From Startup to Exit
Welcome to the Startup to Exit podcast where we bring you world-class entrepreneurs and VCs to share their hard-earned success stories and secrets. This podcast has been brought to you by TiE Seattle. TiE is a global non-profit that focuses on fostering entrepreneurship. TiE Seattle offers a range of programs including the GoVertical Startup Creation Weekend, TiE Entrepreneur Institute, and the TiE Seattle Angel Network. We encourage you to become a TiE member so you can gain access to these great programs. To become a member, please visit www.Seattle.tie.org.
From Startup to Exit
The founding of Rover and the business model behind Pioneer Square Labs, a conversation with Greg Gottesman
In 2011, Greg Gottesman had a bad experience leaving his dog for the weekend at a local Kennel. That experience led him to pitch the idea for Rover at a Startup Weekend which he won. That led to the formation of Rover and the rest is history.
In our second podcast episode, Gowri Shankar and I explore the foundation of Rover as well as the business model behind Pioneer Square Labs.
Greg Gottesman is a Managing Director and Co-Founder of PSL. Prior to PSL, Greg served as one of the three initial Managing Directors of Madrona Venture Group, where he worked for almost 20 years. He also co-founded and led Madrona Venture Labs.
Greg represents PSL on the boards of Boundless, Ever.green, Joon, and Kevala. He is also the founder, current board member, and former CEO of Rover.com.
Brought to you by TiE Seattle
Hosts: Shirish Nadkarni and Gowri Shankar
Guest: Greg Gottesman
Brought to you by TiE Seattle
Hosts: Shirish Nadkarni and Gowri Shankar
Producers: Minee Verma and Eesha Jain
YouTube Channel: https://www.youtube.com/@fromstartuptoexitpodcast
Welcome to the Startup to Exit podcast, where we will bring you world-class entrepreneurs and VCs to share their hard-earned success stories and secrets. This podcast has been brought to you by Thai Seattle. Thai is a global nonprofit that focuses on fostering entrepreneurship. Thai Seattle offers a range of programs including the Go Vertical Startup Creation Weekend, Thai Entrepreneur Institute, and the Thai Seattle Angel Network. We encourage you to become a Thai member so you can gain access to these great podcasts. To become a member, please visit www.seattle.tai.org.
SPEAKER_01:Hello everybody. My name is Gary Shakar. I'm uh a member of Thai Seattle Board, and uh we are happy to have you in our second episode of our podcast, How to Fix It. Uh I'm here with my co-host Shirish Takardi. He's about to be called the serial author. His second book uh Numbs Out. Uh uh With a Take Hall. It's a great book about marketplaces and how they became monopolies. Uh and uh uh our first podcast was with uh uh our opening uh episode was with uh Nick Husar. Nick is co-founder of uh uh Great Channel's success story Offer Up. Um and uh our podcasts are now available wherever you listen to podcasts from Apple, Google, Spotify, everywhere. Uh if you are watching us on YouTube, then you can see us on video. I am so excited about uh uh welcoming our second guest, another pioneer. Uh I met Greg um many, many years ago without my uh Greg was one of the very early folks I met in this city when I moved to Seattle. And uh Greg Godsman, managing director of Pinter Square Labs is our uh is our guest today. Uh many of them know him as investors, uh as an investor, uh because he's invested on behalf of both his original uh firm he was with Madrona and now with Pinter Square Labs. But today we're gonna talk a little bit about his uh uh story with Rover, the company he co-founded. That's a very interesting one. Uh Shirish, take it away.
SPEAKER_02:Thank you, Gowri. Uh hello everyone. Uh my name is Shirish Natkarni. I'm a serial entrepreneur author in Buy Seattle. I'm very excited to welcome Greg uh Gottesman, uh, who is a managing director at Pandia Square Labs. Uh like Gowry, I've known Greg for eons. Um my first company, T-Mon Systems, was funded by Madrona Ventures. Um and Greg has been with uh you know with Madrona for over 20 years and then he started Pangia Square Labs. He's also the founder and uh current board member and former CEO of Lowwood.com. So welcome Greg.
SPEAKER_03:Yeah, well congrats Sharish on the on the book. I I'm honestly uh I cannot wait to uh to read it because I know there's a a lot to learn. Sharish and and Gowry are two of the the the best entrepreneurs and brightest uh uh minds, not just in the Seattle area, but uh but anywhere. So um I just feel honestly anytime they ask me to do something, I'm always I just say yes because uh I'm gonna learn uh I always learn up a tremendous amount uh just talking with uh with both of them, and you know, just inspiring and incredible entrepreneurs, each of them uh in their own right.
SPEAKER_02:Thank you so much, Greg. So uh as Gowri mentioned, uh today we're gonna start talking, you know, first uh talking about your experience with Rover. Uh there's a very interesting backstory about Rover and how it came about. So can you tell us the backstory about Rover, uh Greg?
SPEAKER_03:Yeah, sure. So um like with a lot of great startups, uh Rover came from a very personal uh problem and experience, a poor customer experience that I had. So uh our our family uh uh uh lab named uh Ruby uh who uh was um we didn't have anyone to watch her. And so this is in the Seattle area, there's this wonderful uh tournament in Spokane called uh uh uh Hoopfest. And a lot of uh I think it's the largest three-on-three tournament, basketball tournament in the world, right? It happens to be located in Spokane, Washington. And so my two boys uh would participate in that. And we uh uh we as a family drove down to Spokane, but for that particular weekend we could not find anyone to watch Ruby We Asked, and the and the hotel that we were staying at didn't allow uh for dogs, and it was just you know, we were maybe maybe we shouldn't go, but the you know, we they were on teams and so they had you know there were people were depending on us to to show up. So we put Ruby for the first time in a in a local kennel here. It's actually uh in the central Seattle area. I won't name it because it's probably done more to hurt the kennel business than any kennel in the country in retrospect. But uh we we put her in a local kennel and uh and we went off to uh to Spokane for um uh for Hoop Fest. Uh one of my sons actually did really well that that weekend and uh he ended up uh w winning uh winning the tournament. Uh he's he he's no at this point he's no great basketball superstar or anything, but uh he had a great team and they did well in their particular bracket. And so we were a little bit late coming back. So on the way home on Sunday there was some traffic and I called this kennel and I'm like, hey, we're running a few minutes late. Can you uh we're gonna be there at like 5.04 or something. Uh can you keep the can you keep the doors open? We really want to get Ruby, and they said, of course. Um, of course, we show up like a 5.01 or something because we were racing to try to get Ruby and the doors were locked and we couldn't go in and get get Ruby, and so we come back the next day to pick up Ruby, and Ruby was scratch, uh scratched up, um, had kennel cough. Uh we paid an extra 70 bucks roughly to keep her there for that extra night. I'm like, this is the worst, and I was just furious. I was so upset about this whole customer experience. And by chance, there was a um there was a startup weekend uh happening, and so I uh I pitched this idea of hey, uh there's probably um uh there's probably someone that would have loved, a neighbor or a local person that would have loved to have taken uh Ruby, would have would have done it for less money than we paid the kennel, and it would have been a radically better experience for us than than putting it in, than putting uh our our beloved you know uh family member uh Ruby in a in a in a cage. And and um and I pitched it at a startup weekend, and that was the story of, and it won the startup weekend. Um you know, a funny part about the story is uh I had 10 people on that team, um, gave them all a little bit of equity. They all made in in retrospect made a lot of money from that that very short weekend. But um the um one of the the uh folks on the team was a a young uh developer, software developer named Phil Kimme, and he was going into his junior year of college. And I said to Phil, hey Phil, um what are you doing this summer? And um he said, uh, oh, he didn't really have a uh a proper summer job. I think he was going to build websites for his dad's friend, dentist, or I don't know, it was some crazy thing. And I said, Hey, you want to build this rover thing a little in a little more detail than we had done over the weekend? And uh he said, sure. So he uh we had an office at Madrona just right down from me, and uh we started building out Rover, not really expecting it to become a company or anything. Um and I was the CEO and and Phil um was uh was building it. And uh long story short, we we built sort of that initial uh that initial prototype, the initial site, people started coming. Um and um if Phil Kimme, who's the uh another co-founder, had a proper summer job, there would be no rover. That's the truth. So and he never he's now the VP of engineering, he never went back to college. Wow. So um so uh fantastic uh story. He's now got you know hundred, you know, hundreds of people reporting to him. He's just fantastic. So that was a a fun little story. And then um the CEO of Rover today is uh is an incredible entrepreneur named named Aaron Easterly, and he was in the ER in EIR with us at Madrona, and so as we were Phil and I were building this out, he kept stopping by my office. He's a huge dog lover, which I didn't know at the time, and kept trying to be helpful, and then finally I said, Hey, Aaron, like we're gonna eventually need to find a CEO for this thing because I I am, you know, I can't I'm doing a terrible job being a VC and trying to run this company, and and he said, uh, well, what about me? And I said, You can have the job. Anyway, about a month or or so later, he ended up uh joining um as CEO and and and and off to the races. So um that was sort of the the origin story for Rover. But it's been an incredible ride. Um, and it stemmed from a personal family problem that we had um with our with our family dog.
SPEAKER_02:Amazing story, Greg. Uh yeah, it's always uh the best ideas are ones that come from some you know core pain point that you or somebody else's experience and you go about solving that uh problem. So um so now you have uh started Rover, you have uh an engineer, you have a CEO, and you have a website. How did you go about launching Rover? Uh because as you know, marketplaces uh have a chicken or egg problem. You know, the suppliers don't want to come because the consumers are not there, consumers don't want to come because suppliers are not there. So, how did you go about launching Rover? And did you launch it nationwide or did you just launch it in Seattle?
SPEAKER_03:We started out just with Seattle, and there we were fortunate at the time there was uh there was a uh a time when you could use Craigslist to uh build supply, and so we were able to basically ask people if they wanted to make some extra money, watch dogs, and so we we leveraged Craigslist and and on the supply side using mainly that channel, um we were able to get many, many hundreds of of sitters, and really because it's a hyper-local business, in other words, if you're in if you're in Seattle and you are have a home that uh is willing to you know sit pets, um it's hard for someone who's sort of an issaqua to want to come out to Seattle. It's too it's a little too far. So it's really a hyper-local business, and so you need to have density um in uh a bunch of places. What Craigslist allowed us to do was really get you know uh some nice density in sort of in this local area without having to spend a tremendous amount of money. And so on the supply side from very early on, we were fortunate. The original plan was to go Seattle, uh, then to go to Portland, uh, and then to go to San Francisco and sort of go city by city, and then maybe do 10 cities and then 20. But we had so much success in Seattle, and then we launched Portland, and we had so much success that we then very quickly, because we were able to supply, get the supply side figured out, leveraging Craigslist, uh, we went nationwide uh after uh Seattle and Portland, which is which is uh unusual because that wasn't the original plan, but we wanted to take advantage of this uh this uh distribution hack that we had on the supply side.
SPEAKER_02:Right.
SPEAKER_03:It's interesting how many marketplaces and by the way, now Craigslist amounts for less than one percent. They kind of closed all the the loopholes and other things, but Craigslist accounts for for far less than one percent of the of the uh uh supply side. So so that was a one that's the one thing I would tell people in mar in marketplaces is you've got to come up with a some kind of distribution hack on either the supply side or the demand side, and you're not exactly clear where that is. I know you had offer up um on for your first podcast, you know, and I looked at investing in that multiple times, and their hack was they were ex they basically figured out very early on Facebook mobile. And I don't think there'd be an offer up if they hadn't sort of they had a uh a relatively young person there who sort of came up with this incredible, inexpensive way to get customers using Facebook mobile, and and um and they they ran they drove a uh a uh Ram truck through that distribution hack. And so um you look at Airbnb, they were also driven, of course. The success of that was driven by uh an Airbnb distribution hack. So anyway, uh one of the things I'm always looking for when looking at these marketplaces is does someone have a secret kind of distribution uh channel or interesting uh novel way to get distribution for free um or in a very inexpensively. And we were able to do that early early on with uh with Craigslist and Rhoda.
SPEAKER_02:Now uh the other key part of establishing a successful marketplace is establishing trust uh between the consumers and the suppliers and uh having a dog myself um you know very concerned about uh leaving the dog with somebody I don't really know and what kind of environment do they have, how many other dogs uh do they have, and so forth. So uh how did you go about establishing trust with the marketplace?
SPEAKER_03:I think it's something we're still working on. Now we have you know almost a billion dollars going through the rover system. It's be you know, it's a it's a massive uh company now, and and I think much bigger than we could have conceived that it would be, and I think it still has a tremendous amount of growth. By the way, the the market size when I originally thought about it was as a competitor to Kennels. It never never was that. It was the it was the the your in-laws watching your your your dog, it was the the the the friendly neighbor, it was not going on the trip in the first place. That's the the much bigger market than the kennel market. And so what we are really you know, what rover really is is a or at least on the boarding side, because we have other services as well now, but uh boarding is still the major uh the major business for rover. Um what it really is is a is a replacement for letting your your your parents or your mother-in-law watch your pet. And that, by the way, it be sometimes that might sound free, but of course it's never free. The trust and safety part is still a huge issue. Um I still think that we um are trying to figure out ways to establish trust. But here's some of the things that we tried to do. Uh, one is um, you know, we we really highlight uh reviews. And so if you go to Rover now and type in your zip code or try to find a sitter in your area, uh there will be people around you that will have hundreds and hundreds of reviews. And so you can go and and and and read what your neighbors have said about leaving their dog, you know, or cat or other pet with with uh with Rover. And um, and so um you know one way to do it is through uh through reviews. I think we really worked on the quality of the of the uh of the uh pictures and the uh quality of the of the sitter profiles because that's another way to establish um uh uh some kind of trust. You know, we we really worked hard on things like uh response time. So one way to garner trust is hey, you go there, you ask the sitter, if it takes three or four days for that person to respond, that's obviously not good. And so um our algorithm you know uh ranks sitters uh along a bunch of factors, but one of the factors is is how fast they respond back. And so again, little things, little small things that that establish um that establish uh trust. Um but it's uh it's an ongoing challenge. Um I still feel like that uh trust and disintermediation are probably still the two biggest issues for us at Rover. And at our board meetings today, uh we still talk about how do we continue to build trust.
SPEAKER_02:That's great. Um so um you have you were able to establish some trusts initially with reviews and ratings and so forth. Uh how did you uh create the consumer demand? Uh was it primarily through uh PR? Because obviously it's a very innovative idea, I'm sure you've got a bunch of PR in Seattle and so forth. Uh but did you go beyond that to um advertising on Facebook and so forth? How did you create the consumer uh demand?
SPEAKER_03:Yeah, the nice thing about um about this particular business is that if you are leaving town um and you have a dog, more so a dog than a cat, you know, uh most of Rover's business is is dog-related, although we have a very large cat-related business as well. But you can leave your cat for a weekend, leave out the food. They're very independent uh creatures. A dog you can't leave for, you know, even if you leave your dog for a day, uh uh you know that he or she gets you know very anxious and lonely. And so um the nice thing about our business is it's a need to have, it's not a nice to have. If you're leaving town and you can't take your uh your your your pet, uh specifically your dog, then you you need a solution. And so Google uh was always a very effective channel for us because a lot of people would go and s and and look for um you know solutions to this. It was a high intent kind of thing, and so we've always been very good at SEO and SEM uh with Rover. And so um obviously word of mouth and then PR, but I think um you know we we we were able to be very effective in that Google channel. Facebook has been less uh less successful for us. Obviously, we have some success there and we use YouTube and other all kinds, we try every channel, right? But the best channel historically for this kind of business has been has been historically Google just because of the intent nature and the and the need to have nature. So when you're leaving town, you have to find a solution. And what's that whereas Facebook is something like you know, you're not gonna be like, oh gosh, I am leaving town. I need to do something with my diet. You know, Facebook is a little less sort of intent-driven, and so it's a little less successful as a channel for a company like Rover.
SPEAKER_02:And was Google primarily a CEO or was it SCM as well?
SPEAKER_03:It was really both. Um, and we really worked hard to be excellent at both. Um but we do uh you know, one of the amazing things about Rover is uh we have extremely high repeat usage. So once someone uses us, um the chance that they use us again is is very high. And um because repeat usage is so meaningful, um, we're able to have incredibly good unit economics. Um so uh so we can acquire customers uh through like SEM in this case, or search engine marketing, where we pay paid marketing and make a very uh fast return. Um and uh within, you know, within certainly within a year, if not within six months or even shorter, we can make a return on that uh just because the repeat usage is so significant. People typically use rover and then they'll use often that same sitter or maybe another sitter um you know shortly thereafter because the experience is so positive. So we're we're lucky in that way.
SPEAKER_02:So um what is the uh business model for uh for rover? Um because uh at the end of the uh the uh visit with the dog, it's easy for me to just pay cash. Um so how do you get in the middle of that transaction and take a uh do you take a transaction cut or what what what is the what is the model?
SPEAKER_03:Yeah, you're you're mentioning disintermediation, which is a huge issue for all marketplaces, and it's a big issue for Rover. Um I we can talk because I think that's one of the most interesting uh areas where I think we've we've innovated and this is a really credit to to Aaron and Easterly and team um coming up with a really innovative technology way to address that although I still think we're we're always working on disintermediation. But the business model, just to answer your question directly, is we take a percentage of the transaction. So um and that so if the when the sitter says it's going to be$50, then we take a you know it depends anywhere from 15 to you know 20 25% um uh type of transaction fee uh on that uh on that uh service and so and that again it comes out of of of uh uh the I mean it's sort of when it when you see it in the end it kind of shows up in in different kinds of ways but but essentially it's a fee uh on that service.
SPEAKER_02:Um we're trying to add value to the the transaction so um so hopefully uh everyone feels like we uh are are more than earning our keep but uh but like a lot of uh of transaction uh and marketplaces you know we we take a piece of every transaction that goes to the right so that's interesting uh because you mentioned about repeat uh visits uh you know I would think that uh if I use rover for the first time and let's say I pay through rover and you know take and rover takes a transaction fee and I'm really satisfied with the dog sitter why wouldn't I just go directly to the dog sitter next time and just avoid uh going to rover well again I think this is this is uh uh disintermediation or or uh is uh i is an issue again for all marketplaces including for rover but here's why you wouldn't um our algorithm ranks sitters uh by a bunch of criteria but so we talk around about response time for example the number one criteria however that we rank sitters by is repeat usage so if you are a rover sitter and uh you have a bunch of one time sits but no one ever repeats there's a couple re reasons that that might happen.
SPEAKER_03:One is is that you're a terrible sitter and no one wants to go back to you. By the way over 90% I think it's well over 90% of folks get five star reviews. So the uh uh and I think in part that's because people are happy with the service and it's so much better than the alternative but it's also that people may think hey someone's gonna be looking at my review so I I don't want to you know rate someone lowly that is you know lives close to me or so anyway so uh reviews tend to not be the best indicator. We think the best indicator of of quality sitting is repeat usage. So one reason that you might uh not re use a have high repeat usage is that you're not a good sitter. Another reason that you might not have uh high repeat usage is that you're cheating. So I go to you Sharish I sit you and the next time I say hey let's just go around the system and let's just use rover. Well our out our algorithm detects that and so guess what? Like if you do that um the chance that you're gonna show up high on the next when someone else is looking for a sitter in your area is very low. You may show up again if we don't have proof you you know we're not gonna kick you off the system we don't know that you're cheating but the algorithm's pretty good at detecting based on experience that someone might be cheating and um and so um you're gonna show up very much lower on that list until you prove that you get a lot of repeat usage. And so when you go to Rover, um those first couple pages that you see of sitters um are going to be sitters that are close by but also have a lot of repeat usage because we know they're great sitters in terms of the quality people go back to them again and again and we know they're not cheating. And I think that was a brilliant um insight in terms of how to use technology to help undermine um uh cheating and disintermediation. Now you mentioned is it foolproof? I you know gosh how big would Rover be if we were able to catch because so so now let's say you did this the first time so you cheated and now you take the you take it off market. Maybe that was someone that would have sat would have been a would have been a relationship we would have had for the last 10 years. So we're definitely suffering especially in newer markets. So you think about in Seattle there's probably less cheating than there is in a much uh less mature market right because we haven't had the algorithm hasn't had time to really uh sort rank the the repeat usage uh the high repeat usage users in a way that i is effective so um but but uh but a brilliant insight in terms of how to leverage technology to help us very insightful so I assume that uh the sitters uh know how the algorithm works and so they incentive to go through the system for repeat usage I think many of the you know well I mean there are sitters who whether they know or they don't or how explicit I think ultimately they they will figure that out but also you know the ones that that are doing the right thing you don't need to tell them they were doing the right thing and they're gonna benefit by being ranked very high in every in every area so um of the country.
SPEAKER_01:And then now we're of course international we have a huge international business as well mostly in in Europe but um but with the same kind of uh of of techniques that uh that ultimately um help the business now again to your point though is there is there cheating and um is there more that we could do as a company to help solve disintermediation of course there is um and so we're looking for using ai and other methods to try to uncover uh direct cheating right so uh and and we're able to do that and so we can deal with that but in terms of the more um the less obvious cheating you know hopefully you can come up with tech you know techniques like this to be able to address it great so uh just one uh quick uh add-on to rover so you've talked a lot about this intermediation but I guess your problem is much lesser than say Uber right because Uber is not hyperlocal. I go to a new city or you know or I go I could you know I could uh go to the airport and if I use if I like the guy I could say hey can I call your direct and use him for going to the airport quite regularly uh while I don't know how that regulation works but is it have you guys looked at uh I mean they are local but not as hyperlocal as you are have you looked at them and seen their techniques and because they have a problem of giant gigantic scale in every market they go to yeah I think of uh uh I I certainly think of of of Uber as being hyper local in other words when you when you are wherever you are if you ask for an Uber and it's and it's 25 minutes to get an Uber you're gonna not you're gonna stop using the service right so they're looking for definitely a a real kind of hyperlocal density if you will um but they have more of a commodity service and so one of the benefits of Uber is that it is a uh it is very much a um commodity type business.
SPEAKER_03:So when you're people really view their their pets as family members and so you're not just going to want to just like any person you know that just shows up to watch your beloved family member and so we have a challenge of folks want to be a little more selective and so then say an Uber driver is just taking you from point A to point B they can um they can be um they can you know they can build this commodity service a lot more easily than we can and um the chances that they have less of a problem with disintermediation because when you're doing an Uber you just sort of ask for that Uber sitter that Uber to show up and it shows up you're not you know at any given time there you you're not wanting that that car to sort of follow you around all day and then be like oh okay here let's eat so so um really from a marketplace standpoint we have some some you know some differences. I think there are some things though that we have learned from from these other marketplaces um and um you know one of the things is is how important it is to have uh you know supply and density in in certain areas so so if you just you know just because you might say hey we've got a lot of open sitters let's say we're saying in the Seattle market we have a lot of uh we have just enough sitters and we have a lot of open sitters for example uh or sitters that have availability well if I'm if I'm asking an Issaqua and I've got a bunch of availability in in in the Seattle neighborhood well that doesn't really do me any good does it so it's not just and the same with Uber right it it has to be uh availability you know uh uh that's relevant to the person at the time and place that that person wants it and so what we work really hard on at Rover is to offer that you know have an offering that really meets the customer um with what that customer needs at that given time. One of the neat things about Rover is we make it very easy for you to just use to repeat use. So um once you find a sitter that you like that meets your criteria that uh you know where that person lives uh rebooking is very easy and uh and we try to make that as frictionless as possible and so that's another thing we learn from these other marketplaces is how to take as much friction out of the sort of once you've sort of used us once as much friction out of the process as we can.
SPEAKER_01:Got it. So Greg uh shifting gears a bit uh to uh talk a little bit about your uh uh your role as an investor in the Seattle community I uh I think I met you to keep through Keith Grinstein Reston Ps uh long long time ago a long time ago and um uh at the time you were um uh you know you were uh the person at Madrona and um uh you uh were investing on behalf of Madrona and uh and Madrona is continues still to be a storied um VC in in Seattle. Um tell me a little bit about your or tell our audience a journey about Madrona to PSL because uh they uh you got root started with Madonna but then you decided to go uh and start PSL with a very different model so maybe a little bit of the journey first as to how you made that move uh because you were already at D Plex but our entrepreneurs were doing to get investment that's if you're gonna get a Madonna investment everybody questioned whether you had a business so you're already there so uh why and how did you make that transition well um rover is a big part we've been talking about rover that was a big part of the story um I you know I was at um Madrona for 20 years as one of the initial three uh you know founding managing directors of the venture firm and uh loved and still loved uh Madrona and uh still very close with uh with that firm and all the partners there and and um and that's where I spent spent most spent most of my career.
SPEAKER_03:I felt like after Rover and then uh that was such a transformational experience for me. I realized that I loved starting companies um in addition to investing in them. And so if you note then one of the things I did at uh Madrona is I started this thing called Madrona Labs where we basically were trying to replicate what we did at Rover and Redfin and Z2 Live and some other companies see if we could do that at scale and I ran um Madrona Labs sort of that initial incarnation was could we could we do that you know more systematically but I always felt like inside of Madrone Madrona was always going to be more of an you know sort of a focused on that investment first and and I felt like I could scale a studio and I just I don't know Gowrie I like you I was sort of a I have a very entrepreneurial I think one of the reasons why um I uh I'm kind of uh I was an investor in an entrepreneur but I I was an entrepreneur who was doing investing not an investor who was doing who was an entrepreneur so I I loved and still love the early stage sitting down and trying to come up with working with an entrepreneur early and I get so excited about that early stage and working with people and trying to figure out those kinds of problems. And so I felt like there was another chapter uh that I had to write um and so um left to start a studio um and see if I could scale that that'd be that was Pioneer Square Labs and now Pioneer Square Labs you know it's been one of the most prolific studios in the in the world actually we've we spun out 34 venture back companies um many of those were were ideas that were ones that I was passionate about that that that kind of like with Rover that had personal personal uh interest to me and so it's been an incredible journey and then we also have venture funds as well now so we can both invest in companies that we create ourselves but also in companies that have nothing whatsoever to do with the the studio and so um and I get to I get to do both um but I get to spend a lot of time at the very very earliest stages and as Madrona had grown in size it was harder to do it to sort of spend the time doing what I truly loved which is you know either it uh investing in or starting companies from day zero. Yeah.
SPEAKER_01:That's that's pretty awesome because one of the takeaways I always felt was as uh you were very successful in Madrona and Madrona was a successful firm here but you still decided hey I gotta go spend my time what I enjoy doing love doing an idea to a what I would argue a fairly risky startup because at that point that had not that been stories of studios working but not at scale that you are now describing. Uh you you know you had a pretty wrong I mean Madonna was on to managing billions of dollars. When I met you you had them hundreds of millions but you know that so it seems like the spark has no age per se people if you're not young you can start it you spent 20 years and started PSL. So it was like uh I want to chase it and like the chance is gone spark gone you you decided that chase was worth the risk uh to go after because what is the worst thing that could happen it didn't work and you you're still a storied investor in Seattle.
SPEAKER_03:Well let me let me let me tell you what because I think Ty does this well and you two are part of this but when I was thinking about doing this I had I had had some successes and had was fortunate to to um you know have uh have more securities that that than certainly most entrepreneurs might have um that were starting out but I still needed people to tell me that I wasn't being totally crazy. So I I went to uh Jeff Entress who I'd worked with and I think you both know Jeff uh well he's a he's been the most prolific angel investor and I said Jeff I'm thinking about doing something absolutely insane um please talk me out of this I'm thinking about leaving Madrona and starting a startup studio to go do these kinds of companies I know this is crazy tell me I'm crazy and I'll and I and I should not be doing this. And Jeff's response was he heard you know about that was about as long of the of the conversation as I started out with and he his immediate response was well it does sound a little bit crazy but if you do that I'm in I'd love to do that with you let's go so that was like one I was like wow okay so there's someone I trust and respect who who was supportive and then I flew down and met with because obviously the Madrona folks had their own you know and I loved them and respected them but they had you know I was doing it there right so I flew down and and and talked with Brad Feld who had been a uh a wonderful mentor to me and a fellow investor and he's just an incredible um VC and I said Brad um I'm I want you to talk me out of something I'm thinking about potentially leaving Madrona and starting this studio concept as you said Gary very risky it was a startup and please talk me out of this and tell me I should not be doing this and he heard that and his response was well yeah it's certainly risky but here's a check um you tell me how much you want how much you need to invest in it I'm your you know and I I will lead uh that first investment round um and I'll back you and but that I I came back from talking with Jeff and talking with Brad and I I was I needed that and I think that's what people don't understand no matter how successful or how you know say for a senior executive at an Amazon or someone who's even had other entrepreneurial successes we all need that push someone telling us it's gonna be okay I've got your back you do this I'm in with you that could be a co-founder uh that could be another investor that could be a spouse or family member but it is so critical to the entrepreneurial process to have people that believe in you and even when a whole bunch of other people don't but having someone say I gotcha this is and to me had those you know had Jeff and and um and Brad said no no no you should stay I I would still be a Madrona so um I needed and so what one of the things I try to do as a VC and uh and as a an investor and is I try to be that that person for people. I try even if I'm even if we're not making an investment and I think it's a it's a great entrepreneur I try to be that catalyst that impetus to say hey like that this is a really good idea I think the timing you know I think you can do if I believe it I I I will say I think you can do this and I try to um you know hopefully be a person that helps people you know take that next step.
SPEAKER_01:Right.
SPEAKER_03:And again I feel like that's one of the brilliant things about Ty I I know that that this is involved is there's a whole bunch of people in that organization that do that for one another but we all need that. I don't care how successful Sharish and and you have both been serial entrepreneurs and successful but I know as you look back on your careers there are people in your lives that that that pushed you that said hey like you can do this and I think we all need to do that for each other especially for you see another great entrepreneur um and you think that person is so confident believe me everyone has those doubts and those questions and so we need those impetus and so that that that's how uh pioneer square labs got started was because I got I mean it was obviously an idea I wanted to do uh but I was scared um I was I was terrified frankly um but I had these folks who said I believe in you and that made all the difference it's it's uh you know personally for me it's fantastic that PSL came to be in Seattle because Seattle was uh a little bit of a challenge right in terms of getting startups going.
SPEAKER_01:We could have funding issues or it And it's so awesome to see that you uh PSL is taking the remote here and you have really grown into the scale. Let's kind of uh dive a little bit into the studio side of the business, leaving the VC part of it aside for a second. The studio part of the business, how do ideas come to you guys? Do you guys sit around? Do you have like a shot tank kind of a uh room where uh entrepreneurs come and pitch, or are there people who pitch all the time? Where where how does ideas take root and where do you decide you're in or you're out? Uh in whatever the case may be. Uh how how how far do you take an idea to kill it or to make it go?
SPEAKER_03:We we kill well over 90% of the ideas that we come up with, so we do a lot of of diligence on the ideas. Um so far of the spin-outs we've had, it's been roughly 50-50, 50 ideas that 50% of the ideas have been, so the 34 spin-outs have been ones that we came up with. I guess like roughly 17. And 17 have been uh companies that uh entrepreneurs came to us with and said, hey, like this is super early, but I want to work with you guys on starting this. And so it's really been uh both. Um a lot of the ones I work on um follow the rover model. Um they're just things that I really deeply, deeply care about. Um so I did one around you know, teen mental health and the and the very hard, important problem that that is um was one that uh that you know I I wanted to make it and start a company in that area. And so we have one called June, that's a fantastic company. I wanted to do something in the climate area, and we have a wonderful company called Evergreen in that area. Um I wanted to help solve the immigration, and so Boundless is now I think it's the largest digital immigration company in the country that we started uh to help make immigration uh easier, and then we just made an acquisition, so we've been doing mostly family-based business, but now we have sort of you know cross-the-board family and business, and that's an incredible company. Um uh, you know, in the healthcare space cabal, I wanted to sort of, I felt like that was an area that I cared a lot about and wanted to hopefully start a company that founded a wonderful entrepreneur uh to uh in in Tatoans to work with to help drive that. So a lot of the ones that at least that I work on are more are just problems that I feel like need to be solved and they do well and do good at the same time. And those are like Rover, those are fortunate if you get a chance to be involved in those. The most recent one is Felix and Fido, which is uh reimagining vet care. So the vet experience is uh horrible. It's is is not I mean these are our these are we call ourselves pet parents, these are our family members, and I thought we could reimagine a better way to do a vet service. And so check out Felix and Fido. I think that's a really cool company. We just opened our clinic and had uh really rethought the way in which vet care could be delivered in a more uh efficient, technology-enabled, you know, superior way. Um right now the studio is working pretty much exclusively on this AI. I think AI is is is I think it's it is a game changer. I think it's as important as the internet, and we are working we have seven different companies in the AI space that we are incubating and and and building, and I am the stuff that we're working on is is exciting as I feel like it's it's more exciting now than it ever has been in the history of PSL because of the of the of of the of what you can do uh with this AI, the implications of it. Um I mean it's it's mind-blowing. It's it's it's crazy. And so I'm as excited as I've ever been, and uh I love going into the office. I love building these companies, I love being a part of this of this process um and uh both investing in but then also getting on the ground floor. And that's one of the neat things about PSL is you know, we're building this stuff. So as investors, you know, we're out there as we've talked about earlier, trying to figure out how to get customers, supply side, demand side. Uh we're we're we're building companies from scratch. So we're not just an investor who sort of opines on like, oh, you know, strategically, let me pattern match for you. We're like literally in the muck. We're you know, we're building stuff um at, you know, uh on a lot of stuff, so I think we can be uniquely helpful as investors to early stage companies because we're doing the hard work of it as well. And so um that's been really fun too.
SPEAKER_01:So uh just kind of coming out of base uh the most basic, right? How does um equity work if uh it is uh you, the idea creator versus the entrepreneur who brought the idea? Is it the same? Do you work similarly or do you work differently? Uh do they you do SPSL take similar equity positions when it's your idea versus an entrepreneur coming? The other 50% that is not inside incubated, so to speak the answer is every deal is unique and every deal is different.
SPEAKER_03:So so in general, if it's our idea and we start something and we get some traction with it, then that you know, we're gonna take more equity in that case than if it's someone else's idea that they bring to us and um and we work on it in that context. Um But we well with the way we think of ourselves as a as a co-founder with you generally, though, if you sort of think about it. So uh we we basically say, hey, we're partners. And um and we might be the junior partner, we might be the senior partner, it just depends on the situation. Um but we just we like to think of ourselves as as founders and and we stay, you know, both, you know, and then we put you know hundreds of thousands of dollars, you know, uh either dollars or work into the beginning of that company. And so um, and so and that entrepreneur is gonna bring sort of his his or her expertise to it, and we like to think that we could be great co-founders uh together. So um, and we've again, you know, thus far, uh every time that we spun out a company, it's gone on to get funding. And so I think one of the uh benefits of going with us, especially in a difficult market, is is that we uh we tend to have a very high success rate of at least getting that first round of funding to give ourselves a chance to and to give that entrepreneurs a chance to win.
SPEAKER_01:Awesome. Greg, so one last question on the PSL before uh we wrap up here. Um so you launched a studio, now you're incubating early stage companies. Uh you are also a VC firm or have a VC arm. Uh how are you uh keeping those separate? Do you fund your own studios uh spin-outs, or you do you fund other people? Like people can just come to you and say, I'm looking for early stage funding and PSL VC who just funded, or it has to go through the studio for you to get investment out of PSL or the VC side.
SPEAKER_03:Yeah, thanks for asking that question, Gowry, because it uh that that might be confusing. You know, 50% of the capital goes uh, and this is rough, but 50% goes to our studio uh companies, and 50% goes to companies that have nothing to do with the studio. So we look just like Sequoia, Madrona, Benchmark, anyone else. So 50% of our funds, and we have pretty you know sizable venture funds. So um 50% of those funds go, and we look just like any other VC. Hopefully, we you know I believe if you're starting a company in the in the Pacific Northwest, you'd be insane not to talk to us because we are especially at the early stage, because we I think we're best in the world at this. Uh we have such an incredibly power, as an example, we have such an incredibly powerful recruiting arm. Why do we you know most VCs they can invest, they can do recruiting and other things like that. But but for us, like it's existential. Like our business is is like starting these things, so we have an incredible amount of of candidate flow, better than anyone else in the world in candidate flow across the board, because we're starting so many companies, and so we use those also for our investments, right? Um, and so we have some ridiculous statistic about the number of of people that we've helped to place that have come through directly through PSL, and that's just because if you think about it, like that's something that we have to do better than anyone else in the world, uh, i i if you think about it. And then of course, you know, all the other tactical and other things that hopefully we can bring to the table. If we're investing into a studio company, we don't lead because of the conflict that you mentioned. So we want other people to set the terms and then our fund, which is separate, the fund is separate you know from a uh from our investors in in we have investors in our studio and we have investors in our fund, and there's some overlap, but they're not the same. And so um when our our studio uh makes an sorry, our fund makes an investment in a studio company, uh, we like other people to set those terms so we can really be at arm's length in terms of participating. But we but we of course then invest in things that having have nothing to do whatsoever with the studio, and we love those investments and treat them just like we do our studio investments in terms of how uh we try to be helpful and and um and uh and hopefully make them successful.
SPEAKER_01:Correct. Greg, as always, the first time I met you it was infectious conversations, high energy. I continue to be inspired every time I speak to you. Uh thanks for this uh wonderful uh hour or so with on our podcast. Uh all the great work you and PSL is doing to foster uh the entrepreneurship ecosystem at TICAL. We are so happy that you are here. Uh PSL is here, so that we can guide early stage entrepreneurs to uh to get things off the ground. And there's no better time to start a company in the Pacific Northwest than now. I tell the student entrepreneurs every day, it's the best time right now. They say, is it? Absolutely, it's the best time. Our ecosystem is better than ever before, and you are an important, and so is BSL, uh uh members of the of the ecosystem. So thank you very much. Appreciate your time.
SPEAKER_03:Well, thank you. Listen, I'm inspired by you by you two, um, and I and I'm not I mean that sincerely, and I'm inspired by Ty. I think Thai is the most important uh uh organization uh uh or collection of you know entrepreneurial-minded people in our area, period. I think it has incredible, I mean the the folks that uh have been involved with it uh uh and and the work that you do is uh again has been a huge part and maybe an un an under-reported, under told part of why the Pacific Northwest has been successful is the strength of our local Thai uh group. I've been to, gosh, over the 25 years or so, dozens of Thai events. Um I've invested in dozens of Thai uh members, and um again, I don't think the Seattle area uh would be the same. Uh I know it wouldn't without Thai and the incredible work that you that uh you do here. So um and the incredible, frankly, the talent, uh which I think is unique that you're able to bring uh uh to uh you know to to to the startup community. So just feel fortunate to be asked to be on this podcast and to get a chance to talk with you with you all and to again anytime I can do anything for Ty, the answer is always yes.
SPEAKER_01:Thank you. Thank you. Thank you for listening to our podcast from Startup Exit brought to you by Dai Seattle. Assisting in production today are Isha Jane and Mini Verma. Please subscribe to our podcast and rate our podcast wherever you listen to them. Hope you enjoyed it.
