Y-Combinator Demo Day 2013: Still looking for the next Airbnb or Dropbox

By Richard Nieva , written on March 26, 2013

From The News Desk

Y-Combinator has made changes since the first of its 15 batches of graduates earned their degrees in startupology – or whatever they get when they finish the 3-month program. The accelerator's founder, Paul Graham, trimmed by about a third the number of companies he allowed to enroll, from 65 last year to 47 this time, to better focus on the participants. I suppose that means he intends to provide each company more individual attention. And in November, YC introduced its official VC program, which organized access to mentors from firms like Andreessen Horowitz. In the process Graham cut the amount of money each company would receive, to $80,000 from $150,000, which had caused unnecessary tension when disputes arose among founders. Less money, the thinking goes, should result in fewer complications.

Today was Y-Combinator's Demo Day, held at the Computer History Museum in Mountain View, CA, where I was able to see each company present its product in public for the first time. While Y-Combinator made changes over the past year, there wasn't a whole lot different about the companies this time around. Less money did not, YC partner Jessica Livingston claims, result in greater fiscal austerity. “It’s not like they were really irresponsible to begin with,” she says. More squishy was the outward impression each company emitted: some attendees told me there was a greater sense of founder modesty.

Really, though, it was no mind-blowing affair. In fact, perhaps the major difference was that the bar opened earlier this year. Last time, booze (wine and beer, actually) was served right before the reception; today it started at lunch, with three-fourths of the day to go. “Maybe it will put people in a friendlier mood,” Livingston says. The move wasn't a calculated decision. But I guess it does go with the theme of a smaller, more manageable, easier-going Demo Day.

There didn't seem to be any knockout winners, though many attendees were impressed with Thalmic Labs and its wearable tech product, MYO. The band recognizes movements in a user's muscles and creates a vivid gaming experience. Still, it did little to combat the common knock against YC. That is, after more than 400 companies have gone through its ranks, only two – Airbnb and Dropbox – have been smash, revenue-spewing successes, leading a handful of successful exits, namely Reddit, Heroku, and OMGPOP.

While I don't have my Tarot cards handy, I don't think there's a big winner in this bunch either. The two big categories this time around were enterprise and crowd sourcing, the latest hyped trend to shake up Silicon Valley. By my count, 19 out of the 47 companies had some sort of B2B component. One was BitNami, an app store for server apps that counts MasterCard, Fiat, and GE as customers, and claims it’s already profitable. Another: Errplane, a service that works with appmakers and alerts them of errors on the backend in real-time. Founder Paul Dix says the company hopes to be on premises by December.

There was also a lot of Kickstarter copycatting. There was BackerKit (to manage Kickstarter supporters), Microryza (a Kickstarter for science projects), Swish (which handles preorders after a company concludes a successful Kickstarter campaign), Teespring (a KIckstarter for t-shirts), Wefunder (a Kickstarter for investors) and Watsi (a non-profit Kickstarter that hopes to fund treatment for sick people). Next year maybe I'll pitch a Kickstarter to auto-generate Kickstarter imitators.

Today's event was a far cry from the eight startups the program accepted in its first year in 2005. And even though YC shrank the program by about 20 companies, maybe all the Kickstarter wannabes are proof it needs to scale back even more.

At least one investor, who attended six demo days before this one, was equally underwhelmed. "I would have concern with all the Kickstarter for X companies," says Jon Soberg, managing director at Blumberg Capital, an early stage venture firm, says. He also didn't think many of the companies had big market potential, and said other investors he talked to felt the same way. “How many big companies will adopt these things?”

Maybe next time will different.

[Image courtesy: Paul Miller]