Mar 7, 2018 · 58m · y-combinator
Paul Buchheit - Startup Investor School Day 2 · Y Combinator
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Paul Buchheit shares key lessons and frameworks from two decades in tech and angel investing, illustrating how backing exceptional founders and non-consensus ideas leads to major startup successes. He breaks down high-return case studies, common investor pitfalls, and a practical checklist for evaluating early-stage entrepreneurs.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The partners as informed peer 0.6 Guest teaching 0.3 Guest disagreement 1.4 The partners pushing back 0.3
speaking balance: gold is the partners, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 49:45 Buchheit calling ICOs scams and predicting zero value
Buchheit delivers a blunt rejection of ICOs, stating that the vast majority are scams that will inevitably go to zero because excess funding insulates founders from reality.
Hardest push from the partners ▶ 53:18 Ralston asking Buchheit to directly address assessing determinationRalston calls out Buchheit for not fully answering how an investor can practically test whether a founder is truly determined during a meeting.
Biggest teaching moment ▶ 51:00 Buchheit on excess capital as a liabilityBuchheit reframes common assumptions about capital by explaining that excess cash removes the urgency to talk to customers and forces startups into costly bureaucratic traps.
The partners hold their own ▶ 57:11 Ralston on unlearning personal bias from past operating experienceRalston shares his own perspective from having run an early personal service, illustrating the paradox of needing to learn from mistakes while simultaneously unlearning past assumptions.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The partners as informed peer | Guest teaching | Guest disagreement | The partners pushing back | Why |
|---|---|---|---|---|---|---|
| Bad Ideas as Good Startup Opportunities | 0 | 0 | 1 | 0 | Monologue segment where Buchheit discusses how good startup opportunities initially look like bad ideas. Host does not participate. | |
| Early YC Days & Investing in Wufoo | 0 | 0 | 1 | 0 | Buchheit gives a solo presentation on early YC history, cold emailing Paul Graham, and angel investing in Wufoo despite initial online mockery. | |
| Favorable Outcome: Justin.tv to Twitch | 0 | 0 | 1 | 0 | Buchheit recounts how Justin.tv pivoted to Twitch and highlights the immense talent among its founding team despite acquirers originally passing. | |
| Favorable Outcome: FriendFeed and 'Find Your Betters' | 0 | 0 | 1 | 0 | Buchheit explains the founding and sale of FriendFeed to Facebook and defines his core investment heuristic: 'find your betters.' | |
| Favorable Outcome: Meraki vs. Juicero | 0 | 0 | 2 | 0 | Buchheit contrasts Meraki's capital efficiency with Juicero's overfunded failure, noting how great founders make the impossible happen with limited resources. | |
| Favorable Outcome: Boom Supersonic & Hard Tech | 0 | 0 | 2 | 0 | Buchheit discusses Boom Supersonic and urges investors not to shy away from hard tech or bio merely because they lack domain knowledge. | |
| Unfavorable Patterns and Investor Mistakes | 0 | 0 | 1 | 0 | Buchheit shares personal investing mistakes, including missing Dropbox and Airbnb, falling for low valuations, and investing out of pity or cynicism. | |
| Great Founder Checklist | 0 | 0 | 2 | 0 | Buchheit runs through his founder traits checklist, emphasizing concise communication, speed, talent attraction, and determination. | |
| Q&A Session and Conclusion | 5 | 3 | 2 | 3 | Jeff Ralston moderates audience questions, gently pressing Buchheit on assessing founder determination and sharing his own past operating and investing experiences. |
Statements from this episode (28)
Ralston: Angel investors must lose money before becoming experts
“Meeting founders and making decisions is way more of an art than a science, and as Dalton says unfortunately in this game I think you have to Lose some money before you can really become an expert, as much as anyone is an expert at answering the questions you …”
Buchheit: Great startup ideas must initially appear bad to big companies
“Oftentimes the bad ideas, I mean, the good ideas look bad. And the reason for this is that if the idea were obviously good, like, the opportunity wouldn't exist. Big companies are not that dumb. They're capable of executing. They have lots of resources. They h…”
Buchheit: Google founders tried to sell for $1M to Yahoo and Excite
“Larry and Sergey were PhD students there. And they actually wanted to continue being PhD students and, like, finish their degree, so they went off and tried to sell Google to one of the big internet companies of the time, so, you know, Yahoo, Xsite, Infoseek. …”
Buchheit: Joining a startup is like investing, restricted to one company
“Being a startup employee is actually a lot like being an investor except you can really only do one at a time.”
Buchheit: Wufoo angel investment returned ~44x on SurveyMonkey acquisition
“My investment on that returned, like, 44 X when, ah, SurveyMonkey bought them”
Buchheit: Acquirers rejected Justin.tv because they believed the team lacked talent
“So this company, they actually even tried to do an acquihire several years in, but no one would acquihire them because they thought they didn't have any talent. They couldn't do a talent acquisition because the acquirers thought there was no talent.”
Buchheit: Bret Taylor rewrote Google Maps' JS frontend in one weekend
“Bret is someone that I knew from Google... He rewrote the entire JavaScript front end over a weekend, made it, A third the size and 10 times as fast as what an entire team of developers had been working on for a long time.”
Buchheit: FriendFeed sold to Facebook for about 0.5% equity
“We sold FriendFeed to Facebook for about half a percent of Facebook's equity”
Buchheit: Investors should probe founder conviction, not substitute their own domain judgment
“My belief is that if the founders are actually better than me, then they're gonna have better insights. They're gonna know more than me. So I can kind of outsource that part of the thinking to the founder. And then I just have to figure out, like, does the fou…”
Buchheit: Juicero spent $100M before ever talking to a customer
“Like, they spent a hundred million dollars on their, like, juice bag squeezer. Without ever talking to a customer. Without ever trying to sell someone a bag of juice.”
Buchheit: Cisco Bought Meraki for $1.2B, a 73x Return
“And this was, Cisco bought this for 1.2 billion, which was like a 73 extra turn.”
Buchheit: Startup Founders Always Sell Their Companies Too Early
“Founders always sell too early, because you're like, wow, a billion dollars. I make the same mistake. I sell too early.”
Buchheit: Kyle Vogt built Justin.tv's streaming server in a single weekend
“It turns out it took him maybe like a whole weekend, but he did in fact write their own streaming media server, and this is actually the reason that Justin TV survived it all. Right? Because they, there was no way the business was viable if they were paying so…”
Buchheit: GM Acquired Cruise for ~$1 Billion, Generating a 50x Return
“GM bought them for like a billion, which was about a 50 extra turn.”
Buchheit: Commercial supersonic flights will reach Tokyo in six hours by 2028
“In 10 years, when you wanna go to Tokyo, you're gonna get there in, like, six hours.”
Buchheit: Boom Supersonic founder sends the best investor updates I've ever received
“He also sends the best investor updates of any company I've ever invested in.”
Buchheit: Y Combinator's biotech investments will produce giant exits within a decade
“And we have so many great companies that are, like, in bio, I think we're gonna have some just giant exits, you know, 10 years from now.”
Buchheit: Slow angel investors suffer adverse selection
“If you move slow, you're going to get adverse selection. Like, the companies that you can string along for months, and, you know, give a hundred different meetings, and like, you need to talk to this person, probably aren't going to be the best companies.”
Buchheit: There is literally no such thing as value investing in startups
“There really literally is no such thing as value investing in startups.”
Buchheit: If dissuaded by a startup's high valuation, invest more
“Any time I've been, like, excited about something, but then it's like, ah, the price is so high, eh, you know, I'll invest in something else. I've always regretted it. Like, so now, actually, in my head, I kind of turn around the rule. I'm like, if I'm dissuad…”
Buchheit: Paul Graham's essays are a top lead source for YC applicants
“To this day, I believe it's like the number one or number two source of leads to people applying to Y Combinator. We ask a question on the application, how did you hear about Y Combinator? And they say, from Paul Graham's essays.”
Buchheit: Great startup ideas are either implausibly ambitious or look frivolous
“Implausibly ambitious or frivolous ideas, and the reason that we're kind of at these two extremes is that if the idea is in the middle, as I mentioned at the start, probably there's like a big company somewhere working on it, or a hundred other startups, and s…”
Buchheit funded DoorDash mainly so they would deliver to his house
“When they interviewed here, ah, like actually in the room right over there, I, my like one question for them was like, will you deliver to my house? Because at the time, when they went through YC, there was no food delivery where I lived, and I get hungry. And…”
Buchheit: Founders with perfect resumes often sell early out of fear
“I'm very nervous about people who've always gotten perfect grades. They got into all the right things. They did all the right clubs. The people who have the perfect resume. The people who didn't fuck up. Because these are people who've never failed. And startu…”
Buchheit: Biotech risk is technical feasibility, not market demand
“The risk on those companies is, is, is most often not market risk. It's not the risk that no one wants a cure for cancer. The risk is that they don't actually have a cure for cancer, right? So, so with those companies, more often, it's one of these things wher…”
Buchheit: Startup success can be predicted by iteration speed
“You can almost define, predict the, I think success of a startup just based on how quickly they're able to iterate. And the really great companies just like iterate really quickly. The ones who, you know, do a release every two years fail. Do zero.”
Buchheit: Vast majority of ICOs are scams and going to zero
“As far as I can tell, the vast majority of the ICOs are scams. Or just like, these are companies that, if they were trying to raise from the people in the room, here, maybe they'd be able to raise half a million dollars, but instead they go do an ICO, and they…”