Vested Capital
Vested Capital

Episode 8 · 1 year ago

(EP8): Elizabeth Yin Founder & General Partner At Hustle Fund, Founder LaunchBit Sold To BuySellAds.com

ABOUT THIS EPISODE

Elizabeth Yin is the co-founder and General Partner of a venture capital firm that, and I quote from their website, invests in "hilariously early startups".

Hustle Fund typically invests $25,000 as a starting point into startups that have yet to show any revenues. Instead, they look for traction in other ways, which Elizabeth explains in this interview.

We also go back in time looking at Elizabeth's own history as an entrepreneur, starting a company called LaunchBit, an advertising network, which was eventually acquired by BuySellAds.com.

Elizabeth and her company LaunchBit were graduates from the 500 Startups accelerator program. After selling her company, she returned to 500 Startups as an Entrepreneur in residence and later a partner.

This was her entry point into the world of venture capital. Elizabeth explains what she liked about the 500 Startups methodology -- a global perspective, any person can be a founder -- and how that informed her own strategy when forming Hustle Fund.

If you're considering raising money for your startup this podcast is definitely worth listening to. Elizabeth breaks down what she looks for in an investment and some strategies for early stage companies based on her own experiences as a founder.

Enjoy the podcast.

Yaro

Podcast: https://www.yaro.blog/pod/
Blog: https://www.yaro.blog/

Hello, this is Yarrow and welcome to vested capital, episode Number Eight, featuring my guests Elizabeth Yin, the general partner at Hustle Fund. Vested capital is a podcast about how people make money, build capital and then put their capital to work. I interview start up founders who've enjoyed big exits, Angel Investors, venture capitalists like Elizabeth, Crypto and Stock Traders, real estate investors and leaders in Tech. In today's podcast we're going to go back in time with Elizabeth as she shares her early entrepreneur story, which includes getting started in San Francisco with a side Hustle Agency business with a friend of hers, which then connected her with a very famous Tony, who recently passed away. You might know who that is just from that little bit of clue, but she was by chance connected with him and actually spent a few days in his startup, which was eventually sold for several hundred millions dollars, and that was an influential experience for Elizabeth to see what the startup life was like. We then go forward with Elizabeth story as she starts what would become her most successful and wellknown business, known as launch bit, which is in the advertising space, and launch bit was actually acquired by by sell adscom back in two thousand and fourteen. Interesting enough, the bicell ads founder, Todd Garland, was actually on my podcast. I'm going to resurface that episode coming up soon so you can have a listen to that. So after Elizabeth sold launch bit to Bi Celad, she left very quickly, in fact almost straightaway. She was able to leave and then go and start, or her plan was to go and start another company, but she ended up actually becoming involved with five hundred startups, which is an accelerator. You might have heard of it, kind of an incubator accelerator. They put some money into startups in return for a small amount of capital and they also put them through an accelerator program which at the end they do a pitch with the goal of raising more funding. Elizabeth actually went through that program with launch bit, which is how she first got exposed to five hundred startups. But that actually was her doorway to become a venture capitalists. So that experience led her to work with five hundred startups and then rise to the point where she became a partner for several years there, which means she was actually one of the people who was partaking in the vesting capital part. So basically the investments that five hundred startups did in companies, Elizabeth had a share of that investment by the nature of her role as a partner. I let her explain how that all works if you're new to this. But the most important thing that experience led her to then start her own fund called Hustle Fund, which he's currently in charge of as the general partner. She's been doing that since two thousand and seventeen, and Elizabeth goes into detail of what Hustle Fund is how it's different from other venture capital firms. It's very early stage and probably the most early stage venture capital firm I've actually ever heard of their pre revenue. So they invest in companies before those companies even have money coming in. And she explains her philosophy and strategy around why they do that and what they instead look for in a company they invest in. So if you've ever thought about raising funds, Hustle Fund might be one of the firms you might look into. This is a great opportunity to hear the leader of that fund explain what they actually look for. So if you want to ever pitch to them. You'll hear Elizabeth explain you know what's a checklist of what you need to make that a positive outcome for yourself. They generally put in a small check about twenty FIVEZERO dollars investment initially, but they go in more to the companies they like and the companies that are successful. I think it's a really interesting model and actually got some unique insights into the strategy she uses, which I think will help me in my own experience as an angel investors. I really enjoyed it when Elizabeth was talking about Hussle Fun. I had a few issues with my recording at the very end of this, but hopefully the editing cleaned it all up so you'll get pretty much a hundred percent of the interview and I just want to thank Elizabeth for sharing her time and sharing her story. I think this is really exciting and you're going to enjoy it. Once again, before I hit the play button on that interview with Elizabeth, I'm going to mention my own company, which is called Inbox donecom. It's a email management service for basically entrepreneurs or small teams where you need someone to manage customer service, whether that means handling your email or your support tickets. We also do social media inboxes a predominantly we are stepping into entrepreneurs inbox is and taking away that task from you. So we handle your email, we apply to your messages, we build a system, we build a knowledge base and we take off your plate as much of that email as we can. So maybe there's only five percent or ten percent of the messages that only you can deal with. The eighty nine percent, ninety five percent, is handled by us, the inbox managers we assigned to you. If that sounds like something you would benefit from, head to Inbox Donecom and you can hear and read all about our services. All right, let's dive in now with the interview with Elizabethan. Here we go. Hello, this is...

...yarrow and welcome to another exciting podcast. Today I'm looking forward to talking to Elizabeth Yan. Elizabeth, going to say hello straight away. Thank you for joining me. Thank you for having me. So I know a bit about your background. I honestly mostly know you for your current your fund, Hustle Fund. I see you on twitter a lot. You're definitely doing something a little different there. I think. I'm not even sure we may have even had a semi pitch conversation at one point about one of my startups. I wasn't sure if it was. You are not, but we can bring that up later on. But I am justted in so many of the things you're doing. But can we just give the audience a summary of what is Hustle Fund and what might make it different from another vc firm that people are probably more used to? Certainly so, I think for Hustle Fund at a high level, our mission is to really help with essentially three things. I think you know there are a lot of hustlers, so to speak, out there a lot of great entrepreneurs in the world, but when you think about the resources they need, which is namely capital, networks and knowledge, it isn't really distributed well worldwide. The best entrepreneurs don't necessarily get those three things, and so that our mission at Hussle Fund is actually to further those three things for all entrepreneurs and then also, you know, for the very best entrepreneurs also make sure that they can have access to those resources. So we have a VC fund as part of the larger Hustle Fund Organization and the VC Fund is a precede software fund, and so we invest pre traction. That's what I mean by precede, and we invest relatively globally these days. Okay, so when you say precede and pre traction, you're talking about generally a like could be a team or a person just with an idea. They have a customer yet, maybe not even a website or an appiat they just come to you with an idea. Is that correct? Well, we like people to have done something, because anybody can have thought of an idea yesterday. Yeah, but I would say so. For most companies we invest in, they do have some semblance of a product. Now, it could be a concierge product or some sort of manual product. It could be a product that you can put together in one hour using a bunch of forms. So it doesn't necessarily need to be a product that you have spent the last three months building out. The point is we want people to have given thought to their customer development and really prioritize d risking, you know, customer acquisition. So what is the thing that you're going to do, if it's product? Well, what is the simplest product that you can put it out there to start testing or in some cases nobody has a product yet but they have a weight list, or maybe they've done some presales and there's no product. So that's kind of the stage where we play, where you are really thinking about how do you do risk, sort of all a lean start up, the customer acquisition component, and we like to see people have start to have done that. Okay, so there's definitely more than just an idea there. There's something going on behind the scenes. Now. I know, based on like the website and what I've read about you before, your typical check size is sort of that twenty fivezero dollar mark, which I am been doing some angel investing myself, and that's kind of the sort of price point. Maybe a little bit less sometimes as well, but that's the ballpark. What is the difference between, say, a Hustle Fund twenty Fivezero to a check versus an individual Angel Investor Twenty Fivezero to a check, and do they necessarily come at the same time? Like where does it fit in the chronology of a start up? Yeah, we very often invest alongside other angels. So actually I do think that a good way to look at Hustle Fund is as an angel. I think you know, from a legal perspective, our money does come in the form of a fund from other people, but I think we are very angel ask in many ways. You know, so many operator angels can be helpful with advice and network and that kind of thing. And similarly for Hustle Fund, you know we run programs like we have something called Redwood School, which is free to our portfolio and it's we bring in a number of mentors who can tactically give advice to our portfolio companies on things like outbound sales or legion or or whatever. So we do try to provide more than just money. We've also done so many introductions from a fundraising perspective to other investors to help you round up more money than the K. So we we see ourselves not just as a k check and and I would say that probably most of our entrepreneurs would say that as well, that the bigger value at are these other things. HMM, yeah, I think that might be the key difference, where an angel would potentially just here's your money, good luck. Keep me in touch where you might be stepping in and actually supporting, helping you do more introductions, you know, connections and so on. I'd love to talk more about that process, but I do want to know how the Elizabeth background connects to all of this as well. Obviously, to get into this world it usually results in someone having had an entrepreneur experience to begin with, possibly an investing experience as well. I know your background in terms of your linkedin profile. Obviously you are a Google product manager and that was sort of, I would say, super early days of Google, but certainly early days,...

...earlier enough days. I'd love to ask you a little bit about that. If it's there's a story to share there, of course. But even before that, can we go back by you born and raised in the bay area or someone else? Okay, so original bay. Did you grow up then? And maybe this is Cliche, but seeing entrepreneurship everywhere and that was something you thought you'd obviously get into. Or maybe tech might be the other you know, not necessary as an entrepreneur founder, but certainly working for a tech companies. That what everyone in the bay who grows up there thinks about. Or is there other options in the bay? Yeah, for sure, I think definitely. Time in place has had a huge influence on my life. My parents were not in tech and they were not entrepreneurs. So you know where I got my influence on that was definitely in growing up here. In fact, actually, something very distinct happened to me in high school. My Freshman Year of high school, my best friend Jennifer asked me if I wanted to help her cousin, Tony, with his start up during winter break, you know, just helping them do little things here and there, and I didn't have anything going on and so I said okay, sure, and so we took the caltrain up to San Francisco, we went to his office and that was where I got my first taste of what a startup was. It was like Tony and all of his friends and they were kind of doing all these things and they could eat all the pizza they wanted in the world and it was the dream. And so that's when I knew that I wanted to start a company. And this was in one thousand nine hundred and ninety six, so the start of the rise of thecom boom around here. Now I never even thought very deeply about how do startups make money? How does this all work? But two years later that, you know, afore mentioned Tony Actually ended up selling his company to Microsoft for hundreds of millions of dollars. So he was quite successful and many of you may actually better know him as the late Tony Shay, who was the CEO of Zapp. So I was very fortunate, very early on in life to be able to, I don't know, run into somebody who would become sort of a lifelong mentor or at least up until last year. So you know, things like that had a big impact on on my life and he would later have a big impact on my startup career as well. Continued from that and his cousin actually was my cofounder at launch. Bit. Oh, I didn't know that. Well, yeah, Tony's had a lot of influence. I've spoken to another entrepreneurs who seemed to have connected with them at some point. Maybe just for the sake of connecting the dots with Tony in your early life, what did you take away from him as a founder like, because that would have potentially influenced how you saw yourself becoming a founder as well, with a certain traits or attitudes or anything work ethic that you took away from seeing what he did and how he did it? Well, I think, like many entrepreneurs, Tony certainly worked really hard, but I think there are a couple of things that he did differently from many people. So one is he really thought outside of the box. Like you know, I think a lot of entrepreneurs think outside of the box because that's kind of what you have to do almost by definition to be an entrepreneur, to be scrappy and make things work. But you know, he was very early in, for example, geography like and what I mean by that is, you know, Zappos was in San Francisco and he quickly realized well, from a business perspective, this makes no sense. I can't afford to hire people for customer service here and there are much better people, talentwise, who do customer service elsewhere. So who's very early in deciding to move the whole company to Henderson in Nevada, near Las Vegas, and I think that's just a decision that most people would not have made at that point in time. Like this is twenty years ago when he made that decision, and only now are people starting to say that you can build a big company outside of Silicon Valley, and so you know, that's sort of, I think, one example of many. Like he later made a second decision in a similar vein for Zappo's in deciding to move the company to downtown Las Vegas, a lot of people thought he was crazy, whereas like you already have something that is working in Henderson and at the time downtown Las Vegas was just honestly really unsafe and had a lot to be desired. So people will just thought he was nuts. But I think even fast forward now, if anybody has been to downtown Las Vegas in the last couple of years, people will see actually it's he's really changed the place quite a bit and you know, I think it's pretty incredible his ability to kind of, you know, see through some of what other people might consider nutty. HMM. He's definitely made a mark on Vegas. I know that. In fact, the few entrepreneurs I've heard connected with Tony seemed to be connected with Vegas as well, so there's definitely a link there. Could you take us far with your own story? So you meet Tony, you see that lifestyle as a startup founder. You see the potential beigegs that as well, and no doubt that's exciting. You have his cousin as a potential cofounder and it was the late s. So that was a crazy time. I started my first website in that time frame, obviously, because everything was going on at that time. What...

...were you thinking in terms of your first business or your first attempt at doing a start up? Well, so, because that was very inspiring. Actually, Jennifer and I started building websites together in high school around that time after, you know, spending a couple of days with Tony and so, you know, we just built websites and sort of like an agency type of model. Not, you know, it was it was not a product business by any means, but we just worked on a lot of websites in our computer lab at school and and that's what we spend a lot of our time doing during those those years. So what happened after that? So you kind of were I guess sounds like a side hustle maybe, or an AGC business where you can make a living from it. Did that eventually turn into something else or did you just, you know, give it up when a new idea came along? Yeah, it was just sort of a little side hustle. We were still high school students, so, you know, we didn't really take that anywhere. And then it's funny because like to me, in some sense thecom bust feels like it never happened because I was so sheltered from it. You know, I graduated from high school into thousand and I went to college in late two thousand, which was when the bust happened. So I was in school for the next four years in college and you know, meanwhile all around me, literally all around me, because I was still in the bay area in college, like everything was just shutting down. You would see headlines in the paper saying any it jobs are going to India and you know, the Internet is dead and all this other stuff which obviously all of us find laughable today. But I was sheltered during that whole period of time. When I emerged from college and graduating two thousand and four, I wouldn't say that everything had come back, but the tech economy had started recovering at least. What did you study a college? I studied electrical engineering. Okay, so you graduate. What was the plan upon graduation? Well, I think, to some extent, though, you know, a big, I guess, fear was getting a job, and maybe that's a fear for everybody, but I think even more so, having gone to college during that era and part of why I studied engineering was I thought that if computer science is dead, maybe I should do something that's a little bit more flexible or broad. But, as it would turn out, actually through a sort of meandering path, I ended up getting a job actually in Tokyo, and I did I guess you could call it sales or marketing engineering out there after graduation. Okay, so a bit of a travel experience as well and that I be a lot of fun. How long we in Tokyo before? I was in Tokyo for about a year. So actually the way that this came about was just also very unexpected. I actually originally thought, Oh, maybe I might like to go to business school right after graduation, and so I wanted to see a couple of campus is in Boston, but I didn't really have the money to pay for, you know, a trip to go out to Boston. So I entered this contest and the prize for the contest was free plane tickets to go to their conference in Boston. Anyway, I won this contest and so I got, you know, a free flight to Boston, but in order to get my reimbursement, I needed to go to this conference, which had a large job fare, and this job fare was not just any job. There was a job fair for the it was the largest job there for jobs in Japan and, until them, Boston every year. Okay, to not know that. Yeah, and if getting a job on the spot, I didn't get into any business goal, and so that's how I ended up there. So you could say that I wasn't really looking to take this job per se, but it was certainly an adventure for about a year. Okay. Now when does Google come into this? Because I were hitting close to the years you worked at Google. So did you come back from Japan and then looked for another job, or you still working in the same company? Well, so then the thing about that job is that I wasn't really qualified to that job either. So I got there in October and pretty much by the end of October or early November, they pulled me aside and pretty much fired me. They said, you know, this isn't working out. Your Japanese is not that good and so you're going to have to leave. And so they said you can stick around for about a year. You know, we can kind of put you in the back and you can, you know, do some power point presentations for our don't want to talk customers it. So That's how my job ended up. So I needed to find something else, and so I reapplied to business school that fall. I submitted the same essays and and letters of recommendation and test scores and everything, because I had no time to Redo anything. And this time I did get in. So I did. I went to business school for a couple of years and then after that took a job at Google. Okay, tell me about Google. Life changing experience, really boring? Somewhere in the middle it was alike. Google had amazing people and maybe they still have amazing people to this day. I think they hired when I was there incredibly well. The Bar was so...

...high. Everybody was very sharp. I thought quite highly of my colleagues and obviously the environment has a lot of perks as well, like the food, at least back then, was amazing. But I felt like even back then, and this was in two thousand and seven, it was quite big already as a company. I think there were over Twentyzero people who work there at that time and even bigger still today. But I think you know, back then I just felt like wow, this is this is really big. I am not sure this is really quite the right environment for me. And so I left because I wanted to start my own company, which is almost the opposite of a really big company, to start your own company by yourself. And I decided to leave in late two thousand and eight. And so, from a timing perspective, I had thought, okay, I'm going to turn in my resignation in a couple couple of weeks, and next thing I know, you retech, crunch, and there's this this this article, rest in peace, good times, where sequoya essentially sent out this email to all of their, I don't know, founders or somebody, saying we're going to batten down the hatches, we're not investing in new companies and all of that, and I paused and thought for a moment maybe I shouldn't do this startup thing, maybe I should wait it out. But then I thought if I waited out, what sign am I looking for? Like, what am I waiting for? So I decided to take the plunge and leave. At the time, you thinking you need investment, I can understand. Obviously, like you said, se coils, battened down the hatches and and I do remember that actually going out and a lot of news around though, the lack of capital at the time. But you had have the experience maybe obviously it was your teenage years, but running a company that I'm assuming your agency, did not need investment capital, right, so you knew it's possible to start aside hustle that maybe could turn into a venture back company down the track. But we sort of thinking from the beginning, no, no, I want to do you know, day one. Fine investors and girl like that. So this is a great question because I think I'm reflecting back. I didn't really understand what venture capital was. I also didn't understand who should raise it and what for and why and what timing and all. I didn't understand any of that. But you know, I think that ethos around here is, Oh, that's what you should do. So I think that's kind of how I got, you know, in that train of thought. But I mean I think I was actually just not able to raise any capital for those first couple of years, and it was a good thing because I also had no idea what I was doing either, and I actually had saved up a fair bit of money in preparation to do this. Like I was working in Google and pretty much saving everything, and because I'm from the bay area, this may be a really privilege, but I just crashed with my parents that whole time. So I wasn't spending any money that I was making a google, except for maybe on taxes, right, because I was just at home eating Google's food. I bike two works. I didn't even have a car. Okay, I didn't have any expenses really, so I was in good shape. But I think the venture capital story is just very confusing. HMM. It is interesting, given what you do today, no doubt advising a certain you know, early stage companies, should they take investment or not. You kind of went through it a little bit. Yeah, I can imagine, though, you would have been your own kind of capital source, obviously saving so much money from Google with almost no expenses. So that's amazing. What is the idea that? What were you thinking and how did you come up with the idea for this, this business that you worked on for two years, it sounds like, without financial backing, but did you have a cofound or anything like that? So I had a lot of meandering ideas and that was, I think, problem number one. Like I just knew I wanted to be in business for myself. There wasn't a particular problem I was trying to solve and I think in retrospect people should really have a problem they want to solve or an audience that they want to solve for, certainly before they try to raise any venture money. been so we had a lot of different things at this time. I was working with a friend from school, not Jennifer, but somebody else, and, you know, we had to grow a code browsing tool like to you could shop with somebody else, and we had all these other, you know, side project things. So it was not very buttoned up. There were a lot of explorations and a lot of learnings at this point in time. Okay, and the end result, I'm assuming, eventually, was launch bit. Is that right? That was a lot later. And so anyway, that K gunder decided that he didn't want to do startups, so he left. Okay, and then later at some point I arm twisted my friend Jennifer into hey, you know, you're finishing up Grad School, why don't we work on a company together? And we, you know, just ended up actually building out an ad network. So there were just like a lot of side projects in there with different people and different angles, and at some point we were even doing, like you know, affiliate marketing, selling all kinds of other stuff. Okay, well, we probably were in possibly crossing path digitally at that time, because that's what I was doing, affiliate marketing, blogging, Early Day podcasting as well, and I think this is funny too, I actually had an idea for an ad network at the time which was kind of similar to what bicell ads ended up being,...

...the company that acquired your company. We had todd on the podcast many years ago. I think four years ago. I had taught on the show. I'm not sure if he was the person you yep, you did work with. Okay, let's hear more about that. Okay, awesome, but so tell me a little bit more about so what is launch bit and is it like that? You said you have an ad network. Is that kind of like the genesis of what became launch pit? So at some point, after all of this floundering, Eric Rease wrote a blog article that I really feel changed my life. Like if you had to pick out pivotal points in your startup journey, meeting Tony was one. Reading Eric Grease's blog article was probably the second one, and so essentially the article was the gist of what later would become his book, Lean Start Up Putch, many people here have read. And I realized, Oh, we're doing everything all wrong or just like building out all these things, but we're not actually figuring out if people want to pay for anything or whatever, and just spending a lot of time building. And that the number one problem for most startups, or most software startups I should say, is do you have a product that people want and they're willing to pay for, like the customer acquisition piece, like, does that make sense and does it work out? And it was as funny as it sounds, because it sounds so stupid saying this out loud, but it was really an Aha moment for me because I've realized, Oh, we've been doing this all wrong, like we need to kind of change our mentality and de risk more before building anything. So I think the long and the short of it is when Jennifer and I were doing customer development on some ideas that would help marketers, we ended up actually, I guess you could say, stumbling into this add network for email because in talking with a lot of marketers. A lot of people felt like, well, it's you know, actually one of the best performing channels that we're getting is in email, taking out email sponsorships and whatnot. But there are all these challenges a, B and C, and I have to go and find these newsletters and do these negotiations and all this stuff and send the money and whatever. So That's how we actually ended up building out launch bit. It was it was kind of after you know, having lots and lots of conversations with marketers. Okay, what is that thing? Did Launch Bit do? It? Was it like a two sided market place where you would find the newsletters and they'd be the supply and then you'd have, you know, the buyers who want to place ads in these news letters? Is that kind of a rough summary? Yeah, so our first version of it was exactly that, and I guess you could say it's like the bicell ads version for emails as a channel for what they were doing with blogs. Eventually, though, we were doing I guess you could say remnant for people in your audience are familiar with ads. Like you know, sometimes when publishers cannot sell their ads lot, you'll still see ads in there. Anyway, and those backup ads are paying less. So once we had a publisher base on both sides, then we were able to also introduce remnant ads where we would pay on a cost per click basis to our publishers as well. So we had both actually okay. So was this the first kind of like you said, you'd studied Air Grease's sort of initial article about the lean methodology and having an MVP, and that's sort of customer centric or, and I mean getting a sale, you know, making some money centric form of a start up. It is funny you say that, because I can think back to my own thought process as an entrepreneur and I think you get a bit distorted sometimes. If you're reading a lot of press about venture back companies, you start to think that you don't need a customer. That's not your goal. It's really just about having an idea, getting some backers and then growing. Not sure what you're growing. It might just be your team, but you know you're working on something which isn't necessarily generating revenue by actually making sales. So was that kind of how you just explain that initial version of an ad network? Was that that first time you really built I guess, a company that actually had customers and your proving idea. Basically, besides the agency, I realize the agency you would have had to have a customers more or less. And I think the additional thing I would add here is we started getting customers from day one without building anything. So we didn't have a website in the beginning, we didn't have payments. We were literally manually brokering, like an agency, add placements in publishers. So we would go to our marketer friends and acquaintances and say, Hey, do you want to buy ads in these publications? It's this price, etcetera. People would send us their copy and email. They paypaled me money to my personal paypal account. That's how we tested the initial version. So it was very Janky, but it worked and we started making money that way, and then we started building out things once we hit bottlenecks. So, for example, it's point people said, I'm getting really frustrated and annoyed by having to send you all this copy. You know, it's just really annoying for the formatting and whatever. So that's when we started building out interfaces. And so at...

...first it was okay, here's a form you can upload your copy here. Okay, now we have payments. You don't have to pay pal, they money anymore. And so we just started adding things from a tech or product perspective once we knew that that was what we needed to build in fact. So our initial version was very much like a two side of market place with set pricing, but eventually we had dynamic pricing on a cost per click model. And you know with an auction even and and building out a full fledged add auction is is complex and Google has a lot of people spending many hours working on this right so there are many variations you can do on that. We didn't want to build anything on day one if we were going to have to scrap it. So on day one, when we're testing our CPC model, we had a form and it had an input box for people's bids. But when you bid, nothing actually really happened. Like it would just send us an email saying, oh, yarrow has sent us this bid of a dollar per click, and my cofounder would then based on the bid manually on her notepad, just like readjust the number of impressions you would get in the back like on the back end. And so it was annoying when marketers would change their clicks or their CPC bids like every few hours, like I'm not getting in the dollar anymore, I want to bid like five dollars or whatever. Yeah, but that's how we tested it and then we decide to go whole hog on that once we notice actually marketers really like that interesting. So it sounds very manual, obviously what you're doing there. I mean the front interface looks like a Sass, but it's really not. And the bigger you get that's just not going to be sustainable, obviously right. So I'm trying to visualize too good. This is a dynamic marketplace, so you have to actually deliver the AD at some point as well, and then there's like a costper click basis. You have to then go back and figure out how many clicks we're actually generated from the it's not like a lot of manual paperwork. Can you fast forward? How does that turn into an actual SASS? I guess my question in terms of a company. Yeah, well, I mean I think with sort of running with this philosophy of our, at first you d risk manually and then you start building out. So once we figured out marketers really like the costper click model, and here's why. I mean I think it's very intuitive. But when we were charging a flat fee, let's say, you know, to get into arrows network or publication, a couple of things happen. One, the pricing doesn't work for everybody. It only works for some advertisers and sometimes you get those advertisers and sometimes you don't. And the other thing is people start to skirt you right in a marketplace model. So now that it's much better to go directly to you with your pricing if you know, Oh, this is where I want to be, and so to kind of solve for these two problems, then cost per click works better to fill the extra remnant like you, as a publisher, still want to get the flat feet because that's premium pricing. But usually if you can't fill it, like there's literally nobody who wants to buy it, it's a waste of your adslot, unless you're running your own ads in parallel. So we can fill it for you at these high CPC's and based on how much people bid and then based on the engagement of the bids, we can optimize that revenue for you. And so that's why that works and that's why facebook and Google and all have a CPC model, because it's more efficient for everyone when you can't get sort of those premium advertisers. So we were able to quickly validate that. And then so we just started building out, you know, the components to reduce friction. Again. So initially it was all right, let's build out tracking. That was the first thing, because we need a tracking for all of them in order to charge advertisers, right, like you got fifty one clicks and this is what you did, so here's your bill. And once we did that, we also needed to, you know, make sure that we are tracking engagement. So that way we were also optimizing who actually is the best add so just because you bid a thousand dollars per click, if you get no clicks, that's not helpful versus somebody who may bid only fifty cents per click, but if everybody's clicking, that might be way more money, right. So we had to start figuring out, okay, how to optimize for engagement, to maximize revenue, and so all these things we started just building them as they came, in the order of what was most necessary and what sort of a nice to have. Okay, and is this the time when you you actually get investors for the company? Yeah, so we got investors. So we went through the five hundred startups accelerator program and we got investors more or less right after Demo Day. With the original version of the AD network. We had already started making money just by collecting manual payments through my paypal account, and that was on the flat feed model, and that was enough to get you in a five startups and then you went from there. Now you actually became partner five hundred startups too. Is that sort of the introduction to that world for you, as well as initially as a participant? Yeah, so, later I did, but that is how I got to know them, actually by being a company that went through one of their earliest batches. Okay, so take us through that. So you participate in five hundred startups, complete the program, you get their initial backing, but you also go through a Pitch Day as part of...

...the five hundred startups process. You Pitch, then you follow up with potential investors and hopefully you get your seed round out of that. Is Everything I'm saying. What happened with you guys, with launch? It's right, Yep, okay. So you exit it, you get your funding, you build a team, I'm guessing as well, and then you're trying to like systematize and you software to take these manual process as in Turr, into an actual assass. I'm assuming you were the first engineer, is that right for the company. Yeah, so what ended up happening was my business partner, or my cofounder, Jennifer, who is also a technical we decided we would divide and conquer, so she built out product and I went and sold at okay, oh Ye's even use your engineering size so much. And that one take us through with launch bit to the point where it actually getting to the acquisition, the sale of the company. was that a situation where you are looking for that or someone knocked at your door or you're actually looking to, you know, raise more capital that sometimes can initiate an acquisition as well. What was the timeline for that? Yeah, I guess kind of all of the above. So one, because we had been in this space. Obviously it attracted sort of the attention of some of the other AD networks, including by cell adds. So that's actually how I got into no todd just by being in the in market whom I think you mentioned, was on your show. Should say Todd Garland is his last name, in case you're wondering how we're talking. Yeah, and founder by cell ads, and so I got to you know, got to know him over the years and then actually at some point by cell adds became a partner. So in this world, I think, just going back and explaining a little bit again, with a cost per click model, you can make extra money when there's extra ad inventory. Otherwise you don't get anything and that that space is lost right. Well, to get more of that, what ad networks often do is they often will partner with other AD networks. So it's funny. A lot of people think add networks are very competitive with each other, and to some extent there is some competition, but there's also a lot of cooperation because somebody always has space that's unfilled and so we start a partnering with them to fill their extra space and doing a revenue share that way. So that's actually how we really got to know each other, I think, even from a business perspective, through that partnership. And then fast forward a bit. So I think at this point in time, like I was trying to raise more money. Honestly, I couldn't raise really anything more, or at least not at the terms that I was hoping for. And meanwhile we had been just sort of casually discussing what something more strategic might look like with by cell ads. And so that's kind of how that the two happen more or less in parallel and we ended up being acquired by by sell ads in two thousand and fourteen. Okay, so sounds like the situation meant that you weren't looking at an acquisition where you're getting, you know, lifetime retirement money out of that transaction. But did you stay on by cell adds after that running lunch bit for a while, or or did you exit when it exited? I exit when it exited. So the way acquisitions kind of work is like people, you know, want product or team or your customer list or whatever, some permutation and depending on how strategic it is or whatever. By cell ads wanted the product. They wanted it to be as part of their family suite and they ran it for about four years and their pieces of it that are still integrated with their system today. But they didn't want us. They had, you know, better add sales people than me. And you know, they had their own processes right because they can sell ads as an additional product alongside their other ads. So they didn't need other people. And so we left. The team left, and this was actually something that we wanted. My cofounder really wanted the autonomy to be able to either start something new or do something else or whatever, and so that was something that was really important to us. So she actually put together, not for this acquisition, but all these years had put together a large Google doc to her credit, like actually spelling out every single thing you needed to do to run our business. And so we just handed that over and we had a two week period that was negotiated in there with with bicell ads, where we would be there to kind of help hand hold them in on boarding them onto this day one they read the book. They were like, okay, we've done everything just by reading these books, so we don't think we'll need you for the next you know whatever. Wow, wow, that is the fastest exit, like an actual exit egg, that I've ever heard of. I think most of the time is at least some kind of handover period, but credit to Jennifer for the best stop ever written by the sounds of things. They're so you're out. You're free. Correct me if I'm wrong. But, like I said, you didn't have retirement money. So you're still thinking what you're your next bet. What happened next? Yeah, so I really wanted to figure out, okay, what should my next business be? Like many entrepreneurs, and I think in particular, after having gone through all this, like one of the the soul searching moments for me was it's not enough for me to find a problem where you can make...

...money. I think for me I really wanted a problem that I would want to continue working on and serve that audience for the next thirty year orse, like basically that would be my last business. I didn't want to like have a business where I would sell again. So I was doing a lot of soul searching trying to figure that out. I went to mentor a five hundred startups where initially I started out there as an eire and then one thing led to the next and I was actually really fun being there, and so I actually got sucked in and the ended up running their accelerator program there for several batches and becoming a partner there. That was not the path I had intended on. I never thought about venture, never wanted to go in too venture, but it was just actually so fun and I really love their mission. So that's how I ended up there. Okay, I've always been curious when selling becomes a partner at an incubator, lass early stage bet investment firm, like five hundred startups or Yce or whatever. Partner to me infers some sense of your on the Cat table through the five hundred startups entity. Can you maybe explain whatever? I don't know what you're allowed to talk about in terms of that, but what does happen when you become a partner? Yeah, so accelerators also have their own funds, so you do get carry in those funds. Now, obviously you don't get carrying all the funds. Only you know kind of when you're there and there are just like actually vesting for startups. There is vesting, whether it's a a VC fund or an accelerator, for you know, people who stay at funds or accelerators as well. So I was there for about three years, so I had, you know, three years of besting, but best things on funds or typically like seven years. So you know, I think that unless you're with a VC fund or an accelerator for call it a decade or more, and or unless the fund really knocked it out and you're being there for one to two years, makes difference. I think in the end it's it's not actually quite the same as if you end up at a Unicorn start up and you're early and you write best for one or two years. It's not quite the same because think about it like a fund is diversified across many winners and losers to so just when to get my head around here, so help the audience too. So if you stay, let's say a five hundred startups for ten years, so you start, you become a partner and the day you become a partner that means you have a percentage ownership of the fund that is five hundred startups right, which is the fund that's paying out the hundred thousand dollars whatever it is per start up to get six or seven percent to whatever it is through the accelerator program and then any follow on investment that might happen as new rounds are raised. I don't know how far by when the startups goes, but at a bare minute when you're in with that initial you know, six percent, then sometimes seven, eight, nine, years later, as those few winners start exiting, the Fund is returned, the carry is returned and then you have a percentage of whatever that is as a partner based on the time frame. Viewer, a partner in the fund. Does that kind of summarize it right? Yeah, so if we walk through this rety quickly and concretely, let's say you have a ten million dollar fund and let's say in ten years, let's just say for easy numbers, the Fund is a x fund, so meaning it returns twenty million in total. So what happens first is the investors in the fund get their money back, the ten million, and then the ten million of profit is usually shared with an eighty percent twenty percent model, meaning the investors get eighty percent and the managers of the Fund get twenty percent. So in this case, with this scenario, there would be start two million, two million left for the team, the managing team, and then on top of that there's a percentage of how it's divided up amongst the team. And so let's say that you are ten percent owner on that, then you get two hundred thousand. But that is also subject to vesting, how long you have vested for. So if you've only invested half the time now you're talking about, you get a hundred thousand. Okay, you can see that this starts to shrink more and more. Most of it goes to the investors of the Fund, which I think rightly it should be. But I think even amongst the team, you know there you get some percentage and then, depending on how much you'vested, a percentage of that. Yeah, it really requires some UNICORNS and some big results for you to even get a reasonable outcome, since it's so many slices of the pie happening there. Okay, so take us forward. Your exit, your partnership from five hundred start ups. Is that what connects you to Hustle Fun what you do today? Yeah, so I left in two thousand and seventeen, if I've under startups. A number of things happened there, but I think in parallel I was also starting to think about starting my own fund and in particular, you know, I think I love the five hundred startups ethos. It's actually very similar to what we believe at Hustle Fund as well, which is, you know,...

...they were investing globally in all kinds of founders working in all kinds of things like they. You know, they very much, I would say, were some at the forefront of, you know, this idea that entrepreneurs can come from anywhere and can look like anyone, and that's very much what we believe at Hustle Fund as well. But I think one of the things that I really wanted to do is I want to invest quite early. So that may sound funny because you may say, well, they were an accelerator, weren't they? Quite early, and I think at that time actually in two thousand and seventeen or thereabouts, a lot of accelerators, not just five hundred, but also why see and text oars, a lot of companies going into these programs had a fair bit of traction. It was not uncommon for a company to have already gotten to about tenzero dollars per month in revenue at any of these programs, at any of the top program and this makes sense because as these programs had developed a brand, they would attract great companies, including companies that were not only great but alls had great traction. And and so if you could pick companies like a lot of them, picked later stage companies. Well, I really wanted to be able to solve up for precede is what I call it, companies that didn't have any traction back that was cut more or less the kind of company we had at launch bed. We had, we wanted to five hundred startups with very, very limited revenue and I felt like there were sort of this huge gap and others had noticed it as well, like, I think somebody whom I consider to be both a mentor and a peer of mine is Charles Hudson, who runs a preset fund called precursor, and he had just gotten into the market, or around that time, before I took the leap, and I thought that was really clever. There was just this dirt here where people were stuck, entrepreneurs were stuck, and all these firms that had made a name by, you know, investing in Napkin based ideas had vacated the space. Like felicious used to invest that early. Now I would say they're squarely a series a fund, so once you get success, you vacate the earliest stages. So at that point in time in the market, I would say there were there was kind of more or less nobody in Charles was just getting started. Okay, so, to make this make sense to everyone, obviously there's a need for funding for early stage, at that early, early stage, before they have necessarily got traction. But what's the reason for you to do that? Because correct me if I'm wrong, that's possibly the single riskiest time to make an investment because it's completely unproven. You're probably basing it on the founders, which you know. Early stage is album was based on the founders. But at least with traction you can see that they're getting somewhere. And I know a lot of people who have great ideas, who might be researching doing things, but at the end of the day they never even start a company out of it. So why do this and what's in it for you as a as a firm? That's a great question. So there are a couple of things I noticed while at five hundred startups, which is why I thought that this is even a good idea, because many people thought this is a horrible idea, like why would you want to invest in companies without any revenue traction? So one is I noticed that companies with traction at the seed stage it didn't necessarily mean that they had product market fit or even were on their way to product market fit. Just because you have one customer who's paying you a lot, it doesn't mean that it's repeatable. Or just because you were able to get these other people in an agency like way, which may be fine in the beginning, it doesn't mean it's repeatable. And yet I think for most VC firms, in some sense they were paying up in valuation for that traction and, especially since we were starting to see pressure on seed, valuations rising. But on the flip side, at that time precede actually, you know, pretty much had no investors at that time and so valuations were actually quite low. Now, obviously the world has changed a little bit today, but valuations were quite low. But to me the risk is actually the same between precede and seed, namely they both have the same risk of there's no product market fit and it's unclear if there is going to be product market fit. So if the risk is the same, because I would argue that product market fit is the number one most important risk that everyone needs to consider. It's actually not execution or founder risk, it is product market fit risk, which is a lot of lock us to whether you stumble into an idea that actually can get product market fit, then then I would much rather take the earlier company, which is, you know, could have a valuation of two to three x lower. Or, put another way, your multiple, if it goes well, could be two to three x higher. So it is in some sense easier to get the economics to work out. You're taking the same level of risk for a higher potential multiple. So that's what I saw. And then the second thing is in running the accelerator, we felt like we had a model that could also help with this, and this very much goes to what we're working on at Huscle Fund, which is we we actually try to make a decision within forty eight hours of speaking with an entrepreneur for Twenty K, and that...

...allows us to get capital in their entrepreneurs can start raising we start helping them raise more money, etc. But it allows us to start working with the entrepreneurs and in some cases, where it's a good fit both ways, we may decide to invest more money, and this is something that we learned kind of from the accelerator. Five hundred starts, which is I realized I didn't learn very much about companies and hearing them pitch me but once they came into the program and we could start to work with each other and interact with each other, I learned a lot and so to me actually, I felt like that that is a lot more informative than then hearing somebody pitch, and it's also more informative for the startup, like they know who they're getting. So for K decision it's easy on both sides, like whether to get that deal done or not. HMM, that's really interesting. Like you're almost doing a prequalification investment at K fast. So then you can then do that sort of quality time with them to really see if they're worth further investment. And throughout this process you're getting in at the lowest likely valuation they will have. Can you clarify? I know you said like obviously valuations right now, as we are talking, are definitely a lot higher than what they have been. I know I'm part of like a couple of syndicates, tasty Calcannis and Arlin Hamilton and a few others, an angel list. Just three years it's gone from three million dollar raised to a nine million dollar rays at that first sort of valuation that I'm putting in. What do you experiencing with like what are you putting in now? When you put in that initial twenty five k? What's the valuation? Yeah, we're actually still staying quite disciplined around valuation, but people always asking me, well, what numbers are we talking about? I think it varies a lot on geography, but I would say our median tends to be between, call it, three and six million post money, but we've also done deals on either end of that. So the bulk are probably in there. But that being said, I think we actually ran the numbers with our applicant pool in terms of what valuation people are asking for and and it's very bifurcated. What we found is for a lot of the hottest deals they are getting these higher valuations than in two thousand and twenty and then they are also closing faster and raising more money. But that being said, it's not everybody. There are still a lot of companies that really struggle to get funding, and so so there is a much larger range this year than what we saw last year, at least in our Daya interesting so sort of last five minutes here. I know you got to run off. What is the criteria like? If there's a listener here is thinking. You know what I would like to pitch to so fun? What would be? What would be the best presentation to do for you? Their best foot forward in terms of qualifying, because I know we're kind of alluding to it here, but we're not. Like you just said, you said the greatest risk is product market fit risk. That's hard to demo. It's impossible to demonstrate before you've had any customers. Right. So how how do we impress you at Hustle Fun? Yeah, so actually, I think very similar to how we de rist launch bit. That actually is the most impressive to me, having had a lot of other flounderings before, which is, you know, can you get people on a weight list even if you have no product? Can you pre sell? That's even stronger. We've had some companies have no product but they pre sold already. Or can you start to sell well, concierging a product? So maybe you don't have like, like I said, you know, our manual form fields something like that. Can you do that for Your Business and start attracting interest or start actually been generating sales? So that's the kind of scrappy thinking that we are looking for, like people who are very focused on the fact that one I know I need to d risk whether this is really actually a problem that people are willing to pay for. So what are the things I can do to focus on that? That's kind of the line of thinking and to you know, what are the small experiments I can start to do, whether their little add tests or, you know, have a little event and get people to sign up or whatever. What are those things that you're doing? Okay, interesting. So it's kind of like, are you action orientated? You're doing things to at least experiment. Not Necessary talking about just having an agency client so you can show that you're doing five, tenzero a month. You're actually looking to scale users through action, but not necessary financial yet. So that's that's an interesting inside last couple of minutes, Elizabeth. What is the future here? Where do you hope, because I know it's kind of early days. You said it's like a seven year sort of typical life cycle. You're getting in super early, so that really might push to ten years. With a lot of your investments. You started in August two thousand and seventeen. If I'm reading your linkedin right, that means you're only a kind of like your for at best, with your first view. Where does this go? No, where. What's happening next? Yeah, so for the broader Hustle Fun Organization, as I, you know, started mentioning at the beginning of this we have plans to you know, change,...

I think, how start a ecosystems work along those three things capital, knowledge and a networks. And so we continue to launch other funds that are unrelated to the VC Fund and run by other people, to be clear, and other programs there can, you know, push things along with those things. So, for example, we launched Angel Squad earlier this year. My colleague Brian Nichols launched it, ran it, or runs it I should say, and he, you know, manages that. And that is a program for aspiring angel investors who don't know anything and may not have a lot of capital. Our minimums or a thousand dollar investments, and it allows them to learn more about angel investing, also allows them to invest alongside us, etcetera, and to introduce more capital into start up ecosystem so we're trying to attack this problem from many different angles and the VC fund is is one and that's the one that I'm focused on. But for the broader Org. You'll see a lot coming out from us. Okay, so it sounds like it's about reaching as many people as or quality people around the world who are entrepreneurs as you can and supporting them as best you can. Definitely okay. So website addresses Elizabeth Wick. Where do you want to send people? Yeah, if people want to apply, they can just go to Hustle Fund Nott VC. We do actually read every application and get back to people. Fifteen percent of our portfolio companies actually came in completely cold just from there. So that's one place and then, I think the other is just on twitter. We publish a lot of content, tactical content on variety different aspects of building your business, mostly focused around fundraising and tactical custom acquisition. Okay, thank you for sharing the time. Thank you. I hope you enjoyed that interview with Elizabeth Yan. I found her story interesting and especially found what she's doing in Hustle Fund compelling. I loved hearing that strategy, that unique angle they look for in terms of pre revenue companies that they invest in. As an angel investor myself, I'm generally looking for companies that have some traction at least you know, tenzero a month as a kind of starting point. So to hear how she chooses companies that have no traction yet was actually quite eye opening for me. So I might even consider adjusting my own strategy a little bit and look for some of the characteristics she talked about in the companies they put money in as a way to sort of pre qualify and get that first introduction, that first experience with the founders and their idea and what they're doing. But yeah, great to hear from Elizabeth. I hope you enjoyed the story as much as I did. Going to leave this with the usual request. If you have yet to subscribe to best the capital, you should do so because you're going to get more interviews like this. I've got more start up interviews coming up. I've got more interviews with people like Elizabeth who are both entrepreneurs, but now in the world of investment capital, whether it's through angel investing or venture investing or both. I've also got interviews with some people doing amazing things in real estate poker. Great, great interviews coming up that I'm excited to share with you. So to make sure you do not miss out on any of those interviews. You have to subscribe. Open up whatever APP you're currently using. Maybe you're listening to this right now on an APP, and click the plus button or the subscribe button or the Follow Button, whatever is the relevant button in that APP for you, and you'll then make sure you get all my episodes as I release them. You also get to see all the back catalog of amazing interviews that you can dive into whenever you need some new inspiration or ideas or just entertainment while you're traveling or exercising or doing what you do with your life. Also, if you found this particular episode relevant, perhaps something you're doing, or maybe there's a friend or potential business partner. Hey, maybe you just want someone who might need to pitch to someone like Elizabeth to hear this story. Please share the podcast with them. Send them to vested capital, episode Number Eight. I've got so many domain names for this. You can go to vested capital podcastcom. You can go to yarrow dot VC. That's Yarrow Dot VC, vested capital or venture capitalist, depends how you want to see it. Both those two redirect to my podcast home page all my blog, where all the episodes are there, or just tell your friend to go to their podcast APP and do a search for vested capital or my name, Yarrow. Why A er? Oh, and my show should show up and they can look for episode number eight with Elizabeth Yan. Okay, that's it. My name is yarrow and I will speak to you on the next episode.

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