S&I Gazette #47: How does Y Combinator investment work?

Let’s say you open a lemonade stand and you need money to buy lemons, sugar, and cups.?

A nice investor (let’s call them YC) offers to give you $500 to help.?

But they don’t want you to pay them back, instead, they want a piece of your lemonade business.

That’s what equity investment is. YC gives you money, and in return, they own a small part of your company.

How much does YC take?

YC invests $500,000 into startups. Here’s how they split it:

$125,000 for 7% equity – This means if your lemonade stand was a pizza, YC would get a tiny slice (7%).

$375,000 on an uncapped SAFE with an MFN – This is like saying, “We’ll figure out how much our slice is worth later, based on your next investor’s price.”

What’s an "uncapped SAFE with an MFN"?

Think of a SAFE as an IOU that turns into equity later.

Uncapped = YC doesn’t set a price now; they wait for your next big investor to decide.

MFN (most favored nation) = If another investor gets a better deal, YC can match it.

What’s in it for you?

You get money without taking on debt.

YC helps you grow and meet more investors.

If your lemonade stand becomes huge, YC’s slice might be small, but they bet on your future success.

YC’s terms are founder-friendly but make sure you understand them before signing!

Would you take $500,000 for 7% of your business??

P.S. We just launched a free pitch deck guide. It’s meant for entrepreneurs looking for help with building a pitch deck. You can get it on my profile!