- The podcast features an interview between Reid Hoffman and Sam Altman.
- Altman shares his journey into entrepreneurship, starting with his project Looped.
- Altman discusses how he initially underestimated risk and advises young entrepreneurs to take more risks.
- He also reflects on his personal growth and the importance of setting expectations and understanding the needs of team members.
- Altman emphasizes the importance of considering market potential and the value of user satisfaction in predicting future success.
- He shares his experience as an investor after selling Looped and highlights the changing landscape of seed investments.

- The speaker initially tried seed investing and being a VC but didn't enjoy it and preferred running a company.
- They considered other options like running a big public company or starting their own company.
- They decided to take over YC (a startup accelerator) because it aligned with their interests and had potential for growth.
- They expanded YC into different areas like AI, synthetic biology, and energy.
- They increased the number of companies funded and expanded geographically.
- They raised a later stage fund to support companies that needed larger investments.
- They started teaching MOOCs and created a research lab.
- YC is seen as a new university with a flexible structure.
- The speaker emphasizes the importance of clear vision, culture, and org structure when scaling an organization.
- They are proud of YC's commitment to not funding companies that may be bad for the world.
- They admit that they could have implemented a better org structure earlier on.
- YC ran on limited capital to maintain their culture and attract entrepreneurs.

- Y Combinator (YC) values frugality and believes it reflects in their startups.
- YC has a unique selection process that allows them to look at smart individuals without the need for an introduction.
- YC has made efforts to go global by teaching a MOOC and traveling to different countries.
- The fellows program has evolved into a new remote program with individual advisors and weekly metric reporting.
- The key lesson in scaling is to build a product that people want to use and recommend to others.
- Blitzscaling is easier when there is already high demand for the product.
- YC has seen success with companies like Stripe, Dropbox, and Airbnb that took time to perfect their product before scaling.

The speaker discusses the pitfalls of blitz scaling and the importance of building a great product. They mention the example of Airbnb and the concept of doing things that don't scale initially. The speaker also emphasizes the importance of hiring competent and experienced team members and building a strong company culture. They discuss the role of luck in success and the need for founders to seek advice and assess risks. The speaker concludes by discussing the challenges of managing time and prioritizing tasks.

- The speaker uses lists to stay productive and prioritize tasks.
- They accept that their job requires them to be interrupt-driven and responsive to others' needs.
- They believe that not doing things they don't want to do is an underutilized strategy.
- The speaker enjoys coding and finds it a fun way to engage their brain.
- They wear cargo shorts because they find them convenient for carrying items.
- The speaker believes that the knowledge and talent of Silicon Valley is spreading to other places.
- They mention LA as an example of a city that has seen growth in startups.
- The speaker believes that connectivity and networks are key to building more Silicon Valleys.
- They enjoy thinking big while hiking and prefer a small office with natural light for good thought.
- If they were out of work, they would sleep for a while and then study physics.

- The speaker studied physics and got a job related to it.
- They have several objects from their childhood that they could never throw away, including photographs, their original computer, and a stuffed animal.
- The speaker is bothered by job candidates they turned down who could have been successful.
- They wish their phone had better AI to only show them important things and curate what they see.
- Their favorite app is Gmail, but they don't like the new Gmail app.
- They don't have a single favorite book, but they recommend a book called "Pandemonium."
- They enjoy Star Wars movies, Dark Knight, and American Beauty.
- They work on a couch instead of a desk.
- They have memorized a poem called Ozymandias, which they use to remind startup founders not to become too arrogant.
- The speaker is embarrassed by investments they were confident about that failed and when they didn't invest more in successful companies.
- They teach YC founders to prioritize urgent and important tasks and delegate non-urgent and non-important tasks.
- They emphasize the importance of focusing on building a great product and avoiding time-wasting activities like conferences.

- Reid Hoffman interviews Sam Altman in a podcast.
- Altman shares his journey into entrepreneurship and the importance of taking risks.
- Altman discusses personal growth, understanding team needs, and predicting future success.
- Altman highlights his experience as an investor and the changing landscape of seed investments.
- Altman explains why he chose to take over Y Combinator (YC) and how it has expanded.
- YC values frugality, has a unique selection process, and has made efforts to go global.
- Altman discusses the pitfalls of blitz scaling and the importance of building a great product.
- Altman emphasizes the importance of hiring competent team members and building a strong company culture.
- Altman discusses the role of luck, seeking advice, and managing time and priorities.
- Altman shares personal preferences, beliefs, and interests outside of work.

Reid Hoffman - https://twitter.com/reidhoffman - interviews Sam Altman - https://twitter.com/sama - in this uncut interview from the Masters of Scale podcast - https://mastersofscale.com

This is Craig Cannon, and you're listening to Y Combinator's podcast.

So today we have an uncut interview from the Masters of Scale podcast.

And in it, Reid Hoffman, the co-founder of LinkedIn, interviews Sam Altman.

So I'm here with Sam Altman, president of Y Combinator, who is a good friend and has been involved in many scaling things.

Let's start with your entrepreneurial, like what got you in entrepreneurship?

How you started Looped, why you started Looped.

Yeah, first of all, thank you for having me here.

I went to college to be a computer programmer.

And I started college after the dot-com bubble had bust, and so startups were not something on anyone's mind.

In fact, I remember 1 of the things I was surprised by as a freshman in college was that I thought people would still be excited about startups, and if you said you were working on a startup, people sort of laughed at you in a not nice way.

And I actually didn't want to work on a startup.

I worked my summer after my freshman year in the Stanford CS department as a researcher and I loved that.

And out of that grew a project which eventually developed into Looped, but it started as just a project that we worked on sort of like after class and at night.

And it was not, it would not have been a startup if it were not for Y Combinator.

So it kind of got to the point where we had worked on it during a spring quarter And it was really fun.

I'm very ashamed to say that I had been planning to go be an intern at Goldman Sachs that summer.

We were all, there were 3 of us working on this project.

And We all kind of knew who Paul Graham was, we had followed him online, and he posted this thing saying like, hey, not excited about your summer job?

Like, come hack on your project, and you can make a startup.

And it seemed like it would be more fun than being an investment banker.

So we applied to YC and flew out and interviewed and got funded, we were actually the first company ever funded by YC.

And that was how, then it just kept going.

And is there anything that, I mean, that's the very beginning, is there anything from now having done looped and a bunch of things we're going to get into that if you could call that younger self of yours going into YC that you would tell yourself to do differently a key things

well I think 1 general thing that I didn't understand then and learned pretty quickly but would have saved me quite a bit of heartache is about how to calibrate risk.

I think most people worry way too much about risk.

You know, when you're young and you have nothing to lose, it's absolutely the time to take risk.

And it's the time, unfortunately, that most people have the most risk averse in their lives.

They need to save, they just, they want to work for a few years, build up savings, then they're going to start up, they want to do what their parents want, whatever.

And I ended up in the right place, but it could have gone either way, and I was very, totally stupidly nervous about the risk.

And so this idea that most things are not nearly as risky as they seem.

It's a powerful 1, and 1 that I always try to tell people in that position.

You know, you're like a poor college student with no money and no reputation, and if you do a startup and fail, you're like 2 years older with no money and no reputation, and it's fine.

It's actually much harder to wait and let your life ramp up and then do it.

I think another thing is, well, I don't even think I'm super easy to work with today, but I was sort of infamously difficult to work with when I was 18 or 19.

And I would have put more effort into trying to be better about that.

And what specifically would you have done to be easier to work with?

I think a lot of it is how you set and communicate expectations with others and also realizing that if you're the founder of the company and you want to work 100 hours a week and be super focused and productive.

That's cool, but most other people you hire, especially as you get bigger, have other lives and you need to understand that.

Again, everyone learns this lesson quickly, but it would have saved some pain along the way if I had learned it earlier.

And then the other thing that I think I got wrong and 19 year old starting companies often get wrong is Because they evolve fairly organically from projects, you never take the time to realize, like, wow, this has become, all of a sudden I'm running this company with 10 people and we're doing this and we've raised all this money.

And do I really believe that this is going to be a market that will support a giant company.

And I think there is a checkpoint, where you need several checkpoints along the way, where people don't give that enough thought.

And how do you think about, how do you think that they should make those checkpoints?

Because from other conversations, I know that both you and I think this whole total addressable market, TAM thing, is frequently very illusory.

Yeah, I think the most interesting companies start with a TAM of nearly 0.

And it's like very bad investors are the ones that are super focused on the TAM of today very good investors are focused on the TAM of 10 years from now the the thing that I have seen be most predictive for TAM is total addressable market The thing that I have seen be most predictable for a large TAM down the road is how much the people that are using it today use it and love it.

So 1 of the things that was obvious when people got iPhones, even though like, you know, there were only a few million of the first iPhone that sold them, is people had them, used them every day and loved them and it became like their most precious item.

I remember shortly after the iPhone came out, I was in a developing world country that was really quite poor and people had nothing except they all had a smartphone and And and people that once they had 1 like You know you read these statistics and people need to do some lightweight journalism about like would you rather give up your smartphone or X and it doesn't really matter what X is, they're going to keep the smartphone.

And so I think you could have predicted with a lot of certainty and many people did that This was going to be a large market.

It was small in 2008, 2007, but it was guaranteed that it was gonna grow very quickly because of how much people loved it.

The internet in the early days was the same thing.

And I think a lot of other trends, people jump on too early because a lot of people dabble, but put it on the shelf.

A lot of people have bought VR headsets and then put them on the shelf.

Doesn't mean that VR will not be big someday, but this is, I don't think you can make a high conviction bet on starting a VR company today, or at least at the time, will be huge.

It still feels like we're at the Palm Pilot, not the iPhone era.

Yeah, you know I have 1 still, that I got when it was a ridiculous thing to have a Palm Pilot 7, it was the internet connected 1.

And I loved it, but other people didn't, and I thought that was sort of, it was very easy to tell the difference between the reaction to that and the iPhone.

I think you probably know this, but you know the first use case for PayPal was splitting the dinner check on Palm Pilots.

I do know that, and apparently like, Levchin had set it up so that it could only happen once because it was actually cryptographically secure and he stayed up for 4 nights in a row or something in this demo and the camera didn't work and I went through it again.

And they did part of the, we did the closing of the first financing on it in bucks.

So I ran Loopt for 7 years, we got acquired, and I was trying to figure out what I wanted to do next, and I decided I was going to partly take a sort of mid-career sabbatical, race cars, fly airplanes, travel the world, all that kind of stuff, but that I didn't want to totally disengage from working, and that I would try to invest for a while.

So I took the money I made from Loopt, and I also raised some outside capital, and I became a very traditional seed investor.

I had invested a little bit during Looped, but very small checks.

Well that was possible back in the day because the valuations were so much lower and the company was raising so much less money.

I remember in 2000, I guess it was 2010, I invested in Stripe and I had $17,000 in my bank account at the time, maybe 2009, and I invested $15,000 of that into Stripe.

And for a meaningful percentage of the company, it was just a different world.

And that's kind of like, as a founder, not making much money, kind of, that was sort of the size of check you could do.

But it was still possible to like, once a year, make an angel investment as a founder.

And now, I just think you can't, because the amounts of money in seed rounds have gone up so much.

But because it was a different world, I had invested a little bit during Looped.

So I was like, well, I'm going to do this as my sabbatical job.

And I did that from 2012 and 2013 and I turned out to be fairly good at it but I didn't like it at all and I think you just have to try things to know, but it turned out that I don't want to be a seed investor or a VC.

And it just, I didn't find, I didn't get the adrenaline rush I get out of sort of like being in the trenches of running a company, which I think is something that a lot of founders miss when they start investing.

You know, you figure out an approach that I like for investors which is continue to be very involved with operating 1 company and I think that's a model that is very under explored and we'll see more of.

So, but anyway I did this and I was like, you know what, that was fun and it did pretty well.

I think it's like a ridiculously highly compensated job and so I, but I didn't wanna keep doing it.

And I was thinking about things I wanted to do, and Paul Graham had sort of jokingly said a number of times over the years that I'm going to retire and you should take over YC.

I had kind of bucketed that in my head in the, you know, this is investing, and I don't like investing.

But I started talking to him about that more seriously.

No, I was thinking about going to run a big public company or start a company that I had been excited about for a while.

And the more, but I, I was like, I'm really gonna think hard about what I wanna do.

And YC seemed like such a promising and underutilized thing, and so important to what I cared about.

Or at least I realized that there was this set of like 4 or 5 things that I really deeply cared about and YC had the best platform of anything I was looking at, or maybe anything in Silicon Valley, to go address all of those.

And that even if there were things about it that I wasn't excited about, I could get other people to do those, or I could change YC in big ways.

And that worked out basically as I expected, which was great.

Go into a little bit more details about what the things were that was like, oh, here was the, because this is 1 of the things where you see the potential scale.

Like I see this asset, it could be so much more in Silicon Valley, and I want to go do, which were those?

So 1 was the kinds of companies that we were funding.

I had, we were, at the time, YC was mostly funding software companies, But I had a lot of conviction that we could apply the same thing that made YC work so well for software companies to companies in a lot of the areas that I cared about.

And AI, synthetic biology, energy, and that the same model would work, which now people are like, oh, yeah, hard tech.

By the time, it was like, this is a really dumb thing.

1 of the things that is funny as a side note, and just as a note to anyone that tries to do anything where you take a company in a different direction or scale, it is that it is always funny to sort of like read the articles from the same journalists that when you say you're gonna do this thing, say like, Sam is crazy, completely unqualified, this is not going to work, YC is going to die, like going after hard tech companies is so stupid, to like a year, 14 months later, you know, this is great, like Sam is a genius, it was like predestined he was going to take over YC, you know, it's ridiculous that YC is doing any software companies at all, it's all that sort of stuff.

So I think you just have to ignore all of that and just say like, I have, I love the conviction, we're gonna try this thing, and most people will tell you it's not gonna work if it's something new.

Most people are afraid of things that are new.

And you just do it, and as long as it's not, again, risk is miscalibrated.

It's probably not that risky, probably won't kill the company, and probably undervalued if Everyone else says it's stupid.

So we were able to do that, and the first thing was expand YC into all these different directions.

I think the greatest companies are created on kind of the bleeding edge of what people are working on, and By 2014, there were already a lot of people making mobile apps.

There will still be great mobile app companies, I'm sure, but it was like fish in a barrel in some of these other areas.

We were able to just go pick out in the world the best quantum computing company, the best self-driving company, which recently got acquired by GM, the best nuclear fusion company, the best synthetic biology company, just all the way down the list.

And no 1 was competing to invest in those companies.

Meanwhile, like another photo sharing company, we have to like, go do a lot of work to convince them to do YC, because they're like, Well, every VC in Sandal Road wants to give me $30 million.

We significantly upped the number of companies we fund every year.

Maybe it was like from 100 to 280, something like that now.

We now fund companies from all over the world, which is a logistical nightmare, but I think really good for the kind of companies we can serve.

We raised a later stage fund, because 1 of the other things we realized, especially with the hard tech companies, you can fund a lot of these companies, at some point they need to raise 50 or 100 million dollars.

Not a lot of investors are doing that, so to support those companies, we needed this large pool of capital.

We wanted to, on the other side, really increase the top of our funnel.

And so we started teaching MOOCs, basically.

Say, hey, we're gonna try to distill how to start a startup onto a class and make that available around the world.

There are some things that are important to us and our mission and our vision for the world that don't fit as a for-profit company that we still want to do.

But basically, fundamentally YC is sort of this new university.

We are a collection of smart people that have some sort of shared vision of the world we'd like to build and the tools that we think work to get there.

So We've been able to do all these things.

And in terms of the efforts to scale YC, like there's global geography, there's early and late stage, there's research, you also are taking non-profits through YC as well as part of it.

When you think about and you say, okay, I saw this potential to have a massive scale impact that I went in, which were the things that you kind of wish you had doubled down on earlier and which are the things that you would have changed in that scaling process?

We've kind of, I think 1 thing that is really, the 2 things that are really important to get right when you're going to try to scale an organization a lot, 1 is a very clear vision and culture, and the other is a reasonably clear org structure.

I think we were good on the vision and culture.

This idea that YC wants to produce the most innovation in the world, and then do that in such a way we make the future great for everyone, not for 7 people.

And we've stayed, we kind of talked when I took over about that, the mission, the vision, the culture to support that.

And I think we've done a very good job of staying true to that.

And 1 thing I'm particularly proud of the organization on is, without me having to legislate it, If there's a company we look at where we think we'd make a lot of money, but we think it might be bad for the world, we won't touch it.

Which most other investment firms unfortunately have a hard time with.

But, you know, we do things that other investment firms would not like.

Fund basic income research or support open AI or fund non-profits.

And so I think we got that right early and getting that right is really critical because if everyone believes the same thing, there's a lot less conflict, and also if people are going to kind of organically march in the right direction, you just need a lot less organization.

You just need some, and I think we could have put a better structure in place earlier.

We've gone through a few iterations, I think we now have 1 that's good, but initially tried to sort of just have no structure at all.

And that would have worked if we had stayed at like 10 people working at YC, which is what it was when I took over.

Fell apart pretty quickly at 30, 40 people, something like that.

Was it a Deliberate attempt at holacracy or was it just kind of like oh, let's try not to bother with

Definitely not a deliberate attempt at holacracy, which I don't think I'm a fan of from what I know about it.

It was It's like it you know the The growth in the number of people of an organization sneaks up on you.

And you can completely get away without any structure until you can't.

Was there anything you would have applied capital to more fiercely or anything that you would have said, I should have recruited these people into the organization earlier?

So there are all these things that would have been smoother and better if we had applied more capital to, but the trade off is it would have hurt our culture and That reflects on companies like I kind of like that when entrepreneurs come to YC they drive to like honestly a kind of shitty industrial part of Mountain View and they walk into this building that looks like, we did a nice job on the inside, but it's like nice in the very, you've been.

It's nice in the very cheap sense, like there's no gleaming marble or, you know.

And we just like, you know, we still have like a CFO that yells at people if she finds that there was a $50 cheaper flight to buy.

So in all of these specific instances, we could have applied more money to problems and it would have helped.

But I think there is something culturally important to us about frugality because we want that reflected in our startups.

And our startups have the kind of bond with us where they reflect what we do.

So I think on the whole, it is good we did not try to go solve a bunch of problems by mega amounts of capital.

So let's go to the YC selection process, because we're going to go into what are the lessons from YC companies.

And 1 of the things I learned from the New Yorker profile, which I had no idea because I've never seen it, is that you occasionally bring a sword in with you to interview an entrepreneur.

That is, Well either they wrote that wrong, no.

I do like, I love engineering history of all sorts.

And I kind of collect these things that like Concord engines and just like things I think are important engineering milestones.

So I had bought this Brown's Age sword and I was in office hours and the reporter was sitting with me and office hours are kind of this drudgery at sometimes where you're doing this like, you know, it's the 16th meeting of the day and I needed some energy.

And so I wanted a phone call, and the sword had just came, beautiful Bronze Age sword.

And it had just arrived, and I'd been waiting for this thing.

You know, like it had flown over from Europe and it was in this big crate, and I got it out It was stunning perfect and I mean the first thing you do is like pick it up and swing it and see like how it's weighted how it feels and This particular 1 it had like like you know like the knicks of where it hit people's helmets a couple thousand years ago, it was a little dark.

And so I was like so excited, and I was on the phone and it was kind of like a not particularly exciting conversation and so I picked it up when we were like in my house and I Just started like while I was on the speakerphone like swinging it around and like fighting this pretend enemy because I was so excited I just got this I've been waiting for it for so long and I didn't realize till I put it down at the end, but that was probably really dumb and it was probably gonna make it into the profile.

Because the reporter was sitting there watching, kind of just forget after someone's with you for weeks.

But I have never swung a sword at someone during an interview process.

Yes, it was less the swinging a sword and more did you bring props with you to the interviews.

No, no, this was just in my house and I had just arrived.

So tell me a little bit about the YC interview process.

This is 1 of the things that you've actually really refined over the years in order to get really good.

There are a few big ideas that, actually a very small number of big ideas that make YC work.

And 1 of them is that There is a giant amount of arbitrage left because most investors in Silicon Valley will only fund you with an intro, or they'll only talk to you with an intro.

And it is, honestly, I think, by and large, a fairly insular network.

And 1 of the ideas with YC is if we can build a process that's not too painful, where we can look at everyone smart that wants funding from us, that we can unlock a huge amount of value, because no 1 else does that, or at the time no 1 else did that.

Now other people do it but I don't think they do it as well or we have a brand or something where I think we still have an edge but you know we are able, we are willing, not able, we are willing to look at tens of thousands of people a year with no intro that don't know us And there's a lot of really smart people that just because of the circumstance they were born into or the country or whatever, don't, aren't plugged into the Silicon Valley network.

But that idea that you should have an open application and you don't shouldn't require an intro is great now doing it well in practice is hard because it is very tiring and very draining to talk to 40,000 people a year so we have a lot of people a lot of software we this is like a secret I don't even mind telling, so I don't think other people will copy it well.

We spend so much time and money building really great internal software that only like 50 people in the world use.

And yet it lets us run this process that no 1 else can run.

And you videotape them, and you cross-check the results.

We watch companies that we say yes or no to.

When we say yes to a company, we have to say how strong of a yes it is, how well we think we're going to do.

And so tell me also before we get to some of the interesting companies about your going global efforts.

Like what were the things to scale to more than just the Silicon Valley network?

Well the number 1 best thing we did for that was the MOOC, the class that we teach.

That got incredible distribution worldwide.

And then that brought people from these other countries.

And what we find is that when we fund someone from another country or city for the first time.

They go back and then everybody else there is like, well I can get into YC now, it's not so hard.

And so we just see this, there's like this, you know, there's like this, there's this incredible chain reaction effect once we get the first good company in a new area.

You know, like partners just go fly around the world and give talks and meet companies and that is phenomenally effective.

It won't be too much longer until we have more companies applying from outside the US than inside the US.

And then you also were doing a fellows program at some point?

Yes, we, it was sort of like an on-ramp version to YC.

1 of the things we realized is there was more demand for that program than we were ever going to fill.

We thought we were going to get like 200 applications for the first fellowship.

We were like, no, this is not going to work as designed.

So we have now evolved that and the class that we've taught together into this new thing that we're going to try next year for the first time, which is halfway between a lecture series and a Y Combinator class, where people have individual advisors and office hours and they have to report their metrics every week.

But they can do it remotely and anyone can do it.

So now let's go to a couple of the kind of great, you know, just amazing YC companies, there's a number.

We talked about Stripe a little earlier as 1 of your earlier investors.

And I think you now, I actually hadn't realized the background economics.

I think you now, you were more edgy in your angel investment than I was, because I started pretty early with kind of the crazy, like, how much are your savings?

But I think you had a higher percentage of your savings that you were deploying.

Risk management has never been my strongest suit.

Yeah, so I think I went up to 50%, not, I think that was roughly somewhere around 90.

See all Y Combinator transcripts on Youtube

Uncut Interview with Sam Altman on Masters of Scale [Audio]