The Past, Present, and Future of YC—Garry Tan on the Essence of Supporting Startups
Garry Tan, the current CEO of Y Combinator (YC), spoke candidly about his career trajectory, the evolution of YC, and the policy risks in San Francisco. We outline the path of a second-generation immigrant from Winnipeg to the heart of Silicon Valley, as well as the current state of the startup ecosystem.
1. What is YC—Basic Mechanisms and Track Record
YC is an accelerator that begins with an online application. Anyone can apply without connections, and the acceptance rate is about 1%. If accepted, you provide about 7% equity in exchange for approximately $500,000 in funding. However, Tan emphasizes that more important than the money is the hands-on support from 15 partners. "We make an investment decision of $500,000 in a 10-minute meeting. It looks like Shark Tank, but they have zero billion-dollar companies. We have already produced over 100."
YC was started experimentally 20 years ago by Paul Graham and Jessica Livingston, and the first batch included the founders of Reddit and Sam Altman. Currently, they accept 700 to 800 companies per year, and it is said that about 20% of companies with a market capitalization of $5 billion or more founded since 2012 are YC alumni.
2. The Evolution of YC—Three Phases
2-1. The Early Days (2005–2010)
The first batch was held in Boston (Cambridge), and the amount provided to founders was only about $13,000. Tan himself participated in the 2008 batch, which was the last batch in Cambridge. The turning point was the rise of Dropbox and Airbnb. "If you succeed once, it's luck; if you succeed twice, it's skill. Airbnb was the proof of that," Tan reflects. Since then, investor attention toward YC has skyrocketed.
2-2. The Expansion Period (2011–2022)
Tan joined as a partner around 2011. With his early fund 'Initialized,' he achieved a DPI of over 55x, primarily through investments in Coinbase and Instacart, and realized the power of the power law. "I invested in 100 companies, and 98 of them totaled 1x. The remaining two were everything," he says, candidly acknowledging the non-linear nature of VC investing.
2-3. The Current Phase (2022–Present)
After Sam Altman left to focus on OpenAI, Tan returned as CEO at the strong request of Brian Chesky (Airbnb CEO) and others. Since his return, he has championed 'Founder Mode,' returned the remote program to an in-person format at the office, and moved the base to the Dogpatch district of San Francisco. The batch duration has also been extended to 13 weeks.
3. Applying to YC—What Determines Acceptance?
Tan repeatedly emphasizes the importance of 'making'. The core phrase at YC is 'Make something people want,' which is given as a T-shirt upon entry.
Regarding the points for acceptance, while he says it comes down to 'whether it resonates with the partners, given that we judge in a 10-minute interview,' he notes that having an actually working product and real customers is the greatest strength. He also mentioned that about one-third to half of founders who were once rejected are accepted later, stating, 'The resilience to recover from rejection itself shows the qualities of a founder.'
Out of about 80,000 applications per year, 700 to 800 are accepted. While he spoke candidly about the heartache of rejecting applicants, he continued, 'If you give up after one rejection, you might not be cut out to be a founder. There are 1,000 rejections on the path of founding.'
4. The Founder's Internal Challenges
Tan has confessed that he has repeatedly 'rage quit' throughout his career. He says the same pattern occurred during his time at Palantir and in his co-founder relationship at his own startup, 'Posterous'.
'I tried to protect relationships by swallowing my opinions. But that was a mistake. Great co-founders always argue. However, those arguments should never be more important than the relationship itself.'
He says that recognizing this pattern through coaching and therapy was the catalyst for his self-transformation. Using the metaphor of a 'horse and rider,' he explained the structure where strong willpower (the rider) continues to suppress emotions (the horse), eventually leading to an explosion. Tan positions the fact that these internal challenges are directly reflected in a startup's organizational culture as one of the most fundamental issues for founders.
5. San Francisco and California Policy Risks
Mr. Tan expressed strong concern regarding policy trends in California.The 'wealth tax' promoted by the SEIU (Service Employees International Union)—which Mr. Tan calls an 'asset confiscation tax'—would impose a 5% one-time levy on individuals with a net worth of $1 billion or more, and it may be put to a ballot initiative this fall.
The problem lies in its design. Mr. Tan points out that founders who hold substantial voting rights, such as Larry Page and Sergey Brin, could have their assets valued based on those voting percentages, meaning 'the equivalent of half of their actual assets could become subject to taxation.'
'Approximately $1 trillion in personal assets has already left California. The top 10% of earners bear 76% of the tax burden, and if they leave, the burden on the middle class will increase,' he said, also mentioning San Francisco's gross receipts tax as a reason why companies like Stripe and Square moved out of the city. 'There is a reality of 30-40% vacancy rates. We must be able to answer the question of why a startup that has achieved product-market fit would stay in San Francisco.'
Even so, Mr. Tan stated, 'I am all-in on San Francisco. However, from an institutional perspective, we must also consider other options,' revealing that he is also looking into expanding their base to Cambridge (near MIT and Harvard).
6. YC's Next Move
The goal Mr. Tan has set is to increase the share of YC-backed companies from the current 20% to 30-50%. To achieve this, he plans to attempt a concept called 'rebatching,' and says they will begin experimenting with providing batch-style support again to companies that have already raised Series A funding.
'In running YC, we think using the same methodology as startups. We operate not in manager mode, but in founder mode,' Mr. Tan concluded.
