Y Combinator Startup Podcast
00:13:20 · Diana, Harj Taggar, Garry Tan, Jared Friedman
[00:13:20] S1: From Pi. Right? Half is AI and half is hardware. [00:13:22] S3: I was hearing this... Reading this morning that even Astra is, like, a big leap forward for for robotics. Like, on... Like, I forget the benchmark, but there's a benchmark where, like, Fable was maybe at 10% and Asterisk showing, like, you can do, like, 60 to 70% of the tasks. [00:13:35] S0: So data, they just, you know, wake up in, you know, another couple weeks, and another breakthrough happens, and we're a little bit closer. [00:13:43] S2: It's been really cool for me to see the resurgence of heart attack because, you know, at YC, we've been funding a heart attack company since 2014. That's really when we we started. But it was, like, pretty hard to get these companies funded before. Like, I remember, like, pre pre this recent resurgence, we would, fund awesome stuff that we were super excited, like rockets and planes and chips and data centers and stuff like that. And then, like, VCs would just be like, oh, we only do b to b SaaS. And it's hard to bootstrap a company like this, so you really do need, like, downstream investors who can fund lots of... Who who who can who can fund, you know, a a full a a full capital build out. And so it's cool that, like, it seems like Silicon Valley, which historically, like, venture was set up to fund hard tech, but it, like, drifted away from it for a decade or two because it was so profitable to just fund SaaS companies. And so it's cool to have it coming back to its roots.
00:14:33 · Harj Taggar, Garry Tan
[00:14:33] S3: Yeah. On the point about like the the peer investors wanting to do hard tech again, it does seem like that. I've never seen that happen so quickly. I mean, it seemed like it happened pretty immediately when like SAS stocks were down earlier this year, Claude code was surging and that just became like the, I mean, I feel like even at demo day literally happened. I feel like that happened probably mid the winter batch at the start of this year. And it seemed by even demo day that investors were starting to be a lot more interested in hard tech companies and that's just extrapolated. It is worth knowing though on the other side, like since that a bunch of the SaaS stocks have actually recovered and are doing better than ever. Like Salesforce is like the prime example of that. I think Snowflake recently had like like two days ago had these like blowout earnings. And so it's possible that [00:15:20] S0: It all hits. [00:15:21] S3: Yeah. Maybe. I mean, that would be the green case. I mean, I still think we're seeing real stuff though. Like, clearly, the software that gets built in the future and what's valuable is different. Like, it just has to be. And so partly, it seems like what we're seeing with Salesforce is the classic, the system of record argument is actually playing out. [00:15:37] S0: The moats are intact for now.
00:15:37 · Garry Tan, Harj Taggar
[00:15:37] S0: The moats are intact for now. [00:15:39] S3: Yeah. Like if you have a thing that agents can use, that is actually valuable. If anything, you'll just, like agents will use software a lot more than humans will, and that seems to be driving Salesforce growth. And so kinda takes us back to the other trend that we've talked a little bit about is if you think of agents as your customers, and you make things that agents want, and your software as something that agents want to use, then that seems like the right type of software. [00:16:04] S0: Yeah. Salesforce is super interesting because I think they started releasing their own Slack harness, Slack AI harness. And so I think we're right at the beginning of, like, the next AI harness wars. It's like Codex wants to be it, Claude Code wants to be it, OpenCode could be it, Hermes, OpenCode. It seems like there are going to be a bunch of them, and it's not gonna be quite like the browser wars, and that the browser wars tend toward, like, one winner. But, you know, I guess it's anyone's guess. And then, yeah, Benioff has a pretty big advantage in that, you know, a lot of the most AI appealed people and companies in the world still use Slack. And, you know, if the harness is in there and it's your system of record for how people collaborate, then you have like this mega data moat. And then, you know, SaaS can still be as valuable as it's ever been valued if those moats hold.
00:16:04 · Garry Tan, Harj Taggar
[00:16:04] S0: Yeah. Salesforce is super interesting because I think they started releasing their own Slack harness, Slack AI harness. And so I think we're right at the beginning of, like, the next AI harness wars. It's like Codex wants to be it, Claude Code wants to be it, OpenCode could be it, Hermes, OpenCode. It seems like there are going to be a bunch of them, and it's not gonna be quite like the browser wars, and that the browser wars tend toward, like, one winner. But, you know, I guess it's anyone's guess. And then, yeah, Benioff has a pretty big advantage in that, you know, a lot of the most AI appealed people and companies in the world still use Slack. And, you know, if the harness is in there and it's your system of record for how people collaborate, then you have like this mega data moat. And then, you know, SaaS can still be as valuable as it's ever been valued if those moats hold. [00:16:55] S3: Yeah. I thought you had a really interesting tweet maybe a week or so ago about how the software or system of record companies will have to become, like, harnesses Yeah. [00:17:01] S0: Effectively. Mean, and that's... That was about Slack, I would It's like, basically, if you are a system of record, you either will be preyed upon, like, you'll release an MCP, and then maybe, like, the data... You know, you lose your moat around the data, the data goes elsewhere, like, becomes very trivial to switch. Or you kinda have to be a harness. You have to be the way people not just read and write, but actually do their work inside, you know, your system of record.
00:17:01 · Garry Tan, Harj Taggar, Diana
[00:17:01] S0: Effectively. Mean, and that's... That was about Slack, I would It's like, basically, if you are a system of record, you either will be preyed upon, like, you'll release an MCP, and then maybe, like, the data... You know, you lose your moat around the data, the data goes elsewhere, like, becomes very trivial to switch. Or you kinda have to be a harness. You have to be the way people not just read and write, but actually do their work inside, you know, your system of record. [00:17:27] S3: And get the most value out of it. I mean, it's a lit... It's a little bit like the model companies. Like, was the... Was it ARC-AGI was the benchmark where... Or there was a benchmark where the... [00:17:36] S1: ARC-AGI v three? [00:17:37] S3: Yeah. Where the pre or pre Astra ChatGPT model didn't do well, but then they say, that's just because it was plugged into the wrong harness. Yeah. So it's like the model plus the harness gets you the output. [00:17:47] S0: Oh, yeah. I mean, with a custom harness, they claim Astra got to nine... North of 90% on Arc AGI three. [00:17:54] S1: Yes. I think a couple months ago, this was in the low two digits [00:17:58] S0: Right.
00:17:58 · Garry Tan, Diana, Harj Taggar
[00:17:58] S0: Right. [00:17:58] S1: Which is an impressive leap. And I think you have a very good point around software. It's not that software and SaaS is dead what people claim on the Internet. It's just that it has transformed. We're actually seeing this in the batch. The percentage of companies we accepted that do sort of full stack end to end work or a task has gone from just 10% to over 25% of the batch. This has to do with actually doing the job. The agent does the job, not just like a point solution, which old SaaS in five, eight years ago was just like a point solution, and you needed you needed someone to operate the SaaS software. Right now, it just runs by itself. And, actually, in the batch, this is where we're seeing a lot of the growth in revenue. I think I gave that stat of the median startup when it gets into YC is at zero in revenue. And it has gone from... By the end of the batch, was about 8 k in MRR. Now it's, like, about 20 in MRR, and a lot of [00:19:02] S3: these are [00:19:03] S0: huge jump. That's, like, nontrivially big jump for the median. Right? The average is even higher.