TCT Exclusive: Hari Raghavan, Founding Team @ AbstractOps

We’re thrilled to announce this week’s exclusive with Hari Raghavan, founding team member at AbstractOps! During his time as COO at Forge (formerly Equidate), he was a part of the team that scaled the business 100x over three years before moving on to launch AbstractOps, an automated back office for early stage CEOs. An active angel investor since 2015, Hari’s notable investments include Notion, Rippling and Slack, to name a few. With deep operating experience and domain knowledge of private market liquidity, we sat down to talk all things cap table related, including:

TCT: How did you start out with regards to your career?

I started my career in management consulting, at BCG. I’ve always had a bit of FOMO, so I worked on a bunch of industries (industrial goods, financial services, etc.) and functions (growth strategy, M&A, org design, etc.)... it was a great foundation to understand how businesses work across the spectrum.

I always knew I wanted to end up in the tech ecosystem though. It’s where the most interesting things were happening. So, at some point, where the pain of middle management and politics overtook the benefit of the excellent learning curve, I quit and moved out to the Bay Area.

You were employee #1 at Forge, the private market liquidity platform, helping them 100x during your time there as an employee and then COO from 2015 to 2018. What were the top (scalable) initiatives you implemented that helped Forge grow so quickly in such a short time? If you were to do it over again, what would you do differently (if anything)?

It was all a team effort, so I’ll talk about what “we” did rather than what “I” did.

This know-how is still useful today:

YC's investment in Airbnb is likely the single best angel investment in history. $20K for 6%, which is ~$2,200,000,000 at today's close.

That is 110,000x MoM, a ~275% IRR compounded over ~11.5 years.

(I know YC <> other "angel" investments but the point holds.)

— Hari Raghavan (@haridigresses) December 11, 2020

I mean, I guess I can be interesting at times, but Airbnb is way more interesting.

You’re an active angel investor and advisor with 40+ investments across early stage (Notion, Rippling, Mercury) and late stage secondary (Slack, Spotify, Robinhood) investments. What was your first investment? How did you go about getting the money to make this investment?

My first investment was in the seed round for crystalknows.com, via an AngelList syndicate. It was out of my (paltry) savings. You don’t have to have a lot saved to write a couple of $3-5K checks a year… I’m glad this approach is starting to become known.

That said, I do hope people dip their toes rather than jumping in the deep end (e.g., I only made one <=$5K investment per year in 2015, 2016, and 2017, because I simply didn’t have much liquidity). But, I happened to see a lot of deals since I had colleagues who were active angels… so I started building a mental model around what “clicked” for me vs. didn’t, and being (accidentally) patient this way allowed me more time and experience to get better without putting much money at risk.

In short — the method I accidentally stumbled on that helped me get better was to see a lot of deals in the first few years but only do a very very small percentage.

One great way to do this is to see if any of your friends are in “investment clubs” (there are lots of Slack channels and such dedicated to this), or follow a bunch of AngelList syndicates. (Note: do respect confidentiality and good faith when you do all this.)

How would you describe your angel investing thesis? What would you recommend to first time angel investors for a better entry: angel deals in early stage or later-stage via SPVs?

When considering the market or product: I only ever invest in things that are “operating systems for X”. I think too many people are conditioned to build features, not products (especially when investors keep asking “what’s your wedge”)… so when the [X] is a large market, and even in the MVP you can see how the team is already thinking / building it as an OS, that’s the a-ha moment for me.

When thinking about the founding team: I love depth, in many forms:

Lots of investors are obsessed with whether the team is technical, but this ignores the fact that sometimes the best solutions don’t involve deep tech. It might be a business model innovation (Uber), or a more delightful user interface or experience (Mercury), or better focus on fewer features (Notion), a better distribution channel (Hippo), or new incentive alignment (Lemonade). Of course, some generational companies do require true technical innovation (Stripe, SpaceX, etc.) but there’s lots of other ways to create billions or even hundreds of billions in value.

In other words, rather than arbitrary checkboxes, the real thing that matters to me is founder-market fit. Is it an ML platform? Of course the founders need to have technical chops. Is it a financial services data play? I’d way rather the founding team include a Goldman Trader than a Facebook engineer.

What was your first 100x/10x and how did you get into that deal?

Notion was my first 100x. It was an AngelList syndicate. As these things usually go, it was total luck… I was an early adopter of the product and I’d been desperately looking for something like it for internal knowledge management at Forge. When I saw it pop up on AngelList around that time, it was an easy decision.

You’re part of the founding team at AbstractOps, an automated back office for early stage CEO’s. What are the biggest challenges CEOs face around managing back their back office and administration for equities? 

“Operations” can be loosely defined as repetitive actions that follow human heuristics… IFTTT rules. The problem is, those rules in HR / finance / legal feel arcane, intimidating, and confusing. Some things (payroll, incorporation, etc.) have been thoroughly solved. Others, despite having multiple large companies in the space (taxes / bookkeeping, equity issuances, etc.) are still convoluted and hard to follow.

But all that aside, the part that’s actually getting worse is that there’s no system of record or automated rules for corporate information. It’s a running joke that a company’s cap table management system is only up to date when they’re in diligence for the next round.

The biggest reason is friction. The information is in dozens of places and you end up having massive G&A teams acting as human APIs. There are sales dashboards, DevOps dashboards, financial dashboards, etc… but, there’s no CEO dashboard. There is sales automation, marketing automation, automated testing, automated deployment… but almost no automation in the “corporate stack.”

That’s what we’re building. If Salesforce is your Customer OS and Segment is your Customer Data Platform… we’re your Corporate OS and Data Platform.

Speaking of automation, how do you stay organized with your angel investments (managing notes and SAFEs pipeline, etc)? What does your personal tech stack look like?

Ha, I really hope someone solves this! My money is on AngelList, they’ve gone farther than anyone else.

In the meantime, I have a fairly complex Airtable base where I track each company; map it to each investment transaction; reconcile it with each bank account transaction; and I update the marks to market every 3-6 months. I have rules and views that spit out the MoM, IRR, and capital accounts each year.

You’re also a fellow at On Deck, an accelerator that helps entrepreneurs launch their next big idea within a community of investors and operators. How does On Deck help prepare operators looking to make the leap and start their own company?

On Deck is a special company. They’re run by some really thoughtful people that care deeply about entrepreneurship (in the broadest sense) and community. As part of the “Founder Fellowship” (the first one back in 2019 — I was OG OD!) there was a ton of opportunity to mingle with others going through the same thing; get feedback on your projects; help each other out; participate in fireside chats; etc.

But that’s all very tactical. Really, what it’s about is being part of a community of really high caliber people, all of whom have a giving spirit and a ton of entrepreneurial energy. If you put that together in a melting pot you get some pretty great results.

You’re an operator and investor. How do you balance doing both at once? What’s your secret for staying balanced?

I’m a bit lucky… potential investments are also potential customers of AbstractOps. I get to kill two birds with one stone.

Even so, I’ve gotten much more disciplined with spending time on investing over the last year, to focus on AbstractOps. I think you kind of have to invest on evenings and weekends, if you want to do justice to the startup you’re running.

What’s your secret for getting on the cap table?

First, have 1-2 things where you’re an industry expert (i.e., I can say I know employee equity compensation, or back-office best practices, better than almost anyone), so you can be their go to person. It’s the easiest way to add value.

Second, be transparent with your passion for what they’re doing, and make sure the companies know you won’t let details get in the way… I’m never the one setting the terms so why would I act as a blocker? Saying “whatever the terms are, shoot over the SAFE, I’ll sign and wire immediately” goes a long way.

What’s your biggest cap table “mistake”?

I’d rather not name the company, but it was probably investing in a company despite the following exchange:

Me: “Do you have a lead?”

CEO: “If Jeff Bezos were starting a company, would you ask if his round had a lead?”

Even if the company ended up doing really well, I wish I hadn’t invested. Confidence is strongly correlated with success, and arrogance with failure.

[Note: I never ask who the lead is, because I want to invest on my own conviction, not based on herd mentality… that said, ensuring that the company will have runway is an important test for those of us who don’t lead rounds or set terms.]

What are you passionate about outside of work?

I used to collect hobbies: fantasy novels (Brandon Sanderson FTW); poker; biking; (making) craft cocktails; men’s formal attire (my suits aren’t getting much love in the Bay Area though).

What’s the state of the secondary markets and private market liquidity in 2030?

Companies self-select into three stages:

During the startup phase, companies enable and support early exercise. There isn’t an expectation of liquidity (except perhaps for extraordinary life events).

During the growth phase, companies switch to RSUs and enable a repeatable, predictable, quarterly liquidity cycle. Current and former employees, and early investors, can participate and sell up to [X]% of their vested stock each cycle, and there is a single price / closing set at the end of each quarter based on bids and asks collected from participants throughout the quarter. Company financials / board decks are made available to a) insiders, both buyers and sellers, and b) pre-vetted external buyers. This also gives companies a continuous pulse on the markets to inform primary fundraises.

Going public is made way easier by the above. Because of the intermittent secondary market activity, IPOs are priced more effectively, and DLs are made way easier (a robust secondary market is critical to setting the “reference price” for a direct listing).

The fact that liquidity isn’t a more important right in private companies is a travesty. It’s taking a while, but a number of companies are starting to move in this direction, and platforms are starting to automate and unlock it, too. It’s going to be an interesting decade for private markets.

Follow Hari on Twitter (@haridigresses) for more insights into the private markets, startup equity, and angel investing!

Sources: Crunchbase, Twitter, LinkedIn