Digging into the true origins of startups with Y Combinator’s Jared Friedman

Now a Partner at Y Combinator, Jared left pursuing a Computer Science degree at Harvard in 2007 to co-found Scribd, a leading digital library subscription service for e-books, audiobooks, and comic books. Jared has been an active FundersClub member since 2012.

When studying at Harvard, what led you to drop out and create Scribd?

I was at Harvard and there were a couple of things that inspired me to create Scribd. The first thing is that I was working across the hall from these guys who were building this thing that they called the Social Network for Harvard students. Then they went out to Palo Alto and the Social Network thing seemed to be going pretty well, and that was very inspiring to me because I was like, "Oh, well, if these guys can do it, then it must be possible." That was certainly one thing. The second thing is that there is this guy named Paul who came and he spoke to the Harvard students who were there at the time and he said, "Instead of going and getting a job this summer, like a summer internship, why don't you try to start a startup instead?" It honestly was not really something that I ever really thought about, but the way he put it, it was ... He was very persuasive that that would be a rational thing for people to try to do. That's how we ended up doing it.

The idea for Scribd was actually not the first idea that my Co-founder and I had. The first idea that was actually roughly the idea for Uber. It was not a very good idea at the time, because this was back in 2006 before the iPhone had been invented. If you can believe there's a time pre-iPhone, it actually existed. I don't think Uber could've ever worked before smartphones. We applied for Y Combinator with the idea and Paul Graham rightfully told us that this idea would never work. We went back with our tail between our legs and came up with a different idea which he accepted us for. Then, we proceeded to spend the next, like, six months, really, in idea finding mode where we sort of bounced from one idea to another trying to find something that people wanted. It took us, really, six months to actually come up with the idea for Scribd.

Oh wow. What led you to move forward with the idea of Scribd and not one of the others you were brainstorming?

There comes a time when, as an entrepreneur, when you have an idea and it just kind of gets stuck in your head. You fall asleep and you're thinking about it and you wake up and you're still thinking about it, and it just takes over your thoughts. That's very much what happened to us with Scribd, where even though a lot of people told us it was a bad idea and there wasn't a whole lot of real proof that this was something that people wanted. It just seemed to make so much sense and it seemed to be something that was so obviously missing from the world, that we just kept thinking about it until we figured that we just had to do it in order to move on.

Between your time at Scribd and Y Combinator, you decided to take the time off to catch up with your network. Of all the meetings and coffee chats that you went on, what was the most interesting thing that you learned in that experience?

That's a good question, let me think back to some of them. Well, first and foremost, I always love to meet up with founders, people who are really passionate about what they're doing, who are trying to bring something new into the world. I remember meeting up with some founders, and the place I would start was always to hear the story of how the company came to be.

As all companies go along, they tend to acquire what you might call an "origin myth," which is their answer to the question, "How did you come up with the idea?" when a reporter asks or when a customer asks. The reality is that the founding stories of companies are generally pretty messy, there's lots of people involved, the idea changes a bunch of times, and it goes through all these twists and turns. When a reporter asks that question, they don't generally want to hear the whole saga, they want just a soundbite. Founders end up consolidating the story into kind of a soundbite, which is totally fine and reasonable, but I always like to hear the full story.

Often, in the sagas, there's just so much interesting stuff which nobody would ever have imagined. Particularly with the most successful companies, they tend to present this aura of inevitability. When you really learn the story, you realize that, in fact, far from being inevitable, they were more like accidents of fate.

Now that you’re a partner, have you been able to take those learnings and execute upon them within YC?

Well, that's certainly the idea. At YC, we fund a couple hundred companies a year and once we've funded a batch of companies, we basically do everything in our power to help them succeed. We find that the more companies we fund, the better we get at it because we keep learning more things and then we invest those learnings into the next batch.

What does your day to day look like as a YC Partner? What are you managing?

The weird part about being a YC partner is that it's a very seasonal job. It's in some ways like being a university professor, because Y Combinator operates according to its own version of the academic calendar. Y Combinator does two batches of companies per year, similar to two semesters at a college. That means that twice a year, the entire Y Combinator partnership transforms themselves into college admissions officers and we spend a month just reading applications and interviewing companies.

I didn't quite realize when I signed up just what it meant to read ten thousand applications a year. It's also the most important thing that we do because one of Y Combinator's great innovations was that we were one of the first investors to truly equalize the playing field to all companies across the world. Traditionally, venture investors only really consider companies who come through a personal referral. They might have an email address on their site where you can send a business plan to, but in general they don't take those very seriously. There's usually some associate who reads the business plans that come in over the transom. Whereas at Y Combinator, we said explicitly, "We don't really care who you know or if you don't know anyone. We're just going to read every application that comes in and treat them all equally."

Once we have the new batch in, it’s roughly a three month program to help companies get to the next step. That means different things for different companies, because Y Combinator accepts companies at all stages now. In very early days, Y Combinator only really accepted companies that were just getting started, where by going to Y Combinator they basically started writing  their first version. Today, that's only one segment of the companies that we fund. For some companies who join Y Combinator, they're joining with not much more than an idea and we’re there for them while they launch their first version and getting that critical initial user feedback. For some companies, they've been around for two or three years and we're helping them figure out how to grow, how to take it in a new direction, how to generate revenue, or how to get a key deal or partnership that will enable them to get to the next level.

How did you find your way into investing from being an entrepreneur?

I think that, at least as far as early-stage investing goes, the core skill sets are not that different, which is why you'll notice that, particularly at the early stage, most of the great investors were founders before. At that early stage, there's not a lot to go on, other than evaluating a team and a product. It's at the later stage that you tend to get very specialized investors. For me, when I think about advising companies, it's very natural if you've already been a founder, because you just put yourself in their position. You're like, "Well if I was the one working on this company, what would I do?"

Because I did Y Combinator in the third batch, about ten years ago, I've been involved with the Y Combinator ecosystem for a long time. I think one of the great things about Y Combinator is that the community really has a mentality of helping others. It's very natural for the founders who are a few years out of Y Combinator to help the companies who are just going through it right now. Once Scribd reached a certain level of success, founders would come to me with requests for help, such as help with their Y Combinator application, or preparing for interviews, or getting users.

I think it’s more that the line between founding, investing, and advising companies is blurrier than people would imagine it to be. Most of the investors that I know got started not because they woke up one day and they said, "Now, I'm going to be an investor," but rather because they got pulled into it over a period of a few years.

What learnings do you take with you as a founder when making an investment?

Well, a very common question that investors get asked is, "What do you look for? How do you decide what companies to invest in?" There's a temptation to give sort of a soundbite answer, just naming one thing that you look for, like, "Oh, all I look for is the quality of the entrepreneur, I invest in the best people." Those answers tend to sound very crisp and come out well in an article, but in practice if you talk to investors and dig deeper you find out that there's hardly ever any one thing for investors. It's a complicated calculus based on a lot of different factors that vary from business to business. That's kind of an unsatisfying answer, which is why people don't like to give it, but if there were really only one thing that mattered then being an investor would be easy and you could teach it to anyone.

Are there any specific things that you look for, specific kind of companies that you tend to like investing in?

Y Combinator's model is a bit different from other investors in that we don't generally go out and try to find companies. We tell people that Y Combinator exists and we try to get the word out about how it works and why it might be useful for them. Then we just let people who are interested apply. The downside of that is that we have perhaps less control over who ends up doing the program than a traditional investor would. The upside of it is that lots of great ideas sort of fall into our laps that we would have never been smart enough to see. In fact, sometimes we don't even realize that the idea's good until much later.

There's a practical example of when Airbnb first applied to Y Combinator, we thought it was kind of a dumb idea. We decided to fund the company anyways because we really believed in the founders and in time, Airbnb evolved in a direction that kept making it more and more interesting.

The startup community around the world…

What is your favorite place to travel to?

Well, I had a great time in December. I traveled to the Middle East (Egypt, Abu Dhabi, and Dubai) and I went to a number of developing startup ecosystems. I sort of probed around, met with the local entrepreneurs, investors, and the accelerators getting to know what the startup world was like in another country. I found that is actually a fabulous way to travel, and I think it's the way that I'm going to travel from now on. Not only did I learn a lot about the startup ecosystems and learn a bunch of valuable lessons which I took back to Y Combinator, but also, it's much more fun for me to travel, wherever I'm going, as a local than as a tourist, and the great thing about the startup community is that it's very much one network across the globe. If you're travelling as part of this community, you can immediately feel at home anyplace you are.

About the FundersClub Spotlight Series
The FundersClub community is comprised of highly-accomplished technology and business leaders from across the spectrum of industries and geographies. We periodically highlight selected investor and entrepreneur members of our community to share their stories and learnings and foster broader discussion and engagement around startup investing. If you have a tip on who to profile next for the FundersClub Spotlight Series, please contact community@fundersclub.com.