The New Deal(blog.ycombinator.com)
blog.ycombinator.com
The New Deal
http://blog.ycombinator.com/the-new-deal
193 comments
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.
Agreed it's amazing - are they getting anything in return? I'm not asking this in a skeptical way, I just mean do the non-profits run tee-springs or are they just donating money?
Either way, bravo!
Either way, bravo!
They're not asking for anything in return.
Startups for Startups, they will get back way beyond what they gave away. Great things will come to you if you're not asking for anything in return, because people do remember.
Oh totally! And I hope it was ultra-clear - I wasn't asking because I ASSUME they wanted something in return, but rather because that's a proposition I've never heard before. They're giving them $50k not $50k in tee-spring right? Or is it $50k in tee-spring? I guess that's my question, but either way - too cool! Proud of those guys, right thing to do.
I ended up with 3 Watsi blue logo t-shirts from Teespring because they said they weren't happy with the quality of the first 2. I kept the 3rd for myself but gave the other two away. They are certainly committed to delivering quality.
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I now have three Watsi tshirts which I guess is thanks to Teespring. I hope you guys aren't out of pocket there!
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.
> 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.
I think it's also a great deal for first time founders and people who aren't all that familiar with startup funding. $120k for 7% is a lot clearer than $17k + $80k for 7% + converted shares no cap no discount.
I also think this is great news for what it will force other accelerators to do. Many people out there claim to copy YC's model with much less friendly terms on the convertible note. This puts everything out in the open if they want to keep up.
I also think this is great news for what it will force other accelerators to do. Many people out there claim to copy YC's model with much less friendly terms on the convertible note. This puts everything out in the open if they want to keep up.
It's way clearer. Is there a book or a resource on the web to learn about startup funding?
Not sure if you meant a book on the web but I liked Venture Deals - http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalis...
This does not include a lot about startup funding, at least not the details, but still, for beginners, I'd say its pretty good. http://www.forbes.com/sites/brentbeshore/2013/02/19/the-non-...
Check some of the books and links in this list.
https://news.ycombinator.com/item?id=7429222
https://news.ycombinator.com/item?id=7429222
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I'm more excited about the effect this will have in general than the effect it will have on YC companies.
The difference for a YC company is that they don't have to give up an extra percentage as they raise their seed round to cover the convertible note/SAFE that they got from YCVC. With no discount, if a YC company raised at a $10M valuation that 80,000 would be worth .8% of the company - not enough to really move the needle.
The difference for the industry as a whole is that most accelerators are trying to mimic YC to a certain extent, and as YC now gives $120K straight-up others might follow suit. It's really easy to say, "We give you 20K for 6-7% because that's YC does." That seems to be almost industry standard, despite the fact that $20K for 3-5 months can be really hard to live on. It will be interesting to see how other accelerators react.
The difference for a YC company is that they don't have to give up an extra percentage as they raise their seed round to cover the convertible note/SAFE that they got from YCVC. With no discount, if a YC company raised at a $10M valuation that 80,000 would be worth .8% of the company - not enough to really move the needle.
The difference for the industry as a whole is that most accelerators are trying to mimic YC to a certain extent, and as YC now gives $120K straight-up others might follow suit. It's really easy to say, "We give you 20K for 6-7% because that's YC does." That seems to be almost industry standard, despite the fact that $20K for 3-5 months can be really hard to live on. It will be interesting to see how other accelerators react.
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."
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."
I've described the safe (to angels/ some hesitant investors) as effectively an option to invest at the next equity round at a fixed price.
or more accurately a valuation ceiling.
or more accurately a valuation ceiling.
I keep hearing this book is a must-read: http://www.feld.com/wp/archives/2011/07/venture-deals-be-sma... If you don't want to buy it, you should check out the Venture Hacks Bible: http://venturehacks.com/friends I'm not sure any of them mentions SAFEs because they're very recent, you can read more details in YC's announcement: http://ycombinator.com/safe/
Techstars is already at 118k (18k + 100k convertible)
POEM alert :affect...think you want effect :)
Thanks :)
I'm sure you know that it's not a 1-1 relationship between YC startup and accelerator startup.
There are major differences between Incubator like YC and other Accelerators: http://en.wikipedia.org/wiki/Seed_accelerator
There are major differences between Incubator like YC and other Accelerators: http://en.wikipedia.org/wiki/Seed_accelerator
YC is not an incubator
Ok, in that case, I'm mistaken. YC is yet another startup accelerator (YNSC)
Did you read the article you linked?
"The first seed accelerator was Y Combinator"
"The first seed accelerator was Y Combinator"
YASA?
Just wanted to say that we're excited to be a part of the non-profit side of YCombinator.
It's been humbling to have Watsi working with us in our office and watching the amazing things they achieve on a daily basis. I have no doubt that amazing non-profits will continue to emerge from YC.
It's been humbling to have Watsi working with us in our office and watching the amazing things they achieve on a daily basis. I have no doubt that amazing non-profits will continue to emerge from YC.
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 solved by having a standard deal which almost everybody gets?
What exactly is the problem being solved by having a standard deal which almost everybody gets?
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.
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%.
The money matters, of course. But I think you are attracting a certain stage company that is somewhere in the ballpark of your standard offer + what they expect you to accelerate. Companies outside that ballpark, should probably look elsewhere. Also, it must be thrilling that other accelerators are competing with you guys. YCombinator has birthed a very critical industry to the new economy. Exciting times.
...or more specifically, if you CANNOT increase their valuation by more than 7% then they probably should be looking elsewhere, to someone who CAN increase their value substantially.
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.
Well maybe my example is unlikely, although one could argue that the YC brand is worth something in that it will let you raise more from other investors. However, it doesn't need to be so extreme, just that companies that are further along are less risky to YC and it seems strange for YC to artificially offer higher than market prices to said company thus lowering demand. Why would YC want fewer lower risk companies and more high risk ones? The incentives don't seem rational to me.
I see this often, but I am starting to think this is a fallacy. A company can be further along down the wrong path, making it harder to undo the bad things it had done up to that point. A company can be based on an unsustainable idea and no amount of work put into it will ever make it viable. I have a feeling that real-world data is much more interesting than this. I imagine the risk curves are not strictly decreasing with progress from idea to product with users, and I bet YC could shed some light on this by showing when companies actually close down vs when they start at YC.
The 120k for 7% is a great middle ground. Trying to raise that amount on your own isn't going to be easy or net you nearly the same valuation as this deal and re-investing every penny is wise but it may take several months/a year to equate to 120k.
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 six digit revenues. Both will exit dramatically further along, hyper-focused, and with higher valuations (in my experience). Companies that are unicorns or growing like crazy or have crazy utility get even higher valuations, and it all works out pretty well.
IMO standard deal makes things incredible simple and easy on the front end, without the massive majority of potential pitfalls (signaling, jealousy, negotiating time, etc)
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 six digit revenues. Both will exit dramatically further along, hyper-focused, and with higher valuations (in my experience). Companies that are unicorns or growing like crazy or have crazy utility get even higher valuations, and it all works out pretty well.
IMO standard deal makes things incredible simple and easy on the front end, without the massive majority of potential pitfalls (signaling, jealousy, negotiating time, etc)
"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/week)
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/week)
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.
No one (I think) is suggesting that you start a business without the intention to make money.
rahimnathwani is spot on with my interpretation.
Absolutely only start a business because you are driven to make something people want, customers & users love, and to create wealth for you, your partners/ shareholders/ stakeholders involved.
My point re YC is that decision should not be made by weighing the pro's and con's of the money and equity stake you will give up for it (vs other investors for example). The investment money is a tiny fraction of the total value/ resources that YC brings to the table.
Absolutely only start a business because you are driven to make something people want, customers & users love, and to create wealth for you, your partners/ shareholders/ stakeholders involved.
My point re YC is that decision should not be made by weighing the pro's and con's of the money and equity stake you will give up for it (vs other investors for example). The investment money is a tiny fraction of the total value/ resources that YC brings to the table.
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.
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.
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.
> Didn't Altman just say that they sometimes do value companies differently?
It seems like they're planning to significantly decrease that variation. Almost all companies will give 7%, and a few exceptional cases might give less. This move eliminates all signaling risks (7% is now standard, so it's not a mark against companies, and any deviation is likely upwards).
It seems like they're planning to significantly decrease that variation. Almost all companies will give 7%, and a few exceptional cases might give less. This move eliminates all signaling risks (7% is now standard, so it's not a mark against companies, and any deviation is likely upwards).
Maybe? I don't remember, but I may have just missed it.
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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.
Can you cite a few examples of companies they funded with substantial revenue? I'm very curious to learn about which ones they were.
Many (most?) of the companies that presented at the most recent YC demo day had substantial revenue, and many of those were already making revenue before they joined YC.
(That's a big difference from the YC batch I went through back in Winter 2011)
(That's a big difference from the YC batch I went through back in Winter 2011)
There are many, many great companies of a certain age or size that will do yc for free. In fact, due to the equity piece companies are 'paying' to get into yc. If you are going for venture / seed funding, the stamp and brand is quite worth it.
"a standard deal which almost everybody gets"
Worked for Henry Ford.
Worked for Henry Ford.
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The old terms weren't bad, but this is unquestionably better: simpler, and higher valuation. Great news for everyone in YC.
I don't know if any other accelerators had the same core + YCVC investment model, so I don't know what changes it will have elsewhere except maybe pushing valuations at the accelerator stage a little closer to the demo day amount. (Still higher than $1mm pre, in all but exceptional cases.)
(Also, WOW. The teespring guys are doing $50k for each non-profit? That is amazing.)
I don't know if any other accelerators had the same core + YCVC investment model, so I don't know what changes it will have elsewhere except maybe pushing valuations at the accelerator stage a little closer to the demo day amount. (Still higher than $1mm pre, in all but exceptional cases.)
(Also, WOW. The teespring guys are doing $50k for each non-profit? That is amazing.)
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.
$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.
Off topic, but if your son has the chance to go Harvard/MIT/Stanford, he absolutely should. The difference is primarily in the caliber of the other students, and it makes a world of difference to have such a concentration of talent in one place.
(Note that I'm not saying there isn't talent elsewhere, just that there's an incredible concentration of it in the top n schools.)
(Note that I'm not saying there isn't talent elsewhere, just that there's an incredible concentration of it in the top n schools.)
It doesn't necessarily make world of difference. When you compare students who attended top private schools vs. those who were admitted but attended state schools, they actually have equivalent incomes down the line.
What's likely happening is that really smart kids at good state schools end up finding the pockets of talent there anyway.
Pretty scary implications for the value of a Harvard degree.
source: http://www.newyorker.com/archive/2005/10/10/051010crat_atlar...
What's likely happening is that really smart kids at good state schools end up finding the pockets of talent there anyway.
Pretty scary implications for the value of a Harvard degree.
source: http://www.newyorker.com/archive/2005/10/10/051010crat_atlar...
To some degree, the elite universities are selling success to those already predestined for it. This is an end game state for any popular institution that accepts a subset from a pool of applicants. The battle to get in ends up being a significant source of the value creation.
Raising a venture round from Sequoia is probably a decent non-academic example of this. I would not be surprised if companies who turn Sequoia away are just as successful as those who are funded by them (although the former is probably a small data set!).
Raising a venture round from Sequoia is probably a decent non-academic example of this. I would not be surprised if companies who turn Sequoia away are just as successful as those who are funded by them (although the former is probably a small data set!).
The network you'll make at top-tier schools is IMO a lot more important than anything else.
Yeah, the difference in peers alone is worth the cost delta. Especially true if you go to MIT - the student body and culture there is absolutely wonderful. One of my favorite places on Earth.
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 spent a significant amount of time on top campuses (where most of my friends went), I often regret making that decision—the caliber of students is truly higher, and the friends/networks you have from a school like Harvard will pay dividends throughout life.
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 spent a significant amount of time on top campuses (where most of my friends went), I often regret making that decision—the caliber of students is truly higher, and the friends/networks you have from a school like Harvard will pay dividends throughout life.
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 campus life. In the process, I'm fairly positive I built just as good of a network as if I had attended for undergrad.
Point being, everywhere you are has something to offer. Make the most of your situation!
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 campus life. In the process, I'm fairly positive I built just as good of a network as if I had attended for undergrad.
Point being, everywhere you are has something to offer. Make the most of your situation!
> 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.
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.
Though sometimes I wonder if YC would have accepted me if I had advertised my Ivy League stamps of approval (acceptance letters)...
Be glad you didn't. I don't think it would have sent a positive sign. Frankly, no one wants to hear about the things you didn't do, and things like acceptance letters and SAT scores don't matter going forward.
Life is going to be filled with tough calls. Sometimes, you may have 5 promising but exclusive options to choose from. You can't make the most of the path you've taken while wasting mental energy on the ones you didn't. Take it from someone who wasted a lot of mental energy on such things before learning not to.
You said elsewhere you go to NYU -- what's stopping you from maximizing your social and intellectual opportunities?
Be glad you didn't. I don't think it would have sent a positive sign. Frankly, no one wants to hear about the things you didn't do, and things like acceptance letters and SAT scores don't matter going forward.
Life is going to be filled with tough calls. Sometimes, you may have 5 promising but exclusive options to choose from. You can't make the most of the path you've taken while wasting mental energy on the ones you didn't. Take it from someone who wasted a lot of mental energy on such things before learning not to.
You said elsewhere you go to NYU -- what's stopping you from maximizing your social and intellectual opportunities?
> Be glad you didn't. I don't think it would have sent a positive sign. Frankly, no one wants to hear about the things you didn't do, and things like acceptance letters and SAT scores don't matter going forward.
I know (it's why I don't usually go around talking about how I could have gone to Harvard). Though it does sadden me that the VC and tech ecosystem is almost as prestige-focused as Wall Street.
> You said elsewhere you go to NYU -- what's stopping you from maximizing your social and intellectual opportunities?
Mostly that I don't have much commonality with those around me. Everyone seems to be focused on getting the "right" internship and studying, while I'd like to have meaningful conversations about intellectually intriguing topics. Plus, my general lack of social skills and nerdiness at a school which is decidedly not nerdy.
I know (it's why I don't usually go around talking about how I could have gone to Harvard). Though it does sadden me that the VC and tech ecosystem is almost as prestige-focused as Wall Street.
> You said elsewhere you go to NYU -- what's stopping you from maximizing your social and intellectual opportunities?
Mostly that I don't have much commonality with those around me. Everyone seems to be focused on getting the "right" internship and studying, while I'd like to have meaningful conversations about intellectually intriguing topics. Plus, my general lack of social skills and nerdiness at a school which is decidedly not nerdy.
Mostly that I don't have much commonality with those around me. Everyone seems to be focused on getting the "right" internship and studying, while I'd like to have meaningful conversations about intellectually intriguing topics. Plus, my general lack of social skills and nerdiness at a school which is decidedly not nerdy.
What you describe socially/environmentally sounds a lot like the typical Ivy League experience. Gossip, politics, inner circles within inner circles, who-you-know, etc.
Fortunately, social skills are something you can improve, if you set your mind to it. That's one reason I'm really glad I did my college experience in the order I did. I don't think I could have truly taken advantage of my grad school experience if not for going to undergrad someplace where everyone wasn't constantly jockeying to get ahead.
I'm sure you have more commonality with people than you think. Being adept socially is all about finding those commonalities. Usually, that means being able to step out of your own head to empathize with what other people's social needs are. The most social people I know have a way of making other people feel like the most interesting person in the world.
It sounds like you've got a lot going for you, and if you're a sophomore now, you've got a lot of time to figure everything out. Best of luck. Drop me a line if you want to grab a coffee or something. I went to NYU for my second grad school experience :)
What you describe socially/environmentally sounds a lot like the typical Ivy League experience. Gossip, politics, inner circles within inner circles, who-you-know, etc.
Fortunately, social skills are something you can improve, if you set your mind to it. That's one reason I'm really glad I did my college experience in the order I did. I don't think I could have truly taken advantage of my grad school experience if not for going to undergrad someplace where everyone wasn't constantly jockeying to get ahead.
I'm sure you have more commonality with people than you think. Being adept socially is all about finding those commonalities. Usually, that means being able to step out of your own head to empathize with what other people's social needs are. The most social people I know have a way of making other people feel like the most interesting person in the world.
It sounds like you've got a lot going for you, and if you're a sophomore now, you've got a lot of time to figure everything out. Best of luck. Drop me a line if you want to grab a coffee or something. I went to NYU for my second grad school experience :)
For what it's worth I went to Cambridge (UK) and didn't really build a network of useful friends and contacts. You often have to work at that stuff and I was a bit of a geek / not extra social. You can always do it deliberately later through something like MBAs, YC etc. I had a friend who had a good time and made lots of high power contacts doing the UCLA Executive MBA later in life. The brand recognition of the name is handy - people assume you are bright in a way they wouldn't if you go to a no name place.
If you're making 6 figures as a sophomore, have you considered putting in apps to transfer to some of the top tier selective colleges? Couldn't hurt.
> If you're making 6 figures as a sophomore, have you considered putting in apps to transfer to some of the top tier selective colleges? Couldn't hurt.
I've considered it, but HYPS essentially don't accept transfers. Plus, being in New York for the next year is very helpful professionally (I currently attend NYU).
I've considered it, but HYPS essentially don't accept transfers. Plus, being in New York for the next year is very helpful professionally (I currently attend NYU).
Listen to this man. Going to a top school has a massive effect on your luck surface area.
Given that the best course materials can increasingly be found online, the only benefit of a school is its social network, in which the elite schools have a formidable monopoly.
Given that the best course materials can increasingly be found online, the only benefit of a school is its social network, in which the elite schools have a formidable monopoly.
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.
> 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.
This idea (first quoted sentence) needs to die. It is toxic to the early-stage ecosystem. Any amount of money is a ton of money. Period. You can ignore the hustling that Jobs or Zuckerberg did for literally a couple of thousand dollars - read Zuckerberg's contracts at the time he was at Harvard making facebook. Look at the timing jobs "Stole" $5000 from Woz and founded Apple with it (making his friend a multimillionaire in the process). The reality is that no windfall bonus from Atari of less than $4300 - which is money that Jobs had 0, absolutely 0, access to, from any other source - equals no Apple. Look at the dates.
You can also ignore what companies actually spend the YCombinator seed money on when it was $14K-$20K, at a time that the YC badge easily added $200K+ to a YC company's average valuation - a badge that doesn't bring instant liquidity. How many YC companies would not exist if YC only added its badge to the valuation, and not actually given any money.[1]
What you can't ignore is that there are people who are working a day job while owning and building a company - working that day job because any amount of money, even part of a single full time earner's after-tax salary, is a ton of money.
Just try raising it.
[1] Imagine if the YC admission read: "Congratulations! This admission is easily worth $200K in extra valuation. With the YC badge, you should have no trouble raising money. We are therefore not making any cash investment, not even $12K, but rendering only services. We welcome you to the bay area on (date)."
This idea (first quoted sentence) needs to die. It is toxic to the early-stage ecosystem. Any amount of money is a ton of money. Period. You can ignore the hustling that Jobs or Zuckerberg did for literally a couple of thousand dollars - read Zuckerberg's contracts at the time he was at Harvard making facebook. Look at the timing jobs "Stole" $5000 from Woz and founded Apple with it (making his friend a multimillionaire in the process). The reality is that no windfall bonus from Atari of less than $4300 - which is money that Jobs had 0, absolutely 0, access to, from any other source - equals no Apple. Look at the dates.
You can also ignore what companies actually spend the YCombinator seed money on when it was $14K-$20K, at a time that the YC badge easily added $200K+ to a YC company's average valuation - a badge that doesn't bring instant liquidity. How many YC companies would not exist if YC only added its badge to the valuation, and not actually given any money.[1]
What you can't ignore is that there are people who are working a day job while owning and building a company - working that day job because any amount of money, even part of a single full time earner's after-tax salary, is a ton of money.
Just try raising it.
[1] Imagine if the YC admission read: "Congratulations! This admission is easily worth $200K in extra valuation. With the YC badge, you should have no trouble raising money. We are therefore not making any cash investment, not even $12K, but rendering only services. We welcome you to the bay area on (date)."
Sorry, I just don't agree. 120k barely makes expenses for 1 FTE. Not only that, but it's also an amount of money that a strong freelancer can generate on top of living expenses in a particularly well-utilized year.
Exactly. move into your mother's house. become a 1099 contractor at $100/hr+. save, save, and save. a year later there's your bootstrap funds + credit cards, excess of 100K. Outsource design/dev if necessary, launch it, raise a large seed round/series A, valuation 4m+
You don't have to give away anything. be an entrepreneur.
You don't have to give away anything. be an entrepreneur.
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And do that before you have kids.
An idea-stage startup should not be paying a FTE 120k. That is lunacy and engineers need to start to understand this. More equity, lower salary until there is money coming in would help more companies survive longer while they look for product-market fit.
I don't doubt that you're right about this, but I'm using the (lowball) estimate of the cost of a single developer as a benchmark for the amount of money we're talking about. Also: I'm not sure what you call someone who takes half salary in exchange for equity. It's probably not "cofounder", but "employee" doesn't fully capture it either.
Maybe.
I have a roommate in SF. He's freelancing, I'm working at a company. He's making more cash than I am, but I'm working on building a company (as an employee) that's shipped multiple iterations of a category-leading product, raised $XX million in VC, and hired almost 100 people.
I'm not disputing that a good freelancer can clear $120k net of taxes and living expenses, just that that's the best path to take, if the end goal is to be an entrepreneur.
I have a roommate in SF. He's freelancing, I'm working at a company. He's making more cash than I am, but I'm working on building a company (as an employee) that's shipped multiple iterations of a category-leading product, raised $XX million in VC, and hired almost 100 people.
I'm not disputing that a good freelancer can clear $120k net of taxes and living expenses, just that that's the best path to take, if the end goal is to be an entrepreneur.
Are we sure we're talking about the same thing? I'm not suggesting a freelancer can net $120k in a year. That's easy. I'm suggesting a freelancer can net $120k plus living expenses in a year --- a number perhaps closer to $200k-225k. The reason I think that I that I know a lot of people who do --- many of them outside my (particularly lucrative) specialty.
Practically every established consultancy in the US throws off numbers like that year in year out, as a routine. Which is one reason a lot of consultancies end up spinning up product teams.
Practically every established consultancy in the US throws off numbers like that year in year out, as a routine. Which is one reason a lot of consultancies end up spinning up product teams.
You're simply empirically wrong [about the 'amount' of money that represents, whether it is large enough to make a substantial difference], and your anchors[1] are not only irrelevant and misleading in an early-stage context, but extremely toxic.[2] What was Google's first check in the amount of? $100K. It was a ton of money. As Wikipedia points out, "The first funding for Google as a company was secured in August 1998 in the form of a US$100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems, given to a corporation which did not yet exist." They used that to raise "On June 7, 1999, a round of equity funding totalling $25 million", about 10 months later. Pop quiz. Which was more money, the $100K in the first context or the $25M in the second? Well, as I've heard they never did spend much of that $25M, it sat in Google's bank account while they grew and raised further rounds....
But that $100K? That was a ton of money.
Basically, you are wrong that it was not a ton of money, your anchors and comparisons are toxic and misleading, and if he had not cut that check then Larry and Sergey would not have created Google. That is what actual reality shows us.
You simply do an incredible disservice to all early-stage startups by talking in these terms.
I gave you several actual examples of far less than $120K being a ton of money in an early-stage context. As little as $5000 being a ton of money. I also specifically stated that if, say, $20K, weren't a lot of money, then it would make no difference empirically if YCombinator did not actually pay that cash. And YC companies wouldn't have either relied on or even actually spent that cash. But it does make a difference, and they did.
As I specifically point out: your FTE expenses are completely irrelevant, and even part (less than 100%) of the after-tax portion of a single FTE salary is a ton of money. (In an early-stage context.)
To imply otherwise does a huge disservice to all first-time, early-stage founders everywhere. The very idea is toxic and needs to die.
[1] The meaning of anchor I use is: http://en.wikipedia.org/wiki/Anchoring
[2] Your figures both about (1) the cost to the company of a fully loaded FTE senior engineer and (2) the amount that a good freelancer can generate above living expenses in a year, are irrelevant and do not need to be argued. I will grant both as irrelevant to the discussion.
But that $100K? That was a ton of money.
Basically, you are wrong that it was not a ton of money, your anchors and comparisons are toxic and misleading, and if he had not cut that check then Larry and Sergey would not have created Google. That is what actual reality shows us.
You simply do an incredible disservice to all early-stage startups by talking in these terms.
I gave you several actual examples of far less than $120K being a ton of money in an early-stage context. As little as $5000 being a ton of money. I also specifically stated that if, say, $20K, weren't a lot of money, then it would make no difference empirically if YCombinator did not actually pay that cash. And YC companies wouldn't have either relied on or even actually spent that cash. But it does make a difference, and they did.
As I specifically point out: your FTE expenses are completely irrelevant, and even part (less than 100%) of the after-tax portion of a single FTE salary is a ton of money. (In an early-stage context.)
To imply otherwise does a huge disservice to all first-time, early-stage founders everywhere. The very idea is toxic and needs to die.
[1] The meaning of anchor I use is: http://en.wikipedia.org/wiki/Anchoring
[2] Your figures both about (1) the cost to the company of a fully loaded FTE senior engineer and (2) the amount that a good freelancer can generate above living expenses in a year, are irrelevant and do not need to be argued. I will grant both as irrelevant to the discussion.
Your comment is very emphatic, but you didn't rebut either of my points:
* 120k will barely pay the fully loaded cost of a single engineer
* A good freelancer can generate 120k above living expenses in a year
Your response was "the fully loaded cost of an engineer is irrelevant". That's a weird argument, given that the cost of engineers dominates the expenses of early-stage startups.
* 120k will barely pay the fully loaded cost of a single engineer
* A good freelancer can generate 120k above living expenses in a year
Your response was "the fully loaded cost of an engineer is irrelevant". That's a weird argument, given that the cost of engineers dominates the expenses of early-stage startups.
That's cool and all, but what matters to a very early stage startup isn't the cost of hiring an engineer, it's covering the founders' living expenses and whatever business expenses arise (which may be very small).
You know this, so I'm not sure why you're off on a tangent about things that don't normally apply in these situations.
You know this, so I'm not sure why you're off on a tangent about things that don't normally apply in these situations.
There was a long comment here, but I found a better way to make my point:
If I gave you $120k to start a company with 1-2 other people, and you had no other funding commitments, I don't think I'd be changing your odds all that much.
But I have no trouble believing that when YC gives founders $120k, they are changing the odds significantly.
If I gave you $120k to start a company with 1-2 other people, and you had no other funding commitments, I don't think I'd be changing your odds all that much.
But I have no trouble believing that when YC gives founders $120k, they are changing the odds significantly.
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$100K is a ton of money to a student or someone whose career hasn't really "launched" yet. It's peanuts to anyone working in tech with a track record. You can easily save that much money in 1-2 years working at a 9-5 in a big company, or consulting.
The skills to get that big company job or land those consulting clients are pretty much the same skills you need to make your product company successful. An understanding of what people will pay you money for. Ability to execute on a project. Collaboration and communication. And of course, solid coding skills. The difference is that a product company also requires a fair degree of business strategy, determination, and sheer resourcefulness that you don't need to get a job.
So if you want to found a successful company, you're much better off developing those skills, testing them by getting a job or someone else to pay you money, and then striking off on your own. If you just get the money, chances are you will lose the money pretty soon too.
The skills to get that big company job or land those consulting clients are pretty much the same skills you need to make your product company successful. An understanding of what people will pay you money for. Ability to execute on a project. Collaboration and communication. And of course, solid coding skills. The difference is that a product company also requires a fair degree of business strategy, determination, and sheer resourcefulness that you don't need to get a job.
So if you want to found a successful company, you're much better off developing those skills, testing them by getting a job or someone else to pay you money, and then striking off on your own. If you just get the money, chances are you will lose the money pretty soon too.
You say it "was a ton of money," but you haven't provided any reasons that is the case, other than claiming that Google would not exist otherwise, something we don't really know either. Maybe Larry and Sergey didn't really need that 100k either, but took it just in case? And even if it were a lot of money at the time, 1999 was a different time and place. First-time founders were a lot less sophisticated. The seed funding environment that exists today didn't exist. AngelList did not exist. The current market rate for engineers and cost of living is a lot higher than then.
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That $120k has to buy incorporation and legal fees, business operating expenses, and living expenses for at least 2 founders for three months. It's significantly better than $17k plus a note, but it's still a small enough amount that the program effectively selects for founding teams who either don't need the money (e.g. already have substantial financial means from other sources) or haven't got anything to lose (e.g. 20-somethings fresh out of school, or still in it). That excludes a huge talent pool.
This. This x100.
We are in a crazy scenario where we are seeking a Series A with a good product in a validated market fit.
The investors have essentially said unless you are eating ramen noodles and scraping by we are not interested.
^^ That attitude essentially rules out anyone with a family, prior commitments or debts from college/life.
Why would a funding round not earmark a portion for a fair (albeit lower than market) salary?
We are in a crazy scenario where we are seeking a Series A with a good product in a validated market fit.
The investors have essentially said unless you are eating ramen noodles and scraping by we are not interested.
^^ That attitude essentially rules out anyone with a family, prior commitments or debts from college/life.
Why would a funding round not earmark a portion for a fair (albeit lower than market) salary?
I just want to raise the point that your Apple example doesn't take inflation into account. The $4300 in 1975 is roughly $18.5k (to within $500) in today's dollars. This is inline with YC's previous seed funding of $17k.
I have to agree with you that what is "a lot of money" is entirely relative; I don't think that $5k in today's terms is a lot of money by any startup's standards but any amount upwards of $15k or so is definitely "a lot of money" to a larval startup.
I have to agree with you that what is "a lot of money" is entirely relative; I don't think that $5k in today's terms is a lot of money by any startup's standards but any amount upwards of $15k or so is definitely "a lot of money" to a larval startup.
I don't think you're expressing yourself very well, but I do think you have an interesting point. I would put it this way: if you want to start a company, and you manage to raise, say, $30k from friends and family, you should be very much encouraged, not discouraged. That's not to say you won't want to raise more later, but this may very well be enough to get you off the ground.
To be honest, I imagine they'd all still exist even if YC gave no funding. A program like YCVC would exist (because VCs put inordinate trust in YC) and startups would get the funding they need.
And, let's be honest, $120k really isn't a lot of money. Sure, it might be more than my net worth right now—but as an engineer I could easily save up that amount in less than 2 years.
And, let's be honest, $120k really isn't a lot of money. Sure, it might be more than my net worth right now—but as an engineer I could easily save up that amount in less than 2 years.
... actually a "ton" of money is technically £2000, or $3365 at the 22APR14 exchange rate.
$120,000 is therefore ~35.66 tons of money.
A ton is £100, you're thinking of an Archer.
Which is, incidentally, not dissimilar from the signaling effects of attending Harvard/MIT/Stanford.
In the tech world, the YC signal > H/M/S signal.
I don't think that's generally true. YC is very well respected in a very specific niche of tech, while H/M/S have much broader name recognition in tech generally. Depends to some extent on what you want to do. YC has great name recognition among VCs, so if you're going that route, it's a good name to have. A Stanford or MIT degree generally has better name recognition among people hiring for tech jobs, especially outside of the SF Bay Area and among people not culturally part of the "startup scene".
Yeah, I should have clarified. It's a bit uncertain if YC > HMS to hiring managers at companies. YC is definitely > HMS in the startup and raising VC world.
However, engineers and recruiters at the top tech companies like Google/Facebook/Amazon/Microsoft have definitely heard of YC.
However, engineers and recruiters at the top tech companies like Google/Facebook/Amazon/Microsoft have definitely heard of YC.
Kind of a generalization, no? Do you mean specifically for startup success and/or raising VC money?
Most likely, your kid's startup you dropped $120K into is going to fail. Make sure you consider that case very carefully - what are his chances like at 26 with a less prestigious degree and a failed startup under his belt compared to a Harvard/MIT/Stanford degree plus 5 years in a salaried job that those can get you?
> And I think school prestige matters more for investment banking than tech
It has less to do with prestige and more to do with risk.
IMHO, there are only two routes to becoming part of today's tech elite. You either build something that gets traction or you join a team that has already done so. These are IMHO the two strongest signals today, especially given the increase of noise. Don't believe me? Just search around AngelList for 30 min. If your son gets a CS degree from Stanford or MIT, it will automatically put him in that basket of "join a team who has already done so", just as working for Google, Facebook, Twitter, etc does.
It has less to do with prestige and more to do with risk.
IMHO, there are only two routes to becoming part of today's tech elite. You either build something that gets traction or you join a team that has already done so. These are IMHO the two strongest signals today, especially given the increase of noise. Don't believe me? Just search around AngelList for 30 min. If your son gets a CS degree from Stanford or MIT, it will automatically put him in that basket of "join a team who has already done so", just as working for Google, Facebook, Twitter, etc does.
While the education is one thing (and surely valuable), I think you also have to look at the connections and network you develop at a "name" school vs. other schools. Those are not things you see on a bill, but they are extremely valuable.
EDIT: I'm not saying this can't be achieved at other schools - I didn't attend a "name" school, but the network definitely matters and can be a huge bonus especially if you know what industry you want to target.
EDIT: I'm not saying this can't be achieved at other schools - I didn't attend a "name" school, but the network definitely matters and can be a huge bonus especially if you know what industry you want to target.
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 hope he converted somehow.
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 hope he converted somehow.
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.
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.
If your son has co-founders or would like them then this is an idea with the potential to be disastrous.
If the startup (company) goes the distance then whatever equity you bought with investment would convert to your son as part of his inheritance altering the partnership drastically.
The legal and financial ramifications can be quite complex.
If the startup (company) goes the distance then whatever equity you bought with investment would convert to your son as part of his inheritance altering the partnership drastically.
The legal and financial ramifications can be quite complex.
In the case of "a son who loves to program", if the target is a Computer Science degree, if your son can get into any one of Stanford, UC Berkeley, CMU or MIT, go for it. These are the top CS schools in the US and I gather the world, and there's a big quality gap between them and those below them.
Things I had to look up because I never knew or had forgotten:
LP is Limited Partner, basically an investor.
A safe is like a convertible note but better. http://ycombinator.com/safe/
LP is Limited Partner, basically an investor.
A safe is like a convertible note but better. http://ycombinator.com/safe/
The 17k for 7% is what always stopped me from considering the Y Combinator route. It's a huge chunk of your company for not very much money. If the new deal had been in place when we started, I think we would have been very tempted to join.
The real benefits of YC though are the focus it brings you, and being able to get access to the YC ecosystem. Oh, and being able to attend Demo Day, but with so many companies in the YC program, I think Demo Day isn't what it used to be (I think you get 90 seconds now?).
We would have loved to have had access to those resources, but since we had already invested far more into our company in terms of cash, it's hard to justify giving up that much equity for so little. Kudos to Sam for the new program.
The real benefits of YC though are the focus it brings you, and being able to get access to the YC ecosystem. Oh, and being able to attend Demo Day, but with so many companies in the YC program, I think Demo Day isn't what it used to be (I think you get 90 seconds now?).
We would have loved to have had access to those resources, but since we had already invested far more into our company in terms of cash, it's hard to justify giving up that much equity for so little. Kudos to Sam for the new program.
17K for 7% isn't as raw a deal as you think when you realize that at an "acceptance" into YC essentially doubles your valuation to most seed investors.
Absolutely. Being vetted by YC certainly won't hurt your company, but it's still tough though when you've dumped $100k-$200k of your own money plus your time and energy (which is not insignificant when you're an engineer in the Silicon Valley), and you're giving up that amount of equity.
Depends on what you're trying to achieve I think. I worked on my own stuff for 3 years before doing YC and it was well worth it. My thoughts after going through the program:
If you have no product and no track record, it's definitely worth it.
If you have something working, but growth isn't amazing, it's a risk because there's a chance you don't get the absolute most out of demo day due to timing -- so one might feel what you describe. That said if you blow up later, I'm sure they will do a fantastic job of getting you to the people you'd want to meet with - eg. Homejoy.
But if you come into YC with good growth (like doubling in size every month) it is without a doubt one of the smartest things you can do. You will probably never have as much leverage as you get while going through YC.
If you have no product and no track record, it's definitely worth it.
If you have something working, but growth isn't amazing, it's a risk because there's a chance you don't get the absolute most out of demo day due to timing -- so one might feel what you describe. That said if you blow up later, I'm sure they will do a fantastic job of getting you to the people you'd want to meet with - eg. Homejoy.
But if you come into YC with good growth (like doubling in size every month) it is without a doubt one of the smartest things you can do. You will probably never have as much leverage as you get while going through YC.
This seems great - simple, better terms, higher valuation. Kudos @sama and YC.
Stepping back a bit, it's also a sign of the times -- especially given the tone of the last paragraph, it's clear there's pricing pressure on incubators/accelerators and the competition is heating up a bit. There are more competitors in the space, valuations are rising, and YC is adjusting accordingly. This isn't a good or bad thing per se -- just an observation of a byproduct of capitalism and the realism of the market in 2014.
Stepping back a bit, it's also a sign of the times -- especially given the tone of the last paragraph, it's clear there's pricing pressure on incubators/accelerators and the competition is heating up a bit. There are more competitors in the space, valuations are rising, and YC is adjusting accordingly. This isn't a good or bad thing per se -- just an observation of a byproduct of capitalism and the realism of the market in 2014.
I have trouble deciding which part I like more: the simplicity or the better valuation.
Unanimously positive move.
Unanimously positive move.
Getting accepted into YC immediately values your company at $1.7M.
I'm not a finance guy, but I've always thought people put too much stake in trying to make realistic dollar values out of what is pretty much unquantifiable, i.e. startup equity. At the end of the day, if you're accepted to YC, you simply need to ponder "is 7% of my company worth the entire package?" and decide accordingly. Of course, these things have real consequences in future rounds, but as far as I know, that's just the agreed upon fiction, rather than some underlying financial truth.
To me, this kind of connects to the debate on employee equity that's been ongoing. Sure, intellectually we want to equate that with upfront salary and then compensate at the market rate. But in reality it can never be that way for a plethora of reasons -- tax concerns, option rules, difference in equity classes, etc.
Again, I don't really know what I'm talking about, but I don't think people should view equity as dollars. To me, equity is better thought of as an entirely separate finite resource of a company. One which has different value to different people, depending on ability to take on risk.
To me, this kind of connects to the debate on employee equity that's been ongoing. Sure, intellectually we want to equate that with upfront salary and then compensate at the market rate. But in reality it can never be that way for a plethora of reasons -- tax concerns, option rules, difference in equity classes, etc.
Again, I don't really know what I'm talking about, but I don't think people should view equity as dollars. To me, equity is better thought of as an entirely separate finite resource of a company. One which has different value to different people, depending on ability to take on risk.
This might actually have been a reality for some time. See some of the exit valuations on AngelList - all seem to be $5m+. So $1.7m value at entry isn't out of whack.
It does seem though that the primary aim here is to provide more for living expenses, which means that the $1.7m implicit valuation might need to be taken with a grain of salt. Not that it matters much anyway.
It does seem though that the primary aim here is to provide more for living expenses, which means that the $1.7m implicit valuation might need to be taken with a grain of salt. Not that it matters much anyway.
investors understand YC and don't utilize the investment for valuation purposes that I've seen. most companies I know were going backwards by that math to bring YC on board as an investor (which we did so willingly).
Pretty insignificant. You can't spend that money. No one can.
; YC, financially, is enough money for you to live in the Bay Area to work on your company for a fixed time in which you're expected to grow and acquire more capital and a probability assessment on your potential future value.
Keywords, 'potential' and 'future'.
You can't up and sell your company for $1.7M, Sam Altman can't, no one can because no one would buy it because YC isn't saying "You are now in possession of, and operating something, that is worth $1.7M to the world." At such an early stage, all they're really saying is, "There is a probability that your company will be worth $1.7M, and the probability is high enough such that we're willing to put our money where our mouths are."
; YC, financially, is enough money for you to live in the Bay Area to work on your company for a fixed time in which you're expected to grow and acquire more capital and a probability assessment on your potential future value.
Keywords, 'potential' and 'future'.
You can't up and sell your company for $1.7M, Sam Altman can't, no one can because no one would buy it because YC isn't saying "You are now in possession of, and operating something, that is worth $1.7M to the world." At such an early stage, all they're really saying is, "There is a probability that your company will be worth $1.7M, and the probability is high enough such that we're willing to put our money where our mouths are."
Alternately, if your company is worth less than $1.7M then YC won't invest?
As they made clear, YC is not necessarily out just to make a profit. (The investment in non-profits, for instance, is clearly not profit driven.) Sure, they'll make a profit, but that won't be the only driver.
Besides, at this stage, no company actually has a value. Companies have a probability distribution of possible values... and it's a very diffuse distribution.
Besides, at this stage, no company actually has a value. Companies have a probability distribution of possible values... and it's a very diffuse distribution.
That actually makes sense. VC is a reputation-driven system. It shouldn't be that way, but it is. I'm not talking about YC but in general here: there are people way dumber than I am who can put in a good word for a startup and bump its perceived value (and, arguably, its expected return, because reputation is so big in this game) by 50% or more.
In fact, I always held a pretty negative view of YC's prior low valuations. It struck me as PG monetizing his (admittedly, well-earned, because his Lisp chops are really strong) reputation, and the low infusions, to me, indicated that the target audience was young people without families.
I'm afraid to say this, for fear that people are thinking I'm losing my edge by saying something nice about an investor, but I actually like Sam Altman so far. I think he's making a lot of really good decisions.
In fact, I always held a pretty negative view of YC's prior low valuations. It struck me as PG monetizing his (admittedly, well-earned, because his Lisp chops are really strong) reputation, and the low infusions, to me, indicated that the target audience was young people without families.
I'm afraid to say this, for fear that people are thinking I'm losing my edge by saying something nice about an investor, but I actually like Sam Altman so far. I think he's making a lot of really good decisions.
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This says a lot about the alternatives YC says it's really competing with - the other things people who could build great startups would otherwise be doing.
$17k is what two engineering students might have made at a summer internship in Boston in 2005.
$120k is now what two entry-level engineers might make in six months in the Valley.
$17k is what two engineering students might have made at a summer internship in Boston in 2005.
$120k is now what two entry-level engineers might make in six months in the Valley.
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.
[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.
Is the 7% equity split pro rata between those two entities?
How can Teespring afford / justify giving every non-profit $50k?
They are a company with real revenue that's growing and they think the publicity will sort of make up for it, so they don't end up losing too much on it.
If yc does 5 nonprofits per batch, $500k is not a lot of money.
If yc does 5 nonprofits per batch, $500k is not a lot of money.
Exactly right. It's great to see a company which is growing fast, generating real revenue and quietly establishing itself as one of the most exciting startups in the valley, giving back like this.
Note to founders - this is the kind of thing you can do when your startup makes money!
Note to founders - this is the kind of thing you can do when your startup makes money!
they clearly are doing very well
What does it mean for a startup to be non-profit? When YC and Teespring each invest 50k into a non-profit, do they expect a return on investment? or is it purely a donation?
Purely a donation
A donation to fund operations.
Props for cleaning things up. Startups have enough difficulties to overcome, without having to spend time and brain cycles navigating a complex funding structure.
Why do nonprofits get less money?
we tried asking some foundations if they would do a similar deal, and disappointingly they wouldn't. we will keep trying, but we wanted to get something in place for this batch. 100k is not that different 120k. i think it's pretty awesome that one of our startups is stepping up and being creative when traditional supporters of non-profits were reluctant to try a new approach.
What would be the benefit to foundations of doing a similar deal? Seems that they mostly have passed on YC-funded nonprofits including Immunity Project and Zidisha; and for good reasons. It seems that YC is a little behind when it comes to nonprofits - funding things that were very popular years ago like crowdfunding (Kiva comes to mind). These things are still exciting but they aren't at the edge of nonprofit innovation today. Organizations like Sanergy or GiveDirectly are really disrupting the nonprofit industry. Would love to see YC make a bet like one of those.
Have you tried reaching out to other companies (or even VCs) to see if they'd do something similar?
Not that $20k is a huge difference, but it seems like the dividends from funding a YC non-profit for nearly any player in the tech scene far exceed $20k.
Not that $20k is a huge difference, but it seems like the dividends from funding a YC non-profit for nearly any player in the tech scene far exceed $20k.
hey sam - is it 7% of common stock or preferred?
My understanding was that it was always common stock.
I believe this is the agreement: http://ycombinator.com/documents/YC_CSPA.docx
I believe this is the agreement: http://ycombinator.com/documents/YC_CSPA.docx
I really like this model. There are plenty of people who enjoy haggling and the finer points of contracts, but I'm not one of them. If all deals were this simple I think SV startups would save a lot of time, headache and money spent on lawyers.
@Sama, is YC still encouraging founders to use SAFEs for their seed round or is that dead?
While going through YC for no money and 7% would probably be worthwhile for many startups, simply for the exposure and advice, I know for a fact the ostensibly terrible terms have deterred many good applicants. I tried for years to apply to YC with a partner who insisted on not taking such terms. While I think he was wrong (and perhaps that signaled some other problems with the partnership,) I'm happy to see the issue go away. A valuation of $1.5-$2M is quite fair for an early stage startup, particularly with the value-add of YC.
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Forgive my ignorance, but what does LP stand for?
LP = Limited Partners
It's how many VC funds are structured. General Partners run the thing, while Limited Partners are investors with limited liability.
It's how many VC funds are structured. General Partners run the thing, while Limited Partners are investors with limited liability.
There is nothing to be forgiven for, it's a very common question. It stands for Limited Partnership - type of Business Entity. In this post, Sam seems to be referring it in context to Limited Partner.
Read more about it here: http://en.wikipedia.org/wiki/Limited_partnership
Read more about it here: http://en.wikipedia.org/wiki/Limited_partnership
Seems like YC has come to realize how easy it is out there to get massive seed funding. About time they upped their seed amount.
It would be great to see this annotated on RapGenius in order to learn all the terminology and how investment like these work.
Here you go:
http://news.rapgenius.com/Sam-altman-the-new-deal-annotated
Feel free to comment (it's not very intensive in terms of VC deal terminology, but I wanted to give RG a spin).
Feel free to comment (it's not very intensive in terms of VC deal terminology, but I wanted to give RG a spin).
Wow, thank you so much. You made it really easy to understand.
The simple truth is that the new deal is better than the previous one and there is no denying the value add on that YC brings to startups. Also, the fact that many accelerators and incubators would follow the YC lead and increase their initial investments augurs well for the startup ecosystem.
Well done YC.
Sam: Time to update the 'New Deal' on the home page. It still mentions the 'Old Deal'.
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Upon getting accepted to YC, your company is promised $120K for 7%. Does this imply that if your company is accepted to YC, then it is worth $1.7M (because 7% of $1.7M is $120K)? Or is this not the right way to look at it? Why / why not?
There are two chunks (as Sam mentions in his post) -- one chunk is for common stock and the other is in the form of a Safe that converts to Preferred stock.
Is this going to change what the YC cycle looks like for the funded companies?
Can someone explain what the difference is between before and now? Is it that before you could only spend $17k until you raised your next round but now you get it all at once?
I don't know how much of this idea comes from Sam Altman, but YC looks better and better since he took over.
Has YC / Teespring taken a position on whether a L3C is a "non-profit"?
That's an immediate average valuation boost of around 5x.
(1.5 mil vs 300-ish k previously)
(1.5 mil vs 300-ish k previously)
This will help applicants cover the ever increasing SV rent.
this sounds simpler than the previous one.
>$120k, which we hope is enough for the founders to run their business and pay their living expenses for at least 6 months, and sometimes longer.
So, do you provide personal expense guidance to the founders?
How can I get, without joining YC, just this portion of the program ;)
So, do you provide personal expense guidance to the founders?
How can I get, without joining YC, just this portion of the program ;)
> 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.
I know advice is a big part of it but this is a exaggeration right? Most of that network/benefits/etc that surrounds YCombinator is about the financial investment.
I know advice is a big part of it but this is a exaggeration right? Most of that network/benefits/etc that surrounds YCombinator is about the financial investment.