hard work and effort (you should be happy you get to work on something you enjoy..for 1/2 market value and 50+ hours/…

I think he means the decision to do YC shouldn't be driven primarily by the benefit of the cash investment. Yes, the company should be driven to make money, but the transaction between the company and YC should be driven by the overall impact (on the company being able to make money), not on the investment amount itself.

No one (I think) is suggesting that you start a business without the intention to make money.

Re: The New Deal

#142

Earlier quoted context omitted.

As someone who essentially took that path, I can't recommend it. My parents and I had saved up a decent college fund ($100k or so), but instead of using that to go to Top School I took the chance on a school which offered me a full ride. Sure, I'll be graduating about ~$140k better off than most other students. But over the lifetime of a successful tech entrepreneur that amount of money is fairly meaningless. Having…

Get the best of both worlds and do a master's at a top notch school. That's my story. I went to good-but-not-world-renowned state school for undergrad on a full ride. I did my best to wring the absolute most out of that experience, and it paid off in many ways, including a fellowship that paid for my master's at an Ivy. Most grad students don't get plugged into "the network", but I went out of my way to engage in cam…

> Get the best of both worlds and do a master's at a top notch school.

Glad that worked out for you.

To be clear, my school is actually extraordinarily good academically (we're privately funded by an oil fortune)—it's just that the prestige of the name and student's isn't quite at Ivy quality.

> Point being, everywhere you are has something to offer. Make the most of your situation!

I'm doing my best, and doing pretty well (making 6 figures as a college sophomore), so my regrets are more social/intellectual than monetary. Though sometimes I wonder if YC would have accepted me if I had advertised my Ivy League stamps of approval (acceptance letters)...

Maybe I'll go to Harvard when I get tired of developing and decide to "pivot" into management/finance.

Re: The New Deal

#143

A lot of companies talk about changing the world, but Teespring really puts their money where their mouth is. Not only have they been quietly supporting us (Watsi) since the beginning, but to commit $50k to every YC non-profit is truly incredible. Teespring is setting the standard for the next generation of startups, and we're proud to call you guys our friends.

I now have three Watsi tshirts which I guess is thanks to Teespring. I hope you guys aren't out of pocket there!

Re: The New Deal

#144
post #57
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…

YC is meant for very early stages (with an idea and not much else). Stripe wasn't worth much when it was just an idea--a better payment gateway--but is now worth a lot because they executed. YC wants to help teams better execute and starts things off with enough money to let the team live in the Bay area for a short time.

More and more they're funding startups that have traction, customers, revenue - sometimes substantial revenue.

Re: The New Deal

#145
post #107

Earlier quoted context omitted.

[deleted]

I'm confused. What part of working for a year and saving up $100k ruins your chances of starting a company? Am I reading too much between the lines, or do I also need long hair and a full beard like Wozniak? 37signals started that way, for what it's worth. Not by living with their parents, of course; by bootstrapping a consultancy. PlentyOfFish started that way. Braintree started that way. Come to think of it, so did…

If you can you should always bootstrap. I have started several companies over the years and everyone of them was bootstrapped. The process might be slower, but the advantages are so much greater retaining control.

Re: The New Deal

#146
post #125
post #16

Earlier quoted context omitted.

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%.

What about a startup that comes to YC with a product and customers already as opposed to just an idea? Surely they give up less than 7% equity? The risk for YC is maybe an order of magnitude less and the equity % should reflect that lowered risk (not saying .7% either, but lower.)

Why would a company like that approach YC and not raise a round on their own? Or better yet, reinvest every penny back into the business without giving up any equity? Won't these companies just self filter?

Re: The New Deal

#147

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…

Back in the 90s, I had a friend who was an instructor for Sun Certification classes. He told us of a kid who, when he turned 18, was given his college savings by his parents to do with as he pleased. He chose to spend the ~200K getting every Sun cert available. He then became a consultant at 21 making about $500K a year, at least for a few years. Don't know what happened to him after those certs became useless, but I…

I also know a family whose father gave them their inheritance when they turned 22. Instead of getting jobs after college, all but the eldest (who already had a job) spent several years bumming around their apartments, paid for by their dad, and failed to launch. Their careers still haven't recovered.

YMMV. I do think it's better to give money to people who are already succeeding and could just use a bit of acceleration or a chance to do something riskier, though. At earlier stages advice and introductions are often more useful in the long term.

Re: The New Deal

#148
post #78

Earlier quoted context omitted.

Second point is spot on. Before it was kind of explicit that you should take the SAFE, but if you weren't familiar with financial instruments or how exactly MFN clauses worked, you could run into issues you weren't completely aware of. The new way smooths all that out.

If one isn't familiar with said financial instruments and all of the other terminology in these comments what is the best remedy for that? Is there any book whose content is pretty much constrained to the elements discussed here?

You don't really need a book. Here's how it breaks down.

When an investor invests, he or she is buying a portion of a company. Say I invest $100,000 at a $1 million valuation - I'm actually buying 10% of the company (since 100k is 10% of 1M). There's technically pre-money valuation and post-money valuation, so the company was worth $900K pre and $1M post (depending on whether or not you're including the investor's money in the valuation), but we'll assume we mean post-money valuation for now.

A "convertible note" is someone saying "OK, I'll give you 10k now, we'll call it 'debt' the company owes me because the law makes us call it something, but once you raise your round that 'debt' will 'convert' to equity at whatever terms you set with other investors." Really it's just a relatively fast and easy way to say "Here's 10k, I'll take whatever terms you set with the next round of investors." Almost like a bit of a fundraising hack because the legal fees and time of the negotiations just aren't worth it. Sometimes convertible notes have a cap (i.e. a maximum valuation - if you go over that valuation you grant equity as if it were really a lower valuation) or a discount (i.e. I'm investing at whatever valuation the other investors set minus 20%). It just depends on what the structure of the investment is. Long story short: a convertible note is a quick investment that isn't worth much until the company raises its next round.

The SAFE is basically YC's response to a convertible note, because the convertible note carries some side effects that nobody wanted and are a bit ridiculous. There are some things that technically happen with debt, (interest, some regulations) that nobody involved actually wanted, but were a legal byproduct of calling something "debt." A SAFE is more honest, and says "Hey, we're buying a portion of the company, just not yet" - hence the name Simple Agreement for Future Equity). A SAFE is similar to a convertible note in that it has options like caps and discounts, but it's basically what a convertible note should be were we not using the whole "debt" thing as a hack.

So with regard to YC and the "new deal": YC before was basically saying, "We'll give you 20k for 7% of the company, and then an extra 80k at whatever valuation you raise your next round so that you get it now instead of later." Now YC is saying, "We'll just give you 120k for 7% of the company."

Re: The New Deal

#149
post #113

Earlier quoted context omitted.

[deleted]

Well, that's a whole lot of repeated assertion, and I respect the effort, but you're not making a great case for yourself. It would help if you read my comments more carefully. The one you just replied to was particularly simple. Almost the only thing it says is that being a part of YC improves the odds. But the 120k isn't what's doing that.

(I'd delete this comment too, if I could; I try to always do that when the upthread comment goes. But I don't seem to be able to anymore.)

Re: The New Deal

#150
post #125

Earlier quoted context omitted.

What about a startup that comes to YC with a product and customers already as opposed to just an idea? Surely they give up less than 7% equity? The risk for YC is maybe an order of magnitude less and the equity % should reflect that lowered risk (not saying .7% either, but lower.)

Why would a company like that approach YC and not raise a round on their own? Or better yet, reinvest every penny back into the business without giving up any equity? Won't these companies just self filter?

Because it would be substantially easier to raise money with the YC stamp of approval.
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