Good morning 👋
Clay here. Lots of updates.
I’m in NY for the fall. Say what’s up if you’re around.
We’ve brought on a new teammate to run our recruiting business. We’ll share more about this in a future email, but shoot me a note if you’re hiring and want to get introduced.
I’m swamped. All of those OOO calendar invites are coming back to bite me. Next few weeks are gonna be a grind.
Let me know in the comment section what you think of this week’s piece.
This Week in Venture
Breaking down the YC Summer 2023 batch 🔎
YC announced their latest batch last week.
There’s a lot to unpack here, so we’ll get right into it.
Why it matters: If you talk to enough founders, you’ll hear conflicting stories on whether or not it makes sense to apply to YC anymore.
On one hand, getting in alone will warrant a premium on your valuation, and demo day will get you in front of hundreds of VCs who will give you money based solely on the fact that you graduated.
On the other hand, there’s an argument that the founders you actually want to back aren’t willing to trade away 7% of their company for a curriculum. But that’s another story.
Whether you like it or not, YC sees everything (24,000 applications for this latest batch), and they have a good pulse on what’s hot right now.
Here are some trends from the Summer 2023 class:
AI is overrepresented. This shouldn’t come as a surprise.
Venture funding into B2B SaaS isn’t going anywhere. 70% of this batch sells to enterprise. This closely mirrors the rest of venture dollars. Fintech and healthcare are the only other two sectors with at least 10% representation.
Proptech is lower. Given the amount of antiquated steps through real estate, it still blows my mind that more money isn’t invested into simplifying the status quo. Only 4% of this batch are listed as proptech or industrials companies.
In-person is back. This was the first of the last three batches to be in-person. The next batch already has plans to be invite-only for in-person attendees.
Valuation sensitivity is also back. Every demo day means more VCs complaining about the prices for some of these YC companies. The last decade gave a lot of false confidence to YC companies. You could graduate with no revenue and still get $20m+ valuations because there was a willing bid. Now that fundraising markets have dried up, we expect the market to self correct.
What happens next: Do we think VCs will ever stop investing in YC companies because they’ve become to pricey? No.
Garry Tan (CEO of YC) has actually addressed this and had a great quote:
“Value investing in venture is like restricting your search for your lost keys under only brightly lit street lamps.”
He’s not wrong.
If you’re looking for winners and losers, we think the winners will be multi-strategy funds (more dollars to play with = less price sensitivity), and we think the losers (defined as those that won’t be investing in YC companies) will be smaller funds that have to be more methodical with how they construct their portfolios.
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Links We Like
🔮 ONCE: The 37signals guys have written a manifesto for a new relationship with software
📈 Amazon’s ad business, explained: Great breakdown of Amazon’s $43b ad business
💭 A Dozen Things I’ve Learned From Don Valentine: Timeless wisdom from one of the GOATs
👉 Reflections on operator-investors: Why you have to have lived in an entrepreneurs’ shoes to understand their situation
🕹 10 thoughts on the video game industry: George Mack gives his two cents
📺 Making Media: One of the best podcasts we’ve found on building and growing a media empire
Have an article you like that we should include in this section? Let us know by responding to this email or sharing a link in this Slack channel.
Tweet of the Week
Things that have become overly normalized
The strangest things about us relative to humans through history (just revisited notes on all the “big history” books I’ve read)
– no/feel rites of passage
– eat fake food
– don’t live near generations of family
– die slowly
— Patrick OShaughnessy (@patrick_oshag)
Sep 9, 2023
I keep recommending Patrick. It’s because he’s that good.
Member of the Week
Ayesha Arora (Associate @ S32)
Type of fund: Early-stage venture
Stages: Pre-Seed – Series B
Sectors: AI, Cloud Infrastructure, Cybersecurity, Enterprise, Fintech
Location: Palo Alto, CA
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