by Sam Altman9/29/2016
Some people think YC only funds straightforward software startups. That’s definitely not the case — YC’s largest exit to date is a self-driving car company, Cruise Automation, and we’ve funded many other hard technology companies like Gingko Bioworks, Oklo, Helion, Rigetti Computing, OpenAI, Perlara, uBiome, Verge Genomics, X-Zell, Athelas, Auro Robotics, Bagaveev, Boom, Gecko Robotics, Multiply Labs, OpenTrons, Varden Labs, Atomwise, Transcriptic, IronOx, 20n, Bikanta, Industrial Microbes, Cofactor Genomics and many more.
We’d like to fund a lot more hard tech companies 1, and I’d like to explain how YC most helps hard tech founders.
At the earliest stages, there’s actually a lot more in common between a self-driving car company and a file sharing company than people think–all kinds of startups usually work best when initial costs are low and iteration cycles are fast. It’s relatively easy for a software startup to take short cycle times and low-costs to an extreme, but hard tech founders are often surprised by how effectively they can do this, too.
Many hard tech founders come from academia or big company backgrounds, where projects can be expensive and slow. We help these founders shift into a much more iterative mindset so they can move faster.
Very often, the first thing we do is help hard tech founders find a small project within their larger idea that fits the model of quick iteration and requires a relatively small amount of capital. This project is often the smallest subset of their technology that still matters to some user or customer. It may at first look like a detour, but it’s a starting point that lets founders build measurable momentum–for themselves, for recruiting employees, and for attracting investors.
And while we encourage hard tech startups to start small, we love when founders think very big. When needed, we help founders think through a long-term plan of how they can develop their technology to build companies of massive impact. It’s not a YC company, but Tesla is my favorite example of how powerful this small project + long-term planning mentality can be. Their vision has always been to bring an affordable electric car to the masses, but they first built the Roadster—the opposite of a mass market car—to generate revenue to get to the Model S. The Model S then generated the revenue to start the Model 3.
And Oklo, which is building next generation nuclear reactors, is a promising example from YC. When they first came to YC, they were considering going after several very different markets simultaneously. We encouraged them to focus on one market they could enter quickly and not try to do too many things at once, but we also encouraged them to open up to thinking through their most impactful possible future.
In terms of cost, we help hard tech startups operate as efficiently as possible. One factor that lead to the explosion of internet startups was that web hosting became a couple of orders of magnitude cheaper and easier to do. This is happening now for hard tech: there are many more standard components and services at much lower costs for startups in biotech, energy, robotics, and everything in between. We help founders think about how to build their first version and source components as quickly as possible, and we have deals with suppliers and service providers that you can use based on your needs.
We also help hard tech startups balance the need to move quickly with complex regulatory environments. Hard tech startups often operate in heavily regulated markets, and the activation energy required to get over regulatory hurdles kills many of them. Even the most regulated industries have paths to quickly test your assumptions though, and we help you find the best plan of attack without getting into trouble.
When appropriate, we help hard tech founders find customers. For some startups this doesn’t make sense—there are some ideas that people will obviously want if the technology can be figured out, and there are obvious other things to focus on. But for others, it can be a useful way to find that smallest useful project and/or build more momentum.
Gingko Bioworks, which biologically engineers custom microbes, is a good example of this— before YC they had done a few large deals, with long ~6 month sales cycles. But when they went through YC, we encouraged them to figure out how to do minimal sized engagements that they could sell more quickly. During YC, they took this strategy and closed 3 new Fortune-1000 sized customers. They say this strategy gave them a lot of momentum to keep building on to where they are now.
Hard tech companies go through the same 3-month batch format as all of the startups we fund. No matter what people are working on, it ends up being very motivating to be around other founders for this short, intense period of time. And during the batch, hard tech founders have hardware and biotech days, where companies come together to hear from successful founders on how to best tackle their specific problems.
Hard tech companies also join the same 3,000-person-plus YC alumni network as all of our startups. The network is just as useful for a hard tech company as any other startup—alumni are resources for advice, recruiting, and serve as first customers. For example, Transcriptic, which operates a robotic laboratory for outsourced science experiments, offers $20k in credits to every YC biotech company that wants to use their service. This both helps other YC companies, and turns them into customers that Transcriptic can grow with as their customers’ businesses scale.
Alumni and batchmates also give moral support—more so than with others, we hear from hard tech founders how isolating a startup can be; problems are difficult and payout can be very long-term. Having a group of other founders going through the same things can help a lot.
Finally, we are particularly good at helping hard tech companies raise money. Fundraising can often be harder for hard tech founders, as the things being worked on often fall outside investors’ comfort zones. But at this point a lot of investors take YC’s judgement as an encouraging sign. Being backed by YC can help legitimize daunting ideas.
We hope to fund a lot more hard tech companies in the future, and if you’re tinkering on something or even just toying with an idea, we hope you’ll apply now, even if that means you have to turn in your application late. There will be many $10 billion+ hard tech companies in the future, and we hope to help a lot more of them get started.
1 I use ‘hard tech’ to mean a startup where there is doubt that the technology can be built at all.
Sam Altman is the CEO of OpenAI. He was the president of YC from 2014-2019. He studied computer science at Stanford, and while there, worked in the AI lab.