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Ebola Drugs, Prison Inmates, Real, Live Rockets: Y Combinator's New Launchpad

This year's Demo Day showcases a bold new Y Combinator.

"My name is Nadir. I am CEO of Bagaveev Coporation. And the space race is back."

The line, delivered with deadpan intensity by Nadir Bagaveyev, was part of the 31-year-old CEO's 150-second presentation at Y Combinator's Demo Day earlier this week. The invitation-only event, which actually took place over the course of two days, showcased nearly all of the 114 startups in YC's current batch, which started in January and which I've been following over the past few months as part of a Fast Company series.

YC's Demo Days were once scruffy affairs: founders simply ambled up to a makeshift stage and took a quarter of an hour to click through a prototype site as a few investors looked on. The format, which has been adopted by dozens of aspiring startup accelerators, is now more polished. Founders rarely do actual demonstrations, and instead quickly introduce themselves and then try to conjure an image of a rocket ship poised to take off. Attendees can either get on board, or watch it fly away.

On Monday, Cleanly founder Tom Harari achieved this sense of FOMO by using a revenue chart showing monthly revenues that are up more than sevenfold since January. Bagaveyev, who wore a bright red T-shirt and jeans, and spoke with a slight Russian accent that lent his presentation additional gravitas, did it by showing a video of a flaming rocket engine set to a hair-metal score. His startup may not yet have rocket-ship growth yet; but it does have actual rockets.

During the 3-month Y Combinator program, Bagaveyev's home base was not a hacker house in Mountain View, like most of his peers, but rather an old fuel depot in Half Moon Bay and a plot of rented farmland that his 5-person team uses to conduct test firings. The company is building a 3-ton rocket, using 3-D-printed parts, that will take small satellites into low Earth orbit. Eventually, he hopes to build larger rockets and compete with the likes of Boeing and SpaceX. "We want to grow as rocket designers," he tells me during a visit last month. "So you can take your significant other to space to propose to her for the weekend."

To do that, his company needs funds beyond the $1 million he's already raised, which is why he spent his 3-month YC stint building a small demonstration rocket. He'd hoped for it to fly before Demo Day, but the launch was postponed by two weeks at the last minute. It'll take place next month. "Our ascent to the cosmos is inevitable," he said to raucous applause. "Come with us!"

If Demo Day is a showcase for ambitious YC startups like Bagaveev, it's also a showcase for YC itself. Like so many of the companies it has successfully seeded, the firm depends on network effects. YC attracts successful startup founders because of its reputation for helping companies achieve high valuations, and it attracts those high valuations thanks in part to its reputation for attracting the best founders.

Of course, investors would prefer to pay lower prices to buy into YC's startups, and, in recent days, some have been making the case that the startup factory is helping to inflate a bubble in early-stage companies. Earlier this week, the investor Chris Sacca, posted a series of tweets directed at YC president Sam Altman criticizing Demo Day for giving investors "no chance to play with live code, jam on product, and get a sense for collaboration, or reference founders." He continued, "These conditions will not last. Seed money will tighten. [Series A investment rounds] will be harder. Down rounds will happen. Ugliness ahead." The drumbeat of warnings from investors continued yesterday, with Sequoia's Mike Moritz telling the Times of London, "There are a bunch of crazy little companies that will disappear."

Altman used Demo Day to strike a defiant note, opening the event by proclaiming that he expected "four or five companies out of this batch that will be really big," and in a blog post published Tuesday suggesting some investors were indulging in scaremongering in order to drive valuations down. "Investors that think companies are overpriced are always free not to invest," he wrote, predicting, among other things, that a handful of YC's mid-range successes—Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase, Docker, and Weebly—would see their value triple to $27 billion in the next five years and backing up the prediction with an offer of a $100,000 bet.

Perhaps more impressive than Altman's boasts were the Demo Day presentations themselves, which exhibited a breadth that seemed to refute Moritz's "crazy little companies" critique. Among the most widely praised presentations: Standard Cyborg's Jeff Huber who walked on stage wearing the 3-D-printed prosthetic leg his company built during the course of YC's 3-month program. When I first wrote about Huber, in early February, he was just beginning the think about how he'd sell his low-priced prosthetics; on stage, he triumphantly told investors that he'd already struck distribution deals and pilot programs with 30% of the prosthetics sellers in California. Another YC startup, Atomwise, announced that, in a single week, it had discovered two potential drugs that could be used to cure ebola.

YC's ambitions to reach far beyond the world of traditional Silicon Valley startups was also apparent in a presentation by Pigeonly CEO Fredrick Hudson, who happens to be African American—still sadly a relatively rare sight at any pitch event—and whose company serves a market that has been historically ignored by the business world. Pigeonly provides low-cost communications services to prisoners, including a smartphone app that makes it possible for people to quickly mail snapshots to friends and family members who are incarcerated. It's a good idea, and it's also a good business: Pigeonly is currently booking more than $350,000 per quarter in revenue. And of course, as the sharply sloping line graph in Hudson's presentation showed, it's growing fast.

YC helped push Silicon Valley investors to make small bets on modest software companies. As this year's Demo Day event shows, it's now trying to push Silicon Valley well outside of its comfort zone.

Next Week: The marathon after the sprint. This is part 12 in a series.

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