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Business News/ Companies / Start-ups/  What are start-ups afraid of? The answers say a lot about tech
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What are start-ups afraid of? The answers say a lot about tech

Y Combinator applications provide a unique view into the rapidly changing technology scene from the perspective of up-and-comers

Facebook’s Instagram is a perennial threat on start-ups’ radar. Photo: BloombergPremium
Facebook’s Instagram is a perennial threat on start-ups’ radar. Photo: Bloomberg

San Francisco: Y Combinator, which helped incubate Airbnb Inc. and Instacart Inc., has a reputation for having an application process that’s more exclusive than Harvard University’s. About 6,000 aspiring start-ups applied to the Silicon Valley business incubator’s summer 2016 class in hopes of being one of the 107 or so to receive a $120,000 investment and access to the group’s well-connected investors and executives.

Beneath the techie buzzwords and fanciful projections, the applications provide a unique view into the rapidly changing technology scene from the perspective of up-and-comers. Online marketing and data firm Priceonomics recently analyzed eight years of Y Combinator submissions. The results give a snapshot of industry trends and entrepreneurs’ views of who’s hot and who’s not in tech.

Y Combinator asks applicants to list their competitors. Google Inc. and Facebook Inc. dominate the responses, but Uber Technologies Inc. and Airbnb are gaining quickly. Their names were mentioned more than half as many times as Google’s in 2016, according to the Priceonomics analysis. Uber, a ride-hailing company that’s established itself as a Valley golden child with a valuation of $62.5 billion, was mentioned in 2.6% of applications this year.

Slack Technologies Inc., a messaging app for businesses, has seen a significant uptick in mentions. Bloomberg Beta, the venture capital arm of Bloomberg LP, is an investor in Slack. Willett Advisors, the investment arm for the personal and philanthropic assets of Michael R. Bloomberg, the founder of Bloomberg LP, invests in Y Combinator start-ups.

Facebook’s Instagram is a perennial threat on start-ups’ radar. But WhatsApp, which Facebook spent far more to acquire in a $22 billion deal, has plateaued in the eyes of Y Combinator hopefuls. Snapchat Inc., another messaging app Facebook has targeted, was on a similar trajectory in the last year.

For Dropbox Inc., the hype cycle has been winding down for the last few years. After leading a list of five highly valued private companies in 2012, Dropbox’s presence in Y Combinator submissions has been on a steady decline since 2013, according to the Priceonomics study. Dropbox’s drop coincides with concerns expressed by the company’s own investors, several of which have repeatedly written down the value of their stakes.

However, Dropbox, which makes money by charging users for more cloud storage space, is well-positioned for another trend: the rise of subscription-based software businesses. Y Combinator applicants have increased references to so-called software-as-a-service revenue models by 400% since 2008. Meanwhile, advertising is falling out of vogue.

The shift highlights a rush toward sustainable, more predictable businesses as venture capitalists begin to prioritize revenue over user growth. Start-ups are staying private longer—no tech company went public last quarter—leaving VCs concerned they’ll have to invest more over longer periods of time to keep start-ups afloat. Bloomberg

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Published: 18 May 2016, 09:31 PM IST
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