Letter #260: Joel Cutler (2017)
General Catalyst Cofounder | Phocuswright Conference Executive Interview
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Joel Cutler is the cofounder of General Catalyst. He famously met and convinced Josh Kushner to start his own fund, made introductions for him to do so, and had General Catalyst seed Thrive’s initial $5mn fund. Prior to founding General Catalyst, Joel cofounded and operated numerous businesses which focused on travel, information services, specialty retail, consumer-direct, and payment processing industries including Alliance Development Group (acquired by MyPoints), Miami Cruise Services (acquired by LVMH Moet Hennessy Louis Vuitton, Inc.), National Leisure Group (acquired by Cendant), and Retail Growth (divisions acquired by PNC Bank/MBNA and AT&T;).
Today’s letter is the transcript of an interview with Joel Cutler. In this interview, Joel discusses his operating career before General Catalyst, how he met his cofounder David Fialkow, how he switched from operating to investing, meeting and investing in ITA Software, learnings from ITA that he has carried to other decisions, losing money in his first two deals and how that led to investing in travel, whether he would still invest in the OTA world despite Google’s activities, finding Airbnb, missing deals, his biggest miss, his stupidest moment, seeing (or not seeing) trends, distinguishing the entirely new, incredible idea vs the stuff that hasn’t been done for a very good reason, balancing team and business, investing in people, sectors he’s interested in, B2B vs consumer, if there is a secret to getting Joel involved in a startup, and much more!
I hope you enjoy this conversation as much as I do!
[Transcript and any errors are mine.]
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Transcript
Host: A venture capitalist with a knack for spotting big ideas among travel tech startups, his investments include such iconic companies as Kayak, ITA Software, and Airbnb. Please welcome Managing Director of General Catalyst Partners, Joel Cutler. Welcome, Joel, thanks. How are you doing?
Joel Cutler: Are these really smart people going to ask me questions afterwards also?
Host: I think you're just stuck with me.
Joel Cutler: Thank goodness.
Host: I'm going to try to live up to it.
Joel Cutler: They look smart and tough. Doug is speechless.
Host: I'm going to work my way into it, okay?
Joel Cutler: Go right ahead. I like the socks. Everybody see his socks and shoes there?
Host: I'm trying to live up to Brad Gerstner. I've got a long ways to go.
Joel Cutler: Those are cool.
Host: So Brad, if you're there, we have high expectations for you this afternoon. Okay, so I just want to -- I want to introduce everyone to you -- or you to everyone else in a different way, because you -- everyone knows who you are. In this industry, you've been at our event for many years, but one of the most famous investors in travel over the past two decades.
Joel Cutler: Luckiest. Just lucky.
Host: Okay, lucky. Well, luckiest. Well, we can decide at the end, we can take a vote. So but you were actually an operator before you were an investor in the cruise industry, also at NLG. Could just like, in 30 seconds, can you walk us through what you did?
Joel Cutler: It was less inspired than that. My dad was a tour operator, and he owned a convention business in a hotel in Las Vegas, so I sort of grew up in and around the space, and sort of happenstance brought me into entrepreneurship in the travel industry, and sort of went from there, and did three or four travel startups. Did a pretty good sized buyout in the cruise line business that worked out spectacularly well. And then I was sort of weak of spirit. My partner wanted to become a venture capitalist. We thought it was the end of the--
Host: Was this David Fialkow?
Joel Cutler: Yeah.
Host: Who I read, actually, you met at summer camp.
Joel Cutler: We did. We were eight years old. We went to camp in Maine together. And we've probably done 250 deals together since then. Like, we've done a lot of investments -- most of them not that good.
Host: So we're gonna actually come back to those, I want to hear about. But so how did you make that switch from operations into -- like, what was the catalyst?
Joel Cutler: So it's like the world was getting wired up for the internet, and Dave and I had some capital, and we were making personal investments. I was working in Miami in the cruise line business, and Dave was making investments on our behalf, and it went really well. And he wanted to start a firm, and I wanted to continue being a CEO. He has stronger will and more intelligent than me, so we ended up doing that. It's worked out, despite a limited amount of talent, remarkably well. And I'm surprised.
Host: So one of the first big -- maybe not investments, but big successes within travel, ITA software--
Joel Cutler: Yeah, those guys are great.
Host: So when did you make the first -- where'd you find them? How did you find them? And what was the spark there?
Joel Cutler: They were really bright people in Boston, from MIT, doing interesting things. They had this special relationship with Amadeus and Orbitz, and it was kind of stalled. They couldn't take an investment because they had all this sort of entanglement with one another. So they became quite -- at the beginning of the internet, they were really speeding up the way orbit -- the search was such high quality, it was pretty easy to find them. And Paul Reader and Brad Gerstner and I sort of sniffed them out together, and after a year's worth of dating, we made an investment. And Jeremy is a really special person. It's pretty easy to tell when you're with Jeremy that you're with somebody that is seeing the future as a first principles thinker, is seeing the future in a different way than other people. So it wasn't really a hard decision to make an investment in those guys.
Host: What did you learn from that that you've carried through your other decisions?
Joel Cutler: Engineering really matters. Like engineering really, really, really matters. And people who are seeing the future as it should be, as opposed to trying to incrementally better that which is already in existence are the ones that we need to invest with. Jeremy was years ahead of everybody, always. And it's that first principles thinking, I think in -- for entrepreneurs and for investors, you want to make sure that you're doing things that are different and not incremental.
Host: So and then Kayak, which was actually kind of your idea, and you recruited Steve and Paul, is that -- I have the story right?
Joel Cutler: So I was a terrible venture capitalist. Like, just dismal. And--
Host: I can tell.
Joel Cutler: My first two investments -- like I'd never lost any money on an investment in my life, and my first investments were down the tubes in like two years. We lost like $10mn and--
Host: What were they?
Joel Cutler: One was in adtech, and one was in security. And so I was going to go home and sit in a warm bath and just say I'm terrible at this. And I basically went into the guys at work and said I'm going to go do something else -- I'm just terrible at this -- before I lose other people's money. And they said, no, no, hang around for a while. We just raised a big fund. And so I sort of sat around and thought about stuff in the travel business. And actually, Paul Reader said to me, like, why aren't you doing--
Host: PAR -- he's a PAR Capital Management, right?
Joel Cutler: Yeah. Really probably the best investor in the world in the travel space, said you should do more stuff in travel. So I sort of thought about things, and came up with the idea for search. And then Steve and Paul did all the work. So we started it, we incorporated it, and then we owned a bunch -- we owned all of it. And then Steve and Paul -- Paul was a buddy of my partner, Larry's, and I knew Steve from Orbitz.
Host: How did you know that those two were the two? Because there were other, I mean, there were some other meta search platforms. I mean, there was--
Joel Cutler: Steve is -- just because they're just really special people. They never knew each other. They met like the day before Thanksgiving in my office, like 10 years ago, or something like that. And it's pretty easy to tell that Paul is a savant with regard to consumer product -- and he'd been at Intel, and ran consumer product at Intel. And Steve is about the smartest guy that one could ever meet. Sassy, but, super, super smart. And they got along incredibly well right away. They never met each other. They met each other in the couch in my office. And just said, This is great. And I said, Why don't you guys do this? And they said, Cool, we'll do it. We gave them a bunch of money on the spot.
Host: So you made two big investments, really more focused on air. In the environment today, I mean, air is kind of a -- in the OTA world anyway, it's kind of a dirty word. Has been for a while.
Joel Cutler: Uh, no.
Host: Would you still invest in that space?
Joel Cutler: Yeah, sure.
Host: Even with what Google is doing is?
Joel Cutler: Oh, yeah. It's like, somebody's gonna always -- in a world that's this big, somebody's always going to do something better. Just, you need to find people that want to do something radically different and take a big risk and not just a little bit better than the folks that came before them. Yeah, I think Google's doing a great job, but Gianni is really -- got that group doing interesting and exciting work, but there'll be somebody else that does this. It's not over. It's never over in this business. It's huge.
Host: Never ever over. The other really big one, of course, Airbnb.
Joel Cutler: Those guys are great.
Host: Yeah, so, now when did you find them and invest in them? It was quite early, right?
Joel Cutler: They're amazing. First of all, you meet them, and they're -- the three of them, each one of them -- the other one. And they're good people. When I first met them --
Host: Sorry, I think we're -- can we get a handheld for Joel? I think his mic is going in and out.
Joel Cutler: I sound better when you can't hear me. It's okay. Can I take this off? I'll do whatever you want. At any event, there were three super bright young people, and Brian was living in an Airbnb. He didn't have a house. He was, like, living in an Airbnb. And they loved food. They loved -- like they were all foodies. And I had an American Express card, and they didn't. And so every time I'd go to San Francisco, I'd call them up and say, Where are we going to eat tonight? And I'd sign -- I probably have 100 emails to them: You got to eat. What are we doing tonight? And we just got to know each other for a long period of time. And they've obviously done a remarkable job.
Host: But so there's so many stories of famous venture capitalists passing on Airbnb, and -- what did you see, besides the fact that he was living in a in an Airbnb and couldn't afford to feed himself?
Joel Cutler: I had no idea it was going to be this good. Like absolutely no idea whatsoever. It's just -- it was easy to make an investment in these guys, and they were starting to show a little bit of traction, but I didn't see the future at all. So I don't want to pretend that I knew anything special. It was just they were remarkable, they were doing something totally unique, the math of it made all sorts of sense, and the -- you could just feel it. Like the community loved it. The buyers were sellers, the sellers were buyers. People loved it. The reviews were raves. You could call people that had just done an Airbnb and they'd say, You've changed my life, I'm never going to do anything different. It was easy. It wasn't hard to see that there was something special going on. I don't think any one of us could have predicted that it was as special as it's become. I mean, it's really quite remarkable.
Host: So kind of boiling down--
Joel Cutler: But I've also missed about, like, everything. I don't know if you were ever in my office, but I used to have this thing--it's not there anymore--it was, like, this long list of companies, and it was companies that I was too stupid to--is that Hafner? Hafner saw it. He knows I was too stupid. Companies I was too stupid or too lazy to talk to that had done pretty well. And then companies that I did talk to that I didn't think that we should make an investment in and that did pretty well. And then companies that I thought that we should make an investment in that sucked. And then companies that did really well--it was like this teeny little list. It was quite humbling.
Host: Can we get some detail then on your most stupid moment? The biggest miss? If there was one thing you could go back and fix and do again, can you share that? The one company you passed on? Or maybe the one company you should have passed on?
Joel Cutler: Oh, there's a lot of companies I should have passed on. Then there's a lot of companies that Haf would tell me I was stupid for even thinking--
Host: How many--so you look at hundreds of companies a year, probably.
Joel Cutler: A couple 100, probably.
Host: And how many do you--
Joel Cutler: I probably sponsor a couple of investments a year. But I'm old and lazy, and I have 25 companies that I'm responsible for helping the firm manage, and so on, so there's not that much bandwidth.
Host: So that's stupid--stupidest moment. I'm not gonna let that go.
Joel Cutler: There's a lot of them. I got to think of it. There's a lot of them. This is not like false humility. There's just a tremendous--if you're a good venture capitalist, the key is to be in the game. And making mistakes and passing on really good companies is part of life. And if you can't take it, then get out of the game. But if you want to play in sort of high octane venture capital, the key is 1) are you in the best fights? And nobody wins all the best fights. Just, you got to be in the best fights. So part of losing great deals or not seeing them is just part of being in the best game. If you went past your life, and if you were sort of like me, where the sands have moved through the hourglass, and you hadn't met a lot of great companies and you hadn't missed, then you did a sucky job. Because just you didn't have good radar. You didn't meet the most interesting people. They didn't find out from you and everybody else in this room who was super smart and who should you be talking to? You didn't leg it out, you didn't really get into the fight.
Host: So certain areas, certain sectors, that you saw, some really big opportunities in transformation in air shopping, maybe in advertising in the case of Meta search and consumer shopping and accommodation--what are some big sectors that--or trends that have--
Joel Cutler: I don't think I've ever seen it. I'm not a first principles thinker. Like, Steve saw it, Paul saw it, Jeremy saw it, Brian saw it. Those guys saw these things. My job was just to find people who could see it. But if you're dependent on me to have the ideas, and for me to be seeing outside of like, over the horizon radar, you're screwed. Like, it's just, it's a bad idea. I'll meet a lot of really good people, and my job is to say no, no, no, no, no, without arrogance or hubris, but, that person has what it takes to make it happen. And the confluence of that person has what it takes to make it happen--if things are really good, you've got a technology shift at the same time, like you've got something happening that--ones where the Germans are taking over the world, and ones where the plates are shifting, the tectonic shift. If you can see sort of that happening in technology, and you've got a new and different business idea at the same time, and people who can make it happen, then you give them all the money you can, like, as much as you possibly can, as fast as you can.
Host: So, you know, one of the ideas you've talked about before is, so you want, you want this kind of 10x or 100x idea, you want something that's going to be entirely new. How do you distinguish the entirely new, the incredible idea, from all of the stuff that hasn't been done for a very good reason.
Joel Cutler: Everything I can't understand I'm more interested in. So if somebody comes and talks to me about something that's sort of similar to this, or they describe it as this is the this for that--like for a long time, I used to get this is the kayak for this, or the ITA for that, or the Airbnb for this, or something like that, or the Warby Parker for this, or--I've done a lot of other investments in other industries, and people would use that kind of--and so I turn off. Like somebody would say, I'm the this for that, and I just stop listening. Because I want somebody to tell me something I can't understand. So one of the things that made me feel pretty good about the last couple of days, I think I told you this before, is I've met a lot of really smart young people--a lot of really, really, really smart young people. I'd like to see them push their thinking harder and to do things that aren't obvious. Moreover, to get to make the kind of returns that our investors feel really happy about, you do need some demand aggregation, generally, some outsized demand aggregation. That's hard. It's become harder and harder in the in the industry to do. And sort of the wiring of the industry, whether it's this sort of attraction space or vacation rental space or whatever it is, is interesting. And I think they're really good businesses that are being built--really, really good businesses. But they don't have that same sizzle, that demand aggregation, that sort of takes off when you get the network effect, how it sort of takes off. Those are hard to come by.
Host: But there's certainly--well, in the case of Airbnb, you had a clear use case with the success of Home Away and what was happening in vacation rentals--and I think you know Brian--both Brians--
Joel Cutler: I had dinner with Brian Sunday night--Sharples--Sunday night.
Host: So there was something there, right? There was more to it than simply Brian Chesky and the cofounders having this passion, and--
Joel Cutler: Yeah. I had no clairvoyance. The world--by the time I was that interested, smart other people were similarly interested. It was like, how did you find your way into an interesting investment? I was not years in front of the pack there.
Host: So how do we think--we hear this a lot from investors and venture capitalists and so forth, it's all about the team, you're investing in the people and people, but--and you've talked about that a little bit, but, I mean, you've got to do your homework. I mean, you look at the marketplace, you understand this--how do you balance that?
Joel Cutler: I've only missed one PhocusWire, and it was last year because my daughter was sick. So I've been hanging around these halls, which I think you've done a pretty good job, for a long, long time. It's persistence. You sort of get to know things. I know ecommerce pretty well, I know this pretty well. I've done a bunch of investments shaking up the insurance company business because they're slow and lumbering and they're easy to poke your finger in the eye. But like, hey, my job, and like, Steve knows this better than anything--my job is for me to spot really brilliant young people--a moment in time--for me to give them a lot of money, for them to do all the work, for them to give me back a ton of money that we give to our investors, who are like endowments and foundations and nonprofit organizations--and then for me to take all the credit. It's a perfect job!
Host: Is there a sector of travel that it doesn't matter how brilliant--even if the next Steve Hafner or Brian Chesky walked into your office and said, This is it--it's going to be AI blockchain tourism activities startup, this is it--
Joel Cutler: I'd still invest.
Host: You would invest?
Joel Cutler: I'd invest. Yeah. If somebody that smart walks in my office, then I'm going to listen to them and not myself.
Host: So there's no sector that--are there sectors that you're more interested in or less?
Joel Cutler: I'm always more interested in demand aggregation, just because I think it's got the sizzle that produces the multi billion dollar results. And I have to force myself to be more interested in some of the sort of plumbing, if you will. But I've met a lot of people around this the last couple of days that have really good businesses, growing and sort of wiring the world in these new spaces. So--
Host: But you don't do a lot of B2B stuff. I mean, you've been focused more on--
Joel Cutler: Outsized returns come in the consumer space, generally. You have to really leg it out in the enterprise.
Host: Is ITA the exception, I guess?
Joel Cutler: Save for ITA, yeah. I did a few security--I've done some other things in B2B, but I like the consumer space better. Just a personal choice.
Host: And then some of the big things like we're talking about here over the next couple of days--for the past year, like artificial intelligence, is this overhyped? Are we at the peak of inflated expectations, or--
Joel Cutler: Yeah. I think, like, five years ago if somebody said to you they were a mobility company, you'd say, What the heck--there were mobility companies. Now it's part of--it's ubiquitous. I think AI, VR, AR, whatever you want to do, machine learning--it's just going to become part of everything that every application gets built on. And today, we're sort of investing horizontally in those platform companies. And tomorrow, there'll be a couple of vertical companies. But I think it'll just be part of what every good application software company does. I mean, I can't imagine a company in a few years that doesn't understand machine learning really well.
Host: So last question: Is there some secret--every startup wants some of you--what do they have to do?
Joel Cutler: They should find smarter people than me. They should meet the young people in the venture capital firms that are really trying hard to make a mark for themselves right now. And they're going to work incredibly hard to understand what's going on. Like my young partner Peter Boyce is here--and he's going to work really, really hard to understand what's happening in the industry--he's going to listen, without looking around to see who's there. He's going to really focus. And there are young, smart people in every good venture capital firm--get hold of them, leg, bite them, and they will force you up the sort of attention curve, if you will. That would be my strong suggestion.
Host: Okay. The apparently lazy and frequently stupid but actually quite impressive Joel Cutler of General Catalyst.
Joel Cutler: Thanks guys.
Host: Thank you. Thanks a lot. That was great. Thank you.
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