YC's Harj Taggar says hard tech is booming, SaaS investors have pivoted, and agentic coding is pushing founders toward math and physics over CS degrees

Speaker 1: But we we should ask Harsh Taggar from YC. He's ready to chat with us. We can ask him about what you should major in if you wanna build the next great company. What do you think, Harsh? Did you study computer science? Did you what

Speaker 9: was question? Actually as an undergrad. I I started in law school, then I dropped out. Then I took myself to program.

Speaker 1: A lawyer becoming successful. Anything is possible. Yeah.

Speaker 9: It's true. That is a bad start, but it ended up remarkable.

Speaker 1: Yeah. No. No. Obviously, it's a fantastic background. It speaks to the the the diversity of of backgrounds that lead people to success in Silicon Valley. What what what do you make of this decline in CS degrees? What are you seeing in the y c founders that join the latest batches? Is there is there are you experiencing more diversity of backgrounds? It feels like y c has always been pulling from all over the place. The best case in point is Airbnb. It's a bunch of design students, and and that was not a feeder school for it was not a unicorn factory, RISD, and yet we got Airbnb out of it. So what's going on at YC in terms of educational background these days?

Speaker 9: It's good. You know, it's actually this weekend was with a group of college students that that we were meeting and, you know, hopefully hopefully, they'll do YC one day. And this was definitely something they said is that they are seeing their smart friends enrolling in computer science less. People want to do more physics and math and first principle stuff. Yeah. So that definitely I think that's a leading indicator. So I would definitely expect over the next few years, we might see more of the smart founders come in with like a math or some sort of like thinking STEMI background that's not pure CS and then, like, I don't know, use the coding models to actually write the code.

Speaker 1: Yeah. Yeah. It doesn't there's one read on this where it's like, oh, no one's going into tech. And I think it's like, no. People are gonna be, like, even sharper about using these tools and even more, you know, ground truth in what matters, in what's not changing, in the math and physics stuff. Anyway, other trends that you're seeing.

Speaker 2: Yeah. Yeah. I wanted to get into like the psyche of this batch. If you zoom out, so many companies are are having like this sort of like often, you know, if they're a later stage company, midlife crisis, if they're a younger startup that's kind of in the path of the lab, they're wondering. It feels like even the last, you know, few weeks, like the narrative is kind of flipped and we're seeing like a lot of the application layer companies say like, hey, we have an opportunity to sort of orchestrate a variety of models and maybe get efficiency for companies that we're we're token maxing. So what is the psyche of the current batch? Where are they finding opportunity? I'm sure you had a few office hours where founders were saying like, is it over? Should I just pack it up and join a lab? But and and of course, the YC way would be to say, like, no. There's always gonna be opportunity for, you know, smart, focused people. But take us through it.

Speaker 9: Yeah. I mean, it definitely ebbs and flows. I would say when Claude Code first launched earlier this year, I feel like it really did flow towards the, oh, wow, like the labs are going to take way more of the value and like, are they just going to own everything? And I think that was a little bit in the psyche. I feel like now it's flowed back towards you don't you want to try and have a little bit of thought around, are you going be in the path of labs or not? But mostly, just think the founders here are doing their thing and they're not currently like worried about that as much so much more. And I think like largely they're trying to figure out what are kind of maybe the boring but valuable things that the labs are just not going to focus in on. And I think there you see a lot of it's funny. It's like we used to talk about like making stuff that people want. Now I feel like it's a lot of making things agents want. And so especially at like the infrastructure level, it's like how you set up sandboxes for agents that go into the nitty gritty detail of giving them all the tooling that they need to use to actually perform tasks and actually to do things. And it's the kind of stuff that the labs themselves are just unlikely to go into into depth on.

Speaker 1: Yeah. It's funny that somewhat of it's like somewhat a new framing. Think about what the big companies aren't aren't gonna do is too off the beaten path for them. But if you go back, I'm like, well, the hotel industry wasn't thinking about Airbnb and the the the big banks weren't thinking about Bitcoin and you get Coinbase. And so there's something there that's like always been true and is just sort of resurfacing and is actually maybe a ground truth that you need to pull back to constantly. But it but but it is it is potentially more relevant than ever. Has the has the Gavin Baker meme of being in the token path taken hold this batch, this idea that you wanna be deeper in the bottleneck that if you're if you're not in the in the downstream path of the labs, the safest place might be upstream, deeper in the supply chain. We talked to a founder who's working on cooling for data centers. That's clearly something that's very aligned with the broad trend. But what's happening there in terms of token path thought?

Speaker 9: I don't I don't know. At least I don't think that has trickled down to, like, the founders starting these companies and figuring out what ideas to work on. I do think some of that framework fits. Like you're certainly seeing things further into like the physical world, like actually building physical things. But I think that's actually more to do with being inspired by Elon and Palmer Lucky at Anderil on the founder side that people want to work on like physical, like work in atoms. So we've got a team in this batch building like a nuclear reactor like That I think is just inspired by, hey, like we want to build real things. And then I think on the other side of the marketplace, investors typically really didn't want to invest in hardware companies. So we used to see this. I always used to brace the hardware or the hard tech companies, hey, you're going to have to like be ready for it because no one's going to want to invest in you. You're going to have to grind it out. It might be years before you raise the money that you need. And now I think, again, since Claude Code, there's been this real shift of, like SaaS is dead, maybe software is not going be as valuable. Suddenly investors all want to invest in the hard tech stuff, which is, you know, I'm happy about it, but it does also just show like how fickle that side of the marketplace can be as well.

Speaker 2: Have you seen any change to average burn rates with or anyone in the batch token maxing so hard that you have to say like, hey, you should probably, you know, I I expect you to raise, you know, after demo day, but, you know, maybe maybe don't

Speaker 1: spend Sure.

Speaker 13: No. Not

Speaker 9: yet. You know, I'm a bit reluctant to say this. I don't want it to change, but I I don't think I have that much control. Like, I actually think on the ground, the founders feel like the the subscription plans from the big lab companies are actually very generous. And so they're able to actually get as much token usage as they want largely out of those plans sort of being what I've seen. We do internally talk about this. Like we do wonder if there's some training we need to do to like push the founders to spend more on tokens and that maybe they're thinking about tokens as something you should conserve spend on. Whereas like I think I and a bunch of the other YC partners really think about it, it's a lot more like rent. Like you don't say I'm not moving to San Francisco to build my tech startup because the rent's expensive. Like, yes, it's expensive, but it's the place to be. Like you don't conserve on that. You like want to be you actually want to spend money on that. There's other things you save money on. And so it I do feel like because so many of the founders, especially if they're younger, they just don't have the budgets to use the latest models and be like cost insensitive and token max. So they're just used to conserving and trying to do more with less. And I I think that that may well change. But at least currently, I I am I don't feel like the burn rate is going up because people trying to get to product market fit are spending way more on tokens.

Speaker 2: Yeah. It's interesting. It's like, you know, maybe you don't you can delay hiring the incremental engineer which actually is can be very good because it's way easier to pivot if you have just the founders. Right? Versus like, you know, once you start adding. What about trends on the business model side? You know, last year, I feel like the, you know, classic VC blog post would be like sell the work, not, you know, the product. We've seen some companies get to the point, let's there's like, you know, a legal startup that that's like actually just doing the doing the contracts. They basically, they sell executed contracts effectively. But it hasn't maybe been as popular as I think a lot of people had imagined, at least so far. But what are you seeing?

Speaker 9: I don't think the business models are fully switched over to like sort of paperwork yet. It's certainly paper usage, but I don't think it's paper work yet. And I think that's just because the agents as yet haven't quite been good enough to actually consistently deliver like the final contract in a way that makes the startups feel good about charging that way. I do think we're right on the cusp of that changing though. Like this batch really does feel like one where it's not just sort of agents to review things or human in the loop or getting stuff teed up. It's really starting to be more end to end and you're getting to the point where the agents are just doing all of the work. And at that point, yeah, you may well switch over. But I I feel like maybe that's gonna be a a batch or two away.

Speaker 1: Is the are we gonna see a revenge of the of the network effect? It feels like in a world where, you know, software is mutable and and maybe, like, the million lines of code that you and your team built are not as defensible as you thought, the original SaaS pocalypse thesis, network effects businesses should do really well. I don't know if more founders are talking about that. But what what's your interpretation? Because it is sort of the hardest moat to construct, happens sort of randomly sometimes. But if you can get it done, it feels like you'll be very you'll be in a very strong position.

Speaker 9: I'm you know, you mentioned like the late stage companies having like maybe midlife crisis. That's where I I I hear network effects talked about more, honestly. It's like some of those company, if you're whatnot or Cauchy at the moment, like, yeah, or Coinbase, like you're feeling pretty good about the fact that you are a marketplace business with real knock on network effects and you're not worried about sort of someone vibe coding a So competitor to I think that's where I hear it. I will say like, yeah, again, on the ground floor here on the batches, I don't we haven't seen as many founders like build pure marketplace businesses as you would expect based on that thesis. And I think it's just because obviously people are really excited to work with AI and build AI tools. They're not really thinking about it as, hey, like, what's like a what's got like a network effect mode and how can I build that business?

Speaker 1: Yeah. What about gaming? We talked to Diana a little bit about this, but it feels like we you were seeing incredible demos of vibe coded games. When I see them, I'm like, I would love for a team of YC founders to work on that for three months to get it actually to a place where it's a real game instead of just a demo. And but the underwriting for the game industry has always been different than the traditional SaaS venture capital flow. Is there a world where YC is more open to just pure games companies? We're just gonna make a hit game. We're gonna scale it into a triple a game studio. We're gonna develop IP. That's a very different motion, but are you open to that? Is there is there momentum there, or is that something that you think is farther off?

Speaker 9: Yeah. I mean, we would totally be open to it. Diana's definitely got the the gaming background, the gaming expertise there. But, yeah, I think we would be totally open to it and just like, the reason you typically, as a startup investor, they wanna invest in games is that it's so hits driven. Even if you get one hit, how do you know you get another one? What's replicable? But, yeah, like, you know, these days, like, if you can if you can build some recipe for actually consistent producing games and and I feel like Zynga, we've got closest to that. Though arguably, was more about, like, they sort of productize the the distribution mechanism and the viral mechanics more than, like, the the gameplay. But I I know that seems plausible in AI. It seems like you can if you can actually build an AI or an agent that can consistently produce high quality games and also you just be able to run so many of those experiments in parallel or so many more experiments in parallel than you could before. I think that'd really interesting. Again, with us, it's the same thing. We need to see founders who seem like they've got some insight at that level. Like they're thinking about it beyond just, hey, I really love playing third person shooters and I wanna build like a really cool third person shooter game. We'd probably have to hear that in the interview. Like, hey, like, I'm thinking of how this would like generalize and build out and here's like where the the technology could be interesting.

Speaker 1: I'm wondering if I mean, I'm wondering if there's a lesson from I mean, Hollywood is probably behind YC in terms of the forward lookingness, but there's this interesting case study with backrooms and obsession, these YouTubers who went and made, like, classic Hollywood films, low budgets, but real budgets. And they put up huge numbers in their in their in their massive successes in in Hollywood now driving a lot of attention. And and it's interesting to think about, like, what is the next category that gets unlocked that's more of like indie dev world but now has the ability to scale through like the YC venture capital model.

Speaker 9: Yeah. I think yeah. I think that's gonna be really interesting. I think that's where you might end up seeing it. I don't know if we'll see like the one person well, you might see the one person unicorns, but you certainly feels like you're gonna start seeing the one person like $100,000,000 revenue companies in like a bunch of articles because you've just got like agents doing the core business functions.

Speaker 2: Yeah. Have you ever had office hours where where a founder comes in and they're like, alright, like I think I'm I think I'm that company. I think I'm the one person $100,000,000 company. Because like everyone's been talking about this forever but like there's such a much stronger incentive to just like hire the incremental person if it can make you Like I just don't know that it will ever I guess, like, may it it

Speaker 1: You just want a buddy.

Speaker 2: But, yeah. There's such a strong incentive like Yeah. Do I want do

Speaker 1: I want to But I gotta have a friend around.

Speaker 2: Yeah. Like, do you do you wanna be the like company that gets an award that doesn't matter or do you wanna Yeah.

Speaker 10: Good point.

Speaker 7: Or not even

Speaker 2: a real award. It's just like it's it's something that you can say on the Internet and then people will debate it and be like, well, hired this freelancer or like Yeah. Yeah. You know, you have a lawyer. Does that really count? So like, I feel like it will never actually happen because it will already always be debated and

Speaker 1: Sure. Sure.

Speaker 9: I personally have not worked with a founder who's like come in with the dead set like, I never wanna hire anyone. I kinda wanna only work for myself. I mean, my guess is someone like that is not gonna gravitate towards like a a community product, which is essentially what YC is. And so it could happen, who knows? The thing that I'm seeing over 100%, you can get to you like Series A, you can get to a million or $2,000,000 of revenue without hiring anyone and being way leaner than you've ever seen before. But after you've raised the a or the b, it does seem like hiring is essentially the same as it's always been. Like Mhmm. Who knows whether that's because like there's just more work to do or whether it's just like it's like once then you have like your investors and they're like running the same playbook. But I definitely am not seeing any evidence yet of like those companies really slowing down on hiring.

Speaker 1: Mhmm. Can you give us the lore on the Paul Bootkite $100,000,000,000 question? That's a funny that's

Speaker 9: yeah. For sure. I mean, what's the law like? You know, we did this thing at YC called group office hours where it's just sort a couple of partners and a group of the startups and you kinda it's sort like a I don't it's sort of like a group discussion. Hey, like what's going on? What are your problems? And sometimes we'll prompt with, hey, like, let's think about this. Again, everyone could like chime in. And Paul always had this great prompt, which was don't just think about how you're going to be like a billion dollar company where get you to like a $100,000,000,000 in revenue. Think about like, what's the next act from that? Like how do you get to a $100,000,000,000? Like Google started off with search and then became so much more meta is the same. And so it's sort of like a mind expanding exercise and it's useful to do at this stage because you get a sense for how much ambition and vision do the founders actually have. And sometimes it helps them get more excited about their own company when they realize, oh, wow, like this is like, you know, I was thinking about it as like, how do we like build this one product that gets us to like, you know, a 100,000,000 revenue, but I actually didn't even realize there's six other things we could do. I just have to like get there.

Speaker 1: Yeah. Is it too small? Do you need a 10 x? We got trillion dollar companies now.

Speaker 2: Inflation. Even Eli even Elon. Small time.

Speaker 1: YC just wants to sit around just knocking base hits to a 100,000,000,000.

Speaker 9: Yeah. Elon

Speaker 1: Are you swinging for the fences or not, Harv?

Speaker 9: Maybe maybe I'll bring it back and call it the trillion dollar.

Speaker 1: It has a nice ring to it.

Speaker 9: I'll press it with my pink.

Speaker 1: You should. You should. Sorry, PB. Jordy, what was the last thing?

Speaker 2: Elon was saying on Sunday, he's he would be surprised if they don't have a trillion of revenue by 2031.

Speaker 1: I agree. I agree. What's the path?

Speaker 9: The market the market's space time, so he can't beat that.

Speaker 1: Yeah. That's right. Anyway, we're gonna hop on with Gary. Thank you so much for hopping on the show. Yeah. It's great to see you again. Congrats on day. We'll talk to you soon. Cheers.

Speaker 9: Will do. See you guys in the end.

Speaker 1: Let me tell you about public.com. Investing for those who take it seriously. They got stocks, options, bonds, crypto We've and more with great customer service. Absolutely. We gotta hit Garry with the flash bangs