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Are Y Combinator Startups Overvalued?
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By Marc Vartabedian, WSJ Pro
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Good day. Ahead of Y Combinator’s summer “Demo Day” set to run Wednesday and Thursday, a social media scrum broke out over whether YC startups are valued like it’s 2021.
The kerfuffle started when Jeff Weinstein, a partner at New York-based seed and early-stage firm FJ Labs, wrote on LinkedIn that YC startups that would have raised money at an $8 million capitalization in 2017-2020 are today raising at a $20 million valuation.
This he attributed to YC’s own investment and deal clauses that ensure if a future investor negotiates better terms, the earlier investors get them, too. But he wasn’t done: “...it also feels like these companies are being given bad advice and remain in denial that we’re not in 2021 anymore.”
Unless startups that go through YC execute flawlessly and take off, he said, they’ll find themselves in a tough position a year down the road when they have to raise capital.
(For those living under a rock, YC hosts its vaunted Demo Day events twice a year, when startups in its accelerator program present their businesses to an invitation-only audience of outside investors and entrepreneurs.)
Weinstein’s post elicited over 1,500 reactions and roughly 180 comments, including many vehement takes from other venture capitalists and founders.
Jasper Masemann, a partner at Cherry Ventures, wrote: “It is quite unfortunate for the founders. Maybe not even this round but clearly the next one. 20x ARR [annual recurring revenue] seed multiples means they’ll have to get to $1M ARR just to justify the valuation.”
YC wasn’t standing still for this.
“You guys are crazy if you think somehow this is a disservice to founders,” shot back YC President Garry Tan. “The vast majority of founders do go on to raise their full rounds.” In a subsequent post, Tan added that 45% of YC companies raise Series A rounds and that the median ARR is $1 million or higher and is trending up.
Analyzing ARR, which measures normalized subscription revenue for a year, is a common way investors assess the value of software startups.
Debates over valuations are hardly new to seed-stage investing, where startups are often little more than concepts, and dissent over price crops up periodically. In the heady days of 2021, seed valuations soared nearly 17% from 2021 to 2022, according to analytics firm PitchBook Data. And at the time, that jump drew similar skepticism from venture capitalists that startups were being given shoes way too big for their feet.
And now on to the news...
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Haun Ventures hired an investor relations executive to help limited partners decipher the crypto industry. PHOTO: DADO RUVIC/REUTERS
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Investor relations hire. Crypto-focused venture-capital firm Haun Ventures has hired a private-equity veteran to handle investor relations for the young firm, highlighting how firms are seeking to communicate with their investors about the shifting crypto landscape, WSJ Pro's Marc Vartabedian reports.
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Haun Ventures said it hired Suzanne Kim as a partner. Kim previously worked in private equity for 15 years, most recently as a managing director at San Francisco-based Hellman & Friedman. Before that, she was a vice president at TPG Capital.
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Haun Ventures made a splash entering the venture industry. In 2022, former Andreessen Horowitz General Partner Katie Haun said her new firm raised a pair of funds totaling $1.5 billion to invest solely in crypto startups.
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Private Equity, Hedge Funds Sue SEC to Fend Off Oversight
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A coalition representing the biggest private-equity and hedge funds sued the Securities and Exchange Commission on Friday to block new regulations aimed at giving investors more transparency and better terms from asset managers, The Wall Street Journal reports. The lawsuit, filed in a conservative federal appeals court, argues that the SEC overstepped its legal authority in completing the regulations last week. Plaintiffs include the Managed Funds Association, American Investment Council, National Venture Capital Association and the National Association of Private Fund Managers. An SEC spokeswoman said the agency “undertakes rulemaking consistent with its authorities and laws governing the administrative process, and
we will vigorously defend the challenged rule in court.”
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Investors Flock to Battery Recyclers in Hunt for Climate Law Winners
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Investors are racing to find the clean-energy startups best positioned to capitalize on last year’s landmark climate law. Many are betting on an industry that is seen as crucial to the U.S. ending its reliance on China for batteries, The Wall Street Journal reports. Major investors including BlackRock and Goldman Sachs Asset Management are pouring money into battery recycling, the nascent business of producing reusable battery parts for electric vehicles from scrap metal or old batteries. They are anticipating the startups will survive a turbulent market for clean-energy companies and remain in demand once government incentives dry up.
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PHOTO ILLUSTRATION: MATT CHASE
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Rates are up. We’re just starting to feel the heat. Homeowners. Car buyers. Landlords. Big businesses. Here’s who stands to lose—and in some surprising cases, win—as interest rates stay high in the years ahead.
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Special Report: Navigating AI
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Generative AI is playing an increasingly important role in the workplace, bringing with it promises of economic advances as well as painful disruption. Here’s how you can leverage this transformative technology while managing its risks and rewards:
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Generative AI promises an economic revolution. Managing the disruption will be crucial.
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AI fuels new brand-safety worries, and would-be solutions, for marketers
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Chatbots are trying to figure out where your shipments are
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Artificial intelligence steps in to lower carbon footprint of buildings
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Sortera Technologies, a Markle, Ind.-based material sorting startup, completed a $30.5 million Series C round from Assembly Ventures and others. The company provides technology to the industrial scrap metal recycling industry.
Rewaa, a Saudi Arabia-based retail inventory and accounting management startup, scored a $27 million Series A round led by Wa’ed Ventures.
Trellis, a Los Angeles-based state trial court data and analytics platform, raised $15 million in Series B funding. Top Tier Capital Partners led the round, with Managing Director Sean Engel joining the company’s board.
Novatron Fusion Group, a Stockholm-based fusion energy startup, landed a €5 million seed round led by Climentum Capital.
Datavations, a Glen Cove, N.Y.-based provider of retail analytics tools, was seeded with a $4.2 million investment co-led by Nevcaut Ventures and Sage Venture Partners.
Occuspace, a Westlake Village, Calif.-based foot traffic data provider, secured a $3.6 million investment. Okapi Venture Capital led the round, which included participation from Hamilton Ventures and others.
Rent Butter, a Chicago-based tenant screening startup, closed a $3 million seed round led by RET Ventures.
Flojoy, a startup providing no-code automated testing software, picked up $1.3 million in seed funding. Boreal Ventures was among the investors, with Managing Partner David Charbonneau joining the board.
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When he bought Arm, SoftBank’s Masayoshi Son predicted it would grow by five times in five years. PHOTO: AKIO KON/BLOOMBERG NEWS
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The disappointing bet that could turn into the biggest IPO of the year
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Q&A with Silicon Valley prosecutor taking aim at crypto ‘pig-butchering’ scams
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Goodreads for movies? Where insiders go for deep dives on films, podcasts, and even wine
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In EV transition, German carmakers lag behind Tesla and China
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Inside the VC brain (The Information)
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Tech industry dodges California social media addiction bill (Bloomberg)
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