Smash Notes
Garry Tan on the Past, Present, and Future of YC
Gary Tan is the President and CEO of Y Combinator. YC is the startup accelerator behind companies like Airbnb, Stripe, Coinbase, Reddit, Twitch, and thousands more. According to Garry, they’ve invested in 20% of all startups worth $5B or more started since 2012. Gary has lived every side of the YC ecosystem. He went through YC as a founder, later became a…
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Notes
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On the show, the person leading YC says the program started as an experiment by Paul Graham and Jessica Livingston to give small amounts of money, almost summer-internship style. His own batch paid only about $13,000. Twenty years in, YC is going on more than 100 billion-dollar companies.
People apply online, so a founder does not have to know anyone. YC accepts about 1% of the people who apply. Getting in brings half a million dollars for about seven percent of the company, and he says a YC partner matters more than the money. He is one of 15 people who select companies: they read the application, watch the video, meet the team for 10 minutes, and decide yes or no on half a million dollars within the 10 minutes. He thinks Shark Tank has zero billion-dollar companies.
The first YC batch had Reddit with Steve Huffman and Alexis Ohanian, plus Sam Altman, whose company Sequoia funded. He believes another company sold to Amazon. The batch succeeded, so they kept going, and the internship-sized check of about $13,000 became half a million dollars.
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Garry Tan sent an understanding of an actual proposition to a number of reporters, and the reporters would not publish it. The reporters did not think the proposition was noteworthy. The refusal astonished Garry Tan. Garry Tan says it does not feel like the media environment is designed to support the idea that tech should exist at all. Garry Tan thinks a positive role for tech is so unpopular with certain sets of people in society that the most mainstream business publications are starting to refuse to publish an argument against an asset seizure.
Garry Tan calls going direct on the internet the counterbalance. Garry Tan did not want to break the proposition on X. The conversation goes on the internet with no gatekeeper. Older coverage had to go through media, a mediation of how reality works, and now the same argument goes direct.
Garry Tan will not get everything right and owns the misses. The guarantee to followers is a truthful try, because Garry Tan has to look in the mirror and ask whether the work is right. Meetings with founders, tech people, legislators, and policy people shape the bias. On the show, untrue or not research-informed statements make listeners decide Garry Tan does not know the subject and stop paying attention, and breaking the promise costs credibility. The other risk is audience capture, only communicating things favorable to tech. Garry Tan would never tell people to use one person as the only source of information.
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On The Peel, Dropbox becoming a billion-dollar startup around 2011 was called one lucky year. Airbnb becoming a billion-dollar company in 2010 and 2011 was the second hit, and YC then went from giving founders $12,000 and $15,000 to $100,000, $120,000, and $175,000.
Garry Tan was a software engineer at Palantir, employee number 10, and he designed the Palantir logo. Palantir had only 10 people and tried to hire YC alumni, which is how he found out about YC. YC started in 2006 and 2007. Back in 2007 and 2008 he already saw YC as where smart engineers went to start a company, and he wanted to be like Steve Huffman, Drew Houston, and James Lindenbaum, who created Heroku. Around 2011 Dropbox had become a billion-dollar startup, and a lot of people said one year lucky. In 2010 and 2011 Airbnb became a billion-dollar company, and the line was one you're lucky, two you're good. Suddenly everyone in the Valley realized YC was a place to pay attention to, and Turner Novak said Airbnb put YC on the map because YC had done it twice.
The second billion-dollar company is what made the larger checks follow. Garry Tan had already treated YC as the destination for strong engineers in 2007 and 2008.
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Garry Tan joined YC with no plan to invest. After he raised and quit his startup, he was really burnt out and needed to recuperate. He had no intention of ever becoming an investor, ever becoming a GP, or starting a VC fund.
It was still the era of consumer startups, when people said a co-founding team needed a designer. He was told he was a great designer and asked to help a bunch of YC companies design their homepages. He did so many office hours that his pet theory is maybe they saw how much work he was doing. They were already promoting other great people into investing partner, and they said they kind of needed to promote him too. He says he snuck right in. Asked whether he was actually good or just working hard, he calls it imposter syndrome at work, and says it worked out because he learned a lot. He loved that moment because he was the same age and still a practitioner.
He is now 12 years, 13, 14 years into the other side of that peer seat. He thinks the shift is probably the life of many an investor: you start out as a true peer to a lot of the people you back. Over the weekend he made a new website, did new interaction design, and says he was back.
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Initialized Fund One was a $7 million fund that returned more than 55x DPI. Most of that return came from Coinbase and Instacart.
The fund backed a hundred companies. The DPI on 98 of them added up to about 1x. Instacart was another 1x, and the fund could not take any pro rata because Sequoia did. On Coinbase, the fund took the pro rata in multiple rounds and ended up turning the fund 53x.
The power law is astonishing and unbelievable. Reading about a return like that and hearing about it still leaves it hard to believe until one company does nearly all the work.
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Garry Tan says Y Combinator is a managed marketplace for the smartest people starting the next companies, and he calls the setup a good thing. Y Combinator is about 20% of all companies worth $5 billion and up that started from 2012 and later. The share has stayed about 20% for 15 to 18 years because Y Combinator is a network effects business.
The marketplace view came from a concerted effort over the last two or three years. Garry Tan says most of his VC friends would agree. He wants a bigger share. Mark 2026 on the calendar: if he is successful in five or 10 years, he would like the share to be 30%, and he would like the share to be 50%. He asks why the share cannot be 30 or 40. The aim is a community of people you can trust who are there to support you, and the point is not the money.
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Garry Tan says 99% of people who apply to Y Combinator end up getting a mortal ego wound by being rejected. The rejections keep him up at night because the wound is not a good thing. Something like a third of the batch, and sometimes half of the batch, will have been rejected before getting in. The number has been going up. People quite commonly apply two to four times before they get in.
Y Combinator is always worried about over-rotating. Being too small can be bad, and being too big can be bad. Garry Tan says there are way more really capable founders being rejected right now. Y Combinator should not ask people to be rejected time after time. A founder who survives the mortal ego wound once, twice, or three times is made to be a founder. A person who cannot be rejected even once, and then hates Y Combinator, should try a different profession. Being a founder requires an absolutely insane amount of resilience, and one rejection comes with a thousand more in every possible way.
A really great founder says they got the decision wrong, then works to prove them right and to prove himself right. Proving them right is what Y Combinator loves. Garry Tan particularly loves funding founders when Y Combinator might have gotten the decision wrong.
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On The Peel, Y Combinator gets about 80,000 applications a year. Something like 78,500 of them are mortal wounds, the rejections handed out. Between 700 and 800 companies get funded in a year, about 1%.
Asked whether 80,000 is per year, the answer is yes. A guess of 200, 250, or 300 companies per batch is met with the yearly total, between 700 and 800. The partner does not like handing the nos out, and the follow-up is please apply again. An Adventure Time meme the partner tries to post says getting rejected from Y Combinator is the first step to being accepted to Y Combinator.
Handing out the rejections keeps the partner up at night. The meme is the other half of the same point: apply again, because a rejection from Y Combinator is treated as the first step toward a later yes.
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Two or three years of YC time as a partner is equivalent to 20 years in venture. The 15 partners are practitioners of product market fit. Tom Blomfield created Monzo, worth billions of dollars and one of the top fintech companies in the world. People on the team have sold companies for hundreds of millions of dollars.
The reps are why the organization learns. A partner reads a thousand to two thousand applications every single year and writes 50 seed checks in a given year, sometimes 75. Pulling out the billion dollar idea for founders is hit or miss and requires inspiration. Paul Graham and Vinod Khosla are the standard, and all of the YC partners are in the top two to five percent in the world at it. The reps also stop a founder from blowing up on 10,000 landmines: co-founder conflict, taking money from the wrong investor, and single channel concentration. The partners have seen everything, so they never freak out. Good investors are soft advisors. They can point to three people who have done it before and send the founder to the person where it happened. It takes a village.
Whoever is in the batch is the top 1% of what is going on. Put in a room, the founders create a community of default trust. One out of the 15 stays for the life of the company and beyond, there to fund the founders.
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Garry Tan says Y Combinator just extended the program to 13 weeks. The team talks to people about how things went and what can be done better. Moving from two batches to four made each batch a little shorter, down to maybe 11 or 12 weeks. People needed a little more time, so Y Combinator added about two more weeks and set the program at 13.
The first nine to ten weeks are for finding product-market fit. The work is to get into the market, nail the messaging, figure out who the product is for, build it, and land a set of real customers. Sometimes the buyer is an enterprise. The first three to five customers matter a lot, and early sales set the tone for the whole company.
Developer tools behave like a consumer startup, with a total addressable market of about 20 million people. Garry Tan says CodeGen might push the figure to 200. AI infrastructure is growing really fast and keeps changing. Y Combinator is totally insane for infrastructure and cloud startups: look left and right at about 800 companies funded the prior year. All of them will reply to an email and at least give a fair shot. A reply is not a guarantee they will sign on.
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The weekly growth chart on bathroom Post-it notes is why Airbnb raised from Sequoia before demo day. Garry Tan says they needed revenue on the site to grow 10% every single week, and they nailed it.
He says the number one thing is that objects in motion stay in motion, and objects at rest stay at rest. Y Combinator is the moment founders learn to run fast. Billion dollar companies look back when a thousand person company is going slow and try to tap the energy of the first week and the first eight weeks. Airbnb got rejected by all the legends too. Brian Chesky used to obscure who the people were. Mike Maples later posted that he was the one who said no. He is one of the biggest legends in venture, and the story is lore now.
Saying no to a founder who ends up creating the next Airbnb gives Garry Tan heartburn. He is sure the miss will happen, and he turns the shame into energy so Y Combinator fixes the miss and funds the next founder. Brian Chesky taught him to exercise founder mode. Then Y Combinator will fund 30 to 50% of all the companies that matter. They have to take their own advice and do the startup way 10 times out of 10: quick and dirty, then feedback, then a fix the next time, rather than spending a whole bunch of money to hire a bunch of people. At 20 years, post-product market fit, the default is manager mode. He pulls Y Combinator back to founder mode.
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Bookface is internal software at Y Combinator. On The Peel, Turner Novak had heard about Bookface and asked whether Garry Tan made it. Garry Tan said yes. Y Combinator started becoming a thing, people started pretending to be Y Combinator companies, and there was no way to verify them.
Garry Tan says Y Combinator had a Google group or something. Vibe coding was not a thing back then, so Garry Tan real-coded Bookface in Rails. At the start, Bookface was actually just a Facebook. The name is a little bit of an inside joke from a skit on The Office. Garry Tan says the joke is of a certain generation, and Garry Tan likes it. The 22-year-olds do not watch any of the stuff that generation came up with.
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- How Successful Was Y Combinator Aiming to Become
- How Did Y Combinator Fund So Many Startups?
- Why Did Y Combinator Rejected Pat
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