20VC Lambda School Founder, Austen Allred on How To Assess Your Relationship To Risk and Money, Why San Francisco Is A Case Study For The Greatest Squandering of Wealth in History & Why Complexity Increases Exponentially with Scale



In this episode of "20 minutes VC," host Harry Stebbings discusses with Austin Allred, the founder and CEO of Lambda School, the company's recent $74 million Series C funding led by Gigafund. Allred shares his journey from teaching himself to code and blogging about his experiences to founding Lambda School, a startup that trains people in tech skills with a pay-after-hire tuition model. Having raised over $129 million from top investors, Allred reflects on his and Lambda's growth, the strategic decisions made, and the challenges of scaling the team and expanding geographically. The conversation also touches on the personal brand, the future of Silicon Valley, and the importance of aligning incentives for founders through secondary markets. Special thanks are given to Sean Maguire at Sequoia and Jeff Richards at GGV for their question suggestions, and Stebbings promotes the benefits of using Carter and Latice for equity management and people strategy, respectively.

Summary Notes

Introduction to the 20 Minutes VC Show

  • Harry Stebbings introduces the show and contemplates a name change, seeking audience feedback.
  • Austin Allred, founder and CEO at Lambda School, is welcomed back after announcing a $74 million Series C funding.
  • Lambda School is a remote educational startup that trains students in web development and data science with a post-employment tuition payment model.
  • Austin has raised over $129 million from notable investors like Stripe and GV.
  • Acknowledgments to Sean Maguire and Jeff Richards for question suggestions.

"Welcome back to the 20 minutes VC with me, Harry Stebbings, and I need your advice today. Do you think we should drop the the in the 20 minutes VC? Is it really cleaner?"

This quote shows Harry Stebbings considering a branding decision for the podcast and engaging with the audience for their opinion.

"Just last month they announced their $74 million Series C, led by Gigafund."

Harry Stebbings highlights the recent funding success of Austin Allred's Lambda School, emphasizing the growth and progress of the startup.

Austin Allred's Journey to Startups

  • Austin dropped out of college due to dissatisfaction with the education system and high costs.
  • He drove to Silicon Valley, lived in his car, and self-taught coding and marketing.
  • His journey was shared through a blog, which led to a funding offer from a Utah founder.
  • Austin's first company failed after a major investor backed out last minute.
  • He then worked for another company, wrote a book, built an audience, and started Lambda School.

"So I dropped out of college because I knew I wanted to be in tech and I didn't feel like I was getting it in college and I felt like college was too expensive."

Austin Allred explains his decision to leave college, highlighting his drive to enter the tech industry and concerns about the cost of education.

"That company ended up failing. That's another long story where we had a series a closed, all the docs were done."

Austin shares his experience with failure in his first startup venture, illustrating the unpredictable nature of startup funding and the impact of investor decisions.

Reflection on Personal Growth and Success

  • Austin reflects on his journey from sleeping in his car to founding Lambda School.
  • He emphasizes contentment with life's basics and the importance of doing what one loves.
  • Austin and his wife, who grew up in a low-income family, appreciate their current situation as a bonus to their happiness.
  • He separates personal desires from company goals, treating startup valuations as a score rather than a personal asset.

"I mean, my wife and I talk about this all the time, and partially because she grew up in a family that was not very well off either."

Austin reflects on the shared experiences of financial struggle with his wife, which have shaped their appreciation for their current success and stability.

"So now it's just how much can you shake things up?"

Austin's focus is on making an impact and driving change rather than accumulating wealth or fame, indicating his entrepreneurial motivation.

  • Austin actively separates his personal finances from his aspirations for Lambda School.
  • He views startup valuations as a game score, not directly tied to personal wealth.
  • Austin admits he would be happy doing what he loves, even for minimal compensation, acknowledging the mental shift that occurs with financial stability.

"And the nice thing about private markets, the way they are right now, is it's all paper money."

Austin comments on the nature of private market valuations, emphasizing their theoretical nature until actual money exchanges hands.

"You could pay me minimum wage to do what I do now, and I would be perfectly happy."

This quote reveals Austin's passion for his work and his indifference to high compensation, as long as he can continue doing what he loves.

The Impact of Financial Status on Mindset

  • Austin discusses how being poor or having low income necessitates a focus on downside risk.
  • He shares a personal anecdote about his car breaking down while living in it, highlighting the precariousness of financial instability.
  • The experience of financial struggle informs the success of Lambda School, as Austin deeply understands the challenges faced by students.

"When you are poor or when your salary or your income is low... you have to think really, really hard about downside risk."

Austin explains the cautious mindset that comes with financial insecurity, where any small mishap can have significant consequences.

Unexpected Encounter and Kindness

  • Austin Allred recounts an incident where he was told to move his car for Barack Obama's caravan.
  • A tow truck driver offered him a place to stay and support in pursuit of the American dream.
  • The tow truck driver, now employed at Tesla, maintains a friendly relationship with Austin.

And he's like, no, you don't understand. Barack Obama's caravan is coming through in, like, an hour and a half, and if you're not out of here, the secret Service will impound your vehicle.

This quote explains the urgency of the situation Austin was in, leading to his interaction with the tow truck driver.

Founder Secondaries and Risk Mentality

  • Austin discusses the concept of founder secondaries in the context of risk.
  • He believes removing downside risk allows founders to focus on growth and potential upside.
  • Austin has personally not taken much secondary, aligning with the long-term success of Lambda School.

So at Lambda school, we cover the downside risk for you. If it doesn't work out, you don't pay anything.

Austin explains Lambda School's model, which mitigates financial risk for students, drawing a parallel to the concept of founder secondaries.

Gigafund and Investor Relationships

  • Austin details his unique relationship with Gigafund, emphasizing the importance of aligning incentives with investors.
  • He shares how he developed a deep connection with the Gigafund team before they led a funding round.
  • Austin values long-term commitment and shared vision over short-term gains.

With Gigafund, they operate a little bit differently. So I spent days with the Gigafund guys.

This quote highlights the depth of the relationship Austin built with Gigafund, which is different from typical VC interactions.

Being an Effective Board Member

  • Austin advises that board members should avoid pattern matching and instead understand a company's unique challenges.
  • He suggests that founders should come to the board with specific asks to get targeted help.

Figure out exactly what your ask is and then come to us with exactly that ask and we will go crush it for you.

Austin emphasizes the importance of founders being clear about their needs to get the most effective assistance from board members.

Early Cap Table Construction and Party Rounds

  • Austin reflects on the construction of Lambda School's early cap table and the use of syndicates for simplicity.
  • He advises on setting up investment documents to avoid needing approval from every individual investor.
  • Austin shares an anecdote that highlights the casual nature of some Silicon Valley investments.

Like, there are people that invested in a seed round and my investor updates bounce to their email address and they have no idea what's going on in the company.

This quote illustrates the sometimes-disconnected nature of early-stage investors in the fast-paced Silicon Valley investment environment.

Challenges of Scaling the Team

  • The complexity of scaling increases exponentially with geographic expansion.
  • Austin Allred encountered difficulties in managing changes across multiple locations.
  • The company expanded too quickly, leading to inefficient change management.
  • Lambda School faced challenges with executing changes across the US, Europe, Africa, and Asia.
  • A centralized model for managing changes was lacking, which would have allowed for efficient implementation across all locations.
  • Austin reflects on the need for sufficient executive and managerial talent to manage changes in multiple places.

"So it is much easier to get the right team together to do one thing. Like, the complexity increases exponentially, not linearly." "We built an infrastructure where if we made a change, we now had to make it four times and we hadn't centralized the change making and the change management enough so that we could make a change once and it would flow out everywhere else, which is really where you need to be."

These quotes highlight the challenges faced when scaling a team, particularly when dealing with the complexity of managing changes across different geographic locations and the importance of having a centralized system for change management.

Decision Making: Reversible vs. Irreversible

  • Every decision is reversible, but with associated pain, especially when it involves jobs.
  • Educational programs have a longer impact period, affecting students and their expectations.
  • Lambda School's COO, Molly, introduced the concept of running a "play" to its conclusion.
  • Change management is critical in education due to the impact on students' expectations.
  • Austin emphasizes the importance of managing expectations and the careful consideration required in decision-making within an educational context.

"On the geographic expansion, basically every decision that we make is reversible, but it's reversible with pain." "You can't stop halfway in the play most of the time, and you can stop and change and decide to run another your play. But decisions that you make have consequences, and you need to run the play out to the end, which is different in a school than a software product."

The quotes explain the concept of reversibility in decision-making, particularly in the context of geographic expansion and the unique challenges faced in the educational sector, where decisions have long-term consequences and affect students' experiences.

Role of the COO and Team Dynamics

  • Molly was initially hired as an interim VP of People to find a permanent replacement.
  • Her background includes operations roles at Chan Zuckerberg Initiative, Facebook, Google, and being COO at Quip.
  • The relationship between Austin and Molly evolved, leading to her staying on as COO.
  • The COO role is tailored to complement the CEO's strengths and weaknesses.
  • Austin and Molly's working relationship is based on complementary skills.

"So I basically went to her and different members of the team had been asking her over the kind of nine months she was with us. Are you sure you don't just want to stay and work with us in a full time role?" "It's very much a custom mold to what the CEO is and what the founder is and finding someone whose strengths are the founder's weaknesses and vice versa, more so than it is. Just hire a coo off the shelf."

These quotes illustrate the importance of the COO role in complementing the CEO's capabilities and the process of integrating a COO into the company based on the specific needs and dynamics of the leadership team.

Austin's Personal Weaknesses and Leadership Style

  • Austin identifies his weaknesses as moving quickly without thorough documentation or consideration of edge cases.
  • The president of the school, Caleb, complements Austin by focusing on details.
  • Molly's thoroughness and preference for behind-the-scenes work create a symbiotic relationship with Austin.

"I tend to move really fast and do things 80% of the way and jump from thing to thing at kind of lightning pace. I'm not very good at finishing things or making sure things are well documented." "Molly is just thorough. She's thorough and thoughtful, and she wants to be behind the scenes, making sure that everything is just running very, very smoothly."

The quotes provide insight into Austin's self-awareness of his leadership style and the value of having a COO like Molly who brings complementary strengths to the organization.

Austin's Personal Brand and Public Perception

  • Austin does not strategically plan his personal brand, especially on Twitter.
  • Lambda School's growth and brand were perceived as being built in public and Twitter-centric.
  • Austin's approach to sharing company progress on Twitter was natural and accidental.
  • Authenticity is a key aspect of Austin's personal brand and Lambda School's public image.

"As some of the people around me will attest, I don't think about it very much at all." "It was just an honest outgrowth of my personality that I thought it was fun to share stuff as things were going along."

These quotes reveal that Austin's personal brand and Lambda School's public image evolved organically, without a premeditated strategy, and that authenticity played a significant role in their perception.

Exodus from San Francisco and Moving to Utah

  • Austin discusses the decision to move from San Francisco to Utah.
  • There is a trend of people leaving the San Francisco Bay Area, which has been observed on social media.

The notes on this theme are incomplete as the transcript was cut off before Austin could fully explain his decision to move and the factors influencing the trend of leaving the San Francisco Bay Area.

Personal Experience in San Francisco

  • Austin Allred's move to San Francisco was driven by the need to reduce commute time and be closer to his work at Lambda.
  • The city presented challenges for his family's safety and wellbeing.
  • Incidents involving his children in public spaces were particularly distressing.
  • Eventually, the family moved back to the East Bay to improve their living situation.

"But it was super hard on the family. You just put up with a lot of stuff in San Francisco that I would have been fine dealing with as a single guy. But I mean, scary stuff with your kids, or taking the kid to the park and you find needles all over the place, or someone on the street running after your kids."

This quote highlights the difficulties Austin faced while living in San Francisco, particularly concerning the safety and comfort of his family in the urban environment.

Impact of Coronavirus on Living Choices

  • The pandemic led to a shift in work patterns, with remote work becoming more prevalent.
  • Austin's decision to not renew the lease in San Francisco was influenced by the new remote work situation.
  • The family chose to stay in Utah, where they had relocated during the pandemic.

"And then coronavirus hit. It was just like, okay, we're not going to be in the office for a while, we might as well go hang out with our family for a little bit. And then, like so many other people, when our lease came up to renew. There was no reason to renew."

Austin explains that the pandemic's impact on work routines and the timing of their lease renewal led to the decision to stay in Utah rather than return to San Francisco.

The Changing Dynamics of San Francisco

  • Austin compares the Bay Area during its tech boom to historical cultural hubs like Renaissance Venice or Florence.
  • He predicts permanent changes to the Bay Area's role as a tech hub due to the pandemic.
  • Austin expresses openness to returning to the Bay Area if circumstances change, but doubts a return to the pre-2019 status quo.

"But what I think was really, really special about the Bay Area, think about, like, Venice back during the renaissance. It's just all the people who wanted to be involved in the renaissance or Florence, there was a place where everybody went to, and I think that's shifted now."

Austin reflects on the unique concentration of talent and ambition in the Bay Area, likening it to historical centers of innovation and creativity, and notes the shift away from this due to recent events.

Nostalgia for Early Silicon Valley

  • Austin expresses a desire to return to the Silicon Valley atmosphere of 2010.
  • He laments the loss of accessibility and community that once defined the region.
  • Austin agrees with Patrick Collison's view that mismanagement led to a squandering of potential in the Bay Area.

"I actually kind of wish we could go back to 2010 Silicon Valley, actually, because then it was getting expensive, but it was still like the romantic notion of a place where all of the people who want to build something to change the world go gather is really, really special."

Austin reminisces about the earlier days of Silicon Valley when it was a more accessible hub for those wanting to make a global impact, suggesting that the current state has lost some of that charm.

Quick Fire Round: Personal Preferences and Views

  • Austin's favorite book is "Les Misérables" for its unparalleled quality.
  • He wishes Silicon Valley was still affordable for those without large incomes.
  • Austin has never consumed alcohol and would liken himself to a Coke Zero with lime.
  • John Danner is highlighted as a particularly helpful angel investor for Lambda due to his expertise in both education and technology.

"Oh, favorite book is Les Miserable, which I don't read very much fiction, unless it's like Sci-Fi but Les Miserables is just the best book ever written, hands down."

Austin shares his appreciation for "Les Misérables," emphasizing its significance and quality as a literary work.

Lambda School's Future Vision

  • Austin discusses Lambda School's ambitious ten-year goal to significantly increase student incomes.
  • He recalls a conversation with Giga fund that encouraged him to think bigger about Lambda School's potential impact.

"So by 2030, by 10 billion a year annually."

Austin outlines Lambda School's goal to increase their students' incomes by a substantial amount over the next decade, reflecting the company's growth aspirations.

Conclusion of the Conversation

  • The hosts acknowledge the spontaneous nature of the conversation, attributing it to Austin's engaging responses.
  • Austin is thanked for his participation in the discussion, and the conversation concludes with a light-hearted exchange.

"I think it's my fault it went wayward, so apologize for that. But it was fun."

Austin takes responsibility for the conversation's digressions, indicating that the dynamic exchange was enjoyable and valuable despite not following the planned schedule.

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