Y Combinator, the successful Silicon Valley startup school, has raised a huge new fund in a bid to cash in on the success of growing private tech startups that are achieving crazy valuations.
According to The Wall Street Journal, the fund is worth $700 million (£514 million).
The late-stage fund will be overseen by Twitter's former chief operating officer, Ali Rowghani, and will be used to back companies long after they’ve graduated from Y Combinator’s famous accelerator programme.
Y Combinator’s three-month crash course--run out of a building situated around the corner from Google's headquarters in Mountain View--gives companies like Airbnb, Stripe and Dropbox help on their way to success.
Companies that make it through the Y Combinator programme typically get $120,000 (£77,600) in return for 7% equity. But now Y Combinator may decide to make further investments in these companies as they mature.
Sam Altman, president of Y Combinator, explained in a blog post that the fund will only be used to back companies in the Y Combinator portfolio, possibly taking a seat on their board in the process.
"YC will fund its 1,000th company this year, and many of these companies are now scaling their organisations, revenue, and operations," he wrote. “Though years removed from our program, these founders continue to come to YC for advice and support, and we would like to do more to help them.”
Altman's comments come just days after he said startup founders are currently being spoiled by investors.
The "YC Continuity Fund" will allow Y Combinator to go head-to-head with other investors that are looking to piggyback on the success of companies like Uber and Airbnb, which have achieved valuations of $50 billion (£36 billion) and $24 billion (£17 billion) respectively.
"As we all know, good companies are staying private longer, and the market for private growth capital has grown considerably," Rowghani wrote in a blog post. "These later stage rounds tend to be larger, shared rounds rather than winner-take-all."
According to sources cited by The Wall Street Journal, the funds' investors include Stanford University and Willett Advisors LLC, the firm managing Michael Bloomberg’s investments.
Y Combinator didn't specify the time period that the fund will be invested over.
Rowghani added: "Over the last 15 years, I’ve worked at two iconic companies, Pixar and Twitter, and helped them manage rapid growth and scale. I joined YC as a part-time partner last November precisely to help maturing companies in the YC portfolio with these same challenges.
"I didn’t realise at the time how truly distinctive YC is. There’s no other organisation in the world that has the kind of founder network and loyalty that YC possesses. Having observed the last two YC batches closely, there’s no doubt in my mind that YC dramatically increases the probability of success for every one of its companies...not just the probability of raising Series A capital, but also the probability of building great long-lasting companies."