Paul omits a discussion of opportunity cost. Sure, buying a coke for 50 cents is great ... but getting it for free is much better.
Remember that at 6.4% improvement, you end up even with ycombinator. At 6.4% improvement with MassChallenge, you end up 6.4% ahead.
After year 1, we asked our finalists this survey question:
How likely are you on a scale of 0-10 to recommend MassChallenge to another startup?
79% answered either 9 or 10. (Just about 60% answered 10). One person answered 6 -- the lowest score.
For perspective, that means that our finalists are slightly more enthusiastic about MassChallenge than Apple customers are about Apple Computer ... see here for more details and other metrics:
http://www.masschallenge.org/2010_metrics
Again, please visit some time. I'm sure you will understand why we are so excited about MassChallenge if you do.
http://news.ycombinator.com/item?id=2388691
I guarantee that the judging has been drastically improved from last year. It's still too bad that you feel the way you do. I wish you continued success in your venture.
That's the thing - you don't. Using the Coke analogy, YCombinator gives me a Coke, but asks that I share 6% of it back to them.
You want to charge me $200 for the Coke, which I can supposedly make back with endorsements, or recommendations, or 'engagement' somehow, but you're still charging $200. That it CAN be free, doesn't mean that it is.
Spelled out more obviously, ignoring travel costs and all incidentals, if I get in to MassChallenge and it doesn't get any traction, I'm out $200.
If I make it in to YCombinator and it doesn't get any traction, I'm out nothing. Also, YCombinator doesn't make any money off of me. They only get 6% IF I SUCCEED, which means that they really want to leverage their connections so that I do.
You might consider not taking equity as somehow more generous, but it's just a different strategy. I would rather you took equity on the backend than $200 on the frontend, because that assures me that you'll want to help me succeed.
Who holds issuances of common stock isn't generally something that will negatively affect a valuation.
The important bit is that they're in it just like the founders are -- if the founders get diluted, YC gets diluted. If the founders go broke, YC goes broke. If the founders make money on an exit, or a liquidity event, then so does YC.
You can argue all day long about 6% being 'greedy', or 'predatory' or whatever you like, but from what I understand, the value they add far exceeds the amount they take, and means that they're invested in your success.
What PG did with YC is LEGENDARY. He was the first and will go down in history as one of the most pivotal figures in the entrepreneurial economy. The best explanation I've heard on YC's value add (or TechStars, etc.), is that it's like bringing on another co-founder, which makes perfect sense - as does your explanation above.
Looking forward to seeing future entrepreneurs continue to benefit from great program's like YC, TechStars, MC, etc.