Episode Summary
Executive Summary: Jason Calacanis interviews Josh Baer, founder and CEO of Capital Factory, the center of gravity for Texas entrepreneurs. The discussion covers Capital Factory's evolution during COVID-19 transition to virtual operations, its unique 'pay-it-forward' accelerator model where mentors fund and receive equity in startups, the impact of remote work on startup culture, insights on founder traits for success, and the Austin startup ecosystem's growth.
Main Topics: Capital Factory's Accelerator Model (Priority: 5/5): Unique pay-it-forward model where mentors contribute small amounts of money and time, receiving 1% common equity from each participating startup, creating a diversified portfolio index. Last year over 100 companies joined, mentors received equity in all. Impact of COVID-19 on Operations (Priority: 5/5): Capital Factory transitioned to fully virtual operations with over 200 mentor office hours per week, increased Slack community engagement, and daily AMAs. Serendipity and in-person capital are lost, but virtual connections have become more convenient. Remote Work and Startup Culture (Priority: 4/5): Discussion on remote work becoming mainstream, with companies like Twitter and Zillow allowing permanent WFH. Predicts 5% shift to remote could cause a tidal wave. In-person collaboration still provides a 2% edge, but many startups are canceling leases. Startup Investing Lessons (Priority: 4/5): Key lesson: bet on exceptional founders (jockey) not just ideas (horse). Examples include passing on Howard Luhrmann's Yext (from Gym Ticket) and Mason Arnold's Cece's Veggie Noodles. Founders should show learning, be candid, and follow up on commitments. Austin Startup Ecosystem (Priority: 3/5): Austin is a blue dot in a red state with a welcoming, rising-tide culture. Venture capital has fragmented from Austin Ventures into multiple $150M funds. Notable transplants include Jim Breyer, Kenny from PayPal, Tim Ferriss. Cost advantage over SF (one-bedroom $1,500 vs $4,000). Portfolio Triage in Downturn (Priority: 4/5): Five buckets: walking dead (die fast), squeaking by (die too), strong companies (still face layoffs, valuation drops by half), lucky (no effect), special (explode). Most companies are clobbered, but meditation apps, education, at-home services thrive. South by Southwest Cancellation (Priority: 3/5): Capital Factory was a major SXSW partner and canceled before the city. Decision was difficult due to financial implications, but ultimately SXSW needed city to cancel for force majeure insurance reasons. Next year's event uncertain but large gatherings likely not returning soon.
Key Arguments: Virtual operations can achieve higher meeting utilization than in-person, but lose serendipity and in-person capital built over time. The best startup investments come from betting on exceptional founders rather than specific ideas, as great founders will iterate to success. Founders should show consistent learning and follow through on small commitments to build credibility with investors. The pandemic is accelerating a structural shift in education toward direct-to-consumer models. The crisis will create a resurgence in entrepreneurship due to necessity, similar to the 2000 and 2008 downturns.
Data Points: Capital Factory mentor office hours per week: ~200 - During COVID-19 virtual operations, higher utilization than in-person Companies in Capital Factory accelerator last year: ~120 - Each mentor received 1% equity in all companies that year Capital Factory fund size: $23 million - Last fund was $23 million, writing checks from $50K to $250K Austin one-bedroom rent comparison: $1,500 vs $4,000 - Austin vs San Francisco monthly rent SXSW Interactive attendance: ~100,000 - Total attendees across all three SXSW events Valuation drop for strong companies during COVID: 50% - Even mature, strong businesses see valuations halved due to capital scarcity
Pivotal Quotes: "It's a bet on the jockey, not the horse... exceptional people will figure out the opportunity. And you always back exceptional people." — Josh Baer: On the key lesson from passing on Howard Luhrmann's Yext (initially Gym Ticket) and Mason Arnold's Cece's Veggie Noodles "If 5% of them switch [to remote], that'd be a fucking tidal wave. It'd be double or triple the amount that currently are." — Josh Baer: On the impact of companies adopting permanent remote work post-pandemic "The office that's in person is gonna have a 2% edge, but that's gonna make the difference. They're gonna be able to have a little bit of an edge over the ones that aren't in person." — Josh Baer: On the competitive advantage of in-person collaboration
Implications: Startups should focus on founder quality over idea novelty, build credibility through consistent follow-through, and prepare for a hybrid remote model. The downturn creates opportunities for new ventures, especially in education and at-home services. Investors should expect lower valuations but back exceptional teams.
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.