No matter how you slice it, ~$14k for 6% is a terrible deal.
Sorry, I just took a look at your LinkedIn Profile (love drinking Karhu in a Sauna btw...)
It doesn't appear that you've created any startups, so I'm curious how you came to the opinion that YC is Hype and not worth the value to founders, if you yourself have not been a founder (and presumably) not gone through an accelerator?
> Clearly you can't review any movies because you're probably not a director?
You shouldn't review a movie, until you've watched it.
Also are we discussing movie reviews, or discussing whether YC is worth it?
What I can tell you is that we thought about in the same way as bringing on a co-founder or superstar employee. The value of YC isn't measured in their investment, but rather the value they bring.
Even in terms of the boost to our valuation alone from the validation, beyond everything else, YC more than paid for itself. If you look at our growth graph there's also a sharp inflection that starts shortly after we joined the program. That could be unrelated, but it's my strong belief that it was the value of the program that helped us accelerate.
We ended up raising millions (about $22M in the last year), and I don't know if it would have been possible without YC. All our investors and intros came through the network we built while in the program.
Hope that makes sense, of course this is all my opinion and you can evaluate and come to your own conclusion - I just wanted to share my experience and perspective!
As an aside, I think your numbers are a bit unrealistic. Even if you were to sell 4% for $1m, that's a $25m valuation. That's definitely higher than what most YC companies are worth prior to entering YC (and even right afterwards).
Did that affect the valuation at which YC invested?
If all YC did was write a check for $20K and walk away, I agree, it's too much. They do more than that, and I believe they increase your chances of meaningful success by way more than the 6.4% hurdle rate, so much so that if I were to do a startup, I'd apply to YC, even though the very last thing that I need from them is the $20K check.
My company, based in London, couldn't even secure meetings with VC funds before we got accepted to YC.
The week after we got accepted, every major VC firm in London called us.
3 years later, we've raised more than $10m in funding from Accel Partners & Balderton.
I think the point Paul was making - which you haven't addressed at all - is that you get far more than money from going through YC, and most of the other things you get (eg. the network and brand name) can't be replicated anywhere, for any amount of money.
I think there is a class of companies that really do not require outside funding. They could very feasibly bootstrap (grow from cash flow). Often this would be a superior financial result for the founders, and possibly lifestyle.
However that assumes the founders know what they're doing -- have a good business model, and know how to execute it. Sometimes they don't. They need help -- advisors, compatriots, whatever.
If you want certain "elite" advisors to help you, the only way they're going to be interested is with some equity upside. Otherwise it's just not meaningful for them, either financially or in terms of "impact".
So my suggestion is that founders should ask themselves if they really need funding, or if they really need advising, or if they actually need both. If they need both, something like YC is probably a bargain.
"In the general case, if n is the fraction of the company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n).
For example, suppose Y Combinator offers to fund you in return for 6% of your company. In this case, n is .06 and 1/(1 - n) is 1.064. So you should take the deal if you believe we can improve your average outcome by more than 6.4%. If we improve your outcome by 10%, you're net ahead, because the remaining .94 you hold is worth .94 x 1.1 = 1.034."
Sure, if we assume that other deals are impossible. Which is a false assumption.
Edit: You aren't understanding my post; I just said that something can be a "good deal" compared to doing nothing regardless of what other options are available; i.e. YC offers a positive value proposition.
I think you are missing my assumption in my OP "in the early stage of a startup". In fact at that stage of startup, even if you have a better deal than YC, you might still want to do YC (so you would take both two deals) because even after your take the better deal, YC can still gives your startup >6.4% growth.
Not every YC company is going to be the next DropBox, or AirBNB, but many do go on to grow to later stage startups.
Also, if you think the only value of YC is the $14k stipend you get, then myfriend, I think that YC and other accelerators are not for you.
Full Disclosure, I'm not a YC alum.
If you were to think rationally, the only question is whether YC would improve your outcomes by more than 6-7%. If that's true, it should be a no-brainer.
I'm questioning the tautology of what you wrote.
It is a no-brainer if you don't have other choices. If you do have choices, though, you might not be able to choose to get funded from all of them if the programs might take place at the same time. Also, while accelerators generally don't request much equity, there is a hard limit (unlikely to get hit at this stage) where you need to maintain some equity for the founders and employees.
It therefore isn't a question of should I do YC or (some other accelerator) .. but rather should they do an accelerator period. If that's a yes (you're at the right stage for it) then I'd argue it's pretty much a no-brainer if you get in.
That said, based on my understanding of the accelerator space, I'd probably prefer YC to other options. Some reasons you maybe would prefer something else (guessing) would be if it conflicts with an accelerator that is very domain specific, although I'm not sure if such a situation would happen that couldn't be worked around.