Y Combinator Finally Reveals Its Approach To Growth-Stage Investing

A couple of weeks ago, we published a post that pondered what investing pro rata would mean for Y Combinator. Just one month earlier, the popular accelerator program had filed for what it’s calling its Y Combinator Continuity Fund, which appeared to be a growth-stage vehicle — one rumored to be raising at least $1 billion.

I speculated that if Y Combinator used the money to cherry-pick deals from its portfolio of graduates — even if it were to skip a few stages to invest in a limited number of very late-stage deals — it could create a signaling risk for many other startups it funds. I added as a caveat that, “It’s possible that Y Combinator could follow on in every one of the venture-backed rounds of its portfolio companies, but the moment it doesn’t . . .”

Turns out, Y Combinator is doing exactly that — aiming to support all YC companies in future financing rounds by doing its pro rata for every company in every round with a post-money valuation of $250 million or less.

It’s not a brand-new decision, either.

As the organization’s president, Sam Altman, writes in a newly published post, “There were a lot of reasons why we couldn’t do this in the past, but starting in the [s]ummer of 2014, we added a pro rata provision to our standard investment documents. . .”

Y Combinator is “not going to lead any of these rounds or set the terms, just follow other investors. ” he adds. “And by doing this in every YC company, there will be no signaling issue of us supporting some companies and others.”

Smart move — and seemingly very good news for its companies and Y Combinator alike.