Did the new Y Combinator deal change the investment game early on? – TechCrunch

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Y Combinator is recently The announced plan to invest more capital in startups taking part in its acceleration program is more controversial than many initially thought.

By increasing the so-called “standard deal” to include an additional $ 375,000, the US program and investment group with hundreds of companies in each of its accelerator classes may have substantially changed the first phase of the investment. Early-stage professional investors around the world may see their offerings lose luster, perhaps by changing how younger 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 futures stock arrangement, or SAFE, which reserves 7% stake in participating startups on a post-money basis. The new $ 375,000 SAFE, now part of YC’s regular transaction, has no limits, meaning the dollar amount will not be converted into an automatic percentage share of the company in question.

Stacked against today’s myriad mega-rounds – those nine-figure checks that seem to land at any time of day – and the huge horde of unicorns awaiting private market releases, the extra $ 375,000 may not seem like a big deal. .

But early stage investors are paying attention. Second Mike Asem |, a partner of Midwest-focused venture capital shop M25, the new terms help Y Combinator, but present “trade-offs” for the group and the founders themselves.

Of course, Asem is talking about his own book, but it’s worth considering the fact that investors around the world aren’t thrilled with the change.

Did Y Combinator really change the startup investment game early on, perhaps in its favor? Or has it simply given the portfolio companies more time to reach their next stage of maturity? Given the number of checks Y Combinator writes and how much weight its imprimatur has around the world, there may not be a more important early stage question this year.

We asked investors and founders to take action on the matter. The notes follow from Asem; Pejman Nozad of Pera VC; Iris Choi of gate; Funny Nathan by Magma Partners; Siggi Simonarson, co-founder of BuildBuddy, who took part in a Y Combinator 2020 class; And Torben Friehe, co-founder of Wingback, which is part of the YC Winter 2022 lot.

We’ll look at the impact the new deal could have on startup founders, experts and non-experts. We will also discuss what the new transaction terms mean for Y Combinator itself, whether the change was overdue, and what negative impacts could occur across the globe at different investment stages. Here we go!

How will the new YC standard agreement impact the founders?

More capital is more capital and some founders will greatly benefit from Y Combinator’s new standard agreement.

Floodgate’s Choi – perhaps the single most popular guest on the Equity podcast – told The Exchange that a startup’s “pre-engagement” in Series A “with the capless SAFE note is a vote of confidence for the founders, especially perhaps those. who decide to go through YC in part because it mocks their future fundraisers “, perhaps even more so than” founders who would have no trouble raising “.

Magma’s Lustig found the new terms very welcome for a particular group of companies: “The new agreement will be great for Latin American companies that are extremely precocious, without traction and have no access to US networks. The extra money will help them. “

The same investor wrote that startups that aren’t “hot,” who feature an “underrated founder,” or who simply want to chart their own path largely based on revenue could be winners of the new terms.

So far, then, things are looking pretty good: The new terms could help startups grow, especially those companies with founders who don’t have a Stanford network or an office near South Park in San Francisco.

The founder’s perspective

We’ll get back to investors soon, but hear from some of the founders who took part in Y Combinator.

Simonarson of BuildBuddy called the new terms “pretty exciting” because they could provide “more leverage to the founders.” How come? According to Simonarson, there was “a lot of pressure coming from the lot to raise funds or risk running out of money” under the old investment terms.

“Now the founders can wait for traction [or] Income Amount [or] user metrics that allow them to grow on good terms, “he added. In the case of BuildBuddy, Simonarson said that if the company had access to a similar deal,” the money would last [his company] well over two years, “he said it was a long time to build a product, learn and make the resulting changes.

Friehe of SaaS startup Wingback said the terms of the new deal are “great news for the whole.” [Y Combinator Winter 2022] cohort, especially those companies that have not yet raised capital previously. “

Wingback didn’t need the capital, Friehe said, noting that his company had “already raised a round of pre-seed before joining YC,” but added that “the extra cash will be useful and allow us to grow faster. than previously provided. “

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