YCombinator (YC) will be scaling down late-stage investments as the startup accelerator and investor realigns its priorities to focus more on early-stage investments, a move that will result in 17 of its partners losing jobs.
“YC is rightly known for early stage investing. In recent years, we have also done some late-stage investing. But late stage investing turned out to be so different from an early stage that we found it to be a distraction from our core mission. So we’re going to decrease the amount of late-stage investing we do,” Gary Tan, President, CEO of YCombinator, said in a blogpost on March 14.
“Unfortunately, this means we will no longer need some of the roles on the late-stage investing team. Seventeen of our teammates are impacted today,” Tan added.
YC invests at later stages through its YCombinator Continuity Fund and typically invests in Series B and onwards in companies founded by YC founders, its managing director Anu Hariharan had said in a media interview in February last year. According to the report, the deal size ranges between $20 million and $100 million. Quick commerce platform Zepto, payments solutions company Razorpay, and stock broking platform Groww among others are some of the Continuity Fund’s India bets.
“There shouldn’t be any noticeable effect on the companies we’ve funded or on the way we interact with alumni,” Tan said in the blog.
According to a report by news website The Information, Hariharan and Ali Rowghani, who lead YC’s Continuity Fund, are planning to leave th firm to set up their own fund. The report also said that YC’s move to scale back late-stage investments was not connected to the recent collapse of the Silicon Valley Bank (SVB), which is known to be a default bank for YC-backed startups.
YC’s decision to scale back late-stage investments comes at a time when venture capital funding to late-stage companies has slowed down drastically in the recent past, thanks to uncertain macroeconomic factors including rising inflation and interest rates.
Late-stage deals dropped 80 percent in terms of volume and 88 percent in terms of value in February 2023. Series B onwards, startups raised only $459 million across 11 deals in February 2023 against $3.84 billion across 56 deals in the same period of 2022, Moneycontrol reported earlier this month.
YC has been an important startup investor in India has backed 218 startups to date, including unicorns like Razorpay, Groww, and social commerce platform Meesho. According to data by Tracxn Technologies, globally, YCombinator has backed more than 4,300 companies and counts 70 unicorns on its portfolio. In the summer cohort of 2022, YCombinator selected 19 Indian companies.
In May last year, YC had advised portfolio startups to take money from investors even on terms of their previous rounds, anticipating the funding winter to last longer.