In the latest episode of "20 Minutes VC," host Harry Stebbings chats with Sahil Lavingia, CEO of Gumroad and pioneer of the rolling funds model on AngelList, about the evolution of venture funding and the impact of rolling funds. Sahil shares his journey from an early employee at Pinterest to founding Gumroad and experiencing the highs and lows of startup life, including raising significant venture capital and facing the challenges of a failed Series B round. He also discusses his recent venture into rolling funds, which democratizes investment and aligns with his values of transparency and accessibility. Additionally, Sahil and Harry touch on the importance of product focus, the role of investors, and the current state of venture capital valuations.
"And one of the first and most prominent was raised by Sahil Lavingia. And so I'm delighted to welcome Sahil to the hot seat today to discuss the new fund."
The quote emphasizes Sahil's leading role in the emerging trend of rolling funds and sets the stage for a discussion about his fund and his broader experience in the startup and investment world.
"I was the second employee there. Before that I was a freshman at USC. And before that I was in high school making iPhone apps."
This quote provides a brief backstory on Sahil's early involvement in the tech industry, highlighting his progression from a high school app developer to a key player at Pinterest and ultimately a startup founder and investor.
"But the simple things, like the product focus, like the team back then was so product focused, and I just assumed it was normal."
The quote reflects on Sahil's realization that the intense product focus he experienced at Pinterest was not common in all companies, and it became a foundational aspect of his own business philosophy.
"I can tell when products aren't being used by the founding team."
The quote signifies the importance Sahil places on founders using their own products, which he sees as a clear indicator of their commitment to and understanding of the user experience.
"But the truth is, the bar for where your product needs to be today is so much higher."
This quote captures Sahil's perspective on the changing expectations for product quality in the startup industry and the necessity for founders to meet these higher standards.
"I think I have one life and I want to spend it doing really interesting things, learning lots of stuff, working with really interesting people."
The quote highlights Sahil's philosophy on risk-taking and his preference for pursuing fulfilling and educational experiences over financial considerations.
"Yeah, the truth is I never really intended to be a VC or to have a fund. And there's this sort of concept of activation energy, and with a fund, you just have to pick a number, you have to sort of spend potentially weeks or months raising the capital."
Explanation: Sahil explains his initial disinterest in traditional VC funds due to the high activation energy required and his lack of intention to become a VC. This quote sets the stage for why he found the rolling fund model appealing.
"And when naval told me about rolling funds, it really just opened the door for me because I could start very, very low."
Explanation: Sahil credits Naval Ravikant for introducing him to the rolling fund concept, which allowed him to start with modest capital, aligning with his desire to begin small and scale up.
"I really believe in those tenants, and I think you're right. I think it is a little bit of a 1% game."
Explanation: Sahil agrees with the notion that rolling funds may initially benefit a small percentage of individuals but also emphasizes his belief in democratization within the VC industry.
"But what you're going to see is all of these companies that might have failed, that were able to raise 100k here, 250k there, from these new emerging fund managers."
Explanation: Sahil highlights the potential of rolling funds to support companies that might otherwise fail, due to the availability of funds from new managers with different networks and LP bases.
"I think it's undervalied as a system, right. So you're seeing a few of these deals that get super hot and these YC companies that raise at these 15 $20 million caps."
Explanation: Sahil contends that while some deals are highly valued, the broader early-stage ecosystem is undervalued, suggesting room for growth and more startups.
"I believe more competition is generally a good thing. And I think that this is just creating more competition, which is going to be better for the customer."
Explanation: Sahil expresses his belief in the benefits of competition, which rolling funds introduce to the VC market, improving outcomes for all participants.
"Ultimately, look, investors like to say that you should raise less money, you should be sort of really careful as a founder, and hire sort of really efficiently and be capital efficient, et cetera."
Explanation: Sahil discusses the conventional wisdom among investors about capital efficiency but points out that founders face consistent dilution regardless of the amount raised.
"So for some of them, they're going to look like great deals in hindsight. I remember stripe in 2009, I believe, raised their seed round and it was two on 20 and this was 2009."
Explanation: Sahil reflects on past investment examples like Stripe to illustrate how some investments that seem expensive at the time can turn out to be excellent deals in retrospect.
"What I've done so far is to say, hey, thanks for the time, it's not a fit for me right now. Thanks, Sahil."
Explanation: Sahil describes his method of politely declining investment opportunities without providing specific reasons, which he finds challenging to articulate.
"You should really have a group of people that you're getting feedback and iterating sort of on their feedback first before you go to vcs."
Explanation: Sahil advises founders to rely on their personal networks for candid feedback, rather than expecting it from VCs who may not have the incentive to provide detailed reasons for their investment decisions.
"I think the simple one is value equals market times people. And if one of those is a zero, it's not worth it, right?"
This quote encapsulates Sahil's belief that both market potential and the right team are critical to creating value in a startup. Without one, the startup's value proposition fails.
"But as a founder, look, if I make $50 million and it takes me nine years or ten years or 15 years, look, I'm going to be alive for a lot longer than that."
Sahil emphasizes the personal perspective of a founder, who may value the eventual outcome over the time it takes to achieve it, contrary to the time-sensitive nature of VC investments.
"It was brutal. I mean, I put all my eggs in one basket... it certainly feels like that. And it's a public failure."
This quote reveals the personal hardship Sahil experienced when his startup faced significant challenges and the perception of failure within the industry.
"I think there are two things that really helped me. One is an emphasis on patience... And then the other one, honestly, is people don't really give a shit about you."
Sahil's advice to the host reflects his belief that patience and a realistic view of other people's concerns can alleviate the pressure of expectations.
"Understand that it's your job to build this company, and investors might say they're going to do a lot for you... but in general, they're not going to save the company if it's going to fail and they're not going to kill the company if it's going to succeed."
Sahil underscores the primary responsibility of founders to drive their company's success, with investors playing a supportive but not decisive role.
"Firms are really trying to make sure that they find those companies early. They're willing to have a portion of their fund on sort of option calls per se."
This quote describes the strategic approach of VC firms to invest early in promising startups, treating initial investments like option calls for future involvement.
"I'm a fan, honestly... Why would you want a group of amazing people on your cap table?"
Sahil endorses the idea of party rounds as a way to gather a strong support network of individuals who can contribute to a startup's success without exerting undue influence.
"And raising money from a bunch of founders via party round, or whatever you may call it, is a good way to do that, to kind of get that financial incentive alignment going."
This quote emphasizes the strategy of using a party round to align the financial interests of investors with the company's success.
"And the truth is, if you're not performing bluntly, they're not going to do your a anyway."
This quote underlines the harsh reality that without good performance, investors are unlikely to continue investing.
"Signaling risk. Like people talk about signaling risk a lot, but ultimately you're right. If you're not performing, it's going to be brutal."
This quote acknowledges signaling risk but suggests that company performance is ultimately more influential on future investment.
"If you're a multi stage fund or a larger fund in early, you don't want a price optimized for the next round because you want to put a bigger check in."
The quote discusses the potential conflict of interest for multi-stage funds when it comes to pricing in subsequent funding rounds.
"I want to write a check into a company, and then I'm done with the sales process."
This quote reflects the desire for a straightforward and transparent relationship with the company after investing.
"That ongoing sales process... means that you can't have quite so open and free discussions."
The quote highlights how continual sales efforts by VCs can hinder open dialogue on sensitive company issues.
"Brand is sort of a lagging indicator of who you are."
This quote suggests that brand reputation follows from one's actions and character over time.
"I just want my brand to be, I genuinely want to help people."
The quote reflects a desire for a brand that is synonymous with genuine assistance and value.
"I love how to win friends and influence people."
The quote reveals a book that has significantly impacted the speaker's self-awareness and interpersonal skills.
"Michael Abbott was on our board at Gumroad. He was awesome."
This quote highlights the positive influence and support of a memorable board member.
"I just want to make venture more open."
The quote expresses a desire to increase transparency and accessibility in the venture capital industry.
"I'm just excited to see change. I'm excited to see experiments."
This quote shows enthusiasm for innovation and experimentation within venture capital through new concepts like rolling funds.
"Bill Gates has been a hero of mine for a long time."
The quote indicates admiration for Bill Gates, not just for his business success, but also for his personal growth and identity.
"Clubhouse is probably the most recently announced one."
This quote introduces the most recent investment and suggests excitement for the product and its potential impact on the internet era.
"The truth is, look like venture capital doesn't innovate that often."
The quote critiques the venture capital industry for its infrequency of innovation, suggesting a need for self-improvement within the sector.
"Like Bill Gates has been a hero of mine for a long time."
The quote reflects on Bill Gates as a model for success, not just in business but in personal transformation and identity.
"And I like the idea that I contributed a little bit to sort of making the industry think, oh, maybe the ways that we currently think about how we've set things up might not be perfect."
This quote expresses the speaker's hope that their contributions will inspire the venture capital industry to reevaluate and improve its practices.