The Rise of the Decentralized Startup

I think we’re seeing a very big shift right now in how startups are created and operate. But before we dig into that, I want to spend some time talking about work.

For centuries, work has been incredibly inefficient. In the “barter era”, one person would do work in exchange for someone else’s work. E.g. I’ll make you a silver fork in exchange for salt and spices. There were many things challenging about this type of economy. 1) There was no common currency to transact and understand value, and 2) on a macro level, it was hard to know whether your good or service was really needed and whether it was going up or down in value. E.g. Is there a surplus of spices? Should I be spending time in spices or something else this year?

Money came along and solved the first part of that problem. Tribes and groups of people adopted currencies that are the predecessors to modern day money. You could carry around some form of fiat and use it to buy things. You could sell your goods and services for fiat. This helped standardize commerce.

Eventually, the Medici family in Europe established ledger-based banking so that you could take your goods and services to one location in Europe and it would be good for a credit that could be used at another Medici bank. Coincidentally, around the same era, the Yap money system in Polynesia had similarities where money was actually represented by large stones, and there was a record of who paid with which stones. The large stones were too heavy to be moved, so the pointers of who owned those stones did were written down on a similar ledger-based system.

Money solved fungibility issues. But it never really solved the latter problem of understanding where your good or service fit into the broader landscape of what is actually needed in society and how it was valued.

And for centuries after establishing complex monetary and lending systems, this problem still came to a head often. In 2000, during the dot com bust, it became clear that tons of people built out companies and products that no one wanted. Overnight, many of these companies went to zero and many people in the internet industry were laid off. Time and again, we’ve seen companies hire up the wazoo only to do massive layoffs of employees who gave their whole lives to a given company.

In fact, as an individual worker, you often don’t know if a layoff is coming. You often don’t know if things are going well / not going well within your own company. Management typically doesn’t tell you. As an individual, you also don’t know if you should be taking this job or this other job, because beyond the salary, you don’t really know what it’s like to work at a given company until you start working there. And traditionally, you’ve only really been able to work at one company at a given time.

This brings us to today. As of writing this in 2021, mobilizing money isn’t the number 1 issue for companies. It’s attracting and retaining talent. Now you may be thinking, “Well that’s nice and all but I’m still having trouble raising money for my startup.” I have 300+ portfolio companies at Hustle Fund – all with varying degrees of fundraising troubles. But all of them — even once they have the money — are in a war for talent. Even the most well-funded companies who are no longer startups are having trouble finding and retaining talent.

Folks, the current way that startups are being created is starting to break. Under the current way of building startups, you have to figure out what potential users want and will pay for by doing customer development, pitch investors who are not your customers / don’t get it / are traditionally slow, fight in this war for talent against Google, and lastly, as a founder, get burnt out and combat personal mental health issues in the process. Does that sound like the best way to deploy resources for our society?

But what if we flipped startup-creation on its head? What if you start with a mission and values — not founders? For example, at my company Hustle Fund, our mission is to democratize wealth through startups. And to that end, we are furthering capital, networks, and knowledge in startup ecosystems. Even though I’m a founder of the company, it doesn’t matter if I personally work at Hustle Fund or not. It’s the mission that’s important and the people who want to work on that mission. And if no one cares about the mission, then the organization shouldn’t exist regardless of what I, as a founder, think about it.

And if you start companies with missions instead of with founders, then you start to attract people who have lived and breathed that mission before. Those people really get it. And those people are also would-be customers or users. And maybe these same people are not only working on this problem together in a cooperative way but are also investors in the problem — both through work and capital.

When you start with organizations that are centered on missions, then you start to chip away at existing startup problems. Such as understanding whether you’re building something people want – your colleagues are also your customers. They are also your investors and are more value-add through their feedback and network. You also solve for mental health issues. Founders often feel like they *have* to stay at their own company because there is often no one else to lead in the early days.

For all of these reasons, this is why I think we’ll see the rise in the decentralized startup. In fact, we already see many Decentralized Autonomous Organizations (DAOs) in play — this is not a new concept and DAOs are precisely what I described above.

Magdalena Kala tweeted a few articles on DAOs that I think are really good and are all worth reading if you’re not that familiar with DAOs:

DAOs, of course, are not immune to the fight-for-talent problem. But, unlike at a traditional company, often you’ll see various people working on goals or milestones for DAOs in a part-time way. Traditional companies often require their workers to sell their soul to their organizations. But, DAOs mostly just care about getting stuff done. And the transparency around what is happening in the organization gives everyone a clear picture of where a project stands, what is happening, and who is doing what (and getting paid what). In a traditional company, most of this is opaque. You can see if a DAO is going well, but in contrast, you really don’t have a clue with a traditional company.

A DAO that I think is really interesting is the Friends with Benefits DAO (h/t to my business partner Shiyan Koh for showing me this). It’s basically a membership club of inclusive thinkers and creators. They list their values upfront, and people who resonate with the mission can pay (invest) to join the group. This in turn becomes a community that funds the mission, and over time, as they build and monetize, the community who is also their customer base, will benefit. This is the ultimate — having your investors and customers wrapped up as one.

I think we will see many more DAOs formed in the coming years, and reiterating what I mentioned in 2018, I do think that some form of crypto will disrupt traditional VCs over time. But I also think decentralized startups will start to appear even without “typical crypto components”. There will be startups formed around missions that don’t start with founders nor involve crypto but have radical transparency. There may also be decentralized startups formed without Discord channels (personally, I’m unclear how anyone, myself included, can do deep work anymore with so many Discord channels) and just rely on wikis / Notion pages / Mirror / etc to document what work is being done without minute-by-minute chatter. I think we will see startups formed with people who work at multiple places simultaneously or are all contractors – such as how Gumroad is set up. And in that scenario, the need to raise so much money for the company actually becomes *less important*, because you don’t always need funds to cover someone full time and compete with much crazier full-time offers from FAANG companies. This mitigates the fight for talent issue.

At my own company Hustle Fund, some of these concepts are things we’ve thought about and have experimented with a bit. We’re not quite a DAO, but we are a bit DAO-like. We have a number of talented people who are part-time because they believe in our mission, and we are excited to be able to work with them in any capacity. Our GMs also have a ton of autonomy with their business lines that align with our mission — I often don’t have the foggiest clue what is happening with the day-to-day on their businesses, and that’s ok. In fact, that’s great. So at Hustle Fund, which is completely distributed, we have leaders of different facets of our mission who reap strong upside when their particular projects go well. In many ways, a structure like this requires working solely with entrepreneurial people – people who enjoy running with things without centralized instruction or authority.

Ultimately, the most ideal working environment for an individual is to be able to work on a mission (or many missions) you love with people you enjoy. You’re happy with your compensation and feel like you have strong autonomy to be able to have an impact. You get crystal clear transparency get be able to make good decisions for both the organization you work for as well as for yourself personally. This is what I think most people want for themselves and their families, and why I think we’ll see the rise in decentralized startups in the years to come.

A reflection on our mission

It’s hard to believe that we’ve been in the pandemic for almost 1.5 years now! But the silver lining of a pandemic is it really forces you to question what is important. One of the thoughts I keep coming back to is around mission and purpose, which I wrote about last year at the start of the pandemic. AKA, what are you doing with your life and why?

When we started Hustle Fund a few years ago, setting out to make a boatload of money was not the (sole) purpose of the organization. Prior to Hustle Fund, I could have worked at a number of top VC funds that could have set me on a clear lucrative path. But I wanted to do something bigger and more impactful — something that would also help a lot of entrepreneurs. In mapping out Hustle Fund almost four years ago, we decided that core tenets to our mission at Hustle Fund was to further capital, knowledge, and networks in startup ecosystems.

Recently, we had a chance to reflect on how we’re doing against these tenets at our Hustle Fund team offsite.

Mapping out the future of Hustle Fund

At Hustle Fund, we believe that great founders look like anyone and come from anywhere. In the last four years of Hustle Fund, we’ve built scalable processes to fund nearly 300 pre-seed companies globally! Even pre-pandemic, we made almost all of our funding decisions online through video conference calls. We’ve invested in approximately 50 companies off of cold-application forms.

We’ve also spun up Angel Squad led by Brian Nichols, which in its first year alone has deployed ~$10m into startups of all sizes! Both our pre-seed VC fund and Angel Squad are on their respective ways and continue to build momentum everyday.

And beyond Hustle Fund, a lot of our peer VC funds now do the same. While it’s never easy to raise money, entrepreneurs who are not well-connected can now raise at least some capital remotely from connections built entirely online. And it doesn’t have to be from VCs. In the last few years, we’ve seen the rise of crowdfunding, roll-up vehicles, angel-operator syndicates, debt and revenue-based financing options. Startup capital is what made Silicon Valley special for so many decades, but these days, the capital markets for startups has largely opened up and continues to move towards a free-market dynamic — which makes capital more accessible.

But, Silicon Valley is still a special place for knowledge and networks. Successful entrepreneurs here have long shared advice to the next generation of new entrepreneurs behind closed doors. Tactical advice on things like customer acquisition, hiring, fundraising, testing quickly, building teams and keeping morale up have been passed on from one founder to the next.

At our offsite, we realized there’s a lot of work to be done in opening up knowledge and networks. In this next chapter of Hustle Fund, just as we’ve pushed hard (in a small way) to open startup capital markets, we are going to start pushing to make startup knowledge and networks accessible globally. Unlocking the secrets of startup tactics and inspiring stories is the beginning of what you’ll see from us.

To kick this off and give you a taste, my business partner Eric Bahn will be doing a fireside chat with Vlad Magdalin, CEO/founder of Webflow. In this fireside chat, the two will share stories of what happened in the very beginning, before Webflow became a unicorn.

If you read the funding stories of Webflow, on the surface, it looks like it was a walk in the park. But the Webflow story could not have been further from that.

Vlad exemplifies what the American Dream looks like at its best. As a refugee to the United States from the USSR, he cleaned offices at night with his family to make ends meet while growing up. He also started Webflow in 2005 but had to stop many times along the way to take jobs to earn a living. Eric and Vlad will talk about those tough early days of the company in a way that most startup stories are not portrayed.

This event is free to all and will be next Tuesday evening PT – I highly encourage you to attend and stay tuned for much more!

Can you build a unicorn business outside the Silicon Valley?

This is a follow-on post to my last blog post about building a global-first startup

The tl;dr for my last post is that these days geography is rather confusing. It’s quite common for a San Francisco Bay Area company to start hiring from day one an engineering team that is elsewhere and building up a real hub elsewhere even though everyone sees them as a San Francisco company. Or for a startup located outside of the US to sell to US companies.  The world is a lot smaller than it used to be.  

And so for these reasons, I believe that to start a company, you can start building a startup these days from pretty much anywhere. The most important thing in the earliest stages is to try to get to product Market fit quickly.

Knowledge has become commoditized at the earliest stages – you can pretty much read about Lean Startup anywhere on the internet.  But what about scaling a business? 

The numbers are actually pretty sobering.  I went ahead and graphed some interesting fundraising data from past portfolio companies that I’ve invested in either as an angel or as part of a team where I was a/the decision maker.  

I took my whole portfolio of all companies that I had invested in between 2014-2016 and created pie charts based on geography. N = over 250 companies in this dataset.

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You can see the vast plurality of companies that I invested in during this time were largely international companies  Note: for the purpose of this exercise, I separated out my Canadian startups from the rest of the world. (Canadian startups are so similar to US startups that I thought they deserved a category of their own.)

I did the best job that I could in labeling just one geography for each startup, but this exercise was a bit tricky. For example, a company that I had invested in is categorized as a San Francisco-based company even though the vast majority of their employees are now based in Dallas. The reason for this is that when I invested in them, the founders were and still are based in San Francisco, and the bulk of their decision-making and operations were happening here at the time.  On the flip side, I classified a number of companies whose founders had recently moved to the US from another country and were doing significant operations in that other country as “other int’l”, even if they were US Delaware C corps. As you can see per my last blog post, it gets a little bit complicated. 

I then went ahead and grabbed the companies that made it to the Series A level and graphed what the breakdown of those startups look like by geography.  The reason I say Series A level is that I have a number of portfolio companies who have done well in revenue and have not had to raise larger rounds.  So if a company had raised a series A, I labeled the company as a Series A company regardless of where the raise happened. Now, I understand that there are some issues with the nomenclature because a Series A in the Bay Area is so much later than a Series A in say Australia, but, this was the best I could do. In addition, if a company had not raised a Series A but had hit US Series A milestones – namely $2m+ “net revenue run rate”,  then I counted the company as a Series A company.

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What is interesting about this graph is just how much the percentages have changed.  Let’s come back to the analysis in a second.

I went ahead and did the same exercise with Series B companies.  I graphed my portfolio that had graduated to the Series B level. And again, for companies who raised a Series B – whether here in the US or abroad — were labeled a series B company.  For companies who had hit US Series B traction milestones – namely 10m+ annual net revenue runrate – I also added those companies to this category as well.

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You can see that this graph has changed even more.

Here are my takeaways: 

1) The San Francisco Bay Area punches above its weight. (not surprising)

One could try to argue that perhaps my San Francisco Bay Area founders are stronger. While I couldn’t tell you whether that’s true or not, intuitively, my gut feeling is that that is not the case.

What I do think is happening here is that the San Francisco Bay Area has a lot more capital, and so there are more startups that get more funding than in other parts of the world. And by proximity of being here, it is easier to access the capital (even though there is also more competition).

But the other thing that I think is happening is access to talent and knowledge, especially as companies scale. I tend to invest in businesses that require less capital. This tends to skew towards B2B companies or other businesses where the margins are nice. I tend to prefer investing in companies where if they could never raise a dime of VC funding again, they would still be able to survive and thrive.

And I’ve applied this lens across all geographies. So as a result, I would not expect such wild differences in ability to get to the Series A level or the Series B level even if there is less capital available in other markets. But you can see that there is a big difference.  

1b) One side note: also, if I remove startups who have founders with pedigree, then SF doesn’t punch above its weight and proportionally stays the same at each stage. 

2) International companies outside of the US & Canada have a much harder time raising money.

You can see that across-the-board, my international companies have had really had a tough time getting to the Series A or Series B level.

And again, I attribute this to less access to knowledge about scaling, less access to capital, and less access to talent that has scaled businesses before. One potential wildcard explanation for this lack of success is that the US & Canada have pretty established customer acquisition channels.  But, that isn’t the case everywhere globally, so it may also be that customer acquisition makes marketing and sales in the US & Canada just faster and that other international companies just need more time to make headway.  

3) Companies based outside of the SF Bay Area that have been successful have spent significant time in the Bay Area

The last interesting thing I would say here is that if you look at the Series B companies, anecdotally I can tell you that all of those founders have cultivated lots of relationships here in the SF Bay Area to get scaling knowledge and access to capital.

Takeaways:

I don’t think you need to be in the San Francisco Bay Area to start a company. In fact, I actually think that since your money goes so much further elsewhere and knowledge is commoditized regarding starting a business.  As an early stage founder, you really should just focus on product-market fit wherever you feel is best for you to live.

BUT!  If you want to start scaling a business – call it at the Series A level and beyond – that’s when you really need to start having connections ideally to the SF Bay Area to raise money from and have a network / learn from and potentially even a pool of people to hire.  

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Image courtesy of Giphy

If you are starting a business outside of the Bay Area and want to build a unicorn business, in today’s global economy, it is significantly helpful for you to start building from connections on day 1 to the SF Bay Area.  

Some thoughts on balancing family and a startup

One of the more taboo topics in “Startupland” is around having a family while starting a business.  When I was about to have my first child while working on my company LaunchBit, I was catching up with a friend of mine who was also an angel investor in my business.

And then he asked me, “How do you think about balancing your company with a young child?”

Since then, it’s a question I’ve batted around for years.  Is this an appropriate question?  Is it even a good question?  And what is even an answer to this question?

To be clear, my friend didn’t mean any malice by it nor was he trying to use my answer as a piece of information in making a decision about investing — he was already an investor. He was just legitimately curious. But of course, the immediate counter question that comes to mind (and that I articulated out loud) is, “Would you have asked me that question if I were a male founder / CEO?”

We all know that he wouldn’t have.

For as long as I’ve been running my own company — first at LaunchBit and now at Hustle Fund — I have not often engaged in conversations about family in business meetings / business settings.  When other people talk about their kids, I usually just kinda smile and nod.  In contrast, my business partner at Hustle Fund Eric often talks about his family and his minivan.  He shares photos of his children with our investors in our monthly reports regularly.  I don’t think think most of our investors even know that I have children.  There is an unspoken looming fear that many female entrepreneurs with children have — that their abilities and dedication as a professional will be judged and looked down upon because they have children.  This is because there is a notion held by some people in the ecosystem that having a startup while having children puts you at a disadvantage and shows a lack of dedication.  Obviously, not everyone holds this belief, but there is no upside as a woman to sharing that you have children while running a startup.  And so for so long, I’ve just generally kept quiet / private about the whole matter.

And I’m not the only woman to do this.  Countless female founders of mine over the years have asked me for advice and guidance on managing a family while starting a company but have also asked me to keep these questions on the down low or even their plans to start a family on the down low.  I’ve become a confidante of sorts because I’m a female founder with a family in this taboo world.

However, after mulling on this for a few years, I think the exact opposite needs to happen.  Everyone would benefit by sharing advice on tips for handling parenting while running a startup.  And, so I’ve decided to write this post on how I’ve managed to balance parenting while running 2 startups (had kid #1 while running a product startup and had kid #2 while starting a VC fund a couple years ago).  

Before I had kids, I had in my mind an idyllic notion of parenting.  I thought I would swaddle my newborn in cloth diapers, feed breast milk for a year, and follow every other piece of advice from “ideal mother” websites. But then, reality quickly set in – in having my first child while running my adtech company.  The idea of spending an extra 30s putting on a cloth diaper at 2 in the morning in a half dazed stage all of a sudden seemed less exciting — my stance on parenting immediately changed when I became a parent — I just wanted to make sure my kid stayed alive and healthy! 

The reality check

On one hand, there is truth to why running a startup and raising children isn’t easy.  Many people will say that it’s because children take up a lot of time and attention.  Other people say it’s because they increase your financial burden. Both are true but IMO not the biggest issues namely because people are incredibly resilient to constraints — both time and money constraints.

For example, before I had children, I thought I was quite efficient with my time. Post-children, in looking back, I’m actually 3x+ more efficient with time now. I never thought I could eke out so much more efficiency. You can ALWAYS become more efficient with more constraints.

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Playing Bejeweled is something I used to do but don’t anymore…

So, the biggest challenge isn’t additional constraints, because resilient people make things work and make them work better.  I actually think the biggest challenge is that there are just a lot more variables that are out of your control.

For example, your kid gets sick and can’t go to school; that’s out of your control. Your kid wakes up every two hours; you can’t control that either. So how do you deal with last-minute situations? How do you impromptu handle situations you didn’t expect? 

So, here are some key things I’ve learned while leveraging my time as an entrepreneur parent:

  1. You need support. Don’t do it alone.
  2. You need to say no and leverage time.
  3. You need to “let go.” 

Support

It really does take a village to raise children, and I’ve leaned on tons of people for support from the beginning through now. I think people are often afraid to do so, but I think it makes life a lot easier. 

During the first few weeks of motherhood, folks showed up with home cooked food or bought meals / meal gift certificates for me and my husband. Beyond the warmth of love and generosity this brought us, such a little act made a big, practical difference in my day. I could then put my energy towards thinking about my business, focusing on my kid, and even some personal recovery time, instead of worrying about what we were going to eat for dinner. On the flip side, this is probably the easiest, best gift you can get a new parent — meals.

My support network helped me balance time as I became a first and then later second time mom while being an entrepreneur. When my kids were still very young, friends and relatives babysat while I went to networking events, to work, or to sleep when I desperately needed a nap. For example, when I was fundraising for Hustle Fund in 2017, there was a networking event on a Saturday in San Francisco, and my husband was out of town.  For the 2-3 hours that I was there, I left my baby with my friends who lived in the Mission.  As an entrepreneur, at work, you ask for the moon from your business partners and potential clients all the time.  But we don’t often do that with people we’re closest with.  Why not?

My husband holds down the fort a lot, especially when I travel for work or have late meetings or events.  And my parents have spent so much time with my kids when they have no school (and in the very beginning when they couldn’t go to daycare), I can’t imagine accomplishing both startups without them or my extended support network.

Pride is one thing you really can’t afford when launching into the role of a entrepreneur-parent. 

Saying no & leveraging time

As a parent and entrepreneur, I need to leverage my time, and I need as much of my 9am-5pm working block to be free to think / write.

To achieve this, unfortunately, this means I end up saying “no” to a lot and moving things to more efficient channels whenever I can.

For example, people ask other people for coffee meetings a LOT!  Usually without any purpose. I used to do these coffee meetings a lot in my 20s. But, now, I often say “no” to coffee meetings. Critics of this strategy may argue, “Well, I’ve built my best connections through coffee meetings.” And I can agree coffee meetings are great to a) re-build or strengthen rapport with someone you already know / want to catch up with a friend OR b) meet with someone new and build rapport with LOTs of coffee meetings with him/her.  But when I look back, the vast majority of my coffee meetings in my 20s have been one and done, and for those people, that one coffee meeting isn’t enough to end up doing business or hang out socially in most cases.  (there are some exceptions but largely true of the coffee meetings I’ve done over the years) 

Instead, I prefer to stick with email for quick communication and if necessary, move to a phone meeting while commuting. In fact, I set up my Calendly so that bookable times are primarily during my commute at the beginning and end of the day. I end up having a lot of meetings while walking, skateboarding, kick scootering or driving. 

For further “networking”, in lieu of a 1:1 coffee meeting, I like to do group drinks / lunch or hangouts outside of my 9-5 working block.  So if there are a handful of people you want to re-build rapport with or want to get to know, it’s a lot more efficient to group everyone together.  And they’re busy too, so they want to make the most of their limited time too.

This means that when I get to work at 9:00am, I’ve already done a few calls / networking, so most of my 9-5pm day is slated for “thinking work”. I might have a couple of additional meetings during that block where I need to take notes and be fully thoughtful, but I like to have — as much as possible — a whole day to only do thinking and writing work.

The opposite of this schedule is what I had when I was working at Google in my 20s. I had back-to-back meetings all day, and then when I got home, I would, in a tired way, try to think and write. In retrospect, if I were to set up my schedule all over again, I would have skipped many of those meetings, asked people to do most work / coordination over email, and done calls while commuting to free up most of the day.

Exercise

As an aside, exercise is really important to me, and combining work time with exercise (walking, jogging, skateboarding, kick-scootering, etc.) allows me to eke out additional productivity.  I don’t believe in multitasking for most things – I think multitasking makes it challenging to really focus and be present. But I do think that exercise and talking-work goes well together, and this type of multitasking actually is more productive. 

I read Christopher McDougall’s Born to Run (excellent book) and learned that our ancestors used to hunt animals by basically jogging a marathon everyday! Since then, I’ve been trying to increase my miles–some days I walk eight miles–and multitasking with phone meetings helps with this goal, too. I’ve also heard that walking is more conducive to thinking than sitting — but who knows?

In addition, I often use voice-to-type to “write” emails on my phone, especially during commutes. Whether walking, jogging, or scootering with my kids, I can still “talk” to do writing work.

Emails

Lastly, everyone gets TONs of email these days, and email management is a big chunk of work in itself.  It’s really important to me to keep my 9am-5pm working block mostly free — I don’t want to be spending most of that time in email.  With the exception of a few emails that need immediate response, I work on email on the Caltrain on the days that I go up to San Francisco or at night after dinner.

I also recommend SaneBox, Superhuman, and Gmail smart responses to streamline emails and Calendly to streamline calls.

I use SaneBox to filter a lot of emails including subscription emails, emails from people I’ve never met, etc.

I use Superhuman for templated responses so that I can tell everyone the same thing over and over again.  For example, if I need to move a conversation to a call, I send the same templated response with just a couple of keystrokes, and people can pick their own time to chat (during commute hours) through my Calendly calendar management.  I also use Superhuman for offline email processing – so for example, if I’m commuting on the Caltrain to San Francisco, I can plough through all my emails offline quickly.

Re-scope responsibilities and letting go

Outside of work, the time it takes to complete simple chores adds up and eats away time and energy you could be spending either working or with your kids. Since working on a startup means having a budget, my husband and I have re-scoped and re-prioritized our chores to make them as manageable as possible.

Laundry. To save time, we don’t fold laundry. We just don’t. I know – that sounds blasphemous. That’s a tradeoff that we’ve made. We each have a laundry basket to keep clean clothes separate, and we wash each person’s laundry in their own load. I also streamline my clothing options by wearing a @HustleFundVC shirt and jeans almost every weekday. I understand that not everyone wants to keep his/her clothes in a laundry basket or wear the same outfit over and over, but I can tell you that it saves me a lot of time. Sometimes you just have to let go and figure out what is really important to you. 

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Photo credit: Giphy

Food. Each week, my husband and I each cook one simple dish, usually on the weekend. One night, we’ll order cheap delivery, one night we’ll end up eating at someone’s house, and one night we’ll pop a frozen pizza in the oven. Leftovers carry us through the rest of the week. Keeping our meals simple means neither of us has to fret over grocery store runs or recipes.

Dropoff and pickup of kids. We only have one car, so we each take a day to do both dropoffs and pickups.  We are fortunate to have managed to get their schools to be close to our work and home, so our commute, in general, is not that long.  (A miracle in the Bay Area where there is tons of traffic) . 

When my kids are not in the car, this is when I do my car calls so that the drive time is not wasted.  When the kids are in the car, it’s actually a good time to chat with our kids.  Conversations don’t just have to be at home at the dinner table.  They can be in the car too.  Since we only have one car, on other days, I will sometimes combine exercise while the kids are in a double stroller or while we’re kick-scootering together and will take calls when the stroller is empty. 

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Double stroller + skateboard combination day

Contractors. People have often asked me if I have a nanny or if I hire a company to clean our place. I’m not averse to this, and in general, I believe in comparative advantage.  Meaning  — if someone else is way better than you at something, for the right price, you should hire help.  This is how you’d run your business; and, this is how you should run your home.

In our case, both of my kids go to school, so a full-time or even part-time nanny wouldn’t be helpful because he/she would have no children to watch during the day. And by setting up the above the systems, things like laundry actually don’t take more than a few minutes — a chore that could take hours you can shortcut by basically not caring.  So should I pay someone for something that I fundamentally don’t care about is the question? Not sure.

I also make my kids — as young as they are (both under 6) — do chores.  In the beginning, it’s not done well, but at this point, they are actually quite good at cleaning and feeding themselves.

But I do think you should pay for things that you do care a lot about and will take a long time (such as this blog post!). That’s how you can get further leverage on your time.

To summarize

Running a business and being a parent each requires a lot more juggling than without children. But, it also forces you to be pretty dam* efficient that you could possibly imagine.  

To summarize, the biggest way to leverage time with a low budget is to a) ask for help from your community (family, friends, and even your own kids); b) prioritize thinking work and figure out how to get rid of everything else; combine with exercise, and c) reduce how much you care about daily chores. 

My business partner Eric at Hustle Fund is appalled by the fact that I don’t fold my clothes, so these exact strategies are not for everyone, but I do think with some creative juggling, you can eke out a lot of additional efficiencies to make parenting and entrepreneurship work without going crazy. 

Special thanks to my editor Caitlin for pulling the first draft of this together.  Also, the stock photo above isn’t a photo of my kids, but they are cute. 

Why I don’t (usually) meet startups in person

The other day, I tweeted.

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“Contrarian perspective here – it’s ok to *not* meet a founder in person before deciding to invest.”

This set off a tweet firestorm — mostly with people telling me in some form or fashion that I was wrong. (Side note: what I love about the VC industry is that people tend to have incredibly strong opinions based on limited or no data 🙂 )

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Image source: Giphy

It’s interesting — at this point, I’ve been investing in early stage startups for almost 5 years.  And, I still have a lot to learn. But I’ve also personally interviewed 1000+ early stage startup teams.

Most of these teams in person.

And after looking at all this data about interviewing, I believe that it actually doesn’t really matter *for me* whether I interview teams in-person or remotely. Let’s dissect this a bit:

First, why should you interview startup teams in person?

1) I think cultural and historical business norms would say that you should always try to meet people in person and try to build rapport in person to win a deal.

While I don’t think anyone has great proof on this, intuitively, I believe this is true. What better way to win a deal than to fly to a founder and just show up and say, “Hey, I want to invest”.

So for investors playing in highly competitive spaces, this makes a ton of sense. E.g. investors going after a hot series B deal. Or for investors chasing after founders who came from Facebook and MIT who are building the next scooter company that utilizes AI.  Building rapport is really important to winning hot deals.

For me, most of my deals are not hot when I invest. Hah. Often these companies go on to be hot later. But since I’m first check into companies when they basically have nothing, usually it’s just me and the founder’s mom who are investing. Writing the check is in itself the rapport-building activity.

2) You can assess founders better in person.

I also believe you can assess founders better when speaking with them in person. You can detect when there is co-founder tension / drama / something weird. You can detect when a founder is stretching the truth. All kinds of stuff.

I know this because I’m a super blunt / direct person. And, I’ve often called out things to founders directly. For example, there have been many teams over the years where I’ve noticed tension in a meeting between the co-founders. I’ve often pulled founders aside afterwards and mentioned my observations as such.  e.g. “Hey, it seems like there’s some weird tension between you — are you having a lot of miscommunication?”  And every single time, founders have broken down and admitted that they’ve been having some problems.  You can definitely detect co-founder issues in an in-person meeting.

So given these huge benefits, why wouldn’t you meet a team in person?  A bunch of reasons…

1) Unconscious biases.

It’s amazing how a team that is great at pitching can really “fool” you. There have been so many meetings I’ve taken over the years where you walk away from the meeting feeling really pumped and believing that the founders are amazing. And you think, “These are great founders!”

And then, I look back at my notes 24 hours later and re-read everything they’ve done or not done in the last few months, and you think, “Oh, this just sounds ok – they’ve only sorta achieved some things.”

Charismatic people can really fool you. Having charisma is a great trait, just in general.  But, it can mask actual execution.

Moreover, charisma is cultural. What we find inspiring in a leader in the US is very different from what other people in other places of the world find inspiring. So, we have unconscious biases around what makes a charismatic leader. Extroverts, for example, in the US have a huge advantage. We generally think of extroverts as highly charismatic people. But extroverts are not actually any better leaders than introverts. There are plenty of examples of successful introverts who manage to inspired large groups of people towards a common goal. So we let our unconscious biases get in the way in assessing things like leadership because of the way our culture is set up.

One of my learnings over the years in venture is that it’s really important – as much as possible – to be objective.  I try to assess what a team has actually achieved. Or what they are actually doing. But very often, meeting people in person detracts from assessing this, because some founders are much better at selling the dream and others are much worse.

There’s a well known top female VC who works at a very well known VC fund, and she was telling me a few years ago that one day her partnership heard 2 pitches. One of the pitches was by a woman who matter-of-factly just talked about numbers and growth and how she could build a big company. Another pitch was by a man who sold the dream and hadn’t done much of anything. After both meetings, the rest of her partnership talked about how they could really relate and build rapport with the male founder who was quite the visionary. This top female VC, however, realized that, although she was more excited about the male founder’s pitch, when she objectively thought about what he had accomplished, she realized it wasn’t much.  And that the female founder had knocked it out of the park although her storytelling wasn’t as amazing.  This story is a true story and this happens all the time in venture.

In the venture community today, we reward “visionaries” much more than executors. And a big reason for this is that we make investment decisions based on pitches rather than on execution (aka working) in our decision-making.  This is a big problem and this is precisely what I want to change at Hustle Fund (though it takes baby steps).

The last piece about unconscious biases is that sometimes what we see in-person scares away traditional VCs.  Such as pregnant women. Being a pregnant woman and pitching investors is NOT a recipe for success to raise money.  Although there are plenty of successful female CEOs who have children while running their respective startups, it’s still not a positive sign to most VCs.  This is a shame and something that is only noticeable / an issue when pitching in person.

2) Meeting teams in person limits your deal flow.

At the earliest stages, it’s important to see a lot of dealflow.  If you are only doing meetings in person, it means that:

  • Companies can only be located in your geography
  • You need to spend a lot of money and time to fly to other places to see companies
  • You need to spend a lot of money to fly companies to see you.

If you’re a series B firm, all 3 of these can be fine limitations. You presumably have enough management fees to spend money on travel, and presumably, you don’t need to be seeing tons of companies in order to do great deals. But if you are at the earliest stages — such as a pre-seed fund like ours — you need to be seeing lots of deals and generally don’t have the budget to either do a lot of traveling or to fly companies to you.

And at the pre-seed level seeing lots of top-of-funnel deals is critical!

So, meeting teams in person is a tough strategy for small firms like ours — for both time / money reasons.

3) Technology is good-enough for remote meetings these days.

Technology is actually quite good these days. I think 10 years ago, vetting people through video conference might have been rough. But, today, Zoom.us, for example, is an amazing product for doing video interviews. You can see a lot with strong connectivity — including founder tension — and you can really feel like you’re in the room with the founder.

4) Meeting people in person is inefficient.

I don’t want to waste founders’ time and my time. The priority activity for them is in running their business. So for the most part, driving all around the Bay Area (in traffic!) is not a value-add activity for anyone. If we happen to be in the same place at the same time, that’s great — such as a conference / event / co-working space, but for the most part, commutes are a bear that I don’t think anyone should have to put up with if given the choice.

5) Lastly and most importantly, if you construct your portfolio in a certain way, it’s actually ok to miss things in a virtual interview.

At the end of the day, doing VC right is actually much more about portfolio construction and modeling than picking. This is surprising to many people.

After investing in hundreds of startups, I genuinely believe that it is much better to invest based on execution rather than to try to assess accurately based on talking.  But, the entire industry is largely based on making investment decisions based on talking. This is a grave mistake, in my opinion.

Here’s an analogy in the job market — in the old days, you would interview a bunch of candidates. And then you would pick someone to hire largely based on talking. But as it would turn out — people who are great at selling themselves in the interview process are not necessarily the best performing hires! Business people have figured this out, and so these days, at so many companies, you no longer just talk in a job interview. Hiring teams now try to assess in other ways — through projects / short term contracts / tests / etc. In other words, execution-based tests are now used much more commonly to better assess hires.

In VC, the right analogy would be — why don’t we make a small bet for seemingly promising companies? And then try to assess based on execution whether or not to write a much larger check.  (On the flip side, startups can assess us/me, to see if I’m living up to standards as an investor.) And as performers perform, let’s continue to do this. This seems like the much better way to assess performance — by actually assessing performance itself rather than talking.

For this reason, this is why I think it’s actually ok to miss some things in interviewing founders for a potential investment — because I care much more about how a team performs than how they talk & look.

How to build a big marketplace

I’m not very good at keeping up with The Twitters, so I hopped into this conversation about building large marketplaces super late.

It’s an interesting one — when building a marketplace, which comes first?  The chicken or the egg — supply or demand?

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Image credit: Rushart’s blog

Obviously both are important for a successful marketplace!  But, if you want to build a really BIG marketplace, here are some observations from over the years.

1) Unlocking large amounts of supply matters A LOT!

This is a bit unintuitive.  Most people who set out to build a marketplace think that if you can get people to pay for something (the demand side), then you’re all set.  I’ll argue that it’s certainly important to test the demand side but it’s almost more important to test how hard it is to get supply.

From my experience in growing an ad network, it is possible to have lots of demand but not enough supply!  This is actually a very common phenomenon.  Case in point, most email newsletter companies have an easy time selling out their ad slots, but it’s incredibly hard to continue growing an email newsletter at a fast clip.  The way that a lot of email newsletter companies solve for this problem is by introducing new lists with the same audience.  E.g. you can receive the daily news digest and also the daily jobs email.  This gives them twice as much supply with the same audience.

2) If you are aggregating supply, the key is to unlock new supply

One of the big areas where I see marketplaces fail is by going after an existing market and trying to amass the same supply that already exists.  So for example, a marketplace for salons or a marketplace for wedding venues or a marketplace for co-working spaces.  These marketplaces are all amassing existing salons or existing wedding venues or existing co-working spaces.  These are existing places that consumers could ordinarily find themselves and pay for directly.  You are literally just moving supply around and not growing it.  The issue with doing this is that this existing supply already has certain expectations for payment, because they are already making money for this service or asset that they provide.  This then makes it hard to be a middle(wo)man and take a cut in between.  You are competing with a strong alternative — to be found directly.

The better way to aggregate supply is unlock new unique supply.  Airbnb is a great example of this.  People were not already using their extra bedroom as a hotel room or their couch as a bed.  They don’t have the same expectations around making a ton of money unlike the Holiday Inn.  Airbnb has effectively brought a ton of new “hotel room supply” to the market that didn’t exist before.  They were not try to resell existing rooms in existing hotels.  Uber and Lyft are equally good examples of doing this in the taxi market.  They brought into the taxi market new “cab supply” that didn’t exist before, and these drivers don’t have the same expectations for monetization as existing taxi drivers.

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Image credit: Giphy

Ultimately, unlocking new supply drives demand.  If I can stay on someone’s couch next to the Moscone to attend a conference for 50% of what I’d pay for a room at the Holiday Inn, I’d do it.  You are reducing prices for the end user by unlocking new supply, and this drives demand.

So going back to the original examples of marketplaces for salons or wedding venues, etc, can you get clever / creative in creating new supply?  Can you turn new people who are not in the salon business into a salon owner?  In many cases, doing this might just be too high of a cost and not possible, but in some cases, this approach may be a good strategy.  A good example of this is Wonderschool.  Wonderschool is turning people into new daycare owners — they are not amassing a network of existing daycares but rather unlocking and creating new ones to add to their network.  So think about unlocking new supply rather than moving existing supply around.

3) The unit economics need to work in the long run at scale

Once you initially test both supply and demand, there’s going to be a constant tension between both sides.  Sometimes you’ll be supply constrained.  Sometimes demand constrained.  Often, it may not be clear if the unit economics will work out while you’re building this up.

In fact, ridesharing companies often get a lot of flack from the public, because they are not profitable yet.  But, the holy grail for them is autonomous cars.  Once these become mainstream, they will have access to infinite supply at a low cost.  So while the short-term numbers may be questionable, the long-term future of these companies seems very promising.

Similarly, you’ll need to think about what your long term control over supply will be.  Most marketplaces that are successful have a stronghold on at least a good portion of their supply to help with pricing pressures.  Successful ad networks are a great example of this — Google may run a large ad network across many properties they don’t own, but they also own a lot of their own properties including Google search and YouTube.  Likewise, although Airbnb doesn’t own properties today, it’s rumored they are going into real estate.  So once you get some footing on your marketplace, the next question is how can you think about controlling your future by having access to or creating at least a good portion of your supply?

4) What should I look for in amassing unique supply? 

If I were to build a large marketplace today by amassing supply, I would start by looking around at what is currently wasted (space / time / assets).  Then, I’d think about how this wasted stuff might be cleverly transformed into something else that consumers and businesses currently spend a lot of money for.

Summarizing all of this, to make a marketplace fly, you need to cleverly come up with a LOT of unique supply (obv there has to be demand).  1) Turn something else into supply where people don’t have high monetization expectations (Airbnb, Uber, Lyft).  And/or 2) eventually you own it or part of it (e.g. scooters / Google search).