Y Combinator in the Age of AI | Ep. 43
We talked about YC's core value prop, how AI is changing the process of finding product market fit and raising capital, San Francisco and California, the future of YC, and more.
In this episode, the team behind Y Combinator reflects on what has — and hasn’t — changed since the early days of YC, and how AI is reshaping what it means to be a founder. They discuss how they evaluate builders now, why execution still matters more than competition, and what YC is prioritizing as the startup landscape evolves. At its core, the mission remains the same: increase the number of great startups in the world.
Garry Tan is president and CEO of Y Combinator and a group partner. He was a partner at Y Combinator from 2011 to 2015, where he built key parts of the YC experience for founders including Bookface and the Demo Day website. Garry is the co-founder of Initialized Capital and Posterous (YC S08), a blog platform acquired by Twitter, and prior to that, he was an early designer and engineering manager at Palantir.
Harj Taggar is a Managing Partner at YC. Of the 1,000+ companies Harj has advised while at YC, 5 have gone public. He was previously founder and CEO of Triplebyte (YC S15) and Auctomatic (YC W07), which was acquired by Live Current Media in 2008. He first joined YC as a partner in 2010, leaving in 2014 to start Triplebyte and rejoining in 2020.
Jared Friedman is a Managing Partner at YC. Jared has advised more than 20 YC unicorns while at YC. He was co-founder of Scribd, which was funded by Y Combinator in 2006 and grew to be one of the top 100 sites on the web. Jared previously worked at a pioneering AI company.
Timestamps:
(0:00) Intro
(0:18) The YC product
(5:05) AI and the new builder
(13:01) Pivots and upcoming trends
(22:26) Making something people want
(24:50) What’s in store for SaaS
(33:02) Capital in the age of AI
(36:28) The human capacity for desire
(42:18) Building in America
(44:29) Fixing San Francisco
(47:58) Scaling YC
Links:
https://x.com/snowmaker
https://x.com/harjtaggar
https://x.com/garrytan
https://x.com/jaltma
Watch on YouTube; listen on Apple Podcasts or Spotify
Transcript
Disclaimer: Transcript generated with AI assistance and lightly edited for clarity and accuracy.
The YC Product
Jack Altman
I’m really excited to be here with you. Thanks for all doing this with me. To start, when did you all first go through YC as founders?
Jared Friedman
I think I did it first. Summer 2006, so the third batch ever.
Harj Taggar
I did winter 2007, six months later.
Garry Tan
Summer ‘08.
Jack Altman
So a long time, pretty close to the beginning. Where I want to start is, you all have seen in many incarnations what YC has been like as founders, as partners. You’ve worked outside of YC and inside of it. What has changed? Maybe the lens I want to ask this question through is: what was the value proposition to founders in 2006 versus 2016 versus 2026? What has changed and what has stayed the same?
Garry Tan
Yeah, what was it like in ‘06?
Jared Friedman
The most surprising thing to people from the outside is actually how little it’s changed. I think that’s by design. The thing that Paul Graham created that we all did in the early 2000s was great. It was a great product. As you know, when you have a great product, don’t fuck with it. There are some things that had to change, but in broad strokes it’s much more the same than it is different.
Jack Altman
How would you capture the essence of that product? To a founder, if you had to boil it down to two or three things, what is that product about?
Jared Friedman
We recently worked on a redesign of the Y Combinator website. Actually, Garry and I did. We actually tried to write it down possibly for the first time. Do you want to explain this since it’s really your words on the website?
Garry Tan
It was a team effort. Honestly, we tried to return to what the founder’s experience is. We found all of these old photos. Actually, your brother is the first one on there, and it’s him with the double popped collar.
Jack Altman
We’ll pop that up on the screen.
Garry Tan
Then you start flipping through and it’s Patrick and John Collison. It’s Brian and Joe and Nate at Airbnb. You see them so young, and then you see them ring the bell. Basically what we’re trying to create is like Disneyland for transformation: from startup founders who are just starting out to literally the people who make the companies that really matter. It’s actually a social process. All reality is socially constructed.
I remember when I found YC and came to my first Startup School. It was like being a fish out of water and then jumping into water. I was surrounded by people who were builders, who were earnest. When you get into YC, we take people who are earnest and technical and at the end of that process, hopefully they become formidable.
When you go to the homepage, that’s what it’s about. YC is a transformative process. It’s like Hoffman or something. It’s not that New Age-y. It’s actually very chill. I don’t know how you would describe it.
Jared Friedman
I’m a Harry Potter fan, so I prefer to think of it like Hogwarts.
Jack Altman
When I did YC in Winter ‘16, starting a company felt like such a weird, odd experience. In some ways, having this group that normalizes what it’s about — where you’re surrounded by other people who talk about the new language and the new set of things you should be thinking about — it almost calibrates the strange dream that you’re in. That was a big part. There’s also always been the stamp of approval, which is hard to underweight.
I’m curious how you guys think about that with outsiders in particular. One of the things that seems different to me at least is that now more than 10 years ago, and I’m sure more than 20 years ago, the ecosystem is an understood thing. Founders can read a lot of stuff online. People can read a lot about them online. There’s more known in general. But I still feel like there’s this thing YC can do, which is take people who maybe aren’t yet in that vortex, identify talent somehow, and bring them into that vortex. I’m curious if you guys spend active cycles thinking about that?
Garry Tan
All the time. I’m in the middle of my very intense addiction to Claude Code and Codex. Actually using this stuff is pretty wild. I basically recreated my 2008 startup, 70,000 lines of code, in about 90 hours over two weeks, while having a full-time job and trying to raise kids. It just really compressed a lot of my sleep. But at the end of it, I have a codebase that is better than what it took five engineers, and me taking anti-narcoleptics, to build for my YC startup.
Jack Altman
It’s crazy.
AI and the New Builder
Garry Tan
Something happened at the end of November when Opus 4.5 came out. I heard about it and I was like, “Hey, what’s going on?” The most interesting thing for us is that we’d been talking about it for years, been using it for years, and then it wasn’t really until December where it was like, “AGI is here guys, for code.” I feel like I could create in 80 hours something that I could not create with $5 million and five engineers in two years.
Jack Altman
Let’s stick with that, this coding topic. First, what are you trying to identify as greatness? If before this moment you needed to find great engineers, what is the thing you’re looking for now? How has that changed? Second, the startup advice has always been “write code, talk to users.” What is that now?
Garry Tan
Prompt and talk to users.
Jack Altman
But there’s a lot less time prompting.
Garry Tan
This literally just happened and all of us have been collectively doing it. Harj did a project, Jared‘s coding all the time. Our whole team is using this stuff. We realized, “Hey, why don’t we actually put it in the application process?” For the first time, for the spring batch, you can upload a transcript of your Codex or Claude Code making a feature. We’re starting to figure out how to process it. We put it in a security sandbox because we figure it’ll be prompt-injected very quickly.
You can tell a lot about whether someone can build just from how they prompt the agents. Do they know systems? For YC, you get a t-shirt that says “Make Something People Want” on day one. If you look at a résumé, you can sort of guess at whether they can make something, but you can’t really tell whether they can make something people want. You can look at their GitHub and maybe see if they can make something. The only way you can really tell if they can make something people want is if they did it already.
Jack Altman
And there’s not exactly a GitHub for prompting, if that’s what you’re asking people for.
Garry Tan
But you can tell… Do they use plan mode? Do they think about systems? Are they prematurely optimizing? Are they over-engineering? Basically, what is a feature to them? What is the complete release? Do they think about the edge cases? How you do anything is how you do everything.
My favorite Steve Jobs quote, he talks about how if you’re a carpenter, you can tell other really great carpenters. You don’t look at the front. Everyone looks at the front and they’re like, “This seems good.” But a great carpenter, an artisan, looks at the back of the cabinet. The back of the cabinet only other carpenters are going to look at.
That was one of my favorite things. When I funded companies at Initialized, and when I was a partner at YC the first time around, that was the number one thing that I loved. Is there “game recognize game”? Would I go work for this person if I weren’t doing the thing I was doing now?
Harj Taggar
This is how you spotted Apoorva with Instacart, right?
Garry Tan
Yeah. He came in and honestly it was craft again. He’d literally built an iPhone app that was a demo app. Claude Code didn’t exist, so he actually had to build it himself. The way I could tell was that — turning the cabinet to the back — he could scroll it and it scrolled really smoothly. That wasn’t true for that era of iPhone apps. The App Store and iOS apps were brand new. I feel like you guys do this all the time.
Harj Taggar
To your question about how this changes the way we think about picking founders, I think it’s going to expand the net rather than necessarily change it. We’re all still in agreement that we absolutely want to fund genius engineers who aren’t necessarily using Claude Code. There’s going to be a Patrick Collison of every era and you want to fund those people.
The way we’ve talked about it internally is that this is probably an era where we might find more Parker Conrads. I remember the application when Parker applied with Zenefits in 2013. It was extremely well-written, but single founder, not central casting, not quite technical. He was technical enough where had a demo but didn’t have a CS degree, wasn’t the traditional YC archetype.
The only reason we interviewed him was that his previous company, SigFig, I had used it, it was a personal finance app. So he was clearly capable of doing stuff. The interview made it immediately clear that he deeply understood what he was talking about. He was super articulate, clearly a really strong product thinker.
It worked out for him because he recruited a co-founder during the batch, and then obviously Zenefits had its thing, but Rippling is obviously huge. If Parker hadn’t got his co-founder during the batch, it would’ve been a totally different story. I suspect that the Parker Conrad of today is just in Claude Code, actually building quite sophisticated applications.
Jack Altman
It’s also interesting because Parker’s one of the most commercially intelligent people there are. Coding applications are probably increasing the advantage for people with that shape. Obviously, I’m sure the real technical breakthroughs are always going to be really important.
Garry Tan
This is markedly better than just looking at a resume. When I first came back to YC, I read all the feedback. We’re on r/ycombinator too with our anons and we know what people are saying. It was like, we should pay attention to this and frankly we need to do better than that.
Parker did go to Harvard, but we shouldn’t fund someone because they went to Harvard. We should fund someone because they actually understand the user and are unbelievably tenacious. That’s actually universal for any product, any vertical, any set of customers: the most important thing is agency and taste. Agency is: I see this person, they have this problem, and I believe I can solve it using technology. Taste is: let me actually build the first version and get it in the hands of people. Did it work? How did it break? You go all the way into the weeds.
Imagine hundreds of thousands of lines of code and you’re going through and fixing all the bugs. Think about the tireless, ceaseless gardener. Have you ever been to the Baha’i Gardens in Haifa? It is the most beautiful garden I’ve ever been to. There’s not a single weed, not a leaf out of place. I think the best products in the world, the best experiences in the world, are like that set of gardens. It’s because — it’s actually a religion — they really, really care.
Jack Altman
On that topic, a piece of advice I’ve found myself changing on a little bit over the years is that it used to feel a little bit more like you could just ship something broken fast and then iterate from there. I still think that’s a good general mindset. But I do feel like the bar for products is just so high now. The quality of a software product at Series A seems really high to me lately. How do you guys advise people as they’re getting MVPs out?
Jared Friedman
If Garry was able to ship 70,000 lines of code in a week while also running YC at the same time…
Jack Altman
And raising kids.
Jared Friedman
Then the bar for what two founders working on their idea full-time could do before they interview with YC should be a lot higher.
Harj Taggar
And we see this in the batches. A few weeks into the batch, some of the groups do what we call a product showcase now. You just get up there and give a quick demo of what you’ve built so far. Every six months over the last three years, the bar for what you should demo even a few weeks into the batch just keeps going up and up.
Pivoting, Competition, and Making Something People Want
Jack Altman
It also makes me wonder. Inside a batch, a company ought to be able to pivot more times than they used to be able to. A company ought to be able to try stuff, see if they get traction in a few weeks, and if they don’t, move on. Are you seeing that happen? I know a lot of this is new, but do you feel like that’s going to be happening? Is it happening?
Jared Friedman
Absolutely. We’re seeing companies try many things during the batch.
Jack Altman
Do you advise in that direction? I felt like historically there was a YC school of thought. I interpret it as: ship fast, iterate, see where you’re at, go from there. I’ve interpreted in contrast the Keith Rabois school of thought as: you’re a movie producer, dream your movie and then ensure it happens, and don’t let anybody say no.
Harj Taggar
I feel like the YC job is so much more, almost on the psychology therapist end of the spectrum on this stuff. At least for me, a lot of it is going off the vibe of the founder. I don’t really have a blanket view on whether you should pivot quickly and give up on this idea or stick with it for a long time.
Usually when you’re meeting with founders, you can just tell if someone’s been working on something and they just never seem excited about it, and two weeks in, they’re still not very excited about it. It’s hard to tell them, “you just need to persevere and keep going.” It’s usually better for them to find the thing they have the spark about. What do you think?
Jared Friedman
Yeah, I agree. An anti-pattern for founders who are pivoting is that they have no existing prior on what a good idea is. They’re hoping the outside world will tell them what a good idea is. So they launch five totally different things for five totally different groups of users hoping that one takes off. They usually don’t. What I’ll typically try to do is dig deeper with them to find an idea they actually care about and then see how we can turn that into a startup idea.
Jack Altman
One of the things that I’ve noticed — and a lot of people have noticed this, it’s not some big insight — is that the median startup in YC batches is a good indicator of upcoming trends. I noticed a couple of years ago, before AI was really everywhere, there was one batch where all of a sudden like half the companies were AI companies. Then the next batch. it was like 75%. And then it was basically all AI companies, except for hard tech. You’ve got hard tech too.
Garry Tan
10% hard tech.
Jack Altman
YC is the hard tech of hard tech.
What is the trend right now that you’re seeing a lot of, that you think YC might be particularly attuned to early?
Jared Friedman
I don’t think there are any strong trends yet.
Jack Altman
It’s all just AI right now.
Jared Friedman
It’s all just AI right now. Some things that are smaller trends might be glimmers of the future. Just in the current batch, prediction markets are big. Kalshi is really inspirational to a generation of people. Stablecoins and crypto stuff might be another interesting non-AI trend to talk about.
Jack Altman
Do you have a sense for why? Why are these the companies? Because I agree they have captured something. What is that, do you think? I feel like there is clearly a generation that has been really motivated and interested in this and it’s clearly taking off.
Garry Tan
Any time there’s a regulatory change… These things were in a gray area and now it’s green lights. Everyone’s going to do it. Capital flows to it. Capital is required for building consumer businesses. Boom, you’ve got a consumer business growing super fast. You get more capital, the flywheel happens, and you’ve got another DoorDash, which is great. Capital as a bludgeon works really well there. But what’s funny is it’s not clear to me that capital as a bludgeon works as well with AI companies anymore.
Jack Altman
What do you mean?
Garry Tan
You don’t need to have a thousand-person company anymore.
Jack Altman
It’s interesting. I still feel like I’m waiting for that. There are obviously some companies. I’ve backed YC companies that I’d love to invest more in, but they’re super profitable and I’m like, “Okay, that’s great, I’m very happy for you.” But there are also companies raising bigger rounds than ever and consuming crazy amounts of capital. In some ways it looks even more capital-consumptive than ever before, and I don’t feel like I have a good mental model to square exactly why that’s happening.
Harj Taggar
It certainly seems like it’s easier to get to $1-2 million of ARR without hiring anyone. We get so many investor updates. We’re used to seeing “we just hit a million ARR and we had ten people”. But now it’s more like “...and we haven’t hired anyone.” So that’s genuinely new. I agree about the step after that though. The Series B rounds seem bigger than ever.
Garry Tan
Venture is contracting a little bit, not on a dollar basis. On a dollar basis, there’s a “flight to quality”. One thing we’re talking about internally is that the world is increasingly full of these mega funds. They are friends and they do great work, but it’s more and more dollars behind fewer and fewer people.
Jack Altman
Fewer firms.
Garry Tan
Yeah, fewer firms and fewer people at those firms. The natural thing then is capital as a bludgeon. The fix is in, which is great. Often for YC, we’re sometimes the number one, number two, and number four in any given vertical SaaS space. We’re in the billion-dollar one, we’re in the half-billion-dollar one, we’re in the “arm the rebels” one that works with the partner. This happens over and over again.
Jack Altman
So do you think in this environment the king-making meme is more true because of the capital-as-a-bludgeon thing? Is it more effective in this type of environment?
Garry Tan
Basically, if the founders are good, the capital helps them get there a little faster. But I don’t believe capital as a bludgeon…
Harj Taggar
Especially when things move so quickly. You can end up having capital and then moving fast in the wrong direction.
Garry Tan
Harj funded Giga. Those guys beat — I mean we love Bret, we love Sierra — but Giga, this sort of ten-person team, beat all the incumbents for things like DoorDash. It’s back to back to back. They have the best tech and I think they’re maybe still under 20 people right now.
Jared Friedman
And Jack, speaking of insiders versus outsiders, that’s such a classic insider versus outsider story. What were the backgrounds of the Giga founders?
Harj Taggar
They were two IIT guys in India.
Jared Friedman
They were still in India when you funded them?
Harj Taggar
Yes, they were in India. They actually couldn’t make it out here for the batch for visa reasons, but they were just clearly brilliantly smart. They were the top-ranked IIT students. As undergrads they had done sort of PhD-level research in fine-tuning LLMs before everything really took off. Just clearly exceptional.
Jack Altman
On this point about king-making stuff, and not to talk our own book too much, Legora was a startup coming behind something that seemed really established, and they’re based in Europe. They went through YC and they’re doing great. So it doesn’t seem like stuff is locked up immediately.
Harj Taggar
And that’s a good example. Even if you have the capital, you might not build the right product off the bat, and then things change.
Garry Tan
The model’s getting better. Back to back to back, every single year, the models are getting better. The rumor for Harvey is that they might have spent a bunch of VC capital on fine-tuning models that turned out not to be better than the frontier models. You don’t have a crystal ball. You couldn’t have guessed that. It was just an idea that maybe it might happen. Of course it did happen. Now we’re in this situation where if you have hundreds of millions of dollars sitting in your bank account, you’re tempted to use it….
Jack Altman
The models thing is so interesting to me because one of the things that has struck me is that a lot of the source of product-market fit actually exists outside the startup delivering the service. You take an amazing founder like Max, you put them in a market like legal where there’s just a lot of uptake for some set of reasons, and then you have this tailwind outside the startup that’s actually driving a lot of the aha moment. Not to take away from anything they’ve done, but this is the case for all these startups. That just changes some things.
Harj Taggar
From the founders’ perspective at least — and a reason why they’re raising the B rounds — one, there’s always just the case of banking the money while you can get it. But it also feels like the surface area for the products is bigger than ever and they are still fundamentally constrained by the number of people they have to go execute on things. It feels like in the SaaS era you build one core feature, hit product-market fit with that, and maybe just run with that for a few years and then add things.
Whereas now, even within the batch, people are trying to add more into the product and have it do more. So they just fundamentally feel constrained by how much they feel they should be doing. Then they have competitors and the competitors are moving faster. So I haven’t yet seen the “once you hit product-market fit, you don’t need to hire as many people”. Or at least people aren’t acting on the belief yet that they don’t need to hire as many people.
Jack Altman
One thing that doesn’t seem automated yet is sales, for example. A lot of people thought it would be automated by now, but it hasn’t been. Support has, but sales hasn’t. So you still need a lot of salespeople. It seems like engineers are way more effective, but if you’ve got the capital, 50 engineers is still going to be better than five engineers. Some of these things just haven’t played out intuitively.
Harj Taggar
It’s great for everyone using the products. The bar for what you expect out of the products you use just keeps going up and up, which is awesome.
Jack Altman
There are also a lot of markets that are so genuinely blue ocean. They look like good ideas and they are good ideas and it’s totally new. The result is 50 startups doing something similar. I think that’s a good thing for end consumers. Obviously you guys have a lot of companies in that situation, like we all do.
In this competitive of a market moment, when every startup has a ton of competition, does that change anything? When you’re working with specific companies, do you find yourself saying “you need to go faster, you need to be thinking about something differently”? Does it update anything when we’re in this type of environment?
Garry Tan
Me?
Jared Friedman
I felt like Garry was holding back.
Garry Tan
I’m hoping you guys have a good answer.
Jack Altman
I can answer my own question by the way.
Harj Taggar
I guess the reason we’re pausing on it is just again, YC is about getting things off the ground. Especially during the batch, we’re so focused on: is this even worth investing another two weeks of your time in?
Jack Altman
Is there a glimmer of product-market fit or not? And that doesn’t really have anything to do with competition.
Jared Friedman
At all. Exactly. We actually spend the vast majority of our time on competition telling founders not to worry about competition. Because imagine if the Legora founders had not launched Legora because they looked at Harvey and said, “oh, it’s over.” That’s what we see a hundred times a batch, that story. So it’s just being like, “don’t worry about it, just out-execute them.”
Garry Tan
We always just go back to “make something people want”. It says “make something people want”, it doesn’t say “do a market map, based on what Perplexity tells you…”
Jack Altman
You could say, “make a market map, then make something people want within it.”
Garry Tan
We should make an April Fools T-shirt that says that. “Make a market map, then make something people want.” It’s like, what the hell are you talking about? That’s definitely not how you do this.
Jack Altman
So let’s say somebody’s working on customer support. I’m pretty confident that market is not saturated. A good team that comes into customer support and says “I’m going to go find some more customers” could do it. So the view is just, if you can find customers and get it going, don’t even think about who else is out there, just go.
Harj Taggar
I think that’s basically it. Go out and get customers, and if you have good competition then you’ll have a hard time getting customers. If I try to launch a new payment processor, I’m going to run into Stripe. It’s going to be hard for me to grow really quickly. That ends up being a lot of the advice during the batch.
Is SaaS Dead?
Jack Altman
I’m curious how much you guys think about stuff at a macro level. I know the most important thing — which I believe is obviously correct — is to think about the micro. Get this startup off the ground and going, and then things can go from there. But I am curious about some of the macro things. One that comes to mind is the recent trend in public markets where SaaS multiples have just been totally hammered. Do you guys feel like SaaS is dead? Does that resonate for you? Do you see anything different in the companies you’re working with?
Jared Friedman
Is SaaS dead?
Jack Altman
Is SaaS dead?
Garry Tan
I think it’s dead. The thing is, if you run a SaaS company, you don’t have to be dead. All you have to do is embrace Claude Code. You have to embrace, top to bottom, an agentic view of how everything is going to work.
Put it this way. The same week that I personally realized everything was different, I funded a team from Meta Superintelligence who had left. They were pointing out that Meta has 20,000 people working on Reality Labs and Alexa has 20,000 people. I thought about my experience. I didn’t even have 20,000 people. I had five people. Why did it take two years?
Because I knew what the architecture was, I knew what I wanted to build, and then I had to farm this out. I had to have meetings, come up with a doc, and then other people have other opinions. We’d have five meetings about the architecture and argue about it. Two weeks later, maybe something happens. If you’re in a big company, it’s three months later and maybe something happens.
But we don’t have to do that now. We could just try both. Go into plan mode and then just do it. Literally an hour later, we will have something done that would have taken two weeks, or two months, or sometimes two years. If you’re not a tech company and you’re an incumbent, it’s two years or never that you would even make that decision.
The speed of making that decision, how decisive you can be… Going back to the transformation thing, that’s actually what I feel like I learned at YC. It’s not that I didn’t know how to do it. I was employee number 10 at Palantir. We were moving fast. I was sleeping at the office. The big difference was realizing that instead of getting 20 basis points of Palantir… That’s now an astronomical amount of money, by the way. We didn’t know it at the time.
Jack Altman
We’ll run some math. We’ll put the math up on screen. That’s a thumbnail. That’s perfect.
Harj Taggar
Right above Garry.
Garry Tan
Basically I wanted 97% of the company that I started. I went from a place that was already fast. Then being the founder and CEO, YC sped me up even more. Because you’re in office hours with people and it’s like, “Oh man, this person actually grew 10% this week, 20% this week. How did they do it? I need to do it.”
I think all of this is an accelerant. Claude Code and Codex, being able to make two years of product progress in about two weeks, how could that not make YC more insane? The amount of things you could try and do. You could do two years of work, realize that nobody wants it or there’s too much competition, throw it out, and do it again.
That’s not a throwaway. You learn something, you also got better at using these tools, and you get another shot. What’s funny about seed is you could think of people raising two or three million dollars. That used to be a Series A by the way, which is hilarious.
Jack Altman
Now it’s barely a seed.
Garry Tan
Yeah, it’s like “oh, that’s a small seed.” Are you serious?
Jack Altman
It’s a pre-seed.
Garry Tan
That’s so much money. This is outrageous. You don’t even need this money. It’s crazy that you can go so much faster now.
Jack Altman
I actually want to come back to fundraising advice because I feel like it’s gotten into an interesting place. But the opposite question of the “is SaaS dead” question is, what do you feel is not AI but safe from AI? Are there areas that you think are insulated from this mega-trend, that you’re happy to back without fear of that?
Harj Taggar
I think the obvious one first is just marketplaces that are aggregating people. I think Airbnb is very safe. I think there’s a bunch of marketplaces. DoorDash is totally safe. That’s a very clear one.
Garry Tan
One thing we’ve been talking about is what the agents want. What the coding agents tell you to do turns out to be itself a really big moat. GEO, making your API docs actually written to prompt inject Claude Code to force it to use you… I’m just joking, it’s not clear that you can do that. But if you could you would because it’s that powerful. People will just say “I need X” and then “what’s the best thing on the internet to do that?” I just think that’s really powerful.
Harj Taggar
The other thing you might say, going back to this SaaS thing, is even within SaaS you might say things that feel like they are essentially databases or systems of record — things like Rippling — feel like they’re going to be in a good spot. Then things where the moat was around the number of integrations built, or data connectors, or that kind of stuff — which you can now just code up in 10 or 30 minutes — that’s brittle.
Jack Altman
Do you think it’s system-of-record that makes payroll sticky, or do you think it’s touching money?
Garry Tan
Touching money. Regulatory. You have systems that are working, you don’t want to touch that unless you have a really good reason.
Jack Altman
Because one of the ones that comes up a lot right now is, are CRMs safe? I don’t have a particularly strong opinion, but it seems like an interesting question. It doesn’t exactly touch money, doesn’t exactly touch regulatory . It includes a lot of important information, but that information can now live in email or somewhere else.
Harj Taggar
I think Salesforce is probably screwed. There have been so many attempts to do the Stripe strategy. Get startups in a YC batch using your CRM, because everyone hates Salesforce. But no one could ever really grow into a big company because at some point your head of sales says, “No, I need these reports,”
Jack Altman
And to your point, you need all those integrations, badly.
Harj Taggar
Exactly. Now that’s all just going away. I suspect the next Salesforce is going to come out of a YC batch that sells to all the other YC startups. Investors will say, “Oh, it’s not going to grow because no one can compete with Salesforce.”
Jack Altman
Also, “all its customers are YC companies. It’ll never work.”
What about hardware? Is hard tech safe?
Garry Tan
Hard tech is just hard. The moat comes from it being hard to source, hard to make it work. It’s just another muscle.
Jack Altman
It’s atoms. AI hasn’t exactly come for atoms yet.
Garry Tan
Robotics is still a little ways off, but we need ASI. I think we have AGI now, and ASI is coming. Superintelligence is clearly just around the corner.
Jack Altman
Do you think when we know we’ll know? Or do you think there’ll be a thing to you that would say that a new moment is here?
Garry Tan
I think we have limited versions of ASI right now. I saw a demo—
Jack Altman
All the bots talking together? That was crazy.
Garry Tan
Yeah, that was crazy. That’s the first real example of swarm intelligence. In AI research, swarm intelligence is like this huge field. This was a massive validation of that field. It’s kind of an interesting question. All the main AI labs talk are like, “We’re just going to build the God model, just make it mega-big.” Think about Dr. Manhattan or something.
Biological systems and human society are not modeled that way. We have lots of people with lots of diverse hardware, and different opinions about all kinds of things. You come together and see what sticks. That’s what research is, for instance.
Swarm intelligence versus god-level intelligence is a very interesting thing and that’s just the beginning of that. That just happened literally last week.
Capital in the Age of AI
Jack Altman
Is there a type of project or pathway for a startup to build that you’re not currently funding that you’d like to? I’m thinking of hardware companies or projects that at the beginning I don’t think can start with $1 million. Some of these genuinely need to start with $10-20 million. Is that something you think about? Would a divergence like that ever be worth it to YC? Or is it like, “we don’t need to back every single type of company of all time?”
Harj Taggar
We would like to back every single type of company of all time if we could.
Jack Altman
That’s actually the kind of thing I was curious about. When you’re thinking about YC growing, is the conversation like “we have our style and we like to get everything within that,” or is it “no, we’d like to back every company of all time”?
Garry Tan
We’re generalists. YC funded Coinbase when crypto was like the weirdest thing. Brian Armstrong was on the risk team at Airbnb — in the anti-fraud team — and he was already in the family. He said, “How do I start a company? This is clearly the way to do it.”
What’s funny is you could start 20 other Coinbase competitors but all of them died. When you’re early, it doesn’t matter. It matters more who the person is and what they believe, and then that person goes and creates the future. Being a generalist is an incredible thing, it’s truly the best.
Jack Altman
Is there a slice of the market, or a type of founder, that you feel like you want better exposure to, something you’re actively working on?
Garry Tan
Coming back to YC, one of the things we realized is that we have a huge media presence. On the other hand, on its own, if you just watch the YouTube channel it’s like “oh, this is something in the sky. I heard it’s a 1% acceptance rate.” People think that it’s maybe not for them. What we find is that all of our best people either know someone who did YC, or they met a partner directly at an event. We actually have to be in the community. We can’t just be up in the sky, on the internet.
Jack Altman
You can’t just wait for apps to come in.
Garry Tan
Jared led this. You got us to how many college campuses last year?
Jared Friedman
Over 30 college campuses. We have a huge boots-on-the-ground effort now to go talk to undergrads everywhere. We just got back from a big trip to Europe. We’re going to India in the spring.
To go back to your point about groups of people we’d love to see more of, we have a big effort here to do what we’ve done with undergrads over the last two years — which I think has been pretty successful — and expand that to grad students and people who are more like Brian Armstrong’s age, mid- to late twenties.
Jack Altman
I will say, in a good way because they’re unbelievably impressive, YC founders are young. In recent batches it seems like they’ve trended even younger.
Jared Friedman
They have.
Jack Altman
Which makes sense. I think a big change like AI favors younger people for all sorts of reasons.
Garry Tan
For what it’s worth, I’m a late bloomer. I did YC when I was 27.
Jack Altman
I was 26.
Garry Tan
Late bloomers, high five.
Jack Altman
The old guys. But that’s the old guys for YC.
Harj Taggar
Many of the biggest YC companies were started by founders in their mid to late twenties, DoorDash and Airbnb.
Jack Altman
Oh, that’s old.
Harj Taggar
Yeah, super old. You should definitely quote me on that.
Jack Altman
“We have tons of old people in YC…”
Harj Taggar
We have 26-year-olds.
Garry Tan
We started with going back to colleges. This was kind of driven by them though. I think big tech stopped hiring and simultaneously to that, there’s a real vibe inside the batch sometimes among the young founders that this is the last time to participate in capitalism. I definitely don’t think so, but it’s a powerful idea.
Jack Altman
I think a lot of people feel that way.
Garry Tan
Why is that?
Jack Altman
I think there are a lot of people who feel like, if AI is going to stay on this trend, what are we possibly going to be better at? So I’ve got to do it while I’m still better at something.
Garry Tan
I feel like that is so shortsighted. It’s unbelievable. Ryan Petersen always talks about this. Don’t you think that human capacity for desire is virtually unlimited? We have a god-shaped hole in our heart. We’re just going to want more and more stuff. The thing is, we can do it now.
I was just thinking about that turn of phrase. I’m sure you’ve been in business meetings or making decisions about products where it’s “whoa, let’s not boil the ocean now.” I love that turn of phrase. I’ve said it a lot. I’ve used it to justify not doing things. But in the age of intelligence, why not?
Jack Altman
You can just do things.
Garry Tan
Maybe not boil the ocean, but let’s boil a few lakes. Why not? Actually, this is the moment. When you connect that to what Ryan says, that’s what that would look like. If you’re an investment firm and you beat the market, you have 20% net IRR back to back, what does this stuff mean? Does that mean you fire all your analysts and have the AI do it, and this one person who runs the firm makes all the money? Why would you do that? Because your competitor isn’t going to do that. Your competitor is going to say, “You know what, we have AI now. I want 50% IRR.”
Jack Altman
That’s the thing I have not understood about the “we won’t need capital” argument. Why would you only want five engineers if your competitor has 50? Unless they can’t do anything productive with all the agents, it doesn’t make any sense to me.
Garry Tan
Let’s boil a few lakes first and then we can boil the ocean. I’m not serious about that, obviously there are limitations to it. But the invective against AI, this idea that society is going to fall apart, is so extreme that we need some alternative turn of phrase, other than apocalypse, for this.
Jack Altman
Totally. It’s been a weird thing watching the efforts to both manage and also impact societal understanding of what AI is. I feel there is still a lot of fear embedded. Outside of San Francisco, you go to other places in the country… I’m from St. Louis. I don’t think everybody trusts AI fully. Whether that’s right or wrong, I do think it’s important to get out of our bubble sometimes just to know where the world is at a bit more.
Garry Tan
That’s for real.
Harj Taggar
It’s interesting though. It feels different this time because clearly in our little bubble here, everyone is all pro-AI. On the other extreme, I have immigrant parents who don’t speak great English. My mom is totally into ChatGPT because now she can do all this stuff. She can send letters and reply to people in a way that’s super empowering for her.
It’s the middle, the people who are threatened by it. Is AI going to take my job? Has it really been a threat to knowledge work or white-collar people? I feel like the people who aren’t early adopters — who usually tend to get on the train immediately after the San Francisco train takes off — are now resistant to it. It’s sort of bypassed them and gone to the other end.
Garry Tan
I sympathize with that. As labor that became management and capital, I totally feel that. I think it is actually about, in the Marxist sense, where you fit in there. My argument would be that it has been way more important to become a founder — which is management that becomes capital — now than ever. It’s way more possible. That fear that workers have about what is going to happen is something that management and capital has to take responsibility for.
Jack Altman
It’s serious. I think so too. It’s very easy to be like, “In the arc of history, there’s always new technology and people find new jobs.” Well yeah, but there’s a lot of structural unemployment that happens in the middle of that, and that’s real.
Garry Tan
But that unemployment only happens in zero-sum games. It happens in a case where my company does X, makes widgets that will never change, never get better. Some of it exists in the context of no competition. One of the things we learned from hard tech companies, for instance, is that it’s impossible to get a certain block of metal. You have to get it fabricated or smelted in China. America’s lost the ability to do it. When you have a market so broken that you can’t get it inside America, how did this happen?
I would go back to capital and management and say, “this is a lack of fucking imagination. We’re not here to just shave off one or two percent every single year and increase net profit and that’s it.” We need to think way more about how to use this technology to radically change how businesses work, what products are. How much better they could be?
Jack Altman
I completely agree. I think if capital and management don’t take some responsibility there, it’s not just unemployment, there’s reduced employment. There’s the whole world getting more expensive. Home prices are going up while there might be pressure on wages because you can do more cheaply with AI. So you have inflation happening alongside wage pressure at the same time. I do think it’s a more real thing than our echo chamber wants to… Again, I’m totally for it too, but I think it’s an important thing.
Building in America
Garry Tan
That’s why we’ve been vocal about this idea of little tech. We have Luther Lowe, who used to work at Yelp, and he’s in DC full-time fighting for startups to be able to actually train AI models and enter markets. Frankly, I know we have lots of friends at Apple and Alphabet, and we have huge respect for those companies…
Once in a while you’ll see in the press, “Oh yeah, we submitted an amicus about Apple and Alphabet”. It’s not because we hate those guys, but because we need tech to allow new startups and new entrants to come in. So to me it’s all very consistent. We need to be way more aggressive about what our products and services should be and can do, and we need markets that allow those people to actually exist, thrive, hire lots of people, and create new jobs.
A lot of people are like, “Oh, I work in tech, I don’t know how to do this.” But look, it’s actually abundance. We actually have to build again. We’ve become a litigious culture. I’m sure you’ve read this book Breakneck about China versus the US.
Jack Altman
No but I want to.
It’s Dan Wang’s book. It’s incredible.
Jared Friedman
It’s really good.
Garry Tan
We built a lot in the forties and fifties, and then sometime around the sixties and seventies, they literally stopped building. We can’t build high-speed rail. It’s insane. Why? Because we’re a totally litigious culture that cannot get out of its own way.
Jack Altman
I saw some Peter Thiel talk about how we built all this stuff through the seventies and then for 50 years nothing happened except computers. Even right now most of the revolution is in computers, which is great. It’s better than nothing. Obviously other stuff is happening too. But you look at what China does, standing up a city in no time. They’re really good at robotics. What are we doing?
On this societal topic, obviously you guys are very engaged with the city and state.
Harj Taggar
Some more than others.
Jack Altman
Some more than others. What do you think is the posture that San Francisco and California need to take? What’s the most important thing posturally that we need to be taking?
Jared Friedman
This is Garry’s area. How do we fix California politics? Garry has a plan. I’m kidding but actually he does have.
Garry Tan
Matt Mahan just announced his race for governor. I think he is the perfect example of someone who is not virtue signaling. He built more than 1,400 homes in San Jose. The year before that, he hadn’t passed all the legislation he wanted, so zero market-rate housing was built in San Jose in 2024. When he came into office, he reduced homelessness by 20%. More than a thousand people came inside and got treatment and recovery because he actually supports treatment and recovery.
I didn’t want to be involved in politics. But when I saw that my Asian American grandpas and grandmas couldn’t walk down the street without being assaulted and killed… When I saw people like me when I was 16 or 18… I knew I wanted to participate in tech. I knew I wanted to be an engineer. I didn’t know that I would get into Stanford.
I wouldn’t have been able to do that if I didn’t have algebra in middle school, public middle school. My kids go to private school, but I went to public school. We should have a government that doesn’t require you to be rich to become a startup founder or be good at math. How did we get this bad?
Jack Altman
I’m glad you’re fighting for it. It’s very important and it’s not pleasant. I see you fighting on Twitter in a way I would not have the stomach for, and I’m glad you’re doing it.
Garry Tan
I appreciate it. For people watching, look I’m not going to get every take right. I want to hear when I don’t get it right. But on the flip side, let’s have the debate. Let’s actually talk about it.
Jack Altman
It takes a lot of courage to say stuff that you think and you might be wrong about, and you might get big blowback on. Even if you have it right, people are going to get mad.
Garry Tan
San Francisco and California got this bad because people who run businesses, who have jobs, who are trying to raise families, it was all so big and so scary that we stopped paying attention. San Francisco is on a better path because we started talking about it. At dinners, we started talking about it. “Hey, did you hear about so and so? They got assaulted? Did the police actually show up? What happened with the judge?”
We’re going to try to unseat some judges in San Francisco. I was looking at the records. I’ve looked at a hundred cases for this judge, and in 90% of the cases this judge just dropped it on the floor, at an extreme rate. I think it was a three or four times higher rate of just dropping cases on the floor, purely for ideology. It’s unbelievable. How is this person serving the people? They’re not.
The thing is, there’s a reason why we elect these people. There is an election coming, and we have to make sure we hold these leaders to account.
Jack Altman
Totally. It’s great and it’s super important. It’s not easy work. Someone’s got to do it and I’m glad you’re doing it. Okay, politics tangent aside, although I could talk about that the whole day.
Garry Tan
I know, right? We’ll do the politics episode later.
Jack Altman
Going to get you and some politicians on here.
Scaling YC
Jack Altman
One thing I’m curious about — which has been an obvious topic for me on other episodes — is the mega influx of capital into venture. Is that positive or negative for you? In what ways do you experience it as both?
Jared Friedman
I think it’s mostly positive for us. YC at its best is not competing with other venture firms for deals. YC at its best is convincing people who didn’t seriously think about starting a startup to go for it, and then being their first believer. YC only works if there’s a large pool of downstream capital that can then fund all the subsequent rounds for those companies. So I think actually YC does best in those environments.
Garry Tan
We’re a managed marketplace, so we need as many great investors as possible. Actually what’s funny is that in that managed marketplace, if the supply of capital goes up, we need to go out and find the best possible people. We’re actually really good partners to the rest of the industry. VC can 2x, 5x, or 10x over the next ten years. We will meet the demand.
Jack Altman
With companies?
Garry Tan
With really, the smartest people of our generation. And if that happens…
Jack Altman
So you’re saying you feel limited by the amount of capital still?
Garry Tan
How about this? Capital from VCs like you, VCs like our friends… You’ve got to do the work, show up, don’t disappear, don’t be a dick, do no harm. When I first came back to YC, one of the most interesting evolutions in how to deal with investors was that most investors are actually B or B+. You should be so lucky to have someone who does not mess with you. That’s really good.
Jack Altman
The bar is so low.
Garry Tan
Basically yeah.
Jack Altman
Just don’t damage the company.
Garry Tan
Right. If there’s someone who has a great network or can make the Keynesian beauty contest happen for you and your company and your round, obviously they’re an A investor and they’re going to catalyze something crazy for you. You should work with them. Last time we were here it was like, “yeah, if you can get Keith Rabois to invest in your startup and give you twenty million dollars, you should probably take that money. Do it.” But for everyone else, you’ve got to find people. Sometimes you’ve got to do B+ capital. It’s okay.
Jack Altman
It’s interesting. You made the point — which I agree with — that despite the total volume of dollars going up, there’s in some ways a consolidation of the number of venture firms and players. I don’t know if it’s more companies getting funded or just a lot more dollars going to a couple of breakout successes. I guess both of those help.
Garry Tan
We actively think about how we need more A and A+ investors.
Jack Altman
Humans doing the work.
Garry Tan
Exactly. And I think they’re all going to be YC alums like you. You’re great. Ilya Sukhar is incredible. Dan Levine at Accel. Yuri Sagalov now runs the seed program at GC and he’s incredible. I fully hope and expect that 80 out of the top 100 spots on the Midas list in the next 10-20 years will be all YC alums.
Jack Altman
That’s funny. You’re funding VCs, just on a 10-year delay.
Garry Tan
Liz at First Round is great, is killing it. She’s incredible. I think that’s scratching the surface. We’re going to have dozens of the most legendary investors, and they’re all going to be YC alums who deploy all the world’s capital.
Harj Taggar
Increasing the number of great startups in the world is, I would argue, just the core founding principle of YC. When I first started working at YC in 2010, it was the first thing PG said to me. I wasn’t actually clear why he even wanted to hire anyone. I was like, “This seems like it’s a nice little family business, two of you working on it, seems great.”
But his whole point was that conventional wisdom in the VC industry, which all comes out of Andy Rachleff’s research, is that there are only going to be about 10 companies per year that will go on to reach a hundred million dollars in revenue and be significant and IPO at some point. You just have to be in one of those 10 companies every year or otherwise you may as well have just stayed at home. PG was like, “I’m not a VC. I don’t want to go out and fight for those 10 companies. I’m going to—”
Garry Tan
“We’re going to make more of them.”
Harj Taggar
“Yeah. Let’s make more of them. Let’s see if we can make two of them. Why is it 10? It’s such an arbitrary number.” Clearly over the last 15 years, that’s proven to be true. Everything we do is driven by how we want that number to go up. What are the bottlenecks? Are the bottlenecks more founders? Let’s go find more founders.
Jack Altman
You went to four batches. That was great.
Harj Taggar
Yeah, that was exactly a good example of it. That was a bottleneck. You shouldn’t have to wait six months to do a YC batch.
Jack Altman
What needed to be true for you guys to go from two to four? What was hard about that? What did you have to change, if anything? Was it just that you didn’t get as much time between to source new companies?
Harj Taggar
Maybe this is in the weeds, but one of the structural changes we made at YC since Garry came back is to decentralize it. I would argue that pre-Garry coming back, it was a lot more centralized. There was a team that sort of ran the batch, things were more top-down.
Jack Altman
Decentralizing decisions? Batch operations?
Harj Taggar
Yeah. Maybe if I start at the bottom, now each YC partner is essentially picking their own companies and then we club together to form a group that runs a batch. We’re just more nimble.
Garry Tan
Plus we have 15 people now. That’s the most partners we’ve ever had. We have 15 visiting partners right now, so it’s actually something like 30, 31 partners total.
Jack Altman
Do you feel that there’s a limit to those numbers? Do you think you could double the number of YC partners and therefore double the number of companies? If you’re imagining a world where you’re funding four times more companies than you are today, what would you need to overcome still?
Jared Friedman
A cool thing about the way YC is structured now… I think this is something that’s often misunderstood from the outside. When most people hear a YC batch is 200 companies, they imagine the batch experience is a room full of 400 founders showing up every day.
Jack Altman
It’s actually four batches of 50.
Jared Friedman
Right. It’s actually more like each partner is running their own autonomous mini-YC of about 30-ish companies. We call them pods. I had my whole pod over to my house for dinner last night. That pod is approximately the same size as YC was when Garry went through it.
Garry Tan
We basically run seven or eight simultaneous “2008 batches with PG” and we have 15 PGs now.
Jared Friedman
With that kind of structure, there’s no inherent change that has to happen if you go from 15 to 30, because it’s already fully parallelized.
Jack Altman
One of the ways I’ve perceived YC change over the last several years was that there was a period — I guess when my brother was there — where there were a bunch of new projects. I felt like you guys clearly went back to the core and did more of it. I could feel that very clearly, that “this is our thing, we’re going to refocus on that, and we’re going to make it more and bigger.”
I think that’s been super successful. You’ve clearly throughput more companies. The companies are awesome. I’m saying that as a biased person who invests in a lot of them, but it feels that way to me. Are there initiatives outside of that core that you’re interested in with this new market moment, or are you going to just do more and more of this distilled core? Or does it depend on the day?
Jared Friedman
First of all, I think that’s a good overall description of how YC has changed, especially since Garry came back: refocusing on the core. That’s been the high-level for the last three years. But yeah, we do have some big projects in the works. I’m not sure which ones we can talk about.
Garry Tan
I know. There are so many, and they’re all in the works.
Jack Altman
Just talk about them all. Come on.
Harj Taggar
It’s not like we have new initiatives that don’t feel core. I still think it all falls under the umbrella of the core thing. How do you create more great startups? Keep pushing down on that. As Jared mentioned, Fellows is just an example of something we just launched last year. What’s another bottleneck? More founders. We want to meet founders earlier, college students before they’re ready to do startups. So we started offering grants and community to exceptional college students who we feel aren’t ready to start a startup right now, but they might be in a year or two.
Jack Altman
That’s a good example of widening the base even further. Because you could almost narrow the top and say, “we’re going to put a bunch of money into growth.” Obviously you did that. But the other way to go is you could widen the base and say, “we’re going to try to have some engagement with 10,000 founders.”
Jared Friedman
That’s basically what we think about a lot. The amount of follow-on capital is not really the bottleneck right now. The bottleneck for us is really getting more great founders to want to do startups and to do YC. That’s what the bottleneck should be. If the bottleneck is anything else, something is weird about the world. That’s what the bottleneck always should be.
For a long time, YC was struggling so much to just scale the operational side. We were like a post-product-market-fit company that couldn’t keep up with demand. So instead of focusing on growth, how do we get… We were like YouTube when it was scaling 2x every month. Everyone was just trying to figure out how to keep the site up.
That was certainly the first few years of me at YC. We were just trying to figure out how to not fall over. But now that we’ve really got the operations down, we can go back to focusing on what we should be focusing on. How do we broaden the base? How do we get more great people into our ecosystem early? How do we inspire more people to start companies?
Garry Tan
One of the most fun things… I pinch myself that I get to… I had left YC and now I get to go hang out with PG and Jessica again, hang out with Brian Chesky who’s on the board. One of the directives from the board that’s awesome was: “You need to make sure that we’re having fun.” That was true back in 2011.
Harj Taggar
The laughter test.
Garry Tan
Basically that’s the directive we got this year, and it’s not a directive at all. It’s awesome. If we’re not having fun then we’re doing something wrong actually. I remember being around YC and the partners and PG and PB and Geoff. It was just very, very hilarious all the time. It was unbelievable how weird startups can be. It’d be like, “Can you believe this thing happened?” I feel like our partner lunches are that again, which is really fun.
Jack Altman
That’s so important, having a partnership where everybody trusts and enjoys each other, and respects what people think. That’s got to make the whole experience so much better.
Harj Taggar
It’s why all the partners are former YC founders. It feels a little bit more than a job for everyone. Everyone’s paying it forward. YC changed their life in some way. It just adds to the good vibes.
Jack Altman
It is obviously an iconic and very important institution. You guys are doing a great job running it. I’m sure it feels like a heavy responsibility, but I’m glad you’re having fun with it. You guys, this was really fun. Thanks for doing it. Really appreciate you making time.
Garry Tan
Thanks, Jack. So when are you going to be a YC partner?
Jack Altman
I keep checking my inbox.