Will an assured $150k investment hurt the spirit of Y Combinator?

http://thenextweb.com/industry/2011/01/29/will-an-assured-150k-investment-hurt-the-spirit-of-y-combinator/

by bretpiatt • 15 years ago

47 20 15 years ago

il• 15 years ago

As I understand it, recent YC graduates were already almost assured angel funding because of the YC brand. So, in effect, investors were already using YC as a proxy for evaluating startups. Now they're just making it official.

I think the greatest impact of this deal is that now founders don't have to devote months of their time and energy to fundraising. Which means a few extra months to focus on building the company.

teichman• 15 years ago

$150k at what valuation?

jeff18• 15 years ago

"$150,000 in convertible debt. With no cap and no discount."

shykes2• 15 years ago

Bullshit. As a YC alumni I can say this will have a huge positive impact on productivity.

Before: "should I raise now? I'm supposed to wait for demo day but XYZ is doing it, maybe I should just raise a little to be sure? I'll just get 2 intros and that's it, promise."

After: code code code code.

This is YC making sure their startups don't forget what matters: the product. Great move.

bradmccarty• 15 years ago

Thanks for the perspective, shykes. As someone who just writes about what happens in tech, clearly I don't know what the feeling is like of actually being inside of YC. These are just questions that come to mind.

shykes2• 15 years ago

Didn't mean to shoot the messenger :) I'm seeing a lot of lamenting when there's every reason to be excited.

mlinsey• 15 years ago

$150K will not make your startup succeed on its own. There were already companies raising larger amounts before YC started and this did not seem to hurt the "spirit" of YC.

I think the biggest effect this will have on the YC process is that more teams, especially those who pivot during YC or are building something very complicated, will choose to delay fundraising past demo day in favor of working on their product/trying to get traction for several more months.

jetaries• 15 years ago

It's a very legitimate concern. From my personal experience, I think "being starved" is an important part of the experience, it prepares you for the long grind (unless your are the lucky few that grow gangbusters out of the door). I think the right amount of money is the key.

buro9• 15 years ago

It's a very fine line. Back when I had the record label we were consciously trying to ensure that the bands did not actually starve whilst ensuring they weren't totally comfortable either. In comfort you put your feet up, and too hungry and you won't get stuff done and will look for jobs on the side that distract you.

It's a lot easier to start with a tight belt than it is to try and tighten the belt further down the road. Starting lean and having a culture of that means you can stay lean and always be mindful of reducing your burn rate.

But the ability to stay lean for longer is a great thing, a really great thing.

It all comes down to how wisely the money is used by the YCs, if they're coding with a big injection in mind they might not find the right mindset, but if they're coding linked to a financial drip-feed then this just gave them all the time in the world to get the product right.

So... could go either way. Really it comes down to them to use this for good or to let it hurt their chances.

It's very hard to voluntarily take the Seneca position to prepare against bad fortune by the modern day equivalent of eating Ramen if you don't actually have to.

mariust• 15 years ago

I think that this found will improve the chance for a startup to become big, because with this extra money they can focus on the product and have a bigger found for advertising. If YC dose this is a win win situation for them because the companies that they found will get a bigger evaluation from the start. So now they invest $20K (let's say) and get somewhere to 10% if they invest $150K and still get 10% the company is worth $1.5 mil from the start not $200.000 like in the current funding.

jacquesm4• 15 years ago

Finding follow-on money for YC companies with a product and a plan was not difficult in the past, it just got a bit easier but not even that much. The YC brand is pretty strong and more or less guarantees investor interest. The only big difference here is that this guy basically won't say 'no'.

ladon862• 15 years ago

The only thing I'm upset about is that I put in my application yesterday and now the competition is going to skyrocket!

But overall I think this is great for YC, and great for their startups. It's everyone else that should be worried.

jacquesm4• 15 years ago

> The only thing I'm upset about is that I put in my application yesterday and now the competition is going to skyrocket!

As long as the quality of the competition doesn't skyrocket you'll be doing fine. And if competition worries you overmuch don't go the entrepreneurial path, it will be with you for the rest of your life if you succeed even a little bit.

Competition is good, also for you. If you could have done a better job on the application then the time to deal with that is before you hand it in, not when you know the competition heats up, you always do your very best. Then you have nothing to worry about.

ladon862• 15 years ago

You're right, and I have done my best.

I suspect that the majority of strong candidates would have applied anyway, and my application is just as strong today as it was yesterday. We'll see!

allenbrunson• 15 years ago

I haven't seen any mention of this: what does the investor get in return? the YComb people get six percent; what do the people behind Yuri's fund get?

tessro• 15 years ago

The way uncapped convertible debt works, there is no valuation when the investment is made. That means that, when the agreement is inked, the investor can only guess at how much equity they are purchasing.

Typically when the next round of financing occurs, the investor gets equity at the valuation of that round.

jacquesm4• 15 years ago

Of course it won't. It simply means that YC start-ups now have a guaranteed bit of extra runway if they should need it and if they think the terms are favorable enough for them (they probably do if they think it through).

Nobody is standing there with a shotgun forcing YC companies to take this, it's an offer.

trustfundbaby• 15 years ago

with a convertible note what happens if the startup fails? Do they owe $150K?

MaysonL• 15 years ago

The same thing that happens with any debt when the debtor goes bankrupt.

Will an assured $150k investment hurt the spirit of Y Combinator?

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