Lightcone: Consumer is back, What’s getting funded now, The vibes immaculate

Summary

The video transcript from Y Combinator partners discusses the dynamic energy surrounding the Winter 2024 batch, highlighting a significant shift towards AI and developer tools. With nearly 70% of the batch focusing on AI, it's the dominant trend, contrasting with only 8% in Winter 2020. Consumer ideas are also experiencing a resurgence, with founders pivoting towards them instead of traditional B2B SaaS models. The batch's growth is notable, tripling its Annual Recurring Revenue (ARR) within three months. The discussion emphasizes the current technological renaissance, comparing it to the early days of the internet, where the potential for innovation is vast. The partners also touch on the decline in crypto-focused startups despite a bull run in the market, attributing it to the allure of AI and the tangible progress seen in the field. The summary underscores the optimism and potential for those building and funding startups in this new era of technology.

Takeaways

• 🚀 **Energy and Growth**: There's a notable increase in energy and a sense of a platform shift in the tech industry, particularly within the Y Combinator (YC) batch, indicating a moment of significant opportunity.
• 📈 **AI Dominance**: AI is the dominant trend, with nearly 70% of the batch ideas centered around AI, marking a significant shift from previous years.
• 🔄 **Consumer Ideas Resurgence**: Consumer startup ideas are making a comeback, with founders pivoting towards consumer rather than B2B or enterprise SaaS ideas.
• 🛠️ **Developer Tools Uptick**: There's a rise in the number of developer tool companies, reflecting the need for better tools to build future AI applications.
• 🌐 **Global to Local Shift**: YC has seen a decrease in international market focus, with a return to US-centric ideas, possibly due to the current AI-driven opportunities.
• 📊 **Revenue Growth**: The batch showed impressive growth, tripling their annual recurring revenue (ARR) in three months, highlighting the potential of the companies involved.
• 🤖 **AI Product Demonstrations**: Live demonstrations of AI products during the batch showcased tangible progress and real-world applications, inspiring confidence and excitement.
• 📉 **Crypto Downturn**: Despite a bull run in the crypto market, there was a decrease in crypto-related applications, possibly due to regulatory concerns and the allure of AI.
• 🎓 **Younger Founders**: The median age of founders has decreased, with more technical individuals, including those from institutions like MIT, choosing to start companies rather than finishing their studies.
• 🌟 **Optimism and Innovation**: There's a renewed sense of optimism and a belief that anything is possible, with investors and founders alike excited about the potential of AI to disrupt and create new markets.
• ⏳ **Timing is Key**: The current moment is considered by many to be a pivotal time for starting new ventures, with the potential for long-term trends and opportunities that extend beyond the immediate horizon.

Q & A

What is the general sentiment around the YC Winter 2024 batch compared to previous batches?

The sentiment around the YC Winter 2024 batch is that it feels very different and more energetic than any previous YC batch. There is a sense of a platform shift happening, with a renewed sense of optimism and the feeling that every SaaS dollar is up for grabs again.

What is the most significant trend observed in the Winter 2024 batch?

The most significant trend observed is the focus on AI, with nearly 70% of the batch's ideas centered around AI, marking a substantial increase from previous years.

How has the consumer startup landscape evolved in the Winter 2024 batch?

Consumer ideas are making a comeback in the Winter 2024 batch, with several founders pivoting into consumer ideas. This is a shift from previous years where founders might have pivoted towards B2B SaaS ideas.

What is the stance on consumer startups potentially being 'lazy' ideas?

There is a debate within the YC partners about whether pivoting into consumer ideas is a 'lazy' approach because many consumer ideas tend to be easy to build but hard to scale. However, others argue that the return of consumer ideas is refreshing and a positive development.

What is the current state of developer tools in the Winter 2024 batch?

There has been an increase in the number of developer tool companies funded, with about 30% more than four years ago. This is attributed to the need for better tools to build future AI technologies.

How has the perception of open source companies evolved?

Open source companies were initially not seen as profitable, but this perception changed with the success of companies like Docker and MongoDB. Now, open source is considered a viable business model, especially for developer tools.

What is the significance of Superbase in the context of the Winter 2024 batch?

Superbase is an open source alternative to Google's Firebase that gained significant traction during the batch. It is notable for its successful Hacker News launch and its adoption by a third of the current batch companies.

Why has the number of international companies in the batch decreased?

The decrease in international companies is attributed to the shift in opportunities. While there were many opportunities to take US models global in the past, the current best opportunities are more focused on AI and developer tools, which are not as localized.

What is the current trend regarding crypto companies in the YC Winter 2024 batch?

There was a notable absence of crypto companies in the Winter 2024 batch. Despite a crypto bull run, there was no surge in crypto applications, indicating that the current focus is more on AI and developer tools.

Why is there a renewed interest in building startups, particularly among younger founders?

The renewed interest is due to the tangible and exciting opportunities presented by AI and developer tools. Younger founders see a once-in-a-lifetime opportunity and are more willing to drop out of college to pursue these opportunities.

What was the growth rate of the Winter 2024 batch in terms of Annual Recurring Revenue (ARR)?

The batch experienced a threefold increase in ARR in three months, growing from $6 million to $20 million by demo day.

How does the current YC batch compare to the early days of YC in terms of product focus?

The current batch has a similar focus on product innovation as the early days of YC, with an emphasis on inventing new things that can be done with software, particularly in the realm of AI.

Outlines

00:00

🚀 Energy and Growth in the Winter 2024 YC Batch

The Winter 2024 YC batch is described as having more energy and a greater sense of opportunity than any previous batch. The speakers discuss a platform shift in the tech industry, with a significant focus on AI, which is seen as a major trend. They highlight the impressive growth rate of companies within the batch, such as Bouch achieving a 3x ARR increase in 3 months. The conversation also touches on the historical context of YC funding and the cyclical nature of tech trends, with a current emphasis on consumer ideas and developer tools.

05:01

🤖 AI Dominance and the Shift Towards Technical Founders

AI is identified as the dominant trend, with nearly 70% of the batch ideas revolving around it. There's a discussion about the past, when AI was less popular, and how companies like Replicate found their footing. Consumer ideas are making a comeback, and there's a debate on whether this trend is positive or negative. The speakers also talk about the increase in developer tools and the attraction of highly technical founders to the batch, indicating a shift towards more technical and AI-focused startups.

10:04

🌟 Success Metrics for Open Source and Developer Tools

The paragraph focuses on the evaluation of open source startups within the batch, emphasizing the importance of GitHub stars and developer adoption as indicators of success. It discusses the challenges of monetization for infrastructure and developer tools in the early stages and the significance of capturing developer mindshare. The success of Superbase, an open source alternative to Google's Firebase, is highlighted, showcasing how Hacker News can be a platform for significant growth.

15:05

📈 Tech-Enabled Businesses and the Focus on Products

The speakers reflect on the trend of tech-enabled businesses and debate whether being tech-enabled is beneficial. They discuss the importance of gross margins and how successful companies like Airbnb and DoorDash may not have been primarily technology-focused. The paragraph also emphasizes the importance of creating products that people want, regardless of whether they are tech-enabled or not.

20:08

🌍 International Focus and the Rise of Local Market Startups

There's a shift observed from international to US-centric batches, with a decrease in companies targeting local markets. The paragraph discusses the past focus on international expansion of successful US models to other countries, but notes that many of these opportunities have been exhausted. There's also a mention of a decrease in crypto-related startups, despite a bull run in the crypto market.

25:09

🔄 The Comeback of Technical Innovation and Product Focus

The paragraph discusses a perceived reset in the tech industry, with AI leading the way for new software opportunities. There's a sense that the pendulum has swung back towards funding technical innovations, as opposed to tech-enabled businesses. The speakers also mention a record number of MIT grads being funded, indicating a renewed interest in technical founders and product innovation.

30:11

🎉 The Vibrancy and Optimism of the Winter 2024 Batch

The final paragraph captures the excitement and energy around the Winter 2024 batch, with a focus on in-person events and a sense of renewed optimism. The speakers discuss the success of companies in the batch, highlighting significant growth in ARR and the potential for AI to disrupt existing markets. They conclude by encouraging potential founders to apply to Y Combinator, emphasizing that the current time is ideal for starting new ventures.

Keywords

💡AI (Artificial Intelligence)

AI refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. In the video, AI is highlighted as the dominant trend, with nearly 70% of the batch ideas centered around it. It's associated with the current technological wave, indicating a shift towards more sophisticated and autonomous software applications.

💡Y Combinator (YC)

Y Combinator is a well-known startup accelerator that provides seed money, advice, and connections to budding entrepreneurs in exchange for equity. The video features a discussion among YC partners and their insights into the trends observed in the latest batch of startups they funded.

💡Platform Shift

A platform shift refers to a significant change in the technological infrastructure that supports applications and services. In the context of the video, it suggests that AI is enabling a new era of innovation, where traditional SaaS business models are being reimagined and upended, presenting opportunities for new startups.

💡SaaS (Software as a Service)

SaaS is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. The video discusses how every SaaS dollar is up for grabs due to the impact of AI, indicating a significant market opportunity for new entrants in the software industry.

💡Consumer Ideas

Consumer ideas refer to business concepts that cater to the end-consumer as opposed to businesses that serve other businesses (B2B). The video mentions a resurgence of consumer ideas, with founders pivoting towards consumer-facing applications, indicating a shift from the enterprise focus that was more prevalent in previous years.

💡Developer Tools

Developer tools are software programs or applications that are specifically designed to aid in the development of other software. The video highlights an increase in the number of companies focusing on developer tools, which is attributed to the need for better tools to build future AI applications.

💡Open Source

Open source refers to a type of software where the source code is made available to the public, allowing anyone to view, use, modify, and distribute it. The video discusses the growth of open source companies within the batch, emphasizing the importance of community adoption and GitHub stars as indicators of success.

💡Technical Founders

Technical founders are individuals with a strong background in technology who start companies, often leveraging their technical expertise to create innovative products or solutions. The video notes that the current batch has a high percentage of technical founders, which is indicative of the complex and specialized nature of the ideas being pursued.

💡Product Day

Product Day is an event where startups in the Y Combinator batch showcase their products to an audience, typically investors and other stakeholders. In the video, Product Day is mentioned as a moment of realization for the participants, where the tangible progress and innovation of the companies become evident.

💡Crypto

Crypto refers to cryptocurrencies and the broader technology behind them, blockchain. The video discusses a decline in the number of crypto-related startup ideas within the batch, suggesting a shift in focus towards AI and developer tools rather than digital currencies and blockchain applications.

💡Revenue Growth

Revenue growth refers to an increase in the income generated by a company from its business activities. The video highlights the impressive revenue growth of the batch companies, with the aggregate Annual Recurring Revenue (ARR) tripling in a span of three months, showcasing the rapid commercialization potential of the startups.

Highlights

There's a noticeable increase in energy and excitement around the YC batch compared to previous years.

A platform shift is occurring, making every SaaS dollar in the world up for grabs again.

Bouch, a company in the batch, achieved a 3x growth in Annual Recurring Revenue (ARR) in just 3 months.

AI is the dominant trend, with nearly 70% of the batch ideas being AI-focused.

Consumer ideas are making a comeback, with founders pivoting towards them instead of B2B SaaS concepts.

Developer tools are seeing a surge in interest, with more technical founders being attracted to build for the AI future.

Open-source companies are being judged on their adoption by tastemakers and their presence on platforms like GitHub.

The batch has the most technical founders ever, with 99% of companies having a technical co-founder.

There's a shift from Tech-enabled businesses to a focus on pure software and AI opportunities.

International market focus has decreased, with the current batch being more US-centric.

Crypto applications and interest have dropped, despite a bull run in the cryptocurrency market.

The batch saw a significant increase in the number of open-source developer tool companies.

The median age of founders has decreased, indicating a new wave of younger entrepreneurs.

There's a renewed focus on tangible products and innovation, reminiscent of the early days of YC.

The batch's total ARR grew from 6 million to 20 million in three months, indicating rapid growth and potential.

Investors are showing renewed optimism and interest in funding innovative ideas that could disrupt established markets.

The current batch has seen the most pivots in the last four years, suggesting that there are still many untapped opportunities.

Y Combinator is encouraging founders to apply for the next batch, emphasizing that this is an optimal time to start a company.

Transcripts

it feels like there's more energy around

this batch than there has been for as

long as I can remember for any YC batch

like what do you think's happening

there's a platform shift and this is the

moment where every single SAS Dollar in

the world uh it's up for grabs Again The

Bouch 3x ARR in 3 months which is pretty

cool that's a great growth rate yeah

it's a fun time to build it's the best

time ever I mean as a as a builder it's

like the technology just does such a

different thing than what you expected

before

[Music]

welcome back to another episode of the

light cone we are for group Partners at

Y combinator and we funded hundreds of

companies many dozens of which have gone

on to become unicorns this is Jared I'm

Gary this is Harge and this is Diana we

just finished the winter 2024 batch of Y

combinator and it feels really really

different doesn't it it does let's talk

about how this batch is so different

from the batches that we funded in the

past some of it is you actually need to

know where we've been and where we are

right now in order to actually figure

out where we're going to go and a lot of

people watching right now are trying to

figure it out like how do I go to where

the hockey puck is going how do I get

there before everyone else the best way

to figure that out is what happened in

this batch we're going to connect the

dots with actual numbers that I don't

think we ever shared before by stats of

batches from four years ago and contrast

them with the numbers for this patch so

you can see the actual Trends the way

they're playing out here in the center

of silon Valley yeah I'm curious like

what are some of the trends that we've

seen what's made this last winter 24

batch different to previous batches well

the strongest Trend the one that

everyone is writing about is AI that's

definitely like the big Mega Trend in

the past year yeah I was surprised

when we were pulling up some of the

numbers it's just under 70% of the ideas

of AI 70% of the batch that's wild yeah

it's about 170 companies yep versus

winter 20 we only had 8% of the

companies maybe one of the notables from

winter2 that you work with Jared was uh

replicate yeah those replicate Founders

they were into AI before it was cool

which was really awesome because they

got to then ride this wave but the first

three years of replic was slow going cuz

there weren't a lot of people working on

AI they were building tools for people

working on AI there weren many customers

and we didn't call it AI as much back

then we called it machine Lear machine

learning totally I let me say one thing

I've noticed that's different about this

batch is uh consumer ideas they are

certainly coming back like I've gone

from working it feels like for many

years with working with zero consumer

startups now just even in the group of

companies I'm working with several of

them I've noticed founders who are

pivoting during the batch are pivoting

into consumer ideas whereas previously I

think they would have pivoted into like

a Enterprise B2B SAS idea and I'm not

sure what to think about that actually

do you think it's bad or good I'm not

sure okay here's Harge and I have

opposing viewpoints on this question

okay I'll make the case for why it may

be bad like I think you could argue that

pivoting into consumer ideas is sort of

lazy because so many of the canonical

tarpit ideas are these bad consumer

ideas where it's like travel planning

travel planning or splitting the bill at

a restaurant or finding a roommate or

all these kinds of things right and

people gravitate to them because it's so

easy you're like I just want to build

it's the advice of build something you

want which is great advice but it means

that you can often build these like very

easy ideas and it's really hard to get

lots of users for them whereas when it

felt like people didn't want to work on

consumer ideas oh okay I I actually have

to go out and become like an expert on

something like I have to go out and

figure out how expense management works

and see if there's any interesting ideas

there it led to lots of really really

good startups being funded so I I partly

worry that people will pivot into tarpet

consumer ideas because it's easy my

perspective is I find it so refreshing

that consumer is back because when YC

got started when we all did it in the

2005 to 2012 era there were tons of

consumer companies in fact the first YC

batch was like 80% plus consumer

companies what happened is all the

consumer ideas basically got done and

there were no good consumer ideas left

or very few and so we went through this

whole super cycle where the only non-

tarpet ideas were B2B ideas and the

problem with B2B ideas is they're a

little

boring let's be honest like B2B SAS is

like a little boring if you think about

what like Drew in like young tacnical

Founders like like the original Founders

in the early YC batches they were

building consumer apps as they were fun

both uh you and Gary when you went

through the batch had consumer companies

right yeah yeah we we both started

consumer companies because th those

weren't tpet ideas at the time the

problem was like in 2020 starting a a

us-based consumer idea was Ill advised

if you were doing it you were probably

working on a bad idea well the other

fact to here was just Facebook sucking

all the oxygen out of the room right

like it felt to me like that era you

guys are talking about so 2007 through

to 2010 maybe there was just lots of

optimism around building consumer ideas

that sounds familiar yeah right but then

it felt like for a period it just felt

like hey anything you build Facebook is

going to like clone or crush and it just

seemed not exciting to get crushed by

Facebook you could argue that a

foundational model might come along and

Crush that but you if you're working on

a consumer idea but I'm just kind of

skeptical that that's true there's a lot

of white space in there to actually

build real Revenue what would do you

advice say if if a Founder came to you

Gary and said hey like uh somebody told

me that I shouldn't work on consumer

ideas because Facebook's just going to

crush anything I do well open AI well

open AI now open open open AI is the

Facebook of yeah gbt 5 is coming out

soon so what should we tell Founders

they come out to you like okay should I

really work on this I guess it's early

enough that it hasn't happened yet I

mean when I see Facebook actually come

after replica in the AI boyfriend

girlfriend space then I'll sort of

believe it but some of it is the

capability expands the ability of

computers to sort of operate with human

beings in such a broad way that they

couldn't possibly be in all the places

another big Trend that we've seen is

more developer tools and Diana you

worked with a lot of those do you want

to talk about why what's happening with

developer tools yeah in this batch we

funded about 30% more de tools tools

than four years ago this is like one of

the largest Dev tool batches we' had in

the recent years and I think couple

reasons is I think there's uh attracting

a lot of the super technical Founders

that want to build this future with AI

and before you build it you need better

tools right it's kind of like this uh

technology Trend where you have like two

phases I think it comes from this uh is

from this book from Industrial

Revolution is from these economists I

think it predicts a lot how technology

Cycles happen the first cycle is sort of

where you're laying like the rail roads

infrastructure all the tooling before

the installation and prolif

prolification of apps there's a lot of

this kind of like tooling because even

right now for building a AI app there's

so much Plumbing you need to do and

customize it and right now there's

certain patterns that are emerging like

Rag and doing a lot of query and

indexing and getting results to be more

accurate and

fine-tuning those are not well-known

patterns and everyone is building the

same stuff to build the actual end

application so we have a lot of Founders

that are like really good tool builders

that are excited to kind of build the

hammer like it would be really cool to

see at some point all the way from

distributor systems to like evaluations

to even as hardcore as probably at some

point custom silicon like we could

probably at some point see the next

Nvidia being funded and gone through YC

one thing that's really interesting is I

remember in 2010 when I first started

working at YC Dev tools were not seen as

a good idea to work on because people

didn't think they would ever make money

it was only when Docker um started

taking off then mongod DB started taking

off there was sort of this era where

it's was like oh like Dev tools are

things you can actually work on well and

for open source companies in in

particular because it was very unclear

at that time that open source projects

could actually be successful companies

like red hat was like the only example

at that time Y and so I think this is a

great like Dev tools is just a great

example of the build something you want

for yourself and if you're an engineer

you can just be very self-indulgent and

build like the tools that you want and

there's actually a business there well

in that respect Dev tools is basically

B2B SAS but uh consumer style so you

only have 20 million people who you have

to actually Market to and you actually

have to Market to them in the same way

you would to for a consumer product but

instead of a billion consumers you're

talking about 20 million developers and

the cool thing is uh most of those 20

million at some point are on Hacker News

which is a YC website it's like the New

York Times for hackers that's right

there's a lot of parallels because uh

consumer ideas are not judged on how

much money they make typically consumer

social in particular right like it's all

just like growth and daily active users

and monthly active users and what I've

noticed about open source same yeah

Diana how do how do investors judge

whether open source startup in the batch

is doing well or not some of the early

signs is whether this is getting adopted

by The Taste makers and that happens to

be in a GitHub project you have a lot of

uh GitHub star growth and also if you

have actual like hardcore developers

that are good using you and early signs

of getting in production with companies

at this point like consumer early in the

early days for infrastructure and death

tools you don't really make money

because things like installing a new

database is such a big bet for a company

that you need to make sure that it's

battle tested so a lot of Open Source

companies take a little bit longer to

monetize kind of like consumer where

it's all about user growth right and the

second thing I would say um is

ultimately open source companies win

when they really have the developer mind

share it's sort of like Facebook one

with the network effects with capturing

a lot of the users like I don't know

it's like a third or half of the world

uses Facebook same thing for de tools is

like if anyone thinks of let's say

building like a full stack application

and easy deployment they could think of

a superas I think they've done a really

good job and I think you work with them

Jared what was it at the beginning when

they were doing the batch and what does

it look like now well the cool thing

about superbase

is literally what got superbase off the

ground is Hacker News they had built

this open source project that was an

open source competitor um to what's it

called Google the Firebase Firebase

fireb Firebase yeah which is a YC

company that got acquired by Google and

then became a really big like product in

inside of Google and they were building

an open source Challenger to Firebase

and they built it and like how do you

get users for something like that well

the thing you do is you launch it on

Hacker News and so this they had this

blowout Hacker News launch and to your

point Diana it was was clear if you

literally just read the comments on The

Hacker News Post it's clear that really

good developers are like this is exactly

the thing that I wanted thank you for

building it and that was what like

launched them into the stratosphere and

there's a recent stat about the

percentage of the batch that's using

them we'll have to pull the number but

it's like a third of the batch is using

73 companies super Bas on the current

batch out of the 243 are using super

base batch yeah that's crazy wild which

is really going up against the big

infrastructure clouds with AWS gcp right

yeah investors really pay attention to

like the hack and use launches of these

Dev tool companies CU that again super

base had a phenomenal round that they

raised around demo day and it was really

all directly attributed to the hack post

yes this is a free Alpha leak for all of

you out there that you could basically

take almost any close Source dominant

Dev tool or platform and create an open-

Source version of it and uh you might

just kill the Clos source version of it

and this is a shot again you know a shot

across the bow of every dominant sort of

Dev tool or SAS platform and by the

numbers in Winter 20 we only had five

companies that were open source Dev

Tools in this current batch we have 22

so that is like a 5x plus increase 22

open source companies that's like that's

a big shift and we've seen this over and

over again I mean there's sort of like

the slack and then mattermost there's

sort of the uh GitHub and then git lab

which was a YC company um you know in

sort of analytics we havee and poog

exactly so the other cool thing about

this batch at Coler of getting a lot of

uh Founders getting excited to work on

AI and de tools this is the most

technical batch ever right it's like 99%

of the companies have a technical

founder in the current batch versus just

88% during the pandemic let's talk about

why that is I mean we talked about some

of the driving factors from ideas but I

think there's a couple more things at

play I think one thing that feels very

different now versus if we go back to

pandemic covid era is I think there was

this whole the software eats the world

idea which originated with a mark

andreon blog post I can't remember like

maybe 2012 something around that um or a

decade ago great essay yeah great essay

right but I think what it boosted was

this idea of hey not every business is

going to be a core software company

it'll be like software reads the world

it'll be software that sort of enables

non-software businesses to become

software what do you mean by that is

like kind of more businesses that are

operations heavy sort of like give examp

examples like flexport I think would be

a great one right like flexport was hey

there's this giant trade and Freight

brokerage business moving things around

the world and so much of that is done

manually with humans filling out forms

and flex was hey like well that could be

why don't we just have like a software

team that build software to help the

people who are managing like the freight

and the brokerages do this more

efficiently it's Tech enabled Tech

enabled and I think like a consequence

of that is that the and especially with

s of the Zer era where I just felt like

there was lots of money available to

fund ideas that the profile of Founders

became a little bit more tilted towards

like can you do you have domain

expertise in a non-software business

like are you like someone who's in the

shipping industry who now wants to start

like a tech company

some spectacular examples be like we

work right like probably the poster

child of like Tech enabled but I just

think the the profile of founder shift a

little bit away from like geeky engineer

Adam was not technical yeah right right

exactly right he does not look like at

all and actually to that point this

whole trend is like somewhat

controversial about these Tech enabled

businesses and there are some that seem

to be on the right side of the line

where they actually were Tech enabled

like flexport which is working and there

are some that were on the other side of

the line where they claim to be Tech

enabled but really weren't like we work

and those ones didn't go so well but I

think AI is a force in the complete

opposite direction right where it feels

like if you want to work on a good AI

idea you need to be at The Cutting Edge

of actual AI technology and tooling

which a table steak Yeah right because

all this stuff is cutting Cutting Edge

which I think it gives a bit of um Edge

to a lot of Founders that don't have

baggage because everything is so new all

of the latest progress in AI is just

like one couple years old and this is

one of the batches that also has shifted

the median average age of the founders

is also bit younger here's another

version of the story that I've heard

told which is that in the like 2020 era

there hadn't been a technology platform

shift in a long time ventor Capital

funds had billions of dollars to deploy

they had to deploy it someplace the best

place to deploy it was these Tech

enabled businesses that were going after

Industries and companies that didn't

really look like the traditional Tech

business that Venture Capital was set up

to fund but there weren't a lot of great

new tech opportunities because there

wasn't a new platform shift now there is

and so it's a much higher Roi use of

those Venture Capital dollars to fund

stuff like RI companies and stuff like

we work yeah I think uh one of the

interesting subtleties is um in my head

it's a little bit less about whether

it's Tech enabled or not um that is

certainly one frame and a lot of VCS

actually really stick to that I mean

there's some uh really famous firms that

famously only want to fund pure software

businesses that are uh monthly or annual

recurring revenue and that's a whole

strategy they're a bunch of those firms

that we've all heard of that are our

friends like that's all they do and then

you know there are just as many who uh

actually look at it and say oh actually

I'm willing to do Tech enabled but there

are a lot fewer of those people and then

I think the real subtlety I'm sort of a

little bit more in the ladder Camp

because what it really what really

matters is actually the um gross margin

so if you look at a paler for instance

you can have a 90% gross margin or 80%

gross margin type of tech enabled you

know quote unquote almost Consulting

business but if your gross margins are

extremely high then people are actually

you know willing to give you good

multiples and you're actually able to

raise money at a a reasonable valuation

I think what's funny is when we give the

t-shirts at y combinator like when when

you come to YC you get a t-shirt that

says um something people want yeah there

you go there go because it's the end of

the batch what's funny is uh notice none

of this mentions anything about whether

you're Tech enabled or not whether

you're a software business or not or

even gross margin it's just purely a

function of if you make something people

actually want uh people are going to pay

for it and then the rest is just sort of

details I mean you can actually look at

the today the biggest YC companies by

let say they've gone public um Airbnb

door

Dash it's not clear that like on the

surface at least like the technology is

what sets those apart so much as it was

for Airbnb like you know it's a website

but the core thing is building like a a

network and a reputation system most

powerful Network effects ever yeah right

door Das and instacart are these are

arguably more logistics companies than

like true tech companies they're the

best example actually have maybe this

the the tech enabled label is a tricky

one because those are actually probably

technology companies but you could one

lens you could put on them and say

they're Tech enabled but they're also

two of like the biggest companies we've

ever funded but they come from a

different era when a lot of the rest of

the world was still coming up online

right that's what it feels like to me if

we like just how we're talking about

Trends it just seems to me to your point

Jared that it was there was a period

around 2006 2007 it was just pure

software businesses then was like Hey

software is going to be bigger than just

pure software and we got kind of door

Dash and instacart and these interesting

businesses and then it like really maybe

it pushed too far where there was like

we work yeah we work where it's like hey

this is there's no software there's no

software here at all really right um and

that's what it feels like has been a big

reset which AI has sort of it's almost

like AI has taken us back to that start

where it's like okay actually we just

want to fun things that like what's

interesting is like the technology well

it's because there's good software

opportunities again like we we ran out

of them that's why the Venture Capital

dollars like shifted to the wework stuff

yep and now they're back it's a platform

reset platform we're so back guys so

what have we funded less of this badge

what have we seen move in the opposite

direction well we funded a lot less

stuff going after local markets so in

the 2015 to 2020 era YC and just like

the world in general funded a ton of

companies that were ba basically the

second wave of all these online to

offline things so the first wave was

like door Dash and instacart in the US

and then the second wave was like well

well what about door Dash if you're in

Brazil work they want their food

delivered too what about instacart if

you're in India and so there's a whole

wave of taking these models and copying

them in international market fintech too

right there was like we saw coinbase

Robin Hood um Neo Banks Neo banks monzo

in the UK and there was two waves of

that as well there was a first wave

primarily in the US like bra for example

but a lot of fintech businesses are

actually local because regulations are

so different in each country and so then

there's a second wave of like the

international copies of all the us-based

things yep definitely during that period

like the 2020 to 2022 period we were

funding a lot of international teams

that were at like Robin Hood for latam

or like a local crypto exchange or yeah

like door dash for X Market lots of

these kinds of things yeah and a lot of

those were really good YC funded some

amazing epic companies they like monzo

which banks some ridiculous percentage

of the people in the UK grow in India

which is Robin Hood for India is doing

phenomenally well zepto which is the

fastest growing YC company of all time

which does 10-minute grocery delivery in

India I I think that's a really

interesting one actually because it's

like it's very easy to say zepto is like

instacart for India but it's not quite

right cuz their actual model is

different it is yeah by the Numbers

specifically around the 2020 era winter

20 batch only about 45 45% of the batch

was International and now is only 20

yeah this is the most us Centric batch

we've had in a long time most of the

teams when they applied are in the Bay

Area like so about

29% um which interestingly so TBA also

means like San Francisco is definitely

back so we looked at the numbers and

preco around 29% or so of the companies

were in the Bay Area when they applied

to YC and it was half of that during

pandemic y right went down to like 14%

something like that and now we're back

up to where we were before so you know

even higher actually

yeah even higher than we were pre pre-co

I think because there so much about uh

cerebral Valley all the AI progress

Happening Here I think the fundamental

reason it's not to be clear that we woke

up one morning and we were like like we

got to fund more us Founders that was

not what happened what what actually

happened I think is basically the best

Founders chase the best opportunities

and YC funds the best Founders and so

like what are the best opportunities

well in 2020 there were amazing

opportunities to take models working in

the US and launch them in other

countries and so amazing Founders like

audit from zpto that's what they worked

on and now the best ideas are like that

trend has sort of run its course now and

like most of those opportunities have

been done and so the best Founders have

to had to move on to other opportunities

I'll give you a stats for that

specifically like winter 24 we have four

times less Marketplace ideas than 20120

if we're seeing more consumer and Dev

tool ideas it also makes sense because

those aren't local at all they're exact

opposite of your point like actually if

you want to build the best AI Dev tool

yeah there's no such thing as an AI Dev

tool for Brazil it's just

like use the same ones yeah right

another thing that we're finding a lot

less of now is crypto and here's

something that the audience might not

know about the two of you which is that

Gary and Harge are two of the most

successful crypto investors of all time

like literally like you two were the

First Investors in coinbase and you made

literally billions of dollars investing

in crypto billions of dollars

right uh I some of it is going back to

being around y combinator reading Hacker

News and finding out about this thing

called Bitcoin reading the Satoshi

Nakamoto white paper and just saying

like well what is this you know Mount

goau like magic the Gathering online

exchange website in Japan having to you

know do some weird wire to you know some

sketchy

country on Western Union in order to get

money into this weird website that would

sell Bitcoin and having that experience

be so bad like I remember doing that and

thinking well this is a very interesting

idea and then uh again if very smart

technical people on Hacker News are

doing this and believe this might happen

well this might just be a thing so as

two of the top crypto investors what

happened why were there no crypto

companies in Winter 24 I mean I was

looking for them

so I think what's really interesting

about this zooming out is if you talk

about when coinbase applied to YC and we

funded them um there was it was a very

Counter Culture idea like you had to be

like Gary like really into this stuff um

there was no hype around crypto it was

not seen as a very fundable thing and

then what happened is crypto will go on

these bull runs and when there's like a

which is basically really the price of

Bitcoin so when the price of Bitcoin

tends to go on these sort of like eoric

like pumps and anytime that happens it

brings lots of people into crypto and I

think at YC what we would see is like it

would bring in lots of people applying

with crypto ideas right and then that's

clearly what was happening during sort

of the co era is crypto had this huge

run coinbase went public we sort of

surge in crypto applications so we just

funded a lot more crypto companies what

I think is really interesting about this

current moment is we're going through

we're in the middle of another crypto

Bull Run Like Bitcoin just hit another

all-time high recently but we have not

seen a surge in crypto applications

fascinating yeah right and it's like

it's clearly because all of those minds

want to work on something else and we

know what the something else is it's

like it's AI like I think AI has is just

dominating the Mind share of Engineers

whereas previously Bitcoin hearing a new

alltime high word Dan don't you have a

story about when you went to MIT um last

year that you could still see some of

the remnants of that like crypto mind

share at the college level yeah so MIT

has some of the smartest kids in

engineering and what was really

interesting to me there were a bunch of

kids that dropped out and UND dropped

out and and they dropped out to start

crypto companies they they dropped out

to start crypto companies they raised

like millions of dollars and they

thought they were like on top of the

universe like High Flyers and then what

happened then around that time things

crashed right and things stopped working

so they were at top of the mountain they

were like Hot Shots we dropped out of

MIT we we just ra $5 million we're going

to be the next Mark Zuckerberg for uh

crypto and then I talked to them and

they were back in school like normal

kids but there was a bit of uh kind of

like ship on their shoulders it was

embarrassing actually to come back to

school it was uh not seen as a badge of

honor to drop out of school and then and

when I asked them what they wanted to do

next it's like oh I just want to finish

school and then once I finish I'll

figure out another startup the failure

of the crypto startups gave all startups

a bad name rather than just like crypto

scams which is the actual problem

because they didn't want to work at a

startup anymore afterwards some of them

they were like there were like oh I I

don't know yet I think the there's like

another undercurrent behind all of this

because it can be very jaring you have

this kind of very bipolar experience

from going to the top you're like

getting investors to throw money of you

you have this an non Twitter account

that has like hundred of thousands of

followers doing you bought your board

ape yeah you got the all the board Apes

a collection of them and you're running

this like giant exchange and then things

just crash you get sued by the

government that could be another case

and then what's your plan B and then you

come back down hit ground floor so deep

and it can be very demotivating the

government stuff you mentioned is

actually for on a very crypto specific

topic is a huge thing where like the US

has chosen this regulatory regulation by

enforcement approach which is just

incredibly scary if you want to do

anything interesting in crypto is this

casting a chilling effect because people

are worried that if they're successful

they could literally go to jail y

exactly that I mean Diana and I have a

company that we just worked with in this

batch where the founders had previously

they Young Smart technical Founders who

had previously started a crypto exchange

and were sued by the government and they

are clearly still like traumatized by

that experience right so I think it's a

real shame because in a way this is like

a great time actually to work on a

crypto idea because at a high level it's

like hey programmable money and now

we've got like AI agents that can like

do lots of things autonomously and the

tourists are gone yeah right like this

is actually a great time but I think in

the US at least until it feels safer to

build these companies it's going to be

hard for crypto to recapture that

imagination but like I still think by

far away the big reason is just AI is

like the exciting thing to work on which

actually I do see uh I know it's a bit

of a meme of uh former crypto Founders

going into AI my hope is actually that

for a lot of these crypto Founders that

went through this ride that they kind of

get back up on their feet and get back

to building because it's actually fun I

think the sad thing is some of them

really got defeated and my hope is that

they get that optimism back again

because that's the thing that as a found

if you lose it it's like game over but

they're definitely back we were talking

about this right where it just it feels

like we come across more applic we

talking about this on our part we funded

a record number of MIT grads in the last

batch the most YC has ever funded so it

cast a chilling effect for a year but

it's and in particular now when we talk

to Young Founders and I think this is

why the median age of the batch went

down slightly right the median age was

around 30 four years ago four years ago

and now it's like 26 and I think I'm

just seeing more people being willing to

drop out of college and often what we

say to them is hey like there's no rush

like you should just like graduate

college why you have to start a startup

right now and the response is well like

this might be like a once in a lifetime

opportunity and I think for the first

time I'm like you might be right you're

right the reason this time is different

as it relates to this sort of AI oh no

you said the magic words yeah I said I

think but it actually is different I

think um like crypto has always suffered

from a couple of problems one is that

it's always been very hard to explain

the products right like they tend to be

very complicated and not use user

friendly and so it's just hard to

explain like what what even does the

crypto thing do because it tends to be

some sort of complicated lending thing

that only other crypto people understand

and the second is that it's always been

hard to understand like where the money

comes from it can be the sort of bantine

complex thing trying to figure out like

like feel like Monopoly money yeah

basically right that's always been the

criticism it's always felt like these

things weren't real often but like this

time around I think working in this

batch with so many AI companies it's

felt very real the products are were

very tangible there was a cool

experiment we ran with harsh in this

batch we ran product day where we had

all of our companies come and do a demo

run through of the product on stage

other product yeah running and a lot of

the products were beautiful I was very

impressed with the progress they made

from the time they applied to what they

had because one of the stats is um in

this batch over 80% of the badge had no

Revenue basically the product was

unlaunched before they came in versus uh

in Winter 20 about only

62% so we funded even earlier and in the

span of just a month is these products

were like pretty impressive right yeah I

mean I remember that when we did product

day just some of the moment it was just

felt like constant wow moment after wow

moment like someone would demo like one

of the companies fume demoed like their

AI software engineer and their demo was

literally hey like you can basically

tell this AI software engineer to

implement dark mode on this website and

they showed like a website just regular

layout and like fume engineer goes and

implements like in CSS and everything

like the dark mode and then you go back

to the website and there's a toggle to

turn dark mode on and it's just like wow

like you could see it writing the code

and doing all of this stuff and it was

like you could tell this is something

that's very real and there's another

thing that we did that like returned YC

to focus on products do do you want to

talk about the Bookface launch live

events that you started this batch yeah

during the batch I really felt like well

these demos are so cool I'm totally

going to steal your idea for this next

batch where you know I definitely I I

think that we should do this type of

demos uh across the whole batch and then

uh I also did Friday every other Friday

we would pick the people who had the

most impressive Launches on our internal

social network and we'd have them

actually demo exactly what they built in

front of a live audience yeah and then I

would actually ask very detailed

implementation questions because

literally a lot of these things it's the

first time you've ever been able to do

like that demo for instance and being

able to understand well what did you do

like how did you use uh retrieval

augmented generation to do that like

what were the prompts what was the

workflow you know how do you test that

kind of stuff like going back to the dev

tool argument like we're literally

trying to figure out how these things

work and then there's going to be a

whole new reset in even a matter of

months with GPT 5 and the Next

Generation like this is a very Homebrew

Computer Club type stuff like we just

suddenly had this thing that could

happen and next week some other crazy

things going to happen I love that

because it really felt to me like a

return to the YC that I did in 20062

2007 the focus of YC was really about

the prodcts because we were inventing

new things that you could do with

software and then in the decade

afterward it because there was so many

software enabled businesses and the

technology became commoditized there was

less focus on the product and more on

growth and sales I hadn't thought that

you know what just sprung into my mind

as you're saying that is 2007 when I

first moved to San Francisco from London

um in my YC batch in Winter 2007 were

Weebly and zenta um and they were

pushing the limits of what you could do

with JavaScript so we was a website

builder and zenta which would get

acquired by Google was like a web

PowerPoint that was cutting Ed stuff

yeah seriously it was really felt like

every week I remember you would come to

YC dinner and you would go and check out

what the Weebly and zenta teams had done

the previous week and you'd be like wow

like you can like create like a slide

you can create a slide with an animation

in the browser like it's crazy and even

works an Internet Explorer that's insane

yeah that was the thing that you can do

this across all browsers and it felt

like yeah I hadn't thought about it

until you said Jared but yeah that was

so much of the energy was you felt like

you were around people really inventing

stuff it actually that team those two

Founders and basically kickstarted all

of the Google Doc Suite like doc doc

sheets and then when you think about it

back then in 2007 it wasn't clear that

you could replace Microsoft Office with

like a bunch of applications in the web

that would have sounded insane I think

the other thing I remember doing the

Bookface live demo I think that feeling

was there I remember seeing the demo of

retail AI so they were building this

voice AI agents and during the demo they

did a call to the AI agent and they

pretty much passed the touring test

that's pretty amazing you would have you

would have conversations with it and

that's the moment where I think it was

just so fun to be alive now and working

on this and it's turning into like real

businesses again the crypto analogy a

lot of the criticisms were a lot of the

products were promising like high yield

risk-free high yield products and we

would take like a spread on the yield

again very complicated to understand

where the money zero SU

basically but like or it was like it was

the promise of future usage it was like

someday when everybody switched to like

a decentralized Airbnb it'll be really

big yeah but no one's actually using it

to rent apartments yeah but in this

batch we're seeing companies add like

this AI boom companies are adding like

real recurring Revenue by selling

software to legit businesses right I

mean I think we looked up some the DEA

and we actually measure it right yeah so

I pulled the numbers on this 80% of the

batch came in with no Revenue and the

majority had not launched any product at

all they didn't have any users if you

look at the start of the batch in

January the total batch all the batch

companies together if you add up their

total revenue they were making 6 million

ARR across like almost 300 companies

companies yeah so like the AR of the

batch which is kind of like a funny

concept I don't think we'd ever really

thought about the AR of a batch before

metric but like the ARR of the batch was

like 6 million in January and by demo

day in April it was 20 million so the

batch 3x ARR in 3 months which is pretty

cool that's a great growth rate yeah you

think of all the economic growth that

got produced it's kind of think of these

companies as they keep growing and

compounding and accelerating a lot of

this growth which is new is definitely

not Zero Sum it's this whole world of

creating a bigger and bigger pie or like

a new Matrix or new maze right and I

think what's getting people really

excited about the future of AI in

particular is this is not just taking

money away from existing software budget

so much of this work is replacing labor

and so you open up to like labor budgets

and so I think like all of that has just

fed into this General if we just like go

off The Vibes this batch has felt like

it's like being like the best one yet

like there more specifically it feels

like there's more energy around this

batch than there has been for as long as

I can remember for any YC batch what do

you think's happening and one time that

I felt that really viscerally was it the

in-person investor reception which Gary

created new for this batch do you want

to talk about about it Gary well so demo

day is still perfectly online and it

works great but one of the things we

really wanted to do was thank some of

the best people who have funded YC

companies all these years and it was

right here in our San Francisco HQ it

was three whole floors of some of the

smartest investors in the world with uh

our batch companies just hanging out and

The Vibes were

immaculate it felt to me like at the

reception talking to investors that

there was a real reset on preconceived

what's a good idea and a bad idea people

were just renewed sense of optimism and

it felt like everything's up for grabs I

worked with a company called octane

which got lots of investor interest and

what they're doing is AI sales for it's

Salesforce rebuilt if in the AI world

and I just think investors did not want

to fund Salesforce competitors for a

long time because they just felt like

like how are you going to compete with

Salesforce but now with AI it's like oh

like we totally funded Salesforce Peter

because it seems possible that you could

actually win against Salesforce now

there's a platform shift and this is the

moment where every single SAS Dollar in

the world uh it's up for grabs again

it's an exciting time Founders are more

excited to build than ever investors are

more excited to invest than ever and

we're just like right at the center of

it all here at YC it's awesome it's a

fun time to build it's the best time

ever I mean as a as a builder is like

the technology just does such a

different thing than what you expected

before I think this is why you have the

earnest Founders that love building

coming back and doing this so do we

think that this batch was pki what's in

store for the next batch I mean it feels

like because we talked so much about all

the progress on the current batch it

seems like it's like done and all the

good ideas are done I actually think the

opposite because this batch was the one

where we had the most pivots to 30% of

the batch pivoted and landed in good

ideas versus in 4 years years ago only

about 10% of the batch pivoted so that's

one very fast defined ideas there's

still tons of them that are good and if

we go back to the analogy with how

history kind of remixes and repeats a

bit is I think of this time more like

Facebook is still getting created in the

dorm rooms so if you all want to be the

next big AI company this is the time if

we talk about what we were saying

earlier Jared like if now is sort of the

equivalent of 2007 when it felt like web

Technologies were being pushed forward

for the first time it was actually still

like 3 years until Airbnb was started 5

years until door Dash was started six

years until coinbase was started these

Trends always play out much longer than

people think they're going to so in

summary we are just getting started

that's all the time we have for today

but why combinator is actually accepting

applications for this summer so if

you're thinking about it those questions

will help you shake out is this the time

do I have have the co-founder do I have

the idea and at the end of the day now

is the moment to start so we hope we'll

see you this summer and we'll see you

next time

[Music]