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Comment by malandrew | Hacker News Reader

    "Graham suggests that if one reputable venture firm were 
    to break this non-spoken 20% Series A agreement, the best 
    startups would instantly flock to that firm. “It’s going 
    to happen,” Graham says. “You might as well anticipate it 
    and look bold.”"

pg,

Any plans on using the collective attractiveness of YC to help push that 20% stake down? e.g. would you talk to a lot of the startups in the current batch about collectively sticking to a lower percentage like 15% to get the ball rolling in the direction of the new funding landscape?

It seems like YC companies keep raising larger and larger rounds, oftentimes more money than they really need for 18 months of runway. With that in mind, the logical thing to do is to collectively help them give up less equity to get back to 18 months of runway.

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It would be overreaching of us to do something like that. We're not the VCs' adversaries. We need to cooperate with them, because they have expertise in later-stage problems that the startups need.

> would you talk to a lot of the startups in the current batch about collectively sticking to a lower percentage like 15%

I'm not a lawyer or even a particularly skilled investor, but that smells like an SEC violation. Even if it wasn't, I think it'd be something akin to price fixing.

Would someone who knows more care to chime in? Am I wrong?

Isn't the current situation of 20% as a bottom limit the same?

The US has a history of cartel like behavior in finance. Just look at the percentage charged for IPOs [0]. I'm sure if you created a similar graph for venture capital financing that you'd see a black line on the graph just like the one created by Mark Abrahamson, Tim Jenkinson, and Howard Jones.

Trying to break that 20% barrier would seem acceptable. After all, the goal here isn't to get the VCs to take less equity for the same amount of money, but to provide more flexibility in the tradeoff between cash and equity.

[0] http://www.sbs.ox.ac.uk/research/people/Documents/Tim%20Jenk...

Some questions:

Do you believe that the 20% as a bottom limit is the result of a group colluding with intent, or is it just the result of a type of evolutionary convergence?

By chain rule, as long as the market has some modicum of elasticity, isn't fixing supply analogous to price fixing? Maybe I'm assuming that the supply of appealing early stage equity is much lower than it is? Or is something flying over my head and this has nothing to do with supply of said equity?

I definitely agree on the bigger point. The whole early stage equity market is weird as hell, and it seems like there are plenty of opportunities to manipulate/exploit it.

I would say culture and sometimes intentional and sometimes unintentional collusion.

Investments are made in other industries all the time and the percentage owned after an investment can vary dramatically, from fractions of a percent to majority ownership. What makes VC investments so special that its own nature would result in settling upon a nice conveniently round number like 20%?

Plus, the 20% isn't fixed in stone. It's an asymptote. It's not unusual for it to range as high as 30 to 35%. I'd love to see a graph like the one in the IPO study. I'm sure it would be very illustrative of collusion.

Founders Fund only took 16% during the Quantcast Series A, and they expressly said at the time that they didn't have a specific target for ownership percentage.

I remember this because other firms wanted 20% or more.

Any plans on using the collective attractiveness of YC to help push that 20% stake down?

I think he just did.

It doesn't work that way. The VCs have covenants and agreements with their investors that make them try to get to a certain target ownership.

More details please.

Which part was confusing?

Nothing was confusing. Just simple curiosity. I just want to know more about this.

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