If you're accepted to YC, can you negotiate the percentage?

https://news.ycombinator.com/item?id=63138

by hacker64 • 19 years ago

4 20 19 years ago

news.ycombinator.com

I know that the amount of funding is fixed, but the percentage that YC takes doesn't seem to be. Anyone from the previous batches successfully negotiated the percentage that YC asked for?

npk• 19 years ago

I'm not 100% sure, but my guess is no. Read:

http://paulgraham.com/webstartups.html

Section 2.

pg2• 19 years ago

No. You can turn us down though. (Two groups did, both very early on. I don't know what became of them.)

jdavid3• 19 years ago

paul, if there is a standard process, is the % based on the number of founders, an evaluation, or both?

myoung8• 19 years ago

Read the instructions first...

...decisions will include the amount we'll invest and the percent of the company we'd want for it. We usually invest $5000 + $5000n, where n is the number of participating founders (i.e. 2 founders get $15,000, 3 get $20,000), in return for between 2% and 10% of the company. The median is 6%.

pg2• 19 years ago

The percentage is based on a very rough estimate of the startup's prospects. If the founders seem like superstars and have been working on it for a while, we might ask less than 6%. Whereas if the company seems riskier we might ask for more.

We should go back and see if the predictions implicit in the offers correlate at all with how the startups have done.

bls• 19 years ago

The easiest and fasted way to lose at negotiating is to ask "is this negotiable?". When you negotiate, you are supposed to be convincing the other side to give you what you want on the terms you want. If, instead, you come into the negotiation looking powerless, you are going to end up with no deal or--worse--a bad deal.

You get 15 minutes or so to present your idea. One minute of that presentation should be about how much money you need to get started. I would not inflate that number, but I would not artificially constrain it to fit the "fixed" limit that YC has. I can't speak for YC, but I would guess that they aren't going to turn down a deal just because the founders demonstrated a need for $7500 per person instead of $5000 each, or whatever the details are. Similarly, if your idea is the best idea they've ever seen, then are they really going to be so rigid about the percentage? Especially if you offer a percentage before they do?

I realize PG said flat out "no" above. But, doesn't Mr. Graham strike you as somebody that has a "rules are meant to be broken" mentality? Don't you think that this is exactly the type of arbitrary rule that is easily broken without too much fuss?

rms• 19 years ago

With 15 minutes, you don't have any time to justify a 50% increase in money and less than an order of magnitude seems negligible anyways. I think most people that actually have a need for more money are encouraged by YC to work on a limited subset of their initial problem before raising more money from another investor, which is easy enough to do for a promising YC startup.

dhouston2• 19 years ago

i wouldn't bother trying to push the $5k+$5k*n . i think that precedent is pretty much set in stone. and even if you tried, the extra cash wouldn't matter much, and you'd more likely piss pg off than anything else.

SwellJoe• 19 years ago

Actually, the "negotiation" is proving what you're worth. If, when you come in, you're relatively far along, have a really compelling demo, you can prove a huge market, etc...you'll get a better valuation. The differences are small, but they do give somewhat different offers to different groups. And, of course, you can still say no when pg calls to give you the terms.

But, do take pity on pg--he's frazzled on that day. He calls everybody personally. I was impressed by how nice he managed to stay through the whole process (and even moreso now that I've seen first-hand how crowded pg's life is with people who want to be around him).

We went in knowing that we'd say "no" if the offer involved more than 6% equity...but it rarely does, so that wasn't a big concern. We're glad we weren't one of the "no" groups.

carpal3• 19 years ago

The key to this is to discover the golden key of negotation:

BATNA- "Best Alternative To a Negotiated Agreement"

Your BATNA: To keep doing what you're doing, and not get rich by fulfilling your dream.

YC's BATNA: To fund someone else that is about 99% as good as you.

You have a lot more to lose by walking away, therefore YC holds an incredible amount of power in the negotiation.

thomasptacek4• 19 years ago

It really freaks me out that there are people on this board who think the BATNA for a founder in the YC negotiation is "give up on their dream".

carpal3• 19 years ago

I never said they would give up on their dream if they declined YC.

They just have a smaller chance of it happening. As a YC-funded group, you have a 100% chance of pursuing your dream. If you aren't funded by YC, your chances of that are significantly smaller.

dhouston2• 19 years ago

in general, the median's around 6% and i think is also the most common, and i didn't encounter anyone who had negotiated it down. i don't think there's a formula. we had a working demo, and thousands of lines of code, but got the same deal as other groups who just had an idea.

unless the % seems way out of kilter, it's probably not worth optimizing this or cutting yc down (after all, they're making rapid fire phone calls down a list of people who would gladly take your spot. things like your option pool and follow on investments will be the dominating factors in your dilution anyway.) they definitely earn their chunk, and contribute _vastly_ more than the equity they take, even at the highest end.

If you're accepted to YC, can you negotiate the percentage?

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