If you've ever wanted to apply to Y Combinator, here's the inside scoop on how the iconic accelerator selects companies from the person who knows it best: Y Combinator President and CEO Garry Tan.
The Washington DC Economic Club hosted Tang Wednesday for a one-on-one interview with Theresa Carlson, Managing Director at General Catalyst.
It's widely known that Y Combinator accepts less than 1% of applications—Tang says the last one was whittled down from 27,000—and recent cohorts tend to be around 250 companies. So, among other topics, Carlson wanted to know what the “secret sauce” was for getting accepted into Y Combinator.
For starters, YC may be one of the few places where you don't need to know anyone to get in, Tan says. Anyone can go to the website, apply, and submit a one-minute video. YC's 14 partners read the application to understand a few things, like who the applicant's potential customers are and what the founders have built in the past. The best applicants answer a few questions from the partners.
“So many venture capitalists go into meetings every week and say, 'No, no, no, no,' and then say 'yes,' maybe a few times a year,” Tan said. “YC turns that on its head.”
One of the things YC is looking for, he said, is founders who can discover and create markets for technologies that no one has imagined yet.
Tan cited Brian Armstrong of Coinbase as an example of a market maker. When Tan first met Armstrong, he was still working as an anti-fraud engineer at Airbnb. Armstrong had read Satoshi Nakamoto's white paper and had an idea.
“He said, 'No one believes in this yet, but I do, and I want to work on software that will make this crazy idea that we can have a national cryptocurrency a reality,'” Tan said. “It was a very unorthodox idea at this point, but that's exactly the kind of unorthodox thing we want.”
He further explained that “fringe” refers to new technologies that “deep technical people are obsessed with” and that “have an impact on society as a whole.”
After YC Partners interviewed and accepted Armstrong into the program, Tan recalls working with Armstrong weekly. And during those chats, he realized that if something like Coinbase existed, “it would be really big.” Then the discussion began about how to build it.
“The amazing thing about what he's doing is how hard it was to even get hold of bitcoin,” Tan said. “I've experienced that myself. This little thing can basically become something really big.”
“He was a first-principles thinker,” he said, adding that Armstrong was another example of what YC partners look for in candidates. What Tan meant by this was that Armstrong not only believed in something that no one else believed in, but also started thinking about what he needed to build, whether it be software or a distribution, to create something that no one had seen before. It's not enough to recognize something new, Tan said, but you also need to understand some steps to build it and have a plan to validate that what you've built is solving the problem you were trying to solve in the first place.
YC conducted a series of interviews last week, and Tan said that all of the founders they chose to fund “had new discoveries that they had made while interacting with the technology itself.”
“It's like sitting down at your workbench and realizing, 'Hey, did you know there's a robot manufacturer that's making a humanoid robot right now for $16,000?' It's going to arrive on my desk on Monday, so we… We will strive to be the first to commercialize it,” Tan said. “This is an example of first-principles insight, which is a very interesting area.”