Arena Show Part I Idea Dinner + YC Continuity



In this live Arena Show episode, 'Acquired' hosts Ben Gilbert and David Rosenthal, along with Y Combinator's Continuity Fund Managing Partner Anu Hariharan, discuss the evolution and impact of Y Combinator (YC) on the startup ecosystem. Anu details the inception of YC Continuity as a means to support YC alumni beyond the accelerator stage, emphasizing their unique approach to investing based on founder qualities rather than just metrics. YC's community-driven platform, likened to a university model with programs extending to pre-IPO guidance, is highlighted as a key strength. Despite YC's success, Anu warns that any missteps with the community could quickly erode its network effects. Looking ahead, YC aims to scale globally and support more founders, with the potential to expand post-IPO support, reflecting its commitment to being a lifelong partner for companies.

Summary Notes

Introduction and Event Atmosphere

  • Ben Gilbert and David Rosenthal express their excitement and gratitude for the live audience presence.
  • They contrast the live event with their usual online interactions through Zoom and analytics.
  • The importance of human connection and the uniqueness of the live event is highlighted.
  • Ben encourages the audience to socialize and engage with each other during the event.

"The only thought that can occur to me right now is how different this is than what you and I normally do." "We want a lot of you to meet as many other people as possible because you have an easy opener like what's your favorite episode?"

The quotes reflect the speakers' recognition of the difference between online interactions and the live event experience. They emphasize the value of in-person connections and community building among their audience.

Acknowledgments and Partnerships

  • Ben Gilbert thanks Pitchbook and acknowledges its success as a business.
  • The partnership with Pitchbook is appreciated, and the team is commended for their support.
  • The event coincides with Star Wars Day, adding a festive element to the atmosphere.

"Thank you to pitchbook. Holy crap. John's not kidding. Pitchbook is Seattle's monster. Amazing business hiding in plain sight." "Happy Star Wars Day. May the fourth be with you all."

These quotes express gratitude towards Pitchbook for their support and playfully acknowledge the date of the event, which is Star Wars Day. The quotes are indicative of the positive relationships and cultural references that add to the event's ambiance.

Introduction of Guests and Format

  • The event will feature interviews with notable figures such as Jim Weber, Anu Hariharan, Paki McCormick, and Mario Gabrielli.
  • The format of the event is adjusted to accommodate a live audience, with shorter, fast-paced segments.
  • The hosts introduce themselves and their professional backgrounds.

"Tonight. We have Jim Weber, the CEO of Brooks, running another Seattle monster business that we're very excited to talk to you about." "We learned from arena shows past live shows, very small live shows past that. Our normal format of telling a three plus hour story of a business doesn't work very well in this sort of time."

The quotes reveal the lineup of guests and the rationale behind the event's format. The speakers acknowledge the need for adaptation to ensure the live audience remains engaged.

Pilot Partnership and Accounting Services

  • Pilot is a company offering accounting, tax, and bookkeeping services for startups.
  • The hosts discuss the benefits of outsourcing non-core functions like accounting.
  • Pilot's growth and the caliber of their clientele are highlighted.

"Pilot is the one team for all of your company's accounting, tax and bookkeeping needs." "Pilot takes care of all that. And they've been doing this now for years across thousands of startups in Silicon Valley and beyond."

The quotes emphasize the comprehensive services provided by Pilot and their expertise in handling financial operations for startups, suggesting a strong endorsement of their services.

Investment Ideas and Judging

  • The hosts and guests participate in an "idea dinner" to share investment ideas.
  • The format includes presenting a stock pick and discussing its merits.
  • Shu Nyatta is introduced as the judge who will evaluate the picks.

"We're going to recreate that magic live here in person." "We brought in a judge who is going to grade each of our picks acquired style and declare a winner and a loser at the end of the night."

The quotes describe the structure of the investment idea segment and the role of the judge. The competitive element is established, adding excitement to the discussion.

Mario Gabrielli's Pick: Snowflake

  • Mario Gabrielli selects Snowflake, a managed data warehouse company, as his investment pick.
  • Snowflake's performance, including revenue growth and net retention, is praised.
  • CEO Frank Slootman is commended for his leadership qualities.

"Snowflake is a managed data warehouse. And their sort of initial genius was that they separated storage and compute." "Snowflake...has the potential to compound for many years."

The quotes provide a brief overview of Snowflake's business model and the reasons behind Mario's investment pick. The company's innovative approach and strong leadership are highlighted as key factors for its potential success.

Paki McCormick's Pick: Opendoor

  • Paki McCormick reflects on his past stock-picking experiences and shares his investment pick.
  • He discusses the rationale behind choosing Opendoor, a company in the real estate sector.
  • Opendoor's market position and the potential for growth in the housing market are emphasized.

"Opendoor is the pick. And here's why. Because we're in Seattle and Opendoor vanquished a Seattle company, Zillow's ibuying program owned the ibuying market themselves." "Housing is a multitrillion dollar market. And everybody in the country, it seems like this past year learned how awful that process is."

The quotes detail Paki's investment pick and the reasoning behind it. The focus is on Opendoor's competitive edge and the opportunity for improvement and growth within the housing market.

iBuying Market and Opendoor's Position

  • The iBuying market is a massive opportunity.
  • Opendoor is considered the leader in the iBuying space.
  • Opendoor has turned an adjusted EBITDA profit and has handled thousands of home transactions.
  • Zillow, a major competitor, has exited the iBuying market, leaving Opendoor in a strong position.
  • Concerns about competition from Redfin and the overall challenging real estate market are acknowledged.
  • Opendoor's operational efficiency and value extraction from properties are compared to Amazon's cost management.
  • The concept of "bips for breakfast" is highlighted as a key to Opendoor's success.

"in the biggest market out there, and they have the best solution with ibuying. Sometimes it doesn't have to be hard."

This quote emphasizes the speaker's belief in the simplicity of Opendoor's business model and its potential for success in the iBuying market.

"They're operationally super sound. They finally turned an adjusted EBITDA profit last year so they can make money on this business."

The speaker acknowledges Opendoor's operational soundness and profitability, which are important indicators of the company's viability.

"And they did like, thousands and thousands and thousands of homes, and their biggest competitor has dropped out of the market."

The speaker points out Opendoor's extensive experience in handling home transactions and the advantage gained from Zillow's exit from the market.

Amazon's Market Position and Valuation

  • Amazon's market cap and revenue are discussed in the context of its recent stock price drop.
  • AWS is growing at a significant rate and is a leader in the cloud market.
  • The bear case for AWS, which suggests it may lose market share to Azure and Google Cloud, is dismissed as unlikely.
  • Amazon's ecommerce market share and growth are highlighted.
  • The narrative that Amazon's retail business is worth zero is argued against, citing investment in future growth.
  • Amazon's high-margin businesses within retail, like sponsored listings and credit cards, are emphasized.
  • The speaker's pick is Amazon, with a focus on its potential for continued dominance in both cloud and ecommerce.

"The stock got hammered last week after reporting earnings. But just looking at the fundamentals, Amazon did $470,000,000,000 of revenue in the last twelve months."

The speaker brings attention to Amazon's substantial revenue despite a recent decline in stock price, suggesting a mismatch between fundamentals and market sentiment.

"AWS is growing at 37% annually on a $75 billion base."

The speaker highlights the impressive growth rate of AWS, emphasizing its significance within Amazon's business.

Coinbase as a Value Investment

  • Coinbase's free cash flow and market cap are examined.
  • The comparison of Coinbase to a Berkshire Hathaway-style investment in the crypto space.
  • Coinbase is recognized for its brand, network effects, and position in a growing market.
  • The potential for margin compression in Coinbase's business is acknowledged but seen as a resilient aspect of the current valuation.
  • The discussion includes Coinbase's ventures into NFTs and other areas.
  • Coinbase and FTX are noted for making money regardless of crypto price movements.
  • Concerns about a post-IPO brain drain and competition from FTX are mentioned.
  • The speaker's pick is Coinbase, with a belief in its value proposition and future potential.

"In the last twelve months, they've done $10 billion in free cash flow. It's astonishing."

The speaker emphasizes Coinbase's significant free cash flow as a strong indicator of its financial health.

"They're the most established company in the space, and it is still the first inning of all of crypto."

The speaker views Coinbase as a leading and established player in the early stages of the cryptocurrency market's overall development.

Investment Philosophy and Market Timing

  • The importance of understanding and creating narratives in investing is discussed.
  • The focus on companies that are perceived as cheap due to current market conditions is noted.
  • The lack of discussion on downside risks and bear cases in investment pitches is pointed out.
  • The idea that expensive companies can still be great investments is introduced.
  • The speaker's criteria for stock picking include upside, downside, timing, novelty, and flair.

"The future of investing is people who understand and create narratives, and that's what you all do."

This quote suggests that the ability to craft compelling narratives is key to successful investing.

"You all think like venture investors. Nobody talked about downside."

The speaker highlights a gap in the investment discussion, pointing out the lack of consideration for potential risks and negative outcomes.

Audience Involvement and Final Picks

  • The audience is engaged in a clapping vote to determine the most popular stock pick.
  • The final picks are debated, with Coinbase and Snowflake going to a runoff vote.
  • The speaker's personal pick is Snowflake, influenced by the criterion of flair.
  • The idea of a five-year hold period for these investments is proposed, with plans to reconvene and evaluate the outcomes.

"So just like the french elections, this is going to go to a runoff between Snowflake and Coinbase."

This quote describes the process of determining the most popular stock pick through audience applause, likening it to a political election runoff.

"I think Andy Jassey could be the Tim cook of Amazon."

The speaker draws an analogy between Andy Jassy's potential impact on Amazon and Tim Cook's leadership at Apple, suggesting a positive outlook for Amazon's future under Jassy's direction.

Feature Management and Experimentation Platform

  • Statsig is a tool for product teams to ship features faster, automate A/B testing, and monitor the impact of features on business metrics.
  • It provides visualizations and a stats engine for real-time product observability.
  • Statsig connects new features to core business metrics to instantly reveal their impact on customer usage.

"feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

This quote explains the primary function of Statsig as a platform that streamlines the feature release process and quantifies the impact of these features on essential business metrics.

Statsig's Impact on Product Development

  • Statsig enables data-driven decisions about product changes and offers accurate reporting on their impact.
  • It supports testing product features with various user groups globally.

"Statsig lets you make actual data-driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact."

This quote highlights Statsig's role in facilitating data-driven product development decisions and its capability to test and report on feature impacts across different user demographics.

Customer Base and Use Cases

  • Statsig is used by companies like Notion, Brex, OpenAI, Figma, Microsoft, and Cruise Automation.
  • The platform is versatile, servicing hundreds of customers, including those in AI and automation.
  • Statsig managed the rollout of Notion's generative AI features.

"Customers include Notion, Brex, OpenAI, Flipkart, Figma, Microsoft, and Cruise automation."

This quote lists some of the prominent companies that utilize Statsig, indicating the platform's wide acceptance and versatility in different industries.

Integration and Accessibility

  • Statsig can integrate with data warehouses, allowing for compatibility with existing company data.
  • The platform is designed to work with any feature flagging setup, eliminating the need for migration.

"They can now ingest data from data warehouses so it works with your company's data wherever it's stored so you can quickly get started."

This quote emphasizes Statsig's ability to integrate with a company's existing data infrastructure, which facilitates a swift and seamless adoption of the platform.

Y Combinator's Evolution

  • Y Combinator (YC) is known for its accelerator program that has produced companies like Airbnb and Dropbox.
  • YC has expanded to become a significant late-stage growth investor, deploying billions into B, C, and D series funding rounds.
  • Anu Hariharan, Managing Partner of YC's Continuity Fund, has a notable career trajectory and currently serves on the boards of multiple companies.

"Tonight we're going to tell part two of the YC story... They are also one of the biggest and most active late stage growth investors in the valley."

This quote introduces the second part of Y Combinator's story, highlighting its significant presence in late-stage investment.

YC Continuity Fund

  • YC Continuity is a multi-stage fund focusing on growth-stage investments, primarily in YC companies.
  • The fund also offers post-batch programming, including a Series A program to assist companies in raising subsequent funding.
  • YC Continuity aims to be a lifelong partner for companies and provides substantial support beyond the accelerator program.

"It is a multi stage fund. We pretty much do primarily the growth stage, series b and above."

This quote defines the YC Continuity Fund as a growth-stage investment entity within Y Combinator's ecosystem, focusing on Series B and beyond.

Remote Operations and International Expansion

  • YC transitioned to remote operations during the pandemic, including remote interviews and demo days.
  • This shift has allowed for greater international participation, with 50% of YC's batches now being international.

"Since the pandemic, all our batches have been fully remote... going remote really helped us 50% of our batches. International."

This quote explains how YC adapted to remote operations, which subsequently increased international involvement in their programs.

Investment Strategy and Founder Relationships

  • YC Continuity Fund is selective, with investments in less than 1% of the companies that have gone through YC.
  • The fund and YC partners maintain a founder-first approach, prioritizing the success of YC companies over the fund's returns.
  • YC views itself as a lifelong partner rather than just an investor, often assisting founders years after their batch.

"We have to earn the right to win. And as long as it's the right decision for the company, sometimes we're the right partner and sometimes we aren't."

This quote captures the ethos of the YC Continuity Fund, emphasizing the importance of earning the trust of founders and making decisions that are in the best interest of the company.

Y Combinator as a University for Startups

  • Y Combinator (YC) is likened to a university, with the accelerator being the undergraduate program and continuity as the graduate school.
  • Applications to YC do not require connections; it is open to anyone.
  • YC pioneered the batch investment model, which was a departure from the traditional venture capital approach of selecting one or two companies during partner meetings.
  • The batch model was based on the insight that entrepreneurship can be lonely and that a group setting can foster motivation and peer learning.
  • Continuity is akin to graduate school, offering programs like CDC and post-A, which focus on CEO development as the company grows.
  • The median age of a YC founder is 27, often with limited management experience, so YC provides resources to help them learn and make fewer mistakes.

"We say that, we say YC is university for startups. So think of the accelerator as the undergraduate program, and continuity is the graduate school."

This quote encapsulates the educational model of YC, comparing its structure and purpose to that of a traditional university system.

Investment Strategy and Founder Support

  • YC's investment approach focuses on mass production of investments in startup batches.
  • The founders at YC realized the importance of group dynamics and peer support in the entrepreneurial journey.
  • YC has programs that support founders at different stages, from initial funding to scaling their companies.
  • Successful YC alumni, like Brian Cheske, regularly contribute to the community by speaking to new batches.
  • The growth program at YC is an eight-week session that covers topics like hiring executives, performance management, and culture.

"And continuity is graduate school. As I talked about, like CDC is just one of the programs we run. We have two others post a and growth post a focuses on two months within. You raise the CDC."

This quote details the structure of YC's continuity program, which provides ongoing support and education to founders as their companies grow and their roles evolve.

Fund Structure and Liquidity Events

  • YC operates similarly to other funds, with a primary base of university endowments as LPs due to its university-like mission.
  • Initially self-funded by founders, YC later brought in LPs to scale its funding capabilities.
  • YC's approach to maintaining high standards involves supporting founders working on meaningful problems, not just those following hype cycles.
  • The organization aims to grow batch sizes while keeping acceptance rates low to support more founders globally.

"So right now it's set up just like any other funds. Right. So we have incredible lps, primarily university endowments, because our mission is more university oriented."

This quote explains YC's fund structure and the alignment of its LP base with its educational mission.

YC's Differentiation and Founder Assessment

  • YC differentiates itself by focusing on founder qualities even at the growth stage, rather than just metrics.
  • The organization has developed a pattern recognition ability to assess what makes a successful founder.
  • YC looks for founders who move quickly, hire well, and have clarity of thought.
  • The ability to scale globally and support founders from diverse locations is seen as a key part of YC's future growth.

"And I think the three things I can articulate, what it is on the founder we look for. One is at the continuity stage, right? Often on the growth stage, people, I think, pay attention to the founder, but they don't like, if you're at a venture fund or a growth fund, you probably hung out with the founder for a week or two weeks before the investment, some total of 3 hours."

This quote highlights the depth of YC's engagement with founders, which goes beyond the superficial interactions typical of many venture funds.

YC's Community and Network Effects

  • YC's strength lies in its community and network effects; maintaining the community's integrity is crucial for success.
  • The organization has established community values, an ethics code, and internal resources like a book face to support its network.
  • YC's potential downfall could come from missteps that damage the community and erode network effects.
  • The organization's long-term ambition is to support companies throughout their lifecycle, possibly including post-IPO stages.

"At this point, I think YC is the only platform that has strong network effects. And as all network effects have shown, if we mess up the YC community because we have this platform only because of the YC founders, and there are community values, I mean, we have written down community values."

This quote underscores the importance of the YC community and the potential consequences if the organization fails to uphold its values and network integrity.

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