Kyle Harrison: Why 75% of Active Investors Will Disappear in the Next Few Years | 20VC #940

1. 0:00 – 2:38

   Kyle’s Background

   1. HSHarry Stebbings0:00

      Kyle, I am so excited for this. I heard so many great things. I also love your writing. It's one of my favorite pieces of writing in venture. So first, thank you so much for joining me today.

   2. KHKyle Harrison0:09

      Yeah, thanks for having me.

   3. HSHarry Stebbings0:10

      Not at all. I've been excited for this one, especially when I saw your suggestions for this show. But I want to start with a little bit on you. So many great firms you've worked at, but how did you first make your way into the world of venture, and most recently come to be a GP at Contrary?

   4. KHKyle Harrison0:24

      Yeah. So my journey is very circuitous. I, I was not ... I didn't know anything about venture or startups growing up. Um, I was actually ... I was obsessed with film growing up, and so when I got to school, my original major was actually filmmaking. Uh, my magnum opus that I created, you can still find on YouTube, was Pokemon Luv Song.

   5. HSHarry Stebbings0:42

      Mm-hmm.

   6. KHKyle Harrison0:42

      So I was very into film and videos, and I was paying for college doing, you know, wedding videos and commercials and, and things like that. Um, so that focus on film was a big, uh, was a big part of my life, and then eventually it got to the point where I had too many clients. And so I just started farming them out to other creatives. I'd take 2% on whatever they would make. And before I knew it, I realized I was much better at getting jobs than I was at making videos, and so I kind of transitioned to that as a full-time job. And I joke that I was, I was, uh, running a creator marketplace long before it was cool. I didn't know to call it that. But I, I built this really crappy website, I expanded to graphic designers and photographers, and, and I was helping them get jobs and, and do all these different things. So that was my first exposure. I didn't even know to call that a startup. You can ask my wife. For the entire time I ran it, basically, I called it a project. I was just working on a project, because I was so used to a job being a very different thing, and eventually I, I ended up selling that business and I was trying to figure out what to do next. I was talking to a friend and they said, "Well, what did you like most about running your company?" And I said, "I loved being this resource for these passionate people who were running their, their, you know, building their own businesses, and I loved that they could rely on me and I could go help, you know, knock down walls for them or find answers for them or whatever." And my friend said, "Well, that's sort of what venture capitalists do." And I said, "Well, I don't know what those words mean when placed together." Um, and I sort of stumbled backwards into the world of venture. I'd, I'd been running my company in Utah. I worked for a seed fund called KickStart in Utah, and that was kind of my, my education in venture. Um, but that's what led me out to the Bay Area. Eventually I wanted to see more than just seed investing, I wanted to see lots of different companies, and so jumped to the Bay Area and worked at firms like TCV and Coatue and, and Index. And eventually Contrary is where I decided to, to, you know, hang up my hat and, and be able to, uh, put my fingerprints on something and actually help build something.

   7. HSHarry Stebbings2:30

      It's rather a shame you don't actually have one of these, 'cause then we could both be kind of hanging out now, someone-

   8. KHKyle Harrison2:34

      (laughs)

   9. HSHarry Stebbings2:35

      Um, but, uh, gotta love a TikTok audience. But I d- I do

2. 2:38 – 8:15

   Lessons Learned from TCV, Coatue, and Index

   1. HSHarry Stebbings2:38

      wanna-

   2. KHKyle Harrison2:38

      That's right.

   3. HSHarry Stebbings2:38

      ... I'm doing very weird things today, 'cause normally we obviously have a quick fire at the end. But you've worked at, as you said, TCV, Index, Coatue, um, (laughs) in quite a short amount of time, Kyle. So my question to you is, uh, we're gonna go through each one and just go for one lesson from each and how it changed your mind in a quick fire. So if we start with TCV, lesson and how did it shape your mindset?

   4. KHKyle Harrison3:03

      Yeah. So, uh, yeah, I mean, TCV, then Coatue, then Index. It's a very different ... It's a, it's a real smattering of opportunities. And TCV I credit a lot where I, I learned a significant amount. I mean, I, I was very drinking-from-the-fire-hose, you know, baptism by fire kind of stuff. And TCV's changed a lot since I was there. When I was there, it was, uh, very much like a private equity style of investing. It was, it was really looking for diamonds in the rough. And the people at TCV were never afraid to get their hands dirty. Uh, and for me, that really changed my perspective of what it means to be an investor. Like, the way that I think about it is, it's actually funny. I've really never resonated, I never really liked the, like, meme-ification of venture, um, because my whole career I've had this, like, we-do-the-work attitude that I learned at TCV. Um, and so I, I, I don't ever feel like I would passively say, "Hey, let me know how I can be helpful." You know? I, I just start doing stuff, and then I go to the founder and I say, "Hey, I did this and that, and is that your top priority? If not, redirect me. What else can I do?" And that was definitely a big part of TCV.

   5. HSHarry Stebbings4:06

      Okay. So that's TCV. Tell me, what was the learning from Index?

   6. KHKyle Harrison4:11

      Well, let's do Coatue, 'cause that was the order. I feel like I actually, like, my journey in order was, like-

   7. HSHarry Stebbings4:16

      (laughs)

   8. KHKyle Harrison4:16

      ... it was, it really was like I ... It's, if I could've written the book, this is how I would've written it.

   9. HSHarry Stebbings4:21

      Uh, h-

   10. KHKyle Harrison4:21

       But it was absolutely scattershot.

   11. HSHarry Stebbings4:24

       Hit me. Coatue. What was the lesson from Coatue?

   12. KHKyle Harrison4:27

       So Coatue, uh, again, very, it's very hedge fund style of investing, right? If, if TCV was the private equity, Coatue was the, uh, hedge fund. And it's, you know, there's some aspects of that that are less fun. Like, hedge funds are very intense. They're very competitive inside and out. But one of the most eye-opening things that I learned was not just, hey, we get in and we do work, but we do work in, in markets that matter and after opportunities that matter. And so at Coatue we, l- I learned this idea from, um, Thomas Lafont. Uh, it, he bas- he called it TA- TAM arbitrage. It's this idea that, like, you can, you can work, and, uh, if you can do the work and understand the market better than anyone else and appreciate that it's actually bigger than anybody else gives it credit for, that can help you pay higher prices. Sometimes that can come back to bite you if you don't, you know, f- who knows? It's always difficult to predict what, how big markets actually are. But if markets really do turn out to be larger than anybody else gave them credit for, not only can you pay higher prices, you can get more aggressive with burn, you can grow more quickly, you can experiment a lot more, because you have a more fundamental understanding of the market. Um, and it's kind of the Buffet-ism, right? If a good manager meets a, a bad business, it's the reputation of the business that remains intact. I think the same way about a market. If, if a really good founder goes and tackles a really crappy market, that market's still gonna be crappy. The question marks are gonna be around that founder's ability to tackle a market if it's not big enough.

   13. HSHarry Stebbings5:43

       I ha- I have recent learnings from the last 12 months that markets matter more than anything. Markets matter more than founders. You need a sufficient level of founder, but if you have a sufficient level of founder and operator in a fucking great market, win. Go. If you ha-

   14. KHKyle Harrison5:58

       Absolutely.

   15. HSHarry Stebbings5:58

       Do you agree? Yeah. I'm glad. Glad I'm not alone in that lesson. (laughs) Uh, now we-

   16. KHKyle Harrison6:02

       (laughs) Yeah, glad everybody agrees.

   17. HSHarry Stebbings6:04

       And not everyone agrees, but, you know, they're wrong and we don't pay attention to anyone that disagrees with us.

   18. KHKyle Harrison6:08

       (laughs)

   19. HSHarry Stebbings6:09

       Um, uh, final one then, Index. How did that shape your mindset?

   20. KHKyle Harrison6:13

       Yeah. So, and again, I mean, I sound like Goldilocks, right? I was, I was jumping around, testing out, just finding what's just right for me. Index, the way that I think about Index, it's a little bit different. It's not just the way that it, like... There's not one thing that impacted my way of thinking about investing. For me, I felt like Index was like graduate school in venture capital. Like, there were so m- And maybe this was my mindset, b- even before I joined Index. I'd already started... You know, remember, I'd, I'd started a company before. I didn't know to call it a company. Now, I knew what a company looked like, what a startup looked like, and I'd started to feel this entrepreneurial itch, but I liked investing too much. And so when I'd think like, "Well, should I go start a company? Should I go join a company?" I really like investing. I don't think I wanna leave it. And so I was in this, like, opportunity canvassing mindset, and I sort of, like, directed that energy at venture. And so while I was at Index, I was constantly paying attention to how we did things and studying the way that we did things. So how do we make decisions? How do we incentivize people to take risks and build relationships, and stuff like that. And a lot of that study, it comes out in my writing, right? It's the reason that I write about, like, what is the art and science of venture. It's because I felt like I was studying it, and it's one of the things that led me to Contrary, um, where I wanted to try and take what I had kind of observed in three very different styles of, of venture, um, you know, Index being the kind of venture classic, um, but it's kinda take those learnings and, and try and go build a new model. Um, and Contrary is that, sort of, you know, avenue for me to go do that.

   21. HSHarry Stebbings7:38

       I didn't take that vague answer. What is the one single thing from Index that you took with you to Contrary and changed the way you think about what you do at Contrary?

   22. KHKyle Harrison7:48

       Venture, if I had to sum it up, Venture is meant to be studied. And while I was at Index, for good... There were good and bad things. I, uh, started to appreciate how much you have to actually treat your effort as, uh, something to be studied and learned from postmortems and, and stuff like that. Like, there is an actual psychology and study that every firm should apply to the, what they do, good and bad.

3. 8:15 – 10:51

   Biggest BS Advice in Venture

   1. HSHarry Stebbings8:15

      You know one of the biggest bits of bullshit advice I think there is, which is a, "Oh, don't worry. No one really knows what they're doing"? To me, this is complete crap. People do know what they're doing, which is why they're often (laughs) where they are, and you should learn from them and seek them out. Do you agree, or do you take the ever-changing circumstance and time, you do you style?

   2. KHKyle Harrison8:35

      The way that I think about it is that everybody knows, everybody knows what they're doing, right? I think that everybody is, is acting deliberately and trying to do things in a certain way. I think the thing that I don't take for granted, a- a- and I think the reason people say stuff like that is that, "Oh, nobody knows what they're doing. We're all just kinda making stuff up as we go," is everyone's trying to soften the blow of being wrong, and so we try and say, like, "Hey, we're all just doing our best. We're all doing this or that." But there are people who are exceptional at what they do, and there are people that are repeatedly really bad at what they do. And I think the biggest difference between those people is that the people who get really good are the people who learn, and grow, and pay attention to how they do stuff, and they get better at it. And so those people do know what they're doing. Not only what they're doing, what they're trying to accomplish, but they, they know, they're capable of their, their craft and their skill 'cause they've studied it. Like, I feel like that makes the biggest difference.

   3. HSHarry Stebbings9:26

      I absolutely agree with you. I, I wanna start on, you know, we spoke about kind of three incredible firms there, but from, you know, the, the prior generation bluntly, I wanna talk about the current landscape that we have in venture today. And you've said before, uh, and you said it in an email, I love this, that differentiation is going to kill the long tail of so-so venture firms. It was f- great cliffhanger, by the way. Um, what did you mean by this?

   4. KHKyle Harrison9:50

      So, uh, Josh Wolfe made this prediction, um, back in February. He said that, you know, he... In his prediction, between 50 and 75% of active investors in the private markets are just gonna disappear within the next few years. And for me, the way that I think about that, about, you know, the sort of what is a so-so venture firm, what is differentiation really, people are starting to care more and more about the holistic character, uh, of the, of these institutions that they work with, right? Um, you know, a reputable bank may not be enough to acquire customers anymore. Like, people care a lot more about what the identity of this firm is, and I think founders are progressively gonna look for more distinct characteristics in the firms that they work with, and I define that as differentiation, right? It's how, how capable is somebody externally able to articulate you as a firm? And if you can't answer that question very clearly, uh, it's gonna get harder and harder and harder. Um, and so I think the ways that firms look to differentiate themselves is gonna get progressively

4. 10:51 – 13:30

   How Venture has Changed

   1. KHKyle Harrison10:51

      more interesting.

   2. HSHarry Stebbings10:52

      I, I think that what we're seeing actually is kind of the disarming of firm power and the migration towards individual and partner power.

   3. KHKyle Harrison10:59

      Mm-hmm.

   4. HSHarry Stebbings10:59

      And so the ways in which firms differentiate themselves I actually don't think will change very much, or I don't think will change as significantly as the ways in which partners will try to.

   5. KHKyle Harrison11:10

      Mm-hmm.

   6. HSHarry Stebbings11:10

      You know, I think a recent example of this is Logan Bartlett, obviously, who's done actually a very good job building his personal brand from nothing very quickly. But I think it's the partner characteristics that will change much more rapidly and significantly than firm, and I think we're seeing that now with founders choosing partners, not firms.

   7. KHKyle Harrison11:29

      Uh, I would agree with that. I... And, uh, you would know this because you were, you were featured prominently in the writing, but this was one of my first articles that, that really blew up, was the unbundling of, of venture capital. And the evolution was sort of this sort of three phases of how, how firms have been structured. And I think, to your point, one of the things that I get a lot of pushback on is people say, "Well, I think largely... By and large, things are gonna stay the same." And I think that venture will look and feel very similar and not change so dramatically that you wouldn't... You know, 20 years from now, it's not like you're gonna look back and not even recognize how things work. But there are subtle changes that are happening, and the way that I described it in the article was you have these monolithic brands, the old school, you know, '60s, '70s, '80s, whatever. You've got the Kleiner Perkins and the Sequoias and stuff like that, and, and they sort of just, uh... You almost don't even... You almost abstract away the partners. It's focused on this almost like a bank, this monolithic institution. The, the next phase of that progression was sort of what I call these, like, fiefdoms, and so you have, like, Andreessen's crypto arm, right? Or, or Sequoia China or whatever. You have these sort of pockets that exist, but by and large, they have a Chris Dixon who is the, the sort of...... you know, uh, the, the, um, leader of that fiefdom, right? Um, but you have these kind of universes that exist within the firm. Progressively, that has continued to abstract even further to the point where now what I've referred to in my writing is the renegades of venture, right? And, uh, that became a series for me that I've written about. I have focused a lot on people who are trying to take fairly different models and written about people who are doing things quite differently. But my definition of what it means to be a renegade in venture does not have to mean that it's this, like, radically different model or it's like, you know, venture debt 2.0 or whatever. It doesn't have to be crazy. It sh- it is, it is honestly like, it is a Logan Bartlett, right? It is somebody who is changing the way that they define themselves and, and things like that. You are a perfect example of that and what you've built, uh, with your firm, is that it becomes more about... I mean, you have a vibe, right? Like that's, it's more about these vibes that people feel.

   8. HSHarry Stebbings13:29

      Chapeau,

5. 13:30 – 19:55

   The Death of the So-So Venture Firm

   1. HSHarry Stebbings13:30

      my friend.

   2. KHKyle Harrison13:31

      (laughs)

   3. HSHarry Stebbings13:31

      Um, uh, (laughs) but I, I, I want to talk about so-so venture firms. I, I... (laughs) People think I'm like this Charlie and the Chocolate Factory on venture. I'm not. I'm like the most cynical on venture. I think most venture firms are actually really, really substandard and poor. I want to understand, what do you define as so-so venture firms? What makes them average to you?

   4. KHKyle Harrison13:50

      Yeah, I joke. It's kind of the, you know, the line where they say, "We know that half of our marketing budget is wasted. We just don't know which half." Uh, it's kinda the same thing with venture funds. Probably 80% plus of venture funds are not great. We just don't always know which ones they are, right? When, when I think about... And I think that a lot of those, a lot of firms are, are trying to be, um, those good firms. I think it's just, it's had this sort of cottage in- cottage industry vibe for so long that it's allowed people to just be very, you know, substandard and, and just doing their own thing. In my mind, the characteristics that I look at when I think about like, "What does it mean to be so-so?" The three buckets that kinda come to mind for me, I mean, one is, I mean, it's, it's pretty straightforward, right? It's economic performance. And, and Doug Leone said this, uh, with you last September. It's a quote that I use a lot, um, where he talks about the two most important things are, number one, performance, and number two, teamwork. But if we don't have number one, nothing else matters. It doesn't matter what three or four or whatever is, performance is critical. And, and there are firms out there, and, and, you know, it definitely, it takes a long time for these things to sort of catch up with you. But there are firms out there that even in this massive bull market that we've had, they have not returned enough capital to be able to justify, uh, you know, the, the carry that they've paid out to partners or that they will, they should have paid out or whatever. Like, there are economic models that are gonna crumble under the pressure of the market that we're going into now. So like, that economic piece is, is critical. The other piece of it is cultural, right? Like, culture can kill firms. Um, and you know, there's, there's definitely examples of that. And I think that there are even many well-regarded firms that outside in people would think are great but internally they're eating each other, and eventually that spills out into the work, right? It impacts their performance. And, and then the third just being brand, is wh- which is what we're talking about, but it's... And this is, this is also a Logan Bartlett joke, right? Is we talk about how as, as VCs we invest in these firms that have durable competitive moats, when venture firms have ba- it's largely brand, right? It's largely that, that, um, competitive advantage that comes from a brand. But I feel like in my mind it's, it's this idea that, you know, the market correction in particular, it, it didn't take very long for a lot of bad behavior to start coming out, right? A bull market has hidden a multitude of sins of, you know, venture firms haven't had to be super aggressive in, in certain ways. Uh, you know, within a few months you started seeing things like firms jeopardizing a company's survival, you know, holding up funding rounds, demanding specific provisions be met, whatever. That behavior is gonna get out too. Like, we're talking about the positive side of building a brand but the negative side of, of brand and bad behavior, that, that can kill you too.

   5. HSHarry Stebbings16:23

      I think it's like threefold. It's like, you know, fundamentally, discovery. Do you have an innovative way to continuously and reliably discover the best generation of companies? Great example of this would be a Y Combinator on the very early stage, a Sequoia on the very early stage with their innovations around scout programs, around Arc. I think they've actually productized discovery continuously very, very well. Uh, so as picket... like discovery is number one for me. Picking, uh, and winning is number two. Like, do you have an innovative way or do you have a better decision-making process around picking and winning? Um, Benchmark in particular are phenomenal. I'm sure you know a phenomenal list. When they all wanna win a deal, their circulation (laughs) around a founder and their convincing is w- unparalleled, uh, would be that. And then helping. How do you help founders in a better and more scalable way? I think performance is an output, and it's the inputs there which make the output what it is. And I think my biggest concern today is actually what we should be concerned about, Carl, which is these so-so venture firms are gonna continuously get funding because they're still getting DPI on Lyft IPO-ing last year and sending cash back to their investors even though they're shit and the last time someone went to them for funding was in 2012. And so the que- next question is, I get you on everything that you said and I agree with everything that I said, we're on the same page, but it takes so long for a venture firm to die and they've delivered DPI. Will they not just continue with another 10 years?

   6. KHKyle Harrison17:55

      I, I don't disagree with that. I think it's all relative. I think that there are... The idea of venture... Like, this is something I think about a lot. I try and keep me... it helps keep me humble and honest and things. Like, I, I wrote this article a few months ago called The Death of a Venture Fund and I went through, I ser- I went and interviewed a bunch of people and I s- it was actually inspired by, um, Roelof was on, I think Invest Like The Best, and he was talking about this exercise they do at Sequoia where they say, "All right. The group of us in this room, imagine that we presided over the decline of Sequoia."... what happened? What did we do wrong, right? That sort of pre-mortem of evaluating what could cause the death of a firm like Sequoia. And so, I dug into that, and I think venture has a lot of main character energy, um, but we forget that we're like relatively a baby, right? When you think about, like, financial services have existed for thousands of years. Even software, at least as a primitive, has been- you know, got like Ada Lovelace in the 1800s. Like, all of these things are very old. Venture is relatively pretty young, right? Like, maybe the 40s and 50s and stuff, and so it's not even 100 years old. And so there's that reality, is that it's, as a sort of industry, it's very young, number one. Number two, we're, we're getting to internet time, right? So maybe it took multiple decades for a firm to die in the 60s and 70s and whatever, 80s. Maybe it took it- maybe it's taken a decade, you know, nowadays or last few years. I think that that pace is going to increase. Like, information gets disseminated more quickly. Companies scale more quickly, for better or for worse. Venture firms have an impact on them. All of those things are going to happen faster and faster. And so I think for folks like you and me, the thing that we have to do is to think. It's sort of to, you know, to skate where the puck is going to be or whatever, right? Where, yes, it's going to take a long time. Yes, they're, they're going to be competing for capital and, and stuff like that. But I think the rate of death can increase. It's not going to be like, you know, uh, overnight.

   7. HSHarry Stebbings19:45

      But the rate of death will on- sorry, I'm being deliberately divisive. (laughs)

   8. KHKyle Harrison19:48

      Yeah. Yeah.

   9. HSHarry Stebbings19:48

      The rate of death will only de- like, increase in velocity if the structure of funds changes, fundamentally.

6. 19:55 – 23:20

   LP Incentive Structures

   1. HSHarry Stebbings19:57

   2. KHKyle Harrison19:57

      From a... I think it's a question of, like, LP perspective, right? It's, it's not... 'Cause we can look at it and say, "Oh, we want to be these, like, cutting-edge, thoughtful, innovative ways of doing things." LPs are fundamentally, like, very sort of like stable and secure and Sally principle, right? Same as last year. What have we done?

   3. HSHarry Stebbings20:14

      And loyal. When people send cash back, they feel obligated to then return cash back for the next funds. It's very difficult for the LP to be fair on them, to get 3X funds returned and then go, "Thanks, Kyle. Not coming back for the new one." It's very hard to do.

   4. KHKyle Harrison20:30

      I think that's absolutely right. I think that that's, I think that is the reason for me why I am more interested in trying to build something, is that it has this like longer term potential. I think that the difficulty is unseating anybody who is really powerful, and I think it's-

   5. HSHarry Stebbings20:47

      Oh, once, once you get to that Andreessen stage, it is joyous, because you get to the LP mindset of it doesn't matter about performance. I just won't got fired, and I get credit for being in them. Once you are in that hailed ground, it is absolutely joyous. Before then, you know, it's, it's not so joyous. So, I t- I totally get you there. Um, I think the big why that I have, and I'd love your thoughts on this, and again, I'm just going to chat shit going off schedule. The reason for this is LP incentive structures. They're largely salaried and bonused, and they're not really aligned in terms of carry and performance-based. And so, of course, you would invest and get a 1.6X and do contrary and potentially get a 7X, because they might get fired if you guys break up and hate each other, if Andreessen doesn't work out. They, they got into Andreessen. Well done. Well done. Shame it didn't work out. So, what do we need to see change in terms of LP incentives to fundamentally change this?

   6. KHKyle Harrison21:46

      I think that one of the things that I have thought a lot about and, and I don't know, honestly, like in, in this market, I don't know what's gonna happen. I think that the sources of wealth will change. I don't know how, you know, when you think about... It's actually, the, the family office circuit is a fascinating world, um, the ways that people make their money and the people who are brought in to help manage that money and stuff like that. I think that a lot of that is not, it's not, it's not likely to change. I think that the transition that we will see is that more and more of the wealth it gets created. If you think about this massive pool that exists, and this not to say, I think that there's a whole other bag to unpack for massive institutional endowments and pensions and, and things like that. But just within these, like, long-tail pockets of capital that exist out there to go get, the question becomes, where is that wealth going to come from, and does it turn over over time? And it feels like the opportunity to be able to have wealth coming from different sources that think about things differently. Like, already, I have started to see... I, I feel like I kind of exist in two planes of existence on Twitter, where I, on the one hand, I have this very, like, venture tech-heavy world. Then, for whatever reason, I've kind of stumbled into this, like, you know, family office, institutional allocation, you know, world on Twitter. And you pay attention to what those folks are saying, and progressively, more and more, you know, family offices, the way they allocate their capital, they want to do things differently. I think we're still at, like, the very earliest inflection point, but I feel like some of those things are gonna start to change in terms of the way that people want to manage that capital. What that's

7. 23:20 – 25:19

   How Kyle would Structure his Family Office

   1. KHKyle Harrison23:20

      gonna mean, how that's gonna play out, I don't, I don't know.

   2. HSHarry Stebbings23:22

      Okay. Country does a 50X fund, shoots it out of the park, and here's your family office today, Kyle. How would you structure it, and what would you do in terms of your approach to direct fund investments? How would you do it?

   3. KHKyle Harrison23:34

      I mean, I think that one of the things that... And so, there's two things. So number one, there is, uh, diversification, right? I do actually think that there is an opportunity to invest in lots of different things. I really like the, um, episode you did with Will. You talk about the, the sort of venture firms that aren't really venture firms. I think that there are a lot of people that- there's a lot of companies that shouldn't raise venture. There's a lot of great businesses that can get built without venture. Like, there's all these different pools. And so I think that number one, there is, there is a more disciplined approach to diversification. Number two, when you think about allocating capital to venture, for me, I think it goes back to some of the things that you talked about, right? Which is, is looking for allocators that- and, and fund managers that have these characteristics of being able to identify their unique funnel. But I think the biggest thing for me would be focusing on where the biggest pockets of, of high-quality people are congregating. Like, I think that there's, there's still always the, like, halo effect, where any founder, regardless of their previous affiliations, are gonna go where those halo effects exist, and I think that's always gonna be true. And there's always going to be the desire to allocate to the, you know, the best firms or the most well-regarded firms or whatever.But for me, it is all about allocating to who has access to these pockets of people, these communities of people, and, and how are they building really deep, long-term relationships with those folks? 'Cause I feel like a lot of firms right now benefit from sort of, like, here and there deep relationships that continue to compound, which is great, but it's not just about how do you take a top-of-funnel of all companies, but how do you build a product that stays close to those people throughout their lives? Because I think there's a really exciting opportunity to be able to identify multiple points along an individual's lifecycle, to be able to engage with and allocate capital different ways beyond just, "Hey, how do we have the best top of funnel?"

   4. HSHarry Stebbings25:18

      I wanna touch

8. 25:19 – 33:36

   Building Brand and Relationships in Venture

   1. HSHarry Stebbings25:19

      on the network and the community there 'cause you mentioned it. You said before it will get more focused on deep personal relationships as a landscape and as a, like, what will make one win. What does, like, more deep personal relationships actually mean? What does, like, community actually mean in venture? They're kind of fluffy words, respectfully, that are thrown around a lot. How do you actually think about it in practice?

   2. KHKyle Harrison25:43

      So this goes back, and I mentioned it before, right, the, (clears throat) the article that I wrote about the unbundling of venture capital. It actually comes from... I mean, I focus it very much on venture and these, you know, renegades and stuff. The idea was sort of born out of this article by David Perell called Naked Brands, and he goes through all these examples of ways that different, um, sort of industries are changing. So, he talks about, like, fashion and sports and media and, and how people are progressively transitioning to trust more in people that they can empathize with, um, versus just, like, brands that they can trust, right? So it's, like, progressively less about Coca-Cola and more about, like, LeBron James or whatever. That dynamic, I think, is a, is a function of, like, you know, we're steeped in the internet. Like, there's so much of what we see, so much information, that to be able to, you know, discern what we want to be associated with, there is this, like, essence. We talked about it before, right? The, this essence of, like, vibes that people give off. And when I think about the deeper personal relationships, I think there is, like, more sort of, like, shallow functional relationships, and then there is the person who, you know, you have an actual deep friendship with and relationship with, and that's not always... Like, a deep friendship is not always scalable to massive amounts of founders and stuff. But the idea, I think, is that every individual investor, every firm, like, they're trying to articulate this idea of, like, what job are you hiring me for, right? The sort of jobs-to-be-done framework from Clayton Christensen. And you're trying to articulate what you're good at, what you can offer them, why they should, you know, why they vibe with you and stuff. And I think that those deeper personal relationships are going to come honestly, like, f- from the way that people present themselves online. We can get into the sort of, like, you know, brand-drenched-ness of, of venture or whatever, but I, I, I hope that it's not going in that direction. My focus is on people being able to sincerely articulate what their vibes are online and then being able to attract the right people that wanna have a relationship with you.

   3. HSHarry Stebbings27:42

      Who do you think has done that best?

   4. KHKyle Harrison27:44

      (laughs) I'm not gonna toot your horn. You're doing pretty good. You're doing pretty good yourself. The move into TikTok was, was spades. That was pretty good. (laughs) I think that when I think about... 'Cause there, there's also this element of, like, community, right? We've talked about community. I think that there are people who do community really well, right? I look at, I look at Y Combinator, and there's no question that they've built a generational community. I think the... And, um, you know, folks like Gary and stuff stepping into that role, like, I think that they're gonna continue to just be amazing. But I th- I think the opportunity that exists right now is to create a really, um, like an ongoing relevance in the, the relationship that you have with somebody. It's not a one-and-done kind of thing, right? Even YC, most people talk about it like, "Yeah, I was in the summer 2020 cohort or whatever," right? The summer 2020 batch. Um, but to, to stay relevant, like, that's a relationship. To be part of a program, it's sort of you're in it and then you're out of it, and, "Oh, what fond memories we have." To stay relevant throughout someone's life, that's having a relationship with them 'cause you continue to be relevant to them. Um, candidly, I don't, I don't know that anybody is doing that well.

   5. HSHarry Stebbings28:54

      I think about it in terms of frequency, which is, like, frequent and often, uh, and then infrequent, but, like, higher quality.

   6. KHKyle Harrison29:03

      Mm-hmm.

   7. HSHarry Stebbings29:03

      And I think when we look at these two different landscapes, the one I admire the most (laughs) is the infrequent because it's fucking hard to do infrequent brand well.

   8. KHKyle Harrison29:13

      Yeah.

   9. HSHarry Stebbings29:13

      And when we look at who does that well, it was Bill Gurley when Bill Gurley was writing, and obviously now he tweets more, but he released few posts, but when he did they were seismic. Um, I think Ravi Gupta at Sequoia releases few posts, but when he does they really, really hit. Same with Pat Grady at Nu- (laughs) annoyingly both at Sequoia, but he did 15 lessons from 10 years at Squo- It fucking hit so well. And again, very infrequent. On the frequent side for me, actually, like, Elizabeth at, um, Hustle Fund, uh, she, she has-

   10. KHKyle Harrison29:49

       Mm.

   11. HSHarry Stebbings29:49

       ... scaled quite a following very sustainably with a lot of volume, but actually consistently done very well. I think those two for me, well, three really stand out. Um, I, I'm intrigued. I think venture brands, like funds, brand themselves terribly.

   12. KHKyle Harrison30:07

       Yeah.

   13. HSHarry Stebbings30:07

       Do you agree? And why do you, why do you think yes or no?

   14. KHKyle Harrison30:11

       I think that the center of gravity has shifted, to your point, to your point, largely to the individual investors. And I think there's very few firms that have, have, have kept up with that shift in grav- i- i- the center of gravity. And so, firms that are trying to push forward the almost, you know, celebrity, if you will, of the individuals...... and that's a powerful dynamic. I think it's one of the reasons why you, y- you know, anybody with a reasonably sized, uh, Twitter following probably gets a, at least job interest, if not a job offer from Andreessen, right? Like, they recognize that sort of micro-celebrity appeal of being able to hire anybody who has even remotely a sizeable following. So I think that they are trying to tack onto that shift. I don't think anybody has done it well because it feels uncomfortable. Like, it feels uncomfortable to have this, like, quote-unquote brand when today most of the way that people wanna interact with institutions is they wanna interact with people knowing that the institution has something as, as backing, right? But it's, like, that person represents the vehicle into that stuff. You don't wanna necessarily be interacting with this, uh, faceless monolithic brand, but most firms' marketing efforts have not kept up with that shift in gravity.

   15. HSHarry Stebbings31:24

       I do just wanna ask one final thing on the communities though. I, I agree on like the YC of the world, but, like, that's one very distinct. Have we really seen other venture firms try and build communities? And if so, what's the difference between those that have worked and those that haven't?

   16. KHKyle Harrison31:39

       The short answer is we've seen them try. We haven't seen very many succeed. Um, some examples of this, even like Andreessen has some of these where they have, like, you know, Slack channels where they'll, they'll take the CROs of all their companies and dump 'em into a Slack channel. It's not a good community. It's an attempt at trying to, like, coalesce people into buckets, but it's not a good attempt. And so your question around, like, what does it mean to make a successful community, in my perspective, and obviously I'm biased, like Contrary is, this is our, this is just our bread and butter. I mean, before we had a fund, we had a community of about 100 future founders, right, that we had met and were working with and, and things like that. So we've, we have always tried to emphasize this people-centric community and building that. The reality of why it works is just like any product, if the customer is an afterthought, it's not gonna hit. Like, it's not gonna be a very good product if it's secondary to something else, right? Even from a community perspective, you talk about people's scout programs and stuff, those scout programs can be powerful. I think that you're gonna see a lot of dilution in the value and quality of those scout networks progressively over time, and I think the biggest reason for that is because it is an afterthought, right? You, you, you, you implant this community with the hope that it leads to something else, which is deal flow or whatever. You're not necessarily super incentivized to make that community experience as high quality as possible. You're incentivized to get it to lead to something else. And at Contrary we talk about this a lot where we are as focused on our community members as we are our portfolio founders because we hope that eventually one day they become both, right? The focus is on these people who will eventually be founders, we're gonna help them at every phase of their career so that when they become a portfolio founder it's not that we suddenly shifted and we're like, "Oh great, now we can, you know, stop, you know, exuding all this effort on them as community members and now really focus on them as portfolio founders." The idea is that it becomes this seamless transition. I don't think anybody has done that well because community has always been an afterthought,

9. 33:36 – 35:06

   Y Combinator Built a Generational Community

   1. KHKyle Harrison33:36

      not the core product.

   2. HSHarry Stebbings33:38

      YC. YC obviously went from 600 to now I think they've halved the batch size, and they've got Gary back. I think this is, like, the biggest sign of strength from YC, and I, I was worried about them for a while. Now I'm like, "Fucking buy YC long hold." (laughs) Are you with me? And like, do you think they've just completely regained all power from the unbundling? 'Cause we did see this kind of splattering of the unbundling of accelerators, uh, which I think now p- p- power retained, c- concentrated, centralized. Do you agree?

   3. KHKyle Harrison34:10

      Yeah, I mean, I think YC has built something... Again, like I use this word, I, I, I try not to throw it around even though it's one of these, these buzzy venture words, but, like, I talk about having built a generational community because it is, is, is this sort of once-in-a-generation thing that people have built and have, uh, affiliation with. I think there's nothing like it. And I think that the other thing that even, I don't even know that I would've ever said I was, um, worried about YC per se, I think that the, like, drive to excess and having more and more people, it dilutes the experience on the micro for sure. Like, individuals' experience can be more negative. But I still think it's getting them exposure and, and closeness to really high quality people, but I think the biggest thing is that it's a compounding effect. Like, no firm compounds the way that YC does because it's so expansive and so involved in all these different aspects and can bring people into the, in these different ways that I think, like, that compounding effect on YC

10. 35:06 – 43:02

    The Rise of Blackstone of Venture Firms

    1. KHKyle Harrison35:06

       is not going anywhere.

    2. HSHarry Stebbings35:07

       Yeah. No, that's, I totally agree. Speaking of kind of compounding effects and power, there was something that we kind of went back and forth on before on emails, and it was, uh, your concern about the Blackstone of innovation. And I thought it was really interesting kind of phrasing. What did you mean by the Blackstone of innovation, and why are you concerned about it?

    3. KHKyle Harrison35:28

       So I credit Gabby Goldberg as the one who first, she and I riffed on this idea back and forth and I thought it was, is, is super interesting. And so I read the biography of Stephen Schwarzman, the founder of Blackstone, a couple years ago, and there was this quote that really struck me where he talks about how they build businesses, and the idea was basically, like, if we come across the right person to scale a business in a great investment class, why not? We can apply our strengths, our network, our resources, whatever. And, like, they're so focused not on being, like, a very, just, "We're not a pr- just a private equity firm. We're not this, we're not that, we are everything." And now they're effectively a holding company for financial asset classes, right? Like, 800 billion of AUM, they've got private equity, real estate, hedge funds, credit funds, whatever. They're constantly just, they, they think of it almost like exposure, and I feel like, so somebody, I don't remember who, but somebody said this idea that building a business, like, 80% or something of building a business is kind of the same thing across the board. It's that 20% that's super unique to the company and the market and the circumstances that is, it's kind of the secret sauce. And if that is true, I feel like Blackstone has done a really good job of figuring out what the 80% is, is they've just built this, like, infrastructure, that kind of AWS of, of raising capital and deploying capital towards XYZ strategy. They've figured that crap out, and then they just focus on, hey, how do we go find that person who represents the secret sauce, that 20%, and we plug them into the infrastructure and we let them go nuts and we just scale to this big thing.And I think that the firm that closely r- most closely resembles that in venture is Andreessen. Um, you know, the way that they have approached things like, um, you know, gaming and crypto and biotech and stuff like that, but that's sort of them saying, "Hey, we have this fundamental infrastructure of brand, of thought leadership, of, you know, capital raising, whatever, portfolio support, whatever, if that's valuable." They have that infrastructure, and if they can take... to your point, if they can take, you know, you know, 1.5, 2X return thresholds, people can park their money there, and they can just deploy... they can g- go take big bets, right? Like giving Adam Newman money for round two, like, things like that. Like, it's just sort of this, like, massive calculus of we have this infrastructure. How do we bring in capital and deploy it, you know, at, at scale? And-

    4. HSHarry Stebbings37:45

       Do you think-

    5. KHKyle Harrison37:45

       ... I think Tiger to some extent tried to do that, though they may not have nailed the 20% specialty, and-

    6. HSHarry Stebbings37:50

       But do you think-

    7. KHKyle Harrison37:50

       ... but that's the kind of thing you're seeing.

    8. HSHarry Stebbings37:52

       ... do you think it's g- is this good for our ecosystem?

    9. KHKyle Harrison37:56

       Uh, so it's... it... one of the reasons I characterize it as something that concerns me is because I think that, like, capital allocation and portfolio construction, like those are macro activities, right? Like when you think about like... I mean, there are firms, like I said, as... if you think about it as exposure, like I have heard large multi-stage firms talk about things like, "Hey, you know, we've got 15% of the portfolio allocated to fintech. I'd like to get some more allocation in that." It's almost hedge fund to ask in the way they think about, you know, where are they allocating their portfolio and stuff. That's a very macro game, and company building is micro. Like especially in the earliest stages, it's, it's people, it's lives, it's families, it's customers, it's jobs. Like, I think that once... (clears throat) And it's... and it is appropriate to have a certain level of abstraction, right? When you're thinking about like, hey, like at the end of the day, this is a capitalist exercise. We're trying to take in capital and, and maximize the outcome of capital, like that's okay. It's okay to have that abstraction. At some point, if that abstraction gets so far removed from this sort of fundamental company building aspect, I think that you start to get into some dangerous territory, because, I mean, when those companies fail, when they get tons of capital and all this thing, and it's, it's an exercise in, in portfolio construction and capital allocation and all this stuff, when those companies fail, like it's a blip on the macro, that's okay, because it's 35 billion of AUM or 800 billion of AUM or whatever, but on the micro it's... I mean, it's everything for a lot of those folks, and I, I think that abstraction causes some breaking points.

    10. HSHarry Stebbings39:25

        I think also there's two things that are fundamental which are fucking hard to maintain, and, you know, uh, I think many challenge to do so, is number one, you know, like you mentioned there with Blackstone, find amazing people and move with them. I don't think all of the firms that we've mentioned find amazing people and move with them. They move to the space that they like and then look for people. Very different, I think. And then number two, I think is the temporal diversification of product expansion, which sounds very nerdy, but what I mean by that is, like, earning the right to do the next financial product and not doing five in two years, because what you do to your morale is fuck it overnight (laughs) , bluntly. Um, and if you do it sta-... you know, if Country adds a new vehicle every three years, you can stage your culture progression in a much easier way than here's five new products. And I think that's a core challenge that, you know, I think some people have faced. I think my, my question to you here though is like, it gets to a stage with also fund sizes, Kyle, where it's almost easier to raise two billion than it is 200 million, and the reason I say that is because there is a pool of LPs, as you know, the pension funds of the world, who need to move 100 million, can't get into Sequoia, struggle to move that much into Founders Fund for sure, and so where do you go? There's not that many places. And so you have this finite supply of homes for your 100 to 250 million. This is where it makes sense. D- do you agree with that analysis?

    11. KHKyle Harrison41:03

        I agree with... I agree with that. I think that one of the reasons for that is that, for a long time there, was kind of this arbitrage in, in venture, where I don't know that people fully appre-... especially, I mean, the internet is sort of the thing that... this was the, like, massive multiplier on all of these outcomes, and so nobody appreciated venture as a place where large amounts of capital could be effectively allocated to maximize returns. I think there was an arbitrage in that, uh, that existed where people could... they had shockingly big outcomes, and over time people have realized how big those outcomes can be and have paid more and more attention to it, which has attracted more and more capital. One of the reasons I get concerned about that, and I understand the, the, like, fundamental math that people are doing to say, "Hey, if I can allocate X amount of capital, if I can expect a certain rate of return, like this is a place where I can park money and that's okay," and I don't disagree with that. Like, people are, are welcome to, to do their best in whatever capital allocation strategy they want. The reason I am worried about the sort of excess capital is because there aren't really, like, guardrails or good standards of excellence before, right? It, it's again this idea that, like, enough money can hide a multitude of sins, right? Like, we've seen it over and over again, of bad products, bad go-to-market, bad unit economics. Like, they can all be covered up just by having enough cash. And to your point, it's not that there's a lot of cash and it's being allocated to good managers who are gonna do their best to invest that in really good companies, it's to whoever will take it to try and get exposure to this market, and, and I worry about... I worry about that for sure, because it also... it muddies the water for everybody else, right? When everybody has so much cash. We're seeing this pullback now with this market correction, which is, you know, it sort of tapered some of that, but I don't think that that's going away. Like, I don't think that people are just gonna say, "Oh, never mind. Venture is actually not that great of an asset class, you know, back to bonds and real estate." Like, I think that people recognize that there are still large outcomes to be had here, and so there's still gonna be that excess of capital and, and what we do with that and how companies react in that world,

11. 43:02 – 47:35

    What are the biggest changes you’ve seen since the correction?

    1. KHKyle Harrison43:02

       you know, it- it's something that every company has to worry about.

    2. HSHarry Stebbings43:05

       What are the biggest changes that you've seen post-the correction that we've had over the last six months? I tweeted the other day about some trends I've observed. What are some big changes you've seen?

    3. KHKyle Harrison43:16

       The first one that comes to mind is what I would describe as almost, like, a, a suspension of your own criticism. Like, I think, like, we went through such a phase of people just pumping everything they possibly could, rampant intellectual dishonesty, all these different things, and I'm surpris- I thought that it would be more humbling for more people. I think that there's been this sort of, like, suspension of criticism. Like, people are desperately trying to avoid having to come to grips with what they did, basically, like, with what a lot of people did over the last couple years. That worries me a lot because I think that, like, this is a great opportunity to sit back and reflect on what should we have done differently, what could you have done differently, whatever. Um, so I, I think I expected a little bit more of the, like, you know, mea culpa, um, and there's n- not been much of that at all. So, that's, that's certainly a trend of, like, people just trying to move on to the next thing or whatever. The second thing, I think, is that companies are more thoughtful about, about, like, what matters most in the way that they build their business from a storytelling perspective. Like, I think that before, it was just this idea that, like, hey, like, if you almost, if you have a pulse and you have some indication of an interesting market or whatever, there's gonna be enough people that get jazzed. I think that now I've had a lot more conversations with founders, both in and outside of the portfolio, where we're talking about, "What should I focus on my business, and how can I articulate that to investors to indicate the quality of my business?" It's not just about the big picture story, but it's about, "Where should I be focusing to be able to articulate my story of why my unit economics are working or why my market is sizable or why I do have product-market fit or whatever?" There's more of that, where I feel like a lot of that was just swept under the rug 'cause it was so focused on, like, how I tell just the biggest story I possibly can.

    4. HSHarry Stebbings45:12

       Are you, are you seeing pricing change?

    5. KHKyle Harrison45:15

       I have seen, uh, chickens with their heads cut off running around trying to figure out what a price is, uh, w- what the right price is. It's, it's insane to me the conversations I've had, especially because most of my bread and butter is not necessarily the, like, pre-seed seed stuff. Contrary has done that, that by and large. I joined Contrary to help build out our ability to invest more in, like, series A, series B, series C, and those companies that I'm working with, um, there is no rhyme or reason. There's no valuation. There's no thought process. There's n- There's certainly not a acceptance of down rounds for the most part beyond the, like, very late stage folks that are just engineering capital raises at this point. But in the stages that I work at, like, the, there's n- there's certainly not been an acceptance of down rounds, and there's not been... I think, so I wrote this piece a couple months ago. I was, like, blown away by it. I was honestly, like, almost a throwaway piece that I was just, like, I was trying to work through some thoughts in my head. I put it out there, and it was one of my most popular pieces. And it's, it's called What's in a Valuation? Where I unpack the idea of, like, all these dynamics that go into a valuation. And the number of times, I'm shocked by the number of times I have a conversation with different founders and I explain venture math, basically, like, very, very back-of-the-envelope simple stuff, where it's like, "Listen, if I, if your valuation is this and your revenue is this, and if I look at the next five to seven years, and you have to go from where you are to hundreds plus millions of revenue, there's gonna be a dilution along the way. So, my ownership is gonna be X. And when you get to that point, if you look at the public markets, they're trading at these ranges, and then you'll trade at those ranges, this will be our return, and that's the factor." Like, if I can't get that math to work, granted there's so many ifs in that statement of like, if you grow at this scale and if dilution is this and if multiples are that, we can't predict all that stuff, but just doing the math is like the sense check that you do to say, "Does this make sense?" And for people who are doing these deals at, you know, multiple billions of dollars for, you know, a valuation for companies that are generating sub-, you know, 20 million of revenue or whatever, like, that math is really, really, really difficult to get to. And the number of founders who are like, that's just not a way that they think about things always surprises me 'cause it's different math. But that's the math that people were sort of just, like, fudging and ignoring

12. 47:35 – 50:23

    Did you lose price sensitivity during the boom period?

    1. KHKyle Harrison47:35

       for the last couple of years. But it's a reality that's gonna punch a lot of people in the face.

    2. HSHarry Stebbings47:38

       Question, did you invest too fast in this boom period? And did you lose price sensitivity? I lost both.

    3. KHKyle Harrison47:45

       I think at different points in time I invested too fast. Price sensitivity, I think is the thing. I would say that my bigger mea culpa that I look at is, like, appreciating the, the, uh, weight of gravity of what it means to build a massive company. So, the way that I think about this is like the number of, again, I'm, I'm investing sort of at the later stages. The number of models that we built to be able to justify certain valuations. Uh, the number of them scaling to a, over a billion dollars of revenue over the course of four or five years to say, "Well-"... if they scale to over a billion in revenue, then this is the return, and it can be a very healthy return. And that's our base case, you know? And it's like, that's an insane base case. Like, when I step back and think about how many companies in the, in the literally hundreds of thousands of startups in the world that exist, that have existed, how many of them have scaled to over a billion dollars of revenue? Like, 200, 300 or something, right? Like, it's a tiny fraction of companies that have truly gotten to that massive scale. And so when you, when you step back and think about that, I think that was the thing that, like, I used too easily to just say, "Well, if we can paint the most optimistic financial picture, sure, anything makes sense." And now I often find myself reflecting on that and thinking, like, "I wanna go compare this to, like, the companies that actually went up against gravity, and, and did have to scale year after year after year after year, achieving growth rates and adding new customers and launching new product lines and stuff like that. What did that look like?" And much more often than that... I mean, it's, it's crazy the number of things that we've seen. Like, um, you know, uh, Wiz talked about this, and Deel talked about this, and there's a bunch of these companies that talk about like, "Hey, you know, fastest, one of the fastest companies to get to 100 million of, of ARR," or whatever, you know? Um, and that's great. Like, there are companies that can be those, those massive scalers. But by and large, when you look at those companies that have, have sort of defied gravity, they almost never do it in these explosive nonlinear paths. They're just compounders. Like, very quickly they get to that sort of, you know, maybe 30, 40% growth, and then they just crush it for a long time. You have the Snowflakes of the world and ... But even Snowflake you look at, right? They're getting to 2 billion of revenue. Insane, massive growth, 11 quarters of over 100% growth. But it's still, it's, it eventually it, it tapers off, and it's just have you built an effective compounding engine or not. And I think that, for me, that price insensitivity translated into not respecting or being reverential to how truly difficult it is to build one of those massive companies.

    4. HSHarry Stebbings50:18

       Listen, I wanna move into my favorite, which is a quick fire, Kyle. So, I say a short statement, you give me

13. 50:23 – 50:54

    Kyle’s Favourite Book

    1. HSHarry Stebbings50:23

       your immediate thoughts. Does that sound okay?

    2. KHKyle Harrison50:25

       Sounds great.

    3. HSHarry Stebbings50:25

       So, what's your favorite book, and why, Kyle?

    4. KHKyle Harrison50:28

       So, I have on my personal website this thing I call my quake books, like the books that shook me. Um, and so my most recent addition to that is this book, it's called Reinventing Knowledge by Ian McNealy. Um, it got me obsessed with this idea about the republic of letters. Basically just this study over history of the world has been changed largely just through people writing personal letters, really smart people trading personal letters. And so now I'm obsessed with this, like, republic of letters

14. 50:54 – 51:14

    Most Underrated Angel Investor

    1. KHKyle Harrison50:54

       2.0 where, you know, Twitter DMs are gonna change the world.

    2. HSHarry Stebbings50:57

       Who is the most underrated angel in the ecosystem, and why them?

    3. KHKyle Harrison51:01

       So, my favorite person to work with lately is Amjad Masad, the CEO of Replit. Um, I mean, I think the guy is an oracle. Like, there's just a shortage of ambition in the world, and every founder could benefit from having Amjad on their

15. 51:14 – 52:01

    How Kyle got Involved in the Roam App Community

    1. KHKyle Harrison51:14

       cap table, uh, 'cause he just brings such an ambitious perspective.

    2. HSHarry Stebbings51:17

       How did you get involved in the Roma app community? I had... This was one I had to ask.

    3. KHKyle Harrison51:21

       (laughs) Um, I have been an obsessive note-taker in my life, and there, I... There's a scripture that I, I jokingly quote. It's, um, "Whatsoever you record on Earth shall be recorded in heaven." Like, I am a dogmatic note-taker. And I'd never found something that worked the way my brain works, and I was watching this YouTube video with Tiago Forte, and he was interviewing Conor, and I felt like I had stumbled on a prophet. Uh, like, I DMed him. I had to talk to him. Our first call, very unorthodox, it wa- He was, uh, shotgunning whiskey and Red Bull and lighting a cigarette with a blowtorch. Uh, definitely one-of-a-kind founder call. Um, but I, I mean, I went on to do 100 personal Roam tours because I just loved the product

16. 52:01 – 52:57

    Kyle’s Biggest Miss

    1. KHKyle Harrison52:01

       so much, and I'm still, to this day, an hourly active user.

    2. HSHarry Stebbings52:04

       Tell me, what's your biggest miss, and how did it change how you think?

    3. KHKyle Harrison52:07

       Back in the day, we passed on Coinbase at 1.5 billion. Um-

    4. HSHarry Stebbings52:12

       (gasps) .

    5. KHKyle Harrison52:12

       ... still ebbs and... You know, you look at the market cap, it's definitely a, a big up and down. But for me, the reason I think about that pass specifically and that, that missed opportunity is because I, I f- ... The failure was, uh, a failure to imagine a colossal shift in user behavior. Like, how, how big those shifts can be when they happen. And there's still a question to be had about, like, what is gonna happen? You know, we went through this crazy bull market. There was a lot of, you know, speculation. I think that it's still around to stay. For me now, when I think about my, like, what-do-you-have-to-believe equation... I just wrote an article about this. I, I try frequently to ask myself, "What's something that I strongly believe right now that I am probably wrong about?" And to try and constantly call into question those activ- 'Cause I had such a strong belief in the consumer shift not

17. 52:57 – 54:13

    Kyle’s Biggest Hit

    1. KHKyle Harrison52:57

       happening for Coinbase, and I think it has.

    2. HSHarry Stebbings53:00

       Tell me, what's your biggest hit so far, and how did it change how you think?

    3. KHKyle Harrison53:03

       So, I think there- I mean, there's certainly, there are investments that I have made, um, that have done really, really well, um, with the, you know, within the firms that I've worked at. For me personally, the biggest impact that, uh, of an investment that I have made was a company called TeamShares. Um, and it reminds me of, uh, uh, the quote, I think it was with you, uh, Keith Rabois, talking about, you know, "I measure success based on how many of my, my peers think I'm insane or laugh at me." Um, so when I invested in TeamShares, it was a couple of people with an idea. The idea was to, to basically buy small businesses, turn them into ESOPs, and, and scale 'em almost like a holding company at scale, with services and stuff like that. And people thought of it as such a, it was just, like, a private equity play or whatever. But effectively, it was this, like, fintech mechanism to be able to make employee ownership of not tech companies but of, you know, salt-of-the-earth types of businesses, and increasing that equity ownership that exists. And there was so much skepticism about that. And, and that has... I mean, financially it's been very rewarding of an investment. But also just seeing this what felt like to a lot of people a cr- laughable idea just execute incredibly well, like, that has, that has reinforced my perspective as an investor to think about, like, what are the things I actually believe

18. 54:13 – 56:47

    Will the growth market be better or worse in 12 months?

    1. KHKyle Harrison54:13

       in, not just the things that I think people won't laugh at me about?

    2. HSHarry Stebbings54:16

       Is the growth market better or worse in 12 months, and why?

    3. KHKyle Harrison54:19

       The growth market is likely to be better in 12 months.Only if you see that shift. I talked about, with founders, there has still, I think, not been a reality check of what valuations really mean, fundamentally. If that reality check continues to occur, like I- I think if progressively founders recognize what that means, I think that the growth market can improve. Uh, it's gonna come down to earth. Valuations are gonna be a lot lower. Um, it's still gonna be hard to fundraise. But it's not gonna be what it is right now. What it is right now is you have two sides of the party. One, still convinced that they can get a billion dollar valuation for, you know ... 'Cause it, before it was three to five million of revenue could get you a billion dollar valuation, or pre-revenue. Now it's like, "But we've got 10 million, we've got 15 million. We want a billion." Like, that mentality. And then you've got a bunch of investors that are, again, sorta chickens with their head cut off, running around, having no idea how to price anything. Both of those things, I think, are going to improve over time. Investors are gonna get more thoughtful about valuations. Founders are gonna be more thoughtful about what does valuation mean to them and what is success versus what they wish they could get?

    4. HSHarry Stebbings55:22

       I find we're seeing like two different worlds in, in growth, which is like the 98% and the 2%. The 98%, it's a desert. You cannot raise. It's impossible. Really challenging and hard. And then the 2%, there's this real concentration of capital or flight to safety, where there's very, obviously, very brilliant companies, not Figma but your Figma-esque of the world, which are guaranteed, as much as you can say guaranteed, to be very generational defining companies. And they will continue to be able to raise at very high prices. Maybe a 10% discount, but not really. And you're seeing actually a concentration of capital to the 2% there, where it's much more concentrated. Do you agree with that?

    5. KHKyle Harrison56:02

       Yeah. That's what we've... That's what I have seen. I think that there has yet to be a company like that. Like I... 'Cause I... Even when you look at, like, some of the high profile failures that we've seen, I don't know that any of them were like, oh my gosh, they were just the darlings, the high flying. You know? I mean, even when people talk about stuff like Thanos, like, um... Or Thanos. Theranos. Um (laughs) Thanos. Uh, when you talk about Theranos. Maybe a better name. Uh, but, uh, it's like there's very few sort of traditional VCs involved in those. Like, it's very rarely the darlings. I think the only way that that flight to safety, like, gets rocked is if there is something where you're like, "This... I thought this was a... just a darling." Like, everybody was convinced that this was a generational company, and it just absolutely imploded. And I don't think we've seen that, which reinforces for people

19. 56:47 – 57:28

    What would you most like to change about the world of Venture?

    1. KHKyle Harrison56:47

       that flight to safety.

    2. HSHarry Stebbings56:49

       No, I agree with you. I think it's coming. Um, what would you most like to change about the world of venture?

    3. KHKyle Harrison56:54

       I wish there was a better way... We talk about this a lot because we're so community-focused at Contrary. I wish there was a better way to de-risk those earliest days of starting a company. Like, I think that there are a lot of ambitious people sort of trapped in a, um, like, systemic risk intolerance of their... because of their circumstances or whatever. And I wish that we could lower the bar for that risk curve. Like, it's scary because, as a capital allocator, I have to think about risk management and I have to be thoughtful about different risks. I try as hard as I can to not let my, my biases that exist, they exist for everyone, stop me. But I wish that we could, we could de-risk

20. 57:28 – 1:00:07

    Kyle’s Most Recent Publicly Announced Investment

    1. KHKyle Harrison57:28

       that, that sort of journey into being able to build something.

    2. HSHarry Stebbings57:31

       Final one. What's the most recent publicly announced investment, Kyle, and why did you say yes and get so excited?

    3. KHKyle Harrison57:37

       So, I had the privil- privilege of getting to lead an investment in Pave while I was at Index, and then to very quickly jump over to Contrary and be able to invest, uh, at Contrary as well. And so Pave, for context-

    4. HSHarry Stebbings57:50

       In, in, in the same round?

    5. KHKyle Harrison57:52

       The same round, yeah.

    6. HSHarry Stebbings57:53

       I love that. That's brilliant.

    7. KHKyle Harrison57:55

       Worked it, worked it perfectly. I'm a huge fan of these businesses that can take just, like, massive critical, you know, corpuses of data and make them accessible and actionable and then make it possible to build... They kinda become a new foundational layer upon which to build new things. So you think about, like, some of the investments I've made, like, you know, Ramp does this with expenses and receipts. Like, Packy called it the transaction layer of a business, right? Toast did this on the restaurant op side. Persona does this with user identity. So Pave does it with compensation data. So they've built this just massive database of, of compensation data for tech and, and now that data, like, they can build on top of it in terms of, like, compensation planning and offer letters and all these different areas to give people more visibility into what the job market looks like. And over time, when you have that, like, real-time lens on the labor market in tech, the opportunities are pretty compelling. That's really difficult data to sort of wrap your arms around.

    8. HSHarry Stebbings58:50

       I do-

    9. KHKyle Harrison58:50

       They've done a really good job of it.

    10. HSHarry Stebbings58:52

        Wha- what's the data entry and acquisition strategy there? 'Cause obviously with Ramp, like, you know, you have the call card and you have core account which then lends to the flow of the data, which is the transaction data, which you can then act on. Here, they don't... U- unless they're, like, the payroll provider, I don't understand where the data acquisition strategy on, you know, internal team salaries and compensation is.

    11. KHKyle Harrison59:12

        It is a... So their, their sort of Trojan horse is a give to get data model. So if you plug in any... And you could do this with your firm, you can... Any f- any company can do this, where if you plug in your HRIS to be able to offer up your salary data and your cap table management, uh, to offer up equity data, you get access to their benchmarking module. So you can see all these different cuts of different salaries and stuff like that. So that's the data ingestion, is this sort of give to get. Completely free. They've got over 600 different venture firms that are partners to be able to pull it, you know, roll it out to their portfolio. Um, it's on that foundation that they then build things that they monetize on, like compensation planning and stuff like that.

    12. HSHarry Stebbings59:51

        I totally get you. I like the give to get. Kyle, listen. Uh, as you can tell, uh, I've so enjoyed this. I love kind of freew- freewheeling conversations like this, so thank you so much for putting up with me. And I so appreciate the time today, my friend.

    13. KHKyle Harrison1:00:03

        Thanks for having me. It was fun.

Episode duration: 1:00:38