20VC YC's Justin Kan on The 3 Qualities All Successful Investors Have & Why 'VCs Don't Really Do Any Real Work'



In this episode of 20 Minutes VC, host Harry Stebbings interviews Justin Kan, a partner at Y Combinator and founder of Twitch TV. Justin shares his journey from starting a web calendar in college to creating Twitch, which sold to Amazon for $970 million. He discusses Y Combinator's evolution, the importance of selecting talented founders, and the role of VCs in economic development. They also touch on YC's Continuity Fund, the extension of the private market, and the significance of personal branding for investors. Justin emphasizes the founders' quality over market size when investing and explains YC's mentorship approach despite growing batch sizes. Additionally, Justin offers insights on Snapchat's unique user engagement, his angel investment strategy, and his perspective on the VC industry's challenges and rewards.

Summary Notes

Introduction to Justin Kan and Y Combinator

  • Harry Stebbings introduces Justin Kan, a partner at Y Combinator, a prestigious startup accelerator.
  • Justin Kan founded Twitch TV, which was acquired by Amazon for $970 million.
  • Mike Siebel, another YC partner and part of Twitch's journey, was previously featured on the show.

"So joining me today is Justin Kan at Justin Kan on Snapchat. And Justin is a partner at the world-renowned Y Combinator that the birthplace of the likes of Dropbox, Airbnb, Scribd and Reddit, just to name a few. And prior to YC, Justin was the founder Twitch TV, the world's leading video platform and community for gamers, which was ultimately acquired by Amazon for $970,000,000."

This quote introduces Justin Kan, highlighting his current role as a partner at Y Combinator and his past achievement with Twitch TV.

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Justin Kan's Early Beginnings and YC Involvement

  • Justin Kan began his entrepreneurial journey in 2004 during his undergrad at Yale.
  • His first startup was Kiko, a web calendar, which lacked a clear understanding of customer needs.
  • Kiko was sold on eBay after being overshadowed by Google Calendar.
  • Y Combinator funded Justin's first startup and later his second startup, Justin TV.

"We were accepted. I remember we argued about the merits of Javascript rich Internet applications, and Trevor didn't believe that they would ever be a thing."

This quote captures a moment from Justin's early experience with Y Combinator, debating the future of web technologies.

The Evolution of Justin TV and Twitch

  • Justin TV started as a reality TV show on the internet but pivoted to a live streaming platform due to audience demand.
  • The company raised significant funding and became a substantial live platform.
  • Faced with stagnation, Justin TV developed new products: Social Cam and Twitch.
  • Social Cam was spun out and sold, while Twitch focused on gaming content and grew successfully.

"People came on and they were like, you guys are really boring. We want to be entertained. Go do something."

This quote reflects the initial audience feedback on Justin TV, which led to its pivot to a broader live streaming platform.## Twitch's Acquisition by Amazon

  • Twitch grew to surpass Justin TV in size and was sold to Amazon.
  • The sale was for $970 million, which, after retention bonuses, exceeded $1 billion.
  • Justin Kan reflects on this with a light-hearted attitude, indicating he's moved past the specific amount.

"Eventually Twitch became much bigger than Justin TV, and we ended up selling Twitch to Amazon for $970,000,000."

This quote outlines the successful sale of Twitch to Amazon, emphasizing the significant growth and eventual acquisition value.

"I think they specifically did that, but after retention, it was over a billion."

Justin Kan suggests that Amazon may have deliberately chosen not to offer a round billion dollars, but acknowledges that the final amount surpassed a billion after adding retention bonuses.

Y Combinator (YC) Interview Process Evolution

  • Justin Kan joined YC as a part-time partner in 2011 and transitioned to a full-time role in 2014.
  • YC interviews have been shortened from 40 minutes to 10 minutes but the core process has remained consistent.
  • The focus remains on understanding the business and its founders, and their potential to scale.

"So the interviews when they started off were 40 minutes long... Now they're only ten minutes long... It's the same process pretty much since the beginning."

Justin Kan explains that despite the reduction in interview duration, the essential elements of the YC interview process have remained the same.

Y Combinator's Success Factors

  • Sam Altman attributed YC's success not to their own end strategies but to the opportunities created by the underperformance of traditional VCs.
  • YC's model was disruptive, offering smaller initial investments that aligned with reduced startup costs.
  • Factors like AWS, programming knowledge dissemination, and new distribution channels contributed to this shift.

"He said that it wasn't actually ending particularly Stu with YC and how they performed that made them so successful, but it was more the opening that was made from poor performing vcs and the old vc generation."

This quote refers to Sam Altman's perspective on YC's success being influenced more by the gaps left by traditional VCs rather than solely YC's own strategies.

Venture Capital (VC) Landscape and YC's Role

  • Justin Kan sees YC as synergistic with VCs, helping to create more companies and feed into the VC ecosystem.
  • YC's continuity fund competes with growth stage investors and those from public markets entering the private sector.

"I just think that YC as a new model that's come up in the last eleven years, that helps more companies get created and creates a greater feeder into the VC ecosystem."

Justin Kan discusses YC's role in the broader VC ecosystem, highlighting its impact on company creation and its supportive relationship with VCs.

Impact of Private Market Extension on Seed Stage Investing

  • The trend of companies remaining private longer does not actively concern Justin Kan as a seed stage investor.
  • Liquidity events are delayed, but this does not deter his investment decisions.

"Essentially, does it concern me as a seed stage investor? Not actively."

Justin Kan expresses that the extended period before liquidity in the private markets does not affect his willingness to invest in seed-stage companies.

Angel Investment Philosophy at YC

  • YC partners are permitted to make angel investments, but only in YC companies after demo day.
  • Justin Kan has invested in 50 to 60 companies since he started angel investing around 2012-2013.

"Yes. So we do make angel investments in our own YC companies only after demo day."

This quote clarifies YC's policy regarding angel investments made by its partners, emphasizing that such investments are allowed post-demo day and only in YC-affiliated companies.

Justin Kan's Angel Investment Experience

  • Justin Kan's angel investment strategy focuses on the talent of the founders.
  • Successful investments include companies like Cruise and Tilt, with a common factor being the quality of the founders.

"Well, I would say that I have learned a lot. I think that the fundamental thing is that you want to invest in founders who are talented people."

Justin Kan shares his learning experience as an angel investor, emphasizing the importance of investing in founders with talent and potential.## Founder Quality in Investment Decisions

  • Justin Kan emphasizes the importance of founder quality over market size and thesis in investment decisions.
  • He has experienced investing in founders who were not as capable as initially thought, which became apparent within the first year.
  • He now focuses on whether the founders have the determination to see their venture through to the end.

"Oftentimes I invested in things where the founders actually weren't that good. And it became apparent pretty quick within the first year because it's very hard to know. Day one I think, of investing, but retroactively it's much easier to tell. So now I try to look more actively on, like, are these people actually going to take this all the way?"

The quote reveals Justin Kan's shift in investment strategy from being market-focused to evaluating the founders' commitment and potential for long-term success.

Scaling Y Combinator

  • Y Combinator has been divided into four groups to manage the increasing number of startups per batch.
  • Justin Kan, along with Adora and Casar, runs one of these groups, handling 26 to 30 companies.
  • This structure allows for more intimate and personalized mentorship, similar to a business school section.

"So you might have heard from other partners, but we shard YC. We have four different groups at YC. I run one of the four groups with Adora and Casar right now."

This quote explains the organizational strategy Y Combinator uses to maintain quality mentorship despite growing batch sizes by creating smaller, focused groups.

Common Challenges for Startups

  • Startups commonly seek advice on growth strategies, decision-making between different business directions, fundraising, and managing financial crises or acquisition processes.
  • Justin Kan identifies these as the primary issues startups approach him with during their development.

"I think it's how do we grow? Or how do we decide between two potential things that we could be doing? And it's also, what do I need to do to raise more money, or I'm running out of money, what do I need to do?"

The quote summarizes the typical concerns of startups, which revolve around growth, strategic decisions, and financial sustainability.

The Importance of Personal Brand for Investors

  • Justin Kan believes a personal brand is crucial for investors and identifies three key qualities: having a platform that generates leads, selecting good companies based on a strong thesis, and being relentless in securing investments.
  • He uses his own activity on Snapchat and the reputations of firms like Sequoia and Y Combinator as examples of branding strategies.

"Well, I think investors have to have. There's three qualities of investors, of investors or firms that I think are important investing."

This quote outlines the three essential attributes Justin Kan believes are necessary for successful investors in today's market.

Y Combinator's Brand and Competition

  • Y Combinator is recognized as the top accelerator globally, which has become a self-fulfilling prophecy due to its momentum and ability to attract great entrepreneurs.
  • Justin Kan acknowledges the importance of Y Combinator's initial efforts in building its brand and the ongoing work to reach out to untapped entrepreneurial communities.

"We're known as the best accelerator in the world... And, I mean, I think there's a huge amount of credit in funding those early companies before it was a popular brand."

The quote highlights Y Combinator's reputation and its impact on attracting high-quality entrepreneurs, reinforcing its position as a leading accelerator.

Justin Kan's Use of Snapchat

  • Justin Kan was inspired by DJ Khaled to use Snapchat as a platform for sharing personal content and startup advice.
  • He continues to use Snapchat due to the positive feedback and motivation it provides to his audience, who engage with his content on entrepreneurship and fitness.

"Snapchat I started using about six months ago, mostly because I saw DJ Khaled, and I thought the Snapchat application had gotten a lot of things that we wanted to do at Justin TV in the very first iteration."

This quote explains Justin Kan's reasons for adopting Snapchat as a medium for sharing content and engaging with his audience.

Potential Improvements to Snapchat

  • Justin Kan suggests that Snapchat lacks a feature for discovering new accounts, but also considers that this might be an intentional design choice to prevent dilution of attention among existing connections.
  • He speculates on the trade-offs of such a feature and acknowledges the success of Snapchat's product team.

"If I were Evan Spiegel for the day, what would I change about Snapchat? I actually think the thing that Snapchat's missing the most is a way of discovering new accounts."

The quote reflects Justin Kan's perspective on Snapchat's user experience and the possible strategic reasoning behind its current design choices.

Justin Kan's Favorite Book

  • "Shogun" by James Clavell is Justin Kan's favorite book due to its encompassing elements of adventure, political intrigue, and a love story.
  • He finds the book not only entertaining but also educational, applying lessons from the book to his business career.

"My favorite book is Shogun by James Clevell, which is a story of an adventurer, like a ship's captain in 1600 who's marooned on Japan."

The quote reveals Justin Kan's personal taste in literature and how it has influenced his professional life.## Decision Making in Difficult Situations

  • Sometimes it's best to do nothing when faced with multiple bad decisions.
  • Waiting can be a strategic move to see how things unfold.

ly necessarily have to do anything when you don't have a good decision. When you're placed between multiple bad decisions. Maybe you should just do nothing and wait and see what happens.

This quote emphasizes the idea that inaction can be a strategic decision when all available options seem unfavorable, suggesting patience in decision-making.

Impressions of a Founder

  • Parker Conrad, the founder of Zenefits, is considered impressive despite the company's issues.
  • His aggressive growth strategy led to rapid expansion from a few customers to 80 employees in six months.
  • Justin Kan invested in Zenefits early on, convinced by its potential and Conrad's approach.

Well, I mean, I think Parker Conrad comes to mind. I know that's probably not a popular answer at the moment, given. Like, when I remember seeing him, I was a part time partner at Y Combinator, and he came for advice for me while he was in YC, and they had only a few customers saw their product, which was Xenophiz. And I was like, this is something I needed as a. I need as a customer when we were running our own companies, like, explaining health insurance was always a pain in the ass. And so I immediately was like, you have to take my money right now.

Justin Kan reflects on his positive impression of Parker Conrad and his decision to invest in Zenefits early due to its potential to solve real problems in health insurance.

The Future of Zenefits

  • Positive outlook on Zenefits under David Sacks' leadership.
  • The company continues to solve a real problem, indicating potential longevity.

Well, I mean, I hear very positive things from people who are there about David Sachs, and he's also been a hugely successful entrepreneur. So I'm pretty positive on it. But I don't really know from the, I don't have any inside information at the core. They're solving a real problem. And so that's going to be something that exists in some form.

Justin Kan shares optimism about Zenefits' future, given its focus on solving a persistent issue, despite not having detailed insider information.

Reading Habits

  • Nuzzel and Hacker News are Justin Kan's primary sources of information.
  • The Information is his second choice for its direct email updates on important articles.

Favorite blog or newsletter? I mean, I use nuzzle, actually, the most. Do you know about nuzzle? [...] Nuzzle and hacker news are the must reads. Because I know when nuzzle sends me something, it's like something that, it's pretty good because it's been filtered by a lot of my friends. And so I find that it's kind of the highest hit rate. Nuzzle is probably, and then after that, probably the information.

Justin Kan discusses his preferred sources for staying informed, highlighting the value of content curated by his network and the convenience of email updates.

Personal Challenges and Learning

  • Justin Kan enjoys learning about new industries and exploring new ideas.
  • Being a venture capitalist (VC) is considered easy due to the lack of direct control and operational responsibilities.

Anything has changed very much. I love learning new things. I mean, the challenge for myself, I think, is that I always love learning new things and learning about new industries and trying new stuff. [...] it's very easy being a VC. That's the truth.

Justin Kan shares his passion for continuous learning and exploration, while also acknowledging the relative ease of the VC role compared to operational roles in companies.

Perspective on Venture Capital Work

  • Venture capitalists give advice but ultimately do not control the outcome.
  • A stoic approach is necessary to manage the lack of control and potential stress.

Because you don't do any of the real work. I talk to founders all day and I give them my advice, and they either do it or they don't do it. But at the end of the day, you don't have any control.

This quote reveals Justin Kan's view on the role of a VC, which involves advising founders without being able to directly influence the company's trajectory.

Future Career Plans

  • Justin Kan likens returning to founding companies to veterans considering returning to the military; valuable but not a desirable repeat experience.
  • Uncertain about committing to being a VC for life, given past experiences of changing interests.

People ask me if I'm going to start another company all the time, and I like to basically tell the story that about this time I met these entrepreneurs who were all army veterans, they were all us military veterans and they came by YC. [...] That's how I feel about startups.

In this analogy, Justin Kan compares the intense experience of starting a company to military service, suggesting that while it was valuable, he does not intend to return to it.

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Harry Stebbings promotes Design Crowd as a resource for listeners needing design services, emphasizing the platform's extensive designer network and efficiency.

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