Earlier this year SV Angel and Yuri Milner partnered on a new venture fund, called Start Fund, to invest $150,000 in every new Y Combinator startup. All but one company from that class took the money. And LikeALittle, the holdout, had already taken funding from both Milner and SV Angel.
At TechCrunch Disrupt in New York a couple of months ago SV Angel said they were making the same offer to the most recent batch of Y Combinator startups.
The terms are the same – $150,000 in convertible debt with no cap and no discount on conversion. If you don’t speak venture capitalist, here’s what that means – other than gifting someone money, this is the most favorable a startup can raise money. It’s very easy to say yes to this.
And “yes” is once again what the startups are saying. All but three of the 63 new Y Combinator startups have accepted, and SV Angel’s David Lee says he expects one or two more to accept soon. That means the total size of the investments will be $9 million or more.
Unlike before, SV Angel and Yuri Milner are investing separately. Previously SV Angel wand Milner were each limited partners in Start Fund. Now, Start Fund is completely controlled by Milner, and SV Angel is investing separately. $100,000 of each investment comes from Start Fund, $50,000 from SV Angel.
Earlier today MG Siegler reported on a similar investment offer to be made to all new AngelPad companies (AngelPad is a Y Combinator competitor). What AngelPad is doing isn’t quite the same, however. They’re valuing startups for the investment instead of offering convertible debt.
As an investor, the AngelPad deal is better. As a startup, the Y Combinator deal is better. But offering easy terms to startups may be best for the investors, too. If startups think the terms are too onerous then the best ones won’t take the deal. The negative selection issue means only the losers will take the money. AngelPad should be wary of that.
Disclosure: I’m an investor in SV Angel’s current fund, which means I’m now an indirect investor in all of these new Y Combinator startups as well. I was not an investor in the previous SV Angel fund that invested in the prior batch of Y Combinator startups.