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It’s YC week and while I love to wonder how the accelerator’s impact is shaping up in today’s climate, there’s always a lot to learn from the hundreds of founders coming together and showcasing their companies to the world. Along with some of my favorites on the TechCrunch and TechCrunch+ team, I covered the Y Combinator Winter 2022 Demo Day with a series of posts:
Now that we’re done I want to leave you with a few takeaways I had after hearing hundreds of pitches. Here’s what the 411 Demo Day pitches will teach you about startups:
India is all about fintech: Along with the United States, India was the most represented country in winter 2022. For what it’s worth, more than 191 companies in India have been funded through the Y Combinator Accelerator, with almost half – half! — of companies included in the last 12 months.
- The Demo Day is no longer used for financing: During this week’s equity, we chatted about how the demo days have performed in terms of utility and whether the performance in and of itself is outdated. I won’t ruin our final conclusion, but I will mention some illustrious YC data. This year, YC said it supports startups at every stage for its accelerator and that more than half of the companies have raised money before acceptance. To me this means that the Accelerator is not really intended for the pre-seed company looking for their first check, but for any company that wants access to the YC network.
- Competition is inevitable: We’ve found that a number of startups in this season’s batch are basically competing head-to-head, which isn’t a new trend but perhaps a more notable one than the accelerator scales. Most early-stage investors I speak to try to avoid any appearance of conflict of interest, so YC’s backing of companies in the same region, with identical business models and founding years is somewhat contrary. It seems like the accelerator has so far avoided public tension by separating similar startups – but with an acceptance rate of around 2%, one has to wonder how similar bets are determined.
I wrote a previous version of this column in September called What 377 Y Combinator Pitches Will Teach You About Startups. Months later, the accelerator has expanded its footprint, with almost half of its companies based outside the United States and new representation coming from New Zealand, Sudan, Uganda and Costa Rica.
I will remind you all, as I always do, that YC – much like any individual institution – does not fully exemplify the next wave of startup decision makers and executives. The growing check size, for example, has sidelined a slew of funders that once poached the demo-day dealflow. And when it comes to diversity, the accelerator has supported some underrepresented groups.
In the rest of this newsletter we will look at an edtech round in India where we get rid of the Cross River Bank pro rata and atypical raise. As always, you can support me by forwarding this newsletter to a friend, Follow me on Twitter or subscribe to my personal blog.
offer of the week
class plus! As our own Manish Singh points out, “At a time when so many edtech firms in India are trying to reduce their reliance on teachers, a Noida-based startup that helps teachers and developers run, manage and to sell to students, raised $70 million in a new round of funding.” The startup, now valued at $570 million, is just four years old.
Therefore it is important: Offline coaching – where tutors go in person to teach students a variety of subjects – is still very popular in India, but is geographically limited. The pandemic and wider digitization around the world has prompted some teachers to embrace online opportunities to grow their larger businesses. Classplus’ ability to raise money means that urban India has enough demand to be a venture capital-ready market.
Let’s get rid of proportionately
Investors Vijay Chattha and Jay Kapoor, who co-founded a venture firm spun off from a public relations firm, recently wrote an op-ed arguing that VC should be scrapped pro-rata. The duo drew on a portfolio survey and found that investors rarely add value beyond 90 days after the signed term sheet. “At this point, the investor’s engagement is limited to their attendance at the quarterly board meeting — and that’s the lead investor,” the commentary continues.
Investors therefore believe their peers should not invoke contractually negotiated pro-rata rights when they are not involved in the deal, as “their mere presence on the capitalization table discourages other VCs from working harder for their founders.”
Therefore it is important: Chattha and Kapoor’s argument is contrary because it bets investors will change their habits at the expense of their own returns. What I like, though, is that once investors snag that coveted spot on the cap table, they’re being urged to raise their bar on ownership and influence. It’s easy to give up proportionately in a struggling startup, but what if you have to constantly prove yourself to your highest-rated company? Incentive alignment for days if you ask me.
Other surprises of the week:
From tiny to powerful, very quickly
Cross River Bank has raised $620 million at a valuation of over $3 billion. The company provides technology infrastructure for risk-financed lending and payments, making the raise a kind of double bet on fintech’s boom.
Therefore it is important: Fintech startups raised $121.6 billion last year — a 153% year-over-year increase in the value of global VC deals, but as Mary Ann pointed out, it’s uncharacteristic to pour millions of dollars into a traditional one to tuck into the bank. David George, general partner of Andreessen Horowitz, explained why he is so interested in the company:
“When Coinbase started looking for a partner bank, many traditional financial institutions had blanket policies that prevented them from participating in crypto,” George told TechCrunch. “Cross River, on the other hand, had the foresight to lean on this new frontier and support Coinbase and many other leading crypto companies that are still happy partners to this day.”
Validation for days:
About the week
We meet in person! Soon! TechCrunch Early Stage 2022 is April 14th, aka just around the corner, and it’s in San Francisco. Join us for a day-long Founders Meetup with Terri Burns from GV, Glen Evans from Greylock, and Aydin Sekut from Felicis. The TC team was keen to come back in person, so don’t be surprised if the panels are a bit spicier than usual.
Here’s the full agenda, and grab your entry tickets here.
And finally, in case you missed last week’s Startups Weeklyread here: “We keep trying to reinvent startup accelerators.”
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Until next time,