Friday, February 17, 2017
Ryan Blair, HashtagOne: From Gang Member, To Entrepreneur, To Anti-VC
Story by Benjamin F. Kuo
Ryan Blair is a bit of an interesting entrepreneur: he came out of the most unlikely of family backgrounds--he grew up in poverty, and ended up in a gang and with the wrong crowd (arrested 10 times), but managed to turn his life around thanks to a mentor, and became a technology entrepreneur and multi-millionaire, with his first big success being Los Angeles-based broadband provider SkyPipeline. He eventually founded and sold consumer health firm ViSalus to a public company and is now back making investments, in technology companies, as a venture capitalist here at Los Angeles-based HashtagOne (www.hashtagone.com). We caught up with Ryan (who calls himself an "anti-VC") to hear more about his investment firm, which has invested in such companies as Heal, Elite Daily, Saucey, and FragMob.
Tell us a bit of the story on how you started HashtagOne?
Ryan Blair: As you know, I sold ViSalus back in 2012, but ended up buying it back in 2014, and then we sold the company to a public company. After we sold it to that public company, I founded HashtagOne. We've made some investments here and there, and are now building a team, and making a lot of investments in SoCal tech companies.
What's the theme of your investments?
Ryan Blair: The theme around the fund is pretty simple. I want to invest in entrepreneurs that have the capacity to be number one at whatever they are doing, and do it within our skill base, which is direct-to-consumer. ViSalus became a $2 billion, direct-to-consumer company based on the infrastructure we were able to build, and we want to be able to leverage that experience in our investments. We want to have startups we can get productive or generating revenue pretty quickly. That's why we have investments in Heal, Saucey, and FragMob. It's all about leverage. I'm a bit of an anti-VC, as you know. I was raised in a tough environment, and after selling my first company for $25 million, and seeing what happens with full ratchet clauses and all the anti-dilutive s**t that VCs do, I swore I'd never be on that end of the business. So, now, as a VC, I swore I'd never treat entrepreneurs like those VCs treated me. Of course, not all VCs are like that, and I've started some good relationships with them, but others are complete a**holes.
So, how is it you ended up going from a technology infrastructure entrepreneur at SkyPipeline, to the consumer market with Visalus?
Ryan Blair: When I first had invested in Visalus, I was at SkyPipeline. I had a sales force when I was at SkyPipeline, selling telecom, networking, and broadband wireless products. Some of those people who were on our salesforce were also involved in direct selling, and they had been interested in acquiring Visalus. I agreed to give them some advice. The agreement they used to buy ViSalus was actually a copy of an agreement I had created to acquire a company at SkyPipeline, and they basically did a “find and replace” replacing SkyPipeline with Visalus, and bought that company. I love entrepreneurs. I saw that they were doing there was analagous to what we were already doing. Sending the zeros and ones into the air was the same and sending nutrients into your mitochondria, except that at Visalus, it was not capital intensive like it was at SkyPipeline. While at SkyPipeline, we had to put up towers, roll trucks, and install dishes, with Visalus, we didn't need inventory, and could ship anywhere. And, there was not a much higher churn rate at Visalus than at SkyPipeline, and instead of $180 in yearly revenue from a user at SkyPipeline, it was $250 for a user at Visalus. It was really the same business, but with less capital. We ended up opening up in fifteen different countries, and scaling it to three million people. As a result, I really saw Visalus as a technology company. My CIO had been ex-CIO at Herbalife, and was an EVP of Software for Disney. We hired the ex-CTO of Sears, and other senior executives out of Disney in software. It was a great software team, and although we were really a tech company, we looked like healthy lifestyle company. We went from $9M in sales to $624M in sales in eighteen months, and sold out at 19x EBITDA. I learned a hell of a lot, invested my gains, and set up my venture fund, knowing I was going to monetize the network I had created. That's my basic method to mayhem.
So where is the fund now?
Ryan Blair: I took $20M of personal capital to start the fund. It's interesting in how it started. One of my best friends brought me to meet with WeWork, and co-founder Adam Neumann. At the time, the valuation was $30M for the company, and I asked some of my friends in real estate to look at it. They told me, the valuation is too high, so I passed. Now, the company is valued at more than $15 billion, and my investment would have made me $100M, at least on paper. I should have written that $250,000 check! I made a commitment, after that, to create a process for my investments, so that if the next WeWork comes into my sights, I'd actually invest. So, I've been hiring people and creating an organization around that. We have a back office in Greenwich, CT, and an office here in Los Angeles, to do due diligence and growth the investments. I'm now looking at hiring some traditional analysts and infrastructure employees, to facilitate a much bigger fund than the $20M we have in the near term.
What kind of companies most interest you?
Ryan Blair: I've had some bad investments, and learned the hard way. Obviously, your investment criteria matures as you learn. I don't know if you've read my book, but I started my career writing trading systems in a software company. I've been basically writing code, and looking at trading systems and investment criteria for a long time. I am looking for entrepreneurs where I can add a lot of value. I'm an operator, and I know about firing, hiring, layoffs, shutting things down, opening this up, expanding, scaling, and how you go through doing all of that. How to start a business, have investors lose confidence, and have your valuations go down. I know all of that. Entrepreneurs can be taught that part, so I want to see entrepreneurs who are f**ing great at product or technology. I want them to be number one at something. It has got be a product, or technology, or passion so deep within them this is what they have got to be doing this. I want to see the entrepreneur who wants to be doing nothing but this for the rest of their life. I don't want some guy with five different interests, and wants me to invest in all of those five. I can tell you what I don't look for. It's about eliminating people. I'm pitched 100 deals a week because of my book, so I've got to filter them. In general, I have to like the style of the entrepreneur. Certain kind of styles of entrepreneur I can't stand to be in a room with. I don't want to take a board seat, because I hate board of directors. I've got to know who the hell the board is, and talk to them, but I won't kill myself spending time in board meetings. I've sat in plenty of board meetings as a public company officer, with a board meeting every quarter, and I found myself spending hundreds of hours in preparation for presentation in board meetings and to meet requirements for Dodd Frank. Are you kidding me? I despise board meetings. I also look for a co-investor. I don't want to do all the work, and want a co-investor to share the load. I want to lean into a startup, and love to spend a week with a company, and not just see them at quarterly meetings. Obviously, the entrepreneur can't be involved in this other deal and ten other things. If you can't build one company to a $100 million, I don't want you working on two companies. If you built a company to $100M, why work on two when you can take it to a billion? I care about an entrepreneurs ability for me to be radically transparent with thim. Sometimes that is painful, and seems overly direct, but if they're willing to take that advice and make changes that's important. Execution is everything. I try my best at meetings to eliminate them as an investment early. I use the opportunity to test them, and apply my style and work with them, and help them. If I can't add more value than money, I don't invest. I don't have any interest in investing passively, although I must say I do some real estate and rentals as a passive investment, and money management. But where the investment is high risk, I want to de-risk them as much as possible.
Any advice you'd give to entrepreneurs who want an investment from HashtagOne?
Ryan Blair: Yes. Be coachable. At least, give me a good debate on your position. I'm not always right, but through trial and error I think I've figured out a lot of ways in, and strategies for success. I've seen a lot of failures. I've launched a lot of products that have flopped, and launched into countries thinking we'd have a home run, but ended up disasters. I think I understand a lot of land mines from that experience. Entrepreneurs need to understand that, although I don't want to be a CEO of their company, ever, I'll be very active. I had to learn, when I first started, how to be a professional CEO, and if you're not a pro you need to be on track to becoming one.