Ethan Austin of Outside VC joins Nick to discuss Investing in Outsiders, Why Extreme Personalities Win, Weighing Timing versus Trends, and Rethinking Liquidity and Option Exercise Windows. In this episode we cover:
- Lessons from Founding Give Forward
- Investment Philosophy and Timing
- Founding Outside VC
- Characteristics of Strong Investment Candidates
- Supporting Founders and Building Knowledge
- Trends in FinTech and Climate
- Role of a VC and Early Liquidity
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The host of The Full Ratchet is Nick Moran of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
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0:17
Ethan Austin joins us today from Santa Barbara He’s the Founding Partner at Outside VC, a pre-seed venture firm backing outsider founders building financial inclusion and equitable systems. Ethan is the former MD of Techstars in Denver, helped launch Techstars LA, and Co-Founded GiveForward, the first medical crowdfunding platform acquired by GoFundMe. Ethan, welcome to the show!
0:50
Thanks for having me. Nick, yeah, it’s good to see you again. So tell us a bit about your backstory and your path to venture. Yeah, I was a founder for eight years in Chicago, and we built a company called give forward. It was one of the very first crowdfunding platforms. We did that for eight years. In year eight, Facebook decided they were going to build the same thing and kind of took us out within a year, which was a pretty brutal ending to eight years of work, tried to recruit us to join their team and be the first product managers building out what they were starting, an impact team built our product the next year. So we saw something die overnight, basically, which was pretty hard. We ultimately, you know, sold to GoFundMe, but it wasn’t, it was one, wasn’t one of those acquisitions where the price was named, right? So one of our, one of our angel investors, a guy David Cohen, founded TechStars. He pulled me into TechStars. I launched TechStars. La with Anna Barber, 2017 2018 and then went to Denver to do another TechStars program we’re in with Western Union around fintech. I did that for a couple years, and I wasn’t sure if I was gonna start another company or not. And after a while, I just, I just realized I loved, I loved what I was what I was doing. And I always had that founder itch, still a little bit. And so I wanted to start my own thing, as opposed to joining a venture firm. And so in 2022 spring 2022 I went out to start raising for outside VC, and really tried to build the firm I wish existed when I was a founder. And that was really what the you know, the idea was about, like we were founders and had to bootstrap for two and a half years because we were outsiders, and no one backed us until the thing became kind of obvious. And that was the idea behind outside VC is just kind of jumping in earlier before things are obvious, and being first believers into founders,
2:40
good stuff. So, you know, as you reflect on that journey as a founder, what do you think, you know worked? What didn’t work? Obviously, the outcome wasn’t what you wanted. But what are kind of your your main lessons from that? Yeah.
2:57
I mean, like the, you know, lesson one, just go and jump in and do it right, like that was the hardest thing of all. I think lesson two, sometimes I like laugh. I was like, what are the thing we did best? We just stuck around long enough to kind of catch the wave. You had to be there at the right exact time to do what we were doing. So we launched in 2008 next year. Kickstarter launched the year after that, GoFundMe launch. The same year we launched Indiegogo launch. And like, none of these things would have happened had Facebook not really been going from, like, 200 million to a billion users in that same time period. Like, we got 80% of our traffic from Facebook, and so we kind of lived by the sword, died by the sword. None of us would have existed had Facebook not existed so, like, just sticking around and being scrappy for those couple years. And, you know, had Kickstarter not come out the year after, and kind of educated the market, like they blew up a little bit, and that helped all of us. And so, like, I think just staying alive was was pretty critical. But then also, kind of finding, finding a way to differentiate. So we launched in 2008 five years later, there was 1000 crowdfunding platforms. There was there was the Jobs Act had happened, right? Like, like, there was federal law around crowdfunding, like, so, like, we helped start this thing, and then it blew up behind us. And you look today at crowdfunding and all the platforms today, they’re still exactly the same. There’s no technological mode. There was no every everything was exactly the same. So you’re in this completely undifferentiated space. How do you stand out? And, you know, one lesson learned really, was around positioning and and we positioned ourselves differently. We we found a path that made sense, which was medical crowdfunding. Like, you know, we pivoted before we knew what the word pivot was. You know, I don’t think it was. It was a word back then. We’re just like, Well, we started off doing fundraising for everything and narrowed into fundraising for medical expenses when we saw that was like where people really needed us and and then positioned ourselves differently than everyone else, because from a technology standpoint, we’re all the same. And so we positioned like our core values like we didn’t realize it at the time, but we were creating a brand based on like our core values. And it emanated out into like how we acted and how we approached the world, and that positioned us differently in the market, where people would come to us because of what we stood for, right? Our mantra is create unexpected joy. And our core, you know, number one core value is cultivate through compassion. And when you’re looking at all the different crowdfunding platforms and look the same, people would choose the one that felt like it spoke to them. And I think that was something that stuck with me, of like, how did it really differentiated in a pretty undifferentiated space?
5:29
You mentioned timing, like, you know, you started the business at the right time and were around long enough to kind of benefit from the way that the market moved. How much of of that is a factor when you’re assessing prospective investments? Do you think? Do you think a lot about timing, and is that like a critical, critical component to your diligence process?
5:54
I think a lot about, I mean, I’m reluctant to invest into something that has been in existence for a long time, or there’s a pretty competitive space, because it’s, it’s, it’s so hard, then you’re just really betting on, is this founder or this, is this team like, great at executing? Will they out execute everyone else? I tend to not look at trends, right? Because I’m pre seed investor. If I’m looking at trends, I’m probably already too late. I want to look at the things that, like, you know, that that sound a little weird in the beginning, like when we were starting this in 2008 we didn’t even call it crowdfunding. We called it peer to peer fundraising. It wasn’t a thing yet. And so, you know, we’re not investing solely in category creating companies. But I think if you can try to, at least if we can try to, you know, invest in the things before they become the thing. You know, that’s where we can get in early, at, like, a lower multiple, you know, valuation, where the multiples are gonna be a lot higher down the road, and just believe that the founders are gonna find the right path. So, you know, I don’t look at it as like, try and time everything. I just look at it as like, I’m okay investing in these things that seem really weird right now, and maybe they’ll be in the right place, the right time to catch the wave in a couple years.
7:08
So So tell us about the the founding of outside obviously you left Tech Stars, you felt like it was time to to launch your own fund. What is, what is the thesis? And what was the origin story there? Yeah.
7:21
I mean, the thesis was really just around, you know, outsider founders. So you look at, like, some of the best founders in the world. You look at, you know, just Larry, Larry Ellison. I don’t use this one as an example very often, but he recently became, you know, the richest person in the world for, for a moment, I think Elon Musk took him over again. But like Larry Ellison was, you know, grew up poor in the Bronx, was adopted, was dropped out of college, right? He was not the type of person that you think that most VCs would look at as saying, is going to be the future richest person in the world, Right? Steve Jobs was an adopted hippie, pretty heavy drug user, got kicked out of his own company. Most VCs wouldn’t have said that guy’s going to be build the biggest company in the world. Elon Musk, you know, an immigrant, you know, different on every level from just about everyone else. Not typical insider, not the person most people would have said is going to build the biggest company, you know, one of the biggest companies, or, you know, many companies in the world. And so, like all of these people, if you go down the list of like, the biggest companies, consistently, they’re built by these people who don’t look like what insider VCs are typically investing in. And, you know, it was really drawn from our own experience. You know, I came straight from law school with no with no experience, and my co founder, she worked at a nonprofit for, you know, a couple years and, like, had no real Tech experience in 2008 and no one wanted to bet on us. And I think oftentimes, like, as you start digging in, these are the folks who end up building some of the biggest companies. And so it was, it was drawn from my own experiences. I dig it in, dug in more. I just saw that there was, you know, a bit of a pattern here. And so I leaned into it, and we kicked it off in 2022 in spring, right as the market tanked, and it was like incredibly hard fundraising time to fundraise, and kind of muscled through it and got to a small little fund just by pushing our way through. But what we’ve seen so far is that it just really resonates with founders. The founders are like, yeah, that that speaks to me. Even in all these people that you think are insiders, it turns out they raise their hands and say, like, Oh no, I’m an outsider. And so that’s that’s one thing we’ve kind of seen is like we plant our flag. It’s drawn in talent beyond what we thought we’d be able to do otherwise.
9:51
So like three of the names you mentioned, Larry Ellison, Steve Jobs, Elon Musk, these are all very extreme personalities. Yes, you know, challenging convention type of folks, like, how do you tease out when you’re meeting founders? You know, you want them to be off consensus, but they can’t be so far off that you can never get future funding. You know, you can’t get into a series a so talk to us a bit about the profile and the characteristics that you know, you think make for a a strong investment.
10:27
Yeah, I think I look for like three main things, and two of them are outsider trades, and one of them is not really an outsider trade, but you know, first one is like, they have some because of their lived experience because of where they came from, or because of what they’ve lived through, or their circuitous path to how they’ve got here, they have some unique insight right into the world, and that’s probably different than than the way other people are seeing the world. And so that’s that’s something that I look for first. And then, you know this, there’s two other things that that like they usually do things differently than everyone else, so they usually operate from first principles. They’re not usually operating from. We did things 20 years at this company, and this is how things are done. They’re just operating from their own set of, you know, values, their own North Star and their own way of doing things. And usually it’s weird or peculiar, like, why I look for that a lot like this little thing, why are you, why are you doing that? Like, that’s, that’s weird. Tell me about that. And, you know, and it’s like little, it’s like little nuanced things. And like, those are the things that I kind of get excited about when people are not doing the things that everyone else is doing, but like, they just operate a little bit differently. And it could be, could be just like, are they running their their fundraising process? Like, why are you running it this way? Or, like, what was this strange little thing you’re doing? So that’s something. And then, like, just people, who are, you know, I think outsiders tend to be grittier, right? Like, so I’d say, like, probably half the companies we’ve backed were immigrants. And like, I think if you’re, if you immigrate to a country, if you’re willing to, like, you know, risk everything to come to a country, like starting a startup doesn’t seem that risky, and you’re willing to push through walls. And, you know, someone wrote like, you know, a lot of people doubted Larry Ellison, and like people with a chip on their shoulder, sometimes they’re just willing to push through walls longer, right? Like I said, for ourselves, like, we just, we just stayed alive for two and a half years, you know. We want to keep pushing and pushing and pushing. And I think the founders that tend to stay alive and just keep pushing and have something to prove, you know, tend to end up building big companies because they’re, they’re there when the wave hits, you know. And then from non outsider stuff, I look for founders that that have just been, like, I asked people if they’ve been top 1% in something in their life. And I don’t care what it is, it can be something super esoteric, but just willing. It’s just, you know, shows that someone has the willingness to to push forward in something, and has that drive to really be great.
12:55
You know, a lot of founders talk about these characteristics, like founders that are thorny, or, you know, bristly, or, you know, have sharp edges. And I’m curious, when you’re working with some of these founders, do you try and smooth those out? Do you coach them, you know, before they go out for the A or do you just tell them that, lean into it and just do your thing, and maybe we’ll find somebody that response.
13:21
I mean, I’ve been on both ends of that. I used to say, like, Who do you look for it to like, I look for founders that are psychopath adjacent, which is probably not the most PC thing to say, but like, for like, you know, right up to the right up to the line. And because I think they’re just a little bit different. And you’ve, you know, been in scenarios where you’ve been like, Oh no, that was too far over the line. And this person, you know, it’s just, you know, you misjudge stuff, like companies have, you know, been involved with in the past and and then I tend to say, lean into it honestly and like you’re hopefully you’ll find the right investors for you. And who am I to say, you know that you’re doing things wrong, when you know, I think these people, like these really, really smart people, or people who are peculiar See the world differently, are just seeing things that the rest of us aren’t. And so there’s a little bit of coaching. I tend to give people coaching. I tend to kind of tell people how VCs are thinking or why they’re doing certain things, and just kind of, you know, unveil a little bit. It’s because it’s pretty opaque for founders who don’t know, but usually I tell them to lean into it and, you know, let the cards fall where they might awesome.
14:34
So one thing about TechStars, we just had David Cohen on and recently had Brad Feld on again, TechStars does a lot of deals, right? And so you worked with Denver, you worked with LA, you’ve had reps, you’ve had shots on goal, if, if you were to go back and think about the portfolios that were built as part of those programs. So going into the programs, often, people will say, Oh, I feel like these are the few that have what it takes. Do you find that usually you knew early on, or do you think you were surprised frequently, you know, like the ones that were not predicted to be the successes, ended up finding it somehow.
15:23
Yeah, I think a little a little b. So, you know, early on, we lost some companies to venture, you know, venture firms who we competed against. And you know, sometimes we’d lose some of our you’d stack rate your companies ahead of time. And you know, if we, you know, it’s pretty common. You might lose your top one or two companies, or, you know, one company out of to a venture firm. And that always stung, because you’re like, oh, this was going to be the one. So I learned early on, like, you know, advice I try to give other MDS when they were joining tech service is like, make sure you get your one make sure you get your top two, your top three, your top four. And it’s like, do whatever you can to close them. And I think that was something that stuck with me, with, like, outside VC, like, we’ve never, you know, been pushed out of a competitive round, out of, like, I think 14 rounds down. Like, just always close. But then on the flip side, I think a lot of the companies, you don’t know this, these are so early, right? And like, one of our best companies out of, you know, one of my Tech Stars, Denver classes. I never we stacked ranked them. I never had them ranked higher than fifth out of 10 during the time. And now I’m like, Oh yeah, companies are a runaway and, and, and you just don’t know at the time. You know, half the time it’s like they were earlier than other folks. But you know now it seems like they’re going to be a monster, and you’re just never really sure. So I think you have to go in with a bit of humility, knowing like things change, and these are really, really early companies,
16:55
and give me your sense on follow on funding. I understand that you’re not reserving for the current fund. But as you think about follow on funding, and you’ve seen kind of the the approach at Tech Stars, there’s many out there that say you have to double down on your winners. Figure out which ones your winners are in JAM money, because you’ve got the best information right. It’s information asymmetry with the rest of the rest of the market, versus like I spoke with an LP two weeks ago, and his position was, the first check is always the best check, and that’s it’s the best decision making process for underwriting in the decision making actually gets worse over time because of bias and because of some cost, and it was kind of an interesting perspective. So what are your thoughts on the strategic side of following funding and one’s ability to make better decisions as a company gets more maturity and an investor gets more information,
17:56
I think it depends on the firm, right? I don’t think, look, I talked to so many people when I started in this, like, people who’ve done phenomenally well, who have said, we never, you know, do follow ons, and we always do follow ons and like, so like, I think both paths can work. I’ve tended to, we did a tiny bit of follow on on fun one, and I’ve tended, you know, for fun too. We’re not doing any follow on with the idea, like, yeah, like, a you know that you’re the valuations the lowest in the first round, and, and, and as a small fund, we just don’t have, you know, tons of tons of opportunities to do follow ons and, like, use that capital to invest it, you know, at six times the valuation, or three Times evaluation, or whatever that might be. I think it’s also harder, like I’ve learned. I think you should it’s good to stay in your swim lane, and it’s good to understand where your best I think each diligence process at each stage is different, right? And you’re following on on a, on a seed plus, or a Series A, it’s a different calculus than when you’re investing pre seed. And like, if you get really, really good at one space, it doesn’t mean you’re good at another. And so, like, maybe if you have a firm where one partner is, like, you know, I’ve heard of firms where one partner focuses on, on, follow on only. And like, they have a partner, you know, to avoid all the bias of, like, yeah, this was a company I believe in, you know, that could work. But as a solo GP, I’ve said, Look, I don’t want to, I don’t want to bring that bias into the decision, and I don’t want to make poor decisions when you know you should have better knowledge. But you don’t always right. It’s like you don’t always, it’s not always obvious to see, you know, one stage later or two stages later. A lot of these companies, you know, just sometimes, you know, you hear so many stories of like, you know, we were the only firm that backed this company for multiple rounds. It wasn’t obvious. And then it became obvious, you know, by the series B or C. And so I thought, you know, let’s get as much capital in in the beginning and as much ownership in is the beginning when the companies needed the most. Right, right? When no one else is is like, really backing them versus putting more in? When you know it seems like something’s on its way, but you just never know.
20:10
So Ethan, one of the words that comes up frequently when speaking with investors is edge, right? Lots of allocators are looking for edge when they’re picking VC funds. Of course, we’re looking for founders with some sort of edge in the VC space. It’s usually framed around sourcing, picking or support. Where does your edge come from?
20:34
At outside? Yeah, I think it’s, I think it’s, I think of sourcing as a top of the funnel and and winning as a bottom I think picking is really hard, right? And you think it like, you look at people picking, it’s, it’s like, yc is like, if you look at 100x returners, they’re like, at 1% and they’re one of the best all time firms, right? You look at Fred Wilson, I think he’s at the top end of that spectrum. He was at like, 6% and like, picking at series A which, you know, is a narrower, you know, funnel at that point already, and he’s probably one of the best of all time. And I think picking early stage, David Cohen told me early on he’s like, make sure you have enough portfolio companies in your in your, you know, portfolio construction, because you’re going to see halfway into this that, like you think you’re a better picker than everyone else, and everyone tends to be, you know, kind of around the same. And so I think picking is really tricky. I think, I think sourcing, for me, is where things get, you know, I think differentiated. I think if you look at the best firms in the world, you look at a Sequoia, for instance, like, you know, everyone they win, because every single company in the world is going to take their money, right? And so I think it’s really hard to build a great firm just through sourcing, sourcing through network. Like everyone, sources through network. Every VC has a good network that doesn’t make you different, right? That makes you the same as everyone else. And I think unless people are coming to you saying, oh my god, Nick, I want to work with you, or, oh my god, Ethan, I want to work with you because of what you believe in, because this aligns with my worldview. Because, you know, I think that’s the hack. And I, you know, we had founders reaching out to me the other day who were like, Yeah, we built our first company. It was, you know, we exited for mid eight figures, and we built our second company, and exited for mid eight figures, and we’re building this third one. We’d like to get you involved. And I was like, why just like, oh, we just been reading the stuff you’ve been writing about outsiders online, and just like, it’s it, you know, it struck a chord with us. And so I think it allows you to punch above your weight class. Like, you know, going back to what we did with give four and positioning yourself in the market in an undifferentiated space, I think it allows you to punch above your weight class when, if you say, We’re just doing FinTech and climate. Okay, so what? Right? And so I think saying that we stand for something and saying we believe in something draws in people that we normally would never have seen. And so fund one, most of our most of our investments came through network 24 of 28 but I think five of our last 12, and three of our first four, and fund two have now come as cold inbound. For a lot of people don’t like cold inbound. I’m like, I love it. I want people finding us and digging through this stuff to be like, oh yeah, this is a great and I think you end up with pretty differentiated deal flow from everyone else that way could be wrong on them, but we’re seeing stuff that I think other people aren’t seeing.
23:20
And what’s the approach to support right after you’re in a deal like, you know, what’s your standard way of working with founders and helping them out?
23:29
Yeah, so we’ll do, I mean, we’ll do every, everything that, you know, we’re the therapist to, you know, financials, you know, bringing in another like most founders need, and everyone who’s going through TechStars, and I find this true of all early stage founders, like most people, need help with fundraising. They don’t have a lot of that bats there, right? They could be good at running a company, but, like, you haven’t fundraised that many times, needing help with with, like, closing the round. So like, I think every company and fund two so far, you know, we’ve helped bring in additional investors into the round. And sometimes, like, two of the companies, we’ve been the first institution, institutional investor, and in two of them, we’ve been the second institutional investor. And so it’s always early in the round when they need help, you know, really coalescing that round and getting it done. You know, beyond that, like that first, that first, like, real hard push, like we’re, I think I try to be responsive, as opposed to, you know, telling people what they need to do. So typically, we’ll be the first person to respond on any investor update, you know, and just say whatever you need. We’ll, we’ll be here for that, you know. And a lot of it’s sometimes helping them think through stuff, being there as a friend when, when they need it. And like, you know, I say friend Master is kind of the swim lane we swim in, and kind of being there as a friend who, I think, tells people when they’re screwing up, right, not just being nice to them, but, like, actually telling them, like, hey, this, this, this thing over here, doesn’t make sense, and doing it in a way that. Best Kind and people actually listen to because they know like their best interest.
25:08
Ethan, as a as a generalist, you know, how do you build knowledge? How do you build context when you’re making investment decisions in spaces that you have, you know, limited to no experience.
25:24
We I well, I mean, we focus on two areas. So we focus on FinTech and climate. But I would say, like the thing that I’ve done that’s been the most helpful is I designed my LP base, you know, both by necessity and by design, right, as I told you, is 2022 or fundraising. So I had 180 LPs and fund one, which is like a crazy way to to fundraise. And so there’s all small checks from operators and other VCs. And so we have 30 plus VCs in our LP base. We have 3040 30 to 40 FinTech CEOs or operators or execs. And, you know, in we have, you know, climate experts and like. So anytime we have, you know, a space that I don’t, you know, know deeply enough I have this great network of people that I can reach out to that are just our in our LP base, that dig in for us and help think through problems. And, you know, spot out, you know, here’s, here’s the challenges with this. Or no, this is, this is a really great opportunity, and so I use this LP basis, or like a mini expert network. Awesome.
26:32
You recently wrote about advice you received from a notable LP. They said, keep it simple. Stories matter, and LPs are looking for weirdos, not normal people, investors who are a little off, as you put it, what do you think makes you the kind of weird VC that LPs are looking for?
26:55
Well, TBD, if I am the weird VC that LPs are looking for, but um, you know, I, I was surprised that they said that. Honestly, I was, you know, and they said a lot of things in that this session. And I was surprised that, you know, this, there was a, it was a panel of VCs all in, you know, button down shirts and looking pretty traditional. So I was kind of shocked when he said this. And, you know, Brad Feld was in the room. He kind of looks at Brad, you know, he’s kind of pointed to Brad. He’s like, Brad’s a little off, you know. And you’re looking at people who can kind of see, see around corners and a little bit, and are just not doing things the same way as everyone else, which was surprising, because, like, that’s why I said earlier, what I look for in founders. I look for people who are kind of building off first principles and doing their own thing and not really caring what the rest of the markets doing. So I think I’ve tried to do that my, you know, my whole career as a founder and now as a VC, you know, TBD, of course, if it all works out, but like it’s, it’s probably not going to end up with, you know, average returns is going to end up on one end of the spectrum or the other. But I think, you know, I think the whole approach of everything we’re doing is just always a little bit different than you know, what everyone else is doing, at least, at least, that’s what you know. My LPS have said, of like, you know, who are coming back in for fun to say, Ethan. I don’t know if this is going to work or not, but I know you’re doing things differently than all the other investors, all the other funds that we’re investing into. So we’re curious to see how this all turns out.
28:27
So Ethan your thesis, you invest in FinTech, you invest in climate. Climate’s gone through some ups and downs as of late. What specific areas within climate are you focused on and then spending the most time on,
28:41
yeah, we’re, for the most part. We’re spending stuff on, on software. We’re not spending stuff on, like, the the real sci fi climate stuff, you know, we’re a tiny little fund, so it’s, you know, the stuff with crazy capex. So we’re not really investing into, you know, we’ve invested in multiple companies and doing electrification, both on the consumer side and manufacturing side, and thinking through like and you know, what is, what does this look like in the future as we transition to different energy sources? You know, we’ve done stuff in data company called Full terrace, which is almost like a it’s like plaid, but for EV data and connecting manufacturers, auto manufacturers, with anyone who wants to build on top of EV data. So like almost all of it’s been, been software, and we’re really lucky. One of our LPS this guy, Kieran bhat Raju, who’s been incredibly involved. He’s the founder of a company called Arcadia in the in the climate space. He’s been every single company we’ve looked at. He’s either helped us source, he’s helped us diligence, and he’s helped us win some over, because, you know, I don’t have as much experience in climate. And you tell any founder that Kieran is going to be involved, and you know, he’ll jump on a call with folks, and people always want him on the cap deal. Able and want on him involved. And so he’s been able to close companies that I think sometimes we wouldn’t have been able to get into. But, you know, it’s really, it’s mostly, mostly software. We did 111, software, hardware company that was composting, that was just a really cool, interesting company that’s doing great. And I think a lot of people wouldn’t touch it because of, you know, the hardware aspects of it, and so they just had a narrow, a narrow band of investors that would look at it. And that was when we, we did, and have been really happy with so, you know, we’re also, I wouldn’t say we’re, we’re agnostic, but we’re, it’s still for us. We’re betting so early, it’s usually just founder based,
30:41
how about trends on the FinTech side? You know, how have you seen that sector evolve over time? And what gets you excited?
30:48
Yeah, I mean, I again, I’ll say the same thing in FinTech is, like, we’re always looking for for founders. I think we’re betting so early on companies that, if we’re looking at trends that were kind of getting in trouble. So like, I mean, like, one trend we invested in recently, like, you know, when we were, when I was running the TechStars Western Union program, we were seeing stuff in stable coins back in 2019 and we kind of, like, looked at stuff back then. I think that’s, you know, I one of my, one of my biggest misses was a stable coin infrastructure company that we didn’t invest in from the our 2020, class. But like that has, that’s a trend that has, like, really kind of come up in the last couple years. And there was a decent size acquisition by stripe that kind of, you know, turned everyone on to saying, Hey, this is actually probably going to be a thing, and stable coins are going to be a thing, and it’s kind of moving over. And we invested last year into a stable Coin Company, that infrastructure company that’s doing great. But for the most part, we’re, we’re trying to avoid the trends like because, you know, we’re such a we’re such a small fund, we’re making first bets that we’re, we’re usually, you know, a first company in so, like, you know, we just invested in a company in the insurance space. That’s that’s doing, you know, layoff insurance for people betting on, like, all right, well, AI, if this is to happen and people are going to be getting laid off, and like, people jobs are going to be getting lost, like we bet it on a company doing that. And so I don’t we’re hopefully getting in before these things become trends. And, you know, hopefully that’s not the case with AI. But, you know, it’s kind of a hedge. In case it is, that we’re betting on companies kind of looking at, what are the ramifications if this thing really takes off.
32:43
Awesome. Charles Hudson was recently on the show, and he wrote recently about what it means to be a VC. How do you define the role today, and what do you think most investors still get wrong about the job?
32:59
That’s a good question. Um, how do I define the role today? I mean, I think it’s different at every stage. Like, I don’t, I don’t know how to define it for for every stage, but I know for us, it’s, it’s, it’s being a first believer, right? I think of of taking risks when other people are unwilling to. And I get all the question all the time from founders, like, you know, someone asked me yesterday, like, how much revenue do I need? And like, can I raise without any revenue? And I’m like, it’s hard. It’s hard to do that. Like, a lot of people are not willing to take a bet on something that’s pre revenue. And there’s, like, a very narrow number of VCs that are still kind of willing to do that, like, angels, sure, individuals, sure. But, you know, an institutional VC. I think that’s tough. So I think, you know, my role, and the role I like to play is like being a first believer, you know, I still talk to the people that were first believers, you know, in my company 15 years ago. They’re still like my mentors and and people that I’m, you know, very close with today and have lifted me up over the course of my career, and so I think that’s a critical role that’s that’s largely missing. There’s, like, a lot of consensus capital. There’s a lot of people making safe bets. But, you know, I think venture capital was, you know, originally in this very cottage industry this, you know, and and has become bigger and bigger as it started to scale. And with that is, is less, you know, we have a narrower band of things that we really think fall into, like the good range. And I think looking outside, you know, with a little bit of a wider aperture, either based on, like, what the company does, or who the founder is, you know, is what venture capital used to be, and what I’ve tried to kind of bring outside Vc as, like, going back to, like, we were backed by, it’s a company like Founder Collective, which I think was always like, looking at these weird, wonderful things. And like, they’re just, you know, decidedly anti thesis, and like, we’re just looking at this weird stuff. And I think I was very much. Helped by that philosophy and trying to look a little bit further out of not saying, I know what the future holds, but saying, let’s be open about what it
35:12
could be awesome. Ethan liquidity is becoming a bigger topic. Earlier in a startup’s life, we’re seeing companies that are giving employees liquidity options before exits. We’re seeing private markets reshape and new concepts coming to address some of these issues. How do you see early liquidity shaping founder and employee incentives going forward?
35:39
I don’t know how it’s like, I don’t know what most companies are doing. I think, I think founder liquidity and employee liquidity especially, is like, you know, something that I think has has gotten short shrift for a long time. I think employees honestly tend to get screwed a lot at startups. I think, you know, investors might make out and founders might make out, but employees often just like, get the short end of the stick. And so I like that we’ve seen this trend in recent years of, you know, 90 day exercise windows are still the norm, but are becoming, you know, there’s more and more companies doing 10 year exercise windows. Because when, when these exercise windows were originally created, you know, companies would IPO in three years? And, like, people just stuck with this, stuck with this idea of, like, well, we don’t IPO in three years anymore. Like, we should probably change these windows. And I see more and more of that happening. I see, you know, occasionally companies, you know, offering, allowing their early employees to find liquidity through tender offers as they get to Series B Series C. I think those are the right moves in the right directions. For, for, I think equity, for, for employees who are really busting their humps and tend to end up with a with a bargain they don’t really understand when they sign up, like, oh, you work your butt off, and then like, oh, I have to pay a bunch of money if I want to leave this company to buy these things that are highly illiquid, and I have no idea if they’re going to be worth anything, you know, so I don’t know if the trends are going the right way, but I try to encourage, you know, employees to ask, Like, I think employees should get the same information when they’re when they have to make a decision that an investor gets. Like, like, show the date, ask, ask for the data room. Like, why are you asking me to make what’s basically an investing decision, right? And when I don’t get the same information that an investor would get? And so, you know, I try to push for more fairness and more equity for for employees, as much as I think about it, for founders and nlps like I think that there’s a there’s a forgotten class of folks in the startup world that are working just as hard as everyone else, that kind of end up in a more precarious position than either founders or investors.
38:00
Just a few wrap up questions here. Ethan, do you have any habits or behaviors that are a secret weapon?
38:08
You know, I think that the behavior, I think is, has been just not listening to what everyone else is doing. And have I banished Twitter from when my first daughter was born, and just kind of staying focused on doing the thing that I think makes the most sense has been the most helpful thing for me.
38:30
Awesome. And then finally, here, Ethan, what’s the best way for listeners to connect with you and follow along with outside VC,
38:39
I’m pretty open on on, on LinkedIn, you can reach out to me, or I’m just Ethan at outside venture capital calm, and I’m pretty quick to respond to things.
38:50
Okay, Ethan, what book, article or video would you recommend to listeners?
38:55
Yeah, I have a book that’s from probably 20 years ago that we used to read at my company called hug your customers, that I feel is probably not on any startup list, and it was really just about getting to understand your customers, and I think that’s something that we don’t spend enough time on as startups, and getting to understand and know and love your customers, and It really shaped everything that we did as a startup. And it’s probably not ever been mentioned on this show, I bet as a book. Never heard of it. Yeah, I’m gonna throw out that one.
39:31
Love the title though, Ethan, if we could feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about?
39:41
I think one of my investors, Eric Paley, from Founder Collective, I think he’s always had, really, he’s probably been on the show. He’s probably has always unique ideas around the world, and just left the world of venture to go into the world of government. And, you know, ask him about that journey and why he decided to do that after such a success. Full run in venture
40:02
that would be a fun one. It’s been been too long. It’s probably been 10 years since we’ve had them. So would be great to have Eric Cool.
40:11
Thanks for Thanks for putting up with all the the craziness that
40:15
all good man. He is Ethan Austin, the firm is outside VC. Ethan. Thanks so much for the time, and congrats on all the success and early momentum with the firm. Thanks, Nick. All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social, or shoot them an email, let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently. Thanks so much for listening.
