In this episode of "20 Minutes VC," host Harry Stebbings discusses the influential role of Y Combinator (YC) with its CFO, Kirsty Nathoo. Kirsty details her journey from PwC in Cambridge to becoming the financial backbone of YC, the world's most successful accelerator, known for backing companies like Dropbox and Airbnb. She also highlights the importance of team dynamics over ideas in startup success and addresses common fundraising mistakes, such as overvaluing capital raised. Furthermore, Kirsty touches on the evolution of YC, its expansion plans, and how it continues to support startups through mentorship and financial guidance, emphasizing the necessity of proper fund allocation and the potential of biotech investments to change the world.
"CFO at YC, Kirstie holds the keys to the kingdom, literally. Not only does she control and manage Y Combinator's internal finances, from paying bills to helping organise demo days to actually making sure Y Combinator's money is wired to startups from the proper accounts, but she helps YC startups coordinate outside financings, tax issues, incorporation and other fiscal matters."
The quote highlights Kirsty Nathoo's extensive responsibilities as CFO, which include both managing Y Combinator's finances and supporting the financial needs of its startups.
"I had the necessary skills, and I was ready to jump on an aeroplane and move over there to start."
This quote explains that Kirsty's skill set matched the needs of Y Combinator at a time of growth and complexity, prompting her to relocate to San Francisco to join the team.
"It was incredible how much trust was placed in me straight away. I had control over all the bank accounts. I had access to absolutely everything."
The quote emphasizes the immediate and complete trust Y Combinator placed in Kirsty upon her arrival, giving her full access to the financial aspects of the organization.
"Well, the first batch that I was involved in was winter 2010, and that had, I think, 26 companies in it. So now our last batch we had 114 companies. So it's grown beyond recognition."
This quote provides a perspective on the scale of growth at Y Combinator from Kirsty Nathoo's early days to the present, illustrating the accelerator's significant expansion.
"So then as we started to grow and take more partners in the mindset and the aim of the organization became very different. And now our aim is to basically help the world by helping startups to do amazing things."
This quote emphasizes the evolution of Y Combinator's mission from its initial focus to its current broader goal of global impact through startup support.
"Are the team very close knit? Do they know each other well? Are they determined? We don't want them to give up."
This quote underlines the importance of team cohesion and determination as critical factors for investment consideration, highlighting that a strong team is crucial for overcoming challenges.
"The kind of questions you're going to ask a company who is working on trying to discover a cure for cancer is very different to the kind of questions that you're going to ask a company who is doing the latest social network."
This quote illustrates the tailored approach to YC's interview process, which adapts to the unique aspects of each startup's industry and objectives.
"But what the founders do and hear, or don't hear maybe, is they see fundraising as a sign of success."
This quote captures the common misconception among founders that raising more money is a measure of success, rather than the actual progress and growth of their product.
"We always say to our founders, have sort of a plan a, a plan b, and a plan c, and if you raise a small amount of money, this is what you'll do with it."
This quote advises founders to be strategic in planning for various fundraising scenarios and to focus on the efficient allocation of resources to achieve growth milestones.
"But the founders definitely compare themselves to each other and see it as they're failing if they haven't raised much money."
This quote highlights the psychological pressure founders feel to raise funds and the tendency to compare themselves to their peers, viewing their fundraising efforts as a measure of success.
"I think what YC does give these companies is it gives them a seal of approval."
This quote explains that YC's endorsement serves as a form of validation for companies, which can be beneficial in the fundraising process.
"We're trying really hard to make the founders see that actually the cap is not something that drives the dilution as much as the amount they actually raise."
Kirsty Nathoo emphasizes YC's effort to educate founders on financial aspects of fundraising, specifically how valuations and capital raised affect company ownership.
"We drill into the founders many times that this is not their money."
Kirsty Nathoo underscores the importance of founders recognizing that investor funds must be dedicated to business growth, not personal use.
"Everybody must be paid a minimum wage."
This quote stresses YC's advice to founders to pay themselves and their employees at least the minimum wage to avoid potential legal disputes and ensure personal expenses are covered separately from business funds.
"The two main things are setting up payroll and making sure that you get tax returns filed."
This quote emphasizes the importance of payroll setup and tax compliance as foundational financial tasks for a startup.
"The founders should be able to tell off the top of their head at any one time how much money they have in the bank, what their Runway is, what their growth rate is, what their burn is."
This quote underscores the necessity for founders to be constantly aware of their company's key financial indicators to manage their business effectively.
"No comment. Unfortunately, there's a lot of new things going on."
Kirsty Nathoo chooses not to disclose information about future funding rounds, hinting at ongoing developments within YC.
"We think about China and we think about India a lot."
This quote indicates YC's interest in international markets, highlighting the organization's strategic considerations for expansion.
"To listen to advisors, but then to make your own decisions."
This quote conveys the balance founders must strike between considering expert advice and trusting their own judgment.
"We have various different ways. One, the most important thing is whether they've invested in YC companies previously."
Kirsty Nathoo explains the criteria for inviting VCs to demo days, with a preference for those with a history of investing in YC startups.
"It's absolutely fascinating, some of the biotech companies that we're doing."
This quote reflects YC's enthusiasm for groundbreaking biotech startups that have the potential for significant societal impact.
"The best interviews that stand out for us are the ones where the founders have such a clear vision that they can articulate the answers so quickly and easily."
This quote highlights the importance YC places on a founder's ability to clearly and effectively communicate their vision during interviews.