20VC The Fundamentals Of Optimising The Fundraising Process, SAFE's vs Priced Equity Rounds & Why Hiring Is Really A Big Data Problem with Chris Hutchins, Founder @ Grove & Former Partner @ Google Ventures

In this episode of "20 Minutes VC," host Harry Stebbings interviews Chris Hutchins, the founder and CEO of Grove, a financial planning startup that recently secured seed funding from notable firms such as First Round Capital and Lowercase Capital. Hutchins shares insights from his journey in the startup world and venture capital, including his tenure at Google Ventures and co-founding Milk, which Google acquired. The conversation delves into the nuances of fundraising, the importance of timing and preparation, and the differences between seed and Series A funding. Hutchins advises founders on optimizing the fundraising process, stressing the significance of practice, understanding investors, and being selective with taking capital. He also touches on the evolving fintech landscape and his vision for Grove to help millions improve their financial lives through technology. Throughout, the discussion emphasizes the value of honest feedback, the potential pitfalls of over-optimization, and the strategic approach to hiring and scaling a startup.

• Harry Stebbings hosts the 20 minutes VC podcast.
• The podcast provides backstage insights from team 20 VC on Instagram.
• Chris Hutchins, founder and CEO of Grove, is introduced as the guest.

You are listening to the 20 minutes VC with me, Harry Stebbings at H stepbings 96 with two B's on Instagram. I would love to see you there where you can see all things backstage from team 20 VC.

The quote is Harry Stebbings introducing the podcast and inviting listeners to follow his Instagram for more content related to the show.

• The episode focuses on debunking the fundraising process.
• Perspectives from both venture capitalists (VCs) and startups are discussed.

Today, debunking the entire fundraising process from both sides of the table, both VC and startup.

Harry Stebbings sets the stage for the episode's topic, which is to explore and clarify the fundraising process from the perspectives of both investors and entrepreneurs.

• Chris Hutchins is the founder and CEO of Grove.
• Grove is a startup aimed at reinventing financial planning.
• Chris Hutchins has a history with Google Ventures and co-founded Milk with Kevin Rose.

Chris is the founder and CEO at Grove, the startup reinventing financial planning, allowing... Just last week they announced their seed round from some of the very best in the seed business, including First Round Capital, Lowercase Capital, Box Group and SV angel. Prior to Grove, Chris was a partner and Eir at Google Ventures and before that co founded Milk alongside Kevin Rose, which was ultimately acquired by Google.

Harry Stebbings introduces Chris Hutchins, highlighting his current role, his startup's recent funding success, and his previous entrepreneurial and investment experiences.

• Kevin Rose is credited for introducing Chris Hutchins to the podcast.

I do also want to say a big thank you to Kevin Rose for the intro to Chris today, without which this episode would not have been possible.

Harry Stebbings expresses gratitude to Kevin Rose for facilitating the connection with Chris Hutchins, making the interview possible.

• Cooley LLP is noted as a leading global law firm for startups and venture capital.
• Zoom is highlighted as a top-rated conferencing app with a free account option.

However, before we move into the show today, Cooley are the global law firm around startups and venture capital... And do not forget to check out Zoom, the fastest growing video and web conferencing service...

Harry Stebbings mentions the sponsors and partners, Cooley LLP and Zoom, emphasizing their significance in the startup and VC ecosystem and their services.

• Chris Hutchins was inspired to join the startup industry after attending Startup Weekend in New York.
• He moved to San Francisco with his then-girlfriend, now-wife, to pursue opportunities in the startup space.

Yeah, so the first way I got into startups was I went to an event in New York called Startup weekend... And I instantly was like, this is the industry I have to work in.

Chris Hutchins shares his initial inspiration for entering the startup world, crediting Startup Weekend as the catalyst for his career shift.

• Chris Hutchins transitioned to venture capital after selling Milk to Google.
• He was involved with Google Ventures, focusing on early-stage investments and educational technology.

Yeah. So I'd worked at a couple startups... And I had raised part of our seed round from Google Ventures... Kevin and I had decided that we should move over to Google Ventures and we spent the next four years, or I at least spent about four years there, focused on early stage stuff and edtech and a few other things...

Chris Hutchins discusses his move from being a startup founder to becoming a venture capitalist, detailing his involvement with Google Ventures and his investment focus areas.

• Chris Hutchins considers himself to have a low risk tolerance compared to Silicon Valley but high compared to the rest of the world.
• He emphasizes the importance of knowing one's risk tolerance when embarking on a startup venture.

Yeah, I would say relative to Silicon Valley, I probably have a low risk tolerance... I'm not a ravid angel investor... I'm starting a company, I'm not paying myself living off savings right now, or at least not paying myself much and have a pretty high investment focus on equities.

Chris Hutchins reflects on his personal risk tolerance, indicating a more conservative approach within the Silicon Valley context but acknowledging the inherent risks of starting a company.

• Chris Hutchins believes that fundraising should not necessarily be the first step for founders.
• Grove spent a year exploring ideas before seeking venture capital to ensure it was necessary for scaling.

Yeah, so when we started Grove... And I meet lots of founders who think the first jumping off point is to go raise capital... And once you raise it, it kind of puts you on this path that's pretty hard to get off of.

Chris Hutchins explains his philosophy on fundraising, suggesting that founders should be confident in their business model and need for venture capital before seeking investment.

• Founders may not need to pay themselves a salary initially and can work on their startup while maintaining another job.
• Chris Hutchins encourages founders to progress their company to a point where raising money is justified.

Well, to pay the salaries of other people, I would say you never need to pay the salary of yourself... You could work eight, sleep eight, and then work eight on something else.

Chris Hutchins offers practical advice to founders on managing personal finances, highlighting the possibility of balancing startup work with other employment to minimize financial risk.

• Not all companies are suited for venture capital funding.
• Founders should carefully consider whether VC funding aligns with their business model and growth strategy.

Yeah, there's certainly blurred lines... And I always tell founders that the further you can get in the confidence that that's the right path for your company, the better.

Chris Hutchins discusses the nuances of determining the appropriateness of venture capital for different types of companies, emphasizing the importance of strategic alignment.## E-commerce Industry Dynamics

• E-commerce companies may appear traditional but often have complex supply chains and advanced technology.
• The key question is whether significant investment can accelerate growth and create sustainable multipliers.
• Early-stage companies may lack clear indicators of future success.

"But I think as you dive into the supply chain, you dive into the technology they're using on the e-commerce side, you can kind of see that."

This quote emphasizes the importance of understanding the underlying complexities of e-commerce companies, such as their supply chain and technology use.

• Raising money is time-consuming and founders are usually less experienced than VCs.
• Founders should craft a compelling narrative and practice their pitch extensively.
• Deciding whether to seek VC funding or smaller investments from angels or family and friends is crucial.
• Keeping the fundraising process time-bound and coordinated is advantageous.

"So I think the first process is, what's the narrative you want to tell? Practice it for a long time."

Chris Hutchins suggests that founders should focus on perfecting their company's story before approaching investors.

• Founders should focus on the investors in the room rather than just their slide deck.
• Understanding the interests and goals of the fund and adapting the pitch accordingly is essential.
• Reading the room and being flexible in the presentation can lead to better outcomes.

"I think one of the interesting things that I saw go wrong with a lot of pitches was founders focus so much on the story and not on the room."

Chris Hutchins points out a common mistake where founders do not tailor their pitch to the audience, highlighting the need for adaptability and awareness during pitches.

• Founders without direct connections should proactively create warm introductions.
• Researching and targeting specific individuals at funds for introductions is more effective than generic requests.
• Building relationships and networking is part of the entrepreneurial skill set.

"So I always say, if you don't have a warm intro, make a warm intro."

Chris Hutchins advises founders to take initiative in making connections with investors, emphasizing the importance of targeted networking.

• Founders should set a specific time to begin fundraising to avoid prolonged distractions.
• Concentrating fundraising efforts can lead to more substantive discussions with investors.
• Delaying less critical meetings until the designated fundraising period can be beneficial.

"So I just tell people, pick the time you want to start and punt on all the meetings until then."

Chris Hutchins recommends scheduling fundraising activities strategically to maximize efficiency and focus.

• Founders should be cautious about sharing information regarding conversations with other VCs.
• VCs often communicate with each other, and excessive name-dropping can backfire.

"Oh, I think none. If I'm a founder and I tell someone at VC or at, you know, I just had this great conversation with this other investor, I'm going to be like, great, I'll call them and see what's really happening."

Chris Hutchins advises against founders being too transparent with VCs about their interactions with other investors, as it may lead to unwanted consequences.

• Founders should have a clear purpose or request for each meeting with a VC.
• The goal is to assess potential partnership fit with the investor beyond the financial aspect.

"Yeah, I think go with an ask. If you're going to take a meeting with an investor, make sure you have an ask, because otherwise the only follow up is let's connect later."

Chris Hutchins emphasizes the importance of having a specific request or goal in every interaction with a potential investor to build a meaningful connection.

• Fast deal cycles usually occur when the company has significant leverage.
• Founders should take the necessary time to ensure alignment with potential VC partners.

"So I think the only times I see this deal cycle get very, very tight are when the company has all the leverage and can force it to happen."

Chris Hutchins observes that quick deal cycles are indicative of a company's strong position and can be used to the founder's advantage, but alignment with investors should not be rushed.## Fundraising Process

• Spending extra time with potential board members is crucial for long-term benefits.
• More leverage in negotiation can be obtained by not rushing the fundraising process.

"I could see the allure of just rushing through and closing it and capitalizing, but I think the a long term best move is to take the extra 6 hours to spend 2 hours with each of the people you might work with."

This quote emphasizes the importance of dedicating sufficient time to get to know potential board members, suggesting that a more deliberate approach can pay off in the long term.

• SAFEs and convertible debt are based on future valuations and postpone dilution calculations.
• Priced rounds provide a sense of completion and focus for the company.
• There are minor issues with dilution and option pools when using SAFEs or notes.

"Safes, convertible debt, they're all kind of based on future guesses. You kind of figure out the dilution later."

Chris Hutchins explains that SAFEs and convertible debt involve future-based valuations that delay the determination of company ownership dilution.

• Pro rata rights should be earned, not given upfront.
• Insiders with significant pro rata rights can complicate raising external capital in the next round.

"But giving someone the option to have something down the road doesn't seem like a great thing for founders."

Chris Hutchins argues against granting pro rata rights without merit, suggesting that it may not be beneficial for founders.

• Founders must consider what they are giving up in preemptive rounds.
• Preemptive offers should reflect future valuations, not current ones.

"I personally would want to make sure if someone wanted to preempt around by six months, the round would need to be priced as if we were six months further along."

Chris Hutchins advises that if a preemptive funding round is offered, the valuation should account for anticipated progress, not just the current state of the company.

• Seed investors are more numerous and invest in many deals.
• Series A investors are more selective, investing in fewer companies with higher expectations.
• Series A requires more preparation and demonstrable company progress.

"When you get to the Series A, there has to be a real piece of a meaty company there."

Chris Hutchins distinguishes between seed and Series A funding, noting that Series A investors expect more substantial evidence of a company's potential.

• There is a significant amount of capital and a large number of companies in early-stage investing.
• The growth of capital in tech may be proportional to the expansion of technology across industries.

"It's not the tech industry. It's every industry has tech."

Chris Hutchins reflects on the integration of technology into all industries and its impact on the venture funding landscape, suggesting a natural evolution rather than an excess of capital.

• Breaking down processes to improve efficiency is key.
• Hiring can be seen as a data problem, similar to marketing challenges.

"So every time I tackle a project, whether it's a fundraise, it's hiring, really anything, let's break it down and figure out all the points to make it more efficient, like an assembly line kind of process."

Chris Hutchins discusses his approach to optimizing various processes, including hiring, by analyzing them systematically to increase efficiency.## Hiring Process Optimization

• Analytical approach to the hiring process is crucial.
• It's important to define the process and assign responsibility to one person, preferably someone who appreciates data.
• The process can be long and require reaching out to hundreds of candidates for a single hire.

"I thought about optimizing it, it was okay. How many people do we need to get in? What are the barriers for them to answer? Where do we find them? How can we put more people on different parts of the funnel? How can we increase the conversion at each stage? How can we make what we need to do to increase that conversion more efficient?"

This quote highlights the importance of a strategic and analytical approach to hiring, considering each stage of the recruitment funnel and how to improve conversion rates at every step.

• The decision to hire an internal recruiter depends on the company's stage and hiring needs.
• For seed-stage companies, the focus is typically on finding product-market fit, not on constant hiring.
• Hiring an internal recruiter makes more sense when the company is in a growth phase with consistent and numerous open positions.

"I don't know at what stage that was said. I think at a seed stage of company, if you're not going to consistently be hiring more than a few open wrecks in perpetuity, I don't know if that makes sense for us."

This quote expresses skepticism about the necessity of hiring an internal recruiter at the seed stage of a company, suggesting it may not be a good use of resources if the hiring needs are not consistent.

• The book "Happy Money" is recommended for its insights into spending money in ways that can create happiness, focusing on life's important aspects rather than material possessions.
• The book is backed by data and research.

"So I'd say my favorite book that I've been sending to a lot of people is a book called happy money. And as I've kind of engulfed myself in personal finance, it just drives into the way you can spend money to create happiness."

This quote explains why "Happy Money" is a favored book, as it delves into the relationship between spending and happiness from a research-based perspective.

• Skepticism toward the overwhelming focus on bitcoin and blockchain as an investment or retirement plan.
• Belief that while these technologies will create opportunities and change industries, they are currently overhyped as speculative investments.

"Right now, it would have to be something along the lines of bitcoin and blockchain being the most important thing for everyone to spend all of their money and time and energy on."

This quote captures the speaker's current disbelief in the hype surrounding bitcoin and blockchain, suggesting that many people may be overly invested in what is still a speculative area.

• The fintech industry is still in its early stages and will continue to evolve.
• There is anticipation for more pervasive technology and automated recommendations in the future.

"So it's interesting. If you said, are we in the early days of credit cards? I'd say no, I don't think that's the future. Fintech is kind of like ecommerce going to constantly evolve."

This quote suggests that fintech, unlike credit cards, is an evolving field with significant advancements still to come, likening it to the constant evolution of e-commerce.

• Desire for more honesty in venture capital interactions.
• The current culture involves "faking interest" to protect future opportunities, which can be detrimental to founders.
• There is a need for founders to accept honest feedback without pushback.

"I think that there's a lot of faking it that happens, especially around interest."

This quote critiques the lack of genuine feedback in VC interactions, indicating that this culture of insincerity can harm the entrepreneurial process.

• Strength in optimizing processes and being comfortable in any situation.
• Weakness in over-optimizing and a lack of interest in dull conversations.

"I love optimizing. So I think it's been incredibly, incredibly valuable in finding ways to improve lots of processes."

This quote identifies optimizing as a personal strength, highlighting its value in process improvement.

• The goal for Grove is to help millions improve their financial lives through technology that automates most of the work.

"I want to grow to the point that we're helping millions of people improve their financial lives and that our technology's gotten to the point that we can automate and do most of the heavy lifting for people."

This quote outlines the speaker's vision for Grove, emphasizing the desire to scale the company's impact and leverage technology for financial improvement.

• Acknowledgment of the role networking played in bringing the podcast episode to fruition.
• Encouragement to engage with the podcast and its guests on social media platforms.

"And again, a massive congratulations to him for putting together such a seed round just last week. And if you'd like to see more from Chris, you can find him on Twitter at hutchins."

This quote offers congratulations to Chris for his recent achievements and provides information for listeners to connect with him online, highlighting the importance of networking and social media engagement.