At last week’s webinar, we were asked to interview Geoff Ralston, president of Y Combinator, about the past, present and future of the popular accelerator program. During our 20-minute long conversation, we covered several topics, including why Ralston — a longtime YC partner — decided to step down three years after assuming the role of president (Gary Tan assumed the role in January). We also discussed where YC’s investment capital is coming from and whether, given the market slowdown, YC is changing its terms to reflect that slowdown.
Most of the discussion is here for the sake of length and clarity. You can watch the longer conversation here or just listen.
TC: Let’s start with the news [that] You just left Y Combinator. You were there for three years. It was a little surprising. [that you are stepping away]. why now
GR: I will count my time at YC since 2006 after I left Yahwan [and] He began to meet with Paul [Graham] And the company, so of course, almost 16 years. And I have been an employee of YC since 2011. So more than ten years have passed. And, you know, I felt an urgency inside me that it was time for a change. And while I love YC, I think you have to do that justice when you hear that. I love what I do. I think it’s an important job. I think it’s important. We are very mission driven. We think entrepreneurship is important and makes a real positive difference in the world. And I love working with founders. It’s amazing. i like this. But it was just time to do something different. So I’m leaving.
TC: YC went from a group of 12 or 18 people to about 400 founders last summer, before shrinking a bit. Launching startups is infinitely scalable so tell me about it.
GR: I’ve presented what some people think is outlandish about how many companies we can offer. It has never been infinite. It weighs a lot. In the United States and around the world, there is an extraordinary opportunity for success for entrepreneurs and founders in all demographics. At first we were scratching the surface.
One of the main things YC has done is to democratize the idea of entrepreneurship, to open it up to different people. Originally the idea was to make it open to technologists, hackers. That was really an opening to entrepreneurship for people who didn’t have access. And we continue to this day. As a result, our collections continue to grow. It is supply and demand. There is a need for entrepreneurship.
TC: Sam Altman, your predecessor as president, once said there were five ways YC was truly innovative, including allowing anyone in the world to apply to the program, but you had to get a warm welcome from VCs.
left. They were truly a turning point in how people thought about entrepreneurship.
I honestly don’t know at this point how YC is actually set up. You have a contingency fund [for later-stage investments]. Where is the money? [for these new cohorts] coming? Is YC a holding company where investors own shares in the holding company? Or does it raise money very, very quietly?
We collect money, and we do it rather quietly. It’s kind of like our internal sausage making, and it’s not that useful to talk about. We have improved over time. Originally, YC was funded solely by Paul and company. And then, we took on the nature of most VCs in terms of funding, where we have limited partners that we raise money with relatively regularly. And we have a number of funds where those LPs put their money. In that sense, we look like a regular VC.
Are these evergreen funds?
They are not.
Do you think many students are welcome to invest? Virtuous cycle and all?
yes. Sam, maybe one of the innovations that you talked about when you talked about these five innovations is that we think of the people who go through Y Combinator as alumni and we’ve created this community of founders. If that tight-knit community can reinvest the success they’ve had in YC, it will bind us all together even more.
Regarding that community, I always wondered if there was a point of separation. I know that a founder will release a product and many YC students will happily test it or buy it for example. But when you’re dealing with thousands of groups like you are at this point, I wonder how you can keep your graduates from getting overwhelmed.
The best answer to that is we have great software. We consider ourselves more of a software platform than anything else. We were all software engineers. Paul has a PhD in Computer Science. Sam was a software engineer. I am a software engineer. My replacement Gary Tan is a software engineer. So we take a software approach to creating tools and tools that bring our companies and founders together. In fact, Gary developed the community software that we still use at YC.
You recently returned your room rate.
It’s a new world, isn’t it? It changed in two fundamental ways, which made us reduce the size of our team a bit. One is that the epidemic is coming to an end, and we are physically more, and it is difficult to physically measure if it is imaginary than we were from March 2020 to winter 2022. The second thing is that the economy is doing things differently than in 2021, so it’s really important for us to fund those that have a better chance of surviving and thriving in a more difficult economic environment.
Will the terms change? Terms are now changing across the board.
Not in a short time, okay. I mean, over the years, we’ve changed the contracts we give to YC companies and maybe recently we’ve changed the amount of funding we’ve given to each company from $125,000 to $500,000. That will last for a while. As we head into stormy economic weather, we’re excited that every YC company starting with as little as $500,000 has a better chance of making it to the other side. Be the other side. There is always another side.
I read a piece this morning with some VCs who might actually be next year; Let’s hope.
I think the one person on the previous panel that no one really knows. And the truth is, no one knows. But there is reason to believe that we may have a relatively soft landing, that we may have a recession but it probably won’t last that long. There are very good employment statistics and bad inflation and we will see how those balance out.
This summer, I chaired YC’s demo day and TechCrunch coverage of the topic [of our analysis piece] “Is YC becoming a fight club?” It was. You had a lot of companies that were very similar, at the same level, in the same region, that seemed to be solving the same problems. Does YC feel the need to bet as much on promising entrepreneurs as possible and see who succeeds?
I do not know. Fight Club shows complacency among its companies, and that happens occasionally in our society. Even when companies are on the same page, it feels like we’re all fighting the same fight. Look, now we have supported more than 4000 companies. So it’s inevitable that people will be in the same or similar position, it’s just, it doesn’t matter, it happens.
Especially in the last two episodes there was a lot of fintech. I don’t see many consumer startups. I’m wondering if you’re following the creator trend and YC is dipping its toe into it.
We are run by founders who apply. We say rarely: we take 20 consumer businesses, 100 b2b Saas. [teams] Unfortunately, b2b SaaS has become the biggest part of teams for the same reason that Willie Horton was robbing banks for a while. [business customers] Take the money. If you want to convince consumers to spend money, when you offer a product, it’s a little harder than companies who want to spend money. [in order to] Have a proven business relationship with you.
Has the application process changed over time? I know that once a 45 minute long interview was cut down to 10 minutes. As Sam once said, there is not much data, that is [the interview process] It’s actually a way for YC to understand who can tell a story and he says it’s very clear very quickly.
The way our application process works hasn’t changed much over time. There is an online application. It’s free, so anyone who wants to apply for YC should be. Going through and completing the set of questions we ask beginners is very helpful and will take a few hours. There’s also a short video introducing just the founders. After the applications come in, we review all the applications, evaluate each one, and sort through a batch of 20,000 applications. Then we select a certain number for the interview. And we will have a 10 minute interview with the company of our choice. And based on that interview, we will select them for the team.
Sorry to make you a Silicon Valley rep here, but you’re in California, just like me. You wonder what is going on there. [as a tech hub]? A fairly large percentage of your summer class is in San Francisco, something like 25% 30%.
In fact, it is higher than that. For us, it’s a dual question of how we get out of the pandemic, and businesses everywhere are grappling with that question as a company. In the year We became 100% virtual in March 2020. Like almost everyone else, he stayed that way for two years. And we’re exploring what YC will look like as a company in 2022, 2023, and beyond. The good news for me is the cart problem. But we opened another office in San Francisco, and I recently did a straw poll asking how often YC employees come into the office, and the average was about 1.5 days. So we’re almost a remote, virtual organization anymore
A related question is what do our collections look like? I mentioned that in the summer of 2022 we [returned to] In person [meaning] Organs in the body. We had a retreat at the beginning of the cohort, weekly meetings during the cohort, and organized an alumni event at the end of the cohort, and we continue to work on how ‘in-person’ we are at each level. Bring back and how much imagination.
We learned a lot during the pandemic about what works. In fact, we were able to spend more time with the founders, because the working hours over Zoom are efficient and effective. So we made them more. And through tools like Slack and WhatsApp, and in some ways we connect with our founders even though we’re not in person, these bring us closer. So we’re trying to find a happy medium, we’re trying to get the best of both worlds to spend that kind of quality time helping the founders and also, you know, meeting them in person, giving them a hug when they want it. Those things are actually extremely important.
