Y Combinator is the tech incubator that has launched many of today’s largest companies–Airbnb, DropBox, Door Dash, Open AI and many, many others. Jonathan Levy, Managing Director and former GC of YC had a role in many of them. On this episode of The Legal Department, Jonathan shares how legal can support start-up companies and help shape the future. He talks about adopting a CEO’s mindset, keeping your opinions (and attitude) in check and not letter fears of what might go wrong prevent you from seeing what might go right. YC is also seeding several legal tech companies–Jonathan shares his thoughts about some of these and why they might disrupt the current market leaders. Join us for another episode on how lawyers support innovation.

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Listen to the podcast here

About Jonathan Levy

Jonathan Levy is the Managing Director at Y Combinator. Jon Levy previously counseled public and private technology companies as an attorney for Wilson Sonsini Goodrich and Rosati. He also ran ThinkEquity’s private placement department and worked as a Managing Director at Merriman Curhan & Ford. Jon earned a J.D. from the University of Michigan Law School, and a B.A. in English Literature and Religious Studies from Wesleyan University.

Transcript

My name is Jonathan Levy. I’m a managing director at Y Combinator. A fun fact is I am an elite parallel parker, maybe the best in the world. I’m worried that AI is going to take away that capability.

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On this episode of The Legal Department, I’m excited to welcome Jonathan Levy, Managing Director of Y Combinator. We’re going to be talking all things innovation and working with startups. He’s even going to help us think through some legal tech solutions. Jonathan, how are you?

Thanks for inviting me. I appreciate it.

What Is Y Combinator?

I’m thrilled that you’re here. It’s shocking to me, but I have an international audience. I have a real concentration in Brazil, which is interesting. It is all over. Not everyone knows what Y Combinator is. We do here in the States, and certainly I do in California. I wondered if you could give us a little background about it, what it is, how it works, and what you do there.

We should have done this in Brazil, by the way. Y Combinator has been around for twenty years. We’re called an incubator or accelerator, but we invest in startups. We like to invest early. We don’t need a business. You could apply with anything. Apply with an idea. Applications are online. You can go to YCombinator.com and apply from anywhere in the world, like Brazil. Tell us what you’re looking to do. We look for a certain type of individual. Technical, smart, and young are advantages.

We invest in about 150 startups four times a year in batches. Founders come in. They work with our group partners pretty closely and have group office hours as well. They meet some of the other companies. They’re batched into smaller groups. It’s a bunch of small cells in a way, and progress. Companies set goals for what they want to do during the twelve weeks they’re with us. In those twelve weeks, it’s very much focused on the business. We tell people, “Talk to your customers, talk to users, build, and write code.” These are the three things: talk to your customers, build, and exercise, because it’s a long haul to become a big company.

Do you mean workout?

Exactly. Keep mentally sane and exercise. If you’re not building your company, not writing code, not building your product, not talking to customers, not talking to your users, and not exercising, you’re probably not doing something productive. The point is to focus. Focus on your company and talk to users instead of getting caught up in all the noise of being a startup.

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Jonathan Levy’s Journey At YC

What do you do? I know you were the general counsel for a long time. What is your role in supporting these early-stage founders?

I mentioned we’ve been around for twenty years, so a lot of people don’t realize that. Andreessen has been around for a shorter period of time. We just haven’t taken institutional capital as long as they have. I’ve done a lot of different jobs because I’ve been there for seventeen of the twenty years. I was the first person outside of the founders to be working there. We were a startup at the time. I came in as the general counsel. We always tried to standardize our documents, so we can scale the program.

Over time, I’ve done tons of jobs there. I partook in the interview process. It is super interesting. I read applications and help companies. I do a lot of fundraising with our LPs. Legally, there’s a lot going on internally and externally. Now, our brand is a little more well-recognized, so we get sued, unfortunately, and deal with litigation and insurance. There is also a lot of standardizing our documents and helping the companies. Helping the companies with fundraising is an important part of what we do, but there’s always something going on. It’s a very dynamic, fun place to work.

We don’t need to go deep, but it’s helpful for people to know a couple of the marquee companies that we all know that have come out of YC.

There are so many. I don’t want to miss anyone. When I started, Dropbox and Airbnb were two of the early big ones. We’ve had DoorDash and Coinbase. OpenAI was a research project that started out of Y Combinator. I was the person who incorporated the company and worked with Greg early as they developed. Interestingly, OpenAI was a research project. At the time, nobody thought this would be the fastest growing startup, have tons of revenue, and grow into billions of revenue. It was a bunch of brilliant people working together and hacking away.

That’s something that was notable for what we do. We look for talented people like the people who started OpenAI. Stripe is a very large company. We have many up-and-coming companies, like some great young companies that may be less familiar. Reddit was a Y Combinator company. We have tons of companies and tons of founders who are super interesting. The best part of the job is getting to be friendly with a lot of these people. They become friends. They’re very interesting.

The most fun part of the job is going to our twentieth anniversary party and spending the whole night there. My wife also works at Y Combinator. She’s known for creating a safe, but we stayed at that party for the entire time. It was seven hours, and it flew by. We don’t like parties. We’re both anti-social. For my wife to stay for seven hours is amazing in itself. We didn’t want the party to end. There were some famous people there. Brian Chesky shows up, and people you’ve heard of. It’s all the founders from the early years.

They’re so interesting because they developed so amazingly, having been founders at age twenty. It’s a better experience than starting a company. You do so much. You’re fundraising. You’re building a company. You’re also out hiring. You’re doing every job possible. It’s much different from someone like me, who started at Wilson Sonsini and Anderson Kill and worked in a law firm, a very narrow job. It was a hard job.

It was more structured and linear.

You’re doing everything. It’s amazing for their development. They become very interesting people. You go to a party like that, and you’re catching up with people you haven’t seen.

They are doing amazing things.

They are developed. They’re more interesting than most people you meet on the street or anywhere in your life. Over time, nothing can replace that. That’s the bit of working there and the most fun part about it. Also, the people I work with are brilliant.

Let’s talk about one of those brilliant young people responsible for getting us together. That’s the brilliant Eva Shang, founder of Legalist, who started at YC. She credited you with helping to shape her company. I don’t remember what the original concept was, but you said to her, “Lawyers don’t want to pay for things, so you need to develop a business that helps lawyers make money.” Is that how you remember it?

Eva and Christian are very talented. Going back to what we do, we look for people like that to apply, to come in, and to start companies. When Eva and Christian were interviewed, you don’t have to be a rocket scientist to figure out these are two talented people.

You can spot her across the room.

They start to speak, and it’s even more impressive. Both of them were outliers. I believe Justin from Justin.tv, which became Twitch, was the person who interviewed them. I spoke to him right after. He was like, “We saw this legal group.” I generally would see most of the legal startups when they apply. “We saw this team. They were great. Here’s what they’re doing.” They were doing a rate-litigators type of business. You don’t want to overthink things or think you’re smart.

In my position, that’s very dangerous to believe you’re smarter than others or anyone. If your ego or your own opinions get in the way, that’s dangerous. I could sit there, try to pretend to be smart, and tell you what’s wrong with rating litigators, which I think is a terrible idea. I’m probably right. Good litigators take a lot of cases where they lose. It’s hard to get the right data.

There are probably problems with that, and also, who is paying for it? I suggested a few things to do. I remember saying something like, “Help people make money.” It is not an earth-shattering idea. I love companies that help companies make money, compared with a compliance company, where nobody wants to pay. Nobody wants to pay for it to begin with. It’s hard to increase the average contract value. It was a suggestion. It’s very nice that Eva and Christian publicly say things like, “You helped.”

 

They mean it.

Honestly, it’s a little embarrassing. They’re pretty capable, and they would have figured it out. It’s probably hope. Maybe I helped them cut some time out looking for stuff or whatever, but they’re going to be fine with it. If it didn’t exist, they’d still be fine.

Empowering Early-Stage Ventures: A Lawyer’s Guide

It’s very humble of you. You’re somebody who worked in the legal industry, and you know lawyers. To your point earlier about the user, the customer, you were giving them an insight that they wouldn’t have had. I interview a lot of different folks and a lot of people in-house. One of the GCs that I interviewed had been the GC of several startups. She described it as being the mother of a toddler.

You are chasing this around. You’re trying to keep up. You’re trying to keep them from dying. It is all those things about early parenting. The purpose of this show is to help lawyers be better supporters of businesses. I don’t get a lot of opportunity to talk to someone like you who works with so many different startup founders. What advice do you have for lawyers who are trying to support an early-stage business?

As with anything, listening is key, and so is having a little patience. We get bombarded with questions. We have a line. I don’t want to give the URL.

It will crash out.

We get questions all day. We’re dealing with very intelligent and impressive people, but sometimes, they turn their brains off, or they get irritated by legal. It’s similar to compliance. Nobody wants to pay lawyers for certain things. Sometimes, based on volume, it could be overwhelming for us. I find that some days, I’m not in the right frame of mind. I’m not being empathetic. I step away from my computer. You have to have the right mindset. If you’re not feeling like a teacher or a parent, like the person said, you should feel that way. You should feel like, “I care about this person.” When I’m not in that frame of mind, I go do something else because you can come back and tell people like, “You could have googled this.”

Thinking about a toddler who wants to put their fingers in the light socket, jump off the couch, or whatever, I would posit that a lot of these early stage founders, twenty-year olds who are hunkered down trying to build their companies, aren’t aware of the government, all of their burden, and all of the risks that are out there. How do you balance that it’s like, “I want to support and give you that open space and creativity,” but also like, “It’s the real world, folks?”

I’m in a privileged position because we’re an investor and we’re talking to people for free. We’re not charging any of the founders who reach out. Often, we get asked for second opinions, which isn’t fair either. It’s much different if you’re at a law firm and you have certain things you can and cannot say. I look at it like, “If I were the CEO, what would I do?” I would speak the truth. “Honestly, here’s a risk that I’m not comfortable with,” or “Here’s a risk I’m very comfortable taking.”

That’s how I look at it and explain exactly what the risks are. It’s not up for us to make the call. I often say, “If I were in your shoes, I would do this. I would blow this off. I wouldn’t get insurance because you have zero assets,” or “You need insurance.” It depends on the situation. My guiding light is, “What would I do in this person’s shoes, knowing what I know?” Brian Chesky gave a speech, which was an amazing speech and probably the best thing I’ve ever heard. It became the founder mode.

You might have seen that on the internet, but the speech was even better live. He said, “Your GC should tell you what’s legal and what isn’t legal, and not be overly protective.” You don’t want to interfere with the business. For us, early-stage companies shouldn’t be talking to me too much. They should be talking to their users. I always think it’s a red flag if they come to me and they’re worried about certain things and overly worried about certain issues. It’s even worse when they’re thinking about a shareholder’s agreement. Go talk to customers, not me.

Often, I find myself telling founders, “You’re wasting your time speaking to me. This isn’t an issue. Go talk to customers.” It depends on the situation, but the guiding light is to treat it like it were your company and like your baby. What would I do in these situations? Fortunately, I have a ton of experience. As you get older, one benefit is having experience and not freaking out. Another good thing about being a lawyer is that you can calm people down. When people get sued, they freak out.

We’ll just deal with it.

This rolls off our skin. It’s all bombastic people making stuff up. I never care when somebody is throwing out accusations, but it can throw off someone young. Often, when our companies get sued, I speak to all of them. They get sued pretty much. I tell them, “This is good.”

Someone is giving you attention. Someone thinks you’re a real thing.

I think Paul Graham said at one point, “You’re not a real company until you get sued.” I agree. It toughens you up. We had a company, HelloSign, which became Dropbox Sign. It was a great company. It was a signature company. The founder got sued the night before Demo Day, which is when our companies speak to investors. A big company was trying to put them out of business. He was a sweet, young, and innocent founder. He toughened up overnight. It was a good experience for him. I always think of him like, “This is what can happen when you get sued. It’s a positive.” You try to tell people the good part.

'You're not a real company until you get sued.' Share on X

It’s not the end of the world.

You’ll get sued every day if you’re successful. My friend at Apple, who’s starting at Apple as a litigator, was saying, “Apple gets sued every day all over the world.” The COVID day was the one day they weren’t sued. It was the one in March. Every day, there’s a lawsuit.

The GC’s Role: Beyond Risk Mitigation

That’s a good perspective. My goal is to help GCs level up and be good business enablers. One common expectation, or what people want, is that they want the GC to be bought in and a facilitator of the business strategy. It is certainly being able to balance risk and get people the lay of the land, “You don’t need to worry about this, this is important.” What about input and how to be that strategic advisor?

Just judging from what happens at Y Combinator, when people come into our business, the first thing we try to say is, “Get out of the mindset of what can go wrong.” You need to understand risks and what the risks are, but the mindset should be on what can go right instead of what can go wrong. We’re trained as lawyers. “This can turn into a disaster. That can turn into a disaster. Here’s what can happen.” That’s all true. When you’re working at a business, you can’t shut everything down. You have to be an enabler.

 

Changing to “How do I make this work?” instead of “Here’s what can go wrong” is a mental shift that you need to take that may be helpful. Great lawyers are trained to think of everything that can go wrong. We all know things can go wrong. We’ve seen it. You work in a firm, and you’re super protective. You’re worried about what you put in writing. Coming in as a GC, you have to change that mindset to “I’m not going to worry about every word and freak out if I say something wrong. I’m going to help get things done,” instead of being a Debbie Downer and telling everybody what can go wrong.

I’ve only worked at established companies. I haven’t personally worked for startups. Especially for that sector, I would bet that they don’t want to know what could go wrong. I would bet that their alignment is around, “Let’s go. Let’s get this business off the ground.”

Some do, and some don’t. It’s tough to generalize. It’s like when you deal with founders. Some just shut their brain off. The smartest people in the world don’t want to hear anything legal. It’s like, “Here’s what you should do because I could see you don’t care.” That’s fine. We had Ginkgo Bioworks. The founder is this woman, and she looked at one of our documents and started asking questions. I was like, “Where do you practice?” She was like, “No, I just picked this up and read.”

She was asking super sophisticated questions about everything and in an experienced way. “Where’s the risk in this contract?” She was looking at our financing documents and asking good questions. She told me she read the document that morning. I didn’t believe her. I thought she was pranking me. We deal with all types of brilliant people like her. Others who are brilliant shut off their brains. For others that are clueless, you have to figure out who you’re dealing with and what their interest is, and take it from there.

What personality do you think folks need to be good GCs or heads of legal at a startup?

You have to be someone interested in the business who wants the business to succeed. You have to have the mindset of the CEO in a way, like, “This has to work. How do I make things work?” Moving out of your training in a way is the general point. Try to help all parts of the business. The good thing about working in a firm, being a lawyer, and being trained as a lawyer is that lawyers are generally better than everybody you deal with in the business world.

 

Maybe I’m biased, but there are very smart people who are capable. It’s fun working in a law firm. The people were a lot of fun. The work was miserable. You meet a lot of capable people. We’re advocates. At Y Combinator, we have a brand that can help advocate for your company. It’s great to be an advocate. I worked in banking for a little while. Compared with all the bankers I worked with, the lawyers worked a hundred times better in so many ways. Being an advocate, you can’t trust anything you hear. As a lawyer, you’re going to tell somebody something, that’s a confidence I’m not going to break.

It also feels heavy, though, but maybe not in your role. Especially as the GC, I feel like when you say something is okay, you endorse a strategy, or you’re a champion, it carries more weight than some of the other business colleagues. You want it to be right. You want to feel like, “I’m not leading this company down a bad path.”

You can be wrong.

You are like, “Sorry, we got sued because of my great advice.”

It’s rough. I could remember a few situations where you’re worried and don’t sleep as well. In general, being very helpful and trying to enable rather than prevent is a good guiding principle. You’re right. There are certain things you worry about. If you have that enablement type of mindset, when you do say something is a big risk, or you’re worried about it, people listen. That’s another good part of being in that positive mindset. It is a positive mindset rather than a negative mindset. I had Depression era Jewish grandparents who helped raise me. I never had that. Coming to Y Combinator was very positive. That optimism pervaded our legal department.

Forging Bonds: The YC Community Secret

I want to talk about the culture at YC. My perception, not having worked in tech, is that it’s super competitive. People are driving. What I learned about YC is that it appears to be very community-focused and supportive. There are a lot of resources for your founders and the batchmates. The whole thing seems community and collaborative, which feels a little antithetical to how I view tech. Law is also competitive. What can lawyers learn from YC and its focus on community?

I thought about this a lot because the YC community is unique. I’m a beneficiary as much as anyone. It’s a bunch of smart people who are like-minded. People have something in common. It’s a pretty elite group. Going back to the origins, I always thought Paul and Jessica were very good at picking out elite people. With the community, I thought Jessica probably doesn’t get enough credit for it. She made it comfortable. She’s a person who, when you go into a room with, you’re comfortable immediately. There are Yiddish words for this, a good neshamah or a good soul. You are immediately like, “This is a good scene.” In the early days, it was impossible to start a company from scratch and turn it into a billion-dollar company. You’re asking the impossible.

It has happened many times there. It’s a mind-blower.

We have so many elite people come in, like Alex from Scale. To make everybody comfortable, early on, these are your people. We never had a bad event for so many years. People come in and feel like, “We’re all doing something hard.” I read about how in the early days at NASA, people were coming in and working late. It felt very natural for the NASA employees. There was something like that at YC. You would come to dinners, and you just want to be there. You’re around super smart people doing hard things. Jessica and Paul fostered that attitude.

Revolutionizing Legal: The Future Of Legal Tech

I want to get a little more specific. I’ve done several episodes about legal tech solutions. As a target customer for a lot of tech vendors, it’s exhausting trying to figure out what is good tech and what’s bad tech. I know that YC is focused on supporting some of those early-stage companies. They’re the big giants, the Thomson Reuters, the LexisNexis, and all that. What’s going on at YC with legal tech?

I’m glad you asked. I’m super excited about legal tech. In the past, as I was saying earlier, lawyers hated paying for stuff. Casetext, by the way, is a YC company that was bought by Thomson Reuters. Thomson and Lexis are ones of the big wells in the enterprise solutions. Harvey has been pretty noisy and getting traction. We have a company, Legora, that I’m super excited about. We know some consultants in the area. I sent them some of our companies. Stepping back, we were talking about Eva and Christian earlier, the people coming in and working on legal tech are amazing. I’ve never seen founders as skilled and impressive.

They come in. Max from Legora is one of the more impressive founders I’ve ever seen. We don’t see people like this working in the space. The talent coming in is incredible. People like working on hard things. It’s very difficult for many reasons. We have this company, Legora, which is a full enterprise solution. It outtests all the others according to the consultants. We use it. Our legal team at YC bought it. We’re hypersensitive. When we buy something, there’s no better imprimatur or whatever the word is.

It’s an endorsement.

What happened is that early on, we bought some solutions that were horrible. We had to fire our own startups. Particularly for me, I was like, “If we’re going to buy this, this better be the best product ever.” That’s the best product ever.

Earlier in prep, we talked about understanding the customer. What you drive a lot with these founders is to spend your time learning from the customer.

Legora is competing with a big enterprise solution. Max figured out what it was like to be a lawyer.

How did he do that?

He was just in bed. This guy is an outlier. When the Collisons walk in the door, you’re like, “This person is an outlier.” There aren’t that many people who come in that you can immediately identify. He’s one of them. When somebody is explaining something to him, he picks it up much faster than a normal human and just processes it. He started working in Europe. He’s from Sweden. He did this in Europe very successfully. He started landing big clients and came over. They’re working and launching in the US. I love introducing them to people, “Just try it.”

What I tell people is, “Just take the demo and work with it a little. Let them show you.” I don’t have to say too much for this one. In the past, sometimes, I had to explain, “Here’s what our guys do and others don’t do.” With this one, I’m like, “Just give them a chance.” As you said, there are tons of noises in the legal community right now. There are tons of products and hundreds of startups.

We’re hard to sell to. I don’t know if that’s your perception.

We are screaming, “Try this. Try this. Do me a favor. Just take a look.” Legora comes in, and then I’m like, “This is going to be our home run legal company. I won’t have to bother my friends to try stuff because they’ll take all the business.” We have a few others. Vesence came in, which is a Litera competitor. They are two kids also from Sweden, strangely. They showed me the demo. I couldn’t believe two people created it. I was like, “How many people are on your team?” They looked at me, “It’s just the two of us.” I didn’t believe them. It was like a Reshma moment. I thought I was being pranked. Their product, I think, is better than Litera. I’d be worried if Littera were looking at this.

What’s this one called?

It is Vesence. You should check it out.

It’s a weird name. Tell them to get a name that relates to legal work.

That’s a good question. I’ll ask them.

Just to be the business enabler here. Make it easy for me to understand.

They’re very impressive as well. We have other ones. We have Ironclad. That’s going to be a big company. It already is, and is a great product as well in the CLM Market. They’re doing other things as well. There are others, too. DraftWise is a YC company. For us, it’s a matter of getting a couple of these companies in front of people because the product speaks for itself. We have one starting. I was like, “We’re loaded up on all these.”

This is interesting to me.

We have this company, Truth Systems. They just started. They’ll probably change their name. They are so impressive. Another one where the founders walk in, I’m like, “These two are outliers.” We’ve never had so many outliers in the legal space like we’ve had now. Now, we have as much talent as anywhere.

It is an interesting concentration, though, in the legal tech space. I don’t know what the market is for legal tech. I know it’s hard to sell to us. You can have the best thing out there, and it’s still hard to get in the door. To get legal to buy is tough.

It’s a great point. At some point, the clients are going to demand it. That could be now. The tools are getting so useful that you have to use them for productivity. I don’t know what that means for the future of legal.

We can’t even. It’s big. It’s going to scare or depress me for the rest of the day. We can’t talk about that.

Productivity-wise, you can do a lot more. I always feel like lawyers have good judgment and can be helpful in many ways. No doubt things are changing. These products are so good that if you don’t use them, you’re going to be at a disadvantage.

There is no question.

You can’t be an ostrich at this point. Things might change faster than people recognize.

What Would The CEO Do? The Start-Up GC’s Mindset With Jonathan Levy, Y Combinator (E73) Share on X

Jonathan’s Pump-Up Anthem

Jon, I ask all guests the same final question. I don’t know if you gave it any thought beforehand, but with all these fun people, the parties, and life in general, what is your pump-up song?

This is embarrassing. I’m an older generation. I love The Band and old stuff. I drive around and listen to a ’70s station. If something from The Band comes on, I find myself screaming in the car. If my kids saw me, it would be horrible. Sometimes, I roll up to our house, and I’m blasting music. My wife comes out like, “You’re embarrassing me.” Up On Cripple Creek came on, and I was singing aloud in the car. I have a terrible voice, but I love Levon Helm.

Jon Levy, thanks for being here. I learned a lot. I’m excited for all the stuff you guys have done and are doing there at YC. Thanks so much.

I appreciate it. If people try our companies, Legora, Vesence, and many others, I would be thrilled. Reach out anytime. I had fun. Thank you.

 

Important Links

• Y Combinator
• Jonathan Levy on LinkedIn
• Greg Brockman on LinkedIn
• Eva Shang on LinkedIn
• Christian Haigh on LinkedIn
• Justin Kan on LinkedIn
• Paul Graham’s Website
• Jessica Livingston on LinkedIn
• Brian Chesky on LinkedIn
• Alexandr Wang on LinkedIn
• Max Junestrand on LinkedIn
• Casetext
• Legora
• Vesence
• Ironclad
• DraftWise
• Truth Systems