Finding Genius: Ilya Fushman, Kleiner Perkins

This interview was part of the research process for Finding Genius which can now be purchased on Amazon (https://amzn.to/2m7sXyE)

KM: The premise behind Finding Genius is to better understand the patterns and characteristics that exist between successful entrepreneurs.

In your experience working with companies such as UiPath, Robinhood, KeepTruckin, or Slack — does an entrepreneurial genius exist at the core of the founders you have backed, or is it something that they develop over time?

I don’t think you are necessarily born with a sense of ‘genius’, but the path you take in life is incredibly impactful.

We recently raised a new fund — Kleiner Perkins 17 — and during our research and preparation, we found that 70% of our founders were immigrants. That was not by design. If I look back at the people I’ve backed, whether it is Stewart [Slack], Shoaib [KeepTruckin], Eliot [Plastiq], Daniel or Marius [UiPath], there is a commonality between all of them that drew me to their individual genius.

Between them all, there is a commonality. In order to be a great founder, you need to take the right risk at the right time. I think having a ‘nothing to lose’ background or mentality, prepares you for that. You can be on two sides of that spectrum — You can be an immigrant that is willing to go back to a former situation or on the other side of the spectrum where you’ve done well from a family perspective and can lose it all.

You need that level of conviction to become a great founder. If you’re in the middle and have too much opportunity cost, you may not actually go all the way in, and the risks will hold you back.

Is this thesis or perspective based on your own personal experiences or an opinion that you think other investors in Slack or KeepTruckin held when they first met Stewart or Shoaib?

I’ll tell you about my path that leads me to this perspective. My family and I emigrated from the Soviet Union to Israel to Germany to New York in a matter of a few years. We left everything in the Soviet Union. We settled in Israel but then had to move to Germany because of my fathers job. Shortly after, we had to relocate to New York and we left everything in Germany because we thought we’d either move back to Israel or Germany after a brief period in the United States.

In New York, we crammed into a 1-bedroom apartment and I slept on the futon in the living room for all of those 5 years. This isn’t a sob story, but when I think back to the fact that I could have stayed in Russia, Israel, Germany or I could be part of the opportunity in New York, I still chose New York. The way I see it is I could have stayed in all of those situations but what I’m doing now is so infinitely better than even If I went back to that, I’d be okay. With that mentality, I’m willing to set it all on fire to a certain extent to go the bigger distance.

That’s the mentality that I see in the entrepreneurs that are doing really well. The majority of them have that. There is nothing holding them back and they know that if they fail, they know they’ll be okay. I think Immigrants exhibit that behavior because they’ve had to do that, and then there are others that just have that characteristic.

The second piece is adaptability. As a founder, you have to adapt to changes in markets, to changes in the team. So many great stories, like Slack, are pivots. Stewart’s successful companies were two pivots. That adaptability comes from an inherent ability to be okay with change.

The third part of it, maybe a by-product, is communication. The key thing I look for in founders is their ability to tell their story. If they can sell me, they can convince others to join them on this endeavor. Being the first employee at a startup is the riskiest thing to do. if you as a founder can convince someone to join you on this endeavor, you’ll be able to build that team, manage that team and train that team over time.

Adaptability, ability to learn, ability to take risks, the ability for storytelling, are the pieces I look for in founders. That is all the foundation for a great founder, and then frankly, it’s important to time it right — to be in the right market and at the right entry point.

All those things together result in the appearance of genius.

For every genius, there are those that had all those components but minus one and because of that, they were not successful. It may have been timing, not being able to build a team, or to take enough of a risk up to the necessary point. They were not willing to go the distance and have the willingness to set it all on fire, if they needed to.

As an investor that looks for that risk-tolerance, it is likely a challenge to respect that risk-loving attitude but to also at times need to reign it in from being too impulsive or reckless. As a board member, how do you work with founders to make sure they aren’t taking risks when there is not enough signal? How do you respect their genius, but also add structure around it based on your past experiences?

The way I think about it is that founders have to bend their risk curve over time. Meaning that, to start a company, you have to ignore everyone’s feedback. By definition of going after a big opportunity, it’s either non-obvious or someone’s done it and they believe it is impossible.

In the beginning, if you think of the big companies and best founders, they don’t listen to anyone. Drew started Dropbox at a time when you couldn’t define the market. It was USB drives to network attached storage. There were other companies that had been acquired by Microsoft that had tried similar things but weren’t big outcomes. You need to ignore the input, but slowly start paying attention to the market and what people around you give feedback on.

That’s important to me. Opening your aperture for learning and listening over time. It’s the same about building products. You have to be deeply opinionated about building a product in the beginning, but over time as your product user base grows, your users actually have a better sense of what they need. They can’t articulate it necessarily but they really will tell you if you ask them the right way of how you should build and change and evolve your product. You have to go from being opinionated and ignoring that feedback about a product and eventually taking that as an input to your process and change your trajectory

As a board member, I think of where in the life cycle in a company are we, or am I, with this team at any given point in time. Are we In the early days where I’ll sit back and let them drive and help them think critically about what’s ahead of them? In those cases, I’ll help them add to the team or build processes, but really I just let them drive and I’m sitting in the back seat. Then over time, it’s helping them think about what the next level of scale or opportunity requires. At that point, I’ll start injecting a bit more input to the process. Sometimes you can do that directly or sometimes you have to add to the team and that’s probably the more effective way to do that.

How has your perspective on founders or investing changed from when you first began in venture?

My background, which informed my perspective, is that I did a Phd at Stanford where I worked on Quantum Computing. I finished that and realized that I didn’t want be in academia anymore. I worked on a startup called Solar Junction with my Phd Colleagues. It was the world’s most efficient solar cell but also the world’s most expensive solar cell.

The company got acquired and I soft landed in venture for the first time at Khosla Ventures. I worked with Pierre Lamond, who is an iconic venture capitalist and operator like everyone else at Khosla. I realized, like I’m sure you do, that I loved venture capital and that this is what I wanted to do. But before building my career in venture, I wanted to go build something of scale to see what companies that grow and scale look like from the inside. I wanted to learn how they create value and transfer that value to entrepreneurs down the line. I was at Dropbox from 50 to 1,500 people and went to Index ventures after that. A year ago, I came over to Kleiner Perkins as a General Partner.

To answer your question, my perspective has evolved dramatically over the past 10–15 years. When you grow up in academia, you really focus heavily on the problem and the solution and a lot less on the people. Over this whole journey, my biggest realization was that it is really all about the people. When you talk about being thesis driven, I think about it as being thesis-informed.

When you’re truly thesis driven, you have a bias. You’re going to try to find the company that has the solution to the problem that you’ve identified, as opposed to finding the team in a space that you think is interesting that has what it takes to build something that’s big. That nuance is quite significant at the end of the day. When you get in to early stage investing, the investments are 80–90% based on the team.

Overtime, it’s still very much about the team, but you have more data to understand if the initial hypothesis on whether this market is playing out or not. You have more data around the product, the go-to-market, or whether the path the organization is taking is successful or not. You can be thesis driven at the later stages, but at the earlier stages you have to have a gut feel for people, which is what this book is getting at. How do you characterize that gut instinct.

Over the past 10–15 years, I’ve just tried to develop that gut. I’ve found that the best way to do it is to spend time with the most people as possible. One of the great things you figure out when you start managing people, you realize that not everyone thinks the same way as you. Inherently, when we start our careers we have our own biases and our own thought processes and we react to things a certain way and we project how we are on to other people. This is where the personality typing, which is not scientifically based, but it gives you interesting tools that someone thinks in another way than you, and what motivates in a different way than you, and that helps you understand both where they want to go, but also how to help them get there.

With founders I’ve interacted with, and in my own experience of launching a startup, they can be myopic about the problem and the solution they’re building to address that problem. Investors take a landscape approach and focus their efforts on getting smart on new areas quickly to develop an information edge. How do you inform your theses given your investments are in different sectors and spaces? KeepTruckin is entirely different from Robinhood or Slack, and it requires you to be ahead of the curve.

There are always nuggets of truth. Especially in early stage companies, there is a ton of noise and a lack of data.

So we want to try to find something that’s truly unique about a market or a company. For KeepTruckin, well, first of all, I knew the founder and we worked together at Khosla and the bet was frankly on him. But if you looked at KeepTruckin, the way they were going to go to market was similar to how Dropbox for business worked. They were building a free app for truckers with incredibly high engagement and it had insane NPS. It replaced their paper logs. Through that app, they were able to identify the fleets truckers were a part of. They they gave software to those fleets and will eventually sell more software/hardware services to them.

It was an incredible end consumer product with high engagement that lets you figure out a business go to-market that looked exactly like Dropbox for business. The next question was, around how big can this get even if it is working in a smaller segment of the market. It was clear that if you onboard people to the platform, they’ll be sticky, but can you get enough of them? That led me to research the trucking industry, the supply chain industry, the infrastructure behind it all, and understand that there is a trillion dollars of goods moving through trucking in North America. At the time, it was all pen-paper and if you built a highly-engaging product you’d capture the mindshare, eyeballs, and time, and you’d be able to deliver more products to that audience. That was the thesis-informed part.

With Slack, the DAU/MAU typical engagement metrics were through the roof and social scale, and the rate that Slack expanded within an organization was exponential. Getting into the door was straightforward, because it was a high-engagement product and you’d go wall-to-wall quickly. But the next question was how many companies would use this? In conversations and research, it became clear that every company could and would. To support that, you have Stewart who is a a repeat founder and a product genius, so it makes it a no-brainer investment even at a high entry price.

In each case, you look for a fundamental truth about how consumers engage with a product and how end-customers engage with a product. If you see high-quality around those metrics, you take a step back to look at the landscape in which the company is operating. With Robinhood, people are using it more than a game. You see that type of engagement and ask what is the macro situation at play here? It appeared that most younger generation people do not have trading accounts. They weren’t customers of Charles Schwab and weren’t loyal to their parents brokerage firms. In fact, money management wasn’t made exciting to them. The question was, can you get access to this app earlier in life and start their trading account journey earlier in a gamified way? Through this, you can become the on-ramp for their whole financial services future, because you’ve built this engaging experience. From there, it becomes a big opportunity fairly quickly.

How do you keep your thinking and perspectives fresh and free of investment biases? With venture, you’re prone to seeing businesses fail and as a result, entire industries go out of favor with the venture community fairly quickly. That’s happened with media, it’s happened with advertising-based companies, it’s happened with Virtual Reality. There are still opportunities in those spaces so how do you make sure your bias doesn’t make you miss a big winner in one of these sectors?

That’s harder. I have a bias against email because it’s a hard product to build, but I’m sure at some point, there will be a mega email company. This is why you enter venture in a partnership so that your partners can push you and you push your partners. You have partners that are less bias and can get excited.

Part of it is having the discipline to dig in. It’s very easy in venture to dismiss things as quickly as possible because time is your scarcest resource. In any situation where I have a bias, what I try to do, is to make sure that it came through a trusted referral, that there is something unique about the opportunity that makes it different from the stuff before that hasn’t turned out well, and it really comes down to the founders storytelling. Most of the time, founders have a unique perspective on something that the rest of the world thinks is very different.

Another example — a portfolio company, Nova Credit — it’s different if you meet with the founder, Misha, and if you hear the pitch peripherally. If you hear it second hand, you may write it off because of market size. The company is focused on credit for immigrants but there are tens of millions of immigrants and not hundreds of millions, so how will this ever be a big business? But if you look underneath the hood and realize that the number of times you need a credit report for an immigrant is 5–6 higher you need for someone that is native. So, your TAM is much bigger than it seems. Misha understood this. It’s easy to dismiss this off the back but here you need good judgement and make a judgement call.

Frankly, again, It comes back to people. You want to sit in the room and you may be ready to dismiss the idea, but then the founder gets you incredibly inspired by the entrepreneur and you dismiss some of the biases. I do think there are some businesses that are not venture fundable. Commodities, such as solar businesses, that can’t have premium pricing in the market and then needs a lot of capital to hit scale. Those two things together are very hard from a venture perspective.

And how would you keep your perspectives fresh with investing in founders? Do the characteristics change for you as you see more patterns emerge?

It’s easy to invest in companies with central casting. Central casting meaning — great pedigreed Ivy League, great business school, consulting, financial industry time, and then you’ve decided to build a company. By the way, those companies are easy to bet on because a lot of them become successful because you have a network of people to recruit from, you have the skills and knowledge base to become successful and execute. But a lot of them are not that because those people also often don’t have that risk tolerance we talked about.

We at Kleiner Perkins probably skew less to the central casting oriented crowd because we all have diverse backgrounds. My partners, Mamoon and Wen grew up all over the world. This is where the predispositions of the partnership come through in the types of people you identify with. We want to invest on the underdog founder.

The GPs at the emerging venture capital funds I’ve spoken with are focused on brand-building. They are preoccupied with thoughts on how to compete in a venture ecosystem where storied funds such as Kleiner Perkins, Sequoia, or a16z, win hot deals based on reputation. If brand building isn’t a concern for you given Kleiner is on fund 17, or maybe it still is, what are the concerns you have with the future of venture capital and your place in it? Is it valuations? Is it ICOs and pools of capital replacing the human element?

With ICOs, I think it’s difficult to replace the support that a venture capitalist, or at least the good ones, can provide with just pools of capital. At the early, mid, or late stage, it helps to have people around the table that have seen it, and done it, and can pattern match. These people can bring in resources. Am I worried about capital replacing investors? Not as much.

What I am thinking about often is the amount of capital in the ecosystem. As you know and probably hear often, there is more capital in venture than ever before. A lot of that is because interest rates are low, and people are looking for a return so they are willing to take higher-risk bets. I think we are seeing some megafunds form at the late stage and that capital over time, will trickle down. There is also a ton of capital at the early stage which has led to more entrants to the market. The early side of things, for us, is in some ways challenging because it creates a lot opportunities. There are probably ten times as many CEOs today as there were ten years ago, whereas the number of the Series-A fundings have remained fairly constant.

So, the bandwidth to prosecute that funnel has increased. You need trusted channels, you can be data-informed through algorithms and machines, but you can’t replace acumen or experience with machines. At the late stage, we are seeing pricing and later stage capital distorting round sizes and valuations so the Series A is becoming more competitive for our portfolio companies. That is where our brand is often an advantage. Entrepreneurs pick a partner, the firm and everything else that’s associated with that firm, and it’s not just about them or the fundraising, but it is also about them building a team. I’m excited about being at Kleiner Perkins because when a CEO we’ve invested in is hiring an engineer, and that engineer is further in their career, the name Kleiner Perkins means something to them, or their family and that is something we can transfer over to the founder/CEO.

That being said, I think too many people overthink venture. This is back to thesis driven. A lot of people get into their head and try to predict the future, eliminate all risk and back to risk-taking, it’s alluding to the Gretzky quote, you don’t make money on the deals you don’t do. This is something we think about is can you pull the trigger on a deal as an investor. That’s what sets apart good investors from the ones that are not, is getting the deal done. This is something we work on and relates to your questions around risk taking and biases and overcoming those.