In a series of posts on X on Thursday, Paul Graham, the co-founder of startup accelerator Y Combinator, brushed off claims that OpenAI CEO Sam Altman was pressured to resign as president of Y Combinator in 2019 due to potential conflicts of interest. “People have been claiming [Y Combinator] fired Sam Altman,” Graham writes. “That’s […]
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Stack AI’s co-founders, Antoni Rosinol and Bernardo Aceituno, were PhD students at MIT wrapping up their degrees in 2022 just as large language models were becoming more mainstream. ChatGPT would be released to the world at the end of the year, but even before that, they recognized a problem inside companies putting data together with […]
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Like most Silicon Valley VCs, what Garry Tan sees is opportunities for new, huge, lucrative businesses.
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If you’ve ever wanted to apply to Y Combinator, here’s some inside scoop on how the iconic accelerator goes about choosing companies.
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More money for the generative AI boom: Y Combinator-backed developer infrastructure startup Recall.ai announced Thursday it’s raised a $10 million Series A funding round, bringing its total raised to over $12M. The startup has built infrastructure and a unified API that enables companies to access raw data from virtual meeting platforms like Google Meet, Microsoft Teams, […]
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Y Combinator is renowned in Silicon Valley for a lot of reasons, but there’s one service that has quietly become one of its most powerful: an online founder-matching tool.
“I think this is the most valuable digital product that YC has built (i.e. more valuable than Bookface, etc,). It’s astonishing how many founders I meet who met each other on the YC co-founder matching platform,” tweeted seed investor Nikhil Basu Trivedi. (Bookface refers to YC’s famed online collection of how-to startup advice for its program participants.)
Recent Y Combinator grad Hona is an example, although its founders’ meet-cute story is a bit more exciting than just using that tool.
Hona is a GenAI medical records startup. It integrates into multiple electronic records systems and then summarizes a patient’s medical records, helping doctors prep for the patient’s visit.
It was initially founded by two friends who have known each other since middle school, Danielle Yoesep and Adam Steinle. They reconnected after graduating college and respective early careers in tech and biotech. Steinle had been a biomedical engineer, Goldman banker, and big tech product manager at Facebook. Yoesep was a scientist for a biotech startup that had just been acquired. They were hanging out with their high school friends while home for Thanksgiving, chatting about wanting to do a startup when the idea for Hona arose. While neither of them were doctors themselves, both had family members who were doctors or in healthcare and they soon settled on an idea: AI to assist doctors with patient data summaries.
They knew they needed an AI specialist co-founder, so signed up on the Y Combinator Co‑Founder Matching Platform. They found one in Shuying Zhang, who also knew she wanted to do a startup, something in healthcare and AI, and had signed up on the service. Zhang’s background combined biomedical engineering and software development, most recently working on AI at Google, and she was at Amazon prior to that.
What came next was a process that sounds a bit like Tinder for co-founders.
Yoesep and Steinle swiped through profiles in the matching tool as did Zhang. Each of them held several meet-and-greets with potential co-founders. When Zhang met with Yoesep and Steinle, they instantly clicked so well, that the long-time friends offered Zhang a full one-third share of the company.
“We literally met each other and like three weeks later, we’re jobless, trying to build this,” Steinle told TechCrunch.
Having met on Y Combinator, with their backgrounds in tech, they were exactly the type of startup sure to be accepted into the competitive program. They immediately applied to YC for the Summer 2023 batch.
And they were promptly rejected.
So they got to work on their own, building a prototype, showing it to their network of doctors, earning solid reviews, and raising a small seed round.
About four months later, they applied to YC again for the winter 2024 batch, and were accepted. One of the reasons they got in the second time, Yoesep recalled, was that they never changed directions, or never pivoted, to use the hackneyed Silicon Valley term. Another reason was “because of our dynamic during our interview, showing that we had grown close and enjoyed working together,” she said.
Things started cooking for them after that. Medical doctors at Duke and Harvard agreed to test the product and write a white paper, due to publish later this month. Some angels who were known in the tech and biotech worlds invested. And by the time Hona graduated from YC and did its famed Demo Day, it had already raised a $3 million seed round from General Catalyst (which is pursuing healthtech so seriously it bought a hospital system), Samsung, Rebel Fund (founded by Reddit co-founder Steve Huffman and Cruise co-founder Daniel Kan) and 1984 Ventures.
Hona still has a tough road ahead. AI for medical transcription is an increasingly crowded field. Big cloud providers like Google and Amazon are offering such tools and dozens of startups are tackling it, too.
But Steinle says that Hona will compete because it’s “super customizable” to search through medical records for the specific data a particular doctor needs prior to seeing a patient. A cardiologist would get a different summary than a nephrologist. For instance, the upcoming white paper is on kidney stone referrals, so “so we’re pulling stuff like how many millimeters was the stone on the right here?” Steinle describes.
As for Zhang, her advice for others who dream of doing a startup, and are considering using YC’s matching tool, is to “just go out and try,” she says. “Once you start working with people, you will quickly have a good sense whether you get along. You will know right away.”
“When an investor passes on you, they will not tell you the real reason,” said Tom Blomfield, group partner at Y Combinator. “At seed stage, frankly, no one knows what’s going to fucking happen. The future is so uncertain. All they’re judging is the perceived quality of the founder. When they pass, what they’re thinking in their head is that this person is not impressive enough. Not formidable. Not smart enough. Not hardworking enough. Whatever it is, ‘I am not convinced this person is a winner.’ And they will never say that to you, because you would get upset. And then you would never want to pitch them again.”
Blomfield should know – he was the founder of Monzo Bank, one of the brightest-shining stars in the UK startup sky. For the past three years or so, he’s been a partner at Y Combinator. He joined me on stage at TechCrunch Early Stage in Boston on Thursday, in a session titled “How to Raise Money and Come Out Alive.” There were no minced words or pulled punches: only real talk and the occasional F-bomb flowed.
At the heart of the venture capital model lies the Power Law of Returns, a concept that every founder must grasp to navigate the fundraising landscape effectively. In summary: a small number of highly successful investments will generate the majority of a VC firm’s returns, offsetting the losses from the many investments that fail to take off.
For VCs, this means a relentless focus on identifying and backing those rare startups with the potential for 100x to 1000x returns. As a founder, your challenge is to convince investors that your startup has the potential to be one of those outliers, even if the probability of achieving such massive success seems as low as 1%.
Demonstrating this outsized potential requires a compelling vision, a deep understanding of your market, and a clear path to rapid growth. Founders must paint a picture of a future where their startup has captured a significant portion of a large and growing market, with a business model that can scale efficiently and profitably.
“Every VC, when they’re looking at your company, is not asking, ‘oh, this founder’s asked me to invest at $5 million. Will it get to $10 million or $20 million?’ For a VC, that’s as good as failure,” said Blomfield. “Batting singles is literally identical to zeros for them. It does not move the needle in any way. The only thing that moves the needle for VC returns is home runs, is the 100x return, the 1,000x return.”
VCs are looking for founders who can back up their claims with data, traction, and a deep understanding of their industry. This means clearly grasping your key metrics, such as customer acquisition costs, lifetime value, and growth rates, and articulating how these metrics will evolve as you scale.
One proxy for power law, is the size of your addressable market: It’s crucial to have a clear understanding of your Total Addressable Market (TAM) and to be able to articulate this to investors in a compelling way. Your TAM represents the total revenue opportunity available to your startup if you were to capture 100% of your target market. It’s a theoretical ceiling on your potential growth, and it’s a key metric that VCs use to evaluate the potential scale of your business.
When presenting your TAM to investors, be realistic and to back up your estimates with data and research. VCs are highly skilled at evaluating market potential, and they’ll quickly see through any attempts to inflate or exaggerate your market size. Instead, focus on presenting a clear and compelling case for why your market is attractive, how you plan to capture a significant share of it, and what unique advantages your startup brings to the table.
Raising venture capital is not just about pitching your startup to investors and hoping for the best. It’s a strategic process that involves creating leverage and competition among investors to secure the best possible terms for your company.
“YC is very, very good at [generating leverage. We basically collect a bunch of the best companies in the world, we put them through a program, and at the end, we have a demo day where the world’s best investors basically run an auction process to try and invest in the companies,” Blomfield summarized. “And whether or not you’re doing an accelerator, trying to create that kind of pressured situation, that kind of high leverage situation where you have multiple investors bidding for your company. It’s really the only way you get great investment outcomes. YC just manufactures that for you. It’s very, very useful.”
Even if you’re not part of an accelerator program, there are still ways to create competition and leverage among investors. One strategy is to run a tight fundraising process, setting a clear timeline for when you’ll be making a decision and communicating this to investors upfront. This creates a sense of urgency and scarcity, as investors know they have a limited offer window.
Another tactic is to be strategic about the order in which you meet with investors. Start with investors who are likely to be more skeptical or have a longer decision-making process, and then move on to those who are more likely to move quickly. This allows you to build momentum and create a sense of inevitability around your fundraise.
Blomfield also discussed how angel investors often have different motivations and rubrics for investing than professional investors: they usually invest at a higher rate than VCs, particularly for early-stage deals. This is because angels typically invest their own money and are more likely to be swayed by a compelling founder or vision, even if the business is still in its early stages.
Another key advantage of working with angel investors is that they can often provide introductions to other investors and help you build momentum in your fundraising efforts. Many successful fundraising rounds start with a few key angel investors coming on board, which then helps attract the interest of larger VCs.
Blomfield shared the example of a round that came together slowly; over 180 meetings and 4.5 months worth of hard slog.
“This is actually the reality of most rounds that are done today: You read about the blockbuster round in TechCrunch. You know, ‘I raised $100 million from Sequoia kind of rounds’. But honestly, TechCrunch doesn’t write so much about the ‘I ground it out for 4 and 1/2 months and finally closed my round after meeting 190 investors,’” Blomfield said. “Actually, this is how most rounds get done. And a lot of it depends on angel investors.”
One of the most challenging aspects of the fundraising process for founders is navigating the feedback they receive from investors. While it’s natural to seek out and carefully consider any advice or criticism from potential backers, it’s crucial to recognize that investor feedback can often be misleading or counterproductive.
Blomfield explains that investors will often pass on a deal for reasons they don’t fully disclose to the founder. They may cite concerns about the market, the product, or the team, but these are often just superficial justifications for a more fundamental lack of conviction or fit with their investment thesis.
“The takeaway from this is when an investor gives you a bunch of feedback on your seed stage pitch, some founders are like, ‘oh my god, they said my go-to-market isn’t developed enough. Better go and do that.’ But it leads people astray, because the reasons are mostly bullshit,” says Blomfield. “You might end up pivoting your whole company strategy based on some random feedback that an investor gave you, when actually they’re thinking, ‘I don’t think the founders are good enough,’ which is a tough truth they’ll never tell you.”
Investors are not always right. Just because an investor has passed on your deal doesn’t necessarily mean that your startup is flawed or lacking in potential. Many of the most successful companies in history have been passed over by countless investors before finding the right fit.
The investors you bring on board will not only provide the capital you need to grow but will also serve as key partners and advisors as you navigate the challenges of scaling your business. Choosing the wrong investors can lead to misaligned incentives, conflicts, and even the failure of your company. A lot of that is avoidable by doing thorough due diligence on potential investors before signing any deals. This means looking beyond just the size of their fund or the names in their portfolio and really digging into their reputation, track record, and approach to working with founders.
“80-odd percent of investors give you money. The money is the same. And you get back to running your business. And you have to figure it out. I think, unfortunately, there are about 15 percent to 20 percent of investors who are actively destructive,” Blomfield said. “They give you money, and then they try to help out, and they fuck shit up. They are super demanding, or push you to pivot the business in a crazy direction, or push you to spend the money they’ve just given you to hire faster.”
One key piece advice from Blomfield is to speak with founders of companies that have not performed well within an investor’s portfolio. While it’s natural for investors to tout their successful investments, you can often learn more by examining how they behave when things aren’t going according to plan.
“The successful founders are going to say nice things. But the middling, the singles, and the strikeouts, the failures, go and talk to those people. And don’t get an introduction from the investor. Go and do your own research. Find those founders and ask, how did these investors act when times got tough,” Blomfield advised.
Givebutter started in a George Washington University dorm room in 2016 as a software solution to make nonprofit fundraising more transparent and fun. Eight years later, the company is profitable and it just raised $50 million to scale as momentum for nonprofit-focused startups appears to be growing.
The company’s co-founder and CEO, Max Friedman, fundraised for a variety of organizations in college, ranging from raising for GW’s Greek life to raising for national nonprofits like TAMID. Friedman told TechCrunch that regardless of the size or scope of the organization he was fundraising for, they all had the same problem: They all used a disjointed mix of one-solution tech software that didn’t really make the process better and often came with hidden fees.
“We realized that nonprofits are using a lot of different tools to solve different pain points, and what we can do for the sector is bringing it all under one roof,” Friedman said. “It exists in restaurants and in e-commerce; there [was] no Shopify or Toast for nonprofits.”
The result was Givebutter, a CRM platform for nonprofits that strives to be transparent and all-encompassing. It features marketing resources, ways to track donors, fundraising tools for a variety of different strategies, and payment processing. Nonprofits can either use Givebutter for free, if their fundraising campaigns offer a place for users to donate to Givebutter, or organizations pay a 1% to 5% platform fee.
“From day one, we had customers,” Friedman said. “It was very clear that there was a lot of demand for great fundraising tools and not a great tool set for those change makers.”
The startup raised $50 million from Bessemer’s Venture Partner’s BVP Forge Fund with participation from Ardent Venture Partners this week. Friedman said the money will be used for marketing to help the startup scale as the company has grown to this size thus far largely with almost zero marketing spend.
What initially got me interested in this deal — beyond the fact that the company is profitable from a largely donation-based revenue system or the fact that it calls its employees “Butter Slices” — was that it was a sizable round in the nonprofit tech sector, which has been popping up significantly more as of late.
During the most recent YC Demo Day, two startups, Givefront and Aidy, were building tech for nonprofits. While these companies weren’t the first nonprofit-flavored startups to ever go through YC, they are some of the first to be building software for the nonprofits; many past YC companies in the space are nonprofits themselves, and Givefront and Aidy absolutely stood out in this year’s AI- and dev-tool-dominated cohort.
I asked Friedman if it felt like momentum in this category had changed since he got started eight years ago, and Friedman said it definitely has and that the timing is right for this category. There has been a lot of recent consolidation in the space, especially regarding private equity-backed nonprofit software players like Bloomerang and Bonterra, each of which has made a handful of acquisitions in the last few years alone. This leads to higher fees and many nonprofits looking for less-expensive solutions, Friedman said. Once people get interested in the sector, he said, they often realize how big the potential market is.
In 2022, Americans donated nearly $500 billion to charity, according to the National Philanthropic Trust, down 3.4% from 2021. There are more than 1.5 million nonprofits and growing, and building to even get a slice of that market could provide a huge windfall. Givebutter is a good example of this. The company works with more than 35,000 nonprofits and has processed more than $1 billion in donations, but it is still barely making a dent in the overall nonprofit industry.
“We have about 1% market share,” Friedman said. “That’s amazing. I’m really proud of that, but I’m also like there are 99% of nonprofits out there that can benefit, and a big part of why we raised was to go do that.”
Givebutter might just start to run into more competition on the way. “Nonprofits are incredibly resilient,” Friedman said. “There [have] been downturns and upturns in the economy for a number of years and nonprofits have grown. Nonprofits also solve some of the world’s largest problems. I’m happy to see more people being aware of that and investing in that.”
Open banking may be a global trend, but implementation is fragmented. The fintech startups doing the legwork to make it a reality in smaller markets could become M&A targets for incumbents like Visa.
One of these is Y Combinator alum Fintoc, a B2B fintech startup that has raised a $7 million Series A round of funding to consolidate its presence in its home country, Chile, and in Mexico, where it expanded one year ago.
Fintoc’s product is an API that lets online businesses accept instant payments coming directly from the customer’s bank account. Known as accounts to accounts, or A2A, this method offers an alternative to credit card transactions, with fewer intermediaries.
For end users, A2A can be as frictionless as an online credit card payment. Instead of entering card details, they can just pick their bank and securely facilitate their bank credentials. But the main selling point is to businesses, which pay a lower commission than the usual credit card transaction fees.
Many countries now facilitate A2A, which has created tailwinds for open banking companies such as Plaid, Visa-owned Tink, TrueLayer and Volt. More generalist fintech players like Adyen and Stripe have also closed partnerships to offer A2A payments to their customers.
Latin America, however, isn’t particularly easy to enter for global players, nor very attractive. It is highly fragmented, and many countries still lag behind in financial inclusion: Fewer than half of Mexican adults have a bank account, according to World Development Indicators.
Mexico’s low banking penetration is a problem, but also an opportunity for Fintoc, CEO Cristóbal Griffero told TechCrunch. He expects neobanks to address the issue, but it will take time. “If we are there right before this boom, we’ll be able to grow with the market.”
Fintoc’s home market was less challenging in some ways. This helped it get quite significant traction: “In 2023, 1,807,000 people paid products, services and bills using Fintoc. This is approximately 13% of Chile’s population,” content manager Pedro Casale wrote in an email. Fintoc says it is used by more than 1.2 million people monthly in Chile.
These numbers are even more impressive considering that Fintoc faces competition from other players such as ETpay and Khipu. But its large clients mean that it is tied to frequent use cases such as topping up public transportation cards, making e-commerce purchases, covering bills and paying credit installments.
Chile’s population size, however, puts a ceiling on Fintoc’s potential growth, Griffero said. “You have the limit that we are 20 million inhabitants, so after a certain amount of revenue, it is very difficult to reach $100 million in ARR. It gets very complicated and you have to go out.”
The necessity to expand applies to any Chilean fintech. But Fintoc’s roadmap also reflects that the market has considerably changed compared to 2021.
When Griffero and co-founder Lukas Zorich joined Y Combinator’s winter 2021 batch, their pitch was pretty straightforward: They were building “Plaid for LatAm.” That’s no longer the case; Plaid’s model was too advanced for the region, and the idea to launch all across the region was too ambitious.
VCs, too, have come to the same conclusion, as Fintoc learned during its fundraising process, Griffero said.
“I believe that the funds are still here, only that their thesis has changed a little. Now you have to explain very well why [you’d go into] each country. Saying “I am X for LatAm” is no longer something appealing to investors, especially those in San Francisco, because Latin America is super fragmented and suddenly it doesn’t make sense to be in every country. So maybe it’s Mexico, Chile and one other country, not Brazil or not Colombia; not “we are going to do all of Latin America because we are close.”
This more measured approach doesn’t warrant mega-rounds. “In 2021 this round would probably have been five times larger,” Griffero said. But maybe that’s for the best; TechCrunch followed more than one unicorn having to scale back on its pan-LatAm expansion and lay off staffers as a result.
Fintoc expects a lot from its Mexican expansion. “Mexico is the market we will most care about in the next two years and we expect it will represent the bulk of Fintoc’s revenue within the next two years,” Griffol said. But the startup is taking it step by step: Out of its team of 48 employees, only five are based in Mexico. Zorich moved there last year, but Griffol might not do so until next year.
With more onerous plans, Fintoc’s Series A round may not have happened at all. In the first quarter of the year, fintech funding slowed to its lowest level since 2017, CB Insights reported. In Latin America, it’s when compared to Q2 2021 that the drop is most blatant: Fintech startups from the region collectively raised $6 billion across 94 deals then, compared to only $0.4 billion last quarter.
Funding LatAm fintech is less en vogue than three years ago. But for VCs willing to wait, the rise of open banking across the region could eventually result in interesting M&As. Not just in Brazil, where Visa shelled out $1 billion for Pismo, a payments infrastructure that will give it access to Pix, the country’s ubiquitous instant payment system. In Mexico, too: In 2021, Mastercard acquired fintech startup Arcus, whose co-founder Iñigo Rumayor participated in Fintoc’s Series A round.
Fintoc’s main investors also have connections to its target market. Brazilian fund Monashees, which previously participated in Fintoc’s seed round and has now made a follow-on investment, has an office there. And its Series A lead, Propel, is based in the U.S., but was able to facilitate introductions to Mexican banks, an important step for the startup’s expansion.
“The closer we get to the payment rails, the better payment experience we can offer,” Griffero said in a statement.
On the client side, Fintoc is targeting Mexican businesses that accept offline payment methods such as cash payments and post-pay methods, where customers must visit a physical location to complete their transaction. This makes A2A a pretty clear upgrade; but eventually, Griffero hopes it will also replace debit cards, and later on, offer a solid alternative to credit cards.
Mastercard and Visa will clearly face more competition as instant payments become commonplace with systems such as Pix in Brazil, but also UPI and India and FedNow in the U.S. A recent Bain & Company report estimates that 90% of today’s payments revenue could “migrate to software vendors, major technology firms, and other contenders.” This explains some of their past acquisitions, and we wouldn’t be surprised if others followed.
Digital twin platform Matterport has agreed to be acquired by one of its customers, Costar, in a cash-and-stock deal of $5.50 per share that gives it an enterprise valuation of about $1.6 billion. Matterport’s tech helps companies create digital replicas of physical spaces.
Costar’s offer represents a premium of a whopping 212% over Matterport’s last closing share price before the deal was announced on April 22.
The deal looks like a fortunate turn of events for Matterport, whose shares had been trading below the $5 mark since August 2022 as the company struggled to meet investors’ expectations for subscriber growth amid a sluggish real estate market and a wider macroeconomic slowdown. Matterport’s stock was trading below $2 per share before the transaction was disclosed.
The company has been trying to improve its profitability over the past year, too, according to its 2023 financial statements. However, investors haven’t been happy with the company, whose shares have been struggling since it went public via a SPAC deal in 2021, which Bloomberg reported valued Matterport at around $2.9 billion.
Matterport’s shares were trading at $4.76 before the bell on Tuesday — slightly below the $5.50 deal price, which indicates investors may be wary of the deal getting blocked by regulators, or they may be hedging their bets to account for a possible decline in Costar’s stock, since the deal has a share-based component, too. Costar’s shares, however, are up slightly since the announcement, indicating that its investors are happy with the potential benefits of the deal.
Matterport quickly rose to prominence from its start in 2011, making 3D imaging cameras, spawning out of the Microsoft Kinect hacker scene and going on to join Y Combinator’s Winter 2012 batch. Its services gained significant traction in the real estate space despite competition from alternatives such as Cupix, Giraffe360 and Zillow 3D Home.
Digital twin technology has applications in construction tech and insurtech, but demand from real estate players is particularly salient, as the pandemic accelerated the switch from in-person viewings to virtual tours, both for commercial and for residential properties.
Early-mover advantage aside, the company’s later decisions likely played an equally important role as the market evolved. It diversified into helping clients create virtual tours even with smartphones. And the addition of AI with its in-house solution, Cortex, added more differentiation to its offering, leveraging its data to generate 3D digital twins supporting additional labels such as property dimensions.
Matterport’s leadership changed over the years. Its current CEO, former eBay chief product officer RJ Pittman, took the reins in 2018 — but its fundraising trajectory was fairly smooth. Over its first decade, it raised successive rounds of funding for a total of $409 million, followed by its public debut in 2021.
“Costar Group and Matterport have nearly identical mission statements of digitizing the world’s real estate,” Costar’s founder and CEO, Andy Florance, said in a statement.
CoStar, which has a market cap of $34.84 billion, is a real estate heavyweight that operates marketplaces such as Apartments.com, Homes.com and LoopNet (for commercial real estate). This gives it direct insights into the value that Matterport can add for its end users.
In March 2024, Costar wrote in a press release, “there were over 7.4 million views of Matterport 3D Tours on Apartments.com, with consumers spending 20% more time viewing an apartment listing when Matterports were available.” The company now plans to incorporate Matterport’s virtual tours (“Matterports”) on Homes.com.
Taking to the stage at a real estate event shortly after the announcement, Florance reportedly said that allowing home buyers to view properties with their own furniture, for instance, will allow agents to provide more value and promote their brands.
It will be worth tracking what happens to Matterport’s activities beyond real estate, such as its partnership with Facebook to help researchers train robots in virtual environments.
The deal is subject to regulatory approvals, but this is more than an asterisk: In 2020, Costar’s attempt to acquire RentPath was derailed by an FTC antitrust lawsuit, and RentPath was instead bought by Redfin in 2021.
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