The Valuation Boost Needed to Justify YC

#1

Post by ivankirigin » Wed, Apr 22, 2015, 7:48 PM UTC

The Valuation Boost Needed to Justify YC
blog.yesgraph.com

Re: The Valuation Boost Needed to Justify YC

#2

Post by ivankirigin » Wed, Apr 22, 2015, 7:50 PM UTC

I should update the post with more about why we did YC, but i'll have a follow up post shortly. In short, we're developer facing, and the YC batchmates are great beta testers. Plus the advice is stellar.

Re: The Valuation Boost Needed to Justify YC

#3

Post by divya » Wed, Apr 22, 2015, 7:55 PM UTC

The important point Ivan makes here is that the real question is "will YC increase the probability that my company will succeed." This is different from the "how much will YC increase my valuation." I get this question a lot, and I generally encourage founders to re-frame the question to consider this distinction.

Re: The Valuation Boost Needed to Justify YC

#4

Post by ivankirigin » Wed, Apr 22, 2015, 7:58 PM UTC

divya wrote: post #3

The important point Ivan makes here is that the real question is "will YC increase the probability that my company will succeed." This is different from the "how much will YC increase my valuation." I get this question a lot, and I generally encourage founders to re-frame the question to consider this distinction.

Way to give away the ending :)

Your startup Rickshaw shares with YesGraph that are customers are people that make apps. (and for those that don't know, both Divya and I went through YC twice). How much did that influence your decision to go again?

Re: The Valuation Boost Needed to Justify YC

#5

Post by beambot » Wed, Apr 22, 2015, 8:09 PM UTC

In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value. The founders' 87.51% is vastly more valuable for Company B (85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M).

If you're concerned with value, then the % you own is not the only key factor. I.e. 10% of a $1B company is more valuable than 50% of a $100M company. PG's equity equation (the source of 1/(1-n)) deals with value: http://paulgraham.com/equity.html

Re: The Valuation Boost Needed to Justify YC

#6

Post by jacquesm » Wed, Apr 22, 2015, 8:12 PM UTC

beambot wrote: post #5

In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value . The founders' 87.51% is vastly more valuable for Company B (85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M). If you're concerned with value , then the % you own is not the only key factor. I.e. 10% of a $1B company is more valuable than…

At some point the nasty matter of 'control' will rear its head and you might regret selling any shares early on. Some shares may turn out to be much more valuable than you ever thought they would be.

Re: The Valuation Boost Needed to Justify YC

#7

Post by beambot » Wed, Apr 22, 2015, 8:16 PM UTC

jacquesm wrote: post #6

beambot wrote: post #5

In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value . The founders' 87.51% is vastly more valuable for Company B (85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M). If you're concerned with value , then the % you own is not the only key factor. I.e. 10% of a $1B company is more valuable than…

At some point the nasty matter of 'control' will rear its head and you might regret selling any shares early on. Some shares may turn out to be much more valuable than you ever thought they would be.

Control is a separate concern that could (indeed) play into how you "justify YC".

I'm just saying: If you use "dollar-value of equity" as the metric to justify YC, OP's calculations are wrong. If you use "percent ownership", then it's fine.

Re: The Valuation Boost Needed to Justify YC

#8

Post by ivankirigin » Wed, Apr 22, 2015, 8:21 PM UTC

beambot wrote: post #5

In the company A&B example, you're calculating the post-money valuation required to maintain your equity as a percent... but not in terms of the equity's value . The founders' 87.51% is vastly more valuable for Company B (85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M). If you're concerned with value , then the % you own is not the only key factor. I.e. 10% of a $1B company is more valuable than…

The two companies are different in lots of ways, this being one of them. We're not disagreeing. You simply rephrased my point that the company needs to be this valuable to match the dilution.

And thanks for finding that PG post, it influenced the thinking here. At the end of the post, we come to the same conclusion: YC is worth it if it makes your company more likely to succeed.

Re: The Valuation Boost Needed to Justify YC

#9

Post by staunch » Wed, Apr 22, 2015, 8:24 PM UTC

Few startups choose between $1M and getting into YC, so how does this make sense? It seems like a better comparison would be raising $120k from an individual angel investor.

Re: The Valuation Boost Needed to Justify YC

#10

Post by ivankirigin » Wed, Apr 22, 2015, 8:29 PM UTC

staunch wrote: post #9

Few startups choose between $1M and getting into YC, so how does this make sense? It seems like a better comparison would be raising $120k from an individual angel investor.

This post is for people that have the choice that are trying to decide whether to do it. I think they should, but I often see people getting the math wrong.

Especially because YC is getting so good that companies that have a choice of raising a seed and doing YC are getting in. They delay the seed till demo day.

YesGraph raised a $1M seed right before YC, so I have personal experience here.