I'm not a finance guy, but I've always thought people put too much stake in trying to make realistic dollar values out of what is pretty much unquantifiable, i.e. startup equity. At the end of the day, if you're accepted to YC, you simply need to ponder "is 7% of my company worth the entire package?" and decide accordingly. Of course, these things have real consequences in future rounds, but as far as I know, that's just the agreed upon fiction, rather than some underlying financial truth.
To me, this kind of connects to the debate on employee equity that's been ongoing. Sure, intellectually we want to equate that with upfront salary and then compensate at the market rate. But in reality it can never be that way for a plethora of reasons -- tax concerns, option rules, difference in equity classes, etc.
Again, I don't really know what I'm talking about, but I don't think people should view equity as dollars. To me, equity is better thought of as an entirely separate finite resource of a company. One which has different value to different people, depending on ability to take on risk.
This might actually have been a reality for some time. See some of the exit valuations on AngelList - all seem to be $5m+. So $1.7m value at entry isn't out of whack.
It does seem though that the primary aim here is to provide more for living expenses, which means that the $1.7m implicit valuation might need to be taken with a grain of salt. Not that it matters much anyway.
investors understand YC and don't utilize the investment for valuation purposes that I've seen. most companies I know were going backwards by that math to bring YC on board as an investor (which we did so willingly).
Pretty insignificant. You can't spend that money. No one can.
; YC, financially, is enough money for you to live in the Bay Area to work on your company for a fixed time in which you're expected to grow and acquire more capital and a probability assessment on your potential future value.
Keywords, 'potential' and 'future'.
You can't up and sell your company for $1.7M, Sam Altman can't, no one can because no one would buy it because YC isn't saying "You are now in possession of, and operating something, that is worth $1.7M to the world." At such an early stage, all they're really saying is, "There is a probability that your company will be worth $1.7M, and the probability is high enough such that we're willing to put our money where our mouths are."
As they made clear, YC is not necessarily out just to make a profit. (The investment in non-profits, for instance, is clearly not profit driven.) Sure, they'll make a profit, but that won't be the only driver.
Besides, at this stage, no company actually has a value. Companies have a probability distribution of possible values... and it's a very diffuse distribution.
That actually makes sense. VC is a reputation-driven system. It shouldn't be that way, but it is. I'm not talking about YC but in general here: there are people way dumber than I am who can put in a good word for a startup and bump its perceived value (and, arguably, its expected return, because reputation is so big in this game) by 50% or more.
In fact, I always held a pretty negative view of YC's prior low valuations. It struck me as PG monetizing his (admittedly, well-earned, because his Lisp chops are really strong) reputation, and the low infusions, to me, indicated that the target audience was young people without families.
I'm afraid to say this, for fear that people are thinking I'm losing my edge by saying something nice about an investor, but I actually like Sam Altman so far. I think he's making a lot of really good decisions.
