

Ask YC: Why don't you take a convertible note instead of equity? - tossed_aside

It seems strange to ask, but given all the changes pushed by PG within seed stage investments, why doesn't YC take a convertible note? Why push one set of standards for other early investors but extract the highest price from young companies? I get the fact that 7% doesn't require all that much in increased valuation to pay for itself. But it seems strange to require the equivalent of a ~$250k valuation to participate and with a take it or leave it offer. Startups may rarely be bound to this valuation in subsequent financing but a $1M valuation would still give YC 1-2% equity on average without any discount. It seems strange that PG pushes for notes but then relies on equity. Why?
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curt
Couple reasons: first off YC is easily worth the value in just the
introductions alone. Personally I'm about to start contacting angels/seed
funds and its going to be a pain in the ass. When you combine the increased
valuation in later rounds due to their being part of the group. I'd give up 7%
any day of the week, easily making it back in during the seed round.

Don't have direct knowledge of this, but I'd bet that before last year most of
the companies weren't even organized (or organized correctly) when they joined
the program. When forming the company YC took their equity in the process of
filing the paperwork.

Also think about it on the financial side when they started: investment + time
of team + misc = ~$40,000 per company

At the beginning, as an untested concept that was quite a risk. They've just
kept their rate flat from when they started, while adding quite a lot more in
value.

Aa a wise and very wealthy man once told me: "An idea is worth exactly...
zero..."

