While I think its great to participate pro-rata in later rounds, it feels a lot like YC is backing into becoming yet-another-VC like Sequoia or any other firm in the valley, granted with their 'incubator arm'.
I'd be interested in hearing how being more like a regular VC firm helps YC be better at what it is currently.
It will be interesting to watch how it evolves, did you consider creating a new entity?
Having been through the process three times now (on the side of the startup, not the firm) its been interesting to evaluate the different focus and people who populate the later stage companies from the early stage companies. Clearly the questions and metrics are different, but I've found the engagement to be different too. Much more bankerish and less advisorish if that rings any bells at all.
I think YC changed the early stage game in a fundamental way, much better than Angels it has the whole network effect of both Angels and every company that has been through the program. I guess I'd like to challenge you to be more innovative as a late stage investor than announcement seemed to suggest.
The main thing we're doing here is not making any discretionary bets on companies until they're far enough along to be valued off of an Excel model. At that stage, signaling matter much much less.
Is there a subtle conflict of interest with YC essentially benefiting from lower early round valuations, whereas before this was not the case, e.g. YC and startups were aligned on valuation
Makes sense. No reason why YC needs to recede over time and progressive funding rounds. Long tail early stage startups are the beachhead, this is the "big vision" -- vertically integrate the VC stack. Right now other VCs are benefiting from the value YC adds at the beginning of a company's life. YC's stake increases in value, but this lets YC keep betting on itself.
Can you give an example of an area that late-stage investors don't support? Do you mean something like fusion research, which will obviously have payoffs >10-20 years down the line?
(Why don't current VCs invest in those areas, if they're potentially profitable? Just a lack of a long-term view / fund wind-down timelines?)
That's why startups exist, right? Startups start as small, focused, nimble entities moving faster than old established things. But, eventually the small, focused, nimble startup becomes successful and itself grows into an oversized sprawling entity.
YC isn't immune to becoming too big for themselves. It just opens up room for a new "startup yc" where everybody can have a strong initial impact again (until the new one grows too big too, then the cycle starts again).
They had to do something, think about all the money they have left on the table by not making pro-rata investments in airbnb and dropbox. Not leading the rounds does seem to mitigate the signaling risk issue. imho it's a risky strategy if valuations get frothy. They may be making investments they might not be comfortable with to preserve their integrity.
Not just may, they definitely will be making investments they'd rather not because of signaling. They obviously think that's a worthwhile trade for the upside on the next Dropbox.
well, if you think you are good at investing in startups and helping startups succeed, then artificially limiting the stage at which you are willing to do it seems suboptimal in the long run
I'd be interested in hearing how being more like a regular VC firm helps YC be better at what it is currently.