The New Normal with Garry Tan, Founder and Managing Partner of Initialized Capital

Time and turning it into something that's free, like a true resource that, well, helps us be together in a time when we can't really be in person. So it's amazing work. Thank you, Sastra team, and thanks to Jason Lemkin, too. It's really an honor to be here. In sort of honor of the broader theme bridging the gap, we wanted to talk about what are the things that we're seeing in our portfolio. I run a venture firm called Initialized Capital. We're a generalist firm that does very early stage, so sort of the first check into companies like Instacart and Coinbase. We're not focused on a particular sector. We do SaaS, we do consumer, we do enterprise. Our overall focus is software, sort of changing the whole world. And we're going to talk a lot more about that in this session today. So thank you all for joining us. You know, we obviously have been talking about the new normal for a while, but I don't know about you, it feels like the first week of getting into this was really about being dragged, sort of kicking and screaming. You know, I think as knowledge workers, we are incredibly privileged. I mean, thank you to all of the people out there who are essential workers. It's really a crazy privilege for us to be able to work from home, to be able to work quite in this way. And now that we're more than a month into it, I am feeling like we are entering this point where it's starting to feel normal. But we're still seeing across the whole portfolio, people just deal with new things. This is such a new and different thing that is sort of unparalleled in modern society. And so let's talk a little bit about how to prepare. You know, we are truly all in this together. And, you know, for the startups in the audience, it bears repeating that, you know, a startup only dies when the founders and the team, you know, they either decide to quit or the company runs out of money. And so with that in mind, really take care of yourselves. You know, take care of your team, take care of your family. You know, we're going to talk about this later, but, you know, really secure your own mask first before helping others, and that, you know, that's just prudent advice, but after you do that, you know, definitely take care of the people around you, and then we can get to the other side of this recovery. When it comes to Runway, you know, what we're telling people across our portfolio is get to 18 to 30 months of Runway. If you can, if you have some way to get to 30, that will really put you in a much better position. And I know it's hard, right? And that's why 18 is often what a lot of people are trying to get to. That might mean raising inside rounds, that might be trying to get more revenue and trying to get growth. Even in the hardest possible time to get growth, you've got to do it. The other thing I really want to emphasize here, and we do have a number of portfolio founders and managers who, they don't have kids. And I want to really call out the parents in the audience right now, you guys are having it really, really hard. I mean, I have two kids, a 4 year old and a 10 month old and you know, no childcare, no school. And so much to sort of balance right now. I think it's something that we have to pause and really think about. Really. If you haven't said something to your team about that, if you haven't acknowledged the parents on your team, now's the time to do that. It's, you know, such an important thing to realize. Like people are really having a hard time right now. The only other thing that, you know, in terms of preparation that I found a lot of value in and people in our initialized network have found incredible value in is coaching. There's a company called Torch I.O. that I've used for years at this point. They do now both individualized executive coaching, but also small group coaching. They're actually doing a one time, far lower cost thing that's a lot more like Stanford T groups. So if you're, if you haven't heard of Stanford T groups, they're sort of this life changing type of way for people who are really peers. They'll try and match you up with other founders or other managers who are like you and you'll go in small groups on zoom to be able to talk about exactly what you're going through as a manager, as a leader, but sometimes even just, you know, you, you know your life, right? Like what's going on with you and I think everyone's having a hard time and it helps to have that resource. So, you know, Torch IO, I highly recommend it. I've gotten so much out of it and you know, our business, business is actually very, very squishy and especially in hard times like this, it's time to sort of acknowledge the inner work that we need to do. The inner work allows us to do the outer work, you know, sort of on, on that note, I kind of want to Walk through some of the feelings that actually I felt probably a lot of you are feeling and people on our teams are feeling. And that's going to sort of point the way on how do we properly prepare. The first is sort of self evident, right? I mean, it's fear. We're in quarantine, we're watching the news. Every other day is some sort of crazy trash fire. You know, we've had so many mixed messages about our personal safety and frankly, they're worried. You know, there are people on your team now who are terrified about losing their jobs. They have family members who are at risk to both personally and professionally. And, you know, as a leader and it, you know, this is so obvious to say, but you have to do it. You have to consciously decide to do this. You have to tell them, hey, I'm here for you. I'm a human being, right? Like, I'm. You can be vulnerable with them. Like, what are your fears? What are your. What are the things that are going on in your life? And if you are vulnerable in that way, then you can model strength. Right? Here's what I'm doing. And what's going on in your life. If you can do vulnerability and strength, then you're going to get a lot back. You're going to make people feel connected to you because they will actually be emotionally connected to you. That's the vulnerability piece. And so I really encourage you to just take a moment and do that with your team. Next is honestly, like an incredible feeling of clarity. And I think this will only intensify as, you know, we're going to go through the next months. The coming months are just going to be more and more intense for this sort of clarity. And, you know, I put Steve Jobs up here because I really feel like, you know, what he said in that Stanford graduation speech really applies here. It's that death is the single greatest invention of life. You know what you're going to find, and you may have already found this for yourself, that your priorities will shift. You'll realize maybe you're not spending enough time with the people you really care about in your life. You know, people will have lost loved ones, and this is very, very traumatic. And this will sort of make you spend a lot of time thinking about, well, what am I doing with my life? And am I doing the things that I was sort of put on this earth to do? And that will give people clarity. But be forewarned, this type of clarity, you might not want it, you might not like it, it might not be what you. You know, what you're expecting. And so expect the unexpected. Ask questions, and don't be surprised at those answers. The best thing we can do with this clarity is invite change and accept it. You know, people will be truer to you and true with themselves now more than ever. This is a true opportunity to cut through the BS and finally, I mean, really, I felt this for my team, and I feel this for every single founder and all the people who work at initialized companies. It's this deep sense of gratitude because, you know, those of us that will survive this, and statistically, you know, it's most of us, thankfully, right, we will have a very refined sense of this redefined sort of sense of gratitude. You know, show them kindness, and people will be grateful in return. You know, I think that that's the one concrete thing to sort of focus on here. If you show gratitude to your team, they, you know, gratitude begets gratitude, and they will be thankful to you, and there is a lot to be thankful for. I know that that's true for me, and I know that's true for a lot of you watching right now. Well, we've gotten through, I mean, a lot of the feels, and now it's, you know, it's business time. Right? Like, how do we actually secure the mask? How do we actually, you know, sort of secure your mask, you know, secure your bag. Right. I mean, that's sort of both ways. Let's start with, like, the frank reality of it first. I mean, like, you know, people are busy, you know, on an airline, they always announce, please secure your mask before helping your seatmates. We're right there. We are right there. Like it or not, that's where we're at. And, you know, people's home bases are burning. Like, businesses are dying. People are running out of cash. And so if you are relying on someone else, this is probably the most challenging time to rely on other businesses and other partners. If you're fundraising, if you're doing enterprise sales, if you're trying to get partnerships done, I mean, you're already seeing it. It's going to be harder than before. Buy a lot. But there are things we can do to sort of combat that. And honestly, the number one thing that you're seeing, a lot of you are already doing this is, you know, we are at home. We are. We have the privilege of being knowledge workers. And a lot of you can sell purely online. Do that. Go after them. You know, go. Now's the time to pursue trade press. Now's the time to Double down on content, on education, on. On webinars. That stuff is working actually. Like, the good thing that I can report, like, the good news I have is that we're all sort of going through this right now. And then really, the next step to securing your mask is really, if you can grow right now, really try, right? Like, we definitely run into some people who just start sort of like, throw their hands up before you do that. Try to grow. And here's why. There's really sort of three types of scenarios for companies that we're seeing across the portfolio. Some are very, very challenged. They're incredibly beleaguered because their existing customers are suffering and they're canceling, they're deferring payments. Right. You know, honestly, you have to be in survival mode there. That's just what we're seeing. And then the other two, there are companies that are treading water and they're worried, hey, we're not going to be able to grow right now. My overall sense for them, though, is that this is actually going to be okay. What you can do if you are going to have really difficult times growing right now is you can sort of go back and repair the home base. Right? This is a time where people are actually preparing for great growth later. And off the bat, there are actually companies that came in and thought that they would be neutral, but they are able to actually continue to grow, and that's very powerful. And then the reality is, if you can't grow, you really need to do whatever you can to invest into product and process and people so that you can have this incredible rise when the recovery occurs. It might be far out, but that gives you six, nine, maybe 18, possibly 24 months of time to really show that ramp out. And that's what investors will be really looking for. I hesitate to say free pass for no growth, but raising money is often about the narrative. You know, this is actually a great time, you know, to piggyback on that idea. You know, the best thing you can do is actually really double down on product and engineering. Right. Like, there are teams that I'm working with that they've been running a mile a minute on the operations, and it's been really hard to keep quality up. Now's the time where they can really deeply invest into technical debt and sort of fixing the things that they just have never been able to get to. And that's going to set them up for success, for that sort of rise coming out. It might be new technologies or new products, but often it's actually Things that greatly increase gross margin optimizations and cost automation and workflow. These are all very, very ripe things to keep top of mind in terms of, you know, what can you do to prepare. So the only other thing, again, I mean, so we're on, actually I think one of the biggest zooms that exists, which is pretty crazy to think about. You know, credit again to the SASTR team again, getting on zoom, getting in front of customers, getting trade press, that is all working webinars. Investing in education. If you can get touch points with your customers right now, you're going to see a lot of value. Content marketing has never been more important. And then some basics that actually are easy to forget are you need to reassure your existing customers, hey, we're here for you, we're here through this crisis. We're going, you know, people are actually worried about their vendors and, you know, probably rightly so. A little reassurance here will go a really long way. One interesting pro tip that we've seen across the portfolio is, hey, this is actually a really good time to refocus and rewrite your marketing copy. You know, a lot of people might have been sort of writing for this idea of enabling their customers to take advantage of some sort of like 10x or 100x sort of growth. You know, if you read that, if you reread that today, it's going to read a little tone deaf. And what's really effective is actually to be very focused on cost savings. You know, the core value prop of your customers may have changed. So rewrite and really speak to your audience and get lots of practice doing that. The other thing is like in sort of boom times, it's very easy to get caught up in like pitching and selling and, you know, sort of the go, go, go mentality of, you know, the sales process. And now is actually an incredibly good time to be very human with your customers. So don't start with the sell right off the bat. In fact, that was probably a thing that is useful for you even in a boom time. You know, have a conversation about just ask questions like get to know the other person. And you know, so much has changed that it's going to be a great time to build those relationships with your customers. You know, smart people definitely want to talk to smart people now more than ever. And so, you know, here are just a few more pieces of advice that we've gotten from our portfolio that I just want to sort of pass along. Like, now is really the time to get crispy. And what that means is you know, let's get crispy about product. Now's the time for really crisp definition of your plans for product and team. This is a true opportunity. It's a time to focus on building. You know, like we said earlier, like it's a time to catch your breath. So many teams are overwhelmed. Now's the time to sort of overhaul, to do the things you wish you could do, to sort of put you on the right step. Now is also actually an incredible time. If you do have capital. This is the best hiring market in sort of that has happened since sort of 2009. And so again, invest into product and engineering, I think. And you know, we touched on this in terms of your conversations, those, your conversations with your customers. Those conversations are going to actually drive brand new ideas about what your product needs to do. Now is also a time to really work on your team internally. Right now's the time to get your teams to be very crispy. Being remote is going to require a lot more extra effort. You might not be able to spot the kind of misalignment that happens. You know, it's easy to do it in person and now you're a month in. You need to be much more conscious of, you know, what are the things that people are not saying, what are the things that we would have lost? If you can communicate daily with your reports, like just try it out like this week, just like ping them on slack every day. Have like even a five minute zoom conversation just to check in. If you had that before we went into lockdown, now's the time to spend a little bit of time and reconnect. It's been a month. People will really, I think you will be surprised at how much you get out of just doing that right now. And finally, how do you evaluate new plans? You know, we're having this conversation across the whole portfolio and it's really interesting, you know, are you considering a new strategy? Play the strategy out 18 to 30 months and what do you get if you get it right? And what if you're sac, what are you sacrificing if you're wrong? Probably the number one thing that we've seen that is like sort of there be dragons is be aware and be wary of plans that sort of become a dead end later. What we're trying to find are examples. We're trying to find opportunities that create real enterprise value for your business. Right. I think there are some interesting examples out there. Right. Clubhouse. I don't know, it's blown up on VC Twitter. I spent two hours on it last night. It's an amazing app that it's actually sort of like a phone in. How do I actually describe Clubhouse? It is actually basically audio chat rooms, but through your mobile phone. Phone. And it's taking advantage of this thing that people can't have dinner parties right now. People can't just network and have interesting conversations. And they've made a place for that now. But their real challenge will be how do we go and build this for and take advantage of this one time, zero cac zero customer acquisition cost sort of moment. How do we turn that into long term value? I think they're going to be able to do it, but it's a really interesting moment for that company. And those interesting moments are happening across the whole ecosystem. This is unprecedented behavior change. People are living their lives in such a different way. But you have to ask the question when we come out of it, what does it mean? And then I think that most of us are working in software and this is very, very good news for us. In a recovering market, I think startups are going to be at an incredible advantage. There is a horrible reckoning happening across the whole economy. But out of that wreckage there will be new automation. People are going to make totally new decisions about their technology, about their point of sale, about their marketplace systems, about their workflow systems. We're going to see an unprecedented shift of things going from totally unstructured data to structured data accessible by API that then powers totally new marketplaces. I think that that's very, very powerful. There are customers that were not focused on innovation at all, not looking for modern solutions. They will be signing up for these things now. And our true north for this is really what's better, faster, cheaper, using software. Blogger and investor Ben Carlson has written an incredible blog that I really recommend you look up about the roaring twenties. The Spanish flu in 1918, 1919 was devastating. I mean people didn't understand what was going on. Plus world war was happening and so 50 to 100 million people died in a 24 week period with scarcely an acknowledgement of, you know, by the nations. The reason why we call it Spanish Flu is that Spain was the only country in the world that truly reported that the Spanish flu was that this flu was happening at all. Which is mind boggling to me. Yet you know, coming out of that time, the following decade gave us the automobile, the radio, the assembly line, the refrigerator, the washing machine, the television. I mean this is a true shift in all of society. And with that, you know, I know we've talked about a lot of really serious things on this, and we are all going through a lot. But I want to end with sort of this hopeful note of, you know, what will you all build next? What is the next radio? People on this, people on this. Zoom. Right now, you're going to build the thing that's going to touch all of society. And it's really my pleasure to even have the chance to talk to you today. So I think we only have one minute left, so let's see. I'm clicking through to Q and A, so let's. Yes, I mean, this is a great. You know, one of the attendees really wanted to emphasize. And, you know, I. This is a really good point. Look, don't forget, you know, we work in tech and we do have this incredible privilege and we get to work from home. And a lot of us, I mean, we get to set our hours. You know, we are the managers of big teams. We like, you know, we are the beneficiaries of a lot here. And we need to be really mindful and really, really aware of there are a lot of people in the world who are not doing well financially. And so remember to support your local community, remember to support your local restaurants, your community, support the people who are not as lucky as us. Now is the time for all of us to come together. And do not forget our privilege, I think. Thank you to that attendee for really sort of underscoring that. Let's see, metrics. Most of us know exactly what they need to achieve in ARR to get a next round going from 1 to 3 to 5 million in ARR in 18 months. For instance, for a strong A or B, what's expected now for COVID 19? Now that COVID 19 is a barrier? Let's see, see. You know, I think that people are really going to look at, honestly, the trajectory coming out. You know, we've seen companies that were growing 3 or 4x prior that are growing, you know, sort of at 2x or 1.5x right now. And as we come out, as we normalize, I think that investors are really going to look at that sort of trajectory coming out. And this is true for investors broadly. I think it will be extra true in 18, 24 months. People are going to be looking. There are really two parameters people think about. One is slope. How fast is it growing? And then why intercept? What are our absolute values? I think people look at Y intercept because that sets expectations about valuation. But the decision whether or not to invest almost entirely is about that slope. Do you have product market fit. And are you growing 3x or faster coming out of whatever this is? I think that people will look at that slope even more so than ever. And that's kind of the best I have right now. So, you know, thank you so much for sitting down and talking or just, you know, sitting through this with me. I mean, I've learned so much from this process. You can find me on Twitter arytan. My DMs are actually open on Instagram, G A R R Y T A N and on Instagram. So I'm happy to answer more questions one on one on there. And please subscribe to my YouTube channel, YouTube.com GaryTan Someone asked me really briefly that, hey, could you tell me how you got this video set up? I actually have a video just about that with links and a bunch of alternatives how to set it up. So thank you again to Saster, Jason, to Deborah and the whole team here. Thank you again for having me. Thanks so much for joining us, Gary, and for everyone on here. We will be sharing the recording and see you in the next session.