Brazilian startup Salvy, an enterprise mobile phone provider, was the only Latin America-based company in Y Combinator’s latest batch, the accelerator confirmed to TechCrunch.
That’s a significant drop compared to the cohorts that went through the accelerator during COVID-19, when it was still remote, but also to more recent classes: Y Combinator’s winter 2022 included 33 Latin American companies , 16 in summer 2022 and 10 in winter 2023.
One caveat to the distinct Winter 2024 group data point 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 Latin American startups in the company’s startup cohorts, nor the fact that Y Combinator batches are once again smaller and more personal after the pandemic. In fact, you would have to go back to the summer of 2015 to find a group with even a single Latino participant.
The accelerator also scaled back efforts it had previously made to encourage startups to apply, such as the global outreach tours that once included stops in Brazil, Colombia or Mexico. The last such tour took place in 2022 and was virtual, TechCrunch learned. This is one of several things that have changed at YC since 2022 and the return to in-person events.
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. However, if we consider that in the W22 group about 8% of companies were from the region, while in the current group the region represents less than 1%, it is clear that Latin America is disproportionately affected.”
Unpacking what’s at stake is a worthwhile exercise for what he says about the 2024 Y Combinator, but also for the state of LatAm startups in general and where the Rappis of tomorrow might fit in.
The taste of yesterday?
YC declined to comment; But now we know that the team always says they fund founders and not ideas. In other words, it doesn’t think in startup terms. Nevertheless, individual articles usually reveal a lot about what is fashionable among entrepreneurs and investors. This year it’s definitely AI.
With numbers nearly double that of Winter 2023 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 are listed as fintech on their director, compared to 24% in winter 2022. Historically, about a third of the 231 Latin American companies that went through YC and focused on fintech.
These data points could go a long way toward explaining why Latin American startups are less represented in this group. In a region with a strong need for better financial inclusion, fintech has long been a sector that entrepreneurs have been keen to tackle. In contrast, deep tech companies make up only 10% of the Latin American and Caribbean startup ecosystem.
Deep tech and fintech are not mutually exclusive; For example, AI-powered fraud detection would fall into both categories. But an AI-hungry YC would still be less connected to Latin America’s tech scene.
However, it’s not just AI; It’s YC’s approach to AI that makes it even more geographically sophisticated. Of the 89 AI startups in the latest series, 73 were based in the US and Canada, 3 were based in Europe and 26 were based remotely. So much for the Paris AI buzz.
Maybe the French AI scene is overrated. But judging by the number of demo day pitchers with French accents, YC supports no fewer European founders than in previous years, when France was quite well represented. Only this time they may not be based in Europe – according to the YC directory there are only 13 batch participants.
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 partners Dalton Caldwell and Michael Seibel, Seibel acknowledged that startups can still “win” elsewhere, but argued that the San Francisco Bay Area is still the right place.
“Getting to the Bay Area is relatively easy [compared] to all the other things you need to do to be successful. Choosing where to live is relatively easy [compared] For all other things you have to choose correctly. Why not reap the easy wins? It’s a simple percentage multiplier. And this game is so hard that you might as well take the easy ones.”
This belief is shared even further by AI startups, Brazilian entrepreneur Bruno Vieira Costa told TechCrunch. “My own company develops generative AI models [and] based in Rio, so I don’t necessarily think that’s true, but I understand that this has to be relevant for younger founders in terms of mindset and credentials,” said Vieira Costa, whose no-code startup Abstra was part of the summer Y Combinator’s 2021 was Charge.
Abstra’s founder believes in-person meetings are better for founder success, but that doesn’t mean there aren’t compromises. Moving to the Bay Area is difficult and potentially riskier for many Latin American founders. Their experiences, college backgrounds and professional networks resonate less with U.S. investors, Vieira Costa said. Conversely, there were plenty of US references during Demo Day, with founders mentioning their “nationwide” reach and degrees, whose fame is not always international.
While a cohort isn’t a trend, perhaps YC is also returning to its US-focused roots. YC’s recent call for startups asked companies to “bring manufacturing back to America” – a term many in Latin America find annoying – and in the “New Defense Technology” section only the US was mentioned: “The Silicon Valley was born in the early 20th century as a research and development area for the US military. […] This decade is the time to bring Silicon Valley back to those roots,” wrote partners Jared Friedman and Gustaf Alströmer.
If YC continues to focus on U.S. companies, that doesn’t mean its cohorts would be any less diverse. Several YC alumni with Hispanic founders were based in the United States at the time of their application.
Do LatAM startups need YC?
Founders who have attended YC often describe the experience as “life-changing,” and the impact usually extends beyond their company. Colombian startup and YC graduate Rappi, for example, has transformed itself into a startup factory. Entrepreneur network Endeavor studied the multiplier effect and found that 130 founders had previously worked at the on-demand delivery company, whose founders also invested in two dozen startups.
Rappi is on the list of top-earning YC alumni, but otherwise there isn’t much overlap between the accelerator’s Latin American operations and the region’s top startups.
“If you look at the largest startups from Latin America in the last five years, they didn’t go through YC,” Latitud co-founder and COO Gina Gotthilf told TechCrunch via email. “We don’t know why, but it could be that YC has a better understanding of the US market and opportunities. Latin America is difficult, there are a lot of local contexts that are difficult to understand if you don’t have local knowledge and a strong network.”
Describing itself as “the operating system for every venture capital-backed company in Latin America,” Latitud offers a business execution software platform funded by a16z and NFX. This also includes writing your own checks. In a way, it makes YC a competitor, but also a potential co-investor. Salvy, the Brazilian company in its latest batch, is a Latitud portfolio company “in which we were the first investor,” Gotthilf said.
Despite her bullish stance on the region, Gotthilf can also understand why an AI-heavy cohort includes fewer Latin American startups. “Most companies pitch [YC] do something in AI. I believe that the main AI companies building LLMs in Silicon Valley are currently making a big impact and that real innovation in this field will not come from Latin America anytime soon.”
This is also a reminder that many startups in 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 have chosen the bootstrapping route. This has advantages and disadvantages: It pushes startups to be more efficient, but it can also stand in the way of larger ambitions.
Griffero sees another factor in the fragmentation of the region, which makes it difficult for founders to support each other, but is optimistic. “This situation is likely to change soon as I see more founders from the region starting to think globally rather than setting themselves the limit of being ‘X for LatAm’.”
Unlike predecessors like Mercado Libre, these companies will find local and global venture capital firms willing to take care of them and offer them less dilutive terms that weren’t the norm before YC became a potential competitor.
There are still questions about whether this will work out for investors, as massive exits for Latin American startups are still rare. But even if they succeed, doing so outside of YC means they won’t be part of YC’s 10,000 alumni network. A lose-lose situation or the price to pay for SF moving from the “doom loop” to the “boom loop”? You decide.