Two years ago, Yuri Milner and Ron Conway created The Start Fund to put $150,000 into all Y Combinator companies. Y Combinator ended up managing the fund, and encountered a few issues. So the incubator has decided to revamp the program to become more startup friendly. The new fund is called YC VC, and offers less money–$80,000 per startup.
Investors Yuri Milner, Andreessen Horowitz, General Catalyst (who were all investors in the Start Fund), and Maverick Capital. Similar to the Start fund, YC VC will also offer money to every startup graduating from the program. Each firm will put $20,000 into each startup, on top of the $20,000 that the incubator puts in. Notably missing from the investor group: Ron Conway’s SV Angel. Y Combinator founder Paul Graham said in an interview that this new format didn’t make sense for Conway and David Lee’s fund size.
The idea behind the Start Fund originally was that investors could get early equity in any of the many YC startups that turn into big businesses, instead of having to battle it out in later rounds with other firms and angels who want in.
From Graham’s post today: The new version involves less money and more engagement. The VCs will invest $80k in each startup instead of $150k, and we’ll organize sessions of office hours in which partners from the VC firms advise the startups in each batch. As before, the investments will be done as convertible notes with no valuation cap and no discount.
Why less money for startups? Graham explains that when startups were great ideas off the bat and attracted a lot of investor attention, the amount worked out great (or they didn’t even need the money). But when ideas didn’t get traction and further funding, the larger amounts ended up being the source of a lot of controversy between founders.
Graham adds that often times Y Combinator had to get involved in these disputes over money, and things got very messy.
Another difference with YC VC: YC is asking for more VC time and involvement. With the last class of YC startups, the incubator invited partners from some of the top VC funds in Silicon Valley to hold office hours at YC. It seemed to work out well for both parties and now this is becoming part of the YC VC program.