Hsu, Villa, Jones: Investing Outside Silicon Valley

32 minutes, 4 links


Updated February 11, 2023
Better Venture

William Hsu (Mucker Capital)

Monique Villa (Launch Tennessee, formerly Mucker Capital)

Allan Jones (Bambee)

Mucker Capital has been investing outside of Silicon Valley for more than 10 years. We caught up with William Hsu, one of the founders; Monique Villa, one of the investors; and Allan Jones, one of the investees. We sat down with all three to better understand how Mucker was founded, how it invests differently from the status quo, and the impact of this on the founders receiving funding.

Interviewed February 2021

Building a Venture Fund Like Entrepreneurs

Erika Brodnock (EB): William, why and how did you start Mucker Capital? Was there a specific experience that led to your decision to do so?

William Hsu (WH): Starting Mucker Capital was part of a grand plan to conquer the world! Much earlier in my career, I had been a very young entrepreneur in my early 20s. It was the middle of the dotcom era and I had raised a ton of money, and honestly, had wasted away a lot of money for my VCs, too, and I had been fired by my board and my investors for being a terrible CEO. They were right. I was a terrible CEO. I was 22 and I knew nothing about building companies except how to throw parties and give away stuff at the office. I never had this affinity for VC because it felt to me like people who did not have a hard job. It was making bets and hoping things worked out. They do not quite understand the hard work and the travails of building a business.

In 2011, I was working at AT&T, in a senior role managing hundreds and hundreds of people. I thought, this is it, I am in my early 30s, this is the end. Another 40 years of AT&T and what happens next? I die and go to my grave? That is not what I wanted to do. My first instinct was to quit my job and go and start a company because I like that work, and last time, I was too young and not ready. This time, I should be ready because I know how to build a business, a product, a team.

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I quit my job and started looking for opportunities to start a company. I was already in Los Angeles at the time. Then my partner, Erik, who I used to work with at eBay, moved down from the Bay Area and said, “I want to start a venture fund.” I thought, “No!” A) I hate VCs, and B) LA has terrible VCs. Then Erik, being the open-minded contrarian that he is, said, “Starting a venture fund is like being an entrepreneur, you are building something new from scratch. When the market is not great and competitors in the market are subpar, it is called an opportunity. Therefore, we can be entrepreneurs, and we are going to build a fund.” We went from that conversation to launching in the market within 30 days. We were not incorporated. We did not have an office, much less any money. We were two regular dudes, and we did not have much money. We just launched Mucker with about $500, we spent it on buying a logo on 99 Designs and building a website on Upwork. We spent $500 to get up and running, because, on the internet, all you need is a website. We then went to a couple of friends that we knew in the press and just announced our arrival in LA as an accelerator and a fund.

Our philosophy at the time was that we are entrepreneurs, entrepreneurs build MVPs, and we want to build what the market sees and test market reality on whether our thesis is correct. If it was correct, then we go out and figure out the rest of the steps. We wanted to build a business from the market back to the product. As a venture fund, money is the last thing you need. The first thing you need is a reputation, a brand, and a way to source deals. Can we at Mucker source good deals? Within 60 days, we knew that we could. We found ten companies we loved, and we wanted to invest in them. I mortgaged the house. Erik gave up his house and moved in with his in-laws. We then put together a million dollars of our own money and started investing. It took us another three months to find an office space. Another month or so to get completely squared away on the legal side. We launched first, found companies second, found money third. Finally, we got all the legal paperwork completed around six months later. We built a venture fund the opposite way of how most people build venture funds, which is to find the money first. We built it like entrepreneurs because that is what we have done in the past.

EB: You found product-market fit in making sure that you had the customers or the companies.

WH: We did it like entrepreneurs do with their customers. We found product-market fit first. We decided that we needed to figure out what our product or feature set should be before we told our engineers to go build it.

Telling a Different Story about Venture

Johannes Lenhard (JL): Monique, a question about the thesis at Mucker. What about it made you want to join? What about it also has to do with investing outside of Silicon Valley?

Monique Villa (MV): Venture capital is all about people. For me and Mucker, it was about the people. I had been following Mucker’s trajectory in Los Angeles since they launched in 2011. I did not know them personally at the time, but if you were young and building your career in LA, you knew about Mucker. Early in my career, I bumped into Will while working for a non-profit that he was advising at the time. I remember the way he was talking about market opportunities, and the people behind those market opportunities, that made me think: this is what venture capital should be. It should be very people-driven, and people-centric. He also looked at the world through a different lens, where typically, when you meet VCs, you will hear mostly cookie-cutter responses and backgrounds. Everything in VC historically fits into what seems to be a nice, clean box.

My previous experience working in venture capital was a bit jarring because I was new to venture. I had never heard of it before, as I did not grow up around venture capital and high-growth startups. I did not know what a startup was, I did not know what any of these company logos were on venture fund websites, I had to learn it all on the fly. When you enter the workforce that way, you tend to believe what people tell you: that you must come from a certain background to be in venture, you must fit the mold, and think the same way as everyone else. When I met Will, he was telling an entirely different story about venture. I thought, I want to stay close to these people and learn from their examples.

Fast-forward, and I found myself relocating to Nashville as an LA native. I was researching around the southeast and found that there was a tremendous market opportunity in the region, and it was being overlooked by investors. I naturally brought this to Will and did not know it would turn into us working together. I was eager to get his thoughts because he always had something different to contribute to a conversation. A month later, he said, what if you join our team and open an office for us in Nashville? The rest is history. It started with the thesis that it is all about people. It is about having unique insight, and about diving in and working alongside one another and taking out the traditional hierarchy and vertical structure that has been so present in traditional venture capital for decades.

WH: We faked it until we made it.

Allan Jones (AJ): It makes me respect you guys more. As an entrepreneur, I filter a lot of the advice I get from my investors through the lens of “they have limited operating experience.” The advice does not get ignored. It just gets filtered and then applied in its appropriate place. When you know that your investors have walked the operating road at a company, and then apply those operating principles of starting a business in their venture fund, it adds a different type of filter. I feel more comfortable taking the advice I get from the team and applying it in real-time.

Removing the Biased Checkboxes in VC

EB: You have just broken down how to make the impossible possible. You are not just diverse in terms of location, you are also investing in founders who have been historically overlooked for other reasons. It is super interesting that you have a Black and gay investee on the call, which is phenomenal. What is the makeup of your portfolio? What are your commitments to DEI going forward?

WH: We do not track the outcome. I do not think it is about the outcome. Off the top of my head, about 30% to 40% of our portfolio are either a minority or a woman. My partner Erik is, on the surface, Caucasian, conservative, male, and very religious. I am an atheist immigrant from Taiwan who is very liberal. Then we have a third partner who is a Muslim American born in Cincinnati, whose parents emmigrated from Syria. The partnership we all have is very strong; we have very different views about life in general, but we are very good friends. We believe in Mucker. We found a common ground in the firm we are trying to build. Yet when you ask us anything from guns to religion to abortion, we will all have very strongly different views. That has enabled us to understand that decision-making is best made when there is some disagreement.

Independent thinking is how you get to the right outcome. The fact that we have been investing outside of the Bay Area for over ten years meant that many traditional ways that people evaluate companies do not work. In the Bay Area, you ask, “Did that person go to Stanford Business School? Was their cousin roommates with Elon Musk when they were in college? Did they work at Google for four years as a director of product?” As much as I would love to have those checkboxes checked, I do not have those checkboxes to check in LA; I did not have those checkboxes to check in Nashville.

For us, diversity is not about purposely trying to create the outcome that we want. It is more about taking away the biases of the input that creates an unfair outcome. Those biases are the checkboxes that traditional VCs use to decide whether or not to invest. Is saying that you want to invest in a Stanford graduate a bad thing? No, it is not, but if that is all you do, you will not get a truly diverse outcome. From our perspective, investing in entrepreneurs is all about the market idea, how passionate an entrepreneur is, how persistent they are, and their personal story of how they got to where they are today. Someone that had a privileged upbringing and walked ten miles might seem that they walked a long way, versus someone who does not have an Ivy League college upbringing and walked 1,000 miles; they might be at exactly the same place in life on paper, but how far they walk is very, very different. For me, it is much more about how far they walked rather than whether they got to Stanford. We are unable to, and no longer desire to, use those benchmarks to make our investment decisions. Our portfolio has been the way it has been since the very first day we started. It is highly diverse for every single metric, whether that is cultural, religion, race, or what college people went to—I do not even ask that question anymore.

EB: What results and returns have you seen?

WH: Mucker passed our 10th year anniversary and every fund is a top 5% fund in all of venture. We went from a million-dollar fund, about 10 years ago, and today, our latest fund is about $260M. We continue to do what we do, which is we do not invest in Bay Area founders. I do not want to get sucked into the sweet temptation of just looking at, “Did you work at Google? Did you graduate from Stanford? Great, I will give you money.” That is a great shortcut, and it has hype. It is a total temptation. We do not want that. We want to train ourselves to make the hard decisions with good people rather than the easy decisions with potentially bad people.

JL: We have spoken to a lot of people, particularly in the US, that are not like that. There is some risk assessment happening by looking at these profiles.

Non-traditional Journeys into Entrepreneurship and How to Find that Talent

JL: Allan, tell us a little bit about your journey into the whole entrepreneurship game. Why did you decide not to go to Silicon Valley? How was it meeting the team at Mucker?

AJ: I did not make a choice not to go to Silicon Valley. I come from a blue-collar family. My dad is an electrician. My mom is a nurse and grew up in a family of entrepreneurs. They ran two businesses. One of them was a pager and cell phone shop. I grew up soldering pagers back together in a small store in Long Beach, California. I had no idea what I wanted to do. I did not go to college. I went to a semester of community college, and I barely went to school. Then I met a woman at a Mariah Carey concert in 2005. We talked for two hours. She said to me, “You are smart. I am going to give you a job.” I was building computers on the side. I had a technical interview for six hours for a quality assurance analyst position; I had no idea what I was talking about, bombed the interview, but got hired anyway. That was my introduction to technology, and that was sixteen years ago.

I very quickly realized I was terrible on the technical side, but I loved product. I got laid off. I read a bunch of product books, pitched myself to be a product manager. I had been in tech for seven months at a company called MyLife. I got hired by a guy named Ian Siegel, who is now the CEO of ZipRecruiter, a unicorn in Los Angeles. I realized I loved product management and I wanted to be an entrepreneur. Fairly quickly, my career progressed, I was 20 at the time and I then went on to be the director of a company called Docstoc, which was acquired by Intuit when I was 21. I started my first venture-backed studio out of a technology studio called Science. They invested in Dollar Shave Club, and HelloSociety, which was acquired by the New York Times when I was 23. I joined ZipRecruiter as their chief marketing officer when I was 26. I was employee number 20 at that company and the operating groups, new products and services, marketing, and customer service account management functions. Coming fresh from failing my first company at 23, I was hungry to prove that I was as good as I thought I was in my head. By the time I left ZipRecruiter, there were 750 people at the company, it is now over 1,000 employees and the company is worth about $3B.

I met Erik when I was 23, pitching my first business outside of a coffee shop. He passed on the business and I went on to fund that company somewhere else. At ZipRecruiter, I proved a couple of things. One, I proved I was very good at this. Primarily, I had proven that resilience matters. From a Mariah Carey concert, I worked my way up to being at a company that was acquired by Intuit and then being the youngest CMO of a billion-dollar business by the time I was 26. Most of that was driven by the desire to prove to myself that I was as good as I thought I was. My confidence always seemed to be much bigger than the skills I actually had, and ZipRecruiter was the turning point where my skills started to exceed my confidence. After three years of being the chief marketing officer and running 50% of ZipRecruiter, with hundreds of people in my team, I realized I wanted to start another company. I realized I was not going to be the CEO of that company, and I had a different vision. I wanted to create something from scratch that I thought could be a behemoth and could create a world of difference in my lifetime.

I met up with Erik again. Will and Erik were the earliest committers to the business. From the gate, they basically said, we want to write you the biggest check our firm will allow us to do. They did. They have been deeply without doubt about my potential as an entrepreneur. They have had questions, but they have never expressed an ounce of doubt. One of the things I have learned is that the early questions an investor asks me, when I walk into the room, expose to me how high the hill is that I have to climb to let them know that I am as good as the person that they would have automatically assessed is good from Stanford. There is this list of questions that I get asked, and most of them are around proving that I even deserve to be having a meeting. The first 30 minutes is going to be me flexing my intellect, so that they can finally lean into the table, and give me the conversation I deserve. The next 30 minutes is talking about the business. I have been fortunate to say that I have moved forward enough to not have those meetings anymore. From Will and Erik, it was straight to talking about the business, speaking about the problem you are trying to solve, and the opportunity you see in the market. It was noticeably absent of the sometimes unconscious biases that are introduced in a lot of investor meetings. That has been the tone of our relationship since that first meeting.

EB: What could other VCs do to open themselves up to talent like you? We are “underrepresented” and there is something about the under that makes it seem as though it is our fault. Instead, we are “overlooked,” and putting the emphasis on the venture capitalists to make sure that they are allowing themselves to have the opportunity to invest in us is the framing that we need. What would make you want to provide that opportunity to other venture capital firms? What would they need to do to attract you?

AJ: Diversity is not a favor to the diverse, it is a favor to the business. On the founder side, the truth of the matter is, if you are a diverse founder and you are trying to confine yourself to the parameters that investors are looking for, to decide if you are good or not, you will never be able to meet them. When I first started, I tried to talk and look like an MBA. I was spending so much time trying to look and be someone else, no one was taking my place in this God-given body. The truth is, you are perfect. The sooner you realize that the unique things about you are the things that will make you a majestically good founder, the better the likelihood that you meet investors that not only fund your business—that is only the beginning of the relationship—but also see you as you progress through your journey to help you become a good entrepreneur. The first check is the easy part, although it does not seem that way. That journey is where all the grit is necessary. The right investors to see you through that is extremely important. There are not as many of them that are looking at the right indicators, but there are the right ones. “All money ain’t good money,” as my Grandma Jones used to say. Partnering with people that see you for who you are, and see those measures of you as a person, being Black, being gay, being from an underprivileged background, they all makeup just your normal human element. The reason I talk the way I do, and I am brave enough to have my hair on the side and blonde at the tip is precisely because of my experiences. I just do not care; I like it. It is uniquely me. I feel free in that. Investors who see that are the investors I want. As soon as you as a founder see that as an intrinsic value, that type of intrinsic value is unavoidable for investors to see too. That is my advice to founders.

On the investor side, it is going to be harsh—spend the time asking yourself why the majority of your current portfolio is homogenous. Before you try and blame systematic failures, be accountable in realizing that you are part of that system. If you are going to look at the components of the system, point out and analyze how those components could be better, to drive more diversity, you should not do that until you analyze yourself as one of those contributing components. You are a part of the bias problem. How you make decisions about talent, though they feel intrinsically right, are intrinsically biased. Until you realize that, you will have 1% of all VC dollars going to Black founders. Until you realize that, you are going to potentially end up with a larger percentage of an investor’s portfolio being African American, but not nearly the success rates that should offer, because you are investing for the wrong indicating factors, because of some skin tone checkmark versus seeing the value based on the removal of biased filters. The honesty there is what investors must confront to truly be able to find talent and unlock the market in terms of diverse value. The indicator is not about the diversity. It is about uniqueness. Unique founders are the best founders. Authentic founders are the best founders. They come in many shapes. The shade is not the metric. It is the uniqueness and authenticity that is the ultimate measuring factor.

Diverse Investment Volume and the Retention Problem

JL: Monique, do you see any early signs of positive results of what is happening? What does the future hold for you as a firm, specifically as one that is willing to invest both in terms of partners and fund managers like you, and entrepreneurs like Allan? Is there anything that you are already seeing that is going to be successful and is there anything that you already see that you want to do differently, particularly through the lens of diversity, equity, and inclusion?

MV: When we were talking about resilience, and what founders and CEOs were up against in the middle of March 2020, and into May, our portfolio founders who went through some of the toughest moments, post COVID, had profitable businesses, and had cash in the bank and runway. Not all of them, but a good chunk of them. The companies that were excelling through some of the most incredibly difficult moments in 2020, all came from underrepresented backgrounds in the venture-backed world. That resilience, that extra 999 miles traveled, carries over into positive unit economics, which translates into cash flow management, cash in the bank, resilient teams they are managing that could think on their feet and be nimble in some of the most difficult moments that any startup has probably ever faced. This all happens behind closed doors and are not the types of things that are celebrated in news headlines. Venture capital is a long game and these companies will be the future unicorns.

To the question about the future, what we need is a volume of checks being written for founders who are closest to unique market opportunities. It cannot be about checking a box and having your one diverse investment for the year. One of my biggest bones to pick with how diversity is talked about today is looking for recognition for “diverse investments” made and leading with that when publishing your VC blog post announcement about your most recent deal. If you are trying to check that box by making one “diverse” investment for the entire year, you are putting an outsized amount of stress and set of expectations onto that single CEO and founder. We all know this is a numbers business, this is a volume business, you have to have volume, and writing that one check a year is not going to do it.

We need to focus on fixing the retention problem. From the venture capital side there are multiple times when I could have left this industry and said this is not for me as a half-Mexican, female, non-pedigreed, aspiring VC. Post-Mucker, I am so glad that I stuck it out, because we have so much work to do. I wrote about diversity recently in a TechCrunch op-ed. There are lots of VCs that are talking about diversity now, talking about investing outside of Silicon Valley. Over Christmas, I kept getting calls from people saying, “We want to pick your brain on the Southeast, or Nashville, or Latinx founders.” Apparently, I know all of them, but I do not.

When we are talking about investing outside of Silicon Valley, we are talking about America, and America is this bigger idea that is known around the world as being a place for everybody. Why are we so set on investing in this seven-by-seven-mile footprint of San Francisco, when you have the entire United States? There are also obviously lots of opportunities around the globe, but what if we just started there: instead of fixating on this concept of “outside of Silicon Valley,” outside of purely Stanford and Harvard grads, instead of finding yet another way we can make life more convenient for everybody who already has money, maybe there are market opportunities outside of that. This is why I show up every day. This is why I did not give up. I want to solve the retention problem. It is not a pipeline problem. It is the retention problem of scaring people away who have been told that they do not belong, and also recognizing there is a whole world out there to invest in. It is our job to go and invest in that world. Let us stop talking about one diverse investment for the year. Stop patting yourselves on the back and get to work.

Yin: Hustle Fund

Elizabeth Yin (Hustle Fund)

We caught up with Elizabeth Yin, co-founder and GP at Hustle Fund, about her experiences growing up in Silicon Valley. From working in big tech and starting her own company, to becoming a partner at 500 Startups and raising her own fund, Elizabeth has really seen it all. With Hustle Fund, she’s now on a mission to democratize wealth by investing differently (earlier, quicker, and to a wider pool of people). Together we explored how, as an Asian woman, she has been able to navigate the culture in Silicon Valley and, in spite of all the assumptions and stereotypes she regularly comes up against, she has attained investor positions where she can “try to change the system.”

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