20 VC 076: Y COMBINATOR WEEK: Aaron Harris, Partner @ YC

Aaron Harris is a Partner at Y Combinator and also newly one of my favourite podcast hosts with his brilliant show, Startup School Radio, for all startup lovers it is a must listen. Prior to YC, Aaron was cofounder of Sequoia backed Tutorspree, which was funded by Y Combinator in 2011. Before Tutorspree he worked at Bridgewater Associates, where he managed product and operations for an analytics group. He also writes an awesome blog which can be found here! In Today's Episode You Will Learn: 1.) How did Aaron make his move into the world of entrepreneurship with Tutorspree and then become a YC Partner? 2.) Why did Aaron join YC and why does he believe the biggest potential lies at this stage of the cycle? 3.) Now at YC, Aaron is a Partner, what does that entail, what level of interaction do you have with the founders, where does YC look to add serious value? 4.) With the mass of startups now in the 100s coming out of each YC demo day, how does YC assure the same quality and level of value add? 5.) With regards to testing what is YC’s opinion? How does YC assess whether a product does have product market fit? What are the YC requirements for growth whilst in YC? 6.) What happens after the YC experience, does YC maintain conversations and communication? How does YC try to maintain valuations at a reasonable level to stop YC price inflation? 7.) What is the future for YC? Are we going to see another funding round? Is the YC model scalable? Could we have a YC Europe? Items Mentioned In Today's Episode: Aaron & YC's Podcast: Startup School Radio Aaron's Fave Book: The Diving Bell and The Butterfly, Founder's At Work by Jessica Livingston As always you can follow Harry, Aaron, The Twenty Minute VC and YC on Twitter here! If you would like to see a more colourful side to Harry with many a mojito session, you can follow him on Instagram here!

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

• 0:00Harry Stebbings?

  You are listening to the 20 Minute VC and today we return to the magic of YC, following our amazing interview with Kirsten Athu, CFO at Y Combinator, for our very special feature week featuring the world's most famous accelerator. And today we bring you Aaron Harris, partner at YC, and also newly one of my favourite podcast hosts with his brilliant new show Startup School. For all startup lovers, it really is a must-listen. And prior to YC, Aaron was co-founder of Sequoia-backed Tutorspree, which was funded by Y Combinator in 2011. And prior to TutorSprit, he worked at Bridgewater Associates, where he managed product and operations for an analytics group.

• 0:43Harry Stebbings?

  But before we delve inside YC for the second time this week, as a startup founder myself, the legal side of my business was always a slight pain point for me. With no prior experience in the legal space, this made me feel very vulnerable to any legal issues that could have arisen. However, I then hired Chris at Vidal Law, who has decades of experience in assisting startups with a variety of issues, from entity formation, to contract issues, to intellectual property protection, and many, many more. So check them out at www.vidallaw.com or email Chris at C W E R N E R at vidallaw.com. That's C Verner at vidallaw.com.

• 1:28Harry Stebbings?

  Also, if you cannot get enough of the 20 Minute VC, I would love to hear what you think of our sister show, Angel Insights, which dives inside the world of angel investing to discover their tips, tactics, and investing strategies of the world's greatest angels. So check that out by searching for Angel Insights in iTunes. However, without further ado, it is time to open the magical gates of YC again for the second time this week and enter the kingdom with YC partner Aaron Harris.

• 2:04Speaker 01

  You have now arrived at your destination.

• 2:07Harry Stebbings?

  Well, Aaron, welcome to the 20 Minute VC for this very special episode of YC Week. Thank you so much for joining us.

• 2:14Speaker 03

  My pleasure, Harry. Thanks for having me.

• 2:16Harry Stebbings?

  Now, today really is a hugely exciting interview for me, as I'm a huge fan of the YC podcast, obviously hosted by Aaron here. So this is a podcast-to-podcast interview. So can you kick us off today by telling us how you made your move into the world of entrepreneurship with TutorSprit and then became a partner at YC?

• 2:35Speaker 03

  Yeah, sure. You know, when I left college, I had a pretty good idea of what I wanted to be. And that was eventually being the CEO of Citibank or something like that. And so I went into finance, actually, and I was a banker for all of 11 months.

• 2:53Harry Stebbings?

  Wow.

• 2:54Speaker 03

  Yeah.

• 2:54Harry Stebbings?

  Good effort.

• 2:55Speaker 03

  Thank you. I probably lasted about six months. It took me five months to figure out how to get out.

• 3:02Speaker 03

  And then I actually went to work at a hedge fund where I spent three years, because I really enjoy markets. And I think there's a lot to learn from them and a lot of interesting puzzles, basically, sitting out there in public markets and, you know, learning how companies are put together. And I thought to myself that, hey, if I understand this stuff really well, I'll either be able to, you know, rise in the ranks here, or I'll understand how companies are put together and be able to build one. But the thing that kept sort of jumping up in my head was that I really wanted to be doing something where I controlled more of my own destiny and actually built something for people and not just for, you know, LPs or what have you. And the thing that I thought about in my spare time was technology.

• 3:46Speaker 03

  And so I finally left that fund and started trying to figure out what to do. And the cross-section of my interests, you know, I was really interested in education. I was interested in using networks to make systems more efficient. And I was talking to my friend Josh Abrams about some different ideas. And he had the original kernel of the idea that became TutorSprit. And we started working on it in the summer of 2010. We met our co-founder Ryan just around then. The three of us applied to Y C. We got into Y Combinator for the winter of 11, started building the business. We raised money from Sequoia, among others, and built the business for, I think, two and a half

• 4:26Speaker 03

  years until we we ran smack into a an algorithm change at Google. And we were reliant on search engine optimization and it it sort of killed our vision of what the business could be. And as we shut it down, I was talking to Paul Graham about some of the things I wanted to do next. And he asked if I wanted to join Y C full time. And I said, well, that's that's a pretty cool offer. Yeah, that sounds like fun. And so that's that's how I ended up at Y C.

• 5:00Harry Stebbings?

  And now you're at Y C and you're a partner and a mentor to the startups.

• 5:04Speaker 03

  Yeah.

• 5:05Harry Stebbings?

  What does that entail and what level of interaction do you have with the founders?

• 5:09Speaker 03

  You know, it's I think it's different startup by startup in terms of how much involvement we have, but there's a pretty basic framework for how we interact. You know, at Y Combinator, we have a pretty hands-off approach in a lot of ways to our companies. Our opinion, our perspective, I guess, is that the startups are adults, right? The founders are adults. It's their business. They have to run the company. But we want to be there as a resource. And so the way Y C is structured is that during the course of the three-month program, every Tuesday night, we have a dinner where we have a guest speaker and people like Mark Zuckerberg or Brian Chesky, really inspirational founders who have done really cool things and grown small startups and been successful.

• 5:52Speaker 03

  And so that's dinner and that's pretty much the only required part of the calendar. And then we have office hours where companies will set up one-on-one office hours with a partner when they're having trouble with a specific issue or closely related set of issues. And those are the main interaction mediums. And then we also have something called group office hours, where two partners will sit down with a small group of companies and sort of work through some problems with them together so that they can kind of learn, you know, at the same time from each other. Because it turns out they can solve each other's problems quite often.

• 6:25Harry Stebbings?

  So what do you think is the biggest value add of Y C? Is it these dinners? Is it the incredible mentorship that's on offer? Is it the pure capital? What is it, do you think, that's the real controller in the decision to choose Y C?

• 6:40Speaker 03

  I think it's the pixie dust we sprinkle on all the companies when they get in. I mean, that's.

• 6:44Harry Stebbings?

  Do you know, I asked, I asked some of our fans what they'd like to hear. And one of them said, where do they get the magic dust from?

• 6:53Speaker 03

  That is.

• 6:54Harry Stebbings?

  Pixie dust, no, but magic dust, yes.

• 6:57Speaker 03

  That is, it's a closely guarded secret.

• 7:01Speaker 03

  It's a, it's a very specialized mind. No, you know, I, I, it's, it's a really important question. It's a really interesting question. And it's probably one I think about a lot because it doesn't really necessarily make sense in a lot of ways in terms of, you know, how our process has worked as many times as it has. And I think part of the reason it works is because of the fact that it's fairly simple and it's,

• 7:29Speaker 03

  you know, it's not one size fits all, but it's more of a philosophy of having the companies figure out how to really focus on the thing that they are and, and what they could be. And see beyond sort of the day to day, you know, challenges of running a startup and the day to day ups and downs, which are crazy, right? It goes all over the place. And really try to figure out what's the path forward to making a project or a small company into a multi-billion dollar business.

• 8:00Harry Stebbings?

  And how do you get them to do that with that laser focus then?

• 8:05Speaker 03

  You know, I think a lot of it is just trying to be objective about the issues they're facing. And making sure that we're not getting ourselves too involved in um. Not not involved, but you know, making sure we know that it's their company, right? As soon as you start to think that, hey, this is my company and I know what's best, I think you you start to run into problems. So it's very rare that I give very, very specific, you have to do this thing. Because that rarely happens that the answer is so black and white. It's more of, hey, have you thought about trying it this way? Or here's how I might think about this problem.

• 8:44Speaker 03

  And so getting the founders, I think, to think about some new perspectives that they haven't thought of themselves. I think ends up being incredibly, incredibly valuable. And then the three months of Y C itself is such a great time for founders to be able to push off everything else. Right? It's this great excuse to focus. Anyone who wants to talk to you that isn't a customer who you need to talk to or a user you need to talk to. You can say, hey, you know, I'm doing this three month thing. I really need to focus right now and ship product. That's all I'm gonna do. I have to write code and I have to talk to my users. That's it. Right? That's a really powerful forcing function, honestly.

• 9:22Harry Stebbings?

  Absolutely. And then talking about the kind of you have to and taking advice. How should founders know what's the right advice to take when there is quite a lot on offer sometimes? And for those that are looking for a mentor, who and what would you recommend?

• 9:37Speaker 03

  Yeah, I think mentorship is a really challenging thing. Um, both to find and to decide how to work with best. And I think it's different every in every case. But I think at the end of the day, advice is just advice, right? It's just someone who has some understanding of your company, your situation, offering.

• 9:59Speaker 03

  You know, their best guess at a solution or at a path forward. And from what I've seen, the best founders take that best guess. And they integrate it with their own knowledge and they make their own decision. And so if you're, you know, if you're talking to a whole bunch of different people that have different opinions and different ideas of how to move forward, that's fine. As long as you don't get, you know, into the analysis paralysis thing where you say, oh, my God, all these people are offering conflicting advice. I don't know what to do next. It's it's often better to try something than to sit there thinking for too long. Because if you try something and you're measuring it carefully and you're measuring the results, you'll know pretty quickly whether or not that was the right thing to do. And you can switch gears.

• 10:40Harry Stebbings?

  And then if you're looking to attain a mentor, is there any ways, so if I had, say, Aaron Harris, you in my head for being the mentor of my dreams, very true, by the way.

• 10:51Harry Stebbings?

  How would you?

• 10:51Speaker 03

  You don't know me well enough.

• 10:53Harry Stebbings?

  There's always time. How would you recommend that founders go about attaining those mentors?

• 11:01Speaker 03

  You know, I think the only way to decide whether or not a mentor is good for you or not is to actually meet them and talk to them and spend some time with them. And the best way to do that, just email people. I think people are consistently too intimidated by, you know, mentors or people they think are going to be mentors and just don't try. And you don't know until you try, right? Sending an email, what if it doesn't get responded to? Okay, your email didn't get responded to. What if someone says no? Okay, they don't say no. No is just a start of a conversation. I know that I have people I email with fairly regularly who I keep saying no to, but they keep asking questions. They keep answering the questions. Maybe I'm a sucker, but I, you know, I try to answer everyone who emails me.

• 11:44Speaker 03

  But look, if if someone is rude, then I probably won't respond, but I I find that.

• 11:51Speaker 03

  People who just keep asking good questions um or who iterate and get better over time. Those are the ones who end up forming great relationships with mentors. Cause I think the mentors start to see, you know, progress and feel like they're doing something good.

• 12:06Harry Stebbings?

  And and you mentioned there about iterating. And so let's talk a little about product market fit and growth. And with regards to testing, what's Y YC's opinion on testing a large audience and getting kind of mass feedback? Or as Paul Buchheit said in your interview with him, actually, on the Y C podcast with the Gmail. And he had a hundred people and looked for really targeted feedback. Which one does Y C support more as being more effective, do you think?

• 12:32Speaker 03

  It depends on the stage of the company. Um, a company needs to start out doing unscalable things, which means getting five, 10, 20, a hundred users. And you might know them all personally, right? Or you should know them personally by the time you're done with that phase of your business. Because it's only from a small base that you're going to really learn what it is that your product is and what people want. And if you if you hit that perfectly, then it's going to expand fairly rapidly. And you know, this is different in things like social products, maybe than it is in a SaaS product. Where a social product, once it starts working, you you might not even realize that you had the right thing. When all of a sudden it starts growing like crazy and then you just kind of got to hang on.

• 13:15Speaker 03

  You know, I think that you you look at sort of the success of Instagram. I don't think that those guys knew exactly what they had on their hands until it was as big as it was. I don't think that, you know, necessarily Zoc knew exactly what was on his hands before it grew as crazily large as it did. He did an incredible job building it and having the vision to sort of take it. But it, you know, it grew so fast. And I've watched our attempts to invest in social products and I've watched my friends try to build social things and stuff that works. You never realize it's going to work until it really does. But when you're building a product that people are paying for especially, getting a small group of people to start paying for that thing initially. And really learning what it is they want and how they interact with it. That's the most important thing in the world.

• 14:01Harry Stebbings?

  And then with regards to growth and growing that product from the one customer, what are Y C's requirements on growth? Do you have any specific requirements for your startups? I heard, uh, I don't know if it's a rumor or a mention that 10% is the recommended weekly growth target. Is that correct?

• 14:19Speaker 03

  I mean. Yeah, yeah, the the answer is that growth isn't the goal. And I think this is something that people sometimes get a little backwards. Growth is the result of having the right product at the right market, right? It's because you did the other things right that you get growth. You can't invent growth out of thin air. You can a little bit if you just start spamming people, but that's unsustainable. So when we talk about growth goals on a weekly basis, those are once you have a product that starts working. And that's how you know it's working. That's how you know it's growing at the pace that a startup needs to grow.

• 15:01Speaker 03

  If you think you have fit in your market and it's just growing one percent a week, you might have a great business on your hands, but it's probably not startup scale. And if you do want a startup, then you need to know what that looks like.

• 15:14Harry Stebbings?

  And then moving forward in this kind of narrative of the startup, our startups achieved this product market fit, it's achieved the growth, and now the three months of YC is over. And there's always a lot of discussion about whilst in YC. But what happens afterwards? Do you maintain conversation and communication with the startups?

• 15:32Speaker 03

  Yeah, absolutely. You know, there are startups that went through YC years ago that I'm still very much in touch with and see regularly. Now, again, as I mentioned before, there's kind of a spectrum of of companies and sort of what they need after, during YC and even after YC. And some need to talk, you know, weekly or monthly for a little while after YC. And then they only need to talk to you every other month or every six months, or maybe once a year just to check in because they've grown to the point and gotten good enough that they should be giving me advice.

• 16:05Harry Stebbings?

  And the companies often fundraise quite quickly after YC, potentially to kind of ride the wave. And how does YC try to maintain the valuations at a reasonable level to stop kind of YC price inflation? I know you wrote about party rounds recently.

• 16:21Harry Stebbings?

  And how, so how do you guys try and keep a reasonable valuation level?

• 16:26Speaker 03

  Yeah, I don't think we expressly think about, hey, we want to keep this valuation level or that valuation level. I think we just want to make sure that companies are setting the groundwork to build long-term businesses. And so we'll meet with companies and we'll talk to them about what their fundraising goals are and then, you know, essentially it's a market. And so we'll, we can try to give them some thoughts about where we think the market might go or market might be. But it's when they start talking to investors that they find out what investors are thinking and they have to negotiate against that market.

• 17:02Harry Stebbings?

  What are your big tips then for startups entering the fundraising game?

• 17:08Speaker 03

  Well, one of the things I tell people is make sure you're optimizing for the right things. And the right thing is not the highest price or the most money. The right thing is to get enough money to build a successful company and to build a growing company. And if you look at it from that perspective, you start to think about, okay, what do I actually need? Right? And how's, what's the best way for me to get there? Because fundraising is not the mission of a startup, right? It, fundraising is one of the things a startup has to do in order to grow. And so the less time you can spend fundraising, the better off you are, ideally. Because it means that you don't have to take money, time away from, from building a company.

• 17:53Speaker 03

  The, the, the most limited resource I think that a startup has is time. It's, it's really not money and you can get more money, but you can't get more time.

• 18:05Harry Stebbings?

  And then, and then what do you think the future holds for Y C? Where, where are we going to see another funding round for Y C? You know, you've raised funds before. Is that on the cards, do you think?

• 18:17Speaker 03

  You know, I don't think about steps for Y C in terms of us raising funding again. It's just not really how we think about what Y C becomes. I think when we think about the future of Y C, we think about. What kind of companies we're funding and what we're doing for those companies and how we're helping those companies and how the wider community of Y C. And our alumni base is evolving and growing and getting better. And so I think that, you know, over the last. Year or two, we've expanded the kinds of companies we fund, you know, we're doing, we funded aerospace companies and nuclear power companies and biotech. And I think we'll continue to expand that universe as.

• 19:01Speaker 03

  Sort of the cycles of software continue to eat more industries and and work their way deeper into new industries.

• 19:08Harry Stebbings?

  And we're gonna move into a quickfire round now where I say a word or short statement and you give me your immediate thoughts.

• 19:13Speaker 03

  Okay.

• 19:14Harry Stebbings?

  Okay, so your favorite book and why?

• 19:18Speaker 03

  Hmm, that's so hard. You want that as a quickfire question?

• 19:21Harry Stebbings?

  I want that as a quickfire.

• 19:25Speaker 03

  I'd say my favorite book. Is the Diving Bell and the Butterfly. Um, which is just an incredibly beautiful story about um. How someone, you know, Jean-Dominique Dubby, who was the the editor of French Elle, had a massive stroke and he suffered Lockton syndrome. Um, how he was still able to enjoy life and communicate with the world um. And and find meaning even under the the most severe limit, physical limitations.

• 20:00Harry Stebbings?

  I actually.

• 20:00Speaker 03

  It's a story about the power of the mind.

• 20:02Harry Stebbings?

  I just read Jessica Livingston's book. Actually, I don't know if you've had a chance to read it, but that was.

• 20:06Speaker 03

  Founders at work. Yeah, it's great.

• 20:08Harry Stebbings?

  Amazing. Uh, one piece of advice to a startup founder, what would it be?

• 20:13Speaker 03

  Get great co-founders.

• 20:14Harry Stebbings?

  Okay. The biggest takeaway that you'll have from working at Y C?

• 20:21Speaker 03

  The importance of great co-founders.

• 20:25Harry Stebbings?

  Why Y C podcast and why now?

• 20:29Speaker 03

  We're always experimenting with different ways to reach more founders and more companies on a more regular basis and this kind of grew organically out of a conversation with the folks over at Sirius. You know, we were wanted to more regularly push out the kind of content we create at Startup School. And that's just once a year and you have all these great distribution mechanisms beyond physically bringing people to a conference now. And so we thought, hey, let's try doing a podcast and a radio show and see what happens. And so far, so good. We're really enjoying it.

• 21:03Harry Stebbings?

  Your most used apps on your phone, what are they?

• 21:06Speaker 03

  Chrome and Inbox and Outlook.

• 21:11Harry Stebbings?

  Y C's biggest challenge moving forward?

• 21:14Speaker 03

  Figuring out how to continue to fund great companies and find great founders as, you know, startups again infiltrate more and more industries. How do we make sure that we're finding the best companies and really helping them?

• 21:31Harry Stebbings?

  And then finally, what Y C investment are you most excited about and why?

• 21:37Speaker 03

  Ooh, I can't pick one of my children. That's a crazy question.

• 21:41Harry Stebbings?

  You have to pick one of them.

• 21:42Speaker 03

  I know, I love, I love them all.

• 21:45Harry Stebbings?

  Okay, pick one that's most interesting to you from your experience.

• 21:49Speaker 03

  How about this? I will tell you that there are things have, so I work a lot with fintech companies and I'll tell you the thing that I want to fund right now.

• 22:03Harry Stebbings?

  Sure, yeah.

• 22:04Speaker 03

  The thing that I'm really excited about funding is in innovative or many innovative companies in the property and casualty insurance space. And I think it's one of these things where there's just not nearly enough innovation happening, except on the customer acquisition side. And I think that someone is going to build a great company there and I would love to be involved.

• 22:25Harry Stebbings?

  And then what's the overhyped sector?

• 22:28Speaker 03

  Overhyped.

• 22:31Speaker 03

  I don't know that anything is particularly overhyped. Maybe, maybe photo sharing might be a little overhyped. But I think that's, that's started to die down a little bit in the winter, so are already emerged or are emerging.

• 22:44Harry Stebbings?

  Well, Aaron, it's been such a pleasure having you on the show. For anyone that hasn't listened to Y YC's podcast, it's a must-listen. Really is absolutely fantastic. And thank you so much for joining us on this very special episode of Y C Week.

• 22:56Speaker 03

  Thanks so much for having me, Harry. Real pleasure joining you.

• 22:59Harry Stebbings?

  A huge hand to Aaron for giving up his time to be on the show today. And for all those who love the silky tones of Aaron today, do not forget to check out Startup School Radio on iTunes. And as always, all the items mentioned in today's episode with Aaron can be found on the blog at www dot the twenty minute V C dot com. And if you'd love to hear more from the investing world from a slightly different stage of the cycle, I'd love to hear what you think of our sister show on iTunes, Angel Insights, which dives inside the world of angel investing. But before we leave you stay, as a startup founder, it is crucial to stay laser focused. As Aaron said in the interview just now, so do not let legal issues get in the way of you growing your company.

• 23:43Harry Stebbings?

  And head over to Vidal Law, where I was instantly reassured by having one of their partners, Chris, at the end of the phone when and if I needed him. And with their fixed fee structure, this ensured me that I was not going to get an unexpected legal bill, giving me financial as well as legal peace of mind. So check them out at www dot Vidal Law dot com or email my good friend Chris at C W E R N E R at Vidal Law dot com. That's C Werner at Vidal Law dot com. And as always, thank you so much for your continued support for the Twenty Minute V C. And we look so forward to seeing you on Friday, where we'll be interviewing a Y C company to discuss life inside Y Combinator from the perspective of the startup.

• 24:28Harry Stebbings?

  Thank you so much, and we look forward to seeing you in the next episode.