Y Combinator growth equity fund?(sec.gov)
sec.gov
Y Combinator growth equity fund?
http://www.sec.gov/Archives/edgar/data/1645142/000164514215000001/xslFormDX01/primary_doc.xml
70 comments
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.
If tripling in size in the last ten years can be called a slow death.
http://i.imgur.com/kNuRr0t.jpg
The only thing hedge funds are doing, is growing more slowly.
CNBC: there are now more hedge funds than ever
"Investors have the choice of an estimated 10,149 hedge funds and funds of hedge funds as of March 31, according to new data from industry research firm HFR. That surpasses the previous high of 10,096 set in 2007 before the financial crisis. About 1,040 new funds launched in 2014, a net addition of 176 compared with ones that closed. Total industry assets are $2.94 trillion, another all-time high, despite relatively muted single-digit returns from most hedge funds last year."
http://www.cnbc.com/id/102601680
http://i.imgur.com/kNuRr0t.jpg
The only thing hedge funds are doing, is growing more slowly.
CNBC: there are now more hedge funds than ever
"Investors have the choice of an estimated 10,149 hedge funds and funds of hedge funds as of March 31, according to new data from industry research firm HFR. That surpasses the previous high of 10,096 set in 2007 before the financial crisis. About 1,040 new funds launched in 2014, a net addition of 176 compared with ones that closed. Total industry assets are $2.94 trillion, another all-time high, despite relatively muted single-digit returns from most hedge funds last year."
http://www.cnbc.com/id/102601680
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.
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.
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.
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.
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.
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.
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.
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
http://www.carlyle.com/news-room/news-release-archive/carlyl...
If there is a bubble valuation in the public-to-private market, YC could potentially arbitrage the valuation difference into cash for its LPs.
https://www.wsws.org/en/articles/2007/06/blac-j25.html
http://www.carlyle.com/news-room/news-release-archive/carlyl...
If there is a bubble valuation in the public-to-private market, YC could potentially arbitrage the valuation difference into cash for its LPs.
I dont think YC is as hellbent on maximizing short term returns and renumeration as much as your traditional firm...I think they honestly give a fuck about making a positive difference with their money and making long-term, technological progress manifest. They're not short on money and probably have no philosophical interest in abitraging valuation differences into cash. They just dont seem to worship money that much as an end. Which, imo, is a good thing.
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.
I think you mean BRKA / BRKB
Sam Altman talked about this on the Econ Talk podcast, I believe he said he has 'no interest' in running a public company.
GSV Capital is already playing the same niche http://gsvcap.com/investment-portfolio/
As well as some Fidelity and T. Rowe Price mutual funds that you sometimes see mentioned in late-stage deals.
As well as some Fidelity and T. Rowe Price mutual funds that you sometimes see mentioned in late-stage deals.
It'd be great to see what their actual IRRs are if they did that.
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.
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.
Property is so expensive because supply is being artificially restrained.
No, because the entrepreneurship business has boom and bust cycles. Here's a portrait from 1982:
"Q: Why are people so willing to sell out their employers?
A: Two reasons. In the confrontational style of American management, people are pitted against each other ruthlessly. There is no trust, no loyalty. Reason No. 2: Money speaks. Life in Silicon Valley is very fast, very competitive. To keep up, you have to drive a Mercedes, live in a $300,000-to-$500,000 house, have a pool in the backyard, a cabin in Lake Tahoe if you’re a ski buff, a yacht in Santa Cruz Harbor if you like to sail. You have to belong to the Decathlon Club or the Palo Alto Golf Club and send your kids to private schools like Bellarmine or St. Francis. Then there are business dinners, cocktail parties, barbecues. It all costs money."
(from http://www.people.com/people/archive/article/0,,20082780,00....)
But then the 1970s entrepreneurial revolution faltered and SV had to reboot. Between 1984 and 1992 most of the old power centers were weakened. SV could reboot, and did with the Internet companies. Similar thing happened after 2001.
"Q: Why are people so willing to sell out their employers?
A: Two reasons. In the confrontational style of American management, people are pitted against each other ruthlessly. There is no trust, no loyalty. Reason No. 2: Money speaks. Life in Silicon Valley is very fast, very competitive. To keep up, you have to drive a Mercedes, live in a $300,000-to-$500,000 house, have a pool in the backyard, a cabin in Lake Tahoe if you’re a ski buff, a yacht in Santa Cruz Harbor if you like to sail. You have to belong to the Decathlon Club or the Palo Alto Golf Club and send your kids to private schools like Bellarmine or St. Francis. Then there are business dinners, cocktail parties, barbecues. It all costs money."
(from http://www.people.com/people/archive/article/0,,20082780,00....)
But then the 1970s entrepreneurial revolution faltered and SV had to reboot. Between 1984 and 1992 most of the old power centers were weakened. SV could reboot, and did with the Internet companies. Similar thing happened after 2001.
Because SV generally allows for creative destruction (viz. failure).
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It already is a hub of shills thumping worthless idefas and driving the hivemind to rally around it
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.
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.
Somewhat relevant: http://techcrunch.com/2015/03/02/if-y-combinator-did-a-growt...
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.
I'm assuming this is for larger/later rounds so that YC can invest in their very successful companies (think Airbnb and Dropbox), and not for Series A/B companies.
YC does follow on investments but they are done by partners today. Negative signaling exists but it is swept aside because it is not a YC fund following on. Now they will have a large fund to do it so will be interesting to see how they navigate this landscape.
What if they added in a right to invest a certain amount in future rounds, such that they don't lead the growth?
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.
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.
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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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?'
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?'
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?
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.
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.
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.
Below it is suggested that Delaware is cheaper, in fact it can be much more expensive for this reason.
Delaware has a specific court for corporate litigation, the Court of Chancery which is presided over by a judge. So questions are generally scheduled more easily, and decided more quickly. That they have a lot of companies incorporated there leads to both a lot of services for companies trying to incorporate there and a lot of case law which can be relied on to understand how bylaws will be interpreted when brought before the court. In places where there isn't a lot of case law you end up cutting a new trail and a lot of uncertainty in what the outcome would be.
One reason is that Delaware companies get their cases disputed at the state's specialized business court[0]. The trials are expected to be speedier and outcomes fairer.
[0] https://en.wikipedia.org/wiki/Delaware_Court_of_Chancery
[0] https://en.wikipedia.org/wiki/Delaware_Court_of_Chancery
In addition, there is a tremendous amount of case law in Delaware, whittling away the rough legal edges which may still remain in other jurisdictions.
IIRC, Deleware is so often the state of incorporation because the cost to incorporate is small (~$90-$300).
The cost of incorporation in Delaware is higher than in many states ($50 in Colorado, for example). ChuckMcM's cousin post pretty much covers the reasons. The only thing he left out was the 0% corporate income tax rate. Nevada often comes up for this reason as well.
edit (re grandparent): Delaware is definitely not a "safe haven" for litigation. It's more predictable for the basics, but it isn't going to prevent you from an Eastern Texas District Court summons.
edit (re grandparent): Delaware is definitely not a "safe haven" for litigation. It's more predictable for the basics, but it isn't going to prevent you from an Eastern Texas District Court summons.
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.
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...
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...
Uber didn't go through YC.
Firebase was bought by Google.
Why is that playing dirty? I don't get it.
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.
Thing is, governments (especially pro-capitalist ones) don't like monopolies, which is where the reference comes from.
>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.
A true monopoly rarely, if ever, actually exists in a real free market. However, artificial government backed monopolies are rampant today.
Oh ok, I missed the connection to monopolies. Thanks for spelling it out.
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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.
> there's no reason he couldn't go by Michael or Moe.
One might be disinclined to cater to hateful ignorance, for starters.
One might be disinclined to cater to hateful ignorance, for starters.
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.
If he really needs to feed his family, it's a legitimate option.
"Related persons" are specifically defined in the instructions to include entities and in such a way that they generally include management companies and general partner entities.
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.
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.
>"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.
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.
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.
Posting or allowing to remain posted? Unless 'kamilszybalski works for YC.
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.
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.
"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...
Anyway I'll buy some :-)
[1] More info: https://www.moneyadviceservice.org.uk/en/articles/what-are-p...
Interesting that Kleiner Perkins is moving downstream http://www.nytimes.com/2015/06/17/business/dealbook/kleiner-...
Related?
Related?
`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.
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.
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.
i wish more companies innovated like these guys! the world being a happier place would actually be possible.
Good on you'll
Good on you'll
"Just shut up and take my money" - every investor
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.