Uber's First Investor, First Round Capital's Rob Hayes on How The Deal Of The Decade Originated and Why Product Orientated VC Is The Future

Summary Notes


In this episode of the 20 minutes VC, host Harry Stebbings interviews Rob Hayes, a partner at First Round Capital, known for opening their San Francisco office and leading investments in prominent companies like Mint.com, Uber, and Square. Rob shares his journey from product management at Palm and establishing their corporate venture fund to becoming a venture capitalist at First Round and Omidyar Network. He discusses the lessons learned from missed investment opportunities like Dropbox and emphasizes the importance of adding value to entrepreneurs regardless of investment outcomes. Rob also highlights the constant evolution of First Round Capital, focusing on building VC as a product that serves founders, and the necessity of transparency and trust within VC partnerships for successful generational transitions. The episode concludes with Rob's enthusiasm for his latest investment in Ero, a transformative Wi-Fi system, and his approach to identifying genuine problems and capable founders.

Summary Notes

Introduction to 20VC and Guest Rob Hayes

  • Harry Stebbings hosts the 20 minutes VC podcast and also co-hosts the official SaaS podcast with Jason Lempkin.
  • Rob Hayes is a partner at First Round Capital and opened their San Francisco office.
  • Rob has led investments in successful companies such as Mint.com, Uber, Square, Nip, and Ero.
  • Prior to First Round, Rob was the first venture investor at Omidyar Network and worked at Palm, managing Palm OS and starting their corporate venture fund.
  • Sanebox and Matamot are mentioned as email management tool and data analysis provider respectively.

"So, joining me, I'm thrilled to welcome Rob Hayes, partner at First Round Capital, where Rob was actually the man who opened up first round San Francisco office."

The quote introduces Rob Hayes and his role at First Round Capital, highlighting his contribution to the company by establishing their San Francisco office.

Rob Hayes’ Entry into VC

  • Rob Hayes started his career as a product manager in mobile operating system companies.
  • He was involved with Palm during its IPO and the establishment of its corporate venture fund.
  • His experience at Palm's corporate venture fund taught him the basics of VC and the issues with corporate funds.

"And so I moved over from the product side to start and run that corporate venture fund. And in doing so, I learned the ropes of VC."

This quote explains how Rob transitioned from product management to venture capital by starting and running a corporate venture fund at Palm, where he gained his initial VC experience.

Corporate Venture Funds

  • Corporate funds often start when large companies want a share of the success from smaller startup companies.
  • These funds are sometimes strategic, but they face challenges when strategies and leadership change, or the company's performance declines.
  • Rob notes a correlation between the creation of corporate funds and the peak of the VC market, using his experience at Palm as an example.

"And so I find a strong correlation with when corporate funds get started and with the top of the vc market."

Rob highlights the trend of corporate venture funds often emerging at the peak of the VC market, indicating a pattern of corporate interest in startups during market highs.

Crowdsourced Questions and Show Structure

  • The show's questions are crowdsourced from friends and investors who have worked with Rob.
  • The interview is divided into two segments: Rob's investment in Uber and a broader discussion on First Round's development and future.

"So we're going to break it up into two segments. Your investment in Uber, which was a particular favorite among the crowdsourced questions and then take a wider view of first round and your development and future."

Harry Stebbings sets the agenda for the interview, indicating that they will cover Rob's investment in Uber and then discuss First Round Capital more generally.

Investment in Uber

  • Rob was an early investor in Garrett Camp's previous company, StumbleUpon.
  • In 2010, Rob noticed Garrett tweeting about Uber Cab, which led to an email exchange and introduction to Ryan Graves, Uber's GM at the time.
  • Rob was impressed with Uber's service in San Francisco and decided to invest, closing the investment in August 2010.

"So in what is it, 2010, he was tweeting out about this thing called Uber Cab. And I sent him an email. It had four words in it. It said, all byte. What's Uber cab?"

Rob recounts the initial contact with Garrett Camp regarding Uber Cab, which sparked his interest and led to his investment in the company.

The Potential of Uber

  • At the time of investment, Rob did not foresee the massive scale Uber would achieve.
  • He acknowledges that only a few, like Travis Kalanick and Ryan Graves, had the vision for Uber's expansive future.
  • Rob suggests that venture capitalists can choose to focus on reasons to invest or not to invest, and he chose to see the potential in Uber.

"No. I mean, anybody that says that they did other know, Travis and Ryan, who actually did kind of have that vision early on, would be lying to that."

Rob admits that the huge success of Uber was not something he predicted, and credits Travis Kalanick and Ryan Graves for having the foresight about Uber's potential.## Seed Investing Philosophy

  • Rob Hayes emphasizes the role of a seed investor in identifying and backing unknown but promising individuals.
  • He discusses his decision to invest in Uber based on the potential he saw in Ryan Graves and the company's operational strategy.
  • Rob Hayes challenges conventional market analysis, arguing that Uber's potential was underestimated when viewed through the traditional lens of the black car market.
  • He perceived Uber's service as fundamentally different and with a broader market appeal than traditional black car services.

"My job is to find those people that people haven't met before or heard of or worked with, know make decisions as to whether I think that person can be someone that can have a real impact in Ryan's case, it turned out to be true."

This quote highlights the role of a seed investor in discovering and investing in individuals with the potential to make a significant impact, exemplified by Ryan Graves at Uber.

"I saw it as bigger than the black car market, but I absolutely did not see it as the amazingly global and massive company that it is today."

Rob Hayes reflects on his initial perception of Uber's market potential, acknowledging that while he saw it as more than just a black car service, he did not fully anticipate its eventual global scale.

Regulatory Challenges and Global Expansion

  • Rob Hayes recounts Uber's early regulatory challenges, particularly the legal notice from the city of San Francisco.
  • He admires Uber's resolve in not backing down and working with regulators to continue operations.
  • The successful expansion into Europe was a pivotal moment for Rob Hayes, solidifying his belief in Uber's potential as a global company.
  • Rob Hayes differentiates Uber's active market expansion from aggressive behavior, noting customer and driver demand as driving forces.

"There were a couple of things. One was, early on, there was perceived to be a lot of regulatory risk for the company, and I think that's borne out."

Rob Hayes acknowledges the early regulatory risks faced by Uber and the company's proactive response to such challenges.

"Once they made the initial move to Europe and it had the same sort of impact and uptake that it did in the big cities here, it was clear that this was truly a global company and could be something very special."

This quote captures the moment Rob Hayes recognized Uber's potential for global success following its expansion into Europe.

Seed Round Dynamics

  • Rob Hayes describes the seed round for Uber as a strong negotiation but not overly competitive compared to later funding environments.
  • He provides context for the investment climate in 2010, contrasting it with the more frenetic pace of later years.

"No, it wasn't a terribly competitive round. It was a real negotiation around it, and there were a few other people around the table."

Rob Hayes shares his experience of Uber's seed round, indicating that while there was negotiation, it lacked the intensity of future investment rounds.

Impact of Uber on Seed Investing Perspective

  • Rob Hayes clarifies that he does not consider Uber a success until it returns multiples on the investment.
  • He expresses his motivation for venture capital, which is not primarily financial but driven by the opportunity to meet new people, consider new ideas, and assist entrepreneurs.
  • Rob Hayes emphasizes that the joy of venture capital comes from adding value to entrepreneurs' journeys, not just from financial wins.

"Until that happens, I don't even call it a success right now. Come on. It's a massive company. It's obviously very well known. I think its prospects for success are obviously huge."

Rob Hayes explains that despite Uber's size and fame, he reserves judgment on its success until it achieves financial returns for investors.

"For me, the biggest joy I get is walking out of a meeting with a founder that I'm working with or a CEO that I'm working with and feel like I was able to add some value and help them along their journey to build a successful company."

This quote encapsulates Rob Hayes' passion for venture capital, highlighting the fulfillment he derives from contributing to the growth and success of the companies he invests in.## Adding Value Pre-Investment

  • Venture capitalists may add value to potential investments before or after the investment is made.
  • Rob Hayes starts with an orientation of helping, regardless of investment potential.
  • He provides feedback and introductions even if he decides not to invest.
  • This approach is not a marketing strategy but a long-term business philosophy.
  • Building a reputation is important for future opportunities, even with entrepreneurs he doesn't initially invest in.

"I always start with an orientation of helping. Right. And so I'm going to try to figure out how I can help everybody that I meet."

Rob Hayes believes in offering help to every entrepreneur he meets as a foundational approach, regardless of the investment potential.

"Remember, this is a long term business, and reputations are made over careers and they're lost over deals."

Rob Hayes emphasizes the importance of reputation in the venture capital industry, which is built over time and can be affected by each deal.

Evolution of First Round

  • First Round has seen constant change since 2006.
  • The firm has a product orientation, viewing venture capital as a product for their customers, the founders.
  • Venture capitalists have shifted their customer focus from LPs to founders.
  • A good VC product has evolved from simply providing money and a partner to offering more comprehensive services.
  • First Round continuously improves their VC product to better serve their customers.
  • The firm anticipates the VC product will look very different in ten years.

"It's been constant change. It wasn't like there was an aha moment necessarily."

Rob Hayes describes the ongoing evolution of First Round's approach without a single defining moment of change.

"And so what we said was like, listen, maybe there's something. Listen, I think our money is just as green as everybody else's."

Rob Hayes acknowledges that while their financial capital is similar to others, the value they provide can be differentiated.

"There's always things you can do to make them better, and you can continue to treat them and grow them and add to them to continue to build a better product for your customer."

Rob Hayes views venture capital as a product that can always be improved, reflecting a commitment to continuous enhancement for their founders.

Managing Generational Transition

  • Generational transition can be challenging for VC firms.
  • First Round considers generational transition early on to avoid issues.
  • Successful transition requires deliberate planning and strong communication and trust within the partnership.
  • Transparency and honesty are critical in maintaining a successful relationship among partners.
  • First Round values open communication, mirroring the same level of discussion internally as with family.

"Listen, I think that generational transition is one of the things that tears firms apart."

Rob Hayes acknowledges the difficulties VC firms face with generational transitions and the importance of addressing it proactively.

"The only way to do it successfully is to make sure that you have a partnership that has tremendously good communication and trust between those partners."

Rob Hayes stresses the importance of communication and trust in managing a successful generational transition within a VC firm.

Transparency and Honesty

  • Transparency, honesty, and trust are essential to any successful relationship.
  • These values are particularly important in the relationship among partners at First Round.
  • Rob Hayes holds the relationship with his partners in high regard, comparable to family.

"There is no relationship that's more important to me than the relationship with these partners."

Rob Hayes expresses the significance of his relationship with his partners at First Round, ranking it as highly as his family relationships.

"And so I absolutely believe that and all my partners do."

Rob Hayes confirms that the values of transparency, honesty, and trust are shared among all partners at First Round.

Rob Hayes' Favorite Book

  • Rob Hayes' favorite book is "Travels with Charley" by John Steinbeck.
  • Steinbeck is a celebrated author who shares a Central Valley, California, heritage with Hayes.
  • The book is a reflective work from the later part of Steinbeck's life.

"Think my favorite book is a book called Travels with Charlie by John Seinbeck."

Rob Hayes shares his favorite book and implies its personal significance to him, noting Steinbeck's background and writing prowess.## Influences in the VC Business

  • Rob Hayes was influenced by Bob Cagel from Benchmark.
  • He learned the value of listening intently and speaking only when necessary from observing Bob in board meetings.
  • This approach contrasted with others who often spoke excessively without adding value.
  • Rob appreciated Bob's successful, yet reserved, style which aligned with his own.

One of the people that has certainly influenced me in the VC business is Bob Cagel, one of the founders of Benchmark.

This quote highlights Bob Cagel as a significant influence on Rob due to his approach to communication and conduct in board meetings.

Missed Investment Opportunities

  • Rob regrets not securing a deal with Dropbox due to a small valuation difference.
  • He learned a valuable lesson about not letting minor valuation discrepancies influence investment decisions in potential high-stake companies.
  • He has since avoided making the same mistake.

I'm still upset about Dropbox. It was one of the first companies I met...ended up losing on valuation and a very small differential on valuation, which was a massive lesson for me.

Rob expresses his disappointment in missing out on Dropbox and reflects on the lesson learned regarding valuation disputes.

Must-Read Blogs and Newsletters

  • Rob Hayes reads industry-related content and political blogs regularly.
  • He starts his day with Dan Primack's Term Sheet newsletter for industry updates.
  • He also reads Talking Points Memo for political insights.
  • He values content that is immediately actionable and tactical, as seen in his appreciation for the First Round Review.

One is like my industry related, and that is Dan Primack's term sheet...And the other thing that I read incessantly because I'm a political junkie is I read a bunch of political blogs, but probably talking points memo is the one that I read the most.

Rob shares his daily reading habits, emphasizing the importance of staying informed in both his professional field and his personal interest in politics.

The Importance of Tactical Support for Founders

  • Rob believes venture capitalists should provide tactical support to founders.
  • He admires the First Round Review for its focus on offering practical advice that can be immediately implemented by companies.
  • Rob sees a gap in the VC industry where strategic advice is abundant, but there is not enough focus on day-to-day operational support.

I think there are not enough venture capitalists who help, really help with the tactical stuff as opposed to the very large strategic stuff.

Rob discusses the need for VCs to offer more practical, tactical support to founders, which he believes is often overlooked.

Investment Criteria and Recent Investments

  • Rob's investment decisions are based on whether a company solves a real problem he can relate to.
  • He evaluates the founder's ability to execute the solution effectively.
  • His recent investment in Eero was due to its innovative solution to common wifi issues and the impressive execution by the founder, Nick.

Is there a real problem that this company is solving?...Is this a founder that can execute against the solution to that problem?

Rob explains his investment philosophy, focusing on the problem being solved and the founder's capability to address it.

Reflections on the Podcast Experience

  • Harry Stebbings expresses admiration for Rob Hayes' approach to venture capital.
  • Rob is recognized for his genuine nature and impressive reputation in the VC community.
  • Harry encourages listeners to engage with the show's content and provides information on additional resources.

Rob truly is one of the most impressive and genuine VCs I have ever come across.

Harry Stebbings concludes the interview by acknowledging Rob Hayes' impact and reputation within the venture capital industry.

Promotion of SaneBox

  • Harry Stebbings endorses SaneBox, an email management tool that helped him achieve inbox zero.
  • He shares a special offer for listeners to try SaneBox with a $20 credit and a two-week trial without requiring credit card information.

Like Rob with Eero, I never thought I'd say this, but an email tool completely changed my life, sorting through my emails and displaying only the emails that I actually want there.

Harry shares his personal experience with SaneBox, emphasizing its transformative effect on his email management.

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