20VC Reddit's Alexis Ohanian on How It All Started With Paul Graham @ YC, The Biggest Surprises About Making The Move Into VC & Why Alexis Believes All The Best Investors Have Operating Experience

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Alexis Ohanian, co-founder of Reddit and Initialized Capital, discussing his journey from founding Reddit to becoming a venture capitalist. Alexis shares insights on the transition, emphasizing the importance of operational experience in providing valuable, empathetic guidance to founders. He highlights the significance of focusing on key metrics and building robust infrastructure to manage relationships with portfolio companies efficiently. Alexis also touches on the value of kindness in investing, asserting that it's a long-term strategy that aligns with thinking about the future success of businesses and relationships. Additionally, Alexis mentions Initialized Capital's recent investment in WorkRamp, praising its potential to replace outdated employee training processes with efficient software solutions.

Summary Notes

Introduction to Alexis Ohanian

  • Alexis Ohanian is the co-founder of Reddit and Initialized Capital.
  • Graduated from UVA in 2005 and started Reddit with Steve Huffman.
  • Reddit was sold in 2006 to Condé Nast.
  • Alexis returned to Reddit in 2015 alongside Steve Huffman.
  • Reddit is the 8th largest US website.
  • Joined Gary Tan in 2016 to launch the third fund for Initialized Capital.
  • Alexis has invested in and advised over 200 tech startups.
  • He was a partner at Y Combinator.
  • Authored a national bestselling book, "Without Their Permission."
  • Named on Forbes 30 under 30 list for two consecutive years.
  • Judith Elcia at Weathergage Capital facilitated the introduction to Alexis for the show.

"So Alexis is co-founder of Reddit and Initialized Capital. After graduating from UVA in 2005, Alexis and his co-founder Steve Huffman started Reddit, which they then sold in 2006 to Condé Nast."

This quote introduces Alexis Ohanian, highlighting his significant accomplishments and the foundational role he played in creating Reddit, a top US website.

Transition from Founder to VC

  • The transition was suggested by Paul Graham, who also influenced Alexis's shift from student to founder.
  • Paul Graham recommended that Alexis and his partners should invest more money.
  • Alexis expressed concern about liquidity compared to other partners.
  • Paul suggested raising a fund, leading to the creation of Initialized Capital with Gary Tan and Harj Taggart.
  • Their experiences as founders and operators were valuable for advising early-stage startups.
  • The early stages of a business are likened to being "Pirates on the open seas."
  • Making something people want is the core focus in the early stages.
  • Seed investors who have been founders or makers themselves were scarce.
  • Founders seek investors who can provide practical help and feedback based on experience.

"Well, it all started with a suggestion from Paul Graham, which incidentally, is also how I made the transition from clueless college student to founder."

This quote explains the influence of Paul Graham on Alexis's career path, both in starting Reddit and transitioning to venture capital.

"You could just raise a fund."

Paul Graham's advice to Alexis on how to increase investment capacity by raising a fund, which led to the creation of Initialized Capital.

"It's just you, your team, and a canvas, a blank canvas where you have to create something that users care about, that they give a damn about."

Alexis describes the excitement and challenge of the early stages of a startup, emphasizing the importance of creating a product that resonates with users.

"Great founders want to work with investors who are actually going to help them."

This quote underscores the value that founders place on investors who can provide tangible assistance and advice from their own experiences.

Operational Experience to Investing

  • Operational experience provides valuable insights for investing.
  • The ability to give feedback on product launches, marketing, and communications is critical.
  • Founders appreciate investors with firsthand success in founding and building companies.
  • Having investors with relevant experience is an "unfair advantage" for early-stage founders.

"Judith very much touches on that kind of transition of what you take with you. From your operational experience to your investing experience."

Harry Stebings references Judith's interest in how operational experience informs investing strategies, setting the stage for Alexis to share his insights.

Importance of Key Metrics

  • Discusses the significance of identifying and focusing on key metrics for startup growth and fundraising.
  • Emphasizes the need for founders to understand their most important metrics to prepare for raising a Series A.
  • Highlights the importance of tracking growth numbers and making them a central focus for the team.

"What is the key metric for your business and why? And really drill down and get an answer from this founder. And like an actual number, help them think through what is the most important metric for you all to be measuring between now and a year from now."

This quote stresses the necessity for a founder to pinpoint the most crucial metric that indicates business health and growth potential, which is essential for future fundraising efforts.

"What was this number last week? What was the week before? What do these growth numbers look like? And literally start putting this number at the top of every one of your investor update emails, put it on the wall in your office, put it on the dry erase board, put it on the piece of paper, and that's the number that everyone in the office is thinking about."

The quote emphasizes the practical approach of regularly monitoring and visualizing key metrics to align the team's focus and decision-making towards growth.

Role of Seed Stage Investors

  • Discusses the role of seed stage investors in guiding and challenging founders.
  • Highlights the value of investors who have been founders themselves, providing empathy and practical advice.
  • Points out the importance of regular check-ins and feedback from investors to founders.

"Really good seed stage investors are having fairly regular monthly office hours with their founders to check up with them and to really help them, to call them on their bullshit, but also refocus them and also give them advice and give them feedback."

This quote identifies the active involvement of effective seed stage investors in mentoring founders, offering not just capital but also strategic guidance.

Fundraising as a Milestone, Not the Goal

  • Clarifies that fundraising is a means to an end, not the ultimate success indicator.
  • Discusses the need for founders to focus on business health and customer satisfaction rather than just fundraising targets.
  • Addresses the importance of understanding market expectations for funding rounds and how this knowledge aids in business benchmarking.

"Fundraising is not success, right? Fundraising is not the goal. The number on that board is not x million dollars we hope to raise in a year. The number on that board, right. Is the, you know, the number on the board is the key metric that shows the business is healthy, that you're making something people want and getting better at delivering it."

This quote highlights the distinction between fundraising milestones and the actual health of the business, emphasizing that the key metric should reflect the latter.

"By understanding this is our goal, this would let us reasonably go to the market to raise a series a, for instance, you now have a benchmark for the business, which is really important, which could lead you to believe, or lead you to discover in a year that you don't actually need to raise money."

The quote discusses the importance of setting goals and benchmarks that can guide a startup's strategy and potentially lead to the realization that fundraising may not be necessary if the business is sufficiently successful.

Fundraising and Business Growth

  • Fundraising is a means to grow the business to facilitate future rounds of funding.
  • Metrics agreed upon by VCs are good indicators of a business's health.
  • These metrics and numbers change, but they reflect the VC sentiment at the time.

"The goal is growing the business so that that next round of fundraising could even be plausible."

This quote highlights that the primary objective of fundraising is to scale the business to a point where it can successfully secure additional funding in the future.

"These numbers and these metrics that are pretty generally agreed upon and they always change, but are generally agreed upon by the sentiment of vcs at the time."

This quote emphasizes that while the specific metrics and numbers may fluctuate, they are broadly accepted by the venture capital community as benchmarks for assessing a company's performance and potential.

Transition to Venture Capital

  • Alexis Ohanian discusses the transition from an angel fund to a more institutional venture fund.
  • Process and rigor in managing the business become more critical with larger funds.
  • The move to venture capital involves adopting new perspectives and tools to grow the business.

"The biggest surprises is actually there is a really, really important value in process."

Alexis Ohanian points out that having a structured process is crucial, especially when managing a larger fund, indicating that this was a key learning in his move to venture capital.

Technological Infrastructure in VC

  • Initialized Capital focuses on creating software to scale VC operations.
  • The right infrastructure and technology can significantly benefit VC business practices.
  • The first two funds did not require extensive infrastructure, but as the fund grows, the need for it increases.

"What we're finding is just how much of a difference it makes."

Alexis Ohanian shares that the implementation of technology in their VC operations has made a significant positive impact, suggesting that tech can streamline processes and improve efficiency.

LP Portal and Relationship Management

  • A portal for Limited Partners (LPs) is considered basic infrastructure.
  • Software that manages relationships with founders is a key innovation.
  • The bat phone email system was an initial solution for founder communication, now being productized.

"There's the table stakes, which are things like a portal for lps, right."

This quote indicates that providing a portal for LPs to access investment insights is a fundamental expectation in the venture capital industry.

"We are now productizing that in a way so that all of those logs and all of those discussions live within software in a much more robust way than just here's an email and hopping into chat, right?"

Alexis Ohanian describes the evolution from a simple email system to a sophisticated software solution for managing communications with founders, which consolidates information and enhances efficiency.

Enhancing VC-Founder Interactions

  • The goal is to make office hours with founders as impactful and efficient as possible.
  • Having access to a company's history with the firm allows for more effective guidance.
  • VC software can provide insights that help founders realize when it's time to raise the next round.

"We want it to be a really impactful 20 or 30 minutes office hour session. We want to cut right to the chase."

Alexis Ohanian emphasizes the importance of maximizing the value of time spent with founders during office hours, focusing solely on business matters.

Case Study: Coinbase

  • Initialized Capital's involvement with Coinbase highlighted the importance of VC guidance.
  • Gary Tan's insight and quick action exemplify the value of a strong investor-founder relationship.
  • Having data and trust from founders allows VCs to provide timely and valuable advice.

"We can solve this problem. There are plenty of people who want to invest in a company that is growing this much."

This quote from the Coinbase case study illustrates how a VC's perspective can identify solutions and opportunities for a growing company that the founders might not see themselves.

Quick Fire Round

  • Alexis Ohanian agrees to a quick-fire round of questions.
  • He shares that his favorite book is "Slaughterhouse-Five" by Kurt Vonnegut.
  • Ohanian admires Vonnegut's storytelling and insights on life.

"Okay. Short statement, immediate thoughts. All right, let's do this."

Alexis Ohanian shows readiness to engage in a rapid question-and-answer session, indicating a willingness to share quick, candid insights.

"One of my favorite books was slaughterhouse five by Kurt Vonnegut."

Alexis Ohanian reveals his favorite book and provides a personal connection to its content, showing the impact that literature can have on an individual's perspective.

Kindness in Investing

  • Kindness is not a sign of weakness but a long-term investment strategy.
  • Smart investors think about the long term, and kindness can be part of this.
  • Kindness in investing is about seeing the world as not purely zero-sum.
  • Being kind helps build a good reputation and creates potential for future successful partnerships.

"Because kindness is a long term investment, and if you're a smart investor, you are thinking about the long term."

This quote emphasizes the strategic aspect of kindness in the context of investing, highlighting its value as a long-term approach rather than a short-term tactic.

"Kindness does not mean being weak or being dumb. It just means looking at the world as though it is not this purely zero sum game."

This quote clarifies that kindness should not be mistaken for naivety or lack of strength; it's a perspective that considers mutual success rather than competition.

"So it's a good practice, not just because it's giving someone useful advice instead of just casually saying up, not a good fit buy, but it's also insurance."

The quote suggests that providing constructive feedback, even when rejecting an investment opportunity, is beneficial for both parties and can serve as "insurance" for future opportunities.

Aspirations of CEO for a Day

  • Alexis Ohanian would choose to be Elon Musk if he could be any CEO for a day.
  • Musk's work at his companies is seen as world-changing.
  • Alexis values his personal time and experiences outside of work, which he feels he wouldn't have if he were Musk beyond a day.

"Elon Musk. Why no brainer? Because he is working on companies that are literally changing the world at scale."

This quote expresses Alexis's admiration for Elon Musk's impact on the world through his companies.

"I would only want to do it for a day, though, because I really do appreciate the time I have with people I love and experiences that I have that are not work related."

Alexis acknowledges the importance of work-life balance and personal time, which he believes would be compromised if he were in Musk's position permanently.

Reading Habits

  • Alexis Ohanian's must-reads include the 20 Minute VC and Reddit.
  • He subscribes to hundreds of Reddit communities for a diverse range of updates.

"Really? All I read is Reddit. That's it."

This quote shows Alexis's preference for Reddit as a comprehensive source for news and updates on his interests.

Combining Fitness with a Busy Schedule

  • Making exercise and wellness a priority is essential, even with a busy schedule.
  • Alexis believes that taking care of oneself improves performance in work and personal relationships.

"I'm a better person at my job. I'm better at Reddit. I'm better working with companies. I'm a better boyfriend when I'm taking care of myself."

Alexis advocates for the positive impact of personal wellness on professional and personal aspects of life.

Initialized's Recent Investment in Work Ramp

  • Initialized's recent investment in Work Ramp was driven by the need for better employee training software.
  • Work Ramp is seen as a solution to replace inefficient and outdated training methods.
  • Alexis values companies that improve essential business processes.

"The most recently publicly announced one would have been work ramp. And the reason why is because it's so unsexy and so mandatory."

This quote reveals the investment decision was based on the essential nature of the product and its potential to fill a significant need in the market.

Final Remarks and Acknowledgments

  • Alexis Ohanian expresses well wishes to Harry Stebings and emphasizes the importance of self-care.
  • Harry Stebings looks forward to having Gary Tan on the show and expresses gratitude to Alexis and others.

"Thank you, Harry. Seriously, I wish you luck, man. Carve out that time. You're worth it. You're going to be better at everything else you do."

Alexis encourages Harry to prioritize his well-being, suggesting it will lead to improvements in all areas of his life.

"I do also want to say how excited I am to have Alexis' partner at initialize Gary Tan on the show on Wednesday."

Harry expresses excitement about the upcoming guest, indicating the continuity and networking within the investing community.

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