The California-based startup accelerator Y Combinator informed that it was reducing its headcount as the leadership team has deemed investments in late-stage startups a “distraction” from their core mission.
The news was announced in a blog post published yesterday where the company highlighted its success in helping founders turn their ventures into multi-billion dollar businesses.
According to Y Combinator, this should have no impact on the companies the fund has provided financing to thus far although it will affect prospective late-stage candidates who will no longer be considered eligible.
A late-stage startup is a business that has already turned its idea into a working product, assembled a team of capable professionals including salespeople and support staff, and has generated money from the sale of the product or service to actual customers.
The number of companies in the tech sector that are actively right-sizing their organizational structures keeps growing every month. Estimates from Layoffs.fyi, a website that keeps track of all of these involuntary departures in the industry, indicates that nearly 130,000 people have been pushed out of their jobs thus far in 2023.
The Federal Reserve’s decision to hike interest rates aggressively since 2022 has had an impact on the valuations of startups in multiple sectors and has made things more difficult for them to raise capital.
Y Combinator Says that These Layoffs Were Not Influenced by the SVB Debacle
Y Combinator’s decision to trim its organizational structure comes at a time when banks that provided funding to venture capital (VC) funds including the Silicon Valley Bank have been pressured by en-masse withdrawals.
However, the fund clarified in a statement sent to TechCrunch that the decision was not influenced by the developments that transpired in the past few days and that ultimately led to the seizure of SVB by the US Federal Deposit Insurance Company (FDIC).
Despite this assertion, the founder and CEO of Y Combinator, Garry Tan, published several tweets where he deemed the debacle of the bank an “extinction level event” for startups. The tech financier went on to prompt the FDIC to “do right” as thousands of these companies would struggle to make payroll.
This is an *extinction level event* for startups and will set startups and innovation back by 10 years or more.
BIG TECH will not care about this. They have cash elsewhere.
All little startups, tomorrow's Google's and Facebooks, will be extinguished if we don't find a fix.
— Garry Tan 陈嘉兴 (@garrytan) March 10, 2023
“All little startups, tomorrow’s Google’s and Facebooks, will be extinguished if we don’t find a fix”, Tan commented.
On Sunday, the FDIC, the Federal Reserve, and the Treasury Department issued a joint statement where they assured all customers of SVB that they will get access to their deposits on Monday.
In addition, the Fed stated that eligible banks will be able to apply for financial lifelines from the central bank in case they experience a liquidity crunch amid an unexpected wave of withdrawals.
Late-Stage Startups Now Have One Less Partner to Turn To
Even though Y Combinator may have not been affected by what happened with SVB, it could be expected that the debacle of the bank could have a big impact on the startup ecosystem as the financial institution was well known for providing financing to venture capitalists, private equity firms, and startups via its SVB Capital unit.
The unit is being sold by SVB Capital – the parent company of the bank and other subsidiaries – and it has a portfolio of investments that is worth over $10 billion.
The fact that Y Combinator is also winding down its late-stage investing activities is not good news for startups either as they will have one less partner to turn to for funding. The California-based fund typically injects $500,000 into every company that makes it to their program and provides founders with training.
Y Combinator claims to have funded more than 3,500 startups since its foundation. The companies they have invested in are reportedly worth more than $1 trillion. The portfolio includes global successes such as AirBNB, Coinbase (COIN), Dropbox, and Stripe.
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