Dec 17, 2020 · 39m · 20vc
20VC: Retool Founder, David Hsu on Why YC Is Helpful Pre Product-Market Fit but Not Post and Why VCs Are Not Helpful Pre-Product Market-Fit but are Post, Why it is Difficult to Become Unprofitable if You Set Yourself Up For Profitability Early & Why VC Th
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In this episode of 20VC, Retool founder and CEO David Hsu discusses pivoting from an unviable peer-to-peer payments startup to building a high-growth B2B enterprise software platform. He shares candid insights on capital efficiency, the changing role of VCs pre- and post-PMF, and how disciplined hiring and high execution velocity drive long-term startup success.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 28.6% of the talking time here. How this is scored →
Harry as informed peer 3.6 Guest teaching 5.1 Guest disagreement 2.6 Harry pushing back 2.3
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 13:16 Rejecting Harry's investor incentive argument
David directly rejects Harry's assertion that lower angel ownership reduces investor motivation, calling the premise 'mostly not true' and stopping short of calling it 'bullshit'.
Hardest push from Harry ▶ 12:48 Harry challenges split Series A and angel alignmentHarry refuses to accept David's positive spin on split Series A rounds, challenging whether 1-2% angel stakes adequately incentivize top advisors compared to a lead VC.
Biggest teaching moment ▶ 16:55 David re-evaluates YC's true value addDavid educates the host on YC's limitations, explaining that 95% of YC's advice is publicly available in Paul Graham essays and that YC frequently offers suboptimal advice to top-tier post-PMF companies.
Harry holds his own ▶ 12:48 Harry cites industry consensus on lead VC ownershipHarry uses his venture capital domain expertise to press David on traditional ownership targets and VC time allocation dynamics.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| David Hsu's Background and Founding Retool | 2 | 2 | 0 | 1 | Harry introduces David and asks friendly background questions about his UK roots and combined CS and philosophy degree at Oxford. David explains how a side project UK payments app led to YC and eventually Retool. The tone is polite and highly collaborative. | |
| Pivoting, Conviction, and Direct Feedback | 3 | 5 | 2 | 1 | Harry asks a standard inquiry about balancing conviction versus pivoting when an idea is struggling. David rejects pure landing page testing and recounts how John Collison brutally shot down their initial Venmo clone in 12 minutes, teaching them clarity on bad unit economics. | |
| The Role of Y Combinator Pre- vs. Post-PMF | 4 | 7 | 5 | 2 | Harry prompts David on his provocative claim that YC is useless post-PMF. David forcefully argues that 95% of YC advice can be found online in Paul Graham essays and details how YC gave suboptimal advice opposing their Series A structure. | |
| Angel Relationships and VC Value Dynamics | 6 | 7 | 6 | 6 | Harry presses David on venture ownership math, arguing that low angel ownership percentages fail to incentivize ongoing help. David explicitly calls Harry's premise 'mostly not true' and almost 'bullshit', reframing how top angels actually allocate time. | |
| Capital Strategy: Bootstrapping vs. Raising VC | 4 | 6 | 2 | 2 | Harry asks why David chose to raise a $25M Series A when Retool was already profitable with four employees. David explains the math of headcount versus ARR growth, showing why early profitability makes it hard to ever become unprofitable. | |
| Controlled Growth Testing and Founder Realism | 5 | 6 | 4 | 5 | Harry challenges David on why he didn't aggressively spend VC dollars on marketing channels and sales reps. David explicitly dissents from Harry's thesis, arguing for controlled iterative testing rather than dumping millions into unproven channels. | |
| Bold Ambition and Core Operating Principles | 3 | 5 | 1 | 1 | Harry asks about lessons learned from famous founder peers like John Collison and Henrique Dubugras. David explains how Collison challenged him to be bolder in executive recruiting by targeting sitting $10B unicorn CEOs. | |
| Managing Founder Stress and Execution Velocity | 2 | 4 | 1 | 2 | Harry asks David if he ever loses his cool during high-stress moments. David explains that SaaS is inherently stable, so his primary stress comes from existential angst over execution speed rather than acute crisis management. | |
| Quickfire Round and Future Vision for Retool | 3 | 4 | 2 | 1 | In the quickfire round, Harry asks rapid questions about books, weaknesses, board members, and Silicon Valley culture. David critiques Silicon Valley's insular culture and gatekeepers compared to the UK tech community. |
Statements from this episode (23)
Hsu's pre-Retool payments startup lost money on every transaction
“But then it turns out it's actually a terrible business in the sense that every time someone sends money, we were losing money. And so the faster we grew, the more money we actually lost”
Hsu pivoted to Retool with $150K bankroll and 70 days of runway
“We had to raise what the one 20 K from YC. And then we had some money from previous tech internships or something that was like maybe 30 K or something. And so we have one 50 K in total. And I think we're burning something like one or two K a day, which meant …”
Hsu spent 70% of early engineering time building internal tools
“Probably 60 to 70% of our time, actually, was spent developing internal tools for regulatory purposes, for fraud purposes, and stuff like that.”
Hsu argues founder conviction beats testing landing pages for startup ideas
“Yeah, so I think conviction is very important, and so I think when choosing ideas, I think conviction probably is sort of highest order you have to care about, basically, is do you actually get convicted about the idea? I have a bunch of friends now, and I'm s…”
Hsu claims DoorDash is the only major startup built from landing-page testing
“The only case where I know this might potentially have worked was I think it was paloaltodelivery.com or something, which then became DoorDash. I think it's the only sort of recorded case of this ever actually working, but if you look at all the other sort of …”
Hsu says Retool would have died without John Collison's YC feedback
“Without him, we might still be working on it. So, well, we'd probably be out of business at this point, but we probably would have worked on it for another year or two.”
Hsu claims 95% of Y Combinator advice is in Paul Graham essays
“Almost everything YC tells you is available online. If you just go read every PG essay, you know, you could probably become a YC partner, basically, if you read every essay, and just maybe that's being a little bit uncharitable, but, you know, I think you coul…”
Hsu argues Y Combinator adds no value after product-market fit
“Once you have product pocket fit, you don't really need to be talking to anybody who's just kind of heads down, just executing, just writing code, talking to customers, you know, for as many hours a day as you can, really. And so once that does happen, You kno…”
Retool raised a split Series A between Sequoia and five angels
“We had a slightly strange structure for the Series A, we raised a split round, it was split between five angel investors, as well as Sequoia”
Sequoia acquired a 15% to 17% stake in Retool's Series A
“In our case, I think Sequoia probably owns, I think it's either 15 or 17%, something like that, or in the Series A, at least, they own something like that.”
Hsu argues VC help for struggling startups rarely yields real results
“I think, you know, it is true that when companies are not doing well, they'll sort of ask for more help, ask for more advice or whatever else. But I think in the end, it doesn't actually make that much of a difference. You may sort of spend more time with the …”
Hsu claims venture capital advice is unhelpful prior to product-market fit
“I think pre-proto market fit, I would hope you know your market better than your VC does. If you don't, you probably have some problems. It's got other issues. And so in that case, I really don't think the advice that a VC offers you is going to be that helpfu…”
Retool burned only $100K of its $1.4M seed before raising Series A
“At that point, we were four people. I think we would raise maybe 1.4, something like that in the seed. And so I think when we were raising our A, I think we'd burn maybe a hundred K of the 1.4, something like that.”
Hsu notes Zapier never raised venture capital after its seed round
“Zapier is now, I'm not sure, 50, 80, a hundred million or something like that, and to my knowledge, they've never raised a round after the seat.”
Retool spent only $1M of its Series A before raising Series B
“When we raised the Series B, I think we've spent a million dollars in the Series A, so, so, you know, I guess we haven't really deployed the capital very much.”
Hsu believed Retool lacked product-market fit until reaching $3M-$4M ARR
“I think up until maybe three... Three, maybe four million dollars in ARR. I don't think even up to three or four million dollars in ARR, I was fairly convinced we did not have product market fit.”
Retool reached a $1B valuation in 3.5 years with three employees
“I think if you look at Retool, you know, I think the company is, what, three and a half years old, so, you know, by all sort of means, it doesn't look like it was that slow, you know, reached a billion after an evaluation, at least, at three and a half. And ye…”
Hsu argues executing sales properly may be harder than engineering
“If anything, it may be harder than engineering to really do sales properly.”
Hsu says early profitability makes fundraising easy and businesses resilient
“If you can get to profitability very early and you can keep your growth rate up, you're just in such a great position. Your business is just so healthy. It says that, you know, it's very hard to ever become unprofitable, and raising money becomes so easy if yo…”
Hsu argues SaaS companies are inherently stable and rarely face acute crises
“I think part of it also is a SaaS company is just fairly stable in the sense that nothing really goes that wrong, really, for us.”
Hsu argues burnout is driven by lack of results, not hard work
“I think if you try to really increase the clock speed and sort of cadence at which you move, but there are no results, I think that leads to burnout very quickly. At least for me, and potentially for you as well, and for many people I've talked to, working har…”
Hsu finds Silicon Valley insular compared to the UK tech scene
“Silicon Valley texting is quite insular. It's funny you ask this, because to some extent, I suppose the texting in the UK is definitely smaller, but it's actually, I think, much more positive and uplifting to some extent. I think, you know, the rest of British…”
Hsu plans for Retool to eventually power all general software development
“Yeah, well, we're still very, very, very, very far away from our goal. Our goal is to be the way software is built. And today, point, you know, zero, zero, zero, zero, zero, zero, one bits of software is built in Retool today. So, you know, we're starting with…”