From building a multi-billion dollar company to General Partner at the world’s top startup incubator

0:00And when you are surrounding yourself with people that are incredible, that inspire you, you become much better yourself. The first$100 I did was for like$1 million. All of these models have never been as bad as today. I've not been extremely impressed by Google for the last 10, 15 years, because that's the French founders who are building a mosquito-killing drone. Today on Billions, I'm sitting down with Nicolas Dessenne, the engineer we built everything on one ID, built Algolia into a multi-billion dollar global search platform, and then did something almost no founder ever does. he walked away.

0:35Nicolas went from obsessing over one company for a decade to shaping hundreds of startups every year as a general partner at Y Combinator, the most influential accelerator on the planet. In this episode, we will talk about why he left Algolia, how founders should think about liquidity, what really happens inside YC, and why the next wave of AI will be bigger than anyone expects. If you ever wondered what happens when a unicorn founder switches sides and become the one choosing the next unicorns, this conversation will change the way you think about ambition, ego, and the future of startups. Thanks a lot for being here, Nicolas.

1:14Thank you, Guillaume. You're setting expectations very high here. Always. I know that you left Algolia a couple years ago from the board and about like five years ago from the CEO. Yeah, 2020 was when I left. Can you maybe walk us through why you decided to stop being the CEO at Algolia and also the transition into being part of the board of directors? Sure. That was a lot of learnings. The origin story for that decision was actually 2019 when we did our Series C, which was kind of like, I mean, it worked well at the end, but it was probably the most challenging around that we did. Some bad hires, my CFO resigned in the middle, a lot of things happened.

1:58And so when I had the money in the bank, I was pretty much took some time to think about what was best for the company before going back to day-to-day. And at that time, I was wondering, okay, would someone with more experience at later stage, especially with go-to-market, could that person do a better job? My conclusion at that time was yes. And so that's why I started to search a kind of like a CEO to take my seat. and it took a few months and I got my replacement joining us in May 2020 and at that point I mean I was not initially thinking about leaving just getting someone else in the CO seat and when the opportunity happened like oh actually I could leave I had a chat with my wife and she took the decision in one minute but you can leave of course you leave you know it's been like many years before I have three kids and I was not the most present father and husband.

2:58And so that was kind of like for them, that was, of course, that I had that opportunity to spend more time with them. So I took it. When you think of that decision, because you mentioned, you know, like at the time it was the best decision for you, like to become like, to switch and change role. Do you regret it sometime or do you ask yourself? No. No, not at all. No. So, I mean, the key here is that I think that was the best decision for me. I don't think that was the best decision for the company. Okay. And I've seen many, many other situations since then, like working with other companies of like founders.

3:37You know, because I left, some founders come to me and ask me, hey, I'm thinking about leaving. What should I do? And I usually come up with one question, which is why do you want to leave? And there is two possible answers. I'm simplifying, of course. but one answer is like hey i'm burning out and that's completely legit uh in that case like let's see what we can do to help you and maybe the solution is to leave i mean your health is more important your family whatever and then that's that's fair and the other reason sometimes is oh like i think someone else could do a better job and i've come to the conclusion that it never ever happened no one else can do better job than the founders maybe for some time for a couple of years but not long-term.

4:21The founders are the only ones who are going to think about their company long-term and make the drastic decisions that sometimes need to be done. I don't know, a big AI shift, for example, a pandemic, whatever. Like there is a few things that could happen in your life. And the founders are also the ones who have the best instincts. Like it's kind of an LLM that has been fine-tuned by a ton of like super relevant data. Of course, you trust your guts and no one that comes from the outside is going to have the same kind of context, the same understanding of what's going on. And so, yeah, like maybe you need help, but I think that the founders should stay there and the best companies still have their founders.

5:03Makes sense. And I think last time we talked, it was around 2020. So at the time, I think you were just making the switch into the position at the board of directors. You stayed there for about like four years at Algolia while you were also at YC. Yes. How did you feel about, you know, like being not being in the driver's seat anymore and looking at strategic decision without really being involved? Can you a bit share maybe some stories? Yeah, because it becomes very like you may not always agree with what's going on and you have no power to change anything. And so, yeah, that's harder, of course.

5:39at least when you are the the ceo everything is new failure successes but at least you can decide just being a board member you have some influence of course but you are not kind of like executing on anything uh and so you have to trust the team and so sometimes you yeah of course of course sometimes uh like once you have been a founder it's difficult to not make the call and um that that switch from uh board of director to not being involved anymore because i think you you're not in the board anymore so no i've left the board last year so how how involved are you are you still like uh in touch do you still receive updates or you you don't have anything no i'm not involved anymore well i still receive updates as a shareholder of course i still have like a little shares there but i'm not involved anymore in any decision or so i don't know more about what's going on than you do anymore well maybe a little more but like not much more i'm still in touch with some people of course like uh like some of my best friends are are like people I met at Algolia.

6:36But I'm not actively involved anymore. Okay. And Algolia is a multi-billion dollar company. You are the founder. So obviously, you know, there are always this question, you know, when you leave the role of CEO, you've done, I think, up to Series D in fundraising. Series C. Series C in fundraising. Series C happened in 2021 after I left. Okay. So for every stage, do you take secondary as a founder? and when you left, did you also negotiate a package? Or like how exactly does that work, this part? Yeah, so yes, I took secondary starting at series B. Okay. That's very common for founders to do that.

7:14And so it's a way to de-risk their life. You know, as a founder, like your whole net worth is your company. And if the company goes under, you have zero. And that may lead you to make the wrong decisions, actually. And yeah, that's how founders actually make money, is by selling some shares. Usually Series B and later, like lately I've seen more, even Series A, which is kind of like a sign of the time. Like rounds get bigger and some founders get money out of the table earlier. But it's never like kind of crazy money, but still enough to maybe buy a house or this kind of stuff. And so I did secondary each round and every round.

7:53I didn't do at the time I left because I was not, you know, I was not planning to leave. So I did some secondary at Series C, but then I left like about a year later and I didn't do anything at the time I left. But in Series D, I had the opportunity to do more. Okay. So what's kind of the reasoning? Like if you don't want to share numbers, it's fine. But maybe like in terms of percentage of shares and how much you... Happy to share. Actually, I could be okay to share numbers. The first secondary I did was for like 1 million. Okay. So that's kind of like gives you... The house. yeah that gives you the house pretty much i mean you still need a loan and everything in the bay area houses are very expensive and so you still get the loan and everything but still you get the house you don't spend the whole money you still keep a little bit on the side just in case something happens you actually donate a lot i mean it depends on people i end up like donating a lot of uh i did pledge you know the i don't know if you know the founder's pledge is when you pledge to pretty much donate to charity a percentage of any kind of secondary or liquidity you make from your company.

9:06I think that's very smart. You kind of pledge early. It's kind of like a piece of paper. It's not binding. Nobody's going to sue you because you didn't donate. I think it's a good way to shift a little bit how you think about things and eventually give back. And as I said, for Series B and up to like last like 3d i did actually uh sell for 10 millions so it gives you the scaling okay nice and you you basically still have like uh quite a lot of shares uh you have enough shares to make money from agolia one day maybe and uh and what do you think about companies like staying private a lot longer because i think uh i mean when you look you know at um the time from start to ipo i I think like the thesis for many funds was it's going to take between 10 to 12 years.

9:56And that's how, you know, we get money back to our LPs, etc. However, right now, some companies, you know, have been staying private for like 15 years. They're at hundreds of millions in ARR and they still don't want to go public. So what's kind of like your thinking about it? Because as a shareholder, eventually your goal is going to have like liquidity out of it. so I'm curious to know like your thinking and yes I don't know like a I think that like for these companies that are very late stage like the stripe of the world what happens is that there is usually a secondary market anyway so there is some liquidity available for the best not for everyone but for if you have a share that stripe there are ways to make money with your shares like sell some of them you probably don't want to sell everything but you can share some of them.

10:44And so it's a way to compensate, but it's not simple. And I don't have an answer to that. As long as it's going to be easier for these companies to raise in private markets and public markets, I mean, it's probably going to continue. Companies have less oversight when they do that. That means that they can think also longer term. The public market pushes you to just think next quarter. So there is some value here. Of course, for the shareholders, especially early investors, it's sometimes difficult because you don't want to sell your shares. But at the same time, until you sell them, you don't have any liquidity.

11:19And so depending on who you are, what you can do, sometimes you are forced to sell at a discount just to make money because you cannot wait anymore. I mean, everything's possible. I don't have like a strong opinion in the sense of, oh, we should definitely get more companies to IPO. Probably, yes. Probably more. I mean, I would love to strive to IPO. but hey that's their call to make not mine i would always respect what the founders want to want to do okay and uh now that you made the switch you know from a founder to a general partner can you maybe like share a bit the the strategy of how yc invests like uh how long do they want to stay in companies do they decide like uh to sell eventually like who are the lps like I'm curious to know about all that.

12:04I don't think we ever sell. I cannot think about a single company where we did some noise. So we all. So your first question was what? How do we think about the companies we invest in? Yeah, exactly. What's the time frame in which you invest in company? Yeah. So we are among the first investors, usually the very first for many companies. And so there is no longer time frame. In my mind, it's kind of like at least 10 years before we can make any money, if not more. Of course, the thing is that you have a portfolio. So even if Stripe doesn't sell or doesn't IPO, other companies in that kind of vintage are going to.

12:48And so overall, maybe 10, 12 years, you are lacking the money. And then after everything is upside. But yeah, that's long. That's long. I know that. I mean, I do, of course, will touch some carry. I know that I know it's going to take many more years before seeing any money And how does that work? Which money do you invest? Do you have proper LPs? And also is the carry based on your investment as a GP or is it a pool? We do have LPs We raised I think the last fund was last year 2.4 billion and will raise others later. And like the functioning, I mean, it's so different from any kind of traditional VC, but that part is kind of similar.

13:41We have like pretty much carry and everything the same way. No, however, to your question, we don't have like everyone is pretty much an equal partner. Okay. It's not my company that matters. It's the whole portfolio of companies. Okay. So you're not making investment directly. it's always like as YC and you as a general partner you don't get a specific credit for the company you selected. Exactly. We have our own companies but it's more kind of like when we invest in the company it's kind of we sign up for life. Follow them, help them. Our company is forever. But the monetary incentive is across every company.

14:25The financial aspect. But to be honest when we work with companies we never think about the money it's kind of like the magic of yc the way we do like it's kind of like founder helping founders like we don't behave like a traditional vc that's what i love here i don't think i could become a traditional investor and i have nothing against them i love them i work with them i love them to invest in my companies that's great but as a person i don't know that's not for me versus what we do is more it's closer to the founders how can we help them sometimes against our financial incentives. You know, maybe sometimes it's better to push someone out and no, we have the back of the founders.

15:05Okay. And I was quite curious because I think you joined YC in 2020. Yes. And since then, I feel like the batches and the amount of startup, you know, that that joined kind of like increased. Did you see like, I mean, some people from the outside would say that YC is not the same as it used to be, et cetera, et cetera. But I mean, we still see like some amazing companies and I think the quality is really high. But maybe can you explain the reason why you decided to open it up to maybe like more companies and for you, you know, as a GP and also I know you have like tons of startup hours where you help like other startups.

15:45Like how did it change over the years? Yeah, I don't think, I mean, what I see is kind of an interoperable kind of evolution. and so the YCI joined in 2020 is completely different from the YCI I'm working at today and obviously very different from the YCI joined as a founder back in 2014. And so, yeah, when I joined, everything was remote and I think at that point, being remote over Zoom helped us scale the number of companies per partner. Partners were able to work more efficiently with more companies but we lost something out of that. I mean, not the number of companies, that was not really the issue.

16:22it was the remote aspect and i think the most important thing we lost there was the connections between people you know one of the magic of yc is to gather together like the most the smartest founders on the planet at a given time and when you are surrounding yourself with like people that are incredible that inspire you you become much better yourself so it's kind of there's a huge generation between founders and having that kind of batch where there is enough founders for you to find your peers, your people, that's going to make you so much better. The truth is that we have slightly less companies now than at the peak.

17:01I think the peak was like pandemic time remote. Now it's more driven by, I would actually say, the number of partners. Each partner is going to work with 20 to 25 companies per batch. That's kind of like our limit because we have like more and more good applications. So we have to find new partners. I mean, we are working on it because there are so many great founders starting companies today. At some point, yeah, I think that's what I try to be at, like 25 companies per batch. And when I say per batch, we have four batches a year, but each partner only works two of them. Okay. So it's 50 per year.

17:39Yeah, probably 50 companies per year. And to be honest, that's manageable. I get to know everyone very well. There is, of course, early on when you start, you don't know anyone, so you are more available. After five years, of course, you have an history of alumni to work with. But it kind of smooths out. Some companies are going to exist or to, in one way or another, alumni don't need as much time from you as the batch companies. And so at the end of the day, it's kind of like 50-50. Like 50 % of my time is alumni 50 % is batch companies that's a good good ratio nice and how exactly do you spot like the next billion dollar companies you know because you're you're seeing so many applications all the time so have you found like a pattern or something you know that where you feel like

18:31there's a lot of signal there's there's no archetype or algorithm that's going to tell us oh this company we should fund because it's going to work but after working with so many companies it's kind of like a large language model that you have fine-tuned like you have so much data you kind of like see things but you constantly have to force yourself to not rely on maybe the patterns you've made in your mind without realizing so that you are always open to new things so you have to be careful now how do we select companies it's pretty much the founders that's always goes back to the founders. The truth is that maybe a third of the companies are going to pivot anyway.

19:11And so if you rely on the idea, at that point in the life of companies, traction is not really a relevant either. So it's really, do I believe these founders have it in them to be the huge company? And sometimes we believe that more than the founders do themselves. Let's be clear. It's not about the potential that we try to innovate, not who you are today. because people grow and crunch. Of course, if you are already incredible as you are today, of course, that's a big plus. But sometimes, especially for a little bit more nerdy developers that are not very outgoing or introvert type, it's not as obvious, but you look at what they've built in their past.

20:02What do they believe? how do they react to questions even if they are shy you can detect some great signals. Do you have like stories of founders you spotted early that really impressed you over time? Yes now I'm selecting some stories that were OneLit they do compliance like security and compliance it's a company that's based in Europe I think they're in Amsterdam them and the founder was not you know your typical stanford alum at all uh he was more atypical but he had done this kind of white hat kind of security hacking stuff it's kind of like pretty intense founder so when we interviewed him like oh my god like he's definitely out of the typical pattern but there is something here like like there is some intensity here i think i think it's force a bet.

21:02And so we did that. In what way was it like intense? Was it the thing you were saying or like the way he was answering questions? Yeah, yeah, it was it was, well, first, that interview was like years ago, so I want to be careful about it. Memories like play tricks sometimes, so you don't always remember exactly what's happening. But the first step was to actually decide to interview because on paper it's not of use. And so you have to find the kind of like these small elements. Oh, kind of white hat hacker. working on some security stuff. Early on, it was a pen testing kind of marketplace thing, which I was not in love of, you know, as kind of an idea, basic idea, because others have tried before and failed.

21:42But there was enough like kind of weirdness here that was interesting to interview. And then you interview, and I remember not liking the idea much more at interview, but I think Brian, the founder, was intense in a sense. Like you could see he was really deeply convinced by what he was doing, by the importance of security. Like he appeared clearly as kind of like an external hacker. And that's kind of like that kind of high beta signals that you want to find and then bet on. Does that make sense? Yeah, of course. Of course. It kind of worked out super well. Kind of like they ended up raising a series.

22:20I think it was earlier this year. Kind of like they were like pretty much over 10 million now of revenue and AR. And yes, that's working really well. Oh, nice. And right now, like you're seeing more and more AI companies. Well, no, it's not only AI companies. Yeah, it's kind of like you were seeing before. Hey, we're seeing more like whatever cloud company. Like, of course, everyone is using cloud. Of course, everyone is using AI. If you don't use AI, what's wrong with you? What are like the particular topic or industries that excites you the most? Like where do you see like the biggest trend or the things where you think like there are some really interesting problem being solved at the moment?

23:06What do we see here? I mean, there is the companies who are working on AI by itself, kind of like building models or these kind of things. A lot is happening right now in video models, for example, and so on. That's all that is cool. But then there is everything that is enabled by AI. that's also kind of like more sometimes it's not as exciting you know like some vertical like whatever healthcare something something some new AR receptionist for something but there is a lot of businesses that can be destroyed by that in a great really good way a lot of value to bring and so it's more like mundane not as exciting as kind of like some of these things but still cool what I think that's cool lately I have a company this batch who's building a model for your microbiome, like a model of your guts.

23:56Okay. How does that work? Well, because they can model your microbiome, then they can test drugs and evaluate if they are going to work or not. What we don't know is that drugs are not performing as well if you are vegan or if you eat meat. If you are, whatever, if you live in America or in China, because that's a very different kind of food you eat. like there was that example of a drug developed in china that was working really well there like for heart diseases or something i don't remember the exact specifics but but then they they wanted to use it in the u.s of course and then it didn't work and it was like and then their model could predict it would not work so it's pretty cool and the idea is that yeah the goal is that they can then use their model to adapt the drugs uh to a new type of microbiomes so it's still early but super smart researchers very interesting yeah what is also funny oh I have another one that's funny for you because that's French founders who are building a mosquito killing drone alright that's super funny this batch too where they use like this how do they kill them they take these very small squad cutters like kind of like maybe whatever less than 10 centimeters like fly super fast, pretty silent, and they install on it a sonar, and so they use smartphone microphones on it to capture the sonar, when the sonar comes back, the signal, and then they have a signature for each insect and everything, and so they can recognize a mosquito, and then they use the propeller, like they fly so fast, they intercept the mosquito, and destroy it.

25:43with the propeller. And it's flying autonomously. It's pretty cool. Have you tried it in your backyard? Yeah, exactly. You just set it up in your backyard and it's going to kill mosquitoes for you. Well, it's not live yet. They started pre-orders. But it's one of the funniest companies I've worked with lately. That was a cool one. But yeah, that's kind of like some of the things. The thing that people don't realize is that we don't decide, hey, we have a whatever a thesis that we should fund this kind of companies and then look for them it's the opposite it's kind of like we trust founders hey founders apply with their ideas and that's what we fund and at the end of the day of course we see the trends because we see all these companies applying and so that tells us what are the trends but we don't have like proactively decide the type of company we should fund okay yeah so yeah you're waiting basically for awesome applications and awesome founders and you believe them.

26:47But when you select a company in YC, do you directly invest in it? Yes. Yes. Okay. So you invest it straight away and then you invest again at the demo day. Is that correct? No. So we invest half a million in each company. The straightaway depends. We need them to have an entity in the US. Like there is sometimes like a company that is based in France, for example, we require them to flip and become a US company. And so sometimes that breaks time. but as soon as everything is in proper order, then we invest half a million. Half a million is like 125 for 7%, it's 375 on capped MFN, which is kind of like an advance to the next round.

27:25And then usually the typical pattern is that these companies will raise a seed round at the end of WC. And all companies raise a seed round? No. Some companies decide to not raise because they have enough money and they want to wait or they want to make more progress before. Some companies raise a seed round that looks more like a Series A. It's all over the spectrum. We don't evaluate ourselves on how much money they are going to raise. That doesn't matter to us. The only thing that matters is how good they are 10 years from now. We're old. We said that before. Yeah, exactly. We're not going to fail anyway, so what matters is.

28:01Are they going to be successful or not? And do you feel, because I mean, you've been, you shared like two examples, one company killing mosquitoes, which is in some ways like a new market because obviously what you have right now, like all the solutions that exist don't work extremely well or they can be pretty annoying for humans. Yeah, exactly. So it's not really great for either nature or the humans around it. And then you shared also the health tech company. When you look at drug discovery, the biggest issue is, as you mentioned, it's like right now, it's possible to create a drug that would fit your genome, but it would take like so much time and money to do it that we don't do it because it's way too expensive.

28:47Not yet. Not yet, exactly. So the question I have for you is with AI, you have like two ways of looking at this revolution, if we call it like this. One way is to say like, okay, if you take, for example, GitHub Copilot or Cursor or whatever dev tool, you could say, this is going to replace developers So instead of spending like 100K on a developer, I can just have like an AI agent that can code or whatever. I mean, that's a dream, but let's pretend it can exist in the future. So you replace basically like workforce. Or you have also the example you mentioned, which is we creating new markets because the cost of something was like so huge before that we never thought of doing it.

29:34so where do you feel that the biggest opportunity is according to you oh i think both are big i would fund companies going after both like let's be clear and of course um the first one there is always the you are disrupting a thin market that means like some people are going to lose their job you're going to do a their job much better and so there is like that risk but at the same time because you do it better like better cheaper more people will want it and so in a way you're going to grow the pie exactly where it's going to land i don't know my guess is that eventually it will be okay but the time period before that eventually may be a little like bumpy uh and that i don't know exactly how it's going to go and then of course like i don't know like you know i live in the future in my mind like it's kind of like there's so many things that are going to be possible that were not possible before already today.

30:31It's a dream. Of course, if you get fired from your job because you are replaced by a robot or by AI, it's terrible. And I don't want to dismiss that. But as a society, I think we are going the right direction. You just have to look back in time. Do you really want to go back in time and live like a century ago? My God. No. No. Me neither. There's so many things that like penicillin was not invented until when like Second World War or something I'm very bad with my history that means you could die from some very small bacterial infection and it was serendipity like they found it by mistake yeah well it's kind of like yes I want the world to continue making progress and is it going to be good for everyone no but at the same time you know AI is also an equalizer of some kind.