SaaS Interviews with CEOs, Startups, Founders
Tyler Tringas: How Earnest Capital Hopes to Re-Invent Startup Investing
08 Jul 2020
Chapter 1: What is the main topic discussed in this episode?
He's invested $3.1 million across 17 companies. Today, our interview is with Tyler Tringas of Earnest Capital. But before all that investing, it all started in 2008 after he graduated college and got involved in the renewable energy sector. That led him to eventually launch his own company, which he wanted to go raise venture capital for.
He pitched over 400 venture capitalists, and ultimately, after trying to build that company, it failed. They just couldn't get traction. So he shut it down, but in the process, followed his wife to San Francisco.
Chapter 2: How did Tyler Tringas start his entrepreneurial journey?
And when she got a State Department job in Buenos Aires, they took that flight down there, and Tyler booked the original MVP for his new company called Stormapper on that flight. The company over the first 12 months went from nothing to $2,000 a month in revenue.
He ultimately scaled this business, getting customers off Upwork, doing Shopify contracts, and grew it to $16,000 a month in revenue in 2016 before making the thing highly profitable. In fact, Tyler was taking over a quarter million dollars out of the company as salary before he sold to Shore Swift Capital in 2017. The company was doing way more than 18K in MR at that point.
after the sale of sure swift he said you know what i want to build a better way more options for founders and that's when he put pen to paper for earnest capital in 2018. he raised that 3.1 million dollar fund from over 40 individual investors has deployed that capital over the past 12 to 20 months in about 17 companies at an average check size of 150 000 and is now looking at raising his next
which he's invented a brand new model for quarterly subscriptions. It more closely matches how you build a SaaS company. Makes sense. He's doing it in an interesting model, a 506C. Enjoy today's interview with Tyler Tringas. Hello, everyone.
Chapter 3: What challenges did Tyler face when raising venture capital?
My guest today is Tyler Trengis. If the name sounds familiar, it's because he blogs like nobody blogs before.
He's building a company called Earnest Capital today, but historically, he's always been a prolific writer about all of his startup adventures, starting with renewable energies out of college, then eventually got into his own bootstrap startup, which he ultimately shut down, and then another one called StoreMapper, started in 2012 and ultimately grew that before selling it.
We'll jump into that story, then got into very hot space, which was Shopify for a
all in on earnest capital today and another company he's still a builder behind the scenes which i love called mapdia we'll touch on all those things today tyler you ready to take us to the top yeah let's do it all right so one of my one of my favorite sort of quotes in terms of reading your stuff and prepping for this you say you know the new american dream is building owning and selling a software company tell me more about that yeah i mean i think it's um
Well, it really is. And I say the American dream, you know, it's a rhetorical device. Obviously, this is a global phenomenon. But, you know, the general idea of the American dream, right, the being successful, the white picket fence, all that sort of like just baseline level of success that many people aspire to, I think is really converging around the idea of running success.
a you know profitable remote friendly software or technology enabled company that essentially you can run from anywhere in the world uh and you know it makes money while you sleep and you know maybe one day you can sort of sell it for a life-changing amount of money or maybe you just you know run it for the rest of your life but i think you know really that kind of entrepreneurship is is the american dream in a way that maybe a generation ago it might be very you know um
very job driven, right? You know, become an attorney, become a successful doctor, that sort of thing. Not that those are not important anymore, but I think the core thing that a lot of people aspire to, and I found it through my writing and through Twitter and stuff like that, is this, you know, running a successful online business, you know?
Yep. And is this one of those things where it's just hyped and so everyone thinks they can do it? Or is it actually the new American dream? Can this actually be done by millions of people? Enough hard work, enough grit. You can build a profitable company that makes enough salary so you can live on.
Yeah, that's a great question and a great distinction. It is the American dream because I think it is also quite achievable, you know, with all of the caveats that it is, you know, harder for certain people than others. And it still takes a level of skill and sometimes it takes a level of capital and a push to get there.
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Chapter 4: How did StoreMapper evolve to become a profitable business?
It is one of the most permissionless paths to success I think that exists right now. You don't necessarily need a degree. You don't need to go through a rigorous hiring process. You typically don't need a ton of capital at least to get started. A lot of times you can build it with what you can put on a credit card month by month. The on-ramp is one of the most accessible in the economy.
And on the other side of the equation, the number of opportunities, I think, is just dramatically multiplying. So it's not the case that you know, a handful of software companies are going to scoop up all of the opportunity. What we're seeing and something that I've written about is this new deployment age of software.
I mean, we'll talk about that a bit later, but, you know, that essentially now these kinds of companies are getting into every little nook and cranny of the economy. And there's so many, you know, opportunities that maybe are not $10 billion opportunities, but they're very viable ways to build a profitable, sustainable business for folks.
And let's not bury the lead before we jump into your backstory to learn about all your creds, how you grinded yourself, how you got to the idea of earnest. Talk to us about where you are today. So I guess maybe the headline would be, what was the fund one size of earnest and how many companies did you invest in in your first cohort?
Yeah, we launched earnest. Well, we literally like first pen to paper, uh, or, or, you know, words on a pitch deck in August of 2018, six months later. So February of last year, we launched a earnest fund one, um, you know, candidly, it was really like a proof of concept fund. So it was about $3.1 million that we invested over 18 months. So it was essentially. one company a month for 18 months.
And we are just hitting the end of that.
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Chapter 5: What innovative funding model did Earnest Capital introduce?
So we'll write our probably last two checks out of that. We've done 16 companies to date. We'll write our last two checks over the next probably six weeks or so. And then we'll move on to our second fund, which is basically InMotion.
And guys, if this is the first time you're learning about Tyler and Ernest, they're doing it in a very neat, interesting way. We'll actually dive into the term sheet, which he's made public later on in the show. But with that sort of open loop, Tyler, let's jump back into you graduating college. What did you study in college and why jump into renewable energy sector right after?
I studied economics in college, and I got into renewable energy. I mean, I was interested in it just academically. The energy markets, I think, are really fascinating, and I got sucked into a rabbit hole, as I sort of want to do at some point in college. And the opportunity or the moment when one needs to stop focusing on study abroad and start focusing on internships kind of arrived. Yeah.
So I started hopefully, hopefully paid internship site.
Yeah. Well, poorly paid, um, how it worked out. But, um, yeah, I ended up just stumbling upon, I kind of combined the two. I did this, um, study abroad internship program in college. Um, the university of Florida where I went had this kind of thing where you could go to London and you could take an internship and, um, And you could take classes.
And I just sort of loaded up and took like all credits of internships. I basically just worked full time and got to keep my scholarship money. And so I was in London and I found this startup consultancy called New Energy Finance. They were like 20 to 30 people in London.
Um, and they were, you can think of them as like a, like a pure play, like McKenzie, you know, doing advisory services and data and all that sort of stuff, but totally focused on at the time, the like really young, but really rapidly growing clean tech market. So when solar biofuels, carbon markets, that sort of thing.
Um, I just got an internship there, which turned out to be like my last ever job application of any sort.
Do you remember what you were paid? Yeah.
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Chapter 6: How does the shared earnings agreement work for founders?
There's tons of stories of founders that start off on one thing, they pivot to another and they keep the same cap table to keep the investors on board. It sounds like you had a clean cut. You actually shut the business down and your cap table then for storm app or was clean. You own a hundred percent of it. Is that accurate?
Yeah, for sure. Yeah.
Um, any pushback there from folks going, Hey, we believe in you. Why are you not giving us anything in this new thing? You're just going to shut this down.
No, no, no. My investors, I mean, they were very clean tech focused. They were professional investors for the most part. And they totally understood like, hey, we're shutting down this business. And yeah, nobody really wanted to even mention like, hey, give us a taste of this little side project.
Because to be clear, it was not at all clear it was even a viable business, anything more than a little hobby widget thing, essentially. It was only a little bit later that I kind of discovered that you know, there was enough meat on the bone there for it to be a real, um, a real business. So no, it was totally clean.
I owned it. So San Francisco to Buenos Aires, you're going down there because Ann, your wife today was with the state department. You build store mapper on the plane. You get pricing up five bucks a month. He signs people up on a keynote you gave on stage. I believe it was two or three years ago. Uh, you said he had about 200 bucks in MRR pretty quickly, early 2013.
And by the end of 2013, you had passed out 2k. a month in MRR. That then went on in late 2014 to $7,000 a month in MRR. And in mid 2016 to $18,000 in monthly recurring revenue, 1500 customers and a ridiculously high conversion from free to paid of north of 50% with also very low churn, less than 1%. Explain to me how you went from 2K per month, right?
A couple months after your plane fight where you built it to three years later, 18,000 in MRR.
Well, part of it was just the full-time focus, right? So this is, you know, we can foreshadow a little bit and come to it.
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Chapter 7: How does Tyler measure the success of his fund's investments?
Not what is your sort of product set up in such a way, but how do you really remove friction from every phase of that process? And so I was just relentless about automation and clarity at each phase of the onboarding process. So an example that I see all the time is like, you know, you have an empty state for a part of your app, right?
Where it's eventually going to be filled up with records and somebody comes on it during onboarding and it's just this empty list of rows. It's like, no, if it's empty, it's useless. So you should replace the empty list of rows with a video on how to fill this thing up, right?
Like,
you know right now we obviously know that you have not successfully done the thing that puts data in here so we should optimize for teaching you how to do that at this point in the process you know i think like i mean i have a big post somewhere of like all these little nitpicks but you know people use bad error messages right it'll just be like you upload a csv and it's just like csv invalid like come on no no you need to write like a ton of logic in there to be like look it's
obviously a .xls file like don't don't upload those upload these you know like okay this you know you didn't put the name column like make it so that people actually can and some and some copy right nice try batman let's try this again your xls file needs to be csv or you know exactly yeah and and you know just generally like one of the things was integrating
your help docs, your... We use intercom, but any kind of in-app chat with actual milestones, right? So I would set up automation where it was like, okay, one of the key things would be you need to upload a list of your stores. It doesn't do anything unless you put the data in here. And so if five days go by and... you haven't done that.
We would just automatically send an in-app message and an email saying, Hey, it seems like you haven't done this yet. Here's various options. Here's how to do it. Here's how to book a time with me. So I can tell you how to do it, you know, and here is how you can forward this to your, you know, developer, your marketing person, so they can do it. Right.
And, um, you know, it's just usually a lot of low hanging fruit.
And how did you, it was in an automatic conversion on the 14 days to the, to the paid trial since there, you already have the credit card. Yeah, I think so. Yeah. What did you do? Because I think a lot of founders fall into this case. It is a scary moment when you do an analysis on your paid user base, and you look at the activation metrics.
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Chapter 8: What are the benefits of a quarterly subscription model for investors?
And so I kept the list. I basically would just say, no, I'm not interested right now, but I would kind of note it down. And then, yeah, I went to MicroConf and I met
um i met uh kevin from sure swift and you know he sort of so basically they have a business that is exactly this they they buy you know mature um profitable software businesses and then they just own and operate them so the founder is kind of hands off and that was something i was kind of thinking about i've been running it for about five years and um you know it was paying me like a really nice salary but um you know what was the salary it was paying you
I mean, I was probably making about $250 a year after the team, right? And this was for something that was properly like four-hour work week to some extent for me. I mean, the last year that I owned the business, I... uh, I, I took a year off basically with, you know, with my, um, then girlfriend, uh, and we traveled, we just, I mean, we hiked Kilimanjaro.
So I, I took like 12 days offline, you know, I was like, all right team, like, I'll see you later. You know? Um, and we were basically just like all going all over the world. I was still definitely working like, you know, so we hiked Kilimanjaro, we went on safari and then I spent like three weeks in Cape town, you know, actually working and doing stuff.
But I mean, I was really down to averaging probably, uh, 10 hours a week sort of thing.
So your max expense that last week up to the sale, then like your average monthly expenses to run the company besides your salary. I mean, they had to be less than three, four K a month.
Uh, no, we had like four folks who were more or less full time. So, um, okay. Yeah.
No, I don't remember what the exact, uh, run rate was, but how did, well, I guess what I'm asking is you, when you just said you did two 50 sort of after everything else that last year, you're, is that $250,000 in salary that year?
Yeah.
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