Almost a year-and-a-half after Ali Rowghani resigned as COO of Twitter, he’s been appointed the head of Y Combinator’s growth fund by the organization’s president, Sam Altman.
TechCrunch had heard whispers of the move earlier this week, but Altman made the announcement official earlier today, tweeting of Rowghani that he’s a “wonderful partner to help companies scale.”
Rowghani joined Y Combinator as a part-time partner back in November of last year. Earlier in his career, from 2002 through 2008, he served as the CFO of Pixar. (Rowghani had joined Twitter as CFO from Pixar but was made COO in 2012.)
We just hopped off the phone with Rowghani about some of his plans moving forward.
It does appear that Y Combinator will be leading investments in startups with its new growth capital, which is coming in part from Stanford University, Willett Advisors, and TrueBridge Capital Partners, according to the Wall Street Journal. Indeed, as TechCrunch reported early this week, YC is the lead investor in Checkr, a San Francisco-based startup that runs background checks and vets potential hires for fast-growing startups. The company is raising at least $30 million in Series B funding, at a valuation north of $250 million.
For VCs who haven’t had to compete with Y Combinator in later-stage rounds, this is a Big Deal. We wrote of some of the potential complications in competing with Y Combinator back in July, and those worries remain top of mind, seemingly.
This is much, much, much more scary to traditional VCs than anything AngelList will do for a while. https://t.co/eq4kYq2EsJ
— Jason M. Lemkin (@jasonlk) October 14, 2015
Asked about how routinely Y Combinator will make lead investments, Rowghani says the organization doesn’t “have any religion around leading or participating as a secondary investor,” nor does it “have any shyness in leading under the right circumstances.”
What are those circumstances, exactly? Rowghani says there’s no “line in the sand,” but that beyond “programmatically” investing its pro rata in all Y Combinator companies that raise money at up to a $300 million valuation, the firm will now “on an elective basis, write bigger checks to certain companies” that have matured beyond their seed and Series A rounds.
Asked about signaling risk and whether Y Combinator could doom those of its portfolio companies it doesn’t back as they mature, Rowghani shrugs off the concern. “We’re staying away from early stage precisely because we want to avoid signaling issue, which is most acute when companies are just departing from [the accelerator program of] Y Combinator, when we have more information about them than most investors.”
Later-stage companies that have “been around a few years, have raised capital, have third party investors on board and are valued at multi-hundreds of millions of dollars” are fair game, he adds.
As for venture capitalists who may view Y Combinator’s new strategy as a competitive threat, Rowghani downplays those concerns, too.
Says Rowghani, “There’s really not going to be any change in terms of our relationship with early-stage VCs, because we’re avoiding early-stage rounds. As for growth stage investments, those rounds tend to be larger and more collaborative anyway. They aren’t typically winner-take-all situations.” Not last, says Rowghani, “There’s often a whole host of different characters, including mutual funds and non-VC firms that wouldn’t be funding early-stage companies anyway.
“We’ll just see how things play out,” he adds. “But we’re not hugely concerned about negative competitive reaction.”
Only time will tell. Certainly, the development is a bit of a surprise. In a summer post about Y Combinator’s growth fund plans, Altman had acknowledged that Y Combinator was aiming to start supporting all of its companies in financing rounds by “doing its pro rata.” He wrote that it will “try to do this for every company in every round with a post-money valuation of $250 million or less.”
But Altman had added: “To make it extra-clear, we’re not going to lead any of these rounds or set the terms, just follow other investors. And by doing this in every YC company, there will be no signaling issue of us supporting some companies and not others.”
Because of that added emphasis, many industry observers likely read right past that $250 million figure. In hindsight, they shouldn’t have.