Y Combinator’s 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’s biannual Demo Day, the backdrop of change was certainly noted.
For one, a majority of the early-stage investors I’ve spoken to have complained about the valuations coming out of the cohort, saying that it’s getting too pricey to invest. It’s 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’m also hearing that YC’s new standard deal, specifically its most favored nation clause, has played a role in incentivizing founders to pursue higher valuations.
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).
To me, high valuations have always been the conversation around YC. I don’t know what will change it, whether it’s 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’s great — you just have to keep that “want” alive as you build new iterations of that first product.
Garry Tan, the new chief executive of YC, seemingly addressed some of the valuation conversations on Twitter. writing more broadly that “value investing in venture is like restricting your search for your lost keys under only brightly lit street lamps.”
Tan added in the same thread, “Competition and high valuations exist because large possible markets represent large possible outcomes. Competition doesn’t mean a market or idea is bad, it typically means a great market that lots of people want … The best investors tend not to use heat as a signal one way or another.”
Oh it’s Gripe About Seed Valuations Day, seems to happen around 2 days every 6 months or so
