
Y Combinator raising $1B for new fund - tamalsaha001
https://www.axios.com/y-combinator-raising-1-billion-for-new-fund-2462693141.html
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probe
Isn't it risky to selectively back particular YC companies? There's always a
negative signal when your lead investor doesn't participate in future rounds -
if they start doing that more regularly with this new fund, then it might
become a negative signal for a YC company NOT to have Continuity/YC as a
follow-on investor (which sucks b/c the firms are so early stage).

Anyone know how VC firms that invest in all early-growth-late firms deal with
this dilemma (realizing there are only a few cases)?

~~~
_sentient
YC has explicitly stated they won't lead Seed or Series A rounds in order to
avoid this conflict.

They are intentionally leaving economics on the table in order to better
support their founders. At the stage Continuity invests ($15-$50M rounds),
YC's early signal is far less important than the actual fundamentals of the
business.

~~~
ivankirigin
It's even better than that too, given their commitment to invest pro-rata. So
the money is there if you can get another firm to lead. Because this policy is
public, there shouldn't be signalling issues.

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andreasklinger
For those who like game theory:

By doing this they don't have to consider if startups are suitable for follow
up investors and thus avoid the Keynesian beauty contest problem of not
selecting the "prettiest" startup:
[https://en.wikipedia.org/wiki/Keynesian_beauty_contest](https://en.wikipedia.org/wiki/Keynesian_beauty_contest)

> "It is not a case of choosing those [faces] that, to the best of one's
> judgment, are really the prettiest, nor even those that average opinion
> genuinely thinks the prettiest. We have reached the third degree where we
> devote our intelligences to anticipating what average opinion expects the
> average opinion to be. And there are some, I believe, who practice the
> fourth, fifth and higher degrees."

~~~
clock_tower
I hadn't heard of that before, but I'll keep it in mind for sure.

I was going to say that the obvious solution is to not play -- to buy and hold
based on fundamental value, and specifically seek out promising but
undervalued stocks -- but then, that solution doesn't offer the kind of growth
that VC wants, or that a Keynsian beauty contest offers when you win.

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justinzollars
Please don't become a typical VC. I love YC for what it does so well

~~~
QAPereo
What in your view, distinguishes a typical VC from YC?

~~~
willholloway
What I got from reading Paul Graham's own writing on the genesis of YC, was
that his key insight was that VC's should be funding more companies, and
earlier, and giving founder's much more control.

The other key innovation was funding in batches, in classes. This created a
close-knit ad hoc community with shared goals, and one in which teams whose
ideas were not finding traction could join teams whose ideas were.

~~~
Danihan
Paul Graham's own writing and advice is not really followed by YC though.

As an easy example, look at his recent post about naming your startup, versus
the names of the companies allowed through in a recent round of seed funding.

[http://www.paulgraham.com/name.html](http://www.paulgraham.com/name.html)

[https://techcrunch.com/2016/08/22/y-combinator-demo-day-
summ...](https://techcrunch.com/2016/08/22/y-combinator-demo-day-summer-2016/)

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jklein11
I don't know too much about the VC world but could this be seen as negative
signal?

What is the purpose of combining the funds? The only thing I can think of is
to obfuscate some of their losses.

Also, is the new round of funding because YC's assets are illiquid and they
need a cash infusion?

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orthoganol
I believe it's possible YC has overextended themselves such that top AI
companies - the most valuable companies in the future - are going to first try
Gradient Ventures or more specialized funds, and it may cost them their
future. I understand they want to be a destination for AI, but I have a tough
time imagining it. Maybe when they opened the floodgates to 100+ per cohort
was when their brand became "the best anything and everything of startups,"
and if a rich, connected AI veteran launched his own AI fund, I'd be more
excited to knock on that door first, if not an AI fund from an org intimately
tied to a top AI shop.

~~~
graycat
> AI companies - the most valuable companies in the future

To me that's like going to a state fair 150 years ago, seeing the vendors of
snake oil, and concluding that the most valuable companies in the future will
be selling bottles of secret potions.

For "artificial intelligence", I see no actual _intelligence_ and a lot of
emphasis on _artificial_. The best of it is at its core some fairly
traditional applied math and/or electronic engineering.

Instead, there're huge sections of the research libraries for pure math,
applied math, physical science, electronic engineering, and computer
engineering, and in comparison so far the best of AI is hardly more than a few
books on one shelf.

How to do applied science, engineering, etc. hasn't changed; AI hasn't changed
how; the only way to have

> AI companies - the most valuable companies in the future

is just to call all the most valuable companies, or safer yet, all new
companies, AI. Silly talk.

A claim like

> AI companies - the most valuable companies in the future

will be part of what we've seen before: AI winter, AI spring of new hope, AI
summer of scam, AI fall of failure, AI winter again. Get your warm clothing
while it's cheap now because the next AI winter will be darned cold!

E.g., look up the little game of, say, matchsticks called Nim. Let AI _learn_
to play it. Against just a common man in the street, it might do well. Against
me, it will lose at least half the games if we first flip a coin to determine
who moves first. Just why and how I'm winning, the AI program won't figure
out; figuring out such things is so far just not what AI does.

Or, teach AI some high school plane geometry. Then consider the problem, given
triangle ABC, by Euclidean construction find point D on side AB and point E on
side BC so that the lengths AD = DE = EC. To do this, need to be a little
creative; that is, need some actual intelligence. The people who taught the AI
geometry program likely didn't teach how to do that, and, then, for the
solution, the AI program won't know how to do it, won't figure it out, and
won't do it.

Net, AI is not "intelligent". Chase down big trees in chess, checkers, Go,
etc., play games against itself, accumulate a lot of statistics, and, then,
play and often win -- okay. Be "intelligent"? Nope, not yet.

Or, one day I got via e-mail a specification of a problem in 0-1 integer
linear programming. A first example had 40,000 constraints and 600,000
variables. Some people had tried "simulated annealing", ran for days, took the
best results they had so far, results of unknown distance from optimality, and
stopped. Drop that problem into a lot of integer linear programming (ILP)
packages, and won't get very far. Write some software to do what such ILP
packages do and call it AI, and again won't get very far. So, instead, need
some new ideas, that is, from some actual intelligence. So, I put my feet up,
popped open a cold can of diet soda, reviewed a little, thought a little, did
some derivations in non-linear duality theory (early in that theory there are
some darned cute results, e.g., get some surprising, useful convexity),
designed and wrote some code, and in 905 seconds on a slow PC found a feasible
solution guaranteed to be within 0.025% of optimality. Figuring out how to do
that for that problem took some actual intelligence.

Here's one: I was in an AI group monitoring server farms and networks. So,
suppose we are given instances of one or both of those and collect data, say,
_points_ , where each point consists of numerical data on each of several
variables, say, 50, and where we get, say, 100 such points a second.

Now we want to define and detect in essentially real time _anomalies_ as,
really, a reason to start diagnosis and see if there is a real problem. For
this, we want, and are quite serious about, false alarm rate: We want the rate
adjustable in advance and, then, in practice to get that rate essentially
exactly.

And when we get an anomaly, we want the lowest rate of false alarms at which
the data would still be an anomaly.

Okay, AI/ML machine, how the heck to do that?

The answer needs some intelligence, e.g., borrow some from ergodic theory, get
a finite algebraic group, sum over the group, etc. For that work, the current
techniques of AI/ML won't even pass the giggle test.

Sure, taking my work, could program that and call the result "artificial
intelligence", but really just programmed some pure/applied math. And, sure,
will need an algorithm to make the computations fast, and that will need more
genuine intelligence.

AI "intelligent"? LOL.

> AI companies - the most valuable companies in the future

More LOL.

~~~
erikpukinskis
> To me that's like going to a state fair 150 years ago, seeing the vendors of
> snake oil, and concluding that the most valuable companies in the future
> will be selling bottles of secret potions.

That actually would've been a good investment hypothesis though, and continues
to be:

[https://finance.yahoo.com/quote/ABC/](https://finance.yahoo.com/quote/ABC/)

[https://finance.yahoo.com/quote/CVS/](https://finance.yahoo.com/quote/CVS/)

[https://finance.yahoo.com/quote/Ko/](https://finance.yahoo.com/quote/Ko/)

[https://finance.yahoo.com/quote/BAS.DE/](https://finance.yahoo.com/quote/BAS.DE/)

[https://finance.yahoo.com/quote/DOW/](https://finance.yahoo.com/quote/DOW/)

Fully agree with your point about AI though. People always gloss over the
transition from "can be made good at things, with effort" to "general purpose
intelligent" as if there's not actual magic required there.

~~~
graycat
You definitely win the free bottle of Lydia E. Pinkham's!

From what I've heard, some of that stuff had heroin and cocaine.

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11thEarlOfMar
Just guessing, but 'going global' may factor into this. Not as in more than
one meeting center, rather, globalizing the marketing for startups. There is
an interesting 'snowball effect' of successful exits growing the number of
investors, and YC, even with the huge number of applicants it enjoys today,
may be seeing quality diminish and therefore need to establish more permanent
presence in other founder hot beds around the world. Perhaps that such a move
is independent of this raise, but in order to invest the money, they'll need
to keep the building the flow of recruits.

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richardwhiuk
YC edging to become more like a typical VC?

~~~
maxxxxx
I am starting to wonder if they are falling into the growth trap a lot of
companies seem to fall. Instead of staying at a certain size and having a nice
sustainable business, they grow too big and lose their character.

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jaypaulynice
My guess is they will fund some Startup School founders with a small amount of
money like they did with the Fellowship. Then again it's all up in the air.
They raised 700M last year or so. They could also be piling up cash for bad
times to keep YC companies private for as long as possible.

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ericb
I'm wondering if this is related to scaling Startup School. A clear business
purpose for YC isn't visible in startup school, yet--could this be related?

~~~
tptacek
The article says it's for Continuity Fund, which does investments in YC
startups (and, apparently, non-YC startups now as well).

~~~
ericb
Shortly after that, it goes on to say they are all being merged, so I don't
put much stock in that as an indicator of the purpose.

~~~
tptacek
It says Continuity and Early Stage are being merged, not that everything in YC
is being merged.

~~~
ericb
To clarify, when I said "everything" I meant stage-wise, early and late are
being co-mingled, which to me, implies that this isn't necessarily related to
continuity, which is late stage.

I'm not trying to imply that the overall corporate structure is changing. I
was assuming that startup school would fall under the early stage rubric, but
maybe not?

~~~
tedmiston
IIRC YC does not invest in startup school companies at all (but invites them
to apply for YC Core as they do any startup).

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OoTheNigerian
I'm amazed at how YC has successfully executed the ultimate startup by funding
startups.

Going from investing 15 in 6 companies to have a one billion dollar fund.

I wonder how this will alter the market considering they'll have first option
from the very first check. Will other VC firms look at how they can go down
the pipeline?

Kudos to them!

