A lot of companies talk about changing the world, but Teespring really puts their money where their mouth is. Not only have they been quietly supporting us (Watsi) since the beginning, but to commit $50k to every YC non-profit is truly incredible. Teespring is setting the standard for the next generation of startups, and we're proud to call you guys our friends.
Agreed it's amazing - are they getting anything in return? I'm not asking this in a skeptical way, I just mean do the non-profits run tee-springs or are they just donating money?
I ended up with 3 Watsi blue logo t-shirts from Teespring because they said they weren't happy with the quality of the first 2. I kept the 3rd for myself but gave the other two away. They are certainly committed to delivering quality.
I predict that this is going to lead to an increase in the number of applicants who have already raised some money (though not a full round).
> Most people don’t do YC for the financial investment—they do it because they want the advice, the help of the network, the benefits of the program, etc. But still, more money for less equity is definitely better.
This is good news for people who've issued convertible notes before YC, since the implicit valuation is now $1.7MM instead of ~$300K. This is great for PR purposes (read: bragging rights), but can also have concrete implications:
I know at least one company that had a sticky situation[0] when they were accepted into an accelerator after already raising money from an angel investor - the investor ended up owning a huge chunk (the majority?) of the company on paper, because the note converted[1]. They didn't even need the money (it was just a standard part of the accelerator).
[0] it was resolved in the end - but it caused extra headache and legal costs
[1] A well-written conversion clause in original note can also avoid this problem (e.g. by including a threshold), but hindsight is 20/20 - I know a number of companies that would have been impacted in a similar way.
I'm more excited about the effect this will have in general than the effect it will have on YC companies.
The difference for a YC company is that they don't have to give up an extra percentage as they raise their seed round to cover the convertible note/SAFE that they got from YCVC. With no discount, if a YC company raised at a $10M valuation that 80,000 would be worth .8% of the company - not enough to really move the needle.
The difference for the industry as a whole is that most accelerators are trying to mimic YC to a certain extent, and as YC now gives $120K straight-up others might follow suit. It's really easy to say, "We give you 20K for 6-7% because that's YC does." That seems to be almost industry standard, despite the fact that $20K for 3-5 months can be really hard to live on. It will be interesting to see how other accelerators react.
Second point is spot on. Before it was kind of explicit that you should take the SAFE, but if you weren't familiar with financial instruments or how exactly MFN clauses worked, you could run into issues you weren't completely aware of. The new way smooths all that out.
Just wanted to say that we're excited to be a part of the non-profit side of YCombinator.
It's been humbling to have Watsi working with us in our office and watching the amazing things they achieve on a daily basis. I have no doubt that amazing non-profits will continue to emerge from YC.
You guys are awesome. It's rare to see a company willing to put real commitment behind their talk of social good, and to see a startup doing so is even more inspirational.
I can't help thinking that this seems a little bit unfair. While there's a nominal out for "exceptional cases", it seems to me that a company like Stripe deserves a much higher valuation than a company like Tarsnap... not to mention the difference between companies which are joining YC after they're already established and companies which are merely a twinkle in their founders' eyes.
What exactly is the problem being solved by having a standard deal which almost everybody gets?
The old terms weren't bad, but this is unquestionably better: simpler, and higher valuation. Great news for everyone in YC.
I don't know if any other accelerators had the same core + YCVC investment model, so I don't know what changes it will have elsewhere except maybe pushing valuations at the accelerator stage a little closer to the demo day amount. (Still higher than $1mm pre, in all but exceptional cases.)
(Also, WOW. The teespring guys are doing $50k for each non-profit? That is amazing.)
I have wondered if affluent parents can replicate at least the money part of Y Combinator.
$120K is about the list price of two years of Harvard/MIT/Stanford . With a son who loves to program, I have wondered if sending him to a cheaper school and giving him the difference in installments after he graduates is better than paying for a "name" school. It depends on the quality of the cheaper school, of course. And I think school prestige matters more for investment banking than tech, so I'd be less inclined to suggest a cheaper school to a budding banker.
Off topic, but if your son has the chance to go Harvard/MIT/Stanford, he absolutely should. The difference is primarily in the caliber of the other students, and it makes a world of difference to have such a concentration of talent in one place.
(Note that I'm not saying there isn't talent elsewhere, just that there's an incredible concentration of it in the top n schools.)
As someone who essentially took that path, I can't recommend it. My parents and I had saved up a decent college fund ($100k or so), but instead of using that to go to Top School I took the chance on a school which offered me a full ride.
Sure, I'll be graduating about ~$140k better off than most other students. But over the lifetime of a successful tech entrepreneur that amount of money is fairly meaningless. Having spent a significant amount of time on top campuses (where most of my friends went), I often regret making that decision—the caliber of students is truly higher, and the friends/networks you have from a school like Harvard will pay dividends throughout life.
They obviously can, the same way that they can offset the dollars by paying for their childrens' living expenses. But $120k is just not a lot of money. The real value of YC is the signal that getting accepted sends to other seed investors.
Most likely, your kid's startup you dropped $120K into is going to fail. Make sure you consider that case very carefully - what are his chances like at 26 with a less prestigious degree and a failed startup under his belt compared to a Harvard/MIT/Stanford degree plus 5 years in a salaried job that those can get you?
> And I think school prestige matters more for investment banking than tech
It has less to do with prestige and more to do with risk.
IMHO, there are only two routes to becoming part of today's tech elite. You either build something that gets traction or you join a team that has already done so. These are IMHO the two strongest signals today, especially given the increase of noise. Don't believe me? Just search around AngelList for 30 min. If your son gets a CS degree from Stanford or MIT, it will automatically put him in that basket of "join a team who has already done so", just as working for Google, Facebook, Twitter, etc does.
While the education is one thing (and surely valuable), I think you also have to look at the connections and network you develop at a "name" school vs. other schools. Those are not things you see on a bill, but they are extremely valuable.
EDIT: I'm not saying this can't be achieved at other schools - I didn't attend a "name" school, but the network definitely matters and can be a huge bonus especially if you know what industry you want to target.
Back in the 90s, I had a friend who was an instructor for Sun Certification classes. He told us of a kid who, when he turned 18, was given his college savings by his parents to do with as he pleased. He chose to spend the ~200K getting every Sun cert available.
He then became a consultant at 21 making about $500K a year, at least for a few years. Don't know what happened to him after those certs became useless, but I hope he converted somehow.
If your son has co-founders or would like them then this is an idea with the potential to be disastrous.
If the startup (company) goes the distance then whatever equity you bought with investment would convert to your son as part of his inheritance altering the partnership drastically.
The legal and financial ramifications can be quite complex.
In the case of "a son who loves to program", if the target is a Computer Science degree, if your son can get into any one of Stanford, UC Berkeley, CMU or MIT, go for it. These are the top CS schools in the US and I gather the world, and there's a big quality gap between them and those below them.
The 17k for 7% is what always stopped me from considering the Y Combinator route. It's a huge chunk of your company for not very much money. If the new deal had been in place when we started, I think we would have been very tempted to join.
The real benefits of YC though are the focus it brings you, and being able to get access to the YC ecosystem. Oh, and being able to attend Demo Day, but with so many companies in the YC program, I think Demo Day isn't what it used to be (I think you get 90 seconds now?).
We would have loved to have had access to those resources, but since we had already invested far more into our company in terms of cash, it's hard to justify giving up that much equity for so little. Kudos to Sam for the new program.
17K for 7% isn't as raw a deal as you think when you realize that at an "acceptance" into YC essentially doubles your valuation to most seed investors.
This seems great - simple, better terms, higher valuation. Kudos @sama and YC.
Stepping back a bit, it's also a sign of the times -- especially given the tone of the last paragraph, it's clear there's pricing pressure on incubators/accelerators and the competition is heating up a bit. There are more competitors in the space, valuations are rising, and YC is adjusting accordingly. This isn't a good or bad thing per se -- just an observation of a byproduct of capitalism and the realism of the market in 2014.
I'm not a finance guy, but I've always thought people put too much stake in trying to make realistic dollar values out of what is pretty much unquantifiable, i.e. startup equity. At the end of the day, if you're accepted to YC, you simply need to ponder "is 7% of my company worth the entire package?" and decide accordingly. Of course, these things have real consequences in future rounds, but as far as I know, that's just the agreed upon fiction, rather than some underlying financial truth.
To me, this kind of connects to the debate on employee equity that's been ongoing. Sure, intellectually we want to equate that with upfront salary and then compensate at the market rate. But in reality it can never be that way for a plethora of reasons -- tax concerns, option rules, difference in equity classes, etc.
Again, I don't really know what I'm talking about, but I don't think people should view equity as dollars. To me, equity is better thought of as an entirely separate finite resource of a company. One which has different value to different people, depending on ability to take on risk.
This might actually have been a reality for some time. See some of the exit valuations on AngelList - all seem to be $5m+. So $1.7m value at entry isn't out of whack.
It does seem though that the primary aim here is to provide more for living expenses, which means that the $1.7m implicit valuation might need to be taken with a grain of salt. Not that it matters much anyway.
investors understand YC and don't utilize the investment for valuation purposes that I've seen. most companies I know were going backwards by that math to bring YC on board as an investor (which we did so willingly).
Pretty insignificant. You can't spend that money. No one can.
; YC, financially, is enough money for you to live in the Bay Area to work on your company for a fixed time in which you're expected to grow and acquire more capital and a probability assessment on your potential future value.
Keywords, 'potential' and 'future'.
You can't up and sell your company for $1.7M, Sam Altman can't, no one can because no one would buy it because YC isn't saying "You are now in possession of, and operating something, that is worth $1.7M to the world." At such an early stage, all they're really saying is, "There is a probability that your company will be worth $1.7M, and the probability is high enough such that we're willing to put our money where our mouths are."
That actually makes sense. VC is a reputation-driven system. It shouldn't be that way, but it is. I'm not talking about YC but in general here: there are people way dumber than I am who can put in a good word for a startup and bump its perceived value (and, arguably, its expected return, because reputation is so big in this game) by 50% or more.
In fact, I always held a pretty negative view of YC's prior low valuations. It struck me as PG monetizing his (admittedly, well-earned, because his Lisp chops are really strong) reputation, and the low infusions, to me, indicated that the target audience was young people without families.
I'm afraid to say this, for fear that people are thinking I'm losing my edge by saying something nice about an investor, but I actually like Sam Altman so far. I think he's making a lot of really good decisions.
This says a lot about the alternatives YC says it's really competing with - the other things people who could build great startups would otherwise be doing.
$17k is what two engineering students might have made at a summer internship in Boston in 2005.
$120k is now what two entry-level engineers might make in six months in the Valley.
sama: While you have our attention, you might as well explain the details about the $120k/7% happening in two chunks.
[Edit 1:] Thanks; OK. I had read it as potentially indicating the money came at two different times rather than just from two different sources. All clear now.
What does it mean for a startup to be non-profit? When YC and Teespring each invest 50k into a non-profit, do they expect a return on investment? or is it purely a donation?
Props for cleaning things up. Startups have enough difficulties to overcome, without having to spend time and brain cycles navigating a complex funding structure.
we tried asking some foundations if they would do a similar deal, and disappointingly they wouldn't. we will keep trying, but we wanted to get something in place for this batch. 100k is not that different 120k. i think it's pretty awesome that one of our startups is stepping up and being creative when traditional supporters of non-profits were reluctant to try a new approach.
I really like this model. There are plenty of people who enjoy haggling and the finer points of contracts, but I'm not one of them. If all deals were this simple I think SV startups would save a lot of time, headache and money spent on lawyers.
[+] [-] chaseadam17|12 years ago|reply
[+] [-] tomasien|12 years ago|reply
Either way, bravo!
[+] [-] akcreek|12 years ago|reply
[+] [-] nedwin|12 years ago|reply
[+] [-] chimeracoder|12 years ago|reply
> Most people don’t do YC for the financial investment—they do it because they want the advice, the help of the network, the benefits of the program, etc. But still, more money for less equity is definitely better.
This is good news for people who've issued convertible notes before YC, since the implicit valuation is now $1.7MM instead of ~$300K. This is great for PR purposes (read: bragging rights), but can also have concrete implications:
I know at least one company that had a sticky situation[0] when they were accepted into an accelerator after already raising money from an angel investor - the investor ended up owning a huge chunk (the majority?) of the company on paper, because the note converted[1]. They didn't even need the money (it was just a standard part of the accelerator).
[0] it was resolved in the end - but it caused extra headache and legal costs
[1] A well-written conversion clause in original note can also avoid this problem (e.g. by including a threshold), but hindsight is 20/20 - I know a number of companies that would have been impacted in a similar way.
[+] [-] austenallred|12 years ago|reply
The difference for a YC company is that they don't have to give up an extra percentage as they raise their seed round to cover the convertible note/SAFE that they got from YCVC. With no discount, if a YC company raised at a $10M valuation that 80,000 would be worth .8% of the company - not enough to really move the needle.
The difference for the industry as a whole is that most accelerators are trying to mimic YC to a certain extent, and as YC now gives $120K straight-up others might follow suit. It's really easy to say, "We give you 20K for 6-7% because that's YC does." That seems to be almost industry standard, despite the fact that $20K for 3-5 months can be really hard to live on. It will be interesting to see how other accelerators react.
[+] [-] zmitri|12 years ago|reply
[+] [-] ig1|12 years ago|reply
[+] [-] Edmond|12 years ago|reply
[+] [-] wiwillia|12 years ago|reply
It's been humbling to have Watsi working with us in our office and watching the amazing things they achieve on a daily basis. I have no doubt that amazing non-profits will continue to emerge from YC.
[+] [-] morgante|12 years ago|reply
[+] [-] hemantv|12 years ago|reply
[+] [-] cperciva|12 years ago|reply
What exactly is the problem being solved by having a standard deal which almost everybody gets?
[+] [-] rdl|12 years ago|reply
I don't know if any other accelerators had the same core + YCVC investment model, so I don't know what changes it will have elsewhere except maybe pushing valuations at the accelerator stage a little closer to the demo day amount. (Still higher than $1mm pre, in all but exceptional cases.)
(Also, WOW. The teespring guys are doing $50k for each non-profit? That is amazing.)
[+] [-] Beliavsky|12 years ago|reply
$120K is about the list price of two years of Harvard/MIT/Stanford . With a son who loves to program, I have wondered if sending him to a cheaper school and giving him the difference in installments after he graduates is better than paying for a "name" school. It depends on the quality of the cheaper school, of course. And I think school prestige matters more for investment banking than tech, so I'd be less inclined to suggest a cheaper school to a budding banker.
[+] [-] karamazov|12 years ago|reply
(Note that I'm not saying there isn't talent elsewhere, just that there's an incredible concentration of it in the top n schools.)
[+] [-] morgante|12 years ago|reply
Sure, I'll be graduating about ~$140k better off than most other students. But over the lifetime of a successful tech entrepreneur that amount of money is fairly meaningless. Having spent a significant amount of time on top campuses (where most of my friends went), I often regret making that decision—the caliber of students is truly higher, and the friends/networks you have from a school like Harvard will pay dividends throughout life.
[+] [-] tptacek|12 years ago|reply
[+] [-] ZachPruckowski|12 years ago|reply
[+] [-] mbesto|12 years ago|reply
It has less to do with prestige and more to do with risk.
IMHO, there are only two routes to becoming part of today's tech elite. You either build something that gets traction or you join a team that has already done so. These are IMHO the two strongest signals today, especially given the increase of noise. Don't believe me? Just search around AngelList for 30 min. If your son gets a CS degree from Stanford or MIT, it will automatically put him in that basket of "join a team who has already done so", just as working for Google, Facebook, Twitter, etc does.
[+] [-] sailfast|12 years ago|reply
EDIT: I'm not saying this can't be achieved at other schools - I didn't attend a "name" school, but the network definitely matters and can be a huge bonus especially if you know what industry you want to target.
[+] [-] jedberg|12 years ago|reply
He then became a consultant at 21 making about $500K a year, at least for a few years. Don't know what happened to him after those certs became useless, but I hope he converted somehow.
[+] [-] ZenPro|12 years ago|reply
If the startup (company) goes the distance then whatever equity you bought with investment would convert to your son as part of his inheritance altering the partnership drastically.
The legal and financial ramifications can be quite complex.
[+] [-] hga|12 years ago|reply
[+] [-] danielweber|12 years ago|reply
LP is Limited Partner, basically an investor.
A safe is like a convertible note but better. http://ycombinator.com/safe/
[+] [-] Patrick_Devine|12 years ago|reply
The real benefits of YC though are the focus it brings you, and being able to get access to the YC ecosystem. Oh, and being able to attend Demo Day, but with so many companies in the YC program, I think Demo Day isn't what it used to be (I think you get 90 seconds now?).
We would have loved to have had access to those resources, but since we had already invested far more into our company in terms of cash, it's hard to justify giving up that much equity for so little. Kudos to Sam for the new program.
[+] [-] zmitri|12 years ago|reply
[+] [-] nlh|12 years ago|reply
Stepping back a bit, it's also a sign of the times -- especially given the tone of the last paragraph, it's clear there's pricing pressure on incubators/accelerators and the competition is heating up a bit. There are more competitors in the space, valuations are rising, and YC is adjusting accordingly. This isn't a good or bad thing per se -- just an observation of a byproduct of capitalism and the realism of the market in 2014.
[+] [-] thatthatis|12 years ago|reply
Unanimously positive move.
[+] [-] sanj|12 years ago|reply
[+] [-] acjohnson55|12 years ago|reply
To me, this kind of connects to the debate on employee equity that's been ongoing. Sure, intellectually we want to equate that with upfront salary and then compensate at the market rate. But in reality it can never be that way for a plethora of reasons -- tax concerns, option rules, difference in equity classes, etc.
Again, I don't really know what I'm talking about, but I don't think people should view equity as dollars. To me, equity is better thought of as an entirely separate finite resource of a company. One which has different value to different people, depending on ability to take on risk.
[+] [-] arbuge|12 years ago|reply
It does seem though that the primary aim here is to provide more for living expenses, which means that the $1.7m implicit valuation might need to be taken with a grain of salt. Not that it matters much anyway.
[+] [-] btrautsc|12 years ago|reply
[+] [-] omarhegazy|12 years ago|reply
; YC, financially, is enough money for you to live in the Bay Area to work on your company for a fixed time in which you're expected to grow and acquire more capital and a probability assessment on your potential future value.
Keywords, 'potential' and 'future'.
You can't up and sell your company for $1.7M, Sam Altman can't, no one can because no one would buy it because YC isn't saying "You are now in possession of, and operating something, that is worth $1.7M to the world." At such an early stage, all they're really saying is, "There is a probability that your company will be worth $1.7M, and the probability is high enough such that we're willing to put our money where our mouths are."
[+] [-] cpeterso|12 years ago|reply
[+] [-] michaelochurch|12 years ago|reply
In fact, I always held a pretty negative view of YC's prior low valuations. It struck me as PG monetizing his (admittedly, well-earned, because his Lisp chops are really strong) reputation, and the low infusions, to me, indicated that the target audience was young people without families.
I'm afraid to say this, for fear that people are thinking I'm losing my edge by saying something nice about an investor, but I actually like Sam Altman so far. I think he's making a lot of really good decisions.
[+] [-] fuddle|12 years ago|reply
[+] [-] devinmontgomery|12 years ago|reply
$17k is what two engineering students might have made at a summer internship in Boston in 2005.
$120k is now what two entry-level engineers might make in six months in the Valley.
[+] [-] tc_|12 years ago|reply
[Edit 1:] Thanks; OK. I had read it as potentially indicating the money came at two different times rather than just from two different sources. All clear now.
[+] [-] ebabchick|12 years ago|reply
[+] [-] jcchee88|12 years ago|reply
[+] [-] wiwillia|12 years ago|reply
[+] [-] frakkingcylons|12 years ago|reply
[+] [-] jscheel|12 years ago|reply
[+] [-] huslage|12 years ago|reply
[+] [-] sama|12 years ago|reply
[+] [-] billclerico|12 years ago|reply
[+] [-] maxbrown|12 years ago|reply
I believe this is the agreement: http://ycombinator.com/documents/YC_CSPA.docx
[+] [-] iandanforth|12 years ago|reply
[+] [-] mikikian|12 years ago|reply