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Hello, Alex!

Y Combinator’s demo day has taken place — and so too, of course, has bitching about YC. 

The gripes:

• YC companies are too expensive. (Post-money valuations are supposedly around $15m-25m this year, which is more than double what median valuations are for seed companies, according to PitchBook.)
• Founders are encouraged not to think too hard about who is investing in their business. “YC gives bad advice to the founders; they optimise the speed of closing the round at as high valuation and as little dilution as possible, without paying too much attention to the round composition,” one early-stage European VC told Sifted. “YC are advising businesses to optimise their valuation rather than optimise who is their potential lead investor or who is the best investor for them in terms of the smart money and value add,” said another early-stage VC.
• Some YC companies close their rounds before demo day which, some say, lowers the attractiveness of those still raising at demo day.

The pushback:

• YC is *the* accelerator. Of course its startups attract valuations above the norm.
• YC companies have been raising pre-demo day for years now. It’s the new normal; it’s the game investors now need to play. Also, according to YC, only 9% of startups have totally closed their rounds.
• If the YC company you invest in today is worth $5bn in a few years, you will have forgotten all about the slightly spenny valuation at its seed round.

Here’s Jean de La Rochebrochard’s (one of Europe’s smartest seed investors) view: “YC is like Paris, it’s always a good idea…”

Let us know what you think.

—Amy, editor, and Eleanor, deputy editor

If you’ve got surplus funds from your last fundraising round, wait no more — make the money work with competitive deposit rates from CIBC Innovation Banking.

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VCs have been trying to get an edge using data for a while now (EQT Motherbrain, we see you). And with the ease and sophistication of new models, more fund managers are also integrating generative AI.

We spoke to VCs such as Moonfire, Speedinvest and Blossom Capital about how they’re harnessing GenAI to find the next hot companies. 

Spoiler: EQT Ventures says it hasn’t yet touched GenAI. Read why here. 

Danish fund Unconventional Ventures, which is focused specifically on diverse founding teams and founders, announced a second close of a new €30m fund. LPs include Atomico, Export and Investment Fund of Denmark (EIFO), Investinor, Chr. Augustinus Fabrikker and The Case for Her. 

AI investor Air Street Capital has raised a second fund of $121,212,121 (yes, we rolled our eyes, too) to back companies in North America and Europe. Portfolio companies include Intenseye, V7, Valence Discovery (acquired) and Allcyte (acquired). 

France’s Founders Future, a backer of Databricks and Pinterest, has raised €75m of a second fund. It’s targeting a total of €150m and aiming for a final close by the end of 2024. 

Antler, the company builder, is doubling down on Nordic startups with a new €150m fund to invest in the region. It’s closed €50m so far.

Typeform and TrueLayer-backer Connect Ventures has raised $80m of a fourth fund. The UK-based fund is aiming for a close by the end of the year. LPs include British Patient Capital, De Agostini, Big Society Capital, Top Tier Capital Partners and Molten Ventures. 

Portuguese investment company APEX has announced a €50m fund with investment from star athletes including Formula 1’s Lando Norris and Carlos Sainz and FIFA World Cup and UEFA Champions League winner Raphaël Varane. We’ve asked how much of the fund has closed.

Pact VC — known for having Anne Hathaway as an LP — has done a second close on its £30m target fund. It’s targeting a final close by the end of the year. 

For more than a decade, fintech went up like a rocket. But, in 2022, a drop in tech valuations pushed investors to do some soul searching. Our latest report takes a look at the bright spots in Europe’s fintech sector, including those helping CFOs navigate the downturn. 

Andreessen Horowitz’s new London crypto office has bums on seats; general partner Sriram Krishnan, who will lead the team in the UK, is now in town. Waiting for our invite for his YouTube show with his wife. 

Creandum has promoted Peter Specht (who’s been a partner at the firm since 2017) to general partner. Specht has led deals into Factorial, Abacum and Amie, among others. 

Antler has hired serial entrepreneur Jamie Wong as partner in France. She was previously also a venture partner at Entrepreneur First and managing partner at SF-based Narrative Fund. 

The British Business Bank has hired Karen Barnett as its new chief people officer. She joins from private wealth management company WH Ireland. 

Kristina Lilleõis has joined Blossom Capital as talent partner. She was previously chief people officer at Estonian unicorn Veriff. 

Ella Eskelinen has joined VC firm Peak as an investor at its Stockholm office. She was previously an intern at Maki VC. 

⭐️ UPDATE: The European startups in Y Combinator’s S23 cohort

😇 UPDATE: Europe’s top 10 most active angel networks

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Amy sat down with Hoxton Ventures partner Hussein Kanji yesterday to talk about the topic du jour (other than generative AI): the big old investment slowdown. 

Figuring out what will happen in the next few months and years is still somewhat like reading tea leaves, but here’s this investor’s best guess at what we have coming for us.

• “I suspect it’s going to take another two to three years for this mess to clear up; it’s not going to take six months. I think a lot of people are sitting out the market; so it’s going to be difficult for companies to raise money, and it’s going to be difficult for venture firms to go off and raise money.” 
• “I think all the mental energy in the venture community, at least at the late stages, is on the existing portfolio and avoiding taking big write-downs. And when that happens, new stuff just falls by the sidelines.” 
• The slowdown is trickling down to seed and angel investors now, too — in part because fewer deals mean fewer opportunities for angels to cash out and have liquidity to reinvest. It’s nowhere near as pronounced as at later stages, but it’s there. 
• M&A will remain tricky; big tech companies have hiring freezes, which means they’re not open to acqui-hires. “We’ve seen this firsthand. There’s a portfolio company who was super strategic to one of the big companies in the space that’s building in the metaverse — they really wanted to have this company and what it’s built and the capabilities of this team — but corp dev is saying no: ‘You can’t go make an acquisition because you want talented people, because we have a hiring freeze in the company.’”
• If it’s your product rather than your team you’re hawking, you might find it hard if your cash burn is high. “If you want to be acquired, you’re almost better off becoming profitable. You may end up becoming smaller, but then you’re an asset, and then you can actually sell off. Usually, tech companies buy other tech companies, and tech companies don’t want to take on more losses right now.” 
• The calibre of founders raising will keep getting better. “Generally speaking, the quality bar for entrepreneurs has been up and to the right since about 2015. There are a lot more trained people in this economy than there were 10 — or even five — years ago. And the tech economy has not diminished; it’s getting bigger.” 

To hear more from Kanji (and Amy!), come along to our Sifted Summit on October 4-5. He’ll be onstage sharing tips for founders on how to stop investors from giving up on you when times get hard and your numbers look wobbly. Get tickets here. 

We’ve got some travels coming up. 

Catch Amy at:

• Bits & Pretzels in Munich on September 24-25
• The EIF’s Ugly Duck in Luxembourg on September 26
• WVC:E in Paris on October 2 
• Sifted Summit in London on October 4-5 

Find Eleanor in: 

• Paris on Sept 25
• Istanbul on Sept 27-Oct 2

VC funding for European quantum startups has surged 2.5 times since 2020 — but the continent still falls short of the VC firepower for quantum in the US. Who are the investors helping to get ahead? Find out in this week’s briefing, as we map the market to uncover the rising stars and capital holders you should know. Dive into the briefing.

Not sure what Pro Briefings are? Packed with proprietary data on the leading early-stage startups, our investment-grade research covers 90+ sectors and geographic hotspots. Learn more.

Amy Lewin

Editor

Get in touch with her at amy@sifted.eu

She tweets from @amyrlewin

Eleanor Warnock

Deputy editor

Get in touch with her at eleanor@sifted.eu

She tweets from @misssaxbys

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