Harry Stebbings interviews Gary Tan, co-founder of Initialized Capital and former partner at Y Combinator, on the 20 Minutes VC podcast. Gary shares his journey from a Bay Area kid to a prominent figure in Silicon Valley, detailing his early career, co-founding Postorous, and helping build Palantir Technologies. He emphasizes the importance of mission-driven startups and the value of mentorship and community, as experienced through Y Combinator's supportive ecosystem. Gary also discusses Initialized's investment philosophy, focusing on early-stage companies and avoiding the "spray and pray" approach, aiming for meaningful engagement and support for startups. Additionally, he touches on the current investment climate, the trend of delayed IPOs, and the potential impact of the Long-Term Stock Exchange.
Now as for Gary, prior to founding initialized, Gary was a partner at Y Combinator, where he invested in and directly worked with over 700 companies in five years from the earliest possible stage. Often just an idea.
This quote highlights Gary Tan's extensive experience in early-stage startup investing through his time at Y Combinator, where he worked with a vast number of companies right from their inception.
I was just a Bay Area kid growing up sort of in the shadow of Silicon Valley and I got my first job opening up the yellow pages to the Internet section of the phone book and just started calling to get my first job.
Gary describes his humble beginnings in the tech industry, which started with a proactive approach to finding his first job.
So he was certainly not the billionaire demigod that he is today yet, but everyone knew who he was and knew he was a truly great entrepreneur. So to me it feels very much that opportunity came out to seek me and sometimes as a 23 year old coming around of college who didn't really understand startups at the time, you make the wrong choice, as I did.
Gary reflects on his decision to decline an early opportunity to join Palantir, emphasizing the unpredictability of startup success and the importance of seizing opportunities.
Yeah. So I ended up joining as employee number ten instead about a year later. So they were unsuccessful with me to get me to quit my entry level job at Microsoft, but they were able to get a number of our mutual close friends.
Gary eventually joined Palantir, recognizing the mistake of initially turning down the opportunity and illustrating the importance of being open to revisiting decisions.
And what we got at YC was basically real talk. You and your batchmates were able to actually share what was really going on that day, mainly because you could trust them.
This quote explains the value of Y Combinator's community, where founders can have honest conversations and receive genuine support, which is crucial for early-stage startups.
"And that helped us a ton. Roundabout way of saying basically in 2011, YC was so powerful and valuable for us that when I heard that they were looking for a designer, I just raised my hand and I said, I'd love to help out."
This quote illustrates how valuable YC was to Gary Tan and his decision to contribute to the program, signifying the transformative role YC plays in the startup community.
"So I feel like I lucked into that and along the way became angel investor and then a more institutional seed."
The quote reflects Tan's career progression into institutional investment and his role in supporting startups through Initialized Capital.
"Around that time, I personally went out and sought out a position with mobile devices... But the ironic thing is, in 2004, Facebook was new Facebook. That was the time to continue to invest in the web."
Tan's quote underscores the potential misstep of shifting focus away from dominant platforms too early, using the rise of Facebook as an example of the web's enduring relevance.
"And in fact, there are quite a lot of companies that got left behind because they didn't switch to the iPhone platform when it arrived finally in 2009."
This quote highlights the danger of not adapting to new, successful platforms, as evidenced by companies that failed to pivot to the iPhone.
"Too much money chasing too few teams and too few ideas. So I disagree on the teams part."
Tan's quote directly challenges the common belief that there is an oversupply of capital in relation to available investment opportunities, especially when it comes to talented teams.
"The classic series A funds are shifting later... the golden age for the microVC, the golden age for accelerators and for YC, because there's more money at the later stage."
This quote describes the shift in investment stages and the resulting opportunities for early-stage investors and accelerators, emphasizing the changing dynamics of the venture capital industry.
"I think the most surprising thing is how long? Well, when you're talking about working with founders who are new, know not only is it often the first time that they start companies, but it's actually the first time they've managed people, sometimes the first time they've ever shipped a product."
This quote emphasizes the inexperience of many founders in YC and the journey they undergo in developing their businesses, which can be longer and more challenging than anticipated.
"Usually it's something that comes out of their own personal experience."
Gary Tan highlights that founders who are motivated by personal experiences tend to be more successful, as their commitment is rooted in a deeper purpose.
"I think that for us, the right trade off is we think that we can work with about 20 companies per year and really spend quite a lot of time with them biweekly to monthly meetings all the way through until they're series a."
Gary Tan outlines Initialized Capital's strategy of working closely with a manageable number of companies to increase their chances of success, avoiding the "spray and pray" model.
"5% ownership at the initial check size means that we're usually among the biggest checks in that seed round, if not the biggest, between five."
This quote explains Initialized Capital's investment approach, which involves taking significant but not overly dominant stakes in startups to foster collaboration and maintain influence.
"The hot trends basically happen when smart people apply themselves to an idea or a market that really, really needs what they're building."
Gary Tan argues that chasing current trends is not as effective as investing in founders who are addressing genuine market needs based on their insights and experiences.
"You have to just evaluate a priori, like who's the team? What's the market? Do you trust them? Right? And who's investing in it, and are they going to help?"
This quote emphasizes the importance of pre-assessment in determining the potential success of a seed-stage company, focusing on the team's quality, market opportunity, trust in the founders, and the caliber of investors involved.
"We really should focus on the zero to 20 employee sort of stage."
This quote outlines Initialized Capital's strategic focus on early-stage startups and their dedication to assisting founders during the critical initial growth phase.
"Everything that made YC great really came from Paul and Jessica... Like no BS, no marketing speak. Let's be very straightforward and let's be mission oriented."
The quote reflects on the impact of Paul Graham's mentorship on Gary Tan, highlighting the importance of a clear, honest, and mission-driven approach in the startup ecosystem.
"I think that he just captured the underbelly, the thing that people never talk about."
This quote explains why "Chaos Monkeys" is Gary Tan's favorite book, as it reveals the hidden realities of the tech industry that are often overlooked but critical to understand.
"Either Eric is going to go and create something that kills the Nasdaq or the New York Stock Exchange and deeply disrupts it or not."
This quote captures the high-stakes nature of Initialized Capital's investment in LTSE, indicating a binary outcome of profound industry disruption or failure, and the confidence in Eric Ries as a founder.
"A huge hand to him for giving up the time today to be on the show. Also, a massive thanks to Judith at Weathergage Capital for the intro to Gary today, without which we would not have been able to conduct the interview."
This quote shows appreciation for the time and connections that made the interview possible, emphasizing the collaborative nature of the venture capital ecosystem.