On the shifting landscape of YC batches (2023 update)
A few years ago, I wrote a post On the shifting landscape of YC batches to analyze statistical trends in Y Combinator startups by industry over time. Since Rebel Fund has since collected hundreds of thousands of data points on thousands of YC startups, we’re in a better position than ever to break down these trends, so I figured now was a good time for an update.
YC has long been at the bleeding edge of technology innovation, and its batches tend to reflect the latest trends in the startup world. This is largely because YC aims to fund the best founders working on the best ideas, and the best founders tend to gravitate toward the technology sectors with the most opportunity.
To kick off this post, here is a breakdown of new YC startups by technology sector and batch year:
The first implication, as I’ve mentioned in previous posts, is that YC has always been heavily weighted toward B2B startups. Why? For the same reason that Willie Sutton robbed banks… because that’s where the money is!
Even though B2B is a perennial favorite amongst YC founders, its dominance has still waxed and waned over the years, though recent years have seen a resurgence (and I expect the current popularity of AI startups only to accelerate this, as AI’s B2B applications are exciting)
The next most popular sector historically was consumer startups, but they’ve been in steady decline, representing over 50% of YC startups in the early years but only 10–15% in recent ones. I suspect it’s because consumer applications are notoriously difficult to monetize, and a lot of the “blockbuster” consumer sectors, like search, social, entertainment, etc., have reached maturity.
The biggest growth sectors over the past decade have been healthcare and financial technology (aka “fintech”).
Healthcare innovation was boosted by policy changes (e.g., the Affordable Care Act), consumer trends (e.g., growing interest in wellness and personalized health), and the compounding impacts of biology becoming an information technology.
Fintech has benefited from the rise of mobile and the advent of innovation-enabling data platforms like Plaid. YC’s rapid internationalization has also benefited fintech in particular, as we’ve noticed a lot of emerging-market YC startups bringing developed-market fintech innovations to their respective regions.
While real estate and construction (aka “proptech”) and industrials have also made inroads in recent years, and we’ve invested in the spaces at Rebel, they are still relatively small pieces of the YC pie.
I got a laugh out of the tiny government bars above — it looks like YC founders gave the sector a shot around 2015–2019 but then gave up on it 😂
Now let’s get to the billion-dollar question from a founder’s perspective — are some of these sectors better to launch startups in than others?
This chart shows the overweight of Top YC Companies (i.e., $150M+ valuations) by technology sector:
Perhaps unsurprisingly, B2B startups are much more likely to become Top YC Companies. YC likely knows this and factors it into admissions decisions, which may help explain the sector’s continued dominance.
Also unsurprisingly, at least to me as an investor, consumer startups seem quite disadvantaged when it comes to becoming Top Companies. This is probably for the same reasons I mentioned above.
Fintech startups are the most overweighted when it comes to Top Companies rates. It’s a great sector with rapid growth potential for startups, and sure enough, that also seems to be reflected in YC’s batch makeup over time.
Healthcare is an interesting one… it’s been a growth sector in YC batches since around 2013, yet it underperforms in terms of Top Companies rates. As a former healthtech founder myself, I may know why — it’s a sector with many tantalizing technology use cases, yet it’s incredibly difficult to innovate due to regulation, incumbency, and misaligned incentives. I empathize with all the healthtech founders out there and hope they keep fighting the good fight!
While proptech and edtech appear underweighted, I wouldn't look too far into it since these are relatively small sectors and thus lack statistical significance.
So there you have it!
p.s. A note to founders: Don’t be discouraged from starting companies in the underperforming sectors above. These are statistics, not destiny, and there are plenty of successful startups in *all* of these sectors. Founder/company fit trumps sector trends.
