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Comment by markessien | Hacker News Reader

Any company that is really hot will have people offering them money at a cheaper valuation than Yuris offer. Cos the other investors already know the line they have to undercut.

So the ones who take up the offer are the ones that don't appear hot enough for anyone to undercut that offer.

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There is no way to offer better terms than a convertible note with no cap and no discount.

At least no current way. I suppose you could have a valuation floor instead of a cap, or a negative discount. I've never heard of that happening. It would be something if things ever came to that.

The convertible note insists on a pro rata right on future rounds. Someone who removes that would be offering a slightly better deal.

Pro rata rights cause more dilution in later rounds, but they are pretty standard and at seed rounds most people don't think about removing that term.

They don't intrinsically cause more dilution in later rounds. The buyer has to pay whatever the price is in the later round. So they'd only cause more dilution if the lead in the later round insisted on getting a specific percent of the company. VCs often insist on that sort of thing in A rounds, but less often in later rounds.

Agreed situation is the worst on the first round that involves a VC. It can also arise in later rounds if you take strategics or new VCs.

Given that most YC companies will still go on to raise a seed angel round after this 150k, they will be hit by extra pro-rata dilution. If we assume a $5m seed round post money, then the 150k translates to 3%. If you raise a VC round with a VC that insists on a 20% stake then the overall affect is 0.6% extra dilution. Every point hurts at that stage, but not that bad :).

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