Y Combinator CEO Shares How They Pick Winners, Advice For Founders + Lessons From Paul Graham | Garry Tan Interview

Episode 642: Sam Parr ( https://x.com/theSamParr ) and Shaan Puri ( https://x.com/ShaanVP ) talk to Garry Tan ( https://x.com/garrytan ), CEO of Y Combinator, about the sauce that makes YC outperform the rest of Silicon Valley plus lessons from Paul Graham, Peter Thiel and Garry’s first million. — Show Notes: (0:00) Winning the game (3:16) Being the Harvard of startups (7:31) How YC outperforms most Silicon Valley investors (9:36) Spotting extreme winners (14:14) Capital-as-a-service (16:34) How Garry hustled at 14 to get his into financial security (23:04) Turning down Peter Thiel's offer to start Palantir (32:20) Garry's first million (44:57) Early days at YC (51:31) The edge of startups with a 2-pizza team (54:36) Advice for founders in AI (1:05:57) The spoon-bending story — Links: • YC - https://www.ycombinator.com/ • Founding Sales - https://www.foundingsales.com/ — Check Out Shaan's Stuff: Need to hire? You should use the same service Shaan uses to hire developers, designers, & Virtual Assistants → it’s called Shepherd (tell ‘em Shaan sent you): https://bit.ly/SupportShepherd — Check Out Sam's Stuff: • Hampton - https://www.joinhampton.com/ • Ideation Bootcamp - https://www.ideationbootcamp.co/ • Copy That - https://copythat.com • Hampton Wealth Survey - https://joinhampton.com/wealth • Sam’s List - http://samslist.co/ My First Million is a HubSpot Original Podcast // Brought to you by The HubSpot Podcast Network // Production by Arie Desormeaux // Editing by Ezra Bakker Trupiano

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 people are prepared or even aware of what's about to happen right now. And it's like super, super good news for anyone who's running a business.

• 0:18Shaan Puri?

  Sam, have you seen, I feel like there's a new meme that got birthed and I think Gary's involved with it now, which is the learn to cook loser. Have you seen this, Sam?

• 0:26Sam Parr?

  What is that?

• 0:27Shaan Puri?

  What is that? Gary, can you explain this one?

• 0:28Speaker 00

  Posted it. I don't even know like what it was a reply to, but it seems to be going viral. So it's a good meme.

• 0:34Shaan Puri?

  I think somebody, Paul Graham was talking about cooking. He was like giving his kid advice and he's like, you know, when you have a girlfriend or something like that, like, you know, they love to come home to the smell of like a meal being cooked. And then someone immediately, you know, random Twitter troll is like, why are you raising like a feminine man? Like, you know, he should be masculine. He doesn't need to learn to cook. And then I think Paul's reply was learn to cook, comma loser. All the builders like I'm John and others, they said like tech people were like, you know, this is actually good. General advice, like learn to cook as a high agency way of living. I think it's like the compressed idea of, you know, build things, actually make things, actually go do things in the world that,

• 1:15Speaker 00

  Totally.

• 1:15Shaan Puri?

  You know, are of value. Maybe I'm reading too much into it.

• 1:18Speaker 00

  It's a more succinct version of make something people want.

• 1:21Shaan Puri?

  Yeah, it's the punched up version. Learn to cook loser.

• 1:25Sam Parr?

  Is, is Paul Graham like the definition of success? Basically built like one of the greatest companies of all time, Y C. And then it started working well and then just bails to Europe where he's living in a, I don't actually know if this is true, but it appears he's living in the woods, writing and being with his family. And I'm like, is this guy, did he just, did he just pull the ultimate move and it worked out perfectly?

• 1:50Speaker 00

  I think so. I think he really did.

• 1:53Shaan Puri?

  What's, what's your version of that?

• 1:54Speaker 00

  I mean, more or less like Y C as a concept is like kind of a miracle. It's, you know, there are very, very few places in the world where. Anything like Y C ever happens and then I just feel like I need to be like the watcher on the wall. It's like, okay, let's uh, this thing is working and then it's working for relatively mysterious reasons that are almost too obvious. I mean, it's but at once a mystery and it's obvious. Y C itself is like pretty earnest, like it's just make something people want, apply in this thing. We'll try to go through and sincerely find the things we think could be really, really big. And then we just give you a bunch of money and throw you in a room with

• 2:36Speaker 00

  all the other people who are, you know, sort of the top 1% of people trying to do that thing. And then somehow some magic happens where, you know, five to 10% of those companies become worth a billion dollars or more. And, um, you know, Y C takes some equity, but not that much, you know, like 7% specifically for people who often wouldn't have access to that capital or that network like by default anywhere, anywhere else. I mean, so it's kind of cool. It's just, uh, you know, one plus one equals three in a really unusual way. Um, I sort of resembles a college in some ways, you know, only instead of people paying tuition, like we pay them.

• 3:20Sam Parr?

  You know, when I think of good brands, a lot of people will just think of like, like funny or cool things. But when you think of like what BlackRock or Goldman, like some of these names, they're kind of like mysterious. Yeah, or Harvard. They're like, they're a little ominous and like a little scary, but they're institutions. Do you ever purposely think, how do we become an institution? Or is this just all because of, you just said, let's have high standards? Like, was it on purpose? Or did it just happen because you had good values? How does that happen?

• 3:48Speaker 00

  I mean, I think a lot of it comes back to, you know, earlier we were talking about Paul Graham and, um, the guy's just a very unusual, original thinker and very just clear communicator. And then I think the thing I learned from him in particular is that Clear communication and you're just using basic logic, being able to explain your sort of, you know, A to B to C, and then you zoom out and there's a really big idea in there. That's, you know, in essence, what a really good pitch is. Um, you know, I think that that's where it came from. Like Paul was just very, you know, both frankly, Paul and Jessica Livingston, his wife and co-founder, the two of them basically created this thing

• 4:32Speaker 00

  that feels different, didn't feel like another investor, felt very welcoming. I mean, this sort of viral tweet, I think PG has about Jessica is like, you know, Jessica once cut a founder's fingernails before he went on stage at Demo Day or something, just because it's like, it's like sort of, you know, at once very exacting, you know, we have very high standards, but then it's at once also very, um, sort of like almost family or like homey, just, um, welcoming and, you know, sort of that mix of both very earnest and very formidable, like those two things combined created, I don't know, something that seems to create magic.

• 5:16Shaan Puri?

  Isn't it wild, by the way? Like, just think about this. So one of my companies, I recently taken through like an M and A process and I talked to bankers and bankers, so we, you go first and interview bankers, like, why should I go with you? Why should I give you 4% of this transaction for six months of work here at the very end? And they're all about their differentiated process, how they do more, more, more, how they have the smartest people in the room and all the things they brag about, about what makes them successful. On paper, makes sense, but it's kind of the midwit meme because if you look at Y C, it's like, yeah, we, um, we invest in people before they even have an idea a lot of the time. They have no, no traction.

• 5:55Speaker 00

  Often they have to change ideas.

• 5:56Shaan Puri?

  We don't negotiate every deal. We just 7% for every single company. Uh, same deal. That's it. The application? Yeah. It's like a one-page form. You fill out online. The, oh, the interview? Yeah. We talked to you for 10 minutes and we just give you a thumbs up, thumbs down from there. I believe all of the things Y C does are so simple.

• 6:11Speaker 00

  Really only 10 minutes? Yeah, it's 10 minutes.

• 6:13Shaan Puri?

  Oh, my God. It's a 10-minute interview. And they're picking winners at a higher rate than anybody else. I think the, you know, they're attracting winners at a higher rate than anybody. So it makes it easier to pick, but they're picking winners at a higher rate than every other investor, even though their process is. Simpler and less than what you would think you need in order to be, you know, the the number one player in the space. And they basically, I think I've read the stat. It's pretty insane. You guys, basically, every time you run a batch, you basically print $3 billion of market cap on average. I did some math and I really looked at the the batch values. So you know, like something like 5% of all the companies become unicorns, but and you just do that a couple of times a year. You're doing it twice a year. Now you're doing it four times a year. You're like, oh, yeah, let's just print $3 billion of market cap

• 6:57Shaan Puri?

  two to four, two to four times a year. That is mind blowing. Like, that is so insane.

• 7:03Speaker 00

  Yeah, I mean, I think the the craziest thing I'd ever heard was basically the Airbnb round where I think something like under $20,000 became $2 billion. And the liquid IPO when Airbnb IPOed. So and, you know, YC didn't even take the piratas. That's pretty wild, honestly, like, you know, easily could have returned five to $7 billion with a good portfolio management strategy. But, you know, that's the thing. I think

• 7:31Speaker 00

  simple things work, actually.

• 7:34Shaan Puri?

  If YC was a company, because I think it's been around like 18 years, you said, so in the last 18 years, you know, YC has got to be up there in like the top 10 Silicon Valley companies, things that got created that created so much value. Do you think about it that way? Or is there, do you have a good lens?

• 7:53Speaker 00

  That's what I try and get people to understand. Like, this isn't just, you know, working at a company. This is, you know, I think we did the math on

• 8:03Speaker 00

  how much money per employee YC in theory should drive. And I think we're something like 20 ish million dollars per year per employee in terms of like, you know, sort of market cap value created in the world. And that's just the carry. Like, that's our take. Like, you know, in terms of value created for our limited partners and, you know, sort of overall in in sort of, I think it's like close to 100 million per year per employee. So it's pretty wild.

• 8:33Shaan Puri?

  Who are the LPs even? Is it like the pension fund types? It's just like a VC fund?

• 8:37Speaker 00

  People who invest in VC. I mean, the wild thing about YC is I think we're going to release a white paper on this pretty soon, but I haven't talked about this publicly before. We looked at a two year period from 2018 to 2020. Of people who invested in at least three YC companies per batch for those two years, the top decile predictably was very good. It was like 16x. The top quartile was also very good. It was 8x. I mean, these are outrageous returns for such a short period of time in venture period. The wild thing, though, is median was 5x and then the bottom quartile was 3.3x. So it's really crazy because in venture period, if you look at

• 9:21Speaker 00

  how VCs make money, it's all in the power law. There's only, you know, sort of the top 25% make any money at all. And then the top quartile generally, for any given year of VC, is only 3x. So it's pretty wild what's happening.

• 9:40Shaan Puri?

  You've read, I think I've read something, you've read 6,000 YC applications. So you've seen more of this than anybody else. You're the admissions officer. You've been in a lot of these interviews. You've then seen the companies grow. What do the extreme winners look like early on? And do they look any different than the average company?

• 9:58Speaker 00

  I mean, honestly, they're very similar. Like, my two craziest wins, one was Brian Armstrong at Coinbase, and he was a solo software engineer working at, you know, anti-fraud Airbnb. And, you know, he had never started a company before. He, you know, a lot of the things we worked on with him very early were like, sort of the basics that, you know, it's sort of hard to believe now, on the other side of him having built Coinbase, it's kind of hard to believe that, you know, there was a time when Brian Armstrong didn't know how to, you know, do a product launch, or, you know, even raise a single

• 10:39Speaker 00

  dime from investors. So I think it's basically been that same profile, like highly technical people who are just like sort of smart and earnest. And that's about it. Like, that's sort of mainly who we like to fund. And then it's, I think, unusually really, really important today in 2024. I mean, large language models have basically opened everything up. I mean, almost anything that a knowledge worker can do, you know, anyone with 130 IQ or below. Pretty sure that with workflow and evals, you could write software now that could do what that, you know, basically almost any knowledge worker could do. And you could do it perfectly

• 11:21Speaker 00

  with like no management headaches. It's, I think, like really profound moment for all entrepreneurs, period.

• 11:29Shaan Puri?

  Yeah, I think me and Sam have both had learned to code on our to do list for like 12 years, but the, but the, you know, Python, the hardware course on Udemy, did all that shit. I think we met, now we get to skip the learn to. It's just code now. You don't have to do the learn to part.

• 11:45Speaker 00

  It's like, you don't need to actually write it. I mean, it helps to be able to write a little bit yourself. But yeah, I mean, the wild thing from here is with like the new developments in O1 and CodeGen, I actually think it'll be more important that you're able to speak to virtual developers and like instruct them on exactly what you want and all the different use cases. And like, we're right at that moment where it's going from like, you really have to code it all yourself to you can just sort of talk to this pretty smart entity that will, you know, do it mostly for you. Like, it's not even about no code anymore.

• 12:21Sam Parr?

  I was doing that the other day where I was talking to chat GPT where I was like explaining, like, here's the problems my business is having. Can you help me like, can you just like be a therapist with me and help me like come up with interesting solutions? And the answers were shockingly good, by the way. It was like, it was like pretty good. It just like brainstorming with me and just being like a sparring partner. Is there, you know, like, I know that Y C, a lot of it comes down to making people what people want and things like this. And to me, that's a, that's like a bit of an art where you're more of an artist than a scientist. But is there a world where you could take their 6,000 applications and a bunch of other data that you have and kind of spreadsheet your way to like the likelihood that we build a company that, and I think there's magic to create these like multi-deca unicorns or

• 13:05Sam Parr?

  whatever. But is there a way where you could like use your data and spreadsheet your way to like, well, here's the interesting opportunity. This is going to get to some type of traction and wealth creation. With a high rate of certainty.

• 13:14Speaker 00

  Conceivable. You know, some of it is like, we think someone might do something like that and it might totally work, actually. And then the trickiest thing is like, how do you actually get really smart people to come and do that thing? And, you know, I mean, Capital as a Service has been, and I, I think like Chamath talked about that, and I thought it was very interesting.

• 13:33Sam Parr?

  What did he say?

• 13:34Speaker 00

  It sounds conceivable. I mean, I think they experimented with this when he was still working on social capital, where instead of having a 10-minute interview and, you know, how it works at YC is we actually have 14 equal group partners, including myself. So we actually, you know, hand-read these applications and, you know, you're not talking to an AI when you do the 10-minute interview. It's literally just talking with us. And then once we fund you, we're just working with people day to day, you know, for those 10, 12 weeks and then onwards into the future of the company. Like, we own, you know, 7% of the company. We're like a big seed investor. So we need to sort of be around and it's very like high-touch and you get like an individual person.

• 14:15Speaker 00

  And then I think like the Capital as a Service idea, like, is really just, you know, connect your metrics, connect your Stripe account, your bank account, your QuickBooks. You know, I mean, it's actually pretty doable today. Like, it's conceivable that someone should connect all those things up and then an L M can just, you know, rank whether something's real or not, do the diligence. And then if you like hit a certain bar, like boom, like here's money in your bank account.

• 14:42Shaan Puri?

  Sam, did you ever see that, when they did that for growth-stage companies? I think they called it the eight ball. It was like you, you connect all your data and then it'll, it'll not just tell you, they like, they could just take your raw data and they could put it into a format where they needed to analyze it. But then secondly, they benchmarked you. So they're like, oh, wow, they have best-in-class retention for this category or they're below average, so don't invest, right?

• 15:02Sam Parr?

  But I thought the results were like, interesting, but not like, like.

• 15:06Shaan Puri?

  Maybe too early.

• 15:07Sam Parr?

  Yeah, where it's like, this is interesting. But do you remember when ChatGPT started getting popular? I think, Sean, two years ago, and there was a guy on Twitter who had a really funny like name. It was like Greenpoint or something like that. And he told ChatGPT, like, make me a content website that can rank high on search and it can monetize on ads. And I think within like three months, he got it to like $20,000 in monthly revenue. Do you remember that story?

• 15:30Speaker 00

  Oh, yeah.

• 15:31Shaan Puri?

  Like the normal way now is I prompt AI and I want AI to be an agent. What he did was the opposite. He's like, you tell me what to do. I'll be your human agent. You, but you have the good ideas. You prompt me. And I thought that was like

• 15:42Speaker 00

  I bet it would work extra well now with O1, like the new reasoning model.

• 15:47Shaan Puri?

  Gary, can I ask you a question? You, today you probably think about like, you know, the future and billion dollar ideas. But when you were 14, I read that you kind of had your own hustle there. You were cold calling companies in the Yellow Pages, trying to get work. And you, you made enough money to kind of actually like help your family out, like move from an apartment to a house. Could you tell that story? I've never heard that before.

• 16:07Speaker 00

  Yeah, of course. I mean, let's see. I mean, my parents, we grew up, you know, sometimes food insecure. My dad was a foreman in a machine shop and my mom was a home health aide and certified nursing assistant at convalescent homes. She worked two jobs and me and my brother lived in, you know, apartments in Fremont, in the Bay area, sort of in the shadow of Silicon Valley. And I guess one of the weirder things is like, my dad's actually an engineer, but he just didn't have the EQ to really hold on to jobs. And he also struggled with alcoholism. So we just, he was always losing his job. And so we were always just like, never had money around. And the thing was like, he really did invest in computers.

• 16:49Speaker 00

  Like we had, our first computer was a, you know, IBM PC XT. So, you know, we were sort of

• 16:57Speaker 00

  reality poor, but you know, rich in access to computers, which was like really, really powerful for me. And I just realized, oh yeah, like I'm 14, but I, you know, know how to make web pages. And I started winning some awards for like web design as a kid in junior high. I started an underground newspaper with my junior high friends. And we learned how to make a website for that underground newspaper. And we got, and we called it an online zine. And the funniest thing was like, we had, you know, thousands of people would find it off of Usenet news groups and things. And we'd write Articles that, you know, I don't think people knew that we were 14.

• 17:39Speaker 00

  Like when, uh, when you're on the internet, one thing we learned is like, nobody knows that you're a dog, I guess. I don't know. Like, people would just write letters to the editor like we were like a legitimate publication. And I just got sort of really addicted to that. Like, like, like an early vice.com. Yeah, basically. Like, I think we wrote, uh, you know, my, my buddy wrote editorial about, you know, how the three strikes law was bad for California. And, you know, we were like 12 years old. Like, what do we know about any of that stuff? But, um, you know, on the internet, nobody can tell. And, you know, I, I think we wrote it in pretty clear English. Like, people couldn't tell that we were that young. And then I, I feel like I got really addicted to the internet. And then I thought, well, maybe I can make money. And, uh, you know, back then, there was a thing called the Yellow Pages that

• 18:24Speaker 00

  they'd throw on your doorstep. And that's how you would find businesses. And I thought, okay, the Yellow Pages is probably my link to making money somehow. Like, if they have a business and they have a little ad in the Yellow Pages, literally in the print section, like, you know, and this was not so early that like, the internet had eaten Yellow Pages yet, but it was, uh, late enough that there was an internet section. So I just started cold calling, you know, seeing, hey, like, I know how to make webpages. Will anyone hire me? And sure enough, I ended up getting a job and riding my bike to the local web design firm that made city websites for like, city of Pleasanton and Fremont and San Jose. And, uh, you know, basically, they paid me, you know, 10 bucks, seven bucks and 10 bucks

• 19:09Speaker 00

  an hour to work on. I mean, I learned how to do graphic design. I learned HTML. What is that? Uh, what's that phone script? Oh, God.

• 19:17Shaan Puri?

  Yeah. First, you have to deepen your voice, right?

• 19:19Speaker 00

  I know, right?

• 19:20Shaan Puri?

  You can't be 14 on the call.

• 19:21Speaker 00

  That's right. And it's like, oh, I'm, I'm a web, I'm a award winning web designer. And, you know, but I'm 14. So. Did he say that? Yeah, I think so. I mean, um, it's funny. I mean, I remember my first boss, he was... This was sort of his like side hustle. So

• 19:39Shaan Puri?

  By the way, he's an award winning designer in your LinkedIn now.

• 19:42Speaker 00

  No, I don't know if it is.

• 19:44Shaan Puri?

  That's a miss.

• 19:47Shaan Puri?

  That's a miss.

• 19:48Speaker 00

  It's funny. I mean, I remember it was like this company called Info Lane. It was, you know, they had a one, like basically, I think it had a conference room and, you know, sort of an engineer den and a lot and like a little reception desk. And that was the whole office. And I think it was one really technical, like sort of neck beard Unix guy. And then the funny thing was the CEO was also a bank, a regional bank manager, I think at Fremont Bank. And so, you know, the tech guy had walked into the local Fremont Bank and, you know, the internet was happening and this bank manager was like, I'm going to give, I'm going to invest myself, like I'm going to invest my own money.

• 20:29Speaker 00

  And he became like the co-founder on this, you know, web design firm in 1993, 94. So it was pretty wild to, to think about. I mean, that's just how you started business and that was what business was. Like you didn't go on the internet and apply on a form or something. You literally walked into a bank and banks were supposed to loan you money to start companies, which, you know, I think to some extent still happens, but, you know, it's just funny to think like how that's evolved since.

• 20:57Shaan Puri?

  And at some point, did you just make enough where you were like, mom, dad here, like I can help or what happened?

• 21:02Speaker 00

  Yeah. I mean, we, I always lived in apartments growing up and I had a little brother who was eight years younger and, you know, I wanted us to live in, I wanted the American dream. And so,

• 21:16Speaker 00

  you know, I still remember like helping cook the turkey at Thanksgiving and, you know, the new house that, you know, our, our family bought and, you know, I helped my parents with the down payment and my parents still live in that home in Fremont. So I'm, I'm helping them remodel it right now.

• 21:33Shaan Puri?

  That's amazing.

• 21:38Shaan Puri?

  By the way, I looked up your old blog. I think back in 2001, you wrote the following, which I think is pretty accurate. You said, you know, blogs are all over the place. This was back in 2001, so over 20 years ago. Pretty soon, we'll all just be writing a blog. We won't really talk to friends. I have to catch up anymore. Human interaction will just boil down to clicking on someone's name on your favorite website, and that'll be it. No more tedious how do you do over a nice matcha frappuccino at some pretentious cafe. Just read my blog if you want to know what's up.

• 22:07Speaker 00

  Oh, my God.

• 22:08Shaan Puri?

  You nailed it. Social media. It wasn't exactly blogging, but that's Instagram stories. That's Facebook. That's the news feed. Exactly. I think you nailed it. For better and for worse.

• 22:19Speaker 00

  That's funny. Man, I wish, the one thing I wish I could do is like, go back in time and tell myself, don't sell your time. Like, don't work for a consulting firm or like, you know, get paid $10 an hour. Like, go make products.

• 22:33Sam Parr?

  But did you, did you ever do that? I thought you were pretty young when you first started getting involved with YC.

• 22:39Speaker 00

  Oh, I was 27. So I was much later, honestly. I mean,

• 22:43Sam Parr?

  You looked very young in the photos.

• 22:45Shaan Puri?

  You actually didn't need to come from the future because I think I've heard a story that you were working somewhere, Microsoft or something like that.

• 22:52Speaker 00

  Oh, yeah.

• 22:52Shaan Puri?

  And Peter Thiel was, Peter Thiel was like, hey, quit your job. In fact, I'll pay your whole salary to quit your job and come co-found this new company, this little company we got called Palantir.

• 23:03Speaker 00

  Yeah, it's like a $95 billion market cap company today.

• 23:07Shaan Puri?

  And you turned him down. Could you, I mean, what the hell were you thinking? Could you just embarrass yourself here?

• 23:12Speaker 00

  Of course. I mean, I, you know, went to Stanford, computer engineering. I mean, changed my life, obviously. Fraternity brothers of mine, Joe Lonsdale, or Joe Lonsdale and Stephen Cohen. Stephen and I went to high school together, grew up together, tried to start a bunch of companies together. Um, you know, I was a year out of school. You know, it was 2004 and I thought like, oh, look at me. I have health insurance. I have a real job. And then my old fraternity brothers who were a couple of years behind me at Stanford, like, I guess they couldn't get a real job. So they're gonna, you know, go start a company. I don't know. It's really funny to think about in retrospect. But, you know, one of the things that was always really smart about the Peter Thiel

• 23:54Speaker 00

  world is when you start something, you always just need the smartest people around you. And I was lucky enough that I made, you know, Joe and Stefan's list when that happened. And, uh, you know, Peter was just running the playbook that worked for him when he sold PayPal, which is, and this is something that people at Palantir do all the time now. It's like, when you start a thing, you, you know, take an eight and a half by 11 sheet of paper and you write down all the smartest people you know. And then you go take them out to dinner and lunch and just, you know, sit on their doorstep until they quit their jobs to come join you. And, uh, you know, I guess it was pretty wild. I mean, Peter was not a billionaire yet. I think like the funniest thing about PayPal and the PayPal mafia is that like, they basically fought a land war in Asia against eBay.

• 24:39Speaker 00

  You know, I mean, when you don't have, when you have to work on other people's distribution and other people's platforms, you just end up becoming like the most vicious hardcore, you know, builder fighter types to just like gut it out to build a business on someone else's platform. And then the exit for PayPal was just not big enough that it made people, it made people like able to take lots of risk, but not so much that they had lost all energy and will to fight.

• 25:08Sam Parr?

  Well, and there was a bunch, and there was a bunch of them too. So that got divvied up a bunch.

• 25:11Speaker 00

  Yeah, as well.

• 25:12Sam Parr?

  How much was Peter Thiel worth, do you think, at that conversation? Because like, let's say you made $80,000. That's like a big deal, right? To be out to dinner, it's gonna be like, I'll give you 80 grand right now just to quit.

• 25:24Speaker 00

  Yeah, totally. To get a co-founder or co-founding engineer, like I, I, I, some of it is like, I could see myself doing that today. I mean, I think Peter was probably worth like at least a couple hundred or at least a hundred million at that moment.

• 25:36Shaan Puri?

  More than enough to, to be able to say something like outlandish like that.

• 25:40Speaker 00

  Yeah. I mean, I think it's a fair trade today. Like I would definitely trade like my, you know, my gold Rolex for a first co-founding engineer of a company that I think could be worth a hundred billion dollars in the future. That is a fair trade.

• 25:54Shaan Puri?

  Did he make a compelling pitch like about the company or was he just like, I don't know, this is just like a bet. Like was he, did he see the future in that, that sense of like what it became?

• 26:03Speaker 00

  Yeah, absolutely. I mean, I think the thing I really learned from that moment, I mean, I was 22. I didn't know how the world worked at all. I mean, we had dinner at his French restaurant, Free Zone. Uh, I think that's one of the things you do when you, you know, make it to send to millionaires, you do something stupid like open a restaurant and, uh, I mean, the restaurant was terrible. Like the soup was really bad. And I mean,

• 26:26Shaan Puri?

  He lost like millions of dollars on that restaurant, right?

• 26:29Speaker 00

  I think so. I mean, today it's this really nice steakhouse, but yeah, it was bad. Um, and then, you know what I should have done? I mean, I was so lacking in social graces. You know, they did the whole pitch and then I think I said no, like before the soup came out even. And so we were just like awkwardly sitting there for the rest of the dinner.

• 26:50Speaker 00

  And he had actually re- he was like, here, like, here's a check, like $70,000. You know, how much a year do you make at Microsoft? Here's $70,000. Cash this check. I didn't really understand it in the moment. And then I think in retrospect, like sort of the, the number one thing that I didn't understand that I do now sort of realize, like I have to tell, you know, tell everyone this is how it works is, um,

• 27:13Speaker 00

  you know, I didn't join at the time because I thought that, um, The world was sort of told to you or like, you know, sort of narrated to you, I guess. You know, I thought, oh, the Wall Street Journal isn't writing about enterprise software. This isn't a hot space. And so, you know, that was like fundamentally the backward way of thinking. Like, the world doesn't like happen to you if you are actually a like prime mover in the world, like Peter Thiel or my friends. You go out and you go into the world and you discover something about the world. Like you actually talk to people, like you actually talk to your users. And you sort of gather a primary first source information on how the world works.

• 27:57Speaker 00

  And what they had done was realize that the world's biggest companies and the world's biggest governments had no access to software engineers. Or, you know, big data, back then, people said like big data or data mining was like, you know, today we say AI, but either way, these were just buzzwords for concepts that are like actually pretty real. Like, I think they, you know, went into the security apparatus of like the three-letter agencies in DC and realized like all the people they talked to, you know, they were working even CIA NSA, like the, you know, people who we expect to have the world's best technology, they really don't.

• 28:37Sam Parr?

  And Peter knew that because he somehow CIA NSA, whatever, when PayPal was running, they're like, you guys want to have a conversation or like, you know, how does like a Silicon Valley kind of outcast get a CIA tip?

• 28:53Speaker 00

  Yeah, I mean, my, I don't know specifically. I mean, how they described it to me, I think, was like, they learned a lot about how the world works through the anti-fraud part of PayPal. And the core idea was that they could find these fraud rings just using a graph database. Just literally, you know, people make a bunch of fake identities. They send the money from one fake identity to another. And if you're just using SQL or a row-based method, you just couldn't figure it out. But the second you like grafted out, you would find this ring. And, you know, what they found

• 29:31Speaker 00

  Was that, you know, the three-letter agencies didn't have access to that technology. So, you know, what I needed to do was instead of taking my worldview from the media, or, you know, today from social media, or from, you know, what reporters were sort of distilling for me, what I needed to do was listen to people who had actually lived direct experience in doing something unusual and strange in my sense of people.

• 29:56Sam Parr?

  That's simple, but that's still really hard to like.

• 29:59Speaker 00

  Oh, yeah. Well, it was smacking me in the face and I didn't even see it. You had an L6 promotion waiting on you, right? Yeah, I was trying to make it to level 60. Yeah. Level 60 is like hardly else. It's like level three or something. It's brutal.

• 30:11Sam Parr?

  And by the way, Palantir, I've got friends that are there and I've learned a little bit about it, reading like it did not, Peter Thiel, I think it's easy for me to say, Peter Thiel back then seemed like an obvious winner. But the Palantir idea didn't, like, it seemed, it seemed like it didn't work for like two years or something like that. Like, it was definitely, it seemed like it had this normal startup trajectory where it's like, it's not working, maybe it's working, it's definitely not working. All right, now it actually has legs, you know, the YC Trafisara thing. Like, it seemed like it had those normal, normal like issues, except for like maybe five years.

• 30:42Speaker 00

  Yeah, it took many, many years before it started driving revenue and, you know, became real. Um, yeah, the trickiest thing, like YC companies always come to me and ask like, what could I learn from the Palantir experience? And I'm like, are you, is your name Peter Thiel? And are you willing to put, you know, tens of millions of dollars of your own money into it before? And sort of wait and be incredibly patient and ignore all the signs that you're, you know, weren't getting revenue and not, you know, actually working for so long to the point that, you know, suddenly it started absolutely working and working like 10 times better than you thought it would. Like, that's just not a thing that people are really capable of doing on certainly their first million dollars or their first, you know, Palantir is sort of like the, the most amazing version

• 31:27Speaker 00

  of like the second or third startup that people do. Like your first startup, you gotta just gut it out sometimes. It's like, how do you like, get to your first million dollars, right?

• 31:38Shaan Puri?

  Well, that is the name of the podcast. And so I'm curious, what's your advice or take on that? Like, how did you do it? How did you think about it? And knowing what you know now, how would you go make your first million?

• 31:51Speaker 00

  Yeah, I mean, what's funny is in the end, like Palantir ended up being huge, but it took, it didn't really IPO until many, many years later. It's like, I mean, I designed the logo in 2000. I joined as employee number 10. We would do these ridiculous things like go to Stanford and give out pizza and then we were like 10 people, 15 people working there. But the pizza box would have our Palantir logo that I designed and like, join the next Google. And people would like eat the pizza and they'd like give us dirty looks like, how dare you? What the heck is wrong with you guys? And then, um, let's see. My first win, I mean, the Palantir shares did turn out to be something, but it did not seem like it was going to for a really long time.

• 32:34Speaker 00

  I think my first actual million dollars was selling a few million dollars worth of Twitter stock at IPO. And so it was actually really late, like 20, I mean, for me, I started working in tech like when I was 14, so like 1996, 95. And then, I mean, I think it, yeah, literally took like 18 years of like working as an engineer and not having money and having like $50,000 credit card debt coming out of college. And I think that might've even been one of the reasons why I didn't, uh, quit to join Palantir. I was like, it felt, you know, in 2004, I still had like 30, $40,000 in credit card debt and like, maybe $50,000 in student loans.

• 33:19Speaker 00

  And I just like, I was like, well, like 70,000 is a lot, but you know, how am I gonna actually? Yeah, I don't know if this job will even exist in six or nine months. And like, I could be a lifer at Microsoft. And of course, in retrospect, like being a lifer at Microsoft would be sort of like a life of torture at some level. So yeah, my first million was actually Twitter stock. So I started a company in 2008 called Posturus. It was a blog platform. I used to use it. I love Posturus. Yeah, it was dead simple blogs by email. You just emailed [email protected]. You didn't have to log in or like learn how to use software. And then we just reply back with like, here's your blog, like here's your website. And you know, you can send it to your friends and you could, it was sort of like an email list too. So you could do it with your family.

• 34:04Speaker 00

  A lot of people used it to like share photos with their family. It grew 10x year on year, two years in a row until Instagram came out. I remember when Instagram came out, Posturus was actually one of the little checkmarks. It's lost to the sands of time. I think it was like, you know, Posturus, Tumblr, Foursquare, Twitter. I remember all that. Sharing page. And I remember Chris Saka, one of our investors emailed us about it. And I was like, hey, what do you think about Instagram? And before I could reply, my co-founder replied, it sucks. And I was like, and we got a one line replied it from Saka saying, I'm very disappointed in you guys. And I just was like, you know, sleep deprived and think about it again.

• 34:48Speaker 00

  But like, I think about that all the time now, because you know, when you're working on a startup, like, you know, we didn't actually even totally understand why we were growing that fast. In retrospect, it was actually because the iPhone was new and people were taking lots of photos. And there were no apps that made it easy to upload. And then Instagram was sort of the first free app that created a network that also even had a little bit of utility with their filters. And it was all free. And basically, you know, we got run over by the eventual winner. And you know, I think that's one of the big dangers for founders, period, is when we launched in 2008, you know, Michael Arrington at TechCrunch wrote about it and he framed us off the bat.

• 35:32Speaker 00

  And he was like, Posturus is way easier to use than Tumblr. And so we sort of made a mistake and took like that competition and then made it our identity. And it's something that, it's advice that I have to give to founders all the time now, which is like, we weren't competing against Tumblr, we were competing against. How people were getting photos off of their phone, actually. But, you know, when you're not careful, you sort of allow media or other people to sort of frame your reality and then you just play the wrong game. Like Tumblr didn't even want to be Tumblr. That ended up having zero enterprise value. I think that's also one of the cool things about Silicon Valley is like you can even sort of screw it up.

• 36:14Speaker 00

  You know, if I really introspect on what I wish happened, you know, we had about a million users who were like super dedicated to Posturus. We easily could have, you know, sort of charged $5 or $10 a month for it. We would, you know, we were a team of like 12 people. We easily would have been profitable. And then I remember because we were hanging out with our friends at Weebly, like David Rysenko and Dan Veltre, who were amazing. I mean, they, they were, they only ever raised, you know, a tiny amount of money out of Demo Day and never raised a Series A. And what did they eventually sell for like 300, 400 million dollars? Yeah, to Square, like sort of, I think, pre-IPO. And then Square, of course, like went on its crazy run.

• 36:58Speaker 00

  So these guys are like made, you know, 100 times more money than me and my co-founder at Posturus. Like, you know, rightly so, they did it not through like continuing to raise venture dollars, but by being profitable, cash flowing, by compounding, by focusing on their users and like playing their own game instead of playing the game that was like, can be sort of chosen for you by either your investors or social media or by reporters and tech, tech press, like, you know, just play your own game, like make up your own mind. So, you know, if I did it again, like we easily probably could have done that. And then instead, I think we ended up pivoting out of, you know, that Posturus idea.

• 37:42Speaker 00

  And, you know, we were just wanting to continue to chase this idea that we could be the free social network. And I distinctly remember meeting Peter Fenton at Benchmark and he passed on our Series A because we didn't have a good answer for this. He asked, you know, are you a platform or are you a network? And we said both because, you know, that's what founders who like don't have strong opinions end up saying, I think, like. It's a multiple choice test. He just circled A and B. Yeah. Can't be wrong that way.

• 38:11Speaker 00

  But I don't know, this is all, you know, 2020 hindsight. I mean, we use, I use these stories all the time to try to help founders get on the right path to real enterprise value all the time now. All right. So, you know, it's not just make something people want and raise a series A and B and like, look like a successful startup. It's actually makes something people want, and that's the end in itself. And if you do that, like, you're gonna make money. And, you know, hopefully you can, uh, compound that and like, you know, create real enterprise value for yourself. And that's, that's sort of the game.

• 38:49Sam Parr?

  Well, we, we want to ask you a bunch of, a bunch of questions about different stories, because you probably have a lot of stories. But what's interesting about that story is, um, you, you let Palantir is a very, I don't know if it felt it that way then, but now it's a very serious company, where like, they prevent terrorist attacks at times. So like, it's a very serious product. Uh, what you were working on after that, you could like, someone could be like, well, that's just like a blogging platform, or that's just this, like, that's, that's quote, less serious. Did you ever, like, I mean, I guess I'm self projecting, because I feel this way sometimes, where I'm like, I'm doing something that's not serious. But you kind of have done both, and you've done, now you're back to a relatively serious thing. It's a YC's a multi-billion dollar company. Um, how do you balance like,

• 39:32Sam Parr?

  like, working on something that seems fun and cool versus like, a serious, big thing?

• 39:38Speaker 00

  I mean, I think that goes back to what we were saying a little bit earlier, which is just like, be careful what frame you accept. It's all made up, but, uh, you get to make it up. And then, um, you know, for Posturus and blogging, like, they said the same thing about Facebook. And I remember spending time with Boz and, you know, a bunch of the, you know, our friends who were early Facebookers. They never accepted the frame that Facebook was. Not a serious and important thing. You know, they their narrative was very clear like they had a very strong cult. And the cult was just clearly once every few decades, I think very explicitly, Zach would say this, like, once every few decades, like, everything would change, media would totally change. And like, they were right.

• 40:23Speaker 00

  This social layer came up. And, um, you know, this is sort of the reason why I feel like if you're running a business today, you kind of have to be a creator. Because if you're not a creator, you gotta buy eyeballs somehow. And guess who's got the monopoly on eyeballs? You know, Larry and Sergey and Mark Zuckerberg. You gotta go pay, you, you, you gotta pay the toll to, you know, go across the bridge. Like, you know, the second price auction mechanism in the ad networks for like all incremental attention is so valuable that these are like the most durable, powerful network effects businesses that like cannot be disrupted.

• 41:02Sam Parr?

  So wait, are you telling all Y C founders to go and build an audience online?

• 41:05Speaker 00

  Oh, if you're doing consumer, you, you basically have to, right?

• 41:08Sam Parr?

  What about for

• 41:08Speaker 00

  Even if you're dev tools, like you

• 41:10Sam Parr?

  But yeah, wouldn't you say the same thing if you're a B two B? Like, isn't it even more valuable because you need a smaller, more targeted audience?

• 41:16Speaker 00

  Oh, yeah, that'd be great. It's harder to target.

• 41:18Sam Parr?

  That's, that's it. That's a pretty interesting thing. You, you didn't say this. I'm putting words in your mouth, but if you are saying to all the

• 41:23Speaker 00

  Oh, yeah.

• 41:25Speaker 00

  Yeah, we have Mark Tinkus coming to speak at our mini conference later today and, you know, we're going to talk about it. It's like, how do you actually get incremental customers and distribution really matters for consumer businesses. But that's also why, you know, we've had a dearth in really break out consumer businesses for 10 years. You know, I, I think that this will change. I mean, with AI, AI does change things. I don't think it's broken the distribution advantage. You know, I think that the big tech companies have a total stranglehold on The incremental user and you have to pay them still. I mean, it's just purely market dynamic, right? Like, you know, we're selling widget X or game X or dating site X or whatever it is.

• 42:07Speaker 00

  But, you know, our buddy from college or, you know, or someone from halfway around the world in Eastern Europe can like take what we've done and like do the exact same thing or go to our supplier in China and like get the same drop shipping relationship. And so at that point, like the second price auction means like, well, I want that customer. No, I want that customer. No, I want that customer. Guess what? It's an auction. Like every incremental dollar that is gross margin, Google or Facebook will just extract because it's a perfect marketplace. And that's just the world we live in right now. And then, you know, I think that the purest form of alpha that exists still is saying interesting valuable things that, you know, and the YouTube algorithm and the X algorithm.

• 42:52Speaker 00

  And, you know, to a less extent like Instagram. I mean, I think TikTok is actually pretty wild. Like they're just giving away distribution over there, especially for brand new creators. I think Meta is probably really dropping the ball on how they're thinking about creators. They just like, I don't know what's going on over there. It seems like they only want to satisfy the people who are already big, which, you know, is not that helpful for people who are trying to do new things. But yeah, that's, that's sort of the regime we live in. You know, for B to B, what we see at Y C is that, you know, probably 70 or 80% of companies are B to B. And our most well attended mini conference every batch is actually the sales mini conference.

• 43:37Speaker 00

  You know, Pete Kozanji Founder Sales, like that book, we give a copy of that to like literally every founder. A lot of it is about a mindset shift. Like, most people have never been rejected 95 out of 100 times. Like, it's just so like soul crushing to get no that many times in your life. But it's also, you know, For 80, 90% of businesses today, you better get good.

• 44:01Shaan Puri?

  If your website conversion rate is 5%, you're doing phenomenal. You go out and knock on 100 doors and get 95 no's. You feel like you're the biggest failure in the world. And it's the same conversion rate.

• 44:10Speaker 00

  And you shouldn't because you got five. Five enterprise contracts paying you $10,000 to $100,000 a year. Like you're the biggest winner in the world. Like, that's how this stuff works.

• 44:18Shaan Puri?

  We gotta ask you about some of the people that you've been able to meet. I'll tell you what I want, and I hope that you give it to us. I don't know if you will or you won't, but like, so me and Sam kind of are in what I'll call like the way that most people live their life, which is you wake up every day. You got your project, your business. It doesn't matter if you're doing, you know, $10,000 a month or $100,000 or $10 million a month. Doesn't really matter. You wake up every day and then we all look for kind of like this entertainment inspiration thing. And we get a lot of it from Twitter, from podcasts. And one of the best things is when you hear about the way that some of the people you admire operate or the way that they they handle things or the way that they dealt with a situation or something about their personality. And of course, it's sort of, you know, caricature.

• 45:02Shaan Puri?

  It's not a perfect picture and, you know, whatever. They're not perfect people, but it is badass to hear those stories. And we hear them about Elon, but you run in a really amazing circle where, you know, Paul Graham, Sam Altman, like all of the YC network are people you've been around. You've been around the before they were, you know, big and, and, and since. I would love if you could tell us a couple of like either personality traits or stories that stand out for some of the people. So I'm curious. It's a long-winded way of saying, can you tell me some cool stories about some of these characters?

• 45:31Speaker 00

  Yeah, absolutely. The funniest story I remember from working with Paul Graham in the office. I mean, he gave me my first shot as an investor and as an advisor to startups. I was burnt out from imposterist. And we, my co-founder and I had like a falling out and he wanted to become Google Groups. And I was like, dude, I don't even think that Google wants to be running Google Groups. Like, we should just charge money. But, um, Yeah, Paul, like, I think, really did, like, Paul and Jessica basically, like, did all the admissions, worked with all the companies, it was like 2011, you know, even the whole YC campus was not a campus, it was like a warehouse with some carpet and some, like, customs, like, very cheap,

• 46:16Speaker 00

  I mean, there's just tables and benches, the benches were so rickety that, like, if you sat on one side, like, and the other person on the other side, like, you know, stood up, like, you'd fall over, like, there's just like a bunch of funny things about YC early, it was like this tiny thing. Um, and to paint a picture, like, people still, when I said I was gonna go work at YC as a designer in residence, my friends in venture or startups would say, "Oh, that's nice, it sounded like I was going to volunteer at, like, a high school camp, or something, it was like a high school basketball camp or something, it was like, oh, that's, oh, that's nice, that's so, you know, I hope you enjoy that, like, you're doing your community service, good for you."

• 46:58Shaan Puri?

  Good for you.

• 46:59Speaker 00

  Exactly, and, um, you know, Dropbox had happened as a, you know, and it had become a billion-dollar company, but Airbnb, I think, was just about to become a billion-dollar company, and, uh, you know, I, I, I think this is lost to the sands of time, but I remember Sarah Lacy had created, had written a book called, like, "One, You're Lucky, Two, You're Good", so that, you know, 2011, I think, was the "One, You're Lucky, Two, You're Good" moment for YC, where people realized, "Oh, this isn't like some fringe thing, it's actually starting to churn out, like, basically the most dominant startups that exist, it's like a very concentrated form of Silicon Valley." And about that time, um, yeah, we had, there was literally one person who did all the books,

• 47:44Speaker 00

  all the finances, all the audits, all the CFO stuff, and she needed a copy machine, so she got one of those, like, uh, sort of waist-high copy machines that, um, you know, looked corporate, and it had, like, these little stickers on it, and then I remember Paul Graham came in, he's like, "What is this? Why is this here?", and it was like, sort of, this totem of, um, corporateness.

• 48:10Speaker 00

  He's like, I remember seeing these at Yahoo and I hated them. He started scraping off the sticker that had the phone number of the little company that would maintain the copy machine. And I guess it just jumps out at me as like this very interesting quirk of Paul that was absolutely right. And I stay up at night thinking about like, how do I make sure that Y C never feels corporate? PG, like PG would show up in shorts and Birkenstocks all day. I think he wore khaki pants to my wedding. So my sister in law was like, excuse me, sir, this is a private wedding. And I'm like, no, no, no, that's my boss.

• 48:54Speaker 00

  So I mean, there's this, I think what I learned from Paul was that I think there is an insidious nature to formality and corporateness and just having to wear a suit or the convention. Like, I think there's incredible value in being very, very unconventional. Whenever there is prestige and/or convention, you should be wary of that thing because there's got to be some other weird soul sucking things that are associated with that. That no one by default would choose to have a dress code.

• 49:35Speaker 00

  What are some other examples of this? Basically, you should be aware about your own formality and try to fight against it. It's just like, try to be super matter of fact. And I think that that's one of the things that just makes companies bad. I wonder, as people who run your own businesses, do you ever think about that? You go into a meeting and you just think, was that a meeting that if I were not me running this place, would I want to be in that meeting?

• 50:04Sam Parr?

  Well, it's the same thing as what you said about the framing thing. You behave like you think you're supposed to behave versus what kind of makes sense. You start playing business a little bit. It's sort of like, when you start a company, a lot of people play business by getting a business card before they get a customer. Then you kind of snap out of it. You're like, no, dude, I gotta make the damn thing. You start making the damn thing and you start getting some customers and you kind of go back to playing business again.

• 50:27Speaker 00

  Yeah.

• 50:27Sam Parr?

  Um, which, which is definitely part of the Silicon Valley thing, you know, like OKRs, measuring things quarterly. Like, there is a bunch of like lameness that I myself fall victim to and you have to like pull yourself out of that trap. But, but some of it is like useful. I guess if you're Airbnb, you, you have, if you have 6,000 employees, you, you do slow down. But it's hard to know what's truth versus what like, or what you should do versus what you have to do type of thing.

• 50:52Speaker 00

  I will say that I think um, it's possible for people to do uh insane business now with like two pizza teams. Like, I think that we, you know, probably in your community, or maybe you guys yourselves will end up making these like 100 million to like billion dollar a year businesses that are totally empowered by large language models. That like do not need more than 20 people working at them. I think that this is literally the most exciting news that you know, we're pretty sure is going to happen the next few years, especially right now. And like, that is the one thing that these giant companies that have like thousands of people.

• 51:34Speaker 00

  Like, it is completely like corporate America is completely unprepared for this moment. Like, they're just gonna get run over by a thousand startups that are way more agile. That, you know, aren't completely drowning in convention. They can just do the right thing for the customer. And the cost basis will come down a ton. You know, the, the trickiest thing is like, I'm not sure if it's inflationary or deflationary. Like, what's gonna happen here, right? Like, prices in theory should come down. Things should get a lot more uh competitive. I mean, on the flip side, like, the hope is that all of our, you know, products and services get um a lot better, cheaper, faster, real fast. I mean, this is the moment. Like, literally, we talk to people who are

• 52:15Speaker 00

  Eng managers and like CTOs and like even engineering teams. I, you know, I think that it's almost generational. Like, we get, it's like in the water for us right now, because we spend all of our time with like 22, 25, 28 year olds who are like the me from, you know, 15 years ago. Like, we're just helping the next generation right now. And they were like born on the internet. They were born with large language models, you know? Um, and then there's sort of, uh, you know, frankly, I'm 43. Like, my generation of C-levels, like, I don't like. I don't think people are prepared or even aware of what's about to happen right now. And it's like super, super good news for anyone who's running a business who's super agile.

• 52:57Speaker 00

  Cause you don't have to be doomed to calling in the business process automation call center. You don't have to like hire the team in the Philippines anymore. If anything like, that's one of the more direct advice we give to people looking for startup ideas in the batch right now. If people are pivoting, we're like, okay, well, you're selling to, let's say like accounting firms. You know, but you're having trouble with enterprise sales. What if you targeted people who already spend, you know, hundreds of thousands of dollars a year on a call center in the Philippines or Eastern Europe or anywhere else? Like, why don't you just reach out to people like that and just replace what they rely on, you know, there with large language models that have great evals and great workflow.

• 53:43Speaker 00

  Like that is just, you know, I think we will have many companies driving tens to hundreds of millions of dollars. Like literally in the next like two years, it's just like hundreds of them, thousands of them are going to pop up right now, just doing that. That's so exciting.

• 53:57Shaan Puri?

  What companies are you super excited about that we should watch out for? We should go check out because you live in the future. You're, you're further in the future than we are.

• 54:06Speaker 00

  Obviously like the tooling for this is important. Like there's going to be a lot around helping people build the stuff.

• 54:16Speaker 00

  You're like evals in particular, like doing it test driven is important. You know, the danger for most founders right now is it's very easy to make demo ware that you can use to raise money. And then you're tempted to sort of, you know, quote unquote, raw dog your prompts. Like you will just write code that has some prompts and you won't write any tests. And then the funny thing that we're seeing right now that I think is super true is. Again, like going back to what we were saying earlier, like it's important to build your worldview on how the world works directly from customers and their customer data. So the sort of rinse and repeat thing that's like maybe 80% of YC, what YC companies are

• 54:56Speaker 00

  doing right now that I think anyone could do is go and find real people who like are running businesses and they're spending hundreds of thousands of dollars a year on giant teams of people doing like rote, repeating knowledge work and then get access to their data, get access to the flow of their work, watch how they do it, and then literally write test cases using, and if there's hallucination or the LLMs aren't actually able to like consistently do the thing you want, you actually have to chop down the prompts more, like you're asking for the LLM to do too much, like the LLMs are capable of maybe like 120

• 55:37Speaker 00

  IQ level work right now, and if you're, you know, giving it like too much in the context window and asking it to output too much, it's just like, uh, do it in steps, right? This is literally what O1 and, uh, you know, reasoning already does using chain of thoughts. The interesting thing and weird thing that I'm tracking right now that I'm a little bit worried about is it is entirely possible that the next generation of, uh, large language models from Anthropic and OpenAI and Meta are, you know, one and then two orders of magnitude, uh, in like compute and number of parameters, and then we just get like, you know, the Dario Amadei scaling laws paper specifically says like, you know, these

• 56:21Speaker 00

  big, large language model, uh, AI labs are going to spend a billion and then $10 billion on the next generations. And like, if we get like continued step function improvement, like the trickiest thing is like all the stuff that even what we're doing as founders are doing, like, you know, maybe the models will just do for themselves. And, uh, you know, I think that

• 56:45Speaker 00

  My hope is that, you know, there's not enough agency in these things. And then, you know, maybe what will happen, what we hope and what we think will happen is that the people who establish brands and moats and evals right now, when the next generation models happen, their cost structure just comes down by like 10x. And then they already have like the revenue and the market captured in some way that they're like sort of beating the software incumbents that they're going up against. They themselves have like tens to hundreds of millions of dollars in revenue. And then like basically the standard moats apply, like look at Porter's Five Forces and you're like, you know, you're data, you have way, way better access to data.

• 57:30Speaker 00

  Your, your systems are way smarter. It costs a lot of money to take a risk and switch off of those systems. And then you understand, you have a sales force that is way better and smarter. And so if you take all, you know, that's sort of the gambit right now. Like if you do prompts and evals, you're pulling forward the future by a few years. You're trying to like grab as much land as you possibly can right now. And, and then from there, like hopefully you can hold on and build the next Microsoft or the next Salesforce or, you know, the next 10, you know, 10 to 100 billion dollar company.

• 58:07Sam Parr?

  Was it obvious when Sam Altman left YC to do this?

• 58:10Speaker 00

  I wish I was smart enough to predict that this was what was going to happen.

• 58:14Sam Parr?

  Did you think that he was going to be the man like he is now? Like, you know, Paul, Paul Graham has that essay where he's like, here's five people I'd bet on and one of them, the fifth one was like a 25 year old Sam Altman. And the other three were like, you know, Bill Gates and Steve Jobs. And then he said, this kid. So did you, were you like, whatever Sam does is going to be a generational company? Or were you like, it might be, it could be mildly successful?

• 58:40Speaker 00

  I mean, I think it could, I bet, in full transparency, like, I'm gonna be super honest. I was like, man, I don't, I don't quite get it. You know, I, he, uh, when he was sitting in my, my shoes as president of Y C, uh, he'd come back and I remember sitting in the group partner room and he'd say like, well, this is what Elon was talking about and this is what Larry was talking about. And, you know, they were all talking about A I. And they were, you know, sort of talking about these sci fi scenarios. Um, and I'm like, man, I saw Terminator two, too, but that was a movie, okay?

• 59:14Speaker 00

  And, uh, I think that I'm changing my tune at this point. Like, it, it, you know, I wish that it was smart enough to be, you know, actually totally a believer, you know, I'm a believer now. Um, do I believe that we're gonna end up in like a doomsday scenario? Like, I still don't really believe that there's that much agency in these things, which is sort of the reason why.

• 59:34Sam Parr?

  Yeah, but your judgment now is questionable, you know? First Peter, first Palateer, now open A I. You know, you'll, thank, thank God that you've like already made so many other successful investments. That I know that Gary's got good judgment and like can predict the future a little bit because, uh,

• 59:49Speaker 00

  I'll come around eventually, you know, like, I'm just a year off.

• 59:52Shaan Puri?

  Yeah, yeah, he was Palateer employee ten after, after he said no to the co-founder. Well, he ended up there, right? So.

• 59:58Speaker 00

  I mean, now we're, you know, we are full believers in large language models. But, you know, I think the thing that's a little bit lost to the sands of time is that, you know, what, what Sam was absolutely right about was, um, jumping on this thing that the smartest people in the world were already talking about, like, eight, nine years ago. And then he built it. You know, he invested the money, he, um, you know, brought together the people. It was no small task to bring together the smartest A I researchers in the world. And then, not only that, it was like semi miracle. You know, you could ask, why didn't Meta do this before? Why didn't Google do this before? Why didn't Microsoft Research do this before? Like, all of those people had virtually limitless access to resources. And, um,

• 1:00:43Speaker 00

  To weave this back together, I think there is something really terrible and limiting about like giant organizations that are not capable of evolving and making smart decisions. I mean, that's what big tech is like. They're sort of like big daycares for the most technical smart people in the world. And it's like, here's your, here, do you know, play some volleyball, we'll cook you lunch, like here, you know, here's, do your laundry at work, you know, like, you know, let's totally infantilize the smartest people in the world. And like, that's a waste of time. Like, what needed to happen was the ability, you know, one of

• 1:01:22Speaker 00

  the things that got explained to me why it was OpenAI that came up and like invested, you know, millions first, and then tens of millions and hundreds of millions into the large language model and, you know, transformers for language. If you were at Google, you needed to work this bureaucracy. It was like highly political, you know, you had hundreds of other researchers, all of whom were all as smart as you, and you had a finite sort of limited set of compute. And, you know, what you would find is that Google would do really breathtakingly amazing work, but then you'd have like 30 different authors, you know, and if you'd read the paper, there'd be like these sort of like

• 1:02:06Speaker 00

  strange things that seemed like it was a little bit tacked on, but that's the only way you could get the compute resources to actually pull off a training run on like the model that you wanted to do. Like, you had to do some weird things to accommodate like people who were gonna commit their training resources for their like random little thing. And so it's funny to see that, you know, human progress is more or less a little bit impeded by the bureaucracy and lack of governance and lack of agency that large organizations just sort of like impose on people. Like, you don't have a choice.

• 1:02:43Shaan Puri?

  Isn't it crazy that it was easier for them to invent and discover transformers and this large language model breakthrough than it was for them to navigate the bureaucracy to actually like create a product out of this or do anything useful with it? Like, that should tell you kind of everything you need to know.

• 1:02:58Speaker 00

  I mean, the wild thing is like even with an OpenAI, like they did everything right. Like GPT-3 was very impressive, 3.5 was even more, 4 was incredible, but like... They were gonna just put it behind an API and like explicitly for many years, OpenAI was supposed to be a, you know, we're a research lab, not a product company. And, uh, you know, it took the relatively Herculean efforts by product people inside OpenAI to even release, you know, ChatGPT, which turned out to be the greatest consumer launch of maybe the in the history of consumer launches, actually.

• 1:03:36Sam Parr?

  Hey, you said, um, and I know we got to wrap it a second, but you said, um, you keep talking about this thing. It's pretty amazing about, uh, talking to the smart people and like, what do they, what are they talking about? You have access to more of those types of people than probably most anyone on earth. What's the conversation right now? Or is it, is it all AI still?

• 1:03:54Speaker 00

  Yeah. I mean, ultimately that's sort of the number one thing that we're pretty excited about. I mean, that, you know, a few people who are really smart can sit in a room and, I mean, make a thing that literally does what humans do all day. You know, I would make a pitch that often the best things that could be automated are actually very rote. They're sort of the knowledge worker equivalent of like hand looming a carpet or something. It's like, all I do all day is look at an email box, see if someone paid their bill, reconcile that against a ledger in QuickBooks. Like, can you imagine, you know, millions of people, like tens of millions of people on the planet? Like, that's their nine to five, you know?

• 1:04:39Speaker 00

  Like, that, that is not a good use of a very smart human being, uh, generally speaking. And like, those are sort of the things that are most easily replaced by really great prompting, great evals. And frankly, I think, you know, there are going to be 20-person software engineering focused startups that basically turn, you know, billions of dollars in payroll into, uh, billions of dollars in software revenue. And hopefully those people go on to do much smarter and much more interesting jobs than like passing butter all day.

• 1:05:16Shaan Puri?

  That's amazing. Gary, if you have one minute, can you tell the spoon bending story? I think this is the very powerful story that you have. The spoon bending party, I don't know if you know.

• 1:05:25Speaker 00

  Oh, God, it's hilarious. I mean, I, you know, I've been to Burning Man a few times. I love Burning Man. It's my favorite place to take a break from consensus reality and realize that it's all made up, but you get to make it up. And, you know, there's a lot of like weird fringe stuff, a lot of like 60s, like esoterica, you know, you're just wandering around the desert on a bike with your buddies. And, you know, I think we randomly walked into a spoon bending party where they were, you know, it was a huge group of, I think it was almost like a magician at the front, like sort of helping people. You know, the shtick was that they were going to teach you how to bend a spoon with your mind. I was like, okay, that's cool. Like, let's go check it out. They passed out these spoons.

• 1:06:10Speaker 00

  And then it was like a magic trick. They said, okay, now bend your spoon with, like, look at your spoon and bend it with your mind. And then in between, they would say like, okay, well, sometimes you need to use your hands and like warm up the spoon to bend it. And then basically, I think what you're supposed to do literally is just bend the spoon with your hands. And that's what, you know, and then what's funny is by the end of it, half of the people, like I had, I had a bent spoon because I was like, oh, yeah, like they said, like, oh, I should, you know, sort of warm up the spoon with my hands and bend it with my hands.

• 1:06:48Sam Parr?

  Just to get it started.

• 1:06:50Speaker 00

  Yeah, just, yeah, just to get it started, right? And then by the end, like, half of the room had bent spoons and the other half didn't. And the ones that didn't were like, how did you do that? That's absolutely incredible. And I was like, guys, it's a bit, it's a bit like you have to, you know, first know that you can bend the spoon with your mind, but then you bend it with your hands, guys. Like, that's, that's literally like the shtick, actually. And it's a little bit of an allegory for, you know, bias to action and what you're supposed to do in real life. Like, real life is sort of like this exercise. Like, they say, like, you can go change the world and you can do it with. Your, you know, with your very ideas, but like, you know, that alone is not enough. Like you actually have to go with your hands and go talk to users and, you know,

• 1:07:34Speaker 00

  sit and build a thing. And so, you know, don't forget the second half. And the wildest thing is like more than half of the room could not do it. And so if you are the person who's able to bend this, you know, bend the spoon with your mind, like, guess what? You also use your hands. Like, you gotta do that. And, you know, and actually, like, that's maybe like the greatest gift. It's just like.

• 1:07:58Sam Parr?

  Dude, Gary, you're the shit, man. You are the best. I love talking to you. You make me feel really great. You give me energy. And we're very, very, very thankful that you took the time to do this.

• 1:08:10Speaker 00

  Thank you guys so much for having me. Always great to see you guys. And, you know, congrats on all the success and excited to see where you and your community go. I mean, you know, we're, we're all building the future out here.

• 1:08:20Sam Parr?

  Well, thank you for saying that.

• 1:08:21Speaker 00

  Take care, Gary.