226. Crisis Coverage w/ Jeff Fluhr – Launching StubHub During the Dotcom Crash; Why Market Need Trumps Market Timing; Choosing B2B vs. B2C; and Why Founders Shouldn’t Let VCs Decide Their Fate

226. Crisis Coverage w/ Jeff Fluhr - Launching StubHub During the Dotcom Crash; Why Market Need Trumps Market Timing; Choosing B2B vs. B2C; and Why Founders Shouldn't Let VCs Decide Their Fate
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Jeff Fluhr of Craft Ventures joins Nick on a special Crisis Coverage installment to discuss Launching StubHub During the Dotcom Crash; Why Market Need Trumps Market Timing; Choosing B2B vs. B2C; and Why Founders Shouldn’t Let VCs Decide Their Fate. In this episode, we cover:

  • Background and path to venture
  • Thesis and focus at Craft
  • So, you incorporated Stubhub in March 2000… just weeks before the dotcom bubble burst. Was there any hesitation or second thoughts as the tech world was collapsing around you?
    • LESSON 1: IT’S ABOUT THE MARKET NEED, NOT THE MARKET TIMING
      • You talk about the difference between market need and market timing. Can you explain what you mean by this point?
      • How did you validate the market need, beyond just the experience of you and others you knew?
    • LESSON 2: BE FLEXIBLE IN YOUR STRATEGY
      • Often founders face this question of choosing B2B vs. B2C… can you talk us through the early days and StubHub and the how the strategy evolved?
      • Do you think if you initially focused on the B2C segment when the crash just happened, results would’ve been different?
      • What metrics were you optimizing for in the early days. While there were some successful marketplaces, like eBay, the playbook and range of metrics, I’m sure, were much less known and developed in the early 2000s vs. the resources we have to leverage today.
    • LESSON 3: VCs DON’T DECIDE YOUR FATE
      • Tell us about the Series A Raise — did it go smoothly?
      • When did you shift the model and begin engaging more B2B channels? Was that post-Series A, B?  What guidance do you have for founders re. focusing on one and when to expand?
      • What was it, do you think, that kept all the VCs from investing?
    • LESSON 4 : DEPRESSION-ERA VALUES CAN BUILD A STRONG CULTURE
      • What were the three values that were core to your DNA and culture — that helped you survive and ultimately thrive?
      • Has this shaped the way you evaluate companies, pre COVID and during?
    • LESSON 5 : MANY THINGS ACTUALLY GET EASIER
      • In what ways is it easier to build during a recession?
  • If you were building another company right now, what’s one major thing you’d do differently?

Guest Links:

Transcribed with AI:

Intro 0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran and this is the full ratchet.

Nick Moran 0:23
Jeff Fluhr joins us today from San Francisco. Jeff is a general partner at Craft ventures, an early stage venture capital fund that prides itself on their founder CEO origins. Previous to craft Jeff was the founder of Spreecast. And prior to that he was the founder and CEO of StubHub, which exited to eBay in 2007 and subsequently sold earlier this year for 4 billion as Vc Jeff focuses on marketplaces and E commerce. And he’s invested in companies like house Trulia, Twilio, Warby Parker, ZocDoc, and more. Jeff, a huge pleasure to have you on the show. Thanks for joining us. Yeah. Thanks,

Unknown Speaker 0:57
Nick. Pleasure to be here.

Nick Moran 0:59
So we’ve got some similar origins, at least in places we’ve lived in the country, including Naperville, Illinois, but can you just give us the quick story on your path to venture? Sure,

Speaker 1 1:09
yeah, I’ll give you the high level i. So I, you know, went to University of Pennsylvania was, as a kid was really interested in you know, what, at the time was sort of the predecessor to the internet. So, you know, I was sort of in high school, junior high school in high school. My father had had brought home a computer from where he worked and a modem and, and I used to use the modem to call what were called BBs is or bulletin boards, which would be sort of a dial up modem connection to another, you know, server type computer, and you could, you could sort of view different files, and you could download files and games and, and upload files. And, and I was pretty into that as a kid. I that. So I went to University of Pennsylvania, I studied engineering and the engineering school there and also finance at Wharton. And, and ultimately decided after school to kind of go more in the finance direction. So my first job out of school was I worked at the Blackstone Group in New York City, working on big leveraged buyouts. And you know, and this was I graduated college in 1996. So this was sort of 96 to 99, when I was at Blackstone, and here I was, you know, kind of a 20, you know, 23 year old, living in New York City working at Blackstone, and the types of deals we were working on were these kind of large manufacturing businesses a lot largely Middle America type businesses that were, you know, cashflow producing businesses that were conducive to leveraged buyouts. And I was learning a lot, and I enjoyed it. But if you juxtapose that against what was happening out west with these, you know, internet companies, the one dot o internet companies you had, you know, you had Amazon, Netscape, eBay, Yahoo, that were sort of coming of age at right at that same time. So here, I was working on these kind of, you know, boring, Middle America, you know, kind of industrial or manufacturing type companies. And I was watching this, like, huge excitement happening out west. And as I described, I was a kid who was really interested in technology, I had an engineering degree, I was, you know, I was sort of early in, in this kind of pre Internet era of bulletin boards. And so, you know, I was really had this magnetic attraction to what was happening on the west coast, but working, you know, in New York City, and so, after a couple of years doing that, I, you know, made it my goal to get out to the West Coast and to sort of get more involved in technology. I moved after about two and a half years at Blackstone, I moved out to San Francisco, initially for a job at another private equity firm that was focused more on kind of growth investing. So investing in sort of tech and healthcare, spent about a year there, and then what decided, and at this point, it was 1998. And decided, or nine, I think, was 99. And I decided, you know, I wanted to I wanted to actually start a company, I had a friend, I had a friend who was an influence on me, who had started a company. He was actually a year younger than I was he went to Stanford, we kind of met in San Francisco, and he had an engineer engineering degree from Stanford, and started a company and was kind of raising capital. And it was and it was really exciting. And I said to myself, like, you know, I just, I just want to go start a company. So I thought that going to Stanford Business School would be a great way to kind of pivot into more of an entrepreneur path, and give me time to kind of figure out what I wanted to do. Who and kind of what business I wanted to start. So I applied to Stanford Business School, I got in, and I went, and I started in September of 1999. And started like immediately focusing on, you know, what, what I wanted to do with my life. And, you know, to kind of make a long story short, and I’m sure we’ll get more into this. But, you know, while I was at Stanford, I started StubHub, I spent seven years as the CEO of StubHub from inception, we sold it to eBay in 2007. And then, you know, I started doing a lot of angel investing after that experience, I took some time off, while kind of while I was doing that angel investing, then I started another company called Spreecast, which was kind of in the live video space. And actually, we built a few live video products, the first one was called Spreecast, we built a couple other products, and kind of pivoted and iterated and, you know, had some adoption, but never got to kind of the, you know, kind of great product market fit, that leads to a big company. So sort of wrap that up after, after some time spent there. And then was trying to figure out what I wanted to be when I grew up. And, you know, an old friend of mine, David Sachs, reached out to me who, you know, who I respect greatly reached out to me, he had started a venture firm craft craft ventures where I network and said, Hey, let’s talk about you come in, you come in and join in here. So, you know, I spent, you know, spent some time kind of with him, and Bill Lee, you know, talking about the possibility of joining crap, spent some time few months, kind of in more of a try before you buy kind of relationship, this was in the summer of 2018. And then ultimately, after that summer, joined full time, and I’ve been a part of a crap since that. So it’s been about a year and a half, a little coming on two years. And, and it’s been great. And that’s kind of my that’s how I got here.

Nick Moran 6:50
Awesome. And tell us just a bit about the thesis and the focus at craft.

Speaker 1 6:56
Yeah, so I spent a lot of time on marketplaces. You know, so I’ll give you the kind of one minute on craft or 30 seconds on crafting, because I think that’s a good segue into, you know, what I do a crap. So craft is, we’re an early stage venture firm. You know, we focus on seed A and B rounds, you know, we most of the investing we do even at the seed stage are businesses that already have a product, you know, launched and they’ve got some usage data or revenue data, some data that we can look at, that we can start to see is this thing starting to work. And, you know, we see deals we do are generally are, they’re just not quite ready for an A, but they’re not like two guys in a pitch deck, generally speaking. So so that’s kind of what we do. We invest across lots of different industries with the one common denominator being that these businesses all have a software as a core competency. So they all you know, are building software, they’re writing software, they’ve got a software engineering team, and that’s a key part of what they do. And so and so outside of that requirement, I think, you know, we’re pretty broad. And, and what we, each of us, the partners at Kraft are all, you know, unicorn founders, we’ve all started companies that became, you know, valuable companies with successful exits. We, we try to focus on areas where we have experience as entrepreneurs. So because I started StubHub, I spend a lot of time on marketplaces, StubHub is a marketplace. So I spend a lot of time on marketplace, I try to leverage my experience from StubHub to make, you know, to make informed investment decisions, in my you know, in my, in my job as an investor, I also do, I also do quite a bit kind of within the E commerce realm, particularly around like picks and shovels play in E commerce, so less, I’m doing less like direct to consumer ecommerce businesses that are selling something online, but more picks and shovels businesses. And so, you know, David Sacks my partner, he likes to focus on SAS and kind of consumer viral businesses because PayPal and Yammer, the two companies he started were, you know, one was, you know, kind of consumer. And a viral one was more of a kind of b2b, viral business, and he’s really into kind of those dynamics. And so, yeah, so that’s kind of how it was built focuses on kind of emerging tech areas like crypto blockchain gaming, virtual sports, like eSports, virtual celebrities, and music and kind of pop culture types of things as well.

Nick Moran 9:32
So, Jeff, you know, you wrote this article about launching a tech company amidst a recession, you know, right after the.com.com bubble burst. I think you incorporated StubHub in March of 2000. So that was just you know, weeks before it burst. Just right off the top, you know, was Was there any hesitation or second thoughts, thoughts like launching a tech company, as the world was collapsing around you?

Speaker 1 10:00
You know, I would say I would say yes and no, I mean, sure, sure there, you know, so So the timing, as you put it was, you know, and we kind of left off there when I gave my background, but I joined. I started Stanford Business School in September of 99. This was a time when, you know, we were partying like it was 1999, right? Like there was, there was euphoria in the whole sort of internet economy. Investors were plowing money into startups, you know, startups were going, you know, these companies that were effectively startups or we’re, you know, early, early stage companies were going public. And that first generation of internet companies was, you know, it was coming of age. And so, you know, everything was exciting. And I was at Stanford, it was and I wanted to, and I wanted to get into it, basically. And so, you know, a colleague from Stanford, and I started StubHub, while we were in our first year, kind of in the middle of our first year, really, we submitted a business plan for the business plan competition at Stanford in February of 2000 2000. And, you know, and then we incorporated the company in March of 2000. And then in April of 2000, the entire economy just like a poll, you know, so shoot, the floor sort of fell out on these Internet stocks, and the stocks kind of, you know, tanked like 90%, in a matter of, you know, in some cases a matter of months. In other cases, it took a little longer, but, you know, within within weeks, it was obvious that the kind of you know, that the luster had faded. So, so that was right, so, and we didn’t raise our first round of capital until that summer, like August of 2000. So yeah, so we, we could have very easily kind of hung up the gloves and quit and said, Okay, we’re just gonna finish school and, you know, and kind of, and forget this whole idea of starting an internet company, but, you know, so yeah, to your question, there were some hesitation, there was certainly in a macro environment around us that suggested we shouldn’t be doing that, you know, there was the influence from the parents, especially the mother who felt like, the idea of dropping out of Stanford was a terrible idea. And, you know, but yet I was, you know, I was pretty convinced that the idea of buying and selling tickets, kind of in the secondary market was, you know, was an idea that, first there was a, there was an existing market demand for that. And there was, you know, there was an ecosystem that already existed with ticket brokers and scalpers and people buying, you know, season ticket holders who couldn’t go to all the events in that season, you know, and there was a real need for buying and selling tickets generally. And the existing infrastructure that was in place for that, which was like these ticket brokers and, and then the beginnings of some online trading with eBay and Craigslist, you know, we felt just were insufficient and lacked sort of the trust and safety that that we thought we could bring to the market. So, you know, so yes, on the one hand, there was certainly some, you know, there were some there was some introspection there and thinking about is this really something I wanted to do, but on the other hand, you know, I also felt like, there was a real need here, and there was, and I was confident that we could, you know, that we could build something successful. Now, I think part of that confidence was also naivete, and, you know, kind of, you know, maybe even ignorance. But, you know, it was I was, you know, 2425 years old. And, and I felt that, you know, I felt like I could do it.

Nick Moran 13:41
Yeah. So, you wrote wrote this great article on, sort of unpacking a lot of these different steps and the way you thought about things at StubHub and building it, it was one of the better articles I’ve read in a long time. I interview a lot of people on this show. And right off the bat, you hit on this point that resonated with me, because we’ve had so many guests on the program over the past six or so years, that talk about their failures, right. And they’re they’re talking they often cite, I think the most often cited reason for the failures is market timing. Oh, yeah, the timing was off. You know, that’s why it didn’t work. And I loved your first point here. Lesson number one at the top of the article is it’s about the market need, not the market timing. So talk to us a bit about the early days at StubHub, you know, how you identified and captured this need. And then also, just what do you mean by this point, it’s more about the need than than the timing.

Speaker 1 14:41
Yeah, sure. Yeah. So So I think, I mean, I guess to the first part of your question, you know, identifying the need and sort of realizing there was an opportunity there. You know, I had some personal experience with it. So my father was a Yankee season ticket holder at the time and actually he was he was a Yankee season ticket holder up Until a couple of years ago, so for you know, I don’t know, two or three decades my dad was season Yankee season ticket holder. And so you know, I used to, I used to sort of see him with extra tickets that he couldn’t use. I mean, when you buy a season ticket package for baseball, and baseball is obviously has the most games and of the four major sports leagues, you get 81 games and a baseball season. And nobody goes to 81 games in a season. So there’s always extra tickets to resell. Sometimes you give it to friends or family members, sometimes you you know, sell it to a ticket broker or sell it, you know, now these days on on StubHub or something like that. But, you know, sometimes it just goes to waste in your desk drawer. And it’s kind of that’s the problem, right, is that these tickets are kind of going to waste and you have, you know, no shows at the venue so that because the venue’s they don’t just care about selling tickets, they also want to get somebody in the seat. Yeah, because they want to they make a lot of money on these kind of high margin, what’s called per cap items, things like, you know, hot dogs, beer, pizza, parking, all the all the stuff. Yeah, yeah, memorabilia. Exactly. So you know, so So I knew that problem existed, I knew that there was also, you know, this kind of, kind of offline and opaque and sort of murky, secondary market with ticket brokers and ticket scalpers. But, you know, but and I didn’t think that the existing solutions were sufficient. So, so so that’s what I mean by market needed, like, is there a need for your product? Is there a good product market fit? Is there a segment of users that might be consumers? That might be businesses if it’s a b2b company? But is there a segment of people who would be customers for your product? Who really need your product? And I think that that question is more important than the timing. And what I mean by timing here is maybe a little bit different than what some people mean, when they say market timing, because what I was referring to really more in my article is more this question of, is it a bull market? Or is it a bear market? Like, really starting a company and raising capital in a bear market can be very challenging? And so that can that’s really more what I meant by timing is, Are you are you kind of, are you trying to raise capital and trying to launch your company at a time when capital is flowing easily? Or are you trying to do it at a time when capital is not flowing easily? Because I think that if there’s a market need for your product that matters more than the question of, you know, where the kind of broader financial markets are, where the macro economy is, there’s a second idea around market timing, which people may say like, oh, we were, you know, we were too early, we came out with an idea that was, you know, before its time, and you know, seven years later, something else came out really similar. And that sort of took took off. Because we were kind of too early. That’s, that’s not exactly what I meant. Here. I meant more about like, is the is the economic cycle aligned with when you want to raise capital? Gotcha. Yeah. And

Nick Moran 17:52
I guess the point I was making is, is on the ladder, right? When people say, market timing, you know, it came out five, seven years later, and then it really worked. From my standpoint, maybe more effort should have been put into establishing whether the market need was there, and whether consumers were ready for something, or rather, whether the technology was sufficient and capable, to address whatever need existed. So, yeah,

Speaker 1 18:19
I totally agree with that. And honestly, like, if I look back on my second company, which which did not succeed, you know, I think part of our problems were that we didn’t do it now, you know, we failed it, because we didn’t do enough. You know, we didn’t do enough kind of user research about, you know, did our product, have a have a good product market have a need? And, and so I’ve seen it go, I mean, I’ve seen it intimately as a founder kind of go, you know, go both ways.

Nick Moran 18:48
Let’s jump into the second lesson from the article. So that one was be flexible in your strategy. You guys chose to go b2c. But, you know, often there’s this debate for founders, whether they go b2b, b2c, can you talk us through how you made that decision and how that strategy evolved?

Speaker 1 19:09
Yeah, absolutely. So you know, so, when we started, but by, you know, by the time we were raising our first round of capital, which, you know, frankly, was a, you know, passed the hat sort of friends and family round in the summer of 2000. And we had so many, we did get some kind of angel investors who, who we did not have a pre existing relationship with to invest. You know, the, the thinking among investors at that time was that, you know, the Internet was sort of no longer an interesting place to invest in that. You know, that the previous five years of euphoria around the internet and the stock price appreciation in the public markets and the kind of huge valuations. You know, we’re in the rearview mirror and At and that, you know, investors were not interested in putting more capital into the Internet into Internet businesses. There was a bifurcation though, between what was called b2b and b2c at the time. And the idea was all of it was kind of definitely in the penalty box. But but at least there was some hope that b2b might work out, right, there might be something interesting in this kind of b2b area, but b2c that was, you know, that was definitely not going to work. And there were some, you know, there were some examples that people like, like to point to specifically, I think pets.com was sort of the poster child at the time. This was a company, you know, that had, you know, bought Superbowl commercials and, you know, spent a ton of money on advertising. The whole idea back then was, how many eyeballs could you get, right, it was all about the eyeballs, you know, and so pets.com was sort of the poster child, because they then you know, kind of went bankrupt. But the idea was, you know, don’t do what pets.com did, don’t try to fund a consumer internet company, it’s too expensive to aggregate these eyeballs. And it’s just not going to, it’s just not going to work. So, so we were influenced by that macro environment. And, and, you know, part of it was, you know, was out of necessity, we we had to raise capital. And we thought that story, the story of this is a b2b company would be more palatable to investors than a b2c company. So we positioned StubHub. And in fact, our strategy in the first, you know, couple of years was really a b2b strategy and the company. And I don’t want to confuse things too much here, because you can get in the weeds, but the company was actually called Liquid seeds, we did have, we did have a website called StubHub, which was kind of our consumer site, but it was really our secondary part of our strategy. And the primary part of our strategy with this liquid seeds corporate name, was to partner with sports teams, and media companies like radio stations and newspapers on the local market. And then some national media companies like Yahoo, and AOL and MSN, which was Microsoft’s kind of web property at the time. And to partner with these kind of bigger media companies to sort of build like a ticket of either, in some cases, white labeled in other cases, it was sort of CO branded, but like a ticket marketplace, that their users could buy and sell tickets, you know, into the into sort of our network of of ticket inventory. And, and we, and that was sort of the strategy. And so and that, and that worked pretty well for a while. And we got to, you know, we got you know, we started with some initially, we were just focused in the Bay Area, we got, you know, a handful of Bay Area, newspapers and radio stations to they all had their own website, and they would put up like a ticket marketplace that would say, like tickets, and then you would click on that. And then you would it would feel like you still were on their website, because like all the navigation would be there, like the header and the left nav or whatever. But actually, those pages were served by our servers, and it was a ticket functionality kind of within their website, is that just how it felt to the consumer. And you would you could buy a ticket or sell ticket for Bay Area events, we started in the Bay Area, because we wanted to isolate the problem to a smaller problem, we didn’t want to try to boil the ocean by, you know, creating a national marketplace. Day one, we wanted to prove it out in a single geography. So so that was so. So that was the b2b approach that we focused on for the better part of you know, two years. And then, you know, and we were growing, and we were growing pretty rapidly, I mean, we probably do three or four acts a year. And those couple, you know, first couple of years, but but we started to see that, you know, every single deal that we were doing, we were trying to sign up sports teams, we’re trying to do deals with the leagues. And we had a few, you know, early adopters, and we had some of these big media properties, but But it felt like, ultimately, that we would be a growth would be constrained partly because the sales cycles in these business development partnerships were a pain in the ass. And partly because, you know, it wasn’t the other. You know, if we had AOL, which we did, it wasn’t AOL was number one priority to push, you know, the tickets on AOL, which was kind of powered by us. It was, you know, sure, they made a little bit of money, we shared revenue with them, and they it kind of filled out their product, but it wasn’t like, top three on their list of like, what they want to focus on next year kind of thing, right. And for us, you know, we want to we wanted to grow and we wanted to grow rapidly. So, you know, so, you know, as we were kind of experiencing some of that some of those constraints around our market potential. We started experimenting with what was a very new kind of technology and advertising channel, which was, which was paid search, search engine marketing. And there were two companies that were doing this there was Google with AdWords, which was, you know, had been recently been launched. And then there was a company called overture, where As soon after that acquired by Yahoo became like Yahoo’s paid search strategy. And we, you know, this was probably 2003, you know, 2002, three in there. And we started, you know, we we started like buying keywords. So you would go onto Google and you would type like Yankees tickets. And we could buy a little ad that said, like StubHub come to some of that, and in that case, it was, we did use the StubHub brand, because as I said, even from the earliest days, we did have this StubHub website, it was just not really a core focus. So then we’re like, let’s try to send users directly to our consumer branded site instead of one of these co branded partnerships. And let’s see what happens. And we were like, wait a minute, like, we just spent 30 bucks to get someone to buy us a pair of tickets, and the tickets cost the person $350, we made 70 bucks of variable profit on that transaction, and then it costs us 35. So we netted 35 bucks, and we got a user, and they know the stuff about brand. Like, why wouldn’t we just do this, like, let’s, let’s like ramp this up, and we can, you know, and so, you know, one thing led to another, we started investing more and more dollars into paid search, it started growing rapidly, we discovered we could have, you know, not 1000s, or even 10s of 1000s of keywords, but we could have hundreds of 1000s or millions of keywords with different combinations. And we and we were sort of, you know, we’re kind of off to the races at that point. And, you know, and then the whole company evolved over the following sort of six months to say, we’re changing everything, we’re gonna focus exclusively on the b2c strategy, we’re gonna get, we’re gonna get rid of this liquid seats, name, the whole company’s gonna called StubHub, we changed the name of the company, we, you know, reoriented our team, we the deals that we were doing was we, we sort of no longer were really interested in deals with media companies, although there are some exceptions to that. But we weren’t, we were still interested in sports team deals and league deals, but the nature of those deals took 180 degree turn, because prior to the switch, we were kind of adamant that the deals with the teams had to be revenue share deals, we did not want to pay kind of an upfront, you know, kind of commitment to the team. When, you know, when we would have this kind of marketplace that would be embedded in the team’s website, that wasn’t building our brand, we were sort of, we were kind of allergic to the idea of spending this kind of upfront guarantees. There were many companies in the late 90s and early 2000s, that, you know, would pay AOL a million dollars to have a link on their homepage. And you know, and that million dollars was like guaranteed it wasn’t a rev share. And that and we sort of looked at that. And we said like, That’s ridiculous, we would never do that. That’s how you go out of business will will share revenue, you’ll have an incentive to push it. You know, we did that with a media company. We also do that with sports teams. Once we made this switch to the StubHub brand and became a b2c company, we actually went 180 degrees, we said, we said to the sports teams, we knew we already were moving tickets for every single team in the country. We didn’t need that the beauty of our business and this is a whole nother conversation relative to say like a ticket master. The beauty of the StubHub model was we didn’t need to have a deal with the team, they could just, you know, consumers could just come and buy and sell tickets on StubHub. So we already we’re moving tickets for every team in the country. And we kind of knew based on that existing volume, kind of how much profit we were making on a particular team’s business tickets. And we were our philosophy was, we would be willing to take 100% of that profit and sort of reinvest it with that team, but we wanted to pay them upfront. And we wanted to keep 100% of the revenue, we were not willing to share revenue with the team any longer, because for multiple reasons. One, we thought there’d be more upside and just keeping 100% of the revenue. We had an asymmetry of information, which was we knew we knew how many tickets we were moving, and they didn’t, assuming they weren’t a preexisting partner with us who we were sharing revenue with free. And most teams were not I mean, that we only had a few partner teams at that point.

Speaker 1 29:01
And we you know, and so we kind of knew how much of the deal was worth they didn’t. And most importantly, we didn’t want that amount of forward looking basis on a go forward basis. We didn’t want them to know how many tickets were being moved on StubHub, we wanted that to be our information, not theirs. And we didn’t want them to have the data of the consumers, the buyers or the sellers, for that matter. And so, you know, it was just like, hey, it was just like Budweiser with the signage in the outfield who writes a check to the team to sponsor a team. We were just like, StubHub created a new category, which was, you know, the ticket, the, you know, exclusive ticket resale partner for the team, we would write a check up front, we knew how much it was worth these, you know, these deals ranged from like 50 grand on the low end a year up to like, a million dollars a year for some teams. And we started, you know, doing these, these guaranteed payments, and we became the exclusive partner for the team. We would get, you know, as part of it, they would mail out a mailer to all their season ticket holders, telling them about StubHub, we get excited. We get signed into the outfield And, and we were building the StubHub brand, we weren’t building these kind of white label their private label, you know, sort of destinations. So that was the that was the transition. And that is really when, you know, things started to accelerate. And, and we really started to, you know, kind of break out of those constraints that I described earlier.

Nick Moran 30:16
You mentioned that the mailer that went out to the fans was it was it tough getting the supply side secured.

Speaker 1 30:24
Um, so the early days before we made this b2c switch, you know, we, the very first thing we did, like when we launched in the Bay Area is we, we went out to some local ticket brokers, and convinced them to list their tickets on StubHub and, and you know, each each local market, each region had at the time and to some extent, still does have, although it’s a bit different, you know, ticket brokers, they had they, their local players, there’s not really national ticket brokers, they tend to be focused on a local market, they buy and sell tickets, they have access to tickets, they tend to, they tend to have access to some of the best tickets for both sporting events and concerts. And we convinced some, some local ticket brokers in the Bay Area to list their tickets that was really the core of the supply in the Bay Area early on. But then we started, you know, then we started doing some of these, you know, partnerships. And, you know, the partnerships brought in some inventory. But most of those partnerships were predominantly bringing in buyers. And the business, as you could imagine, was always a business where for every, you know, for every, you know, five or 10 sellers that were like 100, or 500 buyers, that the seller base was much more concentrated, and they were selling, there were repeat sellers, the buyers were also repeat buyers, but they weren’t as frequent. And some of the sellers who were ticket brokers, I mean, they were they were high velocity sellers, but even the season ticket holders who were selling, you know, oftentimes had many, many different games in a season. And sure, there would be some people who were one off sellers who bought tickets for a concert and then realized they couldn’t go, but that was, you know, relatively small compared to the larger sort of concentrated sellers. So, so to answer your question, the ticket brokers were a key part of the supply early on, the business was, you know, more than half of this of the of the sales were ticket broker tickets, you know, not a lot more than half. But you know, let’s call it 60% 55 60% of the tickets were sold by ticket brokers. And honestly, that percentage stayed pretty consistent throughout the life of the company, at least while I was running it right until 2007, when we sold it to eBay. So that was always something that we could do to grow our seller base was to work with ticket brokers. And then once we had these team deals coming online, yes, we did what I described earlier, which is we as part of the team deals, especially once we converted them to just us paying upfront, you know, it was a stipulation, it was a it was a requirement for us to do these deals that every single season ticket holder would have to get, you know, a mailer from, from the team that telling them about StubHub with the StubHub, you know, that we designed those mailers, so it was just sent, you know, it was sent on behalf of us to to all the season ticket holders. And that became another, you know, another really strong way of getting up getting inventory.

Nick Moran 33:18
You know, so Jeff, we fast forward 20 years, starting a marketplace today. I mean, there’s there’s just a laundry list of different metrics and ways to measure both the supply side, the demand side, back when you were starting StubHub. I mean, there were a handful of successful marketplaces. But there wasn’t an established playbook here. Right? You talked about the metrics before of just the SEM, paid search cost to acquire versus, you know, what you made per transaction? I mean, quite obviously, that was a creative, and that was going to work. But did you have a set of metrics? Did you know, were you building the playbook as you were going? I mean, how did? How did it come together? How did you figure out, you know, the key levers in growing this marketplace? In the early days?

Speaker 1 34:07
Yeah, I mean, I think the, I mean, the, the, there was no doubt that the key metric we were focused on was what we actually call was cost per first order, which is basically CAC, right, we call the cost per first order the cost to get a customer to do their first transaction. And, and that number, because we, you know, we knew, like the average transaction size, and it was fairly consistent kind of year to year. And you know, and it was like it was it was very attractive. It was like, you know, it was in the three to $400 range. And people were on average, buying 2.7 tickets, right? People bought two tickets, sometimes they bought four, they almost never bought one. So occasionally they bought three, but it was predominantly twos and fours, a few threes and almost no ones and then you know, a very small number of five plus tickets would get bought. So that averaged out to like 2.7 tickets. You know, and the tickets were, you know, over 100 bucks apiece, I mean, these, the secondary market was driven by high demand tickets where the demand sort of outstripped supply. So because of this average high average ticket price and high, you know, high average order value, we were, you know, we were making a bunch of money we made like 25%, and fees and about, you know, 70 80% profit margin. So call it 18 to 20%, of, of the full value of the transaction was like variable profit each time we did it. And that’s where I get that, you know, call it 60 $70 Number. So as long as we were paying, I mean, honestly, we had a, in retrospect, I think we were overly conservative about our view about how much we were willing to pay. And but we were, we basically, I, and this would go up or down, depending on how much capital we had in the economy and such, but it was generally about the philosophy was generally around, you know, if we could make back the money on the first transaction, then we would do it all day long. So if we could, if we could acquire a customer that first order for 70 bucks, and we made $70, a variable profit, then then we were breakeven on that first transaction, and anything that customer did, from that point forward was pretty easy. And we were building our brand getting awareness out there, which we realized had value. So, so that was kind of the philosophy in retrospect, you know, I think we probably could have been a little bit, we could have lost a little bit of money on that first transaction, because we knew that there was some repeat usage. But we never really did that. Or, you know, I would say, rarely ever did that. And so and that cost per first order was like, the, you know, your pack, as it’s known as today was, was definitely the key thing that we looked at, we looked at it by channel, we looked at it, you know, you know, by, by sporting by, you know, by what we call the genre, which would be like the NFL or, you know, or the NBA or major league baseball, we would, because because some of those, you know, those ticket prices were quite different, like NFL tickets are more expensive than major league baseball tickets, on average. You know, we look at it by in concerts. And, you know, and that was sort of the, you know, the, I would say the number one metric of the business, you know, and there were a lot of other things that were important, like repeat usage, you know, kind of what percentage of our, of our kind of revenue was coming from paid advertising versus sort of more get more organic types of channels, like either SEO, or word of mouth kind of viral types of things. And so, you know, all of that kind of played into metrics that we looked at. But I would say like the, you know, the CAC was really the number, the number one thing that we paid attention to, and it was a, it was a business that was fueled by paid advertising, really, right, it was fueled by, by paid search, and then we layered radio, sports talk radio, predominantly into the mix. You know, probably a year after we had a lot of success with paid search, we started doing sports talk radio. And, you know, and so Dan, Patrick was like, Are you? He was like, he, you know, he would like read our radio ads, just like a sports sportscaster. So you know, and, and, but yeah, the, that was really the key. You know, the LTV and CAC kind of understanding those was really what we, what we looked at,

Nick Moran 38:20
it’s kind of amazing the inflation and ticket prices. You know, since that time, I remember my my season tickets to the cubs in 2003. I think it was, were eight bucks a seat. eight bucks, not not anymore. You know, I think like, the, the entry level is probably 50 Plus, and especially since the Ricketts took over ownership, they’re definitely extracting as much value as they possibly can out of every seat. But, you know, I do want to talk about the fundraising side, too. So your lesson three was VCs don’t decide your fate. Jeff, talk to us, you know, how did it go with the venture capitalists and raising money?

Speaker 1 39:00
Yeah, it was I mean, it was a we failed. I mean, we we basically, you know, failed miserably in our attempts to kind of attract venture capital in the early years. It wasn’t until StubHub was like, I mean, really, like a brand name that most you know, many people knew about that, you know, VCs finally decided they were interested. And I think I think there were multiple reasons for that. I think a big part of it was the macro economics. I mean, during our series, a we raised in December of 2000. And, you know, we can talk about that process, the series B was like, 2001, both of those rounds were, I mean, it was still, you know, the dark time in, you know, 2002 1001 I mean, that, that, you know, that sort of.com bubble bursting, really took out the sort of, you know, took out the the economy for the better part of two years and, and it wasn’t really until like 2002 that stuff started to really come back to life. So I think part of it was the man Acrow I think part of it was, you know, the regulatory environment. So we haven’t talked at all about this, but you know, ticket at the time. And still today, honestly, you know, the idea of reselling a ticket is actually a regulated thing. And there’s no, there’s no federal laws. So as far as, like the US government’s concerned, you can sell a ticket for, you know, $100 million, if you want. But as you get into the state level, there are state laws that restrict the price that you can sell a ticket at. And so, you know, oftentimes it’s like a certain percentage over the face value, or it’s a certain fixed amount of the face value. So there were there was a and this was also before Uber and before Airbnb, and before it kind of became cool to, you know, before, it was sort of cool to kind of do things that were kind of in the in the regulatory gray area, let’s call it, you know, it was sort of, in 2000 2001, when we were raising capital for StubHub, the idea of having a business that might not be 100%, legal, was a bit scary to investors as well. So, you know, so there was the macro, there was the regulatory. And then I think, I mean, I’m sure like, you know, my own kind of, again, naivete and lack of experience, you know, was probably not helpful, you know, in, in our fundraising, and I probably wasn’t the best fundraiser, and still don’t, I still don’t like raising capital. Without that I really do. I mean, I am doing it now as part of, you know, and so, you know, and I hated raising it, I hated raising venture capital, there was like, the thing about the business, I liked the least what I like doing was a building and hiring people, and, you know, and building product, and I hated going and asking people for money. You know, so I think all that played into like our, you know, relative failures in the fundraising markets, but we were, you know, despite the fact that, you know, we talked to, you know, probably, you know, 100 venture firms over the course of a couple of years, and they all you know, and in the early years, they all said no, we were able to scrape together in a couple of different rounds, you know, enough capital to, to get going. So the first, the first round we did was in the summer of 2500 1500 $50,000, round, it was friends and family and a couple of angel investors, there was one angel investor named Andy, Bo’s Hart, who I’m still friends with and actually invest with a lot, who put in, you know, 150 grand into that round. And he was introduced to us, you know, through kind of a mutual friend, and he was like, a New York City kind of hedge fund guy, and, you know, and he did really well on that $150,000 investment. And, you know, and I, and I, to this day, you know, kind of respect him greatly for that, and thank him greatly for that. And then the, our Series A, we talked to a bunch of venture firms, this was like, you know, in the, in the Senate, November, December, October, November, December timeframe of 2000. And, and, you know, they all said no, but we found one angel investor, Ed Scott, who was one of the founders of BA Systems, which went public, and then it got acquired by Oracle. He, you know, he was just like Angel Investing, and he wrote us a million and a half dollar check in December 2000. Which, you know, was a ballsy move. And, you know, I remember he told me when he wrote it, he said, part of what he wants to do as an angel investor was to kind of help young entrepreneurs who he felt like needed help. So, he clearly identified me as somebody who needed help, you know, when I was 2425 years old, and, and so, you know, he joined our board, he became a, you know, a critical part of the story. But, you know, with those two rounds of capital, that next year 2001, you know, we were still a tiny company. But we there were a couple of key milestones we were able to achieve. We got to deal with Major League Baseball, we got to deal with MSN and AOL. And those three deals alone, especially given that we were focused on this b2b strategy still, like we weren’t really doing the b2c thing yet. Like, those were really good proof points, and they actually started to move some real volume of tickets. And so then we did in 2001, we did what we call the series B, which was, you know, it was a, it was like a $2 million round, we talked to, again, dozens scores of VCs, they all said no, but we were able to, like attract a bunch of like, industry is largely industry executives from like the sports industry, the music industry, and then some other people that were just kind of wealthy individuals who kind of pass the hat you know, guys like Frank beyond the were in that round. He was like one of the early you know, the one of the CEO of universal and Viacom and you know, Allen and company which is a really well respected New York, kind of investment bank and they invest as well. They threw like a couple 100 grand into that round. They didn’t like lead the round. It was a $2 million round. I think they put in like 250 grand, and they were well respected. So they introduced us to some of their friends and like some These like industry execs, you know, sports guys and music industry guys kind of pass that through, through through some money and are passed the hat round, we raised like another $2 million. And like, you know, just got to, we’re just kind of like, you know, jumping kind of lily pad to lily pad to get to the next, you know, to the next step. And we’re able to kind of cobble together enough money to, you know, to keep going.

Nick Moran 45:25
So, you know, the next lesson was Depression era values can can build a strong culture right here, you talk about a lot of the the core values at StubHub, and how that set the culture, it helps you survive and thrive, you know, through this time? You know, what were some of those main values? And then, you know, is that shaping the way that you’re evaluating and looking at companies now, you know, companies that are trying to build, you know, the next great transformational tech company amidst this, you know, terrible crisis that we’re living in.

Speaker 1 46:00
Yeah, and I mean, and, you know, this, this blog post that you’re that you’re referring to, you know, which, which I, which I wrote with, with, with help from, from some of my colleagues at Kraft, you know, I wrote it, because, you know, I was reflecting on the fact that, you know, as, as COVID hit, you know, in sort of, you know, March, April of you know, 2020, you know, just in the last couple of months, and in our world was turned upside down, and the economy was turned upside down, you know, that I reflected back on my experience, you know, almost exactly 20 years earlier to the month, you know, with the.com, bubble bursting, and that sort of economic crisis. And my, in my, you know, raising capital at that time, and I thought about, you know, how my own experience and challenges, were very relevant for today’s entrepreneurs who are looking to raise capital, who are starting companies, and many of whom were backing at Kraft and were involved with, and so, you know, so I do think that, you know, we at StubHub in 2002 1001. I mean, we were, we were like the definition of frugality. In fact, there was a there was an article that Sarah Lacy wrote, I believe it was in Time Magazine, but it was definitely an was it might have been fortunate the timer system, some bad back then magazines actually, like mattered, like they were actually still alive. You know, it was the title of the article was frugality is this startups ticket. It was like, it was like, that was our key to success, which, frankly, is not, I don’t recommend that being anybody’s key to success like that is that’s not that’s not what you want to be known as, but we were really cheap. I mean, we, you know, we had our first office, we rented an office space, which was basically like part of some guy’s house who, like rented us like his dining room and his like pantry or something as our office space, then then we moved up to San Francisco that was in San Carlos, then we moved up to San Francisco. And our next office space, we were, we were on the second floor of a fish market. So like, this was in like the Bayshore neighborhood of San Francisco, which, if you know, San Francisco is like a very industrial kind of like warehouse area that you wouldn’t necessarily want to have an office space in. And there was like a fish market that smelled terrible. And then we were like, on the second floor, there was like some office space. And so like, we, you know, we were just, we were just trying to like, we’re very scrappy, and we were just trying to, you know, like, spend money where it mattered and not spend money where it didn’t and like, you know, the early team at the time was, we were all making in a very low salaries. Some of us weren’t making any salaries. We were deferring salaries at times. And, you know, and I think that I think that some of this, this idea that, you know, these Depression era values can be helpful to companies, I think, is true. And I think that, you know, that’s happening today, where I think companies are needing to, you know, cut costs, and you’ve seen a lot of startups, and even larger tech companies, you know, do headcount reductions, which is never fun, but it is sometimes what you have to do to survive. And I think, especially for the earlier stage companies that are out there today that are either, you know, have raised a little bit of capital, looking to raise more capital, you know, I think being being smart about how you spend that cash and being and treating that money as if it might be the last money you have for a while or forever, you know, is is is the right approach now, that has to be contrasted with, you know, the kind of Blitzscaling theory about, you know, look once you have product market fit, and once you have access to capital, if you have a combination of access to capital in product market fit, you want to, you kind of want to invest and you want and you don’t want to be Pennywise pound foolish, but, you know, when you don’t have access to capital and maybe you’re still you know, trying to find that perfect product market fit. Yeah, I mean, I think you got to be really frugal and, and, and really smart about how you you spend your money.

Nick Moran 50:10
capital efficiency is king. Jeff, if you were building another company right now, what’s one major thing you do differently?

Speaker 1 50:19
Yeah, I mean, I think, you know, one of the things I did at StubHub that, you know, I think I would probably do a little differently has to do with, you know, hiring and people. You know, at StubHub, we hired, the first few people who joined the company were friends of mine from from college, the first two execs, were two of my buddies from college, which I think worked out great. And, and they were people that, you know, I trusted, they were, there were people who were, you know, who had some of the same values I had, they were scrappy, they were entrepreneurial. They were, you know, kind of young and naive. And same thing, some of the same ways I, I was, and that gave us kind of a fresh perspective. And, you know, and a, you know, and a kind of desire to change the world that I think, you know, is, is really helpful for a startup. But as we grew, and as we started having success, and as we started to have to bring in other people, you know, we started hiring some executives from other companies who had, you know, more, certainly more experience, they were probably, you know, 1015 years older than we were maybe more. And, you know, they, you know, they had resumes with big companies and big roles on them. And I think that transition, you know, was challenging for us. And, you know, we had, you know, sort of a fairly significant percentage of these executives who joined that, you know, that didn’t work out that came, you know, they joined, you know, they were there for three months, six months, maybe a year, and for any number of reasons. Sometimes it was they didn’t like it, it was too intense for them, they were used to kind of having their feet up on the desk, and, you know, kind of delegating to others and having to roll up their sleeves and get their fingernails dirty, was just not appetizing. In other cases, it was asked, we just didn’t think it was a good fit. You know, and I think that, I think that, you know, that transition is something that I that, you know, I sort of, you know, talk about now with some of the companies we’re involved with, as they’re growing, and they’re trying to bring on, you know, senior execs, I think, you know, I think, you know, looking at people who’ve been successful at other high growth startups, instead of people who have been, you know, successful at a Microsoft, let’s say, you know, or, you know, at a even a Google at this point, right, like companies that are like big, like hiring a VP out of Google or hiring a VP at Microsoft to be your VP of marketing or director of marketing, it’s just, I think it’s much better to try to go hire a Director of Marketing out of Uber or out of Airbnb, that have just gone through this rapid growth, that understand some of the chaos of, you know, of startups, and, you know, the need to kind of work really long hours at times, and, you know, and are willing to kind of sacrifice that work life balance, it’s just, it’s just oftentimes going to be a better fit, you know, and really spending more time on, you know, that that cultural fit that sort of personality fit and the chemistry, you know, in the hiring process, because I think, you know, I know, for us, like we just cycled through a bunch of senior execs, like some came from Microsoft, or Amazon or whatever. And it just was just, it just it was it was oftentimes hard to make those people work.

Nick Moran 53:53
Jeff, what do you know, you need to get better at?

Speaker 1 53:57
Yeah, I think, you know, I touched on this earlier, I think, you know, I probably fundraising is like the, the thing I liked the least and sort of would like to, you know, get better at I’ve never felt, I’ve always I don’t know, I’ve always felt, you know, weird asking people for money, you know, whatever, you know, whether it was my startups or from a venture firm or whatever. So I, you know, I think that’s an area that I can get better at. And another area, another thing I think I get better at is storytelling. So I can, you know, in my writing, and I would say writing and storytelling, so I can I can write, but you know, I’ve found some, I’ve really benefited from the input of others, other people, helping me take kind of a dry piece of writing and turn it into more of an exciting, compelling piece of writing by making it more you know, make not only making it kind of tighter, but also just making it a better story, you know, bringing kind of story elements into my writing. So that’s another area I’d like to improve on.

Nick Moran 54:59
Yeah, here you go. Yeah, the fundraising is is not fun. And the cruel irony here for all the services out there is that we’ve got to raise too. So it’s not it’s not an easy job. And then finally here, Jeff, what’s the best way for listeners to follow you and connect with you?

Speaker 1 55:16
Yeah, I think the best way to follow me is just follow me on Twitter, my Twitter handle is at Jeff floor. That’s that’ll be three F’s because it’s je FF and then FL you HR. And there’s an H in my last name. So. So that’s also a little tricky. But yeah, that’s probably the best way to follow me. We I also have, you know, a medium account, and occasionally will blog on medium and you can follow me on medium. And I think follow craft ventures as well craft is, you know, is the firm that I hang my hat on and really excited to be a part of, of craft and we’re, you know, active actively investing. So feel free to, you know, to either tweet at me or, you know, or, you know, let me know, if you’ve got interesting startups that you’re working on, we’d love to hear from you. Yeah, that’s it, Jeff.

Nick Moran 56:05
Well, thanks so much for spending the time today. It’s, it’s great to hear a story about somebody who launched at a terrible time, and was able to build, you know, a business with with such tremendous value and staying power. I think it’s a great lesson for for me and for all the founders listening. So thank you.

Unknown Speaker 56:25
Awesome. Yeah, Nick, thank you so much for taking the time. It was a pleasure speaking to you.

Nick Moran 56:33
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest competently. Thanks for joining us.