Is venture capital bad?

Talking about venture capital with guest Spencer Fry (Podia)

Hello, and welcome to Build your SaaS.

This is the behind the scenes story of building web apps in 2021.

I'm Justin Jackson and, uh, Jon and I haven't recorded an episode in a while.

We're planning on doing that soon.

But in the meantime, wanted to share this conversation I had with Spencer Fry.

Spencer's a friend of mine, he's the founder of, which I'm a big fan of.

And, uh, him and I see venture capital and venture capitalists differently.

So I thought it'd be good for us to have a conversation about it and share it with you all.

So let's, uh, let's do that right now.

Let's share the chat I had with Spencer.

Let's talk a little bit about VCs and, uh, and maybe this tweet you
had, uh, the original tweet, I think says, um, that you're kind of

perplexed about the hostility that the bootstrapping community gives VCs.

Uh, why, why does that perplex you.

That, uh, that the bootstrapping community would be hostile or negative towards VCs.

I guess that I look at it that we're all working on the internet to create products and startups.

And I don't really understands why, you know, money has to be part of this story.

Um, I mean, obviously it's part of the story where, you know, a company has raised money,
a company has raised money, whatever, but I don't, I just don't view it as you know,

we're on one side you're on this other side and that we should be at odds with each other.

And I think also, especially in, in 2021, um, and we can go into this more and more detail later.

Um, the VC game is, or whatever the VC.

VC backed companies are a lot different today than they were, you know, 10 years ago.

And like the VC demands and how investors think about
startups and their founders and stuff like that.

I was, I was a bootstrapper back in the day and I just, just think the narrative is wrong for 2021.

And in the last few years, actually.


Do you think, do you think it's only from bootstrappers though?

Do VCs only get this kind of negative attention from
boot bootstrappers, is it unique to our community?


No, but like, we're all working on the same side, you know, we're all, we're all are entrepreneurs
that are building products and, you know, trying to, uh, build something great for our customers.

And I just, I mean, you also get it from like the press
and you get it from, you know, other people as well.

But I don't know.

I just feel like we're all playing on the same side and that we don't
need to, you know, like bad mouth each other or whatever, you know,

like, are you talking about VCs and entrepreneurs or
venture backed companies and bootstrapped company?

I think I hear a lot from bootstrap founders, um, and bootstrap like
early employees talking negatively about, oh, that company raised money.

Like they're definitely going to go out of business or,
you know, uh, this, this unfair advantage or, or whatever.

Um, so yeah, I do hear like a lot of negative, um, you
know, conversations from like the bootstrapping community.

And you don't really hear, uh, from the VC backed startups
saying like, oh, that bootstrap company, uh, blah, blah.

You know, I mean, it seems to be mostly one way.

And so I kind of.

Don't understand it.

And, you know, as a former bootstrapper myself, like I just don't get it.

Are you sure it's one way,

because I mean, is it, do you think it's, do you think it's not?

Well, I

mean, I mean the old, the old trope was VCs would look at bootstrap
companies and go, oh, well, that's a nice little lifestyle business.

You have a, I mean, it it's, it's kind of dated now, but if you listen to my conversation
with Jason, Calacanis it, it's, he's, he's, he's dripping with, uh, you know, this kind

of like, oh, that's nice, you know, you and your little, your little company, you know?

Uh, so I, I think some of that is, seems warranted.

Like those tropes that exist also, not just at bootstrapping, but like there's the reason
that like Twitter accounts, like VCs congratulate themselves as a thing is because this is.

On public display, you know, like the, I was listening to a podcast and, uh, this venture
capitalist, Roy batt, I think his, the name is, he was saying one of his funded company.

He was talking to him and he was mostly great.

He was talking on the big, big technology podcast, but the
company was saying, how come VCs on Twitter are so gross.


and I think

we need to see it.

Like, that's a pretty, what's on full display, splay, what people see on Twitter and elsewhere.

And some of this is satire and some of it's not, it's just like.

These kind of braggarts obnoxious braggarts on, on, uh, on Twitter.



was just gonna say, I think you'd need to separate the,
the VC from the VC funded company and the entrepreneur.

And that's where I sort of take issue with it when people are attacking the
company that is venture backed must be, you know, having bad practices and like

only caring about growth and only caring about revenue and that kind of thing.

Versus, you know, the VC public investor that's on Twitter, who's spouting their mouth off.

I'm like, I'm I attack those people too.

Um, but, but I just feel.

As a bootstrapped founder, you know, not every VC backed company is like the devil.

And I think there's that sort of,

yeah, yeah, yeah, yeah.

That, I think that, I think that's fair.

I think I'd agree with you.

I, although I'm still in wondering, cause you, you say that it
shouldn't matter, but it feels like capital changes, lots of things.

It changes the lots of dynamics in society.

And, uh, I don't, I don't feel like it's as, um,
uh, you know, there's like implications for capital.

It capital makes waves.

So do you feel like that piece, you know, the fact that there is so much like as soon
as there's a lot of capital in a category or an accompany that must change something.

I mean, it probably changes the market dynamics, but I don't think
it changes necessarily the individual startup and their focus.

Um, you know, as a company, like, obviously you can, you can do a lot more with money.

Of course, like you can hire more people.

You can do marketing, you can do more paid marketing.

There is definitely a different sphere of type of company or building as soon as you take a dollar.

But I don't think it's necessarily like a negative or
it should be even looked at in like a negative light.

So, I mean, I think I was arguing with people on Twitter saying like, it's the
entrepreneur running the business the way that they are choosing to run it.

And I think all the issues should be directed towards that individual person and the founders
versus the, just the fact that they raise you a million dollars or $5 million or $10 million.


It changes the company's dynamics, but it doesn't necessarily change.

Um, you know, how we treat our customers or like the type of products we have or our integrity,
or, you know, just because you take money doesn't mean you're like, you know, some terrible person.

And I just think like, that's that dynamic is just like a little dated.


And so let's, let's dig into that.

Cause I'm curious about it.

Like there's this old, like on Silicon valley, the show, there's
a scene where, uh, that venture capitalist guy, what's his name?

I can't remember, but you know, the, the, the CEO is giving a
presentation and saying, okay, we're going to adopt a SAS revenue model.

And then the VC hears the word revenue.

He was like, hangs up his phone.

He's like, he's like, why would you go after revenue?

Like why no revenue, we don't want revenue.

If you show revenue, people ask how much.

And it will never be enough.

But if you're pre-revenue.

You know, it's kind of a pure play he says.

And so, you know, the idea is that, um, you don't want to show real revenue.

You don't even, all you want to show is growth.

And that was like the old narrative.

And that certainly, I mean, I've worked for those companies.

I've consulted for those companies where there was VC money and it affected everything.

It affected the KPIs I was given.

It was affected how we treated customers, how we acquired
customers and what we were reporting back to those folks.

So you think that that's just not the case anymore or there is, there's just
a small number of good VCs that don't require that kind of, you know, that,

that system.

There's a couple of things that are one, obviously, like that's not a parody, but it's definitely
like, they're trying to make a joke and you know, they're, they're pushing a narrative, whatever.


I've been in those meetings.

I have been in those meetings where they're like, they're like, don't show
revenue because we, you know, we're, that's not what we're about here.

You show revenue and it's instantly, this company is not worth as much as I need it to be.

Um, and that's the pressure I've felt as an employee
and a consultant like this is coming, not from the CEO.

This is coming from investors who also have board seats that
are saying, we need to hit these numbers because of this.

And anything else is a distraction.

So I think that there are companies, um, that obviously adopt that philosophy.

Um, you know, clubhouse comes to mind, um, as a, like,
you know, no revenue, just user growth, et cetera.

I don't actually think that that's necessarily a bad
strategy for a company like clubhouse, for example.

Um it's but I don't think it's like a blanket statement where all VC backed companies
don't want revenue, all VC, backed companies only want growth, that sort of thing.

I think it's definitely product by product.

Like for example, ourselves, like our investors, um, we're not focused on revenue in the first
few years, uh, as we were company building and so on, but I also wasn't as an entrepreneur, you

know, I, we, I think we started charging after, you know, 12 months or 18 months after we sort of
founded the company or whatever, but it wasn't my focus because I wanted to work out the product.

I didn't want.

Necessarily throw a paywall into early whatever.

Um, but then by the time, you know, we got into years, three or
four, like revenue is actually the only matter number that matters.

Um, now it is.

Um, but, but anyway, to your point, I think, again, it's just like,
there are companies where that strategy is actually just the biz.

That is the best business strategy for that company.

Like for example, going back to clubhouse, clubhouse,
charged the SAS fee from day one, it would be a dead product.

Um, yeah.

You know, they, they, they that's, that's the goal of the
product that they're building, it's just to a mass customers.

And so for that case, I definitely think it makes sense that strategy, but again,
it's, it's just a blanket statement to say, no venture capitalists care about revenue.

You know, we only care about growth, like that sort of thing.

And I think that's where I'm trying to sort of fight back the narrative a bit.


Well, and I mean, I think it's worth, like, let's take that clubhouse scenario
because that does seem like different than, you know, what you've done, but yeah.

The, the idea that that's not without

even ethical and societal implications.

So this is where, like I talk about over capitalization, the idea that you can invest millions
or billions of dollars into a category and for it to not have additional effects, unintended

effects, externalities that we, of course, that's not, of course there's going to be those things.

And some of those things, uh, it's like sometimes we
treat capital like, oh yeah, like capital can just burn.

These investors can just waste that money.

And you know, it doesn't hurt anybody.

It's just the, you know, the, the, it doesn't hurt anybody, but in truth, it does hurt somebody.

It hurts LPs who have invested the money and lose it.

A lot of these VCs get paid regardless.


They're going to get carry or their management fees regardless.

And it hurts the category.

Like people lose jobs, people invested their time
and their soul and their energy into those companies.

And sometimes, uh, over, you know, you'll get a big investment in a category and because
there's no focus on real revenue, all the base fundamentals of a category go out the window.

And then it just it's like when the big behemoth dies, everything dies.

Even though there was a wonderful ecosystem there before, uh, the idea of pumping
all this capital in, and if it doesn't work, you just like clear cut the whole area.

And then what's left is, uh, you know, a whole category of folks that don't have jobs.

And I mean,

Do you have an example of that?

Cause sure.

I mean Quibi is probably a good one.


I all my friends who are in show business, I have friends who worked for them Quibi you're right.

And, and, you know, everyone was excited about it.

Creators were getting funded, you know, the projects were getting funded.

They were feeling good.

Artists were getting their work on a platform.

And it was like, it was a lot of money.

It was in, it was a billion, I think.

And then when it crashed, sure.

Maybe I'm sure, you know, Katzenberg is upset that he's lost
his money and his investors are upset that he's lost his money.

But, uh, yeah, it was almost 2 billion.

When, when in the, in the aftereffects of that, my Twitter stream and slack groups were just
filled with people who lost their jobs or no longer had their project going or whatever.

And in a normal economy, those things would just happen.

Naturally, we've got money, we've got revenue, we've got expenses.

This is kind of the normal cadence, but you pump a
bunch of money into a category and it can kill it.

It's not, um, malignant, you know, it's, it's, it's uh, is that the right word?

It's not, it has an effect, you know, you can't just invest 2 billion
into a category and then expect it won't have these other effects on.


But I, I would say like, um, I mean, I'm not, I was actually a brief trial
user of quippy or whatever, but I would say that one that's again, I think

that's sort of an outlier because most companies don't raise $2 billion.

Pre-product which I think our pre-launch was, I think that was their case.

Um, but also you could also argue that, um, it probably, it might have influenced the
category in the idea of like, there was a lot of learnings coming off of that product where

maybe, you know, if we had re imagined the product this way, it could have been successful.

Like I think future entrepreneurs will be really born, um, out of the ashes of
Quibi I think also that the creators that created content, I'm sure they got paid.

Cause it's, you know, the content launched with air.

So they got paid and then also the assets were acquired by Roku or something that I believe, um,

100 million.


But like, you know, yeah.

Some investors lost their money, of course.

Um, but, but they're also in the game to lose money on a two, like that is, they are investors.

Um, I don't feel.

Bad for them.

Um, but yeah, they're rich funds and so on.


I just, I think it's still a good example.

Like we can't put too much lipstick on it because that there's clearly other effects.

And even if the, the, the VCs and up okay.

And even if Katzenberg ends up.


And even if the LPs end up.


Although certainly you got to imagine some of them didn't, there is still all
this other collateral damage that never seems to be in the narrative, like yeah.

But what about all those people who quit jobs and move to New York to
work on this and thought this was going to be, you know, their career.

And, uh, now all of a sudden they're out of work and the, the difference is.

The way and the pace and the, the, the fundamentals of
business that most businesses have to run on, right?

Like most businesses you don't hire until you can afford to do so, hiring is always a risk
and taking a job is always a risk, but that even more so if, uh, you're, you're investing

billions of dollars in something that, um, you're just has a higher chance of not succeeding.

I also just also wonder about like, wasting all those billions, like, I, I I'm S I'm still, I'm
still not convinced, like, like for, uh, for a VC it's an efficient use of capital, but for the

rest of the world, watching billions of dollars burn is just like, it just seems, uh, so sad.

You know when, cause it's not an efficient use of capital.

There's all these other ways you could, you know, use the capital.

Are you that if it was successful, it potentially could have been a good use of capital,
but yeah, but I mean, I think Quibi is just, it is a very, it's not the normal, you know,

but it is the normal, because our aren't like eight out of 10 investments not working out at all?


But you know yeah.

10 investments that are like a million dollars each or $2
million each versus, you know, $2 billion, um, investment.

And then you could also argue that Quimby quit.

Well, I mean, I think you could definitely argue that Quimbee
would never have been successful as a bootstrap business.

You couldn't even imagine building that company without funding.

It just would never happen.

I mean, how would you get, you know, these famous actors to record shows and
pay them and, you know, go through their agents and on and so on and so on.

And so, yeah.

I don't think it's a company that could have ever been bootstrapped.


there, there's still something about, uh, and especially because
there's not a lot of transparency at the beginning, right?

So public companies, um, that was the old model, right?

Like you, you go, okay, we got an idea.

This is a big idea.

We're going to need some money for this.

So we're going to, we're going to take this company public.

And as soon as you take them public, you've got transparency into the business model.

And, uh, and then the stock kind of has to prove itself.

Um, but in this, in, in this world now, that's the other kind of, uh, knock against
venture capital is that companies are staying private for so long and you're

investing billions of dollars into an ecosystem, but there's no transparency.

Nobody really knows what's going on.

And there's no accountability.


Like nobody, there's not shareholder meetings where they're able to
go, uh, you know, Hey, like, and the shareholder meetings are public.

Uh, so nobody really knows what's going on until afterwards.


Are you talking about the people that don't know what's going on?

Are they employees themselves or do you mean who are you talking about?

Yeah, I mean, I think employees, investors, partners, the government

Well the government knows they have your tax info, but yeah.

Um, I mean, I'd

say that there's a lot more oversight on in the public markets.


I mean, I would say that again, it depends on how the entrepreneurs running their company.

Um, you can be completely transplant.

With everything for all of your employees, which for example, we are,
um, you know, all of our employees see our board decks every quarter.

Um, you know, they see all the numbers, they have access to everything, cetera.

Um, yeah, I mean we're 28, 28 person company, not quippy, but, um, again, I think it definitely
is what is the entrepreneur's vision for the company, whether they're bootstrapped or not?

Like when I was actually, when we were bootstrapped,
I was running carbon made and we were 12 employees.

Our employees didn't really have much insight into our
numbers and our metrics other than our top line revenue.

It was just something that as like a less experienced
entrepreneur, that's what I thought was like the way to do it.

Um, whereas now, you know, VC backed, they actually have way more transparency around everything.

So again, I think like coming that's

the narrative, but there's lots of bootstrap companies that are transferring.

Yeah, of course, but there was also lots of VC backed companies are transparent.

So I mean, that's that's

so in that case, transparency doesn't whether you're
transparent or not, it doesn't, it doesn't matter.

It's not like a requirement that you be.

It's not like VC backed companies are more likely to be transparent.

Is it?

I would say no, it's not.

But I would say there are there's things that you have to like having investors.

You have to be transparent with them.

There's actual legal requirements in our documents where, um, not only our board,
but there's this thing called a major investor threshold, you know, if they own.

Um, number of shares, um, we have to disclose, uh,
financial data stuff like that to those investors.

So there are certain things like in our legal documents, and I don't know
if every VC backed company has this or not, but I'm, I'm assuming most

do, um, where we actually do have to be transparent with our investors.

And you could say that as a betrothed company, maybe you don't need to.

So yeah, I, the thing that I was trying to talk about
on Twitter is really just like, it's the entrepreneur.

It's not whether or not they took money and that's kind of where I
sort of wanted to go for with like that's that's what's important.



I do want to get to that.

I just want to have one more, one more dig at big name VC, because I think it plays into this.

Some of this reputation is deserved and I think the other thing is.

Is upsetting to me is that venture capitalists, the
big ones, especially have a big impact on society.

And I'm not convinced that the big names Andreessen Horowitz
comes to comes to mind are actually good for society.

And because they're kind of the leading firms, they're the ones writing the biggest checks.

They're the ones who have accumulated the most wealth for themselves and their LPs.

I think we should be holding them to account.

And I think some of that, um, negative attention, uh, is dripping down to all VCs, right?

So when, when Andreessen writes, we have to build that big essay I'm with them.

I'm like, yeah, we have to build.

And he's talking about, this is how we're going to solve climate change.

We're going to, and then he writes no check.

That do anything to solve the climate crisis.

He's I think he's invested four and a half million in one company.

And then he writes a fi he creates a $515 million crypto fund.

The, the hypocrisy is it's it's maddening.

And I think the negative attention he should be held to account.

He actually asks people to hold them to account in his essay.

So I think that there's some of that, you know, the w the big names
people see, um, who are kind of, you would think would, are, are kind

of the, the, the people leading the VC culture, setting the tone.

Um, they're really disappointed.

And I, and it feels like we almost need more.

Um, we need to help hold them to account more like not less.

So bootstrappers people who receive funding, whoever you are just regular citizens need to be
looking at these companies critically, these funds critically and going, what are you doing?

And, and actually holding them to account.

So I think

that's part of it.

I agree with you that, um, and I don't know all the decent, I don't know, injuries in the
hearts on their investments, but I have no problem with, you know, bootstrap entrepreneurs

or any entrepreneurs holding a specific venture capital firm, um, to be accountable.

I think where my issue is when people say like broad statements
where like VC means X, you know, VC means Y that's where I kind of.

Like rubs me the wrong way, because I am someone who's raised VC and I'm not those things.

And I just feel like those sort of broad statements where like, if you were to
call it interest in horror, it's like at P Marca on Twitter, like blah, blah, blah.

You're doing all these things.

Like I support you.

I have, you know, basically I'm sure you have, like, I, I support you.

I think it's just more just the broaden the broad view of like VC backed companies as a whole.

And that's like where?

And cause I, I work we've, we have quite a few investors on our cap table and they're amazing.

They're so kind, they're so supportive.

Um, you know, they let us run the business, how we want to run it, et cetera, et cetera.

I just think it's like, I prefer to like call people out
individually than just like this broad sort of statement.

And I think 10 years ago, like you, we were all sort of, I was
saying that as well, like I was calling out the VC industry.

Um, but now that I'm in it, uh, there's plenty of great companies.

There's probably a great entrepreneurs.

Plenty of, you know, there obviously are terrible ones, but, um, again, like let's talk
about those people individually and not, let's not be like using these broad statements.



I, I still think broadly the culture seems toxic because
it's all I lay and how are we going to quantify that?

Are we going to quantify it as total number of, of, uh, dollars invested in a year?

And what percentage of that is good for society versus not?

Are we just going to say we've evaluated the a hundred thousand VCs in the world?

2% are good and 98% are bad.

Like the, the, of course, some of these things are difficult to quantify, but, um, the
biggest funds to me are disappointing and it feels like it's worth calling that out.

And I don't know if that that's fair to say those encompass most
of the culture, but it's just like these, these funds are not good.

They're not, and

I'm sure there are plenty of investments that they've made in companies where,
um, you know, we probably use their software and we enjoy their products

and I'm sure the founder's great and the team is great and everyone's happy.

Um, so again, I think like you can't necessarily call Andreessen.

For being a hundred percent shady or whatever, maybe, you know, they aren't walking
the walk and based on certain things they've said, and maybe they're not investing in

certain companies, but I think again, it's just like to attack them broadly when there's
so many people that are doing great things that our portfolio companies of theirs.

Um, I just, it just feels, it feels like nasty to me.

And, um, but th that isn't in some ways that is if the structure feels and looks not great.

And the incentives that are set up within the structure, this is my concern, and this is what,
and maybe I'm wrong, but even, even, even the, the, um, the incentive structure, so venture

capitalists, and I'm just a dummy, I'm still figuring this out myself, so maybe I'm wrong.

But my understanding is that they raise money from LPs.

And there, they then invest that money in startups and already, you can
see like there's all sorts of the incentives are going to kind of dictate

how they go about doing that and the structure of the whole enterprise.

And so if you've got management fees of 2% per year and you raise a
hundred million dollar fund, you get paid $2 million per year, regardless

and ensure you got to pay your employees and everything like that.

But you know, $2 million a year from that fund, no matter what.

And that seems like already, that's a, that's an incentive.

That's going to have an effect on what you do and how you do it, how you behave.

And then the 20% carry means that you're going to optimize.

You know, again, you raise a hundred million, you really want it to return 300, right.

Cause that's where you're going to make your money.

And so it's going to optimize, uh, certain types of liquidity events.

So there is a structure that's being built there, like with incentives and everything else.

And I think it's okay to criticize it, especially since the numbers are so big trillions of
dollars being invested really by mostly white men, uh, in whatever they kind of fancy and whatever

it gets, uh, you know, uh, being fed by whatever incentives they're being incentivized by.

I think it's okay to criticize that.

That seems fair.

I would say maybe it's fair.

I don't know if it necessarily is.

I mean, think about all the money that has gone into
all these products that we use on a daily basis.

You know, we, we, we talk on Twitter or we talk on zoom.

You, you use Chrome.

Almost all the products I use on a daily basis are venture backed.

And you could definitely argue that those companies and those
products would never exist today if they were bootstrapped businesses.

And the only way to boot to, to, uh, launch those products is to
raise venture capital and the venture capitalists need to make money.

And, uh, they need some sort of amount of money to be able to, they need
that 2%, whether it's 1%, 2% that you could argue that, um, but they need

some amount of money to live, to deploy this capital, to invest in startups.

And then the reason there's a 20% carry is to align themselves with their investors, uh, so
that, you know, they are incentivized to choose companies that are going to be successful.

And so I don't necessarily think that that's such a bad thing.

And actually, I just learned this, uh, history factory recently.


Um, and when the, uh, all the shipping, um, I'm a kind of a little bit ignorant on this, but
all the shipping that happens back way back in the day, that's when Kerry was invested or sorry,

invented and, um, Like different ships would take different carry and other people's ships, just so
at least one of them would be successful if one of the other ones crashed or something like that.

So this is a, this is a thing that has been happening for hundreds and hundreds of years.

And I don't know if it's necessarily a bad structure.

Um, I would be curious to hear how you think you can

make it better.

I mean, and, and the shipping one's a good example because it did have effects.

It had environmental effects, for example, like, uh, almost, uh, the
elimination of, uh, the, the extinction of a bunch of, uh, whale species.

Um, and, and that was directly tied to the incentive structure, right?

Like we're paying you guys to go out and get oil blubber.

You better do it.

And you're going to risk your lives.

Most of the ships didn't make it back.

Lots of people died.

So the history is important.

Especially because there were effects, there were knock on effects, but if there

wasn't Carrie, your ship went out on the, in the ocean and it crashed your wife and family
would have no, uh, they wouldn't be able to live, but thank thankfully, there was this, you

know, sharing of carry between ships so that your wife and family would be taken care of.

So, I mean, yeah, there, there are potential negative consequences, but there's
also positivity and like, um, you know, globalism and so on and countries trading

and, you know, we are where we are today because of the early shipping industry.

But yeah, I mean, I would be curious to think about like,
how else could you structure this thing to make it better?

In some ways, independence, bootstrappers indie creators, et cetera, are always
going to be reliant on doing arbitrage from bigger companies that are paving the way.

So to build an audience, you need to do arbitrage on Twitter, which is.

A big public company to do, uh, to become, to have a successful SAS.

You're going to need to do arbitrage on Google search, which is a big trillion dollar company.

So there is that reality is that's true that in our
economy, uh, bootstrappers are going to need to do that.

Um, and the, the nice thing with Twitter and Google and et cetera, is that they have gone public.

So now there is just way more accountability, uh, and the government can certainly, uh, uh,
we'll see if they do more, but they can hold these companies to account if they want to.

And hopefully create a tension that, uh, you know, there's these big companies
they can exist, but there's, uh, someone else kind of holding the line.

I think these smaller funds are interesting, like earnest capital and
tiny seed, uh, for bootstrappers, you know, where they get some money.

Pay their bills for a year or two.

Um, I think that's interesting.

And, and some of this is going to come down to the entrepreneur.

So maybe let's maybe finish off kind of in that area, because I think I, I want
to push back on some of this, the idea that it's like all up to the entrepreneur,

it's almost like you wanted to like, uh, say, you know, the VCs are off the hook.

Like this is really all up to the business.

So maybe explain what you meant by explain what you mean by that

as the founder, whether your bootstrap business or VC backed business.

Um, I firmly believe that it, the buck stops with you and
you are setting the culture and the tone for your company.

And I think from day one, we all start at the same place.

Whether you have a bootstrap company or you're a venture backed company, you start with an idea.

Maybe you have some notes, maybe you have some designs, maybe you have a little code, whatever.

We all start at the same place.

And then I am choosing as an entrepreneur to go out and raise money.

And I ain't even going into that situation, understanding the consequences.

I now have a boss.

It is my VC.

I now have money that I need to eventually return at
some point in the future or go public or whatever.

So I'm signing up, I'm signing those contracts.

Like, you know, it's not with blood, but it's with a signature and I understand it.

And so, and I'm choosing to get in bed with that venture capital.

I can do my research.

I can, and I've done this.

Like when we were first taking money, I was reference checking, checking my investors.

And I was like, can I speak through their portfolio companies, et cetera, et cetera.

And so I am taking on that responsibility.

It's my choice.

So when my company chooses to, you know, prioritize growth over revenue, that is
me as an entrepreneur because I've made the decision to take capital or whatever.

Um, but I can also push back on my investors.

I can write my legal documents, where I have full
control and so on, and I can focus revenue versus growth.

So I, that's why I say where it's, this is the burners choice.

And, and yes, like you've made it conscientious decision to take capital and you
understand the consequence, but at the end of the day, it buck stops with me.

Buck stops with you, et cetera.

So that's why I kind of say that.

Yeah, you chose to take hundred million dollars from Andreessen Horowitz for clubhouse.

You know what game you're playing?

You know, that is you, that's on you.

That's not on, on injuries neurons.

So that's kinda where I'm going to get it with that.


this isn't a perfect analogy, but I think the thing that immediately sprung to
mind is, uh, as an employee, when you go out job hunting, um, it's up to you, you

have the responsibility you're applying at places you can do background checks.

You can check up on people who have been there before you can do all those things.

But when you get hired as an employee, you still, there's still a, a power differential.

There, there are still power dynamics at play, and there's still, uh, uh, uh,
rightfully so like government intervention, for example, to make sure that.

That, uh, employers hold up their end of the bargain that they're being held to account that, uh,
pot like potentially dangerous employment behavior and, uh, potentially dangerous toxic behavior.

You know, you could say, well, why did you go and work for that company?

You know, there are a bunch of assholes, you know, why did you, why did you do that?

It's like, well, there's still a flip side to that.

There's still something else holding the tension,
which doesn't let the employer completely off the hook.

And I think putting it all on entrepreneurs seems a little bit, uh, unfair, you know,
because there are, there is a power differential, there's power dynamics, at least at play.

And, um, we can't blame everybody for being naive because
there's always going to be a certain amount of naivete.

There's always going to be.

Bad actors.

Um, and so just saying well, to the non-entrepreneurial while you should
have known what you got into there, you know, like who, who, who knows?

I think there needs to be some somebody holding people to account
and saying, okay, well, and whether it's government or whatever, but

you know, maybe we should have more rules about how dilution works.

Maybe we should make these, uh, vehicles less complex and more easy to understand.

Um, I don't like it when we get, put everything on somebody and say,
well, uh, you, you dumb entrepreneur, you just made a bad decision.

You chose a bad VC seems, seems a little bit unfair in some ways, because when you need capital.

You're going out, searching for capital,

but you understand, and like you, as an entrepreneur, understand that
when you're taking capital, it is not risk-free and that is number one.

Everyone knows this.

If I take a loan from the bank, if I borrow $10,000 from a friend, I'd never done that.

But if I did, it's not like I'm, it's not a, it's not a gift.

You know, there are strings attached.

Um, I think that you should be held accountable because you are entering into that relationship.

Um, I think the employee situation is different, uh, completely.

And I don't think it's really related to this conversation so much because I think, you
know, that employee has the same issue going to bootstrap company versus a VC backed company.

Um, but I do feel as if the, that the entrepreneur, they
can read the legal docs, they can consult their lawyer.

They know because everyone knows when you take money, there's there are strings attached.

And, and yeah, I do think it is like, you can choose the venture capitalists.

You want, you can choose not to take money at all.

You can go the bootstrap route.

Uh, you can choose to take a million dollars or $2 million you
can choose to take at this valuation versus this valuation.

Um, so yeah, I mean, I don't know.

I don't think I waiver on that personally.

I really do think it like it stops.

I think he,

I think he would wave around that if all of a sudden you got fucked.

Cause cause you could, you could, you could read all the documents
and sign it, you know, get your lawyer and all those things.

And then still somebody can do something shady or do something that's legal, but not super nice.

And you just didn't know about it or you didn't know that that was possible.

Uh, and it can come back to get you,

so, eh, so this is good thing that I meant to bring up, actually, because I
think one of the perceptions from people is that investors are like omnipresent

telling you what to do, like over looking over your shoulder and stuff like that.

Like, nothing could be further from the, from the truth.

You know, we check in with our events investors once a quarter, we
have a board meeting, there's a couple of emails here and there.

Um, but that's more typical than the other way around, you know, it's, it's not
like they're saying Spencer, you need to, uh, do this feature versus this feature.

I haven't had a single piece of feedback around our product since the first days.

Um, so, so how,

how has your setup, is it a


No, we are, we are, uh, we did like a price round, so it's like, uh, there's no safe.

We never raised, uh, sorry.

We never raised that.

We always raised just like straight equity for cash.

Um, You know, we can go down that and hold another couple.

What do you

think about safes?

What do you think about safes, especially in the new crowdfunding?


this is my bootstrap roots.

So for everyone listening, like I was a bootstrapper for my first three companies and
now, um, you know, raising money, but, um, my bootstrap roots say that I want to take cash

and give a piece of the pie so that I just know what I've given out, given up, you know?

So like these are the numbers, but like, I want to take a hundred
thousand dollars and know that I'm giving someone 10% of the company.

I don't like this idea of, of debt or, um, you know, maybe
it's, you know, this valuation maybe is that valuation.

I just personally that doesn't sit right with me as someone who wants to just
like, know how much I own know how much my investors own, that sort of thing.

Yeah, yeah.


I mean, that seems, I think, I think where we agree is that.

I certainly there's gotta be good investors out there.

Tons of them.

I've met way more good ones than bad ones.


and, and sorry.

And when you mean, when you say investors, are you talking
about LPs or, or venture capitalists in the middle?

I'm just

talking about VCs and, um, angel investors and stuff like that.

I don't, I don't know.

I've never met an LP.

I've actually met some LPs, but they tend to also be venture capitalists.

It's very weird.

There's a lot of venture capitalists that are also LPs.

Like they invest in each other's funds and stuff like that and

whatever, but yeah.


I mean, but so that, I mean, even then, like, why not just take, if you
could, would you prefer to take money from angels, for example, who are

directly investing their own money as opposed to somebody in the middle.

Um, have a good answer for this, because if you raise money early on, this
is sort of off topic, but if you raise money early on from only angels,

it makes it really difficult for you to raise another round of funding.

Um, if things aren't going super well, um, so, you know, say you raise a million dollars
from 50 different angels and then things aren't going that well, there's unlikely that

one of those angels is going to step up and be like, I'm going to write a big check into
your next round, where typically if you raise from like a VC firm, you know, say they put

$500,000 in that million dollars, they're incentivized to make sure that you don't burn out.

So they'll likely to invest more money, um, to, to see you through another day.

So I personally am the, I don't like the what's called a quote unquote party rounds.

Cause like I want to have someone who has skin in the game.

Cause we have, we have quite a few angel investors as well, but I never talked to them and
I haven't spoken to them in years, but we still talk to like my ma our major investors.

Cause they're there, they're like in it, you know?

Cause they have a much bigger.

Um, percentage of the company.

So I personally, if you can go the VC route, even though
it's like micro VCs, small VCs, I sort of recommend that.




I mean, I think it's interesting.

I do like your perspective.

I like that.

You're, you're going against the grain in definitely in
my culture because, uh, it does seem like there's good.

There's gotta be a place for, um, taking investment from people
that aligns with your interests, that aligns with your employee's

interests that aligns with your customer, your customer's interests.

D what, what's your advice on how to find those people?

If, cause I get pitched all the time and you know, all the
emails, the cold emails I get, don't give me a lot of confidence.

So what, what's your advice on?

And certainly, you know, I think most folks have figured out they can raise
smaller rounds pretty not without too much difficulty, a hundred or 200,000.

Um, but if you wanted to raise, like how much did you raise for podia?

Um, we haven't talked about the total amount, but I can talk about like the first few rounds.

I think our first round we raised $750,000.


And about, uh, I think 250,000 or so was from a single VC.

That was kind of like leading the process with us.


it, got it.

So if you wanted to raise a million now and you were looking for somebody,
you know, Some, uh, people investing in the fund that would be good actors.

What would you do?

What, what's the what's how do you do


Um, in, in terms of finding good VCs.


I, is it just to, you know, you just gotta build relationships.

Is there like a, is there a glass door for venture


There, there is.

And, um, there is one, uh, I forget the link right now, but my
friend knows the person who runs it who's anonymous, but whatever.

Um, I mean, I think one of the best things to do is just to talk to
you, um, startups that, you know, have raised money and just reach

out to the CEO and be like, you know, who, who are your investors?

Do you like them?

I think that's one approach.

Um, for me.

Um, just living in your city for 15 years.

And I just kinda got to know people in the community and, and the person
that actually wrote the first check into us was a former entrepreneur.

And we met when we were both entrepreneurs back in the day, and now he's a venture capitalist.

So like, that was my sort of insure there.

Um, but I think as you said, like it's fairly easy and obviously not
everyone can raise money, but there's so much money out there right now.

It is quite easy to raise that like a couple hundred thousand dollars
round, um, from investors, Angeles, Republic, whatever you want to do.

Um, yeah.

I mean, there's money out there and there's never been more money.



And I think another place where I've moderated my stance is listening to you and Addie PNR.

Um, I think.

The thing about bootstrapping that a lot of people
don't talk about is that it does take a toll on you.

Um, and in retrospect, you know, what we were able to accomplish
with transistor happened fairly quickly, but what, but getting there.

So the multiple things I did before that, uh, definitely took a toll on me.

And I think if you, uh, Addie's talked a little bit about this, about, you know,
the, the bootstrapping, when you have a family, um, and the pressure it puts on you.

I think there is an argument that if you can use somebody
else's money to learn, definitely that's not such a bad thing.

If you can use someone else's money to give you some breathing room and.

Give you some calm, um, that the, of course the flip side is you just want to
make sure that it's structured in a way that it is actually going to give you some

calm and that the, you know, the, the incentives are aligned in that way, right?

Like that you're going to get this check and it's actually going to
make your life better as opposed to make your life more straight.

So that's actually really good point because when I was first starting
this company, I wasn't planning on raising venture capital at all.

Um, I was bootstrapping it.

I actually wrote, I wrote a $30,000 check into the business.

Um, and I, I use that to hire our first, uh, contractor and so on and so on.

I wasn't planning to raise money at all, but I was also, you know, getting older.

I was, I was dating my now wife, you know, et cetera, et cetera.

And like, I, I wasn't sure that I could go there.

The like full-on bootstrap zero salary.

Like I'd made some good money from previous exits, but
I didn't make enough to like, uh, never work again.


So I needed something to come in.

And actually it's funny story, because I was just touching on it really quickly.

I met a VC for beers at a beer garden in Brooklyn, like, so stereotype stereotypical, um, and
a super nice guy, Nick Charles, they actually led our seed round, um, from notation capital.

Anyway, um, we were just outside having a beer and he was
like, oh, I just want, what are you working on these days?

And I just pulled out my laptop and I showed them some screenshots or whatever.

And he's like, that's really cool.

Like, do you think you'd be interested in some, you know, raising money?

And I was like, I wasn't planning on it, but like maybe, and three days
later he sent me a term sheet and I was like, all right, let's do this thing.

Um, let's do this thing.

And, but the security was a big thing, honestly, that was huge for me.


on that topic, cause I just had a call with a guy.

Who's raised, he's younger, he's raised, I think he raised 20 million and I was like, man, congrats.

You know, that's great.

Like, you must feel like you've got all this margin now and it didn't
seem like he felt like that there was a lot of pressure to not pay

himself super well, a lot of pressure to hire and use all that money.

So for you, was, were you able to pay yourself well, did it actually give you margin in that sense?

I mean,

not off that first check.

Um, I mean I paid myself, but not, you know, not.

Not, not, not, you know, not, not a big salary, let's just say, um, you know, pretty meager salary.

But, um, it was enough to sort of cover my expenses, my apart, my rants, healthcare,
whatever, um, and, you know, sort of leave me not like draining my bank account.

Um, but I think there's also a really big difference between raising $20 million and what you're
getting yourself into and raising like a 750 K pre-seed round, um, much different expectations.

So again, it goes back to my point earlier about the entrepreneur, like as an
entrepreneur, you need to know that you should know that taking $20 million.

There's a lot of money taking 750 K less money and less strings attached people.

Aren't going to be as upset when they, when you, if you lose all of it, you
know, um, people are gonna be breathing down your neck, that kind of thing.

Um, but yeah, you can, you can get to the point where you raised $20
million, but like I personally would never do that sort of day one.


Do you have any, I got to go to the water slides
here right away, but do you have any tips for people?

What's a good term sheet.

What lawyer do I talk to you?

Like where should people get started if they're looking for a good setup?

Because honestly, like if you, if someone sent me a $750,000
term sheet, I would have no idea if it was good or bad.

Like, like, is this a lot of strings?

Is this not a lot of strings?

Sure, man.

They're asking me a lot of questions.

I don't know.

Like, do I, should I answer these, um, how do you navigate that process?


So the term sheet is fairly simple.

I think ours was like a one-page document, maybe two pages that
just sort of outlines the real high level parts of the business.

Like you're raising this amount, there's going to be this percent, you know, whatever.

And I remember I just took it, I read it.

It's fairly simple.

And then I just shared it with a few of my friends who had raised venture capital for before.

And I was like, what do you think it is?

But I think that like, oh, they said, oh, you gotta look up for that, this, that, whatever.

Um, but generally the term sheet is sort of non-binding
and that you can, you can sign it, you can go through it.

Um, I actually, we made, we made changes before I signed it, whatever.

Um, but at that point I also spoke to a few friends.

I was like, what law firms should I use?

They recommended a few.

Um, I met with one of the partners.

Um, we had a conversation for like an hour or something.

I thought we had a good rapport.

I sent the term sheet over to them.

They took a look at it.

They made some changes, send it back.

Um, but the big document that comes next is like,
The whatever the, I don't even know what it's called.

Just like the series documents.

That's the stuff that's like 30 pages, 40 pages where you want
to make sure you have like good lawyers and that kind of thing.


And how much does that whole process cost?

Is it, oh my God.

A couple of grants.

Is it 10 grand?

Is it like,

uh, so th what they do is that the lawyers are like, uh, we're going to keep it cheap right now.

And then when you raise your next rounds, we're going to hit you with a big bill.

Um, so some of them will actually defer it completely.

And they'll say we won't even charge you anything until you raise your like, series a round.

And I have friends that have gone that route.

I think we ended up paying probably like three or $4,000 for that initial paperwork.

Um, but then when we raised our series, a, a technically,
I guess you could call it, I think it was about.

50 $60,000, um, and legal fees.


Um, but that, and that's low, actually.

I think it might've been closer to a hundred thousand.

I try to not think about it.



So there's going to be some legal, there's going to be some legal costs, but



But not initially, like you can definitely get around it by, you
know, finding, having a lawyer that will defer it and so on and so on.

And this is kind of too big of a topic to end on.

I've certainly been critical of crowdfunding.

I've been asking lots of hard questions, but

do you think by the way, but

do you think that it could be modified and cause in some ways it feels like a great deal.

It's definitely a great deal for the entrepreneur, right?

Like the entrepreneur, the entrepreneur gets to leverage
whatever influence they have and get money directly from fans.

Many of whom.

Don't even care about the investment part of it.

Like there's, there's definitely some benefits there.

All of my questioning has been around like, what is really happening here?

Like, is this, is this actually, can we call this an investment or whatever?

I think he should think of it as a gift, but yeah,

as a gift.


But I wonder, is there something that crowdfunding
could tweak in your mind that would make it better?

And in that case, wouldn't you always want to go that way, like just raise
money through crowdfunding and, you know, ignore all of this other stuff

and just be able to, you know, you could raise up to 5 million a year.

That way it seems pretty attractive as long as.

The ethics are.


So in, in that case, I honestly worry more about the investor in that situation.

Like the, the thousands of people that are investing in a company, I worry about them.

And I think the ethics there are tricky because these
are people putting in $500, a thousand dollars, $200.

And to them, it may actually be quite a bit of money.

And they're sort of like taking this gamble and I'm actually kind of
concerned, uh, for some of these people that are investing lots of money and

raising $5 million and like there's no plan for liquidity for that company.

So you're kinda out of it.

Uh, I won't swear on this podcast, but you're, you're S in a good position.

I don't think as an investment in that.

So, but could they tweak it possibly, but I think it's much, it's kind of quite like gambling
in a sense where you're just sort of like, let me put 500 bucks in and maybe this goes well, but

unless you're just simply doing it as a gift, like, I want to support you as an entrepreneur.

I've been following you a long time.

Here's $500.

And like, I just want to be part of this story and I think, yeah, that's great.

I'm just worried about people that think they're going to get rich.

And how is that different than people investing in


I mean, I don't, I also invest in person and in individual stocks,
um, because you know, I'm not a professional investor and yeah.

I mean, I don't think it should be illegal.

Let me be clear.

Like, I think you should be able to do crowd funding.

I think Republic should exist, et cetera.

I just think that if we want to talk about something that's potentially shady, I think
it's entrepreneurs and companies that are raising $5 million on, um, crowdfunding

sites at ridiculous valuations that they would never get in the private market.

Um, and taking people for as suckers, um, who are never going to make a return on their investment.

So that's something that you can be critical about.


I mean, I certainly have it just the, from the beginning, I was always like, ha like this
just seems like such a great deal for an entrepreneur, especially so good for them tonight.

Like you and I.

If you have any sort of following you can, it is, it, it makes sense.

And all the pieces are in play of people want to join the journey.

People want to be a part of your story.

People are happy to support you in the same way that, you know, people
support people on Patrion it's it's it's or support people on podia.

Uh, with podium memberships, it's tapping into some of that same stuff,
but what's tricky about it is this is the first time we've done it.

And I also like it because I feel like, um, individual
investors have been shut out of the stock market.

Like it used to be like, you could be a part of an IPO as a individual investor.

And people used to make money like that.

It used to be a life-changing experience for people and
certainly you can lose money, but now those gains are almost all.

At an elite level, like you have to be an LP that can invest X number of dollars.

So I like the democratization part, but as I say, what's unproven is, and I'm wondering
like, yeah, I wonder if you could tweak it so that you can still leverage this, you know,

so I have a little, it's not very much money, but I have a little crowdfunding portfolio.

And basically what I've told you most, like, I guess check back with
me in 10 years to see if any of that materialized into anything.

Uh, and, uh, I'm skeptical.

But yeah, I'm wondering if there's like a, you know, if you had to be more
clear about how liquidity events were going to work, if you had to, you know,

if more of that was kind of in stone, uh, it seems, seems like it could be safe.


I'm just, I'm just worried about the people, you know, The Robin hood wall street bros types
that are, you know, putting $500 into these crowdfunding companies, never to see it again.

And so I just, I just worry about that a little bit.

Um, but yeah, as an entrepreneur, it's amazing.

Um, you know, you set your valuation and, you know, cause typically like I don't
really get to set my valuation as an entrepreneur necessarily when I'm raising

venture, like there's a discussion and you know, I'll go up, I'll go down a little bit.

They'll go up a bit, whatever.

But with a crowdfunding thing, it's just, you're basically saying it and
all these people are taking it, uh, taking you by your, by your word.

And you know, they're, they're getting crazy multiples and, and whatever.

Again, it all stops with the entrepreneur and the entrepreneur.

That's choosing to do that.

And then doesn't.

Ever have a plan to get a, have a liquidity event they're
basically stealing from thousands of people, in my opinion.




I think a lot of that, the onus there, although Republic certainly has some
culpability, the government has some culpability, but there's, there's other folks too.

Well, this is great.

I really appreciate you digging into this with me, man.

And I will say for everyone who's listening, I'm a big fan of what you've built at podia.

I think you've built one of the best team cultures I've ever
seen and one of the best customer cultures I've ever seen.

So folks should definitely follow podia and Spencer fry on Twitter.

Um, like it is honestly one of the most impressive
companies and I peek in your slack every once in a while.

And I'm just like, Blown away by the culture you've created.

It is VC

backed such.

It is.

Yeah, exactly.

It's it's, you're, you're a perfect example of somebody who's, uh, built an
incredible company, credible team, incredible culture, credible product going this


Thank you.

And, and let me just say to you too, I also met customer transistor and I think
you've built an amazing product and I love the love, everything you say on Twitter.

And I agree with you.

Nine times out of 10.

That's great.

Well, I'm glad we could come together like this and have the conversation and we'll do it again.

We'll see.

Well, I'm sure folks will have, uh, other thoughts as well.

So, um, we'll do it again for sure.

This is part of why we do this.

Is it humanizes all of this discourse?

It, it definitely helps me moderate my, my opinions.


same, same.

Thank you.

Is venture capital bad?
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