This past week saw the news of AngelList raising a dedicated $400 million fund and Y Combinator doing the same with a $700 million Continuity fund.
Both of these operators have tremendous capabilities with these new funds and will no doubt be successful in extending their reach among very early-stage technology companies.
But what has been little remarked is that now these two groups are directly operating in "VC territory" by investing in the later stages of startup development, but without the demonstrated value add that tech VCs provide.
What I mean by that is that what differentiates venture capital firms investing in startups is their "value add", since investment capital is such a commodity now.
Value add is a VC's ability to help early-stage founders build, scale and ultimately sell or go public with their technology company. It refers to the many additional services that VCs provide startups: corporate strategy, board governance, hiring top quality C-level executives, navigating market pivots, management development, M&A outreach, IPO advice and so on.
AngelList and Y Combinator certainly have experience at the very earliest stages, helping to get the fledgling startups off the ground. But they don't have significant value add propositions for startups once they reach the Series A stage of development and beyond.
So I wonder about their "mission creep" since now these firms really only have commodity capital to offer scaling stage startups.
Venture capital firm partners are extremely competitive for deals, have sharp elbows and will redouble their efforts to pull startups away from any investor that can't add the kind of value that the sophisticated, sector-focused and highly capable partners can.
Being able to fill out an investment round with their extra dollars is fine, but AngelList and Y Combinator will need to do a lot more, since filling out a round is just providing more of a commodity.
Investment capital is table stakes now, the real game is in the value add and AngelList and Y Combinator are subject to the same issues and constraints that venture capital firms have - they are squarely in the VC game now.