The Inquisitive VC: Elizabeth Yin — Hustle Fund
Elizabeth Yin is a General Partner and Co-Founder of Hustle Fund. Prior to this Elizabeth was a Partner at 500 Startups, founder of LaunchBit which was acquired in 2014, founder of Hustle Con, and an Ex-Googler.
We talk about how early Hustle Fund invests, her assessment criteria, SAFEs and Convertible Notes, how to say no to founders, and accelerator programs.
NA: So I wanted to start with your background and your journey from Launchbit, to 500 Startups and then Hustle Fund?
EY: So, I’m originally from Silicon Valley, born and raised and still live there. I think in a nutshell, as a result of that, I’ve always been really intrigued by startups and in late 2008 I decided to quit my nice job at Google to try to build a company.
I had no idea what I was doing, which actually, over the course of the next year or two, I figured things out and ended up building out basically an ad network. I sold that business in 2014.
So, for the last six years or so, I’ve been investing in early-stage startups full-time post-acquisition. I’ve worn a few different hats as an angel investor, and I joined 500 startups. Originally I was actually just mentoring at 500 Startups, but eventually, I liked it so much that I decided to run their accelerator and did that for a few batches. I then left in 2017 and started Hustle Fund later that summer.
So, we have been running for three years now and we’re a VC firm. So I’ve kind of seen that whole life cycle from founder to angel to accelerator to VC, and I’ve liked every stage actually.
NA: I’m sure it adds a lot of value having a VC that’s gone through the whole cycle of a founder to VC. So, your website says, “We invest in hilariously early startups”, could you define what you mean by hilariously early? How early is that?
EY: So, from my experiences as founder, when we would pitch a lot of investors who said that they were early-stage investors, often the response we’d get is, “well you guys are too early”. It’s frustrating because you get that from a lot of early-stage investors, and now on the other side of the fence, I realized that actually a lot of early-stage investors are not really that early.
I thought that there was a real opportunity to truly be early and by really early, I mean, what we look for is basically a very early version of a product, but we don’t care about traction at all.
We’re not so early to invest in an idea that somebody just thought of yesterday, you have to have done something to show that actually you have both the ability to execute and also dedication to the idea.
In all honesty, we don’t care about traction, we don’t care about customers or revenue.
NA: Sure, that is definitely very early. In such early stages, in your experience, what is the right way to assess founders?
EY: I don’t think that investing in early-stage startups is all about the founders. In fact, actually I think its only, I don’t know, less than 50% of it. There are so many other things that matter more, in my opinion, including the idea, unit economics of the idea itself, the competition, the alternatives in the market, the differentiation all that. Those things actually matter a lot more in my opinion than founders.
The founders, of course, are important, because they’re the ones running the company. For me, what I look for in founders are things like, ability to execute with the ability to learn new skills quickly, clear communication and ability to take feedback and give feedback clearly. Also, just general scrappiness.
So those are kind of the main qualities, but I think a lot of people look for that.
NA: That’s an interesting view. Since you invest super early, what are your thoughts on SAFEs and convertible notes? Using that as the structure to invest since it’s so hard to value companies at those stages?
EY: Yeah, because we are only writing a $25,000 cheque, we do prefer actually SAFEs and convertible notes because, from a legal perspective, it’s basically free. So, we can just sign docs quickly and cheaply, and so I really do like them a lot for a small cheque.
I think obviously if we were a bigger stage fund by writing a half-million-dollar cheque, it would be very different because you have zero say or zero control. Now in most cases, it doesn’t matter. In general, I think an investor has zero say and zero control, the founders are still in control.
Across the over 300 companies I’ve invested in, there have been one or two cases where actually the company has done phenomenally well, but it was not clear that we as stakeholders will make money. The second thing is, we’ve had situations where had we had equity, we would have had more of a seat at the table around borderline fraudulent behaviour.
Those are very rare exceptions where it’s basically, you are involved with bad actors. In most cases, the problem is not bad actors, but that it just doesn’t work. I think in those cases if the company’s doing well and you have bad actors, you cannot make money. That being said, despite that risk I still love SAFEs and convertible notes.
NA: They are definitely great models. Based off your experience at 500 Startups, in your opinion, how are a few of the best ways accelerator programs can differentiate themselves?
EY: Yeah, its a good question, because I think that the market is pretty saturated with a lot of accelerators and VC funds, especially in Silicon Valley, and differentiation is really important, just like for a product business.
I think for accelerators, the idea of running a general software accelerator is not a good idea these days. I would not want to compete with YC or Techstars or 500 or any of those. I think it’d be very hard to crack the top 10 or even top five. I think the opportunities are more around specialization and I don’t mean specialization of geography, but the specialization of the sector.
So, for example, the Alchemists has done a phenomenal job of really being a top B2B accelerator. Where if a B2B company has an offer from both YC and Alchemist, it’s not clear that the company will pick YC. Alchemist wins a lot of deals.
So by being a specialist in a particular vertical, I think you can win deals. I think there’s an opportunity to do that in fintech, I think there’s an opportunity to do that in other things even more specialized, like construction. Some people trying to do it in food, I think those are all in the right direction.
I think there’s opportunity for someone to do that in insurance or health. I think there were opportunities for a virtual accelerator, but I think all bets are off now in the current world, YC is now virtual. I think that’s tough, but that’s probably what I would do.
NA: Sure, so very similar to differentiating a startup. In regards to when you’re looking at investments, how do you approach the aspect of saying no to founders, when you’re not going to make an investment?
EY: I think its the hardest thing, though is really important because I remember as a founder and perhaps you have experienced it too, some funds just don’t say anything, they would ghost, other funds would say, “this is not a fit for us.”
Those responses are frustrating, especially if you spend a lot of time talking with an investor and that happens, that’s very frustrating because it felt like you were building a relationship. For us, we try to deliver nos very quickly, and yeses very quickly, within like a day or two.
When we say we’ll get back to you, we’ll get back to you by then, and that is usually a day or two after we meet you. We try to be very specific around what it is that we didn’t like. Obviously citing the good points as well, but these are the things that we didn’t like.
Then sometimes, on the occasion where we feel like we would get involved because we love the founder, we would get involved if they were working on something else. I also mentioned that it’s like, I don’t like this idea, but I really like you as people. So, if you do end up changing your idea, I would love to be able to chat with you again.
I’ve said that I think a couple of times. Not often, but, there have actually been a couple of cases where we did invest in the founder when they decided to pivot.
NA: Those are great ways to go about it. What is the most useful piece of advice that you’ve been given?
EY: Well, I think specifically for raising a fund I got advice from a lot of other new managers and Charles Hudson from Precursor told me, it will take a long time to raise a new fund, but if you don’t run out of intros you’ll be just fine, and he’s absolutely right. It’s much better to constantly get new leads, then to try to chase down people who are totally not interested, but you’re just trying to convert them.
NA: Where do you see Hustle Fund going in the future?
EY: Hopefully 30 to 40 years from now, what I hope to accomplish is changing the fundraising landscape for founders who hustle, just make it a lot easier. And so actually starting a VC fund is just the beginning for us. We have many other funds and programs in the works that kind of all fit this in different ways for different groups of people. I think there are many companies that are not VC backable and that doesn’t mean they’re bad companies. It just means they’re not going to be a good fit for a VC fund, and we want to be able to have finance options available for them as well
NA: That is a great goal. Finally, what is the most recent investment you’ve made?
EY: That is a good question. I don’t know. I did 10 investments in July. So I don’t have a good answer for that.
NA: Wow, 10 investment in July, you must’ve been quite busy. Thank you so much for having a chat with me Elizabeth, I really appreciate it.
EY: Yeah, of course. Thank you for having me!
