Interesting choice on the equity side. If I'm reading this correctly, and YC gets 1.5% when the company IPOs or has a $100M or more funding event then, functionally, it's as if YC is taking much more than 1.5% now, because they're not taking on the dilution they would otherwise be as the company went through successive rounds of financing.
Right. All equity sold until this triggers takes a haircut.
This is especially weird if the 1.5% is taken post-money: companies will want to trigger the conversion as soon as they can reach the $100M valuation (or IPO in Canada even sooner).
Given the number of companies exit at 100m vs exit 1-99m is huge. They're taking a bet at the earliest possible time and are only making money in the case of extreme success.
It's a 75:1 return on investment for those that make it to a 100M exit. They just need to make sure that they can pick better than 1 in 75 to break even. If they can get 1 in 25 they'll get a 300% ROI. If they can get an exit within 5-10 years, then that's very competitive against other investments.
It is also just 1.5%. I doubt companies will try to game it, since the payoff simply wouldn't be great enough to warrant altering your fundraising schedule (not to mention the reputation risk).
