Some Thoughts on Y Combinator
“I doubt that Stripe would have worked without YC. It’s that simple. Acquiring early customers, figuring out who to hire, closing deals with banks, raising money — YC’s partners were closely involved and crucially helpful.” — Patrick Collison, co-founder of Stripe & one of the youngest billionaires in the world.
With 260+ exits, Y Combinator is an iconic seed accelerator based in Mountain View. Apart from providing intense mentoring over a 12-week period, YC also invests $150K (earlier $120K), in exchange of 7% equity (YC Deal Explained), in around 100+ startups twice a year. Marc Andreessen, co-founder of Netscape and founding partner of the venture capital firm Andreessen Horowitz, said that “several of our best investments have come from Y Combinator. Y Combinator is the best program for creating top-end entrepreneurs that has ever existed.”
Since its inception in 2005, YC has gone on to invest in 1,900+ startups, that have gone on to collectively raise $30B+ and have generated $5B+ in exits. The current collective valuation of all YC graduated startups is $100B+. Interestingly, only the 5 most valued startups command around 80% valuation of the collective valuation of all 1900+ startups — AirBnB $ 30B (Winter 2009 cohort), Stripe $ 20B (Summer 2010), Cruise $ 19B (Winter 2014; was acquired by GM for $ 1B in Mar’16 but has risen in value since, following investments by Softbank & Honda), Dropbox $ 10B (Summer 2007), and Coinbase $ 8B (Summer 2012).
(YC accepts startups in two cohorts every year — the Winter Cohort in Jan-Mar preceding the Summer Cohort in Jun to Aug. The Winter Cohort for 2019 is referred to as W19 and the Summer Cohort of 2019 is referred to as S19.)
We see a similar story here in India as well. From India, YC has invested in 55 startups, including 15 in their ongoing S19 cohort. Of the 40 startups till W19, 22 (55%) have gone on to raise ~$465M+ collectively, and 18 (35 %) of startups have not raised a follow on round (yet) beyond the $120K by YC (per available data; please note that a lot of them are also from the recent batches, so that explains some of this as well.) Moreover, 82% of the total $ has been raised by just 4 companies — Drivezy $150M (S16), Razorpay $107M (W15), ClearTax $65M (S14), & Meesho $65M (S16; Facebook’s recent undisclosed investment is not included.)
This shouldn’t be surprising as the venture industry follows a power law — normal distributions don’t apply, and much of the returns come from a handful of break-out companies. And the same VC power law applies to YC as well. Therefore, by nature, only a few YC startups will ‘succeed’. Sam Altman, who stepped down from his role as President of YC, says that “part of our model is to make the cost of mistakes really low, and then make a lot of mistakes.” And as we saw above, there have only been a handful of ‘successes’ amidst the high number of ‘mistakes’.
YC is like a high wave in the lifecycle of an early startup boat — founders learn immensely valuable lessons, build rewarding relationships, and get smart capital to stay afloat — but founders should be cognizant that a YC wave may not nitro boost their boats for long. My boss, Sajith Pai, often says that YC is the HBS / Stanford GSB equivalent of the startup ecosystem. While getting into YC is a great validation and a wonderful positive signal (and certainly increases your odds of ‘success’), the signal fades away sooner or later, just like life post any premier B-School, and real rowing is what makes the startups sail further.
Indian Startups & YC
I played around with some publicly available data + data on Tracxn (and Crunchbase) to come up with this quick snapshot of Indian startups that have been selected for YC . Highlights below, and scroll down for the list of Indian YC startups.
- 55 Indian startups have been selected in YC as of S19. Of the 55, 15 (27%) have been selected for the recent S19 batch. ClearTax was the first ‘Indian’ startup which got selected for YC in 2014.
All calculations have been done with respect to the remaining 40 startups till W19, unless mentioned otherwise.
2. These 40 startups have collectively raised $465M+, with top 4 startups (Drivezy, Razorpay, Cleartax & Meesho) capturing ~80% of the total $ raised.
3. 55% (22) of these 40 startups have gone on to raise a follow on round. If you exclude the startups in W19, 70% (20) of the startups went on to raise a follow on round.
4. This 70% is consistent with the global % of YC startups that go on to raise a follow on round.
5. This also means that 45% of the startups (30% if we exclude W19) have failed to raise a follow on round.
(At least, this is what I could verify with the data that I could lay my hands on. It could well be that some of these have raised funds, and it is not captured in public.)
6. Of the ones which have gone on to raise follow on rounds, the average follow on $ came out to be ~$3.5M.
7. On an average, it took ~10 months after graduating from YC for the startups to raise their follow on round, if at all they raised any.
I couldn’t come up with a global benchmark, but Michael Siebel, CEO & a partner at YC, told Techcrunch that “the vast majority of companies complete fundraising in the 1 to 2 months after Demo Day.” Also, pitching on the demo day isn’t even a requirement. Some YC grads skip the demo pitch because they are able to secure commitments even before the demo day.
I don’t have data to comment on how Indian companies perform on the demo day, and whether their follow on rounds are a result of their pitch on the demo day (and a function of relevant follow on investors being present during the demo day.) I also wonder whether holding demo days in India will help in Indian YC startups raise faster (assumption being Indian investors are more likely to invest in early stage Indian startups)?
8. CityFurnish was the fastest to raise a follow on of >= $5M in 3 months post graduating from YC.
9. 7 startups had already raised some money from reputed VCs, even before entering YC. For example: Razorpay — Matrix & Ram Shriram, OkCredit — Lightspeed, Observe.ai — Venture Catalyst, Playment — Saif Partners.
10. 54% of the startups selected were B2C, 31% were B2B, and 15% were both B2C/B2B.
11. No significant difference in the average $ raised by B2C vs B2B companies.
12. No significant difference in the average time to fundraise between B2C (9 months) & B2B (9.25 months).
13. 3 companies have died (Doctalk W17, Simple Money S15, & ServX W17) , and are no longer operational.
14. 1 company, SuprDaily, was acquired by Swiggy.
Table of Indian YC Startups. Doesn’t include startups which are founded by Indians, but are based outside of India. Total Funding Raised is in $. Source is a combination of Tracxn, Crunchbase, YC List & news announcements.