The Exchanges

Q And, and then kind of switching sides of the table for, from learning, uh, with Gary and Alexis, what were your big learnings on, on how to be a great seed stage investor? You know, you had some very successful angel investments.

A Honestly, I mean, this is not to be facetious, but you just have to work really, really hard. Like a seed stage investor is really about optimizing the top of your funnel in the sense of there are only of the hundreds of deals that might be available, a hundred of potential investments that year. Only a few of them are going to go on and be meaningful, and your job is to sort of pick and get into those deals, right? And so, step one is just having those founders know that you exist and come to you, and the way that that happens is by just working really, really hard for lots of founders, whether you've invested in them or not, and generating word of mouth, where next time someone's raising a funding round, that you come up in conversation as someone that you want to work with. And I I can think of great examples of this, like an angel investor who doesn't get a lot of, um, sort of publicity per se. Elad Gil, who's sort of former VP of Twitter, now the founder and CEO of Color Genomics. I met him in sort of late, when he was just getting started as an angel investor, and he just worked really hard at meeting lots of founders, like providing them help, whether he invested in them or not, and just became sort of a back channel Or in, in sort of when people were raising their funding rounds, they just mentioned him as someone that, oh, you really want to talk to Elad. He helped me …

AI assessment note: “Honestly, I mean, this is not to be facetious, but you just have to work really, really hard.”

Q Now, I do have to ask, because we often hear about kind of the, the incredible statuses of Paul and Jessica now. You having been really the first, as you said, external employee, what was it like seeing them working back then, many years ago now, and how you compare them to their kind of humongous stature today in startup world?

A Um, yeah, it's, They definitely had a lot of stature back then. It was just within a smaller community. So to me, to trace it back, I, when we first applied to Y Combinator, this is my cousin and I, we started our first company called Veer Tagger. We didn't know who Paul Graham was. At that time, he had a lot of stature within the programming community, and specifically the Lisp programming community, but we only knew about him as this person who wrote these really insightful essays online. But When we came to those first few dinners in 2007, it was already kind of clear that Paul and Jessica were, you know, there was, there were a big deal within the Y Cominator community. And I think working alongside them, I was kind of aware that I was really lucky to be able to, to work with both of them, but it never sort of felt odd or strange per se, because mostly what we were focused on was just how does, how does YC grow? Like the, the, the focus was very inwards Paul always had a really compelling vision of what Y Combinator could become, and sort of all the talks were about how do we make it move in that direction.

AI assessment note: “They definitely had a lot of stature back then. It was just within a smaller community.”

Q He was, ok. And a former guest on the show, Gary Tannen, initialized. And he asked, what was the most surprising thing from when you first became a partner at YC?

A Yeah. Okay. The first most surprising thing. So actually what it was, I remember, I remember when I first started doing office hours with the companies, which is where, you know, Ycom laser partners will spend time with each of the companies. So talking through their problems and issues and just figuring out a plan of action for them. And I remember doing my first sort of office hours and thinking, wow, like all of these companies have really serious problems. Like I could, I could Think of a reason why each of these companies is likely to not be around next month. Like that's sort of how intense it was. And that was really eyeopening for me because frankly, when we were running our startup, it felt to me like we were the only ones that were just failing miserably and that, you know, who knew if we were going to be around next month or not. Um, but everyone else seemed to be doing fantastically well. And what I realized is that actually what happens is no matter how problematic or screwed your startup is, Everyone always presents externally that things are going fantastically. And so as a founder, you don't often realize this, that everyone starts up at pretty much every stage has some existential mortal threat to it. And the reason you're just not aware is because the founders never, never present that externally. Right. So I think Paul Graham and Jessica asked me this three m…

AI assessment note: “thinking, wow, like all of these companies have really serious problems.”

Q row your own race, and the minute you look up from your own boat is when you start to lose. When you say about kind of looking around and everyone seems to be doing so well, do you agree with that thesis and kind of sole focus on yourself, or do you think it does take a slightly macro perspective of seeing the competitors around you and observing your competition?

A There are a few tensions, um, in sort of general startup advice that, That exists. And I think this is, this is one of them where it absolutely does make sense to stay focused and you are just far more likely to not succeed because you make a mistake internally, right? Like either you, you know, you build the wrong product, you don't pay enough attention to your users, you hire the wrong people, or all of these things are far more likely to sort of kill you than a competitor coming out of nowhere. But I do think there are reasons why being aware of what your competitors are doing Is important, right? And it, and it's a little bit more subtle because for example, often startups need funding and you need to hire the best people and you need to come across as understanding your market deeply and debate and displaying deep domain expertise for achieving both of those things. And if you have no idea what your competitors are doing, it's hard to credibly claim that you have domain expertise, right? So I, I think you operationally, you need to be focused on your company above all else and not be worried about Competitors, but you need to know enough about what your competitors are doing to seem like, or, you know, to generally actually have domain expertise and talk credibly about the market you're operating in.

AI assessment note: “operationally, you need to be focused on your company above all else”

Q No, I'm intrigued then, kind of removing the 10% aspect then. How, how was the thought process around the growth and scaling in 2009 and 10?

A One of the most compelling high-level thoughts that Paul shared with me that got me really excited about joining YC was he explained it in terms of how he thought corporations or just big, Companies would be structured in the future, and he genuinely believed that the optimal structure for a giant corporation is one that's more like a holding company that's, like, composed up of lots of more autonomous units are each doing well, and each of those units has operational control and is, you know, making its own decision, but, you know, it's sort of, you know, it has an infrastructure of a larger company behind it, and that was always sort of the A really exciting way of thinking about YC that I just hadn't occurred to me before I started talking to Paul, right? Like he, he viewed it as Y Combinator. And this is even back in 2010 that Y Combinator had the potential to become this like gigantic entity composed of lots of smaller companies within it. And that was sort of like the, maybe like the, the true north of Y Combinator was this idea of if we could fund like hundreds and hundreds of companies, um, some of them would grow to be really large. Obviously majority of them wouldn't, but the ones that wouldn't could become sort of add, still add value to that network, right? Like maybe they get acquired by the other companies. Maybe the founders go and work at the successful ones. Ma…

AI assessment note: “he genuinely believed that the optimal structure for a giant corporation is one that's more like a holding company”

Q Would you say that's when you have the classic startup term, product-market fit, when you have users and they're growing? Is there a more definitive point for you?

A Yeah. I mean, I think, you know, maybe operationally having employees also can make it makes everything feel a little bit more sort of serious because now you, you know, you, now you have responsibilities and people that are, you know, you've convinced to join your endeavor. But ultimately, I think just deep down in your gut for most founders, the point at which a startup really starts to A genuine real thing is when you get that first set of like real users and you have real customers using the product. The growth rate is obviously something that's, that's super important, but it's, it's less so than just being able to identify a clear set of people who actually want the thing and are using it.

AI assessment note: “when you get that first set of like real users and you have real customers”

Q I'm really pleased that you said about the growth rate there because it's, it's something that YC is often attributed with obviously placing a lot of focus on. So I'm intrigued to hear how did you think about growing and scaling in 2009 and 10 with YC? Uh, and, and I do have to ask, is the weekly 10% myth true?

A The weekly 10% was a little, would be a little bit of a trickier metric for, for YC because we weren't, um, you know, we, none of the actions we took were really measurable on a, on a weekly basis, which is, um, which is incidentally like the big, one of the big differences between being a founder operator versus being an investor is as an investor, you do lots of things, but Ultimately, your feedback loop is several years long, right? Like, you can, you can try and make it shorter by looking at proxies such as, of your investments that you made this year, how many of them go on and raise their next round of funding, and for YC, that was condensed. You know, you have a three-month program, and so you're looking at how many of the companies go on and raise funding three, like, three months after YC funded them. For most investors, that's more in the order of, Two to, you know, at least two years, often like three, four, five years, right? So harder to measure your, your growth rate as an investor. What? Yeah, sorry, go ahead.

AI assessment note: “The weekly 10% was a little, would be a little bit of a trickier metric”