If you’ve ever wanted to apply to Y Combinator, here’s a look at how the iconic accelerator chooses companies from someone who knows best: Garry Tan, president and CEO of Y Combinator.
The Economic Club of Washington, DC hosted Tan on Wednesday for a one-on-one interview with General Catalyst board member Teresa Carlson.
It is well known that Y Combinator accepts less than 1% of the applications it receives – the latest batch was reduced by 27,000 applications, Tan said. These days, cohorts typically have around 250 companies. So Carlson wanted to know, among other topics, what the “secret sauce,” if you will, was to getting accepted into Y Combinator.
First, it may be one of the few places where you don’t have to know anyone to enter, Tan said. Anyone can access the website, apply and submit a one-minute video. YC’s 14 partners read the applications to understand a few things: who is the candidate’s potential customer and what have the founders built in the past? The best candidates then answer a handful of questions from the partners.
“A lot of venture capitalists meet week to week and say ‘no, no, no, no,’ and then maybe a few times a year saying ‘yes,’” Tan said. “YC reverses that.”
One of the things YC looks for is founders who can create a market and see a technology that no one has considered before, he said.
Tan used Coinbase’s Brian Armstrong as an example of someone who created a market. When Tan first met Armstrong, he was still working as an anti-fraud engineer at Airbnb. Armstrong had read Satoshi Nakamoto’s white paper and had an idea.
“He said, ‘No one believes in it yet, but I believe in it and I want to work on software that would manifest this crazy idea that you could have a sovereign cryptocurrency,’” Tan said. “It was a very fringe idea at the moment, but that’s what we’re looking for – a fringe thing.”
He then explained that the “fringe thing” is a new technology “that deeply technical people are obsessed with” and that “affects all of society.”
After the YC partners interviewed and accepted Armstrong into the program, Tan remembers working with him every week. And during those discussions, he realized that if something like Coinbase existed, “it would be really huge.” Then came the discussion of how to build it.
“The cool thing about what he was doing was that it was really hard to get Bitcoin,” Tan said. “I personally experienced this. These marginal things can turn into something very big.
He also said Armstrong was an example of another thing YC partners look for in candidates: “He was a first-principles thinker. By this, Tan meant that Armstrong not only believed what no one else believed yet, but he set about determining what things were necessary to build, whether software or distribution, to create this thing that no one else has seen. It’s not enough to recognize a new thing, you need to understand some of the steps involved in building it and have a plan to validate that what you’ve built solves the problem you originally set out to solve, Tan said.
YC conducted a series of interviews last week and Tan said all the founders he chose to fund “came in with a new discovery that they discovered through interacting with the technology itself.”
“It’s like sitting at a workbench and asking, ‘Hey, did you know there’s a robotics manufacturer that’s currently making a humanoid robot for $16,000.’ It will arrive on my desk on Monday, and we will try to be the first to market,” Tan said. “It’s an example of understanding first principles which is a very interesting area.”
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