Sandy Kory, co-founder and managing partner of Horizon VC, joins Vlad Cazacu, co-founder and CEO of Flowlie, to discuss his transition from serial angel investor to a $44M fund manager.
From his daring investment in Palantir during the 2009 financial crisis to the challenges of managing larger seed rounds in today's market, Sandy shares invaluable insights that every aspiring investor should hear. Stay tuned for some rapid-fire questions revealing a surprise interaction with Elon Musk, and discover why trust is the cornerstone of fundraising. Don't miss this riveting conversation!
You can find Sandy Kory on Twitter at https://twitter.com/sandykory and learn more about Horizon VC at https://horizon.vc.
Learn more about Flowlie and how the platform can help you screen deals faster and discover the right connections from your network at https://www.flowlie.com.
Stay up-to-date with all our episodes by checking our website at https://www.thevcarchitects.com, following us on Twitter at https://twitter.com/thevcarchitects, and on Instagram at https://www.instagram.com/thevcarchitects.
The VC Architects (Ep. 2) - Sandy Kory (Horizon VC)
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Sandy Kory: [00:00:00] My name is Sandy Kory. I'm the founder and general partner at Horizon VC. We are a seed stage and pre-seed stage investor in startups that are building great software products.
Vlad Cazacu: Hey everyone. Thanks for tuning in and welcome to the VC Architects, the podcast where we share the real stories behind new VC fund managers and the blueprints used to make them successful. My name is Vlad Cazacu, when I'll be your host today as we interview Sandy Kory, a Stanford grad with over 100 angel investments under his belt in companies such as Palantir, Canva, Flutterwave and more.
Vlad Cazacu: This is an episode you will not want to miss as we uncover the path from boutique M&A firm owner to fund GP and the fundraising story behind it. For more information about starting and growing your venture fund, including show notes, highlight clips, and inclusive scenes, follow us on Twitter and Instagram @thevcarchitects, as well as on our website at thevcarchitects.com.
Vlad Cazacu: This episode is brought to you by Flowlie the number one choice for deal [00:01:00] screening and network management used by hundreds of investors from 50 plus different countries.
Vlad Cazacu: Now, Let's dive right in.
Vlad Cazacu: Hey Sandy, thank you so much for joining us on the podcast today. Super excited to have you and I'm really looking forward to our conversation today.
Sandy Kory: Thanks, Vlad. Very happy to be here.
Vlad Cazacu: To start off with with this episode, we'd like to rewind the time a little bit and get back to your first angel check because similar to a lot of emerging fund managers, some of us that we have on the podcast as well, you started your journey by doing some angel investing.
Vlad Cazacu: So, looking back to the very, very first angel investment, if you can still remember it, can you give us a little bit more details on what it was, why you wrote that check, and what made it motivation?
Sandy Kory: Sure. And so the motivation goes back pretty far for me. I went to Stanford and there I took [00:02:00] some classes that were involving tech startups and venture capital, and this was 2002, 2003.
Sandy Kory: That timeframe. And the, there were a few VCs who actually taught one class in particular, and they seemed like they lived on Mount Olympus. Venture capital seemed like an amazing thing to do that I would never have a chance to do myself. But I was interested. And, and so after I graduated I did get one interview at a venture capital firm, but it just seemed like a total long shot.
Sandy Kory: And I thought to myself, I'm just gonna have to be my own venture capitalist if I'm going to do this. And so I went into investment banking and I founded a niche working with bootstrap tech companies and had some success as a relatively young professional. And so I had some discretionary income.
Sandy Kory: I. And then I think it was in 2006, so about two years into my professional career I had a chance to invest in an angel opportunity. And it was literally, the first angel opportunity that was, came across my desk. I. I was clueless and I invested. [00:03:00] And so, you know, don't invest in the first thing you see.
Sandy Kory: It's probably good advice. 2006. You know, in my defense there wasn't a lot, pre AngelList weren't a lot of resources online about these things. Now, a couple years later in 2009 and the darkest days of the financial crisis in the spring of 2009, I had a chance to invest in another startup called Palantir Technologies.
Sandy Kory: It was an early round, and that was my fourth angel investment. And so I still didn't really know a lot about being a good angel investor, but I did happen to know some of the early employees and founders at Palantir. And they were, it seemed the smartest people on the planet and they were incredibly ambitious.
Sandy Kory: And this was a time, you know, March, April, 2009 when banks were collapsing and just, who knew, you know, which way was up, but it just seemed like a safe thing to do to invest in some of the world's smartest people building technology. And so I made, at the time, given my financial resources, it was an uncomfortably large investment in Palantir.
Sandy Kory: So that was my fourth investment, and there was [00:04:00] definitely a little bit of beginner's luck there, but hopefully I was starting to learn and that investment did of course work well and encouraged me to become a much more active angel investor.
Vlad Cazacu: They say that third time is the charm, you just delayed it by one. The fourth time was the charm on the angel investing. Just outta curiosity relative to your income at that time, how big were your initial angel checks and, looking back to what right now is your portfolio strategy, what would you have advised you at that point your angel checks to be?
Sandy Kory: I always had an unusually high tolerance for taking financial risks. So I, I think if I don't wanna advise people to do what I did. However, if you do want to be in venture capital, it's important to have some interest in taking risk and have some intuitions about how to go about it.
Sandy Kory: And so it, I could have looked at my pretty small balance sheet at the time and said, I'm going to, you know, look at X percent of my balance sheet. But I really thought about it more as like a, like an N P V basis. And I just had a lot of [00:05:00] confidence in my ability to make money.
Sandy Kory: I found a knack in finance and so I thought, look, I'm gonna make a lot of money over the next 20 years. I didn't think I was gonna be a billionaire. I still don't think it will. But I did think I could make, pretty good income in finance. And so I wasn't worried about losing, say, $25,000 even though I might've only had a hundred thousand dollars in my bank account.
Sandy Kory: And so, my first angel investments were probably unusually large. And then the Palantir investment was even larger. And that was also motivated to buy, me just not having a lot of confidence in putting my money in. The conventional safe places because this was, a very scary time and it just seemed like giving the money to the smartest people to manage my capital might be just as safe as giving the money to say, Bank of America with more upside.
Sandy Kory: And then later on, I would say I became a very active angel investor and, other people had better track records than me as an angel investor, although I think I did build a very good record. Other people with more wealth had probably put more money into angel investments, but I might have won the prize in terms of investing the highest [00:06:00] percentage of my after tax income. I was living in California paying a fair amount of taxes, and I did a calculation over the 10 years where I was most active as angel investor. I invested 62% of my after tax income into angel investing. And this was before I was married and had kids.
Sandy Kory: And so from a, personal perspective, like I said before, I was just comfortable taking those risks and, not everyone is gonna be comfortable with that but for me it was definitely very useful. I think having skin in the game is a great accelerant. For investing. And so I think it really helped me to learn and be especially motivated, to learn and to just make sure I wasn't, blowing my money.
Sandy Kory: And so while I Absolutely, the risks I took were, aggressive. I do think there was some prudence there and I was always quite humble. And I was aware that I was in, there's a multi-year journey. And I thought that if I was humble and interested in learning it would work out.
Sandy Kory: And it had, although I'm certain certainly still a beneficiary
Vlad Cazacu: of a good fortune.
Vlad Cazacu: Fantastic. 62% of your after tax income, it's to have it as an allocation towards venture as [00:07:00] an asset class, it's quite some people argue it's quite risky. But I'm curious, from that very first Angel investment the very first angel opportunity that you got to now almost what, 100 angel investments.
Vlad Cazacu: I'm curious at what point in that journey you said no, like I feel like I know what I'm doing. I'm gonna make this a larger part of my time. And maybe at some point you, you knew or you didn't know that you were gonna make that your career.
Sandy Kory: So I worked for a few boutique M&A advisory firms and actually mid 2010. I got let go by, by one. I was running the, kinda a small tech division at a small firm and I had a few clients that I was able to kinda take with me and then start Horizon Partners with my partner Mike. And so mid 2010, I didn't, so I didn't make really any money for 18 months or so.
Sandy Kory: But then, them day business, once you start closing deals it can be a good one. And so I started having, some cash flow. In 2012, and I looked at, all the investments I had made and I had [00:08:00] done some investing in public markets and just things that, normally finance people might consider and the best thing in my portfolio back then was Palantir. And so that was encouragement. I was humble in the sense that I didn't think I was, super expert at it, but I said, look, this is the best thing in my portfolio. It also was complimentary to my day job advising bootstrap technology companies on mergers and acquisitions.
Sandy Kory: And so it was funny and I, years later I realized it's actually a pretty good a pretty good heuristic. If you ask an investor, any investment manager of any asset class, you say, What was your best deal from three years ago or five years ago, seven years ago?
Sandy Kory: That's probably their strategy. And so every VC is gonna have a shiny, nice strategy and every, hedge fund manager if you want to cut through the, some of the marketing speak, just, say, Hey, what was your best deal? So for me in 2012, my best investment was Palantir.
Sandy Kory: And so I said, Hey, let's just lean into this. And like I said, I had confidence in my ability to make cash and I didn't think I was gonna lose money. I figured, worst case was, [00:09:00] maybe I'll just break even. But it was very fascinating to me. Probably it would've been a little smarter, on a risk adjusted basis to say, go into like real estate investing.
Sandy Kory: But that just wasn't very interesting. And I think I, I had this deep seated interest in this in venture from my days as a university student where it seemed this, kinda impossible goal of becoming a vc. And so I just figured, hey, maybe I can figure this out on my own. And it was really my side hustle or my kind of weekend job.
Sandy Kory: And so I was living a double life for many years. I was advising. Bootstrap tech companies on on M&A in the day. And I think bootstrapping is wonderful. I don't have a ideological view as some do about bootstrapping versus raising capital. I was, working with the bootstrappers on the one hand and then nice and weak weekends.
Sandy Kory: I was looking to invest in in startups and it was funny 'cause sometimes the startups would say, Hey, do you just wanna sell me? And I was like no, I'm looking to invest in the next talent here. Palantir's not gonna hire me. Maybe Palantir could have hired Goldman Sachs at some point, but obviously they're a public company.
Sandy Kory: And so it's like I wanted to invest in those startups that were gonna, never sell and try to build, [00:10:00] large important companies. And so that was really motivating for me. And it was something that I really pursued more and more over the years. And then, late 2021 I had a chance to raise a fund.
Sandy Kory: I had just grown more passionate about the investing in my record. I had gotten to be, I think, good enough that a lot of people would be interested in a fund. And so I decided to step back from the m a business. I've got a wonderful partner Mike Fermish. And so he runs the M&A business and I started Horizon vc.
Sandy Kory: Mike certainly helped me get off the ground and is an important resource at the firm, but I'm like the main you know, Day-to-day operator of the fund. And so over the past 18 months, I've now been a full-time VC and it's been a real a real joy and a learning experience.
Vlad Cazacu: Let's zoom in a little bit on that moment, right? You've acquired a pretty robust angel portfolio. You realize what works, what doesn't get even more excited about this in the aura of the sexiness of venture capital really took over, right? As, as you mentioned right at unattainable goal at Stanford, where everybody's speaking about it and you figure out how are you gonna get in?
Vlad Cazacu: And now you're in you're in the arena with skin in the game. [00:11:00] You've made a number of angel investment and you're saying, you know what? I feel at this point I'm ready to take on the responsibility of other people's money. And I trust myself that I'm wanting to make great investment decisions and return capital to them.
Vlad Cazacu: Walk me a little bit through that decision making process of moving from your own balance sheet to a balance sheet managed on behalf of other, with a fiduciary responsibility to those LPs.
Sandy Kory: Sure, and there's another important aspect, which is that I genuinely thought and think that I can help founders in the M&A business.
Sandy Kory: I was successful with my partner. We really, it was a service business. And so I had a service mindset about, how do you go above and beyond to help the client? And so as a angel investor, I tried to have a similar approach to just be as helpful as I could with companies that I invested in and founders that I didn't invest in as well.
Sandy Kory: And so I did think that I was gonna be able to do that. I think there are some VCs who. Are really good at getting in deals. I don't know if they can, add a lot of value. Of course there's some VCs who don't even think it's possible to add value. So there, [00:12:00] there's a lot of philosophy and debate there.
Sandy Kory: But I did think that I could be helpful and I thought that was an important milestone in terms of, wanting to go full-time into vc. And yeah over the years doing angel investing, I did bring other people into many of the investments that I made with no economics.
Sandy Kory: I had a couple people that I brought 'em into the Canva deal, for example. And I did bring people into a few deals that were not good. But overall that investments that I where I brought friends, people from my network in, into these deals. Like it, it was a very good record.
Sandy Kory: And then also in 2021 I put together some SPVs with my business partner. And those also performed quite well. And then also in M&A business I had just built a lot of trust with high net worth individuals, that had been clients.
Sandy Kory: And so I had this, philosophy where I. I had been able to really help a lot of people make a lot of money. And then I was able to, I think, raise the fund relatively easily, and I knew, I had friends who started funds in the past who I thought were really good at investors, and I saw that they often had to spend 75% [00:13:00] of their time, but the first, 2, 3, 4 years, pitching LPs and asking strangers for money, and I didn't really wanna do that.
Sandy Kory: And so I was, I thought it to myself I'll do a fund if it ever seems like downhill to raise it. And fortunately in late 2021, that was the case. Now, in hindsight, that was the peak of a bubble, and I certainly benefited from the timing there. But I was asking people to invest in a fund who had already made a lot of money with my help. And then also I was the second biggest LP in the fund. My partner Mike, is the third biggest. That helps a lot. And then we also did something unusual with our fee structure. So we did a kind of an unusually low management fee, typical industry norms, our two and 20 fee structure.
Sandy Kory: And so we did a 0.5%, 25%, so a little higher carry. But a slower management fee. 'cause I also just. I just didn't want to make money unless my investors make money. And I think that, there definitely are cases where VCs can make a lot of money for management fees. Even the performance is terrible.
Sandy Kory: I just didn't wanna do that, at least now on, and I for sure.[00:14:00] But I just really wanted to send a signal of look I've got a lot of skin in the game. The incentives are very well aligned here. And so I think that kind of came together along with my record where, people said Sure and they were able to people committed pretty quickly. And then having these m and a relationships was helpful 'cause those were these high net worth individuals where we advise. Them, when they sold their businesses for, 20 million, 50 million, a couple hundred million.
Sandy Kory: And so between my LP commitment partner, Mike's LP commitment, and these M&A clients, maybe a half dozen who were maybe on average, like low seven figure commitments, like that was like an anchor tentative if you will. And so we didn't really spend time soliciting institutional investors.
Sandy Kory: Talked to a few, but I had never really pursued that. But we were able to, get, the first half of the fund very quickly just from people from ourselves and people that we trust. And I think just like in raising a round, if you're a startup, I think it's like getting that first half, getting the lead.
Sandy Kory: Right? Is hardest part. And then once you have, that gets momentum and often it's, quite a bit easier to get the rest of the folks in the fund.[00:15:00]
Vlad Cazacu: So let's discuss a little bit about that initial piece of the fundraising, right? Obviously outside of you and your partner commitment.
Vlad Cazacu: You mentioned the relationship from the M&A, all the synergistic work that you've done in the past, your network, that people have invested with you in the past and made money, which is, always a great selling point for a new GP to tell their LPs. Walk me a little bit through the very first non-GP commitment. When was the, what was the first person or the first entity that you said, okay, this, there's someone else interested in this and they're committed. We're off to the races.
Sandy Kory: Honestly I just knew I was fortunate. There was easily a dozen people where I was certain that they would invest anywhere from, 250,000 to a couple million dollars. Like we had done these SPVs and so we did two SPVs in a company. This was in early 2021 and then, eight months later it wasn't like a typical VC deal, it was more of a growth equity deal. But we in invested maybe six, $7 million into two SPVs, and then eight, nine months later we got [00:16:00] liquidity and I don't remember the details, but like the exact specifics but basically it's if you invested a dollar on average, like you'd get like a dollar 75 in cash and then 75 cents in stock in, in another company in nine months.
Sandy Kory: So that, that was a really good return. And so we had people who invested in those SPVs and so I was quite confident that they would be willing to invest in the fund. And so it was, yeah, I never had a meeting where I was like really nervous about, Hey, is this person gonna invest or not?
Sandy Kory: This question of how much but there was just like, so I guess to isolate it, I mean there was just a lot of trust, you know? And so I think if you can have. Really high trust relationships, with people that have wealth. I think that helps a lot. Right? And even if you're a very trustworthy person, it can take a long time to build trust.
Sandy Kory: And so I think that I was, quite patient over the years and just got to know lots of people over many years and kind of show that I was very much someone who's going to do what I say I will do. And that I was not gonna, I was gonna put other people's economic interests above my own, if there [00:17:00] was ever, if there's ever a question.
Sandy Kory: And I was gonna work really hard and I was pretty smart. So I think people thought, there's just not a lot of downside. Kind of like when I was investing in Palantir, didn't really know, I wasn't like a super expert on, but it just felt like a good thing. And so I think that was the case with our with our LPs. We just had these really high trust relationships. That's unique. I don't think most emerging fund managers will have that dynamic.
Sandy Kory: I think if you have, if you've been like a wealth manager or M&A advisor, or you've been kinda like a financial advisor for many years to build these relationships well, there you go. That can be a nice bridge. Obviously there's other ways to do that. But that was certainly the bridge that worked really well for
Vlad Cazacu: me.
Vlad Cazacu: Absolutely depends how early you start the work, right? On building those trustworthy relations, because those are things that are built over time. And quite frankly, you had the opportunity through your other work to build those relationships and through your angel investing and extended your ability to invite other people into those angel investment have slowly built a joint track record is quite frankly, Syndicator, right? The manager of other people's money in a sense, an introducer of good [00:18:00] opportunities to them. So I'm curious, did you at any point had to go outside of the close network to fulfill the size of the fund?
Sandy Kory: We got a first close of 36 million and that was, I wanna say, late January of 2022 and I think we officially started raising money in December of 2021. I actually had covid and was sick for a couple weeks and so I probably didn't really do any real work until early January when I was healthy. My partner Mike, was probably doing some work in December.
Sandy Kory: And he also was critical in raising money and he went to a few people that were kinda like friends of friends, probably a little bit more, outside of his immediate net network within me. But similarly, he just had a very high trust community to leverage.
Sandy Kory: And we just didn't do any cold outbound, which is ironic because look, I do cool outbound with founders and in my M&A business I was extremely active doing outbound over the years. And often would build relationships with founders from an outbound email, outbound call, over many [00:19:00] years.
Sandy Kory: But in the case of the fund yeah we just actually didn't have to do that at all. maybe it's a good thing. Maybe I should, there's definitely like a battle testing. There's like a hardening that you get if you're, out there knocking on the doors and so I kind skip that step. It was great though because I could really immediately dive into investing and not have to be divided with, spending a bunch of time on fundraising.
Sandy Kory: So we had our second close in, shoot, was it April and May of 2022. And so the fund ended up being 44 million. And in the few months between the first close and the second close, I probably spent 10% of my time on fundraising.
Sandy Kory: But it was a pretty low pressure, pretty relaxed and mostly just talking to people in the network who were, who would express
Vlad Cazacu: some interest.
Vlad Cazacu: Definitely not a traditional fundraising journey part network, but also a little bit on, 20 21, 20 22, great year to raise a venture capital of fund.
Vlad Cazacu: I think people will bit more open to the asset class from an LP perspective, given all the buzz around it. But I'm curious to understand a little bit, from a fundraising perspective, the value prop that you are offering. Obviously, the trust in your track record, et cetera, [00:20:00] count a lot, but regarding, the thesis and the positioning of the fund, What were you promising investor?
Vlad Cazacu: What were you communicating to them that your strategy will be to generate alpha in this market?
Sandy Kory: I had the most success investing in software startups. And then in particular, startups following the bottom up business model, sometimes it's called PLG or Product-Led-Growth.
Sandy Kory: And so I emphasized that would be a major theme. But I didn't wanna lock myself in too narrowly to doing just that. And so it was really the pitch, if you will, wa was more about, Hey, I've got a great record. You've made money through me. Maybe you've invested in my deals so far and I'm very interested in finding like great founders and, how do you do that? I can talk at length about how do you identify great founders and certainly I, I don't have I don't have totally figured out, but I have a good record of finding some great founders to back and then, great business models and so I think software based business models are probably the best business models. And over the years I've become maybe a bit of a connoisseur of those scalable business models.[00:21:00] And founders like really dedicated to solving a problem with software. That's the essence of the fund.
Sandy Kory: It's not the sexiest thesis and I realized I didn't have the kind of sexy story that most institutional investors would be looking for. I didn't have a super popular podcast. I had a couple followers on Twitter or LinkedIn, but certainly nothing dramatic.
Sandy Kory: So it was really more about, look, I've got a really good record, people have a lot of trust in my judgment and my integrity. And so people are willing to back that. And yeah, it's not the easiest not the easiest strategy for an emerging manager to try to follow.
Sandy Kory: But I think the, one thing that I would advise emerging, managers or people who wanna raise a fund on is really just going out of your way to be trustworthy and for example I mentioned that I brought people into deals without taking any economics.
Sandy Kory: I did that, many times. I could've probably done like an SPV or something like that and I don't wanna begrudge anyone who does that, but I think if you don't do that, if you just show Hey, look, I'm not trying to monetize this. I think people notice that. Like I didn't talk about it, but I think people notice.
Sandy Kory: A couple years later I did [00:22:00] something similar in a startup. Actually a kinda a biotech diagnostic startup. Really promising startup called Billion to One. And in that case, I put together like a partnership. So I did a little bit of work to kinda create an entity, bring a bunch of people in into a couple of their rounds.
Sandy Kory: Didn't take a penny again, didn't do an S P V. And I think like people notice that. And so that, those are just some examples, but it's like when people, I think people will notice when you you're going out of your way to create value and your, you know, your own economic interest is secondary.
Sandy Kory: In the long run it's, I think it's really important to capture value for what you do. But I just thought, hey, I would just be more focused on creating value, building trust and then, for the long run, Things will work out. I didn't think I was really gonna do a fund back when I was doing those things.
Sandy Kory: But I, I just always have had a view that you just want to go out of your way to to build credibility when people build trust. And then, good things will happen. And then, late 2021 when things did coalesce and I had the chance to raise the fund, it was a time to tap that, the credibility and the trust that I built with a lot of people over the years.
Vlad Cazacu: Yeah, [00:23:00] absolutely. The whole ethos of, give first doing it long enough and well enough and consistent enough people will notice and it's the subtle cues that will give people that trust and relationship building with you as well. Look, I actually,
Sandy Kory: actually, it's a great strategy for, building a software startup but take Canva, right?
Sandy Kory: And so they have been a kind of an SEO machine over the years. That did really for them, they've created a huge amount of great content, all these design templates. But it's really about leading with value, right?
Sandy Kory: And so I think that, I think in the internet economy, the best leading indicator of revenue is creating value. And not every startup will follow this path, but I think of for this, for the founders that, that are really focused on creating value often through a website with content.
Sandy Kory: But there's other ways to do that. I think it's if you're doing that, I. Like you're just gonna learn a lot about how to create value and then that will be something that you can monetize. And, Canva is a great example. Their first product had some traction kinda the free product had traction.
Sandy Kory: It didn't really monetize for, initially. But they were really smart, learning like how to create value building that muscle. [00:24:00] And then with that knowledge they were able to, tweak a few things in terms of their monetization strategy. And then it was often to the races.
Sandy Kory: So yeah, I'm a big fan of focusing on learning how to create value, and then once you do that, you've got this muscle and it's like you'll be able to create, plenty of monetization if you've got that muscle.
Vlad Cazacu: I'm curious, how are you seeing the current market and access right to Pre-Seed and Seed deals with, the advent of quite a number of Pre-Seed and Seed funds being created over the past two years? Do you see increased competition?
Vlad Cazacu: Like how are you thinking about deal access in today's environment?
Sandy Kory: It's a crowd there's no doubt about it. I think that the, seed asset class from, I dunno, 2006 through 2015, performance was very high. And then, markets are, I think, reasonably efficient.
Sandy Kory: And so more and more people moved into the asset class. And then the past couple years, the seed has really just gotten very crowded. You've got the kind of bigger funds, multi-stage who are often too scared to deploy capital in big increments at later stages where they might [00:25:00] have in the past been most comfortable.
Sandy Kory: Maybe they went, got a, got ahead of their skis in 20 20, 20 21, maybe 2022. And so a lot of those people are moving to see. So it's a great, I think, market for founders. It doesn't mean every founder's gonna raise money, but I think on average valuations are higher. And I don't think that's necessarily better for companies because rounds are bigger.
Sandy Kory: And I think that, it's really hard if you're a founder and you have a chance to raise like a big round at a big valuation, it's hard to turn that down. But I think it's a little bit like, going to the grocery store when you're hungry. I think it just creates an environment where there can be a lot of distractions.
Sandy Kory: And so anecdotally, I tend to see, higher performance with founders who are keeping rounds smaller and just focusing on being more efficient. 'cause I'm investing, pre-seed seed when founders are a pre-product market fit. And I think that, if you have a lot of money, you might be tempted to try a lot of different things on the path to finding product market fit.
Sandy Kory: But I think that you evidence experience shows that, keeping a team very nimble and very focused on a few things is the best way to, to iterate rapidly. And I think [00:26:00] that's the key to finding that tight product market fit. So yeah, it's an environment where there's a lot of funds bigger rounds at the seed stage.
Sandy Kory: I don't think that really is great for performance in the asset class. And I don't think it's great for performance for founders to tell you the truth. But a venture cycle's gonna be long and so we've probably got a couple years here where it's gonna continue to be crowded at the seed stage.
Sandy Kory: Ironically there's less money at the series A, the series B, if I was a big LP, I'd be more interested in backing new funds that are investing at the A, B, at C, because a lot of those existing players are chasing not active.
Sandy Kory: And because there is a lot of seed funding out there, I think there's a lot of great companies that are gonna be popping up and so there's probably more opportunity at the later stages but I really do love the seed stage and just, being involved at that, that earliest part. Trying to be helpful at that earliest part.
Sandy Kory: I think that it's just a really wonderful time to be an investor. So I'm committed.
Vlad Cazacu: Before we go into the rapid fire question, I would like to ask a little bit on the portfolio construction outside of your thesis. How did you start thinking about your [00:27:00] target investments, your check size, how much size the fund you'd like to be as you were starting to raise the fund and has that changed at all now, one year into the deployment of the new fund?
Sandy Kory: When we started the fund the lower goal was 30 million. That was kinda like, look, if we can get to 30 million, I think that'll be a success and then we were able to get to that pretty quickly.
Sandy Kory: And so then it was like, okay, 40 million would be nice and then we settled at 44 million. I think we would've capped it at 50. Maybe in the future we'll do bigger funds, but I admire, the benchmarks, the home brews funds that are not trying to maximize their AUM, that are committed to a certain fund size based on a certain strategy in a certain stage. So that was our thinking. And then we're following best practices around having a diversified portfolio. I think there's multiple reasonable approaches there.
Sandy Kory: I think there's probably good advice to, to first time fund managers to be a little bit more diversified. If you're in, you might have instincts to be more concentrated, more diversified, but it's probably better [00:28:00] to be, to err on the side of being more diversified for a fund one, just so you have a few more shots and goal.
Sandy Kory: So that if you do wanna raise a fund two, you just have a few more shots to show startups that are showing, gonna break out a potential. So we'll probably end up with a portfolio of 25 or 30 startups for the fund we're about 25% deployed going at a pretty measured pace. I think being a major LP probably it makes me a little more likely to be patient than if I didn't have the skin in the game that I do.
Vlad Cazacu: I'm curious, are you already thinking about fund two?
Sandy Kory: When I'm doing something, I want to do it well. Part of that is just wanting to do things the right way. Part of that is being competitive, and so I think that, it's like if. You're, running the race, you need to run through the finish line.
Sandy Kory: If you let up at the last second, like you might lose, right? And so I think that for now, it's a good working theory to say, yeah, I'm gonna do a fund two. I wanna do things well enough so that there'll be an opportunity to do a fund two. I suppose I could say. Nah, not gonna do a fund two and still do a good fund one, but it feels to [00:29:00] me like I should be thinking about, about a fund two and, having some ambition, having some long-term planning there.
Sandy Kory: But I'm not thinking a whole lot about it. We're in no rush. Yeah, probably a little bit more patient than average just given the LP dynamics and then also with the market conditions, I don't feel like it's a great time to be moving quickly to deploy capital.
Sandy Kory: So right now not doing a whole lot except trying to execute on the strategy, trying to do the things that, that we should do to have a great fund, one.
Vlad Cazacu: And are you thinking of expanding the team? Are you thinking of continuing as a dual GP while you take the main role on the vc while your partner takes the main role on the M&A side? What's your thinking around the actual firm that you're
Sandy Kory: building?
Sandy Kory: Look, it's a great question and I would say it's still a work in progress. I do want to grow the team, and so we actually are starting to talk to junior candidates. I think my frame is really, look, I, as an lp, I'm a capitalist who wants to fund to deliver big returns, and so what's the right approach?
Sandy Kory: Sometimes being, having a very lean model of just, one guy or one gal can [00:30:00] be a great approach, but I do think that, Bringing on a great person, could help could help to expand the network, find more great deals be even more helpful to portfolio companies. And I think that intellectually I'm open to bringing on another partner.
Sandy Kory: I think the bar is higher, it's a much higher stakes decision. And so of course hiring a kinda a junior team member or someone who might have, One to five years of experience, like that's important. That's high stakes. You don't wanna mess up on that hire. But it's not as high stakes as bringing on another partner.
Sandy Kory: So I think in the near term kinda this year the plan is to bring on a junior team member And then at the same time, for the long term, I'm certainly opportunistic about potentially bringing on another partner. But I think in that case the trust factor is really important.
Sandy Kory: And so it's like limiting yourself to people that you're just getting to know quite well so I'm not, actively casting a wide net for partners, but I think a couple years from now, I think we'll probably have another partner on the team and we'll be making progress towards firm building.
Vlad Cazacu: It's an interesting dynamic, right? When you are angel investing or family office investing out of your own [00:31:00] balance sheet, then moving that to, taking the LP money and being responsible for them, and now thinking, okay, do I want to create a firm around this and am I now passing on the trust that's been bestowed to me, to someone else who's now co-managing this pool of capital that I'm also an LP and big lp. It's a big responsibility and a big step.
Vlad Cazacu: Sandy, this has been really great. I want to jump into the rapid fire section, a mix of, work travel and personal just to get a little bit unpacking on who Sandy Kory really is a few minutes before we wrap up the episode.
Vlad Cazacu: Really quick, what is one thing that people don't know about you, that you think that they should?
Sandy Kory: Well, just timely I would say that I studied psychology as an undergrad and I've always been interested in psychology, neuroscience. And then something that's been particularly interesting the past couple years is psychedelics. And then actually this past weekend I did something a little out there, if you will. I did an ayahuasca retreat. It was a really intense but a very gratifying experience [00:32:00] that yeah. I don't think people would guess if I'm a person who would've
Vlad Cazacu: done something like that.
Vlad Cazacu: I think we'll need to unpack that in a whole nother episode because I do have a lot of questions about it. I've been recently fascinated about the topic
Vlad Cazacu: I'm curious, who's the person that you look up the most and could be outside of the industry, not necessarily professionally related.
Sandy Kory: Yeah. Look, I'm so grateful to have two wonderful parents. If the question is more around who do I have the most to thank in my life? It's them for sure. It's not even close. But then professionally I've gotten some great mentoring from from some other, VCs. For example, Nikki Shaak, who's the founder of Blackbird Ventures, which is just an amazing venture fund where I've been fortunate to be an LP for many years and so watching them build a firm has been really amazing.
Sandy Kory: Mark Sugarman of MHS capital, he has kept a much leaner model, but has, investing kind of judgment [00:33:00] as good as anyone. And so I've gotten known him very well over the years and learned a lot from him. Those are a couple VC mentors, if you will that I've I've really been fortunate to get to know and learn a lot from over the years.
Vlad Cazacu: Quick and honest reaction. You wake up one day and Elon Musk is replying and ripping on Bill Gates on your tweet. What was your first thought that morning and how you reacted?
Sandy Kory: I thought, wow, this guy is either like really insecure or playing some really weird game. You know, uh, I mean, very thin skinned, it seemed. And then for me it was, you know, a moment of self-awareness of like, oh my God there's like a million people looking at my tweet. And then there's also, about a million kind of the Twitter anonymous lunatics out there who are all, obsessed with Bill Gates conspiracy theories, and.
Sandy Kory: He like. But it's funny, it was just a, I was trying to be complimentary because, Microsoft has been following open AI since I think 2016. And Bill Gates has been pretty [00:34:00] hands-on, even though he's been like one of the wor world's, wealthiest, people and a lot going on.
Sandy Kory: And the fact that he was seemingly hands-on in AI for many years, I thought that was interesting. And then, yeah, Elon Musk saw my tweet and decided it was a good opportunity to rip Microsoft. And and open ai, which seemed to be coming from a place of weird psychic angst.
Vlad Cazacu: Indeed made that tweet quite quite popular in a very, probably unexpected way when he first wrote it.
Vlad Cazacu: As we end the episode, we'd love to, to end with this question may have answered it already in the previous one, but if you were to give, one thank you at the end of this episode looking back at your career, who would it
Sandy Kory: be?
Sandy Kory: Well, my parents certainly. I'm very, very fortunate that they were, very supportive growing up and I was able to graduate from college without any debt thanks to them. And so that, that certainly gave me probably extra financial comfort to take the high risk path that they did take.
Vlad Cazacu: Fantastic. Well, this was a great pleasure. Thank you so much, Sandy for joining us on this episode of The Venture Architects.
Vlad Cazacu: Really much appreciated. And hope [00:35:00] to see you again in a few years on, on this with talking about fund two.
Sandy Kory: I would look forward to that. Thank you very much, Vlad. It's really been a pleasure.
Vlad Cazacu: What a great conversation! If you enjoyed it, make sure to like and subscribe to our podcast and be on the lookout for a new episode in two weeks, featuring another amazing fund manager and their story. This podcast was made possible by Flowlie. If you are a fund manager, angel investor, family office, or syndicate lead who receives a lot of deals or simply wants help sorting through the noise, create a free account today on Flowlie at flowlie.com, that's FLOWLIE.com, and get access to an AI assisted deal screening engine and network manager that will dramatically improve how you work.
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Vlad Cazacu: That's it for today's episode. See you next time.[00:36:00]