Building Great Companies — Fireside Chat with Qasar Younis
Transcript of a conversation between Qasar Younis and Bilal Zuberi
Editors note: Welcome to issue #2 of Transcriptions. Today, we’d like to present a conversation between Qasar Younis of Applied Intuition, and Bilal Zuberi of Lux Capital. We discovered Qasar recently, and find his focus and clarity of thinking to be admirable. What follows is a lightly edited1 transcript of their talk, first held at the Paklaunch forum.
Contents
Preamble
Bilal: Assalam-u-alaikum, and welcome. PakLaunch is hosting this conversation with the man, the myth, and the legend Qasar Younis. I can give a long bio for Qasar, but as we go through the conversation, his bio will become apparent to you. Qasar is— somebody I'm very proud of—not only because I'm an investor in his company, but honestly, as a friend and somebody who admires Pakistanis who end up doing well and end up doing—not only well for themselves—but for the broader community around us. Qasar grew up in Pakistan, he will talk about this. He moved to Michigan, and studied and worked there and whatnot. Became a founder and entrepreneur two times. Second time was with YCombinator, to which he sold the company, and, then later joined as a partner and then became the chief operating officer of YCombinator. And if any of you don't know it, YC is probably the most preeminent, accelerator/ incubator for companies, and investor in companies, and some of the biggest names in Silicon Valley today have been funded by YC during the times that Qasar was there. And then, now coming up on six, seven years ago, Qasar started a company called Applied Intuition. It is a defining company, in my opinion, for automotive sector software. And we'll talk about all of that. We'll talk about all of that today. And I'm super delighted to have him here.
Thank you, Qasar, so much for giving up time. I know weekends are extremely precious because you're probably still recruiting on weekends, but thank you for taking the time.
Qasar: Yeah, thanks for having me. That's, a very, it's a very effusive introduction…
Bilal: …I don't always do that when I see him in board meetings…
Qasar: Yeah, yeah. I was about to say, for those who don't know, Bilal's one of my board members, and we've known each other for many many years, long even before Applied. So, yeah, we can talk about whatever. I think probably company operations are the most interesting things at this kind of stage, especially for lots of founders, but, yeah, we can talk about anything.
Bilal: All right, so we'll get to company operations, and we'll spend a lot of time there, because obviously, there's a lot of founders, and entrepreneurs in the audience, or, if they're not founders/entrepreneurs already, they're aspiring ones. But let's start from where the story begins.
Early years in the automotive industry
Knowing the market dynamics, building a market sense.
So, literally on Wikipedia, it says you grew up in a farm in Pakistan.
Qasar: Yeah, yeah. It's funny, you know, when you're at YC, you interface with lots and lots of founders. And so that Wikipedia article is written by a founder at some point. I literally don't, you know, I don't know who or when, but, it must have come from a talk like this, because it's a bit of a transcription, but yeah, we, were a small farming village, and, came to the U.S. in the late eighties. Moved to the Detroit area, basically right outside of Detroit, and then the suburbs. And I very much grew up in the shadow of the automotive industry. And because of that, I went to the General Motors Institute for Undergrad, which is now known as Kettering University. I think we were the first year that the school changed its name. So I applied as GMI and I graduated as Kettering. And, yeah, and then that kind of got my career into a specific path. And then I think probably the right decision I made was right before I went to business school at HBS, I got some feedback from a manager at GM who said the future is “you should get a non technical degree”. And he was an HBS alum, so that was positive. He also wrote my recommendation, but he also said, “I think the car business is a very difficult business to be in, and you should get out of the car business”. And, I'd gone to GMI, I was working at General Motors, and I worked at Bosch in Michigan, a mechanical engineer very much in the car business. So I made a very pragmatic kind of shift over to software.
And I think the lesson/takeaway there is; there's a HBS professor, Richard Tedlow, who says it's better to be mediocre in a high growth industry than to be, you know, really exceptional in a mediocre industry. And, the class he teaches, The History of Capitalism, basically goes through the history of the United States in each of these eras where there's a big industry, Silicon Valley is the industry of today. But that's happened like, roughly ten times before. That happened with steel, it happened with rail, it happened with oil, it happens all these different industries in America, retail, etcetera. And so the punchline is, you know, go to Silicon Valley, because that's the thing that's exploding. And I think that was, that turned out to be a really, really good, bet. And, I think the rest of the outcomes have been an output of that decision. And then, yeah, started multiple companies, et cetera.
Bilal: And Qasar, obviously, Michigan has a very large sort of Arab population, Pakistani population. My assumption is that most people don't end up with that one particular advice that you just gave. A lot of people work in the automotive industry, but they don't think about software, don't think about the size of the markets and if the market is growing or not. Was that a happenstance, a chance that you came upon people who gave you this advice? Or do you think now that you fast forward this 15, 20 years where you are now that more and more geographies outside of Silicon Valley are starting to realize some similar things, that there are startups in Michigan?
Qasar: The advice really was leave the auto business. And then from there I thought, okay, there's two, two areas where you can get like essentially huge leverage, and that's finance and software. And, it's just because, like both of those things, the bigger you get, you don't need more people and you don't need more factories and you don't need more, you know, trucks and whatever to deliver the goods. So it's a very pragmatic view, which is, it's just a high margin business. And, when I was at HBS, I talked to a bunch of people who were in banking and what they described seemed pretty awful. And then I was an engineer, and so software seemed like a much more of a natural path. So it was very, very pragmatic.
But I say I have the zealousness of a convert. I really like software. I think if you spend enough years in factories, you change your mind on [the whole thing], and the market doesn't value any of it. It's not like if you build something [and they’ll come], you know, the market is / the buyer is [not] more appreciative because the hardware was good, or it was complicated to deliver. They're just like, okay, well, this is just like any other [thing].
Like, you look at Google and the smartwatch ecosystem, they build something basically really impressive in the Pixel watches. And then people are like, “well, it's not as good as the Apple Watch”. And there's like a thousand people working on it for years, and it's a pretty impressive computer on your wrist, but, the market just doesn't value it. And software, on the other hand, you just get really, really great delivery. But software is itself challenge. If it was easy, like, everybody on the planet would do it.
Early startup attempts
Being pragmatic, getting user feedback, iterating.
Bilal: And so this takes us to your journey as a founder and an entrepreneur. You started a couple of companies, first, before Applied Intuition, one of which was TalkBin, acquired by Google, which is how you ended up in Google. A question for you: you knew at that point, ‘I want to do something in software’. Within software, people get this advice sometimes, follow your passions. Now, I don't know how people find what their passions are, especially if you're trying to build something in enterprise stuff, but maybe talk a little bit about how did you come upon that idea? and [talk about] pragmatism versus following your passion. Where does the line blur between the two?
Qasar: Yeah, yeah. For me, I've always been a very pragmatic person. I think you can't do things that you don't like. so I think that's a part of it. For me, I'm very, very pragmatic. You can't work on things you don't like. That's absolutely for sure. And so you have to kind of know yourself to see like how, how important that stuff is for you. It's just not important for me. and then there's like a million paths to success that's also part of it.
On Getting Ideas
In terms of practicality, how do you get ideas? The first, for the first company, very much I dovetailed off of my co founders who would actually come up with the idea. For me at that time, it was just like, let me get into startup land. There are people that I'd gone to undergrad with and they'd already kind of had the idea. We ended up, we worked out for three years and never raised any money. But that was just my way to get in. Like literally, what are software businesses? What are, you know, what is venture capital? What is all those things?
And I did that in my time at HBS, in terms of the second company, then I spent two years also at Sears Holdings. My second company was more, I would say, useful in terms of getting ideas. I worked for two years for this guy named Eddie Lampert, who's a notorious figure in the hedge fund universe, in the sense of, he buys large companies. It's like a private equity shop, really, more than a hedge fund manager. He buys companies, rolls them up, and doesn't try to chop them down, tries to bring value out of them, but mostly retail.
So Sears, Kmart, Autozone, Autonation, all of these stores, he bought into this holding company very much like a distressed Warren Buffett type of play, like distressed Berkshire Hathaway. And I was one of five people in our year that were hired, and I went there to Chicago to be close to my co founders, my startup, and to make money. I had all this debt from HBS. When I finished all this, we had to come up with the idea for this second company.
And very much we came an idea within the retail space. And there's a long, meandering way of how we came with it, but I'll give you the short version, which is, initially, we thought Square had just come out with that dongle. And we thought, okay, there's a natural extension of square, which is a point of sale system, because the iPad had just come out as well. So we're like, take the iPad, put the square dongle, you get a cheap POS system, point of sale system. And that'll, beat out the NCRs and the IBMs of the world. When we started building that, we realized that this physical stuff is actually pretty hard—you have to go to the stores and you have to install it to train people. Okay, what's even the simpler way of doing this? Imagine if you just do checkout where people would do it on their phone, and they don't really need all this point of sale system or whatever, so they can just tell you to do this.
So then we're like, well, this is going to be really hard again to interface with small stores, and you have to convince companies to do this. And this is 2008, 2009. This is a long time ago. And so 2009 going into 2010. And so the next iteration of the idea was instead of doing, at, like, grocery stores, you should do it at, like, restaurants. So we were pitching, Outback Steakhouse randomly because there was, like, a franchise owner we got a hold of, and we're like, “oh, wouldn't it be cool that when people are finished eating, they could just look at their table number and type it in and just pay it, and then they leave, and then it saves one round trip for the waiter/waitress?” And he said, “yeah, yeah, that would be cool. Let's build that. It's called Skip.” That's what we're calling it. Skip.ly. And we let go of the domain. We should have kept it. It probably would be worth something today.
Digging for problems, building Talkbin
And, in that conversation, literally, as a throwaway comment at the end was, I said to the owner, oh, look, what are the problems do you have that you're just, you kind of magic wand wish had gone away? And he's like, “well, I have three stores...” And he's like, I know “when I'm at the store, they're doing well, but when I'm gone, I just feel like they kind of fall apart. And I have these, like, hourly employees who get promoted to be managers, but they're really, they're not trained, and they just don't know how to, like, run a store. And so I'm constantly just fighting fires between my three locations. And it would be great, you know, if I could somehow get oversight on that”.
And then I said, oh, well, you know, at the end of this, this mobile transaction, we can just put a little box there that says, send me, you know, send me some feedback. Send feedback directly to the owner. And that prompt would get, you know, like an elicit a response if you'd had a very bad experience. Cause you're like, this is circumventing all of management and going straight to the owner. Particularly good, appropriate. And he said, well, “I don’t care about the checkout stuff. I already got that solved. If you just build that box for me, that would be worth it.” And that was the original heart of what became TalkBin. And so, you know, which was like a mobile feedback thing.
And so we then ultimately expanded on that idea, pitched to YC, which was like, “hey, every square inch of the planet has an owner behind it. You want to be able to message them. When you get to an airport, you don't know who to talk to. You just open up your phone and message the airport”.
And you couldn't build that product before because it's the intersection of new mobile technology messaging, which is starting to take off, and new consumer behaviors. And that's how you have to think about markets, is they have to be new. Otherwise there's already existing competitors that are in the space. And so we built this stuff. my two co founders were, Michael, who I worked with at Sears, and Sunny, who was a friend of a friend.
Selling to Google
And so both brilliant, brilliant people. And we Applied to YC. We got in, we got hundreds of businesses in this area. Downtown Palo Alto and downtown Mountain View and Los Altos, all the downtowns. We basically just went and sold ourselves. And in the process, some people from Google started using a product, and that was right when we were raising our seed round. And then they reached out and they basically said, we'd love to talk to you. And we read it as these are angel investors. And we almost didn't take the meeting. But then like, you know, Sunny was like, oh, let's just, let's just go do the meeting because it'll be rude because Google is like ten minutes from here.
So we go there, this 30 minutes meeting, we end up talking for like 3 hours because we just know a lot about what's happening in the retail space because both Michael and I came from this retail fund, you know, where we just seen all the problems these legacy retailers have. And we said, oh, all this stuff can be scaled up. You know, everything you're built for the small business can be scaled up. And that literally we're walking in the parking lot with Ben Ling, he runs a seed fund now. And Ben says “have you guys ever thought of selling the company?” And we thought we were like, I mean, it was the most random comment. Imagine if you spent 3 hours— we're there trying to get a partnership going with Google because we recognize this door to door selling is not going to scale. And we didn't really know much about go to market at the time. So we thought we can tuck into Google Maps and we can tuck into Facebook fan pages. We just started. We tuck into Yelp. Anywhere there's a business digitally, there should be a message button. And then we'll play the message orchestration and dealing with side on the merchants and that. And we didn't know at the time.
They asked us, well, how are you gonna, how are you gonna make money on this? And we said, well, originally we're gonna charge like $20, $30 a merchant per month. But really what we want to do is we want to build a—almost like what Rippling is talking about now—an OS for, for small businesses where as a professional, you wake up, you open up Gmail, but as a small business owner, you don't have that workflow. You might have reviews, you might have, you really have. Scheduling is the big problem. You know, you, like, often, you know, hours of operations, a holiday, you need to change your hours on Yelp.
And, like, so we want to build a centralized place, and then we'll just upsell you ads because that's what businesses care about. They care about foot traffic. So that idea, when we said it to Google, we didn't realize that was a big deal for them. That was like one sentence out of a three hour thing.
And so only after we were acquired Mercer, who was the ultimate sponsor for the, for the acquisition, said, ‘okay, now just build all this stuff’. And that's what we did for the next three years, we took that seed of an idea and we built into what became Google My Business, which does billions in revenue today. But it is the interface for merchants to do all these other things and also buy ads. And you get this nice lead-gen because the merchants who are already engaged in that era, (in the 2010-2012 era, there were merchants who were not technically savvy and merchants who were), and we were just like, we just have to abandon the non-tech-savvy merchants because their businesses are going to go away. And let's go for all the small businesses which know how to use Yelp and they know how to use Google maps and stuff like that, and we sell them ads. And so we built a pretty large business without a salesforce, which is really a really fantastic thing. I remember when I was leaving, it was like, the view was like, hey, we'll give you $50 million in marketing spend—I mean, it really became a real thing. But that's the very detailed story of TalkBin that I typically never talk about.
Bilal: This is fascinating. I have so many questions I can go on, on this because there's a lot of lessons in there.
Qasar: …and it was a small company, it was like three people, and it was like two or three contractors. And so I think, you know, as I reflect now, doing Applied for almost seven years and, you know, we're a multi product company. But, you know, 500 people, cash flow positive, all of these, I think are very difficult things to get to, typically as a company in a very competitive ecosystem.
I do think product strategy is like really underemphasized and sometimes people call that business, but it's not, not in the software realm. How you build, what you build, why you build and how you take it to market. That is the heart of a software company. And you have to really intricately know user behaviours and you have to have some instinct there. And then of course you have to be able to build it. You can't just do this in an offshore dev shop. You have to be sitting with those developers.
Now if you're in Pakistan, that's fine, you're sitting with those developers. You can get that high iteration cycle. So as you learn from the market, because there are 50 other, even in that short story, ten months a year we worked on TalkBin, there were many other avenues. That's the path that made the most amount of sense because we could build a product, test it, build a product, test it, get feedback and say our instinct, our intuition here is working and then in other places it's not working.
Getting Feedback from the Market
Interpreting market feedback correctly, and always listening.
Bilal: So Qasar, you have successfully, navigated working with large corporations that may or may not be tech savvy. We just talked about Outback Steakhouse, franchise owner. And then on the other side you have companies like GM and large organizations that are also not the fastest moving. And you listen and you listen to that one statement that somebody said that changed the path of what you were doing. And then one statement that you may have said changed the path of TalkBin which ended up being a part of Google. And I know several such things have happened where you're carefully listening to what the customer really needs and what's the real problems. On the other side, you often, I often see young founders or first time founders. The minute they say they have a meeting with Google, they freak out. They're going to steal everything. They're not going to say anything. I don't know what's going on. How do you advise people as they're early on in their startup journeys and they have the opportunities to meet with the customers and meet with the partners and meet with potential acquirers? How do you navigate that to make sure that you're actually having a real conversation versus some bullshit presentation that you put together the night before?
Qasar: Yeah, so I mean, at the high level, I think a founder is really made, not when they decide to start a company or when they even raise millions of dollars or tens of millions of dollars. The founder is really made when they get feedback from the market and interpret it correctly. And that's a very ambiguous thing. So you have lots of people who are like, I raised, whatever, $50 or $100 million. And, it's like, well, this doesn't make you a founder. You sold some stock and that's not actually founding anything.
And so I can't underline enough that concept of listening is a huge, huge, huge, huge thing. And then you have to somehow use your brain to make sure you're listening to the right things and the wrong things.
On Pitching and Idea Theft
Pitching to three kinds of people: non-technical, technical and potential acquirers.
Now, in terms of, like, that practical advice, if you deal with big companies, there are big subgroups in there. If you're talking to a non technical, large company, the chance of them stealing it is slim to none because they're not. They don't have the capability. In our universe, we sell, actually to technical companies. I mean, all of our buyers are engineers, and they tend to write lots of software, and they tend to be the most savvy people. A large percentage of our user base of our tools are PhDs, like a significant double digit percentage. So they absolutely know how to build the software that we know how to build. So you have to, or at least conceive [of them stealing your ideas]. Maybe they can't put together the team and the resources. We've spent literally hundreds of millions on our tools now, and so there's that.
So if it's non technical, don't worry about it. They're not going to be able to steal it. If they are technical, you have to be careful. In Applied’s history, both Uber and Lyft, we pitched their self driving teams. I'm not sad that they don't exist anymore because they both stole our ideas. I mean, we did these long, technical deep dives and then, like, they just built the stuff in house. And I still know specifically the names of the people who we pitched, who then turned around and then…
Bilal: We're not holding that against them.
Qasar: But one of them I've seen before at a Lux event. So the next time I see him at a Lux event, now that he's not in the industry, I'm going to be like, I wasn't an idiot. I knew what you were doing. Like, I'll pretend to be an idiot just so you can humor yourself and your ego, but I'm not an idiot. But that happens. Absolutely, that happens.
But what other choice do you have, you got to get traction, so you got to take that risk. That's just the reality of the situation. So, in hindsight, would we pitch all these people? We had to. We needed information. Even [the fact that] they're not going to buy from us because they're going to copy. That's information. That's data that you use to change your strategy. The key point here is all data is good data because it changes your strategy. You can't live in some ignorance or keep.
All of our values can be boiled down to two words, radical pragmatism. For the company, you need a high clock rate, so you're talking lots of people. You need to process information quickly, and then you got to make the right decisions. That's basically the formula in terms of the third bucket, the acquirers. I never thought of selling, even with TalkBin, you know, we really had to. It really took us a while being that weekend to really figure out, like, did they really want to buy the company?
Business building as gateway to wealth
Have the right motivations, incentivize people, and focus on laying the bricks.
I think any founders who go into building a business to sell, I think you're kind of doomed from the beginning. You somehow don't try hard enough. You somehow feel like there's an out. I've never had that view. It's a very, like, you know, deep thing. I think you have to be building a business for the business to sustain itself in the moment. You don't have that motivation. Somehow it shows up in your decisions.
And I don't know how, I don't know why, but you have to have the right motivations in building a business. And there's probably a more fundamental question, like, why should you even build a business? Like this is a very, very simple question, but it's very important for everybody, especially within our community, to recognize this is how you create wealth, full stop. There's no other way. Working for a multinational and making Coca Cola's price ticker go up because you work in the Pakistani branch or the General Motors branch or Toyota branch of, Pakistan, that actually doesn't actually sustain the community. It sustains your family, sustains you, which is fantastic. And it does create jobs that are local, which is good, but the money is fundamentally going to the, whoever owns that company, and that tends not to be boxed under multinational.
So the key takeaway and one of the big insights I had early on is wealth is really only created through this creative process. And that really means today's vernacular is founding a company and being the owner of the company. Another mistake that I think lots of, non-American and specifically non-Silicon Valley founders make is they hoard that equity and they don't actually incentivize their employees through ownership.
As employees, they can like see everything. Everyone can see through their motivations. Everyone thinks they're really smart and, they got the game figured out. Everyone can see your motivation. If you're not giving equity up to your employees, they're not going to be incentivized. It's just that simple. And what really works in Silicon Valley is everybody owns a part of the company. And so even in Applied, there's probably 50, 100 millionaires now. I mean, a significant amount, probably more to a hundred, closer to 100 than 50, because they own a part of the company. And so if there's any takeaway you get from the talk, which is the way you fundamentally create wealth is you start something, and the way that you sustain it in a community or country is that the owners are actually the employees. You obviously can own more, but the owners are the employees.
Google alone, just this area in Mountain View, created 10,000 millionaires. 10,000 millionaires! If Detroit had just 50 millionaires moving into downtown, it would change the community. And that's only Google. You know, that's doesn't LinkedIn and Intuit and WhatsApp and Instagram and Facebook and Apple and Nvidia and…There's such a long list just literally within 20 minutes of here that it's almost comical. But so the system works—Silicon Valley system works.
But sometimes people try to copy and paste the Silicon Valley system. They just try to copy the we make a lot of money part and they don't copy all the other parts, which are like: it's a software business, it's very sophisticated, people work really hard, they give ownership to employees, the employees work really hard, everyone works together, there's low attrition, and then when those people leave, they start their own companies.
We've talked about this multiple times like a future founders program. We promote people from the company to start companies. We don't have this insecurity that they're going to leave. I expect every one of the people in my company to ultimately leave. And it'd be great if they start companies rather than just go work at Google or go work on Facebook.
Bilal: Yes, sir.
Qasar: This is tangential point. Sorry.
Bilal: No, no. God. and we, were just chatting about this as you know, just last week on Friday, one of the motivation for people like myself, and this is how Silicon Valley works, right? Like investing in people like you, build and create wealth and amazing companies, and then the next generation of people leave, and then I want them to call me so I can fund them. And then the cycle continues, and some of them become VC's, and voila. You know, I become history in a few years. you know, I want to get to YC, and then after YC, we'll get to Applied Intuition and we'll go back.
Qasar: We don't need to get to Applied. We can talk about whatever.
Bilal: I want to talk about Applied! Because people don't understand what it takes to build a company. People think you go from zero… You know, one of the problems I see is people see a lot of founders floundering and, you know, trying to figure out what to do, trying to raise seed funds, literally. ‘Bilal, can you help me raise money?’ Calling me from Pakistan, to raise money. And great. But there's a big step between that. And then they see people like yourself and others who are successful, like, ‘oh, my God, multi billion dollar company’. And the hard work that goes in between and what it takes sometimes doesn't get talked about enough, because maybe it's unsexy, right? It's a company building, it's not a pitch…
Qasar: It’s laying the bricks. Everybody wants to mention, nobody wants to talk about laying the bricks.
Bilal: Yeah, correct, correct.
Lessons from YC
PG's essay writing and personality, the Hacker News platform, YC as a product category and their ability to execute.
So let's talk about YC a little bit. Like, what is special about YCombinator?
Qasar: Yeah, yeah, for sure.
Bilal: Why is YC what it is? And why has nobody been able to effectively copy that?
Qasar: Yeah, so that's a fantastic question. This is what I was thinking when I joined as well. And part of my ambition to join was to learn the source code a little bit and understand it. I'll give you the short version of my opinion. This is not, like, empirically proven. This is just my own observations. One of the things I recognized when I got into YC, I had a bunch of partners at the time, this is circa 2013, and when I went in, all the notes and all the comments on every company—the software stuff—it’s all Paul Graham. It was like PG’s fingerprints were on everything. And it became very clear to me going in that this isn't actually a partnership (it is a partnership, there are four co founders and all that stuff and they all had an important impact on the firm) but PG really had some strong opinions and they would bleed through on everything.
History of YC
So one was just the importance of that individual and his insights and his ideas. the history of YC. And we can talk about, can you build a YC competitor today? But roughly PG—the unvarnished version is—he was angel investing. And he was like, it's really silly. I sit down at a coffee shop, I talk to people for 30, 40 minutes, and then if I had the right amount of happiness that day, I decide to invest and I don't. It's super haphazard. And so he's like I’m also kind of lazy, and I didn't want to just keep meeting people in coffee shops. So he has a PhD from Harvard in Computer Science. So he's like, I just created like a grad school type application, you know, where you just apply. Then he was like, oh, let's do them all during one time, because it's just easier for me, instead of repeating the same advice again and again. And we'll call it the Summer Founders program. It wasn't called YCombinator, it was called the Summer Founders program.
And, it was like, it's just not that hard to build a company; if you take away all the mechanics of building companies, then you just focus on building a website. The era is really important here. This is 2004, going in 2005. That's really, really important at that time. The things that really make YC that are effective is he got the right insights from that first batch. And he was like, actually, the founders learn a lot from each other, maybe even more than from me. Actually, comparing them in a batch process is way better. Writing it all down is way better, because I can look at it three months later to try to teach myself that.
I’ll use a very specific example. There was at some point at YC, when I was there, there was a view that MBAs are not good founders. And I railed against it. I said, this doesn't even make sense. This is just a trope that people pick up. Stereotype you pick up. So then we just watched MBA founders, and guess what? They did better than the rest of the batch. You just have very direct evidence—actually Tony from Doordash is a Stanford MBA. You just see a couple of those go through and you're like, actually, maybe the MBA thing is not that bad.
But to close that loop of learnings is a big, big deal at YC for new partners who are coming in and in general, for the organization itself. Then YC did a couple of batches in Cambridge, then did one batch in Mountain View and that batch performed better in every metric: dollars raised, quality. [Also] when the organization's very young, there's no dashboards. This is all instinct, this is PG just being like, ‘these companies seem to raise a lot more money and I think the companies were better, maybe because it's our third batch, maybe it's Mountain view’. [Then YC] goes back to Cambridge, it's much worse because it's definitely Mountain View, then goes back and has been in Mountain View the rest of the time.
Cambridge isn't exactly some backwater village. It has a lot of smart people. MIT is down the road, Harvard's down the road, and he's like, there's a cliff. So you could have ten Paul Graham's and maybe six of them stay in Cambridge because they have their friends and life there. But he made the decision to move to Mountain View, and that was critically the right decision. For those who don't know Applied and YC, we're still next door, so there's also maybe something in the water there.
But really what it is, there's people who are there who move. It's immigrants within immigrants. There's all these immigrants—the US gets a huge fortune that gets the best out of everybody on the planet. And then within Silicon Valley, you get the people who are like me than you, who literally move across the country to go to this small little community of people. And that is like the hardcore, hardcore people. Those are people who really believe in startups and they're willing to sacrifice basically everything in order to do that. And then once you get that crew, there's just a higher level of ambition.
So YC, I think by being based in Mountain View, started filtering, getting better people. Also at that time, there were less seed funds, the prices were better. I think all that stuff worked out and then, so I think those are the rough kind of mechanics early days. The system was just actually what the market wanted. There wasn't enough dollars, there weren't enough seed funds, and this was a way to process a lot of them.
Why does it continue to be successful? That's more [a] “Why is Pepsi successful? Or why is any big brand successful” [sort of question]. Our batch had three or four watershed moments. Heroku was sold. It was the first multi hundred million dollar exit to Salesforce for $227m. This is in 2010 and that was like a wow to everybody. Dropbox and Airbnb both crossed billion dollar valuations and everybody was like, okay, maybe this thing isn't this toy on the side.
I was told when I was applying to YC, this is a joke. And YC was already five years old at the time, and Dropbox and Airbnb had already been funded, and just right around that time Stripe was being funded. And then the kind of last thing is the Yuri Milner money came in at the time. I don't remember that whole thing.
YC originally only gave $20,000. So when we applied to YC, we gave up 7% of the company for 20 grand! You know, like a horrible, horrible financial, setup. But, you know, it was still worth it at the time. And then that kind of bumped it up to $170,000. So I think, like, you have to really understand those early mechanics. The thing we haven't talked about is PG also wrote prolifically. He continues to write prolifically. And he started Hacker News. So Hacker News is this forum that really was the feeder for all the first five, seven years. That's how I learned about YC, was through Hacker News. So people underestimate 1) PG's personal essay writing 2) Hacker News, 3) the [YC] product didn't exist in any other way, 4) And then their ability to continue to execute.
YC Competitors
If you remember at the time, 500 startups and Techstars started right around that time. This is in the late double O's.
So let's just talk about why didn't they succeed? Techstars had this view that, ‘we're going to be egalitarian, we're going to be the accelerator for everybody else’. Well, it turns out Harvard and MIT alums tend to do better. And if you look at the top 25 YC—and people don't want to hear that, because it promotes this narrative, which is like the elites get the elite thing—But if you look at the top 25 YC companies in history, and you just literally look at every founder, there are many more Harvard and Stanfords or the MIT's than the regular population. Why is that? Is their network or their parents are rich? I don't know, who knows what the reason is. But that's just the truth.
And YC doesn't talk about that publicly, but they certainly don't dissuade it. Techstars was like, we're not going to be in Silicon Valley, mistake. We're not going to be looking for elite programs, mistake. And then they're just going to get, and this is all power law.
500 startups was different. Right down the street in Mountain View, David McClure is running it. So you have a similar kind of Paul Graham like figure there. But Dave isn't the same as Paul Graham because Dave didn't get that following that PG did, of a very specific type of following, which is nerdy computer scientists in that era. I think if you're building something today, you'd have to build something different.
And then the 500 startups also did this very international view. And the issue with international companies is (in the 2010 frame), 1) very hard to get follow on capital, 2) very little liquidity. It took YC in Mountain View five years to get its first $200 million exit and that was still kind of miraculous. It would take ten years for 500 startups because international markets, they're not going to pay the valuations, they're not as high velocity.
So if you really wanted to fight YC in 2005-2007, you'd literally build a clone. You’d build like ‘we're going to fund elite founders’. And then it just comes on to execution. YC then just executed for 15-20 years and now it's almost 20 years, 18 years. And the other ones can't, they've stumbled along the way for their own reasons.
Bilal: This is fascinating. You said something I actually wrote.
Qasar: Bilal and I know each other so well that we're actually talking about things that we've never talked about. So that's why it's actually more awesome.
Qasar as Startup Advisor
Having a co-founder, choosing the right market, importance of hiring, taking advice.
Bilal: That's awesome. There's a lot of things I just take for granted, you know, and I can see Qasar, I mean, one of the things an audience doesn't know that this is really important for them to know. You're running a very large company, you have global presence,
Qasar: …medium size, medium size, large from a startups perspective. Yeah.
Bilal: By startup sector like, I mean it's 500 people, it's got customers globally, it's profitable, it's very engineering focused. Pretty hard shit like, you know, it's a pretty hard tech, and at the same time you are—We have 200 companies in our portfolio and lots of people have built companies that are worth billions of dollars—but you're the most in demand startup CEO advisor.
And I think there's a reason for that because there's the startup advice you have, there's the YC advice you have, and then it all comes together. And it's because seeing patterns on how success evolves and seeing how people can, you know, can use that. I wrote down something you said, immigrants among immigrants, right. It's something that really resonates. You know, ten years ago I was a VC in General Catalyst in Boston and [was] happy, settled and living life, you know, everything. But I had to pick up my bags and move to Silicon Valley for some of the same reasons that you just said. Why, you know, you go where the success is. And I think I see even in Pakistan, people doing that. Like, you know, you, you moved to, maybe you moved to Lahore, maybe you moved to Karachi or wherever, but you know, even if you started your company in Nawabshah or something.
On having a co-founder
Talk a little bit about a few other questions around this YC/startup ecosystem. There's a lot of people who wake up one morning, “I have this idea, oh my God, ChatGPT applied to this would be such an important thing for Pakistan” and you want to start a business and you think you're the solo founder.
Talk a little bit about why even you—after all the success you had, or you were fundable, as in you would be able to raise your seed fund without a problem, if nothing else, just among your friends and whatever—you still decided to have a co founder.
Qasar: Yeah.
Bilal: And, you know, why should people think about having a co-founder? Why is it important? It's not that you were just looking for some friendship.
Qasar: Yeah, yeah, yeah. You know, there's two things I always give advice to founders and I put my money where my mouth is. One is always have a co founder. Two don't raise on high valuations.
And our first valuation was $28m pre. And as being YC COO, I'm pretty sure I could have gotten $50m, $80m, $100m pre, if I wanted, and we did it so we could pick who we wanted on the cap table. It's pure pragmatism.
In terms of a co-founder. It's the same thing. There's probably the single best writing ever—in terms of all tech blogs and essays ever—there's a Paul Graham essay from October 2006 called 18 mistakes that kill startups. And I've read that for all the years since that's been written, I probably look at every six months, every year, certainly read the whole thing. And, it's so accurate.
And number 1 on 18 mistakes that kill startups is solo founder, and then it's bad location. These things are absolutely true. Absolutely true. One of the main reasons is very few times does one person have all the personality and technical traits and business acumen to build a company. And very quickly, you know, people have challenged me on this. Elad Gil he said, you know, Bezos is a single founder and so is Elon Musk in many ways. I think they are different today than they were at the beginning of their journeys. Elon was not nearly as a solo person, when he's starting, he's starting with a crew of people. This PayPal mafia. There are other people around in PayPal and the original X, he's not a solo founder in that traditional sense. Tesla already has founders.
And then by the time he's starting SpaceX, he's now, he's a different person. He's not like any other person. He's got tens of millions of dollars and hundreds of millions of dollars. It's just a different. You can't take that lesson from there. Bezos maybe is a more direct single founder, but, the exception only proves the rule. Every other company you think of has multiple founders, like every other company you think of. And it's extremely, extremely rare.
So, one is, like I said, the skills. Number two is once you get further and further into the company, I've seen this person, I've seen a company that had two founders, went down to one right after YC. They ultimately had a multi-hundred million dollar cash acquisition from Google on the table. One of my other buddies, who was actually Pakistani, who worked there, was the first non technical employee there. He's talking to the single founder and says, “we should take this, based on everything we know, you should take this”. And the founder basically said, “well, you don't know. You're just trying to get a payout. I'm the founder. I'm looking for something bigger”. Guess what? That high hundreds of millions of dollars payout that they passed up was the best they ever got. The company ultimately went to zero. Not like sold for small money, went to zero zero.
And, having a co founder is a moral or like a true intellectual equal. And when things are good and bad—Peter, my co founder, it's great that he's from Shelby Township. He's from literally the same subdivision as my parents are from. So there's a lot of history. There's just a lot of emotional relationship there—that we can say, hey, should we do this? We make grazed decisions every single day. Should we do this? Should we not do this? Is this the right message? Should we announce this thing? Should we not announce? All these things you're constantly talking about.
And you can have a great staff of senior executives, but they are exactly that. They’re senior executives, they will come in for two, four, hopefully for you, five, six years. But they'll leave. That's it. It's not their company. And that, the difference, by the way, between early employee and founder is very simple. Founders can never quit. Early employees can leave. As soon as they feel like the business is not working? See you later. They have something happen in their personal life? See you later. They don't want to live in Mountain View anymore because it's too expensive? See you later.
Co-founders can't do that. You need people who are stuck and they're into it. And it's as emotional as anything else. It's not just a financial business thing. It's not just because people have equity, they're going to stay as well. So it's important you don't create a fictitious co-founding relationship either, which is you just give out a bunch of equity to people who typically are basically would-be early employees. So you actually need co founders.
And to define what truly a co-founder is, it’s somebody who's there before the idea. It's really strange to me that people say, I have this idea now I just finally need to find a co founder. It's like, wait, what? That's not how it works. They literally are supposed to be the input because then you build a business that is custom fit to you two. Or you three. Ideally three I find is a better number than two because two people can get crazy together. They can have bad ideas. It's rare that three people can come up with something really, really crazy and continue to believe it's craziness.
If they're truly equal, they're all smart, they're all intellectually honest, they're all hardworking. There's some thing there, but, yeah, that's the reason.
Pure pragmatism! I thought it would be more successful with Peter, and I thought it would be more successful by having a low valuation early on and bring people like you and Mark and Elad all in the first run. People who are still investing to this day. I mean that if there's a miracle, that's the miracle. Our cap table is basically the same cap table from seven years ago. And I think that's a very, I think it's a super positive thing. You know, it's like people, like, pretty amazing.
Bilal: Pretty amazing that it happened that way.
Choosing the market for Applied Intuition
So the one question for you then comes to Applied Intuition, which is, you know, when you and Peter were deciding to start a company together, and you were probably looking at a lot of different, things, you came upon automotive…
Qasar: We came up specifically on simulation for self driving cars. That was a specific thing. There's a macro idea. But then we needed to wedge into the market, and that's, that was the tip of the spear.
Bilal: How did you know that you could build a large enough business in an industry which is—probably not, you know, even seven, eight years ago, people weren't looking at it and saying, yeah, it's easy. You know, payments had become more convenient. obviously, social media and photo sharing and all kinds of stuff was, and you could build in those spaces. You had the experience. But then to say, here's this multi-trillion dollar market, which is really a few companies per country that are the large customers, and I'm going to go build in it.
Qasar: Yeah, I mean, a couple of things. One is we come from the car business. Peter's father and grandfather spent 28 and 30 years at General Motors. I went to GMI. I worked at General Motors. I mean, when we started the company, we thought we'd find other co-founders, other founding teams, that would be like us. We found zero companies so far in seven years that are like us, like truly automotive. Maybe I can think of one. But they're not software people. They're automotive people who moved here. So, like, this mix of Google people who also knew automotive. We just haven't seen that.
So why, why is that important? Because it’s your competitive benchmark. There's one thing that I don't agree with what YC propagates which is like “competitors don't matter”. That's a very common PG and YC mantra. Competitors don't matter. And I was like, well, this is kind of a zero sum game. I don't know if competitors don't matter. In the sense of; an enterprise company tends to buy only one of the thing. Consumer on the other hand is a very different type of business.
And so my first company is a consumer company, second company is B2B, third company is enterprise. We also picked enterprise because that's where the biggest dollars are fastest. But there's other problems in enterprise like, it's like, you know, if your first company's enterprise, then you go do something else for your second, because you just see all the downsides of the function you're in.
But to be, very clear on answering the question of why do we think there was a business there? We didn't! We didn't know there was a business there. The key thing, one of the key lessons I learned is the first step in building companies: you have to get early traction. If you don't get early traction, your dreams will just stay dreams.
And so a lot of times founders focus on this vision and this dream of what they want to build. And we had this vague notion that if we build something, we can be a big tier one software supplier. That can be the case, but we're not going to really focus and think about it. That's for literally seven years down the road.
Really what we've got to focus on is what is the v1 product?
And so at the time, my own order operations [was]:
find the co founder,
pick the market,
pick the idea, and then
pick the business model within the idea.
Peter and I were looking at crypto, we were looking at AR/VR, we were looking at voice, we were looking at other areas. And literally we're having a dinner and we're like, what are we doing? We don't know anything about voice. Let's pick the stuff that we know, then let's focus on that stuff. And so that was random. It was out of frustration, it was out of instinct.
But you, shouldn't just randomly pick an idea because there's going to be somebody who spent ten years in that space and they're already now ten years ahead of you. People playing in the automotive software space. I wish them luck. The joke that I make, that I make with Peter was like, we forgot more about the car business at this point than somebody who's like 25 has learned. Because we've just spent so much time in the industry.
So, some pragmatic advice is [for] founders: know an industry well enough that you actually have insights which are not, like, can be written in a blog post. You know, they're like, very nuanced insights. And so our insight was the cars moving into a software thing, that means lots and lots of things. There's like, maybe 10 or 15 things that are downstream impacts from that, and we're going to meander our way to bigger, bigger markets within that category.
And so we go from market to idea, which is this “car is going to be a software thing”. And then it was specifically a business model [thing], like, how do you penetrate [etc.]? So we talked to a bunch of people who are doing self driving in the Bay area and asked them, what are the problems that they have? And they talked about mapping, they talked about sensors, they talked about testing and validation, which is what we ended up doing. They talked about all these different areas. We didn't like mapping because even though we'd worked on Google Maps and the narrative would make sense, it's like, it's just a bad business. A lot of downward pressure on mapping data. Sensors, or hardware, we don't want to do that. So we just went through all these different iterations, and we ultimately concluded that testing was the right thing that would get our foot in the door. And then if we execute well, then we'll just slowly expand different product lines. And now we have dozens plus products that we sell within those categories.
On hiring and building teams
Bilal: So, Qasar, one of the things that I talk a lot about when I talk about Applied intuition, aside from markets, business, and whatever, is the team that you've built. It is a very unique, It's a very special team. It's just an amazing team. But, you know, funny anecdote for people: most times when I have some executive I know and I send [them] to a portfolio company that, hey, somebody's looking for a new job, they are usually like, ‘thank you so much! Let me interview them’, because they think this is a really high quality person. Applied is the only company that—eight times out of ten—I get an email back [saying], ‘thank you, but this is not interesting to us. Thank you, but no, thank you. The bar is high, or, higher than yours.’
Qasar: It’s just that we know what we're looking for. Each bar is different. Each person can be exceptional in their own thing, but each bar is different. Yeah. Yeah.
Bilal: You, you spend a lot of time on recruiting. Look, man, you and our kids used to go to Islamic school together, Arabic school together, right?
Qasar: Ah my kids don't go there, they're going in an hour or so…
Bilal: …and I would be out there, you know, for that hour/two hours, shaking hands, kissing babies with different people. And you'd be on the phone talking to candidates! Right. And remember that, like this is, you know, recruiting is sort of—today you do it all the time…
Qasar: …Every day.
Bilal: But [talk to us about] the importance of that and talk a little bit about generally high level, what are you looking for, especially in the early employees when they, when you join the company?
Qasar: So there's what you want and what the reality of the situation is. Early on you have to take who you can recruit within the market that you're in. So that's why it's so important to be in the right market, in Mountain View, with the right network, Googlers, because then you're just going to get a crop of good people to start off with.
What we're looking for: in the first—and I did a podcast with Mike Maples actually, on this, it was called the Starting Greatness podcast with Peter and we talk about this in detail, so I won't repeat it here, really, you guys can look it up if you want to look it up—But the punchline is the first ten people are super important because they end up recruiting the next ten. Each of them recruit ten people. So if two or three of them are weak, you're going to have your first hundred employees, you have 20 to 30 duds. And that's basically the end of the company because that's, that's a tax on the company and they're going to drag people down and they're slow and they have bad behaviors and you can't build this very tight, efficient system.
So I think, I think there is something about having taste, it's just like investing. Why do five founders that are pitching the same idea, one of them gets a super hot round and the other four don't. And sometimes the cynical people say, well, it's because they went to whatever, MIT or HBS or they, you know they're connected because this ethnicity or something like this. That's a cynical view. The reality is that person is projecting whatever the receiver of the pitch needs to hear, which is like, I already have number two, three, and four figured out.
And so I think for us, for the first ten people, it was very much like we understood what the trajectory of these people need to be just inside the company we wanted. I think of the ten people, probably three or four, were ex-founders. You know, immediately you get a different group of people because they themselves are there thinking differently.
Everyone was technical. I think ten out of the ten first people were engineers and we made that very intentional decision because we were like, we want to set a tone, which is, we hire engineers. We don't hire—you know, again, no disrespect to MBAs or designers or something else— we're going to hire lots of engineers because this is an engineering company. And then we'll hire our first designer, we'll hire our first recruiter and all of that stuff. So there's this. A lot of signalling.
Obviously, individuals have to be strong. Peter is an exceptionally strong engineer. I'm mediocre. But we can pick who are good engineers, and we pick really strong. I mean, even by the time we were on the fifth hire, he was like, I can't believe you brought the first four guys in. And we're like, yeah, and you can be the fifth one. And then he's like, really impressive.
And there's a catalyst. Why is it? We give them good equity. We are impressive ourselves. We raise $10 million from Marc Andreessen. All these things, you know, Faris—who's this Iranian guy who's our third employee, he worked at Waymo for a bunch of years. Waymo is big, you know, self driving car company—and Faris says, “well, I like that you're Pakistani and, you know, go to the same Masjid and all this stuff. But, you know, it was nice that Marc Andreessen was on your cap table”. Like, so, you know, even within the realm of a community, he's like, there's a signal here. And why do we have Marc Andreessen? Because we had a cheap price. And why do we get a cheap price? So we get Marc Andreessen! Like, all this stuff, it's all connected, so it has to be logical.
But the whole company is just a team, right? Right. That's all. everyone talks about logos and buildings and all of the stuff and fundraising, but when you strip it all down, it's just like a bunch of people working on projects together. And so who's working on that project becomes really important.
On taking advice
Bilal: I have two more questions in the limited time that we have. first question is about your company, and the second question is about the fundraising, which I'm sure every founder always thinks about all the time and probably sometimes wakes up at night sweating about it.
The question is, around advisors and board members and investors, what role do they play in the company? You have some of the best in the world, not including me. Talk a little bit about surrounding yourself with people, not just on your team, but also—they are on your team, but they're a little bit different, they're not just your board members, but also people that you take advice from—what role do they play in keeping you, at least abreast with what's happening around you? (if not specific strategies and directives on where the company's going)?
Qasar: Yeah, I think the mistake a lot of people make is they take advice from people who don't know what they're doing, or who are just good at presenting advice. So, very simple heuristic on who you take advice from: do it from people who've already done it, because even if they had the wrong insights, you've already removed lots of noise out of the signal.
So one is only talk to people who do it. I mean, I'm in the camp of, I don't read TechCrunch. I just don't consume tech media like, I call it, it's like ‘tech entertainment’. I just don't. I don't listen to podcasts. I don't do any of that stuff, mainly, because I think it's just noise, and it just gives you all these stupid ideas. A lot of them are wrong.
And then, you know, it's kind of like the Warren Buffett Berkshire thing. He's like, ‘the only thing you really need about investing is you buy a little bit of the American economy, you hold it for 30 years. That's all you need to know’. And he just says in every single interview. People want more because they actually want entertainment. They actually don't want advice. And so I think a big part of getting advice is, is who you get from.
Secondly, you have to pick people who know their domain really well, and take advice about that thing. You shouldn't take advice from a great designer about engineering teams. You shouldn’t take advice from an engineering manager about design teams. Or fundraising. People will ask five different things from the same person, one about fundraising, one about hiring, one about firing. It's like, well, actually the only thing they're really good at is fundraising because that's what they did. That's what they did well, or something like that.
So I think, I think there's that, I think you have to be humble. You know, you have to listen to other people. You deeply have to realize that you don't really understand everything. And so you're going to, you're going to, but you also, simultaneously [should] have to have opinions. So there's a line there. You can't be just like—I've also seen these founders which are just constantly just taking advice—It's like, you got to make a decision, man. You've already gotten three, four people's inputs at this point, getting the sixth and seventh is not going to be helpful. You have enough of the understanding. You got to make decision, you got to move forward.
A good way to think about this is, instead of thinking about startups, let's [say] you want to be a world class baseball player, you want to be a world class basketball player. No matter how much advice you give me about being a world class basketball player, I'm not going to be a world class basketball player because the average American NBA player is like six foot five. And there's a stat in the U.S. which is if you're over 7ft, 17% of seven footers in the U.S. become professional NBA players. So you have a one in five shot if you hit 7ft, that you're just going to play in the NBA or close to it, no amount of advice or practice is going to help there. And that's a hard reality. So some people are meant to be founders, some people are not. that's also something that I think often doesn't get talked about.
So think about it in that way as well, which is like, maybe your role isn't to start a company, maybe your role is to be an early employee. I used to think at YC that every single person should start a company. I still pretty much believe that because I think you can misdiagnose yourself and think, I'm not a founder and you actually might be a good founder. And incidentally, the people who don't think they're good founders tend to be better founders than the people who are like, I was born a founder. But the punchline here is, you have to be humble to recognize what is good advice, what is not good advice, and then take it, and then be decisive, act on it, move forward. Yeah.
Qasar’s investing insights
It’s about building a great business, crazy valuations, tight market, having conviction.
Bilal: One last question, which is, you've invested, in a lot of companies as well, both at YC and then afterwards.
Qasar: I think one of the best compliments I've ever gotten is from Mamoon. He said, “I think your angel investing track record is better than most full time VC's. And I said, you know what, I'm putting that on my LinkedIn”.
Bilal: That is funny. Well, I try to get you to invest in all of the companies that I invest in, and you've invested in quite a few of them. So fingers crossed. All goes well.
Here's the question that a lot of people, I'm sure have right now, and I'm sure a lot of CEO's calling you as well, that capital markets have tightened. It's a completely different world two years ago or so. And founders are struggling to figure out where's that line between growth and profitability and telling a story or pivoting, or pirouetting, sometimes saying whatever they think the investors want to hear. And suddenly after three, four, five conversations, finding themselves in no man's land because they no longer even understand what they themselves believe. There's a lot of difficult things about cutting burn or not cutting burn and how much to cut. All the above, right.
Summarizing all of that, I think the question that I would have is, what are you advising people—not to people who are going to run out of money in three months because you tell them to find out—but people who have twelve months, 18 months who’re building companies? How do you think about fundraising? How do you think about storytelling? And how do you think about building a business in these tough environments?
Qasar: Yeah, I mean, so this is from advice I used to give at YC time, which is, everyone focuses on pitching. It's really about building a good business. If you have a good business, the market somehow figures it out. And the market is investors, employees, customers, everybody figures it out. So all of your mental energy, regardless of what the macro environment should be, is like, how do I build a good business? And just to make sure we're on the same page of a business, I didn't say a startup or something. A business is revenue minus expenses equals profit. Sometimes people forget that. That means you figure out how to get your revenue. You keep down expenses. And is that ratio, in a way that you get profit on the other side? A lot of folks, for a long time—as you know, we're very capital efficient—they just haven't been focused on that. So if you're not focused on it, focus on it. We are building businesses. Even though they're software businesses, they're still businesses.
Insights on the market
So now let's talk about the environment we're in today, which is kind of the Fall/Winter of 2023. Everything on the horizon says it's going to get worse before it gets better, in the sense that lots of companies raised money in 2020, 2021 on really high valuations. I mean, there was a company that came to us, to sell to us, that had raised at a $500 million valuation, had 2 million in revenue and a 100 people and, like, $50 million in the bank. And they're like, well, we'll give you $50 million to take the company on. And I said, well, the $50 million will only pay your payroll for, like a year or so. I got 100 employees, then I got a, I got a fee. Like, it's not just about shuffling money from one bank account to another. The people have to be productive. If they're not productive, it's not worth buying.
And so it just, so I do think a lot of those, once those companies start folding—and they are—you're going to have this domino effect into the venture funds markdowns, and suddenly funds that are out there raising money are—going to maybe or are—literally not raising money.
It's the first time I've ever heard venture funds which are perpetually raising money. When I ask them they said, oh, actually, we're not raising money. It's like, that's the first time I've ever heard you say that since I've known you. And so I think those markdowns will have have that follow-on issue, which is there's just less funds being raised.
And then, therefore, I think next year, I think, Q1/Q2 next year, I think, could be extremely difficult. I'm speaking of Bay Area software companies, venture-backed, right? I think it'd be completely different. So within that context, as the environment gets more and more difficult, markdowns keep happening. There's going to actually be less checks written, and I think everyone's getting more and more sober.
I still see this crazy stuff of, like, the normal YC seed round being, you know, $20m post. And I just say no to him. I say, hey, guys, your [Series A] is going to be—with $3m ARR—is going to be $25m post. So why wouldn't I just wait two years and invest in the [Series A]? And so I think that the point is, if you're a founder right now, it's not getting easier. It's going to get much more difficult. So preserve capital. If you don't have a business model—even if you have a business model—preserving capital becomes, like, the number one goal. If you have an opportunity to raise money because you have a local high or local maximum, I would raise money full stop. I think that's the advice.
Bilal: Yes, sir. I get asked a lot: why did I choose to invest in Applied Intuition? The idea of whatnot. I've been fortunate to invest in every round at Applied Intuition and, learn with you.
Qasar: Good for you! (laughs)
Bilal: Good for me, good for my fund.
Qasar: Good for us, you know, good for us.
Bilal: I think. I think this conversation, should answer the question of why I invested in Applied Intuition. Qasar is a dear friend. He is—I consider him to be a real role model for Pakistanis, Pakistani Americans, Muslim Americans. He's an extremely humble guy. You know, he is an extremely confident guy. But I think that comes out of his convictions, and convictions on what is right, what is wrong, convictions on decisions you need to make. The only guy I know who only applied to one business school....
Qasar: …and only one undergrad! One undergrad, one business school.
Bilal: A man of conviction. And that speaks a lot, because, as you said, you have to make decisions every single day. You make dozens, if not hundreds of decisions all the time. And, lots of information feeds into that decision making. But at the end of the day, you make what we call a gut call. But there's no such thing as a gut call. There's all chemicals in your gut that are actually programmed. and gut brain access is something that we've invested in because we truly believe that there's biology that matters here. Thank you so much for taking the time to be with us.
If you enjoyed this transcription, you’ll like our previous one, of a talk given by Professor Maurizio Viroli on Machiavelli:
On Machiavelli — Advice from Italy’s (In)famous Military Strategist
Editor’s note: Allahyar Rehman shared a tweet by Alix Pasquet that brought this talk to my attention. Having been interested in Machiavelli, I obviously started watching. Professor Maurizio was captivating, and I knew that I should take notes. Being a text-first person, I tried to get the transcript of this talk but sadly none existed, so I’ve taken the liberty to transcribe the …
Note: All mistakes are mistakes of transcription, and not attributed to Bilal / Qasar. We’ve bolded all the most relevant and insightful parts.