It was startup capital. Venture capitalist Gary Tan’s answer to the demand was first highlighted by Y Combinator. In the year At Accelerator Partnership from 2010 to 2015, after graduation, Tan spent time partnering with companies to better understand what they wanted from investors.
“I’ve actually built a seed fund for those companies that I want to have,” he said in an interview with TechCrunch on Zoom. Today, Initialized Capital manages more than $3.2 billion in assets under management, and Tan is stepping back to his former accelerator at the museum — this time as its new CEO and president of the entire institution. With Tan’s new gig set to start in January 2023, he sat down with TechCrunch to talk about his vision for the accelerator, the team and his goals going forward.
The investor will have a large scope. Initialized Capital raised its largest funding last year and now works with over 200 active portfolio companies. YC, however, is operating on a completely different scale: the accelerator has funded more than 3,000 companies and worked with more than 6,000 founders. YC declined to share AUM, but confirmed that the combined value of its portfolio companies is close to $1 trillion.
“The world is so big now and there are so many problems to solve – the opportunity to help create more prosperity in the world is a huge draw,” Tan said.
Tan’s announcement comes at an active time for the speed. Next week is Y Combinator’s annual demo day, fast-forwarding to three months in which startups go public for the first time. It’s different from pre-show days because it’s smaller. YC recently stated that this summer is 40% lower than the last batch in response to the subsidy environment and the economy.
While addressing one of the accelerator’s frequent criticisms of YC’s narrowing of focus — that the classes have become too large and the network weakened as a result — Tan offered no specifics or sentiments in favor of a similar approach going forward. He’s a former YC founder himself and instead advocates an accelerator approach to growing teams year-over-year — something his recent predecessor, Geoff Ralston, has been known to push forward.
“A lot of people talk about the batch size being too big, but I think, dude, Metcalfe’s Law is one of the most fundamental laws,” Tan said, adding that the more nodes, the more connected and valuable the network. There are many more people like me who want to escape the rat race and build their own.
He sees the network and community as YC’s biggest strength, rather than its biggest challenge (the latter of which he says is too early to say).
Tan hopes to further engage the YC alumni community in the future of the institute, though it’s unclear how this will work, whether through more events or a visible micro-community game. There are some external efforts of this phenomenon that are easily related to the speed booster. OrangeDAO, for example, is bringing together more than 1,000 YC students who are interested in supporting crypto companies together – and just last week it raised $80 million in its first round of funding.
The number of YC alumni is undoubtedly huge, powerful and located through some of the wealthiest companies in a variety of sectors, and has historically struggled with diversity within its ranks. The latest batch, the YC team featured 90% male founders, up from 88% in the previous batch. It also had 12% Latinx founders, a decrease of 15% from the previous cohort. More progress was made when it came to black founders, with 6% black founders in summer 2022, up from 4% previously.
When asked if diversity was a focus for admission to YC, Initialized said it was selected as one of the most diverse organizations in a research project conducted by The Information Technology. “Because I want to continue like that [YC] It’s the most progressive thinking thing in the world, isn’t it? So you know that all these things that we want to accomplish are in the past.
Tan’s passion for the Bay Area may play a role in attracting founders. Although YC’s future may seem far off — especially given the global spotlight — the entrepreneur spoke about his personal history growing up in the Gulf and said YC is moving in a big direction to refocus on the region. – Including this collection of Sonoma retreats. “Let’s just keep that prosperity because, you know, something about the San Francisco Bay Area is magical,” he said. “As a YC magnet, the San Francisco Bay Area … will play a major role in the future of technology.
Tan’s exit is shaking up the organization he found. Reddit’s Alexis Ohanian took over the fort after the company’s other co-founder left in 2020. In an ongoing shake-up, the firm has appointed Jane Wolff and Brett Gibson as managing partners. Wolff, previously president and partner, will continue to invest and lead all Initialized operations. Gibson, who previously served as a general partner (focusing on crypto, web 2.0, SaaS and DevOps), will lead the firm’s early stage investment strategy.
Sources told TechCrunch that Tan’s appointment and subsequent leadership appointments were not sudden, with some saying they were more than a quarter of a work in progress. Tan says he heard about the opportunity recently.
The two worlds of Initialized and YC are similar beyond the order and origins. For example, Tan hired YC alumnus Scott Moss as a principal at Initialized. One of Tan’s most successful investments to date is cryptocurrency platform Coinbase. By investing with Y Combinator and then starting up, Tan’s investment was once estimated, using private secondary valuation, to yield a 6000x return. The startup regularly invests in startups that come out of demo day.
Tan didn’t say how his new role at YC and his future role at Initialized, a venture advisor, would overlap when asked about competitive or complementary dynamics. “You need a seed investor that’s going to be there for years, and it’s going to be a startup,” he said. “The high level here is that I’m here to build YC companies. [and] The founders succeeded.
