Shyp Raises $50m: Some Inside Baseball Notes

Obviously thrilled that Shyp raised a $50m B Round from Kleiner Perkins. As we noted on the Homebrew blog, this is a company with so much growth ahead of them, it’s great to put capital to work. Here’s some more detail on the round, our involvement and what I think it generally means for startups.

  • Pro Rata. We remained enthusiastic supporters in this financing, making Shyp the first investment in our Moonshine fund. Moonshine is allocated to pro rata in primarily the B and C rounds of companies from our core funds, when we believe there’s still venture-scale returns to be had for an additional dollar invested.
  • Boards. Satya and I strongly believe in the value of Boards at the seed stage because they help founders build cadence heading into the A round. When Homebrew lead Shyp’s seed in 2013, I joined their Board. When Sherpa lead the A in 2014, Scott Stanford was added and has been a huge asset. Now with Kleiner’s John Doerr stepping into a Board role, I’m able to step off into an Observer role. Homebrew’s model is to be partners of conviction for your first few years but we also think founders should not be overwhelmed by VC opinions or control. So we’ll typically step off boards come B rounds.
  • Google network rolls deep. I’d met John Doerr a few times while at Google/YouTube because of his role on their Board but that wasn’t the only Google-tie in this deal. Kleiner’s Megan Quinn was one of the early champions for Shyp within their firm. Prior to Kleiner (and a leadership role at Square), Megan held a variety of roles at Google. It’s always fun to bring familiar faces back around the table just in a different context.
  • Breaching the Gates. Shyp didn’t run an exhaustive financing process but instead ended up speaking with just a small number of firms who had built relationships with them over time. It was very impressive to see how Kleiner and some other name brand firms did a good job of working with Shyp’s CEO Kevin Gibbon, building trust and proving value. Over time I’ve seen some VCs wait to be told a company was raising. Over time I’ve seen some VCs offer help but do very little proactively (at least until that company is in their portfolio). And over time I’ve seen some VCs get excited but then hesitate at the last minute when it comes for them to stand up in front of their partnership and pull the trigger. Not here.

So if you haven’t tried Shyp yet, here’s a free first shipment (up to $30). They’re currently live in SF, NYC and MIA with a beta in LA. They’re also hiring.


Your Total Addressable Market Stat Is Probably a Lie

If your pitch includes “And if you think of all the people who currently have a pet, that’s $80 GAZILLION DOLLARS of TAM,” you don’t even have to say “if we get only 1% of that we’re a unicorn,” before I start rolling my eyes. For me, at seed stage, there are so many more important questions about a market’s attractiveness than its current overestimated size. Such as your understanding of customers and their needs, is the market growing or shrinking, how urgent is the problem you’re solving to that market. Besides if it’s a non-incremental concept, we’re probably underestimating the market size anyway. Airbnb? Big difference if you sized their TAM as “hostels” vs “hospitality.” Uber? Yeah, not just limited to the spend on black cars. And so on.

On top of that it’s actually not the total size that gets me most excited, it’s the Addressability. How are you going to acquire your customers and what insights or unfair advantages do you have in doing so? I know SMBs are a large market but how are you going to efficiently sell into them? Yes there are lots of retail stores which could benefit from your commerce and loyalty program solution but where do the first 1,000 customers come from? You want to sell into hourly shift workers? Excellent, give me the plan to reach them (Even did, that’s why we invested).

So tip for seed founders, when you’re pitching investors focus on the A in TAM. It’ll help make your strategy more tangible, expose the depth of thought you have and differentiate you from the people who just claim a large market and wave their damn hands on the gap in-between some aggregated numbers and actually selling something people want.

Referral Programs Power the On-Demand Economy

Every on-demand app I know generates substantial volume from their referral program (let’s lump word-of-mouth into this as well since it often involves sharing a referral code). You know the “sign up a friend, they get $x off their first use and you get $x too.” I can tell you that Shyp’s referral program drives a significant amount of high value signups at an effective CAC much lower than app promotion on Facebook (and the Facebook, Twitter programs are still ROI positive).

If one can assume that referral programs are ultimately rational spend – that is, the programs are sustainable and aim to generate acquisition of a customer worth more than the freebies given to both the new customer and the referrer – then referral program terms actually tell you a lot about the margins, frequency of use and LTV of each market.

For example, Uber – with what I guess is a HUGE LTV – can afford to give free rides up to $20 discount to new customers and their referrers. Boss.

Shyp does a free shipment for each side up to $30 in value (that should tell you a little bit about how valuable an active customer is for them :) ).

Massage services also high value because high pricepoint – UnwindMe is Give $25, Get $25. Zeel is the same.

The food guys have a little more divergence among themselves and generally less value because margins are so low. Munchery is Give $10, Get $10 (although currently doing a $20 promo). Doordash is Free Delivery/$5 (I think). Sprig is Get $10, Give $10.

Some analysis of these referral programs would probably make for a good tech blog post.

  • Crafty strategies by customers to rack up referrals (I’ve seen people use SEM for their referral codes, create fake social media profiles, etc)?
  • How do the companies prevent abuse?
  • How do they experiment with value props to optimize CAC:LTV?

And so on….

UPDATE: ask and the internet delivers. Here are some links to more referral program thoughts ->

  1. Thoughts on Referral Programs by Josh Yang
  2. Airbnb Teardown by Jason Bosinoff
  3. Dropbox’s Referral Program’s Genius by Sean Lineham
  4. How to Optimize Referral Programs by Ina Herlihy

A Good Marketplace Looks Like a SaaS Business

Board Meetings are great ways to finish the week. Wait, let me revise that. Board Meetings are a great way to finish the week when the founders are describing a provocative discussion of the future. I had such a Board Meeting yesterday with UpCounsel, an enterprise marketplace connecting businesses (usually between 10 – 1000 employees) to high quality independent lawyers to address a wide variety of legal needs such as employment issues, contact negotiations, incorporation and expansion, etc.

Matt Faustman, UpCounsel’s cofounder/CEO, was highlighting interesting behavior by their customers over time. Namely the large amount of ongoing spend from companies who had used UpCounsel. This repeat usage let Matt start each month with a forecast of what percentage of revenue would come from previous customers versus new sales efforts. Without betraying his confidence I think it’s ok to share that for UpCounsel this metric is well over 50% on a monthly basis.

Of course it’s much easier to build an up and to the right graph when you can build off ongoing spend, but unlike a typical SaaS, most marketplaces don’t have a true subscription revenue stream, they just have active customers to draw upon. UpCounsel is still a seed stage company so while they’re in a healthy seven digit GMV runrate, they actually haven’t done much work at all on customer success or reactivation marketing. We’re just starting to see the maturing of early professional marketplaces, especially those involving white collar skills like legal (UpCounsel’s lawyers average 15 years of experience) but it’s possible they have same – or better – repeat spend rates than even the most enthusiastic consumer ones (for context, Etsy’s S-1 noted 78% of their revenue comes from repeat spend).

doug bigger

Five Questions with: Douglas McGray, Editor-in-Chief of California Sunday Magazine

So I’ve been doing these “Five Questions” interviews recently and, personally, I’ve enjoyed hearing from, and helping to spotlight, different folks from the tech community. The format brings me back to my brief stint at Late Night with Conan O’Brien where I worked on the team researching guests and helping to write interview questions. Usually with these posts I’m reaching out to people I already know but sometimes it’s an opportunity to meet someone new. Like Douglas McGray, the CEO and EIC of California Sunday Magazine, a newly launched multiplatform magazine. This article on the donut business was the first that made me say “damn, this is good writing” and I’ve enjoyed many issues since. 

Hunter Walk: So a few months back this amazing magazine called California Sunday started showing up monthly. How do you describe California Sunday to people and why does it exist?

Douglas McGray: I’m glad you’re enjoying it! The California Sunday Magazine tells stories about people and culture and ideas in California, the West, Asia, and Latin America for a national audience. We pair those stories with really striking, original photography and design and deliver them to people when they have time to enjoy them: the weekend. We create a great reading experience for the web, as well as a print edition, which gets delivered with select Sunday editions of the Los Angeles Times, San Francisco Chronicle, and Sacramento Bee.

HW: Why “California” Sunday? Would New York Sunday work? Texas Sunday?

DMcG: Most of the really good magazine-style features we read are published by East Coast media companies. Those companies tend to be pretty East Coast–centric. But the West Coast is huge and fascinating and influential. And when you live here you feel an especially close connection to Asia and Latin America. All that makes California an unusually great place to find compelling stories, and a pretty perfect home (we’re based in San Francisco and Los Angeles) for a premium media company launching today, looking forward.

Plus, when you think about it, California is more than a place. It represents a set of ideas and values; a look and a feel. We reflect those qualities in our work and in California Sunday’s brand.

HW: You took an interesting approach to initial distribution, getting bundled alongside the Sunday newspaper in several cities. Can you talk more about how that developed?

DMcG: A few years ago we created a live event series, Pop-Up Magazine, which features writers, radio producers, photographers, filmmakers, artists, and musicians performing multimedia stories for a live audience. (We have fun shows coming later this month in San Francisco and Los Angeles. Details at The series had become popular. We held shows at the 2700-seat symphony hall in San Francisco that sold out in a few minutes. We collaborated on a music show with Beck and McSweeney’s and a sports show with ESPN. I thought there was an opportunity to start reaching a bigger audience, bringing stories to people in different ways.

I was especially interested in leisure time, when people have more time to pay attention, take something in, enjoy it, remember it. By design, Pop-Up Magazine produces shows for evenings out. The other time of the week that interested me was the weekend. I noticed that none of the big West Coast newspapers included a high-end, feature-driven magazine. Despite what you hear sometimes, print can be a great platform and a great business, or part of a great business, if you can reach a certain scale. It occurred to me, we could pay the newspapers to insert the print edition of a new magazine in some number of their copies — and pick zip codes where demographic research shows the most enthusiastic audience for this kind of magazine is likely to live. Newspapers offered an efficient, existing distribution channel. So a lean, nimble media company could launch with, say, 400,000 circulation, a huge launch for a traditional media company. And that reach that would appeal, right away, to national advertisers. And we wouldn’t have to spend years and tens of millions of dollars getting there. We approached the newspapers about buying insertion, and they knew Pop-Up Magazine’s reputation. They thought it was a great idea. So we were on our way.

HW: When I talk with tech startups we focus a lot on quick learning and iteration. What have you learned after the inaugural issues? Where were you right, where were you wrong?

DMcG: We thought it was important for a media company today to have multiple sources of revenue. Too many media companies are overly dependent on one revenue stream, like web advertising. We sell subscriptions and live event tickets; we can offer advertisers print pages, digital experiences, live event sponsorship; we have a small in-house studio, separate from editorial, that partners with brands and agencies to design creative “story advertisements” (a campaign with Google has gotten admiring coverage not just from advertising press but also Rolling Stone and New York Magazine); and there are at least a couple additional revenue streams we’ll be looking at in the weeks and months ahead. This approach has gotten us off to a good start. We’re just a few months old, we have a lot of hard work ahead of us, but the mix of live, print, digital, and creative services, and perhaps more seems like a sturdy foundation.

Also, we continue to love publishing for leisure time. So many huge, rich media companies are competing for the same slivers of time — when you’re killing a few seconds or minutes during the workday. We thought we could reach a great audience offering a complement to that, focusing on nights and weekends, and so far we think it’s going really well.

Initially, we published monthly, pushing stories online when they came out in print. Now we’re publishing stories online just about every weekend, and we like that rhythm better. I’m eager to publish more stories every weekend.

Our biggest mistake… We thought there was an opportunity to launch as a lean company, and produce big-media-company products (a high-quality, big-audience print and digital title; ambitious, big-audience events). We wanted to be cautious about growing the company too quickly. A few months in, we think there’s an opportunity to grow faster than we projected, and especially produce more Pop-Up Magazine events, including new kinds of events. We’d like to take some steps to make that possible. But, frankly, I’d make the mistake again. We could have bet big on the wrong approach. We have a very good idea, now, exactly where the greatest immediate opportunities are.

HW: More content and more formats than ever. Fixed amount of attention. What happens?

DMcG: Great opportunities to bring people stories in old ways and new ways. Smart, beautiful stuff has a way of finding an audience. It really is an exciting time.

zach sims

Five Questions with: Zach Sims, Codecademy CEO/Cofounder

I honestly don’t recall how Zach and I met but it was likely via a mutual NYC tech friend or his snappy Twitter stream. Either way, he’s cost me thousands of dollars alerting me to notebook and backpack/gearbag projects on Kickstarter that deserve support (he’s also into pens, but that I just don’t get). Codecademy has been focused on helping people worldwide learn to code. Recently they’ve been pretty heads down on global expansion so I thought it would be fun to check in with Zach for Five Questions.

Hunter Walk: First, let’s just refresh folks on how Codecademy got started

Zach Sims: We started working together in January of 2011 after my cofounder Ryan and I saw the huge gap between education and employment. I was a Political Science major working at GroupMe in my free time and realizing that what I was doing in the classroom was entirely different from what I was doing in the working world. Ryan, meanwhile, had started teaching people to program through a club he started at Columbia, the Application Development Initiative. The two of us started trying to find a way to reduce the gap we saw between the classroom and the real world, but ended up taking a number of different approaches before settling on what became Codecademy (which ended up starting over the summer when we were in YC). Over the summer, I was teaching myself to program with Ryan’s help and using everything I could find (books, videos, tutorials, etc.) so I could contribute more to what we were building. Eventually, we realized that building something for me to help me learn to program would help solve the original problem we were solving — connecting people with the most in-demand skills to help them find jobs.

HW: Startups are about testing, learning, iterating. What’s something you believed to be true a few years ago that now you realize was wrong?

ZS: Early on, I think we thought overcommunication was a problem. As a consequence, we didn’t communicate vision, objectives, or projects clearly enough or often enough to our team. Now, I try to integrate the company’s vision, strategy, and objectives into nearly every meeting — there’s no such thing as overcommunicating in a startup.

HW: It’s easy to get distracted with shiny objects – conferences, events, press – how do you decide what to participate in vs stay heads down?

ZS: I think this is a constant process and it’s something I try to be hyper aware of (and, to be honest, I try to say no more often than I used to). Each quarter, our team sets goals which them trickle down to individual goals. I set mine and try to make sure that things like conferences, events, and press fit into one of my priorities. Otherwise, it’s either personal time or it doesn’t make it on my schedule.

HW: How nervous were you on The Colbert Report?

ZS: I was definitely a bit nervous I’d end up skewered like some of his guests, but Stephen was friendly in the pre-show conversation and actually mentioned he was a fan of what we were working on. He ended up with a few dangerous questions, but it didn’t feel adversarial at all.

HW: Who are two underrated folks in the New York tech scene? Don’t worry, I won’t ask you for overrated ones…

ZS: There are almost too many people I know at this point to count. I’m a fan of someone who actually unfortunately just left the New York tech scene: Moawia Eldeeb, the cofounder of SmartSpot (a Y Combinator company in this batch).

Five Questions Charlie O’Donnell Asked Me to Answer

So, I was going to do a Five Question Interview with my friend Brooklyn Bridge Ventures founder Charlie O’Donnell but he turned the tables on me. Charlie suggested that I answer five questions from him on my blog and he’d do same on his. Mine are below and you can read Charlie’s here.

Charlie: What’s on your priority list to learn how to do better as an investor?

Hunter: Two main priorities – refine my own playbook and iterate/learn with the urgency of a startup, not a typical VC fund. I’ve written before about ‘playbooks’ and my desire to not be Fred Wilson 2.0, Brad Feld 2.0 or Marc Andreessen 2.0 (or any other notable investors) but Hunter Walk 1.0.

For Homebrew overall, Satya and I have a 20 year roadmap that we’re executing against. Our “product lines” are Credibility (in the marketplace), Community (among Homebrew founders, advisors, friends) and Counsel (high quality and scalable). We aren’t interested in just raising money, making some investments and seeing what happens. The way we think about it is, we have a small number of principles and a large number of hypotheses. We’ll stay true to our values while we test and evolve our tactics.

We raised our first fund on reputation and history. Our second fund on momentum. Come fund three, it’ll be results more than retweets that our LPs are judging us on :)

Charlie: Mark Zuckerberg leaves Facebook to start a new company.  He’s raising $20mm on a $200mm post for an idea on a napkin.  Are you automatically in, do you ask him what the idea is, or do you pass on valuation?

Hunter: Our model is to make 8-10 investments per year where we believe we can commit enough capital (aka ownership) so that a successful outcome can be meaningful to our fund. So let’s say we did $1m of that round. In order to return 1x our fund ($35m), he’d need to get to $7b valuation. Bet on Zuck :)

Charlie: Who are the three most underrated investors in venture capital?

Hunter: “Most underrated” is tough to answer so I’m going to answer slightly differently: here are three investors at different stages who I think are great and don’t seek out press or brag as much as some of us do.

Angel – Scott Belsky

Scott founded Behance and is also an active angel investor. We’re lucky enough to count him as a friend and Advisor to Homebrew. He’s an investor in Uber, Pinterest, Warby, Shyp and many other successful startups. There are MUCH less successful angels who crow about their wins. Scott is just an amazing smart and decent guy who really works with his investments. A gem.

Seed – Manu Kumar/K9

Another guy who stays out of headlines unless he’s helping a portfolio company or discussing an industry POV where he has actual experience, not just ‘content marketing’ bs. Invests seed stage in wide variety of companies but special love for true tech based startups. We haven’t coinvested with Manu yet but would look forward to doing so in Fund II.

Multi Stage – Ethan Kurzweil

Ethan is earlier in his career but has Twitch and some other exits on scoreboard and Twilio lined up in IPO chute. What I appreciate about Ethan is that he’s always going to have his own opinions and not just chase sexy shit. By the way, I was tempted to call this category “later stage” because it totally pisses these guys off when you call A Round “later stage.”

Charlie: Any misses, and why did you pass?

Hunter: We’ve written about our losses on my blog. Regardless of financial outcomes – we’re only two years in so even companies that have marked up significantly aren’t “winners” yet – I think I’ve got two regrets.

One was a situation where I probably overthought the way I would approach the problem vs trusting the founders. The other was one where Satya and I disagreed (I liked, he didn’t) and I wish that I would have done more work on it to push towards conviction. Instead his thoughtful questions had a chilling effect and we passed. Too early to know whether it was a “miss” or not, but in retrospect, I didn’t like my reaction.

Charlie: What opinion do you have about venture capital that would be generally unpopular with entrepreneurs?

Hunter: Not sure there’s anything about VC I believe that would be generally unpopular with entrepreneurs, although I have some thoughts about VC that would be generally unpopular with other VCs! But since that wasn’t the question, I’ll try to answer what you asked. One opinion we have that isn’t universally held by founders is the value of adding an external Director to your Board at seed stage. My partner Satya has written about this more extensively, but it comes down to helping a founder build the cadence of running their company before they go raise an A round. We believe coming up for air every 4-8 weeks to discuss one or two strategic questions about the startup is critical and gets founders more prepared to raise a strong A Round because they can discuss both the current state of their business AND their longterm vision.