Will Peng is a former venture capitalist, now an active entrepreneur working on a finance technology product that aims to build financial independence for middle class Americans. He also maintains a wide range of interests in his own writings and creative pursuits at williampeng.com. We connected one morning at Black Sands over coffee and explored topics ranging from the tech sector in the Bay, photography, finance and more.
We connected thru Bin Chen of Boba Guys, YMFY, and my bar Black Sands, and later when I stumbled upon your blog, I was intrigued by the variety of topics you covered, ranging across everything from finance, product design, music and technology. It was refreshing that, as someone in technology, that you have a deeper broad base of interests. I think a lot of the animosity currently in the Bay Area against the tech sector in particular and newer influx of residents to San Francisco is the lack of depth and interests in the arts, music, life, improvement they might superficially demonstrate. The more we talked it was apparent how broad and deep some of your interests are.
Bin and I hit it off when we first met because of our hobbies and interests. We found that we both love Fuji cameras and photography. We both love the intangible quality and warmth of the pictures they make. We met through a mutual friend in New York, and we ended up just walking around shooting photos and realizing that we were in many ways similar.
Back to your original point about that feeling of tension you described between tech and SF. While I was a venture capitalist, I found that the best ideas were also the most intellectually interesting ones. I frequently found that the best ideas arise from the collision of seemingly unrelated ideas and concepts. It was incredibly rewarding, but when it came time to raise another fund, it just felt like it was time for me to return to my roots of designing and building.
What type of design practice did you have? Graphic, Industrial, Commercial?”
Mostly digital product design. I taught myself how to design on early versions of Photoshop in middle school. I would design avatars for people on online forums, web rings, and Geocities. That’s how I got my start. It was just a hobby.
So how long have you been in San Francisco?
Year and half.
I was here for the first tech bubble and through the crash. After the crash, all my friends who continued working in tech were really passionate about their work. I think the animosity now is a result of people gravitating to the sector since it’s the “hot” one, and maybe there is a lack of passion and authenticity. I don’t think anyone is really against tech for say, for instance if you are passionate engineer building robots just like a musician practices. I think San Franciscans and that barista you encountered are disenchanted with the lack of authenticity maybe in the newcomers working in tech and their aura of being obvious at times. The tension arises when people just enter the sector because it’s well paying and it’s the “hot” sector. I think that problem also arise from the sharing economy leading to potentially unforeseen consequences. It is interesting to me that even you who is part of the technology world is nervous about the cultural it’s encouraging.
Yea, I feel similarly, that I find that too many people in this industry are more interested in gossiping about others, rather than working on things they are passionate about, and finding people who share those passions. Eleanor Roosevelt said something like, “Great minds discuss ideas; average minds discuss events; small minds discuss people.”
I think that sometimes I feel like San Francisco has become a bit too one-dimensional. It’s a little disappointing that tech has so much potential across different diverse industries, but in many ways, has become a one-dimensional industry. People are motivated by the wrong things. It annoys me when I meet some people and all they want to talk about is other people: who they know, who they claim to know, who just raised money for their company, whose friend’s company sold their company, whose tech celebrity raised money, that sort of thing.
At a group dinner last week, I was disappointed when it resulted in just gossiping about people at their office instead of actual discussion on interesting topics. I’d rather talk about how technology for example changes the way people engage with cities.
So how are you addressing that tension?
I think we all have limited time, and that we are the average of the 5 people we spend the most time with. So being aware and deliberate of who those 5 people are. I’ve also enjoyed actively seeking conversations in smaller groups, and sometimes with strangers and welcoming ideas that differ from mine, instead of going to large un-deliberate events.
One example is with photography. Some Instagram meet-ups turn me off because so many people show up, and they feel more like an awkward gathering of people who hope that they’ll get more followers out of it. I would much rather go shooting with 1 or 2 other people, and really discuss our work; shoot together and share ideas on how to improve. A few weeks ago I shot a terrible portrait and I talked to Bin about ways to improve it and that really helped. I definitely think there are parallels with this approach in tech.
RAP. I think it’s awesome that you are trying to go deeper into things, and I think it’s also important to be well rounded, to have a lot of hobbies and interests and have a lot of interests to find those “collisions” for new ideas. Jumping back - tell me more about the fund you managed?
WP Sure, it was a small seed fund, and we had a sort of unconventional setup. I managed the fund with three partners, all whom were active CEOs of other their own startups. Our last fund was a $10 million fund investing an average of $250k into startups. One of my partners was Andy Dunn of Bonobos – it was refreshing to invest alongside people actively building their own companies. It was definitely a different lens than that of a traditional venture firm.
Isn’t the traditional VC path like that, successful entrepreneurs graduating to investing since they are supposed to be able to have some eye for it?
Not always. Traditionally there were very few operator VCs; there were a lot of “lifer” VCs. But that trend is moving in the other direction. I personally think it’s incredibly valuable to have operating experience as a VC, and now as a founder, I think it’s a big advantage when choosing which investors to work with.
Could you tell me about how you guys evaluated opportunities at Red Swan? Did you guys vote on the options, sort of like pitching interest to the others?
Yeah, so each firm has their own different process, what works best for their partnership dynamic. What worked for us was that we had an internal rating system from 1 to 7 where 6 or 7 was a “yes.” This was valuable because it calibrated our comments to each other. For example, someone who is pessimistic and thorough in their diligence could still be excited at the end of their diligence.
We only required that 2 of the 4 partners would say yes because we believed that at such an early stage of investing, the controversial investments would turn out to be the better ones. If we tried to satisfy the requirements of all 4 partners, we would end up investing in boring companies that reverted to an average.
We called our evaluation system MATE, the four characteristics for the entrepreneurs we were interested in investing in: Magnetism, Authenticity, Tenacity, ability to Evolve, (MATE). Those are interesting to us because the first two qualities pull against each other, and the last two as well.
Magnetism is the unquantifiable charisma and ability to motivate others to join you on their irrational entrepreneurial quest. A lot of that comes from that idea of Authenticity – people are attracted to that someone who is doing something because of the mission, someone who has fallen in love with the problem rather than the solution.
So with the MATE protocol you can evaluate the entrepreneur? Is this the same way you evaluate the opportunity or solution they are providing?
The hard thing about early stage investing is that it’s an art, not a science. There is a tension between the investors who say they invest in really great people and others who invest in the idea. I think we would prefer to invest in a really great person with a crappy idea, than an great idea with a crappy entrepreneur. The idea usually changes and evolves anyway, so it’s not that useful for us to fall back on evaluating the idea only. I’ve seen that cognitive basis when I’ve seen investors invest in a good idea with a terrible leader.
True, but in my entrepreneurial experience, one can usually change the founder if the idea is good. Not necessarily is the founder the executor of the idea. What do you think?
I think at the size of the companies and stage we were investing in, it’s really the T + E that matter most. The Tenacity and the Evolution. It’s a strange combination of skills where someone has to be lincredibly sure of their ideas and ferocious but at the same time be able to adapt. So the arrogance of the tenacity and humbleness of ability to evolve is always in tension in the most successful entrepreneurs.
How many investments did you guys do in the last round? Curious if the fund has been successful to your goals?
We did 35 investments. and while it’s too early to tell, on paper it looks like the fund is doing well.
Last on the VC topics, there are so many strategies for pitching. I’m curious what advice you would give a fledgling new startup or venture. What is your number one letter from your MATE program that entrepreneurs should focus on?
I think for early stage ventures, I think the most important element is authenticity, and that’s closely tied to tenacity. The only good reason to start a company is because you’ve fallen in love with the problem, not the solution. If you fall in love the problem, then that will drive you. If you fall in love with the solution, as soon as you hit a roadblock, you’ll be lost. If you fall in love with the problem, that will serve as your north star. It leads to tenacity.
You’ve left the VC world now, tell me more your new venture?
Sure, let me start by describing the problem, something that affects people nationally. The problem is that the many middle class Americans are actually very financially fragile. Outwardly they seem ok, but are just one major emergency away from going broke. There’s a crazy statistic that half of middle class Americans can’t afford $400 dollars in an emergency. There are multiple trends reasons explaining for this problem. The reality is that people are financially illiterate, it’s hard to find the right answers let alone personalize them to their personal situation, and even more difficult to motivate people to save. If we can solve this problem, it’s an important cornerstone of people’s lives.
So how are you going to solve this problem?
We’re still very early, and in the stage of exploring the problem deeply. We do know that we want to build a product that makes people proud of their money, which is very rare these days. Most people are ashamed of their money. We want people to feel peace of mind and confidence when using our product, no matter what life throws at them.
We also have a pretty strong opinion about budgeting tools. We are staying away from building another budgeting tool because they feel like a lot of work, and oftentimes they make you feel bad each time you spend money.
We do know that there are some socioeconomic indicators that we want to improve if we do our job successfully. We want people to increase their savings rates, their ability to stand on their own two feet, build financial independence and confidence, escape and avoid the negative debt cycles and reliance on high interest loans, and increase their net worth.
We’re exploring the problem by talking to hundreds of people and understanding how they deal with it. It’s been interesting hearing different people’s needs depending on their situation. It’s been surprising that some people we thought were more financially stable are actually not. Like in that Atlantic article, there is definitely a secret shame of middle class Americans. Like I said before, we want to reverse that and make people proud of their money.
Bringing it back around, sometimes in the technology sector, people might solve one problem but create another problem. For example Airbnb solves one problem regarding slack of usage in empty space, while others may argue they are extrapolating the housing situation in cities by removing housing stock or displacing people. I’m curious if you are working in your problem that deals with financial instability how are you going to mitigate the downsides of creating more repercussions of your solution?
I think it’s hard to anticipate the repercussions, but as long as we stay true to our mission and put our customers first, we will do everything it takes to achieve that. This is also why I think the E in the MATE acronym, the ability to evolve, is so important. It will be how we respond to repercussions that define our company. I think listening is so important, maybe it’s so cliche. Not enough people do it, and it’s super important.
Agreed, I think it’s almost Zen. If the entrepreneurs can be more aware of their effects both positive and negative then hopefully can lead to a middle path to solve the problem while consciously adapting it.
More William Peng @ WilliamPeng.com