American seed accelerator Y Combinator limits partner investments to foster fair fundraising opportunities for its startups

By VCPOST Staff Reporter

Feb 01, 2014 11:40 AM EST

Y Combinator (YC) co-founder Paul Graham announced that the seed capital firm has placed investment restrictions on its partners. From now on, they will not be allowed to contribute to the first $500,000 raised by a company until three weeks after demo day has commenced, according to VentureBeat.

YC, startup accelerator pioneer, is known to select and mold the most promising early stage startups in the market. The firm's three-month program ends with a demo day where entrepreneurs face a panel of venture capitalists, executives, angel investors, journalists, and a few celebrities to pitch their business ideas. These events are designed to assist these startups in raising seed capital. After demo days, a funding series usually starts, the report detailed.

Every YC batch consists of 50 startups that spend a few minutes for their pitches. At this point, it is difficult to gauge the potential of a firm within a short span of time. However, YC partners know these entrepreneurs better as they have spent months with them. At times, the partners opt to make a personal investment on top of the funding that the startups receive when they join YC, the report explained.

This is where the problem lies. As Graham said, a partner investment now gives other portfolio companies a disadvantage or an unfair signal. Y Combinator wants to avoid doing that and give equal chances for all its startups to raise funds, VentureBeat reported.

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