Jack Smith is a serial entrepreneur. Most recently he cofounded Vungle which provides a way for developers to put video ads in their apps. The company raised $25 million and was recently acquired for over $750 million.

In this episode you will learn:

  • Using The Mom Test to hone your business idea and product
  • Tips on choosing cofounders
  • Bootstrapping versus equity fundraising
  • Why not to invest in the next Uber
  • Hacks for recruiting your CTO
  • Who the best employees are for a startup
  • The benefits of being naive
  • Why you don’t need to be number one to make a lot of money

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Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.

About Jack Smith:

Jack Smith is a serial-entrepreneur, born in London, England. Jack Smith moved to San Francisco in 2011 as part of an audacious ‘Linkedin hack’ to enter the incubator AngelPad.

Previously Jack Smith co-founded startups Vungle, a Google Ventures funded startup with hundreds of millions $ in revenue which was recently acquired for $750 million.

After leaving Vungle, Jack started advising a few different startups like Survios, Coin, and OnFleet. Many of the companies that Jack Smith was involved with are now worth over $100 million… all before he was 27-years-old.

Jack Smith is famously known for his “LinkedIn Hack” that helped him raise $120,000 in seed funding for Vungle, his first startup.

Since then, Vungle has raised over $25 million from investors and now has hundreds of employees and offices around the globe.

Connect with Jack Smith:

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FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have a founder who is another European. Someone that has been able to come here to the U.S. and make a name for himself and is going to teach us a lot about building and scaling companies. So without further ado, Jack Smith, welcome to the show.

Jack Smith: Thank you. Thanks for having me on.

Alejandro: So originally from the UK. How was life in the UK, Jack?

Jack Smith: It was good. I was born in the center of London and then moved to the countryside area when I was about 10 or 12. Then I moved back to the center of London to go to University, and that’s where I started to get more people around me and start growing business more when I was at University.

Alejandro: At what point did you start to develop that love for computers and perhaps for resolving problems?

Jack Smith: Computers and entrepreneurship from a really young age. I remember because my mom was a teacher. I think I was around five years old. I was begging her. She would borrow a massive computer. It took up the whole car to bring it home, but she would borrow it on the weekend when they weren’t using it at the school. I would use that at home. Then doing business stuff, I think I had always been doing business-type stuff, but when I was about 13 — up until 13, I had been getting pocket money, an allowance of about $2.50 a week. When I was 13 or something around that, they said to me, “If you want to keep getting an allowance, you’ve got to do more work around the house to help out. Here’s what you’ve got to do. You’ve got to do all the dishes, and tidy your room more, and stuff like this.” I told them, “I don’t want to be told with stuff that I’ve got to do. So why don’t you just stop giving me pocket money, and I will earn my own money.” That was the incentive for me then. Being online, I started using these different sites like Upwork and stuff like this. When I was 13, I would take on web design, graphic design, or whatever projects, even if I didn’t know how to do them. I was bidding cheaper than people in India even because my allowance till then had been $2.50. So any money was good for me. 

Alejandro: Wow.

Jack Smith: I’d bid really cheap on projects, and then I didn’t know how to do them. I would learn on the job. So, basically, I saw that people were paying me to learn how to use Photoshop and stuff. It worked fine, but then I do remember one time when — I think I was around 14 — I was doing a project for a client in America. Then I sent over the work to them like at 10 pm and then went to sleep. The file didn’t attach to the email properly. At midnight, he phoned my house. My mom picked up, and they were like, “Can I speak to Jack?” Then my mom is like, “It’s midnight, and it’s a school night. He’s got school tomorrow. He can’t talk to you right now.”

Alejandro: Wow.

Jack Smith: This guy is like, “Wait. How old is he? I thought we were dealing with like a tech.

Alejandro: That’s unbelievable. Wow. Those were probably your first steps into entrepreneurship and into realizing that you could create your own destiny.

Jack Smith: Yeah. I never considered that I’ve never had an actual job. I’ve never considered having a job because freelancing or being an entrepreneur showed me that people weren’t telling me what to do, or I wasn’t having a boss, so since early on.

Alejandro: So what got you into going to University rather than building a business and keep going on the business. I know that you did your business before University, which was Mediaroots. Tell us about Mediaroots, and then tell us about putting that on hold and going to University.

Jack Smith: I didn’t actually put it on hold. I started before when I was in high school, and then I carried on doing it when I was at University, as well. Basically, I got a tiny office that could fit maybe three or four people. I got it up the road from my university. I was full-time doing my startup. Then I would run up the road, do a lecture, and then I would run back to my office and then carry on working from there. Mediaroots was doing tutorial videos like how to use Adobe Photoshop, how to use Microsoft Word, etc. 

Alejandro: Okay. Whatever happened with Mediaroots?

Jack Smith: At its peak, it was mainly doing maybe $35,000, which was the most we ever did a year in revenue. We were barely getting enough to pay the rent on the office each time. Especially when I was doing my university stuff, it didn’t work out that well. We had one intern, and because it was not going well, we had to lay off the intern. You had your own office, but as I said, a place kind of like where we worked. I remember it was around 1:00 am in the morning, and I went to the bathroom there. It was pitch black, and I remember feeling really alone and down, like, “Our business is not going anywhere — kind of rock bottom.” But then the days after that, I pulled myself together and was determined like, “All right. This is not working out, but then I’m confident I can scout other opportunities.” I was not giving up at any point even when I was feeling really down, I’m like, “Yeah. I can still create something from that.

Alejandro: Got it. Out of curiosity, from those moments when you’re feeling down like that, how do you bounce back?

Jack Smith: I think that I was lucky. When you’re that age, there is an advantage to doing a startup when you’re in your early 20s. It’s not like I had a family and kids relying on me. Worse case, if I completely could pull something off, then I would know in the back of my head that I did have the option of moving back in with my parents. So I didn’t have extreme pressures to make money fast, but actually, being down, it gave me that chip on my shoulder that that was what was driving me. I was like, “Everyone is not taking me seriously as an entrepreneur. I’m only 21.” We were trying to raise investment at different times in London, and everyone was seeing us as kind of a joke. That was what was giving me the motivation and drive to be like, “I believe in myself that I have potential.” That was what was driving me to work hard and was my own belief. That was like, “I think that I can become something. People are not necessarily believing in me right now,” but I was believing in myself that — not that I’m amazing or something, but I was like, “I think that I can do something.”

Alejandro: I’m sure that there are people right now that are dealing with rejection, and obviously, you’ve dealt with rejection. Once you get used to it, it’s okay.

Jack Smith: Sure.

Alejandro: Because once you’ve done it a couple of times, it is just part of the game.

Jack Smith: Yeah.

Alejandro: But how do you believe in yourself when others are not believing in you?

Jack Smith: It’s tough. Right? In London, at one point, we had this one VC who — I guess, actually, multiple venture capitalists. There was one venture capital firm where we met the principles as they were more the junior people. We met them about four times. They were like, “What you’re doing is interesting.” This is when we had started to work on Vungle very early on. They were, “It’s interesting what you’re doing. We want you to come in to meet with one of the partners at the firm.” We were really excited. We went by there around 5:00 pm. Close to ten minutes into the meeting, the guy was like, “Yeah, this is cool. Well, I’ve got to leave now. I’ll catch you later.” He just walked out of the meeting after ten minutes.

Alejandro: Wow.

Jack Smith: Yeah. That actually, again, gave us a motive and a drive like, “All these people are rejecting us or treating badly.” It made us more determined to prove people wrong. Yeah, I wouldn’t say proving people wrong. Some people do believe in you. It’s just getting that first break can be hard. I won’t say that everyone was not believing in us. We did get some rejections, but people were supporting us with advice and stuff. But getting that first bit of cash and investment was the main thing that we had to work a long time for.

Alejandro: Obviously, in your case, you were doing Mediaroots at the same time you were in King’s College. Then you were talking about Vungle, which is your next rodeo. Mediaroots eventually evolved into Vungle. Can you walk us through the incubation process of Vungle and how you brought it to life?

Jack Smith: Yeah. As I said, the Mediaroots stuff was basically doing videos for your laptop, like how to use Photoshop. Around the start of 2011, the iPhone App Store was only 18 months old. They had only started having apps. It’s hard to believe. It’s a bit crazy, but the iPhone launched without apps. The iPhone just launched with a browser and mail, and then they launched the ability to have apps. So I was reading online different articles. I think it was Gartner Reports and others saying, “This emerging trend of mobile apps is going to be exploding.” I was thinking, “Wait a minute. We did these videos on the desktop. Why don’t we start doing some videos for iPhone apps.” My co-founder at the time was like, “Dude, this is a waste of time.” Nowadays, you can swipe from the top and click Record, and you can record your screen on an iPhone. That’s very easy. At that time, you couldn’t record the screen on an iPhone. So what I had to do is, I had to come up with a hack. My co-founder was like, “This is a waste of time.” But I was like, “Let’s give it a shot.” I bought some equipment, and by hacking together different stuff, it was like a DVR recorder that you normally used to record your TV, combined with this other cable, combined with this other cable. I managed to find this hacky way that you could record the screen of your iPhone. It was a breakthrough, “We can record the mobiles.” Just to get started, we started charging companies to make videos for them. We made some instructional videos for like how to use the Spotify iPhone app, etc. That’s how Mediaroots evolved into Vungle. As I mentioned to you, we were trying to raise funding to get it off the ground. Our idea was actually pretty terrible — the idea we had for Vungle initially. It was like, “What if we could build an app store in which every app had a video. It was a terrible idea, but at least it put us in this market of mobile apps market. We didn’t have any money. We were just making a couple of videos for people; we made a few thousand dollars to get by. Then one day, I was reading TechCrunch. There was an article that said, “There’s an incubator in San Francisco called AngelPad. It’s similar to YCombinator that everyone knows about. It said, “This new incubator, AngelPad, is giving every company that joins $120,000.” I can’t remember. “We’ve reserved one spot for TechCrunch readers. Click here to apply.” I said to my co-founder, “Hey, man. Look what we’re doing with no money. We should apply to this.” He was like, “Ah, I don’t know,” because they were tweeting like, “We just got 2,000 applications in the last 24 hours.” So he was like, “There’s no point in applying. We’ll never stand out from the crowd.” I was like, “Let’s give it a shot. What’s the worst that can happen?” You know?

Alejandro: Yeah.

Jack Smith: I found this hack on LinkedIn. I’d never really used it for anything before, but I had found this hack where I was able — LinkedIn at the time had just launched something a bit like Google AdWords. Everyone knows Google ads Facebook ads. LinkedIn had launched LinkedIn ads. You create an ad, and then when you’re doing the targeting, you can be really specific. You can say like, “I want to target a person that works at this company.” Let’s say Google. Then you can say the job title. I tried to create an ad targeting “founder of AngelPad.” It tells you how many people your ads will target. It told me on the righthand side of the screen, “This ad will target one person.” I tried to submit it, and as you might expect, it said, “This is not targeting enough people. You need to target more people with your ad. You can’t run an ad just targeting one person.” I was thinking like, “Well, wait a minute. What is the limit then?” Then I added one more person. “CEO of AngelPad or Theo of Google.” I tried to submit it, and again, “You’re not targeting enough people.” I kept adding one. That number on the right kept going up. I tried five people that I submitted, and it was like, “No.” So I’d add one more. I think it must have been because it was a new platform, maybe human error or something, but when I targeted seven people, it let me submit it. 

Alejandro: Wow.

Jack Smith: I saw at that point — I was like, “Okay. Well, now, I can target anyone,” because what I did is, I could target let’s say the CEO of AngelPad, and then I put in six random people that I don’t care if they see the ad. Like maybe they don’t even speak English, like maybe a janitor at the Bank of China. This was Thursday. I saw this TechCrunch post saying there was one spot left. That day, I only spent two hours, let’s say. I created a one-page landing page and recorded a video of my co-founder and me talking directly into our phones. 

Alejandro: Wow.

Jack Smith: We said like, “The founder was Thomas, senior background, your legend. We’d love to talk to you. Here’s my phone number. Give me a call.” And put a button saying, “Click here to email Thomas.” I set up an ad campaign targeting all his friends and colleagues on LinkedIn. He was in America, so it was a different time zone. We went to sleep. I did it like, “Might as well give it a shot. Let’s see what happens.” I went to sleep. I come back to the office the next day, and I’ve got an email from Thomas. So this one-line email. He says, “I’ve seen your ads. What’s your phone number. Let’s chat.”

Alejandro: I love it.

Jack Smith: He gives me a call, and it’s like, “Is that Jack?” I’m like, “Yeah.” “This is Thomas. We can chat. First of all, take down this ad now. Everyone is calling me about this.” I saw the ad on Thursday. Friday, we had this call. There were about 15 teams at AngelPad. All the other teams were amazing engineers. One guy wrote YouTube’s API. These other teams are Ph.D. and video encoding. My co-founder and I are not engineers, but what we said to Thomas is, “Listen. You’ve got 14 teams that are all really safe bets. Sure, they’re great engineers and stuff, but they’re pretty safe. Why don’t you bet on us as a wild card? It might blow up pretty badly, or we might give you something different to the mix. We did two calls in the next week, and exactly a week after seeing the ads, he said, “Hey, guys. Let’s just final Skype video call. I’ve made my decision.” Did the call, and we were like, “Do you have to reject us on video? We’ve got two interns here.” He was like, “No. We have to do this. All right, guys, listen. I’ve decided to take a risk. You guys have got the last spot.” We were high-fiving around the office. He’s like, “We’ve invested in teams who are abroad before, and our investors don’t like it when they go back to their home country after the program finishes. The program is 12 weeks. If you’re going to do this, you need to move to America permanently.” My co-founder and I, we didn’t even need to look at each other. We didn’t even need to speak. We just immediately, “Yeah, that’s no problem. Yeah, because we want this break so badly.” “Okay, then. The program starts on Monday, so get the first flight out here.” That is our big break. We got the $120,000 from that, and now, having the first person that believed in us, that spurred us on. Coming out to America, we came on a free month’s tourist visa. I think that time pressure, “We need to pull this off in three months.” That is what caused us to move really fast.

Alejandro: Wow. Well, a shout out as well to Thomas Korte. He’s been on the show, and he’s really fantastic. I want to ask you here about AngelPad. What was that experience for you guys? What was the before, and what was the after?

Jack Smith: The first day, they make you turn up and pitch to all of the other people, all of the other teams. All of the other teams are pitching, and we were like, “Wow. These guys are amazing.” We pitched our idea, and you can kind of feel around the audience because we were actually thinking of doing an Android app to start. Then pitching it, I’m seeing everyone with an iPhone, and it’s like, this idea, we kind of gathered that the idea was terrible. So we both said, “We’ve got three months to 1) We needed to get an engineer like a CTO because my co-founder and I were not engineers. 2) We needed to come up with a new business idea because our idea s**ked. 3) We wanted to raise some funding.” Because, otherwise — we had told all these people in England, “You’ve rejected us, but now we’re moving to America, so f**k you.” We didn’t say that, but we wanted to. Because we had thought, “We’ll just move to America, and then we’re millionaires.” We arrived there, and “This is actually hard work even here.” We were like, “We need to pull this off. Otherwise, we’re going to look like idiots going back to England.” The main thing that Thomas taught us — the main thing that I learned. There’s a book that says the same thing. The book is called The Mom Test. What Thomas told us is about customer development. He told everyone, “What I want you to do is phone 20 of your potential customers, and don’t try and show them your current idea. Don’t pitch them your current idea. Instead, just chat with them and ask them, ‘What is your biggest challenge in your working life?'” We were doing stuff as developers, so we called up developers, and they told us, “We’re engineers. We know how to build an app, but we don’t know how to get users. So that’s what we’re struggling with.” Then we had our pain point. What can we do to help these app developers get users? Now, I told you early on that every other team in AngelPad was an engineer, apart from us. We thought that was a massive disadvantage. It actually turned out to be an advantage in some ways because engineers sometimes — this is a stereotype — but sometimes, they can be quite introverted and not want to speak to customers. So one of these other teams — there were three of them, all amazing engineers, Ph.Ds., video encoding, and stuff. But they spent the entire 12 weeks just coding what they thought was going to be a good product. After 12 weeks, they launched it, and then no one wanted it. But my co-founder and I were not engineers. So what we did is, we actually tried out six different business ideas in the space of about two weeks. We created a fake landing page for each idea, and then we tried to sell; we tried to get customers. So we made it look like it was already ready. We had one idea where we were like, “We can help you get your app onto blogs or app-review websites. And app developers told us like, “This is an amazing idea.” We told them, “We charge $200 normally, but we’ll give it to you for $20.” People said, “Ah, yes. Great. I’ll signup as soon as I get home.” We got zero sales. 

Alejandro: Wow.

Jack Smith: Because people were just telling us that it was a great idea because they wanted us to go away.

Alejandro: Jack, how were you getting these people to go to that landing page?

Jack Smith: We weren’t necessarily online, getting them to go to it. What we did was, we went to meetups and conferences. We showed people the landing page. They were like, “Oh, yeah. When I get home, I’ll sign up.” They were getting business calls and stuff. But we realized that if no one is willing to sign up when we give it for $20, it’s not a good idea. So we quickly kept on killing the ideas. Then our sixth idea we came up with is what Vungle is today. I’d seen some video ads on my phone, but they were for AT&T and Verizon, etc. I was thinking, “What if you could have a video ad advertising other apps and other games?” So we said to ad developers, “What if you could have a video selling what your app does, like a movie trailer, like 15 seconds and so, inside of other games?” At the time, the only other option was banner ads. Videos like this, then people were, “This is awesome. When you launch, I want to be your first customer. Put me down for $5,000, $10,000.” So we knew we had the right idea, this sixth idea. We knew this was the right idea because then people were throwing money at us. Before, we couldn’t get a single sale; whereas, this one, people were like, “I want to be your first customer.” That’s when we knew we had product/market fit.

Alejandro: Wow. Very, very cool. Then once you had that type of validation, how did you go about — because here, the beauty is what you were saying. You guys were building based on data rather than building on assumptions like all the other engineers were doing. So, you knew you had the winner. How did you go about the execution?

Jack Smith: The other thing is, I speak to many entrepreneurs, many at the time. They’re like, “I don’t have a CTO, so I’m helpless.” They feel like, “Oh, I’m so unlucky. I can’t do anything at all until I get a CTO. They’re treating it like feeling sorry for themselves. The thing is if you’re doing that, why would a CTO want to join you? You’re not offering anything. If you’re like, “Feel sorry for me. Join my company.” That’s not appealing. So, for us, what happened is because we got these pre-orders coming in, it made us look attractive. Like, “Wow. These guys are closing deals.” What we had is, we had this engineer, and he was working a day job, but he was helping us out in the evenings. He’s come by for two hours in the evening. What we did is, going through AngelPad, we got some of our friends. We told them, “Listen. Can you have a word with our engineer guy and hype us up a bit?” We said to our own engineer, “Why don’t you go down and help those guys carry some food from,” it was happy hour, so, “Help them carry the beer upstairs.” He went to help them, and our friends told him, “Hey, man. Jake and Zain — this Vungle is taking off. You should join fulltime because they’re probably going to raise a lot of funding soon. It might get too late. You should join them while it’s early.” That planted the seed in his head. What happened is, I found this guy who had founded a mobile advertising company before, and he had exited it. The guy’s called Lee Lindon. 

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Alejandro: Yeah.

Jack Smith: I sent him a cold message by LinkedIn. “You’ve had an exit in this space. I would love to get your feedback about what we’re working on.” I genuinely wanted advice, and then found out — this is what’s great about some of this — his office was just around the corner, about two blocks away. He was like, “Yeah. Come by.” We’re now chatting, and he got really excited and was like, “I’d actually be interested in Angel investing if you’re interested.” We were like, “Oh, yeah. Definitely interested.” We were starting to get this traction from investors. Because we were starting to get meetings with VCs, as well, like AngelPad, they introduced us to some venture capitalists like Google Ventures. My co-founder and I couldn’t drive. So we got our engineer to give us a ride to the Google Ventures meeting. He sat in the car parking lot outside while we had the meeting. Because it was starting to get traction, then he ended up joining fulltime as our CTO because he was seeing, “These guys are closing deals. They’re getting some investment. This is hot. I should join.”

Alejandro: Wow.

Jack Smith: Yeah. So we managed to do that, and then we had this meeting with Google Ventures. Actually, the meeting went pretty terrible, to be honest, because it was our first VC meeting. We didn’t know what we were doing. We were finishing off the pitch deck in the car on the way down. Then during the pitch, there were spelling mistakes in the pitch. It was pretty terrible. Basically, the partner didn’t want to reject us outright, and he was framing it like, “I just wanted to help you design your pitch deck, so I hope this meeting was useful.” Like, see you later, basically. So, he was basically kicking us out because our pitch was terrible. As we were walking out, he was like, “By the way, how’s the fundraising going?” We bluffed a bit, to be honest. We were like, “Oh, yes. It’s going really good. We just closed this Angel investor, which is true. We had Lee Linden. We said, “We close this top industry investor. We can’t tell you his name, but you would have definitely heard of this guy. Now, we’re starting to talk to different VCs and deciding who will be the best fit to lead our round. Thanks so much for helping us.” I made him a bit paranoid, I guess. So out of his briefcase, he pulls out some papers, and put it on the table, and “Here’s the deal. This is the term sheet. Google Ventures is going to lead your round.” They were only putting in $100,000, but he still was like, “We’re going to lead the round. Don’t try and negotiate with us, and don’t announce this until after Demo Day, but we’re going to lead the round. This dude over here is going to do the paperwork.” So we’re like, “Wow.” We went into Demo Day, and we were able to say, “We’re Jack and Zain. In the last 12 weeks, we came up with this business idea. We’ve got $35,000 in a pipeline of sales of people wanting to do deals with us. This is our CTO. He just joined full-time. Previously he was at some big tech companies. We’re raising a funding round, and it’s being led by a top-tier VC. We can’t say who it is, but it’s a top-tier VC.” We pulled off all this stuff in 12 weeks because I think we were scared of going back to England as failures. So that time pressure. In the weeks after Demo Day, we closed out — we were initially thinking to raise 500k and ended up raising 2 million as the seed round.

Alejandro: That’s amazing.

Jack Smith: Then, with that money, started to build out the platform, and things started to take off.

Alejandro: At this point, how were you guys making money? How was Vungle making money?

Jack Smith: We had no money. The only money we had was the $120,000 from AngelPad. We had done these deals to make a video for Spotify. But that was a thousand-dollars deal. So we didn’t have any revenue, but what we said is, “Here’s a pipeline of app developers that want to work for us once we launch.” So it was a pipeline validation.

Alejandro: How did you go about building the team, scaling up the team?

Jack Smith: We had the two million, and we hired out one additional engineer and started to build out a sales team. But actually, what we did is, we started off right. This is the mistake we made. We hired really senior people. We hired from some of our competitors, we hired some of the Vice Presidents of Sales from our competitors, and we’re like, “Wow. This person must be awesome. They were VPs of our competitors.” Actually, it didn’t work out because these guys that used to work in a big company have a massive support team around them. Maybe they’ve got an assistant or someone helping them. They had connections, but they were all too big. We were a tiny company. We weren’t ready to work with them yet. We actually had to fire, let go of the first three senior people that we hired on the salespeople. What we did is, we ended up replacing them with junior people. Some of the best people and some of them still work at Vungle today, seven to eight years later. Some of those people, this was their first job out of college. I hired them off Craigslist. It sounds crazy, but here’s the thing. Where there were original senior people, they were good in a big company, but they weren’t good at solo go-getters. These guys out of college were super hungry, so they did all of the work. They were able to tell people — they cold-emailed and cold-called out. They were not scared of getting rejected. They would play the mobile games on their phones on the way to work. What they’d do is, they would call an app developer or cold-emailed them. They’d say, “I was playing your game on the bus to work this morning. Just some feedback about Level 3. Have you thought about doing this? By the way, I’m working at this company, Vungle. We’d love to chat about it.” That worked way better, having these young, hungry kids reaching out because the app developers felt like, “This is actually someone playing my game. This is not some sales guy in a suit. This person is actually [0:37:31]. So that is how we got the first deals: cold calling, cold emailing, going to conferences. But it was with a bunch of young, hungry kids hired off Craigslist. Some of them we brought over from Europe. We brought over at least three people from London. We got a cheap house in a rough area in West Oakland. We told these guys, “We can’t pay you much salary — a tiny salary, but we’ll give you a place to live, and you get to work in Silicon Valley. 

Alejandro: I love it. Then you guys raised quite a bit of money for the business. How much money did you guys raise prior to the acquisition?

Jack Smith: Actually, not that much in the grand scheme of things because nowadays, companies that get clients, they’re raising hundreds of millions or billions of dollars after and before IPO. So the company only raised about 25 million in total. So that was the seed, which was 2 million, Series A, which was about 6.5, and Series B, which was 17. So not huge amounts by today’s standard.

Alejandro: And especially compared to the price of the acquisition. The press reported it was over 750 million, so definitely more than a 10x that VCs typically invest. 

Jack Smith: Yeah, we were really happy about some of the first guys who backed us like AngelPad. For Thomas, this will be, I don’t know how many multiples, but the angel guys at least got like 100x or something exit.

Alejandro: Wow. That’s really amazing. So hopefully, Lee Linden invited you for dinner after the acquisition was announced. Jack, you actually left Vungle right at the Series B. Why did you leave?

Jack Smith: For lots of different reasons. One of the core reasons was that I was pretty burned out. Moving to America and doing this AngelPad, I was sleeping in the office, working on weekends. I was very burned out basically. I hadn’t taken any holiday or time off. What I saw is, as I look back on it, things are different at the moment. As I look back, I did not scale myself as fast as my co-founder. When you start a company, and there are two of you, you’ve got to do everything. I was the accountant. I was the marketing team. I was the product team. I was the recruiter. I’m doing all these jobs. Then as you scale, you need to fire yourself from each job and hire people, and you need to trust them. I didn’t do that well enough. Things were moving crazy fast, and I was not evolving my job. I didn’t move from doing to delegating. I was still micromanaging. That meant that I was burning myself out, and I was also slowing down everyone around me because if we were to buy a printer for $30, I was insisting I had to write the check on it. Because we don’t always operate with no money, I just didn’t want to waste the money that we had. So I was not scaling, and then our venture capital guy, I had been leading Product and Marketing. As I told you, I was leading Product, and our main VC was like, “You should hire someone with experience from Microsoft to lead Product.” And I was like, “But then what should I do as a job?” They were like, “You should be the product visionary.” I’m like, “That’s not a job. What are you talking about?” What I should have done — this is with hindsight. If anyone else is in this position, you start a company you’ve built to some point, and you don’t know what is the best role for you moving forward. What I should have done is I should have taken two weeks off, and I should have spoken to other companies and asked them, “How did you handle the transition?” I didn’t do that, so at the time, I was like, “I can’t see a role for me in the company. I can’t see what I should do. We’ve hired a really good team, and the company is in a good place,” so I felt like I should leave. After I left, now I can look at other companies. I can see that every company, there’s not a set role. Every company does it differently. Lyft, the famous ridesharing company, one of them is CEO, and the other co-founder is president. They divide up responsibilities like that. They’ve raised like almost 100 million. One of the guys started as CEO, and then he transitioned to Chairman. There are a lot of different roles that you can have and different structures. I just didn’t take the time to research enough. I spoke to my VCs. I should have spoken to other entrepreneurs who had built a company to a big scale. That’s the main thing that I didn’t do that I wish I had done. 

Alejandro: Got it. So what happened next? I believe you went, and what happened?

Jack Smith: Yeah, again, I was burned out, so I was thinking I should take some time off. But I still had the entrepreneurship gene. So, less than two weeks after I left, I saw these two guys, and they were at the idea stage with this company called Shyp. It’s like Uber for shipping. They hadn’t raised any money, and they were struggling to get it off the ground. I messaged them, and I was like, “Just like the core idea. Let me know if you want help with your pitch deck.” So I went with the guys for coffee and got on really well. He invited his other co-founder down, and it turned into a six-hour meeting. And we went to dinner. I would have been better as an advisor, really, but they were like, “Do you want to join us as a co-founder?” I think because they couldn’t raise any money, and they say, “This guy raised 25 billion on his last startup, he should join as a co-founder.” When you’re moving fast like that — I had only just met them. That’s not a good basis to be a co-founder. So I helped them raise the seed round for their business, but then quickly after that, we found out that we had different values. They had known each other for many years. They had worked together. They actually lived together. So I was the third wheel. I think they also thought, “We just gave this guy a massive amount of equity to be a co-founder. I bet we could have raised funding without him.” Like, “Why did we give him so much equity? We shouldn’t have done that” type thing. It’s easy to give out equity when your company hasn’t made any money because it’s worthless. “Here’s 30% equity. It isn’t worth anything.” Then you raise funding, and now there’s a dollar amount, and now you’re viewing, “We just gave this guy 3 million dollars. So I helped them raise the seed round, but just only a few months after that, we parted ways because I was like a third wheel there.

Alejandro: What did you learn there about choosing co-founders or finding co-founders?

Jack Smith: I thought it was an awesome idea, and I liked the industry, but then I jumped into it too fast. I would have been better as an advisor or something. The best co-founder relationship for me is one where you’ve stress-tested it. How is this friendship or relationship when things are going good? How is it when you know things are going bad? The other bit is, you’ve got to be aligned on values. This is not to discredit the other fact that two of the guys were really good entrepreneurs, but they just had different values around things like money to me because I had always had made my own money and been very tight about money. I never want to waste it. But these guys maybe had a different outlook. So after we raised the seed round, the first thing they wanted to do was go to Vegas and celebrate. Then when we got the seed money, the first thing they wanted to spend it on was an interior designer. For me, these things stressed me out a lot because I’m like, “Why are we hiring an interior designer? I’m used to running a company from the worst office possible. I don’t want to spend money on furniture.” Then values around things like that can be very stressful. It’s not that one is right, and one is wrong, it’s just if one of you is really scrappy, that’s not the only way to do business. And if you’re not aligned on that, then you can butt heads. I was of the view like, “We don’t need to buy expensive monitors and computers.” At Vungle, we — poor fellows that were going bankrupt. We just turned up and got their free equipment. It’s just a different way of doing business. I think the main thing is, with co-founder relationships, not to jump into anything. You can maybe work together and see how you get on. And with a bit of testing, how do your values align, especially when it comes to money.

Alejandro: Got it, and obviously, Shyp raised a significant amount of money, like 62 million from top-tier VCs. They were like a shipping service that ranges from pickup to package to delivery to the destination. But what went wrong there? What did you learn from that experience that perhaps now if you were to start another business or when you see other founders, something that you learned there?

Jack Smith: Shyp was kind of like Uber for shipping. It’s an app, you open it and press a button, and someone comes and picks up your stuff. It was like Uber. The investors in the business were Uber investors. The guy who led the Series B had lead Uber’s Series B. Kleiner Perkins had also invested in Uber. They were viewing it like, “Uber is one of our best companies. Uber is doing amazing, and this company is similar to Uber, so we should invest in it.” I think the main thing is, Uber is an Edge Case company. I use Uber maybe four times a day. You use it really often. But then this VC in particular, they invested in Shyp, which was like Uber for shipping. They also invested in Monterey, which is like Uber for food. They also invested in some laundry company that was Uber for laundry. All of those went out of business. I think it’s because the main thing overlooked was that nothing else there has the same frequency of use as Uber. You’re not doing your laundry four times a day. You’re not shipping a package — the average person doesn’t ship a package four times a day, and they’re not eating four times a day. It was the frequency of use. We were trying to make ourselves look too much like this other company, or thinking things that worked for Uber would work for us while overlooking some of the core factors that made Uber successful. So, one of the bits is that entrepreneurs, like maybe some of your listeners are maybe getting their company started, and maybe they haven’t raised funding. They would have looked at Shyp as being like, “Why do these guys get to raise 60 million. No one’s giving me money.” Here’s the thing. Investors aren’t always right. Even the best investors like Kleiner Perkins and Sequoia, they’ve got some massive wins. Actually, Shyp was led by John Doerr. He was the same investor that did Amazon. He’s on the board of Google. But the thing is, even these guys who have had winners like Uber and Amazon or Google, they’re not right every time. Sometimes, the hottest deal companies are not actually the companies that succeed in the long-term. So getting a load of money doesn’t make you successful, and it doesn’t make you a good company. Some very good companies might always be bootstrapped. Maybe they get rejected by every VC, but then maybe that makes them more determined that they’re going to make it, and then maybe they might have a better outcome if you don’t raise money. That’s an alternative nowadays. Many people are thinking, “Why do I even need money?” I think that’s one thing Silicon Valley hypes up is it’s too glamorized to raise funding. They’re like you meet someone, and they’re like, “How much money have your raised.” Actually, the company who’s raised no money might be a better business. So that’s a trend that’s changing.

Alejandro: I think that people don’t really get it right. When you’re asking people about success, they tell you about the Monterey’s, they tell you about the amount of employees, but they aren’t thinking like, “No. For me, success is revenue for the employees.”

Jack Smith: Or if you’re a sole founder, and you’re making a million dollars a year — there’s a difference, as well, between revenue and profit. Some of these companies are not profitable. If you’re making a profitable business that’s bootstrapped, that is just as glamorous as a company raising 60 million that’s not profitable.

Alejandro: Yeah. Especially because when you give up all the equity, then if you’re bootstrapping and you do a 10 million or a 20-million-dollar sale, you’re probably going to get the same proceeds than if the company is sold for 200 or 300 if you’ve raised substantial money.

Jack Smith: Probably, more dude because sometimes, what people don’t realize is — let’s say like Shyp raised 60 million, but the peak valuation was 275 million. That meant that Shyp couldn’t sell for less than that because if they sold for 100 million, then all of the money would have gone to the investors. So if Shyp hadn’t raised any money, maybe it could have sold for 100 million or something. It would have been an awesome outcome for employees and the founders, but because it raised so much money, that meant it had to fail for maybe close to a billion to get the same outcome.

Alejandro: I totally get that. One of the things that you did, you were talking about being right, being able to succeed as an investor, being able to also make mistakes as an investor, and then after the experience of Shyp, you were an advisor to companies. Obviously, now investing from the proceeds of Vungle. Probably now you have more money to deploy than ever. Now when you are looking at companies, one thing that I’ve seen is that you’re very creative. You seem to be like a Swiss Army knife coming up with all these unbelievable ideas. But to optimize your chances of succeeding and picking winners, what are some of the things that you do in order to optimize for being right?

Jack Smith: Here’s the thing as well. Something I had to learn is, on the investor side — I got this advice from some other people who said, “If you speak to an investor and they say, ‘Every company I’ve invested in has been an amazing winner, then probably that investor hasn’t made enough investments.” Because that’s impossible to never have a lot. I told you, John Doerr is one of the best investors of all time, and he still has failures. So in order to get the best wins, if you’ve never had a loss, maybe you’re not taking enough risk. Most VC funds, you get one company. They have success and runaway success, and it doesn’t matter if all your other companies fail. You only need to be right once. But don’t be wrong too many times. And that time that you are right, you need to go into that with enough conviction. You can’t invest like $100 in every single company you meet because then if you get an Uber, it’s not going to return you much. So you need to have conviction in yourself, but you can’t be paralyzed about being scared of failure.

Alejandro: You were talking about Uber, for example. This VC, first round, they invested the seed money on Uber like 500,000. At the time of the IPO, I think it was something crazy like 7 billion worth in investment.” So what a way to be right. One of the questions that I typically have for the guests that come on the show is, if you had the opportunity, Jack, knowing what you know now, you’ve seen it all. Companies that did well. Companies that didn’t do so well. What would you tell your younger self — let’s say if you could go back in time to that moment of launching Mediaroots, or may Vungle, which was the big break, what would you tell your younger self? What would be that one piece of business advice that you would give to your younger self before launching a business, and why?

Jack Smith: I wouldn’t give myself too much advice because I think that there is an advantage of being naïve. If you know too much, it gives you reasons not to start a company because you think of all the reasons it could fail. So there is an advantage of being naïve, but the one piece of feedback I’d give is feedback from the famous investor Marc Andreessen. He says that when people look at a company if they’re judging, will this company be a big success like a billion-dollar company? There are different ways you could look at it. You could judge the team — this is during the seed round. You could be like, “Am I going to judge it on the team? Am I going to judge it on the product that they’ve built? Or am I going to judge it on the market.” He says the most important factor, and I, from my experience, would agree with this is, the most important factor in building a billion-dollar company is the market because if you launch the company in a tiny market that’s not growing — let’s say umbrellas for dogs. Even if you built the market leader company, if that market is like a $500,000 market, that means that even if you built the market leader, you’re still capped at $500,000. What we did right with Vungle is, we entered by luck a massively exploding market, mobile apps. Mobile apps are making tens of billions of dollars in revenue, and it’s growing like crazy. If you start a company in a massive market, even if you don’t build the #1 company — Vungle’s not the #1 mobile advertising company. Vungle is maybe the #2 or #3 mobile advertising company. A company started after Vungle, a year later, is a lot bigger than Vungle. Here’s the thing. If you choose a massive market, you don’t have to be the first mover. You don’t have to be the #1 winner. You could be the #5 biggest company and could still build a 100-million-dollar company. So that would be the advice I’d give myself or anyone thinking to start a company is, you do your research about how big is the market you’re entering and is it growing? There are things like Gartner. There are different market research reports you can be reading about the market size. They ask you on Shark Tank and stuff, “What’s the market size for this?” That is the most important factor, in my opinion.

Alejandro: For sure. Google, for example, was the 88th or something like that to market, so I think that’s very profound what you’re saying, Jack. For the folks that are listening, what is the best way for them to reach out and say hi, Jack?

Jack Smith: Maybe by Twitter or email. Definitely, your listeners, I’ll be happy to be helpful to them. My email is jacksmith1@gmail.com. On Twitter or type in at Google: Jack Smith, Vungle. It should come up.

Alejandro: Fantastic. Well, thank you so much for being on the DealMakers show today, Jack.

Jack Smith: Thanks for having me, man.

 

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