This year we had the chance to attend YC Demo Days to see what opportunities the best accelerator in the world can offer to a VC like us primarily focused on startups with distributed teams and Italian heigh-tech. I thought it could be a good idea to share our experience of those days with all of you.
It Was My Second Time
Last time I attended this event was 2010, we were in a small room at Mountain View YC office, there were more or less 25 startups in the room presenting their pitches and Paul Graham was on stage to manage the event. Interesting experience about how lean and easy accelerators and investors can be. Coffee breaks were something like a 4-foot long table with a basket full of beers dipped in ice. You felt like home. It was a long time ago, but I remember I was really impressed by how determined and confident a 22 year old software engineer could be on that stage.
This time the W18 batch was hosted at Computer History Museum in Mountain View: a big room packed with investors, plenty of space to meet startups and the new YC management team (partners) to manage the event. What surprise me the most was how many foreign founders where presenting and how few deep-tech software companies were in the batch—like databases, protocols, performance monitoring solutions and developer tools. Anyhow, we found interesting products in many different areas like, software (especially to optimize and improve “old school businesses”), hardware (including a new chip designed specifically for machine learning), biotech, e-health, fin-tech and even some “unusual” startups—at least for me—innovating on surprising areas like coffee production and beauty business. I was also surprised to see some very well known founders presenting their companies on stage. People who made 2 or 3 successful exits and clearly they were not attending to raise a seed round. It was only a few days later that I understood that their were there looking for … customers 😊. That’s not bad, but a little bit weird.
Ten Hours, 130 Pitches
The overall experience was really great and pretty intense too. 130 startups presented their ideas in 2 days, 2.5-minute max each, and if you wanted to talk to a startup on day 3—Investor Day—, you was supposed to give it a “like” or you could directly approach the team with an “online handshake” — in case you felt really confident about investing in them. This simple process was managed through a web application provided by YC to investors. At the end of day 2 we got a couple of hours to finalize our decisions, before “the system” matched startups and investors and scheduled 15-minute appointments for the Investor Day. You know, AI is everywhere these days, but in my understanding the matching process was actually strongly supported by YC partners suggestions.
Most of rounds were raised using SAFE and valuations ranged—at least those we observed closer—from $6M to $35M cap and beyond. People told us—unofficially—that just 30-35% of founders can usually close a round in the month following Investor Day. We spent the next few days — and we still are actually — meeting with the most promising startups and unfortunately some of them were overloaded by investors requests.
A lot of companies were outside the United States, but all of them relocated their HQ—and IP—in the Bay Area. Business and marketing in Silicon Valley and R&D/Engineering Team in their own country or even distributed all over the world was a recurring model for many of the companies we saw on stage.
Very few teams—typically the smaller ones—were entirely located in San Francisco. A distributed team helps to keep burn rate low and get talents aboard. That is of course the main priority when you talk about startups.
Actually, a lot of people in the Valley start talking about “distributed team strategy” as the only way to make high-tech companies here:
I don’t have a reliable metric, but I think that more than 2/3 of founders came from ivy league colleges — Stanford, Harvard and Berkeley at the top of the list. Does it really matters in the process of creating a successful Silicon Valley reality? I don’t think so, but I guess somehow it helps to get accepted by YC and pitch your product in front of a couple of hundred qualified investors.
Pitchs: What They Didn’t Say On Stage
One thing that impressed me a lot was a recurring pattern in startup pitches structure, which for sure is also due to the YC school. In particular, each of the startups avoided talking about too detailed topics about the solution or the raising of capital:
- Nobody said anything too specific about the their solution. Two minutes are very few to describe your solution, so sometimes I could barely understand what they actually were making.
- Nobody said anything about how much capital they where raising or how much capital they already raised.
- Nothing was said about company valuation cap.
- Nobody said anything about how they were raising capital (SAFE/CN vs priced round).
I love design and I love communication strategy. All W18 batch presentations had a simple and clean design: few words, simple graphics, large fonts and everything was readable. All slides were very visual or almost empty, so you couldn’t get distracted by to many words.
After I listened to a hundred of pitches in less then 10 hours, I can say that some were more effective than others—even if on average they all were very good. Some stories, founders and products made me say “Wow” and thinking about why they were different and what was the common pattern underneath. These are my conclusions:
- Comunicate what company does effectively. No preamble and just straight to the point. 15-20 seconds to give an extremely clear presentation about what the company does. A few words, slowly told to highlight each of them.
- Founders previous achievements. Put at the very beginning if they accomplished something relevant (for example “Former cofounder of XYZ Inc. which I sold at $1B”), at the end of the presentation otherwise.
- Tell me why what your company does is so relevant. It’s not just a matter of TAM or SAM, but tell me what are the market and user signals that make you think this is going to be really big.
- Your company key metric. Give me just one thing, tell me something about user adoption, something that can make me understand why, in a short time, a lot of people liked what you did.
- Your team a.k.a. why you will succeed where others failed. Talent, expertise and a great network can make the difference when addressing a challenging problem. Your team must have something special and you have to find the most effective way to tell me what it is.
- Close with something you want I remember. This was a common rule for all teams on stage. As your last words, just give me something you want I remember of your presentation. Not something new, just remind me the 3 main points of you pitch.
Do You Actually Need Strong Traction And Revenues?
For sure having a provable traction and strong revenue growth helps a lot, but it’s not the only thing that matters. We found great startups which applied having nothing more than an idea to solve a real problem they had. No code or prototype, just an idea. They didn’t get any previous exits nor they weren’t the first developer at Google. They just applied.
It’s the same thing that happened to many Italian software engineers who now work at Apple in Cupertino. They just sent their resumé and they got hired.
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LombardStreet.io is a pre-seed venture capital firm that backs distributed teams in HQ in Silicon Valley. Part of our mission is to go looking for deep-tech companies created by top Italian engineers and make them scale in San Francisco.
If you are working on relevant technologies contact us, we’d like to know you.