Y Combinator cuts funding in a blow to late-stage start-ups
The start-up world is reeling from blow after blow. Funding winter, Silicon Valley Bank's (SVB) collapse, and now Y Combinator's (YC) decision to cut down late-stage funding-things are looking quite bleak. The famous start-up accelerator has also decided to fire 17 employees. YC's decision to scale back late-stage funding is a damning testament to the current status of the start-up ecosystem.
Why does this story matter?
- YC is the world's best-known start-up accelerator. Once helmed by OpenAI CEO Sam Altman, YC has been credited with revolutionizing the start-up ecosystem.
- The accelerator has helped many tech start-ups, including Stripe, Razorpay, and Groww, among others. At a time when late-stage funding has slowed down considerably, YC's decision to follow suit is expected to send more shockwaves through an already troubled start-up space.
Late-stage investing is a 'distraction' from core mission: YC CEO
YC's forte has always been early-stage investing. The company started Y Combinator Co0ntinuity Fund in 2015 to invest at later stages. According to Garry Tan, the president and CEO of YC, the accelerator found late-stage investing "to be a distraction" from its "core mission." "So we're going to decrease the amount of late-stage investing we do," he added.
The decision won't affect companies YC already funded
The accelerator decided to cut late-stage investment to realign its priorities. However, this would have no "noticeable effect" on the companies YC has funded so far, Tan said. "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," the CEO added.
30% of YC-backed start-ups are exposed to SVB
It is impossible to see YC's decision as a standalone one. Especially considering the plight of SVB. The California-based bank not only does business with half of the VC-backed start-ups in the US but also is the banker to 30% of YC-backed start-ups. Although the accelerator says its decision is unrelated, it would be unwise to think there is no connection between both events.
Late-stage funding has been going down consistently
The start-up funding winter that began in mid-2022 is yet to retreat. VC firms are not yet ready to take the breaks off. In 2022, late-stage funding declined consistently over three quarters. In the last quarter, global late-stage and technology growth funding was $40 billion, down by 60% year-over-year. The slide is continuing. In India, late-stage funding fell by 88% in February 2023.
