Last week at the Web Summit, we were asked to interview outgoing Y Combinator President Geoff Ralston about the past, present, and future of the popular accelerator program. We covered a lot of ground during our 20-minute-long conversation in which Ralston — a longtime partner at YC — decided to leave after taking over the role of president just three years ago (Gary Tan assumes the role in January). Is). We also discussed where YC’s investment capital comes from and whether, given the downturn in the market, YC will change its terms to reflect that slowdown.
Much of that conversation here, which has been lightly edited for length and clarity. You can watch the long conversation here, or just listen.
TC: Let’s start with the news [that] You are leaving Y Combinator. You lived there for three years. it was a bit surprising [that you are stepping away], Why now?
GR: I really count my tenure at YC since 2006, when I left Yahoo [and] started hanging out with paul [Graham] And the company, so in fact, about 16 years. And I’ve been an employee at YC since 2011. So it’s been over a decade. And, you know, I felt an urgency in me that it was time for a change. And I guess you have to do it justice when you feel like it, even though I love YC. I love what I do. I think this is important work. I think it matters. We are very mission driven. We feel that entrepreneurship is important and brings about real positive change in the world. And I love working with founders. It’s weird. I like this. But now was the time to do something different. So I’m moving on.
TC:YC went from a group of 12 or 18 to about 400 founders last winter, before shrunk to something smaller. Tell me about the idea that starting a startup is infinitely scalable.
GR: I’ve made what some consider anecdotal claims about how many companies we can fund. It has never been infinite. It measures a lot. There is an extraordinary opportunity for entrepreneurship and founders to find success in every demographic, across the United States and around the world. In the beginning, we were just scratching the surface.
One thing that I think YC did really special was to democratize the idea of entrepreneurship, opening it up to a variety of people. Originally, the idea was to open it up to technologists, to hackers. It was really an opening to entrepreneurship for people who didn’t really have access. And we have continued this to this day. That’s why our batches are continuously increasing. This is supply and demand. Entrepreneurship is in demand.
TC: Sam Altman, your predecessor as president, once said that YC has actually invented five ways, including letting anyone in the world apply to the program, whereas with VC, you get a warm welcome. Had to get introduced.
GR: Yes, totally, and to be fair, Paul Graham, the founder of YC, PG, began to open up to the ideas behind entrepreneurship with his essays, which I’m sure many in the audience read. Is. They were really a turning point in how people think about entrepreneurship.
I honestly don’t know at this point how YC is actually structured. you have a continuation fund [for later-stage investments], where is the money [for these new cohorts] coming from? Is YC a holding company where investors have a stake in the holding company? Or does it raise funds very quietly?
We raise funds, and we do it quietly. It’s like making our inner sausage, and it’s not so relevant to the point. We have evolved over time. Originally, YC was funded exclusively by Paul & Co. And later, we adopted the nature of most VCs, from a funding perspective, where we have a limited number of partners from whom we raise funds on a relatively regular basis. And we have many funds in which those LPs invest their money. We look like a standard VC from that perspective.
Are these evergreen funds?
they are not.
I’m guessing a lot of alum is also welcome to invest in? Virtue circle and all?
Yes. I would like to point out that one of the innovations that Sam talked about when talking about these five innovations was that we think about the people who went through Y Combinator as our alumni. And we’ve built this community of founders. If that tight community can really reinvest the success it found back in YC, it ties us all together more strongly.
With regards to that community, I’ve always wondered if there’s a break point. I know a founder will roll out a product and a lot of YC alums will happily test it or buy it, for example. But when you’re dealing with thousands of teams at this point, I wonder how you keep your alum from getting overwhelmed.
The best answer to this is that we have really good software. We really consider ourselves a software platform more than anything else. We have all been software engineers. Paul has a PhD in Computer Science. Sam was a software engineer. I am a software engineer. My successor, Gary Tan, is a software engineer. That’s why we take a software attitude toward scaling and building the tools that bring our companies and our founders closer together. In fact, Gary originally built the community software that we still use at YC.
You recently reduced your class size.
It’s a new world, isn’t it? This changed in two fundamental ways, which caused us to reduce our batch sizes a bit. One is that the pandemic is coming to an end, and we are much more personally, and hard to scale personally, than the purely virtual, which we were from March 2020 to the winter of 2022. Secondly the economy is doing something different than in 2021, so it’s really important for us to fund those who have a chance to survive and raise money in the future and thrive in a more difficult economic situation. Best chance.
Will the terms be changing? Terms are changing across the board right now.
Not in the short term, okay. I mean, over the years, we’ve changed the deal we gave to YC companies and you probably know that recently, we changed the amount we gave to each company from $125,000 to $500,000. It will last for some time. We’re actually super pleased that as we head into stormy economic weather, every YC company has to start with a minimum of $500,000 and so there’s a big chance of making it to the other side, and there will be the other side. There is always another side.
I actually read an excerpt this morning in which some VCs predicted that maybe it’s next year; let’s hope.
I think someone in the last panel just said, no one really knows. And it’s true, no one really knows. But there is reason to believe that we might have a relatively soft landing, maybe we’ll have a deceleration but it probably won’t last long. There is very good employment data and very poor inflation and we will see how they balance.
This winter, I headed to TechCrunch’s coverage and headline of YC’s Demo Day [of our analysis piece] Was, “Is YC becoming a fight club of sorts?” You had a lot of companies that seemed to be dealing with the same problems, at the same level, in the same area, that were similar. Does YC think it has to bet more and more on promising entrepreneurs and see who succeeds?
I don’t know Fight Club refers to pugilism between companies, and this rarely happens within our community; Even when companies end up in the same place, we all feel like we’re fighting the same battle. Look, we’ve funded over 4000 companies right now. So it’s inevitable that people will be in the same or the same place, just, well, it happens.
There has been a lot of fintech especially in the last few classes. I haven’t seen so many consumer startups. I’m also wondering if you’re following the creator trend and whether YC is getting a foothold in it.
We are powered by the founders who apply. We Rarely Say: We’re Going to Take 20 Consumer Businesses, 100 b2b Saas [teams] Sadly, b2b is the largest component of SaaS batches and for some time this was the reason Willie Horton robbed banks, because [business customers] There is money. If you want to persuade consumers to spend money, it’s a little harder than companies that actually want to spend money when you provide a product. [in order to] Have a guaranteed business relationship with you.
Has the application process changed over time? I know it was once a 45 minute long interview which was reduced to 10 minutes. Sam once said that there’s not a lot of data involved, that [the interview process] There really is a way for YC to understand who can tell the story and he said that was clear very quickly.
The way our application process works has not changed at all over time. There is an online application. It’s free, so anyone who wants to apply for YC should do so. It is very helpful to go through and fill in the set of questions we ask for startups and it takes a few hours. There is also a short video, just introducing the founders. Once applications arrive, we review all applications, each one, and we receive on the order of 20,000 applications per batch. Then we select a limited number of people for interview. And we do 10-minute interviews with every company we choose. And on the basis of that interview we select them for the batch.
Sorry to delegate you to Silicon Valley here, but you are in California, as am I. what do you think is happening there [as a tech hub], A fairly large percentage of your summer class is in San Francisco, such as 25% 30%.
It is higher than that. For us, it’s a dual question of how do we come out of the pandemic, and businesses everywhere are grappling with that question as a company. We went 100% virtual in March of 2020. Like almost everyone else, it stayed like this for two years. And we’re just figuring out what YC looks like as a company in 2022, 2023 and beyond. The good news for me is mostly Gary’s problem. But we opened another office in San Francisco and I recently did a straw poll of YC employees to ask how often they were supposed to come to the office, and the average was something like 1.5 days. so we’re almost fundamentally a remote, virtual organization from now on
The related question is how do our batches look? I mentioned that in the summer of 2022, we [returned to] Self [meaning] components individually. We had a retreat at the beginning of the batch, we had weekly meetings during the batch, and at the end of the batch we had an alumni program, and we would continue to work incrementally with ‘in person’. Bring back and how virtual.
We learned a lot during the pandemic about what works. In fact, we were able to spend more time with the founders, as it turned out that office hours on Zoom are really effective and really efficient. So we did more of them. And we connected with our founders through tools like Slack and WhatsApp, and in some ways, even if we weren’t in person, it brought us closer. So we’re trying to find happy mediums, the best of both worlds where we can spend that kind of quality time helping the founders and also, you know, meeting them in person, hugging them when they need it. Placement Hug. Those things are really important.