Business, Investments, Startups

Y Combinator says no to VC co-investors; will now invest $120k for flat 7%

Y Combinator, on Wednesday, has modified its existing deal model with an aim to simplifying pricing complexities and reduce startup issues, per Sam Altman’s blog. It will now invest USD120k for 7% (regardless of the number of founders).

The investment will come in two chunks, which together will represent a flat 7% of the company. This move has replaced the previous standard deal of on average USD 17k for 7%, plus a safe that converted at the terms of the next money raised for another USD 80k.

“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,” said Altman in his blog.

Also, the new model will put an end to investment from last batch of venture capitalist firms viz. Andreessen Horowitz, General Catalyst, Maverick Capital, and Khosla Ventures. The step has been taken to avoid 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.

The VC investment was started in 2011 when Yuri Milner and SV Angel started offering USD 150k to every startup YC invested in on an uncapped convertible note. It was then reduced to USD 80k, topped with YC’s USD 17k, keeping the total at USD 97k.

“USD 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 USD 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.”

Apart from these, non-profits associated with YC will also get a fund of USD 50k from Teespring, making the total reach to USD 100k.

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