[Y Combinator] boys, if you mattered at all you’d have done something I’d have heard of by now. Something a little more like Google and a little less like AirBnb. You haven’t done it, and it’s pretty much because you don’t matter. No matter what the circlejerk might have been telling you, the fact of the matter is you (collectively and individually) suck.
Never one to mince words,iii MP aptly noted that the success of AirBnb is predicated entirely on their ability to hawk graphic designiv and buy newspaper pump pieces. And that’s sort of a best-case scenario for YC.
Which brings us to Russ Roberts of EconTalk,v who lined up Sam Altman, President of Y Combinator, for an interview this week. Since the hour-long chat focused on technology, investing, and Bitcoin, some of my favourite subjects, for your enlightenment and enjoyment, let’s review a few highlights from their interview:
Roberts: Of the 716 [companies that YC has invested in], how many have been phenomenally successful?
Altman: Well I would argue at a minimum that anything over $100 mn dollar valuation is phenomenally successful. There are more than 20 of those.
Roberts: What are some of the biggest successes?
Altman: Oh–AirBnB, Stripe, Dropbox. Weebly, Optimizely, Zenefits, Teespring. Instacart.vi I could go on for a long time. One stat that I just heard that I love, is that since we sort of really got going, two years in, since 2007, half of the $10+ bn dollar technology companies that have been started have gone through YC.
Assuming that there’s been at least 2x $10+ bn tech companies started since 2007, and that YC is getting 1% of that after all the other stakeholders move in and take their cut, and that they’ve held on to 2% of the 20x $100+ mn companies, YC is doing quite well!vii
If this is indeed the case, perhaps we can chalk it up to their American Idol idolatry:viii
Randy: So, I’m curious at what level of projection and detail–if after this [funding candidate] interview is over I said to you, by the way, Sam, I’ve always had this great idea; and it grabbed your attention–is that level of–?
Paula: Very little, honestly.
Randy: Very little what? Detail?
Paula: Yeah. So, on the specific question of profits, we actually like startups that are reinvesting the money they are making into making their company better.
Randy: Oh, sure.
Paula: They don’t actually have profits when we see them. That’s expected. The level of detail is quite low. The startups–we look at their demo, but we never read the business plan.ix
Randy: You do not?
Paula: Never, ever.
Paula: I’ve never written one in my life. At the stage that we are operating at, it’s irrelevant. Like financial projections also we never look at. Now, we get an application, which is like a text but not much; a video, a one-minute video of the team.
Randy: Did you say 1-minute?x
Paula: 1-minute video introducing the team.
Randy: That short. It’s 60 seconds.
Paula: Very short. A demo if they have one. That’s all that we have about whether we make our decision or not about whether we are going to interview the team. And if we interview them, we interview them for 10 minutes and we decide on the spot. So, it’s pretty quick. Which means we get it wrong some of the time.
Randy: Hold on. When you say you decide on the spot,xi there are many dimensions to deciding, right? So, are they coming at you with a particular ask in terms of money?
Paula: With a standard funding offer. So our deal is always the same. It’s $120,000 for 7% of the company.
Randy: Oh, wow.
Paula: And we don’t really change that.
Randy: Wow. Nobody else does anything remotely like that.xii
Altman: No. But if you look at our time scale, like it would take 10 minutes to negotiate an offer. So at the speed that we have to operate, there’s no time to negotiate. So we just say this is our offer, the same for all companies. And that’s it.
There’s no time to negotiate? Are the candidates’ moms waiting in the 10-minute loading zone out front?? No matter. That’s their business and they’re sticking to it. And who knows, maybe they don’t lose their shirts behaving like Usagi.
Eventually, blessedly, Russ and Sam even made their way to the topic of Bitcoin, on which I have a few important footnotes to add:
Randy: How about Bitcoin?
Paula: Okay. I think the most interesting piece of Bitcoin is this idea of the blockchain, this idea we can have the centralized network agree on what the truth is, and have an incentive system to make that work. There’s a startup in this current YC batch that is doing a distributed file storage system based on the concept of a blockchain. I’ve seen companies doing contracts,xiii future revenue shares.xiv
Randy: You are saying it has applications out of the payment systems.
Paula: Yeah. So, Bitcoin itself, specifically, like, is Bitcoin going to win? Unfortunately I can only say the same thing that everyone else does, which has gotten tiring, which is probably not but if it does it’ll be a big deal. I own like not that many Bitcoins, and I have them as a hedge in case it does win. But I think it still is looking unlikely.xv And so I think the big challenge with Bitcoin as a currency is, it still has not found what it’s better at than other payment systems. And that’s really important.xvi Personally, I think the most promising green shoots are around international remittance.xvii Sending money to my family in Mexico or whatever. And that seems to maybe be picking up real steam. But it’s so early in the day the data’s so noisy, it’s hard to know for sure. So basically what I think about Bitcoin is it’s unbelievably interesting technology; it’s one of these things that’s lodged in my brain and won’t go away; but I have been continually disappointed about the speed with which it has found real usage.
Randy: But I’m sure you are also continuously cheered by the fact that it still exists. Despite that failure to take off.
Randy: Because I look at it, that’s the way I look at it. It’s amazing it exists. So it’s all gravy for me.xviii
Paula: Well, it has this kind of great thing which is that there are all these people that are really incentivized for it to continue to exist, which is everyone that holds Bitcoin. And all the VCs who invest a lot in Bitcoin companies. One of the greatest things Bitcoin has going for it is that pmarca made a bunch of Bitcoin investments and that’s what got all these tweet stories.xix But there are like all these people who really want it to succeed.xx And hopefully that can give it the activation energy to get over this hump of the current state being ahead of the reality. But I think one of the things that I think, or I see it can do that’s really important, is try to fund Bitcoin companies that are actually enabling a real legitimate usage in transactions. Because that can make Bitcoin survive. And Bitcoin is good for the world, I believe.
On Bitcoin being good for the world, there’s little argument here. And it’s entirely because of the deflation solution. Altman doesn’t get things completely wrong, not by a long stretch, but he could also use an IRC Yeshiva.
But let’s end on a high note. Paula, take it home:
Paula: A friend of mine once drew this great Venn diagram, and one circle was things that look like a good idea, is a good idea; and the other circle was, looks like a bad idea. And you want the things that are at this intersection. So you want things that look bad but are in fact good. And that not a lot of people are doing.
___ ___ ___
- YC, as you’re about to see, is a Silicon Valley-based firm that funds start-ups. This footnote is only here because you’re impatient. [↩]
- Not to be confused with CoinLab, the Peter Vehehes scam that mopped up $500k from Tim Fucking Draper (yes, that’d be the exact same dood who just bought 30,000 BTC for no less than $25-30 mn from the US Marshals via the Silk Road auction) back in April 2012. Of course, at that time had Timmy bought BTC instead of “investing” it, he would’ve had no less than 100,000 BTC to his name today. Such are the twin benefits of both hindsight and not pretending like you know better. Interestingly, even though the ship has mostly sailed, this is every bit as true today as it was waaaay back then. Those who think they’re inventing new shit, reinventing the wheel (and more frequently, the scam) instead of buying BTfuckingC are fooling themselves and those gullible enough to bleat in their wake.
Anyways, Coinbase is a wallet service and merchant payment processor, the latter of which is a space currently in a race to the bottom, what with BitPay offering free transactions. The wallet space is equally fucked, what with Circle offering… shit on a stick. You just can’t beat a high-entropy paper wallet, Bitcoin QT, or MultiBit. [↩]
- Mince? Never. Obfuscate? Almost always. Which is why, if you squint a bit, you’ll notice my quote on the right-hand side of his blog’s header: [↩]
- Have you seen their new logo? They had a press conference just for this. [↩]
- EconTalk is quite easily my favourite podcast, with many episodes worth more than one listen. You’ll also recall that EconTalk recently featured Jeffrey Sachs and his naive interventionism. [↩]
- After the first three, have you heard of any of these? [↩]
- Feel free to contest these estimations, I was unable to scrounge up much in the way of facts and figures on the company. I can only determine that YC has spent at least $86 mn funding start-ups, plus operating costs of, I dunno, another $1 mn per year? So let’s say another $9 mn for a total of $95 mn in expenses. Compared to at least a $100 mn whammy for each $10+ bn company and at least $2 mn for each $100+ mn company. Give or take a few inflated fiats. [↩]
- Note that the American Idol model, launched in the US in 2002 by Simon Fuller, uses an open competition with short, in-person judging sessions followed by public appearances and, finally, a winner who is awarded a $1 mn recording contract. 4/5 of these winners fail to succeed beyond the confines of the show, with Kelly Clarkson (13 mn record sales) and Carrie Underwood (15 mn record sales) being the most notable exceptions.
Most tellingly, every single American Idol winner eventually peters out, with successive albums selling less than the previous one until they sell 4,000 units à la Clay Aiken’s Steadfast and they go quietly into the night. There are no Rolling Stones here, much less a Lil Wayne.
So while YC looks to be “killing it” today, there’s little doubt that the ventures they fund will be as easy to go as they were to come. AirBnb just isn’t that special. [↩]
- For comparison:
If Coinlab is bringing Bitcoin to Wall Street, then that means they’ll IPO on MPEx, no?
I’d have to see a business plan.
Tempting though it is to say that this is just “different strokes for different folks,” to do so is equivalent to saying that peeing in a urinal is the same as peeing in the Pope’s kippah. [↩]
- Seriously, this strikes of the “progress” of societal blights such as speed-dating and Powerpoint presentations. Except worse because YC actually has the poor taste to combine the two. [↩]
- As seen on American Idol. I wonder who plays Simon Cowell? I’ve always liked him… [↩]
- Roberts says this as though it were a good thing, but it’s more like Heath Ledger’s portrayal of Joker when he stacks all the stolen money in a giant pile, douses it all in gasoline, and… lights it up before the eyes of Gotham’s mob bosses, much to their horror. Ya, YC is Joker. [↩]
- Ahem. Ethereum. Ahem. [↩]
- Despite there being no Bitcoin 2.0. I have a funny feeling that Sam Altman is not only reading this, but going to click on that link too. Sam, my edgy tone aside, I hope you take some of these ideas to heart. You have a lot of fiat under your purview and you can do a lot of good with it – starting with buying as much bitcoin as you can get your hands on. Because as you saw with Tim Draper, “businesses” are a poor substitute for the real deal. [↩]
- Based on… this? [↩]
- Lol no it isn’t. Bitcoin finding other uses is about as important as bicycles being able to mow your lawn. STFU seriously. Bicycles are for transportation, Bitcoin is for domination. [↩]
- International remittances? In their current form, at least, they’re not gonna matter. [↩]
- How can you not like Russ/Randy? [↩]
- Tweet stories and VC money driving Bitcoin? That’s lulzier than the merchant adoption angle. All of these follow, rather than lead. Dat conflation of cause and effect. [↩]
- We are like totally in #bitcoin-assets if you want to drop by for a chat. [↩]