Y Combinator CEO Shares How They Turn Wild Ideas Into Real Companies

1. 0:00 – 3:16

   Winning the game

   1. GTGarry Tan0:00

      I don't think people are prepared or even aware of what's about to happen right now, and it's like super, super good news for anyone who's running a business.

   2. SPShaan Puri0:09

      [upbeat music] Sam, have you seen, I feel like there's a new meme that got birthed, and I think Garry's involved with it now, which is the, "Learn to cook, loser."

   3. GTGarry Tan0:24

      [laughs]

   4. SPShaan Puri0:25

      Have you seen this, Sam?

   5. GTGarry Tan0:25

      That's right.

   6. SPSam Parr0:26

      What is that? What is that?

   7. SPShaan Puri0:27

      Garry, can you explain this one?

   8. GTGarry Tan0:28

      Paul Graham just posted it. I don't even know, like, what it was r- a reply to, but it seems to be going viral, so it's a good meme.

   9. SPShaan Puri0:35

      I think somebody... Paul Graham was talking about cooking. He was, like, giving his kid advice, and he's like, "You know, when you have a girlfriend," or something like that, like, "You know, they love to come home to the smell of, like, a meal being cooked." And then someone immediately, you know, random Twitter troll is like, "Why are you raising, like, a feminine man?" Like, you know, "He should be masculine. He doesn't need to learn to cook." And then I think Paul's reply was, "Learn to cook, loser." [laughs]

   10. SPSam Parr0:57

       [laughs]

   11. GTGarry Tan0:57

       [laughs]

   12. SPShaan Puri0:57

       And then all the builders, like Amjad and others, basically like tech people were like, you know, this is actually good general advice. Like, learn to cook as a high-agency way of living. I think it's, like, the compressed idea of, you know, build things, actually make things, actually go do things in the world that-

   13. GTGarry Tan1:15

       Totally

   14. SPShaan Puri1:15

       ... you know, are of value. Maybe I'm reading too much into it.

   15. GTGarry Tan1:18

       It's a more, uh, succinct version of make something people want. [laughs]

   16. SPShaan Puri1:21

       Yeah. [laughs] Yeah, it's the punched up version.

   17. GTGarry Tan1:24

       Mm-hmm.

   18. SPShaan Puri1:24

       Learn to cook, loser.

   19. SPSam Parr1:25

       Is, is Paul Graham, like, the definition of success? Basically built, like, one of the greatest companies of all time, YC, and then it started working well, and then just bails to Europe, where he's living in a... Uh, I don't actually know if this is true, but it appears he's living in the woods writing and being with his family. And I'm like, is this guy... Did he just, did he just p- pull the ultimate move, and it worked out perfectly?

   20. GTGarry Tan1:50

       I think so. I think he really did.

   21. SPShaan Puri1:53

       What's, what's your version of that?

   22. GTGarry Tan1:55

       I mean, more or less, like, YC as a concept is, like, kind of a miracle. It's, you know, there are very, very few, um, places in the world where anything like YC ever happens, and then I just feel like I need to be, like, the watcher on the wall. It's like, okay, let's, uh... [laughs] This thing is working, and then it's working for relatively mysterious reasons that are almost too obvious. I mean, it's b- at once a mystery, and it's obvious. YC itself is, like, pretty earnest. Like, it's just make something people want, apply in this thing. We'll try to go through and sincerely find the things we think could be really, really big, and then we just give you a bunch of money and throw you in a room with all the other people who are, you know, sort of the top one percent of people trying to do that thing. And then somehow some magic happens where, you know, five to ten percent of those companies become worth $1 billion or more. And, um, you know, YC takes some equity, but not that much, you know, like seven percent specifically for people who often wouldn't have access to that capital or that network, like, by default anywhere, anywhere else. I mean, so it's kinda cool. It's just, uh, you know, one plus one equals three in a really unusual way. Um, it sort of resembles a college in some ways, you know, only instead of people paying tuition, like, we pay them.

2. 3:16 – 7:31

   Being the Harvard of startups

   1. SPSam Parr3:16

      You know, when I think of good brands, a lot of people will just think of, like, uh, like funny or cool things, but when you think of, like, what BlackRock or Goldman, like some of these names, they're kinda like myste-

   2. SPShaan Puri3:27

      Harvard. Institutions

   3. SPSam Parr3:28

      Yeah, or, or Harvard. They're like, they're a little ominous and, like, a little scary, but they're institutions. Do you ever purposely think, "How do we become an institution?" Or is this just all because of, you just said, "Let's have high standards"? Like, was it on purpose, or did it just happen because you had good values? Uh, how does that happen?

   4. GTGarry Tan3:44

      I mean, I think a lot of it comes back to, you know, earlier we were talking about Paul Graham, and, um, the guy's just a very unusual, original thinker, and very just clear communicator. And then I think the thing I learned from him in particular is that clear communication and, you know, just using basic logic, being able to explain, you know, sort of, you know, A to B to C, and then you zoom out, and there's a really big idea in there. That's, you know, in essence what a really good pitch is. Um, you know, I think that that's where it came from. Like, Paul was just very, you know, both, uh, frankly, Paul and Jessica Livingston, his wife and co-founder, the two of them basically created this thing that feels different, didn't feel like another investor, felt very welcoming. I mean, the sort of, uh, viral tweet I think PG has about Jessica is, like, you know, Jessica once cut a founder's fingernails before he went on stage at Demo Day or something [laughs] just because it's, it's, like, sort of, you know, at once very exacting. You know, we have very high standards, but then it's at, at once also very, um, sort of, like, f- almost family or, like, homey, just, um, welcoming and, you know, sort of that m- mix of both very earnest and very formidable. Like, those two things combined created, I don't know, something that seems to create magic.

   5. SPShaan Puri5:12

      Isn't it wild, by the way? Like, just think about this. So I, one of my companies I recently taken through, like, a M&A process, and I talked to bankers. And bankers, so we, we, you go first and interview bankers. You're like, "Why should I go with you? Why should I give you four percent of this transaction for six months of work here at the very end?" And they're all about their differentiated process, how they do more, more, more, how they have the smartest people in the room, a- and all the things they brag about, about what makes them successful. On paper, makes sense, but it's kind of the Midwit meme because if you look at YC, it's like, "Yeah, we, um, we invest in people before they even have an idea a lot of the time. They have no, no traction."

   6. GTGarry Tan5:51

      Yeah. Often they have to change ideas.

   7. SPShaan Puri5:52

      We don't negotiate every deal. We just 7% for every single company. Uh, same deal. That's it. The application? Yeah, it's like a one-page form you fill out online. The, oh, the interview? Yeah, we talk to you for 10 minutes, and we just give you a thumbs up, thumbs down from there. Uh, like, all of the things YC does are so simple.

   8. GTGarry Tan6:08

      Yeah, it's 10 minutes. Oh my God.

   9. SPShaan Puri6:09

      It's a 10-minute interview.

   10. GTGarry Tan6:10

       Still 10 minutes. Yeah

   11. SPShaan Puri6:11

       And they're picking winners at a higher rate than anybody else. I, I think the... You know, they're attracting winners at a higher rate than anybody, so it m- makes it easier to pick, but they're picking winners at a higher rate than every other investor, even though their process is simpler and less than what you would think you need in order to be, you know, the, the number one player in the space. And they basically... I, I think I've read the stat. It's pretty insane. You guys basically, every time you run a batch, you basically print $3 billion of market cap on average. Uh, I did some math, and I l- looked at the c- the, the batch values. So, you know, like something like 5% of all the companies become unicorns, but ev- y- and you just do that a couple times a year. You, you're doing it twice a year.

   12. GTGarry Tan6:49

       Oh, yeah.

   13. SPShaan Puri6:49

       Now you're doing it four times a year. You're like, "Oh, yeah, let's just print $3 billion of market cap [laughs] two, four, two to four times a year."

   14. GTGarry Tan6:55

       Yeah, it's wild.

   15. SPShaan Puri6:56

       That is mind-blowing. Like, that is so insane.

   16. GTGarry Tan6:59

       Yeah, I mean, I, I think the ar- the craziest thing I'd ever heard was basically the Airbnb round, where I think something like under $20,000 became $2 billion in the liquid IPO [laughs] when Airbnb IPO'd. So... And you know, YC didn't even take the pro rata then [laughs] so it's pretty wild honestly. Like, you know, easily could have returned $5 to $7 billion with a good portfolio management strategy. But, you know, I... That's the thing. I think, uh, simple things work actually. [laughs]

3. 7:31 – 9:36

   How YC outperforms most Silicon Valley investors

   1. GTGarry Tan7:31

      It's, uh-

   2. SPShaan Puri7:31

      If YC was a st- a company, 'cause I think it's been around like 18 years you said.

   3. GTGarry Tan7:35

      18 years, yeah.

   4. SPShaan Puri7:36

      So yeah, in the, in the last 18 years, you know, YC has gotta be up there in like the top 10 Silicon Valley companies, things that got created that created so much value. Um, do you think about it that way, or is there, uh, uh, do you have a good lens of that?

   5. GTGarry Tan7:49

      Oh, yeah. That's what I try and, uh, get people to understand. Like, this isn't just, you know, working at a company. This is, uh... You know, I think we did the math on, um, how much money per employee YC in theory should drive, and, uh, I think we're something like 20-ish million dollars per year per employee in terms of like r- you know, sort of market cap value created in the world.

   6. SPShaan Puri8:14

      Huh.

   7. GTGarry Tan8:14

      And that's just the carry. Like, that's our take. Like, you know, in terms of value created for our limited partners and, you know, sort of overall in, in sort of... I think it's like close to 100 million per year per employee, so it's pretty wild.

   8. SPShaan Puri8:29

      Wh- who are the LPs even? Is it like these pension fund types-

   9. GTGarry Tan8:32

      Oh, yeah

   10. SPShaan Puri8:32

       ... just like a VC fund, or is it-

   11. GTGarry Tan8:33

       People who invest in VC. I mean, the wild thing about YC is, I think we're gonna release a white paper on this pretty soon, but I haven't talked about this publicly before. Um, we looked at a two-year period from 2018 to 2020 of people who invested in at least three YC companies per batch for those two years. The, uh, top, top decile predictably was very good. It was like 16X. Uh, the top quartile was also very good. It was 8X. Uh, I mean, these are outrageous returns for a such a short period of time in venture period. The wild thing though is median was 5X, and then the bottom quartile was 3.3X. [laughs] So it's really crazy because in venture peer... If you look at how VCs make money, it's all in the power law. There's only, you know, sort of the top 25% make mon- any money at all, and then the top quartile generally for any given year of VC, uh, is only 3X. So it's pretty wild what's happening.

4. 9:36 – 14:14

   Spotting extreme winners

   1. SPShaan Puri9:36

      You've read... I think I read something that you've read 6,000 YC applications, so you've seen more of this than anybody else. You're the admissions officer. You've been in a lot of these, uh, interviews. You've then seen the companies grow. What do the extreme winners look like early on, and do they look any different than the average company?

   2. GTGarry Tan9:54

      I mean, honestly, they're very similar. Like, my two craziest wins, one was Brian Armstrong at Coinbase, and he was, uh, a solo software engineer working, uh, at, you know, anti-fraud at Airbnb. And, uh, you know, he had never started a company before. He... You know, a lot of the things we worked on with him very early were like sort of the basics that... You know, it's sort of hard to believe now, uh, on the other side of him having built Coinbase, it's kinda hard to believe that, you know, there was a time when Brian Armstrong didn't know how to, you know, do a product launch or, um, you know, even raise a single dime from investors. So I think it's basically been that same profile, like highly technical people who are just, like, sort of smart and earnest, and that's about it. Like, that's sort of mainly who we like to fund. Um, and then it's, I think, unusually really, really important today in 2024. I mean, large language models have basically opened everything up. I mean, almost anything that a knowledge worker can do, you know, anyone with 130 IQ or below, pretty sure that with workflow and evals you could write software now that could do what that, you know, basically almost any knowledge worker could do, and you could do it perfectly with, like, no management headaches. It's, I think, like s- a really profound moment for all entrepreneurs period. [upbeat music]

   3. SPShaan Puri11:26

      Hey, let's take a quick break to talk about AI. We all know AI, big deal. Um, you see demos all the time of people doing really cool things. But as a business owner, sometimes it's hard to figure out, how do I actually use this? What do I actually do? I've been trying to use it across all my businesses, you know, things like making little prototype websites without needing to hire a coder, or writing copy for our website, or I give it a bunch of data and I ask it to analyze it for me. It's been kind of amazing, but the thing I always need is inspiration. I know the tool can do a lot, but it can almost do so much that I'm not really sure what I should actually be doing with it. And so that's why I think it's great that HubSpot has created a report where they surveyed 2,000 global marketing leaders and asked them, "Yeah, what's separating the high-growth and low-growth businesses, and what strategies they're using with AI in their business?" You can grab these strategies and apply them to your own business for free. The link is in the description below. Yeah, I think me and Sam have both had, uh, learn to code on our to-do list for like 12 years. Bought the, bought the, uh, you know, Python the Hard Way course on Udemy, did all that shit. I think we me- we-- now we get to skip the learn to. It's just code now.

   4. GTGarry Tan12:30

      Yeah.

   5. SPShaan Puri12:30

      You, you don't have to do the learn to part. [laughs]

   6. GTGarry Tan12:32

      [laughs] It's like you don't need to actually write it... I mean, it helps to be able to write a little bit yourself. But yeah, I mean, the wild thing from here is with like the new developments in o1 and CodeGen, I actually think it'll be more important that you're able to speak to virtual developers [laughs] and, like, instruct them on exactly what you want and all the different use cases. And, like, we're right at that moment where it's going from like you really have to code it all yourself to you can just sort of talk to this pretty smart entity that will, you know, do it m-mostly for you. Like, it's not even about no code anymore.

   7. SPSam Parr13:08

      I was doing that the other day where I was talking to ChatGPT, where I was like explaining like, "Here's the problems my business is having. Can you help me? Like, can you just like be a therapist with me and help me like come up with interesting solutions?" And the answers were shockingly good, by the way. It was like, it was like pretty good at just like brainstorming with me and just being like a sparring partner. Is there a... You know, like, I know that YC, a, a lot of it comes down to making peop- what people want and, and things like this, and to me that's a, that's like, um, a bit of an art where you, you're, you're more of an artist than a scientist. But is there a world where you could take your six thousand applications and a bunch of other data that you have and kind of spreadsheet your way to like the likelihood that we build a company that... And I think there's magic to create these like multi deca unicorns, whatever. But is there a way where you could like use your data and spreadsheet your way to like, "Well, here's the interesting opportunity. This is gonna get to some type of traction and wealth creation with a high rate of certainty."

   8. GTGarry Tan14:02

      It's conceivable. I, you know, some of it is like we think someone might do something like that, and it might totally work actually. And then the trickiest thing is like, how do you actually get really smart people to come and do that thing? And,

5. 14:14 – 16:34

   Capital-as-a-service

   1. GTGarry Tan14:14

      you know, I mean, capital as a service has been and I, uh, uh, I think like Chamath talked about that, and I thought it was very interesting.

   2. SPSam Parr14:21

      What did he say?

   3. GTGarry Tan14:21

      It sounds conceivable. Uh, I mean, I think they experimented with this when he was still working on social capital, where instead of, uh, having a ten-minute interview and... You know how it works at YC is we actually have 14 equal group partners, including myself. So we actually, you know, hand-read these applications and, you know, you're not talking to an AI when you do the ten-minute interview. It's literally just talking with us. And then once we fund you, we're just working with people day to day, you know, for those ten, twelve weeks and then onwards into the future of the company. Like we own, you know, seven percent of the company [laughs] or like a big seed investor. So we need to sort of be around, and it's very like high touch and you get like an individual person. And then I think like the capital as service idea like is really just, you know, connect your metrics, connect your Stripe account, your bank account, your QuickBooks. You know, I mean, it's actually pretty doable today. Like, it's conceivable that someone should connect all those things up and then an LM can just, you know, rank whether something's real or not, do the diligence, and then if you like hit a certain bar, like boom, like here's money in your bank account. [laughs]

   4. SPShaan Puri15:29

      Sam, did you ever see that when they did that-

   5. GTGarry Tan15:31

      Yeah

   6. SPShaan Puri15:31

      ... for, for growth stage companies? I think they called it the eight ball. It was like you, you connect all your data and then it'll, it'll not, not just tell you... They, like they could just take your raw data and they could put it into a format where they needed to analyze it, but then secondly, they benchmarked you, so they're like, "Oh, wow, they have best in class retention for this category," or, "They're below average, so don't invest," right? So they were able to use that.

   7. SPSam Parr15:49

      But, but I thought the results were like interesting, but not like, like eh.

   8. SPShaan Puri15:53

      Maybe too early.

   9. SPSam Parr15:54

      Yeah. Where it was like, this is interesting. But do you remember when, um, ChatGPT started getting popular, I think, Shaan, two years ago? And there was a guy on Twitter who had a really funny like name. It was like Greenpoint or something like that. And he told ChatGPT like, "Make me a, a content website that can rank high on search and it can monetize on ads." And I think within like three months he got it to like twenty thousand dollars in, in monthly revenue. Do you remember that story?

   10. GTGarry Tan16:17

       Oh, yeah.

   11. SPShaan Puri16:19

       Like the, the normal way now is I prompt AI, and I want AI to be an agent. What he did was the opposite. He's like, "You tell me what to do. I'll be your human agent. You, you have the good ideas. You prompt me." And I thought that was like-

   12. GTGarry Tan16:29

       Yeah

   13. SPShaan Puri16:29

       ... kind of like a brilliant twist.

   14. GTGarry Tan16:29

       I bet it would work extra well now with, uh, o1, like the new reasoning model.

6. 16:34 – 23:04

   How Garry hustled at 14 to get his into financial security

   1. SPShaan Puri16:34

      Right. G-Garry, can I ask you a question? You, um, today you probably think about like, you know, the future and billion-dollar ideas, but when you were 14, I read that you kind of had your own hustle there. You were cold calling companies, uh, in the yellow pages trying to get work, and you, you made enough money to kinda actually like help your family out, like move-

   2. GTGarry Tan16:52

      Oh, yeah

   3. SPShaan Puri16:52

      ... from an apartment to a house. Can you tell that story? I've never heard that before.

   4. GTGarry Tan16:54

      Yeah, of course. Um, I mean, let's see. I mean, my parents, we grew up, you know, sometimes food insecure. My dad was a foreman in a machine shop, and my mom was a home health aide and certified nursing assistant at convalescent homes. She worked two jobs. And, uh, me and my brother lived in, you know, apartments in Fremont, in the Bay Area, sort of in the shadow of Silicon Valley. And, uh, I guess one of the weirder things is like my dad's actually an engineer, but he just didn't have the EQ to really hold onto jobs, and he also struggled with alcoholism, so we just... He was always losing his job, and so we were always just like never had money around. And the thing was like he really did invest in computers. Like we had... Our first computer was a, uh, you know, IBM PC XT. So, you know, we were sort of reality poor but, you know, rich in access to computers [laughs] which was like really, really powerful for me. And, um, I just realized, oh yeah, like I'm 14, but I, you know, know how to make webpages, and I started winning some awards for like web design [laughs] as a kid in junior high. I started an underground newspaper with my, um, uh, junior high friends and, uh, we learned how to make a website for that underground newspaper, and we got... and we called it an online zine. And, uh, the funniest thing was like we had, you know, thousands of people would find it off of Usenet newsgroups and things, and we'd write Articles that, you know, I, I don't think people knew that we were 14. Like, when, uh, when you're [laughs] on the internet, one thing we learned is, like, nobody knows that you're a dog [laughs] I guess. I don't know. Like, people would just write letters to the editor like we were, like, a legitimate publication, and I just got sort of really addicted to that.

   5. SPSam Parr18:40

      Like, like, like, like an early Vice.com.

   6. GTGarry Tan18:43

      Yeah, basically. Like, I think we wrote, uh, you know... My, my buddy wrote a editorial about, you know, how the three strikes law was bad for California and, you know, we were like 12 years old. Like-

   7. SPSam Parr18:53

      [laughs]

   8. GTGarry Tan18:53

      ... what do we know about any of that stuff? But, um, you know, on the internet nobody can tell and, you know, I, I think we wrote it in pretty clear English. Like, people couldn't tell that we were that young. And then I, I feel like I got really addicted to the internet, and then I thought, "Well, maybe I can make money." And, uh, you know, back then there was this thing called the Yellow Pages that they'd throw on your doorstep, and that's how you would find businesses. And I thought, "Okay, the Yellow Pages is probably my link to making money somehow." Like, if they have a business and they have a little ad in the Yellow Pages, literally in the print section [laughs] like, you know... And this was not so early that, like, the internet had eaten Yellow Pages yet, but it was, uh, late enough that there was an internet section. So I just started cold callings, you know, seeing, "Hey, like, I know how to make webpages. Will anyone hire me?" And sure enough, I ended up getting a job and riding my bike to the local web design firm that made city websites for, like, City of Pleasanton and Fremont and San Jose. And, uh, you know, basically they paid me, you know, 10 bucks a, t- seven bucks and 10 bucks an hour to work on... I mean, I learned how to do graphic design. I learned HTML.

   9. SPSam Parr20:01

      What is that, uh, what's that phone script?

   10. GTGarry Tan20:03

       Oh, God.

   11. SPShaan Puri20:04

       Yeah, first you have to deepen your voice, right?

   12. GTGarry Tan20:06

       I know, right?

   13. SPShaan Puri20:06

       You can't be, you can't be 14 on the call.

   14. GTGarry Tan20:08

       That's right.

   15. SPShaan Puri20:08

       [laughs]

   16. GTGarry Tan20:09

       And it's like, "Oh, I'm a, I'm a web- [laughs] I'm award winning web designer and, you know, but I'm 14, so."

   17. SPSam Parr20:15

       Did he say that?

   18. GTGarry Tan20:16

       Yeah, I think so.

   19. SPSam Parr20:17

       [laughs]

   20. GTGarry Tan20:17

       I mean, um, it's funny. I mean, I remember my first boss. He was... This was sort of his, like, side hustle, so, um-

   21. SPSam Parr20:26

       And by the way, is award-winning designer in your LinkedIn now?

   22. GTGarry Tan20:28

       No, I don't-

   23. SPShaan Puri20:29

       Yeah, you gotta put that in there

   24. GTGarry Tan20:30

       ... I don't know if it is.

   25. SPSam Parr20:30

       Oh, [laughs]

   26. GTGarry Tan20:31

       I should add it again.

   27. SPSam Parr20:32

       That's a miss.

   28. GTGarry Tan20:32

       We'll add it back, yeah. [laughs]

   29. SPSam Parr20:34

       [laughs] That's a miss.

   30. GTGarry Tan20:35

       It's funny. I mean, I remember it was, like, this company called InfoLane. It was... You know, they had a one... Like, basically I think it had a conference room and, you know, sort of an engineer den and a lo- and, like, a little reception desk, and that was the whole office. And, um, I think it was one really technical, like, sort of neck beard Unix guy, and then, uh, the funny thing was the CEO was also a bank ma- a regional bank manager I think at Fremont Bank. And so, you know, the tech guy had walked into the local Fremont Bank and, you know, the internet was happening, and this bank manager was like, "I'm gonna gi- I'm gonna invest myself. Like, I'm gonna invest my own money." [laughs] And he became, like, the co-founder on this, you know, web design firm in, uh, 1993, '94. So it was pretty wild to, to think about. I mean, that's just how you started business, and that was what business was. Like, you didn't go on the internet and apply on a form or something. You literally walked into a bank, and banks were supposed to loan you money to start companies, which, you know, I think to some extent still happens, but, you know, it's just funny to think, like, uh, how that's evolved since.
7. 23:04 – 32:20

   Turning down Peter Thiel's offer to start Palantir

   1. GTGarry Tan23:04

      um, the one thing I wish I could do is, like, go back in time and tell myself, "Don't sell, uh, your time." Like, don't work for a consulting firm or, like, you know, get paid $10 an hour. Like, go make products.

   2. SPSam Parr23:16

      But did you, did you ever do that? I thought you were pretty young when you first started getting involved with YC.

   3. GTGarry Tan23:22

      Oh, uh, I was 27, so it's, I was much later-

   4. SPSam Parr23:25

      Wow

   5. GTGarry Tan23:25

      ... honestly. I mean, my journey-

   6. SPSam Parr23:26

      You looked very young in the photos. [laughs]

   7. SPShaan Puri23:27

      Like, but you actually didn't need to come from the future because I think I've heard a story that you were working somewhere, Microsoft or something like that.

   8. GTGarry Tan23:35

      Oh, yeah.

   9. SPShaan Puri23:35

      And Peter Thiel was l- Peter Thiel was like, "Hey, quit your job. In fact, I'll pay you your whole salary to quit your job and come co-found this new company, this little company we got called Palantir."

   10. GTGarry Tan23:46

       Yeah, it's like a $95 billion market cap company today. [laughs]

   11. SPShaan Puri23:50

       And you turned him down. Could you, uh-

   12. GTGarry Tan23:52

       I mean, oh my God

   13. SPShaan Puri23:52

       ... what the hell were you thinking? Could you just ex- uh, embarrass yourself here?

   14. GTGarry Tan23:55

       Of course. I mean, I, you know, went to Stanford, computer engineering. Uh, I mean, changed my life obviously. Uh, fraternity brothers of mine, Joe Lons- or Joe, Joe Lonsdale and Stephen Cohen. Stephen and I went to, uh, high school together, grew up together, tried to start a bunch of companies together. Um, you know, I was a year out of school. You know, it was 2004, and I thought like, "Oh, look at me. I have health insurance. I have a real job." And then my old fraternity brothers, who were a couple years be, uh, behind me at Stanford, like I guess they couldn't get a real job, so they're gonna, you know, go start a company. [laughs] I, I don't know. It's really funny to think about in re- retrospect. But, you know, one of the things that was always really smart about the Peter Thiel world is, uh, when you start something, you always just need the smartest people around you, and I was lucky enough that I made, you know, Joe and Stefan's list when that happened. And, uh, you know, Peter was just running the playbook that worked for him when he sold Pay- PayPal, which is ... And this is something that people at Palantir do all the time now. It's like when you start a thing, you, you know, take a eight and a half by 11 sheet of paper, and you write down all the smartest people you know, and then you go take them out to dinner and lunch and just w- you know, sit on their doorstep until they quit their jobs to come join you. And, uh, you know, I guess it was pretty wi- I mean, Peter was not a billionaire yet. I think, like, the funniest thing about PayPal and the PayPal Mafia is that, like, they basically fought a land war in Asia against eBay. You know? I mean, when you don't have ... When you have to work on other people's distribution and other people's platforms, you just end up becoming, like, the most vicious, hardcore, you know, builder, fighter types to just, like, gut it out to build a business on someone else's [laughs] platform. And then, uh, the exit for PayPal was just not big enough that it made people ... You know, it made people, like, able to take lots of risk, but not so much that they had lost all energy and will to fight. And so-

   15. SPSam Parr25:51

       Well, and there was a bu- and there was a bunch of them, too, so that got divvied up a bunch.

   16. GTGarry Tan25:54

       Yeah. It was wild.

   17. SPSam Parr25:55

       How much was Peter Thiel worth, do you think, at that conversation? Because, like, let's say you made $80,000. That, that's, like, a big deal, right? To be out to dinner-

   18. GTGarry Tan26:04

       Yeah

   19. SPSam Parr26:04

       ... with someone and be like, "I'll give you 80 grand right now just to quit." [laughs]

   20. GTGarry Tan26:07

       Yeah, totally. To get a co-founder or co-founding engineer, like, I, I, I s- some of it is like I could see myself doing that today. I mean, I think Peter was probably worth, like, at least a couple hundred or at least $100 million at that moment. Yeah.

   21. SPSam Parr26:19

       More than enough to, to be able to m- to say something, like, outlandish like that.

   22. GTGarry Tan26:23

       Yeah. I mean, I think it's a fair trade today. Like, I would definitely trade, like, my, you know, my gold Rolex for a first co-founding engineer of a company that I think-

   23. SPSam Parr26:33

       [laughs]

   24. GTGarry Tan26:33

       ... could be worth $100 billion in the future. [laughs] That is a fair trade. [laughs]

   25. SPShaan Puri26:37

       Did he make a compelling pitch, like, about the company, or was he just like, "I don't know, this is just, like, a bet?" Like, w- was he ... Did he see the future in that, that sense of, like, what it became?

   26. GTGarry Tan26:46

       Yeah, absolutely. I mean, I think the thing I l- really learned from that moment ... I mean, I was 22. I didn't know how the world worked at all. I mean, we had dinner at his French restaurant, Frisson. Uh, I think that's one of the things you do when you, you know, make a descent to millionaires.

   27. SPShaan Puri27:01

       [laughs]

   28. GTGarry Tan27:01

       You do something stupid like open a restaurant. And, uh, I mean, the restaurant was terrible. Like, the soup-

   29. SPShaan Puri27:07

       [laughs]

   30. GTGarry Tan27:07

       ... was really bad and ... I mean-
8. 32:20 – 44:57

   Garry's first million

   1. GTGarry Tan32:20

      right?

   2. SPShaan Puri32:21

      Well, that is the name of the podcast.

   3. GTGarry Tan32:22

      Indeed.

   4. SPShaan Puri32:23

      And so I'm curious, what's your advice or take on that? Like h- how did you do it? How did you think about it? And knowing what you know now, how would you go make your first million?

   5. GTGarry Tan32:34

      Yeah. I mean, what's funny is in the end like Palantir ended up being huge, but it took, it didn't really IPO until many, many years later. It's like, I mean, I designed the logo in 2000 s- I joined as employee number 10. We would do these ridiculous things like go to, uh, Stanford and give out pizza, and then we were like 10 people, 15 people working there, but the pizza box would have our Palantir logo that I designed and like, "Join the next Google." [laughs]

   6. SPShaan Puri32:59

      Nice. [laughs]

   7. GTGarry Tan33:00

      And people would like eat the pizza and they'd like give us dirty looks like, "How dare you?" [laughs]

   8. SPShaan Puri33:04

      [laughs]

   9. GTGarry Tan33:04

      It's like, what the heck is wrong with you guys? And then, um, let's see. My first win, I mean, the Palantir shares did turn out to be something, but it did not seem like it was going to for a really long time. I think my first actual million dollars was selling a few million dollars worth of Twitter stock at IPO, and so it was actually really late, like '20... I mean, for me, I started working in tech like when I was 14, so like 1996, '95, and then, I mean, I think it, yeah, literally took like 18 years of like working as an engineer and not having money and having like $50,000 credit card debt coming out of college. And I think that might have even been one of the reasons why I didn't, uh, quit to join Palantir. I was like, it, it felt, you know, tw- in 2004, I still had like 30, $40,000 in credit card debt and like maybe $50,000 in student loans, and I just like, I was like, well, like 70,000's a lot, but, you know, how am I gonna actually ... You know, I, I don't know if this job will even exist in six or nine months and like I could be a lifer at Microsoft. And of course, in retrospect, like being a lifer at Microsoft would be sort of like a life of torture at some level. So yeah, my first million was actually Twitter stock. Uh, so I started a company in 2008 called Posterous. It was a blog platform.

   10. SPShaan Puri34:26

       I used to use it. I love Posterous.

   11. GTGarry Tan34:28

       Yeah. It was, uh, dead simple blogs by email. Um, you just emailed post@posterous.com. You didn't have to log in or like learn how to use software, and then we'd just reply back with like, "Here's your blog." Like, "Here's your website."

   12. SPShaan Puri34:40

       [laughs]

   13. GTGarry Tan34:41

       And you know, you could send it to your friends and you could ... It was sort of like an email list too, so you could do it with your family. A lot of people used it to like share photos with their, uh, family. It grew 10X year-on-year two years in a row until, uh, Instagram came out. [laughs] I remember when Instagram came out, Posterous was actually one of the little check marks, uh, as lo- lost to the sands of time. I think it was like, you know, Posterous, Tumblr, um, Foursquare, Twitter, and like-

   14. SPShaan Puri35:07

       I remember all that

   15. GTGarry Tan35:08

       ... that whole sharing page. And, um, I remember Chris Sacca, one of our investors, emailed us about it and was like, "Hey, what do you think about Instagram?" And before I could, uh, reply, my co-founder replied, "It sucks." [laughs] And I was like, "Well, yeah." And I was like-

   16. SPShaan Puri35:22

       [laughs]

   17. GTGarry Tan35:23

       And we got a one-line reply to it from Sacca saying, "I'm very disappointed in you guys." And then I just-

   18. SPShaan Puri35:27

       [laughs]

   19. GTGarry Tan35:28

       ... was like, you know, sleep-deprived and think about it again. [laughs] But like I think about that all the time now 'cause, you know, when you're working on a startup, like y- you know, we didn't actually even totally understand why we were growing that fast. Um, in retrospect, it was actually because the iPhone was new and people were taking lots of photos, and there were no apps that made it easy to upload. And then Instagram was sort of the first free app that created a network that also even had a little bit of utility with their filters, and it was all free, and, uh, basically, you know, we got run over by the eventual winner. And I, you know, I think that's one of the big dangers for founders, period, is when we launched in 2008, you know, Michael Arrington at TechCrunch wrote about it, and he framed us off the bat, and he was like, "Posterous is ten, you know, way easier to use than Tumblr." And so we sort of made a mistake and took like that competition and then made it our identity, and it's something that it's advice that I have to give to founders all the time now, which is like we weren't competing up against Tumblr. We were competing against how people were getting photos off of their phone, actually. But, you know, when you're not careful, you sort of allow Media or other people to sort of frame your reality, and then you just play the wrong game. Like Tumblr didn't even want to be Tumblr. That ended up having zero enterprise value. I think that's also one of the cool things about Silicon Valley, is like you can even sort of screw it up. You know, it- if I really, uh, introspect on what I wish happened, um, you know, we had about a million users who were like super dedicated to Posterous. We easily could have, you know, sort of s- charged $5 or $10 a month for it. We would... You know, we were a team of like 12 people. We easily would've been profitable. And then, uh, I, I remember because we were hanging out with our friends at Weebly, like, uh, David Rusenko and Dan Veltri, who were amazing. I mean, they, they were, they only ever raised, uh, you know, a tiny amount of money out of demo day and never raised a Series A.

   20. SPSam Parr37:32

       And what did they eventually sell for like $300, $400 million?

   21. GTGarry Tan37:35

       Yeah. To Square, like sort of, I think pre IPO and then Square of course, like went on its crazy run. So these guys are like, made, you know, 100 times more money than me and my co-founder at Posterous [laughs] like, you know, rightly so. They did it not through like continuing to raise venture dollars, but by, um, being profitable, cash flowing, by compounding, by focusing on their users and like playing their own game instead of playing the game that was like can be sort of chosen for you by either your investors or social media or by reporters and tech, tech press. Like, you know, just play your own game, like make up your own mind. So, you know, if I did it again, like we easily probably could have done that and then instead I think we ended up pivoting out of, um, y- you know, that Posterous idea. And, you know, we were just wanting to continue to chase this idea that we could be the free social network. And I, I distinctly remember meeting, uh, Peter Fenton at Benchmark, and he passed on our Series A because we didn't have a good answer for this. He asked, you know, "Are you a platform or are you a network?" And, uh, we said both, 'cause, you know, that's what founders who like don't have strong opinions end up saying, I think, like [laughs]

   22. SPSam Parr38:48

       [laughs] It's a multiple choice test and you just circled A and B.

   23. GTGarry Tan38:51

       Yeah.

   24. SPSam Parr38:51

       Can't be wrong that way. [laughs]

   25. GTGarry Tan38:54

       But I don't know. This is all, you know, 2020 hindsight. I mean, we use, I use these stories all the time to try to help founders get on the right path to real enterprise value all the time now, right? [laughs] So, you know, it's not just make something people want and raise a Series A and B and like look like a successful startup. It's actually make s- something people want, and that's the end in itself. And if you do that, like you're gonna make money and, you know, hopefully you can, uh, compound that and like, you know, create real enterprise value for yourself. And that's, that's sort of the game.

   26. SPSam Parr39:28

       We, uh, we wanna ask you a bunch of, uh, uh, a bunch of questions about different stories, 'cause you probably have a lot, a lot of stories. But what's interesting about that story is, um, you, you left Pa- Palantir as a very, I don't know if it felt it that way then, but now it's a very serious company where like they prevent terrorist attacks at times. So like it's a very serious product. Uh, what you were working on after that, you could, like, someone could be like, "Well, that's just like a blogging platform," or, "That's just this like... That's, that's 'less serious.'" Did you ever... Like, I mean, I guess I'm self-projecting 'cause I feel this way sometimes where I'm like, "I'm doing something that's not serious," but you kinda have done both, and you've done, now you're back to a, a relatively serious thing. It's a, YC's a multi-billion dollar company. Um, how do you balance like, like working on something that seems fun and cool versus like a serious big thing?

   27. GTGarry Tan40:17

       I mean, I think that goes back to what we were saying a little bit earlier, which is just like, be careful what frame you accept. It's all made up, but, uh, you get to make it up. And then, um, you know, for Posterous and blogging, like they said the same thing about Facebook, and I remember spending time with Boz and, you know, a bunch of the, you know, our friends who were early Facebookers. They never accepted the frame that Facebook was not a serious and important thing. You know, they, their narrative was very clear, like they had a very strong cult, and the cult was just clearly once every few decades, I think very explicitly Zuck would say this, like once every few decades, like everything would change, media would totally change. And like they were right [laughs] . Like this social layer came up and, um, you know, this is sort of the reason why I feel like if you're running a business today, you kinda have to be a creator. Because if you're not a creator, you gotta buy eyeballs somehow. And, uh, guess who's got the monopoly on eyeballs? You know, Larry and Sergey and Mark Zuckerberg. You gotta go pay, you, you, you gotta pay the toll to, you know, go across the bridge. Like, you know, the second price auction mechanism in, uh, the ad networks for like all incremental attention is so valuable that these are like the most durable, powerful network effects businesses that like cannot be disrupted.

   28. SPSam Parr41:41

       So wait, are you telling all YC founders to go and build an audience online?

   29. GTGarry Tan41:44

       Oh, if you're doing consumer, you ha- you basically have to, right?

   30. SPSam Parr41:47

       What about for-
9. 44:57 – 51:31

   Early days at YC

   1. SPShaan Puri44:57

      We gotta ask you about some of the people that you've been able to meet. I'll tell you what I want, and I hope that you give it to us.

   2. GTGarry Tan45:04

      Sure. Okay.

   3. SPShaan Puri45:04

      I don't know if you will or you won't, but like, so me and Sam kind of are in the what I'll call like the way that most people live their life, which is you wake up every day, you got your project, your business. It doesn't matter if you're doing, you know, ten thousand dollars a month or a hundred thousand or ten million dollars a month. Doesn't really matter. You wake up every day, and then we all look for kind of like this entertainment inspiration thing, and we get a lot of it from Twitter, from podcasts. And one of the best things is when you hear about the way that some of the people you admire operate or the way that they, they handle things or the way that they dealt with a situation or something about their personality. And of course it's sort of, you know, a caricature. It's not a perfect picture and, you know, whatever. They're not perfect people. But it is badass to hear those stories, and we hear them about Elon. But you run in a really amazing circle where, you know, Paul Graham, Sam Altman, like all of the YC network are people you've been around. You've been around them before they were, you know, big and, and, and since. I would love if you could tell us a couple of like either personality traits or stories that stand out for some of the people. So I'm curious. It's a long-winded way of saying, can you tell me some cool stories about some of these characters that you've run into?

   4. GTGarry Tan46:10

      Yeah, absolutely.

   5. SPShaan Puri46:11

      [laughs]

   6. GTGarry Tan46:11

      The funniest story I remember from working with, uh, Paul Graham in the office, I mean, he gave me my first shot as an investor and as an advisor to startups. I was burnt out from Imposter.us. We, my co-founder and I had like a falling out, and, um, he wanted to become Google Groups. And I was like, "Dude, I don't even think that Google wants to be running Google Groups."

   7. SPShaan Puri46:30

      [laughs]

   8. GTGarry Tan46:31

      Like, "What? We should just charge money." But, um, yeah, Paul like I think really did... Like Paul and Jessica basically like did all the admissions, worked with all the companies. It was like twenty eleven. You know, even the whole YC campus was not a campus. It was like a warehouse with some carpet and some like custom, like very cheap... I mean, it was just tables and benches. The benches were so rickety that like if you sat on one side, like, and the other person on the other side, like, you know, stood up, like you'd fall over. [laughs] Like there's just like a bunch of funny things about YC early. It was like this tiny thing. Um, and to paint a picture, like people still-- When I said I was gonna go work at YC, uh, as a designer in residence, my friends in venture or startups would say, "Oh, that's nice." It sounded like I was going to volunteer at like a high school camp or so- it was like a high school basketball camp or something. It was like-

   9. SPShaan Puri47:31

      [laughs]

   10. GTGarry Tan47:31

       "... oh, that's, oh, that's nice. That's so... You know, I hope you enjoy that. Like you're doing-"

   11. SPShaan Puri47:35

       Good for you.

   12. GTGarry Tan47:36

       "... community service. Good for you."

   13. SPShaan Puri47:38

       Good for you.

   14. GTGarry Tan47:38

       Exactly. And, um, you know, Dropbox had happened as a, you know, and it had become a billion-dollar company, but, uh, Airbnb I think was just about to become a billion-dollar company. And, uh, you know, I, I, I think this is lost to the sands of time, but I remember Sarah Lacy had created a, had, uh, written a book called, like, One You're Lucky, Two You're Good. So that, you know, twenty eleven I think was the one you're lucky, two you're good moment for YC, where people realized, oh, this isn't like some fringe thing. It's actually starting to churn out like basically the most dominant startups that exist. It's like a very concentrated form of Silicon Valley. And, uh, about that time, um, yeah, we had-- there was literally one person who did all the books, all the finances, all the audits, all the CFO stuff, and, uh, she needed a copy machine. So she got one of those like, uh, sort of waist height copy machines that, um, you know, looked corporate and it had like these little stickers on it. And then I remember Paul Graham came in, he's like, "What is this? Why is this here?" And it was like sort of this totem of, um, corporateness. He's like, "I remember seeing these at Yahoo and I hated them." [laughs] Like, he started like scraping off the sticker that had like the phone number of the little company that, uh, would maintain the, the copy machine. And, uh, I guess it just jumps out at me as like this very interesting quirk of Paul that was, like, absolutely right. And, you know, I sort of stay up at night thinking about, like, how do I make sure that YC never feels corporate? PG, like, PG would show up in, like, shorts and, uh, Birkenstocks all, you know, all day. I think he, he, uh, wore khaki pants to my wedding, so my mother-- my, uh, my sister-in-law was like, "Excuse me, sir, this is a private wedding." And I'm like, "No, no, no. That's my boss." [laughing]

   15. SPSam Parr49:30

       [laughing]

   16. GTGarry Tan49:32

       So, um, so I mean, there's this... I think what I learned from Paul was that, um, I think there is an insidious nature to, like, formality and, um, corporateness and just, like, having to wear a suit or the convention, right? Like, I think there's incredible value in being very, very unconventional. W-whenever there is prestige and/or convention, you should be wary of that thing because, you know, there's gotta be some other weird soul-sucking things that are associated with that that, you know, no one by default would sort of choose to have, you know, a dress code [chuckles] or like what, you know, what are some other examples of this? Like, you know, basically, you should beware of about your own formality and, um, try to fight against it. It's just like, try to be super matter of fact. Um, and I think that that's, that's one of the things that just makes companies bad. I, I wonder, like, as people who run your own businesses, do you ever think about that? Like, you go into a meeting and you just think like, "Was that a meeting that if I were not me running this place, like, would I wanna be in that meeting?"

   17. SPSam Parr50:43

       Well, it's the same thing as what you said about the framing thing. You, you behave like you think you're supposed to behave versus what, uh, kinda makes sense. Um, you start playing business a little bit. It's s- it's sorta like, you know, when you start a company, a lot of people play business by getting, like, a business card before they get a customer, and then you kinda snap out of it. You're like, "No, dude, I gotta make the damn thing," and you start making the damn thing, and you start getting some customers, and then you kinda go back to playing business again.

   18. GTGarry Tan51:06

       Yeah.

   19. SPSam Parr51:06

       Um, which, which is definitely part of the Silicon Valley thing. You know, like OKRs, measuring things quarterly. Like, there is a bunch of, like, lameness that I myself fall victim to, and you have to, like, pull yourself out of that trap. But, but some of it is, like, useful. I guess if you're Airbnb, you, you have-- if you have six thousand employees, you, you do slow down, but it's hard to know what's truth versus what... like, or what you should do versus what you have to do type of thing.

10. 51:31 – 54:36

    The edge of startups with a 2-pizza team

    1. GTGarry Tan51:31

       I will say that I think, um, it's possible for people to do, uh, insane business now with, like, two-pizza teams. Like, I think that we, you know, probably in your community or maybe you guys yourselves will end up making these, like, hundred million to, like, billion dollar a year businesses that are totally empowered by large language models that, like, do not need more than twenty people working at them. I think that this is literally the most exciting news that, you know, we're pretty sure is going to happen the next few years, especially right now. And, like, that is the one thing that these giant companies that have, like, thousands of people, like, it is completely... Like, corporate America is completely unprepared for this moment. Like, they're just gonna get run over by a thousand startups that are way more agile that, you know, aren't completely drowning in convention. They can just do the right thing for the customer, and the cost basis will come down a ton. You know, the, the trickiest thing is, like, I'm not sure if it's inflationary or deflationary. [chuckles] Like, what's gonna happen here, right? Like, prices in theory should come down. Things should get a lot more, uh, competitive. I mean, on the flip side, like, the hope is that all of our, you know, products and services get, um, a lot better, cheaper, faster, real fast. I mean, this is the moment. Like, literally, we talk to people who are eng managers and, like, CTOs and, like, even engineering teams. I, you know, I think that it's almost generational. Like, we get-- it's, like, in the water for us right now 'cause we spend all of our time with, like, twenty-two, twenty-five, twenty-eight-year-olds who are, like, the me from, you know, fifteen years ago. [chuckles] Like, we're just helping the next generation right now, and they were, like, born on the internet. They were born with large language models, you know? Um, and then there's sort of, uh, you know, frankly, I'm forty-three. Like, my generation of C-levels, like, I don't like... I don't think people are prepared or even aware of what's about to happen right now. And it's, like, super, super good news for anyone who's running a business who's super agile, 'cause you don't have to be doomed to calling in the business process automation call center. You don't have to, like, hire the team in the Philippines anymore. If anything, like, that's one of the more direct advice we give to, uh, people looking for startup ideas in the batch right now. If people are pivoting, we're like, "Okay. Well, you're selling to, let's say, like, accounting firms, um, you know, but you're having trouble with enterprise sales. What if you targeted people who already spend, you know, hundreds of thousands of dollars a year on a call center in the Philippines or Eastern Europe or anywhere else? Like, why don't you just reach out to people like that and just replace what they rely on, you know, there with large language models that have great evals and great workflow?" Like, that is just, you know... I think we will have many companies driving tens to hundreds of millions of dollars, like, literally in the next, like, two years. It's just, like, hundreds of them, thousands of them are going to pop up right now just doing that.

    2. SPSam Parr54:35

       That's so exciting.

11. 54:36 – 1:05:57

    Advice for founders in AI

    1. SPShaan Puri54:36

       What companies, um, are you super excited about that we should watch out for, we should go check out? 'Cause you live in the future. You're, you're further in the future than we are.

    2. GTGarry Tan54:45

       Obviously, like, uh, the tooling for this is important. Like, there's gonna be a lot around, um, helping people build the stuff. Um, your ev- like, evals in particular, like doing it test-driven is important. You know, um, the danger for most founders right now is it's very easy to make demo ware that you can use to raise money. And then you're tempted to sort of, you know, quote unquote, "raw dog your prompts." Like you will just write code that has some prompts and you won't write any tests. And then, uh, the funny thing that we're seeing right now that I think is super true is, again, like going back to what we were saying earlier, like it's important to build your worldview on how the world works directly from customers and their customer data. So the sort of rinse and repeat thing that's like maybe eighty percent of YC, what YC companies are doing right now that I think anyone could do is go and find real people who like are running businesses and they're spending hundreds of thousands of dollars a year on giant teams of people doing like rote repeating knowledge work, and then get access to their data, get access to the flow of their work, watch how they do it, and then literally write test cases using-- And if there's hallucination or, uh, the LLMs aren't actually able to, like, consistently do the thing you want, you actually have to chop down the prompts more. Like you're asking for the LLM to do too much. Like the LLMs are capable of maybe like a hundred twenty IQ level work right now, and if you're, you know, giving it like too much in the context window and asking it to output too much, it's just like, uh, do it in steps, right? This is literally what o1 and, uh, you know, reasoning already does using chain of thoughts. The interesting thing and weird thing that I'm tracking right now that I'm a little bit worried about is it is entirely possible that the next generation of, uh, large language models from Anthropic and OpenAI and Meta are, you know, one and then two orders of magnitude, uh, in num- in like compute and number of parameters, and then we just get like, you know, the Dario Amodei scaling laws paper specifically says like, you know, these big large min- language model, uh, AI labs are gonna spend a billion and then ten billion dollars on the next generations. And like if we get like continued step function improvement, like the trickiest thing is like all the stuff that even what we're doing as founders are doing, like, you know, maybe the models will just do for themselves. And, uh, you know, I think that my hope is that, um, you know, there's not enough agency in these things and then, you know, maybe what will happen and what, what we hope and what we think will happen is that the people who establish brands and moats and evals right now, when the next generation models happen, their cost structure just comes down by like ten X. And then they already have like the revenue and the, the market captured in some way that they're like sort of beating the software incumbents that they're going up against. They themselves have like tens to hundreds of millions of dollars in revenue, and then like basically the standard moats apply. Like look at Porter's Five Forces and you're like, you know, uh, your da- you have way, way better access to data. Your, your systems are way smarter. It costs a lot of money to take a risk and switch off of those systems. And then you under- you have a sales force that is way better and smarter. And so if you take all, you know, that's sort of the gambit right now. Like if you do prompts and evals, you're pulling forward the future by a few years. You're trying to like grab as much land as you possibly can right now and, uh, and then from there, like hopefully you can hold on and build the next Microsoft or the next Salesforce or, you know, the next ten, you know, ten to a hundred billion dollar company.

    3. SPSam Parr58:46

       Was it obvious when Sam Altman left, uh, YC to do this?

    4. GTGarry Tan58:49

       I wish I was smart enough to predict that this was what was going to happen. Um-

    5. SPSam Parr58:53

       Did you think that he was gonna be the man like he is now? Like, you know, Paul Gr- Paul Graham has that essay where he's like, "Here's five people I'd bet on," and one of them, the fifth one was like a twenty-five-year-old Sam Altman, and the other three were like, you know, uh-

    6. GTGarry Tan59:07

       Bill Gates [laughs]

    7. SPSam Parr59:07

       ... Bill Gates and Steve Jobs, and then he said, "This kid." So did you-- Were you like, "Whatever Sam does is gonna be a generational company?" Or were you like, "Eh, it might be. It could be mildly successful"?

    8. GTGarry Tan59:19

       I mean, I think it could-- I bet-- In full transparency, like I'm gonna be super honest, I was like, "Man, I don't, I don't quite get it," you know? I-- He, uh, when he was sitting in my s- my shoes as president of YC, uh, he'd come back and I remember sitting in the group partner room and he'd say like, "Well, this is what Elon was talking about, and this is what Larry was talking about." And, you know, they were all talking about AI and they were, you know, sort of talking about these sci-fi scenarios. Um, and I'm like, "Man, I saw Terminator two too, but that was a movie, okay?"

    9. SPSam Parr59:51

       [laughs]

    10. GTGarry Tan59:53

        And, uh, I think that I'm changing my tune at this point. Like it, it-

    11. SPSam Parr59:57

        [laughs]

    12. GTGarry Tan59:58

        You know, I wish that it was smart enough to be, you know, actually totally a believer. You know, I'm a believer now. Um, do I believe that we're gonna end up in like a doomsday scenario? Like I still don't really believe that there's that much agency in these things, which is sort of the reason why-

    13. SPSam Parr1:00:13

        Yeah, but your judgment now is questionable, you know?

    14. GTGarry Tan1:00:16

        [laughs] Yeah.

    15. SPSam Parr1:00:17

        First Peter-- First Palantir, now OpenAI. You know, you'll-- Thank, thank God that you've like already made a so many other successful investments that I know that Gary's got good judgment and like can predict the future a little bit because, uh-

    16. GTGarry Tan1:00:28

        I'll come around eventually, you know? Like I'm just a year off. [laughs]

    17. SPSam Parr1:00:31

        [laughs]

    18. SPShaan Puri1:00:31

        Yeah, yeah. He, he was Palantir employee ten aft- after he said no to the co-founder role-

    19. SPSam Parr1:00:35

        That's true

    20. SPShaan Puri1:00:36

        ... he ended up there, right? So maybe-

    21. GTGarry Tan1:00:37

        I mean, now we're, you know, we are full believers in large language models. But I, you know, I think the thing that's a little bit lost to the sands of time is that, you know, what, what Sam was absolutely right about was, um, jumping on this thing that the smartest people in the world were already talking about like eight, nine years ago, and then he built it. You know? He invested the money. He, um, you know, brought together the people. It was no small task to bring together the smartest AI researchers in the world, and then not only that, it was like semi-miracle You know, you could ask, why didn't Meta do this before? Why didn't Google do this before? Why didn't Microsoft Research do this before? Like, all of those people had virtually limitless access to resources. And, um, to weave this back together, I think there is something really terrible and limiting about, like, giant organizations that are not capable of evolving and making smart decisions. I mean, that's what big tech is like. They're sort of like big daycares for the most technical smart people in the world.

    22. SPShaan Puri1:01:43

        [laughs]

    23. GTGarry Tan1:01:44

        And it's like, "Here's your... Here. Do, you know, play some volleyball. We'll cook you lunch. Like, here-

    24. SPShaan Puri1:01:48

        Yeah

    25. GTGarry Tan1:01:48

        ... you know, here's do your laundry at work, you know?" Like, you know, let's totally infantilize the smartest people in the world, and like that's a waste of time. Like, what needed to happen was, um, the ability f- you know, uh, o- one of the things that got explained to me why, uh, it was OpenAI that came up and, like, invested, you know, millions first and then tens of millions and hundreds of millions into the large language model and, you know, transformers for language, um, if you were at Google, you needed to work this bureaucracy. It was, like, highly political. You know? You had hundreds of other researchers, all of whom were all as smart as you, and you had a finite sort of limited set of compute. And, you know, what you would find is that, um, Google would do really breathtakingly amazing work, but then you'd have, like, 30 different authors, w- you know, and if you'd read the paper, there'd be, like, these sort of, like, strange things that seemed like it was a little bit tacked on.

    26. SPShaan Puri1:02:49

        Yeah.

    27. GTGarry Tan1:02:49

        But that's the only way you could get the compute resources to actually pull off a training run on, like, the model that you wanted to do. Like, you had to do some weird things to accommodate, like, people who were gonna commit their training resources for their, like, random little thing. And so-

    28. SPShaan Puri1:03:05

        Yeah

    29. GTGarry Tan1:03:05

        ... it's funny to see that, you know, human progress is more or less a little bit, uh, impeded by the bureaucracy and lack of governance and lack of agency that large organizations just sort of, like, impose on people. Like, you don't have a choice.

    30. SPShaan Puri1:03:22

        Isn't it crazy that it was easier for them to invent and discover transformers and, and this large language model breakthrough than it was for them to navigate the bureaucracy to actually, like, create a product out of this or do-
12. 1:05:57 – 1:09:25

    The spoon-bending story

    1. SPShaan Puri1:05:57

       one minute, can you tell the spoon-bending story? I think this is the, uh, a very powerful story that you have, uh, the spoon bending party. I don't know if you, you know this.

    2. GTGarry Tan1:06:04

       Oh, God. It's hilarious.

    3. SPShaan Puri1:06:05

       It's a whole blog post you have.

    4. GTGarry Tan1:06:06

       I mean, uh, I, you know, I've been to Burning Man a few times. I love Burning Man. It's my favorite place to take a break from consensus reality and realize that it's all made up, but you get to make it up. And, uh, you know, there's a lot of, like, weird fringe stuff, a lot of, like, '60s, like, esoterica. You know, uh, you're just wandering around the desert on a bike with your buddies and, you know, I think, uh, we randomly walked into a spoon-bending party where, uh, they were, you know, it was a huge group of, uh, I think it was almost like a magician at the front, like sort of helping people. You know, the, the shtick was that they were gonna teach you how to b- uh, bend a spoon with your mind. I was like, "Okay, that's cool. Like, let's go check it out." They passed out these spoons. Um, and then it was like a magic trick. They said, uh, "Okay, now bend your spoon with, like look at your spoon and, uh, bend it with your mind." And then in between, they would say like, "Okay, well, sometimes you need to use your hands and, like, warm up the spoon to bend it." And then basically, uh, I think what you're supposed to do literally is just bend the spoon with your hands. [laughs]

    5. SPShaan Puri1:07:13

       [laughs]

    6. GTGarry Tan1:07:14

       And that's what, you know, and then what's funny is by the end of it, um, half of the people Like I had, I had a bent spoon 'cause I was like, "Oh yeah," like they said like, "Oh, I should, you know, sort of warm up the spoon with my hands and bend it with my hands." And then the other half of the room-

    7. SPSam Parr1:07:28

       Just to get it started. Just to get it started. [laughs]

    8. GTGarry Tan1:07:29

       Yeah. Just, yeah, just to get it started, right? And then by the end, like half of the room had bent spoons and the other half didn't, and the ones that didn't were like, "How did you do that? That's absolutely incredible." And I was like, "Guys, it's a bit. It's a bit." Like you have to, you know, first know that you can bend the spoon with your mind, but then you bend it with your hands, guys. Like, that's, that's literally like the shtick actually. And it's a little bit of an allegory for, uh, you know, bias to action and what you're supposed to do in real life. Like real life is sort of like this exercise. Like they say like you can go change the world and you can do it with your i- you know, with your very ideas. But like, you know, that alone is not enough. Like, you actually have to go with your hands and go talk to users and, you know, sit and build a thing. And so, you know, d- don't forget the second half. And the wildest thing is like more than half of the room could not do it. [laughs] And so if you are the person who's able to bend the s- you know, bend the spoon with your mind, like guess what? You also used your hands. Like you gotta do that. [laughs]

    9. SPSam Parr1:08:29

       [laughs]

    10. GTGarry Tan1:08:29

        You know? And a- actually, like that's maybe like the greatest gift is just like-

    11. SPSam Parr1:08:37

        Dude, Garry-

    12. GTGarry Tan1:08:37

        Yeah

    13. SPSam Parr1:08:37

        ... you're the shit, man. You are the best.

    14. GTGarry Tan1:08:40

        [laughs]

    15. SPSam Parr1:08:40

        I love talking to you. You make me feel, uh, really great. You give me energy and, um, we're very, very, very thankful that you, uh, took the time to do this.

    16. GTGarry Tan1:08:49

        Thank you guys so much for having me. Always great to see you guys and, you know, congrats on all the success and excited to see where you and your community go. I mean, you know, we're, we're all building the future out here.

    17. SPSam Parr1:08:59

        Well, thank you for saying that.

    18. SPShaan Puri1:09:00

        Take care, Garry. [outro music]

Episode duration: 1:09:25