Vested Capital
Vested Capital

Episode 8 · 6 months 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 welcometo vested capital, episode Number Eight, featuring my guests Elizabeth Yin, thegeneral partner at Hustle Fund. Vested capital is a podcast about how people makemoney, build capital and then put their capital to work. I interview startup 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'spodcast we're going to go back in time with Elizabeth as she shares her earlyentrepreneur story, which includes getting started in San Francisco with a side Hustle Agencybusiness with a friend of hers, which then connected her with a very famousTony, who recently passed away. You might know who that is just fromthat little bit of clue, but she was by chance connected with him andactually spent a few days in his startup, which was eventually sold for several hundredmillions dollars, and that was an influential experience for Elizabeth to see whatthe startup life was like. We then go forward with Elizabeth story as shestarts 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 byby sell adscom back in two thousand and fourteen. Interesting enough, the bicellads founder, Todd Garland, was actually on my podcast. I'm going toresurface 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 endedup actually becoming involved with five hundred startups, which is an accelerator. You mighthave heard of it, kind of an incubator accelerator. They put somemoney into startups in return for a small amount of capital and they also putthem through an accelerator program which at the end they do a pitch with thegoal 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 thatactually was her doorway to become a venture capitalists. So that experience led herto work with five hundred startups and then rise to the point where she becamea partner for several years there, which means she was actually one of thepeople who was partaking in the vesting capital part. So basically the investments thatfive hundred startups did in companies, Elizabeth had a share of that investment bythe nature of her role as a partner. I let her explain how that allworks if you're new to this. But the most important thing that experienceled her to then start her own fund called Hustle Fund, which he's currentlyin charge of as the general partner. She's been doing that since two thousandand seventeen, and Elizabeth goes into detail of what Hustle Fund is how it'sdifferent from other venture capital firms. It's very early stage and probably the mostearly stage venture capital firm I've actually ever heard of their pre revenue. Sothey invest in companies before those companies even have money coming in. And sheexplains her philosophy and strategy around why they do that and what they instead lookfor in a company they invest in. So if you've ever thought about raisingfunds, 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 theyactually look for. So if you want to ever pitch to them. You'llhear Elizabeth explain you know what's a checklist of what you need to make thata positive outcome for yourself. They generally put in a small check about twentyFIVEZERO dollars investment initially, but they go in more to the companies they likeand the companies that are successful. I think it's a really interesting model andactually got some unique insights into the strategy she uses, which I think willhelp me in my own experience as an angel investors. I really enjoyed itwhen Elizabeth was talking about Hussle Fun. I had a few issues with myrecording at the very end of this, but hopefully the editing cleaned it allup so you'll get pretty much a hundred percent of the interview and I justwant to thank Elizabeth for sharing her time and sharing her story. I thinkthis is really exciting and you're going to enjoy it. Once again, beforeI hit the play button on that interview with Elizabeth, I'm going to mentionmy own company, which is called Inbox donecom. It's a email management servicefor 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 socialmedia inboxes a predominantly we are stepping into entrepreneurs inbox is and taking away thattask from you. So we handle your email, we apply to your messages, we build a system, we build a knowledge base and we take offyour plate as much of that email as we can. So maybe there's onlyfive 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 inboxmanagers we assigned to you. If that sounds like something you would benefitfrom, head to Inbox Donecom and you can hear and read all about ourservices. 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 tosay hello straight away. Thank you for joining me. Thank you for havingme. So I know a bit about your background. I honestly mostly knowyou for your current your fund, Hustle Fund. I see you on twittera 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 onepoint about one of my startups. I wasn't sure if it was. Youare not, but we can bring that up later on. But I amjustted in so many of the things you're doing. But can we just givethe audience a summary of what is Hustle Fund and what might make it differentfrom 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 reallyhelp with essentially three things. I think you know there are a lot ofhustlers, so to speak, out there a lot of great entrepreneurs in theworld, but when you think about the resources they need, which is namelycapital, networks and knowledge, it isn't really distributed well worldwide. The bestentrepreneurs don't necessarily get those three things, and so that our mission at HussleFund 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 haveaccess to those resources. So we have a VC fund as part of thelarger Hustle Fund Organization and the VC Fund is a precede software fund, andso we invest pre traction. That's what I mean by precede, and weinvest relatively globally these days. Okay, so when you say precede and pretraction, you're talking about generally a like could be a team or a personjust with an idea. They have a customer yet, maybe not even awebsite or an appiat they just come to you with an idea. Is thatcorrect? Well, we like people to have done something, because anybody canhave thought of an idea yesterday. Yeah, but I would say so. Formost 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 usinga bunch of forms. So it doesn't necessarily need to be a product thatyou have spent the last three months building out. The point is we wantpeople 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 todo, if it's product? Well, what is the simplest product that youcan put it out there to start testing or in some cases nobody has aproduct yet but they have a weight list, or maybe they've done some presales andthere'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 alla lean start up, the customer acquisition component, and we like to seepeople have start to have done that. Okay, so there's definitely more thanjust 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, whichI am been doing some angel investing myself, and that's kind of the sort ofprice point. Maybe a little bit less sometimes as well, but that'sthe ballpark. What is the difference between, say, a Hustle Fund twenty Fivezeroto 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 fitin the chronology of a start up? Yeah, we very often invest alongsideother angels. So actually I do think that a good way to look atHustle Fund is as an angel. I think you know, from a legalperspective, 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 kindof thing. And similarly for Hustle Fund, you know we run programs like wehave something called Redwood School, which is free to our portfolio and it'swe bring in a number of mentors who can tactically give advice to our portfoliocompanies on things like outbound sales or legion or or whatever. So we dotry to provide more than just money. We've also done so many introductions froma fundraising perspective to other investors to help you round up more money than theK. So we we see ourselves not just as a k check and andI would say that probably most of our entrepreneurs would say that as well,that the bigger value at are these other things. HMM, yeah, Ithink that might be the key difference, where an angel would potentially just here'syour money, good luck. Keep me in touch where you might be steppingin and actually supporting, helping you do more introductions, you know, connectionsand so on. I'd love to talk more about that process, but Ido 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 hadan entrepreneur experience to begin with, possibly an investing experience as well. Iknow your background in terms of your linkedin profile. Obviously you are a Googleproduct manager and that was sort of, I would say, super early daysof Google, but certainly early days,...

...earlier enough days. I'd love toask you a little bit about that. If it's there's a story to sharethere, of course. But even before that, can we go back byyou born and raised in the bay area or someone else? Okay, sooriginal bay. Did you grow up then? And maybe this is Cliche, butseeing 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 entrepreneurfounder, but certainly working for a tech companies. That what everyone in thebay who grows up there thinks about. Or is there other options in thebay? Yeah, for sure, I think definitely. Time in place hashad a huge influence on my life. My parents were not in tech andthey were not entrepreneurs. So you know where I got my influence on thatwas definitely in growing up here. In fact, actually, something very distincthappened to me in high school. My Freshman Year of high school, mybest friend Jennifer asked me if I wanted to help her cousin, Tony,with his start up during winter break, you know, just helping them dolittle things here and there, and I didn't have anything going on and soI said okay, sure, and so we took the caltrain up to SanFrancisco, we went to his office and that was where I got my firsttaste of what a startup was. It was like Tony and all of hisfriends and they were kind of doing all these things and they could eat allthe pizza they wanted in the world and it was the dream. And sothat's when I knew that I wanted to start a company. And this wasin one thousand nine hundred and ninety six, so the start of the rise ofthecom boom around here. Now I never even thought very deeply about howdo startups make money? How does this all work? But two years laterthat, you know, afore mentioned Tony Actually ended up selling his company toMicrosoft for hundreds of millions of dollars. So he was quite successful and manyof you may actually better know him as the late Tony Shay, who wasthe CEO of Zapp. So I was very fortunate, very early on inlife to be able to, I don't know, run into somebody who wouldbecome sort of a lifelong mentor or at least up until last year. Soyou know, things like that had a big impact on on my life andhe would later have a big impact on my startup career as well. Continuedfrom that and his cousin actually was my cofounder at launch. Bit. Oh, I didn't know that. Well, yeah, Tony's had a lot ofinfluence. I've spoken to another entrepreneurs who seemed to have connected with them atsome point. Maybe just for the sake of connecting the dots with Tony inyour 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 aswell, with a certain traits or attitudes or anything work ethic that you tookaway from seeing what he did and how he did it? Well, Ithink, like many entrepreneurs, Tony certainly worked really hard, but I thinkthere are a couple of things that he did differently from many people. Soone is he really thought outside of the box. Like you know, Ithink a lot of entrepreneurs think outside of the box because that's kind of whatyou have to do almost by definition to be an entrepreneur, to be scrappyand make things work. But you know, he was very early in, forexample, geography like and what I mean by that is, you know, Zappos was in San Francisco and he quickly realized well, from a businessperspective, this makes no sense. I can't afford to hire people for customerservice 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 Hendersonin Nevada, near Las Vegas, and I think that's just a decision thatmost people would not have made at that point in time. Like this istwenty years ago when he made that decision, and only now are people starting tosay that you can build a big company outside of Silicon Valley, andso 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 indeciding to move the company to downtown Las Vegas, a lot of people thoughthe was crazy, whereas like you already have something that is working in Hendersonand at the time downtown Las Vegas was just honestly really unsafe and had alot to be desired. So people will just thought he was nuts. ButI think even fast forward now, if anybody has been to downtown Las Vegasin the last couple of years, people will see actually it's he's really changedthe place quite a bit and you know, I think it's pretty incredible his abilityto kind of, you know, see through some of what other peoplemight consider nutty. HMM. He's definitely made a mark on Vegas. Iknow that. In fact, the few entrepreneurs I've heard connected with Tony seemedto 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 aswell, and no doubt that's exciting. You have his cousin as a potentialcofounder and it was the late s. So that was a crazy time.I started my first website in that time frame, obviously, because everythingwas going on at that time. What...

...were you thinking in terms of yourfirst business or your first attempt at doing a start up? Well, so, because that was very inspiring. Actually, Jennifer and I started building websites togetherin high school around that time after, you know, spending a couple ofdays with Tony and so, you know, we just built websites andsort of like an agency type of model. Not, you know, it wasit was not a product business by any means, but we just workedon a lot of websites in our computer lab at school and and that's whatwe spend a lot of our time doing during those those years. So whathappened after that? So you kind of were I guess sounds like a sidehustle 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 wasjust 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'sfunny because like to me, in some sense thecom bust feels like it neverhappened because I was so sheltered from it. You know, I graduated from highschool into thousand and I went to college in late two thousand, whichwas when the bust happened. So I was in school for the next fouryears in college and you know, meanwhile all around me, literally all aroundme, because I was still in the bay area in college, like everythingwas just shutting down. You would see headlines in the paper saying any itjobs are going to India and you know, the Internet is dead and all thisother stuff which obviously all of us find laughable today. But I wassheltered during that whole period of time. When I emerged from college and graduatingtwo thousand and four, I wouldn't say that everything had come back, butthe tech economy had started recovering at least. What did you study a college?I studied electrical engineering. Okay, so you graduate. What was theplan upon graduation? Well, I think, to some extent, though, youknow, a big, I guess, fear was getting a job, andmaybe 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 wasI thought that if computer science is dead, maybe I should do something that's alittle bit more flexible or broad. But, as it would turn out, actually through a sort of meandering path, I ended up getting a job actuallyin Tokyo, and I did I guess you could call it sales ormarketing engineering out there after graduation. Okay, so a bit of a travel experienceas well and that I be a lot of fun. How long wein Tokyo before? I was in Tokyo for about a year. So actuallythe way that this came about was just also very unexpected. I actually originallythought, Oh, maybe I might like to go to business school right aftergraduation, 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 theprize 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, Ineeded to go to this conference, which had a large job fare, andthis job fare was not just any job. There was a job fair for theit was the largest job there for jobs in Japan and, until them, Boston every year. Okay, to not know that. Yeah, andif 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 thatI wasn't really looking to take this job per se, but it was certainlyan 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, oryou still working in the same company? Well, so then the thing aboutthat job is that I wasn't really qualified to that job either. So Igot 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, youknow, this isn't working out. Your Japanese is not that good and soyou're going to have to leave. And so they said you can stick aroundfor about a year. You know, we can kind of put you inthe back and you can, you know, do some power point presentations for ourdon'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 schoolthat fall. I submitted the same essays and and letters of recommendation andtest scores and everything, because I had no time to Redo anything. Andthis time I did get in. So I did. I went to businessschool 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 theystill have amazing people to this day. I think they hired when I wasthere 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 ofperks as well, like the food, at least back then, was amazing. But I felt like even back then, and this was in two thousand andseven, it was quite big already as a company. I think therewere 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 quitethe right environment for me. And so I left because I wanted to startmy 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 latetwo thousand and eight. And so, from a timing perspective, I hadthought, okay, I'm going to turn in my resignation in a couple coupleof weeks, and next thing I know, you retech, crunch, and there'sthis this this article, rest in peace, good times, where sequoyaessentially sent out this email to all of their, I don't know, foundersor somebody, saying we're going to batten down the hatches, we're not investingin new companies and all of that, and I paused and thought for amoment 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 lookingfor? Like, what am I waiting for? So I decided to takethe plunge and leave. At the time, you thinking you need investment, Ican understand. Obviously, like you said, se coils, battened downthe hatches and and I do remember that actually going out and a lot ofnews around though, the lack of capital at the time. But you hadhave the experience maybe obviously it was your teenage years, but running a companythat I'm assuming your agency, did not need investment capital, right, soyou knew it's possible to start aside hustle that maybe could turn into a ventureback company down the track. But we sort of thinking from the beginning,no, no, I want to do you know, day one. Fineinvestors and girl like that. So this is a great question because I thinkI'm reflecting back. I didn't really understand what venture capital was. I alsodidn't understand who should raise it and what for and why and what timing andall. I didn't understand any of that. But you know, I think thatethos around here is, Oh, that's what you should do. SoI think that's kind of how I got, you know, in that train ofthought. But I mean I think I was actually just not able toraise any capital for those first couple of years, and it was a goodthing because I also had no idea what I was doing either, and Iactually 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'mfrom the bay area, this may be a really privilege, but I justcrashed with my parents that whole time. So I wasn't spending any money thatI was making a google, except for maybe on taxes, right, becauseI was just at home eating Google's food. I bike two works. I didn'teven have a car. Okay, I didn't have any expenses really,so I was in good shape. But I think the venture capital story isjust very confusing. HMM. It is interesting, given what you do today, no doubt advising a certain you know, early stage companies, should they takeinvestment or not. You kind of went through it a little bit.Yeah, I can imagine, though, you would have been your own kindof 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 thinkingand how did you come up with the idea for this, this business thatyou worked on for two years, it sounds like, without financial backing,but did you have a cofound or anything like that? So I had alot 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'ta particular problem I was trying to solve and I think in retrospect people shouldreally have a problem they want to solve or an audience that they want tosolve for, certainly before they try to raise any venture money. been sowe had a lot of different things at this time. I was working witha friend from school, not Jennifer, but somebody else, and, youknow, we had to grow a code browsing tool like to you could shopwith somebody else, and we had all these other, you know, sideproject things. So it was not very buttoned up. There were a lotof explorations and a lot of learnings at this point in time. Okay,and the end result, I'm assuming, eventually, was launch bit. Isthat right? That was a lot later. And so anyway, that K gunderdecided 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 ona company together? And we, you know, just ended up actually buildingout an ad network. So there were just like a lot of side projectsin there with different people and different angles, and at some point we were evendoing, like you know, affiliate marketing, selling all kinds of otherstuff. Okay, well, we probably were in possibly crossing path digitally atthat time, because that's what I was doing, affiliate marketing, blogging,Early Day podcasting as well, and I think this is funny too, Iactually had an idea for an ad network at the time which was kind ofsimilar 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 yearsago. I had taught on the show. I'm not sure if he was theperson you yep, you did work with. Okay, let's hear moreabout that. Okay, awesome, but so tell me a little bit moreabout so what is launch bit and is it like that? You said youhave an ad network. Is that kind of like the genesis of what becamelaunch pit? So at some point, after all of this floundering, EricRease wrote a blog article that I really feel changed my life. Like ifyou had to pick out pivotal points in your startup journey, meeting Tony wasone. Reading Eric Grease's blog article was probably the second one, and soessentially the article was the gist of what later would become his book, LeanStart 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 oneproblem for most startups, or most software startups I should say, is doyou have a product that people want and they're willing to pay for, likethe customer acquisition piece, like, does that make sense and does it workout? And it was as funny as it sounds, because it sounds sostupid saying this out loud, but it was really an Aha moment for mebecause I've realized, Oh, we've been doing this all wrong, like weneed 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 Iwere doing customer development on some ideas that would help marketers, we ended upactually, I guess you could say, stumbling into this add network for emailbecause 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 thatwe're getting is in email, taking out email sponsorships and whatnot. But thereare all these challenges a, B and C, and I have to goand find these newsletters and do these negotiations and all this stuff and send themoney 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 lotsof conversations with marketers. Okay, what is that thing? Did Launch Bitdo? It? Was it like a two sided market place where you wouldfind 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 thatkind of a rough summary? Yeah, so our first version of it wasexactly that, and I guess you could say it's like the bicell ads versionfor 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 youraudience are familiar with ads. Like you know, sometimes when publishers cannot selltheir ads lot, you'll still see ads in there. Anyway, and thosebackup ads are paying less. So once we had a publisher base on bothsides, then we were able to also introduce remnant ads where we would payon a cost per click basis to our publishers as well. So we hadboth 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 anMVP, and that's sort of customer centric or, and I mean getting asale, you know, making some money centric form of a start up.It is funny you say that, because I can think back to my ownthought 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 tothink that you don't need a customer. That's not your goal. It's reallyjust about having an idea, getting some backers and then growing. Not surewhat you're growing. It might just be your team, but you know you'reworking on something which isn't necessarily generating revenue by actually making sales. So wasthat 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 actuallyhad customers and your proving idea. Basically, besides the agency, I realize theagency you would have had to have a customers more or less. AndI think the additional thing I would add here is we started getting customers fromday 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 andacquaintances 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 testedthe initial version. So it was very Janky, but it worked and westarted making money that way, and then we started building out things once wehit bottlenecks. So, for example, it's point people said, I'm gettingreally 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 westarted building out interfaces. And so at...

...first it was okay, here's aform you can upload your copy here. Okay, now we have payments.You don't have to pay pal, they money anymore. And so we juststarted adding things from a tech or product perspective once we knew that that waswhat we needed to build in fact. So our initial version was very muchlike a two side of market place with set pricing, but eventually we haddynamic pricing on a cost per click model. And you know with an auction evenand and building out a full fledged add auction is is complex and Googlehas a lot of people spending many hours working on this right so there aremany variations you can do on that. We didn't want to build anything onday one if we were going to have to scrap it. So on dayone, when we're testing our CPC model, we had a form and it hadan input box for people's bids. But when you bid, nothing actuallyreally happened. Like it would just send us an email saying, oh,yarrow has sent us this bid of a dollar per click, and my cofounderwould then based on the bid manually on her notepad, just like readjust thenumber 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 bidslike every few hours, like I'm not getting in the dollar anymore, Iwant to bid like five dollars or whatever. Yeah, but that's how we testedit and then we decide to go whole hog on that once we noticeactually marketers really like that interesting. So it sounds very manual, obviously whatyou're doing there. I mean the front interface looks like a Sass, butit's really not. And the bigger you get that's just not going to besustainable, obviously right. So I'm trying to visualize too good. This isa dynamic marketplace, so you have to actually deliver the AD at some pointas well, and then there's like a costper click basis. You have tothen go back and figure out how many clicks we're actually generated from the it'snot like a lot of manual paperwork. Can you fast forward? How doesthat turn into an actual SASS? I guess my question in terms of acompany. Yeah, well, I mean I think with sort of running withthis philosophy of our, at first you d risk manually and then you startbuilding 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 whenwe were charging a flat fee, let's say, you know, to getinto arrows network or publication, a couple of things happen. One, thepricing doesn't work for everybody. It only works for some advertisers and sometimes youget those advertisers and sometimes you don't. And the other thing is people startto skirt you right in a marketplace model. So now that it's much better togo directly to you with your pricing if you know, Oh, thisis where I want to be, and so to kind of solve for thesetwo problems, then cost per click works better to fill the extra remnant likeyou, as a publisher, still want to get the flat feet because that'spremium pricing. But usually if you can't fill it, like there's literally nobodywho wants to buy it, it's a waste of your adslot, unless you'rerunning your own ads in parallel. So we can fill it for you atthese high CPC's and based on how much people bid and then based on theengagement of the bids, we can optimize that revenue for you. And sothat's why that works and that's why facebook and Google and all have a CPCmodel, because it's more efficient for everyone when you can't get sort of thosepremium advertisers. So we were able to quickly validate that. And then sowe just started building out, you know, the components to reduce friction. Again. So initially it was all right, let's build out tracking. That wasthe first thing, because we need a tracking for all of them inorder to charge advertisers, right, like you got fifty one clicks and thisis 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 addso just because you bid a thousand dollars per click, if you get noclicks, 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 themas they came, in the order of what was most necessary and what sortof a nice to have. Okay, and is this the time when youyou 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 moreor 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 paypalaccount, and that was on the flat feed model, and that was enoughto get you in a five startups and then you went from there. Nowyou actually became partner five hundred startups too. Is that sort of the introduction tothat world for you, as well as initially as a participant? Yeah, so, later I did, but that is how I got to knowthem, 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 alsogo through a Pitch Day as part of...

...the five hundred startups process. YouPitch, then you follow up with potential investors and hopefully you get your seedround 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 manualprocess as in Turr, into an actual assass. I'm assuming you were thefirst engineer, is that right for the company. Yeah, so what endedup happening was my business partner, or my cofounder, Jennifer, who isalso a technical we decided we would divide and conquer, so she built outproduct and I went and sold at okay, oh Ye's even use your engineering sizeso much. And that one take us through with launch bit to thepoint where it actually getting to the acquisition, the sale of the company. wasthat a situation where you are looking for that or someone knocked at yourdoor or you're actually looking to, you know, raise more capital that sometimescan initiate an acquisition as well. What was the timeline for that? Yeah, I guess kind of all of the above. So one, because wehad been in this space. Obviously it attracted sort of the attention of someof the other AD networks, including by cell adds. So that's actually howI got into no todd just by being in the in market whom I thinkyou mentioned, was on your show. Should say Todd Garland is his lastname, in case you're wondering how we're talking. Yeah, and founder bycell ads, and so I got to you know, got to know himover 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 littlebit again, with a cost per click model, you can make extramoney when there's extra ad inventory. Otherwise you don't get anything and that thatspace is lost right. Well, to get more of that, what adnetworks often do is they often will partner with other AD networks. So it'sfunny. 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 lotof cooperation because somebody always has space that's unfilled and so we start a partneringwith 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 abit. So I think at this point in time, like I was tryingto raise more money. Honestly, I couldn't raise really anything more, orat least not at the terms that I was hoping for. And meanwhile wehad been just sort of casually discussing what something more strategic might look like withby cell ads. And so that's kind of how that the two happen moreor less in parallel and we ended up being acquired by by sell ads intwo thousand and fourteen. Okay, so sounds like the situation meant that youweren't looking at an acquisition where you're getting, you know, lifetime retirement money outof that transaction. But did you stay on by cell adds after thatrunning 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 islike people, you know, want product or team or your customer list orwhatever, some permutation and depending on how strategic it is or whatever. Bycell ads wanted the product. They wanted it to be as part of theirfamily suite and they ran it for about four years and their pieces of itthat are still integrated with their system today. But they didn't want us. Theyhad, you know, better add sales people than me. And youknow, they had their own processes right because they can sell ads as anadditional product alongside their other ads. So they didn't need other people. Andso we left. The team left, and this was actually something that wewanted. My cofounder really wanted the autonomy to be able to either start somethingnew or do something else or whatever, and so that was something that wasreally 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 ourbusiness. And so we just handed that over and we had a two weekperiod that was negotiated in there with with bicell ads, where we would bethere to kind of help hand hold them in on boarding them onto this dayone they read the book. They were like, okay, we've done everythingjust by reading these books, so we don't think we'll need you for thenext you know whatever. Wow, wow, that is the fastest exit, likean actual exit egg, that I've ever heard of. I think mostof the time is at least some kind of handover period, but credit toJennifer for the best stop ever written by the sounds of things. They're soyou're out. You're free. Correct me if I'm wrong. But, likeI said, you didn't have retirement money. So you're still thinking what you're yournext bet. What happened next? Yeah, so I really wanted tofigure out, okay, what should my next business be? Like many entrepreneurs, and I think in particular, after having gone through all this, likeone of the the soul searching moments for me was it's not enough for meto find a problem where you can make...

...money. I think for me Ireally wanted a problem that I would want to continue working on and serve thataudience for the next thirty year orse, like basically that would be my lastbusiness. 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 thereas an eire and then one thing led to the next and I was actuallyreally fun being there, and so I actually got sucked in and the endedup 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 funand 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 orwhatever. Partner to me infers some sense of your on the Cat table throughthe five hundred startups entity. Can you maybe explain whatever? I don't knowwhat you're allowed to talk about in terms of that, but what does happenwhen you become a partner? Yeah, so accelerators also have their own funds, so you do get carry in those funds. Now, obviously you don'tget carrying all the funds. Only you know kind of when you're there andthere are just like actually vesting for startups. There is vesting, whether it's aa VC fund or an accelerator, for you know, people who stayat funds or accelerators as well. So I was there for about three years, so I had, you know, three years of besting, but bestthings on funds or typically like seven years. So you know, I think thatunless you're with a VC fund or an accelerator for call it a decadeor more, and or unless the fund really knocked it out and you're beingthere for one to two years, makes difference. I think in the endit's it's not actually quite the same as if you end up at a Unicornstart 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 acrossmany 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 fivehundred startups for ten years, so you start, you become a partner andthe day you become a partner that means you have a percentage ownership of thefund that is five hundred startups right, which is the fund that's paying outthe hundred thousand dollars whatever it is per start up to get six or sevenpercent to whatever it is through the accelerator program and then any follow on investmentthat might happen as new rounds are raised. I don't know how far by whenthe startups goes, but at a bare minute when you're in with thatinitial 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 asa partner based on the time frame. Viewer, a partner in the fund. Does that kind of summarize it right? Yeah, so if we walk throughthis rety quickly and concretely, let's say you have a ten million dollarfund 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 sharedwith an eighty percent twenty percent model, meaning the investors get eighty percent andthe managers of the Fund get twenty percent. So in this case, with thisscenario, there would be start two million, two million left for theteam, the managing team, and then on top of that there's a percentageof how it's divided up amongst the team. And so let's say that you areten percent owner on that, then you get two hundred thousand. Butthat is also subject to vesting, how long you have vested for. Soif you've only invested half the time now you're talking about, you get ahundred thousand. Okay, you can see that this starts to shrink more andmore. Most of it goes to the investors of the Fund, which Ithink rightly it should be. But I think even amongst the team, youknow there you get some percentage and then, depending on how much you'vested, apercentage of that. Yeah, it really requires some UNICORNS and some bigresults for you to even get a reasonable outcome, since it's so many slicesof the pie happening there. Okay, so take us forward. Your exit, your partnership from five hundred start ups. Is that what connects you to HustleFun what you do today? Yeah, so I left in two thousand andseventeen, 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 ownfund and in particular, you know, I think I love the five hundredstartups ethos. It's actually very similar to what we believe at Hustle Fund aswell, which is, you know,...

...they were investing globally in all kindsof founders working in all kinds of things like they. You know, theyvery much, I would say, were some at the forefront of, youknow, 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. ButI think one of the things that I really wanted to do is I wantto invest quite early. So that may sound funny because you may say,well, they were an accelerator, weren't they? Quite early, and Ithink at that time actually in two thousand and seventeen or thereabouts, a lotof 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 tenzerodollars per month in revenue at any of these programs, at any of thetop 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 allshad great traction. And and so if you could pick companies like a lotof them, picked later stage companies. Well, I really wanted to beable to solve up for precede is what I call it, companies that didn'thave any traction back that was cut more or less the kind of company wehad at launch bed. We had, we wanted to five hundred startups withvery, very limited revenue and I felt like there were sort of this hugegap and others had noticed it as well, like, I think somebody whom Iconsider 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 themarket, or around that time, before I took the leap, andI thought that was really clever. There was just this dirt here where peoplewere stuck, entrepreneurs were stuck, and all these firms that had made aname 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 aseries a fund, so once you get success, you vacate the earlieststages. So at that point in time in the market, I would saythere were there was kind of more or less nobody in Charles was just gettingstarted. Okay, so, to make this make sense to everyone, obviouslythere'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 todo that? Because correct me if I'm wrong, that's possibly the single riskiesttime to make an investment because it's completely unproven. You're probably basing it onthe founders, which you know. Early stage is album was based on thefounders. 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 beresearching doing things, but at the end of the day they never even starta company out of it. So why do this and what's in it foryou as a as a firm? That's a great question. So there area couple of things I noticed while at five hundred startups, which is whyI thought that this is even a good idea, because many people thought thisis a horrible idea, like why would you want to invest in companies withoutany revenue traction? So one is I noticed that companies with traction at theseed stage it didn't necessarily mean that they had product market fit or even wereon their way to product market fit. Just because you have one customer who'spaying you a lot, it doesn't mean that it's repeatable. Or just becauseyou were able to get these other people in an agency like way, whichmay be fine in the beginning, it doesn't mean it's repeatable. And yetI think for most VC firms, in some sense they were paying up invaluation for that traction and, especially since we were starting to see pressure onseed, valuations rising. But on the flip side, at that time precedeactually, you know, pretty much had no investors at that time and sovaluations were actually quite low. Now, obviously the world has changed a littlebit today, but valuations were quite low. But to me the risk is actuallythe same between precede and seed, namely they both have the same riskof there's no product market fit and it's unclear if there is going to beproduct market fit. So if the risk is the same, because I wouldargue that product market fit is the number one most important risk that everyone needsto consider. It's actually not execution or founder risk, it is product marketfit risk, which is a lot of lock us to whether you stumble intoan idea that actually can get product market fit, then then I would muchrather take the earlier company, which is, you know, could have a valuationof two to three x lower. Or, put another way, yourmultiple, 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'swhat 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, andthis very much goes to what we're working on at Huscle Fund, which iswe we actually try to make a decision within forty eight hours of speaking withan entrepreneur for Twenty K, and that...

...allows us to get capital in theirentrepreneurs can start raising we start helping them raise more money, etc. Butit allows us to start working with the entrepreneurs and in some cases, whereit'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 hundredstarts, which is I realized I didn't learn very much about companies and hearingthem pitch me but once they came into the program and we could start towork with each other and interact with each other, I learned a lot andso to me actually, I felt like that that is a lot more informativethan 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 bothsides, like whether to get that deal done or not. HMM, that'sreally interesting. Like you're almost doing a prequalification investment at K fast. Sothen you can then do that sort of quality time with them to really seeif they're worth further investment. And throughout this process you're getting in at thelowest likely valuation they will have. Can you clarify? I know you saidlike obviously valuations right now, as we are talking, are definitely a lothigher than what they have been. I know I'm part of like a coupleof syndicates, tasty Calcannis and Arlin Hamilton and a few others, an angellist. Just three years it's gone from three million dollar raised to a ninemillion dollar rays at that first sort of valuation that I'm putting in. Whatdo you experiencing with like what are you putting in now? When you putin that initial twenty five k? What's the valuation? Yeah, we're actuallystill 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 endof 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 ofwhat valuation people are asking for and and it's very bifurcated. What we foundis for a lot of the hottest deals they are getting these higher valuations thanin two thousand and twenty and then they are also closing faster and raising moremoney. But that being said, it's not everybody. There are still alot of companies that really struggle to get funding, and so so there isa much larger range this year than what we saw last year, at leastin our Daya interesting so sort of last five minutes here. I know yougot to run off. What is the criteria like? If there's a listenerhere 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 kindof 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 howhow do we impress you at Hustle Fun? Yeah, so actually, I thinkvery similar to how we de rist launch bit. That actually is themost impressive to me, having had a lot of other flounderings before, whichis, you know, can you get people on a weight list even ifyou have no product? Can you pre sell? That's even stronger. We'vehad some companies have no product but they pre sold already. Or can youstart 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 actuallybeen generating sales? So that's the kind of scrappy thinking that we are lookingfor, like people who are very focused on the fact that one I knowI need to d risk whether this is really actually a problem that people arewilling to pay for. So what are the things I can do to focuson 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 addtests or, you know, have a little event and get people to signup 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 thingsto at least experiment. Not Necessary talking about just having an agency client soyou can show that you're doing five, tenzero a month. You're actually lookingto scale users through action, but not necessary financial yet. So that's that'san 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 gettingin super early, so that really might push to ten years. With alot of your investments. You started in August two thousand and seventeen. IfI'm reading your linkedin right, that means you're only a kind of like yourfor 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 thiswe have plans to you know, change,...

I think, how start a ecosystemswork along those three things capital, knowledge and a networks. And sowe continue to launch other funds that are unrelated to the VC Fund and runby other people, to be clear, and other programs there can, youknow, push things along with those things. So, for example, we launchedAngel Squad earlier this year. My colleague Brian Nichols launched it, ranit, or runs it I should say, and he, you know, managesthat. And that is a program for aspiring angel investors who don't knowanything and may not have a lot of capital. Our minimums or a thousanddollar investments, and it allows them to learn more about angel investing, alsoallows them to invest alongside us, etcetera, and to introduce more capital into startup ecosystem so we're trying to attack this problem from many different angles andthe 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 qualitypeople around the world who are entrepreneurs as you can and supporting them as bestyou can. Definitely okay. So website addresses Elizabeth Wick. Where do youwant to send people? Yeah, if people want to apply, they canjust go to Hustle Fund Nott VC. We do actually read every application andget back to people. Fifteen percent of our portfolio companies actually came in completelycold just from there. So that's one place and then, I think theother is just on twitter. We publish a lot of content, tactical contenton variety different aspects of building your business, mostly focused around fundraising and tactical customacquisition. Okay, thank you for sharing the time. Thank you.I hope you enjoyed that interview with Elizabeth Yan. I found her story interestingand especially found what she's doing in Hustle Fund compelling. I loved hearing thatstrategy, that unique angle they look for in terms of pre revenue companies thatthey invest in. As an angel investor myself, I'm generally looking for companiesthat have some traction at least you know, tenzero a month as a kind ofstarting point. So to hear how she chooses companies that have no tractionyet was actually quite eye opening for me. So I might even consider adjusting myown strategy a little bit and look for some of the characteristics she talkedabout in the companies they put money in as a way to sort of prequalify and get that first introduction, that first experience with the founders and theiridea and what they're doing. But yeah, great to hear from Elizabeth. Ihope you enjoyed the story as much as I did. Going to leavethis with the usual request. If you have yet to subscribe to best thecapital, 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 withpeople like Elizabeth who are both entrepreneurs, but now in the world of investmentcapital, whether it's through angel investing or venture investing or both. I've alsogot 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 makesure you do not miss out on any of those interviews. You have tosubscribe. Open up whatever APP you're currently using. Maybe you're listening to thisright now on an APP, and click the plus button or the subscribe buttonor 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 youcan dive into whenever you need some new inspiration or ideas or just entertainment whileyou'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 maybethere's a friend or potential business partner. Hey, maybe you just want someonewho might need to pitch to someone like Elizabeth to hear this story. Pleaseshare 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 vestedcapital 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 allthe episodes are there, or just tell your friend to go to their podcastAPP and do a search for vested capital or my name, Yarrow. WhyA er? Oh, and my show should show up and they can lookfor episode number eight with Elizabeth Yan. Okay, that's it. My nameis yarrow and I will speak to you on the next episode.

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