The Exchanges

Q So we addressed the scouting element there. So moving one step down the funnel, what's next post-investment? You said about kind of observation and kind of seeing how fast they iterate and move. So what does that observation look like? And I'm really interested, what's the backbone of the technical infrastructure to analyze that?

A Yeah, so we want to be helpful to our startup founders, especially since Eric and I have operational backgrounds having been in their shoes before. So first and foremost, we essentially propose a growth You know, based on the company's needs, it could be they need help with customer development, or it could be even later in the funnel, they need help with sales, like cold calling or cold emailing. These are things that we can help with. And so we structure a multi-week project where we provide about an hour a week of coaching and work with the founders on whatever their top priority item is, whatever that KPI is. And then we, we help them in order to understand whether that KPI is being affected. We help them Put into place some structure around tracking that KPI. This is something that we did manually while at 500 startups when we worked with companies, but the general concept works really well from past experience, and, and so what we're trying to do is bring some automation to this. A lot of, you know, KPIs that are important to founders very often you can find in platforms such as MailChimp or CRMs. It could be like a lead generation type of KPI, or it could be a sales KPI that you Finding your Stripe account, or even CodeCommits, GitHub, and all these platforms have common APIs, so we are essentially automagically pulling those numbers or that data using these APIs and hel…

AI assessment note: “automagically pulling those numbers or that data using these APIs and helping founders”

Q I'm interested because you've said to me before the emphasis placed on, on Hustle, obviously, uh, with Hustle Fund. But I'm intrigued. How do you look to stress test? The hustle mentality of founders, maybe pre-investment. Are there signs that you've seen from commonalities amongst entrepreneurs with 500 that suggest real hustle and tenacity?

A Yeah, so my initial assessment, which is based on talking, to be fair, is based on a set of questions that most VCs don't ask. So a lot of VCs will ask you high level questions about the market and your personal background and all that, and of course that is important too, but what the questions that I'm most curious about are more in the weeds of your business. Like, for example, if you tell me, Harry, that you're doing customer development on some problem, I'll ask you a lot of detailed questions about how you went about it. How, how quickly did you do these customer development interviews, for example? Was it in one day, one week, one month? It gives me a sense of speed in terms of how much a particular item is a priority to a founder, and how quickly he or she is moving against it.

AI assessment note: “I'll ask you a lot of detailed questions about how you went about it.”

Q I'm interested because you've said to me before the emphasis placed on, on Hustle, obviously, uh, with Hustle Fund. But I'm intrigued. How do you look to stress test? The hustle mentality of founders, maybe pre-investment. Are there signs that you've seen from commonalities amongst entrepreneurs with 500 that suggest real hustle and tenacity?

A Yeah, so my initial assessment, which is based on talking, to be fair, is based on a set of questions that most VCs don't ask. So a lot of VCs will ask you high level questions about the market and your personal background and all that, and of course that is important too, but what the questions that I'm most curious about are more in the weeds of your business. Like, for example, if you tell me, Harry, that you're doing customer development on some problem, I'll ask you a lot of detailed questions about how you went about it. How, how quickly did you do these customer development interviews, for example? Was it in one day, one week, one month? It gives me a sense of speed in terms of how much a particular item is a priority to a founder, and how quickly he or she is moving against it.

AI assessment note: “I'll ask you a lot of detailed questions about how you went about it”

Q So from problem to solution, how do you at Hustle Fund think early stage startups should be assessed then?

A Yeah, so at Hustle Fund, what we're looking for, well, first off, our thesis is around speed. So we're looking for startups that move very quickly. And by that, I mean, if you have your one priority, it could be sales, it could be product development, whatever your top priority is at the moment, how fast are you moving? This is something that we noticed, Eric, my business partner, and I noticed in many of the portfolio companies we worked with at 500 startups and in our own angel portfolios, the best ones are the ones that execute on that one metric that matters very fast. And so what we're doing at Hustle Fund is we're basically trying to assess how fast are teams moving. So of course, before we invest, our assessment is based on talking, which is what most VCs do today. But then even after that, if we're going to decide to follow on in a company, we will do that assessment based on how fast teams are executing.

AI assessment note: “we're basically trying to assess how fast are teams moving”

Q I'm intrigued in terms of moving the needle. How long do you generally think is a long enough observation time to see whether someone is moving the needle in that period?

A Well, so there's essentially two assessments here. That you're baking into this question. One is around how long do you need to know whether a team is moving fast? And the other question is, how long do you need to know if you have gotten to at least the first rung of product market fit? Answering the latter, like to get to product market fit, there is no way that we'll be able to spend enough time with the team to get to that point. Getting to product market fit could take years. Unfortunately, that's just a really, really long That being said, however, setting up that initial infrastructure with the dashboard will help the founders be a guide in that direction, but that would take years to assess, and I think, frankly, like, it's post-seed or Series A investors who are most concerned with that. We are not looking for product market fit. And then answering the former question of, well, how long do you need to decide whether or not to write a follow-in check because you believe the team is really moving very fast? And that could be as short as weeks. It could be longer, but it could be as short as weeks. And really what we're looking for, if we decide to write a follow on check, that criteria in part is based on the speed at which that priority metric is moving. It's not so much about where that number stands today. So in other words, like if a team is starting from zero, let's…

AI assessment note: “And that could be as short as weeks.”

Q We've discussed that before, the many different outbound channels. So while we stay on kind of sourcing those great companies, we've discussed before the many different outbound channels that you'll be using for scouting. How do you assess the current Prop of early stage managers in their scouting. We discuss once they're through the door. What about their scouting ability currently, and how do you think about that with Hustle?

A I think, to be honest, there hasn't been a lot of innovation on scouting amongst VCs. I think you see, actually, at the early stages, a lot of VCs going after the same founders. At Hustle, our model is to go after teams that are moving really quickly. This may or may not include teams that have Strong pedigree. Certainly it encompasses some of those teams, but it also encompasses a lot of teams that don't. I think a lot of emerging managers and also existing managers go after the highly pedigreed group of people who, you know, maybe they went to Stanford and studied CS or whatnot. So I actually see us as going after a different pool of folks. Some of the more innovative ways that I do see a couple of emerging managers moving forward include folks like, well, Jason Lemkin obviously has Saster is a platform, so pretty much any Sass founder would want to go to him for their post-seed round, or whatever you want to call it.

AI assessment note: “there hasn't been a lot of innovation on scouting amongst VCs”

Q So from problem to solution, how do you at Hustle Fund think early stage startups should be assessed then?

A Yeah, so at Hustle Fund, what we're looking for, well, first off, our thesis is around speed. So we're looking for startups that move very quickly. And by that, I mean, if you have your one priority, it could be sales, it could be product development, whatever your top priority is at the moment, how fast are you moving? This is something that we noticed, Eric, my business partner, and I noticed in many of the portfolio companies we worked with at 500 startups and in our own angel portfolios, the best ones are the ones that execute on that one metric that matters very fast. And so what we're doing at Hustle Fund is we're basically trying to assess how fast are teams moving. So of course, before we invest, our assessment is based on talking, which is what most VCs do today. But then even after that, if we're going to decide to follow on in a company, we will do that assessment based on how fast teams are executing.

AI assessment note: “our thesis is around speed. So we're looking for startups that move very quickly.”

Q We've discussed that before, the many different outbound channels. So while we stay on kind of sourcing those great companies, we've discussed before the many different outbound channels that you'll be using for scouting. How do you assess the current Prop of early stage managers in their scouting. We discuss once they're through the door. What about their scouting ability currently, and how do you think about that with Hustle?

A I think, to be honest, there hasn't been a lot of innovation on scouting amongst VCs. I think you see, actually, at the early stages, a lot of VCs going after the same founders. At Hustle, our model is to go after teams that are moving really quickly. This may or may not include teams that have Strong pedigree. Certainly it encompasses some of those teams, but it also encompasses a lot of teams that don't. I think a lot of emerging managers and also existing managers go after the highly pedigreed group of people who, you know, maybe they went to Stanford and studied CS or whatnot. So I actually see us as going after a different pool of folks. Some of the more innovative ways that I do see a couple of emerging managers moving forward include folks like, well, Jason Lemkin obviously has Saster is a platform, so pretty much any Sass founder would want to go to him for their post-seed round, or whatever you want to call it.

AI assessment note: “there hasn't been a lot of innovation on scouting amongst VCs”

Q So we addressed the scouting element there. So moving one step down the funnel, what's next post-investment? You said about kind of observation and kind of seeing how fast they iterate and move. So what does that observation look like? And I'm really interested, what's the backbone of the technical infrastructure to analyze that?

A Yeah, so we want to be helpful to our startup founders, especially since Eric and I have operational backgrounds having been in their shoes before. So first and foremost, we essentially propose a growth You know, based on the company's needs, it could be they need help with customer development, or it could be even later in the funnel, they need help with sales, like cold calling or cold emailing. These are things that we can help with. And so we structure a multi-week project where we provide about an hour a week of coaching and work with the founders on whatever their top priority item is, whatever that KPI is. And then we, we help them in order to understand whether that KPI is being affected. We help them Put into place some structure around tracking that KPI. This is something that we did manually while at 500 startups when we worked with companies, but the general concept works really well from past experience, and, and so what we're trying to do is bring some automation to this. A lot of, you know, KPIs that are important to founders very often you can find in platforms such as MailChimp or CRMs. It could be like a lead generation type of KPI, or it could be a sales KPI that you Finding your Stripe account, or even CodeCommits, GitHub, and all these platforms have common APIs, so we are essentially automagically pulling those numbers or that data using these APIs and hel…

AI assessment note: “we are essentially automagically pulling those numbers or that data using these APIs”

Q element, I'd love to discuss ownership. I think we might have some differences of opinion with regards to ownership Maybe. But how do you think about ownership and the importance of ownership? Say with a seven 50 K pre-seed round, two 50 K checks, the ownership is going to be six or seven percent. How do you think about the importance of ownership versus kind of variety of portfolio size?

A Yeah, so I don't think they're in conflict with each other entirely. So that's my first thing. I think a lot of VCs think that they are. But let me point to one example that everybody knows, YC. YC has large portfolio theory. If you look at their batch sizes these days, over a hundred companies per batch. And then ownership, you know, who knows what they're doing with their continuity fund, but I think the direction that you see them going is first off, they write a really small check. Like their overall deal is a 120 K, but my, I believe that YC itself is only putting in a fraction of that. And they're buying a lot of ownership with that fraction of it. And the valuation is sub two million on that. So they, they have a lot of ownership right out of the gates. And then with their continuity fund, they are pouring into their winners. So they will have high ownership. So I think that is an example of a model where you capture The best of all worlds, at least for early stage, especially for what we're talking about pre-seed. So not even talking about post-seed, because there's a world of difference between the two, but pre-seed, when you don't have product market fit, or not even near product market fit by any means, you really do need, um, diverse portfolio access. And so this is why we are writing a lot of checks, essentially to hedge bets, essentially to gather information acro…

AI assessment note: “I don't think they're in conflict with each other entirely.”

Q I'm intrigued in terms of moving the needle. How long do you generally think is a long enough observation time to see whether someone is moving the needle in that period?

A Well, so there's essentially two assessments here. That you're baking into this question. One is around how long do you need to know whether a team is moving fast? And the other question is, how long do you need to know if you have gotten to at least the first rung of product market fit? Answering the latter, like to get to product market fit, there is no way that we'll be able to spend enough time with the team to get to that point. Getting to product market fit could take years. Unfortunately, that's just a really, really long That being said, however, setting up that initial infrastructure with the dashboard will help the founders be a guide in that direction, but that would take years to assess, and I think, frankly, like, it's post-seed or Series A investors who are most concerned with that. We are not looking for product market fit. And then answering the former question of, well, how long do you need to decide whether or not to write a follow-in check because you believe the team is really moving very fast? And that could be as short as weeks. It could be longer, but it could be as short as weeks. And really what we're looking for, if we decide to write a follow on check, that criteria in part is based on the speed at which that priority metric is moving. It's not so much about where that number stands today. So in other words, like if a team is starting from zero, let's…

AI assessment note: “And that could be as short as weeks. It could be longer”

Q have one final question on the observation stage being with such kind of metric driven investing. Does it not exclude many of the outliers, the Twitters, Instagrams? We had a recent guest, a simple legal who raised the ten million round by emergence, who would have maybe all failed this observation test in the early days, would they not? How do you think about this and maybe losing those outliers?

A Yeah, that's a good question. So I think first off, to be clear, we, there are certain areas that we are not investing in. So we don't invest in pure consumer apps. So we would have missed out on a Twitter and Instagram, Snapchat, et cetera, anyway. That being said, if you want to dive into one of those for a moment, so take Instagram, you know, their history is they had this other app, and it was fully featured with all this stuff, and they didn't quite get the adoption that, you know, would have been breakout success until they pivoted later, and this is kind of what I was alluding to a little bit. We understand that there are so many reasons why you may not be able to move quickly. It may be that the team is moving quickly and doing everything they can, but that metric just isn't moving the needle, and that's Fine. We just wouldn't follow on at that point, but the hope is that we are operational VCs, so hopefully we'll be able to continue to help the founding team, and if they end up pivoting into something else, and you do start to see that breakout, then of course we would want to participate. So I don't have a great answer for you. Of course, there are the absolute flukes where the team is slow, product sucks, everything gone wrong, but just out of Fluke. Dumb. Luck. They get acquired anyway. You know, I don't have a great answer for that, but the vast majority of compani…

AI assessment note: “there's always dumb luck that can't be accounted for.”

Q But like all SaaS nerds, I do love a good funnel, and you've told me that you're going to flip the early stage funnel on its head with hustle. So let's break this down. Tell me, what's step one?

A So I think just at a high level, the funnel today of how a lot of VCs work is they'll do a lot of talking, and then they'll decide to invest, and then maybe they'll do some coaching. So that's basically the funnel. But we want to flip it around because I've seen over 20,000 deals, and I've observed hundreds of companies going through the 500 startups accelerator, and have also observed my own angel investments. And the interesting thing is, and kind of a shame to say, like, Very often, a number of these investments that I did through this model, I kind of regretted. And it was because I learned a lot more after watching teams execute later. So what if you could kind of flip the model around and do that first? So what we're proposing here is, you know, obviously we'll have to kind of put a stake in the ground. So first we'll do some talking and basically ask questions about executing. Then we'll be really fast to write a first check, a 25 K check. I think that since I'm a GP of hustle fund, we have to move fast ourselves. So within a conversation, pretty much like unless there's something jarring where we absolutely need a second conversation or I totally missed something pretty much after one conversation, we'll decide either we're going to write that check or here are the things that we would want to see in order for us to write that check. And we'll write that check. And then…

AI assessment note: “So first we'll do some talking and basically ask questions about executing.”

Q Now talk to me, the most recent publicly announced investment, so this is probably likely an angel investment, and why you said yes?

A Yeah, unfortunately I can't talk about Hustle Fund investments yet, but one of my angel portfolio companies, who also went through the 500 startups accelerator, they're called the Pill Club. It's essentially free birth control, and that gets sent to your door, and You know, when I first saw them and they first joined the 500 startups accelerator, they were really early. And that was actually an unusual bet for 500 startups because 500 startups has been investing in companies with more and more traction. Anyway, this team was really, really early. But what I liked and kind of going to our thesis with hustle fund was they just moved really, really fast. And they also had regulatory concerns that you had alluded to earlier that we discussed. You know, they have to jump through hoops around licensing and whatnot. Like if you're going to send prescriptions around. It's hustle.

AI assessment note: “they're called the Pill Club... what I liked... they just moved really, really fast.”

Q What do you perceive to be the big red flags in this observation stage? Obviously, kind of, Slowness in, in kind of adapting and iterating, but what are the red flags that you perceive might occur?

A I mean, certainly there are other things that we are cognizant of as we're coaching the teams. Like for example, one, one of the top reasons why found founding teams fall apart actually has nothing to do with speed. Although speed is a by-product is just, you know, co-founder drama and co-founder breaks, breakups and co-founder issues like that, you know, morale around team, all of those things are probably the number one reason why the Things fall apart for the company, which of course will translate into speed. You'll, you'll see that they're not moving, but, uh, you know, we are looking at other typical startup things as well, and that's a very common issue. You know, we'll try to help teams with as well beyond the growth project if there are problems. And then of course, if it's not meant to be, then, you know, founders part ways.

AI assessment note: “co-founder drama and co-founder breaks, breakups and co-founder issues”

Q What do you perceive to be the big red flags in this observation stage? Obviously, kind of, Slowness in, in kind of adapting and iterating, but what are the red flags that you perceive might occur?

A I mean, certainly there are other things that we are cognizant of as we're coaching the teams. Like for example, one, one of the top reasons why found founding teams fall apart actually has nothing to do with speed. Although speed is a by-product is just, you know, co-founder drama and co-founder breaks, breakups and co-founder issues like that, you know, morale around team, all of those things are probably the number one reason why the Things fall apart for the company, which of course will translate into speed. You'll, you'll see that they're not moving, but, uh, you know, we are looking at other typical startup things as well, and that's a very common issue. You know, we'll try to help teams with as well beyond the growth project if there are problems. And then of course, if it's not meant to be, then, you know, founders part ways.

AI assessment note: “co-founder drama and co-founder breaks, breakups and co-founder issues”

Q But like all SaaS nerds, I do love a good funnel, and you've told me that you're going to flip the early stage funnel on its head with hustle. So let's break this down. Tell me, what's step one?

A So I think just at a high level, the funnel today of how a lot of VCs work is they'll do a lot of talking, and then they'll decide to invest, and then maybe they'll do some coaching. So that's basically the funnel. But we want to flip it around because I've seen over 20,000 deals, and I've observed hundreds of companies going through the 500 startups accelerator, and have also observed my own angel investments. And the interesting thing is, and kind of a shame to say, like, Very often, a number of these investments that I did through this model, I kind of regretted. And it was because I learned a lot more after watching teams execute later. So what if you could kind of flip the model around and do that first? So what we're proposing here is, you know, obviously we'll have to kind of put a stake in the ground. So first we'll do some talking and basically ask questions about executing. Then we'll be really fast to write a first check, a 25 K check. I think that since I'm a GP of hustle fund, we have to move fast ourselves. So within a conversation, pretty much like unless there's something jarring where we absolutely need a second conversation or I totally missed something pretty much after one conversation, we'll decide either we're going to write that check or here are the things that we would want to see in order for us to write that check. And we'll write that check. And then…

AI assessment note: “first we'll do some talking and basically ask questions about executing”