think you have what it takes to launch an internet start-up? where does the money come from, and who should you hire? three brand-new ceos who know all the tricks sit down for a wide-ranging conversation about success in silicon valley. this week on "press here." good morning, everyone, i'm scott mcgrew. every once in a while we take the format of this show, three reporters, talking to one ceo and turn it around on its head. one reporter, me, talking to three ceos. we'll do that this morning. three ceos, three young ceos.

>> reporter: there is no question the three of them are young. in fact, jessica ma is sort of famous for her youth. she started her first company at 13, graduated high school at 15, and secured more than $1 million in funding for her company in d dinero by age 20. ryan damico, a 27-year-old m.i.t. grad, spent three years finding the right co-founders to launch his company, crocodoc. which plans to take on silicon valley behemoth adobe. even though it has yet to move out of his living room. >> so we have kind of -- this is a view of the dashboard. >> reporter: rod ibrahimi sold his first company at 17. and now at age 30 runs ready for zero, an internet site that

helps americans shed credit card debt. the three ceos and their companies have one other thing in common, they're part of a graduating class from something called y kbcombinater, sort of boot camp for start-ups where entrepreneurs incubate from idea to full-fledged companies. >> we typically invest at the very early stage, often before somebody even has completely figured out the idea for what they're going to be working on. we'll invest entirely based on the people. if we think the team looks like they're good and determined, then we'll fund them. >> so you've met them on video, ryan d'amico, jessica ma, rod ibrahim. let me start with this idea of a start-up. there is somebody out there watching who is saying, i have an idea. and i've kept it secret all this time. tell me how do i know -- first of all, how do i know it's a good idea, jessica? >> well, you don't always know that.

when we were starting in dinero, we honestly didn't think it was a great idea. we talked to a bunch of people. and they said it's a derible idea. there's quickbooks out there, and they're making a bunch of money. so how are you going to take on this market? so we didn't think it was a good idea. >> we'll talk about your discouragement more in a minute. ryan, how do you know this is something more than you tell your cousin at a barbecue? >> you don't know up front it's possible, but if it's something you feel passionate about and you see yourself doing for the long run, that's a good indicator. the first step a lot entrepreneurs do, you have to know it's a good idea. >> yeah, and we'll get to y combinater in a second, but how do you validate it? how do you prove that this is a good idea? your mom's going to tell you it's a good idea. that doesn't really necessarily help you.

>> even your friends may. the same thing. like in our case, we actually built paper prototypes. we had some interactive prototy prototypes, and we started building it. we went through severaliterations that we realized that there's something here. that's the encouragement i give especially first-time entrepreneurs. i think that's the mistake they make. they fall into kind of thinking about it too much, the business plan that's laid out, but they just really need to start building. >> what's better, having great people working on a dumb idea or a dumb idea -- you know what i mean? is there some point in which you can say to your company, hold on. let's refocus and do something else? >> absolutely. we did that ourselves. before crocadoc, there was a different product called web notes. it was a weekend project. we decided to totally change the idea around, rebranded it and just tried it out, and it took off overnight. >> it took you a while to find your founders, right? i mean, most people think of it as i've got some friends. i work with them over a

hewlett-packard. we're going to make our own little company. you kind of went on a dating search to find your founders. is that fair? >> three-year dating search. we started while we were all at school. i swear we must have gone through a dozen different people before we found the three co-founders we have now. some of that was a lack of luck. a lot of it, we didn't know what we were doing. we were working with anyone who was interested. we didn't really know or understand what to look for in a founder. >> you say "we." i mean, you had a partner -- because most companies, when they start out, you look at apple who was clearly the steve of the steve. most companies, there's this core as if that's not as if it's going to change. you know what? let's not have you be a founder. you can't kick out somebody with whom you've created the idea. >> i say "we" because our team is so tight, everything is about us together. >> your idea to begin with, then you went out and tried to find the support. >> it's been worth it. >> it's pretty difficult to find a good co-founder.

and it's not just ryan. i think all of us have that problem. it really is looking for that perfect significant other. like for indinero, eddie wasn't my first co-founder. i looked for years to find the perfect programmer who i could buddy up with to start a company with. >> that does bring in the idea if someone has a great internet idea but has no technical skills, you all three are coders. >> we are. >> you all have very high technical skills. during the dotcom boom, there were a lot of very bright businesspeople, didn't know a darn thing about computers who tried to start up internet -- >> it's still happening today. >> but why not? if i had this great idea, why can't i have the idea, find the funding, and i'll just go to craigslist to find the programmers. >> i think it's possible, actually, absolutely. and actually, in our case, we have a team that's overseas as well. although we're a technical team, we can leverage, you know, their

skill set as well. and while we're sleeping, there's code being written. >> there has been something i've heard is a huge advantage because the cycle is so different. you're doing all your own coding. literally you are doing all your own coding. >> i do a lot of the coding myself, but we don't outsource any of the programming. i think it's just too important to outsource. >> the thing that people are going to want to know about you, and we talked about it in the beginning of the setup, you are now how old? >> i'm 20 now. >> you're 20. all right. you have how many -- you have more than $1 million in funding, correct? >> right. >> okay. you understand that's strange, right? i mean, even -- okay. what does a 20-year-old do with a check for -- we'll just round it down to $1 million. what does a 20-year-old do with a check for $1 million? >> i didn't know what to do at first. we didn't celebrate when we raised the money. we just put it in the bank account and said all right, let's sleep on this for a month and not do anything rash with this money. >> this is available to you to

the people who invested in you. they want to see expansioexpans hiring, an office. i mean, that's what the money's for, right? >> that is what the money is for, but even then, you have to be really frugal with the money. i saw a bunch of my friends paying themselves salaries, and i thought, that's absurd. like you're wasting the money you just went out to raise. so i thought, if we could get all of our new hires to take super low salaries, like minimum wage level salaries, this this money will last that much longer. >> what's the return? your hiring pitch is not that great for me so far, paying minimum wage. in return for -- >> well, you compensate them with stock, too. so they have a vested interest in the company. >> the two of you, you've had some funding. more money than most people see at your age. i'm not saying you're going to run off and buy beer with it. and jessica legally can't buy

beer with it. but that's a huge responsibility. when you have money in the bank like that. >> yeah. and it's so important, like jessica said, to not spend it all. you want to stay really lean, stretch out your runway as much as you can, and really focus on building a business. i think start-ups sometimes feel like they have got the money in the bank. they can do whatever they want. but i think the right thing to do is focus on making money and create a viable business as soon as you can so that you're profitable and you don't have to raise more money. >> i disagree to a certain extent. i think the money is designed to drive growth, like you mentioned. and i think you've been given -- it's a great responsibility, but part of that is these investors expect that you grow twice, three times, four times, right? so to a certain extent you should be frugal with it, but i think you need to be spending it, too. that's the way you grow a business, right? >> when is it time to grow? i mean, when is it okay we were on our feet. we know what we're doing. we have a product. how do you know when it's time to expand fast?

>> in silicon valley, they call that the product market fit. and i think once you have some traction, i think ryan was mentioning that, once you have a little bit of like a core user group that's like really using the product, i think at that point, you know that if you spend "x" dollars on marketing, you can expect this much growth. and i think that that's the point at which you just, like -- >> you as an entrepreneur. >> i'm good at that. >> you're nodding as well. >> yeah. i think a lot of people will tell you that a start-up's life can be divided into before market fit and after product market fit. when just before you want to be saving your money and being really lean until you can validate that need in the market. and i think us personally, we're on that edge we're hoping to flip onto the other side of the equation. then at that point i think growth is what's most important. you have to aggressively go after that opportunity. >> all right. we've learned something called product market fit. we'll take a quick commercial and be back in just a minute.

welcome back to "press here." we're talking to three very successful young ceos about how to get a company off the ground.

funding. obviously, i want to keep it in the family as long as i can, right? i mean, i don't want to go out and get funding if i can fund a company myself which in my apartment can be just a couple of guys and a couple of computers. >> sure. i think it depends a lot on what you're doing, right? and i think angel investing -- >> explain angel investing to folks at home. >> sure, it's typically a small amount of money. so up to $250,000 usually from an individual high net worth person. and in silicon valley's case, those people are also very well connected. so they help you with not just the capital -- in our case one of our angel investors is next door to us and introduces us to people. so it's like money plus a little bit of help. >> when i get an angel investor, what am i giving away? what's in it for him or her? >> typically it's in the structure of the investment. but in the convertible note case which i think all three of us did that, it's usually capped at some valuation.

and so at the next round, it's like a loan. it's a bridge loan. so it has interest that accrues. and then it actually converts into equity at some trigger point. so that's simple structure. >> then you move on to something, venture capital. if i want venture capital, i don't suppose i walk down a sandhill road knocking on doors with a laptop saying hey, look at this. although that might work. who knows? and that comes through your angel. >> it comes through your angels, occasionally they'll e-mail you asking you if you're looking for money. >> interesting. >> that's always nice. but i think for any entrepreneur just getting networked and just being a part of the community around you with other entrepreneurs and investors, it's generally a small world. everyone knows everyone. it's a great way to reach out for help. it's a great way to get introductions to potential investors. i think that's a very important part. >> what have you learned or have you not learned it yet about the big, bad dangerous venture capitalist who's going to take over your company? i mean, surely somebody's warned

you about something. we've seen movies, after all, about the control of a company. >> i think there's investors that are very what they call entrepreneur friendly or at least they position themselves that way. and there are firms that, you know. but, i mean, once you're at that level of venture capital, it's clear what your path is. this is a big exit. we're expecting ten x returns. >> you still make the decisions at your company. you're walking in, reporting to no one and saying this is what we're going to do today. at some point you have a board of which some of those members are coming from the venture capital firm. >> absolutely. and that's when i think the dynamics shift a little bit, right? because then there's someone who may or may not know about your industry or even your product. >> now, to their credit, they may know a lot about it or they shouldn't be on your board opinion is that something that you fear, in dinero is yours to the point that you wrote its

dna. i'll say i was one of the first people to interview her, and you're a multibillionaire. you'll say, this is not my company. is that something that you fear? >> i don't think that will happen. >> which, the billionaire part? >> i will be a billionaire, but this will still be my company. i've thought a lot about it. and if your company is doing well, then you could raise money on really good terms. you don't have to give up board seats. you could raise that very high valuations. >> and you're nodding. >> look at mark zuckerberg and facebook. it's a great example of that. and the interesting thing that's happening now is that there are more and more angel investors now, and venture capitalists are having a harder time getting in on these early-stage deals. so you see companies all over the place raising money from angels, and they're not giving up control or board seats. it's an interesting shift in dynamics. >> one of the things -- you went to good schools and then went to an organization called y

combiator. we try to figure out little words to describe things. i suspect none of those words are exactly right. >> i would agree. >> okay. no, you feel free to disagree. so what is it? is it a school for young, bright, entrepreneurs, but take me further. >> well, i think y combinator's model is different from anything i've seen. i think it's unique because of the ethos around him. >> the founder. >> yes, exactly. so he has created something that not only attracts a certain type of entrepreneur, it's not just any end partrepreneur because t his experience through the silicon valley kind of ups and downs. so he's basically created this environment where, you know, his opinion really matters. and the people around him, including angel investors and that entire ecosystem all kind

of looks to him to lead the way. >> but is school fair? it looks sort of like a school. >> i think boot camp is probably a better description. you start y combia tchnator wit small amount of capital in return for equity. you're thrown into this boot camp for three months where you have dinners every week where you meet up with your peers and class who are going through the program at the same time as you. and you hear people speak. it's really an experience, i think. and the value in one part is that you're in it with so many other ent preen entrepreneurs that you can learn from. some are already profitable. the community you get thrown into is a huge part of the experience. >> jessica, i'm going to put you on the spot and ask you for viewers why are they calling it y combinator. >> i can't remember the whole story. >> we'll look that up. >> there's a mathematical formula.

my co-founder, ignacio, is good at explaining it. it's basically a start-up that creates other start-ups and that similar model. >> in mathematics. you can tell i'm an english major. so you go to this school, and you learn these things. but there are other entrepreneurs there who are also trying to take on adobe. they're going to steal your ideas, aren't they? >> no, i think it's fairly rare for companies within y combinator to compete. i think there's healthy competition over funding, someone just had a big launch. >> is it because it's all on the table now anyway? if i have this great idea, i mean, fantastic idea that's going to change the internet, i'm not going to tell anybody until i've got my pieces in place. by the time you're y combinator, you're either going or you're not. is that fair? >> i agree. we changed our model in the middle. so i think that's not necessarily the case where you come in and you know exactly

what you're doing. >> but you don't have the fear of somebody stealing your business. >> sure. >> it seems strange in a competitive landscape. that you would reveal to the crowd. >> we spoke about minimum viable product earlier. and i think that a mistake that we certainly made back in the days of web notes. we spent a year and a half building something and then released it to the world. we thought everyone was going to love it. because we didn't validate the idea ahead of time, we had a lot of work in front of us. i think there's more risk in not sharing your idea rather than someone stealing it. >> there are lots of people coming in in these classes. i met one the other day from spain. one of the requirements is that in order to be a y combinator company, you have to come to silicon valley. why? >> because it's where everybody is, all the investors are. you have to be here. >> the ethos. >> it's really important. and for us, like all of our potential hiring market is out in silicon valley.

>> sure. >> and there's a lot of events -- there's just like, yeah, the ecosystem, there's facebook events if you're building stuff on facebook. it's just happening here, right? and unfortunately, it's not happening anywhere else in a lot of cases. >> we'll take a quick commercial break. we'll be back in just a moment. look, every day we're using more and more energy. the world needs more energy. where's it going to come from? ♪ that's why right here, in australia, chevron is building one of the biggest natural gas projects in the world. enough power for a city the size of singapore for 50 years. what's it going to do to the planet? natural gas is the cleanest conventional fuel there is. we've got to be smart about this. it's a smart way to go. ♪

welcome back to "press here." remember these names and these companies because they're going to be huge. ryan d'amico of crocadoc, jessica mah and rod ibrahim. start-up entrepreneurs, kind of a special "press here" where we have three ceos, one reporter. jessica, we were talking during the break about people underestimate how difficult this is. and the lack of glamour in the internet start-up. you wrote once it's like being an actor waiting for a part.

there's skill and there's also luck. and the more you can share your struggle, the more people will stick with it. >> it's a lot harder than people think. like you look at tech crunch and you see all these success stories about facebook and youtube, but you don't realize how much work went into that. with my company right now, we've been struggling for, like, almost two years, actually. and although we just had a really successful fund-raise, like everyone's been complimenting us on our $1 million in the bank, a year ago we tried to raise money, and not a single person was interested. >> i couldn't agree more. just before we started, we almost completedly collapsed. we ran out of money. we let someone go. we were having a lot of problems. >> was that the first time you ever fired anybody? >> it was. that's one of the hardest things i've had to do. that was right before. we came out here. we hit the reset button. and through persistence, and it's been about four years, it's

finally started to pay off. overnight success has taken four years. >> is there a part where it becomes personal where you start to take it personally, a failure or a reset? >> i think it's always personal. especially when you give, like, everything to your company, right? it's like your child. you're raising a spamall child. i'm not sure what that's like. >> we don't have 1 million funding, i can guarantee you that. >> exactly what ryan and jessica were mentioning. i think part of being in silicon valley like we were talking before the break, having entrepreneurs around you, going through that same struggle is phenomenal because then you can see that all these companies are having issues. it's not just my company. >> mark zing ga was not mark pi pinkus's first company. we started with how do i bring my idea to market. let me in on the good ideas. in the sense that were you not dealing with documents and taking on adobe, were you not

dealing with books and taking on intuit? were you not taking on credit card debt in solving that problem for people? what would you be doing? what is the start-up you would have done if you weren't doing the start-up you're doing now? >> that's a good question. and it's a hard question. it's not just the idea, right? and i think it goes back to what you were saying, dumb idea, smart team, a combination. it's a process, right? it's almost like you start with something in mind, and then you kind of start narrowing through this path. i don't know what you guys think. >> i agree. just going through start-ups gives you a sense of how you attack this problem. how do you find opportunities? and that's something i think it takes years to develop. so it's hard to say what the idea would be because it's not really about that. i think it's about the process and areas you're generally passionate about. but the specific idea could be just about anything. >> we were actually really, like, we tried really hard to come up with an idea. we didn't just think it's a great idea. >> this continues to surprise me. i think it's one of the biggest surprises of the show. i always assume it's the idea

that makes all the success. >> it's a myth. >> you keep saying, well, we didn't know what the idea was. >> we started with problem spaces, actually. we looked at the energy business, and we looked at money. and we liked money better. we actually looked at your idea. we wanted to help people get out of credit card debt. and ultimately -- and there was this other company that helps you investing your money. we looked at that idea, too. ultimately we circled around and we wanted to help business owners with their money. >> let me rephrase the question a little bit, then. now you're an angel investor. what area interests you. what area would you say i'd put some money into that? >> i think the area of search and organizing all the information out there still has a long way to go. there's so much information now, everyone's still bombarded with it. i think through search, through organization, aggregation, things like that, there's huge opportunities out there just to make all that more accessible to everybody and help people deal with it.

>> rod? >> i think actually the internet's still young as we know. but i think bringing things from a very manual, like, offline world and bringing them online is still huge opportunity there. so like things that are just, you know, there's call centers and things like that. we can still automate a lot of that using the internet. >> i think ideas that revolve around making money, that's a big trend. back in a bubble, people didn't care much about products that made money. and i think investors care a lot about that now. >> i know you're tyred of beiti of being teased about how young you are. how old were you during the bubble? >> i was born in 1990, so i was barely using a computer back then. >> i'm sure you're sick to death of being the 20-year-old multimillion-funded entrepreneur. >> it's kind of fun, actually. >> all right. so i've had three entrepreneurs here all from an organization

called y combinator. more information on a farses nam a wom as far as names aom cndpaniesgo . c we'll be back in just a second.

my thanks to our three young ceos, jessica mah, ryan d'amico and rod ebrahim. we're back to our regular format next week. i'm scott mcgrew. thank you for making us part of your sunday morning.