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Silicon Valley Incubator Warns Startups – Trustnodes

Y Combinator's Paul Graham addressing startup founders, 2020


Y Combinator, one of the biggest startup incubator in the world, has issued an unprecedented stark warning to their startup founders.

“No one can predict how bad the economy will get, but things don’t look good,” it said, before ordering entrepreneurs to tighten their belt, lean up, and try to just survive for the next two years without any further funds.

“If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan,” it said.

A slowdown in ‘traditional’ tech has been on-going for a few years, with some VCs stating even prior to 2020 that the field appears saturated.

Fred Wilson, one of the VCs in Silicon Valley, warned as far back as 2019 that investors should no longer expect the sort of returns they had seen so far.

The monopolies of Facebook, Google, Amazon and Apple, where any newcomer is eaten up, has sedated the web2 startups space.

The journey there feels done, and so this warning doesn’t come as a surprise, but the timing of it arguably couldn’t be worse for the wider economy.

It adds to a chorus seemingly dancing to Powell’s tune, but this crunch in ‘traditional’ tech startups in Silicon Valley has been rolling for months with a delay by the pandemic which is not delaying anymore.

That’s because these startups are just not innovating to the same extent as their predecessors did and that’s because the low hanging fruits have been picked.

The industry in short is moving towards a more mature form, and for giant tech, towards a more corporate form. But crypto startups do get different advice, though maybe not by Y Combinator.

The money here isn’t drying up. That might change next year, but it probably would be cyclical, or at least that’s how investors will likely see it.

Just survive is good advice for anyone, but better advice where this space is concerned was given by the OpenSea founder: “just don’t leave.”

The bear, where traditional investors are concerned and crypto startups, is the best of time. It focuses entrepreneurs, productivity goes up, fluff goes out, and humbleness is in fashion.

Unlike traditional tech startups, ‘kids’ in this space are not metaphorically fat, entitled, etc. They’re actually very skinny and quite hungry.

In addition, there are far too many low hanging fruits to pick up, instead of almost none.

Which means an exodus might be coming our way. Not at the best of times, but VCs have given their orders and it’s go Web3.

The crypto space will however be affected by the wider environment, but probably in a temporary way rather than structurally because there are plenty of things one can see can be built.

Thus any pessimism would be with the under-current of optimism, as opposed to potentially a trend in traditional tech.

For crypto, arguably this is just 2018, at worst. Interest rates were rising back then too, the dollar was strengthening, the coders kept coding.

There was no warning to startups by Y Combinator in 2018 however. The monetary environment was similar, and so what has changed is more the availability of traditional tech opportunities, with these rising rates perhaps just a cover.

That is to say this is probably more a specific warning rather than general, and to a specific industry, not least because where cryptos are concerned the bear is our friend, while in traditional tech startups, they don’t really know the bear.

So the crypto industry is better prepared, and even has room to use this opportunity to erase any talent gap with investors still most likely very willing to bet on out there ideas because this space has been giving good returns without any structural slowdown, at least so far.

 





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