Is YC’s Money Worth 7% Of Your Company?
7% for $125,000 though is a bit steep and is a question a lot of founders struggle with twice a year just before the intake for the YC batch.
Y Combinator has been behind over 3,000 companies including Stripe, Airbnb, Pagerduty, Twitch, Reddit, Coinbase etc. The combined valuation of these companies was estimated at over $300 BN as recently as Jan’ 21. There is definitely something that YC does right that propels so many YC companies to do well.
7% for $125,000 though is a bit steep and is a question a lot of founders struggle with twice a year just before the intake for the YC batch. It becomes an ever tougher question when you have investors on your cap table and you’ve raised money at a higher valuation earlier. Is it worth it? Short answer: Yes. Long answer, keep reading.
1. YC investors are worldclass : This is a big one.
a. Your next funding round isn’t going to be your last. YC represents access to a global pool of capital which can support companies at all stages. Comparatively India has a much smaller pool of capital.
b. A large majority of these investors have also been 0-1 builders of large successful companies. It’s been extremely valuable for us to be able to leverage their knowledge.
c. Investment decisions are quick. It’s not bs like “hit $200K mrr then we talk”, “the market is too small”, or “XYZ company does the same thing” etc: It’s a Yes or a No; 24 hrs tops after 1, worst case two 30 minute meetings for a $500K cheque. As an entrepreneur your time is valuable. YC investors both demo day and the group partners actually value it.
2. YC forces you to grow : The number 1 question asked at every group meeting is : “What’s your growth rate?” You can’t hide behind fluff like “XYZ broke”, “No money for ads' ' etc YC in some weird way forces you to figure out how to grow 30% Month on Month; anything else is unacceptable. Oftentimes, it could be that you and your cofounders have different opinions regarding growth. When YC partners push you to achieve a certain growth rate, you and your co founders cut out the argument and just execute. Furthermore, the partners will advise you against doing things such as hiring which will slow your growth down leading up to demo day. This way, your entire company’s focus is on achieving your MoM growth. While we did maintain that growth during YC we still continue to do so because we feel it is our responsibility to do so now. It’s our new normal :)
3. Credibility: The YC brand is the closest thing to something like a Nike in the world of startups. It has an amazing track record, a result of which you find meetings with customers & investors easier to get as soon as you mention you are YC.
4. First Customers: YC will get you anywhere between 40-50 customers be it b2b and b2c. With that not only do you increase your customer base but access some of the smartest feedback that’s available.
5. The YC community is epic : From the choice of background music during the breaks to Michael coming up with a sly grin as he casually makes fun of you to a company offering you free design help for your product. It’s a bunch of people actively trying to help each other with everything under the sun. I honestly was taken aback by the sheer amount of enthusiasm people would help each other with. <3 it.
6. YC talks are helpful : You would probably know a lot of stuff that the YC talks “talk” about but it’s super helpful to learn from the experience of fellow companies about those specific topics. Real-life practical stuff from some of the worlds best!
7. The dilution isn’t bad : Though the dilution does suck the immediate valuation jump you get post your demo day more than makes up for it. We’ve seen companies raise at even $100 MN post demo day - an almost 100x jump from the YC valuation.
8. More time and more investors: with the entire program done virtually, you save more time since you don’t have to fly to the Bay Area and spend three months there. Furthermore, virtual demo day is now able to cater to more investors globally than before.
To wrap this up; YC isn’t just an accelerator for your company but even for yourself to grow 10X. We’ve spoken to founders pre and post YC and the transformation has always been incredible - instills confidence, discipline and the heart to get things done. You will feel the transformation yourself during the batch.
If you’re applying for YC as an Indian company; now is an amazing time to do so given their increased focus on the Indian market. Though as more mature companies tend to apply from India I feel it’s a must have to have a functioning product while a really good to have is a product that is demonstrating 20% MoM growth. If you have both awesome - apply; if you don’t still apply - the application itself forces you to think more about the company and how you could make it bigger.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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