Y Combinator: Jessica Livingston & Paul Graham

15:50Paul Graham:Didn't he tell you? And I thought, like my heart just sank to my stomach. And I thought, no, he didn't. And I thought, okay, I'm going to go in. And if I don't know anyone, I'm just going to like go out the back door and no one will notice. As it turns out, not one person from my acting class was there. I literally went to a party where I did not know one person. And it was at Paul's house. He was the co-host. And I actually didn't chat with him. I thought he was married, actually. That's funny. A woman, a friend of his was standing next to him. I mean, I assumed they were married because I didn't know anyone who lived in a nice house, you know, who wasn't married.

16:32Paul Graham:You know, they all lived in apartments if you're single. Anyway, but I did wind up chatting to Paul.

16:38Jessica Livingston:Do you remember when you and Jessica first met? Oh, yes, very vividly. I was standing in the kitchen and she came back into the kitchen and I asked her if I should take her coat or if it was part of her outfit. And she remembers thinking that I was sophisticated as a man for asking such a question, for being able to know the distinction. It was a long white leather coat. Do you remember your first impression when you met her? Well, I remember she told me an idea of mine was stupid. I have this domain, factomat.com, that I've been sort of vaguely planning to use for a sort of encyclopedia of plausible but fake lies, so that people would like search for it and then repeat the lies, you know, like Ulysses S.

17:26Jessica Livingston:Grant had a wooden leg or something like that, like just about plausible, right? And she said she thought it was a stupid idea. So I was impressed that she stood up to me about that. I still haven't done it. But I thought she seemed happy. She smiled a lot.

17:40Paul Graham:And then he asked me out. He got my email from the third co-host, and he asked me out on Monday. And we went out on a date that weekend. That was it.

17:49Jessica Livingston:And so it sounds like you kind of got immersed in this group of startup optimism. I mean, that was post.com days. There was a huge amount of skepticism back then. I mean, I remember this.com hangover was real. But somehow you guys decided, like, no, we really love this idea of startups. And where did the idea come from to say, you know, hey, maybe we should start something to help startups?

18:13Paul Graham:Yeah, well, that's another part of the story of our relationship. Because I think I mentioned that I was kind of getting bored at the investment bank and I was working on this book, Founders at Work, on the side. And then I became aware of a position that they were looking for at a venture capitalist firm, a VC firm in Boston. was looking for a director of marketing. And I thought, well, that sounds kind of interesting. I'm going to go interview for that. But they took a long time. And in hindsight, it was probably only two months, but it still felt like a long time.

18:47Jessica Livingston:And like VCs do, they were taking forever to make up their mind. And meanwhile, every night I was telling her, you know what you should do when you go and work for this firm? You should change it in this way, in this way, in this way.

18:59Paul Graham:So over the course of those two months, Paul and I would go out to dinner every night. And he would, you know what you should do me. You know, that's when he waggles his finger at you and says, you know what you should do. And he gives you an idea. And he would just tell me all about, you know, the VC industry's broken. They want to give, you know,$5,$10 million to a company when really all you need to do is pay the rent. You know, it was getting much cheaper to start a startup because this is in 2004. If you were a programmer, you kind of just needed a laptop to start a software company. So it was getting cheaper.

19:37Paul Graham:In Boston especially, there was no way to get funding except to go to VCs, which, again, really wanted to invest large sums of money. And you had to have a business plan. But Paul really felt like there was this huge untapped source of programmers who could start startups if someone helped them along at the earliest stages. Because he had been helped that way when he was getting started with ViaWeb. There was a guy in Boston who was a friend of his, and he was a lawyer by trade. So he not only provided their first$10 ,000 of funding, but he also filled out all the legal paperwork and incorporated them.

20:20Paul Graham:And, you know, Paul was like, wow, that's amazing. And that's all that they needed to get started to test their idea. That's the thing. You don't need$10 million. You need, you know, back then you only needed a small amount to live, you know, and then you can get funding.

20:38Jessica Livingston:We made the thing that we wished had existed when we were doing our startup, ViaWeb. We wish there had been somewhere where we could get a small amount of money without too much trouble and advice about how to start a startup because we knew nothing. We knew that there would be a need for something like this because we had needed it.

20:56Paul Graham:So we would talk for hours and hours about how this ecosystem could be improved and how you could do a lot of events to bring people together, to educate them. because remember back in 2004, there wasn't that much information on startups. It was not a thing. So this was going on in the background. The VC was taking some time to decide. And Paul, one night we were out at dinner and I think we were walking home and he was like, oh, fuck it. Let's just start our own thing.

21:33Jessica Livingston:I remember the exact point on the sidewalk in Cambridge where we decided to do this because it was a large amount of money at the time. But I said, like, you know, I forget exactly what it was, but maybe$100 ,000, something like that. It seemed like a lot at the time. And I said, you know what? I'll put up the money for this and you can work for it and we'll just start our own.

21:52Paul Graham:And so he thought, you know, if Jessica and I start our own investment gig, you know, I'll work with the startup on their ideas and Jessica will, you know, run everything else. And that's kind of how the seed started.

22:08Jessica Livingston:More after the break.

22:38Paul Graham:to companies that will finance your sushi order. We'll unpack the transformation of how business and consumers engage with our economy and figure out what lies ahead. Listen to Compound Interest from Semifor Business wherever you get your podcasts.

22:55Jessica Livingston:And we're back. There's so much that was really distinctive about YC kind of as you guys getting started. And listening to your story, there's so much about almost what you learned from your past about what you didn't want things to be like. how you wanted to do it differently. One of the things that was so distinctive that I remember really blew people's minds was just this 10-minute interview. And if you have a 10-minute interview, like you don't have months to look at spreadsheets and decks. I mean, so much of your quick assessment that you have to make is the read on the people. How did you guys decide on just that super short interview?

23:28Paul Graham:Well, a lot of what we did was we tried something out and we improved upon it. So Paul also had a bunch of other very important ideas. In addition to only giving small amounts of funding, he also said, you can't drag the fundraising process on for weeks and months. And I agreed. You've got to meet with someone and decide then if you want to invest. Because the longer an investor can drag out the process, the more information that they have on that startup. So they're always motivated to drag out that process. So we said, we're not going to do that. And what we decided was, because all four of us had never been angel investors, we said, well, we got to do something to like bring us up to speed and learn how to angel invest.

24:19Paul Graham:Let's, this summer, we'll start off by, we'll fund a couple at the same time. And then we called a bunch of people to come interview. And that was the thing. I think interviews were at least 30 minutes back then, David. Possibly 45 minutes. I can't remember. But after the first day, we said, you do not need 45 minutes at this stage. We knew five minutes into the interview whether they were a yes or a no. And so the rest was just sort of painfully long. And Paul's a pretty impatient person. So it just didn't make sense to sit there for 45 minutes.

24:58Jessica Livingston:Do you have any kind of memories from those really early interviews?

25:03Paul Graham:Well, I do. I mean, I remember with Steve and Alexis, they had come up from UVA. Paul had met them at the How to Start a Startup talk at Harvard. They had taken the train up to see him give that talk and then applied to Y Combinator. And they were doing this idea. It was ordering food on your cell phone. Go figure. but it was like, you know, 10 years too early, or maybe not 10 years, but, you know, it was a few years too early for that idea. Um, because this is before smartphones were even around and they of course had no connections to any food companies. They're like, you can walk into McDonald's having ordered your food and just pick it up.

25:46Paul Graham:And we thought great idea, but we just don't see this happening. So we rejected them, but I remember I loved them. I just thought that they were just so earnest. I mean, Alexis is obviously so charismatic and it was just, we loved talking to them, you know, and we were impressed with them because their idea, even though it was a few years too early, it was a good idea ultimately, but we rejected them because at that point we did not realize that when you fund an early stage startup, it's more about the founders than the idea. We thought it was about the idea. So I distinctly remember how much I just enjoyed talking to them.

26:24Jessica Livingston:And she was bummed that we turned them down. She really liked those guys. And so I thought, oh, Jessica's sad. I need to figure out how to make Jessica not sad. Maybe there's some way we can accept them after all. I know. I'll call them and say, we'll fund them if they'll do this other thing.

26:38Paul Graham:And then the next Monday, Paul reached out to them and was like, we really liked you guys. Do you think we could maybe brainstorm a new idea? and they literally got off the train in Connecticut and got back on a train to Boston. And they came up with the idea for Reddit then and they were in our batch.

26:57Jessica Livingston:When did that social radar talent first become apparent? Like, was there one interview or was it just kind of a process where you're like, oh, wow, her judgment is really good? During the first round of interviews, We went into it thinking that Jessica would just be almost like a clerical worker or something like that in the interviews. Because me and Robert and Trevor were the experts. And we were going to interview these guys and decide if we were going to fund them or not. Right? And Jessica was sitting there like almost like keeping track of who they were and going to get the next one. Right?

27:30Jessica Livingston:And in the course of the interviews, we found we were like starting to like listen to our opinion a lot. So the first set of interviews, and that was, I suppose, when I started, when I realized that she was the social radar too. Because she would look at these people and say, these guys are good. I don't like these ones, you know. You know, so much of what makes YCYC was these like short 10-minute interviews where you had your read on people. It was the events. You know, I really remember just how warm and nurturing of an environment it was for a, you know, a smart young founder that was kind of stepping away and doing something interesting.

28:03Jessica Livingston:And then also just, you know, I think a lot of what you really brought is also that nurturing element. I mean, how much of that was planned from the get-go or how much of that was just kind of follow what felt right and what you learned from your past in terms of what you didn't want things to be like?

28:18Paul Graham:Yeah, that was all just play it by ear and do what feels right. I was very nurturing. And this was, you know, before I had my own children, I had so much energy to focus on others. And I really, like, I really did treat these people we funded like my kids sometimes. I mean, we would take them out to dinner. You know, I would talk to them about, oh, you've just broken up with your boyfriend or girlfriend. You know, I'm so sorry. What happened? I'd check on that. Like, I really genuinely cared. I really did. I mean, it got hard to do as we funded more and more people. But in the first few batches, there were eight startups.

29:00Paul Graham:You know, there weren't that many people. Every Tuesday night when we'd have dinner, that felt to me like inviting them into our home, even though it wasn't actually our home, but it felt like a home. Inviting them in, I would have gone to Whole Foods and bought all the food and the special, you know, the cookies and lemonade. Do you remember the lemonade we'd always have and everything? And Paul would physically cook the dinner. He was the chef for many years before that became too much. And we realized like you can't chop the onions and advise startups at the same time. So we got to cook in.

29:33Paul Graham:But like, it really was like a dinner party and we did care and we weren't, we were not ever doing it specifically for the money. It was more doing it to see if it worked. Do you know what I mean? Obviously we wanted to make money because we couldn't keep going if we didn't make money, but that's not what drove us. It sounds so cheesy to say that, but it is true.

30:01Jessica Livingston:It was just the natural sort of thing we would have done. Did it seem unnatural? Of course not. That was just like if we funded people, we didn't know how investors worked. We'd never like been around any investors. We were in Boston. And so we just did what seemed natural to us. And it was in fact very different from the way things had been done previously, but we didn't even know how different. It just seemed natural to us to act the way we did. Like we weren't like acting nice to you guys to, you know, in order to manipulate you. We were just being nice. It's such a critical component. And it's just so interesting how, you know, her experience with planning events is a critical part of what made YCYC.

30:43Jessica Livingston:Yeah. And if you think of what YC is like, it's just all a bunch of events, isn't it? Right? What do you do in YC? You have to decide who to fund. And then during the batch, the batch is just a bunch of events. There's the dinners. There's Demo Day, which is just an event. Startup School is an event. YC, like, consists of events. And so it just turned out, I didn't really realize it at the time, but as essentially a professional event organizer, she had the perfect expertise. Plus, being the social radar, she was the perfect person to do the first part, too, which is deciding who to pick. So it was luck.

31:17Jessica Livingston:It was luck. She just turned out to be the perfect person for this. What do you think people sometimes miss about what Jessica's contributed to YC? Oh my God, they miss everything. YC feels like a family when you go there, which is very different from anything that could be produced by VCs, right? Without being super creepy. And it's like a family. The dinner is in the batch and she's the mom. So what could be more important than that? She's the one who makes it feel like a family. and even now even now people copy yc and they don't get that right like so there's so many copies of yc now but why can't they reproduce the magic because they don't have jessica or they have someone they hired to be a jessica right but it's not the same i mean paint a picture what do you think yc would have been without jessica it wouldn't have existed it wouldn't have existed I would never have thought of starting it without her.

32:14Jessica Livingston:I mean, someone said, almost insultingly, like, Paul Graham started Y Combinator to give his girlfriend a job. In a sense, it was true, because she was applying for a job at this place that was going to waste her and ignore her just like her current employer did. And I thought, she's so good, we should start our own and she can work for that one instead. But I never would, I wouldn't have started it otherwise. Because, you know, we used to call her Jessica the Incorporator. She got Dropbox Incorporated, all these companies back in the day. She was this de facto paralegal. She's very organized about shit like that, which is good because neither me nor Robert nor Trevor are.

32:56Jessica Livingston:Someone had to be. She was the organized one. She was the one who like got our bank accounts and was in charge of everything. I mean, so it obviously worked. YC's funded some of the biggest companies of the time. I mean, just to name a few, you have Airbnb, you have DoorDash, you have Stripe, you have Coinbase, Instacart, Dropbox. We talked about Reddit. I mean, these are just, the list goes on and on, literally. I don't know how often you just take a moment, but I think it's 5 ,000 companies and the companies are worth almost a trillion dollars total between all the companies. I mean, just reflect on that?

33:32Jessica Livingston:Like, did you ever think that that's where things would end up when you started this way back in Cambridge?

33:37Paul Graham:I definitely didn't. I mean, we were just, we had like low standards. We would have been excited if like when Google bought one of our startups, you know, we were delighted. We were so psyched. You know, we had very low expectations. And like, I remember thinking when we started, you know, one of the things Paul wrote in an essay was, you know, don't just join Microsoft, start a startup and get Microsoft to buy you. Like that could be a new way to do things for young people, you know, like starting a startup shouldn't be so weird. And I remember thinking like, oh gosh, that would be really exciting if, you know, Microsoft actually about one of our startups, but could you imagine if one of our companies went public?

34:24Paul Graham:That's the holy grail. Like, so it seemed, it just seemed crazy at the time to think that that could ever happen.

34:34Jessica Livingston:You would have had to be some sort of insane, insanely arrogant person to imagine then that it would become what it has been. We were, we, we had a lot of luck. We were doing what we were doing at exactly the right moment to be doing it, right? Betting on young founders instead of MBAs. You know, this was exactly the turning point when it was happening. It was amazing luck that Jessica was the perfect person to do this. I didn't know how perfect she was. All I knew was she seemed to be really hardworking, you know, but it turned out she had all these other skills that were perfect too. But I can tell you the secret.

35:07Jessica Livingston:Here's the secret to doing a startup with your girlfriend or spouse or partner. It's really good if you have complimentary expertise. So Jessica and I, like Jessica is a really good judge of character. I'm a terrible judge of character. Everybody tricks me. I'm fairly good at like programming and math and stuff like that. And Jessica is not so good at programming and math, right? And Jessica's really good at organizing events. And I don't know anything about organizing events. And so the things we would do didn't overlap. We would completely defer to the other one. Do you know in the entire history of our relationship, we never once had an argument about Y Combinator.

35:45Jessica Livingston:Never once. We had arguments about the things other couples have arguments about, like in-laws and stuff like that, but never once about Y Combinator. Wow. That's actually incredible. Like I would have imagined being a couple and then working together in a business that somehow there'd be more friction there. There would be if your abilities overlapped, But ours don't. We're completely complimentary. And that was another totally lucky thing. The two of us fit together like this sort of jigsaw puzzle or something. And the resulting shape was the perfect thing to run something like that. How have you seen Jessica grow, you know, from those early days, grow as a person and as a founder throughout the years?

36:27Jessica Livingston:Like I thought she was great and like worth starting a whole thing just to employ. but she, you know, she like felt like she had to go and work for whoever would have her, you know, like I was indignant that this investment bank she worked for didn't seem to appreciate her, but more indignant than she was, I think. But gradually she's gotten more confident after 20 years. Still, still, I would say her big secret is she like, you know, she's a big deal in the startup world. And like secretly, she still worries that she's a nobody and that everybody overlooks her, which at least makes her nice and modest, unlike most big deals in the venture business.

37:08Jessica Livingston:But it's not really accurate, is it? Was there ever a moment where it like all kind of hit you, like looking at all the impacts of everything that you've done?

37:17Paul Graham:Well, I mean, it did happen sort of gradually. So, I mean, it hits me now. I think of that, I practically want to cry. And of course, what impacts me is how many lives we've affected. And not just people's professional lives, but their personal lives and their best friends and people who were in their weddings and people who didn't know each other and helped people with, like, health crises in the Y Combinator community and all the good things that happen as a result of these people that we funded, not all of whom are successful. You know, a lot of these startups died, but those individuals, the alumni, are still part of the community.

37:58Paul Graham:And that's what I sometimes am just staggered by. It makes me really proud and happy.

38:05Jessica Livingston:Well, thank you so much for doing the show today. You've had such an impact on so many people's lives. And I did want to end just by saying thank you for taking a chance on three college kids from Penn State all the way back in 2007 because Weebly would not have been what it turned out to be without you, without Paul, and without YC. And it certainly had a big impact on my life. So thank you for starting YC and all the work that you put into it. And look what it turned out to be today.

38:31Paul Graham:Oh, thank you, David. I'm so glad we funded you all those years ago. And I'm just so glad to see how you've grown up and where you are now. I'm like a proud mom.

38:49Jessica Livingston:This podcast is brought to you by Leap Forward Ventures, an investor in early stage startups. If you like the show, the number one thing you'll want to do is sign up to get notified when we release new episodes that includes transcripts and key takeaways from each story. Head to leapforward.fm to sign up. I'd also love to hear your feedback on the episode and who you want to hear from next. Just shoot us a text at 415-915-3050 to get in touch. This episode was produced by Theo Balcom and Kim Naderfein-Petersa. Craig Ellie is our engineer. Rhys LaDano made our cover art. Music is by Jim Brunberg and Ben Landsverk of Wonderly.

39:31Jessica Livingston:I'm David Rusenko, and this is the Leap Forward podcast. See you next episode.

39:39Jessica Livingston:She has a bunch of nicknames. Detective Livingston, for example, it's disconcerting to live with her because anything that's off or strange or different than you'd expect, she notices and digs in like the strangest things. You leave some random piece of junk in the bathroom and she's like, what's this? Why is this here? And so you could imagine how useful that would be in judging startups, right? Because they're coming to do interviews. A lot of them basically try to lie their way through the interview while they're not lying their way past Detective Livingston.