The Challenges a Repeat Founder Faces - Tikhon Bernstam | Transcription

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Introduction

Intro (00:00)

Hey guys, today we have TKON Burnstam, multi-time YC founder. So could you just start by explaining how you first found YC? Yeah, I actually found YC 'cause I was on Reddit, I was in graduate school, which meant I had a lot of free time. And so I, Reddit was super early, this is back when the top post might have 10 points. And this is like before it even had comments. And via that, I found Paul Graham's essays on how to do a startup. And to me, the idea of doing a company was basically impossible. This is after the bubble or after the dot com crash. Everyone had basically declared like the web was over, like that's all done now. And so it was very, like Paul Graham's essays were really the only source that I had found that kind of said, I actually here's the pathway to do it and like it can be done. And I was super interested in that. I applied to YC really as like, really on a long shot, I didn't think I'd get in. And so I interviewed in Palo Alto and although the actual program was still back in Boston in Cambridge and I got in. So I just dropped out of graduate school. What were you studying? Physics actually, theoretical physics, but I studied computer science and econ in undergrad. So that was kind of a small change.

Experience With Y Combinator

Applying to YC and getting rejected (01:29)

And so, yeah, so I dropped out of grad school and moved to Cambridge. And so then, yeah, me trip in Jared probably worked on like, script for at least, well, yeah, we worked on script for at least like a year and a half before we got like real traction on it. So this is back in summer 2006. - And what was the initial pitch for a script? Like in the application? - Well, yeah, so script was actually like one of those pivot companies where like we applied with different ideas and then like much like Reddit was actually a pivot company where like it was actually applied for something else, like food delivery stuff. - Really? - Paul's like, yeah, Paul's like, I love you guys, Steven Alexis, but I hate that idea. How about this kind of thing? Yeah, Steve's talked about that before. And so similarly like script actually was actually the merger of me trip in Jared like during YC. They were working on some other project. And like it was like a Craigslist for colleges. Back then Craig, this was super hot. So like everyone was trying to do much like nowadays everyone's doing like Uber for X. Like back then it was Craigslist for X. - Glory days on the internet. - But then YouTube sold for over a billion and people.

YC A06 experience (02:46)

So that was insane. You know, oh my God, Google overpaid, which you know, totally wrong. And so then YouTube became the hot one. So then we said like, let's do YouTube for documents. Like that was literally like the thing. And I mean, we'd also noticed this problem where Tripp's dad who's at the Stanford med school was having trouble like basically viewing the documents like online that like he wanted to read. And like not he didn't have like the right reader. And like sometimes I'd send my mom like a post script file and she'd be like, how the hell do I open this? - People were just downloading it and then they needed to download like Acrobat or something. - Yeah, like if you wanna open it, yeah, 'cause back then if you had like Adobe reader, I don't think that actually opened up like post script files back then. And maybe it did, but a lot of default viewers didn't. It just depended on your OS and what sort of default software you had bundled. But anyway, we just decided like, why don't we allow the documents to be embedded inside of the web pages. And we started off with Flash, but we had always hoped that we could switch to HTML5, which we did much later. - Okay. And so what was the YC experience? And so a summer of six, what was it like? - It was great. So this was back in Cambridge. Honestly, we would never have made it without that program. And I think that's true of actually most of those companies. And I'd argue probably most of the companies because without that community of like like-minded people who are highly motivated and working on like the same general like pathways you and also like people who've done it before, like Paul, Jessica, Jay, Paul, Jay, Elle, Trevor, like Robert, who were basically there to like kind of like, no, you guys are like, that's stupid. Get back on course. 'Cause sometimes we would just go the wrong way for like a whole week, like before we'd see them. I mean, show them and they'd say, what the hell are you guys doing? And they were always right is the thing. So like, it's, I mean, it saved us years and the company wouldn't have worked without them. And so I'll always be grateful for that. And it was, all the batches were small back then. I think Scribbed Summer '06 was the second batch. So still my best friends are the people from like the Summer '05 and Summer '06 batch in Cambridge.

YC Money (05:00)

Like, and that's like so going on over a decade. Just because those were the only people I knew doing startups and like they were the people I talked to and it was great. 'Cause like one day you think with startups, one day you think your company's gonna fail. Like, you know, you think you're getting sued or something. Someone's threatening you. And the next day you think you're gonna sell the Google for a huge amount. Like 'cause just because someone, some like person in M&A accidentally emails you. And so having other people going through the same thing, like the like the Twitch guys kind of working on their stuff, which took over a decade. And back then it was Kiko, which switched into Justin TV. But like having that sort of, having those people around in that community. And then kind of like the guidance of the partners is probably the only reason that we survived.

How to spend YC money (05:47)

- And so how much money were you getting from YC at that point? It was not the same as it is now. - Yeah, back then it was fixed. It was $6,000 per person. So overall we took in 18,000. - Congrats, that's huge. - We almost sold the company for that much. - And so, I mean, obviously the money lasted. What did you do with it? Like people get way more now. - Yeah, I'm always amazed how much people get now because the seed rounds today are bigger than like the series A that Dropbox and Airbnb did with Sequoia, which I think was roughly a mill each. Like, and so like how did you guys spend all that money? Usually we'd say people run out.

Arduino Around Town (06:30)

But back then we struggled. I mean, so for a couple of years I was living on savings. We were basically, I was basically living out of Tripp's parents house at Stanford. And like his mom was getting irritated because I keep like eating all the candy. And like I was obsessing on top ramen and like whatever food was available on their cabinets. So Tripp Jared and I worked for months basically out of his living room. And without the generosity of his parents to even let us do that. - And did you raise after YC?

Script Is Skyrocketing... (07:01)

- Or it was not a while. - Back then fundraising was very, very different than it is today. Also just the environment in Cambridge is so much different than the valleys. But back then like the mood was so gloomy and like startups are over sort of thing that like it took a really, there were actually just weren't that many angels around. There weren't that many people who had either gotten, who had exited or like who wanted to do that sort of thing. I mean now demo day is over subscribed and such. But back then it wasn't. Like back then I don't think it was even like a full room actually. - And so you were just basically living off savings. Like Scribb doesn't make any money. - You actually stretched that 18K pretty darn far. Yeah, I mean if you can somehow, as long as you can get your rent low you can live for a long time. - Okay.

After Building Pars in YC... (07:50)

Do you know approximately how long that actually went? - Well I mean yeah it was another year after YC. So we scratched by on that. And I mean being a wealthy grad student, no. So having zero savings like if early any of us 'cause Tripp had just left Harvard, Jared dropped out of Harvard to do this. So we just really like, we really tried to make every dime count. - And so how long did you work on script? - Yeah so started like I said, summer 2006. I left about five and a half years later. I talked to the co-founders. I said listen I think like if we're not gonna like go more B2B like more like an enterprisey. I think that I should probably go 'cause I'm really interested in doing something in that space. And so they were like okay cool. They actually invested in my next company which was PARS which we basically actually, so it was actually two of us who left. It was me and James Yu from Scribd. James was actually I think our first hire at Scribd. And so he and I were close friends and Mr. Larr. And so we left and the very next day we were coding and working on like the prototype of like what was not PARS it was something else. - What was okay PARS, what was that idea? - There were actually 12s. We made 12 different landing pages. Well 'cause with so a Scribd we would spend about one month on every idea and like build out an app and then test it. And that's kind of what it might have taken longer. With PARS we said let's not waste a year. Let's make 12 landing pages like kind of launch them and see if people even give us an email. - And B2B products? - Yeah, and things that made money. Like 'cause I think it can be to see it's much harder to gauge whether you have a long term traction or not or if you're chat-relate or something. And so yeah, so we basically had 12 different pages that we launched. Like one was an API for companies to send gifts to like their best users 'cause that's Scribd. I always wanted to send gifts to people who uploaded like a hundred documents. It'd be nice to do that programmatically. I don't think that even exists still. So like then when we just looked at people clicked on the pricing page and if they'd send up and put an email in and then anyone who typed in their email, we would email them being like, "Why did you sign up for this?" Like this was a crappy landing page that we made in like two hours. - How are they getting to the landing page where you do like about marketing for any of this stuff? - Show HN was like basically, but this is before product time. So it was mostly Show HN. It was on Twitter. - You're doing Show HN landing pages. - Yes, like Show HN, this service exists. Actually, Parson launched that way too. Parson launched as a landing page. - Really? - Yeah, in fact. - Back then it was called ZStack. And we didn't own the Parson.com domain, which we only got later thanks to the Stripe founders and Stripe CTO. And so, yeah, it was called ZStack. We launched a landing page. Again, just we wanted to make sure people actually wanted this thing 'cause we knew like from our own experience building mobile apps at Scripe, at other companies, that everyone was sort of reinventing the wheel, redoing the same sort of like code that like push notification type stuff that really could be generalized. And back then, like AWS was kind of just still very much in its infancy, but you could see the need for like, Heroku had just sold for 250 million to Salesforce. So like the pitch of like Heroku for mobile like kind of was like very, like I actually dislike X for Y pitches now, like all these now. - But you were writing those waves the past. - Yes, yeah. - I am 100% guilty of doing those in the past. And so we actually, I think the pitch deck I used at YC at the demo day was, yeah, it was Heroku for mobile was like actually the title of what the company was. - Okay, and just stepping back a little bit, what made you decide to go with ZStack versus the other 11? - Yeah, it was actually talking to the users.

How Did PARS Evolve? (12:01)

So we talked to the users on Facebook. - But to be clear, there was no product for any of them. - So Pars is more complicated. Pars is actually the merger of three independent entities. So Iliya was a solo founder in Pars, working on like a find your friends app sort of thing, which like was very popular at the time. And Kevin wasn't even in YC. Kevin emailed, Kevin had been in YC previously, and then was working at Google, emails Paul and says, "Listen, I wanna get back "into startups like if you have anything, let me know." Paul emails the list like, "Hey, there's this great guy, "great hacker, like you guys should like talk to him "if you're looking for a co-founder." And so James and I met with Kevin, Iliya met with Kevin. We ended up all trying to work together for like a couple of weeks, and like just to see if we harmonize. I mean, I don't advise people work with people they don't know, but hey, worked for Twitch. I'm like, "Yeah, it's worked for some people, "it hasn't worked for a lot of people." Yeah. - Yeah, okay. - Yeah. - Okay, so what were those two ideas then that merged? - Oh yeah, so we were actually more in the payments space. More, so James and I were interested in like recurring subscription billing space, where people were, I mean, people still have trouble like actually getting like recurring billing working. I mean, it's getting better now, thanks to Stripe. But so stuff for like normal people basically take payments like that when we're occurring. I mean, we were still very much in the ideation phase, where we were very happy to pivot to whatever was kind of, whatever we thought would be like the best type of like business. - Okay. - And yeah, and then basically we also started working on PARS, and we basically launched that landing page pretty quickly into YC, and we launched it on Hacker News, it was a show HN, it was called zstack.com I think at the time. - And so what were like, what was the pitch? - It was literally a theme forest theme, it was like a $9 theme forest theme, and it has these hot air balloons on it, you can still buy it today. And just, it was basically Heroku for mobile, like basically we're gonna take away the DevOps and like the backend like part of it, so you can just focus on like the like front end, like native, you know, code, and not have to worry about thinking about like your database, and all that stuff, abstracting it away the RS decays. - Yeah, and I mean, I've used a product before, but just like to be clear for everyone else who's listening, could you just give the quick explanation of what it actually became? - Yeah, yeah. So PARS is a platform that helps you make mobile applications much, much faster, we estimate roughly 10x faster. And so normally if you're making a mobile app, you'd have to like write all of the code that like the like native client interface on the phone that the person would play with, but then you'd have to think about how does that app talk to some server in like Virginia, and then what does it send, and then where's that data going?

Second idea and building (14:47)

How am I querying it? Like how I, what happens if that server goes down? So PARS took care of that whole second part of this, of the stack, so that you just did the client stuff, you make a pretty native UI. We didn't believe much at the time in sort of the like, HTML5 approach, which now is working better, but like the sort of phone gap type of thing, like we believe that native apps at the time were like definitely superior in experience. And so we just tried to like abstract away, like all basically like the really hard, like kind of like 80% of stuff that people shouldn't have to know how to do them in order to make apps. - And had you guys decided that like, you wanted to go through YC again? - Oh yeah, I talked to Paul almost immediately. - On leaving Scribs. - Yeah, and I was like, yeah me and James, have these ideas, we're not sure exactly which one we're gonna do. And Paul's like, all right, well, let's do this again. - Really? So you applied like kind of blind, like there's no product still? - Well, we agreed with Paul that we would focus on a company called PintPay, which was the subscription billing service. Back then, back then billing and like payments companies were super hot, like we paid, just raised a bunch of money. Stripe was famously doing really well, but we definitely never wanted to compete with Stripe. So we were looking for other angles inside of payments. You know, you could do things like anti-fraud type stuff on payments. - So basically like another idea was sort of funded through YC and then you just changed it and you brought people on in the meantime. Okay, that actually happens a surprising amount of the time. - Yeah, yeah. And so by the end of the summer though, you're Heroku. - You're where Heroku from mobile. Yeah, I later switched to AWS for mobile. But basically like an AWS tailored for developers of mobile applications. - Okay. And so why did you wanna do it a second time? Why see?

Whats parse? (17:03)

- Oh, I mean, well, okay, first off the first time we would never have made it without YC and that's likely true the second time as well. Again, largely for the same reasons as the first time, I still don't think I know anything about startups. Like the more and more I do this, the more and more I'm convinced how little I know. And so like having that sort of community of people like who are highly motivated, having my first customers there right there in the batch where I could say, hey, like you're making a mobile app, use this. Like that's really, really helpful. 'Cause then you suddenly get feedback and then every dinner, every week, you go to them and say, hey, I launched this new stuff, check this out. And then we bring our laptops and show what we're doing. And then like half the time it was stupid and the people told us that, then we stopped. And then the other half they're like, well, why not expand on this that way? And we're like, oh, 'cause that's the problem you're having in mobile. It's not that. - How did you start getting customers afterward? Because it makes sense like when you're surrounded by startups, you can just grab a ton of people. And I found parsed by going to hackathons because people are using it all the time. But how did you get people who would pay for it? - Yeah, so we didn't have pricing for actually quite a while. It was a free service. We didn't know how to do pricing properly back then. And so we were mostly focused on can we get, are we making something that's making a few people really happy? Like, so we would talk to the developers like who had signed up and who started using our beta, which started, we started off just basically sending data to the cloud, like to like S3 say. And, my talking to the developers and seeing like, do we have a product where people are really disappointed if we just like went away? Which I think is a really good test.

Why they join YC (18:54)

If you can't find some niche that is absolutely like fanatic about your product, then you likely don't have strong product market fit. And most of the times that I've failed in startups was basically trying to push growth before I had product market fit. And so we found this core segment of developers who really wanted to make native apps much, much faster, ranging from like agencies who were making apps for everyone from like Green Bay Packers to like the travel channel and weather channel and Cadillac who actually all in abusing parts. But like, we found people who really cared about this. Like this makes my life much, much better. And then we actually talked to them and like, use that, we use their feedback to kind of make the product better in the ways that like it should be better. And we've, I mean, we actually moved really fast. All four of us were coding. And so we worked and we kept kind of launching features constantly. And we got the parse.com name thanks to Greg, CTO of Stripe, 'cause I asked, I was over at the Rothness and I asked them, what was your guy's second choice? 'Cause like Stripe's an awesome name. And they're like, whoa, if Stripe didn't work, we're gonna be parse. I was like, that's like, that's available. - And they just gave it to you? - Well, they didn't own it. So they had written a script to email all the owners of like one word, English, one syllable domains, like Stripe, parse, things like that. And asked them like, hey, we're, you know, a couple of people working on a startup, you know, are you interested in selling? You know, most never replied, but like, parse and Stripe owners did. And so I won't say how much Stripe cost, but parse was only 15k, parse.com. - That's not bad. Yeah, all things considered.

Second time around - learning from other users (20:48)

And so going through why I see the second time, like what became valuable to you? I assume it was different than the, well, first of all, it was like way more people, right? In summer, 11, right? But what was valuable the second time? - Well, again, like having like customers or like, or the actual users, like inside of the batch where I could like talk to them, having that community, 'cause it actually gets quite lonely when you're just sitting there, like coding, like, you know, 16 hours a day or like, like even if you're with like the same three people every day, like it's nice to have that community of other people who are doing the same thing. The partners smacked us around a bit like, no, no, you guys like are going the wrong way and they were almost always right. And so we got a lot of good, like, it kept us honest about shipping every week, like shipping new stuff, not being embarrassed to ship too early, which is like really, really common, especially amongst like developers who just wanna keep coding instead of shipping. And so the partner's advice was priceless, but and then a demo day, I mean, fundraising was, that was next, easier. I can't imagine the fundraising, you know, minus the YC demo day. We were wildly oversubscribed, but we only took 1.5, we stopped there for our seed round. And like, we really were able to get some of like the most, like, like some of the best investors and some of the most like, like kind of like, famous, like, valley type people. And it was like, it was really, it was really awesome. - Yeah, and then it was like two years and then Facebook acquired you guys. - Yeah. - Or something like that? - Yeah, so we started Parson 2011, Facebook acquired the company in 2013. We'd actually had M&A discussions with several other companies along the way, like in 2012 and early 2013. But we actually raised our series A, like right after demo day, we basically went and started like, raise our A because we actually thought we already had basically like enough traction to start doing that. And we, and yeah, that actually was a fairly, fairly quick process. We raised 5.5 million for our ignition. So in total, we raised 7 million. - No, just happened. - And then we started hiring and we kind of like, we were able to recruit some just amazing developers, a lot of people off the Google search team, for instance, people, a lot of developers were passionate about the problem and like working on their, on the tools that solve their own problems. So that was helpful. And being such a developer focused brand also helped us. And YC was great for that. Being able to like kind of, you know, post like pay like we're hiring on like on Hacker News back then. - I mean, 'cause that's always a question. Like I wonder, right? 'Cause people are looking for those jobs, but you guys are also just looking to find people. So like, what was the effective, what were the effective strategies for finding developers to come work on parse? You just made a cool product or what? - Well, we often, we would talk to a lot of our actual users, like I mean, there were some amazing like engineers who were like using parse. And so even if we couldn't hire them, we could talk to like their friends. But also, once we kind of got like a couple amazing hires out of the Google search team, we just kept asking every, we asked every single hire, like who's the best person you worked with? Like who would you co-found a company with? And then we would just go to that person and then I asked the same, I asked the same question, like to that person. And even if I couldn't get like that individual, I could, you just kept kind of kept moving down the tree. Yeah. And so that actually worked really, really well. And we were able to hire like a lot of like friends or people we'd worked with previously. So I think Kevin had worked with like several of the Google folks previously. And so like they already knew and trusted kind of like us and we already had, we had kind of a good friendly group that wasn't all just kind of strangers. And we were, but I mean, eventually we ended up hiring everyone from like we hired some of our best people were actually users of PARS. Like the guy who ran all our community and such was actually making PARS apps. He had just graduated. And so that was actually another great strategy. Hacker News jobs post was a really good one. And I guess that alone actually worked really, really well. And so now PARS is like shut down, right? It is.

Post-Yc And Venture Into Investments

parse (25:20)

So just the other day, I think end of January, Facebook finally, so Facebook opens source the entire project. And now there are actually little companies that like provide PARS hosting much like, Oh man, really? Yeah, much like the. It's AWS for PARS. Well, cause there's actually like very little profitable businesses like all those folks who host WordPress for businesses, you know, they can like, because WordPress is an open source project. Now PARS is too. So there are people who just took over the hosting part of it. And so, but the PARS team to their credit, like they kept building and working and adding features to the open source project. It's really, really good. And so there's a lot of people who switched over who like, we actually helped everyone migrate over from like, from using like our servers over to like the open source project and like how to do that. The company did an amazing job with that. I think it was one of the best shutdowns of a company that I've seen. So often users are really angry and like, but this was a really graceful long like over a year notice that we were going to be shut down, open source did like migration tools. Too many startups end up just kind of like closing like, Oh, for sure. Yeah, it's happened. Do you think there's another parse coming down pipeline? Like someone's going to try it again? Well, Firebase did, right? So they were actually in our batch. They were a different company at the time. They were doing like basically chat for every website. So like, you know how like how like how like how a Twitch has like a chat little box. They were trying to do that for everyone.

after parse (26:54)

And they ended up pivoting later into doing basically like parse again. So they're so and then Google bought them. So Google Google has their own parse and then Facebook had one. All right. So you can use Firebase, I guess, or parse. Parvases great actually. Yeah. And so, okay. So you didn't go to Facebook, right? Okay. So what happens after parse? What do you do? Yeah. So I was like fairly burned out after I had no break between script and parse. Like literally it was like the next day I just started working again. So after many, many years, I guess I I I I I'd always want to travel. I've never done so. So I've spent about two years traveling, backpacked South America without a computer, which was great. Oh, is that like? Yeah. And lived in Europe for a while, did a lot of speaking at conferences, that that sort of and I tried to learn more about the international startup scene.

silicon valley of the rest of the world (27:55)

It feels like every every city internationally or a lot of them think like how do we build the Silicon Valley of like, you know, South America, how do we build the Silicon Valley of like Peru? And it's like, that's not really the right approach. I don't think I'd be better off focusing on like being really friendly to like one niche. Like we're gonna like we're gonna be really friendly to Bitcoin people like we're gonna make the banks be friendly to Bitcoin startups. And like people you might get more people going there and not dealing with all like this, all of all difficulty that say like drones have here, like with all the regulations. So you could see like a drone valley and like a Bitcoin valley. I mean, Mark, you recently. You have to stop. No, I completely agree with you though, right? Like there's no reason why like, you know, all the pharmaceutical startups couldn't be in Germany or something. And so what did you learn from like, so you're speaking at all these conferences and stuff and you eventually stopped doing all that speaking, right? Did you pick anything up along the way? Yeah, the number one question that I got was how do we raise money? How did you do that? And it's really unfortunate because like much like that, like the angel ecosystem that had to build in Silicon Valley, like it took a long time like back in like even '06, there were not that many investors and like terms were not good. Like, I mean, nowadays the typical seed round out of YC is higher than like the series A post money that Sequoia did in Dropbox and an Airbnb. So you have to envision like this client was completely different. Like there was not this like flood of capital chasing like every good startup. So that's kind of how it feels in most in most international areas. So what do you tell people? Come out here. When I was telling folks, yeah, I mean, I said if you can, like raising out in the valleys, I mean, like, like for instance, like Algolia was in Paris at the same time I was there and they ended up moving here. Front app from Paris also moved here where front app, I'm an investor in. And so the honest truth is like, I mean, I still think living and doing a startup here is very beneficial. I mean, it has certain downsides. It's very expensive here. But in terms of fundraising, that certainly helps. Also investors are largely averse to like non-delaware C-corps, which a lot of these companies outside of the US are. Like for instance, I as an investor now and like, you know, over 60 or 70 companies, I don't understand like the legal ramifications of investing in like a company in like, you know, South America. So you basically just avoid them?

Largely due to pre-seed boot camps (30:38)

Well, it just it would be a large like legal headache to think about to go have like lawyers review this and see because, yeah, so with with the Delaware C-corps stuff, you already had to figure it out. So I actually just encourage folks to like to like apply to like like Combinator or if they can't get into YC apply to like 500 startups, whatever. But like these these programs are so perfect for people internationally. And I love what Stripe is doing with Atlas, like helping people they're trying to they're letting anyone be an entrepreneur like around the world. That is such an awesome, ambitious goal and solving that problem. So I think things have gotten much, much better than back when I was like back in like when I was hearing that in 2014. Largely due to the efforts like that. And like YC does a really good job of taking like there's a great company called Razorpay that I'm an investor in. That's kind of like Stripe for India. And you know, they like YC helped them with the whole transition. It's super valuable. And so that's probably a good transition. So you said like 60 angel investments at this point. Do you have a particular strategy and area you're focusing on? How's it going? Yeah. So I've been I'm so far invested in like Cruz, which just sold a GM, gusto, a lambda checker, optimisely Reddit, things like that. For me, in the early stage investing, I really, the first thing I'll look for at least is like, like it is there a large market because like without a market, it's really hard to be successful, even if you build a great product. And so is there a large market and are these founders like like a really like relentless team that is like determined or like, I actually have this joke question. I'll sometimes like kind of I don't actually ask founders this, but like I'm like, Hey, you know, there's this conference and like, you know, like in like the UAE and someone just dropped out. Do you want to go give a talk? It'll it'll take you away. You did. But I guess you were. Yeah. And like they were kind of like the conferences that I was actually going to. I guess you weren't a founder at the time, but still. No. Yeah. Yeah. But like often if founders are willing to take long distractions and doing things that are not relevant to their companies, that's a bad sign. And so you kind of learn to identify the folks who are relentless. Well, like what are other signals for you? You see in people, I actually like solo founders. I know that's an unconventional thing in the Valley, but Drew was initially a solo founder with Dropbox. And a lot of other great companies were as well or had one founder who really drove the project through. So I think people who are willing to go through it solo, it's already hard enough. People who can persevere for like a year or longer by themselves. I kind of really admire that. You can you can kind of. I mean, references in some sense, like, you know, like if you ask people like, you know, who are the best people you ever worked with and they name someone, that's probably someone who's pretty good. As a technical person, do you vet the product, like the tech side of it at all? Yes, but I kind of believe, and I'm stealing a lot of this from Marc and Drewson, but that a really strong team in a really great market will eventually build the right product and like, well, they'll figure it out like because the market will drag the right product out of them, whether they, whether it's kicking and screaming. Like Docker came out of dot cloud, you know, there's lots of things that Twitch came out just in TV. Justin TV was actually had this one vertical of like gaming that was really growing and they actually ditched the rest of it and just did the gaming vertical. And so often like good markets will actually good growing markets will will actually eventually steer you in the right direction. So as an investor, have you been burned yet?

Mr. Dyll as a b2b investor (34:39)

I mean, you've only been doing it for a couple of years, right? Are there any like hard lessons you've had to learn? I think one good thing. Well, I think people complain about valuations every single year. I've heard this since 2005. I remember when I optimised Lee Seed round was at four and people were like, that's so expensive. I'm never going to pay that. Like, you know, now it's probably like it's a multi-billion of our company. So I don't listen to that anymore. I think a lot of the best deals can feel expensive. As Gary Tan recently said, you kind of investors make their money basically on being on being in the deal everyone wants to be in or being in the deal nobody wants to be in. And I think that's largely true. Like if you look at like say Dropbox and Airbnb, they took like over a year to go from demo day to their series A. So you don't have to actually rush into things like demo day. There's a lot of room in the post seed world where you can kind of invest like maybe at a slightly higher valuation, but like before the series A. And so I've done a lot of that as well. And how are you finding those deals? There are either often their products I use or often there are things that actually solve problems that I had like in terms of areas I focus on, I guess I should mention a lot of B2B and like enterprise, a lot of autonomous vehicle tech like much like cruise and a lot in like marketplaces. I'm still bullish on. I like on. I don't think that there are enough marketplaces for all the different verticals yet.

Making new markets (36:14)

Hmm. Like for example, OK, I'm an investor in Quartzie, which is actually, which is a great startup just did their series B and they are bringing for life science laboratories like at universities or say at like Genentech, they're they're uniting like they're fixing the whole like inventory system problem like because most folks just have like either like a chalkboard with like writing down what they have or like whatever or like some paper binder. So they are uniting the life science labs with the suppliers. And that's very valuable and much like Airbnb, like a lot of people said with like a why do we need Airbnb? We already have Craigslist, but often these these experiences are much better when they're custom tailored. Yeah. Yeah. I think it was Chris Dixon who like made that graphic a while ago of like breaking Craigslist out into like all these billion dollar companies, something like that. Yeah, no, I think it's true. It's there's so many companies that are just like we see it with YC. And I Jared actually wrote a post about it last year, the startup site guys like all the trends, like people often don't pay attention to the unsexy but like giant markets. Yeah. And those are often like the most interesting ones in terms of like investments. And so a lot of my investments didn't seem sexy at the time, but but worked out. And so like where are the markets? You think that like people in addition to those marketplaces, like people ought to be paying attention to because right now there's a lot of noise around, you know, say, for example, like VR or machine learning AI stuff. Do you think that those things are are worth startups going for right now? Or are there other things that you think are good opportunities? Yeah, so I actually really like existing huge markets that are growing.

Evaluating And Picking Tech Startups

Look for a space that already has multiple major players. (38:05)

This is not not everyone agrees with this. Some people say look for a small market and like expand it. Like I think that's kind of I think I think in zero to one Peter Thiel kind of talks about this. That that certainly can work. But I think a lot of drop boxes like a great example. A lot of famous investors, I won't name passed on drop box at a two million dollar valuation saying the space is too crowded. But when you see a huge market that's fragmented with like lots of like companies that many were public already doing the same kind of thing just badly. If you can make a 10x better product, like you can really win. And there's room for lots of winners, right? Boxes public. They, you know, they started like roughly in the same like era. You know, drop box is doing really, really well. I think they just hit a billion dollar run rate or something. And there's room for lots of winners in huge markets. And so I, I, I'm guilty of following like trends and like saying like, oh, YouTube is hot. Let's do like YouTube rex. Like, oh, like, it's Cruz. Rex do that. Yeah. Don't don't do that. Because that that's rarely how the best companies were formed. Like when Stripe started, everyone said, why another payments company, everyone already has a payment system, but they made a 10x better product that developers loved. They found a niche of people who loved what they were doing, developer friendly. And they signed merchandise on the fly. That was huge. Uh, Dropbox had like the same kind of reaction. Um, Airbnb.

How do you pick right or wrong in tech? You need money. (39:30)

I mean, uh, as Cybe posted, like, you know, all the famous investors passed on that. Like, cause they didn't really, well, they didn't necessarily understand the problem. Like, you know, why would I rent out the living room of my brownstone in Manhattan? I don't, you know, uh, do you think it is an education problem? Because that happens with why I see a lot, right? Like there, there are people that are seemingly entering a crowded space, but in actuality, like they are going to be the winner. Right. So if you are the founder of that company, how do you educate people if you do in fact, need money from them? Like, what do you, is it, or is it just about education? I think YC has actually like done a really admirable job and just picking relentless individuals, like the Airbnb team, which was like a team that just was never going to give up. And even when they're not sure about the market or idea, they'll bet on really amazing people, uh, who, who are relentless. And I think that's one of the genius parts of YC and YYC has worked out so well. Um, I suspect nowadays, I think you kind of have to ship at least part of that 10X better product, uh, just because the application, now a days, I don't think I would even get into YC. Um, if I have flat right now, um, but cause it's much harder to get into. There's just more applications now than there were back then. And so I think if you can show some traction or some product market fit in a large market, that's always good. Um, but. In terms, I mean, I, I just think investors are, I think a lot of investors are wrong on this. Um, and I think a great way to find startup ideas is to look at the Inc 500 magazine, you know, and it shows the fastest growing startups, like in terms like revenue, like, like say like year over year or like over three years. And then just look at those markets and then see if you have found a market fit in any of them. Do you know any of those markets really well? And then if you, you know, have a secret as Peter Thiel would say, like, if you know something about like, if like, like much like the way like Drew knew that, you know, we can make a much better backup cloud storage type product like them this and like it's ridiculous. People are using USB drives for backing up stuff. Like, and that's because all the products suck, even though there are public companies in this space. Um, and that's so he just sat down and built the 10X better product. So I really like looking at the software that you use every day and seeing which ones annoy you, like which ones make you like really cringe. Um, and I always write those down, uh, because if you're using that means it's probably one of the better products or it's what people are forced to use. And if you can build the 10X better product, uh, people will switch totally. And I think paying attention to market size makes a huge difference.

Investors want a startup to feel huge in market size. (42:10)

I'm, I'm still shocked that there aren't more like not crews, local likes, but self-driving in general, like personal transportation is so massive that like there's room for like 10 of them. Yeah. Sebastian Thrun recently was, I think he was quoted saying basically roughly a self-driving like kind of like engineer type person. It's worth roughly like $10 million. Like in like an acquisition or like in like M and A. I mean, well, I mean, Cruz was 50 people and sold for a billion. But keep in mind GM stock price actually went up on the news. So like the market actually, I think, uh, viewed it viewed this positively because GM what a droid, well GM wisely noted that they were going to either become a software and technology company or kind of become a dinosaur relic. Cause I, I believe that this is true of all companies, like all companies will either become software companies or they're going to die. Um, as an investor now, do you have, uh, just a fear of choosing the right idea if you were to do a startup again? Like, are you scared of doing one or would you want to? That's such, such a great question. And I, that's okay. Um, yes, absolutely. And I actually think repeat founders are some of, that's, are actually a disadvantage in many ways because you feel this pressure to come up with some genius idea when usually the best startups are not a genius idea. They're not some like brilliant flash in the pan. It's just doing something that like Facebook, my space word existed, friends store, it already existed. But like Mark just really nailed it. He started with the colleges. He built something awesome that people loved. Uh, and so I, I think often just doing things better is like not a bad strategy. Um, but as a second time founder, I, or a third time founder, I feel a pressure to like, it's like the sophomore slump that Richard Feynman talks about in physics, where he wasn't allowed to work on small ideas anymore. He had to work on some gigantic thing, but all the best discoveries in physics came from like kind of, hey, that doesn't seem right. Like, you know, it's kind of odd, uh, that Maxwell's equations say that like, you know, speed of light is always constant. So what do you do to like actively combat that in your brain and just the people around you as well? I think you have to, uh, I almost want to say like not, not work in secret, but like I wouldn't even talk too much about my idea probably because I, it sounds so stupid, but the best, I think the best companies do sound like kind of done. Um, and also being willing to experiment, uh, with lots of kind of dumb ideas and maybe focusing on markets where there already is a so-called winner.

Just have a stupid idea, an odd one, act on it. (44:28)

Um, I think there's room for lots of winners and lots of markets. It's really tough too, because I know, I know tons of successful people that work on all these little side projects, but are embarrassed to put them out because they're just like stupid little toys and like, you know, it would be, I don't know, inappropriate or just not cool for them to put out some, like Chrome extension that they just built for themselves. And then this actually gets worse. Then you kind of get tempted to like take the money people offer you because like whatever in fundraising, you're like, okay, I'll take a couple million dollars just to like, as a seed round. But then you're suddenly almost stuck in whatever market and product that you kind of picked and you've probably picked wrong. Uh, just like we did, just like I did every time.

Financial Advice For Startups

Dont raise too much money. (45:25)

So knowing that you've picked wrong, like you kind of get stuck in it's too awkward to tell your investors that you're changing and pivoting. And so I think second time founders raised money too fast. Like I'm not going to raise money until I have strong product market fit. And I know what I'm doing. Um, and a friend of mine who actually raised money too early was just lamenting how that probably killed his second company. Man. And what about those people who were successful and then decide that they want to like create a like a lab where they have like seven startups to their own? Yeah. That's like really interesting. Right. Like Max, Max Levshin's done really well with that. I kid Yelp come out of that slide, which he sold to Google. Um, you know, I think a firm and then there's some great ones. Um, that that that model has really worked out for him. Um, I feel like he's an outlier. Yes. Um, but I don't know. Come around. Um, the other labs, I don't think I've seen be as successful. Like, I think like why commonator used to not like being called an incubator because like, uh, the most incubators haven't really worked out that well. Um, Max is a side. Um, I think it's hard to really honestly focus on that many different ideas, um, that are all in progress. I mean, landing pages are one thing because they're, because they're all the same template. You're modifying text effectively, like often, but like if you, yeah, building out having teams that are working on like six, seven different projects, it's hard to, uh, figure out that, that really strong product market fit, which is what most startups fail, most startups fail because they'd never get a strong product market fit. Agreed. Okay. So kind of like, uh, wrapping up, if you as a multi-time founder, if you were to give some advice to someone who is starting their first company, what would you tell them in terms of like, don't spend time doing this, spend time doing that? This is to a first time founder. Uh, why don't we do both? Well, like so first time and second time or whatever. Everything that's not working on your product and finding product market fit is a waste of time. Like that's the only thing that you should be doing. Uh, don't, don't worry about fundraising. Don't worry about everything else. Uh, if you, the folks who do fundraise too early, typically get into real trouble. Um, cause they never are able to get the product market fit. Um, really focus on finding that huge market. Go to, go to that Inc 5000 list, uh, find the fastest growing companies, find the market that you know really, really well, better, better than anyone else. So have founder market fit and like make it a big one that's growing and then just build a 10 X focus on building a 10 X better product in that space.