🎧🍌 How Semil Shah Built Haystack

Living paycheck to paycheck, investing in Instacart, DoorDash, and Hashicorp's Seed rounds, the struggles of raising his first four funds, how LPs evaluate VCs, and advice for emerging fund managers

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Semil Shah is the Founder of Haystack, a venture capital backing outlier founders at the earliest stages. Semil started Haystack in 2013, and has since invested in 16 unicorns like DoorDash, Instacart, Figma, HashiCorp, Ironclad, Carta, Applied Intuition, Opendoor, and more.

This conversation goes behind the scenes of Semil’s two decade journey building Haystack from scratch. We’ll dive into how he raised and deployed each of the first six Haystack funds, including all the mistakes made along the way, plus the details around Haystack’s new $75 million and $25 million funds announced the date this episode was published.

Read Haystack’s announcement here.

This episode dropped on Sunday, and it’s already our seventh most listened to episode on Spotify, with over 26k unique streams across Twitter, YouTube, and all the podcast platforms.

Topics covered include:

• Juggling multiple jobs while living paycheck to paycheck his first eight years in Silicon Valley

• Failing to get his first job in venture three times

• Investing in the Seed rounds of unicorns DoorDash, Instacart, Hashicorp, and Envoy within the first six months of starting Haystack

• Why he initially thought Haystack would be a short-term thing

• Turning down multiple lucrative job offers two years in

• How the best LPs evaluate VC funds on the “Entry Ownership to Fund Size” ratio

• Semil’s strategy of “crawl, walk, run” to increase Haystack’s check sizes over time

• The pain he felt failing to hit his target fund size on the first four fundraises and how he handled it

• Why everyone should “pre-market” a fundraise, and how to do it

• The things most founders don’t appreciate about raising a venture fund

• Fighting to invest in Ironclad’s Seed round before he had his next fund raised

• How LPs reference VCs, and how a VC can become referenceable

• Why Haystack Fund IV was the scariest fund to raise

• How Semil builds relationships with LPs

• The hardest questions he faced raising each fund and what other VCs should anticipate while raising their own fund

• How LP investment committees make decisions

• What’s going on behind the scenes at most large venture LPs today

• Why the traditional advice of “finding an anchor LP” makes no sense

• Spilling his secret on the best quarter to fundraise

• Why VCs should fundraise with a hard cap on fund size

• Why every VC should appreciate and remember how LPs supported them through the pandemic

• All the details on Haystack’s new $75 million and $25 million funds

• Semil’s plan for the next 10 years

• Three pieces of advice for emerging fund managers

Follow Semil on Twitter and LinkedIn

👉 Find the episode on Apple and Spotify

🙏 Thanks to Zac and Xavier at Supermix for help with production and distribution.

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Transcript

Find transcripts of all prior episodes here.

Turner Novak: I'm here with Semil Shah. He's the founder of Haystack. Haystack is, in my opinion, one of the top early stage funds. He’s an early investor in companies like DoorDash, Instacart, HashiCorp, these have all IPO’d, Figma, which is a real business worth a lot of money. Semil has a really interesting story that we're gonna talk through today.

I'll let you jump in. How did it get started? What was the moment you first come up with the idea for Haystack?

Semil Shah: Yeah, and, and thanks for having me on. I agreed to do this too 'cause I think you're gonna get into the meat and guts of it, which I'm really happy to talk about.

It started because maybe on three different attempts over a three year period trying to “get into venture”. It was a tale of two cities in one sense, where I knew a lot of VCs personally, and I was even a consultant with a bunch of VCs, so I spent a lot of time with them and I had a lot of friendships built up, and they helped me a ton.

So it was all like, very positive. Where it came up short was like, you know, in the end of some competitive processes, or I didn't have the traditional background, and I don't blame anyone for this, but people would say “I like you. I wanna work with you. But I don't know how to fit you in here.”

Turner Novak: Were you sending deal flow? And were they investing in the companies that you were getting them in front of?

Semil Shah: Oh, a lot. For years. And I wasn't coin operated about it. I was like, Hey, I was just trying to help people on both sides. So, most of the consulting work I was doing was not deal related.

It was helping a few partners on projects

Turner Novak: Portfolio company work, or firm-level?

Semil Shah: I would say 60-70% firm level. And these were all Sand Hill Road type funds + General Catalyst. And they were all great to me. But that third sort of campaign to get a role, it didn't happen, sort of down to like two people. I think it was like Thanksgiving, 2012. So I was at that point, married, no kids yet, but my wife was pregnant.

I've told this part of the story, but two of my good industry friends, Nakul Mandan, who used to be a partner at Battery and Lightspeed, now started this fund called Audacious. And then Gautam Gupta, who was one of those wonderkids that started at GC when he was 17, he's now a partner at TCV Technology Crossover Ventures. They pulled me aside and were like (and this is a key line) “Hey, stop looking for a job and just start a small fund and use it as kind of your rap sheet if you will.”

Turner Novak: So did you think you were just gonna have this small fund and then go get a job at one of these bigger funds or?

Semil Shah: Absolutely. The first two years, the first check went out of haystack officially, March of 2013. My first kid, my daughter was born in April of 2013. in May of 2013, I invested in HashiCorp and Instacart and in October of 2013, I invested in Envoy and DoorDash.

I had no idea at the time how consequential that year would be.

Turner Novak: That’s a big year! That was probably one of the biggest years anyone would've ever had in early stage venture.

Semil Shah: Yeah, and I think the goal, to answer your original question, was to make investments to show that of the flow that I was sending to some of these folks. I could participate in some of the flow.

Turner Novak: When you invested in those companies, did you help connect the founders to other people that joined the cap table? People that they hired? Helping with the product? How did that all play out?

Semil Shah: Of course. I don't want to overstate the amount of help, but I would say just like what you would do.

Turner Novak: Sort of the basic stuff? Just whatever needs to be done kind of a thing?

Semil Shah: Yeah. I wouldn't say it was backbreaking. I think these were just people I had known for a little bit. I'd known Mitchell [Hashicorp] for about a year and we had a close mutual friend. His mentor and boss was a close friend of mine.

Tony [Doordash] I met through Saar Gur, who I have to give a shout out to who, you know, Saar’s been amazing. Just a person who shares and is like super deep. Shared Tony with me. So that was a great connection. And then Larry, I had known from a previous startup job.

Turner Novak: So why do you think these founders took your money?