Today we announced Continuity, a new venture capital fund run by Y Combinator. You can read our blog post here, and coverage from the Wall Street Journal here.
Below, Continuity's Ali Rowghani answers a few commonly-asked questions about what Continuity is, how it will work, where it fits within the venture capital landscape, and why he decided to lead this effort at YC.
What is the Continuity Fund?
Ali Rowghani: The Continuity Fund is YC’s follow-on investment fund that will allow us to provide capital to YC companies years after they graduate from our program.
How will the Continuity Fund invest capital?
AR: The Continuity Fund will invest capital in two ways:
- First, we will exercise YC’s pro rata investing rights in follow-on financing rounds, beginning with the Series A. For rounds priced below $300M, we will exercise our pro rata rights in a programmatic fashion. In other words, we expect to exercise pro rata rights in all YC companies that raise capital at valuations below $300M. For rounds priced above $300M, we will exercise our rights more selectively.
- Secondly, and on a purely elective basis, we will consider leading or participating in growth financing rounds of YC companies. For these elective investments, we are open to taking Board seats where it makes sense for founders, but do not expect to do so in every investment.
Will the Continuity Fund invest in any non-YC companies?
AR: No. Our focus is exclusively on companies that have been through our program.Why did YC decide to raise this fund?
AR: The idea actually came to us from our founders, many of whom have encouraged us to raise a fund so that YC could remain a financing partner for them as they grew their companies. We ultimately decided to do so because we realized that the ability to provide capital beyond the seed stage was pretty crucial to fulfilling our mission of enabling more innovation in the world.
Isn’t this Fund going to bring you into conflict with VCs?
AR: We will not be competing with early stage VCs at all. These investors are vital parts of the startup ecosystem, and we have no desire to compete with or otherwise disrupt this ecosystem. So other than exercising our pro rata rights, the Continuity Fund will not be investing in seed or traditional Series A rounds.But as we all know, good companies are staying private longer, and the market for private growth capital has grown considerably. These later stage rounds tend to be larger, shared rounds rather than winner-take-all.
So while some competition is unavoidable, we foresee a lot of collaboration with other late stage investors as well.
Why did you decide to lead the Continuity Fund?
AR: 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 realize at the time how truly distinctive YC is. There’s no other organization 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. So when Sam asked me if I would be interested in leading the Continuity Fund, I realized that this was an opportunity to extend the mission and impact of YC into more mature companies. Supplying capital is one part of that mission. But supplying meaningful company-building help and advice for rapidly scaling companies is even more important, and that’s something that my prior operating experiences have prepared me well to do.