{"id":627292,"date":"2023-04-09T09:49:52","date_gmt":"2023-04-09T14:49:52","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/04\/09\/were-still-talking-about-y-combinator-valuations\/"},"modified":"2023-04-09T09:49:52","modified_gmt":"2023-04-09T14:49:52","slug":"were-still-talking-about-y-combinator-valuations","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/04\/09\/were-still-talking-about-y-combinator-valuations\/","title":{"rendered":"We\u2019re still talking about Y Combinator valuations"},"content":{"rendered":"
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Welcome to Startups Weekly, a nuanced take on this week\u2019s startup news and trends by Senior Reporter and Equity co-host\u00a0<\/em>Natasha Mascarenhas.<\/em><\/a>\u00a0To get this in your inbox, subscribe\u00a0<\/em>here<\/em><\/a>.<\/p>\n

Y Combinator\u2019s new era, with smaller batches, a refocus only on early-stage investing and a new chief executive, is in full swing. As The TechCrunch team sat through hundreds of startup pitches during YC\u2019s biannual Demo Day, the backdrop of change was certainly noted.<\/p>\n

For one, a majority of the early-stage investors I\u2019ve spoken to have complained about the valuations coming out of the cohort, saying that it\u2019s getting too pricey to invest. It\u2019s a conversation that bubbles up around Demo Day time and time again, but given the downturn, some expected to see valuations that they think are more realistic for businesses only a few months old. I\u2019m also hearing that YC\u2019s new standard deal, specifically its most favored nation clause, has played a role in incentivizing founders to pursue higher valuations.<\/p>\n

There was a time when a startup, fresh out of the program, raised at a valuation north of $30 million, only to be beat the next year, when another startup out of YC raised at a $75 million valuation. (Both the aforementioned rounds were led by A16z, and to be fair, A16z did not complain to me about early-stage valuations).<\/p>\n

To me, high valuations have always been the conversation around YC. I don\u2019t know what will change it, whether it\u2019s a new competitor, a fresh influx of check-writers as some leave, or if the conversation even needs to disappear in the first place. I will say that if you build something people want, that\u2019s great \u2014 you just have to keep that \u201cwant\u201d alive as you build new iterations of that first product.<\/p>\n

Garry Tan, the new chief executive of YC, seemingly addressed some of the valuation conversations on Twitter. writing more broadly that \u201cvalue investing in venture is like restricting your search for your lost keys under only brightly lit street lamps.\u201d<\/p>\n

Tan added in the same thread, \u201cCompetition and high valuations exist because large possible markets represent large possible outcomes. Competition doesn\u2019t mean a market or idea is bad, it typically means a great market that lots of people want \u2026 The best investors tend not to use heat as a signal one way or another.\u201d<\/p>\n

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Oh it\u2019s Gripe About Seed Valuations Day, seems to happen around 2 days every 6 months or so ????<\/p>\n

\u2014 Garry Tan \u9648\u5609\u5174 (@garrytan) April 6, 2023<\/a><\/p>\n<\/blockquote>\n<\/div>\n

Much has changed since May 2022, when YC sent a memo to founders to \u201cplan for the worst.\u201d<\/a><\/p>\n

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\u00a0\u2026 During economic downturns even the top tier VC funds with a lot of money slow down their deployment of capital (lesser funds often stop investing or die). This causes less competition between funds for deals which results in lower valuations, lower round sizes, and many fewer deals completed.<\/p>\n

In these situations, investors also reserve more capital to backstop their best performing companies, which further reduces the number of new financings. This slow down will have a disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech, and other companies with high burn and long time to revenue.<\/p>\n<\/blockquote>\n

What I would really love is, when YC does its blog post introducing the batch, it would also offer some sort of analysis on which percentage of startups are raising at $8 million valuations versus $20 million valuations versus $45 million valuations. I wonder if it can clear up some misconceptions (or hey, I\u2019ll even take it if they confirm them!). While we\u2019re at it, the percentage of startups that go on to raise a Series A would also be a fascinating data point.<\/p>\n

Now, even if valuations have not come down for some YC startups, some of the aforementioned advice has been taken, specifically around the slowdown that will be felt for international companies. Just 21% of publicly announced startups in the winter 2023 batch are based internationally compared to 42% in the batch prior.<\/p>\n

Anyway, that is what is top of mind for me coming out of Demo Day. I always enjoy the two-day pitch-off because it gives us a glimpse of what is top priority for a whole slice of founders, some of whom are trying to put meat back in plant-based meat.<\/p>\n

Here are some of our pieces for further reading:<\/p>\n