20VC ClassPass CEO Fritz Lanman on Betting His Career Facebook Would Be A $10Bn Company, Lessons From Travis and Uber on Scaling A Global Marketplace & Whether Growth and Capital Efficiency Are Mutually Exclusive

In a revealing conversation on the 20 minutes VC podcast, host Harry Stebbings interviews Fritz Landman, CEO at ClassPass and a seasoned angel investor. Fritz discusses his journey from Microsoft, where he led pivotal M&A projects like the Facebook investment, to becoming an entrepreneur and angel investor with a portfolio boasting successes like Square and Pinterest. He shares insights on the importance of investor selection, emphasizing low maintenance and high helpfulness, and the significance of celebrating fundraising as a milestone. Fritz also touches on his strategic approach to scaling ClassPass, from competitive positioning to optimizing unit economics before global expansion. He envisions ClassPass evolving beyond fitness to become an all-encompassing platform for life's inspiring experiences. His personal mantra, "fortune favors the bold," underscores his philosophy of taking calculated risks for maximum impact.

• Harry Stebbings introduces the episode and invites listeners to engage on Instagram.
• Fritz Lanman is announced as the guest, CEO of ClassPass, and a seasoned operator, founder, and angel investor.

Welcome back to the 20 minutes VC with me, Harry Stebbings, and I'd love to see you on Instagram at htebbings 90 96 with two b's where you can see all things behind the scenes from us at the 20 minutes VC and suggest guests and ask questions for future episodes.

This quote sets the stage for the episode, inviting listener interaction and introducing the guest.

• ClassPass has raised over $154 million in VC funding from various investors.
• Fritz Lanman's previous roles include founder and CEO at Livestar, senior director in corporate strategy at Microsoft, and angel investor with a portfolio including Square, Pinterest, and more.

Now, Fritz is the CEO at Class Pass, the startup that provides the most flexible fitness membership ever.

Harry Stebbings highlights the company Fritz Lanman leads and its significance in the fitness industry.

• Harry thanks Ryan Sarver and Charlie Songhurst for the introduction to Fritz.
• The importance of hiring developers and the role of Terminal is discussed.
• Freshbooks is mentioned as an easy-to-use cloud accounting software.
• Hi Five's conferencing platform is promoted for business collaboration.

I do also want to say a big thank you to Ryan Sarver at Redpoint and Charlie Songhurst for the intro stay.

Harry expresses gratitude for the connections that made the interview possible, emphasizing the value of networking.

• Fritz's journey began at Microsoft, where he was involved in product management, corporate strategy, and major deals.
• His experience at Microsoft led him to angel investing and eventually to entrepreneurship, an inverted career path compared to most in the industry.

My foray into tech was actually straight out of undergrad... I started writing small checks personally and then with a partner... Got pretty lucky with some of the early bets.

Fritz describes his unconventional trajectory from a corporate role to angel investing and entrepreneurship, emphasizing the influence of his early career experiences.

• Fritz discusses his unconventional approach to asset allocation, heavily favoring tech equities.
• He explains his confidence in tech as a sector, his unique deal flow, and the tax advantages of investing in early-stage companies.

I'm basically all cash or hyper speculative early stage technology equities... I'm just so incredibly long on tech... I think I have sort of unique deal flow, unique access and unique experience here that gives me an advantage.

Fritz provides insight into his investment strategy, highlighting his bullish stance on tech and his approach to leveraging unique opportunities and tax benefits.

• Fritz shares the lessons learned from his entrepreneurial ventures, including the importance of investor selection.
• He emphasizes the synergy between being an operator and an investor, with each role informing the other.

Too many humbling lessons across my various entrepreneurial ventures... my operating of startups has actually made me a much sharper investor, and my investment hat has led me to see and learn from seeing so many different entrepreneurs.

Fritz reflects on his experiences as an entrepreneur, noting how these have honed his skills as an investor and vice versa.

• Importance of low-maintenance investors for startup operators.
• Operators prioritize recruiting, payroll, and progress over investor relations.
• Being helpful as an investor is valued but not at the cost of being high maintenance.
• Angel investors rarely solve business problems or drive startup success directly.

"I'd probably take an investor who was unhelpful and low maintenance over an investor who's helpful and high maintenance."

This quote emphasizes the speaker's preference for investors who do not demand too much time or attention from the startup operators, allowing them to focus on their core business activities.

• Startups often seek help in strategy, fundraising, and people/processes.
• Investors can provide structured thinking and identify gaps in logic.
• Fundraising is celebrated as it reflects past progress and earns the right to continue.
• Recruiting the right people is crucial for startups, and investors can guide but not replace this function.

"Three areas? One is general strategy... The second is typically on fundraising... And last area that I really help with is on people and processes, certainly on recruiting."

This quote lists the three main areas where the speaker, as an investor, provides assistance to startups, highlighting strategy, fundraising, and human resources as critical aspects where an investor's input can be valuable.

• Portfolio founders appreciate the speaker's low-maintenance and helpful approach.
• Being low-maintenance is partly due to the investor's busy schedule.

"I do have to say, in preparing for this interview, the commonality amongst all the portfolio founders I spoke to was just how incredible you've been as angel and low maintenance."

This quote reflects the positive feedback the speaker has received from portfolio founders, emphasizing the value they place on the investor's low-maintenance approach.

• Learning from big companies and applying best practices to startups.
• Adapting processes and frameworks for startup scale.

"So just the last piece I help companies with is on their processes."

This quote indicates the speaker's role in assisting startups with refining their processes, drawing from experience at larger corporations and tailoring it to the needs of smaller, growing companies.

• Interview will cover Microsoft, Facebook investment, angel portfolio, and ClassPass.
• Structured approach to the interview content.

"I mean we covered so much of the gambit there, but I'd love to break the interview today up Fritz, into a couple of different segments being Microsoft, the Facebook investment, then maybe move to the incredible angel portfolio we touched upon and then the exciting times ahead with class pass."

This quote outlines the structure of the interview, indicating that the conversation will be segmented into discussing the speaker's experience with Microsoft, the Facebook investment, their angel portfolio, and the future with ClassPass.

• The Facebook deal was part of Microsoft's strategy to counter online threats.
• The speaker and team were instrumental in recognizing Facebook's potential.
• The investment and partnership with Facebook were based on a shared vision of its platform capabilities.

"So the way that the Facebook deal came around was our team would always be looking at big transformative deal opportunities for our Internet services division or online services division as it was called."

This quote describes the context in which the Facebook investment opportunity was evaluated by the speaker's team at Microsoft, emphasizing the strategic importance of transformative deals for the company's internet services division.

• The speaker transitioned from a thesis-driven to a more opportunistic angel investment approach.
• Best investments often come from unexpected sectors.
• Square was an early investment made without extensive prior knowledge of the payments space.

"But I very quickly learned that it's too hard to model the world and all of the potential opportunities. And so many of my best angel investments ended up being in spaces that I knew little to nothing about."

This quote reveals the speaker's realization that successful angel investing requires flexibility and openness to opportunities in various sectors, rather than rigid adherence to preconceived theses.

• Harry Stebbings highlights his investment in Square without fully understanding the payments industry, indicating a bet on the entrepreneur rather than the industry.
• He mentions investing in Pinterest due to personal connections and seeing its potential through his wife's use case for wedding and interior design planning.
• Fritz Lanman discusses looking for "veins of innovation" and identifies crypto and machine learning as current interesting areas.
• Lanman suggests that the next big thing will involve an incredible entrepreneur with a unique insight into an unexpected area, potentially logistics.
• He also notes the necessity for angel investors to learn about various markets, such as biotech and healthcare, which are being disrupted by technology.

"decided, how many chances in your career do you get to bet on somebody like, so, you know, I kind of made that bet without really understanding the payments industry."

This quote exemplifies the investment philosophy of betting on the entrepreneur's potential rather than having a deep understanding of the industry.

"But really it was only until I went to my wife and saw her as one of the very first users of the product because I was looking at investing in it..."

This quote shows the importance of understanding the user's perspective and the product's practical applications when considering an investment.

"I think the veins themselves are somewhat evident and obvious. I think crypto is super interesting. Machine learning, anything having to do with machine learning..."

Lanman identifies clear areas of innovation that are capturing the interest of investors and suggests that these "veins" are well known within the industry.

• Fritz Lanman admits to initially being naive about fund formation and portfolio construction, starting with an LLC and learning as he went.
• He mentions the positive reinforcement loop in angel investing, where success leads to better deal flow and easier access to deals.
• Lanman did not have a specific mentor but learned through collaboration with peers and by observing industry veterans like Chris Sacca and Ron Conway.
• He discusses the evolution of the investment industry, with entities like Y Combinator changing the game since he started.

"No, I was the worst ever. I wrote my check into square straight out of my personal checking account..."

This quote reveals Lanman's lack of initial strategy and sophistication when he began angel investing, highlighting a reactive and informal approach.

"But I had absolutely no idea what I was doing when I started."

This candid admission underscores the learning curve and the often improvisational nature of early-stage investing.

"We were kind of a class of vintage behind the Chris Sakas and the two vintages behind the Ron Conways of the world."

Lanman contextualizes his entry into angel investing relative to more established investors, acknowledging the benefits of learning from their experiences.

• Fritz Lanman discusses the importance of aligning with reputable investors and building alliances in the angel investing business.
• He emphasizes the ability to understand investor psychology and concerns, which has improved his pitching skills.
• Lanman acknowledges that while he has seldom seen bad behavior, it does exist, and he chooses to co-invest with those who share similar values.

"So certainly you kind of learn a lot about investor psychology, and you learn how to read when you're raising money yourself..."

This quote highlights the value of understanding investor psychology from both sides of the table, as an investor and a fundraiser.

"You know, the people that I co invest with don't sort of adhere to those types of practices."

Lanman emphasizes his preference to work with investors who maintain ethical practices and align with his own investment style.

• Fritz Lanman outlines ClassPass's expansion into 50 cities and four countries, with ambitions to become the Netflix for all interesting experiences beyond studio fitness.
• He discusses the strategic reasons for hyperscaling, including competitive positioning and establishing leadership.
• Lanman explains the evolution of ClassPass's business model, shifting from unlimited classes to tiered plans and a new credits model.
• The company focused on improving unit economics before entering a new phase of aggressive growth.

"So we're actually up to 50 cities now in four countries, Australia, UK, Canada and the US, and we are just beginning to pour fuel on the fire again."

This quote provides an update on ClassPass's scale and indicates the company's readiness for accelerated growth.

"The first reason to hyperscale was competitive and establishing a leadership position and trying to preserve the health of the aggregator ecosystem in the US."

Lanman explains the rationale behind ClassPass's initial rapid expansion, highlighting the importance of market leadership and ecosystem health.

"We've gone through two kind of model iterations... And it's really improved our fundamental unit economics to the stage where we're now going and hyperscaling."

The quote details the strategic changes made to ClassPass's business model to strengthen unit economics, setting the stage for the next growth phase.

• ClassPass has observed that their model is highly successful across various markets.
• The company has great unit economics, which provides them with the opportunity to expand.
• ClassPass found that their model works in any zip code with at least five studios.
• An example of their successful model is the opening in Missoula, Montana, despite it being a small town with only 18 studios and 65,000 people.
• The key to scaling is leveraging the product-market fit and business model fit to expand rapidly when the model is proven to work.

We just need to find a place where it doesn't work. We found that it works in any zip code that has five studios in it.

This quote emphasizes the scalability of ClassPass's business model and their strategy to expand into markets where they can find a minimum number of studios to partner with.

• Capital efficiency and aggressive scaling are not necessarily mutually exclusive but can be challenging to achieve simultaneously.
• Optimizing every dollar spent is less important when the opportunity for market capture is significant.
• The saturation of marketing channels has made it more expensive to fuel growth through paid channels.
• Companies that can achieve viral organic growth have an advantage.
• ROI-driven marketing can still be successful, as demonstrated by Wish, which excelled due to both product logistics and performance marketing.

Like if the opportunity is big enough, then you can justify optimizing for speed over IRR on each dollar spent.

Fritz Lanman suggests that when the potential market opportunity is substantial, companies can prioritize rapid expansion over immediate returns on investment for each dollar spent.

• Fritz Lanman believes in taking bold risks and stepping out of comfort zones.
• He emphasizes the importance of resilience and learning from failures.
• Lanman values personal challenges and reaching one's potential over being fixated on legacy.

I think it's fortune favors the bold.

This quote reflects Lanman's approach to decision-making, where he prefers to take riskier paths that could lead to greater rewards or learning experiences.

• Lanman relies on his support system, particularly his wife, during challenging times.
• He acknowledges that failures are an integral part of the tech industry and can lead to success.
• Learning from well-executed failures is seen as progress, especially with understanding investors.

There's so much pressure to be successful in school and go to the right college and get the right job and then get the right promotion.

Lanman discusses societal pressures to succeed and contrasts it with the tech industry, where failures can be a necessary step towards success.

• Lanman does not focus on his legacy but rather on maximizing his potential and impact.
• He seeks to achieve a balance between work, social life, and family life.
• Lanman is driven by personal challenges rather than a desire for recognition or legacy.

I want to leave it all on the field, and when I die, I want to say that I came as close to reaching and achieving my potential for impact on the world.

This quote encapsulates Lanman's internal motivation to utilize his talents fully and make a meaningful impact rather than focusing on how he will be remembered.

• Lanman is passionate about leading ClassPass and impacting people's health and happiness.
• He finds fulfillment in his work and aims to continue growing the business.
• Lanman hopes ClassPass will be his last job and that it will provide the means to support other entrepreneurs and health initiatives.

I'm having the time of my life scaling this business.

Lanman expresses his enjoyment and commitment to growing ClassPass and the positive influence the company has on people's lives.

• The interview concludes with mutual expressions of admiration and thanks.
• Fritz Lanman's Twitter handle is shared for those interested in following his insights.
• The hosts encourage listeners to engage with them on social media platforms.

It really has been such a pleasure having you on stay, Fritz.

Harry Stebbings and Fritz Lanman conclude their conversation with appreciation for the discussion and Lanman's contributions to the industry.