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If you start to notice a sudden crescendo of investors complaining about the price of seed rounds, it’s a tell-tale sign that Y Combinator’s Demo Day is right around the corner.
The startup accelerator holds two such events each year, with hundreds of startups debuting their work to investors and the press. The upcoming Demo Day will take place virtually on April 3 & 4, with the investor reception taking place in person. Investors say this year’s crop looks especially promising.
Already, the buzziest startups have landed term sheets from top VCs. Leya, an AI assistant for lawyers, has raised Series A funding from Benchmark, people familiar with the matter told us. Chetan Puttagunta at Benchmark spearheaded the investment.
Another hot startup, Astro Mechanica, is building a new type of jet engine.
While YC — like most tech investors — is traditionally focussed mostly on software companies, the startup accelerator specifically sought out hardware ideas in its most recent “Request for Startups” blog post.
“AI is everywhere. There is a lot of bio and healthcare that is getting supercharged by it. A ton of open source and cloud,” YC President and CEO Garry Tan told Eric in a text exchange. “Outside of that though there is a decent amount of hard tech!”
In the past, Demo Day was the official starting gun for VCs looking to write checks, but now the most promising companies finalize term sheets in the days and weeks leading up to the event. This has made Demo Day less exciting for some VCs, as I wrote last year, since the best prospects are already locked up.
A spokesperson for YC told Newcomer this was a common misconception, and that about 80% of companies in 2023 raised their rounds after Demo Day.
One sought-after startup from the current batch, Ubicloud, announced $16 million in funding three weeks ago, which would have been unheard of in the earlier days of YC. One of its co-founders, Umur Cubukcu, had previously been a visiting group partner at YC.
Demo Day is getting back some of its juice. Investors seem to be tracking YC portfolio companies more closely these days.
YC had been in a tougher spot with artificial intelligence initially. While OpenAI was born out of YC Research and run by former YC President Sam Altman, hardcore artificial intelligence researchers simply did not need the YC imprimatur or network effects to raise money or strike key partnerships with cloud vendors. So many high-flying AI startups skipped YC. (There are exceptions: Scale AI and Replit are two notable YC-backed companies that are integral to this latest AI wave.)
But now that a lot of the new excitement in artificial intelligence is shifting to AI applications, that plays more to YC’s strengths. For consumer companies, YC has a good history — showcased most recently with the Reddit IPO. And for applications selling to other companies, the YC network can be a powerful sales driver.
It’s not just AI application startups in recent batches, though. Managing director Jared Friedman shared a thread on X of 25 recent YC startups that have trained their own models for tasks ranging from photo generation to weather simulation.
One investor shared with me on background that of the six startups he’s met with ahead of Demo Day so far, all but one were raising at valuations of $20 million or higher, with one pricing itself at a $25-$30 million post-money valuation. That’s much higher than typical seed-stage companies, showing the YC price-premium is still very much in play.
“Company quality is very high, even by historical YC standards,” said Jared Heyman, the managing partner of Rebel Fund, a fund made up of YC alumni to exclusively back YC startups.
Another investor who had already put money into several firms from this YC batch said they have been “really impressed” with the technical chops of the founders this time around. “It’s on another level.”
Tan is overseeing his third Demo Day since he took over as president and CEO of YC early last year and began shaking things up. He axed the YC Continuity team, which provided follow-on funding for YC startups, kept class sizes down, and re-centered San Francisco as the home base for the program post-pandemic.
A recent Forbes story credited him with reviving YC’s reputation among other investors for quality early stage bets.
Rebel Fund, for one, has already backed 24 companies in the current W24 batch, including Sonauto, a text-to-music generator. Some of its other bets include Openmart, an AI-powered intelligence company for small business and mid-market sales research; TrueClaim, which uses AI to save self-insured companies money on their healthcare costs; Agentic Labs, an AI code editor for technical design documents; and Marr Labs, which makes AI voice agents for customer service and administrative tasks.
Some are arguing the AI hype cycle has already peaked, but if this YC class is an indicator, you wouldn’t know it.
