about this episode
Can one guy be both a wunderkind and an elder statesman? If anyone in the world of tech fits the bill, it’s Kevin Rose. He made national headlines in 2006 as his site Digg soared in popularity and investors gave it a $60m valuation. He left Digg to found more companies: Milk, Revision3, and Pownce. Now at 36, he helps other entrepreneurs secure funding and develop their ideas – as a VC at Google Ventures, and eventually, through his extremely popular syndicate on AngelList. As of early December, he had 658 backers, to the tune of $2.8m per deal. When he sat down with Jason in November at Launch Hackathon, he described why he ‘loves and hates’ being a VC, and whether he’s ever getting back into the ring as a founder, and tips for pitching your product to investors. Plus, the Bitcoins he sold when they hit $300!
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4:15 Here’s a video from early on.
4:58 How did you end up getting that job on G4?
6:05 What do you think when you see that (early version of Slashdot)?
6:25 Kevin: I get why Bill Gates is so rich. You write software once and sell it over and over again.
7:45 When you think about how innovative this was at this time. Nobody had really done voting in this way.
7:54 Kevin: Not voting that would then go and syndicate that out socially to your profile, to your friends, it was different. It wasn’t just a number going up, there was a lot happening behind the scenes as well.
8:12 Jason: Was it the first time someone put a button on another person’s site?
8:20 Kevin: Delicious was the first one I saw.
9:00 Jason: Things moved pretty quickly after that, you remember this cover [of BusinessWeek]. Pretty brutal, but it was the beginning of people seeing you as an entrepreneur.
11:30 Thank you Audible for your support. Jason’s book of the week: Born Standing Up by Steve Martin. Free audiobook: http://audible.com/twist.
11:55 Were you pushed to that position as an entrepreneur by the VCs?
12:09 Kevin: We had a couple acquisition offers up front. Then it went cold for awhile… Later, we found out for the big dollars at the time, traditional news sites were afraid of Digg…. I think reddit would go through something similar today.
13:00 Well it all worked out… you sold revision3 and sold that to Discovery. You’re always 5 years ahead of things. The biggest issue you had was it was costing $10-20k per month to serve up video files.
14:17 You did something I thought was brave… you walked away from Digg and didn’t let yourself be defined as The Digg Guy.
14:49 Kevin: It was difficult to walk away, because I really at the core of me I enjoy the innovation… the really small teams, and the iteration, the product side of stuff, that is just so much fun. There’s no better feeling than when you get that kind of bubbling and you can’t still because you have an idea that’s never seen the light of day… I lost that when I walked away from Digg.
15:47 Jason: So angel investing, you went on a tear. To what do you attribute your success as an angel investor? Because you must have objectively had a much better return as an investor than as an entrepreneur.
16:20 Kevin: Absolutely. One of the things I really enjoy is investing in the inevitable. When you see something that’s going to be ‘a thing’ several years out…In the early days of Twitter, before the celebrities got on there, and you saw the follower count. That was a very defensible thing, and it wasn’t portable. If you have an email newsletter with 30k followers, you can move that around to any email provider you want. If you have 30k followers on Twitter, you can’t move that around. Little insights like that.Ngmoco: Being one of the first mobile gaming companies. Ex-EA executives, strong founding team, knowing that gaming on the iPhone was going to be huge.
Square: Obviously, payments in your pocket for anyone and everyone.I mean these are just things that you look at, and if you’re lucky enough to know these people, sometimes you have to fight to get into some of these deals. But you look at some of that stuff and say, in five years this is going to be a billion, 2 billion, 5 billion dollar business. It’s kind of gut that you go on.17:33 Jason: What do you think your value is an investor, and now as a VC?
17:37 Kevin: What I like doing with startups more than anything else is that early stage product brainstorming. Sitting down with an entrpeneu, especially on the consumer side. As a VC, you give them ten or fifteen ideas and they take maybe one and implement it, and you’re excited because you get to see your one little idea hatch into the world, and that’s pretty cool.18:12 Kevin: We’ve all been doing this long enough that you have a bunch of lessons that you try to pass on, and hopefully, help people making those mistakes. And that can be everything from telling someone not to raise a round of funding, because they should keep growing, and grow the valuation of their company. Just being real. Especially if you’re an entrepreneur-turned-investor, I think that’s a lot better than taking money from someone who’s just a pure investor.18:35 Jason: Why?18:36 Kevin: Just because you’ve been there, and you know that like– ultimately you don’t want to screw these people over. As an investor, I feel like — Joe Kraus from our team [at Google Ventures] calls it, ‘a check and a headache.’ You don’t want to be that person that writes a check and then all of a sudden you’re in their business all the time. These people are going through so much and sacrifice, from friends and family, to hours of sleep, to stress levels, you name it. The best thing you can do is just be a friend. And give them the truth. And that might mean something that hurts you as an investor, like saying don’t raise money right now. Or walk them through their first layoffs, or whatever it may be. And when you’ve been there, and know how hard it is to lay people off, that’s a really powerful thing, it’s a really tough thing to have to deal with.19:32 Jason: What was that like? You had to do that at Digg, I take it.19:36 Kevin: Yeah at Digg and Revision3. And then we hired back up at Revision3.19:39 Jason: Well take me to that day. What happened? How’d you make that decision?
19:43 Kevin: It’s one of those things where you only have so many dollars left in the bank, and you take a look at your runway, and say, if we cut 10-15% of the staff right now, it’ll get us just that much further. And we know that, based on traffic and our metrics, and things going a little bit like this now, that you have to figure some stuff out. And the best way is to trim now, and live to see another day, and fight the battle again. So, just sitting down with employees, and have people cry, and ask if it was them, it’s a really tough time. A tough thing to go through, but it does definitely make you stronger.20:25 How did you manage your own psychology, your own emotions, as you went through tumultuous times? And then of course, we had the financial crisis. I’ve watched you over a decade from the kid we saw in the video to become such a great thinker and such a mature entrepreneur. What do you think were the key factors that took you from Kevin Rose 1.0 to a kind of elder statesman now?21:00 Kevin: It’s honestly just a lot of mistakes. It really is… and that’s not a bad thing. There’s nothing wrong with failing. Like 95% of you will fail [at Launch Hackathon] in the next few days. There’s nothing wrong with that, you tried something new. That is the cool thing, that you hatched your idea. Don’t let anyone ever tell you, that if you went and built something, and it failed, that you’re a failure. That’s not true. Because what did they do? They didn’t build anything. They’re just sitting on the sides being haters – you see them on the internet all the time, on the blogs – these are mostly people that are just sitting there hating on people, but they’re not actually building anything.21:51 Kevin: You know, look at [Mark] Pincus from Zynga. How many companies did he start before he finally had a hit on his hands? … You have to have that in your DNA, to understand that failure is not a negative thing.
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24:25 Let’s talk about this AngelList syndicate thing that came out of nowhere. You invested in AngelList. Take me through what the syndicate it, how you found out about it, what impact it will have.
25:10 Kevin: Naval was telling me about this about a year ago. This JOBS Act came out, and it allows solicitation. You can go out and say, I’m raising a fund, do you want to back me? On AngelList, you can go, and I have 582 micro-investors who put in anywhere from $1,000 to $50-75k in some cases per deal. And then they back you, and every time you go out and do a deal, everyone gets a little slice of that deal. One person goes on the cap table. And it essentially allows me to act as a micro VC. Now, in real life, I play a VC at Google Ventures. So I’m actually not taking any carry. So I’m not making any money on these deals when I do them, I just do it for free. Just because… I feel like this is going to be a thing, it already is a thing, but like if you can imagine 5-10 years from now, these numbers are going to make and empower individuals to be like small little venture capital firms through 1 person.
26:25 None of us have done a deal with this yet. There are people who’ve done syndicates on AngelList, but not the backer sort-of situation. You’ve got a lot of deal flow. When do you anticipate you’ll do one of these, and how much of that $2.5m do you think will manifest itself in a deal?
26:49 Kevin: I feel like the best deals are the hardest ones to get in. Often there will be $50-100k left in the round. The last thing I want to do to these people… these are all accredited investors, so they have a decent amount of money, but there’s a lot of people on here that don’t have a TON of money, so I get nervous. I want to make sure that the deals I bring forward are nothing but the best. And do, I’m taking my time. I’m not going to spray-and-pray and do 50 deals a year. I want to do like 4-5 deals a year. I think that you’re going to see my deals are where I bring 100k to the table, and they’ll have to split it up amongst those people… because there won’t be that much room left in the round.
27:44 So you envision Google Ventures puts $250-500k into an angel round, and there’s $100k or $200k left. And either on a percentage basis those people come in, or first come-first serve.
27:55 Kevin: And the other thing is I want to bring in some later stage stuff as well. I think it’d be interesting to go and talk to someone like Pinterest and say, hey, can I have a couple million dollars of your next round, just for syndicating to this crew here.
28:12 Jason: When you look back now, being on both sides of the table, pitching and at times, desperate to get that money as an entrepreneur, now being on the other side of the table: what do you think makes people want to invest in a company?
28:30 Kevin: Obviously I meet with a ton of entrepreneurs every single week. There’s a couple of things I think are key when you guys are out pitching venture capitalists or angels. One, I think, is just the fact that you have an original idea – this can’t be Pinterest for cats, or just another knockoff.
28:55 Jason: So derivative ideas are a huge turnoff.
28:57 Kevin: They’re a turnoff for me unless it’s like– I’m just going to be honest, they’re always a turnoff for me. Even Yammer, I thought, I don’t want to do Yammer. It’s Twitter for business. I couldn’t get behind it. But obviously it did extremely well.
29:17 Jason: So you’re looking for original thinking.
29:19 Kevin: Original thinking. They have to be a little bit crazy. I kinda like that. Just like this, ready to take on the world.
29:30 Jason: What about execution now? In the early days we saw how you built Digg in a Craigslist, Ebay type fashion. We’ll get to design later, right? And today, everything looks really polished. Does your product have to look really polished to raise money today?
29:46 Kevin: I think on mobile it does. You only get one chance on mobile. I believe when a user takes the time to go download and install your application, if there isn’t — especially on Apple, on Android you can get away with whatever because all the apps look horrible — I probably shouldn’t say that. I work for Google. Google Ventures. Different, different. There’s some good Android apps. And I’m getting the Nexus 4.
30:16 Kevin: The thin finish has to be there on the Apple side. It really does. I don’t care if you have to go out and find someone on Dribble, and hire them as a freelancer, you have to have that polish in your application. If a user doesn’t like it, they uninstall it, they think it looks crappy. The barrier to entry the second time around – I mean you’re not going to get a user so excited to download the app again. Certainly on mobile. The web not so much, you can iterate a little bit more on the web. I certainly believe that design is a very important element. I’m seeing a lot more designer-founders now which is really interesting.
30:56 Jason: You were onto that early. With Daniel Burka who was I think your sort of Johnny Ive in a way? Is that fair to say?
31:02 Kevin: Sure. Yeah, Daniel has been an awesome designer and partner of mine for many years.
31:09 Jason: And now he’s at Google Ventures as well.
31:10 Kevin: Yeah so he’s going out and helping out all our portfolio companies.
31:16 Jason: What’s the scope of Google Ventures’ activity now? Obviously with corporate venture capital, people get a little nervous, like hey, is the search group going to find out about this? How do you firewall the ideas between the Ventures group and the Corporate group? And should people be worried about that, or why shouldn’t they?
31:35 Kevin: That’s the beautiful thing. That’s the only reason I joined Google Ventures. I would not have joined GV if it was primarily – only – a strategic fund. It’s not to Google at all. There’s very much a firewall in place. So they created a separate company, Google acts as the funds coming in, but they don’t have insight and visibility into our companies, what they’re working on, and so we keep that all separate. In fact, the mandate has been, go out and invest in things that are potentially even competitive to Google. They’d rather own a piece of the next Facebook, than not. Or whatever it may be, the next big search engine, you name it. That’s been awesome. So that gives us pretty much free reign to go out and invest in anything and everything. We do life sciences. We do consumer, you name it, like enterprise, and we do everything from a $100k seed check, all the way up to Uber, which we wrote a $254m check into.
32:35 Jason: Why is Uber so special?
32:37 Kevin: It’s all the things we like. Crazy founder.
Kevin: Disruptive. Makes a lot of money. I mean it’s just, they’ve got big bold plans. And if you take a look at the way that plays into some of our strengths, and some of the connections that we can make on the Google side, whether it’s Maps and Traffic, or you name it, self-driving cars. I’m not saying they’re working on that, I’m saying those are things you could see partnerships happening.
33:11 Jason: Are you enjoying it? are you enjoying being a VC?
33:13 Kevin: You know, I would say that I love it and hate it. I hate it when I see an idea and a team get so excited and they just go off and execute and you’re like, Oh, I wanna get back in there… but it is also really exciting to find something that you play with, and for the first time you’re like, This is going to be huge. And I’m going to be the first check into this business. This is going to be amazing, and have a great return. And that side is also really exciting. And you just know it’s going to change the world. And you’re helping fund something that’s going to change the world. That’s a really cool feeling.
33:50 Jason: Are we going to see another Kevin Rose startup? Are we going to see you as a founder again? What are the chances? Give me a percentage chance that Kevin Rose gets back in the game?
34:10 Kevin: I’d say probably 75%. It has to be something I’m over the top sold on and passionate about. I won’t do it if it’s just like — the last company I did was more of a labs company, just exploring different ideas —
34:29 Jason: You did Oink…
34:32 Kevin: Yeah, but I didn’t have anything I was ready to sink my teeth into, so I think that I would really have to be sold on something. I do like decentralized digital currencies a lot. And so Bitcoin has gotten me pretty excited.
34:45 Jason: Hot and bothered? You sold your Bitcoins today [Nov 8].
34:49 Kevin: I did, yeah. I sold them over the last couple of days. I like riding these waves. When it drops back down I’ll buy some more. I believe in the currency, just not the bubbles.
35:15 Question: What do you see that’s going to take us to $100B companies? We’ve got billions of users, what’s it going to take? Is it crowd funding? What’s going to take us out of the 10-5-10-15 billion dollar window?
35:40 Kevin: I think Nextdoor has a shot at it.
35:43 Jason: Being a super unicorn. Not just a $5b company, but a $100b.
35:47 Kevin: Yeah, I do.
35:48 Jason: Why?
Kevin: Because they have discovered a graph that no one is paying attention to, the neighborhood graph. The idea that like, relationships with neighbors, you can build applications on top of this graph. Like neighborhood watch, you can build secure and trusted commerce with friends and neihgbors. I think eventually if they do it right, it will eat Craigslist… You’re seeing it happen right now. If you join the Potrero Hill, I think ti’s the most popular one in San Francisco. It’s just taking off. Poepl are talking about it for everything from kid’s lost a backpack, to someone lurking around cars out here late at night, to I have this couch for sale.
36:54 Question: In Silicon Valley, we’re starting to get this bubble feel. As a student, it seemed like the plan for our life is, quit college, start a startup, get rich, and then live life happily. Do you think that that’s a sustainable model?
Jason: It worked for Kevin. Does it feel like a bubble to you, Kev?
37:19 Kevin: It does in some ways.
Jason: What feels like a bubble?
Kevin: The rents. The rents worry me. The fact that no one can afford rent here [in the Bay Area] is really troublesome. It feels, well, I see, the issue that we’re having now, AngelList has kind of started this. Every entrepreneur that has an acquihire exit, has a million or two dollars instantly becomes another angel, and is funding more startups. So you’re seeing more and more money flow into the ecosystem. And that attracts more people. The rents go up, the cost of living here goes up, and then all of a sudden, we’re seeing more startups that are going to have a hard time raising their series A… that feels a little out of whack to me.
38:06 Jason: So the number of companies being started. But the truth is, if they fail–
Kevin: Nobody gets hurt. That’s nice. But stay in school.
Jason: I say quit.
38:23 Question: I saw you in the elevator and gave you a quick elevator pitch.
Kevin: Yeah it was like 10 seconds I didn’t even really understand what you were saying.
Jason: one more time… You have 20 seconds. 3-2-1 go.
Question: I’m Chad with Bitwall.
Jason: Micropayments for content, what do you think?
Kevin: I think that micro payments are going to get really interesting now that Bitcoin exists. Just because it’s possible. When there’s some really light weight way to do that, I think it’s going to be interesting to think about. Rather than some crazy monthly New York Times $10/month subscription. The first half of this article is really interesting. Here’s 5cents in Bitcoins, let me unlock the second half. With no transaction fees. Amazon tried to do this… I think it’s possible now.