Reject for what? – TechCrunch

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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 looking to increase. “Since March, it’s down about 90%,” Lavingia told TechCrunch. “I was probably seeing more than most, 20 to 40 well-vetted decks a week, and that number has dropped to two or four a week now.” He has also seen the quality of talent rise for people who want to work for gum road — 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; conversely, a boom in startups would support the idea that recessions, and the spate of layoffs that accompany them, are the time when startups are born.

Lavingia divides the founders’ status into three groups: “tourist founders, immigrant founders, and ‘born and bred’ founders.” Tourism founders, he said, are the ones who only start businesses in bull markets, a cohort he says has shrunk by about 100%.

“They are rarely bankable in bear markets,” Lavingia said. “They need to hire others to build things.” Meanwhile, immigrant founders care less about the reputation and status of starting a business, but they do weigh the risk and return. This cohort of founders has been cut in half, according to Lavingia. Finally, “born and bred” founders are founders regardless of the market: “They all existed and therefore raised money in 2020-2021, so they are also not starting companies and raising money at the same rate.

There are two sides to forming in early-stage venture capital: the investors who admit that the talent has changed, and those who support the deal flow that is as strong as ever.

If you want to read my full opinion, check out my TechCrunch+ column, “Investors brace for a founding recession. Or influx. Hope for?”

In the rest of this newsletter, we’ll delve into Y Combinator on downsizing its class and rookie fund managers on their collective mood. As always, you can support me by forwarding this newsletter to a friend or following me on twitter.

Y Combinator reduces the size of its class

Y Combinator says it has intentionally reduced the number of startups inside its accelerator for the summer batch of 2022. As first reported Information and independently verified by TechCrunch, Y Combinator’s Summer 2022 cohort, currently in action, features nearly 250 companies, down 40% from the previous cohort of 414 companies.

Here’s why it’s important: Over the years, Y Combinator’s ever-increasing lot size has become a common conversation, if not a cliché, among techies. I know because we contributed so much to this conversation. (especially in Equity). The biggest problem people have had with YC’s growing class size is that it threatens one of the accelerator’s highest value propositions: the network. The larger the class, the harder it is to stand out.

While YC says it wasn’t scaled back due to criticism or the cost of increasing his check size, the move will certainly help those within the current cohort stand out, Simply due to lack of competition.

Image credits: Bryce Durbin

First-time fund managers have thoughts

TechCrunch+ rebeca szkutak has topped the latest investor survey, which gets a temperature checks of seven first-time fund managers being at the beginning of a recession. What advantages do first-time VCs have over more experienced competition in a challenging market? What steps are you taking to prepare for the fourth quarter? What keeps them up at night given current market conditions? These are all the questions they answer and more. in the piece now live on the site.

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 from having previous funding or having a lot of capital tied up in what appear to be very expensive vintages,” Stuto said. “Like a founder, who sees the world differently from subject matter experts, we (first-time managers) bring a fresh perspective on how certain issues and industries are developing.”

Read szkutak surveyand her further analysis of itin the place.

A fully fruited orange tree being harvested in an arid Southern California desert landscape;  first-time investors thriving in recession

Image credits: Esteban Swintec (Opens in a new window) / fake 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 co-worker, Alex, which you can listen to here: “Is it time for the beginner to get on the company treadmill?”

Any requests for topics to dig into, either in Startups Weekly or on the show? Tweet me a great question and I’ll try it, either in the next Startups Weekly or in Equity.

Image of white headphones hanging on a blue background.

Image credits: Martin Barraud (Opens in a new window) / fake images

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And that’s a wrapper. I’m going to the lake to enjoy these last weekends of summer. Take care of yourself!

Talk soon,

north

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