A year ago I posted that YCombinator (YC) companies didn’t seem to be growing faster since the release of ChatGPT in 2022. I reran that experiment and found that 2023+ YC companies are arguably growing a bit faster than pre-2023 companies (including AfterQuery, YC’s fastest-ever unicorn), but the difference isn’t large relative to the underlying variance.
It’s worth noting that YC has somewhat fallen from grace: the most valuable AI startups are generally not incubated by YC. Nonetheless, it’s interesting to note that the benefit of AI hasn’t outpaced YC’s secular decline.
Data and methodology here and explained in the previous post.
You already mentioned, but I think it's worth repeating -- in my view, the best startups do not take the YC deal anymore. I think partly it's because YC is a victim of its own success (the startup ecosystem is now much more developed, and other incubators and VCs bid at higher valuations); partly, the brand has fallen somewhat. Also, my guess is that a lot of the best people who would have used to start a startup, now join/start a lab, or sometimes, a nonprofit.
Some startups (and I presume, their incubators) do achieve extraordinary growth due to AI, though. One example is Cursor -- a VC recently asked "on a ROI basis, which would it have been better to seed invest into, Anthropic or Cursor?", and the answer was actually Cursor due to its rapidity of growth + fast acquisition. (And, the incubators such as https://aigrant.com/ are a inspiration for me when thinking about https://surplus.dev/)
YC never had any sort of monopoly on the best startups though, its own terms are much better than they used to be, and its still definitely the most prestigious. The question isn't "why didn't Anthropic join YC", it's "why, if AI truly makes most developers 10x more productive and transforms the unit economics of customers, are the valuations of a cohort of prestigious "AI-enabled" startups round about their non-AI enabled 2019 peers?". There really aren't enough people founding research labs for that to be the issue
Of course, any early stage valuations graph is as much a graph of investor sentiment as anything else, but if AI was really making these companies significantly more productive, investors would have to be very bearish on AI or YC selection effect to have gone down the toilet for that not to show in the data. I presume median data looks similar?
The best counterargument is that AI also makes it easier for competitors leading to less defensible business models even if AI actually enables them to grow faster, but if that was the case investor sentiment should be much more bearish on incumbents...
Is this true? In my previous post I noted that the YC data was out of step with other data sets like Stripe's, but I haven't found a great dataset to answer this conclusively.
Some thoughts from a product manager working in tech:
A few effects that would incentivize this:
(1) AI enables doing the same work with a smaller team, decreasing the need for external investment and therefore founder dilution, lowering founder incentives for high valuation (for a founder 30% share in a $50M company is actually better than a 10% share in $150M one, as they maintain more steering power)
(2) AI makes copying a product easier, increasing the bargaining power of larger incumbents offering acquisition
(3) Advances in general-purpose AI are reshaping markets and societies faster than any technological change before, increasing the risk of a startup becoming irrelevant despite early success.
On all of the graphs, the most recent data point is the largest or second largest. So the obvious takeaway is that YC companies are growing faster.
I guess you could accurately describe it as 'faster than before but not wildly faster', but it feels like the post is going farther than that to downplay it (including the headline that doesn't really match the data, "YCombinator companies still aren’t growing faster due to AI").
Maybe you're too anchored to last year's analysis? I imagine that, if the data had looked like this a year ago, then the content of last year's post would've been pretty different.
Thanks Dan, I was about to tell you that I meant that the null hypothesis can't be rejected,[1] but then I asked Opus to confirm. Opus says that, while all of the metrics I posted here do indeed show a nonsignificant difference, age-adjusted post-chatGPT YC companies are worth 1.5x more on a log scale, and that this is significant at p = 0.001 (which survives corrections for multiple comparisons).
I've changed the title to say that they aren't growing "much" faster, which hopefully conveys the accurate takeaway.
I tried to say this informally in the article: "YC companies are arguably growing a bit faster than pre-2023 companies (including AfterQuery, YC’s fastest-ever unicorn), but the difference isn’t large relative to the underlying variance"