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Advantage: Ability to Sell EarlyInvestment in startups is a high risk business. Seed funders, angels, and venture capitalists have a strategy to minimize this risk by investing in a range of different companies. The vast majority will fail, but a few might return 20 or 30 times the initial investment amount, which can more than make up for the losses. One can see that the odds of a successful exit are stacked against the entrepreneur. Raising $15,000 to $20,000 from Y Combinator for a 6% - 8% equity stake implies a post-money valuation of around $270,000. This valuation allows for a wide range of exit opportunities for the founders and they still have a large majority of their ownership intact. Even given a 10x return, any exit greater than $2.7 million is appealing to all involved. Y Combinator states on its website, "if you want to sell early, that's ok. We'd make more if you went for an IPO, but we're not going to force anyone to do anything they don't want to." This is advantageous for the entrepreneur because a multi million dollar angel or venture capital round can severely limit the exit opportunities.
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