Elizabeth Yin CoFounder/General Partner Hustle Fund on Covid-19 crisis for startups

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Transcription

PEMO: Welcome. So nice to speak to you again. It’s been a long, long time.

ELIZABETH: I know it has been maybe even almost a decade.

PEMO: Yeah, I would say so. Yeah. And do you’ve come a long way? Go ahead and tell me what you’re investing in at the moment.

ELIZABETH: Oh gosh. A whole lot of things. So I think for some quick context, these I’m running a VC fund called hustle fund, which is different from first myth and for hustle fund we invest in very, very early stage companies. Like, you know, I’ve, I’ve invested in early stage companies, but this is very, very early. And by that I mean, you know, companies may not even have any traction whatsoever and barely a product. So that means that we are doing a lot of bulk investing. And you know, already in about two years we’ve done over 135 investments, so all over the board.

PEMO: Fantastic. and I gather you probably are also very women friendly, correct?

ELIZABETH: Yeah. I mean, I think certainly, you know, one of the things that I’ve always believed in very much aligned with at 500 startups is that it is an asset. And I think my own personal record, at least with hustle fund is 40% of the companies that I’ve invested in have at least one female founder.

PEMO: Yeah. That’s so good. You, you’re giving back paying it all back. That’s fantastic.

ELIZABETH: Well, the thing, I don’t really see it as charity. I’m in. I think to be fair, it’s an opportunity for money by finding opportunities that other investors don’t. And that’s great for me.

PEMO: And I agree with you. I think diversity just brings so much more creativity and innovation, so good work. So how are you, how are you managing current investments with the crisis?

ELIZABETH: Yeah, we’re still very active. I think the, you know, my thinking on this is two fold. So one, there’s our existing portfolio and then, and then there’s our new potential portfolio companies and certainly on the existing portfolio front, there’s just been a lot more that we’ve been involved with there. Like generally speaking, high frequency investing, VC firms cannot spend a lot of time with each company. That’s just the nature of the, of the model. You know, when you have 35 portfolio companies, you, you are not taking board seats, you’re not spending, you know, hours every week with each company. And so that’s just a very different model. But more recently in the last, I’d say two or three months, we have been spending a lot of time and that basically just means burning the midnight oil to spend time with our portfolio founders, everything from therapy.

ELIZABETH: And I don’t think I’m a qualified, I’m just moral morale and encouragement and that kind of thing. And then helping people think through their cashflow their cash management and also even how do you fire somebody and that, that hurts, you know, that just Nope, fire people. And for many of our founders, that’s the first time where they’ve had to make very difficult decisions. And that’s something that we’ve been kind of helping our founders with and think through that stuff. On the new portfolio front, we’re as active as ever. So, you know, I think basically it just means there’s just a lot more work all around between those two things.

PEMO: And you’re okay with not physically meeting founders from potential investments now.

ELIZABETH: Oh, that’s a great point. So actually, unlike many other VCs, we have always invested remotely. So for us it’s not a change.

PEMO: Oh, okay. Good.

ELIZABETH: And that’s because all of our companies are literally all over the place in the U S Canada and now Southeast Asia. So we’ve always taken zoom calls. They’re very few founders. I’ve actually met in person ever even pre [inaudible]. So we haven’t changed anything with regard to that.

PEMO: Hmm. That’s fascinating. And what are your thoughts about, like what would your advice be to startups about how to survive the current process?

ELIZABETH: Yeah, you know, it’s really interesting because I think there are companies that will survive and then there are also a very small percentage of companies that will even thrive. And so what I mean by that is not necessarily that they landed in an industry that’s doing phenomenal. Although, of course if you’re in health or remote work, you may be in that boat. But the way I think about it is if you can get your own burn under control first, then you can actually become opportunistic and really thrive. So for example, we have a couple of portfolio companies that are in industries that are really hurting and a lot of industries are really hurting. And so they, you know, their revenues have dropped certainly. But if you are lean enough and you can get your burn under control, then you can actually be opportunistic. Like you can, you know, all of your competitors and alternatives in the space are also hurting.

ELIZABETH: And if their burn is not under control, you know, they’re, those companies are kind of at risk. And so if you want to be opportunistic in this environment, you can actually go and acquire companies for basically $0 million. And even though you’re hurting as well, like it’s, it’s more of a matter well, who’s hurting more? So that’s kind of an interesting way to think about it. And that is kind of the position that I would love all of our portfolio companies to get to. Not everyone will, of course, that’s a very hard thing to get to, but that is kind of the direction we’re trying to, you know, usher everybody towards.

PEMO: Okay. So, so that’s a really good point and no one’s really spoken about that, but obviously there’s always opportunities in crisis. What is your personal insight or takeaway that you’ve taken out of this whole lockdown and the virus and the problems as regards no business for, you know, for three months or so?

ELIZABETH: Well, I think all rules have been thrown out the window. I don’t think you can really predict who is going to win, who’s going to lose. You see big companies that four months ago were considered very strong IPO candidates or you know, were very strong, you know, big businesses as well. And now you’re seeing a lot of people declare bankruptcy or are having to do all kinds of drastic things that will change their business. And so I think this is going to be very interesting and chaotic. It already is. And ultimately at the end of the day, it’s not about how much money you raised, it’s, it’s not about what was going well for you before, but the people who win in this environment are the people who can react quickly, learn quickly, and have really strong cash management. And I think people have always sort of said that, but the last few years have been incredibly frothy and this is where we’ll see the pack separate based on some of those basics.

PEMO: Right. and what do you think I gained? This is a big question and I know everyone, it’s sort of impossible to answer, but what’s your prediction for the next 12 months as regards investing in startups and then possibly two years down the line? Like what do you think it’s going to look like? It’s a, I know it’s like a stab in the dark, but it, it’s it’s interesting to hear people’s perspectives.

ELIZABETH: Yeah. So I think speaking from the early stage private markets I think, you know, there’s, there’s nothing fundamental, there was nothing fundamentally wrong with how things were [inaudible] unlike in 2008 and 2009. And so what you’re seeing here are, are a couple of things that are happening in early stage fundraising or early stage investing, which is number one, a point that you brought up before was a lot of investors are not quite used to this new workflow of investing in companies without having met them in person. So more seeing the slowing of deals happen as a result of that. And the second thing is even though a lot of VCs have cash, they have new funds that they need to invest. There are a lot of VCs who are privately talking about holding back and looking for the most opportunistic deals. And so you’re going to see a lot of people sitting on the sidelines as a result of that as well. So those two things combined, I think we’re actually very interesting in that we’re already starting to see this. Valuations are starting to go down quite a bit. And I actually think that if you’re an early stage investor going into the fall will be a really phenomenal period of time for investing. It starts in that direction, but I think it will, it will go more so in that direction combined with the fact that my prediction is that we will have a second wave of this. Like certainly the United States is not handling Covid.

ELIZABETH: I mean we don’t have a vaccine. We’re not going to have a vaccine for at least a year. So you know, pulling that all together, if you’re not handling the situation well and there’s no vaccine, then we’re definitely the situation pop up again, which means there’ll be more lockdowns and more of this and that affect investors even more. So. I think basically what I’m saying is we’re very opportunistic from an investing perspective. And I think for the founders, you know, I don’t think there’s ever a right time, a good time or bad time to start a business. I think the right time is when you see an opportunity for your company. It really shouldn’t matter what the investors are doing. And, and we’re going to also see, you know, the best founders emerge from this time as well because those are the people who really are serious about building a business. They’re not the people like maybe last year who would say things like, well, if I would raise $2 million, I’m going to go and build this company. You know, the people you see building a business now, they are the real deal. And I really do applaud every entrepreneur who is starting a company now because like these are the people who will survive and thrive.

PEMO: Right. and personally, what do you think that found a needs to get through this period and to be one of those incredible startups that are going to win out of this?

ELIZABETH: Yeah, and I think partly where I’m coming from is I started my company during the last recession. It was impossible to raise money at first. Like, you know, I left my cushy job at Google in late 2008. By the time 2009 rolled around, valuations had hit the floor. I would have been desperate to take any offer but nobody to invest. So it was a couple of years before I even raised my first money from 500 startups. And I think, you know, that’s sort of the mentality you need to go into going into this. It’s like all right, if there isn’t any money coming from VCs, I mean there are some VCs and some angels who are investing. So it’s not like it’s absolutely zero. But if you assume for a moment it is zero, what does it need to do to just get sales?

ELIZABETH: So the idea that I pick, you should be able to get sales relatively quickly and you know, the amount of capital you need to definitely flush, flush that out before you begin and if it means staying longer at your job and doing it as a side project, great. And that’s when my business partner, Eric bonded in the last recession, like he was at into it full time for many years doing his his startup on the side in order to make ends meet or you know exactly how much capital you need. And so you save up that much from your job. But that’s the kind of like, that’s the kind of thinking that I think people need to have rather than, you know, last year people just leaving their jobs and thinking, Oh, I can go and raise $2 million out of the Gates. I think those days are over for quite a while.

PEMO: Yeah. And maybe that’s a positive thing in some way because it does end up having, I mean, I just heard that there’s a, I’ve forgotten what his name is, the guy that shuts down startups, you know, January, February was shutting down four to five a week and now he’s shutting down five to six a day.

ELIZABETH: Yep.

PEMO: During the crisis. And I mean, when you think, well, gee, what were those startups doing? You know, like what were they providing? Were they providing value? Who knows? You know, so and you know, a lot of them are venture backed startups, so, or at least angel investments. So maybe it’s good to thin that out and actually have sort of some true grit showing.

ELIZABETH: Oh, I, I a hundred percent agree with I mean, I think at the end of the day, like people have gotten too distracted by VC capital. I think people have lost their bearings around what are the fundamentals and building a business while we do need to get profitable at some point and some point soon. And I think this will force everyone to be more disciplined and I think entrepreneurs, frankly speaking, will be more rewarded for that too in the long run. Like, you know, one of, one of my friends started a company called nerd wallet Tim Chen. And he started that company in turn, the last recession and couldn’t raise any money either, but in the end, like, you know, they are profitable, generating hundreds of millions of dollars in revenue every year and he, he owns like most of that company. And so that’s great. Like now in retrospect.

PEMO: Yeah. Less dilution I guess. Right?

ELIZABETH: Yup. A lot of dilution.

PEMO: And I’ve been saying to the VCs that I’ve been interviewed viewing that I see this as sort of an enforced retreat, this shelter in place. And for me that’s very restorative. I’m wondering what you personally have taken out of this shelter in place

ELIZABETH: On a front.

PEMO: Yes. Yeah. What’s your insights?

ELIZABETH: Well, so outside of investing, I think that this whole situation has just been hard. You know, I think we see unemployment continuing to rise and that’s just heartbreaking

PEMO: Globally. Yeah.

ELIZABETH): No, but I mean, I think, you know, at the same time what what is doing is it’s really illustrating an acceleration. I think of what was already there, which is, you know, even prior to Covid I was already feeling this quite a bit, which is technology has made a lot of things so efficient, eliminated a lot of jobs, continues to and will continue to. And we need to do massive rescaling and also have safety nets for people as this continues. And I think that this has this will accelerate that because I think, you know, unemployment is going up a lot and you know, as we saw in the last recession, a lot of jobs just actually never came back because when things get hard and cash is, you know, a real crunch, then business owners have to make these tough decisions and let go of people and, and then come up with more cost effective options, which includes technology, it includes outsourcing. And that’s going to happen again. Even once the, once, you know, Covid is over and we start recovering from this, that’s going to happen again. So I think we’re going to have massive unemployment for a long time and I don’t know society what the repercussions will be, but definitely lots of an angst and lots of issues will and strife will occur because of that. And I, I, I feel rather helpless there. But we do need to do something

PEMO: And sometimes you know difficult things can actually bring new ways of looking at life and business and hopefully positive things will come out of it.

ELIZABETH: I hope so. I mean, I think unfortunately with, when you’re talking about things like unemployment, there’s a lot of then reliance on changes in government, both in terms of leadership as well as in terms of actual, you know, laws or things that get put into place. As you know, politics in the U S are always a dicey thing.

PEMO: Yeah. So I saw a an article or an editorial in the Irish times this morning where they were saying that you know, they used to envy the US and now everyone pities them. Oh gee, if the Irish are saying stuff like that, that’s pretty bad.

ELIZABETH: We’re really not the envy of anybody these days.

PEMO: Exactly. Oh, look, delightful to speak to you again, Elizabeth. And so glad that Hustle Fund is going well and you’re going well, and I really appreciate your input into the ecosystem. Thank you so much for today.

ELIZABETH: Thank you Pemo. Thanks for having me. I appreciate that. Okay. See you later. Bye.