90% of Y Combinator Startups Have Already Accepted The $150k Start Fund Offer

Can anyone explain the terms "no cap" and "no discount" in "$150,000 in convertible debt. With no cap and no discount."?<p>I understand what a debt is, so how is "no cap and no discount debt" different from a regular debt?<p>Also why would you as a startup would want to take a debt?<p>Another question - what's the point of Yuri giving the debt, it seems he's not even asking for equity in return?

The $150k offer reminds me of a rumor about the way in which Subway selected franchise locations back in the 1980's.<p>Subway wouldn't do extensive market research or study traffic counts. Instead, they would see where there was a McDonalds franchise and then open a franchise in the same catchment area. At least that was the rumor (not to compare YC to McDonalds or Hamburger University).

Does anyone else see that this offer will drastically change the tone and success rate of YC startups?<p>Constraints (in the form of funding and time) were a large part of YC. Entrants got a low (but livable) amount of money and 3 months to come up with something great. That something would either sink or swim on demo day.(for more on how constraints help creativity: <a href="http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1530" rel="nofollow">http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1530</a>) Within those constraints, past YC classes did pretty well, and came up with amazing companies. Those that didn't failed quickly, and could go on to bigger and better things. But YC is now throwing those constraints away.<p>Because the $150k offer is guaranteed runway, it fundamentally changes the behavioral economics behind startups participating in YC. Products no longer have to be demoable by demo day, and startups won't have to think about profitability/funding, in the short term. This means that we should expect YC startups to dream -and fail- bigger in the future.

I was curious about the potential for returns so I considered a scenario: the successful YC companies take series A investment at an average $10 mm pre-money valuation (which is reasonable for a YC company starting off with $150k), and no series B is ever needed before exit. This gives the original investors a 1.5% stake at the time of exit.<p>In order to return the $6 mm there needs to be $400 mm of exits.<p>But I don't think it's reasonable to assume that the successful companies wouldn't take additional funding past series A. More likely, any successful company would also take series B funding. Then we'd need to see ~$500 mm - $800 mm to break even.<p>My guess is that these investments aren't really intended to be profitable. I would guess that they're instead a gateway into future deals that will be profitable.

Going off on a tangent, one of the comments on the TC article seemed really odd - even by TC's standards for terrible comments.<p><pre><code> Am I the only one who finds Y combinator predatory? It preys on 20 year old kids who think they're building the next google. Am I crazy? </code></pre> On the actual subject of the article - if any of the four startups that haven't (yet) signed the paperwork don't end up accepting the offer, I hope they share their reasonings (either now or sometime in the future).<p>And on a pedantic note: 39/43 rounds to 91% rather than 90%.

Na i'd take that money any day. First it's good to have Yuri Milner and Ron Conway on your team.<p>43 startups @ 150k is only 6.45million, which is typical funding for one venture capital company. Except it's diversified into 43 of them, so that if one of them advances to a series C, they can probably get it all back.<p>I guess the only problem would be if you try to get a Series A from DST, then you might possibly not get an ultra high valuation, but then again, DST seems to be throwing money at startups after their lustful experiences with Zynga/Groupon/Facebook<p>This just toughens up the next round of YC applications, which is a bummer. But i'm really interested to see how this will work out.

150K x 43 = 6,450,000. I'm guessing that there is a fair chance that at least one of the 43 companies alone will allow them to break even on their investment. They should end up doing extremely well on the deal.

They'd be crazy not to, it basically boosts whatever runway they had by a considerably amount. What's more interesting than those that took it is those who didn't and if in the end there will be any that won't take it at all and what their reasons are. Likely the number will be '0'.

Adios Ramen profitability !

I have a question. What if the startup getting convertible debt never raises a round of funding and perhaps gets acquired or does an IPO?

$150k is approaching being ramen-wealthy, if you invest it and have cheap rent (not Silicon Valley).

Amateurs. Why not wait a week or two, explore options, see who else is going to respond to this?

Don't they know that money is bad for them?