The Magic Thread

Y Combinator just held our 20th demo day. For the first time ever demo day was spread across two days during which 109 companies pitched their ideas to hundreds of investors from Silicon Valley and around the world. The majority of those companies will raise seed capital and, if our track record holds true, many will grow and thrive and a select few will become very big, very successful companies.

The partners at YC spend time with each company during their batch and strive to deliver relevant, vital help at the crucial early stages of the company’s development.   Towards the end of the program we work hard with each founder to help them craft their demo day pitch.
Paul Graham has always had an extraordinary ability to imagine the future of a business with a unique combination of clarity and optimism that is inspirational to founders.  He can take the thread of an idea - amazingly, almost any idea, pull it until it reveals a billion dollar business and then help craft an eloquent take-over-the-world story.

The process of pulling together a YC demo day pitch is really the culmination of a three month effort not just to get every one of our startups on the road to success, but to help our founders clearly see where that road CAN lead.  In PG’s words, to look at their Altair Basic and imagine the Microsoft they can become.  YC partners follow this example and work with our founders to help them find the “magic thread” upon which they can build just that sort of unshakeable belief that their company, despite the odds, will one day be the next extraordinary success.

Entrepreneurship is incredibly hard. The most successful founders are usually the toughest, most determined ones. Above all, they are the ones who believe the most.  They believe so hard that rather than quit you would have to pry their startup from their cold dead fingers.  Elon Musk, in an interview once said he would have to be “dead or severely incapacitated” [1] before ever giving up.  

Investors have a difficult time telling which YC companies will be the huge winners because the founders themselves believe their pitches.  When we help them prepare a pitch we insist that the content be honest and credible and that the delivery be done with passion and intensity.  We help them distill the essence of the company vision and to imagine the extraordinary company for which their startup is the seed. It turns out that this process not only helps reveal the magic thread for a company - but actually helps the entire team believe. It creates a shared understanding of what is necessary for all the founders to take part in the awesome task of taking a tiny startup built around an idea and creating a multi-billion dollar organization.

This leads to a useful recommendation for startups, especially but not exclusively for those preparing an investor pitch.   Founding teams should get together and create the story of their company. It should be tellable in about two minutes. It should be honest yet bold. It should be persuasive to them and to to others. Crucially, it should imagine a story like Bill Gates’s where from modest beginnings a giant enterprise is built.   Successfully pitching to investors is only one small task for founders on the very long road to startup success. But that shared understanding, shared belief and shared vision comprise their magic thread leading to victory.

Thanks to Sam Altman, Aaron Harris, and Paul Graham for making comments on earlier drafts of this post.

[1] Elon Musk on 60 Minutes regarding whether he thought of throwing in the towel after his first three test flights failed to even reach orbit: