Silicon Valley is a land of contradictions. How else do you account for an ecosystem of angel investors, startup founders, and deep-pocketed venture capitalists selfishly working together for the greater good?
Zach Coelius has played significant roles as a founder and super angel; and more recently, as a result of sensing the hidden value inside Cruise Automation, a unicorn hunter. He also understands how rough the startup game really is, and approaches his portfolio duties with the experienced eye of one who has been there, done that.
In his interview below, Zach pulls the curtain apart for those who want a glimpse as to how things really work inside tech’s early stage arena. (in full disclosure, I am a member of Zach’s angel syndicate).
Jeff Cunningham: your sister was your cofounder at Triggit, the adtech startup you nicely exited in 2015. Are two genders better than one?
Zach Coelius: Based on our track record, no question. In fact, Triggit was the fourth company that Sue and I started. We have an unusual collaboration, I know what she’s good at and she knows all of the many things I’m terrible at.
So you got along like…brother and sister?
For the first few years, we thought our job was yelling at each other.
Before we get into your billion dollar unicorn, Cruise Automation, what is the biggest surprise startup founders need to know about?
That being an entrepreneur is like meeting Mike Tyson in a dark alley and he’s got a left hook in one hand and an ice cream cone in the other. Only you never know which one’s going to hit you in the mouth.
What about the stories that sound like it’s the road to fame and riches?
The media loves that meme because they want the clicks and the shares, but the truth is the average reporter is writing from the finish line. Reality is more like one day you’re crushing it, the world is yours and you’re going to be worth a billion dollars. Then your biggest customer calls and fires you and you’re running to the bathroom.
So, we’re talking ‘founder mood disorder’?
Major league. In the early days, those swings are intraday. It’s crazy. Then as the company matures, they don’t go away but the arcs get longer. You can be elated for months and depressed for months or it can be years.
In my experience, being a founder is the only job that gets harder as you get better at it.
This may sound naive, but why is it so hard to launch?
You’re trying to convince people where you see the world going, to invest in you, and to give up whatever they’re doing and join you. But you’re starting from zero.
So that’s the hard part?
No, that’s the fun part. The reason it’s so hard is that now you have to build something that people actually want to buy. Then, as you are building, smart people are telling you this is exactly what they need and then they go, “Oh, I actually meant I wanted this other thing.”
Call it “founder’s dilemma?”
Yes, because even if you build it they may not come and if they come, now you have to keep building it and suddenly they might stop coming. What I mean is that if you’re lucky you get to the point where people actually use your product, now your company scales quickly and you go from 5 people to 500 to 5000. You need a new vision that takes into account Wall Street and one hundred other variables like losing a key employee to your competitor every day. In my experience, it is the only job that gets harder as you get better at it.
Running a startup company is like jumping on a rocket ship until it smears you against your wall of incompetence.
Are you saying you can’t escape by being good?
There are consequences that are very, very real. Imagine having a thousand employees where you close a factory and lay off half of a small town. You know that town is literally going to become the next opioid addiction center. That’s incredible stress.
What about iconic founders, Brin and Page at Google or Musk at Tesla, do they have the same problem?
All founders soon realize there aren’t any easy days on the calendar. Running a startup is like jumping on a rocket ship flying at the fastest speed possible until it smears you against your wall of incompetence. It doesn’t matter how good you are. As great an entrepreneur as Elon Musk is, he nearly went bankrupt when he started Tesla. His wall of incompetence is a lot higher than mine, but wherever your incompetence resides, that’s where the wall finds you.
My due diligence is called brainstorming. At the stage I invest, there are no spreadsheets.
What was your first thought the day after you sold your company?
It wasn’t even the next day, it was literally the day it happened. It was like a curtain dropped and it was the most surreal experience where I was like, “oh my God.” I’ve had to rebuild everything in terms of how I think about myself and how I think about the world, and what’s important to me, and what I focus on. It’s been a very challenging process to sort of re-understand what makes me happy, what I enjoy doing, what I don’t like doing.
You’re a super angel with a knack for investing in great startups. What’s your secret?
I have been in Silicon Valley for over 12 years and have thousands of friends out here who are doing really cool stuff. All of the companies I’ve invested in have come through that network.
So even in angel investing there’s a network effect?
Silicon Valley looks techie and sophisticated to the outside. But the reality is it’s a community of artisans starting up small businesses who all pay it forward. I mean, everybody helps everybody because nobody knows who’s the next Zuckerberg or who’s going to build the next Google, and since theoretically anyone can, everyone is helpful. If you’re not helpful, you aren’t going very far.
I look around for rockets aimed at planets that haven’t yet been named.
What kind of due diligence do you do?
My due diligence is called brainstorming. At the stage I invest, there are no spreadsheets. The first thing I’m trying to do with the entrepreneur is to break the ‘us vs. them’ mentality and dig into the interesting parts of the business, and where it’s going to go, and where the opportunity is. My process is to sit down with the founders and instead of having them pitch me, I’m really just like, “Let’s brainstorm about where they can go and what they could do, and problems that I anticipate, people that I know and can introduce them to.”
Sounds like you are a “unicorn whisperer?”
That is so weird, dude.
I rather like it. So what’s the sign that one of your foundlings is going to take off?
I look around for rockets aimed at planets that haven’t been named yet. The great thing about early stage is to try to identify two parallel forces, companies that are new and becoming hot — and those that are going into emerging space that is becoming hot. If there are already 20 competitors in the market and there’s a hot company, that’s not my game. I’m trying to find markets that people haven’t figured out.
Have you figured out why founders let their startups run out of money?
The short answer is that if you’re not running out of money you’re going too slow. At one point, we were down to $5,000 in the bank at Triggit, and we owed Google a quarter of a million dollars four days later. We got really lucky. It was scary. You can hit that wall.
But I thought it was the boss’s job to stay liquid?
The nature of investors is they want all problems solved, 90 percent growth margins, and EBITDA profitable before you get started, and low valuations. But on the other side, the entrepreneur is saying, “I’ve gotta go close this customer. I’ve gotta build this product. I’ve gotta launch this thing,” and they put their head down and go. Unfortunately, that job is so hard that oftentimes they miscalculate the timing. Look at Elon Musk. He almost went bankrupt with both Tesla and SpaceX. One of the greatest successes in modern history and the thing was dead so many times.
I knew what Cruise Automation was into and I don’t think there’s a more substantial change to our economy.
How did you discover the Cruise Automation deal, the autonomy startup acquired by GM last year for over a billion dollars?
In the case of Cruise, what was super-compelling for me was when the founder and CEO, Kyle Vogt, told me about how much frustration the engineers were feeling. The old school incumbents like the automotive companies were not executing. He saw a disruption opportunity and went to the engineers and was like, “Hey guys, we’re going to move at start up speed and I will give you an opportunity to bring this to market before anyone else.”
How did it change people’s perception of you?
Cruise created a validation for what I do that unlocked things in an awesome way.
How did the deal come about?
I’ve tried to hire Kyle for many years but the timing was never right, so I was looking for a chance to work with him. I knew what Cruise was into and I don’t think there’s a more substantial change to our economy in the next ten years than autonomous driving. So Kyle and I had lunch.
If there’s a metric that appeals to me, it’s people saying Google’s going to crush you.
What was the biggest thing to come out of that lunch?
Outside of Google and some of the big car companies, nobody was working on this problem. What I loved was that Kyle was willing to dive into it where it wasn’t hot yet, where nobody really understood it, so a lot of people are like, “What? You’re going to do what? No, you’re crazy, Google’s going to win that space.”
If there’s a metric that appeals to me, it’s people saying Google’s going to crush you. The reason isn’t that it’s wrong, it’s just that if you can move at startup speed you will be there before they think about it.
Why do so many otherwise smart people make this mistake?
When there’s a big hard problem and everyone’s like oh, big company X is going to win that, conventional wisdom says to stay away. But I learned this lesson when Uber was first starting and I told Travis Kalanick, “look, dude, I hope to God you succeed but the taxis are going to screw you, you’re not going to make it.” That was an important epiphany for me. Now, when I see a startup that can solve a problem that people think is unsolvable, my ears perk up.
Were you surprised GM did the deal with Cruise?
GM knocked on Cruise’s door looking for a strategic investment. The numbers were so good that they caused GM to be like, “Oh my God, this is big. These guys might get there. We need to own this.”
You had already made an investment through your AngelList Syndicate well before the GM talks started, so were you aware of what was happening?
Kyle was at my house having dinner the week before it was announced, and at the end of the dinner we had a few bottles of wine, we were having fun, it was just hang around and relax and he was like, “Hey everything is cool.” I remember I was literally washing dishes and I was like, okay,” and that was it. A week later one of my backers texted me and at seven in the morning, “Hey, what’s up with Cruise?” I went to Google and it was “oh my God”, so it was a complete surprise.
No one will say this outright, but the real problem is that boards of directors just don’t know enough.
Should angel investors serve on boards when they invest?
I’ve turned them down because I want the founder to be able to call me when they feel good and when they feel bad. Whereas, when you’re on the board, the founder has to modulate how he comes across.
Why can’t board directors brainstorm as you do?
No one will say this outright, but the real problem is that boards of directors just don’t know enough. Because they only get to see a small slice of your business, you have to guide them into understanding the right things.
What is the one thing a founder does that really matters?
I would say ‘manic’ focus. The thing about being an entrepreneur that’s so tough is that in order to break through these walls, you just have to get really super-crazy focused. Everything basically just hardens around the tip of your spear to get through that wall. But the problem with that focus is that everything in your personal life becomes a blur and is subordinated to that one thing you care about, which is solving that one problem that’s going to keep the company alive.
How do you handle it when a CEO loses perspective?
Sometimes my role is to remind them of the things they’re not paying attention to. Sometimes, it’s about the future. Sometimes, I’m like, “Look, you’re making a stupid mistake. Stop it.” and they get all surprised, and then they’re like, “Oh, maybe I am.”
Because you ran an adtech startup, I was wondering what your thoughts are on digital vs. traditional media?
To me, it’s an incredibly scary thing. If you look at the echo chamber that we live in, and how media that provides confirmation bias just surrounds us, and how the tendency with media to run things that get a lot of page views, but don’t actually generate a lot of value, I’m very worried about that.
We’re moving to a world where every user will see an ad targeted to them, designed for them, and measured back to what they buy. That is not something that the ad agency world understands.
Where does the media business model go?
The business model’s a different question. The transition for media is non-trivial. I mean, newspapers and magazines that used to have local monopolies where you had to buy their newspaper if you wanted the news, and they all basically published the same stuff, they all published the same AP wire, and they had some local news, as far as I’m concerned are dead. I have not ever invested in the publishing business.
Is the ad agency side any better equipped to handle disruption?
I think ad agencies reflected a business model where you had consolidated ad buyers buying from consolidated media entities and running the same ads to the same people across the entire world, and that business model is dead.
We’ve moved from a world where, as an ad agency, your strategic strength came from the number of dollars that you were able to aggregate through your holding companies. Dollars and scale were the strategic differentiators, to a world where data and technology are everything, because we’re moving to a world where every user will see an ad targeted to them, designed for them, and measured back to what they buy. That personalization is not something that the old school agency world understands, and honestly, the new agency world, in my opinion, doesn’t understand either.
What is your outlook for Facebook and Google as ad revenue super novas?
Facebook and Google are the hegemons of our time, and they’ve got the talent, the technology, the people, the scale, the data. They’re not going away at any time and in fact, they are going to get bigger than they are now.
I’m blessed to be able to be part of this whole experience. It’s a Renaissance that’s happening. Everything is up for grabs and the rules are being rewritten.
Do we have too many startups today?
I think that the industry’s growing, it’s growing quickly but there are so many problems that we need to solve that technology companies are uniquely suited to go after.
Thoughts on the life you’ve chosen?
We had a dinner last night and so 40 of us got together and just drank good wine and ate good food, and shared war stories. People going through wild stuff, in both directions, up and down, amazing successes, and amazing failures, and betrayals by big companies, and all sorts of good and bad things.
I’m blessed to be able to be part of this whole experience. It’s a Renaissance that’s happening. Everything is up for grabs and the rules are being rewritten. We are literally changing the world, or people are, and being part of that is just super cool.