Paul Graham and Jessica Livingston on earnest hackers, YC's evolution, AI valuations, and why startups should build rather than rage bait

where we are culturally. So I'm very excited to bring in Jessica and Paul uh the founders of Y Combinator. They are living situated living legend. Oh

you you're live now. Welcome to the show. Thank you so much for taking the time to talk to us,

guys.

Hi. Good to see you again.

Thank you.

This is so fun with you guys here at Demo Day.

It is. It is. It's always great. This is our fourth demo day live stream talking to tons of founders. Uh it's always fun picking out.

I can't wait for the 400th.

I got a ways to go, but I'm excited.

100 more years. We'll make it.

Uh great to have you guys on. How what's what's uh what's it been like today?

It's been crowded. It's buzzing. And by the way, this is our first demo day that we've been to in a few years cuz we're in England and can't manage to come back for it. It is just buzzing. Um the energy here is just kind of like what I remember in the early days of YC and the investors are all excited to be here. It's magical. I'm on a high.

Incredible.

There's a lot of stuff happening.

Yeah. uh how are you thinking about uh there was this moment a few years ago where I think in tech maybe we were afraid to admit it but it felt like a lot of founders and a lot of entrepreneurs were were sort of grappling with this idea that uh that open AI might just build every startup and there might be no more ideas and people were a little bit nervous about that of course they went and build companies but it feels like now things have calmed down a little bit and the founders that we talked to are building with more confidence. Have you noticed anything in the founders that you talked to in an eb and flow of just the confidence with which they view the future right now?

No. No, they weren't founders really weren't really worried that OpenAI was going to eat them.

I mean, maybe they were in denial for whatever reason, they weren't worried about it. They're too busy working on their companies. They're making their thing. They're trying to get users Open AI eating them in some theoretical future three years from now. Like, they're not thinking about anything three years from now. So thinking about that

we had another we we were talking to Har about this this idea that uh potentially I don't know we're just in a new era where um where it has become easier for a small team of scrappy entrepreneurs to sell to Fortune 500 companies to sell to the government even do you feel like something has materially changed in go to market for YC companies

well if you're an AI company. All these big organizations now have some bureaucrat who's been told you're supposed to AI our organization, right? And he's thinking, damn, I have no idea what to do. And so some startup shows up and says we'll AI organization. Like great, come in here, [laughter] right? Very different from the way it used to be. I mean, if you show up with other other products for the big company, they'll still tell you to talk to the hand, but um nobody's coming to them with AI things except startups. So, they have no choice but to talk to startups.

What about uh this this tweet that you put out just recently? Uh we were we were sort of debating it earlier, this idea of of the the the circular economy, selling to other startups. Uh there are a ton of benefits. Obviously, uh, startups are very discerning. If you mess up and don't deliver the product that they're buying from you, you might hear about it publicly, they'll churn. They'll talk to you. They'll talk to their friends. Um, but are there any risks from that that you caution entrepreneurs on if they are going to be selling to a lot of startups? Do they have to message anything differently? Is there anything that they need to be doing?

Well, you have to not suck because startups are discerning. You can't like have some [ __ ] product and sell it based on a bunch of hype. Yeah,

it's got to actually work because they don't have time to mess around with things that don't work and they're very sharp observers of technology. They're run by the founders themselves usually at that point. So, you got to actually be good.

Uh, I'd love to reflect on how marketing and launching startups has changed over the last few decades. Uh, Jordy, we we we had Clad Labs on, uh, which we we had a really fun time talking to them, but they they sort of went viral for the wrong reasons. They uh they they were in their view is the right reason. In their in their Yeah. In their view is the right reasons. They were offending people by putting uh gambling in your IDE. So the software engineer can be gambling while they're coding, I guess.

Yeah. And it felt like it felt like this year ra like the concept of using rage bait both at the marketing level and the product level like kind of exploded. I guess the question is like has has intentionally pissing people off been something that YC founders have have utilized across the eras to get to get attention? Is it is it really is it really?

That's that sort of technique sounds like the technique that would be popular with someone you'd describe as a bit of a scammer.

And the thing about these scammers is they don't make the giant companies. They don't have a long-term focus. They're not earnestly doing engineering. They're thinking about what's some gimmick I can use to get ahead, right? And so long term, they don't matter.

You can skip the companies that do random [ __ ] like that because, you know, they're never going to be that big.

And of course, I haven't heard of the ex the term rage baiting um either. Of course,

it's the Oxford it's the Oxford word of the year. So, you can go look at their uh definition.

It's it it's so interesting. It's getting attention by making people know what it means, but

yeah. And we and and I had written an article and and Gary and I had a nice back and forth uh where uh I basically said like in startups if you in startups you need to build a coalition of people that want you to win. This is like talent, the media, uh investors, customers.

You don't even have to do that actually. All you have to do is make something really good and find the people who want it. You don't even need a coalition. You think like when Facebook was taking off at Harvard, there was some coalition of investors in the media that [laughter] wanted it to take off. All that mattered was that Zuck had this thing and everybody at Harvard wanted to use it. That's all that matters. That small intense fire, right? Or when Apple was getting started and the users were like the people at the homebrew computer club, right? The media didn't know about that.

There was no coalition do a little phenomenon.

Zach kind of did a little rage bait. did rage bait with the hot or not app that definitely enraged a lot of people who didn't want to

Yeah. But he didn't do it deliberately.

No. Exactly. Exactly. And I was thinking about the Airbnb example like the whole Obama O's and McCain Captain McCain's uh crunch like the cereals uh that they made that was sort of a side quest for them. But

that was simply to get attention from the press.

Interesting. And make No, actually it was to make money. It

was to make money.

That was [clears throat] before YC. They didn't have any money. remember they were dying. They needed to make money. They went and got these like off-brand Cheerios and they glued together the boxes themselves to make money.

I don't think they knew they were going to make money.

We're going to have to consult.

I'm pretty sure that was mainly to make money.

Uh what's it like being back in San Francisco? [snorts]

Sunny.

It's fabulous. The energy is so great here. Um, I'm just so h I'm so happy to be back and so happy to be around startups right now. I'm having a great day if you can't tell.

It gets better every time we come back. Like Daniel Luri is really cleaning up the city.

Every time we show up, it's like a little better.

That's great.

I was asking like how far back have we gone? Have we gone all the way back to when Edley died? Not yet. We're like,

but we've turned the clock back to maybe two years into London Breed.

Oh, that's good. Okay. Yeah, that's great. Um I have one uh I yeah I have one more I want to I want to um think through this concept that's been sort of lightly banded about in the startup discussion you know ecosystem this idea of the deals guy era that you can actually build a business now by being more of the business person the more of the deals guy and less of the of what I remember about the the Y combinator promise which was uh just the earnest hacker, the earnest hacker, the earnest hacker. And it feels like there's a lot of people that are saying, "Yeah, but there's actually a way to go and get this person just marshall the capital and, you know, do something that's just been forgotten, not necessarily discover something new." And I was wondering if you have any any reactions to this this idea that that increasingly there are entrepreneurs that sort of get really big. Who knows if they win, but they but they seem to win on the back of just raw dealmaking talent as opposed to raw engineering leadership.

Maybe in enterprise more,

you know, um the like enterprise you like

sell crap to CTO instead of selling good stuff to programmers.

Um

so salesmanship has always mattered more in enterprise.

Yeah. I have one observation from this morning's session of demo day

there. Everyone most everyone that presented this morning is an earnest hacker. I said to the person next to me, they're all nerds this time like [laughter] 100%. And I love it.

Yeah. You know, if anything, YC drifted too far away from funding earnest hackers.

Interesting.

And so YC for the last few years has been focusing more on like getting back to the essentials, back to the roots. And so if anything, I would say YC batches are more like a higher percentage earnest hackers now.

Yeah.

You know, honestly, I would still bet on earnest hackers.

Yeah. Yeah. I I I agree with you. Do you think that that's uh that that is what the essential skill set of YC leadership needs to be? Because uh I don't want to discredit all the hard work you did in the early days, but you didn't have to fight the fact that there were people out there writing blog posts of how to reverse engineer and make it look like you're an earnest hacker when in fact you are the, you know, the the carpet bagger. And now it's there there's a whole industrial complex for how to fake your way and make it appear that you're an earnest hacker when in fact you're not. If the YC partners are themselves hackers, you can sniff out a faker like that, it's not even a problem.

Yeah. Yeah. Yeah. But that seems like the main the main way that uh YC creates value these days. We'll just be continuing to to hold that line essentially.

What do you think is your most

Yeah. I think I think you know here's something that will reassure you if you think okay is the earnest hacker thing was that did that just work for a while and now maybe it's over? Isaac Newton was an earnest hacker, right? [laughter] It's way older than startups.

Yeah,

this is this is what wins.

Uh what do you think is your most underappreciated essay

because a lot of them are sufficiently appreciated. [laughter]

The thing is I don't know how much people appreciate them. I don't know how much people appreciate different ones. So it's hard to say.

Um how to do great work is pretty good,

but I think people like that one.

Yeah.

Right. I read Life is Short at least once a year, but people like that one, too.

Yeah.

I don't know. I don't know. That's a weird question.

You'd have to You probably have to look at inverse page views. Which gets the least page views historically over the past year. Let's say

if I was looking at a list of page views, I could tell you.

Okay. Well, maybe breaking news. Um, yeah, that's uh that's very funny. Um, do you have anything else to bring? What? What else? Uh Paul, are we in a bubble?

No. No. Everybody is always saying we're in a bubble, you know. Um like every year people say we're in a bubble. Every year people say like the valuations at Demo Die, they're too high now, right? I mean they [laughter] were saying this back in like 2010 when the valuations were like $4 million.

Um and now they're like what 30 or something typically. So, um, people are always saying stuff like that and I don't No, I don't think so. I think I'll tell you. I think like AI is very highly priced,

but it might not be overpriced. That's the interesting thing. Is it is it as big a deal as prices seem to suggest? It could be, maybe even bigger. It's definitely real. It's not hype. The AI is real. Mhm.

Are foundation models good at writing lisp?

You know, I've never I think they would be good at writing lisp. Yes. Yes. Because they're good at writing things that have a lot of um a lot of a lot of training data out there, right? And there's a lot of lisp source code. So, I think they'd be fine at writing lisp.

How are you using AI in your life?

I just use it like ordinary people do. I ask I ask you questions.

Sure. Sure. Very boring answer. [laughter]

It's a good answer. It's not like, oh, I string I I'm training my own model to do a better Google search.

What? Uh,

no, no, no. I haven't actually written anything using AI.

Yeah.

You know, I feel bad. I really should write an LLM because you can't really understand this stuff unless you've written one. I should write an LLM, but I haven't done it.

Yeah. Didn't Carpathy publish a whole uh stat first principles type of thing and it seemed really fun to teach himself, you know. That's why he did it.

Well, he has a new company that's education technology company and I believe that the the main course will be teaching yourself to build an LLM, teaching yourself to build a chatbot effectively, which would be very

that's what I tell high school kids. I get all these emails from high school kids say I'm working on a startup,

you know, to introduce like founders to VCs or some crap like that. And I say don't start a startup. Get good at technology. Write an LLM. Yeah.

Then you can start a startup. Do you do you think uh reflecting on the history of YC, do you think it's it's fair to uh try and create a concept of eras around um like what the key insight was? I I remember a lot of people saying like one of the first key insights was just this idea that you you could take someone fresh out of college and actually give them money and they could go and build a business. They didn't need $10 million. they didn't need 10 years of experience in the enterprise. Um and then

or an MBA

or an MBA and then maybe the second era was thinking that maybe the same rules applied internationally and that was like a second wave of of entrepreneurial energy that was unlocked by the YC. We had international I mean

we always had international

we understand countries aren't all that [laughter]

but but do do you think there are any other like underappreciated aspects of like the YC strategy or or is it really just as simple as uh you know

well there were things we didn't appreciate in the beginning.

Yes.

So for example we didn't understand that as a byproduct of funding all these companies we would create this alumni network. We had no idea but the alumni network is enormously important. It's out there now. All these alumni are investors.

Yes. It's staggering how many are investors now, actually.

Yeah.

It's amazing.

It's like taking over Silicon Valley. And we never had any idea that was going to happen.

Okay. On the alumni network, uh do is it fair to uh to characterize YC as a bit of a union against venture capitalists? Yeah, it's a lot like a union

because you mess because Yeah, because if you attack one individual, one one founder, if you fire the founder after investing, you you get you get board control from them and you oust them, uh that might make it sway into the rest of the YC community and it overall raises the level of founder friendliness. Is that correct? You know what though? It's not simply one-sided because if founders screw over investors, if they like do a handshake deal and then and then refuse to go through with it, we would tell them not to do that, too.

We want everybody to like play by the rules.

Yeah. And behave well

because the big wins don't come from breaking the rules. The big wins don't come from little cheats that get you 2x multiples in a world of like thousandx returns, right? It's for the same reason like people in Silicon Valley don't focus a lot on tax evasion

because what's tax evasion going to get you like 2x returns in a world where getting the right startups will get you a thousandx returns. Yeah. you know,

uh do you think that uh the process of founding a company, raising money is is at its uh the end of history in terms of uh efficiency like the safe is the most efficient document we will ever have or do we need to speed things up even further?

Well, C Levy, Carolyn Levy invented the [clears throat] safe and she also invented the convertible note that everybody used before it. Yeah.

So, she has twice rewritten the rules. She has twice recreated the chess board that the game is played on. Um, if she thought there was a better thing than the safe, she probably would have created

Maybe she has a third one in her.

We should ask very popular.

Oh, yeah. Okay. Yeah. And you could ask her that, John, when you come on our podcast.

We'd love to. I'd love to. I I [laughter] I can't.

Is there anything wrong with the safe? And if And like if there is, why hasn't she fixed it already? Yeah.

You know?

Yeah. So probably not because C Lev is not Slack. If there was anything missing, she would have she would have like made a new version.

Yeah. I mean, from my perspective, it seems like it's worked.

What What problem in the world did you think a YC startup would have uh uh fixed by now? Think like uh housing affordability or any of these sort of major,

you know, we don't have any grand strategic vision for what the startups do because the founders know that, not us, right? That would be like asking a publisher what what novel do you think you know would you have expected someone to write good publishers they just like they let the they let the novelists write the novels. So we would just we just try and find good people. What do they do? Whatever these good people are interested in. Anything any preconceptions we had about what they should do would just be adding noise to that.

How do you think about coaching folks through pivots? It feels like we're in an era where uh there's a lot of companies that are still finding product market fit. Pivots are probably just as common as they always have been, but everyone has an order of magnitude more money,

if anything more common.

Yeah.

Yeah. I think that it's more common. You're talk you talk about new ideas with startups all the time in your office hours.

This is one of my specialties. Yeah. Um when people are just dead in the water and they need to get a new idea, they often get sent to talk to me and we cook up something. Um,

has the advice changed if someone comes in and says, "Hey, I have uh $200,000 raised and I have me and my co-founder are living in a apartment together and we need to pivot versus I come in and I say, "Hey, look, I got 5 million bucks and I got 20 employees already or something like that."

20 employees.

I don't know. It's happening, right? It's you you do see this, right?

Well, no. Usually have 20 employees. Um, usually usually I mean that would be that would be alarming. That would be very alarming because there's so many companies

those 20 employees constrain the idea you're going to have. If you just have the founders, you could do anything. If you already have 20 people, you either have to fire them or do something that those 20 people can do, right?

Yeah. Yeah.

Um, which really [clears throat] constrains your options.

Yeah.

So, it's the problem with the 20 employees is not the cost. It's that they change what they limit what you can think of, you know,

which is why you shouldn't hire. Just don't hire. Just don't hire.

What kind of guidance do you give to founders around that are feeling a pressure to go from zero to 100 million in ARR in like three years or whatever like the new gold standard is?

What I tell startups over and over and over is all that matters is growth rate, not the absolute numbers. because mathematically you'll see if you try simulating it if if your growth rate is high enough doesn't matter what the absolute numbers are you'll get [laughter] there.

Yeah.

You know and so you just get a really good growth rate. And so the great thing about focusing on growth rate means you can like focus on startups. You can sell stuff to startups for cheap instead of having to go and do these big deals with big companies that take a long time and make your product stupider, right? you can sell things to these quick quick deciding early adopters and then you just get more and more of them and your your company grows by several percent a week eventually it's going to be huge.

Are you still recommending to folks who ask for advice for kids uh that they should learn to code?

Yeah. Oh yeah. Yeah. Yeah. I still tell people that or at least learn technology. It doesn't have to be coding specifically. You could learn how to make rockets

um or drones or work with lasers or gene editing or something like that, but you should do the stuff and not just like play house pretending to start fake startups in some business plan competition, you know?

I tell everyone who says they might want to start a startup someday to learn to code because it's the most important thing you could do that and save your money. Mhm. Yeah. No, that that's really good advice.

And no one likes to hear that, by the way, but I tell them anyway.

Yeah. No, no,

you give a lot of advice. People come and they like want advice. It's like if you went to the doctor and you said, "Doctor, what can I do to be healthier?" And the doctor says, "Eat less, and exercise more." And you're like, "Oh, I was hoping you'd say something else, right?" Well, that's what it's like when they come to me.

They come to me for advice. And I say the startup equivalent of, "Eat less, exercise more." And they're like, "Oh, isn't there some trick I could use to be get virality? Could I couldn't I get firality instead?

Just like do the startup equivalent of eat less and get more exercise, which is build stuff and talk to users, understand your users, and be good at building. That's the recipe. It was in 2005, and it's just as much the recipe now.

Yeah.

How many startups do you think

How many startups do you think YC will have uh per batch uh a decade from now? M

because I think in a perfect world we have a lot more earnest hackers

and uh they can apply to YC and and if they meet them I know I know you're not setting targets and there's not like a specific you know acceptance rate that you're trying to track but uh we we feel like YC is one of the most important institutions in the world and ideally it can be bigger but but maybe there's some

no no they will be bigger they they will inevitably bigger because there's this secular trend of more people starting startups.

Yeah. Do you think we're early? Do do you think we're we're early in this in this trend? I mean, it feels like there's so much so much it's now you can create a startup, you can create a CC Corp in a few minutes, right? It's like there's all this sort of like underlying uh infrastructure that's been built that is reducing friction to starting companies. is you can ask chatbt, "How do I start a business?" And it'll give you a good playbook. And that maybe helps somebody that uh hasn't found the YC blog yet uh figure out how to get going.

We're the training data, even if they don't know it.

Yeah.

So, will more people startups? Yes. If you talk to like ambitious 15y olds, they all want to go startups. Nobody wants to go work for some company and work their way up the corporate ladder anymore. whole idea sounds so like sounds so like 1980s. Um, and there's a lot of earnest hackers. The limit and the limit you think like what's the limit. So the limit is what people want, right? That's what startups do. They make something people want. What are what are people's people's wants? They're limitless. [laughter] Not literally limitless because eventually you run out of atoms in the universe. But for all practical purposes, in the near term, people's people's wants are infinite. And so there's infinite demand for good stuff you could make.

Yeah. Well, that's a great place to end it. We have to catch a flight. Thank you so much for taking the time to talk.

Yeah. Thank you for everything uh you guys have done for the industry and the and the world uh through YC. It's an honor. It's an honor to

cover every batch and uh it's been great having you guys on.

Yeah. Nice to meet you.

Thanks for having us. I love you guys.

Yes, we love you too. Thank you so much.

Have fun in SF.

Have a great rest of your trip. We'll talk to you soon.

Goodbye.

We have to hop on flight. But you hear that, John?

I hear it. Yes, I hear the goat noise, the sound cue. That one's a little bit subtle. I think that there's a lot of people that might not pick up on why they're hearing this random goat noise that low in the back. But if you know, you know. And also, if you want exceptional sleep without exception, you go to eight.com. You fall asleep faster. You sleep deeper. You wake up energized. And we should close out. There's a lot of stuff going on, dealbook summits going on. There are debates raging on the timeline, but we will have to cover them tomorrow. Uh we will close out with a congratulations to Eden, uh the co-host of the Prof Markets podcast. Uh, I love his bio because he says he's not Prof's son, even though they look somewhat similar. Post yesterday because he got into Forbes 30 under 30 and he said, "I'll see you guys in prison."

He said, "Woke up to learn I made Forbes 30 under 30. Congrats to the other winner winners.

Can we play this before we can we before we jump? Can we uh can we play this?" Oh, Gary Tan's in the chat.

Ali's in the chat.

Gary, we hope you feel better.

Hannah's in the chat. Gary feel better the show. Thank you so much for making this happen. Uh we're very sorry we couldn't be there in person, but we had a blast. We went on a whirlwind tour. We talked to tons of uh YC founders and uh Y the state of YC is healthier than ever, stronger than ever.

He's got a Gary's got elementary school or preschool.

It's [laughter] so rough. I've been there, man. I've been there. It's virus. Yeah. Well, uh we hope you get well soon. uh team, we need to definitely send some soup or some flowers to Gary Tan as soon as possible and uh and we will see you all tomorrow. Thank you.

Thank you for tuning in. Thank you to Y Combinator for hosting us and all the founders. It was a it was a it was a whirlwind tour and I'm very excited about a lot of these companies.

Yes, we will talk to you later. Chair.