Turn down what?  – TechCrunch

Turn down what? – TechCrunch

Welcome to Startups Weekly, a fresh take on this week’s startup news and trends for the first time. To get this in your inbox, subscribe here.

Gumroad’s Sahil Lavingia broke into the venture world as one of the early testers of the rolling fund, an AngelList product that allows investors to raise capital on a subscription basis. That was in 2020. Fast forward to 2022 and a lot has changed.

One of those changes? The number of pitches from founders who want to raise. “Since March, it’s gone down about 90%,” Lavingia told TechCrunch. “I’ve probably seen more than most – about 20 to 40 well-reviewed decks a week – and that number is down to about two or four a week now.” The quality of the talent has been seen he also has for people who want to work for Gumroad – which he attributes in part to the steady stampede of layoffs – and a decline in founders starting companies.

A decline in the number of founders raising capital suggests that early-stage startups are not as immune to macroeconomic changes as some investors claim; in contrast, the start-up boom would support the idea that recessions — and the range of recessions that go with it — are when start-ups are born.

Lavingia breaks down the founders’ plight into three buckets: “tourist founders, immigrant founders and ‘born and bred’ founders.” Traveler founders, he said, are the ones who only start companies in bull markets, a cohort he said has declined by about 100%.

“They are rarely fundable in bear markets,” Lavingia said. “They have to hire other people to build things.” Meanwhile, immigrant founders care less about the reputation and status of starting a company, but less about its risk and return. This founding cohort has been cut in half, per the Lavingia. Finally, the founders are “born and raised” founders regardless of the market: “They’ve all been there and so they raised money in 2020-2021, so they’re not starting companies and raising of money at the same rate.

Two sides are coming together in early-stage venture capital: the investors who acknowledge that the talent has changed and those who insist on a flow that is as high as ever.

If you want to read my full take, check out my TechCrunch+ column, “Investors brace for founder meltdown. Or flow in. Wait, what?”

In the rest of this newsletter, we’ll introduce Y Combinator to the shrinking class size and tap fund managers for their collective mindset. As always, you can support me by forwarding this newsletter to a friend or following me on Twitter.

Y Combinator cuts class size

Y Combinator says it intentionally reduced the number of startups within its accelerator for the Summer 2022 batch. As first reported by The Information and independently verified by TechCrunch, there are nearly 250 companies in Y Combinator’s Summer 2022 cohort — which currently active, a 40% decrease from the previous cohort, which landed at 414 companies.

Here’s why it’s important: Over the years, Y Combinator’s ever-increasing batch size has become a common conversation — if not a cliche — among tech. I know this because we contribute a lot to this conversation (especially on Equity). The biggest issue people have had with increasing YC’s class size is that it threatens one of the accelerator’s biggest value propositions: network. The bigger the class, the harder it is to stand out.

While YC says it didn’t scale back because of reviews or the cost of its growing check size, the move will certainly help those within the current cohort stand out, simply because of a lack of competition.

Image Credits: Bryce Durbin

First-time fund managers have ideas

TechCrunch+ Rebecca Szkutak the latest investor survey is ahead, which takes a temperature check from seven first-time fund managers who are at the start of the downturn. What advantages do first-timers have over more experienced competition in a challenging market? What steps are they taking to prepare for the fourth quarter? What is keeping them up at night given today’s market conditions? These are all questions they answer and more in the live piece on the site now.

Here’s what’s important: There is always a silver lining, but especially if you have a smaller portfolio. Szkutak gives us a teaser excerpt below:

“We don’t carry any of the baggage that can come with previous funds or a lot of capital tied up in old wines that seem overpriced,” Stuto said. “Just like a founder, who looks at the world differently than subject matter experts, we (first-time managers) bring a fresh perspective on how certain problems and industries are developing.”

Read Szkutak surveyand with her further analysis of iton the site.

An Orange Tree in full fruit being harvested in a desolate landscape in southern California;  first-time investors thrive in the downturn

Image Credits: Stephen Swintek (opens in a new window) / Getty Images

If you missed last week’s newsletter

Read it here: “The bootstrapped are coming, the bootstrapped are coming.” I also recorded a companion podcast with my favorite colleague, Alex, which you can listen to here: “Is it time for the bootstrapper to jump on the venture treadmill?”

Any requests for topics I could dig into, on Startups Weekly or the show? Tweet me a big question and I’ll take a swing at it, in an upcoming Startups Weekly or on Equity.

Image of white headphones hanging against a blue background.

Image Credits: Martin Barraud (opens in a new window) / Getty Images

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And that’s a wrap. I’m off to the lake to enjoy the last weekends of Summer. Take care of yourself!

speak soon,

N

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