The Challenges a Repeat Founder Faces - Tikhon Bernstam

Hey guys, today we have Tea Con Burn, a multi-time YC founder. So could you just start by explaining how you first found YC?

Yeah, I actually found YC because I was on Reddit. I was in graduate school, which meant I had a lot of free time. And so I was, it read, it was super early. This is back when like a top post might have like, you know, ten points and this is like before he even had comments. And via that I found Paul Graham's essays on how to do a startup. 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 that's all done now. So it was very, like Paul Graham's essays were really the only source that I had found that kind of said that actually here's the pathway to do it and like it can be done. I was super interested in that. I applied to YC.

Oh no, like really? That's like really on a long shot. I didn't think I'd get in. And so I interviewed in Palo Alto, 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. So yeah, I dropped out of graduate school and moved to Cambridge. Then, yeah, Me Trip and Jared probably worked on Scribd for at least, well, yeah, we worked on Scribd for at least like a year and a half before we got like real traction on it. This is back in summer 2006.

And what was the initial pitch for Scribd like in the application?

Well, yeah, so what Scribd was actually like one of those pivot companies where like we applied with different ideas. Much like Reddit was actually a pivot company, we actually applied for something else. Just like food delivery stuff, really. Paul's like, "Oh yeah, I love you guys, Steven Alexis, but I hate the idea. How about this kind of thing?"

Yeah, Steve's talked about that before. Similarly, Scribd actually was the merger of Me Trip and Jared. During YC, they were working on some other projects and like it was like a Craigslist for colleges back then. Craigslist was super hot, so like everyone was trying to do. Much like nowadays, everyone's doing like Uber for X. Back then, it was Craigslist for X, glory days on the internet.

But then YouTube sold for over a billion and people thought that was insane, you know. Oh my God, Google overpaid, which is totally wrong. Then YouTube became a hot one, so we said like let's do YouTube for documents. That was literally like that big.

I mean, we'd also noticed this problem where Trip's dad, who's at the Stanford med school, was having trouble basically viewing the documents online that he wanted to read. He didn't have the right reader and sometimes I had to send my mom like a PostScript file and she'd be like, "How the hell do I open this?" People were just downloading, and then they needed to download like Acrobat or she was like, "If you want to open..."

Yeah, because back then, if you had Adobe Reader, I don't think that actually opened up PostScript files back then. 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? We started off with Flash, but we had always hoped that we could switch to HTML5, which we did much later.

So what was the YC experience like in summer '06? What was that like?

It was great! So this was back in Cambridge. Honestly, we would never have made it without that program. 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-minded people who are highly motivated and working on like the same general pathways you, and also like people who've done it before like Paul, Jessica, Y, Paul, Jay, L, Trevor, and like Robert, who were basically there to like kind of like know you guys are like that's stupid. Like, get back on course. Sometimes we would just go the wrong way for like a whole week before we'd see them.

Let me show them, and they'd say, "What the hell are you guys doing?" And they were always right, is the thing. I mean, it saved us years and the company wouldn't have worked without them, so I'll always be grateful for that. All the batches were small back then. I think Scribd's summer '06 was the second batch, so still, my best friends were the people from like the summer '05 and summer '06 batch in Cambridge. Like, that's like over a decade just because those were the only people I knew doing startups, and like they were the people I talked to.

It was great because like one day you'd think with startups, one day you think your company is gonna fail. Like, you know, you think you're getting sued or something, someone's threatening you. The next day you think you're gonna sell to Google for a huge amount, like just because some like person in M&A accidentally emails you.

Having other people going through the same thing was helpful. They were like the Twitch guys kind of working on their stuff, which took over a decade. Back then, it was Kiko which switched into Justin.tv. Having those people around, that community, and then kind of like the guidance of the partners is probably the only reason that we survived.

So how much money were you getting from YC at that point?

It was not the same as it is now. Back then, it was fixed. It was six thousand dollars per person. So overall, we took in eighteen thousand.

Congrats, that's huge!

We almost sold the company for that lid. 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 million.

How did you guys spend all that money?

Usually, we accepted people run out. But back then, we struggled. I mean, for a couple of years, I was living on savings. We were basically, I was living out of Trip's parents' house at Stanford, and like his mom was getting irritated because I kept like eating all the candy. I was subsisting on top ramen and whatever food was available in their cabinets. So Trip, Jared, and I worked for months basically out of his living room without the generosity of his parents to even let us do that.

Did you raise after YC or not?

A while back then, fundraising was very, very different than it is today. Also, the environment in Cambridge is so much different than the valleys. But back then, the mood was so gloomy and like startups are over sort of thing that like it took a really... There 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 days are oversubscribed and such, but back then, it wasn't like… I don’t think it was even like a full room, actually.

So you were just basically living off savings?

Yeah, Scribd wasn't making any. Okay, 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. I mean being a wealthy grad student, no. So having zero savings, like surely any of us because Trip had just left Harvard, and Jared dropped out of Harvard to do this. So we just really tried to make every dime count.

So how long did you work on Scribd?

Yeah, so it started like I said in 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 like more like enterprise-y, I think that I should probably go because I'm really interested in doing something in that space."

So they were like, "Okay, cool." They actually invested in my next company, which was Parse. So it was actually two of us who left. It was me and James you from Scribd. James was actually, I think, our first hire at Scribd, and so he and I were close friends.

So we left, and the very next day we were coding and working on like the prototype of like what was not Parse, it was something else.

So okay, Parse, what was that idea?

There were actually twelve, so we made twelve different landing pages. Well, because at Scribd, we would spend about one month on every idea and like build out an app and then test it. That’s kind of why it might have taken longer. With Parse, we said let's not waste a year, let's make twelve landing pages, launch them, and see if people even give us an email.

B2B products, yeah. I think B2C, it's much harder to gauge whether you have a long-term traction or not or if you're Chatroulette or something.

So yeah, we basically had twelve different pages that we launched. One was an API for companies to send gifts to like their best users because that’s Scribd. I was like, why don't we send gifts to people who uploaded like a hundred documents? It’d be nice to do that programmatically.

I don't think that even existed.

Oh, so like then we just looked if people clicked on the pricing page and if they’d sign up and put an email in. Anyone who typed in their email, we would email them being like, "Why did you sign up for this? This was a crappy landing page that we made in like two hours."

Yeah.

How were they getting to the landing page? Were you doing like outbound marketing for any of this stuff or...

Show HN was like basically—this is before Product Hunt, so it was mostly Show HN.

You were doing Show HN landing pages?

Yes. Like Show HN, this service exists.

Actually, Parse launched that way too. Parse launched as a landing page, really?

Yeah. Back then it was called Z Stack, and we didn't own the Parse.com domain, which we only got later thanks to the Stripe founders and Stripe's CTO.

Yeah, it was called Z Stack, and we launched a landing page, again, just we wanted to make sure people actually wanted this thing because we knew that from our own experience building mobile apps at Scribd 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.

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 was like kind of very—like I actually dislike X for Y pitches now.

Yeah, I am a hundred percent 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 Z Stack versus the other eleven?

It was actually talking to the users. We had talked to the users, but be clear, there was no product for any of them. Parse was more complicated. Parse is actually the merger of three independent entities.

So Ilya was a solo founder in Parse working on like a find your friends app sort of thing, which like it was very popular at a time. And Kevin wasn’t even in YC. Kevin emailed Paul and said, "Listen, I want to get back into startups. If you have anything, let me know.” Paul emails the list like, "Hey, there's this great guy, great hacker. You guys should like talk to him.”

So James and I met with Kevin and Ilya met with Kevin. We ended up all trying to work together for a couple of weeks just to see if we harmonized.

I mean, I don't advise people work with people they don't know, but hey, it worked for Twitch.

Yeah, for some people it hasn’t worked for a lot of people.

Yeah, yeah.

Okay, so what were those two ideas 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 like stuff for like normal people basically to take payments that were recurring.

I mean, we were still very much in the ideation phase where we were very happy to pivot to whatever we felt would be like the best type of like business.

And then basically we also started working on Parse and we basically launched that landing page pretty quickly into YC and we launched it on Hacker News.

Ah, it was the Show HN. It was called ZSTATCOM, I think at the time.

So what was like—the page?

It was literally a ThemeForest theme. It was like a nine-dollar ThemeForest theme that had these hot-air balloons on it. You can still buy it today. It just, it was basically Heroku for mobile. Like basically we're gonna take away the DevOps and like the backend part of it so you can just focus on like the front end, like like native, you know, code and not have to worry about thinking about like your database and all that stuff, abstracting it away, the SDKs.

Yeah, and I mean I've used the product before, but just like to be clear for everyone else who's listening, could you just give a quick explanation of what it actually became?

Yeah, yeah. So Parse is a platform that helps you make mobile applications much, much faster. We ask to make it roughly 10x faster.

So normally if you're making a mobile app, you'd have to like write all of the code that like bet the actual like DD like native client interface on the phone that the person would play with. But 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? How am I querying it?

Like, how? What happens if that server goes down? So Parse took care of that whole second part of this of the stack so that you just did the client stuff. You make up like a pretty native UI. We didn't believe much in that at the time in sort of the like HTML5 approach, which now is working better.

But like the sort of PhoneGap type of thing, like we believed that native apps at the time were like definitely superior in experience. 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 in order to make apps.

And had you guys decided that like you wanted to go through YC again?

Oh yeah, we talked to Paul almost immediately on leaving Scribd.

Yeah, and I was like, yeah, me and James have to have these ideas. We're not sure exactly which one we're gonna do. And Paul's like, "Alright, well, let’s do this again."

Really?

So okay, so you applied like kind of blind, like there was no product still?

Well, we agreed with Paul that we would focus on a company called Pipepay, which was a subscription billing service back then. Subscription billing and payments companies were super hot, like we pay, it just raised a bunch of money.

Stripe was famously doing really well, but we definitely never wanted to eat with Stripe. So we were looking for other angles inside of 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, your Heroku...

Yeah, we were Heroku for mobile.

Yeah, or I later switched to AWS for mobile, but basically like an AWS tailored for developers of mobile applications.

Okay, and so why did you want to do it a second time with YC?

Oh, 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, it's largely for the same reasons as the first time. I still don't think I know anything about startups.

The more and more I do this, the more and more I'm unconvinced how little I know. Having that circuit, having that 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 because then you suddenly get feedback.

Then every dinner, every week, you go to them and say, "Hey, I launched this new stuff, check this out." And then, you know, we bring our laptops and show what we're doing. Half the time it was stupid, and people told us that. We stopped.

Then the other half, they're like, "Well, why not like expand on this that way?" And we go, "Oh, because 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. I found Parse by going to hackathons because people were 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 like and so we were mostly focused on, can we get, are we making something that's making a few people really happy?

So we would talk to the developers like who had signed up and who started using our like beta, you know, which started, we started off just basically it's like sending data to the cloud like S3, say. 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.

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. Most of the times that I've failed in startups was basically trying to push growth before I had product-market fit.

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 end up using Parse.

But like we found people who really cared about this. Like, this makes my life much, much better. We actually talked to them and used their feedback to kind of make the product look better in the ways that like it should be better.

And I mean, we actually moved really fast. All four of us were coding and so we kept kind of launching features constantly. We got the Parse.com name thanks to Greg, the CTO of Stripe, because I asked, I was over at their office and I asked them what was your guys' second choice?

Because like Stripe is an awesome name. They're like, "Well, if Stripe didn't work, I mean, we were gonna be parsed." I was like, "That’s available!"

Did they just give it to you or something?

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. Asked them like, "Hey, we’re a couple people working on startup, you know, are you interested in selling?" Most never replied, but like Parse and Stripe owners did.

I once asked how much Stripe cost, but Parse was only 15k.

Parse.com?

It's not bad! Yeah, all things considered.

So going through YC the second time, what became valuable to you? I assumed 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 customers or like the actual users like inside of the batch where I could like talk to them, having that community because it actually gets quite lonely when you're just sitting there like coding, you know, 16 hours a day or like even if you're with the same three people every day.

It's nice to have that community of other people who are doing the same thing. The partners snacked us around a bit like, "No, no, you guys like are going the wrong way," and they were almost always right.

We got a lot of good, like it kept us honest about shipping every week, like shipping new stuff, not being embarrassed of to ship too early, which is like really, really common, especially amongst developers who just want to keep coding instead of shipping.

The partners' advice was priceless, but then a demo day, I mean, fundraising was a fad was next easier. I can't imagine the fundraising... you know, the YC demo day.

We raised, we were wildly over-subscribed but we only took 1.5. We stopped there for our seed round and like we really were able to get some of the most like so like some of the best investors and some of the most like kind of like famous like valley-type people.

It was really awesome!

Yeah, and then it was like two years, and then Facebook acquired you guys.

Yeah, something like that.

So we started Parse in 2011. Facebook acquired the company in 2013. We 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 right after demo day.

We basically went and started like raising our A because we actually thought we already had basically like enough traction to start doing that, and it actually was a fairly quick process. We raised 5.5 million from Ignition, so in total raised seven million.

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.

A lot of developers were passionate about the problem and like working on their tools that solved their own problems. So that was helpful, and being such a developer-focused brand also helped us.

YC was great for that, being able to like kind of you know post like hey, like we're hiring lined up like on Hacker News back then.

I mean, because that's always a question, like I wonder, right? Because people are looking for those jobs, but you guys are also just looking to find people.

So like what were the effective strategies for finding developers to come work on Parse?

You just made a cool product, or what?

Well, we often that we would talk to a lot of our actual users, like something that was so amazing, like engineers who were like using Parse.

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 single hire, like who’s the best person you worked with? Like who would you co-found a company with? Then we would just go to that person and ask the same question to that person.

Even if I couldn't get like that individual, I could like you just kind of 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 worked with previously.

So I think Kevin had worked with several of the Google folks previously and so like they already knew and trusted kind of like us, and we already had kind of a good friendly group that wasn't all just kind of strangers.

But that, I mean, eventually we ended up hiring everyone from like—we hired some of our best people were actually users of Parse. Like the guy who ran all our community and such was actually making Parse apps. He had just graduated.

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.

So now Parse is like shut down, right?

It is, yes. So just the other day, I think end of January, Facebook finally... So Facebook open-sourced the entire project, and now there are actually little companies that like provide Parse hosting, much like...

Oh man, really?

Yeah, much like it’s AWS for Parse.

Well, because 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. Parse is too.

So there are people who just took over the hosting part of it, and so but the Parse team to their credit, like they kept working and adding features to the open source project.

It's really, really good.

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, but this was a really graceful long, like over a year notice that we were going to be shut down, open source, did write migration tools to many startups and up just kind of like closing.

Oh for sure, yeah, that's happened.

Do you think there's another Parse coming down the pipeline? Like someone's gonna 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 you know how Apple website, like how it kind of like how Twitch has like a chat little box? They were trying to do that for everyone.

And they ended up pivoting later into doing basically a Parse again, so there and then Google about them.

So Google has their own Parse, and then Facebook had one. So you can use Firebase, I guess, or Parse hosting.

This is great actually.

Oh yeah, into it!

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 Scribd and Parse. Literally it was like the next day I just started working again.

So after many, many years, I guess I always wanted to travel; I've never done so. And so I spent about two years traveling, backpacking South America without a computer, which was great!

Yeah, and I lived in Europe for a while, did a lot of speaking at conferences, that sort of thing, and I tried to learn more about the international startup scene.

It feels like every city internationally, or a lot of them, think like, how do we build the Silicon Valley of like, you know, South America? Or how do we build this 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, like one niche. Like we're gonna be really friendly with the Bitcoin people, like we're gonna make the banks be friendly with the Bitcoin startups, and like people, you might get more people going there and not dealing with all like this.

Although, that say like drones have, you know, like with all the regulations. So you could see like a drone valley and like a Bitcoin valley.

I mean, 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 were speaking in 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.

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 Airbnb.

So you have to envision like this climate 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 international areas.

Or what do you tell people?

Um, come out here.

When I was telling folks... Yeah, I mean, I said if you can, like raising out in the valley is—I mean, like for instance, AlgoLeo was in Paris the same time I was there, and they ended up moving here.

Front tapped from Paris also moved here where FrontUp, I'm an investor in.

And so the honest truth is like I mean, I still think living and doing a start-up here is very beneficial.

And it has certain downsides, it’s very expensive here, but in terms of fundraising, that certainly helps.

Now also investors are largely averse to like non-Delaware C Corp. Like for instance, I as an investor now and like me 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?

Well, it would be a large like legal headache to think about to go have my lawyers review this and see.

Because, yeah, with the Delaware Corporate, so I actually just encourage folks to like apply to like Y Combinator or if they can't get into YC, apply to like 500 startups, whatever.

But like these programs are so perfect for people internationally, and I love what Stripe is doing with Atlas, like helping people. They're letting anyone be an entrepreneur or look around the world.

That is such an awesome, ambitious goal, solving that problem. So I think things have gotten much, much better than that when I was like back in like when I was hearing that in '14, largely due to the efforts like that, and like well, YC does a really good job of taking—there's a great company called Razorpay that I'm an investor in that’s kind of like Stripe for India.

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 too invested in like Cruise which just sold to GM, Gusto, LendUp, Checker, Optimizely, Reddit, things like that.

For me in the early stage investing, I really prime the first thing I'll look for at least is like, is there a large market? Because like without a market, it's really hard to be successful even if you build a great product.

So is there a large market? And are these founders like a really like relentless team that is like determined?

Or like, I actually have this joke question I'll sometimes 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 in like the UAE, and someone just dropped out. Do you want to give a talk?

Yeah.

And like they were kind of like the conferences that I was actually going to.

And I guess you weren't a founder at the time, but still...

Oh yeah, yeah.

But like often 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 Dru 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 really admire that.

You can kind of—I mean the reference is 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 and all?

Yes, but I kind of believe—and I'm stealing a lot of this from Marc Andreessen—that a really strong team in a really great market will eventually build the right product and like, they’ll figure it out because the market will drag the right product out of them.

Whether they—you know, whether it's kicking and screaming, like Docker came out of Docker Cloud.

You know, there's lots of ins; Twitch came out of Justin.tv. Justin.tv actually had this one vertical like gaming that was really growing, and they actually ditched the rest of it and just did the gaming vertical.

So often like good markets will actually—good growing markets will eventually steer you in the right direction.

So as an investor, have you been burned yet?

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 evaluations. Every single year I've heard this since 2005.

I remember when Optimizely's seed round was at four, and people were like, "That's so expensive! I'm never gonna pay that!"

Like, you know, now it's probably good. It's my multi-billion dollar 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 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 it like over a year to go from demo day to their series A.

So you don't have to actually rush into things at demo day. There's a lot of room in the post-seed world where you can kind of invest—like maybe I had a slightly higher valuation before the series A.

And so I've done a lot of that as well.

And how are you finding those deals?

They're often products I use or often there's things that actually solve problems that I had, like in terms of areas I focus on, I guess I should especially mention a lot of B2B and like enterprise, a lot of autonomous vehicle tech, and a lot in like marketplaces.

I'm still bullish on like—I don't think that there are enough marketplaces for all the different verticals yet.

Like for example, okay, I'm an investor in Courtesy, 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 like Genentech.

They're very—unite 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.

Much like Airbnb, like a lot of people set up with like, well, why do we need Airbnb? We already have Craigslist.

But often 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 or something like that.

Yeah, no, I think it's true. There are so many companies that are just like—we see with YC—I think Jarrod actually wrote a post about it last year, the startup zeitgeist, 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.

A lot of my investments didn't seem sexy at the time but worked out.

And so like where are the markets you think that 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 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. This is not—not everyone agrees with this. Some people say look for a small market and like expand it.

I think that's kind of... I think in Zero to One, Peter Thiel talks about this fact that that certainly can work, but I think a lot of Dropbox is like a great example.

A lot of famous investors, I won't name, passed on Dropbox at a 2 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? Box is public-based. You know, they started like roughly in the same like era. You know, Dropbox is doing really, really well.

I think they just hit a billion dollars or a run, right, or something. There's room for lots of winners in huge markets.

And so I'm guilty of following like trends and like saying like, "Oh, YouTube is hot, let's do like YouTube for X!"

Like "Oh, like don't Cruise for X, do that!"

Yeah, because that rarely is 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 an initial who loved what they were doing, developer-friendly, and they signed version IDs on the fly. That was huge.

Dropbox had like the same kind of reaction.

Everyone, I mean as SciVal posted, like you know, all the famous investors passed on that—like because 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...

Do you think it is an education problem? Because that happens with YC a lot, right?

Like 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 done a really admirable job in just picking relentless individuals.

Like the Airbnb team, which was like a team that just was never gonna give up. Even when they're not sure about the market or idea, they'll bet on really amazing people who are relentless.

And I think that's one of the genius parts of why YC has worked out so well.

I suspect nowadays, I think you kind of have to ship at least part of that 10x better product just because the application—that nowadays, I don't think I would—can get into YC.

Oh, if I have fled right now, but because 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.

But in terms—I mean, I just think investors are—well, I think a lot of investors are wrong on this.

And I think a great way to find startup ideas is to look at the Inc500 magazine, you know, and they show the fastest-growing startups, like in terms of 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 founder-market fit in any of them.

Do you know any of those markets really well?

And then if you have, you know, a secret, as Peter Thiel would say, like if you know something about like if, like much like the way Drew knew that, you know, we can make a much better backup cloud storage type product like than this, and like it’s ridiculous, people are using USB drives for backing up stuff.

Like—and that’s because all products suck even though there are public companies in this space, and that's—you know, 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.

And I always write those down 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, people will switch.

Totally!

And I think paying attention to market size makes a huge difference.

I'm still shocked that there aren’t more like, not Cruise look-alikes, but self-driving in general.

Like personal transportation is so massive that like there's room for like ten of them.

Yes, Sebastian Thrun recently was—I think he was quoted saying basically roughly a self-driving, like kind of like engineer type person is worth roughly like ten million dollars in like in like M&A.

I mean, Cruise was fifty people and sold for a billion, but keep in mind GM's stock price actually went up on the news.

So like the market actually I think viewed it positively because GM—what?

Well, GM wisely noted that they were gonna either become a software and technology company or kind of become a dinosaur relic because I believe it.

But this is true of all companies.

Like all companies will either become software companies or they're gonna die.

As an investor now, do you have 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 a great question, and I—that's—okay, yes, absolutely.

And I actually think repeat founders or something that's 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 brilliant flash in the pan.

It's just doing something that like Facebook, MySpace were existed. Friendster had already existed, but like Mark just really nailed it.

He started with colleges; he does it awesome that people loved.

And so I think often just doing things better is like not a bad strategy, but the second-time founder, I for 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 ideas that don't seem right.

Like, you know, it's kind of odd that Maxwell's equations say that like, you know, the 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—I almost want to say like now not work in secret, but like I wouldn't even talk too much about my idea, probably because, I’m so stupid.

But the best—I think the best companies do sound like kind of dumb.

And also being willing to experiment with lots of kind of dumb ideas and maybe focusing on markets where there already is the so-called winner.

I think there’s room for lots of winners and lots of markets.

It's really tough because I know I knew 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 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 just like we did, just like I did every time.

So knowing that you've picked wrong, like you kind of get stuck in, and it’s too awkward to tell your investors that you're changing and pivoting.

I think second-time founders raise money too fast, but I'm not gonna raise money until I have strong product-market fit, and I know what I'm doing.

A friend of mine who actually raised money too early was just lamenting how I probably killed his second company, man.

And what about those people who were successful and then decided that they want to like create a lab where they have like seven startups and then do their own?

That's like really interesting, right?

Like Max, Max's legends done really well with that. I kid Yelp come out of that slide, which he sold to Google.

You know, I think a firm and then there's some great ones that that model's really worked out for him.

Feel like he's an outlier!

Yes, but I don't know, it's Canberra. The other labs, I don't think I've seen be as successful.

Like I think like Y Combinator used to not like being called an incubator because like most incubators haven’t really worked out that well.

Max's aside, I think it's hard to really honestly focus on that many different ideas that are all in progress.

I mean landing pages are one thing, because they're all the same template, you're modifying text effectively.

Often, but like if you’re building out, having teams that are working on like six, seven different projects, it’s hard to figure out that really strong product market fit, which is what most startups fail, let’s start sale because they never get strong product market fit.

Agreed!

Okay, so kind of like 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 for a first-time founder.

Why don't we do both?

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.

Look, it’s the only thing that you should be doing.

Don't worry about fundraising; don't worry about everything else. If you know, the folks who do fundraise too early typically get into real trouble because they never are able to get the product-market fit.

Really focus on finding that huge market. Go to that Inc 5000 list. Find the fastest-growing companies. Find a market that you know really, really well, but 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 10x. Focus on building a 10x better product in that space.