20 VC 083 500 Startups Week New Funds, Startup Mentoring and Dave's Masterplan with Marvin Liao, Partner @ 500 Startups

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Marvin Liao, a partner at 500 Startups, discussing his journey from a decade-long career at Yahoo to angel investing and mentoring at startup accelerators globally. Liao shares insights into the selective investment process at 500 Startups, which involves rigorous vetting from thousands of applicants to a few dozen acceptances, and emphasizes the importance of maintaining quality while scaling operations. He also highlights his excitement for sectors like AI, enterprise SaaS, and digital health, and explains 500 Startups' global investment strategy, including new funds for Japan, Southeast Asia, and Thailand. Additionally, Liao touches on the value of mentoring for investors and the potential pitfalls for startups when accepting mentorship. The episode also features a promotion for LawTrades, a legal services platform for startups and VCs.

Summary Notes

Introduction to 500 Startups and Marvin Liao

  • 500 Startups is a well-known venture capital firm and startup accelerator.
  • Marvin Liao is a partner at 500 Startups, running the San Francisco-based accelerator program and investing in seed-stage startups.
  • Prior to joining 500 Startups, Marvin had a 10.5-year tenure at Yahoo, working in multiple departments.
  • Marvin also serves on the board of various internet advertising and ad technology companies globally.

"Marvin is a partner at 500 startups running the sf based accelerator program as well as investing in seed stage startups."

This quote introduces Marvin Liao's role at 500 Startups, highlighting his responsibilities in the accelerator program and seed-stage investments.

"And prior to 500, Marvin is a ten and a half year veteran of Yahoo, having held roles in various departments from sales to business development, ad operations, marketing, and presently serves on the board of several Internet advertising and ad technology companies across the globe."

This quote provides background on Marvin's extensive experience before joining 500 Startups, showing his diverse skill set and current board positions.

Law Trades - A 500 Startups Company

  • Law Trades is a legal services provider for startups and venture capitalists.
  • It is positioned as an affordable and efficient alternative to traditional law firms.
  • Law Trades offers a range of services including company incorporation, IP protection, and website agreements.
  • There is a promotional offer for 20 minutes VC listeners, providing a discount on their first job.

"They are the number one place to go for startups and vcs to get their legal work done."

This quote emphasizes Law Trades' reputation as a top legal service provider for the startup and VC community.

"They are cheaper, faster and more affordable than traditional law firms because they simply don't have the overheads that traditional law firms do and then pass off on their customers in the form of fees."

This quote explains the competitive advantage of Law Trades over traditional law firms, focusing on their lower cost due to reduced overheads.

Marvin Liao's Early Career and Transition into Investing

  • Marvin moved to Silicon Valley in 1999, attracted by the first dot-com boom.
  • He worked at an e-commerce startup and was laid off in 2001.
  • Marvin joined Yahoo during the downturn of 2001 and stayed for over a decade.
  • After leaving Yahoo, he engaged in angel investing, joined advisory boards, and participated in speaking engagements.
  • Marvin mentored at various startup accelerators, including 500 Startups, which led to his current position when they opened the San Francisco office.

"So I moved here January 3 in 1999, here like everybody for the first dot boom because I thought I was going to get rich."

This quote provides insight into Marvin's initial motivation for moving to Silicon Valley and his involvement in the dot-com boom.

"And they felt guilty and I guess they gave me a job when they opened up the San Francisco office."

This quote explains how Marvin's extensive mentoring at 500 Startups contributed to him being offered a job at the firm.

Marvin Liao's Angel Investing Experience

  • Marvin admits to being a poor angel investor initially.
  • He mentions that his wife is still upset about the money lost during his early investing days.
  • Despite the losses, the experience provided valuable lessons that stuck with him.

"I'll be frank, I was a horrible angel investor."

This quote candidly reveals Marvin's initial struggles with angel investing and sets the stage for discussing the lessons he learned.

Learnings and Growth at Yahoo

  • Marvin observed Yahoo's growth from 3,000 to 15,000 employees.
  • He gained insights into the challenges of scaling a large company.
  • The experience provided him with a valuable network of industry contacts.
  • Many former Yahoo colleagues have become influential in the tech industry and venture capital.

"Well when I joined we were probably about 3000 people. So watching sort of this company scale to I think it was about 15,000 people when I left."

This quote highlights the significant growth of Yahoo during Marvin's tenure and the learning opportunities it presented.

Mentoring's Impact on Investing

  • Marvin values the mentoring process for the learning opportunities it provides.
  • Mentoring at various accelerators helped him see things from different perspectives, beyond financial involvement.
  • The experience was mutually beneficial, with Marvin learning as much as he was giving back.

"And frankly the mentoring is incredibly fun because you're learning stuff too."

This quote expresses the enjoyment and educational value Marvin finds in the mentoring process, which enhances his capabilities as an investor.

Industry Shift to Operator-Based Venture Capital Models

  • There is a noticeable shift in the venture capital industry towards having operators as VCs.
  • Prominent VCs like Mark Andreessen, Ben Horowitz, and Mark Suster have backgrounds as entrepreneurs or operators.
  • Venture capital firms are increasingly providing additional services such as marketing, recruitment, and HR to their portfolio companies.
  • 500 Startups itself has a large team that offers support in areas like online marketing and sales to their accelerator and portfolio companies.

"It seems to be that direction. First round capital was an innovator in this."

This quote acknowledges the trend towards a service-based model in venture capital, with firms offering more than just financial investment.

Traditional VC vs. New Model VC

  • There are two models of venture capital: traditional (e.g., Benchmark, Excel, Mayfield, Greylock) and the newer model with add-on services.
  • Both models are seen as viable and bringing value to the table.
  • It is uncertain whether the newer model will become dominant.

"So I would say there's the traditional VC, like the benchmark and the excels, or you go down the list of the Mayfields and Greylocks, the traditional sort of VC. That model works really well. Right? But there's also sort of the new model which is sort of these add on services."

The quote explains the existence of two distinct venture capital models and suggests that both have their merits. The traditional model is well-established, while the new model offers additional services.

Marvin Liao's Attraction to 500 Startups

  • Marvin Liao's background in sales and marketing was valued by 500 Startups.
  • The international focus of 500 Startups appealed to Marvin due to his previous international roles at Yahoo.
  • Marvin knew the partnership at 500 Startups well, likening joining them to joining a group of friends.
  • He was attracted by the mission and ambition of 500 Startups.

"I like the fact that they were very international, so all my roles at Yahoo were international focused roles and so 500 is one of the few sort of Silicon Valley VC firms that sort of invest globally and that was super attractive."

Marvin highlights the global investment approach of 500 Startups as a key factor in his decision to join, aligning with his own international experience.

Mentorship in Startups

  • Startups receive many offers of mentorship, but they must be discerning.
  • Marvin warns of potential "predators" and the importance of not expecting free help.
  • He references the "rule of two to three" in Silicon Valley, which suggests a limit to free interactions before compensation is expected.
  • Mentors should ideally help without expecting immediate returns, and relationships should develop organically.

"So it's know your first two to three meetings, your first two to three introductions are free, but sort of if they want more than that, there needs to be some type of sort of, I guess compensation is not the right way to say it, but I think as a mentor you should be just coming in sort of trying to really with the view of sort of just trying to help."

This quote explains the unwritten rule in Silicon Valley about the limit of free help and suggests that mentorship should start with a genuine intent to assist rather than with expectations of compensation.

Founders and Equity-Based Mentorship

  • Founders should approach mentorship and investment relationships with an open mind and without expectations.
  • Marvin believes the best relationships, like in dating, happen organically and can lead to serendipitous outcomes.

"I think these things sort of need to happen organically. I think you should have initial meeting, whether you're looking at investors or looking for mentors or advisors or whatever. I think the best relationships kind of happen organically."

The quote emphasizes the importance of natural development in mentorship and investment relationships, suggesting that the most beneficial connections are those that form naturally.

500 Startups' Investment Scale

  • 500 Startups has invested in over 1200 startups, through its accelerator, main fund, and micro funds.

"1200 I think to be exact. Accelerator and our sort of main fund and some of the micro funds."

Marvin provides an exact figure of the number of investments made by 500 Startups, indicating the scale of their operations.

Admissions and Investment Criteria for 500 Startups

  • The selection process for the 500 Startups accelerator is rigorous, with a high number of applicants for few spots.
  • Marvin disputes the "spray and pray" accusation, emphasizing selectiveness in their investments.
  • The criteria for investment can vary by industry, with different expectations for traction and revenue depending on the sector.

"We looked at over close to 1100 companies to get down to 36 companies. So we're fairly selective on the accelerator side."

Marvin explains the selectivity of the 500 Startups accelerator program, highlighting the competitive nature of their admissions process.

500 Startups' Investment Details

  • The average investment check size from 500 Startups ranges from $50,000 to $100,000.
  • They have increased their average check size from around $50,000 to between $75,000 and $100,000 in recent years.
  • 500 Startups does not take board seats but may have board observer rights.

"It ranges between 50,000 to about $100,000. So there's a range."

The quote specifies the range of investment amounts that 500 Startups provides to startups, illustrating their financial commitment to the companies they invest in.

Key Metrics for Evaluating Startups

  • Marvin looks at different metrics depending on the industry of the startup.
  • For fintech startups, pre-launch evaluation is acceptable due to regulatory hurdles.
  • Consumer mobile apps are expected to show significant traction, and SaaS companies should have a certain amount of monthly recurring revenue.

"If it's things like in fintech, I might even look at companies sort of in the pre launch phase because fintech, there's a lot more rules and regulations that they need to sort of clear versus say, if you're like a consumer mobile app, I definitely want to see a lot more traction."

This quote reveals how industry-specific factors influence the evaluation of startups, with different standards applied to fintech, consumer mobile apps, and SaaS companies.

Investment Criteria in Crowded vs. Newer Industries

  • Marvin Liao describes different approaches to evaluating investment opportunities depending on industry maturity.
  • In crowded industries, he looks for traction.
  • In newer industries like digital media, digital health, or fintech, the evaluation criteria change.

"I think in some industries that are really crowded, I look for traction in industries that tend to be either newer, like either digital media, sort of like digital health, or things like fintech. I'm going to look for different things, if that makes sense."

Explanation: Marvin emphasizes the importance of demonstrated traction in well-established sectors, while suggesting that in emerging fields, other factors may be more significant for investment decisions.

Exciting Industries for Future Disruption

  • Marvin Liao expresses enthusiasm for the AI space and enterprise SaaS.
  • He notes the unbundling of industries and corporations, particularly through marketplaces.
  • Investments in companies like Skillbridge and DoE reflect this interest in disrupting traditional business models.
  • Digital health is highlighted as a massive and fascinating industry, spurred by demographic trends and regulatory changes.

"I'm super excited in the AI space. I still think enterprise SaaS, there's still a lot of really interesting things happening in enterprise SaaS marketplaces, really the unbundling of a lot of industries and frankly, sort of corporations like marketplaces."

Explanation: Marvin is excited about the potential for AI and enterprise SaaS to disrupt various industries, with marketplaces playing a key role in this transformation.

500 Startups' International Outlook and Recent Funds

  • Marvin Liao comments on 500 Startups' global investment strategy.
  • The recent raising of funds targeted at Japan, Southeast Asia, and Thailand is discussed.
  • The global approach is seen as part of the master plan and opportunistic based on relationships with talented individuals worldwide.

"And 500 have recently raised a new $85 million fund, a new $30 million fund for Japan, a new $10 million fund for Southeast Asia, and a new $10 million fund for Thailand."

Explanation: Harry Stebbings acknowledges the significant achievement of 500 Startups in raising substantial funds for international investment, indicating the success of their global strategy.

The Future of 500 Startups

  • Marvin Liao shares the vision of 500 Startups for global impact and the importance of investor education.
  • The company aims to support a large number of startups by training investors through events like pre money.
  • The focus is on injecting expertise and capital into local VC ecosystems around the world.

"I think the thesis is there's a lot of smart people everywhere, right? A lot of talented people. And I think the opportunity is sort of the education of sort of what 500 brings in regards to education in the sense of, I think there's a lot of really great entrepreneurs, but I think the big sort of gap in many, many markets now is really on the investor side."

Explanation: Marvin highlights the global distribution of talent and the need for investor education to support entrepreneurship, which is a core component of 500 Startups' mission.

Personal Learning and Challenges at 500 Startups

  • Marvin Liao reflects on the challenges and learning experiences since joining 500 Startups.
  • He acknowledges the difficulty in becoming a great investor and the humbling nature of the business.
  • Marvin emphasizes the service aspect of venture capital, aiming to provide value in every interaction, regardless of investment outcome.

"I think being a vc, I couldn't remember who said this, but I said being an investor is like, it's not a hard life, but being a great investor is really hard."

Explanation: Marvin conveys the sentiment that while the venture capital profession may not be inherently difficult, excelling as an investor requires significant effort and learning.

Marvin Liao's Reading Habits and Recommendations

  • Marvin Liao shares his passion for reading and difficulty in choosing a favorite book.
  • He recommends "The Art of Worldly Wisdom," "Dune," and "The 4-Hour Workweek" for their insights relevant to investors and productivity.

"Boy, that's like asking sort of what's your favorite kid? Right? I would say one of them is like the art of worldly wisdom by Baltis Argration Dune by Frank Herbert, which is amazing. Any investor who doesn't like science fiction, I think should not be in the investing game. And of know Tim Ferriss is four hour work week. It's just a great book."

Explanation: Marvin expresses his love for books and suggests that science fiction, like "Dune," and books on productivity and work principles, like "The 4-Hour Workweek," are beneficial for investors.

Personal Productivity Tools

  • Marvin Liao utilizes Evernote extensively for note-taking and finds it indispensable.
  • Despite being "old fashioned," Marvin prefers writing notes on paper first, then capturing them with pictures for Evernote.
  • He also highly values Calendly.com for scheduling meetings, especially as a VC without an assistant.
  • Marvin has begun using Amy X AI, an AI assistant, but still prefers Calendly for its scheduling capabilities.

I guess I think Evernote is amazing. I just think that is an amazing, amazing product. And I'm really surprised. I only came to it, ran into it. I only started using it three years ago and I'm nowhere without Evernote.

Yeah, I'm kind of old fashioned. I kind of write notes on paper and then take pictures. And the other tool that I love is calendly.com.

And I just recently got on sort of like Amy X AI, which is like the Amy sort of assistant. So I started using that. Although I just love calmly, which is just such a great product for scheduling.

Marvin is surprised by how effective Evernote has been for him since he started using it three years ago. He combines traditional note-taking with modern tools, using Calendly and Amy X AI to manage his schedule without an assistant.

Yahoo's Future

  • Marvin is skeptical about Yahoo's future, describing it as a "1.0 company in a 3.0 world."
  • He acknowledges his role in the company's past struggles and expresses doubt about its ability to turn around.

If I'm honest, I think they're probably toast. It's a 1.0 company in a 3.0 world.

Marvin candidly assesses Yahoo's prospects as bleak, indicating that the company has not kept up with the evolving digital landscape.

Mergers and Acquisitions (M&A)

  • Marvin believes M&A is generally challenging and that most big companies struggle with it.
  • He acknowledges that some companies like Cisco and Facebook have had successful M&A strategies in the past, but views Google's track record as mixed.
  • He suggests that M&A often does not work out well for most companies.

I mean, m A is hard in general. I think most big companies are not good at M-A-I think like Cisco used to have a good reputation for doing good. M a boy. Facebook I think has done a great job, I think in the last. But outside of that even Google has. Their track record has been mixed.

Marvin points out the difficulties inherent in M&A, noting that even companies known for their successes have had mixed results, which implies that successful M&A is an exception rather than the norm.

Reading Habits and Influences

  • Marvin is an avid reader and consumes content from various sources.
  • He follows writers and newsletters such as James Clear, James Altucher, Fred Wilson, Mark Suster, and First Round Capital's First Round Review.
  • He also reads content from Fast Company and Singularity Hub, indicating a broad interest in technology, entrepreneurship, and venture capital.

Newsletter, I mean there's another guy named Azam Azir and I'm probably not spelling right, but he has this newsletter of just like exponential something and it's a newsletter one. So the ones I read like James Clear, James Altershire is amazing. I read anything by Tim Ferriss. I think just some of his stuff is really interesting. Fred Wilson's a VC. Mark Suster. I just read a lot in general, first round capitals. Like the first round review is really good. I read a lot in general, as you probably can judge already. So I read pretty much everything and anything. I read fast company, I read everything.

Marvin Liao mentions a variety of sources he reads regularly, demonstrating his wide-ranging interests and continuous learning in his field.

Challenges for 500 Startups

  • Scaling with quality is the most significant challenge for 500 Startups, according to Marvin.
  • He discusses the difficulty in maintaining the quality of accelerator programs and hiring as the organization grows.
  • Marvin emphasizes the need for a systematic approach to maintaining quality, which is a concern for both startups and larger companies.

Sort of like scaling with quality, like anybody, like any sort of like whether you're a VC firm or whether you are a startup or big company is just scaling. Like how do you maintain quality?

Marvin identifies scaling while maintaining quality as a critical challenge that requires systematic solutions, reflecting a common issue faced by growing organizations.

Exciting 500 Startups Investments

  • Marvin is particularly excited about Neighborly and AGFunder, two companies in which 500 Startups has invested.
  • Neighborly is a marketplace for municipal bonds, and AGFunder is a marketplace for agriculture technology and investments.
  • He highlights the potential of these companies to disrupt traditional industries and address global challenges, such as food security.

I would say the one that I'm excited by is neighborly I like fintech, partly because I hate Wall street. So I like anything that sort of potentially disruptive of Wall street neighborly.

And I'm excited by, for example, another one called AG funder, which is like a marketplace for ag tech and sort of agriculture investments.

Marvin expresses enthusiasm for Neighborly and AGFunder, underscoring his interest in fintech and agtech as sectors with significant potential for innovation and impact.

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