20VC How Every VC Firm Is A Marketplace, Why A Large Amount of Promise in AI Today Is Impossible & Entrepreneurs 3 Main Pain Points of Fundraising with Alex Mittal, Founder & CEO @ Funders Club

In this episode of "20 Minutes VC," host Harry Stebbings interviews Alex Mittal, founder and CEO of Funders Club, a venture capital firm leveraging software and networks to connect investors with promising startups. Mittal discusses the challenges entrepreneurs face during fundraising and how Funders Club aims to create a more efficient and supportive experience by applying network effects and software to the VC model. He shares insights into the on-demand economy, acknowledging the sector's fluctuations and the importance of unit economics and defensibility. Mittal also delves into the hype around AI and machine learning, cautioning against overpromising and emphasizing the limitations of current technology. Additionally, he comments on the funding trends of non-tech consumer businesses and the future potential of API-driven companies. The conversation touches on the evolving landscape of private investing, with legislative changes potentially opening doors for non-wealthy, educated individuals to become accredited investors.

• Harry Stebbings hosts the 20 Minute VC podcast and invites listeners to connect on Snapchat.
• Alex Mittal, CEO and founder of Funders Club, is introduced as the guest.
• Funders Club is a platform that leverages software and networks to connect investors with promising startups.
• Alex Mittal has a background in entrepreneurship, having been the founding CEO of Innova Dynamics and CTO of Credarity.
• Thanks are given to Pejman Nozad for the introduction to Alex Mittal.

"I'm thrilled to welcome Alex Mittal. Now Alex is the founder and CEO at Funders Club, the company that uses software and networks to provide investors with access to the world's most promising startups."

The quote introduces Alex Mittal and Funders Club, emphasizing the innovative approach to connecting investors with startups.

• X.AI's AI-powered personal assistants, Amy and Andrew, are praised for their ability to streamline meeting scheduling.
• Workable is mentioned as an all-in-one recruiting software that simplifies the hiring process for companies.

"For me, that's X.AI. They bring you Amy Andrew, their AI-powered personal assistants, for scheduling meetings."

The quote highlights the efficiency of X.AI's AI assistants in organizing meetings, which is a key theme in discussing the impact of technology on traditional workflows.

• Alex Mittal shares his experience as an entrepreneur and the pain points in raising capital.
• The idea for Funders Club started with improving the fundraising experience for entrepreneurs.
• Funders Club aims to provide a better product experience in venture capital, including value-add services like introductions and hiring help.
• The concept of transforming the VC industry with network effects and the internet was inspired by the success of companies like Uber and Airbnb.
• Alex Mittal and his team sought advice from influential figures in the VC industry, including Josh Kopelman and Y Combinator.

"The simple thought in the beginning was simply like, how do we fix that? How do we create the cliche, delightful, delightful user experience when it comes to raising."

This quote captures the initial motivation behind Funders Club, which was to improve the fundraising experience for entrepreneurs.

• Funders Club is described as an ongoing experiment, four and a half years in the making, with ambitions to achieve much more.
• The company applies network effects, community, and software to the VC process, including discovery, vetting, investing, and post-investment support.
• The goal is to enhance the experience for entrepreneurs, with the ultimate verdict on success coming from them.

"And that's basically the crux of what we're building. And the net result of that, we hope and the verdict is going to be in the entrepreneurs, it's up to them to say if it's working or not."

This quote explains the core mission of Funders Club, which is to revolutionize the VC process through technology and community involvement.

• Alex Mittal acknowledges that the VC industry, including Funders Club, can be guilty of inefficiencies.
• A major issue for entrepreneurs is the need for connections to raise capital, which Mittal believes should be addressed by VCs to surface innovation more effectively.
• Another pain point is the repetitive nature of fundraising, which can distract entrepreneurs from building their business.

"Am I allowed to say everything."

This quote humorously summarizes the sentiment that there are numerous issues entrepreneurs face during fundraising, which Funders Club aims to address.

• The on-demand space has experienced varying levels of enthusiasm and skepticism over time.
• Initial reactions to on-demand services like Instacart were negative, recalling past failures like Webvan.
• Infrastructure and technology improvements have changed the landscape for on-demand services.
• Data plays a critical role in inventory management and logistics, enabling efficiencies at scale.
• Network effects can be leveraged to negotiate exclusive contracts and provide an elevated customer experience.
• The on-demand space has seen fluctuations in investor interest, with periods of both excitement and disinterest.
• Consumer demand has consistently been high, as indicated by metrics like Net Promoter Scores (NPS).
• The challenges in the on-demand space include unit economics and market defensibility.
• When on-demand businesses demonstrate defensibility and a clear path to sensible unit economics, they become attractive investment opportunities.

"And when we backed Aporva and his team at Instacart, this was back in 2012, 2013, the prevailing thought then was, this is like insane or scary or impossible."

This quote explains the initial skepticism surrounding on-demand services like Instacart, especially in the context of previous failures in the space.

"And then, probably most importantly, the ability to build a network effects driven business, was something that, although in that time, when I think there was a night where Max and Aporva and some of the team literally were running around doing the deliveries themselves because they accidentally had too many orders."

This quote illustrates the early challenges faced by on-demand businesses and the importance of building a business that can leverage network effects to scale.

"The devil is in the details. And so I kind of walked through some of the thesis with which we backed Instacart, and I left out the obvious, which is that consumers want this."

The speaker emphasizes that despite the challenges, the fundamental consumer demand for on-demand services is strong, making it an attractive space for investment.

• Investment biases can cloud judgment and affect decision-making, especially following failures in a specific sector.
• Being aware of cognitive biases is the first step towards overcoming them.
• It is crucial for investors to maintain an open mind and consider the possibility of success even in the face of previous failures.
• Critical thinking and skepticism are necessary to navigate limited data and avoid being swayed by singular events.
• The concept of "suspending disbelief" is important for venture capitalists to embrace potential breakthroughs.

"It's incredibly hard. So just admitting that it's difficult, right. And likely I and all people are subject to biases even when we're aware of them. But that is the start."

This quote acknowledges the inherent difficulty in overcoming biases and the importance of recognizing one's susceptibility to them as a starting point.

"Like believing the impossible could be possible. I guess we call it suspending disbelief. That's really important to do."

The speaker emphasizes the need for venture capitalists to keep an open mind and consider the potential for seemingly impossible outcomes.

• There is a surge in interest in AI and machine learning, with many startups incorporating it into their pitches.
• Historical cycles of excitement and disappointment have characterized the AI field, leading to periods of "AI winter."
• Current enthusiasm for AI and machine learning may be overheated, with some promises exceeding the capabilities of the technology.
• The current state of AI infrastructure, including processing power and data availability, has improved significantly.
• Despite advancements, there are still limitations to AI, such as the need for large amounts of data for training and issues with algorithmic accuracy.
• Investors should calibrate their expectations and be aware of the current technological limitations.

"I believe there's a term, AI winter, for example, to describe the times in history where people have been really negative on AI and where funding has dried up."

This quote refers to the cyclical nature of AI investment and interest, highlighting periods when enthusiasm wanes and funding becomes scarce.

"But there's some limitations. So some simple examples, just to get specific. First of all, it's still a case that you need a ton of data to train these algorithms, and much more than would make sense for true intelligence."

The speaker points out the limitations of current AI technology, specifically the need for large datasets for training, which is not aligned with the efficiency of natural intelligence.

• AI, as referenced in early 2017, is primarily about deep learning.
• Deep learning consists of nested, layered groups of functions that can be simplified to binary decisions.
• This form of AI is not about complex reasoning or chains of actions but rather simpler, more binary questions.
• Entrepreneurs and investors should be aware of the limitations of current AI technology and manage expectations accordingly.

"When we say artificial intelligence, really, most people are referencing deep learning, and they're specifically referencing nested, layered groups of functions, effectively, almost down to as simple as, like, yes or no, good or bad."

This quote highlights the simplicity behind the complex concept of AI, emphasizing that it often boils down to binary decision-making processes within deep learning systems.

• AI experiences fluctuations in hype cycles, with periods of intense interest followed by disillusionment.
• The concept of an "AI winter" refers to times when AI falls out of favor due to unmet expectations.
• AI is currently in an "AI summer," with high interest and investment in the technology.
• Large companies are advised to have an AI strategy to avoid being disrupted by new technologies.
• AI is seen as a tool for automating tasks rather than true intelligence.

"I'm merely calling out the fact that there's so much noise now we're in an AI summer. It's hot."

This quote points out the current high level of excitement and activity in the AI field, suggesting that interest in AI is peaking.

• Hard science startups are receiving significant backing from VCs traditionally focused on software.
• There is a misconception that hard sciences can progress at the same speed and cost as software.
• Founders and investors need to recognize the unique challenges and longer timelines associated with hard science ventures.
• Some hard science companies, like Ligos, show promise by leveraging advancements in gene editing for chemical production.
• Success stories, like Thalmic Labs, are exceptions that fit well with venture capital investment models.

"We're not yet at the speed of software in the hard sciences. And so nor are we at the cost."

This quote emphasizes the disparity between the development speed and cost of software versus hard sciences, cautioning against unrealistic expectations.

• Non-tech consumer businesses, like The Honest Company, are increasingly funded by top tech VCs.
• There is a question about the suitability of these investments given the different scalability and technology differentiation of non-tech businesses.
• Branding can be a sustainable differentiator for consumer businesses and may attract specialized VCs.
• Tech VCs may struggle with these investments if they venture outside their expertise in technology differentiation.

"But when I think about differentiation in the honest company, it seems largely around the brand."

This quote suggests that for certain consumer businesses, the brand itself is the key differentiator, rather than the technology they employ.

• The future of APIs is still seen as promising, despite major IPOs like Twilio already having taken place.
• APIs are expected to play a continuing and significant role in the tech industry.

"The age of the API is not in the past, but it's still to come."

This quote expresses optimism for the ongoing and future relevance of APIs in the tech landscape, indicating that their potential is not yet fully realized.

• APIs are becoming increasingly integrated into every layer of technology stack.
• APIs provide access to complex computing capabilities and data.
• Examples include Stripe for payments, Twilio for communications, and Shippo for shipping.
• APIs allow developers to access high-level data and computation power, such as Google's Cloud Vision API.
• The trend towards API integration is expected to continue and expand.

"We're going to continue to see the API, if you can call it that, of a lot of these core layers of commerce, marketplace, financial services and so forth."

This quote emphasizes the ongoing integration of APIs into various sectors, suggesting significant future opportunities in the field.

"We're seeing the exposing complex computing capabilities and data that is inaccessible to most people through APIs."

The quote highlights the role of APIs in democratizing access to advanced computing resources and data.

• "The Art of War" is Alex Mittal's favorite book.
• It provides insights into human behavior, suggesting that people are not like algorithms and may not act or speak transparently.
• Understanding the underlying motivations and actions of people is crucial.

"The art of War. And it's because basically to understand, people have to sort of understand at a fundamental level, we actually aren't like algorithms."

The quote explains the importance of understanding human behavior, which is unpredictable and not algorithmic, as emphasized by the book "The Art of War."

• Alex Mittal describes the challenge of balancing roles as an entrepreneur and a venture capitalist.
• This dual role provides empathy but also creates an identity crisis.
• The desire to support founders must be balanced with the practicalities of venture capital.

"Being on both sides of the table at the same time. So I'm an entrepreneur first, but we're also a vc, and being able to make sense of that identity crisis is definitely something that is difficult."

This quote reflects the personal challenge Alex Mittal faces in reconciling his roles as an entrepreneur and a venture capitalist.

• Alex Mittal follows a variety of industry newsletters and blogs.
• He recommends Aaron's term sheet at Fortune, Mattermark daily, and others from Bloomberg.
• He also mentions Eric Newcomer and Jessica at The Information as valuable sources.

"Wow. I have a whole set and I think a lot many of the listeners here are subscribed to, but you've got the Aaron's term sheet at Fortune and you've got Mattermark daily and a whole slew of others."

The quote lists several industry resources Alex Mittal finds essential, providing insight into where he gets his information from.

• Writing out daily must-do tasks is a simple yet effective productivity hack for Alex Mittal.
• Labeling tasks with the day of the week helps ensure they are completed on time.
• A productivity hack for emails is using templates for frequently sent messages.

"Certainly one must have productivity hack that I do is quite simple, which is just writing out the must dos every day."

The quote shares a straightforward productivity technique that helps Alex Mittal manage his daily tasks effectively.

• Funders Club is transitioning from an experimental phase to addressing larger problems and opportunities.
• They aim to serve both ends of the capital spectrum, from mainstream consumers to institutional investors.
• Legislative changes could broaden the pool of accredited investors, impacting private investment.
• Funders Club's goal is to connect capital and resources from various investors to entrepreneurs.

"We see it as our destiny to be serving the capital side of the marketplace and ultimately being the plumbing that connects capital and not just capital, but the resources of those people, both on the upside, on the high end of the market, and as well as just everyday people to connect those folks and resources to entrepreneurs to help them on their journeys."

This quote outlines the strategic vision of Funders Club for the next five years, focusing on connecting different levels of investors with entrepreneurs.

• Harry Stebbings thanks Alex Mittal for his time and insights.
• Acknowledgement of contributions from Pesman at Pear and Laura at Shippo for introducing Alex Mittal.
• Harry Stebbings invites listeners to follow his Snapchat and check out his blog.

"And again, I want to say huge thank you to Alex for giving up his time today to come on the show."

Harry Stebbings expresses gratitude to Alex Mittal for participating in the podcast and sharing his journey.

• X AI is recommended for AI-powered personal assistance for scheduling meetings.
• Workable is suggested for recruiting software that helps companies manage the hiring process.

"Yes, this is X AI, bringing you the aipowered personal assistance for scheduling meetings."

The quote recommends X AI as a tool to improve productivity by simplifying the process of scheduling meetings.

"Workable is the all in one recruiting software for ambitious companies."

The quote suggests Workable as a comprehensive solution for the recruitment needs of growth-oriented companies.