An astoundingly small half a percent of startups secure venture capital money because they fail to convince VCs they can scale fast enough. With the bulk of startups hitting the cutting room floor, there’s a very real possibility that many gems are hiding in the scrapped deals pile.
Grit Daily spoke with Elizabeth Yin, who recently co-founded Hustle Fund to write early stage startups their first check, after years of building her own companies and mentoring entrepreneurs from across the globe.
Some of Yin’s most notable accomplishments include co-founding B2B advertising platform LaunchBit, joining Google as a marketing manager and overseeing 500 Startups’ accelerator program – from which she resigned after revelations of co-founder Dave McClure’s sexual harassment misconduct.
Yin explains why most startups struggle to raise funding and her vision for other funding mechanisms to help these startups. Her take on how California’s gig economy legislation crimps bootstrapping for aspiring entrepreneurs and artists is extremely relevant as innovation and regulation continues to shape Industry 4.0.
Grit Daily: You’ve interned at CERN and worked in different roles at National Instruments, InfoSys, and Google before hitting up gig economy work to bootstrap your startup and then VC land. How has your job hopping helped you in your current work as a VC?
Elizabeth Yin: They’ve been incredibly helpful – especially having had a lot of failed startups before. I’ve been able to experience first hand all the things that can go wrong! But more importantly, it has allowed me to really understand what kind of customer acquisition works and what doesn’t, and that’s basically how I invest as an investor. For example, I think about how easy or hard it will be to sell a product or a service.
GD: After Google, you turned to gig work to bootstrap your startup. What did you learn? And what’s your take on California Assembly Bill 5 (AB5), which aims to reclassify contractors as W2 employees?
EY: Doing gigs while I was at the early stages of being a founder allowed me to pay the bills first and foremost. I never saw that as a permanent thing because I very much wanted to spend all my time figuring out how to build a business.
I’m not a fan of AB 5. We have a serious problem both in California but also nationwide with growing inequality. We have a lot of people holding down multiple jobs right just trying to make ends meet. This is a big problem, obviously stressful, and not a sustainable trajectory for this country. There are a lot of things we can and need to do to mitigate the growing inequality gap, such as more housing (fewer restrictions on housing), better wages for actual employment, reskilling workers in the private sector, and universal basic income from the public sector.
AB 5 is a poor solution to address this growing inequality because it removes flexibility for entrepreneurs. Entrepreneurs, actors, musicians, writers, artists, and others rely on the temporary and part-time gigs when they get started. Gigs are not meant to be one’s livelihood. They are meant to be flexible to help people bridge temporary financial situations, for example as individuals pursue risky endeavors. AB 5 would’ve been horrible for me as a budding entrepreneur, because I wasn’t looking for a job! I was trying to create my own job and was in a transition to get there. You need the flexibility of a gig (or many gigs) to be able to pursue things like entrepreneurship or the arts.
Before AB 5, drivers for Lyft can also drive for Uber. Under AB 5, if you are classified as an employee, Uber and Lyft would need to raise the bar on what you as a driver would be required to do, which would limit driver supply. Most people driving part-time would not be able to continue driving. AND, people who are driving for both companies today wouldn’t realistically be able to be an employee for both. People who work for Blue Bottle don’t work for Philz and vice versa. So while I understand the underlying problem AB 5 is trying to solve, this is a terrible solution.
GD: Why did you decide to build a new VC fund rather than join an existing firm, and why the focus on super early startups?
EY: I never saw myself as a VC. I’m an entrepreneur at heart. I was thinking about what company I wanted to build next, and then I saw that there were a lot of problems in VC. So from my lens, Hustle Fund is a startup in itself trying to make the VC industry better.
There are mundane / smaller problems that we are trying to tackle in the short term, for instance, we don’t ghost entrepreneurs. We make fast decisions after taking a meeting, usually a decision in 48 hours and a wire within a week. We offer transparent feedback — at least at a high level when we don’t get involved. We respond to everyone, so if people don’t hear from us, they should write again. Either the initial application or email went to spam or we accidentally archived it.
In the long run, we hope to change how startup funding happens altogether. Our $11.5 million pre-seed VC fund is limited to the US, Canada, and Southeast Asia. In the long run, we have global aspirations to help all software startups worldwide with that first check. But beyond that, about 90% of legit software startups are not venture backable. They will not get to $100 million ARR by year 5 or produce an outcome of at least 100x multiple. Yet, they can be great businesses. We are coming up with other mechanisms to invest in these companies and shake up how early stage funding works all around worldwide.
GD: How is Fund 1 doing, and why do you prefer to invest in B2B startups?
EY: We have invested in 101 companies. 80% of them are B2B. It’s is an easier value proposition to understand — either your software is helping a company make more money or not. If you’re helping a company save time or offer them more benefits, that can be ok and there are certainly some companies that have built big businesses around these other value propositions. But the biggest B2B companies tend to help other companies make more money (or save a lot of money).
As small check writers, we also prefer B2B companies because they can weather fundraising woes with their revenues. We back companies that can survive and thrive even if we are the only check into a business. We mitigate our downside risk by being first check into a company and don’t care who else joins the round. We basically want to know if you can make this work without lots of investor dollars.
Besides B2B, we’ve done a fair bit in fintech and consumer digital health.
