AngelList and YC both announced big new funds last week. AngelList announced that CSC Upshot raised a $400M fund to invest in startups on AngelList. YC announced that they raised $700M for their YC Continuity Fund, which will support YC companies into later rounds. The scale of these funds were enough to shock and awe the tech community.
These quotes from Naval Ravikant and Sam Altman struck a chord with me:
Naval: “Even the $400 million will be spread out over six to eight years.”
Sam Altman: “Finally, we look forward to being a very long-term focused investor in a sector where most players are not.”
It’s interesting to find that in both these announcements, they make sure to emphasize the long term nature of these funds. The signal that these funds are going to be around and investing over the next 6–8 years or longer have tremendous value for the tech ecosystem that not many people realize.
In economics, there is an argument that temporary tax cuts are ineffective. The purpose of tax cuts is to try jumpstart the economy by increasing consumption. But if consumers know that a tax cut is temporary, it won’t drive sustained increase in consumption because they know their bump in discretionary income is just a blip on the radar. However, if the tax cut is permanent, consumer will feel like they have a permanent increase in discretionary income and that will drive a long term increase in consumption.
Just like the power of permanent tax cuts that drive long run behavior change, these big announcements can drive behavior change in their ecosystems because they provide long term stability in an inherently cyclical industry.
These new funds can act as stabilizers for their respective platforms. Founders won’t have to worry about macroeconomic issues. They won’t need to go into hibernation mode. They won’t have to become completely risk averse to ride out the bad times.
Tech nuclear winters do not discriminate — they cause pain to the entire ecosystem. By raising a big later stage fund, YC can strengthen their platform and make sure YC founders building solid companies won’t have to worry about funding. Similarly, AngelList can make sure that the best startups on their platform continue to receive funding. The proverbial babies do not get thrown out with the bath water. These new funds add a big dash of antifragility into the YC and AngelList platforms, and that’s part I really appreciate with these developments.