The following article is the text that I use for the Great Business Stories podcast on this topic. To listen to the podcast, click on this link or alternatively listen to Great Business Stories on Spotify or Apple Podcasts.

And just to note, I’m calling him the best, not the most successful. I love covering stories where it’s just about how someone does something differently, has a different worldview, and then uses that to have such a big and positive impact. I came across Paul Graham when I read the excellent book The Power Law by Sebastian Mallaby —it’s full of great stories from the world of venture capital. Before I read it, I had heard of Y Combinator, but I’d never dug into its foundation. But Mallaby, in his book, does—and it’s fascinating. So I was so happy to do a bit more digging myself.

Paul Graham set up Y Combinator, and over the years it has invested in 5,000 startups. These companies collectively hold a combined valuation exceeding $600 billion. Notably, more than 400 of these companies are valued at over $100 million, and over 100 have achieved valuations surpassing $1 billion. But it’s about more than money or numbers—it’s about this guy with huge intelligence, and a singular and very philosophical way of looking at business and startups, and how he revolutionised the sector.

The Hacker Philosopher Who Changed How Startups Begin

Born in 1964 in Weymouth, England, raised in Pittsburgh, Graham was a curious polymath. He studied philosophy at Cornell, painted at Rhode Island School of Design and in Florence, and earned his Computer Science doctorate at Harvard in 1990. Long before he became a patron saint of Silicon Valley’s young founders, he became known for his dedication for Lisp – the programming language most engineers deemed uncommercial, obscure, even eccentric. 

By the early 1990s, Graham had written two influential but very very niche books about Lisp – but he was restless. He didn’t want tenure. He wanted to build. In 1995, at age 30, he joined forces with Robert Tappan Morris – infamous in hacker circles for releasing the first internet worm-  (an exploit that had earned him a felony conviction and lasting notoriety) – to start a company.

The two set up shop in a crumbling Cambridge apartment with “cracks in the walls plugged with tinfoil.” The goal: build software that lets anyone create an online store – right from a browser. They called the company Viaweb.

Software on the Web – and Built with Lisp

Viaweb was software-as-a-service before the phrase existed. “Our plan was to write software that would let end users build online stores,” Graham wrote. “What was novel… was that it ran on our server, using ordinary Web pages as the interface.” And of course they built Viaweb in Lisp.

The programming world considered Lisp too weird, too academic. But Graham believed it was “extremely expressive” and perfect for rapid development- and that was Viaweb’s secret weapon- speed. Besides himself and Morris, their third partner was Trevor Blackwell, another Harvard-trained hacker. They lived off a $10,000 seed check from a lawyer friend and refused venture capital altogether. Any additional investment they did get came from individuals. 

Inside their tinfoil-walled office, the programmers never held meetings. Decisions happened on lunch walks. In late 1996, Viaweb went live. Within a year, it hosted 500 shops. A year later, it hosted 1,000.

“We Had a Secret Weapon”

With growth came imitators. But none could match Viaweb’s pace. When a rival announced a new feature in a press release, Viaweb’s team often built the same feature before reporters could even publish their stories. “We were just able to develop software faster than anyone else,” Graham said.

Yet they encountered a paradox: because Viaweb’s core team was so small- just the 3 founders, potential acquirers found it hard to justify a high valuation. “We felt pressure to hire more, because we wanted to get bought,” Graham admitted. By 1998, the headcount had grown to 21 – but most of the core product was still managed by the original three founders.

The customer base swelled. Revenue rose and that’s when Yahoo took notice and in June 1998, Yahoo acquired Viaweb for $49 million in stock and it became Yahoo Store. Within a year Graham left Yahoo. His cofounder Morris followed. Both were now wealthy and disillusioned. Viaweb had worked. But the culture of innovation that built it didn’t survive inside a giant portal.

Essays and the Origins of Y Combinator

In the aftermath, Graham turned to writing. His essays – “Hackers & Painters,” “Why Nerds Are Unpopular,” “A Plan for Spam” – became underground scripture for coders. His recurring gospel: elegance, speed, small teams, trust in hackers.

Venture capital, in Graham’s experience and telling, was the enemy. And he had good reasons for not favouring VC’s: he argued that VCs often have business models requiring them to invest large sums, not necessarily because startups need that much capital, but because it's what their fund structures dictate. This can lead to startups receiving more money than they need, pushing them towards unsustainable growth strategies.

They often seek significant control over the company's decisions. VC’s have a tendency to follow trends, investing in startups that are already attracting attention rather than making independent judgments. And finally he felt that ​​VCs often reject promising startups for superficial reasons, such as the founders' age or lack of formal business experience, rather than evaluating the core idea or product potential.

From Summer Camp to Startup Powerhouse: Y Combinator’s First Five Years

In March 2005, Graham and his then girlfriend and future wife Jessica Livingston walked through Harvard Square discussing an idea that came about because of Graham’s frustrations with the VC’s. Graham envisioned a new model: fund hackers, not MBAs. Viaweb had proven it could be done. Now, Graham wanted to help others do it faster, better, and without begging VCs. Everything he’d built – the code, the essays, his beliefs– led to this.

“Why not create a seed fund that makes lots of small investments… even in founders still in college?” Livingston recalled him saying.

By the time they reached Graham’s house in Cambridge, the idea had crystalized. Graham would put up $100,000, Livingston would quit her banking job, and their friends Trevor Blackwell and Robert Tappan Morris –his co-founders of Viaweb – chipped in $50,000 each. The four co-founders launched the experiment with $200,000. 

They called it Y Combinator- it became known as YC. The name came from a concept in computer science that allows a function to call itself—essentially enabling recursion. Graham found it one of the most fascinating ideas in programming. More importantly, he saw it as a fitting metaphor: just as the Y combinator helps functions run themselves, Y Combinator would help startups get themselves off the ground.

Summer 2005: The Birth of the Batch

In summer 2005 they announced a “Summer Founders Program,” offering young teams a few thousand dollars, hands-on mentorship, and dinner every Tuesday night in Graham’s kitchen. The investments were tiny – about $6,000 per founder for roughly 6% equity – and the legal structure was so novel they weren’t sure it was legal. “It seemed so lame – our own lawyers tried to talk us out of it,” Livingston later admitted.

But applications poured in. By June, Y Combinator had selected its first batch of eight startups. The atmosphere was scrappy, communal, and wildly informal. Livingston bought groceries and folding chairs; Graham cooked pasta and challenged founders with questions like, “What’s your plan to take over the world?” Among that first batch: Reddit, then a barely-formed idea from two University of Virginia grads, and Loopt, a location-sharing startup by Stanford dropout Sam Altman.

One of key elements to Y Combinator is Demo Day- it’s a pivotal event in the program, serving as the culmination of a startup's journey through the intensive three-month mentorship and development period. During this event, founders present their companies to an invite-only audience and they have just a few minutes to make their case.

The first Demo Day in August 2005 drew about 15 angel investors – obviously curious but also skeptical.  Within a year, Reddit was acquired by Condé Nast, and Loopt would go on to raise millions. Y Combinator had its proof of concept.

Growth and Skepticism: 2006–2008

Flush with early confidence, Y Combinator expanded. In Winter 2006, they added a second batch of start-ups– this time in Mountain View, California. By 2007, YC was producing about 40 startups a year.

It was during this phase that Y Combinator funded some of the tech world’s future giants. Dropbox, led by MIT grad Drew Houston, applied in 2006. Though Graham was hesitant about backing a solo founder, Houston solved that by quickly recruiting a partner. His 2007 Demo Day presentation impressed investors so much that one tried to cut a deal before the event ended.

Justin.tv, another start-up of YC’s Summer 2007 class, began as a quirky livestream of cofounder Justin Kan’s life – and eventually pivoted into Twitch, which Amazon would later buy for nearly $1 billion. Other influential graduates included Scribd (Winter 2006), Disqus (Summer 2007), Weebly (Summer 2006), and a curious little service called Airbed & Breakfast – later known as Airbnb.

Despite these hits, YC still faced industry skepticism. Sand Hill Road insiders- where all the VC’s have their offices- dismissed the accelerator as unserious. One investor reportedly told Paul Buchheit, Gmail’s creator, and an early angel investor with YC “No good company is ever going to come out of this.” But Graham was undeterred. He believed that if you backed enough smart people, some would break through. Airbnb became his favorite example. “Airbnb’s business plan was actually insane,” he later said, but what sold him was the founders’ sheer hustle .

Relocation and Rising Power: 2009–2010

By 2009, managing dual programs on opposite coasts had become unmanageable. Graham and Livingston made the call: Y Combinator would move full-time to Silicon Valley. Cambridge – the birthplace of YC – was closed. 

That same year, YC attracted its first outside capital. Sequoia Capital led a $2 million investment, joined by angels including Ron Conway- a legendary angel investor who had been an early investor in Google, PayPal, Napster. This marked the end of YC being bootstrapped by its own founders.

Now it should be noted the Sequoia is a VC company but their investment and involvement was on Graham’s terms.

The Year YC Took Over: 2011–2013

In January 2011, Paul Graham summoned the new YC batch to an unannounced meeting in Mountain View. No one in the room of 99 founders, representing 40 start-ups, knew what they were there for. Graham introduced a guest who appeared on one of Trevor Blackwell’s Anybots, a telepresence robot wheeling through the room with a screen for a face. On it: Yuri Milner - now this is a very interesting guy and he also features in Sebastian Mallaby’s book and I’m definitely going to do an episode on him- he’s a Russian billionaire behind massive bets on Facebook and Zynga. Ron Conway was there in person. And the message was brief: 

Milner and Conway were offering each startup in the batch $150,000 on a convertible note with no valuation cap and no immediate strings — the most founder-friendly deal Silicon Valley had ever seen. YC’s own standard investment which by this stage had grown from $6,000 to $17,000 was suddenly dwarfed. The “Start Fund,” as it was dubbed, totaled $6 million. 

The terms were so generous some called them “just crazy.” One YC insider admitted that many of the funded companies hadn’t even decided what they were building yet. But that was precisely the point: the bet wasn’t on the ideas. It was on Graham — on YC’s selection instincts and the philosophy behind them. 

Demo Days Become Feeding Frenzies

By 2012, YC had graduated from scrappy summer program to a full-blown “startup factory.” Demo Day was no longer a quiet showcase for curious angels; it was now split over two days just to handle the crowd. Hundreds of VCs and tech insiders packed into the Computer History Museum where the event was now held, many unable to wait for pitches to end before pressing business cards into founders’ hands or texting them mid-presentation. “It’s a feeding frenzy,” one observer noted.

Unicorns Begin to Surface

The results spoke loudly. By the end of 2012, many YC startups closed their seed rounds within weeks — or even before Demo Day. One gaming company, Humble Bundle, raised $4.5 million without stepping on stage. The first unicorns emerged: Dropbox and Airbnb both crossed the billion-dollar valuation mark. Stripe, quietly backed by YC in 2010, stepped into the spotlight, handling billions in transactions by 2013. Coinbase, another 2012 graduate, was riding crypto’s first wave. At the time of recording Stripe has a market cap of $70 billion while Coinbase is worth $45 billion

Some critics whispered about “accelerator overgrazing.” Graham pushed back: more startups meant more shots on goal. 

Graham Steps Back

After eight years of running YC, Graham and Livingston were readying for a transition. Their first child had been born in 2010, another was on the way, and the grind of batch-after-batch leadership was becoming unsustainable. Graham began preparing to step back from day-to-day operations. Livingston, the glue behind the scenes, had carried more weight than most realized — resolving founder disputes, managing chaos, and protecting YC’s culture from ego and burnout. Together, they had made YC more than an accelerator. They’d built a community. 

But they wanted a break and they’d earned it. Now in terms of what Graham had earned himself from his involvement in Y Combinator- the estimates vary wildly - some publications have done back of the envelope calculations that have his net worth at $2.5 billion- but based on my research, those evaluations are overly simplistic- other estimates put it at $50- million- the fact is we don’t know and Graham isn’t telling-but what we do know is that after retiring Graham lives a very modest life in the UK

By late 2013, a successor was already in mind: Sam Altman, who as a 19-year-old had joined YC with Loopt in its very first batch. 

Altman at just 28 officially took over in 2014- the next phase would be driven by scale. He was seen as “fearsomely effective and yet fundamentally benevolent,” according to Graham. His ambition: 10x the impact of YC while preserving its core belief in the power of exceptional founders.

Altman’s Expansive Vision

Altman wasted no time broadening YC’s reach. In 2015, he launched the YC Fellowship – a remote, low-stakes entry point for very early founders, offering $12,000 grants. Though the program was short-lived, it signaled a new philosophy: lower the barrier to entry, cast a wider net. Internally, YC began funding biotech and hard-tech startups – a major shift from Graham’s software-centric roots – and launched a nonprofit arm, YC Research, to explore ideas like universal basic income and futuristic cities.

The pace quickened. Batch sizes ballooned past 100. The Continuity Fund, launched in late 2015 with $700 million under management, allowed YC to back its graduates all the way to late-stage growth rounds.

Ideological Stress Tests

But 2016 brought turbulence. Paul Graham’s essay “Economic Inequality” ignited backlash for defending startup-generated wealth gaps. Critics accused him of downplaying systemic inequity. Meanwhile, internal tensions surfaced over Peter Thiel, a part-time YC partner and vocal Trump supporter- myself and Keith will definitely be doing a subscriber episode on Thiel, and I think it might have to be a 2-parter because he is such an intriguing character and has been involved in so much. After Thiel donated $1.25 million to Trump, many called for his removal. Altman refused, arguing YC must tolerate political diversity. “Cutting off opposing viewpoints leads to extremism,” he wrote. Still, the affair left scars, and YC quietly phased out the part-time partner program the following year.

A Global Ambition

By 2017, YC had moved decisively into political and cultural debates. Altman joined protests against the Trump administration’s travel ban and encouraged other tech leaders to speak out. Internally, YC doubled down on inclusion: more female partners, outreach to Black and Latino founders, and 22% of summer 2017 startups had at least one female founder. 

Peak Altman and the China Gamble

2018 was YC’s most audacious year yet. Altman unveiled plans for YC China- this closed within a year as geopolitical and cultural challenges proved too great.

Quietly, Altman prepared to step back. Increasingly focused on OpenAI, in early 2019, he stepped down.

YC had outgrown its founders – and even its second generation. It was now an institution: global, systematized, and powerful.

While the leadership baton passed smoothly, this moment also marked Paul Graham and Jessica Livingston’s final retreat from YC’s day-to-day life. Having moved to the UK, the pair no longer participated in batch selections or interviews. Still, Graham’s philosophical fingerprints remained visible – as one insider put it, he would still send the occasional “transcontinental bolt” in the form of a blog post or tweet. His 2020 essay “Billionaires Build” reinforced his belief that founders should be free from societal pressures - not everyone in YC agreed with his positions but he is still revered and rightly so within the organisation.

Gerry Tan became CEO in 2023 and that year he brought Graham on stage for a fireside chat at the alumni reunion. Graham joked about being out of touch with YC’s scale, but affirmed his pride in how the “soul of YC” had endured. It was a symbolic passing of the torch — a moment that confirmed both continuity and evolution. 

But Graham hasn’t been idle, ever the inquisitive intellectual - continued to write essays on topics ranging from startups and technology to philosophy and education. His essays, such as "How to Do Great Work," delve into the nature of ambition, creativity, and the pursuit of meaningful work. These writings are available on his personal website, paulgraham.com. focused on personal projects and family life. He has expressed the importance of following one's interests and curiosity, both in professional endeavors and personal growth. 

And that’s exactly what he has done and his impact has been huge- Airbnb revolutionized the hospitality sector. Stripe transformed online payments Coinbase emerged as a leading cryptocurrency exchange, playing a pivotal role in bringing digital currencies to the mainstream. And remember- these are just 3 of a total of 5000 startups that Graham helped fund- and the thing about it is that startups aren’t just that- startups are people- and what Graham did was back people- he gave them the money, the mentorship, the foundations to at the very least help fledgling founders reach their potential- in doing he gave them confidence in their abilities and to me that is a great thing to do for anyone-. And it;’s why, while I may not agree with everything Graham might write- that’s OK- he's a great person for what he done and that's why this is such a great business story.I hope you’ve enjoyed it as much as I have, and remember if you have any comments, any corrections or any story that you’d like us to cover, email us at: info@gbspod.com

All the best folks