20VC FF Hiten Shah on VC Funded vs Bootstrapped Businesses and How He Decides Which Startups To Advise



In this episode of the 20 Minutes VC, host Harry Stebings interviews Hiten Shah, a serial entrepreneur and angel investor known for co-founding Kiss Metrics and Crazy Egg. Shah shares his journey from starting a consulting company in 2003 to launching multiple successful products and investing in startups such as Buffer and Mattermark. He discusses the learning experiences from bootstrapping and VC funding, emphasizing the importance of understanding both paths to grow a business effectively. Shah also touches on the evolving landscape of SaaS, the impact of competition on customer focus, and the importance of product-market fit, as exemplified by Slack's success. Additionally, he offers counterintuitive advice for founders in a crowded startup environment and expresses excitement about the potential for technology to create new opportunities for human creativity.

Summary Notes

Introduction to Hiten Shah

  • Hiten Shah is a co-founder of Kiss Metrics and Crazy Egg.
  • He is also an angel investor with over 20 startups in his portfolio.
  • Shah is recommended for his newsletter on SaaS.
  • He has experience with both VC-funded and bootstrapped business models.

"Now, I do have a hard time formulating an intro for Hiten as he seemingly has many hats, both as a phenomenal operator, being the cofounder of Kiss Metrics and crazy egg. And he's also a superb angel investor, having invested in more than 20 startups including buffer message me which was acquired by Yahoo and our own favorite Mattermark."

The quote introduces Hiten Shah, highlighting his diverse roles as a co-founder, operator, and angel investor. It emphasizes his experience and success in various aspects of the tech industry.

Hiten Shah's Background

  • Hiten Shah's career started with an internet marketing consulting company in 2003.
  • He co-founded Crazy Egg in 2005 after building multiple products.
  • Shah co-founded Kiss Metrics in 2008 and raised venture capital for it.
  • He is not day-to-day at Kiss Metrics but is back working on Crazy Egg.
  • Shah also started a new company called QuickSprout.
  • He has been investing and advising companies since around 2007.

"My co founder and I started a consulting company doing Internet marketing. Within the first two years we actually started making a whole bunch of money helping other people grow their traffic, increase conversions."

The quote provides insight into Shah's early career, describing his successful start in internet marketing and the foundation of his entrepreneurial journey.

Decision to Raise VC Funding

  • Shah and his co-founder valued learning, leading to their decision to raise money.
  • They wanted to understand the impact of raising money on business growth.
  • Shah acknowledges the bias in the industry towards either bootstrapped or VC-funded businesses.
  • He believes that understanding both sides makes them better entrepreneurs.

"We didn't know what it was like to raise money and we value that we wanted to learn. So we decided that the way we were going to learn is by actually raising money and figuring it out."

This quote explains Shah's motivation to raise venture capital as a learning experience to understand its effects on business growth.

VC Funding's Influence on Growth and Creativity

  • Shah agrees with Mark Suster's notion that constraint enforces creativity.
  • He believes that being aware of the benefits of constraints can help, regardless of funding.
  • Shah suggests that funded companies should spend money ahead of revenue but responsibly.
  • The goal is to use the funding to grow faster than possible without it.

"I think when it's your first time raising money and you don't understand that simple thing that Mark said, you're not going to create the kind of constraints that are going to allow you to push the limits and have that creativity."

The quote reflects Shah's perspective on the importance of understanding and embracing constraints to foster creativity, even with VC funding.

QuickSprout's Funding Strategy

  • QuickSprout is currently self-funded and cash flow positive.
  • Shah is open to raising money but sees no current need.
  • He believes there might be a point where not taking money would not make sense.

"We don't know we're open to it, but we put ourselves in a position with that business where it makes its cash flow and it's cash flow positive every month."

Shah discusses QuickSprout's financial status and openness to raising capital, highlighting the importance of a strong cash flow position.

Advice on Fundraising for Founders

  • Shah advises against raising money if it's not necessary.
  • He believes that the ideal scenario is raising money after achieving product-market fit and being ready to scale.
  • Founders should raise money when they can confidently grow the business and increase valuation.

"Honestly, the truth I have on that just by doing both and helping a lot of people with fundraising, if you don't have to raise money, don't raise money."

This quote summarizes Shah's straightforward advice to founders regarding fundraising, emphasizing the importance of necessity and timing in the decision to seek investment.

Purpose of Raising Money

  • Raising money is intended to accelerate the enhancement of a company's valuation, revenue, and profits.
  • The act of obtaining funding is likened to entering a marriage focused on business growth.

"The day, when you take money, it's meant to help you increase the valuation of the company, the revenue, the profits faster."

This quote emphasizes the strategic objective of raising capital, which is to expedite the growth and financial success of a company.

Hiten Shah's View on Startups and Investing

  • Hiten Shah's experience with bootstrapping and venture capital has led to a pragmatic and practical perspective on investing.
  • He acknowledges the shift from a relationship focus to a business focus post-funding.
  • The ease of starting businesses today has altered the venture capital landscape.

"I look at everything differently. I look at it very much more pragmatically and practically."

Hiten Shah's quote reflects his evolved perspective on investing, influenced by his entrepreneurial experiences.

Evolution of Venture Capital

  • Founders can now raise money with less initial capital due to technological advancements and seed funding availability.
  • The shift from needing significant resources to start a company to the current ease of building software has changed the venture capital environment.

"And the evolution I like to talk about, about venture capital from a founder standpoint, is founders used to be able to raise money just by having a deck."

This quote discusses the historical context of venture capital and how it has become more accessible for founders today.

Personal Branding and Deal Flow

  • Hiten Shah's authentic personal brand, crafted through his online presence, aids in attracting quality deal flow.
  • Being genuine and true to oneself is advised for personal branding.

"But honestly, be yourself, and then it helps even more."

The quote underscores the importance of authenticity in personal branding, which can positively impact business opportunities.

Seed Funding Environment

  • There is a proliferation of early-stage funding, leading to more startups and competition.
  • The cycle of successful entrepreneurs reinvesting in the startup ecosystem contributes to the growth of early-stage funding.

"There's going to be more and more companies in the future. There's going to be more and more competition."

This quote predicts a continual increase in the number of startups due to the ease of company formation and availability of early-stage funding.

Assessing Founder Grit

  • Hiten Shah asks founders about their earliest traumatic memories to gauge their preparedness for startup challenges.
  • Understanding a founder's history of overcoming hardship can indicate their potential to handle the stresses of entrepreneurship.

"Starting a company is absolutely hard... So that question helps me understand if someone's ready for it or they're going to need work."

The quote explains why probing a founder's past experiences can be revealing of their future resilience in the face of business challenges.

Startup Advisory Selection Criteria

  • Determining which startups to advise is based on an assessment of the founder's background and the potential hardships they've overcome.
  • Hiten Shah seeks to understand a founder's capacity for persistence and handling uncertainty.

"I want to understand, have they ever had hardship in their life and have they've gone through it?"

This quote illustrates the criterion Hiten Shah uses to evaluate a founder's grit and suitability for the demanding journey of building a startup.

Personal Motivation and Energy from Startups

  • Hiten Shah is personally energized by interacting with people who are innovating and creating new businesses.
  • His curiosity about business and passion for understanding the challenges and thoughts of entrepreneurs drives him to engage with founders.
  • Shah finds that his interest in business and people is not limited to any specific type or context.

"I personally really get a lot of energy out of people who are trying to do new things."

This quote explains Shah's source of energy and motivation, which comes from his interactions with innovative individuals across various settings.

Generosity with Time and Philosophy

  • Shah attributes his generous allocation of time to startups to the positive impact it has on his life.
  • He describes a cycle of helpfulness that often leads to unexpected benefits for his businesses and personal life.
  • His philosophy is rooted in the belief that being helpful and understanding people can lead to serendipitous outcomes.

"I've had days where I've had like 13 minutes meetings, 17 meetings, right? And sometimes I'll have one of those days, and the next day, even if I have more meetings, this is the worst feeling. I'm like, should I really have that many meetings and all this stuff? And then what will happen is within 24 hours, some random thing happens that wouldn't have happened."

The quote illustrates Shah's experience with having an intense schedule and the subsequent positive outcomes that can arise from his willingness to help others.

Impact of Technology on Employment

  • Shah expresses excitement about the potential of technology to replace human jobs, seeing it as an opportunity for people to learn new skills.
  • He acknowledges the challenges that will arise from job displacement but remains optimistic about the ability to address them through education.
  • Shah is supportive of educational platforms that can help people transition to new disciplines, such as programming, in light of technological advancements.

"If machines are able to do things that humans are doing today, that means humans are going to be opened up to do other things that machines cannot do."

This quote reflects Shah's positive outlook on the advancement of technology and its potential to free humans from tasks that can be automated, allowing them to focus on other areas.

Learning Platforms and Self-Education

  • Shah emphasizes the importance of using the best learning tools available and not limiting oneself to a single platform.
  • He advocates for leveraging a variety of educational content from different sources based on what one wishes to learn.
  • His personal approach to learning involves effective use of search engines like Google to find the resources he needs.

"Use the best tool for the job. Come on."

Shah's advice underscores the idea that one should choose the most suitable educational platform or resource for the specific knowledge they are seeking.

Counterintuitive Advice for Startups

  • Shah offers contextual and timely advice for startups, noting the increased number of companies and competition in the market.
  • He advises startups to continue focusing on their customers but also to be aware of their competition due to its greater impact on customers nowadays.

"Don't forget about your competition because they impact your customer more than ever."

The quote conveys Shah's counterintuitive advice for startups to not only prioritize their customers but also to keep an eye on their competitors, which is a shift from traditional startup advice.

SaaS Space: Innovation and Funding

  • Shah observes that the SaaS industry has experienced overfunding at later stages and underfunding at early stages.
  • He predicts a market correction for companies with high valuations that do not match their revenue growth rates.
  • Shah sees potential for investment in early-stage SaaS startups due to more reasonable valuations expected after the market correction.

"I think there's underfunding at the earliest stages of SaaS, and I think there's overfunding at the later stages of SaaS, or there has been, and now we're getting corrections."

This quote highlights Shah's perspective on the current funding landscape in the SaaS space, indicating a mismatch between funding stages and the need for a market correction.

Cyclical Nature of SaaS and Company Struggles

  • SaaS (Software as a Service) has experienced a hype cycle, leading to difficulties for some companies.
  • The challenges faced by these companies are affecting seed stage investors' sentiments.
  • However, knowledgeable investors find encouragement in these challenges as they present opportunities.

"People got hyped on SaaS and so there's some companies out there that are already having some hard time as a result of that."

This quote highlights the cyclical trend in the SaaS industry and its impact on companies that may have been overvalued or expanded too quickly during the hype.

Slack's Deliberate Approach to Product-Market Fit

  • Slack's success attributed to a deliberate approach to understanding the market and building a product with a strong product-market fit.
  • The company focused on engagement, activity, and satisfaction before a public launch.
  • Slack's valuation and growth are rooted in a pivot from a previous business and the team's private efforts to address challenges.

"They got the product right at the exact right time to get that kind of product right."

This quote emphasizes Slack's strategic timing and focus on product development, which played a critical role in their success.

Hiten Shah's Content Creation and Sharing

  • Hiten Shah's recent blog post on Slack's product-market fit survey received significant attention.
  • Shah aims to share research and teach others how to conduct their own product-market fit surveys.
  • The success of the blog post reflects Shah's commitment to educating others in the industry.

"That's just the beginning of things I want to do more going forward, which is just share, do some research, share some stuff that other people are just not sharing, but using that as a tool to teach people how to do this for themselves."

This quote explains Shah's passion for sharing unique insights and empowering others with tools for self-improvement in the SaaS industry.

Growth Hacking and Productivity Insights

  • Brian Balfour's work at HubSpot with the product sidekick is praised for its explanatory power on B2B growth.
  • Hiten Shah admires the growth hacking frameworks and methodologies applied at HubSpot.
  • Shah's productivity hack involves listening to audio content at accelerated speeds to intake information more quickly.

"I am just blown away at his deliberate frameworks and deliberate nature of explaining growth for a b two B company."

The quote underscores the effectiveness of Brian Balfour's structured approach to explaining growth strategies for B2B companies.

Admiration for Buffer's Founders

  • Shah expresses admiration for Buffer's founders, Joel and Leo, for their commitment to transparency and impact on other businesses.
  • He values their approach to learning and openly discussing their mistakes and improvements.
  • Buffer's influence is seen as a positive force for openness in the business community.

"They've really pushed this movement around transparency and openness a lot further."

This quote reflects Shah's respect for Buffer's founders and their influence on fostering a culture of transparency in the business world.

Favorite Book: "The War of Art"

  • "The War of Art" is cited as a favorite book for its motivational impact on overcoming creative blocks.
  • The book is appreciated for its ability to inspire and motivate through difficult creative periods.

"When I feel like my creativity is drained, I'll read the book and realize that I just need to push through it."

This quote conveys the personal value Shah finds in "The War of Art" for its empowering message to persist through creative challenges.

Future Plans and SaaS Evolution

  • Hiten Shah plans to continue building and assisting with SaaS products.
  • He anticipates the lines between SaaS and consumer products will blur, and the term "SaaS" may evolve.
  • Shah is enthusiastic about the ongoing growth and transformation of the SaaS industry.

"More SaaS. More SaaS. I want to build more SaaS products. I want to help other people build their SaaS products."

This quote reveals Shah's future focus on SaaS, indicating a dedication to the industry and a prediction of its continued evolution.

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