Outside the Norm — Founding Partner of Outside VC Ethan Austin

Fred Schonenberg

Hello everyone and welcome to the VentureFuel Visionaries podcast. I'm your host Fred Schoenberg. I am really excited today to welcome Ethan Austin. Ethan is a seasoned entrepreneur, venture capitalist, and advocate for financial inclusion. He is the founding partner of Outside VC, which is a pre-seed venture fund dedicated to backing outsider founders, building startups that aim to uplift 100 million people into the middle class. 

Before OutsideVC, Ethan co-founded GiveForward, the world's first medical crowdfunding platform, which raised over $ 200 million to help families cover medical expenses, and which was later acquired by GoFundMe. Today, Ethan's going to share some insights on building equitable financial systems, supporting transformative founders, and what it truly means to be founder friendly. So without further ado, please join me in welcoming Ethan to the show. Ethan, it's great to have you.

Ethan Austin

Thanks for having me, Fred. That was a great intro. Thank you.

Fred Schonenberg

Thank you. It was well written by someone. It's always hard to kind of figure out how to take somebody's career that has done so many interesting things and make it succinct. But I would love to get a little bit of your background, your journey from being a founder to bringing you into OutsideVC. Can you give us a little snapshot beyond that intro?

Ethan Austin

Yeah, I feel like I'd be a better fundraiser if I could boil things down into that intro than you just did for me. Yeah, I was a founder for a long time. I still think of myself as a founder. It is the truth. I'll be an investor as long as I have been a founder in about one year. And I'll always think of myself as a founder, more so than an investor. 

So I was a founder for eight years. We started this company, GiveForward. And it was 2008, we called it peer-to-peer fundraising. And we were raising money for people for all different causes. And within a year, what we realized was that the thing that people needed the most was people raising money for their loved ones medical expenses. We went all in on that one category, it turned out to be the right category, then that being 50% of all non-equity crowdfunding ended up being medical expenses. And so we kind of picked this right category and just own that category. Because instead of trying to compete with everything, we kind of own that category. 

When we started, there really weren't a lot of crowdfunding platforms. We called it peer-to-peer fundraising. Crowdfunding wasn't a word. And we were starting something that new. It was us, Indiegogo launched that same year, then Kickstarter launched the next year, then GoFundMe launched the next year. In five years, there were about a thousand of them. And so it was crazy, yeah. So owning that category helped us stand out in a field that became very, very competitive. And in all the technology, there was nothing proprietary about any of the technology that we owned. And so like positioning ourselves and finding out what mattered to people and where we were going with our message ended up being the key to our ability to kind of grow that space.

Fred Schonenberg

It's so interesting. We have this conversation all the time about whether somebody has a true white space opportunity, which seems harder and harder. And it seems more so that you have people that are entering fields where there will be multiple competitors. And oftentimes it's that clarity of thought and positioning, both internally and externally of like, this is the thing that we are uniquely going to do. How did you refine that? Was it just so evident or what enabled you to make that pivot where maybe somebody else didn't?

Ethan Austin

Yeah, I call it, the word pivot didn't exist yet. It was before Eric Reese, we didn't even know we were pivoting. We just knew what we were doing wasn't working. So we started off as like 30 different categories, raise money for anything. And we thought nonprofits would be our biggest users, but nonprofits were kind of already used to enterprise grade software around fundraising. And so when they'd used us and we were two people, we hired a dev shop to build it. It was pretty broken at first. And the software wasn't good. And it was glitchy. They would tell us how much we sucked all the time. And we were so poor. And they'd be like, can you waive your fees? This didn't work and this didn't work. We're like, we're so poor, please don't make us waive our fees. 

And then on the other hand, we had a few people use it for personal reasons. And those people were telling us they loved us. And they were saying things like, we don't know what we would have done without you. This saved my brother's life. And it doesn't take many of those. We didn't have many. We had maybe two or three within the first nine months. It wasn't a lot, but you have just a few data points. I think as an entrepreneur, you're making decisions like scan amounts of data. And we saw how meaningful it was to those people who would say things like, hey, I live in Milwaukee, but we used to send out checks to people because we couldn't just deposit money into people's bank accounts back then.

We'd send them checks in the mail and they'd say, can we just come to the office to pick up the check? I want to give you guys a hug. And when you hear things like that, and then you hear the nonprofits telling you like, man, you guys suck really bad. And you're like, yeah, we kind of do. We know we do. But these other people, the need was just so great that it was hard to ignore. And it took us a year still to pivot because you're giving up an idea of what you think you were building into realizing what is important to people. And it's hard to do that. And it took us a year to really pivot and own it. But once we did, that's when things started to take off.

Fred Schonenberg

So I want to come back to this, because I think it's very interesting to think about this as an investor. But how do you go from that experience into Outside VC? And maybe can you give a little background on Outside VC? 

Ethan Austin

Yeah, that came about in a kind of random way. You said at the beginning, we sold to GoFundMe. And that's technically true. But what really happened is, towards the end of what we were doing, Facebook killed us. Facebook came in. And after eight years, we got all of our traffic from Facebook. And Facebook decided they're going to do the same thing. They recruited me and a couple other people on the team to try and come in and be the first product managers for their impact team in 2015. And they said, hey, you can come build out all of our impact products. 

One of the impact products they wanted to build out was our product. And they said, basically, we come and build this product for us. And they wouldn't buy our company, but they killed all our traffic. We lost 75% of our revenue within nine months after building for eight years. It was a brutal, brutal ending. We thought we were going to get acquired by one of our strategic investors. And it was a brutal cliff ending. I was telling all of our investors what was happening.

And one of our investors was this guy, David Cohen, the founder of Techstars. And he said, would you ever come and work for Techstars? You know, I said, I don't know, David. I'm going to go to South America and climb mountains and clear my head and just go travel with my wife and just backpack around and do that. And I'm certainly not going to Facebook to do that. I don't know what I'm going to do. And I came back from South America, and we landed in LA, where my family was at. And they were launching Techstars LA. I got a call from Techstars and said, hey, would you be interested in doing this? And so it was really just lucky timing. And I didn't know if I had the ability to be an investor.

At the time, I'd only made one angel investment. And it was into my old co-founder's company, Next Company. And one of my angel investors, a guy, Jason Seitz, who ended up joining Techstars as their chief investment officer, gave me some great advice. And he said, look, Ethan, you were really good at hiring people at GoodForward. I was like, yeah, that's true. He's like, at the pre-seed stage or at the accelerator stage, you're just hiring founders. You're looking for incredibly talented people. Everything's so early. You're not betting on companies. You're betting on people. And that gave me the confidence to kind of become an investor. 

So we launched Techstars LA in 2017. In 2019, I got a chance to move out to Denver to launch the Techstars Western Union program. And from there, we carried on the thesis, which was around financial inclusion and access to better financial services. We started Outside VC in 2022. So what we invest in now in 2022 is we're investing in outsider founders. We think outsider founders give you the best chance of building outlier companies. If you look at the top 10 companies by market share, market capitalization in the world, I think six of them were built by outsiders.

Fred Schonenberg

Sorry, just real quick, what is an outsider?

Ethan Austin

So I let people define it their own way. I don't have anything that is clearly defined on what an outsider is, but there's certain categories that are clear. So immigrants are clear outsiders. Immigrants make up 14% of our population. And over the last 20 odd years, 44% of the unicorns were started by immigrants. And so that's just an easy one. But my co-founder, she is an outsider. When we started to give her, she was an immigrant. She went to Yale. She came from Costa Rica. She was a woman and she came from a nonprofit space. She didn't come from tech.

I feel like I was an outsider when we started this in 2008. I came straight from law school with zero, zero, zero work experience, like nothing straight from law school. We started this company at a time in tech when everyone, if you were in tech, you had to be technical. So no one wanted to back us then because like we bootstrapped for three years basically before anyone saw this weird idea that we were doing had any traction. And so it's really the way I look at it is we're trying to find these brilliant founders, these people who are really, really talented and smart and under-networked within tech. And people aren't giving them the time of day because maybe they didn't, you know, go to a top school or work at the right place, but they have these brilliant ideas. And maybe they don't have experience in their space, but they have asymmetric insights because of their lived experience. 

And so like, I'll give an example of like, you know, we have a company in our portfolio. The founder is a Russian immigrant. He started and ran or was the chief investment officer in his twenties for an $11 billion hedge fund in Russia. Clearly like a very smart person. And yet when he came to the United States, he knew no one. And so like there was not a shortage of talent. There was just, he was just under-networked. And so there's almost this founder arbitrage of finding these brilliant people that just don't have the right connections to get something going. And so we bridge that for them by taking them when I say from the outside track and putting them on the inside track.

Fred Schonenberg

Yeah. It's so interesting. I love the under-networked and it's almost, you're taking the outsiders and making them the insiders. How do you find outsiders if one of their key characteristics is being under-networked? They're gonna be harder for you to find.

Ethan Austin

They are hard to find. Right. And I think the key here is I think okay VCs, they source through networks, right? Like every VC has a good network. And I think that's critical. You have to have a good network. You have to activate your network, which is even harder, which I don't think everyone's good at doing. But I think the best VCs, if you think of the best in the world, you think of the Sequoias of the world or the recent Horowitz or like a YC or something along those lines, right? Why do they attract the best founders? It's a brand. And you can do two things. I think one, you can have a brand built on success.

The Sequoia is built on 50 years of success and success begets success. And if you're trying to start something new, you can't really fast forward 50 years. And so what you do is I'm doing the same thing I did at GiveForward, which is creating a category, planting a flag in the ground. And this is what we are. This is our point of view of the world. This is what we believe. Those who believe and identify as outsiders and think the same way find us because we're talking about it on social media. And we're talking about it on podcasts. We're putting our name out there and everything that we do as Outside VC, we talk about outsiders. And so those people raise their hands and come to us. I don't think you can do it through the network. You have to do it through pull versus push.

Fred Schonenberg

Yeah, it's crazy. Interesting. So let me ask you this. You mentioned that when you were thinking about getting into investing, the correlation was made because you were very good at hiring talent. And so at early stage investing, it's very much about the people versus maybe where the tech is or the product. Are there any characteristics that you found over time are important to look at as an investor to signal that maybe outlier potential or the arbitrage that you mentioned?

Ethan Austin

Yeah, I look for a few things. First of them, you know, I think this is true of outsiders in particular. One is they tend to have asymmetric insights into the world. And that's something based on their own experience in the world. So, you know, for example, this hedge fund manager saw this problem that he was facing in the hedge fund world. He didn't have experience in tech, but he's like, I need to solve this problem that I've experienced myself. And people's upbringing may be different. And the way they look at the world may be different. Everything that's happened to them, oftentimes before they're 20 years old, is kind of what shapes the worldview and like some of the things that they see. So I think everyone kind of comes out with a unique insight that like, I see something other people don't see. That's one thing I look for.

Like, the next trait, I think is like, really probably the most critical trait. And this isn't unique to outsiders. But I think outsiders have it in spades. It's just grit, right? You know, like, we stuck around for three years. Right. And I always say that the best thing you can do in a startup is just stay alive until you catch the wave. You know, the best thing we did was be cockroaches. So we launched in 2008. And really, Kickstarter launched the next year. And they helped really create and help educate the space. If it wasn't for Kickstarter, I don't think any of us as crowdfunding would have really taken off. 

We also happened to be right at the time when Facebook was taking off. We all rode the back of Facebook, because we got 80% of our traffic from Facebook. Facebook went from a couple hundred million to a billion users in the span of like four years. And we rode the back of Facebook. And so it was like, I think timing matters. And having the grit to stick around when nothing is right, and everyone's laughing at you. You seem like you're not obvious to most people at that time. That grit to stick around until you catch that wave or the timing, right? I think it matters a lot. Founders or outsiders, especially like immigrants who risk everything to come to a new country tend to have that in spades. So I look for people who run through walls.

And then the third thing is just like, people who do things differently. And I think this is, again, like outsiders just think about the world differently, they approach the world differently. And I think that is something you don't catch in a first meeting or a second meeting, you catch it in the way people approach and act during the process, and the way they run their own process. And like, are they doing things that just stand out? You're like, huh, I haven't seen other founders do things that way. 

When we were starting this company, we didn't have anything. I came from no work experience. And my co-founder came from just a nonprofit, we built most things new, just the way we thought on our own, like, you know, first principles. And we just did things differently than other people would have done them, in part, because we had no experience. And we didn't know how things were supposed to be done. But I think people do things and act differently than everyone else. I think those are the folks that tend to have unconventional returns, because they act in unconventional ways.

Fred Schonenberg

Yeah, it's crazy. Interesting, right? Like, I always when you look out at the BC landscape, and you see all these reports of, you know, how much is invested within the Stanford ecosystem, and like, they're just the obvious players. It always strikes me as such an anti VC thing to do, right? Like we're VC is supposed to be about venturing out into the unknown. And like these unconventional new solutions that maybe don't follow the status quo, like, that's the whole point. If you want to play it safe, like, go do mutual funds, right? Like, that's not what this game is supposed to be. So I love that. But it's something I've always thought about, one of the things I wanted to ask you. 

So when we were doing the research on you, the phrase came up that you have a very founder-friendly style. And I think founder-friendly is the most overused word in accelerators and investors, right? Everybody's founder-friendly, as long as they give them outsized gains really quickly. Talk to me about what founder-friendly means to you and why it is critical to how you operate. 

Ethan Austin

Yeah. Sure. I think that founder-friendly is a dumb, dumb phrase as well. I agree. It's just, it means completely meaningless. You know, and I asked my founders why, you know, we have a net promoter score of 97, which I'm really proud of. We've only had a few founders ever who've given us less than a 10. And like, we do this survey all the time, and it's anonymous. And so there's no reason or incentive for people to, you know, put anything less than be honest on it. So that's something I'm really proud of.

I had a friend once who was known as, I think, who is considered the smartest person in his Stanford GSB class to say, Ethan, you have the best founder testimonials I've ever seen. He's a VC. And I think the thing that is different, or like how I think about founder friendly, I don't actually think about that phrase, but like how I think about working with founders is the same thing I said in the beginning about like, I always think of myself as a founder, and I put everything on the line. And I'm, I just work my ass off for founders. Like, I don't think, and I'm definitely not smarter than most VCs. I know I'm not smarter than most VCs. I think I'm just willing to put it all out there for founders. And they say it over and over again, like, I'm not just responsive, but proactively go out to help them. And I think about them.

I think another thing that really matters to founders is, is they feel seen when they're with me. And I get them, I see them. And they, I tell them when they're, when their stuff's not working. I'm not always nice to them. And that's not right. I'm always nice to them. I'm not always telling them what they want to hear. And they'll tell me, you're one of the few people that's honest with us. We, and they listen because I, because I generally for like 80% of the time, I'm a cheerleader and I, I'm supportive because I know how hard that journey is.

And so I help them and I push them and I can, you know, cheer them on. When something isn't working, I'm just like, I don't pull any punches, but they listen because I've been supportive that whole time and they know I have their back. And I think those things, like if you're founder-friendly, I think of myself as a friend-vestor and friends, they tell you when you've got spinach in your teeth. So I try to be everyone's friend. And like my personal KPIs, how many weddings do I get invited to from my portfolio founders? I think of this, like the best part of this job is building these 20 year relationships with, you know, the privilege of working with these brilliant, you know, creative, smart, kind, wonderful people. And like, that's my KPI is like, how many of these weddings do I get invited to and build these long-term relationships? 

Fred Schonenberg

Yeah, I love that. It's very cool. We used to have a KPI internally that was, did our clients get promoted? And it was always like the mindset, right. In our case, working with large companies, it's like, how do you, how do you make sure that you are adding value to the person that is putting trust in you? Right. If they get promoted, then you're doing the right thing. You're making them look good. And it's not about, we got a renewal. Do we do the thing? Right. So it's a similar sort of like, at least vantage point on the world. 

So let me ask you this. I know we're running low on time. What piece of advice would you have for a founder? That's a very general question. Right. But like, I feel like, especially when you think about the word outsider right now, it is, it is a tough time to be an outsider. And some would argue it's a tough time to start a business though. I don't think there's ever a good or bad time to start a business, but what advice would you have for somebody that's just getting into this game? Maybe they have an idea, they're at an early stage. I'm going to leave it there. You could take this in so many different directions, but just take it where you'd like.

Ethan Austin

I'll give two. The first one I'll say is my co-founder had a magnet on her fridge that said leap and the net will appear. And I think I had the same idea that she had, and we got hooked up by a mutual friend. I wasn't going to start the company because I was too much of a weenie to do it. And she was just going for it. And I was like, let's start the company in LA. I was in LA at the time, she was in Chicago. She said it more nicely than this, but she basically said, look, I'm starting this company with or without you. If you want to join me, come to Chicago. And I did. I packed up a suitcase and moved to Chicago. 

But I think the lesson is that so many people have ideas and so few people actualize those ideas and act on them. And the hardest part of starting a company is really, really hard. Running it is really hard. There's so many ups and downs. Even in a single day, you go, you have highs and lows in a single day, multiple times. The hardest part is actually starting. And most people don't do that. So if there's an opportunity to take that leap and do that, I would say do that. 

And then the second thing I'd say is everyone is smart. Everyone works hard. I mean, if you get to a certain level within your startup, that's kind of table stakes. And then luck plays a big role in all of this. And you have to be at the right place at the right time. You have to create your own luck. You have to work hard. You have to be smart. You still have to get lucky to win. There's a reason lots of people have built billion-dollar companies and very few people have built two. It's really hard to get, all things have to go right in order to do these things that are really, really hard.

So as founders, once you're in it, you put so much of this on yourself. So much of this becomes your identity of who you are. I think when you think about it and you extract that piece, that lucky piece, you know, I had this, our first investor and he had built, he was in the browser world with Mark Andreessen and had built one of the very first browsers that became Internet Explorer. He told us like, you know, when times are good, don't give yourself too much of a pat on the back. And when times are bad, don't blame yourself too much because there's only so much you can control. And I think that's a really valuable lesson because you just, you can put all that on the field, but you can't control the outcome. And if it goes really great, you know, don't gloat. And if it doesn't go great, don't blame yourself too much.

Fred Schonenberg

Yeah. It's very, very hard to keep that sort of like middle ground, right? Because when your press releases are hitting and you're raising money and you're doing the thing, it's very easy to get in the like, oh, I've come up with something here. I'm a superstar. And when it goes the other direction, it is your soul, right? Like if you're really, if you make that leap, you're attaching your identity to whatever it is you're going in that hard on.

So it is, it is certainly a roller coaster. And I think a lot of founders, and this will go to my last question. There's two moments there. So, like navigating that up and down. And then another thing that we've had somebody else on the podcast fairly recently talk about is like, there's this moment where you transition from a founder to CEO. And I think that that transition has been one that's very challenging for folks, because they have to kind of move out of the way, okay, I'm in the weeds doing the thing all the time. I am now an HR director, I am now trying to motivate other people to do it. 

So have you seen any, any bits of wisdom there on making that jump from being in the garage and with your hands dirty to the CEO role?

Ethan Austin

I don't know if there's bits of wisdom. I think it's the ability to let go and to enjoy doing new things. The beginning of what I was doing was all about the mission, all about the product and putting this new thing into the world. And it was ego too. It was fun. We were winning all these awards. And towards the second half of the give. The thing I loved the most was developing the, the, the people in the room, right of like, getting to be a coach, a teacher, and like helping them develop in their careers was the most meaningful thing for me. 

Even though I never managed people in my life, I first started hiring people who are just good founders, because I didn't have to manage them. And then I really love to develop that. I think you just have to, I think maybe just be open to understanding that the roles change and enjoy the challenge of something new and embrace it. 

Yeah, the frameworks are hard. There's, I have a friend, Scott Chisholm, who was, you know, in our peer group who started something called classy and they merged with GoFundMe. He built like a, you know, a billion dollar company. He's doing something that I've sent a lot of our portfolio companies through called Highland, which is a community to help you scale from founder to CEO, because it's a hard leap to make. And he's giving people all the frameworks he used and built over 20 years of building classy to make that transition. So giving Scott a plug, Scott, if anyone signs up, just give me, you know, 10%.

Fred Schonenberg

Yeah, you got it. We'll make sure that he does that. And yeah, no, it's a big, big challenge. I'll also say a random plug. There's an amazing article called Give Your Legos Away. I can't remember who wrote it, but the idea is essentially like, hey, congratulations, you're scaling. Now you have to, the things you did that you love, you have to give them to somebody else, but now you get to build bigger things. And so you have to have that mindset of like the new adventure is going to be, you can't hold on to the old one in some cases. So let me get you out of here on this. Where should people go to learn more about you and Outside VC?

Ethan Austin

I'm pretty active on LinkedIn. So if you want to reach out to me on LinkedIn, I'm happy to connect there. I try to engage with that community. It's been a really, I think, kind, warm, generous, welcoming community that I enjoy being involved in.

Fred Schonenberg

Sounds perfect. All right, man. Well, we will make sure we put that in the notes and appreciate your time and everything you're doing to spark change in the world.

Ethan Austin

Thanks so much for having me. This was a lot of fun.

Fred Schonenberg

Thank you.