Y Combinator on Monday announced that it has raised a $2 million venture fund with the aid of Sequoia Capital and angel investors.
In making the announcement, Y Combinator noted that it plans to increase the number of start-ups it funds to 60 a year, up from 40.
For Web services and software start-ups, that may bode well. Y Combinator focuses its investments on those two sectors and funds companies that are in their early stages.
As it notes, one unusual twist to this venture firm is its reliance on the strength of entrepreneurs' ideas, rather than on their business plans to support the ideas.
Y Combinator said it is ramping up its investments at a time when others are scaling back:
It's a big step for us to raise outside money. Till now, we'd only used our own. But we didn't want to let the bad economy make us conservative. Instead of hunkering down to wait out the recession, we want to expand to take advantage of it.
Y Combinator also noted that the quality of surviving start-ups is of a higher caliber during these economically trying times.
With the added funding in hand, Y Combinator extended its deadline for start-ups to apply for funding to March 25.
(Credit:
Dan Farber/CNET Networks)
Marc Andreessen is adding venture capitalist to the growing list of titles he wears in the tech world, which includes serial entrepreneur, angel investor, and browser technology pioneer, according to a report in peHUB.
Andreessen is launching the venture fund with Ben Horowitz, a former Netscape veteran and co-founder of Opsware, two companies that Andreessen co-founded, the report states.
The venture fund is the latest evolution to the angel investment relationship Andreessen and Horowitz share. Last year, for example, the pair were angel investors in mobile video service Qik and virtual world company Metaplace.
And Thursday night, Andreessen made an appearance on the Charlie Rose show, in which he discussed his role as an entrepreneur, investor, and now a venture capitalist.
Andreessen is launching a venture capital fund at a time when VC investments into start-ups has taken a hit, falling 71 percent in the fourth quarter to $3.4 billion, over the previous year.
Nonetheless, Andreessen does have a track record for creating companies that have gone public or been acquired for big bucks, from the former browser pioneer Netscape to the .
Venture capitalists' confidence level took another hit in the third quarter, marking the sixth-consecutive quarterly decline for the Silicon Valley Venture Capitalist Confidence Index, which was released Wednesday.
The index fell to 2.89 points, nearing the midway point of a 5-point scale, with 5 ranking the highest confidence level.
According to Mark Cannice, associate professor of entrepreneurship and the founder of the University of San Francisco's Entrepreneurship program and author of the index, the faltering confidence level stems from several factors:
The unprecedented deterioration of macro economic conditions and the resulting impact on the venture capital business model were cited most often by this study's responding venture capitalists as the factors that negatively impacted their confidence in the near term environment for growth ventures.While the lack of IPO exits has adversely impacted the (liquidity events) of the VC business model this year, the precipitous decline in the value of stock portfolios of some limited partners (e.g., pension fund asset managers) will likely limit the amount of capital committed to venture funds in the near term.
Since the first quarter of 2007, when the index stood at 4.38 points, the level of VCs' confidence has edged down every quarter. And in the last four quarters, the index has hit new lows since it was created in 2004. The index was derived from a September survey of 33 San Francisco Bay Area venture capitalists.
One after another, venture capitalists are stating the obvious to the companies they've invested in: Now would be a very good time to keep your money under lock and key.
From Sequoia Capital, which has had parts of its dire economic presentation to its portfolio companies aired out in the press, as reported in VentureBeat and GigaOm, to angel investor Ron Conway in his letter to his portfolio companies, the message is clear and persistent: prepare for the worst.
M&A and IPOs Worldwide and Tech
(Credit: Thomson Reuters)And that preparation, as Conway noted in his letter to portfolio companies, includes cutting marketing costs, general and administrative expenses and, yes, even layoffs if need be. Sequoia was a bit more dramatic in its message, reportedly using a tombstone with the engraved words "R.I.P. Good Times."
Faced with a tightening credit market and the markets in a virtual meltdown, the VCs that fund these start-ups are busy dishing out sage advice--and companies are taking it to heart much earlier in the game compared with the Internet bubble of 2000.
News.com Poll
And for later-stage companies, the M&A route is virtually the only game in town. The IPO scene, in this bearish market, has virtually shut down, with only 44 tech initial public offerings out the door so far this year, compared with 215 deals last year, according to Thomson Reuters.
Start-ups that are fortunate to land another financing round should expect smaller rounds and ones with lower valuations for their company.
And while most tech companies are capital efficient, meaning they need little money to fund their operations, the hot investment area of "green tech" is not as fortunate, noted one venture capitalist.
"One area that is very affected and needs large sums of capital to take off is the novel energy ideas like solar, biofuels, and large-scale energy projects," noted venture capitalist Geoff Yang of Redpoint Ventures.
He added that businesses that plan to rely on the credit markets and finance markets to make their business models work are the ones that are at greatest risk in this current economic climate.
Click here for ongoing coverage from CNET News, 'Tough times for tech'
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