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