The below is a full (unedited), machine-generated transcript of a Youtube session / podcasting episode I recorded in July 2022 with Kyle Harrison, general partner at Contrary. You can view the video/listen to the podcast on Youtube, Apple Podcast, Stitcher or wherever you get your podcasts.
Erasmus Elsner 0:19
All right, welcome to another episode of Sandhill Road, my little pirate radio station here that allows me to study venture capital and the creation of technology companies by talking in public with leading operators and capital allocators. And I’m quite happy that today I’m joined by a fellow students of the venture capital industry, Kai Harrison, who was a GP at contoura Capital. He’s a seasoned investor with appearance at companies like TCV technology crossover ventures, one of the leading and oldest crossover firms Cotu, which is one of the tiger cubs and most recently Index Ventures, and he has joined contraire capital, as his renegade of choice earlier this year. Ken, really happy to have you here on the show today,
Kyle Harrison 1:02
really excited to do it. I’m excited to dig in. What I like about you is that you’re
Erasmus Elsner 1:06
not just an investor, but you’re a content creator, you run the substack, one on one investing, which I can highly recommend to any of my listeners, if you have this great quote of yourself saying that I wouldn’t consider myself to be the best at anything. But I’m very observant industry, spectator and commentator thinking about your own content creation process. Talk a little bit how you started out? And why’d you decide to keep churning out all this content on a on a weekly basis.
Kyle Harrison 1:36
It’s funny, creating content actually goes way back to the very beginning of how I got introduced to venture a different medium, but similar idea. So I actually way back before I got introduced to venture, I started a company out of school, it was a creator marketplace. I like to joke that I started to create a marketplace before it was cool. So I was a videographer I was producing in addition to my own random creations as creating commercials and wedding videos and stuff like that, to pay the bills, eventually had too many clients. And so started farming them out to other creatives take a small percentage, you know, and eventually found myself doing that full time. So I was getting jobs for photographers, graphic designers, videographers, whatever. And a lot of fun ran that for about four years. And the success of that I think at the time, I didn’t think that I could continue to grow it. So I ended up selling it. And in that process, I got introduced to the idea of venture, I had no idea what venture capital was, I didn’t even really call my business to start up like I just wasn’t in the zeitgeist at all. But as I got introduced to venture, somebody described it as you know, when I looked at my business, I had all these passionate creatives, and I’d love being a resource for them that they could rely on in their journey. And when somebody heard me describe it that way, that’s what I really liked to do. They said, that’s kind of what venture capital does. And that was my sort of intro into venture, I spent about a year at a seed fund in Utah, where I’d run my business and got introduced to sort of the business of venture and the mechanics of it, very quickly realised I wanted to see lots of different types of companies of all shapes and sizes, not just seed stage companies. And so just when I jumped at TCV, and had a great education, I kind of joke that I’ve seen the three flavours of venture. So when I was at TCV, it was very private equity esque in the way that they did things and the types of investments they made. And so a lot of the investments that I made were shaped by that style, and then went to Cotu, and sort of saw the hedge fund style of venture investing. And, again, similarly, it’s very different, very focused on finding very large markets. And then for the last few years, as a partner in index, I got the chance to get to see sort of venture classic, you know, the traditional model of venture investing. And across all those three models, I think, two discoveries that led me to wanting to produce content and think about venture and, and be very open about the model. Number one is that I’d seen so many different styles that I constantly had all these ideas rolling around in my head of how do different types of investors make different decisions? And how does that impact them for better or for worse, so that sort of rumination was very much there. And then the second piece was, I found myself the firm’s I worked for, I’m very grateful to them for the things that I learned. But while I was at index, I found myself wanting to dig into a little bit more of a startup vibe. At first I thought maybe that meant I wanted to start another company. But I really loved investing. And so I thought, well, what does joining a startup venture firm look like? Right? It’s sort of younger in years. And so I’d known the folks that contract for a long time. But as I thought about well, what is the kind of firm that I would want to help put my fingerprints on? I went through all of these questions that you see in my writing. And for me, the reason I call country my renegade of choice is I started thinking about all the different ways that venture is changing. And when I thought about what were the trends that I was personally most excited about, contrary embodied all of them, which is what led me to joining the team.
Erasmus Elsner 4:43
And we’ve moved straight to the end, as Elon Musk recently put it, that you joined contrary capital earlier this year, I think it was in May. But interestingly enough, there was a time of research, reflection and writing that preceded that and we’re you did an hence period of a couple of month where he talked to 90 different investors, you had a number of pieces, outlining your thoughts and different strategies, sub strategies, you summed it up nicely. They’re saying that last year, I found myself at a turning point, I was starting into my 30s, I was about to have my third kid, I’d experienced one of the craziest startup markets I’ve ever seen in the last 10 years in venture, I had worked at three different venture firms, and worked with folks at countless others. And that’s when you really took this step away, where you also did a lot of thinking and soul searching, maybe talk a little bit about this time of reflection earlier this year.
Kyle Harrison 5:36
I mean, one of the things I sort of joke that for a world just steeped in innovation, right, in terms of technology is constantly evolving. Venture is probably one of the most under innovated models out there. And that idea that venture had sort of stayed largely the same, at first had struck me as sort of a sign of stability and just keep doing the things you’re doing. Thinking about, you know, intellectual honesty and decision making and reflecting on your own decision making processes and things like that. I reflected on all that. And it made me appreciate that I didn’t know the answer to a lot of the questions, right, like, why do we do the things the way that we do them? And is that good? Or is that bad? Does it lead to good decisions or good cultures? So before I dove into helping to, you know, put my finger prints on a firm and sort of help drive in the direction, I wanted to make sure it was the right direction that I believed in the direction that it was going, as well as think about it sort of, you know, my place in the overall ecosystem, right? I think every venture firm is responsible for answering the question of why they should be allowed to survive to the market, and what their unique process and value proposition is, and things like that. So before I could answer that, really, honestly, I needed to really dig into what have other folks done and how do they make decisions. And what I found was that it’s even more fun to be a venture investor, when you’re really stepping back and reflecting on the overall process. And you’re not just doing the day to day, my dad calls it the salary principle, the same as last year. And you’re not just doing things because that aren’t that’s the way we did it last year. But you’re actually being thoughtful about like, well, is this the best way to do these things or make these decisions or hire people or build a firm or whatever. And so my, my exercise really helped me get under the hood on that stuff.
Erasmus Elsner 7:16
I love that. And I mean, you touched upon it already that venture. There’s this paradox in venture that venture of this trying to find the most innovative companies in the world. But the venture model itself has stayed largely the same for the last 50 years, you have the 220 model 2% management fee 20% Carry largely stayed the same recurring management fee model. Obviously, there were a couple of renegades that said, well, let’s use that management fee and actually produce value adding services to founders. That was one of the a16z that innovations that they actually use the management fee to build a media company with a venture firm attached to it. That was one of those things that people thought about as very innovative. But this, this core idea that you have this under innovated model at the core of the innovation industry, I think that’s pretty interesting. Taking one of your pieces, maybe you can expand a bit on this.
Kyle Harrison 8:10
Yeah, one of the things that I think a lot about is there are certain things that folks talk about in terms of how venture strategies are dictated. One of them is the size of your fund is your strategy. Right? There’s read, there’s a reason why folks like benchmark have kept their phones fairly small, because their model doesn’t scale to have two and a half billion dollar funds. And so your fund size is your strategy. At the same time, these folks to go out and raise two, three $4 billion funds, they actively have to be deploying a significant amount of capital in large quantities into companies that have the potential to return significant amounts of capital after the fact. And all of those represent different strategies. But by and large, in terms of how the firm’s strategy is dictated and carried out, has always revolved around the partnership itself, these sort of select few individuals at the centre of the universe. In some of these smaller organisations, I think that that model can do okay, very, there’s certain things you have to be cautious of, are you really bringing in the best partners? And are they you know, making decisions, not because of inner politics and those kinds of dynamics, but because they think it’s the best decision, and if so, that’s great. But it’s really these firms that have tried to be much larger. That’s I think, where the model is kind of broken down, where when you’re making, you know, 100, plus investment decisions a year across different GEOS, and categories and sizes and stages. And when you look at crypto tokens, and like that there’s a huge variety. And yet, it’s still largely driven by a sort of select group of folks who many of them have the same backgrounds. And one of the principles that country that we think a lot about is can you build a venture firm more similarly to the way that you build a startup where rather than having this sort of general partnership at the top that dictates every aspect of strategy? Can you have sort of your world class folks in whether it’s marketing and events or community or even product and engineering and talent and things like that, can they really, truly be world class. And by and large, most venture firms, because it’s so central to this model that’s been the same since the 50s, and 60s. And even before that, the model has been very consistent innovation in that model, I think is going to come largely from can you bring in really great people, and build a unique differentiated value proposition with those people beyond just the investment team, but can everybody come together and, and build a really differentiated product. And that’s not easy to do. And it’s a super competitive space right now. And so I’m very excited about how venture is going to evolve as folks introduce new models and ways of doing things.
Erasmus Elsner 10:42
To expand a little bit on this, your fund size is your strategy. Unlike this piece, you have comparing the incentive structure of venture capitalists with that of whale hunters. And you have this chart where you basically say that the way that whale hunters used to be incentivized was pretty similar to this two and 20 structure because you had such high risk going out there hunting for whales, you had almost similar parallel returns, like you had an adventure capital. And I mean, you’ve been at three different firms TCB, the typical crossover firm, then co to coming basically out of the public markets, into the private markets. And then index coming from the very early stage, growing and having a growth fund attached to it. So you’ve had basically three sides of the table when it comes to font sizes and font strategies. And to bring this back to the whale hunters. I mean, the whale hunters, if they hunt for the dangerous whales in the middle of the ocean, then you obviously have to give them a 30% Carry because they’re risking their lives, but they could say, we’re going to hunt for smaller whales, we’re gonna go closer to shore. Like it’s a little bit the same. In the private equity industry. You have those large cap buyout funds, you know, targeting the 2.5x leveraged buyout situations, they’re not going after the 10x fund returners, and then you have the early stage funds, who really depend on the binary outcomes one or two fund returners. So that will be the ones that really should deserve the 30% super carry? How do you think about sort of the incentive models across the different whale categories that you’re going after in the market?
Kyle Harrison 12:20
Yeah, I mean, I think that there are two things that have gotten kind of muddled in the last few years. One thing is the intense focus on the binary outcomes, just sort of upper extreme of those outcomes became so significant, right, you look at I mean, I think at one point, at least, Andreessen investment in Coinbase, alone, had returned their entire AUM, like, not just an entire fund, but their entire AUM for, you know, 15, whatever, 20 years of investing, those kinds of outcomes are massive. And so because of that, it’s so big and so significant, it’s sort of it’s made it very fuzzy, where folks think that every outcome has to be a massive outcome. And I think that what’s missing from that is the nuance of, again, that idea that your fun is your strategy, you can have a different strategy going after very different things. But when it gets so noisy, when he thinks that everything can be this massive outcome, and actually sort of, you know, ruins or muddies the waters for every other strategy, because it takes up so much interest in attention. And so as a result, you get, you know, companies that are not growing exponentially, they’re growing 20 30%, they’re much smaller in scale, their technology is much less sophisticated, typically, they could potentially find great homes with private equity investors who are willing to buy the company and help do a lot of different things to improve their margins and, and improve the overall health of the company. But those folks have their expectations set on well, you know, I’m looking at these folks who are trading at, you know, at 100 times revenue, I should at least be able to get, you know, 50 times revenue or something. And it just dilutes that dynamic within private equity. Similarly, with folks who are okay, right with, you know, whether it’s like early stage firms with very specific focuses that have specific return thresholds, it makes it much harder for them to succeed when every company that is probably not going to be one of these massive outlier outcomes, but they’re gonna be a very good outcome. Those outcomes go from very good to very bad because they get muddied with all this emphasis on on big stuff. So I think the incentive for the last few years has pushed people to say, every company has to be a multibillion dollar company with a path to being a trillion dollar company. And that’s just not true. And that’s okay. But it’s gotten very fuzzy. So that’s one bucket that it’s made it very difficult. The other bucket that I think has gotten very messy, is as folks think about what are investors being incentivized to do. And what they should be incentivized to do is build long term durable companies that can be very successful for the long term, right, they can survive survival should be a big focus for these companies to survive and thrive. Instead, what they what investors have sort of been incentivized on is this kick the can down the road, right? Whereas if we can just pump up how big the story is and how big the outcome can be, somebody else will pay up and somebody else will pay up and somebody else will pay up until eventually you get left with a lot of times it’s the public markets that sort of suffer from that intense passing the buck game. And I think instead, what investors have lost sight of is the metrics and KPIs focusing on the next fundraise that shouldn’t be the core focus that you’re so focused on it is, how do we most effectively drive the metrics and activities that will lead to a successful company long term. And I think we’ve lost sight of that, again, in this sort of hype cycle that we’ve been in for the last few years. But again, I’m very excited about the model. So you can sit back and say, Listen, we need to focus on how do we build the strongest relationships with the sharpest people who are tackling the best ideas and the biggest problems? And how can we do that in a way that’s meaningful and durable,
Erasmus Elsner 15:47
I think that’s an interesting observation there of you that it has been really about kicking the can a lot of angels, they basically pattern match on, you know, who’s going to be a potential precede seed investor, and then the seed investors who’s going to lead the A, who’s going to lead the B and the series B investors looking for an exit candidate. And this really almost Ponzi scheme, mesh pattern of the industry that you don’t build quiet companies, calm companies that can survive on their own going, again, a step back to the general partnership model and the firm structure. You mentioned, the venture model itself has stayed largely the same for the last 50 years, not only the funding model, or the incentivization model with the 220 Carry structure, but also the general partnership. And obviously, those people driving those whale boats have been the same actress, the general partners, those who owned the cheapy, and who get most of the carry. And it’s been a very partner centric or investor centric culture within these venture firms. And you have this analogy of, it’s like, in an organisation where everybody wants to be salesmen, and the salespeople drive operations, they drive technology, they drive everything, and you have this clear divide between everybody who’s a GP, and then the ancillary, non investor functions. And I think you outlined this quite well in one of your posts, maybe you can speak a little bit about this divide that you’ve seen across the industry talking to so many capital allocators.
Kyle Harrison 17:16
But in my mind, the way that I think about this model, again, it goes back to this idea that it’s not a one size fits all strategy decision. Not every firm has to look like every other firm, right? Firms can look very different. They can have different types of people in different types of decision making processes. A lot of these large crossover firms have sort of built their reputations on speed and to some extent pricing sensitivity and says, they’re not focused on any of these non investor value add models, because when they articulate their value proposition, it isn’t about, hey, we’re going to help you and be the strategic advisor that you can call it to in the morning and get advice from and stuff. We’re purely here to allocate capital that you need to grow. And it’s kind of on you to be able to go and execute on that capital. And that’s totally fine. Like that’s a strategy. And if you’re a founder that you feel like that strategy could fit. Great. I think what what happens is that firms who have been built up in this, again, this boutique GP relationship, where it’s largely these six people around the table, or five, or whatever, seven people around the table, making all the decisions and dictating the strategy and acting themselves as the value add. Most firms grew up kind of thinking about things in that way. And as they’ve grown in AUM, they’ve realised we need to be doing a lot more to be able to justify folks taking your money and staying competitive, but they have sort of raced towards the headcount and the Aum and things like that without rethinking the org chart and the structural dynamics of how folks progress in their careers. And so what is confusing to me, when I look at a lot of these firms that have really exceptional talent, people or data science people, or even engineers, or business development, or what have you, those folks will hire really high quality people, and not always listen to them very much or not put them in a position where they can be really helpful or make really significant decisions or, or build an organisation. And it goes back to this analogy you mentioned that I shared where it’s effectively like the investing team has a sales team. And the sales team is a committee that’s in charge of every decision and everything. And you have these people where you might have somebody who’s a really high quality talent person, for example, and they’re really well connected. They’re very good at identifying high quality talent early on and building relationships with them. But if that person looks at, hey, I want to be at this firm for 20 years, how does my career progress? Many of those folks feel like they need to get on the sales team that they need to eventually transition to the investing team. And in my perspective, there should be a better structure where you can enable somebody to be really good at what they do, right? You’d probably have really bad engineers if they were constantly thinking about how do I get out of engineering and into sales. It’s the same way that you should enable talent people to be really exceptional at what they do feel that they have a long term path that they can use You’ll start to take on more responsibility and have more economic reward as they help build the firm. And by and large, that just doesn’t happen today. I joke that I’m obsessed with org charts, because I think org charts really reflect a lot of your values. And most firms, it’s sort of unfortunate what their values end up being based on what their org chart is.
Erasmus Elsner 20:17
I love this analogy with the sales team dictating everything. And that basically, what’s the incentives for someone who’s a, let’s say, data scientist at a top tier venture firm, to keep doing data science, when eventually you have to become a partner, or principal, you have to present in the IC, because otherwise you’re more like an ancillary service. In one of your posts, you’re rethinking that org chart for the venture firms. And you have some examples peridinium, which is front Arizonans spin out of Coinbase back to heavily by Sequoia. But then you also have this example of Kim when she left Coinbase and joined Andreessen Horowitz, she joined as the chief marketing officer, and that you gradually have some firms who try to adopt a more traditional org chart that looks more like a typical Corporation rather than a venture firm.
Kyle Harrison 21:09
So for me in venture and this is extends to country as well, country, even before I got here has been very thoughtful about how can you build a venture firm more similar to a startup. And not to say that everything is exactly the same, but one of the things that I get very excited about is folks that recognise the sort of pockets of value that can be created, right, there’s the meme of, he’s asking how they can be helpful. It’s kind of akin to like the joke where they say 50% of your marketing budget is wasted, you just don’t know which half. Sometimes it feels like 50% of VCs don’t add any value, they just don’t know which half they’re in, right, that sort of value add proposition is very fuzzy. And the thing that I think some of these firms are catching on to represents the where are the pockets of value that curate for a company, there was a tweet a few months ago, by Bryce Roberts, when asked he said, it was Keisha Boyd said, what is the number one thing that entrepreneurs are hiring their PCs, for? If you had to sum it down, it’s improved odds of success, or you’re trying to improve your odds of success by bringing on somebody else can help. And so I’ve started to think about a company’s success or their odds of success as this sort of weighted average risk calculation, everything from founder risk to product risk to market risk to you know, competitive risk, whatever it is, all of those risks exist for a company, whether you like it or not. And so then you start to ask, well, how can we reduce the risk and each of these facets as much as possible, and venture firms are starting to build their org chart around those pockets of value, or those pockets of risk reduction, if you will. And so in crypto because it’s such a frontier category, where I mean, the technology really is cutting edge trying to be build trying to create these economic models that can leverage specific pieces of technology, but it’s very, it’s very early, and even the folks at paradigm acknowledge that. And so within their crypto efforts, what do they build? Like? What’s the org that they build, to be able to sort of limit the risk for some of their companies, they build a pretty robust research organisation, because there’s a lot of unpacking that needs to be done in this technology. And so they build research. And then Andreessen is crypto effort sort of takes a note out of their book and does the same, right. So research is becoming this really valuable thing within crypto. And you see, folks same thing within marketing Andreessen, as long as the future or even some of the sort of super angels that have popped up, right, you’ve got the folks like Patty McCormick and Mario gabrial, they can be really valuable investors to bring in because they have such a significant following. And people so appreciate their thinking and their frameworks, that they’re really valuable. And that represents them. You can kind of bucket that in marketing, you can bucket it in a lot of different ways, right? Being able to tell your story or whatever. But the number of companies now that I’ve had reach out and I talked to them, in lieu even of a deck, sometimes they’ll say, Hey, you should really repack. He’s deep dive or Mario’s deep dive in with us because it tells our story so well. And those folks have identified a pocket of value, where they can help reduce the risk of a company’s ability to tell their story. So I love how these firms are finding these pockets. And then they’re saying, Alright, how do we build a world class organisation within that pocket? Not just hey, how can we find the thing that’s kind of nice marketing fluff, and we can talk about it to LPs and the founders and stuff. But really, it’s us who are are dictating everything. It’s really trying to structure these org charts around the pockets of value.
Erasmus Elsner 24:26
Yeah, I love that. And to bring that back to your analogy of this candle shop that the founder has some level of product market fit, he can basically choose his investors and it’s like walking into a candle store for him. Every candle smells and looks the same, more or less. And it’s really hard for them to distinguish everybody’s saying how can I be useful but who is actually useful? And you have this, this quote from Austin Hall read from lamda school who said that, you know, VCs should be building a product and not a service and what’s the difference between a product and a service? The difference is that If more people use it, basically, the product gets better. While the service gets worse, and that it really scales with the number of iterations, maybe you can talk a little bit about building a b c product versus PVC service.
Kyle Harrison 25:13
One of the things that I get some pushback on this, when I talk about this is everybody everybody jokes about, at one point, Google had kind of an AI bot, where they could put in company details and stuff. And it would spit out a yes or no, basically, that when I talked about a VC product, that is not what I mean at all. It’s more this idea. And and Austin articulates it really well, where if you have productized, something, it is more scalable. A service, by definition almost is very sort of niche and customizable to a particular experiences, efforts can be great for individuals, but the more people you do it, the more spread thin you are in the worst that it gets. This also goes back to your font sizes, your strategy discussion, right, where if you keep a small fund, it can be okay to have a VC service, right? It’s you’ve got one person, and they are your board member. And they’re your advisor. And they will support you based on their expertise and knowledge. That’s awesome. If you try to raise larger funds, or if you try and do lots of different things for firm, and you have lots of companies taking advantage of it, it doesn’t necessarily scale very well. So the way that I describe productizing things in venture is it’s a clearly articulated thing that can be replicated multiple different times without losing the value of it. And so one example that I give is some of my colleagues at index. They’re phenomenal what they do that many of them have backgrounds in engineering and data science, working in open source companies, and working with pretty sophisticated AI. So there’s a very specific infrastructure and AI, quote unquote, product, if you will, at index and there’s a few folks, you know, Erin, price, right and Kelly tool and some of the the team there that has worked with a bunch of different companies, they’re very good at that specific thing. Are they going to be great for everyone? Not necessarily, but within their core area, they can scale actually quite well, because the lessons that they’ve learned are very applicable to the folks that they’re working with. There’s no, you know, SAS interface for that product. It’s still people, it’s still individuals interacting with other individuals. But it’s privatised in the sense that it’s very well articulated. And I think one of the things that a lot of firms have sort of not done as well, is they want to be everything for everyone. And at some point, the ability to productize also depends on the ability to prioritise and being able to say, listen, we’re really good for this area of people and this kind of founder or this industry or this kind of business model or what have you, we’re really good for them, there’s going to be some people, that’s not a good fit for I think that’s one of the things that that tiger has done pretty well in saying like, Hey, we’re a good fit for certain folks, we’re not a good fit for everybody. And it’s up to the founder to be sort of deliberate about is this the right fit for me or not. But it’s the area where folks try and be too much for too many people. It doesn’t scale at country, you know, one of the things that we think a lot about is, we do want to do a lot of things, there are several different aspects of contries flywheel so to speak, that exists and that we want to do. But we want to do it for a very specific subset of folks where there’s a specific group of people and a certain kind of signal, where we say, hey, that’s where we can add a lot of value, there are certain aspects where we’re not going to add that much value. And that’s okay, we don’t need to get involved in those investments with those companies. It’s about finding the sort of investor or founder fit that our product is a good fit for.
Erasmus Elsner 28:30
Yeah, in your time, where you were reflecting about joining comfort capital, you spend some time talking to some people in your industry, you have some iMessage screenshots there where you reached out to some friends, saying, Have you thought about what’s your firm’s venture product offering? And you were surprised that there was surprisingly little thought process in some instances. And that obviously has shaped you in being much more liberated in that regard.
Kyle Harrison 28:57
In the conversations I’ve had with folks, I think it’s, and this is true in startups as well. You don’t want to be a commodity, right? You don’t want to be a person who’s selling the same thing as the next 15 vendors. And there’s absolutely no difference in what you’re doing. You want to be different. And then go back to this idea that every venture firm is responsible for answering for their own existence, answering the question says, What is your unique value proposition? And there hasn’t been enough of that. So a lot of the folks that I work with often they’re I mean, sort of similar stage of career as me where they’re, they’re sort of the rising generation where they haven’t been doing this for 25 years, but they’ve been doing it long enough that they know what a company needs and what can be valuable. And so they’re trying to articulate for themselves and whatever role they’re in. How am I going to answer that question? What is my unique value proposition? How do I differ from other folks? The one bucket that is most important and sometimes people think that I disregarded my writing. I think that there is a layer of choosing an investor that I joke is really it’s just vibes. It’s one of the reasons I wrote one of the I pieces called the unbundling of venture capital, where it focuses very much on the individual brand and characteristics of the investor becoming increasingly more important. It’s not just because the world is going to break down into a giant army of solo capitalists, I don’t think that’s the case, I think there will be certain folks who that’s a good model for and that’s awesome. But I think whether you’re in a big firm or a small firm or a just an angel investor, your brand or your vibe is going to become increasingly more important because it’s really difficult for founders to know who they vibe with. And so you need to do a good job of crystallising and articulating what your vibe is and what you’re good at and what you can offer them or what your firm can offer them. And so one of the things that I think, folks, and I hope some of my writing also will push people to do is to more articulately answer the question, what is my unique value proposition? Where do I fit in the world and start to focus their efforts on where can I be most meaningful and to be okay, missing out on some of the things that maybe they weren’t a good fit for? And that’s okay, I think that that is going to be where this sort of VC value add conversation starts to go is, as people try and really identify what can we be world class at,
Erasmus Elsner 31:05
I mean, this brings me to the next piece of yours, which is this history of venture capital divided into three stages. One is the monolithic brands, it used to be, you know, you would be funded by NEA by Sequoia. And it wouldn’t be so much about the partner and was these one brand firms and Sequoia led rounds coilette around and then we have this great shift now, from at the very extreme, really those solo capitalists, the hairy stabbings of this world, the lead pixels spinning out, I think you have other examples like Serena Williams, EULA Gill, who are sort of recognised by their own as, as the super angels. And you have this, this area of you know, monolithic brands than the Renegades on the other end in between this trend of feudalism, as you call it, where you had sort of some of these large, top tier firms branching off in different strategies. Andreessen Horowitz having a bio fund having a crypto fund, having these niches to differentiate your product, maybe talk about this really interesting piece of yours, the original idea
Kyle Harrison 32:09
for the unbundling venture capital article that you describe where you kind of explore this evolution party that actually came from an article that I really love. It’s called Naked brands by David Perell. And in it, he talks about how for basically forever if for as long as marketing has existed, consumers have used brands as shorthands for quality. So we don’t always know all the information. But I know that Coca Cola is high quality. And so if I have to choose between some random COLA that I don’t know, and I know Coke, and I know that the brand, I’m going to trust that brand. That was the model with a brand’s example, over time, and this has happened in venture this has happened in government in lots of different industries. Over time, what’s happened is, number one brands have done some things that have violated the trust that people had in them. And so people have lost some of the confidence and knowing that they could just say, Hey, I don’t need to know everything, I know that so and so is great. And then some bad things happen, or some products are really low quality or whatever. And the trust in that brand gets diminished. That’s one thing. And then the second thing is that the world has gotten dramatically more complex. And so rather than being able to trust, hey, this is good for everyone in every situation you started to break off into. So this area really sort of deserves its own focus and attention. And it’s big enough that it deserves that. The way that’s translated into venture is that you’ve gone from the monolithic brands doing everything to the example that you described, which is like you look at Andreessen and they have multiple different strategies. And those strategies are able to focus around a specific area and give it its own attention. What has happened basically, since the rise of social media is that now rather than taking brands as a shorthand or even even a hyper focused aspect of a brand, as a shorthand for quality, and something that you resonate with, people have been more exposed to each other’s lives, right on social media, you see into even super famous people’s personal lives and their experiences and their their values and personalities. And you resonate with that. And so in the sort of pop culture world where you have LeBron James, or you have Kim Kardashian or whatever, you start to resonate with those individuals. It’s sort of social media has kind of rewired our brains, where we’re kind of anxious about the big monolithic brand, we don’t know what’s going on in there. We don’t know who’s running the ship. We don’t know what they’ve done before. And they’re not telling us you know, but when you look at a person, you feel much more comfortable that you know that person whether or not you do, right, like marketing is just as effective for an individual or a brand. Like, you know, different people are better at discerning. But within venture, I think that dynamic has occurred where people are much more focused on the individual. So I think you’re right to the point where like, it used to be that you would just choose a benchmark because you choose a benchmark. Now people still choose benchmarking, they’re still great firm, but they more often than not they chose that they specifically choose a Bill Gurley or a Sarah tabular or whatever, because they vibe with that person. And so whether that that vibe or that brand of an individual exist in a big firm in a small firm in a solo firm, or just as an individual Angel, you look at things like in a country where investors in work. And it’s a it’s a series, a company where Dylan field, the CEO of figma, led their Series A, we’re investors in synthesis, where you know, it’s an edtech company, that’s just a phenomenal business. And they had their recent round led by Amit Shah, the CEO at Restlet, and Balaji. Right, these these individuals are sort of stepping into roles where they can lead rounds, because their vibes are very well articulated. And so founders can know how I vibe with this person. And if the capital is there, and those people can lead their investments, I can turn to a Dylan or I can turn to any like Gil or whatever, right. And so as that sort of personal unbundling of venture occurs, what is most important is that founders recognise their ability to say, Hey, I’m gonna choose an investor because I vibe with them, not just because of the brand of the firm, and country is no different. We focus very much on personal relationships beyond even specific brands or anything like that.
Erasmus Elsner 36:12
Thinking long term, if you have top operators, top founders who are coming to the market with their small, rolling fun getting a start in the venture industry, oftentimes, in parallel to actually running their startup. There’s the famous example of the superhuman founder, investing his rolling fund in parallel to building out superhuman, you see more and more of those examples. You mentioned the example of Harry Stebbins, who obviously started out as a 21 year old, becoming one of the world’s most successful podcaster. Then he partnered with Fred Dustin from Excel started to venture for him, but now spun off again, is now a solo capitalist. But I heard to Harry, for example, talking about how, as he’s scaling up now, with the two fund offerings, I think he has an early stage fund and the growth fund, he’s having to deal with more and more paperwork. And there are benefits of being part of a larger franchise, where you have a CFO, where you don’t have to take care of capital calls, and all of this administrative stuff, how do you think about how this is going to play out? In the long run? Will there still be tribes? Or will the silver bullet be the new normal, the new I see where you know, you can just do whatever you want, as a solo capitalist?
Kyle Harrison 37:22
And the questions that I get the most, because I’ve written so much about different models and venture and stuff is, what is the thing or the trend? It’s going to sort of take the day right, the the most important trend that’s going to change venture and, you know, is it crypto and being able to decentralise away from these centralised firms? Is it solo capitalists? Is it Tiger and crossovers and, you know, big firms becoming massive pools of of innovation, capital and stuff like that? What are all these things? And my answer is always disappointing to people because it’s not as sexy as they might like. But it’s not any one thing. It’s everything is that if I had to use one word to describe venture that over the next 1520 years, it’s change. Even though the markets have gone up, and they’ve come down, the reality is that the world is changing. It’s not just an economic well, in a bear market, it’s this in a bull market, it’s that it’s the world is changing the way that people consume information is changing how they build businesses, and build teams and recruit and all of those aspects they’re changing. And whether the sort of established players in venture like it or not venture is going to change as well. And so what’s going to drive that change? It’s all of those things. What is not going to change? Is this idea that you still have to answer for your own existence. And so when I look at the solo capitalists and folks in these morphers, well, what are they going to do? Are they gonna stay solo? Are they going to grow? Like, it’s sort of up to them to decide both not only what works well for them, but also what gives them enough of a foundation to survive and thrive in a pretty competitive world, right, is that if if folks like Harry are gonna bring on a back office team, they have to decide does that slow them down? Or does that speed them up? Does that give them more right to live? Or does that sort of make it harder for them to survive? And that’s going to be true in solo capitalists, that’s going to be true in dedicated seed firms, that’s going to be true and multistage firms that it’s going to be true crossover funds. Everybody has to be able to answer that question of why they should be allowed to survive in a in a dramatically and rapidly changing competitive landscape. I think that’s the most significant thing that everybody’s going to have to deal with.
Erasmus Elsner 39:27
And I think what’s interesting is we’ve gone through a couple of iterations in the last two decades. It used to be that TCP and meritech would dominate the growth space. Then you had the Euro Milner with the DSP moving into the market. Then you had Moscow with the Softbank moving in. And then Tiger obviously, in the last sort of iteration of this crossover strategy. It’s so dynamic that every couple of years to see new players new models popping up I think it’s going to stay quite dynamic. As we have 10 more minutes on the clock. I want to spend some time on contrary, you have a piece on Why contrary capital is for you, after all this research after all this deliberation time to reflect, write, and talk to many industry players, why, contrary is your renegade of choice. And you contrasted to a Sequoia or Kleiner Perkins, which are more company centric transaction based companies versus a Y Combinator, or Tech Stars, which are really community centred accelerator programmes. And you put contrary, in that community centred bucket, and I just saw some pictures of the comfort capital off site, which I think really speaks to that community centred element of country or capital, maybe you can elaborate, yeah, that credit where
Kyle Harrison 40:39
credit is due. So I’ve known Eric Brzezinski, who’s the founder of country for six years, since he was just starting to think about country and he himself had worked at a YC backed company that got acquired by Lyft. And his realisation, his sort of early thesis was both in college and afterwards in the startup world, he was constantly surrounded by super sharp people. And he thought to himself, If I could just find a way to stay close to these people, and, and back then in whatever way possible, that I would be able, you know, you have significant success from that, but just by staying plugged into those sharp people. So over time, what that became was contrary to its core ethos, which is identify the sharpest people in the world and support them relentlessly throughout their career. And what that means is, or in the early days of country that was identifying the sharpest people at over 40 different schools across the country in graduate and undergraduate programmes, bringing them into a sort of venture partner programme, where they would work as scouts with us and get to learn alongside us in identifying really high quality businesses. But then by doing that, we would identify who those sharp folks were that we worked with as Venture Partners. And then we’d stay close to them where when they graduated, if they went to their first job, whether it was working in tech or whatever, we would stay close to them be a resource for them, offer them a bunch of different components of the community that would support them in their journey. If they go in and start a company, awesome, we want to be their first check, if they go. And one of the reasons I joined contrary, is if they want to go work out a series B or A Series C Company and really learn sort of at a different business what good looks like so that once they do start a company, they have that experience, awesome, they can go work at those companies, we can help them go find those companies. But then what I want to do is sort of leading the growth effort at contrary, because I also want to invest behind those people, if we know they’re super sharp, and we know that they’re congregating in some of these phenomenal businesses, those are probably good companies to invest in even at the later stages. Even if we didn’t invest in those companies at the very earliest days, we still want to be able to invest in those. And that’s what we’ve done investing in the folks like ramp and and a role in synthesis. And folks I’ve mentioned is we’ve identified those companies that have attracted really high quality talent, right, I refer to them affectionately as talent vortexes, these companies that have built up a unique enough culture and a unique in a vision, that they’re able to attract really high quality people. And so a lot of my growth investments, even if there aren’t contrary community connections there, I’m able to go and identify those companies I see as early budding talent vortexes and be able to help bring the community into those companies as well. So whether the community is pulling us towards some great companies, or were helping invite those community members to some phenomenal companies that we’ve met, that’s the model is that we’re constantly trying to identify what are the products or services or different offerings that we can launch within the country community that will keep us close and help us build affinity with these really sharp people. And then just let them tell us where the most exciting opportunities are, because we know that they’re sharp, and we know them super well. And so to your point, that was one of the things this past weekend, we had a phenomenal event at Camp Navarro just a few hours north of SF, we’ve got several 100 folks in the community, we were able to get about 250 of them at this event. And we had a bunch of speakers, we had founders, we had other investors, we had all kinds of opportunities to be able to share what we’re learning and the opportunities we’re seeing the community. And one of the best things is we a lot of folks walk away from those events. And they have found their co founders and they’re gonna go start businesses with or they found people who are working at the companies that they now want to go work at and are able to help recruit each other and things because we’ve been so people centric for years, that’s starting to compound where we’re leading seed investments of companies with folks we’ve known for years, are making growth investments in the companies were phenomenal folks who’ve gone to work that we’ve also known for years. And this is just beginning. I can’t even imagine how powerful that flywheel is going to be 10 years from now when folks have continued to advance their careers. But that was the biggest reason I was excited to join. Contrary is because as venture becomes unbundled and as because as relationships become more critical, I wanted to be at a place that from the very earliest days was building the deepest relationships with the sharpest future founders that I could.
Erasmus Elsner 44:44
super interesting. And if you’re true to your roots of doing growth investments, how does it look on a practical side? And you know, growth investors sometimes get a bad rap being called spreadsheet investors where it’s more about, you know, the cohorts looking at different churn rates looking at LTV to CAC ratios. And your model seems to be quite different now that you’re a contra capital. Is that out of a main fund? Or is it a dedicated Growth Fund? What’s the typical entry stage as a series B is as an early Series C? And how does it differ from other models, I
Kyle Harrison 45:18
think that there are sort of three very distinct phases that a company goes through in its life, that first phase being very much about the person finding a problem that’s worth solving and ideating. Towards that problem, that’s a phase. We have an early stage team that’s super focused on that they’re doing pre seed and seed investing, primarily some Series A, but it’s very focused on those people who are solving problems and iterating. And things like that. Where I step into the puzzle is basically the idea that somebody has ideated, something really compelling, they’ve started to build something, they started to get some early customer interest. And they’ve kind of identified the early inklings of product market fit, but it’s very early. And there’s the opportunity to come in as a growth investor to be able to effectively pour fuel on that fire, right, where they’ve started to nail down some of the core pieces of their model. And now it’s a question of how do we get the resources and the right people in place to be able to really scale that model, that’s the second phase. And that’s where we’re really focused primarily Series B and Series C, investing, but we can flex to some series A’s that are maybe a little bit later. And we can go all the way up to pre IPO rounds if we want to, but it’s very much about how are we identifying those companies that have the product market fit the economic engine starting to turn, and most importantly, for country, the talent vortex, it’s really powerful. We don’t necessarily want to invest in companies that are just, you know, we just gotta get butts in seats, let’s just bring folks in, we want to invest in folks that are maintaining a ridiculously high talent bar, because those people are going to be the future iterations of once they do super well in this company. We want to help bring them into the community and start companies that are owned someday. And then that third phase that you’ve maybe done a little bit of in my career, but we’re not as focused on right now is that sort of point where it’s like, hey, at this point, we just need capital, we just need capital that we’ve got our advisors, we’ve got our management team, we’ve got all the right things in the right place. We just need cash to sort of fuel the engine. And we’re not as focused on that, right? We’re focused on being a meaningful partner to folks to be able to help them you know, really put the right the right people and the right pieces into the right places.
Erasmus Elsner 47:12
So really, in the early growth phase, as we’re running against the clock, where can people find out more about you? I mentioned the sub stack.
Kyle Harrison 47:19
I love getting to interact with folks on Twitter, you can see a lot of my writing there and links to my other work and more information about contrary and stuff. So just on Twitter at KW Harrison 13 is the best way to get in touch. Perfect. Thank
Erasmus Elsner 47:31
You so much.