E1067: Garry Tan, Managing Partner & Co-Founder of Initialized Capital, on dealing with downstream investors as a Seed-stage firm, software companies acting as governments, possibility of building IPO-level companies while fully-distributed & much more!

Episode Summary

Executive Summary: Gary Tan and Jason Calacanis discuss how COVID-19 is reshaping startups, venture funding, and work culture. They focus on runway, reserve management, pro rata rights, remote/hybrid work, creator platforms, and the broader societal shifts around wealth, money printing, and trust in software. The conversation blends tactical VC advice with big-picture reflections on resilience, inequality, and the future of work.

Main Topics: Startup survival during COVID-19: The discussion opens with how different startup categories are being affected by the pandemic: travel-heavy businesses near zero revenue, businesses like Zeus Living that are impacted but adaptable, and later-stage companies that must extend runway and prepare for a prolonged recovery. VC reserves, pro rata, and portfolio defense: Tan explains how funds are reallocating reserves, why follow-on capital is now critical, and how investors and founders should be explicit about reserve policy and pro rata expectations. He also argues that later-stage investors often pressure seed investors out unfairly. Remote work and office economics: The speakers debate whether distributed work will persist after COVID, how companies may cut office costs and adjust salaries, and whether hybrid setups disadvantage employees compared with fully remote or fully in-person models. Platforms, open standards, and creator leverage: The conversation ranges from RSS and platform lock-in to Spotify’s Joe Rogan deal, YouTube growth, Instagram DMs, and Clubhouse. The theme is that creators and founders increasingly depend on platform control and distribution leverage. Wealth, fiat money, and inequality: Tan reflects on fiat currency, money printing, wealth inequality, and why the public mood has turned against rich founders. He links macro liquidity to inflated startup valuations and the broader distortions in the venture ecosystem. Product-market fit in social/audio communities: Clubhouse is held up as a strong example of product/VC fit and elite exclusivity, with discussion of invite mechanics, retention, and the challenge of scaling from a small, high-intensity user base to a mainstream network. Personal resilience and founder psychology: Both speakers share personal stories about childhood scarcity, fear, and the emotional drive to create wealth. Tan explains how early insecurity shaped his aggressiveness as an investor and entrepreneur.

Key Arguments: COVID created three startup buckets: companies hit to zero revenue, companies still growing but slower, and companies needing materially more runway; each requires different survival tactics. Founders and VCs should explicitly discuss reserve policy and follow-on support at the seed/Series A stage, because future funding may be scarce and pro rata matters more than ever. Later-stage investors may increasingly pressure earlier investors out of rounds, so seed funds need strong brand, alliances, and long-duration relationships to defend ownership. Remote and hybrid work will likely persist, but hybrid may be the hardest model because it creates unequal access and weaker communication than fully remote or fully in-person setups. Some companies can use COVID to retool their model; Zeus Living is cited as an example of a company that avoided collapse and still grew, though slower than before. Platform dependence is risky: companies like Twitter, YouTube, Spotify, and Instagram can arbitrarily change access, so open standards like RSS mattered and are still valuable. Clubhouse works partly because exclusivity and white-glove onboarding create a powerful social status effect, but scaling that experience is difficult. Money printing and abundant capital are pushing up valuations and distorting incentives across venture, late-stage markets, and public perception of wealth. Personal fear of scarcity can drive entrepreneurial intensity; both host and guest connect their early life experiences to their current urge to build and invest. The best investors create real utility for founders—recruiting help, go-to-market support, and network access—not just capital, which is why ownership and alignment matter so much.

Data Points: Initial SVB COVID-19 Global Impact and Innovation Fund: $1 million - Silicon Valley Bank’s announced seed commitment to the COVID-19 fund Twilio startup credit: $500 - Credit offered through Twilio’s startup program SendGrid credits: $3,000 - Additional startup credits in Twilio’s program Mint Mobile plan: $15/month - Discounted wireless plan promoted in the ad read Zeus Living occupancy: 70% - Tan says Zeus bounced back from the pandemic with occupancy around 70% versus normal 85-90% Zeus Living growth rate: 2x this year - Down from about 4.5x year-over-year growth in prior years Typical runway advice pre-COVID: 18 months - Tan notes the common runway target before the crisis Runway after 3 months of crisis: 15 months - Estimated remaining runway after burn during the pandemic Follow-on reserve policy: 50% of initial check - Initialized’s newer vintages reserve half of the initial investment for follow-ons Typical follow-on example: $1.25 million - If Initialized writes a $2 million Series A, it sets aside roughly $1.25 million for support Initialized initial investment range: $1 million to $5 million - Tan describes their wide range for larger seed/Series A-like checks Target ownership: 10% to 15% - Tan says the fund aims for meaningful cap-table ownership YC continuity behavior: 7% indefinitely - Tan says YC historically sought to maintain its programmatic stake Clubhouse user count referenced: 1,600 users - Used to illustrate how expensive the Andreessen bet looked at the time Clubhouse deal size discussed: $100 million - Andreessen’s large financing for Clubhouse Clubhouse secondary discussed: $2 million - A secondary sale/secondary-like liquidity event referenced in the discussion YouTube channel growth: 30% month-over-month - Tan says his channel is growing around 30% monthly Newsletter/podcast audience example: 10,000 signups - Tan recalls a breakout TechCrunch story or podcast moment producing 10k signups Twitter reply access idea: Only followers can reply - Tan references a product change he had proposed years earlier Cost of living adjustment: 30% - Referenced in discussion of Facebook reducing pay for remote employees who move away Personal childhood hardship: Expired bread from a nursing home - Tan describes food insecurity in childhood

Pivotal Quotes: "We're going to see a lot more of that. It's going to matter who your VC's friends are." — Gary Tan: On new alliances among VCs as dry powder gets reserved for portfolio defense during COVID "Look, you're going to get punched in the face. That's how startups go." — Gary Tan: On why Initialized reserves capital and keeps supporting companies through setbacks "The best investors create real utility for founders—not just capital, which is why ownership and alignment matter so much." — Jason Calacanis: Paraphrased theme from the discussion on seed ownership, pro rata, and investor value-add

Implications: Startups should plan for a longer, harsher funding cycle and secure explicit follow-on support. Founders and investors will increasingly favor resilient, high-ownership partnerships, while remote work, creator platforms, and capital allocation norms continue to shift.