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

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
    • 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

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 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

That Creative Life : investing, startups, technology
Notes By Giorgio Parlato