The Ludlow Ventures guys interviewed me for their Carpool.VC series. It was super fun and full of unexpected questions, so I had a transcript made.
The video: https://youtu.be/QXo1XAbWzpI?t=5m11s
Jonathan: Thanks for joining us buddy. How’ve you been?
Hunter: Good. Happy, busy, everything’s going well. We were in Montana for a wedding this weekend, that was kind of cool.
Jonathan: So, Hunter, Homebrew. He’s one of two partners there. They have an incredible early stage venture fund. Can you just give us a little background in terms of how you got started, like literally a minute?
Hunter: Yeah, so Homebrew is about a two-and-a-half-year-old fund. My partner Satya and I had worked together at Google and always wanted to do so again and so when we had the opportunity to create Homebrew, it was really with the idea that we could be early stage partners of conviction, do a small number of deals each year. We’re able to lean in and help the founders increase the probability and speed for making the vision that’s in their head a reality.
Jonathan: How do you go from being a product guy at Google to starting a venture firm, and then all of a sudden overnight you have sixteen billion followers on Twitter. Everyone reads your blog, and you become an industry voice. How does that happen?
Hunter: Well, I think you’ve probably rounded up some of those numbers in terms of reach. But it started out at Second Life, the early virtual world project, and then was at Google and YouTube for about nine years. And those gave me the chance to, I think, represent some of the work that I was doing and our teams were doing publicly and so I wasn’t an unknown quantity. Then once I no longer had to worry about what I was saying, being summarized as Google executive trashes Company XYZ or a lot of those things that become controversy, I can speak in even more in a transparent, authentic voice. So the way I think about it is I write in two situations. When I think I’ve figured something out, or when I’m not sure how something is supposed to work and want feedback, and it’s the discussion that emerges from those that gets me the most excited.
Jonathan: Do you think that your online personality and your real life personality are the same?
Hunter: I try. One big moment for me I think in my life was about when I was in grad school 1998, ’99, 2000 where I sort of realized that the only way I was probably going to be happy was not to separate personal and professional. It’s for better or for worse, with one comes the other. And also I think as an introvert who lives an extrovert’s life, sometimes being able to do things from behind a keyboard as opposed to at a bar, especially now that I have a three-and-a-half-year-old, is a great way to connect with people regardless of space, time, or distance, who might share my interests.
Brett: New question. What would it take for someone to poach you away from your own firm?
Hunter: I think if for some reason Homebrew ceased to exist, I would probably do something that looked more similar to the Homebrew model. Early stage, leaning in with capital behind me. Than necessarily wanting to shift our model to be a larger fund, or ever finding a seat at somebody else’s table to be attractive. Such as being at large funds before and I’ve certainly had similar outreach over the years, and I think we’ve been very deliberate about wanting to create something that we think can be both successful and impactful, and then be judged by the results. So it’s great to have a nice first two-and-a-half years, and to have folks excited about what we’re doing. But ultimately, at the end of the day we’re going to raise funds based on our returns not our retweets, and so we’re really focused on building our platform and delivering for the entrepreneurs we’re able to back.
Jonathan: It’s not so clear and many people don’t speak about it. From what do GPs have to return to LPs in order for them to actually be excited?
Hunter: Sure, well I think it depends on stage and also, essentially at the early stage you’re taking one of two strategies. You’re taking a strategy in my mind that spreads a lot of investment, smaller checks and increases the probability of hitting a 3X return. Decreases the probability of underperforming, but also to some extent limits the upside because you don’t have a concentrated approach. Then there’s another model which says do a smaller number of larger investments. It gives you a greater probability of let’s say, hitting 3X or 5X net return. But also dramatically increases the probability of under-returning, of not meeting your investors results which I describe as 2X or below, for the risk time weighted capital that we have.
So we’re obviously in the latter where our strategy is to invest in eight to ten companies a year, where we’re putting up capital behind each one that in a success scenario it’s [inaudible 00:10:22] to be meaningful to the fund. That means you’re putting us in the 3 to 5X bucket, where if you’re then able to catch a few companies that really outperform, you start to get into the multiples of returns that best of class does. You can shoot for an 8X, a 10X, a 12X, a 15X, sort of these mythical returns, but I don’t think that actually equates to strategy. That equates to skillful deployment of a specific strategy, and our strategy is one that looks at concentrated investments as opposed to 50, 75, a 100 investments a year.
Brett: This one’s a little bit more out there. But if you were a street sign, what street sign would you be and why?
Hunter: Is this a version of what tree would you be?
Brett: I never heard what tree would you be.
Jonathan: You could answer that one too.
Brett: I know about one tree, so.
Jonathan: How many species of trees do you know?
Hunter: See, I like Aspen trees. I was just in Montana this past weekend and the leaves when the wind blows them, they always look like they’re laughing to me. So that’s a tree that makes me smile. How about ‘Under Construction’? We try to bring an operator’s sense of urgency to our model. Sometimes people think just raising a fund turns you into a venture capitalist. Sometimes people think that it’s such a long time cycle to investments that you make a bunch of deals, then you try to use those deals to raise more funds and you just increase your management fees, and who knows how it’s actually going to work out.
We very much want to look week over week, month over month, quarter over quarter, what are things that we can always do to better serve our customers, which sometimes people say venture’s a two-sided business. Your customers are your LPs and your founders. I think our LPs are our partners and we wouldn’t be in business without our partners. But we have a single customer, and that’s our founders. And so I don’t mind learning, iterating and sharing in public, and so I want folks to feel if they take a check from us they’re not just getting what we are today. They’re getting the upside of what we continue to become, and so I want us never to be a finished product.
Jonathan: You’ve got three people behind the curtain, you get to ask one question to the three of them and then afterwords have to marry one of them on the spot. What’s the question you ask?
Hunter: Do you think the rest of your life will be more exciting than your life up until this point? So I don’t think I could marry anybody who assumes that the best things that have happened to them are in the past. And so if I had to ask one question, that would probably be it.
Jonathan: Awesome. Well, it’s been great chatting with you. You should know Hunter, since you’re very sophisticated, that things like carpool cost a great deal of resources to get off the ground. So on average now we’re actually down this week a little bit. The cost has fallen to about 96 cents per episode. So we would be honored if you’d sponsor this 96 cent episode Homebrew.
Hunter: Yeah, let me know your Square $Cashtag and it’ll be right on it’s way. I’ll round up and I’ll pay it forward per my mentality, and save the next person a few pennies.
Jonathan: All right. This weeks episode brought to you by Hunter. No call recording, don’t turn off.
Brett: What happened?
Jonathan: You still there? Hunter, thank you so much. You’re great. Keep up the good work. Send us awesome deals please, and look forward to staying in touch.
Hunter: Awesome, thanks guys.