20VC Creating A Competitive Process Between VCs & Having Bill Gurley As A Board Member with Aaron Hirschhorn, Founder & CEO @ DogVacay

In this episode of "20 minutes VC," host Harry Stebbings interviews Aaron Hirschaun, the founder and CEO of Dog Vacay, a leading online and mobile pet sitting company revolutionizing the $15 billion pet services market by connecting pet owners with over 25,000 vetted pet caregivers across the US. Hirschaun shares the inspiration behind Dog Vacay, which stemmed from a personal negative experience with traditional kennels, and discusses the challenges of building trust in a marketplace where pet care is as sensitive as child care. He also delves into the importance of unit economics, the fundraising process, and the intricacies of scaling a marketplace business like Dog Vacay. Hirschaun emphasizes the company's goal to become the leading pet care company in the world, focusing on customer satisfaction and sustainable growth.

• "20 Minutes VC" is a podcast focused on venture capital and entrepreneurship.
• Harry Stebbings is the host of the show and can be found on Snapchat and at mojito bars on Fridays.
• The podcast features founders on Fridays, with this particular episode welcoming Aaron Hirschhorn.

It's Friday, and that can only mean one thing. Here at the 20 minutes VC, it's founders Friday with your host Harry Stebbings.

This quote introduces the podcast and its host, setting the stage for the conversation with the guest founder.

• Aaron Hirschhorn is the founder, CEO, and top dog of Dog Vacay, an online and mobile pet sitting company.
• Dog Vacay is a leading player in the $15 billion pet services market.
• The company connects pet parents with vetted and insured pet caregivers across 10,000 cities.
• Dog Vacay was founded in March 2012, is based in Santa Monica, and has raised $47 million from investors like Benchmark Capital and Andreessen Horowitz.

Aaron is the founder, CEO and top dog of Dog Vacay, the leading online and mobile pet sitting company.

This quote introduces Aaron Hirschhorn and his company, Dog Vacay, highlighting its significance in the pet services market.

• The idea for Dog Vacay came from a personal experience of Aaron and his wife.
• They were charged $1,400 for kenneling their dogs for ten days, and their dog Rocky was traumatized afterward.
• This experience highlighted the need for a better pet care solution.
• The U.S. pet services market is large, with 83 million dogs and $15 billion in value, yet fragmented with no dominant market share.

The aha moment for our business was my wife and I traveled to the east coast to visit our families and left our two dogs in a kennel in Los Angeles where we currently live.

This quote explains the personal experience that led to the creation of Dog Vacay, emphasizing the problem it aims to solve.

• The demand side of Dog Vacay has always been more challenging than the supply side.
• The supply proposition is attractive: sign up for free and make money watching dogs.
• Dog Vacay approves only about 15% of sitter applications, ensuring quality.
• The demand side involves building trust with pet owners to leave their pets with strangers and pay for the service.

So from the beginning and to this day, the demand side is harder.

This quote highlights the ongoing challenge of building demand and trust with pet owners in the Dog Vacay service.

• Dog Vacay saw early traction and revenue, indicating product-market fit.
• The business grew rapidly through word of mouth as customers looked for alternatives to kennels.
• Despite making mistakes, the core business model of home-based dog care proved successful.

We launched in March of 2012 and I think the first month we must have had just three or four bookings, but people started talking about it and the next thing we knew, three months in, we were doing a few hundred thousand dollars a month.

This quote describes the early signs of product-market fit and growth for Dog Vacay through customer adoption and word of mouth.

• Dog Vacay transitioned from a concept to a credible business with significant growth.
• Early support from credible figures like Mike Jones and Howard Morgan helped gain initial traction.
• Rapid growth in gross bookings made Dog Vacay an attractive investment for venture capitalists.
• Benchmark Capital's investment further validated Dog Vacay as a serious business.

Then it became a fairly easy series day story for the subset of people who understood it.

This quote reflects on the moment when Dog Vacay's business model and growth potential became clear to investors, leading to successful funding rounds.

• Aaron Hirschhorn faced skepticism and even laughter when pitching Dog Vacay to VCs.
• His personal experience as a VC helped him maintain a realistic perspective on fundraising.
• Despite the challenges, he focused on the growth and potential of the business to overcome doubts.

I got a lot of laughs. People are like, come on, I'm a serious vc, why are you bringing me a dog sitting business?

This quote captures the initial skepticism faced by Aaron when presenting Dog Vacay to potential investors, which he had to overcome to secure funding.

• Demonstrating passion and living the business can be compelling to potential investors.
• Small wins, like securing a small investment, can provide motivation and validation.
• Momentum is critical; showing progress through product releases, customer acquisition, etc., can help maintain founder morale and attract investors.

"Every time you get just a little win, even if it's early, a $25,000 check, that's very buoying, and it was very exciting."

This quote emphasizes the importance of celebrating early wins, which can boost morale and signal potential to investors.

• Running a tight fundraising process can be beneficial.
• Controlling the dialogue and narrative is key to maintaining power in conversations with VCs.
• Over-sharing with VCs casually can weaken a founder's position.
• A competitive fundraising process can be advantageous.
• Having a target list of VCs and a well-prepared deck and model is essential.
• The first term sheet can significantly boost confidence and leverage.

"You really want to control the dialogue, you want to control the narrative."

This quote highlights the strategic importance of guiding the conversation and managing the information flow during fundraising.

• Investors are aware of each other's actions and interest levels.
• Sharing the fundraising process status with investors can create urgency.
• Investors are more inclined to commit if they know others are interested.

"It definitely helps the investors write a check to know that you've got other people courting you."

The quote suggests that investor behavior can be influenced by the perception of competition and interest from other investors.

• The number of target investors should be larger than five but can vary.
• Initial meetings may be with less preferred VCs for practice and feedback.
• Preferred VCs are engaged later in the process when the pitch is refined.
• Domain expertise, credibility, and financial terms are key factors in choosing investors.

"The vcs that you meet with first, those are the ones that you don't actually want in your deal."

This quote reflects a tactical approach to the order in which potential investors are engaged, using early meetings for practice and feedback.

• Domain expertise is crucial for a marketplace business.
• Credibility of a tier-one VC can be beneficial for the company's perception.
• Financial considerations, such as investment size and valuation, are important.
• Having a choice of investors is a fortunate position, not always available.

"Domain expertise is important. So we're building a marketplace business."

The quote underlines the significance of investor expertise in the specific business domain, which can add value beyond capital.

• Receiving good guidance can lead to few regrets in the fundraising approach.
• The success of fundraising is fundamentally tied to the business's performance.
• Even in difficult markets, a strong business with good unit economics can secure funding.

"If your business is doing well and your unit economics are good and your growth is good, you'll figure out a way to get funding even in a shitty market."

This quote conveys that the core health and metrics of a business are the most critical factors in successful fundraising.

• The on-demand economy is evolving, with overlaps between on-demand services, sharing economy, and marketplaces.
• The most promising on-demand businesses are those that blend these elements effectively.

"I think we're starting to see a blend between people calling it on demand and sharing economy and marketplaces."

The quote acknowledges the convergence of different economic models within the on-demand space and suggests that the most successful businesses will be those that integrate these models seamlessly.

• Disruptive businesses offer a better product or experience at a lower cost.
• UberX is cited as a prime example of such a business model.
• Dog vacay is also considered a disruptive business due to its superior service compared to kennels and lower cost.
• Businesses charging a premium for convenience may not have as much growth potential.
• These models are not new and cater primarily to wealthier customers.
• The food delivery space, despite being a massive market, lacks differentiation and is highly competitive on price.

"And probably the best example of that is UberX. Not the core Uber product, but Uber X, where it is a better experience than a taxi by far, and more affordable. And then of course, selfishly, I'll put dog vacay in that category where we offer a far better experience than the kennel and at about 40% less on average of cost."

This quote exemplifies the concept of disruptive business models by highlighting UberX and Dog Vacay as businesses that provide superior services at lower costs, challenging traditional industries.

• Unit economics must be favorable for sustainable business growth.
• Last year saw a focus on growth over unit economics due to significant funding.
• The food delivery market is highly competitive and may not support many players due to a lack of differentiation.
• Growth should be pursued sustainably, especially in markets with low penetration but high potential.
• The balance between charging the demand side or the supply side depends on the scarcity of each.

"That being said, the unit economics have to be right. And what you saw last year, of course, was incredible funding coming into all these different companies and growth was the name of the game. People didn't look at unit economics, they only looked at top line."

This quote stresses the importance of unit economics for the longevity and health of a business, contrasting it with the previous year's trend of prioritizing growth funded by significant investment.

• Having knowledgeable board members, like Bill Gurley from Benchmark, can lead to smarter business decisions.
• Board members with diverse experience can provide valuable insights, regardless of company size or stage.

"Bill's incredibly smart and just ultimately wants to win and will do anything that it takes to win. And he's been great. I've learned a ton. We've made a lot of smarter decisions to having him on board, and he's a great advocate for the business."

This quote highlights the positive impact that a dedicated and intelligent board member like Bill Gurley can have on a company, from decision-making to advocating for the business.

• Market penetration requires time, especially for trust-based businesses.
• Strong unit economics are essential for sustainability in the face of market challenges.
• Increasing market comfort with online services and mobile transactions is a positive trend.
• Effective growth strategies involve analytics and improving the customer acquisition cost to lifetime value ratio.
• Conversion rate optimization is critical and often underappreciated.

"So what do you think will be the enabler for you to really achieve that market penetration that you desire? It's a new concept still. And I think these things take time, and especially ours, where it's a highly trust based business."

This quote acknowledges the challenges of achieving market penetration, particularly for new and trust-based concepts, and underscores the necessity of patience and strategic growth.

• Trust is a critical factor for marketplace startups, varying in importance based on the nature of the service.
• Background checks have become a standard practice but may not be entirely sufficient.
• Proprietary trust-building measures and active management of trust on the platform are essential.

"I think every business where trust is important needs to develop something of their own that's proprietary. And then of course you've got to manage it extremely actively once you're on the platform."

This quote emphasizes the need for marketplace startups to create and maintain their unique trust mechanisms beyond standard practices like background checks, especially when the service involves significant customer trust.

• Aaron Hirschhorn would change how he built the initial infrastructure of the site to avoid technical debt.
• Technical debt is a common issue where companies often throw away their first version of a product.
• Due to being a first-time entrepreneur with a concept that was not taken seriously, Aaron struggled to find good talent.
• The site was initially developed by a dispersed team of freelancers from different countries, which led to a cobbled-together product in two different languages, causing ongoing issues.

"One thing I would change is I would be much smarter about how to build the initial infrastructure of the site. We're still working out, working through a lot of technical debt."

Aaron Hirschhorn reflects on the importance of making smart architecture decisions from the beginning to avoid long-term technical challenges.

• Aaron faced immense challenges due to different time zones, language barriers, and the use of multiple freelancers.
• After receiving some funding, he was able to hire local developers, but due to budget constraints, they were not the top talent.
• The early versions of the site were of poor quality, which Aaron describes as "a dog's breakfast."

"It was awful. It was really bad. I mean, the site was cobbled together."

Aaron Hirschhorn describes the difficulties of working with a patchwork team and the subpar quality of the initial site build.

• Aaron is an avid reader of high-level news sources like The New York Times and The Wall Street Journal.
• He also appreciates the insights from Bill Gurley's blog and Jason's daily newsletter from Inside, which provides snippets of interesting news.

"I'm an avid, like, New York Times, Wall Street Journal, kind of like, I think the real high level news is really important."

Aaron Hirschhorn emphasizes the value he finds in staying informed with reputable news sources.

• Aaron separates financial success for the founders and investors from the success of the business itself.
• He views an IPO as just another fundraising event rather than the ultimate measure of success.
• Success for DogVacay is defined as becoming the leading pet care company in the world, with a thriving ecosystem and satisfied customers.
• The form of the company (private, public, or acquired) is less important than its growth, profitability, and service quality.

"So for me, success is being the leading pet care company in the world."

Aaron Hirschhorn outlines his vision for DogVacay's success, which focuses on market leadership and a robust service ecosystem rather than just an exit strategy.

• The trust factor is critical on DogVacay, leading to the common practice of users wanting to meet sitters in advance.
• The company is still figuring out how to support and facilitate these meet-and-greet sessions while keeping interactions on the platform.
• Aaron finds the process of introducing dogs and managing their socialization through an online platform to be a complex and interesting challenge.

"The most interesting thing about our site is the fact that in order for the trust to really happen, most people want to meet in advance."

Aaron Hirschhorn highlights the unique challenge of fostering trust in a service that involves the care of pets, requiring a balance between on-demand features and personal interactions.

• Harry Stebbings expresses admiration for Aaron's passion and alignment to his product.
• Harry looks forward to seeing DogVacay's growth and provides his contact information and a promotion for Lisa Mattress.

"And Aaron's passion and alignment to his product really was so tangible, and it's so amazing to hear the dog vacay story firsthand."

Harry Stebbings concludes the podcast by acknowledging Aaron Hirschhorn's inspirational approach to building DogVacay.