The myths of follow-on investing debunked

Follow-on investing is a fascinating topic. There are all these myths floating around out there. On the investor-side, I hear all kinds of things involving how much of your fund to allocate towards follow-on funding. Or whether to invest in every round. And on the founder-side, I hear myths about how you should only approach investors who do follow-on or how you should *not* approach investors who do follow-in in case they decide not to invest. And if any investor decides not to invest, is that negative signaling? Does the investor really not believe?

I thought I would make a video addressing any and all of these myths. As always, your position on these questions really depends on the exact nature of your situation.

Here’s how to think about follow-on investments in startups:

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Happy 3rd birthday Hustle Fund!

Wow 2020 – what a year! I’m not going to lie – it’s been a pretty crappy year. The world often feels like it’s falling apart. I hope you are staying safe and healthy and wishing you the best in everything. 

At the same time, I also have tremendous gratitude. And today, I’m specifically calling out my Hustle Fund Family. Whether you’ve worked with us in some capacity, invested in us, pitched us, taken money from us, watched / read our content, introduced us to people, etc – THANK YOU so so so much! It takes a community to grow something successfully.

It takes a lot to get a startup – any startup – off the ground. This past Tuesday marked our 3rd birthday at Hustle Fund – we fully expect another year of tantrums and poop on the floor.

3 years ago, my business partner Eric Bahn and I set out on a 30-year mission — to help entrepreneurs who hustle — people who execute with velocity — get access to resources. We started this with our modest $11.5m VC fund that we spent 9 months raising. We met with over 700 prospective investors. And, I personally started this journey just 8 weeks after I’d given birth to my younger child. 2017 was quite a year.

(Side note: I reflect on our beginning years and raising our VC fund on First Republic’s new podcast called Venture Unlocked: check it out here. I’m biased, but I think it’s worth a listen!)

Fast forward to today, we now have:

  • $45m+ under management (more to come…)
  • 2 customer acquisition schools (unannounced)
  • 1 special investing program (unannounced) 
  • 2 online internet shows (1 unannounced)
  • 200+ portfolio companies
  • 1 incubated software company (unannounced) 
  • 13 people who work with us at Hustle Fund

Whew…

It is amazing how together we have built so much of that in just the last 3 years – most of that in 2020. My team is amazing – I could not have imagined accomplishing so much in a short period of time. I can’t wait for the next 27 years.

A few stats on the founders we’ve backed with our VC fund across the US, CAN, and SEA: 

  • 30% of our companies led by female founders
  • 16% of our companies led by underrepresented minority founders
  • 15% of investments are “cold” (cold applications w out a referral of any type)
  • The vast majority of companies we invest in are B2B, followed by fintech, followed by consumer digital health
  • 3 Hustle Fund Founders who are LPs (we hope to grow this number!)

We have invested largely in the San Francisco Bay Area (36%). This is surprising to me. My prediction 3 years ago was that by this time, we would have only 25% of our companies from the SF Bay Area. But despite all the naysayers of the SF Bay Area, I continue to see CEOs move here BUT with their team elsewhere. I don’t know if you would call that a “Bay Area” company nor do I even understand what the concept of “geography” even means anymore. Indeed, as one of our newest portfolio companies asked us just a few days ago, “Why can’t I write down ‘remote’ as my location?” Good question indeed. We have now changed our location form to reflect that as a choice, and in fact, I suspect the entire above graph is largely irrelevant and inaccurate – especially during these COVID times.

I have so many hopes and dreams for the next 27 years in furthering our mission of empowering founders who can execute with speed. We haven’t scratched the surface on these goals yet, but we look forward to tackling things like: 

  • Investing truly globally
  • Supporting our companies in the late stages
  • Incubating more software companies
  • Accelerating companies in areas overlooked by many VCs including but not limited to: hardware, DTC, media, food, and the environment. 
  • Incubating part-time founders
  • And much much more…

It may be many years before we can even attempt to experiment with or tackle any of these things. Like any 3-year old startup, focus is important. We continue to work hard, hire well, conserve cash, and most importantly, build out scalable processes and technology. I have no doubt we will put a dent in experimenting with some of these things in the next 3 years while fully recognizing that this is a 30+ year journey with hopefully strong continuity after I’m gone.

We could not have come this far without ALL of your support and help. Thank you so much for joining us on this long journey to make the startup world a more fair and better place!

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Writing copy: How to pick an enemy?

I don’t usually dole out advice on copy. Heck, I’m not a liberal arts major or a great writer myself. And not particularly creative.

But when founders find their customer acquisition isn’t working, is it because the copy is terrible? Or is it because there isn’t really a need? How do you write strong copy in an easy way without being a creative person?

A great strategy is to “pick an enemy”. I talk about that in this video:

I also reference in the video a blog post that I thought was really good that you all should read. One of our portfolio companies Parrotmob published an interview with Heidi Zak, CEO/co-founder of ThirdLove.

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Should you include financials in a pre-seed startup pitch deck?

I received a cold email from Jaime asking some very good questions about what should go into a pre-revenue startup pitch deck?

Do you include financials? How long should it be? What about exit opportunities?

My general philosophy is that you should have at least 2 pitch decks – an email deck and a presentation deck. An email deck should be short (~5 slides) and the goal of this deck is to just use it to get meetings. It should have a nice overview of your business and present enough information to a would-be investor. A presentation deck is for an actual meeting and should be much longer.

I address all of these questions in this video – watch for all the details:

As always, if you have questions about pitching, feel free to subscribe to my blog! 🙂

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3 Marketing Funnel Examples

Wow, it has been a rough last few months. I hope you are staying safe and hanging in there.

Today, I want to pick up where I left off and dig back into marketing funnels. There is no better way to discuss funnels than to go through specific examples. So here I am on a smoky Friday afternoon – wearing a Snoopy Xmas shirt – creating this Zoom recording of 3 concrete business examples.

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Why I can no longer lift laundry detergent

Today I’m going to talk about something that’s a little bit off the beaten path of what I normally write about.

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I want to talk about stress. I tweeted this last night: 

This is what stress can do — I cannot lift laundry detergent “normally” with my right arm. 

In fact, it turns out that your trapezius muscle allows you to do many things such as

  • Reach for things in a cabinet
  • Adjust the rear-view mirror or radio knob in a car
  • Wash dishes
  • To a certain extent, use a fork to eat food. 

Without this muscle, many things are challenging.

One of my founders even texted me right after I posted this video if I was stressed out about his latest investor report! Hah! 

This video isn’t about stress from fundraising (we’re not raising right now anyway) or from having portfolio companies who are doing well or not well. In fact, the reason I decided to write about this so publicly is not to garner sympathy (but thank you for all the well wishes!) but to show to everyone what can happen because of stress — and that this can happen to anyone.

In fact, all of this started when I was 23 — not just recently. At 23, I ended up in a hospital in Tokyo after having terrible neck pain, where I was living and working at the time. I was fortunate to have excellent care, but the bad news was that I had a pinched nerve and I would likely live with this pain and weird issues forever — though it could be managed with proper diet, exercise, and low stress

The likely combined cause? Years of

  • Poor posture (sitting and standing)
  • Poor ergonomics using computers
  • Using computers too much (by age 23!)
  • Slinging too many backpacks filled with heavy books during high school
  • Combined with stress

In other words, there wasn’t any particular trauma or incident. But guess what? 80% of people I know have some permutation of the above. 

woman in white shirt showing frustration
Photo by Andrea Piacquadio on Pexels.com

Over the years, I’ve been able to manage this chronic issue pretty well. I started taking up swimming, even though I was never a swimmer in school (YouTube can teach you so many things!). And, I have bought so many ergonomic keyboards over the years, that I’m sure single-handedly propping the Amazon share price up. 

But every once in a while, stress creeps up and sends me back into health issues. In 2009, when I was starting my company, my arms and hands were tingling and it hurt to type. In 2011, when I was fundraising, I felt like someone was constantly poking me with pins all over. Some of the best physicians who were specialists in this area could not find anything additional wrong — miraculously when I stopped fundraising, the prickly feeling left! And fast forward to today, the combination of shelter-in-place/little kids/handling of the COVID-19 situation/police brutality/racism/and even the murder hornets are all fairly stressful! (I’m sure I’m not the only one here who thinks this)

As it would turn out over half of my friends who are tech entrepreneurs or recovering tech entrepreneurs have stress-induced issues. Repetitive strain issues, tingling feelings, shingles, IBS or other chronic stress-related problems, etc. It’s seemingly quite common, and while mental health is starting to be discussed, the physical ramifications of stress are rarely discussed publicly. 

And once you have one of these issues, with proper care, you’ll be able to manage through it, but you’ll get flare ups from time to time as stress comes and goes. You’ll never be quite the same. 

If I had to rewind the clock, what would I tell myself?

Never use a computer or iPad in an un-ergonomic way

  • No laptop usage on the couch
  • Buy an ergonomic mouse & keyboard that fits your hands (the built-in ones on the Macbook Air are way too hard)
  • Buy an external monitor and set it to eye-level
  • Set up proper typing and mousing heights
  • Use a tablet pen with an iPad

Do a stress-relieving exercise everyday – even for 5 min. Once we leave school and become adults — there’s no PE or fun sports forced upon you to keep you accountable. And, for some (such as myself), forcing exercise becomes challenging. But even just a few jumping jacks a day can do wonders. In fact, jumping jacks are near impossible for me to do now. 

woman doing exercise inside gym
Photo by The Lazy Artist Gallery on Pexels.com

Always lift things in an ergonomic way – not just weights but everything. In school, I used to sling a lot of books over my shoulder. (Maybe I should have studied less? My HS schoolmates who had those wheelie backpacks got it right.) 

Sprint when you need to but jog when you don’t – in building a startup, sometimes you need to sprint — it’s inevitable. But understanding when you need to sprint and when you can jog is the key. As Mac Conwell discusses here, most people try to sprint all the time, and that’s just not sustainable. 

Jog mode doesn’t mean do nothing, but jog mode means reducing really extraneous things. Standing or sitting in front of a computer for hours on end isn’t what humans were meant to do. Reducing extraneous Zoom mtgs & calls, extraneous emails, etc and really focusing on health (exercise + mindfulness + stress reduction + good diet) during these times is what jog mode means. Prioritizing and only focusing on just 1 work thing for a “normal” working day is what jog mode means.

A lot of people wonder why not that many builders go back and build again. My hunch is that it’s this: they have some sort of chronic ailment that prevents them from being in “go-go-go mode” all the time and don’t think they can build a fast-growth company if they are not in “go-go-go mode” all the time. I think if we didn’t have “go-go-go mode” all the time as the norm expectation, we would see more multi-repeat builders. There’s this sense that if you’re not in “go-go-go mode” all the time, you’re not ambitious, but I think the right analogy is akin to marathon runners. Most people can’t run marathons everyday. You need to slow on some days and rest too. But when it counts, you need to be all out there running your race. Understanding what day is your race and what days are your training are critical, but often we don’t understand that. And if you get injured, you’ll never be the same. We have so many former athletes who are now injured who don’t want to run races again because they think they won’t win.

For me, with my ailments, I literally cannot type as much as I used to — I need days of typing rest. That used to frustrate me to no end. But over time, I’ve come to learn what is important to type, what emails to hold off on, and more recently, I’ve started building homegrown tools to allow me to do more with less typing. 

As a parent, I actually care way less about screen time and more about ergonomics. When my 3 year old said his back hurt from looking down at the screen, I was/am really hoping he was exaggerating (hard to tell), and it would not surprise me if this upcoming generation who will grow up on more portable devices that easily allow for poor posture and ergonomics will have even more chronic problems. I think ergonomics and posture should be taught in schools as part of PE or health. 

In conclusion – take care of your stress and health — you only have one shot, and once your health is gone, it’s hard to be the same again.

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