Early stage companies in Silicon Valley have gained a huge boost from artificial intelligence.
Startup Accelerator Y Combinator – Known for backing Airbnb, Dropbox And Stripes – this week we held our annual demo day in San Francisco, where the founder pitched the startup to an auditorium of potential venture capital investors.
Y Combinator CEO Garry Tan told CNBC that the group is growing significantly faster than its past cohorts than its actual revenue. Over the past nine months, he said, the entire batch of YC companies has increased by 10% per week.
“It’s not just one or two companies. The entire batch is growing 10% a week,” said Tan, who is also a Y-combinator alum. “That’s never happened in an early stage venture.”
That growth comes from the leap in artificial intelligence, Tan said.
App developers can offload or automate more repetitive tasks, allowing them to generate new code using larger language models. Tan called it “vibe coding.” This is the term for making a model take wheels and generate software. In some cases, AI can code the entire app.
The ability of AI to subsidize heavy workloads has allowed these companies to build with fewer people. According to Tan, about a quarter of current YC startups, 95% of the code is written by AI.
“That sounds a bit scary, but on the other hand, what it means for founders is that they don’t need a team of 50 or 100 engineers,” Tan said, adding that companies are earning up to $10 million in revenue with teams of less than 10 people. “There’s no need to raise it that much. The capital will be much longer.”
The idea of all costs in Silicon Valley in a zero profit era has become “outside the window.” The focus on the end result also applies to Megacap Tech companies. Google, Meta and Amazon After multiple layoffs, the job was pulled back.
It’s shaking some engineers, but Tan explained it as an opportunity.
Building a startup is easy, and top tech people don’t need to prove their worth by working for a large tech company, he said.
“There’s a lot of anxiety in the job market, especially from younger software engineers,” Tan said. “Maybe engineers who didn’t get a job with meta or Google are engineers who can actually build standalone businesses that make $10 million or $100 million with 10 people. This is a powerful software moment.”
Approximately 80% of YC companies announced this week were focused on AI, with several robotics and semiconductor startups. The group’s companies were able to prove their previous commercial use compared to previous generations, Tan said.
“There’s a lot of hype, but what’s unique about this moment is that people are actually undergoing commercial validation,” he said. “If you’re a demo day investor, you can call your real client and the person will say, ‘Yeah, we use software every day.” ”
Y Combinator was founded in 2005 by Paul Graham, Jessica Calivingston, Robert Morris and Trevor Blackwell. The company is investing $500,000 in the startup in exchange for its stock interests. These founders will then participate in a three-month program at San Francisco headquarters and obtain guidance from partners and YC alumni. Demo Day is a way to attract additional capital.
The company has funded more than 53,000 companies, and said it is worth more than $800 billion in total. More than dozens of them have been published, with over 100 being valued at over $1 billion. Over 15,000 companies have applied to get into the accelerator, achieving an acceptance rate of around 1%.
Many of these venture capital incubators have appeared over the past decade, with more capital flocking to early stage startups. Despite the competition, Tan claimed that Y-combinator had an advantage thanks to its strong network. He pointed out the growing number of highly regarded portfolio companies, pushing back the idea that specialized incubators are operating.
“Around 20-30% of companies in YC change their ideas and sometimes change the industry completely. And if you become a very professional incubator, you may not be able to change it into what you were supposed to be,” Tan said. “I think the network impact and the benefits of YC have only become more bolder.”
