Elizabeth Yin, partner at acclaimed Silicon Valley accelerator 500 Startups, warns that unless tech founders are prepared to hustle, sell and stare rejection straight in the eye, the entrepreneurial road will be a tough one.
Elizabeth Yin is a partner at San Francisco-based 500 Startups, a $250m VC fund and start-up accelerator that employs 125 people in 20 countries. It has so far invested in over 1,500 start-ups.
Prior to joining 500 Startups, Yin started LaunchBit, an adtech company that she sold two years ago. She now runs the Mountain View accelerator for 500 Startups, a regular four-month programme offering investment of $150,000 fees for 6pc of participant companies (less $37.5k fees).
She will be in Dublin next week (21 and 22 September) to address the SaaStock conference, the biggest gathering of B2B SaaS executives outside of Silicon Valley this year. She will also be speaking at Bank of Ireland-backed Startup Grind on 21 September at Google’s EMEA headquarters.
‘Getting over the fear of rejection helps you in a lot of facets of life’
– ELIZABETH YIN
Yin is the third member of the leadership team at 500 Startups that I have met in the past year. Last year in San Francisco, her colleague Marvin Liao said the key to successful start-ups is sales and emphasised, “We don’t do PowerPoint start-ups.” In Dublin this summer, 500 Startups’ co-founder Dave McClure urged investors to make lots of small bets on smart people.
For Yin, the tech start-up world is full of risk, and ideas alone won’t cut it.
The art of the hustle
In some countries and cultures, selling is something to be frowned upon. Some technologists would say its beneath them. For Yin, a Stanford graduate, it is a pragmatic thing to do if you want to take the fastest road to success.
“I grew up in the Bay area during the dot-com boom and a schoolfriend of mine was helping her cousin during winter break with his start-up and she asked me if I would like to help out. His next start-up was later sold to Amazon for almost $1bn. I was impressed with the camaraderie as all the guys pitched in and built furniture for their new office. I was struck by how people had the flexibility to come together and build something – one minute it was tables and chairs, the next a compelling technology product.
‘Lean start-up methodologies certainly help with survivability, and more start-ups are surviving to a greater level than they did before’
– ELIZABETH YIN
“This spurred me on to study engineering at Stanford and, with the same friend, we set up LaunchBit.”
Witnessing the fallout of the dot-com bust didn’t phase Yin because she had already made up her mind that the economics of the time didn’t add up and some businesses deserved to fail.
“Starting any business, whether it’s a tech business or not, is very risky. This is a very different era from the dot-com boom when no one knew what they were doing. It is all down to unit economics.
“Look at Pets.com, it cost them more money to ship dog food than they were making. When I was in college I could order a single apple off Webvan and it would be delivered. An apple!
“I think we are still seeing some of this today in the on-demand and sharing economy so it is important to think about unit economics. It has to make financial sense.
“Most companies being formed today don’t have those characteristics. That doesn’t mean that ordering groceries online is a bad idea, Amazon is doing very well at it. But now that more time has passed there are a lot more philosophies around how to de-risk your company. The lean start-up movement is fundamental and is a good way to test your market first and de-risk your venture.
“That was the biggest problem for entrepreneurs, not knowing who would want your product. Lean start-up methodologies certainly help with survivability and more start-ups are surviving to a greater level than they did before.”
Yin points out that 500 Startups largely invests in companies that have a product and have already demonstrated some traction.
500 Startups invested in her first company, LaunchBit, and Yin said she was surprised when she was invited back as a partner.
“We expect you to have a certain level of traction and our role is to help you optimise the acquisition exercise. A lot of investors expect some level of hustle-savviness these days.
“With LaunchBit, we absorbed the lessons of the lean start-up methodology espoused by Eric Ries and that’s precisely how we went about it. We started selling before we even had a product. My partner and I both had technical backgrounds and the natural inclination was to build product first but we realised that building a product that maybe no one wanted is not a good thing.
“With LaunchBit, we started selling ads before we even had an ad server or a way to load ads. We just started pre-selling those ads and, surprisingly, people did buy. Once we had the sales pipeline we started building the product.”
She said sales didn’t come naturally to her. “I was terrified. I had no idea how to sell but eventually I got very good at it and I started to think, ‘There has to be a way for people to learn and develop a thicker skin to build their start-ups.’”
To this day, even despite a successful exit with LaunchBit and from her vantage point as an investor, Yin is concerned about sales skills and runs her own ‘Rejectionathon’ event to help founders deal with a bruising sales cycle.
“When you are in a start-up and you are only two people, you either sink or swim. I got lots of rejections. I think you have to hustle and sell. It’s a great skillset for anybody, not just entrepreneurs. Getting over the fear of rejection helps you in a lot of facets of life.”
‘The original SaaS players like Salesforce and Marketo were all about broad implementations, but I believe we are going to see more specialised verticals emerge, especially for industries that didn’t have software’
– ELIZABETH YIN
While things are better than during the dot-com era, Yin warns that things are slowing down. “I don’t think we are in a downturn but the number of Series A rounds have been slowing and the number of tech IPOs aren’t happening at a rate that investors would like, so it is affecting liquidity. Investors are reserving their funding for companies that haven’t yet exited.”
While it remains to be seen what will happen, Yin believes that the sure bets are going to be in the areas of B2B and software-as-a-service (SaaS).
“One area I am excited about is the more-specialised software for B2B companies. The original SaaS players like Salesforce and Marketo were all about broad implementations, but I believe we are going to see more specialised verticals emerge, especially for industries that didn’t have software.”
She points out the evolving marriage between software and machines and points to a company called Cosy that has created a platform whereby drones can do stocktaking when stores are closed.
“Another company we have invested in is an Irish company called PlotBox, which is CRM for the funeral industry. With their technology, you can fly around using software to take aerial views of cemeteries and run funeral businesses and cemeteries with greater accuracy. Apparently, a lot of mistakes were made with pen and paper down through the years.”
Yin said that moving from being an entrepreneur in the trenches fighting for survival to being a partner at one of the most eminent investment firms in San Francisco was a big transition.
“As an entrepreneur, you have the reins, but as an investor you don’t. Even though you are investing money and time, you are really just a coach and you have to believe that, ultimately, the founder is going to make the best decisions.
“I like how things are now. Compared to the 1990s, there are more start-ups and more investors than before and it is cheaper and quicker to get more traction than before. The playing field is certainly more level and you don’t need to be rich to start up.”
Updated, 7.30am, 20 September 2016: This article was updated to reflect 500 Startups’ latest investment terms.