20VC 2 Levers To Fundraising FOMO & Leverage and How To Use Them, How To Implement A Sustainable Growth Mindset & How To Put VCs To Work For You with Leore Avidar @ Lob

In this episode of the 20 minutes VC, host Harry Stebbings interviews Lob CEO Leo Avadar about his journey from Wall Street to tech entrepreneurship. Avadar discusses the inception of Lob, a company transforming traditional mail into a programmable digital service, following his and co-founder Harry Zhang's experiences with inefficient mailing systems at Microsoft. He emphasizes the importance of controlled growth, maintaining the ability to become profitable within six months, and creating a company culture where employees are invested in for the long term. Additionally, Avadar shares insights on fundraising, advising that building relationships with VCs early on is crucial and that leveraging fear of missing out (FOMO) can be a powerful tactic. He also highlights the need for founders to maintain leverage by having sufficient runway, thereby avoiding desperate fundraising. Throughout the conversation, Avadar's competitive spirit and commitment to innovation in an "unsexy" industry shine through, illustrating his vision for Lob's future in providing enterprise-grade APIs.

• Lob is a startup with a suite of APIs for automation and scaling of postal services.
• Lob has raised close to $30 million from notable investors including YC's continuity fund.
• Leo Avadar, the CEO, has a background in technical business development at Amazon Web Services and as a derivatives trader at Citigroup.
• Leo's connection to the show was facilitated by Laura Behrins Wu from Shippo.

"I'm thrilled to feature today one of their latest investments in the form of Lob, with founder and CEO Leo Avadar joining us in the hot seat today."

This quote introduces the guest, Leo Avadar, and his company Lob, highlighting the significance of their recent investment from YC's continuity fund.

• Leo's career started on Wall Street, driven by a passion to combine computer science with trading.
• At Citigroup, Leo became more interested in automation than trading.
• Fascinated by Amazon Web Services' capabilities, Leo joined AWS to explore the API ecosystem.
• Amazon's approach to empowering developers resonated with Leo, influencing his thoughts on creating developer tools.
• The idea for Lob was born from a need to simplify mailing processes, as experienced by Leo's co-founder Harry at Microsoft.
• Lob's goal was to give developers the "superpower" to solve mailing problems efficiently.
• Leo transitioned from Wall Street to founding Lob and joining Y Combinator's 2013 batch.

"And that was the point where I was like, Harry, we need to be able to build this into an API so that one, we can play video games at an earlier time, but two, we can start giving people a superpower to solve this problem, because if Microsoft has this problem, so does everybody else."

This quote explains the pivotal moment leading to Lob's creation, aiming to transform the mailing process into a simple API-driven task.

• Leo believes there is no secret to fundraising; success hinges on a great product and team.
• Contrary to common advice, Leo suggests building relationships with venture capitalists even when not actively fundraising.
• Fundraising often involves investors you already know rather than new contacts.
• Building relationships with investors is about occasional updates, not constant meetings.
• The goal is to establish familiarity so that investors are more comfortable investing when the time comes.

"The easiest way to fundraise is to have a really great product and team."

This quote emphasizes that the foundation of successful fundraising is having a strong product and team, which attracts investors more than any strategy or tactic.

• Establishing a relationship with venture capitalists (VCs) is crucial for successful fundraising.
• Founders should engage VCs in projects and collaborations to demonstrate value and build rapport.
• A relationship with a VC often precedes investment, sometimes over a year in advance.

"So I occasionally, and definitely in the early days, I would meet a VC, I would try to figure out how they could add value to lob, and I would say, hey, let's work on this project together."

This quote emphasizes the importance of proactive engagement with VCs to establish a working relationship that can later facilitate investment.

• Founders need to understand and use leverage and fear of missing out (FOMO) when dealing with VCs.
• Comparisons with the cryptocurrency market illustrate how FOMO can drive investment behavior.
• Storytelling and creating excitement about a company's future are key to capitalizing on investor FOMO.

"You need to create a lot of excitement and you need to create a lot of excitement all at once."

This quote highlights the strategy of generating simultaneous excitement among investors to induce FOMO and drive them to invest.

• Generating buzz among VCs can be tactically achieved by scheduling numerous meetings in a short timeframe.
• The natural communication between VCs will contribute to the hype and urgency around a startup's fundraising efforts.

"All you have to do is talk to everybody in a short period of time."

This quote suggests a concentrated effort in scheduling meetings to create a buzz within the VC community, which can lead to FOMO.

• Raising funds when there is no immediate need for money provides founders with leverage.
• Comparing fundraising to dating, where disinterest can increase attractiveness, illustrates the psychological aspect of leveraging.
• Founders should strive to have the upper hand in negotiations to achieve better outcomes.

"The more that you don't want their money, the more that they want to give you money."

This quote encapsulates the counterintuitive strategy of appearing less desperate for funds to gain leverage over investors.

• Initiating fundraising with ample runway allows founders to negotiate better terms.
• Having time on one's side adds leverage and reduces the risk of accepting unfavorable terms out of necessity.

"I actually think a year or even more sometimes, because when it gets to under a year, you're putting yourself in a position where you can't say no to any term."

This quote stresses the importance of starting the fundraising process early to avoid desperate situations where founders have to accept any offer that comes their way.

• Reflecting on past fundraising, some founders may realize they didn't need to raise as much capital.
• Raising funds can sometimes be more about de-risking than necessity.
• The goal for some companies might be to reach a point where they no longer need to raise external capital.

"I wish I hadn't raised money because we keep doing well and we're able to self-fund through sales."

This quote expresses a retrospective view that fundraising may not always be essential if a company is performing well and can self-sustain.

• Controlled growth is a strategic approach that balances aggressive expansion with the ability to become profitable quickly if needed.
• Founders should be aware of external market factors and maintain the ability to adjust their growth strategy accordingly.
• The concept of controlled growth is about having the flexibility to change direction in response to unforeseen challenges.

"So it's a balance of growing aggressively, but not spending wastefully or blindly, and ultimately it gives you control over your own destiny."

This quote defines controlled growth as a deliberate and flexible approach to scaling a business, emphasizing the importance of not overextending financially.

• Profitability is crucial for adding leverage during fundraising.
• Achieving profitability sets up a company for success.

"A hair's breadth away from profitability. And I do think that that will add the right leverage for fundraising and setting up your company for success."

This quote highlights the belief that being close to profitability can greatly improve a company's position when seeking funds, as it demonstrates financial viability and potential for success.

• Instilling a mindset focused on controlled growth is essential from the start.
• Paul Graham's concept of "default alive" or "default dead" is a similar philosophy.
• Early responsible spending habits prevent reckless financial behavior.
• Witnessing other companies fail due to reckless spending emphasizes the importance of this mindset.

"I think it's from day one... Like know the growth that you can control. And so if you start in the early days, you start spending wisely. You don't just spend recklessly."

Leo Avadar stresses the importance of adopting a controlled growth mindset from the inception of a company, which includes spending wisely and understanding manageable growth.

• Even in aggressive growth scenarios, the controlled spending mindset remains relevant.
• Companies must be prepared to adapt spending in response to external market corrections.
• The inability to raise funds and reach profitability in a downturn is a significant risk.

"You should be spending probably pretty aggressively. But again, if there are external market factors that happen, you have to know how to change the gear down."

Leo Avadar acknowledges the need for aggressive spending in competitive markets but emphasizes the importance of being able to adjust spending strategies when faced with market changes.

• Money can be a simplistic solution to problems in the early stages of a startup.
• Controlled growth equates to responsible growth.
• Many companies fail due to irresponsible growth strategies.
• Being responsible involves more than just financial decisions, such as not equating success with the number of employees.

"Most companies go bankrupt because they weren't responsible about their growth."

Leo Avadar points out that many companies fail not because they aren't growing, but because they manage their growth irresponsibly, often by mismanaging their finances.

• The CEO's role evolves from being an expert executor to building a leadership team.
• CEOs must hire to replace themselves in various roles as the company grows.
• The transition from technical work to focusing on people, communication, and alignment is challenging.
• Trusting the team to execute and learn from mistakes is part of this evolution.

"And then as soon as I figured that out, as a CEO, your job is to hire and replace yourself."

Leo Avadar describes the progression of a CEO's responsibilities, from hands-on work to hiring the right people to take over those roles, allowing the CEO to focus on higher-level strategic issues.

• The transition typically occurs when the company grows to 20-25 employees.
• It coincides with hiring first-level managers and focusing on larger business divisions.
• This phase often happens around late Series A funding.

"It usually happens probably at the 20-25 person mark... That's when you start hiring an exec at the end of the day..."

Leo Avadar identifies the growth stage at which a CEO transitions from being deeply involved in execution to taking on a more executive role, managing people and larger business problems.

• To retain employees long-term, companies must differentiate from standard practices in the industry.
• Creating an emotional connection to the company is key.
• Investing in employee growth and development is crucial for long-term retention.
• Promoting from within and providing mentorship and coaching are part of this investment.

"I wanted to create a culture where people have an emotional connection to the company."

Leo Avadar emphasizes the importance of fostering a company culture where employees feel emotionally invested, which he believes will encourage them to stay for many years.

• Emphasizing the importance of wanting employees to stay for the long term.
• The need to show genuine care for employees.
• Understanding what motivates employees is crucial for creating culture.
• The belief that people need to be challenged in their work.
• Providing employees with both responsibility and accountability.
• Encouraging the view of the brain as a muscle that needs challenging tasks.
• Lob's mission is to make the world programmable, which gives employees a sense of purpose.
• Different interpretations of the mission can provide personal motivation.
• The importance of making work enjoyable and not too serious.

"I really want to show people that I care about them."

This quote highlights the speaker's commitment to demonstrating genuine concern for the well-being and long-term presence of employees within the company.

"I think people need to be challenged."

The speaker believes that employees should be given challenging work to stimulate their intellectual growth and keep them engaged.

"You got to give them purpose."

The speaker stresses the importance of giving employees a clear sense of purpose through the company's mission, which can vary in personal significance for individuals.

"And the last part is, it has to be fun."

This quote underscores the necessity of creating a workplace that is enjoyable and where work doesn't feel burdensome, contributing to a positive company culture.

• The balance between giving employees responsibility and holding them accountable.
• Trusting employees with significant accountability and allowing them to make mistakes.
• The importance of employees being comfortable asking questions and admitting when they need help.
• The belief that there is no 'stretch too far' in terms of expectations, as challenges facilitate learning.

"I give people a lot of accountability and trust, probably sometimes too much."

This quote reflects the speaker's approach to management, which involves entrusting employees with a high degree of accountability and the freedom to make mistakes as a learning process.

"The only way that I've learned is by making my own mistakes."

The speaker shares a personal philosophy that making mistakes is an essential part of the learning process and applies this to how they manage their team.

• Personal reading preferences, with a recent favorite being "Multipliers" by Liz Wiseman.
• The surprising and innovative uses of paper in technology and advertising.
• Preference for sports-related content as a break from technology and startup reading.
• Competitive nature and the drive to improve and excel, even in hobbies.
• Taking significant risks in career decisions for the sake of personal challenges and growth.

"Multipliers by Liz Wiseman."

The speaker recommends this book for its exploration of leadership styles and the impact leaders can have on their teams' performance.

"Unsexy is the new sexy."

The speaker humorously redefines what is considered 'exciting' in the tech world, highlighting innovative uses of traditional media like paper.

"I am very, very competitive."

This quote reveals the speaker's competitive spirit and their commitment to self-improvement, even in areas that are not of primary interest.

"It's definitely leaving my job on Wall Street a couple of weeks before I got my first big bonus."

The speaker shares the biggest risk they've taken, emphasizing that personal growth and challenges are more important than financial gain.

• The goal to create a suite of APIs for enterprises.
• Making the world programmable as a part of Lob's mission.
• The recent launch of an address verification API.
• Plans to release a third API in the coming year.
• The aim to provide a toolkit for modern-day developers.

"Our goal is really to create a suite of APIs for the enterprise and make the world programmable."

This quote outlines the company's vision and strategic objectives, focusing on enterprise solutions and global impact through APIs.

"We're the first company in ten years to be able to provide that via an API."

The speaker takes pride in Lob's innovative approach to address verification, highlighting the company's unique position in the market.

• The importance of personal challenges and pushing oneself to the next level.
• Reflecting on past decisions as learning experiences.
• The willingness to take risks for the sake of personal fulfillment and professional development.

"I've always been enabling about starting a business and leaving Wall street, my first job out of college."

The speaker reflects on a pivotal moment in their career, highlighting the courage it took to pursue their entrepreneurial ambitions.

• The host expresses enjoyment and appreciation for the interview.
• A call to action for listeners to follow the guest and the podcast on social media.
• Promotions for partners Lisa and Zoom, emphasizing the benefits of their products.

"Thanks Harry. This was fun."

The speaker thanks the host, indicating a positive experience during the interview.

"Well, I have to say, and I really shouldn't say this, but I think that was one of my favorite founder episodes ever."

The host conveys high praise for the interview, suggesting it stands out among many founder episodes.