20VC: Behind the Scenes at Y Combinator: The Interview Process | What the Best & Worst Do in the Program | Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | Why the Value is in Application Layer AI with Tom Blomfield

Tom Blomfield is a Group Partner at YC. Before YC, Tom founded two unicorns in the UK. He was co-founder of Monzo (most recently valued at $5BN), one of the first challenger banks in the UK. Monzo raised more than £1bn and counts 15% of the UK population as customers. Before Monzo, Tom founded GoCardless (YC S11), an online payments processor, most recently valued at $2.1BN. In Today's Episode with Tom Blomfield We Discuss: 1. From Founding Two Unicorns to YC Partner: Does Tom believe that all great founders show signs of exceptionalism early? What does Tom know now that he wishes he had known when he started his first company? Why did Tom decide now was the right time to switch from founder to investor with YC? 2. The YC Application Process: How it Works: How do the YC partners select which companies are accepted vs rejected? What specifically does Tom look for in the problem the company is looking to solve? In the interview, what are the signals of the highest quality founders? What questions does Tom always want to ask in YC interviews with founders? 3. The YC Batch: How it Works: How do the YC partners work with the 25 companies in their batch? What is the interaction? What are the single biggest mistakes companies make while in YC? What are the biggest pieces of advice YC gives founders on fundraising approaching demo day? How do the best YC founders fundraise and use demo day? How do the most nervous fundraise? How are YC partners measured in terms of their success and effectiveness? 4. AI: Consumer vs Enterprise/ Infrastructure vs Application Layer: Does Tom believe there is money to be made investing in infrastructure layer models today? Why is the commoditization of foundation models the best outcome for society? Why is Tom most excited about the application layer for the next wave of AI? What are the most exciting opportunities in consumer AI that are wide open today? 20VC: Behind the Scenes at Y Combinator: The Interview Process | What the Best & Worst Do in the Program | Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | Why the Value is in Application Layer AI with Tom Blomfield

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  I don't think founders are necessarily the most likeable people, honestly. If you just agree with everything that happens around you, you're never going to create something different. So this is a key skill of a founder. Holding these two realities in your head simultaneously, without cognitive dissonance or driving yourself crazy. One is the big vision of the 1% best outcome. If this really, really works, what could this become? And then you have to hold the what is my top priority today? And this week and this month? Very, very different from this billion people around the world, right? And you have to execute on that and get your team to focus on it. But you have to have both.

• 0:33Harry Stebbings?

  This is 20 VC with me, Harry Stebbings. And I couldn't be more thrilled about the show today. Now, I've known this guest for many years. He's the founder of not one, but two incredible unicorn businesses. And now a rock star Y C partner, Tom Blomfield. Before Y C, Tom was co-founder of Monzo, most recently valued at $5 billion. One of the first challenger banks in the UK, Monzo raised more than $1 billion and counts, check this out, 15% of the UK population as customers. Before Monzo, Tom founded GoCardless, an online payments provider, which was most recently valued at $2.1 billion. But before we dive into the show today, we're all trying to grow our businesses here. So let's be real for a second.

• 1:16Harry Stebbings?

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• 2:01Harry Stebbings?

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• 2:46Harry Stebbings?

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• 3:30Harry Stebbings?

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• 3:46Speaker 02

  You have now arrived at your destination.

• 3:49Harry Stebbings?

  Tom, I am so excited for this, dude. We've known each other for many years, but thank you so much for joining me today.

• 3:54Speaker 00

  I'm delighted to be here.

• 3:55Harry Stebbings?

  Now, I always think that people are shaped by early years in childhood. When you think back to the 10-year-old Tom, what would your parents and teachers have described you?

• 4:04Speaker 00

  Precocious, probably. I don't think I listened very well. I was fascinated by lots of different things. I got into computers very, very young. And I was honestly trying to start businesses from when I was about six or seven, I think. I stole a bunch of my mum's jewellery and tried to sell it on the street outside her house before she saw me. Actually aged seven, I think. It was a strange childhood.

• 4:22Harry Stebbings?

  So I always ask founders when I'm investing, how did you first make money? Because I always think that actually exceptionalism shows itself early in life like that. And no one comes out of Cambridge and just makes money at Bain for the first time.

• 4:35Speaker 00

  Yep.

• 4:35Harry Stebbings?

  Do you agree with that? Or do you think that exceptionalism and entrepreneurialism can be later? And actually, you'd miss a sway of the founders?

• 4:42Speaker 00

  I think it can be later. Certainly for myself, I started building websites at fourteen, fifteen, and convinced my local estate agent to pay me three or four hundred quid for a website. So I do fit that mould, I guess. And in general, I do agree.

• 4:55Harry Stebbings?

  I always think like yeses and nos. Yeses can make careers, and nos can be incredibly hard and painful to hear. When you think about the yes that you think made you most, what yes was that?

• 5:08Speaker 00

  Very easy answer. Getting onto Y Combinator in 2011, getting the call. I thought we'd bombed the interview.

• 5:13Harry Stebbings?

  Why?

• 5:14Speaker 00

  So I was working with Hiroki and Matt on Group A at the time. We were all ex-management consultants. We sort of all wanted to be startup founders and really all wanted to be the CEO. And we were working on like Not a Very Good Idea, which is a kind of student bill spitting app. And in the interview, every question that was asked, one of the founders would answer. Then a second founder would like contradict them. And then the third founder would try and answer to try and like square the circle somehow. And it just went on for this horrible like ten or twelve minutes of just like, it was such a painful experience and I was sure we'd bombed it. But when we got the call afterwards, it was like a dream come true. And honestly, those three or four months back in 2011 changed the entire course of my life. I mean, I wouldn't have started Monzo without it for sure. And now I'm back at Y C, it feels like.

• 5:55Harry Stebbings?

  What specifically was it? It enabled you to see something of the world that you didn't know?

• 6:00Speaker 00

  We were play-acting before then. We were three guys in London who'd come out of consulting. We were play-acting at being startup founders. You know, we'd hired a bunch of interns. We were just running around doing dumb stuff. We had no role models. We had no one who was smart or successful around us to model ourselves afterwards after. Being in Y C just put us amongst this group of like high ambition, high achieving technical founders who thought they could accomplish something. And then every week. A new founder would come in, Max Levchin would come and tell us about the early days of Facebook, or the early days of PayPal. And then I remember the next week, this sort of timid, short guy walked up and said, hi, I'm Mark Zuckerberg to give a talk on the early days of Facebook. And it was kind of incredible being surrounded by those people.

• 6:44Speaker 00

  Whereas in London, we just didn't have those role models. And I think we would have, the company would have like slowly, slowly sort of died in London. We couldn't raise a single penny of investment in 2011. So YC really gave us that break and raised the bar for us.

• 6:55Harry Stebbings?

  What was the most painful no?

• 6:57Speaker 00

  Probably 2020, March or April. We'd had an easy-ish time raising. We did a round at a billion, led by General Catalyst, then around a two billion valuation, led by Y Combinator Continuity, and then found it really hard to fundraise. And I had 96 noes in a row for that fundraise to try and do a flat round. And we finally got it together, 100 million at a flat valuation at 2 billion.

• 7:22Harry Stebbings?

  Tom, what do you tell yourself 95 times in? I fundraise now and it really hurts me, actually.

• 7:28Speaker 00

  It was horrendous. And that's not even the worst no. It was really dispiriting, saying the same thing over and over again, about how I believed this bank was going to be valuable, how we're going to make money, how people are going to deposit their salaries, and people just not believing me 95 or 96 times in a row. I mean, now I feel vindicated. All of the stuff I said turned out to be absolutely true. But at the end of 96 noes, we got these two Canadian pension funds to say yes. And they agreed to put in 100 million along with our existing investors at a flat valuation. I thought, we were burning 100 million a year at the time. So the company's going to survive another year. This was like March or April 2020. And the documents were all agreed and ready to sign on Monday morning, ready to sign and wire. And on Friday afternoon, London went into lockdown and they phoned me up and said, the investment committee back in Canada has said,

• 8:13Speaker 00

  every investment's on hold. We're not doing the investment. We're out. We're not investing. That feeling of like, the world's going into lockdown, there's this crazy pandemic and no one knows what's going to happen. We're running out of money. Our revenue in the next week halved, went down by 50%. And I'm like staring down the barrel of this, this funding hole we have and spending the next few weeks trying to get any investor to invest at any valuation in like the first few weeks of Covid. That was the hardest by far.

• 8:39Harry Stebbings?

  What did you do?

• 8:40Speaker 00

  We got existing investors to invest at a significant down round. We spent a long time trying to figure out what was fair. The company was in a precarious position, but we all believed it was valuable. It was sort of this game of brinksmanship almost, just sort of what is the fair valuation that rewards them for taking the risk, but sort of values the company appropriately. And it was tough, three or four weeks, we got the round done. It was a sort of forty percent down round, I think about one point three billion. And we got a hundred million and the company survived.

• 9:07Harry Stebbings?

  That no from the pension fund, that is a.

• 9:09Speaker 00

  Horrible. I remember the call so vividly. The person, you know, our champion on the inside was so upset about it. She'd worked with us so hard to get the deal done and she was distraught. But these, this sort of nameless IC I'd never met.

• 9:22Harry Stebbings?

  I, I don't think that you can actually ever really have empathy for a founder unless you fundraised. That's just brutal. No, no, no, no. And every time you've got to just embrace it and be, do you know what? Next one, next one is going to be it. But I see so many thirty year old investors at multi-stage funds. They've never raised and they're deploying ten million dollar cheaters at a time. They just have no idea how crushing it is.

• 9:44Speaker 00

  Totally.

• 9:45Harry Stebbings?

  Do you agree with me?

• 9:45Speaker 00

  I totally agree with you, yeah. I've never experienced anything in life like it, really. Just that process of continually having to show up and be positive and energetic and over and over being told no and being given reasons that you're like pretty sure are bullshit. The herd mentality at the start of Monzo said, you can never get anyone to switch bank accounts. It's impossible. People get divorced more often than they switch bank accounts. Then we proved that was wrong.

• 10:08Harry Stebbings?

  Wait, you're like, people get divorced a lot?

• 10:09Speaker 00

  Yeah, and they switched to Monzo at even higher rates, it turns out. Then they said, well, you'll never scale it. The first ten or twenty thousand maybe, but we got to a million customers with no advertising. Then they said, oh, but it's just a toy card. It's just a secondary card they use when they're traveling.

• 10:23Harry Stebbings?

  Never be the primary account.

• 10:24Speaker 00

  Never be the primary account. They're never going to put their salary in. So then we spent the two years getting everyone to put their salary in. And now it's something like sixty percent of customers put their salary in. They're like, oh, well, you have got customers to switch banks and you have signed up several million of them. And you have got people to put their salary in, but really you'll never make money, will you? And now Monzo is making almost a billion dollars a year in revenue. And it's just painful to have had to go through that six, seven, eight. I mean, full credit to the team for the last three or four years. I left at a hundred million revenue or so and it's now almost ten X that.

• 10:51Harry Stebbings?

  It's hard when you meet an investor and you just go, you're just stupid. No, and you have to pretend, yes, that's a really good question. Moron.

• 11:01Speaker 00

  I don't think they were stupid necessarily. For sure, there are some stupid investors.

• 11:05Harry Stebbings?

  Dude, I just got out of an LP meeting with one of the largest British LPs and he goes, "Love it, Harry, old chap, but all of this that you're doing, it feels like quite a lot of work. Why don't you do less?"

• 11:19Harry Stebbings?

  I was like, "Yeah, you don't get it." But moving swiftly on, I do want to talk first about the move because obviously we've mentioned that the challenge raising money in the early days for Monzo in London and you've recently moved obviously to San Francisco. Why did you decide to make the move with the YC role and just talk me through that process because you could have done anything?

• 11:37Speaker 00

  So I left Monzo, I took a year or two to recover. Honestly, my brain was really like melted. And then I started angel investing in 2021. I managed to sell some shares in GoCard as my first company and I put aside a pot of money that I wanted to put back into the tech ecosystem, specifically the UK tech ecosystem. So I made, I'm planning to invest it over three or four years and I think I put, in nine months, I made 76 investments in nine months, 56 of which were in the UK. My brain just works that way. I just kind of find something fascinating and I will just do it to an extreme. I took angel investing.

• 12:08Harry Stebbings?

  Did you write the same-sized cheque with every investment?

• 12:10Speaker 00

  I got that message and no. There were two or three outliers that I put bigger cheques into that I am, two of which I'm really happy about and one of which I was pretty sad about.

• 12:19Harry Stebbings?

  What are your biggest lessons from doing 76 cheques in nine months? What do you like, did well, did badly, would do differently?

• 12:25Speaker 00

  The biggest mistake was over indexing on the idea and not enough on the quality of the founder. I pictured myself running each business and I thought, "Wow, I could do this and this and this." And that's really dangerous.

• 12:35Harry Stebbings?

  So dangerous. That happens with so many operators. They're like, "I could do sales at this one."

• 12:39Speaker 00

  Yeah. And it's not me doing any of it, it's the founder. And so there are a few where I like really loved the idea and the founder just wasn't high enough quality, frankly. And that's something I've learned over and over again at YC. Picking the highest quality founders trumps everything else. Even if the idea is totally stupid, work with the best founders you can and everything else is easier to fix down the line.

• 12:58Harry Stebbings?

  Do you outcome scenario plan?

• 13:00Speaker 00

  Absolutely not.

• 13:00Harry Stebbings?

  So you won't go, how do I think this looks? If all of the things go right, is this a billion dollar business? Is this not?

• 13:06Speaker 00

  I also, is there a world in which, if this goes really, really well, if this is like, I thought about this a lot in the start of Monzo, there's like a sort of spectrum of outcomes.

• 13:14Harry Stebbings?

  Yeah.

• 13:14Speaker 00

  If you look at the top one percent of that spectrum, is there a world in which this could be a multi-billion dollar company? Absolutely. I don't know exactly how it happens. I don't, I'm not smart enough to plan it out. But if there's absolutely no world in which that could happen.

• 13:27Harry Stebbings?

  Okay, so we have that angel investing as incredibly prolific, Tom. I mean, you worked hard, that was not some time off. Seventy-six in nine months, that's a lot of company meetings.

• 13:35Speaker 00

  Yeah, it was.

• 13:35Harry Stebbings?

  Okay, so we have that, then what?

• 13:37Speaker 00

  Then I spent all my money. This money I was supposed to deploy over three or four years, but I found it a lonely process. And so Y C serendipitously came along at just the right time and said, would you like to join us? You can invest our money, we've got a finance and ops and legal team that'll do all the admin for you. And you'll have a team of partners around you that you can learn from. All of the things I wanted, the only catch is you have to move to Silicon Valley.

• 13:58Harry Stebbings?

  Okay, so you have this unique perspective, built two incredible businesses in London, European through and through, living in the valley now, seeing the incredible exposure that you have with Y C. The most common critique, European work ethic is lackluster. The founders don't work as hard and they don't want it as much.

• 14:16Speaker 00

  I've seen some data, who knows if it's true or not, on Twitter, about the actual time worked by people in various countries. And the US is somewhere in the middle of Europe. Maybe they talk it up a lot. I really don't think it's a work ethic question at all. I think there are other big differences. I think the big difference is one of positivity, optimism and ambition. So when I was starting Monzo, I was twenty-eight years old, had never worked in a bank. People in the UK looked at me like I was crazy. I went to a lawyer to do preparation for the regulatory interviews. And the lawyer basically said to me, I'll do the prep for you, but I don't know why you're trying, they'll never approve you. There's no chance you get approved as a CEO of a bank in the UK. And obviously I did. Whereas in the US, I tell people I'm starting a bank and they're like, "That's awesome. How can I help? I can introduce you to this person, this person."

• 14:57Speaker 00

  It's like this, the American dream is not a reality that most people get to live, but it is a dream that a lot of people experience. They, that optimism, that idea that anyone can create anything if they try hard enough is so deeply American and it's so antithetical to the British culture. Here, we've got this awful like, know your place, don't get too big for your boots. You know, you, you grow up in a middle-class family and you aspire to be a doctor or a banker or a lawyer. Or I've been talking to students the last few days at our top universities and the high status thing to do as a university CS undergrad is to go and work at Jane Street or Goldman Sachs or McKinsey.

• 15:34Harry Stebbings?

  Still?

• 15:35Speaker 00

  Still.

• 15:36Harry Stebbings?

  So funny because like, you know, EF have been touting that, hey, mindsets have changed, mindsets have changed.

• 15:40Speaker 00

  They're changing slowly. And it is 15 years ago when I started out, being a founder, literally people thought you were crazy. But if you can compare it to Berkeley or Stanford or MIT, everyone is starting startups there. You talk to like a, an English literature major and they've got their startup plan. Whereas here, I've been talking to PhDs in computer science and, and they tell me they go to Goldman Sachs and McKinsey.

• 16:01Harry Stebbings?

  Was Monzo doing the US a mistake?

• 16:04Speaker 00

  Maybe. It certainly hasn't worked yet. Of all of the money Monzo has spent so far, only two or three percent of that was spent on the US and it didn't get very much management attention. I mean, it, it has not been a success so far. And I think taking a kind of cookie cutter approach, taking the product as it is in the UK and assuming the same product will work in the US is not correct. And they've got a great new team. They've just hired a new CEO who has deep US sort of banking and payments expertise. But I think you'd need to fundamentally rethink like what a compelling product would be for US consumers. Because N26 has failed, Revolut's failed, Monzo's, the first go's failed. Give it another go. It's really interesting. There's just not been a successful mainstream neo-bank in the US. Chime is good, but it's targeting kind of gig economy workers. The more affluent customers, Chase Sapphire and American Express just have the market sewn up.

• 16:49Harry Stebbings?

  I do want to go back. We, we mentioned obviously the angel investing in the 76s. We then moved to, obviously part of the move to SF, as you mentioned, was to be partner at YC. That is a big transition shift from just being solo angel in London. How did you find the transition from angel to investor in partnership?

• 17:09Speaker 00

  So YC has this interesting model where they make you be a visiting partner for 18 months. They're like, "The most brutal job interview I've ever done."

• 17:18Harry Stebbings?

  So is it different being a visiting partner to being a partner in terms of what you do, the actual role?

• 17:23Speaker 00

  Totally different. Being a visiting partner is a great apprenticeship, but it feels like a little bit like being a teaching assistant at a university versus being a professor at university. You know, the professor sets the syllabus and the exam questions and admits the students and the teaching assistant tries to figure out what the professor is going to do and mirror that, basically. It's training on the job and I think it's great training.

• 17:43Harry Stebbings?

  What did you learn by being a visiting partner?

• 17:46Speaker 00

  I learnt so much different stuff from different people. My first batch was with Dalton and the way he can help young founders find new ideas, really deeply technical young founders without a clue what they want to work on, Dalton can come in and sort of unpick their background and history and find some thread to pull on that they're super excited about and turns into a great startup idea and it feels like it's their idea, but he somehow like conjures that up out of their background. Michael Seibel I did a batch with just before I got partnership. He has this incredible way of giving the most brutally hard feedback you can imagine, the founder absolutely needs to hear, and then finishing off with this heartwarming chortle, this like laugh that kind of

• 18:28Harry Stebbings?

  Reassures you.

• 18:29Speaker 00

  Yeah, makes you realise he loves you deeply. He might think you're a total pile of shit, but he really cares about you, wants you to succeed. So being able to, and that's something I'm trying to learn. I think I can do the harsh feedback quite easily, that comes naturally, but the sort of the warmth and the empathy alongside that, I think I really want to learn from Michael.

• 18:45Harry Stebbings?

  So then we make the transition to partner and now you're the teacher, teaching the syllabus, so to speak.

• 18:51Speaker 00

  Yeah.

• 18:51Harry Stebbings?

  What's the hardest part about that?

• 18:52Speaker 00

  Accepting, again, I'm not in the driving seat, that I'm a coach and a mentor and I give advice and it's up to the founder whether they want to take that advice or totally ignore it.

• 19:01Harry Stebbings?

  Do they, do they take it? Because what I worry about is actually the weight of my words, which is, let's be honest, most founders kind of say, "Thank you VC for your advice, but fuck off and keep writing the cheque." More than with YC partners, they might actually listen to you. Could be great, but it could be dangerous.

• 19:15Speaker 00

  There's huge variation. You're right, if someone blindly, blindly accepts everything you say without thinking, not great. If they come to you with every small decision, they're not going to be a great founder. They need to, you know, take the training wheels off and ride the bike on their own. See, we have founders who come to us for advice, listen to it and like completely ignore it. Y C is not full of founders blindly following advice, I can tell you that. You meet a founder sometimes where they're not the best founders. I'm not, I'm very good friends with some of them, but you're like, you're not investing in people you want to be your friends. You know, you're investing in people who you think are going to build fabulous businesses and work very, very hard to do so.

• 19:49Harry Stebbings?

  Do you need to like them to invest?

• 19:51Speaker 00

  I don't think so. I mean, it helps, it makes your life more fun. But there are people who are just like a little bit scary, you know? They're a little bit arrogant, perhaps a little bit obnoxious, a little bit too sure of themselves. And I wouldn't want to spend every day with them. But I just feel like they have something special that's going to build a really, really big business. And that's a bet I would take every day as an investor. I don't think founders are necessarily the most likeable people, honestly.

• 20:13Harry Stebbings?

  Why?

• 20:14Speaker 00

  Because you have to be, in a sense, contrarian. If you just agree with everything that happens around you, you're never going to create something different. My first job, I was not at all likeable, honestly. I didn't know that it was useful to be likeable in my job, you know? I didn't suck up to my boss. I told my boss every time I thought she was wrong and she hated me for it. But I could see everything that was broken in the way we were working. My brain wanted to fix that. That's not a way to endear yourself to people, but I think it makes great founders where they're like just so annoyed if something's broken. They have to fix it and they have to tell people when something's wrong. It can make a shitty employee, but a really good founder.

• 20:46Harry Stebbings?

  And my family always say with me, it's like, it's not calming to be around you. It's generally impatient, generally quite irritable because you want to change something.

• 20:54Speaker 00

  Yeah.

• 20:54Harry Stebbings?

  Can I say, when you are the teacher, the professor, Professor Bonfield, do you like pick which ones coming in are yours?

• 21:01Speaker 00

  Yes.

• 21:01Harry Stebbings?

  So it's like a drafting process?

• 21:03Speaker 00

  Each of the partners has access to the entire application pool. But if I read an application and I, I'm the first one to say, yes, that's mine, then I get to interview it. And if I interview it and I'm the sole person who says, yes, we will invest, then it gets money. And then it's my responsibility to work with throughout the batch and throughout the lifetime of that company.

• 21:18Harry Stebbings?

  And how many do you choose?

• 21:19Speaker 00

  About 25 per partner, per batch. You can do more, you can do less, it's not prescriptive, but it's an amazing sense of ownership and accountability.

• 21:27Harry Stebbings?

  When you go, that one, I'm interested in that one. How often does the initial interest stay post-meeting? Like, how often are you right with that versus, actually, I met them and it wasn't what I

• 21:37Speaker 00

  I mean, statistically, you can figure this out. So I will invite approximately a hundred teams to interview and I will fund twenty five of them. So, yeah, I will pick a hundred that I want to interview. I'll read several thousand, pick a hundred to interview, fund twenty five.

• 21:52Harry Stebbings?

  For you, what is it that makes you go, ah, that one in that interview?

• 21:56Speaker 00

  That they teach me something, that they're so expert in their domain and so obsessive and they thought really, really hard about it, that they can come and in ten minutes, show me something new about the industry I didn't know before.

• 22:07Harry Stebbings?

  Do you really think you can get enough in ten minutes?

• 22:09Speaker 00

  Get enough in three or four minutes, but it seems rude to finish the interview so quickly.

• 22:12Harry Stebbings?

  See, I don't, I, I love that and I would hope so. But what if you just have someone who's come from bumfuck nowhere? They do not understand the process. They are brilliant and gifted, but they're just nervous.

• 22:25Speaker 00

  That's okay. We adjust for that.

• 22:26Harry Stebbings?

  Do you see what I mean? Like, I'm worried that you may miss stuff if it takes sometimes twenty minutes and to come out of their shells a little bit.

• 22:33Speaker 00

  Maybe, but it's not just the interview that we go on. I'd say the interview is like ten or twenty percent of the entire process. We make them write a long application form. So we get all of their academic and career backgrounds. We ask a bunch of weird sounding questions to try and pull out stuff like that.

• 22:48Harry Stebbings?

  What's the weirdest questions?

• 22:49Speaker 00

  Tell me about a non-computer system you've hacked to your advantage. So what is, what system in your life have you figured out the intricacies of in order to use for your advantage?

• 22:57Harry Stebbings?

  Venture capital.

• 22:59Speaker 00

  Yeah, you started, right? And that's the kind of thing we would love to see as a, what were you, seventeen years old or something? I started a podcast.

• 23:05Harry Stebbings?

  In a bedroom in London.

• 23:06Speaker 00

  In a bedroom, I did four hundred episodes without making a penny in revenue, but I got this amazing rolodex. And then I parlayed that into raising a fund and becoming a VC. Amazing. That's the kind of exceptionalism that we're looking for in some area of their life. And it might come out through the application, it might be the interview video or the interview itself. But we're looking for that spark that they are not average. They haven't just gone through standard steps of, you know, good high school, gone to Oxford or Cambridge, gone to McKinsey, just like boring, boring, boring all the way through. That at high school, they taught themselves to code and built websites for estate agents.

• 23:39Harry Stebbings?

  It goes back to what we said, the early signs of exceptionalism.

• 23:41Speaker 00

  Yeah, in some way, you know, Patrick Collison creates his own Lisp dialect at age fifteen or sixteen or whatever, right? That, it's stuff like that.

• 23:48Harry Stebbings?

  And so then we have 25. They're all in the valley with you, correct?

• 23:51Speaker 00

  Yes, more or less require everyone to relocate now to San Francisco in the dog patch where we have our office and spend three to four months there.

• 24:00Harry Stebbings?

  See, I, I think that is so important.

• 24:02Speaker 00

  I agree.

• 24:02Harry Stebbings?

  My question is, when you speak to the other partners, especially I guess going through COVID where it was completely remote, do they have any lessons, observations from the complete all remote YC to the all in person?

• 24:13Speaker 00

  Everyone's a lot happier now with the all in person. There are elements that we have retained of the remote batches. So we had a few that were fully remote. Doing demo day with remote presentations, like record or live but on Zoom presentations with an investor reception in the evening seems like a really good balance of the two, all on Zoom versus all in person. Sitting through two days of presentations in a stuffy lecture theatre where the AC doesn't work well is not a pleasant experience.

• 24:37Harry Stebbings?

  Yeah.

• 24:37Speaker 00

  That's one thing. Remote interviews, we used to fly everyone to San Francisco for interviews, which is, seems insane now. But overall, the in-person experience is dramatically better. Having in-person office hours, group office hours, even cooking for people, like the, the act of cooking dinner for a group of people you've invested in and then serving them with your own hands, an act of care that creates a, just an emotional bond.

• 25:00Harry Stebbings?

  Trust as well.

• 25:01Speaker 00

  Totally.

• 25:01Harry Stebbings?

  Yeah.

• 25:02Speaker 00

  I trust you not to give me food poisoning. When it's just a 20 minute Zoom every week, it's so transactional and empty. I really feel like I know these founders now after four, five months.

• 25:12Harry Stebbings?

  Brilliant video of Putin and Xi who kind of both like cheers with the glass and then put it down and you're like, ah, okay. Okay. So we have the 25. I'm sorry for us, but I actually, I listen to a lot of startup podcasts. I didn't hear this. What does the time look like then for you with the 25? One hourly meeting per week?

• 25:28Speaker 00

  So YC is split into four groups. So it's not a whole YC, it's four separate mini YC's, it's sharded. You'll get a very different experience in each one of them. The partners are specific and then we have our own speakers. One night a week will be your group event and you'll get someone like Brian Chesky or Paul Graham or we had Kevin Sishtrom, the Instagram founder, come and talk to our founders. So you've got the Tuesday dinner. You've got pre-scheduled office hours, sort of one-on-one or one company with one partner every two weeks. And then group office hours every two, the alternating two weeks, which is a really great mechanism, I think was introduced in 2011, where you have seven to nine companies who all come for a sort of one and a half to two hour session. And they're organised thematically. So we had a fintech section and a biotech or whatever it might be.

• 26:10Speaker 00

  Ideally all at roughly the same stage of, of company life as well. And then we. Basically, the founders are sort of problem solving with each other. How do you find a banking partner in fintech? Or how do you deal with government regulation? Or how do you sign your first enterprise deal as a B two B SaaS company? So these group office has a really good way to share knowledge between founders and then set goals. So you say in front of these 20 odd people, we're going to go from 25K at ARR to 50K in two weeks. And you come back in two weeks and like the public pressure, even though it's only 20 people in a room, pushes people to work harder than they ever believed was possible. It's really those three things. So the Tuesday night or the dinners, the individual office house and group office house, that's the core of Y C. There's a bunch of other stuff. So there's incredible internal knowledge base, a forum, a user manual on how to run startups.

• 26:54Speaker 00

  But for the in-person stuff, it's those three things.

• 26:56Harry Stebbings?

  What do you think are the most common mistakes that founders make in the batch process? When they are working with you in that three to four months process?

• 27:04Speaker 00

  Not launching early enough very often, being too afraid to get something out there and iterate.

• 27:10Harry Stebbings?

  I agree. I saw a tweet the other day though, saying, actually, it's never been harder to capture consumer attention than stay. And so actually, this idea that you can release an imperfect product is not true because you release that imperfect product. Tom engages with it, goes, eh, that's not great. Churns, it's so hard to get them back. I disagreed with it.

• 27:27Speaker 00

  Yeah, I think you need to make the scope narrower. I differentiate between breadth of functionality versus a level of quality and polish. So I would always encourage founders to go for a very, very, very narrow feature set, like even narrower than they possibly could imagine. Polish it to a very, very high level of quality and get people, only a few people, a few hundred people really excited that really narrow thing. And then broaden out. What way too many founders try to do is they're competing with Google Docs, say, or something. And they try to, they try to replicate every single feature of Google Docs to a mediocre level of quality and then release that. And it's a surprise when no one likes it. So keep your initial product super, super, super narrow so you can build it quite quickly, but keep the quality bar super high.

• 28:05Harry Stebbings?

  A lot of founders worry, yeah, but I'm going to have a super specialised product then and I can't sell that big vision to VCs. What do you say to that?

• 28:12Speaker 00

  Yeah, so this is a key skill of a founder, holding these two realities in your head simultaneously without cognitive dissonance or driving yourself crazy. One is the big vision of the 1% best outcome. If this really, really works, what could this become? Holding that in your head, and for Monzo it was, we're building a bank for a billion people around the world. That's the big vision that you have to hold in your head. And then you have to hold the, what is my top priority today and this week and this month? Which is very, very different from this billion people around the world, right? And you have to execute on that and get your team to focus on it. But you have to have both. If you only have the big vision and you think that's today, you're a bullshitter. You're just full of hot air, none of it's real. Whereas if you're too execution focused and you continue that for several years, you build a small business.

• 28:54Speaker 00

  You build a very successful, or rather, a medium sized, small business that's very profitable, it's never going to get big. So you have to have both simultaneously.

• 29:01Harry Stebbings?

  How many of the companies pivot in the batch?

• 29:04Speaker 00

  20, 25%.

• 29:05Harry Stebbings?

  What do the successful ones do that the others don't?

• 29:08Speaker 00

  Pick an idea and stick with it, as simple as that. The worst pivoting founders just can never get the conviction to stick with anything. And they just pivot and pivot and pivot because they, they overthink it and they, I hear this more and more from young founders, like, I'm not sure this is my life's work. You know, I can't, I can't commit to it because I'm not sure I'm passionate enough to spend my, it's like, dude, I'm asking you to spend six months on this, not your entire life.

• 29:30Harry Stebbings?

  No, but I actually align it stating, I'm like, no one goes to the first date being like, you are my partner for life, it'd be terrifying.

• 29:37Speaker 00

  Yeah. Dalton said something very funny a couple of weeks ago, pivoting is like divorces. Maybe one or two is reasonable, but if you're doing it multiple times in a row, maybe the problem is you.

• 29:47Harry Stebbings?

  I like that a lot. What are the big challenges for you advising these batches? Is it that VCs come early and you're like, don't take their money, don't take their money? Is it that?

• 29:57Speaker 00

  Shutting down continuity, our growth fund has enabled to have a, enabled YC to have a much more collaborative relationship with multi-stage VCs. Previously, it was very competitive. So that's fine. I think everyone behaves pretty well.

• 30:09Harry Stebbings?

  Do a lot of your batches get approached while in batch?

• 30:12Speaker 00

  A hundred percent, yeah. The trope was always, oh, everyone raises before. Before Demo Day, which is true, like the best companies absolutely always raise before Demo Day. And so now we've just set a deadline like two weeks before Demo Day and said, you may start fundraising on that day, two weeks before Demo Day.

• 30:26Harry Stebbings?

  And they're not allowed to start before then.

• 30:27Speaker 00

  We strongly encourage them not to and will be very, very disappointed if they do because it's not in their interest. Because running a competitive process with lots of people bidding is going to get them better terms. And what happens is nervous founders will fundraise early because they're like, well, what if Demo Day isn't going well? So I'll just talk to some early. And then what happens, either the VC looks at you without much progress and writes you off because you've not made enough progress. Or they like you so much, they give you a preemptive offer, but the valuation is not as good as you would get by Demo Day because that's why they're doing this, right? So they give you an offer of two million on pick a valuation, I don't know, X, right?

• 31:00Harry Stebbings?

  Ten.

• 31:01Speaker 00

  Ten, two on ten. And the founder's like, this is.

• 31:02Harry Stebbings?

  Good seed price.

• 31:03Speaker 00

  This is more money than I've ever.

• 31:04Harry Stebbings?

  Good seed price. You guys seen Ten? You guys seen that? No, no, no, not for a while, huh?

• 31:11Speaker 00

  No, but the nervous founder is like, two on ten, wow, this is more money than I've ever seen in my life. And they can't turn it down. They don't have competitive offers, they can't turn it down. And so they accept this preemptive offer and they've just screwed themselves. And this happened to a couple of my companies this batch where crazy all-star team, ridiculous, like every pedigree you'd want. Amazing product, profitable, more than a million in revenue. And that just, the founder was just so nervous about fundraising that she took, it was fine, it wasn't terrible. But it was heartbreaking for me because I knew that if she just trusted the process and waited till this sort of auction process, she'd get a better round.

• 31:47Harry Stebbings?

  Okay, so you mentioned better round, better round, better round and like kind of the more auction process.

• 31:53Speaker 00

  I can see where this is going.

• 31:55Harry Stebbings?

  What, no, my, my question actually, before I just parlay and just lay into you, is actually, what is the biggest advice that you give founders when they say, how should I think about structuring this round ahead of this two weeks of conversations before Demo Day?

• 32:09Speaker 00

  Yeah, this is an area where I think it's way too easy to say YC's advice is X. YC's advice is custom for every single company. I'll answer the question, but with the caveat that this is not advice that we that we will tailor it much more specifically. The trends we've seen over the last few years is that founders were getting way over diluted in their seed round. They're giving away twenty five or thirty percent of their company at seed.

• 32:31Harry Stebbings?

  That's too much, I agree.

• 32:33Speaker 00

  Keeping dilution slightly lower is probably better for them. I think some founders have taken that way too like too far and aggressively will only give away eight or 10%.

• 32:42Harry Stebbings?

  So this is my trouble. I see 10% the whole time. And I'm just like, how on earth do you expect a great ambassador to really, really be a partner with you? When they're going to get six, because you also want to have these angels in. It's not going to happen.

• 32:54Speaker 00

  The more nuanced truth is not YC is telling founders to only raise 10 or 12%. They're, we are telling founders that over diluting at seed is not good for them. And that retaining control would be good for them. And they can make progress towards their Series A milestones with probably a million and a half or two million. And the valuations they might get at Demo Day are around fifteen to twenty million, which roughly ends up at 10% dilution. But if a great partner comes in, top tier fund or someone that has a specialist and they really, really like. And they'd want 15% ownership or even 20% ownership, absolutely consider it. I wouldn't write anything, I wouldn't rule anything out. And I think this is where it gets misunderstood, that YC's rule is only 10%. It's absolutely not true. We've had Sequoia and Andreessen, Axel and Founders Fund and Google Ventures and all of these funds. Leading rounds in companies in the last batch.

• 33:39Speaker 00

  And it's just about having a reasonable conversation with the founders to say, where's the flexibility and where can we meet in the middle?

• 33:44Harry Stebbings?

  I find one commonality, I've done 170 investments now. One commonality is when the seed round is large, they lose urgency.

• 33:53Speaker 00

  Totally agree.

• 33:54Harry Stebbings?

  Execution speed goes down.

• 33:55Speaker 00

  Totally agree.

• 33:55Harry Stebbings?

  Always five on 25 is kind of the sweet spot. Do you agree with that?

• 33:59Speaker 00

  Yes, we push founders to raise less in general. Because most of our companies at Demo Day are pre-product market fit. They've got some inkling that something's working, but they're certainly not in the scale up phase. More capital pre-product market fit does not help. People just end up hiring tons of people, which slows everything down and. Stops them being so nimble. So really, our advice is to raise slightly less money pre-product market fit. Absolutely. Once you've got product market fit, pour gasoline on the fire. Go, go, go. But yeah, raising less early is probably best for most companies.

• 34:31Harry Stebbings?

  Do you see bad investor behaviour?

• 34:33Speaker 00

  Oh, a lot.

• 34:34Harry Stebbings?

  Do you?

• 34:34Speaker 00

  A huge amount.

• 34:35Harry Stebbings?

  I thought they'd be quite worried about that.

• 34:37Speaker 00

  They are.

• 34:37Harry Stebbings?

  But then why would they let you see?

• 34:39Speaker 00

  Because they haven't, it's got better and better and better.

• 34:42Harry Stebbings?

  What is the bad investor? Because often people talk about this, but I'm like, I don't see it.

• 34:46Speaker 00

  Y C has an investor database, which has 10,000 people in. I'm sure you're in there. We can perhaps look it up. And it has reviews from all of the Y C founders that have taken investment from them, both on their process and what they would like to work with after the investment. And it has a rating. All Y C companies have a huge amount of inbound investor interest. And before they book meetings, they will look each investor up in the database and see, have you treated founders well or have you not? And if you've not treated founders well, you're not getting meetings with Y C companies. And some investors go, why, why is everyone ignoring my emails? It's like, well, dude, because you've fucked over these companies again and again and again. Very typical bad investor behaviour would be something like making a binding handshake offer. We have a protocol on this, you know, I offer this amount on this valuation. Yes, I agree. And then not wiring the money or just saying, oh, I'm, of course I will only wire when the round's full.

• 35:30Speaker 00

  Let me know when you've got your, the full round completed and then I will wire. Like you've signed a safe, you have to wire the money straight away. Or being extremely onerous in terms of like, you must meet with us every two weeks or whatever. Like, I want to be helpful and being a little too helpful.

• 35:45Harry Stebbings?

  The biggest annoyance to me is actually when people don't understand the weight of that check. And what I mean by that is like when a small 50 or 100K check wants 10 diligence meetings and then wants 15 references. And you're like, dude, you're a fucking addendum to this round.

• 35:59Speaker 00

  Yep.

• 36:00Harry Stebbings?

  Know your place.

• 36:01Speaker 00

  Yeah. And we are actually going to start publishing this data internally for our founders where we know how many.

• 36:07Harry Stebbings?

  Can we check it first?

• 36:09Speaker 00

  Absolutely. This is what I'm doing right now with another of our partners, Brad. We have data on how many meetings each V C takes, how many investments they actually make and what the check size is. And so we can tell our founders, what is the percentage chance of conversion and what is the expected value of each meeting?

• 36:23Harry Stebbings?

  You've got like the most intelligent routing system then where you're like, hey, for those that want the easiest cash,

• 36:28Speaker 00

  Totally.

• 36:28Harry Stebbings?

  quickest, the highest converting checks of these.

• 36:31Speaker 00

  Here are these 20 investors. If you meet with Sequoia, Andreessen or, you know, Founders Fund, it's going to have a 3% chance of conversion. And on average, they're going to invest 2.7 million. I'm making these numbers up. But we have that data now and we are going to all of the top funds to work with them to make sure. Their understanding matches with our understanding that they actually have made three investments, they actually did take 163 meetings, and then we're going to publish the data to our founders.

• 36:54Harry Stebbings?

  Are the companies that get the supremely hot rounds the ones you think will? In other words, can you predict the ones that will be hot?

• 37:01Speaker 00

  Yes.

• 37:02Harry Stebbings?

  And that's because of founder, space?

• 37:04Speaker 00

  Everything, yeah, combo of traction, yeah. It's not one for one, you can't predict 100% of them, but directionally, yes.

• 37:10Harry Stebbings?

  Do you ever have one where you're like, that one's going to be a rocket in terms of investor attraction, and then it's like crickets?

• 37:15Speaker 00

  Sometimes the vast, vast majority of YC companies end up raising their target anyway. Some might take a little longer than you expected and some might go very fast, but something like 80 or 85% will raise their full sort of target amount, which might be two or three million or something like that.

• 37:29Harry Stebbings?

  And then for you, you have these 25 batches which you really craft and work with. You have the carry on that batch?

• 37:35Speaker 00

  It's all shared.

• 37:36Harry Stebbings?

  It's shared, like an equal partnership?

• 37:38Speaker 00

  Yep.

• 37:39Harry Stebbings?

  Fascinating. And so do you get involved with other people's partner, like?

• 37:42Speaker 00

  Absolutely, yeah. You want to pick the best companies for pride, and also it's more fun to work with better companies than worse companies.

• 37:48Harry Stebbings?

  Do you stack rank each other?

• 37:49Speaker 00

  No, no.

• 37:51Harry Stebbings?

  That would be interesting to see.

• 37:53Speaker 00

  You'd need a long time period to really know.

• 37:57Harry Stebbings?

  You would, but you could get interesting signals from who raised the most from the best, the amount that converted that didn't.

• 38:03Speaker 00

  Yeah, I, we have that data and we ignore it because it's just so easy to.

• 38:09Harry Stebbings?

  Easy to gamify for sure.

• 38:10Speaker 00

  Yeah, who cares that you raised 10 million from X, Y, Z investor? It just, we don't want to incentivize people to raise, raising that amount of money.

• 38:16Harry Stebbings?

  If you could change anything about the YC process in that three to four months, what would you change?

• 38:21Speaker 00

  The thing I am trying to change, I ran an experiment last batch where I randomly matched groups of six to eight founders with, across groups for dinner and just sent them out for dinner. It turned out to be unbelievably difficult to get a group of eight founders to organize anything for themselves. It was astonishing. And so this time round, we're doing way more of the curation where we're like, we'll literally tell you, turn up at 6pm at this restaurant and you will meet seven random YC founders and you can chat about your startups. So the thing that I found most valuable as a founder in London was meeting groups of peers that I would then share experiences with. So we're trying to curate those experiences for people so they get more of a community. If it works. The batch, we'll start doing it for alumni as well. So you can say, I'm in London, we're gonna do twenty Y C dinners next week of all the Y C alums, so they get to meet each other.

• 39:05Speaker 00

  And just make that network of Y C even more powerful.

• 39:08Harry Stebbings?

  I do wanna move to the the theme of the day, which is obviously A I. I mean, every Y C company is also an A I company now.

• 39:14Speaker 00

  Seventy percent.

• 39:15Harry Stebbings?

  Seventy percent. There we go. Is the hype surrounding A I a hype cycle, or is it justified?

• 39:22Speaker 00

  I think it's justified. I am so excited about what the future holds. I was really annoyed, actually, back in like twenty, when I was starting Go Cardless and and Monzo. I was so annoyed that I wasn't around for the dawn of the internet, you know, like ninety five to two thousand one, it was like.

• 39:37Harry Stebbings?

  I always heard about Netscape in ninety five and I'm like.

• 39:39Speaker 00

  Yeah.

• 39:40Harry Stebbings?

  Negative one.

• 39:40Speaker 00

  We're way too late. It's just like, it felt somehow like all the ideas were not taken, that's just a silly thing to say.

• 39:47Harry Stebbings?

  Yeah, yeah, yeah.

• 39:48Speaker 00

  But like, we missed it out. We missed out on that time. And what I actually realized is that Monzo rode the smartphone wave. Smartphones and apps were twenty ten to twenty twenty, say. And that was the predominant like technological wave. We are now going through another, which is A I, which is going to be as big as the internet, I think. Really, there's a technological revolution that I think will impact every part of our lives in small ways of next year or two, and in very, very large ways over ten, twenty, thirty years. And I think it's gonna transform every industry and there's so much opportunity to build right now.

• 40:18Harry Stebbings?

  There's kind of two opposing camps, there's Tom, I think, which is like, having interviewed many different people on both sides, which is really interesting, actually, having the different perspectives. But those that think it's like a sustaining innovation, which is like an add on to Adobe, Notion, all the existing, and it enables a better experience for existing products. And then there's others who say it's disruptive and it creates entirely new categories and markets.

• 40:37Speaker 00

  I'm gonna cop out and say kind of both. Like, I do think big incumbents with distribution who can add sort of A I copilot functionality will make their products more effective. But I think there are huge new categories that will be created as well. I'm really excited to see what it does to consumer consumer behavior because consumer companies tend to be winner takes all or winner takes most, and they tend to be created when a new technology shift happens, so internet or smartphone. And we haven't had a lot of exciting new consumer companies for like the last five or six or seven years, because they all started in like twenty eleven to twenty fifteen. Clearly, A I is that technological shift, and I think it enables a whole generation of new consumer companies to be created. And I don't even know what they are yet, but I think they're like, they're gonna be created this year and next year and the year after.

• 41:18Harry Stebbings?

  Okay, I just wanna then kind of unpack that a little bit because there's obviously the sustaining versus disruptive and then there's also kind of infrastructure versus application.

• 41:25Speaker 00

  Yeah.

• 41:26Harry Stebbings?

  If we start on infrastructure layer, we see so much money going into the core providers today, your OpenAI, your Mistral, your Anthropics.

• 41:33Speaker 00

  Hmm.

• 41:33Harry Stebbings?

  Do you think there's money to be made investing in foundation models?

• 41:37Speaker 00

  I don't know. The best case for me and for YC probably and for you, and like humanity, I'd argue, is that roll forward 10 years and there are like five or six foundational model companies and they're probably attached to Google and Microsoft and Amazon and Facebook and Apple because they have the funds to power them and they are all about as good as each other. It's like how, you know, GCP versus AWS versus Azure, they kind of do this, you know, slightly different tweaks. But there's great functionality and commodity pricing because they've all like beaten each other down on price. That is not so great for the investors who invested in those companies, but great for the world, great for humanity, great for startups.

• 42:15Harry Stebbings?

  I think this is exactly what happens, which is they realize that actually the cloud services is where the cash cow is. You acquire them, it's like the the tools that help you acquire amazing customers. But absolutely, they're kind of aqua hires to aid the core cash cow business.

• 42:28Speaker 00

  Yep, and you know, maybe the LLMs themselves are kind of part of that infrastructure. But I see them being in the the case that's good for frankly, for for YC and for most of the world, I think, is that they're more or less equivalently good and you could build on any of them, you could swap any of them out. I think the dangerous case.

• 42:45Harry Stebbings?

  I'm insanely impressed. I was meeting a company the other day and they were talking about how quickly they swap out different models on a real time basis for different use cases. It was the language that happened. It was actually like, we use 12 different models at once and variate in real time.

• 42:57Speaker 00

  The US has made like non-competes even less enforceable now. People, talent is going to jump between these places so quickly. So you discover an innovation at one place. Weeks or months later, it's replicated everywhere else, I I think. Unless you really believe that raising a trillion dollars to train your biggest model is gonna be the advantage, who knows? But I think it's quite dangerous to the world if there is one singular godlike AGI that we all beholden to.

• 43:19Harry Stebbings?

  Okay, so we move then to like the application layer that sits on top of foundation models.

• 43:23Speaker 00

  Yep.

• 43:24Harry Stebbings?

  Which is where I presume you're excited.

• 43:26Speaker 00

  Yeah.

• 43:26Harry Stebbings?

  Why why is that? Because most, uh, it's a wrapper, it's non-sustainable. Why are you excited?

• 43:32Speaker 00

  There are clearly some wrappers, you know, if you can build it in a weekend at a hackathon and make a bunch of money, probably not defensible. For most. Businesses building on top of these models, I see it, you know, you can describe the last generation of startups as like MySQL wrappers or AWS wrappers or something like, you know, it's the same kind of logic applies. I think where the sustaining value lies is identifying an industry, deeply understanding the regulation in that industry, the tooling, the language, the, all of the training, how people sort of work and behave and act, and tailor your software to fit into that industry in a way that's extremely deeply embedded. Most people building application layer stuff in AI, say it's 80 to 90% traditional

• 44:16Speaker 00

  software with 10% AI. It's working in construction, figuring out how Procore works, or, you know, how the Salesforce CRM works, or some Oracle database. And like, I don't think OpenAI is going to come and steamroll the construction company, AI companies, because they're not going to deeply integrate into the processes and software that exist in each of those industries. So I really believe everyone who works with a computer will have an AI co-pilot assistant thing in the next two or three years, whether you're like an oncologist or a law professor.

• 44:44Harry Stebbings?

  The thing that worries me with a lot of it is actually that you see a lot of these service providers be like, oh, we have a better user experience, we've got a better sign. And I'm just going, I get it. But the trouble is, you don't have distribution. And what I worry about is distribution trumps product in this world, which is where Microsoft Office just bake it in. And because of Microsoft's distribution capabilities into, was it oncologists or dentists or whatever we want to use as that famous dentist example, fucking dentists, poor dentists. But do you see what I mean?

• 45:13Speaker 00

  I do, but I don't agree. Because I think Microsoft Office, like by definition, has to be a general product. It will be the best word processor for sure, but it's not going to be the tool that the dentist is actually using to write their clinical notes after a meeting. That is a specialist piece of dentistry software, the 3D modeling software that some architect is using to design a skyscraper. Microsoft Office is, it will benefit for sure, Google Docs in Microsoft Office as a general document writing thing, but one of our companies was called Solve Intelligence, which is a tool for patent writing. So taking scientific inventions and papers and turning it into really, really high quality patent submissions are very likely to be accepted. I don't think you can tell me Microsoft Office is going to help write those patents.

• 45:55Harry Stebbings?

  No.

• 45:55Speaker 00

  So I think that it's that vertical focus.

• 45:57Harry Stebbings?

  Was that an incredibly hot company?

• 45:59Speaker 00

  It was a normal hot YC company. And that's the bread and butter of the stuff I love to invest in. Find a vertical where you are a domain expert and you nerd out on it really, really hard, you can talk to these people and build something that's so specifically tailored for their needs. Do you find the advice that you're giving these startups is different to the advice that you gave in a completely pre-AI world? Yes, big companies are now more willing to spend money on this stuff than they ever were. The previous advice of like, go and sell to other startups, I think is not good for very, and maybe a dev tool startup, you're going to sell to other startups, but in general, I push companies, B2B SaaS companies, to start mid-market and go up as quickly as they can. Every manager of every big company in the world is being asked by their boss, what

• 46:43Speaker 00

  is AI going to do to our company? And many of them do not have a good answer, and they're looking around for startups to help them. And for sure, it's innovation budgets and proof of concepts and all this stuff, but where it works, they convert to real contracts. I've seen companies go from zero to like half a million or a million of revenue within the YC batch with really, really big companies, like Fortune 500 companies, and turn them into recurring contracts. This is real, this is saving people so much time, it's astonishing. Do you think you know that you're a good investor now? I don't think I am. I don't, I don't know. Do I think I'm a good investor? I was having this chat with Tom Hume, and he was like, dude, I just don't know if I'm good at this after all this time. I don't know either. I think I'm a good founder and operator.

• 47:25Speaker 00

  I'm not sure I'm like that temperamentally suited to being a coach or a mentor. I still have that fire of like- Do you want to go back and found another company? Absolutely not. Really? I love it, but it ruined- My life? It ruined my life in a way. Honestly, like, I love the earliest stages, I love working with smart people, I love building stuff, I love having my hand on the steering wheel and making decisions quickly, and feeling the whole company moving at pace, and I think I'm good at it. The problem is, when you're good at that stuff, it turns into a big company, and then you have to run a fucking big company, which sucks. It's really, really awful. What sucks most? I'm so proud of Monzo, I think it's an amazing product and company, but that was like startups on hard mode because it was regulated.

• 48:08Speaker 00

  We built a product we thought people loved, customers gave us incredible feedback, it was profitable- And still the regulator comes in and says, no, no, this is actually, this is really bad for customers. Despite all the customers loving it, it's actually really bad for them and we have to protect them. And so you've got to change all your plans. Having this random team rolling in hand grenades every two or three months, you know, you think you're talking to customers and doing the right thing and then you just get blown up all of a sudden because the regulators decide, decided for some reason it's not treating customers fairly. It was astonishing.

• 48:37Harry Stebbings?

  What advice would you give Nick at Revolut on getting regulated?

• 48:41Speaker 00

  I'm not sure Nick would take any advice I gave him, so it's totally irrelevant.

• 48:47Speaker 00

  I don't know. I think Revolut have acted in a certain way for so long that it is hard for them to change course, really honestly. We intended to be regulated by them very, very start. Now, 10 years on, we are reaping the rewards of that.

• 49:00Harry Stebbings?

  Final one. You mentioned there about kind of the impact that it had on your life, obviously founding companies. And I've heard you talk about the ability of balance before. And I've never agreed with you on this one, Tom. I'm really sorry. I'm like, the reason why Monzo and GoCardless were successful was because you didn't have balance.

• 49:15Speaker 00

  Yep.

• 49:15Harry Stebbings?

  And nothing great is created actually with balance. You have to be exceptional. That's what makes it a great.

• 49:20Speaker 00

  I agree. I agree over a short to medium time period. I don't know how founders do it over a 10 or 20 year time period because I cannot work for that intensity for that long. Absolutely. First two, three years at Monzo, we were working like crazy people. I mean, the first 50 people at Monzo were so spectacularly talented. They bear the scars of it, you know? They like worked so hard and gave part of themselves to this company to make it exist. It was really annoying, actually, when we got to like a thousand people. People are joining and like demanding work-life balance, you know, asking when we're going to a four-day work week. And the first 50 or 100 people are going, what the fuck is going on? Like, it feels like we've given limbs to this company. And then these newcomers are demanding like they want to work 25 hours a week or something. Like, what the hell's happened? So, yeah, it's tricky.

• 50:05Harry Stebbings?

  Did you fall in and out of love with what you did over that time? I think people always say like, oh, fans, you're always so in love with what you do. That's a bit of a lie.

• 50:14Speaker 00

  I loved the product all the way through, but by the end I hated the company because it got so big, so over-regulated in my opinion. It wasn't as simple as identifying something customers wanted and building an amazing product that they would pay for. That was not enough. There was this other whole like crazy language that we didn't speak called financial regulation. You had to keep these regulators happy as well. I was not good at that, really, honestly. And I think TS, the new CEO, and Sajata, the COO, are spectacularly good at that, as well as maintaining the culture and the product. And they've, they've just done such a good job taking it over, you know, when I left it over the next four years that I couldn't have done.

• 50:47Harry Stebbings?

  Final, final one, I promise. Do you have a challenge in terms of loss of identity? I don't go on holiday because you're detached from work. And you mentioned me starting since seventeen. I've never, ever done anything else but this. So it's really uncomfortable actually to have ten days or seven days with nothing.

• 51:03Speaker 00

  Yeah, this was a big problem for me when I, when I was thinking about leaving, the year or so before I actually left. I couldn't imagine myself and the company not being the same thing and who I would be or what I would be or whether I would be relevant anymore. Or I was worried the company wouldn't survive without me, which was a very arrogant and untrue thing to think it thrived without me. And I had to rebuild my sense of identity, my ego. And honestly, going to America where no one knew who I was and joining YC as basically an intern was incredibly humbling and really positive because I had to like rebuild my entire self-image. At Monzo, anytime I said anything, a whole team would like spring into action. And even if I didn't intend them to do it, I'd be very careful what I said because literally I'd come back two weeks later and find thirty people had gone off in crazy tangent.

• 51:48Speaker 00

  And I joined YC and I say things and people like ignored me. And not in a nasty way, but I was just like just another person, right? I was a visiting partner, I was a teaching assistant. My ideas didn't matter that much and that was so humbling. Honestly, really, really great.

• 52:00Harry Stebbings?

  Right, we're gonna do a quick fire. So I say a short statement, you give me your immediate thoughts.

• 52:03Speaker 00

  Let's do it.

• 52:04Harry Stebbings?

  What's the biggest takeaway from PG?

• 52:06Speaker 00

  Relentless optimism. He will meet with founders, get so excited by their idea and imagine the future they could build if this just works. And the one percent chance it works, how it's going to change the world. And he'll get so, so excited, he will excite the founders themselves and they will come out with way more optimism and self-belief than they went in with. It's a superpower. It's astonishing to see how he can jazz people up and just get them so, so driven and motivated. And it's something I really wanna emulate.

• 52:35Harry Stebbings?

  It's really interesting, the unlocking investor enthusiasm gives to the willingness to open up of the founder.

• 52:41Speaker 00

  Yeah, totally.

• 52:42Harry Stebbings?

  Totally makes sense. If you have a pessimist, you say, well, this one, well, this one.

• 52:45Speaker 00

  And it's the British culture, you know, it's so easy to trash an idea and be kind of sarcastic and it makes for great comedy, makes for terrible startups. You need that like boundless energy and optimism. It's not natural British state, but it is Californian.

• 52:59Harry Stebbings?

  You can start one company again and choose a board member. Who do you choose as a board member and why then?

• 53:05Speaker 00

  If I was doing fintech, I would choose Mickey Malka from Ribbit. They finally invested. Ribbit, I don't know if this is public, I should check.

• 53:11Harry Stebbings?

  In Monzo?

• 53:12Speaker 00

  Yeah.

• 53:13Harry Stebbings?

  I love Mickey.

• 53:14Speaker 00

  He's so great. And I met, like, the quality of thought I got from Mickey and the deep personal connection I felt with that guy was just on a different planet. I'm sad I haven't had the chance to work directly with him.

• 53:26Harry Stebbings?

  Yeah. No, listen, I think he's incredible. What investor would you never have on the cap table?

• 53:32Speaker 00

  Probably SoftBank. I had a very unpleasant experience with the SoftBank London team. Just a bunch of pretty arrogant, like Deutsche Bank traders turned venture capital investors. They were not fun at all. I met tons of really bad investors through my time, honestly.

• 53:47Harry Stebbings?

  What was the worst investment meeting you had?

• 53:49Speaker 00

  There was one, and I can't actually remember his name even. He was an intro through one of our existing investors and he, on the first call, was like raving. He's like, this is so exciting. This company's great. I really want to be in. Reserve, like 10 million, I want 10 million allocation. Will you give me 10 million? And we're like, yeah, we'll like, yeah, sure. Like, we're raising 100 million, but yeah, we can, we'll earmark 10 for you if you're that keen. Like, go through diligence. And we got the rest of the rounds together over the next few weeks. Like, a week before signing, he was like, you know, I've been looking at your numbers and the cohorts, the cohorts really aren't as good as you said they were. And really, this valuation that we agreed doesn't really make sense anymore, Tom. And really, I, you know, I agreed at one, but actually, I'm only going to do this at 500 or something. And it was like three days before signing the term sheet.

• 54:33Speaker 00

  And I was like, okay, no worries. I'll just give your allocation to someone else. Thanks. He's like, ah, what are you doing? I was like, you're backing out. Like, I, we agreed on something, you're backing out. Like, you've not got it. And he went fucking ape shit. And I heard from another investor, this is just standard practice for him. He will go in super, super, super happy, like supportive, I really want in. And then at the last second, he'll be like, oh no, there's actually something wrong. Just try and squeeze 20 or 30% out of the round.

• 54:56Harry Stebbings?

  I don't understand why I do that because you've got to have ball control on the round to squeeze it 20 to 30%. Do you see what I mean? So it's like, if you're a 10 million and a 100 million, you're not even going to be able to do that. Like even if you wanted to, you couldn't without carving out a separate deal for him.

• 55:09Speaker 00

  Yeah, I don't know what his plan was. It was really stupid. And I was just like, I don't want to work with you. He has been blacklisted from, he's tried to invest even after I left. And to their credit, the Monzo board have said, we're not working with you. And I was just like, fuck you, dude. Don't treat founders like that. It's not cool.

• 55:23Harry Stebbings?

  Okay, which is the most helpful angel? I know angels are different for different companies, obviously for different, but like, the one where you're like, ah, they're amazing. So like, Guy Pajani at SNC, for me, consistently in companies I invest in with, with him, I found I just love him.

• 55:38Speaker 00

  That's a good question. For me personally, it was Eileen Burbidge. I'm not an angel investor, but our, our seed investor was the most personally helpful. We were obviously her biggest position. She stood to make a lot of money. So economically it makes sense, but she went above and beyond. I mean, she was like, offered for me to go and stay in her house, cook me meals. She would, when we lost a chief people officer, she came and did an exec job at Monzo effectively for like four days a week for six months. She like put her portfolio to one side and just said, I'm just going to come and turn up every day and work with you at the company. It was just astonishing. So Eileen is for me, head and shoulders above everyone else I've worked with.

• 56:12Harry Stebbings?

  Gary's clearly fucking great. Like when you see-

• 56:14Speaker 00

  Gary Tan?

• 56:14Harry Stebbings?

  Yeah.

• 56:15Speaker 00

  Yeah.

• 56:15Harry Stebbings?

  When you see him as CEO of YC and what he's done, the excitement that he brings, especially around Demo Day, when you see him taking photos with the old school camera and just the joy that he, I didn't mean it horribly, has brought back its energy to the YC community. What do you think makes him so good as a CEO of YC?

• 56:30Speaker 00

  YC has changed a lot in the last two years for the better. And I put it, a lot of it down to Gary. He was there in the early days. When I was there in 2011, he was a, I think, a part-time partner. He helped us design our pitch deck for GoCardus in 2011 and he was taking photographs back then. So I think he like experienced YC at its purest, at its core. And then really honestly, under Sam Altman, I think it expanded in a bunch of different weird areas. And, and Sam was distracted. He was doing OpenAI from very, very early on. And so to have a CEO now who is, whose full focus is the batch, is the core YC, it's not some growth program, it's not some international program, it's not, you know, creating AGI, it's the core YC batch that Gary has experienced and loves and cares about, has made it great.

• 57:13Harry Stebbings?

  What is the single biggest threat to the YC model?

• 57:16Speaker 00

  Uh complacency, I think we could coast on our on our laurels, rest on our laurels, I guess, not to mix metaphors, for quite a long time without realising it.

• 57:26Harry Stebbings?

  You could. I think the decay rate would take a long time, like a decade plus.

• 57:29Speaker 00

  Yeah, and then we just recruit bad partners who give bad advice, but continue to recruit reasonable companies and they will continue to fundraise because of the brand. But then after 10 years of decay, we realise it's all fucked. And so just being really, really, having a really high bar for the partners we hire and a really high bar for the companies we fund, so that we're making Y C stronger and stronger and stronger every batch and not risking this like decade-long decay.

• 57:52Harry Stebbings?

  Which founder is not a Y C partner, but you'd love to have them as a Y C partner?

• 57:56Speaker 00

  I mean, I think either of the Collessens would be incredible. I think they're a little bit busy at the moment.

• 58:03Speaker 00

  I mean, Brian Chesky, maybe as a second act, he could come to Y C. He speaks at every batch event and his advice is just phenomenal.

• 58:09Harry Stebbings?

  Do you care about money?

• 58:10Speaker 00

  Now that I have more than a surplus of money, clearly, not really. Like, I cared about it when I was younger, for sure.

• 58:16Harry Stebbings?

  Does it make you happy in the way that you thought it would?

• 58:19Speaker 00

  No.

• 58:20Harry Stebbings?

  Was that a hard moment when you realised? Because you do chase it to a certain extent.

• 58:24Speaker 00

  I chase success and money.

• 58:26Harry Stebbings?

  Did you know what success was?

• 58:28Speaker 00

  Yeah, like building the company. My dad, when I was very, very young, created his own company and it was drilled into us from a young age that that being successful in life meant being rich and being successful. And so I had this huge drive to create something big and to that external recognition and validation. And the money went with it, but it wasn't the, you know, the money alone. It was like it was success. It drove me to do Monzo and drove me to stay at Monzo for a long time after I was happy. In the years since, it's kind of gone away. It's weird. Like, I don't.

• 59:01Harry Stebbings?

  Is it freeing?

• 59:02Speaker 00

  Yeah, it is. It really is. I don't feel like I have to create another. I felt compelled to create Monzo. I really did. I keep getting the urge to build something because I really, really love building stuff, but I don't have the urge to build a big company. I don't want to run Y C. I would not want Gary's job. I have been there. I've had the stress. I've had the packed calendar. I do my work. I get to go home at the end of the day. I shut my laptop and I can focus on my do all of the. Cliched founder sports. I love cooking, I bake, I do pottery, I hike and cycle. I love that part of my life so much and I'm the happiest I've ever been, I think, in the last six months. Because I have the work that keeps me intellectually stimulated, but tons of hobbies and friends. And I'm not striving for it like external validation as much. I mean, I still am, you know.

• 59:47Speaker 00

  I get a buzz when I'm, when I get a tweet that goes viral or I'm on, you know, a podcast or in the, you know. BBC asked me to go and talk on the radio. It's like a little bit of.

• 59:57Harry Stebbings?

  Course you're human.

• 59:58Speaker 00

  I think it drives me much less than it used to.

• 1:00:01Harry Stebbings?

  What do you miss most about London?

• 1:00:03Speaker 00

  Friends, friends and family. Yeah. A big part of me leaving, honestly, was my friends all got to the stage of life where they were getting married and moving to the suburbs.

• 1:00:12Harry Stebbings?

  Yeah.

• 1:00:12Speaker 00

  And having kids.

• 1:00:13Harry Stebbings?

  It makes a big change to friendships. Kids are wonderful, obviously.

• 1:00:16Speaker 00

  Yeah.

• 1:00:17Harry Stebbings?

  But irony is with my friends, when the kids happen, like, the friendships fall away.

• 1:00:20Speaker 00

  Totally. And it happened in like a two or three year period where I genuinely found myself in London thinking, I don't have friends to hang around with now. I've got to make a new friendship group. And that for me was a catalyst to move countries. It's just like, if I'm gonna have to make new friends, I might as well take this opportunity to move to a new country as well and have that.

• 1:00:36Harry Stebbings?

  So 10 years' time, final one, it's 2034. Why do you want to be then? Is Tom back in London running a fund? Is Tom not running another company?

• 1:00:45Speaker 00

  Hopefully not running another company.

• 1:00:46Harry Stebbings?

  You're going to run a fund?

• 1:00:48Speaker 00

  Not really, no. All of the funds I've seen have like pretty horrible politics and I think Y C has the least politics of all of them. I don't want to run Y C. I'm very, very happy not having Gary's job. If I'm still doing Y C, that would be great. I would like to be able to split time between San Francisco and New York and maybe the Caribbean a little bit. I love sailing and maybe London. I would love a long-term partner and I would, I think I'd like kids. My brother has two children and they're one and three years old. Before I came to work today, I went into the living room and the two of them were sitting there playing, just like very, very blonde, very cute, one and three-year-old. And the eldest runs up and says, Uncle Tom, Uncle Tom, I've drawn you a, this picture. And it's like, my heart melted. It's like, oh my God, I can see what these things do to you now.

• 1:01:30Speaker 00

  Yeah, if I meet the right person, I'd love to have a family. If over the next 10 years I met someone great and we had a family, that would be happiness for me over creating another billion-dollar company. Like, who needs another one of those?

• 1:01:41Harry Stebbings?

  Tom, I've loved doing this. Thank you for letting me just pep you with questions. It's been such a joy.

• 1:01:46Speaker 00

  Thanks, Harry.

• 1:01:48Harry Stebbings?

  I have to admit, that show was so much fun to do. Now, if you want to see a resemblance, then you can check out the video of the interview. Apparently, we look slightly like twins. You can find that on YouTube by searching for 20VC, that's 2-0-V-C. I always love to hear your thoughts on the show in video, so let us know what you think there. But before we leave you today, we're all trying to grow our businesses here, so let's be real for a second. We all know that your website shouldn't be this static asset. It should be a dynamic part of your strategy that really drives conversions. That's marketing 101. But here's a number for you. 54% of leaders say web updates take too long. That's over half of you listening right now. And that's where Webflow comes in.

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• 1:03:57Harry Stebbings?

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• 1:04:41Harry Stebbings?

  As always, I so appreciate all your support and stay tuned for an incredible episode this coming Wednesday with Dan Soroka at Limitless.