Internet guru Paul Graham runs a bootcamp in Silicon Valley that nurtures nerds.
Paul Graham is standing on the edge of a large dining hall in an anonymous commercial building in a Californian cul-de-sac. In front of him, an army of protégés – scores of virtuoso computer programmers – are sitting at benches, picking at bowls of pasta, tapping at MacBook Airs and chewing over plans for world domination. The dress code is programmer chic: crumpled T-shirts, flip-flops, Bermuda shorts. Ghostly complexions suggest long periods spent indoors.
Graham, a 48-year-old British-born internet guru with a bulldog build and the excitement threshold of a Labrador puppy, is scanning the room. You can almost see the thought bubble forming above his head: “Is one of these kids worth $1 billion?” Wealthy individuals, known as “angel investors”, have long funded embryonic software companies, but Graham through his company Y Combinator has sought to do to this process what Adam Smith’s pin factory did to manufacturing. Instead of investing in one company at a time, he shovels cash into dozens simultaneously.
“We have applied classic mass-production techniques,” he says. “Before this, most of the people who put money into start-ups were finance types. We went about it like hackers.”
Twice a year, he sifts through thousands of applications to pick a fresh cohort of entrepreneurs. There are 126 in the present batch, the average age is 26, and they’ve formed 53 nascent companies. Some will have ditched lucrative jobs at Apple or McKinsey; others are
barely out of college. But these “founders” all have one thing in common: they’ve agreed to move to Silicon Valley for three months, to immerse themselves in start-up life. Each company gets $100,000 (Dh 367,280) in seed capital. (Y Combinator provides $20,000 in exchange for a stake, usually 6-7 per cent. The rest of the cash comes from outside investors “on ridiculously generous terms”.) But the financing is probably the least significant part of the deal – the real draw is what Wired magazine called “an unmatchable entrée into the otherwise closed world of high-stakes internet entrepreneurship”.
And then there’s Graham himself. Learning how to build a start-up under his wing has been likened to having Robert De Niro as an acting coach – with the added bonus that he might just help you to produce your own billion dollar blockbuster.
During the 100 days they spend at YC (as Y Combinator is known in ‘the Valley’), the founders will work furiously, trying to develop something resembling a fully fledged business. I ask Zefi Hennessy Holland, a 23-year-old Brit who started out working in the City of London, what hours he’s been putting in. “We start at perhaps 9 or 10 in the morning...” he says. His co-founder, Leo Anthias, continues: “...and yesterday we finished at 5am.”
The insane hours are the product of the constant deadlines, all of which lead up to “Demo Day”, where the founders pitch their companies to a crowd of technology tycoons,
the odd celebrity (Ashton Kutcher is a regular) and a swarm of venture capitalists. Demo Day is a potential gateway to millions of dollars in investment. For some of those pale, pasta-eating wannabes, it will be the springboard to stupendous wealth. It’s also a neat distillation of how Silicon Valley works at its most cloistered and innovative levels. When I meet Alexis Ohanian, who co-founded the social news site Reddit while at Y Combinator, he’ll describe the core of the tech industry as “generations of nerds investing in nerds. It’s great – but it’s kind of a monoculture.”
(In 2006, Condé Nast bought Reddit, just a year after its creation. The price wasn’t announced, but Graham said that Ohanian and his co-founder, Steve Huffman, could live off the cash for the rest of their days – and they were only 23 at the time.)
The companies spawned by YC are almost exclusively software-driven, but these days that covers a vast swath of the economy. I arrive on a Tuesday, because on Tuesdays the founders eat together at the YC headquarters and listen to an off-the-record talk from a tech luminary (Mark Zuckerberg is to attend this month). The first founder I meet is Ben Sand, a 30-year-old Australian. I ask what he’s working on.
“You know the holographic computer interface from the Iron Man films?” he says, a reference to the futuristic controls that allow Tony Stark (Robert Downey Jr’s character) to communicate with the suit that gives him superpowers. “We’re building it for real.”
Demo Day is a potential gateway to millions of dollars in investment. It’s also a neat distillation of how Silicon Valley works... it’s generations of nerds investing in nerds
Another founder, Yin Yin Wu, a 24-yearold Stanford computer science graduate, is launching a laundry service – but the grand plan is to put FedEx out of business by perfecting intra-city deliveries. Alex Selig, 26, another Stanford alumnus, is partially deaf; his partner Varun Srinivasan, 25, who studied information systems at Carnegie Mellon, is a DJ. They’re developing a technology that will fine-tune sound systems to the idiosyncrasies of an individual user’s ears. Another founder, Travis Dredd, who at 42 seems a near prehistoric presence, was the chief of staff for the Democrats’ 2012 convention. He wants to revolutionise how large public events are run.
Meanwhile, Gautam Sivakumar, a former British doctor, is working on a system that will handle patients’ notes when hospital doctors change shifts. Mix-ups involving this paperwork are behind at least two thirds of all serious medical errors, he says. Later, I’ll chat to Kirsty Nathoo, YC’s British chief financial officer. “Working here is like living in the future,” she says. Bedazzled by ambition, I nod.
Already, though, we’re living in a YC accented world. Since it began in 2005, YC has yielded 564 companies. On paper, they are collectively worth more than $11.7 billon. (Graham’s share, in theory, is likely to amount to many tens, if not hundreds of millions of dollars.) The YC poster children include Dropbox, a cloud storage service valued at $4 billion, and Airbnb, which effectively lets people transform their homes into temporary hotels and is now reckoned to be worth $1.3 billion. Other YC companies, such as Stripe, which enables companies to process payments online and is said to be worth as much as $500 million, are less visible, but may ultimately usurp giants such as MasterCard.
Twitter has bought four YC start-ups; Google has acquired seven; Facebook has snapped up six. But it’s hard not to feel that a bigger, more profound game is being played out here: that the trends that YC exploit promise to shape the coming century – and may dictate who runs it.
In person, ‘PG’ (even his wife, Jessica Livingston, who is also a partner at YC, calls Paul Graham PG) is a tanned dynamo. He speaks very quickly but has a habit of closing his eyes and pausing at the start of sentences, as if overcoming a stutter, or waiting for his computer-like brain to retrieve a file. He has a PhD in computer science from Harvard and a slightly abrasive manner. Ask a question that he doesn’t want to answer – for instance: “Why are there so few women in YC?” – and he’ll complain of being bored. Ask again and he’ll give an exasperated, “I don’t really care.” There’s just a whiff of a suspicion that his casual garb (rather short shorts, a T-shirt, sporty sandals and inexpensive Timex watch) is as carefully assembled as any Wall Street broker’s bespoke suit. One thing, though, seems utterly candid: his passion for start-ups.
The Wikipedia definition of a start-up is as good as any: an organisation “designed to search for a repeatable and scalable business model”. Google began as one. So did Twitter, Microsoft, Apple, Facebook, Instagram and Skype. In Graham’s view, start-ups constitute a revolutionary economic force, comparable in significance to the advent of agriculture or the Industrial Revolution. “Think what Larry [Page] and Sergey [Brin, Google’s founders] would have done before it was normal to start start-ups,” he says. “They would have been the employees in the white coats down the corridor.”
Graham was born in Weymouth, the son of a mathematician who designed nuclear power stations and who, in the Sixties, became part of the brain drain from the UK to the US. He remembers visiting the land of his birth as a boy in the early Seventies, from his new home in Pittsburg. “England would look really grubby. The food was terrible. Everything was small and dingy... America seemed clean and bright.”
But he wouldn’t find his spiritual home until 1998 – as the first dot-com bubble was reaching its peak, he sold his three-year-old software company, Viaweb, to Yahoo!, for $49 million. He moved to the Bay Area of San Francisco, aka Silicon Valley, a verdant nook that has long attracted pioneers. For Graham, it seemed a Shangri-La. “I felt like immigrants from Eastern
Europe must have felt coming to America in the Twenties: ‘Everyone is so rich and healthy and life is like some kind of Utopia, but, boy, is it expensive.’” In 2005, he started Y Combinator, the elevator pitch for which would go something like this: it is the world’s most successful attempt to mass-produce technology companies. That he’s been described as a cross between PT Barnum and Bertrand Russell says something about his relationship with hyperbole. But a lot of very smart, very rich people will tell you that Graham is on to something when it comes to start-ups.
Take, for instance, the notion that “software is eating the world”. The phrase was coined by Marc Andreessen, a Silicon Valley uber-investor, who believes that no corner of the economy will remain immune to computer code. The poster-child for this phenomenon is Amazon – which Andreessen says is primarily a software company – and how it killed the traditional bookshop. But he can cite countless other examples. “The best new movie production company in many decades, Pixar, was a software company,” Andreessen argued in The Wall Street Journal in 2011. The most powerful entity in music? Apple – a software company. The dominant force in advertising? Google – a software company. The fastest-growing recruitment company? LinkedIn – a software company. Even farming, he says, is powered by software. And if software really is eating the world, it’s the YC cohort who plan to grow fat. The selection process sheds light on what makes them tick. First comes an application form that asks candidates to “prove you’re an animal”. According to Graham, that means “someone who takes their work a little too seriously; someone who does what they do so well that they pass right through professional and cross over into obsessive”.
Typical winning answers include tales of graduating at absurdly young ages, or of participating in “hackathons”, which involve doing nothing but furiously writing computer code, eating and sleeping for days on end – an ideal precursor, it emerges, for life inside YC. While he was creating his company Viaweb (it allowed users to build online shops), Graham became “a zombie for several years... I was not part of the ordinary world. I was sitting glued to a computer all day long, or asleep”.
There’s also an emphasis on what might be described as the philosophy of “hacking”. “A hack is when you break the rules,” he explains. “It can be surprisingly elegant. Arguably, Einstein broke the preceding rules. Or it can be a cheesy trick – like sticking stuff on to your bicycle with duct tape.”
“Hacking”, it seems, combines gall with intellectual flair and an ability to “get things done”. Applicants are asked to describe their most impressive hack not involving a computer system. “One group had made millions gaming the lottery system,” says Graham. “It turns out that sometimes it’s a good deal to buy lottery tickets... You have to buy an enormous number. They had [financial] backers.”
If your application forms pass muster, you are invited to the YC headquarters, which is in Mountain View, where Google also has its HQ. Applicants meet Graham for a 10-minute interview. They describe their business ideas – but he’s much more interested in the person than the pitch. Above all, he says, he’s looking for determination. Strong foreign accents are a turn-off, he adds – he suspects that a failure to learn “idiomatic American English” indicates laziness. He also prizes “earnestness”, a quality he says that British applicants too often lack. None of the British founders he’s known has been a “pure, unworldly nerd”, he complains. “They’re like kids who grew up in New York City: too sophisticated.”
It helps if you get the name: “Y Combinator” is an in-joke, the title of a mathematical function used in computer science. Graham chose it because its effects, in computing, are “counterintuitive and cool... and because the domain name was available”. (The website address being available is at least 50 per cent of the reason behind any start-up’s name.) It’s the equivalent of a hacker’s secret handshake.
It also appears to be inordinately helpful, if you want to be part of YC, to be male. Of the current batch of founders, only 7 per cent are women, and this is regarded as a bumper crop. Graham says that the proportion of females who are accepted is in line with the proportion who apply. But if start-ups really are as significant as the Industrial Revolution, isn’t it problematic for 50 per cent of the
human race to be so grossly under represented? Graham, though, refuses to engage. He mutters something about males being in the minority in fashion colleges.
Others inside YC suggest women are more risk-averse (most start-ups are doomed to fail), or less likely to embrace the existence that start-up life entails: working and sleeping in the same small apartment; eating ready-meals; seeing little sunshine. Ultimately, Graham’s response on the matter is uncharacteristically apathetic, “I don’t really care.”
On arrival in Silicon Valley, founders are given a T-shirt emblazoned with “Make something people want” – lesson No 1, says Graham, in building a software business.
“The biggest mistake people make is working on made-up ideas,” he says. “The most successful start-ups were all made by people solving their own problems. Google, Apple, Facebook, Microsoft – all people solving problems they themselves had.”
An unsolved problem is “the world’s rarest commodity”, he adds. But once you have one, his second law comes into play: launch fast.
In the Nineties, a start-up might have taken a couple of years to build a prototype product; YC start-ups are urged to get something working within weeks, even days, both to ensure they produce something before they run out of funding, and to get critical feedback from the wider world. As Reid Hoffman, the LinkedIn co-founder, put it, “If you’re not embarrassed by the first version of the product you’ve launched, you’ve launched too late.”
Indeed, much of what YC does is devoted to acceleration, down to the weekly dinners. According to Randall Stross, a journalist who wrote a book on YC, Graham believes “having the founders gather once a week, in person, prods them to work harder because of the
Old-fashioned networking also plays a part. YC’s founders can rub shoulders with the world’s most powerful investors
power of shame avoidance: they would not want to embarrass themselves by having little progress to report to their peers”.
Technological advances have helped fuel the frenzy. Crucially, the cost of computing power has plummeted. The capacity that a startup might have acquired in 1995 by buying a server for, say, $20,000 can now be rented from Amazon by the month for loose change.
“This shift is what’s driving YC,” says Graham. Unburdened by capital costs, start-ups can be quicker than ever, up-ending the power balance between founders and investors. “You don’t need the component that investors supply – money – as much as the component the founders supply, which is their energy and determination.”
But old-fashioned networking also plays a part. YC’s founders can rub shoulders with the world’s most powerful investors and innovators. They’ll inherit a formidable old-boy network. Ohanian, the Reddit co-founder, likens the alumni to “the Mafia... If an investor mistreats a YC company, people get to hear about it”.
Even so, Y Combinator has its detractors. Anybody who follows the tech scene is used to tales of start-ups raising preposterous gobs of money for ideas that, in retrospect, turn out to be a bit silly. Take Omgpop, a games company founded under YC’s wing in 2006 and bought last year for a whopping $180 million by another games company, Zynga.
The deal made Charles Forman, a YC founder, tens of millions of dollars. But Omgpop was a flash in the pan. Since buying it, Zynga has been haemorrhaging cash and slashing jobs. The acquisition will be remembered as a panic buy – a product of greed, fear and the whirlwind pace at which the Valley now works. The broader complaint goes like this: the Valley’s brightest minds once invented things of immense significance – like the first PC. But then came the internet and the pursuit of big ideas was eclipsed by a scramble for quick profits. The money pumped into hard technological problems plunged while interest in iPhone apps soared. Instead of cures for cancer, we got Angry Birds.
It would not be hard to slot YC into this critique. Graham’s fetish for speed means that some founders will test-drive and then dump two or more business ideas in their three months at YC. The scatter-gun approach may yield profits in the long term, but it would seem to dissuade the tackling of big problems.
Ultimately, Graham will dismiss this criticism as sour grapes. He believes that YC will be remembered as a 21st-century equivalent to the Bauhaus or the Bloomsbury Set – astonishing collections of remarkable people. He is extremely proud of his reboot of Adam Smith’s pin factory. And why shouldn’t he be when he’s living the American Dream 2.0? “I worked for three years and became independently wealthy for the rest ofmy life,” he tells me. “Beats working for a salary for 50 years.” And with that, the interview draws to a close.
Next door, his army of hackers are still plotting over their supper.
Paul Graham’s scheme has yielded
564 companies, worth $11.7 billon. His share could amount,
in theory, to many hundreds of millions of dollars. Only 7 per cent
of his protégés are women. Why so few? ‘I don’t really care,’ is
Graham sold his three-year-old software company, Viaweb, to Yahoo!, above, for $49 million