Merchant Innovation

Y Combinator Moves On Late-Stage Investment

Over the last 10 years, Y Combinator (YC) has become one of the most well-known brand names in incubating and launching top-tier tech talent — Airbnb and Dropbox are both alumni.

But it seems that that brand is set to evolve, as YC has just raised a $700 million venture capital fund and is set to be used to up its investments in some of its top-flying companies, as well as give cash-intensive firms the boost they may not get elsewhere.

The fund has some big name backing — Stanford University and Willett Advisors LLC (the firm managing Michael Bloomberg’s investments) are both signed on, according to reports.

For firms associated with YC, however, the news of this announcement could lead to mixed reactions. As the creators of a VC fund, YC now has a duty to its investors to steer funding towards companies with clear promise, an aim that doesn’t coexist easily with the incubator’s “longstanding tradition of giving startup founders equal weight,” according to The Wall Street Journal.

“It may change founders’ willingness to tell us really bad things because they’re treating us as a potential investor,” said Sam Altman, YC’s president, in his first interview about the fund.

Altman further noted that the new fund will contribute to each funding round raised by a YC firm valued up to $300 million. They can make further discretionary investment, if warranted.

Today, YC is a backer of at least six unicorns that have been through its program. And while that is promising, of the 900 companies that have been through YC, zero have had an IPO so far and almost half have failed in their first five years.

However, given the firm’s track record with some winners, the move is generating excitement.

“They are picking the six, eight, 10 or 12 companies that they think could really drive the returns,” said Edwin Poston, general partner of TrueBridge Capital Partners, an investor in the YC fund. “We think it’s going to be very good returns.”

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