YC is the vane of global seed round investment.

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Editor’s note: In the field of venture capital, YC is undoubtedly a “Huangpu Military Academy.” In the past 15 years, YC has invested in more than 2,000 companies, and has created 100 companies with a valuation of more than 150 million US dollars and 19 companies with a valuation of more than 1 billion US dollars, including Dropbox, Airbnb, Stripe, etc. Has become a weathervane in the early investment field. This article presents YC’s investment logic through a large amount of data, analyzes YC’s investment trends, and explores future investment opportunities. This article was originally published on Meduim by Eric Feng, titled: What 15 Years of Y Combinator Investments Can Teach Us About Startups.

There are tens of thousands of smart people in the world. They can choose to start or not start a business, but as long as we work hard in the right place, a large number of new, A startup that might not have existed. ——Paul Graham, YC co-founder

I recently wrote a letter of recommendation to a former colleague who wanted to change his career by returning to school. He is not going to an ordinary school, but a special university with a long-established reputation worldwide. The admission rate of this university is very low, only single digits. You might guess that it is a Harvard or Stanford MBA? No, it is harder than these two schools. It is Y Combinator (referred to as “YC” for short). YC has been in operation for 15 years, invested in more than 2,000 companies, and produced 100 companies with a valuation of more than 150 million US dollars and 19 companies with a valuation of more than 1 billion US dollars.

YC wins by volume. Each foundation of a typical early stage venture capital company invests 30-40 startups in 2-3 years. YC incubates 8-10 times more startups each year. In other words, the number of companies incubated by YC can be invested by 30 VCs. YC has reached so many companies that it is actually an index for the entire early stage venture capital industry, just like the stock market’s Dow Jones Industrial Average. The Dow Jones Industrial Average is not a stock market, but it is certainly a representative of the stock market. Similarly, YC is not all a seed round investment, but the projects it chooses to invest in represent the weathervane of the entire seed stage investment and is an opportunity to discover industry trends.

What kind of startups does YC invest in?

View YC through data

Sometimes people think that YC has ideas on investment topics. But in reality, we are just investing in the best startups. ——Sam Altman, President of YC

To answer this question, I collected YC’s investment data since incubating the first batch of startups in 2005 and found some interesting phenomena.

First, since the start of the project, YC has held two startup camp activities every year, and has invested in startup companies in the startup camp. In the first batch of startups in the summer of 2005, YC invested in 11 companies. 14 years later, YC invested in 175 companies in the summer startup camps in 2019, of which 12 were invested by startups in the artificial intelligence industry alone, more than the total number of startups invested in the first batch of startup camps.

A look at YC investment data for the past 15 years: what should we invest in the future?

Picture: Number of startup companies invested by YC in each startup activity

This investment rhythm is surprisingly similar to the investment rhythm of the entire seed round in the venture capital industry worldwide. In the chart below, the red line is a multi-year global seed round transaction curve from Pitchbook. These two lines echo each other, and we can see that the number of startup investment in the seed round stage has increased significantly since 2011.

A look at YC investment data for the past 15 years: what should you invest in the future?

Figure: Comparison of the number of projects invested by YC and the number of global seed round investment projects

Looking at the trend line, the two are almost identical, but the investment scale is different. The investment scale of YC is 1/25 of the total global investment scale. This can indicate that YC is a microcosm of investment behavior in the overall seed round. In the past ten years, the overall seed round investment has increased significantly. The number of startups invested by YCThe amount is also increasing significantly.

A look at YC investment data for the past 15 years: what should you invest in the future?

Figure: Comparison of the number of projects invested by YC and the number of global seed round investment projects. Investment trends

Now let’s see what happens when we dive into a particular area. Taking developer tools as an example, YC has focused on this area from the beginning. The chart below shows the number of developer tool companies that YC invests in each year and compares it to the number of all developer tool startups that have received seed round investments worldwide. The results show that the two are also very similar. From 2010, the overall investment volume of the developer tools company YC’s investment volume increased, then fell in 2015, and rebounded in 2017.

A look at YC investment data for the past 15 years: what should you invest in the future?

Figure: In the field of developer tools, the comparison between the number of YC-invested startup companies and the number of seed-round startup companies that have been invested worldwide

This shows again that YC’s investment behavior is a microcosm of the overall seed round investment behavior. So, what interesting information can YC’s data tell us?

  • In the past two years, the three major areas where YC investment has increased are artificial intelligence (except for developer tools), education, and healthcare. So these areas may be the areas closely followed by seed round investors.

  • Two areas where YC investment has slowed sharply are hardware and fintech. In 2016, YC’s investment in the hardware sector reached its peak. In 2017, YC’s investment in the fintech sector reached its peak. Since then, the number of investments has fallen sharply. Therefore, for seed round investors, you can refer to it.

    Through this mirror, you can learnTo something.

    Consumer startups are more difficult

    Choose a project with a large enough market, a project that is really difficult, a project that you can struggle for many years. Jessica Livingston, co-founder of YC

    For more than a year, I have repeatedly emphasized that the current market situation is not conducive to consumer startups, and it is difficult for new consumer companies to stand out. A recent report from Sensor Tower stated that the top 1% of mobile app downloads accounted for 80% of total app downloads.

    On mobile distribution, only a few companies are winners, and they are really big winners. Most of these winners are established companies that have appeared on the rankings for more than five years. In fact, according to App Annie data, statistics found that it is now 28 times more difficult for a new consumer mobile app to enter the top 30 of the App Store rankings than it was five years ago.

    So, does this prevent entrepreneurs from setting up new consumer startups, or does it prevent investors from investing in new consumer startups? Let’s look at YC’s mirror again and find out.

    In the chart below, I show the proportion of consumer startups invested by YC among all investees. In the early stages of YC, each phase of the startup camp invested a large number of consumer startups, up to 80%. But this proportion has been steadily declining.

    View YC investment data for the past 15 years: what should we invest in the future?

    Figure: The proportion of consumer startups in the YC investee field

    So what do other startup ecosystems look like? I have made a comparison between the number of consumer startups that have received seed round investment worldwide and the total number of startups that have received seed round investment worldwide. The results are very similar. Looking at the entire venture capital industry, seed investment in the past has tended to invest in consumer startups. But now, the proportion of consumer startups is gradually decreasing, which is basically consistent with YC’s investment trend.

    YC investment data from the past 15 years: what should we invest in the future?

    Figure: Globally, the proportion of consumer startups in the seed round phase in all seed companies in the seed round stage

    In the past 15 years, both inside and outside YC, more and more startups have received investment, and the enthusiasm for investing in consumer startups has subsided. How long will this continue? When do investors in this phase begin to invest in social networking applications, media, e-commerce companies, and other consumer companies? Are there opportunities for the next decade for founders who want to build products and services for personal rather than corporate use?

    Maybe, or not. But no matter what, let us look forward to the next batch of YC’s next batch of startup camp projects on March 23, discover the seed round investment trends around the world, and explore the future development of startups and businesses.

    Translator: Yang Zhifang