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What I Wish Someone Had Told Me

2023-12-21 22:44:25

Optimism, obsession, self-belief, raw horsepower and personal connections are how things get started. Cohesive teams, the right combination of calmness and urgency, and unreasonable commitment are how things get finished. Long-term orientation is in short supply; try not to worry about what people think in the short term, which will get easier over time. It is easier for a team to do a hard thing that really matters than to do an easy thing that doesn’t really matter; audacious ideas motivate people. Incentives are superpowers; set them carefully. Concentrate your resources on a small number of high-conviction bets; this is easy to say but evidently hard to do. You can delete more stuff than you think. Communicate clearly and concisely. Fight bullshit and bureaucracy every time you see it and get other people to fight it too. Do not let the org chart get in the way of people working productively together. Outcomes are what count; don’t let good process excuse bad results. Spend more time recruiting. Take risks on high-potential people with a fast rate of improvement. Look for evidence of getting stuff done in addition to intelligence. Superstars are even more valuable than they seem, but you have to evaluate people on their net impact on the performance of the organization. Fast iteration can make up for a lot; it’s usually ok to be wrong if you iterate quickly. Plans should be measured in decades, execution should be measured in weeks. Don’t fight the business equivalent of the laws of physics. Inspiration is perishable and life goes by fast. Inaction is a particularly insidious type of risk. Scale often has surprising emergent properties. Compounding exponentials are magic. In particular, you really want to build a business that gets a compounding advantage with scale. Get back up and keep going. Working with great people is one of the best parts of life.

Helion Needs You

2022-07-13 15:47:32

Helion has been progressing even faster than I expected and is on pace in 2024 to 1) demonstrate Q > 1 fusion and 2) resolve all questions needed to design a mass-producible fusion generator. The goals of the company are quite ambitious—clean, continuous energy for 1 cent per kilowatt-hour, and the ability to manufacture enough power plants to satisfy the current electrical demand of earth in a ten year period. If both things happen, it will transform the world. Abundant, clean, and radically inexpensive energy will elevate the quality of life for all of us—think about how much the cost of energy factors into what we do and use. Also, electricity at this price will allow us to do things like efficiently capture carbon (so although we’ll still rely on gasoline for awhile, it’ll be ok). Although Helion’s scientific progress of the past 8 years is phenomenal and necessary, it is not sufficient to rapidly get to this new energy economy. Helion now needs to figure out how to engineer machines that don’t break, how to build a factory and supply chain capable of manufacturing a machine every day, how to work with power grids and governments around the world, and more. The biggest input to the degree and speed of success at the company is now the talent of the people who join the team. Here are a few of the most critical jobs, but please don’t let the lack of a perfect fit deter you from applying. Electrical Engineer, Low Voltage: https://boards.greenhouse.io/helionenergy/jobs/4044506005 Electrical Engineer, Pulsed Power: https://boards.greenhouse.io/helionenergy/jobs/4044510005 Mechanical Engineer, Generator Systems: https://boards.greenhouse.io/helionenergy/jobs/4044522005 Manager of Mechanical Engineering: https://boards.greenhouse.io/helionenergy/jobs/4044521005 (All current jobs: https://www.helionenergy.com/careers/)

DALL•E 2

2022-04-06 18:15:13

Today we did a research launch of DALL•E 2, a new AI tool that can create and edit images from natural language instructions. Most importantly, we hope people love the tool and find it useful. For me, it’s the most delightful thing to play with we’ve created so far. I find it to be creativity-enhancing, helpful for many different situations, and fun in a way I haven’t felt from technology in a while. But I also think it’s noteworthy for a few reasons: 1) This is another example of what I think is going to be a new computer interface trend: you say what you want in natural language or with contextual clues, and the computer does it. We offer this for code and now image generation; both of these will get a lot better. But the same trend will happen in new ways until eventually it works for complex tasks—we can imagine an “AI office worker” that takes requests in natural language like a human does. 2) It sure does seem to “understand” concepts at many levels and how they relate to each other in sophisticated ways. 3) Copilot is a tool that helps coders be more productive, but still is very far from being able to create a full program. DALL•E 2 is a tool that will help artists and illustrators be more creative, but it can also create a “complete work”. This may be an early example of the impact AI on labor markets. Although I firmly believe AI will create lots of new jobs, and make many existing jobs much better by doing the boring bits well, I think it’s important to be honest that it’s increasingly going to make some jobs not very relevant (like technology frequently does). 4) It’s a reminder that predictions about AI are very difficult to make. A decade ago, the conventional wisdom was that AI would first impact physical labor, and then cognitive labor, and then maybe someday it could do creative work. It now looks like it’s going to go in the opposite order. 5) It’s an example of a world in which good ideas are the limit for what we can do, not specific skills. 6) Although the upsides are great, the model is powerful enough that it's easy to imagine the downsides. Hopefully this summer, we’ll do a product launch and people will be able to use it for all sorts of things. We wanted to start with a research launch to figure out how to minimize the downsides in collaboration with a larger group of researchers and artists, and to give people some time to adapt to the change—in general, we are believers in incremental deployment strategies. (Obviously the world already has Photoshop and we already know that images can be manipulated, for good and bad.) (A robot hand drawing, by DALL•E)

Helion

2021-11-05 13:39:16

I’m delighted to be investing more in Helion. Helion is by far the most promising approach to fusion I’ve seen. David and Chris are two of the most impressive founders and builders (in the sense of building fusion machines, in addition to building companies!) I have ever met, and they have done something remarkable. When I first invested in them back in 2014, I was struck by the thoughtfulness of their plans about the scientific approach, the system design, cost optimizations, and the fuel cycle. And now, with a tiny fraction of the money spent on other fusion efforts but the culture of a startup, they and their team have built a generator that produces electricity. Helion has a clear path to net electricity by 2024, and has a long-term goal of delivering electricity for 1 cent per kilowatt-hour. (!) If this all works as we hope, we may have a path out of the climate crisis. Even though there are a lot of emissions that don’t come from electrical generation, we’d be able to use abundant energy to capture carbon and other greenhouses gases. And if we have much cheaper energy than ever before, we can do things that are difficult to imagine today. The cost of energy is one of the fundamental inputs in the costs of so much else; dramatically cheaper energy will lead to dramatically better quality of life for many people.

The Strength of Being Misunderstood

2020-12-01 18:56:39

A founder recently asked me how to stop caring what other people think. I didn’t have an answer, and after reflecting on it more, I think it's the wrong question. Almost everyone cares what someone thinks (though caring what everyone thinks is definitely a mistake), and it's probably important. Caring too much makes you a sheep. But you need to be at least a little in tune with others to do something useful for them. It seems like there are two degrees of freedom: you can choose the people whose opinions you care about (and on what subjects), and you can choose the timescale you care about them on. Most people figure out the former [1] but the latter doesn’t seem to get much attention. The most impressive people I know care a lot about what people think, even people whose opinions they really shouldn’t value (a surprising numbers of them do something like keeping a folder of screenshots of tweets from haters). But what makes them unusual is that they generally care about other people’s opinions on a very long time horizon—as long as the history books get it right, they take some pride in letting the newspapers get it wrong. You should trade being short-term low-status for being long-term high-status, which most people seem unwilling to do. A common way this happens is by eventually being right about an important but deeply non-consensus bet. But there are lots of other ways–the key observation is that as long as you are right, being misunderstood by most people is a strength not a weakness. You and a small group of rebels get the space to solve an important problem that might otherwise not get solved. [1] In the memorable words of Coco Chanel, “I don’t care what you think about me. I don’t think about you at all.”

PG and Jessica

2020-09-25 14:45:50

A lot of people want to replicate YC in some other industry or some other place or with some other strategy. In general, people seem to assume that: 1) although there was some degree of mystery or luck about how YC got going, it can’t be that hard, and 2) if you can get it off the ground, the network effects are self-sustaining. More YC-like things are good for the world; I generally try to be helpful. But almost none of them work. People are right about the self-sustaining part, but they can’t figure out how to get something going. The entire secret to YC getting going was PG and Jessica—there was no other magic trick. A few times a year, I end up in a conversation at a party where someone tells a story about how much PG changed their life—people speak with more gratitude than they do towards pretty much anyone else. Then everyone else agrees, YC founders and otherwise (non-YC founders might talk about an impactful essay or getting hired at a YC company). Jessica still sadly doesn’t get nearly the same degree of public credit, but the people who were around the early days of YC know the real story. What did they do? They took bets on unknown people and believed in them more than anyone had before. They set strong norms and fought back hard against bad behavior towards YC founders. They trusted their own convictions, were willing to do things their way, and were willing to be disliked by the existing power structures. They focused on the most important things, they worked hard, and they spent a huge amount of time 1:1 with people. They understood the value of community and long-term orientation. When YC was very small, it felt like a family. Perhaps most importantly, they built an ecosystem (thanks to Joe Gebbia for pointing this out). This is easy to talk about but hard to do, because it requires not being greedy. YC has left a lot of money on the table; other people have made more money from the ecosystem than YC has itself. This has cemented YC’s place—the benefits to the partners, alumni, current batch founders, Hacker News readers, Demo Day investors, and everyone else around YC is a huge part of what makes it work. I am not sure if any of this is particularly useful advice—none of it sounds that hard, and yet in the 15 years since, it hasn’t been close to replicated. But it seems worth trying. I am pretty sure no one has had a bigger total impact on the careers of people in the startup industry over that time period than the two of them.

Researchers and Founders

2020-06-19 17:39:12

I spent many years working with founders and now I work with researchers. Although there are always individual exceptions, on average it’s surprising to me how different the best people in these groups are (including in some qualities that I had assumed were present in great people everywhere, like very high levels of self-belief). So I’ve been thinking about the ways they’re the same, because maybe there is something to learn about qualities of really effective people in general. The best people in both groups spend a lot of time reflecting on some version of the Hamming question—"what are the most important problems in your field, and why aren’t you working on them?” In general, no one reflects on this question enough, but the best people do it the most, and have the best ‘problem taste’, which is some combination of learning to think independently, reason about the future, and identify attack vectors. (This from John Schulman is worth reading: http://joschu.net/blog/opinionated-guide-ml-research.html). They have a laser focus on the next step in front of them combined with long-term vision. Most people only have one or the other. They are extremely persistent and willing to work hard. As far as I can tell, there is no high-probability way to be very successful without this, and you should be suspicious of people who tell you otherwise unless you’d be happy having their career (and be especially suspicious if they worked hard themselves). They have a bias towards action and trying things, and they’re clear-eyed and honest about what is working and what isn’t (importantly, this goes both ways—I’m amazed by how many people will see something working and then not pursue it). They are creative idea-generators—a lot of the ideas may be terrible, but there is never a shortage. They really value autonomy and have a hard time with rules that they don’t think make sense. They are definitely not lemmings. Their motivations are often more complex than they seem—specifically, they are frequently very driven by genuine curiosity.

Project Covalence

2020-06-16 17:08:44

Almost every company and non-profit working on COVID-19 that I offered to help asked for support with clinical trials—for companies focusing on developing novel drugs, vaccines, and diagnostics, rapidly spinning up trials is one of their biggest bottlenecks. Science remains the only way out of the COVID-19 crisis. Dramatically improving clinical trials, which are usually time-consuming and cost tens to hundreds of millions of dollars, is one of the highest-leverage ways to get out of it faster. The goal of this project, in collaboration with TrialSpark and Dr. Mark Fishman, is to offer much better clinical trial support to COVID-19 projects than anything that currently exists. Project Covalence’s platform, powered by TrialSpark, is uniquely optimized to support COVID-19 trials, which are ideally run in community settings or at the patient’s home to reduce the burden placed on hospitals and health systems. Project Covalence is well-positioned to tackle the operational and logistical challenges involved in launching such trials, and supports trial execution, 21 CFR Part 11 compliant remote data collection, telemedicine, biostatistics, sample kits for at-home specimen collection, and protocol writing. Researchers across academia and industry can leverage this shared infrastructure to rapidly launch their clinical trials. To facilitate coordination between studies, we will also be creating master protocols for platform studies to enable shared control arms and adaptive trial designs. If you’re interested in getting involved or have a trial that needs support, please get in touch at [email protected] or visit www.projectcovalence.com.

Idea Generation

2020-05-28 19:12:40

The most common question prospective startup founders ask is how to get ideas for startups. The second most common question is if you have any ideas for their startup. But giving founders an idea almost always doesn’t work. Having ideas is among the most important qualities for a startup founder to have—you will need to generate lots of new ideas in the course of running a startup. YC once tried an experiment of funding seemingly good founders with no ideas. I think every company in this no-idea track failed. It turns out that good founders have lots of ideas about everything, so if you want to be a founder and can’t get an idea for a company, you should probably work on getting good at idea generation first. How do you do that? It’s important to be in the right kind of environment, and around the right kind of people. You want to be around people who have a good feel for the future, will entertain improbable plans, are optimistic, are smart in a creative way, and have a very high idea flux. These sorts of people tend to think without the constraints most people have, not have a lot of filters, and not care too much what other people think. The best ideas are fragile; most people don’t even start talking about them at all because they sound silly. Perhaps most of all, you want to be around people who don’t make you feel stupid for mentioning a bad idea, and who certainly never feel stupid for doing so themselves. Stay away from people who are world-weary and belittle your ambitions. Unfortunately, this is most of the world. But they hold on to the past, and you want to live in the future. You want to be able to project yourself 20 years into the future, and then think backwards from there. Trust yourself—20 years is a long time; it’s ok if your ideas about it seem pretty radical. Another way to do this is to think about the most important tectonic shifts happening right now. How is the world changing in fundamental ways? Can you identify a leading edge of change and an opportunity that it unlocks? The mobile phone explosion from 2008-2012 is the most recent significant example of this—we are overdue for another! In such a tectonic shift, the world changes so fast that the big incumbents usually get beaten by fast-moving and focused startups. (By the way, it’s useful to get good at differentiating between real trends and fake trends. A key differentiator is if the new platform is used a lot by a small number of people, or used a little by a lot of people.) Any time you can think of something that is possible this year and wasn’t possible last year, you should pay attention. You may have the seed of a great startup idea. This is especially true if next year will be too late. When you can say “I am sure this is going to happen, I’m just not sure if we’ll be the ones to do it”, that’s a good sign. Uber was like this for me—after the first time I used it, it was clear we weren’t going to be calling cabs for that much longer, but I wasn’t sure that Uber was going to win the space. A good question to ask yourself early in the process of thinking about an idea is “could this be huge if it worked?” There are many good ideas in the world, but few of them have the inherent advantages that can make a startup massively successful. Most businesses don’t generate a valuable accumulating advantage as they scale. Think early about why an idea might have that property. It’s obvious for Facebook or Airbnb, but it often exists in more subtle ways. It’s also important to think about what you’re well-suited for. This is hard to do with pure introspection; ideally you can ask a mentor or some people you’ve worked with what you’re particularly good at. I’ve come to believe that founder/company fit is as important as product/market fit. Finally, a good test for an idea is if you can articulate why most people think it’s a bad idea, but you understand what makes it good. This is from my notes for a talk I gave at a YC event in China in 2018. Thanks to Eric Migicovsky for encouraging me to post it! I wrote it when I thought mostly about startups; now I think mostly about AI development. I am struck by how much of it applies, particularly paragraphs 5-9.

Please Fund More Science

2020-03-30 17:46:36

Experts on the COVID-19 pandemic seem to think there are three ways out—that is, for life, health, and the economy to return roughly to normal. Either we get a vaccine good enough that R0 for the world goes below 1, a good enough treatment that people no longer need to be afraid, or we develop a great culture of testing, contract tracing, masks, and isolation. I wish that the federal government were doing much more—it would be great to see even a few percent of the recent stimulus bill go to funding R+D. But they don’t seem to be funding enough science, and although I think concerns about the private sector and philanthropy doing what the government is supposed to be doing are somewhat valid, there isn’t a great alternative right now. On the positive side, I have never seen a field focused on one problem with such ferocity before. The response of biotech companies and research labs is amazing, and the speed they are operating at seems to have increased by more than 10x. It’s the best of the spirit of innovation, and it’s inspiring to see what these companies and research labs are doing. Scientists can get us out of this. What they need are money and connections. Investors and donors—this is where we can help. Please consider shifting some of your focus and capital to scientific efforts addressing the pandemic. (And future pandemics too—I think this will be a before-and-after moment in the world, and until we can defend against new viruses quickly, things are going to be different.) The learning curve is quick, and there are a lot of experts willing to help you with diligence. It feels good to do something that might be useful, it’s interesting to do something totally new, and it will make you more optimistic. If you make it known to your network that you want to fund efforts working on COVID-19, you’ll get flooded with opportunities. And it’s always good to invest where the best founders are congregating.

Funding for COVID-19 Projects

2020-03-15 16:31:23

I’m trying to fund startups/projects helping with COVID-19, because it’s basically the one thing I know how to do that can help. I think we will soon have enough testing capacity, so now I’d like to start funding more startups working on: Producing a lot of ventilators or masks/gowns very quickly. This will require a lot of repurposing and creativity but thankfully is an engineering problem not a scientific ones. Screening existing drugs for effectiveness. Novel approaches to vaccines (i.e., not doing what the big pharma companies are already doing). Novel therapeutics that the big pharma companies are unlikely to work on. We tried this public spreadsheet but it didn't work that well; please email me instead. Also, if anyone knows of a contract research company that can run a viral challenge against SARS-CoV-2 in a humanized ACE2 animal model, that would help a startup I’m working with. Please reach out! And of course, I think the best thing to do is still to get people to stay home.

The Virus

2020-03-07 18:58:55

Although I still hope things will go differently, the experts I’ve spoken to think we are likely to face a global tragedy—hundreds of thousands of deaths from Covid-19. I hope that society views this as a warning for the future. Covid-19 is bad, but only a warm-up. I think it’s unlikely that this is the worst new pandemic (human-created or otherwise) we’ll see in our lifetimes. We need to be ready to deal with it much better next time. In the meantime, young healthy people should try to avoid getting Covid-19 for as long as possible. It’s true that it doesn’t seem to be very bad for young people, but more people getting it—particularly people who don’t get sick enough to stay home—will accelerate the spread, and this virus seems quite bad for old people and people with pre-existing conditions. I expect society will shift to a new normal pretty fast. Some of these elements—e.g., much less business travel, much less handshaking, much more handwashing—I expect to just stick. Some others—e.g., people working from home all of the time—I expect to not stick. The economic disruption is still probably under-appreciated and will remind us that our systems are more fragile than we think. For example, I do not think the recent plunge in US Treasury yields is explained by Covid-19 alone, but rather a reminder of cascading effects that can happen in a complex system.

Hard Startups

2020-02-26 18:28:47

The most counterintuitive secret about startups is that it’s often easier to succeed with a hard startup than an easy one. A hard startup requires a lot more money, time, coordination, or technological development than most startups. A good hard startup is one that will be valuable if it works (not all hard problems are worth solving!). I remember when Instagram started to get really popular—it felt like you couldn’t go a day without hearing about another photo sharing startup. That year, probably over 1,000 photo sharing startups were funded, while there were fewer than ten nuclear fusion startups in existence. Easy startups are easy to start but hard to make successful. The most precious commodity in the startup ecosystem right now is talented people, and for the most part talented people want to work on something they find meaningful. A startup eventually has to get a lot of people to join its quest. It’s usually reasonably easy to get the first five or ten people to join—you can offer large equity grants and areas of responsibility. But eventually, what you have to recruit with are the mission of the company, the likelihood of massive success, and the quality of the people there. [1] Few recruiting messages are as powerful (when true) as “the world needs this, it won’t happen any time soon if we don’t do it, and we are much less likely to succeed if you don’t join.” There is a derivative of the Peter Principle at play here—your startup will rise to the level where it can no longer attract enough talented people. (This sometimes holds true for careers too—the limiting factor for many careers eventually becomes how many talented people you know and can get to work with you.) An easy startup is a headwind; a hard startup is a tailwind. If people care about your success because you seem committed to doing something significant, it’s a background force helping you with hiring, advice, partnerships, fundraising, etc. Part of the magic of Silicon Valley is that people default to taking you seriously if you’re willing to be serious—they’ve learned it’s a very expensive mistake, in aggregate, not to. If you want to start a company working on a better way to build homes, gene editing, artificial general intelligence, a new education system, or carbon sequestration, you may actually be able to get it funded, even if you don’t have a degree or much experience. Let yourself become more ambitious—figure out the most interesting version of where what you’re working on could go. Then talk about that big vision and work relentlessly towards it, but always have a reasonable next step. You don’t want step one to be incorporating the company and step two to be going to Mars. Be willing to make a very long-term commitment to what you’re doing. Most people aren’t, which is part of the reason they pick “easy” startups. In a world of compounding advantages where most people are operating on a 3 year timeframe and you’re operating on a 10 year timeframe, you’ll have a very large edge. Thanks to Luke Miles for reviewing drafts of this. [1] Another solution to this problem is to think about startups that can become quite successful with less than ten people. As compensation packages from the giant tech companies continue to increase, I suspect this will become a trend.

How To Invest In Startups

2020-01-13 16:41:14

There is a lot of advice about how to be a good startup founder. But there isn’t very much about how to be a good startup investor. Before going any further, I should point out that this is a particularly hard time to invest in startups—it’s easier right now to be a capital-taker than a capital-giver. It seems that more people want to be investors than founders, and that there’s an apparent never-ending flow of capital looking for access to startups. The law of supply and demand has done its thing. Valuations have risen, and the best investment opportunities are flooded with interest. As a friend of mine recently observed, “it’s much easier to get LPs to give you money for your seed fund than it is to get a meaningful allocation in a ‘hot deal’”. That said, to do well as an investor, you need to do three things: get access to good investment opportunities, make good decisions about what to invest in, and get the companies you want to invest in to choose you as an investor. That’s it! You can often help the companies you invest in become bigger than they otherwise would have been, but the sad reality is that your best investments will do quite well without you. Access Getting access to investment opportunities is the easiest of the three categories: you can just work hard. It’s surprising that most investors don’t work hard, but it’s true, and a bug that you can exploit. Putting a lot of energy into networking actually works, as long as you aren’t just trying to touch base when people can find some time away from their crazy calendars to grab coffee. If you actually figure out how to help other investors you respect, and to really help good founders, then good investment opportunities will come your way. If you’re starting out as a full-time investor, make it your full-time job to figure out how to help people that will become your future investment-sourcing network. Instead of just asking your contacts to tell you about investment opportunities, ask them if you can spend a day per week helping their best company. In general, early-stage investors can help a lot with closing candidates, future fundraising, customer introductions, and generic advice. A brand is the other way to get access. There are a lot of ways to build one, but by the same principle of working hard, a good example is to write long-form content (hard, few people do a good job at it) instead of tweeting (easy, everyone does a pretty good job at it). Decisions Great founders are the key to great startups. One way to do really well as a startup investor is to get good at predicting who is going to be great before they are—the market rewards finding great but inexperienced people. You can also do well by investing in people who are already proven, but the price of the shares you buy will reflect that. So how do you identify future greatness? It’s easiest if you get to meet people in person, several times. If you meet someone three times in three months, and notice detectable improvement each time, pay attention to that. The rate of improvement is often more important than the current absolute ability (in particular, younger founders can sometimes improve extremely quickly). The main question I ask myself when I meet a founder is if I’d work for that person. The second question I ask myself is if I can imagine them taking over their industry. I look for founders who are scrappy and formidable at the same time (a rarer combination than it sounds); mission-oriented, obsessed with their companies, relentless, and determined; extremely smart (necessary but certainly not sufficient); decisive, fast-moving, and willful; courageous, high-conviction, and willing to be misunderstood; strong communicators and infectious evangelists; and capable of becoming tough and ambitious. Some of these characteristics seem to be easier to change than others; for example, I have noticed that people can become much tougher and more ambitious rapidly, but people tend to be either slow movers or fast movers and that seems harder to change. Being a fast mover is a big thing; a somewhat trivial example is that I have almost never made money investing in founders who do not respond quickly to important emails. Also, it sounds obvious, but the successful founders I’ve funded believe they are eventually certain to be successful. In addition to learning to predict who will become great founders, you have to be at least okay at predicting what markets will be good. Startups are likely to happen in many more industries—startups can win wherever costs can be low and cycle time can be fast. Startups do particularly well in industries with rapid technological change, because their fundamental advantages over large competitors are speed and focus. A higher rate of change gives startups more opportunities to be right and the large competitor more opportunities to stumble. Like the founder, and like a company, what you should care about is the growth rate and eventual size of a market (I don’t know why most investors are so obsessed with the current size of a market instead of how big they think it will be in ten years, but it’s an opportunity for you). The best companies tend to have the courage to lead the market by a couple of years, but they know the secret for telling the difference between a real trend and a fake trend. For a real trend, even if there aren’t many users, they use the new platform a lot and love it. For example, although the iPhone was derided for not having many users in its first year or two, most people who had an iPhone raved about it in a way that they never did about previous smartphones. The very best companies tend to ride the wave of a new, important, and rapidly growing platform. The spectral signatures of the best companies I’ve invested in are remarkably similar. They usually have most of the following characteristics: compelling founders, a mission that attracts talented people into the startup’s orbit, a product so good that people spontaneously tell their friends about it, a rapidly growing market, a network effect and low marginal costs, the ability to grow fast, and a product that is either fundamentally new or 10x better than existing options. You should try to limit yourself to opportunities that could be $10 billion companies if they work (which means they have, at least, a fast-growing market and some sort of pricing power). The power law is that powerful. This is easy to say and hard to do, and I’ve been guilty of violating the principle many times. But the data are clear—the failures don’t matter much, the small successes don’t matter much, and the giant returns are where everything happens. The central learning of my career so far has been that you can and should scale up things that are working. The power of scale, and the emergent behavior that sometimes comes from it, is tremendous. I think about the potential energy of future scale for every investment I make. Most people seem terrible at this, so it’s another bug you can exploit. Although good ideas are understandably seductive, for early-stage investing they are mostly valuable as a way to identify good founders. However, sometimes bad founders have good ideas too, and investing in them is the chronic investing mistake that has been hardest for me to correct. (My second biggest chronic mistake has been chasing investments primarily because other investors like them.) Close rate The better the investment opportunity is (i.e., expected value relative to valuation), the harder it usually is to get the company to choose you as an investor. Traditional sales tactics works pretty well here. Spend a lot of time with the founder, explain what you’re willing to do to help them, ask founders you’ve worked with in the past to call them, etc. A reputation for being above-and-beyond helpful and accessible is worth a lot here, and rare among all but the best investors. A reputation for being founder-friendly helps too. What helps most of all is other founders you’ve previously invested in saying “that person was my best investor by far”. In addition to helping get access to investment opportunities, a strong brand also helps close them. It’s a nice tailwind if you can get yourself to the place where simply taking your money helps a company get taken more seriously. Decisiveness also helps—everyone wants to be wanted, and most investors wait for someone else to act first. If you decide quickly, and especially if you decide before others do, founders tend to appreciate that. The two most recent significant investments I made were 1) telling people I’d previously backed and had huge conviction in that I would do their Series A before they finished telling me what their idea was, and 2) offering to do the seed round of founders I’d never met before at the end of a one hour meeting. I don’t recommend doing that very often, but when your conviction is strong, let it show. The best way to have a poor close rate is to not treat founders like peers. If you’re picking well, you should be investing in founders that you think of as your peers at least. Founders have a sixth sense for who is going to treat them like a peer and who is going to treat them like a boss. And if they’re good, they know you’re failing an intelligence test if you act like their boss. Help them The most important way to help founders is to get them to be more ambitious—to think bigger and to have more self-belief. Help them set ambitious but achievable goals. Momentum is important and self-reinforcing—most people set goals that they expect to be just out of reach, which is usually demotivating. It’s better to continuously set goals that you can just barely hit. The second most important thing to do is to give them specific, tactical advice (instead of general strategy) about how to achieve their goals. Good tactical advice is something like “it seems like you’ve figured out yourself how to do sales for this company, so here is where to look and what to look for in your first sales hire, and here is the sales tool you should use”. There are a lot of specific things you can do to help—make introductions, help them hire, help them find other investors, help them find an office, etc.—but generally you should wait to do these until asked. A big exception is that you should proactively let them know when you have very high conviction that they’re about to make a big mistake, especially once things are working and they aren’t setting themselves up to scale. In theory, another big exception is actually helping founders come up with good new ideas. The first investor I ever watched in action was PG and so I assumed this was something all investors were fantastic at. But it turns out he is a sui generis idea generator, and even most great investors are usually still bad at telling founders what to work on. It’s worth trying to be self-aware. Finally, I’ve found that most of the time when founders call asking for vague help, what they are really asking for is emotional support from a friend. Invite them over to your house, make them tea or pour them a drink, and start listening to their struggles. Thanks to Jack Altman, Max Altman, and Luke Miles for reviewing drafts of this.

How To Be Successful

2019-01-24 21:01:07

I’ve observed thousands of founders and thought a lot about what it takes to make a huge amount of money or to create something important. Usually, people start off wanting the former and end up wanting the latter. Here are 13 thoughts about how to achieve such outlier success. Everything here is easier to do once you’ve already reached a baseline degree of success (through privilege or effort) and want to put in the work to turn that into outlier success. [1] But much of it applies to anyone. 1. Compound yourself Compounding is magic. Look for it everywhere. Exponential curves are the key to wealth generation. A medium-sized business that grows 50% in value every year becomes huge in a very short amount of time. Few businesses in the world have true network effects and extreme scalability. But with technology, more and more will. It’s worth a lot of effort to find them and create them. You also want to be an exponential curve yourself—you should aim for your life to follow an ever-increasing up-and-to-the-right trajectory. It’s important to move towards a career that has a compounding effect—most careers progress fairly linearly. You don't want to be in a career where people who have been doing it for two years can be as effective as people who have been doing it for twenty—your rate of learning should always be high. As your career progresses, each unit of work you do should generate more and more results. There are many ways to get this leverage, such as capital, technology, brand, network effects, and managing people. It’s useful to focus on adding another zero to whatever you define as your success metric—money, status, impact on the world, or whatever. I am willing to take as much time as needed between projects to find my next thing. But I always want it to be a project that, if successful, will make the rest of my career look like a footnote. Most people get bogged down in linear opportunities. Be willing to let small opportunities go to focus on potential step changes. I think the biggest competitive advantage in business—either for a company or for an individual’s career—is long-term thinking with a broad view of how different systems in the world are going to come together. One of the notable aspects of compound growth is that the furthest out years are the most important. In a world where almost no one takes a truly long-term view, the market richly rewards those who do. Trust the exponential, be patient, and be pleasantly surprised. 2. Have almost too much self-belief Self-belief is immensely powerful. The most successful people I know believe in themselves almost to the point of delusion. Cultivate this early. As you get more data points that your judgment is good and you can consistently deliver results, trust yourself more. If you don’t believe in yourself, it’s hard to let yourself have contrarian ideas about the future. But this is where most value gets created. I remember when Elon Musk took me on a tour of the SpaceX factory many years ago. He talked in detail about manufacturing every part of the rocket, but the thing that sticks in memory was the look of absolute certainty on his face when he talked about sending large rockets to Mars. I left thinking “huh, so that’s the benchmark for what conviction looks like.” Managing your own morale—and your team’s morale—is one of the greatest challenges of most endeavors. It’s almost impossible without a lot of self-belief. And unfortunately, the more ambitious you are, the more the world will try to tear you down. Most highly successful people have been really right about the future at least once at a time when people thought they were wrong. If not, they would have faced much more competition. Self-belief must be balanced with self-awareness. I used to hate criticism of any sort and actively avoided it. Now I try to always listen to it with the assumption that it’s true, and then decide if I want to act on it or not. Truth-seeking is hard and often painful, but it is what separates self-belief from self-delusion. This balance also helps you avoid coming across as entitled and out of touch. 3. Learn to think independently Entrepreneurship is very difficult to teach because original thinking is very difficult to teach. School is not set up to teach this—in fact, it generally rewards the opposite. So you have to cultivate it on your own. Thinking from first principles and trying to generate new ideas is fun, and finding people to exchange them with is a great way to get better at this. The next step is to find easy, fast ways to test these ideas in the real world. “I will fail many times, and I will be really right once” is the entrepreneurs’ way. You have to give yourself a lot of chances to get lucky. One of the most powerful lessons to learn is that you can figure out what to do in situations that seem to have no solution. The more times you do this, the more you will believe it. Grit comes from learning you can get back up after you get knocked down. 4. Get good at “sales” Self-belief alone is not sufficient—you also have to be able to convince other people of what you believe. All great careers, to some degree, become sales jobs. You have to evangelize your plans to customers, prospective employees, the press, investors, etc. This requires an inspiring vision, strong communication skills, some degree of charisma, and evidence of execution ability. Getting good at communication—particularly written communication—is an investment worth making. My best advice for communicating clearly is to first make sure your thinking is clear and then use plain, concise language. The best way to be good at sales is to genuinely believe in what you’re selling. Selling what you truly believe in feels great, and trying to sell snake oil feels awful. Getting good at sales is like improving at any other skill—anyone can get better at it with deliberate practice. But for some reason, perhaps because it feels distasteful, many people treat it as something unlearnable. My other big sales tip is to show up in person whenever it’s important. When I was first starting out, I was always willing to get on a plane. It was frequently unnecessary, but three times it led to career-making turning points for me that otherwise would have gone the other way. 5. Make it easy to take risks Most people overestimate risk and underestimate reward. Taking risks is important because it’s impossible to be right all the time—you have to try many things and adapt quickly as you learn more. It’s often easier to take risks early in your career; you don’t have much to lose, and you potentially have a lot to gain. Once you’ve gotten yourself to a point where you have your basic obligations covered you should try to make it easy to take risks. Look for small bets you can make where you lose 1x if you’re wrong but make 100x if it works. Then make a bigger bet in that direction. Don’t save up for too long, though. At YC, we’ve often noticed a problem with founders that have spent a lot of time working at Google or Facebook. When people get used to a comfortable life, a predictable job, and a reputation of succeeding at whatever they do, it gets very hard to leave that behind (and people have an incredible ability to always match their lifestyle to next year’s salary). Even if they do leave, the temptation to return is great. It’s easy—and human nature—to prioritize short-term gain and convenience over long-term fulfillment. But when you aren’t on the treadmill, you can follow your hunches and spend time on things that might turn out to be really interesting. Keeping your life cheap and flexible for as long as you can is a powerful way to do this, but obviously comes with tradeoffs. 6. Focus Focus is a force multiplier on work. Almost everyone I’ve ever met would be well-served by spending more time thinking about what to focus on. It is much more important to work on the right thing than it is to work many hours. Most people waste most of their time on stuff that doesn’t matter. Once you have figured out what to do, be unstoppable about getting your small handful of priorities accomplished quickly. I have yet to meet a slow-moving person who is very successful. 7. Work hard You can get to about the 90th percentile in your field by working either smart or hard, which is still a great accomplishment. But getting to the 99th percentile requires both—you will be competing with other very talented people who will have great ideas and be willing to work a lot. Extreme people get extreme results. Working a lot comes with huge life trade-offs, and it’s perfectly rational to decide not to do it. But it has a lot of advantages. As in most cases, momentum compounds, and success begets success. And it’s often really fun. One of the great joys in life is finding your purpose, excelling at it, and discovering that your impact matters to something larger than yourself. A YC founder recently expressed great surprise about how much happier and more fulfilled he was after leaving his job at a big company and working towards his maximum possible impact. Working hard at that should be celebrated. It’s not entirely clear to me why working hard has become a Bad Thing in certain parts of the US, but this is certainly not the case in other parts of the world—the amount of energy and drive exhibited by entrepreneurs outside of the US is quickly becoming the new benchmark. You have to figure out how to work hard without burning out. People find their own strategies for this, but one that almost always works is to find work you like doing with people you enjoy spending a lot of time with. I think people who pretend you can be super successful professionally without working most of the time (for some period of your life) are doing a disservice. In fact, work stamina seems to be one of the biggest predictors of long-term success. One more thought about working hard: do it at the beginning of your career. Hard work compounds like interest, and the earlier you do it, the more time you have for the benefits to pay off. It’s also easier to work hard when you have fewer other responsibilities, which is frequently but not always the case when you’re young. 8. Be bold I believe that it’s easier to do a hard startup than an easy startup. People want to be part of something exciting and feel that their work matters. If you are making progress on an important problem, you will have a constant tailwind of people wanting to help you. Let yourself grow more ambitious, and don’t be afraid to work on what you really want to work on. If everyone else is starting meme companies, and you want to start a gene-editing company, then do that and don’t second guess it. Follow your curiosity. Things that seem exciting to you will often seem exciting to other people too. 9. Be willful A big secret is that you can bend the world to your will a surprising percentage of the time—most people don’t even try, and just accept that things are the way that they are. People have an enormous capacity to make things happen. A combination of self-doubt, giving up too early, and not pushing hard enough prevents most people from ever reaching anywhere near their potential. Ask for what you want. You usually won’t get it, and often the rejection will be painful. But when this works, it works surprisingly well. Almost always, the people who say “I am going to keep going until this works, and no matter what the challenges are I’m going to figure them out”, and mean it, go on to succeed. They are persistent long enough to give themselves a chance for luck to go their way. Airbnb is my benchmark for this. There are so many stories they tell that I wouldn’t recommend trying to reproduce (keeping maxed-out credit cards in those nine-slot three-ring binder pages kids use for baseball cards, eating dollar store cereal for every meal, battle after battle with powerful entrenched interest, and on and on) but they managed to survive long enough for luck to go their way. To be willful, you have to be optimistic—hopefully this is a personality trait that can be improved with practice. I have never met a very successful pessimistic person. 10. Be hard to compete with Most people understand that companies are more valuable if they are difficult to compete with. This is important, and obviously true. But this holds true for you as an individual as well. If what you do can be done by someone else, it eventually will be, and for less money. The best way to become difficult to compete with is to build up leverage. For example, you can do it with personal relationships, by building a strong personal brand, or by getting good at the intersection of multiple different fields. There are many other strategies, but you have to figure out some way to do it. Most people do whatever most people they hang out with do. This mimetic behavior is usually a mistake—if you’re doing the same thing everyone else is doing, you will not be hard to compete with. 11. Build a network Great work requires teams. Developing a network of talented people to work with—sometimes closely, sometimes loosely—is an essential part of a great career. The size of the network of really talented people you know often becomes the limiter for what you can accomplish. An effective way to build a network is to help people as much as you can. Doing this, over a long period of time, is what lead to most of my best career opportunities and three of my four best investments. I’m continually surprised how often something good happens to me because of something I did to help a founder ten years ago. One of the best ways to build a network is to develop a reputation for really taking care of the people who work with you. Be overly generous with sharing the upside; it will come back to you 10x. Also, learn how to evaluate what people are great at, and put them in those roles. (This is the most important thing I have learned about management, and I haven’t read much about it.) You want to have a reputation for pushing people hard enough that they accomplish more than they thought they could, but not so hard they burn out. Everyone is better at some things than others. Define yourself by your strengths, not your weaknesses. Acknowledge your weaknesses and figure out how to work around them, but don’t let them stop you from doing what you want to do. “I can’t do X because I’m not good at Y” is something I hear from entrepreneurs surprisingly often, and almost always reflects a lack of creativity. The best way to make up for your weaknesses is to hire complementary team members instead of just hiring people who are good at the same things you are. A particularly valuable part of building a network is to get good at discovering undiscovered talent. Quickly spotting intelligence, drive, and creativity gets much easier with practice. The easiest way to learn is just to meet a lot of people, and keep track of who goes on to impress you and who doesn’t. Remember that you are mostly looking for rate of improvement, and don’t overvalue experience or current accomplishment. I try to always ask myself when I meet someone new “is this person a force of nature?” It’s a pretty good heuristic for finding people who are likely to accomplish great things. A special case of developing a network is finding someone eminent to take a bet on you, ideally early in your career. The best way to do this, no surprise, is to go out of your way to be helpful. (And remember that you have to pay this forward at some point later!) Finally, remember to spend your time with positive people who support your ambitions. 12. You get rich by owning things The biggest economic misunderstanding of my childhood was that people got rich from high salaries. Though there are some exceptions—entertainers for example —almost no one in the history of the Forbes list has gotten there with a salary. You get truly rich by owning things that increase rapidly in value. This can be a piece of a business, real estate, natural resource, intellectual property, or other similar things. But somehow or other, you need to own equity in something, instead of just selling your time. Time only scales linearly. The best way to make things that increase rapidly in value is by making things people want at scale. 13. Be internally driven Most people are primarily externally driven; they do what they do because they want to impress other people. This is bad for many reasons, but here are two important ones. First, you will work on consensus ideas and on consensus career tracks. You will care a lot—much more than you realize—if other people think you’re doing the right thing. This will probably prevent you from doing truly interesting work, and even if you do, someone else would have done it anyway. Second, you will usually get risk calculations wrong. You’ll be very focused on keeping up with other people and not falling behind in competitive games, even in the short term. Smart people seem to be especially at risk of such externally-driven behavior. Being aware of it helps, but only a little—you will likely have to work super-hard to not fall in the mimetic trap. The most successful people I know are primarily internally driven; they do what they do to impress themselves and because they feel compelled to make something happen in the world. After you’ve made enough money to buy whatever you want and gotten enough social status that it stops being fun to get more, this is the only force I know of that will continue to drive you to higher levels of performance. This is why the question of a person’s motivation is so important. It’s the first thing I try to understand about someone. The right motivations are hard to define a set of rules for, but you know it when you see it. Jessica Livingston and Paul Graham are my benchmarks for this. YC was widely mocked for the first few years, and almost no one thought it would be a big success when they first started. But they thought it would be great for the world if it worked, and they love helping people, and they were convinced their new model was better than the existing model. Eventually, you will define your success by performing excellent work in areas that are important to you. The sooner you can start off in that direction, the further you will be able to go. It is hard to be wildly successful at anything you aren’t obsessed with. One of the biggest reasons I'm excited about basic income is the amount of human potential it will unleash by freeing more people to take risks.Until then, if you aren't born lucky, you have to claw your way up for awhile before you can take big swings. If you are born in extreme poverty, then this is super difficult :( It is obviously an incredible shame and waste that opportunity is so unevenly distributed. But I've witnessed enough people be born with the deck stacked badly against them and go on to incredible success to know it's possible.I am deeply aware of the fact that I personally would not be where I am if I weren't born incredibly lucky. Thanks to Brian Armstrong, Greg Brockman, Dalton Caldwell, Diane von Furstenberg, Maddie Hall, Drew Houston, Vinod Khosla, Jessica Livingston, Jon Levy, Luke Miles (6 drafts!), Michael Moritz, Ali Rowghani, Michael Seibel, Peter Thiel, Tracy Young and Shivon Zilis for reviewing drafts of this, and thanks especially to Lachy Groom for help writing it. Until then, if you aren't born lucky, you have to claw your way up for awhile before you can take big swings. If you are born in extreme poverty, then this is super difficult :( It is obviously an incredible shame and waste that opportunity is so unevenly distributed. But I've witnessed enough people be born with the deck stacked badly against them and go on to incredible success to know it's possible. Thanks to Brian Armstrong, Greg Brockman, Dalton Caldwell, Diane von Furstenberg, Maddie Hall, Drew Houston, Vinod Khosla, Jessica Livingston, Jon Levy, Luke Miles (6 drafts!), Michael Moritz, Ali Rowghani, Michael Seibel, Peter Thiel, Tracy Young and Shivon Zilis for reviewing drafts of this, and thanks especially to Lachy Groom for help writing it. Thanks to Brian Armstrong, Greg Brockman, Dalton Caldwell, Diane von Furstenberg, Maddie Hall, Drew Houston, Vinod Khosla, Jessica Livingston, Jon Levy, Luke Miles (6 drafts!), Michael Moritz, Ali Rowghani, Michael Seibel, Peter Thiel, Tracy Young and Shivon Zilis for reviewing drafts of this, and thanks especially to Lachy Groom for help writing it.

Reinforcement Learning Progress

2018-06-25 16:10:37

Today, OpenAI released a new result. We used PPO (Proximal Policy Optimization), a general reinforcement learning algorithm invented by OpenAI, to train a team of 5 agents to play Dota and beat semi-pros. This is the game that to me feels closest to the real world and complex decision making (combining strategy, tactics, coordinating, and real-time action) of any game AI had made real progress against so far. The agents we train consistently outperform two-week old agents with a win rate of 90-95%. We did this without training on human-played games—we did design the reward functions, of course, but the algorithm figured out how to play by training against itself. This is a big deal because it shows that deep reinforcement learning can solve extremely hard problems whenever you can throw enough computing scale and a really good simulated environment that captures the problem you’re solving. We hope to use this same approach to solve very different problems soon. It's easy to imagine this being applied to environments that look increasingly like the real world. There are many problems in the world that are far too complex to hand-code solutions for. I expect this to be a large branch of machine learning, and an important step on the road towards general intelligence.

US Digital Currency

2018-05-10 17:07:07

I am pretty sure cryptocurrency is here to stay in some form (at least as a store of value, which is the only use case we have seen work at scale so far). There was possibly a time when governments could have totally stopped it, but it feels like that’s in the rearview mirror. However, I think it’s very possible that the dominant cryptocurrency hasn’t been created yet (Google was years late to the search engine party, and Facebook came long after most people assumed the social network wars were won). And from the perspective of a nation, there are real problems with current systems, especially around pseudo-anonymity, ability to function as an actual currency, and taxability. Although I don’t think the US government can stop cryptocurrency, I do think it could create the winner–let’s call it “USDC” for US Digital Currency–and fix some challenges that governments currently face with cryptocurrency. I think the first superpower government to do something like this will have an enviable position in the future of the world, and some power over a worldwide currency. The US government could decide to treat USDC as a second legal currency, which would be hugely powerful. (I think the US doing this would be significantly more impactful than the smaller governments thinking about it now.) Ideally the initial coins would be evenly distributed to US citizens and taxpayers—something like everyone with a social security number gets two coins, one that is immediately sellable and one that you have to keep for 10 years. USDC could require that certain transaction can only happen with wallets with known owners. It could even build a tax system into the protocol. A tricky part of this would be how to balance letting the network have control over itself and letting the government have some special degree of input on ‘monetary policy’. It’s certainly ok for the government to have some, but I think the network needs to be mostly in charge (e.g., the government couldn’t be allowed to arbitrarily inflate the currency when it wanted to). The current practices seem to be for governments to mostly ignore cryptocurrency and cryptocurrency enthusiasts to mostly ignore government, which seems to me to be unsustainable in both directions. But I believe there exists a middle ground where the government can get a lot of what it wants, and cryptocurrency users can get a lot of what they want too. The government can likely create a lot of de novo wealth for its citizens in the process.

Productivity

2018-04-10 16:18:00

I think I am at least somewhat more productive than average, and people sometimes ask me for productivity tips. So I decided to just write them all down in one place. Compound growth gets discussed as a financial concept, but it works in careers as well, and it is magic. A small productivity gain, compounded over 50 years, is worth a lot. So it’s worth figuring out how to optimize productivity. If you get 10% more done and 1% better every day compared to someone else, the compounded difference is massive. What you work on It doesn’t matter how fast you move if it’s in a worthless direction. Picking the right thing to work on is the most important element of productivity and usually almost ignored. So think about it more! Independent thought is hard but it’s something you can get better at with practice. The most impressive people I know have strong beliefs about the world, which is rare in the general population. If you find yourself always agreeing with whomever you last spoke with, that’s bad. You will of course be wrong sometimes, but develop the confidence to stick with your convictions. It will let you be courageous when you’re right about something important that most people don’t see. I make sure to leave enough time in my schedule to think about what to work on. The best ways for me to do this are reading books, hanging out with interesting people, and spending time in nature. I’ve learned that I can’t be very productive working on things I don’t care about or don’t like. So I just try not to put myself in a position where I have to do them (by delegating, avoiding, or something else). Stuff that you don’t like is a painful drag on morale and momentum. By the way, here is an important lesson about delegation: remember that everyone else is also most productive when they’re doing what they like, and do what you’d want other people to do for you—try to figure out who likes (and is good at) doing what, and delegate that way. If you find yourself not liking what you’re doing for a long period of time, seriously consider a major job change. Short-term burnout happens, but if it isn’t resolved with some time off, maybe it’s time to do something you’re more interested in. I’ve been very fortunate to find work I like so much I’d do it for free, which makes it easy to be really productive. It’s important to learn that you can learn anything you want, and that you can get better quickly. This feels like an unlikely miracle the first few times it happens, but eventually you learn to trust that you can do it. Doing great work usually requires colleagues of some sort. Try to be around smart, productive, happy, and positive people that don’t belittle your ambitions. I love being around people who push me and inspire me to be better. To the degree you able to, avoid the opposite kind of people—the cost of letting them take up your mental cycles is horrific. You have to both pick the right problem and do the work. There aren’t many shortcuts. If you’re going to do something really important, you are very likely going to work both smart and hard. The biggest prizes are heavily competed for. This isn’t true in every field (there are great mathematicians who never spend that many hours a week working) but it is in most. Prioritization My system has three key pillars: “Make sure to get the important shit done”, “Don’t waste time on stupid shit”, and “make a lot of lists”. I highly recommend using lists. I make lists of what I want to accomplish each year, each month, and each day. Lists are very focusing, and they help me with multitasking because I don’t have to keep as much in my head. If I’m not in the mood for some particular task, I can always find something else I’m excited to do. I prefer lists written down on paper. It’s easy to add and remove tasks. I can access them during meetings without feeling rude. I re-transcribe lists frequently, which forces me to think about everything on the list and gives me an opportunity to add and remove items. I don’t bother with categorization or trying to size tasks or anything like that (the most I do is put a star next to really important items). I try to prioritize in a way that generates momentum. The more I get done, the better I feel, and then the more I get done. I like to start and end each day with something I can really make progress on. I am relentless about getting my most important projects done—I’ve found that if I really want something to happen and I push hard enough, it usually happens. I try to be ruthless about saying no to stuff, and doing non-critical things in the quickest way possible. I probably take this too far—for example, I am almost sure I am terse to the point of rudeness when replying to emails. I generally try to avoid meetings and conferences as I find the time cost to be huge—I get the most value out of time in my office. However, it is critical that you keep enough space in your schedule to allow for chance encounters and exposure to new people and ideas. Having an open network is valuable; though probably 90% of the random meetings I take are a waste of time, the other 10% really make up for it. I find most meetings are best scheduled for 15-20 minutes, or 2 hours. The default of 1 hour is usually wrong, and leads to a lot of wasted time. I have different times of day I try to use for different kinds of work. The first few hours of the morning are definitely my most productive time of the day, so I don’t let anyone schedule anything then. I try to do meetings in the afternoon. I take a break, or switch tasks, whenever I feel my attention starting to fade. I don’t think most people value their time enough—I am surprised by the number of people I know who make $100 an hour and yet will spend a couple of hours doing something they don’t want to do to save $20. Also, don’t fall into the trap of productivity porn—chasing productivity for its own sake isn’t helpful. Many people spend too much time thinking about how to perfectly optimize their system, and not nearly enough asking if they’re working on the right problems. It doesn’t matter what system you use or if you squeeze out every second if you’re working on the wrong thing. The right goal is to allocate your year optimally, not your day. Physical factors Very likely what is optimal for me won’t be optimal for you. You’ll have to experiment to find out what works best for your body. It’s definitely worth doing—it helps in all aspects of life, and you’ll feel a lot better and happier overall. It probably took a little bit of my time every week for a few years to arrive at what works best for me, but my sense is if I do a good job at all the below I’m at least 1.5x more productive than if not. Sleep seems to be the most important physical factor in productivity for me. Some sort of sleep tracker to figure out how to sleep best is helpful. I’ve found the only thing I’m consistent with are in the set-it-and-forget-it category, and I really like the Emfit QS+Active. I like a cold, dark, quiet room, and a great mattress (I resisted spending a bunch of money on a great mattress for years, which was stupid—it makes a huge difference to my sleep quality. I love this one). Not eating a lot in the few hours before sleep helps. Not drinking alcohol helps a lot, though I’m not willing to do that all the time. I use a Chili Pad to be cold while I sleep if I can’t get the room cold enough, which is great but loud (I set it up to have the cooler unit outside my room). When traveling, I use an eye mask and ear plugs. This is likely to be controversial, but I take a low dose of sleeping pills (like a third of a normal dose) or a very low dose of cannabis whenever I can’t sleep. I am a bad sleeper in general, and a particularly bad sleeper when I travel. It likely has tradeoffs, but so does not sleeping well. If you can already sleep well, I wouldn’t recommend this. I use a full spectrum LED light most mornings for about 10-15 minutes while I catch up on email. It’s great—if you try nothing else in here, this is the thing I’d try. It’s a ridiculous gain for me. I like this one, and it’s easy to travel with. Exercise is probably the second most important physical factor. I tried a number of different exercise programs for a few months each and the one that seemed best was lifting heavy weights 3x a week for an hour, and high intensity interval training occasionally. In addition to productivity gains, this is also the exercise program that makes me feel the best overall. The third area is nutrition. I very rarely eat breakfast, so I get about 15 hours of fasting most days (except an espresso when I wake up). I know this is contrary to most advice, and I suspect it’s not optimal for most people, but it definitely works well for me. Eating lots of sugar is the thing that makes me feel the worst and that I try hardest to avoid. I also try to avoid foods that aggravate my digestion or spike up inflammation (for example, very spicy foods). I don’t have much willpower when it comes to sweet things, so I mostly just try to keep junk food out of the house. I have one big shot of espresso immediately when I wake up and one after lunch. I assume this is about 200mg total of caffeine per day. I tried a few other configurations; this was the one that worked by far the best. I otherwise aggressively avoid stimulants, but I will have more coffee if I’m super tired and really need to get something done. I’m vegetarian and have been since I was a kid, and I supplement methyl B-12, Omega-3, Iron, and Vitamin D-3. I got to this list with a year or so of quarterly blood tests; it’s worked for me ever since (I re-test maybe every year and a half or so). There are many doctors who will happily work with you on a super comprehensive blood test (and services like WellnessFX). I also go out of my way to drink a lot of protein shakes, which I hate and I wouldn’t do if I weren’t vegetarian. Other stuff Here’s what I like in a workspace: natural light, quiet, knowing that I won’t be interrupted if I don’t want to be, long blocks of time, and being comfortable and relaxed (I’ve got a beautiful desk with a couple of 4k monitors on it in my office, but I spend almost all my time on my couch with my laptop). I wrote custom software for the annoying things I have to do frequently, which is great. I also made an effort to learn to type really fast and the keyboard shortcuts that help with my workflow. Like most people, I sometimes go through periods of a week or two where I just have no motivation to do anything (I suspect it may have something to do with nutrition). This sucks and always seems to happen at inconvenient times. I have not figured out what to do about it besides wait for the fog to lift, and to trust that eventually it always does. And I generally try to avoid people and situations that put me in bad moods, which is good advice whether you care about productivity or not. In general, I think it’s good to overcommit a little bit. I find that I generally get done what I take on, and if I have a little bit too much to do it makes me more efficient at everything, which is a way to train to avoid distractions (a great habit to build!). However, overcommitting a lot is disastrous. Don’t neglect your family and friends for the sake of productivity—that’s a very stupid tradeoff (and very likely a net productivity loss, because you’ll be less happy). Don’t neglect doing things you love or that clear your head either. Finally, to repeat one more time: productivity in the wrong direction isn’t worth anything at all. Think more about what to work on.

A Clarification

2017-12-16 19:00:42

I made a point in this post inelegantly in a way that was easy to misunderstand, so I’d like to clarify it. I didn’t mean that we need to tolerate brilliant homophobic jerks in the lab so that we can have scientific progress. Although there are famous counterexamples, most of the best scientists I’ve met are unusually nice, open-minded people. Generally I expect that labs that don’t tolerate jerks will produce more impressive results than the ones that do, and choosing not to employ jerks is a good idea—jerks usually reduce the net output of organizations. What I meant is simply that we need, as a society, to tolerate controversial ideas. The biggest new scientific ideas, and the most important changes to society, both start as extremely unpopular ideas. It was literally heretical, not so long ago, to say that it was ok to be gay—the Bible has a different viewpoint. In a society where we don’t allow challenges to the orthodoxy, gay rights would not have happened. We need to allow free speech because sometimes society is wrong—we needed people to be able to say “gay people are ok” at a time when “gay people are evil” was the consensus opinion. It’s probably impossible to design a simple set of rules that will always allow the right speech and not the wrong speech (although I am sure that in this particular case, it is wrong that gay people in some places still fear for their safety.) So we agree as a society that people are allowed to say controversial things, and that free speech goes both ways. Much of the time people use that privilege to be jerks, and we can, should, and do point out why their bigotry is bad. Sometimes they use it to say that people deserve more rights, or that the solar system works in a different way from what the church says—and sometimes we collectively listen. Over time, this system produces a more and more just world, which says something really good about people as a whole. I wish we could figure out a way to just never allow hate, discrimination, and bigotry and always allow debate on controversial but important ideas. If that were possible, I’d support it. The distinction is usually clear, but the exceptions are sometimes critically important. Figuring out exactly where to draw the line is really hard. Generations before us believed a lot of things we now believe (correctly, in my opinion) to be unethical or wrong. Future generations will think a lot of things we believe today are unethical or wrong. For example, today it is pretty unpopular to say “anyone who eats meat is unethical”. But this is easily a stance I could imagine being commonplace in 50 years, because of evolving views on animal rights, impact on the planet, and availability of lab-grown replacements. Perhaps even the arrival of AI makes us think differently about being ok eating other beings just because they’re much less smart/emotionally sophisticated than we are. The last time I tried to discuss this with someone, he said something like: “Banning eating meat would be infringing on my rights, this is not up for discussion.” I expect the fact that we let people live in poverty is also something that future generations will consider an absolute moral failing. I could go on with a long list of other ideas, and I’m sure I can’t even think of some of the most important ones. The point I most wanted to make is that is that it’s dangerous to just ban discussion of topics we find offensive, like what happened yesterday.

E Pur Si Muove

2017-12-14 17:12:38

Earlier this year, I noticed something in China that really surprised me. I realized I felt more comfortable discussing controversial ideas in Beijing than in San Francisco. I didn’t feel completely comfortable—this was China, after all—just more comfortable than at home. That showed me just how bad things have become, and how much things have changed since I first got started here in 2005. It seems easier to accidentally speak heresies in San Francisco every year. Debating a controversial idea, even if you 95% agree with the consensus side, seems ill-advised. This will be very bad for startups in the Bay Area. Restricting speech leads to restricting ideas and therefore restricted innovation—the most successful societies have generally been the most open ones. Usually mainstream ideas are right and heterodox ideas are wrong, but the true and unpopular ideas are what drive the world forward. Also, smart people tend to have an allergic reaction to the restriction of ideas, and I’m now seeing many of the smartest people I know move elsewhere. It is bad for all of us when people can’t say that the world is a sphere, that evolution is real, or that the sun is at the center of the solar system. More recently, I’ve seen credible people working on ideas like pharmaceuticals for intelligence augmentation, genetic engineering, and radical life extension leave San Francisco because they found the reaction to their work to be so toxic. “If people live a lot longer it will be disastrous for the environment, so people working on this must be really unethical” was a memorable quote I heard this year. To get the really good ideas, we need to tolerate really bad and wacky ideas too. In addition to the work Newton is best known for, he also studied alchemy (the British authorities banned work on this because they feared the devaluation of gold) and considered himself to be someone specially chosen by the almighty for the task of decoding Biblical scripture. You can’t tell which seemingly wacky ideas are going to turn out to be right, and nearly all ideas that turn out to be great breakthroughs start out sounding like terrible ideas. So if you want a culture that innovates, you can’t have a culture where you allow the concept of heresy—if you allow the concept at all, it tends to spread. When we move from strenuous debate about ideas to casting the people behind the ideas as heretics, we gradually stop debate on all controversial ideas. This is uncomfortable, but it’s possible we have to allow people to say disparaging things about gay people if we want them to be able to say novel things about physics. [1] Of course we can and should say that ideas are mistaken, but we can’t just call the person a heretic. We need to debate the actual idea. Political correctness often comes from a good place—I think we should all be willing to make accommodations to treat others well. But too often it ends up being used as a club for something orthogonal to protecting actual victims. The best ideas are barely possible to express at all, and if you’re constantly thinking about how everything you say might be misinterpreted, you won’t let the best ideas get past the fragment stage. I don’t know who Satoshi is, but I’m skeptical that he, she, or they would have been able to come up with the idea for bitcoin immersed in the current culture of San Francisco—it would have seemed too crazy and too dangerous, with too many ways to go wrong. If SpaceX started in San Francisco in 2017, I assume they would have been attacked for focusing on problems of the 1%, or for doing something the government had already decided was too hard. I can picture Galileo looking up at the sky and whispering “E pur si muove” here today. Followup: A Clarification [1] I am less worried that letting some people on the internet say things like “gay people are evil” is going to convince reasonable people that such a statement is true than I fear losing the opposite—we needed people to be free to say "gay people are ok" to make the progress we've made, even though it was not a generally acceptable thought several decades ago. In fact, the only ideas I’m afraid of letting people say are the ones that I think may be true and that I don’t like. But I accept that censorship is not going to make the world be the way I wish it were.

The Merge

2017-12-07 16:56:28

A popular topic in Silicon Valley is talking about what year humans and machines will merge (or, if not, what year humans will get surpassed by rapidly improving AI or a genetically enhanced species). Most guesses seem to be between 2025 and 2075. People used to call this the singularity; now it feels uncomfortable and real enough that many seem to avoid naming it at all. Perhaps another reason people stopped using the word “singularity” is that it implies a single moment in time, and it now looks like the merge is going to be a gradual process. And gradual processes are hard to notice. I believe the merge has already started, and we are a few years in. Our phones control us and tell us what to do when; social media feeds determine how we feel; search engines decide what we think. The algorithms that make all this happen are no longer understood by any one person. They optimize for what their creators tell them to optimize for, but in ways that no human could figure out — they are what today seems like sophisticated AI, and tomorrow will seem like child’s play. And they’re extremely effective — at least speaking for myself, I have a very hard time resisting what the algorithms want me to do. Until I made a real effort to combat it, I found myself getting extremely addicted to the internet. [1] We are already in the phase of co-evolution — the AIs affect, effect, and infect us, and then we improve the AI. We build more computing power and run the AI on it, and it figures out how to build even better chips. This probably cannot be stopped. As we have learned, scientific advancement eventually happens if the laws of physics do not prevent it. More important than that, unless we destroy ourselves first, superhuman AI is going to happen, genetic enhancement is going to happen, and brain-machine interfaces are going to happen. It is a failure of human imagination and human arrogance to assume that we will never build things smarter than ourselves. Our self-worth is so based on our intelligence that we believe it must be singular and not slightly higher than all the other animals on a continuum. Perhaps the AI will feel the same way and note that differences between us and bonobos are barely worth discussing. The merge can take a lot of forms: We could plug electrodes into our brains, or we could all just become really close friends with a chatbot. But I think a merge is probably our best-case scenario. If two different species both want the same thing and only one can have it—in this case, to be the dominant species on the planet and beyond—they are going to have conflict. We should all want one team where all members care about the well-being of everyone else. Although the merge has already begun, it’s going to get a lot weirder. We will be the first species ever to design our own descendants. My guess is that we can either be the biological bootloader for digital intelligence and then fade into an evolutionary tree branch, or we can figure out what a successful merge looks like. It’s probably going to happen sooner than most people think. Hardware is improving at an exponential rate—the most surprising thing I’ve learned working on OpenAI is just how correlated increasing computing power and AI breakthroughs are—and the number of smart people working on AI is increasing exponentially as well. Double exponential functions get away from you fast. It would be good for the entire world to start taking this a lot more seriously now. Worldwide coordination doesn’t happen quickly, and we need it for this. [1] I believe attention hacking is going to be the sugar epidemic of this generation. I can feel the changes in my own life — I can still wistfully remember when I had an attention span. My friends’ young children don’t even know that’s something they should miss. I am angry and unhappy more often, but I channel it into productive change less often, instead chasing the dual dopamine hits of likes and outrage. (Cross-posted from https://medium.com/wordsthatmatter/merge-now-430c6d89d1fe to here for consistency; thanks to Medium for inviting me to write this!)

American Equity

2017-11-27 17:24:42

I’d like feedback on the following idea. I think that every adult US citizen should get an annual share of the US GDP. I believe that owning something like a share in America would align all of us in making the country as successful as possible—the better the country does, the better everyone does—and give more people a fair shot at achieving the life they want. And we all work together to create the system that generates so much prosperity. I believe that a new social contract like what I’m suggesting here—where we agree to a floor and no ceiling—would lead to a huge increase in US prosperity and keep us in the global lead. Countries that concentrate wealth in a small number of families do worse over the long term—if we don’t take a radical step toward a fair, inclusive system, we will not be the leading country in the world for much longer. This would harm all Americans more than most realize. There are historical examples of countries giving out land to citizens (such as the Homestead Acts in the US) as a way to distribute the resources people needed to succeed. Today, the fundamental input to wealth generation isn’t farmland, but money and ideas—you really do need money to make money. American Equity would also cushion the transition from the jobs of today to the jobs of tomorrow. Automation holds the promise of creating more abundance than we ever dreamed possible, but it’s going to significantly change how we think about work. If everyone benefits more directly from economic growth, then it will be easier to move faster toward this better world. The default case for automation is to concentrate wealth (and therefore power) in a tiny number of hands. America has repeatedly found ways to challenge this sort of concentration, and we need to do so again. The joint-stock company was one of the most important inventions in human history. It allowed us to align a lot of people in pursuit of a common goal and accomplish things no individual could. Obviously, the US is not a company, but I think a similar model can work for the US as well as it does for companies. A proposal like this obviously requires a lot of new funding [1] to do at large scale, but I think we could start very small—a few hundred dollars per citizen per year—and ramp it up to a long-term target of 10-20% of GDP per year when the GDP per capita doubles. I have no delusions about the challenges of such a program. There would be difficult consequences for things like immigration policy that will need a lot of discussion. We’d also need to figure out rules about transferability and borrowing against this equity. And we’d need to set it up in a way that does not exacerbate short-term thinking or favor unsustainable growth. However, as the economy grows, we could imagine a world in which every American would have their basic needs guaranteed. Absolute poverty would be eliminated, and we would no longer motivate people through the fear of not being able to eat. In addition to being the obviously right thing to do, eliminating poverty will increase productivity. American Equity would create a society that I believe would work much better than what we have today. It would free Americans to work on what they really care about, improve social cohesion, and incentivize everyone to think about ways to grow the whole pie. [1] It’s time to update our tax system for the way wealth works in the modern world—for example, taxing capital and labor at the same rates. And we should consider eventually replacing some of our current aid programs, which distort incentives and are needlessly complicated and inefficient, with something like this. Of course this won’t solve all our problems—we still need serious reform in areas such as housing, education, and healthcare. Without policies that address the cost of living crisis, any sort of redistribution will be far less effective than it otherwise could be.

The United Slate

2017-07-12 14:33:41

I would like to find and support a slate of candidates for the 2018 California elections, and also to find someone to run a ballot initiative focused on affordable housing in the state. A team of aligned people has a chance to make a real change. I believe in creating prosperity through technology, economic fairness, and maintaining personal liberty. We are in the middle of a massive technological shift—the automation revolution will be as big as the agricultural revolution or the industrial revolution. We need to figure out a new social contract, and to ensure that everyone benefits from the coming changes. Today, we have massive wealth inequality, little economic growth, a system that works for people born lucky, and a cost of living that is spiraling out of control. What we've been trying for the past few decades hasn't been working—I think it's time to consider some new ideas. More information about the principles and policies I believe in is at the link below. http://unitedslate.samaltman.com

Join the YC Software Team

2017-05-19 00:25:07

If you want to get funded by YC as a founder in the future, but you don't have a startup that's ready for that yet, joining the YC software team is a great hack to get there. The YC software team is a small group of hackers in SF that write the software that makes all the parts of YC work. As a member of the software team, you'll get full access to the YC program, just like founders do. You'll learn the ins and outs of how YC works, and you'll get to follow and learn from hundreds of companies. You'll meet the best people in the startup world and get exposed to the best startup ideas. Software is how we can scale YC, and the limits of that are probably further out than most people think. You can apply here: http://bit.ly/1Od0T2l.

Quora

2017-04-21 13:42:36

I'm a strong believer in the importance of the internet in helping people to share knowledge and learn from each other. So I’m delighted to share, on behalf of YC Continuity, that we’re investing alongside Collaborative Fund in Quora. Quora is doing extremely well. They now have more than 190 million monthly unique visitors, almost doubling from a year ago. The combination of their ever-improving machine learning and the increasing amount of knowledge shared means the product gets better as it gets bigger. The content I see from Quora constantly gets more personalized for me. I also believe they have some of the highest-quality user-generated content on the internet, and a real chance at being one of the few places that contain all human knowledge. The engineering challenges between here and there are great, but if there’s a team and product to bet on, this is one we're backing with confidence. Adam is one of the few names that people consistently mention when discussing the smartest CEOs in Silicon Valley. And he has a very long-term focus, which has become a rare commodity in tech companies these days. My relationship with Quora goes back to May 2014 when the company participated in YC. Funding an already successful company was an unusual experiment for us. At that point we didn't have any specific thoughts on how YC might invest in graduates from our program and help them scale. In a way, Quora was the inspiration for deciding we needed to figure out how to do that, and we launched YC Continuity in October 2015. As an early admirer of Quora and returning investor, I’m thrilled to see the progress they've made and excited to be part of what they do next.

Tech Workers' Values

2017-03-31 17:46:28

For good and bad, technology has become a central force in all our lives. As members of the community, we're interested in ways in which tech companies can use their collective power to protect privacy, rule of law, freedom of expression, and other fundamental American rights. We’d also like to discuss how tech companies can heal the divide in our country. We believe that tech companies can create a better economic future for all Americans by spreading high-paying technology jobs around the country and other measures. We also believe tech companies have an opportunity and an obligation to reduce the polarization we've helped create. Tech companies are very receptive to their employees' influence. We believe that employees should come together and clearly define the values and policies they'd like to see their companies uphold. A tech union isn't the perfect metaphor for this, but it's not far off. We are planning to hold a meeting on the evening of April 9th in the Bay Area. Please sign up here or message us at 415 569-2751 on Signal if you'd like to come. We're going try to keep this first group smaller than 50 people so that everyone can actually participate. If more people than that want to attend, we'll try to select a diverse group of people from a large set of companies. If this event seems to go well, we expect to host similar meetings in the future. --Sam Altman, Debra Cleaver, Matt Krisiloff

Keep the Internet Open

2017-03-14 18:36:03

The FCC has announced plans to roll back policies on net neutrality, and its new head has indicated he has no plan to stop soon. The internet is a public good, and I believe access should be a basic right. We've seen such great innovation in software because the internet has been a level playing field. People have been able to succeed by merit, not the regulatory weight of incumbency. It seems best to keep it regulated like a common carrier. [1] Doing this allows the government to ensure a level playing field, impose privacy regulations, and subsidize access for people who can't afford it. But this idea is under attack, and I'm surprised the tech community isn't speaking out more forcefully. Although many leading tech companies are now the incumbents, I hope we'll all remember that openness helped them achieve their great success. It could be disastrous for future startups if this were to change--openness is what made the recent wave of innovation happen. We need to make our voices heard. We won this fight once before, and we can win it again. I really hope an activist or tech leader will step up and organize this fight (and I'm happy to help!). It's important for our future. [1] There's an argument that Internet Service Providers should be able to charge a metered rate based on usage. I'm not sure whether I agree with this, but in principle it seems ok. That's how we pay for public utilities. What's clearly not OK is taking it further--charging different services different rates based on their relationships with ISPs. You wouldn't accept your electric company charging you different rates depending on the manufacturer of each of your appliances. Emailed comment from Alan Kay: Yes -- in fact, the original notion about all this was to be in the same spirit as the 1936 Electrical and Telephone Federal Act which was specifically aimed at rural areas that the utilities didn't want to spend money to reach, so the fed mandated "power and phone" as a kind of universal right. This has also been a theme of the EFF. The basic impulse was also one of the drivers behind Carnegie's huge support of the free library system in the US (the whole story there is interesting, including some of the high minded stipulations in the Carnegie bequests, which I've on occasion tried to get the Internet communities to buy off on). Every Carnegie library had to have two special rooms -- one just for children, and the other where people could be taught to read. Part of the Carnegie money for the libraries supported the reading teachers and sessions. Carnegie was an immigrant and child laborer who could read a little. One of his earliest bosses would open his home library to his workers on Saturdays. Carnegie used this to raise himself up, and never forgot how it happened. (He was also one of the few truly rich people ever who said he was going to give it all away to benefit the civilization around him, and actually did it.) P.S. I wanted to put the above comment on your blog but there was no button to allow this ...

Greg

2017-03-07 16:01:27

A lot of people ask me what the ideal cofounder looks like. I now have an answer: Greg Brockman. Every successful startup I know has at least one person who provides the force of will to make the startup happen. I’d thought a lot about this in the abstract while advising YC startups, but until OpenAI I hadn’t observed up close someone else drive the formation of a startup. OpenAI wouldn’t have happened without Greg. He commits quickly and fully to things. I organized a group dinner early on to talk about what such an organization might look like, and drove him home afterwards. Greg asked me questions for the first half of the drive back to San Francisco, then declared he was in, and started planning logistics for the rest of the drive. From then on he was fully in, with an average email response time of about 5 minutes to anything. Elon and I were both busy with day jobs, but Greg kept everything moving forward with imperfect information and a very high-latency connection. He recruited the founding team. Greg is a world-class recruiter (he plans every detail of interviews, heavily researches candidate’s backgrounds, sends thoughtful and persistent followups, and so on), and I now believe even more strongly that someone on the founding team has to be an amazing recruiter. He’s incredibly open to feedback. Large or small, he’s always willing to hear it, never gets offended, and processes it very quickly. I once suggested to him that he wasn't communicating a bold enough vision for the organization, and the next time I heard him talk about it (and every time since) it was a perfectly calibrated explanation of how we were going to succeed at something that really mattered. Even on non-traditional ideas, like when I suggested he co-lead the organization with Ilya, he was always open-minded and thoughtful. Greg also played the role of ‘non-technical cofounder’, which is a misnomer because most people who know him will say something like “Greg is the most productive engineer I know”. But he took on all the non-technical roles at the beginning, defining the culture, making offers, organizing offsites, letting everyone work out of his apartment, ordering supplies, cleaning up after meals, etc. It's important to have someone great in this role at a small startup—many people gloss over it. Without someone dedicated to finding a solution to all problems, no matter how difficult, eventually a large problem will come along and kill you while you’re still weak. Founding teams need a Chief Optimist to rally everyone to press on despite the difficulties, and it’s always hard on that person because they can’t really lean on anyone else in the hardest times. You for sure need great technical talent on a founding team, but make sure you also have someone like Greg. If they’re the same person, then you’ve hit the jackpot.

What I Heard From Trump Supporters

2017-02-21 18:03:17

After the election, I decided to talk to 100 Trump voters from around the country. I went to the middle of the country, the middle of the state, and talked to many online. This was a surprisingly interesting and helpful experience—I highly recommend it. With three exceptions, I found something to like about everyone I talked to (though I strongly disagreed with many of the things they said). Although it shouldn’t have surprised me given the voting data, I was definitely surprised by the diversity of the people I spoke to—I did not expect to talk to so many Muslims, Mexicans, Black people, and women in the course of this project. Almost everyone I asked was willing to talk to me, but almost none of them wanted me to use their names—even people from very red states were worried about getting “targeted by those people in Silicon Valley if they knew I voted for him”. One person in Silicon Valley even asked me to sign a confidentiality agreement before she would talk to me, as she worried she’d lose her job if people at her company knew she was a strong Trump supporter. I wanted to understand what Trump voters liked and didn’t like about the president, what they were nervous about, what they thought about the left’s response so far, and most importantly, what would convince them not to vote for him in the future. Obviously, this is not a poll, and not ‘data’. But I think narratives are really important. Here’s what I heard. The TL;DR quote is this: “You all can defeat Trump next time, but not if you keep mocking us, refusing to listen to us, and cutting us out. It’s Republicans, not Democrats, who will take Trump down.” What do you like about Trump? “He is not politically correct.” Note: This sentiment came up a lot, probably in at least a third of the conversations I had. “He says true but unpopular things. If you can’t talk about problems, you can’t fix them.” “I'm a Jewish libertarian who's [sic] grandparents were Holocaust survivors. Over the last few years the mainstream left has resorted to name-calling and character assassination, instead of debate, any time their positions are questioned. This atmosphere became extremely oppressive and threatening to people, like myself, who disagreed with many of Obama's policies over the past several years. Intelligent debate has become rare.” “It's a lot like political discussion was in Soviet Union, actually. I think the inability to acknowledge obvious truths, and the ever-increasing scope of these restrictions makes it particularly frustrating. And personally, for whatever reason, I find inability to have more subtle discussion very frustrating--things are not white or black, but you can't talk about greys since the politically correct answer is white.” “He is anti-abortion.” Note: This sentiment came up a lot. A number of people I spoke to said they didn’t care about anything else he did and would always vote for whichever candidate was more anti-abortion. “I like that he puts the interests of Americans first. American policy needs to be made from a position of how Americans benefit from it, as that is the role of government.” “He is anti-immigration.” Note: This sentiment came up a lot. The most surprising takeaway for me how little it seemed to be driven by economic concerns, and how much it was driven by fears about “losing our culture”, “safety”, “community”, and a general Us-vs.-Them mentality. “He will preserve our culture. Preservation of culture is considered good in most cases. What’s wrong with preserving the good parts of American culture?” “He’s not Hillary Clinton.” “I’m Mexican. I support the wall. The people who have stayed have destroyed Mexico, and now they want to get out and cause damage here. We need to protect our borders, but now any policy is like that is called racist. Trump was the first person willing to say that out loud.” “I am socially very liberal. I am fiscally very conservative. I don't feel I have a party--never have. I grew up in a more socially conservative time and picked the "lesser of two evils" during elections. Now, the more socially liberal side supports bigger governments, more aid and support and that money has to come from somewhere. I see what's deducted from my check each week. I'm OK with never being rich but I'd like more security and that doesn't come from more government spending.” “We need borders at every level of our society.” “I’m willing to postpone some further social justice progress, which doesn’t really result in loss of life, in favor of less foreign policy involvement, the opposite of which does." “Brown people are always the out-crowd. I think subconsciously, part of the reason I supported him was a way to be in the in-crowd for once.” What don’t you like about him? “The way he talks about women is despicable.” “Everything about his style. We only voted for him because this election was too important to worry about style.” “I don’t like most things about him. The way it worked is we got to choose one of two terrible options.” “I think our nation needs Trumpism to survive long term, and to me that supersedes almost every other reservation I have. My issue is with Trump himself--I think he's the wrong vessel for his movement, but he's all we've got so I'm behind him.” “I think the rollout of the immigration executive order is emblematic of a clusterfuck, to be completely frank.” “I now believe the Muslim ban actually makes us less safe.” “Isolationism and protectionism at this point is insane. We've done that before.” “I, too, worry about the dishonesty. His relationship with Russia, his relationship with women. His relationship with questionable financial matters. These all worry me and were they to continue I would lose all respect.” “He continually plays into a character that he has created to rile his fan base. Accepting anti-semitism, white nationalism, or hate emanating unnecessarily, creates a vacuum of fear on social media, on television, and around the dinner table. Even though the policies may be similar to that of any recent Republican President, the behavior to act so immaturely sets a bad example for children and undercuts many cultural norms, which more than anything causes disruption to our sociological foundations.” “I hate that he discredits the press all the time. That seems to forebode great evil.” What are you nervous about with Trump as president? “The thing I’m most worried about is war, and that he could destroy the whole world. I think I may have underestimated that risk, because he is more of an alpha strongman that I realized when I voted for him. Otherwise I still like him.” Note: Most people weren’t that worried about war. More frequent comments were along these lines: “I know he’s taking strong positions on certain foreign issues, but I feel in negotiations you need to do things to move the needle and when a whole country is watching its hard to keep a poker face, but at least his business track record overall gives us reason to believe ultimately stability will prevail.” and “He’s crazy, but it’s a tactic to get other nations not to mess with us.” “I worry he will drive us apart as a nation. I believed him when he said that would stop with the campaign, but I haven’t seen signs of it so far.” “I am nervous that his mental health is actually bad.” “I worry he is actually going to roll back social change we’ve fought so hard for. But I hope not.” What do you think about the left’s response so far? “You need to give us an opportunity to admit we may have been wrong without saying we’re bad people. I am already thinking I made a mistake, but I feel ostracized from my community.” “The left is more intolerant than the right.” Note: This concept came up a lot, with real animosity in otherwise pleasant conversations. “Stop calling us racists. Stop calling us idiots. We aren’t. Listen to us when we try to tell you why we aren’t. Oh, and stop making fun of us.” “I’d love to see one-tenth of the outrage about the state of our lives out here that you have for Muslims from another country. You have no idea what our lives are like.” “I’m so tired of hearing about white privilege. I’m white, but way less privileged than a black person from your world. I have no hope my life will ever get any better.” “I am tired of feeling silenced and demonized. We have mostly the same goals, and different opinions about how to get there. Maybe I’m wrong, maybe you’re wrong. But enough with calling all of us the devil for wanting to try Trump. I hate Hillary and think she wants to destroy the country of us but I don’t demonize her supporters.” “I’m angry that they’re so outraged now, but were never outraged over an existing terrible system.” “The attacks against Trump have taught me something about myself. I have defended him and said things I really didn't believe or support because I was put in a defensive position. Protesters may have pushed many people in this direction BUT it is ultimately our responsibility and must stop.” “I'd like to also add that the demonization of Trump by calling him and his supporters: Nazis, KKK, white supremacists, fascists, etc. works very well in entrenching Trump supporters on his side. These attacks are counter-factual and in my opinion very helpful to Trump.” “So far his election has driven our nation apart. So far I see most of the divisiveness coming from the left. Shame on them. I don't see it quite as bad as during Nixon's era but we are truly headed in that direction. I could not speak with my parents during that time because political division would intrude. This Thanksgiving and holiday season were as close as I've felt to that in 40 years. We are increasingly polarized. It doesn't seem to be strictly generational, though that exists. There is an east coast-west coast, rural vs. urban, racial, and gender division forming now. It has the potential to be devastating.” “The amount of violent attacks and economic attacks perpetrated by the left are troublesome. My wife and I recently moved to the Bay Area. I was expecting a place which was a welcoming meritocracy of ideas. Instead, I found a place where everyone constantly watches everyone else for any thoughtcrime.” “Silicon Valley is incredibly unwelcoming to alternative points of view. Your curiosity, if it is sincere, is the very rare exception to the rule.” “There is something hypocritical about the left saying the are uniters not dividers, they are inclusive and then excluding half the population with comments on intelligence and irrelevance in the modern world.” What would convince you not to vote for him again? “War would be unforgivable.” “If the Russia thing were true, I’d turn against him. Why don’t y’all focus on that instead of his tweets?” “Give us a better option, and we’ll be happy. But it needs to be a moderate—Sanders won’t win.” “I’ll happily vote for someone else. There’s a lot I hate about Trump. But our lives are basically destroyed, and he was the first person to talk about fixing that.” “Generally hard to say. Extreme corruption would do it.” Second person in the same conversation: “I don’t care if he’s corrupt. Y’all voted for Hillary and she was the most corrupt candidate of all time.” “Another worry is an escalation of overreaches between him and the left that culminates in the breakdown of our system of law. I'd hold him responsible for that.” “If he were to get the US involved in a major military conflict (I think the odds of this have actually decreased versus Hillary, but I'm willing to be proven wrong). If he were to substantially increase the cost of doing business (by increasing regulation or taxes for instance).” “I'm socially very liberal. If he were to do something like restart a war on drugs, try to restrict rights of LGBT, or make first trimester abortions difficult or dangerous, I'd rethink my position. I think these type of things are extremely unlikely though, especially with an election a few years away the country as a whole becoming more socially liberal.” “I think if 2008 happened again (further into Trump's tenure, so that causation can be shown, hypothetically), the base would evaporate.” “Based on Trump's history before politics I don't believe he is racist, sexist, homophobic or bigoted. If that were true it would supersede everything else since it would be even worse for individual liberty and freedom than any freedom of speech restrictions or increases in government size proposed by the Democratic Party.”

2017 YC Annual Letter

2017-02-16 17:37:01

Dear YC Community: In response to a comment on Hacker News, I’m going to try writing an annual letter to the YC community with an update on our progress. Our mission is to enable the most innovation of any company in the world in order to make the future great for everyone. We believe new technology, economic growth, and new ideas about how our society might function are more important than ever before. As of January 1, 2017, YC has funded over 3,200 founders and 1,470 companies. This year, assuming there is not a macroeconomic meltdown, we expect the total valuation of companies that have gone through our program to surpass $100 billion. We have also funded more than 30 non-profits. As always, most of the credit goes to our founders—they, and the astonishingly strong and helpful community they create, are what make YC special. The second-most credit goes to our team—I am incredibly thankful to work with such a talented and driven group of people. YC Companies & Investments We invested about $27 million in the Winter and Summer 2016 batches, and so far we have invested about $187 million in later-stage investments from our first Continuity fund. We are excited to fund companies in any space that we believe is good for the world and can eventually sustain a very large company. Some of the many areas we’re interested in are noted in our Requests for Startups. Our largest exit of 2016 was Cruise, a self-driving car company. We expect to fund many more machine learning-driven companies in the future (I will generally avoid calling out trends in these letters, because I’ve noticed doing that produced unintended consequences, but this one is so obvious and so important that I’m happy to mention it). Helion, Oklo, and Bright are all working toward inexpensive clean energy, an area of great interest to us. LendUp and Coinbase are two examples of YC companies innovating in financial services technology. Boom and Relativity Space are pursuing strategies in aerospace that most companies haven’t pursued seriously in a long time, or ever. Gingko Bioworks is learning how to design new organisms, and Science Exchange is making it easier to get new experiments done. FarmLogs is making it easier and more efficient to grow food, and Gobble, Instacart and Doordash are making it easier to eat it. Reddit and 9Gag continue to make me waste enormous amounts of time, but I love every minute I waste. Docker, PlanGrid, Checkr, Flexport, Gusto are just a few of the enterprise companies we’ve seen begin to thrive. Machine Zone has become one of the largest gaming companies in the world. Rappi, Wave, and Strikingly are some of the many YC companies succeeding on other continents. In addition to the three companies we are currently best known for—Airbnb, Dropbox and Stripe—more than 50 of our companies are worth more than $100 million each. We’ve funded a lot of other companies, but in the spirit of not exhausting your patience, I’ll stop listing them here. Hyperscale There’s one more trend I want to mention, though it’s not about a specific market. I think we’re now in the era of hyperscale technology companies. If you believe Metcalfe’s law, it stands to reason that network-effected technology companies are now far more powerful than ever before, simply because the number of people connected to the internet keeps getting bigger, and n^2 gets big really fast. Companies like Amazon, Facebook, Google, Apple, and Microsoft have powerful advantages that are still not fully understood by most founders and investors. I expect that they will continue to do a lot of things well, have significant data and computation advantages, be able to attract a large percentage of the most talented engineers, and aggressively buy companies that get off to promising starts. This trend is unlikely to reverse without antitrust action, and I suggest people carefully consider its implications for startups. There will of course be areas where these companies are naturally weaker, and these are good areas to start companies. Diversity & Inclusion In 2016, we funded 68 female founders at 52 companies. About 22.3% of the companies we funded had a woman on the founding team, and about 12.5% of the founders we funded were women. In 2016, we funded 52 Black and Latino founders at 29 companies. 11.6% of the founders we funded were Black or Latino. The percentage of women who apply to YC is roughly the same as the percentage of women who get funded. The same is true for Black and Latino founders. From the data we have available, it seems that the percentage of women and people of color applying to YC is higher than the overall percentage of women and people of color starting startups. This is encouraging, but we continue to want to understand and address the barriers that prevent more founders from underrepresented groups from starting startups and applying to YC. We still have a long way to go. While we remain committed to helping more underrepresented founders get started, we believe that’s only part of the solution. We still see significant dropoffs at the stages after YC (e.g. raising late-stage capital). The larger startup community needs to consider how little the unicorn-founder demographics resemble the early-stage demographics. There’s clearly a lot more work to do here, and we’re committed to help do it. We’re hosting our fourth annual Female Founders Conference this year in June, continuing our Open Office Hours with underrepresented communities and bringing in unconscious bias experts to train our team. We’re always open to hearing how we can do a better job, so if you’ve come across practices or programs that work well to support diverse founders, please let us know. YC Organization Y Combinator is currently made up of 5 groups. I’ll talk a little about each of them here. We expect to add several more over the next few years, and in general you should expect us to try a lot of stuff (though of course not all of it will work). You should also expect us to continue to grow the number of companies we fund. YC (our flagship program) In October of 2016, Michael Seibel took over responsibility for our main program as CEO of YC. He’s doing an outstanding job, and I expect the program to significantly strengthen over the course of 2017 and beyond. In 2016 (and the first part of 2017), we added three remarkable partners to the flagship group: Tim Brady, Adora Cheung and Daniel Gross. One of my partners that I’d like to especially thank is Dalton Caldwell. Dalton has been a YC partner since 2013, and now runs our admissions team, which is perhaps the most important function we have. Dalton has taken a process that used to be stressful and deeply imperfect and improved it by a huge amount. Though I’m sure we’ll still make mistakes, I sleep better at night thinking that we’re making far fewer in this area than we used to. While I’m on the topic of recognizing partners, I’d also like to thank the three partners at YC that get some of the least public recognition. Kirsty Nathoo is our CFO, and Jon and Carolynn Levy are our General Counsels. They are full partners at YC but since they don’t advise our companies (as much) on business as the other partners, they are less well-known. However, they work incredibly hard and thoughtfully, and they are one of the secrets to our success. In fact, one of our most successful founders recently said to me “I tell every startup I meet they should do YC, and the reason is Jon Levy. I don’t get how he managed to take my calls at all hours of the day, because the other founders in my batch said he did the same for them, but he solved more problems for us than I can count, and also just listened to me when I had a bad day.” Finally, I’d like to thank our entire software team, lead by my partner Jared Friedman. We’ve had an incredible improvement in our software over the past year, and someday when the history of YC is written, I expect that people will talk about software as one of our secret weapons. This shouldn’t be so secret—one might reasonably expect technology investors to understand the importance of great software for themselves—but it is generally not the case. We give companies in this program $120k for 7% ownership in their company, and work with them intensively for 3 months and then less intensively for the rest of the company’s life. We run this program twice a year, and currently fund about 125 companies per batch. While at YC, founders get access to a range of resources, advice, connections, and special deals. Anyone can apply on our website, and all sorts of people do (here are some common misconceptions about who YC accepts). Companies often ask us how we decide who gets into YC. There are four questions I consider: 1) Will this company build something lots of people really love? If so, and if ‘lots’ is sufficiently large, the company has the chance to produce substantial earnings. 2) Will this company be easy to copy? The most successful companies I’ve worked with have a significant competitive advantage—network effect, proprietary technology, complex coordination, or barrier to entry of some other sort. I understand in theory it’s possible to build a very successful commodity company, but I don’t know how to do it. 3) Will these founders develop into “forces of nature”? As most people say, it’s hard to make money unless you invest in great founders. Defining what that means is usually left as an exercise to the reader. Here are some questions I ask myself: Are these founders relentlessly determined? Are they original thinkers? Are they smart, and especially do they have new insights I haven’t heard before? Are they good communicators (and so will they be able to hire, sell, raise money, talk to the press, etc)? Are they focused and intense? Do they always seem to find a way around obstacles? Would I work for them? This is the often the hardest factor for me to evaluate, because you have to make a judgment about trajectory—you are trying to predict where someone will be in five years. 4) Does this company have a clear and important mission? Without this, I usually get bored. More importantly, companies that don’t have this usually have a hard time recruiting enough great people to work with them, and thus struggle to become very large. We especially like founders who have some sort of non-traditional background; we are somewhat suspicious of founders with extremely “tracked” lives. Startups are not a resume item, and we don’t like founders who view YC as a stop on the way to B-school. Although in many ways it’s a good problem to have, the increase in the value of YC’s brand means we have to work harder to find people doing a startup for the right reason: to bring an idea they’re obsessed with to life, and willing to do something unreasonable to see it happen. We have had great success funding “unknown” people, and we will keep doing this—it’s one of our two or three best secrets. Please help us spread the message: you don’t need to be experienced, well-known, or have an impressive resume to get into YC. We fund smart, ambitious people with a great idea and evidence that they can build things. If you know a founder who should apply to YC, you can recommend them to us. That said, companies don’t need a recommendation or introduction, and most companies we fund don’t have one. As I mentioned before, I think the strength and quality of our community is one of the most important things we have to offer. As with any community, this emerges from a complex set of factors, but I’ll mention three here. One of the most important cultural values PG and Jessica put in place was to do the right thing for founders, even when it is not in our own short-term interest. When I was going through YC, it was the thing that most stuck out to me as different from other investors. Another cultural value they created is to try to fund only good people (in the sense of doing the right thing, though separately we evaluate for effectiveness). We sometimes get this very wrong, and dealing with the repercussions is the most unpleasant part of our job. However, we manage to get it right a lot. Thirdly, we have a ‘pay-it-forward’ mentality. Startups in the batch know they can ask any alumni for help, well beyond normal Silicon Valley expectations. Later, when they’re successful alumni, they help new companies without us ever asking. YC Continuity YC Continuity is our growth-stage fund. We started it in 2015, and it’s run by Ali Rowghani. Last year, Anu Hariharan joined as our second YC Continuity partner. We do this to provide a source of friendly growth-stage capital to companies and founders that go through the YC program, especially to companies that other investors may not fully understand. We also hope to be a force for good in the growth-stage investing market. YC Continuity will begin to experiment with programs to provide more advice and resources to growth-stage companies in 2017. YC Research YC Research is a non-profit research division of YC. Although we think startups are a good structure to align people to solve a problem, they are clearly not the best solution for everything. For some important problems, a non-profit research lab is a good approach. We sometimes fund and run internal groups, and sometimes fund external organizations. So far there are 5 groups: Basic Income, OpenAI, HARC, New Cities, and Universal Healthcare. Basic Income is studying the effects of giving people unconditional monthly cash. We are currently in our pilot phase in Oakland. We are continuing to learn and make changes, and work with various public agencies and governments to enable the full-scale study. We are planning to run a larger study than we originally intended, and we hope to start fundraising for it soon. OpenAI is trying to develop artificial intelligence for the benefit of humanity. In our first year, we released Gym, Universe, and a number of new ideas that were at the limits of my understanding but that I enjoyed reading about. In 2017, we hope to achieve significant new milestones that are not possible with current AI technology. HARC is a group headed by Alan Kay inventing new ways for humans to learn and understand more. My visit to Bret Victor’s lab last year, which is a sort of computerized interactive room, remains one of the new technologies I think most about. New Cities is still in the exploration phase, but we hope to have more to share over the course of this year. Universal Healthcare is a project on which we are partnering with Watsi to study how we can use technology to make healthcare both better and more affordable. We grew a little faster than we were expecting, so we are trying to take a breather on further growth at YCR. But we may still add one more group in 2017. Startup School Startup School is our new MOOC (which we will supplement with our existing series of conferences). It will be open to anyone (unless we get absolutely overwhelmed with interest) and is free. We will stream talks like the ones that happen during YC dinners, provide advice to startups, and help them connect to other startups in the program and other people that may be helpful. Although we clearly stand to gain from this, we are doing it because we believe spreading the message about entrepreneurship and making the necessary information, community, and connections freely accessible to everyone who might want to start a company is important. This year, I’ll be teaching it. If this goes well, we hope to offer it every year. In future years, we also hope to explore how something like ‘financial aid’ might work for people that need a small amount of capital to help get their startup going. Hacker News Hacker News (HN) is an internet forum, created by Paul Graham shortly after YC got started and now run by Daniel Gackle. Its original purpose was to try out the programming language PG was developing—a dialect of Lisp called Arc, that HN still proudly uses today—and to be a place to find interesting things to read. HN’s initial users were fans of the essays PG had been publishing about startups, programming, and a lot of other things. Soon it became a hub for everyone interested in YC and startups YC was funding. YC and HN grew up together, and many YC founders started as HN users. HN remains focused on startups, programming, and lots of other things—anything intellectually interesting goes. The HN community has developed many unique features over the years, such as the "Show HN" format, where users share something they've made, and monthly "Who Is Hiring" threads that have helped many community members find jobs. Hacker News has 3.4 million users per month and 350,000 users per day, with 4 million pageviews a day. There are just under 1 million registered accounts, with several hundred added each day. Users post around 1,000 articles and 6,000 comments to the site per day. These numbers are all growing, but relatively slowly, and we like it that way. Internet forums are notorious for degrading over time--one of the ways PG described HN was as an experiment in seeing how long a forum could stay good before it deteriorated. We've mostly managed to stave that off, for 10 years now, but we're always mindful of this risk. HN has grown into the leading community for tech and startups on the internet, known for its emphasis on civil, substantive discussion—at least in theory! Our team affectionately refers to HN as "the worst internet forum, except for all the others". ----- We are only about 30 years into the age of software, about 20 years into the age of the internet, and about 2 years into the age of artificial intelligence. Each of these by themselves is a technology revolution that I believe we will look back on as being extremely significant; taken together, I believe they will represent the most significant technology revolution in human history—I believe we are likely to have less in common with whatever we call the most intelligent species on the planet in 600 years than we did with humans 60,000 years ago. It’s an exciting time to do what we do. Sam Altman President, YC Group

Time to Take a Stand

2017-01-28 18:48:17

It is time for tech companies to start speaking up about some of the actions taken by President Trump’s administration. There are many actions from his first week that are objectionable. In repeatedly invoking unsubstantiated conspiracy theories (like the 3 million illegal votes), he's delegitimizing his opponents and continuing to damage our society. So much objectionable action makes it hard to know where and when to focus, and outrage fatigue is an effective strategy. But the executive order from yesterday titled “Protecting the Nation From Foreign Terrorist Entry Into the United States” is tantamount to a Muslim ban and requires objection. I am obviously in favor of safety and rules, but broad-strokes actions targeted at a specific religious group is the wrong solution, and a first step toward a further reduction in rights. In addition, the precedent of invalidating already-issued visas and green cards should be extremely troubling for immigrants of any country or for anyone who thinks their contributions to the US are important. This is not just a Muslim ban. This is a breach of America's contract with all the immigrants in the nation. This administration has already shown that they are not particularly impressed by the first amendment, and that they are interested in other anti-immigrant action. So we must object, or our inaction will send a message that the administration can continue to take away our rights. In doing so, we should not demonize Trump voters—most of them voted for him for reasons other than the promise of a Muslim ban. We need their eventual support in resisting actions like these, and we will not get it if we further isolate them. The tech community is powerful. Large tech companies in particular have enormous power and are held in high regard. We need to hear from the CEOs clearly and unequivocally. Although there is some business risk in doing so, there is strength in numbers—if everyone does it early this coming week, we will all make each other stronger. Tech companies go to extraordinary lengths to recruit and retain employees; those employees have a lot of leverage. If employees push companies to do something, I believe they’ll have to. At a minimum, companies should take a public stance. But talking is only somewhat effective, and employees should push their companies to figure out what actions they can take. I wish I had better ideas here, but we’re going to have a meeting on Friday at Y Combinator to discuss. I’d love to see other tech companies do the same. If this action has not crossed a line for you, I suggest you think now about what your own line in the sand is. It’s easy, with gradual escalation, for the definition of ‘acceptable’ to get moved. So think now about what action President Trump might take that you would consider crossing a line, and write it down. Almost every member of the GOP I have spoken to knows that these actions are wrong. Paul Ryan, Mike Pence, Kevin McCarthy and James Mattis said so themselves when Trump first proposed his Muslim ban. We need to remind anyone involved in this administration that, for the rest of their lives, they will have to explain why they were complicit in this. In my first post on Trump last June, I said it would be a good time for all of us to start speaking up. We are now at the stage where something is starting that is going to be taught in history classes, and not in a good way. This morning, Kellyanne Conway posted on Twitter that Trump is "a man of action" who is "just getting started". I believe her. We must now start speaking up.

Affordable Care

2017-01-13 17:27:57

The Affordable Care Act is far from perfect–for one thing, I think health insurance should be entirely separate from employment–but I hate the thought of losing it without a replacement for people who will lose insurance. If Congress ends up repealing it, I hope they earnestly try to preserve the best parts, and put in place something better. One thing the ACA definitely did was help a lot of founders start their companies--without it, being a founder would make sense for less people. The Department of Health and Human Services released a lot of new data yesterday showing how the ACA helped support entrepreneurs, and in light of that, I thought it would be good to collect and share stories of how the ACA helped some Y Combinator founders get started. Here they are in the founders’ own words: Dan Carroll, Clever, S12 March 3, 2012: I'm holed up in a hotel room in San Francisco with two of my best friends, wildly excited about the idea that will become Clever. We've packed the day with difficult conversations – Where will the company be founded? Do we have enough savings? Who will be CEO? – but the only topic that I'm truly afraid of is health. I've been living with Crohn's Disease for nearly ten years, and I know that without health care, I'd die, and without health insurance, I'd go broke. But some quick research tells me that, thanks to the ACA, I can join my parents' healthcare plan until I turn 26 the following January. Risk mitigated, I make the commitment to my cofounders - I'm in. Ethan Perlstein, Perlara, W16 I left academia on Jan 1, 2013 as unemployed former postdoc. I would not have been able to move across the country to start my company, and my wife wouldn't have given up her employer-sponsored health insurance, if not for Obamacare. Also, some of the first employees at Perlara depended on the ACA for insurance. Randall Bennett, VidPresso, W14 There's a good chance that without the aca my startup wouldn't exist... or I'd be dead. When launching my startup we couldn't get health insurance because one insurer denied us because I once had a sleep study for sleep apnea. Once you get one rejection, all the others reject you. Then, last year I had a brain tumor. I had moved off to a more normal health plan... but with the last set of rules chances are it'd have been unlikely I could have gotten any insurance, let alone a somewhat reasonable plan. Ben Maitland-Lewis, Pretty Instant, W15 We aren't yet at a stage where we can offer healthcare to our employees but thanks to the ACA we are all individually insured. This has been instrumental in helping us grow the business while keeping costs low. I hope the next administration doesn't repeal our access to individualized affordable healthcare as it would have a direct effect on the company at this stage. Ravi Parikh, Heap, W13 The provision in ACA that allows young adults to remain on their parents' health insurance until they're 26 has helped me multiple times. In 2011, I was self-employed as a musician, which would have been much more difficult to pursue if I weren't able to take advantage of my parents' health insurance. Later, my co-founder Matin left his job at Facebook in 2012. He and I worked on a number of side projects, one of which eventually became Heap. Both him and I remained on our parents' insurance until Heap had enough funding and traction to offer health plans to employees. Again, without being able to remain on our parents' insurance, this would have been much more difficult. Mike Romano, Lendsnap, S16 The ACA has been a blessing for me and my family, and without it, I could not pursue my entrepreneurial dreams. I began my new career within days of the birth of my son, and the fact he arrived five weeks early only complicated plans further. My wife is a graphic designer and usually only finds contract work without benefits. The ACA allows me to follow my passion of transforming the mortgage industry while ensuring our son gets the crucial care he needs during his early life. Brian Merritt, Seed, W15 For me, the ACA was life changing. Prior to the ACA I was only able to obtain insurance either through an established group plan, or via Medical/Medicaid “last resort” insurance. This was because I have a pre-existing condition that made me ineligible to buy an individual insurance plan. Due to having a chronic condition that needs to be managed carefully, having a quality insurance plan was not an option, but a requirement. So my only option was to work for a large employer with an established health plan that would provide me with the appropriate benefits to support my situation. After the ACA made it so that pre-existing conditions don’t disqualify applicants, I was able to purchase an individual insurance plan outside of my employer, and as as a result I was able to start a company and work on it for almost two years before we were able to put our own group plan together. Mick Johnson, Whereoscope, S10 The ACA was essential when starting my new business - I founded the company, was pre-funding for 9 months, and the only employee, so was unable to get small group coverage. I have a wife, a child, and another child on the way so health insurance was essential. Without the ACA I could never have left a regular job to found this new company, which has now raised funding and employs 7 people. Kevin Law, Cambly, W14 I had to apply for individual health care twice while starting Cambly before the ACA exchanges launched at the end of 2013. It was incredibly difficult and expensive, because I had to keep paying for expensive COBRA coverage from my previous employer while repeatedly applying, appealing, and getting rejected by insurers for individual plans. I was still on a group plan during the ACA debates and assumed that the only people getting rejected were the chronically ill. I learned through my experience that nearly anyone who had past health care expenses would often be rejected when applying for individual plans (as was my case). An especially ironic moment occurred when I was on a Blue Cross group plan via COBRA and appealing a rejection for a Blue Cross individual plan. I got a physical, so my doctor could write a letter saying I was in good health for the appeal. I simultaneously received a rejection letter for my individual plan appeal citing pasts health costs AND a letter from my group plan asking if the physical was related to a workplace incident (presumably so they could sue someone to get reimbursed for the costs). The exchanges finally went live at the end of 2013, and I quickly got insurance coverage. No extensive health history paperwork. No rejections or appeals. It launched right around when we got into YC, so it was great to focus on building and growing our business rather than trying to obtain health insurance. Tristan Tao, Leada, S15 I'm currently 24 years old (going on 25). I am fortunately covered under my parent's health insurance under ACA (until I'm 26). This was critical in reducing my personal burn. I would not go without health insurance; this meant I'd have to either join a larger company to gain coverage, or purchase them out of pocket. Either way it would've significantly hindered the 22 yrs old me to start a company as a Senior in College. I strongly hope that the successor of Obamacare will include a clause that makes it cheaper for recent graduates to get coverage (or retain the current policy of enabling people younger than 26 to stay on their parents' coverage). Looking back, the largest hindrance to starting a company would've been debt (which I didn't have any), and personal burn (insurance being a huge part). Ram Jayaraman, PlateIQ, S15 5 out of 7 members of the initial team at Plate IQ were on ACA. Without ACA in the early days we would have to spend large amounts on employer health insurance and since the team was small we would not have gotten much discounts either. Since the team just needed something basic until we raise decent venture money, they were all able to find very affordable options with good networks like Kaiser. In thinking of an ACA successor: very few plans are coupled with HSA accounts and HSA withdrawals are penalized. For startups with young teams I would ideally like to continue getting plans with large deductibles and large co-pays and instead contribute to an HSA account. Avoiding the 20% penalty for the HSA withdrawal would definitely encourage more participation. Ben Thompson, Gitprime, W16 I have a family of 5. Had it not been for the affordable care act, it would have been incredibly difficult to take the leap to become a co-founder. Because of the ACA, I was able to take a calculated career risk without having to sacrifice health coverage for my family as part of that decision. Two years later, we’ve built a company that provides benefits for all of our employees and their dependents. Brendan Lim, Kicksend, S11 In 2009 my wife was in a life threatening car accident. After her recovery, she was unable to get reasonably priced coverage due to her new "pre-existing conditions". During this time, my co-founder and I had quit our jobs and started working on Kicksend (S11) and were living off of our savings. As a result, we were unable to afford reasonable insurance. The ACA removed the "pre-existing conditions" and gave us peace of mind since my wife was finally able to get covered. Vishal Joshi, Joy, S16 When we started Joy, we had insurance as dependents and did not need to create company healthcare offer for a bit. But soon we had a new employee very eager to join Joy but needed health insurance. We agreed to start the process but it so happens that the entire ordeal to get company healthcare setup takes a couple of months. If not for ACA, Joy would had lost a really good employee who is still with us and actually helped us build our website. She was able to keep afloat using ACA while we got our company policy setup. Jason Chen, Verge Genomics, S15 The Affordable Care Act makes it easy for us to purchase and manage health insurance plans – all of our employees are covered rapidly with no medical underwriting. However, we pay high premiums, incur rising deductibles, and plans are bloated with benefits we cannot use. We have also had to pay for "retroactive coverage" for some employees to avoid penalties from the individual mandate, even though no services were used. Future patient-centered health reform should facilitate access to coverage for small business and individuals while allowing greater customization of benefits. Zachary Garbow, SocialBrowse, W08 When I began working on my startup full time, my wife and I wanted to start a family. At that time, when trying to purchase private insurance being pregnant was considered a pre-existing condition. My wife also had undertaken some preventative procedures years earlier, which made it difficult to obtain coverage. As a result, we were stressed and anxious about not being able to get coverage, and fearful that we'd not be covered for our pregnancy and I'd have to quit my startup to find a corporate job with health insurance. Luckily, the ACA passed just in time to provide us the peace of mind to both start our family and continue building my startup. We now have 2 kids and a thriving, growing business. Varun Aroroa, OpenCurriculum, W14 ACA has allowed me to have health insurance. Before I got on Obamacare, I had no insurance and had stopped all physical activity beyond basic exercise for years, being too scared to hurt myself. Living below the adjusted poverty line, I just can't afford normal plans. It is amazing how much mental comfort and freedom it can bring in life. Mike Knoop, Zapier, S12 Thanks to the ACA and my parents, the provision to cover dependents through the age of 26 enabled me to take more risk starting Zapier. Specifically, I did not have to worry about healthcare coverage when the company was small and could not afford health benefits. Now, Zapier provides health benefit coverage to our 50+ US employees. Zachariah Reitano, Shout, S14

The 2016 Election

2016-10-17 19:09:02

I am endorsing Hillary Clinton for president. I've never endorsed a presidential candidate before, but I'm making an exception this year, because this election is exceptional. Donald Trump represents an unprecedented threat to America, and voting for Hillary is the best way to defend our country against it. A Trump presidency would be a disaster for the American economy. He has no real plan to restore economic growth. His racist, isolationist policies would divide our country, and American innovation would suffer. But the man himself is even more dangerous than his policies. He's erratic, abusive, and prone to fits of rage. He represents a real threat to the safety of women, minorities, and immigrants, and I believe this reason alone more than disqualifies him to be president. My godson’s father, who is Mexican by birth and fears being deported or worse, is who convinced me to spend a significant amount of time working on this election at the beginning of this year, when Trump still seemed like an unlikely possibility. Trump shows little respect for the Constitution, the Republic, or for human decency, and I fear for national security if he becomes our president. The only two vocal Trump supporters I am close to are Peter Thiel and my grandma. Peter is a part-time partner at YC, meaning he spends a small fraction of his time advising YC companies, does not have a vote in how YC is run, and in his case waives the equity part-time partners normally get. This has been a strain on my relationship with both of them—I think they are completely wrong in their support of this man. Though I don’t ascribe all positions of a politician to his or her supporters, I do not understand how one continues to support someone who brags about sexual assault, calls for a total and complete shutdown of Muslims entering the US, or any number or other disqualifying statements. I will continue to try to change both of their minds. Some have said that YC should terminate its relationship with Peter over this. But as repugnant as Trump is to many of us, we are not going to fire someone over his or her support of a political candidate. As far as we know, that would be unprecedented for supporting a major party nominee, and a dangerous path to start down (of course, if Peter said some of the things Trump says himself, he would no longer be part of Y Combinator). The way we got into a situation with Trump as a major party nominee in the first place was by not talking to people who are very different than we are. The polarization of the country into two parallel political realities is not good for any of us. We should listen to each other more, not less. We should all feel a duty to try to understand the roughly half of the country that thinks we are severely misguided. I don’t understand how 43% of the country supports Trump. But I’d like to find out, because we have to include everyone in our path forward. If our best ideas are to stop talking to or fire anyone who disagrees with us, we’ll be facing this whole situation again in 2020. That kind of diversity is painful and unpopular, but it is critical to health of a democratic and pluralistic society. We shouldn’t start purging people for supporting the wrong political candidate. That's not how things are done in this country.

$1 Million VotePlz Sweepstakes

2016-09-26 17:07:56

The 2016 US Presidential election feels like the most important one so far in my lifetime. No one able to vote in the US should be sitting this one out—we have a major choice to make. With some friends, I helped start VotePlz to make it easier for young people to participate—technology has moved forward but registration has not (for example, young people generally don’t have printers or stamps, and many states still don’t have online registration). A lot of people are working hard to get their friends registered to vote, and we wanted to do something for them. So today, we’re announcing a VotePlz sweepstakes with a million dollars in prizes. Some of the prizes are $50,000 in student loan payoffs or scholarship. After you check your registration, you get a referral link. For each person you get to check their registration, you’ll get one entry into the sweepstakes (up to 25). You can see how you’re doing here and how your school is doing here. Also we just launched an iOS app that lets you register just by taking a photo of your Driver’s License, and easily share VotePlz with your contacts. We need your help. Please check your registration (https://plz.vote) and share this with your friends and family!

Don't Read The Comments

2016-08-23 20:55:16

I sent this email to the current YC batch this morning: I've talked to some of you who are really bummed about negative press coverage or online comments about your company. Often this takes the general form of "ugh, all these new startups suck, everything good has already been started." It sucks to have haters, but every founder who now runs a huge company faced this for a long time. Please don't let it get you down (some criticism is useful, and that you should pay attention to, but that's not normally what gets people down). The sooner you can develop a thick skin for this, the better. Unless the world ends soon, the most valuable company the world will ever see has not yet been started. Most startups will fail, so you can say everything sucks and be right most of the time. Although you never lose money with that strategy, you never make any either. The best startups take a long time to be recognized as good. Go read the things people wrote about Google, Facebook, Airbnb, Uber, etc in their first few years of existence. Overnight success usually takes a decade of uphill work. YC itself faced this for a long time. We turned out to do ok. A friend of mine likes to say "there are two kinds of people in the world--the people that build the future, and the people who write posts on the internet about why they'll fail". Keep trying to be in former category. Unless the world ends soon, the most valuable company the world will ever see has not yet been started. Most startups will fail, so you can say everything sucks and be right most of the time. Although you never lose money with that strategy, you never make any either. The best startups take a long time to be recognized as good. Go read the things people wrote about Google, Facebook, Airbnb, Uber, etc in their first few years of existence. Overnight success usually takes a decade of uphill work. YC itself faced this for a long time. We turned out to do ok. A friend of mine likes to say "there are two kinds of people in the world--the people that build the future, and the people who write posts on the internet about why they'll fail". Keep trying to be in former category. The people who have said there is nothing new left to do in the world have been wrong every time. Don't let their lack of imagination hold you back.

Trump

2016-06-20 19:36:08

I'm going to say something very unpopular in my world: Trump is right about some big things. He's right that many Americans are getting screwed by the system. He’s right that the economy is not growing nearly fast enough. He's right that we're drowning in political correctness, and that broken campaign finance laws have bred a class of ineffective career politicians. He may even be right that free trade is not the best policy. Trump supporters are not dumb. But Trump is wrong about the more important part: how to fix these problems. Many of his proposals, such as they are, are so wrong they’re difficult to even respond to. Even more dangerous, though, is the way he's wrong. He is not merely irresponsible. He is irresponsible in the way dictators are. Trump's casual racism, misogyny, and conspiracy theories are without precedent among major presidential nominees. He has said that a judge of Mexican descent isn't treating him fairly because of his heritage and that we should ban Muslims from entering the country. When his supporters beat up a homeless Hispanic man and cited Trump, he called them “very passionate”. He has accused Obama of somehow being responsible for the recent shooting in Orlando. To anyone familiar with the history of Germany in the 1930s, it's chilling to watch Trump in action. Though I know intellectually it’s easy in hard economic times to rile people up with a hatred of outsiders, it's still surprising to watch this happen right in front of us. It's hard to tell, as it often is with demagogues, how much is calculation and how much is genuine belief. But it's a real and terrifying possibility that Trump actually believes much of what he says. In any case, when he says it, it signals to other people that it’s ok to believe. Demagogic hate-mongers lead down terrible paths. It would be particularly embarrassing for us to fall for this—we are a nation of immigrants, and we know that immigrants built this country (and Trump, of course, is the grandson of immigrants and married to an immigrant). Hitler taught us about the Big Lie—the lie so big, and so often repeated, that people end up believing it. Trump’s Big Lie is hiding in plain sight. His Big Lie is that he’s going to Make America Great by keeping us safe from outsiders. But he has no serious plan for how to restore economic growth, which is what we actually need. Without it, we’ll be in a zero-sum game and face continued infighting. And without it, we’ll lose our position as the most powerful country in the world. He distracts us with hate of outsiders in the hopes that we don’t notice he has no plan for the inside. He has failed to put forward a serious plan for major investments in research and technology that we so desperately need. Instead, he tries to distract us with fear of Them. At least Trump is willing to talk about the fact that the US is not on an acceptable growth trajectory. The Big Truth in Trump’s slogan is “Again”—we do need a fundamental change to get back to where we were. Clinton’s dangerously bad Big Lie is that there’s no big problem here at all. Trump is right about the problem, but horribly wrong about the solution. I take some risk by writing this (even though I’ve supported some Republicans in the past), and I’ll feel bad if I end up hurting Y Combinator by doing so. I understand why other people in the technology industry aren’t saying much. In an ordinary election it's reasonable for people in the business world to remain publicly neutral. But this is not an ordinary election. In the words of Edmund Burke, "The only thing necessary for the triumph of evil is for good men to do nothing." This would be a good time for us all—even Republicans, especially Republican politicians who previously endorsed Trump—to start speaking up. Note: Anyone is welcome to republish this. Note 2: Apparently the Burke quote was not definitively said by him :(

'We're in a Bubble'

2016-06-15 01:19:58

A lot of people have been saying we’re in a tech bubble for quite some time. Someday they’ll be right, but in the meantime, I thought it'd be fun to look back at some articles from the last 10 years: 2007, Coding Horror -- Welcome to Dot-Com Bubble 2.0. “You might argue that the new bubble has been in effect since mid-2006, but the signs are absolutely unmistakable now.” 2008, Gigaom -- Is Linkedin worth $1B? “The valuation of $1 billion – not as insane as the [$15 billion] valuation placed by Microsoft on Facebook – was jaw dropping.” 2009, Wall Street Journal -- The Bursting of the Silicon Valley Bubble (2009 Edition). “Some think that this round of Silicon Valley blowups might be more damaging than the last.” 2010, Daily Beast -- Facebook's $56 Billion Valuation and More Signs of the Tech Apocalypse. “One analyst predicts Facebook will easily be worth $200 billion by 2015. Right on! And by 2020 it could be the first company with a $1 zillion market value, so buy-buy-buy, everybody!” and, famously, Signal v. Noise, Facebook is not worth $33,000,000,000. "But the bullshit monopoly-money valuation merry-go-round has to stop." 2011, The Economist -- The New Tech Bubble (cover story). “Some time after the dotcom boom turned into a spectacular bust in 2000, bumper stickers began appearing in Silicon Valley imploring: ‘Please God, just one more bubble.’ That wish has now been granted.” 2012, The Guardian -- Facebook’s IPO and the new tech bubble. “So yes, the collapse is beginning even as the bubble is filling. Some of us call this fun.” 2013, Gawker / ValleyWag -- The $4 Billion Secret: Don’t Bother Making any Money. “[Pinterest and Snapchat] were both recently, insanely valued by investors at around $4 billion . . . how is this not a bubble, and why aren't more people saying this is crazy?” 2014, Wall Street Journal -- David Einhorn: ‘We Are Witnessing Our Second Tech Bubble in 15 Years’. “ ‘There is a clear consensus that we are witnessing our second tech bubble in 15 years,’ said Mr. Einhorn.” 2015, TechCrunch -- The Tech Industry is in Denial, but the Bubble is About to Burst. “The fact that we are in a tech bubble is in no doubt. . . The tech startup space at the moment resembles the story of the emperor with no clothes.”

Housing in the Bay Area

2016-05-26 00:42:18

Jerry Brown has proposed legislation that would allow a lot more housing to be built in the Bay Area, and hopefully significantly reduce the cost of housing here. More supply should lead to lower prices. I believe that lowering the cost of housing is one of the most important things we can do to help people increase their quality of life and to reduce wealth inequality. A huge part of the problem has been that building in the Bay Area is approved by discretion; even when developments comply with local zoning, they can still be vetoed or stalled by local planning commissions, lawsuits, or ballot measures. This type of discretionary approval isn't common in most of the US, and Governor Brown's legislation helps align California with most states. His bill would make it so multi-family buildings are automatically approved by right as long as they comply with local zoning, and have 5-20% affordable units--the percentage depending on location and subsidy offered. The bill is currently being debated in California's State Legislature as part of the upcoming annual budget, which will be voted on on June 15. If you'd like to help pass this bill, consider calling the members below, as well as the Governor, in support of the Budget Trailer Bill--it only takes a few minutes [1], and it will likely hinge on their support. Assemblyman Phil Ting (SF): (916) 319-2019 Senator Mark Leno (SF): (916) 651-4011 Senator Kevin de León (Los Angeles): (916) 651-4024 Assemblyman Rendon (Los Angeles): (916) 319-2063 Governor Jerry Brown: (916) 445-2841

Cruise

2016-04-13 17:21:10

There is a long and sordid history of people coming out of the woodwork with bogus claims when huge amounts of money are on the line. This has just happened to Cruise, which is run by my friend Kyle Vogt. Cruise is a YC company, and I also personally invested in the company last year. As detailed in a complaint filed by Kyle and Cruise, Jeremy Guillory collaborated with Kyle for a very short period early on in the life of Cruise. I know that at least Kyle had been thinking about autonomous vehicles for quite some time, and I assume Jeremy had been too given all of the attention on the topic in the press about Google’s activities. After a little over a month, Kyle and Jeremy parted ways. This event happened more than two years ago, and well before the company had achieved much of anything. There is more detail in this footnote [1] if you’re curious, or you can read the complaint online here. Jeremy is now claiming to Kyle that he should own a substantial amount of Cruise’s equity, and by doing so is interfering with the pending Cruise/GM merger. Kyle made an extremely generous offer to settle this claim by offering to give Jeremy a lot of his own money. [2] In my opinion, Jeremy’s claim is completely baseless and opportunistic—it obviously comes at a bad time for the company with the merger still pending, and Kyle understandably wanted to avoid a protracted litigation. Kyle has worked incredibly hard to settle this claim amicably, despite what I consider to be the obvious ridiculousness of it, and has done far more than I would have personally done under these circumstances. Kyle and Cruise are now suing Jeremy for making a false equity claim. It’s an incredible bummer these situations have to happen in the first place. This is one of the least sensible professional situations I’ve ever been involved with, but unfortunately these situations are not uncommon. I recognize that I place myself at risk talking about this, but it’s time that someone speaks publicly about situations like what is happening at Cruise. And so I’ve decided to say something before the lawyers can stop me. Even with this issue, both sides still expect the merger to close on schedule in Q2. [1] Kyle and Jeremy applied to YC together but Jeremy left before the YC interview. Neither took a salary, and Kyle was funding the company by himself at that point. According to Kyle, Jeremy did not write any code or build any hardware during this exploratory period. He did help find an office for the company. At the point of Jeremy’s departure, neither he nor Kyle had signed employment agreements, stock agreements, or any documents of any sort with the company. Even if Jeremy had signed a stock agreement, he wouldn’t have reached the standard 1-year cliff for founders to vest any equity. Kyle told me that Jeremy would occasionally reach out to congratulate him on press about Cruise (for example, he reached out to congratulate Kyle on Cruise’s Series A), but he never asked for anything—until now, when, in my opinion, he saw an opportunity to make a ton of money. [2] I was personally involved all day on Friday last week to try to help settle this claim. Given the time pressure because of the pending merger, we had to set a Friday at 5 pm deadline for Kyle’s offer, which Jeremy let expire.

Asana

2016-03-30 15:08:42

I’m delighted to finally be investing in Asana, which I’ve wanted to do for a long time. One of the things I’ve learned about companies is that 1) clear tasks and goals, 2) clearly communicated, and 3) with clear and frequent measurement are very important to success. Most companies fail at all 3 of these, and they become more important as companies get bigger. Asana is the best way to excel in these 3 areas. “You make what you measure” is really true, and most companies don’t measure well at all. I spend a lot of time talking to people who work at startups, and most employees feel like they don’t have a good sense of what specifically the company needs to get done and how all the tasks are going. Better work tracking leads to better collaboration and better decision-making. Another thing I’ve learned investing in startups is how important it is to have some users that really love a product (instead of liking it pretty much). Asana has the level of product love that all great companies have in common. As a small example, their recurring revenue has been incredibly sticky and more than doubled every year. Asana is the kind of lever that could someday massively increase the productivity of hundreds of millions of people around the world. There’s not only an opportunity for Asana to be a huge company, but also for Asana to materially increase the output for the planet—somewhat amazingly, software has not yet eaten this important part of the world. Finally, Asana has an incredible team that, as far as I can tell as an outsider, really believes in the mission and loves the work environment (the Glassdoor reviews, something I check before every late-stage investment, are among the best I’ve ever seen). These are all the ingredients that go into the development of an incredibly impactful and valuable company. I’m very happy to be along for the ride.

Hard Tech is Back

2016-03-11 16:19:09

First of all, congrats to Kyle, Dan, and the rest of the Cruise team. You all have made amazing progress and we look forward to seeing more in the future. A popular criticism of Silicon Valley, usually levied by people not building anything at all themselves, is that no one is working on or funding “hard technology”. While we disagree with this premise—many of the most important companies start out looking trivial—we want to be clear that we’re actively looking to fund more hard tech companies, and would love to see more get started. At YC, we started funding these sorts of companies in earnest in 2014, to widespread commentary that this was a silly waste of time. Cruise, which we funded that winter, is getting acquired by GM. From the Summer 2014 batch, 3 of the 4 companies who have raised the most money since graduating YC are “hard tech” companies. We expect many more big wins. The YC model works much better for these sorts of companies than most people, including ourselves, thought. So, if you’re thinking about starting one, we’d like to talk. And we think we can help. (You’ll probably find a lot of other people willing to help too, although unfortunately you’ll still face major fundraising challenges. But in many ways, it’s easier to start a hard company than an easy company—more people want to join the mission.) Leave the Medium thought pieces about when the stock market is going to crash and the effect it’s going to have on the fundraising environment to other people—it’s boring, and history will forget those people anyway. There has never been a better time to take a long-term view and use technology to solve major problems, and we’ve never needed the solutions more than we do right now. Different YC partners have different interests, but I’m particularly excited about AI (both general AI and narrow AI applied to specific industries, which seems like the most obvious win in all of startups right now), biotech, and energy. We hope to hear from you.

Before Growth

2016-01-15 18:23:06

We tell startups all the time that they have to grow quickly. That’s true, and very good advice, but I think the current fashion of Silicon Valley startups has taken this to an unhealthy extreme—startups have a weekly growth goal before they really have any strong idea about what they want to build. In the first few weeks of a startup’s life, the founders really need to figure out what they’re doing and why. Then they need to build a product some users really love. Only after that they should focus on growth above all else. A startup that prematurely targets a growth goal often ends up making a nebulous product that some users sort of like and papering over this with ‘growth hacking’. That sort of works—at least, it will fool investors for awhile until they start digging into retention numbers—but eventually the music stops. I think the right initial metric is “do any users love our product so much they spontaneously tell other people to use it?” Until that’s a “yes”, founders are generally better off focusing on this instead of a growth target. The very best technology companies sometimes take awhile to figure out exactly what they’re doing, but when they do, they usually pass that binary test before turning all their energy to growth. It’s the critical ingredient for companies that do really well [1], and if you don’t figure it out, no amount of growth hacking will make you into a great company. As a side note, startups that don’t first figure out a product some users love also seem to rarely develop the sense of mission that the best companies have. [1] The other thing that these companies have, and that also usually gets figured out early, is some sort of a monopoly.

The Tech Bust of 2015

2015-11-02 21:26:17

Maybe instead of a tech bubble, we’re in a tech bust. No one seems to fervently believe tech valuations are cheap, so it’d be somewhat surprising if we were in a bubble. In many parts of the market, valuations seem too cheap. In the part where they seem too high, maybe they aren’t really valuations at all, because the deal structure has changed to become more like debt. Many of the small cap public tech companies have taken a beating this year. Companies like Yelp are trading at less than 4 times trailing revenue. The tech mega-caps are monopolies and have deservedly high valuations. But even then, I would not be willing to short a single one of Apple, Google, Amazon, or Facebook against the S&P. Apple in particular trades at a single-digit ex-cash forward P/E. 2015 has seen the lowest level of tech IPOs as a percentage of all IPOs in seven years. The S&P Tech P/E is lower than the overall S&P P/E. Neither of these facts seems suggestive of a tech bubble. On the private side, people complain all the time about early-stage valuations (and to be fair, they’ve felt high to me for four years). But if you invested in every single YC company over the past three years at their Demo Day valuation (average Demo Day valuations haven’t moved much in the past three years) you’d be very happy, even though investors complain that YC is the worst example of overpriced companies. The mid-stages also seem generally reasonable, though of course there are notable exceptions. These exceptions get all the attention—not the hundreds of companies doing remarkably well, but that handful that have raised money at high valuations and are struggling or dead. On the whole, it seems harder than any time in the past four years to raise mid-stage rounds. This is also not suggestive of a bubble. So where is the problem? Late-stage private valuations. But perhaps the answer is that these “investments” aren’t really equity—they’re much more like debt. [1] I saw terms recently that had a 2x liquidation preference (i.e. the investors got the first 2x their money out of the company when it exited) and a 3x liquidation cap (i.e. after they made 3x their money, they didn’t get any more of the proceeds). This is hardly an equity instrument at all. [2] The example here is an extreme case, but not wildly so. Investors are buying debt but dressing it up close enough to equity to maintain their venture capital fund exemption status. In a world of 0 percent interest rates, people become pretty focused on finding new sources for fixed income. There is a massive disconnect in late-stage preferred stock, because if you’re using it to synthesize debt it doesn’t matter what the price is. The closer the rounds get to common stock (a less-than-1x liquidation preference, for example), the more I think the valuation means something. Unsurprisingly, the best companies usually have the most common-stock-like terms (and “the best companies” are never the ones that seem overpriced for long anyway). Some of this debt is poorly underwritten. Some unicorns will surely die (and those are the ones everyone will talk about). That doesn’t make it a tech bubble. It’d be more accurate to say it’s a tech bubble if no unicorns die in the next couple of years. To summarize: there does not appear to be a tech bubble in the public markets. There does not appear to be a bubble in early or mid stages of the private markets. There does appear to be a bubble in the late-stage private companies, but that’s because people are misunderstanding these financial instruments as equity. If you reclassify those rounds as debt, then it gets hard to say where exactly the bubble is. At some point, I expect LPs to realize that buying debt in late-stage tech companies is not what they signed up for, and then prices in late-stage private companies will appear to correct. And I think that the entire public market is likely to go down—perhaps substantially—when interest rates materially move up, though that may be a long time away. But I expect public tech companies are likely to trade with the rest of the market and not underperform. But no matter what happens in the short- and medium-term, I continue to believe technology is the future, and I still can’t think of an asset I’d rather own and not think about for a decade or two than a basket of public or private tech stocks. Thanks to Jack Altman, Patrick Collison, Paul Graham, Aaron Levie, Geoff Ralston, and Ali Rowghani for reading draft of this. [1] There are real problems with these distorted "valuations". Employees these companies hire often think of them as real valuations. It also often makes the company think of itself as much bigger than it is, and do the wrong things for its actual stage. Finally, too much cheap money lets companies operate with bad unit economics and cover up all sorts of internal problems. So I think many companies are hurting themselves with access to easy capital. [2] Even before the shift to debt-like rounds, the disconnect between how much people will pay for 5% of a company in preferred stock vs. 100% of a company in common stock was massive (and for good reason--the downside protection alone with preferred stock makes it much different than common stock). As this delta has accentuated, the public/private disconnect has gotten worse, and caused a number of problems for companies accustomed to valuations always going up.

Airbnb and San Francisco

2015-09-28 17:22:39

Airbnb has recently been attacked by San Francisco politicians for driving up the price of housing in the city. San Francisco has tried, and will continue to try, to ban Airbnb in various ways. Last week, this excellent post was published on Prop F—“the Airbnb law”. I recently reached out to Brian Chesky, the CEO of Airbnb, to learn more about this. I am decidedly a non-expert on this topic, but here are some thoughts from a layperson. I met Brian in 2008, when he started Airbedandbreakfast as…an affordable housing company. He couldn’t afford to pay his rent in 10 days and his credit cards were maxed out. He looked around and realized that he did have one asset he could monetize—his extra space. And eventually, Airbnb was born and the sharing economy began. Unfortunately, a lot of other people have problems paying their rent or mortgage. 75% of Airbnb hosts in San Francisco say that their income from Airbnb helps them stay in their homes, and 60% of the Airbnb income goes to rent/mortgage and other housing expenses. Making it harder to use Airbnb in San Francisco may make it impossible for some of these hosts to afford to stay in their homes and in this city. In 2014 (the most recent year with available data) there were about 387,000 housing units in SF. About 38% were owner-occupied, and the remaining 62% or 240,000 were rental units. About 33,000 of these were vacant, generally as a side effect of rent control laws. (I don’t honestly know if rent control is a net good or bad thing—I assume more good than bad—but it certainly keeps units off the market.) [1] In the past year, only about 340 units in SF were rented on Airbnb more than 211 nights, which is what Airbnb has calculated as the break-even point compared to long-term rental. This is less than one out of every thousand units of housing in SF. Looking at it another way, it’s just over 1.1% of all unoccupied units. There have been about 10,700 SF units that have rented on Airbnb in the last year (obviously a much lower number of units are actively listed at any particular time). The median number of trips per unit was 5, and mean was 13.3. The mean revenue per host was about $13,000 per year. More than 90 percent of Airbnb hosts in SF are listing their primary residence, and making money with an extra room or their entire place when they are out of town. The whole magic of the sharing economy is better asset utilization and thus lower prices for everyone. Home sharing makes better utilization out of a fixed asset, and by more optimally filling space it means the same number of people can use less supply. In fact, Airbnb worked with economist Tom Davidoff of the University of British Columbia and found that Airbnb has affected the price of housing in SF by less than 1% either up or down. But in the last 5 years, the cost of housing in the city has about doubled. The reason for this is a lot more people want to live in SF than we have housing for, and the city has been slow to approve new construction. Who is to blame for this? The same politicians that are trying to distract you with Airbnb’s 340 “professionally rented” units. What should the politicians actually be doing about the housing crunch? The obvious answer would be to support building more housing and fixing the supply side of the equation. But instead they’re doing the opposite (e.g. a moratorium on new construction in the Mission) and trying to turn Airbnb into a scapegoat. I love San Francisco. I wish housing here were much cheaper. This is a special city and more people are going to want to live here, and more are going to want to come visit and do business with people here. Instead of trying to ban the future, we should be making it easier for middle class families to stay in the city. We can do this by building more units to push the market price of housing down and by making it easier for San Franciscans to share their homes. [1] Selected Housing Characteristics, 2014 American Community Survey 1-Year Estimates

Unit Economics

2015-09-21 18:22:13

Commentators are looking hard for what’s wrong with startups in Silicon Valley. First they talked about valuations being too high. Then they talked about valuations not really meaning anything. Then they talked about companies staying private too long. Then they talked about burn rates. But something does feel off, though it’s been hard to precisely identify. I think the answer is unit economics. One of the jokes that came out of the 2000 bubble was “we lose a little money on every customer, but we make it up on volume”. This was then out of fashion for a long time as Google and Facebook hit their stride. There are now more businesses than I ever remember before that struggle to explain how their unit economics are ever going to make sense. It usually requires an explanation on the order of infinite retention (“yes, our sales and marketing costs are really high and our annual profit margins per user are thin, but we’re going to keep the customer forever”), a massive reduction in costs (“we’re going to replace all our human labor with robots”), a claim that eventually the company can stop buying users (“we acquire users for more than they’re worth for now just to get the flywheel spinning”), or something even less plausible. This is particularly common in startups that don’t pass the Peter Thiel monopoly test—these startups seem to have to spend every available dollar on user acquisition, and if they raise prices, customers defect to a similar service. Most great companies historically have had good unit economics soon after they began monetizing, even if the company as a whole lost money for a long period of time. Silicon Valley has always been willing to invest in money-losing companies that may eventually make lots of money. That’s great. I have never seen Silicon Valley so willing to invest in companies that have well-understood financials showing they will probably always lose money. Low-margin businesses have never been more fashionable here than they are right now. Companies that have raised lots of money are at particular risk. It’s so tempting to paper over a problem with the business by spending more money instead of fixing the product or service. Burn rates by themselves are not scary. Burn rates are scary when you scale the business up and the model doesn’t look any better. Burn rates are also scary when runway is short (i.e., burning $2M a month with $100M in the bank is fine; burning $1M a month with $3M in the bank is really bad) even if the unit economics look great. The good news is that if you’re aware of this you can avoid the trap. If there’s no other way to operate in your space, maybe it’s a bad business. The low-margin, hyper-competitive world is not the only place to be. Companies always have an explanation about how they’re going to fix unit economics, so you really have to go out of your way not to delude yourself. If you hold yourself to the standard of making a product that is so good people spontaneously recommend it to their friends, and you have an easy-to-understand business model where you make more than you spend on each user, and it gets better not worse as you get bigger, you may not look like some of hottest companies of today, but you’ll look a lot like Google and Facebook.

Financial Misstatements

2015-08-21 16:25:44

First-time startup CEOs make a lot of mistakes, mostly due to ignorance. One particularly bad one is misunderstanding or misusing basic financial terms. I started noticing this in Y Combinator applicants a couple of years ago, but see it now in startups at all stages (including some YC companies). It is very important to make accurate financial statements to investors, and it is well worth the time it takes to learn the difference between concepts like “revenue” and “GMV” (gross merchandise volume) and revenue from a “contract” or “LOI” (letter of intent). Most terms have very specific definitions, and it’s well worth a little bit of time learning what these are. When in doubt, you will never get in trouble for defining the way you’re using a financial term too precisely. I’ve seen people use GMV for revenue or refer to an LOI as a contract many times in the past year when talking to investors. This is a felony. Although investors should be doing more diligence than is currently in fashion, this issue is on the founders to fix.

The Post-YC Slump

2015-08-20 16:47:06

At the end of a YC batch, the general consensus among the partners is that about 25% of the companies are on a trajectory that could lead to a multi-billion dollar company. Of course, only a handful of them do. Most go on to be decent or bad. These companies have a beautifully exponential growth curve during YC, and then a few months after YC is over, it essentially flatlines. Because it would be so much better for us if this did not happen, we wonder a lot about why. The main problem is that companies stop doing what they were doing during YC—instead of relentlessly focusing on building a great product and growing, they focus on everything else. They also work less hard and less effectively—the peer pressure during YC is a powerful force. The startups justify this to themselves in all sorts of ways—“We’re doing some longer-term strategic work. You wouldn’t understand.” “We’re cleaning up our technical debt.” “We’re building out the organization.” “We’re focusing on PR for this month. I’m going to speak at 6 conferences and writing two thought leadership pieces.” “We are different; growth isn’t our most important thing.” We’ve heard all of these from startups that have gone on to disappoint. In general, startups get distracted by fake work. Fake work is both easier and more fun than real work for many founders. Two particularly bad cases are raising money and getting personal press; we’ve seen many promising founders fall in love with one or (usually) both of these, which nearly always ends badly. But the list of fake work is long. I tell founders to consider how directly a task relates to growing. Obviously, building and selling are the best. Things like hiring are also very high on the list—you will need to hire to sustain your growth rate at some point. Interviewing lots of lawyers has got to be near the bottom. During YC, we are ruthless about reminding startups that fake work does not count and will still get you a failed startup no matter how intensely you do it. We are also ruthless about asking for your progress, and being honest with you if things aren’t working. After YC, we have less contact with startups—you can go dark on us if you want. This, by itself, is almost always a sign that a startup is doing badly. Momentum is everything in a startup. If you have momentum, you can survive most other problems. If you do not have momentum, nothing except getting momentum will solve your problems. Founders internalize this during YC; many seem to forget in the few years after YC. Burnout seems to almost always affect founders whose startups are not doing well, and then becomes a downward spiral. In fact, one of my top few startup commandments is “never let the company lose momentum”. There are a few other common problems. One is a feeling of “we made it” that comes after a big financing round and a reduction in intensity. A related problem is that after you’ve raised a lot of money or become somewhat well-known, it’s harder to admit that things aren’t working and you need to change direction. Also, very small startups can grow by sheer force of will, even with a bad product. This stops working after a few months as the numbers get larger, and if you haven’t built something people love, you will not be able to continue growing. So how can startups avoid this slump? Work on real work. Stay focused on building a product your users love and hitting your growth targets. Try to have a board and peers who will make you hold yourself accountable—don’t lose the urgency that you developed during YC. Keep sending updates on your traction to your investors and anyone else who will read them (in fact, we’re building some new software at YC to automate this for our startups in the hope that it prevent some of them from going off the rails). Make the mistake of focusing too much on what matters most, not too little, and relentlessly protect your time from everything else. Don’t ever let yourself feel like you’ve won before you have. I still don’t think the Airbnb founders feel like they’ve won. You have to keep up a high level of intensity for many, many years. Many YC startups learns these lessons after a year or two in the wilderness, but for some it’s too late and for all it’s a waste of time. The best startups we fund keep on doing exactly what they did during YC. This sounds so simple and so obvious, but in practice so few founders do it. The good news is it’s doable with deliberate effort. If every founder (YC and otherwise) did it, the number of successful startups would probably double.

The U.S. Digital Service

2015-08-14 15:59:37

A lot of us complain about how the government is not very good at technology. The U.S. Digital Service is actually trying to do something about it, by applying the way startups build products to make government services work better for veterans, immigrants, students, seniors, and the American public as a whole. This is clearly a good idea. (See U.S. Digital Service Playbook for more details.) Inspired by the successful rescue of HealthCare.gov, small teams get deployed inside government agencies to improve critical government software. It seems to be working. To use HealthCare.gov again as an example, the Digital Service effort helped replace a $200 million login system that cost $70 million per year to operate (I know…) with one that cost $4 million to build and less than $4 million per year to operate, and worked better in every way. In another example, at U.S. Citizenship and Immigration Services, a Digital Service team has been instrumental in enabling green cards to be renewed online for the first time and a growing number of other improvements to the immigrant experience. The Digital Service attracted talent on par with the best Silicon Valley startups, including talented veterans from Amazon, Google, Facebook, Twitter, Twilio, YC, and more – engineers, designers, and product managers who have committed to do tours of duty serving the country. As an American, I am grateful to these men and women for doing this. Because of their work, the government will work better. I often get asked about what people can do for a year or two to make a big impact between projects. Here is a good answer. Consider joining the ranks. I think it’d be great if it became a new tradition that people from the tech world do a tour of duty serving our country at some point in their careers. We need better technology in government.

Projects and Companies

2015-08-12 16:09:39

In the early days of my startup, I used to get slightly offended when people would refer to it as a “project”. “How’s your project going?” seemed like the asker didn't take us seriously, even though everything felt serious to us. I remember assuming this would stop after we announced a $5 million Series A; it didn’t. I kept feeling like we’d know we made it when people started referring to us a company. I now have the opposite belief. It’s far better to be thought of—and to think of yourself—as a project than a company for as long as possible. Companies sound serious. When you start thinking of yourself as a company, you start acting like one. You worry more about pretend work involving things like lawyers, conferences, and finance stuff, and less about building product, because that’s what people who run companies are supposed to do. This is, of course, the kiss of death for promising ideas. Projects have very low expectations, which is great. Projects also usually mean less people and less money, so you get the good parts of both flexibility and focus. Companies have high expectations—and the more money out of the gate and the more press, the worse off they are (think Color and Clinkle, for example). Worst of all, you won’t work on slightly crazy ideas—this is a company, not a hobby, and you need to do something that sounds like a good, respectable idea. There is a limit to what most people are willing to work on for something called a company that does not exist if it’s just a project. The risk of seeming stupid when something is just a project is almost zero, and no one cares if you fail. So you’re much more likely to work on something good, instead of derivative but plausible-sounding crap. When you’re working on a project, you can experiment with ideas for a long time. When you have a company, the clock is ticking and people expect results. This gets to the danger with projects—a lot of people use them as an excuse to not work very hard. If you don’t have the self-discipline to work hard without external pressure, projects can be a license to slack off. The best companies start out with ideas that don’t sound very good. They start out as projects, and in fact sometimes they sound so inconsequential the founders wouldn't let themselves work on them if they had to defend them as a company. Google and Yahoo started as grad students’ projects. Facebook was a project Zuckerberg built while he was a sophomore in college. Twitter was a side project that started with a single engineer inside a company doing something totally different. Airbnb was a side project to make some money to afford rent. They all became companies later. All of these were ideas that seemed bad but turned out to be good, and this is the magic formula for major success. But in the rush to claim a company, they could have been lost. The pressure from external (and internal) expectations is constant and subtle, and it often kills the magic ideas. Great companies often start as projects.

Energy

2015-06-29 20:00:19

I think a lot about how important cheap, safe, and abundant energy is to our future. A lot of problems—economic, environmental, war, poverty, food and water availability, bad side effects of globalization, etc.—are deeply related to the energy problem. I believe that if you could choose one single technological development to help the most people in the world, radically better energy generation is probably it. Throughout history, quality of life has gone up as the cost of energy has gone down. The 20th century was the century of carbon-based energy. I am confident the 22nd century is going to be the century of atomic energy (i.e. terrestrial atomic generation and energy relatively directly from the sun’s fusion). [1] I am unsure how the majority of the 21st century will be powered, but I’d like to help get things moving. Although a lot of people are working on solar, I don’t think enough people are working on terrestrial-based atomic energy, which has major advantages when it comes to cost, density, and predictability. Given the potential importance, I’m making an exception to my normal policy of not joining YC boards for Helion Energy and UPower. Both of these companies went through YC about a year ago. Helion is working on fusion and UPower is working on fission; I’ve looked at many companies working on both and think these are the two best. I’ll be the chairman of both companies and I’m also investing in the seed/A rounds for both companies. [2] Both companies hope to have a test reactor operating in a few years, and both companies are hiring. If you’re interested in working on this, please get in touch. [1] I’m unsure of is what the split between sun-generated (I’m just going to call it solar but I use it to include wind and biofuels) and terrestrial-generated will be. There will only be one cheapest source of energy, and history suggests whatever that is will be fairly dominant. So it will probably be 80/20 one way or the other. [2] I will save my thoughts about traditional technology investors being afraid to touch expensive, long-term, high-risk high-reward projects for another time. A lot of people talk about the need to try new things that are hard but could have huge impact; it’s important to not just talk about them but to act. I think it’s easier for individual investors to do this than for venture funds, at least given how they are currently structured. I don’t think investors are doing nearly enough to fund atomic energy. With the exception of China, new fission development has effectively stopped and very few plants have been built in recent memory. Fission has been a remarkably safe and effective power source while generating 11% of the world’s electricity—the first time I saw the data on the safety data of fission energy relative to other power sources, I thought there was an error. On the fusion side, only about four US fusion companies have raised venture capital in the past few decades. The big government projects, like NIF and ITER, unfortunately have the feel of peacetime big government projects.

The days are long but the decades are short

2015-04-28 18:57:11

I turned 30 last week and a friend asked me if I'd figured out any life advice in the past decade worth passing on. I'm somewhat hesitant to publish this because I think these lists usually seem hollow, but here is a cleaned up version of my answer: 1) Never put your family, friends, or significant other low on your priority list. Prefer a handful of truly close friends to a hundred acquaintances. Don’t lose touch with old friends. Occasionally stay up until the sun rises talking to people. Have parties. 2) Life is not a dress rehearsal—this is probably it. Make it count. Time is extremely limited and goes by fast. Do what makes you happy and fulfilled—few people get remembered hundreds of years after they die anyway. Don’t do stuff that doesn’t make you happy (this happens most often when other people want you to do something). Don’t spend time trying to maintain relationships with people you don’t like, and cut negative people out of your life. Negativity is really bad. Don’t let yourself make excuses for not doing the things you want to do. 3) How to succeed: pick the right thing to do (this is critical and usually ignored), focus, believe in yourself (especially when others tell you it’s not going to work), develop personal connections with people that will help you, learn to identify talented people, and work hard. It’s hard to identify what to work on because original thought is hard. 4) On work: it’s difficult to do a great job on work you don’t care about. And it’s hard to be totally happy/fulfilled in life if you don’t like what you do for your work. Work very hard—a surprising number of people will be offended that you choose to work hard—but not so hard that the rest of your life passes you by. Aim to be the best in the world at whatever you do professionally. Even if you miss, you’ll probably end up in a pretty good place. Figure out your own productivity system—don’t waste time being unorganized, working at suboptimal times, etc. Don’t be afraid to take some career risks, especially early on. Most people pick their career fairly randomly—really think hard about what you like, what fields are going to be successful, and try to talk to people in those fields. 5) On money: Whether or not money can buy happiness, it can buy freedom, and that’s a big deal. Also, lack of money is very stressful. In almost all ways, having enough money so that you don’t stress about paying rent does more to change your wellbeing than having enough money to buy your own jet. Making money is often more fun than spending it, though I personally have never regretted money I’ve spent on friends, new experiences, saving time, travel, and causes I believe in. 6) Talk to people more. Read more long content and less tweets. Watch less TV. Spend less time on the Internet. 7) Don’t waste time. Most people waste most of their time, especially in business. 8) Don’t let yourself get pushed around. As Paul Graham once said to me, “People can become formidable, but it’s hard to predict who”. (There is a big difference between confident and arrogant. Aim for the former, obviously.) 9) Have clear goals for yourself every day, every year, and every decade. 10) However, as valuable as planning is, if a great opportunity comes along you should take it. Don’t be afraid to do something slightly reckless. One of the benefits of working hard is that good opportunities will come along, but it’s still up to you to jump on them when they do. 11) Go out of your way to be around smart, interesting, ambitious people. Work for them and hire them (in fact, one of the most satisfying parts of work is forging deep relationships with really good people). Try to spend time with people who are either among the best in the world at what they do or extremely promising but totally unknown. It really is true that you become an average of the people you spend the most time with. 12) Minimize your own cognitive load from distracting things that don’t really matter. It’s hard to overstate how important this is, and how bad most people are at it. Get rid of distractions in your life. Develop very strong ways to avoid letting crap you don’t like doing pile up and take your mental cycles, especially in your work life. 13) Keep your personal burn rate low. This alone will give you a lot of opportunities in life. 14) Summers are the best. 15) Don’t worry so much. Things in life are rarely as risky as they seem. Most people are too risk-averse, and so most advice is biased too much towards conservative paths. 16) Ask for what you want. 17) If you think you’re going to regret not doing something, you should probably do it. Regret is the worst, and most people regret far more things they didn’t do than things they did do. When in doubt, kiss the boy/girl. 18) Exercise. Eat well. Sleep. Get out into nature with some regularity. 19) Go out of your way to help people. Few things in life are as satisfying. Be nice to strangers. Be nice even when it doesn’t matter. 20) Youth is a really great thing. Don’t waste it. In fact, in your 20s, I think it’s ok to take a “Give me financial discipline, but not just yet” attitude. All the money in the world will never get back time that passed you by. 21) Tell your parents you love them more often. Go home and visit as often as you can. 22) This too shall pass. 23) Learn voraciously. 24) Do new things often. This seems to be really important. Not only does doing new things seem to slow down the perception of time, increase happiness, and keep life interesting, but it seems to prevent people from calcifying in the ways that they think. Aim to do something big, new, and risky every year in your personal and professional life. 25) Remember how intensely you loved your boyfriend/girlfriend when you were a teenager? Love him/her that intensely now. Remember how excited and happy you got about stuff as a kid? Get that excited and happy now. 26) Don’t screw people and don’t burn bridges. Pick your battles carefully. 27) Forgive people. 28) Don’t chase status. Status without substance doesn’t work for long and is unfulfilling. 29) Most things are ok in moderation. Almost nothing is ok in extreme amounts. 30) Existential angst is part of life. It is particularly noticeable around major life events or just after major career milestones. It seems to particularly affect smart, ambitious people. I think one of the reasons some people work so hard is so they don’t have to spend too much time thinking about this. Nothing is wrong with you for feeling this way; you are not alone. 31) Be grateful and keep problems in perspective. Don’t complain too much. Don’t hate other people’s success (but remember that some people will hate your success, and you have to learn to ignore it). 32) Be a doer, not a talker. 33) Given enough time, it is possible to adjust to almost anything, good or bad. Humans are remarkable at this. 34) Think for a few seconds before you act. Think for a few minutes if you’re angry. 35) Don’t judge other people too quickly. You never know their whole story and why they did or didn’t do something. Be empathetic. 36) The days are long but the decades are short.

Bubble talk

2015-03-24 19:17:31

I’m tired of reading about investors and journalists claiming there’s a bubble in tech. I understand that it’s fun to do and easy press, but it’s boring reading. I also understand that it might scare newer investors away and bring down valuations, but there’s got to be a better way to win than that. I would much rather read about what companies are doing than the state of the markets. The gleeful anticipation of a correction by investors and pundits is not helping the world get better in any meaningful way. Investors that think companies are overpriced are always free not to invest. Eventually, the market will find its clearing price. I am pretty paranoid about bubbles, but things still feel grounded in reason (the thing that feels least reasonable is some early-stage valuations, but it’s a small amount of capital and still nothing I would call a “bubble”). Even my own recent comments were misinterpreted as claiming we’re in a bubble—that’s how much the press wants to write about this. Although they cause a lot of handwringing, business cycles are short compared to the arc of innovation. In October of 2008, Sequoia Capital—arguably the best-ever in the business—gave the famous “RIP Good Times” presentation (I was there). A few months later, we funded Airbnb. A few months after that, a company called UberCab got started. Instead of just making statements, here is a bet looking 5 years out. To win, I have to be right on all three propositions. 1) The top 6 US companies at http://fortune.com/2015/01/22/the-age-of-unicorns/ (Uber, Palantir, Airbnb, Dropbox, Pinterest, and SpaceX) are currently worth just over $100B. I am leaving out Snapchat because I couldn’t get verification of its valuation. Proposition 1: On January 1st, 2020, these companies will be worth at least $200B in aggregate. 2) Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase, Docker, and Weebly are a selection of mid-stage YC companies currently worth less than $9B in aggregate. Proposition 2: On January 1st, 2020, they will be worth at least $27B in aggregate. 3) Proposition 3: The current YC Winter 2015 batch—currently worth something that rounds down to $0—will be worth at least $3B on Jan 1st, 2020. Acquisitions at any point between now and the decision date are counted as their acquisition value. Private companies are valued as of their last round that sold stock with at most a 1x liquidation preference or last secondary transaction of at least $100MM of stock. Public companies are valued by their market capitalization. There will be downward pressure on valuations as interest rates rise. But I think it will be less than the upward pressure of the phenomenal innovation and earning power of these businesses. Of course, there could be a macro collapse in 2018 or 2019, which wouldn’t have time to recover by 2020. I think that’s the most likely way for me to lose. This bet is open to the first VC who would like to take it (though it is not clear to me anyone who wants to take the other side should be investing in startups.) The loser donates $100,000 to a charity of the winner’s choice.

Technology predictions

2015-03-03 18:03:04

Some of these are probably apocryphal, but making predictions about the limits of technology is really hard: Space travel is utter bilge. Computers in the future may...perhaps only weigh 1.5 tons. - Popular Mechanics, 1949 X-rays are a hoax. - Lord Kelvin, ca. 1900 I confess that in 1901 I said to my brother Orville that man would not fly for fifty years. Two years later we ourselves made flights. This demonstration of my impotence as a prophet gave me such a shock that ever since I have distrusted myself and avoided all predictions. To place a man in a multi-stage rocket and project him into the controlling gravitational field of the moon where the passengers can make scientific observations, perhaps land alive, and then return to earth--all that constitutes a wild dream worthy of Jules Verne. I am bold enough to say that such a man-made voyage will never occur regardless of all future advances. - Lee deForest, inventor of the vacuum tube, 1957 There is not the slightest indication that [nuclear energy] will ever be obtainable. It would mean that the atom would have to be shattered at will. - Albert Einstein, 1932 That is the biggest fool thing we have ever done. The bomb will never go off, and I speak as an expert in explosives. Anyone who expects a source of power from the transformation of these atoms is talking moonshine. - Ernest Rutherford, 1933 The abolishment of pain in surgery is a chimera. It is absurd to go on seeking it... Knife and pain are two words in surgery that must forever be associated in the consciousness of the patient. - Dr. Alfred Velpeaum, French surgeon, 1839 Bitcoin is definitely going to be trading at $10,000 or more and in wide use by the end of 2014. - Many otherwise smart people, November of 2013 Superhuman machine intelligence is prima facie ridiculous. - Many otherwise smart people, 2015 (Most of these from: https://www.lhup.edu/~dsimanek/neverwrk.htm)

Machine intelligence, part 2

2015-03-02 22:17:43

This is part two of a a two-part post—the first part is here. THE NEED FOR REGULATION Although there has been a lot of discussion about the dangers of machine intelligence recently, there hasn’t been much discussion about what we should try to do to mitigate the threat. Part of the reason is that many people are almost proud of how strongly they believe that the algorithms in their neurons will never be replicated in silicon, and so they don’t believe it’s a potential threat. Another part of it is that figuring out what to do about it is just very hard, and the more one thinks about it the less possible it seems. And another part is that superhuman machine intelligence (SMI) is probably still decades away [1], and we have very pressing problems now. But we will face this threat at some point, and we have a lot of work to do before it gets here. So here is a suggestion. The US government, and all other governments, should regulate the development of SMI. In an ideal world, regulation would slow down the bad guys and speed up the good guys—it seems like what happens with the first SMI to be developed will be very important. Although my general belief is that technology is often over-regulated, I think some regulation is a good thing, and I’d hate to live in a world with no regulation at all. And I think it’s definitely a good thing when the survival of humanity is in question. (Incidentally, there is precedent for classification of privately-developed knowledge when it carries mass risk to human life. SILEX is perhaps the best-known example.) To state the obvious, one of the biggest challenges is that the US has broken all trust with the tech community over the past couple of years. We’d need a new agency to do this. I am sure that Internet commentators will say that everything I’m about to propose is not nearly specific enough, which is definitely true. I mean for this to be the beginning of a conversation, not the end of one. The first serious dangers from SMI are likely to involve humans and SMI working together. Regulation should address both the case of malevolent humans intentionally misusing machine intelligence to, for example, wreak havoc on worldwide financial markets or air traffic control systems, and the “accident” case of SMI being developed and then acting unpredictably. Specifically, regulation should: 1) Provide a framework to observe progress. This should happen in two ways. The first is looking for places in the world where it seems like a group is either being aided by significant machine intelligence or training such an intelligence in some way. The second is observing companies working on SMI development. The companies shouldn’t have to disclose how they’re doing what they’re doing (though when governments gets serious about SMI they are likely to out-resource any private company), but periodically showing regulators their current capabilities seems like a smart idea. 2) Given how disastrous a bug could be, require development safeguards to reduce the risk of the accident case. For example, beyond a certain checkpoint, we could require development happen only on airgapped computers, require that self-improving software require human intervention to move forward on each iteration, require that certain parts of the software be subject to third-party code reviews, etc. I’m not very optimistic than any of this will work for anything except accidental errors—humans will always be the weak link in the strategy (see the AI-in-a-box thought experiments). But it at least feels worth trying. Being able to do this—if it is possible at all—will require a huge amount of technical research and development that we should start intensive work on now. This work is almost entirely separate from the work that’s happening today to get piecemeal machine intelligence to work. To state the obvious but important point, it’s important to write the regulations in such a way that they provide protection while producing minimal drag on innovation (though there will be some unavoidable cost). 3) Require that the first SMI developed have as part of its operating rules that a) it can’t cause any direct or indirect harm to humanity (i.e. Asimov’s zeroeth law), b) it should detect other SMI being developed but take no action beyond detection, c) other than required for part b, have no effect on the world. We currently don’t know how to implement any of this, so here too, we need significant technical research and development that we should start now. 4) Provide lots of funding for R+D for groups that comply with all of this, especially for groups doing safety research. 5) Provide a longer-term framework for how we figure out a safe and happy future for coexisting with SMI—the most optimistic version seems like some version of “the human/machine merge”. We don’t have to figure this out today. Regulation would have an effect on SMI development via financing—most venture firms and large technology companies don’t want to break major laws. Most venture-backed startups and large companies would presumably comply with the regulations. Although it’s possible that a lone wolf in a garage will be the one to figure SMI out, it seems more likely that it will be a group of very smart people with a lot of resources. It also seems likely, at least given the current work I’m aware of, it will involve US companies in some way (though, as I said above, I think every government in the world should enact similar regulations). Some people worry that regulation will slow down progress in the US and ensure that SMI gets developed somewhere else first. I don’t think a little bit of regulation is likely to overcome the huge head start and density of talent that US companies currently have. There is an obvious upside case to SMI —it could solve a lot of the serious problems facing humanity—but in my opinion it is not the default case. The other big upside case is that machine intelligence could help us figure out how to upload ourselves, and we could live forever in computers. Or maybe in some way, we can make SMI be a descendent of humanity. Generally, the arc of technology has been about reducing randomness and increasing our control over the world. At some point in the next century, we are going to have the most randomness ever injected into the system. In politics, we usually fight over small differences. These differences pale in comparison to the difference between humans and aliens, which is what SMI will effectively be like. We should be able to come together and figure out a regulatory strategy quickly. Thanks to Dario Amodei (especially Dario), Paul Buchheit, Matt Bush, Patrick Collison, Holden Karnofsky, Luke Muehlhauser, and Geoff Ralston for reading drafts of this and the previous post. [1] If you want to try to guess when, the two things I’d think about are computational power and algorithmic development. For the former, assume there are about 100 billion neurons and 100 trillion synapses in a human brain, and the average neuron fires 5 times per second, and then think about how long it will take on the current computing trajectory to get a machine with enough memory and flops to simulate that. For the algorithms, neural networks and reinforcement learning have both performed better than I’ve expected for input and output respectively (e.g. captioning photos depicting complex scenes, beating humans at video games the software has never seen before with just the ability to look at the screen and access to the controls). I am always surprised how unimpressed most people seem with these results. Unsupervised learning has been a weaker point, and this is probably a critical part of replicating human intelligence. But many researchers I’ve spoken to are optimistic about current work, and I have no reason to believe this is outside the scope of a Turing machine.

Machine intelligence, part 1

2015-02-25 18:03:22

This is going to be a two-part post—one on why machine intelligence is something we should be afraid of, and one on what we should do about it. If you’re already afraid of machine intelligence, you can skip this one and read the second post tomorrow—I was planning to only write part 2, but when I asked a few people to read drafts it became clear I needed part 1. WHY YOU SHOULD FEAR MACHINE INTELLIGENCE Development of superhuman machine intelligence (SMI) [1] is probably the greatest threat to the continued existence of humanity. There are other threats that I think are more certain to happen (for example, an engineered virus with a long incubation period and a high mortality rate) but are unlikely to destroy every human in the universe in the way that SMI could. Also, most of these other big threats are already widely feared. It is extremely hard to put a timeframe on when this will happen (more on this later), and it certainly feels to most people working in the field that it’s still many, many years away. But it’s also extremely hard to believe that it isn’t very likely that it will happen at some point. SMI does not have to be the inherently evil sci-fi version to kill us all. A more probable scenario is that it simply doesn’t care about us much either way, but in an effort to accomplish some other goal (most goals, if you think about them long enough, could make use of resources currently being used by humans) wipes us out. Certain goals, like self-preservation, could clearly benefit from no humans. We wash our hands not because we actively wish ill towards the bacteria and viruses on them, but because we don’t want them to get in the way of our plans. (Incidentally, Nick Bostrom’s excellent book “Superintelligence” is the best thing I’ve seen on this topic. It is well worth a read.) Most machine intelligence development involves a “fitness function”—something the program tries to optimize. At some point, someone will probably try to give a program the fitness function of “survive and reproduce”. Even if not, it will likely be a useful subgoal of many other fitness functions. It worked well for biological life. Unfortunately for us, one thing I learned when I was a student in the Stanford AI lab is that programs often achieve their fitness function in unpredicted ways. Evolution will continue forward, and if humans are no longer the most-fit species, we may go away. In some sense, this is the system working as designed. But as a human programmed to survive and reproduce, I feel we should fight it. How can we survive the development of SMI? It may not be possible. One of my top 4 favorite explanations for the Fermi paradox is that biological intelligence always eventually creates machine intelligence, which wipes out biological life and then for some reason decides to makes itself undetectable. It’s very hard to know how close we are to machine intelligence surpassing human intelligence. Progression of machine intelligence is a double exponential function; human-written programs and computing power are getting better at an exponential rate, and self-learning/self-improving software will improve itself at an exponential rate. Development progress may look relatively slow and then all of a sudden go vertical—things could get out of control very quickly (it also may be more gradual and we may barely perceive it happening). As mentioned earlier, it is probably still somewhat far away, especially in its ability to build killer robots with no help at all from humans. But recursive self-improvement is a powerful force, and so it’s difficult to have strong opinions about machine intelligence being ten or one hundred years away. We also have a bad habit of changing the definition of machine intelligence when a program gets really good to claim that the problem wasn’t really that hard in the first place (chess, Jeopardy, self-driving cars, etc.). This makes it seems like we aren’t making any progress towards it. Admittedly, narrow machine intelligence is very different than general-purpose machine intelligence, but I still think this is a potential blindspot. It’s hard to look at the rate or improvement in the last 40 years and think that 40 years for now we’re not going to be somewhere crazy. 40 years ago we had Pong. Today we have virtual reality so advanced that it’s difficult to be sure if it’s virtual or real, and computers that can beat humans in most games. Though, to be fair, in the last 40 years we have made little progress on the parts of machine intelligence that seem really hard—learning, creativity, etc. Basic search with a lot of compute power has just worked better than expected. One additional reason that progress towards SMI is difficult to quantify is that emergent behavior is always a challenge for intuition. The above common criticism of current machine intelligence—that no one has produced anything close to human creativity, and that this is somehow inextricably linked with any sort of real intelligence—causes a lot of smart people to think that SMI must be very far away. But it’s very possible that creativity and what we think of us as human intelligence are just an emergent property of a small number of algorithms operating with a lot of compute power (In fact, many respected neocortex researchers believe there is effectively one algorithm for all intelligence. I distinctly remember my undergrad advisor saying the reason he was excited about machine intelligence again was that brain research made it seem possible there was only one algorithm computer scientists had to figure out.) Because we don’t understand how human intelligence works in any meaningful way, it’s difficult to make strong statements about how close or far away from emulating it we really are. We could be completely off track, or we could be one algorithm away. Human brains don’t look all that different from chimp brains, and yet somehow produce wildly different capabilities. We decry current machine intelligence as cheap tricks, but perhaps our own intelligence is just the emergent combination of a bunch of cheap tricks. Many people seem to believe that SMI would be very dangerous if it were developed, but think that it’s either never going to happen or definitely very far off. This is sloppy, dangerous thinking. [1] I prefer calling it "machine intelligence" and not "artificial intelligence" because artificial seems to imply it's not real or not very good. When it gets developed, there will be nothing artificial about it.

Startup advice, briefly

2015-02-20 18:45:37

This is a very short summary with lots left out—here is the long version: http://startupclass.samaltman.com You should start with an idea, not a company. When it’s just an idea or project, the stakes are lower and you’re more willing to entertain outlandish-sounding but potentially huge ideas. The best way to start a company is to build interesting projects. On the other hand, when you have a “company” that you feel pressure to commit to an idea too quickly. If it’s just a project, you can spend more time finding something great to work on, which is important—if the startup really works, you’ll probably be working on it for a very long time. Have at least one technical founder on the team (i.e. someone who can build whatever the company is going to build). In general, prefer a fast-growing market to a large but slow-growing one, especially if you have conviction the fast-growing market is going to be important but others dismiss it as unimportant. The best startup ideas are the ones that seem like bad ideas but are good ideas. Make something people want. You can screw up most other things if you get this right; if you don’t, nothing else will save you. Once you’ve shifted from “interesting project” to “company” mode, be decisive and act quickly. Instead of thinking about making a decision over the course of week, think about making it in an hour, and getting it done in the next hour. Become formidable. Also become tough—the road ahead is going to be painful and make you doubt yourself many, many times. Figure out a way to get your product in front of users. Start manually (read this: http://www.paulgraham.com/ds.html) Listen to what your users tell you, improve your product, and then listen again. Keep doing this until you’ve made something some users love (one of the many brilliant Paul Buchheit observations is that it’s better to build something a small number of users love than something a lot of users like). Don’t deceive yourself about whether or not your users actually love your product. Keep your burn rate very low until you’re sure you’ve built something people love. The easiest way to do this is hire slowly. Have a strategy. Most people don’t. Occasionally take a little bit of time to think about how you’re executing against your strategy. Specifically, remember that someday you need to have a monopoly (in the Peter Thiel sense). Read this before you raise money: http://paulgraham.com/fr.html. Learn to ask for what you want. Ignore what the press says about you, especially if it’s complimentary. Generate revenue early in the life of your company. Hire the best people you can. However much time you’re spending on this, it’s probably not enough. Give a lot of equity to your employees, and have very high expectations. Smart, effective people are critical to success. Read this: http://blog.samaltman.com/how-to-hire. Fire people quickly when you make hiring mistakes. Don’t work with people you don’t have a good feeling about—this goes for employees (and cofounders), partners, investors, etc. Figure out a way to get users at scale (i.e. bite the bullet and learn how sales and marketing work). Incidentally, while it is currently in fashion, spending more than the lifetime value of your users to acquire them is not an acceptable strategy. Obsess about your growth rate, and never stop. The company will build what the CEO measures. If you ever catch yourself saying “we’re not really focused on growth right now”, think very carefully about the possibility you’re focused on the wrong thing. Also, don’t let yourself be deceived by vanity metrics. Eventually, the company needs to evolve to become a mission that everyone, but especially the founders, are exceptionally dedicated to. The “missionaries vs. mercenaries” soundbite is overused but true. Don’t waste your time on stuff that doesn’t matter (i.e. things other than building your product, talking to your users, growing, etc.). In general, avoid the kind of stuff that might be in a movie about running a startup—meeting with lawyers and accountants, going to lots of conferences, grabbing coffee with people, sitting in lots of meetings, etc. Become a Delaware C Corp (use Clerky or any well-known Silicon Valley law firm) and then get back to work on your product. Focus intensely on the things that do matter. Every day, figure out what the 2 or 3 most important things for you to do are. Do those and ignore other distractions. Be a relentless execution machine. Do what it takes and don’t make up excuses. Learn to manage people. Make sure your employees are happy. Don’t ignore this. In addition to building a great product, if you want to be really successful, you also have to build a great company. So think a lot about your culture. Don’t underestimate the importance of personal connections. Ignore acquisition interest until you are sure you want to sell. Don’t “check the market”. There is an alternate universe somewhere full of companies that would have been great if they could have just avoided this one mistake. Unfortunately, in this universe, they’re all dead. Work really hard. Everyone wants a secret to success other than this; if it exists, I haven’t found it yet. Keep doing this for 10 years.

The Software Revolution

2015-02-16 17:31:32

In human history, there have been three great technological revolutions and many smaller ones. The three great ones are the agricultural revolution, the industrial revolution, and the one we are now in the middle of—the software revolution. [1] The great technological revolutions have affected what most people do every day and how society is structured. The previous one, the industrial revolution, created lots of jobs because the new technology required huge numbers of humans to run it. But this is not the normal course of technology; it was an anomaly in that sense. And it makes people think, perhaps subconsciously, that technological revolutions are always good for most people’s personal economic status. It appears that the software revolution will do what technology usually does—create wealth but destroy jobs. Of course, we will probably find new things to do to satisfy limitless human demand. But we should stop pretending that the software revolution, by itself, is going to be good for median wages. Technology provides leverage on ability and luck, and in the process concentrates wealth and drives inequality. I think that drastic wealth inequality is likely to be one of the biggest social problems of the next 20 years. [2] We can—and we will—redistribute wealth, but it still doesn’t solve the real problem of people needing something fulfilling to do. Trying to hold on to worthless jobs is a terrible but popular idea. Trying to find new jobs for billions of people is a good idea but obviously very hard because whatever the new jobs are, they will probably be so fundamentally different from anything that exists today that meaningful planning is almost impossible. But the current strategy—“let’s just pretend that Travis is kidding when he talks about self-driving cars and that Uber really is going to create millions of jobs forever”—is not the right answer. The second major challenge of the software revolution is the concentration of power in small groups. This also happens with most technological revolutions, but the last truly terrifying technology (the atomic bomb) taught us bad lessons in a similar way to the industrial revolution and job growth. It is hard to make an atomic bomb not because the knowledge is restricted (though it is—if I, hypothetically, knew how to make an atomic bomb, it would be tremendously illegal for me to say anything about it) but because it takes huge amounts of energy to enrich Uranium. One effectively needs the resources of nations to do it. [3] Again, this is not the normal course for technology—it was an idiosyncrasy of nuclear development. The software revolution is likely to do what technology usually does, and make more power available to small groups. Two of the biggest risks I see emerging from the software revolution—AI and synthetic biology—may put tremendous capability to cause harm in the hands of small groups, or even individuals. It is probably already possible to design and produce a terrible disease in a small lab; development of an AI that could end human life may only require a few hundred people in an office building anywhere in the world, with no equipment other than laptops. The new existential threats won’t require the resources of nations to produce. A number of things that used to take the resources of nations—building a rocket, for example—are now doable by companies, at least partially enabled by software. But a rocket can destroy anything on earth. What can we do? We can’t make the knowledge of these things illegal and hope it will work. We can’t try to stop technological progress. I think the best strategy is to try to legislate sensible safeguards but work very hard to make sure the edge we get from technology on the good side is stronger than the edge that bad actors get. If we can synthesize new diseases, maybe we can synthesize vaccines. If we can make a bad AI, maybe we can make a good AI that stops the bad one. The current strategy is badly misguided. It’s not going to be like the atomic bomb this time around, and the sooner we stop pretending otherwise, the better off we’ll be. The fact that we don’t have serious efforts underway to combat threats from synthetic biology and AI development is astonishing. To be clear, I’m a fan of the software revolution and I feel fortunate I was born when I was. But I worry we learned the wrong lessons from recent examples, and these two issues—huge-scale destruction of jobs, and concentration of huge power—are getting lost. [1] A lot of the smaller ones have been very important, like the hand axe (incidentally, the hand axe is the longest-serving piece of technology in human history), writing, cannons, the internal combustion engine, atomic bombs, fishing (many people believe that fishing is what allowed us to develop the brains that we have now), and many more. [2] It is true that life is better in an absolute sense than it was a hundred years ago even for very poor people. Most of the stuff that people defending current levels of wealth inequality say is also true—highly paid people do indeed make inexpensive services for poor people. However, ignoring quality of life relative to other people alive today feels like it ignores what make us human. I think it’s a good thing when some people make thousands of times as much money as what other people make, but I also don’t resent paying my taxes and think we should do much more to help people that are actually poor. The social safety net will have to trend up with the development of technology. [3] Or at least, one used to: http://en.wikipedia.org/wiki/Separation_of_isotopes_by_laser_excitation

China

2015-02-11 18:44:21

The most important story of 2014 that most people ignored was the Chinese economy overtaking the US economy. (This is using the purchasing power parity metric, which incorporates differences in the price of goods, but the Chinese economy will overtake on other metrics soon enough.) This shouldn’t have caught anyone by surprise; US growth has stagnated while Chinese growth has continued to do pretty well (the chart below shows inflation-adjusted economic growth rates in China vs. the US since 1978). The US has become less competitive globally—for example, other countries have surpassed our education system, and we have structural and demographic challenges other countries don’t and that create significant expenses. The historical track record of the largest economy being overtaken by another is not good. Sometimes it’s violent. (For example, Germany and the UK in 1914. Though neither were the largest in the world, the world was less globalized. They were the largest in the region and very focused on each other.) Sometimes it’s a long, slow slide of denial into stagnation and decreasing relevance. It’s almost unthinkable for most people born in the US in the last 70 or so years for the US not to be the world’s superpower. But on current trajectories, we’re about to find out what that looks like. [1] The current plan seems to be something like “managed decline”, or gradual acceptance of reduced importance. The US gets huge advantages from being the world’s largest economy (as mentioned earlier, other countries wanting this sometimes leads to major conflict). For example, our currency is the most important currency in the world, and we can do things like run a trillion dollar deficit without anyone getting too concerned. People generally have to buy energy (oil) in our currency, which adds a great deal of support (though we’ve already seen the very beginnings of the PetroYuan). Also, we get to have the world’s most powerful army. The current business model of the US requires the dollar to be the world reserve currency, though the Chinese currency is rapidly becoming a viable alternative. At some point, China will relax its currency controls, allowing trade and offshore investment to grow rapidly. The Renminbi (RMB) will probably rise in value (though some people think the opposite will happen in the short term) and China will become an important financial center. The most critical question, speaking as a hopeful US citizen, is whether or not it’s possible for one country to remain as powerful as another with four times less people. The US has never been the world’s largest country by population, but it has been the largest economy, and so it’s clearly possible for at least some period of time. How has the US done this? One important way has been our excellence in innovation and developing new technology. A remarkable number of the major technological developments—far in excess of our share of the world’s population—have come from the US in the last century. The secret to this is not genetics or something in our drinking water. We’ve had an environment that encourages investment, welcomes immigrants, rewards risk-taking, hard work [2], and radical thinking, and minimizes impediments to doing new things. Unfortunately we’ve moved somewhat away from this. Our best hope, by far, is to find a way to return to it quickly. Although the changes required to become more competitive will likely be painful, and probably even produce a short-term economic headwind, they are critical to make. The US should try very hard to find a way to grow faster. [3] I’ve written about this in the past. Even if there weren’t a competitor in the picture, countries historically don’t do well with declining growth, and so it’s in our interest to try to continue to keep growth up. It’s our standard advice to startups, and it works for organizations at all levels. Things are either growing or dying. The other thing to try to do is figure out a way to coexist with China. Absent some major surprise, China and the US are going to be the world superpowers for some time. The world is now so interconnected that totally separate governments playing by different rules are not going to work (for example, if people can manufacture goods in China without regard for environmental regulations, they’ll be cheaper than US goods, but they’ll harm the environment for people in the US eventually). Instead of the normal historical path of increasing two-way animosity until it erupts in conflict, maybe we can find a way to both work on what we’re really good at and have governments that at least partially cooperate. Thanks to Patrick Collison, Matt Danzeisen (especially to Matt, who provided major help), Paul Graham, and Alfred Lin for reading drafts of this. [1] As a related sidenote, “exceptionalism” in the US has become almost a bad word—it’s bad to talk about an individual being exceptionally good, and certainly bad to talk about the country as a whole being exceptional. On my last visit to China, the contrast here was remarkable—people loved talking about how amazing certain entrepreneurs were, and the work the country as a whole was doing to make itself the best in the world. The other stark contrast is how much harder people in China seem to work than people here, and how working hard is considered a good thing, not a bad thing. [2] One thing that I’ve found puzzling over the last ten or so years is the anger directed towards people who choose to work hard. This is almost never from actually poor people who work two minimum wage jobs (who work harder than all the rest of us, pretty much) but from middle class people. It’s often somewhat subtle—“It’s so stupid that these people play the startup lottery. What idiots. They should just consult.” or “Startups need to stop glorifying young workers that can work all day and night”—but the message is clear. My explanation is that this is simply what happens in a low-growth, zero-sum environment.

FarmLogs

2015-02-10 22:22:06

I recently got to be a guest at a FarmLogs board meeting. I was struck by how much of an impact the company was having on the world, and how just a couple of years ago it seemed like they were doing something so small. FarmLogs is a great example of a company that started out with a seemingly boring idea--a way for farmers to store their data in the cloud--and has developed into a way for farmers to run their entire farm, gather all the data about a particular piece of farmland, and optimize production. The company is now used by 20% of US row crop farms, and those farms are all more productive than they were without the software. Eventually, FarmLogs can become the operating system for efficient, semi-autonomous farms. Technology is about doing more with less. This is important in a lot of areas, but few as important as natural resources. We need technology like this to meet the resource challenges that the planet will continue to face as the population grows and standards of living continue to increase. In fact, we need another hundred companies like this. The good news is that it’s doable. FarmLogs is only three years old (YC Winter 2012). The company has used less than $3 million of capital so far, and with it they have already helped farmers gain hundreds of millions of dollars in efficiency. The software revolution is making it possible to create world-changing companies relatively quickly and with relatively modest resources. And importantly, they started out doing something that any two programmers (with domain expertise in their market) could have done.

Policy for Growth and Innovation

2015-01-14 17:04:36

I get asked fairly often now by people in the US government what policy changes I would make to “fix innovation and drive economic growth” [1][2] (for some reason, it’s almost always that exact phrase). Innovation is obviously important—the US has long been the world’s best exporter of new ideas, and it’d be disastrously bad if that were no longer the case. Also, I don’t think our society will work very well without economic growth, and innovation is what will drive growth from where we are now. While it’s true that people are better off in absolute sense than they were a few hundred years ago, most of us are more sensitive to our wealth increasing over short time-scales (i.e. life getting better every year) than how fortunate we are relative to people who lived a long time ago. [3] Democracy works well in a society with lots of growth, but not a no-growth (i.e. zero-sum) society. Very low growth and a democracy are a very bad combination. So here is my answer: 1) Fix education. We have to fix education in this country. Yes, it will take a long time to have an effect on output, but that’s not an excuse for continuing not to take serious action. We currently spend about 4% of the federal budget on education. The problems with education are well-documented—teachers make far too little, it’s too difficult to fire bad teachers, some cultures don’t value education, etc. Many of these are easy to fix—pay teachers a lot more in exchange for a change in the tenure rules, for example—and some issues (like cultural ones) are probably going to be very difficult to fix. Without good education (including continuing education and re-training for older people), we will never have equality of opportunity. And we will never have enough innovators. I think it’s most important to fix the broken parts of the current system, but also to decide we need to spend more money on education. One bright spot is that most of the world now has Internet access at least some of the time and there are truly remarkable resources available online to learn pretty much anything anyone could want. It amazes me that I can become relatively proficient on any subject I want, for free, from a $50 smartphone nearly anywhere in the world. There is probably a way to combine online education with real-world mentorship, activity, and group interaction in a way that makes the cost of quality education far lower than it is today. Spending money on education, unlike most government spending, actually has an ROI—every dollar we spend on it ought to return more dollars in the future. This is the sort of budget item that people should be able to agree on. As I wrote in the above-linked post, we will likely need both entitlement spending reductions and revenue increases to make the budget work. 2) Invest in basic research and development. Government spending on R&D keeps decreasing. There are certain things that companies are really good at doing; basic research is usually not one of them. If the government wants more innovation, then it should stop cutting the amount of money it spends producing it. I think current policy is off by something like an order of magnitude here. Like education, this is in the category of an “investment”, not an “expense”. 3) Reform immigration. If talented people want to come start companies or develop new technologies in the US, we should let them. Turning them away—willfully sending promising new companies to other countries—seems terribly shortsighted. This will have an immediate positive effect on innovation and GDP growth. Aside from the obvious and well-documented economic benefits (for high-skilled workers especially, but for immigration more generally), it’s a matter of justice—I don’t think I deserve special rights because I happened to be born here, and I think it’s unfair to discriminate on country of birth. Other than Native Americans, all of our families are fairly recent immigrants. We need reasonable limits, of course, but our current limits are not the answer. On our current path, in the not-very-distant future, we will be begging the people we are currently turning away to come and create value in the US. Many people say we don’t need immigration reform because people can work remotely. While remote working works well for a lot of companies, and I expect it to continue to work better as time goes on, it doesn’t work well for all companies (for example, it would not work for YC), and it shouldn’t be the only option. It also sends money and competency out of our economy. The common answer of “let the US companies open overseas offices” always sounds to me like “further slow US economic growth and long-term viability”. Companies in the Bay Area already largely hire from elsewhere in country—companies are desperate for talented people, and there aren’t enough here to go around. Even with this, tech wages keep going up, and good people who already live in the Bay Area keep getting jobs. 4) Cheaper housing. This is not a problem everywhere in the US, but it is in a lot of places. The cost of housing in SF and the Bay Area in general is horrific. There just isn’t enough housing here, and so it’s really expensive (obviously, many people make the rational decision not to live here). Expensive housing drives up the cost of everything else, and a lower cost of living gives people more flexibility (which will hopefully lead to more innovation) and more disposable income (which will hopefully stimulate economic growth). Homeowners generally vote and want to preserve their property value; non-homeowners generally vote less often. So efforts to build more housing, or make housing less attractive as an investment, usually fail when they go to a vote. For example, a recent proposal to allow more house building in SF failed with an atrociously low voter turnout. In general, I think policy should discourage speculation on real estate and encourage housing to be as inexpensive as possible. I think most people would do better owning assets that drive growth anyway. In the Bay Area specifically, I think policy should target an aggressive increase in the housing supply in the next 5 years and undo many of the regulations currently preventing this. 5) Reduce regulation. I think some regulation is a good thing. In certain areas (like development of AI) I’d like to see a lot more of it. But I think it often goes too far—for example, an average of $2.5B and 10 years to bring a new drug to market strikes me as problematic. Many of the companies I know that are innovating in the physical world struggle with regulatory challenges. And they’re starting to leave. The biggest problem, usually, is that they just can’t get clarity out of the massive and slow government bureaucracy. In 2014, 4 companies that I work with chose to at least partially leave the US for more friendly regulatory environments (3 for regulatory violation or uncertainty, and 1 for concern about export restrictions). Many more kept their headquarters here but chose somewhere else as their initial market (including, for example, nearly all medical device companies, but also drone companies, nuclear fission companies, pharmaceutical companies, bitcoin companies, etc etc etc). This is not good. We live in a global society now, and not all countries are as backward about immigration as we are. If our best and brightest want to go start companies elsewhere, they will do so. [4] I think one interesting way to solve this would be with incentives. Right now, as I understand it, regulators mostly get “career advancement” by saying “no” to things. Though it would take a lot of careful thought, it might produce good results if regulators were compensated with some version of equity in what they regulate. Again, I think some regulation is definitely good. But the current situation is stifling innovation. 6) Make being a public company not be so terrible. This point is related to the one above. I’d hate to run a public company. Public companies end up with a bunch of short-term stockholders who simultaneously criticize you for missing earnings by a penny this quarter and not making enough long-term investments. Most companies stop innovating when they go public, because they need very predictable revenue and expenses. In an ideal world, CEOs would ignore this sort of pressure and make long-term bets. But the inanity on CNBC is distracting in all sorts of ways—for example, it’s always surprising to me how much employees react to what they hear about their company on the news. I’ve seen CEOs do the wrong thing because they were scared of how “the market might react” if they do the right thing. It’s a rare CEO (such as Zuckerberg, Page, Cook, and Bezos) who can stand up to public market investors and make the sort of bets that will produce long term innovation and growth at the expense of short term profits. There are a lot of changes I’d make to improve the situation. One easy one is that I’d pay public company directors in all stock and not let them sell it for 5 years. That will produce a focus on real growth (in the current situation, making $200k a year for four days of work leads to directors focusing on preserving their own jobs). Another is that I’d encourage exchanges that don’t trade every millisecond. Liquidity is a good thing; I personally don’t see the value in the level of “fluidity” that we have. It’s distracting to the companies and sucks up an enormous amount of human attention (one of the things I like about investing in startups is that I only have to think about the price once every 18 months or so). If I had to take a company public, I’d love to only have my shares priced and traded once every month of quarter. A third change would be something to incent people to hold shares for long periods of time. One way to do this would be charge a decent-sized fee on every share traded (and have the fee go to the company); another would be a graduated tax rate that goes from something like 80% for day trades down to 10% for shares held for 5 years. Another thing the government could do is just make it much easier to stay private for a long time, though this would have undesirable side effects (especially around increasing wealth inequality). 7) Target a real GDP growth rate. You build what you measure. If the government wants more growth, set a target and focus everyone on hitting it. GDP is not a perfect metric, especially as the software revolution drives cost of goods gets driven lower and lower. What we really need is a measurement of “total quality of life”. This will be tough to figure out, but it’s probably worth the time to invent some framework and then measure ourselves against it There are obviously a lot of other policy changes I think we should make, but on the topics of growth and innovation, these 7 points are what I think are most important. And I’m confident that if we don’t take action here, we are going to regret it. [1] Incidentally, innovation does not always drive job growth, even when it drives GDP growth. The industrial revolution was something of an anomaly in this regard. I’ll write more about what this means later. [2] There are a bunch of other policy changes I would make—for example, I’d increase the minimum wage to something like $15 an hour—that are important and somewhat related to this goal but not directly related enough to include here. [3] While access to knowledge, healthcare, food, water, etc. for people in developed countries is far better now than any time in history, extreme inequality still feels unfair (I’ll save my social rant for another time, but I think the level of extreme poverty that still exists in the world is absolutely atrocious. Traveling around the developing world is an incredible wake-up call.) [4] Sometimes the government people ask “Would you ever move YC out of the US?” with nervous laughter? I really like it here and I sure hope we don’t, but never say never.

A new team at reddit

2014-11-13 20:27:29

Last week, Yishan Wong resigned from reddit. The reason was a disagreement with the board about a new office (location and amount of money to spend on a lease). To be clear, though, we didn’t ask or suggest that he resign—he decided to when we didn’t approve the new office plan. We wish him the best and we’re thankful for the work he’s done to grow reddit more than 5x. I am delighted to announce the new team we have in place. Ellen Pao will be stepping up to be interim CEO. Because of her combination of vision, execution, and leadership, I expect that she’ll do an incredible job. Alexis Ohanian, who cofounded reddit nine and a half years ago, is returning as full-time executive chairman (he will transition to a part-time partner role at Y Combinator). He will be responsible for marketing, communications, strategy, and community. There is a long history of founders returning to companies and doing great things. Alexis probably knows the reddit community better than anyone else on the planet. He had the original product vision for the company and I’m excited he’ll get to finish the job. Founders are able to set the vision for their companies with an authority no one else can. Dan McComas will become SVP Product. Dan founded redditgifts, where in addition to building a great product he built a great culture, and has already been an integral part of the reddit team—I look forward to seeing him impact the company more broadly. Although my 8 days as the CEO of reddit have been sort of fun, I am happy they are coming to a close and I am sure the new team will do a far better job and take reddit to great heights. It’s interesting to note that during my very brief tenure, reddit added more users than Hacker News has in total.

A Question

2014-11-12 18:05:24

I have a question for all the people that use their iPhone or Android to complain on Twitter, Facebook, or reddit about the lack of innovation… Or message their friends on WhatsApp or Snapchat about how Silicon Valley only builds toys for rich people in between looking at photos from their family across the world in Dropbox and listening to almost any song they want on Spotify while in an Uber to their Airbnb… What were you doing 10 years ago? I think it’s remarkable how much of what people do and use today didn’t exist 10 years ago. And I hope that 10 years from now, we’re using things that today seem unimaginably fantastic. And while I’d like to see us turn up the pace on innovation in the world of atoms, I hope we keep up the current blistering progress in the world of bits. I’ve really enjoyed working with some of the energy and biotech companies we’ve funded at YC and hope we see a lot more companies like SpaceX and Tesla get created. There are some things technological innovation alone won’t help with and that we need to address in other ways—for example, I think massive wealth inequality is likely to be the biggest social problem of our time—but it seems to stretch credulity to claim that we have a lack of innovation. I’m always in awe of the remarkable technological progress we make decade over decade. I think it’s important to try not to lose your sense of wonder about this.

Board Members

2014-11-11 18:52:33

Over the last five years, there has been an incredible shift in leverage from investors to founders. It’s good in most ways, but bad in an important few. Founders’ desire for control is good in moderation but hurts companies when it gets taken to extremes. Many founders (or at least, many of the founders I talk to) generally want few to no outsiders on their boards. A popular way to win an A round in the current environment is to not ask for a board seat. Some investors are happy to do this—it’s certainly easier to write a check and go hang out on the beach than it is to take a board seat. And this trend is likely to continue, because these new investors are generally willing to pay much higher prices than investors that want to be involved with the company. But great board members, with a lot of experience seeing companies get built, are the sort of people founders should want thinking about their companies every day. There are a lot of roles where experience doesn’t matter in a startup, but board members usually aren’t one of them. Board members are very useful in helping founders think big and hire executives. Board members are also a good forcing function to keep the company focused on execution. In my experience, companies without any outsiders on their boards often have less discipline around operational cadence. Finally, board members stick with the company when things really go wrong, in a way that advisors usually don’t. Board members certainly don't have to be investors. If founders do choose to take money without an involved board member, I think it’s very important to get an advisor with a significant equity position that will play the role of a board member (or better, actually put them on the board). Personally, I think the ideal board structure for most early-stage companies is a 5-member board with 2 founders, 2 investors, and one outsider. I think a 4-member board with 2 founders, 1 investor and 1 outsider is also good (in practice, the even number is almost never a problem). As a side note, bad board members are disastrous. You should check references thoroughly on someone before you let them join your board. The companies that have had the biggest impact and created the most value have had excellent board members (and executives). I don’t believe this is a coincidence. It’s a good idea to keep enough control so that investors can’t fire you (there are a lot of different ways to do this), but beyond that, it’s important to bring in other people and trust them to help you build the company. Thanks to Mike Moritz for reviewing a draft of this.

Why Silicon Valley Works

2014-11-03 18:26:42

I wrote this for the FT, but it's behind a paywall. Since I wrote it, I feel like it's probably ok for me to post it here. The natural state of a start-up is to die; most start-ups require multiple miracles in their early days to escape this fate. But the density and breadth of the Silicon Valley network does sometimes let start-ups cheat death. Silicon Valley works because there is such a high density of people working on start-ups and they are inclined to help each other. Other tech hubs have this as well but this is a case of Metcalfe’s law – the utility of a network is proportional to the square of the number of nodes on the network. Silicon Valley has far more nodes in the network than anywhere else. One of the biggest misconceptions about us is that you need to have pre-existing connections to get value from the network. Remarkably, you don’t. Silicon Valley is a community of outsiders that have come together. If you build something good, people will help you. It’s standard practice to ask people you’ve just met for help – and as long as you aren’t annoying about it, they usually don’t mind. I run Y Combinator, an investment firm that gives a small amount of money and a lot of advice to a large number of start-ups. We do this in batches twice a year. Our network works because it has very strong connections. Founders are generally closer to their earliest investors and less close to their later investors. They are closest of all to the peers they were around when struggling to get their start. Therefore, YC founders are typically willing to do anything they can to help another YC founder. Sometimes this is being a customer or investing, sometimes it’s referring a candidate, sometimes it’s advice and investor connections. Often it’s just moral support. I often ask founders what surprised them most about going through YC, and a common answer is the degree to which YC is a “meta-company”. Yes, the approximately 700 YC companies are all totally independent legal entities – but the connection is so strong that alumni companies get significant benefits from each other. Most YC founders tell us they get more help from other YC founders than all other friends of the company, advisors and investors put together. Most will try a product from another YC company before deciding to use one outside the network. This seems like the future to me – large groups of independent companies, loosely tied together. One question I get asked a lot is how to replicate the success of Silicon Valley elsewhere. Most people realise that the world of start-ups benefits tremendously from network effects, and think it sounds impossible to replicate the necessary density anywhere else. But my experience suggests it’s probably doable with a few thousand people and a reasonable amount of capital. I think you need two other things: an area where many ambitious people care most about start-ups and technology, and a focus on long-term compensation. In most cities, there’s one field that dominates the conversation – finance in New York, politics in DC, movies in LA and start-ups in San Francisco. If start-ups are second fiddle, it will be challenging to replicate the environment of Silicon Valley. The focus in Silicon Valley on long-term compensation is also important. Nearly everyone wants to get rich but they’re willing to wait to do so. Conspicuous consumption isn’t that cool; not too many people drive Ferraris or talk about their vacation homes. Unlike other cities where people are mostly focused on cash compensation for this year, in Silicon Valley more people talk about equity than salaries (assuming, of course, that they can afford the wildly-out-of-control housing costs, which is probably the biggest weakness here right now). A focus on making a lot of money in the long term at the expense of short-term opportunities is essential to building companies that have a huge impact – they take a long time.

reddit

2014-09-30 17:46:28

I’m very excited to share that I’m investing in reddit (personally, not via Y Combinator). I have been a daily reddit user for 9 years—longer than pretty much any other service I still use besides Facebook, Google, and Amazon—and reddit's founders (Steve Huffman and Alexis Ohanian) were in the first YC batch with me. I was probably in the first dozen people to use the site, and I shudder to imagine the number of hours I have spent there reddit is an example of something that started out looking like a silly toy for wasting time and has become something very interesting. It’s been an important community for me over the years—I can find like-minded people that I can’t always find in the real world. For many people, it’s as important as their real-world communities (and reddit is very powerful when it comes to coordinating real-world action). There are lots of challenges to address, of course, but I think the reddit team has the opportunity to build something amazing. In several years, I think reddit could have close to a billion users. Two other things I’d like to mention. First, it’s always bothered me that users create so much of the value of sites like reddit but don’t own any of it. So, the Series B Investors are giving 10% of our shares in this round to the people in the reddit community, and I hope we increase community ownership over time. We have some creative thoughts about the mechanics of this, but it’ll take us awhile to sort through all the issues. If it works as we hope, it’s going to be really cool and hopefully a new way to think about community ownership. Second, I’m giving the company a proxy on my Series B shares. reddit will have voting control of the class and thus pretty significant protection against investors screwing it up by forcing an acquisition or blocking a future fundraise or whatever. Yishan Wong has a big vision for what reddit can be. I’m excited to watch it play out. I believe we are still in the early days of importance of online communities, and that reddit will be among the great ones.

Applying to YC

2014-09-15 19:41:23

One of the most common misconceptions startups have about applying to Y Combinator is thinking that they are too early or too late. We have funded companies with only an idea; we’ve funded companies with millions of users, millions of dollars of revenue, and millions of dollars raised. In nearly every case, the founders tell us they got a lot of value out of Y Combinator, and that the equity we take more than pays for itself. We continue to add more features to YC to help later-stage companies--i.e., our alumni. And of course, the YC alumni network is helpful at any stage. We think we can help companies at any stage up to Series B, probably, and perhaps even later (but it gets difficult to convince later stage investors at that point, even if the founders themselves want to do YC). We encourage prospective founders to reach out to alumni to get their opinion on if YC would be a good fit. Even if you haven't gotten in previously, you should apply again. Many of our successful founders applied multiple times before we funded them (including Drew Houston of Dropbox). You also don’t need to have a pre-existing relationship with us. A lot of founders seem to think they need to figure out a way to meet with us or talk to us outside of the application process because VCs traditionally don’t fund companies they meet without an introduction. This is part of our model; we’re willing to do the work to look at thousands of companies that come to us without an introduction. In fact, we love doing so—many (perhaps most) of the best companies get started by unknowns.

Stupid Apps and Changing the World

2014-08-07 18:07:50

An article came out today in Businessweek about arrogance and Silicon Valley. I thought it was good, but there was one more point I wanted to make. People often accuse people in Silicon Valley of working on things that don’t matter. Often they’re right. But many very important things start out looking as if they don’t matter, and so it’s a very bad mistake to dismiss everything that looks trivial. The problem comes when people building something claim it’s going to change the world when it still looks like a toy. That just pisses people off. Facebook, Twitter, reddit, the Internet itself, the iPhone, and on and on and on—most people dismissed these things as incremental or trivial when they first came out. I have a thought about why. There’s the famous observation that the value of a network grows as a function of the square of the number of nodes, and also many of these services/products double their userbase every N months, with N decreasing as the service gets more valuable. So the value/importance of the service grows hyperexponentially. I’ve never met anyone in my life that has a good intuition for hyperexponential growth—most of us even struggle to comprehend exponential growth. There is all sorts of emergent behavior as something grows in importance a millionfold in a short period of time. If some users really love what you’re building, engage with the service or product as an important part of their daily lives, and interesting new behaviors keep emerging as you grow, keep working on it. As an aside, pay no attention to market predictions—some of the worst predictions in the history of business (a market for 5 computers, a market for 900,000 cell phones) have been the most costly. There are two time-tested strategies to change the world with technology. One is to build something that some people love but most people think is a toy; the other is to be hyperambitious and start an electric car company or a rocket company. Most of the “intermediate” companies, although it would take a separate long post to explain why, end up not having a big impact. In closing, I have two pieces of advice for the “arrogant fucks” who make the world go round. One, don’t claim you’re changing the world until you’ve changed it. Two, ignore the haters and work on whatever you find interesting. The internet commenters and journalists that say you’re working on something that doesn’t matter are probably not building anything at all themselves.

Uber vs Car Ownership

2014-07-29 00:37:57

Taking uberX everywhere is now cheaper for me than owning a car (I have an expensive car, so it's not a super fair comparison, but I still think it's interesting). I first played around with one of those web calculators and was so surprised by the result I sharpened my pencil and did it myself with more precise numbers. It was not quite as dramatic as the rough calculation but Uber still wins. I linked to the spreadsheet below for anyone curious; change the yellow fields to your own numbers if you'd like. A few notes: *I live in San Francisco and drive a Tesla Roadster. It costs about $10 to charge (on average, sometimes I pay peak rates and sometimes not) for about 200 miles of range. If I can easily take the Caltrain to the south bay (about half the time), then I do, otherwise I drive or take Uber. My total annual spend on Caltrain is a few hundred dollars. *My cost per mile is probably lower than most peoples', but is somewhat neutralized by the higher depreciation which is partly due to battery pack degradation. *Uber may raise the rates on uberX, which could swing my particular calculation back in favor of ownership. *I used an average cost per mile for uberX of $2, which is a good average for me including time and minimum fares (it's much more on short trips, but a little under $1.50 on long trips). This of course leaves out the huge intangible of how much nicer it is not to drive and instead work/text/think/whatever. This calculation is why I think Uber is still undervalued. The people who say Uber is only worth $4 billion or whatever don't think enough about people like me who will go from spending ~$500 a year on taxis and car service to ~$12,000 now that the experience and cost have reached a tipping point.

Black Swan Seed Rounds

2014-07-28 18:12:45

I started seed investing in 2010 (and much more actively in 2012) before becoming a full-time YC partner. In this period, I invested in about 40 companies. So far, five of them are in the “really good” category—a current value of ~100x or more, based on the valuation of the last round or last offer. I’ve been thinking a lot about what these investments have in common, and what about them was different from other investments. The most striking observation is that, in my experience, the “hot seed rounds” that everyone is fighting to get in are anti-correlated with very successful investments. (It’s probably different for A and B rounds because the best companies often have exponential growth at that point.) The hotly-competed seed investments I’ve made have underperformed. For all of the really good seed investments I’ve made, other investors I respected thought they were bad ideas. Stripe started before it was cool for very young founders to take on very established industries, and the prevailing thoughts from people I asked about were that it was never going to work (the initial plan was to be a bank) because Patrick knew nothing about the industry. Teespring got passed on by most investors, saying “It’s just a t-shirt company.” Right before I invested in Zenefits, a prominent investor told me I didn’t understand the health insurance market at all and that the company was unlikely to survive another 3 months. When I made this investment, the company was worried about imminently running out of cash. I almost got talked out of investing by the other investor. The one major exception is Optimizely—the prevailing sentiment was that Optimizely was going to be great, and it was a competitive seed round. It was the only high-return company where I had to fight for an allocation—in the other four, I could have put more money in. There is a general exception to this observation when the founders are already well-known and have impressive track records. Those seed rounds are almost always competitive. Note that other investors thinking an investment is bad does not guarantee success. For the total write-offs I’ve had so far, other investors also told me they were going to be terrible. Being contrarian and wrong is still bad—you have to be contrarian and right. I think the only takeaway about what other investors think is that you should ignore it. Great companies often look like bad ideas at the beginning—at a minimum, if it looks great, the seed round is likely to be overpriced, and there are likely to be a lot of other people starting similar companies. But even when I attempt to adjust for price, the hot-round investments still have underperformed. I asked a few other investors about their experiences, and most are roughly similar. Most of the really big hits never had TechCrunch writing about their super competitive seed round everyone was trying to get in. I think there are a lot of reasons for this. A big one is that being good at fundraising has very little to do with running a good company. Another is that most investors are actually very risk-averse despite what they say, and the great companies look really risky at the seed stage. And a major third is that it’s just very hard to pick well at the seed stage, and most companies don’t have hot seed rounds, so most successful companies don’t either (though I don’t think this random distribution fully explains the phenomenon). But in any case, founders shouldn’t worry if their seed round isn’t massively oversubscribed.

Net neutrality

2014-07-14 16:54:15

When there is a structural reason consumers don’t have freedom of choice, and the free market can’t work, consumers need minimal protection from the government so that they don’t get abused. We need protection from the cable companies to keep the Internet fair and open. I think that most people misunderstand the net neutrality issue; the Internet backbone isn’t neutral anyway. But that’s ok; there are multiple paths to traverse it. This is not the case for the “last mile”. Consumers often can only buy Internet access from a single provider; there is no choice. These providers would like to be able to make some traffic more equal than others and accept payment for it. [1] This isn’t allowed for voice, and it shouldn’t be allowed for data. Municipalities, often for good reason, gave these edge providers a monopoly (the bad kind of monopoly where consumers can’t choose to leave) and often used tax dollars to fund the development. At this point, the Internet is a public service and fair access should be a basic right. I would love to see a world where the companies that own last-mile infrastructure are required to lease the lines to any ISP the end consumer wants; this would create a competitive market and mostly eliminate the problem. [2] The Internet has been the great bright spot in US innovation in the last decade. It’s mostly been a free and open platform, where anyone can get something started. When the great companies start, they often look like very fragile projects. Any additional barriers, however small, could easily have stopped Google or Facebook from getting going. I have met with the Chairman of the FCC, Tom Wheeler, and I believe he is a good actor who wants to do the right thing. But he is fighting against very powerful lobbyists and large companies that want to disrupt the freedom of the Internet. We should help him defend it. As long as consumers don’t have freedom of choice, last-mile traffic discrimination should be per se illegal. Please go to fcc.gov and file in support of this by tomorrow. Alexis Ohanian will be filing on behalf of Y Combinator shortly. [1] Unpaid prioritization is sometimes necessary; if everyone in a neighborhood is trying to stream 4k video, something is going to get prioritized. [2] One reason wireless Internet is good that is that it doesn’t face the last-mile challenge; consumers can choose among Verizon, ATT, Sprint, etc.

The Economy

2014-06-30 18:27:56

I wrote a post a couple of weeks ago in which I said macroeconomic collapse “may happen” and a few friends asked me why. To be clear, I don’t think it’s the likely outcome—I think we’ll find a way to address our challenges. But here is what some of the challenges are. Most of these issues would be not so bad by themselves; the problem is that we have all of them in aggregate. 1) US GDP growth in real dollars is low (and trending down). It was -2.9% for Q1 2014 after the second official revision [1]. If it’s down again for Q2, we’ll be in a recession. (I wrote about this in more detail here.) 2) Government debt is high. In fact, it’s quietly crossed over 100% of GDP for the first time since post-World War II. Debt like this is maybe ok if the economy is growing fast, but ours is not. And given demographic headwinds, etc., debt levels are likely to face further challenges. Here is a graph of our government debt to GDP. [2] 3) Government spending is high. Here are graphs of total government spending and federal spending as a share of GDP. [3] Total government spending has risen from about 8% of GDP to above 40% of GDP. Spending on social support programs has grown the fastest. Defense spending has been on a reasonable decline since WWII. Personally, I think that current levels of social support spending are ok (though maybe the spending should be distributed differently), and we should probably do more. But I think we need to plan for it. In addition to thinking about new sorts of jobs to replace lost jobs that aren’t coming back, we should probably think about things like some version of a basic income. I'm not sure it's the optimal solution (in fact, I have a strong intuitive bias against it) but I can't come up with a better suggestion, and I think it would probably lead to less waste than current social safety net systems. 4) Interest rates are low—in fact, we’ve been near zero for 5 years, and on a steady trajectory down for 30. This is historically highly unusual. In fact, with quantitative easing, rates are really less than zero (and they are officially negative in Europe). On the positive side, but as you’d expect with near-zero rates, US equities are at record levels. 5) Personal savings rates are low. On the other hand, corporate savings rates are high. US corporations hold 2.3x as much cash as they held 20 years ago, after adjusting for inflation. Individuals aren’t saving as much, and companies aren’t investing as much. As I said at the beginning, all of this interrelates. Any one data point could be fine in isolation, but if, for example, interest rates are zero (or government spending is high), you’d like to see growth be high because people should be borrowing money and investing it. I think that startups and venture capital will continue to do well. Most investors don’t want to hold cash, for obvious reasons, and so they’re looking for high-growth places to invest. But I’m a little unsure how much the startup world and the rest of the economy can decouple. To reiterate, I think we’ll find a way through these economic challenges. But I think it’s important we not ignore it and pretend it will magically get better, which seems to be the current plan. Personally, I think that innovation and new technology is what will save us. We need to get back to natural economic growth. The US has been very fortunate to have a long history of growth—we had roughly 100 years of territory expansion and then roughly 100 years of incredible technological innovation. I think the path from our troubles will involve finding a way for economic growth to continue. [1] http://blogs.wsj.com/economics/2014/06/25/economists-react-to-2-9-q1-gdp-revision-different-shades-of-nasty/ [2] http://useconomy.about.com/od/usdebtanddeficit/a/National-Debt-by-Year.htm [3] http://fivethirtyeight.blogs.nytimes.com/2013/01/16/what-is-driving-growth-in-government-spending/

You and Your Research, by Richard Hamming

2014-06-29 21:26:13

Richard Hamming gave this talk in March of 1986. [1] It's one of the best talks I've ever read and has long impacted how I think about spending my time. I mentioned it to a number of people this weekend who, to my surprise, had never heard of it. So I though I'd share it here: [Addition 5/28/23: see this great annotated version from Gwern.] It's a pleasure to be here. I doubt if I can live up to the Introduction. The title of my talk is, ``You and Your Research.'' It is not about managing research, it is about how you individually do your research. I could give a talk on the other subject - but it's not, it's about you. I'm not talking about ordinary run-of-the-mill research; I'm talking about great research. And for the sake of describing great research I'll occasionally say Nobel-Prize type of work. It doesn't have to gain the Nobel Prize, but I mean those kinds of things which we perceive are significant things. Relativity, if you want, Shannon's information theory, any number of outstanding theories - that's the kind of thing I'm talking about. Now, how did I come to do this study? At Los Alamos I was brought in to run the computing machines which other people had got going, so those scientists and physicists could get back to business. I saw I was a stooge. I saw that although physically I was the same, they were different. And to put the thing bluntly, I was envious. I wanted to know why they were so different from me. I saw Feynman up close. I saw Fermi and Teller. I saw Oppenheimer. I saw Hans Bethe: he was my boss. I saw quite a few very capable people. I became very interested in the difference between those who do and those who might have done. When I came to Bell Labs, I came into a very productive department. Bode was the department head at the time; Shannon was there, and there were other people. I continued examining the questions, ``Why?'' and ``What is the difference?'' I continued subsequently by reading biographies, autobiographies, asking people questions such as: ``How did you come to do this?'' I tried to find out what are the differences. And that's what this talk is about. Now, why is this talk important? I think it is important because, as far as I know, each of you has one life to live. Even if you believe in reincarnation it doesn't do you any good from one life to the next! Why shouldn't you do significant things in this one life, however you define significant? I'm not going to define it - you know what I mean. I will talk mainly about science because that is what I have studied. But so far as I know, and I've been told by others, much of what I say applies to many fields. Outstanding work is characterized very much the same way in most fields, but I will confine myself to science. In order to get at you individually, I must talk in the first person. I have to get you to drop modesty and say to yourself, ``Yes, I would like to do first-class work.'' Our society frowns on people who set out to do really good work. You're not supposed to; luck is supposed to descend on you and you do great things by chance. Well, that's a kind of dumb thing to say. I say, why shouldn't you set out to do something significant. You don't have to tell other people, but shouldn't you say to yourself, ``Yes, I would like to do something significant.'' In order to get to the second stage, I have to drop modesty and talk in the first person about what I've seen, what I've done, and what I've heard. I'm going to talk about people, some of whom you know, and I trust that when we leave, you won't quote me as saying some of the things I said. Let me start not logically, but psychologically. I find that the major objection is that people think great science is done by luck. It's all a matter of luck. Well, consider Einstein. Note how many different things he did that were good. Was it all luck? Wasn't it a little too repetitive? Consider Shannon. He didn't do just information theory. Several years before, he did some other good things and some which are still locked up in the security of cryptography. He did many good things. You see again and again, that it is more than one thing from a good person. Once in a while a person does only one thing in his whole life, and we'll talk about that later, but a lot of times there is repetition. I claim that luck will not cover everything. And I will cite Pasteur who said, ``Luck favors the prepared mind.'' And I think that says it the way I believe it. There is indeed an element of luck, and no, there isn't. The prepared mind sooner or later finds something important and does it. So yes, it is luck. The particular thing you do is luck, but that you do something is not. For example, when I came to Bell Labs, I shared an office for a while with Shannon. At the same time he was doing information theory, I was doing coding theory. It is suspicious that the two of us did it at the same place and at the same time - it was in the atmosphere. And you can say, ``Yes, it was luck.'' On the other hand you can say, ``But why of all the people in Bell Labs then were those the two who did it?'' Yes, it is partly luck, and partly it is the prepared mind; but `partly' is the other thing I'm going to talk about. So, although I'll come back several more times to luck, I want to dispose of this matter of luck as being the sole criterion whether you do great work or not. I claim you have some, but not total, control over it. And I will quote, finally, Newton on the matter. Newton said, ``If others would think as hard as I did, then they would get similar results.'' One of the characteristics you see, and many people have it including great scientists, is that usually when they were young they had independent thoughts and had the courage to pursue them. For example, Einstein, somewhere around 12 or 14, asked himself the question, ``What would a light wave look like if I went with the velocity of light to look at it?'' Now he knew that electromagnetic theory says you cannot have a stationary local maximum. But if he moved along with the velocity of light, he would see a local maximum. He could see a contradiction at the age of 12, 14, or somewhere around there, that everything was not right and that the velocity of light had something peculiar. Is it luck that he finally created special relativity? Early on, he had laid down some of the pieces by thinking of the fragments. Now that's the necessary but not sufficient condition. All of these items I will talk about are both luck and not luck. How about having lots of `brains?' It sounds good. Most of you in this room probably have more than enough brains to do first-class work. But great work is something else than mere brains. Brains are measured in various ways. In mathematics, theoretical physics, astrophysics, typically brains correlates to a great extent with the ability to manipulate symbols. And so the typical IQ test is apt to score them fairly high. On the other hand, in other fields it is something different. For example, Bill Pfann, the fellow who did zone melting, came into my office one day. He had this idea dimly in his mind about what he wanted and he had some equations. It was pretty clear to me that this man didn't know much mathematics and he wasn't really articulate. His problem seemed interesting so I took it home and did a little work. I finally showed him how to run computers so he could compute his own answers. I gave him the power to compute. He went ahead, with negligible recognition from his own department, but ultimately he has collected all the prizes in the field. Once he got well started, his shyness, his awkwardness, his inarticulateness, fell away and he became much more productive in many other ways. Certainly he became much more articulate. And I can cite another person in the same way. I trust he isn't in the audience, i.e. a fellow named Clogston. I met him when I was working on a problem with John Pierce's group and I didn't think he had much. I asked my friends who had been with him at school, ``Was he like that in graduate school?'' ``Yes,'' they replied. Well I would have fired the fellow, but J. R. Pierce was smart and kept him on. Clogston finally did the Clogston cable. After that there was a steady stream of good ideas. One success brought him confidence and courage. One of the characteristics of successful scientists is having courage. Once you get your courage up and believe that you can do important problems, then you can. If you think you can't, almost surely you are not going to. Courage is one of the things that Shannon had supremely. You have only to think of his major theorem. He wants to create a method of coding, but he doesn't know what to do so he makes a random code. Then he is stuck. And then he asks the impossible question, ``What would the average random code do?'' He then proves that the average code is arbitrarily good, and that therefore there must be at least one good code. Who but a man of infinite courage could have dared to think those thoughts? That is the characteristic of great scientists; they have courage. They will go forward under incredible circumstances; they think and continue to think. Age is another factor which the physicists particularly worry about. They always are saying that you have got to do it when you are young or you will never do it. Einstein did things very early, and all the quantum mechanic fellows were disgustingly young when they did their best work. Most mathematicians, theoretical physicists, and astrophysicists do what we consider their best work when they are young. It is not that they don't do good work in their old age but what we value most is often what they did early. On the other hand, in music, politics and literature, often what we consider their best work was done late. I don't know how whatever field you are in fits this scale, but age has some effect. But let me say why age seems to have the effect it does. In the first place if you do some good work you will find yourself on all kinds of committees and unable to do any more work. You may find yourself as I saw Brattain when he got a Nobel Prize. The day the prize was announced we all assembled in Arnold Auditorium; all three winners got up and made speeches. The third one, Brattain, practically with tears in his eyes, said, ``I know about this Nobel-Prize effect and I am not going to let it affect me; I am going to remain good old Walter Brattain.'' Well I said to myself, ``That is nice.'' But in a few weeks I saw it was affecting him. Now he could only work on great problems. When you are famous it is hard to work on small problems. This is what did Shannon in. After information theory, what do you do for an encore? The great scientists often make this error. They fail to continue to plant the little acorns from which the mighty oak trees grow. They try to get the big thing right off. And that isn't the way things go. So that is another reason why you find that when you get early recognition it seems to sterilize you. In fact I will give you my favorite quotation of many years. The Institute for Advanced Study in Princeton, in my opinion, has ruined more good scientists than any institution has created, judged by what they did before they came and judged by what they did after. Not that they weren't good afterwards, but they were superb before they got there and were only good afterwards. This brings up the subject, out of order perhaps, of working conditions. What most people think are the best working conditions, are not. Very clearly they are not because people are often most productive when working conditions are bad. One of the better times of the Cambridge Physical Laboratories was when they had practically shacks - they did some of the best physics ever. I give you a story from my own private life. Early on it became evident to me that Bell Laboratories was not going to give me the conventional acre of programming people to program computing machines in absolute binary. It was clear they weren't going to. But that was the way everybody did it. I could go to the West Coast and get a job with the airplane companies without any trouble, but the exciting people were at Bell Labs and the fellows out there in the airplane companies were not. I thought for a long while about, ``Did I want to go or not?'' and I wondered how I could get the best of two possible worlds. I finally said to myself, ``Hamming, you think the machines can do practically everything. Why can't you make them write programs?'' What appeared at first to me as a defect forced me into automatic programming very early. What appears to be a fault, often, by a change of viewpoint, turns out to be one of the greatest assets you can have. But you are not likely to think that when you first look the thing and say, ``Gee, I'm never going to get enough programmers, so how can I ever do any great programming?'' And there are many other stories of the same kind; Grace Hopper has similar ones. I think that if you look carefully you will see that often the great scientists, by turning the problem around a bit, changed a defect to an asset. For example, many scientists when they found they couldn't do a problem finally began to study why not. They then turned it around the other way and said, ``But of course, this is what it is'' and got an important result. So ideal working conditions are very strange. The ones you want aren't always the best ones for you. Now for the matter of drive. You observe that most great scientists have tremendous drive. I worked for ten years with John Tukey at Bell Labs. He had tremendous drive. One day about three or four years after I joined, I discovered that John Tukey was slightly younger than I was. John was a genius and I clearly was not. Well I went storming into Bode's office and said, ``How can anybody my age know as much as John Tukey does?'' He leaned back in his chair, put his hands behind his head, grinned slightly, and said, ``You would be surprised Hamming, how much you would know if you worked as hard as he did that many years.'' I simply slunk out of the office! What Bode was saying was this: ``Knowledge and productivity are like compound interest.'' Given two people of approximately the same ability and one person who works ten percent more than the other, the latter will more than twice outproduce the former. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity - it is very much like compound interest. I don't want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime. I took Bode's remark to heart; I spent a good deal more of my time for some years trying to work a bit harder and I found, in fact, I could get more work done. I don't like to say it in front of my wife, but I did sort of neglect her sometimes; I needed to study. You have to neglect things if you intend to get what you want done. There's no question about this. On this matter of drive Edison says, ``Genius is 99% perspiration and 1% inspiration.'' He may have been exaggerating, but the idea is that solid work, steadily applied, gets you surprisingly far. The steady application of effort with a little bit more work, intelligently applied is what does it. That's the trouble; drive, misapplied, doesn't get you anywhere. I've often wondered why so many of my good friends at Bell Labs who worked as hard or harder than I did, didn't have so much to show for it. The misapplication of effort is a very serious matter. Just hard work is not enough - it must be applied sensibly. There's another trait on the side which I want to talk about; that trait is ambiguity. It took me a while to discover its importance. Most people like to believe something is or is not true. Great scientists tolerate ambiguity very well. They believe the theory enough to go ahead; they doubt it enough to notice the errors and faults so they can step forward and create the new replacement theory. If you believe too much you'll never notice the flaws; if you doubt too much you won't get started. It requires a lovely balance. But most great scientists are well aware of why their theories are true and they are also well aware of some slight misfits which don't quite fit and they don't forget it. Darwin writes in his autobiography that he found it necessary to write down every piece of evidence which appeared to contradict his beliefs because otherwise they would disappear from his mind. When you find apparent flaws you've got to be sensitive and keep track of those things, and keep an eye out for how they can be explained or how the theory can be changed to fit them. Those are often the great contributions. Great contributions are rarely done by adding another decimal place. It comes down to an emotional commitment. Most great scientists are completely committed to their problem. Those who don't become committed seldom produce outstanding, first-class work. Now again, emotional commitment is not enough. It is a necessary condition apparently. And I think I can tell you the reason why. Everybody who has studied creativity is driven finally to saying, ``creativity comes out of your subconscious.'' Somehow, suddenly, there it is. It just appears. Well, we know very little about the subconscious; but one thing you are pretty well aware of is that your dreams also come out of your subconscious. And you're aware your dreams are, to a fair extent, a reworking of the experiences of the day. If you are deeply immersed and committed to a topic, day after day after day, your subconscious has nothing to do but work on your problem. And so you wake up one morning, or on some afternoon, and there's the answer. For those who don't get committed to their current problem, the subconscious goofs off on other things and doesn't produce the big result. So the way to manage yourself is that when you have a real important problem you don't let anything else get the center of your attention - you keep your thoughts on the problem. Keep your subconscious starved so it has to work on your problem, so you can sleep peacefully and get the answer in the morning, free. Now Alan Chynoweth mentioned that I used to eat at the physics table. I had been eating with the mathematicians and I found out that I already knew a fair amount of mathematics; in fact, I wasn't learning much. The physics table was, as he said, an exciting place, but I think he exaggerated on how much I contributed. It was very interesting to listen to Shockley, Brattain, Bardeen, J. B. Johnson, Ken McKay and other people, and I was learning a lot. But unfortunately a Nobel Prize came, and a promotion came, and what was left was the dregs. Nobody wanted what was left. Well, there was no use eating with them! Over on the other side of the dining hall was a chemistry table. I had worked with one of the fellows, Dave McCall; furthermore he was courting our secretary at the time. I went over and said, ``Do you mind if I join you?'' They can't say no, so I started eating with them for a while. And I started asking, ``What are the important problems of your field?'' And after a week or so, ``What important problems are you working on?'' And after some more time I came in one day and said, ``If what you are doing is not important, and if you don't think it is going to lead to something important, why are you at Bell Labs working on it?'' I wasn't welcomed after that; I had to find somebody else to eat with! That was in the spring. In the fall, Dave McCall stopped me in the hall and said, ``Hamming, that remark of yours got underneath my skin. I thought about it all summer, i.e. what were the important problems in my field. I haven't changed my research,'' he says, ``but I think it was well worthwhile.'' And I said, ``Thank you Dave,'' and went on. I noticed a couple of months later he was made the head of the department. I noticed the other day he was a Member of the National Academy of Engineering. I noticed he has succeeded. I have never heard the names of any of the other fellows at that table mentioned in science and scientific circles. They were unable to ask themselves, ``What are the important problems in my field?'' If you do not work on an important problem, it's unlikely you'll do important work. It's perfectly obvious. Great scientists have thought through, in a careful way, a number of important problems in their field, and they keep an eye on wondering how to attack them. Let me warn you, `important problem' must be phrased carefully. The three outstanding problems in physics, in a certain sense, were never worked on while I was at Bell Labs. By important I mean guaranteed a Nobel Prize and any sum of money you want to mention. We didn't work on (1) time travel, (2) teleportation, and (3) antigravity. They are not important problems because we do not have an attack. It's not the consequence that makes a problem important, it is that you have a reasonable attack. That is what makes a problem important. When I say that most scientists don't work on important problems, I mean it in that sense. The average scientist, so far as I can make out, spends almost all his time working on problems which he believes will not be important and he also doesn't believe that they will lead to important problems. I spoke earlier about planting acorns so that oaks will grow. You can't always know exactly where to be, but you can keep active in places where something might happen. And even if you believe that great science is a matter of luck, you can stand on a mountain top where lightning strikes; you don't have to hide in the valley where you're safe. But the average scientist does routine safe work almost all the time and so he (or she) doesn't produce much. It's that simple. If you want to do great work, you clearly must work on important problems, and you should have an idea. Along those lines at some urging from John Tukey and others, I finally adopted what I called ``Great Thoughts Time.'' When I went to lunch Friday noon, I would only discuss great thoughts after that. By great thoughts I mean ones like: ``What will be the role of computers in all of AT&T?'', ``How will computers change science?'' For example, I came up with the observation at that time that nine out of ten experiments were done in the lab and one in ten on the computer. I made a remark to the vice presidents one time, that it would be reversed, i.e. nine out of ten experiments would be done on the computer and one in ten in the lab. They knew I was a crazy mathematician and had no sense of reality. I knew they were wrong and they've been proved wrong while I have been proved right. They built laboratories when they didn't need them. I saw that computers were transforming science because I spent a lot of time asking ``What will be the impact of computers on science and how can I change it?'' I asked myself, ``How is it going to change Bell Labs?'' I remarked one time, in the same address, that more than one-half of the people at Bell Labs will be interacting closely with computing machines before I leave. Well, you all have terminals now. I thought hard about where was my field going, where were the opportunities, and what were the important things to do. Let me go there so there is a chance I can do important things. Most great scientists know many important problems. They have something between 10 and 20 important problems for which they are looking for an attack. And when they see a new idea come up, one hears them say ``Well that bears on this problem.'' They drop all the other things and get after it. Now I can tell you a horror story that was told to me but I can't vouch for the truth of it. I was sitting in an airport talking to a friend of mine from Los Alamos about how it was lucky that the fission experiment occurred over in Europe when it did because that got us working on the atomic bomb here in the US. He said ``No; at Berkeley we had gathered a bunch of data; we didn't get around to reducing it because we were building some more equipment, but if we had reduced that data we would have found fission.'' They had it in their hands and they didn't pursue it. They came in second! The great scientists, when an opportunity opens up, get after it and they pursue it. They drop all other things. They get rid of other things and they get after an idea because they had already thought the thing through. Their minds are prepared; they see the opportunity and they go after it. Now of course lots of times it doesn't work out, but you don't have to hit many of them to do some great science. It's kind of easy. One of the chief tricks is to live a long time! Another trait, it took me a while to notice. I noticed the following facts about people who work with the door open or the door closed. I notice that if you have the door to your office closed, you get more work done today and tomorrow, and you are more productive than most. But 10 years later somehow you don't know quite know what problems are worth working on; all the hard work you do is sort of tangential in importance. He who works with the door open gets all kinds of interruptions, but he also occasionally gets clues as to what the world is and what might be important. Now I cannot prove the cause and effect sequence because you might say, ``The closed door is symbolic of a closed mind.'' I don't know. But I can say there is a pretty good correlation between those who work with the doors open and those who ultimately do important things, although people who work with doors closed often work harder. Somehow they seem to work on slightly the wrong thing - not much, but enough that they miss fame. I want to talk on another topic. It is based on the song which I think many of you know, ``It ain't what you do, it's the way that you do it.'' I'll start with an example of my own. I was conned into doing on a digital computer, in the absolute binary days, a problem which the best analog computers couldn't do. And I was getting an answer. When I thought carefully and said to myself, ``You know, Hamming, you're going to have to file a report on this military job; after you spend a lot of money you're going to have to account for it and every analog installation is going to want the report to see if they can't find flaws in it.'' I was doing the required integration by a rather crummy method, to say the least, but I was getting the answer. And I realized that in truth the problem was not just to get the answer; it was to demonstrate for the first time, and beyond question, that I could beat the analog computer on its own ground with a digital machine. I reworked the method of solution, created a theory which was nice and elegant, and changed the way we computed the answer; the results were no different. The published report had an elegant method which was later known for years as ``Hamming's Method of Integrating Differential Equations.'' It is somewhat obsolete now, but for a while it was a very good method. By changing the problem slightly, I did important work rather than trivial work. In the same way, when using the machine up in the attic in the early days, I was solving one problem after another after another; a fair number were successful and there were a few failures. I went home one Friday after finishing a problem, and curiously enough I wasn't happy; I was depressed. I could see life being a long sequence of one problem after another after another. After quite a while of thinking I decided, ``No, I should be in the mass production of a variable product. I should be concerned with all of next year's problems, not just the one in front of my face.'' By changing the question I still got the same kind of results or better, but I changed things and did important work. I attacked the major problem - How do I conquer machines and do all of next year's problems when I don't know what they are going to be? How do I prepare for it? How do I do this one so I'll be on top of it? How do I obey Newton's rule? He said, ``If I have seen further than others, it is because I've stood on the shoulders of giants.'' These days we stand on each other's feet! You should do your job in such a fashion that others can build on top of it, so they will indeed say, ``Yes, I've stood on so and so's shoulders and I saw further.'' The essence of science is cumulative. By changing a problem slightly you can often do great work rather than merely good work. Instead of attacking isolated problems, I made the resolution that I would never again solve an isolated problem except as characteristic of a class. Now if you are much of a mathematician you know that the effort to generalize often means that the solution is simple. Often by stopping and saying, ``This is the problem he wants but this is characteristic of so and so. Yes, I can attack the whole class with a far superior method than the particular one because I was earlier embedded in needless detail.'' The business of abstraction frequently makes things simple. Furthermore, I filed away the methods and prepared for the future problems. To end this part, I'll remind you, ``It is a poor workman who blames his tools - the good man gets on with the job, given what he's got, and gets the best answer he can.'' And I suggest that by altering the problem, by looking at the thing differently, you can make a great deal of difference in your final productivity because you can either do it in such a fashion that people can indeed build on what you've done, or you can do it in such a fashion that the next person has to essentially duplicate again what you've done. It isn't just a matter of the job, it's the way you write the report, the way you write the paper, the whole attitude. It's just as easy to do a broad, general job as one very special case. And it's much more satisfying and rewarding! I have now come down to a topic which is very distasteful; it is not sufficient to do a job, you have to sell it. `Selling' to a scientist is an awkward thing to do. It's very ugly; you shouldn't have to do it. The world is supposed to be waiting, and when you do something great, they should rush out and welcome it. But the fact is everyone is busy with their own work. You must present it so well that they will set aside what they are doing, look at what you've done, read it, and come back and say, ``Yes, that was good.'' I suggest that when you open a journal, as you turn the pages, you ask why you read some articles and not others. You had better write your report so when it is published in the Physical Review, or wherever else you want it, as the readers are turning the pages they won't just turn your pages but they will stop and read yours. If they don't stop and read it, you won't get credit. There are three things you have to do in selling. You have to learn to write clearly and well so that people will read it, you must learn to give reasonably formal talks, and you also must learn to give informal talks. We had a lot of so-called `back room scientists.' In a conference, they would keep quiet. Three weeks later after a decision was made they filed a report saying why you should do so and so. Well, it was too late. They would not stand up right in the middle of a hot conference, in the middle of activity, and say, ``We should do this for these reasons.'' You need to master that form of communication as well as prepared speeches. When I first started, I got practically physically ill while giving a speech, and I was very, very nervous. I realized I either had to learn to give speeches smoothly or I would essentially partially cripple my whole career. The first time IBM asked me to give a speech in New York one evening, I decided I was going to give a really good speech, a speech that was wanted, not a technical one but a broad one, and at the end if they liked it, I'd quietly say, ``Any time you want one I'll come in and give you one.'' As a result, I got a great deal of practice giving speeches to a limited audience and I got over being afraid. Furthermore, I could also then study what methods were effective and what were ineffective. While going to meetings I had already been studying why some papers are remembered and most are not. The technical person wants to give a highly limited technical talk. Most of the time the audience wants a broad general talk and wants much more survey and background than the speaker is willing to give. As a result, many talks are ineffective. The speaker names a topic and suddenly plunges into the details he's solved. Few people in the audience may follow. You should paint a general picture to say why it's important, and then slowly give a sketch of what was done. Then a larger number of people will say, ``Yes, Joe has done that,'' or ``Mary has done that; I really see where it is; yes, Mary really gave a good talk; I understand what Mary has done.'' The tendency is to give a highly restricted, safe talk; this is usually ineffective. Furthermore, many talks are filled with far too much information. So I say this idea of selling is obvious. Let me summarize. You've got to work on important problems. I deny that it is all luck, but I admit there is a fair element of luck. I subscribe to Pasteur's ``Luck favors the prepared mind.'' I favor heavily what I did. Friday afternoons for years - great thoughts only - means that I committed 10% of my time trying to understand the bigger problems in the field, i.e. what was and what was not important. I found in the early days I had believed `this' and yet had spent all week marching in `that' direction. It was kind of foolish. If I really believe the action is over there, why do I march in this direction? I either had to change my goal or change what I did. So I changed something I did and I marched in the direction I thought was important. It's that easy. Now you might tell me you haven't got control over what you have to work on. Well, when you first begin, you may not. But once you're moderately successful, there are more people asking for results than you can deliver and you have some power of choice, but not completely. I'll tell you a story about that, and it bears on the subject of educating your boss. I had a boss named Schelkunoff; he was, and still is, a very good friend of mine. Some military person came to me and demanded some answers by Friday. Well, I had already dedicated my computing resources to reducing data on the fly for a group of scientists; I was knee deep in short, small, important problems. This military person wanted me to solve his problem by the end of the day on Friday. I said, ``No, I'll give it to you Monday. I can work on it over the weekend. I'm not going to do it now.'' He goes down to my boss, Schelkunoff, and Schelkunoff says, ``You must run this for him; he's got to have it by Friday.'' I tell him, ``Why do I?''; he says, ``You have to.'' I said, ``Fine, Sergei, but you're sitting in your office Friday afternoon catching the late bus home to watch as this fellow walks out that door.'' I gave the military person the answers late Friday afternoon. I then went to Schelkunoff's office and sat down; as the man goes out I say, ``You see Schelkunoff, this fellow has nothing under his arm; but I gave him the answers.'' On Monday morning Schelkunoff called him up and said, ``Did you come in to work over the weekend?'' I could hear, as it were, a pause as the fellow ran through his mind of what was going to happen; but he knew he would have had to sign in, and he'd better not say he had when he hadn't, so he said he hadn't. Ever after that Schelkunoff said, ``You set your deadlines; you can change them.'' One lesson was sufficient to educate my boss as to why I didn't want to do big jobs that displaced exploratory research and why I was justified in not doing crash jobs which absorb all the research computing facilities. I wanted instead to use the facilities to compute a large number of small problems. Again, in the early days, I was limited in computing capacity and it was clear, in my area, that a ``mathematician had no use for machines.'' But I needed more machine capacity. Every time I had to tell some scientist in some other area, ``No I can't; I haven't the machine capacity,'' he complained. I said ``Go tell your Vice President that Hamming needs more computing capacity.'' After a while I could see what was happening up there at the top; many people said to my Vice President, ``Your man needs more computing capacity.'' I got it! I also did a second thing. When I loaned what little programming power we had to help in the early days of computing, I said, ``We are not getting the recognition for our programmers that they deserve. When you publish a paper you will thank that programmer or you aren't getting any more help from me. That programmer is going to be thanked by name; she's worked hard.'' I waited a couple of years. I then went through a year of BSTJ articles and counted what fraction thanked some programmer. I took it into the boss and said, ``That's the central role computing is playing in Bell Labs; if the BSTJ is important, that's how important computing is.'' He had to give in. You can educate your bosses. It's a hard job. In this talk I'm only viewing from the bottom up; I'm not viewing from the top down. But I am telling you how you can get what you want in spite of top management. You have to sell your ideas there also. Well I now come down to the topic, ``Is the effort to be a great scientist worth it?'' To answer this, you must ask people. When you get beyond their modesty, most people will say, ``Yes, doing really first-class work, and knowing it, is as good as wine, women and song put together,'' or if it's a woman she says, ``It is as good as wine, men and song put together.'' And if you look at the bosses, they tend to come back or ask for reports, trying to participate in those moments of discovery. They're always in the way. So evidently those who have done it, want to do it again. But it is a limited survey. I have never dared to go out and ask those who didn't do great work how they felt about the matter. It's a biased sample, but I still think it is worth the struggle. I think it is very definitely worth the struggle to try and do first-class work because the truth is, the value is in the struggle more than it is in the result. The struggle to make something of yourself seems to be worthwhile in itself. The success and fame are sort of dividends, in my opinion. I've told you how to do it. It is so easy, so why do so many people, with all their talents, fail? For example, my opinion, to this day, is that there are in the mathematics department at Bell Labs quite a few people far more able and far better endowed than I, but they didn't produce as much. Some of them did produce more than I did; Shannon produced more than I did, and some others produced a lot, but I was highly productive against a lot of other fellows who were better equipped. Why is it so? What happened to them? Why do so many of the people who have great promise, fail? Well, one of the reasons is drive and commitment. The people who do great work with less ability but who are committed to it, get more done that those who have great skill and dabble in it, who work during the day and go home and do other things and come back and work the next day. They don't have the deep commitment that is apparently necessary for really first-class work. They turn out lots of good work, but we were talking, remember, about first-class work. There is a difference. Good people, very talented people, almost always turn out good work. We're talking about the outstanding work, the type of work that gets the Nobel Prize and gets recognition. The second thing is, I think, the problem of personality defects. Now I'll cite a fellow whom I met out in Irvine. He had been the head of a computing center and he was temporarily on assignment as a special assistant to the president of the university. It was obvious he had a job with a great future. He took me into his office one time and showed me his method of getting letters done and how he took care of his correspondence. He pointed out how inefficient the secretary was. He kept all his letters stacked around there; he knew where everything was. And he would, on his word processor, get the letter out. He was bragging how marvelous it was and how he could get so much more work done without the secretary's interference. Well, behind his back, I talked to the secretary. The secretary said, ``Of course I can't help him; I don't get his mail. He won't give me the stuff to log in; I don't know where he puts it on the floor. Of course I can't help him.'' So I went to him and said, ``Look, if you adopt the present method and do what you can do single-handedly, you can go just that far and no farther than you can do single-handedly. If you will learn to work with the system, you can go as far as the system will support you.'' And, he never went any further. He had his personality defect of wanting total control and was not willing to recognize that you need the support of the system. You find this happening again and again; good scientists will fight the system rather than learn to work with the system and take advantage of all the system has to offer. It has a lot, if you learn how to use it. It takes patience, but you can learn how to use the system pretty well, and you can learn how to get around it. After all, if you want a decision `No', you just go to your boss and get a `No' easy. If you want to do something, don't ask, do it. Present him with an accomplished fact. Don't give him a chance to tell you `No'. But if you want a `No', it's easy to get a `No'. Another personality defect is ego assertion and I'll speak in this case of my own experience. I came from Los Alamos and in the early days I was using a machine in New York at 590 Madison Avenue where we merely rented time. I was still dressing in western clothes, big slash pockets, a bolo and all those things. I vaguely noticed that I was not getting as good service as other people. So I set out to measure. You came in and you waited for your turn; I felt I was not getting a fair deal. I said to myself, ``Why? No Vice President at IBM said, `Give Hamming a bad time'. It is the secretaries at the bottom who are doing this. When a slot appears, they'll rush to find someone to slip in, but they go out and find somebody else. Now, why? I haven't mistreated them.'' Answer, I wasn't dressing the way they felt somebody in that situation should. It came down to just that - I wasn't dressing properly. I had to make the decision - was I going to assert my ego and dress the way I wanted to and have it steadily drain my effort from my professional life, or was I going to appear to conform better? I decided I would make an effort to appear to conform properly. The moment I did, I got much better service. And now, as an old colorful character, I get better service than other people. You should dress according to the expectations of the audience spoken to. If I am going to give an address at the MIT computer center, I dress with a bolo and an old corduroy jacket or something else. I know enough not to let my clothes, my appearance, my manners get in the way of what I care about. An enormous number of scientists feel they must assert their ego and do their thing their way. They have got to be able to do this, that, or the other thing, and they pay a steady price. John Tukey almost always dressed very casually. He would go into an important office and it would take a long time before the other fellow realized that this is a first-class man and he had better listen. For a long time John has had to overcome this kind of hostility. It's wasted effort! I didn't say you should conform; I said ``The appearance of conforming gets you a long way.'' If you chose to assert your ego in any number of ways, ``I am going to do it my way,'' you pay a small steady price throughout the whole of your professional career. And this, over a whole lifetime, adds up to an enormous amount of needless trouble. By taking the trouble to tell jokes to the secretaries and being a little friendly, I got superb secretarial help. For instance, one time for some idiot reason all the reproducing services at Murray Hill were tied up. Don't ask me how, but they were. I wanted something done. My secretary called up somebody at Holmdel, hopped the company car, made the hour-long trip down and got it reproduced, and then came back. It was a payoff for the times I had made an effort to cheer her up, tell her jokes and be friendly; it was that little extra work that later paid off for me. By realizing you have to use the system and studying how to get the system to do your work, you learn how to adapt the system to your desires. Or you can fight it steadily, as a small undeclared war, for the whole of your life. And I think John Tukey paid a terrible price needlessly. He was a genius anyhow, but I think it would have been far better, and far simpler, had he been willing to conform a little bit instead of ego asserting. He is going to dress the way he wants all of the time. It applies not only to dress but to a thousand other things; people will continue to fight the system. Not that you shouldn't occasionally! When they moved the library from the middle of Murray Hill to the far end, a friend of mine put in a request for a bicycle. Well, the organization was not dumb. They waited awhile and sent back a map of the grounds saying, ``Will you please indicate on this map what paths you are going to take so we can get an insurance policy covering you.'' A few more weeks went by. They then asked, ``Where are you going to store the bicycle and how will it be locked so we can do so and so.'' He finally realized that of course he was going to be red-taped to death so he gave in. He rose to be the President of Bell Laboratories. Barney Oliver was a good man. He wrote a letter one time to the IEEE. At that time the official shelf space at Bell Labs was so much and the height of the IEEE Proceedings at that time was larger; and since you couldn't change the size of the official shelf space he wrote this letter to the IEEE Publication person saying, ``Since so many IEEE members were at Bell Labs and since the official space was so high the journal size should be changed.'' He sent it for his boss's signature. Back came a carbon with his signature, but he still doesn't know whether the original was sent or not. I am not saying you shouldn't make gestures of reform. I am saying that my study of able people is that they don't get themselves committed to that kind of warfare. They play it a little bit and drop it and get on with their work. Many a second-rate fellow gets caught up in some little twitting of the system, and carries it through to warfare. He expends his energy in a foolish project. Now you are going to tell me that somebody has to change the system. I agree; somebody's has to. Which do you want to be? The person who changes the system or the person who does first-class science? Which person is it that you want to be? Be clear, when you fight the system and struggle with it, what you are doing, how far to go out of amusement, and how much to waste your effort fighting the system. My advice is to let somebody else do it and you get on with becoming a first-class scientist. Very few of you have the ability to both reform the system and become a first-class scientist. On the other hand, we can't always give in. There are times when a certain amount of rebellion is sensible. I have observed almost all scientists enjoy a certain amount of twitting the system for the sheer love of it. What it comes down to basically is that you cannot be original in one area without having originality in others. Originality is being different. You can't be an original scientist without having some other original characteristics. But many a scientist has let his quirks in other places make him pay a far higher price than is necessary for the ego satisfaction he or she gets. I'm not against all ego assertion; I'm against some. Another fault is anger. Often a scientist becomes angry, and this is no way to handle things. Amusement, yes, anger, no. Anger is misdirected. You should follow and cooperate rather than struggle against the system all the time. Another thing you should look for is the positive side of things instead of the negative. I have already given you several examples, and there are many, many more; how, given the situation, by changing the way I looked at it, I converted what was apparently a defect to an asset. I'll give you another example. I am an egotistical person; there is no doubt about it. I knew that most people who took a sabbatical to write a book, didn't finish it on time. So before I left, I told all my friends that when I come back, that book was going to be done! Yes, I would have it done - I'd have been ashamed to come back without it! I used my ego to make myself behave the way I wanted to. I bragged about something so I'd have to perform. I found out many times, like a cornered rat in a real trap, I was surprisingly capable. I have found that it paid to say, ``Oh yes, I'll get the answer for you Tuesday,'' not having any idea how to do it. By Sunday night I was really hard thinking on how I was going to deliver by Tuesday. I often put my pride on the line and sometimes I failed, but as I said, like a cornered rat I'm surprised how often I did a good job. I think you need to learn to use yourself. I think you need to know how to convert a situation from one view to another which would increase the chance of success. Now self-delusion in humans is very, very common. There are enumerable ways of you changing a thing and kidding yourself and making it look some other way. When you ask, ``Why didn't you do such and such,'' the person has a thousand alibis. If you look at the history of science, usually these days there are 10 people right there ready, and we pay off for the person who is there first. The other nine fellows say, ``Well, I had the idea but I didn't do it and so on and so on.'' There are so many alibis. Why weren't you first? Why didn't you do it right? Don't try an alibi. Don't try and kid yourself. You can tell other people all the alibis you want. I don't mind. But to yourself try to be honest. If you really want to be a first-class scientist you need to know yourself, your weaknesses, your strengths, and your bad faults, like my egotism. How can you convert a fault to an asset? How can you convert a situation where you haven't got enough manpower to move into a direction when that's exactly what you need to do? I say again that I have seen, as I studied the history, the successful scientist changed the viewpoint and what was a defect became an asset. In summary, I claim that some of the reasons why so many people who have greatness within their grasp don't succeed are: they don't work on important problems, they don't become emotionally involved, they don't try and change what is difficult to some other situation which is easily done but is still important, and they keep giving themselves alibis why they don't. They keep saying that it is a matter of luck. I've told you how easy it is; furthermore I've told you how to reform. Therefore, go forth and become great scientists! DISCUSSION - QUESTIONS AND ANSWERS A. G. Chynoweth: Well that was 50 minutes of concentrated wisdom and observations accumulated over a fantastic career; I lost track of all the observations that were striking home. Some of them are very very timely. One was the plea for more computer capacity; I was hearing nothing but that this morning from several people, over and over again. So that was right on the mark today even though here we are 20 - 30 years after when you were making similar remarks, Dick. I can think of all sorts of lessons that all of us can draw from your talk. And for one, as I walk around the halls in the future I hope I won't see as many closed doors in Bellcore. That was one observation I thought was very intriguing. Thank you very, very much indeed Dick; that was a wonderful recollection. I'll now open it up for questions. I'm sure there are many people who would like to take up on some of the points that Dick was making. Hamming: First let me respond to Alan Chynoweth about computing. I had computing in research and for 10 years I kept telling my management, ``Get that !&@#% machine out of research. We are being forced to run problems all the time. We can't do research because were too busy operating and running the computing machines.'' Finally the message got through. They were going to move computing out of research to someplace else. I was persona non grata to say the least and I was surprised that people didn't kick my shins because everybody was having their toy taken away from them. I went in to Ed David's office and said, ``Look Ed, you've got to give your researchers a machine. If you give them a great big machine, we'll be back in the same trouble we were before, so busy keeping it going we can't think. Give them the smallest machine you can because they are very able people. They will learn how to do things on a small machine instead of mass computing.'' As far as I'm concerned, that's how UNIX arose. We gave them a moderately small machine and they decided to make it do great things. They had to come up with a system to do it on. It is called UNIX! A. G. Chynoweth: I just have to pick up on that one. In our present environment, Dick, while we wrestle with some of the red tape attributed to, or required by, the regulators, there is one quote that one exasperated AVP came up with and I've used it over and over again. He growled that, ``UNIX was never a deliverable!'' Question: What about personal stress? Does that seem to make a difference? Hamming: Yes, it does. If you don't get emotionally involved, it doesn't. I had incipient ulcers most of the years that I was at Bell Labs. I have since gone off to the Naval Postgraduate School and laid back somewhat, and now my health is much better. But if you want to be a great scientist you're going to have to put up with stress. You can lead a nice life; you can be a nice guy or you can be a great scientist. But nice guys end last, is what Leo Durocher said. If you want to lead a nice happy life with a lot of recreation and everything else, you'll lead a nice life. Question: The remarks about having courage, no one could argue with; but those of us who have gray hairs or who are well established don't have to worry too much. But what I sense among the young people these days is a real concern over the risk taking in a highly competitive environment. Do you have any words of wisdom on this? Hamming: I'll quote Ed David more. Ed David was concerned about the general loss of nerve in our society. It does seem to me that we've gone through various periods. Coming out of the war, coming out of Los Alamos where we built the bomb, coming out of building the radars and so on, there came into the mathematics department, and the research area, a group of people with a lot of guts. They've just seen things done; they've just won a war which was fantastic. We had reasons for having courage and therefore we did a great deal. I can't arrange that situation to do it again. I cannot blame the present generation for not having it, but I agree with what you say; I just cannot attach blame to it. It doesn't seem to me they have the desire for greatness; they lack the courage to do it. But we had, because we were in a favorable circumstance to have it; we just came through a tremendously successful war. In the war we were looking very, very bad for a long while; it was a very desperate struggle as you well know. And our success, I think, gave us courage and self confidence; that's why you see, beginning in the late forties through the fifties, a tremendous productivity at the labs which was stimulated from the earlier times. Because many of us were earlier forced to learn other things - we were forced to learn the things we didn't want to learn, we were forced to have an open door - and then we could exploit those things we learned. It is true, and I can't do anything about it; I cannot blame the present generation either. It's just a fact. Question: Is there something management could or should do? Hamming: Management can do very little. If you want to talk about managing research, that's a totally different talk. I'd take another hour doing that. This talk is about how the individual gets very successful research done in spite of anything the management does or in spite of any other opposition. And how do you do it? Just as I observe people doing it. It's just that simple and that hard! Question: Is brainstorming a daily process? Hamming: Once that was a very popular thing, but it seems not to have paid off. For myself I find it desirable to talk to other people; but a session of brainstorming is seldom worthwhile. I do go in to strictly talk to somebody and say, ``Look, I think there has to be something here. Here's what I think I see ...'' and then begin talking back and forth. But you want to pick capable people. To use another analogy, you know the idea called the `critical mass.' If you have enough stuff you have critical mass. There is also the idea I used to call `sound absorbers'. When you get too many sound absorbers, you give out an idea and they merely say, ``Yes, yes, yes.'' What you want to do is get that critical mass in action; ``Yes, that reminds me of so and so,'' or, ``Have you thought about that or this?'' When you talk to other people, you want to get rid of those sound absorbers who are nice people but merely say, ``Oh yes,'' and to find those who will stimulate you right back. For example, you couldn't talk to John Pierce without being stimulated very quickly. There were a group of other people I used to talk with. For example there was Ed Gilbert; I used to go down to his office regularly and ask him questions and listen and come back stimulated. I picked my people carefully with whom I did or whom I didn't brainstorm because the sound absorbers are a curse. They are just nice guys; they fill the whole space and they contribute nothing except they absorb ideas and the new ideas just die away instead of echoing on. Yes, I find it necessary to talk to people. I think people with closed doors fail to do this so they fail to get their ideas sharpened, such as ``Did you ever notice something over here?'' I never knew anything about it - I can go over and look. Somebody points the way. On my visit here, I have already found several books that I must read when I get home. I talk to people and ask questions when I think they can answer me and give me clues that I do not know about. I go out and look! Question: What kind of tradeoffs did you make in allocating your time for reading and writing and actually doing research? Hamming: I believed, in my early days, that you should spend at least as much time in the polish and presentation as you did in the original research. Now at least 50% of the time must go for the presentation. It's a big, big number. Question: How much effort should go into library work? Hamming: It depends upon the field. I will say this about it. There was a fellow at Bell Labs, a very, very, smart guy. He was always in the library; he read everything. If you wanted references, you went to him and he gave you all kinds of references. But in the middle of forming these theories, I formed a proposition: there would be no effect named after him in the long run. He is now retired from Bell Labs and is an Adjunct Professor. He was very valuable; I'm not questioning that. He wrote some very good Physical Review articles; but there's no effect named after him because he read too much. If you read all the time what other people have done you will think the way they thought. If you want to think new thoughts that are different, then do what a lot of creative people do - get the problem reasonably clear and then refuse to look at any answers until you've thought the problem through carefully how you would do it, how you could slightly change the problem to be the correct one. So yes, you need to keep up. You need to keep up more to find out what the problems are than to read to find the solutions. The reading is necessary to know what is going on and what is possible. But reading to get the solutions does not seem to be the way to do great research. So I'll give you two answers. You read; but it is not the amount, it is the way you read that counts. Question: How do you get your name attached to things? Hamming: By doing great work. I'll tell you the hamming window one. I had given Tukey a hard time, quite a few times, and I got a phone call from him from Princeton to me at Murray Hill. I knew that he was writing up power spectra and he asked me if I would mind if he called a certain window a ``Hamming window.'' And I said to him, ``Come on, John; you know perfectly well I did only a small part of the work but you also did a lot.'' He said, ``Yes, Hamming, but you contributed a lot of small things; you're entitled to some credit.'' So he called it the hamming window. Now, let me go on. I had twitted John frequently about true greatness. I said true greatness is when your name is like ampere, watt, and fourier - when it's spelled with a lower case letter. That's how the hamming window came about. Question: Dick, would you care to comment on the relative effectiveness between giving talks, writing papers, and writing books? Hamming: In the short-haul, papers are very important if you want to stimulate someone tomorrow. If you want to get recognition long-haul, it seems to me writing books is more contribution because most of us need orientation. In this day of practically infinite knowledge, we need orientation to find our way. Let me tell you what infinite knowledge is. Since from the time of Newton to now, we have come close to doubling knowledge every 17 years, more or less. And we cope with that, essentially, by specialization. In the next 340 years at that rate, there will be 20 doublings, i.e. a million, and there will be a million fields of specialty for every one field now. It isn't going to happen. The present growth of knowledge will choke itself off until we get different tools. I believe that books which try to digest, coordinate, get rid of the duplication, get rid of the less fruitful methods and present the underlying ideas clearly of what we know now, will be the things the future generations will value. Public talks are necessary; private talks are necessary; written papers are necessary. But I am inclined to believe that, in the long-haul, books which leave out what's not essential are more important than books which tell you everything because you don't want to know everything. I don't want to know that much about penguins is the usual reply. You just want to know the essence. Question: You mentioned the problem of the Nobel Prize and the subsequent notoriety of what was done to some of the careers. Isn't that kind of a much more broad problem of fame? What can one do? Hamming: Some things you could do are the following. Somewhere around every seven years make a significant, if not complete, shift in your field. Thus, I shifted from numerical analysis, to hardware, to software, and so on, periodically, because you tend to use up your ideas. When you go to a new field, you have to start over as a baby. You are no longer the big mukity muk and you can start back there and you can start planting those acorns which will become the giant oaks. Shannon, I believe, ruined himself. In fact when he left Bell Labs, I said, ``That's the end of Shannon's scientific career.'' I received a lot of flak from my friends who said that Shannon was just as smart as ever. I said, ``Yes, he'll be just as smart, but that's the end of his scientific career,'' and I truly believe it was. You have to change. You get tired after a while; you use up your originality in one field. You need to get something nearby. I'm not saying that you shift from music to theoretical physics to English literature; I mean within your field you should shift areas so that you don't go stale. You couldn't get away with forcing a change every seven years, but if you could, I would require a condition for doing research, being that you will change your field of research every seven years with a reasonable definition of what it means, or at the end of 10 years, management has the right to compel you to change. I would insist on a change because I'm serious. What happens to the old fellows is that they get a technique going; they keep on using it. They were marching in that direction which was right then, but the world changes. There's the new direction; but the old fellows are still marching in their former direction. You need to get into a new field to get new viewpoints, and before you use up all the old ones. You can do something about this, but it takes effort and energy. It takes courage to say, ``Yes, I will give up my great reputation.'' For example, when error correcting codes were well launched, having these theories, I said, ``Hamming, you are going to quit reading papers in the field; you are going to ignore it completely; you are going to try and do something else other than coast on that.'' I deliberately refused to go on in that field. I wouldn't even read papers to try to force myself to have a chance to do something else. I managed myself, which is what I'm preaching in this whole talk. Knowing many of my own faults, I manage myself. I have a lot of faults, so I've got a lot of problems, i.e. a lot of possibilities of management. Question: Would you compare research and management? Hamming: If you want to be a great researcher, you won't make it being president of the company. If you want to be president of the company, that's another thing. I'm not against being president of the company. I just don't want to be. I think Ian Ross does a good job as President of Bell Labs. I'm not against it; but you have to be clear on what you want. Furthermore, when you're young, you may have picked wanting to be a great scientist, but as you live longer, you may change your mind. For instance, I went to my boss, Bode, one day and said, ``Why did you ever become department head? Why didn't you just be a good scientist?'' He said, ``Hamming, I had a vision of what mathematics should be in Bell Laboratories. And I saw if that vision was going to be realized, I had to make it happen; I had to be department head.'' When your vision of what you want to do is what you can do single-handedly, then you should pursue it. The day your vision, what you think needs to be done, is bigger than what you can do single-handedly, then you have to move toward management. And the bigger the vision is, the farther in management you have to go. If you have a vision of what the whole laboratory should be, or the whole Bell System, you have to get there to make it happen. You can't make it happen from the bottom very easily. It depends upon what goals and what desires you have. And as they change in life, you have to be prepared to change. I chose to avoid management because I preferred to do what I could do single-handedly. But that's the choice that I made, and it is biased. Each person is entitled to their choice. Keep an open mind. But when you do choose a path, for heaven's sake be aware of what you have done and the choice you have made. Don't try to do both sides. Question: How important is one's own expectation or how important is it to be in a group or surrounded by people who expect great work from you? Hamming: At Bell Labs everyone expected good work from me - it was a big help. Everybody expects you to do a good job, so you do, if you've got pride. I think it's very valuable to have first-class people around. I sought out the best people. The moment that physics table lost the best people, I left. The moment I saw that the same was true of the chemistry table, I left. I tried to go with people who had great ability so I could learn from them and who would expect great results out of me. By deliberately managing myself, I think I did much better than laissez faire. Question: You, at the outset of your talk, minimized or played down luck; but you seemed also to gloss over the circumstances that got you to Los Alamos, that got you to Chicago, that got you to Bell Laboratories. Hamming: There was some luck. On the other hand I don't know the alternate branches. Until you can say that the other branches would not have been equally or more successful, I can't say. Is it luck the particular thing you do? For example, when I met Feynman at Los Alamos, I knew he was going to get a Nobel Prize. I didn't know what for. But I knew darn well he was going to do great work. No matter what directions came up in the future, this man would do great work. And sure enough, he did do great work. It isn't that you only do a little great work at this circumstance and that was luck, there are many opportunities sooner or later. There are a whole pail full of opportunities, of which, if you're in this situation, you seize one and you're great over there instead of over here. There is an element of luck, yes and no. Luck favors a prepared mind; luck favors a prepared person. It is not guaranteed; I don't guarantee success as being absolutely certain. I'd say luck changes the odds, but there is some definite control on the part of the individual. Go forth, then, and do great work! [1] http://www.cs.virginia.edu/~robins/YouAndYourResearch.html

Valuations

2014-06-20 18:48:33

People have been saying that startup valuations are really high for about 3 years now. I myself feel that they are high, but I have no idea when they are likely to change. It’s mostly investors that talk about valuations being way too high. But they’re the ones that keep willingly paying higher and higher prices. In fact, they keep raising larger and larger funds. So I think there has to be a discount rate on the claim. The most important reason for this is simple capitalism—large pools of money look for the best risk-adjusted return. Interest rates are effectively zero (and negative in Europe!) and will likely remain that way for awhile— the Fed has continually been too optimistic about when the economy will pick back up. So fixed income is bad, and partially because of that, public equities, real estate, etc all feel really expensive. The fundamental problem driving this lack of opportunity for capital, in my somewhat controversial opinion, is a lack of GDP growth. Startups have growth, though, and so they attract investment interest. There have been a lot of startup success stories in the last decade, and a lot more people want to invest in startups than ever before except maybe the 2000 bubble. Crowdfunding (probably the most important new force in startup investing) is providing more competition for early-stage investments, and hedge funds and private equity firms are starting to do a lot more late-stage investing. Angel investors are raising funds at an astonishing rate. Some of these new investors invest partially for social status, not just a financial return, and so are willing to pay relatively higher prices. A lot of these new investors are willing to accept lower returns than VC firms, given the alternative options for investing the capital. But VC firms will continue to invest, of course, even if the prices are higher than they’d like. [1] The number of good startups is increasing every year, but not as fast as the investment dollars are. And so there is a supply and demand mismatch, and prices are going up. VC has worked, at least partially, on special access and information asymmetry. (VCs pitch their LPs about this and call it “competitive differentiation”.) But access to startups has gotten much easier. If you’re a VC firm still depending on this, you’re very likely failing. The good VCs are doing new things to remain on top. Some firms are focusing on providing services like recruiting, business development, PR, and many others to their startups. Some firms are trying to focus on having partners that are former founders. Still others are trying to focus on contrarian investments. All of this is great for founders. A lot of the traditional “non-starter” terms from VCs are already going away. We’re seeing more and more A rounds happen with less than 20% ownership going to the investors, and fewer and fewer requirements about investor control over the company. Unfortunately, some good things are going away also. It turns out to be really good for a company to have a board—it focuses the company if everyone knows they have to present the key metrics to outsiders once a month. Some investors feel that if they own a smaller percentage of the company, they are willing to put in money but not time. But I don’t think this strategy will work for long—if that’s the sales pitch, then founders will take the cheapest capital, and the crowd will probably pay more than VCs. If I could ask VCs for only one thing in this new world, it’d be to keep showing up for board meetings. [2] I believe good angel and venture investors really do add value, and most founders are rightly willing to take somewhat worse terms to work with people they believe will really help them. But the capital markets are moving fast, and investors will have to keep up (this was part of our thinking about increasing the standard YC offer). So what should founders do now that valuations are higher? Definitely don’t start a company just because capital is available. Remember that cheap capital doesn’t make starting a company much easier. It only does stuff like drive up rent. Success will still take a very long time. And it’s definitely still bad to chase above-market valuations—you’ll price out people that will actually help. Just take market terms and get back to work. Resist the urge to raise and spend too much money. The track record of companies that raise $30MM or more in their first round is bad. You may be one of the exceptions, but for a bunch of reasons, I think it’s better to have a small amount of money until everything is working, and only then really hit the gas pedal. Also, if capital feels cheap, it’s psychologically easier to spend. It’s really important to stay frugal. In addition to the often-discussed correlation of low CEO pay with success, I’ve noticed that frugal companies have a culture that ends up being much more focused on real results. Frugal companies also tend to have a long-term focus. And on a practical level, it’s always possible that the capital you’ve raised now will be the last you’ve ever raised. You should treat it that way. Some day the top-callers will be right. It certainly feels to me like we may be in the early days of a bubble (though valuations for brand new companies, which felt most out of whack to me six months ago, seem to have come down somewhat). And a macroeconomic collapse—which may happen—would certainly correct valuations in a hurry. But unless some macro event happens, it feels like valuations can stay high. Importantly, a lot of these startups are generating real revenue and earnings. [1] My guess for what happens is that the great VCs continue to do well. Many investors think new startups will be worth more than most of the startups from ten years ago—markets keep getting bigger, more good people are starting startups, startups are becoming easier to start, distribution keeps getting easier, and interest rates will probably stay low—or it’s possible that VCs will generate still good but lower-than-historical returns. [2] The increase in valuations has led to some funny new behaviors. One of the funniest examples is a simultaneous obsession with the price other investors are paying—“Even though I thought this price was good yesterday, I found out someone else is getting to invest at a lower price and I’m furious”—coupled with a refrain of “I’ll work really hard for the company and add much more value than your other investors, so I’d like advisory shares or a discount to participate in your round”. I hope investors will stop doing these sorts of things.

Founder Depression

2014-06-13 21:46:14

If you ask a founder how her startup is going, the answer is almost always some version of “Great!” There is a huge amount of pressure as a founder to never show weakness and to be the cheerleader in all internal and external situations. The world can be falling down around you—and most of the time when you’re running a company, it is—and you have to be the strong, confident, and optimistic. Failing is terrifying, and so is looking stupid. Founders end up with a lot of weight on their shoulders—their employees and their families, their customers, their investors, etc. Founders usually feel a responsibility to make everyone happy, even though interests are often opposed. And it’s lonely in a way that’s difficult to explain, even with a cofounder (one of the things that works about organizations like Y Combinator is that you have a peer group you can lean on for support). So a lot of founders end up pretty depressed at one point or another, and they generally don’t talk to anyone about it. Often companies don’t survive these dark times. Failing sucks—there is no way to sugarcoat that. But startups are not life-and-death matters—it’s just work. Most of the founders I know have had seriously dark times, and usually felt like there was no one they could turn to. For whatever it’s worth, you’re not alone, and you shouldn’t be ashamed. You’ll be surprised how much better you feel just by talking to people about the struggles you’re facing instead of saying “we’re crushing it”. You’ll also be surprised how much you find other founders are willing to listen.

Bitcoin Price Pressure

2014-04-30 18:39:48

The price of bitcoin keeps trending down. [1] This causes a lot of people to declare the end of bitcoin. It’s important to understand that the default price pressure of the bitcoin ecosystem is down. There are a lot of reasons for this, so I’ll just give a few examples. When most merchants take bitcoin for a purchase, they immediately sell for dollars (they can’t usually pay their vendors in bitcoin, they can’t pay tax in bitcoin, they don’t want to be exposed to the volatility, etc.) When miners mine bitcoin, they have to sell some of them to pay for the electricity in dollars (or, more likely, RMB). As the difficulty goes up and the price of bitcoin goes down, they have to sell a larger and larger percentage of what they mine. In fact, as far as I can tell, mining is currently unprofitable with any reasonable cost of electricity. It still makes sense to mine if you’re living in a dorm and don’t pay for electricity, or if you can’t pass a KYC check and are willing to pay a big premium to get bitcoin. The recent US and international tax changes and tax filings also caused sell pressure. This will continue to be the case until the US government takes bitcoin for taxes. If I ran the government, I would never do this—the US needs the dollar to remain the world reserve currency. There are plenty of other reasons, but the point is that bitcoin is different from many other financial markets, where the default pressure is up. [2] This doesn’t mean bitcoin is doomed. It just means that for it to succeed, we’ll need significant external buy pressure. As I wrote awhile ago, I think the key thing we need for this is people actually using bitcoin for transactions instead of speculation (and merchants willing to hold bitcoin balances). [3] Unfortunately, transaction volume still appears to be trending down. [4] Anecdotally, I hear from merchants who start taking bitcoin that after an initial spike they see almost no volume. The other way to get enough buy pressure would be if many people started deciding they want to hold bitcoin as a hedge or a speculation. This spurs occasional bubbles, but we haven’t yet seen it work long term. A declining bitcoin price does not mean bitcoin is failing. And even if bitcoin itself fails, I think the blockchain will be one of key technical innovations of this time period. In fact, in the most recent set of YC interviews, we saw more great blockchain companies than bitcoin companies. Maybe Ripple or Dogecoin ends up winning. [5] Or maybe something that hasn’t been invented yet. But it’s hard to imagine a future where the blockchain concept isn’t really important. [1] http://blockchain.info/charts/market-cap [2] Paul Buchheit first made this point: https://news.ycombinator.com/item?id=7570656 [3] http://blog.samaltman.com/thoughts-on-bitcoin [4] http://blockchain.info/charts/estimated-transaction-volume [5] Speaking of dogecoin, as of this writing, it is the number 3 crytocurrency measured by daily volume, and if the market cap went up $10MM (about 25%), it would be the number 3 by market cap also.

Employee Equity

2014-04-18 18:26:47

Startup employees often do not get treated very well when it comes to stock compensation. New ideas float around occasionally, but lawyers are usually averse to trying new things, and investors don’t feel that they have enough incentive to try something new for employees. There are four major problems: 1) Employees usually don’t get enough stock. 2) If an employee leaves the company, he or she often can’t afford to exercise and pay taxes on their options. 3) Employee options sometimes get unfavorable tax treatment. 4) Employees usually don’t have enough information about the stock or options. Here are some proposed solutions: 1) Startups should give employees more stock. Value is created over many, many years. Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. Additionally, companies can now get more done with less people. It’s very difficult to put precise numbers on this because the specifics of every situation matter so much. Perhaps the best way to think about it is to try to come up with a total compensation package with the same expected value (using the company valuation of the last round, or a best-efforts guess if it’s been a long time since the round) as the employee would get at a big company like Google. As an extremely rough stab at actual numbers, I think a company ought to be giving at least 10% in total to the first 10 employees, 5% to the next 20, and 5% to the next 50. In practice, the optimal numbers may be much higher. One problem is that startups try to have very small option pools after their A rounds, because the dilution only comes from the founders and not the investors in most A-round term sheets. The right thing to do would be to increase the size of the option pool post-A round, but unfortunately this rarely happens—no one wants to dilute themselves more, and this leads to short-sighted stinginess much of the time. Option pools are complete fiction; boards can increase them whenever they want. It should never be used as a reason for not making a grant. 2) Most employees only have 90 days after they leave a job to exercise their options. Unfortunately, this requires money to cover the strike price and the tax bill due for the year of exercise (which is calculated on the difference between the strike and the current FMV). This is often more cash than an employee has, and so the employee often has to choose between walking away from vested options he or she can’t afford to exercise, or being locked into staying at the company. It’s a particularly bad situation when an employee gets terminated. This doesn’t seem fair. The best solution I have heard is from Adam D’Angelo at Quora. The idea is to grant options that are exercisable for 10 years from the grant date, which should cover nearly all cases (i.e. the company will probably either go public, get acquired, or die in that time frame, and so either the employee will have the liquidity to exercise or it won’t matter.) There are some tricky issues around this—for example, the options will automatically convert from ISOs to NSOs 3 months after employment terminates (if applicable) but it’s still far better than just losing the assets. I think this is a policy all startups should adopt. As an aside, some companies now write in a repurchase right on vested shares at the current common price when an employee leaves. It’s fine if the company wants to offer to repurchase the shares, but it’s horrible for the company to be able to demand this. 3) Tax treatment on ISOs sounds good, but there’s an issue with AMT (Alternative Minimum Tax) and employees often end up paying more tax than they were expecting. NSO gains are taxed as ordinary income. RSU gains are also taxed as ordinary income. Tax optimization is a second-order issue, and for an immediate solution, I think extending exercise windows to 10 years is the most important thing to do. But longer-term, we should figure out a way for employees to be taxed on their stock compensation the same way as founders (whether or not capital gains should be taxed less than ordinary income is a separate discussion, but in any case I think the tax treatment should be the same). I think this may be doable. Ideally, employees would just get restricted stock (not RSUs), and then when they sold it’d be taxed as long-term capital gains. The problem is that as the company grows, the stock has a non-trivial present value, and if an employee were granted stock then they would then owe immediate tax on the value of the grant. I think there are a lot of ways to fix this. The easiest would be if the IRS would agree to not tax illiquid private stock until it gets sold, and then tax the gain from the basis as long-term capital gains and the original value as ordinary income. Another might be to create a new class of employee stock. Today, in an early-stage company, common shares are usually worth much less than preferred shares. It might be possible to create a class of shares with less rights than common and thus worth even less. The idea would be to convert these shares into common on an acquisition or IPO, but before that, they would be non-transferable and have no value. If it were possible to create a class of stock that the IRS agreed had next to zero value, it might be possible to grant employees this sort of stock, have them owe a tiny bit of tax on it now, and then have normal long-term capital gains treatment years later when the startup goes public. 4) Most startups do a bad job of helping employees think about the value of their options. At a minimum, any startup should tell a prospective employee what percentage of the company the equity grant represents (number of shares is meaningless). Some startups are very hesitant to do this—they don’t want to disclose the number of shares outstanding. Employees should demand to know what percentage of the fully-diluted shares their stock options represent, and be very suspect of any startup that won’t tell them. A specific question worth asking is some version of “so if I have 0.5% of company and it gets acquired tomorrow for $100 million dollars, will I get $500,000?” There are many ways for this not to be the case—there can be a huge liquidation preference, for example—that most employees don’t know to think about. So it’s worth asking about a specific scenario. While you’re asking questions, another good one to ask is “how much money did the company lose last month, and how much is in the bank?” This is better than asking how much runway the company has, because most founders calculate that off of a plan that assumes revenue growth which does not always materialize. I have two other thoughts about stock-based compensation at startups. First, I think employee stock and options should usually not be transferrable. It causes considerable problems for companies when employees sell their stock or options, or pledge them against a loan, or design any other transaction where they agree to potentially let someone else have their shares or proceeds from their shares in the future in exchange for money today. I think it’s fair that if founders sell stock, they should offer an opportunity to employees that have been at the company for more than a certain number of years to sell some portion of their shares. And some companies offer an employee liquidity program even when the founders don’t sell any shares themselves. But otherwise, I think it’s reasonable for employees to wait for an acquisition or IPO. Second, I think it’s time to consider other vesting ideas. The standard at startups is 4 years with a 1-year cliff. So you get 25% of your options after you’ve been there for a year, and 62.5% if you leave after 2.5 years. It’s possible that 4 years is now too short—companies are often worth more than they were 10 years ago, but they take longer to reach liquidity. I’ve seen some startups offer 5 or 6 year vesting schedules. To compensate for this, they offer above-market grants. Another structure I’ve seen is back-weighted vesting. For example, 10% of the grant vests after the first year, and then 20%, 30%, 40% in the following years. Again, the startups I know that do this tie it to above-market grants, and I think it helps them select for employees that really believe in the company and want to be there for a long time. (Also, companies that have vesting schedules like this usually do it for founders too.) Finally, a third structure I’ve seen is a new way of thinking about refresher grants. For a company using options, it’s nice to grant employees options early while the strike is low. It’s possible to give “forward-dated grants”—i.e., you can give a high-performing employee a refresher grant today where 1/3 of it starts vesting immediately and the other 2/3 starts vesting when their initial grant is fully vested. This guarantees them a low-strike price and presumably a relatively large grant in a few years. Dustin Moskovitz at Asana does something like this, and I think it makes a lot of sense. These are just a few of the ideas I’ve seen about new ideas for employee vesting. But I think they’re worth considering—the default 4-year grant does not seem to be the best option.

The Worst Part of YC

2014-04-16 01:29:16

We are going to send out YC summer 2014 interview decisions (both yes and no) before 10 pm PDT tonight. The worst part of our job at YC is rejecting companies. It leaves me feeling down for many days after our application process. I experienced plenty of rejection from investors while running my own startup, and I remember well how bad it is. Starting a startup is such a hard thing that we wish we could help everyone doing so. Some day, we hope to be able to fund almost all the good startups. In the meantime, we still have capacity constraints as we figure out how to scale, and that means we’re stuck saying no to potentially good companies. The best startups often look bad at this stage, and we make mistakes. We could easily miss something great. If you’re working on something that users love, you like working on it, and you have a plan for how to build a business around it, then please don’t let us deter you. (It's sometimes useful to ask friends for an outside perspective on how you're doing.) Although we had nearly 20% more applications than a year ago, it was really striking how much higher the average quality of applications was for this batch compared to any previous batch. Most of the partners independently mentioned this to me. Anyway, to everyone we’re unable to fund: Best of luck, and don’t give up. We love to see founders and companies reapply—companies that look bad now can look great with 6 months of progress.

Startups, Role Models, Risk, and Y Combinator

2014-03-25 19:02:56

The YC application deadline is this Friday, and you can apply here. People often tell us they think they want to start a company but just aren’t sure, so I thought I’d share some thoughts. Although it’s true that most people aren’t well suited to start startups, a lot of people that could be great at it are afraid to make the leap. They look at super successful founders who now seem impossibly impressive. The first time I met the Airbnb founders they were clearly smart and fairly impressive, but nothing like what they are today. We met at a coffeeshop in Mountain View, and they were stumbling over their words and talking about how things weren’t going that well. Now they are taking over the world. This improvement is not a special case—the same thing happened for the Collison brothers at Stripe, and the founders of Homejoy, Weebly, Coinbase, Teespring, Pebble, and on and on and on. Here’s the secret: everyone starting a startup for the first time is scared, and everyone feels like a bit of an imposter. Even the most successful founders doubt themselves and their startups many times in the early days. But founders improve very quickly. So when you’re thinking about whether or not you can start a startup, remember that you shouldn’t compare yourself to these people now. They became much more impressive in the course of running of their startup, and so can you. Starting a startup is very hard and very painful. Success usually requires a level of determination and commitment for which most people don’t have a mental model. For example, when Adora Cheung was starting Homejoy, she would work all day as a cleaner to learn the business, drive an hour back to Mountain View, stay up as late as she could coding, then drive back to San Francisco at ~3am to beat traffic, sleep in her car, and do it again. She also gave both her apartment and her car to early cleaners so that they could partner up with Homejoy. We don’t want to delude anyone about what running a startup is like—it’s a rational decision to decide you don’t want to start a startup. But there are lots of great reasons to start a company, and a lot of people are willing to accept the pain. The unfortunate situation is when people who want to start startups don’t actually get started—they feel like the great startup founders are too impressive, or they don’t know what to do, or it’s too risky. It’s really not that risky—in general, few things are as risky as they seem. And Y Combinator makes it even less risky—we don’t invest much money, but it’s enough to live on (even with a family in most cases). If the startup doesn’t work out, one of the advantages of the alumni network is that most YC founders find something interesting to do next. The only thing you have to know how to do is build something people want. If you can do this, and you are sufficiently relentless, you can probably create more value and have more impact than you could in a regular job. YC can teach you nearly everything else—in fact, most of what we do is give startups one-on-one advice. Founders are usually amazed by how much they get done over the three months of YC, and how much they change. The structure of YC helps startups focus on the few things that matter, and a group of people that mostly start out feeling like they don’t belong transform to some of the best founders out there. If you’re still on the fence about applying for the Summer 2014 YC batch, we hope you’ll make the leap! And don’t worry if you’re not as far along as you’d like of if your application isn’t polished enough. We’ve gotten very good at looking past this, and also it doesn’t hurt you if you don’t get in the first time you apply (we rejected Drew Houston from Dropbox the first time he applied). We fund companies at all stages, from just the faintest idea to post-Series B. Here is some advice other people have written about how to apply: How to Apply to Y Combinator by Paul Graham Last Minute Advice for YC Applicants by Garry Tan Harj Taggar on Quora answering "What is the best advice for a startup applying to Y Combinator?" Michelle Crosby on her YC experience Drew Houston's Dropbox Application Harry Zhang's (Lob YC S13) Advice for YC Applicants Y Combinator Applicant Advice by Zain Shah

What I've Learned From Female Founders So Far

2014-03-21 17:39:08

On the whole, I got a great response to my request for feedback about how YC could encourage female founders. It's clear there are two separate problems: 1) Some women already starting startups aren't interested in doing Y Combinator. 2) Some women who could be great founders don't start startups. I realize it's always a bit ridiculous for a guy to talk about what it's like for female founders, but I'm interested in doing whatever I can to help, because the venture business has definitely been unfair to women. The women on our team also care deeply about this issue, and can do more than I can to address it. For point #1, one of the most consistent messages was that we need to make it clear that we care about the issue and want to fund more female founders. So I'll say that now: we want to fund more women. And we'll keep saying this in the outreach we do. We want to fund more women because it's the right thing to do, but we're not doing this for diversity's sake alone. We want to fund more women because we are greedy in the good way--we want to fund the most successful startups, and many of those are going to be founded by women. Many are also going to be founded by people of different races, different religions, from different countries, straight, gay, in their 20s, or in their 50s. All of those apply to people in the current YC batch. In fact, they all apply to the YC partnership as well. Again, we don't do this for the sake of diversity. We do it because we want to get the best people, whatever they're like. In the current YC batch, 24% of the companies we funded have one or more female founders, and there will be a lot of companies out of those with the potential to serve as role models. We hope that as the number of female YC alumni continues to rise, more women will feel YC is a place that supports and respects them. Another message was that we should do more to make women feel welcome. Many emails pointed out that our website shows nearly all men; we'll fix that. We'll also continue to work with our most successful female founders to talk about their experiences and mentor women that could be future founders. We'll continue to ask women to come speak at dinners. In this batch, two of my four favorite speakers were women (Adora Cheung and Julia Hartz). And we're working on something to improve the quality of Hacker News comments. A very common request was for us to have women in the interviews we do before funding companies. In the last batch, we had a woman in 2 of the 3 interview tracks. We now have more female YC partners, so for this upcoming batch, we'll have a woman in every track. Nearly all women who emailed me suggested that we keep the exact same bar for women as for men (anything else wouldn't be fair to the incredible women we fund every batch), but many pointed out that women are often good in different ways and at different things than men--for example, that men and women express confidence differently--and that we should make sure our criteria catch that. A specific issue that came up is a belief that we look for founders that look like Mark Zuckerberg. Actually that meme began as a self-deprecating joke. We funded a guy once who looked like Mark but ended up doing badly, and when PG was asked by a reporter how to fool him, he said that apparently this was one way. His real point was that looking like Zuckerberg means nothing--that you can look remarkably like him and still fail miserably. I think it's more accurate to say we look for founders that have some of the qualities that have made Zuckerberg so successful. Finally, I heard a lot of support for events like the Female Founders Conference and a belief that they could help change the industry. And if YC continues to fund more women, many people believe VCs will follow. For point #2, I think we can do a lot to reach young women earlier and help teach them about startups and coding. Many women pointed out that you don't have to be a coder to be a founder. That's definitely true, and it was a good reminder for me personally. But I think it's good to at least present learning to code as an option worth considering. As we do more events, we'll continue to reach out to women. Kat, our director of outreach, Jessica, our founding partner, and I will all specifically work on this. For example, we're thinking about holding a hackathon later this year. It'd be great to have a lot of women attend. We're also going to ask some of our successful female founders to do more outreach. I believe we have already funded at least one female founder/CEO who will produce a multibillion dollar company. She and others are outstanding role models. There's lots of work still to do, but we're on it. I hope other investors will join us.

New RFS -- Breakthrough Technologies

2014-03-19 19:33:37

We’d like for Y Combinator to fund more breakthrough technology companies—companies that solve an important problem, have a very long time horizon, and are based on an underlying technological or scientific breakthrough. Not many people try to start these companies, so starting a company that will require a huge amount of time and money is an automatic competitive advantage. SpaceX and Tesla are great examples of what is possible. It used to be the case that governments funded a lot of development of breakthrough technologies. The bad news is that they have mostly stopped; the good news is that the leverage of technology is such that now small startups can do what used to take the resources of nations. [1] We think the YC model works well for these companies. We invest with infinite time horizon and are not afraid of risky-looking companies. [2] We understand software, which will be central to many of these companies. We are good at getting companies to focus on solving real problems for real customers, and not just developing technology for its own sake. And our model helps companies figure out a right-sized initial project achievable with a small amount of time and money—great companies get built with a series of small wins that compound over time, and early momentum is critical. A common failure mode of many ambitious companies is to bite off an initial project that is far too big and expensive. Finally, we know a lot about raising money, which will be a big part of the challenge for many of these companies as they mature. Here is a list (we’ll add to it over time) of some areas we’re particularly interested in, but more generally, we’ll pay attention to any area where technology can make the world much better. Energy. There is a remarkable correlation between the cost of energy and quality of life. Throughout history, when the cost of energy has come down a lot (for example, with the steam engine) the quality of life goes up a lot. Cheap energy would do a huge amount to reduce poverty. New energy sources could also help the environment, the economy, reduce war, ensure a stable future, make food and water more abundant, and much more. We believe economics will dominate—new sources must be cheaper than old ones, without subsidies, and be able to scale to global demand. Nuclear energy can hit the bid, and possibly so can renewables. But pricing is the first order question. In addition to generation, we’re also interested in energy storage and transmission. 10x better batteries would enable great new things, as would the ability to easily move energy around. AI. Relative to the potential impact, it doesn’t seem like enough smart people are working on this. A lot of smart people talk about AI with a combination of awe and fear, both for good reasons. But it feels like it could be one of the dividing lines in the history of technology, where before and after look totally different. Robotics. Robots will be a major way we get things done in the physical world. Our definition is pretty broad—for example, we count a self-driving car as a robot. Robots are how we’ll likely explore space and maybe even the human body. Biotech. It’s still early, but it seems like we’re finally making real progress hacking biology. There are so many directions this can go—fighting disease, slowing aging, merging humans and computers, downloading memories, genetic programming, etc. We are certain that this is going to be a surprising, powerful and controversial field over the next several decades—it feels a little bit like microcomputers in the 1970s. Healthcare. Healthcare in the United States is badly broken. We are getting close to spending 20% of our GDP on healthcare; this is unsustainable. We’re interested in ways to make healthcare better for less money, not in companies that are able to exploit the system by overcharging. We’re especially interested in preventative healthcare, as this is probably the highest-leverage way to improve health. Sensors and data are interesting in lots of different areas, but especially for healthcare. Food and water. At some point, we are going to have problems with food and water availability. Technology can almost certainly improve this. Great innovations are possible—we will need another advancement on the scale of what Norman Borlaug did. Education. If we can fix education, we can eventually do everything else on this list. The first attempts to use technology to fix education have focused on using the Internet to distribute traditional content to a wider audience. This is good, but the Internet is a fundamentally different medium and capable of much more. Solutions that combine the mass scale of technology with one-on-one in-person interaction are particularly interesting to us. This may not require a “breakthrough technology” in the classical sense, but at a minimum it will require very new ways of doing things. Internet Infrastructure. We can’t imagine life without the Internet. We need to be sure it keeps working—this includes everything from security to free and open communication to infrastructure. The Internet is a transformative power, and we’re particularly interested in applications that transform the big underpinnings of society (bitcoin is a great example!). The Internet lets people around the world coordinate action—there are almost certainly important businesses to be built around this concept. Of particular interest to us are ways to use the Internet to fix government—for example, crowdfunding social services. An important trend is the API-ification of everything. As more and more businesses are accessible with a web API, the Internet becomes more and more powerful. Levers. We’re interested in technology that multiplies the efforts and productivity of individuals. Robots are a great example, but this also includes areas like new programming languages, powered exoskeletons, augmented reality, etc. Science. Science seems broken. The current funding models are broken and favor political skill over scientific genius. We need new business models for basic research. There are a lot of areas where scientific developments can have huge commercial applications—materials, neuroscience, climate engineering, and cheaper/better ways to get to space, just to name a few—and we’d love to figure out a way for it to happen. Bell Labs worked a long time ago but would probably not work in today’s world. Transportation and housing. About half of all energy is used on transportation, and people spend a huge amount of time unhappily commuting. Face-to-face interaction is still really important; people still need to move around. And housing continues to get more expensive, partially due to difficulties in transportation. We’re interested in better ways for people to live somewhere nice, work together, and have easier commutes. As a side note, you shouldn’t start a company just because it’s on this list. Our hope is that someone already working on a company in one of these areas that might not have otherwise applied to YC will now consider it. The great majority of the startups we fund will continue to be the sort of Internet and mobile companies we’ve funded in the past, so if that’s what you wanted to do before this post, keep doing it. Traditional-looking startups like Google and Facebook are obviously as important as any company one could imagine, and clearly are breakthrough technologies. [1] To be clear, we are not interested in funding patent trolls. We only want to fund businesses that actually solve problems and create value. [2] Related to long time horizons, if a company needs to raise a billion dollars of funding over the course of its life, that doesn’t scare us—in fact, that’s a plus.

The Founder Visa (again)

2014-03-17 23:51:57

Nearly 5 years ago, Paul Graham first proposed the founder visa. There has been a lot of discussion since, but nothing has happened. Maybe he was too ambitious in asking for 10,000 startup visas per year. So here is a proposal for the US government: please let Y Combinator help allocate up to 100 visas to founders per year. We’ll continue to take applications for funding from around the world, and work with whatever process you’d like—we just need to be able to get the founders visas quickly (None of the current paths works well enough for this, but a slight reworking of the O1 visa around criteria and timing could be sufficient.). If the test works with us, you could expand it to other investment firms. We’re happy to be the beta tester, and we’re confident we’ll prove that it’s a good idea. 100 visas a year is nothing. But 50 new startups a year could be a huge deal. Many will fail, of course, but one could be the next Google, Facebook, Airbnb, or Dropbox. Though this is almost an immeasurably small number of visas, it could have a measurably large effect on the number of jobs created in the United States. Startups are what the US is the best in the world at. We figure out new businesses faster than anyone else. It would be disastrous if that stopped being the case. If founders from elsewhere want to pay taxes and create jobs in the US, we should let them. Other countries are already encouraging this. If you believe that intelligence and determination are evenly distributed, less than 5% of the best founders are born in the US. But it’d be great if many of them started their companies here. This is just a start. We are also in need of broad-based immigration reform, and I believe more immigrants will help our country. But I also understand that the founder visa got tangled up with full-scale immigration reform, which may take a long time. This is an easy way to have an immediate effect, and it’s good to move the ball down the field with small, incremental experiments. Let us show you what we can do with 100 visas. This will be measurable, and in 5 years, we can tell you exactly how many jobs get created.

Fundraising Mistakes Founders Make

2014-02-20 19:42:44

There’s a lot written about what you should do when you raise money, but there hasn’t been as much written about the common mistakes founders make. Here is a list of mistakes I often see: • Over-optimizing the process A lot of founders try to get way too fancy with tricks that they think will help them raise money. It’s actually quite simple; if you have a good company, you will probably be able to raise money. You’re better off working to make you company better than working on fundraising jiu jitsu. The process is simple: Get intros to investors you want to talk to and reach out to them, in parallel, not in series - this is important, see (3). Explain to them why your company is likely to make them a lot of money. This usually includes the company’s mission, the product, current traction, future vision, the market, the competition, why you’re going to win, what the long-term competitive advantage will be, how you’re going to make money, and the team. Set up a competitive environment. You'll (unsurprisingly) get the best terms when multiple investors compete with one another for space in your round. This is the one rule of "the game" that is really important--I'll talk about it more later on. Get intros to investors you want to talk to and reach out to them, in parallel, not in series - this is important, see (3). Explain to them why your company is likely to make them a lot of money. This usually includes the company’s mission, the product, current traction, future vision, the market, the competition, why you’re going to win, what the long-term competitive advantage will be, how you’re going to make money, and the team. Set up a competitive environment. You'll (unsurprisingly) get the best terms when multiple investors compete with one another for space in your round. This is the one rule of "the game" that is really important--I'll talk about it more later on. Some founders try things like carefully timing news articles, casually mentioning to one investor that they'll be having dinner with another investor, claiming their schedule is really packed except for one specific hour, and other tricks - but if you just build a good company, you generally won’t need to. Many little things simply don't matter very much--for example, the "signal" sent when an early investor chooses not to participate in a later round. If the company is doing well stuff like this is easily overlooked, and if the company's not doing it will struggle to raise money anyway. Unless you do it perfectly, game-playing will hurt you with most good investors. And you should be trustworthy and honest no matter what. Investors won't back you if they can't trust you. • Over-optimizing the terms Startups are usually a pass-fail course -- either you succeed or you don't. If you fail, maybe you get acqui-hired, but that's happening less frequently and is usually little better than just getting a job at the acquiring company instead. The important thing is to get good investors, clean terms, and not spend too much time fundraising. The biggest problem comes from chasing high valuations. Contrary to what many people think, at YC we encourage companies to seek out reasonable valuations. Valuations are something quantitative for founders to measure themselves on, and there are lots of investors willing to pay high prices, so they don’t always listen. But I’ll say it again: trying to get really high valuations is a mistake. If you’re clearly in a position of leverage, it’s fine to push for a high valuation, but don’t jerk investors around. Just say what you want and don’t get into a lot of back and forth or term complexity. Also remember that very high valuations often push out good investors. And don’t forget the prime directive of fundraising strategy: set things up so that you never do a down round. The badness of a down round is difficult to overstate; in fact, the threat of that is the best reason not to take a super high price when you’re offered one. If you raise at such a price, everything has to go perfectly in order for your next round to be an up one. • Failing to create a competitive environment Ok, here is the one part of the game I really believe is critical. You generally need to set up a competitive environment to get a good outcome in fundraising (or, for that matter, any big deal). The hard part is getting the first offer. Once you have this, you have the leverage -- if other investors don’t act fast, you have an offer you can take, and they risk missing a potentially great opportunity (and maybe looking stupid to their partners, etc etc.) Until then, they can procrastinate and wait as long as they want. It’s remarkable how long it can take the first offer to come in, and how quickly the next ten can materialize. So sometimes you have the hack the process a little bit to get this first offer. The best way is to find someone who loves what you’re doing and is willing to act. Although it’s ok to use that offer to get others, you should be nice to anyone willing to act first by prioritizing their offer, finding a way to get them into the round even if someone else leads it, etc. There are a lot of other tactics for this that I should write a separate post on at some point. Beware, though, that saying things like “our round is closing really fast” when you have no offers usually backfires. Investors talk and will call your bluff. When you have a good competitive environment the leverage shifts to you - you will be astonished at how much things change. Firms that previously couldn’t meet you for three weeks will suddenly be able to schedule full partner meetings on a Sunday. And when multiple bidders really want to invest, a lot of the "non-negotiable" terms like 20% ownership and board seats go away. • Coming across as arrogant, antagonistic, disrespectful, etc. Somehow, a myth got started that investors like this and nerdy founders sometimes put on an affectation. Don’t do it. Be respectful (which includes things like not asking investors to make a decision after a first meeting unless you really are about to close your round). Remember that investors are people too. They want to feel loved. The first time I raised money, I was hesitant to tell the investors I really liked that I really liked them because I thought I was giving up leverage. But it turns out telling the investors you really like that you especially want to work with them makes them more positively inclined to you, not less. • Not hearing no Investors don’t want to kill option value; founders are optimistic people. This leads to investors saying a very nice version of "no" and founders hearing "with just a few more conversations, I may get to a yes." Anything other than a term sheet is a "no", and all the reasons don’t matter. Move on and talk to other investors. • Not having a lead investor A lot of founders put together party rounds comprised of dozens of investors and congratulate themselves that no single investor has much power over them. But in practice investors have little power over companies that are doing well anyway, and what they actually have is no investor that is super invested in their success. It turns out it’s really valuable to have one investor that you meet with every month and report progress to. This forcing function creates an operational cadence in the company that is a big net positive. It’s remarkable to me how much more frequently the party round companies go off into the weeds. • Pitching poorly A lot of founders get caught up in trying to follow a perfect template, and drone on and on about their competitors, the market evolution, etc. They’re bored and it shows. The way to pitch well is to focus on the parts of the business that truly excite you. That will shine through, and it will get the investors excited. Conveying your passion for the business is almost as important as what you say, and it’s almost impossible to fake. Even if you’re an introvert, it will usually come through to a sophisticated investor. So start with the parts you’re really excited about. Investors want to hear a good story, and that includes things like how you decided to work on this idea, why it matters, how you met your cofounders, etc. So don’t leave those parts out of the pitch. Also, remember that smart investors are looking for the really big hits. So don’t do obviously dumb things like talk about potential acquirers in a seed round pitch - that will suggest you’re not trying to build a really big company. • Not reference-checking major investors Great investors can add a huge amount of value; bad investors can make your life miserable. Before signing up to work with someone for the better part of a decade, spend an hour calling founders they have worked with to get a sense of what's in store for you. • Lacking a clear vision If you don’t seem to have any strong feelings or conviction, and you agree with every suggestion the investor makes about your business, you'll risk coming across as lacking a clear vision. You should always listen to what someone smart has to say, but you should be firm on the things you really believe. Founders with a clear vision can usually explain what they’re doing and why it matters in just a handful of words. Clear vision also usually entails at least one big new idea. Even if it’s a familiar problem, there should be something important the investor hasn’t heard before. It’s ok to have some big unknowns, of course. You’re not expected to have all the answers, but you should have clear theses to start with. • Not knowing key metrics There are two questions I really look at in early stage investments: Does the team know what to do? Can the team do it? Does the team know what to do? Can the team do it? The first question is addressed by the bullet point above. The second is addressed by showing that the team cares about operational quality. I’ve found that teams that execute well always know their numbers (or current status if in R+D mode) cold, and that it’s one of the best predictors of execution quality. It’s surprising how many companies pitch investors without knowing this information.

AI

2014-02-19 21:57:29

Yesterday at lunch a friend asked me what tech trend he should pay attention to but was probably ignoring. Without thinking much I said “artificial intelligence”, but having thought about that a bit more, I think it’s probably right. To be clear, AI (under the common scientific definition) likely won’t work. You can say that about any new technology, and it’s a generally correct statement. But I think most people are far too pessimistic about its chances - AI has not worked for so long that it’s acquired a bad reputation. CS professors mention it with a smirk. Neural networks failed the first time around, the logic goes, and so they won’t work this time either. But artificial general intelligence might work, and if it does, it will be the biggest development in technology ever. I’d argue we’ve gotten closer in lots of specific domains - for example, computers are now better than humans at lots of impressive things like playing chess and flying airplanes. But rather than call these examples of AIs, we just say that they weren’t really that hard in the first place. And to be fair, none of these really feel anything like a computer that can think like a human. There are a number of private (or recently acquired) companies, plus some large public ones, that are making impressive progress towards artificial general intelligence, but the good ones are very secretive about it. There are certainly some reasons to be optimistic. Andrew Ng, who worked or works on Google’s AI, has said that he believes learning comes from a single algorithm - the part of your brain that processes input from your ears is also capable of learning to process input from your eyes. If we can just figure out this one general-purpose algorithm, programs may be able to learn general-purpose things. There have been promising early results published from this sort of work, but because the brain is such a complex system so dependent on emergent behavior it’s difficult to say how close to the goal we really are. We understand how individual neurons work pretty well, and it’s possible that’s all we need to know to model how intelligence works. But the emergent behavior of 100 billion of them working together on the same principles gets extraordinarily complex, and difficult to model in software. Or, as Nick Sivo says, "it's like reverse engineering the latest Intel processor with only the basic knowledge of how a transistor works." It’s also possible that there’s some other phenomenon responsible for intelligence, and the people working on this are on the wrong track. The biggest question for me is not about artificial intelligence, but instead about artificial consciousness, or creativity, or desire, or whatever you want to call it. I am quite confident that we’ll be able to make computer programs that perform specific complex tasks very well. But how do we make a computer program that decides what it wants to do? How do we make a computer decide to care on its own about learning to drive a car? Or write a novel? It’s possible--probable, even--that this sort of creativity will be an emergent property of learning in some non-intuitive way. Something happened in the course of evolution to make the human brain different from the reptile brain, which is closer to a computer that plays pong. (I originally was going to say a computer that plays chess, but computers play chess with no intuition or instinct--they just search a gigantic solution space very quickly.) And maybe we don't want to build machines that are concious in this sense. The most positive outcome I can think of is one where computers get really good at doing, and humans get really good at thinking. If we never figure out how to make computers creative, then there will be a very natural division of labor between man and machine.

The Engineer Crunch

2014-02-18 18:13:17

For most startups in the bay area, the engineer crunch is a bigger problem than the Series A crunch (this somewhat applies to designers as well, but most startups need far more developers than designers). The difference in difficulty between hiring developers and hiring everyone else is remarkable--I frequently hear startups say that for a non-engineering position they can find multiple great candidates without really looking but can't find a single great candidate for an engineering role no matter how hard they look. Sometimes this difficulty is self-inflicted. First, of all the canonical terrible advice investors give, being cheap with equity grants is among the worst. I’m not quite sure why so many investors (and some founders) get this so wrong, but when startups complain about being unable to hire engineers and in the next breath tell me they are offering 0.1% to 0.2% as a very early stage company, I lose a lot of sympathy fast. Granting equity should be easy to do. If someone performs and earns their grant over four years, they are likely to increase the value of the company far more than the 1% or whatever you give them. If you’ve made a hiring mistake, you ought to fire them well before they hit their cliff anyway. I have never seen a startup regret being generous with equity for their early employees. I have seen a lot of failed startups proud of how well they managed their option pool budgeting. For most engineers, this is as much about fairness and feeling valued as it is about the money. And of course, if people are going to turn down the certainty of a huge salary at Google, they should get a reward for taking that risk. On the positive side, average equity grants for engineers at early stage companies seem to be moving up, but still not as much as they should given the supply/demand mechanics. Second, I've noticed that mission-oriented companies have a much easier time recruiting engineers. It’s a cliché that great engineers want to change the world, but it’s generally true. If the best part of your recruiting pitch is about how much money the company is going to make, you’ll have a harder time recruiting talent than if you can talk about why it’s so critical for the world that your startup fulfills its mission. That said, if you’re the 17th food delivery startup, don’t make up some story about how you’re going to change the world--it won’t work. You can still find ways to hire great people, but an embellished mission isn't one of them. Great hackers also want the opportunity to work with really smart people and the opportunity to work on interesting problems, and the nature of mission-oriented companies is such that they usually end up offering these as well. If you are not a mission-oriented company, then I think the best strategy is to think about how to make do with a much smaller engineering team than you might have originally wanted. Teams of two or three engineers can accomplish amazing things, and there are plenty of great businesses that need small engineering teams and very large operations/sales teams. Also, in this case, you pretty much have to have a hacker cofounder, because hiring good developers will be so hard. Third, if you’re going to recruit outside of your network (usually a mistake, but sometimes there are truly no other options), focus on recruiting outside of the valley. There are great hackers all over the country, and many of them can be talked into moving to the valley. In fact, probably less than 5% of the best hackers are even in the United States. [1] Finally, most founders are not willing to spend the time it takes to source engineering candidates and convince them to come interview. You can't outsource this to a recruiter until the company is fairly well-established--you have to do it yourself. [1] Every time someone from the government asks me what they can do to help startups, I always say a version of “The only thing you need to do is fix immigration for founders and engineers. This will likely have far more of an impact than all of the government innovation programs put together.”

Anonymity

2014-02-10 18:58:50

I, like everyone else in Silicon Valley, downloaded Secret last week. It's incredibly well done, certainly the best yet of any of the gossip/anonymous apps. Unlike most others, I deleted it, and have thus far resisted reinstalling it (which has been tough!). Unlike Facebook or Twitter, I felt worse--though entertained--after each use. At the point I deleted it, three of my friends had been on the receiving end of super nasty comments. I've often thought about the need for an anonymous social network to go along with the fully public and the friends-only ones. But I can't figure out a way to stop an anonymous network from decaying into a Mean Girls-style burn book. If I were running Secret, my number one focus would be to kill every comment about a specific person or company. If Secret becomes more of a confessional than a burn-book, it can probably thrive. Anonymity breeds meanness--the Internet has proven this time and time again. People are willing to say nice or neutral things with their name attached--they need anonymity for mean things and things they are embarrassed about. In fact, the closer to real identity internet forums get, the less they seem to decay. Anonymous social networks have been (thus far, anyway) in the category of services that get worse as they get bigger--unlike services like Facebook or Twitter that get better as they get bigger. People love gossip until it's about themselves. My prediction for Secret is that it gets very popular (like the previous gossip services) and then eventually the rancor gets untenably bad and people stop using it (like the previous gossip services). But until we reach that point, I assume we'll see some really nasty things that people can't stop reading.

Technology and wealth inequality

2014-01-28 23:45:20

Thanks to technology, people can create more wealth now than ever before, and in twenty years they’ll be able to create more wealth than they can today. Even though this leads to more total wealth, it skews it toward fewer people. This disparity has probably been growing since the beginning of technology, in the broadest sense of the word. Technology makes wealth inequality worse by giving people leverage and compounding differences in ability and amount of work. It also often replaces human jobs with machines. A long time ago, differences in ability and work ethic had a linear effect on wealth; now it’s exponential. [1] Technology leads to increasing wealth inequality for lots of other reasons, too—for example, it makes it much easier to reach large audiences all at once, and a great product can be sold immediately worldwide instead of in just one area. Without intervention, technology will probably lead to an untenable disparity—so we probably need some amount of intervention. Technology also increases the total wealth in a way that mostly benefits everyone, but at some point the disparity just feels so unfair it doesn’t matter. And critically, without a reasonable baseline of access to wealth, there can be no such thing as equality of opportunity. Wealth inequality today in the United States is extreme and growing, and we talk about it a lot when someone throws a brick through the window of a Google bus. Lots of smart people have already written about this, but here are two images to quickly show what the skew looks like: [0] As the following table shows, wealth inequality has been growing in America for some time, not just the last few years. It’s noticeable between the top 20% and bottom 80%, and particularly noticeable between the top 1% and bottom 99%. And here is a graph that shows the income share of the top 1% over time: The best thing one can probably say about this widening inequality is that it means we are making technological progress—if it were not happening, something would be going wrong with innovation. But it’s a problem for obvious reasons (and the traditional endings to extreme wealth inequality in a society are never good). We are becoming a nation of haves and have-nots—of prosperous San Francisco vs. bankrupt Detroit. In San Francisco, the average house costs around $1mm. In Detroit, the average house costs less than a Chevy Malibu made there. [2] And yet, I’d view a $1mm house in San Francisco as a better investment than 20 $50k houses in Detroit. As the relentless march of technology continues, whole classes of jobs lost are never coming back, and cities dependent on those lost jobs are in bad shape. [3] This widening wealth divide is happening at all levels—people, companies, and countries. And either it will keep going, or innovation will stop. But it feels really unfair. People seem to be more sensitive to relative economic status than absolute. So even if people are much better off being poor today than king 500 years ago, most people compare themselves to the richest people today, and not the richest people from the past. And importantly, it really is unfair. Trying to live on minimum wage in the United States is atrocious (http://www.forbes.com/sites/laurashin/2013/07/18/why-mcdonalds-employee-budget-has-everyone-up-in-arms/). That budget, incidentally, assumes that the worker is working two jobs. Even though they’re outputting less value, that person is certainly working harder than I am. We should do more to help people like this. Real minimum wage has declined, failing to track real averages wages and massively failing to track the wages of the top 1%. In a world where ideas and networks are what matter, and manufacturing costs trend towards zero, we are going to have to get comfortable with a smaller and smaller number of people creating more and more of the wealth. And we need a new solution for the people not creating most of the wealth—many of the minimum wage jobs are going to get innovated away anyway. There are no obvious/easy solutions, or this would all be resolved. I don’t have any great answers, so I’ll just throw out some thoughts. We should assume that computers will replace effectively all manufacturing, and also most “rote work” of any kind. So we have to figure out what humans are better at than computers. If really great AI comes along, all bets are off, but at least for now, humans still have the market cornered on new ideas. In an ideal world, we’d divide labor among humans and computer so that we can both focus on what we’re good at. There is reason to be optimistic. When the steam engine came along, a lot of people lost their manual labor jobs. But they found other things to do. And when factories came along, the picture looked much worse. And yet, again, we found new kinds of jobs. This time around, we may see lots more programmers and startups. Better education—in the right areas—is probably the best way to solve this. I am skeptical of many current education startups, but I do believe this is a solvable problem. A rapid change in what and how we teach people is critical—if everything is changing, we cannot keep the same model for education and expect it to continue to work. If large classes of jobs get eliminated, hopefully we can teach people new skills and encourage them to do new things. Education, unlike a lot of other government spending, is actually an investment—we ought to get an ROI on it in terms of increased GDP (but of course it takes a long time to pay back). However, if we cannot find a new kind of work for billions of people, we’ll be faced with a new idle class. The obvious conclusion is that the government will just have to give these people money, and there’s been increasing talk about a “basic income”—i.e, any adult who wanted it could have, say, $15,000 a year. You can run the numbers in a way that sort of makes sense—if we did this for every adult in the US, it’d be about $3.5 trillion a year, or a little more than 20% of our GDP. However, we’d knock out a lot of existing entitlement spending, maybe 10% of GDP. And we’d probably phase it out for people making over a certain threshold, which could cut it substantially. There are benefits to this—we’d end up helping truly poor people more and middle class people less, and we’d presumably cut a ton of government bureaucracy. We could perhaps end poverty overnight (although, no doubt, anything like this would cause prices to rise). And likely most of this money would be spent, providing some boost to the economy. We could require 10 hours a week of work for the government, or not. A big problem with this strategy is that I don’t think it’ll do much to address the feeling of inequality. Many people have a visceral dislike to the idea of giving away money (though I think some redistribution of wealth is required to reasonably equalize opportunity), and certainly the default worry is that people would just sit around and waste time on the Internet. But maybe, if everyone knew they had a safety net, we’d get more startups, or more new research, or more novels. Even if only a small percentage of people were productive, in a world where some people create 10,000x more value than others, that’d be ok. The main point I’m trying to make is that we’re likely going to have to do something new and uncomfortable, and we should be open to any new ideas. But this still doesn’t address the fundamental issue—I believe most people want to be productive. And I think figuring out a much better way to teach a lot more people about technology is likely the best way to make that happen. Thanks to Nick Sivo for reading a draft of this. Follow me on Twitter here: http://twitter.com/sama [0] http://www.youtube.com/watch?v=QPKKQnijnsM [1] There are lots of other significant factors that cause wealth inequality—for example, having money makes it easier to make more money—but technology is an important and often-overlooked piece [2] http://www.huffingtonpost.com/2012/07/20/home-cost_n_1690109.html [3] I was recently in Detroit and was curious to see some of the neighborhoods where you can buy houses for $10-20k. Here are some pictures: [0] As the following table shows, wealth inequality has been growing in America for some time, not just the last few years. It’s noticeable between the top 20% and bottom 80%, and particularly noticeable between the top 1% and bottom 99%. And here is a graph that shows the income share of the top 1% over time: The best thing one can probably say about this widening inequality is that it means we are making technological progress—if it were not happening, something would be going wrong with innovation. But it’s a problem for obvious reasons (and the traditional endings to extreme wealth inequality in a society are never good). We are becoming a nation of haves and have-nots—of prosperous San Francisco vs. bankrupt Detroit. In San Francisco, the average house costs around $1mm. In Detroit, the average house costs less than a Chevy Malibu made there. [2] And yet, I’d view a $1mm house in San Francisco as a better investment than 20 $50k houses in Detroit. As the relentless march of technology continues, whole classes of jobs lost are never coming back, and cities dependent on those lost jobs are in bad shape. [3] This widening wealth divide is happening at all levels—people, companies, and countries. And either it will keep going, or innovation will stop. But it feels really unfair. People seem to be more sensitive to relative economic status than absolute. So even if people are much better off being poor today than king 500 years ago, most people compare themselves to the richest people today, and not the richest people from the past. And importantly, it really is unfair. Trying to live on minimum wage in the United States is atrocious (http://www.forbes.com/sites/laurashin/2013/07/18/why-mcdonalds-employee-budget-has-everyone-up-in-arms/). That budget, incidentally, assumes that the worker is working two jobs. Even though they’re outputting less value, that person is certainly working harder than I am. We should do more to help people like this. Real minimum wage has declined, failing to track real averages wages and massively failing to track the wages of the top 1%. In a world where ideas and networks are what matter, and manufacturing costs trend towards zero, we are going to have to get comfortable with a smaller and smaller number of people creating more and more of the wealth. And we need a new solution for the people not creating most of the wealth—many of the minimum wage jobs are going to get innovated away anyway. There are no obvious/easy solutions, or this would all be resolved. I don’t have any great answers, so I’ll just throw out some thoughts. We should assume that computers will replace effectively all manufacturing, and also most “rote work” of any kind. So we have to figure out what humans are better at than computers. If really great AI comes along, all bets are off, but at least for now, humans still have the market cornered on new ideas. In an ideal world, we’d divide labor among humans and computer so that we can both focus on what we’re good at. There is reason to be optimistic. When the steam engine came along, a lot of people lost their manual labor jobs. But they found other things to do. And when factories came along, the picture looked much worse. And yet, again, we found new kinds of jobs. This time around, we may see lots more programmers and startups. Better education—in the right areas—is probably the best way to solve this. I am skeptical of many current education startups, but I do believe this is a solvable problem. A rapid change in what and how we teach people is critical—if everything is changing, we cannot keep the same model for education and expect it to continue to work. If large classes of jobs get eliminated, hopefully we can teach people new skills and encourage them to do new things. Education, unlike a lot of other government spending, is actually an investment—we ought to get an ROI on it in terms of increased GDP (but of course it takes a long time to pay back). However, if we cannot find a new kind of work for billions of people, we’ll be faced with a new idle class. The obvious conclusion is that the government will just have to give these people money, and there’s been increasing talk about a “basic income”—i.e, any adult who wanted it could have, say, $15,000 a year. You can run the numbers in a way that sort of makes sense—if we did this for every adult in the US, it’d be about $3.5 trillion a year, or a little more than 20% of our GDP. However, we’d knock out a lot of existing entitlement spending, maybe 10% of GDP. And we’d probably phase it out for people making over a certain threshold, which could cut it substantially. There are benefits to this—we’d end up helping truly poor people more and middle class people less, and we’d presumably cut a ton of government bureaucracy. We could perhaps end poverty overnight (although, no doubt, anything like this would cause prices to rise). And likely most of this money would be spent, providing some boost to the economy. We could require 10 hours a week of work for the government, or not. A big problem with this strategy is that I don’t think it’ll do much to address the feeling of inequality. Many people have a visceral dislike to the idea of giving away money (though I think some redistribution of wealth is required to reasonably equalize opportunity), and certainly the default worry is that people would just sit around and waste time on the Internet. But maybe, if everyone knew they had a safety net, we’d get more startups, or more new research, or more novels. Even if only a small percentage of people were productive, in a world where some people create 10,000x more value than others, that’d be ok. The main point I’m trying to make is that we’re likely going to have to do something new and uncomfortable, and we should be open to any new ideas. But this still doesn’t address the fundamental issue—I believe most people want to be productive. And I think figuring out a much better way to teach a lot more people about technology is likely the best way to make that happen. Thanks to Nick Sivo for reading a draft of this. Follow me on Twitter here: http://twitter.com/sama [0] http://www.youtube.com/watch?v=QPKKQnijnsM [1] There are lots of other significant factors that cause wealth inequality—for example, having money makes it easier to make more money—but technology is an important and often-overlooked piece [2] http://www.huffingtonpost.com/2012/07/20/home-cost_n_1690109.html [3] I was recently in Detroit and was curious to see some of the neighborhoods where you can buy houses for $10-20k. Here are some pictures:

Value is created by doing

2014-01-16 21:19:33

Value is created by doing. It’s easy to forget this. A lot of stuff feels like work—commenting on HN, tweeting, reading about other companies’ funding rounds, grabbing coffee, etc [1]—is not actually work. (If you count that as work, think really hard about the value you’re creating in your job.) These activities can be worthwhile in small doses—it’s important to network and meet interesting people to stay in the flow of ideas—but they are not by themselves how new wealth gets created. Value gets created when a company does things like build widgets and sell them to customers. As a rough guideline, it’s good to stay in roles where you’re close to the doing. Of course you have to do the right things. Writing software no one wants does not create value—that’s called a class project. So it’s critical to figure out the right thing to work on, and strategy is far more valuable than a lot of pivot-happy companies would have you believe. But strategy alone has no value—value gets captured by execution. It’s easier to sit around and talk about building a startup than it is to actually start a startup. And it’s fun to talk about. But over time, the difference between fun and fulfilling becomes clear. Doing things is really hard—it’s why, for example, you can generally tell people what you’re working on without NDAs, and most patents never matter. The value, and the difficulty, comes from execution. There are good tricks for keeping yourself honest here. When I was running a company, I used to make a list of everything I got done at the end of the day. It was remarkable how I could feel like I had a really busy day and realize that night I got nothing done. Similarly, I could have a day that felt only somewhat busy, but accomplish 3 or 4 major things. Err on the side of doing too much of the sort of work that matters and blowing off all the rest, or as Machiavelli said: Make mistakes of ambition and not mistakes of sloth. Develop the strength to do bold things, not the strength to suffer. You build what you measure—if you measure your productivity by the number of meetings you have in a day, you will have a lot of meetings. If you measure yourself by revenue growth or number of investments closed or something like that, you will probably have fewer meetings. Another example of not-quite-work is every night in San Francisco, there are dinner parties where people get together and talk about the future. It’s always fun and usually not very contentious—most people agree we need to go to space, for example. But at the end of it, everyone goes home and works on something else. If you believe that going to space is the most important project for humanity, then work on it. If you can’t figure out how to raise hundreds of millions of dollars, go work for SpaceX (joining a great company is a much better plan than starting a mediocre one). If enterprise software is what you really love, then work on that. [2] If you’re reading this and feeling unproductive, there’s a silver lining. You can just close the browser window. The good news is that it’s easy to course-correct, and it feels great. [1] I count blogging as a marginal use of time, but the reason I started is because I realized it was important to be good at writing, I was bad at it, and the only way I was going to improve was with lots of practice. And sometimes I meet really interesting founders because of something I wrote. [2] This isn’t meant as any sort of relative value judgment; if what you want to do is build an enterprise software company, then you should do that. The problem comes when what you really want to do is build rockets. A lot of people feel like they first should do something to make money and then do what they care about (or first work at a company for awhile before starting a company they really want to start). While you of course should take care of your family before anything else, you should try to work on what you really care about. You can usually find a way. The danger is that life is short and you only get to work on a small number of companies over the course of a career—it’s worth trying to make them count.

Super successful companies

2014-01-16 04:57:02

I spent some time recently thinking about what companies that grow up to be extremely successful do when they are very young. I came up with the following list. It’s from personal experience and I’m sure there are plenty of exceptions. While plenty of non-successful startups do some of these things too, I think there is value in trying to match the patterns. *They are obsessed with the quality of the product/experience. Almost a little too obsessed—they spend a lot of time on details that at first glance wouldn’t seem to be really important. The founders of these companies react as if they feel physical pain when something isn’t quite right with the product or a user has a bad customer support experience. Although they believe in launching early and iterating, they generally won't release something crappy. (This is not an excuse to launch slowly. You're probably taking too long to launch.) As part of this, they don't put anyone between the founders and the users. The founders of these companies do things like sales and customer support themselves. *They are obsessed with talent. The founders take great pride in the quality of their team and do whatever it takes to get the best people to join them. Everyone says they only want to hire the best people, but the best founders don't compromise on this point. If they do make a hiring mistake, they fix it very quickly. And they hire very slowly. They don't get any thrill out of having employees for its own sake, and they do the dirty work themselves at the beginning. As part of this, they really focus on getting the culture of the company right. *They can explain the vision for the company in a few clear words. This is most striking in contrast to companies that require multiple complicated sentences to explain, which never seem to do really well. Also, they can articulate why they're going to succeed even if others going after the problem have failed, and they have a clear insight about why their market is a great one. More generally, they communicate very well. *They generate revenue very early on in their lives. Often as soon as they get their first user. *They are tough and calm. Founders of great companies are always tough and unflappable. Every startup seems like it's going to die--sometimes multiple times in a single day--and founders of really successful companies just seem to pull out a gun and shoot the villain without losing their train of thought. Formidableness can be developed; I've seen weak-seeming founders grow into it fast. *They keep expenses low. In addition to hiring slowly, they start off very frugal. Interestingly, the companies that don't do this (and usually fail) often justify it by saying "we're thinking really big". After everything is working really well, they will sometimes ramp up expenses a lot but manage to still only spend where it matters. *They make something a small number of users really love. Paul Buchheit was the first person I ever heard point this out, but it's really true. Successful startups nearly always start with an initial core of super happy users that become very dependent on their product, and then expand from there. The strategy of something that starts with something a huge number of people sort of like empirically does not work as well. *They grow organically. And they are generally skeptical of inorganic strategies like big partnership deals and to a lesser extent PR. They certainly don't have huge press events to launch their startup. Mediocre founders focus on big PR launches to answer their growth prayers. *They are focused on growth. The founders always know their user and revenue numbers. There’s never any hesitation when you ask them. They have targets they are trying to hit for the next week, month, and year. *They balance a focus on growth with strategic thinking about the future. They have clear plans and strong opinions about what they're going to build that no one can talk them out of. But they focus more on execution in the moment than building out multi-year strategic plans. Another way this trait shows itself is "right-sized" first projects. You can't go from zero to huge; you have to find something not too big and not too small to build first. They seem to have an innate talent for figuring out right-sized projects. *They do things that don't scale. Paul Graham has written about this. The best founders take it unusually far. *They have a whatever-it-takes attitude. There are some things about running a startup that are not fun. Mediocre founders try to hire people for the parts that they don't like. Great founders just do whatever they think is in the best interest of the company, even if they're not "passionate" about that part of the business. *They prioritize well. In any given day there are 100 reasonable things that you could work on. It's easy to get pulled into a fire on number 7, or even to spend time at a networking event or something like that that probably ranks in the mid-90s. The founders that are really successful are relentless about making sure they get to their top two or three priorities each day (as part of this, they figure out what the right priorities are), and ignoring other items. *The founders are nice. I'm sure this doesn't always apply, but the most successful founders I know are nicer than average. They're tough, they're very competitive, and they are ruthless, but they are fundamentally nice people. *They don't get excited about pretending to run a startup. They care about being successful, not going through the motions to look successful. They get no thrill from having a 'real' company; they don't spend a lot of time interviewing lawyers and accountants or going to network events or anything like that. They want to win and don't care much about how they look doing so. One reason that this is super important is that they are willing to work on things that seem trivial, like a website that lets you stay on an air mattress in someone's house. Most of the best ideas seem like bad ideas when they start, and if you're more into appearance than substance, you won't want people laughing at you. You are far better off starting a company that people laugh at but keeps growing relentlessly than a company with a beautiful office that seems serious but is always two quarters away from starting its growth ramp. *They get stuff done. Mediocre founders spend a lot of time talking about grand plans; the best founders may be working on things that seem small but get them done extraordinarily quickly. Every time you talk to them, they've gotten a few new things done. Even if they're working on big projects, they get small chunks done incrementally and have demonstratable progress--they never disappear for a year and jump from nothing to a huge project being completed. And they're reliable--if they tell you they'll do something, it happens. *They move fast. They make quick decisions on everything. They respond to emails quickly. This is one of the most striking differences between great and mediocre founders. Great founders are execution machines.

H5N1

2013-12-11 17:48:49

Most of the time, we worry far too much about tail risk. We worry about terrorist attacks and necrotizing fasciitis, but not much about heart disease or car crashes. But in 2011, 17 US citizens worldwide died as a result of terrorism and approximately 150 from necrotizing fasciitis. There were nearly 600,000 deaths resulting from heart disease and over 32,000 from car crashes. Based on current data, you are about 35,000 times more likely to die from heart disease than from a terrorist attack. So everyone smart says that we worry about terrorism way too much, and so far, they’ve been right. For whatever reason, we seem to be wired to overweight the risk of the dramatic, scary, but very unlikely and underweight the risk of the mundane, familiar, and probable. But maybe there are some tail risks we should really worry about. Our risk-evaluation miscalibration leads to important blind spots. We’ve seen images of a nuclear explosion; we know how terrifying that is, and so we fear it. Most people have had the flu, and so we don’t fear that—we know it’s possible to die from the flu, but most people don’t. Death from the flu doesn't trigger most peoples' panic sensors because the version of it we know is boring and familiar. However, I don’t think we have collectively thought enough about how biotechnology is going to change the landscape. Of all “technologies", it’s the one thing that really scares me. [1] Biotech has incredible potential to improve our lives, probably even more so than computers, but of course that comes with much graver downside. Also in 2011, some researchers figured out how to reengineer H5N1—avian influenza virus—to make it much scarier by causing five mutations at the same time that all together made the virus both easy to spread and quite lethal. These five mutations could all occur in nature, but it’d be unlikely in the same copy of the virus. I have no doubt that the media overstated the danger, but it’s still worth thinking about. We now have the tools to create viruses in labs. What happens when someone creates a virus that spreads extremely easily, has greater than 50% mortality, and has an incubation period of several weeks? Something like this, released by a bad guy and without the world having time to prepare, could wipe out more than half the population in a matter of months. Misguided biotech could effectively end the world as we know it. When the H5N1 work happened, there was a lot of debate about whether or not to release the research. The researchers put a voluntary moratorium on releasing the information, which they lifted earlier this year. Trying to keep things secret is not the answer. Trying to criminalize knowledge of dangerous things (we tried this with the atomic bomb) is definitely not the answer. But ignoring real danger is not the answer either. The world is very bad at coordinated action. Unlike an atomic bomb, which has grave local consequences, the first of these pathogens that gets released could have grave global consequences almost instantly, and give us very little time to react. While enriching uranium requires the resources of nations, biotech development is already routinely privately funded. Spending a lot of effort on proactive defense against bioattacks is something we should prioritize very highly. When we first became able to create software programs in garages, it changed the world in very fundamental (mostly positive!) ways. As we begin to be able to create biology programs in garages, we should remember that bigger changes are likely coming--hacking our bodies will likely be more powerful than hacking bits. We may have to move even faster to adapt our society than we did with the computer revolution. Thanks to Patrick Collison, Connie Gibstine, and Nick Sivo for reading drafts of this. [1] Biotechnology is scary in a lot of non-obvious ways. Sure, it’s easy to understand why superviruses are scary. But another possibility is that we engineer the perfect happiness drug, with no bad side effects, and no one wants to do anything but lay in bed and take this drug all day, sapping all ambition from the human race. There are a lot of other possibilities too, and it’s very hard to think of them because we don’t have much experience with what's about to happen.

Employee Retention

2013-12-09 19:12:13

When it comes to everything that's not building a great product and getting users, most founders think fundraising is going to be their biggest challenge. And it is, until they raise money, and then it's hiring. Hiring is so hard that founders think nothing else will be harder. But then comes a bigger challenge--employee retention. A reasonably common failure mode for startups is to do a great job recruiting the first ten or so employees and then have many of them leave after 18 months. Companies build value over very long periods of time, and it's important to have an organizational memory in place while it happens. Losing the key early employees can be unrecoverable. If you hire great people, retention is very hard--especially because of how easy it has become to start a company. You're going to lose some people, but if you lose too many, you'll fail. So it makes sense to spend a lot of time figuring out how to keep talent around. There are three good ways I know of to retain talent (besides generous equity grants, which I'll discuss later). The first is a sense of mission--if employees work at your company because they believe in the importance of the mission, they are unlikely to be tempted by more money elsewhere, and they are likely to be willing to delay starting their own company. A "mission" doesn't have to be saving the world--it can also be solving a very hard technical problem (i.e. interesting work). But very often, the hard technical problems are important to the world (e.g. Google, Palantir, Facebook). You have to really believe in the mission--if you can't convince yourself that your mission is important, think very hard about what you're doing. And you have to keep repeating it. [0] I'd go so far as to say that a company that is not mission-oriented will have a hard time being really successful because of talent retention problem. The second good retention strategy is rocketship growth. Growth is really fun, it means everyone is constantly exposed to new challenges (even if you're not growing fast, find a way to give everyone new challenges all the time), and it holds the promise of life-changing money through equity (salary can never be high enough for this). The third is a great work environment. This consists of two things--cultural values and team. Cultural values are difficult to figure out, but worth the effort--it's easy to get lost as you grow, and if you set the values that the company hires for early, you can keep the culture you want for a long time. On the team side, the cliche of A players wanting to work with other A players is true, and it's an important reason to never compromise on the first ten hires. Most great people will not stay at a company long if they're not working with other great people. The best companies combine all three of these strategies, and they are able to retain talent. A common mistake that founders make to try retain employees is to compete in the perks arms race. This doesn't work--it can temporarily cover up the fact that people don't actually like what they're doing, but not for long, and some other startup will always come up with crazier perks than you anyway. Of course, it's good to do things that save time and encourage team cohesion--e.g., stuff like meals. Another common mistake founders make (and one I was guilty of!) is not realizing how awful they are to work for--if you're doing all three things above and people are still leaving in droves, think very carefully about what it's like to work for you. Compensation is really important too. The right thing to do is to be very generous with equity for early employees. For whatever reason, equity grants are currently swinging the opposite way, especially with bad companies. Founders and investors both keep making option pools smaller and smaller as a way to solve for founders' desires to have ever-rising valuations; unfortunately for them, it's the valuation at exit and not at funding that counts, and they're doing themselves a real disservice. Startups are a pass-fail course, and founders are celebrating that they've saved a few percent dilution on their way to failing. What some founders try to do instead of being generous with equity is be extra-generous with salary--say, $250k a year for an engineer right out of college. This is bad, and although I've seen it attempted a handful of times, I've never seen it work. It attracts mercenaries who are only there for the money, and who rarely last more than a year. They generally don't believe in the company or the mission, and they poison the culture. A flat, reasonable salary for everyone seems to work much better. The bay area has its own special challenges when it comes to retention. Many people stay at companies for only a year or two, and there is at least some coolness associated with jumping around a lot (to say nothing of the social pressure towards starting your own company). It's hard to find people that want to really dig in for many years--there is a lot of short-term focus and a massive amount of poaching between companies. And the cost of living is crazy--the higher salaries that people require create all sorts of issues for companies and leads to lower employee retention. In fact, if something causes the bay area monopoly on startups to weaken in the near term, I expect it to be around retention challenges or costs. [1] The positive side to all of this is that most startups do such a bad job at retention that if you can do it well, you'll have a huge competitive advantage. Thanks to Patrick Collison for reading a draft of this. [0] PR is as important for retention as recruiting--you should try to repeat your mission as often as you can so that your employees keep hearing it and their friends keep talking about it. [1] As valuations and investment sizes keep going up, the only people I can think of that are clearly better off are bay area real estate owners. Most of it seems to go to ever-escalating office rents or to higher salaries to pay higher apartment rents.

The Only Way to Grow Huge

2013-12-03 19:17:10

All companies that grow really big do so in only one way: people recommend the product or service to other people. What this means is that if you want to be a great company some day, you have to eventually build something so good that people will recommend it to their friends--in fact, so good that they want to be the first one to recommend it to their friends for the implied good taste. No growth hack, brilliant marketing idea, or sales team can save you long term if you don't have a sufficiently good product. You can trick yourself for awhile, though: growth is measured on a percentage basis from last month. When you are still small, you can spend a lot of money marketing or advertising and have a big impact on usage growth. But eventually, you get so big you simply can't spend enough money to move the needle--you need your ever-increasing userbase to keep getting you more users. There are exceptions to this, of course, where monopolies are involved--Microsoft may turn out to be the interesting test case of the extreme outer limit of how long you can manufacture growth. The only way to generate sustained exponential growth is to make whatever you're making sufficiently good. For example, refer-a-friend-to-earn-credits programs work if the product is good enough to recommend anyway (e.g. Dropbox, Uber). But they fail for most other startups that try them, because the product isn't good enough yet. Having a growth team is still a good idea--you almost always need to jumpstart things. But don't forget about what you actually have to accomplish. Thanks to Jack Altman for reading a draft of this.

Thoughts on Bitcoin

2013-12-01 19:18:55

Maybe bitcoin will be the world reserve currency, maybe it will totally fail, or maybe it will survive in some niche capacity. I don’t know how to weight the probabilities (although I think in the immediate term it's likely to go down), but I do have a thought about the metric to watch: growth in legitimate transactions. A currency without the major use case being legitimate transactions is going to fail. Right now, the dominant use case of bitcoin seems to be speculation, with a secondary use case for illegal transactions. Legal transaction volume is still tiny, and many of those involve the seller immediately converting bitcoins to dollars, with the buyer not desiring to use bitcoin as a new currency but instead a version of either money laundering or tax avoidance. (For example, I have bitcoins that have appreciated a lot. If I sell them, I owe taxes on the gain. If I just buy a bunch of stuff, maybe I don’t, or more precisely, maybe it’s harder to prove. Or maybe it’s just hard to cash out my bitcoins to dollars because the wait times at all the exchanges are really long, and I want to buy stuff anyway.) The fact that the few merchants willing to accept bitcoin generally convert to dollars right away suggests an underlying lack of faith in bitcoin—or at least a problem with the volatility. It’s also a reflection of the reality that a business still needs to deal in dollars with most of the world. The estimates I’ve heard from smart people that really follow bitcoin are that legitimate transactions are up only about 2-3x from a year ago—wildly outpaced by growth in speculation. If bitcoin is going to work as a currency, at some point before the music stops, legitimate transaction growth needs to really pick up. When friends ask me how to buy bitcoin, I always ask why they want to buy before I help. The main driver is the very human desire to get rich quickly without doing much work combined with a fervent belief that someone else will pay more for the coins later—the tulip strategy. The second major reason is out of fear that there is a small chance bitcoin becomes the reserve currency. Even if the chance is tiny, maybe it makes sense to buy some as a hedge (this was why I bought the small amount that I have). Neither of these can sustain bitcoin as a currency, nor can drugs and gambling (people that make their money in the underworld still need money that can buy regular things, and so whatever is used to track exchange still needs to be pegged to dollars or whatever). The tulip strategy is especially scary; an eventual crash could be so severe that it will shake even the truest believer’s conviction. The price of tulip bulbs has yet to recover from its 1637 peak. Some people claim that bitcoin is not really a currency but a store of value, like gold. Maybe. This would be a personal blindspot for me; I’ve never thought gold was the best place to put money. As I understand it, some people transact in gold, and it has at least some industrial and ornamental uses. It seems to me that the people that prepare for the end of the world—i.e. the people I know that really like gold—are likely to prefer something they can hold in their hands than something that requires the Internet to keep working. Whether or not bitcoin should be compared to dollars or gold, there are a lot other weird factors at play that make it hard to weight probabilities—for example, bitcoin provides a way to convert RMB into dollars. You can mine bitcoin with energy purchased in RMB and then later sell those reward bitcoins for dollars! This is just one of many ways to use it for money laundering--there are lots more, and this alone may be enough to sustain it for awhile. A second big issue until the US switches from USD to BTC, you’re still going to owe taxes in dollars. The fact that you have to do things like pay taxes and buy oil in dollars seems to make it hard for bitcoin to become the reserve currency—people will still need dollars more than they need bitcoins. (Patrick Collison says: "I personally think this is overestimated. Tax is a big deal, of course, but even nations can't always compete with the popular sentiment tidal forces enabled by the internet.") A third issue is that although we have big strong guys holding guns to remind anyone that a dollar is worth a dollar, we do not have such an effective reminder that a bitcoin is worth a bitcoin. Currencies have traditionally needed a central actor to enforce them. All of that said, there’s clearly something very interesting going on. And the bull case is exciting—a world where we all transact in bitcoin would be much more transparent, and financial transparency is great. It’s perhaps the thing that would most reduce corruption. (Of course, it's possible, even likely, that everyone just gets good at anonymizing bitcoin by passing around entire wallets or whatever.) Transparency is not the only benefit--for example, even if we don't get transparency, low transaction costs for worldwide commerce would still be great. Just as it’d be stupid to convert all your dollars to bitcoin, it’d be stupid to not pay attention. Specifically, watch legitimate transaction volume--I'd suggest only buying if it shows signs of seriously ramping up. Thanks to Patrick Collison and Lachy Groom for reading drafts of this.

Non-technical founder? Learn to hack

2013-10-31 17:40:44

I frequently get asked by non-technical solo founders if I know any potential hacker cofounders they should talk to. These people give a passionate pitch for the idea and a long list of all the hustling they've done, customers they've spoken to, models they've built, provisional patents they've filed, etc. Most of the time, they are thoughtful and hardworking. But they've often been searching for their technical cofounder for many months, and things have stalled during that process. When people like this say "I'll do whatever it takes to make this business successful" (which they almost always say), I say something like "Why not learn to hack? Although it takes many, many years to become a great hacker, you can learn to be good enough to build your site or app in a few months. And even if you're not going to build the next version, if you're going to run a software company, it seems like a good idea to know a little bit about it." Usually the response is something like "That wouldn't be the best use of my time", "I don't like it", or "I don't have that kind of brain". (Earlier today it was "You don't understand, I'm the idea guy. If I'm hacking, who will be talking to investors?", which is what prompted this post.) But every once in awhile people think about it and decide to learn to hack, and it usually works out. They’re often surprised how easy it is. Many hackers love to help people who are just starting. There are tutorials for pretty much everything and great libraries and frameworks. As an important aside, if you try to learn on your own, it can be really hard. You’ll hit some weird ruby error and give up. It’s important to have someone—a friend, a teacher at a coding bootcamp, etc.—that get you through these frustrating blocks. When hackers have to for their startups, they are willing to learn business stuff. Business people should do the same. If you're not willing to do this, you should remember that there are far greater challenges coming in the course of a startup than learning how to code. You should also remember that you can probably learn to code in less time than it will take to find the right cofounder. Speaking of cofounders, a word of warning: meeting a stranger for the express purpose of cofounders hardly ever works. You want someone you've known for awhile and already worked with. This is another good reason for learning to hack yourself instead of bringing on a cofounder. You can build the first version of your product, and even if it's terrible (we had a non-technical founder in YC that learned to hack with Codecademy and was still able to learn enough to build a prototype), you'll actually be able to get real user feedback, iterate on something other than mockups, and perhaps impress a great hacker enough to join you. Although you may never win a Turing Award, if you're smart and determined, you can certainly get good enough to build a meaningful version 1. If you're a solo founder and you can't hack, learn.

The separation of advice and money

2013-10-08 17:57:54

One of the most interesting changes in venture capital going on right now is the separation of advice and money. For a very long time, these have been a package deal. Great advice is really important; some founders don’t appreciate this initially (I was guilty of it) but always learn to. But great advice does not have to come from venture capitalists; it often comes from people like former founders. There have been a few small indications of the advice/money separation over the past few years, but crowdfunding is now really making it happen. Some companies can raise money on very good terms from investors that don’t know much about startups, and then give equity to the advisors they want to work with. There are probably going to be big advantages and big disadvantages to this. On the positive side, founders may end up with less total dilution and get to choose whatever advisors they want—not just the people that happen to manage institutional money. Another big positive is that more competition (and more transparency) makes investors behave better. On the negative side, advisors probably won’t work quite as hard for a company that they don’t have a lot of capital invested in. Also in the negative column, this will probably further worsen founders’ disrespect for capital. And perhaps worst of all, I expect a lot of people to lose a lot of money—startup investing is both hard and appeals to gambler’s instincts, and it’s easy to imagine it becoming the new daytrading. At some point, of course, the pendulum will swing back. Advisors will probably still put in some capital, but probably at a better effective price than people who just invest. The hard part is that everyone thinks they are a great advisor and wants the special treatment. The bigger force at work is the long-term trend towards founders having more leverage than investors. This change in leverage has happened for a lot of reasons, but specifically, crowdfunding probably would not have been possible if companies needed as much capital to start as they did ten years ago. Also, startups are cool now, so more people want to invest. Quick and painless fundraising, without advice necessarily being part of the package, is what many founders want. In a sense, VCs sell advice, but founders want to buy money. Crowdfuding is an answer to this (also, the crowd is willing to fund things VCs are not, pay higher prices and on very clear terms, etc.) Fundraising has not been an efficient market—VCs and angels have been able to corner it with laws, access, and it being the only source of advice. But the Internet continues its never-ending march. The best VCs are great, and they will probably continue to do well. In fact, they’re so good that they could probably get away with only selling advice—they understand how to build big companies in a way that few other people in the world do. They may have to adapt their strategy somewhat—for example, in response to being able to buy less ownership in earlier rounds, I suspect some firms will shift to writing much larger checks to the obvious winners in later rounds. The mediocre and bad VCs will have to adapt or die.

What to do if a bubble is starting

2013-09-24 18:10:01

Maybe now we’re actually in the early stages of a startup bubble. Valuations are trending up again. And no one is talking about a bubble anymore, so it could be happening. Many companies still feel reasonably priced. Yes, Facebook is up 70% in the last six months, but I think it’s likely still undervalued. Lots of companies raising B rounds are doing it with large profits and at reasonable multiples. But the very early stage feels somewhat out of whack. Companies raising money at $15MM+ plus valuations with no traction and no real vision beyond starting a startup still strikes me as unsustainable (not to mention bad for the companies). Lots of other signs point to a bubble—founders of Series A stage companies being angel investors, a significant uptick in the number of parties, soaring rents, soaring salaries, lots of new investors coming to valley, and MBAs starting companies as the fashionable thing to do again. Even if this is the beginning of a bubble, it will likely go on for awhile longer—at least as long as the Fed keeps the stimulus going, and likely longer. Maybe it goes on for another couple of years. We can debate whether or not companies are overpriced, but it is an absolute certainty that at the first sign of real trouble, most investors will overreact and invest much less precisely at the time they should be investing more. So the question is, if you believe that this may be the beginning of a bubble, what should you do now? Fortunately, the answers are things you should be doing anyway. First, you should not be too afraid. The only thing that is cheap during a startup bubble is capital. Everything else is relatively more expensive. If you’re a real company, a downturn that you’re prepared for can be beneficial. Good companies can make incredible strides during a bust. Make sure you have enough money in the bank, and treat this money as the last money you’ll ever raise—at the very least, have a plan B to get to profitability without raising any additional capital. If you need to raise more, this is a good time to do it. Focus on a path to profitability. Remember that, if your customers are mostly startups, revenue can dry up fast. Resist the urge to ramp up to a crazy burn rate. Be especially fearful of long-term commitments like expensive leases and people. Don’t hire unnecessary people. Stay as lean as you can. Establish a culture of frugality. Bubbles bursting also require startups to focus, which is a good thing to be doing in any case. Cut products and features that are not working. Focus relentlessly. Of course, people are terrible at predicting bubbles and busts, so I’m likely wrong. Luckily, I really do believe these are good things to do anyway.

How to hire

2013-09-23 18:26:48

After startups raise money, their next biggest problem becomes hiring. It turns out it’s both really hard and really important to hire good people; in fact, it’s probably the most important thing a founder does. If you don’t hire very well, you will not be successful—companies are a product of the team the founders build. There is no way you can build an important company by yourself. It’s easy to delude yourself into thinking that you can manage a mediocre hire into doing good work. Here is some advice about hiring: *Spend more time on it. The vast majority of founders don’t spend nearly enough time hiring. After you figure out your vision and get product-market fit, you should probably be spending between a third and a half of your time hiring. It sounds crazy, and there will always be a ton of other work, but it’s the highest-leverage thing you can do, and great companies always, always have great people. You can’t outsource this—you need to be spending time identifying people, getting potential candidates to want to work at your company, and meeting every person that comes to interview. Keith Rabois believes the CEO/founders should interview every candidate until the company is at least 500 employees. *In the beginning, get your hands dirty. Speaking of spending time, you should spend the time to learn a role before you hire for it. If you don’t understand it, it’s very hard to get the right person. The classic example of this is a hacker-CEO deciding to hire a VP of Sales because he doesn’t want to get his hands dirty. This does not work. He needs to do it himself first and learn it in detail. Then after that, he should lean on his board or investors to give him opinions on his final few candidates. *Look for smart, effective people. There are always specifics of what you need in a particular role, but smart and effective have got to be table stakes. It’s amazing how often people are willing to forgo these requirements; predictably, those hires don’t work out in the early days of a startup (they may never work). Fortunately, these are easy to look for. Talk to the candidates about what they’ve done. Ask them about their most impressive projects and biggest wins. Specifically, ask them about how they spend their time during an average day, and what they got done in the last month. Go deep in a specific area and ask about what the candidate actually did—it’s easy to take credit for a successful project. Ask them how they would solve a problem you are having related to the role they are interviewing for. That, combined with the right questions when you check references, will usually give you a good feel about effectiveness. And usually you can gauge intelligence by the end of an hour-long conversation. If you don’t learn anything in the interview, that’s bad. If you are bored in the interview, that’s really bad. A good interview should feel like a conversation, not questions and responses. Remember that in a startup, anyone you hire is likely to be doing a new job in three to six months. Smart and effective people are adaptable. *Have people audition for roles instead of interviewing for them. This is the most important tactical piece of advice I have. It is difficult to know what it’s like working with someone after a few interviews; it is quite easy to know what it’s like after working with them Whenever possible (and it’s almost always possible), have someone do a day or two of work with you before you hire her; you can do this at night or on the weekends. If you’re interviewing a developer, have her write code for a real but non-critical project. For a PR person, have her write a press release and identify reporters to pitch it to. Just have the person sign a contractor agreement and pay them for this work like a normal contractor. You’ll get a much, much better sense of what it’s like working with this person and how good she is at the role than you can ever get in just an interview. And she’ll get a feel for what working at your company is like. *Focus on the right ways to source candidates. Basically, this boils down to “use your personal networks more”. By at least a 10x margin, the best candidate sources I’ve ever seen are friends and friends of friends. Even if you don’t think you can get these people, go after the best ones relentlessly. If it works out 5% of the time, it’s still well worth it. All the best startups I know manage to hire like this for much longer than one would think possible. Most bad startups make excuses for not doing this. When you hire someone, as soon as you’re sure she’s a star you should sit her down and wring out of her the names of everyone that you should try to hire. You may have to work pretty hard at this. Often, to get great people, you have to poach. They’re never looking for jobs, so don’t limit your recruiting to people that are looking for jobs. A difficult question is what you should do about poaching from acquaintances—I don’t have a great answer for this. A friend says, “Poaching is the titty twister of Silicon Valley relationships”. Technical recruiters are pretty bad. The job boards are generally worse. Conferences can be good. Hosting interesting tech talks can be good for technical hiring. University recruiting works well once you’re reasonably established. Don’t limit your search to candidates in your area. This is especially true if you’re in the bay area; lots of people want to move here. View candidate sourcing as a long-term investment—you may spend time now with someone that you don’t even talk to about a job for a year or more. Use you investors and their networks to find candidates. In your investor update emails, let them know what kind of people you need to hire. As a side note, if I were going to jump into the mosh pit of people starting recruiting startups, I would try to make it look as much like personal network hiring as possible, since that’s what seems to work. I’d love a service that would let me see how everyone in my company was connected to a candidate, and be able to search personal networks of people in the company (LinkedIn is probably good at this for hiring sales people but not very good at this for developers). *Have a mission, and don’t be surprised at how much selling you’ll have to do. You need a mission in order to hire well. In addition to wanting to work with a great team, candidates need to believe in your mission—i.e., why is this job more important than any of the others they could take? Having a mission that gets people excited is probably the best thing you can do to get a great team on board before you have runaway traction. As a founder, you’ll assume that everyone will be as excited about your company as you are. In reality, no one will. You need to spend a lot of time getting candidates excited about your mission. If you have a good mission and you’re good at selling it, you’ll be able to get slightly overqualified people—although, in a fast-growing startup, they’ll end up in a role that they feel not quite ready for quickly anyway. You should use your board and your investors to help you close candidates. Once you decide you want someone, switch into closing mode. The person that the new hire will report to (and ideally also the CEO) should be doing everything possible to close the candidate, and talking to her about once a day. *Hire people you like. At Stripe, I believe they call this the Sunday test—would you be likely to come into the office on a Sunday because you want to hang out with this person? Liking the people you work with is pretty important to the right kind of company culture. Only a few times have I ever seen a scenario where I didn’t like an otherwise very good candidate. I only made the hire once, and it was a mistake. That being said, remember you want at least some diversity of thought. There are some attributes where you want uniformity—integrity, intelligence, etc.—and there are some where you want coverage of the entire range. *Have a set of cultural values you hire for. Spend a lot of time figuring out what you want your cultural values to be (there are some good examples on the Internet). Make sure the whole company knows what they are and buys into them. Anyone you hire should be a cultural fit. Andrew Mason says “Values are a decision making framework that empower individuals to make the decision that you, the founder, would make, in situations where there are conflicting interests (e.g. growth vs. customer satisfaction)”. Treat your values as articles of faith. Screen candidates for these values and be willing to let an otherwise good candidate go if he is not a cultural fit. Diversity of opinions and certain characteristics (e.g. you want nerds and athletes both on the team) is good; diversity of values in a startup is bad. There are some people that are so set in their ways they will never get behind your values; you will probably end up firing them. As a side note, avoid remote employees in the early days. As a culture is still gelling, it’s important to have everyone in the same building. *Don’t compromise. In the grind of a startup, you’ll always need someone yesterday and it’s easy to hire someone that is not quite smart enough or a good enough culture fit because you really need a specific job done. Especially in the early days, never compromise. A single bad hire left unfixed for long can kill a company. It’s better to lose a deal or be late on a product or whatever than to hire someone mediocre. Great people attract other great people; as soon as you get a mediocre person in the building, this entire phenomenon can unwind. *Be generous with compensation packages, but mostly with equity. You should be very frugal with nearly everything in a startup. Compensation for great people is an exception. Where you want to be generous, though, is with equity. Ideally, you end up paying people slightly below to roughly market salaries but with a very generous equity package. “Experienced” people often have higher personal burn rates and sometimes you’ll need to pay them more, but remember that great companies are not usually created by experienced people (with the exception of a few roles where it really matters a lot.) I am sure I will get flamed for saying this, but it’s the right strategy—if you want an above-market salary, go work at a big company with no equity upside. Ideally, you want to pay people just enough they don’t stress about cash flow. Equity is harder, but a good rule for the first 20 hires seems to be about double what your investors suggest. For a company on a good but not absolute breakout trajectory, some rough numbers I’ve seen are about 1.5% for the first engineer and about 0.25% for the twentieth. But the variance is huge. Incidentally, a very successful YC company has a flat salary for effectively all of their engineers, and it seems to work well. It's lower than what these people could get elsewhere, but clearly they enjoy the work and believe the stock is going to be worth a lot. The sorts of people that will take this deal are the kind of people you want in a startup. And unless something goes really wrong, at this point, these engineers are going to make way more money than that would have taking higher salaries elsewhere—not to mention how much better their work environment has been. You will likely have to negotiate a little bit. Learn how to do this. In general, materially breaking your compensation structure to get someone is a bad idea—word gets out and everyone will be upset. *Watch out for red flags and trust your gut. There are a few things in the interviewing/negotiating process that you should watch out for because they usually mean that person will not be successful in a startup. A focus on title is an example; a focus on things like “how many reports will be in my organization” is an even worse example. You’ll develop a feel for these sorts of issues very quickly; don’t brush them off. If you have a difficult-to-articulate desire to pass, pass. *Always be recruiting. Unfortunately, recruiting usually doesn’t work as a transactional activity. You have to view it as something you always do, not something you start when you need to fill a role immediately. There’s a fair amount of unpredictability in the process; if you find someone great for a role you won’t need for two months, you should still hire her now. *Fire fast. I have never met a newbie founder that fires fast enough; I have also never met a founder who doesn’t learn this lesson after a few years. You will not get 100% of your hires right. When it’s obviously not working, it’s unlikely to start working. It’s better for everyone involved to part ways quickly, instead of hanging on to unrealistic dreams that it’s going to get better. This is especially true for the person you have to let go—if they’re just at your company for a couple of months, it’s a non-issue in future interviews. And everyone else at the company is probably aware that the person is not working out before you are. Having to fire people is one of the worst things a founder has to do, but you have to just get it over with and trust that it will work out better than dragging things out. *Put a little bit of rigor around the hiring process. Make everyone on your team commit to a hire/no hire decision for everyone they meet, and write up their thoughts. If you get it wrong, this is useful to look back at later. It’s good to have a brief in-person discussion with the entire interviewing team after a candidate leaves. Have someone take the candidate out to lunch or dinner. Insist that everyone is on time and prepared for interviews/auditions. Make sure every candidate leaves with a positive impression of your company. Be organized—one person should coordinate the entire interview process, make sure every topic you want to cover gets covered, convene people for the discussion after all interviews are done, etc. Also, have a consistent framework for how you decide whether or not to hire—do you need unanimous consent? Remember that despite being great at what they do your team may not be great interviewers. It’s important to teach people how to interview. *Don’t hire. Many founders hire just because it seems like a cool thing to do, and people always ask how many employees you have. Companies generally work better when they are smaller. It’s always worth spending time to think about the least amount of projects/work you can feasibly do, and then having as small a team as possible to do it. Don’t hire for the sake of hiring. Hire because there is no other way to do what you want to do. Good luck. Hiring is very hard but very important work. And don’t forget that after you hire people, you need to keep them. Remember to check in with people, be a good manager, have regular all hands meetings, make sure people are happy and challenged, etc. Always keep a sense of momentum at your company—that’s important to retaining talent. Give people new roles every six months or so. And of course, continue to focus on bringing talented people into the company—that alone will make other good people want to stay. Always be identifying and promoting new talent. This is not as sexy as thinking about new problems to solve, but it will make you successful. Thanks to Patrick Collison, Andrew Mason, Keith Rabois, Geoff Ralston, and Nick Sivo for reading drafts of this.

Electrons and Atoms

2013-08-28 19:52:48

A friend recently asked me for my list of current breakout companies. I made it, and noticed that all of them had only one thing in common. I then went back through the last three YC batches and looked at our top-ranked companies (although we get it wrong plenty of times, it’s reasonably predictive). These companies had the same trait. This shared trait is a connection between the online and the physical worlds. There are two main models for this—the Uber model, where you push a button on a website/app and something happens in the real world, and the Airbnb model, where you use a service to do something in the real world that would be possible but extremely inefficient. In both cases, the key thing is enabling users to do things they do in real life much more easily—yes, you could have called a cab company, but it took a long time, the cab didn’t always come, you didn’t know when it was near, you had to have cash or get a nasty look from the cabbie, etc. Even Facebook is a lightweight version of this—with Facebook, you bring your real world online so you can interface with it more often, more easily, and from anywhere. Facebook has obviously been much more successful than services like SecondLife, which were entirely virtual, and services MySpace, which were less about real identity and real friends. Amazon was perhaps the original example of bridging these two worlds. As a corollary, new companies that exist only in the real or online world do not seem to do as well as companies that connect them. This happens more often on the online side than the physical side, both because we generally don’t think of things like barbershops as startups and because most people don’t expect pure hardware companies without a strong Internet component to do very well. And this bridge is often a matter of degree—many, if not most, online companies touch the real world in some way. But the ones that do it the most seem to be doing better. In many ways, this is a version of Marc Andreessen’s “software is eating the world”. To eat the world, you have to operate in the world. I think two big reasons it’s happening so much now are 1) smartphones are in everyone’s hands and 2) there is a level of personal comfort with putting real life on the internet that seems to have tipped about two years ago. There are probably a lot of areas where this doesn’t apply—enterprise software and developer tools, for instance—and there are clear counterexamples like Google. But as a general rule, it seems to be worth considering when thinking about new businesses.

How things get done

2013-07-17 19:03:44

I’ve heard a lot of different theories about how things get done. I’m interested in this topic, so I pay attention and see how the theories hold up. Here’s the best one: a combination of focus and personal connections. Charlie Rose said this to Paul Graham, who told it to me. It seems very accurate. There are lots of good things that I keep meaning to do but never quite make it to the top of my list; I never make any real progress at all on those. Conversely, I find that whatever I focus on most nearly always happens. Small-ish startups seem to be able to do about three things at once, and usually they are whatever the CEO is focusing on. Certainly anything that is not someone’s number one or two priority is unlikely to get done in the hectic world of a startup. Most early-stage startup founders do a bad job of getting the company to focus on just two or three critical priorities—they chase whatever shiny new object appears that day. This is somewhat expected—the sort of people that start companies generally like doing new things, not executing relentlessly on the same things. But restraint is critical. It’s very easy to justify taking on one more project by saying that it won’t be that time consuming. Unfortunately, it will likely either be time consuming, or it won’t be worth anything. Most founders know what to do; they just don’t know what not to do. The Y Combinator version of focus is “write code and talk to users”. For a startup that is just a few people, most other things are a waste of time (assuming the founders have already thought through the strategy of the company, and that “talking to users” also implies getting users). For whatever reasons, many founders love to spend time on anything else—worrying about the details of corporate structures, interviewing lawyers, doing a really good job bookkeeping, etc. All of this pretending-to-run-a-company gets in the way of actually running a company. The best startups we fund come to office hours to talk about their product, how to evolve it, how to grow faster, and excited to show us new features their users want. The worst come to talk—again and again—about everything else. On the personal relationships part, most people eventually realize it’s hard to do really good things by yourself—most of them just require too much work. Successful startups usually find that their biggest problem is hiring, and certainly hiring well is the highest-impact thing a founder can do for his startup (and the best thing an investor can do is fund great founders). “Always be recruiting and promoting talented people” is very good advice. Having good relationships with the people you work with is also very good advice. I make it a point to meet and help as many smart people as I can; besides being fun and interesting, this is important to getting things done. These are the people I tend to try hire or fund, and I think it’s the same for lots of others. This is not really nepotism; I think working with your friends is a good strategy, and smart, effective people tend to like other smart, effective people. The best hires I’ve made or seen other companies make are usually friends or friends of friends. Partnerships and sales also rely heavily on personal relationships, for many of the same reasons. It’s easy to not spend enough time on personal relationships—it seems in conflict with focus. But it’s an important exception. It’s also one of the most enjoyable parts of work. When you combine extreme focus and great teams, magic happens.

Advice for ambitious 19 year olds

2013-06-25 00:05:26

“I’m an ambitious 19 year old, what should I do?” I get asked this question fairly often, and I now have a lot of data on what works, so I thought I’d share my response. Usually, people are deciding between going to college (and usually working on side projects while they do so), joining a company, or starting their own startup. [1] [2] The secret is that any of these can be right answer, and you should make your decision based on the specific circumstances of each option. The critical point is that you want to do the thing that is most likely to get you on a path to do something great. No matter what you choose, build stuff and be around smart people. “Stuff” can be a lot of different things—open source projects outside of class, a startup, a new sales process at a company you work at—but, obviously, sitting around talking with your friends about how you guys really should build a website together does not count. The best people always seem to be building stuff and hanging around smart people, so if you have to decide between several options, this may be a good filter. Working on something good will pull you along a path where good things keep happening to you. (In fact, this effect is so strong that there’s a danger of getting sucked into too many interesting things and getting distracted from what you really want to do.) In making this decision, you want to take the right kind of risk. Most people think about risk the wrong way—for example, staying in college seems like a non-risky path. However, getting nothing done for four of your most productive years is actually pretty risky. Starting a company that you’re in love with is the right kind of risk. Becoming employee number 50 at a company that still has a good chance of failure is the wrong kind of risk. If you stay in college, make sure you learn something worthwhile and work on interesting projects—college is probably the best place to meet people to work with. If you’re really worried you’ll miss some critical social experience by dropping out of college, you should probably stay. If you join a company, my general advice is to join a company on a breakout trajectory. There are a usually a handful of these at a time, and they are usually identifiable to a smart young person. They are a very good risk/reward tradeoff. Such a company is almost certainly going to be successful, but the rest of the world isn’t quite as convinced of it as they should be. Fortunately, these companies love ambitious young people. In addition to the equity being a great deal (you might get 1/10th of the equity you’d get if you join a tiny new startup, but at 1/100th or 1/1000th of the risk), you will work with very good people, learn what success looks like, and get a W on your record (which turns out to be quite valuable). Spending a few years at a company that fails has path consequences, and working at an already-massively-successful company means you will learn much less, and probably work with less impressive people. Incidentally, don’t let salary be a factor. I just watched someone turn down one of these breakout companies because Microsoft offered him $30k per year more in salary—that was a terrible decision. He will not build interesting things and may not work with smart people. In a few years, when it’s time for something new, the options in front of him will be much worse than they could have been. If you start a company, only do so if you have an idea you’re in love with. If you’re hanging out with your friends trying to come up with an idea, I don’t think you should start that company (although there are many who disagree with me). Starting a failed startup is less bad than joining a failed company as an employee (and you’ll certainly learn much more in the former case). If you fail at an idea that you really loved and could have been great, you’re unlikely to regret it, and people will not hold it against you. Failing at a me-too copycat startup is worse. Remember that there will be lots of other opportunities to start companies, and that startups are a 6-10 year commitment—wait for the right one One big pro for starting a company is that it’s usually the way to learn the most in the shortest amount of time. One big con is that it’s easy to start a company for the wrong reasons—usually so that you can say you’re starting a company—and this makes it easy to cloud your judgment. No matter what you choose, keep your personal burn rate low and minimize your commitments. I have seen a lot of people miss great opportunities because they couldn’t afford a reduction in salary or because they couldn’t move or didn’t have the time. Think about risk the right way. Drew Houston gave a great commencement speech where he said you only have to be right once. That’s true. The risk is not getting on the path where you get to be right that one critical time. Thanks to Lachy Groom and Nick Sivo for reading drafts of this. [1] Sometimes, a 4th option is being a VC. This is usually a mistake—the best way to become a VC is not to grind your way up the ladder from junior associate intern. Even if you want to be a VC, you’re much better off starting or joining a startup, and getting partner offers when you’re 28. Plus, good founders want to work with an investor that has operational experience. [2] Interestingly, no one is ever considering going into academia.

What happened to innovation?

2013-06-20 17:15:52

There’s a lot of debate about whether or not the pace of innovation has slowed, and if so, what that means. After some particularly brutal pitches that felt like Saturday Night Live parodies of startups, I feel compelled to weigh in. This question cannot be answered with a yes or a no; innovation has slowed dramatically in some areas and gone faster than most people would have thought possible in others. It’s interesting to ponder why. We were once great at innovating in the physical world. Sometimes I stand in Manhattan and think about how amazing it is that everything around me was dug out of the ground, and made with things that were dug out of the ground. Making an iPhone starts with digging silicon out of the ground, putting some impurities in it and making it into a chip. Then robots, also made with metal mined from the ground, assemble all the chips plus more stuff dug out from the ground to make a phone. But recently, software (and mostly Internet software) has been the focus of innovation, and its importance is probably still underestimated—there are compounding effects to how it’s changing the world that we’re only now beginning to see. It’s amazing how fast it’s happened. In 1990, the Internet was 21 years old and only 2.8 million people had access to it. (HTML/HTTP wouldn’t be released for another year.) There are now over 2.5 billion Internet users—a nearly 100,000% increase in 23 years. Also in 1990, there were 12.4 million mobile phone subscribers. These were very basic phones, of course—even in 1999, there was no such thing as smartphone. In 2012, the number of global smartphone users crossed 1 billion, and the number of mobile phone subscribers is much greater. There are now approximately as many mobile subscriptions (not unique subscribers) as people in the world! But innovation in the physical world (besides phones and computers) over the same time period has been less impressive. We went from the first flight with a piston engine to the first flight with a jet engine in about 30 years; 30 years after that we landed on the moon. Since 1939, jet engines have certainly improved incrementally, but I’m still waiting to travel by ramjet (which incidentally was patented in 1908). When we made it to the moon in 1969—guided by computers with 64KB of memory and a clock speed of 0.043MHz, similar to a modern high-end toothbrush—people thought the rest of the solar system and the stars were not far off. We are still waiting. In the 1960s, oil was our primary energy source, followed by coal, gas, hydro, nuclear, and a tiny fraction of renewables. Today, the order is…oil, coal, gas, hydro, nuclear, and a tiny fraction of renewables. Instead of way better ways to generate energy, we talk about reducing usage. I’m all for conservation, but there’s still something defeatist about it—weren’t we supposed to be generating huge amounts of cheap, clean energy by now? There are countless other examples of apparent lack of breakthrough progress in materials science, biotech, food, healthcare, etc. I can’t order food from a Replicator. In some ways we’ve even backtracked—I have not been able to travel faster than the speed of sound since I was a kid. (To be fair, there may be great innovation happening now that is difficult to see. Innovation often looks like the creation of idle toys while it’s happening, and only in retrospect can we see how important developments really are.) There’s another important consideration in addition to software/physical—short-term/long-term (or incremental/radically new). We’ve seen much more progress on things that can be incrementally improved in a short time frame than things that require open-ended, new development. This is true for both software and physical things. For example, there are a huge number of people working on making websites really nice-looking and easy-to-use—and they’re doing a fine job—but not very many people working on artificial intelligence. There are a decent number of people working on more efficient jet engines, but not very many civilians working on replacing the jet engine with something new. Incremental progress is good—it compounds, and it’s a way to develop great things eventually. It works a much higher percentage of the time than step change innovation. It’s certainly the model I’ve observed help many startups reach great success. The iPhone, which I think is the most important innovation of 2005-2010, came about at least somewhat via compounding incremental progress. But there were a few critical discontinuities, and Apple took as much time as they needed to figure those out. They also had the luxury of one guy saying that they were going to do these crazy things like ship a phone with no keyboard running a real OS and require everyone to buy a data plan. Part of the reason Internet businesses have been so successful is that it’s easy to iterate quickly with incremental changes. This makes them appealing businesses. But there are some things incremental refinement will never get us. On the software side, it’s relatively easy right now to raise money for a new website or mobile app that brings an existing, offline industry online. In most cases, this is a real, but small, step forward. It’s harder to raise money for software companies working on uncertain, long-term, high-reward projects (like AI). When it comes to hardware, it’s medium hard to raise money for a consumer hardware company, even with a well-understood plan and a short timeframe to ship [0]. It’s very difficult to raise money for a new car company, a new rocket company, a new energy company, etc. Right now in Silicon Valley, most investors are more interested in your growth graph than your long-term plan—i.e., more interested in the past than the future. Some possible explanations for this are risk aversion and intellectual laziness. (Actually, it’s a little better than that—compounding growth is an extremely powerful force, and if investors believe growth will keep going at the same rate, then they can be making a very wise decision.) This focus makes it hard for companies to raise money if they’re doing things that won’t have a growth graph of any sort for years. Looking at the past and projecting it forward is good for public market investors, who probably should judge a company on past performance. But venture investors are supposed to be taking risks on unproven technology and ideas. Perversely, in the current world, public market investors love to speculate about the future when pricing a stock (sometimes getting themselves badly burned, e.g. the Internet bubble) while most venture investors—the occasional $40+MM A round aside—seem to be leaning in Benjamin Graham’s direction [1]. A two-by-two matrix of progress in innovation (and ease of attracting investment) with software/physical on one axis and short-term/long-term on the other axis looks like this: Green is good, yellow is ok, and red is bad. I don’t think it’s totally correct to say that innovation has slowed—what’s happened is that innovative energy has mostly been directed to short-timeframe opportunities in software. This is at least mostly rational—honestly, over the last few decades there have just been way more successes in the computer industry than in biotech, cleantech, etc. The virtual world is far, far less regulated than the physical world, which makes it a less risky place to start a new business. (Although a very interesting side note is that many of the most successful Internet businesses have been ones that connect the virtual to the physical world in some way.) And many founders, if you catch them after a few drinks, will often say that they want to get rich in a small handful of years, and timeframes on the Internet are much faster. Many investors are even worse on this point. And most importantly, computers are awesome. Again, it’s not clear to me that we’re worse off focusing our collective energy here, although I do think we should do more on the long-term opportunities. If the Internet is the most important development of the last 30 years, it makes sense to have most of our best people working on it [2]. And now we get to the fundamental issue with innovation today. People—founders, employees, and investors—are looking for low-cost (and virtual is lower cost than physical), short-term opportunities. But what causes the low-cost, short-timeframe preference? For one, there is some deeply human appeal to getting rich quickly, which has probably been around forever. Investing in software businesses has worked (sometimes), and will probably continue to do so for some time. Software has been a great place—that did not exist during the physical innovation boom—to direct investment capital. We haven’t had a really capital-intensive war in a long time, and while that’s obviously great, I am always astonished when I read about how much real innovation has involved the military or national security—it’s hard to get effectively unlimited budgets and focus any other way. The Internet itself came from the military. Regulatory uncertainty for non-Internet businesses is another issue, which can at least be improved—although it will be challenging to ever match the freedom of the Internet. Perhaps most importantly of all, we can use software to drive innovation in the non-software world by doing as much as possible in software. We should focus on the intersection of software and everything else—for example, programs that let us do design in software can bring down cost and cycle time. I believe that short sub-project times are almost always a win, and many companies in the physical realm seem to have long timelines without a lot of intermediate milestones. Another thing we can do is to better reward truly long-term investing. Right now, there’s a focus on the extreme short-term—many investors care mostly about what earnings are going to be next quarter, and the rise in volume of weekly options has been impressive. Unfortunately, what Wall Street thinks trickles down the pyramid to venture capitalists and even angel investors, so we see a shortening of time horizons everywhere. This is probably difficult to stop entirely, but I’m sure that a very favorable tax policy on multi-year holdings (and an even less favorable one for short-term holdings) would help. Venture funds commonly have a ten year life; lengthening that to fifteen or twenty might help. I’d also like to see companies move to five- or six-year vesting for founders and employees. Or maybe we need a new funding model for radical innovation. Investment capital will look for the best risk-adjusted return; right now, lots of investors believe Internet companies are it. As mentioned above, many of the things we consider to be breakthrough innovations with physical things happened before computers, when there was not such a readily available and attractive investment platform. Investors are often making rational decisions by choosing a shorter-timeframe opportunity that requires less capital. So maybe the government needs to spend more money on discovery (although right now, it’s decreasing funding for things like the National Labs and the NIH), and maybe there’s a philanthropic model that makes sense. And there are probably a lot of other things we should be doing too. I am a proud child of the computer age. I can’t imagine life without them, and I’m happy lots of people are working to make them better. Although it makes sense that most innovation is happening incrementally on the Internet, it would be a shame for us as a species to lose the drive for the sort of discontinuous innovations that got us the Internet in the first place. I can’t go live in a computer yet, so I’d also like the real world to continue to get better. Thanks to Jack Altman, Patrick Collison, Kevin Lawler, Eric Migicovsky, Geoff Ralston, and Nick Sivo for reading drafts of this. [0] ]It used to be really hard, but preorders have made it easier. For example, Pebble was unable to raise money from investors until they no longer needed it—they collected more than $10MM in effective preorders on Kickstarter. But until then, investors dismissed them, saying “we don’t like hardware.” [1] No disrespect to Color’s investors—they believed strongly in something radical, without a growth graph, and took a big capital risk. I’d be happy to see more of that, but maybe for different sorts of companies. [2] Talk about STEM—the study of science, technology, engineering, and mathematics—is mostly BS. Learning to hack Rails in ten weeks is regrettably a good career move as of June 20th, 2013. Learning physics over ten years has a much worse economic payoff. In today’s world, we have programming, and we have everything else. At least in terms of a plan to become qualified for better jobs, STEM should be renamed CS. As a side note to the side note, I don’t blame finance for stealing our good engineers. The failure is that non-CS engineering career paths don’t look very attractive right now.