I definitely agree with you here. If you aren't doing so hot and you have to raise at a low valuation with an extra $375k to "convert" at that low valuation, then you'll be hit with a ton of dilution.
Fortunately, I think this is balanced by the fact that it will give more runway to companies before they have to deal with that, so hopefully more companies can move towards the "middle of the pack" tier before being eaten. (And to be quite frank, if you have YC on your investor list, there are many investors that are happy to invest in you just because of that. You're likely already "middle of the pack" just by virtue of that.)
> Fortunately, I think this is balanced by the fact that it will give more runway to companies before they have to deal with that
Complete agree, which is why I'm leaning in favor of it being a good thing. If the funds weren't available immediately it would be a different story.
> You're likely already "middle of the pack" just by virtue of that
I also agree with this, but I think we're using different definitions. I meant "middle of the YC pack", which isn't the same as "middle of the start up pack".
Either way, I still think this change is going to (note that all percentages are guesstimated):
- Have minimal impact to the top 5% of YC companies that raise (relatively) huge follow-on rounds
- Be a slight consideration for the "middle" 50% of YC companies (will have to consider a couple extra points on their cap table)
- Effectively drive the bottom 25% out of business, or prevent growth, by preventing them from being able to raise
Fortunately, I think this is balanced by the fact that it will give more runway to companies before they have to deal with that, so hopefully more companies can move towards the "middle of the pack" tier before being eaten. (And to be quite frank, if you have YC on your investor list, there are many investors that are happy to invest in you just because of that. You're likely already "middle of the pack" just by virtue of that.)