20VC: Behind the Scenes at Y Combinator: The Interview Process | What the Best & Worst Do in the Program | Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | Why the Value is in Application Layer AI with Tom Blomfield

In a conversation with Harry Stebbings on 20VC, Tom Blomfield, co-founder of Monzo and GoCardless, discusses the essential traits of successful founders, emphasizing the need for holding a grand vision while prioritizing immediate tasks. He reflects on his journey, highlighting pivotal moments like joining Y Combinator, which transformed his career, and the challenges of fundraising, especially during the 2020 pandemic. Blomfield shares insights from his transition to a YC partner, the importance of optimism in startup culture, and his excitement about AI's transformative potential. He also touches on personal growth, balancing ambition with life satisfaction, and the evolving landscape of tech entrepreneurship.

• Founders need to balance a grand vision with day-to-day priorities.
• The ability to manage both long-term goals and immediate tasks is crucial for startup success.

"This is a key skill of a founder, holding these two realities in your head simultaneously... One is the big vision of the 1% best outcome... And then you have to hold the what is my top priority today and this week and this month."

• Founders must maintain focus on both visionary outcomes and immediate execution without losing sanity.

• Childhood experiences can shape entrepreneurial tendencies.
• Early attempts at business can indicate future success.

"I got into computers very, very young and I was honestly trying to start businesses from when I was about 6 or 7."

• Tom's early fascination with business and technology foreshadowed his future achievements.

• YC was pivotal in changing Tom's career trajectory.
• Exposure to successful entrepreneurs and a high-achieving environment was transformative.

"Getting onto Y Combinator in 2011... those three or four months back in 2011 changed the entire course of my life."

• YC provided role models and a supportive community that was lacking in London.

• Fundraising can be a grueling process with numerous rejections.
• Persistence and belief in the vision are essential during challenging times.

"I had 96 no's in a row for that fundraise... And I'm like staring down the barrel of this funding hole we have."

• Despite setbacks, Tom's perseverance led to eventual success and validation.

• American optimism contrasts with British skepticism.
• Cultural attitudes can impact entrepreneurial support and ambition.

"In the US I tell people I'm starting a bank and they're like, that's awesome. How can I help?... It's so antithetical to the British culture."

• The cultural environment in the US fosters a more supportive atmosphere for startups compared to the UK.

• Founder quality is more important than the initial idea.
• Learning from investment mistakes can refine future strategies.

"The biggest mistake was over indexing on the idea and not enough on the quality of the founder."

• Tom realized the importance of backing high-quality founders regardless of the business concept.

• Monzo's US venture has not yet succeeded.
• Adapting products to new markets requires careful consideration and strategy.

"Of all of the money Monzo has spent so far, only 2 or 3% of that was spent on the US and it didn't get very much management attention."

• The need for a tailored approach is crucial when entering different geographical markets.

• Transitioning from solo angel investing to a partnership role at Y Combinator (YC) involves a significant shift in responsibilities and mindset.
• As a visiting partner, the role is more about learning and mirroring established partners, akin to a teaching assistant, whereas a full partner has more autonomy and influence.
• Key skills learned from established partners include giving constructive feedback and balancing harshness with empathy.

"Being a visiting partner is a great apprenticeship, but it feels like a little bit like being a teaching assistant at a university versus being a professor at university."

• The transition involves moving from a learning role to one where you set the agenda and guide founders.

"Accepting again I'm not in the driving seat that I'm a coach and a mentor and I give advice."

• The effectiveness of advice given to founders varies, and it is crucial for founders to make independent decisions rather than blindly following guidance.

"If someone blindly, blindly accepts everything you say without thinking, not great. If they come to you with every small decision, they're not going to be a great founder."

• Successful founders often possess a contrarian mindset, essential for innovation and challenging the status quo.
• Likability is not a prerequisite for being a successful founder; determination and a strong drive to fix problems are more critical.
• Founders should demonstrate exceptionalism, such as unique achievements or skills that set them apart.

"Because you have to be, in a sense, contrarian. If you just agree with everything that happens around you, you're never going to create something different."

• Exceptionalism can be identified through unconventional achievements or innovative problem-solving approaches.

"Tell me about a non-computer system you've hacked to your advantage."

• Partners at YC have access to the entire application pool and can choose which startups to work with based on initial interest and interviews.
• The selection process involves reading applications, conducting interviews, and identifying founders who can teach something new about their industry in a short time.

"Each of the partners has access to the entire application pool. But if I read an application and I. I'm the first one to say, yes, that's mine, then I get to interview it."

• The interview process is supplemented by detailed application forms to assess the applicants' backgrounds and potential.

"We make them write a long application form so we get all of their academic and career backgrounds."

• In-person interactions are crucial for building trust and emotional bonds between partners and founders.
• The pandemic highlighted the limitations of remote interactions, reinforcing the value of in-person meetings and events.

"Having in person office hours, group office hours, even cooking for people. Like the act of cooking dinner for a group of people you've invested in and then serving them with your own hands."

• The in-person experience is significantly more enriching and effective in fostering collaboration and support.

"Everyone's a lot happier. Now with the all in Person, there are elements that we have retained of the remote batches."

• A common mistake among founders is not launching early enough due to fear of releasing an imperfect product.
• Founders should focus on a narrow feature set with high quality and polish rather than trying to replicate all features of established products.

"I differentiate between breadth of functionality versus a level of quality and polish. So I would always encourage founders to go for a very, very, very narrow feature set."

• Founders must balance a big vision with immediate, actionable priorities to avoid becoming either unrealistic or too narrowly focused.

"One is the big vision of the 1% best outcome. If this really, really works, what could this become? Holding that in your head?"

• Pivoting is part of the startup process, but excessive pivoting without commitment can be detrimental.

"Pivoting is like divorces. Maybe one or two is reasonable, but if you're doing it multiple times in a row, maybe the problem is you."

• Founders often face pressure to fundraise early, but waiting for a competitive process can yield better terms.
• YC advises founders to start fundraising two weeks before demo day to maximize competitive offers and valuations.

"The trope was always everyone raises before demo day, which is true. Like the best companies absolutely. Always raise before demo day."

• Nervousness about fundraising can lead to premature acceptance of offers, potentially limiting future opportunities.

"And the founder's like, this is feed price. This is more money than I've ever seen in my life. And they can't turn it down."

• Trusting the process and waiting for a more competitive fundraising environment can lead to better outcomes.

"She took. It was fine, it wasn't terrible, but it was heartbreaking for me because I knew that if she just trusted the process and waited till this sort of auction process, she'd get a better round."

• YC advises against over-dilution in seed rounds, suggesting founders retain more control.
• Founders are encouraged to raise slightly less money pre-product market fit to maintain urgency and execution speed.
• Flexibility in ownership percentage is essential, especially when partnering with top-tier funds.

"The trends we've seen over the last few years is that founders were getting way over diluted in their seed round. They were giving away 25 or 30% of their company at seed."

• Founders should avoid giving away too much equity early to maintain control and leverage.

"Keeping dilution slightly lower is probably better for them. I think some founders have taken that way too, like too far and aggressively will only give away 8 or 10%."

• A balance in equity sharing is crucial; overly conservative dilution can hinder partnerships.

"We are telling founders that over diluting at seed is not good for them and that retaining control would be good for them."

• YC emphasizes the importance of retaining control to reach Series A milestones effectively.

• Bad investor behavior includes reneging on handshake deals and demanding excessive diligence for small investments.
• YC maintains a database to track investor behavior and advises founders accordingly.

"Bad investor behavior would be something like making a binding handshake offer... and then not wiring the money."

• Investors must honor their commitments to maintain credibility and trust.

"The biggest annoyance to me is actually when people don't understand the weight of their check."

• Investors should align their demands with the size and impact of their investment.

• YC can often predict which companies will attract significant investment based on traction and founder quality.
• Despite predictions, most YC companies eventually meet their funding targets.

"The vast majority of YC companies end up raising their target anyway."

• YC's support and network help companies achieve their fundraising goals.

• The excitement around AI is justified, with expectations of widespread impact across industries.
• AI is seen as a transformative technological wave similar to the Internet and smartphones.

"We are now going through another, which is AI, which is going to be as big as the Internet."

• AI is anticipated to revolutionize industries and consumer behavior, creating new opportunities.

• AI is viewed as both sustaining existing products and disrupting industries with new categories.
• Incumbents may enhance products with AI, but new consumer companies are likely to emerge.

"I think there are huge new categories that will be created as well."

• The potential for AI to disrupt and create new markets is significant.

• Investment in foundational AI models may lead to a few dominant players, similar to cloud services.
• The application layer offers opportunities for startups to integrate AI into specific industries.

"I think it's quite dangerous to the world if there is one singular godlike AGI that we all beholden to."

• A diverse ecosystem of AI models is preferable for innovation and competition.

"Most people building application layer stuff in an AI say it's 80 to 90% traditional software with 10% AI."

• Successful AI applications require deep industry integration and understanding.

• Big companies are more open to spending on AI, encouraging startups to target mid-market and enterprise clients.
• The demand for AI solutions is driven by the need for innovation and efficiency.

"Every manager of every big company in the world is being asked by their boss what is AI going to do to our company?"

• Startups can capitalize on the corporate demand for AI-driven innovation.

• The speaker reflects on their suitability as an investor versus a founder.
• Despite success, the challenges of running a large company are acknowledged.

"I love it, but it ruined my life. My life in a way, honestly."

• The speaker values the excitement of early-stage company building but recognizes the burdens of scaling.

• Regulated startups face significant hurdles despite customer satisfaction and profitability.
• Regulators can disrupt plans unexpectedly, requiring constant adaptation.
• The regulatory environment can be frustrating and unpredictable.

"We built a product we thought people loved. Customers gave us incredible feedback, it was profitable, and still the regulator comes in and says, no, no, this is actually. This is really bad for customers."

• Despite success and positive feedback, regulatory bodies can deem products harmful, necessitating change.

"Having this random team rolling in hand grenades every two or three months... you just get blown up all of a sudden because the regulators decided for some reason it's not treating customers fairly."

• Regulatory interventions can feel like random disruptions, making it hard to maintain a stable business trajectory.

• Intense work periods are crucial for startup success, but unsustainable long-term.
• Founders often sacrifice personal balance to achieve business goals.
• Early employees may struggle with cultural shifts as companies grow.

"The reason why Monza and Gokardless were successful is because you didn't have balance. And nothing great is created actually with balance you have to be exceptional."

• Success often requires intense focus and sacrifice, which can be difficult to maintain over time.

"First two, three years at Monzo, we were working like crazy people... it was really annoying actually when we got to like a thousand people, people are joining and like demanding work, life, balance."

• Early employees may feel disconnected from new hires who seek more balanced work environments.

• Founders may fall out of love with their companies as they grow and become more complex.
• Regulatory requirements can complicate the entrepreneurial vision.
• Leadership transitions can bring new strengths to a company.

"I loved the product all the way through, but by the end I hated the company because it got so big, so over regulated."

• The founder's passion for the product can be overshadowed by the complexities of a growing company.

"They've just done such a good job taking it over when I left it over the next four years that I couldn't have done."

• New leadership can successfully navigate challenges that founders may struggle with.

• Founders often struggle with detaching their identity from their company.
• Leaving a company can require rebuilding one's self-image and ego.
• New environments can provide humbling and positive experiences.

"I couldn't imagine myself and the company not being the same thing and who I would be or what I would be or whether I would be relevant anymore."

• Founders may find it challenging to separate their personal identity from their professional role.

"Going to America where no one knew who I was and joining YC as basic an intern was incredibly humbling and really positive."

• New experiences can offer opportunities for personal growth and self-discovery.

• Investor enthusiasm can significantly impact founder motivation and company dynamics.
• Cultural differences can influence startup environments and investor interactions.
• Some investors may engage in manipulative practices during funding rounds.

"Relentless optimism... He will excite the founders themselves and they will come out with way more optimism and self belief than they went in with."

• Positive investor interactions can boost founder confidence and drive.

"This is just standard practice for him. He will go in super, super, super happy, like supportive... and then at the last second, he'll be like, oh, no, there's actually something wrong."

• Awareness of investor tactics can help founders navigate funding negotiations more effectively.

• Personal connections with investors can offer significant support beyond financial contributions.
• Some investors go above and beyond to assist startups during challenging times.
• Building strong relationships with investors can be invaluable for founders.

"For me personally, it was Eileen Burbage... She stood to make a lot of money, so economically it makes sense. But she went above and beyond."

• Investors who offer personal support and involvement can be crucial during pivotal moments.

"When we lost a chief people officer, she came and did an exec job at Monza effectively for like four days a week for six months."

• Exceptional investors may provide hands-on support to ensure company stability and growth.

• Success and wealth do not necessarily equate to personal happiness.
• Founders may reevaluate their motivations and values over time.
• Personal fulfillment can come from non-professional pursuits and relationships.

"I chased success and money... It was success. It drove me to do Monzo and drove me to stay at Monzo for a long time after I was happy."

• The pursuit of success can be a powerful motivator but may not lead to lasting happiness.

"I'm the happiest I've ever been, I think in the last six months because I have the work that keeps me intellectually stimulated. But tons of hobbies and friends and I'm not striving for it, like external validation as much."

• Finding a balance between work and personal life can lead to greater overall satisfaction.

• Personal relationships and family may become more important than professional achievements.
• Founders may seek new experiences and locations for personal growth.
• Long-term happiness may come from personal connections rather than business success.

"If over the next 10 years I met someone great and we had a family, that would be happiness for me over creating another billion dollar company."

• Personal life goals can provide a new sense of fulfillment beyond professional achievements.

"I would love a long term partner and I would. I think I'd like kids."

• Building a family and personal connections can offer a different kind of joy and satisfaction.