Startup Accelerator, Y Combinator, has announced plans to reduce its late-stage investments in startups. This development, the company said, will mean that 17 of its staff working in this area will be let go.
Y Combinator’s President, Garry Tan, who disclosed this in a memo shared with the company’s workers, said late-stage investing is a ‘distraction’ for the company, hence, it will channel all its focus on early-stage investing. This means that most startups backed by the company will need to look elsewhere for their next round of funding.
While this is coming at a time most startups backed by Y Combinator are battling with the impacts of Silicon Valley Bank’s collapse, the company did not state if its decision has any connection with the bank’s collapse. However, Tan has been at the forefront of the campaign for the protection of all startups that have deposits in SVB.
The change: Announcing the change at the company, the Y Combinator’s President said in the memo:
- “YC is known primarily as a place where very early founders create something from nothing by simply applying online and joining the world’s best founder community. When they do, a shocking percentage of them will go on to make a startup worth a billion dollars (on average 6 out of 100 startups in recent batches).
- “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 the 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.
- “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. As we make this change in strategy, we want to acknowledge and express our appreciation for their substantial contributions.
- “There shouldn’t be any noticeable effect on the companies we’ve funded or on the way we interact with alumni, but if any companies or alumni have questions, I’m here and the YC group partners are here — as always, to help you make something people want.”
Concerns for startups: Y Combinator’s decision to cut back late-stage came as the first confirmation of the fears that startups, especially, those from Africa, may see a funding drought this year as a result of the SVB collapse.
According to the co-founder of Carbon, a digital lending company, Ngozi Dozie, this is the time for African startup founders to focus on core operations and manage their costs because Venture Capitals (VCs) now have fewer funds to throw around.
Dozie noted that most investments into startups are financed by Silicon Valley Bank and its peers and with the recent developments, VCs now face uncertainties that will make them withdraw and become less adventurous in investing.