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Thursday, February 22, 2024

The Threat of Coronavirus Disrupts the Disrupters

Like so many tech founders, Timothy Carambat long dreamed of getting accepted into Y Combinator. The startup accelerator is famous for churning out influential companies like Airbnb, Dropbox, and Stripe, growing them from seedlings into massive success. Carambat hoped his startup, a website that subleases pricey domain names, might one day be among them. In early March, he put in an application for YC’s summer batch, aiming to join 100 or so other startups in a three-month boot camp in the Bay Area.

Accelerators act like greenhouses for young startups, helping them grow faster and stronger in just a matter of months. Some of that support takes the form of seed investments, offered to batches of companies in exchange for a small amount of equity. But they also provide connections—to mentors, other founders, potential investors. And of all the accelerators out there, none has connections as coveted as YC. As a result, its program is among the most competitive: Fewer than 3 percent of applicants get accepted.

Now, as outbreaks of Covid-19 force schools and businesses to temporarily shut down, YC is grappling with the possibility that it may have to run its summer batch entirely online. That’s disturbed the daydreams of entrepreneurs like Carambat. “I don’t need the money,” he says. “I do really need the network.”

For some entrepreneurs, getting into YC is a little like an acceptance letter from Harvard. It’s not just proof of a good idea, but a chance to brush shoulders with the movers and shakers of the tech world. So being there—in the Bay Area, at least for the three months of the accelerator program—is absolutely necessary. Few people would take their Harvard admission and decide to enroll only in online courses.

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YC knows that, too. The accelerator typically requires companies in its twice-a-year batches to relocate to the Bay Area for the three-month run. The accelerator doesn’t put people up in coworking spaces, but it does host a weekly dinner series (Marc Andreessen, Marc Benioff, and Mark Zuckerberg have all been guests) and makes a point to bond the founders within a given batch. It also holds “office hours” where startup founders can meet with YC partners for advice and progress updates. The whole thing culminates in a Demo Day, where startups present to a room full of investors.

Being in the same place has been important enough to the way the program functions that, until now, YC has forbidden companies from joining without relocating. “We’d always prefer situations where our investors and founders get to interact in person,” says Michael Seibel, YC’s CEO. On the program’s FAQ webpage, there’s an explanation for the relocation requirement: “We tried this once, and by Demo Day that startup was way behind the rest. What we do, we have to do in person. We would not be doing a startup a favor by not making them come to YC events in person.” YC offers a separate online program, called Startup School, which is free to founders but doesn’t have the same clout as the core accelerator.

Still, Seibel says the program has already had to adapt to more remote functionality. This week, YC had to move its winter batch Demo Day entirely online, given that the entire state of California is sheltering in place. It required some last-minute scrambling. Demo Day gives startup founders a chance to present and pitch to a closed audience of investors; investors choose startups to take meetings with afterward. YC has always had a website for people who can’t make the event, but this year had to retool it to host a “single-slide summary” from each startup. Plans to include pre-recorded video pitches from founders, mimicking those they normally give onstage, had to be dropped due to time constraints.

Even still, Seibel says it “went just about as good as I could’ve imagined.” Online demo day saw “about 1,600 investors using the site, and they generated about 18,000 introductions to our founders.” Normally, it takes investors several days to get a sense of all the companies in a YC batch and identify which ones to approach, but Seibel says it could be done in an hour during online Demo Day, meaning there were more interactions overall.

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For some founders, an all-online YC might offer some advantages. “There’s probably going to be a set of founders who, for whatever reason, might be more attracted to trying a remote Y Combinator, either because they’re international or they have a limitation that makes them unable to move,” says Seibel. In YC’s last batch, 40 percent of companies were international; relaxing the relocation requirement could bring even more foreign startups into the mix. “It’ll be interesting to appeal to a set of founders who wouldn’t have considered YC before.”

Still, though, for many founders—like Carambat, who lives in Southern California—the whole point of applying to the program is getting those introductions to other entrepreneurs and mentors. Meeting people over Slack or a Zoom call just isn’t the same as sidling up next to them at an intimate dinner. “I do think YC would pull off this remote networking, I just feel like networking happens a lot better in person,” Carambat says. “How will I be able to network with other cofounders and people in industry? That’s really the main value prop.”

“It’s hardly ideal,” says Peter Pakalski, an operating partner at Epione Ventures, a small venture capital firm. Companies that join accelerators are very early-stage ventures, and can benefit most from hands-on attention from mentors and other entrepreneurs. “I have faith that Y Combinator can pull it off, but it won’t be for everybody. It’ll be much harder to build rapport and build a network.”

Not every accelerator is as tied to Silicon Valley as Y Combinator, but every program is going to be affected by the pandemic in one way or another. “Starting a company is hard even in the best of circumstances. These are not the best of circumstances,” says Ryan Kuder, the managing director of Techstars Anywhere, Techstars’ remote accelerator program. Techstars is also considering changes to its other programs, including moving its springtime Demo Days, scheduled for April and May, entirely online.

Kuder says founders aren't necessarily disadvantaged in a program that runs remotely. Their networks end up shallower, but broader, with mentors and investors who aren't quite as regional. “There's a tradeoff between the intimacy of in-person contact and the flexibility of being online. Our founders have a ton of flexibility, and it creates these networks of investors that aren't as regionalized.”

Andrew Lekashman, who just applied for YC’s summer batch, doesn’t think his startup would have much of a problem adapting to an online accelerator. Currently, two of his cofounders are stuck in Florida after an ill-timed business trip, and they've had to rely on digital workarounds to keep on track. “You’ve just got to adapt,” he says. Lekashman’s startup is a software product, built on top of Google Home devices, designed for older people who live alone. It helps them to monitor diabetes maintenance, sleeping schedules, and more. “We just added a coronavirus symptom tracking as a feature,” says Lekashman. It asks elderly users if they’ve recently experienced dry cough, fever, or if they’ve had visitors.

Seibel says YC won’t make a final decision about how to run its summer batch until closer to its scheduled start in June. Either way, it announced earlier this week that it would save a few spots in the program for “promising Covid-19 startups.” It’s specifically looking for ideas that meet current demands for testing, treatment, equipment, and data infrastructure.

Already, though, Seibel says he’s noticed a shift in the companies hoping to join YC. “Reading applications, founders are understanding that the world’s changing. We’ve been in boom times in the startup world for the last ten years,” he says. Now, he sees startups focusing more on profitability, meeting market needs, and relying on software to improve margins. “I don’t expect that our selection criteria will change,” says Seibel. “I expect that the founders will adjust to the new world.”

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