Key Moments
Paul Buchheit - Startup Investor School Day 2
Y CombinatorKey Moments
Investor shares lessons learned from startup investing, emphasizing founder quality, adaptability, and learning from both wins and losses.
Key Insights
Great founders are the most critical factor in startup success; other elements derive from them.
Good ideas often look bad initially; big companies overlook opportunities that aren't obviously lucrative.
Adaptability and rapid iteration are key; founders must be willing to pivot and learn quickly.
Invest in optimism and the future founders want to build, not the future they fear.
Don't be afraid to invest in deep tech or non-software companies if the founder is exceptional.
Learn from past mistakes but avoid over-learning; the startup landscape is constantly evolving.
THE PRIMACY OF FOUNDERS
Paul Buchheit, inventor of Gmail and founder of FriendFeed, emphasizes that the quality of the founders is the most critical element in startup investing. He posits that great founders possess superior insights and capabilities, enabling them to navigate market complexities and execute effectively. Buchheit's investment philosophy centers on identifying individuals who are demonstrably better than himself, allowing him to 'outsource' the strategic thinking to them. This focus on founder caliber is paramount, even more so than the initial idea or market size, as strong founders can adapt and overcome these challenges.
IDENTIFYING PROMISING IDEAS
Buchheit highlights that truly groundbreaking startup ideas often appear unappealing or even nonsensical to established companies and the broader market. This is because if an opportunity were obviously good, large corporations would pursue it themselves. Therefore, promising ventures frequently start as obscure research projects, like Google's 'Backrub,' or seemingly absurd concepts, such as live-streaming one's life. These ideas are often dismissed initially because they don't fit conventional wisdom or current market trends, but they hold the potential for significant disruption.
ATTRIBUTES OF EXCEPTIONAL FOUNDERS
Exceptional founders exhibit several key traits: clear, concise communication demonstrating deep understanding; the ability to move and iterate rapidly; resourcefulness in accomplishing much with limited means; implausible ambition in tackling seemingly impossible ideas; and a genuine drive to 'make something people want.' They attract top talent, are determined, and are not afraid to pursue 'frivolous' or unconventional ideas that others might dismiss. Buchheit stresses that these founders are often willing to take significant risks and push boundaries.
NAVIGATING INVESTOR MISTAKES
Buchheit shares cautionary tales of investment pitfalls. These include exhibiting poor investor behavior, such as wasting founders' time; moving too slowly, leading to adverse selection; investing based on perceived 'bargains' or low valuations, which rarely yield returns; investing out of pity; and being swayed by impressive but superficial numbers without understanding the underlying value creation. He learned that a focus on price is misguided and that true value lies in the founder's vision and execution capabilities.
LEARNING FROM SUCCESSES AND FAILURES
Reflecting on his own investment journey, Buchheit details favorable outcomes like investments in wufu and justin.tv (which pivoted to Twitch), and unfavorable ones, such as missing out on Dropbox and Airbnb due to delays or misjudgments. These experiences underscore the importance of adaptability, the need to act decisively, and the understanding that luck plays a significant role. He advocates for learning from past mistakes but cautions against over-learning, as the startup ecosystem is constantly evolving.
DEEP TECH AND UNPREDICTABILITY
Buchheit encourages investing in areas beyond software, including deep technology like supersonic jets, provided there is a strong founder. He suggests that when investing in complex fields like biotech or aerospace, the primary risk is often technological feasibility rather than market demand, as the need for solutions is usually apparent. His personal investment thesis embraces unpredictability; he finds excitement in ventures where the outcome is uncertain, as this offers the greatest potential for learning and discovery.
THE DANGER OF TOO MUCH MONEY
Counterintuitively, Buchheit points out that excessive funding can be a significant liability for startups. Abundant capital can allow founders to insulate themselves from reality, delay crucial customer interactions, and pursue less efficient strategies, as exemplified by the 'Juicero' case. This financial cushion can prevent the rigorous problem-solving and customer-centricity needed for true innovation. He contrasts this with companies like Meraki, which achieved remarkable feats with minimal initial funding, demonstrating the power of resourcefulness.
ASSESSING DETERMINATION AND COMMITMENT
Determined founders are crucial because the startup journey is inherently difficult. Buchheit suggests assessing determination by looking for a lack of 'Plan B' options, such as founders who have fully committed by quitting stable jobs or forgoing lucrative career paths like medical school. He is wary of individuals with perfect resumes who have never experienced failure, as they may be more inclined to take an early, safe exit when faced with adversity. Founders who have faced past setbacks and persevered are often better equipped for the challenges ahead.
CHALLENGING CONVENTIONAL WISDOM
Buchheit emphasizes the need to challenge conventional wisdom and one's own assumptions. He notes that many investors dismiss deep tech or hardware startups based on a lack of personal expertise, a mistake he advises against. Similarly, he cautions against the belief that good deals are found at low prices, stating that his focus has shifted toward investing more when a valuation seems high. He also advises investors to 'unlearn' past assumptions, as market dynamics and technological possibilities are constantly changing, illustrated by his evolving views on email startups.
Mentioned in This Episode
●Supplements
●Software & Apps
●Companies
●Organizations
●Books
●People Referenced
Common Questions
Paul Buchheit emphasizes investing in exceptional founders, looking for traits like clear communication, speed of execution, ability to accomplish much with little, implausible ambition, and strong determination. He believes founders should be 'betters' – people smarter and more insightful than himself.
Topics
Mentioned in this video
An email service created by Paul Buchheit, mentioned as a point of friendly rivalry with Yahoo Mail.
A spin-out from Justin.tv founded by Michael Seibel, sold to Autodesk.
The product Brett Taylor improved drastically by rewriting its JavaScript front-end over a weekend.
An operating system that Paul Buchheit was enthusiastic about, which was a key factor in him joining Google.
Mentioned as a programming language used by Wufu, noted by an internet commentator.
The company that acquired Wufu, leading to a significant return on Paul Buchheit's initial investment.
Mentioned as a technology used by Wufu, noted by an internet commentator.
Mentioned as a competitive threat that Paul Buchheit questioned Dropbox about.
An email service invented by the host's team, mentioned in contrast to Paul Buchheit's Gmail.
A platform where Aaron Harris's blog post on 'ideas that look like toys' was published.
Mentioned as a company that initially rejected the 'Backrub' project (which became Google), and later as a place where Paul Buchheit worked and a potential competitor to startups.
A Y Combinator startup that was Paul Buchheit's first angel investment, which returned 44x after being acquired by SurveyMonkey.
A search engine that Paul Buchheit expected to outperform Google in its early days.
An early investment by Paul Buchheit (2006) that built mesh Wi-Fi boxes with virtually no funding, later acquired by Cisco for $1.2 billion.
A YC company that pioneered live streaming by having its founder wear a camera 24/7. It eventually pivoted to Twitch.
Acquired Twitch for $1 billion and is where Emmett, a founder of Justin.tv/Twitch, now works as CEO of Twitch.
An example of a company that spent $100 million on a 'juice bag squeezer' without talking to customers, contrasted with Meraki.
A social networking service created by Paul Buchheit, which was later sold to Facebook.
A startup accelerator where Paul Buchheit is a partner. It's described as a replacement for summer jobs and a talent magnet for founders.
Acquired Socialcam, a spin-out from Justin.tv, for $60 million.
A self-driving car startup founded by Kyle Vogt, acquired by GM for $1 billion.
Acquired Meraki for $1.2 billion.
A successful pivot from Justin.tv, focusing on video game streaming, eventually sold to Amazon.
A company Paul Buchheit missed investing in due to cancelling a meeting, serving as an example of poor investor behavior.
One of the internet companies that Google founders approached to sell their search project to.
An internet company that Google founders approached to sell their search project.
A company that raised a large round of funding, which Paul Buchheit invested in partly because he wanted food delivery services for himself.
A cryptocurrency company that represented a potentially good investment if one had paid attention to trends among young enthusiasts.
A YC startup with brilliant founders and an impressive team, cited as an example of a 'talent magnet'.
An internet company that Google founders approached to sell their search project.
Acquired FriendFeed from Paul Buchheit and is mentioned as a formidable competitor; also relevant to Airbnb's early stages.
A company founded by Justin Kan that serves as a default legal provider for YC companies.
Acquired Cruise for $1 billion, as mentioned by Paul Buchheit.
A company Paul Buchheit missed investing in early due to moving too slowly, highlighting the importance of decisive action.
Co-founder of Google, mentioned alongside Larry Page regarding Google's Stanford research project origins.
Co-founder of FriendFeed with Paul Buchheit, known for his exceptional ability to fix complex problems quickly, like rewriting the JavaScript front-end of Google Maps.
One of the four founders of Justin.tv, founder of Cruise, and a notable example of a founder willing to tackle immense challenges.
Authored a blog post on the YC blog about 'ideas that look like toys being great'.
Founder of Y Combinator, whose essays influenced Paul Buchheit to get involved with the organization. He is described as having insightful ideas.
Founder of Wufu, who later became a partner at Y Combinator.
CEO of Twitch at Amazon, and one of the four founders of Justin.tv.
Inventor of Gmail and creator of FriendFeed, a partner at Y Combinator, and a startup investor. He shares his investment philosophy and experiences.
One of the four founders of Justin.tv, who started multiple other startups including Atrium.
One of the four founders of Justin.tv, founder of Socialcam, and currently the CEO of Y Combinator.
Co-founder of Google, mentioned in relation to Google's origin as a Stanford research project.
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