Y Combinator Head Michael Seibel: The ONE Mistake Killing Startups #yc #twitch

I would argue that like most smart Founders  that apply themselves can get a business to   a million dollar in ARR I'd argue if you  give those people 25 to $50 million they   can probably get a not very good business  to 10 million in AR that doesn't mean it's   a good business that doesn't mean it's  profitable that doesn't mean it could   ever become a business generates 100 million  or a billion in Revenue it just means that   like if you spend a dollar enough you  can figure out how to extract 20 cents from hello fellow data nerds my guest today is  Michael seel Michael is a group partner at Y   combinator and managing director of YC startup  accelerator he also co-founded twitch and   currently sits on the boards of Reddit and Dropbox  Michael welcome to World of Das thanks for having   me I'm excited uh now probably uh um you know  you've seen more data than anybody in what makes   a company successful or unsuccessful like can you  give us a little sense of a little taste of that   uh um one of the things we say to YC Founders is  that we see a lot more failure than success so um   we really try to figure out how to help people not  fail and then they figure out how to succeed um   some of the things that cause failure um let's  see I would say first lack of a co-founder um   startups are ridiculously stressful I think people  underestimate the amount of emotional stress there   is and just having another person there to to  share the load we often joke that when single   Founders come through YC especially first-time  Founders they end up adopting their group partner   as their kind of a co-founder which is not good  for them and certainly not good for the group   partner so um that's a big one I think the other  big one um I don't think um most YC Founders who   are successful don't have their unique insight  pre-launch and they don't even have the unique   Insight during YC and so one of the things we  warn people about a lot is your job isn't to   just build and scale your thing in your head um  most of the learning hasn't happened yet and I   think that that's really antithetical because or  at least counterintuitive because you're pitching   investors and so you feel like you should know the  right answer where when we go through all the YC   examples of successful companies almost none  of them knew the right answer at the YC stage   is there a certain commonality in Founders  or something you know probably all of them   have like a decent idea they're NYC to begin  with so they have a decent idea they're smart   people probably all of them are smart people that  that you're involved with um is there um is there   is there some but some of them are able to like  find this great idea through all you know tons of   interactions over time if you think of the Justin  TV story where you were like that was a that was   a a huge evolvement that happened over time to  Twitch yeah um some of some of which maybe aren't   able to find it maybe it's not their fault maybe  they're just in a market that's tough but have you   how have is there some sort of type personality  type that you think is more likely to do it or   some sort of type of founder where nowadays you're  like you have a higher um a rate of success so I   would say this specific question is hard to tell  when we're reading applications or interviewing   when we're working with a company I would say  there are two things um one is simple kind of   logical thinking um I find that like the founders  who can kind of communicate a logical communicate   logically and like not draw conclusions that can  be easily disproven with basic logic really helps   which you would think that's a skill that comes  with being smart but I would argue that like it it   isn't really um it's a separate SK because there's  this there's this other side of Founders that   people talk about this reality Distortion field  that you think would be in ttention with that yes   and and and so I would argue you know when I work  with founders with the reality Distortion field it   it is much more likely to not go well um oh okay  yeah much much more likely um and then the second   thing I would say is um and this is Maybe another  way of saying the same thing intellectual honesty   right like people who when they say they're going  to do something they do it or like when they don't   do it they just say we didn't do it um I think  that doing a startup is so stressful that you   know sometimes people lie to themselves right you  know you don't want to admit that you didn't make   those phone calls or you didn't send those emails  or you made a a spec list that was way too long or   you didn't write down your spec for the week so  you didn't really build the thing you wanted to   like those things are embarrassing to admit and  Founders who just kind of get over that and are   just super honest with themselves um they learn  faster and so I would say that both of those   kind of the extreme honesty and the lack of the  Realties abortion field is is is a a very good   sign that we admited the right person and those  are probably traits that have been true forever   are there traits that are you think more true  today than were true a decade ago I think that the   there is a challenge that is more true today which  is that when we were doing YC in 2007 we felt   lucky to be doing a startup at all and so um we  didn't I think young people nowadays um feel like   getting into the startup game is easy and so they  only grade themselves on like how much progress   they're making um and if that progress takes time  it's very discouraging whereas I would argue that   for almost every YC company it took longer than  they thought it was harder than they thought the   insights happened later than they thought and so  sometimes I see kind of young people today wanting   like a a payoff that happens in the course  of like a semester that's like you know like   like everything's related to a class oh I started  getting it three months in and you know we're like   it might be okay if you don't get it a year in and  and a lot of young people are like I that doesn't   I can't do that how would I stay motivated um yeah  and so I think that's a big challenge today versus   back in the day um I would say that there's a big  similarity um folks were excited about rails and   building web apps back you know this sounds like  the Dark Ages right but in the mid till I remember   2006 2007 yeah yeah the actual technology was  exciting for people and AI reminds me of that   today where like there are a lot of people who are  doing it because who are doing startups because   it's their opportunity to play around with the  most interesting technology I'd argue I we went   through a phase you know consumer fintech crypto  where a lot of the people who are getting into it   were getting into to make money not to have fun  not to play around interesting technology and um   you know that certainly was a disadvantage there's  there's this class of people and I assume you know   many of or most of the people and YC are in this  kind of world where they've been overachievers all   their life yes um and you know many of them have  not you know because they're young they may have   not had an opportunity to experience much failure  or much disappointment or many setbacks um maybe   some very small things like they didn't get the  road scholarship but they got this other wellknown   scholarship or something right rough life yeah um  or you know they they got into Princeton and not   you know Stanford or something or whatever yeah  um but um what what um uh um what how do you deal   with those types of people as they're kind of  like running into their first few roadblocks um   and is there some sort of predictor some of them  probably do extremely well with that and some   of them maybe get paralyzed by those situations  one of the advantages that YC has is by funding   people in a batch you get to see all such a wide  variation in outcomes during those months that I   think it helps you handle the disappointment um  the second thing that I think is really helpful   with YC is the number of Stories We Tell of  successful companies I've always been shocked   at how little history Founders know but like then  I think back to myself at 23 and I was like I   didn't know [ __ ] I wasn't researching anything  right like of course not right but you know when   you tell people that coinbase didn't allow people  to buy Bitcoins when it launched they're like like   no way you're like yeah like it did like you know  they didn't figure that out or like Airbnb didn't   collect payments when it launched they're like  oh [ __ ] like that seems pretty obvious and so   I think a lot of the times kind of seeing people  around you fail and recover is the easiest way   to feel like okay this isn't our game yet and to  see smart people you respect around you not doing   well and them stay motivated um I'd say the other  thing is that doing a startup's lonely I you know   remember talking to one founder who didn't do YC  and he's very successful um but it became clear   he didn't have a lot of startup friends because  his relationship with his investors was you know   a onetoone relationship and it was fraught with  I don't want to say the wrong thing right like   these people like can really screw me over and  I realized for a YC founder there's just a whole   set of people they naturally get to hang out with  who can't judge them there's no you on their board   they're not going to write checks and they can  just become friends with them and they can handle   that stress as a group versus as an individual um  and this especially good when you know Founders   are having a dispute so like you can't go to your  co-founder but like yall have friends within the   batch so I think that's kind of um a really big  help for YC but even with that your Central Point   remains right if you get punched in the face and  you can't get back up startup world is not for you   yeah now if you were G to if you were starting a  YC for 13year olds where you can get a percentage   of their lifelong earnings um and you know you're  competing with all the top investors in the world   all the top hedge funds 72 is now in the market  and all these other things and so you can't just   like invest with people with high SAT scores how  do you select people or or or is there something   like people don't like that you would find like  oh that's maybe not so bad like I don't know they   got in trouble with the law or something well I'll  say this I wouldn't answer this question directly   I don't I would never start a YC for 13y olds this  is what I will say though I remember um uh a story   from uh one of our University LPS where they said  I bet you think you monetize our students pretty   well and I said oh yeah like you know a lot of  your students come through I see I guess you know   we do a good job and they said you get 7% of the  company that they do that does YC um we get 10% of   everything that they make when they die and I was  like oh my God like i' never heard the University   business model like summed up so succinctly yeah  that's a great business model like oh Jesus if you   can just wait you know 60 years so uh I think the  universities are probably doing the best job uh at   at this kind of program yeah that's probably true  um now you what one thing is if you think of YC as   a there's you can think of YC itself as a venture  capital firm but you also see YC itself as like a   business and where I feel like it's different  in Venture Capital firms is Venture Capital   firms are always advocating for their companies to  create differentiated products um but they don't   necessarily take those ideas themsel that advice  themselves whereas like YC seems to really be the   the core exception like it how do you think about  that the the the actual Venture Capital business   in YC's placing it I used to think that Venture  capitalists were misguided for not innovating um   and and you know being in the Innovation industry  and not innovating I used to blame them and say   look what are you guys doing um that was a lack  of understanding YC's Advantage was it was self   funded to start and um the founders didn't need  to make their first buck they' already sold the   company and by the time we were seriously pitching  LPS to fund YC we already had a successful model   most funds are built in the exact opposite way  before they have a successful track record they   have to pitch LPS and that process kind of forces  them into established ways of doing business that   are the only ways that they'll get funded and so  I realized like oh wow the system of funding and   the fact that like if you can't sell fund your  firm you really have to do it like everyone   else in order to get money creates this lack of  innovation and it's not surprising that some of   the best firms like sequoia or a16 get a little  bit more leeway and innovating um but it's just   a little um and I would say YC is extremely  different like I would argue that YC is the   combination of a university an investment fund  and a software business and you know that just   doesn't seem to exist out there otherwise to push  to push back a bit though the like a particular   Venture Capital firm while they might not have  while they might not self-fund the fund um they   usually Own 100% of the of the GP um and and  the LLC that you know that that kind of owns   the fund and so it's it's almost the opposite of  like a particular founder where a Founder has to   like take all this delution usually the fund is  not taking delution in the core fund um in the   business uh so you know the actual business they  only taking each individual fund but to get any   investment Capital they have to present a pitch  that LPS are interested in and if that pitch is   too Innovative like or if it conflicts with LP  strategy they won't get money now there are a lot   of accelerators but like when I think of like the  accelerator University analogy like if a student   goes to Yale or Harvard Princeton Stanford MIT  like you know they might choose any of those   options and they're all great options and if they  get into one it doesn't mean they're not going to   choose the other but for accelerators like it  seems like YC is by far the most prestigious   I assume it'd be very rare for someone who got  into YC to choose a different accelerator like   why why is that the case where it's so dominant  in whereas like you can have many great univers   or VCS for example there's many great you could  get Benchmark and Sequoia and choose one versus   the other for many different reasons so I'd argue  the university analogy might hold but you might   want to look at um the population of people who  are interested so you know there's a lot of people   who are interested in going to University so  there's a lot of potentially good options if   you look at business school most people would say  there are way fewer good business schools than   there are few that's true right because few people  interested and I would argue that you know whereas   in our world startup seems huge in the real world  it's a tiniest of tiny tiny tiny tiny group of   people who are interested and so it just can't  support as many institutions and so um I think   that's you know the unfortunate reality is that  you get a distribution based on how many people   are actually interested and it's pretty rare to  want to go through the pain of being a startup   founder and the long payoff cycle right you know  now the scale Venture Capital has changed like   massively over the last decade um is being able  to scale up and expand a prerequisite for firm   survival or or how or do you see these like more  nichy how do how do you see that kind of walking   out I don't know I it's it's very very hard for me  to think about how a typical VC fund should be um   constructed because I've I've never really worked  in one and it's so different than YC I feel like   I'd be giving someone advice without having enough  context I I do think that you know one thing that   I'll comment on is that in the zero interest rate  environment I think that everyone expanding their   growth funds and writing huge checks into early  stage companies didn't help the companies and   and I think that we were at fault just the same as  everyone else um with you got too much money yeah   and and I think that like it was it's in hindsight  it's somewhat embarrassing was done right like if   you were just to say facts out loud you know  giving a pre-product market fit company 25 to   $50 million ain't gonna [ __ ] help them giving  you know giving a Founder a enough secondary that   they can live the rest of their lives and never  have to work is going to have an impact on their   execution especially if the company is going to  struggle in the future you know I I think that   that whole thing was just an embarrassing example  of investors ourselves included thinking that you   could Model A business in Excel spreadsheet and  cash is a primary input um I've I've never seen   cash being a primary input in a successful company  it's definitely an input but it's not the number   one most important yeah there's certain and there  are certain businesses that maybe require a bunch   of like if you didn't raise the cash you will die  like a cheing businesses or food delivery business   or something like that where they're extremely  yeah Rockets obviously you know or something   like that but but but probably for many others  like um you know the the winner was not not the   one who raised the most cash well and I would  argue even in those businesses where a certain   amount of money was a required Catalyst I still  don't think that money was the primary mover for   every one of those Industries there were a ton  of companies funded and only a couple winners   and a lot of companies got money so I think  that unfortunately um it was crazy to watch   it happen because all founders know this right  like all founders know if you raise your series   b six months after your series a you haven't  done [ __ ] in the inter right like like you   know we all know that right but you know on the  other hand if you're advising a founder and like   money is available at 3x devaluation six 60 days  after your series A you're going to tell them not   to take it right yeah yeah it's very tough it's  tough but like I might argue that for on the order   of 80% of Founders that probably was the right  decision in the end um there are so many Founders   now with with a ton of cash and no idea what to  build well the other thing is at least right now   is because it's harder to raise cash you will  have less competition which also means you have   less worry about not raising cash well well and I  think that's interesting because like I definitely   know a lot of companies who have successfully  cut their burn so they have tons of Runway to   your point they're not going to have a lot of  competition but I would still argue that like   by far the hardest thing is to figure out what  customers want and to build it for right it's like   you can get all those other things right you can  have all the cash and the good hiring I struggle   with that of everything I've ever done so you know  sometimes I think it's like I always think about   this like I say to Founders what item on your  to-do list makes your stomach hurt when you look   at it you should probably be working on that one  and yeah I think a lot of Founders kind of go to   and myself included it's easy to go to item two  three four five six seven eight on the list and   ignore because we want to check it off we're all  in that kind of like we got to check off the list   inbox zero type of thing right exactly but like  if item one is like by far the most important item   and you never work on it we're we're about to see  a lot of that now if you were if you were like G   to create a competitor to YC like is it like some  sort of like really nichy thing like we're gonna   do something like an accelerator in like this  crazy Niche area or like like or you think it's   even possible to do it like how would you you  you know what are you worried about as someone   who's in YC I would say startup accelerators are  generally not good businesses I would say that   you know why started in 2005 but you know if  anyone bothers to go out there and do the math   for a second like a lot of the big IPOs literally  happened you know 15 years later yeah and so I'm   always confused when people want to compete in the  accelerator model especially if they're not like   already rich because it's just it's not uh it's  not a uh it's a pretty hard way to make money I   would say so I think that if I were interested in  doing something else in the startup world it would   not be starting accelerator uh no no what do you  think about these incubators we had Jack Abraham   from Atomic on World of ass um like how do you  how do you think about these in there's not that   many of them that have been successful but what do  you think about the incubator model I think that um I will say this I think that um startup  investing is very different depending on   what scale you're doing it at you know and I've  certainly seen people do it at very small scale   with their own money and work with a very small  number of companies and and see some amount of   success doing it I think the tricky thing is it  still takes forever to pay out and like it that   model breaks at scale and usually people who  are rich want to make something at scale so   it's this constant kind of battle um but I think  if you did you know one every two years it's one   thing or but if you start doing one every two  weeks it's a whole other it's a different thing   yeah and so I definitely see people you know  I think the people who are doing incubators as   kind of like their lifestyle fun thing you know  um I I think that's probably the right idea I   just don't think that model scales yeah okay  interesting now one of the things I I admire   about YC is that you because the hard thing  in all these Financial firms is is the CEO   handoff and you know y see still relatively young  company I don't know least have had like four Co   handoffs I think right at this point um which  is four more than most VRI Capital firms have   ever had yeah um like is that just like baked  into like the founding like how how did that happen that's a really good question I think YC  has a hidden advantage that people don't realize   which is um the people who our partners at YC  for the most part were YC Founders yeah and so   there's a huge part about working at YC that's  about giving back to the institution that you   that that kind of gave to you as opposed to  kind of extracting from it and I think kind   of in a in a normal corporate environment it  would be nice if people felt like they were   trying to give more than they were take but I  think the reality is people were trying to take   more than they give and so that makes a lot of  these issues a lot harder to deal with but you   know if you've already you know a group partner  YC you've already sold a company you're doing it   to give back I I just think that's like a way more  the F that team has way more foundational strength   and I think that's really really important um  I think the other thing that's important is um we think about YC way more long term  you know the reason why I was interested   in working at YC was because I think it can  Thrive for a 100 plus years and I've already   seen I've already been shocked to see that  the lifespan of the companies that all my   friends started and the ones that we're  funding now is fairly short yeah in the   end of it and so the opportunity to work  for an institution that can be thriving   a 100 years from now as somewhat unique  and so you want to treat it with respect it is interesting that like I think most  people most people who are familiar with YC   combinator cannot name the CEO of Y com um and  I think that's a feature not a bug well and I   think this is a way where we're a little bit  more like a university like I don't know the   corre you know I went to Y I don't know who  the pro president is yeah like but it's not   it's not even something you think about as the  primary correct right yeah yep okay yeah good   boy I have no idea who the P of my university  is currently yeah okay that that makes a lot   of sense now you're you're big proponent of  the MVP concept that Founders should focus on   getting out some sort of minimal viable product  as soon as possible and then kind of iterating   where do you draw the line between like bad  rushed product and MVP or how do you how do   you kind of think about those I think um this  whole B is uh Missing the point I think that um when you think about bringing out a new  employee in a company often times you want to   deliver some type of emotional win to them pretty  quickly so you put them on the bug fixing team or   you give them a small Task customer success or  something exactly service and the reason why   is because you want to get them into a pattern  of launching and then learning and because you   assume that their true kind of superpower moment  in the company is not going to be in the first   three weeks or even three months I would argue  that when we take a company through YC it's very   similar we know that that major Insight they're  going to have is probably not going to happen   for a year and it'll happen slower if they spend  that entire year trying to build the perfect thing   in their head don't talk to users don't talk  to customers don't launch it'll happen faster   if they get stuff out there and and see some  of the assumptions they have in their head be   proven wrong and start learning now I think that  like most successful Founders hear me say this   and like they think of their story when they look  backwards as linear right like oh it was just ABC   D EFG right and so like obviously doing a poorly  would screw up B right I just think that like you   have to change your perspective when you're  sitting at a and you don't actually know what   B is like it's just a different it's it's not a  linear progression and so um I I just think this   debate's kind of it's it's silly because on the  other hand I would say it really also depends on   the founder and what they're building you know  when Parker is building Rippling okay right   well a a third time founder who's rebuilding a  business that they've already built once yeah   should probably approach this differently than a  24 yearold who's building business for the first   time and so I think that um I I run into this  problem a lot at YC where a Founder will want   every piece of advice to apply to them and they'll  want that piece of advice to apply at every stage   of their company and and I'm like wouldn't it  be nice if advice were like laws of physics but   then I'm saying physics doesn't even work that way  totally yeah like that's not how the world works   like so sorry that like everything we say doesn't  apply to your situation and the thing we tell you   to do this year won't work three years from now  like sorry it's also a um it may also be like the   if you're a company does zero product well then  then like maybe launching quickly and getting a   getting users and learn you know but let's say  you're already like even somewhat established   we had amjad mad who's the co of replit on this  podcast you know they already have like a great   product they already have tons of users and so  you know maybe the next product that they launch   maybe does have to have a uh has to be a little  bit shinier the expect it can't be as half B it   has to be has to be more put together because  the users have a certain expectation of what a   repc product would look like today whereas like  when they launched it maybe didn't have to have   that certainly I would argue the rules for omj  are going to be different than the rules for a   Founder who's three months in yeah yeah yeah and  then of course like Microsoft may have even the   next or you know whatever another bar on there  yeah so I I I think that um I don't know it's   interesting I actually think there's something  else going on with this debate that's a little   bit deeper and I think the deeper thing isn't like  oh your MVP has to be better I think it's like   Market forces coming like um at work pre this  AI game we hadn't really had a major platform   shift since mobile and so I think what a lot of  young Founders don't realize is that many ideas   have been tried and so I think you get this kind  of thing that happens where it's like they don't   realize that this has been tried three you know  Yelp 2.0 has been tried 80 times yes they release   Yelp 2.0 no one uses it and people are like well  your MVP sucks and it's kind of is it your MVP P   sucks or is it that the market doesn't want yel  2.0 yeah you know and like you're just running   the 81st like confirmation experiment on that um  or with the current tools that are available you   can't build a yel 2.0 that's sufficiently better  and you're the 81st company to experiment and so   I think that's actually what's really going on is  that behind the scenes it's not like you can just   build an Uber disruptor every like two years or a  door Dash disruptor every years like that's really   not how the game works you need some environment  or technology change to open the door to disrupt   an incumbent and if one doesn't exist I don't  care how good your MVP is ain't gonna matter is   is there some sort of sense of like you know maybe  somewh of a bastardization of the classic Peter   teal question that like where the founder sees  the future that most smart people doesn't see um   everyone sees like oh yeah it'd be great if like  we could build a better our salesforce.com like   the UI is terrible and you know it' be awesome  if we could you know but is it something where   they they can see something and then they and and  still most smart people completely disagree with   them but somehow they can still see it and they  can then or or is that that not as important it's   just kind of executing on something that  like most people can see I think I don't   have a good answer for you because I feel like I  have success cases for both um and I think that um not only do I have success cases for both I  actually think that the solution part isn't the   part that people have trouble with the more  I work with Founders the more I realize that   it is really hard to understand what problem  a customer has and what their interest is in   solving it and you know time and time again I'll  meet a company who says like oh well we can save   this Enterprise a million dollars a year and they  haven't really come to the realization that the   Enterprise might not give a [ __ ] about saving a  million dollars a year yeah or they say oh we can   build this tool that's going to replace 50% of the  people on your data team and they might not come   to the realization that the head of data doesn't  want to fire 50% of the people on data so I often   feel as though the misunderstanding happens in  the problem space everyone we fund can can build   software and so like building good Solutions is  way more um that skill is way more distributed   within the YC population understanding customer  problems that's actually really hard most people   don't even want to engage with that intellectually  um in the story of twitch right it took us five   years to understand that a subset of our users  Gamers wanted to make money nowadays that sounds   like the dumbest thing in the world because every  social platform supports influencers and pays them   out back then influencers didn't exist like that  it wasn't a thing and so I remember you know EMT   tells a story all the time where he was talking  to streamers and he's like you want us to give   you a cut of your ad Revenue like that's going  to be like $6 a month and they're like yes I I   want that I want $6 a month and and you know  eventually we realized oh [ __ ] these people   want to quit their jobs and do this full-time  yeah and like once we knew that we could build   the thing like building the things wasn't hard  it was just it was being in enough repeated   interactions to even come up with that yes um  and being open to it when you hear it right   yes open to think like oh maybe we can actually  do that yeah no um and I think what's so tricky   is that for most of the history of Justin TV  we didn't talk to our users and we didn't we   didn't understand that knowing their motivations  and what they cared about like really caring for   them was an essential part of our job um you  know we thought building features was the most   important of our part of our job and oh you know  well that requires people well that requires money   da like you know that whole you know building a  bridge to nowhere kind of thing was was what we   were doing for the longest time there seems to  be like if you think of like the companies that   pivot there seems to be kind of three types  of companies there's the companies that are   like doing well and then they don't need to Pivot  they should just like focus more on what's going   well yeah um and then there's the companies who  are like doing um like it's just not going well   like don't have private Market fit at all and then  okay well that that's clear that we should like do   something radical because we don't have product  Market fit but then you have all these companies   that are kind of in the middle they've got like  something like okay it's not growing super fast   um it's it's it's there it's a business um if you  if you start going on this new thing that means   you you you have the potential to kill this okay  business because you're not you're not focused   on it like I imagine you have a lot of companies  in that tweener stage like how do you think about   that well this reminds me of what we tell Founders  when they're fundraising they always say well we   have these people who said yes these people said  no and these are May and we're like the May are   no move forward I I would argue that tweener  businesses are more often than not knows and   especially coming out of the last environment  where there was so much cash around yeah I've   started to see this phenomenon where you know I  would argue that like most smart Founders that   apply themselves can get a business to a million  dollars in ARR I'd argue if you give those people   25 to 50 million they can probably get not very  good business to 10 million in AR y that doesn't   mean it's a good business that doesn't mean it's  profitable that doesn't mean it could ever become   a business generates 100 million or a billion in  Revenue it just means that like if you spend a   dollar enough you can figure out how to extract  20 cents from it yeah and I would argue that   those businesses are not going to get product  Market fit and they should not be furthered   they're they're in the category businesses that  should be you know at the minimum milked right we   could milk Justin TV because it was profitable  so we could mil the revenue from Justin TV to   build Twitch but if that like business that's  not working is also burning Capital that it's   a problem yeah it's a big problem yeah and and  people don't say that enough I think people are   afraid you know I've had Founders are like well I  know this thing isn't going to work but if I don't   grow 10% month over month we're screwed I'm like  you've just given me two scenarios where you're screwed you probably need to stop growing this  thing 10% month a month if you're absolutely   convinced it's never going to work and interest  and like in your in the twitch example like you   you had something like Justin TV which was like  okay um it was it was there but you knew it wasn't   gonna like make it wasn't G to change you know a  massive it wasn't gonna become a massive outcome   and stuff like that no um and so how do you do  did you just be like okay we're going to put like   two guys in maintenance mode over here and the  rest of us are gonna like how did you like how   we did it I think that we couldn't actually think  clearly about Justin TV until we got a profitable   and we didn't get a profitable until I pitched  50 investors and they all said [ __ ] you so and   and until we had two months of Runway so it was  like pitch a bunch of investors they say screw   you two months of Runway all right let's make this  let's make this actually like we don't want to die   if we could just bottle up the motivation that  Founders have right when they're close to death   and just give it to them all the time came over  um and I think that once we got into that clear   erir of profitability so that would have been  the end of um oh God my dates are all screwed   up now o maybe end of 2010 is that right I don't  know anyways once once we got there then um this   great guy by the name of Gideon Yu came by our  office he was a partner at um Costa at the time   had no interest in investing in US zero thought  our business sucked it was absolutely correct   but for some reason dropped this dime on us where  he basically said look if you keep on doing what   you're doing within the next three years your  revenue is going to slip you're going to go   unprofitable no one's going to fund you and you're  going to die and no one's going to remember what   you've done that's it like that that was all the  advice and [ __ ] better do something now well   I'd argue that like because we were profitable  we we could hear that and do something with it   yeah and what we did was we split the company  into three groups one group was maintenance for   Justin TV keeping the revenue flowing one group  started working on Justin TV gaming which became   twitch and one group started working on social  cam we set a goal where we want to have this   much traction in one of the two businesses within  the within six months of launching it or we would   kill the one that wasn't having traction um the  story we like to tell is that both were doing well   and so we spun off one the reality is that like  twitch was doing way better than social cam but   investors really like social Cam and we really  like the idea of social cam right Instagram for   video just seems like a yeah home run idea yeah  and so why give it up and so we actually ended   up pursuing both and I would argue that it was  somewhat of a home run idea Snapchat was made   right at that time and had we had better insights  we could have competed with them more effectively   but we did not interesting yeah in 2010 a similar  scenario where this comp rap La wasn't doing that   great was got it to profitability but we had $16  million in the bank so we did this pivot to live   ramp and um and I guess the pivot was easier  because we had we had a relatively functioning   base thing we had $60 million a bank we had a  good team of 30 people mostly Engineers so yeah   it just made it easier to do a pivot than kind  of a classic pivot would be to do yeah but we   still got lucky I mean that [ __ ] was didn't  have to go that way exactly now one thing one   thing I think interesting about YC is that  is that YC generally Advocates equal splits   for Founders in in the batch company so if you  have three founders they would get like the same   shares each y right why why do you do that so I  would say this goes back to the teams that we are   historically seeing so we're historically seeing  a three founder Team all firsttime founders all   kind of mid 20s to late 20s yeah and um and and  probably last but not least like none of them true   experts in the field they're going after right  really smart technically talented but not you   know deep they're all roughly at the same level  ex might be called CEO but they're all roughly   at the same level exactly and I think that because  those are the scen scenarios that we see the most   we kind of give advice for those scenarios I don't  think equal Equity splits work in all situations   one if it's a two founder setup I often recommend  you know some slight unequal so there's some kind   of like you know one of the two Founders on the  board or one person has you know 1% more just to   deal with if there's co-founder dispute um and  then certainly there's different scenarios if   you know Founders have various different levels of  experience and da da d da but I would say that we   like that advice for the teams that we mostly  have seen yeah now let let's say Michael seel   starts a company you decide I'm quitting ycm star  company and you started it with a upand comer 20   24 year old the next Michael cull who who you  meet and you're like oh obviously there would   be some sort of equity imbalance because you have  all this experience you have You' you've you've   started these super successful companies and stuff  like that have you seen anything like that uh so   I don't spend a lot of time thinking about those  scenarios I think that if I were to do that the   equity balance would come from me investing in the  company okay got it okay we have even equity and   then I'll put money in at a five pre or whatever  exactly yeah okay but I I will say this right   being a non-technical founder and working with two  amazing technical founders with um EMT and Kyle um Justin TV used to break every Saturday and  Sunday morning and we always used to we all would   get sms's we'd all get the page of Duty sms's like  you know video systems down websites down and like   I can't fix it nothing you could do I can't like  the only thing I could do is make sure that EMT   and Kyle are awake getting get their coffee and  their donuts yeah and so I saw that so often where   like I'm the CEO sure but like if my partners are  not incredibly motivated then this [ __ ] ain't   going to work and giving people Equity I think  everyone you know I think a lot of the people   who do a lot of unequal Equity splits are business  people like me business guy and they're like oh   well they only negotiated for this much or like  oh well it was my idea or some [ __ ] like that   and I'm always just like who is waking up in the  middle of the night to fix this the the equity is   going to wake them up or you're going to wake them  up like the equity does a way better job of waking   them up and and it's a mistake that people don't  realize early you know I always say you know a   level one CEO is thinking about you know the next  year oh well they're going to be perfectly happy   with this Equity split over the next year a level  two CEO is thinking like well this might take five   to ten years yeah how are they going to feel five  years in I should be making sure they're going to   feel good about five years in even if they don't  think that way right now it's my job to think that   far out so that's why I always like giving people  more Equity now um a lot of what we're talking   about are software related companies companies  with bits which which have um you know really been   what SOA Valley has been very good at funding I've  heard you say that it's not so good at funding   things that are uh more atoms based or biobased  or Etc like what's holding us back and how do   we change that I don't I I I don't know that  something's holding us back I think that they're   harder I think um not only are there harder when  you look at the examples of the people who have won let's kind of like let's let's talk  about three different types of businesses   right let's talk about lending businesses let's  talk about hard tech businesses let's talk about   bio businesses I'd argue that like in lending  businesses it's like interesting that a firm   started by someone who's incredibly wealthy  who can go and like raise debt based on their   reputation and their personal balance sheet  would have a massive Advantage right right   very interesting right um if you think about  hardtech it's interesting that Elon could go   raise a bunch of money to build Rockets right like  like based on previous success very helpful when   you look at bio the entire bio VC ecosystem for  the most part like invests a ton of money in early   stage companies buys way more ownership than the  software World often replaces the found yeah right   it's like so it's like I think that you know the  software model is different right you know there   aren't as many Mark Zuckerberg in the other three  worlds Y and so you know now there are these like   mini wi if you think of Bob Nelson um you know  he's kind of a famous biotech um investor he's   kind of like a mini YC in a way um or mini mini  Atomic or you know kind of like starting a bunch   of these things and of course we have accelerators  there like madna came out of accelerator um or or   or an incubator um so there are these like other  structural um types but the capital needs are are   very different for those companies well and the  skill sets of the founders are often you know   way more specialized like I would just argue it's  harder if you're doing a bio business a hard tech   business or a lending business it's harder okay  interesting um now how do you think of this like   con Insider or Outsiders like I I think a lot of  the well-known Founders have kind of historically   been Outsiders um and um but the but Y and why  but and and maybe that and in the early days of   YC anyone who would join YC was probably somewhat  of an outsider yes um but today like getting into   YC is kind of like getting into McKenzie or  Goldman Sachs or Google or something it's like   it's a there there's a well well there's a badge  on your resume that everyone is familiar with   right say hey even if your company didn't go well  if you say hey I got funded by YC that's a that's   a that's kind of like you know it's like going to  Stanford Business school or something or whatever   it's kind of thing that maybe an Insider would  want to do as well how do you differentiate or   do you differentiate between these like Outsider  and insiders I would say this I would say YC is   often perceived as a better deal for Outsiders and  I would say that YC was built for Outsiders and I   think the core thesis of YC is that there are  more Outsiders and so there is a bigger talent   pool of Outsiders than there are insiders and that  there is less competition there um all the VCS in   the world are trying to go after former Facebook  execs you know topof the class Stanford CS kids   etc etc much smaller pool many more competitors  um I would also say that Outsiders more often   than not have a chip on their shoulder and that is  very useful as a startup founder um to feel like   you've been underestimated and feel like you need  to prove to and this isn't healthy um but I feel   like you need to prove to the world or yourself  or your parents or someone that you're better   than they think you are is extremely useful and  I would argue that like insiders sometimes have   the same problems that like kids of Rich parents  have which is like yeah you know they've always   been skating on the easy in the easy Lane and so  um I think that what we have seen as YC has gotten   bigger and the advantages of YC have gotten more  clear is we see some insiders saying wait a second   this 7% deal is better than it looks you know um  and I think you start seeing this a lot with YC   Aluma come back right I did YC twice Justin did  it four times Parker came back and did it um Kyle   came back and did it you start seeing this like  oh wait I'm an Insider but the thing that Brian   chesky told me when I was um considering doing  ycc again was YC is a toolbox full of tools and   you know how to use the tools better than you  did when you were 23 yeah and you can get way   more out of them and I was like oh [ __ ] you're  right like whereas I think a lot of people want to   see YC as like a status thing it's like oh it's  like undergrad I'm already passed that it's for   young people it's for first times it's like no  in this way it's not like a university like in   this way it's very different than University in  this way it's much more like a software company   or like Dev tools where like a bad engineer can  take some Dev tools and you know build something   and a great engineer can take some Dev tools and  build something much more amazing and so I think   that um what's been interesting is to see the  Insiders kind of flip a little bit and say like   oh [ __ ] this deal is better than it looks  um but it was still designed and it's still   primarily for Outsiders one other thing is that  why as YC itself self evolves and becomes more   of an institution um in some ways it's harder for  somebody with an Outsider personality to manage I   I have this Theory the reason why Paul Graham left  YC is that he wanted to remain a true Outsider and   it would be hard to do it as like running you know  because you can't necess say whatever you want to   say if you're running like an institution sure um  so um and it gives you you know you have a little   bit more freedom if you're if you're slightly on  the outside or or or something like that like at   some point like these things become you know  if it's going to be a hundred-year institution   um it's a um uh you you you you have to watch a  little bit what you say you have to be a little   more polite right or I don't think out I don't  think being for Outsiders means that we have   to say radical things I think yeah it has to  do with our process for funding companies you   know typical VC funds celebrate the idea that  you need to have a warm referral to talk to what about everyone who's not one degree  separated from someone who knows rof at   seoa right it's easy to argue oh great they  should be excluded because they don't have   the skills to make to do that networking YC  would argue please continue excluding them   like we would love to talk but I would say that  the thing that would make us not for Outsiders   is if somehow how we solicited applications  read applications in interview changed and   that's something that stayed fairly consistent  the entire you know from PG's first batch to   today um you don't have to know us you don't  have to you just fill out an application you   don't have to build a deck like it's it's an  experience that's a lot more like applying to   a college and and so is is familiar and  common to almost every smart person in   the world um what is a last couple questions  what is a conspiracy theory that you believe what's a conspiracy theory that I believe  I'll tell you one it's not really a conspiracy   theory um I I think uh uh Doug at seoa let a big  secret slip in a podcast once that we literally I   recorded and put onto YC's user manual um because  it was such an important secret and he basically   said seoa can't help you if you're pre-product  Market fit like it's your job to find product   Market fit we can help you with all the [ __ ]  you have to do after that um but the product   Market fits the black magic part I think that my  conspiracy theory is just you know some version of   investors are way less helpful than they appear  or present and Founders deserve almost all of   the credit because finding product Market fit  is so freaking hard and like no one who's like   doing board meetings once a quarter is really  contributing to that effort at all yeah yeah   like this idea of like founding investors it's  like sorry no like in many ways especially in the   early stages of companies your investors are more  like your lawyers no one would give your lawyers   credit for like figuring out the company well may  maybe in scenario where you mentioned the Gideon   new scenario where they could like scare you into  doing finding something else or something maybe   but like I would even argue like the thing Gideon  said to us was obvious we were running a company   that had mostly copywritten content we were being  sued right like it was like he wasn't giving us a   secret like he was he was just holding a mirror  to our faces and said this is what you are like   so anyways I think that um you know maybe my  conspiracy theory is that like pre-product   Market fit the value ad investor doesn't I don't  want to see the value investor doesn't exist 9   plus% of the lift is given product Market fit and  the investor can't help you do it yep all right   last question we ask all guess what conventional  wisdom or advice do you think is generally bad advice I used to think that everyone who  had the skills to do a startup should do   a startup and I used to attempt to browbeat  people into doing startups um who obviously   didn't want to and I would do it even  more for underrepresented populations   like oh man like you you could be doing this  like you should be doing this and I think it   took me a long time to realize that this  isn't skills are important but they aren't   the actual real game here um everyone  in the game's got skills anyone who's   serious in the game has skills there's  a little bit of you have to be broken like wanting pain and stress like seeing life  as more exciting when there's pain and stress   is not rational and so I think I've just come  to this conclusion that there are you know   1% or whatever of the population has this like  weird thing that's broken about them and they're   inclined towards startups and they probably should  go acquire the skills so they can go do them and   everyone else isn't and they probably shouldn't  do them and I bet one day you know we'll figure   out what that thing is and we'll see it as akin  to hey you know most people who are 68 to 7even   foot should think about basketball right and  most people who are 5'2 shouldn't and and and   I think that you know there is this idea that  everyone can be an entrepreneur and like sure   everyone should have the right or the freedom to  be an entrepreneur but I don't think everyone can   process this amount of pain and disappointment  and not only remain motivated but like can use   it to motivate themselves and it's funny because  on the team at YC you know the people I work with   they always joke they're like you're waiting for  bad things to happen like you want bad things to   happen you like when bad things happen and I'm  like that's not wrong you know and they're always   they always complain when it's like well you got  good feedback on this and you're dismissing it   I'm like yeah I want the bad Fe like that's  what what good feedback that's useless and I   I probably slight Amendment you're you're really  talking about you're not just talking about like   being an entrepreneur because probably lots of  people will start like a little thing it's more   like being a high growth startup like kind of  person right it's a very which is a very very   different animal than okay I'm gonna start a firm  with five people and put my kids to college with   it which is great and admirable completely agree  with you I'm not talking about starting a small   business I'm saying trying to be an entrepreneur  that builds one of the largest businesses um you   know in a country or in the world and and I think  that um that's probably the piece of conventional   wisdom that that I got wrong that I should be  instead of talking about how amazing this is   and trying to convince people I should be talking  about how bad it is and at people being like no   that sounds like like oh great like pain and  suffering sounds like fun we're we're we're of   the same mind well there's also a certain class  there's a lot of people who have a desire to be   successful but there's a certain class of people  who just would not have an extremely tough time   being successful in the confines of an already  existing institution um and they just don't have   the personality to do that um in the right  way and um and so those people almost forced   to do a start whereas somebody else who um  maybe has quite quite a good personality to   be successful in those in the confines maybe  it doesn't actually ever make sense for that   person to start a company you know when I talk  to college kids I I make this exact point you   made I I basically am like it is rational to like  a job at Google you don't have to work very hard   you get laundry you get food you get like like it  is like it is not bad to want that job um but if   you think that sounds horrible maybe maybe this  for you this has been amazing thank you Michael   seel for joining us world of ass I follow you  at mwc uh on Twitter I definitely encourage our   listeners to engage with you there this has been a  ton of fun had a lot of fun thanks for the invite [Music] again

Channel: World of DaaS with Auren Hoffman

Views: 52,372

Keywords: Y Combinator, y combinator how to start a startup, y combinator startup school, y combinator pitch, y combinator interview, y combinator mvp, y combinator founder video, y combinator product market fit, y combinator how to strat a stratup, y combinator pich, michael seibel, michael siebel, michael seibel interview, product market fit, MVP, michael seibel y combinator, michael seibel mvp, michael seibel building products, world of daas, auren hoffman, flex capital, safegraph

Id: ZLLPW2Z2cCg

Length: 60min 35sec (3635 seconds)

Published: Tue Oct 31 2023