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Tag: Y Combinator

  • Famed startup incubator Y Combinator to let founders receive funds in stablecoins | Fortune

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    In the latest sign of digital currencies going mainstream, Silicon Valley’s most prominent startup incubator will allow its spring cohort of entrepreneurs to receive their funding in stablecoins. YCombinator, whose alumni include the founders of Airbnb and DoorDash, announced on Tuesday that founders can opt to receive their customary allotment—typically around $500,000—in the Circle-issued USDC. 

    Startups founders who choose stablecoins can choose to receive the tokens on various blockchains such as Ethereum and Solana, Nemil Dalal, a visiting partner at Y Combinator who focuses on crypto, told Fortune. He added that Y Combinator may expand to other stablecoins depending on demand.

    “Stablecoins is one of the key pillars for us,” Dalal said, referring to one of the areas where Y Combinator would like to see more startup ideas. “So we just want to live and breathe that as well.”

    Price agnostic

    While many crypto venture capitalists have let the startups in their portfolio take funding from stablecoins for some time, more traditional tech investors haven’t given that opportunity to founders. Dalal, for example, said he wasn’t aware of any legacy VCs who offer that option. “We’re excited for a world where, in the future, we think a lot of startups will eventually start raising capital on-chain,” he said. 

    Stablecoins have been around for more than a decade but, historically, their adoption was primarily limited to crypto traders seeking a non-volatile asset to park profits. In the last two years, however, stablecoins have burst into the headlines following a push by Wall Street and corporations that view the assets as a faster and more inexpensive way to move money around.

    Big tech has taken notice, especially after President Donald Trump signed into law in July a bill regulating the crypto assets. The fintech giant Stripe completed a $1.1 billion acquisition of the stablecoin startup Bridge in February 2025 and has since backed its own blockchain designed for stablecoin transactions. The cloud infrastructure company Cloudflare announced its intention to launch its own stablecoin in September. And the buy-now-pay-later firm Klarna has launched its own token as well in November.  

    Those announcements largely came during a more bullish crypto market that saw Bitcoin and other tokens notch all-time highs. Now, sentiment has soured as the world’s largest cryptocurrency nears monthslong lows. But, Dalal, the visiting partner at Y Combinator, said that bearish outlook doesn’t apply to stablecoins. “The excitement on stablecoins is just growing,” he said. “It’s actually agnostic of prices.”

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    Ben Weiss

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  • A 22-Year-Old Founder Wants to Build the Moon’s First Hotel by 2032

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    Skyler Chan launched GRU last year. Courtesy GRU Space

    Civilian travel to the Moon remains years away, but a California startup is already making plans to host overnight guests there. GRU Space, founded by 22-year-old entrepreneur Skyler Chan, is taking deposits ranging from $250,000 to $1 million for a lunar hotel that has yet to be built.

    “If we solve off-world surface habitation, it’s going to lead to this explosion. We could have billions of human lives maybe born on the Moon and Mars,” Chan told Observer. He founded GRU last year after graduating from the University of California, Berkeley, and previously interned at Tesla.

    The hotel, which the company expects to open by 2032, will initially consist of an inflatable structure designed to accommodate up to four guests for multi-day stays. Over time, it would evolve into a brick building inspired by San Francisco’s Palace of Fine Arts. More ambitiously, GRU argues that the project could do more than jump-start space tourism—an industry it sees as essential to sustaining a future lunar ecosystem—and instead lay the groundwork for entire cities beyond Earth.

    Chan founded GRU with the goal of building the first permanent structure off Earth. His team includes founding technical staff member Kevin Cannon, a professor at the Colorado School of Mines, and advisor Robert Lillis, who also serves as associate director for planetary science at UC Berkeley’s Space Sciences Laboratory. The startup has received seed funding from Y Combinator, joined Nvidia’s Inception Program and counts SpaceX and Anduril among its investors.

    GRU’s initial target customers include adventurers, repeat spaceflight participants and couples looking to elevate their honeymoon plans. While final pricing has not been set, the company said a stay would likely cost more than $10 million and require a $1,000 non-refundable application fee.

    The project’s first milestone is slated for 2029, when GRU plans to launch an initial lunar mission to assess environmental conditions and begin early construction experiments. Two years later, another payload will land near a lunar pit chosen for its protection from radiation and temperatures, with initial hotel development targeted for 2032.

    Animated image of the front door of a hotel with lit up windows Animated image of the front door of a hotel with lit up windows
    A rendering of GRU’s lunar hotel. Courtesy GRU Space

    Chan acknowledged that GRU’s timelines are estimates, but argued that bold ambition is necessary to make progress. “We need to really shoot for the literal moon,” he said.

    According to Chan, today’s space industry is dominated by two forces: governments and billionaire-backed companies. He hopes space tourism can become a third pillar. “Lunar tourism is the best first wedge to spin up the lunar economy,” he said.

    The concept aligns with broader government goals. Lunar tourism has emerged as a focus of U.S. space policy, with NASA Administrator Jared Isaacman recently outlining the nation’s plans to construct a permanent base on the Moon by the end of the decade. NASA wants “to have that opportunity to explore and realize the scientific, economic and national security potential on the moon,” he told CNBC last month.

    GRU says it is well positioned to contribute to those ambitions, with plans that extend far beyond a single hotel. After completing its lodge, the company plans to build roads, warehouses and other infrastructure—first on the Moon, then on Mars. Eventually, it hopes to reinvest profits into resource utilization systems on the Moon, Mars and asteroids.

    “If we’re able to understand how to use resources on the Moon and Mars and beyond, that is going to enable us to not be tethered to Earth, and start being interplanetary,” said Chan. “It’s a Promethean moment.”

    A 22-Year-Old Founder Wants to Build the Moon’s First Hotel by 2032

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    Alexandra Tremayne-Pengelly

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  • The AI Models That Top Startups Are Suddenly Choosing Over ChatGPT

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    Famed San Francisco-based startup accelerator and venture capital firm Y Combinator says that one AI model provider has overtaken OpenAI in popularity among the accelerator’s latest batch of startups, eliminating the ChatGPT-maker’s previous market dominance. 

    On a December 22 episode of official Y Combinator podcast Lightcone, YC general partner Diana Hu said that “shockingly,” Anthropic’s Claude AI models are the most popular among the accelerator’s new winter 2026 batch of startups, dethroning OpenAI. 

    “For the longest time, OpenAI was the clear winner,” said Hu, adding that when YC started the podcast in February 2024, OpenAI’s models were preferred by over 90 percent of that batch’s firms. Even in early 2025, added YC president and CEO Garry Tan, Anthropic’s models were only preferred by around one-fourth of new YC-backed startups. 

    But in the past three to six months, said Hu, usage of Anthropic’s Claude models among new YC firms skyrocketed to over 52 percent. Hu partially credited this fast takeoff to the rise of vibe-coding platforms, such as Replit and Lovable, which use Claude models to power software that enables people without coding experience to develop websites and applications through natural language. Several of the entrepreneurs in this latest YC batch are building their own code-generation companies to compete with the likes of Replit and Lovable. 

    Hu said that Anthropic has developed a reputation for providing top-line coding models, and as more startups enter the coding space, they are consistently relying on Claude. But while coding may bring entrepreneurs into the Anthropic ecosystem, that’s not how the “vast majority” of people are using Claude, YC managing partner Jared Friedman said. 

    “I wonder if there’s a bleed-through effect,” Friedman opined, “where people are using Claude for their personal coding and then as a result, they’re more likely to choose it for their application, even if their application is not doing coding at all.” 

    Tan postulated that once a user has spent enough time with a certain AI model, they become familiar and comfortable with that model’s “personality,” which makes it harder to switch. Hu agreed, and said that OpenAI’s models have “black cat energy,” while Anthropic’s have that of more of a “happy-go-lucky, very helpful golden retriever.” 

    Personally, Tan said he is still using ChatGPT as his daily AI tool, mainly because of the platform’s ability to remember details about users across multiple conversations. “It knows me, it knows my personality, it knows the things I think about,” Tan said, adding that memory, and the consumer experiences enabled by it, is fast-becoming a legitimate moat for OpenAI.  

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    Ben Sherry

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  • Y Combinator launches ‘Early Decision’ for students who want to graduate first, build later | TechCrunch

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    For decades, Silicon Valley has valorized the college dropout. Founders like Bill Gates, Steve Jobs, and Mark Zuckerberg left school early to build companies and they became billionaires. 

    That ethos was later institutionalized through initiatives like the Thiel Fellowship, which famously pays promising students $100,000 to leave college and start companies.

    For many years, the famed accelerator Y Combinator also quietly reinforced that culture. While it never explicitly required students to drop out, many of its most successful alumni, including Dropbox’s Drew Houston, Reddit’s Steve Huffman, and Stripe’s John and Patrick Collison, joined the program young and left school behind to build their companies.

    Now YC is changing that narrative.

    The accelerator has introduced a new application track called Early Decision, designed for students who want to start companies but don’t want to drop out. The program allows them to apply while still in school, get accepted and funded immediately, and defer their participation in YC until after they graduate. For example, a student applying in fall 2025 could graduate in spring 2026, then participate in YC’s Summer 2026 batch.

    “It’s designed for graduating seniors who want to do a startup but also want to finish school first,” said YC managing partner Jared Friedman in the launch video. 

    Friedman added that the idea for Early Decision came from conversations with students. “Between AI Startup School last summer and the more than 20 university trips we’ve done over the past year, we’ve had a lot of opportunities to do that. One of YC’s most common pieces of advice is to ‘talk to your users,’ and we follow it ourselves,” he told TechCrunch over email.

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    In Silicon Valley culture, dropping out has been almost a rite of passage for aspiring founders Programs like the Thiel Fellowship have turned it into a movement (though it’s worth noting that Peter Thiel himself did not drop out but earned both undergraduate and law degrees from Stanford). 

    It’s why YC’s announcement is a meaningful break from that mythos that leaving school early is the optimal, or only, path to startup success. The timing is also significant, coming at a time when more young people are questioning both the cost of college and the trade-offs of staying in school. 

    The new program also reflects a growing maturity in how YC thinks about long-term founder outcomes.

    The accelerator has long been a magnet for college-aged builders. Founders of Loom, Instacart, Rappi, and Brex were in their teens or early twenties when they joined the program. But the decision to drop out was often implicit: Do the program now or miss the opportunity.

    Early Decision removes that pressure, offering a middle ground between academic completion and chasing entrepreneurship. The move could broaden YC’s applicant pool to include more cautious, deliberate student founders who are committed to startup life but unwilling to sacrifice education to get there.

    In its announcement, YC highlights Sneha Sivakumar and Anushka Nijhawan, the co-founders of Spur, as a success story from this approach. Spur builds AI-powered quality-assurance testing tools, and the duo applied to YC through Early Decision in fall 2023 while still in school. They graduated in May 2024, joined the Summer 2024 YC batch and have since raised $4.5 million. 

    YC notes that the program is open to both graduating students and those earlier in their academic journey. It’s a bet that some of the best founders of the next decade won’t need to choose between college and startups. They’ll do both.

    The move also helps YC secure talent early in an increasingly competitive accelerator and seed funding landscape, giving students an option that competes with other programs like Thiel Fellowship, Neo Scholars, Founders Inc, as well as Big Tech internships and grad school pipelines.

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    Tage Kene-Okafor

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  • Google Ventures doubles down on dev tool startup Blacksmith just 4 months after its seed round | TechCrunch

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    As speed becomes the defining currency in an AI-driven software world, Blacksmith has raised another round led by Google Ventures — just four months after its seed — to accelerate how code gets shipped.

    The $10 million Series A closed in just 14 days, with Google Ventures doubling down after first backing Blacksmith’s $3.5 million seed in May. At the time, Alphabet’s VC arm bet on the size of the market and the founding team, which included veterans of Cockroach Labs, another GV portfolio company. But for this round, GV was swayed by results.

    Blacksmith, which offers a continuous integration and continuous delivery service for developers that complements GitHub actions, had pulled in hundreds of customers since May, and the boom in AI coding agents has blown the market wide open, co-founder and CEO Aditya Jayaprakash (pictured above on the left) said in an exclusive interview.

    The San Francisco–based startup hit $1 million in annual recurring revenue (ARR) in February with just four people — Jayaprakash, co-founders Aayush Shah and Aditya Maru, and a product designer. Since then, revenue has reached $3.5 million ARR with more than 700 customers, supported by a team of eight, and the company is aiming to double that figure by year’s end, Jayaprakash told TechCrunch.

    Founded in January 2024, Blacksmith was born from the experiences of its founders, who met at the University of Waterloo before building large-scale distributed systems at Faire and Cockroach Labs. There, they saw firsthand how costly and unpredictable the build and unit testing stages of software releases, known as continuous integration (CI), can be.

    You would have to spin up hundreds of machines and burn through hundreds of hours of computing power just to test new code before shipping it, Jayaprakash said.

    A typical software development process involves developers continuously pushing new code into repositories such as GitHub or AWS CodeCommit. To manage the testing and integration of that code, cloud service providers such as Amazon Web Services, Google Cloud Platform, and Microsoft Azure all offer their own solutions — but these are often slower, costlier, or less predictable than teams need.

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    Unlike many rivals that rent generic cloud servers from cloud providers like AWS, Blacksmith’s service runs on high-performance, gaming-grade CPUs. The result, the startup says, is up to double the processing speed and lowering, by as much as 75%, compute costs. And because teams can switch by changing just a single line of code, they can start shipping faster within minutes.

    “Because we’re going the bare-metal route, we have much better control over our economics compared to the hyperscalers,” Jayaprakash told TechCrunch. “I’m not saying every company should go bare metal… but if you are a compute company, if you are an infra company, where your bread and butter is compute, like ourselves, it makes a lot of sense, and it gives us abundant control over our margins.”

    By using hardware at its premises, the startup improves its margins as it grows its customer base, the founder said.

    Blacksmith also offers test analytics and an observability roadmap, giving customers deeper insights into GitHub Actions — GitHub’s CI/CD platform that automates how developers test and deploy software.

    Blacksmith targets companies with teams of 500 engineers or more. Customers already running their GitHub Actions through the platform include Ashby, Chroma, Clerk, Devsisters, Mintlify, Pylon, Slope, Supabase, and VEED.

    The latest funding round also saw participation from existing investors and angels, including Spencer Kimball, CEO of Cockroach Labs, and David Cramer, co-founder of Sentry. Blacksmith launched out of Y Combinator’s Winter 2024 batch and today has a team of 11.

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    Jagmeet Singh

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  • AI Startup Aurelian Raises $14 Million For 911 Call Centers | Entrepreneur

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    A new AI startup pivoted from automating appointment bookings for hair salons to building an AI voice assistant that handles non-emergency calls for 911 call centers — and it just raised a $14 million Series A for its new focus on Wednesday.

    Max Keenan, the founder of Y Combinator-backed startup Aurelian, decided to pivot the company in response to a call from one of his clients, reports TechCrunch. The client, a hair salon owner, had a problem with a school’s carpool lane blocking the salon’s parking lot. When she called the city’s non-emergency line about the matter, she was put on hold for 45 minutes, an exceedingly long wait time.

    The salon owner told Keenan about the experience, which prompted him to investigate how non-emergency call centers operate. He discovered that they are often staffed by the same personnel who answer 911 emergency calls and tend to be understaffed. Emergency dispatch is among the top 10 industries with the highest turnover rates.

    Related: She’s a Former 911 Dispatcher Who Started a Side Hustle Dominated By Men — and It Makes Her About $4,500 a Month: ‘Hustle Paid Off’

    Keenan decided to change Aurelian’s focus from automating hair salon bookings to handling non-emergency 911 calls, including those for noise complaints, stolen wallets, and parking violations. The startup’s AI technology knows when to detect life-threatening emergencies and send those calls directly to human dispatchers.

    Aurelian launched its AI assistant in May 2024 and has since deployed it at 911 call centers in Snohomish County, Washington, and Chattanooga, Tennessee, in addition to about a dozen other locations.

    According to Aurelian’s website, the AI assistant has saved each 911 dispatcher three hours every day on non-emergency calls, and automated 74% of calls without dispatcher intervention.

    “We think that these telecommunicators should have a chance of taking a break,” Keenan told TechCrunch.

    Related: How to Make Smarter Decisions Under Pressure, From an ER Doctor Who’s Done It for 20 Years

    Aurelian’s AI is handling thousands of live calls a day, putting it a step ahead of the competition, including startups like Hyper and Prepared, which have not handled live calls yet, per TechCrunch.

    AI technology is also becoming a part of life in customer service calls. For example, CVS Health, which operates over 9,000 locations and 1,000 walk-in clinics across the U.S., introduced a new AI-based call system last year. Tilak Mandadi, CVS Health’s chief digital, data, analytics, and technology officer, told The Wall Street Journal in June 2024 that if someone calls the pharmacy, AI will respond if it can answer the question. If the AI can’t handle the inquiry, customers will be directed to a human agent.

    Other companies across industries have taken a similar approach. Fintech startup Klarna, famous for its “buy now, pay later” payment options, said in February 2024 that its customer service AI chatbot was doing the equivalent work of 700 human full-time employees. Klarna also used an AI clone of its CEO, Sebastian Siemiatkowski, to summarize earnings in May, highlighting the reach of AI technology across business operations.

    A new AI startup pivoted from automating appointment bookings for hair salons to building an AI voice assistant that handles non-emergency calls for 911 call centers — and it just raised a $14 million Series A for its new focus on Wednesday.

    Max Keenan, the founder of Y Combinator-backed startup Aurelian, decided to pivot the company in response to a call from one of his clients, reports TechCrunch. The client, a hair salon owner, had a problem with a school’s carpool lane blocking the salon’s parking lot. When she called the city’s non-emergency line about the matter, she was put on hold for 45 minutes, an exceedingly long wait time.

    The salon owner told Keenan about the experience, which prompted him to investigate how non-emergency call centers operate. He discovered that they are often staffed by the same personnel who answer 911 emergency calls and tend to be understaffed. Emergency dispatch is among the top 10 industries with the highest turnover rates.

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    Sherin Shibu

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  • Want to Get Into Founder Mode? You Should Be So Lucky

    Want to Get Into Founder Mode? You Should Be So Lucky

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    It’s also true that when one of those groundbreaking companies matures and faces challenges, a founder has a unique ability to make bold moves and stick to the original vision when others urge a less risky course. There are certainly cases where companies struggled when founders were replaced by managers. Remember Yahoo? And of course there’s Apple, where the founder returned and restored the company to its former glory and beyond.

    But there are abundant counterexamples as well. Apple isn’t exactly struggling under Tim Cook. And consider Microsoft. Its CEO since 2014, Satya Nadella, had been a company lifer, slogging away in various divisions since 1992. Not a founder, nope. But he’s taken the company to new heights. Though Bill Gates is still revered at Microsoft, no one in the company wants him back at the top.

    And god knows, there are plenty of cases where it wasn’t management fakers but stubborn founders who drove a company into the ground. My guess is that Travis Kalanick might have benefited from listening to stodgy managers. His replacement, a management type of dude, has made Uber profitable.

    The fact is, not everyone is Brian Chesky, and no one is like Steve Jobs. The vast majority of companies never take off, and instead fade into ignominy. Very few founders get to the point where investors demand that they retain adult supervision to manage growth, because only the rarest of companies get to that point.

    It’s fun to talk about founder mode, maybe for the same reason that some of us read Ben Horowitz’s founder-porn texts with our noses pressed to the window. Founder mode, which Graham predicts will one day get its closeup in management texts, really applies only to the most exceptional founders, the ones Steve Jobs once described as “the crazy ones.” Their companies aren’t called unicorns for nothing.

    Time Travel

    In 2007, I embedded in a Y Combinator batch of 12 companies. (Starting next year there will be four batches a year, with hundreds of startups.) It was clear even then that Graham, who was extremely hands-on, had developed his views on the primacy of founders. My story ran in Newsweek under the headline “Boot Camp for Billionaires.”

    Every Tuesday during the program, Y Combinator hosts a dinner of chili or stew for the start-ups. At this first one, Graham and [cofounder Jessica] Livingston distribute gray T shirts emblazoned with one of Graham’s pithiest admonitions, MAKE SOMETHING PEOPLE WANT. A second, black shirt is bestowed only to start-ups that achieve a “liquidity event”—a purchase by a larger company or an IPO. It reads, I MADE SOMETHING PEOPLE WANT.

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    Steven Levy

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  • What Is Founder Mode and Why Is It Better Than Manager Mode? | Entrepreneur

    What Is Founder Mode and Why Is It Better Than Manager Mode? | Entrepreneur

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    Paul Graham, the founder of famed startup accelerator Y Combinator, coined a new term this week that has taken over social media: founder mode.

    In an article released on September 1 and publicized on X over Labor Day weekend, Graham separates “founder mode” from the traditional “manager mode” route by noting key differences in management styles and organizational structure. Graham’s X post has over 21 million views at press time.

    Related: How to Start a Multi-Million Dollar Company, According to an IBM Engineer Turned Founder

    Founder mode means that the CEO interacts with employees across the organization, not just their direct reports. The startup, even as it grows into a large company, is less hierarchical; the CEO could do “skip-level” meetings with employees, for example. Graham gave the real-world example of Steve Jobs running an annual retreat for who he thought were the 100 most important people at Apple — regardless of where they were on the corporate ladder.

    Manager mode, meanwhile, is less hands-on and involves more delegation to other people. Founders can grow companies and run them effectively without switching to manager mode, Graham stated.

    “Hire good people and give them room to do their jobs,” Graham wrote. “Sounds great when it’s described that way, doesn’t it? Except in practice, judging from the report of founder after founder, what this often turns out to mean is: hire professional fakers and let them drive the company into the ground.”

    Related: How to Start Your Dream Business This Weekend, According to a Tech CEO Worth $36 Million

    Graham gave the example of Airbnb CEO Brian Chesky, who tried to follow conventional “manager mode” wisdom to hire good people and let them do their jobs.

    “The results were disastrous,” Graham wrote.

    Chesky had to pivot to a different “founder mode” style of management and explained in an interview last year that founders have multiple advantages over managers: They have owned every part of the process of building a company, from start to finish; They have built the company up, so they can rebuild it; and they have permission to rebrand the company or make major changes.

    In the past few days since Graham released his essay, the social media world has begun exploring what it means in humorous and insightful ways. One post drew a comparison between micromanaging and founder mode.

    Other posts from women founders addressed the question: Can women be in founder mode too?

    Chesky wrote on X earlier this week that women founders had been reaching out to him since Graham released the essay about how they can’t run their companies in founder mode the same way men can.

    “This needs to change,” he wrote.

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    Sherin Shibu

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  • How to Start a $6.5 Billion Business At 21 Years Old: Reddit | Entrepreneur

    How to Start a $6.5 Billion Business At 21 Years Old: Reddit | Entrepreneur

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    Reddit grew for nearly two decades before going public in March at around a $6.5 billion valuation. Though the social media forum site now boasts 91 million daily active users, its success was not a certainty. In fact, Reddit’s co-founders were rejected by startup accelerator Y Combinator at the start of their entrepreneurial journey.

    “So, Alexis [Ohanian], my co-founder, college roommate at the time, he and I applied to Y Combinator,” Reddit CEO Steve Huffman told LinkedIn co-founder Reid Hoffman on Thursday. Their initial idea was to create a way to order food from cell phones — which wasn’t the norm in 2005.

    Y Combinator rejected the idea but asked Ohanian and Huffman, who were 22 and 21 years old at the time, to work on something else. They came up with Reddit, which Y Combinator funded with a $12,000 check.

    The idea for Reddit came about from two websites: Delicious and Slashdot. Delicious was a website that let users store and share bookmarks; Yahoo acquired it in 2007. Slashdot.org still exists as a social news site covering science and tech news; Reddit’s co-founders were drawn to the community it had but wanted to expand beyond tech.

    Reddit “was kind of a Delicious plus Slashdot, but make both of them better,” Huffman said. “Honestly, I think that’s pretty much what we built. But for 19 years, we’ve been iterating on this and tweaking it, and kind of following our users and adding features.”

    Related: ‘A Huge Opportunity:’ Reddit CEO Aims to Bring AI to 1 Billion Reddit Searches

    For example, Huffman pointed out that Reddit’s “most important feature,” or the power it gives users to create their own communities, was introduced three years after launch.

    Reddit CEO Steve Huffman. Photo by Spencer Platt/Getty Images

    Since going public, Reddit has posted earnings that beat expectations for two consecutive quarters. The company inked AI licensing deals with Google and OpenAI earlier this year, allowing Google’s Gemini AI and OpenAI’s ChatGPT to use Reddit posts in their training data.

    Huffman said there is “a tremendous amount of opportunity” with AI.

    “I’m very proud that Reddit has played a role in the development of these technologies,” he said.

    Related: Reddit Traffic Nearly Triples in 8 Months, Posts Rise to the Top of Google Search

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    Sherin Shibu

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  • Open Source AI Has Founders—and the FTC—Buzzing

    Open Source AI Has Founders—and the FTC—Buzzing

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    Many of yesterday’s talks were littered with the acronyms you’d expect from this assemblage of high-minded panelists: YC, FTC, AI, LLMs. But threaded throughout the conversations—foundational to them, you might say—was boosterism for open source AI.

    It was a stark left turn (or return, if you’re a Linux head) from the app-obsessed 2010s, when developers seemed happy to containerize their technologies and hand them over to bigger platforms for distribution.

    The event also happened just two days after Meta CEO Mark Zuckerberg declared that “open source AI is the path forward” and released Llama 3.1, the latest version of Meta’s own open source AI algorithm. As Zuckerberg put it in his announcement, some technologists no longer want to be “constrained by what Apple will let us build,” or encounter arbitrary rules and app fees.

    Open source AI also just happens to be the approach OpenAI is not using for its biggest GPTs, despite what the multibillion-dollar startup’s name might suggest. This means that at least part of the code is kept private, and OpenAI doesn’t share the “weights,” or parameters, of its most powerful AI systems. It also charges for enterprise-level access to its technology.

    “With the rise of compound AI systems and agent architectures, using small but fine-tuned open source models gives significantly better results than an [OpenAI] GPT4, or [Google] Gemini. This is especially true for enterprise tasks,” says Ali Golshan, cofounder and chief executive of Gretel.ai, a synthetic data company. (Golshan was not at the YC event).

    “I don’t think it’s OpenAI versus the world or anything like that,” says Dave Yen, who runs a fund called Orange Collective for successful YC alumni to back up-and-coming YC founders. “I think it’s about creating fair competition and an environment where startups don’t risk just dying the next day if OpenAI changes their pricing models or their policies.”

    “That’s not to say we shouldn’t have safeguards,” Yen added, “but we don’t want to unnecessarily rate-limit, either.”

    Open source AI models have some inherent risks that more cautious technologists have warned about—the most obvious being that the technology is open and free. People with malicious intent are more likely to use these tools for harm then they would a costly private AI model. Researchers have pointed out that it’s cheap and easy for bad actors to train away any safety parameters present in these AI models.

    “Open source” is also a myth in some AI models, as WIRED’s Will Knight has reported. The data used to train them may still be kept secret, their licenses might restrict developers from building certain things, and ultimately, they may still benefit the original model-maker more than anyone else.

    And some politicians have pushed back against the unfettered development of large-scale AI systems, including California state senator Scott Wiener. Wiener’s AI Safety and Innovation Bill, SB 1047, has been controversial in technology circles. It aims to establish standards for developers of AI models that cost over $100 million to train, requires certain levels of pre-deployment safety testing and red-teaming, protects whistleblowers working in AI labs, and grants the state’s attorney general legal recourse if an AI model causes extreme harm.

    Wiener himself spoke at the YC event on Thursday, in a conversation moderated by Bloomberg reporter Shirin Ghaffary. He said he was “deeply grateful” to people in the open source community who have spoken out against the bill, and that the state has “made a series of amendments in direct response to some of that critical feedback.” One change that’s been made, Wiener said, is that the bill now more clearly defines a reasonable path to shutting down an open source AI model that’s gone off the rails.

    The celebrity speaker of Thursday’s event, a last-minute addition to the program, was Andrew Ng, the cofounder of Coursera, founder of Google Brain, and former chief scientist at Baidu. Ng, like many others in attendance, spoke in defense of open source models.

    “This is one of those moments where [it’s determined] if entrepreneurs are allowed to keep on innovating,” Ng said, “or if we should be spending the money that would go towards building software on hiring lawyers.”

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    Lauren Goode

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  • Y Combinator’s Garry Tan supports some AI regulation but warns against AI monopolies | TechCrunch

    Y Combinator’s Garry Tan supports some AI regulation but warns against AI monopolies | TechCrunch

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    Garry Tan, president and CEO of Y Combinator, told a crowd at The Economic Club of Washington, D.C. this week that “regulation is likely necessary” for artificial intelligence.

    Tan spoke with Teresa Carlson, a General Catalyst board member as part of a one-on-one interview where he discussed everything from how to get into Y Combinator to AI, noting that there is “no better time to be working in technology than right now.”

    Tan said he was “overall supportive” of the National Institute of Standards and Technology (NIST) attempt to construct an GenAI risk mitigation framework, and said that “large parts of the EO by the Biden Administration are probably on the right track.”

    NIST’s framework proposes things like defining that GenAI should comply with existing laws that govern things like data privacy and copyright; disclosing GenAI use to end users; establishing regulations that ban GenAI from creating child sexual abuse materials, and so on. Biden’s executive order covers a wide range of dictums from requiring AI companies to share safety data with the government to ensuring that small developers have fair access.

    But Tan, like many Valley VCs, was wary of other regulatory efforts. He called bills related to AI that are moving through the California and San Francisco legislatures, “very concerning.”

    Like one California bill that’s causing a stir is the one put forth by state Sen. Scott Wiener that would allow the attorney general to sue AI companies if their wares are harmful, Politico reports. 

    “The big discussion broadly in terms of policy right now is what does a good version of this really look like?” Tan said. “We can look to people like Ian Hogarth, in the UK, to be thoughtful. They’re also mindful of this idea of concentration of power. At the same time, they’re trying to figure out how we support innovation while also mitigating the worst possible harms.” 

    Hogarth is a former YC entrepreneur and AI expert who’s been tapped by the UK to an AI model taskforce.

    “The thing that scares me is that if we try to address a sci-fi concern that is not present at hand,” Tan said.

    As for how YC manages responsibility, Tan said that if the organization doesn’t agree with a startup’s mission or what that product would do for society, “YC just doesn’t fund it.” He noted that there are several times when he would read about a company in the media that had applied to YC. 

    “We go back and look at the interview notes, and it’s like, we don’t think this is good for society. And thankfully, we didn’t fund it,” he said.

    Artificial intelligence leaders keep messing up

    Tan’s guideline still leaves room for Y Combinator to crank out a lot of AI startups as cohort grads. As my colleague Kyle Wiggers reported, the Winter 2024 cohort had 86 AI startups, nearly double the number from the Winter 2023 batch and close to triple the number from Winter 2021, according to YC’s official startup directory.

    And recent news events are making people wonder if they can trust those selling AI products to be the ones to define responsible AI. Last week, TechCrunch reported that OpenAI is getting rid of its AI responsibility team.

    Then the debacle related to the company using a voice that sounded like actress Scarlet Johansson’s when demoing its new GPT-4o model. Turns out, she was asked about using her voice, and she turned them down. OpenAI has since removed the Sky voice, though it denied it was based on Johansson. That, and issues around OpenAI’s ability to claw back vested employee equity, were among several items that led folks to openly question Sam Altman’s scruples. 

    Meanwhile, Meta made AI news of its own when it announced the creation of an AI advisory council that only had white men on it, effectively leaving out women and people of color, many of whom played a key role in the creation and innovation of that industry. 

    Tan didn’t reference any of these instances. Like most Silicon Valley VCs, what he sees is opportunities for new, huge, lucrative businesses. 

    “We like to think about startups as an idea maze,” Tan said. “When a new technology comes out, like large language models, the whole idea maze gets shaken up. ChatGPT itself was probably one of the fastest-to-success consumer products to be released in recent memory. And that’s good news for founders.”

    Artificial intelligence of the future

    Tan also said that San Francisco is at the center of the AI movement. For example, that’s where Anthropic, started by YC alums, got its start, and OpenAI, which was a YC spinout. 

    Tan also joked that he wasn’t going to follow in Altman’s footsteps, noting that Altman “had my job a number of years ago, so no plans on starting an AI lab.”

    One of the other YC success stories is legal tech startup Casetext, which sold to Thomson Reuters for $600 million in 2023. Tan believed Casetext was one of the first companies in the world to get access to generative AI and was then one of the first exits in generative AI.

    When looking to the future of AI, Tan said that “obviously, we have to be smart about this technology” as it relates to risks around bioterror and cyber attacks. At the same time, he said there should be “a much more measured approach.”

    He also assumes that there isn’t likely to be a “winner take all” model, but rather an “incredible garden of consumer choice of freedom and of founders to be able to create something that touches a billion people.”

    At least, that’s what he wants to see happen. That would be in his and YC’s best interest – lots of successful startups returning lots of cash to investors. So what scares Tan most isn’t runamok evil AIs, but a scarcity of AIs to choose from.

    “We might actually find ourselves in this other really monopolistic situation where there’s great concentration in just a few models. Then you’re talking about rent extraction, and you have a world that I don’t want to live in.”

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    Christine Hall

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  • Givebutter is turning a profit making tech for nonprofits | TechCrunch

    Givebutter is turning a profit making tech for nonprofits | TechCrunch

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    Givebutter started in a George Washington University dorm room in 2016 as a software solution to make nonprofit fundraising more transparent and fun. Eight years later, the company is profitable and it just raised $50 million to scale as momentum for nonprofit-focused startups appears to be growing.

    The company’s co-founder and CEO, Max Friedman, fundraised for a variety of organizations in college, ranging from raising for GW’s Greek life to raising for national nonprofits like TAMID. Friedman told TechCrunch that regardless of the size or scope of the organization he was fundraising for, they all had the same problem: They all used a disjointed mix of one-solution tech software that didn’t really make the process better and often came with hidden fees.

    “We realized that nonprofits are using a lot of different tools to solve different pain points, and what we can do for the sector is bringing it all under one roof,” Friedman said. “It exists in restaurants and in e-commerce; there [was] no Shopify or Toast for nonprofits.”

    The result was Givebutter, a CRM platform for nonprofits that strives to be transparent and all-encompassing. It features marketing resources, ways to track donors, fundraising tools for a variety of different strategies, and payment processing. Nonprofits can either use Givebutter for free, if their fundraising campaigns offer a place for users to donate to Givebutter, or organizations pay a 1% to 5% platform fee.

    “From day one, we had customers,” Friedman said. “It was very clear that there was a lot of demand for great fundraising tools and not a great tool set for those change makers.”

    The startup raised $50 million from Bessemer’s Venture Partner’s BVP Forge Fund with participation from Ardent Venture Partners this week. Friedman said the money will be used for marketing to help the startup scale as the company has grown to this size thus far largely with almost zero marketing spend.

    What initially got me interested in this deal — beyond the fact that the company is profitable from a largely donation-based revenue system or the fact that it calls its employees “Butter Slices” — was that it was a sizable round in the nonprofit tech sector, which has been popping up significantly more as of late.

    During the most recent YC Demo Day, two startups, Givefront and Aidy, were building tech for nonprofits. While these companies weren’t the first nonprofit-flavored startups to ever go through YC, they are some of the first to be building software for the nonprofits; many past YC companies in the space are nonprofits themselves, and Givefront and Aidy absolutely stood out in this year’s AI- and dev-tool-dominated cohort.

    I asked Friedman if it felt like momentum in this category had changed since he got started eight years ago, and Friedman said it definitely has and that the timing is right for this category. There has been a lot of recent consolidation in the space, especially regarding private equity-backed nonprofit software players like Bloomerang and Bonterra, each of which has made a handful of acquisitions in the last few years alone. This leads to higher fees and many nonprofits looking for less-expensive solutions, Friedman said. Once people get interested in the sector, he said, they often realize how big the potential market is.

    In 2022, Americans donated nearly $500 billion to charity, according to the National Philanthropic Trust, down 3.4% from 2021. There are more than 1.5 million nonprofits and growing, and building to even get a slice of that market could provide a huge windfall. Givebutter is a good example of this. The company works with more than 35,000 nonprofits and has processed more than $1 billion in donations, but it is still barely making a dent in the overall nonprofit industry.

    “We have about 1% market share,” Friedman said. “That’s amazing. I’m really proud of that, but I’m also like there are 99% of nonprofits out there that can benefit, and a big part of why we raised was to go do that.”

    Givebutter might just start to run into more competition on the way. “Nonprofits are incredibly resilient,” Friedman said. “There [have] been downturns and upturns in the economy for a number of years and nonprofits have grown. Nonprofits also solve some of the world’s largest problems. I’m happy to see more people being aware of that and investing in that.”

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    Rebecca Szkutak

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  • Foundry is shutting down in slow motion | TechCrunch

    Foundry is shutting down in slow motion | TechCrunch

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    For episode transcripts and more, head to Equity’s Simplecast website.

    Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more!

    Transcript

    A special thanks to Ram Iyer for his help tidying up the original machine transcript.

    Alex Wilhelm: Hello, and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and the nuance behind the headlines. Today is February 16, 2024. My name is Alex, and I’m joined today by two of my long-running work besties. In one corner, we have senior TechCrunch reporter on the fintech beat, Mary Ann!

    Mary Ann Azevedo: Hi, Alex. How are you?

    Alex: I had really good doughnuts today. So it’s been a pretty good day overall.

    Mary Ann: I’m jealous.

    Alex: Well, my stomach does not agree, because I need to go for a run. But we also have Karyne Levy with us! Hey, how are you?

    Karyne Levy: I’m doing very well. Thanks for having me on the show again.

    Alex: Oh my gosh, an absolute pleasure. This is just like all of our various meetings we’ve had over the last couple of years together, just now in a live, recorded format. So nothing bad will happen whatsoever.

    The good news is we have the right people today for this show. On the pod today, the deals of the week are Rasa, Ultraverse, and Hippo Harvest. A little bit of blockchain in there, a little bit of robots, even some fintech. It’s going to be great.

    So for the first theme, we are discussing venture capital’s transitional moment, and why this year is going to look very different from what we have seen in years before. And then we’re going to close off with what YC wants to see from startups today.

    Mary Ann, kick it off with Rasa, which just put together a very nice Series C.

    Mary Ann: So I wrote about Rasa this week. As you all know, I generally cover fintech, but with this one, there’s some fintech involved, because this is a conversational GenAI company that serves financial services companies. And it was interesting to me because, first of all, it’s been around since 2016. They’ve been doing this for a while. The startup actually started out as an open source platform for developers to build chatbots, voice apps and other services that would employ conversational AI.

    Then a few years ago, they decided to shift toward the enterprise, which seems like a very smart move for the company. They hired a former Oracle executive, Melissa Gordon, as CEO, and now they’re counting two of the largest banks in the U.S. as customers — two of the world’s three top banks, American Express and Deutsche Telekom. So their strategy seems to be paying off. They said their ARR doubled last year.

    And now what they’re doing is, they’ve developed infrastructure to give developers at these large enterprises the ability to build what they call robust, generative conversational AI assistants that are more human-like and have more personal and meaningful interactions with users.

    Alex: So just to kind of boil that down into idiot terms for myself: Essentially, in the world of financial services, a big chunk of the economy, there’s a lot of conversations. And so what Rasa is doing is building tailored AI chat tech to help companies in that particular niche better interface with customers, right?

    Mary Ann: So that when the customer is having the interaction with the bot, you know what it’s like — you can usually tell right away, this is a bot, right? But sometimes you actually kind of doubt it, because the bot’s talking to you in a way that feels more human-like, and that’s what Rasa’s goal is: to make it feel really almost human-like. And Rasa, again, it’s not building the chatbots directly. It’s giving these developers at these companies the infrastructure to do it themselves and to kind of more personalize and customize the chat so that they actually have a way to vet potential answers beforehand, things like that.

    So something that their chatbot can do is if you ask it to transfer money — not their chatbot, but a chatbot their technology would help develop. You could transfer money, check balances, and even reset a router in someone’s house if they’re having an internet problem. Things like that.

    Alex: So, Mary Ann, when I saw this, I had two main thoughts: One, it seems more tailored AI work on a vertical basis makes a lot of sense given that each industry is different. [And] the second thing was — haven’t we just talked about this a little bit with Bret Taylor, former co-CEO of Salesforce, [now at Sierra]?

    Mary Ann: So I asked Rasa about that. And what the CTO told me was that it’s different, because they said Sierra is more of an agent, whereas what Rasa is doing is not building an agent. It’s more of an LLM- powered chatbot.

    Alex: So this is when it gets a little dicey for me, because you said that the Rasa technology will allow them to create things that lets people do things like transfer money, reset their router, okay? Isn’t that kind of the same pitch that Sierra is making? That these AI agents will help take actions for the end user?

    Mary Ann: I think that the end result is the same, but the way they get there is different. That’s what he’s saying. But one thing they do have in common is they both claim to be addressing issues like hallucinations, where large language models sometimes make up an answer when it lacks the information to answer accurately. So that is something else they have in common.

    Karyne: Yeah, that’s what I was going to say. Imagine asking it to transfer money and it’s hallucinating how much money you have or where to transfer it. I don’t know how much I trust it yet, but at the same time, I also wonder how is this any different than the options that they give you right now? So if you’re using a chatbot, and it’s just instead of naturally talking to it, it’s like, “Here are three options. Click this button to transfer the money. I wonder why this is any faster or easier than just selecting it yourself rather than having a chatbot do it?

    Mary Ann: I haven’t used it. So I’m not going to be able to speak firsthand, but apparently they claim that . . . the developers are able to customize [the interactions] a lot more . . . accurately to what an actual person within the company would say. So that again, these are all their claims. Two quick asides that I have to point out before I forget. Two things that I also found interesting about this company: One, PayPal Ventures was an investor. Did I mention that they just raised a $30 million Series C? I don’t think I mentioned that.

    Alex: I teed you up with my intro by not saying the dollar amount, like, “There was a Series C,” and then you’re like “AI agents.” So I thought we were gonna go backwards.

    Mary Ann: Yeah, I forgot to mention that they raised $30 million in a Series C round of funding. That was co-led by Stepstone Group and PayPal Ventures, with participation from existing backers, including Andreessen, Accel and Basis Set Ventures.

    They said their valuation is up, of course. I don’t know what it is, because they wouldn’t say and PitchBook didn’t say, but it was PayPal Ventures’ first AI investment. I thought that was notable. I was surprised that it was its first — I would have thought that they had invested in something else that was AI-related prior. And another thing that’s totally unrelated to AI: I really love the story of the CEO, who was a former pole vaulter who used Title IX to compete with men before women could compete in the sport. I just love that.

    Alex: Well, that’s awesome. Also, pole vaulting is terrifying, because you take a large stick, and then you fling your body into the air, and then you go, “Wee, gravity!” How is that a game? Or sport? It’s cool. I mean, it’s awesome. I can’t do it. I’m not knocking it at all. It just feels kind of like a sport that we invented before we had cameras and balls to kick around, like, “Hey, I’ve got a stick. I’m gonna go over that tree.” Skilled but scary, says Theresa, our producer. I agree with that.

    Mary Ann: Right? Anyway, so there’s a lot of different things related to this company. Part of the problem, I think, is we’re seeing so many startups using AI, claiming they are AI-powered, building AI stuff. It is getting harder and harder to differentiate them and tell them apart, so I can understand why you would have these kinds of questions.

    Alex: We need better definitions for AI agents versus conversational AI bots. And I wonder if there are these distinctions without major differences, or if there are big differences and we’re simply missing the point. I think, probably in six months, we’ll all know the answer to that. But right now, it still feels a bit nascent. Not a fad, though, I don’t think this AI business [is a fad]. Everyone wants to save money on customer support costs, so expect more of this. But a place where there might be a fad, Karyne, is apparently the world of AI and crypto.

    Karyne: Yeah, so just this week, there was a company called Ultiverse. It’s based in Singapore, and they raised $4 million at a $150 million valuation led by IDG Capital, which has invested in other Chinese gaming brands, like Tencent, and Xiaomi, as well as crypto upstarts like Coinbase and Circle. And what Ultiverse does is it blends AI and crypto gaming, or blockchain gaming. And so I think the fad is the crypto gaming components, but maybe also the AI component. So it’s an AI-powered platform for crypto game production and publishing. So they publish their own games, but then they can have other companies build games on their platform. And so they’re using LLMs that already exist, like GPT-4, Llama and Stable Diffusion to train in-game, nonplayable characters, which I think is maybe the best use case for AI that I have heard of within the gaming community yet. And I will say that I’m a gamer, but not these types of games. So I’m not quite sure about blockchain gaming as a whole.

    But a bunch of people are playing this. They have a mobile cricket game that has about 200,000 Unique Active wallet addresses across all of their games. Right now, the monthly active users are about 830,000 people. Most of the people who are playing the cricket game are non-crypto users. So the game uses something called account abstraction, which means that even people who aren’t spun up on crypto-related things can play and then get paid out. But I think the main component here is the AI features that they’re trying to help introduce and trying to get others to use on their platform. (laughs) Tell me more.

    Alex: I’m a little skeptical of parts of this. That’s not to be rude because I do think that trying to bridge different nascent technologies or rapidly emerging technologies is a cool thing that could yield at the intersection of them — in this case, AI and crypto — something special. I also agree that the use of modern AI tools like LLMs inside of video games is super awesome, because then you can have more than three dialogue options. Of course, there’s voice acting and stuff to be considered there, but it’s possible to do cool things, especially with text. Huge fan. And crypto gaming to me — people like to speculate; they like to trade, like to invest. Okay, cool. It’s just when you smush them together, I get a little weird.

    So I was on the Ultiverse website and I was poking through their material on Terminus, which is “a decentralized virtual Metaverse platform that’s built on both the BNB chain,” so Binance’s chain, “and Unreal Engine 5.” And it just feels like a MMORPG-ish thing with some crypto crap slugged onto it. I just don’t want an NFC gallery in my game. I want to be left alone. And so that’s what I kind of struggle with. Maybe I’m just an old man shouting at a cloud. But that’s my advice.

    Mary Ann: I mean, I’ll be honest. I’m not super well-versed on gaming, or even crypto to be honest, even though I’m the fintech reporter. So it’s hard for me to visualize all of this and try to understand it. But my first thought is, it feels kind of gimmicky. And that could just be me talking out of my you know what. But in the company’s defense is that they use account abstraction, so that even if you’re not well-versed in crypto or have crypto knowledge, you can still play and it could still be fun. I just don’t know how many other games out there might be like this. I mean, are there other AI-powered games? Or you know, is this just the beginning of a trend, or what? I don’t know. Are we going to see more of this?

    Alex: People hope it’s a trend. People want it to be a trend, because they think crypto is the future. And so, to me, there’s a religious viewpoint here that, like, if you believe blockchains are the future, then you need to bring AI to them or vice versa, because they’re both the future. So the future has to come together.

    Karyne: Yeah, I think one of the most famous, maybe infamous, examples of a blockchain game and a crypto game gone wrong was the Axie Infinity debacle, where people were just scammed out of money and had to farm for coins or whatever was going on there. And so the implication of when you think of a blockchain game, you’re like, “Oh, great. It’s a scam.” I think this is based on an article that was written last month by one of Ethereum’s co-founders that is called “AI + Crypto.” And his points were that AI could really be used in crypto gaming in four different ways — with non-playable characters, you could use AI to judge the results of a game, or their various other applications. And so here is one way that they’re doing it, and in this case, they’re using AI to really speed up the production of the game. And it just happens to be a blockchain game on top of it.

    Alex: There are so many ways to approach gaming as a model. There are companies that produce free-to-play games that have in-app monetization. Even some new games like Stormgate, an RTS [real-time strategy], is approaching it that way. Very cool. There’s MMORPGs [massive multiplayer online role-playing games] that have subscription-based economics. There’s indie publishers that sell games for a discrete price and then also upsell you on the soundtrack. Then there’s the Paradox model, in which you make a game and then add DLCs [downloadable content] to expand the content over time. All of these models work for different types of titles, and I can see a place where AI fits into, essentially, all of them in time. Crypto gaming seems to always have an NFT gallery and some speculative currency, and people trying to grind out extra money.

    Karyne: Yes.

    Alex: And until blockchain brings something that isn’t that, I don’t care about it. When blockchain makes my games that exist already better; when it makes a better grand strategy game, a better city management game, a better RPG, then I’m here for it. But I don’t want fucking NFTs.

    Mary Ann: Yeah, I’m having flashbacks to like two years ago because you know how I feel about NFTs.

    Alex: Since we’re here now, I’m going to talk more about this. So, on the Ultiverse website, there’s this little thing about “Are you ready to meet your meta GF or meta BFF?” And it was this two-week long moonlight NFT mint, so I went on OpenSea and I looked it up. And it’s just like one woman’s head with different characteristics attached to her, and some of them are rare. I don’t know, is this what we’ve managed to accomplish in all these years of crypto? It just feels a little bit modest compared to the progress we’re seeing elsewhere in the world of technology.

    And that brings me to robots! Everyone’s favorite segment. My deal of the week is Hippo Harvest. They just raised a $21 million Series B. Tim De Chant had this for us as a TechCrunch exclusive. The company raised the money from Standard Investments, Congress Ventures, Amazon Climate Pledge Fund, Hawthorne Food Ventures, and Energy Impact Partners. The company is now worth $145 million, and it’s going to use small robots to run indoor farms, and it thinks it can do this much more efficiently — cut back on water usage, fertilizer usage. You know, I think we’ve all become accustomed to the idea of warehouses using cute little ’bots to zip around and move things. Why not use those same now-commoditized robots to grow lettuce and other goods? So I think this is awesome. But, Mary Ann, you are our skeptic-in-chief, so I want to know: What do you think?

    Mary Ann: I agree, I think it’s cool. Really, really cool, actually. They said that they can grow the greens using up to 92% less water — that’s huge! Thirty-five percent less fertilizer and no pesticides! So if it works, why not? This is great! So they want to stick with greenhouses rather than vertical farms. I guess, the angle of this is, it’s more of a robot startup really than just indoor farming. This sector has struggled. We’ve seen a few players in this space for bankruptcy — AppHarvest, Fifth Season. Iron Ox had some layoffs, and Bowery Farming, which was booming a few years ago, also had some layoffs and valuation cuts. But this feels like it’s a little different. It has real potential, from my humble perspective.

    Karyne: I have a question, though: Is this going to drive up the costs of, let’s say, lettuce? Because aren’t robots expensive to use?

    Alex: Well, commoditized robots are less so. So if you’re Amazon, and you’re gonna have — I’m gonna make up a number here — 1,000 warehouses across the United States [whispers, “That’s not the right number”]. You’re going to have a bunch of robots inside those warehouses. And when you start thinking about robots in the hundreds of thousands or millions of units, the costs are going to come down quite a lot. You’re going to figure out a way to build them.

    And so the idea here is take that commoditized tech and then apply it to the struggling area of indoor or vertical farming. And so the to your point, Karyne, is not only can those units be cheap enough to make this work when you purchase them, but also then to run and maintain them. And that’s going to be the gambit. But on the price point, here’s my pitch to you: Karyne, you’re at the store and you’re going to make your beautiful child a lovely salad for dinner because he’s a growing boy and needs to eat greens. And you’re staring down three lettuce options. The cheap version, which has no marks about where it was grown, how it was grown, etc. Then there’s an organic-ish version — you know, the lettuce was patted on the head and sung songs and so forth. And then there’s a third option: This was grown indoors; it saved water. If you buy this lettuce, you’re helping the planet. How much more would you pay for option three and option two?

    Karyne: Well, I’m from the Bay Area, so you know I’m going to go for the most woo lettuce that exists on the shelf. So I will go for the one that did. And being in California, we’re one drought away from being cut off from the rest of the country. I get it. And that makes sense. And I would pay a little bit more for that, I suppose. But with food scarcity, urban farming is trying to become a thing. I’m here for it.

    Alex: I mean, one thing I’d argue is that when we talk about food scarcity, and people being priced out of the standard goods of life, one thing you could also say, and this is not a positive, but maybe food is actually too cheap in terms of its impact on the planet, and we’re just pushing some cost to the future and not dealing with the now because just economically, it’s [easier] to do it this way. Hippo Harvest, I hope it does really well. I love this. I’ve always thought that urban farming makes a lot of sense — shipping stuff across rail lines is pretty efficient, but if you put it into a truck, it’s not. So I’m really into this. And also I don’t like farming. So let the robots do it. That’s just hard, not into it.

    Now, when we come back, my friends, we’re talking about some big ventures’ comings and goings. Mary Ann has all you need to know. We’ll be right back after this short break.

    [AD]

    Mary Ann: So this week, I wrote about the Foundry Group. This is a venture capital firm that’s been around for 18 years and done a lot of investing. Apparently it has a very impressive exit record: Some companies in their portfolio are Fitbit, Zynga, and AvidXchange. And the big news was they’ve decided to wind down operations and not raise any more funds.

    So this was a little unexpected to most of us, because the firm just announced a $500 million fund last May. Now, after I published the story, I had a lot of people cry out on Twitter that this was not unexpected. Everybody knew that this was the plan all along. Maybe you knew it if you were another venture capitalist and had talked to Seth Levine, for example, one of the co-founders and partners, and heard him tell you. Because apparently he had talked about his plans, which started to brew in his mind sometime in 2023, that he may decide not to invest anymore, and that turned into the fund deciding to wind down.

    But anyway, most of us did not know about this, so it was generally unexpected. And they wouldn’t talk to me directly about the decision, but I did get pointed to some blogs, and apparently they said that, yes, this is unusual, and VC firms rarely make decisions like this. But it’s something that they planned to do when they started back in 2006 — they decided not to build a legacy or generational firm; they wanted to focus just on the work of investing. And then they . . . kept saying, “Is this going to be our last one? Is this going to be our last one?” And they decided not to raise another one. So that’s basically it.

    But to be clear, when we say they’re shutting down or winding down, that doesn’t mean their doors are closed or they’re not doing anything. That’s not the case at all here unlike OpenView, which I think was in December or January — I lose track now — it did actually shut down and lay off partners. Foundry still has 33% to 40% left out of its $500 million fund to invest. So it’s planning to still continue to lead Series A and B financings out of that fund. The company says it will also continue to work with businesses in which it has investments for years to come.

    Alex: And that’s the critical thing. There’s two ways to shutter a business. One is to just close your doors, lock it and run away, and the other is to wind down new operations and then support what you have already in the market. For VCs, the product is investment, so they’re shutting down kind of in slow motion. This will slowly degrade in terms of total activity until it reaches zero at a point down the road.

    But here’s my thing. Mary Ann, I watched you get dragged on Twitter for this. And two things piss me off. Part of our job is to go into the weeds and pull things up so people can see them who didn’t already know that they were there. So simply because you, an insider in the VC world whose friends are VCs and founders, knew this does not mean that the TechCrunch audience did. A lot of people read TechCrunch, and there’s not that many VCs out there. And then also you didn’t get it wrong. I didn’t like it.

    Mary Ann: Well, thank you for defending me, Alex. I was pretty shocked by the number of people who got really upset by the wording of the story, I guess. They actually, I feel, misinterpreted the intentions in my reporting. It was a very fact-based article. I had no malicious intentions, no hidden agenda. But I will say I was touched and impressed by the number of people who rushed to defend Foundry. The firm clearly has a lot of supporters and fans and portfolio companies, other VCs, or general observers. And to me that says a lot about the firm and the character of the partners. So I was very impressed by that. Yes, I was actually pretty touched by that, to be honest with you.

    Alex: There is a way, though, to show respect without crapping on someone else. I’m just saying.

    Mary Ann: Yeah, I appreciate that. Thank you. Yeah, you have to have a thick skin as a reporter. I know my intentions; I know what I set out to do when I wrote the piece. So I can take comfort in that. I will also say that while there were a number of people kind of declaring this to be a negative piece, I didn’t hear any negative feedback at all from the firm itself. I would like to point that out.

    Karyne: So . . . if the firm was happy with the reporting, then who cares about the haters? You know, you got it correct, and they’re okay with it, then I think that means it’s a really good, solid story.

    Alex: To take it one step further: If the firm is happy with the reporting, we should have been meaner?

    Mary Ann: Well, I don’t know if “happy” would be the word, but they didn’t refute any of it. And they seemed comfortable with the language used. But anyway, overall, it was a big deal in the venture world. This is a firm that’s been around for a long time — almost two decades — had made over 200 investments, and had a really great reputation [and] it seems like . . . a lot of exits. So they were prolific investors and well-regarded ones. So it is a loss for the venture world. So that is news.

    Alex: But think about how long a venture fund lasts, right? I mean, we used to think of these as 10-year instruments? Now they’re more like 12. And so you know, get piles of money and you’re doing a big fund, and maybe you’re looking around and thinking to yourself, “What if I opened my long-hoped-for miniature golf course-cum-personal bar/indoor farm that I’ve always wanted to on my property. I don’t want to do 12 more years of work?” I kind of get it. I mean, if I had one-tenth of the money of these partners, I would not be working. So I don’t know, it’s weird to see a firm shut down. But on a personal basis, I get it.

    Mary Ann: I do, too. I totally get it. So I think we just have to be careful to understand that this sounds like apparently a thought-out decision. It isn’t one where it feels like in the case of OpenView, [which] really kind of was very abrupt, shutting down and having to lay off people. They seem to be two very different cases. But what we are seeing overall, and what I keep hearing from others is that the venture world is shrinking. And regardless of what the reasons are, there are a lot of firms that seem to be either scaling back, winding down, cutting staff. So it’s an overall, and I hate to use the word “trend,” but this is something we’re probably going to be seeing more of in different forms.

    Alex: Yeah, but there’s some good news out there as well, Karyne, for both Earlybird Health and Homebrew. What’s going on there?

    Karyne: I mean, it looks like they are growing. So you know, even within the shrinking of all the firms that we talked about, there are a few that are still growing up and down.

    Alex: Yeah. Earlybird Health is a Europe-focused health tech fund, and they doubled essentially from Fund I to Fund II. If memory serves, I think they put together like €175 million for their new fund. And then Homebrew, which is mostly now working with Partner Capital, is putting together a $50 million fund that we don’t quite understand yet, Mary Ann, I don’t think? But the gist is, from our guess, it’s probably an opportunity fund or something similar along those lines.

    Mary Ann: Yeah, exactly. From what I understand, what I heard is that they didn’t want to use SPVs anymore for follow-on, pro rata investments. So they are targeting this new fund.

    Alex: Mary Ann, I knew exactly what you just said, but not everybody has been so enmeshed in venture things. So SPVs are special purpose vehicles. Essentially, it’s like a micro venture capital fund you put together for a single deal. Let’s say you have allocation but don’t have enough capital. You can put together an SPV, raise some more money and put that in. It’s a single check. Pro rata rights essentially allow a prior investor to defend their current percentage ownership in a company over time. They need to put in more capital for that, usually at higher prices. Pro rata rights are a big deal in venture land, both in terms of how people use them or abuse them. And I think that should cover it.

    Mary Ann: Thank you, Alex. You’re so good. Like putting things in everyday language.

    Alex: Well, Mary Ann, isn’t that what we do all day?

    Mary Ann: You know, it is what we’re supposed to do.

    Alex: All right. Yeah. Well, wait till you see the post I wrote with Ron. It’s full of complete jargon, and I can’t wait to get it down. All right, Karyne: I want to talk about Y Combinator, everyone’s favorite, or least favorite accelerator. Controversial, certainly. At times, very popular and very successful. And they have a new call for startups out there. Walk us through what they’re looking for.

    Karyne: So they are putting out a call for startups in areas like AI, spatial computing, climate tech, and health tech, among other things. I don’t think that the AI and spatial computing aspects of their list are very surprising considering that AI is hot, hot, hot, and Apple’s Vision Pro just came out, and so they are expecting a lot of startups to be working on spatial computing-type apps, I suppose?

    They haven’t done a request like this since 2018. Of course, they updated the list a little bit during the pandemic, when they were looking for COVID-related startups. Healthcare startups are still on their list, but this time they’re focusing on cancer treatment, and other kinds of help in the healthcare industry, such as eliminating the middleman when it comes to certain aspects of healthcare.

    Alex: Mary Ann, I’m curious. The Vision Pro is out, and some people have bought it. It got some good reviews, some mixed reviews. Do you think that’s gonna be a big enough niche to launch startups on top of in the coming years?

    Mary Ann: That’s a good question. I don’t know. Like, how about with Meta’s? Did startups launch off its comparable device? Because I don’t know.

    Karyne: I don’t think in this way.

    Alex: Yeah, not like this. I mean, there are some games that have been made that are VR-compatible, that I presume work with Quest headsets. But no, not like the similar boom we saw with the launch of the App Store for iOS, for example, which did lead to generations of new companies. I just think it’s still too small, the space. Like Microsoft tried this with HoloLens. Name a company that built a killer HoloLens app. Silence.

    Mary Ann: I would agree. I mean, I was a little surprised to see that as one of its main areas of focus. Of course, obviously, climate tech and applications of AI were not surprising. But yeah, I thought it was interesting, too, that this is the first time they’ve done this really since 2018, except as Karyne mentioned, when COVID hit. So I’m just wondering, what drove them to start this back up again?

    Alex: Well, I mean, gosh, I feel like we’ve almost gotten done digesting, at last, the excesses of 2021. And so maybe after you finally finish your heartburn and indigestion, you begin to kind of look at the menu again. And then this analogy started for cheeseburgers.

    Mary Ann: Yeah, maybe it wants to be more targeted now and hoping to entice startups in these areas. Not that it’s trying to deter startups that aren’t doing these things, but I guess it just wants to be more targeted in its approach, and then who applies for its cohorts.

    Alex: Okay, I’m gonna throw in somebody else here, because I think we should broaden our context. If Tim, our resident climate genius, was here, he would mention things like the Inflation Reduction Act, changes to green energy financing. And I’m saying climate words. Trees. Things like that, Tim would talk about those. So I think there has been a top-down national shift and focus toward more climate tech that could unlock spending from both governments and private corporations. So climate tech, as a new theme for YC, kind of fits in there for me.

    And then defense technology has certainly become much less disliked in venture circles — guns used to be kind of under a vice clause, but now people want to make really big guns and sell them to the government. Cool, fair enough. And then space. I really think that now the space costs have come down so much on a launch basis, especially with shared launches and larger rockets coming from SpaceX, there’s a lot more stuff you can do there. And this week, just because I wanted to bring it up somewhere, Varda Space, which makes drugs in space, because there’s less gravity so you can do cool stuff. Got permission to bring them back! So we’re soon gonna have space drugs on the market. So I think this YC list makes a lot of sense. I mean, look, they’re kind of dissing crypto a little bit, but I’m not shocked.

    Karyne: And maybe that’s fine. And I don’t remember where I read this, but when they were creating this list, they’re thinking of it as like a conversation starter, like a prompt for people who are working on something and don’t know quite yet where it’ll fit in the market. This could be directionally helpful for them. Yeah, I’m really looking forward to Demo Day as well. When is Demo Day?

    Alex: I think it’s April 3 or April 4. So coming up. And of course, we are going to have all things Demo Day on this show. Sometimes we even do an extra episode just to dig into the coolest companies that we saw. So Mary Ann, Karyne and I will be bringing you that very soon.

    But that’s all the time we have for today. Equity comes out three times a week: on Mondays, on Wednesdays, and on Fridays. And if you’re a social person, come socialize with us, because we are @equitypod on X and Threads, and we are @techcrunchpod on TikTok. All right, bye, everybody. Talk to you soon!

    Equity is hosted by myself, Alex Wilhelm, and TechCrunch senior reporter, Mary Ann Azevedo. We are produced by Theresa Loconsolo, with editing by Kell. Bryce Durbin is our illustrator. A big thank-you to the audience development team, and Henry Pickavet, who manages TechCrunch audio products.

    Thank you so much for listening, and we’ll talk to you next time.

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    Theresa Loconsolo

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  • Peak XV’s latest Surge batch is 77% AI and deeptech startups | TechCrunch

    Peak XV’s latest Surge batch is 77% AI and deeptech startups | TechCrunch

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    AI and other deep technologies are the prevailing themes in the new early-stage cohort from Peak XV Partners, as the largest India and Southeast Asia-focused VC fund intensifies its search for opportunities in a sector garnering international frenzy.

    Ten out of 13 startups in the latest cohort of Surge, Peak XV’s powerfully influential early-stage program, specialize in AI and other deeptech sectors, the fund said on Monday. The unveiling of Surge’s ninth cohort — and the selection of its startups — comes at a time when a growing global sentiment suggest a dearth of depth in India’s AI startup landscape.

    Y Combinator’s most recent batch includes over 200 startups, of which more than half concentrate on AI, for instance. Despite the cohort’s considerable size, fewer than 10 startups are India-based, sparking speculation that the venture firm and India could be growing apart.

    “Would I like to see more AI startups? The answer is yes. But do we see zero? No. We see some pretty interesting things that we have picked and invested in,” said Shailendra Singh, Managing Director of Peak XV, in an interview with TechCrunch.

    “I think with every passing quarter, every passing six months, and every passing year, India becomes a more and more fertile market with greater expertise,” said Singh, who also oversees all other stages of venture investments at the firm. “What has been consistent in the last 18 years that I have been investing, sometimes it can feel slow, sometimes there are market cycles, but if you take any two-three years vintage, it’s very clear that there’s a step-up.”

    The new batch — which features startups working on a range of problems from helping identify and address early brain decline, to transforming the world of processor design and scaling the hydrogen economy — features multiple founders who have PhDs and international work experience, said Singh. “Could we have found this cohort five years ago? I think that’s quite unlikely even if had wanted,” he added.

    “I think we will start to see more fundamental innovation in India, and more science being applied to solve problems.”

    The Surge 09 cohort

    • Dozer — founded by Matteo Pelati and Vivek Gudapuri — is an open source data infrastructure platform that aims to assist data scientists and engineers in building highly scalable, real-time data APIs in minutes.
    • Elivaas — founded by Karan Miglani and Ritwik Khare — serves as a management platform for villas and luxury apartments, enabling owners to monetize, oversee, and maintain their vacation homes in India.
    • Ethereal Machines — founded by Kaushik Mudda and Navin Jain — operates in the advanced manufacturing sector, specializing in the production of precision engineering components via its multi-axis computer numerical control machines.
    • Horizon Quantum Computing — founded by Joe Fitzsimons — develops software development tools that are designed to unlock the capabilities of quantum computing hardware.
    • InCore — launched by Arjun Menon, Gautam Doshi, GS Madhusudan, and Neel Gala — is a fabless semiconductor startup that is building RISC-V-based processor solutions for various industries, including industrial automation and consumer electronics.
    • Mercu — set up by Elliott Gibb and Jascha Zittel — functions as an employee engagement platform, facilitating the hiring, training, and engagement of frontline teams within companies.
    • Mindgrove — founded by Sharan Srinivas J and Shashwath T R — designs cost-efficient, scalable microprocessor technology, designing SOCs that combine all the electronic components onto a single chip.
    • Neurowyzr — founded by Pang Sze Yunn and Navdeep Vij Singh — operates in the healthtech sector. It specializes in developing advanced technologies to mitigate early signs of brain decline.
    • Newtrace — founded by Prasanta Sarkar and Rochan Sinha — is a climate tech startup that is attempting to manufacture innovative electrolyzers for the efficient and affordable production of green hydrogen.
    • Pix.ai — developed by Alvin Li, Raven Gao, and Veronica Liao — is an AI-powered anime art generator, which provides users with a suite of tools and templates for creating personalized anime art.
    • Relevance AI — founded by Daniel Vassilev and Jacky Koh — is a machine learning startup that is attempting to help companies automate workflows through a no-code AI workforce.
    • ZeroK — founded by Mudit Krishna Mathur, Varun Ramamurthy, Samyukktha Thirumeni, and Shivam Nagar — is an AI platform that is assisting developers in faster troubleshooting of production incidents by performing intelligent checks that guide them to root causes, thus reducing downtime.
    • There’s also a startup, which has chosen to remain in the stealth mode for now, that is operating an AI platform aimed at boosting software team productivity. It provides contextual answers tailored to their codebases.

    Surge, which completes five years in early 2024, has emerged as the most influential early-stage investor in India and Southeast Asia. The program, which also invites select other investors in the ecosystem to evaluate and participate in funding the cohort’s startups, has backed over 140 firms to date that have collectively raised more than $2 billion in follow-on funding.

    Surge, which rolls out two cohorts annually, maintains a measured portfolio size for each batch. This allows Peak XV partners and other team members to engage closely with founders, offering guidance on a range of subjects from product strategy to the startup’s mission statement. A Surge startup raises up to $3 million in seed funding, a feature that, along with access to an extensive and arguably unmatched set of resources, sets the Peak XV program apart from other market offerings.

    The new cohort also comes at a time when many other VC funds in India are also attempting — or re-attempting — to build a version of their own Surge programs. Singh said a growing competition among venture firms would be a good thing for the founders and the ecosystem.

    The new fund, first since Peak XV’s split from Sequoia U.S., also features two Australian startups. It’s not the first time Surge or any other Peak XV arm has backed an Australian startup, but Singh confirmed that it’s a country that the venture firm is actively evaluating, especially for software firms.

    “Our skillset to help companies go to the U.S., launch cross-border — we have over a 100 investments in software companies, where we try to help them build global businesses — those same skillsets are very applicable to software startups in Australia. Almost all of the software startups in Australia also have the ambitions to build global firms. For that reason, they find us to be a good fit, and it improves our calibration and gives us exposure to a new market where we find high-quality companies in general,” he said.

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    Manish Singh

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