Y Combinator halts late-stage investment fund, lays off employees

In 2015, Y Combinator launched the Continuity Fund to support its portfolio companies even after Demo Day which included a pro-rata investment in companies with a valuation below $300 million and leading or participating in later-stage growth financing rounds of these companies.

"There are some companies we think are very good and important to support with growth-stage capital that traditional investors are less excited about, and we are looking forward to being able to do that," Sam Altman, who was YC's president at the time stated, he resigned in 2019 and is currently the CEO of OpenAI.

Between 2015 and March 2023, the $700 million fund made over 620 investments, according to PitchBook. Yesterday, Garry Tan, YC's current president described the eight years old fund as a "distraction from [Y Combinator's] core mission...So we are going to decrease the amount of late-stage investing we do."

About 20% of the Silicon Valley-based accelerator will be affected by this latest strategy. "Unfortunately, this means we will no longer need some of the roles on the late-stage investing team. Seventeen of our teammates are impacted," he said in a statement seen by Benjamindada.com.

Per the Information, Anu Hariharan and Ali Rowghani, who ran YC's Continuity Fund, will leave the firm to start their own fund.

However, Tan said that there will be no "noticeable effect on the companies we have funded or on the way we interact with alumni".

Following the banking crisis due to "inadequate liquidity and insolvency" at the Silicon Valley Bank (SVB) last week, Tan said that over 30% of YC-backed companies were exposed to the bank. He led a group of over 5000 CEOs and founders—including Flutterwave's Olugbenga Agboola and Reliance Health's Femi Kuti—to sign a petition requesting that "small business depositors at Silicon Valley Bank should be made whole".

Tan described the incident as "an extinction-level event" that will set startups and innovation back by 10 years or more. The US financial authorities have since said that "depositors will have access to all of their money". Meanwhile, HSBC has acquired SVB UK in a rescue deal confirmed this morning in a statement from the UK Treasury.

YC did not disclose if this decision is related to the crisis at SVB.

In Africa, Y Combinator is on the cap table of over 100 companies, per BD Funding Tracker. Despite the global economic downturn, Y Combinator invested in 31 African companies in 2022—the highest number since its first investment in 2012.

However, in 2023, only three African companies were part of YC's winter batch, whose demo day is coming up in a few weeks. All the selected companies were Nigeria-based—the accelerator's preferred investment destination on the continent.

Recently, the accelerator listed eight African companies including Flutterwave, Paystack, Wave and Yassir among its most valuable companies, globally.

Editor's Note: This is a developing story, it will be updated with more details.