Y Combinator slashes late-stage funding and cuts 20pc of its team

14 Mar 2023

CEO and president Garry Tan. Image: Oliver Covrett/Y Combinator website

Downsizing its late-stage funding team comes amid uncertainty for many early-stage start-ups after the collapse of Silicon Valley Bank last week.

Y Combinator, the renowned Silicon Valley accelerator, is set to reduce its investment in late-stage start-ups – a move that will see its headcount shrink by around a fifth.

Garry Tan, president and chief executive of Y Combinator, announced in a memo yesterday (13 March) that because late-stage investing “is so different” from early-stage investing, it became a “distraction from our core mission”.

Now, 17 of the accelerator’s employees have to pack their bags as Tan and the team refocus on early-stage funding, the kind of investment Y Combinator is known for. The accelerator has previously churned out major players such as Stripe, Airbnb, Dropbox, Coinbase and Reddit.

“As we make this change in strategy, we want to acknowledge and express our appreciation for their substantial contributions,” Tan said of the leaving employees in the memo.

“There shouldn’t be any noticeable effect on the companies we’ve funded or on the way we interact with alumni, but 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,” Tan added.

Some Irish start-ups to have been backed by Y Combinator in recent years include Milk VideoInscribeKlir and Quorum. Five start-ups with Irish connections – Luminate Medical, Noloco, Protex AI, Sitenna and Artillery.io – accelerated with the programme in 2021.

Late-stage funding has been a relatively recent area of investment for Y Combinator, and the move away from it comes against the backdrop of the recent Silicon Valley Bank collapse.

The technology-focused bank went into freefall last week after its stock price plummeted and investors moved to withdraw their deposits, leading to the bank’s closure by US regulators. The ensuing chaos was also experienced by some in Ireland’s tech start-up sector.

However, the accelerator has told TechCrunch that the SVB collapse was not a factor in making the decision to refocus on early-stage start-ups. About 30pc of Y Combinator’s start-ups are reportedly exposed to the bank.

Tan took to Twitter in the immediate aftermath of the SVB collapse to say that it is an “extinction-level event” for start-ups that will set “innovation back by 10 years or more”.

“BIG TECH will not care about this. They have cash elsewhere. All little startups, tomorrow’s Google’s and Facebooks, will be extinguished if we don’t find a fix,” he said, before asking the US government to step in and help affected entrepreneurs.

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Vish Gain is a journalist with Silicon Republic