The second day of TechCrunch Disrupt NYC just kicked off with a bang as Y Combinator cofounder Paul Graham sat down with world-renowned interviewer and journalist Charlie Rose. The topic of conversation: what is Paul Graham looking for when it comes to identifying the people who are most likely to succeed?
Graham says that when people come to him and say they’ve got a great idea, his first response is, “Tell me about your cofounders”. In general the idea is less important, though he says that if it’s a really terrible idea that might reflect poorly on the founders, and a really great idea might lift them up.
“There are some people who just get what they want in the world. If you want to start a startup you have to be one of those people. You can’t be passive and wishy-washy,” Graham says.
Rose followed up with a key question: how can you tell which people have that kind of determination in ten minutes (which is how long YC interviews are)?
Graham says that it’s hard to tell. “We can be fooled about determination — you can usually tell how smart people are in ten minutes. But people can put on an act for determination for ten minutes.” The YC partners also look for mental flexibility — they’ll ask a company to rotate their idea 90 degrees to see how they respond. “Some people will say yeah, that would work. Others will say, ‘Oh no, actually we wanted to do the other thing.'”
Another key factor: Naughtiness. “Startups often have to do slightly devious things,” Graham says. “You can tell if people have a gleam in their eye. You don’t want people who would be obedient employees… we’re not looking for people who did what they were told in life.”
Graham recounted his initial interactions with Loopt founder Sam Altman, who he first spoke to when he was only 19. (“19 going on 40”, Rose added). Altman was actually initially rejected, but he “pushed back like a 40-year old” and told Graham that he would be joining the program.
Asked about the recurring arguments that we’re in a bubble, Graham said, “I worry prices are high, but I’m reluctant to use the word bubble. Things are not crazy. I warn people that prices are high and that they should raise money now, because things could change tomorrow.”
Overall, Graham says that YC partners are “looking for people like us”, explaining that many VCs are MBAs, whereas YC partners are mostly entrepreneurs. This, Rose later added, appears to be the lowers common denominator uniting the people that YC invests in.
Some other interesting notes from the conversation:
- The latest YC round includes 62 startups, 9 of which are YC alumni
- YC was initially going to do typical angel investing, and actually only did the ‘batch’ model initially so that they could learn what to invest in
- Graham says that angel rounds end and VC begins at a million dollars
- YC’s acceptance rate is around 3%
- Asked to list ten of YC’s best successes, Graham listed off: Dropbox, Airbnb, Loopt, Heroku, Scribd, Grepplin, Xobni, Justin.tv (it sounded like he could keep going)
- Y Combinator keeps track of the successful companies that they initially rejected. One anecdote: Graham says that MIT Professor and YC Partner Robert Morris is a notoriously low grader for the applications. He had given one app a ‘C’, which sunk it in the ratings, and it went on to be successful. Now YC double-checks every app Morris gives a low grade to.
- The total value of YC companies is now around $3 billion — YC has invested a total of around $5 million.