“YC valuations are ridiculous, waaaah!”
Every Investor Ever
Demo Day came again last week at Y Combinator, and prices were predictably high. But consider the work that goes into Demo Day…
The Long Road to Demo Day
Over 20,000 companies applied for YC’s Winter 2023 batch. 282 were selected, a little over 1%.
That means that YC staff had to read and discard 19,700 applications. If each one takes even 10 minutes, that’s 3,283 hours of work — more than a year’s worth.
After finding the best of the best, YC intensively coached these startups for 3 months. The coaches are some of the best founders and investors on the planet.
And you expect to get this for $8 million pre-money? Get real.
YC Deals vs. The Rest
We can’t compare a YC deal to the average startup raising money.
YC has the best track record in the business. Airbnb, Stripe, and Coinbase all came from YC — not the random dealflow in your inbox.
What’s more, the average startup hasn’t been vetted and coached by the best people in tech. Nor does it have $500,000 of guaranteed YC cash behind it.
I’ve had the good fortune to back several awesome YC companies in recent years — Caribou, TANGObuilder, and Hellometer.
The founders are scrappy and astute. Clearly, they learned a lot at YC.
But These Companies Have Zero Traction!
It’s true that most startups at Demo Day have little to no traction.
I don’t invest without revenue. So, I’ve never invested in a YC company at Demo Day.
Instead, I like to meet them about 1-3 years later.
These are no longer fledgling companies. They have significant revenue and a growing list of customers.
Best of all, they’re usually raising at the same price as they were on Demo Day!
That’s the flip side of high Demo Day valuations: it’s hard to go higher any time soon. Investors like me can just wait for the startups to grow, investing later in a de-risked company at the same price.
Looking Beyond YC
YC isn’t the only source of pre-vetted, high quality deals.
The LAUNCH Accelerator cranks out awesome startups with real traction at reasonable prices. I’ve done more deals there than anywhere else.
I also like the Entrepreneur’s Roundtable Accelerator in NYC and Techstars.
Or — gasp! — you can do the work of finding companies yourself! You’ll probably pay less, but you know what they say — you get what you pay for.
Wrap-Up
All of us in startupland should be grateful to YC. No one else funds and coaches so many awesome entrepreneurs, every year.
Whether you invest at Demo Day, a year later, or not at all, we’re better off with YC than without.
Congrats to the Winter 2023 batch — see you next summer!
What do you think of YC valuations? Leave a comment and let us know!
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