Miguel Armaza sits down with Michael Seibel and Dalton Caldwell, Managing Directors and Group Partners at the legendary Y Combinator. In case you don’t know, Y Combinator is one of the most successful startup accelerators and venture capital funds, and since March 2005 has helped over 5,000 startup founders build and launch companies like Stripe, AirBnB, DoorDash, Dropbox, Reddit, and the list goes on and on…
If you are an entrepreneur interested in applying to YC’s Summer 2021, keep in mind their application deadline is March 19. Apply here!
Prior to joining Y Combinator, Michael and Dalton founded four separate companies. In fact, Michael was first introduced to YC as a founder when he joined the YC summer class of 2007 with Justin.TV (Twitch) and then again in 2012 with SocialCam. He recalls falling in love with Y Combinator after realizing it offered a fair ramp to join Silicon Valley, as opposed to the traditional and harder paths available only to those with the right credentials and relationships.
Lessons from Entrepreneurs
After working with thousands of entrepreneurs, it’s safe to say Michael and Dalton have learned a lesson or two about starting companies. Here are some of their key learnings:
Investors are not as important as people think they are. Investors are not the center of the world and should not be treated like messiahs who know it all. Yes, they can be helpful but founders should not treat VCs as if they are the customer. What’s more, fundraising is not the goal and closing a big funding round is definitely not an indication of success. In reality, money is an afterthought and you should take 5% of your “CPU cycle” on raising. Successful founders are spending most of their time on tasks that are not as fun to talk about, like users, product, hiring, and shipping code.
You have to be pretty extraordinary to succeed. Startup success is very rare and requires a different kind of thinking than most successful professionals are used to. The best founders figure out how to avoid just going with the crowd in order to differentiate themselves. In Michael’s own words, “Most smart people put themselves in a group of smart people, and they perform average. And that does great. That’s a winning strategy, right? (…) And so we see a lot of folks who like this strategy that has worked so often… And bam! They come to the startup world and now we tell them, you got to rip that blanket off. That doesn’t work. Success looks different. That’s not only counterintuitive, once people understand it, it’s still very uncomfortable. It’s very uncomfortable to do something different than the crowd you’re in.”
200 Fintech Companies and Counting… Having worked with hundreds of fintech founders, Michael and Dalton recognize there are some key, must-have attributes that have helped companies succeed in the industry.
- Technical, product, and design excellence — Companies that treat engineering and design as a top priority are able to differentiate themselves from competitors and incumbents. Companies like Brex or Point Card that started with strong tech, product, and design teams have thrived.
- Regulatory sophistication — as a highly regulated industry, having strong regulatory chops will allow founders to be smarter than everyone else and navigate a complex environment. The best companies can navigate KYC and AML requirements, which help them secure and maintain large clients like banks or large financial institutions.
Y Combinator started as a US-centric company, but over the years they have increased the number of international startups accepted to their flagship accelerator. The growth of non-US founders has been fueled by a combination of increased appetite from YC as well as increased applications from founders around the world (driven mostly by word of mouth). For example, Dalton recalled interviewing and accepting Platzi, a startup based in Mexico and Colombia for the winter batch of 2015. In the next batch, he interviewed and accepted a company called Rappi, which applied specifically because the Platzi founders told them how great YC was. Fast forward half a decade and Rappi is one of the largest unicorns in Latin America and Platzi is also finding success. The same is true for every other region around the world and there are countless unicorns that first ended up at YC after hearing about it from alums.
Dalton and Michael also recognize they don’t know everything in every field or geographic location, which is why they try to find founders that are experts and that don’t need remedial help on how to talk to customers or raise money. They assume the people they fund are competent and try to help by giving them access to capital and valuable networks.
State of Diversity in Tech
Michael is very passionate about improving the state of diversity amongst founders, but also admits this is a very hard and complex problem to solve. Launching a company is risky and a lot of potential minority founders can’t take the risk because they are the primary wage earners in their entire family at a very young age.
“Imagine being a 25 year old and being the safety net for your family? Most people don’t have to do that until their parents are ailing and they’re in their 60s. And these kids sometimes have to do it at 22, 23, 24, or 25. And so the idea that that person would prefer a job versus doing a startup makes perfect sense. But you kind of have to dig that deep to come up with a completely obvious conclusion.”
He also hopes to see more action on this front from Computer Science University departments and is clearly proud of the YC model.
“YC’s door is default open. You don’t have to know us. You don’t have to be recommended. You don’t need a warm intro. You don’t even need to fill out a deck. And you don’t need to know how slides and graphs should look to fill out an application. So to me, building off of that base is super important. The door is default open.”
Finally, Michael also wants to defeat the myth of the racist investor as he thinks this idea might hold people back who otherwise should launch a company.
“If you’re under represented, are you going to encounter an investor who is biased against you for some reason? Sure. Is that the thing that’s gonna prevent you from making your company work? No. And the funny thing about startups is 1000, things can kill you. And so just add that one to the list. But that shouldn’t discourage you, because there are a lot of people who want to write checks to underrepresented founders. Is it hard for them to fundraise? Sure, but do they get money? Yes. And so is the path the easiest path? No, but most underrepresented people don’t walk the easiest path and that’s okay. It makes you more resilient.”
Michael Seibel is the Managing Director, Early Stage and Group Partner at YC. He was the cofounder and CEO Justin.tv and Socialcam. Socialcam sold to Autodesk in 2012 and under the leadership of Emmett Shear, Justin.tv became Twitch.tv and sold to Amazon in 2014. Before getting into startups, he spent a year as the finance director for a US Senate campaign and in 2005, Michael graduated from Yale University with a BA in political science.
Dalton Caldwell is the Managing Director, Architect and Group Partner at YC. He was the cofounder and CEO of imeem (acquired by MySpace in 2009), and the cofounder and CEO of App.net. He has a BS in Symbolic Systems and a BA in Psychology from Stanford University.
About Y Combinator
Y Combinator is a startup fund based in Mountain View, CA. In 2005, Y Combinator developed a new model of startup funding. Twice a year they invest a small amount of money in a large number of startups. The startups move to Silicon Valley for 3 months, and the YC partners work closely with each company to get them into the best possible shape and refine their pitch to investors. Each batch culminates in Demo Day, when the startups present their companies to a carefully selected audience of investors. Y Combinator has invested in over 3,000 companies including Airbnb, Dropbox, Stripe, Reddit, Instacart, Docker and Gusto. The combined valuation of YC companies is over $300B.
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