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If KDT is the front door to Koch Industries. We can do an investment, but guess what any of our companies can do an investment as well. So, two deals that I’ve sourced this year, one in the AG tech space and one in next generation fields and technologies. We brought it in. I thought it was interesting. Started talking to our subject matter experts in our companies loved it so much they invested in it themselves.
Jay Clouse 0:23
The startup investment landscape is changing, and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.
Hello, hello, hello and welcome to the upside podcast the first podcast finding upside outside of Silicon Valley. I’m Jay Clouse. I’m accompanied by my co host, Mr. bi directional links himself Eric Hornung.
Eric Hornung 1:02
What do you think about Roam research, I want to like it.
Jay Clouse 1:06
I also want to like Roam research. But I found the experience to be fairly lacking from a user interface, user experience standpoint. And also the ethos of the people who seem to love Roam research is just gross to me. They’re not my people.
Eric Hornung 1:23
Jay Clouse 1:25
It’s not even just venture capitalists. It’s just like, very smug. I want to look like the smartest person in the room, people.
Eric Hornung 1:32
Here’s the product I want. And I was hoping Roam research would be, I want a product where I can put any link into very simply put the link somewhere, right, and it indexes the entire article or transcribes the audio, that’s a podcast or transcribes the audio from the video if it’s that and then keeps it in a searchable database because I hate when I think about something and I’m like, Oh, I know that this concept is here and here and here. But I don’t remember where here and here and here are.
Jay Clouse 2:08
You want Google but for a curated list of articles that you’re already aware of.
Eric Hornung 2:13
Yeah, I want Rickel. That’s what I would call my personal Google.
Jay Clouse 2:17
For the listener who is lost. Eric just loves to call himself, Rick.
Eric Hornung 2:20
It’s my alter ego.
Jay Clouse 2:23
I see that. I think that makes some sense. If you think that you’re curating the best information for yourself and want to have basically like, the world of information. I mean, you’re talking about Google, but for a much more limited data set.
Eric Hornung 2:39
Yeah, hundred percent. I think that would be amazing. It wouldn’t be like, Oh, I’m going around the web, just clicking on articles. It’s like, Oh, I read this. I really like this wait, but why piece. Bam, I hit a little button on my Chrome browser, it adds it immediately to a database. And then I can go in and add edits and bi directional links and all kinds of stuff on top of it to link ideas and concepts if I want to. But yeah, that’s, that’s what I want Jay.
Jay Clouse 3:05
For listeners who are asking what the heck are they talking about? Roam research is a new tool for writers and researchers that helps connect the information in your documents to each other sort of in a database form. It uses this new feature called bi directional linking. So anywhere within your stack of notes that you mentioned, Google will say they will link to other notes to say here are all your references of Google in your stack of notes. That seems to be the the core value prop to me. Besides a bunch of stuff about hotkeys that is easy to mimic anywhere else.
Eric Hornung 3:37
You can you can just say Rickel, he had to say Google can stay with it.
Jay Clouse 3:41
Yeah, I could have said Rickel. Yeah, I don’t know. I’m bullish on it. I like the idea of having bi directional links, but I hope that Evernote just takes that and that Roam doesn’t become this disruptive tool that disrupts my own workflow and toolset.
Eric Hornung 3:56
Your Evernote over notion.
Jay Clouse 3:58
I am Evernote over notion.
Eric Hornung 4:00
I saw you being as an Ocean guy.
Jay Clouse 4:02
Switching costs was just too high. Never made the switch.
Eric Hornung 4:04
This is like Jay and Eric review products as an intro.
Jay Clouse 4:10
Well speaking of products, today we’re speaking with Jason Illien, the managing director of Kock Disruptive Technologies, which is the venture and growth arm of Koch Industries, which makes a lot of products, Eric, how many products does Koch make?
Eric Hornung 4:23
I don’t know. They have, I think 70 something companies. I know it’s a lot of companies. It’s the largest private company in the United States, I believe. Obviously, the Koch brothers are well known. Some consider them notorious, but they they built a business empire by aggregating a lot of different companies together, and they’re everywhere.
Jay Clouse 4:44
Looks like as of last reporting, they had annual revenues of 110 billion in 2014, making it the second largest privately held company in the United States behind Cargill. In 2007, it was ranked the largest privately held company they had 120,000 employees as of 2017 we’re talking about a big big company here. And Koch Disruptive Technologies being the venture and growth arm of Koch Industries, invest in technology companies that disrupt and transform Koch’s core business and expand it into new platforms and capabilities. That includes artificial intelligence, blockchain and crypto, bio, I.T. and genomics and industrial robotics, just to name a few segments being explored by KDT. Jason is also an advisor for the rise of the rest fund, and does his work out of Wichita, Kansas.
Eric Hornung 5:31
Imagine having 120,000 stakeholders.
Jay Clouse 5:34
Crazy, I can’t imagine the level of bureaucracy that I expect to be involved in something like this. So we’ll have to ask them questions to understand more about how this which is similar to a corporate venture capital model, how this works for such a large private company.
Eric Hornung 5:51
Yeah, heading into this. I would definitely consider it corporate venture capital, but we’ll see if I’m wrong, listeners if you have any thoughts about this model or corporate venture capital, you can send us a Tweet @upsideFM. Or if you have something a little longer send us a note at Hello@upsideFM. And we’ll get to that interview right after this. Jay this summer, we had some fantastic interns, but we were spoiled, because we didn’t have to do as much work. So if we wanted to hire someone, I don’t even know what we would do.
Jay Clouse 6:28
It’d be really hard to find the quality of interns who really just came to us this summer. I’m already thinking, how are we going to find interns like this again. If we ever want to hire a full time employee, Eric, how are we going to find somebody that high quality.
Eric Hornung 6:41
You know, there’s probably nothing out there. To be honest.
Jay Clouse 6:43
I think you’re wrong because our friends at Integrity Power Search can help hire the best talent for your startup. They’re the number one full stack high growth startup recruiting firm between the coasts, partnering with venture capitalists, private equity groups and CEOs to build amazing teams.
Eric Hornung 6:57
That’s right since 2012 they’ve successfully executed over 600 searches and they’re on track for 200 in 2019. Their clients have collectively raised over 2.5 billion with a B in venture funding. And that’s still going still counting Jay. They’re experts in all types of areas, including SAS autonomous vehicles, artificial intelligence, big data, you name it, they’re there. If it’s between the coasts.
Jay Clouse 7:22
Basically, if you’re hiring Integrity Power Search is your go to, they are the plug Eric and so here’s the plug for them, go to upside.fm/integrity, and learn more about how Integrity Power Search can help you with your hiring needs. This episode is sponsored by RIMS, RIMS as a global organization dedicated to the profession of risk management. For nearly 60 years RIMS has delivered the latest strategies and resources that allow risk professionals to grow, innovate and succeed in any business. RIMS works with industry leaders to produce content and online training that business professionals turn to Topics include business continuity, cyber risk, risk management techniques, the fundamentals of insurance, and more. There’s also a private members only site where people can discuss sensitive issues and get honest answers. In that members only site members have been leaning on each other as we all navigate the global pandemic. If you’re concerned about the safety of your employees and the sustainability of your organization, you need the resources and connections that RIMS provides. Learn more at go.rims.org/upside. That’s go.rims.org/upside. And you can save 25% off a year long membership.
Jason, welcome to the show.
Jason Illian 8:46
Thanks for having me, guys.
Eric Hornung 8:47
So on Upside, we like to start with a background of the guests. Let’s take it on a rocket ship though. Can you take us up to your current position?
Jason Illian 8:56
Yeah, well, so first of all, guys, thanks for having me. You know the last 20 years, I’ve actually been a software entrepreneur. So right out of college, I actually studied finance in the early 2000s. I saw these cool tech companies being built. Some of my friends were building and one of my friends was the first non founding member of Napster, which some of us remember when you’re getting music in college. One of them started this thing called the social network. It was called Friendster, and it was the precursor to MySpace and Facebook right? So I started seeing all this and if you guys remember those times, the internet at the time is flat. You just went there for information you didn’t do anything else you didn’t even buy stuff. This idea of putting your credit card on there was like crazy who would put their financial information on the internet right? And I started seeing all this stuff happening. I said, what what what’s going to happen when this internet thing becomes interactive, right, and you could start to use commerce on this and just start to opening my eyes. I wish I was the brilliant one that thought of it. I wasn’t I was just following these trends, right. And so that got me into being an entrepreneur and started a couple software companies. One of them was a video company in the early 2000s. And then I started ebook company that sold to a private equity group in 2017. And after I finished that was first time my career I was going to take some time off and I got connected to Koch Industries. My wife is from Wichita, Kansas, which is where Koch’s based, so we are coming back and forth. And one of my friends introduced me to chase Koch, who’s the president of Koch Disruptive Technologies, and he shared some of the vision of where he wanted to go. And long story short asked if I wanted to come help him build it. And the idea of starting a startup kind of a venture and growth arm inside of Koch Industries, sounded really interesting and intriguing. After selling the house that we literally just built in Dallas, we moved up to Wichita, and that’s where we are today.
Eric Hornung 10:44
Talk to me about that vision. What was so captivating that brought you in?
Jason Illian 10:49
Yeah, so if you know anything about Koch right, it’s roughly $130 billion privately held company, so 150,000 employees in 60 countries, that’s private. So one of the largest private companies in the world. And as I got to meet Chase and some of the senior team, what I learned was Koch was built on entrepreneurship. And you start saying, Yeah, they started an oil and gas and energy. But then they expanded to things like glass and guardian and Molex, which has the components in your phones and one of the largest logistics companies in the US. And you start to ask the question, How did that happen? Like, how did you grow from this piece to that piece that it doesn’t, it doesn’t make sense across industry verticals. But when you look under the covers, what you see it’s based on entrepreneurship, and really empowering other people to grow their capabilities, align incentives and create mutual benefit. And you know, Charles and the team have done this tremendous job of building this really not only large and influential company, but still having this, this mindset of creative destruction, meaning we’re always here to destroy ourselves. And I always think of that as creative destruction is you know, you can kind of take the gun out and shoot yourself in the foot. This is disruptive or you can hand in the mark, let it shoot you in the chest, which don’t like that one as much, right, so it’s better to limp. And chase had this vision of saying, hey, that’s how Koch was built. What if we started as we’ve gotten bigger? We’re losing track of working with these types of companies? What if we build a venture and growth arm to go do that? Are you interested? And I was like, that sounds really interesting. I’d love to come on. And in part of that is learning now all of Koch Industries, while at the same time saying, hey, how do we build something that is very entrepreneur friendly in partnership? Like how do we partner with them beyond the capital? So instead of just bringing capital to the table, how do we unlock all the capabilities of Koch Industries to help somebody grow and do it off balance sheet, right? So it’s not a fund, we can write a check it a million dollars, we can write a check for $500 million per check. And our money can be in there for two years or 20 years, right? We don’t care. We’re not here to actually set that we’re here to work with the great entrepreneurs to say, how do we build next generation companies that really transform societies.
Eric Hornung 12:58
That’s a really wide range. How do you think about when you’re shooting yourself in the foot shooting yourself with a pebble or a boulder?
Jason Illian 13:04
Yeah, well, so some days it does feel like it’s a pebble and other days, it feels like my foots trapped under a boulder. Just so you know. And when you think about like, Hey, you guys can be stage and industry agnostic. That’s awesome. Except that’s a big world, right? Like, how do you cover that much ground? Which I think is part that your question. And the only way we knew how to do this is to say, Okay, we’ve got to build functionality and capability so that we can reach across companies and access these 150,000 subject matter experts and bring them to the forefront to help us. So if we’re looking at something in blockchain, who’s a blockchain expert, looking at supply chain and logistics, who’s that expert? We’re looking at something industrial robotics, who do we have? That’s those experts. When we pull those people to the table and build what we call the capability, we call it inside of Koch’s called Koch labs. And it’s the connective tissue that reaches across our companies to find these experts and bring them into the fold as we look at these next generation companies in one it helps us right to really ask the right questions. But it has tremendous value to the companies. Because if all of a sudden you have an expert that’s running a billion dollar company, he comes to the table to help you talk about 3d metal printing or industrial, you know, autonomy. That startup is blown away that these people are here to help. And so it helps both of us it creates that mutual benefit. And I actually think it’s been one of the key factors for allowing us to grow and really get in some unique investment opportunities.
Jay Clouse 14:29
How nimble do you in your team feel with your mission as a part of such a large private company?
Jason Illian 14:37
So surprisingly, far more nimble than I had anticipated at first, right. My, one of my main concerns with KDT is if we’re going to add value to startup companies, you know, a long period of time is in weeks for them, not months, right. And corporations are typically known to move in months and years. So the question is, how do you make an elephant dance? Right? How do you really get nimble on your toes. And surprisingly, because we’re a private company, the incentive structure has been built that everybody’s expected to innovate. So, while not everybody does that well, right. And everybody loves change until it’s their turn. Right. So, you know, there’s going to be certain barriers you run up against, but I’ve been warmly surprised at the number of champions across the organization that love and want to help innovate and transform Koch on a daily basis. So if you think of it this way, as if KDT is the front door to Koch Industries, we can do an investment, but guess what any of our companies can do an investment as well. So two deals that I’ve sourced this year, one in the AG tech space and one in next generation fields and technologies. We brought it in, I thought it was interesting, started talking to our subject matter experts in our companies loved it so much. They invested in it themselves. They made the investment and they partnered with them and that’s awesome because guess we’re a team, it doesn’t have to be on my books to be the winner. Because senior management’s saying like, we don’t care which pocket it comes in, we want to add the most value to that company while helping us in an accelerated path. So we can be we provide capital, but we can be a partner, you can be a client, it can be a capability provider, there’s probably a dozen companies that I’ve introduced to Koch where we didn’t invest, but we’re using their technologies. Right? So we were just a client, and even that transforms us. And so thinking of it as a long game, not a game based on a fun life cycle.
Jay Clouse 16:35
What about your goals then for yourself? How do you measure what a successful year looks like for you with KDT?
Jason Illian 16:43
And maybe a little contrary, and this is that I don’t really measure things on yearly basis, right? I look for progress. But I think of it the same way as I raised my kids. Yeah, I want to see progress over a yearly basis, but I’m playing the long game, right? I’m playing the game to see what are they going to look like as adults and have we instilled in them the values that they can serve other people and transform their lives and be an inspiration, right. And that’s a long game, it’s not going to be seen in a year. And I think that same way, in my own personal journey here is, yes, we can make some great investment returns, and I want to clearly with the companies that we’re in, but if those have transformational impacts of what Koch looks like, over the next 5, 10 and 20 years, then I think we’ve actually done something special. And I’m not so proud to think it’s like, I’m not gonna do that by myself. I’ve got to bring other great people to the table. Hopefully people that are much smarter in areas then then I am and also uncover my blind spots, right? Because we all have those. So who else comes to the table? And if they get credit, awesome, right? Because behind the scenes, I’ll know that I was a part of that. And if there’s time for me to step up and be the one that’s in the limelight, that’s fine too. Never setting that as the primary goal saying this is team ball. And if the ball gets into the endzone, I don’t care who carries it in.
Jay Clouse 17:59
So if you’re playing this long term contrarian view of what success looks like for KDT. Does that translate to the people that you report to also? Or how do you show them that hey long term? This is a good bet? How do they know year to year that KDT is on track?
Jason Illian 18:16
Yeah. So we measure things in twofold, right? One of them is financial returns. So how’s it doing? Is the company growing? Is it are we seeing progress? What does that look like? The second piece is, what is the transformational impact to the company’s society and Koch? And that’s squishier, right? Like, that’s not exactly a grid that says, oh, here’s where we are in transformational impact year one. But you can start to see them repercussions and how things play out right. When you drop a stone into a pond, you can see the ripple effect. And we see that with many of our companies, so I’ll use just one of them that we invested in desktop metal. You know, we put money in desktop metal. It’s a 3d metal printing company out of Boston. And it is not only transformative that we have a large capital investment but we ordered multiple the machines ourselves. And they’re helping a Koch facilities because we can print metal parts on the spot in creative ways that we can never do that before. Well that create that unlocks a whole new thing of engineering plans, which then create efficiency, which then apply that supply chain. So the second third order effects, it’s rippled. And you may not be able to measure just yet. But we’re starting to show that and so both the challenge and the opportunity there is, can we build enough of our infrastructure to show what those ripple effects start to look like and where they’re heading directionally. And that’s how we measure that on a yearly basis is directionally where’s that going? Is it going the direction we think it is? And what are we learning from that? Because guess what, you may change directions, you may be a year or two down the road and say, based on what we learned, we’re heading roughly the wrong direction. So what do we do now to make that change in but that’s with every big company like if you look at Slack, Slack was a gaming company. Okay, they’re like this is not working guys, what should we do? I don’t know, what about this tool we’re using to talk to everybody else? Well, maybe other people want this. And that became Slack. And I think it’s the same thing inside of Koch is we need to have that same nimble mentality of how we work with our companies, our own wholly owned companies and the ones that we partner with.
Eric Hornung 20:21
So in traditional venture capital, you go out, you raise a fund from LPs, and then for three to seven years, maybe three to five years, you’re really just focused on how do I get as much deal flow in the door as possible and find the best deals and then invest in those deals, how much of your time is spent internally, finding champions within the organization and building relationships internally versus externally trying to find the best most strategic company for Koch?
Jason Illian 20:54
So one of the things that we’re we’re built a little differently than a traditional VC or Given a CVC is that the MDs are broken up by capability not by industry or sections. So I focus primarily on origination and relationships on that one of the other MDS focuses on the diligence piece and portfolio management. And another MD focuses on the Koch labs. So for what I do internal the Koch lab, what I do external, the Koch labs person does in certainly building those relationships right? Now, all the MDS can source a deal, right? Any of them can source a deal or lead a deal. But we all have different, you know, complimentary capabilities. So you have to really understand which you know, what’s your competitive advantage? What does Jason or Jay or Eric, what are you really good at and circle that and say, here’s what I’m really good at what other pieces I might not as good at. So, for what, you know, the strengths that I bring to the table in terms of finding unique deals and building networks and helping us originate one of my partners is fantastic at the diligence piece. He’s exceptionally detail oriented. Has a number of SMEs in his network. So we partner and so I spend a lot of my time building out the relational and capability piece on finding the best deals. And because I’m an ex entrepreneur, that makes sense, right? A lot of my friends are in this space, they know we’re having conversations for fun, who’s building what, and that often leads down the rabbit hole of finding the next deal. And so we work in a capability driven model. And that’s what allows me to spend, you know, 80% of my time Now, of course, I’ll run something down internally, or I’ll work on a diligence piece when it makes sense. But knowing that this other capability providers and skill sets that are there, just makes my my job even better because I get to focus on what I love.
Eric Hornung 22:41
It’s almost like the Koch labs MD, the code to diligence MD and yourself are like three co founders and a mini startup. How much due diligence did you do on them? Seeing as they were key to you, and KDT being successful?
Jason Illian 22:57
Yeah. So I would love to say that it was me that thought through this, but it was more Chase our president, right? He saw this at the beginning. And so, you know, when he sought me out to help him start, he knew my background as an entrepreneur in origination that we’re building. So he saw that. Then the other two hires, Brett, who’s the MD that oversees the diligence piece. He’s been a 25 year code guy that’s worked in multiple investment areas, right. So he has this private equity venture, institutional background. So he understands deep level diligence from structured finance, all the way down to seed investing, so clearly has the background. And then the MD that came on the labs. He’s been an ops guy, right. He’s been in the field of inside of Koch for 10 plus years. He knows the ins and outs, he knows who to go talk to. So it was very thought through and thoughtful on how this team would be constructed. And that’s all under the purview of Chase’s our president and in the great thing with Chase, in addition to the fact that his name’s on the building is the fact that he has direct access to senior leadership at all times, right? So we have insights of where our companies are going, and how we can help them. Which is, it’s a true advantage to be able to see things that you wouldn’t be able to see otherwise.
Jay Clouse 24:12
I would imagine with the access to one of the largest private companies in the world, that’s kind of the best of both worlds for a startup company that’s looking for a big customer, you know, you have really big but also being a private company, there’s a level of nimbleness that is inherent to that. And so I would guess that you would have a lot of inbound of folks trying to work with either independent companies within Koch or coming to KDT. How do you balance your time between parsing through a lot of inbound, if that is true that there is versus trying to be at the frontier of the companies within Koch and looking for deals there?
Jason Illian 24:48
It’s a good question. I would say that we probably today have done with more in wheat, I spend more time on the inbound piece, right? So talking to external companies and talking about how they potentially work with Koch companies, we’re just beginning to head down the road of what does that look like to have companies and ideas come up from internal of inside of Koch. Now a couple of our deals that we’ve done, have been highlighted because of internal people. They’ve seen something and called us and said, Have you guys seen this? Like we were hunting down this path we saw this company is fantastic. You guys have a look at this. So we’ve had a couple of our investments come that way. But one of the things we have not unlocked yet is just saying, oh, is there an AWS locked up inside of Koch somewhere? Now just like Amazon created AWS to solve their own problems and offered it to the world and now it’s a $10, $20 billion company, whatever it is, whereas this probably something like that locked up inside of Koch somewhere, that if we could figure out how to unlock it and solve our own problems, we could offer it to the world and spin other companies up or spin them out. At the end of the day, we all know that if you don’t give your best people the freedom to innovate and be creative and grow personally, they’re going to leave, right? They’re not going to be there long term because they need to unlock their full potential. So part of this is also saying, We have great companies and ideas and people inside of Koch, how do we free them up to have more decision rights? One of the most unique things I’ve seen happen is when this pandemic first hit, most companies out there and their CEOs, the first thing they did, right was have these big meetings and pull all the decisions up to the highest level. So we’re going to make the decisions. Charles got into a room and the first thing he said was, how do we push these decision rights down to people? How do we give them more decision rights? That is completely contrary in thinking, right? It’s also why he’s been so successful is because he’s like, how do I empower our best people to make more decisions in real time versus us trying to make them at the top level. And I think that’s a that’s just a shining example of why Koch has continued to grow. It is a natural tendency of human behavior to want more control and uncertain circumstances. And instead of doing that, He trusted his people enough to give them more control to make decisions, which means they’re going to be more failures. But inside of those failures, there’s going to be more wild successes too. And that that’s why, you know, working inside KDT and this environment is truly intriguing.
Jay Clouse 27:16
With all those people within Koch, who are at the front lines of whatever they are at whatever they’re doing at whatever part of the company they’re, they’re working on. I’m sure there’s a ton of them that see certain ideas, things that can be fixed. And it’s not just, here’s a better process, it’s we could develop an entirely new system around this. I would imagine a struggle for a company that large is bubbling up those ideas and getting the right executive buy in and managerial buy in to say, let’s dedicate some resources to that. When you talk about pushing decisions downward. Is that with the goal to give people the authority to run experiments and put resources behind new product ideas, or how do you guys bubble up or plan to bubble up some of these ideas from the frontlines.
Jason Illian 28:02
Yeah. So, you know, to your point, this sounds really good theory, right? actually putting into action is really hard, especially when you’re talking about inside of a multibillion dollar company. I would say it’s less challenging to bubble up the ideas, it’s more challenging to prioritize the ideas, right? And figure out inside of that prioritization, how you best resource those. So decision rights are things that are earned, right? My kids get more rights to stay up later and do stuff because they’ve proven to me if they do that, you know, they’ll make good decisions to go to bed and get their sleep and be able to handle school. If they make bad decisions. They get less rights. It’s the same same thing in work, right? If you’re making good decisions, your leaders can give you more decision rights to make that and that’s how it works it Koch is even Chase would tell you even though his name is on a building, this is a meritocracy. Just because your name is on the building does not give you more rights. You still have to earn it. You know, we work on giving people rights that they’ve earned and seeing how they make those decisions over time and measuring those decisions. And if it goes well, or they’re making good decisions, if it goes poorly, but they’re still making good decisions, we still give them more rights, right? Because they’re making the right decisions. You never have perfect information, but you want to give them as much information as possible. And let’s be very very clear that KDT we do not have the decision rights to tell our companies what to do, we can suggest we can influence right, I can lean in, I can really say like, this is a really good idea and company and try to help them but they still have to decide for themselves that they want to do it. And what I found is, the people that do are usually the people that succeed and the people that don’t want to change are usually people that just don’t make it over time, right, because the environment changes too fast. And if you’re really just caught in the way of doing business, as the status quo, you just don’t survive.
Eric Hornung 29:59
I want to pivot to the topic of like marketplace reputation. So when I think about the venture capital space in general, I think about kind of the top tier VCs that when you say their name, everyone knows that the people they are backing are the next wave of companies. So that’s their sequoias of the world. There’s also a lot of VCs that we talk to that are maybe first fund first time funders first fund VCs, and they don’t lead as much with name brand as they do with like a personal trait. And that’s it’s harder for them to get deals. And then on the other side, you have corporate VC, and traditionally that’s like a Delta ventures or something. And it makes a lot of sense to a founder. Okay, I have an airplane related startup. I can go to Delta ventures, when KDT exists and you’re on the origination side. How do you like you have the name recognition of Koch. You have the youth of a newer internal fund it sounds like and the setup and structure of a corporate venture capital with some nuances. How do you think about reputation in the marketplace for KDT?
Jason Illian 31:19
Yeah, it’s something I think about a lot. And I think it’s also something that we’re developing. So I don’t think we’ve arrived. I’m not sure you actually do arrive on this. So one of the first things we did is we went out and met with our friends at Andreessen and Sequoia and ABC and Kleiner and you name the list, right? And we asked the question, how would you guys see us and what you know what potholes when could we step in? And they were honest, they were saying things like, hey, see VCs? As soon as it hits the fan to see VCs run for the hills, right, which is happening right now. By the way. See, VCs for the most part have frozen up, not us. We are still in we’re still investing. We’ve let our partners know we’re not taking our foot off the gas. We’re going to keep making investments. So we want to differentiate ourselves from a typical CVC. Because it could be easy to be put in that bucket. Right. But unlike a typical CVC, we invest in a wide range of opportunities, right? It doesn’t have to be necessarily strategic. If it is strategic, great. If it’s not, we’ll happy to do it. Like our first investment was in the healthcare space. Koch doesn’t really have any healthcare assets. Why would they do that? So that’s more typical VC style. We want to be seen, not necessarily as I think the word founder friendly is almost overused, and I’m not exactly even sure what that means. But I want to, I want to be thought of is, this is a place that wants to partner beyond the capital. So yes, they can write a check the same size or bigger than anyone else. So whether that seed or whether that’s the same size is, you know, half a billion dollar check, we can write it, but what are we going to do to work with the team to really pour rocket fuel on their company. And if you talk to the companies we’ve invested in so far, the ones that I’ve spoken to have said a Koch is one of the most valuable partners on our cap table. Because their strategic thinking is helped us grow our companies. And when I was an entrepreneur, I always said if I could find partners that could help me grow beyond the capital. So they didn’t just sit in quarterly meetings, they didn’t just ask for a return. They literally cared about us as leaders developing us as leaders in our company. Those are transformative partners. And those that that’s what we’re trying to do is to say, We want all of our CEOs and leaders to walk away saying, I grew because I partnered with Koch. And when that happens, we get referrals to other great leaders, right? Because they’re like, you should come see what this is happening. And when their companies are successful, or we help them navigate tough times, then they also say, Man, they tell their friends when they’re having dinner and when they’re going out for drinks. They’re like, should talk to these co guys. They’re just different. Never seen anybody operate like that. And so it’s kind of this brand we want to create that says, hey, we’re great partners which believe in mutual benefit. And aligned incentives. And we want to care about the people we work with. Right? And you don’t. When you think back at the great teachers you had and you know, high school and elementary, the great teachers, the ones that pushed you hard, but you knew they cared about you. That’s why they pushed you hard, right? They wanted to make you better. They wanted to refine you. And I hope that’s the position we can be in is like, we refine our companies, we help them we push them because we because we believe in them. And because we’re not boxed because of a fun timeframe, or something that we can walk that we can walk that out over a longer period of time.
Eric Hornung 34:32
Where do you find KDT falls short of those goals and brand objectives?
Jason Illian 34:39
Probably in lots of places. I mean, we’re still young, right? So I don’t think we’ve actually earned the right to say we’re all those things yet. Those are what we aspire to. But we have to earn those with each deal that we do. And so you know, we’re going back to and we’re talking to our CEOs and leaders all the time to say hey, what else can we be doing to help you guys what what else are we not thinking about? Are we thinking creatively, you know, we’re asking for honest feedback. And even at the end of the year, you know, Chase, who I report to, he’ll call some of the CEOs and say, Hey, I’m gonna call on the CEOs of your portfolio companies to just talk to them and see how you’re doing. And I welcome that. Because if I have blind spots, or I’m not helping them the way that I think that I am, I hope they tell him so I can do a better job. I want to improve at that. And so these brand promises, you have to continue to live out each step of the way, and make adjustments as the markets making adjustments. And right now, a lot of companies are having a tough time. Right? We’re starting to see that first way that’s it. But there’s been a lot of layoffs. Some of these companies are down, you know, 80%, 90%, especially places like Airbnb and you know, Lion and things like people aren’t out there doing stuff. And so but we’re taking a lot of calls, right? We’re checking in on them. We’re asking them how they’re doing, what can we do to help trying to be in the flow? Some of them we will be able to help them we won’t. But the reality is, is we’re trying, we’re not pulling taking our foot off the gas. And I think if you can be around in the tough times, then they want you around in the good times, too. I think this is a unique opportunity for KDT to hopefully, start laying the foundation for some of these brand promises in this tough pandemic environment.
Jay Clouse 36:19
A lot of startup headlines and airtime goes to sort of flashy consumer products that might be software and apps and things like this. Koch obviously is rooted in some very fundamental, old technologies, things like asphalt and chemicals and energy and fibers sort of improve upon things like that. I know you guys aren’t limited to the industries that Koch operates within. But how much are you looking into just hard science? Maybe even science fiction? When you guys are looking at your, your pipeline?
Jason Illian 36:56
What’s what’s the quote out there that says something along the lines and I don’t remember if it was Bill Gurley of Benchmark, one of them said, Hey, we thought we have flying cars. And he said, we got apps on our cell phone, right? There is a little bit of this, like, hey, how can we? How can we push that out there a little bit further. So, you know, I’ve seen a few things like I’ve seen AR, you know, ARVR on a contact lens, right? I’ve seen human machine interfaces recently where it’s catching the brainwaves to your hand, and that’s changing what happens on the screen. So we do want to push forward on those things. And by the way, hard tech is called hard tech for a reason. It’s hard. Like it takes time. And it’s easy to be flashy, with some consumer facing tech. And by the way, I’m not opposed to this thing. By the way, I like doordash, right. I like jumping in an Uber. Those things are all good things to have. But we also have to understand, I think of it. Steve Case wrote the book called third wave. And it was talking about the idea of what happens when technology is no longer vertical. It runs Horizontal across all industries. That’s the basis of it. Well, when you start talking about disrupting real estate, and industrial and all those that is not going to fit nicely inside of a fun life cycle that is going to take a while to overcome those barriers. And I think Koch can play in those places where, you know, even what we’re seeing in the healthcare environment, we’ve realized that a lot of places we as a country can improve. So how can we, as Koch Industries play a piece in helping improve the ability for my kids and their grandkids have a much more personalized health care, more affordable health care, better health care, right? And not just because it’s an app, because it’s a fundamental change in the technology and the business models around that. So we want to be in those places like we value that. But we also know it’s really hard and it’s going to take time. So that’s why we believe we have to find the best entrepreneurs bring our capabilities to the table and have a Long timeframe to to have an impact in places like that?
Jay Clouse 39:03
Is there anyone that you look to who’s playing a similar game to what you’re doing KDT and doing it really well, whether it’s an organization or a person.
Jason Illian 39:11
You know, I’ll tell you some people that I admire. And maybe that’ll help people that I reach out to and often talk to, you know, a lot of respect for Brad Feld, the founder group, Brad, I mean, you got to remember what he just planted in Boulder and created that whole ecosystem that didn’t exist, right? 10, 15 years that wasn’t there. He started that. And now if you go to Boulder and you walk around downtown, there’s just startups and people all over the place. So the whole boulder Denver ecosystem is something I give him a lot of credit for thinking and he just thinks in contrarian ways to a lot of people. So I have a lot of respect for him. I don’t know if you guys know Bill Ty. Bill is he was the seed investor in Zoom. So, you know, I talked to him about why did you invest in Zoom technologies. This was at a time when there was WebEx, Google Hangouts, and nobody was investing in the speed. I said, why he goes, because the guy who was investing in was at WebEx, so he knew the problems. He also knew that this was all moving to the cloud at the time. None of them were cloud based. This was this zoom was the only cloud based one. And they had trouble raising money. At first, they had trouble raising any capital. The bill was thinking enough about, okay, how do I truly help them grow this and it was just different way It wasn’t a herd mentality. So, you know, I think he’s in that bucket. You know, I think the time that we spend with Marc Andreessen and Ben Horowitz, they’re truly unique thinkers, as well as Bill Gurley at benchmark. There’s some people out there that think differently. And there’s also some great entrepreneurs out there that think differently about where things are going and how do we, how do we get there and so anytime that I can be challenged by those types of people, I bring my ideas to the table and let them shoot holes in the theory that only expands my horizon of what’s what’s, what’s really capable of being achieved. And so I look to those types of people, I don’t pretend to know all the answers more like try to say, How do I become a good partner for them? And some of those relationships. We’ve been friends for 10, 15 years. And so it’s an honor and a pleasure to be able to get on the phone and say, What do you guys thinking about this space? And there’s many times that I walk away shocked me like, I just need to think of it that way. I just missed this the problem of saying, you think you know the answer with a problem? Yes. He asked the wrong question. Right. Your ladder was leaning against the wrong wall, you climbed up it, and that’s awesome. But it was the wrong wall. And so it’s really trying to make sure your ladders up against the right wall. So you’re asking the right questions.
Eric Hornung 41:44
What wall in our interview here with you? Did we not put the right ladder on? What questions should we ask that we didn’t?
Jason Illian 41:53
I think that there is a fundamental shift happening right now. And you can See, it’s because of this black swan events, this pandemic. But the question isn’t just do we bounce back? But the question is, what is the new bounce back? Right? Like, are we going to be doing things totally different? What’s education going to look like? If we do this long enough? Are we okay that education doesn’t look the same way, as today? My argument is like education today is not great. Anyways, this is just an opportunity for us to accelerate the next generation of personalized education. But what does that look like in the healthcare thing? We talked about that I think there’s something there, I think that you’re going to start looking at, I’m highly interested in you know, what happens in the bio I.T.? What about personalized medicine? What if What does my DNA specifically need? I mean, us just being able to understand the human genome used to cost $10 million per genome. Now we can do it for 100. So what does that look like going forward? I think there’s a fundamental shift happening. And I wouldn’t even say that we know all the repercussions yet, but I think we’re starting to say hey, we gotta change our supply chains. We can’t be reliant on places like China and other ones, we need to have some of that at home. We need to think about how do we innovate faster. And I frankly, love the fact that in this environment, it has forced us to knock down some walls and say, how do we get drugs to market faster? How do we experiment faster? How do we change the way we think, because you’re not going to put the genie back in the bottle. When those things come out. Entrepreneurs are going to grab them and run. And you’re going to see all these new ideas spring to the forefront, and those that are bold enough to step out and innovate. Now, a lot of people are going to pull back, but those that are bold enough to step out and innovate now, we’re going to be in a prime position five and 10 years from now, because they will invest in this next wave of companies early. And we’ll have known these entrepreneurs and ideas. We want to do one of those. We got to prove that obviously. But that’s the goal.
Jay Clouse 43:53
Awesome. Well, Jason, thanks for taking some time with us here this afternoon. If people want to learn more about you or Follow the Koch Disruptive Technology story or should they go?
Jason Illian 44:03
They can just go to KochIndustries@Kochind.com. You’ll see right on there, there’s a way to link to KDT. And we’re actually getting ready to launch our own our own website as well, that’s going to highlight some of the things we’re talking about here in the upcoming month or so. So on that we’ll have even more examples and hopefully to both of your points, and some ideas of how is KDT and Koch, just different. So as people come there and want to explore, not that this is a Hey, come look at what we do. It’s hopefully more of a community of Hey, how do we all work together?
Eric Hornung 44:36
All right, Jay. We just spoke with Jason that Jay, Jason, from Koch Disruptive Technologies, what do you think?
Jay Clouse 44:44
Very laid back interview for such a large company with what I would imagine to be like I said, a lot of bureaucracy in the beginning. This is a lot more comfortable and just felt like a regular interview, Eric.
Eric Hornung 44:58
So you thought it was going to be what, kind of, I don’t know, puff PC thought it was gonna be? I don’t know, what do you think?
Jay Clouse 45:05
No, I felt like I would personally feel more pressure for some reason. I felt like there would be a some sort of agenda. And that was not at all what I received here. It seemed like, like I said, just a regular interview, Jason was interested in coming on and sharing the story of what KDT is doing, which is also much different than I imagined corporate venture capital being in some companies.
Eric Hornung 45:31
Yeah, I think our friend who’s not actually our friend, but we call him our friend Josh Wolf, who I tell you, I ran into him on the street in New York once.
Jay Clouse 45:39
You did tell me that you ran into him. He didn’t say hello. When I ran into him. I did say hello. We exchanged words.
Eric Hornung 45:45
Good for you, Jay. He says that when the corp he’s he has said that when you see everyone doing in a corporate venture capital, everyone doing corporate venture capital, that’s when kind of we’d hit the peak because they’re gonna be the first ones out and we’re in a hard time right now. For corporate venture capital arms because they’re investing off a balance sheet that is for a lot of companies getting smaller, like imagine American Airlines CVC arm, I doubt that they’re getting Board approval to be doing high risk deals right now. So it’s interesting that KDT is still investing through this. They say they’re open. He said, yeah, we don’t, we don’t see any kind of slowing down for us. And I really like the model just in general of being both an advocate in the front door and having the three people with three different roles. And I don’t know how common that is because I haven’t really studied corporate venture capital that much, but it felt yeah, it felt like it all made a lot of sense.
Jay Clouse 46:40
Seems like an awesome job. I think it’d be really hard to parse all of the potential directions to focus your time as the individual Jason because with as many companies and as many products as Koch offers, to pick industries or technologies to follow just seems like a net never ending rabbit hole that you could go down. And as he said, being a front door, I would imagine a lot of companies, startup companies are really interested in working with Koch as a customer, and are probably beaten down that front door.
Eric Hornung 47:13
Do you think that’s actually the case, though? How often do we talk to startups who say, Oh, yeah, I’m looking for corporate venture capital money.
Jay Clouse 47:20
But the thing is, I don’t think they would be looking for corporate venture capital money, I think they’d be looking for partnership or customers with coax companies and be routed in this direction potentially. Because what I think is really interesting about what KDT makes possible. You know, it sounds like a lot of times it’s not KDT that’s making the investment. It’s KDT, making introduction to the companies and the companies either become customers or the companies invest themselves. From an organizational standpoint. That seems like it opens up a challenging question of measuring the effectiveness of your corporate venture arm. How do you know how this experiment is doing? What do you attribute to KDT versus not what happen if KDT wasn’t there, that would worry me as the individual running something like that. But it doesn’t seem like there’s that type of pressure from the upper levels on Jason, it seems like a lot of this is long term belief that we are innovating for the long term as this giant, privately held conglomerate, we have the good fortune of being able to do that. And we’ll let you, you know, make the calls that you want to make, as far as Is it an introduction? Is it an investment in KDT, or from KDT? That makes this a very, very unique opportunity in my mind.
Eric Hornung 48:34
So Jay, this is definitely the first person who’s been on the podcast who mentioned that he regularly talks with Bill Gurley and Marc Andreessen and Ben Horowitz.
Jay Clouse 48:45
Yeah, not a bad group of friends at around the poker table.
Eric Hornung 48:48
Just like our board of advisors.
Jay Clouse 48:50
Just like our board of advisors. We’re building a pretty strong network and community.
Eric Hornung 48:55
Oh, 100%. I didn’t mean that disparaging that we don’t actually have a board of advisors But we do have some amazing up and coming managers and people who I think 20, 30 years from now people are gonna refer to similarly.
Jay Clouse 49:07
This makes me really interested to explore some more corporate venture, maybe a weird time to be doing that, and the state of the world and economy right now. But I’m interested in comparing and contrasting some of these models with what KDT is doing.
Eric Hornung 49:20
Yeah, I think I want to dive specifically into the corporate venture arm of a company that does something more vertical, because with Koch, they do so many different things in so many different industries. Jason’s jobs, essentially go find the really interesting stuff, bring it in, and then someone will find where it fits within the within the space versus we went to CES this year Jay and Delta is talking with a lot of smaller companies. We saw the parallel reality demo this year and that was really cool. But what does a vertical airline travel corporate venture arm do differently like how They source versus Okay, this is a really interesting technology versus this is something that can directly impact the experience of travel. And we see how that fits in our long term vision and product plan and strategy. So I feel like there’s a very different type of corporate venture capital when you’re focused on one product. One thing, one industry versus however many companies spread out again, around however many different industries with all these different nuances and kind of places you can plug things.
Jay Clouse 50:32
If you guys have an idea for a vertical company with a CVC arm that we should talk to on the show tweeted us @upsideFM or email us firstname.lastname@example.org. We’d love to hear your thoughts. Let us know what you thought about this interview with Jason. Otherwise, I’ll talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear your thoughts on today’s guest. So shoot us an email at email@example.com or find us on Twitter @upsideFM. We’ll be back here next week at the same time. Talking to another founder and our quest to find upside outside of Silicon Valley. If you or someone you know would make a good guest for our show, please email us or find us on Twitter and let us know. And if you love our show, please leave us a review on iTunes. That goes a long way in helping us spread the word and continue to help bring high quality guests to the show. Eric and I decided there are a couple things we wanted to share with you at the end of the podcast. And so here we go. Eric Hornung and Jay Clouse are the founding parties of the upside podcast. At the time of this recording. We do not own equity or other financial interests in the companies which appear on this show. All opinions expressed by podcast participants are solely their own opinion and do not reflect the opinions of Duffin Phelps LLC and its affiliates on your collective LLC and its affiliates or any entity which employ us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. We have not considered your specific financial situation nor provided any investment advice on the show. Thanks for listening and we’ll talk to you next week.
Interview begins: 8:46
Debrief begins: 44:36
This week we’re speaking with Jason Illian, Managing Director of Koch Disruptive Technologies.
Jason was the founder and CEO of BookShout, the world’s leading B2B e-book company. He has presented at the Goldman Sachs Technology & Internet Conference, the Credit Suisse Global Media and Communications Convergence Conference, and hundreds of other organizations. He has been featured on ABC, in The New York Times, and numerous radio interviews.
As the mid-to-late stage venture arm of Koch Industries, KDT invests in technology companies that disrupt and transform Koch’s core businesses and expand into new platforms and capabilities. Segments being explored include artificial intelligence, blockchain and crypto, bio IT and genomics, and industrial robotics.
- Commerce and Technology (8:56)
- Koch: what and who is it for? (10:49)
- In measuring progress (16:43)
- Frontlines (28:02)
- KDT’s reputation in the marketplace (31:19)
- The Inspiration (39:11)
- Fundamental Shift (41:53)
Connect with Jason: https://twitter.com/jasonillian
This episode is sponsored by Integrity Power Search, the #1 full stack high growth startup recruiting firm between the coasts. They partner with venture capitalists, private equity groups and CEOs to build amazing teams for the world’s most disrupting companies.
Learn more about or get in touch with Integrity Power Search: https://upside.fm/integrity
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