by Y Combinator8/3/2018
Michael Seibel is a Partner and the CEO of YC.
He cofounded Justin.tv, which was in the Winter 2007 batch and Socialcam, which was in the Winter 2012 batch.
For this episode we took questions from the internet. If you have questions for a future office hours episode, just tweet them our way.
00:00 – Why is YC worth 7% of your company?
6:00 – Generating leverage when fundraising
11:42 – Youssef asks – How did you validate your product market fit?
14:35 – LC Carrier asks – How does YC feel about companies who don’t want to raise VC after the program?
16:40 – Edmilson Rodrigues asks – Do companies need to be incorporated already to participate in YC?
18:25 – Alex Rodriguez asks – What do you look for in startups that haven’t had good growth but continue to push through (e.g. AirBnB) that makes you accept them?
26:25 – Fedor Paretsky asks – Do you have techniques you encourage to make pitches sound more exciting?
34:40 – David Chen asks – How to find mentors and advisors?
39:00 – building EatNeat asks – What if anything are you specifically looking for in a startup that wants to be a part of the Startup School 2018?
39:35 – Ryan Carl Mercer asks – What’s your preferred way organizing your time?
40:40 – John Rigler asks – Can intrapreneurship be effective? I recently returned to IBM, have a patent, and yet have only vague ideas about how to signal and organize other like-minded folks. Could this path sabotage my dreams?
41:30 – Horacio Chávez asks – How would you approach an investor who says “I won’t invest unless you have a patent”?
42:10 – Yahya Elamrani asks – Why does it feel like entrepreneurs aren’t marriage material? Should an entrepreneur look for an entrepreneurial spouse?
43:50 – Yahya Elamrani asks – How intense do you really have to be to found a startup?
48:25 – Is there a particular stage of company that’s best served by Startup School?
50:10 – How do you get the most out of Startup School?
Craig Cannon [00:00] – Hey how’s it going, this is Craig Cannon and you’re listening to Y Combinators podcast. Today’s episode is with Michael Seibel. Michael is a partner and the CEO of YC, he co-founded Justin.tv, which was in the winter 2007 batch, and Socialcam, which was in the winter 2012 batch. For this episode we took questions from the internet. If you have questions for a future Office Hours episode, just tweet them our way, alright here we go. Let’s start with the first question, is about doing YC, the program, the core program that people know. A common question is, why is YC worth the 7%? What do you think?
Michael Seibel [00:37] – When I think about YC, and I talk to founders about it, oftentimes I tell founders it’s in their best interest to start building up unfair advantages in their startup. It used to be that an unfair advantage was capital, but more and more now you see capital being very widely available, and so I tell founders to start thinking about what other unfair advantages can they get. With YC, I think a lot of founders always want to know about fundraising. What’s the unfair advantage to get around fundraising? First, YC companies get higher evaluations, typically 50% to 2X higher than companies who don’t do YC. We see evaluations on demo day ranging anywhere from $4 million in the low end to $25 million plus on the high end, with most evaluations between six and 12 million. Put another way, when you raise money through YC you get less dilution, second, better investors. We’ve taken the time and energy over a decade to collect all of the best angels and VCs and put them in one room. The YC batch is one of the most heavily scouted group of startups in the world, and so we do the work for you to put the best people in the room. Then the final one is that fundraising happens faster. When you go through YC, some companies can completely finish their fundraise in under two weeks, and almost everyone is finished within two months, as opposed to other processes that you may run alone, which can drag out longer. First, we give you a bunch of unfair fundraising advantages, and see the next thing, and I would argue even more importantly,
Michael Seibel [02:26] – is we give you an unfair advantage around a batch. You’re batched with other companies that are in the similar state as you are. Even if you’re an experienced founder, and I’ve done YC twice, the second time I was a very experienced founder, I don’t have at any given time, a whole bunch of friends and colleagues who are all starting companies right now. Being able to literally be around a whole bunch of other people who are just getting started and who are grinding, within the first year or two, and still grinding, is extremely valuable from a kind of friendly competition perspective, but it’s also extremely valuable just from a support perspective. You have to talk to people who are there with you, and to have this whole variety of people, so you can find the people that you’re going to actually relate to the most. The next one is software. What kind of software does a typical investor give you access to? None, with YC we give you access to a whole variety of software that gives you unfair advantages. There’s a forum that allows you to ask questions and hear questions from other founders who came before you. There’s Work at A Startup which allows you to basically recruit off of YC’s brand. There’s posting a job post on Hacker News, which only YC companies can do. There’s an investor database with over 5000 entries, including reviews and data from every company that’s ever done YC. There’s deals which are literally millions of dollars worth of discounts, given by top companies. There’s a YC company directory which allows you,
Michael Seibel [03:57] – if you’re a B2B company, to actually sell into other YC companies. It’s one of the secret advantages of being in YC. There’s an alumni directory, which also allows you to sell into companies, and also allows you to find specific people to give advice. Finally, there’s a knowledge base that gives you actual clear tactical written advice on PR, fundraising, growth, et cetera. Most of the time when you’re raising from angels, typically you get some phone calls, you get some email exchanges. With YC, I would argue that you get a platform, and that’s an unfair advantage. The last thing is additional programming, a lot of people think of YC as a three month program one and done. In fact, YC is built to support you from the beginning of your company to the end of the company, and two of the newest programs that we’ve built are specifically relevant to a lot of founders. One is a Series A program, where we actually re-batch you with companies that are now in the anywhere between 150 to 300, $400,000 a month in revenue who are going out and raising Series A. We teach you how to raise a Series A. We teach you how to deal with the professional process. We teach you how to do a great deck, and then we send you out at the same time and connect you with investors. Having an advantage in terms of raising a Series A, I would argue is one of the biggest competitive advantages you can have. Last, we have what’s called the YC growth program, and that’s run by YC Continuity, which is our growth stage fund, and if you’re running a company
Michael Seibel [05:24] – from anywhere between 50 to 115 employees, suddenly as a CEO, your job changes. It’s not about product-market fit anymore, it’s about how do you manage this organization, how do you build an organization. And our growth program essentially is a series of dinners that teaches you all the tactics around how to actually be a CEO and expand your organization. As a YC founder, all of this is encompassed in the 7%. There is no additional equity that you have to give to get in any of these programs, get any of the software, and when you’re a YC founder, you’re a YC founder for life. I would argue when you’re thinking about fundraising in this environment where there’s a lot of money, stop thinking about the money as an unfair advantage, and start thinking about what other unfair advantages that people who are giving you money can give to your company. YC looks great on that perspective, and it’s pretty simple math why it’s worth it.
Craig Cannon [06:16] – Tagging on to that, I wanted to cover, we don’t have it in the notes, but your most recent blog post about generating leverage in fundraising. This is something that we ought to write more about. Aaron’s trying to do it, with the Series A program, but could you explain that problem, and your proposed solution for the average company?
Michael Seibel [06:38] – The base of the problem that a lot of founders need to understand is that a lot of fundraising advice is written by VCs. The unfortunate problem when you’re reading a fundraising advice from a Series A VC’s perspective is that they’re not necessarily on your side. If you think about it, the narrative around fundraising is typically something like you raise money when you’re running low on money, when you’re between 12 and six months of runway. When you raise money, you need to be most sensitive about evaluation, which is completely not true. When you raise money, almost strangely, people think about raising money when it’s a first moment that they think they can. I see a lot of companies who are like, “We’re an enterprise company, we’re at a million dollars ARR, isn’t it time we go raise Series A? That’s all the VCs say, right?” I’d argue that’s the earliest possible time to consider raising a Series A. This whole kind of narrative around fundraising, especially Series A fundraising, I think is designed to bring you into the front door of the VC as soon as possible to allow them to get the best look possible as early as possible.
Craig Cannon [08:05] – Right so we should clarify that in financial terms. yoYr evaluation is probably a little lower at that point, they can probably get a higher percentage of your company at that point, and because you’re scared that you won’t be able to raise, you sell early.
Michael Seibel [08:19] – Even more so, there are probably six or seven terms around a Series A fundraiser, how big your option pool is, how many board members, what the rights of the preferred stock holders are, and if you’re going into a fundraise without leverage, you have a hard time negotiating any of those terms. You might think evaluation is the game, but actually there’s six other terms that are really important. Series A is what confuses a lot of startups, and I really want to focus in on Series A. Some of these things are different when it comes to raising seed but Series A is really confusing to a lot of startups and I think a lot of the advice out there is tricky and a lot of the common wisdom is actually tricky. The way that I like to tell this story is I talk to a founder I say every startup has a leverage graph. Basically it has a graph of how much leverage the startup has over time and I’d argue that leverage graph in a good company always goes up to the right but it has peaks and it has valleys. The best founders I know will raise money when their leverage graph is at a local peak and the founders that struggle will try to raise money when they’re in valleys and what’s interesting is that when you’re at a peak you might not feel like it’s time to raise money. You probably don’t need money, you might even be close to break even, you got a lot of customers. You’re building product great, things are going really, really well and as a CEO it’s oftentimes hard to think, “Oh let me take my mind off of my company
Michael Seibel [09:44] – to go raise money,” but in many ways that’s the absolute best time to raise money. That’s the time you have the most leverage, that’s the time when you can walk away, that’s the time when investors are going to be more ready to chase you versus you should chase them. I really tell founders, hey think about where they are on their leverage graph and think about this way before you hit that 12 months before you run out of money.
Craig Cannon [10:07] – How are you spotting those points? I know that we’re in a better situation than we were 18 months ago, who knows where we’re going to be in 18 months but those local peaks and troughs. How do you as a founder identify those?
Michael Seibel [10:21] – The first peak tends to happen when you hit product-market fit. What happens when you hit product-market fit is that you have a lot of growth but you’re relatively understaffed. Your growth to expenses ratio looks very good. At that point if you’re a revenue generating business, you have more money coming in the door than you’ve ever seen before. It’s so funny because every startup wants to hit product-market fit. Most startups don’t realize how much a punch in the face product-market fit is but that’s where the first kind of peak is and that what happens when you hear product-market fit is you start investing in scaling operation. Improving your product oftentimes takes a second priority to just making sure your customers can consume your product and that counterintuitively that’s the most strategic time to raise a Series A. Your graphs are going to look great, hopefully you got revenue coming in, hopefully your runway is going to look good. To me that nails it. When companies try to raise their Series A and when I say Series A I mean five to 10 million dollar round from a VC. A lot of times founders try to raise Series A pre-product-market fit, they have to be over reliant on their story and second time founders, experienced founders, founders with exits tend to do disproportionately well with pre-product-market fit Series As, but I think that if you are not one of those founders, if you’re a first time founder go in with the numbers.
Michael Seibel [12:04] – It’s just always easy when you go in with the numbers.
Craig Cannon [12:07] – A related question from the internet, Yusuf asked, “How did you validate your product-market fit?” This in the context of Socialcam, I assume that’s what they mean.
Michael Seibel [12:17] – We’ve written about this, I think that the phrase product-market fit was invented by Marc Andreessen and somehow nobody bothered to look at his definition and now it’s just been misappropriated in every way and like the now common use of the phrase is, “I’ve built the thing that my customers want,” but it’s like even weirder than that because often times I’ll ask or companies ask me if I hit product-market fit and I’m like how would I know. It seems like if you hit product-market fit you’d be growing uncontrollably, everything in your company will be breaking, you’ll be doing all you can just to keep up with the current customer demand. But that’s the definition of product-market fit. It’s unambiguous, whether that’s happening to you. I’m like, I think a lot of founders think, “Oh product-market fit is if I built the right product.” It’s like no product-market fit is what happens after you built the right product and you distribute it well and that everything else is going right.
Craig Cannon [13:12] – They think it’s the culmination of some MVP kind of process.
Michael Seibel [13:16] – Exactly, yes and MVP and product-market fit sometimes can be five years apart. totally agree with you, in MVP the whole goal is to get any customers coming in the door and then you kind of struggle, struggle, struggle and some companies find a product when our customers are just beating the crap out of them to get it.
Craig Cannon [13:36] – Right he says the market pulls it out of your hand.
Michael Seibel [13:38] – Exactly and so if you don’t feel like growth is beating the crap out of you, you are not in product-market fit, unambiguously.
Craig Cannon [13:48] – Did you guys hit it at Socialcam?
Michael Seibel [13:51] – I would say yes and no, I would say that we definitely got a hit in the face with growth, however I would say that we were particularly good at distribution and not as good at product and so I would say that our product didn’t retain as well as we wanted to. But we certainly got a ton of growth and that in Social you see that happen and I’d argue that like did we hit product-market fit? I would probably say no. I would probably say that there is growth you can get that doesn’t reflect product-market fit because some part of product-market fit is not only have all these customers coming, but they’re doing what you want them to do. The goal of your product is being served. The goal of Socialcam is to get everyone to be video creators, when we were blowing up we were blowing up on video consumption but not on video creation, so that’s probably an important part of, people don’t talk about product-market, it’s like everything is going well but it’s like also your business part is working.
Craig Cannon [14:48] – You’re not selling a dollar for 80 cents.
Michael Seibel [14:50] – Exactly, you’re not in negative margins, you’re not getting users to do something that’s not the thing you wanted them to do.
Craig Cannon [14:58] – Let’s go into some questions just general like YC application related, so LCCarrier asks, “How does YC feel about companies who don’t want to raise VC money after the program and maybe an economical example is Zapier who did a seed round and then went on to be profitable?”
Michael Seibel [15:16] – What’s interesting about this is like of course we don’t care, like these are your companies. One of the first things we say at the YC kickoff in the beginning of the batch, is that you’re the boss. You get to decide what you want to do with your company, we are not the boss and even more so what’s interesting is that we have a large variety of companies, a large number of companies that never raise from VCs or only raised from VCs way after product-market fit profitable, so and so forth. No we love those companies just the same. It’s interesting, in many ways I think that as YC has become more mainstream we have to be louder about what we like bccause we’re lumped in with VCs. We’re not VCs, that’s not the purpose of this. We’re not here with the kind of sole reason of how do we make sure we make as much money as possible out of every single company we invest in, that’s not the way YC works.
Craig Cannon [16:19] – To be clear if your company raises money through YC and then goes on to be wildly profitable that’s a great outcome for YC, no delusion, no pro rata money.
Michael Seibel [16:29] – Yeah, no, no that’s great for the founders. We provide an onboard into VCs if you want it but by no means do you have to consume it.
Craig Cannon [16:42] – Right, this is kind of related to… did you read Aaron’s post this week about advice? Because we’ve entered in this position that’s in between traditional VC and universities, we’re just thought of as the advice giver and you have to have permission to do this thing and we don’t want certain people, that’s not really the case.
Michael Seibel [17:01] – No, not at all!
Craig Cannon [17:02] – Related, another super common question Emileson Rodriguez asks, “Do companies need to be incorporated already to participate in YC?”
Michael Seibel [17:11] – This is another thing that is extremely important to understand, a lot of people talk about the growth of YC. YC certainly has grown pretty significantly, batch sizes are a little bit more than double since I last did YC in 2012. I would say it’s responsible growth, we’ve prepared ourselves and we still give a really good, high quality of service. But what it’s also done is allowed us to have such a variety of companies at a variety of stages. YC has always been about the super early stage and we’ll always be about super early stage. We can help you incorporate, and we help a lot of new companies incorporate when they come in. There are a lot of companies that literally start writing code when they join YC, there are a lot of companies that are pre-launch when they join YC. YC’s expansion has allowed us to also work with companies who are post-launch and might have incorporated or raised some amounts of money. Sometimes people want to interpret that as a change in strategy as opposed to just an expansion. This is not an either or, it’s not an or it’s an and. It’s really motivational to be in a batch where you have some companies that are pre-launched and they’re still trying to get that MVP out the door and you have other companies that are like starting to take off. When you want that motivation you come to a dinner, you see a company taking off and you think to yourself we got to get back to work. I think that motivation is key.
Craig Cannon [18:40] – That co-hort pressure, you see people follow on after YC too. Just having dinners with their friends every couple of weeks, yet another question about YC types of companies, so Alex Rodriguez asks “What do you look for in startups that haven’t had good growth but continue to push through, for example Airbnb, that makes you accept them into the batch?”
Michael Seibel [19:01] – What’s interesting is like this concept of traction I think is very interesting. There are complicated or not well-defined thoughts that people simplify. If I had told a startup, “Oh I’m looking for traction,” what they think of is that I’m looking for growth. They think that, “Oh if I had growth why would I need YC,” right it’s kind of Catch-22. When I think about traction I think about it a little differently. How much time have you been working and what have you done? And am I impressed with the amount of stuff you’ve done in the amount of time you’ve been working? To me, Airbnb what they had done in that year before they applied to YC and by the way this story is told in such a strange way. It was a year, it wasn’t 10 years that Airbnb was struggling before they got into YC, it was a year. What they had done was impressive. They had launched multiple times, had been the housing host for the DNC convention and the RNC convention, they’d been on CNN a bunch of times. They’d done a lot of impressive things. The product wasn’t working, but you couldn’t look at the last calendar year and say oh these guys aren’t out there grinding and so to me that’s far more important than whether they had been successful. The second thing is that the Airbnb guys felt like they were onto something. A lot of investors talk about what’s your secret sauce, what’s your unique insight, what’s the thing that you know that other people don’t, right? It’s such an overused phrase but it’s kind of true,
Michael Seibel [20:47] – the Airbnb guys really thought that people would stay in strangers’ houses and they thought it could be a significantly better experience than a hotel. They believed that through and through. Even if you don’t agree, when you see three people who actually believe that, you think to yourself why not, give it a try, why not run the experiment.
Craig Cannon [21:09] – Because you were the one that went to bat for them to get into YC. What was it about them or about the product, had you used the product before you told PG about it?
Michael Seibel [21:19] – Before I told PG, I had not used the product. I’d been on the product but I had not used the product. Because back when I was working with them, they were really focused on events.
Craig Cannon [21:32] – And not renting out whole houses either.
Michael Seibel [21:33] – Not renting out whole houses, renting out rooms and still doing the airbed thing and I didn’t go the RNC or DNC conventions. What I saw in them was exactly what I said about traction, they just kept on working like one of the things we say to YC founders is something PG always used to say which is that companies that do well in YC you have office hours with them, they tell you their major problem, you brainstorm some potential solutions and the next time you talk to them they’ve moved on to some other problem. With the Airbnb guys it was exactly like that and the other thing is that they were happy and gracious. You know it’s easy to help people who are nice.
Craig Cannon [22:14] – They’re nice, they’re hardworking, it’s like committed.
Michael Seibel [22:17] – This part of the Valley doesn’t get talked about a lot, like if you’re nice, concise and hardworking, more often than not people will try to help you. They won’t go out of their way, they won’t stop their business to help your business but like will they give you an hour, like yeah, I think sometimes you have to warm them up, right, sometimes you have to show them that you’re being serious. But yeah this is not a situation where people feel that your success somehow takes away from them or somehow reduces the size of the pie.
Craig Cannon [22:50] – People are always looking to meet motivated… It’s not this weird closed friend network situation, where it’s like, “Yeah, I’m done with motivated inspiring people.”
Michael Seibel [22:59] – That’s what I think is so weird about the Valley on the East Coast all of the networks in my experience tended to be around what you’ve done in the past, where you worked, where you went to school, what club you’re in, right and here strangers email me every day, I reply to them every day. This is the way of the Valley, like literal strangers and so like the only thing we all have in common is we’re all crazy enough to try to do startups and I feel like inside every founder there’s this feeling like if you’re stupid enough to do a startup, we should have each other’s back. Because I’m stupid enough to do it too and there aren’t a lot of people who are stupid as us.
Craig Cannon [23:39] – You have enough good will to keep replying. Because in those emails you get a lot of crazy ones and I would just say that knowing what to ask from the right people in a clear, concise, simple way you could get through to most of them.
Michael Seibel [23:54] – Isn’t it crazy, isn’t it crazy?
Craig Cannon [23:56] – Cold emailing is a skill that everyone should work on. Related to that, the Airbnb guys working on different types of things in their first year. I think it’s worth explaining that doesn’t necessarily mean pivoting 5,000 times.
Michael Seibel [24:12] – That’s a good point. I’ve been trying to kind of nail down what’s the difference between pivoting and iterating, because iterating is clearly good, and pivoting is often times strictly inferior. So one of the things I think about is that when you’re iterating, usually there’s lots of things that you can learn from the previous version of your product because oftentimes you are keeping the same customer, or a very related customer, and you’re solving the same problem or a very related problem. For me, I get smarter every time I iterate. I feel like iterating is kind of running the scientific process, and I’m learning every step of the way. To me, pivoting is when you basically take things outside of your realm of the previous thing you worked on. In effect, you’re changing the customer drastically, or you’re changing the problem drastically. Usually, even though you can kind of justify it to yourself, often because there’s similar technology, like you don’t have to completely rewrite your code. I would argue that you are not learning very much from what you just did. You’re just working on something else. That rapid iterating is amazing. I think rapid pivoting is really bad. Sam and I give two different pieces of advice on this that I think reaches the same point. If someone asks Sam when should you pivot, and he said, “When you’ve exhausted every idea. Every single idea on your current problem that you’re solving.”
Michael Seibel [25:48] – I love that construction, but I feel like founders lie to themselves. I lie to myself as founder all the time. I like to tell people, time. I like to say, give something a year or two. It really can take that long. It often does take that long.
Craig Cannon [26:09] – Of concerted hard work. Not just like, “Oh, I do it on nights and weekends, sort of.”
Michael Seibel [26:13] – Of constant iteration. There is this myth that if you build it, they will come, and that’s just a myth. Behind every one of those stories is a lot more hard work.
Craig Cannon [26:28] – Another pivoting problem is that people pivot and apply the same solution to multiple problems, and the solution is just never that good, and so you just get locked into this thing that won’t work. Another thing somewhat related to the Airbnb guys, is just how compelling they are. Fedor Paretsky asked about basically, pitching your company. They say, “What are your thoughts on the strategy of just like, being very, very aggressive and enthusiastic about pitching your company in terms of pitching to investors, and are there other techniques “you encourage to make your pitches sound more compelling or exciting?”
Michael Seibel [27:07] – What I didn’t understand as a founder was that any time I pitched an investor, it was the, you know, basically round two, over 1,000th pitch that they’ve ever gotten. Think about it this way. Any gimmick or trick that you think might be unique, has in fact already been tried by one of those thousand people before you. Oftentimes people kind of resort to weird public speaking gimmicks, or oh I got to make a memory, or I got to create an impact, or sales type things, and it’s like, honestly, it’s a lot harder to sell to like a salesperson, and a VC is kind of a sales person. It’s kind of like it’s a lot harder to do an email marketing campaign to a founder that does email marketing.
Craig Cannon [27:59] – Right, exactly.
Michael Seibel [28:00] – Like I’m a little bit immune to drip campaigns at this point.
Craig Cannon [28:03] – And you’re smart, that’s awesome that you’re smart, but by the way, there are a thousand other people that are smarter than you.
Michael Seibel [28:07] – Exactly. When I think about doing the pitch, these are the things that actually stand out to me. The first thing is clarity and conciseness. More words are actually bad. When you actually study really good sales people on the phone, it turns out the customer talks way more than the salesperson. When you’re in a really good investor meeting, the investor is fully engaging, and is basically giving ideas and brainstorming. It doesn’t feel like a pitch anymore, right? When you feel like you are pitching for a long period of time, that’s a bad sign, typically. Especially in early fundraising. Later fundraising is different, but Seed, even Series A. One, clarity and being concise. I really think most of our startups can be explained in three sentences. Two, don’t start with your background. You’re telling a story, and oftentimes people default to telling a story chronologically, and I’d argue that actually you should be thinking a little bit more like Pulp Fiction. Tell the interesting parts of the story first, get me hooked.
Craig Cannon [29:26] – Oh totally.
Michael Seibel [29:27] – If your background isn’t one of the top three most interesting things happening in the startup, then probably you shouldn’t start with it. Now for some startups it is, right? For some startups, the person’s background is, but rare, very rare. The other thing that’s important is that the investor has to clearly understand the problem you’re trying to solve, clearly understand it. So often founders want to get straight to the solution, and so what’s weird is in that first couple of sentences, what I want to get out of it is, I want to know what you do, right. I don’t have to be sold on it. I just want to know what it is, right. Me knowing that Google is a search engine, where you go to a website, you type in something you want to know, you click the search button, and then a bunch of webpages that are relevant to what you typed popped in, great. I don’t have to be convinced that I want that, I just have to be convinced that I know what that is, right. Then I want to know anything about traction, anything. Have you launched, is it growing, anything like that. I want to know that you have tech on your founding team. I want to know what’s the problem that you’re trying to solve, and why to you wanted to try to solve it.
Michael Seibel [30:42] – For me, those are the things that if you can get out in the first 30 seconds, I can engage in a conversation with you. The other thing that I tell founders is that if you do a bad job, it’s your fault. Unfortunately, if the person you’re talking to doesn’t get it after the first 60 seconds, it’s not because they’re an idiot. It’s because you didn’t explain it to them well, and that’s really hard to hear, but I just tell founders that straight. Look, I’ve been pitched to infinite times, so I think I’m not dumb.
Craig Cannon [31:19] – Well I mean, it doesn’t really matter if you’re smart or not.
Michael Seibel [31:22] – That’s true, that’s true.
Craig Cannon [31:22] – Right.
Michael Seibel [31:23] – Maybe I am dumb.
Craig Cannon [31:23] – You just don’t get it.
Michael Seibel [31:24] – Unfortunately you’re asking me for something, you got to dumb it down for me, either way. Oftentimes, what’s weird is you have to throw away other instincts. First, you always have to throw away your customer pitch. The investor is almost never a customer, and so what works on the customer is almost the exact opposite of what’ll work on the investor. Second, you got to throw away jargon. What makes you sound smart amongst your peers, makes you un-understandable by someone who’s not one of your industry peers. All of these things that people try to use to make them seem impressive, which are like driving people to do the exact wrong thing when they’re pitching to a VC. I actually think you need somewhere between 6th and 9th grade language, like that’s it.
Craig Cannon [32:11] – Oh, that’s fundamental for me. On the blog, all of this stuff. It was like, why are you complicating? No, no, no, no, no.
Michael Seibel [32:17] – That’s what’s weird is that like, you’re speaking, right? So if you’re not clear and concise, the more brain power I have to use to figure out what you’re saying, the less viable the conversation’s going to be.
Craig Cannon [32:30] – Related to this, people can conflate salesmanship with confidence. Many of these founders are very confident, but oftentimes, it’s like that Steve Martin quote, like “They’re so good they can’t be ignored.” For that reason, they don’t really have to take the money from a certain investor, so they can just confidently walk into any room, communicate it clearly.
Michael Seibel [32:54] – I’ve only seen two things reliably create real confidence, not fake confidence. One is you’ve done something impressive in the past, that makes you confident. The second is you have the numbers. You’ve got one of those two things, you deserve to be confident.
Craig Cannon [33:10] – Yeah, totally.
Michael Seibel [33:13] – For some founders, the numbers help.
Craig Cannon [33:16] – I would underscore this for international founders. It’s really really hard to clearly communicate what living in another country, and that specific problem in another country is like to an investor here.
Michael Seibel [33:28] – Yeah, that’s so important, that’s so important. But what’s fun is that when you get it, right?
Craig Cannon [33:32] – Oh for sure.
Michael Seibel [33:32] – What’s fun is… We’ve invested in a bunch of companies out of Nigeria, and when they explain to you that you can have five credit card processing machines at the hotel from five different companies, and you can swipe your credit card in each one of them, and it won’t work. Now you have to pay your hotel bill in cash. You’re like, “Oh, if that happened, I’d be super pissed.” As opposed to saying, “Oh, credit card processing doesn’t work in Nigeria.” I’m sure it kind of works, I’m like come on, you know. When you can tell a story and paint that picture. It took me how long, it took me 10 seconds to paint that picture in a hotel.
Craig Cannon [34:12] – And I get it, totally.
Michael Seibel [34:12] – But you get it, right? As opposed to, let me tell you about the history of credit cards in Nigeria. I’ll go to sleep now.
Craig Cannon [34:19] – And by the way, Nigeria has 200 plus million people.
Michael Seibel [34:22] – Exactly. Actually that’s a really important thing. Facts are really important. One of the things that is interesting about a lot of investors is that they know like two inches on a lot of different subjects, and if you know six inches, they will think you’re very smart, and if you know one inch, they’ll think you’re very stupid. Just doing some friggin research, and when you talk, I often tell founders, write down everything you just said and count the number of facts, and if you didn’t say any facts, just say some facts.
Craig Cannon [35:00] – No, that’s great advice man, that’s awesome advice. This is related, David Chen asked, “How do you find mentors and advisors?” When you’re pitching your company, are you pitching it to mentors and advisors to get warmed up, or are you just pitching it to random people at Starbucks?
Michael Seibel [35:16] – One piece of advice that Justin Kan gives that I really like is, aggressively practice pitching, friends, colleagues, existing investors, before you go out. There’s something that you can learn from every run of it. One of the strange and unfortunate things is that fundraising is so hard, and the process in general has been made so painful that founders tend to shy away from it, and they want to do it as fast as possible with as least practice as possible, and unfortunately I think that that doesn’t serve them well. Practice is really, really important. On to this thing about mentors. I get asked five times a day, can I be a mentor to a company that I would consider, I’ve never met them before in my life. I don’t like the mentor word. I feel like it’s an old-fashioned word. It reminds me of the day of master and apprentice. Where you actually needed someone, like you’re not a blacksmith. Someone has to teach you that shit, or else you will not be able to do it.
Craig Cannon [36:20] – Right. Well you can try.
Michael Seibel [36:21] – You can’t just go on the internet and Google search blacksmith and then just like… I feel as though for some reason, and by the way, I think in corporate America, mentors are probably extremely helpful. I don’t know, I’ve not really been a bunch in corporate America. A lot of this advice comes out of corporate America, and comes of career prep centers and all that stuff. For me personally, I give advice to a lot of startups, and I’m happy to, that’s part of my job. I wouldn’t do this job if I didn’t like it. To me, when someone asks me to be a mentor, it’s asking way more of a commitment. What I’m saying, is that without being your mentor, if you ask me a question in a clear and concise way, I will 99% of the time, reply within a week with what I think is the best answer. You get that for free.
Craig Cannon [37:18] – For free.
Michael Seibel [37:20] – What I think about someone asking me to be a mentor, I’m like oh God, well what else to do they want?
Craig Cannon [37:25] – It’s like hey, hey Michael, we’ve never met. Do you want to be in a single relationship together? It’s like, do you want to just date?
Michael Seibel [37:31] – Yeah, it’s a little… I always feel like, when those people, if they just emailed me a question, I would just answer. Like, what question do you want to ask your mentor? Let’s just pretend I am your mentor, right? Let’s pretend I’m everyone’s mentor. You already have that, like what. If you’re looking to put my name on something, like that’s silly, who cares. No investor is going to be like, oh well, because Michael signed up as your mentor, I’m going to invest, like no. No good investor will say that. What a lot of founders have found, both in YC and out, is that if they ask me for help, I’ll try to help them. That’s what you want, so stop asking for a mentor. It’s funny, because I actually had this conversation from someone else, and I was like, this company that it helped a bunch, I was like, I’m not their mentor. Then it was funny, because one of the guys was like, “Oh I talked to them, and they say you’re one of their mentors.” I’m like, but they never asked. They never asked, right. They just asked for help, and I was happy to help them. Don’t raise the stakes of a new relationship. Just ask for help.
Craig Cannon [38:29] – And you don’t have to, and they also don’t know, maybe you just give them terrible advice. Maybe you say yes to being their mentor, and then you drive them off a cliff.
Michael Seibel [38:37] – Advice is one of those things, right? Like, take it with a grain of salt. I don’t think, there was nobody who I felt fulfilled a traditional mentor role in my time in the Valley. That took me under their wing and showed me what was what. Nobody did that.
Craig Cannon [38:57] – Right.
Michael Seibel [38:59] – A lot of people helped, a lot of people when I asked helped, but nobody… I almost feel like a mentor, in some ways, is taking responsibility for your success, and like nobody does that. Especially if they haven’t invested in you, but even if they have, they don’t do that.
Craig Cannon [39:14] – Usually it’s just like, after enough years, you’re friends. Then maybe that’s it.
Michael Seibel [39:21] – After enough years, you’ll like meet up, just because. Which is great, yeah.
Craig Cannon [39:27] – Alright, let’s go to another question. I just want to clarify this one on the first page, BuildingEatNeat asks, “What, if anything, are you looking “for in a startup that wants to be part of Startup School?” Anyone can do Startup School.
Michael Seibel [39:38] – Anyone can do Startup School.
Craig Cannon [39:40] – There you go.
Michael Seibel [39:40] – I think we designed it, like to be extremely explicit, we designed it to be step one. Like, in any state you’re in, you can get value out of this thing, and that’s why we designed it.
Craig Cannon [39:51] – Yeah, and then there will be these grants given out, but that’s going to be decided after the fact, or I guess at the end. Ryan Carl Mercer, a frequent podcast question-asker asks, “What’s your preferred way of organizing your time?”
Michael Seibel [40:06] – I hate giving advice on this, because I don’t think I do it particularly well. I have an email, I star important emails, and I use a to-do list. That’s it. Probably the biggest time hack I’ve had has been since I’ve had a kid. The biggest time hack I’ve had is that I’ve been one, lucky enough to have my parents close so they can help watch my baby, and then I think the second thing is I’ve been fortunate enough to be able to afford someone to help at night. I think those are probably the two things that are keeping me functional right now, but I do not think I am a model of… Tasks. Of, yeah. A model of organization.
Craig Cannon [40:56] – Alright. Let’s go to the next one, so John Rigler asks, “Can intrapreneurship be effective?” By that, he means starting something within a company, I believe. “I recently returned to IBM, I have a patent, and yet only have vague ideas about how to signal and organize other like-minded folks within the company. Could this path sabotage my dreams?”
Michael Seibel [41:19] – I’m going to caveat this answer by saying that I’ve only worked in a big company for I think, 14 months of my entire working life. I have exactly one experience with intrapreneurship, and it did not work out very well. In my single experience, it didn’t work. I can’t give you advice on how to make it work for you, or if it does work, certainly there are big companies that invent new things all the time, so somebody has figured out how to get that done, but this is an area I have, I would argue, almost less than zero knowledge of.
Craig Cannon [41:53] – Okay. Horatio Chavez asks, “How do you approach an investor who says, ‘I won’t invest in you unless you have a patent.'”.
Michael Seibel [42:04] – I probably would just talk to another investor. That’s not a typical response, especially in technology startups. I can’t speak to biotech and so and so forth, but in technology startups, that is such an untypical response, it’s almost indicative that that investor is not very good.
Craig Cannon [42:23] – Yeah, or they’re trying to say no nicely.
Michael Seibel [42:27] – Sure, but that’s–
Craig Cannon [42:27] – But that’s lame.
Michael Seibel [42:28] – That’s a bad way of saying no nicely.
Craig Cannon [42:30] – Totally, I agree.
Michael Seibel [42:30] – There are better ways to say no nicely.
Craig Cannon [42:32] – Yeah, yeah, I agree. Alright, so Yahya Elmrani asks, why isn’t this just, we’re going to have relationship questions now. “Why does it feel like entrepreneurs aren’t marriage material? Should an entrepreneur look for an entrepreneurial spouse?”
Michael Seibel [42:50] – Aren’t marriage material, that’s an interesting question. I started dating my wife when I was doing a company. I thought I was marriage material, I don’t know.
Craig Cannon [43:01] – What they’re trying to get at is, say, you’re really dedicated to Socialcam, and it’s taking up a lot of your time, and all the people–
Michael Seibel [43:09] – Well back then it was Justin.tv, actually.
Craig Cannon [43:11] – Oh really, Justin.tv.
Michael Seibel [43:11] – Yeah, yeah, yeah, yeah. That was a long time ago, yeah.
Craig Cannon [43:14] – That consumes all your time, therefore you might not, in someone’s eyes, be a great partner, and I think that’s what they’re getting at.
Michael Seibel [43:22] – Different people like different things. I think that some relationships are really motivated by work, and people find someone who is really into their job as something that’s attractive. Some relationships, some people aren’t that way. It is pretty easy to see how intense an entrepreneur is working on their job pretty early in a relationship, and you know, if that’s not something that someone likes, then they should move on to something that they like.
Craig Cannon [43:55] – And that second question, an entrepreneurial spouse, I would just say a spouse that’s okay doing their own thing. Whatever that might be. Just they’re okay doing their own hobby or whatever.
Michael Seibel [44:05] – I hate to be like general on this, but my wife certainly was that way. My wife was certainly someone who didn’t need me to be around 24/7.
Craig Cannon [44:11] – Yeah, exactly, and I think that’s good. Alright, Yahya asked another question. “How intense do you really have to be to found a startup?”
Michael Seibel [44:20] – This is such an interesting question, because like, intense is such an interesting idea, right. Okay, I’ll tell you like two different versions, right. Justin.tv, there were probably at the max point, five or six of us living in a two-bedroom apartment. Two people shared bunk beds. One person had a room to their own. One person was sleeping in the living room, and I was sleeping on the balcony. The office was the apartment, so we worked when we were at home. And our roommates were the people in the company, so that was that part. Then moreover, the building was full of other startups, and so our friends were startup founders, and we were going through YC, and so on and so forth, right. On one hand that sounds like really intense, right? I don’t know though. College is kind of similar, right? You’re living with people you’re going to school with. Oftentimes they have similar interests. You’re kind of enclosed in this space. You’re all kind of doing something similar. I didn’t see it as that different. Now what I will say is that, When describing the steady state, I didn’t think of it as this massive, intensive, thing. What I will say is that the lows are low. When people talk about an emotional rollercoaster, I hate that phrase because it’s so cliched, but there have been times in my startup’s history, where I have like gone home and cried. There have been times where I’ve thought, pack it up. Last five years of your life, down the drain. There have been times that I have thought, I have lost my best friend.
Michael Seibel [46:16] – There have been times where I’ve thought, all kinds of stuff, right, just bad, bad stuff. You need to be resilient. You need to be able to, that kind of stuff, I’m not saying that you shove it away, but you need to be able to get past those lows. You need to be able to wake up the next morning or a couple days later, and get back into the game. I would almost argue that the resilience thing is maybe more important than the intensity thing. I kind of feel like, it doesn’t feel like intensity when you’re doing the thing you like to do, and your startup should be the thing you like to do.
Craig Cannon [46:50] – Hopefully, yeah. Intensity can be used as a synonym for like asshole guy, and that’s definitely not, I just want to dispel that, that is absolutely not true.
Michael Seibel [47:04] – Nobody likes assholes.
Craig Cannon [47:04] – No.
Michael Seibel [47:05] – Yeah, just don’t be an asshole.
Craig Cannon [47:07] – But, going back to the Airbnb thing, intensity could also be a signal of working efficiently, and many of the really great founders do that.
Michael Seibel [47:17] – I don’t like the word intensity, because I feel like it’s like morally ambiguous. I would say, passionate. Like passionate, yes, asshole, no. I feel like intensity could be passionate, or it could be asshole.
Craig Cannon [47:30] – I just have this horrible image of like, “Hey, I’m like the intense hustler, I just get shit done.” I don’t know man.
Michael Seibel [47:36] – People don’t like sales people as well. It’s weird to talk about this world, but when I was at Justin.tv, and we were just starting, it was three engineers and me. Sometimes people find it hard to understand how much of an engineering backbone there is to this whole thing, and a lot of the norms are kind of, I would almost argue, invented by engineers or former engineers. People not wanting long meetings, people wanting concise communication. A lot of these are traits you find in the engineering community. Sales people and engineers are like water and oil. Or I’ll see the stereotypical salesperson. The kind of cartoonish, kind of television-ish salesperson and engineer. I had to learn a lot. I had to learn a lot about just the engineering culture, and I feel like I’ve embraced it as my own now, but it’s different. It’s not business, it’s not New York. It’s not business guy first here, it’s kind of engineer first.
Craig Cannon [48:38] – Yeah, it’s definitely not polished, I’ll say.
Michael Seibel [48:40] – No, no, no, no, no. Don’t wear a suit.
Craig Cannon [48:46] – Just a couple more questions about Startup School. Do you think there’s a particular stage of company that this would be most beneficial for, or doesn’t matter?
Michael Seibel [48:56] – You know what’s funny, I always get this question in the context of applying to YC, and I always tell founders, sometimes people phrase applying to Startup School or applying to YC as if we were charging $50,000, and it was a 10-year life commitment. It’s free. It’s free to apply to YC. It’s free to apply, and it’s free to do Startup School. If you’re curious about it, founders, they don’t tend to talk themselves out of things, right. Try it. Try to apply to YC, if you get an interview, you’ll learn more. Try Startup School, if you like it, great. If you don’t, don’t. Talking yourself out of free things is kind of weird, right? Yeah.
Craig Cannon [49:44] – I remember Kevin Hale used to say, he would scream at people, “We’re giving away free lottery tickets, what are you doing?” It’s so true, it’s so true. It’s just like, don’t talk yourself out of stuff. Part of being a founder is just kind of like, some amount of just, do. Some amount of just do, and if you find yourself talking yourself out of things, maybe you’re going to talk yourself out of the thing you should be doing right now. Yeah, there’s no contract, there’s no, we’re not going to come hunt you down.
Michael Seibel [49:50] – It’s so true, it’s so true. It’s just like, don’t talk yourself out of stuff. Part of being a founder is just kind of like, some amount of just, do. Some amount of just do, and if you find yourself talking yourself out of things, maybe you’re going to talk yourself out of the thing you should be doing right now. There’s no contract, there’s no, we’re not going to come hunt you down. If you want to apply later to YC, it won’t count against you. There’s really no cost. In financial, moral, business.
Craig Cannon [50:29] – Reputational.
Michael Seibel [50:29] – Yeah, reputational. All of the potential costs, there’s no costs.
Craig Cannon [50:32] – Yeah, totally. Then assume we get over the fear of applying, of doing Startup School, how do you get the most out of it?
Michael Seibel [50:42] – The way to get the most out of it is you devote a significant amount of time to making progress in your company goals every week. Do not think of this as an educational program. Don’t think of this as a program where you sit there and you’re going to learn about how to be a founder. Learn by doing, this is a learn by doing type business, and so you should think, where do I want to be from a metrics perspective, from a milestones perspective, at the end of Startup School? Map out that path through Startup School. Where do you want to be week over week to get to where you want to go? That’s how you get the most value out of it. If you can move two times faster to get to your MVP, or to get to launch, or to get your first customers because you’re in Startup School, you got a great service for free. It’s way better than whatever lectures we could do.
Craig Cannon [51:34] – Yeah, alright man, thank you.
Michael Seibel [51:36] – Alright, thanks a bunch.
Craig Cannon [51:38] – Alright, thanks for listening. As always, you can find the transcript and the video at blog.ycombinator.com. If you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.
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