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There are thousands of smart people who could start companies and don't, and with a relatively small amount of force applied at just the right place, we can spring on the world a stream of new startups that might otherwise not have existed. [Paul Graham, Why YC]

Paul Graham wrote this in 2006, just one year after co-founding the startup accelerator, Y Combinator (YC). And in his most recent essay, “How to Do Great Work,” he broadens the claim: “Many more people could try to do great work than do.” 

Paul Graham often analogizes starting a startup to a kind of “economic research.” Taken literally, YC is one of the most remarkable breeding grounds for invention in history. If Bell Labs’ scientists invented the transistor, the laser, Unix, information theory, etc, then YC’s “economic research scientists” invented OpenAI, Stripe, AirBnB, Instacart, Doordash, Dropbox, Reddit, and many more. 

But what is the key to unlocking the impact of YC, in any field? What was this “relatively small amount of force applied in just the right place”? This question has kept me thinking for years. 

I’m obsessed with the question of how to increase the rate of company creation in biotech. The U.S. produces thousands of life science PhDs each year, and spends billions in federal research funding, yet only a few hundred biotechs are formed and funded each year. The number could be so much higher. So how do we increase it? By studying the history of institutions like YC, we can learn how to unleash such a force in other fields. 

It is way too easy to credit YC’s success to its obvious peculiarities – the application, the batches, demo day, etc. That experiment has been run. Many times. Just two years after its launch, YC had so many copycats that Y² Combinator appeared to mock them [1]. One copycat even duplicated the YC application, word-for-word. 

But you’ve probably never heard of any of them, because they missed the point. 

This essay has sat in my files as a loose connection of notes on YC for over a year now. I could never quite figure out the answer. I read all of Paul Graham’s and Jessica Livingston’s essays, even every comment Paul ever wrote on Hacker News (up to 2010). I read The Launch Pad. I read all the essays from, or interviews with, YC founders that I could find. Still, it eluded me.

In reading Paul’s most recent essay, How to Do Great Work, I had a realization. YC’s “relatively small amount of force applied at just the right place,” was a discovery about who could do great work, how to find them, and how to massively raise their ambition.

This is not a study of what YC is today (2023), most people are already familiar with it and it is analyzed well elsewhere [2]. This is about how it came to be. To understand YC, we must study its early years.

Finding people who can do great work

1. YC tested a specific thesis that young, inexperienced founders could build great startups

Paul Graham, Jessica Livingston, Robert Morris, and Trevor Blackwell started YC with a very specific thesis: young, inexperienced founders could build great startups. 

They knew this because they themselves had done it. Paul, Robert, and Trevor previously co-founded a company while Robert and Trevor were still in grad school that sold to Yahoo for $49M. But, in the subsequent seven years, Paul formulated a general theory to explain why: the cost of starting a company had fallen to the point where anyone could do it. 

First, the cost of computer and server hardware had fallen rapidly. 

Second, the internet made free word-of-mouth promotion extremely effective. You used to have to buy advertising or use a PR firm, but now word-of-mouth could scale awareness exponentially, for free, if you built something that users love. 

Third, programmers became much more productive as programming languages became more advanced, so products could be built with fewer employees. Indeed, in How to Start a Startup, Paul Graham says “I think hiring people is the worst thing a company can do.” Since the cost of starting a company is mostly paying the people to build the product, you could get started with no capital other than the living expenses of the founders. 

A corollary to this third point is that, if the company needed to hire and manage fewer people, founders could be inexperienced in management (even more so if the product was pure software).  

So if anyone could do it, who should try their hand? Inexperienced, yet smart, determined, and energetic hackers [3].

The most interesting subset may be those in their early twenties. I'm not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience.[Paul Graham, How to start a startup]

We’re testing a theory that technology is enabling a new model to evolve where founders of startups can be a lot younger than they used to be. As the age of startup founders creeps downward, we foresee an alternative path for the smartest and most ambitious: instead of going to work for Microsoft, they start a startup and make Microsoft buy it to get them. [Jessica Livingston, Y Combinator When No One Cared] 

At the time YC started in 2005, there simply were not many opportunities for inexperienced founders in their 20s to be taken seriously by VCs, or to work with a revered figure like Paul Graham. Instead, people the age of students were treated like, well, students.

YC created the first home for them. 

Consider Alexis Ohanian’s experience, described in Without Their Permission. He was denied a spot in his college entrepreneurship class when he refused to arbitrarily add two fake co-founders to his very real startup to satisfy the professor’s requirement to work in groups of four. When announcing YC, Paul even had to clarify that “this is not a contest. This is actual venture funding…unlike the MIT Entrepreneurship Competition, for example.”

Therefore the goal of YC would be to get young founders started. As Paul writes in Startup = Growth, all one would need to do is get something – anything really – growing at 5-7% per week. If you do that successfully, it doesn’t matter that you aren’t a fancy executive, that you aren’t plugged into the network, or that you work from an apartment rather than an office. All that matters is, how fast is it growing? 

Understanding growth is what starting a startup consists of. What you're really doing (and to the dismay of some observers, all you're really doing) when you start a startup is committing to solve a harder type of problem than ordinary businesses do. You're committing to search for one of the rare ideas that generates rapid growth. Because these ideas are so valuable, finding one is hard [Note: YC itself is such an idea]. The startup is the embodiment of your discoveries so far. Starting a startup is thus very much like deciding to be a research scientist: you're not committing to solve any specific problem; you don't know for sure which problems are soluble; but you're committing to try to discover something no one knew before. A startup founder is in effect an economic research scientist. Most don't discover anything that remarkable, but some discover relativity.

The cost of launching would just be the living expenses of the founders. The time that it would take to build something, launch it, and see it start growing could be only weeks. 

Therefore one could summarize YC’s structure as: 

• Invest in young, smart, energetic, and determined hackers

• Give them enough money to pay for living expenses, but not much more

• Give them a few months to build something, launch it, and see some evidence of growth

And, since finding good ideas is hard, get statistics on your side by batch processing startups – run as many of these experiments as you can in parallel. 

2. Paul Graham’s writing reached the right audience

The following spring, lightning struck. I was invited to give a talk at a Lisp conference, so I gave one about how we'd used Lisp at Viaweb. Afterward I put a postscript file of this talk online, on paulgraham.com, which I'd created years before using Viaweb but had never used for anything. In one day it got 30,000 page views. What on earth had happened? The referring urls showed that someone had posted it on Slashdot. [Paul Graham, What I Worked On]

In 2005, if you were a young hacker, bored in college, you probably spent your free time reading Slashdot or other internet forums. 

From 2001 up to announcing YC in 2005, Paul Graham published 31 essays about life, programming, and startups, like Why Nerds are Unpopular (2003) and Hackers and Painters (2003). 

His writing found incredible traction on social news sites like Slashdot, and hacker forums like the lightweight languages mailing list.  But to say they were popular is an understatement. The essays gave hackers a vision of their true potential, if they could free themselves from their pointy haired bosses. Paul became “the leading apostle, to not say messiah, of the startup gospel.” [Antonio García Martínez, Chaos Monkeys]. 

By 2005, a talk from Paul would fill an auditorium beyond standing room capacity. In his book Without Their Permission, Reddit founder Alexis Ohanian describes a pilgrimage from Virginia with his co-founder Steve Huffman to see Paul speak at Harvard. 

The lecture room was packed, and Paul read from his notes for about forty-five minutes and graciously answered questions. At one moment he described the perfect angel investors as "people who themselves got rich from technology." As he said this, he must've noticed the roomful of aspiring founders all widen their eyes with hopefulness. He abruptly clarified: "Oh, not me!"

The rumble of one hundred simultaneously disappointed nerds echoed through the room….Graham would look back on this moment as the instant he realized a little money could go a long way for the right founders.

The “rumble of one hundred simultaneously disappointed nerds…,” was the sound of market pull for what would become YC. Indeed, only a few weeks later, in March 2005, Paul announced YC on his website. (That same month, he published 5 essays, notably A Unified Theory of VC Suckage and How to Start a Startup.)

Let’s review how it worked out. Here is the first batch in summer 2005, including where some of the founders came from, how they heard about the program, and their outcomes.

Amazingly, even while running YC, Paul kept up writing at an incredible pace, publishing multiple essays per month at his peak.

3. Hacker News transformed the essay readership into a community and culture

What would happen after someone read one of Paul’s essays on Slashdot? They would return to Slashdot to read the comments, of course. So, Paul and the YC team went a step further – why only produce essays when you could create the whole platform and resulting community itself? 

YC launched Hacker News (originally called “Y Combinator Startup News”) in February 2007. The stated goal was to identify future founders by the “smart things…they’ve written.” Hacker News went on to become one of the most popular websites in tech [4]. 

We know some of the people who apply to us for funding—either because they're friends of people we funded, or because we met them at events like startup school—but most of the people who apply to us, we know nothing about.

That's a problem for both sides. The applicants we don't know are at a disadvantage. And it makes judging applications more difficult for us; all we have to go on is a few answers on an application form. So our hope is that by creating a community at news.ycombinator, we'll be able to get to know would-be founders before they apply to us.

You can tell a lot about the users of a site like this from the links they post and their comments in discussions. There are a number of Reddit users that I know only by their usernames, but I know must be smart from the things they've written. We're counting on the same phenomenon to help us decide who to fund.

In our new online application form (coming soon), you literally apply through your Y Combinator account, so we'll recognize usernames that have been thoughtful contributors to the site. I'm not saying we'll simply fund whoever has the most karma; that would just encourage abuses. But we will be more likely to fund people we know are smart from their submissions and comments.

This goal was a definite success. One high profile YC founder noted to me that they “posted a few blog posts that ranked very high on Hacker News. pg reached out, invited me to a YC dinner...It was pretty much inevitable that I'd end up going through YC.” Even as late as 2018, Paul found repl.it on Hacker News and had them join the W18 batch, after they had been initially rejected (source).

But Hacker News became so much more than that. It became a community and a culture, rooted in YC and Paul’s essays, allowing the growing community around YC, and the readership of the essays, to all interact – launching companies and products, finding teammates, or talking about tech news, or just about life.  

For example, right after the launch of Hacker News, this post appeared on the front page [5]:

Or, here is Brian Armstrong of Coinbase in 2012 using a Hacker News post to recruit a co-founder. 

Once the YC network became large enough, they also created a private social platform called Bookface. There, behind closed doors, YC founders also offer introductions, contribute advice, rate experience with VCs, and much more. I don’t review it in detail here, as the focus on this essay is on the earlier years. However, it has certainly played a very large role in YC’s continued success. In fact, several founders I’ve interviewed described as the most valuable part of YC.

4. The YC community created a talent flywheel

YC scaled really fast, backing ~60 companies across ~5 batches. With at least a few startups from each batch rapidly growing, and YC itself rapidly growing, the total talent network around YC grew exponentially. 

Many famous YC companies came from YC founders’ friends and early employees. 

• Dropbox (W07). Adam Smith founded Xobni in the S06 batch. At MIT’s Phi Delta Theta fraternity, Adam was Dropbox founder Drew Houston’s “Big Brother,” and invited him to a YC dinner. (Source)

• AirBnb (W09). Justin.tv CEO Michael Seibel became an advisor to Airbnb after meeting the founders at South x Southwest, and later suggested they apply to YC. Brian Chesky actually rejected this idea because they had already launched, but eventually they agreed as they were running out of money. (Source)

• Coinbase (S12). Brian Armstrong was an early AirBnb hire, where he architected the payments platform and fraud detection system. (Source)

• Cruise (W14). Kyle Vogt left MIT during his junior year to join Justin.tv after Justin Kan and Emmett Shear sent an email to an MIT engineering listserv looking for a “hardware hacker” for an unspecified project. Vogt and Justin Kan’s younger brother, Dan Kan, later co-founded Cruise in 2014. (Source)

Despite Paul Graham’s assertion that startups should not co-locate, many of the YC startups of this period did live together (and still do today) [6]. This created a social community around YC startups that also attracted new recruits, such as Justin Kan’s brother, Dan Kan, who went on to found Exec (W12) and Cruise (W14). 

For example, Taylor Street in San Francisco housed the “Y Scraper,” a twelve-story building that was one of the only places in the city that offered furnished apartments on a month to-month basis. According to The Launch Pad (2012), thirteen YC-funded startups were working from this building, including Justin.tv (W07), Weebly (W07), Dropbox (S07), Xobni (S06), and Scribd (S06). 

It is a testament to the YC team’s ability to pick talent, as well as their confidence in young founders, that they often backed the same founders multiple times, with even more successful outcomes coming in their later startups. 

Two of the most prominent examples: 

I. Kiko (S05) leads to Justin.tv leads to SocialCam (W12) and Twitch (W07)

Justin Kan and Emmett Shear started a web calendar app, called Kiko, as a part of the first YC batch S05. Google soon launched Google Calendar, putting an end to their ambitions. They sold the source code for Kiko on eBay for $258,100. 

Still hanging around YC in 2006, they came up with the idea to livestream their startup strategy discussions. This ultimately led to Justin.tv (W07), a continuous live video feed of Justin’s life. YC backed them again (though they did not formally belong to a batch). Justin.tv later split into SocialCam, which sold for $60M, and Twitch, which sold for $970M. [The Launchpad]. 

Justin Kan also went on to start more companies, including Exec (W11) and Atrium (W18), both of which received investment from YC. He co-founded Exec with his brother, Dan. After shutting down the company in 2018, Dan Kan and Kyle Vogt (of Twitch) started Cruise (W14), now one of the highest valued on the Top 100 companies. 

Tracing Justin and Emmett’s impact even further – they recruited Michael Seibel to Justin.tv. Michael later recruited Airbnb to YC, and Airbnb alumnus Brian Armstrong then created Coinbase. Michael also became president of the core YC accelerator in 2016. Justin and Emmett also both became YC Partners and probably recruited countless other YC startups. 

If you followed just the direct network seeded by Justin and Emmett (“the Kikos”), you would get Twitch, Cruise, AirBnB, and Coinbase. 

II. Auctomatic (W07) leads to Stripe (S09)

As mentioned earlier, Paul first met Patrick Collison while he was in high school when he emailed him questions about Lisp, probably around 2005.

In 2007, Patrick and his brother, John, joined YC to do their first startup. They merged companies with Harj and Kulveer Taggar to create Auctomatic. 10 months later, they sold Auctomatic to Live Current Media for $5M. 

In 2009, Patrick and John spent the summer in Palo Alto and started working on Stripe. Interestingly, Stripe actually didn’t go through the YC program. Instead, Paul Graham and Sam Altman (one of Sequoia’s first scouts) each invested $15k for 2% of the company. [The Power Law]. 

Considering they had sold their previous company for $5M, the Collison brothers certainly didn’t need the money, indicating the enormous amount of value that the Collisons placed in getting to work with the YC team again (see comments from Patrick on working with Paul below). 

Stripe went on to become one of the highest privately valued startups in history. 

Cultivating ambition

The core thesis was right. YC made a bet on people overlooked because of their age and lack of experience, and the results were incredible. 

Therefore, was YC’s success just a matter of selection? Would these people have been successful anyway, and YC just happened to be the first to realize it and invest? Not according to Brian Chesky of AirBnB [7]:

“When we entered YC, it wasn’t at all clear that we would exist after it,” Chesky said. “And by the end it was: ‘Can we be the next marketplace, the next eBay?” [The New Yorker]

YC raised founders’ ambitions. In Paul’s words: 

Optimism and ambition are two of the main things YC cultivates in the startups it funds. You have to do it well. You can't just say "think big!" and expect that to work. But doing this effectively is a big part of the value of YC. [Paul Graham, Twitter]

How did they do it so effectively? He gives us some hints, continuing the earlier quote from How to Do Great Work:

Many more people could try to do great work than do. What holds them back is a combination of modesty and fear. It seems presumptuous to try to be Newton or Shakespeare. It also seems hard; surely if you tried something like that, you'd fail. Presumably the calculation is rarely explicit. Few people consciously decide not to try to do great work. But that's what's going on subconsciously; they shy away from the question.

So I'm going to pull a sneaky trick on you. Do you want to do great work, or not? Now you have to decide consciously. Sorry about that. I wouldn't have done it to a general audience. But we already know you're interested.

Don't worry about being presumptuous. You don't have to tell anyone. And if it's too hard and you fail, so what? Lots of people have worse problems than that. In fact you'll be lucky if it's the worst problem you have.

Yes, you'll have to work hard. But again, lots of people have to work hard. And if you're working on something you find very interesting, which you necessarily will if you're on the right path, the work will probably feel less burdensome than a lot of your peers'.

The discoveries are out there, waiting to be made. Why not by you?

YC, both incidentally and by design, forces the conscious choice to do great work, and helps founders overcome the combination of modesty and fear that often hold people back. 

1. “PG and Jessica – there was no other magic trick.”

Sam Altman, a founder in the first YC batch who later also became President, wrote that “the entire secret to YC getting going was PG and Jessica—there was no other magic trick.”

A few times a year, I end up in a conversation at a party where someone tells a story about how much PG changed their life—people speak with more gratitude than they do towards pretty much anyone else. Then everyone else agrees… Jessica still sadly doesn’t get nearly the same degree of public credit, but the people who were around the early days of YC know the real story.

What did they do? They took bets on unknown people and believed in them more than anyone had before. They set strong norms and fought back hard against bad behavior towards YC founders. They trusted their own convictions, were willing to do things their way, and were willing to be disliked by the existing power structures. They focused on the most important things, they worked hard, and they spent a huge amount of time 1:1 with people. They understood the value of community and long-term orientation. When YC was very small, it felt like a family. [Sam Altman, PG and Jessica]

I believe the key point is: “believed in them more than anyone had before.” 

In service of cultivating ambition, consider how impactful it must be to have a legendary hacker, founder, and investor believe in you, spend “a huge amount of time 1:1,” and put their own money behind you (YC did not raise any outside money until 2009).  

This echoes a comment from Tyler Cowen on what makes Emergent Ventures so effective, which I reviewed here:

Supplying people, especially younger people, visions of what they could be, is greatly undersupplied... In some of the grants I’ve given out through Emergent Ventures to younger people, I’ve also tried to give them a sense of what I think they could be and I suspect that’s more important in some cases than the grant. In a way it’s complemented by the grant. In a way you’re giving the grant so you can package it with this vision…and the grant makes the vision more vivid or more focal, like they believe the vision because you spent real dollars on them. [Tyler Cowen, via The Tim Ferriss Show: Tyler Cowen]

2. Paul Graham is a genius at expanding ideas

Related to this point, but worth drawing out separately – one of the key things that comes up over and over again is that Paul is especially brilliant at supplying people with a vision for how an idea could be orders of magnitude more ambitious, and then making them believe in themselves enough to try to do it. 

He just makes these surprising connections and comes up with these surprising ideas that are things I had not thought of. Lots of investors are pretty good at the quotidian things like helping you close other deals or if you have a question of how to grant options or which lawyer to use… The conversations that are most useful with Paul are [when I am] thinking about some totally new area and I come back with 10 ideas that I had not thought of.  Some of them will be really outlandish and terrible ideas and some of them are really good. Both Paul Graham and Peter Thiel have this property where they look at the world sideways and just see it slightly differently than everybody else. [Patrick Collison, via The Startup Grind]

Very few people, I think, have an energy like that. You can read about customer development online or watch Eric Ries talk or look at Dave McClure's AARRR framework for startups. That's all great. But when you have an in-person conversation with Paul, he might say some of your ideas are shitty-he might say all of your ideas are shit-but when you walk away, you want to go build something. [Justin Kan, via  The Launch Pad]

Paul is the best problem solver I've ever met. He’s also a genius at expanding ideas and making radical improvements to things. One of his defining characteristics is telling people “You know what you should do...” [Jessica Livingston, Grow the Puzzle Around You]

If you’re looking for some explanation for how he does it, I don’t have one. And it seems neither does Paul, other than that he writes a lot:   

Jessica: One thing I wanted to ask you about is one of your superpowers, which is just taking an idea and expanding it like 100 times bigger for founders. Where do you think that comes from?

Paul: I don't have to do the work.

Jessica: Well, I think a lot of people... I know I'm very envious. I would love to be able to do that, and most people can't do that. Where do you think it comes from?

Paul: It might be related to writing essays because when you write an essay about something, you have to really completely understand it, and so once you understand it, then you could see where it extends to get bigger. So it's just talking to them and really, really understanding the idea, and then you could see, "Oh, you could stretch this bit out and that bit out and it becomes a triangle," or something like that.

[Jessica Livingston, The Social Radars]

3. YC created a culture of mentorship beyond PG and Jessica

YC scaled this culture of mentorship beyond Paul and Jessica. While the two led YC as the only full-time team members from 2005-2009, they began to add former YC founders as part-time and full-time partners. 

An important component of raising people’s ambitions is for them to be surrounded by mentors who were in their shoes previously, and had succeeded. 

2010 additions: 

• Harj Taggar, Auctomatic W07

• Paul Buchheit, the sole non-YC alum, was a world class hacker, founder, and prolific angel investor

2011 additions: 

• Garry Tan, Posterous S08

• Sam Altman, Loopt S05

• Justin Kan, Kiko S05

• Emmett Shear, Kiko S05

• Aaron Iba, Appjet S07

YC also does an excellent job of broadly engaging the alumni network in managing admissions. For example, Y Combinator alumni are the first readers for all Y Combinator applications, and are essentially the first filter. [Chaos Monkeys]. 

4. YC’s tight timelines force focus on compounding actions 

In How to Do Great Work, Paul explains why it’s easy to shrink away from a big vision due to fear and modesty. It’s hard to get started. It’s discouraging to look at your progress relative to your goal. But then, he gives a solution: Focus on consistently doing small things that compound. 

Great work happens by focusing consistently on something you're genuinely interested in. When you pause to take stock, you're surprised how far you've come.

The reason we're surprised is that we underestimate the cumulative effect of work. Writing a page a day doesn't sound like much, but if you do it every day you'll write a book a year. That's the key: consistency. People who do great things don't get a lot done every day. They get something done, rather than nothing.

If you do work that compounds, you'll get exponential growth.

In YC, this is the only kind of work you can do. The program lasts only 3 months, and you must have something to demo at Demo Day. Therefore, you must have something built and launched sooner than that. Also, you have to build the idea with a small amount of capital. When YC launched, the amount of funding was $6000 ✕ n, where n is the number of founders. 

From Startup = Growth:

During Y Combinator we measure growth rate per week, partly because there is so little time before Demo Day, and partly because startups early on need frequent feedback from their users to tweak what they're doing. A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing.

We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is "just." If they decide to grow at 7% a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed. Programmers will recognize what we're doing here. We're turning starting a startup into an optimization problem.

In theory this sort of hill-climbing could get a startup into trouble. They could end up on a local maximum. But in practice that never happens. Having to hit a growth number every week forces founders to act, and acting versus not acting is the high bit of succeeding. Nine times out of ten, sitting around strategizing is just a form of procrastination.

Also, all you are really committing is a summer. Who wouldn’t try for 3 months, just to see if they can get something going? 

5. Tech’s measurability makes for healthy competition

A corollary to the focus on compounding growth of revenue or users is that most of the startups in YC could be compared by the same metric. Paul even specified that “good” during YC is 5-7% w/w growth. In theory, while not explicitly competing, every startup in the batch could know where they sit in the ranking relative to their peers. 

Competition with peers also helps overcome the fear and modesty that limit ambition. It’s much easier to focus on growing faster than your batchmates than trying to build the next Stripe. 

A consistent pattern across historical examples of great work in many fields – art, science, writing, philosophy, etc – is that it is rarely done in isolation. Instead, great work originates in collaborative circles of friends experimenting together and challenging one another. Consider the quantum physics community of the 1920’s. Or in art and literature, the French Impressionists, or C. S. Lewis, J. R. R. Tolkien, and the Inklings. 

Even though YC startups range widely in their products, the ability to reduce ideas down to core metrics produces some of the conditions necessary for these collaborative circles to form. 

It’s worth pausing to note that an obvious error mode in this structure is that if the startups can’t compete on growth rate, they will start to compete on proxies like fundraising and headcount. The further the proxy gets from the goal, the more the value of the competition deteriorates. This is something to be extremely careful about when applying this concept to other fields. 

Conclusion

Just five months after launching YC, in October 2005, Paul remarked “the hypothesis we were testing seems to be correct. Young hackers can start viable companies. This is good news for two reasons: (a) it's an encouraging thought, and (b) it means that Y Combinator, which is predicated on the idea, is not hosed.”  There wasn’t just one random success from the first batch, either; he estimated that 3-4 of the startups would make it. But he probably didn’t predict that one would become one of the most popular websites in the world! 

YC scaled really fast. The second batch launched only half a year later. Just 2 years later, YC had already backed 50 more companies across four batches – W06, S06, W07, and S07. 

By my count, 12 of these 50 were hits, an insane 24% hit rate.

YC has now invested in 4000 companies worth $600B combined. Counted among those 4000 are some of the most valuable and impactful startups ever, including AirBnB, Stripe, Instacart, Coinbase, Doordash, and Reddit. Moreover, YC bought 5-7% of these companies for <$20,000 each! And that’s not counting the subsequent startups to come from YC founders, like OpenAI (where Jessica was one of the first funders). 

And all of this was started from $2M of personal capital from Paul, Jessica, Trevor, and Robert. YC didn’t take any outside money until 2009, 4 years after starting. 

The “relatively small amount of force applied at just the right place” has been spectacularly effective. 

There is still lots more work to understand about this question. I hope that with this essay, more people will become obsessed with this question as I am, and we will see many more experiments to figure it out, both in startups and in new fields. 

Notes

[1] The attentive reader might notice the author of this website. 
[2] For good analysis on YC in more recent years, there is a good review from The Generalist.
[3] I use the word “hacker” throughout this essay in a manner consistent with Paul’s definition: “To the popular press, "hacker" means someone who breaks into computers. Among programmers it means a good programmer. But the two meanings are connected. To programmers, "hacker" connotes mastery in the most literal sense: someone who can make a computer do what he wants—whether the computer wants to or not.” [Paul Graham, The Word “Hacker”]
[4] Annotated history of Hacker News traffic.
[5] pg: “This just freaks me out.”
[6] Trevor Blackwell writes: “PG has talked about not starting your startup in co-working spaces, because the startup will take on the ambient culture instead of developing its own, and the ambient culture in co-working spaces is pretty bogus. But living with and being friends with fellow founders is great. Being a founder can be lonely, because there are parts of the struggle you can't share with the rest of the company. Being friends with people going through the same process is one of the best things you can do for the company and yourself.”
[7] Sam Altman’s advice to AirBnB founders: “Take all the M[illion]s and make them B[illion]s. Either you don’t believe everything you said in the rest of the deck, or you’re ashamed, or I can’t do math.” This strongly echoes of Paul’s comment about fear and modesty.

Acknowledgements

Thanks to Sam Arbesman, Alex Wolf, Nicole Ruiz, Dwarkesh Patel, Sam Rodriques, Eric Gilliam, Michael Retchin, and several YC founders for comments and discussions. Special thanks to Alexey Guzey and Niko McCarty for helpful encouragement and revisions.

1. The Game of Life

Conway’s Game of Life is a program that runs on four rules and a grid of black and white tiles. Seed some tiles and the four rules switch on, spinning up emergent behaviors that fill galleries with discoveries.

S., my son, embodies such a game. A program of genes from my wife (W.) and me, plus some random changes and environmental inputs. Unleashed, and we discover who he is.

Stuffed animals, no. Finger puppets, yes.
Basketball, no. Baseball, yes.  
Lawn mowers, hell yes.

We try to encourage certain interests and directions, but it would be more accurate to say that we throw a lot of different things at him and see what sticks. 

As he gets older, he generates more complex and surprising behaviors. Out of nowhere, he rhythmically banged out “Happy Birthday to Daddy,” on his toy piano. His friend Jack from school now “lives” in the garage, and they "take turns" playing with the driveway toys. 

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2. Everything is new again 

We went on vacation last week to Portland. It rained the whole time, confining us to hop between a string of breweries, the next one conformed to the same tired counter-culture styles as the last.

Before S., I probably would have wished we just stayed home, but it didn’t matter. S. had the time of his life and so did we. Seeing the world through his eyes was like seeing everything for the first time, with the purest joy. 

They had a forklift! (he’d never seen one close up)
The drink was blue! (never seen that before either)
The bartender gave us a gummy! (he had one once before, on Halloween)
There was a dog named French Fry! (A dog named French Fry?) 
We got to stomp in the puddles and get all wet! (Mama never lets us do that at home)

3. “Solving alignment”

If S. is anything like me, we won’t be able to tell him anything once he reaches a certain rebellious age. He’ll need to discover a lot of things for himself. At least he’ll need to feel like he has. I am already hiding things around the house or in our life, waiting for him to discover them on his own. 

Where to stash the Penland Book of Handmade Books? Or the Feynman lectures? Or The Incal? Or PiHKAL? In a dusty bookshelf in the basement, locked in a desk drawer, or “locked,” with a lockpicking book found nearby? 

What art supplies, outdoors equipment, sports equipment, or life mementos should he find in the stacks of boxes on the basement shelves? What tools should he see in the garage, or the basement? What might be hidden in the backyard, or the woods nearby? 

What kinds of people should pass through our house? Maybe, after a certain age, he won’t listen to us anymore. But he might find our friends a lot less lame than us.

4. W.

W. and I are together in this parenthood bubble. Every night, we exchange pictures and videos of S., and trading stories until sleep claims us. She notices different things, or the same things, differently.

Before S., we had been together for a long time. I knew her deeply, and there wasn’t much she could do to surprise me. As a mother, she has opened a new dimension. She is changing as fast as S. is. 

Her effort in motherhood exceeds mine in everything else. She knows to feel his hands to see if he is warm or cold. She knows exactly what birthday present he’ll love – a set of 5 trucks that we bought for $5, but he couldn’t stop talking about or playing with. She knows when he is ready to start matching shapes or learning the alphabet. She knows that a stuffed animal will help him sleep through the night. 

5. Parents(Parents(Parents(…

Fatherhood is tough. It’s all consuming. And we only have one kid, and we live in a safe neighborhood, have stable finances, and have a loving family. 

When I look at my own parents, I don’t know how they did it. And then I look at my grandparents, and I really, really don’t know how they did it. 

I have so much admiration for what they accomplished. It is a recurring life lesson to appreciate my parents and grandparents more. 

6. Not a lot, and everything

A friend in grad school once tried to tear me away from the lab, “On your deathbed, will you really wish you spent more time working?” Emphatically, Of course! 

Now I just wish I had more time with S., and I appreciate every moment. 

It reminds me of two essays from Paul Graham.

From Having Kids:

I remember perfectly well what life was like before. Well enough to miss some things a lot, like the ability to take off for some other country at a moment's notice. That was so great. Why did I never do that?

See what I did there? The fact is, most of the freedom I had before kids, I never used. I paid for it in loneliness, but I never used it.

I had plenty of happy times before I had kids. But if I count up happy moments, not just potential happiness but actual happy moments, there are more after kids than before. Now I practically have it on tap, almost any bedtime.

From Life is Short:

You only get 52 weekends with your 2 year old. If Christmas-as-magic lasts from say ages 3 to 10, you only get to watch your child experience it 8 times… 8 is not a lot of something. 

Those bedtimes, those 8 Christmas mornings—they are indeed not a lot. But they are everything.

Acknowledgements
Thank you to Niko McCarty, Dan Goodwin, and W. for reading drafts of this essay.

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I believe that Tyler Cowen is the best curator of talent in the world. 

I am a biotech investor. I know a lot of top biotech investors. I’ve also spent close to a decade at two of the best life science academic institutions in the world. 

Tyler’s understanding of biotech is that of a very broad economist. Yet, he is often beating me and many of the people and institutions that I know. 

Tyler has identified talent either earlier than or missed by top undergraduate programs, the best biotech startups, and the best biotech investors, all without any insider knowledge of biotech. In comparison, Forbes 30U30, MIT Tech Review TR35, or Stat Wunderkind, and other industry awards that highlight talent are lagging indicators of success. It’s hard to find an awardee of these programs that was not already widely recognized for their achievements among insiders in their field. The winners of Emergent Ventures are truly emergent. 

I have now met >5 Emergent Venture winners that work in life sciences. The average age of this group is ~20 years old. 

One has attracted international recognition for his new non-profit founded this year. Tyler funded him ~2.5 years ago when his most notable public accomplishment was amassing 300 twitter followers. 

Another winner has now started a company backed by top tier investors - professional talent hunters - but he received his first funding from Tyler a year prior, when he was still experimenting with what to build. 

Others had been rejected by undergrad programs at Harvard, MIT, and Stanford, but their research talents have become recognized by the best academic life scientists and top biotech startups.

Examining Tyler’s public track record reveals many more impressive selections across diverse fields. He was one of the first to support Clementine Jacoby to leave her job at Google to start Recidiviz, a nonprofit that has now helped identify 44,000 prison inmates in 34 states who do not pose public-safety threats and could be released. Her work has now been recognized by the Time100 Next award. In an emergency fund to support Covid-19 related projects, he was was the first to fund Curative, which pivoted from being a sepsis company to carrying out 3M+ covid tests by September 2020 -- 3% of all covid tests in the US (~93M according to Our World in Data). He also funded Youyang Gu, a data scientist with no formal training in epidemiology that became known for producing some of the most accurate covid forecasts. 

*Update:* Alexey Guzey started compiling a list of all Emergent Ventures winners here.

Outside of Emergent Ventures, consider his construction of the George Mason economics department: Robin Hanson, Bryan Caplan, Alex Tabarrok, Garett Jones, Mark Koyama, among others. Or even take his book recommendations. He spotted now world-renowned authors Karl Knausgaard and Elena Ferrante years before they became well known.  

How does he do it? 

It isn’t just a matter of more elite selection. In fact, Emergent Ventures has a higher acceptance rate than elite colleges. In May 2020, Tyler reported in an interview with Tim Ferriss that the award rate is ~10%. For comparison, the 2021 acceptance rates of Harvard, Princeton, and Yale were 5%, 6%, and 7%. It also isn’t a wider pool. At that time, he had only ~800 total applications since 2018. 

Tyler's success at discovering and enabling the most talented people before anyone else notices them boils down to four components:

1. Distribution: Tyler promotes the opportunity in such a way that the talent level of the application pool is extraordinarily high and the people who apply are uniquely earnest. 

2. Application: Emergent Ventures’ application is laser focused on the quality of the applicant’s ideas, and boils out the noise of credentials, references, and test scores. 

3. Selection: Tyler has relentlessly trained his taste for decades, the way a world class athlete trains for the olympics. 

4. Inspiration: Tyler personally encourages winners to be bolder, creating an ambition flywheel as they in turn inspire future applicants.

First component: the distribution strategy selects for an earnest, high quality applicant pool

Tyler is famous for his eclectic and hyper-cerebral content, which he distributes through a curated set of media channels tailored to the talent he searches for. He co-writes the widely read economics blog Marginal Revolution (~1M monthly readers according to SimilarWeb), he has 186K twitter followers, he hosts the podcast “Conversations with Tyler”, and appears on podcasts from Tim Ferriss, Eric Weinstein, and Shane Parrish.

“I try to stay a bit weird and obscure enough that mostly quite smart people are writing me. If I had too many not smart emails I would feel that I was doing something else wrong with what I’m writing.” … “The rate of good applications is reasonably high. Maybe I’m lowering it just by talking about the program.” [The Tim Ferriss Show: Tyler Cowen]

“I met Patrick Collison because he emailed me, I wrote him back, didn’t know he was Patrick Collison at the time, he was just some guy. I was like ‘this guy seems smart.’” [Tyler Cowen: Production Function. David Perrell, North Star Podcast.]

Still, the program keeps a low profile. Even with Tyler’s tall stature, a Google search of “Emergent Ventures Tyler Cowen” shows results only from Tyler / GMU’s own promotion, one short TechCrunch article, a mention on LessWrong / Effective Altruism, a mention on Hacker News, and a small number of Emergent Ventures winners’ blogs and podcasts. 

Surprisingly, many winners I spoke with had the same story about discovering the program -- not through blogs and podcasts or avid reading of Marginal Revolution, but through their friends. Once Tyler discovers a social circle enriched for talent, he expands and many members are quickly funded.  The goal seems to be to hook an initial person, and then generate referrals. One can imagine Tyler’s search strategy as fishing in a well-chosen set of pools, not yet overfished from the mainstream. And when he hooks one fish, sometimes he also discovers a whole school. 

“I’ve gotten close with a lot of very talented kids living in the city that are very quiet. I honestly don’t think most of my friends have heard of those awards (I certainly haven’t!) At some point we all get introduced to Tyler.”
- An Emergent Ventures winner

What’s remarkable is how often Tyler does this over and over again in non-overlapping communities. In Emergent Ventures, he has built a product with a high NPS score for talented, earnest people. 

Besides on Tyler’s blog, the winners are not promoted and there is zero resulting media attention. It remains obscure - and in fact, I suspect that if it becomes too well known Tyler will end the program - so it will never be a useful credential. Few winners even update their LinkedIn (eg try searching “Emergent Ventures Fellow” in LinkedIn, it only returns a handful of results). The program does not award large amounts of capital, in fact many grants are “travel grants” of a few hundred or a few thousand dollars. Nor is there any promise of connections to a network of elite status people, at least as overtly advertised.

Thus, Emergent Ventures appears to be designed against anyone looking for credentials, large amounts of cash, or status/attention. Instead, the program selects and rewards earnestness. Maybe because few other things in life reward this, earnest people are so delighted to be recognized that they can’t help but refer friends. 

Second component: the application only values the quality of ideas

The application is designed to efficiently assess only one thing: the clarity and quality of the applicant’s ideas. Examining it shows a striking departure from almost any job or college application. There is no resume/CV, no test scores, and most strikingly, no reference letters. It is only a <1500 word essay. 

As a society, we have converged on one way of assessing talent through a combination of education and work credentials, GPAs, and test scores. We use these methods to achieve (i) efficiency in evaluating a very large number of applications, and (ii) consistency across a team of applicant reviewers. 

As discussed above, Tyler eliminates the first need - efficiency - through selective distribution. Because the program keeps a low profile, there is a manageable number of applications (2000 at current date, running over the past 4 years) and the average quality is very high. At least for a hyperlexic, it is indeed possible to read and score every essay.

The second need - consistency - is eliminated because Tyler is the only reviewer. He does not need to create a pretense of having a clean, objective, or consistent way of evaluating applications for the sake of accountability or consistency. Tyler can afford to truly only care about the quality of the applicants' ideas.

The result is that the essay, i.e. the quality of the applicant’s ideas and their ability to communicate them, is the only thing that matters. 

“I would stress how much the writing in the proposal matters to me. How good the proposal is is really very important. So when I interview someone for the first time, most of the time I don’t track them down using google and try to read their medium essays or their tweets...[I don’t] track down the past stuff, don’t ask for CV, don’t ask for letters of reference, [and I’m] trying to give everyone a fresh start in a way.” [Tyler Cowen: Production Function. David Perrell, North Star Podcast.]

Third component: Tyler’s practice in “cracking cultural codes” enables him to evaluate ideas in diverse fields

Maybe the most important piece of the puzzle is selection. Tyler has compounded his skills in selecting talent over decades of deliberate practice in “cracking cultural codes.” 

Tyler’s nose for talent, even in technical fields like biotech, comes from his study of the humanities: art, music, complex novels, religion, anthropology, et cetera. After all, the humanities are about humans. This is at first counterintuitive, but we also observe that Silicon Valley’s legendary talent pickers like Peter Thiel (a philosophy major and JD) or Mike Moritz (a history major and former journalist) stand out for their humanities backgrounds as well. Indeed, in Tyler’s view, Peter Thiel possesses the “deepest understanding of the humanities that is out there now,” and “is the best selector of talent… maybe ever” [Tyler Cowen: Production Function. David Perrell, North Star Podcast.]

Tyler calls his study of the humanities “cracking cultural codes,” and he highlights this as the most “importantly novel” activity he practices. 

“I figured the best way to understand culture was to try to understand or ‘crack’ as many cultural codes as possible.  As many styles of art.  As many kinds of music.  As many complex novels, and complex classic books, and of course as many economic models as well.  Religions, and religious books.  Anthropological understandings.”

“But I have found it highly useful, most of all for various practical ventures and also for dealing with people, and for trying to understand diverse points of view and also for trying to pass intellectual Turing tests.” [Marginal Revolution - “Deconstructing Cultural Codes”]

How can one develop the skill of cracking cultural codes? 

First, pursue real world, practical applications of the humanities, such as:

• Art collecting: how do you buy the best pictures in Haitian art?  (see below)

• Traveling to new places and cultures: how do you identify the best restaurant to locals? (see the general remarks of Tyler’s Ethnic Dining Guide)

• Writing book reviews: what were the best books of 2021 in a given field? (see again the previously referenced 2012 post on Norwegian writer Karl Knausgaard) 

Consider Tyler on art collecting:  

“You learn about other cultures, you learn different points of view by refining your eye and you develop a skill that is extremely useful for judging other things and cracking cultural codes in other settings. It’s an education in market economics - art markets. Like how do you buy the best pictures in an area Haitian art, or how do you assemble a very good voodoo flag collection? How do you get artists in Mexico to do their best work for you? That’s a business problem that you need to solve. 

You want experience at solving a broad diversity of problems, to heighten your aesthetic sense, to learn some real history, and to understand how some of the art world works, surround yourself with beauty. 

And you should buy it for the love of the art, and try to find that which other people have not really found or appreciated yet. It’s just like the world of ideas right? It is the world of ideas. It just costs more to play in it in terms of upfront dollar commitments.” [Tyler Cowen: Production Function. David Perrell, North Star Podcast.]

Second, leverage fast feedback cycles from the market, peer groups, mentors, or all of the above. In the case of art collecting, a point of emphasis is “an education in… art markets.” You are trying to find undervalued assets - comparing the derived value to the market price - and staking real dollars on your analysis. 

In the absence of a market, consider mentors and/or peer groups:

“Get a mentor… Say you want to learn about contemporary art..You need a mentor. Yes you should read some books on it, but you want a mentor to help you frame them, take you around to some art, talk about it with you. Get as many mentors as you can in the things you want to learn.”

“Build small groups of peers..with broadly similar interests...every day they are talking about the thing you care about, trying to solve problems in that thing.” [Lex Fridman Podcast: Tyler Cowen]

Most importantly, practice this consistently, across many fields, every day, for decades. More than anything else, Tyler credits the compounding value of sustained practice on long time scales as his core advantage in everything he does well. 

“I started early and I kept on going for many many years… Just having 44-45 years of truly absolute full time work doing something is a big advantage. Most of my peers in terms of age, I’m not saying they have stopped, but they typically have stopped learning or stopped really trying to self improve. One if not the only advantage I’ve had is just the high number of years to work on things.” [Tyler Cowen: Production Function. David Perrell, North Star Podcast]

“Recently, one of my favorite questions to bug people with has been “What is it you do to train that is comparable to a pianist practicing scales?”  If you don’t know the answer to that one, maybe you are doing something wrong or not doing enough. Or maybe you are (optimally?) not very ambitious?” [Marginal Revolution - “How I practice at what I do”]

Fourth component: Tyler pushes winners to be more ambitious, and creates an ambition flywheel

Emergent Ventures is not really about grantmaking. The size of Emergent Ventures grants range from small to micro, often only a few thousand dollars. In a world dominated by multimillion dollar venture rounds or large philanthropic gifts, the smallness boggles the mind. 

How could such small grants matter so much? Perhaps because many Emergent Ventures winners are very young, the grant is really a meaningful amount to them. But more importantly, applicants receive something more valuable than funding: inspiration.

An Emergent Ventures grant is a push to be more ambitious. It’s a push to drop the status quo, to make a change in one’s life and open the door to a new career.

Tyler writes:

“At critical moments in time, you can raise the aspirations of other people significantly, especially when they are relatively young, simply by suggesting they do something better or more ambitious than what they might have in mind...This is in fact one of the most valuable things you can do with your time and with your life.”[Marginal Revolution - “The high-return activity of raising others’ aspirations”]

Even if spending only a few hundred or a few thousand dollars a pop, Tyler gives some of the world’s most talented people the confidence that he believes in them. It is the kind of proposal an economist familiar with nudge theory might make to answer the question “what is a capital efficient way to inspire the smartest young people to be 100 times more ambitious early in their careers?” Marginal Revolution’s tagline is indeed “small steps towards a much better world.” 

“Supplying people, especially younger people, visions of what they could be, is greatly undersupplied... In some of the grants I’ve given out through Emergent Ventures to younger people, I’ve also tried to give them a sense of what I think they could be and I suspect that’s more important in some cases than the grant. In a way it’s complemented by the grant. In a way you’re giving the grant so you can package it with this vision…and the grant makes the vision more vivid or more focal, like they believe the vision because you spent real dollars on them.” [The Tim Ferriss Show: Tyler Cowen]

Because the current Emergent Ventures winners also inspire future ones, this sets up a flywheel of ambition. Winners are selected → Tyler pushes winners to be more ambitious → Program is associated with ambitious people → New applicants are inspired to write even more ambitious proposals →  and so on.

Conclusion

Everyone in the business of building and managing organizations should study Tyler’s performance and process. For entrepreneurs in today’s environment, talent, not capital, is the limiting factor in company building. Finding and recruiting talent is also the core task of venture capital investing, building a research lab, or managing a university.  

Tyler’s distribution strategy, application design, intellectual tastes, and influence on awardees all interplay to explain his success as a talent curator. As a whole, it is incredibly difficult to replicate directly because each component is so dependent on the others. However, there are some general principles one can apply. 

First, cultivate pools of talent that are very high in quality, even if very low in quantity. Recognize that people have already self-selected on media channels like Twitter, blogs, and podcasts, on discord/slack, or even in group houses. Design incentives to attract the applicants seeking the right things, for example by using an evaluation strategy that is much harder for credentialists to game (e.g. Emergent Ventures’ 1500 word essay). 

Second, zero in the talent signals you care about, and develop one’s skill at evaluation by practicing “cracking cultural codes.” Find practical application of the humanities with fast feedback loops. Perhaps learning to make strong art investments is not as different from selecting talent in a specific field as it might at first appear. 

Last, raise the ambitions of one’s “winners” (i.e. grantees, employees, investments, students, etc) more than they imagined possible, and work hard to help them succeed. Promote their work such that they inspire new talent. 

In May 2022, Tyler will release “Talent: How to Identify Energizers, Creatives, and Winners Around the World,” a book he co-authored with entrepreneur and venture capitalist Daniel Gross. Consider this essay a registered prediction of its contents.  

Addendum: Tyler on talent evaluators

When I sent Tyler an earlier draft of this essay for comments, I also asked him two questions that I have reproduced below. 

How would you evaluate other people’s ability to be great “talent evaluators?”

“I don't think I have insightful answers, other than looking at results. But I do look rather intensely at how well they understand music, the arts, or whatever culture they might be interested in. I place great weight on that, though not absolute weight. With Shruti [Rajagopalan, who now runs Emergent Ventures India], for instance, I was deeply impressed by her knowledge and understanding of Indian classical music. I thought ‘if she can figure that out...’ etc.”

Besides Peter Thiel, who else would you say are the best talent evaluators in the world? How have they shaped his own approaches?

“A lot of the best talent evaluators I do not know. From my field, Aaron Director? Milton Friedman (who built up U. Chicago along with Director)? Paul Samuelson (who built up MIT)?

In tech, Patrick Collison and also Daniel Gross?...Mike Moritz? Though I hardly know Mike and cannot say he influenced me.

I also would cite my father, who ran a Chamber of Commerce in New Jersey. He did not ‘pick stars,’ or have the budget or environment to even attempt that, but was a true master of finding limited talent or flawed talent and getting the most out of them.”

Addendum: Some questions that I am still thinking about 

On Emergent Ventures

The profile of Emergent Ventures is growing quickly. In email correspondence, Tyler reported that the program has now received a total of 2000 applications (as of Aug 2021), up from 800 in May 2020. More applications have come in the past ~12 months than the history of the program! 

• As the prestige and popularity increases, will success be maintained? Is it possible for Emergent Ventures to “scale up” from 80 winners to 800 or 8000? 

• Or must it instead “scale out,” by funding analogs to Tyler in parallel as suggested here? For instance, in 2020, Shruti Rajagopalan and Tyler launched Emergent Ventures India. 

Other questions 

• What would happen if applicants could apply for 10-fold or 100-fold more capital?

• Would the program be as successful if it were an investment rather than a grant? 

• What was the result of the Call for Emergent Ventures proposals on talent search and major life changes? 

Lastly, what am I wrong about or what might have I missed? 

More about Tyler

Check out Tyler’s excellent blog, podcast, and books.

Acknowledgements

I am deeply grateful to Alexey Guzey, who provided inspiration, contributed many helpful ideas and substantial revisions, and who wouldn’t leave my house until I wrote the first draft of this essay. Alexey also started a list of Emergent Ventures winners, check it out here! I also thank Amy Chen Kulesa, Sasha Chapin, Eduardo Beltrame, Sam Rodriques, Adam Marblestone, Josh Moser, Sam Arbesman, and several anonymous EV winners for discussions and feedback on drafts of this essay. Last, I thank Tyler Cowen. First, for generously answering my questions and for providing thoughtful comments and additions. Second, and more importantly, for putting enough of his work in public to make this essay possible.

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The discoveries of recombinant DNA and gene synthesis transformed biologists into engineers, as they finally gained “write access” to the code that underlies biological systems. Brave visionaries like Bob Swanson and Herb Boyer quickly realized the applications and launched Genentech, birthing the biotechnology industry. The fifty years since have been a compounding loop of tool development, and we can now engineer every level of the system — DNA, RNA, protein, cells, tissues, and organisms.

Beyond recombinant DNA, consider CRISPR, base editing, and prime editing. And ASOs, RNA-editing, RNA-targeted small molecules, and mRNA medicines. And protein degraders, and molecular glues. And cell therapies, microbiome therapeutics, organoids, and xenotransplantation. Recombinant DNA led to the formation of Genentech. These new technologies will create similarly immense opportunities. Indeed, the companies created in the last decade are growing larger and faster than ever before.

Investors are taking note. The amount of venture capital dedicated to biotech has risen nearly five-fold from just $3.6B in 2012 to $16.8B in 2020.

However, 2018 is the last year that the founding of new companies tracks the growth in venture capital (Figure 1, data from Pitchbook). Since then it has flattened or even declined. Without more companies to invest in, more and more capital is aggregating in each company, and we are now in a world where a $100M+ Series A is becoming the norm.

If this does not alarm you, it should. Biotechnology is a powerful lever on many of the most important problems in the 21st century. We face an aging population and rising healthcare costs, already almost 20% of GDP. We must prepare and prevent the next pandemic. We must transition to living sustainably, and reinvent the way we produce food, materials, and chemicals. We must build technologies to remove carbon from our atmosphere. More startups means more shots on goal at solving these challenges, exemplified by the entrepreneurs that sprung into action to create surveillance tools, testing, therapeutics, and vaccines during the Covid-19 pandemic. 

We need more biotech startups.
And that means we need more biotech founders.

Returning back to biotech’s origin in the 1970’s, another iconic company paralleled Genentech’s founding: Apple Computer Company. Despite their twin birth, the role of founders in today’s tech and biotech startup ecosystems couldn’t look more different. 

Tech valorizes the founder. Apple’s Steve Jobs and Woz exemplify the mythos that permeates almost every other iconic tech company — Microsoft, Amazon, Google, Facebook, et cetera. Compared with professional executives, the tech community has learned that founders have the ability to strategize on longer time scales, have earned more trust from stakeholders to make hard decisions, and have the best understanding of the minutia and culture of their businesses. 

Biotech’s culture is built from a different template: Genentech was created by Bob Swanson, a venture capitalist, and Herb Boyer, a professor co-founder that remained on the UCSF faculty. 

Following Genentech’s example, biotech is dominated by a model where venture capital firms create companies themselves, in partnership with academics. The firms cultivate the most exciting new science from top academic labs, conceptualize a commercial opportunity, and recruit an experienced management team to execute the vision. Proponents argue that it isolates the technical risk, and reduces the commercial and management risk as much as possible. 

Meanwhile, the problems we face in the 21st century still loom, and the pace of company creation isn’t growing fast enough to meet them. A culture that requires every executive team to have done it before inherently limits the rate we can address these challenges. 

We need a new way: the founder-led biotech

Is biotech really that different from other areas of deep tech like space, defense, or climate tech, where founder-led startups are the norm? We are finding that with the right support around them, founders in biotech can deliver outsized successes. 

In the past 12 months, Ginkgo Bioworks, Recursion Pharmaceuticals, AbCellera, Finch Therapeutics, SQZ Biotech — all founded and led by technical founders fresh from their academic roots — have gone public. Hot on their heels, founder-led startups at the Series A and beyond like Asimov, Biobot Analytics, Cellino, Dyno Therapeutics, GRO Biosciences, PathAI, Strand Therapeutics, Vedanta, 1910 Genetics, and many others, have raised hundreds of millions of venture capital to work on some of the most innovative frontiers in the industry. The founders of these companies are hungry and creative scientists that realized the impact of their work before others did, and now they are leading the charge to bring their innovations to the world. 

The success of this bow wave of companies is catalyzing more investor interest in the founder-led model. Investors in these early successes are doubling down on their support for founders, and others that sat on the sidelines are now getting in the game. They are drawing on the models in tech for supporting founders with a platform for critical business needs like recruiting and business development, and creating platforms specialized to biotech. The rest of the service ecosystem is responding as well. For example, lab space that is rentable month-to-month is becoming available in most research hub cities. 

Academic culture is also changing to encourage scientists-turned-founders. A decade ago, when I was doing my graduate work at MIT, it was uncommon in many academic circles to talk of commercialization. Maybe even taboo. This might explain why the dominant model for scientists was to partner with a venture capital firm while remaining in academia, rather than to leave and found the company independently. At that time, I felt lucky to be part of a small cadre building MIT Biotech Group, an organization we created to unite with other students that shared entrepreneurial interests. Now student groups centered on bioentrepreneurship like those at MIT, Harvard, and Stanford have become some of the most popular of any at their institutions. Beyond institutional bounds, the new student-led educational organization Nucleate has already led to the formation of 29 companies. 

Biotech’s future is arriving at an ever faster pace. In just the past two months, we have seen 3D protein structure prediction cracked, a mirror image polymerase that produces L-DNA, a petascale reconstruction of part of the human cerebral cortex (that you can view in browser!), and the discovery of a new, giant extrachromosomal DNA element. 

But this future lies in supporting the founders who will lead us there. It’s time to unleash their potential.

Acknowledgements: Thanks to Sarah Hodges, Jaye Goldstein, Josh Moser, Michael Retchin, Alexey Guzey, Jake Becraft, and Alex Parks for helpful discussions and reading drafts of this essay.