As YCombinator shares its first ever list of top companies by revenue, is it a sign to the startup ecosystem about where VCs are headed in terms of priority metrics for their portfolio companies?
For the first time ever, San Francisco-based accelerator YCombinator has released its top 50 alumni companies by revenue list. The esteemed accelerator is known for using valuations to rank companies. Of the listed companies, Africa has only one representative: Wave, the Senegalese mobile money app. Other startups which feature include Airbnb, Dropbox, Coinbase, and Reddit.
Since the start of the VC downturn in early 2022, YCombinator has stressed to founders the need to move from a “growth at all costs” mentality to building business models which show a path to profitability. Is this new trend of spotlighting revenue as a core metric in judging alumni’s success the beginning of the accelerator’s shift towards bottomline growth heralding?
“In a downturn, every investor is going to be frugal with their funds because they are so hard to come by, so its not surprising to see YCombinator insisting on the importance of revenue as a growth metric. Of course revenue is still a topline metric so I think eventually, we will see them maybe sharing a Top 50 most profitable startups list,” he said.
What does this development mean for African startups?
According to Ato Bentsi-Enchill, head of special purpose vehicles (SPVs) at Microtraction, a Nigerian early stage VC firm, the list should encourage African startups to prioritise metrics like revenue instead of growth at all costs.
“Maybe this is a way to encourage startups who perhaps want to apply to YCombinator by showing them the revenue-making abilities of some of their alumni. At the same time, maybe its a subtle reminder to founders that at the end of the day, you’re building a business and business is about making money, and for anyone to invest in your business,” he said to TechCabal.
As VC dollars continue to be a unicorn, hard to find, Bentsi-Enchill advises startups that beyond focusing on revenue, it is important for them to think of addressing problems beyond just Africa. Global problem solving in a sustainable and business-sound way will be the next wave.
“[At Microtraction], we are also thinking through refining our thesis to make sure that we’re investing in founders whose businesses have applications both on the continent, but can also be expandable across the world and address far-reaching problems,” he added.
Regardless of YCombinator’s reasoning for putting out such a list for the first time ever, the fact that such a leading global investor is a sign of wind of change is blowing through the VC industry and whether African startups like it or not, they will have to adapt to the new modus operandi.