Welcome to Startups Weekly, a fresh, human take on this week’s startup news and trends. To receive this in your inbox, subscribe here.
It’s YC week, and while I like to wonder how the impact of the accelerator is changing in the current climate, there’s still a lot to learn about the hundreds of founders coming together and launching their businesses in the world. Alongside some of my favorites from the TechCrunch and TechCrunch+ team, I covered the Y Combinator Winter 2022 demo day with a series of posts:
Now that we’re done, though, I want to leave you with some takeaways I had after listening to hundreds of presentations. Here’s what the 411 Demo Day pitches will teach you about startups:
India is all about fintech: India was the most represented country, except for the United States, in the Winter 2022 batch. For what it’s worth, over 191 companies in India were funded by the Y Combinator accelerator, with almost half – half! — companies accepted in the last 12 months.
- Demo Day is no longer for funding: Over at Equity this week, we discussed how demo days have evolved in utility, and whether performance per se is obsolete. I won’t spoil our eventual conclusion, but I will mention some illustrious data from YC. This year, YC said it supported startups at any stage of its accelerator, and more than half of the companies had raised funds before acceptance. To me, that means the accelerator isn’t really 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 have noticed that a number of startups are directly competing against each other in this season’s batch, which is not a new trend but perhaps a more noticeable trend as the accelerator evolves. Most newbie investors I talk to try to avoid any semblance of a conflict of interest, so YC backing companies in the same geography, with identical business models and founding years, is kind of against the grain . It seems that the accelerator has so far avoided any public tension 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 pitches will teach you about startups.” Months later, the accelerator has expanded its reach, with nearly half of its companies based outside of the United States and new representation from New Zealand, Sudan, Uganda and Costa Rica.
I will remind you all, as I always do, that YC – like any singular institution – is not entirely illustrative of the next wave of decision makers and leaders within startups. Its growing check size, for example, eliminated a whole host of backers who had once poached the flow of transactions from demo day. And when it comes to diversity, the accelerator dipped into supporting certain underrepresented groups.
In the rest of this newsletter, we will look at an edtech round in India, getting rid of the pro rata and atypical increase of Cross River Bank. As always, you can support me by forwarding this newsletter to a friend, follow me on twitter or by subscribing to my personal blog.
Offer of the week
Classeplus! 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 helps teachers and creators operate, manage and selling courses to students raised $70 million in a new round of funding.The startup, now valued at $570 million, is just four years old.
Here’s why it’s important: Offline coaching – in which tutors go in person to teach students a variety of topics – is still very popular in India, but is limited by geography. The pandemic and wider digitalization across the world has prompted some teachers to seek online opportunities to grow their biggest businesses. Classplus’ ability to raise funds means that urban India has enough demand to be a VC-friendly market.
Let’s get rid of the pro rata
Investors Vijay Chattha and Jay Kapoor, who co-founded a venture capital firm spun off from a PR firm, recently wrote an op-ed saying VC should abolish pro-rating. The duo took inspiration from a survey of the portfolio and found that investors rarely provide added value beyond 90 days from the signed term sheet. “At this point, the investor’s engagement is limited to their attendance at the quarterly board meeting – and they are the lead investor,” the editorial continues.
Investors thus believe that their peers should not invoke contractually negotiated pro rata rights if they are not involved in the company, because “their mere presence on the cap table discourages other VCs from working harder for their founders. “.
Here’s why it’s important: Chattha and Kapoor’s argument goes against the grain, betting that investors change their habits at the expense of their own returns. However, I like that he asks investors to increase their level of involvement and influence once they have secured that coveted spot at the cap table. It’s easy to give up on a prorated basis in a struggling startup, but what about constantly having to prove yourself to your most valued company? Incentive alignment for days, if you ask me.
Other surprises of the week:
From Tiny to Powerful, Very Fast
Cross River Bank raised $620 million in funding at a valuation north of $3 billion. The company provides technology infrastructure for venture-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, a 153% year-over-year increase in overall VC deal value, however, as pointed out by Mary Ann, it’s atypical to pour millions of dollars into a traditional bank. Andreessen Horowitz’s general partner, David George, explained why he was so interested in the business:
“When Coinbase started out and was looking for a partner bank, many traditional financial institutions had general policies that prevented them from participating 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 top crypto companies, who are still happy partners to this day.”
Validation for days:
All week long
We get to go out in person! Soon! TechCrunch Early Stage 2022 is April 14, which is just around the corner, and it’s in San Francisco. Join us for a one-day Founders Summit featuring Terri Burns from GV, Glen Evans from Greylock and Aydin Sekut from Felicis. The TC team can’t wait to get back in person, so don’t be surprised if the panels are a little spicier than usual.
Here’s the full program, and grab your launch tickets here.
Finally, if you missed last week’s Startups Weeklyread it here: “We keep trying to reinvent startup accelerators.”
Seen on TechCrunch
a16z, NFX supports Latitud’s efforts to become “the operating system for all venture capital-backed companies in Latin America”
People send 7 billion voice messages on WhatsApp every day
Are we about to see a unicorn liquidation?
Lightning strikes again as Electric reaches unicorn status
Seen on TechCrunch+
Crypto Mining Approaches Key Inflection Point
How to create a trailer for your startup pitch
EquityZen’s Phil Haslett explains how startup valuations can get their moxie back
How Plaid’s CTO grew his engineering team 17.5x in 4 years
Are we witnessing a slowdown in startups?
Till next time,