Y Combinator is probably the most high-profile startup incubator. Founded in 2005, it will fund its 1,000th company this year, and helped nurture now big-name companies such as Airbnb, Reddit, Stripe and Instacart back when they were still seedlings.

Yesterday, the incubator announced that it has created a new $700 million venture fund so it can help companies develop well into their sapling stage.

That hasn't traditionally been Y Combinator's role. The incubator accepts classes of startups twice a year, and provides a $120,000 investment for what is typically a 7 percent stake in each company, along with advice and access to a network of venture capitalists, startup founders and technology executives. But whereas before, when a startup "graduated" it was expected to find additional funding from outside investors, Y Combinator's new fund gives it the framework to continue to invest in later rounds.

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In a blog post, Y Combinator president Sam Altman said that it will make a "pro rata investment for every YC company in every round with a valuation below $300 million." That means Y Combinator will likely keep its 7 percent stake in all these companies, even as they raise future rounds to grow.

After the incubator's graduates reach the $300 million valuation mark, Y Combinator will participate in later funding rounds at its discretion. It's a move that at once allows the incubator to bet big on winners, but also puts it at odds with its former attempt to treat its startups equally and not play favorites.

Altman said the fund will also allow Y Combinator to help companies with potential that would have a difficult time raising outside money: "There are some companies we think are very good and important to support with growth-stage capital that traditional investors are less excited about, and we're looking forward to being able to do that."

Related: Y Combinator Partner on Crowdfunding: It Makes Our Job Harder