Thursday, February 3, 2011

Join Y Combinator Get (nearly) Free Money - The MBA Show Episode 19

Will MBA's follow all the money sloshing into silicon valley?  Yuri Milner offers $150k in convertible debt, no cap, no discount to every Y Combinator participant and Tom and Miro explain what the hell that means.   Bonus: How to turn one informational interview into 10.

(1) Headlines: Financial Times Ranking
LBS and Wharton are Tied for 1st place. They’re neck and neck.

Wait! LBS? What’s a foreigner doing on the list?

Financial Times is one of the only rankings to combine foreign and domestic schools

Why aren’t there international schools in other rankings?

When Business Week started doing rankings of Business schools in 1988, international schools weren’t on the list, simply because they didn’t make the list. The focus of management education was the US. There wasn’t global competition.

All current US business school rankings are now out of date. And we are calling for the inclusion of international schools on ranking lists.

Thanks to Poets & Quants for their great analysis of the FT Rankings

Financial Times Global MBA Rankings 2010 (no that's not a typo, it says 2010)
1. LBS
2. Wharton
3. HBS
4. Stanford
5. Insead
6. Columbia
6. IE Business School
8. MIT Sloan
9. Chicago Booth
9. Hong Kong UST

(2) Business Porn: Free money

Yuri Milner, the guy who invested hundreds of millions in FaceBook, Zynga, and Groupon, is partnering with SV Angel and is offering $150k to every company in Y Combinator. What the hell is a Y Combinator? (~40)

Y Combinator is a camp/incubator

The terms are very generous:
$150k in Convertible debt, no-cap, no-discount. Think of this as a loan someone is giving your start-up that you never need to pay back in money. You can pay it back in stock, and you only have to if you’re successful.

So what do you think tom?

[Skeptical] So Yuri is investing with out doing any due diligence or background research? The bubble is back baby! Where’s my check book? I’m investing too. Thank god. I can finally stop doing this due diligence that is sooooo 2008. … Where’s my bonus?

Well, it’s not really no background, what’s he’s doing is depending on Y Combinator to do his diligence for him.

Tom can’t keep a straight face. Other people are doing it? It must be right.

Okay, okay. it’s a little nutty. But this money out there and other money chasing it means that there’s going to be more opportunity for MBAs. When companies have money they can afford spend a little more on things like MBAs.

So the takeaway is: The startup money is back. Put startups back on your opportunities list.

Thank you Russian Oligarchs.

These are the terms your dad would give you.

3) Jargon: Convertible Debt

Two big to raise money: stock and loans.

Miro: Got that!
-In loans you get money and pay back that same money to owner plus a fee.
-If you sell stocks in your company take money and give them a worthless piece of paper in that entitles future profits in the company.
Where does converable debt

Convertible debt is a hybrid. It starts out feeling like a loan. Because someone gives you cash. At the end of the day the debt is converted into stock.

I understand why I would give people a loan: If they are stable they’ll pay me back with interest
I understand why I would buy stock: becuase if I think a company will grow alot, then a small amount of money will turn into lots of profit.
Why would I give that loan to a highly unstable company hoping for stock? It seems like a worse deal.

Well let’s role play it.. You be the entrepreneur and I’ll be investor.

E-preneur: Dude, man, hey, i just smoked some grass and cake up with this amazing idea: crowd-sourced, social, micro-payments, freemium. It can’t fail. …. Give me a loan.

Investor: It feel a little sktechy right now, can you give me any proof you’ll be around in one week.

E-preneur: [long pause] No

Investor: Okay, why don’t we try this. I think company worth 10. I give you another 10 to make 20. You give me 50% of the stock?

E-preneur: No way this thing will be worth billions!

Investor: That’s the best you can get. No one is going to give you more money for your company than that.

E-preneur: In case you haven’t noticed. This is silicon valley. There’s people around the corner to fund my weed-based brilliance.

Investor: Woah woah woah … woah. Don’t do anything drastic. How about this. I give you $10k now. You go build the thing. If it’s really worth $1,000,000 like you say and you can get someone to pay you for that, then you just give me $10k worth of that deal.

E-preneur: Done! [Handshake]

Both: And Scene! [Hippie gesture].

So the takeaway here is that Convertible Debt is generally considered great for the entrepreneur. If it’s an option, it’s really worth considering.

(5) Business School Tip of the Week:
- Get two referrals at the end of every conversation. Job networking, business starting. Any question.
Follow-up: can i use your name

You only need one cold introductionn.

Thanks for sitting down with me. Who else should I be talking to about this topic?

(7) What’s on your Radar?
Miro: Superbowl party
Tom: Tutoring Indian b-school students DURING the superbowl

Sign-up for our newsletter at to check out the following bonus content (the newsletter will be launched by 2/17/2011):
Bonus Topics:

(1) Convertible Debt: Exists where there is competition

(2) Convertible Debt: Seems like a buyers market to outsiders, but in reality, highly limited access to amazing deals.

(3) Convertible Debt: What the hell is Milner thinking?

(4) Convertible Debt: What other terms do you typically see in convertible debt deals?

(5) Converitble Debt: Why would any sane investor ever agree to give convertible debt?


  1. Lots of fun and education packed into this one! Loved it.


  2. Thanks Sumant. Glad to have you as a viewer :)

  3. I have watched your whole video and realized and showed the how to he get money. Really, it is a amazing presentation for everyone.

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