Are YC valuations still too high?

It’s a recurring topic that we hear time and time again: Y Combinator valuations are too high.?

What we can say for sure is that they are higher than other places.?

But are they really?too?high??

And with the recent decrease in valuations all around the startup world, are they?still?too high??

Let’s find out.?

I’ve been attending YC Demo Day since the Summer 2020 batch (S20) and I can say for sure that valuations increased between 2020 and 2022. The average valuation was $15M in 2020 at Demo Day, and around $25M to $30M in 2022. That’s a 100% increase in 2 years! Bubble anyone??

Many would argue that $15M valuation for a seed startup only a few months old is already quite high. And $30M seemed crazy to a lot of people.?

Now we’re in 2023 and valuations are down. How did YC valuation do in the latest Winter 2023 (W23) batch? I’d say the average was back between $15M and $20M, much more reasonable.?

(As a side note, I did see a generative AI startup trying to raise at $85M with a few k$ of MRR, only to come back to me a few weeks later with a much more reasonable valuation. I guess it was worth a shot to try!).

Still, this is undoubtably high giving the market conditions.?

So why invest in YC at all then? Why tolerate those “crazy” valuations? Why not look for startups elsewhere??

Well,?YC is special. Did you know that 37% of YC startups get acquired or IPO? (Source ). Y Combinator’s acceleration program is unique and life-changing, and the results are there to prove it.?

And the startups know it. That’s why they’re pricing their round so high, and getting away with it.?

But coming in at these high valuations is the only way to get in those rounds. There’s little to no room for negociation, because so many investors are trying to get into these deals.?

To quote David O. Sacks from Craft Ventures , “I’m not a price maker, I’m a price taker”. Buying at this high price is the only way to get into these amazing deals. If you believe this startup is going to become a unicorn, then it’s better to invest at $30M valuation than to pass on the deal. So the real question isn’t the valuation but your analysis of the startup and the potential it has.?

Once again, because YC produces such quality startups, there’s a bigger chance than anywhere else that the startups will become unicorns. This is what really justifies the high valuations of Y Combinator’s startups.?

In conclusion, my personal opinion is that the YC valuations aren’t too high. They’re just high. It’s like real-estate in Manhattan. It’s expensive for sure, but who can say it’s?too?expensive? It’s reflecting the market.?

And so I’ll keep investing in YC startups with Lobster Capital , because I believe it’s the best potential outcome for a seed startup investor.?

What do you think? Tell me in the comments.?