What 411 YC Demo Day pitches will teach you about startups

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It’s YC week, and while I love to question how the accelerator’s impact is evolving in today’s climate, there’s always a lot to learn about hundreds of founders coming together and debuting their businesses to the world. I, alongside some of my favorites on the TechCrunch and TechCrunch+ team, covered Y Combinator Winter 2022 Demo Day with a series of posts:

Now that we’re done, though, I want to leave you with a few takeaways I had after listening to hundreds of pitches. Here’s what 411 Demo Day pitches will teach you about startups:

India is all about fintech: India was the most represented country, other than the United States in the Winter 2022 batch. For what it’s worth, more than 191 companies in India have been funded through the Y Combinator accelerator, with nearly half — half! — of those companies accepted in the last 12 months.

Demo Day isn’t for funding, anymore: During Equity this week, we chatted about how demo days have evolved in utility, and if the performance in and of itself is outdated. I won’t ruin our eventual conclusion, but I will mention some illustrious YC data. This year, YC said that it backs startups at any stage for its accelerator, and that more than half of the companies raised money prior to acceptance. To me that means that the accelerator isn’t really for the pre-seed company seeking its first check, but for any company that wants access to the YC network.
Competition is inevitable: We noticed that a number of startups basically directly compete with each other in this season’s batch, which isn’t a new trend but perhaps a more noteworthy one as the accelerator scales. Most early-stage investors I speak to try to avoid any semblance of conflict of interest, so YC backing companies in the same geography, with identical business models and founding years is contrarian in a way. It seems like the accelerator has avoided any public tensions so far by separating similar startups from each other — but with around a 2% acceptance rate, one has to wonder how similar bets are determined.

I did an earlier version of this column in September, titled “What 377 Y Combinator pitches will teach you about startups.” Months later, the accelerator has grown its expanse, with nearly half of its companies based outside the United States and new representation from New Zealand, Sudan, Uganda and Costa Rica.

I’ll remind you all, as I always do, that YC — similar to any singular institution — isn’t entirely illustrative of the next wave of decision-makers and leaders within startups. Its growing check size, for example, knocked out a whole slew of funders who once poached deal flow from demo day. And when it comes to diversity, the accelerator dipped in support for some underrepresented groups.

In the rest of this newsletter, we’ll look at an edtech round in India, getting rid of pro rata and Cross River Bank’s atypical raise. As always, you can support me by forwarding this newsletter to a friend, following me on Twitter or subscribing to my personal blog.

Deal of the week

Classplus! As our own Manish Singh points out, “at a time when so many edtech firms in India are attempting to cut their reliance on teachers, a Noida-based startup that is helping teachers and creators operate, manage and sell courses to students has raised $70 million in a new financing round.” The startup, now valued at $570 million, is just four years old.

Here’s why it’s important: Offline coaching — in which tutors go in-person to teach students on a variety of subjects — is still very popular in India, however it’s limited by geography. The pandemic, and a broader digitization across the globe, has made some teachers pursue online opportunities to grow their larger businesses. Classplus’ ability to raise money means that urban India has enough demand to be a venture-backable market.

Honorable mentions:

Let’s get rid of pro rata

Investors Vijay Chattha and Jay Kapoor, who co-founded a venture firm spin out from a PR company, recently wrote an op-ed arguing that VC should abolish pro rata. The duo drew from a portfolio survey and found that investors rarely provide value-add beyond 90 days from the signed term sheet. “At that point, the investor’s engagement is limited to their attendance at the quarterly board meeting — and that’s the lead investor,” the op-ed continues.

The investors thus think that their peers shouldn’t invoke contractually negotiated pro-rata rights if they aren’t involved in the business, since “their mere presence on the cap table disincentivizes other VCs from working harder for their founders.”

Here’s why it’s important: Chattha and Kapoor’s argument is contrarian, because it bets on investors changing their habits at the cost of their own returns. However, I like that it’s asking investors to raise their bar on involvement and influence once they land that coveted cap table spot. It’s easy to give up pro rata in a startup that is struggling, but what about needing to constantly prove yourself to your highest valued company? Incentive alignment for days, if you ask me.

Other surprises from the week:

Image Credits: Lawrence Anareta / Getty Images

From tiny to mighty, real fast

Cross River Bank has raised $620 million in funding at a valuation north of $3 billion. The company provides technology infrastructure to venture-backed lending and payments, making the raise somewhat of a double bet on fintech’s boom.

Here’s why it’s important: Fintech startups raised $121.6 billion last year — up 153% year-over-year in terms of global VC deal value, however, as Mary Ann pointed out, it’s atypical to pour millions of dollars into a traditional bank. Andreessen Horowitz general partner David George explained why he is so interested in the company:

“When Coinbase was first starting out and looking for a partner bank, many traditional financial institutions had blanket policies that prevented them from participating in crypto,” George told TechCrunch. “Cross River, on the other hand, had the foresight to lean into this new frontier and support Coinbase, and many other leading crypto companies, who are still happy partners to this day.”

Validation for days:

Image of a hand inserting a speech bubble into a white piggy bank against a purple background.

Image Credits: Boris Zhitkov (opens in a new window) / Getty Images

Across the week

We get to hang out in person! Soon! TechCrunch Early Stage 2022 is April 14, aka right around the corner, and it’s in San Francisco. Join us for a one-day founder summit featuring GV’s Terri Burns, Greylock’s Glen Evans and Felicis’ Aydin Sekut. The TC team has been fiending to get back in person, so don’t be surprised if panels are a little spicier than usual.

Here’s the full agenda, and grab your launch tickets here.

Follow our new senior crypto reporter, Jacquelyn Melinek and our new senior enterprise reporter, Kyle Wiggers.

Finally, if you missed last week’s Startups Weekly, read it here: “We keep trying to reinvent startup accelerators.”

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