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Anu Hariharan

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48

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2020-11-03

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2020-11-03

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1. “Say, look, this is it, this is the last try, finish whatever crits you can, you're going to come back in August. And I was like, yeah, I get it. And so I went to my advisor and said, look, I really can't continue and I need to find a way to graduate. So I should finish whatever credits I can in the summer and maybe I could do remotely. Would you be open to doing remotely? He asked me how much money do you need? And I said, well, I haven't paid tuition this month. I need to pay $1,200. He took a checkbook, wrote a check, and gave it to me without any questions. And I think if I look back in life, if he hadn't done that, my life would have turned out very different.”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Well, there are a lot of people that have really helped me, but I think the kindest thing that comes to mind is Dr. Jeffrey Reed. He was my research advisor at Virginia Tech. I was doing my master's in wireless communications. This was in 2002, right after 9-11. And the funding that most state universities got from the government was completely slashed. Even private funding was at an all-time low. So I had come with the hope of getting a research fellowship, the university and the research group had no money to be able to fund me. I come from a tier three town in India. My parents were very middle class and my dad had pretty much taken an entire loan against all his assets and it could pay only for a year of my tuition. Come summer and I was working at a code in Virginia Tech to cover all my living expenses but as an international student you can work only 20 hours and you have to work in campus. You can't work outside. So there's only so much I could do. And I remember very vividly this was July and my dad basically”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Certain technology companies that could benefit from an SPAC. So this FinTech companies are extremely in regulated spaces and they need a lot of regulatory capital and regulatory buffers, which I think people don't understand. And SPACs, depending on the underlying sponsor, could actually play a big difference for those companies. So I do think I can see the role of an aspect there. And then the other argument I've heard from especially like Brad at Altimeter is most founders don't know who your Daven traders are. And I think that's fascinating because if you ask a founder, they always want to know who your investors are because they want to know who are the true partners in your journey who are believers in your company. They don't want someone who's just flipping after day one. That could be potentially a promise that attracts. But I think the question remains to be seen. Can the next snowflake go on us back? And I think if that happens, there could be more as backs.”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

4. “I think there are far fewer investors on the growth stage that truly understand startups, even though there might be a few more players that are willing to invest money. So that's one-to-ones that offer, which is probably different from what the people think or perception is outside. Second difference, let's say SPACs. There's a lot of talk about SPACs now. I think there have been SPACs that have existed for years. It has happened in the past. But what's different about this time around is the underlying manager that's sponsoring the SPAC. I paid attention when Reed Hoffman launched the SPAC and Mickey Malka launched the SPAC. I mean, I work with both of them on two boards, Ricky. I mean, Reid is on the Convoy board and Mickey is on three of the boards actually we share with Mickey. And Tiboth are just phenomenal investors. Incredible investor that a startup founder would love to have and they truly understand the pains of scaling a startup. So if you use from that lens, you do see can aspect really play a role. And I do think there are”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Afraid or chickened out by like, oh, the quarterly projection didn't really fit with this or the market landscape is changing or like the most common thing that I mentioned at the start of this session was you fear when a competitor or an incumbent especially launches something because you immediately think oh it's a zero-sum game so i think founders are usually very attentive to who they are working with and which partner they want to bring and especially in this lens they want someone who really understands startups and i think you don't see a lot of global stage investors who truly understand startups and pattern recognition is a dangerous thing because when you use pattern recognition on one hand you may say it helps you but actually the zero-sum game always comes to hurt you because if you followed the software market and you followed microsoft you would think zero sim game is real but that didn't play out in the internet e-commerce world i mean even china everyone thought alibaba would be the only player we have alibaba we have j80 we have meet one we have pindo i mean look at the commerce market that's supporting”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

6. “In startups. But the thing is, unfortunately, most of them don't understand the pain of a startup. They don't. It's great when you get 14 term sheets. How do you win? The company is not going to look up and to the right every year. It just doesn't happen. I mean, YC has so much data on this. I mean, we funded 2,500 companies, less than 1% of our companies have greater than a billion dollar valuations. We have maybe 20 to 25 of them. And I can tell you pretty much every single one of them has had at least one or two really hard years in their growth stage. Really hard years. You often see that these investors that are new to the growth stage are working with startups cannot comprehend that because your full-time job is really to focus. So if you're a public market investor, your full-time job is really to manage your portfolio and your day-to-day investments and the volatility associated with that. And then you sometimes maybe more”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Often joke at YC that we have more investors than we have companies. That's actually true. Our demo day gets close to 2,000 investors and per batch we have only 250 companies. It's a good problem to have, but I just think you're seeing the number of investors increasing across every stage. Having said that, I think the misconception people have is there's money everywhere and how are you going to differentiate? I think at the growth stage, it's not true that there's that many investors. So if you ask our founders, post series B or CDC when I spend time with founders, our founders a lot, they can't name more than 10 investors who can write a hundred million dollar plus check. They can't. And so it's the same useful suspects. You could come up maybe with a list of 10 to 15 and you have to really scrape that list and they don't even know them, but it's the same. Yeah, the crossover funds have started investing in startups. Yeah, more private agree funds have started investing.”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Public school, depending on state, city, councils, you don't have enough budget to support teachers in certain areas. And here comes our school. They just have the marketplace of best teachers. And if you've gotten over the inertia to Online, our school will play a role even post COVID because after you attend public school, if your child has deep interest in science, you can just sign up an outschool class with three other students and pick the teacher that you want and they can go deeper. So I think you're going to see interesting trends in ed tech as well that's going to actually explode in the next 10 years and it'll be fascinating to see what are some interesting business models that come out of that.”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Software developers. Just in the United States, I mean, there are different stats. Like, I think Okta reported recently that maybe there's a need for 200,000 developers, but I've seen Code. say we need 500,000 developers in the US every year. And we have less than 50,000 computer science graduates. Less than 50,000 computer science graduates. And historically, we've tried to fill it through immigration and other means. And given the geopolitical climate, immigration is a question mark right now. We don't know how it gets impacted. But the short story is there's a huge shortfall. And if there's a shortfall, there comes Lambda School. They just threw online resources and a nine-month intensive program are able to get you to the stage of starting your journey as a software developer. And for many people, it's increasing the salary from 15 to 25,000 a year to $75,000 a year. That's game changing. That's one trend we are seeing. Out school is another YC company that's done a phenomenal job, especially during COVID with all these Zoom classes where”

   2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Why Robin Hood is doing extremely well, but Robin Hood is still there, undoubtedly be a large player, but they're a small player in a large pie because the do-it-yourself market. So we're seeing Robin Hood everywhere globally. We are seeing Robin Hood for India. We made an investment in Grow. We're seeing Robin Hood for Indonesia, Robin Hood for Ladam. You'll also see this extend to active asset managers. We're seeing a lot of startups attacking that space. I think in the next decade, you're going to see at least three to five hundred billion dollar fintech companies, at least 10. I'm willing to bet maybe $10, $50 billion companies and two dozen, $10 billion. That's going to happen in Fintech. And then the third area, I'd say, which has been fascinating is EdTech. Historically, especially in the US, EdTech businesses have not been huge, therefore not a lot of investor appetite has gone behind ed tech. But there are two things that are changing. So one thing from the lens of Lambda school, I think there's a huge shortage of”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Be your bank, and it is to be really smart in helping you manage money. Like, why do I need 10 apps? Make me really smart in managing my own money. And I think you're going to see a whole suite of subscription challenger banks. They're also changing the business model, not just tech. They're saying, look, instead of me charging you fees for every single thing, let's just make it clear. Here's your subscription model. Here's a set of services you get. And that really excites millennials. They don't want to be charged for every transaction and they don't even know what to expect. Versus you just say, hey, here's what you get for $7 a month. Here's what you get for $15 a month. So they're changing business model too. And then the third lens in the financial services I'm seeing more in COVID is, look, savings yields are at an all-time low globally. So you could have argued in all other recessions that each country came at a different lens, which is now it's just across the board. And so a lot of the users got flat-footed. A lot of them are looking for other ways to invest.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Yeah, I think the second area is fintech, obviously at YCV see a lot of financial services startups. I mean, we ourselves have funded Stripe, Brex, Monzo, Lenda, to name a few, and then grow recently. But I think there are a few trends that are going on in FinTech. One, the payments landscape is exploring. If you believe the Internet economy is at least a $60 trillion economy, we've got a lot more work to do on payments. And so there'll be more there, both on the consumer side. But you also, as I mentioned, B2B is a big side. Rex started as corporate cut for startup, but that's just scratching the surface and they're well beyond startups now. They also launched Brex Cash last year. There were a whole suite of products that they're working on. So B2B, wholesale payments will also be a big area. The third area I'm saying is in digital and challenger banks, we saw China recently. I just think that if you were to build a bank front today, you just won't look like your prior bank. Like, as I said, your phone, your phone.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Much has been said about B2B wholesale e-commerce penetration. B2B wholesale in the US is a $16 trillion market, less than 8% of it is online. Less than 8%. 49% of B2B wholesale commerce transactions happen via phone fax. And FAIR, which is one of the marketplaces that's working on it, is still just attacking a small sliver of retail. The retail market that they serve is $670 billion market. You have so many verticals here. Think of aerospace, chemicals, industrials. You're just going to see an explosion of vertical players in B2B wholesale commerce. B2C consumer e-commerce itself is still sub 30%. So therefore, there's just the internet economy, we're just still scratching the surface. We just have years to compound. And I think we're still in the early stages of the internet economy.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

14. “I actually think there's way more opportunity ahead of us. Let me comprehend with a little few numbers. So pre-COVID, I looked at this total global market cap was $85 trillion. Internet economy enabled businesses was less than 10%, roughly $8 trillion. Even if you assume a 10% KGAR and play this out, let's say in 2045, I think I'd seen estimates that if you assume the global market cap is going to be around 450 trillion internet economy should surely be at least 15% of that, even if less, like 60 trillion dollar economy. Guess what? From 8 trillion to 60 trillion, I'm willing to bet all day long that we are still very, very nascent, even in the most developed markets. Let me make it further specific and real for people. Let's look at the US economy. Pre-COVID, our internet penetration was up 20% in 2019. And I think April reports 27%. Lord has been written about consumer e-commerce penetration.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

15. “And you're saying that even if it's a 5x, look, I'm going to return 500 million dollars. And so the dollar return becomes very important. So how do you then look at valuation? So the valuation is a mix in the growth stage. We actually build a full-fledged model, full five-year model. We use certain valuation comps, not current valuation comps. We actually look at if this company was to go public, what would be the median comps of five or ten year median multiple? And we look at different multiples. And what would this company be really valued at exit? And therefore, what's the entryprise we like now? And we usually come up with a threshold of this is the max we're willing to go just to see, understand that dollar return math. But I don't think you ever turned down a company because”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

16. “Now, but if you do believe, say you're investing like a 3 billion valuation and you think this company can be 30 billion or even 20 billion or even 15 billion. So it's about, okay, if I'm putting 100 million at 3 billion and it's going to be at 15 billion, you're going to make 500 million dollars, little less than that because you'll have dilution. But it's about the dollar scale of return. So then you got to compare to your growth fund, which is like, okay, how big is my growth fund? And is this a meaningful check size? I like to use this analogy that I actually learned from the DST team, which I think they do a phenomenal job with this is the growth stage. Are you betting the house? Because if you're not betting the house, you probably don't have that conviction. If you're willing to write a $50, $100 million check and say, let's say it's 10% or 15% of your fund, depending on the size of the fund, you are going all in on that investment.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

17. “Also, the potential for that company. Like, I think at the end of the day, CDC investors still investing because they're hoping for a 10x. But if it's a grand slam, if it's going to return more than the fund, well, it's okay if you owned only 15% at the start and even got diluted to say 11%. It's going to return more than the fine. I think as a CVZ investor, that's sort of your mental model. And CDs B is also a little more art. So while the ownership is not 25%, people are looking for 10%, maybe 7 to 10%. Really hot consumer companies like Uber, Instacart, or DoDash, they probably would have been sub 10% ownership for the CDs B investor. But if it's P2B, it's usually at least 10%. That's the CDs A and B. It's literally what's the amount you're raising divided by the ownership percentage for the lead ones. CDC and onwards, it's different. I don't think it's ownership driven. It's more. I think it's a growth investor. It's very important to focus on dollar return because you're not playing for 10x.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

18. “This was something I struggled with a lot when I first came to the valley because I'm such an analytically driven and nerd engineer and to come and silently feel like the whole science behind valuation is art, the early stage was rough. But I think, look, at the earliest, but now that I've spent close to six years, I think I have a good understanding for how valuation methodology is done. At the earliest stages, it's really art. It's not science. I think it comes down to if you're raising a series A, typically the lead investor is taking about 20 to 25% ownership. So if you say I'm raising 10 million, it's 10 divided by 0.05. That's your valuation. It's as simple as that. And the way you come up with that range of, do I want 20% ownership or 25 or sometimes 16 depends on how strong of a product market fit you have is also a function of supply and demand you said maybe how competitive the dealers and how it's getting marked up and”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

19. “I think this is something that honestly YC is really good at. So people often say, why are you so focused on growth? But for a startup, growth is really an indicator of everything that's going on, especially in the early stages. Is there demand for your product? Growth is the only way you signal that. But it's important to make sure that this is organic growth, not paid growth. So that's the most important difference. We have stats there like, oh, if you're an early startup, like it's your week on week growth at least 10%. And that's because it's going to start compounding a lot. And compounding is such a great factor. But if you're able to do that organically, that means you've built something that people really want.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

20. “Still, clear clarity of thought on product roadmaps, the suite of products they plan. So when it came to upside potential, I remember this very vividly three or four years ago, a lot of investors understood to like maybe a $20 billion company because they could see it as a core payments processing company. But if you looked at their product roadmaps and even believed that, let's say two of their products worked with a 5% attack, what would that do to their upside gains? Like what happens if Stripe did things right? You could start seeing them being a $50, $100 billion company. And I think as growth investors, that should be your secret sauce. It's very easy to model a base case in a downside case, but where you're going to get wrong is the upside case and you turn down investments because you estimated the upside very low.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

21. “The money. If you turn down a 10x investment, you lost an opportunity in a company that could potentially return the fund. And that's Grand Slam. And he was like, you have got to reduce the number of Grand Slam misses we have. It's a very simple insight in hindsight. That just changed my way of thinking. So now in Grotsy Diligence, like when I work with my team, I always tell them, look, don't spend 30, 60% of your time writing the bear keys. Spend 70% of your time telling me what's your 20% upside probability case because that's what most investors are not going to get. The example I use here is Stripe. I mean, unbelievable funding team, what they've accomplished is teller, like Patrick and John have done a phenomenal job of building the team in a payments processing business, which if you look at it, you can say easily as the CDC, CDSB investor, like, what's your motive here? You don't have any network effects. You're just acquiring all these companies one by one. But if you talk to Patrick and John, you will see their...”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

22. “As a firm. And then fast forward to Anne Reese and Horowitz, which was such a different nature of investing. I feel like you can be a great tech investor only if you're an optimist, not if you are a pessimist. And one of the reasons why I feel like private equity worlds and venture worlds never overlap for a reason. When I was at Entries and Harvard side, I was hired for the diligent skill set, by the way. So they loved my diligence experience and the fact that I could go deep on any sector pretty much and figure out how to sort of build a investment case around it. But two months into my job, Mark Andreessen told me this. He said, your bias is going to be to say no because you use your process on private equity to figure out downside risk. He said, here's my challenge to you. You use the same process to figure out the upside potential. And the reason is he said, look, as venture investors, you will lose money, but you lose only one X.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

23. “Diamond mine will play in the supply scale and evolution because that influences. To build the supply curve of diamonds, I mean, believe it so hard, you realize that it's such an opaque industry, it's an oligopoly between De Beers and Al-Rosa, but there's this long tail of diamond mines, maybe like thousand of them. And you have to estimate their supply production capabilities. And the only way to do that is like we were doing calls to Botswana. We even had somebody from BCG Africa to visit the mines and talk to some of the workers that really understand what the supply production is. And we had to come up with this probabilistic curve. So the way I used the diligence skill or the debugging skill, if you will, was literally in private equity side, it was that diligence root cost process because private equity funds were all about downside risk protection. It's like, okay, I know what I can do with this line, but tell me what my downside risk is. And so we would really unearth to the extent possible, like what's the true curve and what's the true impact from a downside that you will see.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Bug at one of the cell zones during transition, and I had to keep driving with my farm factors to A, replicate the bug, and then debug it and then fix the code. It was often done in like a time pressure setting. So fast forward, I often say that process of finding root cause is really what excites me about a diligence process. And so when I was at BCG post business school, I actually spent five years in the private equity practice. The private equity practice was doing due diligence for several private equity firms across several industries. My first case was in mortgages and it was literally to figure out a mortgage book and whether this PE firm needs to acquire that too. I also looked at evaluating a diamond mine for one of the private equity firms. And so I knew nothing about diamond mining, for example. And I was like, okay, how do you replicate this process? Okay, we need to figure out whether we need to buy this mine. We need to just understand how the price of diamond evolves and what's the role this”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

25. “You asked me a decade ago, I don't think I would ever even thought of being an investor, not that I was ever fascinated by it, but just didn't know much about it. At Qualcomm, I was tasked with deploying our 3G handsets with their video, telephony and video streaming solution. This was pre-iPhone, so there was nothing called an app ecosystem. At the time, all over Europe over my first two years, people really knew me as an awesome debugger. That's really what's my title, even though my official title was Senior Software Engineer. But there was a joke in the company that if there was a bug anywhere in any part of the world, like deploy Anu because she's going to go find out what's the root cause. And that's just because I love, I actually thrive when no one knows the answer to a problem and it just keeps me up. And not that it's just something that I've always liked and it's somewhat nerdy. They used to send me to Italy a lot at the time where we were deploying 3G all over with all the operators and there was this weird”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

26. “You have to think different. We're not assuming that this is venture capital that's going to fund them forever and see them through. But if you actually spend a lot of time in aerospace, you realize that the pools of capital that they can tap into are plenty. So you can start off with venture firms maybe, but then there are lots of suppliers that actually finance these programs. So for example, for engine program, it's a known thing where like GE and others who manufacture engines actually can finance up to $500 million engine program for any model that you're working on. And then you also have these huge raw material suppliers who finance the manufacturing of the plane. And so when we did the math, we said, okay, even if they need it, they probably need a billion dollars to build the overture, which they call the commercial jet. Okay, what are the different pools of capital that they can tap into? When we did all the risk assessment, it was literally market risk is low if this thing flies, they will...”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Manufacturing is not delayed significantly. And that engineering risk, we were willing to take a bet on the boom team because that's their core strength. That's Blake's strength. His strength is in software and his ability to attract really strong software folks to help build that. So that's the engineering risk. Market or commercialization risk, like I remember when he was going through the batch, one of our group partners told him, go prove to me. I know you are not going to build this, but go prove to me that you can get Richard Branson excited about this. And he did it. He didn't know Richard Branson at all. And he just went, hunted him down, pitched boom. And Richard was one of the first angel investors in Boom. Over the course of two years, he had more than a dozen, two dozen contracts. from commercial airlines. I mean, Japan Airlines is an investor in Boom. But they all have contracts in place where they have an option to buy the first 10 jets when they produce. So we were like, okay, he's proven market and commercial risk and funding risk. So when you look at funding risk for high...”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

28. “Economically viable the way they built it and the cost perceit and the number of people in the plane didn't really support the cost to operate that plane. That insight that Blake had from day one was very powerful. Science risk people were like it's low. Okay, we get it. You can build a better jet with the new technology and maybe even a better max speed over time, but it's largely proven and there was a plane that launched. Engineering risk is the bet we are taking, which is you have all this advancement, but the advancement really matters only in the speed and pace with which you execute and the less errors you can make. So one of the biggest milestones is that actually the assembly of the jet itself. So it's like, okay, you run all these software simulations to figure out, is this how I need to design the part? What should be the specs of the part? But until you actually put it together, you don't know if those things work. And like, okay, how fast can you iterate on the simulation and can you do the course correction so that you're matching?”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

29. “Build a software company, everybody can, and there's lots of people starting, but people are not doing the hard things. And why is it that aviation has seen no innovation in like decades, not just one decade, in two or three decades. I mean, we already had the Concord for crying out loud and like we didn't have any, they shut it down and then even though there's been advancement in manufacturing, advancement in laser technology, advancement in supersonic, no one's investing in it. The way from an investment perspective, we really look at what we call the hard tech bets. It's quite simple. We actually use a mental model, which is you look at science risk, engineering risk, market slash commercialization risk, funding risk. That's it. You break them down into four buckets. So the science risk for boom was very low. The supersonic jet was already built. And so that is proven science. It flew. What most people don't realize the reason they had to shut down Concord was it was not economic.”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source

30. “Often at YC, I often say it goes back to the prior insight that I shared with you, which is I don't think any other investor firm has that, which is we have this unique insight into how the founders are scaling and how big their vision or mission is. And Blake is that kind of a founder. So I think Blake, even if you talk to him five years ago, he was absolutely laser focused on building a supersonic jet. And if you look at his background, nothing screams of that. He worked at Amazon and then was at Groupon and then background. How do you think of an Amazon group on person building a supersonic jet? But then when you spend time with them, you see how much time he has spent outside of his core work learning about planes. And that's where he just perks up and he knows to fly and he knows about all the jets and he can tell you what the nuances of each jets are, what's the difference. His whole mission was, look, it's easy to for me.”

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31. “Look, it is fragmented across multiple countries, right? It's not one country, and so the regulatory environment is actually quite complex for a young startup starting out of one country. So for example, if you look at the case of RAPI, they work with hundreds of thousands of delegates.”

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32. “Proximity to North America is going to help with the investor base and talent. It's really hard to build a company in India and find execs that have scale experience, but Latan can at least get the people from the US to Moodle Latam. I do think Latam is going to see a huge wave of multibillion dollar businesses and probably a region that doesn't get as much attention as India or other parts of Southeast Asia.”

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33. “Is really pioneering payments in Indonesia, and you see a lot more new businesses starting in Indonesia, especially in the fintech space. So that's another region. Third is Latin America. What's fascinating about Latin America, and I learned this something from RAPI, actually having working closely with RAPI. Latin America has 650 million people, 70% in genetic penetration. GDP per capita same as China. $9,700. In fact, countries like Chile, Argentina, Uruguay is closer to $12,000 to $15,000. And 200 cities with high people density. What's the e-commerce penetration? 4%. And the e-commerce penetration of China is 22% and maybe because of COVID is probably higher. But pre-COVID was 22% and pre-COVID in Latin was 4%. So you just do the math. And I just think Latin America is going to be huge.”

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34. “As many $30, $50 billion companies coming out of India, but that's going to change this decade, 2020 to 2030, the GDP per capita is expected to go at least to $5,500, which is what China had more than a decade before. And that's what really propelled a lot more multi-unicon companies that were built in the region. And India has the talent. I mean, if you measure the number of computer science grads, India produces as many or more than the United States. It's soon supposed to surpass that. Therefore, I do think it has the talent and it has the venture capital ecosystem, the GDP per capita is the one evolution we need, but it's happening this decade. So I'm very bullish there. Indonesia, GDP per capita is already really high. The population is far lower, but you're seeing a lot more Southeast Asian founders, even founders from other regions moving to Indonesia to build businesses. And there is a huge investor ecosystem like some of our companies Zendit, which is a YC company, which is the Stripe for Indonesia.”

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35. “The world is increasingly becoming global. I mean, YC started a decade ago and pretty much all the startups were US-based. Today, out of the 2500 plus startups we funded, 27% of them have headquartered outside the US. More recently in our batches, at least 40% of our startups are international. So I think if you play this a decade out, I think at least 50% of YC startups are going to be headquartered outside the US. Innovation is just happening everywhere. Specifically, markets I'm excited about. Of course, there's a lot being written about China. China is probably further ahead than other markets, but emerging markets, let's say, very bullish on India, Indonesia, and Latin America. What's going on in these three? India, I think the GDP per capita has always been really low, like in the order of 2000 to 2,500, which is why the willingness to pay was not as high. And so you didn't see”

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36. “I usually refer to the Brex founders for this example. So the Brex founders went through YC in winter 17. And second or third week into the badge, they have this idea of Brex, which is corporate credit card for startups, but they took an accounting class in Stanford. They were actually Stanford freshmen. And I asked them, why are you doing this accounting class? And Ricke and Pedro, this was their second company, believe it or not, like they had built strike for Brazil and sold it when they were like 19. And they said, well, We just want to really build a case for viable.”

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37. “For is what unique insight you as founders have about the problem you're solving and why you think that's a big opportunity. So that's what we are really trying to gather from the team. And second, the speed with which they move from the time they had an idea how fast have they been executing? Do they actually do an MVP in two months or is it taking them six months to do an MVP and why? So that's what you're looking at the series A in growth what we are looking for from teen is clarity of thought and I'll give an example for each clarity of thought, your ability to learn and scale and third is your grit and determination so clarity of thought We or the CEO evaluation is roughly like 200 400 million dollars and so at that point it's not necessarily the investor is looking for a 10x but they really want to know what is your clarity of thought on whether this company is at least a $3 billion or a $5 billion or a $10 billion company”

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38. “I think the highest level three criteria is pretty much the same, which is number one team, number two, market opportunity for that business, and number three is performance to date. And this is where I think CDZ investor would say early signs of product market fit, because the company has been around for maybe 15 to 24 months, which is by the time we are investing, the company is usually three to four years old. And so we call it growth investors call it performance to date, which is how have you really executed in the last four years, both from a top line as well as from a cost perspective? So let me touch on each. Number one team. A series A investor would probably say, how strong, what is the founder market unique insight that you have? I use the analogy of the YC application on the early stage. It's literally, they have nothing. They're usually never launched. I mean, more than 60% of our companies haven't launched on the early stage. But what we are looking”

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39. “Becomes harder, then you've got to start offering subsidies on the demand side. But at every stage of the marketplace, you have to always ask yourself, which is the hardest side today?”

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40. “The guests were actually easier to get because when they targeted events, so their famous story is the Rhode Island Design Conference or there was a design conference going on in San Francisco and all the hotels were sold out. So of course on Craigslist are looking for a place to stay. But it was really daunting for a host to put up their home to rent. So at that time the subsidy was on the host side. In fact, they were incurring acquisition costs only on the host side. They were acquiring demand completely organically. They spent zero dollars for a long time to acquire demand. And then at some point it switches when your host, if you have a significant number of hosts in a certain city that's making a good revenue stream out of the business, you may have locked in supply and now maybe the harder side for the next layer of scale. So what I mean by that is say if you're going from 1 million to 4 million customers, maybe your demand.”

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41. “Did this piece of work while at Andreessen Horowitz on Network Effects, and I remember I learned this from Chris Dixon. He always said, in a marketplace, you've got to figure out which is the hard side. And at different points of your company's evolution, one side is easy and another side might be hard, but it changes. The side might actually change. So the simplest way to explain this, the way I've thought about it, is I lived in New York for five years before coming to the Bay Area. And if you look at New York bars, the dating scene was incredibly hard in New York. And some of the bars used to incentivize women at Happy Harr. There used to be like discounts for women to come to the bar. And that's because they said it was really easy to get the men into the bar, but it was really hard to get the women into the bar. So at different points of your marketplace evolution, you need to figure out which side is hard and do you need to subsidize. So let's look at Airbnb. You have the host and the guest. Initially,”

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42. “They not only acquired a wide variety of merchants, but also provided them with workflow integration tools in terms of when you get orders, how do we queue up everybody, the ones that you get via DoDash versus other tools or through phone calls, how do we help you with accounting? How do we help you with invoice processing? So that stickiness of the integration workflow plus the core merchant focus really help them spike on selection and the approach from suburban and then to cities really help them tip. So fast forward today, I don't think there is any doubt that there's room for two or three players, but I think having that insight that Dodash did really helped. So you can see that there's room for multiple market players. It doesn't mean you can have 10 because there's still something called scale effects that you get and you have a fixed operating cost base to support significant scale. But there's definitely room for at least two to four per market.”

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43. “Is really what helped Dorad differentiate and scale. So in 2016, I remember this very vividly because that's when Uber Eats launched. And Uber is such a big ride-sharing business. And I think most investors thought that food delivery is a zero-sum game and Uber is going to be the market leader in the US. Fast forward four years today, undoubtedly, Dodash is the market leader. And there's still room for two or three players. And so what was different, one, the insight they had. They started from the suburbs, the order values in suburbs are higher. It's actually, they are way more cost efficient to acquire that driver, like 10 times better than what a ride sharing company does in terms of acquisition of driver. And you see that in their retention cohorts too. And then the other thing they focused on was merchant strategy. I think from very early on, Tony's insight was selection is the most important. 70% of customers on Doodash really stay on Doodash for selection.”

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44. “Knowing what the company and the founders' insights were from day one because they have to apply, if you literally read Doardash's application from 2012, they were actually called Palo AltoDelivery.com. I think they still own the domain. If you actually type the domain, it takes you to DoDash. And that's because all four founders were from Stanford. And their insight was, hey, I cannot order any food from any restaurant in Palo Alto. No one delivers. Well, there was so much talk about grabhub. But grabhub and seamless, even after their merger, more than 60% of their business came from two cities, Chicago and New York. They literally built this delivery business in Palo Alto because there were students at Stanford and they wanted the restaurants in Palo Alto to deliver food to them whenever they ordered. And their insight was two things. They said most people are going to chase cities because they think that's why people eat out. But actually customers in suburban areas”

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45. “Yeah, so especially in internet e commerce businesses, and I think there was this very strong prevalent trend that most businesses would be winner take most. So let's talk about food delivery in particular. So if you looked at food delivery a decade ago in the most narrow sense, you'd think of it as how many people are ordering for delivery today and is that transitioning online? That may have been a small market, maybe 10, 15 billion. But if you look at the takeout market, it was a $70 billion market. Most of the takeout market was literally someone placing an order on the phone. Either you go pick up and that was the takeout market. And then there was this whole restaurant market, which is like hundreds of billions of dollars with majority restaurants not doing any delivery. So Doorash, Doorash is a very fascinating company. It was a 2012 YC company. And one of the things that's very interesting being inside YC is we have this unique preview into”

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46. “The leverage that you're going to get as you scale, and is that underlying business model solid? So that's what we are looking for in a business model.”

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47. “Industries and software is leading the world. You do see that whether it's a B2B or a B2C, if your business model is marketplace, your metrics are similar. If your business model is advertising like LinkedIn has an advertising angle, but it's arguably on the B2B side, while Facebook is on the consumer side of advertising, but advertising is a business model, you monetize in a similar way. When we broke it down, I think there are about nine to ten business models that really are the most common across tech businesses. At growth stage investing, especially at the stage we invest in, be it the B or the C, we're sort of testing on, okay, if you have product market fit, which is, say you have, if you're a consumer business, you hopefully have like a million plus users or at least few hundred thousands. But what truly is your business model at scale? What's going to drive your revenue? What are all the costs associated with the revenue? And what is the scale efficiency?”

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48. “First of all, thank you so much for having me, Patrick. I'm a huge fan of the podcast, specifically on business models. I in fact gave a presentation in YC for the YC batch a couple of years ago. And we focused primarily on business models because when you break down tech startups, even by industry, certain business models really overlap. So let's start with what they are. So for example, if you're looking at marketplaces, whether you're a BDB marketplace or a consumer marketplace, at the highest level you have gross merchandise volume, the dollar value of the transaction that's flowing through, you have a take crate that translates to net revenue. Then you have a bunch of costs associated with servicing that revenue, especially all variable costs, and then you deduct that to get to contribution margin, and then you have a beta margin. So the reason we focus on business models by function versus industry is that as tech is pervasive across”

    2020-11-03 · Invest Like the Best · Anu Hariharan – Lessons in Growth Investing - [Invest Like the Best, EP.198] · IDENTIFIED FROM THE TRANSCRIPT · source