It’s $500k now.

No, it’s still 125k for 7%, with an option for an additional 375k on an uncapped safe.

Source: https://www.ycombinator.com/deal/

True but from a practical standpoint they risk a full $500.000 upfront:

“Both investments happen at the same time; they are not contingent on any milestones.”

So from a founder perspective, that’s very friendly.

That is true, but the comment I was replying to was implying that you get 500k at 7%, which is wrong.

If you ever finance again you have to take the note, right?

That’s actually a good question, the language isn’t clear on whether the 325k note is mandatory or not.

What is a "safe"? I have never heard that term in this usage before.

Simple Agreement for Future Equity: https://www.ycombinator.com/documents

"You are technically correct, the best kind of correct."

But it’s not 500k for 7%, it’s 125k. This makes a massive difference in the implied valuation, it’s not just a technicality.

$125k * 400 companies/batch * 2 batches/year = ~$100 million/year deployed just during the batches. On top of that, they often participate in later funding rounds to maintain their 7% stake. Also, it takes a long time for those investments to generate cash. Many of the most valuable YC-funded companies are still private, and even for the public ones I doubt YC unloads its whole stake as soon as it can post-IPO.

Isn’t there also a large risk to YC in the event their private unicorns see substantial valuation revisions?

There's definitely risk in the sense that YC invests in relatively risky companies, and anything that negatively impacts the long-term value of those businesses ultimately impacts YC. From, like, an accounting perspective, I have no idea when YC marks gains or losses to market or whether that timing coincides with other market participants or the companies themselves.

Either way, in the context of the top-level commenter's question, it's worth emphasizing that a change in valuation isn't a cash flow. YC doesn't get an influx of cash to invest when the value of its portfolio companies goes up, and it doesn't have to give up cash that it could otherwise invest when those companies' valuations go down.

yea...

JIT economics are not just for toilet paper