Uncapped with Jack Altman
· Jack Altman, Jared Friedman, Garry Tan
[00:00:00] S0: Going to get you and some politicians on here. One thing I’m curious about — which has been an obvious topic for me on other episodes — is the mega influx of capital into venture. Is that positive or negative for you? In what ways do you experience it as both? [00:00:00] S1: I think it’s mostly positive for us. YC at its best is not competing with other venture firms for deals. YC at its best is convincing people who didn’t seriously think about starting a startup to go for it, and then being their first believer. YC only works if there’s a large pool of downstream capital that can then fund all the subsequent rounds for those companies. So I think actually YC does best in those environments. [00:00:00] S3: We’re a managed marketplace, so we need as many great investors as possible. Actually what’s funny is that in that managed marketplace, if the supply of capital goes up, we need to go out and find the best possible people. We’re actually really good partners to the rest of the industry. VC can 2x, 5x, or 10x over the next ten years. We will meet the demand. [00:00:00] S0: With companies? [00:00:00] S3: With really, the smartest people of our generation. And if that happens… [00:00:00] S0: So you’re saying you feel limited by the amount of capital still?
· Jack Altman, Garry Tan
[00:00:00] S0: So you’re saying you feel limited by the amount of capital still? [00:00:00] S3: How about this? Capital from VCs like you, VCs like our friends… You’ve got to do the work, show up, don’t disappear, don’t be a dick, do no harm. When I first came back to YC, one of the most interesting evolutions in how to deal with investors was that most investors are actually B or B+. You should be so lucky to have someone who does not mess with you. That’s really good. [00:00:00] S0: The bar is so low. [00:00:00] S3: Basically yeah. [00:00:00] S0: Just don’t damage the company. [00:00:00] S3: Right. If there’s someone who has a great network or can make the Keynesian beauty contest happen for you and your company and your round, obviously they’re an A investor and they’re going to catalyze something crazy for you. You should work with them. Last time we were here it was like, “yeah, if you can get Keith Rabois to invest in your startup and give you twenty million dollars, you should probably take that money. Do it.” But for everyone else, you’ve got to find people. Sometimes you’ve got to do B+ capital. It’s okay. [00:00:00] S0: It’s interesting. You made the point — which I agree with — that despite the total volume of dollars going up, there’s in some ways a consolidation of the number of venture firms and players. I don’t know if it’s more companies getting funded or just a lot more dollars going to a couple of breakout successes. I guess both of those help. [00:00:00] S3: We actively think about how we need more A and A+ investors. [00:00:00] S0: Humans doing the work.
· Jack Altman, Garry Tan, Harj Taggar
[00:00:00] S0: Humans doing the work. [00:00:00] S3: Exactly. And I think they’re all going to be YC alums like you. You’re great. Ilya Sukhar is incredible. Dan Levine at Accel. Yuri Sagalov now runs the seed program at GC and he’s incredible. I fully hope and expect that 80 out of the top 100 spots on the Midas list in the next 10-20 years will be all YC alums. [00:00:00] S0: That’s funny. You’re funding VCs, just on a 10-year delay. [00:00:00] S3: Liz at First Round is great, is killing it. She’s incredible. I think that’s scratching the surface. We’re going to have dozens of the most legendary investors, and they’re all going to be YC alums who deploy all the world’s capital. [00:00:00] S2: Increasing the number of great startups in the world is, I would argue, just the core founding principle of YC. When I first started working at YC in 2010, it was the first thing PG said to me. I wasn’t actually clear why he even wanted to hire anyone. I was like, “This seems like it’s a nice little family business, two of you working on it, seems great.” But his whole point was that conventional wisdom in the VC industry, which all comes out of Andy Rachleff’s research, is that there are only going to be about 10 companies per year that will go on to reach a hundred million dollars in revenue and be significant and IPO at some point. You just have to be in one of those 10 companies every year or otherwise you may as well have just stayed at home. PG was like, “I’m not a VC. I don’t want to go out and fight for those 10 companies. I’m going to—”
· Harj Taggar, Garry Tan, Jack Altman
[00:00:00] S2: Increasing the number of great startups in the world is, I would argue, just the core founding principle of YC. When I first started working at YC in 2010, it was the first thing PG said to me. I wasn’t actually clear why he even wanted to hire anyone. I was like, “This seems like it’s a nice little family business, two of you working on it, seems great.” But his whole point was that conventional wisdom in the VC industry, which all comes out of Andy Rachleff’s research, is that there are only going to be about 10 companies per year that will go on to reach a hundred million dollars in revenue and be significant and IPO at some point. You just have to be in one of those 10 companies every year or otherwise you may as well have just stayed at home. PG was like, “I’m not a VC. I don’t want to go out and fight for those 10 companies. I’m going to—” [00:00:00] S3: “We’re going to make more of them.” [00:00:00] S2: “Yeah. Let’s make more of them. Let’s see if we can make two of them. Why is it 10? It’s such an arbitrary number.” Clearly over the last 15 years, that’s proven to be true. Everything we do is driven by how we want that number to go up. What are the bottlenecks? Are the bottlenecks more founders? Let’s go find more founders. [00:00:00] S0: You went to four batches. That was great. [00:00:00] S2: Yeah, that was exactly a good example of it. That was a bottleneck. You shouldn’t have to wait six months to do a YC batch.
· Harj Taggar, Jack Altman, Garry Tan
[00:00:00] S2: Yeah, that was exactly a good example of it. That was a bottleneck. You shouldn’t have to wait six months to do a YC batch. [00:00:00] S0: What needed to be true for you guys to go from two to four? What was hard about that? What did you have to change, if anything? Was it just that you didn’t get as much time between to source new companies? [00:00:00] S2: Maybe this is in the weeds, but one of the structural changes we made at YC since Garry came back is to decentralize it. I would argue that pre-Garry coming back, it was a lot more centralized. There was a team that sort of ran the batch, things were more top-down. [00:00:00] S0: Decentralizing decisions? Batch operations? [00:00:00] S2: Yeah. Maybe if I start at the bottom, now each YC partner is essentially picking their own companies and then we club together to form a group that runs a batch. We’re just more nimble. [00:00:00] S3: Plus we have 15 people now. That’s the most partners we’ve ever had. We have 15 visiting partners right now, so it’s actually something like 30, 31 partners total. [00:00:00] S0: Do you feel that there’s a limit to those numbers? Do you think you could double the number of YC partners and therefore double the number of companies? If you’re imagining a world where you’re funding four times more companies than you are today, what would you need to overcome still?
· Jack Altman, Jared Friedman, Garry Tan
[00:00:00] S0: Do you feel that there’s a limit to those numbers? Do you think you could double the number of YC partners and therefore double the number of companies? If you’re imagining a world where you’re funding four times more companies than you are today, what would you need to overcome still? [00:00:00] S1: A cool thing about the way YC is structured now… I think this is something that’s often misunderstood from the outside. When most people hear a YC batch is 200 companies, they imagine the batch experience is a room full of 400 founders showing up every day. [00:00:00] S0: It’s actually four batches of 50. [00:00:00] S1: Right. It’s actually more like each partner is running their own autonomous mini-YC of about 30-ish companies. We call them pods. I had my whole pod over to my house for dinner last night. That pod is approximately the same size as YC was when Garry went through it. [00:00:00] S3: We basically run seven or eight simultaneous “2008 batches with PG” and we have 15 PGs now. [00:00:00] S1: With that kind of structure, there’s no inherent change that has to happen if you go from 15 to 30, because it’s already fully parallelized.