Y Combinator is arguably the most successful accelerator on the planet, with 4,000 funded start-ups with an aggregated valuation of $600B. The power law is in full effect -- it's likely that less than 100 of those 4,000 start-ups make up 90%+ of the valuation (source).
So, is YC worth the hype for African start-ups? Like everything in life, it all depends on the context and timing. Here are the pros and cons.
Pros
Instant credibility. If you get through the YC hoops, you can forever say YC class of XX, and that carries street cred for the rest of your entrepreneurial life. With a 1.5–2% acceptance rate, you are the creme de la creme. You are the one company accepted out of 50.
Marketing & Fundraising — probably on the order of hundreds of thousands of dollars worth. One company I invested in was accepted into YC. They did their demo day on Tuesday. By that evening, they had set up 100 investor calls. The co-founders each took shifts around the clock, doing 30-minute calls with potential investors from just about every time zone on the planet. Even if you hired a $200,000 third-party cap intro service, you couldn’t get that kind of coverage. Definitely not the intensity/concentration, shortening your fundraising cycle drastically. That's very valuable as the most precious resource at the start-up is the time & attention of the founding team. And that’s saying nothing about the invaluable coaching the YC team provides to help you craft your pitch. It’s not easy or straightforward to give a compelling pitch in such a short time (here's my 9 tips to level up your pitch). YC gives you that laser-sharp focus to say the right things well and even more importantly, to leave out the right things.
Full Due Diligence Work-up and Upgrade. As painful as it is in the moment, your books are clean and so is your structure, compliance, and legal. It’s standardized and as such, provides comfort to hundreds — if not, thousands — of global investors. Maybe more importantly, this gives you peace of mind that this part is sorted for the next season.
Alumni network / contacts. It’s a very selective, exclusive club you are now a part of (albeit arguably less so now). YC-mates generally are happy to help each other, even if your YC start-ups has failed.
African Start-Ups may benefit more than others, given the relative maturity and depth of other VC markets. Early-stage funding is hard, hard, hard anywhere, and especially in Africa. YC puts these African start-ups in front of investors who would otherwise not have considered African start-ups at all. There are now almost 100 YC-backed African start-ups — it’s now closer to normalized than unusual. YC published this advice piece specifically geared towards African start-ups — they want more applicants! And YC recently touted 8 African start-ups amongst their most valuable companies ever backed.
All in all, being a part of YC drastically reduces one of the most critical risks to an early-stage business — fundraising risk. And secondarily, compliance risk.
Cons
YC is nowhere close to a golden ticket. Maybe that’s unfair, but let’s put this in context. YC is investing in companies at the earliest, riskiest stages, and most of the time (say 90-95% of the time), the start-ups they back will fail. That's not a flaw, but by design- it's the power law at work. Hard data is difficult to find — as failures and “quietly struggling” don’t always make the news. To put it more optimistically, a YC-backed company most likely has a higher chance of success and will fail faster compared to a non-YC start-up.
(part 2) Sometimes, you get accepted into YC, do demo day, and you still don’t get a critical mass of investors. I've seen this happen as well.
The “new” YC standard deal can be expensive, and is not always a great fit. $125k for 7% on a post-money SAFE implies a company valuation of <$2M. So, you have to hit YC at just the right moment. If you think your company is possibly worth up to $5M, I’d still seriously consider YC for all the benefits above; in the end, you’re only giving up a few percentage points extra. If you’re further down the path and closer to $10M, settling for a <$2M valuation may not be worth it. You are essentially "too late" for YC. If you’re too early, YC will probably tell you to apply again. Also pay attention to the $375k most favored nation part of the deal — this is new as of January 2022.
Not a Pro or Con - but jumping on the YC train also means you're jumping on the hypergrowth / blitzscaling journey to success. It's go big or go home. That's honestly not for most start-ups - anywhere in the world. We did some research on this a few years ago, listening to 100 GPs, LPs, and entrepreneurs working in Africa, and published this report: Chasing Outliers.
What is your experience with YC?
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