Dalton & Michael: Y Combinator is back in person

Yeah. It's like, what would I have wanted? Yeah. Like, that's certainly how I think about this.

This is Michael Seibel with Dalton Caldwell. Today, we actually have some news to announce. For the first time since winter two thousand and twenty, this new batch, the summer twenty two batch, will be in person. And we are all excited. Dalton, we're gonna get to see founders in person again. What do you think?

It's a breath of fresh air. I've been spending a lot of time in this little room, much as probably you have to. So, yeah, this is it's it's really fun. I'm excited.

Me too. Me too. So let's talk about what this means. So the founders of this batch are going to have an in person retreat in Sonoma to kick the batch off. They're gonna be able to go to weekly meetups in San Francisco. We're actually gonna help organize weekly meetups in other cities around the world.

We built some software that are gonna help founders meet each other and have one on one coffees, founders in the same city. And then we're gonna have a huge end of batch celebration after Demo Day in San Francisco with all the batch and the alumni. Needless to say, the program is still gonna be friendly to founders participating remotely.

So the batch talks, office hours, things like that will still be online, and we still have founders from all over the world participating. But I have to say, you know, founders I've talked to in every country have been excited to come here to meet us, to meet their batchmates, to get out in front of Zoom and and and get off these cameras for a little while. So I'm really, really excited. Yeah.

We kinda had a dry run a little bit last batch where there were a lot of these in person meetups,.

and I went to a few. I know you did too. And the energy was great. And so, yeah, now is now is the time.

Yeah. To make this move. You know? Yeah. The idea that we get to renounce something that was so core to YC is actually quite fun.

What other trends are you seeing for the the summer twenty two batch? Yeah. I mean, let's see. To go through some of the stuff I've noticed. So for one, more applications. I think that's Yeah. That's I think that's always a trend, but there's definitely more applications. And, you know, I think the the new YC deal doesn't hurt on that one.

And so, yeah, more applications, more applications to read, and the energy is feeling good, man. How about you? What what are you seeing in your group? Same thing. I I'm seeing.

teams be slightly more technical, which is exciting. I mean, when you work with strong technical teams, we talk about taking punches. Strong technical teams punch back. And so to me, like, that's always fun. It's always much more enjoyable to work with strong technical teams. But, you know, over the last, you know,.

let's say, three, four months, what are you seeing overall in our world? I think that people that wanna do a start up because they're excited about building something and solving stuff for users, those people are still applying. If anything, those folks that aren't making fear based decisions are more excited to apply to YC and do this almost because it's more rebellious or anti anti something.

Yes. Like, to to do a start up when it's, like, less cool to do it. And this makes sense. Again, if you if you actually look at the YC data, some of the best companies we've ever funded happened when either there was a full downturn or at least a blip. I think we can call it a blip. Like, some of what happened in 2018. But look at when Stripe was founded. Look at when Airbnb was founded.

Look at when Dropbox was founded. Right?

Yeah. It's a weird trend because I agree with you. It's both a little bit like, wanna go against the flow. There's that set of founders, but there's also the set of founders who are just strategic, who are just like, hey. Look. In the middle of the hype cycle, hiring is harder. Getting access to customers is harder. Like, 17 of your competitors are gonna all get funded.

Like, you know, it's it's weird because on the surface, the hype cycle looks good. But when you actually get into the dirt, the hype cycle, like, hurts just as much as it helps. And so, you know, I'm starting talking to fighters in this batch who are like, yeah. No.

This is actually like I don't you know, they're not wishing for a downturn, but they're like, this is the time when it's strategic to get in the game. Yeah.

Make hay while the sun shines. Right? This is where, oh, cool. Cat you know, face the price of Facebook ads is dropping. Oh, cool. Like, all these factors are changing. And so if you're, like, well positioned, this is when you go on offense. Yes.

You're not, like, you're not, like, defensively, oh, I'm gonna hide. There's a lot of folks that we talk to.

that are, like, extremely ready to go on offense. Yes. Yes. They've been waiting for this moment. Now we're also seeing a lot more interest in San Francisco and, like, I don't know. Like, that's a dirty word. I'm not sure if I'm allowed to say the term San Francisco because we all know the tech world doesn't exist here anymore. Right?

Yeah. Well, it's funny. There was so much content marketing trying to FOMO everyone.

that everyone who was moving into whatever insert city name, you know, whatever the city was, this is the next capital. Yes. And then there was a lot less content marketing of all the people that moved back. And so now I don't know who you're talking to, but a lot of the folks I've talked to quiet you know, that were loudly talking about moving away to whatever city name. Yes.

You know, they're they're much more quiet on the move back. Yeah. I'm not seeing if any I'm not seeing as much of that. But, yeah, I think a lot of folks are moving back right now. Yeah. New York too. It just seems like people are going back to the big centers because they're getting bored and lonely Yes. And feel kind of over it.

Again, this is what I'm learning in office hours, man, is that people are they wanna be where the action is.

You know, I think you're saying it the right way. I think the founders I talked to, they don't wanna build a a startup ecosystem. They want to be a part of a startup ecosystem.

And it's been interesting because we saw it, you know, first in the end of batch survey when we asked people about, oh, as we add more in person components, and it was, like, almost unanimous, the founders in the previous batch were like, if you had told us something was happening in the Bay Area, we would have moved. You know? And, like, that was a response.

we didn't necessarily expect. It's almost like you and I were convinced that that wouldn't be the case. Like, I don't how to explain it. Like, the content marketing worked on me too a little bit. Yeah. Yeah. But it's like, it's not being borne out in the data that we have about you get what I'm saying? Like like, we I kinda bought into the content marketing too, but we'll see.

I don't know. Like.

I think the other thing that I'm seeing, and and it's interesting because I've got a brother who's this age, a recent college grad. I think what's so hard for a lot of people to see is that if you're a recent college grad, you don't wanna stay in the city you went to school in. You might be living with your parents.

And, like, in comparison, moving to the Bay Area is way better of an option than kind of your current setup over the last couple years. And so I think that a lot of that content marketing is unfortunately written by, like, people our age, people with kids, people living in San Francisco for, like, the last two years who were generally pissy about COVID.

And it was, like, less responding to someone who might have spent a year and a half remote doing college or living in some small college town locked down and is like, I wanna get out of this. You know? Like, that kind of person is is San Francisco looks like a a beacon.

I think you wanna be where the action is is, I think, how my summary is versus feeling like you're in a not where the action is. So another thing that happened recently is we sent.

letter to YC founders about the economic downturn, which was happened to maybe get a little bit of exposure to the to the general public. I'm not sure how that happened. But it was interesting because I've been really impressed with how the YC founders have responded. You know? What have you seen? I think that.

if you're smart, you know how to look at things like that as well as just general press or advice and apply it to your specific situation correctly. Like, if you're a two person start up with no burn, what's happening in the late stage fundraising environment and IPOs? Like, if that's what you're worried about, man, you've got bigger problems. Okay?

And so I think if you were able to say, well, what is my actual situation? Am I default alive? How much cash do I have? What's my runway? And then make the right moves. Because, again, for some folks, the actual move is to go on offense. Right? Just like we said a moment ago.

Where they're like, okay. I see. So this is the score. Got it. Time to go hard against my competitors who are have higher burn. Yeah. You know? Like, this is a great time if you're the underdog and your large competitor is in trouble.

Right? And so I think that smart founders know what applies to them and what doesn't versus overly freaking out about things that have nothing to do with them. You know? You know? What do you think? Like.

You often talk about this, and and it's something that I think is becoming part of the culture of YC where we wanna talk up to our founders versus down to our founders. Like, we wanna talk to the smartest kid in the class, not the dumbest kid in the class. And I think sometimes in the general public, that's not well understood. But I think within the YC community, it it really is.

You know, feedback that we got from alums was universally, this caused me to take a sober look at my situation. And if my situation was good, I'm staying on plan. If my situation wasn't, I'm making changes. And, you know, just to your point, it wasn't I'm freaking out. It was like, okay. I'm gonna take a second and and and do a sober analysis of my company.

And I I think what's unfortunate is that they had just gone through this two year cycle where investors were basically screaming at them to burn and raise because investors were getting markups, and they were raising new funds. And right. And so I think that in many ways, this letter gave them a lot of people the opportunity to say, okay. Wait a second.

Like, is that strategy actually good for my business? And it's obviously good for my investors' business. You know, getting markups is obviously part of their business model, but is that strategy good for my business? So that's been really fun to see. It's it's been fun to see the founders taking it in the right way. Probably one of the last big trends is this new standard deal. Right?

You know, that was big news over the past four months. And it's interesting because I think that in some ways, it was conceived of competitively. People were looking at the YC Center deal being like, oh, like, YC has to compete. There's so many new seed funds out there.

And I think what's interesting is if you would kinda take it inside baseball for a second, that's really not the reason we did it at all. Like, take us inside baseball a little bit, Dalton. Like, what what was the strategy behind it? Yeah. I mean, the strategy was.

it's good for companies to get fully funded the moment we accept them. And, you know, frankly, we saw some stuff that looked a little toppy to use the Wall Street best terminology.

Dalton, you're speaking in code. Be be literal here. What do we see? It.

looks yeah. It looks like we it we're not sure that things were sustainable, that everything would keep going up forever. How about that? Yeah. Stocks may not only go up. Let's say that. And so it seemed prudent to, you know, be it seemed prudent to give the companies more money so that in the event of a market change, we were confident that everyone will be fully funded.

Again, for context, I think people forget this because of all the crazy seed round warped perceptions. How much money did, like,.

Airbnb and Dropbox and all those folks raise back? How much money did Airbnb raise? Million. Under a million. These seed rounds are under a million and and diluting over 20%, over 25%.

Like, so we actually know that half a million dollars is slash was enough money to build, like, one of the most successful companies ever, and it made a ton of sense to to have this budget, to raise this money. We could fund a lot of companies. It's all raised. We have it, dry powder.

So that no matter what happens, if you get into YC, you're good. There's this saying that I love. The best time to fix the roof is when the sun is shining. And, you know, I look at our opportunity to create this new standard deal for for YC founders and the fact that we have budget to fund over 1,400 companies with this standard deal.

And I think to myself, like, you know, I'm so happy we did that when we could because now we're gonna be able to help so many teams that otherwise might not be able to do startups, might not be able to raise money.

So And not be sure. Oh, I don't know if I wanna apply to YC. I don't know if I wanna start a company because I'm afraid I've read TechCrunch articles. The funding environment is rough. You know? There's all these, like, fears out there. Well, it's like, well, yeah, if you get into YC, you get half a million dollars. And, like, the day we fund you, it's funny.

Like, people they they almost sometimes people don't believe us. They're like, wait. This is contingent on something. Right? It's like, no. We can leave them. No. We can leave them money up front.

Yeah. That's how it's be. Don't other accelerators, they have something where they take it back if you don't do? It's like, no. Like, if you don't kill anyone, you don't violate our ethics thing. This is.

this is the deal. I think what was also interesting was to see how YC founders used the new standard deal in the last batch when they were fundraising.

You know, historically,.

seed funding could dilute companies 25, 30, even 35%. I would say in more recent years, that number was around 15 to 20%. But we really saw a lot of founders able to get the money they need, raise their seed round with 10 some even a little less dilution, which was, like, huge. I mean, we all know those earlier rounds are where most of the dilution of the company happens.

So that was awesome to see. The other thing, and I know you saw this in your group too, is just founders going into fundraising with confidence. You know, we talk about this all the time. We tell the founders be confident, but it's hard to be confident when you only have six months or three months of runway when you go into fundraising.

It's a lot easier to be confident when you come in with half a million bucks. Like, what did you see in your in your group?

Yeah. I think the best founders were just very logical and nonemotional in in the way they handle this. This is it's business. Right? Like, the best way imagine any financial transaction. You wanna buy a house. You wanna buy a car. You name it.

The more that you can be just a non not manipulated and to be an emotional or to be FOMO. Like, there's all these things. If you could just be like, hey. I wanna buy a car. This is my budget. This is what I wanna buy. Okay. Let's work it out.

Alright. I bought the car. That's how you wanna approach any kind of financial business relationship. Right? It's just to be nonemotional. And so that's having this extra money helps people not be quite as susceptible to being told to be afraid, basically. Right? Yes.

Being told to be afraid and it's such a weird thing to watch a founder simultaneously be negged by an investor and be told to raise more money from that investor. Right? Where the the investor is like, your plan's never gonna work. You're not raising enough money. You're gonna die or da da da da da If you take my money, then it'd all work out.

And it's like, I've been so happy to see why c founder is able to kind of push back against all of that and and really be sober. Right? Like, just be sober in your planning and and.

things work out better. It's just it's funny because, like, we always are optimizing for you know, we're former founders. I think it's, like, what would have helped me when I was a founder. And it's just funny how, like, doing that really seems to annoy investors that we're again, we're, like, giving away we're, like, on the wrong team a lot. They seem really mad at team, Dalton. Like, I thought.

like, it's isn't that weird, man? Like, why We're we're we're we we have a grand nefarious strategy of giving founders what we wish we had when we were a founder. I mean, isn't that, like, so funny? Because it's kinda one of the core guiding principles of YC when we think of what we're gonna do. Yeah. It's like, what would I have wanted?

Yeah. Like, that's certainly how I think about this. Yes.

And and the opposite too. Like, what would I have thought of as bullshit? Like like, how do we not do the stuff that I would have just, like, been like, that's bullshit. Who cares? I mean, it's hard to do in practice. It's just at the end the day, more leverage for YC founders, good.

More options for YC founders, good. That's the game.

Obviously so. Anything more on the standard deal? So far so good. Again, like the folks that are in my group this batch, man, they're feeling they're feeling good. They're feeling very good. Yeah. And and probably the last trend and maybe one of the most, heartwarming trends is how many alumni reach out to us and say they're watching these videos.

Like, how much has that come up for you in the last six months since we got this thing rolling?

A lot. I think when we first started recording these, my perception I wasn't really sure who the audience was, and I'm maybe I'm still not sure, but it certainly would appear that a lot of YC alums are watching these, which is awesome that we have this direct line for people, you know, to hear hear from you and I personally about what's going on with YC.

I mean, seems better than other forms of communication. Right?

You know, it was interesting because, you know, we put out a video. It was interesting because we put out a public video about making sure that you are prepared for down economic times before we even sent a letter. And and one of the reasons we were inspired to kinda send a letter was the number of alums who had watched that video and reached out and said, thank you for doing this.

Like, we're we're we're rethinking our plan. And so I just think it's exciting to see that the YC alumni are watching these videos alongside prospective founders. It's it's awesome to see. Alright. Well, I think that's it. So in closing, we are really looking forward to meeting the next batch, which is gonna happen very soon, mid August I'm sorry, mid June.

And then we're also ridiculously excited to meet all the founders that we funded over the past years. We're gonna do a massive alumni event in San Francisco in the fall. And so for all the people we haven't seen in person yet, we'll see you soon.

Dalton, great to see you. Sounds good. Bye.