I had the exact same thoughts. I also found it interesting that YC even invested in the company at that stage - it wasn't exactly a "seed" round, financially. I guess the existing investors figured (in hindsight: correctly) that YC would boost the company sufficiently to make it worth what I can only assume must have been a lower valuation. 4% at $20k would put the whole company at $500k, and ~$350k had already been invested! (GBP:USD was near 2:1 in 2007 [1])
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I had the exact same thoughts. I also found it interesting that YC even invested in the company at that stage - it wasn't exactly a "seed" round, financially. I guess the existing investors figured (in hindsight: correctly) that YC would boost the company sufficiently to make it worth what I can only assume must have been a lower valuation. 4% at $20k would put the whole company at $500k, and ~$350k had already been invested! (GBP:USD was near 2:1 in 2007 [1])
[1] http://finance.yahoo.com/q/bc?s=GBPUSD=X&t=5y&l=on&#...