1Mby1M Virtual Accelerator Investor Forum: With Geoff Ralston, President of Y Combinator (Part 3)

Sramana Mitra: At 1Mby1M, we are in the pre-Series A zone. We don’t care if it’s at napkin stage. We work with that entire spectrum of pre-seed, pre series A. Typically, investors have steered clear from companies that operate in this mode. This category uses virtual company architecture extensively. What are you seeing? What is your perspective on this category?

Geoff Ralston: I’m not 100% sure how you’re defining the category. Let me talk about bootstrapping.

Sramana Mitra: Specifically, bootstrapping with a paycheck. They’re keeping their jobs, starting a company on the side, and starting to validate and getting quite a bit further before quitting their jobs. They have a validated business before quitting their jobs.

Geoff Ralston: I remember, in 1993, I was working at Hewlett-Packard. A friend called me and said, “Have you seen Mosaic?” I said, “What are you talking about?” 

Sramana Mitra: I had exactly the same conversation at MIT. 

Geoff Ralston: For those of you who don’t know, Mosaic was the first web browser. It was the first web browser that integrated graphics and text, which might seem stupid, but it was cool back then. I saw that and I quit my job three weeks later. I knew that was the future. My boss at that time said, “Don’t quit before you know what you’re doing. Stay. Get a paycheck.” But, I couldn’t do that.

My message to people who are bootstrapping with a paycheck is, there’s a long history of successful entrepreneurs who waited until they were really ready before jumping. That being said, you got to take the leap at some point. By the way, that’s why YC gives you $125,000. It’s not meant to be your first venture round. It’s enough money so you can survive.

It is a harsh truth that doing a startup is the hardest thing you can do professionally. If you’re not in 120%, it’s hard to build a successful startup. But that doesn’t mean you can’t choose the right time to make the leap. I do not know of a massively successful company that was built with part-timers. 

Sramana Mitra: Nobody wants to start a company to remain a part-timer forever. The lens with which I look at is still in terms of the number of entrepreneurs getting to some degree of success. You’re looking at the universe from how many of these companies are going to be billion-dollar, $10B, $100B companies. I’m looking at how can we get more of them to a million-dollar company and sustainability. You have a 97% rejection rate; I have a zero percent rejection rate.

I have to think of ways that these people can survive. Most of them don’t qualify for any seed capital. They have to somehow survive. Paycheck is one of the techniques that we have identified as a viable survival strategy until you get to the point where you can quit and go full-time.

Geoff Ralston: We are actually more aligned than you might think, Sramana. I will say a couple of things. First of all, it’s 98% rejection rate. That being said, there’s more startup content on YC website than anywhere else on the web in my opinion. Startup school is entirely free and gives you a lot of knowledge that is relevant across different types of companies. I think lifestyle companies, as we call them, are not really venture backed. Those companies that you’re talking about are fantastic, but they’re not just going to get venture financing for several reasons. VC can’t get their money out of those companies. There’s not a public market for those companies.

You have to understand venture math. Venture capitalists have limited partners who invest the money that they then invest. They demand returns. That doesn’t mean that that’s not a perfectly valid way to build a company and have a successful outcome. In fact, what I like to tell founders is that you can get very wealthy doing their business without a VC. We support that. But it is true that for our batch program, we’re assuming that you’re a startup that will grow fast and is going to need VC and that you’re not looking to create a lifestyle company. 

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Geoff Ralston, President of Y Combinator
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