how would you differentiate between an idea that could be a great foundation for

a billion doll company and an idea that is likely to get run over by GPT 5
something that's boring might actually be an incredible business but why is that
yeah let's talk about GPT rappers are people worried about giving these data sets
to open AI all these AI agents are passing the touring test I mean this is why I
think the chat interface is wrong you want to do something in AI like this is a
good place to like look into big generational companies are getting built as we
speak great startup ideas just lying on the ground you'd like trip over them this
might actually be like a once- in a lifetime opportunity and I I think I actually
agree what a time to be [Music] alive welcome to the very first episode of the
light cone I'm Gary this is Jared Harge and Diana and we're group Partners at Y
combinator and we get to work with some of the best Founders in the world Jared
why are we calling it The Light cone well in special relativity the light cone is
the path that light takes from a flash of light you can imagine a flash of light
and it spreads out in a cone shape and in special relativity you think about it
spreading out in a cone both in the future but also in the past and in this
podcast we are here in the present but we are going to talk about both the past
and future of technology so that's how we came up with the name and one of the
things that we're all seeing is the encroachment of AI into almost every piece of
uh Society at this point you know every business transaction every uh thing that
we sort of use with computers uh suddenly a new burst of technology is sort of
entering everything we're doing and we're seeing it in the startups that we're
funding which is why we're so excited about it I think you know what what's the
percentage of companies you've backed right now that have large language models I
think for summer 23 was close to 50% of the batch and it's pretty interesting
like I think a lot of people like see that number and they think oh YC must have
funded so many AI companies because we have this thesis about Ai and like it's
just easier to get into YC if you're an AI company because we just like love
funding AI companies and it's funny to us because we know how that's not true and
yet that's probably what like 90 that's probably how 90 plus per of people
actually think YC Works how does Howes how's it actually work can we tell people
like how it actually works I actually think it's interesting the smart Founders
apply to us with what they want to work on and we fund the smart Founders like
irrespective of what they want to work on actually and exactly and so the fact
that half the batch is working on AI says something much more interesting than
just the YC Partners think AI is cool it's an emergent phenomenon of what the the
smart Founders want to work on right now is like where do they think there's the
high beta to build the largest company and I think the most ambitious and
smartest Founders are going after this because it's definitely I think the
exciting thing about right now with AI I think it's like real there's been a lot
of waves for AI and multiple AI Winters but this one actually gbt 3.5 and then
four blew out of the water a lot of task and it impressed a lot of smart people
when a lot of smart people start paying attention and building in this current
idea mace I think big generational companies are getting built as we speak one
thing I'm seeing that's interesting is I feel like a lot um a lot more Founders
are dropping out of college to start working on AI because they don't there's a f
off yeah there's like an actual like and usually it's so funny my my interview
question is almost always like what's the rush like why do you want to drop out
of college like why don't you just like graduate because it makes a lot more
sense to graduate and then do a startup um and the reply is usually like well
like this might actually be like a once in A- lifetime opportunity and I I think
I actually agree and and the other cool thing is that this is an opportunity
where college students are particularly well like young Founders are particularly
well positioned to work in it because nobody has like like there's no one walking
around with like four years of LM experience so like everyone is starting from
the same playing field and so if you can learn fast you're going to be at the
same level as everybody else that's right and you know one an area I've seen that
come to play is like developer tools for prompt engineering I've been seeing like
these sorts of tools are getting uptick it's like ability to like chain together
different prompts and test your prompts and see like the second order effects um
and actually a lot of college students are the people who are just like playing
around with like prompting models and seeing what comes out and it's a really
easy startup idea for them to like just build the tools that they want and like
the tools that they want are literally setting like the standard for what every
developer should want like I know a lot of the headlines are all around like AGI
and all of the fancy stuff and then the really cool demos of like multimodal AI
like AI generated video and and this kind of stuff the stuff that I've seen in
the batches actually taking off is a little bit more mundane like it's um I
probably say a lot of it sort like workflow automation like um it's finding
things where there was like a human doing some repetitive task usually involved
like searching for things or filling out forms and then using like llms to
replace that it feels very obvious to us the people who work at YC that this is
an amazing opportunity there's so many jobs in the world that are basically very
mundane information processing typically stuff that's hidden in some back office
somewhere where there's somebody who's just like reading stuff and summarizing it
re-entering it from one system into a different system and like a slightly
different format and it's such a perfect fit for llms LMS are like perfect for
this job and yet we actually don't get that many applications for people working
on this and there's a lot of Founders out there who are searching for a great
idea so if you're out there and you're looking for a great startup idea and you
want to do something in AI like this is a good place to like look into I give you
an example so last patch had a company I worked with called sweet spot and we
funded them the idea was something about like food ordering from food trucks
something like random and they pivoted immediately looking for a new idea and the
idea they found was um using llms to automate searching for government contracts
to bid on and God such a good idea yeah and submitting the proposals that sounds
so boring what could be more boring than searching through like a list of all the
government contracts you know how they found it is um exploring startup ideas and
then they realized one of their friends his job was to work for one of these like
government contractors and his whole day was just spent like refreshing this
government website um to like find things and then submitted proposals and
they're like what like that's like exactly that that's so boring like wouldn't
you like a tool that did this for you yeah and they launched and like pretty much
straight out of the gate got like um a pretty decent amount of traction because
they're like opening up um the people who who would actually do it like it
becomes easier to like find government contracts to bid on when it's all
automated away and like software does it for you you know obviously we all know
that you know something that's boring is actually kind of awesome but why is that
that's like you know just off the bat you know we have a sense that something
that's boring might actually be an incredible business there's an old PG essay
where he talks about this and he says um he he quotes a phrase where there's muck
there's brass it's like it's as it's almost like Old English you want to explain
it har just means like you can find treasure in surprising places yeah and I
think the cool thing is you have to go deep and vertical and solve a very
concrete problem like some of the problems with let's maybe talk about AI tarpits
what a tarpet idea is is it's an idea that from the outside looks really shiny
and attractive it looks like a great startup idea and so lots of Founders go and
they start working on it and then you realize once you're in it that it's
actually not a good startup idea but but by the time you're there you're like
stuck in it and so it just attracts founder after founder and they just get stuck
in the tarpet idea and we see this a lot at YC because we see all these
applications and so it's really obvious to us when like 500 people apply to a YC
bat for the same idea but they don't know that 499 other Founders are also stuck
in the same tarpet what's tricky I think about topet ideas for AI is like we know
something's that top it idea in hindsight once like enough people have been stuck
in it so with AI it's so new we don't know yet so I have a couple that I'm
actually like Keen to get your's thoughts on um a very common one is AI co-pilot
so it's like hey I'm going to make it easy for um people to like build an AI co-
pilot for their product or or service it's it's really unusual type of phenomenon
where there's so much interest from potential customers to like want a co-pilot
that it's actually quite easy to start getting getting like inbound leads if you
pitch this and if it's even
easy to get people to pay you money up front but what's really hard is to get
them to actually like use the co-pilot because they don't actually know what they
want it for like they just heard that AI co-pilots might be changing the feature
of software so we should have an AI co-pilot but they don't actually know what
their customers will use it for I think for me and maybe I just have a uh a
mental block around chat interfaces but I've never been that big a fan of chat
because it puts so much of the emphasis on the user knowing how to speak to a
computer and you know while in the next five or 10 years I think we will all get
far more used to using it that way um I think the the lwh hanging fruit right now
is just using the large language model to actually do the sort of knowledge work
that a human being could do and then package it into the UI that you know whether
it's a mobile app or a web app that is just familiar like sort of what people use
to do their work right now and it's you know basically the llm is better used as
sort of this like I I mean it's almost like you know this thing that's sprinkled
in that you know the software suddenly does something really powerful but you
don't have to change the way you would want to use the software as it is sort of
like a an example of a phenomenon that like I I think we have seen in the past
when like some technology gets really hot and all of a sudden like all these
companies are like they're being asked by people like what's our AI strategy
they're like oh well we better get an AI strategy or like with crypto there was
like oh everybody needed a blockchain strategy and even before that it was like
everybody needed a mobile strategy for a moment in time it's like easy to sell
them something that like placates their desire to check some box but in the end
you've got to actually make it successful for them like otherwise it's not going
to stick I agree and so like perhaps with this AI co-pilot thing like maybe it's
too early to call like perhaps they actually will find product Market fit maybe
with something that's not a chap out UI like they'll like keep iterating on the
UI until they find something that's an AI co-pilot people actually want or maybe
it's just going to like fizzle it just like turns out most people don't need an
AI co-pilot some of the advice I've been giving those those specific companies is
the another old PG essay about if you if you're trying to sell technology to
someone and they're not buying like see if you can just build a competitor and so
it's like hey if you're trying to sell like um uh fintech company a co-pilot and
they're not buying it well like if you are convinced they should have a co-pilot
like why don't you just like build the company with the co-pilot as the main
experience and see if you can out compete them or not I like that that I like
that I think getting people to focus on the use case I think the problem is the
whole thing with um kind of the Gold Rush people selling more the shovels and the
tools and even then in this case it is a bit of that but a lot of people aren't
digging gold yet like the reality is this is such a new technology and even the
end applications that apply AI the reality is there so early they don't have
product Market fits so it's sort of bit of a the blind leading the blind in here
it's like what do I even know what the pattern is for copilot I mean it sounds
cool just to join the cool kid Club of we're doing Ai and we're going to check
mark So I think that's the danger for a lot of these uh startup it's like it
seems that they're getting traction as you mentioned but then when you we poke
them closer is anyone actually using you what are the actual use case and then
the founders come back and they startare a blank at us oh but look at all the
sign up look at the revenue but then they're not really using your product I mean
we're seeing even the second order effects right so a bunch of us are funding uh
Dev tools companies that sell to AI companies and they're selling tooling but
then they might you know they might sell an Enterprise contract to someone who
also Upstream has a Fortune 00 that said that they'd pay $100,000 a year for that
contract and then 6 to n months later that you know Fortune 100 went back to the
incumbent uh you know some other leading you know IBM Salesforce like something
like that um because they ended up adding large language model technology to what
they they were doing and people just switched back and suddenly the dev Tool
Company suddenly realizes oh I had five contracts but three of them went away
because my customer actually their customer so it's actually like sort of
remarkable how fast this is evolving you know right now in 2024 a specific type
of idea I'm curious to get thoughts on here as well is um offering like fine-
tuning open source models sort of as a as a service broadly like that's a very
popular idea I think over the course of 2023 here's what I've seen so like why do
people want like why is there any demand for a fine-tuned like open source model
at all um it tends to be initially I think the Big Driver was cost like open AI
like chat GPT was expensive and people wanted a um cheaper version of it and so I
think it was very easy to get customers with the pitch of hey like we can f tune
an open source model and it's just going to be much cheaper what I think a bunch
of the companies in space are seeing is that like that's not enough to keep the
customers especially because like open a like the cost of all of the models just
going down and that's going to keep happening with the open AI has a plan for all
of those so there's something more that all these fine-tuning companies need to
do yeah it has be better not just cheaper I think where is exactly that where I
think is having more legs is when these companies need to customize it to private
data sets so you have the open General big foundation model but then you have to
tune it up to specific data sets that for example a healthcare or fintech can't
give out can give out and they don't have the team of um experts to do it so I
think the one company that I think Brad worked with was credle that kind of was
doing that what are you seeing about like so the concern around data privacy is
another big reason like are you seeing that as being enough like are people
worried about giving these data sets to open AI it's really interesting I mean
whenever you have something so new like this it's actually um sort of resets the
clock on the competitive landscape again so you know you almost can expect all
the same things will happen again um you know just as 10 15 years ago Cloud was
brand new and then you had Cloud cyber security and Cloud strike and all these
companies sort of come out um you know we're seeing the first wave of cyber
security companies you're like prompt armor so they sort of wrap your API calls
and uh what they actually have figured out is that for a lot of large language
models if you do any sort of fine-tuning or training with private data you can
actually just speak to the model and get it to spit out your private data again
and they have a solution that stops IT so it's so interesting because you know
it's entirely possible you know they're basically creating a new industry again
um of cyber security for llms sort of in the same way that cloud opened up that
space and created cyber security for the cloud yeah I definitely think that whole
world of controlling within an Enterprise in particular like controlling who has
access to like which llm has access to like what data and who has permission is
like a really ripe space for building interesting software I think the other
exciting area that a lot of the tools are getting built is getting more this is
like a step further fine-tuning but more purpose trained models that are smaller
so take a for instance a llama and getting those to run locally in machines for
inference and when you customize some train on a specific domain and Target data
is going to perform better than the general model The General model was kind of
trained on all of the human language for all of the task but if you wanted to
build like the best let's say um language model for parsing SQL queries you would
then parse very specifically just a set for SQL quer and I think some of those
that are interesting companies that we funded is like AMA that you funded that's
trying to make the development process for running all of these locally a lot
faster and I think we're also funding some of these that are custom for coding
the thing that was surprised learning from some of the startups that are building
um coder type of uh co- Pilots which I think is is a use case that's working out
making a lot of the workflow for programming a lot faster it's kind of like
autocomplete and co-pilot type of thing they're training on older models of a GPT
they don't even need the newest one and then I asked like why is that and even
for like one of the companies who funded last batch metalware for Hardware
they're not using the stateof the AR model like the older GPT I forget which one
was like the older 2.5 or three was sufficient and actually creating good enough
results because the vocabulary for a specific domain for Hardware or software is
a lot smaller than the human language so this is other world where the open model
that's customized I think is going to win and compete versus the big one for
specific domains so there lots of companies with this yeah that's what uh Toby
loty from uh shop actually still dabbles with the stuff I think he actually built
the uh internal co-pilot for Shopify and what he was saying is the best way to
use whatever gp4 or the you know latest Clos Source models that are most
expensive and have the most parameters uh just think of it as a prototyping tool
anything you do with those prompts you can get your own model to do with a little
bit more training it's kind of like uh when people build Hardware you have the
analogy of uh prototyping with fpga which are very expensive right and then when
you have the right architecture for Hardware then you do the circuit path and
actually do the custom s so so right now for some of these tasks the large
language model is sort of like your fpga whatever GPT 4 and then when you
customize it you do like the super efficient one coding path for I don't know
Shopify for coding assistance and Hardware software Etc that becomes your so that
you train and customize which is cool I think that patterns emerging it's like as
I hear you talk about that what's I just think it's just like so many different
startups that could be built it just feels like we've never had this moment at
least I didn't feel like I've never experienced a moment where there's just so
many potential startup ideas to be built like all that ones yeah there there
absolutely hasn't in we we definitely saw this in the last batch with all the
pivoting companies oh yes people don't always realize this but like many of the
companies get into YC within a month after we fund them they're looking for a new
idea cuz the old thing didn't didn't work or they lost interest in it or
something and it's normally like not actually that easy to find a great startup
idea for a team to work on but man was it easy last summer God it was just just
like great startup ideas just lying on the ground you'd like trip over them yeah
that was a fast I think you actually had a tweet about it that was one pretty uh
viral that talked about this is the batch the batch ever in your whole career
working at YC where Founders got to good ideas the fastest ever and hard has been
here even even longer yeah know it definitely feels unique I've never had so many
successful pivots yeah and Gary to your point about the chat gbt rapper I think
back like I feel like that Meme really came out like just about a year ago yeah
let's talk about GPT rappers yeah like like I feel like the first sort of group
of ideas I saw in the batch were all generative AI ideas built on Chop top of
chat gbt so was stuff like hey like automate your marketing copy or automate like
your creative content or something like that and that term got thrown out oh
these things are all just like rappers on top of chat GPT and um open AI is going
to like take all of like it's just going to build all of these things and they
were going to release their App Store and like it's just going to take all the
value and these things will die of the mem all of all of SAS software is just my
sequel rappers exactly I think this is a great analogy you can think about any
SAS product as basically a database rapper like you could imagine like negging
any SAS product CU like the first version of a sass prod it's basically just a
crud app and just like you took like my SQL then you like built like a website on
top of it and I think people are going to look back on this term GPT GPT rapper
like similarly how we think of like how we would look at the term database rapper
which just seems like silly I mean this is why I think the chat interface is
wrong like I actually think there is value acur to really great ux like good copy
good um you know interaction design information hierarchy uh you know being able
to approach a product and say like this is the job to be done and for for users
to come in just sort of naturally understand what to do like there is a craft to
building software that is timeless and that sort of transcends whether or not
you're using a large language model and so you know that that I think is what I
mean by you know these things are not you know SAS software is not uh a MySQL
rapper well here'd be a question I'd be interested in in in everyone's thoughts
on suppose you're a new founder and you really want to build a company and you
want to do something on top of LMS how would you differentiate between an idea
that could be a great foundation for a billion dollar company and an idea that is
likely to get run over by gbt 5 and is probably like not a good starting point I
think if a Founder is working on something too General and not solving a specific
need for a user they can actually go talk to another use case so I I worry about
the ones that are too generic generic and building going after some kind of
abstract it will solve all the things yeah if it's like hey like throw your data
in here and we'll do like automations on top of it like for everything that's
probably hard to compete with whatever one of the foundation models might offer
but if it's like hey we are give us like your sales log data and will like um
spit back like suggested next actions like you can like for sales people to make
them better at sales that's probably going to work better or give us all your
compliance checklist to pass Hippa compliance and process that it's like that's
very specific and lots of business logic or give us all of your data for
processing government forms right yeah so a lot of custom business logic so the
same thing with the SAS era a lot of the applications and how you build
applications in there there's always the separation business logic and they crow
in a lot of architectures for these app and a lot of the value of the company is
accured on that business logic that is so custom per company and there's a whole
pattern of uh programming patterns on how people separate those yeah gu as this
all goes multimodal this is going to get really interesting so early days but
yeah we've seen companies work on voice AI apps to be like a sales rep and I
think um it's an interesting example of the kinds of ideas that might be possible
now with AI is where you take something like a Salesforce and you try and
reimagine like what would Salesforce do if it were started today with all the
power of AI what it almost certainly do more than just be like a CRM right like
it would make like it would find who your leads might be like maybe now it can
make the calls for you it could like set them up like maybe it goes all the way
to start like implementing like the first version of the product for them like I
think it's just like the scope of software you can build with AI now is so big I
think that's another good way to find ideas like look at software today and
reimagine it with the power of AI today which you funded a number of companies
that effectively are AI voice agents for small businesses because they receive I
don't know if you're like a flower shop or a AC repair man in the middle of U the
US there's a lot of calls for you to schedule and you don't have a lot of stuff
automated and there's these YC companies that are using that building these AI
voice agents to basically be the receptionist I know one of our partners Paul
buight is quite worried about this actually he's worried about there's going to
be a world of just s like all these AI agents that are out trying to do malicious
things and that we're going to need like our own like good defensive AI agents
out there making sure we don't get scammed out of all of our money I mean this is
actually why I'm so uh an advocate for open source AI because these things are
sort of real considerations um you know can you imagine there only being one
hyperd dominant AGI and it's totally close Source it's owned by one company and
uh you know it's only available to the highest bidder and uh you know imagine
you being uh you know someone who just had to go to the doctor and uh on the
other end of it is uh some health insurance company that uh you know bought the
bought access and blocked it out from everyone else and you know you getting on
the phone you're not able to sort of navigate or go against the sort of you know
impenetrable AGI that is able to sort of get around anything that you know your
side might throw at it like we actually want you know some form of actually
Equity at the AI level like we actually want uh you know not merely the biggest
companies to own the most capable AIS we want all consumers to be able to have
from the bottom up uh the same access to that same technology and that's uh you
know the best insurance against tyranny certain that's actually what a lot of uh
also not just Founders but smartest researchers who are really at The Cutting
Edge is I went to near IPS this past December which was incredible to see the
energy in there the conference has grown so much I think it like over 10,000
attendees there were 3,000 papers more than 3,000 papers accepted and I think um
back in 2017 there was only around 600 papers when I went back in 2010 it was was
just in a ski lodge and maybe like a 100 papers it's crazy the kind of
exponential growth and one of the big topics of Interest was a lot around AI
ethics and Regulation and how do we measure that so that that was interesting um
but the thing that's different about typically that was interesting in this
conference is the amount of interest from researchers wanting to start companies
too one interesting data point is um a lot of this era with GPT came about from
from One Foundation paper is all attention you can need it was this paper that
got released got launched in a New York IPS back in 2017 it was a team at Google
who was trying to figure out how to make a machine
translation between languages more cheap because the English translation to any
language was actually pretty good but if you wanted to do I don't know German to
Japanese there was not enough data so they figur out this way to compress data
which became the Transformer models for GPT and it was like groundbreaking and
this is the foundation for llms that paper came out in 2017 and the fun fact I
was just looking this up out of all those author eight authors seven of them
start at different companies and all of the companies in total their rate their
worth valuation more than six billion and now people are seeing oh these like
industry Pioneers did this and it's creating this new crop of I think Founders
that I don't think would have started because I talked to a lot of AI researchers
and I don't think they wanted to be Founders and I got a l this question how can
I turn my paper into a company which I think is cool because this is like going
back to the root of um why I F funding hardcore technical Founders and I think
it's cool to see that energy there so when we went and host our event we uh I
didn't plan and it was like 3x over subscribed nice standing room only huh yeah
yeah it's that sounds like really the new Homebrew Computer Club so NPS in
December yeah we got to mark it on the calendar we'll come back yep Diana I love
your point about how this is sort of like returning YC to its roots it definitely
felt that way last summer because when YC got started the internet was really new
and the people who were building stuff on the internet were mostly technologist
because actually like pretty hard to build websites back then and pretty hard to
build like good software and like as building software and building websites got
commoditized a lot more people came into the space and this is a cool reversion
back to the like Origins where like the people who are building the most
interesting stuff are like mostly really hardcore like researchers and
technologists because there's actually real new technology being invented it's
not just like innovating on business models with like commoditized technology and
again just like every great technology it's being dismissed right so going back
to like the chat gbt rapper meme I actually think that was great for YC because
it meant we only got the people who are like tune who could tune that out and we
just like hey like either I'm just so interested in this technology I don't care
like what the memes are or I'm just too busy building it to pay attention to the
meme on Twitter which is also great but like I feel like this has always been the
case right like Homebrew Computer Club like PCS are like dismissed as like toys
like the internet is dismissed as a toy like all all of these things so feels
like that moment again yeah there is a a class essay that I love that I saw off
Hacker News do you guys remember this it's Geeks mops and sociopaths in a
subculture Evolution and you know I think that that actually is the one thing
that's quite durable and like keeps returning right it's always the Geeks Who are
going to be into the tech no matter what they're on The Cutting Edge you know uh
I always think of Steve wnc talking about like you know we started Apple computer
with no idea that it would ever be a company like we just wanted computers for
ourselves and our friends and so you know at some point the you know sociopaths
come along and they start sort of uh monetizing the people who you know come to
the scene and then the cycle returns and repeats so that's why I like being at
the beginning of a new cycle and clearly AI is exactly that so don't don't count
it out don't write it off it's one of the most interesting things that are is
happening out there um but you know there are clearly things to be careful of
like don't be uh attracted to the new shiny thing uh instead look for the muck
because where there's muuk there's brass so that might be a great place to call
it for the very first episode of the light cone we'll see you next [Music] time