Jasper Kuria of Capital & Growth interviewed YC Partner Paul Buchheit about his experience as employee #23 at Google and his key investing insights.
Jasper : You came up with Google’s “Don’t be evil” motto in 2000. Sixteen years later, do you feel they have stayed true?
Paul : They’ve done about as well as an organization of their size can do. It’s tough to be that big and not make a few mistakes. The issues become very complex.
Jasper : What are some mistakes they’ve made?
Paul : Some of the things are debatable, but an example would be their entry into China. They cooperated with the Chinese government which was controversial. People said, “Oh, that’s evil.” But there’s a difficult tradeoff because they eventually got out of that market and now Google simply isn’t available in China. Which is the greater evil? It’s hard to say, but I think they came over to the edge.
Jasper : You also created Gmail while at Google. What is the Gmail creation story?
Paul : Larry Page assigned the project to me. He said, “Build some kind of email something” and chose me because I had an interest in email. I tried to create a web-based email service in 1996, shortly before Hotmail, but didn’t complete it.
The idea was that email in the early 2000s hadn’t advanced in a long time. There were these clunky desktop programs and webmail was terrible–Hotmail gave you 2MB of storage, Yahoo gave you 4MB and the interfaces were slow and inefficient. I wanted to make a great product that I would want to use, while also incorporating modern features like search and conversations.
Jasper : Google made what was then a controversial decision by targeting people with ads in email. Was that part of the original vision?
Paul : That came later. One of the big questions inside the company was, how does this thing pay for itself? One camp thought we should charge for it but I didn’t like the idea because you are not going to serve a billion people that way—most people have limited budgets. I was interested in making it freely available and came up with the ads system.
Jasper : Let’s talk about Y Combinator. You now have several partners, a couple of divisions, a new CEO and plans for global domination–all the partners recently visited countries in Europe, Latin America and Africa. How does the partnership work?
Paul : It is a fairly equal partnership where each person has as much autonomy as possible since most of us are former founders with self-directed personalities and strong opinions. One of our main challenges is, when you have fifteen people like that, how do you keep them all working together happily?
A key principle we have adopted is, for most decisions, there is no need for unanimous support. If three partners agree on something they can do it.
All the partners also participate equally in the investment profits.
Jasper : Sam Altman has said that the only criterion Y Combinator uses to evaluate applying companies is, “Can this be a $10 billion plus company?” like Airbnb and Dropbox. While this model works great for a fund, there is an Early Exits movement that suggests individual entrepreneurs have a much higher likelihood of success when they raise less capital and target exits in the $20 million range. What do you think this view?
Paul : The math does not support this strategy but if other investors want to try it that’s fine. Also, it is not just returns we are looking for but really impactful companies. When you sell too early you don’t realize the full potential.
For example, Facebook had an offer from Yahoo for a billion dollars, which everyone told Zuck to take. Fortunately, he said no. Had he said yes, it would have been another failed Yahoo acquisition and Facebook would not have nearly as much impact. The reason we have these big and influential companies is the founders believed in a long- term vision.
Jasper : You are an angel investor in your individual capacity and have made over 200 investments. What are some key lessons you’ve learned? Feel free to talk about mistakes or even your anti-portfolio i.e. companies you passed on that became successful.
Paul : I think the biggest counter-intuitive lesson is that investing purely on the quality of the idea is inversely correlated with success. The really great companies are largely indistinguishable from the terrible ones when judged simply on the idea. To be good at it you have to meet the founders and assess how good of a founder they are.
My favorite anti-portfolio example is Airbnb. Michael Seibel (Y Combinator Core CEO) emailed me their deck before they joined Y Combinator and I couldn’t help but think “Wow, air mattress rental? That’s a terrible idea!”
Jasper : What do you think is the most important factor for startup success? The three most common answers I hear are product-market fit, timing and team. Based on your comment, I would assume you are in the team camp?
Paul : That’s a false trichotomy. Those factors are all closely interrelated. Certainly just having a good team with a made- up idea is not going to work. And obviously timing is a big factor. To be truly successful you must have all the ingredients.
Take Google, for example. Larry and Sergey are super smart and recruited a great team. They also tackled an important problem and had impeccable timing–they raised their Series A in 1999 when it was still possible and didn’t spend it all. In the late 90s, most founders who raised a big round squandered it all on super bowl commercials!
When the crash came it wiped out all the other startups which was great for Google because we could hire from everyone else without competition. Clearly you need to have all the ingredients.
Jasper : What are some things that turn you off when an entrepreneur pitches you?
Paul : The biggest one is made-up ideas. The best startups come from personal experience. It was something you or someone you know needed. Occasionally, I’ll ask a company, “Why do you think is a good idea?” And they’ll say, “Oh, I read an article in TechCrunch.” You have to understand it at a deep level. It can’t just be something you read.
I also like people who get things done. If you’ve been working on your startup for two years and have nothing to show, that’s a pretty bad sign. I’ve discovered that most people are really good at finding obstacles. I don’t fund these people.
Jasper : Do you have any parting thoughts or advice for entrepreneurs?
Paul : Just get started and deliver now. You should have a long term vision but must also act right now, have near term deliverables and be in contact with the customer. Don’t disappear for years working on this thing, completely disconnected from the world. An extreme example of this is, I wrote the the first version of Gmail in a day!