Is Y Combinator worth it by numbers? (opens in new tab)

(michaelbabich.medium.com)

3 pointsMikho2y ago8 comments

8 comments

YC also has a 4% participation right https://www.ycombinator.com/deal/

Include that and founder ownership drops by 4 percentage points in scenario A.

Also AFAIK the option pool is usually 10% post-money, so the founder would get a few percent less than calculated in the examples (10% pre-money).

MikhoOP2y ago

The 4% participation right in the priced round—if YC decides to exercise it—doesn't change anything since it will be a normal equity investment along with a new investor. It means that this new investor gets 96% share of the round and YC gets the remaining 4% of the round. This doesn't influence the founders' ownership in any way—the main number the scenarios compare. In other words, if the priced round results in a 10% share of a start-up given to new investors and YC exercises the 4% participation right, YC gets additional 0,4% and new investor gets 9,6% of this start-up. It doesn't matter for the founders' share what the split of the 10% be.

I'll update the option pool numbers. Thanks.

robocat2y ago

Ahhhh, right, thank you for the correction.

Note there is a good article on the previous two types of YC SAFE which makes some other points: https://siliconhillslawyer.com/2019/05/01/startups-shouldnt-... Does the YC 7% SAFE get more than $125k liquidation preference when converted?

Also, does it help to add in the legal fees which are usually paid by the company e.g. $30000 is 1% of your example cash, and I don’t think YC charges for legal?

YC definitely sell a good story that being founder friendly is their long-term strategy; however: https://siliconhillslawyer.com/2019/02/18/relationships-and-...

Disclaimer: I am a newbie investor and still trying to understand some of the nuances.

1 more reply

MikhoOP2y ago

For those who want to crunch numbers here is the Excel file I created for the comparison with all the scenarios and valuations:

https://link.babich.me/ycdeal

MikhoOP2y ago

I crunched some numbers to model different scenarios and different start-up valuations to compare whether the YC deal is any good and what the other options are. In general, thinking about the 7% of the Safe and whether it's worth it is the wrong mental model to start with. It’s like announcing winners and losers in a race immediately after the start and before anybody even runs half a distance. The thing is 7% Safe is just Step 1 in a priced round when YC’s shares convert — and there are 3 steps that depend on the priced round valuation and share a new VC gets. Anyway, I modeled 3 scenarios with 7 different start-up valuations of the priced round for each to compare founders' shares as a result.

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8 comments

robocat2y ago

YC also has a 4% participation right https://www.ycombinator.com/deal/

Include that and founder ownership drops by 4 percentage points in scenario A.

Also AFAIK the option pool is usually 10% post-money, so the founder would get a few percent less than calculated in the examples (10% pre-money).

MikhoOP2y ago

I'll update the option pool numbers. Thanks.

robocat2y ago

Ahhhh, right, thank you for the correction.

Also, does it help to add in the legal fees which are usually paid by the company e.g. $30000 is 1% of your example cash, and I don’t think YC charges for legal?

YC definitely sell a good story that being founder friendly is their long-term strategy; however: https://siliconhillslawyer.com/2019/02/18/relationships-and-...

Disclaimer: I am a newbie investor and still trying to understand some of the nuances.

1 more reply

MikhoOP2y ago

For those who want to crunch numbers here is the Excel file I created for the comparison with all the scenarios and valuations:

https://link.babich.me/ycdeal

MikhoOP2y ago

j / k navigate · click thread line to collapse