Yuri Milner and Ron Conway aim to disrupt angel investing with latest proposal

Potentially disrupting the established practices of angel investing, investors Yuri Milner (pictured) and Ron Conway have teamed up to offer a blanket investment to every new startup from the Y Combinator incubator.

Milner heads Russian investment firm DST (once known as Digital Sky Technologies) and he disrupted venture capital practices when he made investments in Facebook, Zynga and Groupon at very high valuations and easy deal terms. Milner didn’t even ask for seats on the board of directors of those companies. In hindsight, his investments look brilliant because all have risen in value, at least on paper. Conway runs the SV Angel investment fund.

Techcrunch reported that Milner (acting as an individual investor) and Conway’s fund are going to invest in every single Y Combinator startup, with some 40 startups in the latest class. Their new fund is called Start Fund and is being managed by SV Angel’s David Lee. The bold bet is that they are investing in these startups sight unseen, with an offer of $150,000 in convertible debt. There is “no cap and no discount,” which Techcrunch says are terms that no angel will match. It means that the Start Fund will loan each company $150,000, and that money will convert into equity when the startup raises money from other sources. The debt has no valuation ceiling and does not get a discount on the conversion.

Each startup can choose to take the investment or decline it. The fund will offer the same deal for each Y Combinator in subsequent classes as well. That’s a big vote of confidence in Y Combinator’s ability to pick entrepreneurs. Typically, Y Combinator startups get $15,000 to $20,000 during the first few months of their projects. Paul Graham, co-founder of Y Combinator, told Techcrunch he was pleased with the new investment strategy. But other angels may cringe because they will have to match the generous terms offered by Conway and Milner or lose deals.

DST has poured hundreds of millions of dollars into hot social companies Facebook, Zynga and Groupon. But it made those investments when the companies were in relatively late stages of maturity, just as they were poised to go public. DST can pour so much money into the companies that they don’t have to worry about raising money and can postpone their IPOs for a year or two. In doing this, DST works with the companies to buy 80 percent of the shares from secondary sources, such as employees or early investors who want to cash out, and only 20 percent from the primary share owners.

That strategy involves a lot of risk, because it requires that DST come up with a ton of capital. But Milner has had no trouble with that. Earlier this year, he restructured the investment firm’s holdings so that its Russia-specific email, social and game businesses were all in one company, Mail.ru. That enabled Mail.ru, where Milner serves as chairman, to go public. Milner now runs the business of the global investment fund, DST, which is the entity that holds large stakes in Zynga, Facebook and Groupon.

The businesses all have potential for conflicts of interest. Zynga, the dominant player on Facebook, doesn’t always see eye to eye with the social network. Those dynamics make for the classic tensions between a platform owner and the platform’s major applications company, Milner said. But Milner avoids conflicts by refusing to take a seat on company boards, even though he has big stakes in each of the companies.

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  1. [...] Combinator also enacted a recent program similar to the AngelPad program called the Start Fund. DST partner Yuri Milner and super-angel Ron Conway offer blanket investments for Y Combinator startups as part of the program in a similar fashion. But AngelPad isn’t [...]

  2. [...] 500 Startups held a similar demo day for its startups last week. Meanwhile, well-known investors Ron Conway and Yuri Milner have announced their Start Fund will make a small investment in every Y Combinator [...]

  3. [...] few years. In fact, 500 startups held a similar demo day last week. Meanwhile, well-known investors Ron Conway and Yuri Milner have announced their Start Fund will make a small investment in every Y Combinator [...]

  4. [...] of the funds in which Arrington invests, led by Ron Conway, puts $150,000 of convertible debt into every startup in Y Combinator, an influential and successful San Francisco incubator. As [...]

  5. [...] Histoire suivante: monument privé pour Steve Jobs prévu pour le 16 octobre Histoire précédente: Activer un iPhone 4S est (ou du moins devrait être) une brise [...]

  6. [...] suivante: monument privé pour Steve Jobs prévu pour le 16 octobre Histoire précédente: Activer un iPhone 4S est (ou du moins devrait être) une brise This entry was posted in Uncategorized and tagged AndreessenHorowitz, Combinator, démarrages, [...]

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  8. [...] rarely brings on single founders and the deal with SVAngel + StartFund enables a young team to get only a handful of people on a [...]

  9. [...] puts $20-30k you get to prototype and maybe some traction. Then you get another $150K from Ron Conway and Yuri Milner that could last you one more year to 18 months to not only build product, but show some momentum [...]

  10. [...] Grishin is the CEO of Mail.ru, a Russian email and social media portal worth around $7 billion. His Mail.ru co-founder Yuri Milner runs headline-grabbing investment firm DST, whose investments include Facebook, Zynga and Groupon and who offers $150,000 to every new startup from Ycombinator. [...]

  11. […] StartFund was formed by Russian billionaire Yuri Milner and SV Angel legend Ron Conway in 2011 to put $150,000 into all Y Combinator companies. Andreessen Horowitz and General Catalyst were also contributors and this money was one of the perks of the program. However as the program grew and valuations shot up, the money was difficult to manage and YC decided to do a little reshuffling. It created its own fund called YC VC where startups receive $80,000, and later announced that it would cut down class size from 84 in Summer 2012 to less than 50 in Winter 2013. […]

  12. […] StartFund was formed by Russian billionaire Yuri Milner and SV Angel legend Ron Conway in 2011 to put $150,000 into all Y Combinator companies. Andreessen Horowitz and General Catalyst were also contributors, and this money was one of the perks of the program. However as the program grew and valuations shot up, the money was difficult to manage and YC decided to do a little reshuffling. It created its own fund called YC VC where startups receive $80,000, and later announced that it would cut down class size from 84 in summer 2012 to fewer than 50 in winter 2013. […]

  13. […] StartFund was formed by Russian billionaire Yuri Milner and SV Angel legend Ron Conway in 2011 to put $150,000 into all Y Combinator companies. Andreessen Horowitz and General Catalyst were also contributors, and this money was one of the perks of the program. However as the program grew and valuations shot up, the money was difficult to manage and YC decided to do a little reshuffling. It created its own fund called YC VC where startups receive $80,000, and later announced that it would cut down class size from 84 in summer 2012 to fewer than 50 in winter 2013. […]

  14. […] Yuri Milner and Ron Conway aim to disrupt angel investing with latest proposal […]