20 VC 094 Kanyi Maqubela @ Collaborative Fund on Rocketships, Feedback Loops and Turning Lemons Into Lemonade!

Abstract

Abstract

In this episode of 20 minutes VC, host Harry Stebbings interviews Kanye Makubayla, a partner at Collaborative Fund, known for investments in startups like AngelList and Reddit. Makubayla shares his journey from Johannesburg to becoming a Stanford dropout turned venture capitalist, emphasizing the challenges of startup life and the importance of staying in school. He discusses the collaborative economy, the impact-driven investment approach of his fund, and the challenges of being a young partner in the VC industry, including the long feedback loops and the pressure of GP commits. Makubayla also touches on the effectiveness of demo days for deal flow and the need for creative exit strategies beyond traditional IPOs or acquisitions. The episode wraps up with insights into Makubayla's personal habits and his recent investment in CircleUp, highlighting the potential of the internet to transform financing methods in various industries.

Summary Notes

Introduction to Kanye Makubayla and Collaborative Fund

  • Kanye Makubayla is a partner at Collaborative Fund, known for its impressive investment portfolio.
  • Collaborative Fund has invested in companies like Angel List, Code Academy, Reddit, and Taskrabbit.
  • Kanye is originally from Johannesburg, South Africa.
  • He was a founding employee at Dustang, a peer-to-peer career marketplace.
  • Attended Stanford University and worked on the Obama campaign in 2008.
  • The episode discusses young partners in VC, startup exits, and seed investing intricacies.
  • Mattermark provided data and analysis for the show, and Nick Frost at Mattermark offers startup advice on Twitter.
  • Law Trades offers a free 20-minute legal strategy session for entrepreneurs.

"They've made investments in the likes of Angel List, Code Academy, old School Reddit, and Taskrabbit, just to name a few."

This quote highlights the significant investments made by Collaborative Fund in well-known startups and platforms.

"He also attended Stanford University and as Kanye states, his most meaningful and difficult work done so far is his work on the Obama campaign in 2008."

This quote provides background on Kanye's educational history and his notable work experience, which includes political campaign involvement.

Kanye's Journey from South Africa to VC

  • Kanye's move to VC involved multiple stops, including early education in the United States and involvement in startups.
  • He studied philosophy at Stanford University but dropped out to pursue startup opportunities.
  • His journey included raising $20 million in venture financing and achieving similar amounts in startup exits.
  • Met current partner Craig at Stanford, leading to his involvement with Collaborative Fund five years prior.

"I was a Stanford undergrad and studying philosophy, and was compelled by an interest in seeing a different part of the world and having a different late teens experience."

This quote explains Kanye's initial motivation for leaving Stanford, seeking diverse experiences beyond academia.

"But it was a great learning experience. And I met my partner Craig when I was back at Stanford, actually doing some work in design and spending some time finishing school, and we had a really great connection and he convinced me to help him with collaborative fund and that was about five years ago, and here I am."

Kanye reflects on his educational and professional journey, including his return to Stanford, which led to his partnership with Craig and his current role at Collaborative Fund.

The Challenges of Leaving Stanford for Startups

  • Leaving the security of Stanford for the startup world was not initially difficult for Kanye.
  • Post-departure, he faced significant challenges, including financial instability and reliance on credit cards.
  • The startup lifestyle lacked the glamour often associated with college dropout entrepreneurs.
  • Kanye advises others to stay in school, reflecting on his difficult experiences.

"The decision to leave wasn't tough. Once I had left, it was tough."

Kanye distinguishes between the ease of making the decision to leave Stanford and the subsequent difficulties he encountered.

"But when I got into the startup world, that's actually where things got really tough."

This quote underscores the challenges Kanye faced after leaving academia to enter the startup industry.

Overcoming Loneliness and Financial Struggles

  • Kanye experienced loneliness due to being away from peers and the college environment.
  • Professional life lacked the community and connections found in college, leading to isolation.
  • Non-rocket ship startups are hard to justify to loved ones, which can strain relationships.
  • The difficulty of startup life is often underestimated, and Kanye believes overcoming failure should be celebrated, not the failure itself.

"Well, the toughest things were one, the loneliness, honestly."

Kanye identifies loneliness as one of the most significant challenges he faced after leaving college for the startup world.

"And then the truth of the matter also is, if it's not a rocket ship startup, which the vast majority of them are, then it's really hard to justify it to your loved ones."

This quote highlights the difficulty of pursuing a startup that isn't immediately successful and the pressure to justify this path to family and friends.

Perseverance Through Difficult Times

  • Kanye didn't have a clear vision but felt committed to the path he chose.
  • He focused on making the best of the situation and turning challenges into opportunities.
  • The commitment to his chosen path was driven by a lack of alternative options and a determination to succeed.

"There wasn't. What it actually was was I didn't feel like I had that much of a choice."

Kanye explains that his perseverance was not driven by a specific vision but rather by a commitment to the path he had embarked upon.

"All I really had the opportunity to do at that point was to see it through to the best of my abilities and to turn lemons into lemonade."

This quote conveys Kanye's resolve to persist through hard times and make the most of his circumstances.

The Great Dream of Success

  • The drive for success can sometimes be born out of a lack of alternatives, rather than a glamorous or easily told story.
  • Individuals may persist in their current paths because they don't know what else they could or would do, indicating a commitment to finish what they started.

"I don't really know what else I could do. I don't really know what else I would do. I'm doing this, so I got to keep at it, at least until I can finish it so that I can do something else."

This quote emphasizes the speaker's uncertainty about alternative career paths and their determination to continue with their current endeavor until it is completed.

Collaborative Economy Investment Thesis

  • The fund invests based on the belief that we are in a collaborative economy, moving away from the hub and spoke model of centralized production, distribution, and value creation.
  • The investment focus is on a network-driven model with peer-to-peer interactions and micro-parties collaborating, which is seen as the future of industry due to the Internet.
  • The fund values impact and aligning interests and values between consumers, employees, and companies.
  • The goal is to support brands that use collaboration as a competitive advantage and that are aspirational about culture and impact.

"And so we really love brands that are using collaboration as a competitive weapon, but recognize that values and great impactful brands and that being aspirational about culture are the outcomes of that collaboration."

This quote explains that the fund appreciates brands that leverage collaboration strategically while also prioritizing values, impact, and culture, reflecting the fund's investment thesis.

Efficiency in Venture Capital

  • Themes in investment are used to efficiently manage time and focus on only good deals, not necessarily every good deal.
  • Investors must have a heuristic or tool to filter opportunities based on a point of view, hoping it leads to more right than wrong decisions.
  • Whether specializing in a stage or a theme, the key is to constrain the sample set and optimize for finding successful companies within it.

"You don't have to do every good deal, you just have to only do good deals."

This quote captures the essence of being selective in venture capital investments, focusing on quality over quantity.

Challenges of Youth in Venture Capital

  • Being a young partner in venture capital presents unique challenges, such as meeting the general partnership commitment, which can be financially demanding and potentially induce risk aversion.
  • The long feedback loops in venture capital, which can span over several years, pose a challenge for young professionals who are still developing in their careers.

"And that may not align me that well with my limited partners, because the whole point of venture, as you think about asset allocation from a limited partner standpoint, is being super high risk and really risk tolerant."

This quote discusses the potential misalignment between a young partner's risk aversion due to personal financial commitments and the expected high-risk tolerance of limited partners in venture capital.

Psychological Challenges for Young Investors

  • Young investors face psychological barriers due to the long structural timelines in venture capital.
  • Feedback loops in venture are not only lengthy but also complex, with countless approaches to the industry.
  • Investors must navigate through various methods of marketing themselves and adding value to their portfolios.
  • There is no definitive "right way" to succeed in venture capital, and the effectiveness of one's strategies may not be evident for many years.

"structurally so long is one piece that makes it hard for a young person, just psychologically."

This quote highlights the psychological struggle young investors face due to the prolonged nature of venture capital outcomes.

"And then the other piece that is also hard is the feedback loops are not only so long, but there's a million ways, maybe even infinite ways to do venture."

The quote emphasizes the complexity and multitude of strategies in the venture capital industry, making it difficult to determine the best approach.

Uncertainty and Decision-Making in Venture Capital

  • The input-output relationship in venture capital is tenuous, making it challenging to assess the impact of one's actions on investment returns.
  • Investors often rely on instinct and gut feeling to make decisions, as there is no immediate feedback to validate their choices.
  • The lack of clear, high-fidelity feedback can be likened to skiing blind down a long mountain, requiring patience and well-honed instincts.

"I don't know if me being on this call is going to drive returns to my lps, and I'm probably not going to find out for another five years if I'm lucky."

This quote captures the uncertainty of knowing whether a specific action, such as participating in a call, will yield positive results for investors.

"And so it's a little bit like being blind and trying to go skiing down a really long mountain."

The analogy used here conveys the challenge of making decisions in venture capital without immediate feedback.

Personal Marketing Strategies for Investors

  • Investors use various platforms to market themselves, such as blogs and social media.
  • Writing can be a tool for clarifying ideas and receiving peer feedback, serving both marketing and intellectual development purposes.
  • Personal preferences and life circumstances, like family commitments, can shape an investor's approach to networking and marketing.

"The blog is interesting because there's two pieces of it. One piece is indeed crass. It's just simply marketing, and it's a high leverage marketing tool."

The quote explains that blogging serves as a marketing tool with high leverage, implying its effectiveness in reaching a wide audience.

"And so the intimate dinners with other vcs and the events and the summit series and the conferences and the stuff that requires either being on a plane or being outside of my home, I tend to personally just limit."

This quote reveals the speaker's personal preference for limiting certain networking activities due to valuing time at home, influencing their marketing strategy.

Effectiveness of Demo Days and Accelerators in Deal Sourcing

  • The value of demo days and accelerators varies depending on the specific program and the investor's stage and style.
  • While demo days can be a way to ensure coverage of potential investments, they may not be the best source for discovering early-stage companies.
  • Networking with other VCs at demo days can be valuable due to the cooperative nature of the industry.
  • For entrepreneurs, demo days offer a high-leverage marketing opportunity to present to many interested investors simultaneously.

"But then the other piece is that for our style and stage, so we like to be early, and we tend to be in a first institutional round, or even earlier than that into a company when we're meeting them."

This quote explains that the speaker's investment strategy focuses on early-stage companies, which often means that demo days are too late for their preferred investment timing.

"This is an industry that, to coin a term from a friend of mine, is driven by cooperation."

The quote highlights the cooperative aspect of the venture capital industry, where networking and relationships are crucial.

Optimal Strategies for Early-Stage Venture Sourcing

  • Existing portfolio companies are a crucial source for discovering new investment opportunities.
  • Warm introductions and references from trusted sources within the investor's network provide high-signal leads.
  • Entrepreneurs often network and refer each other, creating an ecosystem of high-quality deal flow.

"The first thing I do is go to Facebook or to LinkedIn or to Twitter to see if there is somebody within our portfolio who's directly connected to one of them."

This quote describes the process of leveraging social networks and existing relationships to find high-quality investment leads.

"Because if somebody is willing to vouch for us as a financial partner, then that sends a really strong signal to the market."

The quote underscores the importance of endorsements in establishing credibility and attracting potential investment opportunities in the venture capital market.

Alternative Exit Strategies for Startups

  • The current exit strategies for startups are limited to IPOs or acquisitions.
  • Kanye suggests expanding the narrow funnel of exit options.
  • The background context includes Fidelity marking down private companies, treating them like public ones.
  • Post-Sarbanes Oxley, being a public company has become burdensome due to SEC restrictions.
  • Massive funding rounds are occurring privately instead of companies going public.
  • Kanye emphasizes the importance of free cash flow for startups.
  • He suggests that profitability allows for various exit strategies.
  • Liquidity is essential for providing exit options to investors.
  • Dividends, leveraged buyouts, and private crowdfunding are methods to create liquidity.
  • These creative exit strategies are crucial for companies with decent revenues that aren't ready for an IPO.

"But what I do think is worth thinking about, if you're an entrepreneur, is that freedom is a free cash flow."

This quote highlights the importance of free cash flow for entrepreneurs as it provides the freedom to choose from various exit strategies.

"And so if you have that cash just on the basis of your cash flows, then you can buy people out of their position a couple of ways."

Kanye is pointing out that having strong cash flows from operations can enable a company to provide exits to investors through different means.

"Because the IPO bar is so far away that companies with decent revenues, but aren't necessarily in the position to go through that IPO process, want ways to create liquidity."

Kanye acknowledges the challenge for companies that have solid revenues but are not yet ready or suitable for an IPO, emphasizing the need for alternative liquidity options.

Reading Preferences and Philosophical Influence

  • Kanye's favorite book is "Brothers Karamazov" by Dostoevsky.
  • He appreciates the book for its philosophical depth and relevance to various aspects of life.
  • The book is described as a religious love story that encompasses themes of trust, career, and pride.

"Favorite book is Brothers Karmatsov by Dostoevsky because it is a philosophically rigorous religious love story about siblings and trust and career and pride."

Kanye expresses his admiration for Dostoevsky's "Brothers Karamazov" as a comprehensive philosophical work that he relates to different facets of his life.

Venture Capital Admiration

  • Kanye admires Union Square Ventures for their organization, discipline, and intellectual purity.
  • He also respects Benchmark for their track record and recommends reading their story.

"I admire Union Square ventures hugely. I think that they've built an incredible organization."

Kanye expresses his respect for Union Square Ventures, highlighting their well-built organization.

"I feel similarly about benchmark, actually, out in California."

He also shows admiration for Benchmark, another venture capital firm known for its success.

Founder-Friendly Practices in VC

  • "Founder-friendly" is becoming a standard in the VC industry.
  • Kanye believes it signifies founders taking more agency and holding investors to higher standards.
  • However, he also acknowledges the complexity of founder-friendly practices.

"First thoughts as a concept? I think it is a sign of the times in a good way."

Kanye views the concept of "founder-friendly" as a positive development in the VC industry.

"In practice, founder friendly is complicated, and it cuts both ways."

He notes that while the idea of being founder-friendly is good, the practical implementation can be complex.

Personal Habits and Productivity

  • Kanye wishes he had the habit of going to the gym or blogging.
  • He has started waking up early, which has paid off significantly.
  • Waking up early allows for reflection and quiet time before daily tasks begin.
  • Kanye does not meditate but engages in prayer.

"The one that I'm starting to do more, which has paid off extraordinarily, is waking up early."

Kanye shares that waking up early has been a beneficial habit for him, providing time for reflection.

Challenges of Being a VC

  • A common misconception is that being a VC is not challenging.
  • The difficulty lies in the loose connection between input and output, making it hard to gauge performance.

"Hardest aspects of being a VC. One of them is that nobody thinks it's hard, and the other is that the input and the output are so loosely tied, it's really hard to know how good you're doing."

Kanye discusses the underestimated challenges of being a VC and the difficulty in assessing one's effectiveness in the role.

Recent Investment Decision

  • Kanye's most recent investment is in CircleUp, a crowdfunding platform for CPG with an emphasis on food.
  • CircleUp was chosen due to its potential to transform liquidity and financing methods through the internet.

"Most recent investment and why we said yes. That's actually circle up."

Kanye shares information about his most recent investment, CircleUp, highlighting its unique position in the market.

Acknowledgements and Resources

  • Harry Stebbings thanks Kanye for his time and insights shared on the show.
  • Harry promotes LawTrades, a legal service offering strategy sessions for small businesses and startups.

"What an amazing show that was with Kanye."

Harry closes the show by expressing gratitude for Kanye's contribution to the episode.

"And do not forget, if you are a small business owner or startup founder, schedule a free 20 minutes strategy session with a top-rated attorney."

Harry provides listeners with information about a resource for legal assistance, emphasizing the value of the service for entrepreneurs.

What others are sharing

Go To Library

Want to Deciphr in private?
- It's completely free

Deciphr Now
Footer background
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai
Crossed lines icon
Deciphr.Ai

© 2024 Deciphr

Terms and ConditionsPrivacy Policy