
The Valuation Boost Needed to Justify YC - ivankirigin
http://blog.yesgraph.com/is-yc-worth-it/
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beambot
In the company A&B example, you're calculating the post-money valuation
required to maintain your equity as a percent... but not in terms of the
equity's _value_. The founders' 87.51% is vastly more valuable for Company B
(85.7% of $11.7M = $10M) compared to Company A (85.7% of $6M = $5.1M).

If you're concerned with _value_ , then the % you own is not the only key
factor. I.e. 10% of a $1B company is more valuable than 50% of a $100M
company. PG's equity equation (the source of 1/(1-n)) deals with _value_ :
[http://paulgraham.com/equity.html](http://paulgraham.com/equity.html)

~~~
jacquesm
At some point the nasty matter of 'control' will rear its head and you might
regret selling any shares early on. Some shares may turn out to be much more
valuable than you ever thought they would be.

~~~
beambot
Control is a separate concern that could (indeed) play into how you "justify
YC".

I'm just saying: If you use "dollar-value of equity" as the metric to justify
YC, OP's calculations are wrong. If you use "percent ownership", then it's
fine.

~~~
jacquesm
What I'm getting at, in case it isn't clear that in the end those few shares
that you sold cheap can come back to haunt you in later years. So dilute if
you have to or want to but be _very_ careful about the terms.

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divya
The important point Ivan makes here is that the real question is "will YC
increase the probability that my company will succeed." This is different from
the "how much will YC increase my valuation." I get this question a lot, and I
generally encourage founders to re-frame the question to consider this
distinction.

~~~
ivankirigin
Way to give away the ending :)

Your startup Rickshaw shares with YesGraph that are customers are people that
make apps. (and for those that don't know, both Divya and I went through YC
twice). How much did that influence your decision to go again?

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phantom_oracle
Your valuation fails the simplest fundamental, which is the share % of what
the VC will get after the seed round.

In VC logic, they will be getting around 14,3% for the same amount of money
than they would get by giving the same 1 million for almost half the value.

In multiple dilutions at inflated figures and the "A" round where the lead VC
grabs 30% (no matter how much money they give), the seed guy stands to be the
biggest loser.

From the perspective of a self-serving VC, he/she stands a greater chance of
vetting a company at 14,3%, giving him the opportunity to maximize return down
the line, as the dilutions will not shrink by almost half (as would under your
logic through YC).

However, if that VC believes in vetting a "YC-company" over his/her own
ability to pick a winner, then that VC should probably not be in the startup-
investing market in the first place.

~~~
ivankirigin
You're describing what is actually going on in the real world. VCs are
competing at Demo Day and valuations rise. Some think it is too expensive and
avoid it.

1 on 11 isn't as realistic, because the VC would compete by wanting to put in
more money. So 3 on 11 to 3 on 30.

The point of this post is to illustrate the math, but most importantly the
second half is to show that this math isn't quite the right way to look at it.
It is instructive to those that don't know much about this stuff.

I don't think a more complicated scenario would help explain this. For
example, I left out option pools.

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ivankirigin
I should update the post with more about why we did YC, but i'll have a follow
up post shortly. In short, we're developer facing, and the YC batchmates are
great beta testers. Plus the advice is stellar.

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staunch
Few startups choose between $1M and getting into YC, so how does this make
sense? It seems like a better comparison would be raising $120k from an
individual angel investor.

~~~
ivankirigin
This post is for people that have the choice that are trying to decide whether
to do it. I think they should, but I often see people getting the math wrong.

Especially because YC is getting so good that companies that have a choice of
raising a seed and doing YC are getting in. They delay the seed till demo day.

YesGraph raised a $1M seed right before YC, so I have personal experience
here.

