October 5, 2022

FDI Forum

Earn the right Invest

Startup trends to watch from Y Combinator’s S22 Demo Day

Hello, and welcome to Pipeline. I’m Biz Carson, and I once slept on the street overnight in London to be in the front row for Prince William and Kate Middleton’s royal wedding procession.

This week in the startup world: lessons from Y Combinator’s Demo Day, Kanye hates VCs, and the new VC ranking coming soon.

I listened to 223 YC startup pitches so you didn’t have to

Watching Y Combinator’s Demo Day is mental whiplash. The 223 startups are each given a minute to present a single slide in rapid fire, which is how your brain ends up jumping from an AI notetaker for health care to a financial reporting tool to a wholesale auto-parts seller in Africa to a company creating fabric from food waste — all within a span of four minutes.

For me, it’s a fun, twice-a-year tradition because it’s a front seat to the future. And given YC’s track record, there are good odds that you just spotted the next Airbnb or Stripe. There were 2,400 investors who watched this summer’s Demo Day, so for those of you not on the Zoom where it happened (or distracted by the Apple event, Code Conference or the death of Queen Elizabeth, which all overlapped), here’s what I gleaned from watching over 220 startup pitches.

Fintech and crypto companies are still hot even if the late-stage sectors have cooled. One in five companies going through YC was fintech, according to its batch stats, and it included one brave company that was still building a “buy now, pay later” startup.

  • Neobanks are still having a moment with 11 different startups building them. In India alone, startups were building a neobank for couples, a neobank for young professionals and a neobank for wholesalers.
  • Offering investment alternatives was another popular path, whether it was Swiss bank accounts for the Middle East’s middle class or a way to save in gold for people in India. (One of my favorite lines on a slide was simply “India loves gold.”)
  • Even crypto’s winter didn’t put off startups. By TechCrunch’s count, there are actually more crypto companies in this batch than the one earlier this year (and that’s even with the 40% reduction in class size). Crypto wallets remain an unsolved issue, with startups working on solutions both in the U.S. and Europe.

Enterprise still makes up the bulk of YC at 39% of the batch. Fintech is second most popular, and dev tools are in third place, nearly doubling its slice from last year to 13% of the batch.

  • Spotted as one of the enterprise founders was former PlanGrid co-founder and CEO Tracy Young, whose sales company, TigerEye, is still in stealth but has already raised a $30 million series A.
  • No-code tools are continuing to surge with companies like Tersho building a BI tool for spreadsheets or Popsy, which is making website building feel like Notion. As my colleague Aisha Counts recently pointed out, it’s a sector that is still waiting for its breakout. Perhaps one of the companies in this crop will do the job.

The creator economy is out. Making money as a consumer startup is in.

  • Despite all the creator economy hype, there didn’t seem to be much interest in building for influencers. The closest was either Jamble, a livestream secondhand shopping app, or Tangia, which lets fans pay to add a monster or other obstacle into a gamer’s livestream as an extra revenue source.
  • For the rare consumer-focused companies (now just 9% of YC companies), a key part of the presentation was covering if they were profitable and if they had a plan to get there. That goes for Krave Mart, which hopes to be the Instacart for Pakistan, or even a new take on a dating app, Delight.

You’ve got to have a tagline. The most popular formula was “[existing company] for [new international market or sector],” like an Impossible Foods for seafood. Or another one for pet food (starting with cat snacks).

  • There was a Flexport for India. A Bill.com for Latin America. A WealthFront for Saudi Arabia and the Middle East. A Square for micromerchants in Latin America. In sectors, there was a Ramp for marketing, a Plaid for DeFi, a One Medical for pets and a Grammarly for data. While YC companies can get criticized for copy-pasting models, I find the comparisons helpful to get a snapshot on what the company is doing in the one-minute pitch.

It’s still fun to be surprised. As TechCrunch’s Alex Wilhelm pointed out, sometimes it’s just really cool to be able to yell “fish robot!” when a startup has invented a new way to process fish via a machine.

  • One startup, Airhart, pitched an aircraft that would “make flying to Tahoe as easy as the grocery store,” which sounds like a dream. For an even zanier ride, the hypersonic space plane Velontra claims to be able to take off “from anywhere in any weather” and already has millions in contracts and LOIs.
  • For the productivity geeks, the appropriately named Needl is building a search bar that would allow you to search for the file you need across Gmail or Notion or Slack (talk about a tool people would happily pay for if it worked).

But while we’re talking about finding a needle in a haystack, picking who will be the next billion-dollar company out of this batch is its own problem best solved by VCs. By YC’s own track record, most of the companies launched this week won’t go on to become the next billion-dollar company, but they do give a good indication on what the next wave of entrepreneurs are interested in building. The existential question for a lot of these companies is whether they will get funded. As one investor put it to me, the prices they were seeing coming out of the batch felt like YC was still living in 2019 and they were ignoring the wildness of the market. Much like the W20 batch that launched into the pandemic, this cohort’s success will be a barometer for all of startup finance.

Overheard

Kanye hates VCs … except for a16z’s Ben Horowitz. In an Instagram rant, Kanye wrote that a “venture capitalist who’s only adventure is capitalism / cant create so they try to out count the creatives / die slow,” before later posting a picture of Horowitz, saying he did like him. Perhaps his hatred of VCs was tied to the news later in the week that Kim Kardashian is launching her own PE firm?

The good and the bad of Hollywood adaptations. The PayPal story is the latest tech company to potentially make it to the big screen with interviews being filmed at the reunion party I mentioned in the last issue of Pipeline. That one is expected to be much more flattering than the stories Airbnb has to contend with right now. It turns out “deadly Airbnbs” is turning into its own subgenre of horror films. As one director put it, “I think about how the country is as divided as it’s ever been, and no one trusts each other. Yet, we trust staying in the home of a stranger simply because of a few positive reviews online.”

“I kind of run the company like a squirrel runs on the ground.” While most leaders are obsessed with long-term planning and vision, Basecamp’s Jason Fried told Future in an interesting Q&A about why he doesn’t believe in long-term planning and also, more infamously, doesn’t believe in discussing politics at work either. “It feels like a much more responsible way to run a company than to imagine that I’m going to know what the next three years will look like.”

A MESSAGE FROM CAPITAL ONE SOFTWARE

Capital One’s adoption of modern cloud and data capabilities led us to create tools to operate at scale in the cloud. Capital One Software is bringing these solutions to market to help you accelerate your cloud and data journey. Get started with Slingshot, a data management solution for Snowflake customers.

Learn more

Inside track

Sometimes what you need is short-term fixes and accepting that you can improve from an F to a D grade, not going from an F to an A+. Medium’s new CEO, Tony Stubblebine, coined this the “Greg Pass Strategy for getting unstuck” after the Twitter CTO who was able to eventually retire Twitter’s fail whale by making the incremental upgrades needed.

Venture firms are more than ever fighting a war on the marketing front. 20VC’s Harry Stebbings shared the mistakes he thinks VCs are making when it comes to marketing, like making everyone tweet.

Growth at all costs is dead, but finding a way to grow profitably, especially given Apple’s new restrictions on ad tracking, doesn’t have as much of a playbook. Mutiny’s Jaleh Rezaei shared her own learnings from her time at Gusto on how to grow efficiently.

Need to know

There’s a new VC ranking coming soon. The Founder’s Choice ranking isn’t another Midas list based on returns. Rather, it weighs how founders feel about their VCs.

A16z introduced a “can’t be evil’ NFT license. Modeled after the creative commons license, a16z’s NFT “can’t be evil” version covers a bunch of scenarios like personal vs. commercial use, although any enforcement would still likely default to traditional courts to enforce.

UBS and Wealthfront called off their merger. In a Friday before Labor Day late afternoon news dump, the two companies announced they weren’t moving ahead with their $1.4 billion merger deal. In a time when M&A is picking up (just see this week’s Misfits Market and Imperfect Foods deal), it’s rare to see a deal like this called off.

Juul has to pay $438.5 million to settle an investigation into whether it deceptively marketed its product to children and teens, the latest blow to the company.

A few court cases I’m watching: Elizabeth Holmes is on her third motion for a new trial, including a surprise twist that a key witness visited her house to try to talk to her and express regret. Coinbase is funding a lawsuit over the Treasury’s sanctions against Tornado Cash. Nikola’s Trevor Milton starts his criminal trial next week. Uber’s former security chief is on trial over a data breach and says the company is scapegoating him. And of course, the looming Twitter vs. Elon Musk lawsuit, which included quite the spicy rebuke of David Sacks last week.

Moves: Bessemer raised $3.85 billion for its latest fund along with $780 million in a new Forge fund to do buyouts. Lightspeed expanded to NYC with a new office and has brought on Michael Mignano, who led Spotify’s podcasting efforts, as a new NYC partner.

A who’s-who list of the ultrawealthy’s money managers. Family offices are pretty much a black hole, but apparently they’re not immune from turning into software developers. Puck published an overview of who is managing money for some of the wealthiest tech moguls and how those firms are getting into the business of managing other firms, too.

From Protocol: Next to cut the cord are political campaigns. Here’s why you’ll be seeing a lot more political ads on your streaming services this fall.

Also from Protocol: California’s grid is about to get an overhaul. As someone who did lose power in a blackout this week, I’d argue it needs it.

Your weekend reading: If you see someone on LinkedIn whose experience seems too good to be true, then maybe it is. Savvy scammers on LinkedIn are setting up fake profiles with prestigious universities and top jobs to lure unsuspecting victims. Just take the example of “the 1,000 Chinese SpaceX engineers who never existed” as my former colleague Zeyi Yang wrote for MIT Tech Review.

A MESSAGE FROM CAPITAL ONE SOFTWARE

Capital One’s adoption of modern cloud and data capabilities led us to create tools to operate at scale in the cloud. Capital One Software is bringing these solutions to market to help you accelerate your cloud and data journey. Get started with Slingshot, a data management solution for Snowflake customers.

Learn more

Thanks for reading! If you like what you’re reading, sign up here to get it in your inbox. Send story tips and newsletter feedback to [email protected]