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Comment by sethbannon | Hacker News Reader

Interesting choice on the equity side. If I'm reading this correctly, and YC gets 1.5% when the company IPOs or has a $100M or more funding event then, functionally, it's as if YC is taking much more than 1.5% now, because they're not taking on the dilution they would otherwise be as the company went through successive rounds of financing.

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Right. All equity sold until this triggers takes a haircut.

This is especially weird if the 1.5% is taken post-money: companies will want to trigger the conversion as soon as they can reach the $100M valuation (or IPO in Canada even sooner).

Yes - I was confused about this as well.

I would guess that YC's traditioanl initial 7% equity stake would typically be diluted to around 3-5% by the time a company sells or IPOs.

So 1.5% of sale/IPO is clearly less than that, but it still feels a bit weird.

Given the number of companies exit at 100m vs exit 1-99m is huge. They're taking a bet at the earliest possible time and are only making money in the case of extreme success.

It's a 75:1 return on investment for those that make it to a 100M exit. They just need to make sure that they can pick better than 1 in 75 to break even. If they can get 1 in 25 they'll get a 300% ROI. If they can get an exit within 5-10 years, then that's very competitive against other investments.

Not if those successive rounds are contingent on them diluting.

It is also just 1.5%. I doubt companies will try to game it, since the payoff simply wouldn't be great enough to warrant altering your fundraising schedule (not to mention the reputation risk).

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