If you're accepted to YC, can you negotiate the percentage?
I know that the amount of funding is fixed, but the percentage that YC takes doesn't seem to be. Anyone from the previous batches successfully negotiated the percentage that YC asked for?
22 comments
Actually, the "negotiation" is proving what you're worth. If, when you come in, you're relatively far along, have a really compelling demo, you can prove a huge market, etc...you'll get a better valuation. The differences are small, but they do give somewhat different offers to different groups. And, of course, you can still say no when pg calls to give you the terms.
But, do take pity on pg--he's frazzled on that day. He calls everybody personally. I was impressed by how nice he managed to stay through the whole process (and even moreso now that I've seen first-hand how crowded pg's life is with people who want to be around him).
We went in knowing that we'd say "no" if the offer involved more than 6% equity...but it rarely does, so that wasn't a big concern. We're glad we weren't one of the "no" groups.
But, do take pity on pg--he's frazzled on that day. He calls everybody personally. I was impressed by how nice he managed to stay through the whole process (and even moreso now that I've seen first-hand how crowded pg's life is with people who want to be around him).
We went in knowing that we'd say "no" if the offer involved more than 6% equity...but it rarely does, so that wasn't a big concern. We're glad we weren't one of the "no" groups.
The easiest and fasted way to lose at negotiating is to ask "is this negotiable?". When you negotiate, you are supposed to be convincing the other side to give you what you want on the terms you want. If, instead, you come into the negotiation looking powerless, you are going to end up with no deal or--worse--a bad deal.
You get 15 minutes or so to present your idea. One minute of that presentation should be about how much money you need to get started. I would not inflate that number, but I would not artificially constrain it to fit the "fixed" limit that YC has. I can't speak for YC, but I would guess that they aren't going to turn down a deal just because the founders demonstrated a need for $7500 per person instead of $5000 each, or whatever the details are. Similarly, if your idea is the best idea they've ever seen, then are they really going to be so rigid about the percentage? Especially if you offer a percentage before they do?
I realize PG said flat out "no" above. But, doesn't Mr. Graham strike you as somebody that has a "rules are meant to be broken" mentality? Don't you think that this is exactly the type of arbitrary rule that is easily broken without too much fuss?
You get 15 minutes or so to present your idea. One minute of that presentation should be about how much money you need to get started. I would not inflate that number, but I would not artificially constrain it to fit the "fixed" limit that YC has. I can't speak for YC, but I would guess that they aren't going to turn down a deal just because the founders demonstrated a need for $7500 per person instead of $5000 each, or whatever the details are. Similarly, if your idea is the best idea they've ever seen, then are they really going to be so rigid about the percentage? Especially if you offer a percentage before they do?
I realize PG said flat out "no" above. But, doesn't Mr. Graham strike you as somebody that has a "rules are meant to be broken" mentality? Don't you think that this is exactly the type of arbitrary rule that is easily broken without too much fuss?
With 15 minutes, you don't have any time to justify a 50% increase in money and less than an order of magnitude seems negligible anyways. I think most people that actually have a need for more money are encouraged by YC to work on a limited subset of their initial problem before raising more money from another investor, which is easy enough to do for a promising YC startup.
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i wouldn't bother trying to push the $5k+$5k*n . i think that precedent is pretty much set in stone. and even if you tried, the extra cash wouldn't matter much, and you'd more likely piss pg off than anything else.
No. You can turn us down though. (Two groups did, both very early on. I don't know what became of them.)
paul, if there is a standard process, is the % based on the number of founders, an evaluation, or both?
The percentage is based on a very rough estimate of the startup's prospects. If the founders seem like superstars and have been working on it for a while, we might ask less than 6%. Whereas if the company seems riskier we might ask for more.
We should go back and see if the predictions implicit in the offers correlate at all with how the startups have done.
We should go back and see if the predictions implicit in the offers correlate at all with how the startups have done.
I would be really curious about those dollars, and what percentage get an investment of 1 million plus.
6% seems like a 200% profit if each yc startup generates a 1 million dollar investment.
If the VC deal rate is closer to 1 in 10 or 1 per year, it looks like you need one $10 million dollar deal a year, each of which needs to have a potential of $250 million eval, or $25 million a year in revenue before the VC will be interested.
So my question is, if a team can demonstrate "real" projections with lower than average risk, and demonstrate a 2 year projection of greater than $25 million a year would you consider an offer of less than 6%?
My second question is, since we are in the Midwest, "What exactly is a rockstar?" ;-) We have Billy Corgan, and Garbage to be proud of, but the coasts seem to be more keen on the idea of the "rockstar," so, what are the characteristics of a "tech" rockstar?
6% seems like a 200% profit if each yc startup generates a 1 million dollar investment.
If the VC deal rate is closer to 1 in 10 or 1 per year, it looks like you need one $10 million dollar deal a year, each of which needs to have a potential of $250 million eval, or $25 million a year in revenue before the VC will be interested.
So my question is, if a team can demonstrate "real" projections with lower than average risk, and demonstrate a 2 year projection of greater than $25 million a year would you consider an offer of less than 6%?
My second question is, since we are in the Midwest, "What exactly is a rockstar?" ;-) We have Billy Corgan, and Garbage to be proud of, but the coasts seem to be more keen on the idea of the "rockstar," so, what are the characteristics of a "tech" rockstar?
Read the instructions first...
...decisions will include the amount we'll invest and the percent of the company we'd want for it. We usually invest $5000 + $5000n, where n is the number of participating founders (i.e. 2 founders get $15,000, 3 get $20,000), in return for between 2% and 10% of the company. The median is 6%.
...decisions will include the amount we'll invest and the percent of the company we'd want for it. We usually invest $5000 + $5000n, where n is the number of participating founders (i.e. 2 founders get $15,000, 3 get $20,000), in return for between 2% and 10% of the company. The median is 6%.
Most importantly:
The money itself is NOT the reason to sign up for YC.
The money itself is NOT the reason to sign up for YC.
but the % share is a good reason to turn down the deal if you have other options. I just think it's to know what yc investors are told behind the curtain, and how much you are worth. It's nice to know what expectations you should live up to.
The key to this is to discover the golden key of negotation:
BATNA- "Best Alternative To a Negotiated Agreement"
Your BATNA: To keep doing what you're doing, and not get rich by fulfilling your dream.
YC's BATNA: To fund someone else that is about 99% as good as you.
You have a lot more to lose by walking away, therefore YC holds an incredible amount of power in the negotiation.
BATNA- "Best Alternative To a Negotiated Agreement"
Your BATNA: To keep doing what you're doing, and not get rich by fulfilling your dream.
YC's BATNA: To fund someone else that is about 99% as good as you.
You have a lot more to lose by walking away, therefore YC holds an incredible amount of power in the negotiation.
It really freaks me out that there are people on this board who think the BATNA for a founder in the YC negotiation is "give up on their dream".
I never said they would give up on their dream if they declined YC.
They just have a smaller chance of it happening. As a YC-funded group, you have a 100% chance of pursuing your dream. If you aren't funded by YC, your chances of that are significantly smaller.
They just have a smaller chance of it happening. As a YC-funded group, you have a 100% chance of pursuing your dream. If you aren't funded by YC, your chances of that are significantly smaller.
I am utterly skeeved out that there are people in this forum who think their "chances of pursuing their dream [startup]" are lessened by not getting "funded" by YC, and that their "chances of success" with that startup are significantly reduced.
As a serial startup founder with 2 VC backed companies behind me (one as a founder) and 2 bootstrapped companies (both as a founder, one current, thriving, and multiple years old), let me respectfully call bullshit upon you.
To support my calling down of The Bullshit upon you, let me focus your attention on two completely obvious facts of the industry:
Fact the (1)st: the Overwhelming Majority of thriving web startups are not YC-funded.
Fact the (2)st: the Overwhelming Majority of YC applicants do not collect $16,000 (one solid month of consulting dollars for a skilled developer) from Paul Graham.
If your dreams don't survive not collecting a vanity round from Paul Graham, your dreams are weak and don't belong in the industry to begin with. I leave you with that thought.
As a serial startup founder with 2 VC backed companies behind me (one as a founder) and 2 bootstrapped companies (both as a founder, one current, thriving, and multiple years old), let me respectfully call bullshit upon you.
To support my calling down of The Bullshit upon you, let me focus your attention on two completely obvious facts of the industry:
Fact the (1)st: the Overwhelming Majority of thriving web startups are not YC-funded.
Fact the (2)st: the Overwhelming Majority of YC applicants do not collect $16,000 (one solid month of consulting dollars for a skilled developer) from Paul Graham.
If your dreams don't survive not collecting a vanity round from Paul Graham, your dreams are weak and don't belong in the industry to begin with. I leave you with that thought.
Yes, your chances of success are reduced if you do not get funded by YC. If they're reduced enough for you to quit, you shouldn't be doing it anyways.
I define "success" as being able to quit my day job and work on the startup full time. Anything after that is gravy.
My chances of being able to do that if I'm accepted to YC: 100%
My chances of being able to do that if I'm not accepted to YC: 25%
The 25% is more than enough to keep me going and to keep my inspired. But I'd still have a better shot if I got accepted by YC.
I define "success" as being able to quit my day job and work on the startup full time. Anything after that is gravy.
My chances of being able to do that if I'm accepted to YC: 100%
My chances of being able to do that if I'm not accepted to YC: 25%
The 25% is more than enough to keep me going and to keep my inspired. But I'd still have a better shot if I got accepted by YC.
Just to reiterate, an idea that goes from 100% to 25% based solely on Paul Graham is not a good idea.
To restate the original point: I feel like some of the people on this forum approach starting a business the same way they approach applying to college, or to grad school. That is not how it works. Your success is not gated on the "grownups" in the admissions office, or the department, or Y Combinator, making a decision about you.
If you catch yourself thinking about it that way, stop. Even if you get your 2 month's consulting dollars out of Y Combinator, nothing else in business works that way. There's no professorship to apply to once you get funded. You actually have to engage the market and win.
To restate the original point: I feel like some of the people on this forum approach starting a business the same way they approach applying to college, or to grad school. That is not how it works. Your success is not gated on the "grownups" in the admissions office, or the department, or Y Combinator, making a decision about you.
If you catch yourself thinking about it that way, stop. Even if you get your 2 month's consulting dollars out of Y Combinator, nothing else in business works that way. There's no professorship to apply to once you get funded. You actually have to engage the market and win.
By the way, you didn't say they WOULD give up their dreams. You said they SHOULD. Thank you for introducing the idea of BATNA to the discussion.
I'm not 100% sure, but my guess is no. Read:
http://paulgraham.com/webstartups.html
Section 2.
http://paulgraham.com/webstartups.html
Section 2.
in general, the median's around 6% and i think is also the most common, and i didn't encounter anyone who had negotiated it down. i don't think there's a formula. we had a working demo, and thousands of lines of code, but got the same deal as other groups who just had an idea.
unless the % seems way out of kilter, it's probably not worth optimizing this or cutting yc down (after all, they're making rapid fire phone calls down a list of people who would gladly take your spot. things like your option pool and follow on investments will be the dominating factors in your dilution anyway.) they definitely earn their chunk, and contribute _vastly_ more than the equity they take, even at the highest end.
unless the % seems way out of kilter, it's probably not worth optimizing this or cutting yc down (after all, they're making rapid fire phone calls down a list of people who would gladly take your spot. things like your option pool and follow on investments will be the dominating factors in your dilution anyway.) they definitely earn their chunk, and contribute _vastly_ more than the equity they take, even at the highest end.
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