Okay, so if I were to ask you to close your eyes
for a second and picture the single most influential
entity in the global economy, say, over the last
20 years. That's a big question. It is, right.
But I don't mean a specific person, not Elon
Musk or Steve Jobs, and not an app on your phone.
I mean the actual engine room, the machine behind
the scenes. What image comes to your mind? Well,
I think for most people, the immediate image
is probably a trading floor in New York. You
know, Wall Street. Right. Or maybe a huge server
farm humming away somewhere in the desert. Right.
Or maybe the boardrooms of a central bank, you
know, setting interest rates. Exactly. Something
institutional, something massive and, I guess,
old. But what's so fascinating, the reason we're
doing this deep dive, is that if you actually
look at the data, if you look at the sort of
source code of how modern life has been reengineered,
the answer isn't a bank. It isn't a government.
No. It's an organization that started. Basically,
as a summer project, it's just two letters, Y
and C. Y accommodator. Exactly. And look, I know
everyone listening has probably seen the name.
You've seen that bright orange Y logo on Twitter,
or you've heard it dropped in conversation at
a coffee shop. Oh, yeah, for sure. It's part
of the lexicon now. But the reason we're digging
in today is because I honestly don't think people
fully grasp the sheer scale of the impact here.
We are not just talking about some exclusive
club for coders. No, not at all. We are talking
about an entity that is the engine behind. over
5 ,000 companies. 5 ,000? And to put a really
concrete number on that impact, if you look at
the combined valuation of those companies, as
of the latest data we have, which is coming into
2025, it is sitting at $600 billion. $600 billion.
That's just a staggering number. I mean, that
is larger than the GDP of many, many countries.
It is. It's a nation -state level valuation.
And it was generated essentially from scratch
starting just 2005. And what makes that number
even more impressive, I think, is the breadth
of it. We aren't just talking about, you know,
obscure enterprise software that nobody's ever
heard of, although they have plenty of that,
too. We're talking about brands that have become
verbs. They're woven into our daily lives. Let's
just run down a quick list because it's basically
a greatest hits of the Internet age. You have
Airbnb. Which completely, I mean, just completely
revolutionized the hospitality industry and how
we think about travel. Totally. Then you've got
Coinbase. Which, for better or worse, brought
cryptocurrency into the mainstream conversation.
It was the front door for millions of people.
And DoorDash and Instacart. Yeah, which fundamentally
changed the logistics of food and grocery delivery.
You know, especially during the pandemic, that
was a lifeline. It was. Then you have Dropbox,
Reddit, Stripe, Twitch. I mean, just stop on
Stripe for a second. Stripe alone powers a huge
percentage of all Internet commerce. It's the
plumbing. If Stripe goes down, a big chunk of
the online economy just stops. And Reddit is
the front page of the Internet. So this isn't
just a portfolio of companies. It's like the
infrastructure of the modern digital economy.
It really is. I saw a thought experiment once
that said if you woke up tomorrow and every single
YC company was just gone. Yeah. The Internet
as we know it would fundamentally break. A lot
of it just wouldn't work. So that is our mission
for this deep dive. We're going to move beyond
the buzzwords. We're going to try to ignore the
valuation hype and the celebrity founder worship
for a bit. And we're going to try to understand
the machine itself. How does a firm that started
in 2005 basically industrialize the concept of
startup success? We want to unpack the mechanism.
We're going to look at their deal, how the money
actually works, you know, the fine print that
every single founder signs. We're going to walk
through the fascinating evolution of their leadership
from the founders to the big expansion era and
then back again. And this is important. We're
also going to look at the experiments that didn't
work, the glitches, the failed expansions, because
I think those failures tell us just as much about
their philosophy as the huge successes do. Oh,
for sure. The pivots and the dead ends are where
you learn the most. And for all this, we've got
a great set of source materials. We're working
off a really comprehensive historical and operational
overview of the company. And it tracks the timeline
right from the founding days in March 2005 all
the way up to the present day restructuring.
So we have the full arc of the story. We do.
So let's rewind the clock. It's March 2005. The
dot -com bubble burst a few years ago. The tech
world is actually... Kind of quiet. Yeah, it's
not the booming gold rush atmosphere we think
of today. Capital had really dried up. It was
a tough time to raise money. And into that environment,
Y Combinator is born. So who are the architects
of this thing? Who's in the room at the beginning?
So you have a founding team of four people. You
have Paul Graham, who is, you know, often the
public face of the group. He's kind of the philosopher
king. He's the essayist, the guy who articulates
the vision in these long, thoughtful posts. Exactly.
He sets the intellectual tone. Then you have
Robert Tappan Morris and Trevor Blackwell. And
these two are the, like... The deep technical
heavyweight. Absolutely. I mean, Robert Tappan
Morris is a legend in computer science. He's
famous or, you know, maybe infamous for creating
the Morris worm back in the 80s. Which is basically
the first major worm to spread across the Internet.
So he knows networks inside and out. He knows
them on a fundamental level. And Trevor Blackwell
is similarly brilliant, especially in robotics
and engineering. So you have this core of deep,
deep technical expertise. But then you have the
fourth founder. Jessica Livingston. Yes. And
I want to pause here and really dig into this
for a second, because our source material explicitly
mentions that in a lot of the early retellings
of YC's history, Jessica's role is often overlooked.
It's true. People focus on the hackers, the code,
the algorithms. But when you look at the facts,
overlooking her role seems like just a massive
misunderstanding of what YC actually is. It is
a huge oversight. I mean, if you talk to the
alumni from those really early days, or if you
look at how the organization actually functioned
day to day, Jessica Livingston was absolutely
pivotal. In what way? Well, while Paul Graham
was writing these philosophical essays about
lists and the future of web applications, Jessica
was the one handling the day to day operations.
But it was way more than just logistics. She
was the social engineer? That's the perfect term
for it. She shaped the culture. She was heavily,
heavily involved in selecting the founders. And
you have to remember, YC isn't just buying a
piece of software. The software changes a dozen
times. They are investing in people. In human
beings and having someone with that high level
intuition for character, for resilience, for
group dynamics. That was Jessica's superpower.
So while the guys were looking at the code and
the technical feasibility, she was looking at
the founding team and asking, are these people
going to kill each other in three months when
the stress hits? Exactly. Do they have the grit
to survive when everything inevitably goes wrong?
That social radar was the secret sauce. It's
what turned YC from just being an investment
fund into a real community. And you could argue
that the reason YC alumni are so willing to help
each other today is because of that cultural
DNA that she implanted right at the very beginning.
I think that's 100 % correct. She set the tone.
Now, speaking of those early batches, the operational
model they started with sounds... Well, it just
sounds exhausting. It wasn't the streamlined,
centralized campus we think of today. Not at
all. They were running a tale of two cities.
It really does sound like a logistical nightmare.
Initially, they were running two concurrent programs.
They had one based in Cambridge, Massachusetts,
and one in Mountain View, California. They were
trying to straddle both coasts. You have the
sort of academic, intellectual hub of Harvard
and MIT on the East Coast. Right. The old school
tech scene. And then... the burgeoning venture
capital heartland on the West Coast. It makes
sense on paper, I guess. It does, but you have
to contextualize it. It's 2005. We didn't have
Zoom. We didn't have Slack. Remote work, as we
know it, just didn't exist. True. If you wanted
to manage a cohort of startups and build that
culture we were talking about, you had to be
in the room with them. So the partners were literally
flying back and forth across the country constantly.
They were moving their entire lives twice a year
to manage these two different groups. Yeah, it
was incredibly draining. And the source material
puts it pretty politely. It just calls it operational
complexities. Which is corporate speak for this
is killing us. Pretty much. So in January 2009,
they made a really critical decision. They closed
the Cambridge program for good. That feels like
a watershed moment. It's like they had to choose
a home. They had to plant a flag. They did. And
they chose Silicon Valley. They realized that
if they wanted this thing to scale, if they wanted
the machine to work really efficiently, they
had to centralize. And they had to be where the
money was. More importantly, they realized where
the center of gravity was. The venture capital,
the big tech companies who might acquire you,
the whole ecosystem. It was all clustering in
the Bay Area. It's interesting to think what
might have happened if they'd stayed split. or
if they had chosen Boston, the entire trajectory
of the startup world might look really different
today. I think that's true. By consolidating
everyone in Mountain View, they created this
incredible density of talent. They forced everyone
into the same pressure cooker. And that density
is what really sparked the network effects that
YCU is so famous for. Okay, so let's talk about
the fuel for this engine. The money. In the very,
very early days, YC was funding these companies
essentially out of the founders' own pockets.
Yeah, it was very small checks, almost like a
stipend. But you can't fund 5 ,000 companies
on personal savings. So when did the big money
finally enter the picture and validate this whole
experiment? The first major external validation
came in 2009. That's when Sequoia Capital led
a $2 million investment into Y Combinator itself.
And for anyone who doesn't follow the venture
capital scorecard, getting money from Sequoia
is a very big deal. It's the ultimate seal of
approval. They're like the New York Yankees of
VC. Yeah. They backed Apple, Google, Oracle.
If Sequoia invests, everyone else pays attention.
Exactly. And it wasn't just the cash, though,
that... $2 million allowed YC to start funding
about 60 companies a year, which was a big step
up. It was the signal it sent to the rest of
the market. It said, this weird little accelerator
thing, it's legitimate. This is the future. And
then they doubled down pretty quickly after that.
They did. In 2010, just a year later, Sequoia
led another round, this time for $8 .25 million.
This gave YC the firepower to really start scaling
the number of companies they could accept into
each batch. But the real game changer. And I
remember reading about this when it happened
and thinking it had to be a typo was the start
fund era in 2011. Oh, that was a bombshell. It
seemed just too good to be true. It was. You
had the investor Yuri Milner and the firm SV
Angel stepping up and making this just unprecedented
offer. They said, we will offer every single
Y Combinator company $150 ,000 convertible note.
Automatically. You get into YC and boom, there's
an extra $150 ,000 in your bank account. Essentially,
yes. No extra pitching, no extra due diligence.
If YC said you were good enough to be in the
batch, Yuri Milner and S .V. Angel said, here
is $150K. Wow. Later on, when the start fund
was renewed, that amount changed to $80 ,000.
But the precedent was set. It was a firehose
of capital and directly at these brand new companies.
That completely shifted the dynamic, didn't it?
Before this, startups would go to YC, they'd
get a... Tiny bit of seed money and then they'd
have to spend months begging angel investors
for enough cash to survive. Right. They're always
fundraising. This meant they had real runway
from day one. It industrialized the seed stage.
It meant founders could focus entirely on building
their product and talking to users for those
crucial three months, rather than worrying about
making rent. It just made YC the single most
attractive option in the world for a young founder.
Okay, so that sets the stage perfectly. We have
the location settled in Silicon Valley. We have
the backing of Sequoia. We have a mechanism to
flood these new startups with initial capital.
Let's open up the hood and look at the machine
itself. How does the program actually work? The
core rhythm of Y Combinator is the batch. Historically,
for years, they ran two batches a year, a winter
batch and a summer batch. Right. But what's interesting
is that our current source material indicates
that they now interview and select for four batches
per year. Four batches. That is a significant
increase in tempo. It really is becoming a factory
line. It is. So what happens once a company is
accepted into a batch? Is it like a university
semester? What's the day -to -day like? Is it
like a college semester? Sort of, but maybe without
the grades and with a lot more existential panic.
The source describes it as a mix of office hours
and weekly meetups. Office hours sounds very
collegiate, very academic. It does in name, but
in practice, it's incredibly intense mentorship.
You have these individual meetings with the YC
partners, who are often very successful founders
themselves. And they don't pull any punches.
Yeah. They grill you. Yeah. What is your weekly
growth rate? Why isn't it higher? How many users
did you talk to this week? What is the single
biggest blocker to your growth? It's just a relentless,
obsessive focus on execution. And then the weekly
meetups are the famous dinners, right? Where
they bring in the big guns. Exactly. Every week,
the entire batch gathers. Historically, it was
for dinner. And they bring in a guest speaker.
And we are talking about the absolute titans
of industry. Mark Zuckerberg, the founders of
Airbnb, top VCs from Andreessen Horowitz or Sequoia.
And they speak off the record. That's the key.
They share the war stories, the unvarnished truths,
the secrets of how Silicon Valley really works.
It's like downloading the collective wisdom of
the valley directly into the brains of these
22 -year -old founders. And what's the ultimate
goal of all this? In those three months, what
are they trying to get them to achieve? The source
material highlights a few specific goals. First,
teaching founders how to market their product.
Second, refining their business model. But the
most important one. The holy grail is achieving
product market fit. Which basically means you've
built something that a group of people desperately
wants. Right. And you can prove it with data.
They want you to have a graph of your key metric
that is going up and to the right. Because it
all leads up to one single high stakes day. Demo
day. Demo day. The graduation ceremony. But with
much, much higher stakes. This is the day where
all the startups in the batch present their business
and their technology prototypes to a room. Where
nowadays it's often a Zoom room full of... hundreds
of potential investors. And it's designed to
create a frenzy, isn't it? It's not a relaxed
affair. It is engineered FOMO, fear of missing
out. The entire event is structured to make investors
feel like if they don't write a check today on
the spot, they are going to miss out on the next
Dropbox or the next Airbnb. It's social proof
on a massive scale. Completely. So let's get
to the brass tacks. If I'm listening to this
right now and I have a billion dollar idea and
I decide to apply to YC, if I get in, what is
the standard deal? Because I know this has changed
a lot over the years and understanding the money
is. absolutely crucial. It is. And the current
structure, which was introduced in January of
2022, is quite specific. And it's important to
break it down. The headline number they talk
about is $500 ,000. Okay. Half a million dollars.
That is serious seed money. That's not just ramen
money. You can hire a team with that. You can
build a real product. For sure. But obviously
they aren't just giving it away for free. Right.
What do they take in return? It's split into
two distinct buckets. And this is where it gets
really interesting. The first bucket is $125
,000. In exchange for that $125 ,000, YC takes
7 % equity in your company. And this is done
on what's called a post -money safe. OK, let's
just pause there and do the math for a second.
If they're getting 7 % for $125 ,000, that effectively
values your brand new, maybe pre -product company
at roughly $1 .8 million. Roughly, yes. That's
the implied valuation. Now, for some really hot
startups coming in, that might feel like a low
valuation. They might feel they're giving away
too much equity. So what's the justification?
YC's argument is that the 7 % is the price of
admission. It's the tax you pay to get into the
network, to get that Sequoia seal of approval
we talked about, to get access to the alumni
database, the advice, the demo day platform.
You're paying for the brand and the network,
not just the cash. Exactly. But that's only the
first part. What about the other chunk? That
leaves $375 ,000. Right. How does that part work?
That is the really fascinating part of the new
deal. The remaining $375 ,000 comes on an uncapped
safe with an MFN clause. Okay, you just... dropped
a bunch of jargon on us. We need to unpack that.
Let's start with MFN. What is that? MFN stands
for Most Favored Nation. And yeah, it sounds
like something from an international trade treaty.
It does. What does it mean for a founder in a
hoodie who's just trying to write code? It's
actually a very, very clever mechanism for YC.
Simply put, an MFN provision means this. We are
giving you this $375 ,000 now, but we are not
going to set a price evaluation on it yet. Okay.
Instead, we agree that whenever you go out and
raise your next round of funding from other investors,
we get the same best terms that you give to anyone
else in that round. Can we walk through a concrete
example? Because that's still a little abstract.
Sure. Let's say you're a founder. YC gives you
that $375 ,000 on an MFN safety. You go through
the three -month program. You build your product.
You get traction. You get your chart going up
and to the right. Exactly. You get to demo day.
Yeah. And you find a lead investor. Let's say
it's a big firm like Andreessen Horowitz. And
they love your company. They say, this is amazing.
We will invest at a $10 million valuation cap.
Okay. So that's the deal they offer me. That's
the deal. Because of that MFN clause YC has,
their $375 ,000 automatically converts into shares
at that same $10 million valuation cap. They
don't have to negotiate. Ah, I see. So YC doesn't
have to waste time haggling over the price with
hundreds of companies individually right at the
beginning. Precisely. They just say, take the
money. Go build something awesome. When you find
a professional investor later who does all the
hard work of pricing your company, we will just
piggyback on whatever deal you negotiate with
them. Exactly. It saves an enormous amount of
time and friction. It lets YC operate at scale,
and it lets the market decide the fair price
later on when the company is more mature. But
isn't there a risk for the founder in that? What
if I negotiate a really bad low valuation because
I'm desperate for cash? Well, then YC gets that
great deal, too. Most favored nation means they
get the best deal you give to anyone. So if you
give your uncle a sweetheart deal at a super
low valuation, YC gets that same deal. So it
keeps the founders honest. It keeps them honest.
and incentivizes them to get the best possible
terms, which ultimately benefits YC as well.
It's an incredibly shrewd and efficient system.
That makes a lot of sense. Now, not every organization
that goes through YC is trying to be a billion
dollar unicorn. Some are nonprofits. I was surprised
to see that on the list of alumni. How does the
deal work for them? It's obviously very different
because a nonprofit doesn't have equity. You
can't give away 7 % of nothing. Right. So if
a nonprofit is accepted, and they have accepted
some really notable ones like WOTC, the healthcare
platform, or Our World in Data, they simply receive
a $100 ,000 donation. So it's just a grant, basically.
No strings attached in terms of ownership. Exactly.
And honestly, for a lot of those nonprofits,
getting access to the YC network, learning how
to scale an organization, how to pitch donors,
how to operate. efficiently is often way more
valuable than the cash itself. So that's the
machine as it runs today. It's a factory for
success with a very standardized, very clever
deal structure. But YC wasn't always just this
steady focused accelerator. There was a period,
specifically starting around 2014, where things
got... Well, they got really expansive. Yeah.
This is the Sam Altman era. Right. So Paul Graham,
the original founder and philosopher king, he
stepped back in 2014 and he appoints Sam Altman
as the new president. And Sam was an alum himself,
right? He was. He was in the very first YC cohort
back in 2005 with his company Looped. So this
was a real passing of the torch to the next generation.
And under Altman, YC's ambition just seemed to
explode. It really felt like they stopped wanting
to be just the world's best accelerator and started
wanting to be a global empire that touched everything.
Empire is a good word for it. I mean, look at
2016. The YC partners went on this massive world
tour. They visited 11 different countries, Nigeria,
Denmark, Russia, India, Israel, Mexico. They
were trying to see if they could find brilliant
founders anywhere and everywhere on the planet.
And alongside this geographic expansion, they
started something called Startup School. This
was their attempt to kind of. Democratize the
YC knowledge, right? Exactly. It was launched
in 2017. Startup School was essentially a MOOC,
a massive open online course. The idea was, look,
YC rejects thousands and thousands of companies
every year. Why not try to help them anyway?
So they offered online courses, video lectures,
and some level of coaching. Yep. And in the very
first year, more than 1 ,500 startups graduated
from the online program. It was a huge scale.
But speaking of startup school, we have to talk
about the glitch. This is one of my absolute
favorite stories in YC history because it's just
so chaotic and so human. It is the ultimate oops
moment in tech. So picture this. It's 2018. A
new batch of companies is applying to startup
school. 15 ,000 startups have submitted applications.
15 ,000. They're all sitting at their computers,
you know, refreshing their inboxes, just praying
for that acceptance email. You know. And then
due to a software error, the system sends an
acceptance email to all 15 ,000 of them. Oh,
no. Oh, my God. So you have 15 ,000 founders
all over the world who think they just won the
lottery. They're popping champagne. They're calling
their parents. Maybe some of them are quit their
day jobs on the spot. Precisely. The celebration
is on. And then a few hours later, they get a
second email and it says, actually, so sorry.
That was a computer bug. You were rejected. Ouch.
The emotional whiplash there must have been absolutely
brutal. It was. The outcry online was massive.
People were furious. They were heartbroken. It
was a complete PR disaster for YC. So how did
they handle it? What do you do in that situation?
In a very YC fashion. They didn't just issue
a standard corporate apology. They looked at
the situation and said, you know what? Let's
just do it. They decided to accept all 15 ,000
companies into the startup school curriculum.
That is just... That's such a bold move. Instead
of trying to fix the mistake, they just said,
OK, our mistake is now the plan. We're going
to own it and just scale the program to fit the
mistake. It really highlights their mindset,
doesn't it? Why bother filtering if you can just
build software to handle the scale? If the software
can teach 15 ,000 people, then let's just teach
15 ,000 people. It's an engineer's solution to
a human problem. But not every big experiment
in this era worked out so well. There was the
big push into China. Right. This was another
major play in 2018. They hired Qi Lu, who was
an absolute heavyweight. He was the former CEO
of Bing at Microsoft and Baidu in China. A huge
name. And he was brought in to run YC China.
The goal was to establish a permanent on -the
-ground foothold in the world's second largest
economy. It seemed like the logical next step.
If you want to be a truly global institution,
you have to be in China. On paper, yes. Yeah.
But in practice, it just didn't last. By November
of 2018, I mean, we're talking less than a year
later, YC announced they were pulling the plug.
They were not going to pursue the China program.
And Qilu departed and the entity that was supposed
to be YC China morphed into a separate independent
accelerator called Miracle Plus. It just goes
to show that even for a powerhouse like Y Combinator,
you can't just copy paste the Silicon Valley
culture and playbook into a completely different
market environment and expect it to work. Not
at all. The regulatory environment, the funding.
dynamics, the sheer speed of the Chinese market.
It's just a different universe. And I think it
signaled a retreat from the idea of physical
international outposts. They decided it was better
to bring the world's best founders to Silicon
Valley rather than trying to build mini YCs in
every country. Now, running parallel to all this
expansion of the core accelerator was a very
different and maybe even more ambitious project,
something that wasn't about quick returns or
7 percent equity. Let's talk about YC Research.
This was launched in October of 2015, and it
was personally seeded by Sam Altman. He donated
$10 million of his own money to get it started.
And the mission was fascinating. What was it?
It was to fund long -term fundamental research.
The researchers were paid as full -time employees.
This was not about building a product to sell
next year. This was about funding moonshots.
And when you look at the projects they actually
picked, moonshot is definitely the right word.
For sure. I mean, the very first project explicitly
mentioned in the source material is one that
everybody knows today, OpenAI. Wait, wait. OpenAI.
The company that created ChatGPT. The company
that is currently defining the entire AI revolution
that started as a YC research project. Yes. It
was the very first project undertaken by YC Research.
It started as a nonprofit research lab with the
goal of ensuring that artificial general intelligence
benefits all of humanity. That's incredible.
Yeah. I don't think most people know that connection.
It's a huge part of the story. But they didn't
stop there. In January of 2016, they announced
a massive study on universal basic income. Or
UBI. So just giving people free money to see
what happens to the economy and society. Exactly.
A real world experiment. They also had a project
dedicated to new cities, which was researching
how to design and build better, more efficient,
more humane urban environments from the ground
up. And there was one called HNRC, right? The
Human Advancement Research Community. The name
alone is pretty ambitious. That one is particularly
interesting and maybe a little abstract. The
mission statement for H. Ayer Arc was, ensure
human wisdom exceeds human power. Wow. Okay.
What does that mean in practice? It was inspired
by a conversation between Sam Altman and the
legendary computer scientist Alan Kay. They brought
in other luminaries like Brett Victor. It was
really focused on creating new tools for new
kinds of modeling, visualization, and programming
languages to help humans understand complex systems.
So what happened to HR? I don't hear about it
today. It was shut down in 2017. And what about
YC Research as a whole? Did it continue? Eventually,
it spun out completely. In 2020, YC Research
officially disaffiliated from Y Combinator and
was renamed Open Research. So it seems like there's
a realization that running a nonprofit blue sky
research lab and running a for -profit hyper
growth startup accelerator are two fundamentally
different businesses. I think that's exactly
right. They require completely different incentives,
different timelines, and just different mindsets.
Trying to house them both under one roof is probably
too distracting for both sides. And this brings
us to the most recent history, the post 2020
era. And here we see a really distinct shift
in strategy. It's a move away from expansion
and toward focus. Yeah, a lot happens in a short
period of time. First, obviously, COVID hits
the world. The summer 2020 batch goes fully remote
for the first time ever. Which must have completely
changed the dynamic of the program. No more in
-person dinners in Mountain View. Everything
is on screens. It was a massive change. Then
we have another leadership transition. Sam Altman
had already left to focus full time on OpenAI.
Jeff Ralston had a tenure as president. And then
in January of 2023, Gary Tan takes over as president
and CEO. And Gary Tan is another YC alum. He
founded a company called Posterous that... Was
NYC. He is. And he was also a highly successful
VC in his own right with his firm initialized
capital. And his leadership really marks this
period of consolidation. The source material
frames it as a return to roots. So what were
the actual signs of this consolidation? What
did he change? Well, one of the first and biggest
moves was shutting down YC Continuity. What was
Continuity, exactly? That was their growth stage
fund. It was a separate pot of money designed
to keep investing in YC companies as they got
bigger in their Series B, Series C, and later
rounds. So they were trying to compete with the
big Sand Hill Road VCs. They were. But in the
spring of 2023, they shut it down and laid off
the staff associated with it. So that's a huge
statement. They're basically saying we are not
a growth stage investor anymore. We are an early
stage company, period. Exactly. The thinking
was that investing in later stages created weird
signaling risks and distracted from their core
mission, which is helping companies at the very,
very beginning. What else? The other big change
was the cohort sizing. In the summer of 2022,
they deliberately reduced the intake size by
40 percent. They went from 414 companies in the
prior batch down to about 250. That is a massive
cut. Why would they do that? The source cites
the broader economic downturn as one reason,
but it also strongly suggests a desire to focus
on quality over quantity. If you have over 400
companies in a batch, it's just physically impossible
to give them all personal attention. 250 is still
a huge number, but it's more manageable. More
hands -on. A bit more, yes. And then there's
the physical move. For years and years, YC was
synonymous with Mountain View down in the South
Bay. Right. The heart of suburban Silicon Valley.
But in the spring of 2023, they moved their headquarters
to San Francisco. Up by the waterfront, right?
The Pier 1 area. Yes. And the source notes they
had actually been considering this move since
2019. It's a symbolic shift. The center of gravity
for a lot of young founders had shifted from
the suburban office parks of Silicon Valley to
the city itself. And YC decided to follow the
founders. And we also saw Michael Seibel, who
was a really central figure for a long time,
step down as managing director recently in March
of 2024. Yes. So there was a lot of shuffling
in the upper ranks and all that seems to be pointing
in the same direction. A leaner, more focused
Y Combinator. Let's broaden the lens out a bit
to the entire ecosystem that YC has built over
these years. We listed the giants earlier, Airbnb,
Stripe and so on. But the alumni list is just
so incredibly diverse. It's not just consumer
apps for your phone. No, it's really not. You
have this whole category of what you could call
tech dev tools. These are companies like GitLab,
Docker, specifically the part that was container
Linux Heroku, PagerDuty. These aren't household
names for your average person. No, but they are
the essential tools that other developers and
other companies use to build their startups.
YC essentially funded the infrastructure of the
modern web. And then you have the big international
success stories. Rappi in Latin America is a
huge one. It's basically... Everything app for
LATAM food delivery, groceries, payments. And
a more recent one is Deal, which helps companies
hire and pay people remotely all over the world.
These companies prove that the YC model can produce
massive unicorns serving markets way outside
the U .S. And we mentioned the nonprofits earlier,
but there are some really fascinating ones in
there. WOTC was the very first nonprofit they
funded, and it focuses on health care crowdsourcing
for people in developing countries. But they
also backed an organization called 80 ,000 Hours,
which is a really prominent, effective altruism
career advice organization. Right. It shows a
willingness to support organizations that build
social capital, not just financial capital, which
I think is an important part of their identity.
But not every program they launched survived
the test of time. We talked about the continuity
fund closing, but there was also something called
the YC Fellowship, right? The fellowship is a
really interesting case study in their willingness
to experiment. It was launched in 2015 and it
was aimed at companies that were, believe it
or not, too early even for the main YC program.
Too early for YC. Is that just like an idea on
a napkin? Pretty much. A team with an idea, but
maybe not even a prototype yet. And initially,
the fellowship was equity -free. It was just
a grant and some advice. And then they changed
the model. They did. They shifted to a model
where they gave $20 ,000 for 1 .5 % equity. But
by 2017, they discontinued the whole program.
It seems like they just struggled to find the
right economic model for that ultra, ultra early
stage. Or perhaps they just realized that the
main program was elastic enough to handle those
companies if the idea and the team were good
enough. You know, why fracture the brand with
the YC Lite version? That makes sense. So as
we look back at this entire 20 -year history,
from a small summer program in Cambridge to this
$600 billion value creation engine, what's the
big takeaway for you? I think the story of Y
Combinator is really a story of them applying
the startup mindset to venture capital itself.
They didn't just find a formula in 2005 and stick
with it. They iterated constantly. They pivot
just like the startups they fund. Exactly. They
tried running programs in two locations, realized
it was inefficient, and they consolidated. They
tried expanding to China, realized it wasn't
the right fit, and they pulled back. They tried
doing late stage investing with a continuity
fund, then decided to refocus on their core competency,
which is the early stage. They're constantly
searching for their own product market fit. even
as the market around them changes. That's a perfect
way to put it. And right now, under Gary Tan,
that fit seems to be San Francisco -based, intensely
focused on the early stage, and much leaner than
the sprawling, almost imperial ambition of the
Altman years. It's a fascinating evolution. And
it really leaves us with a final, provocative
thought to chew on. YC Research incubated OpenAI,
which is arguably the most important technology
company this decade. But YC spun that research
arm off. They also shut down their growth fund.
They are consciously and deliberately doubling
down on the two founders in a garage phase of
innovation. Which raises a really big question.
Are we about to see a new golden age of raw early
stage innovation? By clearing away all the distractions
of late stage fund management and global franchising,
is YC preparing for the next massive wave of
disruption that looks entirely different from
the mobile and sauce wave of the last decade?
Or here's the flip side. Has the startup industrial
complex peaked? Can you really just keep manufacturing
unicorns on a schedule year after year? Or was
the last decade an anomaly? fueled by 0 % interest
rates and a unique set of technological conditions
that won't be repeated. That is the $600 billion
question, isn't it? Well, if you're out there
listening and you think you have the answer,
or at least a billion -dollar idea, you might
want to go look up that standard deal we talked
about. Half a million dollars is waiting. Just
make sure you read and understand that MFN clause
very carefully. Always read the fine print. Thanks
for listening to this deep dive into Y Combinator.
We'll catch you on the next one. Goodbye, everyone.