I predict that this is going to lead to an increase in the number of applicants who have already raised some money (though not a full round).
> 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.
This is good news for people who've issued convertible notes before YC, since the implicit valuation is now $1.7MM instead of ~$300K. This is great for PR purposes (read: bragging rights), but can also have concrete implications:
I know at least one company that had a sticky situation[0] when they were accepted into an accelerator after already raising money from an angel investor - the investor ended up owning a huge chunk (the majority?) of the company on paper, because the note converted[1]. They didn't even need the money (it was just a standard part of the accelerator).
[0] it was resolved in the end - but it caused extra headache and legal costs
[1] A well-written conversion clause in original note can also avoid this problem (e.g. by including a threshold), but hindsight is 20/20 - I know a number of companies that would have been impacted in a similar way.
I think it's also a great deal for first time founders and people who aren't all that familiar with startup funding. $120k for 7% is a lot clearer than $17k + $80k for 7% + converted shares no cap no discount.
I also think this is great news for what it will force other accelerators to do. Many people out there claim to copy YC's model with much less friendly terms on the convertible note. This puts everything out in the open if they want to keep up.
> 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.
This is good news for people who've issued convertible notes before YC, since the implicit valuation is now $1.7MM instead of ~$300K. This is great for PR purposes (read: bragging rights), but can also have concrete implications:
I know at least one company that had a sticky situation[0] when they were accepted into an accelerator after already raising money from an angel investor - the investor ended up owning a huge chunk (the majority?) of the company on paper, because the note converted[1]. They didn't even need the money (it was just a standard part of the accelerator).
[0] it was resolved in the end - but it caused extra headache and legal costs
[1] A well-written conversion clause in original note can also avoid this problem (e.g. by including a threshold), but hindsight is 20/20 - I know a number of companies that would have been impacted in a similar way.