The Secret That Silicon Valley's Top Investors All Share

TL;DR

Top venture capitalists (A16Z, Sequoia, Founders Fund) invest heavily in YC companies despite publicly criticizing YC. They do this because YC provides a valuable filter, de-risks early-stage startups, and packages companies for later-stage investment. The conflict arises because VCs prefer to be the first check, but YC encourages founders to talk to many investors, creating competition.

Key insights

• Top VC firms like A16Z (234 investments), Sequoia (139 investments), and Founders Fund (104 investments) have made hundreds of investments into YC companies, proving they vote with their pocketbooks.
• The main reason a normal VC passes on a startup is "too early" – insufficient signal – and YC acts as a filter, reducing 20,000 applications to ~200 companies, which VCs cannot replicate at scale.
• YC also provides financing so companies do not run out of money before VCs can invest, plus advice and a network that helps companies pivot (many of the top 100 list pivoted during YC).