20VC Retool Founder, David Hsu on Why YC Is Helpful Pre ProductMarket Fit but Not Post and Why VCs Are Not Helpful PreProduct MarketFit but are Post, Why it is Difficult to Become Unprofitable if You Set Yourself Up For Profitability Early & Why VC Th

In this episode of 20 Minutes VC, host Harry Stebbings interviews David Su, the founder and CEO of Retool, a company that has revolutionized the way internal tools are built by allowing rapid development, attracting investments from top-tier firms like Sequoia and YC. Retool's impressive client list includes giants like Amazon and Mercedes Benz. The conversation delves into David's unique journey from studying philosophy and computer science at Oxford to founding Retool, emphasizing the importance of conviction and being realistic in startup success. David shares insights on pivotal decisions, like hiring slowly to ensure a strong foundation and the transformative impact of having experienced angel investors. He highlights the nuanced role VCs play pre and post-product market fit, and the conversation touches on the challenges and triumphs of scaling a business, the significance of maintaining a strong culture, and the boldness required to dream big and attract top talent.

• David Su is the founder and CEO of Retool, a company that helps build internal tools quickly.
• Retool has raised over $69 million from top investors like Sequoia, YC, and individuals from Stripe, Brex, GitHub, Segment, Gusto, and Elad Gil.
• The company serves major clients like Amazon, Volvo, and Mercedes Benz.
• David Su appeared on the 20 minutes vc podcast.

"I'm very, very excited to welcome David Su, the founder and CEO. Retool, the company that allows you to build internal tools remarkably fast."

This quote introduces David Su and his company, Retool, emphasizing the company's focus on speed and efficiency in creating internal tools.

• David grew up in Palo Alto but went to the UK to study a combined degree in philosophy and computer science at Oxford.
• His parents suggested pairing philosophy with something more practical, leading to his unique degree choice.
• The experience at Oxford was enjoyable for David.

"And then I actually found sort of a degree actually in the UK at Oxford that is both philosophy and computer science together."

David explains how he chose his degree, combining his interest in philosophy with a practical skill like computer science, which was available as a joint degree at Oxford.

• Retool originated from a pivot when David and his team were working on a Venmo clone for the UK.
• They faced a failing business model as they lost money with each transaction.
• A significant portion of their time was spent creating internal tools for regulatory and fraud prevention purposes.
• The idea for Retool came from the need for a faster way to build these internal tools rather than from scratch each time.

"Probably 60% to 70% of our time actually was spent developing internal tools for regulatory purposes, for fraud purposes and stuff like that."

David Su discusses the extensive time spent on developing internal tools for their Venmo clone, which eventually led to the inception of Retool.

• David believes that conviction is crucial when choosing startup ideas.
• He criticizes the approach of throwing multiple ideas against the wall to see what sticks.
• David shares a story about receiving direct feedback from John Collison of Stripe during office hours, which influenced their decision to pivot.
• The importance of being open-minded and not delusional about a startup's vision is emphasized.
• Trusted advisors can play a key role in recognizing when a business idea is not viable.

"I think conviction is very important. And so I think when choosing ideas, I think conviction probably is sort of highest order bit, you have to care about basically, is do you actually feel convicted about the idea?"

David Su highlights the importance of conviction in an idea when working on a startup, suggesting it's a vital component of success.

"And so that was actually sort of one of the major reasons we ended up changing our minds and saying, hey, maybe this actually isn't such a great business."

This quote reflects on the moment when David and his team realized their original business idea was not sustainable, leading to the pivot that resulted in the creation of Retool.

• Y Combinator (YC) is perceived to be more valuable for startups that haven't yet found product-market fit.
• Post product-market fit, YC's advice and involvement are seen as less critical or even potentially suboptimal.
• The advice given by YC is largely available online, suggesting that the program's content isn't unique.
• YC's greatest value to startups lies in the networks and connections it facilitates.
• There's a suggestion that YC might provide generic advice suitable for an average YC company rather than tailored advice for exceptional cases.

"YC is useful pre product market fit, but useless post product market fit."

This quote encapsulates David Su's view that YC's utility diminishes once a startup has established product-market fit, suggesting that at this stage, a startup's focus should shift to execution rather than seeking advice.

• The traditional approach to Series A fundraising suggested by YC was not followed by David Su's company, Retool.
• Retool opted for a split round with both angel investors and Sequoia, which in hindsight was considered a top decision.
• Multiple viewpoints from different investors are seen as beneficial rather than following a single source of advice.
• YC's advice is perceived as potentially not the best for all companies, especially those that are doing exceptionally well.
• The ownership percentage needed to incentivize investors is challenged, with the suggestion that motivation to help a successful company is not strictly tied to the percentage owned.

"I think they may actually sometimes give suboptimal advice, actually."

David Su implies that YC's advice is not always the best course of action for every company, as it may be too generalized and not consider the unique aspects of individual startups.

"By raising from these five angel investors, we now have them very close to us and them very able and willing to give advice very frequently."

This quote highlights the strategic decision to involve angel investors in the fundraising round, which provided Retool with a diversity of perspectives and frequent advice.

• The assumption that investors need a large ownership stake to be incentivized is questioned.
• The relationship between investors and startups is not purely transactional; personal interest and the desire to support success play a role.
• Angel investors can be highly valuable if a strong relationship is built with a few of them.
• Investors are often more involved with struggling companies than with those performing well.

"I think when it comes to, let's say on the first point, sort of, regarding ownership percentages, I think this is mostly not true."

David Su challenges the common belief that investors need a significant ownership stake to be motivated to contribute to a startup's success.

"If you're able to build a very deep relationship with, let's say, two or three angels, I think it is quite helpful."

This quote suggests that the quality of relationships with a select few angel investors can be more impactful than the quantity of investors with small stakes.

• Before product-market fit, founders should ideally know their market better than their VCs, making the VC's advice less critical.
• Post product-market fit, VCs can be very helpful in scaling up the business and providing insights on growth and leadership.
• VCs can assist startups by helping them anticipate future challenges and opportunities.
• VC advice before product-market fit may not be as valuable or could be misguided based on their past experiences rather than the startup's current needs.

"But once you have product market fit, it's great."

David Su acknowledges that while VC advice may not be as valuable before finding product-market fit, it becomes significantly more beneficial once the startup has established a solid market presence.

"I think pre product market fit. I hope you know your market better than your vc does."

This quote reflects the belief that founders should have a deeper understanding of their market than investors during the early stages of their startup.

• The decision to raise a large Series A round is discussed, with Retool raising $25 million with a small team and already profitable revenue.
• There's a debate on the necessity of raising VC funds versus bootstrapping, with the suggestion that the difference between the two may be smaller than perceived.
• The choice to raise funds despite not needing them financially is presented as a strategic move.

"We didn't need to raise at all. But the fact that we didn't need to raise and"

David Su touches on the strategic fundraising decision made by Retool, indicating that they chose to raise funds not out of necessity but for other potential benefits and opportunities.

• Bootstrapping can make a company more attractive to venture capitalists (VCs) because it demonstrates a working business model.
• Achieving profitability or being close to it makes raising additional funds easier.
• Once a company is set up for profitability, it becomes difficult to become unprofitable if growth is managed correctly.
• Careful hiring and growth in the early days can lead to sustainable scaling.
• Raising VC funds should be about accelerating growth rather than being a necessity for growth.
• A clear distinction should be made between using VC funding as a backup option and using it to boost an already successful business.

"Could bootstrap actually then caused us to be able to raise a lot because VCs, I think, are quite excited by businesses that are actually working, as opposed to ones that need VC money to work and may or may not work."

This quote emphasizes that VCs are more inclined to invest in businesses that have proven their viability through bootstrapping, as opposed to those that rely on VC funding to establish their business model.

"Once you become, once you set yourself up for profitability in the early days, it's actually quite hard to ever become unprofitable, actually."

This quote suggests that early profitability sets a strong foundation for a company, making it challenging to regress into unprofitability if managed properly.

"Raising VC to accelerate your growth, as opposed to needing VC to accelerate your growth, I think that's a pretty critical distinction."

The quote underscores the strategic difference between using VC funding as a tool for acceleration versus a crutch for survival, with the former being a more favorable approach.

• Profitability allows for the exploration of new ventures and the ability to take risks without jeopardizing the core business.
• Raising funds enables a company to be ambitious and potentially grow faster.
• The decision to raise money can increase a company's ambition and commitment to building a significant business.
• Investments from raising funds should be used for substantial growth opportunities when they arise.
• It's crucial to validate marketing channels before heavily investing in them to ensure a positive return on investment (ROI).
• Hiring should be done cautiously, expanding the team based on proven success rather than anticipation.

"We want to be profitable in the sense that sort of, we have a basic business that's going pretty well."

This quote explains the desire to achieve a level of profitability that supports a fundamentally sound business, which can then be leveraged for further growth and experimentation.

"I think most of the value in the investments or in raising the money that we have raised is the ability to make big investments when the time does come."

The quote highlights the strategic advantage of having funds available to make significant investments at the right moment, rather than spending hastily without a clear ROI.

• It is important to be realistic about the company's growth and product-market fit.
• Founders should be self-critical and honest about what is working and what is not.
• Scaling should be based on solid data and not overly optimistic short-term results.
• The right time to double down on growth efforts is after thorough testing and validation, not just a few positive indicators.

"I think sort of being fairly pessimistic or being sort of fairly realistic about things is quite helpful in doing a startup."

This quote reflects the speaker's belief in maintaining a realistic outlook, which helps make more informed and cautious decisions when growing a startup.

"It was only maybe, I think we hit trying to remember maybe a few hundred, maybe a few thousand, something like that, customers where it was fairly clear that probably we do have product market fit now."

The speaker recalls the point at which they believed their company achieved product-market fit, emphasizing the importance of reaching a significant customer base as a more reliable indicator than initial sales.

• Observing successful founders can provide valuable insights into boldness and ambition.
• Boldness in vision and hiring can lead to attracting high-caliber talent and taking significant strides in growth.
• It's important to balance realistic self-assessment with bold aspirations.

"They're both incredibly bold."

The quote refers to the boldness of peer founders, suggesting that their audacity in setting goals and pursuing top talent has been inspirational and instructive.

"This is one of the most exciting jobs in Silicon Valley right now."

This quote, attributed to John, reflects the bold mentality of aiming high when seeking talent, which can inspire and motivate a company to reach for extraordinary candidates.

• Hiring slowly and focusing on building a solid foundation can lead to a more comprehensive understanding of the business.
• Early profitability and sustainable growth rates put a business in a strong position, making it attractive for raising money or continuing to grow independently.
• Experiencing different business functions firsthand can lead to greater respect and more informed hiring decisions later on.

"I think the other one is we've been talking about already. I think it is just hiring slowly and sort of building the fundamentals."

This quote emphasizes the importance of deliberate hiring and establishing a strong business foundation, which has contributed to the speaker's company's success.

"If you can get to profitability very early and you can keep your growth rate up, you're just in such a great position."

The speaker highlights the strategic benefits of early profitability and controlled growth, which creates a robust and healthy business environment for future decisions.

• Admitting to moments of losing composure is a shared experience.
• SaaS companies can offer stability that mitigates frequent high-stress situations.
• A sense of existential angst can be a persistent, underlying stressor.

"I maybe lose my shit maybe once a year or something, on average. It's not that frequent. I think part of it also is a SaaS company is just fairly stable in the sense that nothing really goes that wrong, really, for us."

This quote highlights David Su's infrequent loss of composure, attributing it to the inherent stability of a SaaS company where extreme problems are rare.

• A company's internal culture affects its operational speed.
• Sustainable progress without burnout is key to maintaining a high work pace.
• Hiring is one of the biggest challenges in scaling a company.
• Cultural fit is critical to a company's success and has become a primary focus in the hiring process.

"I think retool should be operating substantially faster as a company in all areas, I think in sales, marketing, engineering, everything."

David Su expresses his desire for Retool to accelerate its operations while maintaining high quality, indicating the need for a culture that supports rapid growth.

• Hiring is a critical and challenging aspect of scaling a company.
• Cultural alignment is essential; misalignment can lead to hiring mistakes.
• Recognizing the importance of culture has become a significant factor in Retool's hiring process.

"I think the hardest one has been hiring for us. I think in the end, most problems that we've had at retool, I think most problems of business, this. Who said this? It's for some extent a people problem."

David Su discusses the difficulty of hiring and the importance of having the right people to solve various business problems, emphasizing the role of culture in successful team building.

• Realism is identified as both a strength and a weakness.
• The ability to make rational decisions has led to better outcomes for Retool.
• There is a need for boldness and the courage to aim higher in certain situations.

"I think the biggest strength is that I am fairly realistic, and I think that's actually the biggest weakness as well."

David Su reflects on his realistic approach as being beneficial for decision-making but also limiting when it comes to being bold and ambitious.

• Silicon Valley's tech scene is described as insular and less enthusiastic about tech due to its prevalence.
• The UK tech scene is perceived as more positive and uplifting due to its smaller size.
• A desire for a more open and less gatekeeper-driven tech community in Silicon Valley is expressed.

"Silicon Valley tech scene is quite insular... I do wish sort of there were less gatekeepers or sort of more open and people were more excited to talk about tech than they're not."

David Su critiques the Silicon Valley tech scene for being insular and expresses a wish for a more welcoming and enthusiastic community.

• Initially skeptical of venture capitalists (VCs), perspectives changed with experience.
• VCs are seen as experts in scaling companies, with actionable and accurate advice.
• Trust in the guidance from board members, like Brian, is now valued.

"I think vcs really are experts in scaling companies. And the sort of advice Brian has given us regarding how to scale companies, what challenges we'll have in six months and a year's time, have been incredibly accurate."

David Su acknowledges the expertise of VCs like Brian in providing valuable advice for scaling companies, despite initial skepticism.

• Retool aims to become the primary method for building software.
• The current focus is on internal business applications, with plans to expand.
• There is an open call for individuals interested in contributing to Retool's mission.

"Our goal is to be the way software is built... we're starting with internal software... we're so far away from there and sort of we need all the help we can get."

David Su shares Retool's ambitious goals and the need for assistance in achieving them, highlighting the company's long-term vision.