YC W24 Demo Day Warm Up

Meanwhile, SBF is going to jail, Amazon invests a gajillion dollars in Anthropic, and Microsoft (OpenAI) plans a gajillion dollar data center.

Author

Adam Hardej
April 02, 2024

Big week for YC! Writing this on the flight out to SF for VC’s bi-annual hajj. Below you’ll find the typical headline round up and I’ll share some thoughts on YC at the end. I plan to share a recap on Thursday or Friday and will host a panel next Tuesday with some other investors who are active in the ecosystem. And of course, don’t forget the Sandhill Demo Day next Thursday. RSVP here!

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Bankman-Fried sentenced to 25 years for multi-billion dollar FTX fraud

“Kaplan found that FTX customers lost $8 billion, FTX's equity investors lost $1.7 billion, and that lenders to the Alameda Research hedge fund Bankman-Fried founded lost $1.3 billion. He imposed an $11 billion forfeiture order and authorized the government to repay victims with seized assets.”

Amazon spends $2.75 billion on AI startup Anthropic in its largest venture investment yet

“The tech giant said it will spend another $2.75 billion backing Anthropic, a San Francisco-based startup that’s widely viewed as a front-runner in generative artificial intelligence.”

Microsoft, OpenAI plan $100 billion data-center project, media report says

“The Information reported that Microsoft would likely finance the project, which is expected to be 100 times more costly than some of the biggest existing data centers, citing people involved in private conversations about the proposal.”

Hot Links

NEXT WEEK: Demo Day Is Back With SeedChecks

​Demo Day is back--and this time we're partnering with SeedChecks to make it even bigger! Click here to RSVP to the live event.

SeedChecks was built by our friend Julian Shapiro as a one stop shop for founders to get in front of some of the biggest names in venture. It’s an impressive group and we’re excited to bring our Live Demo Day format to their ecosystem. Here’s how it works:

When you submit two things happen:

  • First, you’ll have your deck reviewed by the SeedChecks team as well as their incredible group of investors. The group of over 15 active investors write checks between $300k and $3M.

  • Second, if it’s a fit for Demo Day, we will reach out directly to invite you to present live.

We will select 4 founders to present live in front of the combined audiences of Sandhill and SeedChecks!

​​Finally, tune in live on Thursday, April 11th at 3PM ET to watch these four exciting founders present what they're building to a panel of experienced investors and seasoned operators. Our amazing panelists:

ALSO NEXT WEEK: YC W24 Recap & Reactions

​Join us live to hear from Adam and other active YC investors as they discuss W24. What they saw. What they liked. And what to expect in the year to come.

Unfamiliar with Y Combinator? Check out their Startup Directory here and their Launch YC platform here to check out what their ecosystem is building.

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They have a new fancy HQ in SF but their Moutain View sign will always be iconic.

Letters From The Editor

Misc. (short for miscellaneous)

YC W24 Demo Day Warm Up

If you’re not familiar with Y Combinator you can read more about it on their website here and you can browse the batch in the directory here. They also maintain a Launch YC platform that’s home to recent announcements from YC startups you can see here.

This will be the 4th batch I’m actively investing in. Starting about two years ago we launched our first “Stonks YC Access Fund” that invested $50K checks into 35 startups in the S22 batch. This took a sort of index approach to the batch that leveraged Stonk’s brand recognition and speed to get access to what we viewed as the top ~20% of the batch. We ran this same strategy for W23 and S23. Ultimately we invested in just over 100 YC companies.

For this batch I have gotten the chance to take a more concentrated approach alongside a firm that was formerly an LP in our access funds. We are writing ~$200K checks out of their core fund with capital reserved for folllow-on investments. This is much more traditional and in my experience also more competitive. Some thoughts on YC and this batch specifically:

Most rounds are closing before demo day. Garry Tan (YC President) shared a stat a while back about rounds staying open, but I think there are some important distinctions to be made there. In my experience there are three ways a round is still open post demo day: One, it’s just more expensive and they’re pushing the limit of how high they can raise the valuation before demand falls off. Two, it’s only open to very strategic angel checks. Three, they had a hard time raising pre-demo day. Typically, the companies that had a hard time raising pivoted late in the batch.

This batch definitely feels more competitive than the last few. I suspect an aspect of this is due to the larger checks we’re deploying, but the market also seems to have picked up generally. Each round is only so big. The limited space creates competition for investor who wants to be involved. When the check gets bigger the space you need is harder to ask for. When we were moving fast with $50k checks our close rate was ~90%. With larger checks and a more traditional diligence approach our lose rate is closer to 60%.

It’s a big batch for AI. Of the ~250 startups in the batch directory ~150 have an “AI” or “Artificial Intelligence” tag. I think it’s easy to point the finger as this being “hype” / consensus driven, but I think it’s worth noting that even at the height of the crypto cycle in 2021/2022 each batch only had 10 to 15 startups tagged as “Crypto” or “Web3” related. This AI cycle is very different. At least as far as YC is concerned.

To break down that AI theme a bit, there are two themes I’m seeing: The first is co-pilots for X where X is a real world job/industry. AI co-pilots for coding are making a big difference and YC is betting on similar efficiency gains outside of software. The second are sector / use-case specific models built on proprietary data. ChatGPT is generalized and can be refined to be more focused, but on the opposite side of the spectrum from OpenAI (and big tech competitors) we see a more verticalized approach being taken by smaller team. Custom models built on custom data to dominate a specific use-case.

Everyone likes to complain about YC valuations. I’ve made an argument here before about the fact that they’re actually pretty typical for what I’ll call a California Seed Round - not to be confused with an East Coast Seed or the dreaded European Seed. The thing that isn’t typical is how quickly startups in YC get tagged as “Seed stage” compared to the broader ecosystem. This would be problematic if they didn’t graduated to Series A at the same rate as Seed stage startups more broadly (they do).

Last thing of note is that YC has continued to step back into the in-person game. Most of the founders (if not all) that I met with have been based in SF for the batch and many of them (if not all) plan to stick around post demo day. On the investor side of things, they are still hosting Demo Day virtually. However, they are hosting an in-person event for the most active investors in the ecosystem Wednesday evening. I’m proud to have been invited and look forward to the event. Hopefully it will go better than the last time I flew out for something YC related (I got denied in the second round interview with my first startup).

Here’s the email from Garry to give you a sense of what they have set up:

Hi Adam,

I’m excited to introduce you to the batch in person, for the first time since the pandemic. The energy in the W24 batch is another level and I can’t wait for you to meet the founders and see that in person.

A few event reminders:

  • The event is on Wednesday, April 3rd from [redacted]

  • Limited parking is available across from [redacted]

  • The reception will take place across 3 floors, and founders will be designated to a certain area (organized alphabetically by company name) – making it easy to find people you want to meet. 

  • There are a few quiet zones tucked away in nooks on each floor for 1:1 conversations with founders.

  • Explore each floor to not only meet new founders, but to enjoy different specialty cocktails and hors d'oeuvres. 

  • As W24 companies launch to the public, you can discover them on the YC Company Directory and Launch YC.

Aside from that I am also excited for you to meet all of our group partners: our core partnership that will work with you for the life of the companies you fund to help our startups build the future. 

There are a great many world-changing companies assembled and ready to meet you. 

Cheers,
Garry

Thanks for reading! I’ll let you know how it goes :)

Talk soon,
Adam

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