The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch
00:04:53 · Matteo Franceschetti, Harry Stebbings
[00:04:53] S0: Yeah. Thank you for having me. [00:04:55] S1: I think that hiring today is harder than it's ever been just because of the prizes on offer at OpenAI Anthropic and some of the other places. Even the shiny new hot startups. How do you think about that? Am I wrong? Has it changed in terms of talent competitiveness? [00:05:10] S0: We are back to 2021, and that I think is becoming a problem in The US, meaning salaries are going out of control, competition. What [00:05:18] S1: makes you say that? Like engineer salaries? [00:05:21] S0: Any salary, even for product managers, are out of control right now. They get insane offers from any company. Obviously, there is a lot of money going around. And so we are focused more and more on hiring in Europe and outside The US. Because the other problem is not even the salary, and it's not even attracting them on T0, but it's retention, because then they keep receiving offers. [00:05:44] S1: If you are a cool company with a cool brand, then they keep receiving offers over and over at a higher salary. Have you lost people to OpenAI and Anthropic? I've invested in many companies and they're just like, God, we're getting eaten alive by OpenAI, Anthropic, Cognition, you name these hot companies. [00:06:00] S0: Yeah, a couple. The other ones could be AI companies that are doing extremely well or they just raise money, and it's normal competition. But sometimes the delta in salary and in comp is so big that at that point, there is nothing you can do.
00:06:00 · Matteo Franceschetti, Harry Stebbings
[00:06:00] S0: Yeah, a couple. The other ones could be AI companies that are doing extremely well or they just raise money, and it's normal competition. But sometimes the delta in salary and in comp is so big that at that point, there is nothing you can do. [00:06:14] S1: We mentioned Cognition a couple of times. We were talking earlier about your angel investing as well. How has being an angel investor changed how you think about operating? [00:06:23] S0: It's a game changer for me. And I think that is something is not shared enough, particularly on X. The amount of learnings that you get from being an investor is insane, because it's, essentially, you build your own intelligence. As you receive investor updates, you understand how the market is moving, what are the valuation, what are the multiples, what kind of profiles they are hiring, what channels might be working. I receive these from companies that are not competitive with Eight Sleep, but as a founder, you just get a sense of the market, and [00:06:53] S1: I find that super valuable. What's been the biggest lesson from angel investing? [00:06:56] S0: The biggest learnings is always on fundraising, right? You see how much they're raising at what valuation, what multiples, what investors, that's one. The other biggest lesson is for other companies that are still consumer to see channels, what channels work for them, or what markets work for them.
00:06:56 · Matteo Franceschetti, Harry Stebbings
[00:06:56] S0: The biggest learnings is always on fundraising, right? You see how much they're raising at what valuation, what multiples, what investors, that's one. The other biggest lesson is for other companies that are still consumer to see channels, what channels work for them, or what markets work for them. [00:07:14] S1: What do investors not understand about hardware that they should? You're advising me. I'm your buddy. I have a fund, and I want to invest in hardware. What do you like, dude, before you do it, you should know this. [00:07:26] S0: Probably the founders in the first year of the company, or in the first probably, let's say three months, they don't fully understand what the cost of producing that device will be. They don't understand the return rate. And so everything they tell you about BOM and COGS will probably be off by at least 50%. [00:07:42] S1: Does CAC go down over time? It really depends. [00:07:46] S0: And so that is another thing you want to assess, which is word-of-mouth. In our case, word-of-mouth keeps compounding. We are around 40% of our revenue, even at our size, which start being really big, is 40%. 40% of your revenue, you say, is word-of-mouth? Yep. What's your second biggest channel? Then you start getting into paid media. [00:08:05] S1: And that's just Meta? [00:08:06] S0: Yeah, then it becomes Meta, Google, TikTok, and all those channels. [00:08:10] S1: Can I ask, how do they compare? I'm a hopefully specialist at this point. No one that I speak to has managed to make TikTok work. Have you?
00:08:10 · Harry Stebbings, Matteo Franceschetti
[00:08:10] S1: Can I ask, how do they compare? I'm a hopefully specialist at this point. No one that I speak to has managed to make TikTok work. Have you? [00:08:19] S0: We did. Actually this year, in the past six months. How? It's usually a matter of amount of content that you can generate with TikTok influencers. [00:08:28] S1: So it's about getting a UGC program in place? Yep. Is there a big budget for you tied to it? [00:08:33] S0: The way we usually approach these channels is we start unlocking a small budget per week. We start looking at the CAC, and we've set a cap to the CAC, and then they can deploy as much as they can within that CAC. But then as they prove it, they can deploy more money. So, to me, they could deploy 100,000,000 if they're within CAC, the cap of the CAC. The important thing you need to do regularly, probably every six months, is an incrementality test. And so we might turn off TikTok in certain states in The US or in certain geos, and we start AB testing what is the growth rate or is the revenue rate. So we wanna see how much each channel is incremental, because we don't look at the from the platform. We have our own models now that determine the CAC of each channel. [00:09:20] S1: Sorry, can you tell me about that? You have your own models to determine the CAC from each channel. Why is that?
00:09:20 · Harry Stebbings, Matteo Franceschetti
[00:09:20] S1: Sorry, can you tell me about that? You have your own models to determine the CAC from each channel. Why is that? [00:09:25] S0: Well, because you cannot trust that there will be an excess of attribution from the same platform. We do the same with Meta. If you look at the CAC on Meta, it's probably 20% lower than what the true CAC is. The And only way you can do it is by doing these incrementality tests. And so, let's say you pick two geos that perform similarly. Let's say you pick Texas and, I don't know, California. That is not the right example, but me. [00:09:49] S1: Dude, you're speaking to a Brit. That'll totally work for this example. [00:09:51] S0: And so, then you turn off Texas, and you start seeing what is the delta in performance of that state versus the other, so how much revenue you lose. So if they were both growing 50% year over year, and you start turning off meta in one or the other, you can immediately calculate the value of meta for that state. Does every brand [00:10:12] S1: need to have their own models to accurately [00:10:15] S0: Oh, it's 100%, because otherwise they just fool themselves. [00:10:18] S1: When did you stop? Because it's one of those ones which you can't do from day one. [00:10:22] S0: No. And you will screw up multiple times. And the point is you need to keep doing it because as you add more channels, the incrementality of each channel will not be the same. [00:10:33] S1: How did you think about that channel addition? Because I see so many founders try and be everywhere to everyone. How do you think about I
00:10:33 · Harry Stebbings, Matteo Franceschetti
[00:10:33] S1: How did you think about that channel addition? Because I see so many founders try and be everywhere to everyone. How do you think about I [00:10:40] S0: disagree with that. So you need to go one channel at a time. I was even talking to a common friend recently who was asking me about that, and say, Okay, can I go in all these channels? How much money should I put? Should I start putting 100 ks in each of them? And I say, No, no. You go one by one. You start with Meta. It's probably the biggest and the one that you should prove the fastest. And you start with, based on the size of the company, a certain amount per week. You set the cap to the CAC that you want to achieve, and then from there, you start scaling only if you are within CAC. Because otherwise, you start throwing money out of the window. Your growth people, they will always want to faster, and so they will always want to spend more, and then you start losing control. And what happens? Then, let's say, by the end of the year, you realize you screw up, and so you start pulling back, and then the following year, you're not growing year over year because you're spending less. And so you need to be disciplined now if you want to be successful next year and keep growing year over year. [00:11:33] S1: It's really interesting about how you kind of gamify growth numbers, because you're right, you spend, you get 400% growth, you pull back hard, you Good get 70 luck fundraising when you're going from 400 to We