Hunter Walk’s blog focusses mainly on how to create a start-up, get the ball rolling and guarantee success in your chosen field. He was also previously a product manager at Google. His blogs offers conversations with other leaders in the product management world as well as his own frank take on the issues facing product management in the current market.
Even though I finished reading Emily Chang’s Brotopia last month, it’s lingered. One passage in particular — Jennifer Hyman, CEO of Rent the Runway, talking about how we call many men in tech “visionary” but fail to apply this characteristic as often (or at all) to women.
Reflecting on Jennifer’s assertion, I thought of our experience with theSkimm, one of the most dynamic audience companies out there today and a startup we were fortunate to first back in 2013. While reading Brotopia, we were also helping theSkimm finish up their new financing, with Google Ventures and Spanx founder Sara Blakely joining the cap table. Over the past five years, I’ve witnessed theSkimm be underestimated by the venture capital industry, by pundits and press. During that time I’ve heard many male media founders lauded as “visionary” – Jonah Peretti, Shane Smith, Bill Simmons. They certainly deserve it. I’ve rarely heard Carly Zakin and Danielle Weisberg described the same way. They deserve it too.
“Visionary” is defined as “thinking about or planning the future with imagination or wisdom.” What, in my mind, makes them visionary when it comes to theSkimm?
Email as Format – at a time when they were being told to just try and grow on the back of Facebook and other social platform, they took a medium decried as moribund and reignited it.
Smart Summarization as Wedge – helping make it easier to live smarter. Taking real news – not women’s news – and delivering it in a branded tone.
Leveraging 1% Fans – the Skimmbassadors as a group, now 30,000 strong, which helps drive the passion and provides a realtime focus group.
Paid App – One of Apple’s Top Five Highest Grossing News Apps since the day it launched. A $2.99/mth product delivering a seven-figure revenue stream… and growing.
Calendar Integration – The app integrates into your calendar and posts things coming up you need to know about – ranging from entertainment and lifestyle events, to activism and political deadlines.
Some of this ground was completely new to the industry. Some was shared by similar thinkers such as Mike Allen and The Week. But the package is unique. And that’s why 7+ million active readers start their day with theSkimm. A number that’s almost all US-based, professional and aspiring professional. A number that’s the equivalent of a Top Five news network.
Digiday recently did a podcast with Carly and Danielle and it’s a lively snapshot of how they think about the present and the future of theSkimm (transcript). Listening to it I thought one thing – visionary.
Congrats to the team on their fundraise and here’s to being underestimated!
One thing we try to do at Homebrew is help startups who *aren’t* part of the portfolio and one way we do that is by providing whatever we can publicly, not just to the companies we’ve backed. Our Head of Talent Beth Scheer is the catalyst for a lot of this and she just published great Human Resources Policy materials which have been vetted by legal (in the US) and other subject experts. Take a look,
Nothing gets an investor’s heart racing like the phrase “software margins.” It’s shorthand for the concept than businesses which are primarily bits (not atoms) have some very attractive characteristics: fixed development costs, economies of scale in deployment & servicing, and “winner take most” markets with pricing power. The resulting impact is very profitable, fast-growing success stories with high gross and net margins. Dismissing a company as “nice but doesn’t have software margins’ is the “yeah, nice personality I guess” of venture investing.
So if you believe that in order to access growth capital and consistently trade at a high multiple as a public stock a company needs to maintain the margin-profile of a best-of-class software company, what might be the tradeoffs?
Well, maybe you focus engineering efforts disproportionately on growth and revenue-generating projects. And perhaps you see Sales & Marketing as necessary but every other non-product function – Policy, Customer Support, HR – as margin sucking cost centers.
Could Facebook, Twitter and YouTube spend more money on faster responses to abuse reports, more accurate content review tools, better ethics training for engineers, more manual investigations of identity theft and fraud? Sure. Would these lead to better products despite being fundamentally non-scalable? We can debate whether the answer is between “partially” and “substantially” but the impact would certainly positive.
Will we find that there were types of technology businesses which we thought had “software margins” but were understaffing customer support, content moderation, and policy enforcement because managing a global social network is just fundamentally different than selling expense software into the Fortune 500? These are questions not proposals, but when I look at some of the struggles my favorite consumer tech companies are facing, I do wonder if the requirements to fit a certain margin profile are one of the structural constraints to solving their issues faster.
Want to know the biggest challenge Satya and I faced when announcing Homebrew’s third fund? How to describe the moment in time we seek to invest. “Early stage” has been coopted by billion-dollar VCs who try to shoehorn a $10m ARR SaaS company into their idea of risk capital. And the verbal gymnastics of some founders! “We did a pre-seed, followed by a seed, then a bridge and an A. Now we’re raising an A-2 to scale. But it’s definitely not a B – that’ll come in 18 months.” What?!? Makes me wish we’d just adopt version numbers, a la software releases – Round 1, Round 2, Round 2.5 and so on.
But ahead of the industry solving this problem, we had a blog post to publish. So, what to say? We decided on “seed phase” because now more than ever, we believe seed isn’t a round, it’s a period of time where you are starting, learning and iterating to a business that has proven its core value proposition and raises a Series A to begin scaling. Why does this matter to founders (and to us)? A few reasons.
1. Asking founders to prematurely perfectly forecast the amount of capital they need to get to a Series A is an unnecessary constraint
When we invest in a startup we expect aspects of the roadmap will change, heck, if it doesn’t I’m suspect they’re not taking enough risks or aren’t running the right experiments to get the data they need. Why should I expect premature precision in budgeting and forecasting the capital requirements? Of course a CEO should be thoughtful and disciplined when it comes to their cash and early stage startups don’t usually die because of lack of funding but rather lack of ideas and output. At the nascent point where we invest I’d prefer a CEO to be absolutely correct about their focus and directionally correct about the economics it takes to get there. You should get multiple bites at the apple if things are going well.
2. Series A investors are increasingly looking for derisked companies and willing to pay more for momentum
While there still exist conviction-based VCs, many more are momentum-based. That is to say, evidence of a startup being a potential outlier is worth a lot more to them. Why? Well, the long path to liquidity means many GPs don’t have much capacity open and the cost of getting stuck with a mediocre company is high (sucks up capacity and a competitive blocker for other investments). Later stage capital markets seem to be more willing to pile into perceived “winners” so the Series A VC can draw a path to where the next few rounds will come from. A result, the more mature the vertical (SaaS, commerce as examples), the less interested a Series A VC will be in an investment that just checks the boxes – ie it’s not about simple milestones. Which also means….
3. Startups are raising more total dollars, in various configurations, to get to the point where a strong Series A can occur
Many of our most successful investments have raised 2-3 rounds of capital before going out to do a Series A, in various configurations, in order to build not just product-market fit, but a real company! They’ve gone to market for a Series A that’s happened quickly and from a point of strength because they’re a real operating vehicle, not just six months of heat. This was the case with Lumi, who closed a very competitive Series A led by Spark. While the total amount they raised during their seed phase wasn’t out of line with a single larger round, they traunched it in a way to accelerate when necessary without taking all the dilution upfront. Call it whatever you want – a pre-seed followed by a seed followed by a seed-2. I don’t care – those are 90% marketing terms.
4. Founders benefit from having a financing partner who will write more than one check into the seed phase when necessary or desired
Homebrew will write multiple checks into your seed phase when it makes mutual sense. We’ve participated in pre-seeds and then led seeds. We’ve led a seed and then doubled-down to help a company go even further before heading out to the markets for a Series A. We don’t need outside validation because we’re investors of conviction. So yes, whether you’re raising your first $500k or multiples of that or your last $1m before a Series A, we want to chat with you.
So founders, whether you work with us or not, Homebrew’s belief is that seed is a phase and increasingly having an investor of conviction who can back you through the entirety of the phase is a competitive advantage.
[Inside baseball: our goal is to concentrate our dollars in 6-8 investments per year because that allows us to concentrate our time and sweat too. For Fund 2 so far that’s looked “typically” like ~$1m of your first $2-3m raised, but we’ve done several pre-seeds, participating in rounds < $750k and then putting more into your seed. We’re agnostic and can work with you about pros and cons of different approaches. And yes, there is such a thing as “too early” for us, but that’s based on type of company, not stage of development. Will write a separate post on that…]
There’s a question we ask ourselves when investing in a startup outside of the Bay Area: is their location a positive for the company? We believe great companies can be built in many locations – not just beloved Silicon Valley – but we do want to articulate *why* a specific company benefits from its geo. This can be based in the founders (strong hiring relationships locally), the local industry (access to customers, partners, talent) or academic hubs (research, talent).
Our second Homebrew fund, the one we’re currently investing out of, has three Southern California startups, all of which are absolutely better, more durable companies being based where they are versus if they had started in the Bay Area.
Joymode (LA), Lumi (LA) and Shield (San Diego) each take the DNA of their home cities and imbue their companies with a sense of purpose. They’re amazing technical teams without being myopically focused on just their engineering capabilities. Outside of the echo chamber, they’re all taking innovative approaches to their industries. None of the CEOs are playing – they aren’t doing this just because their friends and neighbors have started companies.
Homebrew was fortunate to lead their seed rounds and they’ve all gotten far enough to attract a next strong fund – Naspers for Joymode, Spark for Lumi and a16z for Shield. It’s clear that SV capital will come South when the idea is big and the team is formidable. So we’re happy to continue being Day One investors for founders building in LA and San Diego.
I try to post here at least once every 14 days and if I don’t, it’s usually a bad sign. This time the lag was for *good* reasons: Satya and I were finishing up the close of our third Homebrew venture fund, a $90m commitment to back new startups.
Now back to work. And hopefully writing here more often again….
“Look, I’m incredibly thankful for this industry. It made me a millionaire.” The person seated across the table from me went through a series of facial microexpressions as I said this — surprise, disgust, analysis and finally, calm. We don’t really talk about money in Silicon Valley. At least not in public in a personal way with near strangers. We *speculate* about people and wealth a shit-ton – based upon a company’s last fundraise, based upon current stock price, based on the market price of BTC – but we don’t really talk our own situations, challenges, learnings. When a notable exception occurs – Jason Hirschhorn’s post about selling his first company – it really sticks for me as important. Don’t values and community come from sharing experiences and being vulnerable together? I think so but then why am I getting nervous about writing this post? This is a fraught area of privilege, assumption, envy, fragility. I’m told I’m in a position of power even if it doesn’t always feel like it. I know I’ve got some reach for what I write, at least within a narrow community.
Over the past 20 years in San Francisco I went from negative net-worth grad student to Silicon Valley “Middle Class” (the 2%) to running a venture fund that, if we do our job, will ultimately put me in the 1% or better (in California the average annual household income of the 1% is an astounding $1.4m+). Over my career I’ve benefited from being in the right place at the right time, from being born TallWhiteMale and from working hard. 21 year old Hunter would be very happy to hear how 44 year old Hunter ended up, even if 44 year old Hunter is still a bit insecure.
[Deep breath] There are five conversations about money I’ve had with zero to a handful of people in private that I’ve been wanting to write about. [Another deep breath]
1. The Big Money Ball Bounces Semi-Randomly, Or At Least It Can Feel Like It
One of the things that’ll kill you is equating wealth with self-worth and constantly comparing yourself to your peer group. The money ball bounces too randomly around here and because of outsized returns from new ventures, being at the right company in the right role during the right few years can be worth $$$$$. Even though your equity is unlikely to make you rich, there are plenty examples of when it does to extraordinary levels. And it doesn’t always end up in the hands of diverse, hardest working or ethical people. We can – and should – continue working on changing that system, particularly with regards to pay gaps between the genders and between whites and underrepresented populations. But at a personal, human level you can’t let this eat you from the inside. Ensure you are treated fairly – never let an employer take advantage of you, make sure to get guidance on compensation, don’t be afraid to negotiate – but take a zen-like approach and reject envy. There’s always going to be some dumbfuck who lucked into a multimillion dollar payday. Don’t waste your energy on him.
2. Knowing There’s Another $20 In The Bank Never Stops Feeling Good
It would be an exaggeration to claim I’ve personally known poverty, but I have had zero dollars in my checking account and a negative net worth. It feels shitty even if the anxiety experienced was only a fraction of a percent that true struggle brings. It leaves a mark, one that you don’t forget. The easiest way to translate my own emotion is this: when I go to an ATM and take out a few $20 bills, there’s an accompanying endorphin surge tied to knowing there are many other $20 bills there for me if I need it. It’s like a low rent version of that Oprah story where she keeps a million dollars of cash on hand just to know she’ll never be poor again (or something like that).
What’s the takeaway from this parable? Just to realize that people experience – or are searching for – economic security in different ways based upon their own personal histories. And this influences in an emotional, sometimes irrational way, the types of decisions they make. When I hear “just start a company, you have nothing to lose” know it won’t ring as true to the realities many founders come from and what they need to overcome. Which brings me to…
3. Many People Are Supporting More Than Themselves. And Many Self-Made People Had Safety Nets.
I was lucky – my parents saved money for my college before my dad’s job disappeared in a corporate downsizing. That salary never came back. Having four years of school paid for in full already put me in rarified air especially as I met more and more classmates who were drawing major student loans to make their education possible.
Now, as an adult, I also see people who are supporting their parents, or their siblings, a nephew, and so on. The compensation needs of these folks might be different than a 24 year old who still has some help paying the rent. It’s why we counsel founders to understand the situation of a potential employee when designing a compensation package (in ways that remain legal and appropriate). Because maybe someone needs a little more stability in the short-term to make the transition possible. And you lose out on great talent if you can’t at least have these conversations. Don’t assume everyone can just eat ramen and sleep on vesting options. People will make sacrifices to work at your startup – seed companies don’t (and shouldn’t) pay the same cash comp as a Google – but if you’re “one-size-fits-all” then you’re less likely to build a diverse team.
4. How Do I Give My Daughter A Great Life But Instill Values & Appreciation?
I signed my daughter up for the major airlines frequent flyer programs when she was born. Might as well start earning free tickets right? The other day she received a mailing to participate in a private test drive event for the new Volvo SUV. My five year old apparently has the marketing profile of a 32 year old upper middle class mom!
Caroline (my wife) and I raise our daughter in SF because we want her to have a sense of community. Caroline is especially important here through her day job leading Twitter for Good (Twitter’s philanthropy and volunteerism effort) and a myriad of personal nonprofit activities. We do a lot of things to expose our kid to the idea of service, to generosity, to diversity. But she also eats organic blueberries and has too frequent Amazon deliveries of books, arts & crafts and Lego kits.
San Francisco has real challenges in its growth but I get sad when I hear people talk about how they don’t want to raise a kid here because of the homelessness and inequality. These are what we need to take a hand in solving! We don’t shield our daughter’s eyes from it; we answer her questions about sidewalk tents. But still, she’s been to Hawaii three times already. Did I mention the organic blueberries – $6 for six ounces – what the fuck!
I’m open to suggestions on this one. We’re just trying our best to instill compassion, work ethic and citizenship.
5. At Some Point It’s About Giving It Away
This afternoon a second-time entrepreneur told me he, at founding, gave most of his equity in his current company to a nonprofit he cares about. That it motivates him each day more than if he was just creating an outcome for himself. I LOVE THIS!
It feels like something is changing – people around me are giving more to political causes, putting their name next to causes. At the fringes I’m hearing more people take pride in their philanthropy and exert social pressure to their peers to donate. Am I naively optimistic? Are the next generation of bitcoin millionaires going to look to buy fifth cars and third homes? Or will we have more people like Halle Tecco and the anonymous Pineapple Fund?
Personally, I’ve got a number in my head – if I can bank that amount everything else is going towards philanthropy. Today, as a family, our charitable and political donations are between $15k-$30k annually. That’s down a bit from when I was vesting Google stock quarterly and could donate appreciated shares, but it’s still an ok percentage of our combined annual salaries. The tech sector is in a privileged position – can our generosity match our accomplishments?
Ok, those are the five $ conversations I have in private or have been afraid to have at all. Not sure I used all the right words or framed all the issues correctly. If there’s something I can learn more about or expose myself to a broader point of view, I’m open to feedback. Thanks!
Not gonna lie. All those “Books of 2017” posts made me kinda wishing I kept a list of my own. No way for me to go back and figure out what I read last year (I give away most books once I’ve completed them) so instead will make this a living post, where I add as I finish. If we generously start 2018 on 12/26/2017, here’s what I’ve read so far in reverse-chron order:
A “personal” one for me as we’ve known Sarah and her family for a quite a while, but really bonded over becoming parents around the same time earlier this decade. Half-memoir, half-reporting, this was one where I didn’t want to let the year end without reading given my hope that 2017 was a turning point in how we think about gender in technology.
I read very little fiction but when I saw that Jordan Peele optioned this book to turn into a HBO series….! Historical fiction + sci-fi + sociology of American racism I imagine this read is a bit too “pulp and cult” for some but I really enjoyed it.
Bought this one after reading a stunning excerpt in New York magazine. I’d met Ellen a few times previously, but wasn’t until this past year that I’d say we became “friends” as we find our daughters in the same school, and more reasons to collaborate given her return to venture. Ellen used her voice to raise a bunch of systemic issues in our community and it’s hard not to see a straight line between her lawsuit and the #MeToo movement of 2017.
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