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Comment by gameshot911 | Hacker News Reader

>Each startup that goes through the three-month program now receives$120,000 in cash — $20,000 from Y Combinator, plus $100,000 from the outside investors – in exchange for 7% equity in their company.

$120k for 7% in a company!? Is that really a favorable term to startups? There's no way I would ever, EVER sell 7% of my company for a such a small sum. Who would sell out their passion for such a pittance?

It's very possible I'm missing something here, because my impression is that YC truly tries to act as a partner with founders. I just can't see giving a go at a startup - with all that entails - for an idea I believe is worth only $1.7M (even at the nascent stage).

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You are wrong. So, so, wrong.

If you were allowed to, the best thing you could possibly do for your early stage company would be to go take $100,000, nay $500,000 plus 30% of your stock and give it to Paul Graham in exchange for being let in to YC.

It's not just the education you get, nor the peer pressure of being in a 'class' with other companies, it's also the social cache, the network of other YC funders, the access to investors, and lately, the benefits of YC punishing investors who treat their portfolio companies badly.

Good/Great investors are all people you would always pay to have on your board, and gunning for your company. The money they give you helps keep the lights on and grow, but it's really a proxy for getting (and holding) their attention and focus on what you need to succeed.

The big draw of YC to me seems to be the alumni network, that's the real gold and with every class that network expands.

I am wondering hos this dilutes over time though. I mean, if I was in a select group of 100 people, I would pick up the phone if one of them rang and wanted my help. However, as that group grows to 1000, it would be less likely and at 10.000 I would probably not bother. But maybe there are stronger ties within the batches?

That's also the draw for Harvard Business School.

You're welcome to not take/seek the deal. For what it's worth, I have asked ~100 YC founders whether they felt it was valuable to them, and have had precisely one person say no.

Incidentally, for virtually the entire startup era prior to YC, "two geeks with a gleam in their eye" was worth ~$250k. The first check from an angel to pay for ~6 months of rent and ramen bought 1/6th the company for $50k.

Having 100% of something vs having 93% of something with access to a great network, a demo day for best investors, great mentors, resources for HW startups, Azure grants for SW startups (worth $500k) etc etc.

Some time ago, PG published an email exchange between himself and Fred Wilson, where PG was really pushing USV to invest in AirBnB, what a service for both sides. How much would you pay for it?

IMO 7% for 120k is quite cheap, especially if you're in early stage.

Think again: the _first_ valuation of your company - that is not even incorporated - is 1.7 million and you keep 93%. If you know about a better deal then please let us know! :)

Pretty sure it used to be <$20k for the same ~7%. The main value of YC has always been the training, network, and vote of confidence, not the funding. Not everyone finds it worth it for their particular situation, but many do.

Forget the money/valuation for a second. If YC makes your company just 8% more valuable on average than it would have been otherwise, you win. For the value they provide I think it's a no brainer.

> $120k for 7% in a company!? Is that really a favorable term to startups? There's no way I would ever, EVER sell 7% of my company for a such a small sum. Who would sell out their passion for such a pittance?

YC is typically funding a company in their seed round. At this stage the company doesn't have a real valuation and could honestly be worth zero. Valuing a company at $1.7 million at this stage seems pretty good to me.

Now companies coming into YC much later when they already have a specific valuation? May or may not be worth it, it depends on where the company is.

How many companies have you started? $120k at that kind of valuation for a seed round is not at all strange. I've been part of companies that have done much worse (~$30k for 20%..) and much better ($1.2m for 10%); in the end you take the best you can find, and the valuation you can get in your seed round is not necessarily a good predictor for how well you'll do as a founder.

And you have to consider that "the best you can find" also depends on other factors such as the advice and contacts you gain, which could very well make or break the company by itself.

You're looking at it all wrong when you say "for an idea I believe is worth only $1.7M". It's an idea and a team that's only worth $1.7M now when factoring in risk and time. Let's say a coin flip right after the investors have put their money in determines if the company will continue as is or get shut down; if so the present value of the company is at most half what it will be after the coin flip, probably less. And the reality is that startup risks are massive.

Now add the time element, and your growth also need to reflect returns the investors could have gotten elsewhere.

The net result is that if your startup is valued at $1.7M today, then they're saying they think it'll be worth far more than that assuming you succeed. Even then, the $1.7M number exclude the value of the advice and contacts you gain access to.

It's a business decision. When it doesn't make sense as one or when the criteria are something else, then it shouldn't be done. On the other hand, when it makes business sense, it makes business sense.

Anyway, my understanding is that those terms are relatively favorable in comparison with those oft times offered by other investors.

$120K in return for 7% of "an idea" with a 90%+ failure rate outside of the YC trajectory seems like a pretty good deal to me.

I wouldn't sell 7% of whatever I'm doing to YC either because I (1) don't fit their profile and (2) am much too conservative to go for VC (the whole 'go big or go home' thing does not appeal to me) but if I were doing high risk high growth start-up(s) then I would definitely come knocking on their door.

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