Brazilian startup Salvy, a mobile carrier for businesses, was the only Latin America-based company in Y Combinator’s latest batch, the accelerator confirmed to TechCrunch.
This is a significant drop compared to the cohorts that went through the accelerator during COVID when it was remote, but also to more recent courses: there were 33 Latin American companies in the winter 2022 batch from Y Combinator, 16 in summer 2022 and 10 in winter 2023.
One caveat regarding the Winter 2024 group data is that the directory is not exhaustive; some companies prefer to stay in stealth mode. But that doesn’t explain the steady and now seemingly complete decline of Latino startups in the company’s startup cohorts, any more than the fact that Y Combinator’s post-pandemic batches are once again smaller and in-person . In fact, you would have to go back to the summer of 2015 to find a group with a single Latin American participant.
The accelerator also scaled back previous efforts to get startups to apply, like global outreach tours that once included stops in Brazil, Colombia or Mexico. The last such tour took place in 2022, and it was virtual, TechCrunch has learned. This is one of the many things that has changed at YC since 2022 and its return to in-person batches.
Cristóbal Griffero, whose startup Fintoc was part of YC’s W21 cohort says: “The number of YC deals has declined overall, not just in Latin America. But when you consider that around 8% of companies in batch W22 were from the region, compared to less than 1% currently, it becomes clear that Latin America is disproportionately affected.
Unpacking what’s at stake is a valuable exercise for what it says about 2024 Y Combinator, but also about the state of Latin American startups more broadly, and where tomorrow’s Rappis might fit.
The flavor of yesterday?
YC declined to comment; but we now know that his team always says they fund founders, not ideas. In other words, he doesn’t think in terms of startup categories. Yet its lots generally reveal a lot about what’s trending among entrepreneurs and investors. This year, it’s clearly AI.
With nearly double the number of Winter 2023 and almost triple the number of Winter 2021, AI startups dominated at Y Combinator’s Winter 2024 Demo Day, noted my colleague Kyle Wiggers.
On the other hand, fintech representation has decreased compared to previous batches: only 8% of YC’s latest batch is listed as fintech in its director, compared to 24% in winter 2022. Historically, about a third of the 231 Latino companies -American companies which went through YC focused on fintech.
This data could largely explain why Latin American startups are less present in this group. In a region with a strong need for greater financial inclusion, fintech has long been a sector that entrepreneurs like to approach. In contrast, deep tech companies represent only 10% of the Latin American and Caribbean startup ecosystem.
Deep tech and fintech are not mutually exclusive; Fraud detection using AI, for example, would fall into both categories. But an AI-hungry YC would be even less aligned with Latin America’s tech scene.
But it’s not just about AI; it’s YC’s vision of AI that makes it even more geographically challenging. Of the 89 AI startups in its latest batch, 73 were based in the US and Canada, 3 in Europe and 26 remotely. So much for the buzz from Paris on AI.
Maybe the French AI scene is overrated. But judging by the number of Demo Day pitchers with French accents, YC is not supporting fewer European founders than in previous years, where France was rather well represented. Only this time, maybe they’re not based in Europe – only 13 entrants in the batch are, according to YC’s directory.
Despite its virtual programs, YC has actually been a Bay Area-based program for most of its 15 years. And in a conversation between longtime YC partner Dalton Caldwell and Michael Seibel, Seibel admitted that startups can still “win” elsewhere, but argued that the San Francisco Bay Area is still l ‘ideal place.
“Getting into the Bay Area is relatively easy (compared) to all the other things you have to do to be successful. Choosing where to live is relatively easy (compared to) all the other things you have to choose correctly. Why not take the easy wins? It’s a simple percentage multiplier. And this game is so difficult, you might as well take the easy ones.
This belief is even more widely shared by AI startups, Brazilian entrepreneur Bruno Vieira Costa told TechCrunch. “My own company builds generative AI models (and) is based in Rio, so I don’t see that as necessarily true, but I understand that for more junior founders it has to be relevant in terms of state of spirit and references,” said Vieira Costa, whose no-code startup Abstra was part of Y Combinator’s summer 2021 batch.
Abstra’s founder believes in-person batches are better for the founder’s success, but that doesn’t mean there aren’t trade-offs. Moving to the Bay Area is difficult for many Latino founders, and perhaps riskier. Their experiences, academic backgrounds and professional networks resonate less with American investors, Vieira Costa said. Conversely, American references were peppered throughout Demo Day, with the founders mentioning their “national” influence and their diplomas whose reputation is not always international.
Even if a cohort doesn’t constitute a trend, perhaps YC is also returning to its US-centric roots. YC’s latest startup request called on companies to “bring manufacturing back to America” - a term many in Latin America find irritating – and the “new defense technologies” section only mentioned the United States. “Silicon Valley was born in the early 20th century as an R&D area for the US military. (…) This decade is the time to return Silicon Valley to its roots,” wrote partners Jared Friedman and Gustaf Alströmer.
If YC continues to tilt toward corporate America, that doesn’t mean its cohorts will be less diverse. Several YC alumni with Hispanic founders were based in the United States when they applied.
Do LatAM Startups Need YC?
Founders who have gone to YC often call it a “life-changing” experience, and the impact usually extends beyond their company. Colombian startup and YC alumnus Rappi, for example, has transformed itself into a startup factory. Looking at its multiplier effect, the Endeavor Entrepreneur Network found that 130 founders previously worked for the on-demand delivery company, whose founders also invested in two dozen startups.
Rappi is on the list of YC’s highest-earning alumni, but otherwise there isn’t much overlap between the accelerator’s bets in Latin America and the region’s top startups.
“When you look at the biggest startups in Latin America over the last five years, they haven’t gone through YC,” Gina Gotthilf, co-founder and COO of Latitud, told TechCrunch via email. “We don’t know why, but it could be that YC is better able to assess the US market and opportunities. Latin America is difficult, there are many local contexts that are difficult to understand if you don’t have local understanding and a strong network.
Latitud describes itself as “the operating system for every venture-backed company in Latin America” and offers a software platform for trading, with funding from a16z and NFX. This also includes writing your own checks. On one level, this makes YC a competitor, but also a potential co-investor. Salvy, the Brazilian company in his latest batch, is a Latitud portfolio company “where we were the first investor,” Gotthilf said.
Despite his optimism about the region, Gotthilf also understands why a heavily AI-focused cohort includes fewer Latin American startups. “Most of the companies that offer (YC) are doing something in the AI space. I believe that the leading AI companies creating LLMs in Silicon Valley currently have serious leverage and that real innovation in this area will not come from Latin America anytime soon.
It also reminds us that many startups in the region don’t apply to YC, or don’t even seek venture capital funding at all. A recent report on Latin American SaaS startups showed that a third of them have opted for the bootstrap route. This has pros and cons: it pushes startups to be more efficient, but can also hinder greater ambitions.
Griffero thinks another factor is the fragmentation of the region, which makes it harder for the founders to support each other, but he remains optimistic. “This situation is likely to change soon, as I see more and more founders from the region starting to think globally, instead of self-imposed the limit of being ‘X for LatAm.’
Unlike their predecessors like Mercado Libre, these companies will find local and global venture capital firms willing to vet them and offer them less dilutive terms that were not the norm before YC emerged as a potential rival.
It remains to be seen whether the calculation will be positive for investors, given that massive exits are still rare for Latin American startups. But even if they succeed, doing so outside of YC means they won’t be part of its 10,000 alumni network. A lose-lose situation, or the price to pay for SF to move from a “catastrophe loop” to a “boom loop”? You decide.
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