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?


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.


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).

An analysis of going from $0 to $1m revenue in 1 month

At Hustle Fund, we talk a lot about speed of execution. Part of this is grit and founder hustle. But what most people don’t realize is that speed is also baked into the business model itself.

For example, one of the things that people don’t realize is how much sales cycles and payback periods matter.  As a concrete example, fast growth direct-to-consumer companies are now able to go from $0 to $1m revenue within a month or two with just < $25k in ad spend. This is incredibly fast — unprecedented and very low cost.

How is this possible? All because of fast sales cycles. Let’s dive in:

Let’s start with a simple example. Suppose the following:

  • We start with $25k in ad spend on day 1
  • As soon as people click on our ad, they buy immediately and we get that revenue immediately
  • For every $1 we spend on our ads, we make an average $1.15 in revenue
  • We pour everything back into ads the next day
  • You can see that within a month, we are at an almost $2m revenue generated with just initial ad spend of $25k! This is crazy. You can raise a small pre-seed tranche and get to Series B benchmarks within a month.

Screen Shot 2019-02-19 at 3.05.37 PM

Now, in practice, the scenario I’ve outlined is near impossible. Namely, most of the time, your ad spend is not this effective on day 1 and often requires iterations and testing. Moreover, it often takes some time to clear with your payments provider even if you generate revenue right after someone clicks your ad.

But this scenario is actually not that far off from what many of the direct-to-consumer incubators are achieving.

Ok, let’s add some delay to make this a bit more realistic. Let’s suppose:

  • We start with $25k in ad spend on day 1
  • As soon as people click on our ad, we do get our initial ad spend back immediately but we don’t make any profit until the even numbered days
  • For every $1 we spend on our ads, we average $1.15 in revenue (on the even days)
  • We pour everything back into ads each day

Screen Shot 2019-02-19 at 3.07.06 PM

This is a contrived example (profit only on even numbered days??  weird.), but you can see in this example, we went from a near $2m revenue generated at the end of the month to just a $200k revenue generated, even though the delay in our profit is not that long. Not only that, we are making about half the profit as before, but our revenue generated has now dropped by nearly 10x. Why? Because time is a compounding factor.

So when investors are concerned about sales cycles and payback times, this is what they mean. Regardless of whether you are using ads to get customers, if you calculate this out, you can see how just small affects in sales cycles / payback periods hurt you big time. The other thing is that as an entrepreneur, you’re working just as hard in the first scenario as in this one, but your sales are affected 10x.

Both of these examples are still a bit contrived, because as I mentioned above, you usually don’t know if your ads — or any of your customer acquisition channels – are working (they probably aren’t) on day 1.

So now let’s assume that you don’t start with $25k in ad spend.  Let’s start with $5k. Suppose the following:

  • We start with $5k in ad spend
  • As soon as people click on our ad, they buy immediately and we get that revenue immediately
  • For every $1 we spend on our ads, we make $1.15 in revenue
  • We pour everything back into ads the next day
  • We add an additional $5k in ad spend every 5th day

Screen Shot 2019-02-19 at 3.08.12 PM

You can see that with this example, we can get to near $1m revenue generated by the end of the month ($800k+). In this case, we end up spending a bit more on ads, but this is a more gradual (and realistic) approach to ramping up ad spend. Again, in this example, because we make the $1.15 for every $1 immediately, you can see that this helps us achieve greater revenue than in the prior example.

Here is the spreadsheet with these 3 examples that you can copy and play with.  I’d encourage you to fiddle with the levers of this model in the green boxes. The amount you make for every dollar of spend. The payback periods. Ramping up ad spend. Etc.

In your own business, how can you decrease your sales cycle + payback period by even just 10%? How can you increase your margins by even just 5%? These all add up significantly as you can see over short periods of time.

The tl;dr is never underestimate the value of time in making money.

Featured image credit:

5 startup opportunities that will be big in 2019

Happy new year!. Lunar new year!  (a month has gone by while I’ve been sitting on this post)

Here are some other 2019 VC predictions that I’ve enjoyed reading:

Here are some things that I think will be big in 2019:

1) Furthering vocational education

I think traditionally, a lot of investors have been shy to invest in education. In US, let’s be honest — we don’t really care about education! Here’s a good post that my friend Avichal Garg wrote on the education landscape several years ago which I think still applies today in the US.

But the tide is changing a bit. Specifically, what we’re seeing in the US is massive student debt. And new college graduates are not able to get a job or a high paying job. For so many people in the US, if you are not majoring in a STEM subject, it probably does not make sense anymore to go to college. Period. The economics of college are just terrible.

So while we don’t care about education in the US, we do care about business and return on investment! And it does make sense now to provide education of “useful” topics for the workplace — for a job, for livelihood. This is why we see the rise of Lambda School which ties your livelihood outcomes to your cost of education.  And there are many other schools that are cropping up such as Make School and Kenzie Academy (we are investors at Hustle Fund) that are trying to teach useful topics that you can actually use and are willing to pay for, because you can use those skills to make money.

I think we will see a lot of new businesses stemming off of this trend.

We’ll certainly see more schools — both in-person and online covering more topics. Everything from coding to digital marketing to sales to even entrepreneurship. But also vocational categories as well. Can you teach medical skills or plumbing skills using VR headsets remotely?

Additionally, I think there will be businesses stemming off of these. Lots of new ways to loan money to students. New ways to provide socialization and networking for remote students. New real estate opportunities for these students.

2) Improving commutes

Commutes are terrible! (and a big waste of time). This year, we will see a lot of businesses built around making your commute better. Commutes can get better in two ways: A) By actually reducing your door-to-door time and B) by making the experience while commuting better. We’ll see opportunities in both.

A) There will be new ways of commuting in less time.

This is really what the rise of Bird and Lime is all about. When it’s faster and cheaper to go from say SOMA to the Financial District of San Francisco by scooter vs car AND is accessible to everyone, people will do it. In contrast, not everyone can ride a bicycle or a skateboard (e.g. more expensive, need balance or skills – not accessible to all)

But scooters really only work in warm-ish places where there are bike lanes / wide enough roads. E.g. places where it snows / places that don’t have bike lanes won’t be great markets in the long run. So there’s an opportunity to come up with a mode of transportation and model that can withstand weather / lack of bike lanes. My guess is that we will just see further advancement of ridesharing combined with autonomous vehicles. An early version of this might be effectively new autonomous bus lines that just go up and down streets continuously.  This is already starting to happen in some cities.


Photo credit: Giphy

B) As people drive less, they will have more time during their commute

This is a big opportunity for people to do more work, shop, and play more too. For example, we’ll likely continue to see growth in podcasts and tools for podcasts this year. Spotify made clear that they believe in this opportunity by announcing two acquisitions in podcasting this week.

But we might also see the emergence of new commuting activities. Such as new commerce models. In Asia, for example, lots of people shop while waiting for public transportation like this:


Photo credit: Tech In Asia

Perhaps we will see shopping happen in rideshares — this is already happening — some startups are going after this opportunity.

We may even see new fitness activities. Peloton allows you to exercise at home in a social way. Can you do this on the road? Can you take a stretch class in an Uber? Can you run from Zombies or have a coach yelling in your ear while you run to work?

A general trend we’ve been seeing over the years is the ability to entertain yourself in a retail location, and later this entertainment was brought into the home and then later yet, taken anywhere, especially while commuting.  For example:

Before, you shopped at the mall -> Later you shopped on your Desktop browser at home -> Now shop on your mobile device while commuting

Before, you played video games at the mall -> Played video games on your Desktop -> Now play video games on your phone while commuting

Before, you watched shows at the theater -> Watched shows at home -> Now, you watch shows on your phone while commuting

Before, you went to the gym to workout -> Now, you work out at home -> Later, will you work out while commuting?

Maybe.  I can’t predict the future, but I can tell you that people will have more time with their commutes.

3) Furthering entrepreneurship

When I grew up in the Silicon Valley in the 1990s, entrepreneurship was a ridiculous idea. You were a maverick if you were an entrepreneur. This is no longer the case. You’re pretty mainstream if you’re an entrepreneur today. Even outside of Silicon Valley, so many people have side businesses.

I think entrepreneurship as a category has gotten so big that it needs to be segmented. There are fast growth tech startups — these are the ones that VCs like to find and back. There are brick and mortar retail businesses. Like cafes and restaurants. And there’s a new emerging but fast growing category that I call the “micropreneur”. Micropreneurs are < 10 person companies that are supported largely by existing web platforms and online distribution. With just a handful of people, these founders can generate as much as $100k-$1m per employee because they can leverage a lot of existing infrastructure — online payments, website builders or online store platforms, and even easy-to-use “pseudo-developer tools” such as Zapier. Micropreneurs are fueled by the rise in platforms that help people get a business off the ground — such as Shopify or Webflow (we are investors at Hustle Fund) or Stripe or Udemy. Or even YouTube and Instagram! They are often bootstrapped and often start as side businesses that sometimes become full-time businesses. And unlike tech unicorns, there are tons and tons of them.

I think 2019 is the year where we see products, platforms, and content for the micropreneur.

  • Entrepreneurship education platforms (could be schools / bootcamps / etc of sorts) especially in areas of customer acquisition
  • Loans / financial solutions to provide non-VC funding for these businesses
  • Unique platforms and tools that can make it easy to start a “scalable” micro business
  • networking platforms and clubs (like a YPO for this segment)

In general, I believe that if you can help people make more money, that is the easiest sale, and microentrepreneurs are hungry to buy things that will fuel their businesses that are already doing well.

4) Crypto tools and crypto platforms

Although we’re in the bear markets with crypto, I am bullish on the long term use of cryptocurrency. Why? Fiat works fine in many places.  But, I think what we are increasingly seeing is monopolistic behavior on the internet.

I applaud CEO of CloudFlare Matthew Prince for writing this post a couple of years ago about free speech on the internet.  In this post, he talks about how CloudFlare came to the conclusion they should terminate The Daily Stormer as a client.  It was a difficult decision, not because he agreed with the Daily Stormer’s ideology, but rather because he didn’t believe that internet companies should be policing the internet for people who hold opposing ideologies.

But this is happening.  We’ve seen a lot of large internet companies terminate relationships with people they don’t agree with.  As a response to that, I believe we’ll see new sites crop up to try to bring back a “free internet”.  Payments are usually at the front of new waves of trends, so I suspect, we’ll see decentralized payment options pop up as a response to PayPal / Stripe / et al kicking people off their services.  Technology tends to start off with illicit use cases (such as the VHS tape used for pornography) but then ends up becoming mainstream.

In order for people to pay each other with cryptocurrency, we need reliable and easy-to-use infrastructure that mainstream consumers can use. This includes digital wallets for storing cryptocurrency, easy-to-use exchanges for moving money from currencies to fiat, accounting solutions for cryptocurrency, etc.  Entrepreneurs are currently building in all of these areas, and I’m bullish on innovation in all of these.

In this space – I think the winners will have to be incredible product designers who can build great user experiences.
5) Verticalization of B2B SaaS

In North America, B2B horizontal SaaS business ideas are largely saturated. Not 100%, of course, but for the most part, we have marketing software, sales software, HR software, customer service software, and communications software that largely works. Some of these tools may be clunky archaic experiences, but they are here to stay — at least for a while, in my opinion.

So I think the B2B SaaS opportunities that people will focus on are verticalized use cases.  E.g. Marketo for XYZ industry. Software built around particular sales cycles and workflows for industries like real estate, construction, farming, retail, etc. We already see this happening, but I think there will be a lot more of these types of businesses built around verticals in 2019.

I could be completely wrong on any and all of these predictions! And, even if I’m right, outside of these 5 categories, there will be, of course, many more businesses built.

What startup opportunities do you think will be big in 2019?

Featured Photo credit: World Economic Forum

How I raised my $11.5m VC fund

A couple months ago, we announced that we finished fundraising for fund 1 of Hustle Fund.  Hustle Fund is my new venture capital firm, and our fund 1 is an $11.5M fund dedicated to investing in pre-seed software startups.  Eric, Shiyan, and I could not be more grateful to our investors for their support and to so many of our friends and family who helped us with this process!

I’ve written before about what it’s like to start a new venture capital fund.  But, a lot of people have asked me about how we actually raised it.  Surprise surprise – we ran our fundraising process using all the fundraising tips I give away on this blog!

First some context

I need to spend a minute explaining a bit about venture capital (VC) structures.  VCs raise money from other investors called limited partners (LPs).  These investors can be individuals / family offices / corporations / institutional funds that invest in VC funds.

Here’s how we raised our fund (and some learnings):

1) We talked with a dozen fund managers before starting 

If you are considering raising a VC fund, I would highly recommend talking with a TON of new fund managers before jumping in to a) make sure this is what you want to do and b) get tips and advice.  The single-biggest tip that I heard over and over from my peers was that they felt that they had spent a lot of time courting large institutional fund investors when they should have spent more time trying to find family offices and individuals and corporates to pitch.  We took this advice to heart and ended up only meeting about 10 institutional investors once or twice to build relationships with them – potentially for down the road.

In the startup-fundraise world, this is analogous to raising from angels vs. VCs.  If you’re super early, meeting with angels is likely going to be the more successful fundraising path.  VCs will take meetings with you, but you want to make sure you are not spending too much time with people who will most likely not be investing right now.  That being said, it can be good to build relationships for down the road.  This is a time tradeoff that every founder — both product founders and new fund managers — have to make.

2) We sized up motivations

This leads me to my next point.  It’s important to size up an investor’s motivations – and this applies when fundraising for a product startup as well.  When you’re meeting with an investor, try to understand why he/she is investing — just in general.

There are many many reasons why someone wants to invest money in companies:

  • To make money
  • To not lose money
  • To take large risk but potentially very high return
  • To get promoted / move up the professional ladder by making a good investment
  • For fame and glory and bragging rights
  • To learn about a business or industry
  • To network with other investors or the founding team
  • etc..

Points #1-4 seem similar but they are actually quite different.  Some people are motivated by making money.  Others are motivated by wealth preservation (to not lose money).  An example of this is that many large institutional fund-of-funds manage retirement plans.  Their goal is to preserve the wealth of the everyday hardworking people who entrusted their savings in them.  Think about it – if you are working for SF MUNI and put your hard saved earnings from your salary into your company’s retirement plan, the last thing you want to hear is that your retirement plan lost all your money by investing in some dumbass new fund manager who invested in dogsh*t startups!  Most retirement plans will not be investing in unproven first time fund managers.

Others don’t mind losing money if there’s the potential to make above and beyond a TON of money.  E.g. you invest $10k and it has a 95% probability of being entirely lost but there’s a 5% chance that it could make $1m.

Then, there are lots of non-ROI reasons to invest.  To learn about an industry or a new technology.  To brag to friends.  To network with other investors or the founders.  Etc.  These are all equally great reasons to invest.

Most people have a blend of reasons, but it’s important to figure out what that blend is.

In our first meetings with all the investors we met with, we tried to assess what motivated each person we spoke with to get a sense of whether an investor would likely be a good fit.  (More on this later)

3) We prioritized speed over dollars

Our focus for this raise was on speed.  According to Preqin, in 2016, it took first time fund managers an average of 17 months to close a first fund.  For us, we decided that we really wanted to raise our fund in less than a year (and ultimately closed in 10 months).  So if it meant raising only $5-10m vs $10m-$20m in twice the time, we wanted to opt for less money at a faster pace.  This essentially dictated our strategy to raise primarily from individuals, because they can make decisions quickly.

The main reason why speed mattered to us is that per SEC rules, we could not market our fund while we were fundraising.  As marketers, we wanted to start actively marketing Hustle Fund as soon as possible.

4) We iterated our deck a LOT!

Storytelling is incredibly important for any fundraise.  As a new VC, we had no brand and no product to show.  In most cases, there’s literally *nothing* that differentiates a new VC from all the other fund managers.

The first version of our deck basically talked about how we had some edge because we went to “fancy” schools, worked at “fancy” jobs and were already active seed investors.  And I remember my friend Tim Chae basically looking at that slide and saying that every fund manager on the fundraising circuit had everything we had.  And he was right.  The hundreds of new VCs who are out pitching right now all went to some permutation of fancy schools and/or worked at fancy companies and/or have done some fancy investing.  These are not differentiators!

Originally posted by various-cartoon-awesomeness

We quickly realized that we needed to be able to tell a differentiated story.  For us, our biggest differentiator is around our model of how we invest – namely, we look heavily at speed of execution in investing the bulk of our fund.  This was not only a story around being different but also around why our past experience has led us to this model and why we are uniquely qualified to invest in this way.

It took us about 20 versions of our slide deck to hit this story right.  Thanks to so many people who gave us feedback on our story and especially to Tommy Leep, who helped us get our story on the right track early on.  If you get the chance to work with him on your pitch – whether you’re a fund or a startup – do it.

5) We built momentum by packing in lots of meetings.  I personally did 345 fundraising meetings between July 9, 2017 – May 25, 2018

In the past, I’ve written about how to generate fear of missing out (FOMO) amongst investors when you’re raising for your startup.  In the beginning when you have raised nothing, it’s hard to generate FOMO.  Whether raising money for a startup or a VC, no investor wants to be first check in.  So the best way to show fundraising momentum when no money has been committed is to pack in a lot of fundraising meetings.  This makes it easier to generate excitement when potential investors hear that other investors are doing second meetings with you.  And you also want all investors to end up committing to you around the same time.

Once you get commits, then you can start talking with other potential investors about those commits, which generates even more commits.  The key is that you need to constantly be meeting with people.

Here’s a graph of all my meetings per week between Summer 2017 and Spring of 2018:

Note: this doesn’t include all the meetings that my co-founder Eric Bahn did.  We often did first meetings with potential investors individually.  So collectively, our total number of meetings was much higher than 345!

You can see this Google spreadsheet of all my meetings to get a sense of what I did week to week.

You can also see from this graph that I began to run out of leads!  This is the most important thing – don’t run out of leads!  (more on that below)

6) We started with a low minimum check size to close investors quickly and raised it over time.  

In the beginning, our minimum check size started at $25k and eventually it went all the way up to $300k (for individual investors).  We did this to generate quick commits and create more FOMO.

Product startups can do this too.  I did this with my company LaunchBit — our smallest check size back then was $5k, and then we increased the minimum.

7) We qualified investors on first meeting

As I mentioned above, we were looking for investors we could close quickly.  For individuals at smaller check sizes, this often meant just 1-2 meetings.  Much like with startup fundraising, if someone was taking too long to decide relative to the number of decision makers involved and the potential check size, then that investor was probably not a good fit for our fund.  You want to be raising from people who are pretty bought into what you are doing – not people who will be an uphill battle to convince.

There were some folks, whom we met, who just were not quite ready to invest either because they were new to/not comfortable with the VC asset class or they were not yet bought into us / Hustle Fund as a first fund.  And that was perfectly fine – the important thing was just to figure that out quickly and move on and generate more leads and meet more new people.

This is really important, because I think one of the top mistakes I made in fundraising as a product startup founder and one of the top fundraising mistakes most first time fundraisers make is in spending too much time with people who just will not close quickly enough.  It’s tempting to spend time with any investor who will take a meeting with you.  And it often seems like it’s really hard to generate new leads.  But now that I’ve done this a few times, the better approach is to try to keep looking for new warmer leads rather than to feel stuck warming up cold ones.

8) We generated lots of leads (in the beginning) using brute force

Building on my point above, I think one of the top reasons founders (or fund managers) spend too much time on meetings with people who are clearly not going to invest soon is that they don’t know where to find more leads.  If you’re a product startup and you’ve exhausted a typical list of VCs (such as this one from Samir Kaji at First Republic), you’re probably wondering, “Now what?”  Where do I go now to raise money?

When I was a founder, this was certainly the mindset I had.  My perspective now, though, is that the world is filled with infinite money sources, and it’s my job to find the right matches as quickly as possible.  This mindset also takes the pressure off tremendously.  As a founder, I felt a lot of pressure to close a particular person, because it just seemed like there was a finite pool of startup investors.  Now with a more seasoned view, I feel no pressure at all, because there are actually a lot of people who are interested somewhere in the world – you just need to find them.

This means that you have to be generating a lot of leads and doing lots and lots of first meetings (see graph above).  So how did we generate leads?

We used a pretty standard B2B sales playbook to do so:

8a) Get referrals

We started by approaching friends and acquaintances and asked everyone if they were interested in investing or knew 1-2 people who might be interested in chatting with us about potentially investing Hustle Fund.  This actually allowed us to branch out pretty quickly, because people know a lot of people! And those people know a lot of people!  So even if you are starting with someone who does not have any money or is really not interested in investing in VC, just by asking for just 1-2 solid intros, you can actually find some interesting contacts.

I want to highlight the ask for “1 to 2 intros”.  The ask is NOT, “Hey if you know anyone whom you think might be a good fit” <– NO!  People will just brush you off and not think about your ask.  You want each person you meet to legitimately think about the best-fit person in his/her network out of the thousands of people they may know.  Having a specific simple ask to just think about one person in 2 minutes is a doable / realistic ask of everyone you know no matter how close you may be to him/her.

The other thing that I think people automatically assume is that in order to have a good network, you need to be someone like Ashton Kutcher and have an amazing network.  That certainly helps!  But it’s not necessary.

These are all the people I made this referral ask of:

  • Family
  • Friends
  • Friends’ families
  • Former co-workers
  • Former founders I’ve backed either in the past or present
  • People I met at events where I spoke
  • Organizers of events where I spoke
  • Where appropriate, I even asked some founders who pitched me at Hustle Fund on their businesses!

If you think about it from this perspective, if you are in the tech industry, there are so many people you can pitch / get referrals from.  Every tech worker is fair game – do you know how much tech workers make per year?  So. much. money.  Do you know how many of them know other tech workers?  Those are the only people they hang out with.  Any startup founder you know – no matter how much they are succeeding or flailing  — knows investors who have backed them or other startup founders.

On our $11.5m fund, most of it, including all of our largest anchors — special thank you to Shanda, LINE, and Naver — came from referrals – not from within our direct network of people we already knew.  Some of our investors are referrals who had other referrals.

So how do you soft pitch someone?  (and you should be soft pitching literally everyone you meet)

You know when people ask you, “Oh how have you been, what are you up to these days?”  That’s your window to soft pitch.  “Great!  I started this new fund.  These days, I’ve been, ya know, raising some money for it.  So if you or a couple friends you know are interested in taking a look, I would love to chat!“  Gauge the reaction.  If it’s positive, then try to set up a more formal meeting to actually pitch.  If it’s negative, then ask for 1-2 referrals.

Using a Cialdini-esque approach, you want to ask for the moon.  People will either fulfill it, which is great.  Or if they can’t, they feel bad and want to be helpful and will likely help you with whatever smaller ask you have.  Referrals are that smaller ask and really were clutch in helping us raise our fund.

I soft pitched everyone at every party I went to.  I soft pitched my optometrist during my eye appointment.  Under Obamacare, you now get basically a free meeting to pitch a health professional while getting a checkup.  Your doctor / dentist / optometrist / lawyer / accountant – these are all people you can pitch or ask for referrals from when you meet them (and they all have money 🙂 ).

We asked some of our closer friends for a TON of referrals (way more than the 1-2 that I mentioned above).  They were *so incredibly helpful*.  I probably owe them my first born child, but I’m not sure they would really appreciate the tantrums.

This referral strategy is a lot of work and requires a lot of meetings, but it’s a way to get started and get tapped into networks you don’t have.

8b) Throw parties / brunches / dinners / events

Some of our friends were a bit uncomfortable doing introductions for the purpose of fundraising.  Money is a funny topic that people don’t like to talk about very much in the US.  Some people view investment opportunities as opportunities and other people view them as liabilities (as mentioned above).

So, an alternative approach we used sometimes to get referrals was to ask our friends to throw parties / dinners / brunches and invite people we wanted to meet.  So, if your friend is connected to someone you want to meet, an alternative ask is to ask your friend to throw a dinner / brunch (and you pay for it) and invite both you and that person you want to meet.  Then you can soft pitch directly the person you want to meet without your friend having to feel awkward.

Interestingly enough, I found that entrepreneurs and investors were very comfortable doing direct introductions for us, while my friends who have always worked at big corporate jobs (and have never raised money before), were less comfortable.  And that’s ok.  The party / dinner / brunch route is an alternative path to the same result.  We ended up attending a lot of lunches / dinners / events that are not reflected in the meeting-count on the graph above.

In addition, we also threw a lot of dinners / talks / parties / events ourselves, and we invited both people we were talking to and committed investors to those events.  These events were helpful in closing investors as well.

Talks at conferences were also a good way to show off knowledge and give people a sense of how we thought about investments.  We have ended up meeting a number of potential LPs from events and conferences where we gave talks.  Events allow you to be “thought leader”.

8c) Do your own pattern matching

Once we started getting investors, we noticed some patterns emerge.  Even though we had focused our raise primarily in the Bay Area and didn’t travel much, a lot of our investors are from outside the Bay Area.  We conjectured that there might be much stronger interest outside of the Bay Area, where access to tech startups, is limited.

As it would turn out, almost half of the money in our fund comes from Asia (not Asian Americans but from Asia-Asia) even though we didn’t make any trips out there.

But patterns can also be thesis-driven.  Another pattern we found for Hustle Fund was that anyone who had been a mentor for or a manager of an accelerator really resonated with our thesis and invested in our fund.

It might be worth honing in on a pattern and trying to find as many people who fit that pattern.

Speaking of patterns, one interesting side note observation is that we had really poor success in converting female investors (despite actually investing in a lot of female founders both in the past and with Hustle Fund).  In Hustle Fund 1, < 5% of our investor base is made up of women.  (Defined as: we spoke with a woman from that entity or household). But we have pitched both men and women.  I’ve had many other friends who have raised money for funds or startups who have noted similar observations – women are seemingly much more conservative with their investments.

Just as a side tangent: it’s fine if people – men or women – don’t want to invest in Hustle Fund per se.  But, if professional women with some level of means are not taking some financial risk, they won’t achieve the same level of financial success as their male counterparts.  Think about this – we talk everyday about how women don’t make the same amount as their male counterparts at all these tech companies.  But we don’t talk at all about how women are left behind on investments.  Every rich person knows that you don’t make money on salaries – you make most of your money on investments.  If you were in the seed round of Dropbox or Google with just a few thousand dollars invested, you wouldn’t even be concerned about a salary.

8d) We made a video

We made a video (see to explain who we are.  This was a bit of a gamble, because we spent $13k(!) all in on producing this video.  That being said, we thought it was worthwhile, because we believed we could stand out if we did the video well.

This gamble has paid off in spades.  In part, I think it’s because no other VC (that I know of) has a video on their website.  So it may be worthwhile to pay for an asset that no one else has in order to stand out.

9) Your richest contacts are not necessarily your biggest checks and vice-versa

Building on a prior point about soft pitching anyone and everyone is that it turns out there was no correlation between wealth and check size.

This was an interesting learning for us.  In the beginning, we made a list of our richest friends and how much we thought each could invest.  We were so wildly off in meeting these numbers.  On the flip side, some of our friends who are not super rich surprised us and invested substantially.

There are so many reasons for this.  a) Making a lot of money in itself doesn’t mean that people have a lot of money.  They could have a big mortgage.  They could spend a lot of money.  They could have a lot of capital tied up in other projects or investments.  b) There are also a lot of people who don’t make a lot of money but are very good at saving it and investing it and secretly have a lot of wealth.  The Millionaire Next Door is a good illustration of both of these points.  c) Some people come from wealthy families and you just have no idea that they do.  d) People also have varying levels of bullish-ness on you, your thesis, and your asset class.  People also have varying levels of risk / reward tolerance.

It’s also important to note that sometimes people who are not / don’t seem like angel investors can become angel investors for you.  Andy Cook talks about how he brought in new investors who had never invested in startups before into his round.  We did the same as well.  Just because someone isn’t already an angel investor doesn’t mean that he/she couldn’t be.

This is why our grassroots strategy of taking so many meetings worked so well – we just never knew who would actually be interested in investing.  And we could not find any way to qualify people apriori.  This is why it’s so important to pitch anyone and everyone – it’s hard to know who will bite and who won’t.

10) We used a CRM to manage our process

This process requires a CRM, because you need to make sure that leads are not being dropped through the cracks.  We invested in using a CRM right away to track conversations to move people through our pipeline.

This also made it easier for Eric and me to divide and conquer – we would take our own meetings with individuals and regroup for second meetings and beyond.  And we could both see who was talking with whom so that we didn’t start different conversations with different people from the same fund or approach the same people.

More importantly, it was critical that we maintained discipline over all those months to keep the CRM up-to-date.

11) You’re not hot until the end

This applies to both startups and funds.  Fundraising is always a slog in the beginning, because you’re trying to generate lots of leads and qualify them.

This is a graph of what our fundraising looked like:

The blue line represents our soft commits over the months (verbal / written email commits).  The red line represents money we actually closed legally (signed docs).  As always, “soft commits” are a bit more ambitious than actual commits, but in the end, they should converge (or come close).

As you can see, we averaged getting about $1m per month in soft commits for the first 6-7 months to get up to around $6.5m in commits, which we closed in Dec 2017.  If you follow the red line, you can see that there is a surge of $5m at the end, which literally came together in the last couple of months of our fundraising process!

Like almost every raise I’ve seen, you’re just not hot until the end.

12) This all sounds easy but it takes hustle AND a village to do this!  

The fundraising process I’ve outlined above is executable and accessible for anyone.  And it actually sounds easy.  Just do a bunch of meetings and ask everyone for intros or money, right?

But wrapping up this post, I’ll leave you with a couple of final thoughts.

12a) It takes lots of hustle and lots of meetings to get this done. 

Last July (2017), when my new baby was about 7 weeks old, I decided to quit my prior job in the middle of my maternity leave and started Hustle Fund shortly afterwards.  That summer, during the day I would leave him with my parents, and I would go from meeting to meeting, stopping to pump milk in SF parking lots or at large tech companies’ mothers’ rooms.  At night, I would work on decks and update our CRM.  I would sleep about 4 hours a night sporadically as the baby would wake up every 2-3 hours to drink milk.  I got through most days on lots of coffee and adrenaline.  But no matter how tired I was, it was important to go into each and every meeting just as excited as ever.

I don’t mention this schedule to “brag about my hustle,” but just to paint reality – it really does take a lot of work to do lots and lots of meetings.  It’s important to work smart, but for some things, as smartly as you work, there is no shortcut for just lots and lots of hard work.  And know that as hard as it is, you’re not alone.

12b) It takes a village to really go anywhere. 

To start this fund, I leaned on a TON of people.

While this small section here doesn’t do justice to my gratitude, I did want to highlight just how many people my awesome co-founder Eric Bahn and I roped into this raise.  (I’m also incredibly grateful to have a fantastic co-founder in Eric and now Shiyan Koh!)

  • Our ~90 investors in our fund (they occupy way fewer LP slots but there are at least 90 individuals / spouses / family members / companies and people with a stake in this)
  • Past founders I’ve backed who have introduced me to their investors; one successful founder even generously offered us her PR agency and offered to foot the bill!
  • Current founders who went through their rolodex in trying to help us connect with their other investors / VCs / rich friends
  • VC friends who supported us with personal investments / investments from their funds / intros to their investors
  • Friends and family who came over to my house to cook food / bring over take out / buy us food – it was pretty incredible not to have to worry about food for a while
  • Friends and family who housed me in their spare bedroom or their couch on my fundraising trips since we have limited budget
  • Friends and family who introduced me to all kinds of rich and well-connected people
  • My blog readers who introduced me to their network
  • My own immediate family who took care of my kid(s) every week for months!
  • And big props to my spouse JJJS as well as Eric’s spouse and Shiyan’s spouse for really bearing the brunt of all the work that goes into starting a fund.

There were literally hundreds of people who helped us get this thing up and running (and we are just at the beginning).  And I’m so very thankful to all of them for their generosity.

Fundraising is hard.  And it takes a long time.  But don’t give up.  Happy holidays!

It’s actually hard to hustle

I should have known that when we picked a company name like Hustle Fund, it would lead entrepreneurs to introduce themselves as “real hustlers”.  But, I think my definition of hustle is very nuanced, and it’s not what most people think it is.

Very often, most people think of “hustlers” as people who are:

  • super sales-y
  • slick talkers / great at talking
  • doing 100 different things all at once
  • working really hard and wearing that hard work as a badge of honor

One entrepreneur even told one of my business partners that he didn’t think of himself as a hustler because he wasn’t doing anything illegal!  Hah!

But this is not what “hustle” means to me.  To me, hustle is about scrappiness to achieve to focus.  The key word is focus.

Originally posted by various-cartoon-awesomeness

I think the hardest part about running a startup is having focus.  Focus is the key thing needed to grow a business.  Because you have limited time and money, you can’t afford to invest in many different facets of your business. You can usually only afford to do just 1 thing really well otherwise a whole bunch of things will end up turning out mediocre or half-heartedly done – even if you are burning the midnight oil and working really hard.

This is easier said than done, though.  What this means in practice is saying no to just about everything.  In fact, taking on LESS at a startup in many cases is actually better than taking on more.  This means saying no to meetings that will lead nowhere.  It means not pursuing partnerships that will only produce incremental returns or revenue.  It means simplifying product and reducing features.  Ignoring lots of emails.  Etc.

As a founder, even with all activities reduced as much as possible, it’s still difficult to truly focus, because there are some activities that need to get done in a business that take up a lot of time but don’t actually contribute to the growth of your company.  Such as reviewing legal paperwork with your counsel.  Setting up new accounts and adding 2-factor authentication.  Setting up a checking account.  Applying for a credit card.  Etc.  These are all activities that need to get done and take up time that don’t actually help your revenue (or whatever your KPI is).

Compounding time management issues, startups also have a lack of resources.  E.g. how do you move your lead gen number when you have no marketing budget?  Even if you are good at time management and saying no?  Being scrappy to achieve focus is just really hard.

My last thought on this is that the good news and the bad news is that being able to successfully hustle is somewhat of a level playing field (though difficult for everyone!).  By this I mean, I’ve found that the best hustlers come from all walks of life.  People who go to Ivy League schools or worked at Google and Facebook are not necessarily good at hustling (some are and some are not).  Often, people from these places actually are given a TON of resources, so scrappiness is not actually something they know how to hone.  I went from being a marketer at Google where every news outlet wanted to cover all of our product launches to a bootstrapped 2 person startup where no one cared at all.  In addition, people who go to top schools are often very good students.  They are often good at being on top of projects and doing everything.  Unfortunately, at a startup, you have to deliberately drop the ball on a lot of tasks in order to free up time to really really knock 1 thing out of the park.  This is a difficult skill for people who are perfectionists who otherwise excel at non-startup jobs.  On the flip side, I’ve also met entrepreneurs who were not good at following directions at school or work, but are able to do incredibly well with their own startups because they have relentless focus on what matters most to the business at the expense of other things.

Working on improving my own hustle is something that I strive for everyday – since Hustle Fund is a startup in itself, we, too, have a bajillion and one things that we need to take care of but really should only be focused on 1 thing at a time.  This means, for example, if we are focused right now on saying helping our portfolio companies, it means that we can’t be responding to everyone who has sent us a pitch deck.  This is fine balance, but something I’ve thought about everyday for the last decade or so since embarking on this startup journey.

How do you hustle?

Pre-seed is the new seed

A few months ago, I was talking with a friend of mine who is a successful serial entrepreneur.  He has done incredibly well financially on his past two startups, and he’s now building his third company.  When we were talking, he expressed frustration in raising his series A round.  This was surprising to me.  I asked him about his metrics, which are good, but they were not at series A level.  I asked him who he was pitching, and he rattled off a list of usual suspects on Sand Hill.  All of those investors told him that he was too early.  It turned out he was going after the “wrong” group of investors. People he would have pitched 3 years ago had all moved downstream now that they had raised much larger funds, and he really needed to be pitching “post-seed” funds.

Every blog post needs a gif of a stuck kitty… Originally posted by kittiesaresuperserial

It struck me that a lot has changed about the fundraising landscape even in just the last three years.  So, I thought it might make sense to take a step back and talk about all the stages of early stage fundraising here in the Silicon Valley.

In early stage investing, at least in Silicon Valley, there are basically 4 stages: pre-seed, seed, post-seed (or pre-A), and series A.  In the “old days,” there were only seed and series A, and before that, only series A!  All of these changes have created a lot of confusion.

Here are my thoughts on these stages:


This is really the old “seed.”  Very typically at this stage, little to no traction is needed, and investors are looking for lower valuations than seed investors for taking on extra risk by going in so early.  Another consideration here is that, in the minds of pre-seed investors (who are very often small funds and will be allocating most of their capital in the first round or two), valuation matters a lot more to them than a larger fund who might invest in you at this stage as an option for later. If a startup comes to me looking for a $3m effective pre-money valuation vs another company who comes to me looking for a $7m effective pre-money valuation, basically what is being suggested here is that the latter company has to have a 2x+ greater exit in order to be just as good of an opportunity as the former.  The outcomes of both companies are, of course, unknowable, but that is essentially what goes through the minds of investors who are looking at lots of companies with different valuations.

Also, to be clear, pre-seed doesn’t mean that one just thought up an idea yesterday and has done nothing.  There’s a lot of work to do to prepare to raise money at this pre-seed stage.  It could be building an early version of the product,  or getting your first set of customers, or even doing pre-sales or lead generation well before having a product.  In fintech or health, it could be in dealing with regulations or getting particular approvals even if you’re not able to launch.

Investors at this stage are very much conviction-investors, meaning they either bought into you and your thesis or they did not.  It’s very difficult to convince an investor at this stage to change his/her mind.  This is a bit of a crap shoot because even if a pre-seed investor has bought into you as an awesome operator, if he/she has not bought into your thesis, it will be difficult to land an investment.

These rounds are typically < $1m in total.


Today’s well-known seed investors may have previously invested at an earlier stage with smaller checks, but because many of these funds have now raised $100m+ funds, they are now writing much larger checks.  Typically this is $500k-$1m as a first check.  This means that they have to really believe in you and your business-thesis in order to pour that much capital into a business. As a result, this stage has created a fairly high traction bar.  It can be upwards of $10k-$20k per month or more!

Seed rounds today are quite large – typically $1m-$5m!  I believe that some of these seed rounds are way too large, and there’s a looming market correction on the horizon for everyone.  I’m of the belief that early ideas can never effectively deploy $4-$5m in a very cost effective way.

Post-seed (pre-A)

This is a stage that was created because the bar for the series A has gone sky high.  This really is what the series A used to be.  A few years ago, people touted that in order to raise a series A, you needed to hit $1m runrate.  Now, you typically need a lot more traction to raise a series A round.  This magical $1m runrate number is now the rough benchmark for the post-seed stage, but it’s not series A investors who are investing at this stage. New microfunds have cropped up to invest here.  They are looking for $500k-$1m runrate level of traction.  This was my friend’s problem; he wasn’t quite at series A benchmarks and needed to pitch post-seed investors.

These post-seed rounds are also quite big these days, sometimes upwards of $5m+.

Series A

This is really the old series B round, but Sand Hill VCs who are known for being Series A investors are serving this stage.  This is typically a $6-10m round.  Companies typically have $2m-$3m revenue runrate at this point.

If you do the math, VCs are buying roughly 20% of a startup, so valuations can be upwards in the $50m+ range for today’s series A rounds!  On the low end, I haven’t seen a valuation of < $20m, and that would be for a really small series A round.

Some additional thoughts:

1. There are lots of caveats around traction.

If you’re a notable founder, have pedigree, are in a hot space, or you run your fundraising process really well, it’s possible to skip a stage.  I’ve seen some really high flying series A deals happen lately with friends’ startups, where they are not quite in series A traction territory, but they have so many investors clamoring for their deal that they can raise a nice big series A round. They’ve run their fundraising process well, and they generally have great resumes and are in interesting spaces.  Same with the seed round – if you are notable or have pedigree, you can often raise a large seed round with little to no traction on your startup.

2. Sometimes the line between post-seed and series A is quite blurry, but the valuations are very different.

I have a few founders I’ve backed who are just on the border of post-seed/series A metrics and are able to get term sheets from both series A and post-seed investors.  There’s a huge difference in valuation.  The post-seed deals tend to be $10m-$20m effective pre-money valuation, and the series A deals are at least $20m+ pre-money if not much much higher.  So, if you’re on the border, running a solid fundraising process is especially important in affecting your valuation.

3. Large Sand Hill VCs are doing seed again – selectively.

Sand Hill VCs who tend to invest at the later stages have now found series B to be too competitive to win.  They are now starting to do series A deals and seed deals to get into companies earlier.  In many cases, the deals they are doing at seed are large deals with little to no traction.

You may wonder, “Doesn’t this contradict what you just wrote?”  What’s really happening is that the world of early stage investing is becoming bifurcated. If you have pedigree and are perceived to be an exceptional high signal deal, you can raise a lot of money without much of anything.  These are the deals you read about in the news that make people think fundraising is so easy. “Ex-Google product executive raises $4m seed round.”  This goes back to point #1.

If you don’t have that pedigree, then you basically need traction to prove out your execution abilities at the seed, post-seed, and series A levels.

4. Lastly, with the definition of “seed” expanding, more fundraising is done on convertible notes or convertible securities.

I’m now seeing more rounds get done with convertible notes and securities for much longer.  This is actually good for founders because it means you have a much larger investor pool to tap.  In the “old days,” if you couldn’t raise a Series A from the, say, 20-50 Sand Hill VCs out there, you were dead in the water.  Now, you have a lot more flexibility to raise from angels and microfunds without a formal equity round coming together.  I think this is a really good thing for the ecosystem because at this stage, it’s still not clear who is a winner based on metrics.  There’s still a lot of pattern matching around who gets funded at these early stages.  By the time you get to the series B level, it’s pretty clear who is on a tear and who is not, and that is much more merit-based investing.  Short of that, the more angel investors we can bring into the ecosystem of startup investing, the more companies will get a shot to prove themselves.

You may wonder, “Well, are there actually companies that are being overlooked by VCs in earlier rounds who later are able to hit series B metrics and raise a VC-backed series B round?”  Having looked at a lot of data around this, the answer is definitely YES!  While it’s true that the vast majority of companies who end up raising a series B round from VCs previously had notable institutional VC backers even as far back as their seed rounds, VCs still end up missing a number of companies at the earlier stages.  These actually go on to do well without them and end up coming out of left field and raising money from late stage VCs.

Header photo by Ross Findon, Unsplash