I received evidence yesterday that some of the things Sabeer Bhatia said in his interview in Founders at Work were false.  The evidence indicates that (a) Tim Draper rather than Jack Smith had the idea of putting a Hotmail ad at the bottom of emails sent by the service, and (b) that DFJ didn't disparage Hotmail to other VCs interested in investing.

I'm really looking forward to tomorrow's Startup2Startup dinner.
Paul is going to do Q&A with Dave McClure and I'm going to talk
briefly about some of the parallels I noticed between the stories
in Founders at Work and my experience working with founders at Y Combinator.

Startup2Startup is an unusual event because the audience is almost all startup founders.  I'm hoping it will feel a lot like Startup School. I love that type of audience because they're so engaged.

Dave McClure, who hosts the events, has been around the startup
world for a long time and knows what's what. The YC alumni who've attended in the past have said great things about Startup2Startup. This is the kind of event that makes Silicon Valley Silicon Valley.

I'm excited to report that the paperback edition of Founders at Work is now available.

I'm enormously grateful to everyone who's recommended the book, whether through blog posts or informal conversations.  It turned out to be Apress' bestseller of 2007, and this wouldn't have happened without all the positive and insightful feedback circulating on the Internet.

Apress wanted to include a new chapter in the paperback edition and suggested someone interview me about the early days of Y Combinator. I got Paul Graham to do it. It felt very strange at first to be on the "other side" of the tape recorder, but it turned out to be a lot of fun.

Here’s an excerpt:

When did you start Y Combinator?

We started Y Combinator in March 2005. Around that same time, I had gotten a book deal for Founders at Work, so I had planned to quit my job doing marketing at an investment bank and work full-time for a little while on the book. But we started Y Combinator simultaneously, so I didn't really get to spend much time on the book.

What was the process when Y Combinator got started?

That would assume that we had a process. There was no process.  Remember, Y Combinator started off as an experiment.  Paul had wanted to do angel investing. He wanted to help people start companies. But he didn't really want all the requirements that come with being an angel investor, so he thought he should start an organization that could handle all of this for him. I said, "That sounds interesting. I'd love to work with entrepreneurs." So we sort of hatched this idea for Y Combinator, and I was the one in charge of doing a lot of the business stuff.

We decided to do a batch of investments at once, so that we could learn how to be investors.  We decided, "OK, we'll invest in a group of startups, and we'll do it over the summer since a lot of people are free over the summertime."

How did the summer turn out?

A lot better than we'd ever thought.  Not that I went into things with a whole lot of expectations. The idea with Y Combinator was that we were going to invest small amounts of money in startups and help them get set up legally, just like Viaweb had been helped out by Paul's friend Julian. Get them set up, work closely with them on their products and then introduce them to investors to hopefully get more funding.

I remember when we first got started, we thought, "How do we even tell people about this?" So Paul built a website—I think he stayed up all night building it. We had a couple pages online that loosely described what we were planning to do—we didn't really fully know what we were planning to do—and we had an application, with about 20 questions on it, and then Paul launched it on paulgraham.com, which had a lot of traffic because of his essays.  We started getting some applications in.  I was still working at the time, and I remember Paul saying, "We have some good applications, you better quit your job."

What was the point when you quit?

If I remember correctly, it was the Monday after we conducted the interviews. We got a lot of applications, more than we thought we would. And then we chose about 20 groups to come to Cambridge to interview—over a Saturday and Sunday, all day long.  On Sunday night we called everyone.

We chose 8 that we had wanted to fund, and all of them but one said yes. I give the founders a lot of credit, because this was a brand new concept and Y Combinator had no track record.  The deal was: move to Cambridge for the summer and get $12,000 or $18,000, depending on whether you were two or three founders. We based the amount of money on the MIT graduate student stipend, which was a couple grand a month. We said, "Come to Cambridge and we'll work with you, and we'll get together for dinner and hear from guest speakers every week." (Unfortunately for Paul, we hijacked his personal office to use for Y Combinator.) So 7 of them said yes, and I went into work on Monday thinking "Y Combinator is real now"—even though we didn't even have Y Combinator legally set up at this point. I gave my notice that day, I think.

But that day something else very memorable happened. There had been one group, two guys from UVA, who were still seniors and were graduating that spring—Alexis Ohanian and Steve Huffman.  They came to us with an idea that we just thought was wrong for two young guys with no connections in the fast food industry.  Their idea was ordering fast food through your cell phone. And we didn't fund them.  We told them, "Sorry, we really liked you guys, but we just think your idea would be a bit too challenging."

But that morning when I was at work, Paul called them and said, "We like you guys.  Would you be willing to work on another idea?" They were on an Amtrak train heading back to Virginia. I remember Paul emailed me and the subject line was "muffins saved." I had nicknamed them "the muffins," because I just loved them.  It was just sort of an affectionate name.

I remember thinking, "This is so exciting." They had gotten off the train in Hartford or something and headed back to Boston to go meet with Paul to brainstorm new ideas. I thought, "These are the kind of people I want to fund—people who would get off the train and go back and make it happen." So we wound up funding 8 companies that summer.

Do you remember anyone else in that first batch?

Looking back, it was amazing group that we had. Sam Altman of Loopt was in that batch. There's actually a funny story about him, too. He had submitted an application and at the time he'd been working with a few other people, but he was the only one who could come to Cambridge that summer. So Sam emailed us saying he was the only one who could come and Paul wrote back to him, saying, "You know, Sam, you're only a freshman. You have plenty of time to start a startup. Why don't you just apply later?"

Sam wrote back something to the effect of, "I'm a sophomore, and I'm coming to the interview."

Summer '05: (l to r) Sam Altman, Alexis Ohanian, Steve Huffman, Justin Kan, Emmett Shear, Paul Graham

Weekly dinner gathering: it's so roomy!

Trevor, Paul and me at a photoshoot (taken in front of YC) for a magazine article that never ran. Photo: Asia Kepka

Robert Morris and Sam Altman

We’re less than 2 weeks away from Demo Day and I feel like this funding cycle has whizzed by faster than any other. We have 22 startups this summer, bringing the total number we’ve funded to 102.  There’s a lot going on!

The founders will find the next few weeks to be the most hectic of the summer. As well as preparing for Demo Day, many are also planning to launch. Some have already: Startuply, a site (and widget) for startup job listings; Anyvite, an easy-to-use invitation service that (unlike Evite) also works well on mobiles; Posterous, which lets anyone post anything online just by emailing it; Slinkset, which lets users make their own Reddit-like link site for whatever topic they want; and Awesome Highlighter, which is like a highlighter, but for web pages.

I’d like to publicly thank the amazing speakers we’ve had come talk to everyone so far: Mark Macenka, a partner at Goodwin Procter, explained corporate law 101 in layman’s terms and warned of common legal pitfalls for early stage startups; Hutch Fishman, CFO of many successful startups, covered all the financial stuff founders need to understand; Jonathan Seelig, one of the founders of Akamai, shared insights from both the entrepreneur’s and investor’s perspective; Steve O’Leary, who’d retired a few days before as head of M&A at Jefferies Broadview, talked all about the nuances of the acquisition process; Bill Warner, founder of Avid and Wildfire, gave an extremely candid talk about his early experiences; and last week, Google’s Rich Miner, founder of Android, came to tell everyone about both the Android platform and his experiences as an entrepreneur.  Special thanks to Joel Lehrer from Goodwin Procter, who came and spent the day advising the startups individually about patent and IP issues.

Coming up we have three stars in one week: Joel Spolsky, Mitch Kapor, and Greg McAdoo.

We’ve also been lucky to have a steady stream of YC alumni travel to Boston to visit us and advise the new founders.  As peers they offer a uniquely valuable sort of advice.

Rehearsal Day, the “dress rehearsal” for Demo Day, is now only a few days away.  So now the founders will gradually switch from working 100% of their time on their products to working on presenting as well.  These presentations will be seen by literally hundreds of investors, so it’s worth putting in the effort to make them good.  Fortunately the founders will get several chances to nail the delivery, because we’ve scheduled 3 Demo Days this year to accommodate investor interest.  The first is in Boston, then everyone flies to the Bay Area for two more days of presentations at our Silicon Valley office.  After which we all relax and have a beer.

*Thanks to Posterous' Gary Tan for the fabulous photos!

Rich Miner talks to the group.

PG, Ryan Junee and me.

It was announced today that Google has acquired Omnisio.

Y Combinator funded Omnisio last winter. Like most founders who participate in Y Combinator's 3-month funding cycles, Ryan Junee, Julian Frumar and Simon Ratner built a remarkable product in a very short amount of time. Omnisio addressed a real need: it gives everyone an easy way to annotate online videos.

We put them to the test last April when we used Omnisio to capture and display all the talks from Startup School. They did an amazing job.

I am so delighted for Ryan, Jules and Simon and wish them all the best now that they are part of YouTube's team.

I’m looking forward to speaking at the Business of Software Conference this September in Boston.  I plan to talk about trends in early stage software startups and what I’ve learned from the 102 startups Y Combinator has funded.

I’m honored to be part of such a great line-up of speakers: Joel Spolsky, Seth Godin, Eric Sink, Steve Johnson, Richard Stallman, Dharmesh Shah, Jason Fried, Paul Kenny, Tom Jennings and Mike Milinkovich.

Hope to see you there!

Today's San Jose Mercury News has an article reporting that there
are now zero female CEOs at top Silicon Valley tech firms.  I spoke
with the reporter for this piece and shared a few Y Combinator
statistics. Between the 102 startups we've funded-- about 250
people total-- only 7 of the founders have been female.

This ratio is reflective of our applicant pool. There just don't
seem to be a lot of women founding tech startups. This is not new
news to me-- I struggled to find women to interview for Founders at Work, and I've thought a lot about this topic.  I don't have time now to share all my thoughts in depth, but I'd like to point out that women who want to start startups shouldn't be discouraged by statistics like this.

By nature, startups are very non-discriminatory. As a founder, your success is directly tied to the success of your product. You must please the market, not your boss or other executives. The market doesn't care how old, what race, religion or what gender you are. It cares if the product is actually good.

So make something people want, and try not to let depressing
statistics hold you back.

I think the past 4 months have been the busiest of my life. We
wrapped up YC's winter funding cycle, hosted Startup School for
more than 700 people, conducted interviews for the summer funding cycle, I interviewed people for the second volume of Founders at Work and made the semi-annual cross country move, and we recently kicked off YC's summer funding cycle with 22 new startups. And in the midst of all this I got married.

At times, I felt a bit overwhelmed. But I wouldn't change things
for the world, because I love what I do.

Paul and I spoke with a reporter recently who was trying to determine what motivates us to work on Y Combinator. He asked if we'd still do it if it were never profitable. I answered that I'd keep going anyway-- that I love working with the founders and I'm enormously pleased when good things happen with their startups. I felt a little sanctimonious afterward (since I definitely hope YC doesn't turn out to be a non-profit), so I spent time thinking about why I want YC to succeed.

Most reasons were kind of obvious: I enjoy working with startup
founders, love being part of a small company where I have some skin in the game, I like playing a role (albeit small) in the creation
of new technology, and I'm genuinely interested and challenged by the work I do. Plus it will be fascinating to see how the new model of investing that YC represents will eventually play out.

But then I realized something that surprised me: one of my biggest motivations for wanting Y Combinator to succeed is that I want to give other people a better opportunity than I had in my professional career. Like a parent who wants to provide their children with a better life, I don't want young people to endure corporate America like I did if they don't want to.

YC was founded on the principles in Paul Graham's essay Hiring is
Obsolete. For the smartest and most ambitious people, a startup is a better alternative to climbing the corporate ladder. You get more control over your fate, instead of being averaged together with a bunch of other people who aren't as talented or driven.

I spent 13 years in corporate America, mostly because I didn't
understand what my other options were. I was hypnotized by the
security of an established, respected company. At the end of my run, I felt pretty successful too-- I had a nice, steady paycheck, a fabulous window office, and found some of the work I did pretty interesting. But not all of it. Meetings, consensus-building, office politics-- the list of "not-actual-work" distractions could go on-- took up an exorbitant amount of my time.  Our group would sometimes devote an entire day to crafting a response to someone's disparaging internal memo. A total waste of time and, in hindsight, an inefficient use of my most energetic adult years.

I wasn't technical, but I did have the energy and high standards
that would have been well-suited to a startup.  At the companies I worked for, they were wasted.  Only a few of the top executives had significant equity, so all the long hours I put in never benefited me financially. And because I was never any good at office politics, my hard work didn't help me climb the corporate ladder any faster than usual.

Since they can't really increase the amount of money they make but they can increase their power, ambitious people in the corporate world often turn to politics. Their energies are pushed in the wrong direction. And it's usually frustrating and depressing to work with these people. Especially if they are your superiors. (Luckily, my last boss was marvelous and offset a lot of the bad stuff I'm talking about, but the company as a whole was full of politics.)  And because hiring is driven by the random methods that prevail at big companies, the number of mediocre people infiltrating an office can be astounding. In a startup, you choose to work with people you think are talented. At a big company, you're stuck working with whoever else they've hired.

Y Combinator has always had 4 people. And luckily for me, my 3
partners are the smartest people I know. We have no bureaucracy. I can't remember us ever having a disagreement about anything.

YC is kind of a startup itself.  We have a novel approach to seed
funding that is still in the early stages and unproven-- and therefore has led to a dramatic increase of uncertainty for me. But I'll happily take working 24/7 on my own company over being an employee at a big firm.

A lot of the people we've funded have told me that they wouldn't
have started their company without YC.  As well as a business, YC
is a vehicle for the spread of very valuable information: that it's
easier than a lot of people think to start a startup, and for
talented hackers who can afford the risk, usually a net win over
joining a big firm.

I feel like YC has had a big impact on some people's lives. It seems
like most of our founders are happier and more self-confident working on their own thing. It may not be as easy as the job they had before, but they seem happier. Certainly, the founders of the startups who've been acquired are glad they did it. But even the YC alumni whose startups have failed seem to be better off-- they have a better job at a more interesting company, etc. This is what makes me want YC to keep going.

The majority of YC startups' futures have yet to be determined.
Probably a lot will fail. But I know that some will succeed, and
then those founders will have the financial freedom to choose what they want to do with their lives. They will have successfully
bypassed the frustrating experience of climbing the corporate ladder. Some may never realize what they've avoided, but as someone who spent years on it, I do.

Working from home a few months ago (a rare interruption).

Y Combinator and Stanford’s BASES hosted the 4th annual Startup School last weekend. It felt to me like the best one so far.

Startup School began as an experiment to “open source” Y Combinator-- to see how much we could give everyone for free in one concentrated day of talks. More than 700 people traveled from around the world to attend it this year.

The atmos at SUS has always been unique, but this year it was even more intense. In fact, what surprised me most was the audience’s rapt attention from beginning to end. I usually expect a handful of people to arrive late, to work on their computers during some of the talks, to leave before the last speaker. But not this year. The room was packed starting at 9:00am and literally had people sprawled throughout the aisles the entire day.

Though maybe it shouldn’t be too surprising that people were interested in hearing from the speakers. We had an amazing lineup this year, and did they ever deliver.

David Lawee: I was fascinated to learn that when David and his Xfire cofounders launched their first product, they knew it was wrong within the first 24 hours. “We took 90% of our resources within that first week and shifted them to a new product [Xfire] and launched 120 days later.” Note to founders: your idea changes a lot in the early days.

Sam Altman: Sam contributes a lot of time advising new YC founders about raising money from investors. His presentation was chock full of practical advice about what to expect during the fundraising process. This is gold for anyone who hasn’t done it before.

Jack Sheridan: You don’t often get free legal advice from one of the top corporate lawyers in Silicon Valley. Trust me, listen to this talk if it’s early days with your startup. It will help you know what you should and shouldn’t worry about, and also understand some key legal concepts that seem like a foreign language to first-time entrepreneurs.

Paul Graham: Founders should guide their corporate strategy by being good. I have a feeling this talk (now online) will be one of those Paul Graham essays that seem so forward thinking when we look back several years from now. Though he's dead wrong about one thing: “At best I speak good as a second language.”  

Greg McAdoo: Greg is one of the best VC speakers I’ve heard. He’s articulate, knowledgeable, and gives you the real deal. The surfing analogy had perhaps more marketing influence than usual, but I think it worked. You can have a great team, great idea and execution, but the market is critical and unfortunately not under your control.

David Heinemeier Hansson: Whether or not you agreed with DHH’s advice, you couldn’t help but love his talk. I was so fired up afterward that, had I not been so exhausted from managing the event, I would have gone out for a 5 mile run! I think DHH wins for most popular talk of SUS ’08.

Paul Buchheit: PB has a rare ability to make very important points but to be hilariously funny while doing it. It’s his dry wit, I think. His blog is a great source of insights too.

Jeff Bezos: It was a thrill to meet Jeff for the first time. He seemed remarkably nice and down to earth for someone so successful. What vision he has-- as the world’s top Internet retailer, Amazon branches into the cloud computing business and nails it. Some attendees wished he’d talked more about starting Amazon rather than focusing on AWS (which they all use anyway). But it was interesting to hear Jeff’s take on things and I especially enjoyed the Q&A period.

Mike Arrington: This was one of my favorites of the day. Mike told the audience how to get covered by TechCrunch. A lot of journalists give wishy-washy advice on this topic, so I found it refreshing to hear him speak so candidly e.g. “We only want to write stories that you don’t want written.” Easier said than done, but good advice nonetheless.

Marc Andreessen: Getting to interview PMarca was the highlight of my day. OK, my month. He’s a wealth of information (his blog is a must-read). YC founders asked me to give him a hour-long slot if we can get him to come back and talk next year. What struck me most was some advice from Steve Martin that he shared: Be so good they can’t ignore you. Startup founders: write that down on a sticky and remind yourself of this every morning.

Peter Norvig: I admit he lost me on some of the technical stuff, but all my programmer friends told me Peter’s talk was one of the best. His main point was to let the data do your work for you. This seems to be a philosophy that has helped Google be so successful.

I’d like to thank the speakers for donating their time on a Saturday and coming to inspire and educate all of us. I really don’t know if we’ll be able to top this year’s group of speakers.

And thanks to all the attendees who traveled far and wide to come. Your enthusiasm was contagious. A reporter asked me about the sense of optimism that seemed palpable in the room despite the looming fear of a recession. I reminded her that entrepreneurs by nature have a remarkably high level of optimism. They wouldn’t be able to endure a startup otherwise.  

Special thanks to BASES and especially its President Ryan Akkina. There will be some mighty big shoes to fill after he graduates this spring. The Omnisios have saved my hide this year by organizing all the talks online. Justin.tv too. Ross Boucher of 280 North (whom many-- unfortunately for him-- mistook for the designated conference AV tech) helped out enormously with all the slide stuff as did Justin Santa Barbara. Thanks to Alicia Collins for all her support. Reddit’s Alexis Ohanian helped us look semi-professional this year with the snazzy logo. Thanks to Dana Wu for managing the registration desk (along with Ellen Liu, Pokai Chen, Michael Pao, Linn Muang, Bryan Estrada, Matt Jones, David Kinghorn and Ping Taing) and keeping things sane in the lobby. Thanks to Brett Gibson and John Baunach of Slinkset for putting together the “Ask PMarca” site. And last but not least Kate Courteau for all her help with “afterparty logistics.” Photos courtesy of Garry Tan (Buchheit, DHH) and Mathieu Thouvenin (me and PMarca).

When Chris Sacca talks, people listen.

It’s 7 weeks into Y Combinator's winter funding cycle and we’re in the thick of things now.

Demo Day Looms Large
The founders are demons of productivity right now, because they are preparing to present to investors at Demo Day next month. Many founders look back on these three months and say it was the most productive time of their lives, but this period in the month before demo day tends to be the most productive of all. 

Over the past few weeks they’ve been iterating on their ideas. Some show up with their idea in great shape, but usually it changes a lot. Probably the most important thing we do at YC is help founders with the idea. Paul, Robert and Trevor have gotten really good at it. They help founders figure out both what to work on first, and how to expand their long-term plan into something bigger.

But of course no one can tell you what users want as well as users can. Paul Buchheit wrote recently about the importance of releasing early and often as a way of learning what users want. Fortunately there are now so many YC alumni that it’s possible to do alpha testing within the YC community.

Startups Launch
It’s also the season for launching. For better or worse, investor interest is highly correlated with traffic. Of the 21 startups in this batch, 6 have already launched: 8aWeek, Addher, Heroku, RescueTime, Tipjoy and WebMynd. I think it’s a big relief for the founders to launch and start getting user feedback. One trend we’ve noticed over the years is a correlation between launching late and failure. Paul suggested in his essay, “How Not to Die,” that startup founders should “put [themselves] in a position where failure will be public and humiliating.” Once you’ve launched you have more to motivate you.

Garrett Camp of StumbleUpon after his talk.

Guest Speakers
We’re so lucky to have such successful and busy people help the YC founders each week. Below are the most interesting or surprising takeaways I had from the recent speakers' talks. 

Evan Williams (Twitter, Blogger, Odeo):  Ev said something striking that I hadn’t really thought about….Twitter’s success was in part due to its limitations. It was like a stripped down blogging app.  I wonder what else could be “more” with less?

Paul Buchheit (FriendFeed, creator of GMail): “Keep moving, stop thinking and start doing.” Paul’s a big proponent of actually building something to see if it works rather than pondering if something should work. He did this with the first prototypes of AdSense and GMail.

Chris Sacca (angel investor, formerly Google): As always, Chris had a lot of fascinating stories to tell. One thing that struck me had to do with Larry and Sergey’s way of thinking. When something about the world is broken, they notice it’s broken, instead of thinking “that’s just how things are.” I suspect much Google’s success is a reflection of the personalities of the founders.
 
Garrett Camp (StumbleUpon): The founders of StumbleUpon worked “purely in isolation” in Calgary for about 3 ½ years. There wasn’t much of a startup community for them. Garrett’s main goal in starting StumbleUpon was just to make something he could work on after grad school.  He ended up doing a lot more than that.

Kevin Hale (Wufoo): I am always wowed by the Wufoos’ dedication to customer service.  Also, the founders have an amazing working relationship. He said, “the hardest thing about decision making is not taking things personally.” Seems obvious, but it’s a nice reminder for early stage startups, when so many decisions need to be made very quickly.