Lessons from Shopify CEO Tobi Lütke: what he learned from scaling Shopify through the pandemic | This Week in Startups Blog

Tobi Lütke on This Week in Startups

Top Insights

  • Removing friction creates new opportunities and increases market size.
  • Shared priorities of some of the best companies in the world:
    • Priority #1: Go build the best product you can possibly build
    • Priority #2: Make some revenue so that you can do more of Priority #1
    • Priority #3: Never do #2 at the expense of #1
  • Important technologies of the future look trivial today (like games or toys), just like the Internet did in the ’90s.
    • Examples: Crypto, NFTs, Biohacking sensors
  • Software innovation compounds.
  • Going forward, the best companies in the world will be built fully-remote, with in-person events deliberately distributed (all-hands gatherings, etc.)

Watch / Listen to the full episode:

Background / Intro

  • Tobi created Shopify to solve his own problem: running his online snowboard store was really hard, and the only reason he could do it successfully was due to his background in software development.
  • Jason first interviewed Tobi on TWiST at Accelerate Ottawa in 2013
    • At the time, Shopify had ~200 employees with a “crazy” thesis: Amazon would not win it all, and some retailers would want to run their own online stores
    • Jason was originally in Canada to interview Chamath Palihapitiya
  • In their initial interview, Jason was struck by Tobi’s laser-like focus and thought Shopify had huge potential.
    • He remembered:

“… in that interview [Jason made] some statements about the potential size of [Shopify] being hundreds of millions. I thought ‘I’m gonna roll with this but I’m not entirely sure if Jason is serious or not.'”

Tobi Lütke

Shopify’s growth & comparing ecosystems with Amazon

“I have an unbroken track record of underestimating the potential of my own company, which I hope will continue.”

Tobi Lütke

Jump to this part of the episode on Youtube – 4:57

  • 85-90% of all the world’s money exists in databases. The world economy is almost fully digital.
    • The old concept of the e-commerce market is outdated and incorrect.
  • Shopify mainly differs from Amazon regarding direct-to-consumer brands
    • How? By giving them a “home base”, so they can own their storefront on the Internet, rather than “renting” shelf space from someone else.
  • Amazon has a very good sales channel for certain products, and people should use it if it’s appropriate.
  • Shopify’s App Store has helped fuel their growth “Commerce is complex, it’s very hard to build software that can address a lot of different use cases. The inspiration [for the app store] was operating systems.  An operating system that does a good job modeling the primitives can then be used for everything.” – Tobi

“Commerce is complex, it’s very hard to build software that can address a lot of different use cases. The inspiration [for the app store] was operating systems.  An operating system that does a good job modeling the primitives can then be used for everything.”

Tobi Lütke

Removing friction creates new opportunities

“Friction shapes the world a lot more than policy in most cases.”

Tobi Lütke

Jump to this part of the Episode on Youtube – 9:42

  • There were roughly 40,000 online stores in the early 2000s. This was because it was so difficult to run an Internet business due to payment processing, order fulfillment, software development, etc.
  • When Tobi started fundraising, investors that said “no” would point to Shopify’s “low” Total Addressable Market (TAM) of 40,000 stores.
  • Shopify grew its TAM by greatly reducing the friction of setting up an online store, thus encouraging more and more people to either start new online businesses or to create a digital version of their physical store.
  • How’d they do it? Initially by building a payment gateway to make it easier to deal with merchants and collect payments.
    • The goal was to allow sellers to collect payments easily, and once they made sales, the entrepreneur could tell Shopify where to send the orders for fulfillment.
  • Like e-commerce, setting up a blog also used to be time-consuming and difficult, involving servers and coding. Now it’s been made nearly frictionless by companies like Squarespace or WordPress, and their markets have expanded as well.

“Every time an entrepreneur makes it easier, more people participate.”


Lessons learned during the pandemic

“Almost every model and theory I had about how to work together [and] how to build things got either invalidated or got a significantly higher resolution. For instance, I believed that there was no way to replace proximity as a factor in building fantastic products, the proximity of a team is just so powerful, and so multi-dimensional… clearly that was incorrect.”

Tobi Lütke

Jump to this part of the episode on Youtube – 31:28

  • Early remote work pioneers like Matt Mullenweg (Angel S5 E7), and Jason Fried (E1099) were right. Business efficiency increasing while remote proved Jason and Tobi wrong.
  • The problem with pre-pandemic distributed work was that companies needed 100% remote participation, which was very hard to achieve before lockdowns were enforced.
  • High-quality product creation comes from high-fidelity teamwork, which proximity inherently creates.
    • However, this can also be created by great video conferencing software (Zoom), a solid setup (strong internet, good camera/microphone), and a way to mimic a whiteboard (productivity apps, screen sharing).
  • We are still in the early days of remote work, and the software will only become more seamless in the future.

“This is the worst the software will ever be for remote work, it will only get better from here.”

Tobi Lütke
  • Jason’s remote management checklist (SOD > EOD > EOW)
    • Start of Day (SOD): At the start of the day put in Slack what you’re working on in 1-3 bullet points
    • End of Day (EOD): At the end of the day when you’re done working, reply to that same post with what you got done and what you need help with
    • End of Week (EOW): On Friday, taking no more than five minutes, share the most important things you got done during the week

“It’s a contest to see who can inform everybody and how in sync we can be with the least amount of meetings.”


According to Tobi, the best companies in the world going forward will be fully remote:

“I think I think the best companies in the world will be built completely remotely, at least with no stated headquarters. Being together in person is still going to be very important, but more deliberate.”

Tobi Lütke

Forced focus of lockdowns

Jump to this part of the episode on Youtube – 1:05:39

  • Shopify zero-budgeted at the start of the pandemic and realized how unfocused they were.
    • Zero-based budgeting entails redoing an entire budget from scratch, rather than just modifying the previous year’s numbers
  • Due to the initial pandemic scare, Tobi became focused on building an “antifragile” business
    • An antifragile business is one that performs better under duress or in times of uncertainty
    • Antifragile is a book by Nassim Nicholas Taleb
    • Examples:
      • Uber – When people went into lockdown and stopped ordering rides, the demand for UberEats went up. When people come out of lockdown, demand for rides will rise.
      • Disney – When parks shut down, they centered their business around Disney Plus. They surpassed 100M subscribers in the first 16 months after launching in Nov. 2019.
  • Antifragility in practice: Many businesses will take the e-commerce lessons they learned during the pandemic and apply more software when running their physical locations.

Compounding nature of software innovation

“The narrative around programming is more interesting than people realize.  Since blacksmithing, we haven’t had a craft where the craftsmen actually make their own tools.


Jump to this part of the episode on Youtube – 47:00

  • Humans are genetically the same as we were 75,000 years ago. The main difference between then and now are the tools we have available that and the stories we tell each other.
  • Innovation compounds when creators build on the innovations of others Hardware example: Battery revolution
    1. Billions of smartphones are produced, competition leads to fast-charging and long-lasting battery technology
    2. Tesla uses batteries in their cars and makes them cheaper and more effective
    3. Battery-driven Vertical Takeoff and Landing (VTOL) aircraft are now made possible due to the advancements in battery technology
  • Software is the ultimate play of leverage for innovation because it combines zero marginal cost with infrastructure that everyone on Earth can add to and constantly improve.

1,000 True Fans

“We want to make entrepreneurship trivial on the Internet.”


Jump to this part of the episode on Youtube – 1:06:40

  • Spending money on creators via the Internet can now be seen as voting for something to exist.
    • Everyone can now be a “Digital Medici” and sponsor the art/artists/products they want to see exist.
  • The promise of Kevin Kelly’s 1,000 True Fans essay becomes more attainable for a broader set of people with each new technological commerce innovation.

“…there is a home for creatives in between poverty and stardom. Somewhere lower than stratospheric bestsellerdom, but higher than the obscurity of the long tail. I don’t know the actual true number, but I think a dedicated artist could cultivate 1,000 True Fans, and by their direct support using new technology, make an honest living.”

Kevin Kelly
  • Shopify’s Fulfillment Network abstracts logistics away from the seller (just like the Payments Network did before it).
    • they reduce complexity by removing unnecessary information/hassle/steps
  • Jason claims to have seen a 100x increase in high-quality direct-to-consumer companies in the past few years, largely due to Shopify making it easier to run an e-commerce business by handling the technical and fulfillment aspects and allowing entrepreneurs to focus on the product.
  • Example: One founder is selling ~$60K worth of hoodies per month with minimal effort on the fulfillment side. Here’s how she does it:
    • Uses influencer partnerships to market the product
    • Takes orders through a Shopify storefront, which handles payments processing
    • Orders hoodies from a contract manufacturer and routes them to a Shopify fulfillment center because the logistical side of the business was automated, the founder was able to focus on perfecting the product, and is now building her own version of “1,000 True Fans”.
  • Most of the modern Internet has been condensed into 3-5 major players. According to Tobi, it’s important to preserve the opportunity space so that achieving “1,000 True Fans” can still be possible.

Watch / Listen to the full episode:

Fan notes about this episode

@abhishek – Added some great links for exploring the creator economy

We recently launched a curated list of the most generous software discounts for startup founders. View all deals at startupdeals.tech.

The All In Podcast and Syndicate

A couple of months ago my pal Chamath texted me and said “I want to do a podcast with me and you.”

We discussed some names and landed on “All In,” as a tribute to our mutual friendship over poker. This was during the pandemic and in an election year, so there was plenty to talk about above and beyond technology, finance, and entrepreneurship, so we had a full docket of issues to work from.

We invited two other poker buddies to come on the pod, David Sacks and David Friedberg, and got into a quick rhythm given the massive brainpower of the two Davids.

We’ve now done 14 episodes and the podcast quickly went from the top 50 to 25 and then top three technology podcasts on Apple’s quirky podcast rankings.

People have responded in a deep and meaningful way to the podcast, tell us that it’s their favorite listen when we drop an episode every couple of weeks. People say they love the friendship and comradery they feel as we laugh it up while discussing and debating the most important issues of our time.

Fans tell me they wish the rest of the media world was more like the All In podcast, where folks listen and appreciate each other–even when they disagree. In fact, I think we appreciate each other MORE when we disagree, because it feels like we’re learning, evolving or simply getting to some central truths.

Anyway, I’m not sure if many of you come to the blog any more, but I thought I would post this to give a little background on how this whole thing got started and let you know how to find the podcast.

This linktree will take you to all the places to listen:

and you can see us on Zoom if you subscribe on youtube

For fun Chamath suggested we launch an angel syndicate, so we put up a form for accredited investor to sign up at here: https://www.thesyndicate.com/allin

At the time of me posting this, 3,000 of you signed up to invest with us–which is nuts! It took me six years to build my angel syndicate to 5,500 members (!!!). Note: if you signup for the All In syndicate you’ll also seem my deal flow, but not the other way around. So if you’re a member of my syndicate at thesyndicate.com you need to signup again for the All In syndicate.

We recently launched a curated list of the most generous software discounts for startup founders. View all deals at startupdeals.tech.

A fourth option: how #microschools will save our children

It became clear to me during July, when coronavirus cases spiked at precisely the time they told us it would take a break, that school would not start in September. 

Realizing this, I started floating the idea of creating a “microschool,” a concept that sits between two of the most polarizing points on the education spectrum: private school and homeschooling.

Many consider the flight of the rich to private school, combined with the recently uncovered hacking and corruption at elite colleges, as a fundamental breakdown of the fellowship of the American public education system. 

[Click to Tweet (can edit before sending): https://ctt.ac/daT56 ]

Every conversation I’ve ever witnessed about homeschooling went to the same place: with people marginalizing it as a wacky, hippie-dippie pursuit that created smart but socially weird kids. 

A “microschool” sits between these two options, because in the model — as defined by me — you have a teacher at your home with multiple students. 

A microschool, by my definition, achieves the following:

  1. You remove the social isolation concern of homeschooling.
  2. You drop the class size dramatically, from the standard 20-30 students down to four to 10.
  3. During a pandemic like coronavirus, I would guess that every logical person of science would state that smaller is safer (you can research this yourself online).
  4. You drop the cost of a private school from $30-50k a year to $5-10k.

As an investor in highly disruptive companies, that last point is the one that got me in hot water with the hysterical Twitter mob this past week. 

In my blunt, capitalist fashion, I tweeted that I was looking for the best teacher for my microschool. I would beat their current compensation and give anyone who referred me this person a $2,000 gift card to UberEats.

As an early investor in Uber, this last part was considered extra elitist to the salty, radical left on Twitter. That contingent doesn’t give anyone the benefit of the doubt, instead, immediately they make everything about class, wealth, politics, identity politics, and generally dunking on anyone who is easy to hate (which, I’m self-aware enough to know, I am). 

So, I wound up on TMZ, the New Republic, and the DailyMail, which is something I never expected in this lifetime, as well as talking with an ABC news reporter. 

Dr. Phil’s producer has asked me to come on (debating that one), and essentially I went viral for 48 hours.

It was a level of attention, for what is a super pragmatic idea, that I didn’t expect, but in reality this flareup feels akin to about 20 minutes and 20 seconds in the life of Kanye West and Trump, respectively. 

The punch line of all of this is that the concerns folks had, that I was “stealing” a teacher from other students, and that this was another example of the growing chasm between the rich and poor, flies in the face of, well, math!

First, 95% of the people applying for the position were out of work. Making this $60-70k position with benefits a net new job created in the world. 

Second, we elected to give 50%+ of the slots in the school to folks who wouldn’t be able to afford private school.

Third, we are currently in public school. Everyone just assumed because I had some success in the second half of my life that I was an elitist in some $50,000 private school — wrong! 

Fourth, and most stunningly, microschools are the opposite of elitist — they are socialist and capitalist at the same time. 

Basic Math:

  1. Ten students
  2. $50,000-$75,000 teacher (all-in cost with benefits, based on the average salary — do some Google searches, teachers are underpaid)
  3. That’s $5,000 to $7,500 per student, which over 40 weeks (200 days) of school is $25 to $37.50 per student, per day

This model assumes the 10 parents manage the teacher, live in a reasonable distance of the school, and at least one of the 10 families has a backyard or extra space for the students. Even if you add $12-$24,000 to the total cost, say if you wanted to rent a space, you are still at 10% to 20% the cost of a private school.

So, today parents have three options:

  1. free public school
  2. homeschooling
  3. $35,000 to $50,000 a year private school 

This changes the competitive landscape for education into four options:

  1. free public school
  2. homeschooling
  3. $5,000 to $7,500 for a microschool
  4. $35,000 to $50,000 a year private school 

Does anyone believe that inserting a 4th option to schooling options is a bad thing?

Only one group seems to think this is a horrible idea, and it’s not parents or students, it’s the teacher’s unions and the administrators at public schools. 

Consider the big picture: 

  1. U.S. outspends every other country in the world on education.
  2. U.S. trails countries that spend less than us.
  3. The average American gets paid ~$25 an hour. 
  4. Based on our average hourly wage in America, sending a child to private school is ~2,000 hours of work.  In this model, sending one child to a private school would eat up a parent’s entire salary.
  5. In the microschool model, a parent would have to work — paradoxically — one hour for every day their child went to school (on average). If you made $10 an hour, obviously you would need to work about three hours.

I’m not an expert on education, but I am an expert at identifying and investing in disruptive models — and microschools feel really, really disruptive in the best of ways.

We all want what is best for all of our kids, and we all know that school ain’t starting in September. 

Given these universal truths, I suggest we all start thinking creatively and share our learnings while ignoring the crazy, vocal minority of virtue-signaling communists who hate innovation and want their lives run by our dysfunctional government … you know, the same government that has us spending more and getting less from education today, and which is performing in last place when it comes to dealing with the crisis. 

Our politicians and institutions are failing us right now, so while we slowly work to fix our broken system my best advice is to be as radically self-reliant as you can — and that’s what #microschools are.

Best, Jason 

PS – There is a pandemic pod hack that drops these numbers down even further, which I will write about tomorrow. 

For now, if you could hit reply (or comment) and give me your most deeply considered feedback on:

  1. How to make a microschool more available to more students. 
  2. How to run a microschool better. 
  3. How you are addressing the 2020/2021 educational year. 

I started a Slack room called #microschools in my podcast’s Slack, which you can join at:


Microschools are the future–how do we start one?

vacant white painted classroom with chairs, tables , and map on the wall

It’s becoming very clear to me that school isn’t going to be the starting, or be the same, this September, as many of us hoped it would.

As nimble as educators were to move to remote education, something is lost when we put our kids in front of a webcam as opposed to a group of their peers.

Given this, our family has decided to start a microschool in the Bay Area starting this fall. We expect somewhere between one to five students, and we are starting the search for an teacher who wants to be apart of the microschool revolution/evolution.

If you’re teachers with five years of experience or more and you want to come on this adventure, we set up a quick application form.

Now is the best time to be an angel investor (let me show you how)

I’ve been getting a lot of questions about the impact the coronavirus will have on startups and angel investors, so I thought I would tackle the issue head-on in this essay. 

[ Click to Tweet (can edit before sending): https://ctt.ac/NBz9K ]

Giant disclaimer up top that (obviously) everyone’s safety and well-being is the most important thing right now. Full stop. However, everyone knows that the second and third-order effects of this pandemic will be the economy.

The economy means people’s jobs, and people’s jobs are how they provide food, shelter, medicine, education, and safety for their families. 

We lose jobs and some people will lose their safety, be it in the form of housing, food or medicine — let alone the mental health crisis that can come from being unable to provide for yourself and family.

With that disclaimer out of the way, I want to talk about investing in startups, which is what drives the economy through job creation. I’m sure some snowflakes out there will try and cancel me for talking about investing in startups right now, but those same snowflakes will attempt to cancel me on their iPhone while on Twitter and getting their food delivered from DoorDash (aka startups backed by angel investors).  

In this quick essay, I want to explain why I believe that NOW is the best time to start angel investing. I encourage you to do so intelligently, slowly and with a strategy, which I will also talk about here. 

Background: The most important thing I’ve learned about investing in startups over the past decade is that your results will vary radically depending on when you started investing. I was very lucky to have started angel investing in 2008 during the Great Recession as a Scout for Sequoia Capital. 

At that time the valuations for startups like Uber and Thumbtack were $10m — combined! 

For the past couple of years, startups run by founders who aren’t qualified enough to make a cup of coffee for Travis and Marco were demanding $15m valuations for copycat ideas with anemic performance. 

A hot market filled with easy money makes everyone think they should start a company — which is completely reasonable. 

I believe that we’re headed back to 2008-2010 valuations this year and it’s going to be fantastic for angel investors who are brave enough to place bets. 

Nothing is guaranteed, and you can insert a bunch of financial disclaimers here, but candidly I’m planning on being more active in the next 12 months than I have been in my 10-year history as an angel investor. 

If you’re rich and bored, or maybe even retired and regretting it, I would like to make the case for you to become a half-time or full-time angel investor. 

Now, I don’t think you should invest 100% of your capital in startups this year.

However, I think rich people (aka accredited investors who have capital available) who become full-time angel investors this year should build an intelligent plan to deploy a fraction (1-10%) of their net worth. 

Essentially, the amount they can afford to lose. 

In my book ANGEL I explain a way to do this intelligently that goes like this: 

  1. You want to make 30+ investments so you have a chance at an outlier. 
  2. You want to only invest in startups that have products in market and revenue already — and there are thousands of them. 
  3. You want to make very small bets when you start and then go 2-10x on the winners. 
  4. You want to make those 30+ investments over a three-year period. 

Here’s some basic math on the plan I recommend.

  1. You have a net worth of $10m. 
  2. You allocate $450,000 for angel investing. 
  3. You invest $10,000 into each of the 30 startups ($300,000). 
  4. You invest the final $150,000 into your top five startups ($30,000 each).

In this model, $200,000 of your $450,000 invested will go into the top five startups. 

You can assume in this hypothetical model that you will get $0 from the 25 you didn’t follow on with, and then if one of the other five pays off 25x on the initial investment ($10,000 * 25x = $250,000) and 10x on the second investment ($30,000 * 10 = $300,000) you are in the black already. 

This is not guaranteed, obviously, but if you talk to folks in Silicon Valley with over 30 angel investments you hear stories of outlier investments and power laws often.

In this example, if you lose it all, you lost 4.5% of your net worth, which is not fun but is survivable (heck, if you’re in the markets right now you’ve probably experienced “losing” 20% of your net worth in a week or two). 

You can strategize various scenarios for angel investing based on your time frame, goals, chip stack, age, dedication level and risk profile.  We discuss all of this in the Angel.University course. 

Just two examples from our investments:

  1. Calm is valued at 153x for us.
  2. Uber, an outlier of all outliers, is 2,000 to 4,000x+ (depending on when/if you sold).

If you want to learn how to become an angel investor, come to a virtual edition of Angel.University which we will host on April 7th. 

We have 100 slots for accredited investors, apply here: http://angel.university 

We are asking for a suggested donation of $100 per person for Angel.University: 100% of which will be donated to coronavirus-related causes like https://feedingamerica.org and https://covid19responsefund.org 

In short, based on my experience, the next six to 12 months could be the best time to start angel investing since the Great Recession. 

I could be wrong, this crisis could last a couple of years or as short as three months, but I know that angel investing is an amazing vocation if you’re passionate about entrepreneurship, technology, and innovation. 

Early-stage startups will be on sale as capital markets constrict and funding sources slow their pace of investing and lower their slug sizes.

Fortunes are made in the down market and collected in the upmarket. Let’s get to work. 

All the best, Jason

How to Say “No”: Five Templates to Turn Down Opportunities Gracefully

Kevin Rose and Tim Ferris did an episode of The Random Show [https://overcast.fm/+RxHE2lD-I] where Tim Ferris confessed that he had cancelled his next book and refunded the advance. The book he said “no” to was about “how to say no,” which is ironic and something that any super router like Tim or Kevin has to deal with at an acute level.

[ Click to Tweet (can edit before sending): https://ctt.ac/7dEea ]

For kind folks who get famous, saying no is a non-stop burden, but saying no isn’t just critical for the mental health of famous authors or podcasters, it’s something that founders have to be ruthless about because the startups that succeed are, universally, the ones that scale a single product and business model (Google:Search, Uber:Rides, Facebook:Social Network, etc.) — at least in their first five to ten years. 

As an investor in over 200 startups, I’m constantly having founders text me their new, crazy ideas — after having just invested in their last one. Sometimes it’s great to pivot, hard or softly, into a new product, but saying no to distractions and new ideas is often how you have a big breakout success.

Here are the templates I use. Feel free to share and remix them. 

The “Not Right Now” List

In your own company, people will come to you with a ton of ideas, strategies and tactics, which are three very distinct things. Once in a while some folks will even want to change or edit your mission (the highest level structure in your startup). 

When they do, a great response is the sh@#$t sandwich structure: “Great idea. Let’s put it on the ‘not right now’ list so we don’t forget it — since it’s so good!”

Bread: “great idea” and “so we don’t forget it — since it’s so good”

Sh@#4t: Obviously, we’re not doing this right now. We need to stay focused. 

Defining Your Zone

People will want to engage you and your business to solve their problems. This is only natural, so it’s important to frame for people what you do and don’t do. In my life as a publisher I would tell folks who “wanted to get lunch” or “discuss how we might collaborate” with a simple email template:


Thanks for reaching out, really appreciate you thinking of us! There are three ways to get involved in Silicon Alley Reporter magazine:

  1. Subscribe here: URL
  2. Advertise in the publication: meet Jane, cced, who runs advertising.
  3. Be featured: We don’t take pitches from PR folks, but send updates on your business to the tip line here.

Don’t have time for lunch right now as I’m on deadline for the next issue, but happy to answer any other questions you might have over email. 

Editor & CEO, Silicon Alley Reporter” 

For my role as an investor, I have a similar email.


Thanks for reaching out! Please meet Jacqui Deegan, cced, the Managing Director of the LAUNCH Accelerator (launchaccelerator.co), which is where we engage with founders at the early stage.

Frequently asked questions here: https://launchaccelerator.co/faq

If you could send us your deck, traction (revenue by month since inception in a chart or table) as well as your funding history, that would be very helpful.


Some folks will of course say, “I’m not interested in coming to your accelerator, but would you have lunch with me and give me $1m in seed funding for my idea?” or “We are past the accelerator stage and have $10,000 a month in revenue.” 

To which I will explain: 


You’re a bit too early for us, but do keep us up to date by sending your monthly updates to investors to updates@launch.co

Our syndicate (http://thesyndicate.com) reviews seed-stage/Series A/Series B companies with $50,000+ a month in revenue, doubling every six months or less. Ashley is the MD of the Syndicate and can answer any questions.


Now, we will obviously invest in some startups that are pre-launch (i.e., Superhuman) or have very modest traction (Calm.com had $10,000 in total revenue when we invested, I think), but having some basic sorting guidelines frees us from wasting the founder’s time. We will review their product and deck before responding so if something looks wildly interesting we’ll take a deeper dive, but when things aren’t a fit for us, we will still make it really simple for incoming founders to engage with us.

Blank “On Deadline” Reply

We’re all working against some deadline, so being able to have a standard “on deadline” response is important for requests. I’ve used one that encourages any follow-up questions over email, and another one that puts a hard no on it.

“Thanks for reaching out. I’m on deadline for my next book and don’t have time to meet, but I’m happy to try and answer any questions you have over email. 



“Thanks for reaching out. I’m on deadline for my next book until April 15th 2020, and I won’t have time to meet or review this opportunity. Thanks for thinking of me. 


The “I Don’t Do” BLANK 

Knowing what you don’t do is critical. I often, for example, get asked to fund movies, restaurants, albums and non-profits. I have a simple response for that, too: 

“Thanks so much. While I do enjoy films/restaurants/music immensely — I do not invest in them! 


Use Superhuman Snippets 

I do all of this with Superhuman Snippets, which lets me reply and cc folks automatically when using these templates. Superhuman doesn’t let me share the templates with team members or label the emails yet, but those two features will be killer when they do arrive. 

Giving a quick “no” is compassionate to other folks because it lets them move on quickly. Also, taking the time to build your own “I don’t do… BLANK“ list is critical if you want to achieve greatness — which is often defined equally by what you don’t do as what you love doing.

Once again, listen to the podcast with Tim and Kevin here: https://overcast.fm/+RxHE2lD-I

The Pegasus Startup: Flying Over VCs on the Wings of Profits

The unicorn movement in Silicon Valley has been a great run, with startups plowing mountains of willing capital into audacious products that are changing the world.

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Airbnb, Uber and Slack have revolutionized travel, transportation and work forever. It took tens of billions of capital, but I predict each of these companies will become worth 10x their current market caps in the next decade or two.

However, a new species has taken flight in Silicon Valley, and we’ve been lucky enough to have invested in four of the six we’ve encountered. This new species is called a Pegasus.

A Pegasus startup is one that is so profitable that it is able to use its profits to soar so high, that it skips multiple rounds of funding.

Unicorns are Still Fine

Now don’t get me wrong, unicorns are just fine. Any company that can hit $100m in revenue and a billion dollar valuation is a great bet for early investors and employees.

If the dead money in bonds and bank accounts want to get to work making huge bets, I’m all for it. Folks betting $5-$10b to get a startup to 100 million addicted paying customers are making a wise bet.

It’s a fine use of capital if those 100 million users return $5 a month in profits for years to come (see Facebook, Google, Amazon, etc), and if they inspire hundreds of millions of more users to try the product.

I get that deploying billions of dollars makes most civilians confused, and it sure terrifies the old guard and public markets at times, but anyone familiar with high-stakes poker and investing with a decade-long time horizon — like I and other startup investors — is unfazed.

So Why the Pegasus?

I don’t know exactly why we’ve seen four exceptional startups in our portfolio take this route, Dyn.com, Calm.com, Superhuman and Fitbod, but as the kids say, “I’m here for it.”

We put $378,000 into Calm.com back in April 2014 and we own around 5% of the company (after selling a small percentage of our position in “idiot insurance”). Calm had $10,000 a month in revenue when we invested and have reported revenue of $7m in 2016, $20m in 2017, $80m in 2018 and an estimate of $150m in 2019.

What people don’t know is what happened between 2014 and 2018, which is that the founders put their heads down and didn’t raise any significant capital. They just poured profits into their growth, team and product — and it worked.

Their first round with venture investors was at ~$250m valuation and the second was at $1b.

No Seed Extension, No Series A, No Series B … straight to what most would consider a Series C financing.

Dyn.com, My First Pegasus

Back in 2012 I was contacted by Kyle York of Dyn.com in New Hampshire to join their board. They were fans of the podcast and wanted marketing support from a hustler, so they pinged me (Kyle wrote a blog post about it: https://dyn.com/blog/true-board-story-the-email-that-landed-jason-calacanis/).

I did a double take when they told me they were ramping from $4m to $35m in revenue, with a massive profit margin, but had not yet raised a round of funding. I joined the board and in 2016 they sold to Oracle.

Again, the skipped multiple, dilutive rounds of funding.

The team had built a simple product, charged a fair price, were frugal as f@#$k — and poured every penny back into the product.

Since the company was in New Hampshire, it was outside of the venture-industrial complex, and it grew wings and soared to massive heights because, well, it had to.

I never thought I would ever see another company like that again, but I have.

Superhuman is a bit quiet about its fundraising and revenue performance, but since you’ve likely heard about the magic of the product and only read about its last round of financing with my pal David Ulevitch at a16z, you can be sure it took the Pegasus route.

Fitbod came to our accelerator with $3,000 a month of revenue, and we’ve invested $399,000 into it over two investments, putting us at around ~7% ownership … but they haven’t raised since!

At LAUNCH Festival Sydney, they disclosed they had hit $800k+ a month in revenue — and they haven’t raised a penny since.

My pal Brian Alvey, who coached me on the book [ https://www.angelthebook.com/] and edited this piece with me, reminded me that Kickstarter raised a $10m round back in 2009 and has never raised from VCs again — perhaps making it the first Peagsus (anyone else got examples?).

[ Oh yeah, follow Brian on the Twitter, he’s the got the best quips: http://twitter.com/brianalvey ]

How to Be a Pegasus

It’s fairly simple if you want to be a Pegasus, I can describe it in five tight bullet points:

  1. Have a modestly paid, small team that produces an extraordinary product (easy!).
  2. Charge from day one and pour those profits into growth.
  3. Focus on four things: team, product, customer feedback and growth.
  4. Triple revenue year-over-year.
  5. Ignore any ovation from an investor who doesn’t have the twitter handle @jason

It’s really that simple.

Step five is optionally mandatory, so if you are building a Pegasus I’m here to help, and by help I mean having you on the podcast, keynoting our events and cooking you a 14-hour brisket when you stay in the “Travis Kalanick Suite” at our place when you’re in town.

Just email me at jason@calacanis.com and let’s put $500,000 into your bank account and then start the process of ignoring all other investors until we hit $10m in revenue.

The Value of Being a Pegasus

This is going to be fairly obvious to anyone in the industry, but to state it explicitly for new founders and civilians, there are two major benefits:

  1. For every round of financing you skip, you save 10-20% dilution. If you skip 2-3 rounds of financing this could double your ownership at an exit.
  2. You never have to stop working on your product to do a fundraising tour.

If you’re an elite founder with an elite team, and you have the ability to focus, I highly recommend this strategy. If you come up against rabid competitors, sure, take the big money and go to war — just try and do it after you hit $5-10m in yearly revenue.

Epilogue: Beware the Dark Pegasus

It’s been reported, in a spectacular scoop by my pal Amir at the awesome The Information (not fake news), that a company called Toptal raised $1.5m on a convertible note and then never converted that note into equity because it was a Pegasus with a whisper number of $200m in revenue.

The founder, Taso Du Val, also allegedly screwed his employees and co-founder out of their equity by never converting his LLC into a C corp and creating stock.

This is a huge violation of the explicit covenant of startups: “we all lose a decade of our lives trying, or we get fabulously rich together.”

Toptal is the Dark Pegasus, the worst of all animals … a creature so evil and filled with greed that not only do they want to preserve their cap table, they want to do so by screwing everyone they can — including their own family (aka, investors, employees).

I spoke with Amir (http://y2u.be/2SyGZfObj2E) about Toptal, as well as with an employee who got screwed out of $2-$10m in my estimate (http://bit.ly/2m2bY0I) and I blew a fuse in the middle of the episode (sorry, I don’t do that often … in public).

So, welcome to the magical land of startups … filled with packs of Unicorns, which we call a “blessing,” and now a half-dozen Pegasi flying above.


PS – LAUNCH SCALE, October 7-8 in SF, is free for founders; $500 if you want to come to lunch with me and the team or if you work for a bigger company, law firm, etc. It’s a killer event designed to help founders grow their startups. http://launchscale.net/tickets

PPS – We are looking for a host city for LAUNCH Festival in 2020 through 2023 (four-year deal). The event has been in Sydney for the last two years and we’ve loved it, and might stay another four years but we agreed to open up the process. It’s $500,000 a year to underwrite the entire event, which has thousands of founders attending for free. We do this at breakeven in order to help founders grow their startups. If you’re interested (Berlin? Tokyo? Spain? Brazil? Rome? Austin? Miami? Nashville?), fill out this form and let’s have coffee. [https://host.launchfestival.com] In Sydney we ended up investing in five startups over two years, so we poured $500,000 back into the ecosystem (win! win!).

Some great Podcast Episodes you might have missed:

E967: Jeff from Twilio back on pod for the 3rd time. https://youtu.be/2Q86UjKU4uI
E962: Finally got Sophia from Girlboss.com on the pod. https://youtu.be/pg0Ifx1TFAw
E963: My Greek brother from Cameo.com, which is on fire, was on. https://youtu.be/ldxf2QiVlwc
E939: Unicorn founder Melanie Perkins of Canva.
E901: SendGrid.com CEO Sameer Dholakia on the podcast after selling to Twilio. https://youtu.be/PcWs4WnWFvU

Also, I gave a talk at Mark Suster’s Upfront Summit to discuss thesyndicate.com, which has invested $40.8m in 103 deals — including our first deal: Calm.com. https://youtu.be/YQa6vD9KG9Q

It’s time to boycott Saudi money (aka Masa’s Vision Fund)

It’s time for founders and venture capitalists to say “not yet” to Saudi Arabia’s sovereign wealth fund — commonly referred to as Masa’s Vision Fund in tech — due to the deteriorating state of human rights in the Kingdom.

[ Disclaimer: at least one of my 200+ investments has taken money from Masa’s Vision Fund — which as I said is majority-powered by Saudi Arabia — so I’ve benefited from their presence in tech. As an angel investor, I wasn’t involved in the decision. ]

For the past decade I’ve struggled with the question of whether it’s better to isolate or engage with the kings and queens, and often dictators and despots, of nation states that can’t reach the baseline of human rights we take for granted here in the West: freedom of speech, freedom to be who you are (gay, trans, Christian, Jewish, atheist, woman, etc.) and a justice system that doesn’t rely on cruelty, corruption and torture.

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We’re not perfect here in the United States, with the waterboarding-adoring presidents Bush and Trump, or the progressive-gentleman Obama who couldn’t figure out how to close Gitmo after eight years (we never did get a straight answer on that one, did we?).

However, when you pull out the Universal Declaration of Human Rights, we’re on the right side of history despite our weakest moments that drive us to embrace the death penalty, or our capitalism-gone-wild experiment with paid prisons. Not to mention a justice system that statistically treats people differently based on their skin color.

Another factor we should be proud of is that we live in a country where debating, investigating and fixing these systems occurs out in the open — and without the arrest of those pushing the resolution of these difficult issues (as just happened).

Engagement or Isolation?

In the engagement camp, it’s easy to point to that fact that we’ve avoided a massive military conflict with China thanks to our intertwined economies, while disagreeing on basic human rights.

Perhaps that’s why Sergey at Google is embracing a censored Google for China (Dragon, how clever :eyeroll:), or maybe Brin’s getting run over by his own company — hard to know what Googlers think since they’ve mastered the art of obscuring the decision-making process through deliberate levels of management and shell companies.

[ Side note: Where have you gone, Sergey Brin?! Speak up kid, your silence is brutally deafening, and what’s the point of making tens of billions of dollars if you can’t speak for what’s right in your own company? ]

On the side of isolation, or perhaps a polite “not yet” as I’m advocating here, is Saudi Arabia, which went through a great “we’re changing!” tour with their partner, Masayoshi Son of SoftBank — a true gentleman and visionary leader.

That was before they brutally dismembered a journalists for lightly criticizing them, in a coordinated hit that included a bone saw, and in Friday’s breaking news that nine intellectuals, journalist, activists — and their families (!!!) — have been jailed.

Two of the women round up are dual citizens of the United States and Saudi Arabia, and one of them is pregnant, according to reports.

Are they being tortured?

Have they been dismembered like Khashoggi?

Is the baby still alive?

It’s a sick, demented question to ask, but it’s sicker that we have to ask it.

It’s clear that in the case of the Kingdom, even with Masa Son’s vision, we’ve sent the wrong message to the world.

Silicon Valley is where massive fortunes are made, and we’ve taken the easiest cash double-up in the world — the IPO — and we’ve given it to the Saudis.


Because it’s easier to take their money than to deal with the headaches of going public?!

Because they are willing to pay next year’s, or the year after’s, price for our shares?!


Are we that desperate for a quick markup that we’re willing to sell out the system that generated the value to begin with?

Founders should turn down Masa’s Vision Fund until they disengage from Saudi Arabia’s sovereign wealth fund.

If you’ve already taken the money, you should be respectfully vocal about your displeasure with the Kingdom’s human rights issue.

Respectful, so that it’s easier for them to change and not dig into their position.

If you’re an investor, you shouldn’t go to Saudi Arabia for their conferences and you shouldn’t allow them to be an LP in your funds.

We should take our companies public instead of doing insane late-stage rounds, because it’s healthier for everyone — founders, investors, Americans and people suffering under dictatorships — to give the IPO business to our retirement funds, endowments and retail investors.

I’m not saying we shouldn’t engage, but it’s time for us to go back to showing the world the better path — as opposed to taking the quick buck.

What’s the point of being rich and powerful Americans if we can’t tell people who behave in a way that’s so fundamentally un-American, “Thanks for the offer but that’s not how we do it here in the USA.”


PS – Like anyone who has invested for a decade in tech I’ve got many conflicts, so many that I don’t even know them all! Some of my closest collaborators probably have Saudi funds, and I’m sure many of my portfolio companies who are talking to Masayoshi Son will read this and — in the short term — not be pleased with me for potentially screwing up a deal or two. If that’s the case, let’s talk it out and figure out how to get you funded without compromising who we are.

The Valuation vs. Traction Matrix

Early-stage valuations for startups are hard to understand because typically there is very little traction or data to go on in the first year or two of a startup.

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Startup valuations are not science, but they’re not magic either. It’s a bit of alchemy, combined with bizarre marketplace dynamics like famous founders getting 3x the price for half the traction, or Y Combinator hosting a gigantic demo day in order to create FOMO with novice investors who are explicitly told not to think things through and just cut a big check (literally, that’s their bad advice to investors).

The chart above, a work in progress, is called “The Valuation vs. Traction Matrix” and it pivots on two variables: traction (aka “stage”) vs. valuation.

I started the valuation at the basic valuation we tend to see in technology startups, which is $1-2m and go up to the eye-popping $12m (which is actually not the peak, just the highest end of normal).

When you have just an idea or mockup, you are likely to do a “friends and family” round in the $1m range.

If you have an MVP or unpaid pilots, you might get some angels or seed funds involved.

When you get to paid pilots or revenue, then you are most likely to get seed funds and syndicates involved, after which the VCs start buzzing around. VCs invest, on average, when you have $2-3m in revenue these days (they might engage you in discussions a lot earlier, obviously).

Above the green line tends to be less value and below the line is more value.

As you can see, I try to operate just below the line with two of my investment vehicles, the LAUNCH Accelerator and TheSyndicate.com. We do this by finding startups that are not in Silicon Valley AND that have customers paying them.

The green line in this chart approximates the average startup. I would say that most startups in the United States would go along this trajectory unless one of four things happens:

  1. You have a famous and successful founder, which gets you 3x the valuation for 90% less work.
  2. You create a marketplace where many investors are competing for an allocation, which is the double-edged sword that the demo day FOMO device is designed to create.
  3. Your engagement or product is otherworldly.
  4. You find the dumb money which doesn’t understand that you can invest in two or three startups — with the exact same traction — for the price of one overpriced startup.

We see number four all the time when a founder tells you not to worry about the valuation of $18m because it will all work out when they’re a unicorn, which is true, but this assumes you don’t have better deals you can prioritize.

In our case, we typically have so many opportunities that we can place three $6m bets in startups that are just as good (or better) than the founder demanding $18m.

The Danger for Founders

This is the danger of founders overoptimizing for valuation early, which is, they drive away the smart money and open up the floor for dumb money. The other well-known phenomenon is that a founder who succeeds at getting a massively high-valuation early on might raise too little money in a “party round.”

In this scenario, a founder might raise $1m at a $20m valuation, only diluting 5%. If they are burning $75,000 a month they then have about a year to build a company worth $20m. To be worth $20m for a SaaS or consumer subscription product, that would be around $100-200,000 a month in revenue.

It’s possible for a founder to do this, but it’s not probable. What happens if they don’t get to $150,000 a month in revenue to justify the previous $20m cap? One of three things:

  1. They lower the valuation and do a down round.
  2. They get bridge funding from their existing investors.
  3. They shut down or sell the company.    

If the same founder raised $1m at a $5m valuation, they would only need to hit $25-50k in monthly revenue to get a round done at ~$10m.


When a founder goes to an accelerator like LAUNCH, Techstars or YC they have a ~$2m valuation, which is a function of accelerators getting half their equity for cash ($100-150k) and the other half for running a program. Accelerators are a great deal for investors, but they require massive work. You need to have a large, full-time staff, space and a massive interview process to run an at-scale accelerator, which I think costs most programs ~$25-100k per startup.

If you add the operational cost back, an accelerator is likely investing on a $3-4m valuation. Still a good deal, but it’s 100x the work of a solo angel investor and 50x the work of a seed fund.

I suggest new angel investors and seed funds do their first 25 deals in the space to the right of unpaid pilots, in the area in the green box below. In this box you can pay above or below the line, knowing that you’ve eliminated the founders who can’t get to some basic level of product/market fit because it’s very hard to fake paying customers.

You should absolutely avoid Investing in the red box, where founders are looking for really high valuations for their ideas, mockups or MVPs. If you’re going to take on the risk in the idea and pre-traction phase, the yellow box, you at least want to get three or four swings at bat for the price of startups in the product/market fit phase.

So, if you invested $100k for a $10m startup with $750k in yearly revenue in the green box, I could see you investing $25,000 into four ~$2-3M startups.

Angel University

We will be discussing this important topic and more at the Angel.University tour, which is making the following stops:

  • April 19: Washington, DC (hosted by Riverbend Capital)
  • April 23: Boston, MA
  • April 24: New York City (supported by EquityZen)
  • April 26: Columbus, OH (hosted by WillowWorks)
  • April 29: Miami, FL
  • June 17: Sydney, Australia
  • July 15: San Francisco

The AU course is four hours followed by a dinner. Look forward to seeing you at this highly interactive course, which is worth attending if you’ve done zero or over 100 investments.  

How to become an analyst at a venture capital firm (hint: apply now)

We’re looking for an analyst to work at LAUNCH to help us sort through the dozens of applications that come in a day for Founder.University, LAUNCH Accelerator, Jason’s Syndicate and our events (SCALE, LAUNCH Festival, Angel Summit).

The analyst position a venture firm is considered the best way to break into investing, but that’s not true. The best ways to break into investing — in order — are:

  1. Make a huge amount of money and start your own firm (see Chamath)
  2. Be part of taking a company public (or selling it) for a huge return, which will result in you being invited to join a major venture capital firm (see Roelof Botha of PayPal or Alfred Lin of Zappos, both recruited to Sequoia Capital).
  3. Be the growth person at a top startup (see Josh Elman of Greylock)
  4. Go to Stanford or HBS (in the old days)
  5. Be a world-class journalist (OM, MG)

An analyst is a very hard gig to get, but they do come up once and a while.

Since I came into the game and made my own lane, I’m looking for someone like me: a writer.

Why a writer?

Because writers spend every day trying to cut through the bullshit that is thrown at them by CEOs and PR firms, to give their readers the truth (or at least that’s what journalists used to do). 

Also, I’m planning on having this writer not only send me coverage of 20 startups a week, I want them to publish one overview a day to the launchticker.com. 

If you’re interested in this gig, here’s the link to apply. We are looking for someone for our Toronto or San Francisco office but would consider a remote team member if they were exceptional.