Y Combinator has helped over 800 startups come to market that are today worth a collective $30 billion (and possibly even more very soon). Now it looks like a new VC is emerging out of it that will be dedicated to help the most promising of these grow.
TechCrunch has learned of a new VC fund called Crystal Towers. Backed by several YC founders, it will start out with between $90 million and $100 million to invest in the most promising YC companies out of every batch.
A firm called Crystal Towers Capital Fund TI, L.P. at the end of June quietly filed a Form D, but for only part of that amount, $27.5 million. Sources say that the total sum was raised in a week.
The name Crystal Towers comes from an apartment complex in San Francisco where Y Combinator founders have lived. Crystal Tower has also been referred to as “Y Scraper,” another name that was weighed up for this fund.
The Form D notes Alex Bangash as “managing director of the general partner.” Bangash is an LP in a number of different funds and is also a founder of Trusted Insights, a network for investors. That network happens to be also partly funded by two YC partners, Alexis Ohanian and Garry Tan. (Initialized Capital, their firm, is not investing in Crystal Towers, however.) TI Platform Fund, where Bangash is also the MD, is also listed as a general partner on Crystal Towers’ Form D. Its own filing in May noted that it had raised $6 million of the $25 million it sought.
And two other filings for Crystal Towers affiliates round out the fund size to the number we had heard. Crystal Towers Capital LP filed a Form D for $40 million, with $25 million of that sold so far. It lists Tikhon Bernstam as the managing member of the general partner. Bernstam was the co-founder of YC startups Parse (sold to Facebook) and Scribd.
Another Form D, for $10 million ($10 million sold), is for Crystal Towers Capital Associates, also lists Bernstam as a GP.
Taken all together, these Form D’s total $102.5 million.
Crystal Towers is not associated in any formal capacity with Y Combinator, our sources say, even though the accelerator is the thread that connects the founders and its target investments.
Those names alone — and the funding, valuations and overall success that they and others at YC have achieved — speak to some of the force of the accelerator up to now.
But the way that YC companies get early funding has been changing. Under the leadership of Sam Altman, YC has swapped out its previous “YCVC” model where a very select group of VCs pitched into the initial round, in favor of an LP model where YC raises the larger pool on its own and invests $120,000 in each startup for a 7% equity stake.
The idea is that this was meant to level the playing field for those investors who were not a part of that select group, and to reduce “signalling risk” if a VC doesn’t invest again in a later round.
If these changes were partly designed to open the door to others to come into the mix in early stages, perhaps that’s where the Crystal Towers group is hoping to get involved. It sounds like it will be trying to offer something more to YC startups than simply money, however.
“I think this is a pretty natural next step for successful YC founders and good for the ecosystem,” one source says. “Better and more startups will exist if there are more seed investors who are fast acting and benevolent, and ideally were founders themselves so they can help a lot. The YC alumni are perfect to be exactly that.”
The other thread to the story is that YC itself appears to be gearing up to become a more proactive investor in the companies that pass through its accelerator program. Not much has been said officially about the Y Combinator Continuity Fund, as it appears to be called, but it too filed a Form D for an unspecified amount of funding. The Information is reporting that it may be in the region of $1 billion.
Crystal Towers would not be the first time that people associated with YC have started a separate investment fund. Initialized Capital, founded by YC partners Alexis Ohanian, Harjeet Taggar and Garry Tan, raised nearly $40 million in 2013. Its investments are not limited to YC companies. Initialized has also stopped investing in startups coming out of YC.
Update: Story updated with more funding information. We will continue to update this story as more information becomes available.