HF0 founder Dave Fontenot on building a distraction-free residency where repeat founders hit $3M ARR by demo day

company, but, uh, I'm I'm rooting for him. Hopefully, he builds something great and it seems like the product has been pretty good so far. Awesome. Well, we have Dave from HFZ in the studio. There he is. What's going on? How we doing, y'all? We're doing great. It's been a banger day. Lots of news, dude.

Tough to follow up Roy Lee. That guy has a lot of energy. So, we got to we got to we got to bring up Give us some numbers. Give us how many companies were in the last batch. We do 10 companies every single time, y'all. There we go. There we go.

Um, give us uh give us uh the audience some quick background on you and HFZ and then let's dive into the batch and talk about some of the companies. Sweet. So, I'll give a little backstory. Is it cool if I give like a two-minute backstory? Absolutely. Perfect. We'd love that. Um, so a little backstory on myself.

Started largest hackathon the world like 10 plus years ago. was called M hacks at the University of Michigan. Oh yeah. I dropped out of Michigan and just traveled to different universities helping spread hackathons. Um then I I had my heart broken. I quit everything when I lived in monasteries uh for a year and a half.

And HFZ is essentially a monastery meets a hackathon. Um and so started investing about six years ago now. This is before HFZ. My third investment was a startup called RAMP that I actually see. Pretty cool. Um, you should have just you could have just called it quit. Many people would have said, "No, that's it.

I I've done it. " But you kept going. You kept going. Congratulations. Depends on why you do it. And so our normal investing was going really well. But then we started thinking like what is the product that these top technical founders actually want even more than cash.

Everyone's trying to invest money in them, but what is the product that they actually want? And that's how we came up with HFZ. It's essentially a monastery meets a hackathon. It's a 10-we monastic retreat where you let go of everything in your life and drop into the zone of your life and build.

And uh it's a lot of repeat founders join our program. It's the most selective startup residency in the world. And uh actually the backstory is interesting. So the first batch was in New York and it kicked off February 15th, 2020. Um wasn't a great timing to have a inerson people in the same house. Yeah.

And so two weeks in I had to shut down um that like zeroth batch. But I heard the day that I shut it down, I heard that Taiwan didn't have CO. So I flew to Taiwan that night in the hopes of keeping this dream alive. I spent 6 months learning Mandarin, building political relationships, convince them to give me visas.

Then I flew everyone to Taiwan and we were in the first full HFZ batch in Taiwan in the middle of CO. Was the only country in the world that didn't have CO um and uh that batch worked.

Then my co-founder at the time, Lucy, um Lucy Quo, who started Scale, she was in Miami and she was like, "Yo, Dave, Miami has like a hundred investors for every technical founder, you know, all the technical founders. We bring them here. Um they're going to have a great time, the fundraising and and everything.

" So, we started Miami Hack Week. Then, we ran two batches in Miami and they went amazing. She was totally spoton. Um then I decided to go allin on HFZO and we were thinking really deeply about where we wanted to do it.

San Francisco was dead at the time, but we came and visited and it seemed like it was just having the sparks of life uh coming back and so we were between New York and and San Francisco to base it.

We decided to take an early bet in this latest wave on on San Francisco in a big part due to like Gary Tan and the the work that he did like kind of getting the city shifted back in the in the right direction. And we've been holding on for dear life since then.

We started this uh hackathon in San Francisco called AI Hack Week. Um which happened to be the week after Chat GPT came out. Um good timing. You had some bad timing the first time around, good timing that time. Good timing in Taiwan, good timing in Miami, good timing in San Francisco.

And uh and then the program's just been taking off since we moved to San Francisco. We've had about uh 35,000 teams start the application to HFZ. We still only back 10 teams at a time. It's been 10 teams from the first batch. It's still 10 teams at a time today. I I love what we get to do.

We pour our heart and souls into it. And when you work with 10 teams, you actually deeply get to know um each and every one of the teams. So So we really love what we get to do over here. About How many batches a year? Is it Is it three batches a year? Three. Great. Interesting. Yeah.

I think you know my buddy Evan Stites Clayton from Teespring. I I I hung out with him very very early and he was like a couple years ahead of me in like the venture world and gave me a bunch of amazing advice that was very very helpful.

Uh but uh the last time I ran into him was he was at YC demo day, alumni demo day, and he was writing a poem about every company that went on stage. And I was just like I think he was like maybe thinking about investing in them, but I was just like that's a very different way to process and internalize.

And I mean even in the age of AI, it's like the one thing that like the LLM probably couldn't do a good job at. Uh but but great guy. I mean, have you read the poe? It's rough. Jokes are rough, but poems it's all it's all rough. Uh but were epic back then. That was the the demo days. I would just read his poem and Yeah.

Yeah. He'd post them all. It was great. Yeah. Yeah. Yeah. Uh but but I want to hear the story of like uh tell me the story of one particular company that particularly surprised you or did something unique throughout a particular batch. Uh and really take me on the the the story of like what can happen?

What does great look like in the context of this 10e sprint? Yeah. So the company that comes to mind right away is Open Router. Um, so a lot of the folks listening probably use Open Router. It's the top router when you want to switch between models. So Gemini 2.

5 Flash came out and it was like incredible and way cheaper. And then if you're on Open Router, you click one button and you switch everything over um from OpenI to Gemini or from Gemini to Anthropic. Um, and if you actually go you can go to open router.

ai/rankings and they have like essentially the definitive usage rankings for all the LLMs. But to your question, when Alex was in HFZ, this was like fall 2023. And back then there were only a few models.

And so he took this really contrarian bet at the time that actually there would end up being a long tale of models that people would use when at the time everyone thought it was going to be like one model to rule them all. Um and and so at that time there there were very few models and this bet wasn't even true.

And actually in the middle of the batch, he almost gave up on that thesis. He was like, "Man, maybe I'm I'm wrong on this.

" But but in the context of HFZ being with 10 other teams who were like on the ground, who were pushing these models to their limits, he ended up like having the right surroundings, the right community and stuff where he actually like stuck with this kind of crazy thesis at the time.

And now if you go to their website, open air, like they're doing like trillions of tokens uh a week. Um so that one's it's a great story. We're actually having him on the show soon. So I'm really excited to meet him. I've never met him, but uh he seems like an amazing thing. Yeah.

So Alex was the founder of OpenC before you started Open Router. So that's where I know his name. He was in my YC batch. Yeah. Amazing. I didn't realize that. Yes. Second time founder. That's such a unique thing.

And you wouldn't like a lot of people don't think that like uh second time founders or someone as successful as him would go through any sort of program. Usually it's just like straight to series D. You know there's so many stories. You did you did Crossman super early too, right?

I remember Dave called me and he's like you got to talk to this company. They're insane. Uh they were raising on an uncapped note at the time and I was like the whole round uncapped after HF. Yeah. Yeah.

you you you did you did this uncapped round with you know with a discount of course and I was like h I couldn't get on board with the unc uncapped note personally and I ended up having to invest like 3 weeks later like at the at like whatever the series A price and and you're totally right on that one. Yeah.

I I want to talk about uh those repeat founders. This is something that uh kind of shocked me. So I I went through YC in 2012 and then or like my my my first company went through YC in in uh summer 2012 when went back through in summer in winter 16 and I was like I'm still like a founder. I'm still like a startup guy.

But we'd scaled the first company to 50 people and I was very much in manager mode like I had like gray hairs on staff and like managers and and even though we had enough money to hire people there was this big mental shift.

I remember Daltton Caldwell from Y Combinator kind of telling me like, hey, you got to go back into individual contributor mode. You got to even though you can afford and you're connected enough, you got to do it yourself. And and through that, it was a wildly different experience and it was really good.

Uh talk to me about some of the shifts that you see in these second time founders going back in to these like, you know, dedicated environments where you're maybe not hiring and scaling and raising a bunch of money even if you can. Yeah.

So about 70% of the founders we back are repeat founders and usually our kind of bar for actually considering them repeat founders is their last company did at least 10 mil annualized. Yeah.

Um and in fact in dispatch you know of the 10 teams five of the founders either built a billion dollar company before this or their previous company was doing 100 mil plus. Wow. That's very different than the the challenges of repeat founders actually pretty unique to being a repeat founder.

It's like by virtue of their success.

their last company they had gone into they were managing you know hundreds maybe even like a thousand people but what that wasn't the recipe that made their first company successful in the beginning they know that and by virtue of their success they're usually angel investing they're advising startups everyone wants them to speak at their conference they might have families all by then 60% of the teams we back someone has a kid wow yeah very different from that's hard mode and so and so the the challenges they have are different and so actually our our like the residency that we offer is like very different.

It's not an accelerator. It's not incubator. It's a residency. They actually like leave their normal life for these 10 weeks and we subtract everything from their life.

So our whole thesis is while everyone's focused on value ad, we focus on this thesis of recursive subtraction that actually our mantra at HF is the most insidious distraction isn't networking or conferences or this or that. No, it's the second most important thing in your business. Yeah.

And so founders are so often so good at doing the second, the third, the fourth, the fifth, the sixth, seventh, eth, ninth most important thing in their business. But the first mo the most important thing in the business is usually a blind spot.

It's usually something that that only that you only see when you force yourself to stop doing everything else. And then you're like, you're on that second most important thing that's very important. And you ask yourself that question. Is this the most important thing in my business right now?

And and it comes up for you and you just can feel it's it's not. But you don't necessarily have clarity yet. Yeah. On what the And then and then you realize, oh man, I've actually been afraid of this thing because if I if I go here, I might find out that the whole business doesn't work. Yeah.

So So that's why it's usually there's some fear that is holding. And so by doing this recursive subtraction, startups just end up like zooming forward because in the beginning of a startup like early stage, you essentially have two things.

You have like your rate of realizations and a lot of this comes by like talking to your customers and then you have a grind and the residency format allows you to increase your rate of realizations and then grind like you've never grinded in in your life before. It's like it's like pretty insane.

So that's why like in our last batch 40% of the teams broke 3 mil AR by demo day. So like the results we're seeing like like even if you're Sequoia you shouldn't be able to pick this well.

And I think it would be hubris for us to think like we're getting amazing founders, but I think it would be hubris for us to think it's just that we're we're picking this well. Part of it is the selection bias. Um like the set of founders who are repeat founders who are willing to leave their nice apartment.

Most of them have made money on their last startup to leave their nice apartment and move into the residency for 10 weeks. They're serious. Yeah. They want to birth their life's work. But the other part of it is that the residency works. This format of company building.

I think a lot of companies like kind of did it in an emergent way like Apple in a garage, Facebook had the house in PaloAlto, even Devon Cognition had the house in Athetherton. Um, so a lot of companies kind of do these residencies without fully realizing it.

We've figured out a way to do this to like a whole other level and it works like every single time we're just getting like the the results don't even make sense. I can I can imagine a conversation, you know, with with a CEO in one of the batches and and they're saying like, "Oh, I'm worried about this.

" You know, like, "This thing's working. This thing's working. This thing's working, etc. " And you're like, "But what are you afraid of? " Yeah. And they're like, "Oh, I'm not really afraid of anything. " You're like, "No, what are you afraid of? " And then they're like, "Oh, I'm afraid of this thing.

" And then you're just, you know, you're you're effectively the the sensei. So, we you can't you can't really directly just ask it like that. you actually have to like stop doing a bunch of the other things that are important but aren't the most important thing.

And it's only when you actually sub subtract over and over and over again do you actually have the space to even realize that you might be afraid of something. Yeah, totally. Uh we keep coming back to this uh this like X thread about the motivations of the modern Silicon Valley founder by Anna.

Uh I want to get your reaction to this. Uh she identifies uh a trend. She says the there's a cultural shift in the startup ecosystem that has moved from contrarian rule breakers and hackers to the overachieving STEM kids for whom being a founder is simply the next box to tick.

And it seems like you have carved out an an area or like a weird I don't even know what like Yeah. Like just you you you still have to be taking a risk to do what you're proposing. And I'm wondering if you can comment on that trend as like it's like sacrifice. Exactly.

Like like like uh there are ways to do founder that are high status now and low sacrifice and low sacrifice. Talk to me about uh the status symbol that being a founder is and how you think about that within the context of your program. So one of my core values is substance over hype.

And so actually like at HFZ we actually kept the lowest profile possible for the first couple years of the program because in my mind I'm like there's nothing to talk about here until you know we have our first unicorn or you know first company goes public or whatever like I already know a ton of engineers and everything.

I want to just build the best product in the world for founders. There's no one else building this product for repeat founders. Um and so that's what I'm constantly focused on. Um, that said, Jordan, our creative director, who I think y'all chatted to, uh, and then my co-founder, Emily, did convince me.

They're like, "Hey, Dave, there's like nothing online about HFZ. It's like two years in. They're like, "We we should do we should do at least something so when people who don't know you already look it up. " They know it's like actually a real thing. And so, um, they fought me on this for like 6 months.

And then finally, I was like, "Okay, well, if you get the New York Times, we can do it. " But I was joking. I didn't think they'd actually. And then next thing you know, we had a New York Times writer like living with us for a week.

and she happened to have been like a Google engineer before she was a New York Times writer and then she loved it so much that she started coding again. Oh wow. That's awesome. So that was sweet.

And so just returning journalist these repeat founders who join our program and really the founders that we filter for they are here to birth their life's work. Like these folks aren't founders because it's any like any sort of status thing.

They're founders because like whatever like way they grew up, whatever like childhood like [ __ ] they they they can't not be founders. They can't not build things.

Um so that's like when you're at age of zero surrounded by a bunch of people who like it doesn't matter how high status low they they just like can't stop themselves from building. Um and yeah, that's that's the really cool thing.

And it's, you know, it's only 10 teams and just you're surrounded by other folks who are like this kind of, I don't want to say addicted, like it's a sacrifice thing. It's like a very painful thing starting a company. Um, and they've done it like most 70% of the founders back have done it before.

They've been through that pain and then for some reason they're like sick enough to like do it again. Um, and uh yeah, and and I respect the hell out of them.

And then and then you know seeing seeing I I watched like a little clip of of Royy's uh uh thing earlier and there's a big part of him that's you know excited about the fame and the attention and all this stuff but another thing you mentioned was around like the the BCI stuff. Yeah. Right.

We had a startup in our batch we just had our demo day this week called conduit that literally as they just they had a a huge breakthrough in like neuro neuroscience research where they have the first helmet that can actually like read your thoughts before you type them.

And it doesn't work every time, but when it does, it's like [ __ ] nuts. And a week ago, this didn't work.

And then now we're right on the verge of like literally as a coder, like you being able to wear a headband that actually even cuz think, you have the thought of what you want to build, then you're bringing it into English language, then you're bringing it to code, and there's just like loss every step of that way.

But if you actually could just see the the the image the the concept the thing they're thinking in their head like pro like you know vibe coding's cool but like thought to thought to accept all don't make mistakes build me a build me a hund00 million revenue business don't make mistakes but I mean the BCI stuff is super real like Nudge there's so many companies working on this stuff now and I saw one company that was doing like uh they they read your brain while you were sleeping and then use generative AI to generate videos about what you dreamt about.

Like even that, even if it's like wildly off and abstract, it's still just like a cool thing to have on your nightstand. And so it does seem like we're about to see a Cambrian explosion in this industry. Yeah, I wanted I wanted to have you review the companies.

Uh but we should just have Yeah, we should have a bunch of them on. I mean, we're having Alex on soon. So, uh yeah, please send us all all the companies. We want to talk to them. This is fantastic. Awesome. Thank you so much for joining, Dave, and and congratulations on all the progress. It's an awesome story.

One one one last note that's pretty crazy. So from our last batch um average valuation post demo day was 50. 3 million. Whoa. You're uh your your everyone was like, "Oh, it'd be great if there was like some type of Hey, but it's only 16x revenue accelerator residency with with reasonable valuations.

" For their revenue, it's very reasonable. It's not Yeah. Yeah. Yeah. Yeah. Yeah. It's less than a 20x revenue multiple, which isn't that crazy. like yeah, you know, for they have real traction. Any founders on TVPN who want to make 12 months of progress in 12 weeks, send them our way. Much love, y'all. We'll do.

We'll talk to you soon. Great talking, Dave. Cheers. Fantastic. Well, um, anything else you want to cover? Somebody from from your uh I don't know if you want to I don't know the family. No, no, no.

But this is what I was telling you about like like Roy Lee is the most controversial person in my family right now because half my family loves him. But is this your grandma saying he's No. No. Someone else. Um, but yeah, it's very funny. Good stuff. Anyway, uh, is is the intern cam still active?

I want to go to Tyler for one last pop quiz. Oh, is he on? Uh, okay. Uh, I want to ask you. Yeah. What's the capital of Michigan? The capital Michigan. Didn't you go to school there? I think it's Lancing. I think you're maybe leaning on clearly too much at this point.

I don't I don't know if you're cheating using your brain or I can't really assess the product. You know, you too much uh yeah knowledge on Michigan. Uh what's your name? My name um let me think here. It's like the that paper that just came out, right? Oh, yeah. Yeah. Yeah. Yeah. Yeah.

Do you think that uh based on your use of fluid, do you think it'll make you smarter or do you think uh you'll take your foot off the gas? Uh I mean I was let me think about that actually. Um I I think probably the latter honestly. I mean it's just like I just don't need to think.

I don't need to store any knowledge in my brain now. So maybe it frees me up to do more, you know, reasoning tasks. Okay. But even then, you know, once they get 03 in here, it's really like everything's covered. So no reasoning. Did you get a feeling for what model was under the hood? Uh I don't know.

I think I could probably check. Uh, but I'm not sure right now. It's so weird interacting with somebody using Cluey. They're like like every answer is like and you don't know if they're reading Cluey or not or just actually thinking. Well, anyways, uh, people should go try the product. Yeah.

You know, I really I really think that anytime Roy gets a negative comment yet, please just, you know, use the product for five five plus hours and then you can have an opinion. the the the message to Andre, no crying in the casino because you know Roy Lee, there's probably a viral video of him going to the casino soon.

Pretty soon, you know, that's going to make a lot of people angry and so Chimath is talking about spacking again. Yeah, I think Clue is a good target. I bet. I bet it's not the craziest target out there. Not the craziest. You know, Chimath and Mr. Beast hold. Yeah, there's a lot of revenue there. It's growing.

You know, the market needs a pure play AI. They love pure play. a pure roy play. Yeah. Yeah. There's no pure play. Uh well, we have some more breaking news. Apparently, uh Apple held internal internal talks about buying Perplexity. Okay. Yeah. Yeah.

You mentioned um but clearly everybody's talking about buying Perplexity. Yeah. Yeah. I mean, it would be an interesting way to just beef up Apple intelligence and and Siri very very quickly. Um, you know, the the the perplexity team's clearly built a great product.

The the the question has always just been like it's hard to unseat people from Chad GPT and Google. It's really hard to break through.

What's interesting is like comparing it to the Roy Lee story which is like I feel like perplexity has gone viral many many times and if you look at the uh the even just like the ex presence of the of the CEO Arind let me look up how many uh arind uh Arind uh at Perplexity he has 271,000 followers Roy Lee is just over 100,000 so similar kind of broken through serious uh you know on the podcast circuit um very you know respected founder raised money a lot of attention on the company um but it's always difficult to actually get people to switch their daily driver from Google search to perplexity in mass but if you can team up with a company like Apple that would solve that distribution problem and so there probably is a case to underwrite the deal at some sort of I imagine the number was big if they were talking I don't imagine it was some, you know, oh, we'll take you out for a fraction of the preferred.

No, it was probably a real deal if they were talking about it. And so, um, but it but but but the question is like, could it make iPhone users happier?

Could it make the next version of the iPhone even more, uh, even more addictive and higher retention and and get people to upgrade to the Pro phone with a faster chip that's going to have faster local perplexity and faster interactions over Apple intelligence or Siri? I mean, Siri was an acquisition after all.

They didn't pay very much for it, but it was. And so the idea that Apple never acquires things is not really true in the AI space. So, I don't know. I'm I'm rooting for them either way. I'd love to see I'd love as a consumer, I'm rooting for Apple.

I would love a better search experience on Apple natively, and I feel like getting a a major player in in AI in the company would be the perfect thing right now. So, I hope it happens, but good luck to everyone on both sides of the negotiation. Well, it is the weekend. Have a great weekend, folks.

Leave us five stars on Apple and Spotify. And thanks for tuning in. We will be back on Monday. Have a great weekend. We'll talk to See you then. Bye.