Garry Tan

$40B in Startup Value (Initialized Capital) | Garry Tan on That Creative Life with Sara Dietschy

Check out That Creative Life Podcast Page & Episode Notes

Key Takeaways

  • New startup opportunities are present in every industry
    • Any industry that is not taking advantage of software is ripe for innovation
  • If you know how to use spreadsheets you can run a whole business without hiring an engineer
  • “In a world where people are doing the bare minimum, if you can take that extra step, you’re gonna stand out” Sara Dietschy
  • Starting a company
    • “The hard part is, you have to have the right idea and the right need, at the right time” Garry Tan
    • Many people didn’t invest in Instacart because of the failure of a similar startup in 2001, Webvan
  • “If you don’t have technology as a key part of what your business is, you might not have future cash flows” Garry Tan
  • Facebook and Google Ad Auctions are driving away the profits of traditional businesses
    • Many companies need to pay Facebook and Google a “tax” to get ahead of their competitors
    • That’s why creators are so important today, as they provide another avenue to customers’ attention

Books Mentioned

  • Paul Graham’s essays and his book, Hackers and Painters changed Garry’s life, inspiring his VC career

Intro

  • Garry Tan (T: @garrytan IG:@garrytan ) is co-founder of Initialized Capital – a $40B venture capital firm focusing on early-stage startups. Garry was also a partner at Y Combinator from 2011-2015
  • Host – Sara Dietschy (@saradietschy)
  • In this chat, Gary talks about the lessons he learned as a startup founder, YC partner, and investor. He also discusses future trends for startups and online creators

Garry’s $200 Million Startup Mistake

  • When Garry was 23, Peter Thiel offered him equity in a startup he was building
    • Garry was comfortable and excited working at Microsoft and refused the offer
    • Peter was working on something that Garry had never heard about before, which made it sound risky
      • If you only work on things that you read about, you won’t create any new stuff
      • Work on something that nobody is thinking about is actually more likely to change the world

How do Creators Find the Next Thing?

  • New startup opportunities are present in every industry
    • Any industry that is not taking advantage of software is ripe for innovation
      • Hospitals, schools, and universities are clear examples
    • The founder of Flexport found that there was no software in the freight industry and created a solution for it
      • He realized this as his brother was importing medical hot tubs from China

No-Code Movement

  • If you know how to use spreadsheets you can run a whole business without hiring an engineer
    • Tools like Airtable, Notion, and Zapier make this possible
    • You can create several databases that talk to each other and set up automation between them
      • No-Code is a gateway drug to coding

The Value of Education

  • Garry got more value out of the connections he made in college than from the classes
    • Today there are more types of communities that bring together talented people
    • The class that stuck with him the most was called “Structured Liberal Education”
      • It covered all different religions and philosophies over history
      • The main conclusion was that no one has it all figured out

Why Garry Started a Youtube Channel

  • Garry learned the importance of sharing personal stories from Paul Graham
    • Paul’s essays and book, Hackers and Painters changed Garry’s life, inspiring his VC career
      • He understood that the World wanted him to be an employee, but he didn’t have to be that
        • “Tech giants need you more than you need them” Garry Tan
  • Many people teaching business on Youtube are trying to sell you their course
    • It’s really hard to find legit courses

Garry’s Startup Experience and Lessons

  • Inspired by Paul Graham, in 2008 Garry quit his job at Palantir to start Posterous
    • Posterous was a YC-backed blogging/social media platform
      • They were the first to allow sharing photos easily from an iPhone
    • When Instagram came out Posterous’ growth flatlined
      • Since Instagram’s launch, it took them over six months to realize that it was going to be over and they had to pivot
    • Garry and his co-founder couldn’t agree on the pivot and Garry went to work at YC
  • As an investor, Garry’s job is to prevent new founders from repeating the mistakes he made

Tech and Influencer Cofounders

  • “The new normal is going to be a tech co-founder and an influencer co-founder” – Sara Dietschy
    • Influencers need to understand their audience and their needs incredibly well
    • An example of how this can work well is that of Casey Neistat with Beme
    • Current examples with potential are Youtubers MrBeast and David Dobrik
  • To make it work creators need to understand the process of building a team, managing employees

Initialized’s Mantra and Instacart’s Story

  • Initialized’s mantra is “We fund tech companies before product-market fit”
  • Dealing with the risk of investing so early
    • Having built startups himself, Garry and his team are able to see when a product is well-made and worth considering
  • Garry was impressed with the speed and quality with which Instacart’s founder, Apoorva Mehta, built the app
    • Apoorva emailed Garry since he wanted to join YC and Garry replied that it’d be almost impossible for Instacart to be admitted
      • Apoorva replied, “So you’re saying there is a chance”?
      • Later he sent Garry a six-pack of beer to show him that Instacart was already working
    • “In a world where people are doing the bare minimum, if you can take that extra step, you’re gonna stand out” Sara Dietschy
  • “The hard part is, you have to have the right idea and the right need, at the right time” Garry Tan
    • Many people didn’t invest in Instacart because of the previous failure of a similar startup, Webvan
      • Webvan, founded in 1996, was clearly too early for that idea
    • 80% of people had smartphones in 2012, making it the perfect time for Instacart’s idea
  • Today there are two types of startups
    • Historically, Silicon Valley has been good at founding “pure software startups”
    • But it’s still learning to fund the “full-stack startups” (Uber, Airbnb, Instacart) that also involve operations in the real world
      • Instacart won because when its competitors were expanding to new cities (to show growth), Instacart decided to become profitable in San Francisco first

Figma and Startup Runway

  • Figma was able to take over five years to build their product and find product-market fit
    • Figma had incredible investors who were very patient
      • They knew that Figma was going after Adobe and that the potential market would be very high
      • This shows the importance of picking the right investors
      • One of the most important things you should ask when picking investors is “what else have they funded?”
  • How much runway do startups have?
    • Typically startups have two years of runway
    • Some startups have even four to five years
      • Especially startups working on technically difficult things
      • When they work, these startups have a unique advantage as their best competitor is five years behind

Traditional Businesses, Ad Auctions, and the Value of Creators

  • Holding on to incumbent businesses (GM, Walmart, Kroger) is now viewed as taking long-term risks
    • “If you don’t have technology as a key part of what your business is, you might not have future cash flows” Garry Tan
  • Facebook and Google Ad Auctions are driving away the profits of traditional businesses
    • Many companies need to pay Facebook and Google a “tax” to get ahead of their competitors
      • Infinite competition and infinite capital, bring all the extra money to the Ad Auctions
  • That’s why creators are so important today, as they provide another avenue to customers’ attention

What Makes a Great Product Manager?

  • The more specific you are about your customer the better
    • Really understand the problem you are trying to solve
      • Talk to users and distill the solution they need into features
      • The mindset is similar to that of a Youtube creator, figuring out who’s their audience and what they need to hear
    • At the same time, you have to keep in mind how many engineers you have and how much they can get done

Additional Notes

  • Paul Graham’s Essay Maker’s ScheduleManager’s Schedule was huge to help Sara arrange her work time
    • Managers’ schedule is broken up into 30-60 minutes increments
    • Makers need big chunks of time to create
  • Sara’s advice for creators to deal with burnout
    • “Don’t be on a strict schedule” Sara Dietschy
That Creative Life : , ,
Notes By Giorgio Parlato

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