The New Deal

We have a new standard deal at YC—we’ll invest $120k for 7%.  While we may deviate from this in exceptional cases, it will still be the case for almost all of the companies we fund.

This replaces our previous standard deal of on average $17k for 7%, plus a safe that converted at the terms of the next money raised for another $80k.

The investment will come in two chunks, which together will represent a flat 7% of the company.  Although YC itself continues to have no LPs (and that way we have the flexibility to do things like fund non-profits), a portion of the investment is from a fund YC manages that does have LPs. 

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.

A bit of history—in 2011 Yuri Milner and SV Angel started offering $150k to every startup we invested in on an uncapped convertible note. This went through a number of iterations in terms of structure and partners, and eventually we renamed it YCVC.  Among other changes, we reduced it to $80k on top of our $17k—the $150k extra was enough to cause real problems for the companies around founder breakups, for example. Also, the partners making the investment have changed over time, and for the last batch were Andreessen Horowitz, General Catalyst, Maverick Capital, and Khosla Ventures.

$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 $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.

This also marks the end of the automatic investments from the four firms mentioned above.  As YC has become a larger and larger part of the startup ecosystem, we had to deal with things like 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.  All of these issues were issues of perception—the YCVC investors are great firms that always behaved really well, and we’re going to continue to work with them very closely. But we hate complication, and we hate anything that causes issues for our startups, even if it’s just an issue of perception. This should help level the playing field. 

Speaking of hating complexity, we’ve tried to make the new structure really simple. The convertible notes and safes we used got complicated in terms of how they got priced, and complexity often causes unintended consequences. It was hard for founders to actually predict how much total dilution they were looking at.

Our new investment structure should be very simple—$120k for 7% equity (regardless of the number of founders). We hope that it will help the companies we fund.

For non-profits, I’m delighted to announce that Teespring has agreed to give each non-profit we fund $50k.  This will be on top of $50k from us for $100k total.  Thanks, Evan and Walker!

Finally, it’s sometimes hard to compare offers from different accelerators. Just to be clear, we don’t charge any fees to the companies to be part of YC. We understand the complex reasons around LPs and tax issues that cause some accelerators to charge a fee to the companies they invest in, and while we don’t think it’s bad behavior, obviously companies should deduct those fees from the investment when they’re thinking about those offers. We also try hard to avoid any “gotcha” terms like low caps in certain situations, weird anti-dilution terms, etc.

Welcome Kat, Yuri, Patrick and Elizabeth

I’m delighted to announce a promotion and three additions to the YC team.

Kat Manalac has been our director of outreach since 2013.  She’s done an incredible job, and we’re making her a partner.  In addition to regular partner responsibilities, she’ll continue to be responsible for outreach to prospective founders and for our PR.  Before she joined YC, she was Alexis Ohanian’s chief of staff.

Yuri Sagalov joined us as a part-time partner last September, but we never got around to announcing it. Yuri is the cofounder and CEO of AeroFS, which he started in 2010.  Yuri will be especially helpful to enterprise companies we fund, which is not an area we’ve historically had much expertise in.  Several founders from the most recent batch went out of their way to tell me how much they’ve liked working with him.

Patrick Collison is joining us as part-time partner.  Patrick is the cofounder and CEO of Stripe.  He knows a lot about every part of running a startup, but he thinks about hiring and company culture better than anyone else I know.  Previously, he cofounded Auctomatic.

Elizabeth Iorns is also joining us as a part-time partner.  She’s the cofounder and CEO of Science Exchange.  She has a Ph.D. in cancer biology and knows a great deal about life sciences, which is very helpful given that we’re starting to get a lot of interesting biotechnology companies applying that we’re currently unqualified to judge.  She’s been an informal advisor to a number of Y Combinator companies, and they all praise her startup expertise. 

Welcome to the team!

Two New YC Partners: Justin Kan and Aaron Harris

I'm delighted to announce that Justin Kan and Aaron Harris are joining Y Combinator as Partners.

Justin was in the very first YC batch with me in the summer of 2005, and has been a part-time partner since 2011. Justin founded Kiko, Justin.tv/Twitch.tv, Socialcam, and Exec. He took the "do what it takes" directive of startups unusually far with Justin.tv, when he wore a webcam on his head and broadcast his entire life for 8 months, 24 hours a day.

For some time now, Justin has been who we send startups to with questions about growth and marketing. But he knows a ton about nearly every part of startups.

Aaron was in the YC Winter 2011 batch doing Tutorspree, which moved back to New York after their batch. He’s actually been a partner since October 2013—sometimes it takes us a while to get around to announcing things.

Aaron will also advise startups on all topics, but he’s especially good with anything related to finance.

We're all very happy to have both of them on the team.