Uncapped with Jack Altman
· Jared Friedman, Jack Altman, Garry Tan
[00:00:00] S1: Yeah, I agree. An anti-pattern for founders who are pivoting is that they have no existing prior on what a good idea is. They’re hoping the outside world will tell them what a good idea is. So they launch five totally different things for five totally different groups of users hoping that one takes off. They usually don’t. What I’ll typically try to do is dig deeper with them to find an idea they actually care about and then see how we can turn that into a startup idea. [00:00:00] S0: One of the things that I’ve noticed — and a lot of people have noticed this, it’s not some big insight — is that the median startup in YC batches is a good indicator of upcoming trends. I noticed a couple of years ago, before AI was really everywhere, there was one batch where all of a sudden like half the companies were AI companies. Then the next batch. it was like 75%. And then it was basically all AI companies, except for hard tech. You’ve got hard tech too. [00:00:00] S3: 10% hard tech. [00:00:00] S0: YC is the hard tech of hard tech. What is the trend right now that you’re seeing a lot of, that you think YC might be particularly attuned to early? [00:00:00] S1: I don’t think there are any strong trends yet. [00:00:00] S0: It’s all just AI right now. [00:00:00] S1: It’s all just AI right now. Some things that are smaller trends might be glimmers of the future. Just in the current batch, prediction markets are big. Kalshi is really inspirational to a generation of people. Stablecoins and crypto stuff might be another interesting non-AI trend to talk about.
· Jared Friedman, Jack Altman, Garry Tan
[00:00:00] S1: It’s all just AI right now. Some things that are smaller trends might be glimmers of the future. Just in the current batch, prediction markets are big. Kalshi is really inspirational to a generation of people. Stablecoins and crypto stuff might be another interesting non-AI trend to talk about. [00:00:00] S0: Do you have a sense for why? Why are these the companies? Because I agree they have captured something. What is that, do you think? I feel like there is clearly a generation that has been really motivated and interested in this and it’s clearly taking off. [00:00:00] S3: Any time there’s a regulatory change… These things were in a gray area and now it’s green lights. Everyone’s going to do it. Capital flows to it. Capital is required for building consumer businesses. Boom, you’ve got a consumer business growing super fast. You get more capital, the flywheel happens, and you’ve got another DoorDash, which is great. Capital as a bludgeon works really well there. But what’s funny is it’s not clear to me that capital as a bludgeon works as well with AI companies anymore. [00:00:00] S0: What do you mean? [00:00:00] S3: You don’t need to have a thousand-person company anymore.
· Garry Tan, Jack Altman, Harj Taggar
[00:00:00] S3: You don’t need to have a thousand-person company anymore. [00:00:00] S0: It’s interesting. I still feel like I’m waiting for that. There are obviously some companies. I’ve backed YC companies that I’d love to invest more in, but they’re super profitable and I’m like, “Okay, that’s great, I’m very happy for you.” But there are also companies raising bigger rounds than ever and consuming crazy amounts of capital. In some ways it looks even more capital-consumptive than ever before, and I don’t feel like I have a good mental model to square exactly why that’s happening. [00:00:00] S2: It certainly seems like it’s easier to get to $1-2 million of ARR without hiring anyone. We get so many investor updates. We’re used to seeing “we just hit a million ARR and we had ten people”. But now it’s more like “...and we haven’t hired anyone.” So that’s genuinely new. I agree about the step after that though. The Series B rounds seem bigger than ever. [00:00:00] S3: Venture is contracting a little bit, not on a dollar basis. On a dollar basis, there’s a “flight to quality”. One thing we’re talking about internally is that the world is increasingly full of these mega funds. They are friends and they do great work, but it’s more and more dollars behind fewer and fewer people. [00:00:00] S0: Fewer firms.
· Jack Altman, Garry Tan, Harj Taggar, Jared Friedman
[00:00:00] S0: Fewer firms. [00:00:00] S3: Yeah, fewer firms and fewer people at those firms. The natural thing then is capital as a bludgeon. The fix is in, which is great. Often for YC, we’re sometimes the number one, number two, and number four in any given vertical SaaS space. We’re in the billion-dollar one, we’re in the half-billion-dollar one, we’re in the “arm the rebels” one that works with the partner. This happens over and over again. [00:00:00] S0: So do you think in this environment the king-making meme is more true because of the capital-as-a-bludgeon thing? Is it more effective in this type of environment? [00:00:00] S3: Basically, if the founders are good, the capital helps them get there a little faster. But I don’t believe capital as a bludgeon… [00:00:00] S2: Especially when things move so quickly. You can end up having capital and then moving fast in the wrong direction. [00:00:00] S3: Harj funded Giga. Those guys beat — I mean we love Bret, we love Sierra — but Giga, this sort of ten-person team, beat all the incumbents for things like DoorDash. It’s back to back to back. They have the best tech and I think they’re maybe still under 20 people right now. [00:00:00] S1: And Jack, speaking of insiders versus outsiders, that’s such a classic insider versus outsider story. What were the backgrounds of the Giga founders? [00:00:00] S2: They were two IIT guys in India. [00:00:00] S1: They were still in India when you funded them?
· Jared Friedman, Harj Taggar, Jack Altman, Garry Tan
[00:00:00] S1: They were still in India when you funded them? [00:00:00] S2: Yes, they were in India. They actually couldn’t make it out here for the batch for visa reasons, but they were just clearly brilliantly smart. They were the top-ranked IIT students. As undergrads they had done sort of PhD-level research in fine-tuning LLMs before everything really took off. Just clearly exceptional. [00:00:00] S0: On this point about king-making stuff, and not to talk our own book too much, Legora was a startup coming behind something that seemed really established, and they’re based in Europe. They went through YC and they’re doing great. So it doesn’t seem like stuff is locked up immediately. [00:00:00] S2: And that’s a good example. Even if you have the capital, you might not build the right product off the bat, and then things change. [00:00:00] S3: The model’s getting better. Back to back to back, every single year, the models are getting better. The rumor for Harvey is that they might have spent a bunch of VC capital on fine-tuning models that turned out not to be better than the frontier models. You don’t have a crystal ball. You couldn’t have guessed that. It was just an idea that maybe it might happen. Of course it did happen. Now we’re in this situation where if you have hundreds of millions of dollars sitting in your bank account, you’re tempted to use it….
· Garry Tan, Jack Altman
[00:00:00] S3: The model’s getting better. Back to back to back, every single year, the models are getting better. The rumor for Harvey is that they might have spent a bunch of VC capital on fine-tuning models that turned out not to be better than the frontier models. You don’t have a crystal ball. You couldn’t have guessed that. It was just an idea that maybe it might happen. Of course it did happen. Now we’re in this situation where if you have hundreds of millions of dollars sitting in your bank account, you’re tempted to use it…. [00:00:00] S0: The models thing is so interesting to me because one of the things that has struck me is that a lot of the source of product-market fit actually exists outside the startup delivering the service. You take an amazing founder like Max, you put them in a market like legal where there’s just a lot of uptake for some set of reasons, and then you have this tailwind outside the startup that’s actually driving a lot of the aha moment. Not to take away from anything they’ve done, but this is the case for all these startups. That just changes some things.