I Invest in Growth Stage Startups – Anu Hariharan, Partner at Y Combinator's Continuity Fund
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I Invest in Growth Stage Startups – Anu Hariharan, Partner at Y Combinator's Continuity FundFeatured
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Hi I’m Anu Hariharan. I’m a Partner at Y Combinator’s Continuity fund where I focus on funding growth stage founders. At YC, I’ve led investments in Boom, Instacart, Convoy, Brex and Gusto. Before joining YC, I was a partner at Andreessen Horowitz, where I focused on consumer internet growth investments. Prior to Andreessen Horowitz, I was a Principal at The Boston Consulting Group's Private Equity practice. I started my career as a senior software engineer at Qualcomm and hold a MS in Electrical Engineering (specialized in wireless communication) from Virginia Tech and MBA from The Wharton School.I am passionate about global technology, particularly in the US, China and India. I have done extensive work with companies who are interested in network effects and growth programs. I am also a mother of two young amazing kids (clearly I am biased :). Ask me anything about growth stage investing, fundraising, transitioning from engineering into VC, or something else!
cadran·Oct 15, 2018cadran·Oct 15, 2018How did you know you were interested in VC? How did you transition from engineer to investor.
anuhariharan·Oct 17, 2018anuhariharan·Oct 17, 2018I didn't know I was interested in investing until I joined the Private Equity practice at BCG. During my business school at Wharton, I had heard a lot about VC and PE but I was least interested in both of them. I joined BCG in 2009 and most of the projects were focused on cutting costs. While extremely important for many of the companies, I found it somewhat boring. Prior to BCG I was a senior software engineer at Qualcomm focused on building video streaming and video telephony on 3G handsets. That was quite different from "cost cutting" projects. So I was looking to do something different and one of my mentors at BCG suggested that I explore doing private equity due diligences - it was one way to learn to dive deep into several different businesses across industries. They were also short projects (3 to 4 weeks long although frankly 80 to 100 hours worth of work on a weekly basis). I was nervous on my first project (which was to analyze the US loan mortgage book and determine the propensity to default). However I loved it so much since I learned a ton from it that I ended up staying in the same practice for 4 years.
betsyehrenberg·Oct 19, 2018betsyehrenberg·Oct 19, 2018We are entering the growth stage where we need Series A funding. Our HQ location in Santa Fe, NM, seems to be a 'red flag'. Our team, our market, our product is ready. Would you have some time to review where we are and provide some guidance?
What is necessary to mention in the short pitch about your startup to catch an investor attention?
1) Huge market opportunity2) Early signs of product market fit (why customers love you)3) Team - why YOU are the team to go do this
Anu, thank you for your reply! I'm afraid I didn't say anything proper about it in my YC application video, it's so hard to tell everything about the startup and myself during one minute.
Hi Everyone! As a reminder, this is part of our ongoing series of conversations with experts in the community.
Thank you for organizing this Cadran!
What are some of the strongest indicators of “the next Instacart” when listening to founders pitch during fundraising? Is there a ranking between the personality archetype of the founder, business model, growth, market size, etc.? How would those be evaluated when fundraising?Also, what are some of the best pitch decks you’ve ever seen?Thank you for your time!
Building a great company is a lot of hard work and a lot of things have to go right. Therefore we look at a bunch of dimensions during diligence especially at the growth stage. However if I had to break down the top 3 to 4 items it would be the following:1) Team2) Market Opportunity3) Demonstrated product market fit and raising money for scaleEven though we look at a bunch of data and do market/competitive intelligence to assess what the potential for the company is in 3 to 5 years, at the end of the day it still comes down to the founding team. Founders make all the difference in how a company scales and how they build a team. Therefore we especially look at how good the CEO is in attracting top talent to the company and spend time with the senior leadership team as well.
Thanks, Anu! What are some of the best defining characteristics for CEOs and Teams in general?
My startup is very interested growing. How do you or other VCs determine when a company is at a "growth stage" vs. "early stage"? We are in the YC Startup School and just applied to YC Core for Winter. Our weekly metric focuses on growth and this is our current main focus. As a startup, with little cash, growth can be a challenge. Any "low cost" tips?
There is no exact set of numbers you can use to declare that you are in the growth stage. The general rule of thumb we use is, you have strong product market fit with your core offering (solid growth, good retention, you have figured out many elements of your business model) and are now raising money to scale.If you build a product that customers love, you don't need money to drive growth. You will get a lot of users referring each other by word of mouth. Things usually start breaking at this point :) And then you raise money to set up the right infrastructure, hire more engineers. There are a few startups within YC that have scaled to a great extent without raising cash. They may not be hyper growth companies but they don't need to be either for the space they are in.
I agree, this is what "Lean startup" talking about !
In your career as a VC were there startups that you passed on that turned out to be successful? If yes, what lessons have you carried forward to not miss out on other opportunities?
it is easy to look at all the risks and pass on an investment. It is harder to build conviction around "what happens if everything goes right" and what would it take for everything to go right. The latter is a very important skill especially the earlier you invest.
As a successful individual with opportunities to help companies, how do you and other YC Partners challenge yourself to change "set opinions" that you have gained over years? What are some of the "lightbulb" moments you have had over the last few years that made you become a better partner and ally of companies you advise and fund?
I think this is one area YC does really well. There are no set opinions. We have a set of principles/ values we refer to, but we challenge each others biases very well. First we are more than a 15 people partnership and quite a vocal one. The one thing we are committed to more than anything is helping our YC community. Before putting any initiative in place, we always ask - how does this help our founders. My partner Michael starts every partner meeting with this question - "what can this partnership solve that the next partnership doesn't have to so they can focus on other things". When you use that lens, it is hard to have set opinions, because if you don't have a fundamental rationale behind it, you can't win that argument and this is where the collective partnership strength helps a lot more than one individual partner. Second we have funded more than 1900 companies and they are all very different. Even successful founders have some select common traits but differ in many dimensions. This is another reason why if you pin point and ask us - give us that one formula that you use to select founders, there isn't one exact formula :)
Thank you for your answer. I really like that approach and can relate to it. It makes me more excited about YC overall because it does seem to be very self-aware and making sure to not fall into the mold of self-bias.
My cofounder and I are both engineers from India and we have a slew of strategies to implement for growth. At this point we're in the middle of hustle and are seeing a kind of growth and engagement that we believe is close to an even bigger story.My question to you is: How do VCs determine seed or growth stage? Are VCs able to invest a higher than normal round if the potential or path to growth is clear?
I think I answered this before. There is no particular metric that says now you are in the growth stage. At the highest level, growth stage investors are looking for strong signs of product market fit and whether you are raising money for scale. An other way to put it is these investors will evaluate the company's performance to date and try and understand the future vision. In the seed and Series A - you can raise based solely on future vision/ potential with very little performance to date. However that starts to change typically in the Series B.
I'm Kalpoorniya Vijayakumar. I'm Co-Founder @ Zoyap.Zoyap is amazon for kids activities. Where, mentor/instructors can post kids class - event - deals in Zoyap and parents can buy from Zoyap.Our marketsize is vast. So, For initial launch we have entered into only one city and bringing in vendors gradually.As your from marketplace arena, Can you please give me few tips on, if move to multiple cities what will be the best way to reach-out vendors easily?
Step one is really figuring out what it takes to scale in one city (your first market). Once you figure that out you will have a playbook of sorts for the second, third and fourth city and so on. Talk to both sides of the marketplace to really learn why they are using your platform and what they are looking for. How did they find you? What do they want more for them to keep coming back? In the early days it is about doing things that don't scale - in your case finding vendors that your users really like. You may need to start with a list and email everyone to onboard those vendors. Then you need to constantly pay attention to what is working vs. not. Over time you can set up a supply growth team and optimize performance marketing across channels to help acquire vendors. But right now it is about getting the first city working and generating a lot of word of mouth.
Thank you so much for you response and time. It means a lot.
First: I am curious to hear what is the YC's standard "investment" in the non-profits that it accepts. Is it the same $150k without the equity in return?Second: What is your view on B Corps and how many have been accepted into the YC to date?
Jumping in on your first question to say that I'm double checking on the YC investment deal for non-profits and will be in touch soon with an answer.
It's 100k and no equity like you said.
Two questions:1) Although it is much easier to start a company now then 10 years ago, it is much harder to get funding. VCs and Angel investors have too much choice and now prefer a company generating a certain amount of revenue. How to standout in such a busy landscape when revenue is limited?2) How does one get a warm intro to a VC or Angel investor in Silicon Valley - where at every Meetup there are at least 40 founders in line waiting to meet the VCs?
I am not sure if I agree with 1. I think it is easier today to raise money than it used to be before. It is always a challenge to stand out. At the early stages this really comes down to you and how convincing you are about the idea you are working on. Warm intros are hard. Short list the 4 to 5 investors you really want to work with or get to know and hunt them down. Have good points on why you want them and only them to take a look at what you are doing. Get them to use the product and see if they are willing to give feedback. I remember the ShareChat founders in India hunted me down 4 years ago in front of my office. I was about to leave for home and was surprised to see them. They said they wanted only 2 mins as I walked to the door of my car. In those 2 mins, I was quite impressed with their hustle (they had come all the way from Kharagpur in India and I had no idea who they were). We hadn't even exchanged emails. All he wanted was feedback based on the network effects post I had written. They even had 2 or 3 specific questions. I remember walking back into the office with them so that I could spend more time. Today the company is doing extremely well but the early days are not easy for anyone.
What is the best way to transition from full-time engineering to VC?
I don't know if there is one formula for that :) I never aspired to be a VC. I would say this though - the best way to get the attention of a VC is to do their job - find amazing founders, come up with your own thesis on why you would invest in them and source it for the VC. Then you know whether you would like doing this job and you will also get a VC's attention. When I had reached out to Jeff Jordan at a16z, I was preparing for another interview in New York and they wanted me to pitch 3 companies in the Series B stage. I did a bunch of research on my own and picked Instacart, GetYourGuide and MakeSpace. Why those 3? I believed in the offline to online trend. I was way more bullish on groceries going online than any investor in the US at the time. Apoorva (CEO of Instacart is a Qualcomm alum), GetYourGuide founders were BCG alums and MakeSpace founder was down the road from where I lived in NY. Believe it or not, all 3 responded to my emails, debated my thinking on the pros and cons of why someone would invest in them. I had reached out to Jeff at a16z (also a BCG alum and I could find his email id :), because he wrote a blog post saying department stores are dead and he thought groceries wouldn't move online as fast. Given one of my pitches was Instacart I wanted to understand his contrarian view. In the end I just sent him the deck I put together as an FYI - (It so happened that he was working on an Instacart diligence at the time and knew the two other companies in my deck). He asked me to fly to SF the next week!
What are some technology / industry trends that you're observing as an investor, that might not be obvious to the layperson? Put another way, what emerging industries would you advise people look into for starting companies or joining them?
At YC we receive thousands of applications that it is really hard to pin point one trend. There are multiple trends and I think tech is increasingly changing every industry. At the end of the day if you want to start something, work on something that solves your own pain point. If you are looking to work at another startup, first see if you believe in their mission and want to be a part of it. Second figure out if thats the team you want to be with to go build it. The rest will follow.
I could not understand why some Bay area startups raised hundreds of millions until I learned about blitzscaling. It's a stunning strategy, and I can imagine the pressure for growth with so much money at stake. Yet this growth-at-all-cost mindset has recently been seen as the reason for causing very negative impacts for people and society, such as fake news at FB affecting election results. Just yesterday the former Reddit head of product was in the news for saying he made the world worse. It's sort of depressive to think that it's an acceptable feature of growth to sacrifice human well-being and the stability of our societies. Are these concerns for you at all? Is it okay to grow at any expense, and postpone addressing the harm our products inherently create? What are some things you're doing with your growth stage companies to maximise the good, and minimise the harm?For some people these themes are controversial and make them uneasy. It's not my intent at all. I love how technology is changing our societies. It just excites me more to find ways that truly benefit humanity, not measured just in financial terms. Your financing holds a great power for the world :) Cheers from Helsinki, Finland, and thank you for doing the AMA!Ilona
I don't support growth at all costs. But there are some markets where you can tip them towards winner take all and growing faster than everyone else becomes more important to get to that place. However that does not mean you break the fundamental user experience, your core values and principles along the way so much. There are certain things that are core to the company and what you stand for. It is important to set those constraints ahead of time especially as you scale. This gives the team a sense for things they are allowed to experiment with vs. not.
I'd like to know who are the VC-funded growth-stage female founders who are the most impressive to you on the scene today. What makes them stand out? A second question: are there any note-worthy social entrepreneurs that we should be aware of?
Several of them. Four that come to mind are Tracy (PlanGrid), Mathilde (Front), Reshma (Ginkgo Bioworks) and Sarah (Lever)
I'm building the world's most useable and adoptable smart glasses at Lumenora, have studied optical engineering and biomedical optics and have worked on many early stage technologies including smell sensors and light saber technology. I'm exicted to bring the cutting edge to mainstream with our headsets! What do you see as the best seed round and series A round strategies?
Team, Team, Team - in seed and Series A more so than any other round, the bet is on the team - why you and why this idea. Second and third are market opportunity and early signs of product market fit if you have launched your product.
When's a good time to go for funding at growth stage? I feel like funding these days has so many pros and cons. I'm starting talks with investors now, hence, the question.
When you have strong product market fit (strong user growth, solid retention, good unit economics) and you are raising money for scale.
I am a solo Tech founder based out of India.My question is regarding funds:What channels can I explore to seek some funds as a solo founder? Also, any advice on how to explore these channels would be of great help.
We've received interest from agricultural companies in China, Nigeria, and Dubai for example to replicate what we're doing here in the U.S. at Re-Nuble (www.re-nuble.com). That said, there is a tremendous amount of risk to try to replicate a Re-Nuble presence in these countries. Enough to lead us to believe that licensing our process/products, or franchising our business model to existing operators in an effort to make them strategic partners, could be the best way to scale Re-Nuble outside of the U.S.What type of model would you suggest we consider to scale with (licensing/franchising/otherwise) and look further into?About Re-Nuble:Re-Nuble uses an inexpensive, patent-pending process to transform food waste into chemical free, organic nutrients for both soil based and hydroponic cultivation. The company is focused on the commercialization of technologies that optimize plant nutrition sourced from food waste.
I’ve been working on a PropTech startup concept for several months and have the research, business model, pitch deck, and even strategic partnerships lined up. I also have the start to wireframes & feature sets, however, I don’t have a Tech Co-Founder, as I’ve been hesitant to partner up with someone I don’t know very well since I’ve heard that 50% of Startups fail because of Founders not being on the same page.I attended a TechStars Startup weekend in NYC (I’m in LA/OC) this summer and my Company was one of the ones people voted on to work on over the weekend & pitch to the judges, so I know I have a strong concept but I also know YC doesn’t usually accept single founder teams. I have 5 very strong expert advisors with extensive experience in all of the key elements of my model, so I have all the support I need for what I’m at right now without a Co-Founder to complicate things. So my question is... what would YC need to see from me to consider accepting me into the program as a single Female Founder like they did for DropBox? As someone with 15 years of business experience in both people & project management, I feel very confident that I could lead a business as an individual Female Founder, so that would be my preference. It’s hard enough to start a new company, so taking the 50% failure rate because of CoFounder conflict off the table seems like the best idea to have one less thing against me, and just plan to hired a killer team once I have funding.
Thank you, Anu for taking the time to answer so many of our questions!
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