20VC: ClassPass CEO Fritz Lanman on Betting His Career Facebook Would Be A $10Bn Company, Lessons From Travis and Uber on Scaling A Global Marketplace & Whether Growth and Capital Efficiency Are Mutually Exclusive

Fritz Lanman is the CEO @ ClassPass, the startup that provides the most flexible fitness membership ever. To date, they have raised over $154m in VC funding from the likes of Thrive, GV, CRV, Fifth Wall and Temasek just to name a few. As for Fritz, prior to ClassPass he was the Founder & CEO @ Livestar, a mobile recommendations startup that was acquired by Pinterest. Before that, he was a Senior Director in the Corporate Strategy Group @ Microsoft where he led several multi-billion dollar M&A evaluations and strategy projects including the Facebook investment and Yahoo deal. If that was not enough, Fritz is also a tremendously successful angel with a portfolio including the likes of Square, Pinterest, Wish, Flexport, Everlane and 75 or so more companies. In Today’s Episode You Will Learn: 1.) How Fritz made his way into the world of startups with Microsoft? How that led to angel investments in Wish, Flexport, Square and more? How he came to be CEO @ ClassPass? 2.) How did the $250m Microsoft investment in Facebook come about? What made Fritz so confident he told Steve Ballmer he was willing to bet his career it would be a $10Bn company? What was the decision-making process internally around that deal? 3.) How does Fritz assess his own asset allocation strategy? Why does Fritz not agree with thesis-driven angel investing? When starting angel investing, how did he approach portfolio construction? Why does Fritz believe it is immensely synergistic to be both an operator and angel? As a result, how does Fritz approach placing investors in a quadrant between helpfulness and high maintenance? 4.) Why does Fritz believe that your investor cannot be your recruiter? What have been Fritz biggest learnings on continuously attracting the best talent? Why does Fritz believe that it is BS that one should not celebrate fundraising? Ultimately, what does Fritz elieve fundraising signifies? 5.) ClassPass has expanded to 34 markets over the last few years, how does Fritz determine when is the right time to pour fuel on the fire? What are the 2 fundamental questions one must ask before you do? Does Fritz believe that aggressive growth and capital efficiency are mutually exclusive? How does Fritz think about capital efficiency with ClassPass today? Items Mentioned In Today’s Show: Fritz’s Fave Book: Endurance: Shackleton's Incredible Voyage to the Antarctic As always you can follow Harry, The Twenty Minute VC and Fritz on Twitter here! Likewise, you can follow Harry on Instagram here for mojito madness and all things 20VC. The reality is that hiring amazing developers is hard. Terminal.io is your dedicated partner in rapidly standing up world-class remote technical teams. How do they deliver both speed and quality? Terminal does this by focusing on everything necessary to successfully source, setup, and support these teams – from physical elements like beautiful workspaces and equipment to ongoing resources like HR, payroll, legal, professional learning and development. But don’t take my word for this, take the word of Eventbrite, former 20VC guest Hims, and Dialpad – all customers and lovers of Terminal. You can find out more today at Terminal.io. Whether you’re starting your own small business or getting serious about making your small business more efficient, you need to invite FreshBooks to the table. FreshBooks makes cloud accounting software that’s so ridiculously easy to use and you’ll quickly understand why over 10 million people use it to radically streamline how they deal with their admin and paperwork. Plus, FreshBooks can handle a lot more than accounting related tasks. Using FreshBooks is kind of like having your own admin assistant who’s got your back, 24/7. To claim your 30-day unrestricted free trial, click here enter Twenty Minute VC in the “how did you hear about us section”. Highfive makes meetings better for thousands of organizations with insanely simple video conferencing designed for meeting rooms. It’s the easiest-to-use solution, with all-in-one hardware and intuitive cloud software. Plus, it’s a high-quality experience with industry-leading audio powered by Dolby Voice. It’s so easy to use, that there’s no pin codes or app downloads. Just click a link in your browser, and you’re in the meeting. With customers in over 100 countries, Highfive is already trusted by the likes of Evernote, Expensify, and Betterment and you can learn more by simply heading over to highfive.com.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Welcome back to the 20 Minute VC with me, Harry Stebbings, and I'd love to see you on Instagram at H Stebbings 1996 with two Bs, where you can see all things behind the scenes from us at the 20 Minute VC and suggest guests and ask questions for future episodes. And speaking of episodes, today I welcome a guest I've wanted to have on the show for a very, very long time, a seasoned and immensely well-respected operator, a successful founder, and an incredible angel. And so I'm thrilled to welcome Fritz Lanman to the hot seat today. Now Fritz is the CEO at ClassPass, the startup that provides the most flexible fitness membership ever. To date, they've raised over $154 million in VC funding from the likes of Thrive, GV, CRV, Fifth Wall, and Temasek, just to name a few. As for Fritz, prior to ClassPass, he was the founder and CEO at Livestart,

• 0:44Harry Stebbings?

  a mobile recommendation startup that was acquired by Pinterest. And before that, he was the Senior Director in the Corporate Strategy Group at Microsoft, where he led several multi-billion dollar M&A evaluations and strategy projects, including the Facebook investment and the Yahoo deal. And if that wasn't enough, Fritz is also a tremendously successful angel investor with a portfolio including the likes of Square, Pinterest, Wish, Flexport, Everlane, and 75 or so more companies. I do also want to say a big thank you to Ryan Safer at Redpoint and Charlie Songhurst for the intro stay. That really does mean so much to me. But before we welcome Fritz to the hot seat today, the reality is that hiring amazing developers is hard, and it's much harder if you're looking only in a 25-mile radius of your office. And that's where Terminal comes in.

• 1:25Harry Stebbings?

  Terminal is your dedicated partner in rapidly standing up world-class remote technical teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up, and support these teams. From physical elements like beautiful workspaces and equipment, to ongoing resources like HR, payroll, legal, professional learning and development. But don't take my word for this. Take the word of Eventbrite, former 20 VC guest Hymns, and DialPad, all customers and lovers of Terminal, and you can find out more today at terminal.io. And speaking of products people love, whether you're starting your own small business or getting serious about making your small business more efficient, you need to invite FreshBooks to the table. FreshBooks makes cloud accounting software that's so ridiculously easy to use, even I can use it, and you'll quickly understand why over

• 2:10Harry Stebbings?

  Ten million people use it to radically streamline how they deal with their admin and paperwork. Oh, and FreshBooks can handle a lot more than accounting-related tasks. Using FreshBooks is kind of like having your own admin assistant who's got your back 24/7. And to claim your 30-day unrestricted free trial, go to freshbooks.com/VC and enter 20minuteVC in the "How did you hear about us?" section. But with every function, from accounting and finance to software development, communication across the team is really crucial. Enter Hi5. Hi5 simplifies business collaboration with a conferencing platform that builds connected cultures. It's an all-in-one solution, including intuitive cloud software and purpose-built meeting room hardware. Plus, it's a high-quality experience with industry-leading audio powered by Dolby Voice. And it's so easy to use, there's no PIN codes or app downloads.

• 2:55Harry Stebbings?

  Just click a link in your browser and you're in the meeting. Growing fast with customers in over 100 countries, Hi5 is already trusted by the likes of Harry's, Rula La, Expansify, The Atlantic and Betterment, just to name a few. And to learn more and start simplifying your team's video and audio conferencing, visit hi5.com/20vc. That's hi5.com/20vc. But I'm now thrilled to hand over to a very special guest, Fritz Landman.

• 3:24Speaker 01

  You have now arrived at your destination.

• 3:28Harry Stebbings?

  Fritz, it's such a pleasure to have you on the show today. I've heard so many wonderful things from Charlie Songhurst, Ryan Sarver, Adrian Ioun. So thank you so much for joining me today, Fritz.

• 3:37Speaker 02

  Hey, it's my pleasure.

• 3:38Harry Stebbings?

  I'd love to kick off today with a little bit about you. So tell me, serial entrepreneur, active angel investor. But how did you make your way into the world of startups? And then, second, come to be CEO of ClassPass?

• 3:49Speaker 02

  Yeah, good question. My foray into tech was actually straight out of undergrad. I was graduating from Yale in the heart of the dot-com crash in 2003. And, you know, most of the jobs that come to campus for recruiter, banking, consulting firms, it wasn't exactly the best time to do that. Microsoft was starting a program to hire undergrads onto the business side. And I was in the inaugural class of that. So I went there and I was a product manager for a few years. And then I switched into corporate strategy and had a bunch of years doing that at Microsoft. Kind of learned not only how to ship software at scale. A lot about sort of how you manage business model evolutions, but we also did some fun deals. Like I led the deal team on the Facebook investment that we did way back when, two thousand and seven, almost a quarter billion.

• 4:30Speaker 02

  So it was really that experience of being at Microsoft, leading some investments, getting to know the startup community that then compelled me to become an angel investor. I started writing small checks personally and then with a partner, a guy named Hank B. Hill. Got pretty lucky with some of the early bets. It was a seed investor in Square and Pinterest and Wish and a couple of other great ones. Probably got overconfident, overallocated to the asset class, but ultimately angel investing was what then kind of compelled me to leave and strike out on my own as an entrepreneur. So the story was really got to Microsoft, sort of people have called it an inverted tech career where got to Microsoft, became an executive at a big company, then became an angel investor, then became an entrepreneur, which is sort of the opposite of how most people usually do it.

• 5:11Harry Stebbings?

  Can I ask a off the bat question here, but you said about over allocated to the asset class. How do you think about your own asset allocation today and has that changed since those early more enthusiastic days?

• 5:23Speaker 02

  Well, you know, a lot of my close friends laugh at my over allocation because I don't really adhere to the portfolio diversification theory that most people adhere to. Which is probably approach. So I'm basically all cash or hyper speculative, early stage technology equities. And those are either equities that I've earned or kind of created by companies I've started from scratch or, you know, got advisor shares into by helping entrepreneurs get off the ground. Or the majority of cases, they're equity stakes that I've purchased. And the reason that I'm so heavily allocated is first, I'm just so incredibly long on tech. You know, I think that this is a sector that is going to be, you know, the greatest source of wealth creation opportunities for the next 50 years.

• 6:05Speaker 02

  As quote unquote, software eats the world and yada yada, all the, all the taglines that, you know, your listeners will all be aware of. But also because of two other reasons, which is first, aside from just being bullish like everyone else who's writing checks into tech. I think I have kind of two different things, which is one, I believe that I have sort of unique deal flow, unique access and unique experience here that gives me an advantage. I've been very humbled by the public equities markets and so I think I. I know this industry pretty well and I don't know many other investment areas very well. And so I've always found that just concentrating doubling down makes me more confident in my bets. You know, in a space that I have differentiated IQ in. And then the third is really the tax arbitrage, which I don't think is talked about enough.

• 6:45Speaker 02

  But the fact that you can get Q S B S qualified small business stock exemptions from federal capital gains tax here in America. You know, I do do deals in other places, but in in America, you get this federal exemption. And people don't talk enough about how beating taxes can lead to super normal ROI or IRRs. And so that just feels like an advantage that I can get that makes it hard for me to win in other asset classes.

• 7:08Harry Stebbings?

  No, I'm absolutely with you. Publicities gives me goosebumps. But I do want to slightly delve back into the world of serial entrepreneurship that you slightly touched on there from founding Livestar and Doppler. I'd love to hear, what was some of the big takeaways that both worked and maybe didn't work? That you've taken with you to today as CEO of ClassPass?

• 7:26Speaker 02

  Too many humbling lessons across my various entrepreneurial ventures. So ClassPass is my fourth company. It's the only one that I wasn't that I've operated that I wasn't a co-founder in. My partner, Pyle, and her partners had gotten the company off the ground. And I led the seed round when the company was pivoting from a previous incarnation into ClassPass. And then I, six months later, led a Series A for the first and only time into the company and became the chairman. And that was really a way for me to kind of buy a piece of the business to justify becoming a chairman, becoming really the extra, the new partner for the founders. Who then Pyle ultimately asked me to step in and operate the business because our skill sets were very complementary. And as the job was getting bigger, she was spending less time doing the things that she wanted to do. So this one kind of worked out nicely.

• 8:10Speaker 02

  In terms of the previous three were Livestar, which was sold to Pinterest, Doppler, which was not exactly a great outcome, which was well publicized. And can read about Wired Magazine did a big deep dive on kind of how that company, which was very hot, very promising. We built a lot of really cool stuff, how it didn't work. And then the third was a company called Download, which pivoted into Verse, which was Greylock backed, which was picked up by Dropbox. So the lessons as an entrepreneur, you know, you learn a lot. I always say my operating of startups has actually made me a much sharper. Or investor and my investment hat has led me to see and learn from seeing so many different entrepreneurs and be able to kind of see what they've done that was worked really well, what they've done that hasn't worked really well. And so I found it very synergistic to be an operator investor.

• 8:53Speaker 02

  Lessons from the startup life have been just too many to list, but a couple of of interesting ones. I think the first is investor selection is really important. I pitched myself as an investor to entrepreneurs as saying, look, I think of investors on a two by two matrix. How helpful are they and how high or low maintenance are they? And obviously you want investors who are low maintenance and high helpfulness. But I think one interesting insight is I've learned that I'd probably take an investor who was unhelpful and low maintenance over an investor who's helpful and high maintenance. I think as an operator, you just have so much going on. You know, you have to wake up every day thinking about recruiting, making payroll, making progress. I mean, the startups are being thrown into the arena and they have enough to worry about, let alone jousting, I guess, with investors on strategy topics and stuff.

• 9:35Speaker 02

  An angel at least has never solved, as far as I know, solved the business's problems or been responsible for a startup's success. It's always about the operators figuring it out on their own with some guidance and some coaching and feedback. But I've really learned that being low maintenance and having investors on the cap table who are high helpful. But you know, there when you need them, not really there when you don't need them is extremely valuable.

• 9:55Harry Stebbings?

  Can I just interject there and say, where do you find startups most draw your help and require it? Their commonalities?

• 10:02Speaker 02

  Three areas. One is general strategy because I, you know, led a corporate strategy team in a big tech company that had seventeen different billion dollar businesses. Like I'm never going to be as good as somebody who's such a domain expert as a founder in their area. But you can kind of bring framework thinking, structured thinking and pressure test their assumptions and see if I can help identify any gaps in their logic or thesis. The second is typically on fundraising. And this industry always says we shouldn't celebrate financings and I say bullshit to that. The reason is that a financing is a lagging indicator of whatever you've done over the last six, twelve, eighteen months. And so it's a reflection that you did something good, that you made some good progress and momentum. The second reason why I celebrate financings is because half of the battle is just earning the opportunity to play the game.

• 10:47Speaker 02

  And it's like the hedge fund private equity industry or. Or even VC for the last thirty years. Like if you were just in the asset class, you were gonna do well. If you had a bunch of other people's money stacked behind you on a two, two percent management fee, twenty percent carry investing structure. Like you didn't even have to be that differentiated that much better. And as Warren Buffett and others have pointed out on the hedge fund side, you know, you didn't even really have to beat the S and P five hundred or just any equities index where you could park your cash in order to generate enormous wealth of, you know, relatively mediocre returns because they're leveraged. So I celebrate financings because one, it means that you've done something great. It's a lagging indicator of the last twelve months of performance and progress. And two is now you've earned the right to go for the next hill.

• 11:26Speaker 02

  So many great entrepreneurs, I think equally I'd bet there are substantial amount of entrepreneurs who had the right idea, were in the right space, who could have figured out right formula to build a big company and just couldn't get funded. So I celebrate financings for my entrepreneurs because they've earned the right to kind of get to the next frontier. And last area that I really help with is on people and processes. Certainly on recruiting, but an investor can't be your recruiter. You know, it's give a man a fish, feed him for a day, teach a man a fish, feed him for a lifetime idiom. It's really true, which is, you know, learning how to bring people into startups is an art, not a science. And takes a lot of mistakes being made to get really good at it, to be able to figure out the right kind of talent. You know, not just capability, but culture fit, because those are probably the most fragile and important decisions that a founder can make is who to bring in.

• 12:09Speaker 02

  Who are the bets that the founder is going to utilize their investment capital against? And I think it's the single most important thing, you know, that a founder can do in a startup is recruit the right people.

• 12:17Harry Stebbings?

  I do have to say in preparing for this interview, the commonality amongst all the portfolio founders I spoke to was just how incredible you've been as an angel and low maintenance. So I congratulate you on that one.

• 12:28Speaker 02

  It's also a little bit self-serving because I'm so busy that I can't be as helpful as I'd like to be to many. Apparently I have to be low maintenance. So, you know, just the last piece I help companies with is on their processes. So many of these founders didn't grow up in a mega company. Microsoft had things that they were great at. They had some things that they weren't so great at culture wise and process wise. And I've tried to steal from them, from Amazon and from, you know, what I saw, you know, Facebook and other companies and also my best startups. And whether it's Ben Silverman's product thinking at Pinterest and try to figure out my own. Processes, decision making frameworks and best practices that I can share. That work at startup scale instead of just a big company scale. So that's how I try to be helpful.

• 13:08Harry Stebbings?

  I mean, we covered so much of the gambit there, but I I'd love to break the interview stay up for us into a couple of different segments being Microsoft, the Facebook investment, then maybe move to the incredible angel portfolio we touched upon. And then the exciting times ahead with ClassPass. Does that sound good?

• 13:22Speaker 02

  Perfect.

• 13:22Harry Stebbings?

  Okay, so starting on the Facebook investment and the background with Microsoft, leading several multi-billion M and A projects. I'd love to start with a question from Charlie Songhurst. Talk to me about how the Facebook deal came about and maybe your decision making around kind of building conviction in the deal.

• 13:38Speaker 02

  So Charlie and I, whilst in a in a small group of really talented folk, there's a group of us that was working in this this strategy function. That was focused on the platform services division at the time, which was Kevin Johnson, who's now the CEO of Starbucks. He ran the Windows advertising and Internet services group of Microsoft. So the way that the Facebook deal came around was our team would always be looking at big transformative deal opportunities for our Internet services division. Or online services division, as it was called. We had done the early work that got Gates and Bomber focused on Google as a threat to the business. And at the time, back then, they were more focused on the enterprise side and on the threat that Linux kind of represented.

• 14:17Speaker 02

  And so we had gotten the company pretty focused on Google. We had quarterbacks with our corp dev counterparts, a bunch of the big pieces of the Yahoo deal that that we tried to try to get done and ultimately got a variation done. And Facebook had come around, come to our desks and we were made aware of it. Pretty much the first time, I think, was when they were going to get acquired by Yahoo. And it was so early, we didn't really have a thesis. So that was when I'd kind of, I'd heard about it through my little brothers who were at university at the time. One was at Yale, which was in second or third college after Harvard to to get access. And it was very small and give Yahoo credit that they're even there, you know, ultimately they didn't get the deal done. But they were talking about numbers that we just thought were really outrageous.

• 14:56Speaker 02

  But I kept an eye on the business and I saw it as it started to spread beyond just being a profile for college students at Harvard to just Ivy Leagues to all colleges. You know, we then started to see that the potential for crossover when. They opened it up to high schools and it seemed to be working just as well. And I think really the news feed was the moment which at the time was considered extremely controversial. But when we saw that come out and we'd been so focused on how to build up ad inventory in the fight against Google for the online service division that we saw that this could become not just an opportunity to capture a lot of eyeballs to serve ads against, but a platform in its own right. We really had a similar vision for Facebook that they did and we had this online messenger asset that had hundreds of millions of users.

• 15:38Speaker 02

  And so even though the deal didn't work out, the first time we saw it, we just, we weren't ready to engage. But we kept an eye on it and we kept close to them and we went back and we were, you know, really excited about finding a way to partner on search, on advertising and to support their growth. And I think ultimately, you know, I remember Steve Ballmer asked me if I bet my career on Facebook being worth 10 billion, which is what my team and I had kind of come up with. And we didn't have much downside, so we really had to take the bet. But yes, Steve Ballmer and Chris Liddell, who was the CFO at the time. I remember we engaged with them, they weren't using the product yet, but we got Ray Ozzy, who was the chief software architect at the time, he got really excited about it. He spent some good time getting into NoZuck and Kevin Johnson got excited about it.

• 16:19Speaker 02

  And ultimately, you know, those guys were looking to my team and I, who are younger people, we're using these social networking products ourselves and we were seeing how Facebook was spreading organically and virally. And ultimately, once we were able to compose this platform vision for where Facebook could go and how it could integrate with Microsoft's assets, we went down, we started to engage with Facebook. We learned that they had a much bigger platform vision than we could even understand. And so we tried to get a deal done and we were lucky that we were able to consummate a big $240 million investment and add and search data partnership.

• 16:50Harry Stebbings?

  No, absolutely. And what an investment it turned into. But I am intrigued because we had Elad Gil on the show recently and he said that we're all looking for the truly next rich vein to explore. I'd love to hear, given kind of your excitement around the Facebook deal and really some of the stellar angel investments that you've made kind of in the space, how would you respond to this suggestion from Elad on the end of this tech cycle? Maybe considering Snap being one of the biggest, most recent consumer assets now quite a long time ago.

• 17:17Speaker 02

  That's true. You know, I talk a lot about Veins of innovation and looking at companies that correspond to them. I used to be a thesis driven angel investor where I would come in and I had a thesis about a given sector and I'd look for a company that fits that thesis and then I'd invest in it. But I very quickly learned that it's too hard to model the world and all of the potential opportunities. And so many of my best angel investments ended up being in spaces that I knew little to nothing about. I mean, my first one was Square and I had looked into payments a bit for Microsoft because, you know, we had so much cash in the balance sheet that one of the things we could have done was become a bank. And we could have gone after digital currencies and stuff and we had really interesting conversations about that. But ultimately, I didn't know much about the space and I met Jack and decided,

• 18:02Speaker 02

  how many chances in your career do you get to bet on somebody like that? And so, you know, I kind of made that bet without really understanding the payments industry. Or Pinterest is another example where I had never been using catalogs and stuff. I'd collected butterflies as a kid and done some of these things that I think work well in terms of this digital form of Pinterest. But really, it was only until I went to my wife and saw her as one of the very first users of the product, because I was looking at investing in it and I was lucky enough, I'd gone to Yale with the founders, Paul and Ben and my good friend Shannon Fisher and Tru's Hank, my partner and I did the deal. It was really only when my wife kind of looked at it and started telling me about how she could use it for planning a wedding and planning her interior design that I saw its potential. So it is true that we're all looking for veins of innovation.

• 18:44Speaker 02

  I mean, but I think the veins themselves are somewhat evident and obvious. I think crypto is super interesting, machine learning, anything having to do with machine learning, whether you're improving fundamental machine learning technology itself by selling pics to minors or employing it in some way that is creating an application or existing behavior, making it a lot richer. But honestly, I think the veins are actually pretty well known. I think that the the next big thing is going to be an incredible entrepreneur with some unique insight in some place that we don't know about, potentially logistics. I think there's a lot of interesting stuff going on in logistics industry right now. But I'm finding myself having to learn more about biotech and healthcare and other adjacent sectors as well that are being disrupted by technology. And that's a challenge as an angel investor because it's hard to become an expert in so many different markets.

• 19:28Harry Stebbings?

  No, I couldn't agree with you more on logistics. Ryan at Flexport from your portfolio is a personal favorite of mine. But I do want to discuss, you mentioned the angel investments there and it's easy to look at your angel portfolio and the many home runs in it. But I'm intrigued, when starting, how did you think about portfolio construction, check size consistency? Was there an academic kind of thesis around this?

• 19:48Speaker 02

  No, I was the worst ever. I wrote my check into Square, straight out of my personal checking account. And then I teamed up with this guy Hank Behill, who was one of my mentors at Microsoft. He's a prolific investor and dealmaker. And he was figuring out his next chapter after a long, super successful career at Microsoft. And we were so naive, we just created an LLC, you know, parked some money in it. Like, we didn't know anything about fund formation, let alone portfolio construction and tax optimization and, you know, how to do this thing. And so I started off very reactively and just kind of picked up the trade from there. Was lucky enough to have some wins and in this business, the more wins you have, the better deal flow and the easier it is to get into deals. And so there's a nice positive reinforcement loop that I and he and others have been able to benefit from.

• 20:33Speaker 02

  But I had absolutely no idea what I was doing when I started.

• 20:36Harry Stebbings?

  Can I ask, did you have a mentor who kind of taught you the fundamentals as you progress through the angel investing?

• 20:41Speaker 02

  Not really. I mean, I would say a bunch of us were just figuring it out together as we went. You know, I kind of started and Hank was separately investing and so we kind of got going. And then we brought a bunch of friends along and a bunch of friends were also just kind of figuring out how to do it at the same time. Whether it was Charlie Sommer or Adrian Aoun, who were up with us in Seattle and starting to invest. Or the S T Angel guys were really the only ones that I, in the very beginning, started that had been doing it for a long time. So they were certainly helpful in giving, you know, me a little bit of personal advice about how to do it and sharing deals. But others like Mike Marquez and Ash Patel and Murata were starting to invest. And, you know, several of these seed funds and friends were doing seed funds. And so I think a lot of us in the industry back in 2010, we're kind of starting and figuring it out together.

• 21:24Speaker 02

  We were kind of a class of vintage behind the Chris Saka's and the, you know, two vintages behind the Ron Conways of the world. So we were able to benefit a bit from what those guys were figuring out in terms of their mistakes and their successes. And in the case of Chris Saka, I'd figured out that you could create these SPVs. And your winners and stuff, but we're all figuring it out as we went. And I think it's continued to evolve tremendously and Y C and other others have kind of changed the game even since when I started.

• 21:49Harry Stebbings?

  But before we touch on ClassPass, you mentioned earlier, kind of the benefits that you've derived from investing, both operationally and investing as you've progressed. I'm really intrigued to start with something that Adrian Iun said on the show recently. And he said that it's phenomenal to be on the other side of the table and see how investors act behind the scenes. I'm intrigued, given your kind of operational in the trenches stance today. How have you seen investors act on the other side of the table when you're co-investing with them? Have there been some learnings there?

• 22:17Speaker 02

  There have, but I think if you're playing with reputable investors and again, you kind of figure out who has similar style and culture as you. And because as an angel, you know, our business is dependent on having these great alliances with many different types of investors. And part of my proposition is that I can help a founder build their cap table with the right investors. So certainly you kind of learn a lot about investor psychology and you learn how to read. When you're raising money yourself, you learn how to read an investor better and you know, how interested they are. You can read their concerns pretty well. And certainly it's made me better at pitching because I think about what is the investor? How do you create your thesis as an investor and how do I answer those talking points? Adrian, it sounds like he was alluding to some bad behavior, which certainly I hear about a lot.

• 22:59Speaker 02

  I've seen on very seldom occasions and you know, the people that I co-invest with don't sort of adhere to those types of practices.

• 23:06Harry Stebbings?

  Yeah, no, absolutely. He was saying that he's seen the kind of investors and how they react, both in good and bad times. And how actually the only thing that matters is how you react in bad times was his takeaway from that. But I do want to touch on ClassPass today, the incredibly exciting times ahead. Cause we've seen a period of hypergrowth in in recent years, expanding pretty aggressively into the UK, Australia, and 34 other markets, according to my research. I have to ask, how do you think about the right time to really pour fuel on the fire, so to speak, with ClassPass?

• 23:36Speaker 02

  So we're actually up to 50 cities now in four countries, Australia, UK, Canada and the US. And we are just beginning to pour fuel on the fire again. And so in our case, ClassPass is the Netflix of Studio Fitness, but the dream is actually to become. The Netflix for all interesting experiences in your life and to go way beyond studio fitness and add gyms and wellness stuff so you can get massages and cryot treatments. But then even to take it a step further and to connect you to other inspiring experiences, whether that's volunteering at a homeless shelter on a Saturday afternoon to taking your partner on a cool pop up chef date night thing, taking your kids to a cool experience, et cetera. So it's a pretty ambitious vision. And so, you know, I think in terms of when you hyperscale, you need to think about a couple of things. The first is, what is the reason to hyperscale?

• 24:20Speaker 02

  I think there's two reasons, at least in my experience at ClassPass. The first has been competitive. We invented the market, Pyle invented this category of this indirect subscription aggregator. And there's been a lot of ClassPasses for XYZ. Well, there were a lot of just straight up ClassPass clones. And early on in our company's life, I called up the guys, Emile and Travis at Uber, and asked them, you know, what is their opinion? We feel like we invented this business model and it was working really well in New York City. And suddenly we're hearing about clones in every city in America. And their advice was, their only regret was that they hadn't scaled faster, which is crazy because those guys were so aggressive in how they scaled. And so they said, do whatever you can now to get as big as you can, as fast as you can. So the first reason we scaled the company and went into hypergrowth,

• 25:03Speaker 02

  which was going from one, or maybe by that time we'd been up to four or five markets. We added another 20. That was to really establish an unassailable leadership position in the US. Because if you win in the US or if you win in China, those are really the two markets that you can achieve enough scale that you can export massive advantages to other international markets. So we thought it was really important to get to scale first and to make sure that there was as few clones as possible because it was leading to really unhealthy behavior in the market, like really extreme pricing and promotion and stuff like that. We then stopped. We had to kind of evolve our business model. We had to listen to customer feedback. We had some constraints about the products. Our unit economics weren't in tremendous shape back then. This is now two years ago after we'd completed the scaling stage. And we said, okay, we're going to stop scaling

• 25:48Speaker 02

  and we're going to get our business into incredible shape. And that's really what we've been doing over the last two years. We've gone through two kind of model iterations. The first was moving away from unlimited classes for a fixed monthly. Price to having multiple tiers or you could buy five classes a month or 10 classes a month. So you could use ClassPass as a supplement or as your primary workout option. And then about six months ago, we started to introduce a new credits model where you buy credits each month. And you can spend those credits on a variety of experiences at different price points. And suppliers, there's kind of a marketplace dynamic now where the suppliers can set lower prices if they want more volume. They can charge higher prices if they want to surge price a spot that's in higher demand in a class. And that has given our customers more choice and our partners and suppliers more flexibility in how they price their extra capacity.

• 26:33Speaker 02

  And it's really improved our fundamental unit economics to the stage where we're now going and hyperscaling. So the first reason to hyperscale was competitive and establishing a leadership position and trying to preserve the health of the aggregator ecosystem in the U.S. The second and reason that now we're beginning to enter this and we're scaling globally and also the smaller cities in America is that the model is really working tremendously well. We have great unit economics and so it's our opportunity to go capture. And we just need to find a place where it doesn't work. We found that it works in any zip code that has five studios in it. So even a small town like Missoula, Montana, where we just opened an office, we launched ClassPass there. There's only 18 studios in a town of 65,000 people and it's working. So reason one was competitive and market dynamics.

• 27:16Speaker 02

  Reason two is when you have a great model that's really working, you have product market fit and business model fit is to just scale your business as fast as you can.

• 27:24Harry Stebbings?

  Final, final question for the quickfire round. Hearing that, do you think that actually capital efficiency and aggressive scaling are mutually exclusive? Given the fact that one has to kind of peel back, stop scaling, get the business in order before one can regain scaling again, so to speak?

• 27:39Speaker 02

  It can be achieved, but it's pretty difficult and I'm not sure it's necessary. Like certainly you never want to light dollars on fire unnecessarily. But in most cases, I would say if the land grab reason is strong enough, you shouldn't be concerned about optimizing every dollar spent. Like if the opportunity is big enough, then you can justify optimizing for speed over IRR on each dollar spent. And I don't think that there's anything to be ashamed about if you're pursuing a big enough opportunity. That being said, I have seen other businesses scale. Aggressively, capital efficiently, with strong ROI justification. So it is possible. I'd say it's getting harder and harder in a world where everybody's employing the same A B optimization

• 28:20Speaker 02

  on Facebook, Instagram ads, Google ads, when everybody's employing similar tactics on social referral type marketing and affiliate marketing. So the channels are getting a little bit more saturated and there's still nothing like viral organic growth to fuel your business. But I'd say it's getting a little bit more expensive to juice your growth through paid channels. And so I'm seeing less and less companies with an ability to hyper scale, you know, while being very ROI driven. I think it can be ROI driven, which is one of my best angel investments, and those guys are probably the best performance marketers on the planet. And that company, a lot of people don't even know about it. And half the secret for them has been the product and the logistics that they've been able to figure out. And I think a big percentage of why they've built a big, super successful business is because they are the best ROI driven marketers in the industry.

• 29:03Harry Stebbings?

  I mean, do not get me started on paid marketing. It's one that I could talk about for hours, but I would love to move into my favorite element of any interview being the quickfire round. So are you strapped in for it? Sixty seconds per statement.

• 29:14Speaker 02

  I'm ready.

• 29:15Harry Stebbings?

  So your favorite book and why? What must I be reading?

• 29:17Speaker 02

  Endurance, which is about the 1906 Shackleton adventure across Antarctica. I think it's just important for us to all have examples of really positive human achievement, leadership lessons and exciting and interesting sort of intellectual or emotional indulgences here and there. And that book hits all three, you know, great adventure story, one of the best adventure stories, you know, in history, combined with excellent leadership lessons and insights. And it's just a really fun book. You won't be able to put it down.

• 29:44Harry Stebbings?

  No, I'm adding it to the list, but what motto or quote do you frequently revert back to, Fritz?

• 29:48Speaker 02

  I think it's fortune favors the bold. Like every time I've had to make a big decision, I've tried to take the riskier, less comfortable option and just put myself out there. And I think just being in the arena is like a lot of, you know, highly differentiating yourself. Like so many people get held back because of fear of failure and fear of the unknown. And it's always just served me well, especially since I left Microsoft, because I was in the big, comfortable cocoon there and had an incredibly rich, intellectually stimulating job and financially rewarding job with great colleagues. But since I left, I've just increasingly taken. You know, bold risks and I've had a lot of mega face plants and the resiliency that you develop, the thick skin, the sort of wartime mentality that you derive has made me interested in taking bigger and bigger risks and bolder and bolder bets.

• 30:32Harry Stebbings?

  One of my favorite ones, how do you deal with those shit hit the fan moments?

• 30:36Speaker 02

  Well, for me, I lean on, you know, my wife, who's my like therapist and support. I think it's hard. It's not, it never gets easier. You know, the highs are high, the lows are low, but I've had some really big tough ones, like Doppler Labs not working out at a company, which we raised a lot of money. We developed really incredible IP and a product we were super proud of. You know, we thought that that thing was going to be one of the biggest companies in tech and we had acquirer interest at, you know, levels that, you know, I never thought I would see in any of my companies and it didn't work out in the end. And so, you know, really, I think what made me able to go through that experience was that I had had enough experiences like it before or, you know, even small failures. In current society, there's so much pressure to be successful in, in school and go to the right college and get the right job and then get the

• 31:20Speaker 02

  right promotion. And I think, you know, what's interesting about this industry is you almost have to have failures and face plants to, to be successful. It's almost a prerequisite and it's something to be celebrated and as long as it was a well executed failure and you learn from it. And of course, if you have the right investors who are understanding and can bet on your next one, you know, I see it as progress instead of failure.

• 31:38Harry Stebbings?

  Can I ask, with so many facets of your career and kind of activities, what would you like your legacy to be?

• 31:43Speaker 02

  You know, I don't really think too much about my legacy. I think about it as I'm very internally motivated. I want to leave it all on the field and when I die, I want to say that I came as close to reaching and achieving my potential for impact on the world and interesting, rich, rewarding work and interesting, rich, rewarding social and family life as I can. I think legacy, that's a dangerous thing to, to get obsessed with. That's probably why I'll never be Jeff Bezos or someone, someone like that, you know, Bill Gates, who's literally cured a few diseases, you know, with his wife on, on their own. I'm not as driven by that as I am, sort of the personal challenges. I've got some talents and I'd like to make sure that I, I leave it all on the field.

• 32:17Harry Stebbings?

  No, I love that. But I want to finish on the next five years for you and the exciting roadmap I have with ClassPass.

• 32:23Speaker 02

  Yeah, I'm having the time of my life scaling this business. I get to wake up every morning thinking about how to motivate people to become healthier. And happier, more inspired version of themselves. And you spend as much, if not more, of your time, of your waking conscious hours in life, working than you do even with your own family. And those two things are probably what determine whether you're happy or not in your life. And so, you know, I just feel really lucky that I've kind of stumbled into meeting pile, getting involved in this company and then being given the chance to lead it. And I'm really having the time of my life. So I'm hopeful that this is my last job and that I can do it for a really long time and turn it into an economic engine that will just allow me to continue to place more interesting bets on making people healthier and happier. And, you know, hopefully make a little bit of money on the side, continue to angel invest and help other entrepreneurs.

• 33:07Harry Stebbings?

  Well, I mean, I have to thank you because you're the reason I go to Pilates most mornings. So a huge thank you for that. But as I said, I've heard so many great things from Charlie Songhurst for so long. So it really has been such a pleasure having you on today, Fritz.

• 33:19Speaker 02

  Cheers. Thanks, Harry.

• 33:21Harry Stebbings?

  And I have to say, it really was such a huge pleasure to have Fritz on the show, such a big admirer of his incredible career. And you can find him on Twitter at Fritz Zanity. Likewise, we'd love to see you here behind the scenes at the 20 Minute VC. You can find us on Instagram at H Stebbings 1996. It'd be great to see you there. But before we leave you today, the reality is that hiring amazing developers is hard and it's much harder if you're looking only in a 25 mile radius of your office. And that's where Terminal comes in. Terminal is your dedicated partner in rapidly standing up world-class remote technical teams. How do they deliver both speed and quality? Well, Terminal does this by focusing on everything necessary to successfully source, set up and support these teams. From physical elements like beautiful workspaces and equipment to ongoing resources like HR,

• 34:04Harry Stebbings?

  payroll, legal, professional learning and development. But don't take my word for this. Take the word of Eventbrite, former 20 VC guest Hims and DialPad, all customers and lovers of Terminal. And you can find out more today at terminal.io. And speaking of products people love, whether you're starting your own small business or getting serious about making your small business more efficient, you need to invite Freshbooks to the table. Freshbooks makes cloud accounting software that's so ridiculously easy to use, even I can use it. And you'll quickly understand why over 10 million people use it to radically streamline how they deal with their admin and paperwork. Oh, and Freshbooks can handle a lot more than accounting-related tasks. Using Freshbooks is kind of like Having your own admin assistant who's got your back 24/7 and to claim your 30-day

• 34:44Harry Stebbings?

  unrestricted free trial, go to freshbooks.com/VC and enter 20 minute VC in the how did you hear about us section. But with every function from accounting and finance to software development, communication across the team is really crucial. Enter Hi5. Hi5 simplifies business collaboration with a conferencing platform that builds connected cultures. It's an all-in-one solution, including intuitive cloud software and purpose-built meeting room hardware. Plus, it's a high-quality experience with industry-leading audio powered by Dolby Voice. And it's so easy to use, there's no PIN codes or app downloads, just click a link in your browser and you're in the meeting. Growing fast with customers in over 100 countries, Hi5 is already trusted by the likes of Harry's, Rula La, Expensify, The Atlantic and Betterment, just to name a few.

• 35:27Harry Stebbings?

  And to learn more and start simplifying your team's video and audio conferencing, visit hi5.com/20VC. That's hi5.com/20VC. As always, I so appreciate all your support and I cannot wait to bring you a stellar set of episodes next week.