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Y Combinator’s latest batch has just one Latin American startup, largely because of A.I.

Brazilian startup Salvy, an enterprise mobile operator, is the only Latin America-based company in Y Combinator’s latest batch, the Y Combinator accelerator confirmed to TechCrunch.

That’s a significant drop from the cohort that attended accelerators remotely during the pandemic, and from recent classes: 33 Latin American companies in Y Combinator’s winter 2022 batch and 16 in summer 2022 , 10 in winter 2023.

One caveat to the winter 2024 set of data points is that this catalog is not exhaustive; some companies prefer to remain in stealth mode. But that doesn’t explain the steady and now seemingly complete decline of Latin American startups in the company’s startup pool, nor the fact that Y Combinator’s post-pandemic batch sizes have shrunk and are back in person again. In fact, you have to go back to the summer of 2015 to find a panel with just one Latinx participant.

The accelerator also reduces previous efforts to incentivize startups to apply, such as global promotional tours that used to stop in Brazil, Colombia or Mexico. TechCrunch has learned that the last such tour took place in 2022 and was virtual. This is one of several things that have happened since YC resumed in-person batches in 2022.

Cristóbal Griffero, whose startup Fintoc was part of the YC W21 cohort, said: “The number of deals in YC overall has declined, not just in Latin America. But if we consider that about 8% of the W22 batch of companies are from the region, and currently less than 1% of companies are from the region, it’s clear that Latin America is disproportionately affected.”

Unpacking what’s going on is a valuable exercise in understanding not only what Y Combinator will look like in 2024, but the state of Latin American startups more broadly, and where the Rappis of tomorrow can fit in.

The smell of yesterday?

YC declined to comment; but so far, we know its team has always said it funds founders, not ideas. In other words, it does not consider the startup category. Still, its batches often reveal a lot about what’s popular among entrepreneurs and investors. This year, it’s obviously artificial intelligence.

My colleague Kyle Wiggers noted that AI startups dominated Y Combinator’s Winter 2024 Demo Days, with nearly double the number in the Winter 2023 batch and the Winter 2021 batch. Nearly three times the size of the batch.

On the other hand, fintech representation has shrunk compared to previous batches: only 8% of YC’s latest batch of directors are classified as fintech, compared with 24% in winter 2022. Historically, about one-third of YC’s 231 Latin American companies have focused on fintech.

These data points could go a long way toward explaining why Latin American startups are less represented in this cohort. In a region where there is a strong need for better financial inclusion, fintech has long been an area that entrepreneurs are keen to get involved in. In comparison, deep tech companies account for only 10% of the startup ecosystem in Latin America and the Caribbean.

Deep tech and fintech are not mutually exclusive; AI-powered fraud detection, for example, falls into both categories. But YC, which aspires to artificial intelligence, still doesn’t quite fit in with Latin America’s tech scene.

It’s not just AI, though; YC’s take on AI makes it more geographically challenging. Of the latest batch of 89 AI startups, 73 are based in the United States and Canada, three are based in Europe and 26 are remotely located. So much for the Paris AI craze.

Perhaps France’s AI scene is exaggerated. But judging from the number of pitchers with French accents on Demo Day, YC supports no fewer European founders than in previous years, and there are quite a few representatives from France. Only this time, their headquarters may not be in Europe—there are only 13 batches of participants, according to YC’s directory.

Despite its virtual program, YC has actually been a Bay Area-based program for most of its 15 years. In a conversation between longtime YC partners Dalton Caldwell and Michael Seibel, Seibel acknowledged that startups can still “win” elsewhere, but believes the Bay Area Still the best choice.

“Getting into the Bay Area is relatively easy [compared] And all the other things you have to do to be successful.Choosing a place to live is relatively easy [compared] As with all other things, you have to choose right. Why not choose the easy way to win? This is a simple percentage multiplier. And this game is too difficult, you should choose the easy one. “

Brazilian entrepreneur Bruno Vieira Costa told TechCrunch that belief is more widely shared among AI startups. “My own company is building generative AI models [and] Based in Rio de Janeiro, so I don’t think that’s necessarily true, but I understand that for more junior founders, it has to be about mindset and references. ” said Vieira Costa, whose no-code startup Abstra was part of Y Combinator’s 2021 summer program.

Abstra’s founders believe that in-person batches are better for founder success, but that doesn’t mean there aren’t trade-offs. For many Latin American founders, moving to the Bay Area is difficult and potentially riskier. Vieira Costa said their experience, university background and professional networks did not resonate well with U.S. investors. Instead, American references abounded during Demo Day, with founders mentioning their “national” reach as well as their degrees, but their fame wasn’t always international.

While monocultures are not a trend, perhaps YC is also returning to its US-centric roots. YC’s latest request for startups calls on companies to “bring manufacturing back to the U.S.” — a term that annoys many in Latin America — while the “New Defense Technologies” section only mentions the U.S. “where Silicon Valley was born in the early 20th century.” . Research and development areas of the U.S. military. […] This decade is the time for Silicon Valley to return to its roots,” wrote partners Jared Friedman and Gustaf Alströmer.

If YC continues to favor American companies, that doesn’t mean its population will become less diverse. Several YC alumni whose founders are Hispanic were in the United States when they applied.

Do Latin American startups need YC?

Founders who go to YC often call the experience “life-changing,” and the impact often extends beyond their companies. For example, Colombian startup and YC alumnus Rappi transformed into a startup factory. By studying its multiplier effect, startup network Endeavor found that 130 founders had previously worked at the on-demand delivery company, whose founders had also invested in two dozen startups.

Rappi is on the list of the highest-paid YC alumni, but beyond that, there’s not much overlap between the accelerator’s investments in Latin America and the region’s top startups.

“None of the largest Latin American startups in the past five years have gone through YC,” Latitud co-founder and COO Gina Gotthilf told TechCrunch via email. “We don’t know why, but It could be that YC is better at evaluating US markets and opportunities. Latin America is difficult, and if you don’t have local knowledge and a strong network, it’s hard to understand a lot of the local context.”

Latitud describes itself as “the operating system for every venture-backed company in Latin America” ​​and provides a trading software platform with funding from a16z and NFX. This also includes writing your own checks. In a way, it makes YC a competitor, but also a potential co-investor. The latest Brazilian company, Salvy, is a Latitud portfolio company, “and we are the first investors in the company,” Gotthilf said.

While Gotthilf is optimistic about the region, she also understands why Latin America has fewer startups in the AI-heavy crowd. “Most companies are selling [YC] Something is being done in artificial intelligence. I believe that the core AI companies building LLMs in Silicon Valley currently have a strong presence, and that real innovation in the field will not come from Latin America so quickly. “

It’s also a reminder that many startups in the region don’t apply to YC or even seek venture capital at all. A recent report on SaaS startups in Latin America showed that one-third of companies chose the bootstrap route. This has pros and cons: It drives startups to be more efficient, but it can also hinder larger ambitions.

Grifolo believes another factor is the fragmentation of the region, which makes it harder for founders to support each other, but he’s optimistic. “That may change soon, as I see more and more founders from the region starting to think globally rather than self-imposed ‘X in Latin America’ limitations.”

Unlike predecessors like Mercado Libre, these companies will find local and global venture capital firms willing to look at them and offer them less dilutive terms that were not common before YC emerged as a potential competitor.

The question remains: Will this number increase for investors? Because large-scale exits are still rare for Latin American startups. But even if they succeed, doing it outside of YC means they won’t be part of its network of 10,000 alumni. Is it a lose-lose situation, or is it the price that SF has to pay for evolving from a “doomsday cycle” to a “prosperity cycle”? You decide.

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