The latest from TechCrunch
- How'd Sequoia Let Yuri Milner Grab this Sweetheart Y Combinator Deal?
- Start Fund: Yuri Milner, SV Angel Offer EVERY New Y Combinator Startup $150k
| How'd Sequoia Let Yuri Milner Grab this Sweetheart Y Combinator Deal? | Top |
| Earlier tonight, Mike posted a bombshell that must have made super angels shudder. Not content with the grenade he threw into the late-stage investing world with aggressive investments in Facebook, Groupon and Zynga, tonight Yuri Milner announced a new partnership with Ron Conway that offers similar you’d-be-crazy-not-to-take-this-deal terms for every Y Combinator company. But you know who might be even more bummed by the news than the super angels? Sequoia Capital. The top Valley firm lead Y Combinator’s last funding , less than one year ago. At $8.5 million, this was a big step up for Y Combinator, dramatically allowing it to expand how many startups it could let into its incubator. And it should have been a big advantage for Sequoia too: A way to see a crop of new deals early in an increasingly competitive investing landscape, where most VCs are being shut out of early rounds by super angels. It seems Milner stole the opportunity right out from under Sequoia. We haven’t talked to Sequoia, and it’s possible the partners don’t agree that Milner and Conway’s deal is a no-brainer. So far, most Y Combinator exits have been modest, and Sequoia isn’t known for giving sweetheart terms to entrepreneurs. I can’t think of many venture firms who would give a blanket investing offer before even seeing companies. Almost more than any other firm on Sand Hill Road, being a Sequoia Capital company has historically stood for something. Then again, a few years ago, no Valley firms would invest in late stage Internet companies with the kinds of terms Milner was offering either– that is until Milner started doing it and locking in high paper valuation gains. The deal with Y Combinator isn’t classic venture capital any more than those late stage deals were. But a $6 million flier across 40 vetted companies sounds like a pretty safe way to hedge in a business where the rules have dramatically changed, barriers to entry have dramatically been lowered and money is an easily found commodity. Maybe Sequoia wouldn’t have done the same deal, but if the firm believed in Y Combinator enough to invest a year ago, it can’t be happy about this new arrangement. Every VC will tell you that good deal flow is the biggest competitive advantage an early stage investor has. Milner may have just bought his way into this game for the low price of $6 million. CrunchBase Information Sequoia Capital Yuri Milner Y Combinator Information provided by CrunchBase | |
| Start Fund: Yuri Milner, SV Angel Offer EVERY New Y Combinator Startup $150k | Top |
| Everything just changed in the angel investing world. Two years ago Yuri Milner , through his investment firm DST , disrupted the traditional Silicon Valley venture capital model when he began investing in the hottest startups – companies like Facebook, Zynga and Groupon – at very high valuations and extremely easy deal terms. He looks brilliant in hindsight, with all of his U.S. investments at significantly higher valuations since he invested. Most top VC firms have begun emulating DST’s deal structure. Now he’s partnering (as an individual, not as part of DST) with Ron Conway’s angel fund, SV Angel . And they’re making a bold investment move. This evening they’ve just made a blanket investment offer to every Y Combinator startup in the most recent batch. They’re going to invest in all of them. Every single one. And this is the biggest Y Combinator class to date – some 40 new startups. The new fund is called Start Fund. SV Angel’s David Lee is managing the fund. They haven’t even seen most of the startups yet. This is a bet on the quality of Y Combinator startups in general. All of the new Y Combinator entrepreneurs gathered at Y Combinator headquarters in Mountain View California on Friday evening to hear about the offer, They weren’t told why they were supposed to be there, just that something important was happening. The SV Angel team was there in person. Milner joined from Europe by video conference. The terms? $150,000 in convertible debt. With no cap and no discount. If you’re an investor you know exactly what that means and you just shuddered a little. Those aren’t terms that most angels can match. If you’re not an investor, here’s what it means. Yuri and SV Angel just offered to loan each company $150,000. That loan will convert if/when the company raises a proper angel or venture capital round at the same valuation that’s set in that round. Most convertible debt has a valuation ceiling and also gets a discount on conversion. This debt doesn’t. It’s the most entrepreneur friendly investment that I can think of, short of just handing people money as a gift. Each startup can choose to take the investment or not. If all 40 of the startups accept the loan then a total of $6 million will have been invested. And Milner/SV Angel say they intend to offer this for each Y Combinator startup in the future, too. That means Y Combinator entrepreneurs will not only get the $15k – $20k from Y Combinator during the first few months of their project, but they can look forward to another $150,000 a few months later. That’s usually enough to complete development and launch a product. This is a huge win for Y Combinator, and cofounder Paul Graham seemed very pleased when we spoke by telephone this morning. He also says it’s a smart investment strategy. If only a couple of the startups have a large liquidity event it’s likely to be a good investment for Milner and SV Angel, he noted. “This is a hits driven business,” he said. This also spreads incredible goodwill throughout the young entrepreneur community. This also puts Y Combinator further ahead of competing early stage incubators/investors. Entrepreneurs now know they’ll be offered easy terms on $150,000 in capital just for being part of Y Combinator. That’s an incredible marketing advantage. This is not such a big win for other angel investors, who are still struggling with business models and rising valuations. They tend to mob Y Combinator startups generally. And now they’ve got to deal with startups that don’t need cash as desperately, and who already have Milner and SV Angel as investors. That’s two more steps behind than they were before. SV Angel says that this is a separate process from their normal investing. They’ll invest additional sums in some of the Y Combinator startups just as they always have. They’ve already invested in two from this batch so far, says David Lee, and it’s extremely early in the process. CrunchBase Information Y Combinator Yuri Milner SV Angel Information provided by CrunchBase | |
CREATE MORE ALERTS:
Auctions - Find out when new auctions are posted
Horoscopes - Receive your daily horoscope
Music - Get the newest Album Releases, Playlists and more
News - Only the news you want, delivered!
Stocks - Stay connected to the market with price quotes and more
Weather - Get today's weather conditions
| You received this email because you subscribed to Yahoo! Alerts. Use this link to unsubscribe from this alert. To change your communications preferences for other Yahoo! business lines, please visit your Marketing Preferences. To learn more about Yahoo!'s use of personal information, including the use of web beacons in HTML-based email, please read our Privacy Policy. Yahoo! is located at 701 First Avenue, Sunnyvale, CA 94089. |
No comments:
Post a Comment