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tv   Studio 1.0  Bloomberg  December 7, 2014 9:30am-10:01am EST

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>> it has been called the harvard of silicon valley. is perhaps the most is to just start up incubator in the world. it has funded more than 700 companies to date. the startup machine is a couple with their own startup story. how did they build it into what it is today? joining me today, founders and husband and wife. thank you for joining us. great to have you.
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it has been like six months since you stepped down from the helm, how is it going? >> so great. i wish i had done it two years before. >> why? >> it was hard running the company. i am not an administrator and it had gotten big. suddenly, i was running a big thing. >> did you get your brain back? yeah, this afternoon, i had the best conversation with a founder i have ever had. i had lunch with patrick carlton. was of the conversation talking about giants. the best possible office hours. >> i am still involved doing all the same things i used to do. i miss working with paul, but i also love working with others. >> sam was the founder of one of
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your first companies. when you stepped down, some said he was not cut out to be you. >> it is a good thing he was not cut out to maybe because i was not cut out to run y, nader. he is better at it than i am. >> they will be different. sam brings a lot to the table that neither of us had, which is an amazing amount of energy and patience needed to broker deals with investors. it is doing a lot of different things as a result. each oft to talk about you, where you grew up, your parents. >> my parents came here from england when i was 3.5. we lived in pittsburgh because he worked in the nuclear business. when you designed a nuclear reaction, he was the one that would figure out if it would explode. >> what kind of kid where you? >> i was a bad kid.
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half of the kids in my neighborhood wilford victim -- forbidden to play with me. i was suspended from school at least once every year from first grade to 12th grade. >> at a certain point, you got into computers? did that help? >> they did not teach people computers in school. it was something you did on the side. >> when did you start coding? >> when i was 15. >> you went on to harvard to get your phd in computer science. you also took art classes on the side. >> it was a very disorganized trajectory. it was always a mess. >> jessica, what about you? boston,w up outside of and i was an angel. [laughter] i grew up with my father and grandmother, his mother. had a very happy childhood and
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friends wanted to play with me. [laughter] i knew i liked to write. but i had no idea what i wanted to be or do. >> you ended up at a boutique. were you technical? did you learn how to code? >> i never learned how to code and am not technical. someday i will learn, but i was interested in it. , youfore y combinator started another company. tell me about it. it was quite revolutionary. becauses called viaweb the software worked via web. andot bought by yahoo! still is yahoo! store. >> what was it like working there? how long did you last, the guy that got suspended every year? >> i was basically getting
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suspended from yahoo!, too. i hereby apologize to all the people i have worked for. i lasted a year. >> you went on to write. that is when you started building your following. what were you writing about? >> started writing about software. i gradually realized no one would drive me away if i started writing about other things. >> at what point did you guys meet? paul'set at a party at house in cambridge that i almost did not attend. >> y combinator almost did not exist. >how did you come up with the idea? >> jessica was interested in startups. she was writing a book. >> that is the first book i read when i moved to silicon valley. >> that is great. it was hard to find information on startups. i was fascinated with the stories i heard.
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you gave a talk at harvard. >> about how to start a startup. one thing i told them is they from people money who got the money from starting a startup because they could get advice. they were looking at me expectantly like baby birds wanting me to feed them. afterwards, i felt sort of bad because i always thought i would do angel investing and have not gotten around to it. i did not know how. i thought, i will do it, i will start doing angel investing. it was not supposed to grow into this big thing. this is one of the things we tell founders. the best way to start a startup that will take over the world is don't try to start a startup. just try to start a project you think would be cool to work on. >> how did you come up with the name? >> the original name was cambridge seed. it is a cool name. >> we were in cambridge. combinator is a calculus
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trick, the formal language for expressing algorithms. a math company. >> how did you decide to work together? you were not married yet. that was a big decision. >> it was scary because we had only been dating for a year. ♪
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>> there are myths about so many of the great companies, start-ups, founders that are boiled down into legends and what is the myth of y combinator and what is the reality? >> people don't realize how much we were not interested in making money. of all these people saying on all these forums, all self-serving, we weren't trying to make money. >> it was an experiment to see if these new ideas could work. >> a lot of people think of it as paul graham's y combinator. >> there is a myth.
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>> you call jessica the secret weapon. >> nothing has happened that -- at y combinator that jessica did not like set her seal of approval on. she has veto over everything. >> this is the first time you guys have been interviewed together? >> yeah. >> i can't believe that. >> let's face it, i'm not as interesting as you. i don't make colorful remarks. i've chosen to be behind the scenes. i'm more comfortable behind the scenes. i like running things. >> this is why she is the secret weapon. she has perfect pitch for character. she can talk to somebody and fairly quickly tell whether they are a good person or not. >> tell me about the first class, eight companies, but you didn't know if anyone was going to even apply, right? >> we had no idea if people were going to apply. we had a few hundred applications. >> the most critical innovation of y.c. was to fund a bunch of
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start-ups at once. it is better for the investor and better for the startups because they have colleagues. it is so lonely and it has some of the advantages of being part of a company without the disadvantages. >> at what point did you decide to take money from investors? >> when we had to, frankly. i ran out of money. and it takes -- god, how long does it take? we don't even know how long it takes for the big exits. 10 years maybe. >> you are going into your 19th funding cycle. what do you consider the most successful y.c. companies? >> it is pretty much the ones with the highest evaluations. the three with the highest are airbnb, dropbox and stripe. >> did you know early on they were going to be hits? >> we knew the founders were good. >> what was it about them?
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what was it about them? >> different things. different things about the two of them. in drew's case, he was the guy who could write this software. dropbox suceeded by solving an almost impossibly hard problem. airbnb is different. it is this mass movement where people are staying in people's house worldwide. >> we were skeptical and i remember thinking we don't remember what the idea is. these founders are awesome. we're funding them. >> patrick from stripe, i have known him since he was 14. back when he was a high school kid in ireland. he used to email questions about programming language, and i had no idea he was a kid. >> now these companies are worth billions of dollars, if you look at that, if they had the opportunity, would they have sold? >> if someone came along with a big enough offer at the right moment, they would have taken it. we know with drew, in the y combinator application, we used to ask if someone offered you money, what is the least you would take.
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i think drew answered a million dollars. it was convenient that no one wanted to buy dropbox early on. >> now that you've been doing this so many years, can you identify the future dropboxes and airbnb's earlier, sooner than everybody else? >> we might be able to identify them better than other people, but there are limits to how well you can identify them. there's a good deal of luck. if you had to boil it down into one word what you are looking for, it's authentic. you're looking for people who are real friends, not people who got together for purposes of a start-up or in it for the money. zuck's not in it for the money . he never was. that is why he turned down the yahoo! acquisition offer. without that, it wouldn't be what it is today. >> how was the interview process evolved?
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>> we started out with 40 minutes for an interview. >> 40-minute interviews and now with 10-minute interviews we don't have a pitch. >> how can you really know? >> you can't know for sure. after each minute, how likely are you to change your mind. if you had another 10 minutes, you might change your mind 2% of the time. >> what is the average valuation of all of the y.c. companies? >> the valuation is $30 billion. >> what's your stake? >> all the money is in the few big hits and you have to ask what percentage you end up with after dilution. we assume it will be end up being 3%. 3% of 30. i have never done this. >> >> $900 million. $1 billion. >> until you asked me that, i never multiplied those numbers together. >> an article said sequoia has made more money on y combinator than y combinator has. >> yes, strictly speaking. i believe more about $30 billion
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equity belongs to sequoia. >> and your policy is you don't make follow-on investments, right? >> yeah. >> would you consider changing that policy in order to make money off the hits that you pick? >> we never say never. the problem with that is there is a signaling thing. if we are going to do follow-on investments, we are telling other investors, that would hurt the founders who are probably great investment opportunities but we didn't choose to do a follow-on with. >> does it bother you sequoia has made more money? >> no. who cares? >> i'm happy for them. i like sequoia. >> y combinator has gotten so much praise and a lot of criticism. why do you think it is so controversial? >> one of the most surprising things as y combinator became more successful, the more famous something becomes, the more people want to attack it. >> it's always been a mystery to me. honestly every night i go to , sleep, i think did we help the founders today and the answer is almost always yes.
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>> she goes to bed and says why is everyone saying mean things about us. it's so not true. >> you have said other investors have tried to stab you in the back. are they jealous? >> there are some things you can't believe someone is going to do that to you. i don't know why. it probably boils down to money and power. i don't know. >> one thing that people have said to me is that, well, why y.c. is only invested in 700 companies, there is only a handful of hits. is that a good track record? >> a couple hits or no hits. those are the only two options. >> are y.c. companies overvalued? >> maybe. maybe all startups are. i have heard investors claiming that y.c. startups are 2 times overvalued. that's the greatest compliment. that means we can take people
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in and even if we did nothing else they would get twice the , valuation they would have had otherwise. >> is it a good thing if they are not worth it? >> if it is worth it, it is a bargain. even if it was overpriced. >> i know something that jessica has said a lot about, not admitting enough women. is that true? >> we don't have enough women applying. we are making an effort in trying to do. we don't ask on the application what someone's gender is. we're trying to get the word out there that women should be starting start-ups. we hosted a female founders conference we will do again this winter conference where we bring successful female founders and tell their stories to inspire more women. >> some of the words that people use are harsh. they call y combinator a frat house. how many women have you funded? >> in the past, it was usually around 4% were female and now it's more like 12%.
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obviously, that is not where we want to be. but it is moving in the right direction. >> how do we get more women founding? >> examples are what makes everyone to start start-ups. >> how have you changed the interview process to make sure you are getting the best people? to make sure you are not discriminating and everyone has an equal shot? >> one thing that has changed is we have a female partner in the interview rooms. >> why not blind screen everyone? >> i couldn't observe their interaction. >> you could not tell if they were telling the truth. ♪
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>> you've got two kids. what kind of parents are you? >> paul is the best father i have ever met. i'm going to say that because you wouldn't say that yourself. he spends so much time with them, teaching them, exposing to
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things, rarely seen that other -- things i have rarely seen other fathers have done. i lucked out. >> how do you manage being married and being colleagues? >> it always worked really well. >> it was really easy. we never disagreed on anything. >> have you ever fought about y combinator? >> i don't think so. >> no. >> i don't believe it. >> it's really true. and the secret is the same secret true for co-founders in general, you have different responsibilities. each person is in charge of their own thing and they are experts in that thing. >> what is the hottest thing about a y combinator company we don't know yet? >> that is hard. >> boosted boards. >> why boosted board? >> let's just say they have bigger ambitions than making skateboards. >> what is the biggest fire you had to put out? >> i put out at least one a week
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of co-founder disputes, that and fundraising, interactions with investors and investors mal-treating the start-ups. we intervene. >> how do you protect a start-up from its own investors? >> at this you don't have to point, make explicit threats. you just sort of say, come on, guys. be nice. but the investors know behind that, if you don't, we won't send any more start-ups to you. >> if you don't, all of the y combinator founders will know about it the next day. >> biggest regret? >> it is a bit grim. but very easy to say what my biggest mistake is. >> i can answer. i'll do my answer. my biggest regret is i kind of squandered my college education. i didn't learn as many things as
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i could learn or work as hard as i could have and i compare myself to the founders, who are doing so many interesting and ambitious things, and i kind of squandered a little bit of my youth. >> paul? >> i have to say it very carefully. so i can remain in control of myself. but remind your parents to be screened for colon cancer. >> i understand. my father passed away. there are many things i would like to tell him. and do for him. >> colon cancer. if they catch it early, it's so preventable. you've got to make them get screened. >> what is next? is yc it? or will there be a second act from paul and jessica? >> i'm fully just as
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enthusiastic about y combinator. as the day we started if not moreso. we are doing so many exciting things. >> now it actually seems like a good idea. [laughter] >> how about you, paul? >> i'm going to go back to writing. that was what i was doing before y combinator. that is what i was always hoping to do. >> how do you guys want yc to be remembered? >> i don't want it to be remembered. i want us to still exist. i want yc to be this institution that persists for a long time. it could last a lot longer than a product company does because structurally it is like a university. it could in principle last for hundreds of years. >> i want us to be remembered for changing a lot of people's lives and making the world a better place. >> thank you so much. thank you for doing this. and being our guests on "studio 1.0." ♪
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>> the two titans go head to head on how best to tackle one of the biggest issues facing ur generation. climate change is one of the topics that we've been talking about for years and yet governments don't seem to be

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