Kevin Hale - How to Evaluate Startup Ideas

Okay, so this is how to evaluate startup ideas. This is actually a new set of content that we've developed based on a lot of feedback that we saw from the last startup school. What we noticed is a lot of people's challenges. So last year's curriculum actually had a lot of content that ended up being, when we looked at the data for who's participating in startup school, was like, “Oh, this is much more advanced, it's much further along.”

A lot of people, for instance, like, “I had no idea,” or, “I have too many ideas that they don't know which one to pursue.” It was a main reason why a lot of people are only able to work on their startup sometimes part-time. Yes, they might be stuck, but that resources, but they didn't have conviction. They didn't know, like, “Oh, what would I have to believe in order to say, like, I want to quit my job?”

This is also a really great sort of skill to sort of have because if you are realizing you need to pivot, how do you evaluate if you need to do that? And then also, if you're pivoting to something else, like how do you evaluate whether something is worth going to? If you already have a launched company, then you might have problems, like, “Why isn't this growing?” or “How do I improve it?” Evaluating your startup, especially in a way that sort of ventures evaluate startup ideas, we find it's going to be really, really useful.

There's just a myth about Y Combinator: People think YC only funds companies who have tons and tons of traction, right? That nowadays, the only way to get into YC is you have to have lots of revenue or tons of users already. Part of that has to do with, like, the press and then the exposure of the companies that make it to demo day. Those are the stories you tend to hear. But that being said, there are lots of great examples of companies who actually got accepted just with an idea.

So, Zenefits is a really good classic one. Parker was a single non-technical founder who pitched an idea to YC, and he got in that way. We also had Reddit, so technically they were forced to pivot right away. They hadn't written a single line of code. And then my experience in YC is actually exactly the same. So when I founded Wafu and we entered that second cohort, we also had not written a single line of code. PG had invested in us at just the idea stage.

I feel fully committed now as a partner to always be trying to find and dedicate time and energy to funding companies that are just at the idea stage. A lot of our efforts here for working on startup school is to help us help you work on how to talk and think about your startup. If we can fix that, it can help you sort of inspire us to be like, “Oh yeah, I can believe in what you're doing.”

A lot of times, founders get in the way when they're telling their narrative. So how can I predict if an investor will like my ideas? That's ultimately what we're trying to figure out, and the answer is really easy. For us at YC, the definition of a start-up is a company that is designed or created to try to grow very quickly. So if you're not trying to build a company that grows very, very fast, then you're just building a normal company. It's a small business, and there's nothing wrong with that. But these companies are the ones that investors are interested in.

If you're hoping to build something that will have tons of users, that will have huge valuations, that'll be able to attract venture funding, then the evidence that we want is evidence that shows that your company can grow quickly. I have a confession to make: If you ever meet me or talk to me about your startup and kind of recruiting, or at one of these events, I will never tell you that I do not like your idea.

There's a reason for that: It's not to be nice to you, it's not to blow smoke up your ass. I learned this way of thinking from Paul Graham. He says, like, “Look, the average investor or a lot of investors that you see when you talk to them about your idea, it feels like they’re trying to poke holes in your idea. They're trying to figure out what's wrong with it.” And then I like trying to show some—not just how smart they are and...