Adam Hardej

Apr 13, 2023·Newsletter

YC Cuts Growth Fund

YC Cuts Growth Fund

Last month, Garry Tan, Y Combinators President/CEO, announced that they would be cutting some of their late-stage investing activity. This meant they were cutting the Continuity fund and letting go 17 team members who were focused there. Here's the short announcement from Garry.

This week, Kate Clark from The Information reported on the "uproar among founders" in response to this move. In it she quotes a number of notable founders and references a letter that was signed by 10 startups who were effected. Here's the full article.

The startups who signed: Brex, Whatnot, Rappi, RevenueCat, Pave, Deel, Zepto, Convoy, Groww, Monzo.

There are three things to cover here: What's good about this. What's bad about this. How Kate portrayed it.

What's good: Y Combinator is a world class early-stage accelerator. They are not a world class growth fund. Maybe they could be, but it's not traditionally their bread and butter. I think it's a great move for Garry to get YC back to what they do best. Arguing that YC should be everything to everyone isn't a real argument.
"Late stage investing turned out to be so different from early stage that we found it to be a distraction from our core mission." - Garry

What's bad: Y Combinator should have done a better job transitioning. Normally when a fund shuts down the investors who sat on boards stay on boards or talk through a transition of some some sort with the founders beforehand. YC is switching out the people who sit on boards and didn't give founders any warning. Although it's technically allowed it's definitively not a great way to handle it and it's a surprisingly shitty move from YC.
“Finding out about board changes a few hours ago through email was a major blow to us.” - Logan Head, Co-Founder of Whatnot

How Kate portrayed it: This was framed by Kate and The Information in an annoying way. Founders aren't really mad that they're shutting down the fund. Founders are mad that they handled the board seat change so haphazardly. There's a key distinction and opening sentence like this clearly ignore that in favor of clicks:

"The first big change made by Y Combinator’s new CEO and president Garry Tan—to shutter a fund investing in mature startups so it could sharpen its focus on much younger companies—has set off an uproar among founders backed by the esteemed startup accelerator." - Kate Clark, The Information

Pretty subtle, but definitely meaningful. Execution could have definitely been better, but I think this is a strong move from Garry overall.

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