This Week in Startups - Venture Fund Size Growth, the Rise of Unicorns, and more with Elizabeth Yin and Zach Coelius | E1886

Starting point is 00:00:00 It's funny. This is very common with crypto, right? Actually, a sort of funny story of a friend's company, which is a crypto company. And he didn't know the identity of one of his co-founders. They had been working together for a really long time. The real name. They were using handles. Did not know the real name of that person. I was a cyber surfer. You were the hippo 33. Yeah. It would be like that. Z dog. And yeah, we don't know how old we are, genders, location, nothing. Social security numbers, nothing. We're just anonymous handles. This became a problem later because this company actually ended up doing quite well. And obviously the VCs wanted to know who these people were.

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Starting point is 00:01:13 And LinkedIn jobs. A business is only as strong as its people, and every hire matters. Post your first job for free at LinkedIn.com slash twist. Welcome back to this week's liquidity podcast. With me today, I have Elizabeth Yen, co-founder and general partner at Hustle Fund, a pre-seed fund that invests in software companies, Elizabeth co-founded AdTech Company LaunchB, which was acquired in 2014, and has a portfolio of 800 startups. Next, we have Mr. Zach Collius, managing partner of Collius Capital.

Starting point is 00:01:46 Zach is a four-time entrepreneur, now C-investor in B2B companies. Zach was an early investor in Mercury, Hello Sign, Cruise, and Branch Metrics, the hoodie that Zach has on today. And of course, with us we have Jason Calacanus, JCal, World's Greatest, Moderator, and Sea Investor and Eight Unicorns, vests at the seat stage, including Uber, Calm, Robin Hood, Thumbtack, and others. And I'm your host, David Weisford, co-founder of 10X Capital, and host of the 10X Capital podcast.

Starting point is 00:02:12 Today, we have three topics on the docket, fund sizes, how they've changed in the past year, whether smaller funds outperform larger ones, and whether SF and the Bay Area is back. And then we'll finish up with asking each of our GPs to tell us about their last three investments and the rationale behind them. So with no further ado, let's get right into it. Venture funds are growing in size despite the slow market.

Starting point is 00:02:36 The Wall Street Journal reported this week that the median venture fund raised in 2003 jumped from $26 million in 2022 to $37.4 million in 2023. That median size is a high for the past decade. While the median size has increased, the total amount raised by venture funds has actually decreased 62% to 66%. $6.9 billion year over year, with just 474 funds closed last year or roughly a third of the number of funds closed in 2022. Meanwhile, the median time is going up and has increased an average of 15 months per close for fund. Zach, what do you think of this new venture market?

Starting point is 00:03:15 I think the headline number's wrong. Like, I don't think it, you know, an incremental change in fund size is what we should be talking about. It's an incredibly brutal time to be raised in capital, like a 62% drop in venture capital, that's a massive number. And if you're out trying to raise a fund right now, it's very challenging. Thankfully, I'm glad I don't have to do it at the moment, but a lot of my friends who are, had been reporting that, you know, LPs are definitely not in a freely giving mode. And it's, I think it's going to stay that way for a while. I haven't, I'm not seeing any changes on the horizon. And, and Zach, you've had friends. that have succeeded and friends that have not succeeded in raising the last year.

Starting point is 00:03:59 What's differentiated the haves versus the have-nots? Well, there's a real flight to quality right now. A lot of LPs are really concerned about sort of the Marx in venture. You know, during the Zurb era, money was free, companies marked up. I mean, literally every six months. I mean, it was any idiot with a checkbook in this job looked like a genius. Like, we all just, like, it was the easiest job I ever had. And so a lot of these funds are sitting on positions that, you know, are marked at incredibly

Starting point is 00:04:30 high numbers, billions and billions of dollars on paper that don't reflect the reality of the underlying asset. And so a lot of LPs are really concerned about that. And so because, you know, LPs aren't rewarded for success, but they're definitely punished for failure, a lot of them are looking to allocate largely the well-known established managers who've been around for a long time. And that means the big funds with big IR teams, big marketing dollars, are able to hoover up a lot of the dollars and a lot of the smaller, newer funds are really struggling. Even though the returns historically have been actually inverted, big old funds don't do as well as small young funds, but a lot of the LPs, they're not rewarded for success. They're just punished for

Starting point is 00:05:21 failure. Jason, what are you saying your fundraising right now in this difficult market? What are you saying in terms of feedback from LPs? Yeah, I would say about 80% of the LPs that we meet with, and I've done over 100 meetings for Launch Fund 4. You can read the deal memo, launch.com slash memo. I'm raising with that 506C public raise, so I can publicly state that I'm raising a fund. It's a really innovative way to do it because people might contact you. you who, you know, you wouldn't normally have gotten to. And there's a lot of retail investors, qualified purchasers and accredited who want to participate in venture capital who haven't before. So that was a nice advantage for us since we have a lot of public facing products like this

Starting point is 00:06:07 podcast, this weekend startups all in my Twitter following. So putting that aside, I'd say 80% of them, full 80% said, we would love to meet with you, fan of the pod. Just so you know, we are not investing in 2023 or 2024. We are pencils down. We need to deal with our denominator problem. In other words, venture capital is making up a higher percentage of our overall portfolio. Therefore, we have to get it from 25% down to 10% where it belongs, right? Because public equities went down.

Starting point is 00:06:38 So as a percentage of funds, a percentage of their overall portfolio venture was too high. And then a lot of them are waiting for returns. they may have gotten a little bit frisky as LPs, or they may have been pushed by their existing venture fund commitments to re-up quicker. In other words, a venture firm instead of taking four years to deploy a fund, did it in two during the ZERP era. Therefore, they came back for Fund Six, Fund Seven, Fund Eight, and they launched a growth fund, and they launched a crypto fund, and they launched a Scout fund, and they launched this fund, and a late stage fund. and maybe those LPs said, you know what, I don't want to lose my relationship with this brand name fund. So I'm going to do $10 million in this crypto fund,

Starting point is 00:07:17 even though I don't really want to. Or I'm going to put $25 million into this late stage fund, but what I really want is the Series A fund. And so you put all that together. A lot of LPs, if they're working at large endowments, institutions, fund of funds are basically saying, we need to figure out what just happened. We need to get an exit from this.

Starting point is 00:07:38 and then we will be able to figure out where we want to go. It's almost as if you're flying a plane and you hit like a giant storm. Are you worried about what happens after the storm or do you need to aviate right now through that storm? I think they're probably in the last half of that process or last third of that process, but they're not through it yet, which is to say, you know, a lot of folks are happy to meet and are not adding any new names. And then I've also had folks say, hey, listen, can I be candid with you, J. I don't know if I'm going to be here at this company.

Starting point is 00:08:12 I may not have a job. Do you know any other places I could work? These are LPs who are representing pools of capital. And so the entire industry is getting fit. When you see people getting laid off at startups, you see people getting laid off at big companies, that's also happening at venture capital firms that are on pause or have shut down and LPs.

Starting point is 00:08:32 The good news is, as the market comes back, interest rates come down, and people get exits, the cycle starts anew and there'll be more hope. But I'll be done with my fundraising process on May 1st, because you usually have a timeline for this

Starting point is 00:08:47 in our case 18 months. We really spent more like nine to 12 months doing it. We had just filed the paperwork before and started the process slowly. It's a long way of saying a lot of contemporaries I talk to, like Zach said, have given up on their fundraising

Starting point is 00:09:04 and are not raising their fund. and just managing, these are GPs, are just managing their existing portfolios and trying to get the most out of their performance there. So that's probably overall healthy for the ecosystem. And I think maybe in 2025, we'll see people start making new relationships, or maybe in the second half of 2024.

Starting point is 00:09:25 We'll see people making new relationship with LPs. I'm curious what Elizabeth is seeing. I think it's really important to bifurcate the LP market a bit. You know, you've got the institutional, the endowments, the pension funds. And then you've got the angels, the family offices, and folks like that. And I think that emerging fund managers, just even in a great market, in general, have a very, very hard time getting money from institutional.

Starting point is 00:09:52 And so you've got a fund one, a fund two, or fund three. I think institutional's generally want a lot of data. But that's just not there by definition. And so for most emerging fund managers, they're chasing after the family offices and high net worth anyway. And I think it's a slightly different story for that group of people. I have a few emerging fund manager friends who actually closed their funds pretty quickly. And it was because they went after the right family offices and angel investors who just really love their thesis. So I think it is possible to get a fund done. It may not be a large fund, but for the new fund managers going

Starting point is 00:10:30 after that group, if they have their story together and it sounds differentiated, I think that that's possible in this market. If your landing page looks terrible, I'm out. I'm going to just bounce. It's 2024. There are no more excuses for an ugly website. Stop settling for okay and start using Squarespace and be awesome. Squarespace is an out-of-the-box solution that lets you build a beautiful website and engage your audience. And of course, it's all anything you like. You know Squarespace's amazing features, gorgeous templates that are always optimized for mobile, where the majority of your users in all likelihood, will be able to be.

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Starting point is 00:11:43 Next up, so do smaller funds outperform larger funds? One factor to consider is that even though larger funds, as you guys mentioned, have a brand advantage, smaller funds historically have actually outperformed, especially if you account for DPI, which is cash return back to LPs by cutting out the data in 2015. According to pre-concerns, according to pre-concournation, According to Prequin, small venture funds from 1969 to 2015, a 46-year time period, had a 20% IRA, while funds sized 400 million to a billion had a 7.2% IRA, with that number going even further down to 2.4% for funds over $1 billion. Keep in mind, this data does not include the bull market of 2015 to 2021.

Starting point is 00:12:28 Zach, what do you think accounts for smaller funds outperformance against larger funds? Oh, I mean, it's so much easier to deploy a small amount of capital than it is a large amount of capital. I mean, if you think about it, the more capital you deploy, the more you make. And so the better operators historically have raised larger and larger funds over the years. And it's almost like you hit a Peter Principle. You raise a bigger fund than you actually are able to deploy effectively and then you get wiped out. But until then, you're always trying to raise more and more capital. And so as those experienced VCs raise bigger funds, they all come into competition with each other and fight over allocation and ownership of the best companies.

Starting point is 00:13:10 Because historically, it's usually pretty straightforward. You see a, you know, once Uber started taking off, you know, any VC worth their, worth their VC vests knew what was happening and came running. And suddenly it became an incredibly competitive round for every single round. and that makes it very, very challenging because what happens in those competitive rounds is the other VCs bid up the price. And so unlike when, you know, like any of the three of us are looking at a deal and nobody knows about them and the valuations are dirt cheap and it's not a competitive round, we get a lot of ownership for a little bit of money and we get to see a great return. Once it becomes a proper, well-known VC company, that increased valuation and that increased competition really drives down returns. And you can't deploy a billion dollar fund 500K at a time, whereas the three of us do that all day long.

Starting point is 00:14:03 Can you double click on the VC math? So let's talk about fund size and then check sizes into companies. Could you break it down for the audience? Sure. So if you think about, let's say, you have a $100 million they want to deploy. So let's say it's one person who's deploying that capital. You know, in a good year, you can probably deploy, a single person could probably deploy $20 million at the early stage. So if you're doing pre-seed and seed, maybe a little bit of A, you can write checks anywhere

Starting point is 00:14:31 between a couple hundred K to a few million, and you can put it 20 million out the door. And that's like a full-time job. You're going to spend five years to point that $100 million, and that's going to be your fund. Now, if you want to go do that for a billion dollars, you have to basically like 5x, 10x, actually 10x, the check size. And so now instead of writing smaller checks, you suddenly are writing much, much larger checks because each deal requires meeting the founders, spending time with them, doing diligence,

Starting point is 00:15:01 winning the competition, deploying the capital, helping the companies afterwards. These are all time consumptive activities. There's just only so much that a single person can do in a year. And so check sizes are a function of the fund. And you're not just deploying in a vacuum. You're deploying 10, 20 million dollars checks. You start to brush up against the Sequoias and the benchmarks of the world.

Starting point is 00:15:21 Yeah, or the Tigers or the South Banks. or I mean, you know, there's, I mean, even the Ontario teachers pension fund will show up and write checks. I mean, there is a lot of people who want access to venture because historically we've driven incredibly amazing returns. And so all of that capital floods in, but they tend to flood in at the stage that a company becomes well known. And at the stage that the metrics shift from being qualitative to being quantitative, which means instead of saying, here, this is why this company is amazing based on what I'm saying, you can show

Starting point is 00:15:53 month-over-month growth rates. As soon as you have month-over-month growth rates, any monkey can extend the line, there will be a large number of players who will show up and compete for that deal. And Jason, what about your portfolio construction? You have one of the most unique portfolio constructions. Can you take us through it? Yeah. So just to add to what Zach says, you know, sort of pointed out here, you do as the company becomes more established and more predictable. It's easier to place a bet. And then the company becomes more valuable. It's easier to push more money into it. You've got a billion dollar fund and you're trying to put, let's say, 30 names into that fund. Well, that means it's 30 million a name or so. And how do you put 30 million into a

Starting point is 00:16:33 company that's valued at 10, 20 or 30 million dollars? You can't buy 100% of the shares. Most founders want to dilute 10% or 20%. So then you're left, you know, deploying 2 million, 3 million, 4 million into that deal. If you're deploying 3 million, that's 333 deals in a billion dollar fund. It's just not possible. for a venture firm. It is possible for somebody who has programs like Wycombinator, 500 startups, tech stars, or launch, and what we're doing with Founder University. So we're trying to have enough of a base of companies that we can hit unicorns early.

Starting point is 00:17:10 Early in the life of startups, maybe you could predict that one in 100, one in 50, perhaps. And then we're trying to identify in that portfolio like Brian Singerman does at Founders Fund, which one of those is the winner and deploy half our capital in the fund into the top 20 companies out of the 300 will have. So if we have 300 names from our programs in a fund, and that's say $50 million, the last 50, we want to go into the top 15 names from that fund. And that would obviously be $3 million per company, but maybe even will reserve 10 or $20 million for the top company. So 10, 20% of our fund might go into the top company. and that's really portfolio management. And that's why so many people are trying to get to the early stage

Starting point is 00:17:55 because you have better returns, but it's hard to do the early stage because you have to manage many more relationships and you have to meet many more companies. That's hard. And that's what the three of us do on the phone, on the call here, on the Zoom. We do those and it's exhausting.

Starting point is 00:18:10 And it means we're not taking 12 weeks off a year to go off a kick. So Elizabeth, do you have one of the most unique structures and hustle fund. You have a structure that I used to do as an angel, starting with a small check. Tell me a little bit about your structure and how has that led to Alpha in your phone? Sure.

Starting point is 00:18:29 So actually, it's a bit akin to Jason's model as well, although he gets wonderful economics with the accelerator. And I think that, you know, we don't know, like everyone else who's going to be the winner when we meet them, right? There's no data. There's no revenue. It's two people in a garage.

Starting point is 00:18:47 So I think if you're going to invest at Precede almost by definition, unless you want to chuck it up to luck, you have to put a lot of bets. And so we're investing a small amount of money into a lot of companies. That's about 50,000 or so into each company. And we do about 100 investments a year. And some of those will go on to do incredibly well. And so, you know, we work with the companies and on occasion about 20% of the time will invest a lot more of the capital. So we have a pretty 80-20 model in that about 20% of our companies will get about 80% of our capital. And so that's kind of how we think about venture as well.

Starting point is 00:19:29 But I think, you know, if I were to kind of tie up why running a smaller fund in some sense is easier than a larger fund, it's twofold. One is even if you have a company that isn't going to be a unicorn or a decacorn or whatever you want to call, it, you can still actually get 50x or 100x out of a great company if you come in early enough. And that's something that larger funds cannot invest in because they can, by definition, only be investing at the later stages with these larger amounts of capital. Nobody's going to write a $10 million pre-seed check or probably shouldn't. And so as such, then, as a smaller fund, you can be putting in these smaller checks into these companies at a very early stage and still make strong multiples.

Starting point is 00:20:18 I think it is much harder than on the flip side for a large fund to then get a high multiple when you're coming in at, let's say, Series B. Like the number of companies that will 100x from the Series B point onwards is pretty small. And then that's where you get the dogfight of everybody fighting for those companies. And so that's sort of the hard part about being a large fund. you have to not only identify those high multiple companies at the Series B, and you have to win that deal versus a small fund, there's so many more that will go on to do well if you get in early enough. You know, I can't even think of when we competed to get into a company, perhaps in 2021, and we couldn't get in with our 50K check. One thing to think about here, Elizabeth, I think, is when you look at this, if you could deliver the beta, the average of the data you just showed,

Starting point is 00:21:10 you would be an incredibly, the beta of early stage, right, of seed stage, you would be an incredibly successful fund. When you're in venture, you're trying to get the alpha. You're trying to beat, right? And so is there a firm that could capture the beta of seed stage investing? Why Combinator ourselves, Elizabeth's fund, we're all trying to do that. And then it's, can you scale it up and not have the performance collapse. And I think we probably know of some venture, you know, accelerators, et cetera, that maybe went too wide, accepted a lower quality of startup or teams that maybe weren't as strong because they were filling seats and trying to make too many bets. And Elizabeth, I think you probably could speak to that of, you know, maybe having seen it

Starting point is 00:21:59 and how you avoid that doing 100 investments per year. Because we're doing the exact same, 100 new investments and then maybe 50, you know, additional follow-ons, 25 to 50 follow-ons of the existing portfolio. So maybe you could talk about your experience there. Yeah. I mean, we've seen accelerator programs, all of us who have gone up to whatever, a thousand companies a batch and then come back down, right? Because I think finding that sweet spot of where you should be before you lose quality is kind of a song and dance. Like, if you see your model working where, let's say, every 100 bets you make, you have a at least one, if not multiple unicorns,

Starting point is 00:22:36 and you should keep on adding another set of a hundred to invest in, up until a certain point where you don't see that anymore, then you're just kind of throwing your money after bad. And I think that part of that is dictated by brand. Wycombinator certainly has a strong brand, but you've even seen them rise in the number of positions they've had and then pair it back down. And then certainly other accelerator programs who may not be as well known,

Starting point is 00:23:02 you've seen some of them expand, and then they just cannot get that quality anymore. And then at a certain point, actually, if your quality really degrades, then that causes other problems. Like, if you can't get that back under control, then other VCs won't look at your companies anymore. They stop going to your demo days.

Starting point is 00:23:21 People are not excited about it. And then that's just a downward spiral because it means you get worse and worse quality every batch as well. So it is a really challenging problem. and, you know, I think actually, kudos to you, Jason, for, you know, sort of maintaining, I don't know what you call it, that discipline around expansion

Starting point is 00:23:39 or thinking about expansion in a smart way because we've just seen so many accelerators kind of rise and fall, so to speak. I'm going to name it right here on the pod, the accelerator doom loop. You do too many because you get a little too frisky. There's a lot of people out there who want to start companies. We now have 20,000 applications for funding per year.

Starting point is 00:23:58 we invest net, net, net in 100 new startups a year. So when I look at our deal flow coming in, which is about half of Ycommon News, I think Gary said he gets 45,000 now, 40, 45,000 applications. So we're kind of right behind them. They accept 1%. I think they do 450 startups a year still, 200 something per bat.

Starting point is 00:24:21 And we do a fraction of that. We do 25% of what they do. We're 50 basis points of application pool. They're 1%. That kind of, I think, is the right number. Now, let's say you get, you know, you're a new program and you only get 2,000 people applying and you accept 200. Now you're accepting 10%. And probably somewhere between one and two and three percent is where the doom loop starts.

Starting point is 00:24:44 And I think Elizabeth, you described it. People come to a demo day and they're like, okay, there are six companies in this one demo day that are knockoffs of whatever startup's doing great. Airbnb, Robin Hood, you know, Instagram, there's six apps for group planning of trips, right? We all see that one. There's six applications or there's six startups trying to do, you know, split a bill

Starting point is 00:25:11 or, you know, whatever the most common things we see, right, Zach, are. And so I think that's when the doom loop starts. So you really do need to take it seriously to be a curator of companies. What I've tried to do, Elizabeth, is increase the number of applications and keep it steady how many we're investing in. So we went since Alleng got very popular last three years from maybe 8,000 applications to 20.

Starting point is 00:25:34 So it almost tripled two and a half times, but we kept the number of investments the same, which means solo founders. We are very, very rarely having solo founders in our programs. And then second, we were looking for somebody on the team, that founding team, to have be writing code being an actual developer tech lead, not somebody who wrote code 20 years ago and manages an outsource team, somebody actually writing code. So hard fault lessons, but as the number of applicants goes up, you can be more selective, which I think is the name of the game. And I think that rough acceptance percentage really resonates with me as well, I think,

Starting point is 00:26:11 from my time at 500 startups and then also at Hustle Fund just to share some of our numbers, we see about 1,000 applications a month, so 12,000 across the year and we'll take about 100 in the year. So I think you do want to be sort of under that 1% number. Obviously, just a rule of thumb, who knows what the rough quality is of the applications, but I think if you're above that, then it starts to get a little bit dicey. Zach, you have thoughts on, you know, number of applicants and your pool and how you, because you have your own personal network where people bring you, whisper to you startups, yeah? Yeah, you all work a lot harder than I do. I can't imagine looking at 20,000 or even

Starting point is 00:26:50 2,000 applications. All my deal full comes from my network. And generally, I find that the deal quality between people I know, founders that I've known for a long time, which is I think the vast majority of my investments, and then friends who send me stuff, it's a much smaller number of deals. And it's a lot easier to parse through that.

Starting point is 00:27:11 It's, yeah, you work too hard over there. In other words, your network does the sort for you. So they take out 90%. Your friends are aren't going to send you. something that they're not investing in. Oh, yeah, no. So, well, yeah. Or that's really not quality, right?

Starting point is 00:27:26 Your friends aren't sending you low quality stuff I would hold. Yeah, even though I ask, I mean, generally, I'd say send me anything that has a competent founder. Generally, people are very, very selective of the sort of stuff that they send through. Zach, what are your first pass when you, when you get an introduction? What are you looking for to decide whether you want to dig deeper? Um, it's complicated. There's a lot of moving pieces to that.

Starting point is 00:27:49 But the first thing is like, if I know the founder, generally, you know, it's a different filter. But if I don't know the founder, it's, I'm looking for things that are new, which is really hard. There's very few new things in the world. And so, and there's so many companies that I've seen 10, 20, 30, 50 iterations of. And that makes a really easy filter. Probably 90% of the stuff I see is just not interesting. The second area is stuff that I'm actually smart in. Turns out I'm not.

Starting point is 00:28:19 I'm kind of dumb in a lot of spaces. So, you know, I'm not, I'm not particularly good in consumer. I don't have any ability in bio. I'm not a crypto guy. I don't do chips. I try to do, don't do any hardware. So there's a bunch of sort of negative filters that I can get rid of there very, very rapidly. In fact, it's usually the number one way I bow out of a deal, which is like, sorry,

Starting point is 00:28:39 I'm an idiot in your space. I can't be helpful here. And then the third one really is like about insight. Like, usually there's a secret to the business. some insight that the founder has found could come in many different vectors, but that's the one area I spent a lot of time trying to find.

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Starting point is 00:29:49 What about you, Elizabeth? You guys have a quantitative way to filter out startups. What do you look for from a quantitative aspect? Yeah. So we actually have automated rejections as a first pass. It's about 50% of our applicant pool gets an automated email response. And then of the remaining 50%, we do go through it, but then we do have, you know, templated responses, basically just very quickly, at first glance of the idea, is this differentiated? So echoing Zach's thoughts on this, I think differentiation is so important. I think even just from a quantitative perspective, if you're in a very crowded space, your cack is going to go up. Like, if you have to beat out all these people for the same customers, then that's just really challenging because you're

Starting point is 00:30:38 going to have to spend a lot of money on that. Not to mention the double whammy is it's also harder to fundraise because every investor has a horse in the race. And so you have a limited pool of people you can raise money from. So that double whammy just makes it really hard. It's nuts to say it can't be done. But I don't really love those dynamics if that's what it is out of the gates, you know, not knowing anything else about the market, the space, the founders, et cetera. So we pass a lot on crowded spaces. And then I think once we kind of get down to, all right, what is it that we're looking for?

Starting point is 00:31:11 Highly differentiated ideas, people within the inside in those spaces, and that's kind of where we'll make the bet. And we do just a lot of this in, you know, sort of quick 30 seconds at a time, like just based on the deck, et cetera, we'll do one interview and then we will make the investment if it's interesting.

Starting point is 00:31:29 I think it's such a good thread to pull on, which is, is this new? if you're coming in, like I, because of the Robin Hood investment, the Com investment and the Uber investment being such breakouts that are in pop culture, what happens as an investor, and I know Zach and Elizabeth, you have this with some of your lead things. People say, oh, I'm going to build something that's right adjacent to that. So I'm doing Robin Hood, but for women, but for Latin America, but for, you know, this care. I'm doing Uber, but for alcohol. I'm doing Uber, but for, you know, literally I had. two different pitches for Uber adjacencies, which were one, you can bring your dog with you, and two, for kids.

Starting point is 00:32:09 And I thought, well, those are great ideas. And I just had Dara on this weekend startups, where he said, and I had this inside information for over a decade,

Starting point is 00:32:17 anything that's adjacent, when we add it, we're starting with a hundred million credit card active accounts, or maybe it's 200 million now. I'm not sure how many active they had the last quarter. So if dogs is a market

Starting point is 00:32:28 and having dog-friendly cars, you're just going to see when you open up Uber, a dog in a car and is okay why would I download another app for something so niche and so yeah it has to be something new if it's going to be an outlier and the truth is if we were to look at the total number of applicants Elizabeth said 12 I had said 20 and uh Gary has said 45 you put those three numbers together you get 70,000 or something then you de-duped them you're probably at 50,000 I'm guessing right so if there's 50,000 people this year with an idea in the seed stage or an MVP or an

Starting point is 00:33:02 actual product launched and a team somewhat formed, how many of those actually become unicorns every year? Well, we can look at Aileen Lee's data in her unicorn report. It's a, you know, a couple dozen, right? So then the number of unicorns, if it was three dozen would be 36 out of the denominator of 50, 60,000, we actually know it's one in 2000, right? So it might be a one in two thousand of this application pools are actually destined to become unicorns. And you just have to hit a couple of those. So then you're sorting, I guess, Elizabeth and Zach becomes, how good is your sort to find those three dozen unicorns that are created each year? We'll find out.

Starting point is 00:33:44 So speaking of sorting, next topic is the Bay Area. Is the Bay Area officially back? According to Pitchbook, Q4, 2023, Bay Area startups raised over $12.5 billion versus L.A.'s 4.6 billion and New York's 3.8 billion. In the year, 23 as a whole, Bay Area startups raised a total of $63 billion, equivalent to more than the next 10 markets put together. Jason, you wrote an angel back in 2017 that serious angel investors had to live in San Francisco. Has your view changed on this? Well, the three of us live in the Bay Area. So we're three for three here. I will say the greatest companies are formed here, and the greatest founders do come here. Why? Density. It's that simple. And I have broken the news to my team. We're coming back to in person.

Starting point is 00:34:37 So we have a 21-person investment team, and there are three of us in the Bay Area right now, and maybe one or two in New York. And so as a company, you know, first level sorting our research and our associates. We have researchers, analysts, and associates in our stack of team members. those can they can work from home because they're doing Zoom calls. But I'm doing something called Founder Fridays. Every Friday, myself and Jackie who runs programs, are getting together with the founders and we're building programming for all Fridays. And then I said to my team on Tuesdays, we're going to be the other day.

Starting point is 00:35:09 So Tuesday Fridays, we're going to be back in the office or back at one of our legal partners or tech partners who have an event space. And we're going to just start doing things in person. Why would we do things in person? Founders are asking for it. The top founders are asking for more FaceTime with us. us and then two, our investors are here and they're back in the Bay area more and more often and we want to put them in front of those investors and meet face to face. If you meet face to face

Starting point is 00:35:34 with an investor, I think your chances of getting funding. If you meet with them here in the valley, I think they go up five to 10x because they can then, you know, if you meet with Elizabeth in person, Zach in person after doing a couple of, you know, they can get a really good read on you and tell if you're serious or not. And so I am, I believe deeply, putting San Francisco aside, I think the wider Bay area is going to come back massively this year, massively. I think also Gary is telling founders he wants the YC founders in like a couple of weeks during the program as well.

Starting point is 00:36:10 So, yeah, people are coming back. And, Zach, you're nodding your head. Which date does it take to get in an in-person with you? How many Zoom calls do you go on before you get? get an in-person? Sometimes I'll do it on the first one. You know, I think a lot of people have shifted to Zoom for the first and sometimes second meetings just because at least for me, I find it a lot easier to tell somebody that I'm not

Starting point is 00:36:34 going to do a deal when they don't have to sluck their way over to hang out with me. They don't have to, you know, spend a lot of time and energy. And so five minutes into it, I can be like, look, I'm not smart enough in this category. Here's why. And I can move on, they can move on. It saves everyone a lot of time and energy. agree with what Jason's saying. You know, San Francisco is still a hot mess, and it's better than it was 12 months ago,

Starting point is 00:36:57 but it's still very problematic city on many different levels. The stupidity of our political class is unparalleled. In the same way, San Francisco is literally one of the most unparalleled cities on many levels. The stupidity of the people who run the city is unparalleled. But the Bay Area itself, I mean, the density is just incredible. The number of startup founders, engineers, business development. people, HR people, marketing people, I mean, designers. You can't go anywhere else in the world

Starting point is 00:37:27 and get anything close to that. And so if you want to build a world-class company and you want to scale rapidly, there's nowhere that is better than being here, hands down. And Elizabeth, you live in the Bay Area, but you have a bit of a contrarian view on this. You've invested on six different continents and you guys cast a wide net. Tell me about your philosophy and how Hustle Fund goes about investing so many cons. Sure. So we do all of our calls over video conference. And so there are a lot of founders I have invested in whom I have never met in person. And roughly speaking, the breakdown of our investments is about a third, a third, a third, a third San Francisco Bay Area, a third broader U.S. and a third international. So I do think actually just from a problem

Starting point is 00:38:12 perspective, it doesn't make sense for most of our companies to move to the Bay Area. If you're solving X, Y, Z problem in Bangladesh, you probably shouldn't be moving here. It typically doesn't make sense. But I would agree with all that's been said that the networks and the density and the knowledge actually is very much tied up here. So I do think there's value in a lot of founders at least spending some time here, even if it doesn't make sense for you to move here personally, because the level of ambition that a lot of founders have around here is very high. And when you see peers who are at that caliber or higher than you, it makes you work harder and it makes you understand what good looks like. I think in addition, it makes it easier to hire people or surround yourself with people

Starting point is 00:38:57 who have done it before or who know what good looks like or what pitfalls you could come across. And the Bay Area is pretty unique in that regard. I think, you know, if I had to pick a number two place, it would probably be New York is on its heels and has good density as well. And you can make the argument about New York being a great place to move to as well. But I think, the San Francisco Bay Area is special in that regard. That being said, I think then if you're aware of the issues that you'll have when you're not building in the Bay Area, but you're building somewhere else, I think you can solve for some of these problems, especially with the rise of remote work. I think it's a lot harder to understand what good looks like, but you can surround yourself with

Starting point is 00:39:38 remote advisors who can help you interview or hire people. You can hire people outside of your town these days before, you know, five years ago, if you could only find one product designer in your small town, like that was a problem. Now you can go to the global networks and try to find somebody really great. So I think some of these things are being solved for and you don't necessarily have to build your company here. To just put some numbers behind that, we, when we saw our application pool was 50% MVP pre-launch founders. Like, so of those 20,000, Elizabeth, like half of them were like, in some cases, maybe 25% were not yet incorporated, and then another 25% were incorporated, but they hadn't launched a product.

Starting point is 00:40:25 We came up with this founding university concept, a pre-accelerator, we call it, and now that's become pretty big for us, over 2,000 applications to the last one, and we accepted 240 teams, and we'll invest in 30 of those companies. So it'll be, again, you know, one and a half percent, one percent investment rate, but I'm looking at the numbers here, and I had just asked this number as we come, because I told people two weeks ago, I decided we're coming back to in person. And that's how I make decisions at the firm. If my gut tells me this is an advantage we're doing it, I just immediately implement it. And I told them starting Fridays and they're like, this Friday, I'm like, can you be in an office this Friday? Then yes. If you can't be in the office Friday, then it'll be next Friday. 21% San Francisco Bay Area already for a remote program. This program is designed to be remote, but 21% of that. we've identified already and we don't have all the data clean yet are in the Bay Area. New York second with 5% London 2.5% Los Angeles 2%. You know, so in Toronto 5%.

Starting point is 00:41:25 So that was interesting. The UAE 2%, I think because I've been there, you know. And so there's and then teams are forming. We had multiple teams who had co-founders. I don't know if you guys have had this experience. When they came in for the kickoff for Found University Cohort 7, a number of them had met their co-founders in person for the first time. So let's just pause for a second here.

Starting point is 00:41:49 Not only are people making investments without ever meeting in person, people are forming companies working together for a year. These people had worked together for a year, Elizabeth, and there were three of them. They had not met each other in person. They had been working together for a year, and they had founded a company together. And coming to founding university,

Starting point is 00:42:06 and then they met each other for the first time. They didn't know what they looked like in person. They didn't know their personalities. I believe that. I believe that. I mean, the pandemic has heard on so much of that behavior, right? Because you couldn't for a while meet in person, but then I think people just latched on and stuck with it. It's so efficient.

Starting point is 00:42:22 I need a designer. I want this U.X designer as my co-founder. I need a developer co-founder. I'm an idea salesperson. Okay, Zach, how do I put the super team together? Well, I got two people. One's in UAE. One's in Toronto.

Starting point is 00:42:34 One's in San Francisco. Let's go. It's funny. This is very common with crypto, right? actually a sort of funny story, a friend's company, which is a crypto company, he had a similar situation

Starting point is 00:42:44 and he didn't know the identity of one of his co-founders. They had been working together for a really long time. They did not know the real name of that person, let alone anything about this person. You were the hippo, 33.

Starting point is 00:42:56 Yeah, it would be like that. Z dog. Yeah, exactly. Yeah, we don't know how old we are, genders, location, nothing. Nothing. Social security numbers, nothing. We're just anonymous handles.

Starting point is 00:43:07 This became a problem later because this company actually ended up doing quite well. And obviously the VCs wanted to know who these people were. And that's where it really came to head. But they went through several years of very fast growth without anybody really knowing each other. I bet you one of them was working at Google full time on payments or something and was doing this as their side hustle. Speaking of hustle. Probably. I'm not an investor in this company, but this is just what my friend told me.

Starting point is 00:43:35 It's not surprising that so many of this crypto companies suddenly have a large amount of their funds disappear through mysterious hacks. You hire anonymous people and then suddenly all of your funds disappear. It was surprised. Exactly. Yeah. All right. If you want to build a great company, you're going to need a great team. I always tell people this.

Starting point is 00:43:56 You get a great team together. You build a great product and you delight your users. It's as simple as that. And if you want to hire a great team, you're going to need to find them. Where are they? They're on LinkedIn jobs. LinkedIn has over one billion users. So that means it is the largest professional network in the world by far.

Starting point is 00:44:12 And you can land both active and passive job seekers on LinkedIn jobs. Because some people, they might have a great job. And then LinkedIn introduces your opportunity to them and you get one of those passive job seekers. Of course, you have the active ones there too who are looking for the right match. And your company is awesome. So why don't you go post a job right now? LinkedIn also knows that small businesses are wearing so many hats right now.

Starting point is 00:44:35 and you might not have the time and resources to devote to hiring. So let LinkedIn automate all of that for you. Go post an open roll on LinkedIn. That puts the purple hiring ring on your profile. That start, and then what you do is you start posting some interesting content about you, how you think, do some blog posts, maybe talk about the news, talk about new products, or what it's like to work at your company, and then watch Qualified Candidates roll in. And a lot of those will be from your network, your friends, friends of friends of their friends.

Starting point is 00:45:01 And guess what? First job listings on us. post your first job for free. LinkedIn.com slash twist. LinkedIn.com slash TWIST to post your first job for free. Terms and conditions, do apply. So moving on, you guys referenced the unicorn list. Aileen Lee of Cowboy Ventures has released her follow-up

Starting point is 00:45:19 to a massively popular Unicorn Club report 10 years ago. From 2013 to 2023, the time of the last report, the number of unicorns has gone up 14 times, 1-4, going from 39 to 533. of which 78% of them are now enterprise companies. While unicorn status has increased, liquidity has actually decreased. As of today, 93% of unicorns are private and have yet to return capital to investors. This represents an exit rate of only 7%, which is dramatically down from an exit rate of 66% in 2013.

Starting point is 00:45:55 Zach, do you think these funds will turn to secondaries or how are they going to return capital to LPs? I mean, the fundamental problem is that there was a beautiful little arbitrage in Ventureland for a little while, where LPs were willing to pay 2% management fees on multi-billion dollar late-stage funds pre-IPO. And so managers suddenly had a pretty big incentive to go scoop up that money, get paid a giant fee stream, and then deploy them into these companies. And so what you saw was a real massive over acceleration of capital into late stage pre-IPO companies, even when they weren't ready for it, even when they didn't deserve it. But the managers really didn't care. I mean, if you look at some of these funds, you know, managing tens of billions of dollars, getting 2% a year no matter what, I mean, it's a pretty beautiful little hack.

Starting point is 00:46:53 But unfortunately, it didn't work out well for the market. and so you got a lot of companies that raised it billion dollar valuations on a couple million dollars in revenue. And those are not real companies. They got a long way to go to be worth a billion dollars by any stretch of the imagination. So right now, the market is all about working through that, figuring out which of those companies need to be shut down, which ones need to be merged, which ones can actually grow out of it.

Starting point is 00:47:22 And we're going through that workout process now. But God bless those people who got those 2% fee streams on multi-billion-dollar funds. Good for them. I'll tell you what's fantastic about not having those streams. And all three of us have smaller funds. So we cannot offer huge salaries to people who work for us. We cannot take a huge salary ourselves. We have to live for the carry.

Starting point is 00:47:48 Now, when you have to live for the carry, how is your behavior going to change? How is your incentive change? Well, if you're getting two and a half percent, forget about two, two and a half, some of these people are getting three percent a year on a billion. Now you got, you know, 25, 30 million coming in. Now you've stacked three funds on top of each other because you got a crypto one, you know, so you may have two or three billion dollars. Let's say you have three billion dollars across multiple funds overlapping at two and a half

Starting point is 00:48:15 percent a year, get $75 million. That's why you see venture firms with unbelievably gorgeous prime real estate. in San Francisco, in London, and in New York City. And you're like, how do they have four people working in an office that cost $100,000 a month in rent with a sick view? And then they bring founders there. And it's just LP money burning. And they get to offer people a million dollar salary or three or $400,000 salaries plus carry. Who is that going to attract?

Starting point is 00:48:46 You know, you might say it's going to attract people who are hungry and, you know, or are top shelf. I find you have a greater chance of finding somebody who's a late stage career person, a late stage venture capitalist, who doesn't need money, who wants a cush job, who wants to, you know, get this $300,000. Sorry, they're not hungry enough. And they might be optimizing for other things in life, like safety and security and not upside, right? And so, I don't know. I worry myself if we were to have too big of a funds,

Starting point is 00:49:21 the entitlement that starts coming from that, right? And so I kind of like being scrappy and living for the carry. And Elizabeth, you've been through many market cycles with 500 startups and hustle fund and a fundraising trail. Has expectations around DPI changed over the last decade? Well, I think it depends on the LP, right? Well, I think it comes back to incentives, which is, you know, what Jason is mentioning, but there are incentives on the LP side as well.

Starting point is 00:49:48 If you're at an institution, a lot of the folks working at institutions are incentivized to continue to have high IRA. And these in many ways can be fake numbers in that it's on paper markups. And the reason that they have to do this is your principal or whomever isn't going to stay at that firm until there's liquidity. So how do you give that person a bonus? Well, you give that person a bonus based on these paper markups growing. And so it creates a weird set of incentives in that, well, paper markups don't necessarily lead to positive, successful, high markups in the end of DPI, right? And so I think that what you see then is the really patient capital, let's say the angels or the family offices, where it's their own money. They don't care about all the fake stuff that happens in between.

Starting point is 00:50:41 They care about the DPI in the end. If they are very savvy, they know that, okay, if this firm has a drop box, it'll go IPO in 15 years from seed to exit. And that'll be nice. And I'll just wait and get that actual cash. But if you are managing a firm's money, then it could be very different. And so as such, those people may be not patient because that's how they get bonus this year. So it really depends a lot on the LP. So speaking of efficiency, another trend we've seen in the past 10 years is the decline of

Starting point is 00:51:16 capital efficiency. Enterprise companies, which previously had a capital efficiency of 26x, have now gone down to 7x by the same unicorn report. Elizabeth, you mentioned off camera that you think a lot of great companies will come out of the ZERP area. What leads you to believe this? Not out of the ZERP era from now onwards. And I think a lot of it is because because I think these come in cycles. So capital efficiency is a result of how much money you're giving companies. If you give a company a ton of money, I guarantee you they'll find a way to spend all that money.

Starting point is 00:51:50 If you give a company very little money, there are going to be a number of founders who will make it work. And having started my own company in late 2008 and early 2009, when it was very hard to raise money, we couldn't raise any money for a long time. And so many of my friends also couldn't, you learn to be really efficient if you want to be a founder and you had to make it work. And so I think what we're going to see here is people who are truly serious about building a startup won't mind that they can't raise money now because their goal is to build their company

Starting point is 00:52:21 not to focus on fundraising. And then they'll learn to be very capital efficient. At the end of the day, founders are capital allocators, not just VCs. And so they'll figure out how to really stretch their dollar. And then as we grow into a bull market and they get access to more capital, they'll be able to take a lot of these capital efficient learnings and then really just apply it well when they do have access to cash. It's much better to grow into a bull market than to go the other way around

Starting point is 00:52:48 from a bull market into a bear market, in my opinion. So I think this is going to be a great era. Yeah, and one of the biggest drivers of the lack of capital efficiency is just competition. And so what you saw is there's just so many Me Too VC funds. And there's only usually one or two great companies in any particular category. But the Me Too VC funds, they still have. to deploy the capital. And so you saw them funding numerous unnecessary competitors for every segment. And so in any segment, you'll see all these new competitors. And what happens is those

Starting point is 00:53:18 competitors really drive up the cost of doing business. So they'll go in, they'll buy the same keywords, they'll buy the same advertising targets, they'll sponsor the same conferences, they'll try to hire the same salespeople, and they'll spend a lot of money in the market, which effectively drives up your pack. And they'll create a lot of feature, FUD, which drives up the cost of engineering. You have to build things for competitive reasons, not because the customers actually want it. They'll constantly be attempting to poach your employees. They create a lot of pressure, and that pressure effectively drives down returns for everybody

Starting point is 00:53:52 because you have all these Me Too companies basically in their competing away returns. And so the ZERP era really is really disruptive, destructive for capital returns and destructive for efficiency. And now I totally agree with Elizabeth. The next couple of years, it's the inverse of that. Like, my best companies, like, it was funny, like, almost all my companies come summer 22, they hit a wall, almost across the board, you know, close to 80 names in my portfolio. It was like, boom, like, growth just stopped. And then over the intervening 12 months from 22 to last summer, they went through a real rebuilding period. There was a lot of work done around downsizing, around renormalizing on much more efficient modes of customer acquisition, around thinking about a plan

Starting point is 00:54:39 that could actually be achieved without burning a ton of capital. And the best ones come last summer suddenly reignited and they're growing like crazy again. And even with a lot less cash and even with a lot of less VC support, because the other thing that happened is a lot of their competitors just disappeared. And so I think we're going to see some really great returns coming out of this vintage. and I'm excited about that. Yeah, and I think it's important to understand the chart. If we pull it up again, this average capital efficiency is taking the valuation of a company and dividing it by the amount of capital they raise.

Starting point is 00:55:14 So when you look at consumer in 2013, they're saying in 2013, the valuation was 11 times, 11x what they raised. So if you raised a million, your company was worth 11 million. If you raised 10 million, your company was worth 110 million. If you raised a billion, your company was worth 11 billion. and that dropped almost in half. And then you look at Enterprise, it was 26 times. So if you raised a million, your company was, for every million you raised,

Starting point is 00:55:39 you were worth, let's say, 26 or 27 million was your valuation. In 2023, it dropped to like eight. And what this means is, I think, if I'm interpreting this chart correctly, in 2023, if you raised a million, your company's worth $7 million. In other words, it's a 7x on average. It's not very efficient. The efficiency dropped by 80% in one case, enterprise, and when consumer, it dropped in half.

Starting point is 00:56:04 And so this goes back to what Bill Gurley was saying, capital as a weapon. And so I think Elizabeth, you brought up competition in KAC or maybe Zach you did. I think you both brought it up, actually. That's actually what's happening here is, somebody gave, you know, Lyft a ton of money and Uber a ton of money, postmates a ton of money,

Starting point is 00:56:25 or we work a ton of money, and other folks, you know, start raising a ton of money for co-working spaces. And what happens? They use capital as a weapon to see who's the last person standing. And then whoever's the last person standing has to immediately slam on the brakes before they fly off the cliff. And then everybody else flies off the cliff.

Starting point is 00:56:44 So imagine racing towards a cliff. This is like the ultimate game of chicken. Like who can go fastest to the cliff and who can break fast fast before everybody else just flames out? And, you know, it's a strategy, but it's super unhealthy. And yeah, I'm glad I'm not living as the person who has to put that series D in or E,

Starting point is 00:57:04 because that seems like a really scary bet to make. You're like, I'm going to put $100 million into this company and hope a magical bridge appears at the end of the, at the edge of the Grand Canyon and this, or that this car sprouts wings and just flies. I mean, it happened in the case of Airbnb, DoorDash, and Uber and Coinbase, but it may not happen in everybody's case. It didn't happen in WeWorks, that's for sure.

Starting point is 00:57:27 So speaking of making decisions, we're going to do a quick portfolio check of all the VCs. We're going to look under the hood and look at what Elizabeth, Zach, and Jason are doing. Let's start with you, Zach. What are your last three investments? And tell us a quick rationale behind those investments. Oh, let's do one. Let's do a round robin style. It'd be more entertaining.

Starting point is 00:57:46 Do around Robin. Yeah, just keep running around in the circle, yeah. So I had a really slow, last year, 23, incredibly low, slow capital appointment. actually the slowest year I've had in nearly a decade of doing this. But there's three new companies that got in that I'm excited about. Number one, a company called shovels.a.i. So they basically use AI for parsing really messy government data sets. And they're starting with building permits.

Starting point is 00:58:14 And so they're able to basically give you an API to access all the building permit data across the country. And so if you want to figure out which contractors get their jobs done on time, they can tell you that. And what you want to know how many building permits got given up in San Francisco? They can tell you that. I can tell you it's not very many.

Starting point is 00:58:32 Basically, they're pretty cool, pretty cool data. So if you're working with government data in particular building permit contract data, very, very valuable. Well, and that data without AI, you wouldn't have the ability

Starting point is 00:58:45 to process it affordably. It was just too expensive. And look at what they're able to charge. If you want the permits, you get $1,000 a month, contractors paying $849 a month. If you bundle it, up to $3,000 a month,

Starting point is 00:58:58 these are nice, juicy contracts, $10,000, $30,000 a month. And I bet you the people who are buying these get a customer out of it. I love this company. Wow. Well done. That's great. And the founder, amazing.

Starting point is 00:59:09 How did you meet them? Oh, I've known the founder for more than decade. Got it. Literally most of my deals are founders I've known for a long time. Yeah. Elizabeth, what are you got? Let's go to yours. I'll go with Anadro.

Starting point is 00:59:21 So Anadro is started by a couple of founders who are serial founders. One of them back before, one of them previously sold his company to Zendesk for a very successful exit. So they've been around the block before. And they're looking at what I'd call like sort of the new age energy space. So they work with landlords to help them essentially create a new utility company to help landlords actually even sell electricity to their tenants. And they do this through a couple of ways. One is they partner with other folks in the ecosystem to do solar paneling on these homes.

Starting point is 01:00:02 And two, they've built software to do energy matching. So, you know, nowadays, there's all kinds of weird things happening in places like California, peak times. You have, you know, net 3.0, which is like reducing the price. of energy that you can sell back to the grid. So they basically try to optimize, all right, like, what is the best usage and, you know, any excess energy from the solar paneling? They actually run through Bitcoin miners and sell the Bitcoin to help with it. So it's basically a fintech kind of play in energy.

Starting point is 01:00:38 How do you spell it? What's a URL? A-N-A-D-R-O. I don't think they have a website, but they do have a lot of customers. Stel. Yeah. I love it. That's cool.

Starting point is 01:00:48 My God, you know, when we were going to do this, I had so many companies I was considering, and it's really unfair to all of them that, you know, have to pick. But I'm just going to pick some that I've been using. This one, podcast AI, is just some of the fastest product velocity I've ever seen. And so one of the things we look for as a firm is teams that can move fast and, you know, get a lot of shots on goal. And this product, this podcastAI.com company was some of the fastest iteration.

Starting point is 01:01:22 And what they did in some podcasting, I understand it, they will really do transcripts, generate chapters, generate the metadata, do ad reads, figure out the viral moments, create a podcast feed.

Starting point is 01:01:34 So if you think about, you know, anybody wanting to create a podcast, if you want to create a podcast like this one, uh, liquidity pod.com, if I go to our new website, I was able to put up this website for this podcast, and immediately it will do, as you can see here, the transcript, and you can go through it and you can make clips.

Starting point is 01:01:56 It's just mind-blowing what AI could do for a podcast here. And this takes out about, I would guess, 15 hours per episode of post-production production production for a podcast, even just doing the chapters here at the top, which you can, of course, edit. And so I'm really in love with this company. They went to our founding university, our pre-accelerator. They went to our accelerator, and then we did a direct investment in it. And so I think they were super cool. Big fan and customer, J-Cal. Oh, you're using them for your podcast.

Starting point is 01:02:25 Yeah, your team introduced me and I love them. I think they charged $500 a month. It was like they had a $99, $199 should stop with that. Just $500 a month. Edward is so good at shipping. Yes. Yeah. He integrates immediately.

Starting point is 01:02:40 Yeah. I've never seen anything like it. So I'm very excited about this one. Go ahead, Zach. Ron Robin. The next one is a company you might know, Jason. It's a company at 23. It was a company called Echo Mark.

Starting point is 01:02:51 So they're super cool. So what they do is they create an invisible watermark on a document for every single document that a company produces. Let's say you create a press release for your earnings press release. You keep it internally. Everyone's working on it. And you pass around the company to the people who are working on it. Every single one of them will have a unique,

Starting point is 01:03:10 invisible watermark that's impossible to read with the naked eye, but trivial to read using AI. And so you'll be able to identify who got that document, when they got that document. And if they leak it, let's say you link a document and it gets posted, you can figure out who got it. So I'm super excited about this company. And you can imagine every government document, every sensitive document in the world should have this at the core of their business. amazing team. The leader is a guy out of Microsoft Troy who's like, I mean,

Starting point is 01:03:43 he was like just a all-star up there. And I'm super bullish on this one. My friend Skydaten was involved in an iTunes investor in Echoomark.com. You can go check it out. And you remember the Supreme Court had Roe v. Wade

Starting point is 01:03:58 decision being leaked. Leaked. And that would have just been caught with Echo. Never going to happen. You'll, you will, even if you took a picture of it. Like, you couldn't, you couldn't leak a document if it's got Echo Mark on it. So, um, lots of little tech.

Starting point is 01:04:16 Really, really bullish about that company. Yeah, me too. Me too. All right. Elizabeth, you're up. Cool. I'll go with Bruin Health. So Bruin Health is actually attacking the mental health space in a slightly different way than

Starting point is 01:04:28 perhaps many of the companies we've seen. And, um, in particular, you know, as we all know, mental health is a big problem in this country. but a lot of people in a lot of physicians in internal medicine end up with these patients, but they're ill-equipped to really deal with it. You know, internal medicine physicians are in high demand. They're constantly running around dealing with literally everything. And mental health is, you know, in its own sort of special bucket.

Starting point is 01:04:54 And so what Bruin Health does is they actually are essentially a platform to help internal medicine physicians be able to better address their patients who have mental health needs. And so this is a tool that is, you know, covered by insurance in many cases, but is, you know, in this case used by internal medicine physicians. So I really like that. That sales cycle. It's a very different channel than how a lot of other companies are attacking this. Yeah. And it's, this is what we look for as investors, something new, right? And this is a very hard nut to crack. And sadly, this is an expanding market. The number of people with anxiety, depression, you know, and taking SSRIs and all this is exploding and doctors have to deal with

Starting point is 01:05:41 this, right? So yeah, kudos to you on this one. I think it's really awesome. We've had some success in our portfolio over time with consumer subscription apps. And so Steezy for dance, FitBod for fitness, musician for music, tone base for music and calm for mental health and equanimity, sleeping and meditation. And when we saw this one come to our accelerator, we thought, oh, wow, dualingo for cooking. And so what Zess does as an app, and I love consumer apps,

Starting point is 01:06:17 is they've gamified learning how to become a great chef. And so you learn the basics. You take little quizzes and you do little duolingo style exercises. But instead of doing the to learn language, it's to learn to cook for your family. And what I love about this team is they did really great product discovery. They took their time to find people who wanted to learn to cook or had learned to cook. And they did all these really great interviews with them.

Starting point is 01:06:51 And what they found was there was usually some incident that happened that made them want to be to learn to cook. And it's a huge market. and they found that one of the reasons was to save money. People were spending $500,000, $1,000 ordering food from DoorDash or Uber Eats. Another one was they wanted to get healthier. And another one was they wanted more friends and they wanted more socialization. They wanted to cook for people and have more interaction with people. These are not obvious, you know, consumer justifications for learning to cook.

Starting point is 01:07:27 And so when I saw them making progress, I was like, you know what, this company is going to figure it out. And so we made a bet on it. And it is, again, back to product velocity, well-designed product. I'd never seen anybody do this. How do you learn to cook now? You watch YouTube videos. You watch TikTok. You buy a cookbook.

Starting point is 01:07:45 All of that is not actually the best way to do it. Having an app in front of you that's gamified like DuLingo or tone base or musician, that's actually the best format. It turns out people really do love to pay 60 bucks a year for an app that helps them solve a problem in their life. So I'm really excited about Zest. Zest app.co. Zach, you got another one?

Starting point is 01:08:04 Yeah, so the last one on my list is a company called Bug Zero. Bug Zero.com. Find a bug0.com is a URL. And this one's fun. So if you're running enterprise software, large scale, you're running Oracle, you're running big stuff. The bugs that those that come out of those software are often well known, but actually relatively difficult to figure out when, where, how do they affect your particular version. And so what they do is they keep track of all the enterprise software that you're running.

Starting point is 01:08:34 Bring in all the bug reports from all the different software providers that you have and then provide you with a personalized, clean view into what needs to be changed, what needs to be updated, what you need to pay attention to, how you need to understand what's going on in your software there. It's a real pain point if you're operating at large scale and they have amazing traction and I'm very excited about the team. that is a cool product. Security is just such a great space, huh? Like you.

Starting point is 01:09:05 Always going to make money in security. People need Band-Aids. Yeah, so it's well executed. Elizabeth. Cool. I'll go with AfterWork. So at Hustledon, we run a lot of events. You can go to Goafterwork.com.

Starting point is 01:09:17 And, you know, as you can imagine in running events, there are a lot of logistical challenges in finding the venue, but not only finding the venue, getting all the other stuff there, everything from catering, mics, stages, sound equipment, video, all kinds of things, DJ, etc. And so after work, actually, you know, frankly speaking, the way that we ended up investing is actually we used the tool for ourselves. And we were pretty amazed that actually it could search literally everywhere in the world

Starting point is 01:09:51 and help us find a particular venue that we were looking for. and I think in particular it takes out some of the little manual bits. Like if you find a venue normally through internet searching, you have to write to them, you have to email them, get a quote and all this other stuff. You can submit like 20 quotes pretty quickly with this just by clicking one click here and there.

Starting point is 01:10:15 And then as they add all this other stuff, then it will become super powerful. So I'm really excited about that. Certainly from our perspective as a customer, it will make our event planning a lot. easier as well. I love this idea. This is the type, I'm literally submitting a form here for one of our founder Fridays. And you are correct. We do a lot of events like you. And it's not just finding a venue. Then you got to figure out food. Then you got to figure out

Starting point is 01:10:42 AV. Then you got to figure out the cost. And do you have a projector? All this kind of stuff. So what a great idea this is. And I love the fact that it's automated. You know, a lot of people do this. You're taking something, Elizabeth, with Africa. work that is, you know, something like a $60,000 a year employee would do. A party planner probably gets paid 50, 60, 70,000 a year. And so, you know, for them to, they probably can do a couple of events a month. So you just start dividing that number. You know, there's thousands of dollars probably per event that a party planner winds up costing, even for a small event. And if a person can do that without having to hire a party planner, man, that's saving what, two or three thousand dollars per

Starting point is 01:11:24 event in extra cost. So I really do like, I'm looking at these. I'm like, hmm, I've got to set up some meetings here. And then, so I will show you another company. So the All In podcast had these fan meetups start. And I was doing some fan media for this week in startups. And the woman who was running the All In Meetups was using some ticketing platform. It wasn't very good.

Starting point is 01:11:50 And I said, you know, I think there's a product here. And we incubated this company. and you can go to this and create a series of local events. So if you wanted to do hustle fund events in 10 cities, you could do them in 10 cities, put somebody in charge of each city, right? So we're doing this Founder Friday thing. And people can go and sign up for it.

Starting point is 01:12:13 We find local hosts, and then people sign up for the event and they communicate with each other. So get ridder.com. It's kind of like TEDx in a box, you know, TEDx. you know the and so we are now figuring out well with a community of people what do we want them to do what do we not want them to do and then how do we manage

Starting point is 01:12:35 that these fan meetups um they occur anyway but they've just never been coordinated when you coordinated them they all of a sudden become a thing and you have five cities then 20 cities then 50 cities and so we'll see if people make a little mini business out of but we're doing something called Founder Fridays, and it's going to be This Weekend Startup Founder Fridays. You can go to This Weekendstartups.com slash meetups, and you'll get the information on it. And we're just telling it's only founders can come.

Starting point is 01:13:05 So it's founders for founders. And we're hoping in each city you have five to 10, maybe 15, 20 founders get together on a Friday, and just chew the fact and talk about running companies. That's enough. We don't need it to be 500 people in each city, which you want it to be a dozen. And if founders get value from it,

Starting point is 01:13:22 we think that that's really special. So I love, and they charge a fee every month. So turning, and they've got podcast communities. So all in this weekend startups and my first million are all doing it. And then who's a guy who's got the don't die franchise? Brian Johnson. So this is the guy who's like spending a million dollars on his body to figure out. Oh, yeah, that guy.

Starting point is 01:13:46 I didn't know he has a community. He started doing a community because he did a run. and all these people came to run with him, like 50 people came on a five-mile run with him or whatever he was doing. And now he's got like 20 cities. I mean, you think about like his entire business

Starting point is 01:14:01 might become don't die meetups. And they're all occurring on February 17th at different times. Look at all these cities they've got lined up. I mean, it's everywhere. And, you know, some have three people. And the software allows you to sort of,

Starting point is 01:14:17 you know, put somebody in charge. And then the email addresses, of your community don't get exposed. So I think that was like a key thing for me. Like, I don't want anybody using our community to sell stuff. Anyway, these are great investments. We have to put all these in the show notes. Jake, do you find yourself dog-footing a lot of the companies you invest in? Is that one of your edges? You know, on the consumer side, of course. You know, I just happened to pick these two because I did, we did incubate one. And yeah, I'm into podcasting. So I did pick the ones in our portfolio that I think are closest to my personal interest. But we have tons of

Starting point is 01:14:53 enterprise and other stuff in our portfolio as well. But I'm more interested actually in Elizabeth Zach's companies here. So I may need some intros here to these companies. I feel like I need to put a little bet in. I love this one with the construction, Zach. That's a yum, yum right there. I think Elizabeth and I want to put a little... Before we publish this, I think I need to get my money into these companies before we hit publish on this episode. Well, on that note, we could wrap. This has been a phenomenal episode for Elizabeth Yen, co-founder and general partner of Hustle Fund,

Starting point is 01:15:29 Zach Collius, managing partner at Collius Capital, Jason Calacanis, world's greatest moderator, and founder of launch. And this is David Weispert, co-founder of 10X Capital, signing off. Hey, everybody. I talk to a lot of founders here on This Week in Startups and as an investor,

Starting point is 01:15:45 And they tell me the same thing over and over again. They want two things from me, more FaceTime and money. They want me to invest in their companies. And they want to spend time together. So we've been working here on a new meetup program. We call it Founder Fridays. And Founder Fridays are an event by founders for founders. This is an event that is hosted in cities by people like you.

Starting point is 01:16:06 If you're listening to This Week in startups, you're a founder. So what are you going to do at Founder Fridays? You're going to get together with other founders in your community. It could be four or five of you. It could be maybe up to 30 of you in a location. Pick a cafe, pick a co-working space. I like to go to a great Mexican joint or maybe a dim sum restaurant. You know, you can do shared food, have a couple of cocktails maybe.

Starting point is 01:16:29 You do it on a Friday. You get together and you host it. Now, why is it important for founders to get together? Shouldn't you be at home just focusing? Shouldn't you be in the office just focusing on your startup? Well, if you get together with other founders, true founders who are in the arena, building like you are, you're going to get a lot of value from that because you can trade notes with that other founder about what's working at your startup and what's not working. The truth is,

Starting point is 01:16:52 if you're facing a problem, there are hundreds of founders out there who have probably solved it already. And instead of you banging your head against the wall, when you sit there and you talk to three or four founders, you're having some dim sum, you're splitting a cassidia, some prajitas, somebody says, oh, you know what, I had that same human resources problem. Oh, I had that same technical problem. Oh, I had that same marketing problem. And they might tell you about a tool or a searcher. service that'll solve that problem for you. This happens over and over and over again when I do Founder Fridays with our portfolio companies. Now we're going to give you that same experience, but here's what I need you to do. I need you to host this in your city. So you're going to go to

Starting point is 01:17:27 this week in startups.com slash meetups. That's it. And you'll see a landing page where you can sign up and you can say, I want to host in my city. Now, your city may already be hosting so you can just join that person. And what if you go to this event and you learn some go-to-market strategy that 10xes your growth. That might unlock funding. Or you might be talking to somebody and they say, hey, I'm a marketplace too. I'm not a competitive marketplace. Your marketplace is for used cars. My marketplace is for hairstylists, whatever your jam is, whatever you're working on. But they give you some technique that you didn't know about to increase your supply side or get more demand in your marketplace and you 10x your business. I see this happen all the time. And founders are like mutants, right?

Starting point is 01:18:06 And I'm like Professor X here. I'm trying to put on Cerebro and find all the founder mutants in world and then have you get together and do your own little meetup. And here's what you're not going to have to deal with. You're not going to have to deal with a bunch of service providers trying to sell you software or services. And you're not going to have to sit through a bunch of passive speakers. You can listen to this week and start off saying at the greatest speakers in the world on your own time. And you're not going to have to pay for a ticket to a conference or get on a plane or fly somewhere. No. This is about having an intimate experience with five, ten, maybe two dozen other founders in your city,

Starting point is 01:18:42 please go to this week in startups.com slash meetups. If you are a founder, this is four founders by founders only. If you are not a founder, this event is not for you. You can start your own meetup for lawyers, accountants, recruiters. This is four founders by founders.

Starting point is 01:18:57 We vet everybody to make sure you're a founder. And if you host it, it's a non-commercial event. Our first founder Friday will start on February 2nd. So please mark your calendars. and we're going to do these on a rolling basis. You can join an existing meetup if it's already occurring in your city or you and one or two other founders

Starting point is 01:19:16 can start your own. We're using a wonderful piece of software that we've invested in called River. You can sign up for a River account just by going to this week in startups.com slash meetups. We've already got hosts and attendees lined up in San Francisco, New York City, Toronto,

Starting point is 01:19:30 Los Angeles, Las Vegas, London, and even in India. So this is your chance to connect. And if you didn't hear your city named, you can start your city. Go to this week in startups.com slash meetups.

This Week in Startups - Venture Fund Size Growth, the Rise of Unicorns, and more with Elizabeth Yin and Zach Coelius | E1886

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