Reverse engineering YC’s India outreach

While YC is good at remotely evaluating companies across the globe, according to Cheung, in the absence of an India partner it relies strongly on Indian founders who are its alumni to provide insights. Both for the “product-market fit” for applications received from India and the basic diligence on applicants. This, in addition to a 10-minute pitch and question-answer session with YC top management, is what decides whether an Indian applicant makes the cut or not.

Impact Of The Strong Network

These requests to alumni started flowing in during the latter part of 2016. Ritesh Malik, co-founder of co-working space Innov8, which made it to the Summer 2016 batch of YC, says, “Some of the Indian companies which were a part of previous batches at Y Combinator did not scale as much as they were expected to and they (YC) were not happy with the quality of batches.” He adds that these requests can be a general opinion or part of the review call with YC.

The work done by the YC alumni relies on a network effect, unlike the role of a part-time or full-time partner at YC who makes a carry, or simply, a share of profits of the total investment returned to YC. Most of the partners at YC are big names in Silicon Valley, including a large number from its alumni. For example, Jared Friedman, the partner at YC was a co-founder of Scribd which was funded by YC in 2006. Adora Cheung was the co-founder of now closed on-demand services company Homejoy, a part of the YC program in 2010.

Having a presence in the country does not guarantee better evaluation, says Pankaj Jain who was previously a partner at another accelerator 500 Startups and led its India investments. “If you know the market and have the right relationships, it’s not too difficult to evaluate companies remotely.

I lived in India for seven years. When I moved back to NYC in 2014, I traveled to India constantly. In 2015, I brought in two people full time [for the India program],” says Jain who was a partner at 500 Startups program from 2012 to 2016. He left the firm after it put the $25 million Kulfi Fund for investments in the Indian subcontinent on the back-burner. (Read our earlier story on 500 Startups’ India adventure.)

Even though Jain may discount the local presence, it is worth noting that the investments by the program peaked in 2015 with 20 investments in India during the year.

In addition, in the last two-three years, many corporate and professional accelerators have begun taking informed bets in India. While Microsoft Ventures has been around for five years, SAP, Amazon Web Services, and Autodesk made a formal entry with their accelerators in 2016. These programs provide investment, cloud credits and relevant freebies which help early-stage companies cut down on the cost of running the business. Industry connections and client introductions are a given, too. Multiple state governments have joined the fray too, providing space and capital for young companies.

Third-Largest Setup

Apart from the promise of the world’s third-largest startup location, YC’s bet on India is driven by a subtle push from investors and venture capitalists in the Bay Area who are keen on discovering the next Grab, Flipkart or Paytm*.

The program has been keen on picking companies in the financial technology space, payments and lending from India. “A lot of what we hear about is consumer and marketplace companies. But there’s also a lot of up-and-coming in B2B and development tools,” says Cheung about the sectors which seem to be working well in India and Southeast Asia in general.

“One thing which has changed since 2014 is that YC now reimburses the founders for their flying cost—this was not there earlier,” says Archit Gupta, founder of Cleartax. It indicates the thought process behind international participation in the program, he says. “Earlier the budget was restricted for only 2-3 founders flying within the US.”

It is clear that YC is looking to increase the diversity in its program.