The New Deal

We have a new standard deal at YC—we’ll invest $120k for 7%. While we may deviate from this in exceptional cases, it will still be the case for almost all of the companies we fund. This replaces our previous standard deal of on average $17k for 7%, plus a safe that converted at the terms of the next money raised for another $80k. The investment will come in two chunks, which together will represent a flat 7% of the company. Although YC itself continues to have no LPs (and that way we have the flexibility to do things like fund non-profits), a portion of the investment is from a fund YC manages that does have LPs. 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. A bit of history—in 2011 Yuri Milner and SV Angel started offering $150k to every startup we invested in on an uncapped convertible note. This went through a number of iterations in terms of structure and partners, and eventually we renamed it YCVC. Among other changes, we reduced it to $80k on top of our $17k—the $150k extra was enough to cause real problems for the companies around founder breakups, for example. Also, the partners making the investment have changed over time, and for the last batch were Andreessen Horowitz, General Catalyst, Maverick Capital, and Khosla Ventures. $97k was about right at the time, but the cost of living in the Bay Area has gone up substantially. So we’re increasing the total to $120k, which we hope is enough for the founders to run their business and pay their living expenses for at least 6 months, and sometimes longer. This also marks the end of the automatic investments from the four firms mentioned above. As YC has become a larger and larger part of the startup ecosystem, we had to deal with things like signaling risk (e.g. a YCVC investor not making a follow on investment in a company caused some other investors to think the company may not be good) and information issues. All of these issues were issues of perception—the YCVC investors are great firms that always behaved really well, and we’re going to continue to work with them very closely. But we hate complication, and we hate anything that causes issues for our startups, even if it’s just an issue of perception. This should help level the playing field. Speaking of hating complexity, we’ve tried to make the new structure really simple. The convertible notes and safes we used got complicated in terms of how they got priced, and complexity often causes unintended consequences. It was hard for founders to actually predict how much total dilution they were looking at. Our new investment structure should be very simple—$120k for 7% equity (regardless of the number of founders). We hope that it will help the companies we fund. For non-profits, I’m delighted to announce that Teespring has agreed to give each non-profit we fund $50k. This will be on top of $50k from us for $100k total. Thanks, Evan and Walker! Finally, it’s sometimes hard to compare offers from different accelerators. Just to be clear, we don’t charge any fees to the companies to be part of YC. We understand the complex reasons around LPs and tax issues that cause some accelerators to charge a fee to the companies they invest in, and while we don’t think it’s bad behavior, obviously companies should deduct those fees from the investment when they’re thinking about those offers. We also try hard to avoid any “gotcha” terms like low caps in certain situations, weird anti-dilution terms, etc.