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Comment by pg | Hacker News Reader

Maybe it's time I finally explained the math of taking investment. You should give up n% of your company iff (not a typo) what you'll get in return for it will increase the value of the remaining (100 - n)% enough to put you net ahead.

So in the case of YC, you should trade us 6% of your co if you think that the money plus whatever else we add will increase your average outcome by 7%. (.94 x 1.07 > 1) Do we increase the average outcome of the startups we fund by 7%? I think few would say we didn't. I'd guess we at least double the outcome for the average startup.

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I hope this helps:

"Financially, a startup is like a pass/fail course. The way to get rich from a startup is to maximize the company's chances of succeeding, not to maximize the amount of stock you retain. So if you can trade stock for something that improves your odds, it's probably a smart move." - How to Start a Startup

That math assumes that the only two options on the table are either accept funding from YC or don't accept funding at all. The benefit you get from multiple investors is not orthogonal because you get diminishing returns from extra funding and because of the potential (for better or for worse) for interplay between investors. So, if you have a different investor offering you different terms (or even the potential for such), as is more likely to be the case for a more established startup, then things get more complicated than that simple cost-benefit analysis.

I wish TechCrunch commenters would read this.

The problem is that most people buy into "the pie fallacy", as PG called it. An amazing number of people would honestly rather have 50% of $1 million than 10% of $100 million.

When you sit down with VCs to set terms for a few million in A-round funding, it will be a question of whether they take 25% or 50% of your company.

Between connections, advice, and time, the extra strength you'll have at the bargaining table at this stage (the increase in the ratio of what your company is worth/how much money you need) should allow you to more than make up for the 6% equity...assuming your idea is good!

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