[JohnHarthorne]

But if we offer a free alternative with equivalent benefits, then 6% is way overpriced. And that's what we do.

Paul omits a discussion of opportunity cost. Sure, buying a coke for 50 cents is great ... but getting it for free is much better.

Remember that at 6.4% improvement, you end up even with ycombinator. At 6.4% improvement with MassChallenge, you end up 6.4% ahead.

[staunch]

Do yourself a favor: wait until you have a track record and reputation that's at least 5% the quality of YC's before you start bragging about how much better you are.

[JohnHarthorne]

This isn't about me. I don't do this. MassChallenge is a community supported by literally thousands of volunteers foregoing value capture to support value creation.

After year 1, we asked our finalists this survey question:

How likely are you on a scale of 0-10 to recommend MassChallenge to another startup?

79% answered either 9 or 10. (Just about 60% answered 10). One person answered 6 -- the lowest score.

For perspective, that means that our finalists are slightly more enthusiastic about MassChallenge than Apple customers are about Apple Computer ... see here for more details and other metrics:

http://www.masschallenge.org/2010_metrics

Again, please visit some time. I'm sure you will understand why we are so excited about MassChallenge if you do.

[mctavjb9]

I'd be curious to know what the results of this survey question were from companies that made it to the first round but were not selected for the incubation phase. I had the entry fee waived through endorsements last year, but had an experience during the pitch round similar to others who have commented here-- judges who had nothing resembling a clue. I've heard this story over and over and have no intention of participating this year.

[WarPaul]

Again, I'll reference my aforementioned post above:

http://news.ycombinator.com/item?id=2388691

I guarantee that the judging has been drastically improved from last year. It's still too bad that you feel the way you do. I wish you continued success in your venture.

[bmelton]

But if we offer a free alternative with equivalent benefits

That's the thing - you don't. Using the Coke analogy, YCombinator gives me a Coke, but asks that I share 6% of it back to them.

You want to charge me $200 for the Coke, which I can supposedly make back with endorsements, or recommendations, or 'engagement' somehow, but you're still charging $200. That it CAN be free, doesn't mean that it is.

Spelled out more obviously, ignoring travel costs and all incidentals, if I get in to MassChallenge and it doesn't get any traction, I'm out $200.

If I make it in to YCombinator and it doesn't get any traction, I'm out nothing. Also, YCombinator doesn't make any money off of me. They only get 6% IF I SUCCEED, which means that they really want to leverage their connections so that I do.

You might consider not taking equity as somehow more generous, but it's just a different strategy. I would rather you took equity on the backend than $200 on the frontend, because that assures me that you'll want to help me succeed.

[WarPaul]

What does the 6% on the back end do to your valuation in later rounds? Assuming you do expect to take on more growth capital upon successful completion of YC. Not very much Coke left to enjoy after that...

[bmelton]

I think you're misunderstanding valuation -- valuation represents the potential revenue of a company. Who owns how much of it generally doesn't affect a company's valuation though, in the case of YC (or others known to be successful), it almost certainly chips the valuation up, due to the value add.

Who holds issuances of common stock isn't generally something that will negatively affect a valuation.

[WarPaul]

Valuation is also based on the prior investment to equity ratio. How much money is invested in X startup for 6% equity? That would certainly effect the pre on any term sheet, no?

[bmelton]

That depends on so many factors really, but it's common to see money go into an option pool (that dilutes everybody's stock) as well as a fixed percentage go into the pool (which dilutes YC shares as well) -- meaning that if Sequoia comes in afterward and takes 20%, it dilutes the ownership shares that I have, as well as the ownership stake YC has.

The important bit is that they're in it just like the founders are -- if the founders get diluted, YC gets diluted. If the founders go broke, YC goes broke. If the founders make money on an exit, or a liquidity event, then so does YC.

You can argue all day long about 6% being 'greedy', or 'predatory' or whatever you like, but from what I understand, the value they add far exceeds the amount they take, and means that they're invested in your success.

[WarPaul]

I don't see YC's 6% as being greedy or predatory at all. It's just different economic theory.

What PG did with YC is LEGENDARY. He was the first and will go down in history as one of the most pivotal figures in the entrepreneurial economy. The best explanation I've heard on YC's value add (or TechStars, etc.), is that it's like bringing on another co-founder, which makes perfect sense - as does your explanation above.

Looking forward to seeing future entrepreneurs continue to benefit from great program's like YC, TechStars, MC, etc.

[scbailey]

No one has mentioned that you can be a part of YC and still apply to MassChallenge. Why not do both and get even farther ahead? MC doesn't require you to be in Boston, so it's in your interest to place multiple bets.