How Y Combinator Helped 172 Startups Take Off

Andrew:  This interview is sponsored by Wufoo, which makes embeddable forms in surveys that you can add to your website right now. Check out Wufoo.com. It’s also sponsored by Shopify.com, where you can create an online store right now, within five minutes, and have all the features that you need to keep selling online. Check out Shopify.com. And it’s sponsored by Grasshopper, the virtual phone system that entrepreneurs love because it has all the features that they need, and can be managed directly online. Here’s the interview.
Hey, everyone, it’s Andrew Warner, founder of Mixergy.com, home of the ambitious upstart. You guys know what we do here. I interview entrepreneurs about how they build their business to find out what the rest of us can learn from their experiences. And, Paul, I’m going to ask you about that smile in a minute because I’d love your feedback on some of the ways that I do my interviews here.
Today, I’ve got Paul Graham. He is the co-founder of Y-Combinator, which funds and advises startups. He’s also an author whose essays are devoured by entrepreneurs. He’s a hacker who administers Hacker News, and previously he co-founded Viaweb, which he sold to Yahoo. The smile, by the way, that I was asking you about. A lot of times when I do my interviews, I start them off with “home of the ambitious upstart,” and I look at the person who I respect, who I brought on here to do this interview, and I wonder, does he think it’s ridiculous, or is this a charming, interesting part of the program? What do you think?
Paul:   The ambitious upstart part?
Andrew:  Yeah.
Paul:  Well, what I was thinking when I heard it is, “Oh, good. This is my kind of place.”
Andrew:  Oh, good.
Paul:  I wasn’t thinking about whether it was a particularly good marketing tagline.
Andrew:  Oh, good. Then if you think it’s your kind of place, then it is a good tagline for me.
Paul:   Yeah, ambitious and upstart, that’s exactly what I’m looking for.
Andrew:  Perfect. As I told you earlier, I’m going to be structuring this as the biography of Y-Combinator and along the way, I’d like to see what you’ve learned as you funded, I think it’s 172 startups, you told me.
Paul:   One hundred and seventy-two, yeah.
Andrew:  Wow. Well, let’s start off with the essay since that’s how many entrepreneurs get to know you. Why did you start writing about entrepreneurship?
Paul:  Well, I write about whatever I’m thinking about. So I just started thinking about entrepreneurship. I think that started because I had to give a talk to the Undergraduate Computer Society at Harvard. In fact, that’s what Y-Combinator grew out of. So I had to give a talk to these undergrads and I thought, “What shall I tell them?” What could I tell? So I thought, “All right. I’ll tell them how to start a startup.” So I gave this talk about how to start a startup and I put it online later as an essay called, “How to Start a Startup.” That Y-Combinator literally grew out of that talk.
Andrew:  What happened? How does a talk become a revolution?
Paul:  Well, what happened was I was giving them advice, sort of in real time, that they should raise money from angels. The best thing was to raise money from angels who had themselves made their money from doing a startup because then they could give you advice, as well as money. And I noticed all these guys were looking at me sort of expectantly, in fact, sort of like baby birds. I thought, “Jesus, they’re all going to email me their business plans.” So I said, “Not me.” Right? Because I had never done any angel investing at that point and I didn’t want to start. But then I immediately felt guilty.
I went to dinner with some of them afterward and I thought, “Even though these guys are just undergrads, I bet a lot of these guys could do it. They could figure it out.” So I thought, “All right, all right. I’ll start angel investing.” So Y-Combinator happened just because I wanted to start angel investing. Originally, Y-Combinator was just going to be like regular angel investing, asynchronous, not this whole batch model. We discovered that later, by accident.
Andrew:  Who are the original startups that were so good, were so inspiring, that you said, “I’ve got to back these guys”?
Paul:  Well, Reddit, the founders of Reddit were at that talk. They came on a train from Virginia.
Andrew:  From Virginia, they told me, that they got over to see you.
Paul:  That’s a long train ride. So I was impressed by their determination. That was actually why we funded them because they were so determined that they came on the train all the way from Virginia to hear that talk.
Andrew:  What else was it about them? Because I’m sure there are a lot of people now who will come and travel a long way to see you and they don’t have that magic. But I talked to Alexis and he said that you didn’t like his original business idea, but you liked something about him to bring him back. And I asked him what it was that Paul Graham saw in him, and he couldn’t define it. So now that I’ve got you here, what is it about him? Maybe from there we can extrapolate.
Paul:  [inaudible 00:04:50] Steve. He and Steve were both smart, and they were determined, and they seemed flexible. They seemed like they really wanted to start a startup. But it’s a little bit misleading to ask what I liked because Jessica, her nickname in Y-Combinator is The Social Radar. I actually have bad judgment of character. I’m not good at judging people. Really, I’m kind of bad at it. I know I’m bad at it. But Jessica, she is very rarely wrong. There will be somebody I meet and I really like, and she says, “You know, there’s something off about him.” And it always turns out she’s right, always. So I’ve learned, like when Jessica says, “These people are good,” or “These people are bad,” I should really listen. A lot of people don’t realize.
Strangely enough, I’m actually sitting where the founders sit in Y-Combinator interviews. This is what the world looks like. What I see is what the world looks like to them, what’s behind me is the back of the room. We bring these people in for interviews, and I think a lot of them think Jessica is some kind of secretary, or something like that because she’s the one who smiles at them and greets them and remembers their name.
We pepper them with questions about technical stuff during the interview and she doesn’t ask as many questions. What happens after the interview is they walk out. Basically, I’ll turn to Jessica and say, “Okay. Should we fund them?” Right? Because she is such a fabulous judge of people, and she really liked the Reddits. She called them The Muffins because she thought they were cute. So Jessica was really happy when we ended up funding the Reddits after all because she was bummed that we had to reject them.
Andrew:  Okay. Let’s pause here and go back a little bit and talk about the people who started Y-Combinator with you. In that talk, you said that it’s important to get the right team together. On your team, it sounds like from the start you had Jessica Livingston, who was an investment banker at Adams Harkness before. You had Robert Morris, who was your partner at Viaweb and a long time friend.
Paul:   And Trevor Blackwell. He worked on Viaweb too.
Andrew:  Oh, Trevor Blackwell from Viaweb also.
Paul:   Yeah, it was basically the same three people from Viaweb.
Andrew:  Oh, so Jessica Livingston was at Viaweb with the three of you? I’m sorry, we had a little bit of a lag. Was Jessica Livingston . . .
Paul:   No, no. No, she was not.
Andrew:  Okay, so was it three of you?
Paul:   Right, yeah.
Andrew:  How did you find Jessica Livingston, and what was it about her?
Paul:   I was [inaudible 00:07:23] her.
Andrew:  Sorry?
Paul:   I was going out with her.
Andrew:  How did she go from girlfriend to partner?
Paul:  Well, when we were going to start . . . we were going to start investing. And we didn’t know anything about the logistics of investing. She had one of these weird securities licenses. I think it’s called a Series 7, or something like that. She actually knows about this whole world. To this day, I have only skimmed our legal agreements. But she keeps this stuff in line. She knows how to do the mechanics of investing and we didn’t know how to do it. If it hadn’t been [inaudible 00:08:01] just the three of us, we would have never started this ourselves because who would have done all that crap. Or, sorry, who would have done all that very important work?
Andrew:  Okay. So now you got to know her. What about Robert Morris and Trevor Blackwell? What did they bring to the partnership?
Paul:  They’re very smart. I mean, they’re the smartest people I know. They’ve done the startup themselves. I mean, they have basically the same experience I do, in the same companies, and I can work with them. And Robert is our sys admin.
Andrew:  I’m sorry?
Paul:   Robert is our sys admin.
Andrew:  I see.
Paul:  We’re probably the only company that has a full professor at MIT as their grumpy sys admin.
Andrew:  All right. So let’s go back then. Jessica Livingston sees these guys. She says, “I like them, there’s something about them. Let’s invest.”
Paul:   Do you mean the Reddits?
Andrew:  The Reddits, right. Yes, so you guys bring them in. What kind of structure, what kind of support system did you have back then?
Paul:  It was pretty much the same as now. That very first summer. The reason we decided to invest in startups in batches all at once was because we didn’t know what we were doing, and so we thought, “Well, you know what we’ll do? We’ll have a summer program.” I don’t know if you have a programming background, but everybody treats summer jobs as kind of throw-away jobs as a programmer. You’re not expected to get a lot done. It’s just so the company can decide later if they want to hire you after you graduate.
For both the hirers and the employees, summer jobs are kind of like a throw-away thing. So we thought, “Well, as long as everybody treats summer jobs as a throw-away thing, we’ll have this summer program, and if it turns out to be a disaster, no one will blame us. We can learn how to be investors at the same time these guys learn how to be startup founders.” The fastest, the most efficient thing is since it was going to be a summer program, it was synchronous. All these startups would get founded at once, just like everybody who works for Microsoft for the summer sort of shows up at about the same time.
So the whole doing things in batch, we discovered by accident. But it worked so well, we decided, “All right, well, we’re going to keep doing this starting batches and startups all at once.” Initially, though, it was just an accident.
Andrew:  What kind of help did you give them as you were doing this? I know about the weekly dinners that Alexis Ohanian said that he got a lot out of. I know that the entrepreneurs got to talk to each other and show each other their progress. What else did you do to support them along the way?
Paul:  We got all their paperwork done. And we got them set up cleanly, so if there was some weird gotcha about the IP, like they had started working on the thing with their previous employer, we would tell them, “No, rewrite that code.” So by the time they got to the end, at demo day, they were like a clean start out, with no weird gotchas that would make investors barf, like former co-founders who were gone, but still had 30% of the company, or they didn’t own their IP, or someone hadn’t signed some agreement or something like that. And they were properly incorporated as Delaware C-corps instead of whatever broken LLC they came in with. All that stuff is not nothing. That’s actually the kind of stuff Jessica does.
Demo day, everybody is in good shape as a company. We also gave them a lot of product advice. It turned out we had a knack for this, from having worked so long making web apps ourselves, literally since the beginning.
Andrew:  How did you do that? That’s another thing that Alexis told me, that the idea for Reddit came from you and a lot of the entrepreneurs who you have backed have told me [inaudible 00:11:40].
Paul:  The idea for Reddit was a combination of us and them, okay? We told them we didn’t like their original idea and we said, “Come back and we’ll talk about other ideas,” right? But we didn’t say, “Look, here is a wireframe. Build this.”
Andrew:  I see, right. You said, “Here’s an idea, go run with it.” And they did go out there, and actually it was an idea that you guys came up with together?
Paul:   Yeah.
Andrew:  But you led them in the direction.
Paul:  But they came back. When they came back from the next day and we talked for quite a long time the next day, and we cooked up something in that. I called them on the phone and said, “We loved you guys, even though we rejected you. If you come back, we’ll figure out something new for you to do.”
Andrew:  I see. So how do you do that? I mean, yes, you did create one of the early web apps. Yes, you did create Viaweb, and you saw it all the way through to a sale to Yahoo, and you got to see the inside of a big company like Yahoo. But that still doesn’t seem like enough experience to be able to sit down with an entrepreneur and say, “Here, I’m going to help guide you in that direction.” What else was it?
Paul:  I have a weird ability to do this, or something like that. I don’t know why. But I often worry that it will stop working. But it’s almost like some weird knack that people have. Like people who can tell you that December 21st, 1960 was a Tuesday, you know what I mean?
It’s like that. Because it’s true, it wasn’t that I had such an enormous amount of experience. Somehow I seem to be able to look at a web app and think, “No, this is wrong, this is right.” And now I can say it, “Well, it’s because I’ve worked with 172 startups. Now I have tons of experience, probably more than anybody else.” But I seem to always have some kind of natural ability to do this.
Andrew:  Okay. So what did you learn from that first class? What did you learn from that first experience of working with a batch of entrepreneurs on new companies?
Paul:  We learned a lot of stuff. We learned some of these we had done by accident were really good. Like funding a whole bunch of startups at once is really good because they can all help one another. We learned that young people can actually successfully start startups. I think in how to start a startup, I said, “You should probably be like 24, or 25, or something like that before starting a startup.” Some of these guys in that first Y-Combinator batch . . . Sam Altman was 19 and he was the best startup in the batch. So lo and behold, you can start a startup even younger than we thought. Which is not to say that is the only age you want to start a startup, but the age range of potentially successful startups extends frighteningly low.
Andrew:  I think, actually, you said that the cutoff was 38 and you’re over 38, running essentially a startup with Y-Combinator. How do you . . .
Paul:  No, I’m not. There’s one big difference between Y-Combinator and a product company. We do not have customers who can call us any random time because something is breaking. And that is what makes a startup so hard. The closest thing I have to that is Hacker News, but if Hacker News is down for a day, it wouldn’t be the end of the world. Whereas Viaweb was down for like 10-minutes, we would have a lot of really angry people calling us. So there’s a big difference. I can go on vacation. A startup founder cannot go on vacation because who’s going to watch things?
Andrew:  I see. I happen to know that the guys from Airbnb prided themselves on getting as many minutes of your time as they could while you were building out their product. But you’re saying there’s a limit to when they could call you. If they had a question in the middle of the night, at 2:00, they’d have to wait till the next day to call you.
Paul:  Yeah, I mean, the kind of questions that founders ask me are not usually the kind of things that have to be answered at 2:00 a.m.. Sometimes they are, like if someone’s getting acquired, or something like that. But even then, M&A guys aren’t doing stuff [inaudible 00:15:46] the morning.
Andrew:  Right, and it’s not breaking at 2:00, well, it might, but not often.
Paul:   Yeah, what can happen at 2:00 a.m. are like usually technical problems.
Andrew:  All right. So let’s talk about, then, the second group of people. What did you do differently as you were assembling that group?
Paul:  Well, the second batch, the biggest, most obvious thing that was different was we were in California. We decided in our second batch that we would try doing one in California, partly because it’s much nicer in California in the winter. So we could be self-indulgent and also ambitious at the same time. So we decided we didn’t want somebody to say, “We’re going to be the Y-Combinator of Silicon Valley,” right? After we’d started it because we could kind of see pretty early on people would start copying us. In fact, I’m kind of surprised it took as long as it did. But we didn’t want somebody to say, “We’re the Y-Combinator of Silicon Valley.” We wanted to be the Y-Combinator of Silicon Valley. So we thought, “All right. We’ll do a batch out in Silicon Valley.”
We decided at the last minute to do it in Silicon Valley. The application form for that batch said on it, “We don’t know where it’s going to be. It might be in California. It might be in Boston. If you can’t do it in someplace, tell us here.” Right? And the only way we could get a space in time was to carve out a piece of Trevor’s robot company building, which is where I’m sitting now. To this day, we’re in the middle of this robot company. It’s kind of entertaining, actually. There are all these big robots driving around.
Andrew:  This is [inaudible 00:17:16] any thoughts [inaudible 00:17:17].
Paul:   [inaudible 00:17:18] did we do? What else did we do differently?
Andrew:  Yeah.
Paul:  Not that much else, really. I mean, it was in the winter, so there was no question of it being a summer job for people.
Andrew:  Did you get the sense, by then, of the kind of entrepreneur you wanted, that maybe there was a kind of entrepreneur that you thought you wanted but wasn’t a good fit? Was there [inaudible 00:17:41]?
Paul:  We were getting better. We gradually got better. And we’re still not very good, even though we’re much better than we were when we first started. But we started to learn, for example, that it mattered a lot how much people actually wanted to do a startup. People who really did think of it just as a summer job at the end of the summer, they would go back to school, just like people do at a summer job. So we were starting to learn determination was the most important thing.
Andrew:  How can you find determination? How can you know that somebody is determined for real, and not just, “This is it. I’ve got to . . . ” It’s not just a temporary thing?
Paul:  That’s actually our single hardest problem, telling how determined people are. I mean, there are two things we care about: how determined people are and how smart they are. We can tell in a 10-minute interview how smart someone is. You just hit a few tennis balls across the net at them and see how hard they hit it back. Or if they whiff entirely.
But telling how determined someone is in a 10-minute interview, we are often fooled. And actually the Y-Combinator alumni kind of hose us here because they tell people how to pretend to be determined during the interview. We meet these guys during the interview and they seem like real butt kickers, and lo and behold as the challenges of doing a startup emerge, they kind of fall apart.
So we’re often fooled. It’s hard to tell, it’s hard to tell. You can’t just ask people, “So are you really determined?” It’s pretty obvious what the answer to that’s supposed to be. It’s hard.
Andrew:  What kind of things does an entrepreneur do to fool you into thinking that they’re really determined?
Paul:  Well, seeming really tough and calm during the interview. Why am I telling people [inaudible 00:19:31]?
Andrew:  Because you guys are going to get better and as long as this information is out there, you might as well get it all the way out there and even the playing field.
Paul:  That’s the danger of live interviews. Matt Maroon of Blue Frog Gaming, he was a professional poker player, I mean, talk about poker-faced. So he came in for his interview and he just seemed absolutely unflappable. We thought, “Boy, this guy is tough. This guy is not a wimp.” And actually, we were right. He was really tough. But to this day, he is genuinely unflappable, and I probably would want to fund more people who are really good poker players. I’ve noticed, empirically, there seems to be a high correlation between playing poker and being a successful startup founder.
Andrew:  But then that’s not fooling you, that’s just . . .
Paul:   That’s how you seem to tell.
Andrew:  He had a calm, strong presence about him. What else? Did they tell you specific stories about the time that they sold candy in elementary school?
Paul:  Oh, yes. Actually, that’s a good one, if people have evidence of their determination. For example the Airbnb guys, at one point they were running out of money in their startup. They’d been working on their startup for quite a while before Y-Combinator. I think maybe around a year or the bulk of a year. At one point, they were out of money, and they made their own packaged breakfast cereal with an Obama and McCain theme. You could buy either one, and we were like . . . yeah, yeah. I have a box of Obama-Os on the shelf behind me, in fact. I’ll tell you, I think they made like $30,000. They designed the box [inaudible 00:21:19].
Andrew:  They designed it, they sold it.
Paul:  [inaudible 00:21:22] Yeah. You know, as soon as we heard that story, they were in, basically. There’s often a point in the interview where we all kind of look at one another and decide, “Okay. We’re funding these guys.” At that point, the remainder of the interview, we’re just chatting. As soon as we heard that story it was all over. They were in.
Andrew:  What about Kevin Hale and the Wufoo guys? They also had similar experiences, didn’t they?
Paul:   Yeah.
Andrew:  What drew you to them?
Paul:  They had Particletree. They had made Particletree, and I knew Particletree. I don’t know how I knew it, but I knew about this website and I knew it was really good. So I knew they could make good things. They were not just thinking, “Oh, maybe we’ll start a startup.” And then a few months later, they’ll say, “Oh, maybe we won’t.” Right? Obviously, they had some practice doing projects together and they could work well together.
Andrew:  I see. So maybe one of the ways . . .
Paul:   The Wufoo guys were terribly nervous during their interview.
Andrew:  Were they?
Paul:  Yeah. Oh, they were so nervous. I mean, we try everything we can to make people calm during the interview. Now we have people waiting outside, talking calmly to them before the interview because we don’t want people to be flustered during the interview. Our goal is not to try and break them. If people are nervous, all it does is add noise to the interview. We need all the signal strength we can get so we want people to be calm. But the Wufoos were only our second batch. We didn’t have anything to help people be calm or we didn’t write these instructions about how to ace your interview or anything like that.
Now there’s this thing we send to people about how to do well in the interview. So Wufoos were so nervous, and after the interview, reactions were divided about whether to fund them. And I said, “No, they’re not stupid. They were just nervous.” It’s true. That was it. They were just nervous.
Andrew:  There’s another situation where Kevin told me that he had one vision for what he wanted to do and you had another. You said, “Oh, what you’re looking to build are forms.” And he said, “No, not forms. Forms are these ugly things that don’t make sense. Nobody wants to be in the form business.” And he said, “No, Paul Graham said this is the opportunity.” In fact, he said, I think that the guys at Y-Combinator, he didn’t just say you, but the people sitting across the table from him helped him come up with the idea.
Paul:   In the interview?
Andrew:  Yes.
Paul:  It often happens that the idea for the startup gets crystallized even in that 10-minute interview. What we do in the interview, we don’t ask, “So where do you see yourself in five years?” Or, “Why are manhole covers round?” Or some crap like that. I mean, what we do in the interview is we just start doing Y-Combinator. The first 10-minutes of Y-Combinator is the 10-minutes of the interview. So if we like a group, we just start. “Okay. What about this idea? What about this? You’ve tried this.” And that’s why people come out of the interview thinking, “Oh, my god. They asked us so many questions.”
Our goal isn’t to badger them with questions and see what happens. The goal is to figure out the startup. That’s why there are so many questions. What should the startup do? It’s a momentous question. You’re going to spend years working on this.
Andrew:  I see. How do you know if the business idea is going to be big enough? How do you know if there’s enough money in the form business? How do you know if there’s enough of a market around Reddit, or do you even know that?
Paul:  We don’t. We don’t know that, and we don’t worry about that, that early. We don’t care that much about the idea. I mean, it would be bad if it were an obviously terrible idea. Like, start a new search engine with no features that are any different from Google. If someone was determined to do that as their idea, we would reject it. Okay? Actually, they’d be stupid. We should reject them. But unless it’s an obviously terrible idea, it’s not the idea that’s important. At this stage, we care about the founders. We’re going to have three months to figure out the perfect [inaudible 00:25:26] to the idea.
Andrew:  Okay. Did you, by the way, get into search? I think you did. One of your startups was going to get into search, or . . .
Paul:  It’s okay if people are doing a search that’s not exactly the same thing as Google. So for example, Octopart does electronic parts search. Those guys are really good, so that’s search. There’s a startup in the current batch that hasn’t launched yet, or at least hasn’t outed themselves, what I see as doing search. But again, that’s a specific vertical. That’s okay. That’s fine.
Andrew:  Okay. Yeah, and web . . . I never know how to pronounce them, even though I use this.
Paul:   WebMynd.
Andrew:  WebMynd, that’s how you pronounce them? Web M-Y-N-D, of course. WebMynd.
Paul:  They don’t do search themselves. Well, they do sort of do search. Yeah, they put search over on the right-hand side of Google Search.
Andrew:  Yeah, they enhance Google Search.
Paul:   Yeah, yeah. Okay, so they do search.
Andrew:  Okay.
Paul:  That’s funny, I thought of them as this plug-in for Google, but they do actually have to do some amount of search to make that work.
Andrew:  Okay. I don’t want to stay too much on Wufoo, but I know them best because I’ve used them for years. So let’s continue there. You decided to back them. Did you have, at the time, an idea for an exit, or did you say, “This is an interesting . . . ”
Paul:   No.
Andrew:  No. What was your thinking in the future, here?
Paul:  [inaudible 00:26:40] take care of themselves. It’s so impossible to predict something like that. You know, the founders themselves don’t know. I mean, think of all the stories about . . . like Larry and Sergey. They founded this company and it’s worth something like $200 billion. I don’t know what Google’s market cap is, but it’s gigantic. When they first started out, they were walking around to the existing search engines, trying to sell the technology to them for a couple million. So if the founders themselves can be off by many orders of magnitude about the exit, it’s stupid to even think about it. You just want to fund people who are good, and some of them will go public, and some of them will just explode on the starting line, and there’s not much you can do about it.
Andrew:  Okay. So then they went through the program, they had a product at the end. And then you and Paul Buchheit invested in them. At that point, did you say, “Now I see an exit for myself. Now I see that these guys can go public or be sold”? Is it important there?
Paul:  No, [inaudible 00:27:42]. Even then you can’t predict exits. They really are genuinely unpredictable. It’s better just to not think about it.
Andrew:  To just say, “This is a good business, I see it growing. I’ll support them.”
Paul:  Yeah, these guys are good. If they have some kind of exit at some point in the future, it’ll be good for them. We’re all in the same boat. We have the same kind of stock. So you have to assume that if they do something that’s good for them, it’ll be good for you too.
Andrew:  Okay. All right. So let’s suppose somebody’s listening to this, and says, “Man, Paul Graham is incredible. He can help shape an idea, he can help draw out the best in you. I don’t have Paul Graham in my neighborhood.” Or, “Maybe I’m too old to fit the criteria.” Or, “Maybe I just want to fund my business myself. How can I find somebody like Paul Graham?”
Paul:  Well, the first two don’t matter. You don’t have Paul Graham in your neighborhood. Most of the people who do Y-Combinator don’t come from the Bay area. They come from all over. They come from all over the world. So that doesn’t matter. And the thing about age, that doesn’t matter either. We funded a bunch of people over 40. I don’t think we’ve ever funded anyone over 50, but some of the most successful startups have been funded by people over 40.
The third thing, you’re determined to fund a company yourself, well, why? If we’re willing to give you money, why not take it. I suppose you might not like the dilution, but a lot of people think it’s a good deal. So really, you could, if you wanted to, in all those cases. But if someone wanted to find someone local to advise their startup, I guess the best thing to do would be to do what I suggested in that original talk about how to start a startup. Find somebody who’s done it themselves and that’s the person to ask.
Andrew:  I see. A lot of people don’t have this gift. A lot of people can’t, if you bring them an idea, rattle off a solution. I watched Jason Calacanis on This Week in Startup. Some guy will call up with an idea and he’ll kind of bat the idea back and forth with them and brainstorm until there’s something that’s fundable there. I don’t know a lot of people who can do that. How do you find those people?
Paul:   You know, I don’t know. I don’t know.
Andrew:  How important do you think it is to have that [inaudible 00:29:52]?   Paul:  Well, it’s very important. If that’s what you’re looking for from the guy. If your idea is not already perfect, if your idea is perfect, then any startup founder can tell you, “Okay. Here’s how to approach VCs. Here’s the right point to hire people. Here’s what not to do.” But if you still need to work on the idea, then you need to find somebody who can lunge ideas and I don’t know. I don’t know actually how you could recognize people like that because there are probably a lot of people who can do it badly. And, as a founder, how could you tell the difference between someone who did it well and did it badly. You can’t. So I don’t know. I don’t know. Why do I come here?
Andrew:  Here’s something that I noticed about you from your writing. You seem to be looking for a formula for success in entrepreneurship that you’ll try to list all the reasons why companies fail and then hopefully at the end you’ll be left with reasons that they succeed, or you’ll try to figure out what it specifically takes. Am I reading it right?
Paul:  Well, whenever you’re writing an essay, you don’t want to just do a lot of hand-waving and never get to the point. My goal in writing any essay is to make the strongest statement that you can make without being false.
So whenever I’m writing anything, I’m trying to think, “All right. What do I tell people here? How do you get to the heart of the matter?” So it’s not just in the essays about startups. Everything I write, I’m trying to figure out what the heart of the matter is, otherwise, it’s useless.
Andrew:  And are you also trying to find formulas? Is there a formula here that people could apply? Could say, “Look, this is a guy who has now worked with 177 startups.” Did I get that right, or 172?
Paul:   One hundred and seventy-two.
Andrew:  One hundred and seventy-two. Let me make that clear on my paper. “He probably knows the formula at this point, or if he doesn’t, when he hits 372 he’ll have the formula.” Do you agree at that point, there will be one?
Paul:  No, no. There is not a formula, like an itemized list of stuff we could suggest to people, “Do this, do that.” Startups vary.
But there are definitely some patterns. There are some things that work and some things that if you do them, they’re going to hose you. So launching pretty fast almost always works. Being highly engaged with your customers almost always works. Sitting around spending a long time noodling on the idea is almost always a mistake. It’s like a form of procrastination that you can convince yourself is work.
Andrew:  I see. Okay, all right. Let’s take a look at some of the questions that people have put up on Hacker News. Max Cline has asked me about your personality. I’ve noticed it here too. Are you always this calm? Do you lose it?
Paul:  No, I’m not always this calm. But I saw that question too and he asked if I threw chairs. No, I definitely don’t throw chairs. If I’m really mad, I’ll just sort of talk coldly to someone. Like this.
Andrew:  I see. I’ve heard people . . . here’s the thing. A lot of entrepreneurs are now studying you for years. They’re in this community. You’re the leader of this Hacker News community of entrepreneurs who are developers. If you don’t like their ideas or disapprove of their progress, or if they perceive that either of those are true, they’re hurt. I’ve talked to a few people who felt that way. What are you noticing?
Paul:  Did it help when I disapproved? Did it seem like a wake-up call, or did it merely depress them?
Andrew:  I don’t know. I know that . . .
Paul:  Well, there’s a big difference. I mean, if it’s a wake-up call, that’s good. And if it merely depresses them, then that’s bad.
Andrew:  Well, I don’t know that I can make sweeping generalizations. I haven’t had that many conversations like that.
Paul:   Well, when you find out, let me know. I’m trying to get better at this.
Andrew:  You are? Are you actively trying to get better at the way that you communicate with them?
Paul:   Oh, yes.
Andrew:  How? What have you done that helps you communicate with them better? How do you bring out the best in people?
Paul:  Well, one thing I’ve been trying to figure out is how to tell which people to keep nagging and which people to give up on. Because there are some people when basically we made a mistake. There’s always going to be some, we get to demo day, and we know they’re not going to raise money, and they probably know they’re not going to raise money, and they’re going to go back and get jobs.
There’s always some percentage that are just doomed. So the ones that are doomed, it’s just tormenting them for me to keep nagging them and encouraging them. Because they’re not going to make it. Whereas there are others who are on the borderline, who might fail and might succeed, and then if I nag them and nag them and nag them, I can maybe push them over the threshold. So it’s one of these situations where right on this threshold you have two extremes of what you want to do. The guys who are just good enough, you want to nag enormously, and the ones who are not going to be good enough you want to nag not at all. It’s not a continuous function. There’s a step there and so it’s kind of hard to optimize. But I spend some time thinking about that.
We spend time thinking about all aspects of how to make Y-Combinator better, not just how to give people advice, but how to pick startups, how to match them up with investors. It’s all new. Most of the stuff we’re doing is stuff people haven’t done in exactly that form before. So we can’t help thinking about how to try to do it better, how to try to do it better because we’re so bad at it.
Andrew:  Really?
Paul:   Really, yeah.
Andrew:  You still consider yourself bad at it?
Paul:   Oh, god, yes. Yes, we think of ourselves as just utterly terrible at picking startups.
Andrew:  Why? What’s bad about the . . .
Paul:  Because no hard choices are always wrong, that’s why. We have tons of evidence about bad we are.
Andrew:  What do you mean? What’s your percentage of bad companies to good ones would you say?
Paul:  At least a third are just disasters. In the venture business, generally, a lot of the investments are failures. Even a venture fund, which has a lot more at stake and spends a lot more effort on due diligence than our 10-minute interviews, even a venture fund, half the investments will be failures. So everyone in the venture business is bad. Maybe if we had more experience in the venture business, we would take this badness for granted and think, “Oh, well, actually, we’re really good if only a third of our investments are miserable failures.” But we’re not in the venture business and so it seems intolerable. We’re so often fooled.
Andrew:  So the four of you might sit around, maybe with some entrepreneurs and try to bat around ideas about why that third didn’t work out.
Paul:  Amongst ourselves, amongst ourselves. We talk about startups that we picked that we’re really glad we picked, and we say, “How do we recognize more people like that?” There are startups we were fooled by, and we think, “How do we stop being fooled in the future?” You know? We learned a lot from interviewing Wufoo. We learned how to tell the difference between people who are nervous and people who are lame. And we were figuring that out in that interview. So we get better from practice.
Andrew:  Okay. What about the bad ones? What have you noticed that is disastrous? What kind of people?
Paul:   Wimps.
Andrew:  Wimps.
Paul:   Yeah, it takes a [inaudible 00:37:02].
Andrew:  What’s a wimp look like?
Paul:  They have a certain body language. You should really ask Jessica. Jessica is the expert at telling when people are going to wimp out. She’s so much more sensitive to this. She has a much more natural ability. When we were writing code in college, she was judging people’s characters. So both by nature and training, she’s so much better than I am. If I want to know if someone’s a wimp, basically, the high bit is ask Jessica. She’s the one who will tell you.
Andrew:  I do have to have her here on Mixergy. I don’t know if you know, back when I had a bookcase behind me for I guess the first year of doing these interviews, I often put her book behind me, “Founders at Work,” knowing that if somebody saw my interview and recognized “Founders at Work,” even though the cover was a little blurry, and it was hidden behind . . . well, it wasn’t hidden. It was out there, but it was a little hard to see. If they recognized it, and they loved it, then they’re the kind of people I want in my tribe here in Mixergy.
Paul:  Yeah, same with us. Actually, that book was . . . I mean, the way she chose who to interview for that book was who we ourselves wanted to hear the stories of.
Andrew:  How did that factor into Y-Combinator, the book itself?
Paul:    She was working on “Founders at Work” before we started Y-Combinator. The book came before Y-Combinator, and it was part of the reason we started it. That was one of the reasons I was thinking about startups so much because, for a long time, I didn’t think that much about startups. I was working at programming languages and then spam filters. But I was talking to her about it for that.
Andrew:  I see, so she was telling you what she saw. What was it about that that inspired you to look into startups? What was it about the stories that she was collecting?
Paul:  It wasn’t so much the specific stories. She hadn’t done a lot of interviews yet, but she was sort of thinking about this book when we were talking about whom she might go and interview. So we were just talking a lot about what startups are really like. And she didn’t know what startups were really like. For example, one of the big mistakes that people make about startups, people out in the regular world, and even founders, to some extent, they think it starts because there’s some brilliant idea, and success is fore-destined. I told her, “No, the idea changes a lot. People start out, they’re not even sure they want to start a company.”
Google is the perfect example of this. So I would tell her what things were actually like in the startup world, and she was shocked. And yet she had worked for this investment bank that thought of itself as being involved in technology companies and no one in the company had a clue what startups were really like. So she was just astonished to hear all these stories from us and other startups founders who knew about what things were really like.
Andrew:  Is that how you met? Well, no, she didn’t come to . . . you met her before she even wrote the book.
Paul:   Oh, yeah. I think we’d been dating for over a year before YC got started.
Andrew:  Okay. I’m going to go to another question from Max Cline. He asks a lot of interesting questions here. Saying, “If Y-Combinator company becomes a lifestyle company, can you guys still profit from the business, or do you need a [inaudible 00:40:20]?
Paul:  No. I mean, there’s got to be an exit for equity holders to get any money. I mean, maybe in the future there’s some model where companies pay dividends instead of an exit, but we’ve never tried to get anybody to do that. We don’t have any real hopes about it, so no.
Andrew:  Okay. So you’re thinking when you’re investing, you’d like to be able to sell out the company, you’re personally invested [inaudible 00:40:49] or go public.
Paul:  There’s got to be some sort of liquidity and getting bought and going public are the two big forms of liquidity now. Although, there’s evolution in this world. Look at Facebook. Facebook stock is now liquid. And they’ve neither been bought or got public. So who knows what will happen in the future. In that effect, there’s no difference from us and anybody else doing venture investing. The only way to get any money out of this startup is some form of liquidity.
Andrew:  I see. Why the name Y-Combinator?
Paul:  It’s a trick in the lambda calculus. It’s a programming trick. I realized later that it was related to what we do, that the Y-Combinator is sort of self-referential in the way that Y-Combinator is. But, initially, I wanted to call it Y-Combinator just because I thought the Y-Combinator was a really cool thing. So it would be the perfect name for picking out the kind of people that we wanted. Hackers would look at this and think, “That’s so cool. They’re named after the Y-Combinator. There must be something going on here.” And suits would look at it and think, “Y-Combinator, what’s that?” That was what we wanted. We wanted hackers to notice us, and suits, we didn’t care.
Andrew:  I see. And apparently it’s working. Well, I noticed you guys, but I didn’t know what the meaning was. Actually, I got to be honest. I still don’t understand it. I even saw it in Wikipedia before I did this interview. I probably would be the wrong person for you guys to back, then. I’m sure of that.
Paul:  No, the Y-Combinator is notoriously one of the most contorted ideas in computer science. It’s the kind of thing you wouldn’t even think that something like this would be possible. I, myself, I can’t sit down and write out the Y-Combinator for you in lambda calculus. I have to look it up too. It’s not the kind of thing you actually use day to day in programming very much. It’s more of mathematical interest than practical interest.
Andrew:  Okay. All right, what about this? All the companies that you guys back, within three months you’re able to get this beautiful user experience. I always know instantly what they’re about. I always can navigate them quickly, and they look beautiful, so beautiful that I’d be proud to show them as my own website if I own them. Within three months, you’re able to do that. How do you do that? How do you get that user experience?
Paul:  I mean, I nag them. Some of them are great already. But the ones that aren’t great, I nag. I say, “Look, people showing up at some website, they don’t care about it as much as you, the founders, care about it. What you care about with most web apps is the person who shows up randomly. You don’t care about the person who’s already signed up for your service. They’re already sold. All they need is a little login button up in the right-hand corner. So what you care about is the person who randomly clicks on your website and has their finger poised over the back button.” Just think how many websites you visit every day, and most of them are no good. You just click on back, and you go on with your life.
So you’re designing your website for the guy who’s just about to leave, he’s just on the cusp of even caring what you do. You know what your website does, but he doesn’t and he doesn’t even care that much. So you have to tell him. You have to say, “This website is about such and such,” right? And you have to tell him what’s he’s supposed to do there. The button we want you to click on is this big red one, in the upper left-hand corner. That’s what we want you to do. So at least he knows what he’s supposed to do. You know, I don’t want to click on it, or I do, but the thing that kills you is ambivalence, where he goes, “I don’t even know what this website is about.”
How many times have you clicked on some link to some website and you think, “What is this startup even for?” You know?
Andrew:  But there’s the curse of knowledge, as I think they said in the book “Made to Stick” that you’ve worked so hard on the site, you understand everything about it. To try to simplify it for somebody who’s brand-new is really hard there. And then to do it all in such a short period of time, to figure out design, is tough.
Paul:   [inaudible 00:45:02]
Andrew:  Do you guys have somebody on board who does that? Sorry.
Paul:  No. It’s just like writing an essay. You have this big, complicated situation. You need to boil it down to its essentials. So I just look at the startup, and I think if I were writing something about it, how would I describe it. This is the essential thing. This is what they should say. We don’t have a graphic designer on staff, although we’ve been thinking of it. We have a lawyer now. We have a lawyer on retainer, who fixes the startup’s ordinary, everyday legal problems. That turns out to be huge. That is great. That has saved so much money and trouble. So we’re thinking of getting a graphic designer on retainer too, but we just haven’t got around to it yet.
Andrew:  I notice that you have legal documents and you have had for a long time available to entrepreneurs documents that they can use for investors, and documents, I guess, that they use along that process. What about a set of documents for entrepreneurs who are just starting to team up, where they can help spread the ownership of the company properly, where they can ensure that they each own the IP.
Paul:   We have that.
Andrew:  You do have that [inaudible 00:46:04]
Paul:  [inaudible 00:46:05] paperwork online. I mean, maybe it isn’t. But I thought it was, I think it is. Yeah, I think it is.
Andrew:  Okay. So [inaudible 00:46:11].
Paul:   [inaudible 00:46:12] for starting a company, in the Series AA documents.
Andrew:  I’m sorry. We just lost the connection for a little bit. So if I and this guy Wallflower on Hacker News decided to partner up because we like the way we’ve exchanged ideas here in the comments, we can go to Y-Combinator, get a legal document that we can use to split up ownership of the business, and then start working?
Paul:   I think so. I think so.
Andrew:  I’ll have to look, and if somebody in the chatroom knows, I’d love to see what you guys think of that. I’d love to see if you can find it, and maybe link us to it.
Paul:  Go to Google and search for Series AA Y-Combinator. That’s what it’s called. Series AA.
Andrew:  [inaudible 99:46:49]
Paul:   Yeah, I think so.
Andrew:  How do you find a partner? If you’re just working on your own, and you’re looking for somebody to team up with, how do you find that person?
Paul:  You should work together with them. The two biggest ways people find co-founders is to go to school with them or to work with them at the same company because you don’t really know what someone’s going to be like until you’ve worked with them on stuff. They might seem smart, but they’ll turn out to be flakes or something like that. So what I would tell people, I think having a co-founder is very important. We’ve seen tons of evidence of this. We do fund some number of single-founder startups and they do worse than startups in multiple founders.
There’s a lot of empirical evidence too. If you look at all the startups, all the technology companies that are most successful, very few of them have single founders. Even companies that seem now like they have one guy, like Oracle, initially they had more than one founder. He just came to the fore. Same with Microsoft, or Apple. Initially, you need a couple guys to spread the load over.
So having a co-founder is very important and so what I would do is if you don’t have a co-founder, find a co-founder because not having a co-founder is going to kill you. That’s the part that’s going to kill you. So fix the part that’s going to kill you. Spend six months trying to find somebody that you can work with and then do the startup, instead of rushing into it unprepared.
Andrew:  I see. So find somebody who you can maybe work with on a small project, maybe on Hacker News, maybe at a bar camp or some other event.
Paul:  The project you work with does not have to be the startup. It’s just as well if it isn’t because then you don’t have to figure out how who’s in charge of what, and how to split the intellectual property, and what to work on. Just work together with them on some open source projects for a couple months and then you’ll know if they’re good.
Andrew:  All right. Let’s talk about Hacker News. Why did you launch Hacker News?
Paul:  Well, originally, I just wanted some kind of application to test this new programming language, Arc, on. If you’re going to write a programming language, you ought to write some kind of application in it to make sure it’s actually good for writing programs. So I wanted to write some kind of program in it and I had tried to convince the Reddits to create a sub-Reddit for startups. They were taking forever to make up their mind about what was the right way to implement sub-Reddits. They took a long time to figure out how to do sub-Reddits. They had [Inaudible 00:49:20] sub-Reddit first and that was a one-off. But general purpose sub-Reddits, where you could create about any topic, was much later.
Eventually, this combination of desire to write some kind of application in Arc and be getting tired waiting for the Reddits to make a startup sub-Reddit made me decide I would start a website about startup news. And that’s what Hacker News was originally called. It was originally called Startup News. But after six months, we changed it to Hacker News because we got sick of reading about nothing but startup stuff.
Andrew:  Was it to find news stories for yourself, or did you have a vision for what this community would do?
Paul:  Well, we already had a whole bunch of YC founders at that point. We probably had 150, 200 founders. So we had this community of people who were interested in the same stories and they were the original users of startup news. It was like a news aggregator for those 200 people.
Andrew:  I see. Okay. And who’s managing it now? Who’s deciding what stories get killed? Who’s the person behind . . .
Paul:  Me, me. There are a bunch of editors, but I spend . . . it’s shocking. Probably one of the biggest surprises in my life is how much time gets sucked up by Hacker News. There’s just so much crap. There’s enormous amounts of spam, there’s like 1001 varieties of semi-trolls, some of them well-meaning, some of them just crazy. God, they suck up a lot of time. The whole site just sucks up a lot of time. I try to automate as much as I can, but it’s not that automatable.
Andrew:  Is there a payoff in that, I mean in all the work that you’re spending there?
Paul:  Well, it’s a great source of people applying to Y-Combinator, I think. I never tried to track it. But it means huge numbers of hackers spend every day looking at this little orange Y in the left-hand corner. That can’t be bad. At least they know about us. At least people know about us. So I think it’s good, but I’ve never actually tried to measure whether it’s good. It’s more like it just got started, and I got stuck into working on it, and now I spend too much time on it, but what am I going to do, shut it down? I don’t really make any conscious decisions about it.
Andrew:  Who are the other editors?
Paul:  YC founders. I think there are around 30 of them. They’re all people I know and trust, and they have good judgment and care about the site. But I’m not even sure, actually, who they are. I’m not sure which people are editors. There’s something I can go and look at and see who the editors are, but I don’t know.
Andrew:  Okay. And if there’s somebody who’s stories automatically get killed, or specific sites that are automatically killed, that’s probably you saying, “No, I don’t want this as part of my community.”
Paul:  Sites getting killed, anyone can do. Actually, anyone can ban a user too. But usually most of the people who get banned, unless they’re obvious spammers or trolls, like really egregious trolls who are obviously just think of themselves as trolls. Editors will ban them.
Andrew:  Okay, okay. Can you say why certain sites get banned, even if they are in the hacker space, or in the news space? Are there certain things that you just don’t want, certain kinds of stories that don’t fit?
Paul:  Well, most of the sites, the huge majority of the sites that are banned are just spammers. I don’t think there are an awful lot of sites that are banned that are related to the stuff that gets talked about on Hacker News. We wouldn’t ban a site unless it was . . . I think cracked.com was banned, for example because it’s crap. It’s deliberately created with fluff. I just doubt there’s anything interesting on there that would engage some intellectual curiosity. But that’s the kind of site that’s not a spammer site that’s actually banned. I’m not sure, though. It might not be banned. I’m not sure.
Andrew:  Okay. All right. Finally, let me start asking you a little bit about my work, here. I love the community that you built there, that you built on Hacker News and around Y-Combinator and the influence it’s had on this whole space. I feel like who do I want to reach, who do I really . . . I don’t want to get a huge audience, I want to get the right audience. I’m looking at the people who care about your work and I’m saying, “They, to me, are the right audience.” How can I serve that audience well, Paul, with my interviews?
Paul:  Well, it seems like you are. Hacker news, from what you say, it sounds like Hacker News is identical with your audience. And you seem to be pretty popular on Hacker News so it seems like you’re doing fine. I don’t think there’s anything you have to change dramatically.
Andrew:  I have your kind of curiosity, though, about what it takes to build a successful company, and what the entrepreneurs are thinking of, and who they are. Do you have a sense of what you’d like to see, or how to bring that out of entrepreneurs?
Paul:  Well, you want to ask different questions than news reporters generally ask. There are all these traditions in the news business that people now take for granted of asking sort of shallow questions that create controversy. For example, a sort of classic, old-fashioned, dumb-ass reporter, if they were interviewing Larry and Sergey, they would say, “So, Larry. What about China?” Right? I’m like, who gives a fuck about China? It’s just some political controversy. There’s nothing intellectually deep about it.
What I care about is things like when did they make the architectural decision to make their search engine work on a whole bunch of crappy, cheap computers? That’s important. That’s not current events, and it doesn’t generate a lot of controversy in sort of cheap, short-term interest. So I would say the way to serve this audience, I mean, this is the kind of audience that doesn’t go for that kind of crap, mostly, unless there are people there that I would rather not have there. But be deep. Ask the questions that matter, instead of the kind that merely illicit controversy. It seems like you’re pretty good at that.
Andrew:  I’m trying. I do feel like those other stories get more attention.
Paul:   In the short-term, yeah, sure. But this is a different audience.
Andrew:  I see. Okay.
Paul:   Ask the questions that would be helpful to someone starting a startup.
Andrew:  Do you see somebody who does that well now, who brings out those key moments in entrepreneurs?
Paul:   You mean an interviewer who asks . . .
Andrew:  Yeah, an interviewer or a writer.
Paul:  [inaudible 00:56:03] questions. Yeah, I do see someone like that fairly frequently, in fact.
Andrew:  You know what? Does she blog? I’d like to see a chapter of the next “Founders at Work” every week on her site. I could read that all day long. I know she doesn’t have the time for it anymore.
Paul:  [inaudible 00:56:22] do one of these interviews. It takes her more than a week to do one of these interviews.
Andrew:  I see. I get that. I wish she had more time to be able to do that. Would you please give her the space to go do that?
Paul:  You know, that is her deepest wish. If she is watching this, she’ll be laughing so much at this point because that’s what she would like the most too, to be able to spend more time on the new version of “Founders at Work.” She’s working on a new edition, with a bunch of new interviews.
Andrew:  Oh, wow.
Paul:  Yeah, the big problem in her life is that she has to spend all her time on random crap and doesn’t get to spend enough time on the book.
Andrew:  I’m going to have to ask her.
Paul:   That’s the problem that everyone writing a book has, incidentally.
Andrew:  That there just isn’t enough time to do it while you’re doing everything else.
Paul:  Yeah, that they end up having to . . . because the book doesn’t have deadlines and other things. Do you have deadlines?
Andrew:  Yeah.
Paul:  Like this interview, it happens at a particular time. The crap work has evolved this protective mechanism to not get ignored, called deadlines. So if you look at what most people do, instead of their great vision for their life, they spend their time doing things that have deadlines.
Andrew:  Yeah, like email. Answer it.
Paul:  Yeah, yeah. So one of the secrets to getting stuff done is to be able to blow off stuff, even stuff that seems important.
Andrew:  Let’s see. Piss off some people who have imposed a deadline on you just so you can get the stuff that you really care about.
Paul:   Yeah, you probably have to piss people off to get really hard work done.
Andrew:  All right. Well, thank you for doing this interview with me. I’m so glad to finally get to meet you and I hope I get to meet you at some point in person too.
Paul:   Yeah, you should drop by dinner. Send me an email.
Andrew:  I’m still in Buenos Aires, but when I’m back in the US, I’d love to come [inaudible 00:58:0].
Paul:   You’re in Buenos Aires?
Andrew:  Yeah.
Paul:   That is the Internet for you.
Andrew:  Yeah. All right. Well, thank you. If you’re ever down here, we’ll have you over for a steak and a malbec. If not, I’ll wait till I get back to the US.
Paul:   All right. Thank you very much. Nice to talk to you.
Andrew:  All right, and thank you all for watching. If you have any feedback or comments, how can I become a better interviewer? Who else should I be interviewing? Please, bring it on. I always love to hear that stuff. Bye.
Paul:   Bye.