The Y Combinator Deal

By Kirsty Nathoo · September, 2018

We have a standard deal at YC: we’ll invest $150k using a “post-money safe” that converts to 7% of the company. In addition, we are granted the right to invest pro-rata in future financings (including the round in which our safe converts) to maintain our ownership percentage ("Pro-rata right").

We think that $150k is the right amount for founders to be able to run their company and to live in the Bay Area for around 5-6 months, and sometimes even longer.

The initial YC investment is structured as a post-money Simple Agreement for Future Equity (the “YC Safe”) plus an Agreement that sets out some YC-specific guidelines and rights (together the “YC Investment Documents”). The YC Safe will convert into preferred shares when a company raises money by selling preferred shares in a priced equity round.

In a priced round, assuming all safes are on a post-money basis, 3 things usually happen simultaneously but the calculations are ordered specifically:

1) All safes convert into preferred shares

2) An option pool is increased to a pre-agreed percentage of the company

3) New money investors purchase preferred shares at the price per share of the preferred stock sold in the round.

Immediately after step #1, YC should own 7% of the company. However, the new money investors and the option pool increase should dilute the YC Safe and all other converting safes, assuming those safes are standard post-money safes. If we exercise our pro-rata right, step #3 then includes our additional new money investment to maintain our ownership percentage.

We invest in US corporations. We have founders who apply to YC from all around the world and many have already incorporated in their home countries. We introduce founders to lawyers who can work out the best process for creating a US company (or US parent company) in which we can invest. Often, founders will keep their original entity as a subsidiary of the US parent company and that entity will continue to operate.

Non-profits will receive a donation of $100k. We do not receive anything in return for our donation.

In addition to the investment, YC companies receive access to wide range of resources. Here is a full list of the benefits and resources available to YC founders, including the Series A program, Work at a Startup and the Growth Program.

Finally, it’s sometimes hard to compare offers from different accelerators. Importantly, we don’t charge any fees to the companies to be part of YC. We understand the complex reasons that cause some accelerators to charge fees to the companies that participate in their programs, and while we don’t think it’s bad behavior, obviously founders should deduct those fees from the investment when they’re thinking about those offers. We also try hard to avoid any “gotcha” terms like enhanced returns in downside exit scenarios and similar such provisions.