Although it was just over a year ago, it seems like ages since Paul Graham handed over Y Combinator’s iron throne to Sam Altman, Loopt founder and member of Y Combinator’s very first batch.
Despite receiving high praise from Graham (including a comparison to Steve Jobs), not everyone had heard of Altman, including Forbes who referred to him as a “virtually unknown millennial.” But, if people thought that Altman would be doing more of the same at Y Combinator, they were in for a surprise.
Since taking over YC, Altman has not only increased the number of startups in each batch, but he has also ventured into hardware and biotech, started a growth fund (according to SEC filings) and, last month, YC announced a new fellowship program for companies at the concept or prototype phase. I had a chance to catch up with Sam last week and ask him a few questions about his vision for Y Combinator. What follows is our unedited conversation.
Interviewer: Sam, thanks for agreeing to chat with me. I didn’t plan to be interviewing you the same day YC announced its new fellowship program, but this conversation is certainly well timed!
I know it’s experimental at this point, but do you have a mental picture of how teams will use the $12K plus the YC mentorship and what they will accomplish during the eight weeks?
Sam Altman: I think we all get a little screwed up in the way we think about money in Silicon Valley sometimes; $12k is actually a lot of money to most people. It should be enough to live on, build a product, and get initial users. Also, we’re including things like free hosting credits and even some hardware/biotech credits with the fellowship.
Interviewer: It’s enough to live on if, like you said in your post, you’re choosing between “going to work at a big company and starting the next Airbnb.” I can’t imagine (although I could be wrong) many working parents quitting their day jobs the way they would for the $120K that YC gives to its portfolio companies.
Is it fair to say that the fellowship is targeting younger founders?
Sam Altman: I think it’s fair to say that YCF is targeting people with low personal burn rates. These are often younger, but certainly not always. And I’ve met some 24 year old Google engineers that get their personal burn rates up pretty high…
It clearly requires a level of commitment and dedication to the cause, but you should have that anyway if you’re going to start a startup.
Interviewer: I’m not going to ask you more questions about the fellowship because (1) I’ll have much more to say about it after the first eight week pilot and (2) every imaginable question seems to have been asked (and answered) on the HackerNews thread.
I am interested, however, in what this initiative, plus the continuity fund (which I know you can’t discuss) plus the fact that the YC team and the number of companies you fund each batch has been growing so rapidly suggests about where YC is headed.
So, where early on YC was “build something people love,” your focus now as president (and maybe I’m reading too much into this) is to build world changing, billion dollar companies. Most people would be thrilled with selling their company for $43M, yet you’ve talked about Loopt as a failure. Even in your post on the fellowship, the goal is to build the next Airbnb.
Building big companies seems to be your passion.
Is that a fair characterization? And do you have concerns that by taking on new initiatives, funding even more companies and swinging for the fences you might dilute YC’s secret sauce?
Sam Altman: None of this changes where YC is headed–we’ve been consistent on trying to enable as much innovation as we can. We just keep trying to hit our growth targets And unlike other stages of investing, there is a strong network effect here.
The way to build billion dollar companies is to first build something people love. There isn’t really a shortcut there. But yes, generally, big companies are the ones that impact the world the most, and where nearly all of our returns come from.
I wouldn’t call Loopt a failure. It didn’t turn out like I wanted, for sure, but it was fun, I learned a lot, and I made enough money to start investing, which led me to my current job. I don’t regret it at all.
No–I think our secret sauce keeps getting better!
Interviewer: What is YC’s secret sauce?
Sam Altman: Three things:
1) A lot of the best entrepreneurs in the world want to join YC.
2) Our network is very strong–if you’re a YC company, there is an expectation that you help other YC companies however you can. The YC community, even more than the YC brand, is our most valuable asset. A lot of things happen at YC conferences and on our alumni forum that really help the companies we fund.
3) We usually (but certainly not always!) give good advice. This is surprisingly hard to get for startup founders.
Interviewer: I’m breaking a key interview rule by asking more than one question at a time, but here goes:
1. I agree with point 1: at this point that the best founders want to join YC — my question is why? If you are one of the best founders, wouldn’t it be easier in some respects to approach Jason Calacanis, Marissa Mayer Ron Conway or one of the other top angels?
2. I am sure that advice differs from startup to startup, but in general, are there any patterns to the your good advice? Put even more simply, how do you give good advice?
(P.S. I’m not trying to split hairs for the sake of it, I am actually going somewhere with this)
Sam Altman: 1. I think the number one thing you get from YC is the community. You instantly join a network that will help your startup–some founders describe YC as a “meta-company”. Startups are really hard; any amount of help is welcome, but the help you get from the YC network is significant.I also think we give the best startup advice at this point, just because we have such a large training set.
2. The general principle is to identify the startup’s single biggest current problem, and help them figure out how to solve that. This is hard because a) most startups have a lot of problems and b) most founders are bad at knowing what actual problems vs fake problems are. For example, most founders worry a lot about competitors, but not much about users not staying engaged with their product. We try to help founders figure out what they actually need to focus on–building something people love, growing, and a long-term strategy.
Interviewer: So do you and the partners ever wonder why other angels, seed funds and VC’s (not to mention the many failing accelerators) have not adopted the YC model i.e. investing $120K into a bunch of startups all at once with friendly terms?
None of your process is hidden. Your application form, investment terms and even the diligence process itself are all accessible. Why aren’t more firms copycatting YC?
Sam Altman: I disagree with the premise. Literally thousands of people have tried to copy the model. I agree it hasn’t yet worked for anyone else–most other high-profile accelerators that had copied us are now refocused on being ventures funds.
But it hasn’t been for lack of people trying!
Interviewer: Well, I recognize that there are accelerators (a term I know YC stays away from) but most of them — admittedly the ones of which I am aware — all have their own investment terms (none of which I might add are as founder friendly as YC) and philosophy on how to start a startup. That’s not really copying the model, it’s reinventing the wheel.But I don’t want to speak for you. Why, in your opinion, is the model only working for YC?
Sam Altman: I admit I don’t track it closely, but aren’t 500 Startups and TechStars about the same structure, just slightly worse terms?
I honestly don’t know why it’s worked so poorly for everyone else. I think the total valuation of companies that have started in YC is about two orders of magnitude more than any other accelerator. Normally you’d expect a power law distribution–someone else should be about half of where we are. Maybe it’ll just take longer.
I’ve heard advice that companies get from other accelerators, and it seems really off. So maybe that’s part of it.
One thing I think we do well is to be very founder-friendly. We never fight over the 1x’s. That really pays off in the long term. We also expressly look for companies (and founders) that we think can eventually be really big.
One more thing to add–as I said earlier, this is really a network-effect business. In that sense, it is very different than other stages of startup investing.
(And, we work really hard. We spend our time advising our startups. These two things sort of set us apart too….)
Interviewer: Ok, the question on everyone’s mind: how has Y Combinator not gotten a shout out (or a cameo) on HBO’s Silicon Valley and is the YC mafia taking appropriate steps to remedy?
Sam Altman: Shouldn’t the question be how hard we’ve had to work to make sure we DON’T get a cameo? Seems like more of a thing for other accelerators…
Interviewer: Touché.Sam, thanks for taking the time — I really appreciate it.
Sam Altman: That’s it? So easy!
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