Brazilian startup Salvyan enterprise mobile company, was the only company based in Latin America in Y Combinator’s latest batch, the accelerator confirmed to TechCrunch.
This is a significant drop compared to cohorts that went through the gas during COVID when they were remote, but also more recent classes: There were 33 Latin American companies in Y Combinator’s Winter 2022 batch, 16 in Summer 2022 and 10 in the winter of 2023.
A caveat to the Winter 2024 group data point is that the list is not exhaustive. some companies prefer to stay in stealth mode. But that doesn’t explain the steady and now seemingly complete decline of Latin American startups in the company’s fledgling cohorts, nor the fact that Y Combinator’s post-pandemic batches are smaller again in person. In fact, you’d have to go back to the summer of 2015 to find a team with a single Latin American participant.
The accelerator has also scaled back efforts it has made in the past to incentivize startups to apply, such as global outreach trips that once included stops in Brazil, Colombia and Mexico. The last such tour took place in 2022, and it was virtual, TechCrunch has learned. It’s one of the many things that have changed at YC since 2022 and its return to in-person batches.
Says Cristóbal Griffero, whose startup Fintoc was part of YC’s W21 cohort: “The number of YC deals has declined overall, not just in Latin America. But if we consider that around 8% of companies were from the region in the W22 batch, compared to the current one where the region represents less than 1%, it becomes clear that Latin America is disproportionately affected.”
Unpacking what’s at play is a worthwhile exercise for what it says about the 2024 Y Combinator, but also about the state of LatAm startups more broadly and where the Rappis of tomorrow might fit.
Yesterday’s taste?
YC declined to comment, but so far we know that its team always says it funds founders, not ideas. In other words, he doesn’t think in startup categories. However, his lots usually reveal a lot about what’s in vogue among entrepreneurs and investors. This year, it’s clearly AI.
With nearly double the number of the Winter 2023 batch and nearly triple the number of Winter 2021, AI startups dominated Y Combinator’s Winter 2024 Demo Day, noted my colleague Kyle Wiggers.
On the other hand, fintech representation has shrunk compared to previous batches: Only 8% of YC’s latest batch listed fintech to its director, compared to 24% in winter 2022. Historically, about a third of the 231 of Latin America companies that passed through YC focused on fintech.
These data points could go a long way in explaining why Latin American startups are less present in this bunch. In a region with a strong need for better financial inclusion, fintech has long been an area that entrepreneurs love to dabble in. In contrast, deep-tech companies represent only 10% of the Latin American and Caribbean startup ecosystem.
Deep tech and Fintech are not mutually exclusive. AI-enabled fraud detection, for example, would fall into both categories. But an AI-hungry YC would still be less aligned with the Latin American tech scene.
It’s not just AI, though. It’s YC’s take on 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 Paris AI buzz.
Maybe the French AI scene over hyped. But judging by the number of Demo Day pitchers with French accents, YC isn’t supporting fewer European founders than in previous years, where France was fairly well represented. Only this time, they might not be based in Europe — only 13 batch participants are, according to YC’s list.
Despite its virtual programs, YC was truly a Bay Area-based program for most of its 15 years. And in one conversation between Longtime YC partners Dalton Caldwell and Michael Seibel, Seibel admitted that startups can still “win” elsewhere, but argued that the San Francisco Bay Area is still the place to be.
“Getting into the Bay Area is relatively easy [compared] to all the other things you need to do to succeed. Choosing a place to stay is relatively easy [compared] in all other things you must choose correctly. Why not take the easy wins? It’s an easy rate multiplier. And this game is so hard, you might as well take it easy.”
This belief is even more widely shared for AI startups, Brazilian entrepreneur Bruno Vieira Costa told TechCrunch. “My own company builds artificial intelligence models [and] based in Rio, so I don’t necessarily see it as true, but I understand for more junior founders, it has to be about mindset and reporting.” Vieira Costa’s Codeless Startup Abstract was part of Y Combinator’s 2021 summer batch.
Abstra’s founder believes private lots are better for founders’ success, but there are trade-offs. Relocating to the Bay Area is difficult for many Latin American founders and perhaps more risky. Their experiences, college backgrounds and professional networks have less appeal to U.S. investors, Vieira Costa said. In contrast, reports in the U.S. increased during Demo Day, with founders citing their “national” reach and degrees whose reputations are not always international.
While a cohort isn’t a trend, YC might as well be returning to its US-centric roots. YC’s latest request for startups called on companies to “bring manufacturing back to America” — a term many in Latin America find grating — and the “new defense technology” section mentioned only the U.S. “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 those roots,” partners Jared Friedman and Gustaf Alströmer He wrote.
If YC continues to gravitate toward American companies, that doesn’t mean its cohorts would be any less diverse. Enough YC alumni with Hispanic founders were in the US when they applied.
Do LatAM startups need YC?
Founders who went to YC often call the experience “Life changes,” and the impact usually goes beyond their companies. Colombian startup and YC alum Rappi, for example, turned into a startup factory. Looking into it multiplier effectentrepreneurship network Endeavor found that 130 founders previously worked at the on-demand delivery company, whose founders also invested in two dozen startups.
Rappi is on the YC alumni list with the most revenuebut otherwise, there isn’t that much overlap between the accelerator’s Latin American stakes and the region’s top startups.
“When you look at the biggest startups that have come out of Latin America in the last five years, they didn’t go through YC.” Latitude co-founder and COO Gina Gotthilf told TechCrunch via email. “We don’t know why, but it may be that YC is better at assessing the US market and opportunities. Latin America is difficult, there is a very local context that is difficult to understand if you don’t have a 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 his own checks. On some level, it makes YC a competitor, but also a potential co-investor. Salvy, the Brazilian company from its latest batch, is a Latitud holding company “where we were the first investor,” Gotthilf said.
Despite her optimism for the region, Gotthilf can also see why an AI-heavy cohort includes fewer startups from Latin America. “Most companies are pitching [YC] they do something in AI. I believe that the core AI companies building LLMs in Silicon Valley have serious leverage right now, and that real innovation in the field will not come so soon from Latin America.”
This is also a reminder that many startups from the region do not apply to YC or seek VC funding at all. A recent report on Latin American SaaS startups showed that a third went the startup route. This has advantages and disadvantages: it pushes startups to be more efficient, but it can also hinder greater ambitions.
Griffero believes another factor is the region’s fragmentation, which makes it difficult for founders to support each other, but he is optimistic. “This situation is likely to change soon as I see more founders from the region starting to think globally, rather than limiting themselves to being ‘X for LatAm’.”
Unlike predecessors like Mercado Libre, these companies will find venture capital firms both locally and globally willing to look at them and offer them less restrictive terms that weren’t the norm before YC became a potential rival.
There’s still the question of whether the math will work out for investors, as mass exits are still a rarity for Latin American startups. But even if they do, doing it 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 evolving from a “doom loop” to a “boom loop”? You decide.
