YC, OpenAI and the trough of disillusionment

Here's what Mary Ann, Alex and Kirsten got into this week: The writer’s strike is over, and we have thoughts about its implications on AI. OpenAI is allowing some shareholders to sell stock, and the resulting valuation could be pretty darn high. Electric boat startup Arc has raised about $70 million? We aren’t about to drop the coin needed to buy one of those, but the idea is neat nevertheless. Alex wanted to talk about fluctuations in the venture and stock markets. Is the mini-tech recovery already fading after a dismal September? Mary Ann wanted to talk about YC. Kirsten broadened the conversation to include the role of accelerators in the startup world more generally. Are the vibes shifting? Finally, the tech labor market: As layoffs subside — though new cuts are still being announced — it may be a great time for startups to hire key talent. And before we go: check out the UpFlip Podcast where you get to unravel how great businesses are built, how they are run behind the scenes and how their success can be replicated. We think you'll love episode 79 where they featured this guest who transformed his passion for gardening into a $7.3 million-a-year venture. You can find the podcast on Youtube or wherever you listen to podcasts. 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! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:10Speaker 00

  Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and the nuance behind the headlines. My name is Alex and I am joined today, as I am each and every Friday, by my friend. It's Maryann Azaveto. Maryann, hi, how are you?

• 0:25Speaker 01

  Alex, I'm good. I'm still incredibly heartbroken that I had to miss Disrupt last week. I don't know if I'll ever get over it, but I am here and excited at least to be here.

• 0:35Speaker 00

  We missed you oh so much. We did put on a live show in your absence, as I think people heard on the feed, but without your presence, it wasn't quite the same. Although I will say, we did have Kirsten on the live show and Kirsten's here. And as we're piling on the Disrupt guilt and FOMO into Maryann, Kirsten, you got some goodies while you were in San Francisco.

• 0:53Kirsten Korosec?

  Yeah, so while we were there during the Disrupt madness, we were also at our offices and in the midst of cleaning out those offices to move, it was like a free for all. So there was everything you could possibly imagine, including stuff on the walls. So I decided to help myself, because I was encouraged to, by the way, this amazing piece of original art, which there were actually two of these prints, but I felt like it was too much to take both. But it is an owl, a Russian doll, nesting doll, holding a smartphone.

• 1:35Kirsten Korosec?

  And on that smartphone is the Twitter logo. And it just felt a bizarre, but also a vestige of the past, since now Twitter is X and we don't have the cute little bluebird anymore. So I felt like I needed to have that just as a memoriam, if you will.

• 1:54Speaker 00

  Yeah, there's been a lot of good art in the TechCrunch office over time. We've had, like, we had this big piece of graffiti art for a long time on the wall. That was great. And there was a lot of cartoons from a particular cartoonist whose name I could not recall before the show, but he had this one funny image of a person talking and they said, like, "I'm not irrational." I'm an entrepreneur and I've always kind of loved that irreverent spirit and it was good to have that on the wall. And now, do we have an office anymore?

• 2:17Kirsten Korosec?

  We will, I believe. It's just in process. In San Francisco.

• 2:21Speaker 00

  Yeah, I mean Yahoo has offices, to be clear. What we're referring to is they kind of carved out TechCrunch space and also basement access, because that's where we kept a whole bunch of swag that was descended upon like a plague of locusts by TechCrunch staffers who were in town for the conference. And you can't see it, but Kirsten and myself are wearing TechCrunch hats while we record this strictly to annoy Mary Ann.

• 2:41Kirsten Korosec?

  Yeah, we're being extra mean, but by the way, you didn't miss anything. It was, no one came. There were no good interviews. It was like a funeral.

• 2:53Speaker 01

  Oh, yeah, right.

• 2:55Kirsten Korosec?

  For anyone who can't quite get the sarcasm in my voice. It was, it was great.

• 3:00Speaker 01

  I was stunned. I was stunned by the social media that, you know, the posts on social media that I saw. I could not believe it. Not just, not like from our team, but people in general. I don't remember this from last year. Like, there were people posting photos and raving about the panels and the sessions and the crowds and the networking. I mean, it, the energy seemed to be just so, so fire. I was sitting here like so proud seeing all that. I was like, this is incredible. It was so, looked so professional, so top notch, so put together. I'm like, just proud, proud, proud from a distance.

• 3:35Kirsten Korosec?

  Well, you'll be there next year. Our last show, when we did sort of a little bit of a recap, I put it out to Alex, like I couldn't quite pinpoint the energy level. Like, was it excitement? Or was it like desperate energy? I think I'm gonna go more towards excitement because it did, upon reflection, feel much more positive and less, like I was getting people who were interested in talking to me, but not in a way where I was being stalked and like desperate pleas to please cover their startup. Like, they were, they definitely wanted to connect, but it felt a little different than last year where there was energy, but it, it was in a darker place. This just felt like real excitement. And what I'm curious is how many of these people

• 4:20Kirsten Korosec?

  are just brand new, first time founders? Because maybe that's what it was about, was that these people were here for the first time and this was like a brand new thing and they hadn't been, you know, in the Silicon Valley Bay Area.

• 4:34Kirsten Korosec?

  Orb for long enough to become cynical.

• 4:37Speaker 00

  Or jaded. Good point. Maybe. One thing that blows my mind about what our event has become is how big they've gotten. There was a long conversation in one of our internal Slack channels that I'm going to paraphrase. Essentially, it was like, we can't have basketball next year. It's too loud. And I was reading this thread expecting someone to go, just kidding, there wasn't basketball at Disrupt. And it turns out there was, and now it's now it's banned because it was too loud. I missed that. How did I miss there being sports?

• 5:03Kirsten Korosec?

  How did you not, you were, it was in the pitch showcase. So if you didn't go down there, it was quite loud. It was in the recharge lounge. It was a place to like relax. It was right in the midst of the hubbub of the Battlefield 200, which are the 200 startups exhibiting. And right next to the pitch showcase, which they did push to the side this year, which I was like, great, this is going to be not quite as loud. Was this like, it sounded like construction was happening. So it made the pitches, you know, a little bit more interesting. People had to, you know, express themselves more and project. I mean, we had, of course, amplification. But yeah, basketball was happening.

• 5:43Speaker 00

  Well, I was apparently too cool to go to the second floor because I was on the third floor where my stage was. And also the TechCrunch Plus Lounge where we had a breakfast to start. And like, let's be real, whenever we do something in a corporate setting, the question is, does anyone give a shit? Will anyone come? And they did. It was packed. It was great. So I don't know. I feel edified. But enough about Disrupt. There is a lot going on this week that we absolutely have to get to. And I'm talking about OpenAI, electric boats, post-IPO performance, what startups should get out of accelerators, and if they're being a little bit touchy, and then tech layoffs and the current labor market. But Mary Anne, first, we've also heard that the writers' strike is over. And TechCrunch, of course, is very interested in the AI component of this. Surprised by what the writers got out of their strike? What do you see here?

• 6:27Speaker 01

  I'm not really surprised. I just wish it didn't take so long for them to reach this agreement because I felt bad, right, for these writers. So I think it was, it took a little while, but I think it's a good thing. AI cannot be used to write or rewrite scripts, and AI-generated writing cannot be considered source material. And that the terms that they got included better residual payments, which I think is fair because I feel like they were worried about getting screwed out of those over time. So, and limitations on AI use, which is also very interesting.

• 7:00Speaker 00

  Yeah, Kirsten, there was conversations on the TechCrunch site about this when Amanda wrote about it. She said that copyrighting AI is still murky. So it feels like while there's some AI protections in here, we haven't fully sorted out what it's going to mean for art.

• 7:12Kirsten Korosec?

  Right. And also, we still haven't addressed the whole actors piece of it, right? This is just the writers. So it's an important one. I don't know what you were doing in terms of like consuming, like if you're big talk show viewers, but I started listening to this podcast with all the talk show hosts of late night called Strike Force Five. And it was really, I mean, the audio quality alone, I was like, the production quality wasn't there. The Stephen Colbert and others are on it. And wow, they, they actually admitted, but it was very clear that they desperately need good writers because they're funny,

• 7:53Kirsten Korosec?

  but not as funny as they could be with writers. They also were playing around with this crazy AI voice generator. And they did this for raising money for their writers. Okay. So they took sponsorship and everything like that. And it was, it was meant to be sort of like a fun thing to do, but also a charity. But they did bring up the AI piece through entertainment and it showed like how easy it was to do, to mimic their voices and put different intentions in there. It's resolved, but just them using that in the show for comedy showed how sticky it's going to be and how it's going to linger forever.

• 8:34Speaker 00

  Yes. Don't trust what you can see, hear, or read is the kind of the new maxim for

• 8:40Kirsten Korosec?

  Live, live and in person, in real life. It's the only thing.

• 8:44Speaker 01

  Yep. Yep. That's the only thing you can truly trust now.

• 8:48Speaker 00

  Well, they're not the only people who have a podcast who support writers because I believe that's the entire point of this show. So thank you for whoever sponsoring equity this month. You're the best. All right. Moving on to the main topics of the day. Mary Ann, I'm putting this in the I'm not shocked bucket, but OpenAI is apparently going to sell some stock on a secondary basis at a 80 to 90 billion dollar valuation.

• 9:09Speaker 01

  Yeah, that's, that's the rumor. Wall Street Journal broke the news earlier this week that OpenAI is reportedly raising these funds and employees would be allowed to sell their existing shares rather than the company issuing new shares, which would be good for the employees. Obviously a good way for them to, to cash in, but the valuation of 80 billion to 90 billion is wow, it's large. It's not shockingly large. It's, it's to be expected. I think given the popularity of chat GPT, but the, the craziness of this is just earlier this year in April, OpenAI had raised about $300 million. The valuation at the time was 29 billion. So we're talking about five or six months later, going up to possibly 90 billion, which is triple.

• 9:54Speaker 01

  That's insane.

• 9:55Speaker 00

  I mean, Kirsten, we saw a lot of these tripling valuations in 2021. It's OpenAI. It's half owned by Microsoft. So you baked into the entire like world of Windows, gonna hit a billion in revenue this year. I mean, man, okay. What's the max you'd pay for it?

• 10:12Kirsten Korosec?

  Are you familiar with the hype cycle?

• 10:16Speaker 00

  No, I've never heard of that. Talk me through it.

• 10:18Kirsten Korosec?

  So the hype cycle, I became deeply familiar with it when I was covering autonomous vehicles. And we're at like peak hype. I think this valuation reflects that. And what will happen eventually, even though the technology will continue to move forward, is that we're going to go through something called the trough of disillusionment. And

• 10:42Speaker 01

  Very familiar with that. Yes.

• 10:45Kirsten Korosec?

  And so I'm not saying that like this is a bad thing for OpenAI or anything like that. But for the, for the crazy valuations and anyone basically slapping the word generative AI in their, in their, their pitch deck and getting money, those days will end. It's part of the process and usually then the cream rises to the top. And, and so I feel like this is a one of the markers of hitting peak hype. But I don't want to say we've hit peak hype because something bigger will happen that will just completely be shocking and we'll go, here we are. Here is peak generative AI hype.

• 11:27Speaker 01

  I think you raise a great point, Kirsten. I mean, a couple of years back, Stripe was valued at, or maybe it was early last year. I don't even remember anymore, like 95 billion, making it either the most highly valued startup or one of the most highly valued startups in the world. Earlier this year, it raised at, I think about a $50 billion valuation. So to your point, the Stripe's $95 billion valuation probably reflected that peak hype cycle in the fintech sector. And so now we're in a similar situation with AI. Would you agree, Alex?

• 11:58Speaker 00

  I just want to add an example to Kirsten's excellent point, which is if you look back in time to when crypto was at the peak of its hype cycle, Coinbase pre-IPO on the secondary markets was valued at up to like $100 billion in a private auction. If I remember the, the numbers correctly, call it 90, call it 100, call it 110, whatever. The company didn't go public at that price and is certainly not worth that now. So there are moments when you can hit these secondary prices. The thing though, that I want to point out is that they raised at a $29 billion valuation from institutional investors. This is a secondary auction. It's, it's slightly different, if that makes sense.

• 12:31Speaker 01

  It's not a raise.

• 12:33Speaker 00

  Yeah, it's not a new hard valuation, but it does, I think, just show the hype that Kirsten's correctly outlining and how excited people are for this company. And I don't think I'd buy in at 90, but I'd probably buy in above 29, you know, I guess. I think, yeah, that feels right.

• 12:49Kirsten Korosec?

  Well, the one thing I'll point out now, very different because OpenAI is not a publicly traded company, but there are people still to this day that will tout Tesla as it's a good time to buy, even though, you know, the valuation is far higher than it was, obviously, like five, six years ago. So I think that there will always be people who will rationalize it and still want to get into the party. And then the rest of us will be like, oh, pass the bar, too expensive for me. And, and we'll just let that little ship pass. But right now, I think it's a little bit of a free for all and a bunch of people are gonna jump in because they don't want to be left behind. And it's all about the potential, right? And that's what really drives these valuations up on the hype is the, the hype

• 13:33Kirsten Korosec?

  and conversation around the potential, not necessarily like what is happening right now.

• 13:37Speaker 00

  Absolutely. But just to put these numbers into perspective compared to the biggest tech companies, I just ran the calculation. At $90 billion in Microsoft's current market cap, according to Google Finance, OpenAI is worth 3.9% of Microsoft.

• 13:52Speaker 01

  Oh, interesting.

• 13:53Speaker 00

  That's how big, big tech is compared to OpenAI at 90 billion. Now think about where your Series B company is. Now think about the pre-seed company. And that's why, you know, when I think about antitrust, which we're not going to talk about much today, we have to move on. But like, I mean, that scale differential, I think is a little bit lost on a lot of people because the numbers get so big, it happens to me too, you can't really put your fingers on them. But what you can put your fingers on is a new EV boat.

• 14:20Kirsten Korosec?

  Let's talk about boats.

• 14:21Speaker 00

  Let's talk about boats.

• 14:22Kirsten Korosec?

  EV boat startup, ARK, has only existed for two years. They launched in January 2021 and they just raised $70 million in fresh funding. And this is their Series B, a really interesting company. But actually, what I wanted to talk about today is just like, EV boats are becoming a crowded market, actually.

• 14:46Speaker 00

  Really?

• 14:46Kirsten Korosec?

  Yeah. Yeah. And it's interesting because there's a bunch, some were, are companies that have existed for a while and now like the timing is right. And then there are others that are, that are newer. So you've got more than a dozen, I would say, of these companies. Candela, Eboy, Navier, that Pure Watercraft, GM owns a quarter of it. And

• 15:10Kirsten Korosec?

  This company, Arc, comes from a classic tech background. One of the co-founders was a SpaceX engineer, a lot Tesla people, based in Los Angeles. And their whole thing is, you know, design, build, vertically integrated in Los Angeles. They started with a limited edition $300,000 boat, which sounds like a lot, but actually, believe it or not, that is not a lot of money for a boat. And unlike a lot of the other companies, they're not doing what's called a hydrofoil boat. So what their next thing that they're going to do is go after the wakeboarding, wakesurfing, water sports industry. So boats that need a wake, right?

• 15:53Kirsten Korosec?

  Hydrofoil boats don't make a wake, so it doesn't work. And they're really trying to target this industry. So if you've been down to any lake in the United States, you'll see people with these, you know, loud inboard motor speedboats, water skiing, wakeboarding, and this whole thing. And that's the market that they're going after. What was interesting to me is how every single investor from their Series A returned. And then Menlo Ventures also joined in. They attracted a ton of like celebrity interest at their seed rounds. So like Will Smith's Dreamers VC, Kevin Durant and Rich Kleiman's 35 Ventures, Sean Diddy Combs' Comms Enterprises. They all jumped in on this thing.

• 16:36Kirsten Korosec?

  And it feels very much like early days of electric vehicles, like that kind of investments, a sort of celebrity tie and stuff like that. So I'm very curious to see where this goes.

• 16:47Speaker 00

  Yeah, yeah. I'm really, really blown away by the list of companies you mentioned. You mentioned Candela, which I'd heard of. So I Googled them while you were talking. And I hate to admit it, but now I want to scrape together $450,000 to buy one of these hydrofoil boats because they look awesome.

• 17:04Kirsten Korosec?

  Yeah, they look super cool.

• 17:05Speaker 00

  But I didn't think, though, about the hydrofoil wake, wakeboarding point, and why it's important for them to actually sit on the water itself. That's an interesting nuance. I'm not a boat person. I have sailing merit badge, but like, that's it. How many boats get sold per year? I'm trying to figure out, like, what's the TAM here?

• 17:19Kirsten Korosec?

  Not tell me you were gonna ask this question in advance. So I have, I cannot pluck that out of my brain. But I would say that it's still niche, right? There's not as many boats sold per year as vehicles, which, you know, new vehicles sold in the United States, something like seventeen or more million a year. Obviously, we're not selling seventeen million boats a year, but the price point is much higher. The average water sports boat ranges somewhere between as low as seventy five thousand to about two hundred and fifty thousand dollars. And they're pushing the premium end. The CEO and founder kind of related it to the sedan industry,

• 18:01Kirsten Korosec?

  where, you know, the sedan industry is pretty diverse. You've got like the Toyota Camry and you have the Lexus. They're going after the Lexus market. And he said, interestingly, that doesn't mean lower volume sales. It actually, the, some of the best selling boats are the more premium boats that cost two hundred and fifty thousand dollars or so.

• 18:22Speaker 01

  Two things that stood out to me. First of all, no doubt that this seems really, really cool. I do think it's, it's very neat, but I choked a little bit at the three hundred thousand dollar price tag. Like, I know that may not seem like a lot for a boat, but I mean, just it's way out of reach for much of the population, right? I mean, only the select few or small percentage of the population could afford something like this. So, so the poor person in me, I guess, felt sort of like, oh, gosh, yeah, another, another startup that's focused only on rich people. But hey, to each his own. If they can afford it, fine, good for them. A seventy million dollar Series B is impressive in today's market. And one other side note, just to show you how ignorant I am about this sort of thing.

• 19:03Speaker 01

  When you, when you mentioned wake in your lead, Kirsten, I was like, wake? What does that mean? That someone's gonna die? What? How pitiful is that? Like, I didn't get it.

• 19:13Speaker 00

  We gotta get you on the water, Mary Ann.

• 19:15Speaker 01

  Yeah, I learned something. So, thank you.

• 19:17Speaker 00

  I mean, I know the American South is suffering from a drought, but surely there's at least one lake left in Texas we can put you on.

• 19:22Speaker 01

  Austin has two huge lakes, Lake Travis and Lake Austin, actually, but because of the drought, yeah, they're pretty low, but still, that's not an excuse for me not being more savvy here.

• 19:31Speaker 00

  If you have a boat in Austin, you are now contractually required to take Mary Ann out tubing. Thank you.

• 19:37Kirsten Korosec?

  Yes, take her tubing. One final note before we move on. You know, you're right that it is very much an upper echelon, you know, socioeconomic group we're talking about now. But as someone who did live in the Midwest for a while, there's a lot of inland lakes. If you start to think about, first of all, people hold on to boats for a really long time. Usually, they're not buying a new boat every year. And if you start to think about the pollution that goes into lakes through jet skis and, you know, outboard motors for a little fishing, all the way up to the ski boat, you know, and the noise pollution, if you start chipping away with that, it's a good thing. But yeah, it's not going to hit a huge tranche of society. Absolutely not.

• 20:21Speaker 01

  Yeah.

• 20:21Speaker 00

  Yeah, I agree with that. I will say, though, that if anyone has a boat that's electric and wants to take us out on it, we'll do some research. That'd be fair. I'll bring some sunscreen. We are going to compress our next topic because things have changed since I wrote it. So, earlier this week, my deal of the week is a note that we saw some kind of negative or softening signals in some key market data that really mattered. And if you guys recall, before Disrupt, we had a couple of IPOs happening, markets were up a little bit, valuations were expanding, multiples looked better, got those IPOs done, and then their stock prices were coming back down. People were talking about more interest rate hikes, stocks looked a little softer. And I was kind of like, huh, I wonder if we've seen a temporary surge. And since I wrote that, the stock market has reversed

• 21:02Speaker 00

  course and gone up a little bit, undercutting what I was trying to say. But it does feel like we have come off of a summer comparative high. And I'm just curious if what I'm seeing from late-stage companies and the public markets mirrors what you've seen from people more recently. So essentially, Mary Ann, have people been more enthusiastic over the summer? And then is that sentiment carried through to fall?

• 21:24Speaker 01

  You know, again, as I'm trapped in my little fintech bubble, it's hard for me to speak super, super generally, but I would say overall, I'm not seeing a lot going on in the fintech. Sector that's super encouraging, I would say 90 to 95% of the pitches I get are very small seed rounds.

• 21:43Speaker 00

  Interesting. So a far fewer late-stage deals, essentially.

• 21:47Speaker 01

  Oh, my gosh. I mean, not even, not just fewer late-stage deals, but not even like middle-stage deals, right? Like, it's, it's not often that I'm even getting pitched like Series B. Most of it's very early-stage. So that, again, I'm speaking from my fintech bubble. But with regards to your story, I would have to agree, though, that this, this tech bull run we've seen with a few companies going public doesn't necessarily mean that we're all of a sudden, like, the floodgates have opened, and now we're going to just see a bunch of companies finally go public. I think people

• 22:20Speaker 00

  Oh, yeah.

• 22:21Speaker 01

  Companies are still going to be very, very cautious about making such a big move right now.

• 22:25Speaker 00

  Yeah. And before we move on to YC, Kirsten, same question over to you. You've got your hands in transport and sustainability and just a whole bunch of stuff. So, observations and learnings from your side of the world.

• 22:35Kirsten Korosec?

  I am seeing growth rounds. So, you know, not as many early-stage, partly it's, I mean, I'm seeing those, but partially because transportation, climate tech, the seed rounds are actually quite large usually because you're, in many cases, you're talking about deep tech. It's just, it's not like throwing together like some app or something like that, or a software pitch. So I'm seeing definitely funding. It was slower in the beginning of the summer, but there's been a flurry of activity and we've seen quite a few really big deals. Redwood Materials comes to mind. They raised a billion dollars. And Stack AV, the, the, the former founders of Argo, you know, coming in with what we

• 23:20Kirsten Korosec?

  think is a billion dollars from SoftBank. We're still seeing those. The difference is, I'm seeing some companies that were at early stage, were having trouble getting to that next level. That was something I was seeing a lot, like, eight months ago, nine months ago, 10 months ago. That seems to, doors seem to creak open just a little bit. I'm starting to see a few of those deals. But it's not like crazy times, you know, circa 2019 in terms of, like, the flow of money.

• 23:52Speaker 00

  Yeah. And this is why it's hard to always say kind of what's going on out there in the market and why I get a lot of tweets from people who are like, well, your post does not match my experience. There's a lot of companies, there's a lot of startups, there's a lot of tech industries, there's a lot of countries, a lot of geographies, a lot of investors, and sorting out exactly how to explain the current moment is tough because it's not one single thing. It's a big mix of stuff. And that's our challenge, I think, for the next couple of weeks as all the Q3 venture data comes in, to sort it out and you kind of do a fair and reasonable picture of where things are and have been.

• 24:24Kirsten Korosec?

  It also is a lagging indicator in many cases because we find out about these raises that closed actually six months ago. What I'm trying to determine is when I hear activity of a company trying to raise not yet closed. And what I'm seeing is more success faster than people sort of spending many more months like they were to close.

• 24:47Speaker 00

  Got it. All right. Well, we are right back with more, and this time we're going to talk about Y Combinator. But first, a very short break.

• 24:57Speaker 00

  Mary Ann, I hear you would decide to walk up to a hornet's nest and punch it in the face. What's going on?

• 25:02Speaker 01

  Yeah. So the weekend before last, I was on X and saw some interesting posts. I have to train myself not to say Twitter and tweets, right? And flying around and I was kind of startled. And basically what happened is there was this sort of public squabble that had come out between Gary Tan, who was president and CEO of Y Combinator. He was tweeting in regards to a comment made by the leader of another accelerator called Neo, Ali Partovi, at a speech at Hack MIT. And Ali had said that the mentor ratio, or basically he was saying that his accelerator had as many mentors as Y Combinator,

• 25:45Speaker 01

  except they're serving 20 startups rather than 250 startups. Gary Tan took to X in response, saying competition is good. What isn't okay is when competitors like Neo slander Y Combinator by saying YC does not offer personal advice as they did recently on stage at MIT. This set off a flurry of exchanges, including some comments from Michael Siebel from YC and Ali, and just going back and forth with things like accusations against Ali for that there was a lot of dirt. Out there on him. I think he was accused of being a bully.

• 26:20Speaker 00

  The dirt comment made me really, really sit back and kind of get confused because it felt like a throwaway comment in a small panel that no one heard. And then I know we're all familiar with the Streisand effect, but like dismissing, trying to discredit thing that no one heard made everyone hear about it, right? And suddenly I now know much more about all the players and stuff. But the dirt comment from Michael Seibel, it just, it made me glad you wrote the story because we've had Michael on the show. We've had, I think Gary's been on the show too. And I've met Sam Alman, who used to be in charge of YC. And I've met many other people at the org over the years. And to a person, they're lovely in person, you know? And so like, when I saw this,

• 27:00Speaker 00

  I was just like, the tone, the posture, the reflexive anger, it struck me as slightly odd.

• 27:08Speaker 01

  I think it surprised a lot of people, right? That it just seemed like, it seemed like a very defensive stance on the part of YC for a comment that, yeah, it may have, you could see where it may have annoyed someone. But like you said, by amplifying it on X, it just only called more attention to it and the accelerator itself. And so a lot of people were kind of scratching their heads and thinking like, why is YC making such a big deal out of this? I mean, Kirsten, what do you think?

• 27:32Kirsten Korosec?

  Well, first of all, I'm shocked that somehow social media took a minor incident and somehow it got completely out of control. Like this has never happened before.

• 27:45Speaker 00

  Never.

• 27:46Kirsten Korosec?

  So surprised. But aside from that, we've seen how Twitter, or formerly known as Twitter, has become a stomping ground for unhinged debates and they get really personal really fast. What I was sort of interested is sort of taking a step back a little bit, is the role of accelerators, you know, like, put aside the personal fighting, which, you know, is spicy and sort of like, ooh, what's, what's this thing that they're referring to? But I'm curious what you both think about just accelerators in general, like, do they still hold the sort of importance and sway that they have? And is this just like a minor blip that will go away?

• 28:27Kirsten Korosec?

  Or is this speaking to a bigger problem about where they sit in the world and, you know, their, their level of importance, I guess?

• 28:35Speaker 01

  I mean, I think that there have been a couple of accelerators with negative headlines over the past year that that's not been great, like with Newchip that I wrote about with Christine here in Austin, that was basically accused of just ripping off founders and taking money from founders and not being 100% ethical or honest and all sorts of terrible things. There were some issues with OnDeck. YC, the thing with YC, it's got the name, right? It's got the name. It's and it's earned its reputation by having funded so many startups that went on to be wildly successful. And people complain about dilution, but I think

• 29:14Speaker 01

  it's still sort of seen as a prestigious thing to participate in a YC cohort. So the thing now, though, there's a lot more accelerators that are competing with YC. So it's, on the one hand, you can see why Y Combinator might be a little bit more defensive in light of all this increased competition.

• 29:34Speaker 00

  So that actually, that actually helps me understand this a little bit better because I was thinking, Kirsten's comment, your response, what, what does YC offer? Well, it does offer, at least in one context, the stamp that you are a YC founder, which does carry, I would say, some weight. It's like, I think it's the equivalent of like a Harvard MBA, you know, for startup folks. Like, you've done the thing, you got into the hard thing, and now you have this kind of stamp in your passport forever. But if you saw a couple of weeks ago, YC had a founders get together day for all their alumni, and, you know, they made a lot of noise about this, showing off how many people were there, that San Francisco is back. And as far as branding goes, it was quite well pulled off. But that's the

• 30:17Speaker 00

  thing. It was kind of a branding exercise to a degree. And I wonder if that's what they're trying to run defense for. And so that's why they're so up in arms, you know, frankly, pitchforks out about relatively modest Criticism. I mean, we caught a little bit of that from Gary during Demo Day. Even though I had corralled a bunch of tech ranch people specifically to sit through all the pitches, pick out their favorites and write about them. Like, you can't ask for a more polite and kind press cycle than that. But something we wrote, he didn't agree with, and so it was a big deal. And to me, at the time, I was like, I mean, I don't know, man. You're getting mostly free pats on the back here. Why don't you just chill?

• 30:58Speaker 00

  But if this is their posture in other ways about their brand, then the response then does make more sense and it is more part of a trend. I think YC's results speak for themselves and they don't need to go on the warpath, but I'm also not in charge of it. So it's their call.

• 31:12Kirsten Korosec?

  Right.

• 31:12Speaker 00

  Mary Ann, I just want to say that you treaded that line very finely in that post. And so you get all the, all the points and credits for that because that was probably not an easy thing to do without getting shouted at by, I think, everybody. So 10 points.

• 31:25Kirsten Korosec?

  Thank you. Thank you.

• 31:26Speaker 00

  So we're very short on time because we've talked about boats too much and that's my fault. But I do want to say that we have a post on the site about the labor market in the tech world. We did a panel about this at Disrupt that Becca wrote up. And the cool thing for tech companies is that labor has gotten fundamentally cheaper and that they're able to hire more. And the other thing that I found, to leave everyone with a positive news story and some good feeling, tech layoffs are really down. And I know we're still seeing occasional drips and drabs of people cutting staff, but like the era of mass layoffs has really slowed. And I'm just kind of curious, just to close this out, if we're optimistic that those layoffs will stay low for the rest of the year.

• 32:00Kirsten Korosec?

  When I first saw the headline, I was like, come on. And then I started thinking about it. And I'm like, you know, because we still see some layoffs, but not at the pace, right? So to your question though, I think that we won't go back to what we did as long as companies are not over hiring and going way beyond because that's what really kind of we saw happening around the pandemic. I saw so many companies in transportation. Continue to hire and then suddenly have to pull back and make cuts to adjust because then they needed to preserve runway. So I think that as long as these companies are conservative and hire in the key roles, that we're not going to see these widespread layoffs. To me, it really

• 32:45Kirsten Korosec?

  felt like a big correction was happening. And if they learn from that, then I expect layoffs to continue to slow.

• 32:55Speaker 00

  There is one, I would say exemption to what we're discussing. Tech companies that are going to stay operating do seem to be very much in a different gear when it comes to layoffs. But this does not take into account shutdowns. And a question that I have is, once companies that have been holding off for better venture climate, don't find it and don't raise and do have to either, you know, fire, sell or shut down, we will see more layoffs from that context. But I don't put those in the same bucket, if that makes sense. They're not the same thing as like, uh, what's the latest thing this week? Epic, cutting 16% of its staff, right? That's, that's more of the stuff we're talking about. And I know that news item just go against the trend we're discussing, but it doesn't actually change the numbers enough to, to make us wrong.

• 33:39Speaker 00

  So I, I'm still pleasantly surprised that more of my friends aren't going to get laid off. So that's great.

• 33:45Speaker 01

  Yeah, I, I would do feel like the worst is probably over from, you know, from the layoff perspective, like last year around this time, early, earlier this year, it was like every day. And they weren't just like small layoffs. We're like thousands of people were getting, you know, getting laid off. Sorry, I don't hate to use the word fired, but getting laid off, losing their jobs. And it was, it was kind of depressing to be honest. I felt like it was really impacting all of our moves because we were like, oh damn, another layoff. Oh no, another, another layoff. I mean, we don't enjoy covering this stuff. We hate it, right? We don't like to see people losing their jobs. So, um, but to your point, Alex, there are, there definitely are still cuts happening. I wrote about Talk Desk this week, laying off more workers. It's third round

• 34:26Speaker 01

  in the past 14 months. But as you said, it's not necessarily like, we're not seeing as many of these major mass, like thousands of people affected layoffs right now, but more, kind of more smaller scale strategic cuts seem to be happening.

• 34:39Kirsten Korosec?

  I have one potential exception as well, which is we do have the United Auto Workers strike happening. And while that is certainly not a startup related, there is somewhat of a trickle down effect. There should be probably wider strikes happening Friday if they don't figure this out with GM, Stellantis and Ford. And you're starting to see these automakers do temporary layoffs because of the ripple effect that is that this is causing. If this goes on long enough, I mean, they, I think they've estimated something like $150 million lost a day. So you could then start seeing these companies choosing not to do new projects

• 35:24Kirsten Korosec?

  more in the tech and innovation space, or invest in startups. Like, so it's not an immediate, but if this continues, I could see it sort of coming into our world more.

• 35:35Speaker 00

  Yeah. Also, I haven't heard someone talk about $150 million a day in losses since I read the WeWork IPO filing. I'll do my own sound effects today. All right. Listen, folks, we are out of time. We are back absolutely early Monday morning with your kickoff show, Wednesday with your favorite interview of the week, and of course, Friday with our friendly friends based news roundup of all things that matter in tech. But if you need even more from us in the meantime, well, we are on social media, we are on X and threads. That sounds lame. Anyways, we're Equity Pod over there if you want to hang out with us. And Kirsten, Mary Ann, thank you so much.

• 36:09Speaker 01

  Thank you. Bye.

• 36:10Kirsten Korosec?

  Bye.

• 36:13Speaker 00

  Equity is hosted by myself, editor in chief of TechCrunch Plus, Alex Wilhelm, and TechCrunch senior reporter, Mary Ann Azvedo. We are produced by Teresa Locan Solo with editing by Kell. Bryce Durbin is our illustrator. And 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.