Exploding Offers Suck

http://blog.ycombinator.com/exploding-offers-suck

by lalwanivikas • 12 years ago

414 161 12 years ago

blog.ycombinator.com

Is this a change for YC? YC previously required getting an answer the day you're accepted because "you have all the information". So this is an update to allow people time to decide, right?

I always found the justification of having all the information a bit self centered. Founders have all the information... about YC, but not about other options.

That said, as a YC alum, I think you should almost certainly say yes if accepted.

sama• 12 years ago

only in the early years of YC did we require an answer right away.

as much time as the founders want has been the unofficial policy for awhile, but i thought it was time to share it.

mrbird• 12 years ago

only in the early years of YC did we require an answer right away.

I think the post would be stronger if it acknowledged this fact.

diminish• 12 years ago

I think it's a good opportunity for YC to improve the acceptance process. Why don't you review the applications in a FIFO basis and give an immediate green light to invitations? If they are ready for an interview why not have weekly interviews till the deadline? Clearly the waiting isn't founder-friendly neither..

areyousure• 12 years ago

I don't believe that is correct. A page that asks to be kept confidential from one year ago (S13) clearly indicates that founders are to decide the same evening that they receive a call back.

Am I missing something?

smcl• 12 years ago

It seems a wee bit disingenuous that YC are claiming a sort of moral high ground over other companies who are doing exactly what YC were doing.

ISL• 12 years ago

Academic here: Doesn't this post state that the offer has a 45-day duration?

Are offers that "explode" only a few days in duration?

endersshadow• 12 years ago

Clearly, no offer (in any realm) will ever be perpetually valid. Giving a reasonable amount of time to evaluate options and make a better decision is considerably less explosive than one that puts an artificially tight deadline on the decision.

waylandsmithers• 12 years ago

I would think it odd for any kind of business deal to be extended and awaiting a response without any kind of deadline at all.

I think exploding in this sense is more "this offer comes off the table at midnight" kind of stuff.

malgorithms3• 12 years ago

The distinction is this: "exploding" typically refers to a very short period of time, designed to prevent shopping the deal, extensive legal review or advice, or exploring other options. A legitimate deadline for an offer wouldn't be called exploding if it spans many weeks and lets a participant fully understand it.

typpo• 12 years ago

This seems like a step forward. Exploding offers are generally unpleasant, usually a power play from the side that has less to lose.

It's also common practice for companies to extend exploding offers to new hires. Replace "accelerators" with "companies" and "founders" with "hires" and you get a very similar argument for not forcing people to take a job until they've completed their own decisionmaking process (this ultimately benefits the company as well, in my opinion).

nilsimsa• 12 years ago

I've used it for new hires. Helps get quick closure on those whose decision is right on the edge. Also you get to know how strong an interest they have. But if they ask for more time, I usually give it. They just have to be confident enough to ask.

DanBlake2• 12 years ago

It is pretty clear to see whats going on:

It is without question that most people applying to incubators apply to a few of them, in case they don't get into the (obviously) best one, YC.

Its my guess that some of the less exciting incubators give these exploding term sheets to make the founder think:

"Damn, I got into Incubator X but I have to say yes in 48 hours. I wonder if I will get accepted into YC also when answers go out in 2 weeks. Should I risk walking away with nothing, or just take the offer I have now..."

Would not be surprised to see more incubators doing this anyways, with or without exploding term sheets. They will likely just move up the dates their sessions start (and the date you need to say yes by), to make sure its before YC answers go out.

On the same hand, I am not sure what you expect other incubators to do. YC is hands down the most prestigious incubator to get into and everyone knows that. So, you have a bunch of other incubators that have to think scrappy to get people into their programs. These guys don't just want YC's cast-offs, after all.

If YC was to start doing rolling acceptances for a start date, it would solve the issue of other people doing exploding term sheets. If I apply to YC today for the winter batch and can interview and get a yes in a few weeks, then the motivation for other incubators to do this behavior is gone.

YC partners need to realize they are the cause of other incubators giving out exploding term sheets. I know YC likes to make a event of doing all the interviews/acceptances on one day, but it would certainly be much more entrepreneur friendly to have it be rolling admissions. The start dates for sessions can still remain the same of course.

TheMakeA• 12 years ago

I'd love to see YC innovate in this area rather than shame other incubators into better behavior. Accepting applications on a rolling basis instead of once every 3 months with a 2 month wait, for example. I'm not sure how well that idea would work, but I'm sure there's something that could be done.

brm• 12 years ago

What about the equivalent of an 'early decision' application like in US colleges?

jvickers• 12 years ago

It's occurred to me that competing for business by making the process better for the founders, rather than worse, would be the way to go, or at least one business model that other incubators should explore.

billclerico• 12 years ago

We turned down an exploding offer from another incubator in order to have time to interview at YC. We ended up getting into YC, so in hindsight it was absolutely the right decision, but scary at the time.

carbocation• 12 years ago

These guys dont just want YC's cast-offs, after all.

That is thoughtfully provocative. I have literally zero evidence to go from, but I suspect that Y Combinator is like Harvard or Yale: they could get rid of the group that they actually admit and go for the next tier, then achieve similar outcomes. (In other words: there are so many strong applicants that they can't take them all.)

This is just to say that even taking YC's cast-offs could be perfectly acceptable. YC is dominant for now, but it's not hard to imagine a world in which there are a few accelerators which are true YC peers (just like Harvard, Yale, Princeton, and Stanford are variously preferred by different people with real differences in preference).

DanBlake2• 12 years ago

Im sure a ton of the companies who apply to YC and dont get in are still Grade A. But you have to trust YC knows what they are doing, and the A+++ companies will be picked over before they hit second or third tier.

You have to remember that investing in companies is a lottery game. Most angels/vc's profits are made on that 1 in a million company with a 1000x return.

If YC wants access to truly the best companies, they need to institute a rolling admissions. Otherwise, these scrappy second tier incubators will get lucky a few times when a nervous founder takes a bird in the hand over two in the bush. The policy only hurts YC itself.

rdlecler1• 12 years ago

You raise an interesting point. James Gosling went to my university for undergrad (U. Calgary) and then went on to do a PhD from Carnegie Mellon after being turned down everywhere else. The day of his graduation, they told him that each year they randomly accept one individual they originally rejected and that he was the first one to graduate. I'd love to see the results of this after a 5-year run.

TeMPOraL• 12 years ago

I have literally zero evidence to go from, but I suspect that Y Combinator is like Harvard or Yale: they could get rid of the group that they actually admit and go for the next tier, then achieve similar outcomes.

I agree with this, and I don't think that actually needs much evidence. It follows straight from assuming that:

- YC has prestige and is recognized as a top accelerator (which is true)

- YC is competent at picking strong applicants (which also appears to be true)

- there is no magical cutoff in the applicant pool where applicants below it are significantly worse than above it, and the cutoff point happens to be exactly at the point where YC stops accepting people (proposing the opposite would require serious evidence)

larrys6• 12 years ago

"in case they don't get into the (obviously) best one, YC."

How exactly did you determine that may I ask?

malgorithms3• 12 years ago

A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does is verbally reject the deadline. And the second thing he does is ignore the deadline and offer feedback only after it has passed.

I've seen him employ this many times in practice and it has always worked out. I don't want to be responsible for anyone losing a deal, but remember: when someone offers you an exploding offer, it's because they really, really want you to take it. If anything, it should be a sign there's (a) more time to be had, and (b) plenty of room on the terms.

Any deadline claim has to be concrete and believable. The start of the YC program is a good example.

tieTYT• 12 years ago

when someone offers you an exploding offer, it's because they really, really want you to take it.

Couldn't it be because they've got a lot on their plate and after a certain period of time they want to free up their brain cycles and stop wondering if you're going to accept that deal?

Couldn't it be that you're barely preferred and making the deadline shows them that you're excited about the offer? Missing the deadline shows that you're not excited and they'll know to go with the second best candidate?

FWIW, I'm relating this to exploding job offers as I have no direct VC experience.

wisty• 12 years ago

If they don't really want you, they'll tend to give vague and noncommittal timeframes so they can check out other options.

A job offer might be time limited if there's a planned start date though.

eli• 12 years ago

It seems unlikely that someone would instantly flip from wanting to do a deal to refusing to do a deal just because it drags on a little longer than they wanted.

But anything's possible. If you're happy with the offer and don't want to risk losing it, take it!

malgorithms3• 12 years ago

It's imaginable that there's a very short-term deadline affecting a deal. But remember: that puts the side with the deadline at a disadvantage, not an advantage. Consider these examples: really needing to sell something for the money, desperately needing someone to fill a job, needing to use a scarce item in the short term, etc. If one of these is happening for real, then the offer they make will have to be compellingly high and convincing, demonstrating their position of weakness. If someone offered you 5X your normal rate and explained they needed a job done this weekend, that's not a negotiation strategy on their part.

But feigning indifference and giving you a short-term deadline for an offer you're unsure you can beat -- that's just a negotiation move, and personally, I would call them on it. Again, I don't want to be responsible for failed application of this :-)

nostrademons2• 12 years ago

The key insight is that there's an emotion inside people's heads that's driving their decision-making. You can't see it, and if they're good negotiators they don't want you to see it, but it's there and it'll remain there even if you don't accept the offer.

If they gave you an exploding offer, then that signals that the emotion is "We really, really want you, and we're afraid someone else will snap you up." If it looks like someone else snaps you up and then you suddenly, miraculously become available a month later - what's the emotion? It's usually elation that you happen to still be available.

The one exception is people who are susceptible to sour grapes. "Well, we can't get you, therefore we didn't really want you in the first place." These offers disappear, but you often don't want to work for companies like this anyway, as it shows that management can't get over personal feelings of rejection to do what they'd judged rational a month earlier.

BTW, this is why it's usually not a problem to return to a past job that you've done well at and left on good terms. They liked you then, there's no reason why they wouldn't like you now.

wycats2• 12 years ago

Whenever I've offered an exploding offer in the past, it's because I had several candidates: an extremely strong candidate and several strong but somewhat weaker candidates. In general, all of the candidates have a limited timeframe to make a decision, and there's a risk of losing all candidates if I waited for an indefinite time on the strongest candidate.

In other words, candidates sometimes also need an answer within a certain timeframe (often for very legitimate reasons; a job change can often be a life-changing event) and that means that there are some real time-limits across all of the candidates (in both directions).

joshu• 12 years ago

Just from the context of term sheets, exploding offers are usually because the firm wants the deal to close before other people are able to negotiate.

pmarca6• 12 years ago

Good VCs and good employers only make offers when they really want the candidate.

larrys6• 12 years ago

"A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does"

As someone who considers himself an excellent negotiator (and gets paid to do negotiating) [1] I'd really caution someone from employing a technique that someone else uses that you don't have experience with. Negotiating is all nuance it's not engineering or an exact science. Go try and read a book on it if you want. (I can always tell someone who is fresh from reading a book.)

Actually exactly for this reasons:

"I don't want to be responsible for anyone losing a deal"

Of course, it's easy when someone else is taking all the risk.

"when someone offers you an exploding offer, it's because they really, really want you to take it."

Could be. But there are cases where this is not true. How lucky do you feel in interpreting all the signals based on a limited time as a negotiator?

And getting back to what Sam has said:

"Sometimes they say they have a fixed amount of desk space, but in practice, if a good company wants to join late, they always make room."

Things are never always clear cut. Very possible your company is borderline and you don't fall into a "must have" category. By even YC's own thoughts there are many more qualified companies than they can accept. Not everyone is a superstar that can write their own terms.

"Any deadline claim has to be concrete and believable."

How so? You ask them? You investigate? You poke around? General advice the specifics are much harder.

In any case the last thing you want to do (according to at least my method which might differ from another negotiators method) when you are negotiating is tip your hand. And if someone is bluffing the last thing you want to do is let them know or that you think that they are bluffing. As such saying anything that sounds like "prove it" is certainly a way to do that.

In negotiating often people claim something that isn't true and bluff. It's part of the game. The idea is not to make them prove it. The idea is to figure it out on your own and use it to your advantage.

[1] It's a game.

tptacek2• 12 years ago

Deliberately waiting until the offer ostensibly expires seems like an advanced technique, but simply disregarding the time frame seems pretty safe. Exploding offers are incredibly weak; they're a way of slapping your negotiating floor on the table before your counterparty says a word.

There's something to be said for the idea that losing a seed funding deal to term explosion is a dodged bullet, too.

nedwin• 12 years ago

I'd love to hear more about your experience in negotiation. What resources do you recommend? Has this mostly come from experience or elsewhere?

If you want to take it off list: dwyer.ed@gmail.com :)

ThrustVectoring• 12 years ago

The advice I've been given about negotiating exploding offers is that you first ask for more time. If they say yes, then you just got something of value for free. If they say no, they've improved your negotiating position.

davemel372• 12 years ago

This reminds me of SharkTank where Mark Cuban would make a shot-clock offer and give 30 seconds for someone to accept the offer.

Here's the thing. Mark Cuban can walk away from any deal, at anytime and not feel like he is missing out.

So, while you are certainly getting the shorter end of the stick with an exploding offer...It's usually coming from a place where the person making the offer has enough leverage to be ok with losing the deal.

In this case, waiting will make you lose the deal.

Sometimes, a good enough offer is better than a slightly better offer.

More importantly, as Robert Ringer says, "The results you get out of a negotiation is inversely proportionate to how intimidated you are when negotiating."

mathattack4• 12 years ago

Also about how many options you have for yourself. You never want to put yourself in a situation where you might get an exploding offer without something else in hand.

Unfortunately I didn't follow this advice when recently buying a car.

hkmurakami• 12 years ago

The one thing I've learned about negotiating is that you absolutely must know your negotiating position before evaluating your strategy. Parent post and grandparent post are both perfectly fine points, and how they apply to each of us depends entirely on our set of circumstances.

pmarca6• 12 years ago

Mark is performing for television. The only appropriate response to a 30 second offer is "f--- off".

blazespin• 12 years ago

While I applaud Sam and his statement: "an accelerator that does the wrong thing for founders will not last long.", your advice is wrong. An offer is basically giving an option to sell for free. The longer the option is available, the more you're giving away. Exploding offers are just limits on how much people want to give away for free.

bushido2• 12 years ago

the first thing he does is verbally reject the deadline

Verbally reject the offer or the deadline?

Can you give us some examples?

I understand that it is most likely the deadline, but from the sounds of it the strategy should be a little more complex.

Currently it sounds like:

Someone: We would need an answer in 10 days?

Your friend: I can't reply in 10 day.

--- 12 days later ---

Your friend: The answer is yes.

Someone: We'll give you the money.

The success rate of this exchange seems questionable.

jfoutz• 12 years ago

It puts the pressure back on Someone.

Your friend has to do a bunch of stuff in 10 days to satisfy Someone. There's opportunity cost associated with that, and there's no guarantee of money yet.

Just saying no relieves a lot of that pressure. Someone has to decide if they're really interested. If you get No right away, you've saved yourself 10 days of pointless work. If they accept the new timeline, they're probably more interested than you realized.

It's kind of like poker. If you're not sure enough to make a tough decision, you can always make somebody else make a tough decision instead.

edit

Assuming no information about Someone, they're level of interest X might be .01, or .99 - they have at least a little interest, because they're meeting you.

Making a demand lets you calibrate your understanding of X a little bit. Outright rejection indicates X was really low to begin with.

Maybe they have some regulatory constraint, and the date is a huge hassle to change. Well, X is less than that cost of change. In that case, they'd tell you.

In the OK, state, you you're likely better than .01, but you don't get a ton of information about how much better. If they explain why the timeline is they way it is, it's Y effort to change those dates, you can adjust X to the new level proportional to how much extra work you've made them do by missing the deadline. - They're at least that interested.

pmarca6• 12 years ago

That is precisely the right thing to do.

lukasm• 12 years ago

What if you accept the exploding offer and then break the contract or avoid to sign it?

clamprecht• 12 years ago

It seems like the other accelerators are doing this so they don't end up with only YC-rejects. Since YC is probably considered the top accelerator, it's also better for YC to have other accelerators not give exploding offers. Because then the few companies that would have accepted the exploding offers AND also would have gotten into YC, can now actually go to YC instead of accepting an exploding offer. If I missed something, I'm sure you'll point it out ;)

chrisbennet• 12 years ago

In general, if someone wants me to agree to something "big" immediately, I figure that they don't want me to have time to consider it carefully.

If you don't want me to think about something, I figure you know I would probably decide against your offer (if I did think about it).

serve_yay• 12 years ago

I agree, but exploding offers tend to explode sometime after "immediately". i.e., the deadline can be enough time to think everything through and do your due diligence. Still an exploding offer.

JOnAgain• 12 years ago

It's a little different for a lot of other accelerators. YC takes batches of, what? like 40 companies or so in a batch? Most other accelerators are smaller with class sizes around 10. If YC is shooting for 40, and gets 37, it's maybe not a huge deal (8% under target). You could even make 42 or 44 offers and plan for a certain acceptance rate, end up with 44 probably isn't the end of the world (110% capacity).

If another is shooting for 10 and gets 7, that's a 30% drop which is probably enough to mess with the economics of the accelerator. Similarly, if they make 12 offers planning for a certain acceptance rate and end up with all 12, they're at 120% capacity, which also might be enough to mess with the economics.

I still think exploding offers suck, but YC is in a much stronger position to be relaxed about them than others.

sroussey• 12 years ago

I agree. Also, it is not like they house the people, which is more complicated that office hours. In this case, they are talking a negative about YC and spinning it into a positive.

far33d• 12 years ago

This is true for ALL exploding offers. Not just accelerators or investment term sheets, but for employment as well.

Qantourisc• 12 years ago

Indeed exploding offers for me is like: "Lets double, triple check this, this is fishy."

calpaterson• 12 years ago

Cool change of policy. Brian Chesky says in this video that Y Combinator gave AirBNB an exploding offer back in 2009:

http://youtu.be/6yPfxcqEXhE?t=53m6s

sanjayparekh• 12 years ago

When I was reading this I thought to myself "wait, didn't YC have exploding offers before"? Glad you dug this up. It was widely known back then that PG viewed it as a "intelligence test" if you didn't accept on the spot. If you didn't, he didn't want you. So I guess now the tide has turned.

That all said, I'm very much against exploding offers. The person offering the deal may have a reason to do so but you should resist the urge to rush to a decision.

geebee• 12 years ago

Here's the write up from the pg's essay site.

http://www.paulgraham.com/frinterview.html

glomph• 12 years ago

It seems pretty underhand to not be explicit that they have u turned on this issue. Especially when it is at a point where it benefits them.

StavrosK• 12 years ago

That's not what I understood, I understood that that was what they thought PG was going to tell them, not what he actually said.

MarkPNeyer• 12 years ago

It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders.

isn't that 'not the best thing for accelerators' in the long run as well? if you're using a strategy which is clearly not win-win, you're going to lose _good_ deals to people who aren't doing that - so you'll get stuck with a portfolio of companies run by founders not smart enough to see this for what it is. enjoy, sucker!

the_cat_kittles• 12 years ago

the solution: a centralized clearinghouse that uses the gale shapely deferred acceptance algorithm

jpetersonmn• 12 years ago

Exploding offers make perfect sense in situations like this. Especially if you're given 48 hours, that's plenty of time to accept/decline. And if it's not enough time then you weren't ready to play ball yet anyway. If I'm making someone an offer, I'm not giving them weeks to decide so that they can go shop around for something better.

dmourati3• 12 years ago

I got an exploding offer for employment and came to the same conclusion. The company is called Loyal3: https://www.loyal3.com/

Steer clear of them.

"Senator? You can have my answer now, if you like."

fecak6• 12 years ago

Employment offers tend to be exploding because a company has a single need and doesn't want to lose every candidate because they are waiting for their top choice.

Almost every offer of every kind 'explodes' at some point. It's the duration until the explosion that varies. I'm sure YC will make you reapply for future consideration, just as companies can not be expected to honor your employment offer if you defer for a year.

mrfusion3• 12 years ago

What's a normal period for exploding employment offers? Is 2 days a lot or a little?

teachingaway• 12 years ago

There's a balance between "exploding" offers and hang-around-forever offers. You don't want someone to come back 6 months later and say they're finally ready to accept your offer.

Its not difficult to balance these factors. Just ask, "how long do you need to consider this deal?" "Two weeks? Four weeks?" "If you need more time, just give me a call."

jgalt212• 12 years ago

Most exploding offers don't represent credible threats. That being said, if someone jumped at one of my exploding offers, I'd definitely try to negotiate a better price ex post facto given my read that the counterparty is so jumpy.

kordless• 12 years ago

I accepted an exploding offer. It was a harbinger to a larger detonation.

There's a simple way of looking at this type of behavior: If someone is willing to go negative on you at the beginning (evidenced by 'denying' you an investment because you didn't take it when they wanted you to take it) then you should assume they will be willing to go negative on something else of a similar or greater magnitude at a later date.

pmarca6• 12 years ago

Yep.

seats• 12 years ago

I'm an MD for Techstars and I completely agree. This is the approach we've always taken for the programs that I've run, (Techstars Cloud and the Austin TS program).

In several cases, just as a consequence of the calendar, the timing of when we've given offers out can create tension for a company, particularly if it lands in between the YC interview notification and the actual YC interview. When it's come up in the past I've aways encouraged founders to notify YC and see if they can either take the interview early or if our timeline permits, to let them take their YC interview knowing that they have a standing offer from me regardless.

I've had some people mention to me that this is merely bolstering these companies' applications to YC, but I don't view it that way and regardless of which program they end up in, it's the right thing to do imo. It's actually worked out quite well and I'm happy with the companies that chose Techstars in those scenarios over YC, and also completely happy for the companies that chose YC.

zaidf• 12 years ago

I went through YC in '07. But prior to getting into YC, I got into Techstars' very first class. David was a total class act in letting me go through the YC interview process before making a decision and completely understanding when I decided to go with YC. Although I went with YC(and would do so again), that one experience left a positive impression in my mind of TS.

kazinator• 12 years ago

It may be the best thing for accelerators to use time pressure to get founders to accept their offer, but it’s definitely not the best thing for founders.

Why should accelerators should do what is best for someone else, not themselves?

The world is full of expiring offers of all kinds; they are everywhere. Rarely does any kind of offer stand for as long as we would like. Expiry of offers is the norm.

Also, Golden Rule: he who has the gold, sets the rules.

rickdale• 12 years ago

This is a tactic I see used on the micro level on Shark Tank where usually Mark Cuban will be like "25 second shot clock, you gotta decide right now." Being a Shark Tank and Dragons Den addict (both Canada and UK versions) I can say the greatest difference between the US version and the others is this tactic. I have never seen any of the Canadian or UK investors do anything remotely similar. Usually they are more impressed by companies that take the time to think about the offers. Just an observation.

vxNsr2• 12 years ago

Just a point about Shark Tank and similar shows: the actual meeting is a lot longer than the ~6 minutes that they show you. Some go on for hours, and they just cut to the interesting bits, so that 30 sec shot clock thing is often just theatrics, they've been discussing things for a while and know before whether they're gonna say yes.

maxbrown3• 12 years ago

I learned this recently, the most interesting part of which was that the founders stand silent in front of the investors for at least a few minutes while the lighting and sounds and such are set.

I wonder, don't you think the shot clock offer is real even though they've been talking longer than we've seen?

rdl• 12 years ago

I'd feel a bit more ok with exploding offers for organizations where there are a finite number of slots -- e.g. if an accelerator is very small and capital or other resource constrained, or has a hardware lab and limit space, or something like that. None of that applies to YC, of course.

govindkabra31• 12 years ago

A good alternative for YC to consider is to change to a 'continuous' mode.. where you incubate companies on 1st Tue of every month. The companies in a batch are already in variety of stages, some just starting with an idea, some with some market validation done, some may even have raised $500K round before.

This is very much unlike a college or a vocational class, where all participants are in more or less same stage.

andykmaguire• 12 years ago

Sam - This is standard fare not just for accelerators but VC term sheets as well. Curious if you apply your logic in that case as well?

mathattack4• 12 years ago

It's not the same as job interview exploding offers, but the thought process behind it is the same.

http://www.joelonsoftware.com/items/2008/11/26.html

mathattack4• 12 years ago

A couple observations...

1 - If you're good enough to be accepted by one incubator, you have an incubator-worthy idea and team. If they go away, another will arrive.

2 - The person forcing your hand is trying to use their temporary leverage over you until you have leverage over them. It sets the tone of the relationship on leverage.

3 - That said, people with lower acceptance rates (whether it's accelerators, colleges, etc) have to play yield games. Harvard yields ~80% of admits so they can wait their time because they are confident of admits, and it won't impact their capacity. Amherst accepts ~40%, so they have to play the waiting-list game. The 2nd tier accelerators have to play waiting list games, and that's what drives this behavior. 48 hours is unreasonable, but a few weeks isn't. (Or having a formalized waiting list too)

legohead2• 12 years ago

exploding offers call for exploding counter-offers

maxbrown3• 12 years ago

"You have 24 hours to give me more than 24 hours" ?

legohead2• 12 years ago

I agree to your terms but you get half equity.

jacquesm4• 12 years ago

It's simple: if you're being pressured just say 'no'. There is no upside to negotiations under pressure, only downsides. Likely the pressure is there because if you thought about it long enough you'd refuse the deal anyway, so you might as well refuse it right off the bat and tell the counterparty the time-limit is what caused you to refuse.

If you have no other options then likely you already made a series of mistakes. Exceptions exist but don't happen often enough to go and make a series of qualifications here, adding pressure is similar to being blackmailed, the only reasonable course is to refuse to play.

danshapiro• 12 years ago

Actually, if you're being pressured, a better response is, "If you need an answer now, it's going to have to be 'no', so I hope you can adjust your schedule so we can consider your offer more fully."

Exploding offers are unfortunate and a significant negative data point about the behavior of the organization but they are not the only data point. The above answer will defuse the threat and give you the upper hand in the negotiation so you can make the right decision for your team, whether it's 'yes' or 'no'. This is helpful for exploding offers in any circumstance - jobs, M&A, etc.

As a side note, while short-horizon offers are terrible, it is reasonable to have some expiration date. Techstars Seattle, for example, has 10 slots and while they might be able to add an extra one or two, logistics don't allow for the kind of flexibility that YC has[1]. I believe there's a good way for an accelerator to handle this ethically:

1) Tell applicants when the decision date is when they apply (so they can plan accordingly) rather than surprising it on them as a negotiating tactic

2) Provide all relevant information when they apply, so they can consider the possibilities in advance, versus (for example) springing restrictions, valuations, or fees on them when they get the offer

3) Allowing enough time between the acceptance and the notification for the team to make a good decision - a week seems reasonable.

YC's behavior is exemplary here; their model and position in the industry lets them be super-flexible. Other programs may not have the ability to be quite as flexible but that doesn't mean they're unethical if they're thoughtful about their implementation.

[1] My understanding as a mentor for the program - I don't have inside knowledge

jacquesm4• 12 years ago

Good one, yes, that's even better.

nihaar• 12 years ago

When my co-founders and I were applying to accelerators in 2008, we had been accepted into a Philadelphia based accelerator called DreamIt shortly before our YC interviews. Not knowing if we would get into YC, we accepted with DreamIt as it was an exploding offer. A few weeks later we found that we got accepted by YC. After deliberating it for sometime, we went back to the DreamIt team and told them that we wished to rescind our acceptance. This started a shitstorm with the DreamIt team as they seemed to take this very personally. It was the first year of doing the accelerator and they went as far as threatening to take legal action. Not knowing what to do, we turned to PG and Jessica for help, a bit hesitantly, as we were afraid of what they would say. PG expressed his extreme disappointment with how DreamIt had reacted to this and was supportive of our situation. He send them an email telling them to back off and that this was not an acceptable way to be treating founders.

Just one anecdote out of many of how YC has gone to many lengths to protect founders.

Since that experience, I've realized that it really doesn't do accelerators any good to introduce these conditions in their funding offers. It creates a bad reputation amongst founders in the increasingly competitive field of accelerators. And founders ultimately need to pick based on what they think will have the most impact to their business. Compete on benefits you can offer to founders, not legalese.

lquist• 12 years ago

So basically you made an agreement with one set of investors and then went back on your word because another, "better" set of investors wanted to put money in? Maybe it's just me, but this doesn't reflect that well on you.

compare2• 12 years ago

The effectiveness of the relationship between investors and startups in SV is built on upon being upstanding and not being overly manipulative. Founder/Investor agreements that are born from the manipulation of unexperienced founders always should be EXPECTED to turn out badly.

There's a child-like expectation that once the deal is signed or agreement is made that it's over. It never is, that's just the beginning. If you're expecting that everything is finalized as soon as an agreement is made, regardless of the conditions, then you're simply bad at business and taking risks that you haven't yet realized.

(Of course this isn't true in Europe. They love taking contracts extremely literally, and their economies suffer enormously for it.)

pbiggar• 12 years ago

I disagree. If an offer is accepted under duress, can you really expect someone to hold up their side of the bargain?

An equivalent is that you shouldn't expect someone to follow through on a decision they didn't buy into.

eru3• 12 years ago

The founders could always threaten not to work enthusiastically (or basically at all). Nothing the investors can do about that. So the investors are better off taking their money back.

compare2• 12 years ago

So many accelerators behave wildly unprofessionally and inappropriately for the space that they're in.

Perhaps all that's needed is more high-visibility guidelines like what YC is doing now. Perhaps we need better platform for evaluating investors from the founders perspective, instead of networks that really only care about evaluating startups.

Either way, the situation seems to be getting worse, with the continued explosion of accelerator programs around the world. I hope we find an effective solution.

bruceb• 12 years ago

If DreamIt accepted you then a few weeks later after you had plans to move there pulled their offer in order to accept another team how would you take it? I am not saying I would have not taken the YC admit but I would understand DreamIt being a little pissed.

Of course PG helped you wriggle out of your DreamIt acceptance. He sees you as an investment. Who wouldn't try to protect their investment?

jusben1369• 12 years ago

I'm sure Sam's heart is in the right place but I'm not sure I agree with him here:

"Exploding offers suck. Founders should be able to choose the investor they want to work with, not have to make a decision based on time pressure."

and investors should be able to choose the founders they want to work with. And accelerators are the one's who make it all about the calendar. So they inject the notion of time and deadlines (YCSpring12 etc)

"where an accelerator tries to force a company to make a decision about a funding offer before the company has a chance to finish talking to other accelerators."

The risk here is that sounds like sour grapes.

"after we make you an offer, we’ll give you until the beginning of our program to decide (though most companies accept quickly, because you can’t start having office hours with us and participating in other ways until you accept). We ask companies to be transparent with us about needing more time--we won't rescind our offer. It’s usually about 45 days from interview to the start of the batch."

- We use "soft" deadlines. You don't get access to important resources until you say yes. And yes look we have 45 days from interview to the start of the batch (there's that pesky calendar coming into play)

"We encourage all other accelerators to join us on this. It should be an easy yes. Exploding offers are the wrong thing for founders, and an accelerator that does the wrong thing for founders will not last long."

- We're the pre-eminent accelerator and other accelerators should play by the same rules as that way we'll stay the pre-eminent accelerator!

"And founders should think very hard about joining an accelerator that puts forth a short-fuse offer."

Once again makes me feel like they're losing out to this tactic and it's hurting. And a bit of FUD?

Are you creating startups that have to go out and compete in a very competitive world? Seems like insulating them from making important business decisions is a little counter intuitive.

Again, I'm sure Sam's motives are pure. This is a little tin can ear to me and whiny.

VarunMKhona• 12 years ago

This is sensible and good for the entrepreneur. If its good for the entrepreneur, its good for the prospective accelerator, its good for the prospective investors and so on and so forth. The virtuous cycle is for real. The issue is the not-so-famous accelerators bear the brunt because almost all applicants are awaiting response from YC and not the other way around. If the conclusion of this is you give you short-term exploding offer, the accelerators have got it all wrong. Instead, the right perspective is that they need to make their value prop as strong as a YC. Glass half-full/half-empty, remember?

Grae• 12 years ago

While I agree with the points made in this post, it's important to note that the strategy of condemning offers with a short term plays in the favor of YC and other established/larger accelerators and to the detriment of newer/smaller accelerators.

As others have noted, there may be compelling reasons to require an offer be accepted on a short timeline or not at all. In fact, as raised elsewhere in this thread, YC itself used to require acceptance the same day the offer was made.

From an entrepreneur's perspective, given two offers at equivalent valuations and terms it's rational to take the offer at the more established accelerator (e.g. YC) over a less well known one. It's also less important for large accelerators to allocate each open position in each cohort, and thus easier for larger accelerators (e.g. YC) to tolerate losing a few deals last minute.

Again, I agree with the points made in the post, but it's important to note that making longer term offers the norm plays in YC's favor.

rjf1331• 12 years ago

I agree with the concept for the most part, but have a few gripes.

First, the desk space argument is very real. Y Combinator takes 60+ companies and has no real space constraints since they do not offer office space. Other accelerators take far fewer companies and do have office space, so they need to know ahead of time 1) that their batch will be full and 2) that each company has passed their own due diligence process.

Also, as with term sheets, founders can take their offer from one accelerator and shop it to others. It's happened before (with people I know), who take an offer from one accelerator and use it to trigger FOMO from the other.

Couldn't an accelerator just position it's start date before Y Combinator's decision date, and therefore not need an exploding offer but have the same effect?

Exploding offers should be reasonable, and I'm not against being fair to founders. But doesn't democratizing this essentially involve accelerators colluding to have the same offer/acceptance date?

beat• 12 years ago

I used an exploding offer effectively once. I was buying a house in 2002, during the crazy bull market on housing. Houses in the neighborhoods we were shopping regularly went for more than list, with competing bids. We finally found a house, at the very top of our price range, and put an offer in for it just a few hours after it first listed - for list price. The seller's agent was furious! She really wanted to drag it out to the weekend and get a bidding war, which we absolutely could not afford. But what were they going to do... turn down a list price offer? Why not just sell it at a higher price, then?

We still have that house, 12 years later. It's finally worth what we paid for it again. Sigh.

Exploding Offers Suck

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