Business Blog: Y Combinator scouts for unicorns

YC's newest batch of prospects looks strong, investors say

April 5, 2024

As a devoted NBA fan, I only tune in to college basketball once a year—for March Madness—hoping to see the next big star.

And that's what I was thinking about watching Y Combinator's Demo Day this week. For the uninitiated, Demo Day is the culmination of YC's twice-a-year accelerator program, where founders pitch to investors. It was my first time attending, and I joined on Zoom. Watching YC's winter 2024 batch move through rapid-fire pitches, I thought: It's hard to pick stars—whether that's big men who can shoot, or future billion-dollar companies.

But there are, at least, some clues. Resumes can go a long way for one, and coming out of a major program like YC (or, in the case of basketball, Duke or Kentucky) can make a difference. At Y Combinator, the pace of Demo Day helps prepare founders for high-speed startup life, said Initialized Capital managing partner and YC alum Brett Gibson.

"Have you ever seen Arrested Development?" Gibson asked me, going on to reference a scene where wayward Gob, played by Will Arnett, forcefully tells a full boardroom: "Two weeks! Let's do it in two weeks!"

"It always occurs to me that that's actually the right advice…It’s not how fast you go necessarily, but that it's compounding to apply that lens to what you do," said Gibson, adding that, without any preparation, it can be especially hard to come to grips with the velocity of startup life.

Demo Days also set founders up to work on a skill they've probably never spent much time on—pitching to lots of people, said Caroline Winnett, executive director of the Berkeley SkyDeck, which has its own Demo Day on April 10.

"You get very little practice in your life for public speaking," Winnett told Term Sheet. “You have to go to Demo Day with that pitch nailed, absolutely nailed, but with the knowledge that people don't remember what you said. They just remember how you made them feel."

Some investors said they were particularly impressed this year. "The overall quality of teams and ideas is quite high and arguably better than the recent batches," Wing VC partner Tanay Jaipuria told Term Sheet via email.

Both Jaipuria and Canvas Ventures general partner Mike Ghaffary saw some promising AI entrants. (About 50% of this batch is working with AI, according to YC.)

But it's not all about LLMs anymore, Ghaffary distinguished, and consumer AI was a key trend in this batch especially.

"Founders have obviously moved on from trying to reinvent the wheel on foundational models, but they clearly see two trends in the opportunity set: 1) infrastructure to connect LLMs to the rest of the software ecosystem, 2) applications of AI to verticals like healthcare and consumer," he said in a note to Fortune.

Some AI-related names from Demo Day I've heard getting buzz include AI-powered and insurance-focused Arcimus, and music generator Soundry AI. One of my personal favorite pitches came from Hemingway, which is applying AI to receptionists’ tasks in dental offices—they said they had $60,000 in annual recurring revenue, and are already in ten practices. (One investor told me that there's a hierarchy of metrics in Demo Day pitches, and ARR and growth rate are at the top of the food chain.)

But it's also spectacularly early in the game for any of these metrics, and plenty of factors will ultimately determine who the superstars from this class will be.

See you Monday,

Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- Pigment, a Paris, France-based business planning platform, raised $145 million in Series D funding. ICONIQ Growth led the round and was joined by Sandberg Bernthal Venture Partners, IVP, Meritech, and others.

- Flip, a Los Angeles, Calif.-based social app where users can watch and post product reviews, raised $144 million in Series C funding. Streamlined Ventures led the round and was joined by existing investors Mubadala Capital, WestCap, and a $50 million investment from new investor AppLovin (NASDAQ: APP).

- SiMa.ai, a San Jose, Calif.-based developer of generative AI chips for edge computing devices like smartphones, autonomous vehicles, and smart appliances, raised $70 million in funding. Maverick Capital led the round and was joined by Point72, Jericho, Amplify Partners, Dell Technologies Capital, and others.

- Torus, a South Salt Lake, Utah-based manufacturer of energy storage and management products for the residential, commercial, and large-scale utility sectors, raised $67 million in funding. Origin Ventures led the round and was joined by Epic Ventures, Cumming Capital, the Larry H. Miller Company, Zions Bank, Pelion, and ICONIQ.

- SingleInterface, a Haryana, India-based provider of hyperlocal marketing-to-commerce software, raised $30 million in funding. Asia Partners led the round and was joined by PayPal Ventures.

- Ellipsis Labs, the New York City-based developer of the Phoenix decentralized exchange, raised $20 million in Series A funding. Paradigm led the round and was joined by Electric Capital.

- Manifold, a Newton, Mass.-based AI-powered clinical research platform, raised $15 million in Series A funding. TQ Ventures led the round and was joined by Calibrate Ventures, SK Ventures, and others.

- Full Glass Wine, a Los Angeles, Calif.-based acquirer of direct-to-consumer wine businesses, raised $14 million in Series A funding from Shea Ventures and acquired Bright Cellars, a Milwaukee, Wisc.-based subscription-based wine service. Financial terms were not disclosed.

- TODAY, a Lisbon, Portugal-based AI-powered social simulation game, raised $5 million in seed funding. Sfermion and Big Brain led the round and was joined by GSR, Collab+Currency, Lingfeng Innovation Fund, Compute Ventures, Builder Capital, and others.

- Eirene, a Toronto, Ontario-based online cremation services platform, raised $4.1 million in seed funding. Relay Ventures led the round and was joined by Expert Development Canada and Saint Elizabeth Healthcare.

- Völur, an Oslo, Norway-based developer of AI and data technology designed to help meat processors make better sorting and cutting decisions to maximize the value of a carcass, raised $2.9 million in funding from Serra Ventures, York IE, SARIA, and existing investors Idékapital, Fusion Fund, and Fortress Fund.

Join the next Fortune Connect Executive Session

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PRIVATE EQUITY

- CData, backed by Updata Partners, agreed to acquire Data Virtuality, a Saxony, Germany-based provider of data integration and management solutions. Financial terms were not disclosed.

- DataStax, backed by Goldman Sachs, agreed to acquire Logspace, the Uberlandia, Brazil-based developer of the Langflow platform designed to make building generative AI applications easier and faster. Financial terms were not disclosed.

- Fenix Parts, a portfolio company of Stellex Capital Management, acquired Green Auto Parts & Recycling, a Sun Valley, Calif.-based full-service automotive recycler. Financial terms were not disclosed.

- Once For All, a portfolio company of GTCR, acquired Nalanda Global, a Madrid, Spain-based supply chain risk and compliance management software platform. Financial terms were not disclosed.

EXITS

- Henkel acquired Seal For Life Industries, a Houston, Texas-based supplier of protective coating and sealing solutions for infrastructure markets, from Arsenal Capital Partners. Financial terms were not disclosed.

FUNDS + FUNDS OF FUNDS

- SK Capital Partners, a New York City-based private equity firm, raised $3 billion for its sixth fund focused on companies in the specialty materials, ingredients, and life science industries.

PEOPLE

- Anzu Partners, a Boston, Mass.-based venture capital firm, promoted Dr. Henk Both to principal.