1Mby1M Virtual Accelerator Investor Forum: With William Hsu of Mucker Capital (Part 2)

Sramana Mitra: Can you take us through a couple of case studies. Let’s say Trunk Club and Task Rabbit. At what stage did they come to you? Did they have to pivot out of their original hypothesis? How did that evolution flow from your side?

William Hsu: It’s probably more helpful to talk about companies that are newer. Task Rabbit and Trunk Club are seven to eight years old now. A lot of the newer methodologies weren’t really employed back then. There’s a company called Honey. It has over a hundred employees now and is doing tens of millions of dollars in monthly revenue. It’s doing really well. It took them about a year and a half to two years to really find their footing.

At one point, one of the founders had to go find a job. You hear all these success stories with the Eureka moment. They’re great stories, but they’re outliers. It takes hard work to figure it out. The team at Honey couldn’t figure out a way to monetize their product. Honey is a browser plug-in that is installed on a browser. It helps you discover coupon codes. It maximizes your savings. It’s a very simple idea.

In the beginning, the plug-in went viral, and lots of people started downloading it. It became quite of a hit. They weren’t able to figure out a monetization model. They weren’t able to scale out. They could have easily quit and decided that there’s nothing here. Instead, they just let the application continue to grow virally.

One of the founders went and got a job. When the company hit close to a million users, they finally had some market power. They were able to go to retailers and partner with them directly for co-marketing campaigns as well as affiliate marketing relationships. Once they started generating revenue, they were able to take that revenue and invest it back into acquiring new users. The company took off even faster after that. Today, they’re close to about five million users.

Sramana Mitra: There’s one thing you said that I find interesting. In our program, we practice a methodology called Bootstrapping With A Paycheck. We actually support entrepreneurs who are starting companies on the side just to get a long runway to be able to experiment and find that product-market fit. It’s not an overnight process. It, sometimes, takes 18 months to 24 months to really find a good product-market fit.

There are very few methods of bootstrapping during that period. As a result, we have learned from working with entrepreneurs and their journeys that bootstrapping with a paycheck has worked. We started practicing this in our program.

It’s working for our entrepreneurs as well. It’s very good to hear that you actually supported an entrepreneur who needed to go back and get a job while he was seeking that product-market fit. It’s out-of-the-box thinking and I congratulate you for that.

William Hsu: If you’re starting a company in the Bay Area, there’s a lot of angels and VCs. We’re based in Los Angeles and the capital markets are not as sufficient.

Sramana Mitra: Not just Los Angles. Most of the world operates like that.

William Hsu: Absolutely. Most of the word doesn’t have a VC on every corner of the shopping mall. Entrepreneurs have to be creative. We encourage and support that. It’s a reality of life for entrepreneurs. There’s no shame in doing it at all.

Sramana Mitra: My next question is about trends that you see in your deal flow. We are at the very beginning of 2018. You’ve been in business for several years. You are on your fourth fund. If you look at the deal flow for 2017, what trends do you see? What are entrepreneurs working on? What is interesting?

William Hsu: Let me talk about the things that I see quite a lot. Entrepreneurs spend a lot of time talking to each other. Oftentimes, they follow a trend a little too blindly than I like. For example in the beginning of 2017, there were tons of augmented reality and virtual reality companies. In the middle part of the year, there were a bunch of chat bot type of companies.

At the end of the year, we were seeing more AI companies. Trends are interesting and they’re good especially if they have a platform paradigm shift from the end user perspective that creates new opportunities for distribution and monetization. They’re terrible when there is no data around actual user adoption. At some point, you got to figure out how to acquire users and make money.

If there’s nobody on the platform, then you don’t even have the basic ingredient for success. Trends are great for creating the thinking. As an entrepreneur when you think about what company to start, it’s still back to basic problems of how painful is the problem you’re trying to solve. Is it recognized broadly across the enterprise or is it ten times better than the previous solution? Those questions have to be answered regardless of what type of company you’re trying to build.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With William Hsu of Mucker Capital
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