TCT Exclusive: Zak Kukoff, Emergence Capital
Here at The Cap Table, our mission is to help you get (and stay) on the capitalization table
We’re thrilled to announce this week’s exclusive with Zak Kukoff, Associate at Emergence Capital! Named a venture capital rising star by BusinessInsider in 2019 (Meet venture capital’s 25 rising stars in Silicon Valley), Kukoff has quickly risen within the venture and startup scene. Kukoff began his career at the ripe age of 16 (TechStars Boulder participant) and worked as an operator before joining Emergence Capital in 2018. With experience as a founder, operator and institutional investor, his cap table knowledge runs deep. We discussed:
Operator to investor: the long feedback curve ↩️
The meaning behind Emcap’s Coaching Networks thesis 📖
How deal flow has changed in 2020 🌏
Secrets for getting on the cap table ⺇
The State of Venture Capital in 2030 🔮
TCT: Thanks for sitting down with us, Zak. Let’s jump in.
How did you start out with regards to your career?
I started my career relatively early -- I actually started an EdTech startup at 16 that I took to Techstars Boulder back in 2011. I didn’t have a lot of exposure to tech growing up, and so my company grew out of a state science fair project that I had presented. Perhaps unsurprisingly, the company I started at 16 didn’t become an iconic business, but it radically expanded my horizons and opened me up to the previously unknown world of tech.
During undergrad, I helped run Dorm Room Fund, which is First Round Capital’s university-focused venture fund. That was some of my first exposure to venture capital as a career, and I loved the experience. I recommend Dorm Room Fund (or similar programs like Rough Draft Ventures) to any current college students.
After graduating, I spent a year at Flexport while we grew from ~200 to ~700 employees. There’s nothing like spending time at a mid-stage, high growth startup early in your career (it’s widely-repeated conventional wisdom for a reason). Every day presents new fires to put out, and for someone young and ambitious that means you can decouple your career growth from time served. But despite the explosive growth, when the opportunity to join the team at Emergence Capital came up I knew I had to take it.
You transitioned from operator to investor. What’s been the biggest learning curve to date?
A number of people talk about this, but the biggest challenge transitioning is the long feedback curve. In operating, there’s often an immediacy to your work that enables compounding learning: you can make small course corrections quickly and steepen your growth curve over time.
By contrast, venture is a series of cascading unknown unknowns: you write a check, and then you wait. If you’re an early investor, you wait years! And often there’s not as much as you’d like that you can do to influence the outcome of your investment. Learning to recalibrate has been a challenge.
You’re currently an Associate at Emergence Capital. Tell us about your experience so far. What has been the most challenging aspect of the job? What’s been the most rewarding moment to date?
I’ve been at Emergence for about two and a half years now. Consistently the part of this job I love most is the exposure to incredible founders. Almost every day I get to meet incredible people -- intelligent, ambitious, thoughtful -- and engage in deep discussion with them. The ability to sit with someone and truly understand their vision of the world -- to dream with them -- is a pretty rare thing. More often than not, it means I get to be the dumbest guy in the room. But, the most challenging aspect of venture is part and parcel with that: by the very nature of our business, we’ll meet hundreds of great, credible founders over the course of a year. And we’ll invest in 6-8. So after meeting an incredible founder, engaging in deep discussion, and seeing their vision of the future, we’re still turning them down in the vast majority of cases. It’s a challenging mindset to build comfort with.
“Approach every situation with empathy” is your tagline on the Emcap website. What was your inspiration behind this, and how does this tie into your work?
I remember what it was like to raise capital as a founder. I was lucky to meet and work with both great, high quality investors as well as investors I was less impressed with. And I remember how hard it was to raise from some investors who clearly had no empathy for the founder experience. When I joined Emergence, I knew how important it would be to create a white-glove founder experience -- both for our portfolio (of course) and for the vast majority of founders we’ll meet who we won’t end up working with.
And by the way, that’s one of the reasons I think diligencing investors is so important. I encourage every founder I meet to backchannel their potential investors -- and to put an extra emphasis on speaking to founders whose companies didn’t work out. This is where you can get a good sense for the level of empathy a firm approaches their work with.
We’re seeing a lot of exciting progress across developer tools and the future of work. What specific areas excites you the most?
I’m really excited about a thesis of ours called Coaching Networks. Imagine AI that augments the ability of humans to do their work instead of replacing them. Instead of pure automation, we think the future of work involves applications that learn from the most creative, effective workers and then distributes those insights to an entire company. GPT-3 is still incredibly early, but many of the most interesting demos folks have built on it have converged with our longtime thinking on this.
There are some nice intersections with what some are calling the passion economy here as well. You can imagine a future where the best guitar teacher in the country can run a semi-automated class with dozens of students: the instructor might watch all, let the Coaching Network help a few, and pop in for direct instruction for the two or three students who need it most at any given moment. And of course, we think the future of work will continue to center around our investment Zoom.
Since making the shift to a remote-first culture, what’s been the best source for deal flow in 2020 so far? Has anything changed or is it still the status quo?
More broadly, enterprise investing is moving from the world of retail politics to that of mass communication. 15 years ago, it was possible to know and meet the index of possible enterprise founders: they were VPs and Directors at a finite number of B2B companies based in the Bay Area.
Today, by contrast, there is an exponentially higher number of founders starting B2B companies. This is unequivocally a good thing: it means we have more founders from more diverse backgrounds working on making us happier and more productive at work. But, it presents a challenge for VC firms accustomed to knowing the index of B2B founders: it’s no longer possible to rely on a 1:1, retail politics approach to sourcing.
As a result, many VCs -- myself included -- are taking a different approach to sourcing. If you can’t possibly know the index of potential founders, you can build a brand large enough that they can know you. The VCs who are successfully running this playbook (on Twitter, via Substack, or otherwise) are only better suited to thrive in a remote-first world.
What KPI’s and metrics have you de-prioritized (or thrown out altogether) for 2020 when it comes to assessing how your portfolio companies are performing?
I think we’re certainly encouraging a move to sustainable growth, particularly for startups in industries negatively impacted by COVID. But on the whole, COVID has been an accelerant for many of our portfolio companies, and so between that and the generally favorable funding conditions, we’ve encouraged our founders to think of this less as a moment of anxiety and more as an opportunity to build the right foundation for long-term success.
Veeva is a great example of what I mean. Peter (Gassner) founded Veeva in 2007 and we invested $4M in the summer of 2008 -- possibly the most difficult time to start a company in recent memory. But Veeva was architected to run leanly and profitably from the get-go, and so they were able to thrive during the last recession. They went public after raising just $7M in total. And by the way, they’re about a $40B company today.
What are you passionate about outside of work?
I’m a pretty voracious reader -- I try to be midway through a book or two at any given moment -- and I’ve recently started a book club during COVID with newly-distributed friends. I made a conscious decision to read fewer business books starting this year which has been a really nice change for me as well.
Normally I’m a big foodie and love exploring cities (before SF, I spent a little over 4 years in New York). I’d love to be able to say I’ve transferred my love of eating out into a love of cooking, but that would be a lie.
What are your favorite productivity tools you use on a daily basis?
I’m a huge fan of CommandDot. Think Superhuman for scheduling -- which in venture can be a huge timesuck. It provides the efficacy of Calendly with none of the signaling challenges sending a Calendly seems to create.
A genie says “I will grant you one wish. You can join any cap table you’d like for free”. What cap table would you join and why?
It’s probably a cliche answer to say Stripe at this point. Perhaps more interestingly, there are a number of incredible consumer businesses that I’d love to be on the cap table of. I think about a brand like Drunk Elephant, with great customer loyalty and average basket sizes, which sold to Shiseido for $845M in 2019 as an example.
Speaking of, what’s your secret for getting on the cap table?
In early-stage venture, personality is a competitive advantage -- particularly at a junior or mid level. The biggest failure mode I notice among my cohort is irrelevancy: if you’re a commodity player, there’s no reason to work with you in an increasingly competitive market.
As a firm, I think we have some structural advantages when we look at a deal. The whole firm focuses on B2B, and even within B2B we’re thematically driven, so more often than not we come to a deal with a strong prepared mind. Market conditions today make spending a significant amount of time on any given deal a luxury, so coming in ready to build conviction is a substantial advantage.
On the flip, what’s your biggest cap table “mistake”?
We have an anti-portfolio a mile long full of phenomenal investments that I know stings.
And the truth is that one of the challenges of a highly thematic model can be overlooking companies that deviate from our prepared mind. It’s a constant balance between investing against our theses and yet making sure we’re not overlooking companies and themes that might be the next Zoom. But I’m an optimist, so I like to think we’ll learn from our past and continue to make new and better mistakes every day.
The year is 2030. What’s the state of Venture Capital?
I covered this a little earlier, but I think more broadly venture is going through an interesting moment right now. There’s been a lot of talk about solo capitalists and operator-angel funds springing up -- and those certainly aren’t going away. But when I think about what venture might look like in 10 years, I don’t know that I see a landscape dominated by individuals. Instead, I think we’re living through a moment of institutional change. The institutions that are likely to dominate will look different, be run by different people, and (hopefully!) be more inclusive of those from different backgrounds. But fundamentally, they’ll still be institutions. There are just a number of structural advantages afforded to investors who have a platform around them that can be much harder for investors who work alone.
And so I hope venture remains competitive with a number of new funds and institutions competing to invest in great founders. Ultimately, that’s a huge advantage for founders. But despite our current individual-driven moment, I’d be skeptical of anyone who thinks institutions are going away here.
Thank you for your time and thoughts, Zak. We look forward to the continued success of you and Emergence Capital!
Follow Zak on Twitter (@zck) for more insights into Venture Capital, Enterprise SaaS, startups, and more!
Deal News 8/29-9/4
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