Episode Summary
Executive Summary: This episode of This Week in Startups, recorded during the early pandemic (May 2020), features host Jason Calicanis and Elizabeth Yin, GP of Hustle Fund. They discuss Calicanis's reflections on the human and economic toll of COVID-19, including job losses and the need for optimism. Yin details Hustle Fund's fundraising process (pitching 700+ people, mostly individuals new to venture), its portfolio strategy (101 companies, $25K initial checks with selective follow-ons up to $250K), and the high mortality rate (60-70% expected). They also explore market shifts toward capital efficiency, remote work, and telemedicine during the pandemic.
Main Topics: Pandemic Impact and Response (Priority: 4/5): Calicanis reflects on COVID-19's human tragedy (comparing NYC daily deaths to 9/11), the loss of livelihoods, and the need for optimism. He advocates for kindness and space for differing opinions during the crisis. Fundraising for Micro VC Funds (Priority: 5/5): Yin explains how Hustle Fund raised its first $11.5M fund by pitching over 700 individuals, most of whom had never invested in a venture fund before. She describes the process as relationship-building and tailored to different LP personas. Portfolio Construction and Strategy (Priority: 5/5): Yin outlines a hybrid approach: making 101 investments with $25K initial checks (pre-seed, no traction required), followed by larger $100-250K checks based on team market pull signals. She expects 60-70% mortality and focuses on outlier hits for returns. Pro Rata and Follow-on Investment Decisions (Priority: 4/5): Yin and Calicanis discuss the difficulty of maintaining pro rata for small funds. Yin notes that it's often better to invest in 5 new companies than follow on at inflated valuations, echoing Calicanis's 'Pegasus companies' concept—firms that skip funding rounds. Adapting to the Pandemic Landscape (Priority: 5/5): Yin advises startups to extend cash runway to 24-36 months, reduce burn, and focus on capital efficiency. Both note that fundraising is harder via Zoom, but opportunities exist in remote work and telemedicine. Long-Term Changes from the Pandemic (Priority: 4/5): Yin predicts lasting shifts toward remote work (for knowledge workers) and telemedicine. Calicanis adds that creativity in pivoting (e.g., ramen kits, online fitness classes) will be key for founders.
Key Arguments: Optimism and kindness are essential during crises; we must balance health concerns with economic recovery. Raising a micro VC fund requires a numbers game (700 pitches) and educating new classes of investors. Early-stage investing should be a funnel: small checks (25K) to gather information, then larger follow-ons for promising founders who execute fast and show market pull. Pegasus companies (capital-efficient firms that skip funding rounds) can be better investments than those requiring constant capital. The pandemic forces startups to be creative (e.g., bread kits, ramen kits) and focus on cash management. Remote work and telemedicine are structural changes that will persist post-pandemic.
Data Points: Fund size raised: $11.5 million - Hustle Fund's first fund, raised in May 2018 Number of pitches to raise fund: 700+ - Yin pitched over 700 individuals to close the first fund Number of companies in fund: 101 - Hustle Fund invests in approximately 101 companies per fund Average first check size: $25,000 - For pre-seed, pre-traction companies Expected portfolio mortality rate: 60-70% - Modeled failure rate over the fund's life Facebook ad cost reduction: 40-50% - Calicanis notes ads are significantly cheaper during the pandemic Number of LPs in fund: <99 - SEC rules limit fund to 99 investors
Pivotal Quotes: "I think optimism and hope is the only thing that you have right now. And so you've got to lean into that, as well as social distancing, wearing masks, and generally being intelligent about that and those issues." — Jason Calicanis: Calicanis on maintaining hope during the pandemic while being responsible. "We model between 60 and 70% mortality, just in general, not necessarily within the first year." — Elizabeth Yin: Yin discussing expected company failure rates in the Hustle Fund portfolio. "It's not about the number of failures. It's about how many companies do you have that go on to be huge hits, like 100x or more, 1,000 X would be wonderful." — Elizabeth Yin: Yin explaining the power law in venture capital returns.
Implications: The episode signals a return to capital-efficient, bootstrapped startups post-pandemic. Founders should expect tougher fundraising, prioritize cash management, and explore opportunities in remote work and telemedicine. Micro VCs must be creative in sourcing LPs and constructing diversified portfolios.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.