Uncapped with Jack Altman
· 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.
· Jack Altman, Harj Taggar
[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. [00:00:00] S2: From the founders’ perspective at least — and a reason why they’re raising the B rounds — one, there’s always just the case of banking the money while you can get it. But it also feels like the surface area for the products is bigger than ever and they are still fundamentally constrained by the number of people they have to go execute on things. It feels like in the SaaS era you build one core feature, hit product-market fit with that, and maybe just run with that for a few years and then add things. Whereas now, even within the batch, people are trying to add more into the product and have it do more. So they just fundamentally feel constrained by how much they feel they should be doing. Then they have competitors and the competitors are moving faster. So I haven’t yet seen the “once you hit product-market fit, you don’t need to hire as many people”. Or at least people aren’t acting on the belief yet that they don’t need to hire as many people.
· Harj Taggar, Jack Altman
[00:00:00] S2: From the founders’ perspective at least — and a reason why they’re raising the B rounds — one, there’s always just the case of banking the money while you can get it. But it also feels like the surface area for the products is bigger than ever and they are still fundamentally constrained by the number of people they have to go execute on things. It feels like in the SaaS era you build one core feature, hit product-market fit with that, and maybe just run with that for a few years and then add things. Whereas now, even within the batch, people are trying to add more into the product and have it do more. So they just fundamentally feel constrained by how much they feel they should be doing. Then they have competitors and the competitors are moving faster. So I haven’t yet seen the “once you hit product-market fit, you don’t need to hire as many people”. Or at least people aren’t acting on the belief yet that they don’t need to hire as many people. [00:00:00] S0: One thing that doesn’t seem automated yet is sales, for example. A lot of people thought it would be automated by now, but it hasn’t been. Support has, but sales hasn’t. So you still need a lot of salespeople. It seems like engineers are way more effective, but if you’ve got the capital, 50 engineers is still going to be better than five engineers. Some of these things just haven’t played out intuitively. [00:00:00] S2: It’s great for everyone using the products. The bar for what you expect out of the products you use just keeps going up and up, which is awesome.