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Thanks - I clarified it so that it makes clear that this is talking about equity and not cash.

The idea is that YC must make a large return on their $120k and so your $1.6m will end up being worth a lot more than that too - eventually.

This is rough because it depends what financing device they use.

Yeah I saw that as a pretty glaring mistake too. I'm guessing he thinks that because the founding team is valued at $1.7M, they actually get $1.6M to spend but I can't believe that to be true at all. From what I know, YC companies receive $120K to spend.

I thought YC used convertible notes?

YC uses this, as of recently:

http://ycombinator.com/safe/

Previously they did use convertible notes, I believe.