Consumer is back, What’s getting funded now, The vibes immaculate [Lightcone Podcast Ep. 6]

every single SaaS dollar in the world,.

it's up for grabs again. The batch three x'd ARR in three months, which is pretty cool. That's a great growth rate. Yep. 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.

Welcome back to another episode of the Light Cone. We're four group partners at Y Combinator, 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 twenty twenty four 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 gonna 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 gonna 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 batch. So you can see the actual trends, the way they're playing out here in the center of Silicon Valley. Yeah. I'm curious, like, what are some of the trends that we've seen? What's made this last winter twenty four 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 are AI. 70% of the batch. Yep. That's wild.

Yeah. It's about a 70 companies. Yep. Versus winter twenty, we only had 8% of the companies. Maybe one of the notables from winter twenty that you worked with, Jared, was 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 replicate was slow going because there weren't a lot of people working on AI. They were building tools for people working on AI. There weren't many customers. And we didn't call it AI as much back then.

We called it machine Machine learning. Totally. I only say one thing I've noticed that's different about Dispatch is,.

consumer ideas. They are certainly coming back. They have 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 b to b SaaS 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 I'll make Harj and I have opposing viewpoints on this question. Okay.

I made 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 tar pit 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.

Like, I I just wanna 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 wanna 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 start ups being funded. So I I partly worry that people will pivot into tar pit consumer ideas because it's easy. My perspective.

is I find it so refreshing that consumers back. Because when YC got started, when we all did it, the 02/2005 to 02/2012 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 Tarpit ideas were B2B ideas. And the problem with B2B ideas is they're a little boring. Let's be honest, like, B2B SaaS is like a little boring. If you think about what, like, drew in, like, young technical founders, like like, the original founders in the early YC batches, they were building consumer apps because they were fun.

Both you and Gary, when you went through the batch, had consumer companies. Right? Yeah. Yeah. We we both started consumer companies because those weren't harpid ideas at the time. The problem was in, 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 factor 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 02/2007 through to 02/2010 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 gonna, 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 know, 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 you do if I say if a founder came to you, Gary, and said, hey. It's like somebody.

told me that I shouldn't work on consumer ideas because Facebook's just gonna crush anything I do. Well, OpenAI. Oh, OpenAI now. OpenAI today. OpenAI.

the Facebook of. Yeah. GBT 5 is coming This regard. Out soon. Exactly. So what should we tell founders? They come out to use, 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've worked with a lot of those. Do you wanna talk about why.

what's happening with developer tools?

Yeah. In this batch, we funded about 30% more dev tools than four years ago. This is, like, one of the largest dev tool batches we've had in the recent years. And I think a couple of reasons is I think there's 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 kinda like this technology trend where you have, like, two phases. I think it comes from this it's from this book from Industrial Revolution. It's 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 railroads, infrastructure, all the tooling before the installation and proliferation of apps.

There's a lot of this kinda, 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 the query and indexing and getting results to be more accurate and fine tuning.

Those are not well known patterns, 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 kinda 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 02/2010 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 started taking off, then MongoDB started taking off. There was sort of this era where it's 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. Yep. And so I think this is a great like, DevTools is just a great example of 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. Yeah. And there's actually a business there. Well, that respect, DevTools is basically.

b to b SaaS, but consumer style. So you only have 20,000,000 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 20,000,000 developers. And the cool thing is most of those 20,000,000 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.

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. Right? The same thing. Yeah.

Diana, how do how do investors judge whether a open source startup in the batch is doing well or not? Some of the early signs is whether this is getting adopted by the tastemakers,.

and that happens to be in a GitHub project. You have a lot of, 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 dev 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, kinda like consumer, where it's all about user growth. Right?

And the second thing I would say 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, a third or half of the world uses Facebook. Same thing for dev tools.

It's like if anyone thinks of, let's say, building, like, a full stack application and easy deployment, they could think of a Supabase. I think they've done a really good job, and I think you worked 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 Subabase is.

literally what got Subabase off the ground is Hacker News. They had built this open source project that was an open source competitor to, what's it called, Google? The Firebase? Firebase. Firebase. Firebase. Yeah. Which is a YC company.

They 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 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 base. Yeah. On the current batch out of the 243.

are using super base. That's like a third of batch. Yeah. That's crazy. It's wild. Yeah. 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 because, again, Superbase had a.

phenomenal round that they raised around Demo Day, and it was really all directly attributed to that. So the hacker is based. Yes.

This is a a free alpha leak for all of you out there that you could basically take almost any closed source dominant dev tool or platform and create an open source version of it, and you might just kill the closed source version of And this is a shot, I get you know, a shot across the bow of every dominant sort of dev tool or SaaS platform.

And by the numbers, in winter twenty, we only had five companies that were open source dev tools. In this current batch, we have 22. So that is like a five x 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 GitHub and then GitLab, which was a YC company. You know, in sort of analytics,.

we have Applitute and Posthoc. Exactly. So the other cool thing about this batch at Colory of getting a lot of, founders getting excited to work on AI and dev 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 the pandemic COVID era is I think there was this whole the software eats the world idea, which originated with a Marc Andreessen blog post. I I can't remember, like, maybe 2012, something around that 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 eats the world. It'll be software that sort of enables non software businesses to become software.

What do you mean by that? Is it kind of more businesses that are operations heavy sort of like Yeah. Let's give you some 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 Flexible was, hey.

Like, well, that could be why don't we just have, 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 they and especially with sort of the Zurp 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 of this be, WeWork. Right? Like, probably the poster child of, like, tech enabled. But I just think the the profile I found has shifted a little bit away from, like, geeky engineer Adam was not technical. Yeah. Right. Right.

Exactly. Right. He does not look like an actor at all. And, actually, to that point, this whole trend is 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 claimed to be tech enabled but weren't, like WeWork. 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 is table stake. Yeah. Right. Because all this stuff is cutting Right. Cutting edge, which I think it gives a bit of 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 also a bit younger. There's another version of this 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. Venture 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 businesses that venture capital was set up to fund. But there weren't a lot of great new tech opportunities since 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 our AI companies and stuff like WeWork. Yep. I think one of the interesting subtleties is,.

in my head, it's a little bit less about whether it's tech enabled or not. That is certainly one frame and a lot of VCs actually really stick to that. I mean, there are some really famous firms that famously only want to fund pure software businesses that are monthly or annual recurring revenue, and that's a whole strategy.

There are 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 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 latter camp because what it real what really matters is actually the gross margin. So if you look at a Palantir, 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 I'm wearing the right now. Want. Yeah. There you go. Yeah.

Because it's the end of the batch. What's funny is, 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,.

people are gonna pay for it, and then the rest is just sort of details. I mean, you can actually look at the to date, the biggest y c companies by, let's say, they've gone public. Airbnb, DoorDash, Instacart. It's not clear that they 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. DoorDash powerful network effects ever. Yeah. Right? DoorDash and Instacart are these arguably more logistics companies than, like, true tech companies. They're the best example, actually, of maybe this the the tech enabled label is a tricky one. Yeah.

Because those are actually probably technology companies, but you could one lens, 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.

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 02/2006, '2 thousand '7 where was just pure software businesses. Then it was like, hey. Software's gonna be bigger than just pure software. And we got kind of DoorDash and Instacart and these interesting businesses.

And then maybe 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? 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 wanna fund things that are, 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 reset.

We're so back, guys. So what have we funded less of this batch? 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 are basically the second wave of all these online to offline things. So the first wave was like DoorDash and Instacart in The US. And then the second wave was like, well, what about DoorDash if you're in Brazil? 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 markets. Fintech too. Right? There was like we saw Coinbase,.

Robinhood.

Neobanks. Neobanks, Monzo in The UK. And there was two waves of that as well. There was a first wave primarily in The US, like Brex, 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 Yep.

Definitely during that period, like the twenty twenty to twenty twenty two period, we were funding a lot of international teams that were, like, Robinhood for LatAm or, a local crypto exchange or, yeah, like, DoorDash for x market. Lots of these kinds of things. Yeah. And a lot of those were really good.

YC funded some amazing epic companies there, like Monzo, which banks some ridiculous percentage of the people in The UK. Grow In India, which is Robinhood for India, is doing phenomenally well. Zepto, which is the fastest growing YC company of all time, which does ten 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 not quite It's not. Right? Because their actual model is different. It is. Yeah. By the numbers, specifically.

around the 2020 era, winter twenty batch, only about forty five forty five percent of the batch was international, and now it's only 25.

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%, which interestingly so also means, like, San Francisco is definitely back. So we looked at the numbers. And pre COVID, around twenty nine percent or so of the companies were in the Bay Area when they applied to YC. And it was half of that during pandemic.

Yep. Right? Went down to, like, fourteen percent. Yeah. You know, 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 COVID. I think because it's so much about 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 gotta fund more US Founders. That was not what happened. What what actually happened, I think, is basically the best founders chase 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 that were working in The US and launch them in other countries. And so amazing founders like Audit from Zepto, 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 had to move on to other opportunities.

I'll give you a stats for that specifically. Like, winter twenty four, we have four times less marketplace ideas than 2020. 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 wanna build the best AI dev tool Dev tool. Yeah.

There's no such thing as an AI dev tool for Brazil. Yeah. It's just like We're the same one everyone. The same ones. Right. Another thing 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?

I 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 Gox, 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, remember doing that and thinking, well, this is a very interesting idea. And then, 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 twenty four? I mean, I was looking for them.

I think what's really interesting about this zooming out is if you talk about when Coinbase applied to IC and we funded them, there was it was a very counter culture idea. Like, you had to be, like, Gary, like, really into this stuff. There was no hype around crypto. It was not seen as a very fundable thing. Then what happened is crypto will go on these bull runs.

And when there's, a which is basically really the price of Bitcoin. So when the price of Bitcoin tends to go on these sort of, like, meteoric, 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 COVID era is crypto had this huge run. Coinbase went public. We saw a 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 mindshare of engineers, whereas previously, Bitcoin hitting a new all time high would. Dana, don't you have a story about when you went to MIT Oh, yeah. Last year that you could still see some of the remnants of that, like, crypto mindshare 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 un dropped out. And Oh, they dropped out to start crypto companies. They 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, hotshots. We dropped out of MIT. We're We just raised $5,000,000. We're gonna be the next Mark Zuckerberg for crypto.

And then I talked to them, and they were back in school like normal kids. But there was a bit of kinda, like, ship on their shoulders. It was embarrassing actually to come back to school. It was not seen as a badge of honor to drop out of school. And there and when I asked them what they wanted to do next, it's like, oh, I just wanna 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 wanna work at a startup anymore afterwards, some of them. They were like they were just like, oh, I I don't know yet.

I think the there's, like, undercurrent behind all of this because it can be very jarring. You have this kinda very bipolar experience from going to the top. You're, like, getting investors who throw money at you. You have this unknown Twitter account that has, like, hundred of thousands of followers doing You bought your Bored Ape. Yeah.

You got the all the Bored Ape, 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 wanna do anything interesting in crypto.

Is this casting a Chilean effect because people are worried that if they're successful, they could literally go to jail? Yep. Exactly that.

I mean, Diana and I have a company that we just worked with in this batch where the founders had previously they're 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 gonna be hard for crypto to recapture that imagination. But, like, I still think, by far and away, the big reason is just AI is, like, the exciting thing to work on. Which actually I do see I know it's a bit of a meme of 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 kinda 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 founder, 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.

applicate. We're talking about this with a lot partners. We 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, 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 do have to start a start up 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. Right? Yeah. I should be 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's like it actually is different. Think, like, crypto has always suffered from a 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 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 this sort of Byzantine complex thing trying to figure out, like, like, what It can feel like monopoly money.

Yeah. Basically. Right? That's always been a 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. Right? 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, in this batch, over 80% of the batch had no revenue.

Basically, the product was unlaunched before they came in versus, in winter twenty, about only 62%. So we funded even earlier. And in the span of just a month ish,.

these products were, like, pretty impressive. Right? Yep. I mean, I remember that when we did some product, they just some of the moment it 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 y c h two's focus on products. Do do you wanna 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 gonna steal your idea.

for this next batch where, you know, I definitely I I think that we should do this type of demos across the whole batch. And then 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 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 gonna be a whole new reset in even a matter of months with GPT five and the next generation. Like, this is very homebrew computer club type stuff.

Like, we just suddenly had this thing that could happen, and next week, some other crazy thing's gonna happen. I love that because it really felt to me like a return.

to the YC that I did in 2,006, two thousand seven. The focus of YC was really about the products, which is we were inventing new things that you could do with software. And then in the decade afterwards, it because there's so many software enabled businesses and the technology became commoditized,.

there was less focus on the product and more on growth and sales. I I hadn't thought that. You know what just sprung into my mind as you're saying? That is 02/2007 when I first moved to San Francisco from London. In my YC batch in winter two thousand seven were Weebly and Zenter, and they were pushing the limits of what you could do with JavaScript.

So Weebly was a website builder, and Zenter, which would get acquired by Google, was like a web PowerPoint. That was cutting edge stuff? Yep. 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 Zenter 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 it even works in 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 kick started all of the Google Docs suite, like doc Docs, Sheets. And then when you think about it, back then in 02/2007, 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 only thing I remember during 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 Turing test. That's pretty amazing. You 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. So, yeah, in 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 Some zero sum stuff right there. 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 of data and You actually measured 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 6,000,000 ARR. Cost, like, almost 300 companies. Companies. Yeah. So, like, the ARR of the batch, which is kind of like a funny concept.

Don't think we'd ever really thought about the ARR of a batch before. That's a good metric. But, like, the ARR of the batch was, 6,000,000 in January, and by Demo Day in April, it was 20,000,000. So the batch 3x'd ARR in three months, which is pretty cool. That's a great growth rate. Yep.

You think of all the economic growth that got produced, it's kinda 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 budgets. So much of this work is replacing labor, and so you open up to, like, labor budget.

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's more specifically, it feels that there's more energy around this batch than there has been for for as long as I can remember for any YC batch. What do you think is happening?

And one time that I felt that really viscerally was at the in person investor reception, Gary created new for this batch. Do you wanna talk 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 our batch companies just hanging out, and the vibes were immaculate.

Mhmm. 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 just renewed sense of optimism, and it felt like everything's up for grabs. I worked with a company called Octalane, which got lots of investor interest, and what they're doing is AI sales it's a Salesforce rebuilt if in the AI world.

And I just think investors did not wanna fund Salesforce competitors for a long time because it just felt like, well, like, how are you gonna compete with Salesforce? But now with AI, it's like, oh, like, we'll totally fund that Salesforce competitor because AI seems possible that you could actually win against Salesforce now. There's a platform shift, and this is the moment where.

every single SaaS dollar in the world,.

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, it's 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 talk 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 four years ago, only about 10% of the batch pivoted.

So that's one. Very fast to find ideas. There's still tons of them that are good. And if we go back to the analogy with how history kinda 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 wanna be the next big AI company,.

this is the time. Yeah. We talked about what we were saying earlier, Jared. Like, if now is sort of the equivalent of 02/2007 when it felt like web technology were being pushed forward for the first time. It was actually still, like, three years until Airbnb was started, five years until DoorDash 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 Y 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 the cofounder? 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.