I think YC is great for founders (I actually went through a batch many years ago), but it's worth mentioning many of the startups are not really that early. Some were going straight to an A round instead of a seed round, many (maybe most) had already raised money, some had already raised money at significantly higher valuations.
The advice I give to 99% of people is if you get into YC you should definitely do it, but the valuation is not necessarily high.
Do companies that already have millions in revenue (or feel that's inevitable) get the same terms? It would be interesting to see who accepts that — they probably see something worth it in YC to give a discount on equity.
I went through YC years ago so maybe it's changed, but at the time I think it was ~1 company per batch would get better terms. In other words, it wasn't negotiable. This wasn't baked in, their stance was "we don't negotiate" and only in truly extraordinary cases would they make an exception.
The reason to go through YC is, quite simply, they will increase the value of your company by significantly more than 7%. If you don't believe they can add that much value, then you shouldn't do it. There aren't many people who don't think YC can add that though, just the valuation bump you'll get while fundraising is significantly greater. And on top of that they really do a great job of actually helping you, which alone is worth the 7% in my opinion.
It took me a second to work through. Basically, they just said they will always do some of their effective pro rata. So more weight on the cap table. Hopefully it isn't required, bc sometimes there isn't a lot of room, and their value goes down the further out you are. But for weaker companies, for helping their rounds kick off, can be good.
Yep, and apparently forced bc they give the $ on day 1. That's a lot of %, and before most founders understand what is happening, esp. in their target demographic....
I don't understand at all. I know nothing about startups - so is it an additional 7% that YC owns for every additional 125k, so 28% for 500k? Disclosure - I did not watch the SAFE video.
Roughly: The additional converts at the best deal another investor gets at/before the next priced round.
If the next priced round is at $7.5M, their $375K converts at that price (so it buys them another 5%). If your next round is not above $1.8M, it’s already an unfavorable sign.
The only downside I see is it doesn’t let you raise another small amount without valuing YC’s follow-on $375K. You might want to do such a raise for strategic rather than financial reasons and this would be an overhang against that. (I don’t think it’s that big a deal in practice and the additional committed money is probably better by way more than this detriment.)
