Uncapped #26 | Ali Rowghani

Ali Rowghani is the founder of First Harmonic, a go-to-market program purpose-built for seed stage founders. Ali has had a long, distinguished career in tech. He worked with Steve Jobs and Ed Catmull at Pixar for nine years holding various roles including CFO and SVP of Strategic Planning, took Twitter from $0 in revenue through IPO as the CFO and COO, and most recently was the founding Managing Director of Y Combinator’s Continuity Fund where he led investments in DoorDash, Stripe, Coinbase, Zapier, among many others. Ali has also invested as an early angel in several breakout AI companies, including Mercor, Decagon, and Cursor. He’s seen the arc from inception to IPO many times and recognizes what separates winning startups from the pack. We covered: Pixar’s golden age Exceptional leadership Working with Steve Jobs Twitter going from $0 to $2B Operating beliefs in venture --- Timestamps: (0:00) Intro (0:53) Pixar’s miracle factory (6:28) Working with Steve Jobs (13:23) Ed Catmull and John Lasseter (16:28) Crazy years at Twitter (18:30) Getting monetization right (19:56) Learnings in hindsight (22:37) Elon Musk observations (24:03) Beginning of YC’s growth fund (29:31) Between pre and post traction (33:23) The second job of a CEO (34:35) First Harmonic (35:31) Beliefs in venture --- More on Ali: https://www.firstharmonic.com/ https://x.com/ROWGHANI More on Jack: https://www.altcap.com/ https://x.com/jaltma --- Link to Ali’s referenced blog post: https://www.ycombinator.com/library/3k-the-second-job-of-a-startup-ceo --- https://linktr.ee/uncappedpod Email: [email protected]

• 0:00Speaker 00

  We live in a world of hedging. We live in a world of thinking with bets, backup plans, you know, contingencies, et cetera. And in a sense, that's very rational. Okay. But what if you didn't live in that world? Like, what if you like positioned yourself against that? And what if like you tortured everything you worked on to try to be great, you know, within the context of a company? And I think that is the core of a miracle factory.

• 0:21Speaker 01

  All right. I am super excited to be here with Ali Ragani. He was the COO at Twitter in some of the most formative years. You had exec roles at Pixar, worked directly with Steve Jobs for many years. You started and ran the YC growth fund. You've been an angel investor in amazing current companies like Cursor, Dakagon. You've got your own fund now. You've also been like an advisor to a bunch of people in our ecosystem, like me over the years and so many others. And so you're just someone I've looked up to and wanted to talk to on the show for a long time. So thank you for doing this.

• 0:51Speaker 00

  Oh, it's a pleasure. I'm psyched to be here.

• 0:52Speaker 01

  The thing I want to start with that is so interesting to me is the Pixar experience. And you were there for 10 years around 2000 to 2010, give or take. And what's shocking to me above all is it seems like year after year after year, they just released like bangers and everyone was good. And most movie studios, I feel like some of the products are good, some are not. But like here, we had, we had Monsters Inc., Finding Nemo, The Incredibles, Cars, Ratatouille, Wall-E, Toy Story. Like it's just up. It's just crazy.

• 1:27Speaker 00

  Yeah.

• 1:28Speaker 01

  And so I guess my first question is, and I don't think I skipped like a bunch of misses or something. How did that happen? Like, how is the quality bar? What, what went into making that happen time after time?

• 1:40Speaker 00

  You know, Pixar was a miracle factory. That's, that's how I thought of it. You know, you start with a blank sheet of paper and then four years later you have Finding Nemo. And then you start with another blank sheet of paper and four years later you have The Incredibles, Ratatouille, Up and so on. So like, the interesting question is exactly what you asked, like, how is that possible? And I think for me, I've thought a lot about this question, and I think for me, it kind of boils down to really three big things. One of them is, we only made movies that the directors themselves felt really passionate about. It wasn't filmmaking by committee, it wasn't like some executives ordering up a movie, or like, let's do a Mad Libs style with focus groups, or whatever else, none of that.

• 2:22Speaker 00

  It was like, what was the story that somebody who was really talented truly wanted to tell? And then we put all of our eggs in one basket. Like, there was no thinking in bets. There was no hedging.

• 2:32Speaker 01

  Stuff wasn't getting killed along the way?

• 2:34Speaker 00

  No, no. And it was, once we were committed to a director and to an idea, it was like, all in. And it was this focus, almost like, it had to be great. The future of the studio depended on it, so it would be great.

• 2:49Speaker 01

  What percent of the studio would work on a given movie while it was being worked on?

• 2:52Speaker 00

  At the beginning, before we could have multiple films going at the same time, 100% of the studio worked on one film. So I would say for the first three movies or so, 100% of the studio worked on the film. And that started to change with Toy Story 2, which I think is kind of the seminal movie in Pixar history, because Toy Story 2, it was a new creative team, not the creative team that made the first couple of movies. New creative team made that movie. And when the creative team, like, finished up on Bugs Life, which was the second movie, they turned their attention to Toy Story 2, which was supposed to come out just one year later. And they looked at it and they were like, this isn't good enough. And so they replaced the creative team, they took over the movie nine months before it was supposed to come out. And if you know anything about animated filmmaking, nine months before the movie comes out is like, not when you start over. These films take multiple years to make.

• 3:35Speaker 00

  And they rewrote and remade the movie from scratch. And it almost like killed the studio to do that. But, you know, Ed Catmull talks about that was the moment in Pixar history, because faced with a choice of like, do we release something we're not proud of? Or do we kill ourselves to release something we're really proud of? The studio made the choice to like, stop everything and focus on like, making it great. And that established a culture, like a set of norms, and this notion of like, we don't think in bets, like, we're all in, no hedging, like, and I think that really means something. So that's the foundation of it. And then there are two other things in terms of the process that I think are super important. One is like the Pixar films were made and remade and made and remade

• 4:18Speaker 00

  like a dozen times before the audience ever saw them. And not many people know that. But what we would do is we'd have this process called story reels and we would expect the directors to write essentially a moving comic strip version of their movie and temporary version of the movie, produce that three to four times a year. And then that was, and it was shown in public, in public within the studio. And, you know, we'd get the brain trust of the studio, creative brain trust together, and they'd give a bunch of notes on this thing. So there was a rapid prototyping process. And the thing that was important was not how bad the movies are when they started, but that they were showing like improvement from screening to screening to screening. And so this like making and remaking, making and remaking process was really important. So that's two. The last thing is, there was an incredible sort of like open feedback on the films, meaning like you were expected

• 5:03Speaker 00

  as a director to hear the feedback of other filmmakers on your movie. You had the, you know, the decisions were yours in terms of what to do, but, but you had to hear it, you know. And so we built this sort of culture of it being safe and okay to show work that wasn't finished, to show imperfect work. And that just meant that the work in process work always got better, as opposed to someone working for two years and finally showing you something and you saying like, okay, that's crap. You know, if it's that kind of a, kind of a culture, then the feedback is shattering and it's not sought. But if it's feedback where it's like, okay, to like show incomplete work, and the leaders of the studio, when they're making films, are showing their work when they know it's not very good, then it, I think breeds this culture of like always getting better. Yeah.

• 5:47Speaker 01

  That decade, like the 2000s, I guess, Apple was and is also very much like that. Like, you know, you back, you go back and you think about going all in on the iPod and then the iPhone, like that was also, I guess, it couldn't have been a thinking and best culture there either, right?

• 6:03Speaker 00

  Certainly in terms of the quality bar, that everything they released to the public has to be great, and that you take the time to make sure it's great. I think in that sense, probably, I don't know if Apple had, I think from just hearing from the outside, there were lots of things they were working on that they killed, you know, along the way that just didn't think was good enough. Or, I mean, there was rumors about a television set and all this other stuff that, you know, you and I have heard about. So I think there probably are some similarities, but. You know, different businesses, like different process.

• 6:28Speaker 01

  I think I didn't fully realize this until we were chatting before, but Steve Jobs was CEO of both, right? Like, he was running Apple through this, I guess, turnaround.

• 6:37Speaker 00

  Yeah.

• 6:37Speaker 01

  And getting, you know, the sort of iPod and iPhone and everything else in those years. But he was CEO of Pixar during that same time.

• 6:44Speaker 00

  Yep.

• 6:45Speaker 01

  And for at least some number of those years, you worked directly with him. So I guess I don't know other people who have worked directly with Steve. So I kind of want to ask a few questions about that. What was, I guess, just to start, like, what was he like? Like, what was working with him, like, in a sort of regular cadence business? What was that like?

• 7:02Speaker 00

  You know, he was the most impressive, like, business creature I've ever been around in a room. And it wasn't because he was famous, or it was like, oh, there's Steve, or anything like that. And in the end of the day, for me, it boiled down to a set of basic skills that he had. You know, his ability to break down a problem in real time, his ability to communicate really clearly, his ability to inject urgency and kind of like cadence and urgency and importance to everything that we did. All of this stuff kind of was in service of like, all of his basic skills were in service of like, trying to create as fast as possible a map of the world, a map of reality in every discussion,

• 7:47Speaker 00

  that would help like guide the discussion and help us get to the truth. And so he was so good at like, you know, developing this, generating a map of the world. And even if it had, he was wrong about certain things, like you fed him new data and he would like recalculate it. And it was, you always had the feeling being around him that like, wow, like this, you know, I thought this game we were playing was like level one to three. But then you saw somebody that was like at level 20, and it was like incredibly inspiring, just the way he did the basic stuff.

• 8:17Speaker 01

  So like, what are some of those, like those basics, like communication and like understanding and pulling things out of people? What, what specific sort of things stuck out to you there? Like, can you share more of those, like, basics done really well? Because I feel like, I can't remember where I saw this recently, but someone's talking about like, if you don't know what like your equivalent of practicing scales is, you like, you need to figure that out. And I feel like when you're talking about basics, like, that's something that doesn't get discussed enough in like business.

• 8:44Speaker 00

  Yeah.

• 8:44Speaker 01

  Because especially as a CEO or an executive or an investor, you kind of don't even know what your basics are a lot of times. Like, what, what were those?

• 8:51Speaker 00

  Yeah, so I mean, it was really some of the things I mentioned. And I think what happens with most of us, you know, certainly with me, is like, you get pretty good at communicating. You get pretty good at like exchanging ideas or like trying to decipher something or developing your own mental map of the universe or a mental map of a particular problem, particular discussion.

• 9:07Speaker 01

  Yeah, and then you think you don't need to refine it more.

• 9:09Speaker 00

  Yeah, and you don't even think about it anymore. Like, you just take it for granted. Like, I'm pretty good at this, you know? And it reminds me of like, I was a German student. I went to Germany and for the first like six months I was there, my German was terrible. And every day I would come home and I would work and work and work and work and to get my German better. And I got to a certain place where I could no longer embarrass myself. I stopped working, you know? And the thing with Steve was, you got the impression that he was like always sharpening this saw. He was always like, you know, it was always, it could be better with everything. It could be better. I could communicate better. The email could be better. I could motivate better. I could communicate. Like, he just, it just felt like he really worked at it. And you know, I've been asked a lot over the years, what was it like to work with Steve, et cetera? And, you know, I would, I would say some version of this talk about basic skills, you know, not knowing if it really landed or people understood.

• 9:54Speaker 00

  And then on the 10th anniversary of his passing, I read an obituary that was written for him in the Wall Street Journal by Johnny Ive, who was obviously the famous head of design and worked probably more closely with Steve than anyone. And there was a line in that obituary that really stuck with me. It said something like, Steve was obsessed with the nature and quality of his own thinking. And he worked so hard at it to be able to always think with a rare elegance, vitality and discipline, or something like that. And when I read that, I was like, that's what I meant. That's it, that he worked on his own thinking. So he was not just thinking about like the business, the products, his team. He was thinking about his own thinking.

• 10:39Speaker 00

  As like the generator function of like everything he did and everyone he interacted with and every idea that he like critiqued.

• 10:47Speaker 01

  Do you think that was like an internal process? Or did he practice that with others somehow? Like, did he let other people in to give him feedback on his thinking and that's how he did it? Or was he just so reflective and so focused on it? And I guess the reason I'm asking is if somebody else wanted to do that, if I wanted to try to be better at that, what's like the path to improving my own thinking?

• 11:07Speaker 00

  The honest answer is I don't know. Like, he may have had certainly early in his life, people who like, you know, mentored him or that he learned a lot from. But I think honestly, it's mostly a solitary thing for all of us. And the nice thing in a way is like, we live in a world where like, a lot of our communication now is recorded. Like, if you think about, you know, all the meeting recorders on Zoom and, you know, you give a talk in front of a big group or, you know, this podcast.

• 11:31Speaker 01

  You can go watch this, yeah.

• 11:32Speaker 00

  Yeah, you can watch it. And then you can always ask yourself, like, how could I have been clearer? How could I have asked this better? How could I have been more motivating? How could I have injected more urgency into it? And, and the important thing is recognizing that there are 20 levels to the game. They're not just three. And don't be satisfied with, like, getting to level three and you're pretty good. Because like, Steve was at level 20. And then when you, when you were so good at the basic stuff, the stuff you use every single day to generate your mental model of reality and find the path, the strategic path forward, those basic skills over a career compound more than anything else. Because these are skills you use every single day.

• 12:06Speaker 01

  It's funny that you say that about it being solitary. One of the things that I feel sad about for myself, and I think this is probably true for everybody, is like, I think people don't think enough. Like, I think people don't just quietly think very often.

• 12:15Speaker 00

  Yeah.

• 12:15Speaker 01

  And like, you know, any downtime we have, like, we're on our screen. And people just rarely, I think this is why, like, walks are powerful, honestly. It's like, one of the easiest ways to just, like, go think.

• 12:23Speaker 00

  Right. Yeah. I mean, another thing about Steve is, you know, he was, he, he thought really quickly on his feet, for sure. But, you know, whenever he had big presentations to give for Apple or whatever, he would spend like, two months preparing. He would go into this hermit phase, and we would rarely see him during that phase at Pixar. He would come, come around less. And he would just be working on this presentation. And so, I think there are a bunch of lessons.

• 12:44Speaker 01

  By himself?

• 12:45Speaker 00

  By, well, no, I'm sure he had a team. But like, was primarily like, a lot of focused attention on, on his presentation and rehearsing it and rehearsing it and making it better. Look, I think the lesson for all of us, and especially like, the lesson for, like, anyone trying to get something off the ground, or early-stage founder or whatever, is like, like, just always focus on sharpening the, the saw. Always focus on that. Don't assume, like, you know, you're good enough, ever. There's always better. And if you focus on, like, the basic stuff, like, that, like, really compounds. So, I guess, like, think about your own thinking. Because if you can make it better, the, like, downstream impact of it's really profound.

• 13:23Speaker 01

  What, what did you learn that you can share about Ed Catmull or John Lasseter, who are the other leaders?

• 13:29Speaker 00

  I think Ed Catmull was the architect of the miracle factory, in my view. And he

• 13:36Speaker 00

  You know, like this idea that like we have to make everything great. Which, by the way, like if you think about it, you know, again, applying it to like, I mean, what greater aspiration would anyone trying to start anything have than to try to build a miracle factory of their own, you know? And so like, you know, I think really for Ed, it started with like having an extremely high bar for what was great, you know? And always trying to, you know, you perform to your own expectations or you perform down to your own expectations. And like, he helped, he and John both, who is the chief creative officer at Pixar, held the studio to an incredibly high bar about what was good. And they were willing to pay the costs of, you know, whatever cost was necessary to maintain that bar.

• 14:16Speaker 01

  I think that's the key. It's easy to say, but there's costs associated.

• 14:20Speaker 00

  Exactly.

• 14:20Speaker 01

  And they're personal and emotional, financial. There's a lot of costs associated with maintaining a high standard.

• 14:25Speaker 00

  That's right. So, you know, I mentioned the Toy Story 2 story. The other, the other story at Pixar was Ratatouille where, you know, the film wasn't coming together and the director of the film was replaced. Another director was put on the film and then the film was essentially, and then they delayed the release of the film by I think six or nine months or maybe a year, I don't know, some period of time, which in animation is a big deal and it makes the movie a lot more expensive.

• 14:46Speaker 01

  Yeah.

• 14:47Speaker 00

  But then Ratatouille becomes like one of these incredible, you know, members of the sort of like canon of Pixar.

• 14:52Speaker 01

  There was this great tweet from John Collison and it ended with basically like the world's a museum of passion projects or something like that. Basically just that like every good thing you see in the world, like somebody had to sacrifice a lot to produce anything at a high standard.

• 15:07Speaker 00

  Yeah.

• 15:07Speaker 01

  That sticks with me.

• 15:08Speaker 00

  That's right.

• 15:08Speaker 01

  And it hurts.

• 15:09Speaker 00

  Yeah, yeah. And, you know, and we live in this world where, you know, particularly investors, and look, investing isn't like Pixar, but in a lot of ways, but like, you know, we live in a world of hedging. We live in a world of thinking with bets, backup plans, you know, contingencies, et cetera. And in a sense, that's very rational, okay? But what if you didn't live in that world? Like, what if you like positioned yourself against that? And what if like you tortured everything you worked on to try to be great, you know, within the context of a company? And I think that is the core of a miracle factory. Because what you say about like, how did they repeatedly produce success with no flops?

• 15:41Speaker 01

  Yeah.

• 15:42Speaker 00

  It's because like they had that mentality, like everything had to be great.

• 15:45Speaker 01

  It's funny, the, I would say the thinking in bets mentality is, it's not discussed that much, but it's extremely central in tech, like to how startups think, to how investors operate. To even how people working at startups manage their careers, I think people think in bets in a real way. And you're kind of describing the extreme opposite.

• 16:04Speaker 00

  Yeah, and I personally, I don't think startup founders should think in bets. There's an argument for investors thinking in bets, it's a different game. But startup founders thinking in bets, I don't think is the right thing. You have to choose the quest that you have like extreme conviction in and like you'll sort of like die trying to make this thing work because it's so hard. And if you're not committed, pot committed, then it's just that much harder.

• 16:28Speaker 01

  Okay, I want to move over to Twitter, no X. You were COO there from 2010 to 14. And obviously, those were like crazy years. I guess on some level, it seems like for the company, all the years are crazy years. But there was a lot going on then. Can you just like tell me about what was happening at a leadership founder level? Like what were the, what were the big chess pieces moving around at that time?

• 16:51Speaker 00

  So when I joined Twitter, we had less than 100 employees. We had no revenue. We didn't have a business model. We weren't sure we were going to make a money with ads or some other charge memberships. Like there were all sorts of.

• 17:01Speaker 01

  Site was going down all the time?

• 17:02Speaker 00

  The site was going down all the time.

• 17:03Speaker 01

  The fail well.

• 17:04Speaker 00

  Fail well, yeah, there was a logo for those who don't remember. The company built its own logo for the site crashing and site going down, which was the fail well.

• 17:11Speaker 01

  That's funny.

• 17:12Speaker 00

  It was kind of a bit of a laughing stock company. It had clearly touched a certain cultural zeitgeist. You know, it had about 15 million users. We just ran twitter.com. We didn't have any mobile apps. We didn't have any mobile engineers at the company. And you know, about eight months or so after I joined, the founder, you know, there's been a lot of founder turmoil between Jack and Ev. And Ev was the CEO when I joined and he was out. And Biz kind of walked out with him. And so we were sort of founderless about eight months into, into the tenure. And it was both a sort of like hyper scaling challenge because the opportunity was so large and effectively a turnaround because you know, all the leadership was pushed out. There were a lot of wrong people in the wrong, in various positions.

• 17:51Speaker 01

  It's a very interesting case study because it seems like it had unstoppable product market fit and then was just not run well.

• 17:57Speaker 00

  That's largely right.

• 17:58Speaker 01

  It's better than the inverse, I guess.

• 17:59Speaker 00

  Yes, yes.

• 18:00Speaker 01

  Yeah.

• 18:01Speaker 00

  Yeah, sometimes product market fit is so powerful that it allows you to make a lot of mistakes at the top.

• 18:05Speaker 01

  Reddit had this for a long time.

• 18:06Speaker 00

  Yep, yeah, that's right, yeah. And so, yeah, so I joined it when it was in that state. I left about four or five years later and we'd gone from no revenue to a billion in revenue. We'd gone from 50 million users, 300 million users. We'd gone from just one office in San Francisco to 23 offices in 14 countries. And when I look back, I think there are a couple of things we did great and a couple of things I wish I could have over again. I think there are two things that we did great. One is I think we got monetization right. And the core of it was, I think we figured out before any social platform that if you can make the ad unit and the content unit the same, in our case tweets,

• 18:40Speaker 01

  Yep.

• 18:41Speaker 00

  then you have the ability to make ads feel more like content

• 18:45Speaker 01

  Yeah.

• 18:45Speaker 00

  and you have, you can judge them based on relevance and you give advertisers the ability to participate in a conversation. And like my favorite example of this, you may remember, the year when the Super Bowl, like when the lights went out at the Super Bowl, Oreo, which was Oreo Cookies, which was advertiser on Twitter, right at that time, when like the lights are out, it sends out this advertising, this tweet,

• 19:04Speaker 01

  Yeah.

• 19:04Speaker 00

  promoted tweet that talks about like dunk after dark.

• 19:07Speaker 01

  That's good.

• 19:08Speaker 00

  So, you know, dunk your Oreo cookie and milk is dark or whatever.

• 19:11Speaker 01

  Yeah.

• 19:11Speaker 00

  Right when the, so, and it got a lot of attention and a lot of buzz and it was just clever. It was content or was it an ad? I don't know, it made people laugh, right?

• 19:18Speaker 01

  Yeah.

• 19:18Speaker 00

  So, I think we got that notion of the ad unit and the content unit being the same, right? And the nice thing was, it was graceful as like the platform shifted from desktop to mobile. Facebook at the time, you may remember, kind of stumbled because its ad units were built for the desktop, which is the majority, majority of users. That's how they interface with Facebook until that changed. And so they kind of had to figure out what their ad units would look like in a mobile world. I think Twitter kind of nailed that. The second thing is, you know, we scaled the company globally really fast and generally pretty well. And as a result, our There was a big global audience and we built a global business quickly. I think those were the things I think got right.

• 19:56Speaker 01

  Yeah.

• 19:56Speaker 00

  I think the things that I regret or big learnings for me were probably the biggest one is the company never showed enough curiosity about its own users. And we had a mental model of who a Twitter user was that way lagged the reality of what Twitter users were, you know, across all these countries, across all these devices, you know, using it in a married way.

• 20:18Speaker 01

  I can imagine that the early adopters and like the middle of the pack of the curve are completely different.

• 20:22Speaker 00

  Yeah, and this is an interesting thing for like any, in any business, which is your mental model of your customer naturally lags, there's inertia in how that model like moves relative to like reality. And you have to, if you're going to kind of keep up with like who your users actually are and what their needs are, you have to actually develop a ton of discipline and a ton of like rituals and processes to keep up.

• 20:49Speaker 01

  Yeah.

• 20:49Speaker 00

  I remember Patrick Carlson asked me years ago to attend one of their all hands. And this is all I talked about. All I talked about was like, hey, your platform is starting to take off and let's talk about the ways in which your views of your users are maybe outdated to what you, who your users actually are today and what they're doing.

• 21:05Speaker 01

  Yeah.

• 21:06Speaker 00

  So that was a huge thing at Twitter. And, you know, unfortunately, you know, there are big product launches that we, that we had, one of them was the conversations feature, you remember the blue line?

• 21:16Speaker 01

  I do remember that, it was so hard to use.

• 21:17Speaker 00

  Yeah, well, what happened was there were, probably our most engaged users of Twitter were people who were using the platform to subtweet their friends, often with false identities, kids usually. And that feature broke Twitter for them. So our most engaged users in the United States, like we launched a feature that broke Twitter for them. And that was simply because we didn't really understand like who they were. We were building for ourselves, that seemed nifty. And so that's a really dangerous thing to do.

• 21:41Speaker 01

  Yep.

• 21:41Speaker 00

  The other thing, the other learning for me was we were too precious. I mean, we were too precious about 140 characters, we were too precious about the reverse chronological timeline. And I think one of the things I give Elon credit for is he like sacrificed.

• 21:56Speaker 01

  Experimenting.

• 21:56Speaker 00

  Yeah, sacrificed all the sacred cows, like.

• 21:58Speaker 01

  He basically trusted that the network was strong enough that he was free to experiment.

• 22:01Speaker 00

  Yeah, yeah.

• 22:02Speaker 01

  Whereas I guess old Twitter was afraid of breaking the golden goose.

• 22:05Speaker 00

  Yeah, or they had this, there was definitely part fear, but part, I think there was a belief that our differentiation was in making the product exceedingly real time and shorter tweets that are reverse chronological. Make it more like the pulse of the planet, more real time.

• 22:22Speaker 01

  Yeah.

• 22:22Speaker 00

  But I think the mistake was that actually wasn't what the majority of humans wanted.

• 22:26Speaker 01

  Yeah.

• 22:26Speaker 00

  Um, it was just what a subset of humans.

• 22:28Speaker 01

  And also, of course, you can design the algorithm to make it so that when important stuff is happening, it comes to the top, which is how I think it basically seems to work now.

• 22:36Speaker 00

  Yeah, that's right.

• 22:36Speaker 01

  It must be interesting for you to watch Elon do what he's been doing with it, which is so different from what you were doing. And I'm sure there must be a lot of things that he's doing that you think are really good. I'm sure there's some things where you're just like, what are we doing? I'm curious to hear your like, you know, observations.

• 22:51Speaker 00

  Look, I think he made a bunch of unforced errors. Like, I think the checkmarks thing, I think, was really poorly handled, letting people buy the checkmarks.

• 22:57Speaker 01

  Shouldn't have done that.

• 22:59Speaker 00

  It shouldn't have been handled the way it was handled, where like the thing that verified your identity was suddenly for sale.

• 23:03Speaker 01

  Yeah.

• 23:03Speaker 00

  And of course, like, you know, somebody bought the drug maker's handle, the checkmark, and then tweeted and their stock dropped.

• 23:09Speaker 01

  The blue checks thing was driving a lot of people, like, it made this multi-class system and a thing that I think didn't feel good.

• 23:14Speaker 00

  Yeah.

• 23:14Speaker 01

  It's like, I actually, I think what you're saying is like, it wasn't necessarily it was a bad idea. It was just the way that it went down.

• 23:19Speaker 00

  The rollout was bad.

• 23:20Speaker 01

  Yeah.

• 23:20Speaker 00

  It wasn't as thoughtful, you know? Um, but, look, I never expected him to change the name, you know?

• 23:25Speaker 01

  Yeah, that was, that was surprising.

• 23:27Speaker 00

  Yeah, I mean, I think it's, in a sense, indicates that he has something bigger in mind, and maybe that's cool. Um, uh, you know, he took a lot of costs out of the business.

• 23:34Speaker 01

  I also wonder if it was just like a sign to say, like, nothing's sacred. Like, even without a big plan, just be like, I'll change the name, like, says something, I guess.

• 23:41Speaker 00

  Oh, yeah, for sure, for sure, yeah.

• 23:42Speaker 01

  Yeah.

• 23:43Speaker 00

  But I think.

• 23:43Speaker 01

  Took a ton of costs out, yeah, of course.

• 23:44Speaker 00

  Yeah, but I think you're right. I think the powerful thing is the network is so durable. And, um, you know, we can debate whether we like Twitter more now or before, or whatever, whatever, whatever. But I think it's, um, I mean, one of the things I'm proud of is I got to work on something that I think is going to be around, like, when my kids grow up, probably.

• 23:58Speaker 01

  Doesn't seem like it's gonna have a chance to go away, just, you know, which I'm happy about. I think it's really good.

• 24:02Speaker 00

  Yeah, me too.

• 24:03Speaker 01

  Yeah, okay, so, um, you had those experiences, and then you went into venture, right? So, um, talk about that.

• 24:11Speaker 00

  Well, I joined YC.

• 24:12Speaker 01

  You joined YC?

• 24:12Speaker 00

  Yeah, is that venture, is that not venture? But yes, yes.

• 24:15Speaker 01

  You had a large venture funded by C, but really at YC, yeah.

• 24:18Speaker 00

  Yeah, yeah.

• 24:18Speaker 01

  Um, but like, so that was like the beginning of the growth fund, right? Like, there wasn't one, like, that was right at the beginning of it? And, um, obviously, you invested in like a ton of great companies, and you learned a lot from it. So I guess, can you share maybe like, I, I want to spend more time talking about what you're doing now, but like, can you share just like a little bit about that?

• 24:34Speaker 00

  Yeah, so, um. You know, I feel like everything kind of happened serendipitously. Like, you know, I joined Pixar because I was like in awe of how could anyone make Toy Story 2?

• 24:44Speaker 01

  Yeah.

• 24:44Speaker 00

  And they were a public company at the time and it was kind of like this, like, as we said, miracle factory that attracted me and I was there for a decade. And then I went and joined Twitter and what I learned there was like an experience service, this hyper scaling thing and taking something from zero revenue through IPO. And YC, which is another serendipitous thing, and I was approached by Sam and he said, "Hey, would you join YC initially just as a visiting partner?"

• 25:05Speaker 01

  Yeah.

• 25:05Speaker 00

  And hang out with some of the growing companies at YC and how could I turn that down? It sounded like a blast.

• 25:09Speaker 01

  Yeah.

• 25:09Speaker 00

  And then a few months later, he said, "Hey, we're going to raise a fund. Would you lead it for us?" And so I was like, "Wow, startup fund from scratch?" And I've never been an investor on top of this amazing platform in the world's great university.

• 25:19Speaker 01

  And also, one of the only strong network effects.

• 25:21Speaker 00

  Yeah.

• 25:22Speaker 01

  Which you obviously learned from Twitter is extremely durable.

• 25:24Speaker 00

  Exactly. Yeah, exactly. So, you know, how could I say no to that? And so it's a bunch of serendipity. But the thing that like I really, what YC really taught or showed me was like, it exposed me to early-stage startups at like massive scale. I mean, I was at YC almost 10 years and I think close to 4,000 companies went through the batch program during those 10 years.

• 25:44Speaker 01

  Wow.

• 25:45Speaker 00

  And there were probably 200 to 300 Series A rounds every year. There were more than 100 Series B rounds every year.

• 25:53Speaker 01

  Yeah.

• 25:53Speaker 00

  And, you know, my team wasn't involved in admissions to the batch or like really the batch program, which is YC's bread and butter and what they're best at in the world. But what we did is we helped founders after demo day with a whole series of stuff, like their Series As and, you know, helping with their decks and feedback and, you know, all the, and we ran all these programs and so forth. But the thing like that I take away from it, you know, now a few years later is like, "Wow, I got to see a lot of stuff at the very beginning." And the influence is the influence of both what I do now, but also the way I just think about like the stages of life. And I kind of think of the beginning as like, and what YC does so well is like they... It's like they're the, they plant seeds, you know, I mean, Justin Khan used to work at Y C.

• 26:36Speaker 00

  He said, we're not hunters like VCs, we're farmers, you know? And they plant seeds and try to get everyone from seed to sapling.

• 26:42Speaker 01

  Yeah.

• 26:42Speaker 00

  Right? So like, hopefully work on the right idea. Hopefully like, you know, uh, launch your product.

• 26:48Speaker 01

  Yeah.

• 26:48Speaker 00

  You know, have a successful demo day, raise money and get a few customers.

• 26:53Speaker 01

  Yeah.

• 26:53Speaker 00

  Right? And that gets you to this sapling phase. And then at the sapling phase, that's actually interesting. So like we talk about zero to one, maybe that's zero to point two, or zero to point four or something.

• 27:04Speaker 01

  Yeah.

• 27:04Speaker 00

  And then there's a phase in the sapling phase before the tree phase. And the tree phase for me is like when you scale a company.

• 27:10Speaker 01

  Yeah.

• 27:10Speaker 00

  You know, in the sapling phase, which is actually where all the death lurks.

• 27:14Speaker 01

  Yes.

• 27:14Speaker 00

  That's where startups die.

• 27:15Speaker 01

  I did a program with you in 2019, I think it was with the growth program. And then I did Y C in 2016, but we didn't have product market fit when we left Y C. We were a point two sapling still.

• 27:25Speaker 00

  Yeah.

• 27:25Speaker 01

  So it was very much about like getting the DNA and the mindset right and learning stuff.

• 27:30Speaker 00

  Yeah.

• 27:30Speaker 01

  Like.

• 27:30Speaker 00

  So I'm, I'm fascinated by this sapling phase of like, what actually happens here?

• 27:35Speaker 01

  Yeah.

• 27:35Speaker 00

  Because it's actually hard to support founders here. Because the, you know, the great thing about the seed stage, and I think in many ways the scale stage, seeds and trees, is that there are a set of common things that if you like really do well for founders as a support to founders, it helps all of them or almost all of them, you know? Some of the basic lessons of Y C, some of the basic writings of P G, et cetera, like they're gold.

• 27:58Speaker 01

  Yeah.

• 27:58Speaker 00

  You know? And at the scaling of building a company phase, same thing. You know, there are a set of things about how to hire executives. What is the job of the CEO, you know? How to manage, how to like develop strategy, communicate more broadly, figure out H R, all that stuff.

• 28:11Speaker 01

  Yeah.

• 28:11Speaker 00

  Like there are a lot of commonalities across companies.

• 28:13Speaker 01

  Very common.

• 28:13Speaker 00

  But at this sapling stage, everything is much more bespoke. It's not really about hiring. It's not really about, it's really about like trying to like find the right customer, find the right problem, solve it really well, and then figure out a way to like do it again and again and again.

• 28:30Speaker 01

  Yeah.

• 28:30Speaker 00

  Like repeatability, you know, at that phase. And I think to help founders at this phase, like. You know, I personally, I mean, the whole industry, as you and I've talked about, has like gone to much more scale. You know, Y C is a lot bigger than it used to be. All of the venture funds are way, way bigger than they used to be in terms of capital and investments made and so on. And I think there are aspects of this industry that scale works really well for. And there are aspects of this industry or the journey of a startup where I don't think.

• 28:54Speaker 01

  It's the ends where it works. Like Y C, Y C, I think can actually scale more if they wanted to, where you can plan as many of these seeds. And what's interesting with Y C is they don't just like invest, like a lot of times they create the conditions for somebody to start a company that wouldn't have otherwise.

• 29:07Speaker 00

  Oh, absolutely.

• 29:08Speaker 01

  So you could have as many of those as you wanted.

• 29:09Speaker 00

  Yeah, yeah.

• 29:10Speaker 01

  And then at the far other end of the bell curve, where you can just put tons of money into these companies, billions of dollars in the companies that are scaling, like that obviously goes.

• 29:18Speaker 00

  But even, even at the phase where like, okay, we're now starting to hire a bunch of executives and we need intros of Fortune 500 companies and that are, you know, like there's this, it's not just like very, very late stage.

• 29:27Speaker 01

  You're talking like series B and C type of stage, is that what you're?

• 29:30Speaker 00

  Yeah, I think like, you know, to me, like, there is like pre-traction and post-traction. And so the question is like, where is the line, right? And to me, it's like five or 10 million dollars of revenue is the line. It's not a million.

• 29:41Speaker 01

  Yeah.

• 29:41Speaker 00

  You know, it's definitely a 500K.

• 29:42Speaker 01

  Why do you say it's not a million? Cause a lot of times people are like, oh, a million dollars, that's product market fit, that's the A.

• 29:47Speaker 00

  There's no repeatability at a million dollars. You haven't proven repeatability and you've just proven that you can, you know, get someone to pay you. Or get five people to pay you or seven people, whatever it is, you know? And to get to one, you have to prove repeatability in my mind. You know, which means that like you've found a problem that enough people have and you've found a way to like, be able to like convince people to like buy it. Right? And the other thing obviously you have to prove in that phase is like, not only do you convince them to buy it, but they use it.

• 30:15Speaker 01

  They like it.

• 30:15Speaker 00

  They like it and they want to buy it again.

• 30:17Speaker 01

  Yeah.

• 30:17Speaker 00

  Or renew or buy, buy more. Or if you're in a consumer business, like the cohort stick.

• 30:21Speaker 01

  Yeah.

• 30:21Speaker 00

  You know, or, you know, and similarly in a B2B business, like the renewals and expansion are happening. And, and rules and expansion are probably the best. You know, metric for product market fit, it's a lagging metric.

• 30:30Speaker 01

  Right.

• 30:30Speaker 00

  And you don't know right away. Yeah, you don't know. You can, you gotta get good at figuring out the leading indicators of it, but you don't know.

• 30:35Speaker 01

  Yeah.

• 30:36Speaker 00

  So, yeah, so basically I think scale works at the two ends. And I don't think scale works at the sampling phase. And so what I'm trying to do now is I saw a bunch of patterns of where things went wrong at this phase for companies and how certain founders like find their way through the maze and swim through. And I think the, the, the most, the hardest one, it's a simple slippery problem that I saw people encounter over and over again, which was like, who should my initial customer be?

• 31:01Speaker 01

  Mm hmm.

• 31:01Speaker 00

  You know, and the tendency was because founders face so much pressure to grow quickly, the tendency was to try to define the customer really broadly, that anyone's who's willing to pay me is a good customer. And so, you know, founders would let customers choose them instead of being extremely selective and choosing customers.

• 31:19Speaker 01

  Yeah.

• 31:19Speaker 00

  And that requires some degree of courage to like turn down some growth, you know, because you're looking for someone that you can deeply satisfy.

• 31:28Speaker 01

  Yeah.

• 31:28Speaker 00

  And the broader, more diverse your customer set is with a small team and a immature product, the harder it is to keep them all happy.

• 31:35Speaker 01

  I think that this exact phase, I think, is one of the most psychologically demanding for founders because you so badly want things to be just moving. And you want to just grow, you want to tell people you're growing, you want to take customers. You don't want to think that you need to pivot or adjust your product because like then you have to like feel like you're admitting defeat somehow. I think this phase is so mentally difficult.

• 31:55Speaker 00

  Yeah, yeah. So for me, it's the funnest time in a startup and I think it's like where all the death lurks. You know, like where the, you know, death zone is. Whether someone raises an A or not, you know, that's kind of irrelevant. You can, most.

• 32:06Speaker 01

  This is kind of the series A. This is like the pre-series A.

• 32:09Speaker 00

  It's definitely pre-series A, but I think in a lot, a lot of times it's post-series A too. I mean, like who raises a series A at $10 million? I'm saying it's through like at least five, you know, until you've proven this.

• 32:18Speaker 01

  Yeah. And so you're talking, what's interesting to me is I think different than in a lot of conversations where people would say three to five million, you're on your way. And you're talking about, no, that's still fragile. It's still a little fire that needs to be like tended to.

• 32:31Speaker 00

  Yeah, like I think that until you've proven like retention and expansion and until you've proven repeatability. Which I think happens somewhere around five and maybe as far as 10, depending on the business and stuff like that. A certain amount of time has elapsed, you know, to be able to really judge it. And so, I mean, I think there is a pre-traction phase and a post-traction phase. And I think there's a inception stage, which is like where YC lives and they do the best job in the world. And as you say, you know, they both cause there to be more startups and cause promising and help promising founders work on better ideas. Like, we all owe them a big debt of gratitude for that. And then there's a sapling phase where I think all the death lurks, whether it's pre or post A. And then there's this tree phase where like, hey, you're at five or 10 million of revenue. Your bark is now hard.

• 33:16Speaker 00

  Like, a rain's not going to wash you away. You've got roots. And now it's about company building. And I think VCs are great at that.

• 33:23Speaker 01

  Actually, can you talk about for a second, I have shared your blog post a ton of times about the like second stage of, second phase.

• 33:30Speaker 00

  Second job.

• 33:30Speaker 01

  I'll link it because I think it's an extremely good post. But like, can you talk about that transition for the CEO? And like what that post was about?

• 33:38Speaker 00

  Yeah. So the interesting thing is like, I think that if you, if you like this analogy of the three phases, you know, seed and sapling and tree. The CEO, founder CEO's job changes a lot between sapling and tree. And because the job becomes, at the beginning, the job is just like about build a great product and find customers and keep those customers happy and get them to renew, et cetera. So it's about product and customer, product and customer, right? Once you get to this place where like, oh, I'm now a tree, it's taken root, I have a business, it's repeatable. I know like, you know, I have some foundation. At that point, then the job of the CEO changes.

• 34:10Speaker 01

  Big time.

• 34:11Speaker 00

  From building the product and selling the product to building the company. You become the like, you need to build a machine that builds the machine. You become the PM of the company, not so much the PM of the product. And so that means you got to find people to do all the, you got to get yourself out of these vital things you were doing before. And that's super hard. And so that you can focus on, you know, the second job, which is like company building. Yeah, that's the basic point of the book.

• 34:34Speaker 01

  So when you thought about putting your firm together, you also are doing like a program. Like, how did you, I guess, just how did you decide what structure of firm and approach you wanted to do?

• 34:45Speaker 00

  So what I'm interested in doing is I'm interested in working very intently, intensely with a very small group of these sapling kinds of companies. And really on either side of a series A, I'm a little bit indifferent about that. But people who have launched their product, they've got some traction, they've got, they're committed to what they're doing. There's some beginnings of, you know, something like, I don't think I'm very good at the seed stage. I did a lot of the growth stage and I know that, know that pretty well. But the sampling stage is, I think, where founders need the most help. And in order to help them, you have to do it almost subscale. Like you have to do it really, really intimately and closely. And so I want to work with a very small group of folks and try to make a contribution there. And, and so, yeah, so that's, that's basically my, my hope.

• 35:30Speaker 01

  That's great. Yeah. One of the things that you've talked to me about before is that you think, I don't want to put words in your mouth, but I think you said like the series A is often like a bit of a ripoff. And that people take way more dilution than they need, that it's like the rounds are bigger than they have to be.

• 35:44Speaker 00

  Yeah.

• 35:44Speaker 01

  Is that still something that you feel? Or have you, you know, was, is that an accurate thing that you at least felt at one time? Do you feel that way now?

• 35:50Speaker 00

  Well, I think that what's happening, and I expect it to continue, is that the traditional ownership that a traditional series A investor, we get in the series A, has degraded and will continue to degrade.

• 36:00Speaker 01

  Yeah, because it used to be like 25%.

• 36:02Speaker 00

  Even more. Yeah. But yes, yeah. And so, and that's just driven by the supply and demand of capital and the like, you know, like very sort of burgeoning nature of the seed ecosystem. And I think that.

• 36:13Speaker 01

  I also think you have a dynamic where there's not just the availability of capital or the prices are low, but it's like the venture firms are winning and they're pushing the founder to take more money than the founder even thinks they need. And they're like, okay, but I want to work with whoever.

• 36:26Speaker 00

  Yeah, that's right. Yeah. So I think that like the nature of like the series A is changing. And I think the nature, and I think largely to the benefit of founders. But the other thing that's kind of fascinating that's, that's happened, I think, over the last five, seven years especially, is more capital is flooded into the system. You know, deals are getting done in a blink of an eye. And founders don't fundraise anymore. They just get preempted, the good ones and, or the promising ones. And so.

• 36:47Speaker 01

  And their plan is to do it. I mean, and I think that's correct, but the plan is to say, I'm going to fundraise at this time. And they have a couple of conversations and they let the round happen before.

• 36:55Speaker 00

  Yeah, sometimes like the founders encourage or.

• 36:58Speaker 01

  They make themselves available to get preempted.

• 37:00Speaker 00

  Yeah.

• 37:01Speaker 01

  But.

• 37:01Speaker 00

  But sometimes it comes out of the blue. I mean, you see that too. So, so in this world of like super rapid fundraising, where founders aren't generally fundraising, they're just getting preempted. I think that obviously there's a lot of convenience there for, for a good founder. But on the other hand, I think what, what happens, I don't think I've seen a single fundraise in the last five or seven years. Tell me if you disagree, where. There was actually any urgency to fundraise at that time. You know, this preemption mentality.

• 37:28Speaker 01

  It's not a cash thing.

• 37:29Speaker 00

  The founders aren't driving the timeline.

• 37:31Speaker 01

  No, and they're actually like, when should I raise so that I don't need the money? I mean, people plan to raise.

• 37:35Speaker 00

  Yeah.

• 37:35Speaker 01

  Which, again, they should. It makes things easier.

• 37:37Speaker 00

  Yeah.

• 37:38Speaker 01

  As I'm thinking out loud, I do actually think, so I think you're right that a lot of the strong companies go for the preemption. There actually might be on the far other side of like the very, very outlier companies. They actually do run a process because they're so confident that it's going to work that they basically are like, we're going to get a true market price here.

• 37:54Speaker 00

  Yeah. Definitely. I think it definitely happens.

• 37:56Speaker 01

  I think on the far other.

• 37:57Speaker 00

  Yeah, or they get preempted and they use that to like trigger something.

• 38:01Speaker 01

  Yeah.

• 38:01Speaker 00

  You know, but again, over three days.

• 38:03Speaker 01

  Right.

• 38:03Speaker 00

  You know, not like.

• 38:05Speaker 01

  Yeah.

• 38:05Speaker 00

  Yeah, and so.

• 38:06Speaker 01

  Which I think is in some cases a shame. Like if you're going to like spot pick a board member in three days.

• 38:10Speaker 00

  Yeah.

• 38:10Speaker 01

  I don't know if that's always, as long as you've got enough trust in your cap table to know what you're getting, it's good. But I don't know. I think sometimes it's like worth a little more time to get to know people.

• 38:20Speaker 00

  I tend to agree with you. I think it really depends where you are in this journey. Like, I think if you're already a tree and like it's now, you know, primarily about.

• 38:27Speaker 01

  Sure.

• 38:28Speaker 00

  You know, terms and maybe who you want or like prestige of a particular name or ability of a certain investor, open some doors or whatever. I think that maybe make.

• 38:36Speaker 01

  You're also usually dealing with very known quantities at that point.

• 38:39Speaker 00

  Yeah, and, and you know, for companies that are trees and have been around five years, you know, you've had a chance to hobnob with investors over that long period of time. It's only for companies that are like one or two or three years old and haven't, have just met someone or, you know, that someone heard about something and they swooped in. And now you're in a conversation for the first time with some famous investor. I think those are the ones where maybe slowing down is beneficial. Like to me, look, especially if you're in the sampling phase, I think it really pays to slow down enough to be able to, I don't know. Ideally simulate like what it would be like to work with someone.

• 39:12Speaker 01

  Totally.

• 39:12Speaker 00

  And then make your decision, you know, and just know that you actually control the timeline and don't necessarily cede that to an investor. Investors, I think, are extremely good at hijacking the timeline of a fundraise, you know, because they practice it so much, you know, and sometimes that's fine. You know, I'm not saying in all cases, like, hey, raise money. It's easy. It's there, et cetera. You love the investor. You know the investor. But I don't think in all cases it makes sense to do that.

• 39:33Speaker 01

  Are there any other structure of the way you're doing things aside? Are there any other like ideas or beliefs you're sort of operating against right now that are sort of driving the way that you work?

• 39:43Speaker 00

  Well, I just, you know, it's funny and this may be a wrong strategy. You know, it's certainly contrarian, but like I don't really, I want to try to get to know the founders and businesses that I invest in like deeply. And in some cases, that's related to working with me on something or in some cases, relationships I've had before or whatever else.

• 40:01Speaker 01

  Yeah.

• 40:02Speaker 00

  But like, you know, as I said, more capital has meant that deals happen in two days.

• 40:05Speaker 01

  Yeah.

• 40:06Speaker 00

  And it's become kind of like this first person shooter video game and I don't want to play that game.

• 40:11Speaker 01

  I also guess the nature of the way you're doing this is with your program where you're, you know, you're trying to help before you have any equity in people, which is I guess on some level fundamentally unscalable.

• 40:20Speaker 00

  Yep.

• 40:21Speaker 01

  Because you can only help so many people where you're not in business with them at a time, but like the advantage of that is this.

• 40:27Speaker 00

  Yes, that's right. Yeah. I mean, and look, something I learned at Y C, I mean, we, Y C was obviously an insider on all the companies within Y C, but our growth fund wasn't.

• 40:36Speaker 01

  Yeah.

• 40:37Speaker 00

  And we helped tons and tons of founders that we never invested in. I mean, it was good for Y C to do that, of course, but like that mentality of like, hey, the more help you provide, it finds its way back to you, just like karmic thought and just my own personal belief, that's how I'm wired. I just think like, hey, you help people without, you know, expectation of return and it pays it back in one way or another. It's something I believe and just how I want to work, you know? So we'll see how it goes.

• 41:02Speaker 01

  All right. Well, Ali, this was awesome. Thank you so much for making the time. I really enjoyed it.

• 41:06Speaker 00

  It was a pleasure, Jack. Thanks for having me.