
October 10, 2020
$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
- Garry is also active on his Youtube Channel
- 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
- Any industry that is not taking advantage of software is ripe for innovation
No-Code Movement
- If you know how to use spreadsheets you can run a whole business without hiring an engineer
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
- 368 and the Adobe Creative Residency are great examples
- 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
- Today there are more types of communities that bring together talented people
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
- He understood that the World wanted him to be an employee, but he didn’t have to be that
- Paul’s essays and book, Hackers and Painters changed Garry’s life, inspiring his VC career
- 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
- Posterous was a YC-backed blogging/social media platform
- 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
- Apoorva emailed Garry since he wanted to join YC and Garry replied that it’d be almost impossible for Instacart to be admitted
- “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
- Many people didn’t invest in Instacart because of the previous failure of a similar startup, Webvan
- 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?”
- Figma had incredible investors who were very patient
- 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
- 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
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
- Really understand the problem you are trying to solve
Additional Notes
- Paul Graham’s Essay Maker’s Schedule, Manager’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