E227: The Future of Venture: Ryan Hoover on Productizing VC

0:00As I've gotten to know you recently, Ryan, I could see that you're a product genius and that you basically think of everything as a product.

0:14I love building products that can scale infinitely, that can provide value or help people while I'm sleeping. A lot of what we're looking for is secrets. We're looking for a founder with a secret. What are they seeing that other people aren't? So the question is, why is your 140 IQ better than another person's 140 IQ? And that's because of your lived experience. You have this, you know, what Ben Horowitz called earn secrets in this specific domain that allows you similarly minded person as another very similarly smart minded person to have alpha in that trade that other people don't have. Helping a founder when no one else would is, I think, meaningful and important.

0:44The worst thing you could do as a founder is bring on an investor who is net negative and word gets around. Reputation matters. So when we last chatted, you mentioned that you are productizing LP intros. What did you mean by that? Yeah, I mean, productizing might be a little bit generous. As a fund manager, we're on our third fund raised not only as a founder, but also as a fund manager raised before. And it sucks. Fundraising is no fun for most people, at least. And I have a lot of friends and a lot of people that I respect who are fundraising. So what I'm doing is a couple of things. One, I have a newsletter.

1:15It's a very basic newsletter, but it reaches about 150 LPs, maybe deploying, give or take,$50 million a year. Some of these are small LPs. They're 10K LPs that can be helpful and value-add in other ways. Some of them are institutional LPs writing$2.5 plus million checks. So it's a newsletter and I just share what I'm investing in. So I've been investing in funds casually, just personally, small checks to support people and for many other reasons. But it's just sharing what I'm investing in. And so there's hopefully a little bit of a signal there if I'm spending my own money and investing my own capital and sharing with these people.

1:51So you have 360 LPs. Tell me about how you went about fundraising from that LP base. And tell me about the pros and cons of having such an LP base. Yeah, it's a lot. So we're a small fund. We're$21 million by design. We like being small. It means we can write smaller checks. And I could talk more about that if that's useful. But we raise from many, many LPs. We first raise the majority of the fund from existing LPs. So fund one and fund two LPs. Some of these are product investors from back in the day. Some of these are people I've known for a long time. Some of them are institutions. and then we raised the rest of it publicly.

2:25So our goal and strategy was we wanted to bring on an army of operators and founders from salespeople to designers, AI researchers. We want to bring them on board into the fund as sort of an extended part of the family of sorts. And so we publicly launched the fund or maybe not launched, but we announced the fund publicly as a 506C fund so that we could legally do that and took applications from LPs. Some of these LPs wrote very small checks. It wasn't about the money. We were already almost at our target goal anyway. It was really about bringing them on board and getting them to hopefully support with the portfolio, with diligence, with investor intros, deal flow, that kind of thing.

3:07A lot of people might be thinking, oh, I'd love to raise from 360 LPs. We get all this value add, all this network. There's certainly downsides. What are the downsides of having 360 LPs? It was our first time raising from that many people. We'd had almost 100 LPs in our last fund. So it wasn't like we started with nothing, but over 350 LPs is quite a lot. So the risk was certainly, one, we could have a problem. You never know when you take someone's capital, there always could be a problem with their expectations. We took applications and transparently, we wanted to accept capital from people who really understood what they were getting into.

3:45We didn't want someone who was expecting their money back in two years, because that's just not realistic in early stage. So some of the questions we asked were to assess that out and try to understand, are they experienced investing in funds or early startups? And surprisingly, we've had very few issues. We had one LP, funny enough, ask for their money back. This is maybe two years into the fund. And initially, like, that's not how it works. You know, you can't just ask for your money back. But they had a good excuse. They're going to become a monk. They're like, I'm going to be offline. I won't have internet access in the future.

4:16And so we found a solution for them and it was a relatively small amount of money anyway. But yeah, we've had very few issues. Maybe one or two LPs had some issues with capital calls. But yeah, overall, it's been a net positive for the fund. So 360 LPs, one month, a couple of capital call issues. But other than that, easy. I think about this, the education aspect. The most interesting solution I've seen on that, there's a billion dollar FinTech fund. And if you're a family officer, high net worth individual, they will not put you as a first product into their 10-year fund. They have a six-year fund.

4:50And they essentially force you to go into the more liquid strategy before you become acquaintance of venture. So instead of having all these issues on the back end, these downstream consequences, they solve for this problem on the front end. That's smart. Yeah, in our case, for better or worse, we were accepting smaller checks. And so none of these people relied on us to pay for their child's tuition in college. And so that also leads to less headaches potentially in the future. Having 20-20 hindsight, how would you have changed that process of having all these LPs and what parameters or operational improvements would you have made to the process and to the relationship that you built with those LPs?

5:36So I mentioned a couple of capital calls. We had a few issues there. Nothing severe, nothing that has prevented us from deploying kind of our strategy as we expected. However, there are some LPs that maybe just don't understand when you do commit to a fund, you are committing to future capital calls and it's not optional. And so we've had one issue in particular where, you know, it's fine. We worked through it, but we didn't have protections in our LPA against that. So they technically legally could just stop committing capital, even though we've allocated and reserved that capital for them. And so in the future, we'll look into that and provide some protections for ourselves.

6:16Nothing aggressive, but the fact that we do need to deploy a strategy and we set out our fund strategy from the beginning with an expectation that we'll have that capital in the future. We need to make sure we have some sort of recourse to follow through on those commitments. as i've gotten to know you recently ryan i could see that you're a product genius and that you basically think of everything as a product whether it's literally starting product hunts starting your fund so talk to me about venture capital as a product and what does it mean to have a product like a venture capital fund i'm an introvert i like to be behind the computer i love building products that can scale infinitely that can provide value or help people while i'm sleeping.

6:55I've always just had that kind of DNA. And so a lot of what we've explored at Weekend Fund is a number of experiments. Most of them are complete failures, to be quite honest. Could you give me a couple of those? Yeah. So we did one experiment. And I wouldn't call it necessarily a product, but it's more of like a system. It was called Weekend Build. And the thesis was, there are so many people who want to build a company, who have great ideas, very talented, and they're working on side projects. They might be employed at a thing. Well, I guess we don't call them FANG companies anymore. But back when we ran this experiment, like a FANG company is like a Meta or Apple.

7:28And they might have these experiments and side projects, but they don't have one, frankly, the conviction to take a leap and quit their job and pursue it. And so long story short, we ran this experiment. It was basically for side product builders, people who are already building something. And we did an eight-week, almost like mini accelerator. We didn't take any equity. We just worked with them in Slack and did weekly meetups, or I should say syncs with the rest of the community, the people that we brought on board. We had almost a thousand people apply and whittled it down to about five, no, I'm sorry, 10 teams.

8:04And it was a failure in the sense that we ultimately didn't... Our thesis was, okay, we'll eventually over these eight weeks, see some founders and find some founders that are compelling, that are building venture scale companies and give them the capital and support to quit their job and pursue it full time. And we ultimately didn't find that. We realized that I think there was a selection bias towards people who maybe hadn't already made that leap. They were working on a cyber project for some cases over a year. And there's probably a reason why they hadn't left already or why they hadn't gotten traction.

8:38It wasn't necessarily the conviction or support or advice from us per se that was missing. And so I think we selected incorrectly. And we also realized, while this strategy could work with some different selection criteria, it does require massive scale. And a lot of that is very difficult to productize. And so to do it well, we'd have to bring on not 10 teams, but maybe 100 teams in the same amount of time. And so we ended up holding up that experiment. We learned a few things, but it was worth doing at least. What are some other experiments that you've tried? So some experiments that have done really well, we built this tool called Rolodexer.

9:15And founders are always asked for intros. It's whether it's recruiting or I'm a B2B company, I want to reach out and find people at these companies. This is my target list. And the reality is a lot more people know, this is going to sound egotistical, I don't mean it to, but a lot more people know me than people I know. Yeah, it's just the nature of, I guess, tech in some ways and sort of my experience building product hunt. And on Twitter, I have about 300 ,000 accounts. Let's say half those people are active. That's still a lot of people, 150 ,000 people, mostly tech. And so we built a tool to search my Twitter followers.

9:48And so when a company, the best use case is when a company is looking for introductions to like an early design partner or an early customer. What we do is we ask, hey, what are the companies you're looking to target? Let's just make up one. Let's say it's Ramp. Let's say I don't know anyone at Ramp, but I can search for Ramp and anyone who's working at Ramp that follows me. And then I use that to DM them and make an introduction. And the conversion rate is relatively high. It's much higher than email because there's a lot fewer. When you get an email or I should say DM from someone that you actually follow, you're going to pay attention.

10:18You're at least going to read it. You might say no, but the conversion rate, I'd say 30 to 50 % of people accept an introduction from those at-bound requests. You're a super connector, maybe an introverted super connector, but a super connector still. What are some first principles for how to become an elite super connector? In some ways, I don't feel like I am. I guess my approach is a little different than some people. The traditional way of doing venture is going to a lot of events, meeting a ton of founders and spending a lot of time in person. And that's exceptional for like extroverted people who really get a lot of energy from that.

10:59I would say my partner, Vedika, she is more like that. I wouldn't necessarily describe her as a pure extrovert, but she's in San Francisco. She's meeting founders every day in person. She's going to events. So she illustrates more of that approach or that mindset. Me, I prefer and love being behind the computer. and I scale through social, through products that we build. I do a lot of Zoom calls with founders, but when it's first-time meetings, they're relatively quick because you can get a pretty good sense if there's time worth investing, to be quite transparent, in a 15-minute call, a 20-minute call sometimes.

11:34And so my approach has been a little bit different. It's a little bit more wide scale and light touch, at least in the beginning before we start partnering up and working with founders directly. I've given a lot of thoughts to this in many ways the value of my network is the connections that you make and I think there's a couple of first principles that I come up with one is every introduction you make is either a creative or value destructive there's no introduction that's just literally a zero so you're either providing value for both parties or not and there's a couple of first principles and a couple things to avoid one is you have to look for intrinsic value for both sides So taken to the extreme, you might connect two CEOs of public companies.

12:16They have no way to collaborate. That's a waste of both of their times, even though on paper that looks interesting. And the opposite is also true. You could connect two first-year analysts that actually have a lot of synergies in common. That becomes super valuable. And of course, the double opt-in, I'm a huge believer in it. People sometimes jab me for doing it, but I think it's so critical for that. and I think just policing that. It's this paradoxical traits in the super connectors that are both very, very strict about who they introduce. They must have value on both sides, but also have this desire to give and to help people.

12:54It's a very small niche of people that are both like super picky and super empathetic towards others that tend to make the best super connectors. Yeah. Something I sometimes do, this isn't specific to introductions all the time, but it might be a piece of information I share. Let's say with a founder. Sometimes what I'll say is like, here is a piece of information. I think it might be useful for you. No response needed. And they usually still respond, but I think it lowers the pressure of someone feeling like, oh, I got to like draft. I mean, even if it's 10 seconds, 20 seconds, everyone's inbox is super full.

13:26And if I give them permission to just hit instant archive, it's fine for me. It's fine for them. It's just, it's a little bit lighter touch, I feel. You're truly giving without the expectation of return. and you're taking that to extreme, you're essentially preempting the need first. Yeah, in this particular case, it's a founder, they don't owe me a reply. Well, in this context, I think founders do owe investors replies in certain contexts. But yeah, when you're sharing information that's a little bit more proactive, it doesn't require them to take time out of their day. Because the way we approach is we don't bug founders unless we absolutely have to for let's say legal or operational reasons.

13:59We try to be somewhere in the middle. We don't disappear and we don't bug them. We try to be very proactive, respond to every email, of course, and every investor, we usually respond and try to service their ass, but we're trying not to be distracting because the worst thing you could do as a founder is bring on an investor who is net negative and word gets around, reputation matters. I think one of the underlying principles to some of the most value-added investors on the planet is this concept from the beginning of infinity from David Deutsch, which is essentially there's an infinite amount of innovation.

14:31You could always make something better. You could always improve something. So they don't have the scarcity in terms of giving. For example, you're on your third fund. Let's say I find you an anchor for a fourth fund. You're going to be happy about that. But guess what? You might want another institutional investor on the fifth fund. And the sixth fund, you might want to start a credit fund. There's an infinite amount of value add I could give you or somebody could theoretically give somebody else. So those people inherently do not have the scarcity mindset. And paradoxically, as they give more value, they get reciprocity back and they have more value to give.

15:00So it's this non-zero-sum perspective to not only connecting people, but also value add at a higher level. I've seen almost every single top super connector and top person that gives value add has this one principle that they believe in. Yeah. Yeah. Yeah, Coralie, who is COO at Product Hunt back in the day, she would describe us like a piggy bank. And not in the sense of it's a transaction, but when you're supporting or working with a team or working with people in general, you're sort of depositing pennies or quarters or whatever currency you want to use. And you want to fill up that piggy bank is sort of the goal.

15:37And I think this applies, especially in venture and tech, where it's a big industry, but it's not at the same time. It's like everybody kind of knows each other. it feels like in some ways. Tell me the secret in terms of using value add to win deals. Do you ever go in and provide a bunch of value add to win deals or is it always kind of it's inbound, you decide you want to invest and then you're kind of value add on? Yeah, the question's more around how we win deals. Yeah, how you win deals. Yeah, you know, this is part of venture that I don't like talking about because it makes, I just don't like sounding like I'm pumping my chest, but I guess there's no other way to answer it.

16:19I mean, venture and winning deals is partly, you know, it's a combination of things. It's one, it's accessed. You even can even see the company, of course. Two, can you get a meeting with the founder? And fortunately, I've built Product Hunt. Now it's been almost 12 years, but still going. And 100 ,000, roughly 100 ,000 makers and founders launch on Product Hunt every year. So it's still extremely active. I don't know if I met a founder who doesn't know what Product Hunt is. Many of them have launched on Product Hunt before. So at the very least, there's a relatively easy in to a conversation through that.

16:51And I feel like a lot of founders at least have some respect because I've spent some time chewing glass, as they say, myself as a founder. And so that's one part of it. And then when it comes to winning deals, part of it is our fund strategy or rather our fund size, I should say. There's a lot of people who, this is our third fund, it's$21 million. It has grown from our first funds, but our plan actually in our next fund is not to scale it all that much. And our goal is to continue writing smaller checks. And I feel strongly that we're, for us, and this isn't applicable to every investor, of course, but for us, we feel like being a smaller investor, not being a lead and not getting stuck in that middle ground where you're not a lead, but you're also having to write a$750K check to get meaningful economics.

17:34That's really tough. So when we meet a founder, in many cases, we're a small enough check where even if they're tight in allocations, they can make room. And then when it comes to winning those deals, especially when it's competitive or there's not much room, sometimes it's using things like Rolodexer saying, hey, tell us your B2B target customer list. Let's go make some introductions now. Some of it's references. I would say most founders don't ask for references, but occasionally they do. Or I should say, maybe they are doing references and we just don't know it. They just don't tell us. And so I like to think we have a pretty good reputation and we've supported our portfolio well.

18:13And so it's all those things kind of compound. There's no single cookie cutter template, I would say, to win deals per se. But a lot of it's custom based on the founder in the context of the situation. And when you're using Rolodexer, which is people that follow you, you're able to introduce them to that founder. Are you doing that ahead of getting allocation? And that's basically you're sampling your value add to the founders? Sometimes, yeah. If it comes up in a conversation or we know that this is a priority for them, then yeah, we'll make that offer. And the honest truth is we normally don't have to show that type of proactive support before you write a check.

18:51And for us, to be honest, it's better for us to do that, to secure an allocation and write the check and then do that. If we're thinking about a sequence of events, but yeah, occasionally we do that. So tell me about your portfolio construction. You're on your third fund now. Certainly you've learned some lessons. What have you evolved into in your third fund? Yeah, we, so we want to keep playing the same game for the most part, but that doesn't mean that we don't experiment, you know, with new ideas. And the overall fund construction is going to remain the same for our next fund, roughly. So our average check size are$350,$21 million funds.

19:26We're securing around 2 % to 3 % ownership. And while that is a small amount, it's meaningful for us, because we're ultimately chasing Decacorn outcomes. I mean, yes, a$1 billion outcome is great. But today's, you know, yesterday's unicorns, arguably are becoming tomorrow's decacorns. We're seeing the scale of companies, revenue growth, like scale tremendously very quickly. There's also a strong argument to be made that, I hate to say it, AI is going to eat more into the services side of GDP. It's just going to eat more of the market in general. And I do, we have seen just more and more large outcomes emerge.

20:06And so we are playing the game where we're looking for those big, life-changing companies. Example, that's like Deals is one of our seed investments. And it's a$12 billion company at this point. We invested a 10 mil cap, almost a 400x outcome for us. So we're looking for those types of companies. Obviously, most will not be that. But you only need one of those to potentially return a 5x fund, 10x fund. thought a lot about this. Like why is yesterday's unicorn, today's Deca unicorn? Why is Anthropic raising out hundreds of billions of dollars? And I've thought about it in a simple way. The market size is both getting bigger and companies are penetrating it deeper.

20:52So if you think about Anthropic, it's coding tools and for every vertical. So they're both getting large share of market and also going horizontal. And that's why it's getting bigger. Same with Palantir and same with some of these companies. Even Tesla today, even public companies are now, it's not just a car, it's robots and all these things. When I started 10 years ago, technology was kind of its own industry. So there's like these tech companies when I started investing. And now it's like technology is in everything. And now it's like AI is in everything. So the AI companies will dominate the entire ecosphere.

21:26So I think there's this kind of contextualization on technology in general that's just growing by 10, 100X, which is why you have this kind of downstream consequences. It's in my best interest to believe this, that there's a huge opportunity right now to invest. But we haven't seen this big of a shift in the stack and the ingredients that we have to build companies since... I mean, some people argue the world war web. In my lifetime in tech, it's mobile. Mobile was a huge shift that birthed a lot of massive companies. And also in some ways, not just massive companies, but a shift in status, a shift in tech, a shift in the tool set, it just disrupted a lot of how we traditionally built companies.

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22:41Visit nfp.com slash how I invest today to unlock your full potential. You're also an LP in 30 funds yourself. Tell me about that. More specifically, how have you evolved your LP investing activity being a GP now on your third fund? Yeah. So I've actually been investing in funds for maybe seven-ish years. Now, my checks are small. I don't have a ton of liquidity. I'm also, as you can imagine, very tech liquid heavy in my personal investment portfolio. That said, I don't necessarily invest for the returns per se. I do invest in funds I think will do well. But I'm ultimately doing it to one, support other fellow GPs.

23:24Two is to get some perspective, like read their updates, see how they're thinking about the market with strategies they're deploying. And sometimes it's, this isn't the highest priority, but it's deal flow occasionally. This goes back to the fund strategy where I would say like a collaborative investor in terms of how we invest in our check sizes are small enough where we've invested in between rounds, like after the seed or pre-seed round is closed. So for that reason, I've invested in about over 30 funds, mostly smaller funds. Most of what I invest in is like sub$30 million fund size. And it's either a combination of very narrowly focused, specialized funds, or it's funds that are generalists, but highly connected.