What's up, everybody?
This is Cortland from IndieHackers.com, and you're listening to the IndieHackers podcast.
More people than ever are building cool stuff online and making a lot of money in the process.
And on this show, I sit down with these IndieHackers to discuss the ideas, the opportunities, and
the strategies they're taking advantage of so the rest of us can do the same.
Michael Seibel, welcome to the IndieHackers podcast.
Thanks for having me.
You are the CEO of Y Combinator, or you're also, I guess, a managing director, a partner.
What's the appropriate title for you at YC?
Who knows?
I help the companies.
You help the companies.
You do the job.
I help the companies, yes.
YC is kind of the original startup accelerator.
It almost needs no introduction.
It's by far the most successful and prestigious of the startup accelerators that exist.
It was started by Paul Graham in 2005, and since then, he sort of passed on the torch,
and now you guys are funding like six or seven hundred companies a year at this point, which
is crazy.
Because when I went through YC in 2011, it was like 40 companies were like, this is way
too big.
It's crazy not only how much bigger YC has gotten, how much bigger the startup community
has gotten, how much more international YC has gotten.
It's now 50 percent international.
We've got founders in almost any time zone.
It's been a lot of fun.
It's been a lot of fun to help more people.
One of the things that we think about, especially because we were alum, is how do we bring that
great experience that we had to more people, people who maybe never thought they could
do YC, or raise money, or do a startup.
Yeah, you guys are reaching a ton of people.
And I've seen the international trend sort of expand as well.
Indie hackers, listeners, I think it's barely 30 percent of the people listening to this
podcast are signing up for the website or in the US, and most of them are not in Silicon
Valley.
They're just everywhere starting startups, and YC itself has sort of reflected the same
sort of trends.
I got like a million questions I want to ask you.
I think it's cool that you're in this position.
First let's talk about like indie hackers itself, because we were talking before the
show.
This show is mostly listened to by bootstrappers.
These are people who build businesses without ever having raised a dime.
But I think when companies go through YC, the emphasis is obviously like kind of on
the opposite.
Everyone's encouraged to go to Demo Day, present their companies to investors and raise a ton
of money.
Do you think indie hackers and bootstrappers are sort of handicapping themselves by trying
to build online businesses without raising money?
What's your take on this approach?
I think the first thing I would say is that one of the most successful founders that I
know who did YC was an indie hacker himself.
YC was the founder of a company named Instant Domain Search, and basically it was, as you
say, you type in a domain you want to buy, it tells you if the domain's available and
similar words to it, and redirects you to GoDaddy and he makes a commission.
And for almost the entire time I've been in the YC community, he's been running that site
and making real money with almost no work every month, tens of thousands of dollars.
So I think that, you know, we have YC founders, Zapier is a perfect example, where they raised
a million bucks on Demo Day and they never raised again until years and years and years
and years later.
So I think there's all types of different models on how you want to raise a company.
I don't really want to judge what people want to do.
I think the thing that I try to figure out for founders is what's your goal and how do
you match the method that you want to run your company to the goal of your company.
And I think where founders kind of get screwed up is they often think they can innovate everything.
And it turns out that like it's really hard to innovate everything.
So if your goal is to build a company as big as Google, for example, you probably can't
innovate the funding model.
And so, you know, a lot of the conversations I have with founders is like, how do you pick
where you innovate, how do you pick where you copy?
How do you figure out where to put your entrepreneurial energy?
And how do you kind of unpack some of the assumptions that a lot of people have when
it comes to raising money from investors?
Because if you want to build a large company, more often than not, you have to figure out
how to interact with investors.
And I mean, a lot of people just have really bad assumptions about how that works.
Well, there are a lot of bad stories about investors on this show and a lot of fear expressed
from founders that investors are going to push them to make bad decisions, push them
into building a company that's much bigger than can really be sustained at a profitable
level.
I want to push back on that.
I want to push back on that.
I'll ask you live on this podcast.
You mentioned that you're in Brooklyn right now.
That's awesome.
Yep.
I need you to go and take something valuable in the apartment that you're in right now,
walk over the Brooklyn Bridge and throw it off the bridge.
Well, I'm staying at an Airbnb, so it would be liable to replace this kind of stuff.
Yeah, who cares?
Yeah, I'm not saying it's a good decision.
I'm just saying, that's what I need you to do, and I'm going to use my words to get you
to do that.
Yeah, I'm going to get your point.
As a founder, I can ignore you as an investor giving me the sad advice.
Yes, it's words.
Like, I can't, I'm not in Brooklyn.
I can't hold a gun to your head.
Yeah, I mean, that's true.
And so these are words coming from a person who has presumably invested millions of dollars
in your company.
Who cares?
Who cares?
Who to some degree holds your fate in their hands, who you might feel obligated to.
Yeah, that's your inner weakness.
I'm sorry.
But that's the cop out, because the founder who thinks that way is the founder doesn't
understand the arrangement they got into.
The job of that investor is to manage someone else's money and to make that client money
back.
The relationship you got into that with an investor is to produce a return for that investor.
The advice, the value out, all that other stuff is take it or leave it.
Your responsibility is not to take the advice.
Your responsibility is to treat that investment ethically and to try as hard as possible to
make more money for that investor.
Where founders get confused is when they think their investors are parents.
And not even parents, perfect parents, perfect mentors, it's like perfect life guides.
It's like, come on, that's magical thinking that doesn't exist.
Like, your investor is not going to get the advice right.
More often than not, your investor hasn't even started a company.
They don't even know what the hell they're talking about.
So I just, I reject that line of thinking because like, if I can convince you to do
something that you know is bad for your company after giving you money using my words, sorry.
Like if that doesn't kill you, something else is going to kill you in the startup game.
Okay, so let's talk about that.
Let's talk about what kills startups.
You've obviously advised thousands of startups over the years, many of which have been super
successful.
And I think the obvious question for you is what separates the successful startups from
the ones that fail?
And I've seen you talk about this quite a lot.
And I think the approach you come from is usually to sort of flip it around and ask
not what do you need to do to succeed, because there's a million different ways to succeed.
Usually ask like, what do you need to do to fail?
Because it turns out there's only a handful of reasons that most startups fail.
And you're doing pretty good if you can keep that list of reasons in your head, and then
just avoid most of those mistakes.
So what are the most common mistakes that kill startups?
So, you know, Justin Kahn, my old co-founder, he always talked about cargo culting.
And what was so funny is that, you know, in my interest of not looking dumb, for the longest
time, I didn't know what cargo culting was.
And but I got along and be like, yeah, cargo culting, that sucks.
And I finally asked him, like, what's what's cargo culting?
And it's basically like copying the people around you, but copying the wrong things.
And it basically comes from not understanding what actions the people that you're around
are leading to success, are the methods where success are being created, versus what actions
are the results of success.
So you give a really specific example, right?
If you're building a good company, a lot of investors are going to want to invest in you.
And you might raise a very large round at a really great price.
Most founders will think that that round is the important thing.
And they won't dig deeper and figure out what did this company figure out in its business
that gave it the leverage to raise that round.
The round was the result of the company doing something right.
I should be studying what the company did right, not just taking away the simple thing
if I raise a lot of money I win.
And I think that what I have to be careful about here is that my instinct sometimes
is to teach this stuff like math, like, you should have to teach anyone algebra, right?
Like it ain't that complicated.
But what I've come to learn is that learning these lessons while dealing with all the stress
of doing a startup, while being in a world where like, most people are just wrong with
their core hypotheses, it's a little bit more like yelling at somebody who's a good high
school basketball player, but it didn't make the NBA.
That doesn't seem right.
It's like that doesn't seem moral.
It doesn't seem right.
It's like, yeah, you need a lot of lucky breaks to make the NBA, right?
And so, you know, whenever I kind of get too preachy, I kind of sit back and be like, look,
this is hard.
This is really hard.
This isn't like becoming a successful lawyer.
This isn't like getting into a good school, like, the odds of success on this one are
so low that like, most people are going to be getting it wrong most of the time.
Right.
And you have this unique vantage point as an investor where you get to see thousands
of companies, and you can just very soberly, unemotionally stop and consider the odds,
you can ask yourself what percentage of companies need to succeed for me to get, you know, a
return on my investment.
But as a founder, it's kind of like, you've got that one thing, you've got your startup,
and it's either a one or a zero, it's going to succeed, or it's going to fail.
And you don't really care what the odds are, like, you just want to succeed.
You know, that's a very emotional position to be in, I think.
What else is in that, that list of things that founders should be worried about that
commonly make startups fail?
I fear what I'm about to say is a series of things that people have heard over and over
and over again.
So here goes one, you should be able to build your own product, like the founding team should
have the technical talent to build the product.
Probably one of the most common reasons why a company doesn't get into YC.
Two, damn if it's helpful if you've experienced the problem yourself.
Three, you can't be afraid to charge money if you're providing a service to someone.
Four, you can't be afraid.
You can't, and let's be clear, that doesn't mean you can't feel fear.
But fear can't be your primary decision making variable, right?
I see so many people who they're encountering this world and they're basically saying, I
just want to run away from fear.
Everything that seems scary I want to not do.
And everyone who succeeds in this game has to deal with things that scare the crap out
of them.
And like in many ways, like if a startup is like a burning, I don't know, a burning house,
you're a firefighter, your job's to run into the house, not to run away from the house.
And so within YC, when I see founders make the most destructive mistakes, they're almost
always driven by fear or envy.
Fear I don't want to do this thing, it's uncomfortable, so I'm going to not think about it.
Or envy, that person has something that I want, or that I think that I want, money,
employees, office, da da da da, like I want to go get it.
It's weird because so many people come into the startup game coming from a community,
whether it's like a place of work or a university, and like in that community, as long as they
were like put themselves in the like cool kids, the smart kids, they would win.
Or it's like in our game, almost everyone loses.
And so I think in the fight to get into a good college, you're looking at what your
peers are doing.
In a fight to get that Facebook or Google internship in college, you're looking at what
your peers are doing.
And in the startup, that exact same technique almost always screws you.
Like you're playing a single person game.
If you want to be Michael Jordan, you're a high school basketball player and you're looking
at what your peers are doing, none of your peers are going to make the NBA.
Like there absolutely can't be your guys.
And I think that's what really runs people astray.
And let's be clear, I think it hurts investors just as much as founders.
I see investors copying their peers way too much as well.
You mentioned that startup founders often have to run toward their fears.
What are your fears as the CEO and a partner at Y Combinator?
I think my biggest fear in the startup game in general that we have to deal with in YC
is that startups went from being not popular to being, I might describe too popular.
So I think that there were a lot of people when YC started who didn't have their risk
reward ratio correct.
And therefore were afraid of doing startups when they shouldn't have been.
And a lot of YC was designed around, no, you can do it.
You can do this, right?
I think in this kind of stock market and crypto run up, some people are looking at startups
as either a resume item or a get rich quick scheme.
And those people are toxic to the ecosystem and YC is so large now we're part of the ecosystem.
So those people can be toxic to us.
And how do we make sure that we're not accepting those people within our community is a big
thing.
And I think that a lot of people think about YC kind of incorrectly.
I think when people look at an Ivy League University from the outside in high school,
they think that the teachers matter.
They think that the degrees matter.
They think the classes matter, right?
And then once you go through a good university, you realize the peers matter.
Your peers are what drive you.
I think the same thing happens at YC.
On the outside, people think, oh, Michael's giving you the great advice.
It's like, no, I'm putting you in a community of people who you respect, who can support
you and who you can support them, and who hopefully can be additive to the process of
you trying to succeed.
And if I don't get that pool of people right, I can break it.
So I think that's probably the number one thing I'm afraid of is that that's a new challenge.
That wasn't the challenge YC faced in 2005.
If you were crazy enough to do a startup in 2005, boom, we're here, now that it's mainstream,
it's different.
Well, I think you've developed a skill set that will be valuable for lots of founders.
I mean, you're looking at people who are applying and you're saying, who are the right people
to put into this peer group?
Who are going to make things better for their peers and have great companies?
But for an individual founder looking at your own company, you kind of got to ask the same
question.
Like, am I working on the right thing?
Am I the right person to do this?
And so I wonder what you've learned about evaluating those things that other people
could also learn when asking those questions about themselves.
So spiritually, it's similar, but the difference is that I get to learn faster.
So like, I don't think a founder can use the same technique that I use because I get to
read 800 applications.
I get to interview, God knows how many companies, at least 800 companies every batch, right?
My group has 100 companies in it.
So I get to learn in parallel and a founder doesn't.
So while it's kind of like similar problems, like the solution techniques, very different.
As long as the founder has technical skills or technical co-founder, and it's something
that's irrationally getting them to focus on just one problem and one customer, I think
generally they do okay.
Like generally, they can figure some stuff out.
It doesn't mean they're going to win, but generally they can kind of get off at a minimum
base hit.
Like at a minimum, they can get the damn thing going.
I think sometimes what I'm seeing founders now is that like, oh, if something doesn't
work in three weeks, I have to switch.
Or I can just do this with no code.
I can just hire some overseas engineer.
Software is not important.
And it's like, oh, you're removing some of the base things.
Like one of the base things is that software is in the world.
You got to be able to create software.
Another base thing is that you have to learn about the customer's needs.
It takes time.
This isn't overnight.
And so it's kind of like trying to bake a cake, but trying to remove all the ingredients
and still expecting a cake.
It's like, if you don't have flour and eggs, it ain't going to be a fucking cake.
Like you can't remove some things.
And I see a lot of founders trying to remove as much as possible because they just want
to get to the end.
I just want to be rich.
I just want to be famous.
And it's like, oof, do another career.
I like these lists of basic things, though, because I think we often get addicted to novel
advice.
We want to hear something we've never heard before.
We want that secret ingredient, that secret key.
And really, the fundamentals will get you so far.
And it's really easy to ignore them because it's like, yeah, yeah, yeah, I've heard all
that.
But it's like, you're not doing any of it.
And then there's a whole other set of people who haven't heard any of that to begin with.
Most people who are getting started make the most basic mistakes.
And so I think it's worth repeating that kind of stuff ad nauseam until people can actually
do it.
It's funny because the Stripe founders came to talk to YC.
And at some point, they had this aside and they were just kind of like, you know, like
we did all this stuff, but like, if we can do it, you can do it.
We're not that smart.
And I saw all these founders look at them being like, no, but you guys are like legends.
And then I realized something, you know, being disciplined is way more powerful in this game
than being smart.
Like because we're an execution game, being disciplined was so important.
And like what was so funny was that like the Stripe founders had a hypothesis and then
they tested it in a disciplined manner that like almost a scientist would.
I remember a really simple thing.
People asked them, how do you price?
It's like, oh, well, we're a startup in payments.
Of course, we've got to be cheaper than the competition.
And they were like, no, we were trying to verify if these developers and early stage
companies desperately needed our product.
So we charged higher than the competition.
Now if you were a scientist or with a scientific way of looking at it, you'd be like, of course,
if you want to verify demand, make something harder to get and say people still just reach
for it.
But if you're fear based, if you're coming from a place of fear, you say, oh, God, I
don't want to get a no.
I'm so afraid of a no, I'm going to not charge any money.
I'm going to do this, do that.
I'm never going to launch because I'm just so afraid of a no.
And so I think that what was funny was the way they described everything was just like
they were disciplined and not driven by fear.
You know, I'm not saying they're not smart, but they weren't like Einstein's out there.
Like it was a different muscle that that was that was being used aggressively.
I remember talking to David Shue from Retool on the podcast last fall.
And he was talking about his pricing in the early days.
And he's like the definition of fearless, you know, it's just like a very small team,
just the founders, I think at that point and their first 20 customers, they were charging
like an average of like $25,000 a year for this like half baked product that they barely
slapped together.
And his strategy was he just like continued to say a higher and higher price until people
said no.
And then he figured out what to do to get them to say yes, and then just kept raising
the price until I was like, yeah, we're making 500 grand a year from our first 20 customers,
which is amazing.
And with people, I think write that off and say that kind of stuff is impossible and don't
charge a 10th of that much.
You know, and it's funny, you can hear that advice, just like you hear the best basketball
players saying, I stayed three hours after practice.
But what's funny is like doing it is the hard thing.
Going into that meeting and saying a number that scares the crap at you.
That's the hard thing.
Some people do it, some people don't.
But like, I don't think anyone playing on that basketball team believes that they can
become a Hall of Famer without staying after practice.
Boring advice, nobody wants to hear.
Nobody wants to stay late after practice.
No, they choose every day to not stay late after practice.
So I want to ask you one more question, which is a list of boring advice people have already
heard.
You mentioned that you get more practice than everybody else is seeing these startups.
You know, you review 800 applications a year or something crazy like that every six months.
So OK, almost two thousand applications a year.
What are you what do you know from like reviewing these things that other people don't?
You know, like what are the mistakes people keep making when they're applying?
Besides, as you've already mentioned, which is that people are trying to build technology
companies without understanding technology.
You know, I'll answer that question slightly differently and say what do investors screw
up?
So I think a lot of times founders get discouraged from doing their startups or discouraged from
pitching because they get a no from an investor.
And you have to understand that nowadays almost no one who applies to YC hasn't pitched some
other investor who's told them no.
And what shocks me more than anything is not, you know, what our magical process is.
It's that how can we get companies that other people said no to and they actually end up
being good companies?
So it's kind of like if you assume the typical YC founder has gotten 10 no's before even
getting into YC, one, as a founder, you should think to yourself and no some investors I
should discount them to zero.
And two, you should think, hmm, maybe investors aren't actually good at analyzing my business.
Maybe they're more oriented around how I pitch, how credentialed I am, how confident I am.
Maybe those are the signals they're taking in more.
And so a lot of times with YC admissions, our job is to not be too smart.
Whenever we think we know too much about a space, we have to push back.
And one of the things that like we end up doing, which is really funny, is that we almost
end up never working with companies in our former industries.
It's really easy for me to pretend to be smart about live video or video online.
And that's the exact muscle I don't want to have.
Because everyone thought Justin TV and Twitch was not going to be a good business.
And so I can easily fall into the trap of being like, oh, now that I'm an expert, I'd
be able to pick.
But Justin TV started with Justin wearing a camera on his head.
I never would have invested in Justin TV.
And so more often than not, it's about not believing that the company that's applying
right now is in its final form.
And the biggest mistake that investors make at every stage is thinking, is this company
with this product ready to scale?
And I think at YC, we just kind of don't think that way.
We just know nothing is ready to scale.
Almost no companies that we fund hit product market fit.
Almost every founder who says they have product market fit right now is lying.
Once you product market fit and you're a software company with software margins, it's hard to
not become a billion dollar company.
It's hard.
It's your game to fail.
And so I think that's kind of how we think about it and how we think about it differently.
And I think that weirdly, funding more companies gives us the freedom to do that.
For me, funding an incremental company is so easy.
I can tell myself, Michael, don't be too smart.
Does this feel like a motivated founder?
Can they write code?
Give them a chance.
No one gave you a chance.
And that was basically all you had.
And so whereas I think sometimes investors are like, oh, but what am I all he's going
to say?
Or how can fit into my model or this or that and it's like very different.
I'm super curious about how does like someone get to your position?
You know, you mentioned a bit of your history, Justin TV, social cam, Twitch.
What's the what's the path that somebody takes to become the CEO of Y Combinator?
So my job at YC is to manage the early stage accelerator along with a number of other group
partners.
So, you know, as kind of managing director of YC early stage, the single most important
thing that I think got me this job is I actually like advising companies.
I think that maybe the flip side of that is I actually don't really like being an investor.
I think one of the things that I realized is that investors are a lot more like hunters
than there are nurturers.
You know, an investor, once they have ownership in a company, it's on to the next one, on
to the next one, on to the next one.
And oftentimes, they're competing with each other.
And kind of it's just a weird game that I don't really understand.
And I don't find to be a lot of fun.
To me, the most fun part about what I see is doing office hours.
That's the most fun part.
And so I actually think the reason why I'm in this job, because I like the work, because
I think that when you like something irrationally and you care about something irrationally,
you work irrationally hard at it.
And then you achieve good results.
And so this isn't for everyone.
I'll have to do office hours with about 40 companies this week.
A lot of people don't want to keep 40 companies in their head in a week.
You know, a lot of people don't like this work.
But in terms of the nitty gritty, I'm sure lots of other people also like advising startups.
People are probably good at it.
Probably a lot of people would want to be the CEO of YC.
What was that process like for you?
Were you just sort of appointed?
You know, was it like a competition for you to get this role?
Was it?
No, no, no.
Yeah, no.
Like, step one, I was a YC founder.
So I did YC in 2007 and 2012.
Step two, I informally advise the Airbnb founders and encourage them to do YC, which turned
out to be very good for YC.
Step three is after the second time doing YC, I sold that company Socialcam.
And I was invited to be a what was called Nana part time partner.
And basically the only job then is to do office hours.
And I really enjoyed it.
And I liked it.
The next step was that I was recruited to join as a full time partner when YC was transitioning
from being run by PG to being run by Sam.
And once I was a partner, YC was just really caring about YC being successful.
You know, I've made enough money to provide for my family for the rest of my life and
their lives.
I wouldn't have had that opportunity without YC.
And so I think that like every YC alum who's contributing anything to YC feels like they
have a bit of a sacred oath to gift others what they got or better.
And so I don't really perceive this as running a business really.
Like in some ways the money takes care of itself when it comes to YC.
Like I think about it more like how do I give people what I got?
And then how do I give people more?
Because like when we went through YC there were all these things we wished YC could do
that it wasn't doing yet.
And so it's like how do we give them as much as we got and more?
I think is the thing that I almost got addicted to.
And you know it's funny because when I went to Yale it was celebrating its 300th anniversary.
And I remember at some point thinking it's cool to be a founder of a billion dollar company.
But how many billion dollar companies that people are creating in the software world
will be around 50 years from now, 100 years from now?
Will be helping people 300 years from now.
And it felt like YC being a small part of building an institution that could last for
300 years and help people would actually be a lot more rewarding than being you know the
founder of a company that you know might only be around for a couple decades.
Like yeah I think about YC as a business quite often actually.
And it doesn't seem like a business like not very many people ask these types of questions
but like there are a lot of competing accelerators and funding mechanisms that like have never
come close to I think affecting the ecosystem and funding as many founders as YC has.
And I think from the outside looking in it's like okay well what does YC do for marketing?
On one hand it almost looks effortless.
Looks like kind of like the Matthew Effect where the rich get richer and you're all sort
of benefiting in a sort of self sustaining way from being the number one accelerator and
the sort of benefits continue to occur year after year.
But on the other hand it's like most of the things I see YC doing is just helping founders.
You know it's like how do we how do we put on programs to help educate founders?
How do we build like a co-founder matching tool to help founders?
And that ends up being like I think a pretty good way to vacuum up a lot of the founders
who need help and they end up applying to YC.
You know isn't that weird right?
Like isn't the core part of a business providing a service that people need?
Like isn't that the core part?
Like what does the toilet paper company do?
Right?
Like it's not glamorous.
It's pretty simple but like try living your life without toilet paper.
And so I think sometimes people can make businesses into too they become too complicated.
Like why do you use Google because it's the best search and you know I'd argue that's
slipping now.
But like you know Google is going to tell you all kinds of crazy shit and organize the
world information.
But use Google because most of the time when you do a Google search you find what you're
looking for.
I think that like the reason why YC works as a business is because most of the founders
who do YC think YC had a disproportionate positive impact on their company.
That's it.
Right?
Like every batch is an opportunity to perpetuate that or to fuck it up.
So in some ways it's like we're only as good as our last batch because those are the people
going out in the world saying YC changed my trajectory or didn't.
Yeah.
It's kind of harkens back to that point you made earlier about how people sort of begin
throwing away the basic ingredients of the cake and for any business like the basic ingredients
like provide value to your customers like do the thing that they expect of you.
And in some ways it's so mundane and so boring that it's easy to lose sight of and everyone
focuses on all the bells and whistles.
But I have my own like you know sort of theory for like OK what is what does YC do to provide
value.
Right.
So you've got all the different things you do for people who aren't even part of YC
yet.
But then as a founder look at what is like the secret sauce that makes YC tick.
I want to go through my list and I want to hear what you think about these different
things.
Number one it's the momentum that comes from being part of a batch of people who are all
sort of pushing in the same direction at the same time I think is extremely energizing
and amazing.
When I went through YC it was just a ton of people all working hard to get their startups
off the ground and at IndieHackers like I mostly talked to people who are like working
in their basement by themselves and it's really easy to quit and give up.
So that to me was like one of the number one things.
Number two was again the peers like having a network of people who can potentially be
your first customers was extremely it's extremely easy to get started.
It's like okay I'm building this B2B tool who am I going to sell to you oh look there's
200 companies that I know all around me like that's a huge first step and if you can get
that sort of confidence and get into this sort of positive feedback loop of having founder
first customers that's awesome and it's not even just like the companies around you it's
also all the past YC companies that you now have access to and can sell to and so that's
kind of a tremendously unfair advantage that I think you have going through something like
YC that you don't on the outside.
Those two seem to be like the biggest obviously like demo day and access to all these investors
who are sort of trusting that because you've been through YC you're already sort of pre-vetted
obviously you still have to be a good company and pitch well etc and show good metrics but
like that's obviously super helpful and then there's some like psychological stuff it's
almost like getting into like Harvard or MIT or something like once you get in you kind
of feel like there's this expectation that you you're going to do well like everyone's
happy that you got in and you don't want to be a failure and so that kind of motivates
you to try harder and then there's like all the obvious stuff like you've got advisors
you've got obviously the funding that YC gets you but like those first three things I think
are sort of underrated what am I what am I missing what do you think about sort of secret
sauce of YC?
I think you nailed it I think that the biggest misconception is the single greatest value
of YC is fundraising and I over 80% of the companies who do YC raise the money they need
on demo day and 2% become successful billion dollar businesses so clearly money ain't the
number one deciding factor I think that um maybe the last thing that I will add is that
I think YC is or at least tries to be very good at telling you what you can ignore an
early stage of an early stage company is basically imagine being a firefighter and you go into
a neighborhood and there are 20 houses on fire and you don't have enough folks to fight
all 20 fires what do you do and I think what a lot of YC does is kind of tell you okay
well like I can't promise you'll successfully fight the fires eventually you'll have to
fight all of the fires but let me give you some hints the winds blowing in this direction
so maybe you want to fight the fires over here before over there this house is all by
itself in a big rock quarry so it can't infect anyone else right so maybe you can ignore
that one for a while and kind of giving you the confidence to be like I don't have to
fight 20 fires all at the same time it's counterintuitive because so many things are broken early
stage startup sometimes a founder cannot make any progress because they're trying to fix
everything and a lot of times what they need us to do is not tell them how to solve a problem
but tell them whether they can ignore it for now it's counterintuitive how many problems
you can ignore as a startup pre-product market fit and it's also another point for team discipline
because it's hard to ignore stuff as a founder it's much easier to go down every single rabbit
hole that you come across to fix every single problem you see and try to make everything
perfect then it is sort of let some fire simmer and ignore them and focus on the thing that
matters and I think YC you guys have a lot of distractions too I mean yeah to be the
kind of institution that you are you've got a target on your back you got a lot of detractors
people complain that YC doesn't do enough to fund underrepresented minorities and women
people criticize YC for being elitist and exclusive but then they also criticize YC
for accepting too many companies becoming too big and even in my own time in YC I felt
like YC really did contribute to a popularity contest mentality there were a lot of people
who just wanted to be seensters they wanted to be part of YC because it was cool and they
could hobnob with the best investors and founders as somebody who is running this ship what
are the biggest misconceptions about YC that you want to change people's minds about what
are the biggest criticisms that you want to sort of fix or reverse in people's minds you
know it's funny this woman named Phaedra did YC in 2018 and she actually came and spoke
today to the batch she's running a company named Promise and Promise is effectively building
strike for government like an easy way to pay government and receive payments from government
and she's had a long and very successful career before being a startup founder and one of
her jobs was to be the manager for Prince and she got this piece of advice from Prince
that she gave to me actually that's one of the hidden things people don't realize about
YC is how much the founders actually advise us and teach us and one thing she told me
that Prince said to her is that if you don't want any booze you can only play in your backyard
but if you play in Madison Square Garden you're gonna get booze deal with it and I've had
to really take this to heart right like part of building something successful means that
you have to be willing to accept criticism because criticism is gonna come your way both
justified and unjustified and so I've really had to kind of be a little bit zen about it
and be like that's the role once you become kind of a pillar in this industry part of
the role of being that pillar part of the responsibility is to get criticism and respond
to the criticism and try to be better you know from that perspective it's positively
motivational we have the privilege to be criticized to be important enough where people think
maybe affecting YC can affect the whole startup community and so you know I used to take it
a lot more personally than I do now now misconception is different I would say that like it's always
been cool to shit on things right it's like it always has been a human technique of like
by putting something down you feel above it and like for people who want to kind of shouldn't
YC just to get that personal win it's like okay fine like you do you but I'm not gonna
sit here worrying about that right for people who want to honestly understand why YC is
gonna deliver me value oh man I'm happy to engage and like screw just engaging talk to
our users like you talk to 10 alum you'll hear the good the bad and the ugly make a
call and so you know to me the folks who are want to hide their product who want to pitch
all widely and then kind of hide so what does that thing do what does it look like oh you
don't have to worry about that it's behind the curtain I'm like hey look we got 6000
plus alumni you want to know whether I'm lying or not go reference check okay let's switch
gears here for a second one of the things I do on the show is I ask founders about revenue
numbers ask about the financials behind their company so we can get a better sense of how
they run I have no idea to what extent you can be transparent here but I do have a lot
of questions about the financials of YC hit me and then I will either dodge or accept
the bullets how does YC raise and make its money how profitable is YC itself one at a
time let's do one at a time so okay so YC has a number of funds that we've raised from
LPs traditional institutional P's like large universities and how big are these funds oh
we announced them I think that YC has raised now at least over two billion dollars probably
higher than that and how profitable is YC as an organization like how are these doing
oh they're doing well and how are the how are the other partners like what is it one
kind of maybe not secret but something that maybe people don't realize about YC is that
unlike almost every investment fund YC is an equal equity partnership so all of the
partners of YC both investing and operational are all equal equity holders oh cool I wasn't
aware of that my next question was actually how are the partners doing financially you
know is YC minting billionaires and hundred millionaires on the partner side of things
or is that only on the founder side of things because I would guess the program is a billionaire
by now like in everything it takes a long time how Stripe was funded in what oh wait
it's not it's not liquid yeah so I'll say this PG doing extremely well and I think that
all of the partners who work at YC for long enough will do very well as well and where
do you think YC is gonna by the way but it takes time these startups don't happen overnight
and where is YC gonna be I mean obviously you can't know the answer this definitively
but like what do you think things are going 10 years from now the outside looking in it
seems like you know the directions YC is moving in or putting out more and more startups like
founder friendly resources and then just funding more and more and more companies does that
scale forever at some point does the model change what is what is the future of YC I
can think of three things that I believe are vital number one is continuing to invest in
the core accelerator experience like YC's accelerator program is the core the base of
our business and it can't ever be taken for granted it has to always improve it has to
always iterate every batch we have to figure out how to make it better so that's number
one number two the internet is coming to the rest of the world and it's coming fast so
over the next 10 years YC will become more and more international is my belief as the
internet becomes more and more international and then number three is investing in our
founders both pre and post batch so we have the founder matching tools and startup school
and the YC startup library and all the outreach we do pre-batch getting the word out here
are some things you should do if you want to start a startup and then post batch I think
what most people don't see in YC at all is that it doesn't end on demo day so we have
a program for every founder who raises Series A and YC we re-batch them with new peers and
go through all the challenges of being a post-series A company we have another program called the
growth program which is like post-product market fit 50 plus people you have to start
building an org building an exec team da da da da we have another program for that
and we batch you with companies in that stage and we bring back alumni speakers for both
of those programs who can speak to those challenges as opposed to the finding product market
fit challenge we've got the continuity fund so we can actually fund you later on and write
you a large check and so we have a program called work at a startup which is effectively
a common application where anyone can apply to every YC company with one application and
so we want to be part of your hiring your first ten employees and so I think the last
most important theme is how do we continue to add value post demo day you know one of
the things that goes in my mind is one YC should be with you from cradle to IPO and
two YC should earn at 7% every year and like the analogy that I come up with this is actually
and this is slightly douchey it's actually the Tesla so I got a Tesla years ago and three
months in a little alert pops up on the screen and it says your car has an update here the
six ways your car is gonna get better now that's not how cars work we all know that
the only thing that happens with the car is every minute you own it it's getting worse
and like Tesla kind of flipped that around was like no no like and so the way I think
about YC is that like maybe you did the YC seven years ago there still should be something
you're pointing to right now that YC can is doing to help you most of the people listening
to this are super early stage founders that people trying to decide what to work on and
in my experience like one of the biggest things that sort of stops them from getting started
besides you know a lack of confidence is this overwhelming feeling that they just don't
have something to work on they might have technical skills they might have the motivation
but they're like I don't have an idea that's worthy of starting anything and lots of people
have their own different frameworks for like how to get over that problem and how to think
about that what's your sort of personal take on idea generation and figuring out what to
work on as a founder when you think you've got the skills and the confidence but you
have no idea what to build so much of what we have to do is get people to unlearn the
bad things that they somehow picked up along the road and so I like to say that every founder
has a business brain and a problem brain their problem brain is all the shit that pisses
them off in their life whether it's the problems they have or the problems that their parents
have or their friends have or their relatives have it's the stuff that just pisses them
off and the really good problems are the ones where they've tried to solve it they've tried
to do something and it doesn't work or it's only half baked their solution yeah yeah yeah
that problem brain has been learning their whole life on their personal experience and
is one of the smartest brains that people have and you know that because if you hand
someone a product that says it solves someone's problem and it doesn't how quickly do most
people throw that freaking product away how quickly can most people use that product brain
try to use the product this doesn't fucking do anything and just like move on right your
product brain is really smart your business brain is not only not smart it's more often
holding you back your business brain is the brain that tells you is this a good business
is this a good idea is this something that VCs would fund you have no experience there
no experience the first time founder has nothing in their business brain but a lot of bad beliefs
learn from VC Twitter and God forbid their friends who don't know anything either and
just a bunch of stupidity shark tank god knows what right random shit they heard about somewhere
like and so my job in many ways is get people to ignore their business brain and double
down on their product brain the biggest thing the founder screw up is ignore their product
brain problem brain and double down on their business brain and it's like if I could solve
that man I would just retire cuz like you know the saddest thing in the world is when
a founder works in a problem that they know nothing about because they think it's gonna
be a good business because they like worked it out on Excel it's it's a joke and when
you try to advise that kind of company there's almost nowhere to go because it's like you
don't know anything about this problem you don't even like you know I'll get emails from
first time founders all the time being like can you tell me how to find my first customer
I'm like you don't know anyone with the problem you're solving like why did you even decide
to solve the problem like you have no idea who has this problem and like oh well because
you know we're building this for that like YouTube for NFTs or whatever the fuck it is
right and she's like okay you have a snazzy one-liner but you're not actually solving
a problem in anyone's life so you know to me that's the kind of thing that's tricky
is that I don't think it's cool I think that it's become cool to think that you've got
a good business brain and I think most early stage products people shit on so most people
when they're trying to solve their own problems their peers shit on them and most people when
they try to sound like business people like MBAs their peers are impressed with them
when they use jargon and fancy words and all this stupid shit and so it's like once again
we get back to you like your peers are not your guide here and like if you're not brave
enough to do something that your peers think is stupid I can't think of a YC company where
the peers thought it was a good idea and it worked like everyone thinks Brian from Coinbase
is this genius now the dude could barely raise 500k on YC demo day the dude gave away free
Bitcoin if you created a Coinbase account in the beginning and nobody cared right and
so it's like if you aren't brave enough to be Brian when everyone thinks he's a dick
when everyone thinks he doesn't know anything when everyone thinks he's on the wrong path
there's no way you can be a Brian today absolutely no way but man that's hard it's hard for most
people to understand that I remember in the 2011 YC batch we used to do this thing where
we would vote every couple of weeks on who we thought the best companies in our batch
were who do we look up to the most who do we think we're going to succeed and it turned
out that at the end of the batch like none of the companies were consistently ranked
the highest actually did well we were all wrong and so it didn't really matter what
our opinions were even though these founders kept voting for probably thought they were
super cool like it just didn't matter and so if I could sum up your advice it's number
one stop being afraid and number two stop trying to look cool among your peers because
that is not the measure of success you know we have this thing of YC called like don't
peek in high school if demo day is the best day in the history of your company that's
not a good thing Michael Seibel thanks for coming on the IDiacos podcast can you let
listeners know where they can go to learn more about what you're up to where you write
and share your ideas and also more info about Y Combinator yeah so of course Ycombinator.com
is the easiest place anyone who wants startup advice I direct you to either the YC startup
library or startupschool.org and then I hate saying this because I'm not sure that I want
people to spend any time on Twitter but if you want to see me writing stuff usually it's
twitter at mwseibel or on my website michaelsiebel.com alright thanks again Michael thank you