Not all revenue is created equal.
And Garry Tan, president and CEO of famed startup accelerator Y Combinator, wants companies facing the downturn in 2023 to focus on what he calls “edible” revenue—the kind that can help them pay salaries, buy groceries, and pay bills.
The problem, according to Tan, is when you “look at how people talk about revenue, often what they're actually saying is sort of top line, or like, bookings, or next-year sales,” he told me. “It’s like chicanery—it's not really the straight and narrow.” To emphasize what startups should be measuring, and to inspire aspiring founders, the accelerator is publishing its inaugural list of the top 50 Y Combinator companies by net revenue. The group includes now-public companies as well as younger startups that have all gone through the YC program, as it's commonly known, and achieved the highest net revenue in 2022. They collectively generated over $50 billion of revenue last year. (Y Combinator would not reveal company-specific revenue numbers as those are confidential, but did tell me there was a minimum revenue threshold.)
Tan says that “in order for us to really try to raise up companies and encourage people to build businesses of real, great value, we really tried to focus this on gross profit and net revenue,” he tells me. Those metrics are even more important in a fundraising drought and a broader economic decline: “Revenue is certainly only one of many different forms of impact, but it also happens to be the one in the downmarket that's correlated with not just survival but thriving,” he says.
On the list are public companies including Airbnb and Coinbase, as well as relative newcomers like Whatnot, which participated in a YC batch in 2020, and Deel and Nowports, which went through YC in 2019. Each company on the list—including Stripe, Flexport, DoorDash, EquipmentShare, Gusto, and Scale AI—is valued at more than $150 million, and they’ve collectively raised $40 billion, according to Y Combinator.
Logan Head, cofounder of livestream shopping marketplace Whatnot, which made the list, told me his company has been growing very healthily, but that, in these tougher conditions, every startup needs to be “a little bit more frugal in terms of how they operate.” He says Whatnot has been focused on hiring this year in a disciplined way (they have around 50 open roles, he said) and is also optimizing costs by doing things like negotiating with providers. Whatnot raised a $260 million Series D round last July, so they’re not thinking about fundraising again imminently, Head told me (“Next year, maybe”).
Of course, the list also acts as a measure for YC itself: The 18-year-old accelerator initially invests a small sum for a 7% stake in these startups. When I asked about YC’s returns, Tan was vague, but said that even after five "significantly" better years of metrics, over the next few decades, he predicts the numbers "will actually eclipse what we've already seen."
But a lot has changed this year. Tan’s return to head up YC in January after a roughly eight-year stint focusing on running Initialized Capital, the VC firm he cofounded with Alexis Ohanian in 2011, coincided with a rocky time in the market. And he’s made some controversial decisions so far, like ending the accelerator’s late-stage fund, dubbed its continuity fund, which focused on investing in older companies. YC also laid off 17 employees at the time. The choice sparked backlash among founders who were surprised and concerned about the move.
Tan stands by the decision, telling me that the shift will help YC become a better partner to other VC firms—including Initialized—which can fund later rounds, instead of “competing against them,” and will preserve YC's accelerator focus.
Founders’ interest hasn’t dwindled: Tan says the accelerator just recorded an all-time high number of applications—over 24,000—and a record low acceptance rate—less than 1%.
See you tomorrow,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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