On the latest episode of Outlier Investors, we decode how Contrary is building an entirely new type of VC firm — one that invests in people before they even start their first company. Learn how Contrary finds the world’s best talent and gets the conviction to invest before they even start a company. To date, Contrary has raised more than $100M and has invested in Ramp, Anduril, DoorDash, and Replit.
Daniel Scrivner (00:00):
Eric, it's a huge honor to have you on Outlier Investors. Thank you so much for making time and for joining me.
Eric Tarczynski (00:04):
Thanks for having me. I really appreciate it.
Daniel Scrivner (00:06):
So to start, because I want to spend most of our interview together, most of our time together, going through a bunch of rabbit holes because I think philosophically, there's a bunch of stuff I find fascinating about the firm that you're building, Contrary. But I want to start by just providing people a quick sketch of what Contrary is. Can you just quickly describe what you're building and why it's important?
Eric Tarczynski (00:25):
Yeah, absolutely. So really, I think, it all starts with actually my own personal journey and kind of interesting ones. So I'll kind of weave those together. So for me, I grew up in New Jersey, school in Boston, really kind of found my interest in tech and startup more broadly while I was there. So worked in the payments company in school. And then a few years after that, moved out to San Francisco, was an early employee at a startup that ultimately got bought by Lyft, but knew that I wanted to build another company after that. And it kept coming back to this idea that had been in the back of my mind for several years. This idea really that the next generation of venture was going to be focused not on the company, but on the person. I spent a lot of time actually, while I was in school around a lot of people who I thought were super talented, ambitious, entrepreneurial.
In my mind, it was obvious that these are people that were going to go out and do incredible things. Right? And when you fast forward a decade or so to today, that's largely happened. The people like Delian at Founders Fund. Right? And I don't know if you know or know of Nuseir Yassin who started Nas Daily, which is to me, one of the very large Facebook influencers. These were my friends. Right? And we were all in college in Boston together at the same time. Right? And so, that was kind of the initial seed for the idea, was again, going back to our kind of other conversation, the thesis was that it was easy or doable to identify exceptional talent early in their journeys. But it was really interesting to me that for the most part, people's paths to success were just this random walk of life. Right? Yeah sure, inevitably, Delian or Nuseir or whomever, they became successful, but they kind of made it happen. Right?
And I started thinking, okay, well that's really interesting. I feel like there's an opportunity here to build one of the best venture firms of our generation off of that insight, of the person before the idea. And so we started saying, okay, well, what if you could actually systematically identify the brightest people in the world first. And kind of first for us meaning, at any point in your journey prior to you starting your first company. And then what if you could actually build this infrastructure that allowed us to relentlessly support these people for their entire journey, so you could help them find jobs at hyper-growth startups. When it came time for them to start that first company, you could write them their first check and be their first true believer, all the way through 10, 15 years down the line. They have some liquidity. They become an LP, a co-investor alongside us, and a mentor for the next generation of folks.
And so if you did this the right way, you'd have massively unfair access to hundreds of the brightest people in tech for their entire careers. Right? And so, that really was kind of the inception of the idea, was looking it back in the college days. And obviously, it didn't work out at the time, with the working startup and just swung back around to it. And maybe this was three or four years after I'd first had that original idea and nobody was doing it. And then so I said, "Okay, well, fully convinced that this will exist. Let's jump right in and give it a shot." And the rest is history. So here we are.
Daniel Scrivner (03:55):
Yeah. I love it. One of the things that came to mind just preparing for this, because I spend a lot of time thinking about what might be most interesting to cover is, I think a lot of VCs believe that venture is getting earlier, and earlier, and earlier, which has meant, okay, we were now used to be a growth investor, now we also have a seed stage fund. Everyone's making seed stage move. But you came to a very different conclusion, which is that, "Okay, but it has nothing to do with just going to seed or being a seed focused fund. We actually have to go to the people." It seems like a very different conclusion. Do you think that you just have a fundamentally different view than people that kind of view it as more of an investing framework?
Eric Tarczynski (04:31):
I do, yeah. I think at the end of the day, I mean, you kind of nailed it, you said. Look, the way most VCs look at venture, no matter what they say or what they put on their website or whatever, is this a transaction, right? They are in the business of doing deals. And so sure, like you said, they have their seed fund or whatever it might be, but ultimately, it is point in time. They're waiting for somebody to put their hand in the air and say, "Hey, I'm raising money for my startup." Right? And then they look at it, they analyze the deal, they meet with the founder, they try to win the deal. Maybe they win it and maybe they don't. And then they move on and you're a part of their portfolio, and that's it. Right? And that's how they operate, is it's a deal, it's a transaction, it's a finance fear at the end of the day. Right?
Whereas I think what we said is, "No, no, no, that's actually totally backwards." Right? If you really believe in building a deep, kind of authentic lifelong relationship with someone, you should be willing to go one notch earlier. Right? You should be willing to really bet on the person before the idea and you should be able to find them early, help them, however, they can. Actually build meaningful trust and a relationship and affinity with them. And then yes, inevitably, much like Delian or Nuseir, whomever, these people will likely go on and do great things. But guess what? By that point, you've already helped them. Right? And you've already kind of been there and been their first believer in many ways. And I think for us, that is the way that we think of venture, is it's not about the deal or the transaction, it's about the person. And if you're really genuine in that intent, it starts earlier than before they kind of put their hand in the air.
Daniel Scrivner (06:15):
Yeah. Well, and that's a clear through line. I mean, there's many pieces of writing that you or people on your team have done that have talked about that most, kind of the evolution of venture in some ways was companies that were focused on transactions, just basically company centric transactions, then there started to be company centric programs. And this is things like Y Combinator and Techstars. What you guys are focused on is people first communities. And I want to talk a little bit about community because hearing you talk about it, it sounds incredibly genuine. And yet, I know so many VCs that also have communities that I think probably belong in air quotes because it's just a Slack channel with no investment. Talk about your kind of philosophy and values around community and how that shows up in your work.
Eric Tarczynski (06:58):
Yeah. I mean, I think you hit the nail on the head again in terms of... I think community has almost become an earnest word. Right?
Daniel Scrivner (07:03):
It's generic, totally.
Eric Tarczynski (07:05):
Yeah, yeah, yeah. Because for most people, community is put 500 people in a Slack group and call it a day. I think for us, it's the lifeblood of what we do. Right? And I think really, I have to tip my cap to YC. I think YC is maybe the only organization that I know of in that kind of broader venture world that has actually done a good job of building this kind of true, lifelong community. Right? I mean, you have YC alumni demo day, you have meet ups. It's a very active community, but that starts with kind of first principles. And there's a reason for that. It goes back to again, YC is helping with day zero style advice and company building. Right?
And so for us, it's not too dissimilar, but it's that one notch earlier. Right? And so for us, we think about it as, okay, we come across this very talented person, we believe in them, we think they're going to go on and do something great inevitably. Right? And so what are the things that we can be doing to help them throughout that journey? Well, jobs is an obvious one. For people who aren't starting companies, they're likely out of job. And if that's the case, the best way that we could help them kind of on that career learning curve is to help them find a job at a really interesting hyper-growth startup. Velocity of learning will be very high. They'll get a lot of great exposure. They'll build their own network and there's a lot of gratitude there.
And then it's about surrounding them and building this infrastructure to support whatever they might need at different steps of their journey. Right? So I mean, this is the reason why we just launched Contrary NYC recently, for example, is we had a lot of the people in our community who throughout the pandemic, moved to New York. And we said, "Okay, well, historically, we've been more of an SF kind of based firm," but there's a lot of people in the Contrary community who are telling us that they would love nothing more than having a home or a place where they can go hang out with other people that are part of their tribe. Right? And so it's really obvious for us to have a place there where they can go and... I think very recently or shortly, they're going to be having a Thanksgiving dinner, or they're carving pumpkins together, or they're ideating on startup ideas together. Having that one-stop shop, I think is super important.
And I could list three, four, five, six, seven, eight other things, but for us, it's all about finding that person first, building a deep relationship with them, and then giving them whatever we possibly can to support them as they grow throughout that journey. And then understanding that when they inevitably go out and start the company, join the company, whatever. Right? We've been there for them all along. We're their first check. We're their first supporter. And it's just an extension of the relationship, rather than the beginning of the relationship.
Daniel Scrivner (09:59):
Yeah. I mean, I want to call on something and I guess, get your thoughts on it, that sounds very small, which when is you talked about Contrary NYC. And in a moment, I want to talk about all the programs you guys have because it's kind of an incredible menu of very different of things.
Eric Tarczynski (10:13):
The potpourri. Yeah.
Daniel Scrivner (10:14):
But even with the way you described that, things like Thanksgiving dinner or pumpkin carving, these are things that can sound very silly, but in my experience, they are the essence of community where it's just time spent together, almost throw away trash time. And even talking about YC, it springs to mind that maybe one of the reasons it's different is they cook meals together, eat meals together, which is another sort of bonding experience. Why are those small moments so important and why do you guys invest in those?
Eric Tarczynski (10:40):
Yeah. They're important because this is actually where authentic relationships are built, like you said. You're not building a deep, lifelong relationship or friendship with somebody at a networking event, or you're not building a deep, lifelong relationship with somebody if you meet them at a portfolio company matchmaking event. These are by definition-
Daniel Scrivner (11:01):
Eric Tarczynski (11:01):
... very transactional, professional endeavors. Right? I mean, we have people who are living together. They're going to people's weddings. They're rock climbing together. And yes, they're also incredibly brilliant technologists who maybe while they're climbing the rock are talking about LLMs, or open AI, or the latest advances in our nice, new hype of generative AI, or whatever it might be. They're obviously very steep in tech as well, but it's a piece of the puzzle. Right? And more than anything, if you're trying to build a deep relationship with somebody or real community, you need to do those things. Right? You need to become friends with somebody at the end of the day, not just colleagues, which is probably how you'd think about it most of these Slack communities. Right?
Daniel Scrivner (11:52):
Yeah, totally. I mean, in my mind, one way I've always thought about it is that's the only way those sorts of time spent in person is the only way you build deep trust. That's the bedrock of the relationship because sure, you can still be able to help each other out professionally and think very similarly about things, but you don't have that deep trust locked in and you kind of need that. And yeah, it's non-transactional to be able to build that.
Eric Tarczynski (12:12):
Exactly. And then those are very durable. So I think what we found is these relationships, friendships, whatever, I mean, they last for a very long time and they take consequently kind of a long time tour road. Right? And so you're able to just keep stacking, and stacking, and stacking rather than just that point in time, types of meetings or relationships. And it's a game changer.
Daniel Scrivner (12:37):
Yeah. I love that analogy. I want to talk about some of the programs and it's maybe a little bit of a difficult task, because I don't even know if you'd be able to list them all out. But I mean, the reason I want to talk a little bit about it is to go one level deeper because obviously, this idea as you're identifying people very, very, very early, you talked about some of the ways you can help them, whether it's... Obviously, as people get money, they can become an LP, they can participate in the fund early on. You can help them find a job. But you guys also have fascinating other programs like a sabbatical program. Talk about some of the stuff we haven't covered that are programs that you have.
Eric Tarczynski (13:10):
Yeah. For sure. So I'll talk about a few others. So in no particular order, I'll kind of throw a few out. Right? So starting on kind of the youngest set of the equation. Right? So we haven't told our venture partner program. And so our venture partner program is actually, we just announced kind of the new cohort of folks earlier today.
Daniel Scrivner (13:30):
Feels like an hour ago.
Eric Tarczynski (13:32):
Yeah, yeah, yeah, yeah, yeah. Exactly. So we do this once a year and we usually add anywhere from 20 to 30 kind of net new, we call them venture partners. And they're basically 20 to 30 of kind of the best builders that we can find across some of the top university campuses in the country. And these are people who are a combination of really curious or interested in I'd say, kind of the intersection of tech and venture. Right? And they're really going out and they're meeting with super bright, talented peers. And it's kind of a grassroots effort of making sure that again, if we're trying to identify exceptional talent as early as we possibly can, this is kind of a really natural piece of the puzzle for us.
So we have everything from our venture partner program, which is very grassroots, starting in college. Right? And then you can think about it as when you're getting ready to graduate and maybe we help you find that first job through a talent team. Right? And then maybe you're at your first job now and you are really angsty, you're like, "I don't know why I did this. I'm going to work on side projects at night." Right? And so perhaps then, you apply for something like sabbatical, which is, hey, a program that Contrary has where we say, "Okay, we'll give a handful of teams up to a 100,000 or 200,000 depending on the year, the cohort, to quit your job and build a company instead." Right? So we're giving you that optionality of making the jump. Everything that we do whether it's the venture partner program, our fellowship program, the sabbatical program, Contrary NYC, being an LP, all of these things are focused on essentially enabling as many net new founders as we possibly can. I think it's probably the core point here actually, right?
It's like if we're saying, "Hey, we believe in identifying exceptionally talented people very early in their journeys," it's then kind of incumbent upon us to build this infrastructure that allows them wherever they are in that journey to find a home through Contrary, if that makes sense. Right? And so, I don't care if you're 20, or 30, or 40, or whatever, it doesn't matter. We'll try to have something for you that allows you to feel like you've found your tribe and you have kind of this group of people that you can now go through the journey together with.
And this translates not only from first check, high conviction, pre idea support, whatever it might be, but it also kind of scales through the entire stack of venture. Right? I mean, we're kind of are a full stack firm. We're not only doing first check investing, but this is why we launched Contrary research recently, for example, is trying to build an ecosystem and a platform that allows us to support people who are much later in their founding journeys as well. Right? So it's the whole life cycle is how we think about it. But yeah, those are another couple of examples of programs that we have.
Daniel Scrivner (16:37):
Hearing you talk about that, one of the thoughts that bubble to mind is it would seem like one of the data points you might look for over time, because basically, you're assembling this giant interlinked network of high trust individuals that hopefully have deep, meaningful relationships with each other, but are also part of feel at home with Contrary and have high trust with Contrary. And so something that would seem to materialize over time is that a lot more of your deal flow is internal than probably most VCs, where most VCs to your point, sure they have their own proprietary networks, whatever they want to call it, but it is largely, "I found an interesting deal, I may not have ever met the person." Is that how you think about that and is that something you track? Or is that a metric with which you think about success, judging success with some of these?
Eric Tarczynski (17:20):
So the short answer is yes. And I think the short answer is we've been very candid all along. I mean, this month is five years since our first investment. I don't think there has been a single deal that we've ever done that has been referred to us by another venture fund. I could be wrong, maybe there are one or two.
Daniel Scrivner (17:47):
There might be one or two data points.
Eric Tarczynski (17:48):
Yeah, yeah, yeah, but I don't think so. And so I think that speaks to basically what you said, which is everything that we do as a firm is kind of bottoms up, first principle. We are going to march to the beat of our own drum and we're going to build all of our infrastructure, whether it's our community, our programs, our engineering team, talent team, whatever it is, we're going to build that so that we can find who we think are the brightest people first. First, being the operative word here. And then we can kind of be their first check, be their largest check and kind of roll from there. So yeah, absolutely. I think if that weren't the case, we would be failing miserably. So yeah, yeah.
Daniel Scrivner (18:33):
I want to jump ahead and talk about investing and how you guys approach investing. Because I feel like what we've been talking about so far is one, this kind of fascinating, overarching meta perspective and goal of what you're building at Contrary, which is really in my mind feels like, what are you doing there? You're creating the conditions to just have incredible deal flow and be able to back incredible founders in a way that they naturally want to work with you. It's less of a sales pitch. So I'm curious, if you can one, I guess walk us through a little bit of what your research, due diligence process looks like. And some of the way I talk about that historically is if you were to try to think about the way you approach investing as an algorithm, what would the Contrary investing algorithm look like?
Eric Tarczynski (19:15):
Yeah, yeah. Good one. So on a very high level, the best way to think about it is that as you go later, we get more and more thematic. Right? So pre-seed, or seed, or first check, whatever you might want to call it, it's all about the person. It's not novel, but it's true. It's our job at the end of the day, the way we look at it is we say, "Look, we're trying to find the dozen most exceptional individuals in North America every single year and be their first investor." And I don't care what they're building. I don't care if they're building an enterprise stats company, a consumer company, computational bio, whatever it might be, if they meet that bar, we will back them full stop.
And so that's really been kind of the story of the early stage. Now within that, we're looking for somebody who is number one, deeply, deeply knowledgeable and sophisticated about the space that they're building in. Number two, somebody who's highly technical, not always, but most of the time, 95% of the time highly technical. And number three and number four, somebody who's really scrappy and really good at sales. I think one of the things we've learned over the years is you can be the best, the brightest Stanford computer scientists in the world, but if you can't also clearly articulate and tell a compelling story and narrative around why this needs to exist in the world, and use that to recruit great talent, sell the customers, raise capital, whatever it might be, you're dead in the water. Right?
So that's number one. And then I think the later you go, the more thematic we get. So if you've talk to some of our colleagues on kind of the later stage team, so my colleagues Kyle and Megan, I actually think they're reasonably thematic. Right? And so, they'll take a look at a space like FPNA or whatever it might be, and by the time you get to series B, series C, there are really only a handful of companies in a given space at that time. And it's our job to pick the company that we think is going to win that space. Right? And so it shifts from, yes, the team, whatever of course, is still important, but the waiting is significantly different than it is at the early stage. So yeah.
Daniel Scrivner (21:36):
Yeah. That makes sense. So earlier on, it sounds like you're a generalist investor and there's almost no category with which you will say no. Am I getting that right? Do you guys have any default no buckets, or is it purely based off the person?
Eric Tarczynski (21:50):
That's right, no default buckets. Yeah. We want to find the best people with the best ideas and back them, and it's as simple as that. Yeah.
Daniel Scrivner (21:58):
And then later stage, just so I'm understanding, it's thematic. Is it thematic, meaning you guys are picking industries and trends? And so there are some things you're saying, "We're not experts in," or "We don't want to invest in these spaces."
Eric Tarczynski (22:11):
Yeah. We'll pick categories that we're excited about, that we're more or less excited about. Right? And then we'll do a deep dive on that category, map it, pick the companies. It's usually two to four, three to five companies in a specific category that we might think are particularly interesting. We'll try to talk with them and ultimately, going to find the company that we have the highest degree of conviction in. Right? And so when you think about it at the late stage, it's funny, I mean, in general, we're very concentrated as a firm. I think for us, it's a strongly held belief that concentration is the only way to generate consistent outperformance over the long haul.
And so whether it's early or late, we're concentrated. And then at the early stage, it's "Hey, who are the dozen most exceptional people that we can come across?" And at the late stage is, "Hey, who are the three to five best companies in the world that we can come across in a given year?" And then we'll back them full stop. So it's a similar kind of ethos, just a slightly different kind of way of attacking the problem.
Daniel Scrivner (23:11):
Yeah. Okay. So when you're doing later stage then, one of the things you talked about doing is these market maps. It sounds eerily similar to one of the things you're doing at Contrary research. Is there quite a big overlap between those two things?
Eric Tarczynski (23:24):
Yeah, for sure. I definitely think that they all inform one another. Right? And so that's part of the reason behind research, is saying, "Look, there's really no one-stop shop for interesting thoughtful analysis on the best later stage, private or recently public technology companies." It just doesn't exist. Right? And it's kind of baffling in that regard. Right? I mean, when you think about company X, I don't know, Ramp, or Anduril, or whomever, it's hard to find any information about them. I mean, you can maybe find a TechCrunch article that announces their latest round as a-
Daniel Scrivner (24:04):
Eric Tarczynski (24:04):
... one or two line... Yeah, exactly. You have a canned quote from them on TechCrunch. You have evaluation in the round on Crunchbase, but what if you actually want to understand what they do? There's nothing. And so I think for us, we said, "Look, not only is this a really good starting point for a lot of our later stage efforts and it can serve as a good way to get people up to speed very quickly, but also for kind of the tech world writ large, there's a huge opportunity here to build something that becomes the defacto." Whether you are a VC, a hedge fund manager, a journalist, or just a tech enthusiast, you can go to research if you're curious about any interesting later stage company and get up to speed on it in 10 to 15 minutes. And there's tremendous value there, I think, if we do it the right way. So yeah.
Daniel Scrivner (24:59):
So, I want to kind of walk Contrary research back a little bit, because one of the things I think is fascinating is what you've built over time is this system. Meaning, you have a bunch of different individual programs. They all serve different needs. They clearly all inform one another. It probably generates this wonderful flywheel that kind of is accelerating one another. And so when you're thinking about something like Contrary research, which I'm sure there's two points of view. On one hand, you're very experimental, you approach everything as an experiment. So I'm sure there's always that part of the brain. But on the other hand, I think you're very long term oriented. And I would guess, you don't start anything unless you think it's a good idea and plan to invest in it heavily.
And so for something like Contrary research, walk me through a little bit. You talked about why to do it. I'm curious internally, was there any deliberation around doing it? What was the discussion about doing? And then what is it like when you green light something and say, "go." What does that kick off with that process?
Eric Tarczynski (25:50):
We generally have tremendous aversion to debate, discussion, whatever. It's funny. I said caveat that in terms of making decisions to green light something or not. Right? Obviously, we debate and discuss all the time. But the example that I'm thinking of that's top of mind is, I was talking with a friend recently who was saying that there was a venture fund that will not be named and they were redoing their... I think it was their website. And it was a plus or minus half a million dollar effort. So that took two or three years to go from start to finish. I mean, we did ours in two months tops from start to finish for... I don't know how much it costs, but it was trivial, almost nothing. Right?
And so I think culturally, going back to the startup mindset, if somebody came to me and told us this is going to take two to three years and half a million dollars, they would be fired. Right? That's not the kind of culture that we ever want to have at Contrary. And so I think that propagates to things like research, to kind of bring this back full circle where it is a handful of discussions and we figure out roughly how much this might cost, roughly kind of what the goal is here. And if it fits neatly into kind of like you said, this flywheel that we're starting to build, and then we do it. And we do it well. Everything that we do, we make sure has an incredibly high bar because everything that we do represents Contrary. Right?
And I'm not going to put something out there in the world if it doesn't look good or if it's not done well. But ultimately, it's all treated as an experiment, like you said. Right? And if Contrary research or any other thing that we do just wasn't done well or wasn't picking up traction or ever, I tell this to the team all the time is, nothing is too good to be canceled. Nothing is too good to get axed.
And I really mean that. I think the moment we start kind of having these walled off gardens and things that are kind of untouchable is the moment that we stop, I think, kind of like being a real startup. So yeah, I think all that is to say, to answer your original question, we move really fast. We make sure that it's in line with our broader north star. We have a very clearly defined set of expectations and the timeframe at which we expect it will yield certain results. But if it doesn't show up and if we don't put points on the board, that's it, and we move on. And that's fine. And that's kind of how we operate. Yeah.
Daniel Scrivner (28:51):
I want to ask a little bit of a double click question. Going back to this example, which is hilarious and amazing of this VC firm, I was going to say hypothetical, but I'm sure it's a real VC firm, that has spent two to three years half a million...
Eric Tarczynski (29:04):
You would know the name. Yeah.
Daniel Scrivner (29:06):
That spent two to three years half a million dollars on this website. Part of that is clearly that's just completely not... Philosophically, I think we would both agree, it's just completely not the way to go about that. So there's that. But I think on the other hand, one thing I can see that through the lens of is capital allocation. And I'm going to go out on a limb here in a second and ask you a question. But I think there are a lot of VCs that overly weigh appearance. And I would guess they look at something like their website and say, "That's the place that we're going to spend money because man, we don't have much else. If a founder comes to our website and is blown away, maybe they'll take our call, take our check."
So maybe that is their framework. And I do think that there are companies that are VC firms that just overinvest in optics. And it seems like you guys are clearly on the other end where maybe that's not a place where you overinvest. So the question behind the question is, if you were to put on your capital allocation hat, which I'm sure is a hat you probably put on a lot, how do you think about where you want to be investing the most at Contrary and where you want to be investing the least?
Eric Tarczynski (30:04):
Yeah. So it's actually a pretty straightforward answer. So for us, we feel very strongly that the only thing that will matter in venture a decade from now are technology, talent and community, and distribution. Meaning, content or whatever. Right? And so those are the three pieces of the puzzle where we spend a lot of our time and effort and energy. And everything else, it's kind of largely irrelevant in our mind. And so yes, obviously, I think brand is and will continue to be paramount in the venture world. Right? It's a thing that's very unique to venture and it's not going anywhere.
And so like I said, we're not going to put something out there in the world that isn't done well, but for us, that's where we spend our time. Those three things, I think for us, that's all that matters. And I think if we do those three things very, very well, we'll build an incredibly special venture firm. And if we don't, then we won't. Right? And you'll just kind of be a run of the mill venture firm, but that's not what we're trying to do.
Daniel Scrivner (31:14):
Yeah. I think you guys will be okay in that department. I want to ask, those three, they're very unique, they make a lot of sense, but the way you framed that of 10 years from now, I think is pretty significant. And I talked about this before, one of the pieces I really liked kind of reading to prepare for this was Eric who leads, I think, later stage investing at Contrary wrote... Sorry, not Eric.
Eric Tarczynski (31:39):
Kyle. Yeah, yeah, yeah.
Daniel Scrivner (31:40):
Kyle wrote about his decision for coming Contrary. And one of the big conclusions that he came to is he basically did this massive kind of interview, meet and greet of a bunch of different venture firms to try to understand and get to the bottom of one, where is venture going, and who's building the venture firm that's going to be around 50 years from now and actually be significant and important? And his conclusion was that it was Contrary. And I think the thinking there is just very different than most VCs in terms of what you're waiting. So talk a little bit about... And I don't know if it makes sense to kind of go back in time, if it makes sense just to talk about from where we are today, how you see venture playing out, but talk about why those things will matter and how you see venture evolving over the next 10 years?
Eric Tarczynski (32:21):
Yeah, for sure. Well, so I think I'll start with another kind of anonymized, fun anecdote and story. But this comes from another friend that I have that works at or worked at again, a top five, top 10, you would know of them kind of venture firm. And they went around one day and they were basically asking the firm, what do we think our differentiation is? What do we actually do that's unique? And nobody could come up with anything. Nobody could come up other than brand. Right? So you ask yourself, wow, I mean this is jarring. Right? A multi-billion dollar kind of firm and the only thing that they're latching their horse to is brand. Right?
And yes, I would acknowledge that brand is the most important thing for a venture firm today, unequivocally. You think about the Sequoias or whomever, and brand, it's massively important. So I don't want to discount that. Right? But if you look out 10, 20, 30, whatever years and you ask yourself, "Okay, what do the next generation of venture franchises look like?" Yes obviously, brand will continue to be very important. That's not going to go anywhere anytime soon, but you can't rest on the brand laurel alone. Right? And when you go back kind of generation by generation, every single 10 or so years, there are a couple of venture firms that emerge that do things fundamentally differently. And those are the ones that become the next Sequoia. Right?
We're just going to go back in progression, but over the past decade or so, it was maybe Andreessen. And five years before that, it was the YC. Then five years before that, it was the Lightspeed or Benchmark. Right? And you can kind of keep going back. And these things kind of happened every 5, 10, 15 years. You get firms that approach things differently. Right? And so for us, we believe very strongly that those three things that I talked about, kind of talent, technology, community distribution, those will be the things that will win and we'll be having this conversation a decade from now.
And I think if we're playing our cards the right way, this model that we are approaching will be one of the most successful in venture. And so, that's ultimately the bet that we're making, is we're making a bet not on the status quo, but I think a bet on the future. And much in the same way like a YC 15 years ago, it's just like this model didn't exist. They invented the model. I think we're doing something very similar.
Daniel Scrivner (35:08):
Yeah. I love that. I mean, two thoughts on that. One is, I think part of why differentiation is so important is if you just think about the world like animal species and you think about every venture firm today, I don't even know, as a zebra or something like that, well clearly, you don't want to compete by being a slightly different zebra. You want to compete by being something very, very, very different. And that's of course, you want to always be tangential. And then the other piece was just, I don't disagree with you about brand, but when I hear brand, I think what most people are thinking in their minds is logos, and aesthetics, and the website that they're spending half a million dollars on, not what are our core values, and then how do we live those each day, which is actually how you build a brand over time. It's such sticky it matters.
Eric Tarczynski (35:50):
100%. Yeah, yeah, 100%. I mean, we could have a discussion around why there are so many copycat style venture firms out there. I think actually at the end of the day, it comes back to what most LPs are willing to fund. Right? And then that comes back to LP dynamics, and incentive mechanisms, and all that kind of stuff. I think largely, the reason why there hasn't been enough innovation in the venture model is actually pretty tied to LPs, which is unfortunate. And I think there are many people out there doing kind of good work to kind of push on that.
So you understand it to some extent, but at the same token, nothing progresses, nothing changes, nothing evolves if you don't push on that and challenge that. Right? I have no doubt that YC in the early days struggled to raise capital. Right? And you struggled to raise capital because if an LP is trying to present this to their investment committee or whatever it is, and nobody has ever heard of YC or nobody has ever heard of this weird new model of venture, they're not going to raise money. Right? Whereas if you went out and you were just doing the same thing that the other person was doing, but just a little bit different or a little bit better, it's a much more sellable type of thing. But ultimately, you don't end up building something very durable that way. You just end up building a copycat firm that inevitably kind of goes by the wayside.
Daniel Scrivner (37:24):
Yeah. They're another wave that washes up on the beach, and then another wave just comes over them and you never even knew they existed.
Eric Tarczynski (37:31):
Totally. Exactly. Yeah, yeah. And then the question is, what do you want to build at the end of the day, right? Are you trying to build the next YC or you're trying to build just yet another venture fund that's doing the same thing that everybody else is doing? So yeah.
Daniel Scrivner (37:42):
Okay. I want to ask three closing questions. And actually, one of them was about LPs. I mean, you've raised capital from some incredible founders, founders of Tesla, Reddit, Airbnb, Facebook, and you've also worked with a number of incredible founders that you've invested in today. Especially looking at your background, you mentioned this a little bit earlier, that obviously, you had not raised venture capital fund before. Literally, you had to cross the zero to one chasm. And so I guess the questions I wanted to ask is, what have you learned about raising capital from LPs good or bad? You talked a little bit about some of the bad. And then two, if you had to try to point to one thing that is the reason why you had so many incredible founders invest in Contrary, what would that be?
Eric Tarczynski (38:24):
Yeah. So I'll start the second one first. I think the second one, it ultimately comes down to the fact that founders are excited about people doing things differently. Right? I mean, founders get asked all the time to invest in funds and they're all just different iterations of the same exact thing. Right? And so maybe the only reason a founder invests in a traditional seed fund in city X is because they're friends of the person. Right? Whereas I think when we are talking about Contrary, what we're doing is pretty fundamentally unique. And I think founders understand that, and they're excited about that, and they're excited about the fact that if this continues to work in the way it has been, you have the potential to build an incredibly special venture firm and a venture from that is around in 30, 40, 50, 100 years, whatever it might be. Right?
And so I think that's number one and that's most attractive for, I think, a lot of founders. I think in terms of the pros and cons or lessons learned of raising capital, look, I actually still learn quite a bit every single day. And I think I've remarked to friends that I feel like every time we raise a new fund, I learn something different actually. And I learn something different because you're operating and targeting a different type of person or firm throughout that journey. Right? So the kinds of LPs that we were talking to for our first fund were very different than our second fund, which were pretty different from our third fund, which will be different from our fourth fund and beyond. Right? And because you're talking about individuals versus family offices, versus endowments, versus sovereign wealth funds, versus public pension funds, and all of these groups have different incentive mechanisms and different reasons for why they invest in something versus not, I think for me, it's just a constant journey where I'm kind of testing myself when it comes to raising capital.
I think some of the pros are for me personally, I quite enjoy it. I don't enjoy necessarily the operational nuance of it of having to follow up and send documents and all this kind of stuff. But I do enjoy telling people about Contrary, and our story, and what we're building, and getting their perspective, or thoughts, or ideas. That is a pretty rewarding piece of the job actually. So I quite enjoy that. And I also enjoy working with a lot of our partners. They're very active collaborators, co-investors alongside us, have great ideas. I mean, our LPs are fantastic and it's a cross-section of all different kinds of groups. Right?
So I actually quite enjoy that part of it. I think what comes to lessons learned, it goes back to probably what we talked about a little while ago, which is around optics. Right? And I think raising for a fund perhaps slightly different than raising for a startup in many ways, and raising for a fund, I think it's just a lot more optics focused at the end of the day. Right? Who you are, where you came from, where you went to school, or companies you've worked at, hot companies you've invested in before, anything that can give you credibility/can give the person who might want to invest a new air cover is really, really important.
And that's kind of like the ugly side, I think, of fundraising. I think kind of the sexiness is actually really important in a way that I don't think it should be. I think if you put points in the board, have a really interesting model, have backed great companies, have built a good team, I think those things much in the same way that it would oftentimes for a startup, I think that should be what really matters. And more often than not, it's less the case, I think, in raising LP capital. But going back to one of our very first comments, you just have to play the game. You have to acknowledge it for what it is and move on whether you like it or not. But I always find myself learning when it comes to the firm building and fundraising sides of building Contrary. So yeah.
Daniel Scrivner (42:49):
That's fascinating. Thank you so much for sharing so much about what that looks like. The second question I wanted to ask is, so not only are many of your LPs just incredible founders in their own right, you've also backed incredible founders at Anduril, at Varda Space Holdings, at a number of other incredible companies. So I'm curious, the question that I wanted to ask, and I don't know how much of your role allows you to get to spend as much time with founders as you might like, but I'm sure over the last six years as you've been building this, you've been able to observe quite a bit. And one of the questions I wanted to ask is just very simply, when you watch the best founders in your portfolio operate, what does that look like and how is that different than maybe founders that are merely good? Meaning, what are the exceptional founders, I guess, get right or what do they do differently?
Eric Tarczynski (43:34):
Yeah. I think there are two things. I think number one, there is an unmatched level of obsession that the best founders have. It is all consuming, I think, for the absolute best founders. They're thinking about it literally 24/7. And I mean, it was funny, I was catching up with one of our founders recently and my intent for the catch up was just to catch up, just to, how are you doing personally? How are you, on a very human level? And they just couldn't help but giving me the latest updates in the business, and they had this thing prepared, and they wanted to show me this and that. And then we got really into the weeds on neuroeconomics. And I was like, yes, I want to know about those things as well, but let's also just catch up. And they're just obsessed. And I love it. You have to respect it. So I think that's number one.
I think number two is the absolute best founders that we work with have tremendous clarity of thought. So one of our founders, Katie at Maev, it's a consumer brand, they're basically building a dog wellness brand. And Katie the founder, she's just phenomenal. And what I always remember is, I think we only invested in one, maybe two, direct to consumer brands four, five, six years ago. We looked at a ton and only invested in one or two. And the example I always remember is, if you ask a typical direct to consumer founder at the seed stage about customer acquisition, the typical founder that you might talk to would say something like, "Yeah, we plan to acquire customers through primarily Facebook and Instagram ads." And it would be some varnished version of that. You'd ask about customer acquisition costs, this or that, and they'd give you some kind of fluffy answer. That was kind of it. Right?
And I remember when we asked Katie how she was going to acquire her first customer, she was like, "I absolutely will not be doing any paid Facebook, Instagram advertising." She said, "In fact, what I'm going to do is do this." Right? "We're going to..." And I'm paraphrasing here. "We're starting in New York City, in the specific area of New York City. We're starting with 28 to 35 year old women who make north of $150,000 a year, have no children. Our exact strategy is to go and do this, this, this. We're going to go hand off flyers in Washington Square Park from this day at this time." The level of granularity and nuance that Katie had for every single question that we asked about the business, it just blew your average founder away.
And so whether she ended up being right or wrong on those specific kind of aspects of user acquisition, honestly, it's not that relevant. I think what's more relevant is the level of granularity of thought that she's applied to every aspect of that business. And it means, if she's applying that level of thought to user acquisition, she's applying it to everything. I think those are kind of the two traits, I think, that we find that are really special.
Daniel Scrivner (46:52):
I love those two. Okay, last question. And thank you so much for spending so much time with me, Eric. I want to be respectful of your time. For people listening that are like, "Contrary is incredible. How do I get plugged in?" Where should people go and is there a place you send people that's a good starting place?
Eric Tarczynski (47:06):
Yeah, indeed. So I think it depends on where you are in your journey. So I think if you're a really talented engineer, designer or product person, if you're thinking about working on a company but you haven't yet, you should check out our fellowship program, contrary.com/fellowship. You should apply and become a part of our next cohorts. We do two cohorts a year. That's probably the best way to get on our radar, if you're somebody who hasn't yet started a company. If you're in the early innings of starting that company, shoot us a note. We're super, super reachable. It's usually just kind of firstname.lastname@example.org and we'll kind of steer you to the right person on the team. And if you're somewhere else in that journey, if you're in college or you're at your job and you're thinking about quitting, or you have a research piece that you want to write about, we're all ears. Just shoot us a note and we'll always steer you to the right person. So yeah, that's what I would say.
Daniel Scrivner (47:59):
Brace your inbox, Eric.
Eric Tarczynski (48:00):
That's right. That's right. Yeah, yeah, yeah. That's okay.
Daniel Scrivner (48:00):
Well, thank you, thank you, thank you so much. I really appreciate the time. And this has been so much fun.
Eric Tarczynski (48:08):
Thanks for having me. This was great, Daniel.
On Outlier Academy, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today.
Daniel Scrivner and Mighty Publishing LLC own the copyright in and to all content in and transcripts of the Outlier Academy podcast, with all rights reserved, including Daniel’s right of publicity.