#PVCC23 | Keynote: The Path to VC

Elizabeth Yin, a seasoned entrepreneur and investor, shares insights from her experience with over 800 startup investments. She emphasizes the importance of portfolio construction, noting that a well-diversified portfolio mitigates risk and enhances success potential. Yin highlights the necessity of having a repeatable deal flow strategy and stresses the value of speed in decision-making to foster loyalty with founders. She advocates for knowing one’s investment "strike zone" to leverage expertise and improve outcomes. Yin also encourages aspiring investors to practice consistently, akin to building muscle, to refine their skills and increase their chances of success.

• Elizabeth Yin is a seasoned entrepreneur and investor with extensive experience in the startup ecosystem.
• She has founded several startups, with her company LaunchBit being acquired in 2014.
• Yin has been an angel investor in over 100 companies and previously ran the 500 Global accelerator program.
• Currently, she runs Hustle Fund, a VC firm that has invested in around 500 companies globally.

"My whole life is all in on startups. I'm from Silicon Valley in the San Francisco Bay area and for most of my life I've been a Founder."

• Elizabeth Yin has dedicated her career to startups, underscoring her deep commitment and experience in the field.

• Yin's transition from founder to investor highlighted the lack of control investors have over startups.
• As a founder, she learned to experiment, find product-market fit, and rapidly iterate and pivot.
• As an investor, she realized success depends on strategies beyond direct control of business operations.

"You are not in charge of the businesses you run... you don't control anything in the startup."

• As an investor, Yin emphasizes the challenge of achieving success without direct control over startup operations, contrasting with her experience as a founder.

• Yin shares five crucial lessons from her experience investing in over 800 companies.
• These lessons are aimed at achieving success in the venture capital space despite limited control over individual companies.

"There are five things that I learned from investing in over 800 companies... these are probably my top five takeaways."

• Elizabeth Yin distills her extensive investment experience into five core lessons that are pivotal for investor success.

• Portfolio construction is critical as it provides a semblance of control over investment outcomes.
• A well-constructed portfolio mitigates risks by spreading investments across multiple companies.
• Larger portfolios offer more forgiveness for mistakes and reduce pressure on any single company to succeed.

"If you have a larger portfolio, it will be more forgiving if you make more mistakes."

• A larger portfolio allows for diversification, reducing the impact of any single failure and enhancing overall investor resilience.

"Portfolio construction is even more important than picking... you never know who's going to be successful."

• The unpredictability of startup success makes portfolio construction a vital strategy, as it compensates for the inherent uncertainty in picking winners.

• Elizabeth Yin's journey from founder to investor highlights the distinct challenges and strategies in each role.
• Her insights into portfolio construction and the lack of direct control as an investor provide valuable guidance for aspiring investors.
• Yin's experience underscores the importance of strategic diversification in venture capital to manage risk and enhance success potential.

• Starting investors can benefit from a larger portfolio to learn from mistakes.
• Success in investing requires a high level of success in a few companies to offset losses from others.
• The common adage "nine out of 10 companies fail" highlights the need for the one successful investment to be significantly profitable.

"Nine out of 10 companies fail and I actually think that is pretty true. It doesn't mean that actually nine out of 10 companies go to zero; it means that you as an investor will not get that much money out nine out of 10 times."

• This quote underscores the reality that most investments will not yield significant returns, necessitating a highly successful outlier.

• Investors should aim for a 100x return on their successful investments.
• Early investment at lower valuations increases the likelihood of achieving high returns.
• Portfolio downside risk is limited to the initial investment, while upside potential is unlimited.

"If you invest in a company at 5 million post-money valuation, you're looking for an exit of $500 million or more."

• The quote illustrates the scale of success required for one investment to compensate for others that fail to yield returns.

• Consistent and repeatable deal flow is crucial for investment success.
• Investors should develop a strategy for acquiring deals, similar to how startups acquire customers.
• Both inbound and outbound strategies can be effective in maintaining deal flow.

"What we should ask ourselves to do as an investor is to look for a repeatable customer acquisition process in our deal flow."

• This quote emphasizes the need for investors to have a systematic approach to sourcing potential investments.

• Inbound strategies involve creating content or communities that attract potential deals.
• Outbound strategies involve proactively reaching out to potential investments.
• Specialization in certain industries can help investors become known and attract deals in those areas.

"20 VC and Saster have a large audience of listeners or followers or newsletter subscribers who keep them top of mind all the time."

• The quote highlights how having a strong presence and community can lead to consistent deal flow.

• Hustle involves iterating quickly and being adaptable to changing directions.
• Speed in decision-making and adaptation is crucial for both investors and founders.
• Quick iteration allows more opportunities to test hypotheses and adjust strategies.

"For me, hustle means iterating with speed, so moving quickly but being able to change directions quickly as well."

• This quote defines hustle as the ability to rapidly adapt and iterate, a key trait for success in dynamic environments.

• Speed in decision-making is crucial for building loyalty with founders, as it demonstrates responsiveness and commitment.
• Fast investment decisions are common among global accelerator programs, such as Y Combinator, Techstars, and 500 Startups, which conduct quick interviews and make decisions the same day.
• Founders appreciate investors who can keep up with the fast-paced nature of startups, valuing quick and decisive actions.

"For us, speed wins loyalty. We write checks very quickly and, in fact, in many cases, we will interview founders just once and make a decision in 48 hours about whether we're investing or not."

• The quote highlights the significance of rapid decision-making in fostering strong relationships with founders.

• Investors must identify and stick to their "Strike Zone," focusing on areas where they have expertise and can provide value.
• Berkshire Hathaway is an example of a firm that excels in Strike Zone investing, focusing only on investments they understand well.
• Hustle Fund's Strike Zone includes low valuations, scrappy teams, and unconventional ideas, emphasizing the importance of discipline in investment choices.

"You need to know your Strike Zone... Berkshire Hathaway does their Strike Zone investing really well... they stay within the zone that they know."

• This quote underscores the importance of focusing on investments within one's area of expertise to improve learning and decision-making.

• Investing outside one's Strike Zone can lead to a lack of knowledge and expertise, making it difficult to succeed.
• Staying within the Strike Zone allows investors to build repeatable practices and gain a competitive edge.
• Investors may be tempted by appealing opportunities outside their Strike Zone, but discipline is crucial for long-term success.

"If you stay in your Strike Zone, it helps you learn more quickly about Lessons Learned in that Strike Zone, so you get better and better as an investor."

• The quote emphasizes the benefits of focusing on investments within one's expertise to enhance learning and performance.

• The startup asset class offers significant potential for returns and the opportunity to contribute to global development.
• Latin America presents untapped tech-enabled opportunities, contrasting with more competitive markets like the United States.
• The current market environment, with changes in public markets, makes startups an attractive investment option.

"The startup asset class is actually really great... not only from a returns perspective but also just in terms of helping to build the world."

• This quote highlights the dual benefits of investing in startups: potential financial returns and the ability to drive global progress.

• Historical public market opportunities, such as investing in Amazon in the 1990s, are less common today due to increased regulation.
• Recent IPOs, like Instacart's, demonstrate lower potential for high returns compared to past decades.
• The regulatory environment in the US has contributed to a decrease in public market multiples, making startups more appealing.

"The public market multiples are a lot lower than they used to be in the 90s... in part, it's because in the US we introduced a lot more regulation."

• The quote explains how regulatory changes have impacted public market opportunities, increasing the attractiveness of startup investments.

• The opportunity to make significant returns by investing in public markets has diminished, prompting interest in private market investments.
• Investing small amounts in early-stage companies can yield high returns, as exemplified by Uber's seed round investors.
• The primary motivations for investing include achieving a better quality of life, donating, and securing retirement funds.
• Historical returns from public stock markets average around 7-8% over a decade, suggesting alternative investments may offer better returns.
• Allocating small amounts to startup investments can lead to significant upside with limited downside risk.
• Current market shifts make it an opportune time to invest in startups.

"The opportunity to make money in the public markets which people have previously done over and over again are now gone."

• This quote highlights the reduced profitability of public market investments, suggesting a need to explore alternative investment avenues.

"If you had invested $5,000 into Uber in their seed round and if you had sold in their IPO, you would have turned that into $25 million."

• This illustrates the potential high returns from small investments in early-stage startups, emphasizing the value of such opportunities.

"People invest...for the long term, not for tomorrow but for 30, 40 years from now."

• Long-term investment strategies are crucial for achieving financial goals such as retirement and philanthropy, underscoring the importance of strategic planning.

• Investment success requires regular practice, akin to developing skills in sports or music through repeated exercises.
• Consistent investment practice is hindered by infrequent, large investments; smaller, regular investments are recommended.
• Hustle Fund emphasizes gaining investment experience through frequent exposure to deals and startups.
• Seeing a large number of startups aids in distinguishing successful founders and business models.
• Documenting experiences and learning from each investment enhances investor acumen.

"The last bit is like anything else: it's practice, practice, practice."

• This underscores the necessity of continuous practice in refining investment skills, similar to other disciplines.

"We see about a thousand startups per month at Hustle Fund...across my lifetime I've seen probably about 30,000 startups."

• High exposure to startups provides a broad perspective, enabling better investment decisions through comparative analysis.

"By comparing startups...you get to compare what good looks like."

• Comparing numerous startups helps investors identify successful traits and strategies, refining their ability to select promising investments.

• Aspiring investors should focus on increasing their exposure to startups through various means.
• Writing small checks to many startups can provide valuable learning experiences without significant financial risk.
• Engaging with accelerators, VC firms, or mentoring startups offers insights into successful business practices.
• Understanding what makes a good founder or startup is essential, achieved by evaluating multiple companies.
• Continuous learning and iteration in investment strategies are crucial for long-term success.

"How do you get those reps...that's something we think a lot about at Hustle Fund."

• The quote emphasizes the importance of gaining investment experience through repeated exposure and practice.

"Another way without even spending your money is maybe get involved with an accelerator or another VC firm."

• This suggests alternative methods for gaining investment experience without direct financial investment, broadening exposure to startup ecosystems.

"By comparing a lot of startups...you get to compare what everyone is doing."

• Understanding the broader startup landscape through comparative analysis enhances the ability to identify promising investment opportunities.