Pod Insights Equity Podcast Y Combinator is still paranoid (re-run) About this episode While the Equity crew prepares for another Y Combinator Demo Day, we're throwing it back to when Natasha and Alex caught up with current YC Partner and Managing Director of YC Early Stage, Michael Seibel. The main question on the pair's mind was how is YC evolving to meet a changed market?
Seibel doesn't often do press -- and neither does YC -- so the interview was used to connect the dots on news from the accelerator, cross check top trends from the 2022 summer batch and ask about some of the biggest critiques people have about the institution.
We went a bit long, but figured it was worth it given the way the conversation was going.
As always, we'll be back with our weekly roundup on Friday, and don’t forget that Equity is opening this year’s Disrupt. We’ll see you there!
For episode transcripts and more, head to Equity’s Simplecast website.
Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more!
Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products.
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Transcript 10,807 words · 3 speakers
0:00 Speaker 00 Hey everybody, this is Alex and today we are bringing you something a little bit different because if you didn't know, this is Y Combinator's Demo Day week, which means on Wednesday and Thursday, the Equity Crew is watching the Summer 23 Batch present and we're taking lots of notes. So instead of bringing you our usual interview, we have reached back into our archives nearly exactly one year to when we last spoke with Michael Seibel, who is Managing Director and Group Partner at Y Combinator today. Check out this interview. It's a lot of fun and we are going to have much, much more for you on Friday with all of our observations and learnings from this particular Demo Day cycle. And as a final note, Natasha is on this interview, given that it was from a year ago. She has since gone on to the information, but we love her. She's part of the Equity
0:44 Speaker 00 family. Please enjoy this interview and we are back on Friday with even more Equity.
0:59 Speaker 01 Hello and welcome back to Equity, a podcast about the business of startups where we unpack the numbers and nuance behind the headlines. I'm Natasha Mascherini and this is our Wednesday show where we niche down to a single topic, think about a question and unpack the rest. Today, we're asking, how is YC evolving to meet a changed market? And I have Alex Wilhelm with me, fresh off of Demo Day, Apple, everything from last week. Alex, how are you?
1:22 Speaker 00 Fired up, ready to go. I mean, I was looking forward to this for days because it's kind of the nexus point of what we care about. Startups, the future, what's being built, who's building it and how we're getting there.
1:32 Speaker 01 And we're not alone. We have Michael Seibel, a friend of the pod and the head of YC's accelerator with a sit-down interview that they don't do too much anymore. YC historically is a press hour. It doesn't anymore. And so consider this kind of Michael in the hot seat, dare I say. And we're going to get into some pretty exclusive details on how one of the most famous accelerators is thinking about itself, its batches and growing its standard deal in the future. And without further ado, let's jump right into that interview.
2:01 Speaker 01 It's Michael Seibel. Michael Seibel is the head of YC's Accelerator, has been with the institution for nearly a decade. He is one of the most prominent Black investors in venture and early-stage fundraising. And before that, he founded SocialCam and Justin TV. He also went to Yale, but more importantly, he went to high school very close to me. Michael Seibel, welcome back to the show.
2:21 Speaker 02 Thank you. Where'd you go to high school?
2:23 Speaker 01 I went to high school in Bridgewater, New Jersey, and I saw that you are an East Brunswick person. So I don't know if we tell people.
2:29 Speaker 02 I feel like we competed against y'all. Yeah, that was the thing.
2:31 Speaker 01 We had to have Go Panthers forever.
2:34 Speaker 00 So I just want to point out that as an Oregonian originally, I have no idea where those places are. Are those cool cities? Are those boring cities? Like, I need some context.
2:41 Speaker 01 Cities, number one, not a city. I don't know, is East Brunswick a city?
2:45 Speaker 02 No, no. There's some of the coolest places in New Jersey, though.
2:49 Speaker 01 Central Jersey.
2:50 Speaker 00 I don't know if Michael's making a quiet diss there, or that was a really emphatically felt comment. Okay.
2:54 Speaker 02 No, no, no, no. I love these.
2:56 Speaker 00 All right.
2:57 Speaker 01 Yeah, I'll rep it forever. Cool. Well, we're not here to talk about only Jersey, but I'm sure it'll come up somehow in the rest of the episode. Today, I want to talk, basically, we're coming off of YC Demo Day last week, and it's been a while since you've been on the podcast, since TechCrunch has had a chance to sit down and talk to leadership at YC. So there's a lot we want to get into, and I wanted to really start with kind of your high-level impressions from this batch. It was a smaller batch than normal, around 240 startups all over the world, and touching a bunch of different sectors. So, Michael, I thought maybe to start, tell us a little bit about the story of this batch, with it being smaller than the batch prior.
3:33 Speaker 02 Yeah, this batch was a lot of fun. One of the primary reasons why it was smaller was because it was the first batch that we were doing in person, kind of coming off of COVID. It was an amazing experience. I mean, I'm embarrassed to say this, but hanging out with founders in person is more fun than hanging out on Zoom. I think we all kind of realize that. And so, being able to see everyone once a week, being able to have in-person programming, being able to invite alumni back to meet with founders during the batch, it just was a special experience. And it was funny, when talking to founders during the COVID batches, their number-one request was to bring it back in person as soon as it was safe enough. And I'm excited we got the opportunity to do it.
4:12 Speaker 00 Yeah. The first time I met Paul Graham was actually at one of the Crunchies and I was backstage with him and we were waiting to go up and talk on stage and a founder came up to him and he was there with some other people and he couldn't remember the person's name. And I don't bring this up to make a rude comment, but he was like, oh, we have so many founders. And at that point, I realized how many names you have to have in your head at one point in time. And since then, YC has grown quite a lot. And so it must just be an absolute challenge to keep just the name spaces, companies, sectors and challenges straight.
4:39 Speaker 02 You know what's interesting? One of the fun things about YC is that it's sharded. So each group partner works with a small set of companies in the batch. You know, I was working most intimately with between 30 and 60 companies this batch. And I read their application.
4:54 Speaker 01 Okay.
4:54 Speaker 02 I did their interview, decided to fund them, and then worked with them for a whole batch, saw them at the retreat, I'm gonna see them at the end of that celebration. So believe it or not, like for those folks, it's actually pretty easy to have all the content. I mean, I have all the context. I have everything about the company in my head. And then for years to come, they will request office hours with me. So if you ask me about a company that I wasn't the group partner for, yes, that is a lot harder. But for the folks who I've worked most closely with, it's, it's new visiting partners at YC are always surprised how easy it is to remember everything because you know, you're living it.
5:29 Speaker 01 I want to make it about you for a second, a little more, and hear about how your role has changed at YC over time, especially with what you just kind of detailed to us. I'm curious how new it is for you to be able to only work with this percent of founders versus try and spread it across, across everyone.
5:44 Speaker 02 I've had three roles at YC over the years. The first role was as what we used to call part-time partner, they're now called visiting partners. That was a lot of fun. There was very little commitment, just did office hours, showed up every couple Tuesdays, very low work. I was asked to join full-time in 2014. So I guess I joined as a full-time group partner that fall. And that was my first experience, kind of seeing the operation of YC from the real inside, you know?
6:11 Speaker 01 Yeah.
6:11 Speaker 02 Being very involved in admissions and mentoring and understanding how the batch worked and so on and so forth. And then in the fall of 2016, I was asked to help run the actual accelerator. And to be honest, that's been my job ever since. The titles have changed as every new, I don't know, titles change, what happens. But yeah, that's basically my job ever since. And so I guess that's been a long time. I guess that's been six years.
6:35 Speaker 00 Six years, 12 batches. I mean, that's, it's a lot of companies, even if you are taking on one shard or one component of the overall aggregate. You know, we talk a lot about batch size, but one thing we don't talk about when we think about accelerators in general, not just YC, is time spent per batch. And YC does two per year, winter and summer, which seems very reasonable to me. But at the same time, you know, I've always been curious if that's enough time. Like, have you considered extending the amount of time that each cohort or batch has with people inside of YC, you know, giving them even more hands-on time, more support, more guidance and so forth?
7:10 Speaker 02 So one of the common kind of misconceptions is that the number one value that YC founders will get from the program is interacting with their group partners. And as a group partner, that makes me feel good, right? But what I would say is that there's so much more value being part of the community. And there's really two bits to that. One is there's this group of founders in your batch who are all pushing towards, you know, growing their companies, making their companies better. And when you're with a bunch of smart, competitive, nice people, you kind of want to work harder. And so that's a big impact. And the second is just the access to the alums, right? I mean, I think there's over 9,000 people have
7:54 Speaker 02 done YC now. And so your alum base is massive. What I would say is that people think about YC as having kind of an end date. But I do office hours with alums for years and years and years and years after they do YC. So one of the things that we tell founders is, you know, as long as you don't violate our ethics policy, do something horrible, kill anyone, you're YC for life. You can request office hours forever. And in many ways, the batch never ends.
8:21 Speaker 00 Yeah, you know, this actually echoes something that my, my dad taught me about university. He said, you know, the reason why we care about where you go to school and the reason why we're trying to push you to do as well in schools as you can. So you can attend a higher, you know, university isn't because it's the professors that are fantastic. It's the people you're with. We want you to be with the best folks and it's very much the same concept here. But going back to the idea of time, Michael, if YC batches don't end and you are kind of joining this community and you've had 9,000 people through now. Forget making the batch longer, why not make it shorter and have three batches per year and then maybe make them a little bit smaller?
8:54 Speaker 02 So trying to figure out how to have three batches a year is stymied by one thing, the calendar. If there were 14 months instead of 12, we could do it, but believe it or not, it takes time to read applications and interview. When you add that to the batch, we've not been able to figure out how to make two more months into the year. And so also, I don't know if my fellow group partners would actually stand for that, even if we could. But you know, it takes about five months all in to kind of organize a batch and run a batch.
9:24 Speaker 00 Okay. So essentially it's two and we're staying there.
9:27 Speaker 01 Yeah.
9:27 Speaker 02 You know, you know, we might figure out something cool, but for right now it seems to be working for us.
9:31 Speaker 01 I like the idea of there being like a, I don't know if this will ever be productized, but like something different happening with YC alumni and how to engage them. I think a lot of investors are rightfully there in the wings after demo day, ready to invest in those startups. And I think you tweeted about this recently, Michael, where it's like a double accelerator sort of conversation that's starting to happen. Where it's like, you went through YC, let's follow up and put you through another accelerator. And then I'm like, I know YC has created this continuity fund. And so I'm throwing out all these different scenarios of what a startup can do after they graduate. And a part of me is like, can YC be more selfish in how it supports them and do something a little bit more formal and benefit from the branding? And the work it's already probably doing more quietly.
10:13 Speaker 02 So we had that exact thought about five years ago.
10:18 Speaker 01 Okay.
10:18 Speaker 02 And we do.
10:19 Speaker 01 A little late, I'm a little late.
10:20 Speaker 02 No, no, it's okay. It's okay. I've been doing this for a long time. So something that we don't talk a lot about externally is we actually have three additional programs that founders can participate in. After they do the YC batch. So the one is kind of a, we call a series A program. This is a set of kind of lectures and seminars that you can take to. Figure out if you're ready to raise a Series A and design your process and your pitch. Then we have a program called the Post-A Program. And that's actually a new batch of companies. So you're rebashed with folks who've raised Series As in the last six to 12 months. You have a much smaller cohort. It's usually only about 20, 30 companies. And you go through all the challenges typically nowadays of having millions of dollars in the bank account,
11:05 Speaker 02 but not having product market fit. But now having this board member who like wants you to spend, spend, spend. And how do you kind of tackle that? Then we have a program called the Growth Program. That program is for companies that are about 50 to 100 people, post-product market fit, scaling, company building, executive hiring, so on and so forth. That cohort only typically has around 10 to 20 companies per batch.
11:32 Speaker 01 Okay.
11:32 Speaker 02 So as you progress your company, you actually get new batches. And what's really cool is that the same dynamic applies, right? You're the peer group of really, really smart, motivated people. You work hard, you learn a lot really quickly.
11:45 Speaker 01 Why is the earliest accelerator, in your eyes, the most famous or talked about part of YC still? If those systems and accelerators do exist outside of it?
11:55 Speaker 02 Well, it's the only way to get in. So those other programs are only for YC companies. So it's kind of the entry door.
12:01 Speaker 01 Yeah.
12:01 Speaker 02 And I think that that's the first thing. And of course, it's the most accessible as a result. And third, it has the most alum and it's been around the longest. So, you know, if you think about it like a school, you know, typically the undergrad's going to be more famous than the grad schools on average, probably for similar reasons.
12:17 Speaker 00 Yeah. Also, I'm just going to say this, like, there's a demo day for the earliest part of the accelerator. I would kill to have the Series A companies also do a demo day and drop me all of those numbers because that would be fascinating. So just, I don't know if you're looking for ideas, Michael, for the future, but there's one. And especially the post-Series A program. Oh, now you're getting into my late-stage domain. Please, Lord, give me the slides.
12:38 Speaker 02 It turns out that, interestingly enough, the core challenges change. So I would argue that for an early-stage company, one of the core challenges is getting enough funding to reach product market fit. And that's why Demo Day is such an important part of the early stage program. By the second and third program, fundraising isn't actually the number one challenge. I mean, with the post A program, they just raised a series A, so they don't need the money. And for the growth program, like more often than not, especially in the last couple of years, money's been thrown at them, like they've got money. It's, oh my God, this thing's working, but I have a team of 50 people and I don't know how to hire execs. Or I don't know how to set up HR correctly, or I don't know how to set up a sales team correctly. So, you know, the challenge of money changes as folks get older.
13:21 Speaker 00 So what you're telling me is that if we had a post-series A Demo Day, it would be, and here's how we solved our sales team compensation question. And everyone would fall asleep immediately. Okay.
13:30 Speaker 02 It would be less exciting, let's say.
13:32 Speaker 01 Well, you're bringing up an interesting point because something that Alex and I love to debate is the utility of a Demo Day. And I think even personally, my perception on that has changed from during a very hot market, you don't really need to splash up on stage and ask investors for money, especially if you have the YC stamp of approval. And I feel like when there's a down market or a market where things are more challenging, Demo Day becomes more important for some reasons. And so I would love for you to set the record straight on what your most recent, I guess, reasoning is for wanting the Demo Day to be part of YC. Or if we're gonna ever enter a world where YC doesn't need a Demo Day to launch and announce its companies.
14:08 Speaker 02 So I would say this, it's hard for me to generalize on Demo Days, right? There's a lot of different Demo Days out in the world and I don't really know how they work. I would say YC's Demo Day has two functions. The first is the obvious one, which is present the companies and drive leads. The second is as a forcing function to the founders, right? Just like, you know, YC doesn't necessarily need an application deadline. In fact, we read applications all year round. But just as a forcing function to, hey, there's this date that we want to accomplish this thing by, and it's important, really, really helps the founders get up to top speed faster as opposed to kind of a more generalized system. I would say it also helps the investors. You know, if I'm an investor and I'm talking to a company and I know that they're gonna be
14:53 Speaker 02 raising on Demo Day in a week. I might make my decision a little faster.
14:57 Speaker 00 Yeah.
14:57 Speaker 02 I might, you know, and so one of the things we tell founders who go through YC is different companies will leverage Demo Days differently. And that's okay, right? It's a tool and your job is to use it as best can for your company. And a lot of YC is like that. I think from the outside, it looks like a program or a factory where like everyone goes through the same thing. But on the inside, what we really say to the founders is this is a toolbox full of tools. It's your job to learn how to use the tools.
15:22 Speaker 00 Yeah.
15:23 Speaker 02 And that's why we get founders like Tracy, who's done YC after building an $800 million company. And that's where we get founders who are doing it for the first time because they can all appreciate the tools. That's why I came back to do it twice because I appreciated the tools.
15:35 Speaker 00 Yeah. And the deadline thing really rings true to me because if you give a journalist an assignment and no deadline, they will go off into the woods and they will come back seven years later with like three beards and no words. If you give them a deadline, not only is the end product better, frankly, because they have a forcing function, it also gets turned in on time and then I don't get fired. And so it works that for everybody. But the density of investor attention to me is, I think, probably to Natasha's point, more important in a downturn because, you know, I heard about fewer YC companies raising enormous rounds pre-Demo Day this cycle than usual. And so my read as an external party is that Demo Day probably had a bit more prominence in people making decisions and seeing things they're excited about. You can't see this, Michael's making bearish facial expressions right now.
16:17 Speaker 02 Yeah, sorry. Yeah, not, not really.
16:20 Speaker 00 So you heard it here first, huge deals before Demo Day this year. Michael, Michael's not told us.
16:25 Speaker 02 It's not that. I would say that in some ways, YC is the benefit of being insulated from a lot of the startup fundraising buffeting. You know, enough investors trust our process and trust our applicant pool. And so people might be surprised, but the fundraising environment for companies this batch versus last batch wasn't significantly different. What I will say is this, a lot more founders are starting to understand coming out of this, you know, cash craziness that we've been, that money isn't the primary determining factor of whether you're going to get product market fit.
17:00 Speaker 01 Say it louder for the people in the back.
17:04 Speaker 02 It's interesting, right? Because they saw all these companies during the run up raise all this money. And now they're like, hey, shouldn't there be 10x more Googles? And look around, you don't see them. And so a lot of what the founders have done a little bit differently, especially as an impact of the new deal, is they've said, instead of focusing on how much money we raise, let's focus on reducing our dilution. And one of the things that's pushing round sizes down is founders saying, instead of selling 20, 25% of my company for a seed round, and then piling on 20% for the A, and then 10% for the B, and 10% da, da, da, da. Like, if I leveraged Emo Day effectively and YC effectively,
17:45 Speaker 02 I can dilute 7% to 10% for my seed round. And man, that's equity that stays in the hands of the people working on the company, the employees and the founders. And so a lot of what I saw, it was really great, because part of the impact of giving everyone a half a million dollars was that they were less nervous about fundraising. And they're like, who knew? Like, that's such a big impact. Like, they're less scared that they're going to run out of money. And they can think about this fundraising game more logically.
18:13 Speaker 00 It's universal basic income for startups, essentially.
18:16 Speaker 02 A little, a little bit. And, and as a result, people said, well, if I want to hit, you know, one to two million dollar ARR as my Series A goal, I think with a million, million and a half dollars, I can get there. I don't need two, three, four, five. And so I think that's been a massive change. And weirdly enough, the structure of the new deal kind of rewards this, right? The lion's share of the money is uncapped on FN. So you pick the price, the founder picks the price. And founder wants to optimize for dilution, that's great.
18:48 Speaker 01 For some background for people who are listening, YC, in January 2022, so beginning of this year, it expanded its standard deal from $125,000 to half a million. And that was pretty ahead of, I would say, February, when the downturn and the first layoffs started really happening. Did you have insight that there was a downturn about to happen? Like, were you predicting it? Or did that bigger check size?
19:12 Speaker 02 So I'd love to tell you this story, because this is such a funny story. So like, when we released this news, everyone was like, oh, my God, YC is having a hard time competing. They have to give more money. And I was just like, so. We have a Slack that shows every single YC finance. And so just all day long, new company raising money, new company raising money, like every single deal. And starting in the Feel free to invite us.
19:37 Speaker 00 Invite me, for the love of God, Michael.
19:39 Speaker 02 Sorry. And so, starting middle of last year, we started asking the question, okay, what's the revenue multiple here? And we started seeing companies raising at 100 to 350 x their revenue. So let's like, put that in context. I have $3 million in revenue, I have a billion dollar company. Now, any of us who've been around for longer than two seconds are like, that doesn't feel sustainable. So, one of our partners, Dalton Caldwell, Jared and I sat down that fall. And we were like, let's say that this doesn't continue, because that seems to be for sure. What can we do to help YC companies in a downturn?
20:22 Speaker 02 And one of the things that we had been doing, that a lot of people don't know about, is we'd actually worked with Harvard in the past to create a investment for every underrepresented founder. And it was at the same structure. It was with this uncapped MFN. And, you know, previous batches, and we saw that operate at scale. About 30, 35% typically, companies have at least one underrepresented founder. So, we saw that mechanism, and we were like, huh, if we could apply that same mechanism, and effectively pre-invest in a company's demo day round, it'd be super helpful to the founder. Especially in an economic downturn, it's going to do two things. One, if the company can't raise, they won't die.
21:03 Speaker 02 But two, if I'm an angel investor or a seed fund, and I'm comparing a YC company with half a million in the bank, versus another company without, I think, give the YC company money, company's going to last long. So Jeff, and Ali, and John, and a number of the people who spend most of their time for LPs, literally Turn that argument into this new deal by going and getting our LPs to agree, which thankfully they did. We released this in January and then we're just, you know, okay, let's see when craziness starts to happen. And we didn't know, like, we didn't know, but it seemed like by April or May, it was pretty obvious, right? We already put a video out about it and lo and behold, our advantage of not being too caught
21:46 Speaker 02 up in the craziness allowed us to, you know, plan ahead, which that's what good folks are supposed to do, right?
21:52 Speaker 01 It aged well. It aged well. And I think about like a traditional pre-seed investor, they seem to have a lot more flexibility where they're not giving, most are not giving every startup that they invest in a standard deal. So they can kind of tune to the market in real time. Do you see YC or even just like your own perception as an investor, is there a benefit? Like, will the new standard deal ever change back if the market becomes hot? Or will it ever grow if the market continues to look worse? Or does it feel like the standard deal stays standard for a pretty long time?
22:22 Speaker 02 Who knows? I will say this, we certainly have enough money to do the standard deal for a long time. But the YC deal, when we were doing YC for Justin TV, I think was $20,000.
22:34 Speaker 00 Yeah.
22:34 Speaker 01 Yeah.
22:34 Speaker 02 So probably the only thing that's for sure is that over time, the YC deal changes.
22:41 Speaker 02 But I think it's been great for this environment. I think it's been great for founders. And I've just loved to see founders leveraging it to improve their companies. The core conversation that Jared Dalton and I had was what is the deal that we wish we had in an economic downturn?
22:57 Speaker 00 Yeah. You know, it's interesting because when I started covering YC back in the day, it was the old like 7K per founder plus like 10 or something like that. It was, it was enough money to get to back to what we used to call ramen profitability. I mean, that was the shtick of it. And then the way it was explained to me by people outside of YC, so this might be complete horse Michael, but like, they're like, look, you know, if people can just go kind of like chillax at Google and make 400, you have to kind of offer a little bit more so that way they're kind of more willing to take this risk. And that may or may not be true. But to me, like, it's just different methods of trying to help early stage, very early stage companies get to PMF, product market fit.
23:35 Speaker 02 Yes.
23:35 Speaker 00 And this is why I want to go back to something you were talking about earlier about reaching PMF and companies, you know, working to get there by a certain time. And when I watch Demo Day, and I have seen now.
23:45 Speaker 01 Way too many.
23:46 Speaker 00 No, not enough. I freaking love it. I love demo days. I like to get excited. If I was an investor, I would lose all my money every demo day because I would just write everyone a check because they're all so fun. But like, they're all talking about traction. They're showing us, you know, look, we're going 30% week over week, you know, our product hit 5,000 GitHub stars, blah, blah, blah. And so to me, they're almost flexing what feels like a proto or a near PMF. I'm now kind of thinking if that's the right move, given that you're talking about PMF being something that they reach in a little bit more time. So are they stressing early traction as indication they're moving towards PMF? Or are they trying to say like, hey, we may already be there?
24:21 Speaker 02 No, it's always about struggling to get to product market fit. So I would say that if you're not growing, it's hard to be learning in a startup. But getting to 20,000 in revenue or 50,000 in revenue, or even a mill in revenue, does not mean you've hit product market fit. And here's like the scary thing that we tell founders. For the most part, if you hit product market fit, it's your pro- like, it's your game to lose. Like, somewhere between 2 and 4% of YC companies become billion dollar sustainable companies. And it's around that many hit product market fit in a batch.
24:59 Speaker 00 Got it.
24:59 Speaker 02 Because I think that like, once your business is actually functioning, the playbook for scaling it isn't that unique. It's just really hard to make something people want. And that's why we spend a lot of time focusing on it. So when people are talking about their traction during demo day, a lot of it is you could explain it as, we're interacting with more customers this month, we're learning faster this month, we're learning, we're learning, we're learning, and we're like, we're desperate to learn what these folks want, so we can make a great product.
25:25 Speaker 00 Yeah.
25:25 Speaker 02 And the sad truth of startups is that most of them never figure that out.
25:29 Speaker 00 Yeah. I'm in charge of TechCrunch Plus to a degree at TC, and we have a couple tens of thousands of subscribers and a couple single digit millions of revenue per year. And I don't think we've hit PMF yet. You know, just to back up your point. And like, I'm slugging this out day by day, trying to improve, hone. I listen to customers as much as I can, mostly just mean tweets. But like, yeah, it's, it's fricking brutal. And I, yeah, especially on a day like churn's high, and you're like, well, there goes my Tuesday, you know?
25:57 Speaker 02 I think what's also challenging for us is that investors really love the idea that money is the biggest factor for getting to product market fit. And so, one of the things we have to warn our companies off constantly is, you raise more money than you need, you hire more people than you need. You become a manager instead of being a product leader and your burn goes up. And then you wake up and have office hours with us 18 months later. And you're like, well, where did that 18 months go? You were company building before making something that people want.
26:26 Speaker 00 Yeah.
26:26 Speaker 02 And it's really hard to reverse that. And also, it's really hard on those employees that you hire because your company is probably going to die. And if you were more disciplined, you would have had more runway, more time to figure things out. And so these are kind of the hard truths in our game, right? And sometimes we really have to be clear to founders like, oh, you know, this other company in the batch raised this much money. If I don't raise this much money, it's like, that's not the game we're playing. We're not racing to give up chunks of our companies. That's not the game.
26:55 Speaker 01 Right. I mean, I see like everything that YC has been doing with this batch, but even over the past few months with launch YC with the new announcement with Gary Tan being the new president and CEO. And to me, it does sound like even though you've been in the game a long time, we're seeing the accelerator take on a different life, a different vibe in some way. I wanted to get it in your words because I have a lot of hot takes and I will share them with you happily. But how should people be thinking about YC's role in the ecosystem now? Even if it is focused and believes in those fundamentals?
27:25 Speaker 02 I think that if I wanted to help people understand how YC thinks of itself, I would say we still have an underdog mentality. We still have a paranoid mentality. And we still have a mentality that we have to iterate our product and make it better every single batch for our users. Sometimes it's weird when people come to work at YC because, you know, from the outside, they're like, the game's done, right?
27:49 Speaker 01 Institution.
27:50 Speaker 02 Yeah, the game's done. And like on the inside, you know, it looks like you're talking to a bunch of like nervous people who are like twitchy and like trying to like figure out how to make this thing even better.
28:01 Speaker 00 I didn't know YC was a newsroom.
28:05 Speaker 02 But that's what it's like. And you know, one thing that we say to our founders is we want to make sure that we earn that 7% every year. So it can't stay static. It always has to be improving. We also build new stuff for alumni, new stuff for folks in the new batch. And that's hard for people to understand, because if you go to a college and you go back 10 years later, like, most things are kind of the same. But I mean, as someone who did YC in winter 2012, over 10 years ago, it's like unrecognizable today. So we model ourselves more after a software product where it would be embarrassing for the thing to not improve every year than after a university.
28:44 Speaker 01 So my take is YC is thinking differently about its distribution and about kind of what you said of like YC being something that even the public understands is more than a three month program. But it just feels like it's becoming a more outward organization, distributing its own startups beyond Demo Day. Is there like a trend or even like a word that you think describes YC's next chapter? Is it, for me, it's distribution, but I'm curious for you what it is.
29:10 Speaker 02 That's interesting.
29:11 Speaker 01 I spend way too much time thinking about your job.
29:14 Speaker 02 I'll say two things on this front. Probably the first thing I'll say, the first word I'll say is software. Most people don't understand how much of a software company YC is. And every step function in improvements that YC has made is typically coupled with a step function in the software team's size or effectiveness. And so many things you pointed out, you know, launch YC, work at a startup, that's the software team. You know, that's us asking, how do we use our software team and our scale to bring more value to our customers? I would say the second thing here is that we are relentless in trying to figure out how to give our companies a disproportionate advantage, because this game is really hard. You know how like they say,
29:59 Speaker 02 The army, like you only supply a soldier with as many supplies as they absolutely need, right? Because armies are cheap, countries are cheap, da, da, da, da. And so the amount that we do with founders is proportional to how hard it is to actually make a great company. And I still think there's so much more we can do because this is one of the hardest games on earth, like literally, one of the hardest games on earth. And so every six months, between every single batch, we just ask ourselves the question over and over again, how do we give our founders an even bigger advantage? You know, not to be unfair, but because they need it, right? Competing against Google and Microsoft, you need every advantage you can get.
30:39 Speaker 01 I mean, it's kind of like, Alex, we talk about this so much of like, there's the opposite argument we see more, which is like, it's never been easier to start a company, thanks to AWS, remote work, et cetera, et cetera. And so it's kind of refreshing to hear it said out loud, that it is still hard to do. Plot twist.
30:52 Speaker 00 Well, I think the problem with that statement is that it is easier to start a company. It's harder to build a startup because I think there's more competition out there. Like, one thing that I've noticed, Michael, is that when I uncover a neat company, let's say like Monte Carlo and Data Ops, the moment I begin to dig into that space, I find out there's like seven companies, all of which that have smart founders, institutional backing, and they're all going head to head, like OKR software startups are the same thing. Lots of very smart people there competing in a very, very specific market that ends up being relatively large, but they're not all going to be winners. And they're all smart people beating each other's heads. And so sure, they didn't have to go buy servers and load balancers, but that doesn't mean that the market has gotten easier. It's like you can buy a car and go racing. That doesn't mean you know how to take a corner.
31:36 Speaker 02 That's a very good point. I think that the hard parts have remained very, very hard.
31:40 Speaker 00 Yeah. Have they gotten harder? Because one thing that I've noticed is that cultural expectations for startups have changed. And I noticed this when I was at Crunchbase, like a lot of attention was paid to the company culture, team building, making connections internally, and trying to build a very cohesive team. And when I think back 10, 15 years ago, I don't remember that being as much of the conversation. And so it feels like almost the bar has gone up for building a company's insides as much as it has become difficult as it always has been to scale the business results portion of the company.
32:11 Speaker 02 I would say I agree with you that it's gotten harder. I might point to two different causes. I would say the first cause is that consumer distribution is now controlled by monopolies. So all of the kind of social networks and anything involving social or any like most things involving consumer are very aware that startups want to disrupt them and are fighting back, right? Yeah. And so I think that's a big thing that's happening. And what we haven't seen is some paradigm shift à la mobile, à la high speed internet and web two, that is kind of even the playing field. So that's the first thing. The second thing is, I think that we've seen the rise of B two B companies who, even though
32:55 Speaker 02 they're late, they stay in the game. Microsoft, Microsoft, Microsoft Teams is a perfect example. I can be 10 years late and just on time.
33:03 Speaker 01 Right.
33:04 Speaker 02 And The power of inertia. Exactly. And I, so I think that that power on the B two B side and the kind of distribution blocking on the consumer side has meant that startups have to be even more nichey. They have to be exploring areas that are more regulated. They basically have to be more resourceful. And I think there's an advantage to that. We're going to get a lot more interesting problems solved. I think there's a disadvantage to that, which is that, you know, we were talking earlier and when I was starting, the whole thesis was put live video on the internet. And the whole justification was because there was no live video on the internet. Right. Like that was all we needed.
33:43 Speaker 01 And scene.
33:44 Speaker 02 Yeah. You need a lot more now. So almost by definition, it's harder now.
33:51 Speaker 01 Yeah, I just talked to a LinkedIn competitor today and I still get excited by the LinkedIn competitor argument because I still think it's crazy. And it's one of my favorite ways to start off a conversation, which is beyond Google at trying to build your startup, like you might fail even if they're not in the room. How do you deal with that as a founder? And how do you bet your legacy on that, which always gets a different response?
34:12 Speaker 02 But I think it's also, I might argue it's a more global game now. Yeah. I'm at argue that funding is way more accessible now than it was 15 years ago. I would argue a lot more smart people are interested in it now. So it's still exciting. It's still fun and nobody gets into startups because they want them to be easy.
34:33 Speaker 01 Or make money.
34:34 Speaker 02 This doesn't, yeah, this doesn't attract like, or at least it doesn't retain people who are looking for the easy street. It's, it's those people out real fast.
34:45 Speaker 00 Do you want to be alone and sad and struggling for a long period of time with a terminal date of cash in your account? Well, then come to Y Combinator and have a blast. I mean, it is fun because it is hard, I think.
34:57 Speaker 02 Yes.
34:58 Speaker 00 You know, like, because
34:59 Speaker 01 The natural tension is like, why we all wake up every day and freak out on the internet.
35:03 Speaker 00 Do you know what happens when I go for a walk and I go up a very small hill and I walk down the other side? Nothing happens. But if I'm the first person of Everest, you know, I'm famous forever. And so I think the scale of the challenge is what makes it interesting. And I think that because the technology industry has gotten bigger, like back to your example about live video, I mean, think about how many places you can now do that.
35:21 Speaker 02 Yes, all over the place.
35:22 Speaker 00 I think you can even make a bigger impact perhaps than you could have before. And I think that's even more exciting. More folks are online now than ever before. And right now it's more and right now it's more and it's going up every fricking second. Like, that's, that's the game. So I know Natasha has one more thing, Michael, but I was gonna ask you this at the very end, but I want to do it now because we're on the topic.
35:39 Speaker 02 Sure.
35:40 Speaker 00 Are you still having fun? Because I think the answer is yes, but I want to make sure that I'm not misreading that. Is it still fun to do this amount of hard work?
35:46 Speaker 02 Yeah, I think that various things continue to make YC fun. I would say that it first starts with the companies. Every batch, it's a new set of companies that are exciting. And now that batches are more and more global, you'd be shocked at how much you learn about the world through the eyes of founders who grew up there, who live there. When we bring new people into YC, they're always puzzled, like, why do you know this about these places? And I'm like, did you live there? And I'm like, no, I just, you know, I helped founders who that's their whole world. And so I think that's the first part that's been a lot of fun. Second, you know, I am one of those broken people who like challenges and COVID
36:25 Speaker 02 was a big challenge for YC. COVID allowed us to reconsider most of the sacred kind of don't touch pieces of the program and forced us to change them. And so that's so much fun. And now coming out of COVID is like another kind of rebirth of the program. So I think that's a ton of fun. And then the last thing is the alums, like any good YC alum is opinionated about YC. Like, any good YC alum is like, yeah, YC is good. Like, this is the kind of thing where you can say certain things in your family that you can't say outside of your family. It's like, oh, YC is great, but like, I really wish they did this, this, and this. And like, those lists don't end. They just keep going.
37:06 Speaker 01 It means people care, as you know. Yeah.
37:09 Speaker 02 Yes, and so that's what's been really fun, too. And that's been accelerated by having a great software team. Because when people say, oh, I wish that YC could help me get more customers, or I wish YC could help me hire better, or I wish that YC could drive more traffic to my website and give me more SEO juice. It's like, we can do those things, you know? And I think that what's tricky, what I really don't understand about other investment firms is that if all we could do was advice and money, I would have been bored like years and years ago. But being able to attach community and software and all these other elements and being global, like, yeah, it's the longest thing I've ever done in my life.
37:48 Speaker 02 So, must be pretty fun.
37:49 Speaker 01 Crazy. I mean, I guess another challenge that I see both YC alum and just people who tune into Demo Day along us bring up every batch, which is, you know, diversity and wanting to hold YC and tech and venture at large to a higher standard. I know this batch had 1.3% acceptance rate and, you know, I was bummed to see a drop in 1% of women founders. How are you thinking about changing YC's focus on diversity? And, you know, I'll read the numbers out, too, because you give them to me over email the day of Demo Day, which is since 2015, YC has funded over 800 women, over 350 Black founders and over 675 Latinx founders. So, big investments have been made, but how do we do better from here?
38:30 Speaker 02 You know, one thing that is really challenging when I talk to underrepresented founders as a group, and I'll be honest with you, I don't have great answers for, are disproportionate economic challenges. So, when I talk to a Black software engineer who's making $375,000 working at a big tech company, and I go into my spiel, like, you should do a startup, you have the skills, like you could do... Here's the answer they provide. I am the safety net for my immediate and extended family. If someone can't make a phone bill or a water bill, if someone needs an extra this, or someone's car breaks down, everyone calls me. And, you know, they're not ashamed by that, they're proud of that. And so...
39:16 Speaker 02 Then my spiel starts sounding really freaking stupid, right?
39:21 Speaker 01 Do the thing where you probably will fail.
39:23 Speaker 02 Yeah, you should pause all of that. And, and so what I've tried to do is really two things. I've tried to lessen the information burden. Let's make sure the reason why someone's not doing a startup is because they don't understand how to get started, how to come up with an idea, where to go for funding. They don't understand that stuff that used to never be written down, that used to only distribute through certain networks. And the second is the economic piece, you know, increasing the deal. A lot of founders will tell me, well, like, if you would only give me 125, how do I pay my salary? How do I pay my mortgage? And a lot of what we have to tell founders is like, this 500,000, like, if you need
40:08 Speaker 02 that to pay your bills, like, that's the best use for it, like, use it for that. I think that the unfortunate fact is that we have to assume that underrepresented founders are smart and making smart economic decisions for themselves.
40:23 Speaker 00 Yeah.
40:24 Speaker 02 And like, if we don't change the information game or the economics game, they're going to continue to not choose the super risky, most likely to fail path. And we have programming, we have all kinds of other things. Hell, you know, I'm sitting here running it, right, as an example, but those are the hard truths. And what's interesting is whenever I talk to YC founders who are underrepresented, like, these are the topics that come up over and over again when they're trying to recruit their friends. So a lot of the times when I think about this game, I like to separate out diversity in the technology world from the startup world. Two different worlds, right? Like, whether you decide to work in banking or at Google, like, you know, the paycheck's there, right?
41:07 Speaker 02 Like, the stock is liquid, like, da, da, da, da, da. Whereas deciding to work at a company versus a startup. Very, very different decision.
41:15 Speaker 00 You know, this reminds me of another point that I've been thinking about a lot with friends, which is the state of health insurance in the United States and how people feel very compelled to stay at a bit of stable employment because if they don't have that, their insurance costs are half their income if they wanted to go off and start their own thing. And so it sounds like if we wanted to encourage a broader base of entrepreneurship more generally, there's some things that we could do, you know, fight for maybe some sort of easier to access healthcare options to fight for more equitable economic outcomes across different ethnic groups and so forth. Like if we can make a more level playing field, things would shake out differently. But it's going to be probably our life's work to reform the structural system in which we all look at and go, what the hell are we doing? Because I'm pretty pissed off about, I don't know, 98% of it.
41:59 Speaker 01 I agree.
41:59 Speaker 02 I think our life's work, the life works for our kids. But I think that the point that I want to kind of still nail home is like these underrepresented potential founders are smart people making logical economic decisions.
42:13 Speaker 00 Yeah.
42:14 Speaker 02 And I think sometimes it's, you know, it's saying that like, there's a lot of people who want to do financial education for the poor, but if you are making within a couple of dollars of how much you need every month, you are pretty on the ball when it comes to your finances, right?
42:30 Speaker 00 I don't, I never know how much money is in my checking account now. When I was living paycheck to paycheck, I had a much clearer perspective on making rent. You know what I mean?
42:38 Speaker 02 Exactly.
42:39 Speaker 00 Yeah.
42:39 Speaker 02 So I think that like, we have to think about this lot less like, oh, people are not doing this because they don't understand. And if you think about this more like, people are making rational decisions, how do we change the base condition so this becomes a rational decision?
42:54 Speaker 01 Yeah.
42:54 Speaker 02 And, you know, that's a harder challenge.
42:56 Speaker 01 I think a lot about activation energy for founders, just because it is one of those more complicated things than just getting a check. But I want to clarify one quick thing, which is this idea where I've seen this again about questions around YC and a lot of accelerators, which is we see small percentages of women and diverse founders compared to not women and diverse founders. Is it because they're not applying? Or is it once they apply, they're not making it through the admissions process? I guess as I'm hearing what you're explaining, it sounds like you're thinking it's more the issue that they feel that they can't take the risk in the first place. So I want to make sure my comprehension is that there's not many applying.
43:33 Speaker 02 I would say this, I would say there are two things going on. One is that certainly there's an application pool issue. People who are opting into doing a startup tend to be more economically secure, both them and their families. And then I would also say there isn't an even distribution of skills, right? You know, there isn't an even distribution. If you look at the skills that are required to do a startup, specifically writing code, there isn't an even distribution of software developers out there. And so those two things combined really impact. Now, one thing I will say, though, is that as Y C becomes more international, you know, the global story is slightly different, right?
44:14 Speaker 02 While there are global problems, America does have a host of its own somewhat unique racial and gender problems. And so one of the things that has certainly been interesting is being able to be global and being able to see how other cultures are far more likely to encourage kids to do computer science, are far more likely to encourage women to be entrepreneurs, are far more likely to kind of have different cultural biases. And so I think being global helps, but at the end of the day, these are the challenges of our whole society, right? But that's the game. And so my goal at Y C is to make sure that people understand that we're trying to fight this fight too. I think the biggest thing that V C's have screwed up is just staying silent.
44:58 Speaker 02 Oh, this isn't my problem. Like, I just feel like I shouldn't even be talking about it. And if enough people don't talk about it, nothing changes. So that's why we report our numbers. That's why we do all this work, because it's like, let's keep this on the top of conversation. And hey, I like when Y C's called out, right? It's like, yeah, like, I want to be doing more.
45:18 Speaker 01 Michael, thank you so much for sitting with us and letting us put you in this really fun position. Hopefully it was fun. You should come back every year, twice a year. Alex, I think I could speak for both of us when I say that.
45:29 Speaker 00 No, I hate him. I'm over it. I've had a Michael Seibel time. No, this was an absolute treat and we've gone way over.
45:37 Speaker 02 Good luck.
45:38 Speaker 00 No, no, it's a good problem to have. And we didn't stop because your candor and perspective were useful, not just for us, but I think for folks out there listening who are hoping to better understand the mechanics of how companies come to be. So thank you very much for that, Michael. And congrats on getting through another demo day. I presume now you're off to take a three week nap and recharge.
45:57 Speaker 01 They're already accepting people into winter 2023. I don't know what's happening.
46:00 Speaker 00 Don't say 2023 to me. Oh, I'm gonna, I'm gonna miss the next demo day because we're having a baby. Oh, my gosh.
46:06 Speaker 01 Oh, my God.
46:07 Speaker 00 I have missed demoed in so long, maybe I'll tune in anyways.
46:09 Speaker 01 It feels like a good reason.
46:10 Speaker 02 That's a good reason. Well, thank you so much for having me. I really appreciate this. And I agree, it was a fun tradition. I look forward to bringing it back.
46:19 Speaker 00 And that is a wrap. It was long. I hope you're still with us. That was one of the more interesting interviews I think we've ever had on the show, not just because of the number of things that we ended up touching on, Natasha, but I would say I feel like I better understand Michael's mind on how YC operates, how it thinks and so forth. And I didn't think there was, I mean, this is a little bit arrogant, but much left for me to kind of figure out. But it turns out I was flat wrong.
46:44 Speaker 01 No, I mean, as he alluded to, or I alluded to during the interview, YC has gotten a lot smarter and more aggressive about its own distribution versus necessarily doing like a sit down interview or its own marketing through press. And so it's really helpful for a leader to peel back the layer on, for example, why they struggle with certain things and how they're getting more in person. To me, that's just like makes everyone get kind of on the same page. So there should always be more of it. But what kind of stood out to you during the interview? There was a few times where my eyebrows raised for better, and I won't say for worse, but for better, and a question mark.
47:17 Speaker 00 Yeah, I really appreciated the discussion of the change in the standard deal size. That to me is very interesting because I've always been a little bit conflicted because one thing that I've been told by investors, by entrepreneurs is that, you know, restraints do matter. And we talked about that with Michael and how, you know, having deadlines is super critical, why that's helped with demo days and so forth. And then there's more money. And so that kind of almost goes back against that point. There's also good reason for that, too. And so it's to me, not really trying to vet an individual decision as correct or not, but more to understand the thinking that led them to the current iteration of YC. And then I think that's going to help me understand whatever comes next. And I think that matters for people listening, because it's not just an accelerator that's doing this. I would say YC has the most mind share of any startup accelerator
48:00 Speaker 00 in the world and does lead. And so I think knowing how we got to today will help us understand much more what happens tomorrow.
48:08 Speaker 01 Hearing that the standard deal was increased due to the idea of a downturn potentially coming down the road was news to me. So I completely agree with you there where it just kind of expanded my perception on it wasn't necessarily, at least in YC's view, them trying to fight against competition or kind of this new wave of pre-seed investors, but more so try and help more founders get started in their companies.
48:29 Speaker 00 Yeah. And it's actually kind of the way Michael explained it is a little bit counterintuitive because they were seeing so much money flowing around these, you know, 200, 300 x ARR multiples. They actually realized that having more money in the YC program would be defensive versus the way that I was thinking about it before, which is that it was a bit more of an offensive strategy, that they wanted to go out there and capture more ownership early, when in reality, the larger deal came about more as moats and walls versus horse charges. Sorry, war analogies don't work well.
48:59 Speaker 01 I'll take it. Michael had a few of them, too. So I guess there's something in the water today. My question mark for the episode was, I think Michael focused a lot on software being always part of YC's DNA, but also a lot of part of its future. But then also stressing that a lot of building and a lot of helping startups is very human. And so that tension to me is always interesting. It sounds like for them, it makes a lot more sense for them to go the software route as they scale in order to be sustainable business. But we think about diversity and we think about the people that are getting lost in the pipeline. And I feel like there is like that tension there, which I still feel like I want more. I want there to be a better understanding there. I agree with it's a society issue. I'm not saying YC needs to fix everything, but the fact that fundraising has dropped for women over year, a batch over a batch is incredibly frustrating to me still.
49:43 Speaker 00 Yeah, yeah. And as Natasha would love to say, there's nuance to that because we've seen changes in the overall labor pool, for example, in a COVID world versus a pre-COVID world. And we've seen different impacts to labor force participation in the last couple of years, which is probably showing up here as well. My takeaway there isn't that I agree or disagree or feel better or worse about YC's diversity numbers, but more that I think it's reminded me that when you become this large, you are influenced by macroeconomic factors. And so it's not entirely in your control. And I think that's a good reminder when we castigate or hand out plaudits to people who do particularly well, particularly poorly at, say, diversity of investment or so forth.
50:20 Speaker 01 I like the hint that he gave that the standard deal has always changed. And so maybe we'll see more money come down the road for founders, which if his argument bodes true, it sounds like it does because he's the one talking to these founders, that will help more diverse founders take the economic risk towards starting a company.
50:35 Speaker 00 Yeah.
50:35 Speaker 01 So very here for that.
50:37 Speaker 00 I wanted to get into that, but I mean, amazingly enough, we ran out of time, even though we went double log. We could have gone on for another three hours. But yeah, I wonder if offering more money at the, what we, I think we used to call the pre-seed stage, if you will. I wonder if that does de-risk entrepreneurship to the point in which you could diversify the founder pool. And you know, one thing I'll just say is YC has access to money. It's always been my impression. I've never thought, oh, YC, how will they raise their next fund for their accelerators, given that, as Michael said, 4% end up being unicorns. So it'll be fun to watch and I just hope everyone enjoyed that. And now Natasha, you and I have to go yank from the transcript and turn this into some posts.
51:13 Speaker 01 I don't know what's happening and I can't believe they're about to have a new CEO and we're gonna have to do this all over again.
51:17 Speaker 00 No.
51:17 Speaker 01 It's gonna be so fun, Alex. Thanks so much. Everyone else, we will chat with you on Friday. And if you have someone that you think is a big deal and we should interview, this went pretty well. So feel free to tell us who to interview at EquityPod on Twitter.
51:31 Speaker 00 Or EquityPod at TechCrunch.com.
51:33 Speaker 01 Amazing. Bye, everyone.
51:35 Speaker 00 Bye.
Previous Equity Tuesday: Arm's IPO won't resurrect private-market liquidity Next Who shuts down the shut down-ers? Page updated October 12, 2026 · transcript and summary are machine-generated
