
Y Combinator growth equity fund? - kamilszybalski
http://www.sec.gov/Archives/edgar/data/1645142/000164514215000001/xslFormDX01/primary_doc.xml
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xenophon
Another relevant article hinting at this development:
[http://www.businessinsider.com/y-combinator-raising-money-
fo...](http://www.businessinsider.com/y-combinator-raising-money-for-late-
stage-fund-2015-3)

The impetus behind a growth equity fund, according to the article, would be to
provide "long-term capital that allows startups to continue to operate in beta
[sic, I assume -- they probably mean privately] without having to go public."

I can see why this approach would make sense for optimistic investors who are
familiar with the impatience of public market investors with the kind of
moonshot, long-term investments that are game-changing but don't pay off
during next quarter's earning call.

That's one charitable interpretation of this decision, if it's true -- Y
Combinator wants to counteract the abundance of hedge fund money pouring into
this space (with attendant expectations of a near-term public liquidity event)
with strategic capital and a longer time horizon.

~~~
o0-0o
Relevant, but it's not hedge fund money. It's private equity & venture capital
money, which is backed by large institutional investors like retirement plans.
Hedge funds are dying a slow death.

~~~
xenophon
Not quite true, which is exactly the point -- T. Rowe Price, Fidelity, Tiger
Global, BlackRock, Coatue, Valiant and Wellington are a few of the public
asset managers that are heavily outgunning traditional VCs and pumping up
valuations throughout the growth-stage investment space. Between them they
have an enormous amount of capital to bring to bear.

These funds have a mix of institutional LPs like university endowments and
normal high-net worth/retail investors, but either way, I believe they usually
don't mandate the ~5 yr lockup period (not sure of the avg. VC investment
period/fund life these days) that PE and VC firms require of their investors.
As such, in my understanding, traditional VCs are both structurally and
philosophically inclined to hold their investments for longer.

This may not be the impetus behind YC Growth at all, but I do think such a
fund would be more patient with its portfolio, allowing it to take greater
risks, and that's (probably) a good thing.

~~~
wtvanhest
The asset managers you mentioned (especially T. Rowe, Fidelity, BlackRock,
Wellington) are huge and have a lot of different products which have different
mandates, time horizons, client agreements etc.

I am not going to dig through all the announcements, but it is unlikely that a
large chunk of the capital from the asset managers I listed above is from
hedge fund products at those companies. Most of the capital is likely coming
from their PE arms or mutual funds that are allowed to invest a certain
percentage of their portfolio in illiquid securities.

There is a possibility that the money is coming from hedge fund products or
other short-term investment horizon products, but it is not likely.

~~~
xenophon
That's a great point and definitely something I oversimplified -- perhaps the
"structural" factors of time horizon aren't a significant influence on the
liquidity-seeking behavior of these investors.

But I'd stand by the theory that (1) there is a difference in motivation and
mindset between a growth investor domiciled with a firm that primarily trades
in extremely liquid, public equities and a traditional growth investor with a
sole focus on venture, and (2) that mindset manifests itself in the guidance
coming from that member of the board.

Again, this might be a good thing. I think many companies could use more
discipline around focusing on profitable revenue vs. top-line growth alone.
The point I'm trying to make is that the kind of investor/board member you
have definitely changes your decisions as an entrepreneur -- and as non-
traditional growth equity pours into tech, decision-making starts to change in
a big way.

~~~
xchaotic
I think we'd need some proof that the behaviour focused on cashing out in the
short term is good for anybody but the investor. Y Combinator 'growth fund' on
the other hand, is a good idea if it is what I think it is. It addresses a
thing called 'death vallye' for the companies who have done their angel, seed
A funding are still of a fairly small size and need support to grow big.

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softdev12
It would be interesting if Y Combinator attempted to convert to an entity that
was able to publicly list on a stock exchange and sell shares to the average
investor - much like private equity shops Blackstone and Carlyle have done by
going public.

[https://www.wsws.org/en/articles/2007/06/blac-j25.html](https://www.wsws.org/en/articles/2007/06/blac-j25.html)

[http://www.carlyle.com/news-room/news-release-
archive/carlyl...](http://www.carlyle.com/news-room/news-release-
archive/carlyle-group-prices-initial-public-offering)

If there is a bubble valuation in the public-to-private market, YC could
potentially arbitrage the valuation difference into cash for its LPs.

~~~
dillchen
Agreed! That'd be really interesting. I was thinking more BERK though. Wonder
if Sam's Shareholder Letters could receive the same readership as Buffett's
Shareholder Letters.

~~~
Plough_Jogger
I think you mean BRKA / BRKB

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datashovel
My question is, long term how does SV not become just another large
bureaucratic / corrupt power center like D.C. or Manhattan? Today it feels
good to see those who deserve it get rewarded, but I imagine that's how people
in NY felt about Manhattan when it was a fraction of what it is today. Same of
course with D.C. shortly after (for example) the American Revolution.

~~~
jalonso510
SV's basically already becoming a center of entrepreneurial finance rather
than entrepreneurism. Fewer companies can afford office space and fewer non-
repeat founders can afford rent in palo alto, mountain view, sf, etc..., so
the people who live in those cities are increasingly those tied to the finance
of startups but with higher salaries like VCs and lawyers.

~~~
dylanjermiah
Property is so expensive because supply is being artificially restrained.

~~~
dopamean
This conversation does not need to be had on this thread.

~~~
dylanjermiah
Why not?

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staunch
Most of the money to be made in VC is by doubling down on successful
investments. YC has foregone billions by not doing this. Competing with later
stage VCs may incline them to compete with YC, which would be a very great
thing for the world.

~~~
codelitt
I couldn't agree more. I would love to see a program that would actually
compete with YC. They're pretty much on their own ahead of the pack and a non-
competitive business is never a good thing.

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andyjsong
Somewhat relevant: [http://techcrunch.com/2015/03/02/if-y-combinator-did-a-
growt...](http://techcrunch.com/2015/03/02/if-y-combinator-did-a-growth-fund-
it-would-be-very-very-late-stage/)

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mwilkison
Is this a fund for follow-on investments in YC startups? In the past YC has
indicated they dislike follow-on investments by accelerators since it sends a
negative signal re: the startups they decide not to invest in.

~~~
philip1209
What if they added in a right to invest a certain amount in future rounds,
such that they don't lead the growth?

~~~
MangoDiesel
They don't want to do this, because they don't want to become a "stamp of
approval" for companies coming out of YC.

Specifically, if a company comes out of YC and is looking to raise further
funding down the road, it becomes an important data point if YC decided to
continue investing with them or not. By not participating in future rounds as
a policy, they avoid this potential issue.

~~~
cactusface
Why is it important not to pick favorites? Are they trying to avoid killing
companies they thought were bad but end up good later on?

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marincounty
So why not start up a pooled venture capital fund? It will be one risky fund,
but they all seem risky?

I am eagerly awaiting the day Janet Yellen raises interest rates! There's too
much free money being given out, and it's not going to the poor, or middle
class.(I thought stricter banking regulations were good after the crash, but
boy was I wrong!)

These investment entities(hedge, venture, etc.) have too much Monopoly money
to throw around. Why shouldn't Y Combinator get in on the Party? Actually,
they late to the Party? 'Let's get the best loans, and while we are at it snag
the reluctant Retail Investor who's 2008 wounds are starting to close, and
just might give up their bloody wad of cash siting in that horrid CD?'

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gtirloni
I've heard that Delaware is 1) safe heaven for litigation and 2) most forward-
thinking in terms of business-related bureaucracy. Is that true? What makes
West Coast companies incorporate so far from SV?

~~~
erichurkman
There's a ton of reasons to incorporate in Delaware vs. other locations. It's
not necessarily a safe haven.

They have distinct courts set up for business-related cases. In most states,
if you file a lawsuit, you may not end up in front of a judge that specializes
in business law and litigation, which may or may not work to your advantage.
In Delaware, you will. Every corporate law firm also has experience with
Delaware code (many have dedicated DE code experts). Law firms have standard
document templates for Delaware. Every VC has experience investing in Delaware
corporations. Courts are highly funded in Delaware relative to most other
states, so cases can proceed more rapidly. Even the court clerks are dedicated
to corporate law.

There is very little incentive for start-ups to incorporate elsewhere.

~~~
piker
This is true for most businesses as well. I would also add that Delaware's SoS
has taken a very service-oriented approach to incorporation within the state.
For example, you can generally form entities in Delaware as late as 9PM EST
(imagine making a non-IRS federal filing past 5:00!). That's just how
seriously Delaware takes it.

Below it is suggested that Delaware is cheaper, in fact it can be much more
expensive for this reason.

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sharemywin
YC has been talking more about working on bigger more ambitious
projects/companies, so maybe its away to fund things that won't get funded by
traditional VCs.

------
phantom_oracle
They sure do take a playbook from the innovation they try to foster and do new
things (although it isn't necessarily "new" in the sense that other funds like
this don't exist).

In the business of business-acceleration, I guess this makes YC the McKinsey
or GS?

Thing is, they can't keep stretching the payout to investors.

Even a moonshot (as a business) needs to experience a liquidity event of some
sort, so they're either inflating the so-called bubble with this or...

They're playing dirty with some of their first-to-market companies by helping
them grow and stay cheap enough until they emerge as monopolies (-redacted-
AirBnB come to mind mostly).

Edit: to my surprise, Uber isn't a YC company, edit made.

Edit 2: I am checking a list of YC companies and other big ones I see that
have potential are:

\- Disqus

\- Heroku (exited so doesn't count)

\- MixPanel

\- Olark

\- Embedly

\- HomeJoy

\- Stripe (of course!)

\- Codecademy

\- Firebase

I stopped at Summer 2011, but some of these are now so ubiquitous on the
internet, that it makes you wonder...

~~~
cactusface
Why is that playing dirty? I don't get it.

~~~
phantom_oracle
It's mostly a figure of speech. Every company is entitled to some type of
discreet monopolization.

Thing is, governments (especially pro-capitalist ones) don't like monopolies,
which is where the reference comes from.

~~~
dylanjermiah
>Thing is, governments (especially pro-capitalist ones) don't like monopolies,
which is where the reference comes from.

A true monopoly rarely, if ever, actually exists in a real free market.
However, artificial government backed monopolies are rampant today.

------
late2part
My Uber drive today was bemoaning how hard it is to get a job in the DC area
with his name, Mohammed. I said that wasn't right, but there's no reason he
couldn't go by Michael or Moe. It's interesting to see that on this form, the
"Related Person"'s last name is "YC CONTINUITY MANAGEMENT I, LLC". I suppose
it's not terribly remarkable, but it goes to show that many of these forms
have ambiguous meanings that are wide to receive.

~~~
thuuuomas
> there's no reason he couldn't go by Michael or Moe.

One might be disinclined to cater to hateful ignorance, for starters.

~~~
eseehausen
Nonetheless, this is a common strategy that's used by people with names that
sound non-white. Not everyone is responsible for combatting larger structural
injustice while they're just trying to get employed at a sustenance level.

------
jackgavigan
It could be that they've invested all the money from their last fund and are
just putting a new fund in place to _continue_ making accelerator investments.

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rdlecler1
YC: you probably want to run this by your legal counsel. By posting your open
ended 506b filling for a proposed growth equity fund on Hacker News (which you
own), you are engaging in general solicitation and advertising, which requires
a 506c filling. You don't want to end up like Goldman Sachs when they tried to
offer the Facebook pre-IPO fund to their private wealth clients. The SEC shut
them down.

~~~
piker
>"By posting your open ended 506b filling for a proposed growth equity fund on
Hacker News (which you own), you are engaging in general solicitation and
advertising, which requires a 506c filling."

This is a link to a limited notice filing, required by SEC rules promulgated
under the Securities Act. It is hosted on the SEC's public dissemination
service and in the public domain. If referring to information in this filing
constituted public offering, nearly every Reg D offering would be broken.

~~~
rdlecler1
When news leaked of Goldman Sachs' Facebook pre-IPO fund that would only be
accessible to their most prized clients, Goldman was accused of solicitations
and advertising. They were not allow to sell shares to Americans. I'm not sure
if the news leak was the result of seeing the SEC filling or it came from
within Goldman, but the SEC took a broad view on what they considered to be
advertising and solicitation when Goldman did not come out on the record to
say it, and frankly didn't need to disseminate that information to raise
awareness.

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hkarthik
If I had to guess, YCombinator is starting to diversify it's funding
strategies for early stage startups as it starts to diversity the types of
startups that it invests in.

The same funding terms simply won't work for an e-commerce shop selling
Jellyfish compared to one trying to commercialize nuclear power. This new type
of fund probably allows them to fund the latter startups in a more appropriate
way.

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andy_ppp
"Pooled Investment Fund Interests"[1] is checked which mean it's a fund for
shares in multiple companies? Not sure if they are going full on VC?

Anyway I'll buy some :-)

[1] More info: [https://www.moneyadviceservice.org.uk/en/articles/what-
are-p...](https://www.moneyadviceservice.org.uk/en/articles/what-are-pooled-
investment-funds)

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jaydub
Interesting that Kleiner Perkins is moving downstream
[http://www.nytimes.com/2015/06/17/business/dealbook/kleiner-...](http://www.nytimes.com/2015/06/17/business/dealbook/kleiner-
perkins-to-write-smaller-checks-with-4-million-fund.html?ref=technology)

Related?

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pbiggar
`Does the Issuer intend this offering to last more than one year? No`

Does this mean that they're only offering entry into the fund in the next
year, or that the money will all be distributed over the next year?

If the latter, this would imply that this is a single investment vehicle.
Though the wording does imply the former, I would think.

~~~
jalonso510
it's the former. the filing is just disclosing the offering of shares in the
investment vehicle itself, and that sale is expected to be complete this year.

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nphyte
i wish more companies innovated like these guys! the world being a happier
place would actually be possible.

Good on you'll

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adoming3
"Just shut up and take my money" \- every investor

