Meet My Mentor: Lessons From Veteran Venture Capitalist & Entrepreneur Jed Katz of Javelin VP

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July 15, 2021

On this week’s episode I chat with Jed Katz, Managing Director at Javelin Venture Partners. Javelin is a premier VC firm that has invested in a ton of successful companies including a bunch of unicorns like Master Class and Thumbtack.

Now, this episode is a bit special for me because Jed gave me my first break into VC back in 2006. He’s been a long time friend and mentor, so much so that I thanked him for all that he has done for me in the opening of my book.

Though Jed might not like it, he’s a vetern venture capitalist and entrepreneur. Before helping to start Javelin over 12 years ago, he was a successful entrepreneur that navigated the craziness of the dot com boom and bust era, eventually landing a $1 billion acquisition of his venture Move.com

During our chat we discussed how Javelin operates, the current state of the VC world, the political implications of social media, important lessons he’s learned from both the VC and entrepreneur perspective and much more. Enjoy.

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Transcript

MPD: Welcome Jed.

Jed Katz: [00:02:16] Damn good to see you. I don't get enough for you

MPD: [00:02:22] if only everyone said that. Uh, so I'm going to start this off by, do you sing you? Uh, so people have a lot of color. I'm sure I'm going to miss lots of goodies. Um, but give people a little color on your background so they know why we're talking and then we'll dive in.

So Jed Katz is the managing director as one of the managing directors at javelin venture partners. For those who don't know javelin, they are a San Francisco based series, a focused venture capital fund with hundreds of millions in our management. We'll get into that a little bit. They've invested a bunch of well-known companies.

A couple of you might know our masterclass and Thumbtack, and Judd's actually wearing his Thumbtack shirt today is they announced a huge mega round, uh, as a unicorn unicorn valid evaluation. Uh, I have a particularly soft spot for Jed, which we'll probably talk about. He is one of the people who gave me my break into venture capital back in 2006.

So he's been a material part of my career and my story. Um, I actually thank him, I think at the acknowledgements, in my book, uh, before moving into VC. Chad was the co-founder and COO of rent out@amove.com to connected companies tap in during the real startup boom pack at the turn of the century. And they were real estate sites, right?

It's been awhile, uh, that not only went public, but ultimately were acquired by HomeStore for a billion dollars. So he has successful entrepreneurial experience and a long track record as a VC. Chad, what did I miss?

Jed Katz: [00:03:48] Uh, just one correction. We were, uh, we were actually taking, moved.com public when the market fell apart.

So we kept building it for a year and ultimately merged with realtor.com uh, about a year after that. Ah,

MPD: [00:04:00] got it. Okay. But you've for the folks listening, you've seen the journey and you experienced the boom something, that's almost, it's almost out of a psyche of the startup community, that the 2000 era, which was the topic 10 years ago still got it.

Jed Katz: [00:04:15] That's true. Uh, look, that was, that was half my career was, was building companies and it was an exciting time. And, um, you know, a part of me certainly misses that it was really fun to build something from scratch and manage a lot of people and, uh, do things that were never done before. Uh, back when there were a few experts on the internet, it was fun to be one.

MPD: [00:04:37] Well, after we covered javelin, maybe we could spend a few minutes catching up on that. Some of the things you learned. Um, so why don't we start in, do you want to give us an overview of javelin

Jed Katz: [00:04:47] happy to, uh, javelin is wow. It's 12 years old now, amazingly, uh, we've done five funds, almost a hundred investments, and we are really a late seed early a investor.

So we're writing checks from one to 5 million. I think our average is probably closer to 4 million actually. Uh, we've gone as high as 10. Pretty rare circumstance. Um, and, uh, we'd like to be the first institutional cash in and the closest partner to a founder for a decade for however long, it takes for that company to become big and have a great exit.

Uh, we're all former founders. So we tend to invest in things that we'd want to be building if we weren't investing. And, um, I have a lot of fun, just helping founders figure things out along the way without the drama and distraction that sometimes comes with other investors. So we just problem solve and build and brainstorm and help recruit and help raise money and help make smart decisions from a strategic point of view.

Uh, and, uh, you know, with the whole crew has been together a long time. So we, we gel well here. Uh, the process is pretty efficient. We tend to act more like founders than we do, like. Most VCs and, um, uh, you know, we're, we're excited. We think the portfolio is really good. We think the, um, the relationship with our founders has been fantastic and, uh, you know, we're, we're, we're excited for the next.

MPD: [00:06:12] That's great. Can you give us a little color on the investment strategy? You can get a little real, you know, one of the challenges that entrepreneurs face is all the websites look the same, but they're not the same firms. Aren't the same. That thesis is, are different. Um, what do you guys do? What do you look for?

What are

Jed Katz: [00:06:26] you, so I guess I could best characterize it as signal before traction. So, um, sector is actually one of the last criteria we use. Um, You know, we're, we're good at certain sectors, we do a lot of marketplaces and SAS and some consumer and some healthcare, it, some FinTech, uh, but that's not our first criteria.

We first look at the, the founders. Uh, we tend to invest, you know, again, signal before traction, when they've they've accomplished something, there's something there there's the product that's been built. There's early usage of it. People are sharing it. They're liking it. They becoming addicted to it. Or there's early customers who can get a feel for their sales cycle or their pricing, or.

How big was sinking gut, but really it comes down to do we see this amazing spark in this, in this founder or the founding team, their ability to build something that's really hard to do. And then we'll be really hard to compete with their ability to recruit and raise money and, uh, see the forest and the trees and, uh, you know, have a great relationship with the people around them, um, to have a ton of grit.

And, and are just, are a pleasure to work with very intellectually honest. Uh, and then we, we look for businesses that really have an unfair advantage early, you know, whether it's a kind of distribution, cheat sheet or a, a, a, you know, a way to, uh, uh, get a customer base that no one's been able to do before or a product that's, uh, you know, really hard to build.

Um, you know, markets have to be in the billions, uh, the mode has to be. And we want to invest in companies that are not just going to be bought someday or, or be valued someday based on some multiple of revenue, but, but really are building much more strategic value than that. So that, uh, whoever we're to ultimately acquire them, if that's the path to go down, has to have them can't imagine their competitors having them and probably can't do what they do if they didn't acquire it.

We've invested in a wide range of companies. If you look at our portfolio, it's, it's, it's kind of all over the place. Uh, but the common theme is, you know, these, these are businesses that are, are capital efficient, highly scalable with, uh, founders. We want to spend a decade working with and, uh, you know, that's obviously a two way street.

They have to really like the relationship with us and feel like they're getting a lot of value from us the whole, the whole day.

MPD: [00:08:51] So there's in VC. Everyone knows there's a handful of different things. People invest in, right? Some people invest in teams, markets, products, barriers. That list sounds like you want it all.

What would you say the not necessarily is that the answer? What's the, when you look at a company, will you, if that, if the is incredible, but it's on the com, is that a deal for you? Or if you kind of have a gun to your head and have to make some tough choices, what's the most

Jed Katz: [00:09:18] important, so you never get it.

You never get it all. Or maybe phrase differently. You don't have a crystal ball, so you don't know if you can get it all or not. You see some of it, you see signal for some of it that it can do. Or that, uh, you know, future innovation will likely happen. So whatever the core product is today, we'll expand into a bigger core product or, or additional products.

And, um, uh, yeah, it's hard. I mean, I think at the end of the day, the founding team is the, is the most important. I think some of our biggest mistakes in the past were where we knew the founders were winners, but couldn't convince ourselves on the business because it didn't. No, not that it didn't check one of the boxes.

It actively was against one of our core philosophies, but we still should have done it because, because the founder was so damn good and would grow and learn and adapt and, uh, you know, build something amazing through the years. And so founders definitely come first. Um, you know, there's tenants we don't like to violate.

And so, uh, We're probably more right than wrong when we, when we walk away from something, because it, it, it broke a key rule of ours. And I think, you know, the best example of that is intellectual honesty, right? If we are talking to somebody over a period of a couple of weeks, as we're getting to know them and the business, and, um, whatever they're saying is coming across as not valid, or they're kind of making it up as they go.

And they're not saying when they don't know something, they're just trying to fake it. That'll come across and that's a real turnoff for us. So I think that that's served us. Um, but, uh, you know, again, there's, there's no crystal ball. We, we, we tend to go very much with our hearts at the end of the day on if we want to spend the next decade building this business.

And, and at least one of us has to be banging their fist on the table. There has to be kind of an emotional component to this where they, they really have to do this deal. And. We tend to do those deals and we tend to walk away from the deals where one of us is banging their fist on the table saying we are not backing that, that founder for whatever reason, um, those assessments for us,

MPD: [00:11:25] what are some of the other tenants he referenced?

Do you, I mean, do you have a list of like a 10 commandments?

Jed Katz: [00:11:29] You guys follow? Uh, we don't, um, we have a whole list of criteria like that. I wouldn't, I wouldn't label it that the 10 commandments, but the, um, you know, just the. Again, it's kind of the earliest signal we're able to detect. So their, their ability to get people to join them early is a big one, right?

Will people bet their careers on this idea and this founding team before there's cash in the bank before you have your first customers before anything, you know, have you, have you convinced others? They want to go on this journey that they should go on this journey with you, right? That's a big one. Um, there's easy things to check off, right?

If the market size is not in the billions, it's not something we're gonna. Right. If, if scalability isn't really possible here, it's, there's just too many moving parts and there's going to be too much friction. We'll walk away. Um, we love to invest in things where it's possible to win the war before you fight the battles.

And so, you know, I think you mentioned, uh, masterclass before. Yeah. That's, that's a great example of that. Um,

MPD: [00:12:29] what is that, that match that criteria what's most people don't know the history and the strategy there. How did they win before they started?

Jed Katz: [00:12:36] So the bed at the time was, you know, we, we invested before they had actually released their first class, but we saw the film.

We saw the, the end production of the first class before they launched it. And it was, it was beautiful, right? Hollywood level production. It was actually the James Patterson class that we saw. And, um, the bet was that if they could get enough of these masters, usually celebrities early to film these classes.

And really some as the library would start to grow. It would become a thing that the rest of the A-plus celebrities and masters out there would want to be a part of for legacy for brand. They want to be known as the best of the best. And if you can get that flywheel going, it's going to be incredibly hard to compete with.

And so really the trick was just getting the flywheel going. Can you get those early celebrities to do it and make the production value so high that the rest of them want to do it? If you can do that, it's going to be, uh, you know, your mode is going to be drawn. And, um, you know, we, all, the other criteria was what was hit here.

We love the founders, so fun to brainstorm with, um, so willing to both take and give feedback and, uh, uh, and, and kind of endearing, I guess, is a good word as, as an entrepreneur. I mean, he was able early on to convince the initial celebrities to film classes, which was amazing to us because they hadn't even launched.

MPD: [00:14:01] So that was your, your signal is that the celebrities were saying, yes,

Jed Katz: [00:14:05] that was one of the keys signals. We loved the model. The quality was great. Um, we, we thought there would be one winner here. We thought that if you can become a place where you can learn from the best of the best being a second place, you know, copy of this was going to be almost impossible.

And, uh, uh, you know, that was the.

MPD: [00:14:27] It sounds like you were pretty red on that one. Hey, why pick your firm? You talk about building a team, the company with the entrepreneur. And I like that language because it's very true to you having known you for so long. It sounds a lot like you're picking co-founders and you happen to be a capital partner at this stage in your career, but you as a serial entrepreneur, it sounds like you're just kind of seriously go through launching companies again.

So

Jed Katz: [00:14:49] you're certainly go ahead. Yeah. Why pick

MPD: [00:14:52] your firm? Why are they, why do they choose Java? Over everybody else.

Jed Katz: [00:14:57] So you're, you're certainly choosing partners. I wouldn't, I wouldn't call them co-founders because the companies are theirs. Right. It's, it's very important to us that it is, it is your company.

We're going to give you lots of advice and brainstorm with you, but these are your options. It's your company, your building. Um, but we're going to be your partner and we want you to have the same good relationship with us a decade from now, as you did when the, when we first invested, uh, I think you choose us because, uh, we, we have a lot of empathy for what you're going through the ups and downs and just the pure difficulty of building a highly scalable startup.

It is very, very hard. There are constant challenges that you need to work through and talk through constant need to recruit great people and raise more money, do complicated biz dev deals, et cetera. And, um, I think you choose us because we've been there. Um, you can call any of our founders, uh, whether the company has worked out really well or not.

And they should say the same thing about us, which we've been a great partner from start to finish. Um, and. You know, I think the culture of, uh, of javelin is just really just, how can we help you thrive here? Uh, we I'll end this segment with, uh, we really try to avoid drama and distraction and we, and that includes guiding you on other investors are going to come after us.

So who's ever going to lead the series B, C, D whatever. And so, um, you know, we, we will give you a lot of, you know, now 12 years of wisdom on, on who. Might be a great other partner to bring in down the road. Who's going to be super helpful. Um, give you advice based on context and, uh, um, also be super friendly and fun to work with.

MPD: [00:16:45] You know, that's a big deal because I know you guys take board seats, right?

Jed Katz: [00:16:48] Almost always, almost

MPD: [00:16:50] always. It's very hard. I find for some VCs to really maintain strong and healthy relationships with the founders when they're on the board in particular, because it creates. Tensions challenges, complications.

What, what has helped you guys and maybe some advice for other VCs and entrepreneurs listening to kind of keep the peace and stay human and keep those healthy relationships while you're in the pressure cooker of a boardroom?

Jed Katz: [00:17:18] No, I think there's an attitude that we're in this together, that the challenges that come up are just problems that need to be solved.

It's you know, shouldn't be anything perfect. We should be able to give each other feedback along the way and then go out and get a beer afterwards. Um, and if, if any friction comes up, we'd like to deal with it immediately in a way that keeps everything super friendly. Uh, it's crucial. I think there's a lot of investors out there that, um, they kind of have the attitude that the entrepreneur works for them and they can boss them around a lot.

And, um, when we see that it's, it's such a turn off to us as a, as a potential candidate. I can only imagine what the entrepreneur is going through. And so we try to be kind of the opposite of that. And, um, you know, there are times when entrepreneurs do something that is frustrating to us, uh, that, you know, of course it happens all the time.

We're, we're all human and we'll just talk it out and try to give advice and try to make sure, you know, there's lessons learned for the future, but we will never do it in a way that that is us coming down hard on them. Um, you know, we really try to avoid any situation. So

MPD: [00:18:25] your firm's a little unique and I know some stuff that, um, I think will be interesting for other VCs to learn about a lot of firms.

The natural cadence of development is maybe their first fund. Sometimes there's a lot of small checks from friends. Sometimes it's a rich uncle, that type of scenario, the second fund, they go out and they get a diversified LP base. And that's usually a pretty gauntlet cycle because you got to convince 50 or a hundred people to trust you with their money.

Which is really hard. And then there's this growth in institutions that kind of continuously back you. Now, if I'm not mistaken, javelin started out for an first number of cycle of funds, a number of them with a single LP. Those were large funds.

Jed Katz: [00:19:07] How did that? It was a small, uh, uh, kind of extended family office.

Um, how did

MPD: [00:19:14] that change the dynamic for the firm and building, what did you learn from that? Or would you recommend that to other folks?

Jed Katz: [00:19:20] What'd you think? Well, yes. I mean, I think, uh, you know, it's, it's, it's hard to do, but it allowed us to focus almost a hundred percent of our time on finding and backing companies and helping them succeed.

And, uh, you know, fundraising can be all encompassing. It can take so many hours. And so, um, you know, that was a huge advantage for us over the years. And, uh, uh, you know, I think it was a big advantage to the LPs as well. Uh, because the, the, you know, the, the firm, they backed were able to spend all their time doing their job.

Right. And, uh, um, you know, obviously there's risks that's associated with that because you're, if your LP base is less diversified, um, you know, you'd better make sure you're keeping them happy along the way. Right. So, uh, but you know, but honestly it's the same risk as having a group of LPs. Right. Cause they're all gonna look at it the same way are the returns.

They are, they happy with the companies you're backing and with the, you know, the way javelin is growing as a firm, And, uh, you know, luckily it's worked out well.

MPD: [00:20:21] So you guys have been running at this for 12 years, uh, and I'd say you've had a hell of a lot of success. What were the biggest challenges you faced for other venture, you know, would be venture, capitalists, listening, maybe something you learned about building the VC business.

People always talk about entrepreneurs and VCs, but species' species kind of our entrepreneurs are building a firm to company

Jed Katz: [00:20:42] every year. I say, well, you don't get good at this job until, you know, you've been doing. Five years or 10 years, or now 12 years. It's like every year you learn to pattern match a little better than the year before.

Right. And, um, and you learn, you know, your network expands, you learn, uh, you know, who are good debt partners who are good series B and C and D partners who to avoid, who, um, uh, you know, what, uh, what recruiting infrastructure should you help set up? And who's a great type of VP of engineering and who isn't you learn all these things after doing it for so long.

That you didn't know in the beginning. And so in the beginning, you're really hoping to just invest in great companies and help any way you can, but, you know, the, the amount you're able to help will only increase over time. Um, the biggest advice though, I would give to younger VCs or at least, uh, earlier funds would be patients would be, um, you know, every, everyone that comes in and pitches any deal.

This sounds so good. They've worked on their pitch. It sounds exciting. They've, you know, they're pitching it. Well, it sounds awesome. Let's do it. And you got to get really good at turning down good deals and, and being patient and waiting for the great ones. Uh, and, um, it's hard to do it first because until you've seen kind of thousands of deals come through, uh, you don't really know early on.

The difference between good and great. It takes time. And so to the extent that you have a lot of patients early on and save your capital and have it ready for when that deal comes through, that just blows your mind. That's the best thing you can possibly do early on.

MPD: [00:22:30] That's great advice. Let's flip over to your entrepreneurial journey.

Could you give a very quick. High level recap of your story. I know you, you started your first company, uh, entrepreneur journey at, uh, at business school, right?

Jed Katz: [00:22:44] While you're at Berkeley, really fortunate to go to, uh, Berkeley for business school at a time when the web was really just beginning. So this was 94 when I entered.

And, uh, I, you know, I literally got my. Email account when I started business school and two months later I started renting out and, um, you know, I was, I just learned about the internet. I had just learned what the hell HTML was and started learning how to code and HTML 1.0. And, uh, um, My partner and I started renting out because we thought that this was a great use of the internet, right?

You're always looking for a place to live, uh, sometimes from a different city or state. And it's just really hard to do long distance. So what if you could look at photos and floor plans and ultimately virtual walkthroughs and search on, you know, narrow it down to a good apartment for you. And so we built it and, uh, It became clear in, in under a year that there was something here, you know, this was going to catch fire.

And so we started hiring people and hiring reps around the country to visit all the larger apartment buildings and inside reps. But the biggest thing we did or I did at the time was, um, was. Benefit from, uh, using rent net as the focus of all my projects in business school. So I had teams of consultants, basically free consultants helping me work through some of the stuff as we, as we tried to build this, um, almost dropped out of school.

Uh, but, um, the Dean convinced me to stay in actually, and I was able to get it done. Um, retina ultimately evolved into move.com where. Moved.com, added homes and relocation services and mortgages and all that. And became one of the two big real estate sites at the time. The other one being realtor.com. And, um, uh, again, we, we built that, um, honestly, a little too fast and added, added people.

You know, we were about 160 people when we turned it into.com and it grew to three 50 and under a year, and that's just, that's just way too fast. And so there were cultural facts, but, uh, we were also trying to take the company public at the same time. You know, it was, my head was on, it was just spinning trying to get everything done.

Uh, and then 2000, um, or, uh, what was this, uh, March of 2000 when the market fell apart and we were literally on a roadshow. And so we just kept building the business, um, which ended up being a really good thing for us because it was, uh, uh, uh, just the, this has worked well, uh, right. Yeah. You got the real

MPD: [00:25:04] fundamentals, which is not common at the time for everyone going public.

Jed Katz: [00:25:08] And so we were able to do it. Pretty big merger with realtor.com and, uh, February of oh one about a year. Is that

MPD: [00:25:16] correct? That was about a billion dollar transaction. Right, right. That's right. So what did you, what are some things you learned and, you know, cause you kind of are old school at this point.

Entrepreneur got some OJ entrepreneurship going on here. You know, there's probably, I don't know, you're like it either, but it's true. There's probably some lessons you learned that were different way of doing business back at the time that maybe apply today, but aren't used as commonly customer acquisition.

Anything jump to mind that you think was like a particularly,

Jed Katz: [00:25:48] honestly the tactics are different, but the, but the, um, you know, the fundamentals will always be the same. I think the, uh, you know, as I say, We were so aggressive about, about sales and building our brand and being, um, being in front of the potential customer.

So often that when the salesperson came by to do the sale, they had, they already heard about us, knew about us, knew their competitors were using us. And honestly, it was like a hundred, almost a hundred percent hit rate for our salespeople. And so we create that

MPD: [00:26:18] awareness. What was the, how did you suffocate people with information

Jed Katz: [00:26:23] at the time?

It was a lot of, um, Believe it or not mailings and, uh, but really high, higher end ones. And it was, it was, um, you know, a lot of sales visits and phone calls. It was ads and all the trades, it was, um, building, it was a lot of PR, right. Just to get the industry talking about us. And really there was a bottoms up approach too.

So we would get the leasing agents to be aware and, uh, and. Move it up the chain. Uh, so that the management company is that owned, um, you know, or managed a two or 300 or 400 buildings would hear about it from so many of their leasing agents. That by the time we pitched them at the top level, they were already convinced.

Right.

MPD: [00:27:05] Any, any thoughts on the direct mailing? I feel like that's fallen out of most people's toolkit. Yeah. I heard a stat. I don't know if it's true. 60% of dollar venture capital dollars raised are dumped into social media ads at this point. I'm sure that's wrong, but I know it's a lot.

Jed Katz: [00:27:20] Well, look, if you're emailing no longer

MPD: [00:27:22] relevant, is there an angle there is it under utilized

Jed Katz: [00:27:27] amazingly, it's still a huge industry, but it, but look, if you're going to the consumer direct, then you're going to find a much better ROI online without a doubt.

And there's lots of ways to do it. In fact, one of the best ways right now is actually OTT. That's where we're getting great returns for a number of our companies. That's just, uh, it, it's more trackable. Video ads on, on video content that you're streaming, as opposed to just, uh, you know, is there a place you'd like to buy those?

Where are you guys shopping? That's so that, that's more of a question for our portfolio companies on who they're specifically using to buy those. Um, uh, so I can't really advise you there. Um, but if you're going up their businesses and especially, uh, you know, if you know who the decision maker is, And especially if it's SMBs, um, sometimes it's, it's actually harder to get them through, through whatever online thing they're doing because they're there.

Um, it's just gets noisy, right? They get so many emails and so many, so many ads in front of them every day that if you can do something different, that's more of a, a thing that pops out at them for some reason. You know, again, that's also a longer-term branding exercise. So if you can do this, uh, uh, several times, so by the time someone's trying to make the sale, it's it's in their mind, it might be a combination of offline and online.

Um, but I wouldn't do, I wouldn't do offline things that are just kind of cheap and flimsy and something. They're just going to throw away immediately. If it doesn't pop out, it's not going to be worth any money.

MPD: [00:29:00] So you're, you were COO of that company and I've always known you to be very operational in the way you think and operate and function, or is there a particular advice you would give to the entrepreneurs listening who are in the COO seat?

Everyone's talking to the CEOs. What does a COO need to hear to kick butt

Jed Katz: [00:29:22] the COO for the most part? Running the company, the CEO has so many other responsibilities, you know, in terms of the top recruiting and fundraising and PR and, um, you know, the strategic initiatives, the COO is doing kind of the day to day tactical making it happen.

And, um, they're gonna need great lieutenants. They're gonna need a lot of support. They're going to need great resources. They should have, um, mentors of other of other CEOs that they get together with and kind of compare notes. They need to be very detail oriented and tireless, and they have to build fantastic tools to track everything that's going on in their business.

So that software helps them be a lot more efficient. And I think you mentioned Thumbtack earlier. I mean, I'm talking in particular is so good at, a