Has Y Combinator’s new deal changed the early-stage investing game?

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y combinator Newly The announced plan to invest more capital in startups that participate in its accelerator program is more controversial than previously thought.

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By expanding its so-called “standard deal” to include an additional $375,000, the US program and the investment group with hundreds of companies in each of its accelerator classes may have materially changed the initial phase of the investment. Professional early-stage investors around the world may be seeing their offerings lose their luster, potentially changing how the youngest startups participating in Y Combinator interact with outside capital.


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Prior to the change, Y Combinator offered $125,000 to its accelerator participants in the form of a simple settlement for future equity, or SAFE, which would reserve 7% of the participating startups’ equity on an after-money basis. Is. The new $375,000 SAFE, now part of YC’s regular transaction, is uncapped—meaning the dollar amount will not convert into an automatic percentage stake of the company in question.

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Stacked against today’s myriad mega-rounds—those nine-digit checks that tend to touch down at every hour of the day—and the huge unicorn crowds waiting to exit the private-market, an extra $375,000 sounds like a big deal. Can’t seem.

But early-stage investors are paying attention. According to Mike Assem |, Midwest-focused. a partner of M25 Venture capital shop, new terms help Y Combinator, but come with “tradeoffs” for the group and the founders.

Naturally, Asim is talking his book, but the fact that investors around the world are not excited by the change is worth considering.

Has Y Combinator really changed the early-stage startup investing game, perhaps in its favor? Or did it merely provide more time for its portfolio companies to reach the next stage of maturity? Given the sheer number of checks Y Combinator has written, and the weight of its imprint around the world, this year could not be a more important early-stage question.

We asked the investors and the founders to look into the matter. Notes follow asim; pageman nozadi Of Pear VC; Iris Choi Of floodgates; Nathan Lustig Of Magma Partners; siggi simonarasson, co-founder of buildbuddy, who participated in the 2020 Y Combinator class; And torben freehe, co-founder of wing back, which is part of the Winter 2022 YC batch.

We’ll examine the impact the new deal can have on startup founders, both experienced and not. We’ll also discuss what the new transaction terms mean for Y Combinator, whether the change was overdue, and what negative impacts the different investment phases could create around the world. let’s go!

How will the new YC Standards deal affect the founders?

More capital is more capital, and some of the founders will benefit greatly from the new standard Y Combinator deal.

Floodgate ki choi – probably the most popular guest on equity podcast — told The Exchange that the startup’s “pre-commitment” to its Series A “with an uncapped safe note” is a vote of confidence for founders, especially perhaps those who decide to partially go through YC Because it stifles their future fundraising, “perhaps even more so when compared with “the founders will have no trouble raising”.

Magma’s Lustig found a lot to say about the new terms for a particular group of companies: “The new deal is going to be great for Latin American companies that are too early, without any traction, and don’t have access to US networks.” The extra money will help them.”

same investor wrote That startups that aren’t “hot,” have “underestimated founders,” or that simply want to pursue their own path on the back of revenue may be winners from the new terms.

Thus far, things look great — the new terms could help grow startups, especially founders of companies that don’t have the Stanford network or an office near South Park in San Francisco.

Founder’s Approach

We’ll get back to investors soon, but let’s hear from some of the founders who have participated in Y Combinator.

BuildBuddy’s Simonarasson called the new terms “quite exciting” because they could provide “more profit to the founders.” how so? In Simonerson’s view, there was “a lot of pressure to fundraise out of batch or exit risk” under the old investment terms.

“Now founders can wait until they have traction [or] Revenue [or] User metrics that allow them to mobilize on good terms,” he said. In BuildBuddy’s case, Simonarasson said that if the company had access to a similar deal, “the money would keep moving”. [his company] More than two years,” he said, adding that there was plenty of time to build the product, learn and make the resulting change.

Frehe of SaaS startup Wingback said the terms of the new deal are “good news for the whole” [Y Combinator Winter 2022] Cohorts, specifically companies that have not yet raised capital before. ,

Wingback didn’t need the capital, Freihe said, noting that his firm had “raised a pre-seed round even before it came to YC,” but added that “the extra cash would be helpful and give us a faster start than before.” will allow it to grow.”

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