Y Combinator CEO Shares How They Pick Winners, Advice For Founders + Lessons From Paul Graham | Garry Tan Interview

i don't think people are prepared or even aware of what's about to happen right now and it's like super super good news for anyone who's running a business i feel like i could rule aware to i know i could be what i want to from at all then in like a days off on the road less travel never have you seen i feel like there's a new meme that got birth and i think gary's is involved with it now which is the learn to cook loser have you seen this sam what is but is that can you explain this one listed it i don't even know like what it was a reply to but it seems to be going viral so it's a good meme i think somebody program is talking about cooking and he was like giving his kid advice and he's like you know when you have a girlfriend or something like that like you know they love to come home to the smell of like a meal being cooked and then someone immediately you know random twitter troll is like why you raising like a feminine man like you know he should be masculine he doesn't even didn't learn to cook and then i think paul's reply was learn to cook comma a loser then all the builders like i'm job and others basically like tech people were like you know this is actually good general advice like learn to cook as a high agency way of living i think it's like the compressed idea of you know build things actually make things actually go do things in the world that total you know or of value maybe i'm reading too much into it it's a more version of make something people want yay it's the punch up version learning good loser is is paul graham like the definition of success basically built like one of the greatest companies of all time yc and then it started working well and then just bail to europe where he's living in a don't actually know if this is true but it appears he's living in the woods writing and being with his family and i'm like is this guy did he just did he just pull pull the ultimate move and it worked out perfectly i think so i think he really did i what's what's your version of that i mean more or less like yc as a concept is like kind of a miracle it's yeah there very very few places in the world where anything like yc ever happens and then i just feel like i need to be like the watcher on the wall it's like okay let's the this thing is working and then it's working for relatively mysterious reasons that are almost too obvious i mean it's but at once a mystery and it's obvious yc itself is like pretty earnest like it's just make something people want applying this thing we'll try to go through and sincerely find the things we think could be really really big and then we just give you a bunch of money and throw you in a room with all the other people who are you know sort of the top one percent of people trying to do that thing and then somehow some magic happens where you know five to ten percent of those companies become worth a billion dollars or more and you know yc see take some equity but not that much you know like seven percent specifically for people who often wouldn't have access to that capital where that network like by default anywhere anywhere else i mean so it's kinda cool it's just you know one plus one equals three in a really unusual way i you sort of resembles a college in some ways you know only instead of people paying tuition like we pay them you know when i think of good brands a lot of people will just think of like like funny or cool things but when you think of like what black rock or goldman like some of these names are kinda like or harvard they're like they're a little ominous and like a little scary but they're institutions do you ever purposely think how do we become an institution or is this just all because of you just said let's have high standards like was it on purpose or did it just happen because you had good values how does that happen i mean i think a lot of it comes back to your earlier we were talking about paul graham and the guy just a very unusual original thinker and very just clear communicator and then i think the thing i learned from him in particular is that clear communication and you're just using basic logic being able to explain your sort of you know a to b to c and then you zoom out and there's a really big idea in there that's you know in essence what a really good pitches you know i think that that's where it came from like paul was just very you know both frankly paul and jessica livingston his wife and c cofounder the two of them basically created this thing that feels different didn't feel like another investor felt very welcoming i mean this sort of viral tweet i think pg has about jessica is like you know jessica once cut a founder fingernails before he went on stage at demo day because it's like it's like sort of you know at once very exacting you we have very high standards but then it's at at once also very sort of like almost family or like homie just welcoming and you know sort of that mix of both very earnest and very formidable like those two things combined created i don't know something that seems to create magic isn't it wild by the way like just think about it so one of my companies i recently taken through like m and a process and i talked to bankers and bankers so we we you go first and interview bankers like why should i go with you why shouldn't i give you four percent of this transaction for six months of work here at the very end and they're all about their differentiated process how they do more and more and more how they have the smartest people in the room and all the things they brag about about what makes them successful on paper makes sense but it's kind of the mid wit meme because if you look at yc it's like yeah we we invest in people before they even have an idea a lot of the time they have no no traction often they have to change ideas we don't negotiate every deal which just seven percent for every single company same deal that's it the application yeah it's like a one page form you fill out online oh the interview yeah we talked to you for ten minutes and we just give you a thumbs up thumbs down from there all of the things why see ten minutes yeah it's ten minutes like ten minutes yeah and they're picking winners at a higher rate than anybody else i i think the you know they're are attracting winners at a higher rate than anybody so it makes it easier to pick but they're picking winners at a higher rate than every other investor even though their process is simpler and less than what you would think you need in order to be you know the the number one player in this space and they basically i i think i've read this stat it's pretty insane you guys basically every time you run a batch you basically print three billion dollars of market cap on average i did some math and i looked at the the the batch values you know like something like five percent all the companies become unicorns but every you and you just do that a couple times a year you doing it twice a year and now you're doing it four times a year you're like oh yeah let's just print three billion dollars of market cap two four two to four times a year yeah that is mind blowing but that is so insane yeah i mean i i think the the craziest thing i'd ever heard was basically the airbnb round where i think something like under twenty thousand dollars became two billion dollars and the liquid ipo when airbnb ipo so and you know yc didn't even take the p carotid then i was pretty wild honestly like you know easily could have returned five to seven billion dollars with a good portfolio management strategy but you know i that's the thing i think simple things work actually it's why yc see was a a company because i think it's been around like eighteen years you said something years at the last eighteen years you know why gotta be up there in like the top ten silicon valley companies things that got created that created so much value do you think about it that way or is there do you know lenses try and get people to understand like this isn't just you know working at a company this is you know i think we did the math on how much money per employee yc in theory should drive and i think we're something like twenty ish million dollars per year per employee in terms of like you know sort of market cap value created in the world and that's just the carry like that's our take like you know in terms of value created for our limited partners and you know sort of overall in in sort of i think it's like close to a hundred million per year per employee so it's pretty wild who are the lp lps even is it like the pension fund types just like a vc fund or invest in vc i mean the wild thing about yc is i think we're gonna release the white paper on this pretty soon but i haven't talked about this publicly before we looked at a two year period from twenty eighteen to twenty twenty of people who invested in at least three yc companies per batch for those two years the top top d predictably was very good it was like sixteen x the top quartile was also very good it was ad x i mean these are outrageous returns for a such a short period of time in venture period the wild thing though is median was five x and then the bottom quartile is three point three x so it's really crazy because venture peer if you look at how vcs make money it's all in the power law there's only you know sort of the top twenty five percent make any money at all and then the top quartile generally for any given year of vc is only three x so it's pretty wild what's happening you've read i think have read something that you've read six thousand yc applications so you've seen more of this than anybody else you're the admissions officer you've been in a lot of these interviews you've then seen the companies grow what do the extreme winners look like early on and do they look any different than the average company i mean honestly they're very similar like my two craziest wins one was brian arm armstrong at coinbase and he was a solo software engineer working at you know anti fraud airbnb and you know he had never started a company before he you know a lot of the things we worked on with him very early we're like sort of the basics that you know it's sort of hard to believe now on the other side of him having built coinbase base it's kinda hard to believe that you know there was a time when brian armstrong didn't know how to you know do a product launch or you know even raise a single dime from investors so i think it's basically been that same profile like highly technical people who are just like sort of smart and earnest and that's about it like that's sort of mainly who we like to fund and then it's i think unusually really really important today in twenty twenty four i mean large language models have basically opened everything up i mean almost anything that a knowledge worker can do you know anyone with a hundred thirty iq or below pretty sure that with workflow and eval you could right software now that could do what that you know basically almost any knowledge worker could do and you could do it perfectly with like no management headaches it's i think like really profound moment for all entrepreneurs period yep i think me and sam have both had learned a code on our to do list for like twelve years about the about the you know python the hardware course on u to me did all that shit i think we met we now we get to skip the learn too it's just code now you you'd don't to do the learn part he's like you don't need to actually write it i mean it helps to be able to write a little bit yourself but yeah i mean the wild thing from here is with like the new developments in o one and cog gen i actually think it'll be more important that you're able to speak to virtual developers and like instruct them on exactly what you want in all the different use cases and like we're right at that moment where it's going from like you really have to code it all yourself to you can just sort of talk to this pretty smart entity that will you know do it mostly for you like it's not even about no code anymore was doing at the end other day where i was talking to chat g where i was like explaining like here's the problems my business is having can you help me like can you just like be a therapist with me and help me like come up with interesting solutions and the were shockingly good by the way it was like it was like pretty good it's just like brainstorming with me and just being like a spa partner is there you know like i know that yc a lot of it comes down to making people what people want and things like this and to me that's a that's like a a bit of an art where you you're you're more of an artist and a scientist but is there a world where you could take their six thousand applications and a bunch of other data that you have and kinda spreadsheet your way to be like the likelihood that we build a company that and i think there's magic to create these like multiple d unicorns whatever but is there a way we could like use your data and spreadsheet your way to like well here's the interesting opportunity this is gonna get to some type of traction and wealth creation with a high rate of certainty you know some of it is like we think someone might do something like that and they might totally work actually and then the trick thing is like how do you actually get really smart people to come and do that thing and you know i mean capital as a service has been and i think like sham off talked about that and i thought it was very interesting what did he say sounds conceivable i mean i think they experimented with this when he was still working on social capital where instead of having a ten minute interview and you know how it works at yc is we actually have fourteen equal group partners including myself so we actually you know hand read these applications and you know you're not talking to an ai when you do the ten minute interview it's literally just talking with us and then once we fund you or just working with people day to day you know for those ten twelve weeks and then onwards into the future of the company like we own you know seven percent of the company or like a big seed investors so we need to sort of be around and it's very like high touch and you get like an individual person and then i think like the capitalist service idea like is really just you know connect your metrics connect your stripe account your bank account your quickbooks you know i mean it's actually pretty doable today like it's conceivable that someone should connect all those things up and then an l can just you know rank whether something's real or not do the diligence and then if you like hit a certain bar like boom like here's money in your bank account and did you that when they do for for growth stage companies i think they called it they eight ball is like you you connect all your data and then it'll it'll don't just tell you they like they could just take your raw data and they could put it into a format where they needed to analyze it but then secondly they benchmark you so they're like oh wow they have best in class retention for this category or they're below average so don't invest right but the results for like interesting but not like like yeah where was like this is interesting but remember when chad started getting popular i think sean on two years ago and there was a guy on twitter who had a really funny like name it was like green point or something like that and he told chat gb like make me a a content website that can rank high on search and it can monetize on ads and i think within like three months you got to like twenty thousand dollars in in monthly revenue do you remember that story oh yeah like the the normal way now is i prompt ai and i want ai to be an agent what he did was the opposite he's like you tell me what to do i'll be your human agent you but you have the good ideas you prompt me and i thought that was like kinda extra well now with o one like the new reasoning model gary can i ask you a question you today you probably think about like you know the future and billion dollar ideas but when you were fourteen i read that you kind of had your own hustle there you were cold calling companies in the yellow pages trying to get work and you you made enough money to kinda actually help your family out like move over an apartment to a house could you tell that store i've never heard that before yeah of course i mean let's see i mean my parents we grew up you sometimes food and insecure my dad was a foreman and a machine shop and my mom was a home health aide and certified a nursing assistant at con homes she work two jobs and me and my brother lived in you know apartments in fremont in the bay area sort of in the shadow of silicon valley and i guess one of the weirdest things is like my dad's actually an engineer but he just didn't have the e q to really hold on to jobs and he also struggled with alcoholism so we just he was always losing his job and so we were always just like never had money around and the thing was like he really did invest in computers like we had our first computer was a you know ibm pc xt so you know we were sort of reality poor but you know rich in access to computers which was like really really powerful for me and i just realized oh yeah like i'm fourteen but i you know know how to make web pages and i started winning some awards for like web design as a kid in junior high i started an underground newspaper with my junior high friends and we've learned how to make a website for that underground newspaper and we got and we called it online z and the funniest thing was like we had you know thousands of people would find it off of use net news groups and things and we'd write articles that you know i i don't think people knew that we were fourteen like when when you're on the internet one thing we learned is like nobody knows that you're a dog i guess i don't know like people would just write letters to the editor like we were like a legitimate publication and i just got sort of really addicted to that like like let like an early vice dot com yeah basically like i think we wrote you know my my buddy wrote a editorial about you know how the three strikes law was bad for california and you know we're like twelve years old like what do we know about any of that stuff but you know on the internet nobody can tell and you know i i think we wrote it in pretty clear english like people couldn't tell that we were that young and then i i feel like i got really addicted to the internet and then i thought well maybe i can make money and you know back then there was a thing called the yellow pages that they throw on your doorstep and that's how you would find businesses and i thought okay the yellow page is probably my link to making money somehow like if they have a business and they have a little ad in the yellow pages is literally in the print section like you know and this was not so early that like the internet had eaten yellow pages yet but it was late enough that there was an internet section so i just started cold calling you know seeing hey like i know how to make web pages will anyone hire me and sure enough i ended up getting a job and riding my bike to the local web design firm that made city websites for like city of pleasant ted and fremont and san jose and you know basically they paid me you know ten bucks a seven bucks and ten bucks an hour to work on i mean learned how to do graphic design i learned html what is that what's that phone script oh god yeah first you have to deepen your voice right fourteen on the call that's right and it's like oh i'm i'm a web i'm award winning web designer and you know but i'm fourteen so good did you say that yeah i think so i mean it's funny i mean i remember my first boss he was this was sort of his like side hustle so by the way is award winning designer in your linkedin now i don't i don't know if it is i'm i add the yeah missed it back yeah that's a mess it's funny i mean i remember it was like this company called info lane it was you know they had a one like basically i think it had a conference room and you know sort of an engineer den and a lot and like a little reception desk and that was the whole office and i think it was one really technical like sort of neck beard uni guy and then the funny thing was the ceo was also a bank a regional bank manager i think at fremont bank and so you know the tech guy had walked into the local fremont bank and you know the internet was happening and this bank manager was like i'm gonna give i'm gonna invest myself like i'm gonna invest my own money and he became like the cofounder on this you know web design firm in nineteen ninety three ninety four so it was pretty wild to to think about i mean that's just how you started business and that was what business was like you didn't go on the internet and apply on a form or something you literally walked into a bank and banks were supposed to loan new money to start companies which you know i think to some extent still happens but you know it's just funny to think like how that's evolved since and and at some point did you just make enough for you were like mom dad here like i can help or what happened yeah i mean we i always lived in apartments growing up and i had a a little brother who's eight years younger and you know i wanted us to live i wanted the american dream and so you know i still remember like helping cook the turkey at thanksgiving and you know the new house that you know our our family bought and you know i help my parents with the down payment and my parents still live in that home in fremont so i'm i'm helping them remodel it right now that's amazing by the way i looked up your old blog i think back in two thousand and one you you wrote the following which i think is pretty accurate you said you know blogs are all over the place this was back in two thousand and one so over twenty years ago pretty soon we're all just be writing a blog we don't really talk to friends after have to catch up anymore human interaction will just boil down to clicking on someone's name on your favorite website and that'll be it no more tedious how do you do over a nice matcha of f at some pre potential cafe just read my blog if you wanna know what's oh my god you predicted social media it wasn't exactly blogging but yeah that's instagram stories that's facing feed as the news feed exactly i think you nailed it for better and for worse that's funny man i wish the one thing i wish i could do is like go back in time and tell myself don't sell your time like don't work for a consulting firm or like you know get paid ten dollars an hour like go make products but did you did you ever do that i thought you were pretty young when you first started getting involved with yc oh i was twenty seven so i was much later honestly i mean i very young in the photos like that you actually didn't need to come from the future because i think i've heard a story that you were working somewhere microsoft or something like that oh yeah peter t was peter t was like hey quit your job in fact i'll pay your whole salary to quit your job and come c found this new company this little company we got called pal tier yeah it's like a ninety five billion dollar market cap company today and you turn them down could you i mean what thinking could you just embarrass yourself here of course i mean i you know went to stanford computer engineering i mean changed my life obviously our f attorney brothers of mine joe lo or joe joe lo and stefan cohen stefan and i went to high school together grew up together tried to start a bunch of companies together you know i was a year out of school you know was two thousand four and i thought like oh look at me i have health insurance i have a real job and then my old f attorney brothers who are a couple years but behind me at stanford like i guess they couldn't get a real job so they're gonna you know go start a company i yeah i don't know it's really funny to think about in retrospect but you know one of the things that was always really smart about the peter heel world is when you start something you always just need the smartest people around you and i was lucky enough that i made you know joe s list when that happened and you know peter was just running the playbook that worked for him when he sold pay paypal which is and it's something that people at pal you all the time now it's like when you start a thing you you know take a eight and a half by eleven sheet of paper and you write down all the smartest people you know and then you go take them out to dinner and lunch and just you know sit on their doorstep until they quit their jobs to come join you and you know i guess it was pretty well i mean peter was not a billionaire yet i think like the funniest thing about paypal and the paypal mafia is that like they basically fought a land war in asia against ebay you know i mean when you don't have when you have to work on other people's distribution and other people's platforms you just end up becoming like the most vicious hardcore you know builder fighter types to just like gut it out to build a business on someone else's platform and then the exit for paypal was just not big enough that it made people you know it made people like able to take lots of risk but not so much that they had lost all energy and will to fight well and there was a and there was a bunch of them too so that i d ed up a bunch yeah as wild how much was peter till worth do you think at that conversation because like let's say you made eighty thousand dollars that that's like a big deal right to be out to dinner with something like i'll you eighty grand right now just to yeah totally to get a c founder or c founding engineer like i i i some of his like i could see myself doing that today i mean i think peter was probably worth like at least a couple hundred or at least a hundred million at that moment more than enough to be able to to say something like outlandish like that yeah i mean i think it's like fair trade today like i would definitely trade like my you know my gold rolex for a first c founding engineer of a company that i think could be worth a hundred billion dollars in the future that is a fair trade did he make a compelling pitch like about the company or was he just like i don't know this is just like a bet like was he did he see the future in that that sense of like what it became yeah absolutely i mean i think the thing i really learned from that moment i mean i was twenty two i didn't know how the world worked at all i mean we had dinner at his french restaurant free zone i think that's one of the things you do when you you know make it to millionaires you do something stupid like open a restaurant and i mean the restaurant was terrible like the seafood too bad and i mean he lost like millions of dollars on that right i think so i mean today it's this is really nice day house but yeah it was bad and then you know what i should've have done i mean i was so lacking in social graces you know they did the whole pitch and then i think i said no like before the soup came out even and so we was like awkward sitting there for the rest of the dinner yeah and he had actually reap he was like here like here's a check like seventy thousand dollar you know how much to you year do you make at microsoft here here's seventy thousand dollars cash this check i didn't really understand it in the moment and then i think in retrospect like sort of the the number one thing that i didn't understand that i do now sort of realize like i have to tell you know tell everyone this is how it works is you know i didn't join at the time because i thought that the world was sort of told to you or like you know sort of narrated to you i guess you know i i thought oh the wall street journal isn't writing about enterprise software this isn't a hot space and so you know that that was like fundamentally the backward way of thinking like the world doesn't like happen to you if you are actually a like prime mover in the world like peter teal or my friends you go out and you go into the world and you discover something about the world like you actually talk to people like you actually talk to your users and you i sort of gather primary first source information on how the world works and what they had done was realize that the world's biggest companies and the world's biggest governments had no access to software engineers or you know big day back then people said like big data or data mining was like you know today we say ai but either way these were just buzz words for concepts that are like actually pretty real like i think they you know went into the security app rad of like the three letter agencies in dc and realized like all the people they talk to you know they were working even cia nsa like the you know people who we expect to have rad the world's best technology they really don't and peter knew that because he somehow the cia and nsa whatever when paypal was running they're like you guys wanna have a conversation or like you know how how does like a like a silicon valley kinda i'll cast get a cia tip yeah i mean my inter i i don't know specifically i mean how they described it to me i think was like they learned a lot about how the world works through the anti fraud part of paypal and the core idea was that they could find these fraud rings just using a graph database just literally you know people make a bunch of fake identities they send the money from one fake identity to another and if you're just using sequel or a row based method you just couldn't figure it out but the second you like graft it out you would find this ring and you know what they found was that you know they have the three letter agencies didn't have access to that technology so you know what i needed to do was instead of taking my worldview from the media or you know today from social media or from you know what reporters were sort of dis for me what i needed to do is listen to people who had actually lived direct experience in doing something unusual and strange and my son making that's simple but that's still really hard to like know yeah well it was smack me in the face and i i done an promotion waiting on you right i my i was trying to make it to level sixty yeah level sixty is like hardly yelling like level three or something it's brutal and by the way pal tier i've got friends that are there and and i've learned a little bit about it reading like it did not peter teal i think it's easy for me to say peter till back then seemed like an obvious winner but the pal idea didn't like it seemed it seems like it didn't work for like two years or something like that like it was definitely it seems like it had this normal start up trajectory where it's like it's not working maybe it's working it definitely not working alright now it actually has legs you know the the yc tri article like it seems like it had that normal normal like issues except for like maybe five years yeah it took many many years before it started driving revenue and be you know became real yeah the trick is like yc companies always come to me and asked like what could i learn from the pal experience and i'm like are you is your name peter heel and are you willing to put you know tens of millions of dollars of your own money into it before and sort of wait and be incredibly patient and ignore all the signs that you're you know weren't getting revenue and not you know actually working for so long to the point that you know suddenly it started absolutely working and working like ten times better than you thought it would like that's just not a thing that people are really capable of doing on certainly their first million dollars or their first you know calendar sort of like the the most amazing version of like the second or third startup that people do like your first startup you gotta just got it out sometimes it's like how do you like get to your first million dollars right well that is the name of the podcast so i'm curious what's your advice or take on that like how how did you do it how did you think about it and knowing what you know now how would you go make your first million yeah i mean what's funny is in the end like pal ended up being huge but it took it didn't really ipo until many many years later it's like i mean i designed the logo in two thousands i joined his employee number ten we would do these ridiculous things like go to stanford and give out pizza and then we were like ten people fifteen people working there but the pizza box would have our pal logo that i designed and like join the next google and people would like eat the pizza and they'd like give us dirty looks like how dare you i guess like what the heck is wrong with you guys and then let's see my first win i mean the passenger shares did turn out to be something but it did not seem like it was going to for a really long time i think my first actual million dollars was selling a few million dollars worth of twitter stock at ipo and so it was actually really late like twenty i mean for me i started working in tech like when i was fourteen so like nineteen ninety six ninety five and then i mean i think it yeah it literally took like eighteen years of like working as an engineer and not having money and having like fifty thousand dollars credit card debt come out of college and i think that might have even been one of the reasons why i didn't quit to join pal here i was like it it felt you know in two thousand four i still had like thirty forty thousand dollars in credit card debt and like maybe fifty thousand dollars in student loans and i just like i was like well like seventy thousands a lot but you know how am i gonna actually or yeah that i don't know if this job will even exist in six or nine months and like i could be a life for at microsoft and of course in retrospect like being a life or a microsoft would be sort of like a life of torture at some level so yeah my first million was actually twitter stock so i started a company in two thousand eight called preposterous it is blog platform i used to use it i love preposterous yeah it was dead simple blogs by email you just emailed post at preposterous dot com you didn't have to log in or like learn how to use software and then we just reply back with like here's your blog like here's your website and you know you could send it to your friends and you could it sort of like an email list too so you could do it with your family lot of people used it to like share photos with their family learn it grew ten x year on year two years in a row until instagram came out i remember when instagram came out post was actually one of the little check marks lost of the sands of time i think it was like you know post tumblr four square twitter and i called sharing page and i remember chris sa one of our investors emailed us about it and i was like hey what do you think about instagram and before i could reply my founder replied it sucks i was like yeah and i was and we got a one line reply from soccer saying i'm very disappointed in you guys and then i just was like you know sleep deprived and think about it again but like i think about that all the time now because you know when you're working on a startup up like you know we didn't actually even totally understand why we were growing that fast in retrospect it was actually because the iphone was new and people were taking lots of photos and there were no apps that made it easy to upload and then instagram was sort of the first free app that created a network that also even had a little bit of utility with their filters and it was all free and basically you know we got run over by the eventual winner and you know i think that's one of the big dangers for founder period is when we launched in two thousand eight you know michael aaron at tech crunch wrote about it and he framed us off the bat he was like preposterous is you know way easier to use than tumble and so we sort of made a mistake and took like that competition and then made it our identity and it's something that advice that i have to give to founders all the time now which is like we weren't competing it against tumblr we're competing against how people were getting photos off of their phone actually but you know when you're not careful you sort of allow media or other people to sort of frame your reality and then you just play the wrong game like tumblr didn't even wanna be tumblr that ended up having zero enterprise value i think that's also one of the cool things about silicon valley is like you can even sort of screw it up you know it if i really intros intersect on what i wish happened you know we had about a million users who were like super dedicated to preposterous we easily could have you know sort of charged five dollars or ten dollars a month for it we would you know were a team of like twelve people we easily would have been profitable and then i i remember because we were hanging out with our friends at wee like david r and dan v who were amazing i mean they they were they only ever raised you know a tiny amount of money out of demo day and never raised a series a and what do they eventually sell for like three hundred and four hundred million dollars yeah to square like sort of i think pre ipo and then square of course like went on its crazy runs so these guys are like made you know a hundred times more money than me and my cofounder and posture is like you know rightly so they did it not through like continuing to raise venture dollars but by being profitable cash flowing by compounding by focusing on their users and like playing their own game instead of playing the game that was like can be sort of chosen for you by either your investors or social media or by reporters and tech tech press like you know just play your own game like make up your own mind so you know if i it again like we easily probably could have done that and then instead i think we ended up pivoting out of you know that preposterous idea and you know we were just wanting to continue to chase this idea that we could be the free social network and i i distinctly remember meeting peter fe at benchmark and he passed on our series a because we didn't have a good answer for this he asked you know are you a platform or are you a network and we said both because you know that's what founders who like don't have strong opinions and saying i think like it's a multiple choice ta just circled an yeah if you're wrong that way but i don't know this is all you know twenty twenty hindsight i mean we use i use these stories all the time to try to help founders get on the right path to real enterprise value all the time now alright so you know it's not just make something people want and raise a series a and b and like look like a successful startup up it's actually makes something people want and that's the end in itself and if you do that like you're gonna make money and you know hopefully you can compound that and like you know create real enterprise value for yourself and that's that's sort of the game i'll be we wanna ask you bunch of a bunch of questions about different stories because you probably have like a lot of stories but what's interesting about that stories is you you let pal volunteers are vary i don't know if it felt it that way then but now it's a very serious company where like they prevent terrorist attacks at time so like it's a very serious product what you are working on after that you could like someone could be like well that's just like a blogging platform or that's just this like that's that's quote less serious did you ever like i mean i guess i'm self projecting because i feel this way sometimes where i'm like i'm doing something that's not serious but you kinda have done both and you've done now you're back to a a a relatively serious thing it's a yc he's a multi billion dollar company how do you balance like like working on something that seems fun and cool versus like a serious big thing i mean i think that goes back to what we're saying a little bit earlier which is just like be careful what frame you accept it's all made up but you get to make it up and then you know for preposterous in blogging like they said the same thing about facebook and i remember spending time with ba and you know a bunch of the you know our friends who are early facebook they never accepted the frame that facebook was not a serious and important thing you know they their narrative was very clear like they had a very strong cult and the cult was just clearly once every few decades i think very explicitly z would say this like once every few decades like everything would change media would totally change and like they were right like this social layer came up and you know this is sort of the reason why i feel like if you're running a business today you kinda have to be a creator because if you're not a creator you gotta buy eyeballs somehow and guess who's got the monopoly on eyeballs you know larry and sergei and mark zuckerberg you gotta go pay you you you gotta pay the toll to you know go across the bridge like you know the second price auction mechanism in the ad networks for like all incremental attention is so valuable that these are like the most durable powerful network effects businesses that like cannot be disrupted so wait are you telling all yc founders to go and build an audience online oh if you're doing consumer you you basically have do right what even if you're dev tools like you would you say the same thing if you're a b like isn't they even more valuable because you need a smaller more targeted audience oh yeah that'd be great and harder to target that that's it that's a pretty interesting thing you didn't say that i'm putting where your mouth but if you are saying donald yeah yeah we have mark pink coming to speak at our many conference later today and you know we're gonna talk about it it's like how do you actually get incremental customers and distribution really matters for consumer businesses but that's also why you know we've had a dear in really breakout out consumer businesses for ten years you i i think that this will change i mean with ai ai does change things i don't think it's broken the distribution advantage you know i think that the big tech companies have a total strangle hold on the incremental user and you have to pay them still i mean it's just purely market dynamic right like you know we're selling widget x or game x or dating site x or whatever it is but you know our you know buddy from college or you know or someone from halfway around the world in eastern europe can like take what we've done and like do the exact same thing or go to our supplier in china and like get the same drop shipping relationship and so at that point like the second price auction means like well i want that customer no i want that customer no i want that customer guess what is an auction like every incremental dollar that is gross margin google or facebook will just extract because it's a perfect marketplace and that's just the world we live in right now and then you know i think that the purest form of alpha that exists still is saying interesting valuable things that you know and the youtube algorithm and the x algorithm and you know to a lesser extent like instagram i mean i think tiktok is actually pretty wild like they're just giving away distribution over there especially for brand new creators i think meta is probably really dropping the ball on how they're thinking about creators they just like i don't know what's going on over there seems like they only wanna satisfy the people who are already big which you know is not that helpful for people who are trying to do new things but yeah that's that's sort of the regime we live in you know for b to b what we see at yc sees is that you know probably seventy or eighty percent of companies are b to b and our most well attended mini conference every batch is actually the sales mini conference you know pete ka angie founder sales like that book we give a copy of that's like literally every founder a lot of is about a mindset shift like most people have never been rejected ninety five out of a hundred times like it's just so like soul crushing to get know that many times in your life but it's also you know for eighty ninety percent of businesses today you better get good if your website conversion rate's five percent you're doing phenomenal you go out and knock gonna a hundred doors and get ninety five knows you feel like you're the biggest failure in the world and it's the same company because you got five you five enterprise contracts paying you ten thousand to a hundred thousand dollars a year like you're the biggest winner in the world like that's how this stuff works we gotta ask you about some of the people that you've been able to meet i'll tell you what i want and i hope that you give it to us i don't know you want but like so being sam kind of in the what i'll call like the way that most people live their life which is you wake up every day you got your project to your business it doesn't matter if you're doing you know ten thousand dollars a month or a hundred thousand or ten million dollars a month it doesn't really matter you can wake up every day and then we all look for kind of like this entertainment inspiration thing and we get a lot of it from twitter from podcast podcasts and one of the best things is when you hear about the way that some of the people you admire operate or the way that they they handle things are the way that they dealt with a situation or something about their personality and of course it's sort of you know a car it's not a perfect picture and you know whatever they're not perfect people but it is badass ass to hear those stories and we hear him about elon but you run in a really amazing circle where you know paul graham sam alt like all of the yc network or people you've been around you've been around the before they were you know big and and and since i would love if you could tell us a couple of like either personality traits or stories that stand out for some of the people so i'm curious it's a long winded way of saying can you tell me some cool stories about some of these characters that you absolutely the funniest story i remember from working with paul graham in the office i mean he gave me my first shot as an investor and as an advisor to start i was burnt out for impostor that we my c founder and i had like a falling out and he wanted to become google groups and i was like dude i don't even think that google wants to be running google groups like what we should just charge money but yeah paul like i think really did like paul and jessica basically like did all the admissions work with all the companies was like twenty eleven you know even the whole yc campus was not a campus it was like a warehouse with some carpet and some like custom like very cheap i mean there's just tables and benches the benches were so rick that like if you sat on one side like and the other person on the other side like you know stood up like you'd fall over like there's just like a bunch of funny things about why the early it was like this tiny thing and to paint a picture like people still when i said i was gonna go work at yc as a designer and residence my friends venture or startups would say oh that's nice it sounded like i was going to volunteer at like a high school camp or something it was like a high school basketball camp or something i was like oh that's oh that's nice that's so you know i hope you enjoy that like you're good for we service good for you good for you exactly and you know dropbox had happened as a you know and it had become a billion dollar company but airbnb i think was just about to become a billion dollar company and you know i i i think this is lost to the sands time but i remember sarah lacy had created had i've written a book called like one you're lucky to you're good so that you know twenty eleven i think was the one you're lucky to you're good moment for yc where people are realized oh this isn't like some fringe thing it's actually starting to churn out like basically the most dominant startups that exist it's like a very concentrated form of silicon valley and about that time yeah we had there was literally one person who did all the books all the finances all the audits all the cfo stuff and she needed a copy machines so she got one of those like sort of waist height copy machines that you know look corporate and it had like these little stickers on it and then i remember program came in he's like what is this why is this here and it was like sort of this tote of corporate ness he's like i remember seeing these at yahoo when i hated them like he started like scraping off the sticker that had like the phone number of the little company that would maintain the the copy machine and i guess it just jumps out at me as like this very interesting quirk of paul that was like absolutely right and you know i sort of stay up at night thinking about like how do i make sure that yc never feels corporate pga he my pd would show up in like shorts and bur stocks all you know all day i think he he wore khaki pants to my wedding so my mother my my sister law was like excuse me sir this is a private wedding and i'm like no that's my boss so so i mean there's this i think what i learned from paul was that i think there is an insidious nature to like formality and corporate and just like have wear a suit or the convention right like i think there's incredible value in being very very unconventional whenever there is prestige and or convention you should be wary of that thing because you know there's gotta be some other weird soul sucking things that are associated with that that you know no one by default would sort of choose to have you know a dress code over or like what you know what are some other examples of this like you basically you should be aware of about your own formality and try to fight against it is just like try to be super matter of fact and i think that that that's one of the things that just makes companies bad i i wonder like as people who run your own businesses you ever think about that like you go into a meeting and you just think like was that that meeting that if i were not me running this place like where i wanna be in that meeting well it's the same thing as what you said with the framing thing you you behave like you think you're supposed to behave versus what kinda of makes sense you start playing business a little bit it's it's sort like you know when you start a company a lot of people play business by getting like a business card before they get a customer and then you kinda snap out of it you're like dude you like gotta make the damn thing you start making the damn thing and you start getting some customers and you kinda go back to playing business again yeah which which is definitely part of the silicon valley thing you know like o okay ours measuring things quarterly like there is a bunch of like lame ness that i myself call victim too and you have to like pull yourself out of that trap but but some of it is like you i guess if you're airbnb you you have if you have six thousand employees you you do slow down but it's hard to know what's truth versus what like or what you should do versus what you have to do type of thing i will say that i think it's possible for people to do insane business now with like two pizza teams like i think that we you know probably in your community or maybe you guys yourselves will end up making these like hundred million to like billion dollar a year businesses that are totally empowered by large language models that like do not need more than twenty people working at them i think that this is literally the most exciting news that you know we're pretty sure is going to happen the next few years especially right now and like that is the one thing that these giant companies that have like thousands of people like it is completely like corporate america completely unprepared for this moment like they're just gonna get run over by a thousand startups ups that are way more agile that you know aren't completely drowning and convention they can just do the right thing for the customer and the cost basis will come down a ton you know the the trick thing is like i'm not sure if it's inflationary or like stationary scenario like what's gonna happen here right like prices in theory should come down things should get a lot more competitive i mean on the flip side like the hope is that all of our you know products and services get a lot better cheaper faster real fast i mean this is the moment like literally we talk to people who are end managers and like cto and like even engineering teams i you know i think that it's almost generational like we get it's like in the water for us right now because we spend all of our time with like twenty two twenty five twenty eight year olds who were like the me from you know fifteen years ago like we're just helping the next generation right now and they were like born on the internet were born with large language models you know and then there's sort of you know frankly i'm forty three like my generation of sea levels like i don't like i don't think people are prepared or even aware of what's about to happen right now and it's like super super good news for anyone who's running a business who's super agile because you don't have to be doomed to calling in the business process automation call center you don't have to like hire the team in the philippines anymore if anything like that's one of the more direct advice we give to people looking for startup up ideas in the batch right now if people are pivoting we're like okay well you're selling to let's say like accounting firms you know but you're having trouble with enterprise sales what if you targeted people who already spend you know hundreds of thousands of dollars a year on a call center in the philippines or eastern europe or anywhere else like why don't you just reach out to people like that and just replace what they rely on you know they're with large language models that have great eval and great workflow like that is just you know i think we will have many companies driving tens to hundreds of millions of dollars like literally in the next like two years it's just like hundreds of them thousands of them are going to pop up right now just doing that that's so exciting what companies are you super excited about that we should watch out for we should go check out because you live in the future you're you're further in the future than we are obviously like the tooling for this is important like there's gonna be a lot around helping people build the stuff your eva like eval in particular like doing it test driven is important you know the danger for most founders right now is it's very easy to make demo aware that you can use to raise money and then you're tempted to sort of you know quote unquote raw dog your prompts like you will just write code that has some prompts and you won't write any tests and then the funny thing that we're seeing right now that i think is super true is again like going back to what we're saying earlier like it's important to build your world on how the world works directly from customers and their customer data so the sort of rinse and repeat thing that's like maybe eighty percent of yc what yc companies are doing right now that i think anyone could do is go and find real people who like are running businesses and they're spending hundreds of thousands of dollars a year on giant teams of people doing like rote repeating knowledge work and then get access to their data get access to the flow of their work watch how they do it and then literally write test cases using and if there's hallucinations or the l aren't actually able to like consistently do the thing you want you actually have to chop down the prompts more like you're asking for the l to do too much like the l are capable of maybe like hundred twenty iq level work right now and if you're you know giving it like too much in the context window and asking it to output too much it's just like do it in steps right this is literally what o one and you know reasoning already does using chain of thoughts the interesting thing and weird thing that i'm tracking right now that i'm a little bit worried about is it is entirely possible that the next generation of large language models from ant philanthropic and open ai and meta are you know one and then two orders of magnitude in numb in like compute and number of parameters and then we just get like you know the da ama scaling laws papers specifically says like you know these big large mine language model ai labs are gonna spend a billion and then ten billion dollars on the next generations and like if we get like continued step function improvement like the trick thing is like all the stuff that even what we're doing as founders are doing like you know maybe the models will just do for themselves and you know i think that my hope is that you know there's not enough agency in these things and then you know maybe what will happen and what what we hope and what we think will happen is that the people who establish brands and mo and eval right now when the next generation models happen their cost structure just comes down by like ten x and then they already have like the revenue and the the market captured in some way that they're like sort of beating the software incumbents that they're going up against they themselves have like tens to hundreds of millions of dollars in revenue and then like basically the standard mo apply like look at porter by forces and you're like you know your date you have way way better access to data your your systems are way smarter it costs a lot of money to take a risk and switch off of those systems and then you under understand you have a salesforce that is way better and smarter and so if you take you know that's sort of the ga right now like if you do prompts and eval you're pulling forward the future by a few years you're trying to like grab as much land as you possibly can right now and and then from there like hopefully you can hold on and build the next microsoft or the next salesforce or you know the next ten you know ten to hundred billion dollar company was it obvious when sam alt left yc to do this i wish i was smart enough to you predict that this was what was going to happen did you think that he was gonna be the man like he is now like you know paul paul graham has that essay where he's like here's five people i bet on and one of them the fifth one was like a twenty five year old sam alt and the other three were like you know gates and be jobs and then he said this kid so did you were you're like whatever sam does is gonna be a generational company or were you like might be it could be mildly successful i mean i think it could i bid in full transparency like i'm gonna be super honest i was like man i don't i don't quite get it you know i'd he when he was sitting in my my shoes as president of yc he'd come back and i remember sitting in the group partner room and he'd say like well this is what elon was talking about and this is what larry was talking about and you know they were all talking about ai and they were you know sort of talking about these sci f scenarios and i'm like man i saw terminator two too but that was a movie okay and i think that i'm changing my tune at this point like it it you know i wish that it was smart enough to be you know actually totally a believer yeah i'm a believer now do i believe that we're gonna end up in like a doom stay scenario like i still don't really believe that there's that much agency in these things which is but your judgment now is questionable you know first peter first pal that open you you they thank god that you've like already made so many other successful investments that i know that gary's got good judgment and like can pick the future a little bit because i'll come around eventually you know like i'm just a year off yeah yeah he here was pal employee ten f after he said no to the covid ended up there right so i mean now we're you know we are full believers in large language models but you know i think the thing that's a little bit lost to the sands of time is that you know what what sam was absolutely right about was jumping on this thing that the smartest people in the world were already talking about like eight nine years ago and then he built it you know he invested the money he you know brought together the people it was no small task to bring together the smartest ai researchers in the world and then not only that it was like semi miracle you know you could ask why didn't meta do this before why didn't google do this before why didn't microsoft research do this before like all of those people had virtually limitless access to resources and to weave this back together i think there is something really terrible and limiting about like giant organizations that are not capable of evolving and making smart decisions i mean that's what big tech is like there's sort of like big day cares for the most technical smart people in the world and it's like here's here do you know play some volleyball we'll cook you lunch like here you know here's do your laundry at work you know like you know let's totally infant the smartest people in the world and like that's a waste of time like what needed to happen was the ability you know one of the things that got explained to me why it was open that came up and like invested you know millions first and then tens of millions and hundreds of millions into the large language model and you know transformers for language if you were at google you needed to work this bureaucracy it was like highly political you know you had hundreds of other researchers all of whom were all as smart as you and you had a finite sort of limited set of compute and you know what you would find is that google would do really breathtaking amazing work but then you'd have like thirty different authors you know and if you'd read the paper there'd be like these sort of like strange things that seem like it was a little bit tacked on but that's the only way you could get the compute resources to actually pull off a training run on like the model that you wanted to do like you had to do some weird things to accommodate like people who were gonna commit their training resources for their like random little thing and so it's funny to see that you know human progress is more or less a little bit impede by the bureaucracy and lack of governance and lack of agency that large organizations just sort of like impose on people like you don't have a choice is it crazy that it was easier for them to invent a discover of transformers and and this large language gonna breakthrough than it was for them to navigate the bureaucracy to actually like create a product out of this or do anything useful with it like that should tell you kinda everything you need to know i i mean the wild thing is like even with an open ai like they did everything right like gp three was very impressive three point five was even more four was incredible but like they were gonna just put it behind an api and like explicitly for many years open ai was supposed to be a you know we're a research lab not a product company and you know it took the relatively her efforts by product people inside open ai to even release you know chat gp which turned out to be the greatest consumer launch of maybe the in the history of consumer launches actually hey you said and i i know we got gotta right for a second but you said you keep talking about the this thing it's pretty amazing about talking to the smart people and like what what did they what are they talking about you have access to more of those types of people than probably most anyone on earth what's the conversation right now or is it is it all ai still yeah i mean ultimately that's sort of the number one thing that we're pretty excited about i mean that you know a few people who are really smart can sit in a room and i mean make a thing that literally does what humans do all day you know i i would make a pitch that often the best things that could be automated are actually very rote they're sort of the knowledge worker equivalent of like hand looming a carpet or something it's like all i do all day is look at an email box see if someone paid their bill reconcile that against a ledger in quickbooks like can you imagine you know millions of people like tens of millions of people on the planet like that's their nine to five you know like that that is not a good use of very smart human being generally speaking and like those are sort of the things that are most easily replaced by really great prompting great eval and frankly i think you know there gonna be twenty person software engineering focused startups that basically turn you know billions of dollars in payroll into billions of dollars in software revenue and hopefully those people go on to do much smarter and much more interesting jobs than like passing butter all day that's amazing carrie if you have one minute can you tell the spoon bending story i think this is the a very powerful story that you have the spoon bending party i don't know if you you know this got hilarious i mean i you know i've been to burning man a few times i love burning man it's my favorite place to take a break from consensus reality and realize that it's all made up but you get to make it up and you know there's a lot of like weird fringe stuff a lot of like sixties like esoteric you know you're just wandering around the desert on our bike with your buddies and you know i think we randomly walked into a spoon bending party where there were you know it was a huge group of i think it was almost like a magician at the front mike sort of helping people you know the the stick was that they were gonna teach you how to bend a spoon with your mind i was okay that's cool like let's go check it out they passed out these spoons and then it was like a magic trick they said okay now bend your spoon with like look at your spoon and bend it with your mind and then in between they would say like okay well sometimes you need to use your hands and like warm up the spoon to bend it and then basically i think what you're supposed to do literally is just bend the spoon with your hands and that's what you know and then what's funny is by the end of it half of the people like i had i had a bend spoon because i was like oh yeah like they said like oh i should you know sort of warm up the spoon with my hands and bend it with my hands and get started half just get it started yeah just yeah just to get it started right and then by the end like half of the room had bent spoons and the other half didn't and the ones that didn't were like how did you do that that's absolutely incredible and i was like guys it's a bit it's a bit like you have to you know first know that you can bend the spoon with your mind but then you bend it with your hands guys like this so that's literally like the stick actually and it's a little bit of an allegory for you know biased to action and what you're supposed to do in real life like real life is sort of like this exercise like they say like you can go change the world and you can do it with your you know with your very ideas but like you know that alone is not enough like you actually have to go with your hands and go talk to users and you know sit and build a thing and so you know don't forget the second half and the wildest thing is like more than half of the room could not do it and so if you are the person who's able to bend this you know bend the spoon with your mind like guess what you also used your hands like you gotta do that and you know and actually like that's maybe like the greatest gift is just like dude gary you're the shit man you are the best i love talking to you you make me feel really great you give me energy and we're very very very thankful that you took the time to do this thank you guys so much for having me always great to see you guys and you know congrats on all the success and excited to see where you and your community go i mean you know we're we're all building the future out here well thank you for saying that take care of gary i feel like i could rule to word i know i could be what i want to from at all in it like a days off on a road less travel never looking back