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Garry Tan has revealed his ‘secret sauce’ to getting into Y Combinator

If you’ve ever wanted to apply to Y Combinator, here’s some insight into how the legendary accelerator selects companies from someone who knows best: Garry Tan, president and CEO of Y Combinator.

The Economic Club of Washington, DC hosted Tan on Wednesday for a one-on-one interview with General Catalyst board member Teresa Carlson.

It’s common knowledge that Y Combinator accepts less than 1% of the applications it receives — the latest batch was whittled down from 27,000 applications, Tan said. Cohorts these days typically consist of around 250 companies. So Carlson wanted to know, among other topics, what the «secret sauce,» if you will, was to getting into Y Combinator.

First, it might be one of the few places where you don’t need to know anyone to get in, Tan said. Anyone can go to the website, sign up and submit a one-minute video. YC’s 14 partners read the applications to understand a few things: Who is the applicant’s potential customer and what have the founders built in the past? The best candidates then proceed to answer a handful of partner questions.

“So many venture capitalists go through meetings, week after week, and say ‘no, no, no, no,’ and then maybe a few times a year they say ‘yes,’” Tan said. «YC turns it upside down.

One of the things YC is looking for is founders who can create a market, to see technology that no one has yet imagined, he said.

Tan used Coinbase’s Brian Armstrong as an example of someone who created a market. When Tan first met Armstrong, he was still working as an anti-fraud engineer at Airbnb. Armstrong read it Satoshi Nakamoto white paperand I had an idea.

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«He said, ‘No one believes it yet, but I do, and I want to work on software that would manifest this crazy idea that you can have a sovereign cryptocurrency,'» Tan said. «This was a very fringe idea at the moment, but that’s what we’re looking for – a fringe thing.»

He went on to explain that a «fringe thing» is a new technology «that deeply technical people are obsessed with» and that «touches all of society.»

After YC partners interviewed and accepted Armstrong into the program, Tan recalls working with him every week. And during those conversations, he realized that if there was something like Coinbase, «it’s going to be really big.» Then came the discussion of how to build it.

“The cool thing about what he was doing was that it was really hard to even get Bitcoin,” Tan said. «I personally experienced it. These fringe things can turn into something really big.”

He also said Armstrong exemplified another thing YC partners look for in a candidate: «He was a first-principles thinker.» By this, Tan meant that Armstrong not only believed in what no one else believed in, but set out to discover the necessary things to build, be it software or distribution, to create a thing that no one else had seen. It’s not enough to just recognize a new thing, you have to understand some of the steps to building it and have a plan to confirm that what you’ve built solves the problem you originally set out to solve, Tan said.

YC went through a series of interviews last week, and Tan said that all the founders it decided to fund «came with some new discovery that they discovered interacting with the technology itself.»

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“It’s like sitting at your desk and realizing, ‘Hey, did you know there’s a robotics manufacturer that’s now making a humanoid robot for $16,000. It’s coming to my desk on Monday, and we’re going to try to be the first to commercialize it,» Tan said. «It’s an example of a first-principles insight into a very interesting area.»

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