Y Combinator Considerations
The skeptic in me has yet to come to a firm decision about why it makes sense to try join Ycombinator.
Ycombinator provides ($150k) in return for 7% equity. If a startup is hoping to give up 10-20% stake in the company after their seed round, the majority of the funding is going to have to be at a high valuation after already giving up 7%.
Say I'm trying to raise a $1.5M seed round, the math requires a post-valuation of ~$10M and give up ~20% OR a post-valuation of ~$16M and give up ~15%. IMHO, those are sky high valuations for an early startup.
While having a high valuation means your company is valuable (and the YC brand helps with that), the company is already offset by the YC $150k. This could cause trouble for your next round of funding for reasons pertaining to existing and/or new investors expectations if the trajectory doesn't stay rocketship.
Let's just presume the downside of joining YC is the high valuation after a seed round. So what are the benefits?
1. Easy access to investors - I think this matters tremendously to folks who are brand new to startups. But useful if you are already connected through your existing work or academic affiliations? At the end of the day, all investors are looking for great companies and they are trying to find you too.
2. YC Mentoring - YC startups have probably endured the majority of pitfalls, challenges, and issues that can occur. Their experience is super useful and valuable, but 7% useful? I suppose if you argue startups tend to end in a 0 or 1. I just feel such reasoning can lead any company astray..
3. Anything else I'm missing?