20VC Why The Best CEO's Are The Best Capital Allocators, How You Can Build A Business In A Space You Are Not Passionate About & When Is The Right Time To Put The Pedal To The Metal with Josh Hannah, General Partner @ Matrix Ventures

In this episode of the 20 Minutes VC, host Harry Stebbings interviews Josh Hannah, a general partner at Matrix Partners, a leading VC fund with investments in companies like Oculus and Apple. Josh shares his entrepreneurial journey, from founding the world's first online sports marketplace, Betfair, to turning around eHow, highlighting the importance of truth-seeking in startups and the challenges of capital allocation. He also discusses the evolution of venture capital, the significance of ideas in startup success, and his recent investment in Kinek, a platform revolutionizing purchasing for small businesses. The episode also features sponsorships from Wonder Capital and AngelLoop, platforms supporting investment in solar energy and founder-investor communication, respectively.

• Matrix Partners is a leading VC fund with investments in Oculus, HubSpot, Zendesk, and Apple.
• Josh Hannah is a general partner at Matrix Partners and has led investments in Canva, Quora, and Huddle.
• Josh co-founded Betfair, the world's first online sports marketplace, now publicly traded and processing over 50 billion transactions per year.
• Post-Betfair, Josh turned around eHow, increasing traffic and revenue 30x before selling to Demand Media.
• He has made significant angel investments in AngelList, HotelTonight, and Minted.com.

"I'm delighted to feature one of the world's leading VC funds, Matrix Partners. They've invested in the likes of Oculus, HubSpot, Zendesk and even the mighty Apple many years ago. And joining me for part one this week is Josh Hannah."

The quote introduces Matrix Partners as a prestigious venture capital fund and Josh Hannah as a key figure in the company, setting the stage for the interview.

• Josh began as an entrepreneur, founding a business and buying/building another after university and management consulting.
• He was inspired by the idea of working for himself and became an entrepreneur before considering venture capital.
• After selling his second business, he was recruited by a friend to join Matrix Partners as a general partner.

"I came out of university and was working in management consulting, and I didn't really have a vision for what I wanted to do with my life... And when that did get on my radar, I was really inspired about the notion of working for myself."

The quote explains Josh's initial lack of entrepreneurial direction and his subsequent inspiration to become an entrepreneur, leading to his success in founding and selling businesses.

• Josh's first business, Betfair, was heavily VC-backed, raising $5 million initially and then $39 million more.
• Betfair was built with a large team, taking time to launch its first product to the public.
• eHow, in contrast, was bootstrapped, quickly became profitable, and operated without employees under Josh's ownership.
• Josh reflects on his lack of people management skills during his time at Betfair and the lean startup approach taken with eHow.

"We built it in a very venture backed fashion... And that wasn't accidental in some ways... I was really attracted in starting my second business when I saw this opportunity to be really what was one of the original lean startups."

This quote contrasts Josh's experiences with a VC-backed business and a bootstrapped venture, highlighting the different strategies and challenges of each approach.

• Josh admits he was not a great CEO at Betfair due to his lack of experience in people management.
• He had never been responsible for hiring, firing, or managing a team before leading Betfair.
• Josh suggests that with better skills or a second attempt, he might have enjoyed and succeeded in the people management aspect of leadership.

"I didn't think I was a great CEO... I was not good at people management... I was trying to stay on top of it's hard. And it wasn't necessarily the problems I liked solving, or felt like I was really good at solving."

The quote is a candid reflection on Josh's leadership and management skills during his time at Betfair, revealing the challenges he faced and his thoughts on personal growth and potential.## Financial Gain from Different Ventures

• Josh Hannah discusses the financial outcomes of his involvement with two companies, Betfair and e.
• Betfair, a company that went public, has a significant number of employees and high financial throughput.
• Josh owned a small portion of Betfair, which later merged with Patty Power and became a large company in England.
• In contrast, Josh and his partner Jack owned a much larger share of e, which they bought outright.
• Both ventures were financially rewarding and enjoyable experiences for Josh, despite their different paths.

"Both ended up creating a similar amount of financial gain for me in the end, through completely different courses."

The quote highlights that despite the differing trajectories of Betfair and e, the financial outcomes for Josh were comparable.

• Betfair aimed to create a transformational business within its sector, which it achieved by significantly influencing the market in England.
• The company's impact was felt across traditional bookmakers, affecting pricing and business practices.
• Ehau also had a substantial impact, but the approach was different due to using personal funds.
• The investment decisions in Ehau were more cautious because the money was not from external investors but from personal profits.

"What Betfair attempted in spending other people's money and hiring all these people and doing things was to create a really transformational business within the sector."

This quote illustrates Betfair's ambitious goal to revolutionize its industry using venture capital and aggressive growth strategies.

• Josh Hannah believes that many board members, particularly venture capitalist board members, have a misunderstanding of their role.
• He emphasizes that board members should focus on senior leadership and capital allocation decisions rather than day-to-day operations.
• The best CEOs are skilled at capital allocation, investing resources wisely.
• Many venture-backed CEOs struggle with capital allocation, often sticking to plans even when results do not justify continued investment.
• Being nimble and able to change direction is a valuable skill for CEOs.

"The best ceos understand where to put the resources, where to invest."

This quote underscores the importance of CEOs being adept at determining the best use of a company's resources to achieve leverage and success.

• Josh disagrees with the notion that younger founders are worse at capital allocation compared to experienced business executives.
• He argues that startups have become more capital efficient, which offsets the lack of experience among younger founders.
• Young founders can be successful CEOs with good capital allocation skills, citing examples like Zuckerberg and Adam Goldenberg.
• Board members often advise on capital allocation, with Josh sharing an instance where a board encouraged young founders to spend more aggressively.

"Younger people may not have as much experience, but the stakes for most of the things they undertake are lower because the businesses are so much more capital efficient."

The quote suggests that the increased capital efficiency in modern startups compensates for the inexperience of younger founders, making their decisions less risky.

• Josh has always leaned towards conservatism, believing in the importance of staying financially viable to win in the long run.
• He notes that young entrepreneurs, especially those who have not experienced economic cycles, might not anticipate changes in funding environments.
• A healthy level of concern about the future is crucial to avoid running out of capital at critical times.
• Josh advises against aggressive spending before achieving product-market fit, as it can distract from the core mission and waste resources.
• Once a company has established product-market fit, the challenge shifts to scaling and deploying capital efficiently.

"I think when you figure things out, it is the time to be aggressive."

This quote implies that aggressive financial strategies are appropriate only after a business has established a solid foundation and clear understanding of its market.

• Josh Hannah discusses the assessment of product-market fit, which can be seen in the numbers and felt intuitively.
• In his earlier ventures, the approach was to build a complete product before launching, which involved conducting focus groups to gauge customer sentiment.
• Nowadays, the lean startup movement encourages launching minimum viable products to quickly learn from market responses.

"Typically these days you can see it in the numbers and you can analyze it, but there's also sort of an intuitive component to it that I think is important in terms of getting a feel that something's working."

The quote reflects the modern approach to assessing product-market fit, which combines data analysis with an intuitive understanding of the market's reception to a product.## Product Market Fit and Idea Evaluation

• Market research can sometimes provide negative feedback on a product that may still become successful.
• A product that tests poorly could still form the core of a highly profitable business.
• The key to success may lie in adjusting the product to better fit the market.
• Truth-seeking is a critical attribute for founders, especially in the pre-product market fit phase.
• Founders should build a culture that values truth over ego and is open to bad news as a step towards improvement.
• Balancing a culture of truth-seeking with optimism is important when starting a company.
• The reality distortion field concept popularized by Steve Jobs can be misleading; truth-seeking often leads to more impactful world changes than blind belief.

in my 25 years, I've probably research, tested over 500 products, and this product tested the worst of any product I've ever tested. This is absolutely the worst product I've ever tested that would seem to not indicate product market fit.

This quote highlights the experience of a market researcher who encountered a product that tested extremely poorly yet eventually became part of a successful business. It suggests that initial market research isn't always indicative of ultimate success.

Like a person who really wants to know the bad news, a person who's built an organization that it really does not have an ego, does not feel like they've already got it figured out, or they need to pretend like they've already got it figured out and just wants to get to the truth.

Josh Hannah emphasizes the importance of founders being truth-seekers who prioritize understanding the reality of their business situation over maintaining appearances or ego.

• Idea generation is challenging and not everyone has a talent for it.
• Some individuals have a knack for recognizing the potential in contrarian ideas.
• Powerful core ideas can overcome mediocre execution to build successful companies.
• The value of ideas is sometimes underestimated in favor of execution.
• It's possible to be successful without being initially passionate about an idea, as passion can develop over time.

I think I'm sometimes able to perceive the opportunity there where others can't.

Josh Hannah discusses his own ability to evaluate and recognize the potential in ideas that others might overlook, suggesting that this talent has been a driving force in his success.

There's a whole nother can of worms that maybe we'll talk about another day because we're running out of time around. Whether you need to be passionate about the idea you're founding or not.

The quote touches on the debate about whether founders need to be passionate about their business ideas from the onset or whether passion can develop as the business grows.

• Entrepreneurs should not be discouraged if they lack passion for an idea initially.
• Incubator programs that focus on user growth may not always provide the best advice for long-term success.
• Holding out for a transformative idea can be more valuable than rapid iteration on less impactful concepts.
• Reading autobiographies of successful entrepreneurs can provide valuable insights and emotional experiences.

I think you can build interesting, exciting businesses, even in sectors that are not an inherent passion of yours, and you can develop passion over time.

Josh Hannah argues that passion for a business idea or sector is not a prerequisite for success and that passion can be cultivated as the business progresses.

One is the recent autobiography of Phil Knight of Nike, talking about the founding days of that startup and just the crazy adventures he had along the way.

Josh Hannah recommends Phil Knight's autobiography as an inspiring read for entrepreneurs, suggesting that the emotional journey of founding a company can offer valuable lessons.## Reading Recommendations

• Josh Hannah discusses two books he recently read and enjoyed.
• The first book explores the life of J. Robert Oppenheimer and the trade-offs in his life.
• The second book, "Rise of the Robots," investigates the impact of computers and machine learning on job replacement and the economy.

"And of course, predictably, it does have that part to it. And so it does talk a little bit about the trade offs in that." "The rise of the robots. It's an investigation into this notion of computers replacing jobs."

The quotes highlight the thematic content of the books Josh read, focusing on personal trade-offs and the societal impact of technological advancements in automation and job displacement.

• Josh Hannah speaks about the difficulties in his role at Matrix Partners.
• He describes venture capital as a competitive field with scarce opportunities and increasing money chasing those opportunities.
• The challenge lies in finding and winning the right deals among a limited set of quality investments.
• There's no lasting sense of accomplishment as success is quickly overshadowed by the question, "What have you done for me lately?"

"I think everything about this job is hard is the bottom line." "There's no lasting sense of having accomplished it. It's just back to the grind."

These quotes reflect the competitive and relentless nature of venture capital, where success is fleeting and the pressure to continuously perform is intense.

• Josh does not have a favorite blog or newsletter but uses Twitter as a source of news.
• He mentions Benedict Evans' newsletter as a curated source of interesting articles.
• Josh is trying to consume less current news to avoid distractions and focus on more productive activities.

"I use Twitter for sources of news and that leads me all over the place." "I've actually been reading less."

The quotes illustrate Josh's approach to staying informed through Twitter and his conscious effort to reduce news consumption in order to minimize distractions.

• Josh discusses his most recent public investment in Kinek, a New York-based team.
• He praises Kinek for their truth-seeking nature and their mission to improve purchasing for small businesses.
• Kinek has created a platform that aids small businesses in purchasing goods, which is not well-supported by current e-commerce solutions.
• The company is compared to Betfair in terms of marketplace dynamics and the creation of a virtuous cycle.

"They are such truth seekers and they're so quick and aggressive at learning." "They have created this platform by which small businesses can purchase goods."

These quotes convey Josh's admiration for Kinek's team and their innovative solution to a market inefficiency, which has led to his investment decision.

• Harry Stebbings expresses gratitude to Josh Hannah for participating in the show.
• Harry thanks Dave Juan at TCV for the introduction to Josh.
• Harry promotes Kinek's upcoming appearance on the show and his own social media and newsletter.
• He also advertises Wonder Capital and Angelloop, highlighting their respective benefits and offerings.

"And I'd also like to say a huge thank you to Josh for giving up his time today to be on the show." "And if you love the episode today and do not want to leave the world of the 20 minutes vc, you can add me on Snapchat at htebbings, or you can head over to the site, the Twentyminutevc.com..."

These quotes serve as a closing appreciation for the guest's time and contribution to the podcast, as well as promotion for upcoming content and sponsor services.