Y Combinator: “fund for the pivot”

Written by: Stephen Hsu

Primary Source: Information Processing

I’m catching up on podcasts a bit now that I’m back in Michigan. I had an iTunes problem and was waiting for the next version release while on the road.

Econtalk did a nice interview with Y Combinator President Sam Altman. Y Combinator has always been entrepreneur-centric, to the point that the quality of the founders is one of the main factors they consider (i.e., more important than startup idea or business plan). At around 19 minutes, Altman reveals that they often “fund for the pivot” — meaning that sometimes they want to place a bet on the entrepreneur even if they think the original idea is doomed. Altman also reveals that Y Combinator never looks at business plans or revenue projections. I can’t count the number of times an idiot MBA demanded a detailed revenue projection from one of my startups, at a stage where the numbers and projections were completely meaningless.

Another good observation is about the importance of communication skills in a founder. The leadership team are a central nexus that has to informationally equilibrate the rest of the company + investors + partners + board members + journalists + customers …  This is benefited tremendously by having someone who is articulate, succinct, and can “code switch” so as to speak the native language of an engineer or sales rep or VC.

@30 min or so:

Russ: … one of the things that happens to me when I come out here in the summer–I live outside of Washington, D.C. and I come out every 6 or 7 weeks in the summer, and come to Stanford–I feel like I’m at the center of the universe. You know, Washington is–everyone in Washington, except for me–

Guest: Thinks they are–

Russ: Thinks they are in the center. And there are things they are in the center in. Obviously. But it’s so placid there. And when I come to Stanford, the intellectual, the excitement about products and transforming concepts into reality, is palpable. And then I run into start-up people and venture capitalists. And they are so alive, compared to, say, a lobbyist in Washington, say, just to pick a random example. And there are certain things that just–again, it’s almost palpable. You can almost feel them. So the thing is that I notice being here–which are already the next big thing, which at least they feel like they are.  [ Visiting Washington DC gives me hives! ]

I recall a Foo Camp (the O’Reilly one, not SCI FOO at Google; perhaps 2007-2010 or so) session led by Paul Graham and some of the other Y Combinator founders/funders. At the time they weren’t sure at all that their model would work. It was quite an honest discussion and I think even they must be surprised at how successful they’ve been since then.

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Stephen Hsu
Stephen Hsu is vice president for Research and Graduate Studies at Michigan State University. He also serves as scientific adviser to BGI (formerly Beijing Genomics Institute) and as a member of its Cognitive Genomics Lab. Hsu’s primary work has been in applications of quantum field theory, particularly to problems in quantum chromodynamics, dark energy, black holes, entropy bounds, and particle physics beyond the standard model. He has also made contributions to genomics and bioinformatics, the theory of modern finance, and in encryption and information security. Founder of two Silicon Valley companies—SafeWeb, a pioneer in SSL VPN (Secure Sockets Layer Virtual Private Networks) appliances, which was acquired by Symantec in 2003, and Robot Genius Inc., which developed anti-malware technologies—Hsu has given invited research seminars and colloquia at leading research universities and laboratories around the world.
Stephen Hsu

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