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Y CombinatorWhy Investors Can’t Fix Your Company – Dalton Caldwell and Michael Seibel
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CHAPTERS
- 0:00 – 1:54
Why Investors Can't Fix Your Company
Dalton Caldwell and Michael Seibel open by saying investors, YC included, don't hold secret answers for fixing a company. Dalton recalls believing as a founder that top investors would share hidden secrets, and Michael says investors who haven't been humbled by their own failed startups tend to think their advice can make companies work.
- •Founders often expect top investors to reveal secrets that fix growth
- •Dalton has to tell struggling founders he has no idea how to fix their growth
- •Many investors have never been founders and haven't lived the mistakes
- •Advice from some investors can be traced to their backgrounds because founders repeat common errors
- 1:54 – 4:10
The Investor with a Finance Background
Michael describes the pure-finance investor who has never operated a company. Dalton says that when all you know is money, the solutions usually involve money, such as asking pre-product-market-fit founders for five-year financial projections.
- •Finance-background investors tend to push raising and spending more money
- •Asking for five-year projections pre-product-market-fit is a poor fit
- •Michael resisted learning balance sheets because the real problem was losing money every month
- •Scaling negative economics and heavy ad spend distract from making the product good
- •Throwing money at a company is sometimes right; the problem is giving that advice every time
- 4:10 – 7:58
The Big Company Exec
The hosts discuss investors who come from companies with over 1,000 people. Dalton says big-tech experience is great for scaling a successful product but differs from being an early employee, and Michael warns against hiring executives before product-market fit.
- •Big-company experience suits scaling or refining a successful product
- •Early employees like Paul Buchheit, the 'king of dirty hacks', use different tactics than later ones
- •Failure for many YC companies means getting zero real customers, which big-company PMs may not consider
- •Pre-product-market-fit problems are usually the wrong person, not a missing department or executive
- •Scalers are plentiful, while zero-to-one founders are scarce
- 7:58 – 12:22
The Successful Entrepreneur from a Non-Tech Industry
Michael raises the successful entrepreneur from a non-tech industry, common in new founder ecosystems. Dalton says these investors may ask for terms like more control and treat a startup like a franchise investment, though Michael notes they are the easiest to be least mad at because they apply what worked for them.
- •Investors who made money in real estate or franchises may ask for more control
- •They can treat a startup like a Subway franchise and worry about losing their money
- •They are well-meaning and apply principles that worked in their own industry
- •Software companies look very different from many other kinds of companies
- 12:22 – 12:25
The Junior Investor and Their KPI
The hosts look at the junior investor who is early in their career and needs quick wins. Dalton explains that bad early investments can be career suicide, so these investors push founders to raise more and claim things are working, because a markup makes them look good.
- •Junior investors lack power and need early wins to survive in the industry
- •Their KPI is marking up their investment through a follow-on round at a higher valuation
- •They encourage constant fundraising and faster scaling
- •They are good people and cheerleaders, but find it harder to dig into broken things with founders
- 12:25 – 14:36
The Influencer or Famous Person
Michael and Dalton discuss celebrities and influencers whom founders are eager to put on their cap table. Dalton says they understand distribution and may treat startups like ad deals, while founders often feel they got a raw deal and Michael says the best ones don't promise distribution.
- •Founders get excited about having famous people on the cap table
- •Influencers may ask for advisor shares in exchange for promotion
- •Clicks from posts were often less helpful than founders hoped
- •The best reputable influencers don't promise distribution
- •Founders set expectations too high by looking for a silver bullet
- 14:36 – 15:58
Advice from Other Founders
Michael asks what advice founders typically get from other founders who invest in them. Dalton says it's heavily based on personal experience, such as a bad fundraising or distribution story, and notes he had to break out of that autobiographical trap at YC.
- •Founder-investors' advice reflects their own struggles, like fundraising or distribution
- •Advice can amount to 'don't do what I did'
- •Dalton's early YC advice was heavily autobiographical
- •Michael says YC partners condense learnings from the founders they work with, more than from their own companies
- 15:58 – 17:13
The Extremely Young Investor or Scout
Michael describes very young investors, such as scouts writing checks while in or just out of college. Dalton says they repeat whatever investors are saying and tweeting, much like founders playing the part of a founder, and Michael likens it to how people learn in school.
- •Young scouts differ from junior investors at funds
- •They are sweet and exciting to talk to
- •They tend to repeat the latest trends, tweets and essays
- •This resembles how people learn in school
- 17:13 – 19:26
Where YC Partners Give Bad Advice
Michael acknowledges YC partners also make mistakes, such as treating the lean-startup path as right for everyone. Dalton says sometimes building in a cave works right away, and Michael says the best partners are careful about how forcefully they advise.
- •The lean path of not hiring, talking to users and shipping a shitty MVP isn't right for everyone
- •Some companies build a product for years without users and succeed
- •Dalton says the data makes it hard to recommend that strategy statistically
- •Longer-tenured partners have a record of advice that was followed and the opposite worked
- 19:26 – 21:00
Personal Accountability and the Big Takeaway
Dalton says the founders who made it work took information from outside but took personal accountability. Michael's takeaway is that founders must figure out how to use investors, who all mean well but can't tell them how to win, and he cites what YC says at kickoff.
- •Successful founders knew YC couldn't fix their company and took accountability
- •They didn't blindly follow anyone, including YC
- •Investors have the founder's interests in mind but can't say exactly what to do to win
- •At YC kickoff, partners say they are experts in failure and offer to give shares back
- •Founders deserve 99.9% of the credit if they figure it out
- 21:00 – 24:13
Great Investor Advice
Michael asks Dalton and himself for examples of investor advice that made a big difference. Dalton valued an outsider synthesizing the data into 'this is working' or 'this is bad', and Michael recounts Gideon Yu telling them their company sucks, noting the best investors point out the problem without prescribing a solution.
- •Dalton benefited from outsiders simplifying complicated data into a clear verdict
- •Gideon Yu told Michael's team, after they reached profitability, that their company would die if nothing changed
- •The best investors point out the problem rather than give a solution
- •Helpful advice often came when people were hard on them
- •Gideon had no interest in investing, which allowed more honesty
