Joel Cutler of General Catalyst talks travel startup investing

Joel Cutler is widely considered a master of venture-capital investing, with a particular gift at identifying star travel technology businesses.

Most famously, Cutler was a founding investor in metasearch website Kayak in 2004.

That early confidence paid off when General Catalyst Partners — the VC firm he co-founded in 2000 — earned $460 million in Kayak’s 2012 IPO and subsequent acquisition by Priceline Group.

Other profitable investments by the managing director of General Catalyst include airline ticketing technology platform ITA Software, which was sold to Google for $700 million in 2011.

Cutler grasps entrepreneurship well, having co-founded a few successful companies himself, including the travel technology firm National Leisure Group and Starboard Cruise Services, which operates stores on cruise ships — and which he sold to luxury group LVMH Moet Hennessy Louis Vuitton.

This week at the Phocuswright Conference in Los Angeles, Cutler was one of the star speakers on the main panels. He took time out from his meetings to speak with Tnooz about travel tech investing.

What’s an idea you must routinely knock out of the heads of founders?

I’ve never had a better idea than the founders.

But I think good venture capitalists help the founders to believe that everything is possible. You breed ambition into things.

There’s two kinds of questions. What happens if everything goes wrong?

But the better question is, what happens if everything goes right? “So, Founder, if everything goes right, is this going to be spectacular?”

Let’s play toward a big win as opposed to playing toward not failing.

During the Phocuswright panel, you said you’re only interested in entrepreneurs wanting to build big businesses that can become the next Airbnb or Uber. Could you elaborate?

I have a very strong opinion. If you’re going to do something that someone else has done, in the same geography, in the same market, then it better be ten times better.

And if it’s really not ten times better, it’s not worth doing because consumers will have a very hard time distinguishing between brands. They have loyalty to their first loves.

If your solution really is ten times better it is probably because there was a technology shift or platform shift that enabled great change and or a business model shift that enabled great change.

But the best things happen when there’s both a business model and a technology shift. That’s how you build great brands off of unbelievable product.

And when you build great brands, it reduces your cost of acquiring customers in the consumer space. That’s when the flywheel starts and you have these big successes.

But if it’s not going to be 10 times better, I don’t think it’s a good idea.

You said on the Phocuswright stage that entrepreneurs shouldn’t go around saying their company is “the Uber of X” or “the Airbnb for Y.”

Right. I don’t want to hear “I”m the Uber for this,” or the “Airbnb for that.” I’d rather the company be at the start of the phrase. I want to meet entrepreneurs who are creating new and orthogonal paths.

Particularly Uber. That’s a perfect example. I’m too stupid. I didn’t invest in Uber.

There’s a platform shift to mobile, and a completely new and different business model with the variable pricing and so on.

Uber is one of the most interesting companies ever made.

Similarly with Airbnb.

Why did Kayak do so well?

Steve and Paul were brilliant.

And then, it also came at a really great time. There was a technology shift, with the beginning of AJAX and so on, which allowed for a new and different platform to develop. And then, there was a business model shift.

But at the end of the day, it was because the two guys were brilliant.

And, in general, I think teams that have a technical founder and a business founder have an advantage.

When considering whether to invest in a startup, what’s more important — the team or the idea?

Everyone’s got their own answer. I think a good idea with a great team is better than a great idea with a good team.

And I think having a healthy respect for technology is essential. It’s not all about business model. Teams that have technical founders are better suited to creating breakthrough solutions.

Of all the tasks that VCs do, how important is helping founders with hiring?

I think hiring is arguably the most important. Because these businesses are teeny. They’re going to change and morph and develop.

The quality of people one is able to get into the business is the determining factor in success at some point.

Are you referring to technical hires? It’s been said that the impact between hiring a good developer and a great one can be logarithmic in a business.

I think there is more leverage in every single person that comes on to the business, period.

Excellent technical people are harder to find. But all these early hires in all positions shape the company.

What’s the secret sauce for hiring well? Is it whom the VC knows in their network, or is it what the VC knows in how to structure the interview process?

I think it’s both. I don’t think any venture capital firm can ever suggest that they know everybody worth hiring for every company in their portfolio. That’d be silly.

I think a lot of venture capital firms know a lot of great people who are mobile and who do want to move to new and interesting positions.

I also think helping with the recruiting is important. We can explain to potential hires why this a great company to work for — why we’re investing all this time, energy, and capital. It helps them to realize that there is an opportunity for them to similarly be really successful.

I think that’s a really big deal. A huge part of being an investing guy is recruiting. Huge.

What are some mistakes you’ve made?

We don’t have enough time. [Laughs.]

I tried to do early-stage far away from home. And that turned out to be a pretty difficult thing to do. Early stage venture capital activity is a real “hands on” sport.

I’m fine in California and in New York. But on, say, another continent, it’s really hard to live up to the promise of being as helpful as you’d like to be.

If I were going to do a far away company, I’d probably do later-stage investing.

startup funding

General Catalyst tends to reserve its gunpowder for follow-on rounds. Why?

Two things: You always want to reduce the cost of capital for the business, in other words, sell stock tomorrow for more than you paid for it today. That’s axiomatic.

But the other thing is — and some people believe this, and some people don’t — we believe pretty strongly in backing the winners.

You know more about the companies you’re involved with than the ones you’re not. So, to the extent you can back the ones you have special insight into is just an economically good idea.

What are the emerging sectors, channels, and trends you have your eye on?

I think this is a pretty interesting time in technology and travel. There are gigantic platform shifts with ubiquitous mobile computing, with a change in infrastructure that starts with the cloud and moves from the bottom all the way up through the application layer.

I think consumers are adapting new technologies twice as fast this year as they did last year, and they’ll adopt them twice as fast next year as they did this year.

The rise of Asia is propelling a need to fund new businesses, but General Catalyst has tended to invest in startups in the western hemisphere. Why?

On Asia, there are some guys who do it great. We think it’s better served by people who live there than by people who jump in and jump out every once in a while.

There’s been activity in the B2B enterprise sector for travel, particularly in hotel software-as-a-service solutions in the past year or so: TravelClick, Newmarket, Buuteeq, etc. But you’ve stayed away. Why?

I don’t necessarily understand or appreciate the ability to build a venture capital company in the infrastructure space in travel. I’m not an expert at that. I’m not an expert at anything, but especially not that.

I worry about the cadence of those enterprise businesses. It takes a different skill set to guide that business model.

I’m more focused on the consumer side. Which doesn’t mean I’m right. It just means that is what I’m more interested in.

On the consumer side, when you’re right, things happen very fast and it’s pretty clear what’s working and where you should start spending more capital to acquire more customers. It all starts with great, differentiated, exciting product.

On stage, you and Brad highlighted this point. I believe your protégé said that it’s dumb to work on fixing a small broken nut in the transaction funnel instead of a “Big Problem”. But what about Room77, which was pretty much working on a tiny part of the transaction funnel at the time of the Google deal this year?

Brad could answer better than me on that.

You pitched in capital for that, though. And it was essentially doing the “small ambition” thing.

Room77 started out being something different. It changed.

Does imitation get a bad rap? What about case studies on the second-to-market companies that have good long-term results? It’s great to talk about innovation, but isn’t it the Wal-Marts that come along and steal and tweak others’ ideas who profit the most?

I’m not necessarily sure that’s what happens in this digital space.

Companies like Trivago don’t come along and make something better, bigger?

Trivago was different. It was an incredibly well executed play in a different, big geography. So if you’re going to do something in the same geography it better damn well be ten times better.

If you’re going to do something in a different geography it better be a really big and important and valuable geography that other people aren’t playing in.

Those are similar but different ideas.

Is there a danger in advising founders to work only on big problems? Doesn’t that run against the advice to focus on a narrow problem — one that’s small enough that you can get a solution to market quickly, so that you can quickly iterate in response to customer demand — rather than waiting for years to build a solution to a Big Problem?

I don’t think that that’s true. A clear, defined idea is important regardless.

But it’s got to be different. It can’t just be iterative — more of the same, but a little bit better, a twist here, a twist there.

It needs to be a really clean idea in what someone can see is a developing space. If you can already see it as a developing space, it’s been done. So you need somebody to say, “if I build this, this giant space will happen.”

So it’s okay to apply to travel an idea that’s worked successfully in a different vertical?

Sure. Well, it’s okay to do anything. Who am I to say what’s okay or not okay to do?

Our premise here is, “what would Joel Cutler like to invest in?”

As long as it was really different and exciting and risky, I’d consider it.

I just don’t want to encourage people to do something that doesn’t have a shift in technology or business model and doesn’t do things sensationally better.

I only want exciting, different, and risky. I encourage entrepreneurs to take as much risk as they possibly can to create new solutions.

Was your investment in ITA Software something of a one-off? Or are you interested in other B2B companies?

I’d invest in anyone who is brilliant with a huge idea. I am just less relevant in the B2B space than the B2C space.

Is B2C easier to scale?

It’s very expensive, and it’s very hard. But if you build a brilliant product, it contributes to your brand. If you have a great brand, it reduces your cost of acquiring customers. And the flywheel starts going and you’re in good shape.

You got to do stuff that consumers love.

What do people misunderstand about venture capital?

It’s an easy industry to pick on. To a large degree, it’s about meeting incredibly wonderful hard-working, interesting people who are passionate about what they’re doing.

The reality of it is you say ‘no’ 99% of the time.

So when someone comes to you and is nice enough to explain their hopes and dreams, and the only thing you can say is, “I’m sorry, this isn’t something I’m going to write a check for,” it’s pretty easy to be disappointed with that VC — no matter how nice the VC says it, no matter how diplomatic he or she is.

Unrequited love is hard, you know, in any type of relationship.

The venture capital business is like any other business. They’re a lot of people who do a great job, and a lot who do an okay job, and so on and so forth.

I’m sort of the belief that venture capitalists can rise to the top by working hard and concentrating on their companies.

Any secrets on effective boards?

The management runs the company, not the board. Pretty straightforward.

How should founders use the board to their advantage?

They should interact a ton with the board. Asking questions, seeking out opinions. But then they should make the decisions themselves, and not what the board wants.

Obvious exceptions are things about governance, where you have to listen to the board 100%. But operationally, management takes input and makes decisions.

What’s going to happen to the legacy travel companies five years from now?

Your guess is better than mine. I find it hard to believe that the dominant players today won’t still be really important players five years from now.

It’s a winner-take-all market?

No. I think there will be new and exciting entrants. Five years ago, you didn’t know what an Uber or Airbnb was.

My expectation is that, with all the creative smart people running around Phocuswright, there will be new and important players five years from now, too.

But I don’t necessarily believe that that means that the big guys today are anything other than very important in the future. They’re well run. They’re well capitalized. They have huge customer bases. They have big engineering staffs. Dara and Darren are really great and smart.

How can entrepreneurs pitch you?

It’s not that hard to get to us. Entrepreneurs are creative. Our job is to meet new and interesting people. Entrepreneurs have a much harder job than we do. They have to do all the work, they have to put themselves on the line.

What would you like to do after being a venture capitalist?

I’m going to do this for a while. I like this. It’s a privilege to do this job.

The Paul English exit interview

A key Canaan VC talks travel startup investing

NB: Financing image via Shutterstock.

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Sean O'Neill

About the Writer :: Sean O'Neill

Sean O’Neill had roles as a reporter and editor-in-chief at Tnooz between July 2012 and January 2017.



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  1. stephan ekbergh

    Great stuff. But wasnt Kayak and ITA a two sides of the same coin?

  2. Elie Messo

    Interesting insight in how VC’s see travel investing, especially in the metasearch area.

  3. Steve Sherlock

    takeaways for me;

    1. “shift in technology and business model” (combo is better than one or the other)

    2. “if I build this, this giant space will happen.” (yeah be confident and clear)

    3. “Unrequited love is hard, you know, in any type of relationship” (hmmm I reckon startups need to say “no” more often i.e. be a bit more discerning especially on cultural fits with investors)

  4. Terry Gilliam

    Straightforward, straight and valuable.

  5. Remi

    Very inspiring. Thank you for sharing Joel’s views on why startups should think big. Can’t agree more.


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