The risky new way YC startups are raising seed rounds

Presented by GOTO Market Institute

Hey SaaS Sentinel Readers. YC batch startups are raising tiny seed rounds, cap table company, Carta, takes a huge valuation hit, and AI may be our last hope of saving Earth’s coral reefs. Here’s what’s happening in SaaS this week.

• Y Combinator startups are raising tiny seed rounds with high valuations from angels to avoid dilution, but risk being underfunded for future rounds without institutional investors.

• Former high-flyer Carta crashes back down to a $2 billion valuation as challenges with its business model and growth potential are exposed after hype-driven gains.

• Google is leveraging AI trained on coral reef audio recordings to efficiently monitor and analyze ocean health to aid reef conservation efforts.

YC startups seek tiny seed rounds but shun lead investors

Startup founders coming out of storied accelerator Y Combinator are getting a harsh dose of reality in 2024's chilly funding environment. Gone are the days of bloated seed rounds and sky-high paper valuations.

In this batch, YC startups are raising tiny seed rounds of around $1.5 million to $2 million, a fraction of the $3 million+ median these days. But they still want the prestige, asking for ~$15 million valuations after the round. Founders are only doling out 10% equity, too (excluding YC's standard 7% stake).

That's slim pickings for institutional seed funds who are used to owning 20%+ after early rounds. But YC startups have backers who don't play by typical VC rules: angel investors that are flush with FOMO. They're cobbling together micro-checks from dozens of individuals (like Aunt Becky who finally bought Bitcoin).

This lifts startup valuations above what most seed-stage non-YC startups can get — but it also leaves them high and dry later. The lack of major seed investors investing in these startups means they won’t have deep-pocketed lead investors to turn to for bridge financing before raising a Series A round. And by trying to avoid dilution now, these startups run the risk of being starved for cash later.

Some YC founders are fine with that, treating these rounds as pre-seed money. For others, it's desperation dressed up as strategy.

The eat-your-veggie-valuation approach is probably wise in the long run. But don't be surprised if seed VCs scoff at investing in startups that snubbed them from their equity stakes earlier.

So what do you think? Are YC founders being scrappy or short-sighted with their tiny seed rounds?

Read more.

They led marketing for the biggest tech sale of all time…

If you want to win in today’s market, you can’t rely on a new tech stack or cutting marginal costs in your business. You need a marketing strategy that drives results.

The team at GOTO Market Institute had spent 30 years building a no-nonsense marketing playbook that helped create over $8B in shareholder value. 

Now, they are spilling the secrets of their blueprint marketing strategy.

With GOTO Market Institute, you’ll learn how to:

• Perfect your audience targeting, messaging, and market fit.

• Transform your content into powerful marketing campaigns.

• Understand whether pipeline or lead gen. Marketing is the best approach for your business.

• How to improve your conversion rates across all your campaigns

• Achieve seamless collaboration between your sales and marketing teams.

• Craft a PR strategy that sets your company a part

• Develop a website that drives results.

And that’s only scratching the surface. Ready to transform your marketing strategy?

DISCOUNT! Newsletter subscribers get an exclusive 10% OFF! Use code SENTINEL

Cap table startup, Carta’s, valuation to be cut by $6.5 billion

Sky-high startup valuations can't defy gravity forever. Just ask Carta

The cap table startup once boasted a $7.4 billion valuation after delivering some financial engineering on its own shares. But recent troubles will bring it back down to earth with a startling thud.

Carta is planning a sale of existing shares that would value the company at just $2 billion — a massive plunge from the $8.5 billion it reportedly attained in late 2022.

Turns out you can only float on hot air for so long before the winds change. Carta expanded from mundane cap table tools into a "private stock market" for companies. But industry insiders questioned its hodgepodge business model and ability to scale.

Then a PR crisis struck. Carta was accused of abusing customer data to peddle their shares… not a great look for a private stock exchange.

After first blaming a rogue employee, Carta eventually axed its secondary trading biz entirely — the source of those pumped-up valuations. Oops.

All that’s left standing is their core cap table product. While this product is a reliable source of cash flow, it’s nowhere near as attractive to investors as a “private stock market”. Carta's revenue topped $380 million last year, but it still lost $65 million.

Seems the heady days of overvalued, overhyped tech startups are coming to an end, and Carta's crash back to reality shows the hangover hits hard.

Read more.

Google dives into reef conservation (with the help of AI)

The fate of Earth's fragile coral reefs now lies in the hands of...AI?

Google and DeepMind are on a mission to save the reefs with a new AI system called SurfPerch. It's designed to analyze the health of coral ecosystems by "listening" to them.

See, reefs are noisy places filled with chirping fish, snapping shrimp, and gurgling urchins. By training SurfPerch on thousands of hours of underwater audio recordings, researchers can monitor reef activity in new ways.

"This allows us to analyze new datasets with far more efficiency than previously possible, removing the need for training on expensive GPU processors and opening new opportunities to understand reef communities and conservation of these," the Google Research team explained.

The AI tracker learns to identify fish calls and other sounds to assess reef biodiversity and changes over time. According to marine biologists Steve Simpson and Ben Williams, this allows more efficient monitoring than manually reviewing recordings.

And early tests uncovered differences between protected and damaged reef sites after "listening in." — the more audio fed to SurfPerch, the smarter it gets at parsing reef chatter.

SurfPerch isn't fully waterproof yet, though. Google turbocharged the model by leveraging...bird songs. Turns out fish and fowl vocal patterns aren't so different to AI ears.

"Although bird sounds and reef recordings are very different, there were common patterns between bird songs and fish sounds that the model was able to learn from, they found," the researchers noted.

Read more.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know — did you learn something from today’s newsletter?

Until next time!