

Will an assured $150k investment hurt the spirit of Y Combinator? - bretpiatt
http://thenextweb.com/industry/2011/01/29/will-an-assured-150k-investment-hurt-the-spirit-of-y-combinator/

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shykes
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
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.

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

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il
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.

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mlinsey
$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.

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jacquesm
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_.

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jetaries
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.

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buro9
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.

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mariust
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.

~~~
jacquesm
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'.

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allenbrunson
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?

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prosa
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.

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ladon86
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.

~~~
jacquesm
> 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.

~~~
ladon86
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!

~~~
jacquesm
Good luck!

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

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

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teichman
$150k at what valuation?

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jeff18
"$150,000 in convertible debt. With no cap and no discount."

