Five F'ups (& Learnings) from Building & Funding Unicorns with Harj Taggar, Y Combinator

The number one mistake startups make is picking the wrong person to work with, picking the wrong co founders. So every single Y Combinator batch there is always some number of startups that don't even make it to demo day because of co founder conflict. And I think really early on who you choose to work with just the single most important determinant of your success, there's really two mistakes you can make. One is picking someone to work with who you're not values aligned with, and then the second is working with someone you don't respect. It's really easy to work with someone you like but don't respect. And that's a really common thing we see at YC is two friends start a company, they think it's going to be great because they've been best friends forever. But it turns out that one of them doesn't actually think the other is a great engineer, and the other doesn't actually think the other is a great salesperson. And those kinds of dynamics are hard to fix. I need some traction. You need some traction. Let's get some traction.

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Thanks for being here and thank you Harj. I'd love to learn about your journey, founding Triplebyte, and some of the lessons you've learned as being an investor. First off, the title of the speech is about being a dropout and going from being a dropout to being a standout. What did you drop out from and why?

So I dropped out from law school in England 12 years ago. Now. That wasn't like a great time back then for my parents because I grew up in an immigrant family and I had a very limited field of career options that were available to me. And so I got into law school not so much because I had a passion for it, but more a respectable career. I pretty soon realized that I wasn't. It wasn't something that I was like deeply very interested in. So I'd be looking for things to do as like side projects. And my cousin was also at the same college as me, just a year ahead. And so we started brainstorming things that we could work on together and came up with an idea for a student trading website, like a student version of Craigslist, which actually started getting a little bit of traction. He quit his investment banking job to work on it full time and I dropped out of law school to keep it going and building its actual company.

You were also the first partner at YC. How did that come to be?

So I joined YC as a partner in 2010, but the relationship with Y Combinator goes back to this first project in college. So I started working on this site with Kulvir, my cousin, and it just kept rolling a little bit like we've got more colleges signing up to it and it felt like it was going somewhere. Both of us, after dropping out from respective careers to try and build into a real company, got into a bit of a funk because we're in London trying to build this startup in 2006 and we're around a community that doesn't understand startups at all. All of my friends went into investment banking or management consultancy or something else. I can remember how this happened. There was one night where I was just like super depressed. Nothing seems to be working, running out of money. And I googled mistakes that kill startups and it took me to this essay called 18 Mistakes that Kill Startups by this guy called Paul Graham and I never heard of him before, but I clicked through the essay and I'm reading through these mistakes and I'm thinking, one, we're making every single one of these. Two, this guy seems really smart, like we should get. I should wish I could speak to him or meet him. And three, one of the mistakes was location. It says in there, if you want to be the best in your field, you should go to wherever the best people in your field are. And so if you're an actor, you should go to Hollywood. If you're an artist, maybe you go to Florence. And if you're a startup founder, you should go to Silicon Valley and start base your company there. I kept looking around, came across Y Combinator. I clicked the application link. We got accepted into YC as the first international company in 2007. Paul helped us a lot, shaped the idea and gave us a lot of mentorship. The company was acquired a couple of years later by a company in Vancouver. So he's lived out here for a year and after working here for a year, caught back up with Paul and Jessica at Y Combinator to ask them about what they were up to. And they had plans to scale YC and they asked me if I wanted to join to help them out with that.

And you also co founded Initialized. Thank you. Or I wouldn't have a job if it weren't for you. And we subsequently invested in Triplebyte, but you left Initialized to start Triplebyte, which isn't a decision that a lot of people would make. Can you talk about what motivated you to go back to the startup world?

Yeah, it's pretty uncommon to go from investing back into starting a company. There's various different reasons for that. For me personally, I. I didn't join Y Combinator because I wanted to get into investing or be a venture capitalist per se. Y Combinator itself was just a really interesting thing to be around. It was very startup Y like Paul and Jessica had been running it as this sort of side project and it had legs of its own and they had this bigger vision behind it that maybe this could be some kind of institution or new type of big company or. There were a lot of sort of ideas thrown around, but there wasn't specifics other than it feels like we may be onto something. And so I thought it would be really exciting one to work on something that seemed just interesting to me with two really smart people who I may not get to work with again. And so I went into YC with more of an open mind around. This seems like an interesting thing to do. For a while, let's see where it takes me and at least I'll meet interesting people and learn something. It was four years later for me, I realized that it'd been a really interesting ride. Y Combinator had gone from funding tens of companies per year to hundreds. And there's like a lot of novel stuff that we figured out and how do you actually accelerate startups and how do you do that at scale, which is really exciting. But I kind of missed the feeling of building something off the ground. Like I missed having a product that you knew if your metrics were going up or down on a monthly basis versus waiting for 7 to 10 years like you have to with investing in startups. I'm also honestly fairly competitive person. So I had during the time at yc, a lot of my friends had started companies and they'd gone on to like tremendous success. One of my co founders, my second co founder on my first startup which we sold, is Patrick Collison, is now CEO of Stripe. And I think just having people like that in your orbit and seeing what they learn and how they grow, it's really hard not to feel some pull towards wanting to see if you can do that too and try it out.

So I'm curious about the mistakes that you've seen companies make, especially some of the ones that have become unicorns and maybe have fallen from grace. What are some big mistakes you've seen?

There's a bunch. So I would. So one thing that was really interesting again about Y Combinate, my experience at Y Combinator in particular gave me a really like broad view of startups at the earliest stages. Like I worked with something like hundreds of companies while I was at YC and I think YC had a particularly just unique set of data on what mistakes do companies make that prevent them even getting the ground. Because that's the prime place that we invested in. If you dial it right back. We start with just like the earlier stages, the number one mistake startups make is picking the wrong person to work with, like picking the wrong co founders. So every single Y Combinator batch, there is always some number of startups that don't even make it to demo day because of co founder conflict. And I think really early on who you choose to work with, just the single most important determinant of your success. There's really two mistakes you can make. One is picking someone to work with who you're not values aligned with. Values aligned at this stage really means just what do you want out of the startup? Some people start A company because they're hoping within two to three years they can sell it and make enough money to retire. Some people start a company because they applied to 10 different companies and they all got rejected and they've literally got nothing else to do. Some people start a company because they just want to be able to choose their own technology stack and build whatever they want. And so I think if you start a company with someone that you just not values aligned with, that's always going to cause friction and it's just unlikely you're going to fix that. And then the second is working with someone you don't respect. It's really easy to work with someone you like but don't respect. And that's a really common thing we see at YC is two friends start a company, they think it's going to be great because they've been best friends forever. But it turns out that one of them doesn't actually think the other is a great engineer and the other doesn't actually think the other is a great salesperson. And those kinds of dynamics are hard to find fix.

So for Triplebyte, how did you go about screening your co founders? Did you go on long walks, deep.

Conversations about our souls? I had the benefit with starting Triplebyte that I known my co founders for about 10 years. So again, it all traces back to moving out to go through y combination 2007. So Armon and Guillaume, who are my two co founders, I'd met them first because they were early engineers at Justin tv. And so Justin Kahn was here earlier and he decided Justin otbe just Justin TV was in the same Y Combinator batch as my first startup in 2007. I'd known Justin and his co founders and got to meet Arman and when they joined, because I'd spent a lot of time at their office, I then got to know them better because they went through Y Combinator as a startup, socialcam, which I think initially I actually invested in too. So I'd spent time with them doing office hours. Their co founder back then, Michael Seibel, who's now a partner at Y Combinator, was a close friend of mine. So we just known each other for quite a while. And so I knew at a baseline I knew these are not crazy people. Two, I knew that they're both very smart and three, I knew that I liked spending time with them and I knew that they had skills that were very complementary to mine. It felt like a good fit all round. And that turned out to be the case.

And how about for companies at a later stage or some mistakes they make.

Yeah, I might even think about this sequentially. So the first mistake you make before you've launched anything is picking the wrong people to work with once you launch something. I think the most common mistake I saw is not optimizing for finding a small group of users that really love your product. And what I mean by that specifically is the most common outcome when you launch anything new in the world is to get a bunch of people sign up, use it and then go back to Reddit or doing something else. And you can keep chasing more and more users like that if you want. There's usually always some tactic that you haven't thought of yet to get another hundred people to use your product in meh way. What's much harder is to find 10 people that use your product and then go and tell like everyone else about it because they're like obsessed with it. And so I think that's the most common mistake post launch is avoiding doing the hard work of hey, maybe it's not the right time for us to try and 10x right now. Maybe the right thing is to spend another month just iterating on the product to get this initial set really excited. Once you do that, if you do get your initial set of users that love you, then I think a really common mistake startups make is not focusing on retaining them enough. So it's pretty common to see a company that gets this initial use user base, they get initial great reviews, then they go out and pull levers, they raise a round of funding and then once you have funding in the bank, you can buy ads, you can do marketing, you can sponsor conferences, you can do all kinds of stuff to get people to know about you and come. But if you don't pay attention to are my users actually retaining you get top line growth at the expense of substance. And if you're a great fundraiser, you'll be able to keep raising a few rounds of funding, but sooner or later the bottom falls out of that. Once you've got some growth, once you've got some retention, then I think the main mistake that companies make are around building the org itself and that essentially comes down to hiring. And I've seen, I think like hiring mistakes generally fall into two buckets. Either you hire too slowly or you hire too quickly and both have their, their pros and cons. Hiring too slowly I think happens a lot for very like product focused founders because they want to be involved in the details, they want to be hands on everything y Combinator gives a lot of great advice around do things that don't scale. But if you do things that don't scale for too long, you don't scale. And what happens is someone else comes in and actually builds the and builds a sales team that goes out and gets all of your customers with a slightly inferior product to yours, but it's good enough. And felt that was something that I saw more through the initialized investing because that's when this plays out. The other like hiring too quickly. That tends to happen in particular when you raise a Series A or a substantial round of funding and you've got a board member. One trend is that new VCs in particular can push you to grow the org very quickly. And a consequence of that can be, if you take it to the extreme, is you start hiring so quickly that you don't put rigor and thought into the hiring process itself. And you've got a whole bunch of people interviewing new candidates, but no one knows what they're looking for. And so the bar just goes down. And now you've got lower quality people coming in making bad decisions. You also don't tend to have enough time to like onboard and set people up for success. And so that means even if you hire good people, they may still make bad decisions because they don't. They're expected to do. And eventually. And if you start making bad decisions as an org, they the company's trajectory will start tapering off. That creates conflict and that will mean your good people will leave too. I think it's really hard to find that balance between don't hire too quickly, so you collapse on yourself, but you also have to hire quickly enough that someone else doesn't come in and out execute you.

And so what stage do you think someone should be bringing in? Like ahead of people, ahead of recruiting head of people.

It's slightly different. But like, I think there's definitely a trend now for startups to start bringing in ahead of people. People are ahead of HR earlier than ever. And actually, yeah, I should add that to list mistakes. There used to be general wisdom around don't think about bringing an HR person until you're like 150 people plus. But I think one thing that's actually great is there's a lot more focus now than ever on culture, diversity, inclusion. And I know of companies that are willing to sacrifice the growth rate of the company if it means that they have a more thoughtful, intentional culture and they have a more diverse team. And bringing in a good head of HR head of people can make your team members feel value heard and just hold you to account on hitting your diversity inclusion goals. So my recommendation now would be for most startups, as soon as you're at 40, people start that search and you really want someone in place by the time you're 50 or so.

So you've named a lot of pretty prominent companies and you've worked with a lot of them. How have the CEOs and founders changed as they go from being small and struggling at YC to being a unicorn?

I went for a walk recently with someone on our product team who was asking me this question about do you have to be superhumanly determined to start a company? Because if you read the press it sounds like unless you were like programming your first computer at age 8 and winning chess competitions at 12 and just generally taking over the world by 16, that you've got no chance of making it. And the one thing that YC really showed me is a couple of things. One, people change immensely. The process of building a company and building a startup puts a tremendous amount of just stress and pressure on you in various different ways. And there are many, many people who go into it seeming at least on surface level, because all you have to go on is judging people on surface level, maybe timid or introverted or conflict averse or whatever it is. And then four or five years later they're like charismatic, they're speaking at conferences, they just have an authority about them. And that absolutely happens. So if you don't feel like you have the set of skills that you're seeing for everyone who's for every successful founder on the just know that people change a lot. And then the second thing from YC is it's really hard to know who's going to change. And often we would interview companies or founders who seem to have all this intangible stuff that it takes to build a company. The first kind of sign of difficulty, the first time they churned a customer, they're just like shutting it down and going back to work at Google or Facebook, which is totally fine. But it's just like the point more is it's really hard to know before you get into it, do I have the determination or kind of whatever it takes to keep going. The other truth of it is that how much you need personally to make your company work is actually just a small fraction of what determines the outcome. Like a large chunk of what determines the outcome is just did you pick an idea that there's a good market for? Is that market growing? Are There existing solutions. Does Google release an actually really great product in your space or not all of these things influence your own outcome or your own trajectory. And so you need enough determination to work on the idea to get it to the stage where it starts taking off. But how much that might be is a little unknowable in advance.

So did you have any tips or tricks for trying to figure that out when you're spending very short time interviewing someone?

I think the thing that we mostly look for, honestly for like, for YC stage of stuff, was just like momentum and progress and the history of that. So in particular, if you had a history of just getting projects off the ground, even if it were just like side projects, hobby projects, but you could take something from an idea to reality and show a pattern of doing that. That was the thing that we looked for a lot, and that was during YC itself was like the thing that determined how successful the company seemed to do during the program. And just that this actually just relates into general advice for fundraising and building a company. Like, investors really judge you a lot on how much difference there is between the last time they spoke to you. So if you, if you meet an investor today and they ask you, how many customers do you have? You say, I've got five early beta customers, we're working super hard, and you meet them again in three months and they say, how are you doing? They might not remember you said exactly five, but they'll put you in the bucket of, oh, like, they've got some early beta customers. And if you go back and you say, I've got seven customers, you get put in that same bucket. And then the Vesta's mindset is, okay, it's been X months, there's been no progress. Why would I give this person progress? Why would I give this person money if they don't seem to be making any progress? As a founder, you're frustrated because you're thinking, I need the money to make the progress. But investors aren't actually, for the most part, looking to put money into things that need their help to succeed. They want to invest in things that feel like they're already going to succeed regardless of their involvement. And so the more progress you can make in between investor meetings, every interaction with them, the higher likelihood have of closing funding. And that was just something we looked at a lot at yc.

Any parting words of advice or pratfalls?

The word of this talk was apparently unicorn. I'd say that I would really encourage most people working in a company to try and Just ignore that word. One, is, it's a lot of focus on just like valuation of your company, which isn't necessarily the thing that you should really be focusing on. And two, it can just set you up to feel like you're failing because you're not a unicorn yet. And in particular, you can feel like, I've been working on this for three years, I'm not a unicorn. And you read the press article again about a company that's been around for three years and they're worth like a billion dollars or something. It's worth knowing that sometimes these things take a while and there's a lot of patience. One of the most successful companies I've been involved with as an investor is Coinbase. And Coinbase is just an example, actually doesn't seem like it, but a slow and steady startup. For the first three to four years of Coinbase, we would get regular quarterly investor updates from Brian, the CEO, and they were always just like solid updates. So we grew by a little bit this month. And here's some more product features we build. And here's some cool stuff. And four years into it, it didn't feel like that was a unicorn or a breakout company at all. Obviously a lot of stuff outside of their control, like crypto became a thing, so you could say, oh, like they just got really lucky from that. But there was also like four years worth of work that went in to getting ready for getting that kind of break. And so I think it's really important to remember that sometimes these things are outside your control and they take a while to take off. So don't be disheartened if you don't feel like you're there yet.

Thanks so much.

Cool. Thanks.

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