Kirsty Nathoo On Growing Y Combinator

Kirsty Nathoo has been at Y Combinator, Silicon Valley’s pre-eminent accelerator and incubator, for over a decade. Her official title is CFO, but in 2014, YC partner Harj Taggar explained her role thus, ‘Y Combinator would cease to operate if Kirsty wasn’t around.” TechCrunch’s Leena Rao called her its “secret financial and operational weapon.” The organization, and batch size, has grown meaningfully since then, and the secret’s out, but Nathoo is still a force in Silicon Valley, among many other things, popularizing and naming the seed-stage financing document of choice, the Safe.

On the eve of YC Demo Day, Kirsty sat with us and gave us her take on her illustrious career helping founders, from teaching them how to manage P&L to picking them up from the airport.

How did you get into finance?

My undergrad degree and Master’s are in Engineering, and I really loved it. I spent my summers working at places like IBM and decided that the stereotypical experience of being a developer in the early 2000s in the UK was not for me. I didn’t like sitting in windowless rooms, and I never discovered any roles that I wanted.

In particular, going into finance and auditing seemed like a good compromise because I could still play with numbers and spreadsheets, but I also got to talk to people and learn how many different businesses worked. The first 3 years of my career were spent working and studying for my ACA (the UK equivalent of a CPA) and then continued to work at PwC until 2009. Unfortunately, when working at client sites, the audit team was often still in a windowless room somewhere undesirable!

How did you get into startups?

The first time I became aware of startups was as an undergrad when I went to a talk by a “business angel.” I thought investing seemed like a fascinating thing to do — again because they were learning about lots of different businesses, but the impression I got was that this was not a career; it was something rich people did in their spare time.

I worked at PwC in Cambridge, UK, and by luck, was put on the audit of ARM Holdings as one of my first jobs. It wasn’t a startup at that time; it was already a public company, but it felt like a modern technology company and had kept some of the startup feelings like open offices, communal gathering places, and particularly in the finance function — where lots of new rules were being introduced by the SEC and other bodies — a feeling of having to invent new ways of doing things. We worked with them in the first year that Sarbanes Oxley came into effect, and ARM was one of the first companies in the UK that had to report under the new regulations.

That was definitely the Wild West, and we were really in the trenches, like a startup’s early days. At the same time, my husband started his first startup in 2007 and was accepted into the Winter 2008 batch of YC. So he spent 3 months in California while I stayed in Cambridge. He was so enthusiastic about moving to the US when he came back that we decided to move for a couple of years for an adventure.

Getting the job at YC was a case of being in the right place at the right time. Jessica Livingston, one of the founders of YC, was chatting with Amir about how YC was growing and they needed someone to help organize and look after the finances. Amir jumped on it by introducing me to Jessica, and the rest is history. I’ve now been at YC for 11 years and have seen so many founders come through and shared in their successes and failures. One of our mantras is that there is never a dull day at YC because something surprising still happens almost daily.

What was it like in the early days, running the YC finance side as one of one?

It was really fun! We were running like a startup — on a shoestring budget, trying things that didn’t all work, and just generally reacting to whatever was happening on that day. I was amazed at how much trust was placed in me right from the start and how much autonomy I had to try new ways of doing things. If something didn’t work, we picked ourselves up, learned from it, and moved forward.

“I was not only one of one on the finance team but also the events organizer, office manager, and batch manager.”

I was not only one of one on the finance team but also the events organizer, office manager, and batch manager. In those early batches, I knew all the founders really well because I was so involved with their YC experience, and my husband used to joke that we always had to leave extra time to get anywhere in San Francisco because I would always bump into a founder, no matter where we were. As YC grew, new teams took on everything except Finance, and I now focus fully on that. Unfortunately, I don’t know the new founders any more, but I still love seeing the OG founders and learning what they’ve been up to.

Any funny “before they were stars” stories about back in the day?

Ha, I don’t want to embarrass anyone! I always felt like a mother hen looking after my chickens because the founders were so focused on their startups that anything else just didn’t seem to register with them. There are many examples of founders of now successful startups showing up late, at the wrong place, without their laptop and calling me for help.

Often international founders would arrive at SFO and wouldn’t have US bank accounts or any way to get USD out of their accounts. I would meet them there to give them cash from their investment to pay a deposit on their apartment and usually give them a ride to wherever they needed to go so they could save on taxi fares.

What are the biggest lessons you’ve learned scaling the org to what it is today, at over $300b worth of portfolio market caps?

I think that the biggest thing is that we need to stay true to our roots and keep the DNA of the organization from when Paul Graham and Jessica Livingston set it up. Our guiding principle is that we should do what is best for the founders. Everything else follows from that. Our success comes from the fact that people want to be part of YC, and they want to be part of it because YC and the community of founders help them make their company more successful.

As an org, we now have over 60 employees. We’ve been through growing pains to scale to that, things like creating an org hierarchy where people understand where they fit, compensation philosophy, clearer communications plans. When it was just a few of us at the start, we didn’t need any of that because we all knew what everyone was doing, and we all just pitched in, like in the early days of startups.

“We often say, ‘what advice would we give our founders in this situation when we’re talking about what to do internally.”

We often say, “what advice would we give our founders in this situation” when we’re talking about what to do internally. I’ve also got much better at realizing that as the number of employees grows, you can’t keep 100% of the people happy 100% of the time. I would spend days agonizing over decisions, trying my hardest to do the best for everyone, and then take it really personally when somebody wasn’t happy with the decision. I hated that they thought that I hadn’t considered their viewpoint when really I had.

It also helps that we have companies that are much larger than us in our portfolio, so we can ask the founders for their advice too now. In the move to working remotely over the last year, we’ve asked for help from Zapier, Gitlab, and other companies who have already done this or announced that they are staying remote.

How did you come up with key financial innovations YC has made popular (Safe, etc.)? What others do you think still need to happen?

There is so much that we talk about that could be made better! One of the things we talk about a lot is how to help companies that are, for instance, lending capital. They need capital to get started, to prove that the idea works with enough customers, but they can’t get that capital until they have proved that it works. Is there a way for them to raise capital to do this in a less expensive way than selling part of the company for it?

The Safe has been an amazing help to our founders. Prior to that, companies raised on convertible notes, which were better than doing a priced round, but they still caused founders to have problems when they reached maturity. So we tried to figure out a way to have the ease of the convertible note without the downsides, and the Safe was the result. Carolynn Levy gets most of the credit for it, though. Although I was instrumental in naming it — we still laugh that investing in startups is the opposite of safe!

“I was instrumental in naming it — we still laugh that investing in startups is the opposite of safe!”

How have you built out a team now that YC is both a seed and growth-stage firm?

The finance team, along with the legal team, is one of the few teams that get involved in both the early and late side of our firm, and that is really interesting to see and be involved in investment decisions.

When we started our late-stage fund, YC Continuity, we took money from outside investors for the first time, so there was a steep learning curve related to this, both in terms of talking to our investors and also how we report financials to them. I didn’t have a lot of experience with that because all my experience was in scaling up how to invest in our batch companies, so I hired people into the team who did. I still learn from them daily.

What do you think about the current, extraordinary in every sense of the word, market?

The market is certainly not like anything we’ve seen before! The sheer volume of rounds happening is unprecedented, both at early stage and at late stage.

We’re seeing more YC companies go public — just in the last few months, Airbnb and Doordash went public, and Coinbase is expected soon. We expect there to be a few more companies this year too. SPACs are also an interesting opportunity for some of our companies as a route to raising more funding, and they are a current trend that we’re watching carefully.

You have founders from a wide range of backgrounds coming into YC. What can founders do to make sure they have the adequate financial literacy to build their startups?

One of the things that we look for when we accept a company is that the founders “know their numbers,” and that requires a basic level of financial literacy. Some of it is pretty straightforward:

1. How much money am I spending each month?
2. How much money do I have in my bank account?

But other things get a little more complex:

1. How much does it cost to acquire a user?
2. What is my retention rate?
3. Are cohorts getting more profitable over time?

There is a huge amount of information out there to help founders learn about this, including YC’s Startup School. The key is not to be intimidated by it. Most of our founders don’t come from a finance background, so it is new to them, but with time and guidance, they figure this stuff out.

We find that the best founders always have the key number and KPIs at their fingertips and are heavily involved in calculating them rather than outsourcing them.

YC discloses its diversity stats (19% female-founded cos, 7% Black-founded cos, and 13% Latin X-founded cos in the Winter 2021 cohort, an improvement over last summer). Do you have ideas on how to encourage further batch diversity?

We’re thinking hard about our own ecosystem and how to make a difference there. We have begun by working with a couple of organizations, ColorStack and CodePath, that are helping to develop computer science majors within underrepresented minorities and underserved populations.

We launched pages that highlight the Black, Latinx, and women founders in our community. We hope this new directory becomes a resource for investors who are actively seeking out Black, Latinx, and women founders to support. And for prospective founders, we hope they discover founders who have experiences that reflect their own.

For years we’ve done targeted office hours with underrepresented founders and will continue to work to reach more women and BIPOC founders. We created the Future Founder Conference, a virtual event for women who aspire to become startup founders; thousands of women attended in 2020. It was amazing to see how much support they all gave each other. It was a really successful remote event, but I did miss chatting to the women in the hallway about what they were working on or thinking about starting.

What advice do you have for other women who want to become early operators the way you have?

“If you’re moving from a different role, be prepared to take a step back in the short term. I went from managing international teams at PwC to being the person taking out the trash after dinner.”

If you’re moving from a different role, be prepared to take a step back in the short term. I went from managing international teams at PwC to being the person taking out the trash after dinner.

In the long run, the experience is worth it, though. Especially if you join a company at an early stage and it continues to grow, and you go with it. A growing company will continue to put you out of your comfort zone as you learn new things. It is easy to give into imposter syndrome in these situations, so working hard to recognize that is a skill to learn early on.

When I joined YC, I don’t think any of us had any idea that it would become what it is today. There is some amount of luck to finding the right rocket ship, but loving the mission, the coworkers, and the customers (in YC’s case, the founders) will ensure that you enjoy showing up to work every day. I can’t believe 11 years have flown by — I can’t think of another job I would rather have.

What is helping you get through the pandemic?

Our 2-year-old, Cosmo, is an absolute delight (most of the time), and an unexpected benefit of working from home is being able to pop in to see him during the day. We’re lucky enough to have childcare, and I have no idea how working parents manage to look after their children and work. If that is you, I’m in awe.

I’m thankful that we have communication technology like Zoom and Facetime at our disposal and that it is simple enough for parents to use. Sadly, my parents and family are all in the UK, so I haven’t seen my mum in person for 2 years. Our Facetime calls are great to keep in touch, and Cosmo asks to call Granny and Grandad often. The first thing I’m going to do when it is safe to do so is to have my mum fly out to see us and give her a great big hug!