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Y Combinator’s YC VC may lose the actual VCs

By
Dan Primack
Dan Primack
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By
Dan Primack
Dan Primack
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March 28, 2014, 3:39 PM ET

FORTUNE — For several years, a group of venture capital firms has committed to invest a pre-determined amount into each startup accepted into the storied Y Combinator incubator program. But Fortune has learned that things are about to change.

The investment program’s original incarnation was called Start Fund, and was sponsored by Ron Conway’s SV Angel and Russian venture capitalist Yuri Milner. Each startup would receive a $150,000 uncapped convertible note, on top of the $20,000 already provided to them by YC. Then, in 2012, SV Angel tapped out and the program was renamed YC VC. Milner remained a sponsor, and was joined by Andreessen Horowitz, General Catalyst and Maverick Capital. One other notable change was that YC VC only provided a total of $80,000 (plus YC’s contribution), in part to reflect the cheaper cost of creating companies. Yet another change occurred last fall, when Khosla Ventures replaced Milner.

Now we’ve learned that YC is launching a new vehicle that is unlikely to include any VC firms as limited partners. That means no more Andreessen Horowitz, General Catalyst or Khosla Ventures (I’m still not certain abut Maverick, which isn’t really a traditional VC fund). Instead, the plan is to include more “traditional” sorts of limited partners.

The move doesn’t appear to be based on friction between the parties, but rather was promoted by two contrasting perceptions (founded or unfounded):

1. Participating firms have an unfair advantage when it comes to investing in seed or Series A rounds for the best new startups from each YC class.

2. Negative signaling risks if the participating firms passed on a startup.

Y Combinator’s strategic shift also could allow YC to scale faster if need be, as early speculation is that the $80k could get sweetened a bit (to help cover rising Bay Area living costs).

To be clear, none of this has been formalized yet (no LPAs signed, etc.), but things are moving quickly in this direction.

Incoming YC president Sam Altman declined comment.

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