Garry Tan of Initialized Capital

TRANSCRIPT:

Hans Tung:

Hi, today on the show, we have Garry Tan, the managing partner of Initialized Capital, a VC firm based in San Francisco that he co-founded with Reddit’s co-founder Alexis Ohanian. And Garry is probably the most founder-friendly and closest to founder entrepreneur VC I know in the US.

Garry Tan:

Thank you so much, man. Thanks for having me. It means a lot to me to be on here.

Christine Hinton:

Hi, Garry. Welcome to the program. Just for our audience, a little bit of background, you’re a designer and engineer turned early stage investor, and formerly a partner at Y Combinator for about five years where you advised and funded more than 600 companies in more than 1000 founders. You were also co-founder of YC-backed blog platform Posterous,which was Top 200 Quantcast site, which was acquired by Twitter in 2012. And before that you were an employee #10 at Palantir, where you were a founding member of the engineering team and for Palantir’s financial analysis product and also designed Palantir’s logo. You have a BS in Computer Systems Engineering from Stanford, and we’re so excited to be talking to you today.

Garry Tan:

Thanks for having me.

Hans Tung:

So, Garry, you have had a quite an interesting career from the founding engineer of Palantir to advise early stage startups at YC. How and why did you decide to start Initialized?

Garry Tan:

Honestly, I don’t think that I ever thought I would become a venture capitalist. I started off as an engineer. I grew up in the San Francisco Bay Area, sort of in the shadow of Silicon Valley, I just knew I wanted to code. I started making web pages and got my first job, sort of going through the Yellow Pages, and cold calling, internet section of the website. I actually get a job making web pages. So, I got paid $7 an hour as a 14-year-old. And it was really meaningful for me because that money helped my parents pay for their first down payment for their home, because we lived in apartments. And we didn’t grow up well off. So, computers have given me absolutely everything in my life. And now, the way I think about VC is that this is how we can create infinite wealth in a world that needs that much value, so many problems everywhere to solve, and you and I get to see founders who are going out and doing that, and we get to be a part of that. What a miracle that is. So I never thought this would happen, but it’s just sort of comes directly out of seeing the power of software and technology, and really finding people who can build. And that sort of happened accidentally. I think a lot of VCs have very many paths, there’s not really one way to do it.

Christine Hinton:

So Garry, as you got started, you were with YC, as it grew from a little-known entrepreneurial program into one of Silicon Valley’s best-known and regarded networks for early stage technology startups. What was your biggest takeaway from that experience, both in identifying good founders and teams? And how to operate as a great early investor?

Garry Tan:

Yeah, absolutely. That I really learned from my mentor, Paul Graham, was that there are so many people who are great builders, they’re engineers, product people, designers, and those are the people who sort of are best positioned in the world to become founders. And I think he used to have this, and he would say this is really interesting things that I would never forget. The hard part about playing chess is being smart. It’s not how the pieces move. So the really key thing about working with very early stage founders is finding people who are smart. And then, those are the people who can build, and tell them how the pieces move, which is business, management and hiring and all of those things. And then that’s the core of multibillion-dollar companies. And that’s just one of many things that I feel like I learned while I was there.

Hans Tung:

You joined YC quite early, in many founders’ point of view as amongst their favorite to work with. What do you think prepare you to do that job well, and what do you think was the secret to make YC successful from the inside?

Garry Tan:

I learned that I could start a company from Paul Graham’s essays. I distinctly remember reading about how You Weren’t Meant to Have a Boss. And that’s one of the more empowering ideas actually. We sort of go out. We’re always looking for that next job. We’re looking for the next sort of ladder or rung. And here’s someone who has done it themselves, who was a great engineer himself, and still is a great engineer himself. But then he comes and says ‘You can do it’. And today, it seems sort of trite, almost like it’s widely accepted that it is true today, but we have to remember 10 years ago, 15 years ago, the story of Zuck or even the Google founders, Larry and Sergey, that was a typical, the sort of founder engineer, now is sort of lore and part of what we really look for, but in the first wave, that was unusual.

Hans Tung:

The Cisco story was more common. The engineer, founder and then the VC just come in, bring in a new CEO and put the founders aside. That’s the norm. now it wasn’t the norm.

Garry Tan:

Yaeh. And I think that once you attract those people, and just try to help them, honestly. You and I, we have to work with a lot of founders. But I think that one of the things that I’ve learned for sure is that we don’t have to necessarily, there’s time to be sort of the boss in the board with sort of the relationship. But, especially early, it makes a lot more sense to be sort of the fellow builder. And being a peer is more important early, that’s because it’s the generative process, we don’t have product market fit, we don’t have a product, we barely have an idea. And that’s sort of the moment when we need to open the aperture to (see) what is out there in the marketplace, like go talk to your users, and pick which users and which problem to solve, and then understand what their needs are. And that type of thinking is actually sort of the opposite. There’s sort of divergent thinking and convergent thinking. And when I think about early stage especially, it’s really important to open the aperture, like you want divergent thinking, you want all things to come in. And for you to survey the landscape, see the data, pick out the patterns, and follow the thing. You’re sort of following your nose, great founders do that, they find the problem and then they sniff around, and like this is probably where I want to go. And later, post product market fit, that’s convergent thinking, we have product market fit, we’ve got to hire the exact team, we’ve got to manage two numbers, and we need to capture the opportunity before 10 other startups that are well-funded take it from us. It’s ours to lose. And so I realized now they’re really two very different stages in, as you know, people say even with an early stage, this is very early stage, and then that second part like the post product market fit, that’s still early stage, too.

Hans Tung:

Yeah, still early. Most VCs are better solving the second problem, the convergent thinking, how do you scale something and putting the right pieces to make it work? And if you do that, with  enough times and enough iteration, you have that pattern recognition capability, but the initial stage that divergent thinking, there are so many data points, which one is the one that’s going to be the next big thing, the next big idea that’s most important? It’s very difficult to know that up front. And I learned that you made a $200 million mistake at the age of 23. Can you share with everyone how does that kind of thing helped you or not to be able to do the right thing at such an early stage?

Garry Tan:

So I was 23 years old, I had just graduated from Stanford and computer engineering. 2003 was very tough time to graduate because there were very few startups. And I had always thought I would go and graduate and go work at a startup. But there were no startups to be had. And I got my offer to join Microsoft, so I moved to Seattle, I was a PM (program manager) for Windows Mobile, and they gave the lowest of the low PM, all of the cool consumer scenarios, the photo sync and music sync for Windows Mobile phones. And it’s funny because you are 22, you’re level 59, lowest of the low in this organization, can’t get anything done, because they expect you to operate with no authority, but also, this isn’t high, you know, we’re very deep in trying to copy RIM blackberry and so there were 30 other people focused on copying RIM blackberry, and I got a very cool scenario but couldn’t get any of my bugs fixed. So it was a very strong, interesting lesson of what it was like within a large orgs.

And about that time, my friends were starting a company with Peter Thiel. This was about the time he wrote the $500,000 check to Facebook in 2004. And they flew me down to have dinner with him at his new French restaurant. And I think that’s what you do when you get a really good exit. He had sold PayPal, and the restaurant was terrible, and it closed. I remember the dinner was awful. But he looked at me and said, Garry, what are you doing at Microsoft,  you’re really wasting your time. Come to join us. We’re going to go change the world. And he asked me, how much do you make at Microsoft? And I told him it was $70,000, and he got out his personal checkbook. And he said, this is a risk-free option, here’s $70,000 from my personal bank account, like cash this check, quit your job,  let’s go change the world. And I looked at him and I said, thank you very much Mr. Thiel, but I might get promoted to level 60 next year. And, of course, the company turned out to be Palantir. And I made a horrible mistake. But I rectified that quickly because a year later I came back for a friend’s wedding and visited the office, saw the software they were building, and I quit and join. I was employee #10. So a little bit later, but I think this is sort of emblematic of how bewildering this early stage is, especially for those builders, for engineers, for designers, for product people who can ship and then you need to break out of the mindset of like first what did my parents think? They really like that I have health insurance.

Hans Tung:

Oh, it’s really a very Asian American way of thinking.

Garry Tan:

Yeah, I mean it’s safe. It’s tough to take risk. And what I didn’t realize at the moment, but now I know is definitely true for people who are great builders, who have incredible skills. I went to Stanford, it’s insane for me to not take risk. And the only risk really in tech these days is if you don’t take risk. I think my view of Google is that it’s an incredible oasis for engineers to retire. I love Google, I use all their products. But if you want to really accelerate what you’re doing,  you can join the place that is working on problems that you believe in. I think early stage startups are the place to actually cut your teeth and maximize the difficulty level and maximize agency. And then there’s crazy compounding effects for the rest of your life. I lost two years working for Microsoft. Those were prime coding years, it’s tough, you don’t have a billion years in your career to really create and it’s very precious time.

Christine Hinton:

But Garry, as you think about those risks, or you think about those years that you spent at Microsoft, what advice would you give for fresh graduates and people who were at that same moment that you were at Microsoft versus Palantir?

Garry Tan:

Actually, I go and speak to Associate Product Manager classes. So I’ve done Uber, Google, Twitter and Lyft, and a few others, and it’s very consistent advice, actually. So for PMs starting out, the No. 1 thing that I didn’t do that I should have done, if I wanted to be as successful as possible at Microsoft, was to not be afraid to go up three levels, five levels, eight levels up in the org and make connections just like cold email them, befriend them. You figure out what’s important to them and be an ally, because you’re fresh, you’re a builder and you’re so close to the medal. And then those people, the execs who are like 10, 15 years in, they really need your perspective as the new person. People who are my peers who joined at level 59, I saw them year on year, jump like four or five levels. At the time, I was afraid and I didn’t know how the world worked. And I didn’t want to offend my direct manager. But the reality is my direct manager wasn’t going up five levels either, but I have friends who were doing it and they got lines of business worth tens of millions of dollars, they basically got to run a startup within Microsoft, and got incredible background, they were able to skip ahead massively, and that’s what I underestimated about large organizations, there’s actually a really big opportunity but it’s actually like starting a startup. You have to navigate the politics and navigate the people within it. But they’re just people. And this is true for founders starting out and talking to VCs too, we’re all just human beings. And we have things that we’re interested in, and we’re open. So that’s true both within these giant tech companies, but wherever someone goes, don’t be afraid, be bold.

Hans Tung:

You and I both went to Stanford, and you and I are both Asian Americans. Before we go to Stanford, we kind of just want to do all the right things, take the right test, get the right classes, get the APs, and then do the right extra-curricular activities. So the resume is filled out. But like you said, once you go into the first job, it’s like what do I do? How comes so different from everybody from Stanford in the same class. Just add more to what Christine was asking, what kind of experience do you see young people in school that they should be taking advantage of while they’re still in school, and as soon as they started? For you, what are the other advice you can think of that help them to get a leg up and understand like I need to be different, even if I’m working at a big company.

Garry Tan:

Be different, be a purple cow, like Seth Godin says is absolutely true. And I wish I realized that a lot earlier actually. And especially in schools, even at Stanford, I knew I was gonna be an engineer, but I actually did Structured Liberal Education.

Hans Tung:

I did that too.

Garry Tan:

Oh, no way. Are you serious? That’s amazing. So I mean, that makes so much sense, actually now. It makes sense that we were both venture capitalists now, because that was sort of the point. It’s like we didn’t have to do the hardcore humanities track, but we did it out of interest. Actually when I got in, I looked for people who had been through it, and I basically cold emailed people who did the program and people who didn’t do the program. They did the standard IHUM normal humanities, which is like half the amount of work. And to a tee, all the SLE people said, I’m going to do it. So I don’t know. I mean that’s interesting, and that doesn’t surprise me at all. But you did it because that’s what is necessary in order to create. It’s not enough to be a great engineer. We run across great engineers all the time. But can you be a great communicator? Can you be a historian? Can you be a philosopher. We’re wear all the other hats too. Because only then can we create something that touches 7 billion people and never before has it been possible for that to be so present for this actually very technical thing. Software is eating everything, and we can build it, technology is touching every part of humanity and empower through basically infinite capital in the world. So that’s so exciting. I mean, honestly, when I talk to younger people, I’m so excited for them like I would love to trade spots with them because knowing I had to make so many mistakes to get to here, and there’s like so many things that they get to do.

Hans Tung:

From top schools, there are people who have internships at Google or at Unicorn, doing PM or doing engineering or even do consult for startup, do BD work. The resumes they have come out of college is someone who has like two three years of work experience already, and is going to a top school too. So totaling the amount of opportunity there is the kind of how different the culture can be, is mind-boggling. So school is not just about grades or about more going parties. It’s really for you to think about what is that you want in life, and then whatever experience you want to have, even outside of classroom to have a fuller and richer college experience.

Garry Tan:

Yeah. And then those are the people who will be your co-founders, your executives, your close friends over a lifetime. I totally underestimated that the degree how Stanford would change my life. I mean I’d never have met Peter Thiel or even worked at you know Palantir if I hadn’t gone there, and those types of opportunities in colleges everywhere, but you have to know where to look. Some places are everywhere, Berkeley, they’re amazing places there, the same thing happens but you also have to look for it a little bit. And that’s good.

Hans Tung:

You can go to RISD (Rhode Island School of Design) and co-founded Airbnb. So you can do all kinds of different things, but you got to know where to look.

Garry Tan:

Yeah. It’s so funny. You did SLE and I mean, it connects for me, because it’s not one thing like you can’t. I think society asks us all to be this one little washer or this little screw in a vast machinery. And that’s what capitalism asks us to be, but I’m not a washer or a screw, I’m a human being, I can do that. And I can do this. And I can do all these other things. And that’s the only way that you can be a founder is how do you hire? How do you attract talent? How do you manage if you don’t understand, all of the things that go into every function you don’t have to do it, you don’t have to be the world’s best at everything. It helps to be the world’s best at least one of those things. But then to be able to manage and corral and like cat herd, all of the other resources is the thing that the world needs the most.

Hans Tung:

Yeah, it’s both divergent thinking and convergent thinking. And when you have those kinds of thinking skills, you can see what’s around the corner faster. You can recognize patterns faster, because there’s stuff you learn that you love things that we do, people 1000 years ago have tried some similar things. So it’s the ability to think that the timing for something now makes sense not to something that may be tried 20, 30 years ago that says a history of those inventions that were great at one time, but they were too early. And having that this kind of complement way of thinking helped me to figure out when’s the right time to do the right things.

Garry Tan:

Oh, yeah, that’s huge. That’s huge advice, for sure.

Christine Hinton:

Garry and Hans, this is a question for you two. As you guys have sort of been entrepreneurs and now investors, and you’re talking about sort of all the different things that you’ve learned, are there things that you’ve had unlearned from going from one to the other and to think about how you approach things differently or look through or use a different lens to do a different job?

Garry Tan:

Definitely. As the biggest problem was founders who turn into venture capitalists, and I’m sure we’ve all had these experiences on boards we’ve been on or just helping other founders that we’ve worked with. It’s easy to make a mistake that it’s actually your company. And  it’s sort of both ways. The founders really want the advice, but they want soft advice. They don’t want someone to run the business. And even if you’re a very active board member, 5 to 10 hours a week, that’s not going to be even close to the 50, 80, 100 hours a week sustained over years and years that founders and executives will have put in. So I think that’s one of the biggest, hardest adjustments and the result is as an investor, you have to get used to Cassandra syndrome, which is you know, that this thing that is really bad will happen. And you can say that it will happen, but you can almost never truly guarantee that the founder will listen to you. And later they will say you were right. But that was a lesson they had to learn in the hard way.

Hans Tung:

They have to learn on their own.

Garry Tan:

Yeah. And that’s tricky.

Hans Tung:

Yeah. I have a similar experience, but approach it from a different angle, which is that I became an investor before I became a founder briefly. And at that time, coming from an investment banking background, it’s so easy to give advice. Because you think you know what the big picture is, you know where the end game is. And you think that it’s so easy, just do 123, you’ll get to the promised land. And once you start doing a startup, I realized that, man, it’s easy to give advice, it is so hard to execute. Because you’re dealing with so many other people who are maybe not all aligned the same way, motivated by the same thing. You need to get all of them, all move towards the same direction, inspire them, and give them enough benefits that feel of being part of your mission, makes sense for them. And it is so hard to do that, that is always easy to give advice from MBA textbook in the boardroom, but actually making a work and have the leadership skills to turn nothing into something, that is super, super, super, super hard.

Garry Tan:

Yeah. When you’re making something new, it gets that much harder. It’s never been done before.

Christine Hinton:

So Garry, thinking of working on something new, what are some of the big things that you’re working on right now, what are some of the big bets that you’re focused on?

Garry Tan:

Yeah, it’s funny because one of the reasons why I failed to say yes to Palantir was actually falling into this thinking that I needed to just work on things that were big trends. And now what I realize is the big trends that happen, they’re sort of the backward-looking thing that is a third hand story, told to reporters 9 months or 12 months after it actually happened. And we have lots of reporter friends, we love reporters, we love media, this is not a knock on them. It’s actually the founders and engineers and builders and small teams of like fringe people who believe X when nobody believes X. Those are the people who create the trends. And it’s really hard to understand that, founders who are getting started or people who quit their jobs often come to me and they’re like, Garry, you are VC. I’m sure this happens to Hans all the time. The number one question is always, what’s hot? And I’m like, dude, I could tell you, but you have to deal with that. That’s my long-winded caveat. I have things that I’m super excited about, and I think are actually continuing. So I’ll try and couch it with like, I’m not saying go out and do these things. But these are probably things that are continuing, this is an echo that will continue to bounce around and it will scare up like new ideas.

But one of the biggest ones for us is actually anti big tech, especially anti Amazon. But the big software companies are incredibly powerful, and they have access to capital, they have access to resources and AI, and the power of data just accrues massive power to them over time. So, if they are sort of The Empire Strikes Back, then the opportunity now is for startups to be the Return of the Jedi, which is great. We first saw with Instacart. Instacart was initially great partners with Whole Foods, and the day Whole Foods got bought by Amazon. It was crazy people were saying, what’s going to happen to Instacart, and the founder Apoorva said this is the best thing to happen to us. And in the next year, they signed every major North American grocer. And I think that is actually happening broadly everywhere. We’re seeing that repeat over and over again. And a lot of it is actually the bigger big tech gets, the more existential it becomes for the Fortune 1000. Because taking a step back, like what was my story, what is the story of Y Combinator, what is the story of software engineering broadly, I actually think that there are only, maybe 50,000, like 500,000 at most truly world class engineers, and that’s really a tiny amount in a world full of 7 billion people. There’s like very, very few people who are actually great at this stuff, which is shocking. And the reason why I know this is opened up your Apple calendar App, and even Apple with infinite resources, cannot ship a good calendar App. They can hire anyone. They have the best engineers in the world. But this is an App that’s used by billions of people every day. And it’s a piece of garbage and it’s full of bugs. So great software is very, very rare, actually. There’s very few people who are capable of really building it and then it takes people who not only can build it, but also build the teams that build it. And so that’s why startups have a chance.Do you think Kroger is going to hire those people? Taking any non-tech company that is a multi-billion-dollar company, they can’t go to UI UC, or Waterloo or Stanford or Caltech or any place and hire the best engineers. But startups can, and big tech and startups are the only ones that can actually. And that’s sort of the big macro shift. This wasn’t true. When people talk about smart enterprise, this is actually what they’re talking about, like world’s GDP. A lot of it is still paper and pencil, fax, email, Excel spreadsheet, like unstructured data, and all of its going to come over. So it’s too obvious on the one hand.

On the other hand, like, that’s a great roadmap for founders to go out and this is where being weird and fringe or having strange interests comes into play, be a purple cow, follow things that only you uniquely are into. Flexport is such a funny story to me because Ryan Peterson’s brother ran an import-export business. And they ran other businesses related to it. I think Ryan was one of the biggest importers of medical hot tubs in the US. And so that’s how we learned, he learned that there was a giant market that had no software in it, and he was going to build it. And I think that there’s basically infinite types. There’s so many more Flexport out there, and they’re just lying in plain sight, but it takes a very fringe weird experience that is not out of the norm. Plus, like all the other stuff we talked about, which is like curiosity, and polymath sort of thinking and all of that. It’s like these two things combined, make great founders and then founders are very rare as a result.

Christine Hinton:

So Hans, the same kind of question for you. As you sort of look out over the global landscape, what are you seeing? And how are you thinking about how all the different dots connect?

Hans Tung:

I agree with Garry that there are a lot of problems that can be solved because software penetration is rising, sector by sector, but the penetration is still low in the overall scheme of things. Look what was happening during COVID-19, and the tech stocks have outperformed the traditional economy stocks for a reason. Because tech can continue to grow during this time, they can still provide value when everything is shut down. And they can grow when others are slow down. And therefore they do get rewarded for the ability to do that. The amount of time it takes for them to slim down and also to iterate on product and pivot the business as needed, it is just much faster than the traditional business would. A lot of people think that an idea has to be really fresh to catch fire, it’s not something that’s as massive as sort of an anti Amazon, it is a 10 year kind of run, if not more.

When Shopify got started, a lot of people didn’t think it would be a big company. And look at the market cap today. And if Amazon is like iPhone, that iOS is a closed system, you can bet on someone’s fund and figure out and rally around the Android system. And Shopify has become that and more. Look at our investment in Wish from 2012, 2013 to now, very different company, and the size is quite different. So even something as that people talk about for the last three, four or five years, is there a way to build something as anti Amazon. As the world move forward 7 billion people to 10 billion in the next 30, 40 years, and with COVID-19 everything slows down, food will be a problem. So how do you automate food production? How do you figure out a way to containerize it and then be able to populate it in multiple places and build it in-house, indoors, vertical stacks. That is something that eventually will have to happen in order to solve the problem that we’re facing.

And with food, you look at what’s happening with utilization of it, there’s so much wastage in existing system, in existing supermarkets. A lot of food gets thrown out that couldn’t be processed or sold quickly enough. During COVID-19, it’s less of an issue, but normal times it’s just wasted. So Garry and I connect well, we co-invest in one of these food companies in Seattle. That’s solving problem like that. Robin and I did a deal investment in a deco that’s solving that kind of problem. So they are putting up things to do on the food side from production, from analytics, waste management, to distribution, to delivery, and even create some index around it to make the process of trading and managing the risks of movement in these prices of commodities, there are just a lot of things that still can be done. And now it’s another 10, 20 year run. And we have talked about self driving, there’s plenty of other opportunity, any one of that you look at, it could be hot. But the question is not what’s hot that Garry said, the question is, what are you gonna do? What makes this for you? Why can you do it, that no one else is as qualified as you doing it? How do you solve that problem that’s uniquely yours in a way that differentiates you? That’s what a lot of founders should really spend time thinking harder, and not just copying.

Garry Tan:

Brilliant. I agree 100%. That’s so true, Hans.

Hans Tung:

Yeah. It’s the same advice you’re given as well.

Christine Hinton:

Garry, one of the things that you guys have talked a lot about is finding the idea that works for you and really going out and doing it. But I think one of the challenges is really, as a founder being a good leader, and how do you build that? And how do you think about that, whether that’s managing remote teams, taking care of yourself? How do you think about that in terms of sort of finding the right founder and in developing into a great leader? And Hans, same question for you?

Garry Tan:

On the building front going back to what we said earlier, it really does take a polymath and great managers are not sort of born there. They’re definitely taught and only through sort of the fire of going through just so many difficult things. And that’s something that we see a lot of how do you take a great builder and then teach them to be a great cult leader. That’s it’s very, very hard for that to happen. I think historically, people don’t even try. Historically, here’s the founders, they made something cool. And then let’s bring in professional management that can bring it all the way. And I actually think that it’s a really positive shift. The reason why I think it’s happening now is we are all as a society, much more mindful about the plasticity of our brains. And so that actually means that people can grow and they can change, and the best founders can grow and change in the course of running their businesses. And then for me, going back to this idea of being founder-friendly, I actually think that that will result in more companies that succeed. If we can support founders that way, over much longer periods of time. The classic view is a year or two, you know whether you have a winner or a dog, and I have companies in our portfolio.

Obviously, we started off as tiny seed investors where we own 1%. But we were first money in anyway. And we would often support them with like, first money into their seed extension. And now we have operationalized it such that it’s the 10 year overnight success every founder will get punched in the face so many times, and it becomes sort of obvious which founders will make it. Some will get up dust themselves off. Importantly, they will actually acknowledge what went wrong. Like they will own the failure. For me so far, I haven’t actually done this job for that long. So the reality is, I would love to hear Hans and hear about his experience. I’ve only been doing this for eight years. But so far, I think every single time where we have a founder who is self-aware, who owns the problem and owns the mistake and then fixes it. Those are the people who make it, and anytime it goes the other way, it becomes this happened because of this executive or this other thing happened and it’s out of my hands. What it takes is like sort of this radical ownership of the company. But that is actually what a founder, a founder owns 50% of the business or 80% of the business, whatever it is, they are owners and they act like owners. It’s not someone else’s fault, it’s my fault. But then here’s what I’m gonna do to solve it. And then as investors if we can support that and help them with that, it requires an incredible amount of self awareness. And then the only tool that I’ve found so far is encouraging founders to actually engage in mindfulness, whether it’s meditation or executive coaching. If that coaching is good because you can expense it, 2e’ve funded Torch.io exactly because of this. It’s how you can get founders to be much more self aware. And then because they are at the core of the organization, if they are more aware, if they are more mindful, and they are able to have full ownership, then you see the organization grow and change. And it’s mind-blowing when it happens and it happens all the time. But you need support, like the founders needs support, and not every founder is able to do it aware that they should or they’re basically like ready to to be a leader in that way. And that’s the journey though.

Christine Hinton:

Hans, you’ve always given such great advice on this. Are there certain things that you see or you find that right founder for that right idea, helping them develop into a good leader and how do you think about that?

Hans Tung:

I think the leadership definitely is learned, not many people are actually born with it. And it traditionally is you do sports, you grow crew and play basketball, be captain, football, and learn how to do that.

Garry Tan:

I definitely didn’t do any of that.

Hans Tung:

Traditional enterprise sales, you see a lot of people do that will end up being investment in Goldman Sachs, Morgan Stanley, went through that route. But what was interesting about the Facebook experience is that you don’t have to do any of that. And if you have the ability to create and come up with the right product market fit, it gives you a lot of chance to earn the right to keep on going because you’re in a very fast moving evolving market, even though we’re not investor early on in Zoom. But just watching Eric Yuan evolve is amazing that someone who understood the problem with WebEx where he was for a while, and know all the engineering issues that goes wrong with it. So he wants to do his own startup. Nobody wants to find a mainland China born engineer here in the valley doing something like that, the values he brings in, how he thinks about things, the Americaness in him and in the globalness in him. He cares for people, no one bring happiness on a solved problem by doing the right things is so universal and so basic. And so something that anyone who wants to something good in the world can relate to.

And that’s the guideline he used to solve all these problems. And a lot people didn’t give him a lot of time in the day and think that hey, you don’t exhibit in the traditional leader, that someone who has the previous back on the mission crew sports, investment banking, enterprise sales. That’s the humanist principle that he utilized, the values that Garry and I learned from SLE at Stanford. He didn’t take grades, but he exhibits that. And so if you look, Brian Chesky on the recent podcast and Recode on how he solves problems, is that doing the right thing. Do you get back the deposit or not? Every decision he made, he tried to do what is humanly right. But at the same time, those end up generating such a goodwill in the ecosystem that because my posts to understate and go through the prop this issue, this period with him, and he knows that it’s not easy but he can figure out a way to make everything clean so that he knows how to do to provide that clean experience when the solutions are lifted. So a lot of things he does is not just about making money, it’s about doing the right thing, making the way, now ends up having a very practical and beneficial outcome. And those are best learned through experience and practice. They must be guided by certain values and principles. So as Garry was saying earlier, you gotta have that humanist structural liberal education inside of you have principles the same time gotta be able to code or design to the functional things that you’re good at, in order to get credibility. And we can do both kinds of things well, that’s how you have people want to rally around you and and work with you, and follow you.

Garry Tan:

And that’s a great cult leader. I mean, all the things that were successful in my life were very powerful cults, I mean cults in a good way. Religions.

Garry Tan:

People really, especially now, they need meaning. People ask me often how do you recruit? And then the easy answer is to pay them a lot and give them a good job. But the real answer is actually give them meaning.

Hans Tung:

Yeah. And easier said than done, and found that I can do that and end up being outperformed the rest, for sure, for obvious reasons.

Christine Hinton:

It’s amazing. Garry, this is changing up a little bit. But one of the things that I think you’ve done that sort of built your own cult is on your vlogs and everyone at GGV is so impressed. We’re huge, huge fans.

I think I was telling you before we got started today, we all have watched a lot of when we circulate them internally, but I think you’ve got your own cult following at least GGV on it. But one of the things is what motivates you to do it? They obviously take a lot of time they’re very well done, but what motivates you to do it?

Garry Tan:

I met Casey Neistat, who is an incredible YouTube vlogger. Legendary, really, one of the first you know, his videos get easily millions of views every single time. And he came by the office and our interns who were 20, 22, they walked up to Casey and talked to him like they knew him, but they had never met before. And I saw that and I realized, this is an incredible time for media. And of course, I watched Casey’s vlogs after that, and I could see exactly why. At Stanford, I did some research with the late Clifford Nass, who was in the communications department. And his whole thesis was that people treat computers like people. And so when you sit there with Tik Tok, or you sit there with YouTube, the video that you’re watching is your body actually processes media, like you’re sitting across from that person. And especially, Casey took it to the next level, because it was every single day. I’m struggling with my full schedule as a VC to do it every week. But it means a lot to me that people will subscribe, I asked them to hit the bell. And then what happens is they get 10 minutes with me every single week, and I try to basically not waste their time. It’s like what is beneficial, what is valuable, what did I learn this week that might be helpful to people who want to start. And that’s why I do it. I think that every business today is a meme now. And it’s really amazing.

I think we’re only beginning to see what social media really means. If you zoom out on the historical context, I think what’s happening is society’s entering that next age because of infinite internet access, and mobile phones and computers. And the last time this happened in society, it was the book, it was the Gutenberg printing press. If you spend time around the web, it’s like, we’ve been talking about this for a while, but it’s easy to forget. And it’s a direct line from all of that over to what we’re doing here, we’re trying to reach out, we’re trying to connect, we’re trying to actually have empathy for one another, understand each other and help each other. And that’s what books were about instead of having to farm someplace just barely to feed ourselves, we get to sit here and talk about the world of ideas. And that was the book it took 500 years to usher in modernity really through that type of communication technology. And so not to get all futurist on it. But you we really are at the very, very early part of it, we don’t even know what it’s gonna look like. And then how do we pick our places? How do we find people who are like Eric, or like Brian, or many other people who are gonna help bring about the future faster?

Hans Tung:

Garry, you once said that finding the right founder is more important than having a thesis. Without having a prepared mind, having a thesis, how do you know that this right founder is doing the right thing?

Garry Tan:

Yeah, my secret for how we do early stage is we take a pitch as if I was an engineer deciding whether or not to go work at there. So in some ways maybe I put myself back in that 22 years old.

If I’m sitting down with Peter Thiel again, would I knowing what I know now, go work for them. If I wasn’t working on Initialized, do I believe? Is there a meaning? What are they trying to do? And then do I believe that must be manifest, it’s almost as simple as that. Do I believe? And if I believe then, here’s my X.

Hans Tung:

Yeah, that’s good advice for people even looking for jobs, looking for startups to join. I guess it’s a big skill set as a VC finding early stage startup.

Garry Tan:

Yeah. Find a calling, find a mission and the reality is like, that’s how you find success. People who can give you that mission, who can rally other people who are as smart as you or smarter. That’s the closest thing to the miracle. That is a startup that works.

Hans Tung:

Everybody knows the way out is that, hey, this is a x of y. So that model is successful. This is the Uber of X. Therefore, Uber did it, and we can do it too. And there’s no risk. So join me and we make a lot more money to go. That’s the sort of a standard way of pitching something.

Christine Hinton:

So quickfire question. So here we go. What’s the single piece of advice you would give to founders today?

Garry Tan:

Founders who are up and running right now, we were talking about this today in our all partner meeting, I think right now in COVID times the difficulty is the advice is to get 18 to 24 months of runway. And the difficulty is if we have a recovery faster, you’re fine. But if we’re recovering slower than that, and that’s a real possibility, what do you do? And then the answer is either get to default alive, or do whatever you can to grow out, and that’s sort of the biggest newest piece of advice that we’ve been thinking about at Initialized because three months ago when this started, it was batten down the hatches, it’s gonna get rough. And that’s still true. I think the second piece of advice now is you have to be prepared for something that’s longer, especially if the COVID times flatline the growth like if you go 18 months, you’re flatlined, it’s the same as being dead. If the recovery doesn’t happen, and so, got to think about it. Now’s the time, everyone still has runway so now’s the time to do something and think through it.

Christine Hinton:

It’s great. What is an investment, financial or non financial, that you’ve made in the past that has yielded the biggest return?

Garry Tan:

Coinbase so far is by far and away our best investment ever. And I think that’s a really good example of what I think happens all the time, especially we’ve been talking about Airbnb for a while Brian Armstrong, who created Coinbase, was the head of anti fraud for Airbnb. And he went home for a break, read the Satoshi Nakamoto white paper and knew he needed to quit his job. And I had bought Bitcoin by then, I read Hacker News, and I wired sketchy money to Nigeria, so that it would show up in Mount Gox. And I got some Bitcoin. I was like, never again. And so I think that was one of the best examples ever of here’s someone who was perfect founder market fit, who found a fringe idea that he believed X and nobody else like him believed X yet. And he quit like basically guaranteed money being very early at Airbnb to take a big chance. And then that’s actually something that I think happens a lot. You can really follow great engineers and see what type of opportunity they’re willing to give up? They vote with their feet, they vote with their lives. Actually we as investors get whole portfolios and we’re highly de-risk comparatively. And for founders to quit and go work on something very fringe, when you’re right you have a billion dollar company at least. I can’t believe this is my job.

Christine Hinton:

Who’s the entrepreneur that you admire most?

Garry Tan:

Rather than answer that question, can I answer with like, the most tenacious. I mean, Apoorva Mehta at Instacart. I will always remember that so he was cold emailing YC partners and try to get into YC. He had written initial version of Instacart with had a demo he had hired two people off of Craigslist to work with the Safeway, in Mountain View. He emailed all the partners; I think I was the only one to respond. And he said hey, I’m starting now I know this is YC, it is over half over. It’s only a 10 week program. It was five weeks and, and I replied and said, hey, this is really amazing. But it’d be almost impossible for you to get in now, for me to get you in now. And he sent me a six pack of beer right away. And I downloaded the app. And I turned around and said, this is intelligence. We kind of need to do it, I don’t care what the rules are. And it’s one of the best investments that whole year for YC. And I have so much respect for him. Because many, many people take no and then they’re like, well, it’s a no. And so for Apoorva in that moment, so you’re saying there’s a chance and then he took that chance. I’d like to think that I would do the same but the reality is no, there are some people who will take a no and they will turn it into a yes. And I respect the hell out of that. It’s really impressive.

Hans Tung:

I mentioned earlier both of us are Asian Americans and it’s your train from early on, just do the right thing, follow orders and here’s a checklist, you check them all and you can be okay. And the world does not work that way. And you want to build something, do something different. You gotta both have the via docility to say something different. But you have also be right about it. Having the ability to both see the right things and gain conviction enough to say now whatever it takes, I want to push this even everyone else says no, how to do both? That is something that most of us are not trained to do. It’s hard. So I believe in 10,000 hours preparation, whatever we can do to find that opportunity to put himself in regular daily lives to keep on picking out things that they can do to make decisions that are not as popular or not as obvious, but have a conviction to stick it through and force yourself to persuade other people over time without being annoyance to get people to be on your side. That is the training, that’s going to be the most important thing. Both judgment and persuasion, if you have both lock down, then that’s now you can do anything you want.

Garry Tan:

The world is your oyster.

Hans Tung:

Correct. Doesn’t matter your backgrounds in anything, you’d be trained to do those two things well, and you can make it.

Garry Tan:

I like this context for all of us thinking about, especially there will be many founders listening. And the reality is, I think that we elevate founders to sort of hero status so much, and then all of these things are actually, they’re not innate, I feel like they’re learned. People are totally capable of, their brains are so plastic, people are amazing.

Hans Tung:

And they are both learned and also at the same time, it definitely takes practice. It’s extremely uncomfortable. It goes against the brain. It’s not easy at all. It’s much better, easier to go with the flow.

Christine Hinton:

Garry, speaking of things that are learned, what’s a habit that you think has changed your life?

Garry Tan:

I guess the one that comes to mind is the silver lining on a lot of COVID-19 stuff is I spend so much more time with my family, and it’s been amazing. So, number one habit that’s changed my life is I cook breakfast every morning now. It’s amazing. It’s just so nice. What do you want to eat this morning? I have a couple little kids. I have a four-year-old and a one-year-old. For one-year-old, he can’t talk yet but he eats whatever I give them, but the four-year-old , there’s a moment when I cook something really good for him, and he eats it, or he takes the first bite and he looks at me and he’s like, Daddy, your eggs are the best. And I was like I don’t have to do anything else that day. I’m done.

Christine Hinton:

And then just lastly, what’s something that you read recently that you would recommend?

Garry Tan:

I’m walking through Carol Dweck’s Mindset right now, which is sort of canon really for the big movement. I think in business for mindfulness, this idea of people are plastic, their brains are plastic. Plastic brains are good, people plastic that’s not so good. Their brains are plastic, which means that you can change your mindset. And I’m really obsessed with this idea right now of meta programming, through mindfulness, through training, through therapy, through meditation, through coaching, through really a lot like probably 1000 years almost mystic secret knowledge that people have built up. You can reprogram your mind. And then if you can do that, then you can actually reprogram the outcomes of your life. And I think that’s the path. I believe that it is a mindset thing.

Hans Tung:

100% agree.

Garry Tan:

I’m getting very Tony Robbins these days. COVID-19 stuff is driving me nuts.

Hans Tung:

Great. Thank you.

Garry Tan:

Thank you so much for having me, man. I’m looking forward to you coming on my channel and we get to turn the tables. It’s gonna be great. It’d be great to hear your story, man. I really appreciate it and appreciate all the listeners and watchers right now. This is really cool. Thank you guys.

Hans Tung:

Very cool.

Christine Hinton:

Thanks, Gary.