ycombinator, valuationHow much does [YC] invest? We have a new standard deal - we’ll invest $120k in return for 7% of the company’s equity. While we may deviate from this in exceptional cases, it will still be the case for almost all of the companies we fund.
Why does YC invest $120k in return for 7% of a startup’s equity?
(Appears YC values almost all of the companies they fund as being worth $1,714,285.71428, though it’s possible I’m missing something.)
The idea of YC is to fund startups at scale. They can’t waste time debating about money with hundreds of founders around the world.
A $1.7M valuation is often generous. Sometimes it’s low but they say “we may deviate from this in exceptional cases” and the YC brand and track record offset the difference for many founders I guess.
(Appears YC values almost all of the companies they fund as being worth $1,714,285.71428, though it’s possible I’m missing something.)
What you’re missing is that investment is a numbers game.
YC don’t think that all of the startups are worth the same amount. They invest time + knowledge + networking + $120k in many startups. Some of them will fail. Some will do okay-ish. A small number will do very, very, very well indeed.
YC make their money from that last subset.
If you go talk to anybody who has been on the YC programme they don’t talk about the money being the valuable part. Indeed until recently it was a lot less that $120k. Folk on the YC programme talk about the people, the network, and the mentoring being what makes YC worthwhile to them. YC themselves say about half of the folk who they fund don’t need the money.
$120 is probably about 3-12 months runway depending on the startup. That’s what YC are giving them. Time. Time to prove their model and get the company into a state for possible future investment rounds. They’re looking to get enough of their portfolio of companies to grow so that a few of those 7%s will pay for all the other just-okays and failures.
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