Garry Tan breaks down the key metric in Y Combinator’s new list of top startups

And Garry Tan, president and CEO of famed startup accelerator Y Combinator, wants companies facing the downturn in 2023 to focus on what he calls “edible” revenue—the kind that can help them pay salaries, buy groceries, and pay bills.

The problem, according to Tan, is when you “look at how people talk about revenue, often what they’re actually saying is sort of top line, or like, bookings, or next-year sales,” he told me. “It’s like chicanery—it’s not really the straight and narrow.” To emphasize what startups should be measuring, and to inspire aspiring founders, the accelerator is publishing its inaugural list of the top 50 Y Combinator companies by net revenue. The group includes now-public companies as well as younger startups that have all gone through the YC program, as it’s commonly known, and achieved the highest net revenue in 2022. They collectively generated over $50 billion of revenue last year. (Y Combinator would not reveal company-specific revenue numbers as those are confidential, but did tell me there was a minimum revenue threshold.)

Tan says that “in order for us to really try to raise up companies and encourage people to build businesses of real, great value, we really tried to focus this on gross profit and net revenue,” he tells me. Those metrics are even more important in a fundraising drought and a broader economic decline: “Revenue is certainly only one of many different forms of impact, but it also happens to be the one in the downmarket that’s correlated with not just survival but thriving,” he says.

On the list are public companies including Airbnb and Coinbase, as well as relative newcomers like Whatnot, which participated in a YC batch in 2020, and Deel and Nowports, which went through YC in 2019. Each company on the list—including Stripe, Flexport, DoorDash, EquipmentShare, Gusto, and Scale AI—is valued at more than $150 million, and they’ve collectively raised $40 billion, according to Y Combinator.

Logan Head, cofounder of livestream shopping marketplace Whatnot, which made the list, told me his company has been growing very healthily, but that, in these tougher conditions, every startup needs to be “a little bit more frugal in terms of how they operate.” He says Whatnot has been focused on hiring this year in a disciplined way (they have around 50 open roles, he said) and is also optimizing costs by doing things like negotiating with providers. Whatnot raised a $260 million Series D round last July, so they’re not thinking about fundraising again imminently, Head told me (“Next year, maybe”). 

Of course, the list also acts as a measure for YC itself: The 18-year-old accelerator initially invests a small sum for a 7% stake in these startups. When I asked about YC’s returns, Tan was vague, but said that even after five “significantly” better years of metrics, over the next few decades, he predicts the numbers “will actually eclipse what we’ve already seen.” 

But a lot has changed this year. Tan’s return to head up YC in January after a roughly eight-year stint focusing on running Initialized Capital, the VC firm he cofounded with Alexis Ohanian in 2011, coincided with a rocky time in the market. And he’s made some controversial decisions so far, like ending the accelerator’s late-stage fund, dubbed its continuity fund, which focused on investing in older companies. YC also laid off 17 employees at the time. The choice sparked backlash among founders who were surprised and concerned about the move. 

Tan stands by the decision, telling me that the shift will help YC become a better partner to other VC firms—including Initialized—which can fund later rounds, instead of “competing against them,” and will preserve YC’s accelerator focus.

Founders’ interest hasn’t dwindled: Tan says the accelerator just recorded an all-time high number of applications—over 24,000—and a record low acceptance rate—less than 1%.

See you tomorrow,

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- NoTraffic, a Palo Alto- and Tel Aviv-based mobility platform, raised $50 million in Series B funding. M&G Investments led the round and was joined by VNV Global, UMC Capital, Grove Ventures, Vektor Partners, Next Gear Ventures, North First Ventures, Meitav Investment House, Alchimia Investments, and TMG.

- TreasurySpring, a London-based investment platform, raised $29 million in Series B funding. Balderton Capital led the round and was joined by Mubadala Capital, ETFS Capital, MMC Ventures, and Anthemis Group.

- Luminopia, a Cambridge, Mass.-based neuro-visual disorders treatment company, raised an additional $16 million Series A funding. U.S. Venture Partners led the round and was joined by Broadfin Advisors, ShangBay Capital, and Vertical Group. 

- BeeKeeperAI, a San Francisco-based collaboration software provider for A.I. development and deployment, raised $12.1 million in Series A funding. Sante Ventures led the round and was joined by the Icahn School of Medicine at Mount Sinai, AIX Ventures, Continuum Health Ventures, TA Group Holdings, and UCSF. 

- Resistant AI, a Prague-based A.I. and machine learning security company for financial crime, raised an additional $11 million in Series A funding. Notion Capital, GV, Index Ventures, Credo Ventures, and Seedcamp invested in the round.

- Loora, a Tel Aviv-based generative A.I. English language learning company, raised $9.25 million in seed funding. Emerge led the round and was joined by Two Lanterns Venture Partners and Kaedan Capital. 

- BentoML, a San Francisco-based platform for A.I. application developers, raised $9 million in seed funding. DCM led the round and was joined by Bow Capital. 

- Raincoat, a San Juan, Puerto Rico-based climate insurance solutions company, raised an additional $6.5 million in seed funding. TwoSigma Ventures and Mundi Ventures co-led the round and were joined by Revolution’s Rise of the Rest Seed Fund and EleFund.

- Bluedot, a San Francisco-based EV charging payments platform, raised $5 million in funding. Y Combinator, Leap Forward, Operator Stack, LACI Impact Fund, Caffeinated Capital, Ford Driventure, ScaleX, and other angels.

- MedScout, an Austin-based revenue acceleration platform for life sciences companies, raised $5 million in seed funding. Stage 2 Capital led the round and was joined by LiveOak Venture Partners, Alumni Ventures, and a16z’s Scout Fund. 

PRIVATE EQUITY

- General Atlantic invested approximately €150 million ($163.7 million) in Odoo, a Louvain-la-Neuve, Belgium-based business software applications provider for small and medium-sized enterprises. 

- Breck Partners acquired Alloy Wheel Repair Specialists, a Norcross, Ga.-based light vehicle wheel repair, remanufacturing, and services provider. Financial terms were not disclosed. 

- Comvest acquired Your Behavioral Health, a Torrance, Calif.-based behavioral health services platform. Financial terms were not disclosed.

- Egis, backed by Tikehau Capital, agreed to acquire McIntosh Perry, a Toronto-based engineering services consulting firm. Financial terms were not disclosed.

- Zavation Medical Products, a Gemspring Capital portfolio company acquired CoreLink, a St. Louis, Mo.-based spinal implant and instrumentation systems provider, from The Stephens Group. Financial terms were not disclosed. 

EXITS

- IBM agreed to acquire Apptio, a Bellevue, Wash.-based financial and operational IT management and optimization software company, from Vista Equity Partners for $4.6 billion.

OTHER

- Databricks agreed to acquire MosaicML, a San Francisco-based generative A.I. startup. The deal is valued at $1.3 billion. 

- Optum agreed to acquire Amedisys, a Baton Rouge, La.-based home health, hospice, and high-acuity care provider, for $101 per share. 

SPAC

- Pinstripes, a Northbrook, Ill.-based dining and entertainment brand, agreed to go public via a merger with Banyan Acquisition Corp., a SPAC. The deal values the company at approximately $520 million.

PEOPLE

- IQ Capital, a London-based venture capital firm, promoted Archie Muirhead and Alex Wilson to partner. 

- Parthenon Capital, an Austin, Boston, and San Francisco-based private equity firm, promoted Dan Killeen to partner.

- Transom Capital Group, a Los Angeles-based private equity firm, hired Kevin Waddell as an operating Partner. Formerly, he was with SemiTorr Group.