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

Y Combinator’s New Announcing a plan to invest more capital in startups participating in the acceleration program is more controversial than many initially assumed.

By increasing the so-called “standard package” to include an additional $375,000, the US program and investment group that includes hundreds of companies in each of its acceleration categories may have materially altered the initial stage of the investment. Early-stage professional investors around the world may see their offerings lose their luster, and may change how the smallest startups participating in Y Combinator interact with outside capital.

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Prior to the change, Y Combinator offered $125,000 to accelerator participants in the form of a Simple Equity Futures Agreement, or SAFE, which retains 7% of participating startup equity on a post-money basis. The new $375,000 SAFE, which is now part of a normal YC transaction, has not been identified, meaning the dollar amount will not be converted into an automatic percentage of the company’s stake in question.

Stacked against today’s countless massive rounds—those nine-digit checks that seem to touch every hour of the day—and the gargantuan rhino horde waiting for private market exits, an extra $375,000 might not seem like much.

But early stage investors are taking notice. according to Mike Asim |Y Combinator, a partner in venture capital store M25 focused on the Midwest, helps Y Combinator’s new terms, but it comes with “trade-offs” for the group and the founders themselves.

Of course, Asim talks about his own book, but the fact that investors around the world are less enthusiastic about change is worth considering.

Has Y Combinator really changed the early-stage startup investing game, perhaps to its advantage? Or did it just free up more time for its portfolio companies to reach the next stage of maturity? Given the sheer number of validations Y Combinator writes, and how much weight its license carries around the world, there might not be a more important early-stage question this year.

We’ve asked investors and founders to think about it. Notes follow from Asim. Bigman Nozad From pear VC. Iris Choi Fudgegate funny nathan From Magma Partners; Siji SimonarssonCo-founder of BuildBuddy, which participated in the Y Combinator 2020 category; And Free turbineCo-founder of Wingback, part of the Winter 2022 YC group.

We’ll be looking at the impact the New Deal might have on startup founders, both experienced and non-experienced. We will also discuss what the terms of the new transaction mean for Y Combinator itself, whether the change is overdue, and what negative effects can appear around the world at different investment stages. Let’s go!

How will the new YC standard deal affect the founders?

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

Floodgate’s Choi – perhaps the most popular single guest on the Equity podcast – told The Exchange that the “pre-commitment” in Series A from a startup “with the unspecified SAFE note is a vote of confidence for the founders, especially those who decided to go through YC because Partly because he’s making fun of future fundraising,” perhaps even more so when compared to “founders who won’t have a problem raising money.”

Magma’s Lustig found a lot to like about the new terms for a certain group of companies: “The new deal would be great for Latin American companies that were very early on, without gravity, and didn’t have access to American networks. The extra money would help them.”

The same investor wrote that startups that are not “hot”, that are characterized by a “under-appreciated founder”, or that simply want to chart their course forward largely on the back of revenue can be a winner from the new terms.

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

Founder’s Perspective

We’ll get back to the investors soon, but let’s hear from some of the founders who were involved with Y Combinator.

Simonarson of BuildBuddy described the new terms as “very exciting” because they could provide “more leverage for founders.” How is that? In Simonarsson’s view, there was “a lot of push-up pressure to raise money or risk running out of money” under the old investment terms.

“Now founders can wait for them to gain momentum [or] he won [or] User metrics that allow them to scale up on good terms.” In the case of BuildBuddy, Simonarson said that had the company been able to reach a similar deal, “the money would have gone through.” [his company] Over two years,” which he said was a very long time to build a product and learn and make the resulting adjustments.

Friehe of SaaS startup Wingback said the terms of the new deal are “great news for everyone [Y Combinator Winter 2022] group, especially those companies that have not raised their capital before.

Freeh said that Wingback did not need the capital, noting that his company “already raised the pre-incorporation round before it entered YC,” but added that “the additional funds will be beneficial and will allow us to grow faster than we previously expected.”

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