Key Moments
Why Investors Can’t Fix Your Company – Dalton Caldwell and Michael Seibel
Y CombinatorKey Moments
Founders are responsible for company success; investor advice varies by background but can be misleading.
Key Insights
Founders are ultimately responsible for their company's success, not investors.
Investors with pure finance backgrounds may overemphasize raising and spending money.
Advice from executives of large companies might not apply to early-stage startups.
Non-tech entrepreneurs may apply outdated or irrelevant terms to tech startups.
Junior investors or influencers may offer advice based on their own KPIs or visibility.
Founders should critically evaluate investor advice based on its relevance to their stage and business.
FOUNDERS HOLD ULTIMATE RESPONSIBILITY
The core message from Y Combinator's Michael Seibel and Dalton Caldwell is that investors, including YC partners, cannot fix a company. Founders often have a misconception that raising money from top investors will magically provide them with secrets to success. However, the reality is that investors offer advice based on their own experiences and backgrounds, which may not always be applicable to a specific company's challenges, especially in the early stages.
THE FINANCE-ORIENTED INVESTOR PITFALL
Investors with a pure finance background, lacking operational experience, tend to approach problems through a financial lens. Their solutions often revolve around raising more money, spending more money, or 'throwing money at the problem.' This can lead to negative scaling, poor unit economics, and excessive spending on advertising with no clear return on investment. Founders might prioritize financial engineering over product development, a common error that even successful entrepreneurs sometimes fall into.
LARGE COMPANY EXECUTIVES' SCALING BIAS
Executives from large, established companies often excel at scaling successful products and refining processes. However, their experience as employees number 100 or 200 is vastly different from being one of the first five employees at a startup. Their advice may focus on scaling hiring and processes. A critical mistake here is advising founders to hire executives before achieving product-market fit. Failure for early-stage companies often means zero customers, not just an inability to get Series A funding, a reality sometimes overlooked by those accustomed to large-scale operations.
NON-TECH SUCCESS AND APPLICABLE TERMS
Entrepreneurs who achieved success in non-tech industries, like real estate or franchises, may offer advice based on their experiences. This can lead to them asking for unreasonable terms or exhibiting undue stress about losing their money, treating a tech startup like a franchise investment. While well-intentioned, these investors may not grasp the unique dynamics of software companies, applying principles from different industries that are not directly relevant to a tech startup's growth and challenges.
JUNIOR INVESTORS AND INFLUENCERS' MOTIVATIONS
Junior investors, eager to make a name for themselves, and influencers, focusing on distribution and visibility, often provide advice that aligns with their own key performance indicators (KPIs). Junior investors may push for more fundraising to mark up their investments, while influencers might suggest promotional activities that yield less valuable results than anticipated. Founders should recognize that this advice isn't always malicious but driven by the investor's career or platform goals, rather than solely the startup's best interests.
OTHER FOUNDERS AND INFLUENCER ADVICE
Advice from other founders can be deeply personal, reflecting their own struggles with fundraising or distribution. This can lead to overly autobiographical recommendations. Similarly, influencers and famous individuals may offer their services in exchange for equity, with the expectation of promoting the startup. While tempting, the actual impact of celebrity endorsements on distribution problems is often overstated, and founders may find themselves feeling short-changed by these arrangements.
THE CHALLENGE OF EARLY-STAGE VENTURES
Many companies fail because they achieve zero traction or customer adoption. It's counterintuitive that advice focused on scaling and process rather than product development could be detrimental in the zero-to-one stage. The analogy that scaling an acquired Instagram post-acquisition is different from getting the first 100 users as a founder highlights this distinction. There are more people experienced in scaling than in the initial founding and growth phase.
YOUNG INVESTORS MIMICKING TRENDS
Extremely young investors, often scouts or new to VC, may repeat popular trends and advice found in essays or on social media without deep understanding. Similar to how students in school learn by repeating information, these investors may present advice without fully grasping its applicability. Their approach is often to mirror what they perceive successful investors do, which can lead to generic or misapplied guidance for founders.
YC'S OWN POTENTIAL FOR MISGUIDED ADVICE
Even YC partners acknowledge they can sometimes give bad advice. While general principles like the Lean Startup methodology – talking to users, releasing MVPs, and avoiding excessive spending – are often beneficial, they don't apply in all cases. There are instances where companies successfully build in a vacuum for years before finding product-market fit. YC partners aim to be cautious with strong recommendations, learning from their history of observing what strategies have or haven't worked for numerous startups.
THE VALUE OF HONEST CRITICISM AND OWNERSHIP
The best investor advice often comes not from solutions but from highlighting problems. Founders who succeeded believed in themselves and understood that investors couldn't fix their issues. This self-belief and personal accountability are crucial. Great advice has pointed out flaws and failures, forcing founders to confront difficult truths. Ironically, investors who are not financially incentivized, like Gideon in the example, might offer the most honest and impactful feedback.
FOUNDERS AS STRATEGIC USERS OF INVESTOR HELP
Ultimately, it is the founder's responsibility to determine how best to leverage the help offered by investors. While investors generally have the founder's best interests at heart, they cannot dictate the exact steps to achieve success. YC emphasizes that they are experts in failure and can guide founders on what not to do, but they cannot provide a direct roadmap to becoming a billion-dollar company. Founders deserve the vast majority of credit if they succeed, as they are the ones who navigated and executed the journey.
Mentioned in This Episode
●Companies
●Organizations
●People Referenced
Common Questions
Investors often can't fix a struggling company because they may lack firsthand founder experience and haven't personally navigated the failures common in startups. Their advice might reflect their own background, like a finance expert focusing only on money, or a big company exec on scaling processes, which may not suit a pre-product-market-fit startup.
Topics
Mentioned in this video
Co-founder of Y Combinator, discusses various investor archetypes and their common advice patterns.
Partner at Y Combinator, discusses investor types and the importance of founder accountability.
Accelerator program discussed as a place where founders often seek advice, and its partners can sometimes give unhelpful advice.
Mentioned in the context of founders treating product as an afterthought and focusing on financial engineering.
Mentioned indirectly as someone who discussed scaling tactics related to Google's early growth.
Used as an example of a large tech company whose early employees had different roles and challenges compared to later-stage scaling employees.
Used as an example of a large tech company whose early employees had different roles and challenges compared to later-stage scaling employees.
Used as an example of a company where the first employees had a different growth experience than post-acquisition employees.
Used as an example to contrast the zero-to-one founding phase with post-acquisition scaling.
Used as an example of a company's early startup phase versus its post-acquisition scaling.
Mentioned as an example of a franchise business that non-tech investors might compare startups to, often leading to inappropriate terms.
Used as an analogy for how non-tech investors might treat startup founders like managers of a franchise, rather than business partners.
The company co-founded by Dalton Caldwell that received harsh but valuable advice from an investor named Gideon.
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