by Y Combinator7/11/2018
Recorded live at our Female Founders Conference in New York, Jessica Livingston shares lessons learned while starting and operating YC.
Read her accompanying essay, Grow the Puzzle Around You.
If you’d like to learn more about the Female Founders Conference, head over to femalefoundersconference.org
Thank you all for braving this heatwave and coming here on a Saturday afternoon. We’re really excited. This is actually the fifth year we’ve done the Female Founders Conference. And our first time in New York. So I’m very happy to be here and have you all here. So I’m Jessica Livingston. I co-founded Y Combinator, which was the first accelerator. Today, there are thousands all over the world, at least hundreds all over the world. But in 2005, what we were doing was so unusual that people in Silicon Valley just regarded us as very irrelevant. Y Combinator began the same way as most other startups with a hypothesis about something we thought people wanted. And it turns out they did want it and we grew and grew.
Now, we’ve funded more than 1,800 startups with a total value of over $100 billion. So having myself been through the kind of startup journey that many of you are hoping to, I wanted to tell you my own story. Now, if you only know me through the media, you might get the impression that my contribution to Y Combinator is that I’m Paul Graham’s wife. And while I love being his wife, there is a little bit more to the story than that. So I was born in Minneapolis in 1971. Later that year, my mother left home leaving my father alone with a small baby. So he took me back to Boston where my grandmother lived, and I lived with my grandmother during the week while my dad worked, and I lived with my dad on weekends.
My grandmother was the most important female role model in my life. She was a very independent person. And the term anyone who knew her would use to describe her is free-spirited. For example, in the winter time after putting me to bed, she’d go out and work until late in the evening on these giant ice sculptures that she’d build in our front yard. She did what she wanted and she didn’t care if people thought she was unconventional. So despite growing up without a mother, my childhood was really happy. My dad made a lot of sacrifices so I could get a great education. And he constantly encouraged me.
I played soccer when I was younger. And when I was in the ninth grade, we had an away game at a school called Phillips Academy in Andover, Mass. And the place seemed so unbelievably fabulous that I decided right there on the spot that I was gonna go to school there. Little did I know though that this decision would have bittersweet consequences. In my old school, I’d been a big fish in a small pond. I was a straight-A student and good at sports. And when I got to Andover in the fall of 1986, it seemed like everyone was straight-A students and good at sports. So I got really discouraged and basically gave up.
I defaulted to being a mediocre student and did nothing impressive or noteworthy for the next decade. It was like my own personal Dark Ages. And it’s a bit embarrassing to reflect on, to be honest with you, but I think it’s important to mention because when journalists and biographers write about successful founders, they often focus on early predictors of success in people’s formative years. And for me, you know, I didn’t have these things and I didn’t at least have any of the conventional kind of predictors, and no one would have voted me most likely to succeed. But while I had no achievements, I did have three defining characteristics when I was younger that were critical in making Y Combinator work.
The first was a quality that caused my YC co-founders to nickname me, the social radar. I was one of those kids you just couldn’t get anything past. If something seemed off or out of character, I noticed and made inquiries. I was always trying to figure things out based on subtle social cues. The second was that I never liked being at the mercy of anyone else. I hated anyone telling me what to do or not to do, parents, teachers, bosses, like, people I had to collaborate with but disagreed with, anyone. And the third distinctive thing about me was that I’ve pretty much always been a straight shooter. My grandmother and my father were both like that, but I’ll come back to those in a minute.
The day after I graduated from college, my beloved grandmother died. And it was a really sad and lonely time in my life. And now, I was supposed to find a job with a degree in English and absolutely no clue what I wanted to do. I wound up getting a job at Fidelity Investments in their customer service group, answering calls from 3:30 until midnight every day, physically talking to retail investors about why their Magellan account was down that day. It was awful. I didn’t love the job but I did love having a job. Working hard and getting paid for it and not having homework hanging over my head, it was great. And after Fidelity, I worked in investor relations in New York City, then at “Food & Wine” magazine, and at an automotive consulting firm. And I even worked briefly for a wedding planner.
In 2003, I was working in the marketing department at an investment bank in Boston when I first met Paul Graham at a party at his house one night. We started dating and I felt like I finally had met Mr. Right. Despite having quite different backgrounds, we were really similar. If I thought, “I never wanted to be at the mercy of someone else, Paul was that dialed up to 11.” He’d moved back to Cambridge after selling his startup Viaweb to Yahoo. And he was at the time writing essays, working on programming languages, publishing a book, and curing his debilitating fear of flying by learning to hang glide of all things. Paul is the best problem solver I’ve ever met. He’s also a genius at expanding ideas and making radical improvements to things. One of his defining characteristics is telling people, you know what you should do… If you know me to find that very funny. Because I’m sure he’d say it to you.
Paul and his circle of friends exposed me to this new world of startups and it felt much more exciting than the later stage of publicly traded companies that I was involved with at the investment bank. I read the book “Startup” by Jerry Kaplan about his pen computing company called Go, and I was just immediately hooked. It was like some light shining down from the heavens. And I wanted to hear more stories about the early days of startups. So I started working on a book of interviews with startup founders. And the book was called “Founders at Work,” and it was published in 2007.
At the same time, I was becoming more interested in startups, I was becoming less interested in my job. The bubble had burst a few years back and the investment bank was making some pretty drastic cutbacks. And, you know, working there just had become boring and unpleasant. So I applied for a job at a venture capital firm where I felt like I might be one step closer to this exciting world of startups. And while I was interviewing at the VC firm, Paul would, you know, what you should do me each night at dinner, telling me how I should change the VC business once I got into it. We talked for hours about how broken early-stage funding was and most importantly how more people would start startups if it could be made easier for them.
So as the VC firm took longer and longer to decide to hire me, the ideas grew more and more compelling. Until one night, Paul just said, “Let’s just start our own.” The next day, we convinced Paul’s co-founders from Viaweb, Robert and Trevor, to join us part-time. And the initial plan was that they would pick and advise the startups and I would do everything else. Instead of giving large amounts of money to small numbers of established companies, like traditional VC’s did, we’d give small amounts of money to large numbers of earlier stage startups, and then we’d give them a lot of help. And our initial target audience was programmers who we felt could handle the technical aspects of a startup, but were clueless about everything else just like Paul, Robert, and Trevor had been.
We also had more faith in young founders than most investors did back then. I mean, this was back in the days when Google’s VC’s had insisted that the founders hire an outside CEO as a condition of their series A round. So none of us had any experienced angel investing though, and that’s where the idea of funding startups in batches came from. We decided to fund a whole bunch of startups at once during the summer so that we could learn how to be investors. In March 2005, we launched Y Combinator’s website and invited people to apply for what we called the Summer Founders Program. We funded eight startups that summer, and we recognized almost immediately the power of investing in batches. It was so much better for the founders. They had colleagues to help them during, you know, time that had previously been a very lonely process. But it was also a much more efficient way for us to help the startups because we could do things for them all at once.
Every Tuesday night, Paul cook dinner for them. And at each dinner, we brought in a guest speaker to teach the founders about startups. Paul talked to all the startups about what they were building. And I helped to get them all incorporated at C corporations. And this was a really big deal in those days actually because back then, to become a C corp, you had to pay a lawyer like $15,000 to do this for you. The first summer, we gave the startups $6,000 per founder, which was based on the stipend that MIT gave their grad students during the summer.
At the end of the summer, we hosted Demo Day for an audience of about 15 investors, which we were very excited about. Reddit was in that first batch and the founders of Twitch, although they were working on a different idea. And Sam Altman’s geolocation startup. And then we only had tried funding a batch of startups as a way to learn how to be investors. We realized within a couple of weeks that we were onto something promising. So we decided to do all of our investing in batches. And we also decided that we’d fund the next batch in Silicon Valley. We knew that a lot of people would copy us and we didn’t want someone else to be the Y Combinator of Silicon Valley, like, we wanted to be that ourselves.
So despite the fact that we’ve grown significantly over the past, you know, 13 years and we’ve expanded in a lot of different ways, YC’s core program is remarkably similar to what it was in 2005. So the question I always used to get over the years from people was, “So what is your role at YC?” And it used to really bug me because no one ever asked Paul, Robert, or Trevor that question. But now, I think it’s kind of an interesting question to think about. What was my role as the only non-technical founder of Y Combinator? Well, at the beginning there were tons of errands, like with any startup that just had to get done and there was no one else to do them.
Paul and I divided up responsibilities perfectly, which I think is very important if you happen to start a startup with your spouse or your partner. He made our website an application, and I got all the other stuff set up for the first summer. I worked with the lawyers to set up Y Combinator the entity and to help create all kinds of template legal paperwork for our standard investments, and everything that the founders would need to set up their companies and assign stock properly, and if you’ve ever done that, you know, it’s a lot of paperwork to do. And I had to learn quickly about how to advise them on filling everything out so that they wouldn’t have to pay the legal fees.
I had to set up Paul’s small office building in Cambridge to be our weekly dinner gathering space for 25 people. I set up our bank account and I contacted people to speak at our dinners every week. I bought the groceries that Paul cooked for the dinners. I even delivered air conditioners that I bought at Home Depot to the founders. I mean, I was really the only one of us organized enough to make all this kind of stuff happen. When it came to investing, I had something that my co-founders didn’t have. I was a social radar. I couldn’t judge our applicants’ technical ability or even most of their ideas. My co-founders were experts at those things.
I looked at qualities of the applicants that my co-founders couldn’t see. Did they seem earnest? Did they seem determined? Were they flexible-minded? And most importantly, what was the relationship between the co-founders like? Well, my partners discussed the idea with the applicants. I usually sat observing silently. And afterward, they’d turn to me and ask, “Should we fund them?” From the beginning, I was very careful about only funding earnest people. Back then, I never envisioned that the people we funded would grow into this community of thousands of YC alumni, but I always tried to create an asshole-free culture.
If I could tell someone was a conceited asshole, we did not fund them. And I’m sure we’ve since funded some conceited assholes, but early on, I was pretty rigid about this. And I think that’s the basis of the culture of our alumni community. So far, the stuff might sound a bit different than you’d expect in a successful investor. But when you get to an extreme in something, things get qualitatively different. Y Combinator was a new extreme in the venture funding business. So what made someone a good investor was different. VCs relied on growth figures and estimates of market sizes, but those didn’t exist at the stage that we were investing.
What YC needed was deeply technical people to judge the potential of an idea, and then someone like me to understand the founders’ characters and the relationships between them. And to do that well, you needed abilities that had previously not been considered important as an investor. It was doubly hard too because some of the applicants were so young. We had to judge the founders not by what they were but what they could turn into. I mean, imagine Mark Zuckerberg back in his dorm room in 2004 with his website that let college students see what other students at the school were doing. Not super impressive seeming to traditional investors.
Another secret weapon of mine that was strangely well-suited to Y Combinator was that I was a very experienced event planner. Events are a crucial part of what YC does. When you fund startups in batches, everything’s an event, interviews are an event, each dinner is an event, Demo Day is an event, as the alumni network crew, we started doing events for alumni too. And from the very first year, we did big events like startup school. I’d been doing events for years in my marketing jobs so I could plan these things with one hand behind my back.
Probably the thing that was most different about YC as an investment firm, though, was that it felt like a family and I was its mom. I was soft and sensitive at a time when investors tended to be hardened and aggressive. And I’ll throw in ruthless too for a couple of them that I know. I cared about how founders were feeling if they were overwhelmed, if they were eating properly. I’d counsel them on relationships that were under strained due to the pressure of a startup, and I’d listen at length and help them with their co-founder disputes and breakups.
Starting a startup is emotionally draining for founders especially in the beginning. Sometimes they just needed someone to listen. And luckily, my entire college career had trained me on listening to people’s social problems. And I tried to always be a straight shooter with my advice. In fact, we all were. Paul is the straightest shooter I know, which is why his advice is so valuable. He doesn’t bury it euphemisms or worse like withhold the truth in order to preserve people’s feelings. And as tough as they may have found his advice at the time, founders always thank him for his candor.
One thing Paul and I had in common was that we were not driven by money. We were interested in startups and we wanted to help people start more of them. And that was the basis for everything we did at YC. And it was what allowed us to do something as weird as YC in the first place. And because YC didn’t have any LPs at the time, we weren’t even constrained by a vague fiduciary responsibility to anyone. And that allowed us to take more risks with who we chose to fund. And it also allowed us to be benevolent to failing startups. And that often brought us into conflict with investors who had different priorities. Early on, we had funded a husband-and-wife team who had a baby, and they worked hard on their startup but it was clearly failing.
One of their investors tried to get them acquihired by a big company in the valley who ultimately passed. Paul talked to the founders and learned that they just wanted the security of jobs, you know, so they could take a break from the constant stress of a startup. So we talked to the big company and got one of them hired there, and the founders were delighted. The investor, on the other hand, was livid. He ripped into Paul harder than almost anyone I’ve ever seen, you know, before Twitter, saying that Paul had blown any chance of an acquihire. And you know what? To this day, I still don’t get why investors squeeze founders over small outcomes like this.
I also never cared much about fame or my own personal brand, I just wanted Y Combinator to succeed. One thing I’ve learned from Y Combinator is that the most successful startups grow organically out of the founders’ lives. And this is true in my case too. I was almost uncannily well-suited for the kind of work that it took to make YC successful. But the things it made me well-suited for were so far from the qualities that most people associate with startup founders. I’ll list them… Oh, my gosh, have I been turning that? Okay, sorry, I got so into my talk. I’ve… Oh, you’re doing it. Thank you. Okay, I’m gonna list the qualities… Pardon that little, okay, wait back. Okay, I’m gonna list them so you can see for yourself.
I was a social radar, a good event planner, maternal, empathetic, a straight shooter, and not driven by money or fame. Think how far that is from the profile of the typical startup founder you read in the press. I mean, maternal? Since when was that an important quality in a startup founder? Let alone the founder of an investment firm. Yet, it was critical in making YC what it is. And by the way, this photo was taken just about the same time that I wrote Airbnb their first investment check. So that’s why I wanted to share with you my story.
It’s not true that every person can start every startup, but a lot more people have what it takes to start some startup than realize it. And a lot of people, perhaps all people have some unique combination of abilities and interests. And a lot of these combinations match some startup idea. So if you wanna start a startup, I recommend you try asking yourself, what’s distinctive about you? What unique combination of abilities and interests do you have? And don’t edit your answers because as you can see from my example, the most unlikely ingredients can often be the key to the recipe. In fact, it may even be that the strangest combination of qualities are the most valuable.
I had a weird combination of qualities but they matched YC because it was such a weird company. And the most successful startups do tend to be weird. They’re usually such outliers that they seem preposterous at first to everyone except the founders because the company has grown out of their own experiences. Okay. So what can you learn from my story?
Here are nine things, I’m gonna try to do this smoothly. Okay, nine things. There’s no one successful mold for a successful founder. Just because you might only see a certain type in the news, that doesn’t mean you need to turn yourself into that. Do what you’re genuinely interested in and try to play to your natural strengths. A startup is so much work that you’ll give up if you’re not genuinely interested in it. Don’t pay attention to the mainstream’s opinion of what you’re doing, whether it’s your skills, your idea, or whatever. Unless they’re your users, their opinion does not matter. Although do pay attention to the opinion of your users. They’re important. Find a co-founder with complementary skills but the same moral compass as you.
Paul and I had the perfect combination of skills to start something like YC. We agreed on the big questions, and we each deferred to each other’s expertise on the small ones. Focus on making something people want, everything follows from that. In 2005, people needed a way to get a small amount of funding easily. Don’t let rejection distract you or hold you back. You’ll get rejected in so many different ways, but you must just keep moving forward.
Start small so you can be nimble and open to change. We never could have pulled off moving our operations out to Silicon Valley in a matter of months. If we had hired people in Cambridge for example. And to this day, YC has a tradition of trying things out on a small scale before expanding them. It’s okay not to have gone to an elite college. I grew up thinking that this was the be-all end-all. You’ve been trained to believe that you’ll be judged by your credentials. But in a startup, it’s the users who judge you and they don’t care about your credentials, they care about your product. Lastly, be intrepid. There’s room for lots of different types of people to be startup founders but you do need a certain amount of boldness to work on ideas that most people would consider stupid and to keep going when you’re ridiculed or ignored.
Okay. Let’s see. Where am I? Here we go, last slide. You are a jigsaw puzzle piece of a certain shape. You could change your shape to fit an existing hole in the world. That was the traditional plan. But there’s another way that can often be better for you and for the world to grow a new puzzle around you. That’s what I did. And I was a pretty weird shaped piece. So if I can do it, there’s more hope for you than you realize. Thank you very much.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon