The Best Advice My Dad Ever Gave Me (for Demo Day)
TL;DR1: I believe you can raise a $200M hedge fun, why not a seed round?
TL;DR2: You have the rest of your life to be a “fat and happy” finance guy on the fringes of the financial industry (or run any lifestyle business, like our family consultancy) – but GO FOR IT while you're young and healthy, with tons of energy and little fear! You can come swim in our pool later.
A couple years ago I called my Dad and asked him what it would take to start a hedge fund. I was 25 and working on my second startup job after departing corporate America, and a college dropout. I was totally serious.
I wanted to create a company that would time the market around commodities and futures by evaluating the import/export manifests of ships coming into and departing U.S. ports. The information is public record, and the only thing in your way is parsing the EDI transmissions.
I considered applying to YC with this idea, with a non hedge fund twist. I won the first pitch competition I ever participated in with a similar idea many years ago, so I figured I might have a shot.
My wonderful friend David Weekly probably remembers me angsting in his kitchen as I debated whether or pursue this idea or found the company that ultimately became Referly.
I worked in supply chain for about 3 years (age 19 - 22) in a Fortune 500 company, and had a sense of the business opportunity in predicting things like how many iPhones would get delivered at Christmas, or how many Harry Potter books would ship via Amazon.
My Dad is a registered financial advisor, so I grew up working on the family business - which advises high net worth individuals (people with $10m+ of wealth) on how to invest and protect their legacy (hint: not startups) and helps Fortune 1000 companies set up 401k programs that benefit their employees. So of course I called him, because legally we could start a hedge fund or fund-of-funds, if we wanted to.
I remember sitting on the couch of my very beige and boring SOMA loft, on a Saturday afternoon, glass of wine in hand. “Hi Dad, I am considering starting a hedge fund.”
“Hi Elle, what's the angle?”
I love that he doesn't question it, coming from his 25 year old daughter.
“Arbitrage on parsing shipping data,” I reply.
“Well, everyone has an angle.”
Everyone Has An Angle
My Dad explained that hedge funds are truly a dime-a-dozen in the finance world, not dissimilar from angel investors. They generate more fees for investment bankers because they have larger capital requirements to reach scale, but ultimately its the same game. He pointed out angels have an investment thesis, and hedge funds have an angle.
Then he said the thing that was THE THING:
You can do a hedge fund anytime, why do it now?
Well thanks Dad, for the vote of confidence (more like “holy fuck you think I could raise hundreds of millions of dollars in this economy!?”), but what do I do with that?
He continued to explain that creating a hedge fund, or any kind of fund, was something i should be thinking about in my 40s or 50s when I wanted a more traditional role in finance with a lower risk/reward profile.
That's funny, because the fees from that kind of work would make me very wealth much faster than this startup stuff. I pondered his comments though - I'd watched my parents go from bankrupt to rich in the past 10 years because of their business, so it wouldn't shock me to discover they know many things I don't about creating wealth.
What Money is For
My family is upper middle class, but as service providers to the very wealthy I've learned some valuable things about money, at a much younger age than I otherwise would. It has changed how I approach people with money, for better or for worse. I expect this will have an interesting impact on my ability to raise funding for my company (and I'm not saying all positive here):
1. Trust is Everything or “Stewardship”
I'm 14 years old, sitting in my Dad's office organizing his spreadsheets. He says, “Elle, do you know what business we're in?”
“We help people keep their money right Dad?”
“Yes but what do we sell?”
I look at him with a blank stare.
“We sell trust, honey,” he smiles. “We're honest people just like the steel workers, union laborers, and employees these companies serve. We help them keep their promises.”
2. Investment Has to Mean Something
When you have an annuity that yields millions each year its not enough to get a return, because you already have the money. In fact, people like that expend and impressive amount of energy trying to figure out how to give it away.
When you get right down to it, very rich people tend to be a bit uncomfortable having so much money at their disposal and they're looking to advisors to help them deploy in a meaningful way. Passionate about orphan children, female entrepreneurs, bringing music, art, and culture to suburban America? There is a cause for that.
3. The Body Wears Out
A series of deaths in my family in the past couple years have made me more aware of mortality than I ever was before. My Dad pointed out, as we discussed the hedge fund business, that it was something I could do without actually leaving a chair. Move to New York, get a Blackberry, iPhone and 3-line desk phone and I could operate from anywhere.
I'd be nothing like the tired steel hammering laborer who I'd met this morning to discuss retirement benefits, who would retire early due to work-related injuries. I'd never push my body to endure the repeated strain of that work - and at 50 or 60 I'd likely be comfortably happy to run a hedge fund.
But I would never be able to recapture, at 50, the energy of being 25. My Dad had me when he was 28. To him, I am so early in my life (I'm 27 now… this post reflects on a convo 2 years ago).
Okay Dad, these are great reasons. But here is the reeal mindfuck.
Dad thinks I can raise $200 million dollars to start my fund, no problem.
This was the first moment I realized the difference between starting a startup and being a CEO, instead of being an employee, was primarily a question of having the balls to go for it. Chutzpah, gumption, whatever. They're all euphemisms for having balls.
Its about showing up, describing the value you can create, and asking for money to make it happen. My Dad, my hero in business, thought I could totally start that business but was questioning why I should do something so low risk and “old” or “slow” instead.
For me, doing something in finance would have been a logical next step after working in the financial industry, getting deep domain knowledge in shipping and global supply chain logistics, and coming up with an angle. It wouldn't have been easy, and whether I could actually raise that fund is to be seen (yes I still want to do it someday!) but the point is that it would have been a predictable course for me.
My Dad knows I'll be damned if I do things the predictable way.
Staring down Demo Day, I hold this conversation in my mind.
Have some balls, Elle.
I'm pretty sure that's what he was trying to say.