Speaker 1: Hi, hard to see you, get to see you.
Speaker 2: I hear this as a special coffee shop.
Speaker 3: Yeah, this is just where so much stuff happened, especially
Speaker 3: for YC, over really ten years.
Speaker 1: I'm Emily Chang, and this is the circuit. Gary Tan
Speaker 1: is head of one of Silicon Valley's most influential startup accelerators.
Speaker 1: It's called Why Combinator, and it's kind of like mecca
Speaker 1: for aspiring entrepreneurs. Tan first got accepted to YC as
Speaker 1: a founder himself in two thousand and eight when he
Speaker 1: founded Postuous, a blogging platform that was later acquired by Twitter.
Speaker 1: He went on to become a partner at YC, start
Speaker 1: his own venture capital firm, Initialized, and even has a
Speaker 1: popular YouTube channel where he shares his insights on dos
Speaker 1: and don'ts for startups. When it comes to all of
Speaker 1: the videos you've made, what have you found really resonate?
Speaker 2: It's like what.
Speaker 4: Takes off umber?
Speaker 3: One thing for me is just actually talking about the
Speaker 3: things I messed up.
Speaker 1: Fifteen years after joining y C is a founder, he's
Speaker 1: now back steering the ship. But first coffee. Here's my
Speaker 1: conversation with Why Combinator president and CEO Gary Tan.
Speaker 2: I have ever done a deal here or anything like that.
Speaker 3: Ah, you know, like YC is interesting because the deal
Speaker 3: is pretty straightforward. We just meet them for ten minutes
Speaker 3: and then decide yes or no.
Speaker 4: Yeah that's right. So that's ten minutes and then yes
Speaker 4: or no, Yeah that's right.
Speaker 1: Wow, how do you know in ten minutes?
Speaker 3: Well, I think you can look at you know, what
Speaker 3: the founders are capable of their skills. I think we're
Speaker 3: up to forty thousand applications ever every year.
Speaker 2: Every year.
Speaker 1: Yeah, and you pick like a few hundred.
Speaker 4: That's right.
Speaker 3: It's a very it's the lowest acceptance rate, you know,
Speaker 3: more more selective than you know, pretty much any selective
Speaker 3: school in the world. I feel like a lot of
Speaker 3: this stuff all started here, you know, back in really
Speaker 3: two thousand and five, this idea that you could give
Speaker 3: very small amounts of money to just a few teams
Speaker 3: and have those teams go on to become sort of
Speaker 3: the the Reddit and the Airbnbs of the world.
Speaker 2: All right, thank you got to try, and oh.
Speaker 4: Thank you very much.
Speaker 2: Warm let's go.
Speaker 3: This is where people meet their first investors. This is
Speaker 3: where they meet their co founder for the first time.
Speaker 3: Sometimes this is a really important part.
Speaker 1: Of Silicon Valley and you actually were in YC yourself.
Speaker 3: Oh yeah, I lived five blocks down that way and
Speaker 3: YC is about five blocks down this way.
Speaker 1: And when were you accepted to YC two thousand and eight,
Speaker 1: two thousand and eight, So just at the start of
Speaker 1: financial crisis.
Speaker 4: Yeah, for sure.
Speaker 3: We raised our angel around for posterous the day Lehman
Speaker 3: died and nobody else in our batch managed to raise
Speaker 3: any money.
Speaker 2: And you're a barrier guy, that's right. You were born
Speaker 2: and raised here.
Speaker 3: Yeah. I grew up right here in Fremont, right across
Speaker 3: the bay, and Tech gave me everything I have honestly,
Speaker 3: you know, child of Chinese immigrants. You know, we were
Speaker 3: sometimes food and secure, but I just remember tech was here,
Speaker 3: and we grew up in the shadow of all this greatness,
Speaker 3: all this technology being built from nothing. I knew that
Speaker 3: I wanted to learn to code, and you know, I
Speaker 3: cold called the Internet section until I got a job.
Speaker 3: And we were living in one or two bedroom apartments,
Speaker 3: right and for my parents to you know, sometimes struggle
Speaker 3: with English, the cultural barrier.
Speaker 4: You know.
Speaker 3: My dad was forming at a machine shop, my mom
Speaker 3: was a nurse assistant at a convalescent home for dinner.
Speaker 3: We would sort of have the expired bread that someone
Speaker 3: would drop off to sort of help out my mom,
Speaker 3: who was, you know, working sometimes two shifts just to
Speaker 3: keep the family going. And so I think that's one
Speaker 3: of the really important things to me that I realized, like,
Speaker 3: tech is this thing that can bring people out of
Speaker 3: whatever situation they're in and often into prosperity.
Speaker 4: And that's what I want for everyone.
Speaker 1: You were sort of like an engineered designer by background.
Speaker 1: How does that inform you perspective?
Speaker 3: This is why YC really attracted me in two thousand
Speaker 3: and eight was that here was the one place that
Speaker 3: wasn't about the flash.
Speaker 4: It wasn't about you.
Speaker 3: Know, whether you had an MBA or you know, you
Speaker 3: went to some school or whatever. It was just purely, hey,
Speaker 3: can you build something great?
Speaker 1: You have this picture, it's two thousand and eight. I
Speaker 1: believe you're sitting on the ground and you can see
Speaker 1: Paul Graham in the background and Mark Zuckerberg. What's going
Speaker 1: on in that moment?
Speaker 3: At that point I knew I wanted to start a company,
Speaker 3: and Y see through this event that was a free
Speaker 3: event called Startup School, and it was all sort of
Speaker 3: like the luminaries.
Speaker 4: You know, I believe that year.
Speaker 3: Jeff Bezos came and he actually launched AWS at that
Speaker 3: startup school in two thousand and eight at the auditorium
Speaker 3: at Stanford.
Speaker 4: I was sitting on the ground.
Speaker 3: Photography was one of my loves, and I was actually
Speaker 3: thinking about, you know, either starting a company or becoming
Speaker 3: a hip hop editorial photographer.
Speaker 2: Very different opposition.
Speaker 1: Yeah, you went on to become a partner at YC yourself.
Speaker 1: How did you make the transition from entrepreneur to investor?
Speaker 3: You know, we were doing dead simple blogs by email
Speaker 3: posters and then didn't you sell that to Twitter much later? Actually,
Speaker 3: I mean Instagram came out and that flatlined our growth.
Speaker 3: And this is one of the interesting things about being
Speaker 3: an investor. You know, I think we were very much
Speaker 3: in the running to be sort of one of the
Speaker 3: major social networks, but that was because there were no
Speaker 3: really great iPhone apps yet for uploading photos until Instagram.
Speaker 3: And now I realize it's actually the role of the investor.
Speaker 3: We need to be helping them understand the historical context,
Speaker 3: like you know, what is actually happening in the market,
Speaker 3: and what are the brass rings that are going to
Speaker 3: be enduring, meaningful businesses that could be worth billions adults.
Speaker 1: So obviously you worked at YC for but you went
Speaker 1: on to start your own fund.
Speaker 2: Initialized.
Speaker 1: Absolutely you made some pretty smart bets early on. You
Speaker 1: invested in coinbase, for example. What did you learn from
Speaker 1: that experience that gave you sort of the bona fides
Speaker 1: to an investor?
Speaker 3: This is actually a business that requires you to see enough.
Speaker 3: And YC was just such a concentrated form of all
Speaker 3: of tech happening, and it remains that that. I think
Speaker 3: you just end up learning way more about what's doable,
Speaker 3: what's possible.
Speaker 1: So coming back to YC as CEO, is that like
Speaker 1: a dream job?
Speaker 3: Yeah, the ability to help people basically achieve their dreams.
Speaker 4: That's what YC did for me. I'm a steward here.
Speaker 3: I'm trying to figure out what can we do to
Speaker 3: help more innovation happen in the world.
Speaker 2: So YC is how far away?
Speaker 4: About five blocks down the street?
Speaker 2: I want to see it.
Speaker 4: Yeah, let's go check it out.
Speaker 1: Airbnb, Stripe, drop Box, Instacart, Twitch, Coinbase.
Speaker 2: Am I forgetting anyone?
Speaker 4: I mean so many?
Speaker 3: The thing is there are ninety companies worth a billion
Speaker 3: dollars or more.
Speaker 1: So many companies have come through these doors.
Speaker 2: Talk to me a little bit about to process.
Speaker 1: For those who don't understand what exactly does a startup accelerator.
Speaker 3: Do well, HYC works kind of as a ten to
Speaker 3: twelve week program. Anyone can apply online. All they have
Speaker 3: to do is ideally have an idea and have a demo.
Speaker 3: Sometimes we get about eighteen thousand such applications every six months,
Speaker 3: and what we do is we try to figure out
Speaker 3: who are the smartest, best people, who are capable, and
Speaker 3: what are the things that they're trying to do and
Speaker 3: are those things viable? And then we actually try to
Speaker 3: interview about a thousand of them every six months and
Speaker 3: we whittle it down to about two hundred and fifty
Speaker 3: to give half a million dollars to which is great
Speaker 3: because when I first started, I think YC only gave
Speaker 3: me twelve thousand dollars. I think that's gone up a bit.
Speaker 3: It's gone up a bit. You know, times are different.
Speaker 3: But I think the most important reason why it's more
Speaker 3: money is because we want anyone who is really talented
Speaker 3: and skilled, regardless of whether or not they have your
Speaker 3: credit card debt. The way I did when I started
Speaker 3: my company, or you might have pretty big savings. You know,
Speaker 3: that's privilege. I think that regardless of any of that,
Speaker 3: people who have skills should be able to start great businesses.
Speaker 3: And YC is the place to give you not just money,
Speaker 3: but also know how and a community.
Speaker 1: You mentioned y see, it's like a community like no other.
Speaker 1: I mean, you know, the people who get in here
Speaker 1: are getting a ticket to a massive network. I mean,
Speaker 1: if you talk about all the companies we just mentioned,
Speaker 1: right absolutely, you know, if I come into YC, can
Speaker 1: I just call Brian Chesky or call Gary Tan and
Speaker 1: get your advice?
Speaker 3: Yeah, I mean that's sort of what it's meant to be, right.
Speaker 3: I Mean one of the things that is always important
Speaker 3: to me is that YC be the most inclusive place
Speaker 3: for the people who are the best, simply because if
Speaker 3: you go to you know, a tech conference or you know,
Speaker 3: you try to network your way into startups, it's actually
Speaker 3: really impossible for the people on the other end to
Speaker 3: even figure out, oh, is as someone who's good who
Speaker 3: I could spend time with. And when you look at
Speaker 3: the failure rate of startups period, more often than not,
Speaker 3: when you approach someone in one of those other contexts.
Speaker 3: The answer is no, I can't spend time here because
Speaker 3: I can't vet you. I can't figure out if this
Speaker 3: is someone who know something good will happen with that.
Speaker 3: I think is some of the reason why y SEE
Speaker 3: exists is that no, no, this is actually a community
Speaker 3: of really great people.
Speaker 1: What does the newest class of founders look like? What
Speaker 1: problems are they trying to solve?
Speaker 3: Yeah, I think that one of the biggest things is
Speaker 3: always what are the new capabilities and what we're seeing
Speaker 3: with whether it's open AI or anthropic or you know,
Speaker 3: any number of large language models. There's this sort of
Speaker 3: moment where computers can think like they can actually look
Speaker 3: at blocks of text and give you something that a
Speaker 3: human being normally would be necessary to sort of give you.
Speaker 3: That's a really exciting time for just software period. You know,
Speaker 3: before you had to have long training processes for very
Speaker 3: specialized tasks, and now we're seeing it sort of approach
Speaker 3: all of knowledge work and we're just scratching the surface
Speaker 3: on what that could be. And then a good deal
Speaker 3: of them are focused on AI bringing in large language models.
Speaker 1: Demo day is sort of like a write a passage. Oh,
Speaker 1: definitely right, what happens on demo day?
Speaker 3: Obviously, these companies come in, they have half a million dollars.
Speaker 3: They don't necessarily have to raise because if you're an engineer, designer,
Speaker 3: product person, you can just do it yourself. And then
Speaker 3: it's a thousand investors, vcs, angel investors, people who have
Speaker 3: been there, and they often raise millions of dollars. And
Speaker 3: so that's a really powerful moment because when that's a
Speaker 3: moment of euphoria and then hey guys, it's back to work,
Speaker 3: what do.
Speaker 1: You say to the folks who are out there thinking
Speaker 1: how do I get in?
Speaker 3: The big thing is I think we really like people
Speaker 3: who are earnest, Like you don't have to pretend to
Speaker 3: be something other than you're not. What we really care
Speaker 3: about is are you solving a real problem? Can you
Speaker 3: show us the quality of your work? Is there a
Speaker 3: feed of strength in terms of like technically or design wise,
Speaker 3: or even go to market, like can you access a
Speaker 3: market that nobody else can actually access? Like? Those are
Speaker 3: sort of the sum total things that end up mattering
Speaker 3: for a startup. You know, the startups that make it
Speaker 3: all have sort of a bunch of these things figured
Speaker 3: out in a row and you don't have to have
Speaker 3: all of those things, but just show your work, show
Speaker 3: us what you can do and why you're actually working
Speaker 3: on that problem. The great thing about YC is that
Speaker 3: you don't have to know anyone. You just have to
Speaker 3: have a web browser and you go to y combinator,
Speaker 3: dot com, slash apply and you answer about you know,
Speaker 3: a dozen questions or so record a thirty second video.
Speaker 4: But in those questions, we care.
Speaker 3: About, you know, what can you do, what have you
Speaker 3: done in the past, show us the demo, tell us
Speaker 3: about the market. You know, are you solving a problem
Speaker 3: that people really want? And those are really the questions
Speaker 3: that we care about.
Speaker 1: Picking just a few hundred people out of thousands, forty thousand,
Speaker 1: forty it has to be more than that, like how
Speaker 1: do I make my application stand out?
Speaker 3: One of the most common questions we ask around at
Speaker 3: YC is what's the most interesting thing about X? And
Speaker 3: it might be or what is the most surprising thing?
Speaker 3: So I remember reading Brian Armstrong's application when the coinbase
Speaker 3: and so he had read the Satoshi Nakamoto white paper
Speaker 3: and he painted in us meeting him this idea that well,
Speaker 3: bitcoin is this fringe thing, but what if it wasn't.
Speaker 3: And that's sort of the core of early stage investing
Speaker 3: periods that you know, if you can suspend disbelief and
Speaker 3: listen to someone truly and listen to what they're seeing
Speaker 3: in the market and understand, hey, what if they're right?
Speaker 3: There are a billion reasons why this might not work.
Speaker 3: But if it does happen, why and could we believe
Speaker 3: that that could happen?
Speaker 4: And is this the person to do it?
Speaker 1: And what is the actual process like, like how do
Speaker 1: you decide?
Speaker 3: Well, you know, honestly, the craziest thing is we'll actually
Speaker 3: meet people for ten minutes, and in those ten minutes.
Speaker 4: We will try to figure out do we believe.
Speaker 3: In this market, this person and what they've built and
Speaker 3: what they can build.
Speaker 1: So in ten minutes you decide whether to give someone
Speaker 1: a golden ticket.
Speaker 4: That's right?
Speaker 2: I mean, is that even possible?
Speaker 1: Well, you know, are you making all the right decisions?
Speaker 4: Well, we hope so.
Speaker 3: And the thing is the numbers sort of speak for themselves.
Speaker 3: That's why Demo Day exists. You know, those thousand investors
Speaker 3: come back year after year after year because you could
Speaker 3: go to three hundred rooms, fly all around the world
Speaker 3: and not be in that room where you'll never find
Speaker 3: a congregation of hundreds of startups in which you know
Speaker 3: a dozen of them will probably go on to be
Speaker 3: worth a billion dollars more. And so that's why when
Speaker 3: you go up and down sand Hill Road or in
Speaker 3: the portfolios of investors anywhere in the world, often you
Speaker 3: will find a fund returner in a YC company.
Speaker 1: So what do you say to the folks who want
Speaker 1: you know, how do I stand out in ten minutes?
Speaker 2: What's the secret?
Speaker 3: I mean, the hard part is it's not really about
Speaker 3: what happens in that ten minutes. It's about the ten
Speaker 3: thousand hours that goes in beforehand, right, Like can people
Speaker 3: become the best at their field? In software engineering or management,
Speaker 3: or design or product or sales. The best CEOs in
Speaker 3: the world are sort of jack of all trades, but
Speaker 3: master of one or two. And that isn't something that
Speaker 3: is in that ten minutes or in those twelve questions.
Speaker 3: That's something in someone's life, like how.
Speaker 4: Do they live their life?
Speaker 3: How do they prioritize One of the coolest stories is
Speaker 3: actually from one of our group partners at YC. Her
Speaker 3: name's Sir b Sarna, and she actually had a pain
Speaker 3: in her side. It turned out she had a women's
Speaker 3: health iss you, and when she was sixteen or seventeen,
Speaker 3: she decided, I'm going to orient my life around solving
Speaker 3: a problem in that space. And that's really what we want.
Speaker 3: I mean, I think that that large is happening, will
Speaker 3: continue to happen, and that's sort of the big blessing
Speaker 3: of that we get to work in tech, that we
Speaker 3: get to teach people, Hey, you.
Speaker 4: Weren't meant to have a boss.
Speaker 3: If you're a practitioner, if you're an engineer, if you're
Speaker 3: a designer, if you're technical and you're able to understand
Speaker 3: the world at that level, you know you don't have
Speaker 3: to know about business, will teach you business.
Speaker 4: The community will teach you that.
Speaker 3: Just build the thing that nobody else has that everyone
Speaker 3: wants and come do YC and this will be the
Speaker 3: community for you, for us to help you.
Speaker 1: Well continue this conversation after this quick break. The vast
Speaker 1: majority of companies in the BASH are still from the
Speaker 1: Bay Area, right.
Speaker 3: So eighty six percent of people have moved moved to
Speaker 3: San Francisco, but they honestly sort of come from all
Speaker 3: around the country and all around the world.
Speaker 2: So that's my next question.
Speaker 1: You know, are you really looking for people from around
Speaker 1: the world or do people who are here have an advantage?
Speaker 3: Well, San Francisco is interesting because it turns out that
Speaker 3: a lot of people have already moved here, already work
Speaker 3: in tech or already work you.
Speaker 4: Know, in the Bay Area.
Speaker 3: But that being said, you know, there's as much interesting
Speaker 3: stuff happening on YouTube, you know, in all of the
Speaker 3: other major centers. And so that's why YC is sort
Speaker 3: of this very concentrated form of Silicon Valley. Lots of
Speaker 3: people come here just for the batch, they raise money,
Speaker 3: they build their community, and then they go back and
Speaker 3: become the best company in Mumbai, the best company in London,
Speaker 3: the best company in Eastern Europe, you know, sort of
Speaker 3: all around the world.
Speaker 4: There are just so.
Speaker 3: Many examples of that culture sort of bringing together. So,
Speaker 3: you know, I think that this is a story that
Speaker 3: is San Francisco Bay Area based, but also one that
Speaker 3: radiates out into the entire world.
Speaker 1: We don't have enough women. We haven't had enough women
Speaker 1: for a couple of decades. Now when you look at
Speaker 1: the numbers, what are you seeing in the numbers now?
Speaker 1: Because it's hard to see it's hard to know what
Speaker 1: the data actually is, but when you look at the
Speaker 1: founders who present on double day's still pretty dismal in
Speaker 1: terms of the representation of women and people of color.
Speaker 3: Absolutely, I mean, and I think representation matters a lot.
Speaker 3: At the end of the day, the types of problems
Speaker 3: that people solve kind of come out of their own stories.
Speaker 4: It is important to us. It's important to me.
Speaker 3: You know, at YC we have more than eight hundred
Speaker 3: and fifty women founders who have gone through the program,
Speaker 3: and you're right, that's not enough, and we're always looking
Speaker 3: for ways to do more.
Speaker 2: So what more can you do?
Speaker 1: And I know you've thought about this a lot at
Speaker 1: INITIALIZED What have you learned?
Speaker 2: What are you doing to make to change the ratio?
Speaker 4: Right?
Speaker 1: Because I think a lot of people look at YC
Speaker 1: and see all of these, you know, iconic founders.
Speaker 2: Who are all men and think they can't do that.
Speaker 4: Yeah.
Speaker 2: Right.
Speaker 3: We want the process to be something that is as
Speaker 3: open and inclusive as possible, and less and less about
Speaker 3: what neighborhood did you grow in, grow up in, what
Speaker 3: school you went to. I think it's incredibly important, you know,
Speaker 3: what is the quality of your work and what is
Speaker 3: the quality of the thinking, And that's very important. You know,
Speaker 3: I think that going to half a million dollars per
Speaker 3: company opens it up financially to so many more people
Speaker 3: from all kinds of backgrounds, and so you know, there's
Speaker 3: a lot to be done, and you know we're not done.
Speaker 1: Do you think why, I see it all helped perpetuate
Speaker 1: the you know, sort of white bail nerd stereotype of
Speaker 1: what a founder or an engineer is supposed to look like.
Speaker 3: Gosh, I hope not. I certainly don't look like that.
Speaker 3: But I think that we're seeing so much more happening
Speaker 3: at the earlier, earlier and earlier stages. That's why we
Speaker 3: spend so much time, for instance, on YouTube, because you know,
Speaker 3: I want that message to be out there, like you
Speaker 3: don't have to be a particular place, you don't have
Speaker 3: to look a certain way. You know, this should be
Speaker 3: something that is open and available for everyone.
Speaker 1: Everyone gets half a million dollars now, it's part of
Speaker 1: the standard deal. I know when you came out with that,
Speaker 1: there was some sort of some reaction some folks HYC
Speaker 1: is taking too much? Why do you think that's a
Speaker 1: fair deal for founders?
Speaker 3: Why C is always going to be really focused on
Speaker 3: people who are doing it for the first time. And
Speaker 3: you know, speaking as a former venture capitalist, I know
Speaker 3: there is so much money out there for people who
Speaker 3: have been there, done that, have the right resume, went
Speaker 3: to work at you know, went to the right schools.
Speaker 4: Et cetera.
Speaker 3: Right, Like, that's a whole way to do it. But
Speaker 3: why see, there's only one HYC. There are many vcs,
Speaker 3: but there's only one HYC that has this approach that
Speaker 3: is ultimately about can you go and make something people want?
Speaker 3: And can we make the whole process as much about
Speaker 3: that as possible?
Speaker 1: Why C branched out into a lot of things, like
Speaker 1: a lot of funds did to be honest, over the
Speaker 1: course of the last ten years, you're now ending the
Speaker 1: later stage investing. Does that make it harder for a
Speaker 1: lot of the YC companies to then do follow on rounds?
Speaker 1: Does that sort of clip their wings before they can
Speaker 1: even fly?
Speaker 4: Well?
Speaker 3: I don't think so, just because you know, even looking
Speaker 3: at demo day, you know we have a thousand people
Speaker 3: showing up there all the time, simply because this is
Speaker 3: the most the most concentrated form of highly talented people
Speaker 3: in one room. Possible, and I think that that's true,
Speaker 3: you know, at the A, at the B, at the C,
Speaker 3: and then ultimately it comes back to are the founders,
Speaker 3: you know, creating something people want or not? And so
Speaker 3: I think that focusing on the early means that we
Speaker 3: can also focus on the people who are most underappreciated,
Speaker 3: under addressed, and that's the first timers, the outsiders, the
Speaker 3: people who just don't have a giant community of VC
Speaker 3: out there, you know. And I think that that's going
Speaker 3: to continue to be true.
Speaker 2: So talk to me about that strategy shift.
Speaker 1: And I don't know if this was like one of
Speaker 1: the first big decisions you had to make a CEO
Speaker 1: to go back to your roots and focus on early
Speaker 1: stage rather than the late stage.
Speaker 2: How did you make that decision?
Speaker 3: Well, the late stage team did incredible work for us.
Speaker 3: They have incredible, substantial contributions. At the same time, you know,
Speaker 3: when we're trying to work on our own business, the
Speaker 3: best thing we can do is take our own advice.
Speaker 3: And especially in times of sort of recentering, you a
Speaker 3: reset in what's happening out there in VC, it's quite
Speaker 3: natural for us to try to take our own advice
Speaker 3: around what are the things that make you truly unique
Speaker 3: and really focus on those things. So you know, that
Speaker 3: was a painful decision to make, but it was ultimately
Speaker 3: the right one for y See.
Speaker 1: Tech is going through a tumultuous time right now. We're
Speaker 1: seeing tens of thousands of people getting laid off from
Speaker 1: tech companies.
Speaker 2: How does this play out?
Speaker 3: Well, my hope is that a lot of them realize
Speaker 3: that they have a role to play in creating technology
Speaker 3: that probably couldn't have been created where they were. I
Speaker 3: think a lot of large companies started treating their employee
Speaker 3: base almost as a place to park resources and almost
Speaker 3: as a competitive moat versus the other giants. When I
Speaker 3: think about the amount of talent that was sort of
Speaker 3: locked up in cushy jobs that could have been actually
Speaker 3: out there in the market making new technology, pushing things forward.
Speaker 3: I'm hoping a lot of them actually come over to
Speaker 3: startups and they realize, Oh, this is what it's like
Speaker 3: to run fast again, and this is how having a
Speaker 3: lot more agency and what the product is and you're
Speaker 3: talking to customers very directly. That's fun, that's interesting, and
Speaker 3: not only that, you can create a business that really matters,
Speaker 3: that stands the test of time.
Speaker 1: What's your advice for these workers who are getting light off.
Speaker 1: It does sound a little trite to say it's time
Speaker 1: to build.
Speaker 4: Right, sure it does.
Speaker 3: I mean I think some of it is like it
Speaker 3: takes stock right, Like, you know, a lot of people
Speaker 3: have families.
Speaker 4: I feel for that.
Speaker 3: But take a moment and realize, hey, you know, there
Speaker 3: was a reason why they worked at those incredible places,
Speaker 3: just as y see as this place that people aspire to,
Speaker 3: you know, working for a Google or a Meta, those
Speaker 3: things were really big honors. And they're sort of sitting
Speaker 3: alongside some of the smartest people in the world, and
Speaker 3: how cool would that be to band together with some
Speaker 3: of them and then remember, oh, this is what it's
Speaker 3: like to talk to a customer, and you know, let's
Speaker 3: make the simplest possible thing that might solve that person's
Speaker 3: need and then rinse and repeat. Like, getting much more
Speaker 3: connected to the problems out there, I think will lead
Speaker 3: to just a lot more direct access to I mean,
Speaker 3: building equity, building businesses that really matter.
Speaker 1: Well, speaking of equity, for years, tech workers have been
Speaker 1: paid in stock and that was sort of you know,
Speaker 1: the ticket you're taking a risk on this company. It
Speaker 1: could be worth zero or it could you know, be
Speaker 1: worth millions. Right, we're seeing kind of the dark side
Speaker 1: of RSUs are.
Speaker 2: Getting paid in stock.
Speaker 1: Now do you think that's still the way it should
Speaker 1: work in Silicon Valley?
Speaker 3: I do think that giving a lot of equity, whether
Speaker 3: it's stock options or common stock to employees is great.
Speaker 3: I mean that's some of the magic of startups. And
Speaker 3: so to me, some of the beauty of a startup
Speaker 3: is that if you start as a founder, you own
Speaker 3: you know, one hundred percent of it on day one
Speaker 3: before you even sell a single share of stock to anyone.
Speaker 4: And that's really powerful.
Speaker 3: Like that's really what spoke to me back in the
Speaker 3: day that hey, when I work really, really hard and
Speaker 3: I create a product or a service of value, you know,
Speaker 3: it's the equity holders that get to share in that.
Speaker 3: I think this is about labor being able to act
Speaker 3: access actual capital, and this is like one of the
Speaker 3: most direct and most awesome versions of it.
Speaker 1: So there's a dark side here, right, I mean, especially
Speaker 1: a lot of these employers are getting paid and restricted
Speaker 1: stock options that they have to actually pay a lot
Speaker 1: of money to access. And now that a lot of
Speaker 1: workers are getting laid off a lot of those options
Speaker 1: are worth nothing absolutely, So what do you think is
Speaker 1: wrong with that part or that piece of the puzzle.
Speaker 3: Well, some of the trickiest parts is that being able
Speaker 3: to value these companies is really, really hard. And some
Speaker 3: of the bad behavior we saw from startup founders was
Speaker 3: trying to reach for that billion dollar valuation because they
Speaker 3: wanted the headline out there saying that they're a unicorn now.
Speaker 3: But that comes at a cost, right, And that's something
Speaker 3: that I think all investors across the board need to
Speaker 3: share responsibility for where we need to really help people
Speaker 3: understand the focus on valuation and getting that next notch
Speaker 3: of valuation above all else that comes at both a
Speaker 3: great personal to the founders themselves but also to the employees.
Speaker 2: So what do you think needs to change?
Speaker 3: I think some of it is already happening, right, you know,
Speaker 3: the revaluation of startups right now is starting and it
Speaker 3: will continue. And then I think this time around, people
Speaker 3: are going to be a lot more mindful about do
Speaker 3: I really need to do that fifty to two hundred
Speaker 3: million dollar raise or can I get there with less?
Speaker 3: And you know, can I take care of myself and
Speaker 3: my shareholders in a better way than stretching to sort
Speaker 3: of get the next blockbuster round round after round.
Speaker 1: So for those who are already out there building and
Speaker 1: have been building through this time when valuations have gone wild,
Speaker 1: what happens to them? Where do all the private unicorns go?
Speaker 4: Yeah?
Speaker 3: Well, it really comes back to the idea that startups
Speaker 3: equal growth. So a lot of these companies actually have
Speaker 3: something like forty eight or sixty months or even more runway,
Speaker 3: and so even though they might have gotten money for
Speaker 3: very cheap, if they're continuing to grow, they can actually
Speaker 3: still grow into those valuations. Not everyone's going to do it,
Speaker 3: but a great many will. And you know, that's the
Speaker 3: beauty of our business that you could even have a
Speaker 3: business that is growing at the rate of two x
Speaker 3: or three x or four x on its way to
Speaker 3: an IPO.
Speaker 1: So you're a few months into this job as CEO
Speaker 1: of y Combinator and Silicon Valley bank collapses. What is
Speaker 1: your level of panic in that moment?
Speaker 3: Well, I remember, you know, I'm dropping my seven year
Speaker 3: old off Friday morning at nine am, and then immediately
Speaker 3: I start getting texts and phone calls from founders saying
Speaker 3: that was my only bank account.
Speaker 4: What do I do.
Speaker 3: And so the second I get back to my desk,
Speaker 3: I realized, oh, there's actually a story that needs to
Speaker 3: be told right now, because it wasn't clear to me
Speaker 3: that people were going to give a bank called Silicon
Speaker 3: Valley Bank the benefit of any doubt at all, simply
Speaker 3: because of its name. You know, when you think Silicon Valley,
Speaker 3: the number one thing that I realize is people sort
Speaker 3: of think of the big tech companies, and aren't these
Speaker 3: big tech companies having increasingly a negative impact on my life?
Speaker 3: I realized that I'm viewing it from a very different place.
Speaker 3: But we have something like nine thousand founders in our community,
Speaker 3: and I had dozens of texts from them saying, hey,
Speaker 3: this is a real problem. And what I realized is
Speaker 3: this is not big tech in an hour of need.
Speaker 3: This is a moment of little tech. Literally, you know,
Speaker 3: one to twenty person companies that, done right in another
Speaker 3: ten or twenty years could become the next Instacart or
Speaker 3: the next Airbnb.
Speaker 2: Little tech.
Speaker 1: Little tech, little tech might need to be a thing
Speaker 1: that anyone is going to change how the world sees
Speaker 1: Silicon Valley.
Speaker 4: Yeah, and I knew that immediately at that moment.
Speaker 3: That was a story that needed to be told because
Speaker 3: it's too easy to just read the headline and say, oh,
Speaker 3: Silicon Valley, big tech, don't care about that, They'll be fine.
Speaker 3: And we actually figured out from our community that about
Speaker 3: a third of the people who were using SVB were
Speaker 3: not going to be able to make payroll. So we
Speaker 3: were able to sort of put two and two together
Speaker 3: and realize that this actually adds up to hundreds of
Speaker 3: thousands of jobs. So that suddenly made it much more
Speaker 3: real for policy makers in DC. And we're really thankful
Speaker 3: to them because there was a narrative going against and
Speaker 3: they responded as the stories came up. And to me,
Speaker 3: I think that the resolute action of the FED, the FDIC,
Speaker 3: Congress people, the White House all in concert, it really
Speaker 3: averted something that could have been a lot worse.
Speaker 1: You were out there very loudly saying this could be
Speaker 1: a mass extinction event for startups. Were you having conversations
Speaker 1: with anyone in Washington or any regulators or people who
Speaker 1: were in the room deciding we're going to throw this
Speaker 1: bank a lifeline or not.
Speaker 3: What I can say is that the YC network is
Speaker 3: really really strong, and it does extend into every field
Speaker 3: out there. I think that once people heard the number
Speaker 3: of jobs that were at stake and the number of
Speaker 3: types of startups. This is biotech, this is pharma, this
Speaker 3: is chip design, this is climate tech. If you randomly
Speaker 3: chose to delete a third of startups, period, you would
Speaker 3: hit American innovation in a very fundamental way. I think
Speaker 3: once the numbers and really the stories from the founders
Speaker 3: themselves were told to the people in the halls of power,
Speaker 3: I was very impressed by the reaction that they suddenly realized, Oh,
Speaker 3: this isn't a small regional concern in a part of
Speaker 3: the country that is politically unpopular. This is something that
Speaker 3: could really hurt the United States. And that's what I
Speaker 3: care about deeply, right. I feel that we need to
Speaker 3: make sure that we take care of the fact because
Speaker 3: you know, especially little tech, they're the ones who ultimately
Speaker 3: take the risk and then ultimately bring these technologies to
Speaker 3: bear that touch all of society.
Speaker 2: This whole SVB thing is made clear.
Speaker 1: A lot of people look at Silicon Valley and see elites.
Speaker 2: Are they wrong?
Speaker 4: You know?
Speaker 3: I think that there's different types, and the tricky thing
Speaker 3: is we have to acknowledge that technology has had an
Speaker 3: impact on society and.
Speaker 2: Will continue and good for good and bad.
Speaker 3: And anytime you have power that is accumulated in the
Speaker 3: hands of the few, that's something we should be worried about.
Speaker 3: But I will say that in this dichotomy of big
Speaker 3: tech versus little tech, we want to really help little tech.
Speaker 3: Little tech is competition, and competition is the way that
Speaker 3: we have actually vibrant markets that give consumers new choice,
Speaker 3: and that is actually a very important thing to protect.
Speaker 1: Venture capital is blamed for a lot of things and
Speaker 1: has been blamed for the SBV collapse, you know, Is
Speaker 1: VC to blame?
Speaker 4: You know?
Speaker 3: I think that was a tricky moment for everyone because
Speaker 3: I think if you're actually trying to give good advice
Speaker 3: to founders, you try to tell them what might actually
Speaker 3: happen and let them make the right choice for themselves.
Speaker 4: And so that's the tricky thing.
Speaker 3: I think that people want to say that vcs caused
Speaker 3: a bank run. At the same time, I think that
Speaker 3: there were lapses in communication on the part of SVB,
Speaker 3: on the part of the outgoing CEO, and so the
Speaker 3: truth sort of lies someplace in there, you know. I
Speaker 3: think founders do want investors to sort of tell them
Speaker 3: what was right and what was actually going to happen,
Speaker 3: because I think in that moment it might be worse.
Speaker 3: You know if you were affected, Like how would you feel? So?
Speaker 3: And that's I think the difficult line that good investors
Speaker 3: have to walk. It's like, don't change your advice based
Speaker 3: on your own interest when your interest might diverge. Just
Speaker 3: call it out and just you know, say It's almost
Speaker 3: like a golden rule for startups, like what is the
Speaker 3: thing that would help the founder regardless of anything else.
Speaker 1: How long do you think the downturn lasts?
Speaker 2: How hard does this get?
Speaker 3: I guess it's so hard to tell. And you know,
Speaker 3: I'm not a macroeconomist. You know, some people like to
Speaker 3: play that on Twitter, though, so I think that, at
Speaker 3: least speaking for myself, I underestimated to what degree interest
Speaker 3: rates rule everything around us if people have to play macroeconomist,
Speaker 3: and I think a lot more of us have to
Speaker 3: now because it just affects all of us. You know,
Speaker 3: it affects valuations. It affected the SVV crisis. You know,
Speaker 3: if you work in crypto, you better pay attention. I mean,
Speaker 3: all of these things matter because the price of money
Speaker 3: is sort of shifting radically, so I don't have a
Speaker 3: crystal ball, at least in the short term. It seems
Speaker 3: like the FED slowing down on its interest rate moves
Speaker 3: may well be a good positive sign for valuations. And
Speaker 3: I'm always rooting for the founder, so that's a good thing.
Speaker 3: On the other hand, you know, inflation, it's anyone's guess
Speaker 3: if that's actually beaten or not. And so I think,
Speaker 3: you know, you sort of have you know, unstoppable force
Speaker 3: out there versus immovable object, and I sort of can't
Speaker 3: tell which which side is going to win.
Speaker 1: Yeah, the circuit continues after this quick break. Paul Graham
Speaker 1: famously said that a startup is either default dead or alive.
Speaker 1: How many starships are out there that are default dead
Speaker 1: and don't even know it yet.
Speaker 3: Well, the tricky thing is pretty much every startup when
Speaker 3: it's born is default dead. And it is actually the
Speaker 3: role of the founder to create something people want and
Speaker 3: then figure out a way to get in front of people.
Speaker 3: Only then does something go from default dead to default alive.
Speaker 3: So I think, you know, it's quite normal for it
Speaker 3: to be default dead. That is just one thing that
Speaker 3: will go away from startups. When we talk about risk
Speaker 3: in startups. If every single one succeeded, it would mean
Speaker 3: that people are not taking enough risk.
Speaker 1: Do you think it's to be harder for startups to
Speaker 1: raise money for the next ten years? Right, like it's
Speaker 1: been a fruitful time.
Speaker 2: Is this just the new normal?
Speaker 4: Well?
Speaker 3: I think, you know, monetary policy is just one piece
Speaker 3: of it. The part that is also very hard to tell,
Speaker 3: but I'm very optimistic on, is that technology has always
Speaker 3: built on itself. So cloud computing allowed Airbnb, but also
Speaker 3: is built on social and then suddenly you had mobile
Speaker 3: And today we're in the midst of this large language
Speaker 3: model explosion, and I think that that might be the
Speaker 3: next platform, and those platforms will actually give rise to
Speaker 3: new platforms that we don't even know about yet. So
Speaker 3: you know, if you ask on a ten year timeframe,
Speaker 3: will there be more technology or less?
Speaker 4: I think there's going to be more.
Speaker 3: And you know, if it's a one or two year timeframe,
Speaker 3: like you know, we got to ask Uncle Jerome, when
Speaker 3: you look.
Speaker 1: At venture capital culture in the way it operates, do
Speaker 1: you see things that are broken?
Speaker 3: I think the hardest part is often there's not alignment, right,
Speaker 3: you know, people view VC as a career. You know,
Speaker 3: if you're a junior VC, you're coming in, you might
Speaker 3: only be able to do one or two deals, three
Speaker 3: or four deals period. And in those three or four deals,
Speaker 3: one better be a unicorn. And we see people bend
Speaker 3: over backwards sort of put their own interests ahead of
Speaker 3: that of the founder, and sometimes that's systemic. But you know,
Speaker 3: I think that YC is actually about giving founders a community,
Speaker 3: giving founders a voice, and giving a way to sort
Speaker 3: of speak that type of truth to power and you know,
Speaker 3: sort of change the way it works. And that was
Speaker 3: true when I did YC, and that's what we believe
Speaker 3: will continue to happen into the future.
Speaker 1: Do you think ve your capital needs a reset?
Speaker 3: Well, I think we are still in this moment where
Speaker 3: VC is still growing and tech is still growing, and
Speaker 3: I think there will be reform. You know, there will
Speaker 3: be new and better ways to do it, and we're
Speaker 3: always on the lookout for how do we amplify that
Speaker 3: and help the people who are helping the founders.
Speaker 1: There are now a lot of startup accelerators out there,
Speaker 1: Andreesan Horowitz Sequoya, they've got early stage programs.
Speaker 2: There are startup accelerators around the world.
Speaker 3: Why choose y see, well, I think that we are
Speaker 3: the one place that is extremely aligned with the founder.
Speaker 3: And so you know, when you look at how people
Speaker 3: pay attention to founders, and you know, what is it
Speaker 3: that makes them great? Like I think for us, we're
Speaker 3: always going to put the founder like right front and center,
Speaker 3: you know. And the thing is people say founder friendly.
Speaker 3: I don't think it's really even about that. It's like
Speaker 3: if your friend was addicted to a horrible drug and
Speaker 3: you allow them to do it, is that being a friend?
Speaker 4: It's not so.
Speaker 3: I think we want to be founder truthful. We want
Speaker 3: to take care of people, We want the best for them,
Speaker 3: and we want the best for society as a whole.
Speaker 1: Do you see that happening out there where firms are
Speaker 1: being founder unfriendly or founder untruthful.
Speaker 4: I think it's tricky, right.
Speaker 3: It's at the micro level of like what are the
Speaker 3: incentives for you know, individual operators working within sort of
Speaker 3: principal agent problem, Like if you look at it that level,
Speaker 3: that might explain why people are encouraged to go and
Speaker 3: do like the mega rounds back to back. Right, that's
Speaker 3: not great, right, and I think that that will change.
Speaker 2: AI is the new hot ticket. How bullish? Are you
Speaker 2: on AI?
Speaker 3: I think the wild thing is I think we're just
Speaker 3: scratching the surface, right, the idea that you can give
Speaker 3: twenty thousand words to a computer program and get back
Speaker 3: a summary, and you can even interrogate it for opinions
Speaker 3: like what would so and so say, what would this
Speaker 3: other stakeholder say? I think we're just getting our heads
Speaker 3: around what that means, right, It's pretty astonishing. I did
Speaker 3: not have on my Bingo card that for twenty twenty
Speaker 3: three that you'd be able to speak to a computer
Speaker 3: in the way that you can now.
Speaker 1: I know obviously some of these companies came out of YC,
Speaker 1: but in many ways, people look at self driving cars
Speaker 1: and crypto the metaverse as kind of.
Speaker 2: The last three hype cycles.
Speaker 1: That's right, and they haven't delivered on the promise. Could
Speaker 1: AI be just the next bubble?
Speaker 3: It's entirely possible. It always happens that way. There are
Speaker 3: always hype cycles. But then there's sort of that moment
Speaker 3: where a founder sits down and creates it and shows
Speaker 3: it to people and it's right. And I want this
Speaker 3: place to be where that happens. And I'm long term bullish.
Speaker 1: Sam Altman obviously long time YC friend was a YC founder,
Speaker 1: ran YC for a while, had your job. He's now
Speaker 1: the founder of open Ai. Microsoft a huge backer of
Speaker 1: open Ai. Between Microsoft and open Ai and Google and
Speaker 1: Facebook and Apple and Amazon, is there enough room for
Speaker 1: startups to run when it comes to AI? Do they
Speaker 1: have room to really compete?
Speaker 4: I think so.
Speaker 3: And some of it is like, we actually don't even
Speaker 3: know the physical of this market yet. You know, it
Speaker 3: took many years of the search engine world and the
Speaker 3: search engine war before we figured out that Google and
Speaker 3: AdWords were going to be the winner. I think we're
Speaker 3: right there right again. But the outcome of it will
Speaker 3: be move in you know, worldwide GDP.
Speaker 4: On that order.
Speaker 1: So are you seeing new AI startups that can compete
Speaker 1: in the shadow of giants?
Speaker 4: Absolutely?
Speaker 3: You know, I would never count out, you know, the
Speaker 3: little startup, little tech founder, the brilliant engineer who figures
Speaker 3: out a way to fight against unbelievable amounts of capital
Speaker 3: or unbelievable amounts of market power. And I think that
Speaker 3: that's needed in society, like we need to give consumers
Speaker 3: as much choice as possible. And that's how good things
Speaker 3: actually happened through tech like, that's how we combat this
Speaker 3: idea that big tech is too powerful. Like, guess who's
Speaker 3: going to fight against them?
Speaker 4: Its startups.
Speaker 1: What's going to define the Gary Tan era of YC?
Speaker 3: Well, what I hope is that a thousand flowers bloom
Speaker 3: at the end of the day. For what YC has
Speaker 3: done for me in my life, I am deeply grateful,
Speaker 3: And you know I'm not just the CEO. I'm also
Speaker 3: a client. You know, I also experienced this crazy place
Speaker 3: that gave me prosperity, and ultimately, all I care about
Speaker 3: is that that story continues, that we have so much
Speaker 3: more prosperity in the world, and that people who are
Speaker 3: great designers and builders and product people and engineers they
Speaker 3: get the chance to not just be like oft in
Speaker 3: a cage someplace working for someone else, but to experience
Speaker 3: what it's like to be a founder, to be able
Speaker 3: to make those decisions, and then ultimately share in the
Speaker 3: bounties of it.
Speaker 1: Thanks so much for listening to this episode of The Circuit.
Speaker 1: I'm Emily Chang. You can follow me on Twitter and
Speaker 1: Instagram at Emily Chang TV. You can watch new episodes
Speaker 1: of the Circuit on Bloomberg Television or on demand by
Speaker 1: downloading the Bloomberg app to your smart TV and check
Speaker 1: out our other Bloomberg podcasts on Apple Podcasts, the iHeartMedia app,
Speaker 1: or wherever you listen to shows and let us know
Speaker 1: what you think by leaving us a review. I'm your
Speaker 1: host and executive producer. Our senior producer is Lauren Ellis.
Speaker 1: Our associate producer is Lizzie Phillip. Our editor is Sebastian Escobar.
Speaker 1: Thanks so much for listening