20VC Binary's Justin Caldbeck on Specialisation Being Key To Success In VC, The Biggest Problem In VC Today and Why The Future Is A Moneyless Barter Economy



In this episode of "20 Minutes VC," host Harry Stebbings interviews Justin Kan, co-founder and managing partner at Binary Capital, a leading early-stage consumer-focused venture fund. Kan discusses his journey from Bain Capital Ventures to Lightspeed Venture Partners, where he invested in successful consumer companies such as Grubhub and Taskrabbit, before co-founding Binary Capital with Jonathan Teo. He emphasizes the importance of focus and differentiation in establishing a venture fund and shares his bullish perspective on moneyless commerce platforms and the potential for on-demand services that don't require local logistics. Kan also reflects on his biggest miss, not investing in Uber, and the current issues in VC, highlighting the problem of too much money in the industry. The episode concludes with Kan's recent investment in Recharge, a company that allows luxury hotel room rentals by the minute or hour.

Summary Notes

Introduction to the Podcast Episode

  • Host Harry Stebings introduces the episode of "20 minutes VC" and himself.
  • The episode features Justin Kuldbeck, co-founder and managing partner at Binary Capital.
  • Binary Capital is an early-stage fund with a focus on consumer space, managing $300 million.
  • Justin's prior experience includes Lightspeed Venture Partners and Bain Capital Ventures.
  • Thanks given to Ryan Coolbeck and Tiffany Zhang for introducing Justin to the show.
  • Harry promotes Headspace, an app for meditation and mindfulness.
  • Harry also promotes Luma, a surround wifi system for home use.

"Hello, and welcome back to another week in the world of the 20 minutes VC with your host Harry Stebings, and you can find me on Snapchat at h stepbings."

This quote is Harry introducing himself and the podcast episode.

Justin Kuldbeck's Background and Achievements

  • Justin Kuldbeck is highlighted as an exciting and talented emerging fund manager by LPs and VCs.
  • He was a Managing Director at Lightspeed Venture Partners.
  • Investments made by Justin include Grubhub, Taskrabbit, and Socialcam.
  • Justin launched Bain Capital Ventures' west coast office.
  • Acknowledgments given to Ryan Coolbeck and Tiffany Zhang for their roles in facilitating the episode.

"His name? Justin Kuldbeck, and Justin is a cofounder and managing partner at Binary Capital, one of Silicon Valley's leading early stage funds focused on the consumer space with $300 million under management."

This quote introduces Justin Kuldbeck and his role at Binary Capital.

Benefits of Meditation and Mindfulness

  • Harry discusses the benefits of meditation and mindfulness on mental health.
  • Headspace app is promoted as a tool for meditation with guided sessions.
  • Meditation is framed as a small investment in time for significant life improvements.

"Most problems start in the mind. Fear, anger, stress, anxiety, sleeplessness. They begin in your head, but they can wreck your life. And meditation can help."

This quote emphasizes the importance of mental health and the role of meditation in improving it.

The Advantages of Luma Wifi System

  • Luma is introduced as a game-changer in home wifi systems.
  • Its features include easy setup, mesh network creation, and network control via an app.
  • Luma is designed to handle multiple activities across various devices without bandwidth issues.

"Luma is a product that has genuinely changed the way I live and work."

This quote highlights Harry's personal endorsement of the Luma wifi system.

Justin Kulbeck's Venture Journey

  • Justin shares his venture journey, starting at Bain Capital Ventures in 2005.
  • He expresses his passion for venture capital, contrasting it with his prior role at McKinsey.
  • Justin's move to the west coast in 2008 and subsequent shift to Lightspeed in 2011 are discussed.
  • He details his experience with consumer internet investing and notable investments.
  • In 2014, Justin co-founded Binary Capital with Jonathan Teo, focusing on early-stage consumer tech.

"So I started in venture in early 2005 with Bain Capital Ventures up in Boston."

This quote outlines the beginning of Justin's career in venture capital.

Establishing a Fund in a Crowded Market

  • Justin speaks about the necessity of differentiation and focus when establishing a new fund.
  • He emphasizes the value of a singular focus, especially in the consumer sector.
  • Binary Capital's approach involves informed, educated discussions on consumer tech.

"I mean, it requires differentiation and I think focus, and I think this is something that my partner JT and I have talked about for a long time."

This quote explains the strategy behind establishing Binary Capital in a competitive market.

Sector Focus and Pattern Recognition

  • Justin confirms that a sector focus increases efficiency in pattern recognition.
  • Spending time exclusively on consumer companies allows for better investment decisions.
  • A focused portfolio leads to shared knowledge and solutions among similar-stage companies.

"Well, there's no question about it, right? I think if you're spending 100% of your time looking at certain types of consumer companies, you can't help but pattern match in a better way."

This quote underlines the benefits of specialization in investment strategy.

Conversations with Founders and Fund Reputation

  • Justin responds to a question from LP Judith at Weathergage about conversations with founders post-transition from established funds.
  • He suggests that being at a newer, smaller fund has not hindered deal access.
  • Justin expresses respect for his previous firms, Bain Capital and Lightspeed.

"Judith, with a hard hitting question right out of the gates, we love know it's funny, we think it's been the exact opposite."

This quote addresses the impact of moving from a large established fund to a new one on founder relationships.

Venture Capital and Investment Strategy

  • Venture capitalists prioritize individual investors and partners with a proven track record of success.
  • Smart entrepreneurs look beyond brand names and focus on the individuals who have led successful deals.
  • Lightspeed's success with consumer companies since 2011 includes investments in Grubhub, Stitch Fix, Taskrabbit, Snapchat, and Whisper.
  • Binary's team is well-versed in consumer markets, eliminating the need for internal education on early-stage consumer investments.
  • Experience and pattern matching are crucial for investing in and building companies from scratch.
  • Binary operates as a full team, with the entire firm supporting every company they invest in, differing from the traditional model of a lead and second partner.
  • Binary has not yet lost a competitive deal and feels confident about their competitive position.

"But I think smart entrepreneurs want to not just go with brands, but they want to go with the individual investors and partners that have led those deals and have seen success." This quote emphasizes the importance for entrepreneurs to consider the track record of individual investors rather than just the reputation of the venture capital firm.

"And so I think if you look at Lightspeed, for example, a lot of their success has been in companies on the consumer side, invested in since 2011, Grubhub, Stitch, Fix, Taskrabbit, Snapchat, Whisper, et cetera." This quote lists successful consumer investments by Lightspeed, illustrating their expertise in this sector.

"Everyone here is thinking about the same themes and trends. And so the notion of having to not educate internally, meaning the whole firm is behind the deal right out of the gate." This quote explains the advantage of having a team that is already knowledgeable about consumer markets, which streamlines the investment process.

"I think we've got a lot of pattern matching and experience investing in and building companies from the ground up." This quote highlights the importance of experience and the ability to recognize successful patterns in company building and investing.

"We really operate as a full team supporting those companies." This quote describes Binary's team-based approach to supporting companies, which is a departure from the traditional venture capital model.

Moneyless Commerce Platforms

  • Justin Kan believes in the potential of moneyless commerce platforms, where value is exchanged without the use of money.
  • The current economic system is overly reliant on money, which commodifies value and limits generosity to those with financial means.
  • Moneyless transactions already occur informally, such as meal swaps, couchsurfing, and skill sharing among neighbors.
  • Platforms that facilitate these types of transactions on a larger scale are lacking but have the potential to unlock individual value preferences.
  • Justin Kan envisions a barter economy where skills and experiences are exchanged directly, bypassing the need for money.

"Absolutely believe in the notion of a moneyless commerce platform." This quote introduces the concept of commerce without the exchange of money, highlighting a new vision for economic transactions.

"Anyone should be able to be generous, not just the ones with kind of the most money or largest number of tokens." This quote expresses the belief that generosity should not be limited by financial capacity and that value exists in various forms.

"There just aren't great platforms on a local, regional or national level to enable that." This quote identifies the gap in the market for platforms that enable large-scale moneyless transactions.

"The notion of much more fluidless, moneyless commerce and transactions and really the building of a barter economy is what we." This quote elaborates on the concept of a fluid, moneyless economy based on barter.

Monetization of Moneyless Platforms

  • Many successful platforms, such as Facebook and Twitter, began without immediate monetization plans.
  • A vibrant barter economy on a platform can generate valuable data without the need for a take rate.
  • The ownership of platform real estate and user transaction data can be monetized in various ways.
  • Trust and safety are crucial for the success of platforms that involve transactions with strangers.

"I think you can imagine a world. It doesn't mean money goes away. What it means is that there's a vibrant economy of barter and trade that happens on a platform." This quote suggests that while money won't disappear, there is room for an alternative economy based on barter and trade on a platform.

"And I think there's a lot of ways to monetize that because you really ultimately start to have a lot of data again around what people own, what they're sharing, what they want, how they're transacting." This quote explains that monetization can come from the data generated by user interactions and transactions on the platform.

Challenges and Potential of Moneyless Markets

  • In the past, attempts to create moneyless commerce platforms may have been premature due to a lack of trust in online transactions with strangers.
  • Trust and safety advancements have now made it possible for people to engage in such transactions.
  • There have been verticalized attempts, like couchsurfing, to create moneyless commerce platforms, but the right implementation has yet to be found.
  • The massive potential of this market is recognized, and more companies are expected to pursue this vision.

"Really only in the last few years have people gotten used to transacting online with strangers." This quote acknowledges the recent increase in consumer trust in online transactions, which is essential for moneyless platforms to succeed.

"It just hasn't been implemented in the right way so far." This quote implies that while the idea of moneyless commerce platforms is not new, the correct approach to implementation has not yet been achieved.

On-Demand Economy and Local Infrastructure

  • Justin Kan is excited about on-demand services but suggests that the best opportunities lie beyond local infrastructure requirements.
  • The on-demand economy has grown through platforms like Uber and Airbnb, which allow individuals to generate revenue using their skills and assets.
  • The future of on-demand services may involve verticals that do not depend on local infrastructure, potentially allowing for broader scalability.

"Yeah, on" Unfortunately, the transcript is cut off before Justin Kan can elaborate on his thoughts regarding the on-demand economy and local infrastructure.

On-Demand Sector Challenges

  • The on-demand sector is often avoided due to challenges with local logistics.
  • Local delivery infrastructure negatively impacts unit economics.
  • High costs lead to a smaller addressable market or unattractive unit economics.
  • The preferable on-demand model involves remote services that replicate local experiences.

"The challenge is when you add an infrastructure of local delivery people, the unit economics can get very, very challenging."

This quote highlights the core issue with on-demand services that rely on local delivery: the cost structure makes it difficult to achieve good unit economics.

Evolution of On-Demand Services

  • On-demand services are shifting towards experiences that don't require local infrastructure.
  • Remote services can tap into excess supply anywhere, expanding the market reach.
  • Examples include interior design via Havenly and potential innovations in medical attention and crime prevention using remote access.

"I'm talking about on demand, where I can get an experience now or in the very near term, but it doesn't require anyone locally."

This quote explains the speaker's vision for on-demand services that are not limited by local infrastructure, allowing for immediate access to services from anywhere.

Technological and Social Barriers to On-Demand Innovation

  • Smartphones and data have not historically been utilized for remote on-demand services due to various barriers.
  • Trust, safety, and the novelty of live video have been limiting factors.
  • Time is needed for society to adapt and trust new forms of service delivery.

"It just takes time with trust and safety and cell phone penetration and now kind of familiarity with live video, it takes time for people to package these in interesting, more verticalized applications."

This quote emphasizes the gradual process of societal adaptation to new technologies and services, which is necessary for the acceptance and success of innovative on-demand models.

Venture Capital Influencers

  • Chris Sacca and Bill Gurley are admired for their unique contributions to venture capital.
  • Sacca is noted for his pattern matching, product instincts, and vision articulation at the early stage.
  • Gurley is respected for his analytical approach and focus on unit economics, avoiding hype cycles.

"Chris has extraordinary pattern matching at the early stage, incredible product instincts, go to market instincts, very, very helpful to seed stage companies."

This quote explains why Chris Sacca is respected: his ability to identify successful patterns and provide valuable guidance to early-stage companies.

Qualities of a Great Board Member

  • Empathy for founders is crucial for understanding the challenges of starting a business.
  • Low maintenance, preparation, and engagement are key traits.
  • Board members should know where they can add value and avoid overstepping.

"I think, first of all is empathy, right. Like have empathy for the founders."

The quote underscores empathy as a fundamental quality of a good board member, highlighting the need to understand and respect the founder's journey.

Personal Reflections on Missed Opportunities

  • Justin Kan acknowledges his biggest miss was not investing in Uber.
  • He reflects on the importance of assessing the potential beyond initial market size and focusing on the founder and product experience.

"It's a classic example of getting so hung up on market size versus focusing on just how extraordinary the founder and the product experience is."

This quote reveals a lesson learned from missing out on Uber: the importance of looking beyond market size to the quality of the founder and the potential of the product experience.

Biggest Issues in Venture Capital (VC)

  • The primary issue in VC is the excessive amount of money in the industry.
  • There are too many funds with little differentiation.
  • Excessive funding often goes to companies with non-viable core businesses.
  • This surplus of capital leads to unnatural competition and irrational company behavior.
  • Companies that should not be sustainable continue to operate because of easy access to capital.
  • The current state of VC requires more thoughtful consideration of competitive dynamics.
  • Justin hopes to see changes in the VC landscape over the next few years.

"Too much money. It really enables, I think there's too many funds out there. I think too little differentiation and too much funding for companies where the core business doesn't make sense."

This quote summarizes the central problem Justin identifies in the VC industry: an oversaturation of funds and capital leading to a lack of differentiation and imprudent investments.

Resource Round: Favorite Book

  • Justin's favorite book is "Grit" by Angela Duckworth.
  • The book discusses the importance of passion and perseverance for long-term goals.
  • Justin values the concept of stamina in entrepreneurs and partners.
  • He highly recommends the book for its insights into achieving success.

"Angela Duckworth. She is extraordinary. Yeah, she talks about passion and perseverance for long-term goals and stamina."

Justin praises Angela Duckworth's book "Grit" for its focus on the essential qualities of passion and perseverance, which he looks for in entrepreneurs.

Productivity Tips

  • Justin manages productivity by putting his phone away during work periods.
  • He follows Tony Robbins' advice on focusing on outcomes rather than activities.
  • Justin starts each day and week by asking himself three questions: what he wants, why he wants it, and his action plan.
  • This approach helps him stay goal-oriented and efficient.

"Tony Robbins talks a lot about becoming obsessed with outcomes instead of activities. I'm a firm believer in that."

Justin credits Tony Robbins with the productivity strategy of concentrating on desired outcomes and creating a focused action plan, which he applies to his daily routine.

Binary's Goals and Action Plan

  • Binary aims to be the leading venture firm in consumer tech investing.
  • Justin wants Binary to be the first contact for entrepreneurs and to be associated with top consumer tech companies.
  • The motivation stems from a passion for working with entrepreneurs who change daily life through technology.
  • To achieve this, Binary focuses on being prepared and aligned on investment themes.
  • They emphasize early-stage investment, avoiding reliance on traction at later stages.

"We want to be the preeminent venture firm around consumer tech investing. We want to be the first call for entrepreneurs."

This quote encapsulates Binary's ambition to be a dominant player in consumer tech VC and the preferred partner for innovative entrepreneurs.

Most Recent Public Investment: Recharge

  • Binary's recent investment is in Recharge, a company allowing luxury hotel rentals by the minute or hour.
  • The CEO, Manny, has articulated a vision for changing real estate consumption.
  • Recharge addresses the inefficiency of hotel room occupancy and offers new use cases for privacy needs.
  • Justin is optimistic about Recharge's traction and vision, particularly in the San Francisco market.

"Our most recent public investment is a company called Recharge. Fantastic entrepreneurs that allow you to rent luxury hotels by the minute or by the hour."

Justin explains Binary's investment in Recharge, highlighting the company's innovative approach to real estate and the compelling vision of its CEO.

Conclusion and Acknowledgments

  • Justin expresses enjoyment of the interview and looks forward to future discussions.
  • Harry Stebings thanks Justin for his insights and anticipates exciting developments for Binary.
  • Harry also provides additional resources for listeners, including his Snapchat and newsletter, as well as promotions for Headspace and Luma.

"Loved it, Harry. Really, really enjoyed it and hope to talk again soon."

Justin concludes the interview by expressing his pleasure in participating and anticipation for further conversations.

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