Techcrunch reported today about the new joint venture between Yuri Milner of DST fame and super angel Ron Conway. Called Start Fund, this new investment vehicle will give every single YCombinator company a $ 150K debenture with no cap and no conversion discount.
As an investor, I see some potential issues with this. For one, YCombinator and similar accelerators may have different objectives than venture /super angels. They are quite happy when companies get to break even on tiny amounts of capital. Are Start Fund’s investment objectives and criteria fully aligned with YC?
Also, while Yuri is investing his own dosh, Conway’s SV Angel Fund raised $ from outside LPs for the 1st time last year (I think). So, now the investment decisions for a portion of their money are being outsourced to Paul Graham (founder of YC). If I were an LP there, I might have some concerns. As TC reports, the team behind Smart has not even met all the companies it has committed to invest in.
Finally, this move increases the already massive hype around YC and its companies. I just hope that does not translate into bad (read: over-priced) follow on financings.
Investing in companies you have not even met is bubble-like behaviour. Even if the $ amounts are small. I am not sure it’s the smart way to go.