In this episode, Simon welcomes Nicholas Hinrichsen, the CEO and co-founder of Clutch and advisor of Volanty. He is dedicated to helping Credit Unions improve the financial well-being of their members. Raising venture capital is the easiest thing a startup founder is ever going to do. Listen to how Ryan Peck shares steps we can take to raise capitals for business.

3 Valuable Insights

• Experiment before selling the product
• No company that you see that successful started out doing exactly what the company is doing right now, but people, people serendipitously stumbled into whatever they're doing right now
• If money is your own motivator, the main motivator will not last long at all, because it's just too painful

Show Notes

(00:15) Simon: Welcome back to the strategy sprints podcast. I'm Simon Severino, you know, your host and my guest today, co-founded a company called Carlipso. So after graduating from Stanford business school, he then went through Y Combinator accelerator in 2014, raised a total of $10 million in venture funding by 2015 and sold the business to carvana.com in 2017. He left then Corona earlier this year to get into the auto loan refinancing space. Welcome everybody. Nicholas Hinrichs.

 (00:54) Nicholas Hinrichsen: Thanks for having me

(00:55) Simon: So cool to have you here. And today we talk how you raised 10 million and then another 10 million, because right now, most of our founders who are listening here are raising and it's harder than ever to raise right now for them. And especially the, there is the temptation to lose too much time when, when raising money, because as we know, time should go into making the customers happy. So acquiring them, engaging them and making them raving fans. So we are honored to have you here. And what are you currently creating

(01:39) Nicholas Hinrichsen: Good question. So my co-founder, I'll go into the story in a second, tricked me into the car space. I'm not a car enthusiast at all. He is usually the first business was telling you cars online. Now we went into the business of helping Americans particularly save money on their car ownership. So this could be on their car loans because most Americans have a loan in their car, but on all the insurance products as well. And so the best way to help Americans who own cars is to go through the lenders who give out the loans and particularly credit unions, credit unions are like spa custom in Germany. Um, and so we're building software for these credit unions, so they can reach out to their own members, refinance their car loans and sell them better and cheaper insurance products.

(02:27) Simon: This is so cool. And we were chatting just to warm up before the show and that you are originally from Bavaria and I’m not a lot about into cars. But first thing I said is, Oh, I was so much in Bavaria work when I did the strategy with BMW, with the CEO, Nova Tritofa and we were doing the i3, i8 strategy and that's strategy rollout. So for four months and months and months, that was my office good easing. And you said your school was there. Your school was there.

(03:00) Nicholas Hinrichsen: Went to school there. Yeah. I went to a high school, basically gymnasium from the sixth to the 11th grade before we moved to Hamburg. And it's funny that you mentioned BMW because I remember when BMW introduced the M5, they introduced it at good easing, which was go easing. And so we were coming out of school, going to the bus stop and we saw these incredible cars going up the Hill. Um, and so I very vividly remember BMW being very present in that area. It's so funny. What a small world sufficiently to live very close to, uh, back then the CEO of a BMW used to live very close to where we used to live. He spent the weekends in the Kinsey

(03:42) Simon: Kim's is such a wonderful space. And so now you are into something completely different there also, but first let's talk about this raising money thing. What did you learn? Uh, how did you start and what did you learn on, on your own?

(04:01) Nicholas Hinrichsen: Yeah, to answer that question, let me go back one step, tell you a little bit about, about my entrepreneurial journey and then we'll get into the fundraising naturally. So I'm from Germany originally. I moved to the U S in 2011 to go to business school. Um, I really wanted to go to San Francisco or to the Bay area to start a tech company. And the thought the best way for me as a foreigner with not tons of experience in tech would be to move there and go to business school, which worked out really well for us at Stanford. That's where I met Chris. My future co-founder he's American was MIT. Undergrad worked for McKinsey many years. And as I said, each car enthusiast, and then towards the end of business school, we ended up selling our classmates cars. So we just helped them sell their cars because they were leaving the area, moving to the city.

And then we were selling more and more cars than our professors and lecturers heard about it. And when I had a beer with one of them and told him that I don't know what to do with my life. Cause, uh, somehow I ended up selling cars up to business school. He said, you should make this a business. And if you do want to make this a business, here's $50,000 if you want to get started. And so it was very different than you think. Like I didn't, didn't go out to raise money actively. It was one of my professors, lectures, mentors, and now very good friends who encouraged us to make it a business. Cause he said, the car space is a little messed up and needs, needs some innovation and we're enthusiastic and gets our get out hands dirty. So we would be the right entrepreneurs to take a stab at it.

And uh, that's, that's what kicked off our seat fundraising. We thought we'd raise 200, 300, $400,000. Ended up with 1.2 million dollar. Um, again, mostly from professors and lecturers, then we chose to go through Y Combinator, the startup accelerator experience. And when we hit product market fit, which means when we were selling more and more cars and capital became the bottleneck. We started reaching out to venture capital investors, who we had been in touch, who we had been keeping posted on our progress and told them, Hey, for the first time in a year and a half capital is the bottleneck now to grow the company. And they said, yeah, that's what I'm good at giving you capital. And so we ended up raising $10 million mainly because we had found product market fit and the company was scaling pretty rapidly at the time. Does that make sense?

(06:18) Simon: Absolutely. And what would you tell somebody who right now is raising money in terms of what to take care of? Not to waste too much time and, and, and other other possible pitfalls that you have encountered

(06:35) Nicholas Hinrichsen: Well, it depends very much in which stage of the company you are, let's say it's relatively well-structured now at least in the US you have pre-c, you have c and then you have c a b that it becomes more growth capital. And we can go into that too. But if you're, if you're passionate about a space, but you don't have a co-founder and you don't have an idea quite yet, you just know that it's a space you're interested in, then you should go for a precede round. Like in America, you would raise somewhere between half a million and the million valuation of say 4 million or so. And it gives it time and space to experiment and figure out what product do you want to build once you nailed the product and said, okay, I know what I want to build. I know there should be customers out there. I know I can solve a problem that other people aren't solving right now, you raise a seed round of around 2 million these days at around 8 million valuation or so.

Then you make progress, you find product market fit. So you want to get to a point where customers are pulling what you have your product or service out of your hand. And once you feel this pull, then it's time to raise a series a, which is institutional from the venture capital funds that you would know. These rounds of somewhere between five and $10 million on average now, I would say, and so that you use to scale the business because you found something that works. Um, and so if the missing that a lot of people make including ourselves, um, you try to raise too much too early and you're approaching the wrong investors. So if you're like, I'm really passionate about saving Americans, a lot of money on their car loans. For example, you can’t run to series a investors and tell them here's the business I want to build, because they'll ask you a question.

You can answer the last year, how big is the market? What's your go to market strategy? What are your unit economics? And so you have to answer these questions. And so you'll just waste your time. If you go to the very early investor preseat, for example, that's where they'll probably understand. Okay? So I understand you have some authenticity to this space because you have the background, it's a big space, go figure it out. And in our case, in the previous business, we went straight into seat because we, we had already had some revenue had already sold cars and we, we kind of knew what we wanted to build. We just need it a seed round to figure out product market fit and then scale. And depending on where you are in a nutshell, if you have an idea and the space that you're interested in, but haven't done anything go for pre-seed. If you have a product and you feel like, you know who the customer is, you just need to experiment, experiment more, go for seat, and you have a product. You understand the economics you're sitting already, you have revenue, go for series a. And if you're attacking a big market, each of these fundraisers shouldn't actually take that long for as long as you're talking to the right people. And you're in the right stage of the company

(09:27) Simon: Being at Y Combinator is a great experience and is a great network. So you have seen a lot of smart people building cool stuff. We have a segment in the show called the strategy award, which when, where you can pick one person who is doing great stuff, and you want to promote this person, who will, who would you give the strategy awards?

(09:51) Nicholas Hinrichsen: There's so many, um, Hmm. Let's see. So there's three people that come to mind that also been through Y combinator. T  here is Tony shoe who started door dash. He was whenever our classmates, which just went public. So that worked out really well. Obviously. I think he's, he's very good, obviously. Um, and then there's another company which was an hour batch called checker. The founders were doing background checks, so worked for background check companies. And then when door dash and Uber and all these companies had a lot of neat for background checks, but on an API level, these guys started their company that went really well. Um, and then there is actually one guy who we became really good friends with black. That's the guy we should promote because I love this guy. And I think he's impressive. He started a company like HotelTonight, very similar to that. Um, but then started another company, uh, which is an online pharmacy and now will help two founders start another company. He really, really good about the early stages, finding product market fit, doing, go to market and some black, that's his name? I'll give you this name so you can tag him on LinkedIn. Um, out of all the people I know he's, he's proven to repeatedly develop really strong, go to market strategies for products that later on became really successful.

(11:16) Simon: Beautiful. And then, so how, how did the journey continue? You were at Y Combinator, you, you validated, you found product market fit. What was next?

(11:30) Nicholas Hinrichsen: Yeah. Good question. So the reason why Combinator is really interesting is because you have three months to prove that you can grow whatever you're working on. And so towards the end of the YC experience, every YC startup pitches the same presentation with here's what I'm doing, here's the problem solving is the market size and here's how I'm growing. And so since all of them grow from a small base, all the growth charts go to the top on the right. And so that's true for hours too. That was true for ours too. We have, or didn't feel like our business was working. We were still doing a version of the business where I helped private individuals sell their cars to other private individuals. So peer to peer, and we forced sales. And we were sending, I think, 50 or 60 cars a month, which if we assume an average price of 15,000, that that's like a million dollars in at least top line, uh, per month.

But, um, the business didn't quite work and didn't didn't scale very well. So when, when I was in the stage pitching our business on demo day, actually didn't believe the business that I was building. And instead of raising a series, a, we decided to take in a little bit more seed money from seed investors and partner partners at YC to figure out a slightly different version of the model. And so instead of selling cars, peer to peer, we got rid of all the private sellers. Um, and instead started working with institutions, leasing companies, rental companies, to have much more inventory at lower prices, and they're much less emotional around the sale because for them it's just metal they're moving. And when we started using that inventory and advertise that online, that's when the business really started taking off. Um, and that's when we were able to raise our series a from venture capital investor in Silicon Valley.

Um, and then this is, this is typical startup. So we thought this was working and we wanted to double down and what did they just do more of the same hired people to scale us and the organization. And then we hit another ceiling almost two years later, where we were tapping out of the market of people who could pay in cash for cars and wanted to buy online. And so the, the only two ways out out of that trap was either figure out a way to provide financing to car buyers with less good credit history, or to figure out whether or not we go to different markets and try to find the same type of customer. And both of these options were either incredibly capital intensive or very hard to do because you needed to build like a lending organization within the startup. It's like a big startup within a startup.

And that's when we started talking to our friends, uh, Carvana who had sold both of these issues already and, uh, quickly realized that makes a lot more sense for all of us if we didn't compete against them. But if we took our whole team, sold the business to Carvana, uh, switched lanes and then continued working for Carvana, which we ended up doing in 2017, from 2017 to 2020, like this year, um, worked out really well for us. Like it'd be worked out very well for the team and, and then it was time to start up again.

(14:37) Simon: Nice. So before we go to your current venture, what are three books that shaped you most,

(14:47) Nicholas Hinrichsen: But shaped me most? Um, there's three books that I recently with recently, I mean, over the last three years, rent more than once and studied. And so the first one is the everything store from that's basically the Amazon story. And so that book is really interesting because the Amazon business is very similar to the Carvana business. And so if you read the book, you see a lot of parallels, things that Amazon tried that didn't work, then it wasn't tried that didn't work. And since Carvana is e-commerce for cars and the businesses are similar and helped us a lot. And it helped me a lot understand what would make sense. And so the everything stories, the first one, and then one book that I really like and enjoyed is never split the difference written by FBI hostage, negotiator, and some really interesting strategies. I love that book. And then the third one, because it's applicable also for the phase of the first, the second company I've worked for the last four years was a blitz scaling how to go from a small company, but that looks and searches for product market fit to scaling the business. Once you found it. And those three books are really, really good books. I highly recommend them.

(16:09) Simon: Um, never split. The difference is also and wonderful audio book, which I listen to sometimes when I go running, because he's, he's talking himself and he said he has such a great voice.

(16:22) Nicholas Hinrichsen: Yeah, it's amazing. Um, I read the book and then I happened to by least happen to run out. And so I'm like, great. So let's try all the strategies he's using. And I think I drove my landlord crazy, but it worked great.

(16:38) Simon: What did you try? The late night DJ, the voice?

(16:42) Nicholas Hinrichsen: Yeah, that's a good one. Um, uh, so I, I wanted to get to know real quick, so I knew what the problem was. So I told them, Hey, I'm so happy here. And here's everything that I've been doing as a grades attendant of your building. Um, I've been thinking to pay a little less for rent if, and then I named the ridiculously low amount would be acceptable. And they they're like, no, absolutely not. Like, I don't know where you came up with that amount. And then instead of like saying, no, I, I managed to get the tenant and the landlord to negotiate against himself or herself. And then also COVID hit which in San Francisco impact that rains very, very drastically. And so we ended up paying, I think we're paying 20% less now than we paid before, obviously, thanks to a number of circumstances. But, um, I'm sure that the book helped me a lot too.

(17:36) Simon: Absolutely. Are you still in San Francisco?

(17:39) Nicholas Hinrichsen: I, yeah. I'm not in San Francisco right now, but I called San Francisco home.

(17:44) Simon: Yeah. Because most guests from San Francisco are telling me that they are going abroad or they just went, uh, abroad. How, how do you experience this topic?

(17:56) Nicholas Hinrichsen: Yeah, so my parents live in Germany and I wanted to spend Christmas with them. So I made my way from the West coast to the East coast camp out there for two weeks, just to make sure I'm healthy, then flew to Germany, spend Christmas in Berlin with my mom, my brother, luckily, everybody stayed healthy and now I'm on the way back, but since we can work remotely and our team is pretty small right now, plus a lot of our team members actually live in Latin America. Um, I decided to make a stop over and Latin America before I go back to the U S um, and I'm, I'm equally as productive. Um, and I'm enjoying the summer versus the winter.

(18:34) Simon: Absolutely. Absolutely. And so it seems like San Francisco is really thinned out. Like there is nobody nobody's paying everybody leaving. And then do you see also people who say, no, I'm going to stay, I love it here. It's getting better. Yeah.

(18:53) Nicholas Hinrichsen: So a couple of thoughts. A so San Francisco was incredibly expensive primarily because you have limited space, lots of capital coming in are these companies that pay really high, high amounts and real estate isn't being developed as quickly as people move to the city. And so prices were going up a lot when COVID started and everybody realized we can just work for mostly, a lot of companies told their employees leave the Bay area. Like there's no point for you to be here unless you really want to be there. And so what a lot of Americans did, um, internationals too, they, they took advantage of the situation, started traveling and working remotely while having fun experiences. I do think people will move back eventually there's just too much infrastructure. And, um, like the ecosystem is there and it really matters. I think at least at the early stages of the company to at least have footprint there. But, um, I, I highly encourage other startups and founders to explore working remotely because you can tap, you can tap into a much bigger talent pool. And then there's, there's just areas and places in this world where people where cost of living is so much lower than everybody benefits.

(20:06) Simon: All right. So we have covered the past how to raise and really how to grow scale. Then we have covered the three books that influenced you more or the everything store never split the difference and blitz scaling. Now it's the future. You are building something right now. Tell us about it.

(20:28) Nicholas Hinrichsen: Yeah. So we, we left Carvana the company that acquired us earlier this year. Um, for many reasons, including we, we were really hungry and eager to start another business. Um, w we got financially very lucky with the exits amongst others because the share price exploded. And, um, we now feel like whatever we wanted to do, and we wanted to do something that helps people. And in our case, we, we just happened to understand the car space so well that we felt like we could have most of the biggest impact if we were to help Americans who own cars save a little bit, a lot of money on these cards. And so we decided that whatever we do, we didn't, we weren't quite sure around the business want to build. We wanted to spend the next 10 years of our entrepreneurial journey on helping Americans save money.

And w, we it's similar to what I said earlier. Like, we actually didn't know what we wanted to build. We just had a conviction around a few verticals and angles how to enter the market and, uh, went fund raising and, uh, had lots of really good conversations. It's not completely announced yet. So I'll, I'll not spill the beans, but, um, so fundraising went really well, I think amongst others, because we have a lot of authenticity in the space and we've done it before, at least to some extent. And so cap getting capital. Unfortunately, didn't take us a lot of time, and now we're very lean and trying to figure out what's the best business we can build in the space. And we started out going direct to consumers. So we build up a lot of content around auto refinancing. So lower the expenses in your car loan, um, drove a lot of organic traffic to the website.

And once we had demand and people to talk to, we could go to bangs and create units and figure out, do we want to match make, or how can we be most impactful? And what we learned during the process is the best business we can build is not like a platform like a matchmaking platform, but a software business for credit unions and auto lenders to more effectively go digital and help their own members and customers lower their car ownership expenses. And so it's more of a B2B to C play now, which we're really excited about. And as we speak, we're exploring, looking for product market fit, having pilots. And once we feel like, okay, this is working, then we'll just scale the business. And that's obviously a very exciting phase of the company as we speak.

(22:58) Simon: This is so cool. And I never, never met any entrepreneur. And I meet many entrepreneurs every weekend and never met one who after the exit just said, okay, now I'm going to play golf, But nobody says, okay, now I'm just going to pursue my life. And my hobbies, everybody starts the next thing, what's your hypothesis. Are we just builders? We like to build, we love the endorphins.

(23:33) Nicholas Hinrichsen: Maybe, maybe you like to pay him. You feel more payment, endorphins. Um, what is it? I, in our case, like we had the experience of being part of a very successful company that became incredibly big Carvana is now the most valued car retailer in the us. We were very close to the founding team and to the executives. So we had a really nice home, like that would have been a really incredible job. We just felt that if we wouldn't start this new company and help Americans save money, I don't think anybody else would have. And it was felt obvious to us that somebody had to change something in the space because people spend 15 to 20% of their income on car ownership per year. Um, and so since we financially, we were in a position where we were so lucky that we could take more risks.

We had the domain authority and authenticity in the car and auto lending space that we were relatively uniquely qualified to do it. And then we are young and hungry and eager. And like, we're looking for the next adventure and said, it made a lot of sense for us. I don't think I see myself quite yet working in a big company and being an employee maybe someday. But right now I've got too much energy and excitement around building something new, just as he said, I'm more of a builder now, still than, than like a manager, if that makes sense.

(25:00) Simon: And it's, yeah, if you have tasted freedom, you cannot go back. But I find it fascinating that, uh, I was thinking of when, when I think of entrepreneurship in the very first years, I think of endorphins, but also you were thinking of pain. Let's go there because many people are listening right now say, Oh, I was, I would also would like to start my own thing and they have just fantasies about it. So maybe let's share a little bit about that and what's really going on and maybe also endorphins, but the first years of starting something.

(25:40) Nicholas Hinrichsen: Yeah. So two thoughts here. Number one, no company that you see that successful started out doing exactly what the company is doing right now, but people, people serendipitously stumbled into whatever they're doing right now. You can think of any company and I'll explain to you, I'll give you an example. So they started out doing something completely different, and now they're doing what really works. And so that means this initial hypothesis and conviction didn't turn out to be true. And if you're really convinced and excited about one idea and you find out it doesn't work, it hurts. And then that's where a lot of people actually struggle and don't know how to go on. In reality, that's just the beginning. Like you need to feel the pain you need to, it's just like a negotiation you need to get to the, no, this doesn't work very quickly in order to leverage the fact that people are talking to, to learn from them.

(26:31) Nicholas Hinrichsen: And they'll tell you what to build. So in our case, for example, in this new business, we thought let's just find people who want to lower their, their loan costs, lower the interest rate and their car loans, and then find lenders. And so we were successful driving. A lot of traffic to the website, took these, these, this demand and went to the lenders and lenders were like, yeah, that's interesting, but not that interesting. And when I, this is obvious, like you want to help this guy just lower the expenses and you have a new loan. And then we got these lenders to talk to us and tell us, you know, what, 80% of our own members don't have their auto loan with us could save so much money. Like, we'll take a new member, but in reality, we're trying to figure out how to help our existing members.

And so a light bulb went on when we heard that. And then we heard it twice and three times and four times. And so we decided to dig deeper and better understand what does it entail? And is this something that we could solve with technology and turns out that's a problem that we can solve very well with. And so we would have never gotten there. Had we not gotten a ton of nos or maybes maybe is even worse than those. And some people say like the integral journey, entrepreneurial journey is like a rollercoaster. Like when people don't understand is that every morning is a huge rollercoaster ride and every afternoon another one, and then the evenings I'm in the weekends because he can't work and make progress inside. It's like a nonstop roller coaster with tons of ups and downs every day within the day. And if you're, if, if you don't get a thrill out of that, or if you don't like the challenge of being like presented with complicated problems and questions every single day, I think you run out of energy pretty quickly. And if money is your own motivator, the main motivator will not last long at all, because it's just too painful. Like you need to enjoy this continuously failing and getting up and feeling again until you hit something that really works.

(28:26) Simon: And when I think about endorphins, it's that thrill of having these direct loop, the weekend matters because I was in a, in, in, in boards of big companies and we were excited there about something. And we said, okay, let's do it. Let's, let's go into that market. That's a huge opportunity. We have to enter that market. Okay. Let's aggressively enter that market. And it's booked 12 months for the project to start because we have so many meetings and feeling we could really do it. And after 12 months, you know, the energy is lost. And when you're in a startup, there is tough. You have to, you have to solve until the next day. And you have to validate it until Thursday, because on Friday, you want to learn from it. And then either next week, or just let it be. So the excitement currents directly into action and the feedback loop is like angry birds, you know? Okay. 800 points. Red keeps everybody energetic and undertones because it's very.

(29:42) Nicholas Hinrichsen: Really, lots of instant gratification because you learn very quickly and it's intellectually very stimulating. And I guess that could be one of the reasons why I can't stop and really enjoy it. I I'm, I've never fully thought through why I'm doing what I'm doing. It just feels like the one fun thing I could spend my time on. I'm lucky that I get to spend the time on it and potentially help a lot of people and potentially build a big company.

(30:08) Simon: Absolutely. And where can people stick around and find more of you? I think we lost your right now. Nikolas. Where can people stay in touch with you? We'll put it in the show notes later. Ah, you're back.

(30:38) Nicholas Hinrichsen: Yeah. I'm not sure what happened. Yeah. You can go to the website, the company's called clutch with clutch.com or just connect with me on LinkedIn. Just put my link via LinkedIn link in the, in the show notes and the website link in the show notes. Um, yeah. Connect with me on LinkedIn. We can chat. If you want to raise money, I'd be interested in understanding what you're building and happy to make introductions. If you have feedback for us, feedback is a gift to appreciate hearing from hearing from you.

(31:02) Simon: Beautiful. And, uh, my usual question, who should be my next guest?

(31:09) Nicholas Hinrichsen: Um, I can think of three really good options. There is one of our very good friends and mentors. He's building a company called pay near me. It's um, um, payment payment company for, I think also lenders actually. Uh, that's the second company, the first one he sold to Amazon. His name is Danny shader. He's an interesting guy. Um, then I know in Argentina and founder, who's amazing. He's building software as a service for marketing agencies. He started his career in a marketing agency that grew and then realized, Hey, the software we're building for ourselves as software that would help other agencies. And, uh, the third one would be a very good friend of mine from Brazil, who he, he started a cloud kitchen. So he takes really successful food brands and, and builds the kitchen, gets the recipes and then sells the food online from food delivery. His name is Andres. So these, these three guys I think would be a really good fit.

(32:07) Simon: Wow. So we'll have a great January. Wonderful. Thank you so much Nicole, last for being, keep rolling, man. Keep doing your magic.

(32:19) Nicholas Hinrichsen: Awesome. Thanks for having me