Hi HN! Happy to answer questions here, which is funny because this is where it all really started for me back in 2007 when I was first thinking of starting my first company. I started as an HN reader working at a friend's startup, applied to YC and got in, became a YC partner, and then an early stage investor.
We're engineers and designers and product folks, and most investors aren't still (which is crazy, right?) so we figure if we can do what we're doing while being the investors we wanted when we were founders, that's about as good as it gets.
Two quick questions: Of the investments Initialized has made, what percentage of them are non-YC alums? Of those, how did they connect with Initialized? Cold email, warm intro, etc?
About 1 out of 3 startups from our last fund were not YC. Many came from warm intros, but a few I scouted and found myself. I went out and recruited Bannerman to YC personally (they're focused on security, which fulfills a key role on Maslow's hierarchy of needs), for instance, and then later invested afterwards.
Cold inbound emails haven't worked well for me, but that's where software down the road should help.
Big congrats, Garry. I've been a lurking fan of yours for many years now and this day honestly feels like an inevitability, even though I know it's required a ton of effort largely invisible to me.
Clearly one unique value proposition of your fund is that sweet combination of check amount, time to close, and stage of investment. That's certainly appealing.
But I've learned over time that I care most for my fellow founders in the trenches. I love my people. And with your fund, the people involved – especially those in your portfolio – appears to be a huge draw.
I've had the privilege of interacting with at least a few founders of your portfolio companies and to a person they are all stellar. Fred of Rainforest and Brad and Matt of SendWithUs were all kind enough to come on our fledgling little podcast (thanks again!). And I first spoke to Jarrett of EasyPost as he dove into responding to my support emails; still wear my EasyPost t-shirt all the time!
Some questions that popped into my head while reading:
- One of YC's great strengths is your community of peers. How do you plan to create such a community within your portfolio?
- How strong a hand do you expect to have in guiding your investments? (Trying to get the mental model right of where you'd sit between an AngelList syndicate, a YC, or a full-service firm like a16z.)
- Do you expect to be amenable to alternative exits, for example distributions at some multiple, a la Indie.vc?
- Why are your checks typically in the $500K - $1M range? (Personally not sure my company would need that much capital, so I would like to be careful of being cash rich as much as cash poor.)
Hi Josh, thanks so much! I feel the same way - fellow founders are our peeps. Great questions.
Community is of course amazing to have, and very necessary. We've all been to those horrible mixers where everyone runs around talking about how they're KILLIN' IT. Those are huge wastes of time. It's always done through the little things - events, mixers, dinners where smart people hang out and know that they can trust each other and share what's really happening. YC has worked incredibly well because everyone knows that you can trust each other since if you violate that trust, you'll get kicked out of the community. It's something more people should do. Of course since we're later stage, the founders will be spending a lot more time with their teams than with each other.
We're probably in between YC and a16z. We're a smaller fund, so we can't afford as many operating partners and staff, but we'll be able to do a lot. My goal is to spend almost all of my time with the 20 or so companies we work with in a year, so it'll be more concentrated. That's what will be necessary to get companies from seed to Series A, across that dreaded funding gap.
We've always supported founders to make the right choice whether they want to sell, or not. In terms of alternative exits we haven't gotten there yet, because that model is pretty unproven but I really like what Bryce is doing and I really want it to work, because its clear there is a lot of stuff out there that should exist but can struggle to get capital.
Most seed rounds we see come together are between $1M and $3M these days, so that amount of capital lets us get our percentage ownership (which is necessary for portfolio construction) while also letting a good round happen with other good seed investors. Most folks want at least 18 months to 24 months of runway to get to a solid Series A or profitability, so a lot of these numbers work backwards from that.
Thanks again for your questions Josh! Hope we can be helpful to you down the road.
My question: will you follow other investors pattern for whom only warm introductions matter?
I read in the press other SV investors stating that exactly zero investments were made as a consequence of a pitch through the contact email. Will this be true to you as well?
We're trying to figure out ways to get around this for later stage seed investments. We don't have a solution yet, but we're working on it.
In a thread below I talk about file cabinet industries — industries that basically have no software, and are horribly inefficient. Investing is absolutely one of those, but only using email and calendaring. The main bottleneck for investors is number of hours in the day, because there are very few people making all the decisions. Warm intros are the only way a non-software system can work.
Hi Garry - awesome news! Couple of questions: you mentioned about funding outside of SF, do you invest outside of the States too (i.e. the UK)?
Also, great to hear about support for smaller team sizes and investing pre-team as it were, but what's the plan for growth sizes? Pushing for unicorns or some of the portfolio aimed at smaller niches?
Edit: also, used to be a Posterous user, and actually had a product in a similar space which Arrington read out on your TWIST episode :)
We've been spending some time in the UK and really think the ecosystem in London is impressive and growing with real companies doing great work. We haven't invested any UK-based startups yet, but have funded many UK founders, if that's worth anything? :-)
We wanna invest in folks early. The fund isn't for investing in B's or C's or later, since there are plenty of people who are good at that.
Congrats to you and the team. I take it your primary focus is SF. Will you look to invest in the broader US? And are you interested in specific areas/industries or more in finding great teams/founders?
We've funded companies all over the place, and it just so happens many of them are in SF. If anything, the ongoing housing crisis that's systemically being ignored by local politicians is making it that much more likely our next startups don't start out in SF.
We've always been pretty sector agnostic, but we're software folks so that's what we know best. A lot of the things we're spending the most time with are "file cabinet" industries — any market where if you walk into the dominant player's office, you see lots of file cabinets or fax machines. A software-enabled startup will probably do a lot in those spaces. What's funny is you can pretty directly extend that to any business that still mainly runs on Microsoft Excel and email too.
Founders matter, but so do markets. We've seen so many of our talented friends end up working on new capabilities that don't solve a specific problem, or don't have a real market. It definitely takes both.
I just read your team page and you feature Palantir somewhat prominently/proudly (you and Alina). If I feel uncomfortable with mass government surveillance, should I simply not apply for any sort of funding from your fund? I see no ethics sub page, could you outline your basic ethics code (what sort of companies won't you invest in, will you invest in competing companies etc.)
This is a serious question, I hope it gets read and answered and not down voted into oblivion.
You're mistaking Palantir for the NSA. Palantir has rock solid access logs and access control that actually prevent the government from breaking with due process without court orders.
Personally I'm anti-surveillance and have been for a long time, particularly the kind of stuff Snowden and others have exposed where there are warrantless wiretaps and long term storage of private citizen information. I've blogged about it many times on my blog. Palantir didn't have anything to do with that and to my knowledge never has.
Initialized doesn't invest in alcohol, tobacco and firearms as a rule because of a mandate from some of our limited partners. Just rationally we believe in funding things that do help people. We generally stay away from investing in directly competing companies and when that does come up (usually through one company pivoting) we make sure that a single partner is assigned to each and those partners are particularly careful to firewall sensitive information. It's similar to what YC and SV Angel have done for years and it works well.
"How does ethics enter into your investment choices? I see you feature Palantir prominently and I have strong feelings about mass government surveillance."
If this is a serious question, maybe don't start with something so aggressive?
Hi Garry, Do you guys hold office hours for startups in your portfolio or anyone can schedule some time with you? And what should one do to be prepared for the office hours?
Hi Garry. I've invested in over 100 YC startups (mostly through Wefunder/FundersClub/Angel.co). Can I invest in your fund? Obviously I believe in the business model. If not where else should I be investing?
Alexis is amazing with all things product, marketing, and community. Alina is best with engineering, hard tech challenges, and hacking growth. I focus most on product and design. Kim helps people with marketing and PR.
We all help people with their ideas, helping founders manage the difficult psychology of starting something new, and making sure that the startup can get to the next milestone: engagement, growth, and profitability.
Try to use plain spoken language to describe what you do, who needs it, and ideally what you've done already. Doing that alone will get you to better than 80% of pitches out there.
For full transparency: I was Garry's Chief of Staff for 2 years before joining YC.
Garry and Alexis are the most founder friendly investors I've ever had the pleasure of working with. Late nights and early mornings in every time zone were normal for them. When I managed Garry's schedule, he held 3-5 hour blocks every single day to talk to founders. Then, in addition, we'd squeeze in as many calls and meetings the schedule would allow to speak with founders who reached out cold asking for general advice. A nightmare logistically sometimes, but a true testament to just how much they care about helping others.
When stereotypes of fund investors are that they are sluggish to make investments, quick and impatient when it comes to vetting teams and products, it is refreshing to see that Garry and co consistently break that view with their founder-first approach.
It might be an understatement for me to say that I'd recommend Initialized to any founder!
We met Garry, Alina, and Alexis at YC16 investor day. After talking for twenty minutes, they said "we're going to go talk about you behind your back, then give you an answer."
They made a decision in 2 minutes.
That's what it's like working with other founders. There's no bullshit. They proactively ask how they can be helpful, are empathetic and understanding when we go through tough times, and push us in a great way.
I'm pretty critical of a lot of Silicon Valley, but we are big fans of Initialized.
I’ve known Garry since 2010. Even though he didn't know us at the time - he met up with us to help us hone our YC pitch. He later became our adviser. Awhile after, when I showed him our growth numbers, he offered to invest, which then triggered a round. He didn't need to follow anyone else to decide. When we had an announcement, Alexis helped get us press. There are tons of helpful moments like this.
When I talk to other founders, I keep hearing how helpful they are. This is one of the most talented and genuine groups of people in the valley.
I met Garry in 2014 during YC. After our first office hours with him, I knew Garry would be a valuable go-to. He's a legit advisor because he can dig in at any level with you - founder stuff, company, go to market, users, working with big companies, design/code, hiring, raising money, prioritization, etc, etc. Part of that comes from being a YC partner and seeing that large sample size of startup problems. But he has also built inspiring products, led teams at large companies, is a brilliant developer and designer, and flat out an all around great guy.
So for me, this announcement is bittersweet. Initialized will be great for so many early stage founders, but now I don't have a simple way to book office hours with Garry. Well actually, I bet if I shoot him a message, he'd still be glad to help anytime.
1. An obvious question is: Why start out on your own rather than via YC as you've done for a while and seems to have succeeded for you.
2. Would you actively seek investments from outside the United States? As you may well know, emerging markets are gaining a load of attention. In 3 months Nigeria would have hosted Zuckerberg, YCombinator and 500 Startups. (You're always welcome :D)
3. What's the investment thesis of Initialized. Didn't see an Investment Thesis on the website.
Congratulations and all the best!
PS: Not sure if you remember me but you were in the panel that interviewed me for YC in Summer 2014
YC is awesome and I remain a super big supporter. I owe half my career and most of my friends to what an awesome family YC has become. What I realized was just that I could help companies the most in that 9 to 18 months you have after YC is done. I have a pet theory that in the next ten years, you're going to see the YC alumni turn into the most powerful set of investors in tech, and that'll be a good thing because we have a pretty strong shared culture around being good to founders and helping, and frankly doing no evil, which seems like it should be a basic thing for early stage investors but really isn't.
We have no specific mandate for US-only, and we think startups are absolutely happening everywhere and we want to help them.
An investment thesis at the early stage is really hard to do because we don't know what people are going to start when they're just a few people starting out. E.g. it would have been impossible to write an investment thesis that would include Coinbase early on because nobody was thinking about cryptocurrencies.
Story time folks! I have known Garry and Alexis for many years now. They lead our seed round and we invited Alexis to be on our board for a brief period of time.
So, when we were raising Series A, the negotiations with some new investors were getting a little tenuous. I knew and appreciated that investors are professional negotiators and do this for a living. I on the other hand was a first time CEO. So, for some time during the process, I was feeling a tremendous amount of pressure.
So, one morning I come in to the office feeling sick and questing my ability to withstand the kind of pressure a growing company's CEO has to endure. First thing I see is this short email from Alexis "How's it going? How can we help?". I had talked to Alexis and Garry a few months before about raising a Series A but I was sure that famous people in the valley with full-time jobs had more important things to do than check in on a small, pre-series A company with 10 employees.
I welled up. It was the first time in months that I had felt like someone had my back. In the end we were able to raise a successful A followed by a successful B as well but I still go back and read that 2 sentence email from time to time.
Garry and Alexis are not only awesome investors but wonderful human beings.
Readit News
We're engineers and designers and product folks, and most investors aren't still (which is crazy, right?) so we figure if we can do what we're doing while being the investors we wanted when we were founders, that's about as good as it gets.
Cold inbound emails haven't worked well for me, but that's where software down the road should help.
Clearly one unique value proposition of your fund is that sweet combination of check amount, time to close, and stage of investment. That's certainly appealing.
But I've learned over time that I care most for my fellow founders in the trenches. I love my people. And with your fund, the people involved – especially those in your portfolio – appears to be a huge draw.
I've had the privilege of interacting with at least a few founders of your portfolio companies and to a person they are all stellar. Fred of Rainforest and Brad and Matt of SendWithUs were all kind enough to come on our fledgling little podcast (thanks again!). And I first spoke to Jarrett of EasyPost as he dove into responding to my support emails; still wear my EasyPost t-shirt all the time!
Some questions that popped into my head while reading:
- One of YC's great strengths is your community of peers. How do you plan to create such a community within your portfolio?
- How strong a hand do you expect to have in guiding your investments? (Trying to get the mental model right of where you'd sit between an AngelList syndicate, a YC, or a full-service firm like a16z.)
- Do you expect to be amenable to alternative exits, for example distributions at some multiple, a la Indie.vc?
- Why are your checks typically in the $500K - $1M range? (Personally not sure my company would need that much capital, so I would like to be careful of being cash rich as much as cash poor.)
Community is of course amazing to have, and very necessary. We've all been to those horrible mixers where everyone runs around talking about how they're KILLIN' IT. Those are huge wastes of time. It's always done through the little things - events, mixers, dinners where smart people hang out and know that they can trust each other and share what's really happening. YC has worked incredibly well because everyone knows that you can trust each other since if you violate that trust, you'll get kicked out of the community. It's something more people should do. Of course since we're later stage, the founders will be spending a lot more time with their teams than with each other.
We're probably in between YC and a16z. We're a smaller fund, so we can't afford as many operating partners and staff, but we'll be able to do a lot. My goal is to spend almost all of my time with the 20 or so companies we work with in a year, so it'll be more concentrated. That's what will be necessary to get companies from seed to Series A, across that dreaded funding gap.
We've always supported founders to make the right choice whether they want to sell, or not. In terms of alternative exits we haven't gotten there yet, because that model is pretty unproven but I really like what Bryce is doing and I really want it to work, because its clear there is a lot of stuff out there that should exist but can struggle to get capital.
Most seed rounds we see come together are between $1M and $3M these days, so that amount of capital lets us get our percentage ownership (which is necessary for portfolio construction) while also letting a good round happen with other good seed investors. Most folks want at least 18 months to 24 months of runway to get to a solid Series A or profitability, so a lot of these numbers work backwards from that.
Thanks again for your questions Josh! Hope we can be helpful to you down the road.
My question: will you follow other investors pattern for whom only warm introductions matter?
I read in the press other SV investors stating that exactly zero investments were made as a consequence of a pitch through the contact email. Will this be true to you as well?
thanks!
In a thread below I talk about file cabinet industries — industries that basically have no software, and are horribly inefficient. Investing is absolutely one of those, but only using email and calendaring. The main bottleneck for investors is number of hours in the day, because there are very few people making all the decisions. Warm intros are the only way a non-software system can work.
So, spoiler alert, software. :-)
Also, great to hear about support for smaller team sizes and investing pre-team as it were, but what's the plan for growth sizes? Pushing for unicorns or some of the portfolio aimed at smaller niches?
Edit: also, used to be a Posterous user, and actually had a product in a similar space which Arrington read out on your TWIST episode :)
We wanna invest in folks early. The fund isn't for investing in B's or C's or later, since there are plenty of people who are good at that.
We've always been pretty sector agnostic, but we're software folks so that's what we know best. A lot of the things we're spending the most time with are "file cabinet" industries — any market where if you walk into the dominant player's office, you see lots of file cabinets or fax machines. A software-enabled startup will probably do a lot in those spaces. What's funny is you can pretty directly extend that to any business that still mainly runs on Microsoft Excel and email too.
Founders matter, but so do markets. We've seen so many of our talented friends end up working on new capabilities that don't solve a specific problem, or don't have a real market. It definitely takes both.
This is a serious question, I hope it gets read and answered and not down voted into oblivion.
Personally I'm anti-surveillance and have been for a long time, particularly the kind of stuff Snowden and others have exposed where there are warrantless wiretaps and long term storage of private citizen information. I've blogged about it many times on my blog. Palantir didn't have anything to do with that and to my knowledge never has.
Initialized doesn't invest in alcohol, tobacco and firearms as a rule because of a mandate from some of our limited partners. Just rationally we believe in funding things that do help people. We generally stay away from investing in directly competing companies and when that does come up (usually through one company pivoting) we make sure that a single partner is assigned to each and those partners are particularly careful to firewall sensitive information. It's similar to what YC and SV Angel have done for years and it works well.
"How does ethics enter into your investment choices? I see you feature Palantir prominently and I have strong feelings about mass government surveillance."
If this is a serious question, maybe don't start with something so aggressive?
Thanks
Can you discuss what each GP's focus is? Are there certain categories of companies you would handle vs Alexis, etc?
We all help people with their ideas, helping founders manage the difficult psychology of starting something new, and making sure that the startup can get to the next milestone: engagement, growth, and profitability.
Garry and Alexis are the most founder friendly investors I've ever had the pleasure of working with. Late nights and early mornings in every time zone were normal for them. When I managed Garry's schedule, he held 3-5 hour blocks every single day to talk to founders. Then, in addition, we'd squeeze in as many calls and meetings the schedule would allow to speak with founders who reached out cold asking for general advice. A nightmare logistically sometimes, but a true testament to just how much they care about helping others.
When stereotypes of fund investors are that they are sluggish to make investments, quick and impatient when it comes to vetting teams and products, it is refreshing to see that Garry and co consistently break that view with their founder-first approach.
It might be an understatement for me to say that I'd recommend Initialized to any founder!
They made a decision in 2 minutes.
That's what it's like working with other founders. There's no bullshit. They proactively ask how they can be helpful, are empathetic and understanding when we go through tough times, and push us in a great way.
I'm pretty critical of a lot of Silicon Valley, but we are big fans of Initialized.
When I talk to other founders, I keep hearing how helpful they are. This is one of the most talented and genuine groups of people in the valley.
Congrats on the raise!
So for me, this announcement is bittersweet. Initialized will be great for so many early stage founders, but now I don't have a simple way to book office hours with Garry. Well actually, I bet if I shoot him a message, he'd still be glad to help anytime.
really happy to see this happen. i think this will be great for the community.
A few questions.
1. An obvious question is: Why start out on your own rather than via YC as you've done for a while and seems to have succeeded for you.
2. Would you actively seek investments from outside the United States? As you may well know, emerging markets are gaining a load of attention. In 3 months Nigeria would have hosted Zuckerberg, YCombinator and 500 Startups. (You're always welcome :D)
3. What's the investment thesis of Initialized. Didn't see an Investment Thesis on the website.
Congratulations and all the best!
PS: Not sure if you remember me but you were in the panel that interviewed me for YC in Summer 2014
We have no specific mandate for US-only, and we think startups are absolutely happening everywhere and we want to help them.
An investment thesis at the early stage is really hard to do because we don't know what people are going to start when they're just a few people starting out. E.g. it would have been impossible to write an investment thesis that would include Coinbase early on because nobody was thinking about cryptocurrencies.
Thanks so much for your questions Oo!
So, when we were raising Series A, the negotiations with some new investors were getting a little tenuous. I knew and appreciated that investors are professional negotiators and do this for a living. I on the other hand was a first time CEO. So, for some time during the process, I was feeling a tremendous amount of pressure.
So, one morning I come in to the office feeling sick and questing my ability to withstand the kind of pressure a growing company's CEO has to endure. First thing I see is this short email from Alexis "How's it going? How can we help?". I had talked to Alexis and Garry a few months before about raising a Series A but I was sure that famous people in the valley with full-time jobs had more important things to do than check in on a small, pre-series A company with 10 employees.
I welled up. It was the first time in months that I had felt like someone had my back. In the end we were able to raise a successful A followed by a successful B as well but I still go back and read that 2 sentence email from time to time.
Garry and Alexis are not only awesome investors but wonderful human beings.