Transcription
[Music] This Week in Startups is brought to you by Campaign Monitor, an email marketing platform used by more than 250,000 businesses worldwide. Try Campaign Monitor for free at campaignmonitor.com/twist. Listeners who sign up and become a customer receive a free t-shirt.
Squarespace. Check out Squarespace.com for a free trial, and when you're ready to launch, use offer code TWIST to save 10% off your first purchase of a website or domain.
And Veteran Hiring Marketplace, connecting top tech talent with growing companies. A comprehensive tech salary report is available to Twist listeners for free at veteran.com/twist. That's V-E-T-T-E-R-Y.com/twist.
I am super excited about this fireside discussion. We have three of, I would consider, the hardest-working investors in the business right now. We work with all of these firms and respect them greatly. Please welcome Hunter Walk from Homebrew, Andrea Zurich from XG Ventures, and my old friend Gary Tan from Initialized Capital.
Yeah, I'm gonna sit here an awkward distance away from y'all.
Nice to see. Appropriate distance.
An appropriate distance. Thanks for coming. You're all great investors, and as I said, sincerely, we love referring our founders to you, and I hope vice versa. Because every time we send somebody to y'all, you are responsive, you get back to them, you take the work seriously. You may have overheard the last Q&A there as I was warming up the audience. And I want to talk to you about the reality of raising funds and your lives on the road raising funds. I know Initialized, Gary, you just raised your third fund, fourth fund, fifth fund. Congratulations. Over 200 million. Homebrew, you've done two or three.
Three. Three.
Andrea, you invest your own money because you're a Googler and just made a ton of money. Go deal with LPs, which is nice. But yes.
Yes.
I think that maybe you want to deal with the nonsense of having a bunch of LPs. Do we, or do we, do you want to ever, do you aspire to do that?
Originally, oh, sorry, I should make sure the mic is actually on. Um, and kudos on this, by the way. Versus the other, those don't work. So yeah. But, um, originally, yes. But actually, we like the freedom of not having LPs because we're essentially our own bosses, and we can have our own, you know, wins. And if we make our own mistakes, it's, it's on us. You know.
Gary, talk about your relationship with LPs and how you, how that impacts how you invest. Because I was just giving some advice to the last founder about, just be careful pitching, you know, do-gooder stuff in a world where you get, only get your next fund if there's returns on the last.
Correct. Absolutely. At the end of the day, we are looking, looking at returns, and we're looking for things that could be 10x, 100x, 1000x, just like you. And so at the end of the day, we do have to view, you know, all of our investments from that lens. This is not a non-profit. You know, we don't have a double bottom line. On the other hand, I would like to caveat that the best ideas address some sort of fundamental need in society in a way that, you know, in a scalable way that frankly, you know, a lot of other methods don't actually, you don't actually have. So, you know, a non-profit may be able to do a lot of good, but a non-profit that also has a sustainable business within it can do even more. And then a profitable business that also happens to have, you know, a do-good aspect or something that society really needs, that's sort of the most scalable, that can have the most amount of impact in the shortest amount of time.
What company, when you look at your portfolio, triggers that for you the most?
Well, there is one that I can't talk about, but it's, you know, solving a fundamental need, you know, that we're sort of seeing play out across all social media right now. And so it automatically deletes your accounts.
[Laughter]
It is interesting. It's like the social media thing. We all thought this was going to be good for society. How did we get that so wrong?
Hunter, are you directing that at me because I led product at YouTube?
No, look, directing it at you because you spend a disproportionate amount of your time on Twitter debating with me.
Another, I'm a 10x, I'm a 10x tweeter. I can get very efficient. Small amounts of time. Look, I think we're, I think we're in a phase of some of these products where a few things are happening. First is we've normalized all the good stuff. Like we forget all the wonderful things these products do for us, and we are realizing, adjusting to some of the negatives. The platforms themselves, many of which because of homogeneous teams that, you know, we're not experiencing protected from some of the things going on the platform. That homogeneous in terms of geography, homogeneous in terms of background, homogeneous in terms of gender, in terms of race, maybe came late to realizing some of the things that we're going on the platform. And also sort of got themselves wound up in this notion of being a neutral platform, which means that you have to stay, you know, apart from your community. You have to just create a perfect set of laws that can be adjudicated through code. And because in the quest for sort of software margins, policy teams, operations teams are understaffed. They're treated as a cost item that needs to be managed versus, you know, maybe it actually turns out that there's, you know, another 500,000 basis points of margin that need to come out of these companies to go to moderation. And that's what we're all working through right now. And I think you finally sort of see through regulatory pressure, through pressure from employees, through pressure from users, that the sort of CEOs and founders of these companies are realizing that maybe their legacy is going to be determined by what happens over the next few years, and not, you know, the, the movie they can amount a decade ago.
Gary, you seem to have some thoughts on this. I know you did Posterous back in the day, which ranks for being a user. My favorite product ever. I mean, now it's like Buffer is, I guess, the enterprise version of what you did. Posterous? Anybody here a Posterous user from 10 years ago?
[Laughter]
Ridge ran. While there's some old-school people. Yeah. Contested Posterous. Oh, yes. That's right. I called the Posterous as Posterous. I've been mispronouncing it for all these years. Oh, it's Posterous. But okay. It could be either. That was part of our branding that you could, you know, sort of debate it. Yeah. Maybe you'd remember it. Yeah. If you're fighting obscurity, of course, as you teach all the time. Yeah. Exactly. What a great product though. You could email. I love the email feature. Just email your photo and then it wound up on all your accounts.
Oh, I have a funny story about that, actually. So Chris Sacca actually invested, and I think he also invested in Instagram, if that's correct. Yeah. And when Instagram launched, he sent me an email. I sent him and Sacca an email, and he said, "Hey, what do you think about Instagram?" And, you know, we kind of didn't really pay attention to it very much at the moment. We were like, "Oh, you know, startups die of suicide, not homicide." So, you know, we're not going to pay too much attention. And then, in the end, that was something that, you know, really flatlined our growth. Because, you know, the primary scenario for Posterous often was getting photos off of your iPhone, and there were no apps yet. Right? Instagram was the first app to both nail sort of the social viral loop, but also be a really grabbing. It would start uploading the photo in the background the second you selected it. And it was like, that simple optimization made it, you know, at least part, a part of what made it what it was. And so we didn't pay attention to it at all. It's like, and Sacca actually called it out. He's like, "Hey, what do you think about that?" Yeah. And so that's one of the things I wanted to bring up with angels. With the angel interesting panels that, oh, the best angel investors, they're doing that all the time. Like there's this idea maze that's happening, right? And interesting about that is Sacca didn't invest in Instagram. He invested in Burbn, which was the precursor. They were going to do a Gowalla, which I was an investment competitor, and they were into location. I guess location thing doesn't seem to be working too well for Gowalla and Foursquare. They seem to have it locked up. Maybe we'll just do this image filter thing because people using Photoshop to make their photos better.
I am obsessed with email. You know this because I'm probably emailing you now about the podcast. We have this "This Week in Startups" podcast list, and we send all of our listeners updates on the podcast, who's been on the show, maybe a live episode's coming up. Live stream is firing off, and we constantly get new people finding out about our podcast. And so we use Campaign Monitor, which is an easy-to-use email marketing platform. And it comes with incredible templates, and it's got a drag-and-drop editor, which I'm about to show you here, as well as 24/7 customer support, and over 250,000 businesses using them all over the world. But it's so quick to set up something called email automation. What is email automation? This is one of the greatest tools you can add to your startup or business's success. And in the example I'm going to show you, we set up an automation. I'll hit play here, and I'll sportscast it. You see us putting in the logo and putting in some spacing, adding images, and we're telling you about all the different episodes on "This Week in Startups." We're seeing a preview in on an iPhone, and also we say, "Hey, if somebody signs up for the list, wait 15 minutes, and then send them this best-of email with shows that we've done in the past." And then it says, "Wait three days, and then send them another best-of show." In other words, if you sign up for our mailing list and you just found out about "This Week in Startups," we can set this drip campaign to give you a drip, drip, drip, drip, drip, a couple of emails letting you know about our events, about past episodes. And people love this kind of stuff. It re-engages people. It's not enough to just collect the email. You have to think about the emails you're sending to people. You have to make them look beautiful. You have to have a clear call-to-action. And here is your clear call-to-action right now. I want you to try Campaign Monitor for free at campaignmonitor.com/twist. Listeners who sign up and become a customer will receive a free t-shirt. You can really change the course of your business by using campaignmonitor.com. I love the product. My team loves the product. And let me tell you something, doing this automation used to be something that you had to work with a developer to do. That's why so few companies did it. Now Campaign Monitor has made it quick and easy, and they have a huge library of examples. So go there right now, campaignmonitor.com/twist.
Okay, let's get back to this amazing. Do you think there's an opportunity to invest in a startup, Gary, that can take on Facebook, Instagram, Snapchat, and Twitter in 2019?
Well, in 2008, we started a blog platform. It was so much later than when people thought you could start a blog platform. And so to me, it really matters, what's the thin edge of the wedge? What community can we take down that would allow that to happen? For Facebook, it was obviously being Harvard. And so there has to be some sort of initial user base that could be highly engaged and grow from there. And so that's, so I have a sort of generational point of view of this. I think every three to five years, you have a chance to build a new scale social platform because you have a generation that's coming of age with technology that needs to feel like they're claiming a space as their own. They need to enter an empty namespace. They need to feel like it's something that they discover. And it doesn't mean that, you know, teenagers won't also use Facebook or won't also use Instagram. But I just think fundamentally, there's a chance to get to scale because every, you know, it started with college because that's when you used to get access to technology. Then it started with high schoolers because that's when you used to get access to technology. Now it's, you have teens and pre-teens because that's when you get access to technology. And everybody wants to, you know, make their mark on a space that feels like it's of them and they're discovering it. So fundamentally, if you can figure out how to amass that age group during their coming of age, you will always be able to build something to scale. Is it going to be as valuable, as durable as some of these, you know, sort of existing networks? TBD. But you definitely have a chance to build something.
Platform shift. So if Facebook actually almost missed it, they had to pay up to buy Instagram. And what's that? Yeah, they didn't do that.
Andrea, we'd be probably talking about Facebook the way we're talking about Snapchat today. Correct. Yeah. Do you see anybody pitching, "I want to take on Facebook, I want to take on Twitter"? As an angel, early-stage investor, we don't see that so much anymore. Yeah. But I know what you're talking about. It's always like the flavor of the day. Like first it was like, "We're the next Birchbox," or "We're the next Uber," or "The next Lyft." You know, it gets a little old. I feel like it's like, why don't you just come up with your own fresh, new idea? So many entrepreneurs are sort of like a little bit laggards, I guess. For and it's very rare and it's special if you come across an entrepreneur that's, you know, more a little bit more forward-looking. And for us as angels, that's always like, you know, something that we have to pay attention to.
And what stage do you like to engage with the founder? What's your, we talk internally about our Goldilocks zone. And, um, you've launched the product and have a little bit of traction, like a couple of customers. It's, and you don't have like a competitive Series A. What's your Goldilocks zone? Where does your sweet spot for investing?
I'd say it's a little bit further along than your Goldilocks zone. We like to see a little bit more proof of concept, more, you know, in-market success. True real revenue would be great. If they're past like the friends and family raise, a little bit more traction in the marketplace. So we are risk-takers, but we're not those, you know, like pre-pre-seed initial risk-takers.
Where do you find yourself now, Hunter?
I think it depends on the person. So what I'm gonna say is that we want to invest when I believe that the team has done the minimum amount of work to prove to themselves that they want to spend the next ten years working on this. So it doesn't come to a particular, like, "Oh, I need to see this revenue," or "I need to see that." Let me give you an example. Sometimes we get people who are building marketplaces, and maybe they've never built a marketplace before, and they come in and they're pitching, and they want to raise a two to three million dollar round, and they have a nice idea, but they haven't done any work to figure out whether any of their hypotheses about how to build liquidity on either side are legitimate. And you don't need, even though friends and family round to do that. You can take a few hundred bucks, throw up a landing page, throw up some ads, and see whether, you know, you're able to drive and capture. And I'd look at people who have that idea and haven't done that work, I said, "Forget even me writing a check. Like, you want, you know, don't you want to prove to yourself that, like, some of the core fundamentals here are going to work before you sign up to do this?" And, you know, maybe if that person, person walks in that room and has ten years of marketplace experience, has done it before, basically can list through the 100 that they've done or will do, you know, then maybe I write a check to that person, even though, you know, they're quote-unquote no further along. So I think there's a lot of people who say, you know, "It's, it's getting the bar is getting higher and higher for seed." And I'm not so sure that's true on a quantitative standpoint, but in a world of noise, maybe it's true in a qualitative standpoint. We probably over-index on sort of founder-market fit also. And so wanting to know, like, "Why does this problem matter to you, and why are you gonna work on this together?" Some of that stuff matters way more to me than a set of quantitative KPIs when we're making an investment decision.
You want to know the founder's not going to quit. I mean, that's a key part of it, right?
Yeah. I mean, but even beyond that, I think you can be, I want to know that the, I want to know the founder has empathy and interest in the problem. Sometimes you might just be, you know, there's people who won't quit because they're dogged, because, you know, they, they have a drive for success and the accolades that come with it. That's great, too. I mean, I love those qualities as well. But, you know, for better or for worse, we probably really want people to have some empathy, insight, and deep compassion for the problem they're solving for the customer. It doesn't mean that they're not gonna piss people off, right? Like, they don't have to be nice people in the sense of, if you're eliminating a middleman, if you're upsetting the status quo, if you're tipping over the apple cart, like there's gonna be people who are pissed at you. That's fine. But, you know, I think you need to fundamentally believe that when you're done building what you're building, you will have benefited your customer. And so I sort of call it like, "Disrupt with love," as opposed to "Disrupt with contempt." Right? Especially as software transforms all these industries that predate the PC, agriculture, construction, so and so forth. The stereotype of, you know, "22, 23-year-olds coming in and saying, 'Construction is broken,' because, you know, it doesn't have a lot of people from Stanford. We're building an algorithm, and this algorithm is gonna solve that problem." And you can feel like the disinterest in actually understanding their customer. You can feel like the, "We're better than them," like dripping off these people. And I just don't think, A, I don't want to get up every morning and work with those founders. And one reason that we stay relatively small funds, under a hundred million dollars, is we get to decide who we want to work with. We don't have to be all things to all people. And two, I think those companies ultimately fail because they don't, or they don't become as great as they could be because they don't want to spend time with their customer. They don't understand the full idea maze. So, yeah.
What do you, Gary, in terms of your Goldilocks zone? What's the perfect stage founder, product, market, whatever?
It's a great question. At this point, with the 225 million dollar fund, we obviously have to do, you know, sort of multi-stage. And so I want to continue to, you know, we are still doing very early, you know, five, six million dollar pre-money caps for very early to companies where they just literally started. And at the same time, we want to be able to do, you know, basically pre-A all the way up to like small A's. And to us, it's, the reason why multi-stage makes sense is that there's basically infinite capital in the world. Like, it doesn't, as an engineer coming up, as a founder coming up, it didn't seem like that. But now working in finance for this long, now I realize that's truly true. The only people who can actually make yield from scratch are software engineers and designers and product people in this room who are actually going to go and make those things. And so if those things are true, there's basically infinite number of very smart engineers and designers making stuff, and there's infinite capital. Then, you know, I've hired actually a whole team of eight partners in order to actually help you with design, product, engineering, all the pre-product market fit stuff. We think pre-product market fit is the most interesting and requires the most amount of help. And that's why what you're doing with Launch is so incredibly important. So, you know, that's the most important thing to me. There's a giant number of people who only invest post-product market fit. We want to be the absolute best at funding pre-product market fit.
Gary is running a model I hate, but he's doing it really well. In the sense of like, what I love working with Gary because he actually has the empathy, interest in understanding. I think there's a bunch of people who mimic variations of what Initialized is doing, which basically try to throw like a B+ operations team at outsourcing things for startups. And it's like taking a baby and putting it in a robotic exoskeleton. Like, that baby's gonna lift a car, but the minute you take the exoskeleton off, it's like a flabby baby that doesn't know how to do, you know, things for itself. And these great companies, like referring to in recent Horowitz, you want, no, no, they didn't do seed. You want founders. That was their big innovation when they came in. Was we're gonna serve a cigar management fee and put a bunch of serve.
Yeah. Yeah. I mean, it's good. Different companies. We have a bunch of investments that have done their A's or B's from injuries in, and all of them find, all of them find ways to extract tremendous value out of that model. It's not necessarily though, oh yeah, we use every part of the services. It's picking the one, two, or three things where you think that getting information or access to information faster will move you forward. So it might be like, "Oh, hey, they know how to, we're trying to sell the government's, and they have a great government relationships team, and they can really up our game." But hey, I don't necessarily need to use their recruiting function, right? Because the
Andrea, the negative spin on that from other venture firms, which they all seem to have kind of sharp elbows with each other. It seems unnecessary, but I don't get that. Exactly. Since it's so collaborative, 50 people on the cap table, why does everybody need to swing their elbows around so much?
But the, because there's only one person who gets 20% at Series A, I guess that is the answer, isn't it? I guess what, when you were seed, it's like, well, I got 6%, or I got 12%, I got 8%. But next time, you got 12, and I got, we all work together all the time, and it's great if you, you know, sir, then can still get the logo on your page and your growth fund. But there's only one firm that gets the 20% at Series A. And for the best companies, that's the historic fund maker.
Yeah. I see how that's changing. I think part of it, like your venture itself hasn't existed for more than 50 years as an industry, really. And really, it's grown mostly in the past, you know, 20, 25 years. And so just because 20% is the gold standard doesn't mean it will be forever. Yeah. Oh, and, and, you know, fund sizes are gonna need to correct for that, both ways. There's a lot of mediocre investors, and sort of LP institution LP models almost like necessarily keep them in business. Because if you're gonna take 5% of, you know, an endowment and put it into venture, you can't concentrate it just in one or two funds. It's too much money, and those funds won't, you know, aren't growing, won't take 300 million dollars from you. So you're constantly sort of trying to, and, you know, you've got two seats you like, and you're constantly then trying to sort of put two other investors into other seats. Except it takes 10 to 15 years to figure out if those investors are any good. So there's always gonna be like a shuffle of, "Hey, you know, this person makes our risk model work, and we don't know whether they're a good investor or not."
Let's talk about turning your idea, your amazing idea, into a new website. Whether it's a blog, or you're publishing content, maybe you're selling products or a service of some type, or you want to promote your physical or online business, or like me, you're having an event like Launch Scale, and you want to make a gorgeous, amazing website. Maybe one with a beautiful video in the background, like this. Maybe one that's responsive, and that people can see perfectly on their mobile phones and their desktops and their iPads and their widescreen monitor, and that's just optimized and optimized for speed, design, and mobility. Yes, you can see these perfectly on your desktop or on your mobile phone, and it's all search engine optimized. You got plenty of analytics, and 24/7 award-winning customer support. That's what you get with Squarespace. Squarespace.com. I use it for all of our websites, Launch Scale, and the Angel Summit, Launch Festival, Sydney. Why do we use it? It's beautiful. It's gorgeous. It's affordable. It's a great deal. It's got tons of features, and everybody on our team knows how to use it. Updating the website, it's not arduous anymore. It's easy. When I say update the website during a meeting at lunch, at staff lunch, it's updated in real time. People just go zip, zip, zip, and get it done. So go to Squarespace.com and get a free trial. When you're ready to launch your site, use the offer code TWIST and save 10% off your first purchase of a website or domain. Yes, use the promo code TWIST, and you'll save 10% off your first purchase of a website or domain. Squarespace.com is awesome. I love it and use it constantly. Go ahead and visit Squarespace.com and get that free trial, and use that promo code TWIST to save 10% off the first purchase of a website or a domain name. Thanks again to our friends at Squarespace for being one of the longest-running supporters of This Week in Startups. It really means a lot to me, and it means a lot to our team that you make such great software that we get to use here every day.
Okay, let's get back to this amazing episode. Andrea, how do you get people ready for Series A and to deal with these firms? How do you counsel them? Since you're really an angel, pure angel, like putting in what, 250, 500 typically, is your check size? How do you prepare them and help them navigate a venture round, a Series A?
I think, first of all, I'd say from the get-go, our decision-making process is a little bit more personal because it is our own capital. And so for us, we're not just checking boxes and saying, "Okay, you know, this quarter we've invested a million dollars or whatever it is in X amount of companies." So for the companies that we do decide to invest in, like I said, it's very personal. We take the time to get to know, you know, what their product is all about, you know, what they need in the market, who they need to talk to. And on the flip side, you know, we're also constantly, you know, going to the right events, keeping tabs with the folks that we know at Facebook and Google and, you know, all the ones that you can think of, and, you know, here on the Valley and in the City. And I think it's just trying to understand like what the fit is gonna be. And, and it's sort of like a game of chess, like how can you get that particular company in front, in front of the right person? And these decisions don't happen overnight. It's sort of like, it's like, you know, it's not running, it's running a marathon, not a sprint, basically. It takes some time to get them in front of the right people. And I think that's what our group is really good at. But it's taken us, you know, the last 10 to 12 years to build these relationships in the Valley. And for us, it's like, I said, it's very personal.
And you guys helped us with Posterous with our Series A, then. So thank you.
Thank you.
And what was her advice? How does she? I mean, a lot of it was, "Sit down, look at the pitch. Doesn't make sense." A lot of the stuff that you were doing early this morning, it's the simple stuff that, you know, when we were first-timers, we didn't know all of this basic stuff.
Yeah. Yeah. So some examples of what we did with Gary's group is, you know, we took the time to go in, and my background is sales. So we looked at your presentation that you were getting ready to go on to market with, and just sort of gave some general feedback, and learned from you guys to, you know, what was working for you, how can we help improve. Definitely don't get in the way. Our big motto is, "Don't get in the way. Just see what we can do to help." And, and then also, you know, my business partner, Pietro, he was essentially the acting CFO at Google. So we took some time to look at your finances, and, you know, let a little bit more personal approach. And we have the time to do that. Essentially, there's only two of us, and we have over 100 companies, but we still take it very personally and, and put our best effort, our best foot forward.
Yeah, I mean, I would say that we learned a lot from our experience with you, simply because actually having operators helped. That's actually, that was the most helpful thing for us when we were working on our startup. So, so get very inspired. Or said, "I hate your model, but you executed it incredibly well." What do you think is the secret sauce there? Because he basically just dissed you and said, "Hey, you're taking this like a little baby and put an exoskeleton." So let's just, I know there's no conflict here in reality, but let's pretend there is. The best defense of your, of robotic baby philosophy.
Yeah, absolutely. To me, it's actually about how do you scale venture? And, you know, venture itself, most people look at it as a fairly boutique thing. It's very hard to raise a fund. It's very hard to have a track record. Once you actually do that, do you build a team and you share the economics and you share decision-making? And that can be really hard because frankly, like, how do you even make that decision? You work so hard to get here. Are you gonna let other people, you know, make, like, pull the trigger on checks? And that's actually very hard for a lot of organizations to do. For us, that's something that's very important to me as Managing Partner of Initialized to actually get right. Because going back to my first principle, hey, there's a ton of capital. Hey, there's a ton of really, really great founders out there. And our whole job is, how do we make that magic happen a lot more? Most people will go out there and sort of, there's this idea that Andy Rachleff came out and said, "There's only 10 companies a year that really matter." But I think Eric Feng just put a great Medium blog post that I thought was very important for tech, that people didn't pay enough attention to. And that's that the billion-dollar exits in the past 10 years have gone up by 7x. 7x. That's a lot. That's not a little. That's, you know, a wave. And so, you know, why is it that we are still using the same ideas for venture funds from 10 years ago or 20 years ago? You know, maybe those percentage ownerships should come down. Maybe instead of very closely held boutique partners, we should actually be able to build teams of operators, give them check-writing ability, and then work together as a hive mind instead of a wolf pack. And those are the things that we spend a lot of time thinking about. I hope it works. I think it will. It's very interesting. I can't help but think about what happened in the NBA since we have the Warriors here. And they created this new Moneyball system. D'Antoni did it in Phoenix, and then obviously in Houston, we're just, you know, scorer in seven seconds or less, do three-pointers. And we all grew up in a defensive mind NBA with Patrick Ewing and, you know, Hakeem Olajuwon playing back to the basket. And then somebody just realized, "Wait a second, you get 50% more value if you hit a three." And a three is only a couple of percentage points harder to hit than a two. So just take threes and just chuck threes, and it's a better model. And now that's changed the NBA radically. It almost feels like that's happening in venture now, or at least in the early stage, where the VC firms that we used to all pitch for a three million dollar Series A, they're really doing Series B's, aren't they?
Hunter, in your mind?
I think there's, you know, in, you know, Gary talking a little bit about sort of stats that the industry needs to absorb. And one that wasn't talked about over a lot over the last year has been, you know, the dramatic increase in number of seeds without, you know, an associate, an increase in the number of Series A's. Right? So there's really kind of a throttle at that point in terms of what you need to do to get to that Series A for a variety of reasons. Large funds, a lot of overhang in terms of companies that they're still trying to get off the boards of, so capacity issues. The Series A, Series B funds are becoming more interested in outlier potential and less interested in stage-specific risk. So if you can come in at a Series A or a Series B and show real signs of being an outlier, which means not just hitting your, you know, two million ARR, but being, you know, 3x better than the 10 SAS companies that walked in before you, and the 10 that they're likely to see next. They are ownership sensitive, not price sensitive. So if you're in a position as an entrepreneur where your metrics are ahead of your peers, you're never gonna have a hard time raising. And it's never been a better time to raise. If you're at a place where you believe you're building a quote-unquote nice business, but your metrics are not yet ahead of your peers, you really need to come up with a hook that says the inflection point is right around the corner. And then figure out the right partner for you. Or you need to be in an area that's not yet mature. Right? So the idea that, "Hey, the space that I'm operating in, in and of itself, don't talk about adjacent seas, don't talk about, you know, the next 50 companies I'm gonna see, they look like me. My space is gonna produce a multi-billion dollar outcome, and here's why I am the leader in this space." And take that bet now. That's where sort of the FOMO kicks in, where everybody's like, "Oh, well, I need one of those in our portfolio." Versus, you know, there's a hundred tech companies, a hundred SAS companies looking like, you know, exactly like the person who just, you know, left the partner's office. And the person who's good, or the Wealthfront. Yeah. And so that's a reason why, I mean, I think all of us have probably seen a little bit more. I don't think of it as seed round anymore. I think of this seed phase because sometimes we're very interested in proactively writing a second check into that company before they go out for their Series A. We just because they're gonna push, because we know that the market will reward them disproportionally for coming in further up the ARR curve. They could go out and raise, but they could raise at 3x with the right partner and knowing the round structure they want. If they just went for another six, twelve months, and since we're in the business, we're long-term greedy. We're not short-term greedy. I don't need to prove to my LPs with, you know, 12-month markups. I need to prove with exits. Yeah. We're more than happy to sort of double down, put another million in, take another 5% or something, and have a bigger outcome after that.
E-Veteran Hiring Marketplace, connecting top tech talent with growing companies like yours. All the candidates are vetted before they appear on the platform. This is super important. There's no duds. A new batch of candidates appears every single Monday, right when you're ready to get to work. And it's great for startups or anybody looking to expand their tech team. Veteran released this comprehensive tech salary report for 2018. I'm holding it in my hands, and they've collected data from four popular tech hubs. You know these hubs: New York City, my hometown, San Francisco, where I live now, LA, where I lived for a decade, and DC, where I have never lived, but I'm in three or four of those cities I've lived. And you can compare premiums, and it provides breakdowns of compensation by geography. It also compares position salaries over the progression of years. The salary report is available to Twist listeners for free at veteran.com/twist. veteran.com/twist. That's V-E-T-T-E-R-Y.com/twist. V-E-T-T-E-R-Y-T's in the middle there. V-E-T-T-E-R-Y.com/twist. Learn exactly how much software engineers, data scientists, designers, and more are getting paid with this amazing report from Veteran. Use it to make the right offers and to build the best team. It's critical that you go into these negotiations with the data, and you can get all the data right now at veteran.com/twist. Two T's there. veteran.com/twist.
Okay, let's get back to this amazing episode. Andrea, when you pick companies and founders to work with, are you thinking about these downstream investors and how they're going to look at the opportunity, or do you just think, "Great founder, great product, great market"? There's enough information there. Are you thinking, "Can this get to a hundred million in revenue?" Or just, that's kind of an abstraction?
No, absolutely. You know, you were talking earlier about when entrepreneurs, I was putting that profit, they aren't the, the nonprofit thing, and it's not very attractive. So same thing. You know, even though it's our own capital, you know, we're still not running a charity. We are looking for, you know, growth, revenue, all that kind of good stuff. So absolutely. You know, before we even write that, that very first check, we're, you know, kind of looking into the future, like, "Is this company going to be interesting to the Andreessen's of the world, or the Sequoia's, or the folks along the food chain that are gonna write those?"
What are your perceived? They're interested in. Okay. Uh, well, I'm thinking of this, the latest one that we just sent to Andreessen. I don't know if we can name names, but okay. So it's a company called, give you permission. Okay. It's called GoShare. Yeah. And we absolutely love this guy. He's actually based in San Diego. And you wouldn't think of San Diego as like the hotbed of, you know, entrepreneurship and things like that, but it's, it's started to sort of become that. So anyways, based in San Diego, and this guy just runs such an efficient operation. And his tagline is, "Your friend with a truck." So it's basically, you know, when you go to Costco and you find that barbecue that you like, and you think, "That's really interesting," but there's no way I can put this half-ton stainless steel barbecue in my truck or in my car. So I essentially need to hire a friend with a truck. And that's what their company does. But at any rate, so he just tracks every single metric. And every time he sends an investor update, which is something we definitely like, and I would encourage every entrepreneur to constantly, if nothing else, over-communicate with your investors. But we see these things, and they come across our desk, and it's just off the charts. It's always up and to the right, up and to the right with all of his metrics. So he presents himself very well. He's very organized. And so with great confidence, I immediately thought, "Well, shoot, I just met with, you know, my favorite folks at Andreessen. I'm gonna put this guy in front of them and let's see what happens." And luckily, they loved him. You know, and he followed up with them. And same thing, like with us, he was, he was over-communicating. He was very clear with his objectives. He wasn't wasting the investors' time, just like he didn't waste ours. And phenomenal. And there's something about taking the work seriously. We have an internal phrase we use, which is, "Do the work."
And take the work seriously.
Like this is not like a hobby.
Mm-hmm.
I think there's a lot of people right now looking at, like, "I'm gonna try on being an entrepreneur." And we're like, "We're kind of serious about this."
Oh, yeah. Just like with us. I mean, we are angel investors, and essentially, it's our own capital. We don't, we don't have anyone to report to but ourselves. But we take ourselves very seriously. Yeah. And so we'd like to think that the entrepreneurs that we invest in take their businesses very seriously. So you're absolutely right. We actually made it contractual.
Mm-hmm.
That the founders we invest in have to do 10 updates a year. It's in our contracts with them. And I literally had a founder who we've had incredible success with, you know, and he's doing a Series A, and it's going incredible, and revenues just tripling every couple of months, and it's got term sheets. And his lawyer fought me on it. I've never seen this before. But I know, "Okay, well, shut the up." Like, I'm talking to you. I'm to call the founder. Like, "What is your, we're breaking my chops about?" And he said, "Well, we're gonna send those 10, but we just don't want to have like some weird term in there." I'm like, "Can I explain to you why that term exists?" When we syndicate your company, all the angel investors out there have been burned by companies not sending updates. And if you just agree to do this, you'll get more credibility and get future investment. So just agree to it because it's in your own best interest. And we're not gonna sue you if you miss a month.
Did you, did you settle on that? 10, but two can be gifts?
That would be that would be my negotiation.
Okay, I'll commit to 10, but two can be ironic gifts.
No, I was just like, I mean, it's also like being an angel investor. Like people like, "Oh, you don't get pro rata," and "You don't get to keep your pro rata." And I was like, "Well, no, that's not true." I was like, "That's not true." Like, we got to change that too. Oh, that's another thing. Now, so these companies don't rely. Everyone gives pro rata like it's free. Yeah. And these companies don't realize sometimes the overhang that comes with now that every angel is a fund. You know, like, why not? I understand why it makes sense and blah, blah, blah, blah, blah. But like, when I was growing up, when I was an angel investor, you were just happy to get into the round and then do work. And then if you did work, you were happy to maybe get invited into the next thing. And now because everyone's got either like ten million dollars of dark money behind them or has raised their own thing. These, and capital people. Yeah. So, and look, we love angels. So like, we don't fight that, obviously. But I feel part of my job as a lead investor then is to make sure that the founder is getting the full value out of their cap table. And so, you know, if you want to, you know, invest with me frequently, like you're gonna do what you committed to do for the founder, right?
Would you get pro rata?
Yeah. And you won't do a deal with that pro rata?
No, but you resent angels having it?
I didn't say resent. I say that I make sure that everybody who gets pro rata works for it. God, I'm sure I mix it up a little bit and keep the understanding. I thought now that the double zeros are up, I can say whatever I want. Oh, I thought for sure, like, usually when we come up here, you start throwing like politics stuff, you start going crazy. Things. So I'm like, "What's going on? This is a kinder, gentler Jason." We're winning so much.
Okay, large fund is winning. Six-year cards. You may have heard of a couple. Do you practice that in the mirror? That's kinda know what I do. I'm glad this distance is between us now. It makes my wife insane. And so I just do it. I just drop it into the middle of conversations like, "You know, it's a great school. I think you should consider it." I mean, it's, it's a little bit expensive, but hey, look, we all grew up in New York. I broke. We, you know, I know.
All right, let's give a big round of applause for these incredible investors for taking the time and being so candid. Andrew Zurich, Gary Tan, and Hunter Walk. Three of the best investors I know. If you can get a meeting with them, taken.