Notable Trends from Y Combinator’s Winter 2022 Demo Day

By Ryan Mendoza, Partner, Scrum Ventures

Over the last several years, the number of startups participating in accelerator Demo Days has continued to grow, and Y Combinator’s Winter 2022 Demo Day is no exception. This was our ninth year as investors in Y Combinator, and our team had the opportunity to evaluate startups from a batch of over 400.

After last year’s Winter 2021 Demo Day, we noted that there was an apparent urgency that seemed to be driving shorter rounds, inflated valuations, and larger batches.

But despite the batch size, the behavior at this event suggested the start of a return to relative normalcy. From our observations, investors seemed to take a more measured approach to evaluating and committing funds to startups. One possible reason is — unlike in years past, more startups participating in this YC event provided investors with data rooms and detailed pitch decks, in addition to the valuation data they normally provide before Demo Day.

Once again, Demo Day pitches were virtual and very fast-paced — leaving little opportunity for impromptu meetings. But in contrast with years past, investors had more time and information to work with when conducting their diligence before scheduling meetings with founders. With that and the return to the normal two-day event, our team had more time to explore various sectors and engage with promising startups and founders we’d honed in on.

As the YC event has grown over time, there has been increasing variety among batches with each event and year that passes, and this was one of the most regionally diverse batches to date. We’ve identified some interesting trends among the startups that we engaged with during this year’s Winter Demo Day.

Going into Demo Day: Trends and Industries to Watch

When attending demo day events at any accelerator, you’ll quickly see how increasing competition for investments is affecting the startup landscape. As startups quickly transform into scale-ups and then into major success stories in fintech, e-commerce, healthcare, and other highly competitive industries, founders and early-stage investors feel the pressure to match so they too can scale quickly and turn a concept into true innovation.

When taken too far, that eagerness can lead founders to focus their pitches and planning on broader market growth and team experience rather than solid concepts, technical expertise, and market validation. Last year, likely due to a combination of factors, funding cycles at the YC Winter Demo Day seemed to end overly quickly and valuations were much higher than seemed realistic.

Based on what the Scrum Ventures team observed between this and last year’s Demo Day, there appeared to be a slightly longer funding cycle this year. While that seems promising, it’s important to keep in mind that there are many factors that could be contributing to change, including:

• Worsening economic conditions and shifting market trends.
• The types of industries that investors are considering.
• Individual variation within each event’s batch and the specific companies and founders participating.

Trends Among The Winter 2022 Batch

Each year, in addition to looking at broader market trends, we also want to evaluate trends within the early-stage startups in general and those participating in YC events. Among the 394 startups expected to present at Demo Day, we saw more diverse international representation than in previous years.

Less than 50% of present startups were from the United States, a first for YC Demo Day. For the S21 batch, startups based outside the United States from the S21 batch were most likely to be based in Latin America or Europe, whereas this year’s batch saw a significant increase in the number and proportion of startups based in Asia and Africa.

Source: Y Combinator Startup Directory

When looking at larger trends across the entire batch, B2B software and services organizations were by far the most common, representing 163 out of 399 startups. Startups in financial technology, healthcare, and consumer spaces were also relatively common.

Of course, when preparing for the event, our team doesn’t expect to attend all the pitches or speak with founders or team members from every startup. Let’s take a look at the trends we noted surrounding startups developing cleantech, Web3, and health and wellness solutions.

Our Thoughts After Talking with 87 Startups at Demo Day

In the lead-up to Demo Day, we focused on around a quarter of the startups attending the event and then were able to talk with 87 in total. Among these startups, we found that — compared to the B2C companies we spoke with — the B2B companies had higher valuations on average. We also saw a few outliers with relatively high valuations that resulted in B2B and B2C means that were both higher than the YC-wide mean and median.

Many of these startups are developing solutions in business and technology areas that we’ve focused on in the past. We’ve seen that certain solution categories tend to persist in strength and market growth each year, including application programming interface (API) technology, EdTech, creator platforms, and cybersecurity.

While these enduring trends definitely played a role in the startups Scrum Ventures looked into and the founders we spoke with on Demo Day, there were also new trends that warranted additional research and preparation. Let’s take a look at what we noticed among startups developing cleantech, Web3, and health and wellness solutions.

Cleantech — hardware and software

Between hardware and software in cleantech, the amount of capital investment required for these businesses to succeed can vary significantly. So although the same overall trend is driving the growth of businesses in this category, each subgroup requires its own strategy and approach when it comes to diligence and establishing which companies could be strong investments.

At least in context of the cleantech companies we spoke to at the YC event, many are focused on helping industrial operations reduce or repurpose their carbon emissions, and the space seems largely B2B-oriented:

• Carbon Crusher: Creating carbon negative roads
• Phase Biolabs: Turning carbon emissions into carbon negative products and carbon neutral e-fuels
• Seabound: Capturing carbon dioxide emissions from ships
• Fleetzero: Creating electric cargo ships
• Impossible Mining: Sustainable seabed mining
• Beyond Aero: Creating zero-emission private aircraft
• Verdn: Helping businesses automatically embed environmental pledges for product and service offerings, boost customer engagement
• AeonCharge: Allowing electric vehicle (EV) drivers to more easily locate and pay for EV charging stations
• Phoenix Hydrogen: Offering a hydrogen marketplace and a connected hydrogen hub platform to connect supply and demand for hydrogen fuel and simplify hub planning and partner program expansion
• Aklimate: Allowing businesses to measure and reduce their supply chain’s environmental impact
• Pina Earth: Certifying and tracking the progress of businesses’ forestry projects
• AirMyne: Developing machines that can reverse emissions by removing carbon dioxide from the air
• Unravel Carbon: Software for enterprises to track and reduce their carbon emissions

Web3: Crypto, NFTs, and the metaverse

The Web3 category represents a broad variety of technologies addressing an even broader range of business problems. Companies in this category are applying blockchain technology, driving innovation among cryptocurrency, NFT, and metaverse tech and creating new opportunities to disrupt entertainment, finance, cybersecurity, and software development.

Of course, many of these companies overlap with the larger trend of FinTech companies featured at the YC event. Despite this, there was still a relatively even mix of B2C and B2B companies in the Web3 category. We specifically looked at:

• Stablegains: Offering consistent interest on cash balance from the decentralized finance (DeFi) market
• LiquiFi: Simplifying token management with automated vesting contracts, tax reporting, and scheduling. For companies, investors, and finance & accounting
• NFTScoring: An NFT trading platform
• CypherD Wallet: A multichain wallet for crypto and NFTs with a non-custodial crypto debit card that instantly converts coins to USD
• Remi Labs: Allowing businesses to more easily create NFT collections that serve as access to products, memberships, events, and more
• Cashmere: A crypto wallet for Web3 startups to collaboratively manage funds
• Chaingrep: An API that makes blockchain data human-readable and tokens searchable
• Courtyard: A platform for securely storing physical assets and creating 3D representations as NFTs
• Arda: “Banking as a Service for DeFi,” an API that FinTech companies can use to embed DeFi products into their platforms
• earnJARVIS: A premium cryptocurrency management platform, allowing users to create long-term portfolios
• Mysterious: Creating community-specific experiences for Web3 Discords
• Winter: An embeddable widget that allows businesses to sell NFTs to users purchasing with a credit card or bank transaction
• SimpleHash: An API for NFT data that provides compatibility across blockchains, standardized metadata, accurate transaction info, and simple integration
• Lifecast: Tools that address motion sickness issues for 3D VR video
• Gym Class: Virtual reality (VR) multiplayer basketball video game
• WorldQL: An asset API that allows NFT creators to specify multiple in-game interpretations of their assets, increasing their value
• Bonsai Desk: A software development kit (SDK) for 3D analytics
• Campfire: Supporting virtual social experiences for remote teams
• Unai: A virtual headset and Visual World experience
• Vimmerse: Allowing creators to more easily create immersive 3D experiences

Health and wellness

Compared to those in the Web3 and Cleantech categories, Scrum Ventures met with fewer founders from health and wellness startups. But we still saw great variety in the types of problems these companies address. Several of these companies represent part of a larger push toward personalization in healthcare, an area of the biotech sector that is poised for significant growth for companies with strong portfolios and knowledgeable leadership.

Here are some of the startups we looked at in this space:

• Syrona Health: Personalized healthcare for women in the workplace
• Anja Health: Personalized umbilical cord blood banking and stem cell preservation
• Alfie: A weight loss program focused on men’s health that coordinates medical care, coaching, and “community-based competition” to help users lose an average of 15% body weight
• Ankr Health: An artificial intelligence (AI)-enabled telehealth platform that provides personalized side effect education for cancer patients and data collection for their care teams
• Koko — A personalized sleep program to improve at-home sleep analysis and training
• Condition-specific telehealth platforms and programs:
• Reviving Mind: Chronic care management covered by insurance and supporting holistic, community-oriented health care
• Equipt Health: At-home delivery of prescription medical equipment to help manage chronic conditions like obstructive sleep apnea
• LunaJoy: Holistic women’s healthcare management for mental health therapy, counseling, and medication

12 Startups to Watch from YC’s Winter 2022 Demo Day

Bobidi: Improving AI models 10x faster

Artificial intelligence (AI) models have become an incredibly important tool for companies that can use to improve how well and how quickly they process massive volumes of data they or their customers generate. Bobidi helps companies depending on AI solutions to validate the models they’re using, improving the quality of the data insights they’re relying on in less time and saving costs on data analysis. The startup has developed a “gamified community,” essentially offering a bug bounty for AI, where community members are incentivized to test and identify gaps in customers’ AI models.

Magna: Token vesting and DeFi investment management

Magna has created a platform that offers fast, secure token vesting so users can turn decentralized finance (DeFi) investments into primitives. Carta for Web3, the startup’s initial product, allows companies to more easily distribute tokens to employees or investors. In the future, the Magna team aims to help companies leverage their locked tokens for collateral for lending, support secondary liquidity so investors can sell shares on a public exchange, and power other DeFi applications.

Perl Street: Infrastructure financing

This Fintech startup aims to help hardware startups access financing more easily, creating a platform that “[democratizes] structured finance…unlocking billions in financing for sustainable infrastructure and next-generation hardware technologies.” To date, this platform has helped hardware startups secure more than $140 million of financing, supporting companies tackling key sustainable technology problems with energy storage devices, EVs, and transformation of building power infrastructure.

CypherD: Multichain crypto wallet

CypherD aims to create an accessible, multichain crypto wallet so mainstream users can browse Web3 products without having to overcome the knowledge barriers the way many other available wallets require. The startup has already launched its beta app, allowing users to access crypto from Ethereum virtual machine (EVM) blockchains. The startup is led by founders with extensive crypto, fintech, and startup experience.

Unravel Carbon: Enterprise carbon tracking and offsetting

Unravel Carbon has developed an enterprise, AI-powered decarbonization platform, which allows companies to track their carbon emissions. The startup is based in Singapore and has focused on developing its growth in Asia. The software can use any company’s accounting data to fully map the corresponding supply chain data and calculate carbon tracking, which is then used to generate regulatory disclosures and suggest solutions for carbon offsets.

LunaJoy: Precision mental health for women

LunaJoy focused on helping women find the mental health support they need through each phase of their life. The platform uses data science to deliver a personalized experience, allowing women to access the psychotherapy, medication management, genetic testing, and health coaching they need for holistic health benefits.

Posh: Automated EV battery recycling

Posh aims to address one of the biggest logistical problems facing sustainability in the EV industry. Millions of EV batteries will need to be retired in the next decade, and the precious metals and remaining capacity they have left will go unused for some time since retired batteries are largely processed by hand. Posh offers a solution for automated, scalable lithium battery disassembly, making a circular economy of EV batteries a more feasible future.

Unai: VR headset with 5x resolution improvement

Among the companies making forays into the metaverse space, Unai stands out. Not only because its VR headset offers resolution five times as sharp as existing options, but also because its focus is on “human expression and connection” in a world where business and life are increasingly done remotely. Its founder, Maxim Perumal, has significant experience in the space, having created the approach to latency reduction that powers current VR headsets.

Palitronica: Cybersecurity for physical infrastructure

Founded by a security expert in research and development (R&D) and an electrical engineer, Palitronica combines cutting-edge hardware and software to create systems of connected electronics that support critical physical and supply chain infrastructure. The startup originated from the University of Waterloo’s Real-time Embedded Software Lab mission, and its mission is to develop solutions that protect national security and critical infrastructure from cybersecurity threats.

Reality Defender: Deepfake detection

This startup’s platform, Reality Defender, is an enterprise platform for deepfake detection, alerting companies to fake users and altered content in audio, video, and image files. The Reality Deference API and web app score content in real time to protect against fraud, enable faster, more accurate content moderation, and improve disinformation detection.

Micro Meat: Infrastructure for cell-cultured meat production

MicroMeat is a startup that focuses on the future of sustainable meat production. The company has developed technology to help scale the production of cultivated meat — muscle tissue derived from animal cells and grown using bioreactors. Their goal is to scale existing methods for cultured meat production so that cultivated meat products can be feasibly and quickly brought to market, improving the sustainability of global meat consumption.

Fleetzero: Electric cargo ships

This startup is developing battery technology that will not only make cargo ships more sustainable but more profitable as well. The electric cargo ships Fleetzero is creating operate with net profit margins five times higher than those powered by fossil fuel. Fleetzero’s founder brings his marine engineering, ship operations, and enterprise sales and business experience to help transform energy consumption in this market.