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US seed accelerator Y Combinator (YC) has increased its standard deal size of the investments it makes, from $120 000 to $150 000, while keeping its equity stake in such deals unchanged at seven percent.
The announcement was made in a blog post last Friday (28 September) by Y Combinator partner and CEO Michael Seibel and Y Combinator general counsel Jason Kwon.
In the post, the accelerator explained that new deals — which start with the Winter 2019 batch, applications for which close today at 8pm Pacific Time in the US (tomorrow 5am Central African Time) — will be made on a post-money cap safe.
Startups selected for Y Combinator’s Winter 2019 batch will receive $150 000 for seven percent equity, the deals will be made on a post-money cap safe
A safe — Simple Agreement for Future Equity — is a contract between a startup and a venture capital (VC) investor that enables the VC to make a cash investment in the company while giving the VC the right to receive equity at a later date, in connection with a specific event (Check out this Y Combinator Safe Primer here).
Y Combinator invented the safe in 2013 to be a quick and simple way for startups to raise their first funding. “We believe the post-money safe is simpler, making ownership and dilution easier to understand,” the accelerator said in the blog post.
Prior to the new deal, the accelerator invested $120 000 for seven percent equity. The accelerator explained in the announcement that these deals involved buying common stock coupled with a safe.
Y Combinator acknowledged that startup costs have “undeniably increased over the past few years”. “We thought a $30k increase was necessary to help companies stay focused on building their product without worrying about fundraising too soon,” the accelerator stated.
Post-money safes, the accelerator said, create more certainty over ownership and dilution. “The trade-off for this is that each incremental dollar raised on post-money safes dilutes just the current stockholders, which is often the founders and early employees,” it explained.
Y Combinator also announced that it had released new versions of the standard safe which it said are based on its “simpler” post -money approach.
Startups selected for Y Combinator’s Winter 2019 batch will receive $150 000 investment for seven percent equity in deals that will be made on a post-money safe.
In the last three years a number of African startups have been selected to join Y Combinator’s accelerator. They have in turn received investment from the seed accelerator, these include Nigerian startups PayStack, Kobo360, CowryRise, Tizeti, Flutterwave, Helium Health as well as Ghana’s OMG Digital and Morocco’s WaystoCap.
Featured image: Y Combinator via Facebook