Impact Investment Preliminary Analysis of Y Combinator Summer Cohort 2023

Y Combinator’s latest incubator cohort, called S2023, accepted 240 startups out of a whopping 24,000 applicants, according to William Stringer. That small percentage of founders are increasing their likelihood of success, simply by being selected into such a powerful incubator. However, it got me thinking about YC’s startup selection process relative to impact investing. I’m growing more concerned about incubators and accelerators not trying to solve large societal problems, which is reflected in the startups they select. As fires rage in Maui, that by early indications, have been significantly aided by human settlement and non-indigenous plants, do we really need more AI video startups raising millions?

I decided to test this theory with a preliminary analysis of Y Combinator’s most recent cohort of startups, through the lens of impact investing. I’d like to get through all 240 companies but for now, I’ve picked the first 25 startups from YC’s website under batch S2023. I’d like to give kudos to X user Dave Messina for motivating me to dig deeper into this idea. Again, this is a preliminary look and I’m coming at this as an “impact investor.” For anyone that doesn’t know, impact investing sounds like a self explanatory concept—investing in companies that have big missions— but there are nuances to it. For example, startups that hire workers that don’t fit traditional molds (race, education, etc.), pay higher than average wages to employees, and so on. Impact investing has gained traction over the last five years as more celebrities have jumped into entrepreneurship and expanded investment portfolios to include startups that aren’t doing “business as usual.” Ashton Kutcher was early to this trend (along with Bill Gates and others) but impact investing finally seems to have hit its stride.

Back to YCS2023. Here’s the methodology I’ve created, which is only a starting point for conversational purposes. Please share any other models you’ve seen that have been helpful for evaluating the impact of startups and investors. In fact, I’d love to crowdsource my inputs so we attempt to remove bias, which right now is just my opinion reflected in the model below.

Valley Innovators Impact Index (VIII) is a weighted formula for evaluating the potential of a startup for impact investors

The equation is:

VIII = societal impact x societal reach x time to impact

• Societal impact means can the business change our lives significantly for the better, as a collective society.

• Societal reach means how may people on the planet can benefit from this core business idea.

• Time to impact means how long can we estimate it to take for significant impact to be achieved.

For the model, I’ve used a scale of 1-10 for each variable with 1 being lowest impact and 10 being highest impact.

Here is the list of 25 YC S2023 startups I applied VIII methodology to:

View the google doc here to see the source links, scores, and I’ll add more startups to the analysis over time.

As an impact investor, what if we require a score of over 125 points to even consider due diligence for investing in a startup? I’m assuming 5x5x5 is a baseline average. So the question is, how many of YC S2023 startups would make the cut for deeper analysis from an impact investor?

Here is the list of 25 YC S2023 startups adjusted by VIII score:

According to VIII, the answer is roughly half of the list! I’ll be curious to see if this average holds as we increase to all 240 YC S2023 startups but it’s slightly higher than I expected. I suppose another way to think about this is, however, in a high profile incubator like Y Combinator, where only 1% of startups are selected to participate, why wouldn’t this number be closer to 100%?

Let’s inspire more founders to think bigger and gain access to impact investment funds.

What are your thoughts on VIIl, impact investing, incubators, or anything else related to this post? Find me on X/Twitter or LinkedIn and let me know.