First Funders

13: Elizabeth Yin of Hustle Fund has seen over 50,000 companies and made 800 investments – usually in just 30 minutes
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[00:00:00] Welcome to the First Funders podcast. Today we have Elizabeth Yin, the founding GP of Hustle Fund, an fund that's been around now almost seven years. They've invested in companies like Webflow, Rupa Health, and the list is long, by the way, and I can't wait to hear how many investments they've made.

Shaherose: What I'd love to do is just share a bit about how I know Elizabeth and then turn it over to her to do an intro. I think I met you before you started LaunchBit. In the Women 2. 0 community, you were helping founders, even though you were a founder yourself, you were writing blog posts and conducting workshops for us and we just got to see you in action, honestly. you being a founder and supporting other founders along the way. And I really admired [00:01:00] your tenacity to do both jobs at once.

And when you said, I'm going to launch Hustle Fund and you branded the word hustle, I really could not think of a better word to describe you. coursing through your veins is someone who wants to get something done and wants to achieve big things.

And you've consistently done that. So that's what I feel like I know about you, but what we haven't had to do is really get into the details of your more current life, which I'm super excited to do today. So with that, I would love for you to introduce yourself and also share a little bit about how you got into investing.

Launching LaunchBit: Getting started as a founder and helping others at the same time
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Elizabeth Yin: Yeah. Well, thank you for having me, Shaherose. It's really an honor to be here. And it's incredible that we've known each other for so long. I mean, you met me when I knew nothing. I had no idea what I was doing. And frankly speaking, as you bring up some of these points, I was not qualified to be helping anybody else with their startup.

Like we had our own ups and downs with our own startup. [00:02:00] And honestly, actually, I would say that was really a good foundation for my investing career later, because I kind of think that people who have immediate success don't know where all the problems are. And, and we ran into so many problems, so, it's a double edged sword.

But I think in looking back on those times, the struggle was, really helpful. And so I think you kind of already said this, but I spent many years as a founder. I always knew I wanted to be a founder. I grew up in Silicon Valley and even though my parents were not in tech or anything like that, just by time and place growing up in the late nineties, during the dot com boom, being in high school during the dot com boom.

That had a big impact on my life. And so I always knew I wanted to be a founder. I started my company with my best friend from high school. So we go way back and in the beginning for the first two years, we had no idea what we were doing. We were doing all kinds of weird side projects just to try to make money, just to try to [00:03:00] figure things out.

How do you get attention as a startup? Things like that. Those were all hard. But eventually figured some things out, ended up growing out an ad network for email and had a relatively modest exit in late 2014 with the company you mentioned, LaunchBit. And so that's actually how I ended up seeing sort of the other side.

I had never thought of myself as an investor. I had never wanted to be a VC or go into investing or anything like that. But what happened after that was I started. Reflecting and writing a lot of blog posts about all the things I had learned and all the mistakes I had made. And, friends who were just starting their startup journey, approached me and asked me for my thoughts on this and my thoughts on that.

And I wrote some small angel checks into friends companies. Initially it was just friends companies. And then one thing led to the next. I ended up doing more of this at 500 Global, which was the accelerator program that we went through. batch number [00:04:00] two, with LaunchBit. And so I started doing that there.

And I mean, I think as many people know, these accelerator programs, they invest on steroids. So while I was at 500, I ended up actually running their accelerator program. That was not the initial plan, but. that opportunity came up along the way and I said, okay, and ended up leading 200 deals there, which is crazy because I was probably not qualified to do that either.

You know, and then just really learned a lot from that volume. I think like everything else, investing takes reps and practice and you learn a lot and you get better at it. And so that, that's how I got into all this and eventually started. Hustle Fund in 2017. So it's been almost seven years now.

Shaherose: Yeah, amazing. Yeah. I remember the 500 days and how many founders you saw go through the doors at that time. I had no idea. 200 investments. That is amazing. And that was a two, three year period.

Elizabeth Yin: Yeah, that was 200 that I led. That was not how many was done at [00:05:00] 500 at that time. Like it was way more.

Shaherose: that's incredible. That's incredible. What inspired you then to say, Hey, I'm just going to bet on myself, build this incredible team. I always feel a sense of strong camaraderie, even just through the internet between you and your partners at Hustle Fund, but what led to you coming together and saying, Hey, we want to launch a fund.

Elizabeth Yin: Well, so like I said, I never intended to get into investing in the first place. In fact, one of the reasons I went back to 500Startups to initially mentor was to try to learn what was happening in the world. You know, this is around the time when Bitcoin was coming onto the scene, and drones were becoming a thing, and AR and VR, it was all these new, totally new things that I knew nothing about.

And I thought, I want to take another crack at another company. There are all these cool things, maybe I should learn about it. I know nothing about any of this. Why don't I go and just talk with a lot of founders? And so that's how I ended up going to 500 in the first place. And I was exploring [00:06:00] startup ideas.

I wanted another crack at bat , but I didn't know what I wanted to do. And one day it just sort of dawned on me. I was like, actually the problem that I care a lot about, because it's really hard to find a problem you care about for decades on end. But the one problem I care about a lot is, well, helping early stage founders. It was a problem I knew a lot about from my own personal experience and also a problem that many of my peers faced, certainly all the people in the accelerator program and specifically the problems that early stage companies have is capital knowledge and networks. And so we wanted to build a company, we being Eric Bahn, my business partner and myself, eventually decided, hey, let's build a company to help with that capital knowledge and network.

So that actually is what Hustle Fund is. And we started with a fund, because I think capital is so important at the earliest stages. we were talking about helping founders who didn't really have anything. Two people in a garage, a half baked product, but no revenue.

That was the kind of stage we wanted to [00:07:00] address, and we felt like there really wasn't anything serving that founder base. So that was how we ended up doing Hustle Fund, writing checks into these earliest companies. We're basically like the rich uncle that you don't have, or maybe you do have, but you know, we're another uncle.

Shaherose: Yeah, I love that. And so you started to touch on this, but if you were to tell me your why. What is the point of all this? Why are you investing

Elizabeth Yin: from personal experience, but also in seeing so many other founders, there just is not a lot of help with capital knowledge and networks at that early stage. I think every investor, for example, says they invest early, but really, and this is no knock on investors. I get it.

But most investors want to invest when you are starting to make money. And actually that bar is pretty high for most VCs. Like, you're making tens of thousands of dollars per month. There are not many institutional investors who want to take a bet on you when you have nothing. It's incredibly risky.

Elizabeth Yin: So that's one thought. [00:08:00] we felt like there was a real dearth of capital at that stage, especially at that time. Now there are more people. I wouldn't say there are a lot of investors, but there, there are certainly, A couple, a handful of folks who are not angel investors, but funds who are investing at that stage.

But, I think if you're a founder who doesn't come from wealth, then it's really hard to kind of just jumpstart and you don't need a lot of capital to jumpstart. You just need, 25K or so just to get going. And then certainly from a knowledge and networks perspective, I think actually that's equally important to capital.

Everyone talks about money, money, money, You know, having the right direction, and I say this especially from my own perspective where we had so many meanderings and we had no direction for the first two years. there was nothing on the internet that I could read back then. Lean Startup didn't even come about until later.

So, we had no direction, we had no knowledge, and we didn't really have networks of people who had done it. And I think, having that out of the gates can help you avoid a ton of [00:09:00] mistakes, in the first couple of years.

Shaherose: More than just a rich uncle, more like someone with wisdom and, some sort of Yoda like powers to guide you. So I love that you dig into that as, as what you do now. Let's go back to the first time you ever made an investment.

Cause for many of us on the show, we've noticed that that first investment. Whatever direction it went in had a huge impact. Can you recount that first investment that you made and what were the lessons you walked away with?

The first investment: Lessons in customer acquisition
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Elizabeth Yin: One of my earliest investments was a company called Wanderable. Two friends of mine, actually from school, two female founders. And, uh, it was basically a travel registry of sorts for people getting married. So that, that was the idea. They were eventually acquired by Airbnb.

and. You know, it's so funny because I think everyone says their first investment was so impactful or life changing and I was talking with Cyan Bannister actually and her first investment was SpaceX so I can see how that could [00:10:00] be the case. But, I made a handful of investments around the same time, as my first investment, so I see it all as that one mini portfolio of experiences, namely, around, what is it that you learn from this, group of folks, I think some of my learnings from the, first set was Paying close attention to how customer acquisition is done.

So I ask a lot of questions about that now. You know, other things are around valuation. Valuation actually does matter in my personal opinion. I know lots of investors will take the opposite on that, but that's a topic for another day. I think valuation matters. Things like that. And so I think you start to learn, what are the things you gravitate towards?

for example, I know some angel investors who just really care about product. And that's fine. actually, I think for some categories, that is the way to think about things, right? If you're building a product for an audience that cares about product, then being really good at product is an edge.

And then for other businesses, like kind of the ones I just mentioned, customer acquisition really matters, It's less about product. So [00:11:00] like finding kind of what kinds of ideas you like, what kinds of skill sets are needed to win, not only as a founder in those ideas, but also as an investor in assessing is another thing.

And so those are kind of my takeaways from the early days of like, I didn't have a thesis, but that first handful helped me refine what I'm looking for as an angel.

Shaherose: What was it about both customer acquisition and valuation that happened that led you to focusing on that? Because it's funny when I think of you and specifically because of launch bit, I just think of you as someone is thoughtful about customer acquisition anyway

But, maybe I'm wrong, maybe it had nothing to do with launch bit. So I'm m curious, when you say that those are sort of the top two things in the beginning and you've learned many things along the way, what happened that made you say, okay, let me focus in on these two things going forward?

Valuation: Why it matters at every fund size
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Elizabeth Yin: Well, I think valuation is certainly something I never really understood because as a founder, you don't think about the, I don't know, the VC math behind it, right? I, I never [00:12:00] really thought about my VCs to be honest. I probably should have, but I didn't think about how is it that they make money and their business model.

But I learned pretty quickly on that You can control the entry point, but you can't control the exit. And as much as you want to believe that everybody is going to be, a 10 billion or a hundred billion dollar outcome, statistically speaking, that's not going to happen for most people.

So where do most of, let's say the successful exits lie? And a lot of the successful exits, the lower you go, the more of them there are, there's certainly lots in the tens of millions and then fewer in the hundreds of millions, but still doable. And then once you get into the billions, it gets really hard.

And certainly once you get into the 10 billions, there's Very, very few companies there, right? And so it really tapers off pretty quickly. So if you're controlling the entry point Not the exit point. that almost dictates what multiple you could have in the middle. And I hadn't really thought about that.

I mean, I think in essence, the reason why, [00:13:00] and I always talk about how VCs are looking for a hundred X, the reason why that multiple needs to be so high in your winners, ideally, obviously you have no control over what actually happens, but you need to have that potential is there are going to be so many losses in the portfolio.

And. A lot of other friends of mine have batted around this idea of, well, what if you can increase the, number of companies who survive, and then your exits don't have to be as big. And from looking at a lot of this data in the early days, I actually don't think my founders think too deeply about whether they're going to be a big company or a small company.

Really what everyone's just trying to do is just sell their wares, and try to make a buck, and try to just get going. And the thing that nobody knows is whether there's actually a customer for this thing. And that's the biggest risk of starting a business, whether you're a big company or a small company.

Do you have product market fit? Do you have customers who want to pay for this thing? very basic fundamental questions that ultimately [00:14:00] dictates whether the company fails or not. So I actually think it's really hard to reduce failure rate in startups. Unless you can find a way to more predictably build products that people want to pay for.

Because I think that exercise is a lot of luck and really hard. And I just saw that through that initial batch of founders. You can have amazing founders, you can have ideas that make sense, but getting to product market fit is a lot of luck. And so you have to set yourself up for a model that factors in that luck, the valuation learning.

The problem with being an investor is you have really no idea what's happening inside of a company. And so it's one thing to say, oh, this is how I think about customer acquisition in my own company. These are the activities we're going to do, or we're going to try, or we're going to experiment with.

But now you're a layer removed as an investor. So you just have no idea. And so I think when companies say, Oh, we're trying SEO or whatever. We're trying to write [00:15:00] these posts as our acquisition channel or through these partnerships or whatever. You actually have no idea how they're doing it. And you're not going to get in the weeds of hopping on calls with them to learn how they're doing it right in most cases.

And so I think one of the things that I have gravitated towards more as an investor is trying to get a better sense of making decisions based on the conditions of a market. So let me give you a concrete example. is a particular product helping the customer.

Make more money, like 10x more money, or helping them save 10x more time. it's gotta be extreme, the value proposition. I think there are people, plenty of people who are great salespeople who can sell something that is 2x better, or whatever. But as an investor, since I have no idea whether these people are great at selling something or really have strong marketing chops, I have to make the scenario so [00:16:00] extreme that it's like a no brainer that everyone will want this.

Otherwise, I just sort of pass. So that's kind of my framework around thinking about investing from a customer acquisition lens.

Shaherose: And can you share maybe a more recent example of that, where you looked at a company and you said, these conditions look good, \ It doesn't have to be an extreme example, any example.

Elizabeth Yin: I recently invested in a company called, Anadro and essentially what they're doing is they are a, like a solar based, Utility for your home. So what does that actually mean? The problem with putting solar panels on your house today is, your house is basically provisioning electricity for your usage today.

People don't put on so many solar panels to cover what they think your usage will be in 10 years. And so what they do is through a series of Solar panels and like other ways for you to optimize. They provision your house with so many [00:17:00] solar panels so you generate all this excess energy and then they connect it to Bitcoin miners so that way you can make it up.

It's really kind of out there. But the idea is like the value proposition is extremely strong compared to other alternatives you might have because actually you don't have to pay anything as the consumer. They just say decide whether or not you want to use this and we'll start the work, no money down.

And of course in exchange, once you start generating this electricity, that's, where they start making it back. So that's how their business model works. And so I don't have to think about, okay, do I have 10, 000 to put down towards this or 50, 000 or whatever it is. I just have to think about does this value proposition of like more energy at this rate make sense?

Shaherose: Fascinating. I love it. I love those two very concrete learnings right out of the gate in the first cohort of your investments and just to comment on the valuation piece, we've brought this up [00:18:00] in every episode and all schools of thought and I'm just curious what you think, but what I've been hearing more so is, it's the larger multi billion dollar funds.

It's an opportunity for people that are in the business that can continuously invest in a company who have less worry for entry valuation, not no worry. They say they have no worry, but they just mean they're willing to go a little bit up or down. But that because they can continuously invest across stages, they're able to maintain the ownership that leads to the multiples that they're looking for.

Whereas emerging funds, sub hundred million, valuation matters because you're only gonna invest up into a certain point. Is that what you have put together in terms of like why it matters to you more?

Making checks count: Are you an option or an investment?
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Elizabeth Yin: A hundred percent. The way I think about it is, are you an option or are you an investment as a founder? So the multistage funds, when they come in at seed, If one of those billion dollar funds is writing a million dollar check, so it makes no difference to them. They don't care what [00:19:00] valuation they're getting in at for that million dollar check, because that's an option check for them.

If I, as a pre seed investor are, I'm not even putting in a million dollars. If I'm putting in 200, 000, I need to make a count. And that is my investment check, right? For a billion dollar firm, their investment check is a series B check or something like that. That's the check they need to make count. Okay.

That's the check they're trying to maximize multiples on. Now, of course, they're not looking for 100x on a Series B check, because at the Series B, all their Series B investments are largely de risked, compared to my checks at the earliest stages. But their seed checks and all these small checks, like, they could burn that money on fire, and it would not matter.

It's just an option check.

Shaherose: Yeah, exactly. And I think that's so like important both for investors who are maybe angels or even emerging managers to pay attention to because it's, it's two different strateg.

Elizabeth Yin: Mm hmm.

Shaherose: And so maybe as an individual investor, like who are [00:20:00] your co investors? Cause it'll help you understand the journey that I feel like the startup is going to end up on.

Would you agree that there's sort of different paths to the outcomes?

Elizabeth Yin: Yes. And for those multi billion dollar funds, I think taking it a step further, because a seed check is an option check for them, their expectation is this thing is going to be big, so that way I can put in my large check. For an angel like myself, or as a pre seed investor, I don't actually care if the founder takes my check and then decides to bootstrap the rest of the way, because if, he or she sells for 500 million, that's probably a win for all of us.

Shaherose: Yes, yes, yes, absolutely. And maybe we can get to this as well is that it feels like, okay, well, on that point, I feel like I'm curious for you, would you say that then does that mean that there are different types of companies and different types of founder profiles that kind of fall into the bucket in the way in which you invest versus again, the multi billion dollar [00:21:00] funds.

Elizabeth Yin: Yes and no. So I think in large part, maybe one thing you're getting at is we invest in a lot of first time founders. And maybe a multi stage investor doesn't want to take that level of risk because they need someone who's going to go all the way. And likely it's somebody who has had some level of success before.

So anything shy of selling for 10 billion is a failure to that person. But to a first time founder, that would obviously be a huge success. So there is some of that psychology. That being said, one thing I've learned over the years is, in the beginning nobody knows whether this idea, whatever it is, is going to work, and nobody knows how much they'll be in terms of customer pull, and ultimately that is what dictates large exits, and there's a lot of luck in that.

And so, if a first time founder hits the jackpot in getting [00:22:00] something like that, Even if that person felt like, oh, I would be happy with a 10 million exit, I have found that if something is really working, very often the not founders don't want to sell early, right? If everything is going well, nobody wants to sell early.

In fact, actually, we often applaud exits that we hear about in TechCrunch or whatever, but typically it means there was a reason people wanted to get off the train. something was going wrong, there was a co founder issue, you know, things were getting really hard, whatever it is. But when things are going well, nobody wants to get off the train.

And so I think there is this disconnect between When you start and then how you feel about your business five years later, I think when you start as a first time founder, people may not be thinking as big. They may be thinking, Oh, I would be happy with a few million bucks. But once you get going, depending on what is happening on your train, that is actually what dictates people's mindset around, acquisition price.

Shaherose: If [00:23:00] luck has such a big role to play for founders, what about for you? Is your success thus far the result of hard work or luck?

Elizabeth Yin: I think it's both. Luck is so important. Like, I think there are too many investors who run around saying that it's all skill. But there's so much luck in this game. I think this game though is pretty akin to, a game like poker, where. You always see the same people at the final tables, and there's a reason for that.

There is skill, but obviously the details, could be based on luck. And, and so that, that's something that is important. You have to generate luck. You have to play your cards right per the fact that there is luck. Um, but luck is a big factor for sure.

Shaherose: A hundred percent. It's, it is both. I agree. We talked about this with Rachel Scheinbein, who I think you know, and it's manufacturing the opportunities that create luck as well. So being very intentional about where you show up, are you at the table, et cetera. Very cool. Let's do the [00:24:00] next question. This game is hard. We've had some really. Touching stories of people who have been on the podcast and shared some of their worst experiences.

And I think it's important to share because it's reality that most things don't work out. There's also moments that are like exceptionally bad. And so would love for you to share lessons that came out of a particularly challenging investment that you've made.

Elizabeth Yin: Oh my gosh. I could write a book on this. And in fact, actually, if we start going down this path, everyone will be scared away. First off, I would say that I've been very fortunate that I actually think that the world is generally good. So just sort of setting the groundwork in my career, I've probably seen now about 50, 000 companies and have done about 800 investments, 200 of them at 500 startups.

Another 500 or so at Hustle Fund, and then another 100 or so as a personal angel investment. So [00:25:00] I've done a lot of investments. And so just laying that out in terms of law of numbers, so to speak, I think there's probably about a 5 percent fraud or thereabouts is what I would peg that at just kind of based on this portfolio.

I don't know whether you think that's good or bad. I actually think that's good. That most people in the world, 95 percent of people in the world are good and good

intentioned.

I mean, that being said, when I've invested in, so many companies, at 5%, we're talking about, like, 40 companies having illicit issues.

And, so the things I've seen, I've seen one category of issues is founders steal the money to buy something. I've seen people buy fancy cars, somebody stole money and bought a house. Mind you, this is different than paying yourself a lot and then buying a house. This is taking the money, putting it in another entity specifically to deceive, and then buying a house.

[00:26:00] Like I'm sure there are many ways you can get away with things that are borderline not great, uh, and not have it be fraud. But anyway, so I've seen people do that. I've seen, one co founder run away with somebody else's money, like, money is one bucket of things.

Another bucket of things, co founder disputes and how they can be very ugly. I saw one co founder steal the codebase, run to Russia, set up an identical product and branding. And steal the customers from the other co founder. It's like, this is not just setting up a competitive shop. There is a vendetta in here and there, there's a lot to unpack.

Lots of co founder issues. And some of them turn out to be more than just disputes, but like really, really, really awful stuff and very personal. And then another category yet, this is not talked about so much. People often talk about how VCs are so bad to founders. [00:27:00] We had one founder, not give us our shares.

So, we pay for our shares, we invest it, and then not give them. it's like really crazy stuff. I could write a book on all of these problems, but yeah, there's, there are crazy founders out there, there are vicious founders out there, there are fraudulent founders out there, like, nobody talks about how founders are bad people, everyone always talks about how investors are awful people, but the good news is 95 percent of people in the world are good, but there's a 5% A chance that you are talking with somebody really awful.

Shaherose: And in those situations, did you have a sense, did you have a small gut feeling this was going to happen or is completely

Elizabeth Yin: Absolutely not. Absolutely not. No, no sense.

Shaherose: I must say 5 percent isn't bad, for sure. And yeah, good job picking.

Elizabeth Yin: Well, I, I don't know. I think that's just, you know, rough, rough numbers has nothing to do with us. I think I actually believe that most people in the world are good [00:28:00] people and they want to do the best they can.

Shaherose: Yeah, no, and, and I actually would argue that relationships happen in exchange. And so I do think you specifically, given who you are, very values based, you do attract a certain cohort of folks for sure. I think it is

Elizabeth Yin: Thank you.

Shaherose: Um, so let's talk about fun stuff. you've had an incredible amount of investments as you just shared.

I would love to hear sort of The best investment so far, ideally it's been realized if it hasn't, maybe the top performer in terms of multiples. What was it? How did you find it? What did you learn?

The best investment: Lessons in learning to play the long game
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Elizabeth Yin: Yeah, unfortunately, this is a very long game, and I have a very little liquidity to show for this, even in some of my oldest investments. I think probably some of, our more well known investments with those higher multiples, at least on paper, come from earlier vintages. So, [00:29:00] even Pre dating Hustle Fund.

At 500 Startups, , I led a deal into a company called Mejuri. They are a jewelry company. And, it's interesting because everybody and their mother turned them down at the seed round for a whole variety of reasons. Solo founder, female founder, female product. Not based in the US. Not a software company, just the list goes on and on, but phenomenal founder.

And that was like the thing that nobody knew. Nora is honestly one of the best founders I've ever backed. And so she, She just knocked it out of the park. and I think, now in, in retrospect, it's really actually a good scenario for her. I know it was tough in those early days when you can't get that much funding, but she's essentially skipped a couple of rounds of dilution as, as a result of that.

And so she has control over the company, can take it kind of wherever she wants. It's a unicorn. And, she came into the [00:30:00] 500 Startup Accelerator, so you can do the math on the multiple there. But, it's a phenomenal company and they have built an incredible brand. if you talk with any young woman these days, they'll know Mejuri and it's a great, great story.

I'm so happy for her because, especially because everyone said no. And then she just went and did it.

Shaherose: Wow. this is where I feel like, accelerators, sub a hundred million dollar funds really have the opportunity to invest in non Software deals and realize upside, you know, Charles Hudson, of course, Bobby is doing well. He had an exit from a media company, the athletic, in this case, jewelry.

I met her too. And I was like, how are VCs going to back this? Right. And so tell me about some of that when it happens for you all, when you say, Hey, we're not going to do a software business and what percentage of your portfolio ends up being that, or is it, maybe this was just a 500 thing, but I'm curious if you do it now.

Entries and exits: Elizabeth's framework for evaluating investments
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Elizabeth Yin: So at [00:31:00] Hustle Fund we are squarely software, despite saying all this, but in my own angel investing, I do invest in basically everything Hustle Fund does not. So I have done a lot in, uh, food and beverage, for example. Some of these non tech kind of categories. I've done even a couple of fashion brands as well.

And I think the interesting thing, and this comes back to valuation matters, in the case of Mejuri, there's certainly some dilution factor, but from a entry point to, where it's marked now, it's almost a thousand X. So, you know, but that's also because the entry point was, you know, All of this is really low as an this had come in, certainly in above 10 posts, then, that affects your multiples, right? So, so there's something to be said about that. And in some of these categories, where, it's all, market conditions of supply and demand, supply of your round and demand from investors, if there are no investors there, [00:32:00] then that means that the valuations are going to be lower than in some of these, categories.

You know, software categories like AI, for example. And so I actually think those two kind of counterbalance each other. In AI, I certainly think there will be big winners, but the entry point's going to be really high. So now the question is, actually, is that multiple in between actually going to be good?

Maybe not. Like the company may still be a winner. The founder may still do very well, but will the investors do well? I don't know. And so that's one category of companies. And then the other category of companies, to your point, Charles Hudson has made a lot of money in some of these non software categories.

Part of it is because the multiples are lower. And especially for his strategy, what is really interesting that I found is an interesting arbitrage is these companies, D2C e commerce companies, they tend not to be able to attract that much capital. So you actually can generally see a lot of traction before you write the check and you're still getting in at a low valuation.[00:33:00]

So you know the founder is scrappy, you can see them execute, you can see some semblance of product market fit, and the valuation is still at pre seed. Which is not what you would get with a software business. So, so you get all that information at a pre seed price. And then you don't need your exit to be so high in order to make a strong multiple.

So, so I think these are, extreme ends of what you could be investing in. And then, of course, there are companies all the way in between. And I, I've made investments on both ends of the spectrum and every everywhere in between. I think that If you're going to be investing in some of these categories where investors just hate the space, you have to truly believe the founder is willing to bootstrap for a long time because they love doing this.

They don't care or need investors. They, you almost need sort of this FU attitude in the founder. And that is what I look for in some of these off the beaten path categories. that is so important. Otherwise [00:34:00] your company is dead in the water if they're reliant on external capital.

Shaherose: Yeah. Wow. This is such a good point.

I've been really struggling with, wait, so how do you make sense of non software categories? And I think that that sort of framework of I'm seeing a lot more traction, an exceptional founder, and I'm able to come in at a lower price point. Makes sense to me now as why, a VC at Prese or Seed could take the bet.

And to your point, if they don't need continuous capital, then great. Right? Like, this could be a situation where we have, a great multiple like you do with Mejuri. So what, when you wrap up the story on Mejuri, what's the best case outcome for you? Is this, it's a D two C company, what's their outcome?

Is it going to be an acquisition? Is it gonna be an IPO, Dividends. It's different. So what are you expecting?

Elizabeth Yin: It is. Well, since it was one of my 500 investments, I have no control over this, but if I did have control over this, I think there is opportunity to take [00:35:00] secondary these days. This is a topic that people don't really talk about. how do you get out of a company, especially when it's so hard to IPO these days and, a company pretty much has to be IPO ing in kind of the 10 billion range in order to really have a successful IPO.

and so I think. But what people don't talk about is there are actually a lot of private funds that are willing to go in into private companies at a late stage and buy you out. We get pinged all the time by all these private funds and they're just seemingly more and more every day. It's basically replacing The public markets that, we had in the nineties,

so that is good. There are liquidity options. I think the only kicker I would say is because they are private funds and these companies are, generally, because they're not publicly listed, it's not like it's an open market to everyone. The companies that sell well in a secondary market are ones that have built a good brand.[00:36:00]

So sometimes that happens naturally for consumer companies. That's easier. You build a good brand. Consumers love your thing. People talk about it, then that makes it easier to sell that stock in the secondary market. This is why, before Uber went IPO, like Uber secondary stock was so hot, right?

It's a consumer company. I think it is way harder if you're an enterprise B2B company and nobody has ever heard of you and like a small niche group of people use you, but pay a lot for it. I think that's a lot harder. To generate that brand with investors because they may not be familiar with you.

And so that, that's the only thing that has an effect on the secondary price as well.

Shaherose: Fascinating. I really hope you get the opportunity to realize some of the gains from that company and hopefully others going forward. Let's talk about how you're investing today. So you've come through all these lessons from 500, well, first being a founder to 500 and now seven years of Hustle Fund.

Tell me about how do you invest today? What do you look for? And then you can comment on check [00:37:00] size and areas of interest as well. And then I have a few follow up questions.

Elizabeth Yin: Yeah, so for Hustle Fund, we squarely invest in software. We're going in super early. And basically on the thesis of, do we intuitively believe that, This thing is 10x better, or, will save you 10x, or make you 10x more money, or something along those lines. We typically are investing in business software, digital health, or fintech.

And so, we're looking for low valuations, no traction, But it's not just an idea. You've done something in the business, and we invest globally. So what we do for Hustle Fund, but a lot of it is very intuitive around, do we think this is a thing that people want to buy and not just 2X buy, but like 10X, you know, had that strong market pull, but that's all intuition.

And we're often wrong.

Shaherose: so when you say early valuation, how early, like what price point are you focused on?

Elizabeth Yin: It's less about price point and more around coming [00:38:00] back to this belief of could this thing have 100x potential or more? So loosely speaking, I would say we very much prefer investments under 10 million post money, right? That means that we're not necessarily looking for billion dollar exits.

Of course there's going to be dilution as well, which will affect that but, it's much easier to be in the sub 10 category. But then even from a geography standpoint, we invest globally and every market has different potential. I think, the U. S. market is stronger. We tend to have bigger exits. And so when we're investing in the San Francisco Bay Area, that looks very different than if you're an emerging market where there haven't been any billion dollar exits or even hundreds of millions of dollar exits, right?

So we look at things very, differently depending on the idea, the market, to figure out what do we think is a reasonable exit potential in the best case scenario.

Shaherose: So it goes back to your [00:39:00] earlier lesson around market conditions, right? And so are you, would you say, if you were to summarize how you invest today, is it first and foremost, is this 10 X better? And can this lead to a 100- X outcome. And then what about the founder?

does that play a part of your assessment? Because what I do know is you invest in 15, 20 minute meetings. So you don't really get to know these founders at all. So are you going in and kind of getting a vibe and then leaving and then doing your research on what you think the potential is for this product in this market and then deciding, and it's primarily that, or is there any other assessment?

Ignoring the crowd: Staying out of too-hot spaces like AI
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Elizabeth Yin: So I think that there are two things that matter in a business and it's very simplistic. I mean, obviously there are many other things that matter, but the two important things are team and the idea. And I actually, if you asked me which is more important, I would say the idea is more important. And there will be a [00:40:00] lot of VCs who will arm wrestle with me on this one, because a lot of people say team, team, team.

I obviously think team is important. don't get me wrong. It's on my list of top two, but the idea matters so much. I just know so many amazing founders. Who had these awful ideas, and even if they were so great in trying to make it work, they had to push the boulder up the mountain when it would have been easier to push it down the mountain, right?

You want your great founders working on things that are easier than harder in an ideal world. So, that's my perspective on that. So I think the idea matters a lot. Now, other things that get baked into the idea beyond, oh, is this 10x better, etc., is the landscape for the idea as well. So, is this idea differentiated?

Because if the idea is in a very crowded market, actually, let's just take AI, for example. You know, there are all these AI for this and that tools, especially in tech, right? You name it. AI in marketing, AI in sales, AI in design, AI in whatever. there are a lot of tools, and [00:41:00] it's become very crowded and competitive.

And almost by definition, when a market becomes crowded or competitive, the cost of customer acquisition goes up. You're fighting for mindshare. for the same customers as all of your peers and competitors. So, that is a harder battle than going into a greenfield where there's nobody. And in addition, when there are all these investors who are placing bets, if they're all betting on your competitors.

Then now, like, all these investors are conflicted out, so there's less capital that can go into your company as well. So, I really don't like crowded markets for that reason. So, that's something that's really important to us at Hustle Fund. Like, we see a thousand companies a month, and in part, it's because we want to know what ideas are crowded.

If an idea is crowded, or we think it's too competitive, We'll just sit out. We're not going to try to guess which horse is the right horse or whatever. We'll just sit out entirely. I would much prefer an idea that is so wonky [00:42:00] and weird and nobody's working on. And so that's kind of how we think about things.

In terms of all of that landscape, obviously team is important. And to your point, it's really hard to assess in 15 to 20 minutes. I would argue it's hard to assess whether a team is great even in, a month, you have to actually really see them execute. It's less about talking with them. Like if I talked with somebody for three meetings across a month, I wouldn't learn more than do in one meeting for 30 minutes, what I would really learn more as I saw if I'm under startups is when I can actually watch them work.

But talking with somebody doesn't illuminate really anything. you can meet great talkers all the time who sound really good, but you have to see the execution, and the only way I'll see the execution is , once I'm an investor, so we basically just assess the best we can on, on the team aspect based on what they say they're doing and on what sort of timeframe.

Like, did you do customer development calls like all of last week and you just quit your job last week? Or have you [00:43:00] been, working on this slowly for the last five months? Like, Which is faster, which is better. we try to assess based on kind of how founders describe what they're doing, but the true way to know whether a team is great or not is to watch them in action.

Shaherose: I so agree 100 percent having run an incubator back in the early days of Lean Startup, that is what we had the sort of edge on once a company went through our program. By the end of it, I would have a personal assessment of whether I wanted to continue to back these companies

And there was no meeting. That would have given me that info. It was five weeks of seeing them three times a week, and presenting every week under pressure that showed me who they were, both individually and as a team. And I think about that constantly as I'm sitting in the investment seat now and I'm like, I don't know what you're doing before or after this meeting and what are you, you're just, Just talking.

I love that. I agree with you. Just talking doesn't give you information. So you're, so for you, the [00:44:00] strategy is let me write a 25K check after a quick meeting, correct?

Elizabeth Yin: We've increased that, but yes,

Shaherose: okay. And what are we at

Elizabeth Yin: we're 150.

Shaherose: Nice. Okay. Great.

Great.

Elizabeth Yin: yeah,

you get more money now from just talking with me.

Shaherose: And what inspired that change?

Elizabeth Yin: A few things. One, we have a bigger fund. So we've also increased our fund size over the years. Initially we started out with an 11. 5 million fund, now we're much closer to 50. So we've, sort of 4x'd on that.

So, you know, 4x the check size, basically.

Shaherose: Love it. Love it. That makes sense. So you put in that first check and then do you put in another check

Elizabeth Yin: Based on how it's going, we may write a another check. Yeah. So, so that's exactly it. And that was also my learning at, 500 Accelerator as well. I learned so much in watching these people go through their program. The good, the bad, the ugly, right? And that's how it's so funny because by the end of the program, I would send my little list of [00:45:00] companies to all these VCs and say, Hey, do you want to talk with any of these companies?

And, very, very few people ever asked me like, who do you think is a great founder? Obviously, that was a very challenging question to navigate when I did get asked that because you don't want to play favorites as an accelerator manager. But I was surprised that not many people really ever asked.

Shaherose: and it's because they were making their own assessment?

Elizabeth Yin: Yeah, because, I don't know, they just Yeah, I guess they, like, I, I would definitely want to ask every Accelerator Manager that question, , knowing what I know now, right?

Shaherose: Yeah. Same. Same. Who knows? fascinating.

So just staying on this topic real quick. So you said, Hey, I don't go into crowded spaces, right? So to follow on questions, one, what is your strategy in terms of investing in AI? Are you, are you not, are you sitting it out? And two. If you're going into places that are not crowded or less well known, [00:46:00] how do you ensure that there's going to be follow on investment after your check?

Elizabeth Yin: that's a weird Goldilocks and the Three Bears problem, I would say. Actually, let's just address that one first. So weird ideas are not necessarily uninvestable. Perhaps the classic story is the Airbnb investment where it just was so weird. Lots of people were like, we're not investing in this weird thing, but I think that there are certainly businesses that are In spaces that are not really thought much about, but people, when they hear it, they're like, Oh, that makes a ton of sense.

So I'll give you an example of a company I invested in a few months ago. The company is called Essential and, they're basically in this industry called Fire Life and Safety. So businesses, when you have an office building, all the fire alarms need to be checked, make sure that all of those systems work.

Well, who does that? There are these mom and pop businesses in Fire Alive and [00:47:00] Safety who go around schedule an appointment, and check the building, and whatever it is they do, they check to make sure that everything works. But it, they don't have much software. The founder, her, her parents had one of these mom and pop businesses.

So they were actually the first customers using her software. And she's a software engineer by trade. So it's like this domain knowledge in this industry that nobody really thinks about. And she's applying technology into it. So that's an example of, actually, it was really pretty straightforward for her to raise her round.

In that. she has a credible background and it's a unique idea. I had not really heard of other starters going after this just because I don't think it is a typical industry that most startup founders think about or have background in, unlike let's say sales or marketing or design or engineering.

If you're building tools in those spaces that tech founders use, then everybody is going after ideas in those spaces, right? So that's an example. It doesn't have to [00:48:00] be so crazy. It can be in an older industry that nobody thinks about.

Shaherose: And you sized up the market enough to say, Hey, there's going to be a potential hundred, hundred X outcome.

Elizabeth Yin: Yeah, to the best that we can.

Shaherose: Fascinating. And as you were saying that, I was like, but wait a second, you've definitely invested, in crowded spaces like Webflow.

Elizabeth Yin: yes and no. So, that's the other thing, and that probably goes to the second point, around spaces can become crowded. So, I think for Webflow, there's a bit of a nuance. I think when they came about, there were certainly other website builders. Weebly, Squarespace, Wix, some of these others. But Webflow was uniquely for designers.

I don't know if anyone has ever tried Webflow, but actually I cannot use the product. I don't know anything about CSS. I don't design. and so although it has now migrated sort of into this broader web space when they [00:49:00] started, it was very much a design tool for designers.

And so I would actually say people who use Squarespace don't necessarily have the skill set to use at least the older version of Webflow. But spaces can become crowded, like we've invested in a number of companies where there wasn't much competition in the beginning. And this goes to your AI question, two years ago, we invested in a bunch of AI companies, and then, Very quickly, either OpenAI competed with them, or other startups competed with them.

So, spaces can become crowded, and the hope is, if you're investing in a greenfield area, the company can get enough traction to kind of get a head start. Because if it's a good idea, almost inherently, you have to believe there's going to be competition. There's money to be made, there's going to be competition.

Shaherose: Totally. Totally.

Elizabeth Yin: yeah,

Shaherose: So let's talk about AI. What's your strategy?

AI: What’s Elizabeth doing in this space?
---

Elizabeth Yin: so, so these days we have pulled back a lot from two years ago because I think that [00:50:00] it, it is way too crowded in most industries. We are still looking at older industries and other verticals that are off the beaten path, but it's not something we're necessarily actively seeking out. So we are still are making AI investments, but not like how we did two years ago.

The bar is much higher now.

Shaherose: Do you feel like you've just, you've made enough and hopefully those are going to pan out or you're kind of waiting it out and we'll make another wave. Where are you at?

Elizabeth Yin: I think it's just a lot of the low hanging fruit ideas are so competitive now that it's too late.

Shaherose: Yeah. Wow. Isn't that amazing how that just happened so quickly?

Elizabeth Yin: Now, I, I would say there are caveats, right? Like for example, when Google was the eighth search engine or whatever, a lot of people said, Oh, it's too late. There are certainly going to be some surprises in there, but as a broad swath strategy, I don't think it's a bad one to stay out of really crowded spaces, even if there'll be like a winner here and there

Shaherose: Before I go [00:51:00] on to speed round, a question that's been coming up for us in the AI space and not, are companies that are incredibly highly efficient. Raise once and then just kind of go off on their own. Do you have such companies in your portfolio? What do you call them? Are they different from the rest?

Elizabeth Yin: I love those companies. I think founders should really own their destiny as much as possible. So the quicker you can get to that stage, the better. And, I don't know what you call them, but I, I love them.

Shaherose: And would you estimate what percentage of your portfolio looks like that?

Elizabeth Yin: Not as high as I would have liked, just because there were all these frothy years, and people could raise money even if they didn't need to, etc. So yeah, I don't even want to estimate that actually. It's funny because a lot of LPs ask us like, Oh, what percentage of your portfolio has raised beyond the pre seed or the seed or whatever.

And it's an absurdly high number. Like in our [00:52:00] fund one, it was like pretty close to 90 percent or thereabouts, but like, I actually don't see that as a good thing.

Shaherose: I know it's so interesting. We were talking about how for LPs, right? The conversation is what is your MOIC, right? What does the follow on investment rate look like? But DPI is what really matters. And if these companies are going to go off and generate revenues, hopefully that leads to returns for you.

I guess the question would be when you look at some of these companies that are raised once, like, how do you expect you'll get a return back? Will it be similar to the Mejuri situation or. Will, they follow the traditional path of IPO or exit M& A.

Elizabeth Yin: I think it's too early to tell. So, Mejuri actually has gone on to raise later stage rounds. Actually, this is an interesting phenomenon. Raise a little bit of money, raise no money, largely because you can't, and then raise a big round. So I would put Majorey more or less in that category.

There was one extra round that they did. NerdWallet fits into that [00:53:00] category as well. Actually, they didn't raise any money because they couldn't, and then they raised a big round from IBP to help them kind of get into IPO stage. But I think this idea of raising very little money Essentially, teeter around profitability all this time, and then a big growth round to prepare yourself for some big thing, I think is an interesting model that a lot of companies would be well served to do.

Speed round
---

Shaherose: Yeah. Fascinating. Yeah. Let's see how this all plays out.

Okay. Speed round. In 10 years, five years, you're on the Midas list. What got you there?

Elizabeth Yin: Uh, I, I don't, I don't think we will be. We don't really like to participate in these kinds of things. It's very much a team effort at Hustle Fund.

Shaherose: Good. I love it. Okay. Who is another First Funder you admire?

Elizabeth Yin: somebody who is very prolific, but under the radar. I'll give two people. One is, Ahmad from Mercury. [00:54:00] He has written so many checks. I think he has a portfolio of over a hundred, but he's not the first person people usually think of to raise angel money, but like really, really good investor, makes decisions quickly, et cetera, very smart.

And obviously a successful serial entrepreneur multiple times over. Another person, Cyan Bannister. Also, I feel like, is relatively under the radar for having the kind of successes she's had. SpaceX certainly being, her first check into any company. And really I think, like, contrarian thinker.

Like, I think a lot of people kind of mimic the same things in investing, but she thinks from first principles. So those two people, I think, are really good.

Shaherose: Love it. Other than reps, how do you get better at investing?

Elizabeth Yin: I think actually grading is a good way. So at Hustle Fund, we have a rubric where, you know, on a variety of different axes, we grade a company. So, on a scale of [00:55:00] one to four, what do we grade the team? it forces you to pick, which side you're on. Are you a 3 4 or are you a 1 2? You can't pick a number dead center, so you have to kind of decide, are they generally better or on the worse side?

And actually we funded companies that have low scores as well. Like, getting a high score isn't, doesn't necessarily mean that we're gonna fund the company.

but, grading like how you think about the team, how you think about the product, I think is, is very, it's good to be self reflective.

Shaherose:

Zoom, phone, or in person meetings.

Elizabeth Yin: I like phone, but we do all of our founder calls over zoom.

Shaherose: Yeah, you do like phone and I love that. I'm going to ask this question, but like I think I know the answer, but for those who don't know, your social media following is incredible in terms of the value you create for founders. And so I just wanted to put that as like a thank you for you to, from the day you started blogging for LaunchBit, to today.[00:56:00]

You've been consistently sharing your thoughts. And I think that's a long time, by the way, to keep writing and a long time to keep iterating on your thoughts publicly. And I know it's had a huge impact on so many founders who don't know yet certain things and, or it helps them refine what they know.

So anyway, the question is, so I just wanted to give you kudos for that, admire it from afar. Social media platform of choice.

Elizabeth Yin: Oh, I think I'll still go with Twitter. There've been many ups and downs as we've all seen with the various algorithms and toxicity levels, but it is still a phenomenal platform where anybody in the world can literally chat with anybody else. And that is magical. And it's in short form, which I think fits well with people's attention spans these days.

Shaherose: Yeah. What would you, how much of your success would you attribute to your social media following?

[00:57:00]

Elizabeth Yin: Oh, a lot. Yeah, I don't know, 80%?

Shaherose: Yeah. Yeah. Agreed. Agreed. I mean, and you started early and I think that's what made the difference.

Elizabeth Yin: Maybe, I mean, there are people who have come after me who have built huge, much bigger followings. I think it's just consistency day in and day out, like, I actually don't think I have as much discipline as some of these other people, my goal for two years was to tweet every day, every work day for two years.

But I have largely fallen off that bandwagon. Other people, they are just powerhouses and tweeting all the time, posting on LinkedIn all the time, blogging all the time, like just doing above and beyond. Some people I would kind of mention like, for example, Packy McCormick, and I don't even know if many people think of him as an investor, but that guy has amazing thoughts in his writing, like, and it's all long form, and it's just, I don't know where he has the time to do all this research and write such, like, very insightful pieces, but I am so impressed by his writing.[00:58:00]

I could never do that. And he started way later and has really surpassed everybody.

Shaherose: Yeah, I agree. He's, running laps on all of us. This was so fun. I loved getting time with you today. Thank you, Elizabeth. Where can people find you online?

Elizabeth Yin: On Twitter, at dunkhippo33 . Thank you, Shaherose.

Shaherose: Okay. Wait, we've always wanted to know why dunk hippo and it's

Elizabeth Yin: know, it's just a silly username I picked when I was a teenager. And it's stuck. Not for Twitter, but for something else, but I've just carried it over across all the channels.

Shaherose: It's the best. It's very memorable.

[00:59:00]

Shure MV7 & FaceTime HD Camera: Another great interview. Hope you enjoyed it. I am recovering from the flu. So instead of recording takeaways, We're going to put them in our newsletter. Like we always do.

So if you haven't signed up, you can sign up on first funders, pod.com. Drop your name in the newsletter. And the day each episode goes out. We will share our takeaways and our reflections from our experience. So hope you enjoy them and hope you enjoyed the episode. See you next time. [01:00:00]