Category: Venture Capital

Wow. What a week.

I’m sure most of you reading this are in and around startups and already know what I’m referring to. But if not, the most popular bank for startups and VCs called Silicon Valley Bank just went under. They are still getting a final count on what percentage of deposits are not insured, but I’ve seen 97% being floated around. That’s a lot of money potentially gone.

But we’re all tired of hearing about what we think happened or whether a buyer will come along. The much more important thing to talk about is what to do in a crisis situation.

Over-communicate. And then communicate some more.

One of the biggest mistakes I see organizations make during a crisis is their failure to communicate swiftly and with poise. Often organizations want to find all the facts and think about the right words to say. They want to focus on solving the problem.

Unfortunately, this is a big mistake. And it’s a mistake that happens all the time — such as in this crisis with SVB or during COVID or when employee allegations about abuse or harassment emerge, etc. Companies make this mistake over and over again — both big and small companies.

It is important to own your communications and use them to get ahead of a situation that is spiraling downwards. In fact, this is so critical that I’ve spent the last 2 days drafting communications for many of our portfolio companies in figuring out what to tell their investors, business partners, and/or employees yesterday.

It’s not so much about what the comms actually say but how they make people feel. The feeling you want to convey is 1) You got this under control – leadership is on it and ppl can count on you, 2) if you don’t have all the answers, you will get info and will keep people informed as you go along, 3) your door is always open to chat.

If this isn’t done swiftly, even if you are actively working on a solution to a crisis, people will lose faith in you, because they are unaware of the steps you are taking. As such, it is much more important to communicate something — anything — quickly and update your comms as you go along than to try to write the perfect thing 4 days later. The best time to do this is in the first 24 hours of a situation emerging.

So, in this situation, if you haven’t already sent out communications to your employees and investors, I’d highly recommend doing that today. It can be short and sweet:

For investors:

• You may have heard about SVB (link)
• We were/weren’t affected and to what extent
• If affected, we are still trying to learn X and will keep you informed
• Thank you for your support always

For employees:

• You may have heard about SVB (link)
• We were/weren’t affected and to what extent
• 1 line about payroll – i.e. rest assured, we are actively looking at loan options to make this work (if with SVB) / or we were not affected
• Business is as usual
• If you have questions / concerns, my door is always open

As the CEO or head of your org, your job is leadership. This means that communication and morale is your #1 responsibility. I often see CEOs think they are too busy to address the communications during a crisis mode. They are too busy trying to solve the problem. But communications is everything.

In addition, during a crisis, you’ll often see people go above and beyond. It could be from within your company but it may also be through external partners. In a crisis, there are people helping all the time. This is the time to thank them and make them feel extra appreciated.

Over the years, we’ve done this a few ways: we’ve sent food (treats from a grocery store, meals from Doordash, and gift cards to restaurants). We’ve sent alcohol and ridiculous stuffed animals and stupid stuff to make people laugh. It’s just a way to show appreciation and thank people.

Ultimately, your communications with everyone is about saying “I see / hear you. I’m on this situation. I appreciate you.” That is leadership.

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Wow, it’s hard to believe it’s been 5 years since we started Hustle Fund! In the last 5 years, we have: 

• Raised and deployed ~$130m
• Brought on 25 team members at Hustle Fund
• Built a community of nearly ~1000 Angel Squad members
• Funded ~400 portfolio companies
• Worked with ~300 LPs
• Grown to 100k+ followers on my Twitter acct

I’ll let you know how it’s going in about another 5 years! 😀

For all of this, I am so grateful. All that we have achieved has been a community team effort. Hustle Fund is so much more than a VC fund. It has become a movement.

I say this because movements are about values. Movements are about being mission-aligned. When we started Hustle Fund, we didn’t set out to build a VC fund per se. We set out to solve a problem that we personally understood well that we could work on solving over the rest of our careers of 30+ years. The mission that we are on is to democratize wealth via startups by helping startups with capital, knowledge, and networks.

In our first inning of Hustle Fund, we focused just on the capital problem. Specifically, how can we help more fantastic startups who may not have a rich uncle get capital at the pre-revenue stage? Without a warm intro and without needing to be in Silicon Valley. 

This is the hardest stage to raise money, and five years ago, there were only a handful of VCs addressing this stage. Fast forward to today, we have raised 3 funds. The latest one we are announcing today is a $46m fund to continue to address the pre-seed stage.

But perhaps, something I’m even more proud of is the informal influence we’ve had on so many other funds and angels who now invest at pre-seed, especially those who are willing to make a bet on founders they don’t know. Pre-seed funding is far from being solved, but I’m proud of the work we have done — the work we all have done — in making a dent in this problem in just the last 5 years. And, we will all continue to keep working on improving capital at this pre-seed stage.

Giving thanks

I’m particularly thankful to our LPs and founders. It took us 700+ meetings to raise our Fund 1, and I will never forget those early believers. Thank you for saying yes to us. Without you – literally without our founders and LPs – we would not be here. We have been so fortunate to be able to work with a ton of amazing founders around the globe.

When Eric and I started Hustle Fund, we thought that we might just form a small team of people in the Bay Area. That idea went out the window immediately when we realized we really wanted to bring Shiyan onto the team (and she was moving back to Singapore)! From there, we have recruited a phenomenal team of entrepreneurial, sharp, and also kind people. Special thanks to Jason, Thenuka, George, Kera, Tam, Haley, Will, Lidia, Chloe, Hung, Susan, Ha, Brian, Janel, Jamie, Nicole, Kabe, Andy, Todd, EJ, Erica, Mike, Jasmin, Maria, Karuna, Melanie, Amelia, Audrey, Anthony, Kenn, Davyn, Joseph, Wilson, Christine, Cjin and Chels for getting this off the ground. There was very little reason to join this ship when it was just a dream, so thank you for joining.

One of my early lessons in starting a company years ago was that you don’t start a company with a co-founder. You start a company with a co-founder AND his/her entire family. Thank you Eric and Shiyan — I couldn’t have asked for better co-founders in this journey. And, also to our families, too, who have been so patient and supportive of us. Special thanks to B, K, and JJJS who aren’t in the limelight but have been so critical to Hustle Fund becoming reality.

The next inning of Hustle Fund that we started last year was to address capital in other ways as well as to make an impact on spreading startup knowledge and increasing networking opportunities for great founders. While my partners and I have been focused on our fund, last January, Brian Nichols, who is the General Manager for Angel Squad assembled an amazing community of angel investors from all over the world. Many of these wonderful people were completely new to angel investing, bringing new capital and expertise into startup ecosystems. These people come from large tech companies and their own startups but also many other professions. We have doctors, lawyers, professional athletes, a poker player, a professional chef, and many other occupations represented from all over the globe. This diverse group of nearly 1000 angel investors are active, engaged, and want to help startups. They move quickly, are smart, and have conviction. I’m biased, but this is probably the best angel investing community you will find anywhere — all because of the amazing, humble, and kind angel investors who have joined. I’m so proud of this community because of who the people are.

What has surprised me most about Angel Squad is though it’s less than 2 years old, they have deployed way more capital than our Fund 1! So while many people are fixated on trying to raise VC funds or raise money from VC funds, sometimes the better solution to mobilize capital is by empowering angel investors and cultivating new ones. There is so much money in the world — it just needs to be catalyzed. Beyond capital, I am also thankful that many people within Angel Squad have provided our startups with valuable advice in areas like design, engineering, hiring, sales, and business development. I’m floored and thankful that there are such helpful people in the world who are so generous with their time.

Beyond Angel Squad, we’ve also been partnering with other General Managers on our team who have launched initiatives that are also trying to make a big impact on capital, knowledge, and networks in startups in other ways. More to come. The next few years will be exciting.

I think many people think that being a VC is easy. But, truth be told, being an emerging fund manager is akin to starting a company. You have to raise money with nothing to show. And you have to market yourself like crazy. In the last 5 years, in order to get to this point, we’ve burned the midnight oil so many nights. But if effecting change were easy, it wouldn’t be worth doing. So for those of you who have “hustled hard” on a startup or a new fund, I see you. I know it’s a tough road of ups and downs (and honestly, mostly downs). But, if you cut out all the noise of who is becoming a unicorn or who raised what funding and really dig deep as to why you’re doing what you do, I hope you find the courage to keep going and wish you tremendous success.

It has been a privilege and a dream to be able to do this work and work on a mission that means a lot to mean, and I look forward to the next 25 years. Thank you so much, Hustle Fund fam!

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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.

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.

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.

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.  

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.