There seems to be a trend among early stage investment companies towards offering terms similar to what Y Combinator does - let’s ignore the fact that these terms tend to vary, and just call it 20K for 10% - a 200K valuation.

There is a problem with this line of reasoning, and this problem is: they are not Y Combinator.

The reality is that Y Combinator is not a cash-for-stock deal. There are many other intangibles that come with the deal:

1) The program - 3 months of intense mentoring

2) The connections - not the least of which are the ones brought in for Demo Day

3) The automatic 100K “bridge loan” convertible note given to each alum

4) The halo effect - being a YC alum opens doors

5) The alumni network - the ability to reach out to any one of the other smart, capable, successful alumni

To illustrate the last point (and give me a chance to brag): I recently had a chance to chat with Paul Bucheit about this topis, and he stressed how much the YC alumni stick together - use each other’s services, refer business to one another, advise and collaborate, and even help each other with recruiting - which is normally a very competitive thing. What is the value of such a tightly knit network of superstars backing you?

Bottom line is, 20K + the YC intangibles for 10% is not the same thing as 20K for 10%. You can’t ignore the most important part of the deal. 

So, what should a straight cash-for-stock deal look like? In my opinion, a simple, no strings convertible note, perhaps with a bit of a discount to reward the investor for their early bet on the company. This simplifies things for the company, and lets them delay having to worry about valuations until they are ready to do the due diligence required to raise serious cash.