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Anu Hariharan (Partner at YC's Continuity Fund)
Anu Hariharan on an exciting investment in India, managing a company's board, evaluating companies, and more.
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Previous: Previously, Anu was an investment partner at Andreessen Horowitz, where she worked actively with the management teams of portfolio companies including Airbnb, Instacart, Medium, OfferUp and Udacity. Prior to this, Anu was a Principal at BCG's Private Equity Practice and was a senior software engineer at Qualcomm.
Quick Note: This interview was recorded via a Zoom call between Anu and Roshan (that's me) in mid-September.
Roshan’s favorite quotes from the interview:
On the expected growth in India: “India is expected to see a dramatic change in the market right now. Between 2020 and 2030, Bloomberg expects the GDP per capita to go from $2,000 to around $5,700, which is significant because that's when in China, you saw multiple $10 billion to $50 billion companies being built.”
On how the Brex founders manage their board: “As you scale, the amount of feedback you get as a CEO reduces dramatically because everyone in your company is scared to give you feedback. Therefore bad information doesn't come to you that often. The Brex founders have created a culture of actively seeking feedback - they do 360s with the board and the exec team on a regular basis and share the entire document in a transparent fashion with the board.”
On the way YC has adapted to COVID: “The thing about YC is we are always experimenting. "Never let a crisis go to waste." I think this is the perfect example of that.”
On important traits of founders: “Number one is grit. You cannot get caught up by tough days because the only thing that's going to be certain as you scale a startup is that no day will be perfect. There'll be good news, bad news, good news, bad news every day. It is a complete roller coaster.”
On how having kids impacted the way Anu conducts business: “What having kids did was just give me less time. Therefore, I had to learn to prioritize. When you have less time, you know less. When you know less, you step back, and you think about the big picture.”
Roshan: To begin, can we start with what is your role at Y Combinator, and how does the YC continuity fund work?
Anu: Thank you for having me, Roshan. I'm pretty excited to talk to you today. I'm a partner at YC. I help lead Y Combinator's Growth Fund called the Continuity Fund. We invest in growth-stage startups, so typically Series B and above. We're looking for companies that already have strong product-market fit and are raising money to scale. We do all stages starting from Series B, and our check sizes vary between $20 to $100 million.
Roshan: Can you discuss your background prior to joining YC and how you came to join YC?
Anu: I'm an electrical and computer engineer by training. I started my career at Qualcomm in San Diego in 2005. I helped launch the first 3G multimedia handset and worked on video telephony and video streaming solutions at Qualcomm. That was more than a decade ago, but not that long ago if you think about it. In fact, it was right around the time the iPhone was launched and it was a really exciting time. We used to travel a lot to Europe, that's where a lot of my work was, but we were based out of San Diego. In 2007, I decided to go to business school. I graduated Wharton in 2009, actually in the middle of the crisis, and then joined BCG. At BCG, I led their private equity practice for over five years. That was my first exposure to investing. I had done a bunch of due diligences for a lot of private equity firms and learned what it takes to dive deep, build context, but also decipher whether something is a good investment or not. I did it across industries, like tech, commodities, retail, industrial goods, and so on. I missed doing it in tech a lot more, and I wanted to do it full time in tech.
Around 2014, I was one year away from being a BCG partner. But I asked myself if there was any other job that I would leave BCG for (because BCG was a fantastic place). At that point, I missed tech and so I transitioned to Andreessen Horowitz in 2014.
How the job came about wasn't a slam dunk, but I think for any VC job, nobody will tell you it's a slam dunk. I was interviewing at two hedge funds in New York. One of them had asked me to pitch three Series B companies. When doing diligence on these companies, I debated back and forth with experts in the valley about specific topics via cold email or twitter DMs. Jeff Jordan happened to be one of them, as he is also a BCG alum, and he responded to every email of mine. Long story short, through Jeff, I got into Andreessen Horowitz. That's how I moved to the Bay Area and then joined YC two years later where the opportunity was to help build the growth fund from scratch along with my partner Ali Rowghani.
Roshan: Can you talk about the most recent investment you were involved in, and what made you so excited about it?
Anu: Our recent investment was in this company based in India called Groww. At the outset, Groww will feel like it's the Robinhood for India. I think it has the potential to be the Charles Schwab of India. Why are we excited about it? Historically, Indians have a tendency to save money. The yield on Fixed Deposits and savings have been pretty good, but that's all the exposure you had. Only about 30 million Indians in a country of a billion people invest in mutual funds. And it is even more painful for them to invest in stocks, and Groww is changing that. Groww is making it easy for you to buy a stock or invest in a mutual fund via a smartphone. That's exciting, especially for the growing middle-class millennials. India is expected to see a dramatic change in the market right now. Between 2020 and 2030, Bloomberg expects the GDP per capita to go from $2,000 to around $5,700, which is significant because that's when in China, you saw multiple $10 billion to $50 billion companies being built. Over the next ten years, India is going to see that change, and if you believe in the rising middle class, they're going to look for alternative places to invest. That alone is a huge market opportunity for Groww.
The Groww team is one of the best product teams globally. We met them in the early days of YC, and YC had invested in them when it was just an idea. At that time, no one in India was willing to invest in them, in spite of the fact that these were amazing, well-known PMs of Flipkart. You'd think that if you are from the Flipkart mafia (which is the equivalent of a PayPal mafia or a Square mafia), it would be easy for them to raise money, but it wasn't because no one believed there was an appetite from Indian consumer to invest in stocks and mutual funds via mobile.
In the last five months, their stock product has grown more than 6x because the yield from savings has gone down and Indians recognize that, but now they have an avenue to invest in stocks and use a different financial instrument. I'm excited for what they're going to build because I think it's going to change the investment opportunities for Indians. And Groww is on path to build a multi-billion-dollar retail brokerage platform in India.
Roshan: I know you've written an excellent piece on this topic — what advice would you give to a founder on managing their company's board?
Anu: It is one of the questions that many founders ask us during our YC partner office hours. It is almost considered a sensitive topic in the valley, and I wish that wasn’t the case. We have to establish the fact that the board is for governance, that is, corporate governance. The main role of a board is to help guide the company through major decisions, such as hiring and firing senior management; approving corporate actions (e.g. compensation, stock options, and budget); and offering guidance on strategic decisions that impact the business longer term. The board has a set of fiduciary responsibilities, and while they're working with the management team, they also represent the rest of the shareholders.
That's all legal terminology, so what does this boil down to? As a founder, your first board member usually happens to be the first institutional investor that leads your round, typically the Series A. The #1 attribute you need is trust. And the only way you build trust is with time. As a founder, we recommend getting to know partners at VC firms on your list at least 6 to 9 months before your fundraise. The #2 attribute is that they're really good at venture capital work. That means they're able to help you with future fundraises, have a deep network of CEOs and senior executives that they can lean on to help companies scale, and are quite good at pushing the strategic thinking of the company. Depending on the issue, investors will be able to shed light either through their own experience or by leveraging their deep network of relationships. Those are the three things that scale.
As a founder one of the best ways to test for both attributes is by doing back channel reference checks by talking to the portfolio company CEOs. If you are building relationships 6 to 9 months before a fundraise you can also make specific asks (e.g., ask for introductions to potential customers or introductions to experts on a specific topic) and see if the investor is able to deliver on those.
One company that I work with that manages the board really well is Brex. They build relationships with investors at least 6 to 9 months in advance of a fundraise. They also spend time with each board member 1:1 every month and a few hours every quarter. They seek feedback proactively and have used this as a mechanism to build and establish trust with the board. As you scale, the amount of feedback you get as a CEO reduces dramatically because everyone in your company is scared to give you feedback. Therefore bad information doesn't come to you that often. The Brex founders have created a culture of actively seeking feedback - they do 360s with the board and the exec team on a regular basis and share the entire document in a transparent fashion with the board. By doing this they are holding themselves accountable and increasingly establishing trust with the board. Since they are so open to feedback and actively seek it the board now asks them for feedback in a systematic fashion on how we can do better collectively to help further the company’s mission. If you want to know what trust really looks like, this is it! The founders and the team know we got their back but they want to learn from their mistakes as fast as they can and are not afraid to discuss it openly.
Roshan: This is a broad question, but how do you measure startups that you look at? What metrics do you or other investors at YC look for in startups?
Anu: It differs between early stage and growth stage, so I'll focus on what metrics we look at for the growth stage. At the growth stage, we look at performance to date and the metrics vary based on the business model. Let's say you're looking at a marketplace, then the key metrics are GMV, take rate, net revenue, unit economics — specifically contribution margin. I did a video for YC Startup School on Business Models. I recommend you all to watch it if you are curious. There are only around 9 business models and >90% of startups fit into one of those business models.
What's really important is the velocity with which those metrics improve. So if you're growing 20% month to month, and you're growing without subsidizing your growth (not because of discounting, but because your unit economics are healthy - say >50% is organic growth) those are phenomenal metrics. Especially at the growth stage, it's really hard to achieve that, which tells me you truly have strong product-market fit, and you can make money because the unit economics are healthy. The second most important measure is the team, it's important at every stage. Maybe earlier, the focus was just on the founders, and during the growth stage it's founders plus the executives. In a nutshell, we're testing the founders' ability to hire incredible executives and build a team around them.
Roshan: What impact has COVID had on the way that Y Combinator operates?
Anu: It has impacted our companies a lot. I think that tech overall is doing extremely well, but during the lockdown, depending on which type of startup you are, you either got impacted severely, or you were the lucky few like Instacart or DoorDash that did very well. YC itself, in terms of mode of operation, not much has changed, and nothing at all on the continuity side. Our home is our office now and that's about it. We are probably more productive than we ever used to be because there's no commute and more time for decision-making. I think brainstorming meetings, which are foreign to me these days (as you seldom sit and brainstorm as a growth stage investor) are hard to do on Zoom. But outside of that, investment decisions, portfolio discussions, all that — are pretty effective on Zoom.
For early-stage, it has impacted quite a bit. The batch was all about coming to Mountain View and hosting those 450 founders in one campus. We are used to hosting a demo day with 2,000 attendees in one place; we couldn do that after the pandemic hit us. And this wasn’t as simple as turning on Zoom and moving everything online. Kudos to our in-house software team. They worked so hard to try and simulate the real offline experience — bonding experience, as well as the live demo day experience. We just hosted a live online demo day recently, which went extremely well. So well, that some investors said maybe we should move over to the online format. The thing about YC is we are always experimenting. "Never let a crisis go to waste." I think this is the perfect example of that.
Roshan: What's your favorite part of your role at YC?
Anu: My favorite part is working with founders. The median age of a YC founder is in the late 20s. And they are so intellectually curious. It always amazes me how young they are. When I work with them, I feel I wasted my 20s, but that inspires me to do more now. I often use Michael Siebel's analogy. If you want to be a founder - get ready to get punched on your face almost daily. On top of that, we only select like 200 to 250 companies out of 15,000 applications. That is ~1.5% acceptance rate. Now, some of the companies don't work out, but they're still very talented people. Getting to work with so many of them day-to-day is by far the best part of my job. I can’t think of any other job offering that. The second thing I love about YC is alumni demo day - it blows my mind. Despite having already met the companies, the alumni demo days feel like getting a peek into ten years into the future and the founders from the prior batches attend to support and cheer for the companies.
Roshan: Moving on to an advice related question, what advice would you give to a current student who's interested in going into venture capital?
Anu: My advice would be — do not go into venture capital. You can be a VC any time in your life. So why would you do that in your 20s? If I were in my 20s and just graduating from school, I would try to do one of two things. If you want to work on a startup idea, I highly encourage you to do that. Because what is the downside? Literally nothing! You are graduating from WashU. Education is your biggest downside risk protection. A career is at least 30 to 35 years long. You'll obviously find a job. You shouldn't be worried about it. But if you don't have a great or compelling idea, don’t do a startup just for the sake of doing a startup. Instead find a startup that is scaling really fast and growing exponentially. Even two to three years at a scaling startup is ten times more valuable than working for a Facebook, a Google, or a Qualcomm today. I just wish I had done that sooner.
Roshan: Building on that, what do you think are the most important skills and traits of founders?
Anu: Number one is grit. You cannot get caught up by tough days because the only thing that's going to be certain as you scale a startup is that no day will be perfect. There'll be good news, bad news, good news, bad news every day. It is a complete roller coaster.
Number two is your ability and willingness to learn. I rate that one really high because most founders are first time founders, but for a large majority of them, especially if you're going to apply from school, this will also be your first job. You've never done another job, therefore, you don't know how to hire executives, you don't know what those functions mean, you don't know how to manage people –– you've never managed anybody. Everything you do, you're going to learn on the job. Your learning is going to be exponential but it can be done. The Stripe founders Patrick and John have built one of the best teams in the valley, period. Their ability to learn and scale is almost unparalleled. They started the company when they were as young as you (may be even younger than many of you).
Number three is clarity of thought. I'll go back to the Brex example. I remember Henrique and Pedro were in their first year of undergrad at Stanford when they applied to YC with a VR startup idea. They pivoted to Brex during the batch and were attending this accounting class at Stanford to build a model to figure out if Brex can be at least a billion-dollar company? And I asked Henrique and Pedro, why are you taking this class? They were about to hire their first employee and that meant they needed to quit Stanford to fully commit to Brex. Therefore they wanted to be sure there was a big company to be built here. The clarity of thought boiled down to — what is the problem Brex is trying to solve? How many customers do we need to get to at least a $1B business? What market share does that imply? Is this even possible? Is our product 10x better than customers really want this? They spoke to everyone in their batch and some from prior batches to see what % of founders would sign up?
Roshan: Outside of work, what hobbies occupy most of your time? How do you stay physically and mentally fit given the high demands of your job?
Anu: I love reading; I used to be able to read more books back when I had a lot of time. Now, with kids and work and everything attached to it, I have less time to read. But I use Audible, and I highly recommend it. My favorite books are history and business. My second favorite activity is skiing. It's a new sport I picked up four years ago. During the winter, we try to get as many ski runs in as possible. During the pandemic, I've spent a lot of time outdoors hiking.
Roshan: You mentioned you like reading. Do you have any favorite books or even movies, podcasts, etc. that have been a big influence in your life as a whole, or in your work?
Anu: There are a lot of good books I've read recently, but I'll recommend two or three for people to read. (1) The Lessons of History by Will Durant and Ariel Durant. I wish I had read that book much earlier. It tells you so much about the history of human nature, the decisions we've made, the culture we have created as a result. It covers the story of civilization across America, Europe, and Asia. That book was an eye-opener.
The second book is Essentialism by Greg McKeown. The book teaches you how to ruthlessly prioritize and focus on the key things that matter in life. It gives you plenty of examples, tools and frameworks on how to do this effectively. I think it's really helped me be more productive, and also have a lot more time.
The third book I'd say was quite transformational for me was The Ride of a Lifetime by Bob Iger. He was the CEO of Disney for more than a decade and shares his learnings. If you look at his history, from the first job all the way to Disney CEO, he had no idea about any of the jobs he did. He had no expertise, no background, and he was just thrown into things because he was always this “problem solver in chief”. He is really good at going in not knowing anything, but contextualizing what needs to be done, working with the team to figure out what that is, and getting it to the right place. The most impactful thing for me from that book — I think you all as students would appreciate — is sometimes you may feel like "I don't really know anything about that topic." But that doesn't mean you don't ask questions. So get really good at asking questions. I think that's a skill. Asking good questions is very hard. Sometimes, asking good questions is all you need to get to the right answer. I would encourage all of you to practice that.
Roshan: One more question. Besides taking up a bunch of your time, how has having kids impacted the way you go about conducting business?
Anu: Way more positively. The number one feedback I'd get consistently, in my jobs before I had kids, was “pull up from the details, and think about the big picture.” It's a classic engineering mentality. Funny enough, I loved the intense work weeks, diving deep and debugging for hours — I never appreciated how important it was to focus on the most important things.
What having kids did was just give me less time. Therefore, I had to learn to prioritize. When you have less time, you know less. When you know less, you step back, and you think about the big picture: For example I tell my team at YC that they always need to have a one pager with a hypothesis on whether to invest in a company or not. If they can’t write the one pager in a crisp manner, then they should write the list of questions they need answers to, to come to a decision. This helps us stay focused and get to a decision quickly.
Roshan: Thank you Anu.
We hope you enjoyed the interview with Anu. We certainly learned a lot and hope you did too :)
I’m on Twitter @RoshanChandna 👋
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