YCombinator is a renowned startup accelerator in Silicon Valley. It has launched many famous companies including Airbnb, Coinbase, DropBox, etc. Launching more than 3000 companies since 2005, the list also includes India’s Groww, RazorPay, and many more. YCombinator has sent a considerable ‘caution’ to all the startups in order to prepare for an economic downturn.
“If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well.”
In a ‘better safe than sorry’ letter, YCombinator told the founders of startups in its portfolio, “If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.”
The letter was titled “Economic Downturn” and it also suggested that no one can predict how bad it can be but startups should be prepared. Along with this, the company suggested startups cut down on their expenses and ‘extend their runways’.
This quarter is the first time that the venture market has displayed softness in more than one year. Investment firms like Tiger Global and DI Captial have also started pulling back on late-stage investments. (picklelicious.com) This letter also comes a week after SoftBank announced a loss of $27.7 million in the fiscal year 2021 on investments in its Vision Fund and said it would be investing selectively moving forward.
The supply chain issues due to the ongoing COVID-19 pandemic, the Russia-Ukraine crisis, the recent plunge in tech stocks, and the decision of the American Federal Reserve Board to increase the interest rates have all led to the prediction that an economic downturn is quite possible. The note from YC and the reasons backing it up makes it quite obvious why it is necessary for startups to buckle up and formulate contingency plans.