This is session 2 of Technology-enabled Blitzscaling, a Stanford University class taught by Reid Hoffman, John Lilly, Allen Blue, and Chris Yeh. This class features John Lilly interviewing Y Combinator President Sam Altman.

Can you talk a little bit about Y Combinator and

So we fund startups, not only that but mostly that.

We sort of look at our role as enabling as much innovation as we can in the world.

Startups are a really good way to do that.

We fund about 250 startups per year in our core program and then we have a new thing called the fellowship program that we're going to scale up much beyond that, which is one-tenth of the money and less advice.

But we think is that we figured out a way to sort of build this meta company that helps startups a lot.

And so if you're part of YC, we want you to have 100x leg up on where you would be otherwise.

And we try to give advice and connections and access to this community where we can offer things that just really help startups.

So we try to figure out the advice that really matters, but mostly the thing you get is this alumni community.

There are now more than 2, 000 people that we've funded.

People feel a very strong affinity to YC.

They work with other YC companies, help them fundraise, hire, buy each other's products, whatever.

And we really sort of try to make that a tight community.

But so we're somewhere between like a product company and a traditional investing firm.

I think something happened maybe 3 or 4 years ago, maybe 4 or 5 years ago, when people started really, really identifying as being part of YC and part of the fact.

I was going to finish in 3 years, so it was my last year.

You had done the CS core, or so you knew how to code.

Did you start Looped and then go to YC or did you?

It was a project I was working on with some friends, and then we, I'm pretty sure that we started, we went back to try to figure this out, so I'm pretty sure we started working on it just about the day that YC announced that it was gonna be this thing.

We didn't think much about it then, we didn't even hear about it right then, but worked on this and then heard about it in detail and really seriously considered it the day before applications were due.

So it was like, I think it was like April, middle of April, something like that.

So we applied right then and flew out there to Boston and it was, at this point, the world of investing has really changed, I think partly because of YC, but in

it seemed very mystical, it seemed like people really wanted like business people running these companies, not engineers and there were like, there was all these things and if you didn't know like the right words you know it didn't work and that people really wanted like business plans and financial models and whatever else.

And so when we got to YC, it was like these are our people, like these are engineers themselves, they care about the product, not the business plan, not the financial model.

And I think it actually took the YC partners maybe 2 years to figure out what they were on to, but to the founders they funded, to the 8 companies who funded that first batch, we knew right away and we were very confident that this is what the future of investing was going to look like, because we had seen it the other way.

And in the 10 years since then I think it's really changed.

I got involved as a part-time partner in YC in

And at that point YC was still fairly small.

But even by then the environment had tipped in favor of the founders.

Yeah, I think that what Sam said is really right.

I was here in 1995 is when I left and there was nothing you could find out about how to pitch VCs.

I didn't know VCs, didn't know investors.

And by 2005 you had guys like Tom Byers and stuff who had been in the team at CLA who would at least connect you up, right?

Yeah, there's sort of, I don't think it was that effective honestly.

I think that if it were, like YC never should have been able to be as successful as we've been able to be, I think the sort of the last generation of investors just sort of dropped the ball.

I think the new world is way better for founders.

There's a kind of a crazy leap of faith you made to fly away from Silicon Valley to Boston, but maybe it didn't feel like that because...

It felt a little crazy, but we needed money and they were giving us money and we needed advice and they were giving us advice.

I was actually just in Boston and I went, I sort of walked by the apartment I lived in that summer and I was like, I was so happy not to have ended up living in Boston.

Boston is a fairly nice place, but it's not here.

It's really like the, I mean I think this happens to like a lot of Stanford students, it's really hard to like ever leave and so we get sucked into this like vortex and we can never move more than 100 miles away from campus.

Well, that's 1 of the cores of the class.

And no surprise, given Reed, networks are kind of everything, networks of information.

And so, you know, Eli Gil, who founded Color, and Color Genomics and everything, he wrote a blog post about this, that YC is a network effects business, which I don't think anybody knew 10 years ago.

I still don't think people understand how much of the case that's going to be.

You know, there's this statistic that people ask me about a lot, so there's about 2, 500 accelerators in the world.

There are 8000000000 plus dollar companies that have ever been created in any accelerator and all 8 of those are NYC, which is like not an obvious statistic that that should be the case.

And people ask why and my answer is always that there is actually a network effect at this stage of funding.

It doesn't exist at the venture stage, I don't think as much.

There are 5 or 10 really great firms, all of which who do very well.

But we have been very fortunate to pretty much dominate our stage of investing.

And the difference between the number 1 and the number 2 at our stage looks more like the difference between Facebook and like my yearbook, I don't even know what the number 2 is anymore.

And I think the reason for that is because it is really a network effect business.

The value you get from YC, as much as I'd like to think it's the advice from my partners, is the advice, is the sort of the network you get of YC alumni and other companies.

Because I talk to a lot of founders who will ask other founders for help, or founders from a couple of batches before.

You could pick up the phone and anybody else would answer.

You know, 1 of the things that makes our stage of investing special is we are the first investor in these companies.

And you feel, I remember this as a founder myself, the loyalty you feel towards your investors goes down exponentially with time.

So the first people that take a bet on you, you really care about because they took a bet on you when you were a few people and an idea.

Your A round investors still bought stock before you were an obvious success.

Your C and D round investors, yeah, they had to think you were smart, but they're mostly just investing off of a financial model.

And then by the time you get to public shareholders, like, they don't care about you at all, and they will sell your shares, you know, if your earnings miss by a penny that quarter.

So, because we're the first investor, I think the founders feel a stronger bond with us than subsequent investors and thus are more willing to sort of like give back to the community.

Also now that that flywheel is up and going because people help other companies, I don't mean this to be a YC commercial, so maybe we get off this topic soon.

Because people sort of like help other companies during the program so much, they feel like they need to pay that on.

And then we do things to like help the community.

So we do a, we take all our founders camping once a year.

And people just hang out and they talk about how things are going.

And you have peers, you have like other people.

So when you have other people you can talk to about like, man this is really hard.

We have like spaces that the founders can come hang out together.

In like office space, we also have online spaces, private social networks for the founders.

So we really do try to cultivate this community and that is what gives us sort of the network effect.

It's not really commercial, the whole point of this class is that Silicon Valley has these big companies that get very big very fast, a lot by knowing how to step on the gas and how to use the network that's underneath them.

And it just occurs to me that YC is a very good example of that.

And you guys have punched on the gas recently in a bunch of different ways.

But you were sort of an outsider coming into, not an outsider exactly, but you were a new partner and you took over as president at?

Well I had been involved in YC in some sense or other, like, from the very beginning.

Even before I was like officially a part-time partner, I sort of did that as just for fun.

Like I would advise companies in subsequent batches, close friends with Paul Graham all the way through, just hang out and help him.

And then I became a part-time partner officially in

I also, so my company got acquired in 2012.

And while I was there, I was sort of like looking for something to do on the side.

So I raised a venture fund, which was really important actually, because I learned that I did not want to be a venture investor.

There's no way I can say this next part without offending you, so I'll just apologize.

I felt like I was a public equity picker, like I was not actually adding value to the world.

I was allocating capital, but there were a lot of other people allocating capital in the same space.

And so I was trying to identify the best companies a little bit sooner and do a little bit better of a sales pitch to get them to take my money, because the best companies today have like a huge amount of people trying really hard to give them money.

And it felt really different than the little bit of seed investing I had done before I had much money in like

And this was when I was like writing $15, 000 checks and like the founders had no other options and if I didn't invest, maybe these companies didn't happen.

And I realized that that was actually where I felt like I was having an impact on the world.

So I had learned that I did not want to go be a venture investor, I did not want to be a public equities picker, I did not want to be competing to get my dollars into companies that were already going to be successful.

Like I wanted to actually enable new companies.

And so as I was like thinking about what I was going to do next, I sort of retired for a year and like did all of the normal stuff.

Then it was I want to run some sort of company and I want to pick the job that will have maximal impact on the world.

I think that venture investors are not as important as early, but I think there is a lot of work that happens that's a little different.

There is a huge amount of work, like a great board member and we tell our companies this all the time, a great board member in your series A-run is like the most important thing to optimize for.

And we at YC ourselves are not good at that.

And if you don't get that, it's very hard to build 1 of these multi-billion dollar companies.

But that's not what I was good at, nor did I, what I really wanted to do.

So if I was going to be a later stage investor, I was going to be 1 of these like hands off later stage investors.

How's it different than when you were founder and CEO of your own thing?

It's not that different, it's much more like being a CEO than being an investor.

I guess I meant when I was CEO of Mozilla, it was really different than I was CEO of my startup, because being a founder and CEO and growing the whole thing, it's just a little bit different relationship.

I found it was a little bit different relationship with the organization.

You know, there's this weird way in which I, it's very hard to like take over from a founder in any case, it's very hard to be a new CEO, but YC was very small when I took over.

You know, we've maybe tripled the number of partners, maybe more since I joined.

And because I had been around, like I was literally the first Czech, like I was there for the founding of YC, first Czech YC I ever wrote.

And so I had sort of the credibility with the organization, I had the muscle memory that it was not a particularly traumatic.

You know, these sort of leadership handoffs in sort of relatively high profile companies are usually much more traumatic than this 1 was.

And I think the reason for that is just because I knew the organization so well, I'd been involved for so long, that I was like an internal candidate or whatever.

Yeah, I mean I remember Paul talking a lot about how you and he were very similar in outlook.

He hadn't found anybody who thought quite like you did compared to him.

I mean Reid talks, you know I came in and took over from Mitchell but it took a long time to develop that relationship.

Reid talks a lot about Jeff taking over him, and he credits the idea of the second founding of LinkedIn.

You know, in a lot of ways, YC feels different to me now than it did a couple years ago before you took over.

I think for successful new CEOs, it has to be a re-founding every time.

I mean, people talk about that like it's a rare thing.

I think every time it works, 100% of the time, it has to be sort of a re-founding of the company.

So yeah, I think we've done some different things.

It probably looks more different on the outside than it does on the inside.

On the inside, we just do the same thing.

We sit around every day and we try to figure out how to find the best founders in the world and how to help them and how to build YC into this sort of platform that other companies can sort of get big on top of.

And you know, like, we do that in different ways and we have some big new ways coming.

But internally it feels sort of, because the mission is so clear, because everyone knows why we do what we do inside.

If we change the how we do it a little bit here and there, it actually doesn't feel that different.

So why don't we, as advertised, what we're talking about is like Sam sees thousands of startups, sees many more founders, helps hundreds of startups, give or take, probably roughly.

So let's talk about team for a little bit.

So what consistent qualities do you see in the best founders and companies?

We actually have tracked this over years and we rate founders on different qualities and sort of we see what seems to matter.

In no particular order, the sort of ones I'd say are incredibly important.

Clarity of vision, you know, like can the founder explain exactly what they do and why?

If the founder can't explain it clearly to us, then A, they're never gonna be able to recruit, hire, sell, talk to the press, anything.

And B, it means they're not the kind of person that is a really clear thinker in general, and that's just so important to a business.

Because a lot of people, a lot of times you don't know exactly what you're starting when you start, right?

Well, you know what you're gonna go work on in the next few weeks, and you know kind of why you're doing what you're doing.

So like, you know, with Airbnb, for example, when they applied to YC, they were doing this thing that seemed a little bit hokey to all of us, where you stayed on a stranger's airbed and while they were still there, and none of us wanted to do that.

They could explain exactly how it worked, why they were doing it.

And the vision for the company was that we want, like Brian told a story of, well this is how my grandfather used to travel.

And it's a lot better to stay in a local's house and with a local than it is to stay in sort of like, you know, the 4 Seasons of wherever, which all look somehow exactly the same with 1 decor element from whatever the city is or the country.

So, the vision was so clearly articulated.

It then took a little while to evolve into exactly what Airbnb is today, which is where you discover that you can just rent out the whole house, the whole apartment.

But he was so clear on why he was going to build this and what the end state vision was and then what the short term, like what he currently had to do to make it work.

2 is we look for people that are very determined and very passionate about what they're doing.

There are founders who don't take no for an answer and there are founders who just like bend the world to their will and those are the ones we want to fund.

And then there are founders that every time they run across a small impediment, just turn around.

And fortunately you run into so many impediments every day that if you're the kind of person that just turns around at those, that's like really a problem.

And you also have to like really believe that what you're doing is important.

The best companies are always somehow mission oriented.

Even if it's just that the founder like loves the idea of building a big company in this space that he or she knows really well, that element is always there.

And so determination and passion together, like that intersection is really important.

Obviously, raw intelligence, that 1 is obvious.

The ability to sort of get things done quickly, this is not quite the same as determination.

There are determined people who are still very slow movers and that works in a lot of things in life, it does not work for founders.

It's not entirely accurate to say that speed and quality of decision making correlates exactly with startup success.

But it's not like a bad first approximation.

The being quick and being decisive and getting things done quickly.

If you look at our data that would just correlate almost exactly with all of our successful founders and other founders that look on paper like they should be really successful but fail, often are missing this 1 trait.

Well, this is 1 of the advantages of operating at the scale that we do.

We look at 20, 000 companies a year, something like that.

So we just get so much data that you develop over time the interview questions to ask and the responses that correlate with different things.

Yeah, your determination, have you read the book, The Martian?

It's like eighth in my book stack right now.

It's a pretty good book to read, it's this novel about a guy who gets marooned on Mars, but it's all problem solving.

It's like, okay, I've gotta solve this problem, go do it.

And then the side effect of solving that problem means this other thing comes wildly undone, which is a very startupy, it's the best book about startups I've read in a long time.

You know, the trick to being a great founder, at least in the early stages, and honestly this kind of goes on forever, is your ability to be presented with a problem unlike anything you've seen before and solve it very quickly.

And that, You know, like there are some people that love that and some people that hate that.

You talk about solo founders versus 2 person teams versus bigger?

We prefer 2 or 3 person founding teams, but we are not religiously opposed to solo founders.

And we funded a number of solo founders that have gone on to be successful.

Although in all of those cases they got a co-founder at some point after we funded them.

So I believe like Dropbox and Instacart, at the moment we said yes to funding them, didn't have a co-founder.

But either before our program started or quickly after both of them did.

The issue, the 2 issues, 1, there's like a lot of work and it's really hard for only 1 founder to do it.

And 2 is that the like the psychological toll of being a sole founder, even people that think they're really tough manage to underestimate this.

So look, it's definitely possible, although if you made a list of the sort of $10 billion plus tech companies and looked at how many of those didn't have co-founders by say 6 months in.

It's definitely worse to have a co-founder than, to not have a co-founder than to have a bad co-founder.

So What we really hate is when people bring on a co-founder because they think we'll like it.

That ends in heartache 100% of the time, literally 100% of the time.

But I think start working on an idea without a co-founder, but never stop looking for 1 if you're a solo founder.

And the biggest companies seem to generally have had 2 or 3 founders.

I actually can't think of a single 1 that had a real sole founder.

The psychological toll that Sam talks about is real.

It's a lonely job but also it's people telling you you're a moron a bunch of times in a row and you just have to mostly not care.

It's people, it's a lot of things that are hard and it's just a little bit easier if you have someone else to talk to.

Ideally when you, like everyone is going through these like ups and downs, sort of this like wave and hopefully with 2 founders, you're not very often both at the bottom.

So 1 of you sort of like cheers the other 1 up.

And what do you think about, What's your data say about teams of 3 or 4 or more?

There have been a number of companies that have had 3 founders and gone on to be very successful like Airbnb, which is the most successful company we founded.

What happens in practice with 4 is usually someone ends up leaving in the first couple of years and then it's a team of 3 or 2.

So what happens when founders aren't getting along?

How do you tell, how do you encourage people to work through disagreements and different point of view?

You know, we, all co-founders get into big fights at some point.

They don't all come tell us about it, but many of them do.

And we try to help them work through it, But there have been plenty of times where he said, look, this relationship is done.

And then do you find people who are conflict avoidant?

Everyone has their own personality style, so there's no 1 pattern there.

We actually, I mean, we had plenty of fights, but we got along really well.

Yeah, we went through, my co-founders and I went through phases where we got along, and then After I left, we went through a phase of a year or 2 where we just didn't really want to hang out much.

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Blitzscaling 02: Sam Altman on Y Combinator and What Makes The Best Founders