New Standard Deal

Great that YC is simplifying their deal and making it more standard and easier for founders to understand. Also great that they&#x27;re switching the standard SAFE to be a post-money SAFE, as this will eliminate a lot of confusion around dilution that resulted from the complicated math of the old standard SAFE.<p>Interestingly, unless I&#x27;m understanding this incorrectly, this change might mean a worse deal for founders going through YC. As the post mentions, when calculating the dilution taken from a post-money SAFE, all other money raised on convertible instruments before an equity raise are excluded.<p>Functionally, what this means is that while investors on standard SAFEs are diluted by other SAFE investors before an equity round (as are all common holders), investors on post-money SAFEs are not diluted by other investors on SAFEs before an equity round.<p>So unless I&#x27;m misunderstanding this, I believe this means that YC (which was previously a common holder like the founders) will no longer be diluted by the money founders raise on convertible notes or SAFEs before an equity round, whereas before they were diluted by that money.<p>To demonstrate this, I modeled out a scenario where a company goes through YC, raises $2m on a $10m cap pre-money SAFE after demo day, and then raises a $10m Series A equity round at a $30m pre-money valuation. Scenario A shows the old YC deal where YC has 7% common, and Scenario B shows the new YC deal where YC invests on a post-money SAFE<p>Scenario A: <a href="http:&#x2F;&#x2F;angelcalc.com&#x2F;model?mod=802&amp;dispShare=0e55666a4ad822e0e34299df3591d979" rel="nofollow">http:&#x2F;&#x2F;angelcalc.com&#x2F;model?mod=802&amp;dispShare=0e55666a4ad822e...</a><p>Scenario B: <a href="http:&#x2F;&#x2F;angelcalc.com&#x2F;model?mod=803&amp;dispShare=8a50bae297807da9e97722a0b3fd8f27" rel="nofollow">http:&#x2F;&#x2F;angelcalc.com&#x2F;model?mod=803&amp;dispShare=8a50bae297807da...</a><p>Note: click &quot;Model&quot; to see the results. In Scenario A, YC is listed as &quot;YC&quot; and in Scenario B YC is listed as &quot;Post SAFE-0 (2.1mm)&quot;. As you can see YC ends up with 1.575% more equity in Scenario B.<p>The simplicity of this change is great but it&#x27;s important that founders understand the downside as well. Team YC, if I&#x27;m misunderstanding this, please let me know.

&gt; $500k safe at a $10 million post-money valuation cap means the founder has sold 5% of the company.<p>This is a common oversimplification, but it&#x27;s somewhat dangerous and I would be happier if people were more cautious in what they said here. It simply doesn&#x27;t mean what you said; it means the founder has sold <i>at least 5%</i> of the company. If you&#x27;re going to either raise 50m or shut the company and ditch your investors, then it&#x27;s a wash; but if find yourself in a low-money scrappy situation, which realistically is where most non-YC companies are, it&#x27;s very significant.<p>Convertibles and other structurally similar securities, in contrast to priced equity rounds, essentially have built-in down-round protection for investors. They have advantages, too, not least the speed in which deals can be done, but if you can do a priced round or a convertible round at similar speed and at similar cost, give serious consideration to taking the priced round.

I&#x27;d love to see YC or someone release a definitive recommendation on fair equity distribution among the employees of the company. Maybe there&#x27;d be a few variations on it to handle differing scenarios, and even if it&#x27;s really hard to have a one-size-fits-all I think it&#x27;d be similar to their SAFE note which tries to offer a pretty good deal to all involved.

What does &quot;safe&quot; mean in this context?

Overall, simplifying how to understand one&#x27;s cap table is great. It gets in the way of many founders understanding their business in really pernicious ways.<p>I do believe this will change the dynamic for YC founders dramatically 1 - 3 years out if not ready for a Series A (equity round) but need more capital (seed extension). I know many people who raised $500K - $3mm more on SAFEs. Because they were pre-money, the dilution for stacking SAFEs worked. Now, that will be much harder. The next round of financing will need to be an equity round to convert SAFEs to equity. I don&#x27;t know if this is good or bad, but it will push people very heavily towards an equity round if they need any more funding.

YC Safes are great way to raise money for early stage startups. It allow them to focus on business which is most important during early stages.<p>This is right step in simplifying it even further.

What is a &quot;safe&quot; exactly?

Great to see this happen again after the original &quot;The New Deal&quot; in 2014[0]. I&#x27;m a big believer in having enough capital to not have to worry about day-to-day costs so you can focus on actually running and growing your business, and this feels like a good sort-of &quot;cost of living&quot; increase.<p>[0] <a href="https:&#x2F;&#x2F;blog.ycombinator.com&#x2F;the-new-deal&#x2F;" rel="nofollow">https:&#x2F;&#x2F;blog.ycombinator.com&#x2F;the-new-deal&#x2F;</a>

Nice to see the offer getting better! I wonder about moral hazard in early stage funding. What if YC were to offer rent and salary for founders for 12 months? This would similarly change the dynamics around founders worrying about money while avoiding some of the temptation to over-spend and generally waste funding before building a product.

&gt; But startup costs have undeniably increased over the past few years. We thought a $30K increase was necessary to help companies stay focused on building their product without worrying about fundraising too soon.<p>I didn&#x27;t realize that this was true. I&#x27;m interested in hearing more about what has caused the increase in startup costs.

I fail to understand how the YC deal operates as a SAFE with 7% equity?<p>If the SAFE is a non-priced round, then the amount of equity the investor gets is decided when the conversion happens, so it is an unknown, which is why a cap exists.<p>Is YC taking 7% + the conversion?

That&#x27;s friends and family size money. Why get a VC at that scale?

How representative are the terms outlined in the example? 18.25% for 1.6M where the lead paid 1m for 6.25%? I&#x27;ve never raised money before so I don&#x27;t know.

What are the practical implications of &quot;post-money cap safe&quot;?<p>Could someone please explain this in laymans terms?

So $150,000 is enough runway for what: 0.6 man-years? Sounds legit.

Let me stay in Medellin, and you&#x27;re on.

Standard deal does not have a discount?