Is Y Combinator worth the money? Brutally honest review of W22 batch experience
I recently did some napkin math of a YC startup cap table to see what ownership % is given up for what money after YC and what valuation should be targeted at the demo day to keep YC ownership at not more than 10% for $125K+375K with prerequisite that the demo day VC also gets 10%, triggers $125K+375K SAFEs, and requires an additional 10% to be set aside for the option pool:<p>If we consider that YC's $125K investment is Pre-seed and the demo day YC's $375K + VC money investments are Seed:<p>_____<p>PRE-SEED (Accepted to YC)<p>YC 1 ($ 125K) ---- 0% (SAFE didn't convert yet)<p>Founders ---------- 100%<p>Total Investments: $ 125k<p>Valuation: Isn't set yet (or $ 1 785 714 / Post money based on the non-converted yet safe)<p>_____<p>SEED (Demo Day)<p>YC 1 --------------- 5.6% ($ 125K SAFE converts)<p>YC 2 ($ 375K) ---- 4.29% ($ 375K SAFE converts)<p>VC   ($ 700K) ------ 10%<p>Option pool ------- 10%<p>Founders ---------- 70.11%<p>Total Investments: $ 1 200 000<p>Valuation: $ 7 000 000 / Post money<p>_____<p>To sum it up, to keep around ~70% of the startup after YC, one needs to target ~$7M post money valuation at the demo day with $700K investment from a VC for another 10% and option pool of 10%. If a startup needs more VC money and doesn't want to lose a bigger share it's worth targeting at valuation higher than $7M and starting at least at $10M post money to get $1M investment.<p>Please, correct me if I missed something.<p>Calculations are done based on Safe Conversion Financing section in the The Y Combinator Deal [1]:<p>Step 1: Price for the round is set and the two SAFEs are converted;<p>Step 2: A stock option pool is created;<p>Step 3: New money is invested in the company.<p>It was a pleasant surprise to find out in the text that the priced round itself, and the creation or increase of the stock option pool, will dilute YC’s ownership. It means that 7% for the $125K SAFE at step 1 due to the dilution become 5.6% (considering that new VC gets 10% and the option pool is 10%). As also $375K percentage after step 1 is also decreased due to dilution.<p>[1] <a href="https://www.ycombinator.com/deal/" rel="nofollow">https://www.ycombinator.com/deal/</a>