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It’s YC week, and while I love to ask how the impact of the accelerator is evolving in the current climate, there’s always so much to learn from hundreds of founders coming together and pitching their businesses to the world. I, along with some of my favorites on the TechCrunch and TechCrunch+ team, covered Y Combinator’s Winter 2022 Demo Day with a series of posts:
Now that we’re done though, I want to leave you with a few takeaways I’ve come to after listening to hundreds of pitches. Here’s what the 411 Demo Day launches will teach you about startups:
India is all about fintech: India was the most represented country other than the United States in the winter batch of 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 those companies accepted in the last 12 months.
- Demo Day is no longer for financing: During Equity this week, we talked about how demo days have evolved in usefulness and whether performance itself is outdated. I won’t spoil our final conclusion, but I will mention some illustrious facts about YC. This year, YC said it supports startups at any stage of its accelerator and that more than half of the companies raised money before acceptance. To me, that means the accelerator is not really for the pre-seed company looking for their first check, but for any company that wants to access the YC network.
- Competition is inevitable: We noticed that a number of startups are basically in direct competition with each other in this season’s batch, which isn’t a new trend, but perhaps a more noticeable one as the accelerator scales. Most early-stage investors I talk to try to avoid any appearance of conflict of interest, so YC backing companies in the same geography, with identical business models and founding years is somewhat contradictory. It seems that the accelerator has avoided public tensions so far by separating similar startups from each other, but with an acceptance rate of around 2%, one has to wonder how similar bets are determined.
I did an earlier version of this column in September, titled “What 377 Y Combinator will teach you about startups.” Months later, the accelerator has increased its expansion, with almost half of its companies located outside the United States and new representations from New Zealand, Sudan, Uganda and Costa Rica.
I will remind everyone, as I always do, that YC, similar to any singular institution, is not entirely illustrative of the next wave of decision makers and leaders within startups. His growing check size, for example, weeded out a host of funders who once stole demo day deal flow. And when it comes to diversity, the throttle went down in support of some underrepresented groups.
In the rest of this newsletter, we’ll look at an edtech round in India, removing the proration and outlier raise from Cross River Bank. As always, you can support me by forwarding this newsletter to a friend, following me on twitter or subscribing to my personal blog.
deal of the week
Classplus! As our own Manish Singh points out, “at a time when so many edtech companies in India are trying to reduce their reliance on teachers, a Noida-based startup that is helping teachers and creators operate, manage and sell courses to students has raised $70 million in a new round of funding.” The startup, now valued at $570 million, is only four years old.
Here’s why it’s important: Offline coaching, in which tutors go in person to teach students on a variety of topics, remains very popular in India, however it is limited by geography. The pandemic and broader digitization around the world have caused some teachers to look to online opportunities to grow their biggest businesses. Classplus’s ability to raise money means urban India has enough demand to be a business-backed market.
Let’s get rid of the pro rata
Investors Vijay Chattha and Jay Kapoor, who co-founded a venture company leaving a public relations company, recently wrote an opinion piece arguing that VC should abolish pro rata. The duo drew on a portfolio survey and found that investors rarely provide added value beyond 90 days from the signed term sheet. “At that point, the investor’s commitment is limited to his attendance at the quarterly board meeting, and that is the lead investor.” continues opinion piece.
Therefore, investors think that their peers should not invoke contract-negotiated prorated rights if they are not involved in the business, since “their mere presence at the cap table discourages other venture capitalists from working harder for their founders”.
Here’s why it’s important: Chattha and Kapoor’s argument is contrary, because it bets that investors will change their habits at the expense of their own returns. However, I like that it asks investors to raise their level of involvement and influence once they get that coveted spot on the cap table. It’s easy to give up pro rata on a struggling startup, but what about the need to constantly prove yourself to your most valuable company? Incentive lineup for days, if you ask me.
Other surprises of the week:
From small to mighty, very fast
Cross River Bank has raised $620 million in funding at a valuation north of $3 billion. The company provides technology infrastructure for business-backed loans and payments, making the rise a double-bet on the fintech boom.
Here’s why it’s important: Fintech startups raised $121.6 billion last year, up 153% year-over-year in terms of global venture capital deal value, yet as Mary Ann pointed out, investing millions of dollars in a traditional bank is atypical. . Andreessen Horowitz General Partner David George explained why he is so interested in the company:
“When Coinbase was starting out and looking for a partner bank, many traditional financial institutions had blanket policies that prevented them from engaging in crypto,” George told TechCrunch. “Cross River, on the other hand, had the foresight to lean into this new frontier and support Coinbase, and many other leading crypto companies, who remain happy partners to this day.”
Validation by days:
We can hang out in person! Soon! TechCrunch Early Stage 2022 is April 14, aka right around the corner, and it’s in San Francisco. Join us for a one day founders summit with Terri Burns from GV, Glen Evans from Greylock and Aydin Sekut from Felicis. The TC crew has been itching to get back in person, so don’t be surprised if the panels are a bit racier than usual.
Finally, if you missed last week’s Startups Weeklyread it here: “We keep trying to reinvent startup accelerators.”
Spotted on TechCrunch
Spotted on TechCrunch+
Until next time,