Pixar’s Golden Age, Twitter through IPO, and Building YC’s Growth Fund | Ali Rowghani | Ep. 26

Ali Rowghani 0:00 We live in a world of hedging. We live in a world of thinking with bets, backup plans, you know, contingencies-

Jack Altman 0:04 Yeah.

Ali Rowghani 0:04 -et cetera. And in a sense, that's very rational, okay? Um, but what if you didn't live in that world? Like, what if you, like, positioned yourself against that? And what if, like, you tortured everything you worked on to try to be great-

Jack Altman 0:17 Yeah

Ali Rowghani 0:17 ... you know, within the context of a company?

Jack Altman 0:18 Yeah.

Ali Rowghani 0:18 And I think that is the core of a miracle factory.

Jack Altman 0:21 [music] All right. I'm super excited to be here with Ali Rowghani. He was the COO at Twitter in some of the most formative years. You had exec roles at Pixar, worked directly with Steve Jobs for many years. You started and ran the YC Growth Fund. You've been an angel investor in amazing current companies like Cursor, Decagon. You've got your own fund now. You've also been, like, an advisor to a bunch of people in our ecosystem, like me, over the years, and so many others. Um, and so you're just someone I've looked up to and wanting to talk to you on the show for a long time, so thank you for doing this.

Ali Rowghani 0:51 Oh, it's a pleasure. I'm psyched to be here.

Jack Altman 0:53 The thing I want to start with that is so interesting to me is the Pixar experience, and you were there for ten years, around 2000 to 2010, give or take, and what's shocking to me, above all, is it seems like year after year after year, they just released, like, bangers, and everyone was good. And most movie studios, I feel like some of the products are good, some are not. But, like, here we had, we had Monsters, Inc., Finding Nemo, The Incredibles, Cars, Ratatouille, WALL-E, Toy Story. Like, it's just-

Ali Rowghani 1:25 Up.

Jack Altman 1:26 Up. It's just crazy.

Ali Rowghani 1:27 Yeah.

Jack Altman 1:28 And so I guess my first question is... And I don't think I skipped, like, a bunch of misses or something. How did that happen? Like, how is the quality bar-- What, what went into making that happen time after time?

Ali Rowghani 1:40 You know, Pixar was a miracle factory. That's, that's how I thought of it. Um, you know, you start with a blank sheet of paper, and then four years later, you have Finding Nemo, and then, then you start with another blank sheet of paper, and four years later, you have The Incredibles, Ratatouille, Up, and so on. So, like, the interesting question is exactly what you asked: Like, how is that possible? And I think for me-- I've thought a lot about this question, and I think for me, it kind of boils down to really three big things. One of them is, we only made movies that the directors themselves felt really passionate about. It wasn't, uh, filmmaking by committee. It wasn't, like, some executives ordering up a movie or like, "Let's do a Madl- Mad Libs style with focus groups," or whatever else. None of that. It was like, what was the story that somebody who was really talented truly wanted to tell? And then we put all of our eggs in one basket. Like, there was no thinking in bets.

Jack Altman 2:31 Mm.

Ali Rowghani 2:31 There was no hedging.

Jack Altman 2:32 Stuff wasn't getting killed along the way.

Ali Rowghani 2:34 No, no. And it was once we were committed to a director and to an idea, it was like-

Jack Altman 2:40 Mm

Ali Rowghani 2:40 ... all in. And it was this focus, almost like it had to be great. The future of the studio depended on it, so it would be great.

Jack Altman 2:49 What percent of the studio would work on a given movie while it was being worked on?

Ali Rowghani 2:52 At the beginning, before we could have multiple films going at the same time, a hundred percent of the studio worked on one film. So I would say for the first three movies or so, a hundred percent of the studio worked on, on the film. And that started to change with Toy Story 2, which I think is kind of the seminal movie in Pixar history, because Toy Story 2, it was a new creative team, not the creative team that made the first couple of movies. A new creative team made that movie. And when the creative team, like, finished up on Bug's Life, which was the second movie, they turned their attention to Toy Story 2, which was supposed to come out just one year later. And they looked at it, and they were like, "This isn't good enough."

Jack Altman 3:24 Mm.

Ali Rowghani 3:24 And so they replaced the creative team. They took over the movie nine months before it was supposed to come out, and if you know anything about animated filmmaking, nine months before the movie comes out is, like, not when you start over. You know, these films take multiple years to make. And they rewrote and remade the movie from scratch, and it almost, like, killed the studio to do that.

Jack Altman 3:40 Wow!

Ali Rowghani 3:40 But, you know, Ed Catmull talks about that was the, the moment in Pixar history, because faced with a choice of, like, "Do we release something we're not proud of, or do we kill ourselves to release something we're really proud of?" The studio made the choice to r- to, like, stop everything and focus on, like, making it great. And that established a culture, like, a set of norms, and this notion of, like, we don't think in bets. Like, we're all in. No hedging. Like, and, and I think that really means something.

Jack Altman 4:07 Mm.

Ali Rowghani 4:08 So that's the foundation of it. Um, and then there are two other things in terms of the process that I think are super important. One is, like, the, the Pixar films were made and remade and made and remade, like, a dozen times before the audience ever saw them, and not many people know that. Uh, but what we would do is we'd have this process called story reels, and we would expect the directors to write essentially a moving comic strip version of their movie, a temporary version of the movie, produce that three to four times a year, and then the... And that was-- a- and it was shown in pub- in public within the studio. And, you know, we'd get the brain trust of the studio, creative brain trust, together, and they'd give a bunch of notes o- on this thing. So there was a rapid prototyping process, and the thing that was important was not how bad the movies were when they started, but that they were showing, like, improvement from screening to screening to screening. And so this, like, making and remaking, making and remaking process, um, was really important. So that's two. The last thing is, there was an incredible sort of, like, open feedback on the films, um, meaning, like, you were expected, as a director, to hear the feedback of other filmmakers on your movie. You, you, you had the... You know, the decisions were yours in terms of what to do, but, um, but you had to hear it, you know? And so we built this, uh, sort of culture of it being safe and okay to show work that wasn't finished, to show imperfect work, and that just meant that the work, in-process work always got better, as opposed to someone working for two years and finally showing you something, and you saying, like, "Okay, that's crap." You know, if it's that kind of a, kind of a culture, then the feedback is, is shattering, and it's not sought. But if it's feedback where it's, like, okay to, like, show incomplete work, and the leaders of the studio, when they're making films, are showing their work when they know it's not very good-

Jack Altman 5:44 Mm-hmm

Ali Rowghani 5:44 ... then it, I think, breeds this culture of, like, always getting better. Yeah.

Jack Altman 5:48 That decade, like, the 2000s-... I guess Apple was and is also very much like that. Like, you know, you back, you go back and you think about going all in on the iPod and then the iPhone. Like, that was also, I guess, it couldn't have been a thinking in bets culture there either, right?

Ali Rowghani 6:03 Certainly in terms of the quality bar, that everything they release to the public has to be great, and that you take the time to make sure it's great. I think in that sense, um, probably. I don't know if A- Apple had-- I think from just hearing from the outside, there were lots of things they were working on that they killed-

Jack Altman 6:16 Yeah

Ali Rowghani 6:16 ... you know, along the way, that they just didn't think was good enough. Or-

Jack Altman 6:19 Yeah

Ali Rowghani 6:19 ... I mean, there was rumors about a television set-

Jack Altman 6:20 Right

Ali Rowghani 6:21 ... and all this other stuff that-

Jack Altman 6:21 Yeah

Ali Rowghani 6:22 ... you know, you and I have heard about. So I think there probably are some similarities, um, but you know, different businesses, like different process.

Jack Altman 6:28 I think I didn't fully realize this until we were chatting before, but Steve Jobs was CEO of both, right? Like, he was running Apple through this, I guess, turnaround-

Ali Rowghani 6:37 Yeah

Jack Altman 6:37 ... and getting, you know, the sort of iPod and iPhone and everything else in those years. But he was CEO of Pixar during that same time.

Ali Rowghani 6:44 Yep.

Jack Altman 6:45 And for at least some number of those years, you worked directly with him. So I guess I don't know other people who have worked directly with Steve, so I kinda wanna ask a few questions about that.

Ali Rowghani 6:54 Mm-hmm.

Jack Altman 6:54 Um, what was, I guess, just to start, like, what was he like? Like, what was working with him, like, in a sort of regular cadence business? What was that like?

Ali Rowghani 7:02 You know, he was the most, um, impressive, like, business creature, um, I've ever been around in a room. And, and it wasn't because he was famous or it was like, "Oh, there's Steve," or anything like that. Um, and in the end of the day, for me, it boiled down to a set of basic skills that he had. You know, his ability to break down a problem in real time, his ability to communicate really clearly, his ability to inject urgency-

Jack Altman 7:28 Mm

Ali Rowghani 7:29 ... and kind of like cadence and urgency and importance to everything that we did. Um, all of this stuff kind of was in service of like, um-- all of his basic skills were in service of, like, trying to create, as fast as possible, a map of the world, a map of reality in every discussion, that would help, like, guide the discussion and help us get to the truth.

Jack Altman 7:50 Mm.

Ali Rowghani 7:50 And so he was so good at, like, you know, developing this, generating a map of the world. And even if it, he was wrong about c- certain things, like, you fed him new data, and he would, like, recalculate it. And it was, it-- you always had the feeling being around him that, like, wow, like, this, you know, I thought this game we were playing was, like, level one to three, but then you saw somebody that was, like, at level twenty-

Jack Altman 8:13 Uh-huh

Ali Rowghani 8:13 ... and it was, like, incredibly inspiring, just the way he did the basic stuff.

Jack Altman 8:17 So, like, what are some of those, like, those basics, like communication-

Ali Rowghani 8:20 Yeah

Jack Altman 8:21 ... and, like, understanding and pulling things out of people? What, what specific sort of things stuck out to you there? Like, can you share more of those, like, basics done really well? 'Cause I feel like I can't remember where I saw this recently, but someone was talking about, like, if you don't know what, like, your equivalent of practicing scales is, you, like, you need to figure that out.

Ali Rowghani 8:39 Mm-hmm.

Jack Altman 8:39 And I feel like when you're talking about basics, like, that's something that doesn't get discussed enough in, like, business.

Ali Rowghani 8:44 Yeah.

Jack Altman 8:44 'Cause especially as a CEO or an executive or an investor, you kind of don't even know what your basics are a lot of times. Like, what, what were those?

Ali Rowghani 8:51 Yeah, so I mean, it was really some of the things th-

Jack Altman 8:53 Yeah

Ali Rowghani 8:53 ... I mentioned.

Jack Altman 8:54 Yeah.

Ali Rowghani 8:54 And I think what happens with most of us, you know, I, I'm-- certainly with me, is like, you get pretty good at communicating. You get pretty good at, like, exchanging ideas-

Jack Altman 9:02 Yeah

Ali Rowghani 9:02 ... or, like, trying to decipher something or developing your own mental map of the universe or-

Jack Altman 9:05 Yeah

Ali Rowghani 9:05 ... a mental map of a particular problem, particular discussion.

Jack Altman 9:07 Yeah, and then you feel like you don't need to refine it more, or you don't-

Ali Rowghani 9:09 Yeah, and you don't even think about it anymore.

Jack Altman 9:10 Yeah.

Ali Rowghani 9:10 Like, you just take it for granted-

Jack Altman 9:11 Yeah

Ali Rowghani 9:11 ... like, "I'm pretty good at this."

Jack Altman 9:12 Yeah.

Ali Rowghani 9:12 You know? And it reminds me of, like, I was a German student. I went to Germany, and for the first, like, six months I was there, my German was terrible. And every day I would come home, and I would work and work and work and work and to get my, uh, German better. And I got to a certain place where I could no longer embarrass myself-

Jack Altman 9:25 Yeah

Ali Rowghani 9:25 ... and I stopped working.

Jack Altman 9:26 Yeah.

Ali Rowghani 9:26 You know, and the, the thing with Steve was, you got the impression that he was, like, always sharpening the s- the saw. He was always like... You know, it was always, "It could be better." With everything, "It could be better. I could communicate better. My, the email could be better. I could motivate better. I could communicate..." Like, he just-- it just felt like he really worked at it. And you know, um, the, I've been asked a lot over the years: What was it like to work with Steve, et cetera? And you know, I would, I would say some version of this, uh, talk about basic skills, you know, not knowing if it really landed or people understood.

Jack Altman 9:54 Mm-hmm.

Ali Rowghani 9:54 And then, on the tenth anniversary of his passing, I read, um, an obituary that was written for him in The Wall Street Journal by Jony Ive, who was obviously the famous head of design and worked probably more closely with Steve than anyone. And there was a line in that obituary that really stuck with me. It, it, it said something like, um, "Steve was obsessed with the nature and quality of his own thinking, and he worked so hard at it to be able to always k- uh, think with a rare elegance, vitality, and discipline," or something like that.

Jack Altman 10:25 Yeah.

Ali Rowghani 10:25 And when I read that, I was like, "That's what I meant. That's it," that he worked on his own thinking. So he was not just thinking about, like, the business, the products, his team. He was thinking about his own thinking-

Jack Altman 10:39 Wow

Ali Rowghani 10:39 ... as, like, the generator function of, like, everything he did and everyone he interacted with and every idea that he, like, critiqued.

Jack Altman 10:47 Do you think that was, like, an internal process, or did he practice that with others somehow? Like, did he let other people in to give him feedback on his thinking, and that's how he did it, or was he just so reflective and so focused on it? And I guess the reason I'm asking is, if somebody else wanted to do that, if I wanted to try to be better at that, what's, like, the path to improving my own thinking?

Ali Rowghani 11:07 The honest answer is, I don't know. Um, like, he may have had, certainly early in his life, people who, like, you know, mentored him or that he learned a lot from or, or... But I think honestly, it's, um, mostly a solitary thing for all of us. And the nice thing, in a way, is, like, we live in a world where, like, a lot of our communication now is recorded.

Jack Altman 11:25 Mm-hmm.

Ali Rowghani 11:26 Like, if you think about, you know, all the meeting recorders on Zoom-

Jack Altman 11:28 Yeah

Ali Rowghani 11:29 ... and, you know, you give a talk in front of a big group or, you know, this podcast.

Jack Altman 11:31 You can go watch this, yeah.

Ali Rowghani 11:32 Yeah, you can watch it, and then you can always ask yourself, like, "How could I have been clearer? How could I have asked this better? How could I have been more motivating? How could I have injected more urgency into it?"... And, and the important thing is recognizing that there are 20 levels to the game.

Jack Altman 11:44 Mm.

Ali Rowghani 11:44 They're not just three. And don't be satisfied with, like, getting to level three and you're pretty good, because, like, Steve was at level 20. And then when you, when you were so good at the basic stuff, the stuff you use every single day to generate your mental model of reality-

Jack Altman 11:57 Yeah

Ali Rowghani 11:57 ... and find the path, the strategic path forward, those basic skills over a career compound more than anything else, because these are skills you use every single day.

Jack Altman 12:06 It's funny that you say that about it being solitary. One of the things that I feel sad about for myself, and I think this is probably true for everybody, is like I think people don't think enough. Like, I think people don't just quietly think very often.

Ali Rowghani 12:15 Yeah.

Jack Altman 12:15 And like, you know, any downtime we have-

Ali Rowghani 12:17 Yeah

Jack Altman 12:17 ... like, we're on our screen.

Ali Rowghani 12:18 Yeah.

Jack Altman 12:19 And people just rarely-

Ali Rowghani 12:20 Yeah

Jack Altman 12:20 ... I, I think this is why, like, walks are powerful, honestly. It's, like, one of the easiest ways to just, like, go think.

Ali Rowghani 12:24 Right, yeah. I mean, another thing about Steve is, you know, he was a... He, he thought really quickly on his feet, for sure, but, you know, whenever he had big presentations to give for Apple or whatever, he would spend, like, two months preparing.

Jack Altman 12:35 Mm.

Ali Rowghani 12:35 He would go into this hermit phase, and we would rarely see him during that phase at Pixar. He would come, come around less, and he would just be working on this presentation. And so I think there are a bunch of lessons-

Jack Altman 12:44 By himself?

Ali Rowghani 12:45 By... Well, no, I'm sure he had a team.

Jack Altman 12:47 Okay.

Ali Rowghani 12:47 But, like, it was primarily, like-

Jack Altman 12:48 Yeah

Ali Rowghani 12:49 ... a lot of focused attention-

Jack Altman 12:50 Yeah

Ali Rowghani 12:50 ... on, on his presentation-

Jack Altman 12:51 Mm-hmm

Ali Rowghani 12:51 ... and rehearsing it and rehearsing it and making it better.

Jack Altman 12:53 Mm.

Ali Rowghani 12:53 Um, and look, I think the lesson for all of us, and especially, like, the lesson for, like, p- anyone trying to get something off the ground or early-stage founder or whatever, [clears throat] is, like, like, just always focus on sharpening the str- the, the saw. Always focus on that. Don't assume, like, you know, you're good enough ever.

Jack Altman 13:10 Mm.

Ali Rowghani 13:10 There's always better. Um, and if you focus on, like, the basic stuff, like, that, like, really compounds. So I guess, like, think about your own thinking, because if you can make that better, the, like, downstream impact of it's really profound.

Jack Altman 13:23 What, what did you learn that you can share about Ed Catmull or John Lasseter, who are the other leaders?

Ali Rowghani 13:29 I think Ed Catmull was the architect of the miracle factory, in my view, and, um, he, um... You know, like, this idea that, like, we have to make everything great, um, uh, which, by the way, like, if you think about it, you know, again, applying it to like... I mean, what, what greater aspiration would anyone trying to start anything have than to try to build a miracle factory of their own, you know? And so, like, you know, I think really for Ed, it started with, like, having an extremely high bar-

Jack Altman 13:59 Mm

Ali Rowghani 13:59 ... for what was great, you know, and always trying to... You know, you perform to your own expectations, or you perform down to your own expectations. And like, he helped, he and John both, um, who was the ch- chief creative officer at Pixar, held the studio to an incredibly high bar about what was good, and they were willing to pay the costs of, you know, whatever cost was necessary to maintain that bar, so-

Jack Altman 14:17 I think that's the key. It's easy to say, but there's costs associated-

Ali Rowghani 14:20 Exactly

Jack Altman 14:20 ... and they're personal and emotional-

Ali Rowghani 14:22 Yep

Jack Altman 14:22 ... financial.

Ali Rowghani 14:23 Yeah.

Jack Altman 14:23 There's a lot of costs-

Ali Rowghani 14:23 Yep

Jack Altman 14:23 ... associated with maintaining a high standard.

Ali Rowghani 14:25 That's right. So I, you know, I mentioned the Toy Story 2 story. The other, the other story at, at, at Pixar was Ratatouille, where, you know, the film wasn't coming together and the director of the film was replaced. Another director was put on the film-

Jack Altman 14:36 Mm

Ali Rowghani 14:36 ... and then the film was essentially... And then they delayed the release of the film by, I think, six or nine months or maybe a year, I don't know, uh, some period of time, which in animation time is a big deal, and it makes the movie a lot more expensive.

Jack Altman 14:46 Yeah.

Ali Rowghani 14:46 Um, but then Ratatouille becomes, like, one of these incredible-

Jack Altman 14:49 Yeah

Ali Rowghani 14:49 ... you know, it, members of the sort of like canon of Pixar.

Jack Altman 14:52 There was this great, uh, tweet from John Collison, and it ended with basically, like, the world's a museum of passion projects-

Ali Rowghani 14:59 Yeah

Jack Altman 14:59 ... or something like that. Basically, just that, like, every good thing you see in the world, like, somebody had to sacrifice a lot-

Ali Rowghani 15:05 Yeah

Jack Altman 15:05 ... to produce anything at a high standard.

Ali Rowghani 15:07 Yeah.

Jack Altman 15:07 That sticks with me.

Ali Rowghani 15:08 That's right.

Jack Altman 15:08 And it hurts.

Ali Rowghani 15:09 And, and... Yeah, yeah. And, you know, and we live in this world where, you know, particularly investors, and look, investing isn't like Pixar, but it in a lot of ways, but, like, you know, we live in a world of hedging. We live in a world of thinking with bets, backup plans, you know, contingencies-

Jack Altman 15:20 Yeah

Ali Rowghani 15:20 ... et cetera. And in a sense, that's very rational, okay? Um, but what if you didn't live in that world? Like, what if you, like, positioned yourself against that? And what if, like, you tortured everything you worked on to try to be great-

Jack Altman 15:33 Mm

Ali Rowghani 15:33 ... you know, within the context of a company?

Jack Altman 15:34 Yeah.

Ali Rowghani 15:34 And I think that is the core of a miracle factory.

Jack Altman 15:36 Mm.

Ali Rowghani 15:37 Because what you say about, like, how did they repeatedly produce success with no flops?

Jack Altman 15:41 Yeah.

Ali Rowghani 15:42 It's because, like, they had that mentality. Like, everything had to be great.

Jack Altman 15:45 It's funny, the-

Ali Rowghani 15:46 Mm

Jack Altman 15:46 ... I would say, the thinking and bets mentality is, um, it's not discussed that much, but it's extremely central in tech, like, to how startups think-

Ali Rowghani 15:54 Yeah

Jack Altman 15:54 ... to how investors operate, to even how, you know, people working at startups manage their careers. I think people think in bets-

Ali Rowghani 16:00 Yeah

Jack Altman 16:00 ... in a real way.

Ali Rowghani 16:01 Yeah.

Jack Altman 16:01 And you're kind of describing the, the extreme opposite.

Ali Rowghani 16:05 Yeah. And I, I've... Personally, I don't think startup founders should think in bets. There's an argument for investors thinking in bets, it's just a different game, but startup founders thinking in bets, I, I don't think is the right thing. You have to choose the quest that you have, like, extreme conviction in, and, like, you'll sort of, like, die trying-

Jack Altman 16:23 Yeah

Ali Rowghani 16:23 ... to make this thing work, um, because it's so hard, and if you're not committed, pot committed, then it's just

Ali Rowghani 16:28 that much harder.

Jack Altman 16:28 Okay, I wanna move over to Twitter-

Ali Rowghani 16:31 Yeah

Jack Altman 16:31 ... now X. Um, you were COO there-

Ali Rowghani 16:33 Yeah

Jack Altman 16:33 ... from 2010 to '14, and obviously, those were, like, crazy years. I guess on some level, it seems like for the company, all the years are crazy years, but there was a lot going on then. Can you just, like, tell me about what was happening at a leadership, founder level? Like, what were the, what were the big chess pieces moving around at that time?

Ali Rowghani 16:52 Yeah. So when I joined Twitter, we had, um, less than 100 employees. We had no revenue. We didn't have a business model. We weren't sure we were gonna make our money with ads or some other charge memberships. Like, there were all sorts of issues-

Jack Altman 17:01 The site was going down all the time?

Ali Rowghani 17:02 The site was going down all the time.

Jack Altman 17:04 The fail whale.

Ali Rowghani 17:04 The fail whale, yeah. There was a logo, for those who don't remember. The company built its own logo for the site crashing and the site going down, which was the fail whale.

Jack Altman 17:11 That's funny.

Ali Rowghani 17:11 Um, it was kind of a bit of a laughingstock company, and it clearly touched a certain cultural zeitgeist. You know, it had about 15 million users. We just ran twitter.com. We didn't have any mobile apps. We didn't have any mobile engineers at the company. And, you know, about eight months or so after I joined, um, the founder... You know, there'd been s- a lot of founder turmoil between Jack and Ev, and J- Ev was the CEO when I joined, and he was out. Um, and Biz kind of walked out with him, and so we were sort of founderless, um, about eight months into the, into the tenure. And it was both a-

Jack Altman 17:39 Wow

Ali Rowghani 17:39 ... sort of like hyper-scaling challenge, um, because the opportunity was so large, and effectively a turnaround-

Jack Altman 17:45 Mm-hmm

Ali Rowghani 17:45 ... because, you know, all the leadership was pushed out. There were a lot of wrong people in the wrong pos- uh, in the, in various positions.

Jack Altman 17:51 It's a very interesting case study, 'cause it seems like it had unstoppable product market fit-

Ali Rowghani 17:55 Yeah

Jack Altman 17:55 ... and then was just not run well.

Ali Rowghani 17:57 ... That's largely right.

Jack Altman 17:58 It's better than the inverse, I guess.

Ali Rowghani 18:00 Yes. Yes.

Jack Altman 18:00 Yeah.

Ali Rowghani 18:01 Yeah, sometimes product-market fit is so powerful that it allows you to make a lot of mistakes at the top.

Jack Altman 18:05 Reddit had this for a long time.

Ali Rowghani 18:06 Yep. Yeah, that's right.

Jack Altman 18:07 Yeah.

Ali Rowghani 18:08 Yeah And so, um, yeah, so I joined it when it was in that state. I left about four or five years later, and we'd gone from no revenue to $2 billion in revenue. We'd gone from 50 million users to 300 million users. We'd gone from just one office in San Francisco to 23 offices in 14 countries. And when I look back, I think there are a couple of things we did great and a couple things I wish I could have over again.

Jack Altman 18:26 Mm-hmm.

Ali Rowghani 18:26 Um, I think the two things that we did great, one is, um,

Ali Rowghani 18:30 I think we got monetization right. And the core of it was, I think we figured out before any social platform, that if you can make the ad unit and the content unit the same, in our case, tweets-

Jack Altman 18:41 Yeah

Ali Rowghani 18:41 ... then, um, you have the ability to make ads feel more like content.

Jack Altman 18:45 Yeah.

Ali Rowghani 18:45 And you have- you can judge them based on relevance, and you give advertisers the ability to participate in a conversation. And, like, my favorite example of this, you may remember, um, the year we're in the Super Bowl, like, when the lights went out at the Super Bowl, um, Oreo, which was Oreo cookies, which was a advertiser on Twitter, right at that time, when, like, the lights are out, it sends out this adverti- this tweet-

Jack Altman 19:04 Yeah

Ali Rowghani 19:04 ... promoted tweet, that ta- that talks about, like, dunk after dark.

Jack Altman 19:08 That's good.

Ali Rowghani 19:08 So, you know, dunk your Oreo cookie in milk. It's dark or whatever.

Jack Altman 19:11 Yeah.

Ali Rowghani 19:11 Right when the... So and it got a lot of attention and a lot of buzz, and it was just clever. It was content, or was it an ad? I don't know. It made people laugh, right?

Jack Altman 19:18 Yeah.

Ali Rowghani 19:18 So, um, I think we got that notion of the ad unit and the content unit being the same, right? And the nice thing was, it was graceful as, like, the platform shifted from desktop to mobile. Um, Facebook, at the time, you may remember, kind of stumbled because its ad units were built for the desktop, which is the majority, majority of users.

Jack Altman 19:34 Mm-hmm.

Ali Rowghani 19:35 That's how they interfaced with Facebook until that changed, and so they kind of had to figure out what their ad units would look like in a mobile world. I, I think Twitter kind of nailed that. Um, [clears throat] the second thing is, you know, we scaled the company globally really fast and generally pretty well. And as a result, our, um... You know, there was a big global audience, and we built a global business quickly.

Jack Altman 19:54 Mm-hmm.

Ali Rowghani 19:54 I think those were the things I think we got right.

Jack Altman 19:56 Yeah.

Ali Rowghani 19:56 I think the things that I regret or big learnings for me, um, were, um, probably the biggest one is w- the company never showed enough curiosity about its own users.

Jack Altman 20:07 Mm.

Ali Rowghani 20:07 And we had a mental model of who a Twitter user was that way lagged the reality of what Twitter users were, you know, across all these countries, across all these devices-

Jack Altman 20:16 Yeah

Ali Rowghani 20:16 ... you know, using it in v-

Jack Altman 20:18 Oh, yeah

Ali Rowghani 20:18 ... a myriad of ways.

Jack Altman 20:18 I can imagine that the early adopters and, like, the middle of the pack of the curve were completely different.

Ali Rowghani 20:23 Yeah. A- and this is an interesting thing for, like, any, any, in any business-

Jack Altman 20:26 Mm

Ali Rowghani 20:27 ... which is, um, your mental model, um, of your customer, ah, naturally lags. There's inertia in how that model, like, moves relative to, like, reality. And you have to, if you're gonna kind of keep up with, like, who your users actually are and what their needs are, you have to actually develop a ton of discipline and a ton of, like, rituals and processes to keep up.

Jack Altman 20:49 Yeah.

Ali Rowghani 20:49 I remember, um, uh, Patrick Colsen asked me years ago to attend one of their, um, all-hands, and this is all I talked about. All I talked about was, like, "Hey, your platform is starting to take off, and let's talk about the ways in which your views of your users are maybe outdated to what you... who your users actually are today and what they're doing."

Jack Altman 21:06 Yeah.

Ali Rowghani 21:06 Um, so that was a huge thing at, uh, at Twitter. Um, and, you know, unfortunately, you know, there were big product launches that we, that we had. One of them was, uh, the conversations feature. You remember the blue line?

Jack Altman 21:16 I do remember. That was so hard to use.

Ali Rowghani 21:17 Yeah, the co-

Jack Altman 21:17 Yeah.

Ali Rowghani 21:18 Yeah. Well, what happened was, um, there were- there... Probably, our most engaged users of Twitter were people who were using the platform to subtweet their friends, often with false identities, kids usually.

Jack Altman 21:26 Mm-hmm.

Ali Rowghani 21:27 And that feature broke Twitter for them. So our most eng- engaged users in the United States, like, we launched a feature that broke Twitter for them, and that was simply because we didn't really understand-

Jack Altman 21:36 Mm

Ali Rowghani 21:36 ... like, who they were. We were building for ourselves, that, that seemed nifty.

Jack Altman 21:39 Yeah.

Ali Rowghani 21:39 And so that's a really dangerous thing to do.

Jack Altman 21:41 Yeah.

Ali Rowghani 21:41 The other thing- the other learning for me was, um, we were too precious. I mean, we were too precious about 140 characters-

Jack Altman 21:47 Yeah

Ali Rowghani 21:47 ... we were too precious about, um, the reverse chronological, um, timeline. And I think one of the things I give Elon credit for is he, like, sacrificed-

Jack Altman 21:56 Started experimenting.

Ali Rowghani 21:56 Yeah.

Jack Altman 21:56 Yeah.

Ali Rowghani 21:56 Sacrificed all the sacred cows-

Jack Altman 21:58 Yeah

Ali Rowghani 21:58 ... like, uh-

Jack Altman 21:58 He basically trusted that the network was strong enough, that he was free to experiment.

Ali Rowghani 22:02 Yeah. Yeah.

Jack Altman 22:02 Whereas, I guess, old Twitter was afraid of breaking the golden goose.

Ali Rowghani 22:05 Yeah. Or they had this, um... There was definitely part fear, but part, I think, there was a belief that our differentiation was in making the p- the product exceedingly real time.

Jack Altman 22:16 Mm.

Ali Rowghani 22:16 And shorter tweets that are reverse chronological make it more like the pulse of the planet, more real time.

Jack Altman 22:22 Yeah.

Ali Rowghani 22:22 But I think the mistake was, that actually wasn't what the majority of humans wanted.

Jack Altman 22:26 Yeah.

Ali Rowghani 22:26 Um, it was just what a subset of humans wanted.

Jack Altman 22:29 And also, of course, you can design the algorithm to make it so that when important stuff is happening, it comes to the top-

Ali Rowghani 22:33 Comes to the top

Jack Altman 22:34 ... which is how I think it-

Ali Rowghani 22:34 Yeah

Jack Altman 22:35 ... basically seems to work now.

Ali Rowghani 22:35 Yeah, yeah.

Jack Altman 22:36 Yeah.

Ali Rowghani 22:36 That's right.

Jack Altman 22:37 It must be interesting for you to watch Elon do what he's been doing with it, which is so different from what you were doing. And I'm sure there must be a lot of things that he's doing that you think are really good. I'm sure there's some things where you're just like, "What are we doing?" I'm curious to hear your, like-

Ali Rowghani 22:50 Yeah

Jack Altman 22:50 ... you know, observations.

Ali Rowghani 22:51 Look, I think he made a bunch of unforced errors. Like, I think the check marks thing, I think, was really poorly handled-

Jack Altman 22:56 You think?

Ali Rowghani 22:56 ... letting people buy the check marks, and then obviously-

Jack Altman 22:58 Shouldn't have done that.

Ali Rowghani 22:59 It shouldn't have been handled the way it was handled, where, like, the thing that verified your identity was suddenly for sale.

Jack Altman 23:03 Yeah.

Ali Rowghani 23:04 And of course, like, you know, somebody bought the drug maker's handle, the check mark-

Jack Altman 23:08 Yeah

Ali Rowghani 23:08 ... and then tweeted, and their stock dropped.

Jack Altman 23:09 I just feel like the blue checks thing was driving a lot of people... Like, it made this multi-class system-

Ali Rowghani 23:13 Yeah

Jack Altman 23:13 ... kind of thing that I think didn't feel good.

Ali Rowghani 23:14 Yeah, yeah.

Jack Altman 23:15 It's like I actually- I think what you're saying is, like, it wasn't necessarily it was a bad idea, it was just the way that it went down that was bad.

Ali Rowghani 23:19 Yes, the rollout was bad.

Jack Altman 23:20 Yeah.

Ali Rowghani 23:20 It wasn't as thoughtful.

Jack Altman 23:21 Yeah.

Ali Rowghani 23:22 You know, um, but look, I, I never expected him to change the name, you know?

Jack Altman 23:26 Yeah, that was, that was surprising.

Ali Rowghani 23:27 Yeah, yeah. I mean, I think it's, in a sense, indi- indicates that he has something bigger in mind, and maybe that's cool. Um, uh, you know, he took a lot of costs out of the business.

Jack Altman 23:34 I also wonder if it was just, like, a sign to say, like, nothing's sacred.

Ali Rowghani 23:37 Yeah.

Jack Altman 23:37 Like, even without a big plan, just like, "I'll change the name"-

Ali Rowghani 23:40 Yeah

Jack Altman 23:40 ... like, says something, I guess.

Ali Rowghani 23:41 Oh, yeah, for sure, for sure. Yeah.

Jack Altman 23:42 Yeah.

Ali Rowghani 23:43 But I think-

Jack Altman 23:43 Take a ton of costs out, yeah, of course.

Ali Rowghani 23:44 Yeah, yeah. But I think you're right. I think the powerful thing is the network is so durable.

Jack Altman 23:48 Mm-hmm.

Ali Rowghani 23:48 And, um, you know, we can debate if whether we like Twitter more now or before or whatever, whatever, whatever. But I think it's, um... I mean, one of the things I'm proud of is I got to work on something that I think is gonna be around, like-

Jack Altman 23:57 Yeah

Ali Rowghani 23:57 ... when my kids grow up, probably.

Jack Altman 23:58 It doesn't seem like it's gonna have a chance to go away.

Ali Rowghani 24:00 Yeah.

Jack Altman 24:00 It's just in a good- um, which I'm happy about.

Ali Rowghani 24:01 Yeah, yeah.

Jack Altman 24:01 I think it's really good.

Ali Rowghani 24:02 Yeah. Me

Ali Rowghani 24:03 too.

Jack Altman 24:03 Yeah. Okay. So-... um, you had those experiences, and then you went into venture.

Ali Rowghani 24:08 Yeah.

Jack Altman 24:08 Right? So, um, talk about that, like-

Ali Rowghani 24:11 Well, I joined YC.

Jack Altman 24:12 You joined YC.

Ali Rowghani 24:12 Yeah, yeah. It's not venture. It's not now venture, but yes.

Jack Altman 24:14 You had a-

Ali Rowghani 24:15 Yes

Jack Altman 24:15 ... you had a large venture fund-

Ali Rowghani 24:16 Yes

Jack Altman 24:16 ... at YC, but really-

Ali Rowghani 24:17 Yes

Jack Altman 24:17 ... at YC.

Ali Rowghani 24:18 Yeah. Yeah.

Jack Altman 24:18 Yeah. Um, but, like, so that was, like, the beginning of the growth fund, right? Like, there wasn't one- like, that was right at the beginning of it.

Ali Rowghani 24:23 Yes.

Jack Altman 24:23 And, um, obviously, you invested in, like, a ton of great companies-

Ali Rowghani 24:27 Yes

Jack Altman 24:27 ... and you learned a lot from it. So I guess, can you share maybe like... I, I, I wanna spend more time talking about what you're doing now-

Ali Rowghani 24:32 Yeah

Jack Altman 24:32 ... but, like, can you share just, like, a little bit about that?

Ali Rowghani 24:34 Of course. Yeah. So, um, you know, I, I feel like everything kind of happened serendipitously. Like, you know, I joined Pixar because I was, like, in awe of how could anyone make Toy Story 2?

Jack Altman 24:44 Yeah.

Ali Rowghani 24:44 And, and they were a public company at the time, and it was kind of like this, like, y- as we said, miracle factory that attracted me, and I was there for a decade. And then I went and joined Twitter, and the... What I learned there was, like, an experience services, hyper-scaling thing-

Jack Altman 24:56 Yeah

Ali Rowghani 24:56 ... and taking something from zero revenue through, through IPO.

Jack Altman 24:58 Mm-hmm.

Ali Rowghani 24:59 And YC, which is another serendipitous thing, and I was approached by Sam, and he said, "Hey, would you join YC initially just as a visiting partner-

Jack Altman 25:05 Yeah

Ali Rowghani 25:05 ... and hang out with some of the growing companies at YC?" And how could I turn that down?

Jack Altman 25:08 Yeah.

Ali Rowghani 25:08 It sounded like a blast.

Jack Altman 25:09 Yeah.

Ali Rowghani 25:09 And then a few months later, he said, "Hey, we're gonna raise a fund. Would you lead it for us?" And so I was like, wow, start a fund from scratch, and I've never been an investor, on top of this amazing platform, and the, the world's great universal sort of-

Jack Altman 25:19 It's sort of one of the only strong network effects-

Ali Rowghani 25:21 Yeah

Jack Altman 25:22 ... which you had obviously learned from Twitter-

Ali Rowghani 25:23 Yeah

Jack Altman 25:23 ... is extremely durable.

Ali Rowghani 25:24 Exactly.

Jack Altman 25:24 Yeah.

Ali Rowghani 25:24 Yeah, exactly. So, uh, you know, how could I say no to that?

Jack Altman 25:26 Mm-hmm.

Ali Rowghani 25:27 And so it's a bunch of serendipity, but the thing that, like, I really, um... What, what, what, um, YC really taught or showed me was, like, it exposed me to, um, early-stage startups at, like, massive scale.

Jack Altman 25:38 Mm.

Ali Rowghani 25:38 I mean, I was at YC almost 10 years, and I think close to 4,000 companies went through the batch program during those 10 years.

Jack Altman 25:44 Wow.

Ali Rowghani 25:45 Um, and there were probably two to 300 Series A rounds every year.

Jack Altman 25:50 That's-

Ali Rowghani 25:50 There were more than 100 Series B rounds every year.

Jack Altman 25:53 Yeah.

Ali Rowghani 25:53 And, you know, my team wasn't involved in admissions to the batch or, like, really the batch program, which is YC's bread and butter and what they're best at in the world. But what we, what we did is we helped fu- founders after demo day with a whole series of stuff-

Jack Altman 26:05 Yeah

Ali Rowghani 26:05 ... like their Series A's and, you know, helping with their decks and feedback and, you know, all... And we ran all these programs-

Jack Altman 26:10 Yeah

Ali Rowghani 26:10 ... and so on, so so forth, so forth. But the thing, like, that I take away from it, you know, now, a few years later, is like, wow, I got to see a lot of stuff at the very beginning. And, um, the i- influence, it's influenced, uh, both what I do now, but also the way I just think about, like, the stages of life. And I kind of think, think of, uh, the beginning as like... And what YC does so well is, like, they... It's like they're the- they plant seeds. You know, I mean, Justin Kan used to work at YC, said, "We're not hunters like VCs. We're farmers," you know?

Jack Altman 26:39 Mm-hmm.

Ali Rowghani 26:39 And they plant seeds and try to get everyone from seed to sapling.

Jack Altman 26:42 Yeah.

Ali Rowghani 26:42 Right? So, like, hopefully work on the right idea, hopefully, like, you know, uh, launch your product-

Jack Altman 26:48 Yeah

Ali Rowghani 26:48 ... you know, have a successful demo day, raise money, and get a few customers.

Jack Altman 26:53 Yeah.

Ali Rowghani 26:53 Right? And that gets you to this, uh, sapling phase. And then at the sapling phase, that's actually interesting. So, like, we talk about zero to one, maybe that's zero to 0.2 or zero to 0.4 or something-

Jack Altman 27:04 Yeah

Ali Rowghani 27:04 ... you know? And then there's a phase in the sapling phase before the tree phase, and the tree phase for me is like when you scale a company.

Jack Altman 27:10 Yeah.

Ali Rowghani 27:10 You know, in the sapling phase, which is actually where all the death lurks.

Jack Altman 27:14 Yes.

Ali Rowghani 27:14 That's where startups die.

Jack Altman 27:15 I did a program with you in 2019, I think it was, with the growth program, and then I did YC in 2016, but we didn't have product market fit when we left YC. We were a 0.2 sapling still.

Ali Rowghani 27:25 Yeah. Yeah.

Jack Altman 27:25 So it was very much about, like, getting the DNA-

Ali Rowghani 27:28 Yeah

Jack Altman 27:28 ... and the mindset right-

Ali Rowghani 27:29 Yeah

Jack Altman 27:29 ... and learning stuff.

Ali Rowghani 27:30 Yeah.

Jack Altman 27:30 Like-

Ali Rowghani 27:31 So I'm, I, I'm fascinated by this sapling phase-

Jack Altman 27:33 Mm-hmm

Ali Rowghani 27:33 ... of like what actually happens here?

Jack Altman 27:35 Yeah.

Ali Rowghani 27:35 Because it's actually hard to support founders here. Because the... You know, the great thing about the seed stage, and I think in many ways, the scale stage, seeds and trees, is that there are a set of common things that if you, like, really do well for founders, as a support to founders, it helps all of them or almost all of them, you know? Some of the basic lessons of YC, some of the basic writings of PG, et cetera, like, they're gold-

Jack Altman 27:58 Yeah

Ali Rowghani 27:58 ... you know. Um, and at the scaling of building a company phase, same thing. You know, there are a set of things about how to hire executives, what is the job of the CEO, you know, how to manage, how to, like, develop strategy, communicate more broadly, f- figure out HR, all that stuff.

Jack Altman 28:11 Yeah.

Ali Rowghani 28:11 Like, there are a lot of commonalities across companies.

Jack Altman 28:13 Very common.

Ali Rowghani 28:13 But at this sapling stage, everything is much more bespoke. It's not really about hiring, it's not really about... It's really about, like, trying to, like, find the right customer-

Jack Altman 28:24 Mm

Ali Rowghani 28:25 ... find the right problem-

Jack Altman 28:26 Yeah

Ali Rowghani 28:27 ... solve it really well, and then figure out a way to, like, do it again and again and again.

Jack Altman 28:30 Yeah.

Ali Rowghani 28:30 Like repeatability-

Jack Altman 28:31 Yeah

Ali Rowghani 28:31 ... you know, at that phase. And I think to help founders at this phase, like, you know, I, I personally, I mean, the whole industry, as you and I've talked about, has, like, gone to much more scale. You know, YC is a lot bigger than it used to be. All of the venture funds are way, way bigger than-

Jack Altman 28:44 Mm

Ali Rowghani 28:44 ... they used to be in terms of capital and investments made-

Jack Altman 28:46 Yeah

Ali Rowghani 28:46 ... and so on. And I think there are aspects of this industry that scale works really well for.

Jack Altman 28:51 Yeah.

Ali Rowghani 28:51 And there are aspects of this industry or the journey of a startup-

Jack Altman 28:53 Yeah

Ali Rowghani 28:53 ... where I don't think-

Jack Altman 28:54 It's the ends where it works. Like-

Ali Rowghani 28:56 It's the ends where it works

Jack Altman 28:57 ... YC, YC, I think, can actually scale more if they wanted to, where you can plant as many of these seeds.

Ali Rowghani 29:01 Yeah.

Jack Altman 29:01 And what's interesting with YC is they don't just, like, invest. Like, a lot of times, they create the conditions for somebody to start a company that wouldn't have otherwise.

Ali Rowghani 29:07 Oh, absolutely.

Jack Altman 29:08 So you could have as many of those as you wanted.

Ali Rowghani 29:10 Yeah, yeah.

Jack Altman 29:10 And then at the far other end of the bell curve, where you can just put tons of money into these company- but billions of dollars into companies that are scaling, like, that obviously goes-

Ali Rowghani 29:18 Yeah

Jack Altman 29:18 ... and even-

Ali Rowghani 29:18 But even, even at the phase where, like, okay, we're now starting to hire a bunch of executives-

Jack Altman 29:22 Yeah

Ali Rowghani 29:22 ... and we need intros to Fortune 500 companies, and that are, you know-

Jack Altman 29:25 Yeah

Ali Rowghani 29:25 ... like, there's a, there's... It's not just, like, very, very late stage companies.

Jack Altman 29:27 You're talking, like, Series B and C type of stage? Is that what you're thinking like?

Ali Rowghani 29:30 Yeah, I think, like,

Ali Rowghani 29:31 you know, to me, like, there's, like, pre-traction and post-traction.

Jack Altman 29:34 Mm-hmm.

Ali Rowghani 29:34 And so the question is, like, where's the line, right?

Jack Altman 29:37 Mm-hmm. Mm-hmm.

Ali Rowghani 29:37 And to me, it's, like, $5 or $10 million of revenue-

Jack Altman 29:40 Mm

Ali Rowghani 29:40 ... is the line. It's not a million.

Jack Altman 29:41 Yeah.

Ali Rowghani 29:42 You know, it's definitely not 500K.

Jack Altman 29:43 Why do you say it's not a million? 'Cause a lot of times people are like, "Oh, s- a million dollars, that's product market fit. That's the A."

Ali Rowghani 29:47 There's no repeatability at a million dollars.

Jack Altman 29:49 Yeah.

Ali Rowghani 29:49 You haven't proven repeatability, and, um, you've just proven that you can, you know, get someone to pay you-

Jack Altman 29:54 Yeah

Ali Rowghani 29:54 ... or you get five people to pay you or seven people, whatever it is, you know? Um, and to get to one, you have to prove repeatability, in my mind.

Jack Altman 30:01 Yeah.

Ali Rowghani 30:01 You know, which means that, like, you've found a problem that enough people have, and you've found a way to, like, be able to, like, convince people to, like, buy it.

Jack Altman 30:09 Yeah.

Ali Rowghani 30:09 Right? And the other thing, obviously, you have to prove in that phase is, like, not only do you convince them to buy it, but they use it-

Jack Altman 30:15 They like it, and they wanna buy more

Ali Rowghani 30:15 ... they like it, and they wanna buy it again-

Jack Altman 30:17 Yeah

Ali Rowghani 30:17 ... or renew or buy, buy more, or if you're in a consumer business, like, the cohort stick.

Jack Altman 30:21 Yeah.

Ali Rowghani 30:21 You know, or, you know, and, and similarly in a B2B business, like, the, the renewals and expansion are happening.

Jack Altman 30:25 Yes.

Ali Rowghani 30:25 And, and renewals and expansion are the probably the best, you know, metric for product market fit. Uh, it's a lagging metric-

Jack Altman 30:30 Right

Ali Rowghani 30:30 ... that's when you gotta-

Jack Altman 30:31 And you don't know right away.

Ali Rowghani 30:32 You don't know. Yeah, you don't know. You can... You gotta get good at figuring out the-

Jack Altman 30:34 Yeah

Ali Rowghani 30:34 ... leading indicators of it, but you don't know.

Jack Altman 30:35 Yeah.

Ali Rowghani 30:36 So yeah, so basically, I think scale works at the two ends.

Jack Altman 30:39 Mm-hmm.

Ali Rowghani 30:39 And I don't think scale works at the sapling phase. And so-... what I'm trying to do now is I, I saw a bunch of patterns of where things went wrong a- at this phase for companies, and how certain founders like find their way through the maze and swim through. Um, and I think the, the, the most- the hardest one, it's a simple, slippery problem that I saw people encounter over and over again, which was like, "Who should my initial customer be?"

Jack Altman 31:01 Mm-hmm.

Ali Rowghani 31:01 You know, and the tendency was, um, because founders face so much pressure to grow quickly, the tendency was to try to define the customer really broadly, that anyone's will- who's willing to pay me is a good customer. And so, you know, founders would let customers choose them instead of being extremely selective and choosing customers.

Jack Altman 31:19 Yeah.

Ali Rowghani 31:19 And that requires some degree of courage to, like, turn down some growth-

Jack Altman 31:24 Totally

Ali Rowghani 31:24 ... you know, because you're looking for someone that you can deeply satisfy.

Jack Altman 31:28 Yeah.

Ali Rowghani 31:28 And the broader and more diver- diverse your customer set is with a small team and a immature product-

Jack Altman 31:33 Yeah

Ali Rowghani 31:33 ... the harder it is to keep them all happy.

Jack Altman 31:35 I think that this exact phase, I think, is one of the most psychologically demanding-

Ali Rowghani 31:39 Yeah

Jack Altman 31:39 ... for founders, 'cause you, you so badly want things to be just moving.

Ali Rowghani 31:44 Yeah.

Jack Altman 31:44 And you want to just grow. You wanna tell people you're growing. You wanna take customers. You don't wanna think that you need to pivot or adjust your product, because, like, then you have to, like, feel like you're admitting defeat somehow.

Ali Rowghani 31:53 Yeah.

Jack Altman 31:53 I think this phase is-

Ali Rowghani 31:54 So hard

Jack Altman 31:55 ... so mentally difficult.

Ali Rowghani 31:55 Yeah, yeah. So for me, it's the funnest time in a startup, and I think it's, like, where all the death lurks-

Jack Altman 32:00 Yeah

Ali Rowghani 32:00 ... you know, like, where the d- you know, death zone is.

Jack Altman 32:02 Yeah.

Ali Rowghani 32:03 Whether someone raises an A or not-

Jack Altman 32:04 Yeah

Ali Rowghani 32:04 ... you know, that's kind of irrelevant. You could- most Series A companies-

Jack Altman 32:08 This is like the pre-Series A

Ali Rowghani 32:09 ... This is like the pre-Series A.

Jack Altman 32:09 Yeah.

Ali Rowghani 32:09 It's definitely pre-Series A.

Jack Altman 32:10 Yeah.

Ali Rowghani 32:10 But I think in a lot, a lot of times, it's post-Series A, too.

Jack Altman 32:13 Mm-hmm.

Ali Rowghani 32:13 I mean, like, who raises a Series A at $10 million?

Jack Altman 32:15 Yeah.

Ali Rowghani 32:15 I'm saying it's through, like, at least five-

Jack Altman 32:17 Yeah, yeah

Ali Rowghani 32:17 ... you know, until you've proven this.

Jack Altman 32:18 Yeah.

Ali Rowghani 32:19 And so-

Jack Altman 32:19 So you're talking... What, what's interesting to me is I think different than in a lot of conversations where people would say, "Three to five million, you're on your way"

Ali Rowghani 32:26 Mm-hmm.

Jack Altman 32:26 And you're talking about, "No, that's still fragile. It's still a little fire that needs to be, like, tended to."

Ali Rowghani 32:31 Yeah, like, I think that until you've proven, like, retention and, um, expansion, and until you've proven repeatability, which I d- I think happens somewhere around five-

Jack Altman 32:40 Yeah

Ali Rowghani 32:40 ... and maybe as, as far as 10, depending on the business-

Jack Altman 32:43 Yeah

Ali Rowghani 32:43 ... and stuff like that, um, a certain amount of time has to elapse, you know, um, s- to be able to really judge it. And so, I mean, I think there's a pre-traction phase and a post-traction phase, and I think... There's a, there's a inception stage-

Jack Altman 32:54 Yeah, yeah

Ali Rowghani 32:54 ... which is like where YC lives, and they do the best job in the world. And as you say-

Jack Altman 32:58 Mm-hmm

Ali Rowghani 32:58 ... you know, they both cause there to be more startups and cause promising- and help promising founders work on better ideas.

Jack Altman 33:02 Yeah.

Ali Rowghani 33:03 Like, we all owe them gr- [chuckles] big debt of gratitude for that.

Jack Altman 33:05 Yeah.

Ali Rowghani 33:05 And then there's a sapling phase, where I think all the death lurks-

Jack Altman 33:08 Yeah

Ali Rowghani 33:08 ... whether it's pre or post-A.

Jack Altman 33:10 Yeah.

Ali Rowghani 33:10 And then there's this, uh, tree phase, where like, "Hey, you're at 5 or 10 million of revenue-

Jack Altman 33:15 Different thing

Ali Rowghani 33:15 ... your bark is now hard."

Jack Altman 33:16 Yeah.

Ali Rowghani 33:16 Like, a rain's not gonna wash you away. You've got roots.

Jack Altman 33:19 Yeah.

Ali Rowghani 33:19 And now it's about company building.

Jack Altman 33:21 Yeah.

Ali Rowghani 33:21 And I think VCs are great at that.

Jack Altman 33:23 Actually, can you talk about, for a second, um, I sh- have shared your blog post a ton of times-

Ali Rowghani 33:27 Mm

Jack Altman 33:27 ... about the, like, second stage of, uh, second phase is the-

Ali Rowghani 33:30 The second job of a CEO.

Jack Altman 33:30 I'll link it-

Ali Rowghani 33:31 Yeah [chuckles]

Jack Altman 33:31 ... 'cause I think it's an extremely good post.

Ali Rowghani 33:32 Yeah.

Jack Altman 33:32 But, like, can you talk about that transition for the CEO-

Ali Rowghani 33:36 Yeah

Jack Altman 33:36 ... and, like, what that post was about?

Ali Rowghani 33:38 Yeah, so the interesting thing is, like, I think that if you... But if you like this analogy of the three, three phases, you know, seed and sapling and tree-

Jack Altman 33:44 Mm-hmm

Ali Rowghani 33:44 ... the CEO, founder CEO's job changes a lot between sapling and tree. And because the job becomes... At the beginning, the job is just, like, about build a great product and find customers, and keep those customers happy, and get them to renew, et cetera. So it's about product and customer, product and customer, right?

Jack Altman 33:59 Yeah.

Ali Rowghani 34:00 Once you get to this place where like, "Oh, I'm now a tree, it, it's taken root. I have a business. It's repeatable. I know, like-

Jack Altman 34:06 Yeah

Ali Rowghani 34:06 ... you know, I have some foundation," at that point, then, the job of the CEO changes-

Jack Altman 34:11 Big time

Ali Rowghani 34:11 ... from building the product and selling the product to building the company. You become the, like, you need to build a machine that builds the machine. You become the PM of the company-

Jack Altman 34:20 Yeah

Ali Rowghani 34:20 ... not so much the PM of the product. And so that means you've gotta find people to do all the... You've gotta get yourself out of these vital things you were doing before, and that's super hard-

Jack Altman 34:27 Mm-hmm

Ali Rowghani 34:27 ... um, and so that you can focus on, you know, um, the second job, which is, like, company building.

Jack Altman 34:33 Yeah.

Ali Rowghani 34:33 Yeah, that's the basic point of the blog post.

Jack Altman 34:34 Yeah.

Jack Altman 34:35 So when you thought about putting your firm together, you also were doing, like, a program.

Ali Rowghani 34:39 Yeah.

Jack Altman 34:39 Like, how did you... I guess just how did you decide what structure of firm and approach you wanted to do?

Ali Rowghani 34:45 Yeah, so what I'm interested in doing is I'm interested in working very intently, intensely with a very small group of these sapling kinds of companies, and really on either side of a Series A. I'm a little bit indifferent about that. But people who have launched their product, they've got some traction, they've got- they're committed to what they're doing.

Jack Altman 35:02 Mm-hmm.

Ali Rowghani 35:02 There's some beginnings of, you know, something. Like, I don't think I'm very good at the seed stage. Um, I did a lot of the growth stage, and I know that, know that pretty well. But the sapling stage is, I think, where founders need the most help. And in order to help them, you have to do it almost subscale.

Jack Altman 35:16 Mm-hmm.

Ali Rowghani 35:16 Like, you have to do it really, really intimately and closely.

Jack Altman 35:19 Yeah.

Ali Rowghani 35:19 And so I wanna work with a very small group of folks, um, and try to make a contribution there. And, um, and so yeah, so that's, that's basically my, my hope.

Jack Altman 35:30 That's

Jack Altman 35:31 great.

Ali Rowghani 35:31 Yeah.

Jack Altman 35:31 One of the things that you've talked to me about before is that you think, um... I don't wanna put words in your mouth, but I think you said, like, the Series A is often, like, a bit of a rip-off, and that people take way more dilution than they need-

Ali Rowghani 35:42 Yeah

Jack Altman 35:42 ... that it's like the rounds are bigger than they have to be.

Ali Rowghani 35:44 Yeah.

Jack Altman 35:44 Is that still something that you feel, or have you, you know... Was- is that an accurate thing that you at least felt at one time?

Ali Rowghani 35:50 Yeah.

Jack Altman 35:50 Do you feel that way now?

Ali Rowghani 35:50 Well, I think that, um, what's happening, and I expect it to continue, is that the, um, traditional ownership that a traditional Series A investor would get in a Series A has degraded and will continue to degrade.

Jack Altman 36:01 Yeah, 'cause it used to be, like, 25%.

Ali Rowghani 36:02 Even more.

Jack Altman 36:02 30.

Ali Rowghani 36:03 But yes.

Jack Altman 36:03 Yeah.

Ali Rowghani 36:04 Yeah.

Jack Altman 36:04 Yeah.

Ali Rowghani 36:04 And so, um, and that's just driven by the supply and demand of capital and the, like, you know, like, very, uh, sort of burgeoning nature of the seed eco-

Jack Altman 36:11 Mm-hmm

Ali Rowghani 36:12 ... ecosystem.

Jack Altman 36:12 Mm-hmm.

Ali Rowghani 36:12 And I think that, um-

Jack Altman 36:14 I also think you have a dynamic where there's not just the availability of capital or the prices are low, but it's like the venture firms are winning, and they're pushing-... the founder take more money than the founder even thinks they need.

Ali Rowghani 36:24 Yes.

Jack Altman 36:25 And they're like, "Okay, but I wanna work with whoever."

Ali Rowghani 36:26 Yeah. Yeah, that's right.

Jack Altman 36:27 Yeah.

Ali Rowghani 36:27 Yeah. So I think that, like, the nature of, like, the Series A is changing, and I think the nature- and I think largely to the benefit of founders. Um, but the other thing that's kind of fascinating that's, that's happened, I think, over the last five, seven years especially, as more capital has flooded into the system, you know, deals are getting done in a blink of an eye.

Jack Altman 36:42 I know.

Ali Rowghani 36:43 And, and founders don't fundraise anymore. They just get preempted-

Jack Altman 36:45 Yeah

Ali Rowghani 36:45 ... the good ones, and, or the promising ones. And so-

Jack Altman 36:48 I mean, their plan is to... I mean, and, and I think that's correct, but the plan is to say, "I'm gonna fundraise at this time," and they have a couple conversations, and they let the round happen before it's gonna happen.

Ali Rowghani 36:56 Yeah. Yes, sometimes, like, the founders encourage or, or, or, or-

Jack Altman 36:59 They make themselves available to get preempted.

Ali Rowghani 37:00 Available to be preempted, yeah.

Jack Altman 37:01 But-

Ali Rowghani 37:01 But, but sometimes it comes out of the blue.

Jack Altman 37:03 Yeah.

Ali Rowghani 37:03 I mean, you see that too.

Jack Altman 37:04 Absolutely.

Ali Rowghani 37:04 Um, so, so in this world of, like, super rapid fundraising-

Jack Altman 37:08 Mm-hmm

Ali Rowghani 37:08 ... where founders aren't generally fundraising, they're just getting preempted, I think that obviously there's a lot of convenience there for, for a good founder.

Jack Altman 37:14 Mm-hmm.

Ali Rowghani 37:15 But on the other hand, I think what, what happens, wh- I don't think I've seen a single fundraise in the last five or seven years, tell me if you disagree, where there was actually any urgency to fundraise at that time.

Jack Altman 37:26 Mm-hmm.

Ali Rowghani 37:27 You know, this preemption mentality, it's not-

Jack Altman 37:28 Yeah, it's not a cash thing.

Ali Rowghani 37:29 The founders aren't, the founders aren't driving the timeline.

Jack Altman 37:31 No, and they're actually like, "When should I raise so that I don't need the money?" I mean, people plan to raise.

Ali Rowghani 37:35 Yeah, yeah.

Jack Altman 37:36 Which, again, they should. It makes things easier.

Ali Rowghani 37:37 Yeah.

Jack Altman 37:38 As I'm thinking out loud, I, I do actually think... So I think you're right that a lot of the strong companies go for the preemption. There actually might be on the far other side of, like, the very, very outlier companies, they actually do run a process because they're so confident that it's gonna work, that they basically are like, "We're gonna get a true market price here."

Ali Rowghani 37:54 Yeah.

Jack Altman 37:54 So-

Ali Rowghani 37:54 I, I definitely-

Jack Altman 37:55 Yeah

Ali Rowghani 37:55 ... I think it definitely happens.

Jack Altman 37:56 I think I'm farther [crosstalk]

Ali Rowghani 37:57 Yeah, or, or, or they get preempted, and they use that to, like, trigger something.

Jack Altman 38:01 Yeah.

Ali Rowghani 38:01 You know, but again, over three days.

Jack Altman 38:03 Right.

Ali Rowghani 38:03 You know?

Jack Altman 38:03 Yeah.

Ali Rowghani 38:03 Not, not like, uh-

Jack Altman 38:05 Yeah.

Ali Rowghani 38:05 Yeah. And so-

Jack Altman 38:06 Which I think is, in some cases, a shame. Like, if you're gonna, like, spot pick a board member in three days, I don't-

Ali Rowghani 38:10 Yeah

Jack Altman 38:10 ... I don't know if that's always... As long as you've got enough trust in your cap table-

Ali Rowghani 38:15 Yeah

Jack Altman 38:15 ... to know what you're getting, it's good. But, um, I don't know, I think sometimes it's, like, worth a little more time to get to know people.

Ali Rowghani 38:20 I, I, I tend to agree with you. I, I think it really depends where you are in this journey. Like, I think if you're already a tree, and, like, it's now, you know, primarily about-

Jack Altman 38:28 Sure

Ali Rowghani 38:28 ... you know, terms and-

Jack Altman 38:29 Yeah

Ali Rowghani 38:29 ... maybe who you want or, like, prestige of a particular name or ability-

Jack Altman 38:32 Yeah

Ali Rowghani 38:32 ... of, of a certain investor to open some doors or whatever, I think that maybe make... Is okay.

Jack Altman 38:37 You're also usually dealing with very known quantities at that point.

Ali Rowghani 38:39 Yeah. And, and, you know, for companies that are trees and have been around five years, you know, you've had a chance to hobnob with investors over that long period of time.

Jack Altman 38:46 Mm-hmm.

Ali Rowghani 38:46 It's only for companies that are, like, one or two or three years old and haven't... have just met someone, or-

Jack Altman 38:51 Yeah

Ali Rowghani 38:51 ... you know, someone heard about something, and they swooped in, and now you're in a conversation for the first time with some famous investor.

Jack Altman 38:56 Mm.

Ali Rowghani 38:57 Um, I think those are the ones where maybe slowing down is, uh, is, is beneficial. Like, to me, I... Look, if- especially if you're in the sapling phase, I think it really pays to slow down enough to be able to, I don't know, ideally simulate, like, what it would be like to work with someone-

Jack Altman 39:12 Totally

Ali Rowghani 39:12 ... and then make your decision. You know, and just know that you actually control the timeline, and don't necessarily cede that to an investor. Investors, I think, are extremely good at hijacking the timeline of a fundraise-

Jack Altman 39:22 Mm-hmm

Ali Rowghani 39:22 ... you know, because they practice it so much. You know, and sometimes that's fine. You know, I'm not saying in all cases.

Jack Altman 39:26 Yeah.

Ali Rowghani 39:26 Like, "Hey-

Jack Altman 39:27 Of course

Ali Rowghani 39:27 ... raise the money, it's easy, it's there-

Jack Altman 39:28 Totally

Ali Rowghani 39:28 ... et cetera. You love the investor, you know the investor." But I d- I don't think in all cases-

Jack Altman 39:32 Agree

Ali Rowghani 39:32 ... it makes sense to-

Jack Altman 39:33 Yeah

Ali Rowghani 39:33 ... to do that.

Jack Altman 39:33 Are there any other... Structure of the way you're doing things aside, are there any other, like, ideas or beliefs you're sort of operating against right now that are sort of driving the way that you work?

Ali Rowghani 39:43 Well, I just... You know, it's, it's funny, and [chuckles] this may be a wrong strategy. You know, it's certainly contrarian, but, like, I, I don't really... I wanna try to get to know the founders and businesses that I invest in, like, deeply. And in some cases, um, that's related to working with me on something-

Jack Altman 39:58 Yeah

Ali Rowghani 39:58 ... or in some cases, relationships I've had before or whatever else.

Jack Altman 40:01 Yeah.

Ali Rowghani 40:01 But, like, you know, as I said, more capital has meant that deals happen in two days.

Jack Altman 40:05 Yeah.

Ali Rowghani 40:05 And, uh, it's become kind of like this first-person shooter video game.

Jack Altman 40:09 Mm.

Ali Rowghani 40:09 And, and, I, I don't wanna play that game.

Jack Altman 40:11 I also guess the nature of the way you're doing this is, with your program, where you're, you know, you're trying to help before you have any equity in-

Ali Rowghani 40:17 Yeah

Jack Altman 40:17 ... people, which is, I guess, on some level, fundamentally unscalable-

Ali Rowghani 40:21 Yeah

Jack Altman 40:21 ... because you can only help so many people where you're not in business-

Ali Rowghani 40:23 Yeah

Jack Altman 40:23 ... with them at a time.

Ali Rowghani 40:24 Mm-hmm.

Jack Altman 40:24 But, like, the advantage of that is this.

Ali Rowghani 40:27 Yes, that's right. Yeah, I mean, uh... And look, uh, something I learned at YC, I mean, we, um... YC was obviously an insider on all the companies within YC, but our growth fund wasn't.

Jack Altman 40:36 Yeah.

Ali Rowghani 40:36 And we helped tons and tons of founders that we never invested in. I mean, it was good for YC to do that, of course.

Jack Altman 40:41 Mm-hmm.

Ali Rowghani 40:41 But, like, um, that mentality of like, hey, the more help you provide, it finds its way back to you, just like, like karmic thought and just my, my own personal belief, that's how I'm, I'm wired. I just think, like, hey, you help people without, uh, you know, expectation of return, and it pays it back in one way or another, um, is something I believe and just how I wanna work, you know. So we'll see how it goes.

Jack Altman 41:03 All right, well, Ali, this was awesome. Thank you so much for making the time. I really enjoyed it.

Ali Rowghani 41:06 It was a pleasure, Jack. Thanks for having me. [upbeat music]