June 11, 2019

Product Hunt’s Ryan Hoover – This Week in Startups

Key Takeaways

• ~70 million U.S. homes have a smart speaker (like Google Home, Amazon Echo, or Echo Dot) – this is about a quarter of the U.S. population
  • It’s TBD how people will build on top of these smart speaker/voice platforms, but the same was true of mobile in the early days
• You can build a REALLY strong business and defensibility by creating a community on top of your core product/offering 
• There’s a need for a community centered around podcasts
• A good founder has to have a strong perspective of the future
  • They don’t have to have all the answers, but they have to know what they’re building towards
• “If you’re building a tech product, be in Silicon Valley. But that doesn’t mean the whole team needs to be there.”
• The best way to learn is by doing

Intro

• Check out Jason’s book – Angel: How to Invest in Technology Startups
• Ryan (@rrhoover) is the founder of Product Hunt which sold to AngelList ~2.5 years ago for ~$20 million
• Ryan is also the founder of Weekend Fund (a $3 million venture fund) which has made 37 investments so far

Angel Investing

• When it comes to investing, Ryan describes himself as a generalist 
• His fund is focused on early stage investing with a typical check size ranging from $50k-100k
• What does Ryan look for in a startup?
  • People building for platform/consumer behavior shifts (people building for markets that have yet to, or are just starting to, materialize)
• He’ll ask himself –  “Who’s building something really interesting today, that’s really nascent, for a future that they’re imagining or can articulate in some way?”

The Prevalence of Smart Speakers

• ~70 million U.S. homes have a smart speaker (like Google Home, Amazon Echo, or Echo Dot) – this is about a quarter of the U.S. population
  • At the end of 2018, this number was around 40 million
  • Why the growth? – They’re fairly cheap and Amazon is promoting them like crazy
• It’s TBD how people will build on top of these smart speaker/voice platforms, but the same was true of mobile in the early days
  • Mobile never had an app store in beginning
  • Who knows how we’ll be using our voice to interact with these technologies in 10 years?

The Value of Community

• Jason mentions that Ryan has mastered the combination of social + community with Product Hunt
• “It’s really hard to build a community and not every business should have a community aspect”
  • But – you can build a REALLY strong business and defensibility by creating a community on top of your core product/offering 
• Here are come companies Ryan has invested in who demonstrate a value of community:
  • Voiceflow
    • It’s a simple tool which allows users to build voice apps in their browser with no code
    • How did Voceflow implement the community aspect? – They have a a Facebook group which they use to post vlogs/elicit feedback
      • “This focus has allowed them to build more of a community around this nascent group of people who are building voice apps” (who would otherwise have no place to congregate)
      • The key point – the community allows the people using and building apps with Voiceflow to learn together
  • GirlBoss (they host lots of live events)
    • They plan to eventually release a LinkedIn for women

Podcasting

• Breaker was the first company Ryan invested in (it’s a podcast app)
  • Why invest? – Especially considering the fact that it’s a crowded market and that Apple pre-installs their podcast player on all their iPhones (Google/Android doesn’t currently pre-install theirs, but it’s likely they’ll start doing so soon))
    • Product Hunt used to do some stuff related to podcast discovery back in the day 
      • It ended up failing for a number of reasons, but the idea that there’s a need for podcast discovery and a community around podcasts stuck with Ryan 
    • To go further – there are similarities between getting your app/product and podcast discovered (Product Hunt as mastered the former), and Ryan wanted to help
• Google is starting to show podcasts in their search results (it will pop up as a result if something in the transcript is related to your search term)
  • This is big news – podcasts have never been searchable like this 
• A good point on podcasting:
  • There is a huge disconnect between the creator and the audience – they don’t really have a direct channel of communication

Why has Ryan not joined any other investment firms (despite multiple offers)?

• Jason estimates he could have easily received a $250-500k salary and an offer to be a Partner at an emerging firm
• “I have unfinished business at Product Hunt that I want to complete”
  • Ryan really loves the team he’s managed to cultivate & work with
    • He mentions how many of his teammates have taken on more of his responsibilities, allowing him to free up a lot of time for strategic thinking (and investing with his Weekend Fund)
• “I enjoy what I’m doing and know that I could learn a TON from joining a big firm, but I have more interest, passion, and excitement in building my own thing”
  • While Weekend Fund is still small in the world of venture firms, Ryan is hopeful he can build it into something meaningful long-term
• Jason has a good analogy:
  • You learn a LOT by being independent and working on your own thing
  • “While you might not be in the second or third chair in a big plane, you’re at the controls of a small plane. Being in control of a small plane is most analogous to being at the controls of a big plane. Being a flight attendant or a passenger in a big plane just isn’t the same.”

Monetizing Product Hunt

• In early 2018, Ryan started to prioritize making money (after 5 years of existing)
  • “Like any company, anything you prioritize is a trade off for something else. Revenue had never been a priority.”
• Product Hunt is now profitable 
  • Their business model is primarily centered around product, job, and event promotion
  • The majority of their revenue (about 1/3-1/2 of it) comes from something pretty simple – promoted posts on the home page
    • They sell the 4th slot down on the home page to a company at a flat fee ($4k-6k per day)
    • (Caveat – it can’t be a new product, it has to have been launched in the past – this prevents people from gaming the system and just paying for promotion of a new app/product)

What makes a great founder?

• It’s all based on what you’re building
• One thing is for sure – You HAVE to have a strong perspective of the future
  • You don’t have to have all the answers, but you have to know what you’re building towards

How does Ryan go about investing in pre-launch startups when there’s no product or customers?

• It’s about judging founder-market-fit
  • Ryan will ask: “Does this person have a unique quality that’s competitive in the market to solve X problem in Y industry?”

More on Ryan’s Investment Process

• He estimates he gets ~100 cold emails a month with pitches
• He’ll then get in touch with whatever companies interest him and hold a Zoom meeting with the founders
  • “I find it 95% as effective as being in person”
  • Jason disgarees – he wants to be able to look the founders in the eye 
    • He also likes to see if the founders have the wherewithal to come meet him in person – it’s like a test
  • Ryan estimates that for every 10 intro video meetings he holds, he’ll invest in 1 company
• Weekend Fund has invested in 37 companies so far (usually 1-2 a month)
  • ~35% are based in San Francisco
• The median valuation of the companies he has invested in = ~$6 million
  • So his $50-100k investment is worth ~1%
• Ryan estimates you probably need to invest in a minimum of 30-40 companies before having decent odds of hitting a unicorn (a $1 billion company)

Would Ryan advise founders to move to Silicon Valley after having raised money?

• It depends on what you’re building
• “If you’re building a tech product – be in Silicon Valley. But that doesn’t mean the whole team needs to be there.”
  • “Product Hunt wouldn’t exist if I didn’t move to SF in 2010”
    • Being there gave Ryan access to a handful of priceless relationships/connections 

What’s the one thing Ryan looks for in the founders during an investment meeting?

• “One thing I love is when the founders teach me something”
  • Particularly an insight or secret about the company’s domain
  • “If I come to the meeting and I can foresee everything they’re planning, and know all about their business – that’s concerning. I should know very little relative to the founders.”

What does Ryan NOT like to see when meeting with founders pre-investment?

• Anything that causes him to get the sense that the founders are hiding something
• When they don’t have crisp answers (when they meander answers to avoid the question asked)
• When founders underestimate the importance of going to market and getting users
  • “That’s the hardest part for a lot of these companies. It’s actually not building a great product – it’s getting users.”
• Jason HATES when founders don’t know their own numbers/metrics – it’s a HUGE red flag
  • “It’s like being a pilot and not knowing your altitude or speed… you’re going to crash the god damn plane”

Good Questions to ask in Investment Meetings

• Ask about competitors:
  • Phrase it – “Who are you afraid of?”
  • Or – “What would you do if someone like Facebook or Google pivoted into your direction?”

Coachella

• Ryan has been to Coachella 5 times (he still buys GA tickets)
• His favorite moment – Porter Robinson’s 2015 set
  • “I love live music, I love concerts, because it’s this moment to forget about work and come together with all these people. It’s like a tribal experience.”

Additional Notes

• “The idea of a 35-year-old taking selfies is so sad” – Jason