|#515 MWAVC| — New YC Deal 💸💸
Hi,
Welcome to MWAVC, a newsletter about finance, investing, venture capital and all that jazz. My name is Ato (more about me here and here) and I try to write every single day. Most of it is stuff I find interesting that I’d like to share and hear your thoughts on. If you’d like to sign up, you can do so here. Or just read on.
—
Happy New Year 🌚🌚. Been quiet for a while, thinking about and strategising on how this newsletter needs to look like, including planning how much. Anyway, I’m back now. Thanks to everyone who’s still been sharing with their communities and signing up. Appreciate everyone.
First big news this year in the startup space is Y Combinator’s announcement that they’re changing the terms of their investments. Find the announcement here and @Moe’s feedback below on its implications on founders from Africa who get into YC.
—
YC announced this deal and I’ll like to talk a little about how it affects founders from Africa who get into YC. A lot of the communication on the TL are from YC competition so let me give a somewhat balanced view this is the deal. what is really changing is the extra $375k at an uncapped MFN SAFE. But first of all, i’ll explain what this means.
An MFN SAFE is a SAFE with no Valuation Cap. and instead says, the investor gets the same terms that you give any subsequent investor. So essentially YC gets the most favourable terms any investor in your company POST YC gets as a side note, before YC announced the MFN SAFE, we @VaziLegal had been using one for years (we modified it in-house when we realized founders were raising multiple SAFEs on different valuation Caps & causing complications. YC possibly noticed this issue too).
Local investors in Nigeria for instance are now open to writing bigger check sizes, we are actively seeing this. So yes it is possible to raise $500k locally and from angels. Now if you really want YC as an international founder, make sure to do this one thing.
Get all your angel checks and sign those docs BEFORE signing
the MFN Safe with YC. It makes all the difference. Also get a lawyer to review the MFN Safe to make sure the clause is not retroactive (that it appears to future terms).
Understand that you can’t do sweetheart deals AFTER signing the YC MFN Safe unless you run the risk of major dilution.
In my opinion, this is problematic for international founders who often have to give sweetheart deals to local investors because they need those networks locally as they scale.
YC has created this deal to seal in its position - which is great. But to make it more equitable for most founders especially in line with YC’s ethos as being “founder friendly”, the additional $375k MFN Safe should be optional.
Founders especially international founders should be given the choice. $500k is a lot of money for run way but many founders from Africa are able to raise much more than that post YC. Locking them in like this with no choice isn’t ideal. the end.
Sign up to my cousin Yasbo’s newsletter, ChopLife Express btw AND listen to her podcast, Savings or Current. She’s already been dropping some serious gems, including this one on time management and this one on how the economy works.
Also, Afrobility Podcast is exactly what you need to be listening to for the deep-dives into Africa’s most note-worthy companies.
Recommended Substacks: Afridigest by Emeka; African Entrepreneurship Series by Jeph.
📱📱Quote of the day
“New year, new money” – AB.
Remember: “Until the lion learns to write, every story will glorify the hunter.”
If you liked this, someone else you know would. Please subscribe and leave a comment!