Investor Erik Moore has spent the past two days watching dozens of pitches from tech companies covering a wide range of services, causes and vowel-dropping names. But these aren't the dime-a-dozen startups that are saturating Silicon Valley.
Moore has been at Y Combinator's "Demo Day," where a select group of startup companies supported by the Silicon Valley accelerator can pitch their ideas to an exclusive group of investors.
The demonstrations just wrapped up Tuesday and we emailed Moore, an original investor in Zappos and head of Base Ventures, to get his perspective from the ground. The interview has been lightly edited for clarity.
How many times have you been to YC’s Demo Day? Even just reading through all these names and concepts, things start to blend together. How do you sift through all the hype and boilerplate?
I’ve been going to YC for four years now. It was hard the first several years, but you get better at it, like anything else. You come to realize that as great as YC is (and it is great), that not each startup will win. So you ultimately go back to the same filter that you impose on non-YC companies. There's so much fanfare and noise and chatter and excitement around YC in general, and certain companies in particular, that newbies – investors not used to the bustling marketplace atmosphere – can get caught up, and overwhelmed, and want to invest in companies without regard to their normal evaluation and diligence process.
What’s the thread running through YC this year?
Lots and lots of biotech, healthcare and medical companies, a handful of food companies. There are a handful of non-profits, but noticeably fewer than previous batches.
How do you assess a startup coming out of YC that already has a fair amount of hype behind it, like Magic’s “ask for anything” service?
The top two or three companies that are hot, like Magic, are "done"; meaning their funding round is fully (or even over) subscribed before Demo Day. To a certain extent, the best of the best companies get handpicked, and only "club members" – the special, well-known, or highest profile of the investors – get to invest. But as I mentioned earlier, you absolutely must do some modicum of diligence and not get bitten by the hype bug.
There’s ongoing speculation about whether Silicon Valley is in a “bubble” moment, with inflated valuations and lots of money being thrown at young companies. How does this play out at events like Demo Day?
It's fun for people to talk about, "Demo Day valuations are creeping up." (I think) you should invest during all cycles. If an investor believes that she is smart enough to predict when the top of the market has arrived and sell, or when the bottom has arrived and buy/invest, they are fooling themselves. I invested in Zappos during the first bubble in 1999 and 2000, and it sold in 2009 - the worst time possible - for 50 times my investment.
That said, I believe that a bubble is brewing. There's tons and tons of money, often from non-tech or new-tech investors, startup valuations are getting even higher, and there's a proliferation of ideas being funded because they "sound" good. And because it's so cheap to start a company these days, it's become the thing to do: "I'm starting a tech company."
Our companies are producing enough revenue that we hope will keep them solvent through any downturn.
By the way, at YC Demo Day, deals get done on the spot, with firm commitments. They have what's called the "handshake protocol," and YC also makes it easy to connect with start-ups by "liking" a company as they pitch via their web app, then they follow up with an email. During breaks and before or after pitches, there's time to meet all the startups who standout by wearing hoodies, or pink pants as a team.
Anything else we should know about Demo Day?
There was a very distinct absence of Bitcoin startups, and non-profits.
It's hard to make an investment decision after a two-minute pitch that usually does not include much about the founders and why they are the right founders for this startup.
Finally, there is a very definite hierarchy of investors and if you're part of the in-crowd, you see the very best deals early.