- Y Combinator (YC) provides unfair advantages to startups in terms of fundraising, including higher valuations, better investors, and faster fundraising processes.
- YC also offers access to various software tools and resources that give startups an edge, such as forums, job recruitment platforms, investor databases, and discounts from top companies.
- YC provides additional programming beyond the core program, including a Series A program that helps startups raise a Series A round and a Growth Program for CEOs of growing companies.
- The 7% equity stake that YC takes is worth it for the benefits and support provided throughout a startup's journey.
- Founders should consider raising money when their leverage graph is at a local peak, even if they don't necessarily need funds at that time.

- The first peak in a startup's growth tends to happen when they hit product market fit
- Hitting product market fit results in a lot of growth but the company may be understaffed
- At this point, it is strategic to raise a Series A funding round
- Product market fit is not just about building the right product, but also distributing it well and achieving the desired goals
- YC does not require companies to raise VC money after the program, and companies that become profitable without VC funding are still considered successful
- YC works with companies at various stages, including those that are pre-launch or have just started
- Traction is not just about growth, but also about the progress and accomplishments made by the startup in a given timeframe
- Airbnb's success was based on the impressive actions they took in the year leading up to their acceptance into YC, even though their product wasn't fully working yet.

- The importance of belief and passion in a startup's success is highlighted
- The Airbnb founders believed in their idea and were committed to making it work
- The founders' positive attitude and hard work were factors in their success
- The startup community in Silicon Valley is open to helping motivated and hardworking individuals
- Cold emailing can be an effective way to reach out to potential investors or mentors
- The difference between iterating and pivoting in the startup process is discussed
- Clarity, conciseness, and storytelling are important in pitching a startup to investors
- The investor needs to clearly understand the problem the startup is solving before hearing about the solution.

- The speaker wants to know what a startup is trying to solve and why they want to solve it.
- They look for traction and tech on the founding team.
- The speaker advises founders to use simple language and avoid jargon when pitching to investors.
- Confidence comes from past accomplishments or having solid numbers.
- Facts are important when pitching to investors.
- Practice pitching to friends and colleagues before pitching to investors.
- The speaker does not like the term "mentor" and prefers to offer help and advice instead.
- Startup School is designed to be accessible to anyone at any stage.
- The speaker does not have a preferred way of organizing their time.

- The speaker discusses their time management strategies, including using email and to-do lists, as well as the support they have from their parents and hired help in taking care of their baby.
- They admit to not being a model of organization and lack knowledge on intrapreneurship and starting something within a company.
- They advise against seeking investors who require a patent and suggest talking to other investors instead.
- The speaker shares their personal experience of being in a relationship while running a startup and believes that finding a partner who is okay with doing their own thing is important.
- They discuss the intensity and resilience required to found a startup, emphasizing the need to be able to handle the lows and bounce back.
- The speaker argues that intensity can be synonymous with passion, but not with being an asshole.
- They mention the engineering culture in startups and how it differs from the business culture.
- The speaker encourages founders to apply to startup school and YC, emphasizing that it is free and there is no commitment.
- They advise against talking oneself out of opportunities and emphasize the importance of taking action as a founder.

- There is no contract or obligation for participants in the startup school program
- Applying to YC later will not be negatively affected by participation in startup school
- There are no financial, moral, business, or reputational costs associated with startup school
- To get the most out of startup school, dedicate significant time to making progress in company goals each week
- Startup school is not an educational program, but a learn-by-doing type of business
- Set metrics and milestones for where you want to be at the end of startup school and map out a path to get there
- Moving faster towards MVP and launching with startup school's help is more valuable than lectures

- Y Combinator (YC) provides startups with unfair advantages in fundraising, including higher valuations, better investors, and faster processes.
- YC offers various software tools and resources to give startups an edge, such as forums, job recruitment platforms, investor databases, and discounts from top companies.
- YC provides additional programming beyond the core program, including a Series A program and a Growth Program for CEOs of growing companies.
- YC takes a 7% equity stake in startups but provides significant benefits and support throughout their journey.
- Founders should consider raising money when their leverage graph is at a local peak, even if they don't currently need funds.
- Product market fit is crucial for startup growth, and raising a Series A round at this stage can be strategic.
- YC works with companies at various stages, including pre-launch and early-stage startups.
- Traction and progress are important factors in a startup's success, along with belief, passion, and hard work from the founders.
- The startup community in Silicon Valley is supportive and open to helping motivated individuals.
- Cold emailing can be an effective way to reach out to potential investors or mentors.
- Clarity, conciseness, and storytelling are important in pitching a startup to investors.
- The speaker advises founders to use simple language, avoid jargon, and provide facts when pitching.
- Practice pitching to friends and colleagues before pitching to investors.
- The speaker emphasizes the importance of confidence, past accomplishments, and solid numbers in pitching.
- Startup School is accessible to anyone at any stage and is a learn-by-doing type of program.
- There are no financial, moral, business, or reputational costs associated with participating in Startup School.

Michael Seibel - https://twitter.com/mwseibel - is a Partner and the CEO of YC. 

He cofounded Justin.tv, which was in the Winter 2007 batch and Socialcam, which was in the Winter 2012 batch.

For this episode we took questions from the internet. If you have questions for a future office hours episode, just tweet them our way.

Read the transcript here - https://blog.ycombinator.com/office-hours-with-michael-seibel

The YC podcast is hosted by Craig Cannon - https://twitter.com/craigcannon

We're accepting applications from startups for the Winter 2019 funding cycle. Apply here - http://ycombinator.com/apply

Questions

00:00 - Why is YC worth 7% of your company?

6:00 - Generating leverage when fundraising

11:42 - Youssef asks - How did you validate your product market fit?

14:35 - LC Carrier asks - How does YC feel about companies who don't want to raise VC after the program?

16:40 - Edmilson Rodrigues asks - Do companies need to be incorporated already to participate in YC?

18:25 - Alex Rodriguez asks - What do you look for in startups that haven't had good growth but continue to push through (e.g. AirBnB) that makes you accept them?

26:25 - Fedor Paretsky asks - Do you have techniques you encourage to make pitches sound more exciting?

34:40 - David Chen asks - How to find mentors and advisors?

39:00 - building EatNeat asks - What if anything are you specifically looking for in a startup that wants to be a part of the Startup School 2018?

39:35 - Ryan Carl Mercer asks - What's your preferred way organizing your time?

40:40 - John Rigler asks - Can intrapreneurship be effective? I recently returned to IBM, have a patent, and yet have only vague ideas about how to signal and organize other like-minded folks. Could this path sabotage my dreams?

41:30 - Horacio Chávez asks - How would you approach an investor who says "I won't invest unless you have a patent"?

42:10 - Yahya Elamrani asks - Why does it feel like entrepreneurs aren’t marriage material? Should an entrepreneur look for an entrepreneurial spouse?

43:50 - Yahya Elamrani asks - How intense do you really have to be to found a startup?

48:25 - Is there a particular stage of company that's best served by Startup School?

50:10 - How do you get the most out of Startup School?

Let's start with the first question is about doing YC, the program, the core program that people know.

A common question is why is YC worth the 7%?

So when I think about YC, and I talk to founders about it, oftentimes I tell founders it's in their best interest to start building up unfair advantages in their startup.

It used to be that an unfair advantage was capital, but more and more now you see capital being very widely available.

And so I tell founders to start thinking about what other unfair advantages can they get?

So with YC, I think a lot of founders always wanna know about fundraising.

What's the unfair advantage you get around fundraising?

First, YC companies get higher valuations.

Typically 50% to 2x higher than companies who don't do YC.

We see valuations on demo day ranging anywhere from $4 million on the low end to $25 million plus on the high end, with most valuations between 6 and 12 million.

Put another way, when you raise money through YC, you get less dilution.

We've taken the time and energy over a decade to collect all of the best angels and VCs and put them in 1 room.

The YC batch is 1 of the most heavily scouted group of startups in the world.

And so we do the work for you to put the best people in the room.

And then the final 1 is that fundraising happens faster.

When you go through YC, some companies can completely finish their fundraise in under 2 weeks.

And almost everyone is finished within 2 months, as opposed to other processes that you might run alone, which can drag out longer.

So first, we give you a bunch of unfair fundraising advantages.

I'd say the next thing, and I would argue even more importantly, is we give you an unfair advantage around a batch.

You're batched with other companies that are in the similar state as you are.

And even if you're an experienced founder, and I've done YC twice, the second time I was a very experienced founder, I don't have at any given time a whole bunch of friends and colleagues who are all starting companies right now.

And so being able to literally be around a whole bunch of other people who are just getting started and who are grinding, you know, within the first year or 2 and still grinding, is extremely valuable from kind of a friendly competition perspective.

But it's also extremely valued just from a support perspective, to be able to talk to people who are there with you and to have this whole variety of people so you can find the people that you're going to actually relate to the most.

What kind of software does a typical investor give you access to?

With YC, we give you access to a whole variety of software that gives you unfair advantages.

There's a forum that allows you to ask questions and hear questions from other founders that came before you.

There's Work at a Startup, which allows you to basically recruit off of YC's brand.

There's posting job posts on Hacker News, which only YC companies can do.

There's an investor database with over 5,000 entries, including reviews and data from every company that's ever done YC.

There's deals, which are literally millions of dollars worth of discounts given by top companies.

There's a YC company directory, which allows you, if you're a B2B company, to actually sell into other YC companies.

It's 1 of the secret advantages of being in YC.

There's an alumni directory, which also allows you to sell into companies, and also allows you to find specific people to give advice.

And finally, there's a knowledge base that gives you actual, clear, tactical, written advice on PR, fundraising, growth, et cetera.

And so, most of the time when you're raising from angels, typically, you get some phone calls.

With YC, I would argue that you get a platform and that's an unfair advantage.

The last thing is additional programming.

A lot of people think of YC as a 3 month program, 1 and done.

In fact, YC is built to support you from the beginning of your company to the end of the company.

And 2 of the newest programs that we've built are specifically relevant to a lot of founders.

1 is a series A program where we actually rebatch you with companies that are now in the anywhere between $150,000 to $300,000, $400,000 a month in revenue who are going out and raising a Series A.

We teach you how to build a professional process.

And then we send you out at the same time and connect you with investors.

Having an advantage in terms of raising a Series A, I would argue is 1 of the biggest competitive advantages you can have.

Last, we have what's called the YC Growth Program.

That's run by YC Continuity, which is our growth stage fund.

If you're running a company from anywhere between 50 to 150 employees, suddenly as a CEO your job changes.

It's not about product market fit anymore.

It's about how do you manage an organization, how do you build an organization.

And our growth program essentially is a series of dinners that teaches you all the tactics around how to actually be a CEO of this managing organization.

As a YC founder, all of this is encompassed in the 7%.

There's no additional equity that you have to give to get in any of these programs, get any of this software.

And when You're a YC founder, you're a YC founder for life.

So I'd argue, when you're thinking about fundraising in this environment where there's a lot of money, stop thinking about the money as an unfair advantage and start thinking about what other unfair advantages the people who are giving you money can give to your company.

I think YC looks great on that perspective and it's pretty simple math why it's worth it.

Yeah, and tagging onto that, I wanted to cover, we don't have it in the notes, but your most recent blog post about generating leverage in fundraising.

I think this is something that we ought to write more about.

And Aaron's trying to do it with the Series A program.

But can you explain that problem and your proposed solution for the average company?

I think the base of the problem that a lot of founders need to understand is that a lot of fundraising advice is written by VCs.

And the unfortunate problem when you're reading a fundraising advice from a Series A VC's perspective is that they're not necessarily on your side.

And so if you think about it, the narrative around fundraising is typically something like you raise money when you're running low on money, when you're at between 12 and 6 months of runway.

When you raise money, you need to be most sensitive about valuation, which I think is completely not true.

When you raise money, I think almost strangely people think about raising money when it's the first moment that they think they can.

So I see a lot of companies who are like, we're an enterprise company, we're at a million dollars ARR, isn't it time to go raise series A?

I'd argue that's like the earliest possible time to consider raising a series A.

And so this whole kind of narrative around fundraising, especially Series A fundraising, I think is designed to bring you into the front door of the VC as soon as possible to allow them to get the best look possible as early as possible.

Right, so we should clarify that in financial terms, right?

So your valuation is probably a little lower at that point.

They can probably get a higher percentage of your company at that point.

And because you're scared that you won't be able to raise, you sell early.

And even more so, there are probably 6 or 7 terms around a fundraiser, a Series A fundraiser, how big your option pool is, how many board members, what the rights of the preferred stockholders are.

And if you're going into a fundraise without leverage, you have a hard time negotiating any of those terms.

And so you might think valuation's the game, but actually there's 6 other terms that are really important.

So I think that Series A is what confuses a lot of startups.

And I really want to focus in on Series A.

I think some of these things are different when it comes to raising the seed.

But Series A is really confusing to a lot of startups and I think a lot of the advice out there is tricky.

And a lot of the common wisdom is actually tricky.

The way that I like to tell this story is I talk to a founder and I say every startup has a leverage graph.

Basically it has a graph of how much leverage the startup has over time.

And I'd argue that that leverage graph in a good company always goes up to the right, but it has peaks and it has valleys.

The best founders I know will raise money when their leverage graph is at a local peak.

And the founders that struggle will try to raise money when they're in valleys.

And what's interesting is that when you're at a peak, you might not feel like it's time to raise money.

And as a CEO, it's oftentimes hard to think, oh, let me take my mind off of my company to go raise money.

But in many ways, that's the absolute best time to raise money.

That's the time when you have the most leverage.

That's the time when investors are going to be more ready to chase you versus you should chase them.

And so I really tell founders, hey, think about where they are on their leverage graph and think about this way before you hit that 12 months before you run out of money.

Yeah, and how are you spotting those points?

Obviously I know that we're in a better situation than we were 18 months ago.

Who knows where we're going to be in 18 months.

But those local peaks and troughs, how do you as a founder identify those?

I think the first peak tends to happen when you hit product market fit.

I think what happens when you hit product market fit is that you have a lot of growth, but you are relatively understaffed.

And so your growth to expenses ratio looks very good.

I also think at that point, if you're a revenue generating business, you have more money coming in the door than you've ever seen before.

And so it's so funny, because every startup wants to hit product market fit.

I think most startups don't realize how much a punch in the face product market fit is.

But I think that's where the first kind of peak is.

And I think that what happens when you hit product market fit is you start investing in scaling your operation.

Improving your product oftentimes takes a second priority to just making sure your customers can consume your product.

And that counterintuitively, I think that's the most strategic time to raise a Series A.

I think that your graphs are going to look great.

Hopefully you've got revenue coming, and hopefully your runway is going to look good.

I think when companies try to raise their series A, and when I say series A, I mean $5 to $10 million round from Sandhole Road VC.

I think a lot of times when founders try to raise series a pre product market fit they have to be over reliant on their story.

And second time founders experienced founders founders with exits tend to do disproportionately well with pre series a product market pre product market fit series A's.

But I think that if you are not 1 of those founders, if you're a first time founder, go in with the numbers.

It's just always easy when you're going with the numbers.

And so a related question from the internet.

Yusuf asked, how did you validate your product market fit?

So this is in the context of SocialCam, I assume that's what they mean.

Yeah, I think that like, we've written about this.

I think that the phrase product market fit was invented by Mark Andreesen and then somehow nobody bothered to look at his definition and now it's just been misappropriated in every way.

And the now common use of the phrase is like, I've built the thing that my customers want.

But it's even weirder than that because Oftentimes I'll ask companies, or companies ask me if I hit product market fit and I'm like, how would I know?

It seems like if you hit product market fit, you'd be growing uncontrollably, everything in your company would be breaking, you'd be doing all you can just to keep up with the current customer demand.

That's the definition of product market fit.

It's unambiguous whether that's happening to you.

I think a lot of founders think, oh, product market fit is I've built the right product.

And it's like, no, product market fit is what happens after you build the right product and you distribute it well.

Paul Wiltz Right, they think it's the culmination of some MVP kind of process.

Yes, no, an MVP in product market fit sometimes can be 5 years apart.

And so yeah, no, I totally agree with you.

Like, you know, in MVP, the whole goal is to get any customers coming in the door.

And then you kind of struggle, struggle, struggle.

And some companies find a product where now customers are just beating the crap out of them to get in.

He says it, the market pulls it out of your hands.

And So if you don't feel like growth is beating the crap out of you, you are not in product market fit.

I would say that we definitely got hit in the face with growth.

However, I would say that we were particularly good at distribution and not as good a product.

And so I would say that our product didn't retain as well as we wanted to, but we certainly got a ton of growth.

And I think that in social, you see that happen.

And I'd argue that, did we hit product market fit?

I'd probably say that there's growth you can get that doesn't reflect product market fit.

Because some part of product market fit is not only you have all these customers coming, but they're doing what you want them to do.

The goal of your product is being served.

And the goal of SocialCam was to get everyone to be video creators.

When we were blowing up, we were blowing up on video consumption, but not on video creation.

So I think that's probably an important part of people don't talk about product markets.

Like everything is going well but it's like also your business part is working.

Right you're not selling a dollar for 80 cents.

You're not like getting users to do something that's like not the thing you wanted them to do.

Let's go into some questions, just general, like YC application related.

So LC Carrier asks, how does YC feel about companies who don't want to raise VC money after the program?

And maybe a canonical example is Zapier, who did a seed round and then went on to be profitable.

So I think what's interesting about this is of course we don't care.

1 of the first things we say at the YC kickoff in the beginning of the batch is that you're the boss.

You get to decide what you want to do with your company.

And I think even more so, what's interesting is that we have a large variety of companies, a large number of companies that never raised from VCs, are only raised from VCs way after product market fit, profitable, so on and so forth.

No, we love those companies just the same.

I think that it's interesting, in many ways I think that as YC has become more mainstream, we have to be louder about what we like because we're lumped in with VCs.

We're not here with the kind of sole reason of how do we make sure we make as much money as possible out of every single company we invest in.

Yeah, and to be clear, if your company raises money through YC and then goes on to be wildly profitable, that's a great outcome for YC.

I think we provide an onboard into VCs if you want it, but by no means do you have to consume it.

Right, yeah, I mean I think this is kind of related to, did you read Aaron's post this week about advice?

Because we've entered in this position that's in between traditional VC and universities, we're just thought of as the advice giver, and you have to have permission to do this thing and we don't want certain people.

Emilson Rodriguez asks, do companies need to be incorporated already to participate in YC?

So this is another thing that I think is extremely important to understand.

A lot of people talk about the growth of YC, and YC certainly has grown pretty significantly.

Batch sizes are a little bit more than double since I last did YC in 2012.

We've prepared ourselves, and I think we still give a really good and high quality of service.

But what it's also done is it's allowed us to have such a variety of companies at a variety of stages.

So YC has always been about the super early stage and will always be about the super early stage.

We can help you incorporate and we help a lot of companies incorporate when they come in.

There are a lot of companies that literally start writing code when they join YC.

There are a lot of companies that are pre-launched when they join YC.

I think YC's expansion has allowed us to also work with companies who are post-launch and might have incorporated or raised small amounts of money.

But I think sometimes People want to interpret that as a change of strategy as opposed to just an expansion.

This is not an either or, it's not an or, it's an and.

Also, I think it's really motivational to be in a batch where you have some companies that are pre-launch and are still trying to get that MVP out the door, and you have other companies that are starting to take off.

And I think that when you want that motivation, you come to a dinner, you see a company taking off and you think to yourself, we got to get back to work.

You see people follow on after YC too, just having dinners with their friends every couple weeks.

Yet another question about YC types of companies.

So Alex Rodriguez asks, what do you look for in startups that haven't had good growth but continue to push through, for example, Airbnb, that makes you accept them into the batch.

Peter Collins I think what's interesting is this concept of traction I think is very interesting.

I think that there are complicated or not well-defined thoughts that people simplify.

So if I tell a startup, oh, I'm looking for traction, I think what they think of is I'm looking for growth.

And like, they think that, oh, if I have growth, why would I need YC?

When I think about traction, I think about it a little differently.

I kind of think, how much time have you been working and what have you done?

And am I impressed with the amount of stuff you've done in the amount of time you've been working?

And so to me, Airbnb, what they had done in that year before they applied to YC, and by the way, I think the story is like told in such a strange way.

It wasn't like 10 years that Airbnb was struggling before they got into YC.

They had been the housing host for the DNC convention and the RNC convention.

Like they'd done a lot of impressive things.

The product wasn't working, but you couldn't look at the last calendar year and say, oh, these guys aren't out there grinding it.

And so to me, like, that's far more important than whether they've been successful.

think the second thing is that the Airbnb guys felt like they were onto something.

Like a lot of investors talk about like, what's your secret sauce?

What's the thing that you know that other people don't, right?

See all Y Combinator transcripts on Youtube

Office Hours with Michael Seibel