DoorDash Co-Founder Stanley Tang on founding story, lessons + First-time fund manager panel | E1759

On today's episode, we have two amazing talks from Jason's Angel Summit, which he hosted earlier this week in Napa valley. First up, DoorDash co founder Stanley Tang sits down with Jason for a fireside chat. He tells Doordash's amazing founding story, explains how they mostly avoided ZIRP distractions and more. Then Jason hosts a panel focused on first time fund managers with Sophia Amoruso of Trust Fund, Paige, Finn Doherty of Behind Genius Ventures and Kelly Fontaine of Sandana Capital. Stick with us. This week in startups is brought to you. Imbroker's startup insurance program helps startups secure the most important types of insurance at a lower cost and with less hassle. Save up to 20% off of traditional insurance today at imbroker.com twist while you're there, get an extra 10% off using offer code twist. LinkedIn marketing. To redeem a free, free $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com thisweekinstartups and Squarespace. Turn your idea into a new website. Go to squarespace.com twist for a free trial. When you're ready to launch, use offer code Twist to save 10% off your first purchase of a website or domain.

Next up, a real treat, we have the co founder and chief product officer of DoorDash. How many people have DoorDash this month? Raise your hand. Jesus. Whole audience. How many people have. Be honest now. Have double dashed. Have you ever double dashed? Sickos.

Double dashing.

It's enough. You get one restaurant. It's enough. You don't need to pick from two. You're gonna be doing a triple dash soon. It's ridiculous. My daughters want a triple dash for dessert. I have three of them. One wants boba, one wants ice cream, other one wants cookies. It's enough. It's enough. Stanley, I. At this point, I don't know if I've. I've won more money from you in poker or you've won more money for me in Doordash Views. It's probably about right. It's probably.

I mean, I'm just giving what people want.

Exactly. Stanley and I became friends because he has a passion for poker as well. You may have seen him on some of the online poker games. But I wanted to specifically have an entrepreneur here at the end to talk a little bit about the three cycles that you've operated DoorDash under. You started in 2013.

Yeah, 2013.

2013. As a landing page for one Indian restaurant, I believe it was.

Yeah, something like that. Yeah. We had like eight restaurants on a, on a landing page called, it was called palo altodelivery.com.

So it was really a big vision at that point.

Yeah, I mean I can go into the story. Do you want me to?

Yeah, please.

So, so, I mean, so we started 2013, you know, and I'll get to the Paul to delivery bit later. But I mean it's funny because we really weren't trying to do a startup. It was literally one of those typical Stanford dorm room class projects. We weren't trying to do a startup or even a food company or delivery company. I think me and I met my co founders, Andy and Tony through. Andy was in my freshman year dorm and then Tony we met through one of those project based classes at Stanford. And the idea we were sort of working on for this class was software for small business. And I remember at the time the kind of the hot startup or the hot thing everyone was doing back then was like social apps, Snapchat, things like that. Like everyone's very focused on sort of the, the digital world, but no one was really focused on the, the physical world. Like so what about like the, the mom and pop shops, the local, the, the, the local businesses, you know, the, none of these people were using software. And Tony, he just wrapped up a internship at Square. So this kind of, this idea of software for small business was very fresh on his mind. You know, I've, I've kind of built, you know, when I was in high school I used to build a lot of websites for small business owners kind of for fun and, and so, so this was kind of an area like we were just talking about like, you know, maybe, maybe we can work on something here. But of course none of us have, you know, we're all college students. None of us have worked at a small business before, so, or ran a small business before. So the, so, so, so the way, the way, the way we kind of approached this was why don't we just start talking to a lot of these business owners? Like why don't we just go, you know, after class we'll just go down to Palo Alto, go down University Avenue and literally we'll just go door to door. We just walk in and say, hey, we're a couple of Stanford students working on a class project. We'd love to just sit down and interview you and try to understand what your day to day life, like what are some of the challenges you were facing and see if there are any unique insights we could get out of that. And we, I told you if you.

Order $30 worth worth of food, you can sit. If not, get the heck out. Did you get any no's? Or in Palo Alto you get, I mean people love Stanford students.

I think the, the Stanford student class project trick worked almost all, every time. Yeah. And, and we always try to go, you know, between 2 and 4pm when it, and when it wasn't busy. So yeah, we talked to pretty much every business in Palo Alto, Mountain View, San Mateo. I mean these, these were restaurants, retailers, flower shops, furniture stores, you name it. And I remember one day we walked into this macaroon store in Palo Alto on University Avenue. If you haven't been, it's this place called Chantal Guillon. They have great macaroons. And I remember I walked in, sat down and Chloe, who was the manager of the store at the time, greeted us. We started talking and I remember in the middle of our conversation she had to go take a phone call real quick. She came back a couple minutes later. She brought this really thick booklet with her. Open it up, started writing some stuff down. And we asked her, oh, what was, what was that phone call about? And she said, oh, it was someone placing an order for macaroons for one of their office parties and they wanted it delivered. And. But the problem is, you know, I, you know, I had to turn that order down because, you know, I don't have the capacity to fulfill it. And I asked her, oh, interesting. Like, so, so how often does this happen? Do you get these requests? All the time. And she said, yeah, this happens all the time. And she started showing her this booklet which turns out was her, what do you call her? Order bookkeeping. Right. Like a booklet. All her orders she, she has from the previous month. And she started showing her, showing me all the orders she's gotten that were delivery requests that, and majority of them she had to turn away. And I started and which was, you know, again, like super strange. Like why would you turn down business? You know, it's. And as I started talking to Chloe and she said, well actually I don't want to turn them down. I wish there was a solution out, out there. But unfortunately, like, you know, you think about it like, like, like as, as a small business owner, if I have a delivery request that comes in, I pretty much have one of two choices. Like first is I could do it myself, which is what ends up happening 99% of time. And, but that means I have to, it takes time. It means it's, it's, it's taking time away from the store. Like I have to go do it myself. So unless it's like a huge catering order or something massive, it's not really worth my time. Or the alternative is I can use one of these third party delivery services. And at the time you would think like, you know, delivery is not a new thing. Like you would think, you know, with like UPS, FedEx, they've been around 50 years that you would have thought there.

Would be an option.

Yeah, there will be like I'm sure there's like a UPS version that can do a five mile delivery or three mile delivery. And it turns out actually there were and they're kind of these old school services. We looked into it and these are typically these courier services, very old school, no technology, everything was operated with pen and paper. And they typically are very expensive, not very efficient. I think their average delivery fees is probably like a hundred dollars to do like a three hour delivery. Not really designed for kind of local commerce. You know, typically they're designed more for legal documents, medical supplies, things, things like that. So again like you know, like if you're going to pay $100 for a delivery, but the macro itself is only $50, that, that the economics just doesn't, doesn't make sense. And, and, and then, and, and then we started, you know, talking to other business owners and we kind of heard the same thing from this flower shop, we heard the same thing from a coffee shop and of course we heard this from a bunch of restaurant owners. And that was kind of when the light bulb started ticking. So. Well, maybe instead of building software for these small business owners, what if we built new software and applied it to building a more efficient local delivery service that was designed for local commerce, designed for kind of the, the, the kind of the like consumer goods and offer that to Russian or sorry not Russian, offer that to, to, to the business owner. It's almost like a delivery kind of delivery as a service. Like maybe that's actually the piece of like quote unquote software that these business owners were looking for. And that's what we should work on. So kind of the kind of you know, or you know, the light bulb moment kind of turned on and you know, we kind of got, got to work. But. Except there's just one problem we have. Who are we to offer these delivery service? Like we don't, we're just three college students, you know, we, we didn't, we had one car between the three of us, credit cards.

Was it working?

And, and sorry, I said cars.

Oh cars. You have one car.

Car. So we Tell it's like we can't go out and well, and also one, one credit card too. And it's like, so where are we going to get the delivery drivers and the trucks and the infrastructure? It's not like we can just start offering this service.

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So we decided, okay, you know, we can't run, we can't operate, we don't have the resources to build a delivery service. But what we can do instead is why don't we run an experiment. And this is where the Palo Alto delivery comes in. So the experiment was basically what we wanted to validate was is there actually customer demand for something like this? Well, maybe it turns out there's no delivery service because actually besides a couple offices wanting macaroons maybe, turns out people don't want delivery and that's why no one, no one built it. And that seems to be a kind of a pretty logical kind of premise. So, so, so we kind of wanted to validate. Okay, like, well, do people actually want, do customers actually want delivery? And once we can validate, okay, the customers Want delivery, then we can go back to the local businesses and kind of figure something out. And, you know, that part we honestly, we haven't really thought through at the time. You know, it was really. Okay, let's try to validate this first part first. So what we decided to do was, okay, let's pick one thing to focus on to deliver. What is it? Restaurants seem pretty obvious because, you know, people are used to, you know, pizza delivery, Chinese food delivery, or pickup.

In Palo Alto, pickup was still a business.

Exactly, exactly. And also the other thing was, the reason why I picked restaurants was also, we thought, okay, like, restaurants, probably one of the hardest categories to nail when it comes to delivery. Because if you think about it, it's the, you know, the food is, you know, it's perishable. It has to be instant, has to be media. So the idea, people are hungry. Hungry. Exactly. So the idea is, it's if you can build something that works for food delivery, then you should be able to build something that works for anything.

Dry cleaning.

Exactly.

Groceries, whatever. Shaving cream.

Yeah. Cause you're starting with the hardest thing to nail. Perishable. Hardest.

An important insight.

Yeah, yeah. So we, so we, so, so decided. Okay, let's, let's do this. Let's, let's, let's run this quick experiment. So what we did was we went ahead, found a bunch of restaurants we liked in Palo Alto. We found eight of them. None of them offer delivery, of course. And we kind of found their menus put into these PDFs, linked it to them on this website. And it's literally just a static page, has no functionality. And all it said was, if you want to order delivery from these eight restaurants, call this phone number. And it was basically a Google voice number we set up that rang our cell phone. It probably took us two hours to make that website. It's, it's probably one of the ugliest websites I've ever made in my life. The, the idea was, okay, let's put this website out there, put a menu on it. Yeah. And see people. Yeah, yeah. See, there wasn't even a form. It's just a phone number.

Yeah.

So, and this idea was like, okay, see if people will start calling his phone number. If people called in, we'll just make a note of it and we'll just explain to him, oh, this is just a class project. We're doing research. We're going to gather, just frustrate the.

Hell out of users to understand user demand.

Exactly, exactly. And, and, and, and, and, and like, I Said like, we. We didn't even bother coming up with a name. So we decided, what, what. What should we name this? Well, let's just name it PA it's not like this is going to go anywhere.

You guys hadn't taken any marketing classes at that point, clearly.

But great.

I see this with a lot of Palo Alto students are like, website domain name-available.com is like the name.

Exactly.

Yeah.

But it turns out it was, it was actually great SEO because boom. Because we. I remember we launched this website out. We built. I remember it was a Saturday afternoon. We.

We.

We wrapped up about 4pm Went back to our dorm rooms. We haven't told anyone, honestly. Like, we, we kind of just forgot about it. And, and an hour and a half in, all of a sudden, a phone rang. Uh, oh, we picked up. This, this person said, oh, I came across your website, palo altodelivery.com. honestly, to this day, I have no idea how he found our website because we have not told a single person about it. So he literally must have typed In Palo Alto delivery.com or Google picked it up. I have no idea how, but he called in and he said, hey, I'm hungry. I saw your website and I want to place the delivery order. I remember his exact order. He wanted shrimp, pad Thai and egg rolls from this place called Bangkok Cuisine, which unfortunately, I think closed during COVID.

Did you upsell them on the Vietnamese coffee? Because that's a big margin item. Well, you could upsell them on the macaroons on the way back too.

That's true. That's true. Well, originally we were supposed to tell him, well, this is not a real service.

But you said it.

Well, I think, I think what ended up happening was we. I think we're all around the phone and then said, well, I'm not going to be the one to tell this hungry person this is not real. So are you going to do it? And it's like, well, Andy, you're going to do. And he's like, I'm not going to do it. Tony, are you going to do it? Well, I'm not going to do it. So we said, oh, well, screw it. Why don't we just do this delivery? Just, it's just one delivery. It's not a big deal. We'll. We'll. We'll drive to the restaurant ourselves. We'll place a pickup order like with the restaurant and deliver it.

Just to fast forward, last quarter, they did 512 million deliveries. So that was pretty much the starter.

And that was that Was the start of Paul to delivery. January 12, 2013.

Now, what's really amazing about this is pretty great story.

And one of the.

Things I wanted to talk about is just this product market journey that you went on was very basic. You talked to customers, you found a pain point, you observed, you didn't come into it and say, I know better than them. You put up an experiment and the experiment showed you. I think the big lesson for founders is, you know, when you have strong product market fit, the you will get market pull. And market pull arrived and obviously Uber Lift and some other companies started to show. Hey, on demand was the thing. I want to fast forward to the era of excess and just tons of money being dropped into the space. I saw it up close and personal with Uber. Obviously you guys experienced be it went into such a velocity and a global scale for your business. Maybe you can talk about the peak insanity of the growth at doordash and then we could segue into the age of austerity and how the market has changed its demand. So when you were but three students looking for seed funding, just having some customers was great. Then you were forced to grow at ungodly rates, unnatural rates. And then the market was like, you know what, show us that you can.

Make this profitable and you have to.

Shift gears yet again. So let's do the second act and the third act together.

Yeah.

Peak crazy.

Well, it's funny because for a very long time we actually couldn't raise money. Like, like I think I remember between 2015 and 2018 when everything started, you know, Uber was going crazy. Like all these funding started coming in. We weren't actually one of the beneficiaries of it. We struggled to raise money.

Why did they tell you they didn't want to give you money?

That's a good question. I guess you have to ask investors that. But I think, really, I think people were not used to this idea of investing in operationally intensive businesses. Like it wasn't like a SaaS company or like a social app or digital app.

It didn't fit the mold.

Yeah, it's like you're, it's like, it's like, you know, like I remember, you know. Well, actually, I don't know if I want to share the story, but the sentiment.

Well, sure, it would take the names out.

Yeah. Yes, I remember like there was an investor that, you know, that, that said, oh, well, why? You guys are like three super smart Stanford students. Why are you guys working on this food delivery business? Operationally intensive, a real world business. When you can just go work on something when you can build next Google applying high margin software only business not an invalid question. And what was your answer for us? I think it's well going back to how we work through, through this kind of, this phase is, you know, I think because we, the first five, six years we couldn't raise money, we were forced to stay super lean. And I think whenever people ask me, well, what's DoorDash's superpower? You know, it's our ability to execute and our maniacal focus on unit economics operational excellence. And how do we get that operational excellence? Well, it wasn't through, you know, it wasn't because you know, we decided one day we're just like great operators because we were forced to constraint. Exactly. Constraints breed in creativity. And between 2016 and 2018, that was when I felt DoorDash was the company was built because we didn't have the money. So we did not have the luxury to go out and just, you know, you know, just burn money and acquire customers and lose money on every order. Like we had to do, we had to get, we had to get to unit economics profitable. Like we had to just go, you did that.

But then Uber came into the market with Uber Eats Postmates got super funded, I believe, and every Instacart, which is not exactly a direct competitor, but they also got hyper funded. That hyper funding environment forced your hand. You had to play a different game at the poker table. Correct.

So once. So one. So so, so. And then when the Softbank round did come in in 2018, late 2018, then all the work we did between 2015 and 2018 sort of paid off because now we were just structurally we were just much more efficient than our competitors. Like we had better unit economics, we had better product, better quality, you know, much more efficient, you know, you know, driver kind of networks. More, more efficient. Like customer acquisition, everything was just more efficient. So then when we did have the capital to kind of accelerate this, you know, we were just able to grow so much faster.

Because you were thoughtful about.

Exactly.

When you're selling to B2B buyers, you really need for your pitch to reach decision makers. It's great if you meet some people who are going to use your product. Okay, great. But you can get those anywhere. Decision makers, the people who can take their credit card out, those are called decision makers and they're, they're upper level executives.

Right.

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Okay.

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Were you put under pressure though to spend harder, go faster, build market share, grow the top line. Did you feel that kind of weight from that giant amount of cash just weighing on the company? And, and how do you as founders say hey, this is not what got us here? Yeah, you know, let's stick to our knitting, let's keep our discipline?

Yeah, I think, I think that was one thing. I guess our board member Alfred Lynn from Sequoia did a really good job keeping us in check was because, because he, he went through, he also kind of went through the same experience with Zappos kind of low, almost ran out, almost went out of business, kind of low margin. So he kind of lived through that experience. And so, so for him, you know, even, you know, when we did raise the big round, he always, you know, kept us in check and, and, and, and said hey, like we, you know, it's important to continue to stay super efficient. Like he was obsessed with like our, like the, the, the like you'll go like line by line into our financial statements and our unit economics and just question everything and, and, and just make sure like look, it's, it's real, it's, it's, you know, once you, you know, go down the route of like, of, of, of, of kind of, of Excess is really hard to turn the ship. It's not like you spend a lot if you just burn a lot of money. And then at the end it's like, okay, I'm going to be lean now. Like, it doesn't really.

The culture gets completely broken.

And. And I think. I think, you know, and. And so I think having, you know, setting those constraints ourselves. Yes. Just because we raised, you know, 500 million or billion, doesn't mean we have to go spend a billion. Right. Like, like you. It's like. It's like if you're spending all the money to subsidize, and as a result, you have negative unit economics, but you're getting a lot of growth. That's very different than if you have positive growth or positive unit economics. But then you're spending that money for maybe geography expansion, or you're spending it on customer acquisition, where you know what your payback period is. Like, it's like not every dollar burned is like the same. Really. There. There are more. Some. There are more efficient ways to. To. To burn the same dollar.

Talk about the whipsaw of the pandemic. Because things shut down, restaurants weren't allowed to open their doors. Then society had to decide, well, people need to at least if they're going to be locked in their homes against their will, or in some cases, I guess, opting into being locked at home, we're going to at least have to let restaurant workers go to work. That was kind of interesting. And delivery started up again, and it created, I guess, a boon for the company. So take us through just for a minute, the crazy. A minute or two. The crazy 20, 20 year that you had.

Yeah, it was. Yeah, Covid was definitely. It was a pretty unique moment for us. I mean, like, we honestly didn't really know what to expect. Like, is it, you know, are people, you know, you know, like, everything's shutting down. Like, is that going to impact us? And, well, and turns out, like, the exact opposite happened. And you know, things like, it's like we, like, growth started, like, the growth rates start accelerating, which is not common. Right. Like, as. As you get bigger and bigger, you know, typically your growth rate slows down. But during COVID it kind of just, you know, I remember, like, every week, like, it was like a record week. And it was just. It was just a lot to just even keep up. It's like, well, all of a sudden, like, you know, like, well, you got to start thinking about, well, you know, like, we. We had to like, like, roll out all these new Features around, like, you know, distributing, like, PPE to all of our dashers. Like, how do we get. How do we. How do we get that rolled out? You know, we, you know, consumers now are asking for contactless.

Yeah, Leave on doorstep.

You had to write that stuff.

You basically have to write new software in real time.

In real time. And then for the merchants, you know, like, I think one thing we did, you know, because all of a sudden, like, 100% of their sales were coming through delivery. You know, some. One thing we did. I think we were the only player that did this was we decided, okay, like, we're going to reduce our. Our commission, our cut from the restaurant. So the way our business works is we take a fee from the consumer, the delivery fee, and then a commission from the restaurants. The delivery fee sort of pays for the drivers, and then our door dash's margin is sort of the. The commission. We decided, well, you know, like, if. If restaurants are going through tough times, like, we should also help take some of that burden off their shoulders. So we kind of slashed everyone's commission by 50% across the board, which, you know, in the short term, costed us a lot of money, but we felt like it was the right thing to do.

And long term, I remember there were a bunch of businesses like Taishokin, my favorite ramen place in San Mateo. And I talked to Yoshi, who runs it, and he's like, we don't do delivery. Our. Our food is not good for delivery. I want people to experience it here. Sukiman dipping noodles. He. He very particular and rightfully so, because it's the best in the world. And I said, you know, you got to figure it out. You know, I think this could be incredible for you. I would order it. And, you know, he's like, no, never. And then Covid happened, and now he's got this incredible delivery business. And so I guess a bunch of people who never believed remote work or remote ramen could work now believe that it can.

Yeah, it was definitely an accelerant. Right. Covid kind of made merchants realize kind of the importance of having a kind of a. What I call, like, I guess like an online or e commerce strategy. Right? And the crop applies to restaurants and also just any local business. I mean, I think before COVID like, I'm like, less than, like, 20% of maybe even less of small businesses had, like, an online presence, and that number has obviously jumped significantly higher now. And DoorDash is a great platform to help enable that transition, and that's kind of the Position we set ourselves up as you know, in terms of helping the merchants and local businesses.

Tell me a little bit as we wrap up here about how the virtual kitchen, the cloud kitchen, not specifically Travis's company cloud kitchen, but that whole movement and you can talk specifically about his company feel like as well. But just how does the whole cloud kitchen movement, how has that now accelerated your business? Because it's pretty extraordinary to be able to see certain brands pop up in multiple cities. I was watching Starbird chicken. I really enjoy their chicken. And what's that?

They have great salad.

Yeah, I don't know about that. But I like the fried chicken.

But yeah, well the fried chicken with.

The salad they do have, I have had that. It's pretty, it's a great way to ruin your. The healthiness of a salad. I agree. But I'm like, oh, now I'm in New York and I'm at my hotel and I have a choice. Doordash Starboard or Uber eats Starbird, whichever. And. Or do I order this shitty food from the hotel at 11 o' clock at night. It's obvious decision. So talk about that.

Yeah, I think something we always believed early on, you know, as, as we, as once, you know, as delivery became a bigger, bigger thing was, was kind of this bifurcation of experience and convenience. Like, you know, like before, you know, I kind of Virtual kitchens came on and I think we're still in that transition. I don't think we're there yet, but I think the way kind of delivery came along to the restaurant and the local business world was kind of a bolted on experience. Like it was kind of hacked on. Like the same place where you sit down and dine in is also the same place where a driver goes, picks up the food. And if you think about it, that doesn't really make sense. Right. Like if you start from first principles because well a, you know, the, the dashers are sort of like these restaurants are not set up to take this many dashers and they're not laid out in a way where, yeah, like it's efficient for drivers to come in and out. You know, you're disrupting the dining experience. And secondly, which is probably more important factors, you know, typically like these restaurants are located in like the most expensive real estate of part of the University Avenue. Exactly. Right. Like, but if you're ordering delivery, like do you care if your food's coming from University Avenue? So, so I think, I think it was really this idea like, well, as delivery becomes a bigger and bigger thing, like you, you Start seeing these, this bifurcation where if you want an experience, like you want a great date night on a, on a, on a Friday, you go, you go to a, you go to a restaurant. Like if you want to experience what the, the, I don't know, the, what the latest, I guess, Apple Vision headset, you go into an Apple Store to experience it. But if you want convenience, if you just need food delivered to your house, it's just, you know, right away kids are screaming. Right, right. Then, then it should come from a different place, right? Like a, like a warehouse or a virtual or what they call ghost kitchens or ghost convenience stores which were making a big push, which we call dashmart. There's no reason why these two things should be in the same place. They should be separated. I think that's kind of the trend you start seeing and that's why you're seeing all these platforms emerge, cloud kitchens, etc. That are helping again, helping these merchants and the local retailers navigate through this transition. It's all part of this bigger trend of this kind of this post Covid world where how does, how do merchants adopt kind of an E commerce strategy? How do they move into this kind of new.

Right. I mean it's you, you might have somebody who's Danny Meyer or some famous chef who wants to have some sub brand that 200 cities. But you also might have the next, you know, Danny Meyer who wants to create the next shake shack emerge. And we won't tip our cards here, but we're going to be working on something kind of fun.

That's true. We are. Yeah, but, but that, yeah, it's all, it's all part of that, it's all part of that, that, that trend. And I think, and I think that's, that's really, that, that to me is really, really exciting. And we, you know, and we want Doordash to be, it's just, it's just going to be one of many companies that's going to help enable that transition.

All right, give it up for Stanley for being so honest and awesome.

Thank you.

Listen, we have been doubling and tripling down on founder university here at launch. In fact, it's kind of the future of our firm and it's amazing for us to work with hundreds of early stage founders even before they incorporate.

Right.

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Sophia Amorosa is a serial entrepreneur, eventos podcaster, author, and her fund is trust fund. Full disclosure, I'm an LP and her fund, Paige Doherty is behind Genius Ventures. Did I LP your fund? I didn't. Not yet. Not yet. Not yet. I do one new fund a year. Just small checks to build relationships. So who knows, maybe 20, 2024, we'll work together. And then Kelly Fontaine is with. How do you pronounce your firms? Cinda Sendana, which is a fund of funds. Maybe you could tell us a little bit about what Sendana does. I know Michael's here from Sandana, but maybe you could explain how a fund to fund works and how you pick managers to start.

So Sandana Capital is a fund of fund founded by Michael K. Him, he started in 2010 to solely focus on pre seed and seed funds. Back then it wasn't really a thing or there's like 20. So we raise our own capital from foundations, endowments, family offices and then we choose to invest in pre seed and seed funds.

And as we heard in the earlier panel, it's hard for them to do these small checks. So I'm assuming people like Hewlett or USC or other folks, folks who want to get access to this, they'll pay you a fee. Essentially you get part of the carry, you get part of the management fees. How does it work in terms of.

We charge our own economics.

Yeah. So how does that work? And then how does that affect decision making? Yeah.

So yes, we charge a management fee and carried interest on our performance. We think that's the best alignment of interest is the carried interest. So it works that, you know, essentially our LPs are getting the piece and carry from the underlying funds and then our economics applied on top. But our first one is 2x distributed net and over 4x net. So the performance is there if you choose correctly. And so we really focus on portfolio construction and fund sizing for underlying managers.

And what a fund of funds typically charge because we know funds are typically 2 and 20. That's the standard. Is there, is there a standard for fund of funds?

It depends. Some don't charge carry, some just charge management fees on the underlying fund size. But I think again the best alignment of interest is carry. And I would say 10% is pretty typical.

10%. So if a, if a LP does choose to do this or an endowment, let's say they are paying maybe 30% carry net net. But, but they don't have to manage all of those smaller relationships and do that vetting. You abstract all of that for them.

Correct. And again, our first fund is better than most venture funds on a look through basis.

Yeah. So that. And how do funds make that decision? How do endowments make that decision? Do they choose to go with a fund of funds only typically, or do your investors typically do fund of funds and do some directs and then does that create any kind of tension? And how do you manage it?

It's a combination. You have large foundations and endowments who are not. Who need to write a $50 million check. So they're not going to write a $50 million check to a $50 million fund. Our median pre seed fund is $50 million. So they won't do it, but they'll do the funds when they graduate from what we focus on. Then we have other foundations and endowments who are looking to build out a direct port portfolio. So we work with them and introduce them and share all of our investment memos, research network and they go directly into the funds as well. So it depends on the foundation endowment. I'd say there's not as many foundation endowments who love to do first time funds.

And so yeah, and I sort of speculated on that a little bit in the previous panel. But why is it, why do they not want to do that?

You know, that's hard because even David Swenson said, you know, it's intuition and going back to Mars. If you're looking for this track record, then you've missed the earliest funds and there's Venture. There's research that says funds one through three outperform and we can debate on why that is. Is it the fund size? Is it you fish the low hanging fruit in your network? Is it the timing? Is it the condition conviction? We can debate on why first time funds outperform but there's research to prove it. But you know, I think you know.

What does your intuition tell you? Because they have something to prove. High energy, not rich.

I mean if a founder, if a found hungry. Yes, there's a lot of the hungry and hunger and drive. But I do think if you're a founder and you're leaving a company with a stable salary to start a job, it's the same thing as a GP starting the fund. They're taking the risk and the bet on themselves and they have that whole heart that the timing is right, that they've built their career to this point that they can do it. And so it's this opportune time and Samantha mentioned finding, you know, Australia. So they find niches where their experience and their networks is the right time. And again it's Goldilocks.

There's a self selection process there. If they're deciding to take that path to do the incredibly hard thing of starting a fund, they're probably high performers or insane or have something to prove chip on their shoulder. Not yet. Rich are not calling in rich all of those things.

Yes.

Calling in rich is the joke instead of calling in sick. Let's start I guess Paige with you had you want to.

I have a question.

Okay.

What do you look for in a fund manager? I feel like for everybody in the room who's maybe thinking about starting a fund at some point, that's something we would want to know. It's like how do you evaluate a fund manager? Is that okay?

Yeah.

I mean you're a great moderator too.

So I've already I seem to be.

A theme today I went from the world's great moderator to number three. So it was a soft.

Now I need to know exactly.

I mean so for a friend, asking.

For a friend LPs look at, you.

Know, if you fit their portfolio you're not going to go and convince an LP that doesn't invest in emerging managers to invest in a first time fund. So if an LP does invest in first time funds, it's really is the thesis is the ecosystem the broader picture of where your networks are does that fit? And then you get to the discernible edges and the discernible edges really you focus on what do you do as a fund manager, you have to source, pick, win and support. Right. And so back to the Mars presentation of yesterday of the rational thinking versus intuition. The rational thinking can help you with the sourcing and figuring out somebody's networks and the support. You can diligence, you can talk to founders, talk to the ecosystem. But it really is the picking that you have to have an intuition on. I mean you can have somewhat of a track record, but then is that repeatable? But so I would say there's intuition and rational, but it's those four things that we spend a lot of time and a lot of time with founders and co investors and the perceived reputation in the industry.

So Paige, tell me about your fund, when you started it and then your process for raising funds. And then Sophia will go to you, you're doing a public raise like I am and we'll talk about the public raising. Did you choose to do public raising as well?

I actually didn't do a public race. So I'm 506B and I can talk about like if you're thinking about starting a fund, there's a delineation between raising in public through a 506c fund, which Sophia and Jason have both done, and then a 506B fundraise which I've done while building in public, which has comes with certain regulatory like lines that I've spent a lot of time with lawyers going through in specific. But yeah, so I started my fund when I was 22. In 2021 I got into Venture because I was binge watching Silicon Valley. I was like this is the best job ever. How do I do this?

And that's a fiction based show. Just, it's a level set here. It's not a documentary.

Yeah.

Despite it's.

Yeah, well, yeah, it was funny. I thought it was like, it was so like hilarious and outlandish and now I watch it and I'm like this is this kind of my day to day, like a weird way. But I just like I fell in love with venture and the opportunity to support and pick amazing founders. Building the future that I wanted to see for myself for like the next generation. And then as I was going along in my journey of learning about Venture, I thought it was really opaque. So I started building all these resources on Twitter helping other people break into venture. I was working in an early stage startup by day and then by night I worked on a children's book called Seed to Harvest that explains venture capital and 40 pages and a lot of colorful illustrations done by my Brother. So my first fund was a $5 million fund invested in 27 pre seed and seed stage companies. Twelve of those raised fall on financing. I'm pretty heavily involved in introducing founders to downstream capital, and our LP base is quite strategic in that sense. A lot of founding partners. And then my second fund, which I launched late last year, actually send on a capitalist our anchor. So I'm excited to be on stage with Kelly today. But yeah, that's. That's kind of like how I got into venture and a bit about the firm. And I focus a lot on, like, what are the demographic shifts that are happening within my generation and what are the different, like, softwares or connected hardwares that enable that to be democratized to a broader group of people?

Did it turn out making that piece of content, this children's book about venture capital, which is just such an amazing, clever idea. Thank you for doing that. That's when I discovered you on Twitter. Did that turn out to be like the wedge strategy that got you attention? And then social media then had people say, oh, well, if you're starting a fund, maybe I'll put 25 or 50k in?

Yeah. I mean, I think like, for any of you raising a fund, like our first fund was like 1700 cold calls. And I was like, dming everyone who followed me on Twitter, like, hey, you said 1700.

Yeah, 1700.

Yes. Yeah, we have 120 in our first fund. So I think, like, if you're raising a fund, it.

It will.

It will be hard. It gets easier along the way and then it gets more challenging in some ways. But yeah, the children's book actually led me. I set up this community number where I could, like, text out updates for the book. And that's how I met the first founder that I invested in. His name is Kai Hahn. He's the founder of a company called Palette, which is community job board Infrastructure. I scrap. I. And I. I remember like, being on the phone with him and just being like, holy, like, this is the founder that I need my name on this cap table. And then after that I asked him for allocation. And then I think I asked on Twitter, like, what syndicate platforms I could use. They ended up using a. Sure. I think you made a recommendation about Assure around that time.

Sorry about that.

And so can't win them all.

Yeah. Yeah. And ended up investing in his company as my first investment. We ended up doubling down through the first fund and he's an LP and our second fund. So that's been a really cool full circle moment. But yeah, the book directly led me to meeting the first founder that I invested in.

Sophia, tell us a little bit about the origin story of trust fund. I know you had done some angel investing. Obviously you're an entrepreneur and people love operators as investors. Why did you decide to start a fund now?

So I've started a company. I don't know, I won't do that like introduction thing because there's like, you know, we've talked enough about it on this week in startups. So I've been angel investing for mostly the last four years. I invested in first dibs in like 2012 or something like that. But yeah, over 20 companies at all stages, all sectors, not trying to do a fund, zero. Just really enjoy working with founders. And after I built my second, I guess venture backed company, realized I don't like building companies. I really like being in the weeds. I don't want to hire executives to do the stuff that I enjoy doing. And it feels much better to harvest what it is that I've learned building massive companies and flailing and you know, messing up and falling on a public stage and all of the above. Just to kind of, I guess use the word harvest again. Everything that I've learned for them, which is just like I would do it for free, but you know, I can hustle advisory shares and roll them into the fun. So. So I went on a listening tour in 20, I guess last year and just like talked to a bunch of early fund manager, like emerging fund managers and pretty much everyone gave me the caveat that's like, you never stop fundraising. You're not like spending time with founders. It's like miserable. You never, even when you close your fund, you're just, you're always, you're fundraising for fun too. And I was like, Jesus Christ. But everything I've ever, everything I've ever done, like I've been thrown a bunch of. I'm just like stubborn. And so I'm like, well, maybe it won't. Maybe, maybe I'm special or something.

Yeah, it'll be different.

No, I mean, maybe a little bit. I know, but I decided to do it anyway. You know, I decided to do a five million dollar fund and raise in public last year. I just kind of went out and quietly emailed my network and you're one of those people. And Mark Andreessen and Chris Dixon and all these awesome guys signed up Jeremy liu to be LPs because I had met them in like 2012 when I was fundraising for Nasty Gal. So I've had you know, relationships for like, I don't know. I don't. People are asking, like, how I met you. Do you know how I met you? Yeah, like 10 years ago. We've, like, played poker at CBS and whatever. So that's like, that's pretty awesome to have those guys show up because I've actually pitched Andreessen in the room for a company and been turned down, which is still one of the proudest moments of my career. Just getting in that room, I guess. So decided to go out with a $5 million fund and just like, okay, I'm gonna raise in public. Like, I had raised a little bit at the end of last year. Heard about this 506C thing and I think Ryan Hoover at Weekend Fund and a few other folks at had done this and done it really well and published a lot of content about how they did it. And he's also an LP and a friend. So I was able to ping him and ask a bunch of questions about how this worked. And just like, I don't know, went to TechCrunch and was like, hey, I'm doing this fund. I want to tell you about it. And maybe I'll do something interesting and I'll let people who, anyone who's an accredited investor apply to invest in the fund. Because, you know, typically you can only have 99 LP keys in a fund. I have a parallel fund where I can have like 2,000 qualified purchasers, which are like super rich people, and then accredited investors. I can have like 249.

Yeah. Up to $10 million.

Up to $10 million, yeah.

And so I made this really does solve the cold start problem, doesn't it?

Yeah.

And it created so much groundswell. So I announced that only TechCrunch picked it up and I talked about on my socials or whatever and I got 1000 applications from people between 2 and 20k and over 6 and a half million dollars in people who were applying to be LPs in the fund. And there is a big airtable. I was like, how could you be helpful? Because it's an opportunity to, you know, for a broader set of LPs to evangelize the product, send deal flow, possibly help and have a variety of domain expertise that they can contribute to the portfolio companies, even their teams can possibly beta test stuff that my founders are doing. And so that was really exciting. And I don't. I still don't have 100 LPs. I'm still kind of. And I'm almost. I've like, I have like Five committed, but I'm almost closed up, which is pretty cool.

Yeah.

And I've written three checks. I don't know, I mean, I could.

Keep going, but no, it's absolutely fantastic. If you think about the previous way to do this, you would have like, like a Benchmark or a Sequoia. You know, they, they've had, you know, six or nine LPs of, you know, 20K each. 20 million each. And that was their first funds. And this was not democratized in any way. And you just have to, I guess, build relationships now with all of these people to a certain extent. I guess some of them just want to put the check in.

And I mean for a $2,000 check, I'm like really clear that like you're going to get information that everyone else gets you, you don't get special information, you're going to get quarterly updates. You might get free stuff for, you know, early access to the companies we're working with. But like, here's what you don't get. Like, I can't have coffee with everybody. My job is to invest your money. Like that's an email that goes out before they write a check.

Right.

Because I literally can't, I don't want to disappoint people. So I try to be like really.

Level set, really clear up front. Yeah, yeah. So Kelly, let's, let's talk a little bit about what you think of this. You, you're, you're seeing a lot more startups, startup funds, let's call them these 5, 10, 50 million dollar funds. This didn't exist I think when Michael started his fund of funds. Right. So now you have many more choices, is that correct? In terms of early stage funds?

Yeah. So we did to, to make our lives more difficult or we started a nano fund. So we started anchoring sub $20 million funds. We added it as a product, we rolled it into our current fund. But we think, you know, I know the LP said something different on stage, but it really is fun. Size and venture returns is really about portfolio construction and appropriate fund size. And so the small funds just have an outsized chance of returning multiples of capital. And so we think it's a great opportunity for performance. And so, and so we've always 90%, 95% of our capital has gone into fund one or two. Like we started all relationships at the beginning, so that isn't new. But we just saw again more were subsidized and so we've put a direct focus there.

How do you sort through so many of these new funds and a lot of them seem like side hustles. So maybe it's become too easy to start a fund. Maybe people are doing it for. For fun or for status and maybe they don't know what they're doing.

Yeah, I think 2021 was tourist founders and tourist managers. And I think, you know, you get a good sense of why they're doing it. If you talk about. We really focus on a narrative when we talk to people. So what is your background? What have you accomplished in your career and why are you doing this now? And you get a really good sense sense of what their drive is. Do they like the early stage? Right. Or is this, you know, we focus only on precede and seeds. We do it even with core bigger funds. Like what is your focus? You want to be an aum gatherer. You, you don't care about, you know, the early stage. We want somebody passionate about helping the companies because again that, that goes back to the best referencing and sourcing you can get is from other founders. So we spend a lot of time. The GP market fit just as you would look at a founder. Why are they starting this company? Is this truly a passion? Are they doing this for. Because it's cool to be an entrepreneur. We do the same thing.

Do they have to be full time? It seems to me like the concept of having a part time venture fund is kind of strange. So how do you think about the side hustle specifically and people doing it while they're running a company? This has become a point of contention for a lot of VCs. We're investing in your company but now you're starting a side hustle fun to compete with us as investors. And does everybody have to have a podcast, a fund and a startup? I mean it's at a conference speak asking for a friend.

Do they have to do all of.

These things or can they just shut up and do one really well?

Jason, when are you starting a company?

I have inside dot com. Yes.

Still you need it simultaneously.

Yeah, it's. But it's a serious question because.

No, I think it was.

Can become overwhelming.

Yeah, yeah. I think a current operator. I think one of the knocks and like we, we love operators. Right. We love people who have been in the weeds and can be empathetic and know the journey. But I think one of the knocks is your. Your products and tooling and understanding gets dated. Right. Because with AI like what. What tools are you using now? And so being current and in the market you get different deal flow because you're one of them. You're a peer and your knowledge is current. But should you be leading deals and probably not. Most founders that have had success are angel investing. So if it's a small fund and a step up and it's just writing a little bit larger checks, I think it works. But I think if you're trying to lead deals, that's not. That's a different beast.

Is the thesis of a fund of funds that you'll keep going with a manager indefinitely or there is a graduation point point. And do you hit that often? And then also are you looking to maybe look deeper into what they're investing and have the opportunity to direct invest into those? A lot of the sovereign wealth funds or endowments or family offices are like hey, we want to be in an early stage fund like yours JC but hey, what's the opportunity for us to meet the companies and then maybe we can invest in their Series B. How long do you keep investing, et cetera. So do you do the follow on investing in portfolio companies of your fund to fund?

Okay, so there's two questions there. The churn of the portfolio and then the direct investing. So portfolio churn. I think most funda funds raise on the sandhill names and they keep the roster. That's never been the way we invest. We want a fresh roster. We want to know what's going on in the early stages, capture the alpha. So we do have churn. I would say that we view ourselves as a lead investor like a VC views themselves. And so we do monthly calls with our managers. We have a slack channel. We do. We bring in a monthly expert and the monthly calls are one on one. And so it's for them to come to us if they're thinking about hiring a partner, if they're thinking about pro rata decisions, reserves follow anything about fund management. We want to be a resource to them. But through those calls, we hear about companies that are tracking really well that they want to boast about companies that are having a hard time they need help with. And we capture all of that in our database. So we do have a very small direct fund. But we don't want the tail to wag the dog, meaning we don't want to choose a manager because we're going to get direct deal flow. So we also have strategic LPs that want the follow on or to lead the next rounds. And so that is General Atlantic, Tiger and Sequoia Capital are actually invested in our fund and so we will highlight companies to them.

So you become an early warning system for, you know, hey, here's some stuff that could be interesting to take a look at, correct? Yeah, yeah. What's your best advice to the two fund managers on the table in terms of what's important to do every day and to just do really well? Because you must see some patterns emerge of where new fund managers kind of drift and, and get distracted and don't succeed. And then you must see some patterns of what results in outsized long term growth of funds and multiple funds and outlier returns. So things to avoid, things to focus on.

I think discipline. I mean, knowing your lane, I think kind of 20, 21, nobody had a lane, but I do think the people that stayed in the lane, that's going to stand out. And I think, you know, understanding your lane and your, your strengths. Right. If you're good at early stage, that's where you should be focused. Not leading a series B or worrying about pro rata. Even in a B. I do think the thoughtfulness, I mean that's a personal bias. I think that you can really see it with people when they're thoughtful and authentic, when they're so self aware that they know their strengths, they know their weaknesses and they're building to a North Star. So, you know, I think Michael was an early investor and forerunner. She has been so thoughtful and methodical about how she's built that firm. We have Ali Partovi in our portfolio. Neo. He has been so thoughtful. He founded co.org with his brother, then he founded Neo Scholars, then he launched a fund on top of it. Everything has been patient, methodical and slow to build to the North Star. And so I think it's just the discipline, patience and thoughtfulness.

Sophia, how are you dealing with? You've got a bit of celebrity obviously and you get a lot of inbound, but you have to say no now and you have to say no to 99 out of 100 deals if you're going to be good at this. How are you dealing with as an entrepreneur, a founder, somebody who is, you know, very optimistic. The just constant barrage of having to.

Say no to everybody, gotten really good at saying no. I, I think, you know, it's like if there isn't. And I, you know, I've never really been a follower in my career, but as someone who's new at this job, I'm going to invest in people who are at least one degree away from somebody that I know. Ideally somebody that I know is also investing or if they can't or aren't, it's because they write too big of checks or it's outside of their thesis. I'm not really looking for diamonds in the rough. I'm not looking for people with money. My story, the community college dropout who like didn't know and like raised money and bootstrapped and like, whatever, maybe if there's some wild advantage and they had some, you know, but it's like I'm really looking for, for founders who.

You.

Know, ideally, like, I love second time founders so I can just look at like a team, slide in a deck and be like, meow, you know. No, like, I don't, I don't need to take a flyer on someone with someone else's money. And I've got like a little, you know, it's like I now have a much narrow, narrow thesis. It's not a narrow thesis, but I'm not investing in consumer products. So it's so easy to be like, sorry, not cpg. Non alcoholic wine company. I mean, I did well with Liquid Death, but the other two CPG brands I did have like gone to, they're not zero, but not. And they were small checks but. And I've marked them down, but yeah, I don't know, it's like a nice little script that's like, hi, I don't invest in this or it's outside of my thesis or, you know, I'm busy fundraising or I'm focused on this other thing. There's always some really polite way to say no. And often, I mean, you hope that someone is asking if you're. If someone's sending you a deal, they're asking for you to opt into the introduction. So it's much easier to just write that person and say like, thank you so much, please keep sending me deals. I don't think this one's right for me. And some people will just send you shit to be. To like prove that they're helpful and that's just such a, like, then you're just. Then it's just like some weird, it's not a, it's like a weird expectation of a quid pro quo that I don't, I don't.

This is the worst advice ever given.

I don't do.

Yeah, no, the worst advice ever given to founders was when you get a no, ask that person to introduce you to three more people. Because now you've literally got a person who did not see an opportunity sending you to three more people saying, there's no way I'm putting my money in this.

But right.

Yeah, here's the deck. Good luck.

You have to decode that. Yeah. Because they want to seem helpful to the founder and they want.

Yeah, that's not helpful to founders. Founders.

I think it's different on the LP side though, because I do think that there's certain things that won't fit us. Like if you're series A fund, if you do biotech, you know, it might not fit our thesis or maybe we already have two fintech funds and we aren't doing another. Right. But we can still introduce you to other LPs. So I do think even the nos from LPs, it's different than founders.

Totally agree with that.

Thank you very much for doing that.

I mean Paige, tell us about how many people contact you a week for funding. And then, you know, with these small fund sizes you don't have huge management fees, which means you don't have a huge staff. In all likelihood, I was able to build a large staff off of the profits of this week. In startups, basically I was like, well, I'll just take the profits and hire people to sort through all this deal flow. So like literally I was. The management fees. And in the first fund we had no management fees.

Yeah.

And on a $10 million fund it's 200k a year, so it's not even enough to sustain the partner.

Yeah.

So talk a little bit about how you manage how many people contact you and then how you manage that.

Yeah, sure. I'll take the, I'll take the second part of the question for. So the, the question was like how, how do you think about running a small fund in a way that's sustainable? So I think there's been like a lot of, there's been a lot more public writing on this. But front loading your management fees while keeping them still blended like 2% over the 10 years is a really smart way to think about building a firm versus a fund. And so for us, like I front load like the first three years are 5% and then it steps down after that over the period of 10 years. And the way that I think about that is I want to build the firm like through these different funds. And that enables me to hire a part time like podcast editor since I run a weekly podcast called Cedar Harvest. I also have a part time investment analyst who works at a family office as his day job. And I think one of the reasons why I hired him was, as you were saying, I get like an increasing amount of inbound through, you know, being like a semi public figure on Twitter, which is, and I Think as Sophia was alluding to, I think like the longer that you invest, the more familiar you get with your own set of no's. So now it's like, okay, I look at a company, if it's not in the US or Canada, if it's not domiciled there, it's a no. If they're raising at a ridiculous valuation, it's not going to be a fit for us. I would say I'm very disciplined around ownership, which is something that like Kelly and I have talked about a lot. But I want to get, you know, between 1 to 3% ownership in the companies I'm investing in, which is not tenable with a company that's going to be, you know, over 30 million posts. And then beyond that I look through as our portfolio has grown, are there any conflicts within our portfolio? So I have 36 companies and I invest pretty heavily, especially in the creator tools space. There's usually some level of overlap so it has to be a really unique value proposition that doesn't conflict with existing portfolio companies or and hopefully complements them in some way. And then I, I think like beyond that, I think about investing from a very first principles approach. So after someone's past those steps, I'll usually take a call with them. And as I'm on the call, I'm thinking through like the three different axes that I think about as a fund manager. So very founder focused. So the first is are they a compelling storyteller from a quantitative and qualitative perspective? Because this is important whether you're selling to customers, whether you're raising capital, whether you're retaining employees based on it. Incredible, you know, shared fiction that building a company is. The second is do they have a strong mission? I think what I've seen from people of my generation is they want to work for a mission driven company that's really important and drives shared action. And the third, and I would argue one of the most important components of my investing work that I look at is execution velocity. So I'm an engineer by training and I think about velocity is a vector being speed and direction. And so how, and I think this goes to like, if you think about like fund managers or founders not having a track record before, like I bet a lot of first time founders and I look at in their past, like how have they been able to decide a direction and then how quickly have they been able to iterate and move in that direction with what speed. And I think those three components are things that I've identified in myself that have helped me become, like, relatively. I. I don't want to say successful because everything's still on paper, but have been able to grow, like, quickly in this field. So I feel like I'm uniquely equipped to understand those characteristics.

Amazing. Let's give it up for Sophia Page. Kelly. Well done. Thank you so much.