At Silicon Valley's top start-up event, investors use a Tinder-like app to score meetings with hot companies

Key Points
  • Early-stage venture investors say too much money is chasing too few great deals today.
  • Start-ups graduating from Silicon Valley start-up factory Y Combinator have even turned down meetings with potential backers.
  • At the incubator's investor demo day, investors use an app to indicate which start-ups they'd like to meet, and are matched only if start-ups agree.
Sam Altman, president of Y Combinator
Photo by Bloomberg

There's a glut in venture capital money chasing tech start-ups these days, as investors search for the next Uber or Airbnb.

One sign: the sheer number of investors who turned up for investors' demo days hosted this week by Y Combinator (YC), Silicon Valley's premiere start-up factory.

Investors far outnumbered start-ups at the YC event held Wednesday at the Computer History Museum in Mountain View, California. Some lesser-known funds and angel investors failed to score any meetings with companies that piqued their interest. That's despite the fact there were plenty of tech start-ups to choose from: 124 graduated from the YC Spring 2017 batch.

Several investors, who declined to be named for this story, lamented the competition for meetings with the most intriguing tech ventures there, and for great deals in general. Valuations, they said, can spike over the course of 48 hours as start-ups realize the extent of investors' demand and raise their prices accordingly.

Certainly, YC is exceptional. Its pioneering accelerator and venture fund gave rise to Airbnb, Dropbox, Reddit and Stripe, all companies valued over $1 billion at this point.

YC invites press, investors and other select partners to its general purpose demo days. But first, they have to score an invite. YC even controls who is allowed to watch demo days on a livestream online.

But in the last couple of years, YC began hosting separate demo days for investors only, which are generally closed to press. (CNBC was invited to attend this year under the condition of keeping certain companies' information off the record.)

The investor demo days feel something like a speed dating session. During preceding demo days, investors are asked to watch companies' pitches, and indicate which ones they liked through an app.

At the end of those demo days, investors' "likes" are collected into a list. The YC app then asks them to rank their liked startups, and check a box for each founding team they want to meet, with room to leave a personal note. A note could be something like: "I worked in retail for 25 years before starting my fund. So I want to meet this e-commerce company because I think I can help the company navigate and even compete with Amazon."

YC then matches start-up founders with investors if there's mutual interest. It schedules meetings of about a half-hour each at the closed, investor demo days.

This year, investors traveled in from New York, Seattle and other U.S. venture capital hubs, as well as from far away locales like Mexico City and London, trying to score intros to and face-time with entrepreneurs they hope will become the next generation's Mark Zuckerberg or Elon Musk.

Those who failed to score meetings only have themselves to blame, said Romulus Capital founder Krishna K. Gupta. His Boston-based venture firm has invested in about 10 Y Combinator companies in the past, including an equipment rentals platform for contractors, EquipmentShare, and a E La Carte which provides pay-at-the-table systems to restaurants.

Gupta explained, "You know that Y Combinator has really optimized the investor-to-company interactions. Even if you feel like an unknown quantity in Silicon Valley, let's say because you're a young fund or an overseas fund or anything else, it's up to you to find a company that fits your fund, and convey that with an effective message."

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