Re:Advice needed: is YC worth it at their valuation?
by netcan on Friday November 20, 2009 @11:31PM
(#954170)
One more thing.
Thinking in terms of valuation here is slightly problematic because it is only based on the money being invested, not the other things. Since you are already profitable I assume that if it was just cash, you wouldn't be considering it at all. If YC offered you $0 for 3.5% of your company, you'd probably prefer that deal. This values your company at $0.
A broker takes 5%-10% of a deal. They can charge that much because clients with the broker they can get more then 5%-10% more on the sale. In residential real estate, it's the same sort of idea with smaller percentage.
There are two numbers that mark the top & bottom limit for any price. One is the maximum buyer would pay if he had no alternatives. In a business environment this equals the total amount of return he gets for it. The second number is the minimum a seller would accept, this is usually cost of production.
In a competitive market, the price is usually close to the second number. We are used to prices being like that in our normal lives as consumers.
In a broker situation, the price has less to do with the second number & more to do with the first, the value to the customer.
You need to figure out if what YC has to offer is worth 7% of your company. If we assume that your goal is an exit, this could be making an exit ultimately happen more quickly, at a higher value or more likely. It doesn't actually need to be that much higher, faster or more likely to be worth 10% of your company. YC might be getting an awesome bargain, but that doesn't mean you loose.