Sources: Y Combinator will not raise another Continuity Fund, which backs late-stage startups, and the two partners who led the fund plan to leave the company

Silicon Valley startup accelerator Y Combinator won't raise another continuity fund, which backs mature private tech companies, two people familiar with the matter said.

The Information 2023-03-14 Kate Clark

Context & Ripple Effects

Y Combinator built Continuity as a follow-on investing arm, beginning with a $700M fund for later rounds of YC startups and later planning a second fund integrated with its early-stage program. The decision not to raise another vehicle ends that expansion path while its two fund leaders prepare to depart.

The change separates YC’s accelerator identity from a dedicated pool for mature private-company investments, reversing the earlier effort to connect early-stage backing with later-round capital.

First-order effects

Y Combinator will no longer have a newly raised Continuity Fund to make late-stage investments, and the two partners who ran that strategy are set to leave.
Mature private tech companies that would have sought Continuity backing lose a dedicated YC-managed follow-on source.

Second-order effects

YC-backed companies raising later rounds will need to rely more heavily on external investors rather than a YC follow-on vehicle designed to support them after incubation.
YC’s investment organization loses both the Continuity platform and its leadership, narrowing the continuity between its early-stage program and late-stage investing.

Third-order effects

If accelerator operators pull back from dedicated late-stage funds, startup support models become more segmented: incubators supply early access while separate investors determine later-round financing.
The reversal from plans to merge Continuity with early-stage investing suggests that combining accelerator programs with large follow-on funds is not necessarily a durable organizational model.

The trend: Startup accelerators are reassessing whether operating a dedicated late-stage capital arm fits alongside their core early-stage programs.

Discussion

@fendien Jonathan Lehr on x
“Late stage investing turned out to be so different from early stage that we found it to be a distraction from our core mission” - YC As the year plays out, we'll also see mega funds cut back seed programs too as they're not core for them from a $/time perspective https://twitter…
@kateclarktweets Kate Clark on x
New: Y Combinator is eliminating its late-stage investing practice and laying off 17 employees who focused on those deals. https://www.theinformation.com/ ...
@pt Parker on x
There's only two ways to innovate in venture capital, one is to bundle, and one is to unbundle. Let the cycle continue. https://twitter.com/...
@brianbrackeen Brian Brackeen on x
YC has enough money to be wronger, longer. Still, they were reflective and refocused on their mission. Kudos. https://www.ycombinator.com/ ...
@carnage4life Dare Obasanjo on x
YC getting out of late stage investing is consistent with a trend we'll see across tech. Companies will revisit every expansion from the zero interest rate era and ask if it's really a core competence or a distraction caused by too much money to burn. https://www.ycombinator.com/…
@yuris Yuri Sagalov on x
There's one big positive benefit for founders with YC's wind down of Continuity: YC's objective from the earliest days was to be completely aligned with founders from the moment it invests. It's hard to do that when founders are also trying to pitch you for growth capital. This..…
@pitdesi Sheel Mohnot on x
YC shuttering their continuity fund & Anu Hariharan and Ali Rowghani are leaving YC. Makes total sense. More contraction to come. https://www.theinformation.com/ ...
@madhavchanchani Madhav Chanchani on x
- Y Combinator is shutting down it's late stage Continuity Fund to focus more on core early stage bets - To layoff 17 people. Partners Anu Hariharan and Ali Rowghani to set up own fund - Continuity Funds' India bets are Zepto, Groww and Razorpay https://www.theinformation.com/ ..…
@umangdua Umang Dua on x
Feels like a telling sign of the times. Everyone going back to basics https://www.theinformation.com/ ...
@jason @jason on x
Very savvy move by @garrytan to deprecate late-stage investing by YC (if I'm reading this correctly)... it seemed to cause a bit of conflict with the late-stage crowd. https://www.ycombinator.com/ ...
@nmasc_ Natasha Mascarenhas on x
Y Combinator news. They say this is not related to SVB's failure: https://techcrunch.com/...
@robindchnt Robin Dechant on x
Just love that YC goes back to its roots and will only focus on early-stage investments: https://www.ycombinator.com/ ... Trend to re-focus is good, for the entire ecosystem!

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