Are you assuming these startups are all in the bay area? I don't think PG is. I think he's saying that doing startups is becoming a broad cultural phenomenon.
I think the "talent pool" really should be the whole world.
There are several startups I know of who hire people completely remotely. One guy lives in thailand, the other in spain, etc.
I propose that investing is a market and the state of that market will depend on how the participants act.
So, let me throw this idea out there: Be the kind of company that can pitch a VC and if they don't have a YES/NO answer to you within a week, pass on the VC.
I think there's a power imbalance because founders want money more than VCs need to invest. I think the economics are such that founders should have a lot more power.
When founders start demanding quick decisions (or more specifically, requiring them) ... the decision making process will become quicker.
After many years dealing with VCs as an employee of startups (often very early employee) when it came time to start my own company, I knew I wanted one that would not require venture capital.
Making money is not that hard (for me, anyway, I think this might be a talent, but I think it's not as rare a talent as it might seem.) I think there are a lot of startups out there who build an Instagram when they could be building a Basecamp.
Further, if you're profitable, the cost of scaling is lower.
The reason for this is that there are three major costs to VCs (and Paul touches on some of them). There's the huge distraction of dealing with them when raising money, but this also becomes and ongoing distraction of keeping them happy, and fielding their calls where they tell you some sector is hot and maybe you should pivot into it. (Much better than the bad old days when they would force bad decisions on you, or at least, I hope that is less common now.) The second major cost is not just the equity (which Paul touches on) but the terrible, terrible, lopsided deal terms. "Standard" terms are basically a ripoff that in no other sector of investing would be acceptable. (I'm talking about liquidation preferences and the manifold other ways of double dipping, stripping founders of their stock, etc.) Yes, they get away with this because they're investing in "to the moon" type businesses run by mostly young guys and this has been the culture. But the consequence of this is that the terms are bad for employees as well. (At least founders have a big chunk of stock, for employees the shrinking of the pool is more dramatic.)
But the biggest cost of a VC is starting the clock. They will put you on a track to "go big" which really means "spend more than you're taking in and keep raising more funds", which further dilutes you. You do this until you die or get aquihired or are able to raise enough rounds to have a really big business.
Everyone seems to go into it thinking they're shooting for the moon and that they'll be the next Instagram. But they won't. (almost certainly. 1/1000? 1/10,000? 1/1,000,000,000?)
I think github is the model we should be striving for. Profitable almost from day one. Reinvest the profits, grow the business. Later if you want to take money, you can get a deal like they got.
And if times are tough and you need to pivot, well, at least you have cash flow to fund it.
I'll never forget the experience of one company I worked for. I was in right after the founders. They had a profitable business doing consulting right in their line of technology, which meant that the consultants were producing code that made the product more valuable. The consultants were paying for the product team all the overhead and the company was slightly profitable.
As part of the deal to get venture capital, they had to shut down the consulting team and "focus". There was no focus being taken away by that team-- they were run by a manager and the rest of the company could ignore them... they just increased the value of the product on other people's dimes.
So the team was shut down, then the VC firm dragged it all out for 6-8 months until the company was almost out of money, and gave us a bridge loan (really choice terms too, choice for the VC that is.)
They put us over a barrel.
It turned out the company was about 3 years too early. They would have been well ahead of the competition when the market hit and things really took off... but by the time the VC had run them into the ground. (Forcing many other terrible decisions on them in the interim.) They could have made it without taking VC money and would have been a $400M business.... (what one of the competitors sold for, even though they were much worse off than we were.)
I think this story is very common.
But you don't see a lot of stories like this on HN and other "startup" hangouts. You see a lot of self aggrandizing blog posts from VCs (not talking about PG here, his article is perfectly fine and he's generally on the good side of things).
So, I think we have a culture of startup founders whose entire understanding of what it means to do a "startup" is one that lacks an undertanding of how VCs actually work and how dangerous they are.
"I see it says here you're an [particular platform] programmer? Ok, have you ever worked with [particular SDK]? Oh, you have, ok what are the parameters to [arbitrary method in said SDK with over 6 parameters]"
This is an actual question I got. I don't consider it weeding out people to keep them honest. I had worked with that SDK, I might have even used that particular API (though it was not a common one in the area I was working with that SDK).
Here's the error I think. These problems do not ask the candidate to demonstrate their problem solving capability. They ask the candidate for a solution, and they are often presented in such a way as to imply that's all the interviewer wants to hear: He expects you to just rattle off a solution.
I don't think "seeing how the candidate thinks about problems" is very useful. Either someone can reason about the problem, or they can't. When you ask them a trick question like this ("find loops in a linked list" was one I used back before I learned how to interview people) they either can solve it fairly easily or they can't.
If they are constantly stuck, you have no information about their programming ability.
I think that's the error. People think that "getting stuck" means they are poor at problem solving. (and rarely, possibly never, has an interviewer asked me questions relevant to understanding how I solve problems.)
The pressure of an interview session, combined with the fact that most interviewers are not really all that competent at problem solving in the first place (about %50 of the time they ask the problem wrong and then have to change it while I'm solving what they actually asked, or what they asked is nonsensical) means that you get a lot of false negatives.
I'm self employed now so I write software all day long. I am constantly solving my own problems. I've been doing this for decades. Still you put me in an interview and ask me to sort a linked list, and I'll be spending %50 of my energy trying to get over the fact that the interviewer seems to expect me to just blurt out an answer. (even though I know they want to see me solve the problem).
If you get an interviewer who is using you as material to feel smug, I take that as a solid sign that the company is not a good one to work for.
I've had a long enough career that I can draw some conclusions about my work experiences. The trick questions designed to be extremely difficult to answer correctly under pressure are negatively correlated with a good working environment.
One of the best, most challenging jobs I had, and with the best set of engineers is one where I got interviewed by the president of the (small) company, he asked me no technical questions and told me I had the job at the end of the interview (I guess you can be fast when you're the president). I don't mean to say he didn't ask me about programming, he did, he asked me quite a lot about it, but no "how do you solve this problem" or "write code that does this" type questions. More, "how do you feel about language X and why?" type stuff.
I think I've become jaded in my old age, but I find questions like this to be a negative indicator of the nature of the company.
I once interviewed at Apple for the quicktime team and they asked me a question about how you could make video start playing quickly, instead of waiting for it to download (this was before youtube so it was a reasonable problem to try to solve.) A directly relevant question to the technologies they were working with, and something applicable on the job.
I wish I'd come up with HTTP Live Streaming on the spot (a tech they announced years later) which seems so obvious now.
When I interview people, I like to ask them business questions (eg: how they might solve a particular business problem with technology) and then from there you can drill down into the issues that it might bring up (technical issues).
Interviewing these days seems to be a lot of trick questions and trivia that tells the interviewer more about how similar you are than how competent you are. For instance, I was once asked what a particular keyboard shortcut did. I didn't know because I used the mouse for that function, but I am certain the interviewer assumed I didn't use the IDE much because I didn't know that particular shortcut. He was projecting his preferred method of working onto me, and then reaching the wrong conclusion from it.
Every startup wants to "hire the best!" but so often they don't seem to understand what "the best" is.
And worse, when you've got a ... marginal person conducting the interview they may pass on candidates who are stronger than them simply because they don't understand what the candidate is describing, or are intimidated. (of course they won't admit this.)
I remember the first time I used AltaVista, in 1995 or so. I had previously used Yahoo (which was a directory back then) and was pretty astounded at what AltaVista could do. I remember a similar feeling the first time I used Google years later.
I think the "talent pool" really should be the whole world.
There are several startups I know of who hire people completely remotely. One guy lives in thailand, the other in spain, etc.