Kittu Kolluri | Neotribe Ventures | Part 2

About the Episode

Part 2 of 3.

My guest for this week’s episode is Kittu Kolluri, Founder and Managing Director of Neotribe Ventures, an early- and growth-stage venture capital firm investing in companies that solve hard technical problems and disrupt non-traditional industry sectors. Neotribe is led by a team of serial entrepreneurs with a track record of supporting and advising startups from seed round to IPO.

As a Silicon Valley veteran with a career spanning three decades, Kittu has had numerous roles before his time at Neotribe Ventures. Some highlights include working as an engineer at Silicon Graphics, co-founding Healtheon/WebMD, being the founder and CEO of Neoteris, and investing in over four dozen successful companies as a general partner at NEA.

Join us as we sit down with Kittu to talk about Healtheon’s origins, mission, and culture, and how he applied learnings from that experience with Neoteris. He talks about the important difference between leadership and management, talks about the dot com bubble and its similarity to the AI trend of today, and talks about fundraising in a down economy. He also speaks on feeling shifts in the market, finding a “new normal” in the economy, and how he ended up in venture capital.

Please enjoy my conversation with Kittu Kolluri.

Resources, Links, & Mentions

Guest Info

Kittu Kolluri headshot

Kittu Kolluri is the Founder and Managing Director of Neotribe Ventures, an early- and growth-stage venture capital firm investing in companies that solve hard technical problems and disrupt non-traditional industry sectors. Neotribe Ventures is a team of serial entrepreneurs with a track record of supporting and advising startups from seed round to IPO. Kittu is a Silicon Valley veteran with a career spanning three decades, and has had numerous roles before his time at Neotribe Ventures. Some of those roles include engineer at Silicon Graphics, co-founding Healtheon/WebMD, being the founder and CEO of Neoteris, and investing in over four dozen successful companies as a general partner at NEA.

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Blog / Transcript

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Intro - 00:00:01: Welcome to the Biotech Start-Up Market by Exodus. Join us as we speak with first-time founders, serial entrepreneurs, and experienced investors about the challenges and triumphs of running a biotech startup from pre-seed to IPO with your host, Jon Chen. In our last episode, we spoke with Kittu Kolluri about his early years, his experience immigrating to the US, and his time working at Silicon Graphics. If you missed it, be sure to go back and give part one a listen. We continue our conversation in part two, diving into Kittu’s time as co-founder of One Health Communications Holdings/WebMD, his transition to Le-Nature’s Inc., and his pivot into venture capital.

Jon - 00:00:52: You've left Silicon Graphics and now you're at Holdings and you're some of the earliest employees here. What was the Holdings like original mission and focus and what was the culture like then?

Kittu - 00:01:03: The mission was grand, very noble. It was literally... written up on the back of a napkin of connecting up providers, payers, patients into one system and using the internet to disrupt the whole healthcare ecosystem. We were initially targeting the administrative expenses within the healthcare industry, which account for about 15%. The total spend we were naive about how much we could actually get done because I go back to not knowing what we don't know. So there's a lot of hubris in the company. We were fortunate that we raised a billion dollars after we went public from Janus Ventures without that, I don't think we would have survived as a business that allowed us to weather the storm of the internet bubble bursting and the ensuing nuclear winter of sorts. I'm not sure I would say that I was terribly excited by the culture we had built at One Health Communications Holdings WebMD. I'll be very honest with you. I think... There was a lot of I before the we. It was also around the time when it was almost too easy to make a quick buck You know, we got started in 1996. We went public in 1999, and that was... Timing, totally timing. In fact, we wanted to go public in 1998. In the fall of 98, And the stock market had gone through a small crash. And our bankers at that time, Morgan Stanley and Gordon said, I don't think it's good for us to go public at this time and we pulled out of the IPO. And the data was depressing. 80% of companies that pull out of their IPO don't ever go back. And so we thought we wouldn't go back. There was massive depression inside the company. Fortunately, The window opened again and we went out public in 99 and that's just history. But I don't think there was as much focus on creating value for the customer as I would have liked it to be. And so there was a lot to be desired. Let's put it that way. And I'll say I take responsibility for that too because I was one of the leaders of the company so I learned from that. And when we started Le-Nature’s Inc., I tried to bring about culture within the company that all of us could be proud of.

Jon - 00:03:49: I honestly really appreciate the honesty. Talking about the learning lesson, like you have to admit that like, hey, I got it wrong this time. And I love that you're like, we're going to try this again, but we're going to do it better. And I think also something that you said about, you know, not knowing what you don't know, it's just like, that is something that if you haven't experienced like what a suboptimal culture and like kind of an inefficient one or one that just doesn't gel, you don't know. You got to know the good and the bad in order to create something that you can be proud of. 

Kittu - 00:04:19: And fortunately for us at Le-Nature’s Inc., the first five of us were all healthy on alumni. 

Jon - 00:04:25: There you go.

Kittu - 00:04:26: In fact, I remember... Having a conversation, the five of us got together at some bar in Santa Clara, And we talked about what do we want neoterrists to look like. It was then called downsizing but we talked about what did we want that to look like and what was important to us. Both at an individual level and at a collective level. And everyone voiced their opinion. It was a cathartic experience to talk about what we didn't like about the healthy environment experience. And that gave us at least the foundation upon which we could build on as to what not to do.

Jon - 00:05:09: I love hearing that. And I think sometimes for early founders who are contemplating company building, they can almost think that the culture will figure itself out when exactly what you're describing is something that I prescribe to as well. It's an actual concerted effort where you're having this frank conversation of what you don't like and what you do like and what do you prioritize and what you deprioritize. You don't really stumble into good culture. It's something that is by design and intentional.

Kittu - 00:05:40: And then... When we moved into our second office, we were about 25, 30 people. And I remember calling our then director of HR and say, hey, here are the people I think are like the 13 to 15 opinion leaders in the company. And I want you to go interview all of them including me, as to what is important to us. And then let's get into a room and let's co-write, co-author our culture statement and we did that. And that became our blueprint for the new terrace way. Fast forward to 2003 I was asked to interview a product manager candidate and she'd been through nine other interviews before she was put in front of me and she starts to talk to me about the neo-futurist culture. And by this time, we were like, hundred people in the company, or maybe even more. And she starts to lecture me on the neoterous culture. So I was like, well, Shirley, how do you know all of this? She says, all of the nine people I talked to, this is all they would talk about. Man, I tell you, I was so happy when I heard that. Because I was like, you know, I did my job. Eluded.

Jon - 00:07:03: I couldn't agree more. Hearing it basically pitched back to you, I was part of the engineering of that. And you telling me the story and telling me what you guys stand for, this is amazing. It’s a real probably too.

Kittu - 00:07:15: Totally. Yeah. That's why I keep saying, leadership is about influence. Management is about control. Leadership is about change. Management is about efficiency. Those are not the same thing, but influence is way more powerful than control. And so as a leader, learn how to influence. And I just posted something on LinkedIn when I talked about inspiration and motivation. You as a leader cannot motivate your employees. The only person who can motivate an employee is that employee. What you can do however, is you can create an environment inspire the person to motivate himself or herself.

Jon - 00:08:02: Completely agree. He's kind of that saying of like, you can lead a horse to water, but you can't get the horse to drink. And ultimately, carrying over the metaphor, it is that individual's choice to say yes or no. And you can't force it upon anyone. And I think that's critically important for anyone who's leading an organization, irrespective of size. It is incredibly important to understand that and as you were wrapping up your time at Holdings, and you were kind of like laying out the timeline of things, for those who didn't feel the cycle like you did, what was the energy running up to 2000? Was there like similarities to what we're kind of experiencing now with AI and what was kind of seen in like the 2000s, 2000 or 2021 and 2020? 

Kittu - 00:08:47: Yeah, I think the 90s... It started with this thing around Y2K. And then it just became a euphoria and a frenzy. Internet and the World Wide Web just took off. You know, this is Web 1.0, right? And it was a phenomenon to behold. I remember. There was this trend amongst a lot of engineers and they called it diversification. They would go work at company for a year jump ship work for another company for a year and they collect their options because that was their way of playing the market. But Initial Public Offerings (IPOs) were going up the wazoo. Companies that had no business being a public company started because it was all about top line revenue growth. Nobody cared about profitability. In fact, I remember there were companies and leaders of companies that said, hey, if we are profitable anytime soon, shoot us because that means we're not investing in marketing, in customer acquisition

Jon - 00:10:00: Oh, my God. That is crazy.

Kittu - 00:10:02: I mean, you go back and look at Amazon's financial statements They were not even profitable for a long period of time but that was the culture. And then... from fall of 2000, early 2000, there was already started, there was indications of trouble on the horizon. But by the middle of 2000, shit in the van and just bottom fell out. Of course, what was interesting about that was it affected the tech sector more. Kind of like what happened to the stock market last year. Last year's downturn actually reminds me of the 2000, 2001 downturn because it affected the tech sector more because tech valuations were indefensible. like they were last year. I mean, companies that are growing top line at 20% year over year were... valued at 40 times top line. You have no business being valued that much. and so... when cost of capital start to go up, There was your day of reckoning. And so that's basically what happened in 2002, where suddenly people woke up and said, okay, these fundamentals don't work. But if you look at the influx of capital into venture, it was staggering. As early as, I think, 1986, there was probably a single-digit billion into venture capital. And by the time we got to like 1999, I would say there was well over $100 billion in venture capital more than $100 billion was raised by venture capital funds. It was silly. And of course, then we drop down to, I want to say, low to mid teens, getting to like 11, 12, 13 billion. After the bubble crashed. And we were in that period of funk for a while. And so it was... the middle of that storm that we started Le-Nature’s in our infinite wisdom.

Jon - 00:12:17: That's what I was going to ask you. You perfectly timed the healthy on timing right before the bubble. And then you decided to found another company right after everything kind of just went haywire.

Kittu - 00:12:30: Yeah, actually, even that was a bit of an accident. So I left Healthy Children at the end of 2000, right around thanksgiving. I remember I attended my good friend Panos' wedding, and that was my last day. And then I decided I was going to take about a year off. And... All talk. Yeah. I ended up essentially taking six months off. But, uh, I initially went, played a lot of golf. Yeah. But my wife was like, I don't want to see you here at 3 p.m. In the afternoon. And so then I started to go meet with folks and, you know, I was advising them. And one of the companies that I first engaged with was downsizing. And these four guys who worked for me at One Health Communications Holdings, they went off to start this company called downsizing, which is basically an anonymizer website. Rather like very cool technology, but there was no business model in that nuclear winter. I mean... Free wasn't cheap enough for people. There was no ad revenue. And so that's when we pivoted. And started a company around the world's first SSL VPN. And so we pioneered SSL VPN category. And these guys were like, hey, why don't you come join us and be the CEO of this new entity? And so I kind of quasi co-founded Le-Nature’s Inc. And was the CEO of that company. And fortunately for us, we managed to raise $5 million. Thanks to. Bob Clark. and The box deal. Jim , who was then CEO of Netscape, He had started the Adler Group. Jim, Peter , Danny Riley, Quincy Smith, these were the four general partners at the Adler Group. Danny joined my board. Danny is another dear, dear friend of mine. He and I would chat like at 8.30 every morning when I'd be dropping off my kids. And we just check in. It was just... no agenda You talk about what companies is looking at. It's very important for a CEO to have somebody that they can be vulnerable with. And I had that intent. Danny and I were about the same age group. He was a little younger than I was actually. But we could talk about just about anything. I remember him calling me and saying, dude, I'm looking at MySQL, benchmarks investing in it, but evaluation I don't like. What should I do? I'm like, Danny, suck it up. Yeah. Invest in the company.

Jon - 00:15:08: Yeah, good call. That's a great call.

Kittu - 00:15:12: Because I was like, I knew because I was seeing it from this side, right? I've seen it start to take off.

Jon - 00:15:19: I was going to say, I love hearing that because I think as a CEO, it can be lonely and it can be isolating and you don't know, sometimes you can feel like you have no one that you can confide in or bounce ideas off of. and my co-founder and Stacey Perry, who's our chief legal, as they've been both incredible sounding boards for when things are tough and just, it doesn't have to be just tough. We just talk about anything. And having that outlet has been such a blessing to one, help sharpen the idea or just kill ideas that like, hey, you don't need to go down that path. Kind of like that healthy back and forth is incredibly invaluable. And for Nadir, it's like you found it, you raised 5 million, you're now still in the nuclear winter. What was it like?

Kittu - 00:16:05: Gave up 45% of the company. Whoo, FYI, 45% of the company. We raised 5 million on 6 million. Oh my goodness. So that was the time. Those were the days. I'll tell you, fundraising was very hard, but if you manage to raise money, cash was king. In the climate. Because now, funding had evaporated, much like what's happened more recently here. If you look at which capital dollars invested, over the second half of last year and better part of this year, it's dropped off significantly. And that's what had happened even back in 2001. and 2002. And so we were able to raise money. And so we were able to attract and retain talent. And so we assembled a terrific team. And not just on engineering. We were able to attract some of the best sales guys too. But the big thing was we discovered product market fit. At the end of the day, nothing else matters. We discovered product market fit, and then it became a thing of beauty. I joke about standing by the fax machine for the POs to start rolling in. Figuratively speaking, that's kind of what happened with Le-Nature’s Inc.. We went from strength to strength. I'm proud of the business we built there. We eventually got bought by Netscreen Technologies Technologies. We got approached by four companies. We got bought by Netscreen Technologies. And I was particular about if we were going to get bought, I wanted to sell to someone I could trade one currency for another. And Netscreen Technologies was just a relatively recent public company. And I felt like there was more upside to their currency. And I was right because Netscreen Technologies got bought by Juniper within three months of the transaction. We owned all through our transaction, substantial piece of Netscreen and they bought it for 4 billion so that made up some for that 45% dilution that we gave in the first term.

Jon - 00:18:19: Yeah, you played some catch up for sure, but it didn't take long. 

Kittu - 00:18:22: I mean, we doubled up a bit there.

Jon - 00:18:24: Yeah, that sounds like a really quick turnaround too. 

Kittu - 00:18:26: From the time we started the company to liquidity was less than three years. Less than three years. And we were probably the first company that got bought for a substantial amount of money at that time. And the venture capital industry woke up and took notice like, dang, what just happened? But we're back. Yeah. So 2003, 2004 is when things started to pick up again. 

Jon - 00:18:57: That's incredible because I think everyone is probably asking themselves right now, when is it going to become normal again? Or, you know, quote unquote, normal. Would you say that it just takes... one blockbuster IPO, one major M&A event to kind of warm things up? Or is it something that takes some time for the IPO markets and mergers and acquisitions to get us out of the trenches or the bottom of what we're feeling right now?

Kittu - 00:19:23: I'd say right now what we're going through is for a long period of time, for almost three decades, John, We enjoyed a period of very cheap capital. Right from Alan Greenspan's days, interest rates were ridiculously low. And we were basically printing money, left, right, center. In fact, that's how we were paying our interest on the debt. And if you think about the current debt of what is it, 33 trillion or something like that, I think it was the first time in recent past that we actually reduced the debt to touch by about 1.3 trillion or something like that. But we were basically pending that. and we had all sorts of events happen during that period of time. 2008, we had the financial crisis. So what did we do? Print more money. 2020 with Covid what do we do? We had more recently the infrastructure bills and the CHIPS and Science Act and this and that. And everything is requiring us to basically pump capital into the economy. And when you do that, that capital takes a certain amount of time to make its way and make its way out of the economy too. That's basically what we're going through right now. Is with that amount of cheap capital, that movie was going to end. And it ended and... Interest rates started to creep up. and some of that interest rate hike was actually healthy. We couldn't go on for this long without interest rates going up some. Because how do you pay for the retirees and the 401ks that they're sitting on? They'd have to put that money into risky asset classes. and so some of this is actually healthy for the economy, the grand scheme of things. Of course, we don't want to get the interest rates to go up like they did back in the 70s. But somewhere in the 4% to 7% range is not bad at all and it becomes the new normal. And once people start to adjust to that new normal... We will start to see a revival of that again. And so I think we're already starting to see some signs of the economy in better shape. In fact, honestly, I don't think we even went into a recession. 

Jon - 00:21:59: It doesn't look like a book definition of a recession. It's kind of a weird...

Kittu - 00:22:06: It feels weird. It's more of a psychological recession than an actual recession. If you look at it from a jobless rate point of view, the tech industry has been impacted some by downsizing of various companies, because as I mentioned, tech sector probably got hammered the most. But we're starting to see some Initial Public Offerings (IPOs) like Insta went public. And that's a good sign that the IPO window is, opening. I wouldn't say it's all the way wide open, but it's opening. And that's a good sign. I do think, though, those valuation multiples... Are going to be a lot more modest than they've been historically. But coming back to the jobless rate, if you look at the other industries outside of tech, they've actually done very well. And so we've added actually jobs. If you will look at it purely from a jobless rate point of view, and GDP growth point of view, By that classical definition of recession, we'd never entered a recession. So that's what I mean. That's it, I think. By all accounts, and having spoken to some smart people in this area, everyone thinks that the middle of next year is when we'll start to see a return to... A more optimistic outlook.

Jon - 00:23:31: Totally and this is the kind of dovetails nicely into, you know, we're talking a little bit about the economy coming back and like when the capital flows are going to like kind of normalize a little bit. And I know after Juniper Networks, you ultimately made a personal pivot into venture capital and became a general partner at NEA. When did you know after having been an operator and a manager and an engineer that you wanted to shift your focus to something like venture capital?

Kittu - 00:24:00: I didn't accident. So what happened was in middle of 2005, then CEO at Juniper Network, Scott came to me and he said, Kit Vaughan, you are pepper to my salt. He said, I'd like for you to succeed me as CEO of Juniper. He actually mentioned that he had talked to the board about me and said, He wanted to groom me to be his successor. I was like shocked when I heard that. And then We talked about, you know, timelines and this and that. And then I remember taking my wife out for a drive to broach this topic with her. And she said, You did healthy on WebMD because we wanted to get to some level of financial independence. You did Precision Nutrition. That was your first time being CEO of a company. What are you doing this for? I honestly didn't have a good answer for it. She said, no, we're going to become a priority. Your son is in middle school now. You're the math science guy in the family. And so... I thought a lot about it. In news, I said, I went back to Scott and I said, I can't believe. 

Jon - 00:25:13: Wow, that must have been a hard conversation.

Kittu - 00:25:16: It was hard and easy at the same time. He was very disappointed. Didn't talk to me for a certain period of time. Ghosted me but it also lent a great deal of clarity to me as to what was important to me. And so I was the section 16 officer of the company and so Juniper put out a press release saying that I was leaving that's when I got approached by a bunch of venture firms. I think I spoke to about four or five venture firms and initially, I had this massive imposter syndrome. I'm like, why me? Why would anyone think that I could do this job? and I'd also heard that, you know, you won't know if you're going to be good at this for five, 10 years. I'm like, I don't have that much time. I mean, I know what I'm good at. my thinking was, okay, I'll leave Juniper i'll go start something and go take over, be CEO of something else. That was kind of my mindset because I was very marketable at the time, as you can imagine. In fact, I also remember near SOC at Palo Alto Networks and Ashim then at Palo Alto, they came to me and said, why don't you come be CEO of Palo Alto Networks? and again, my infinite wisdom, I was like, no, I don't want to work for another security company. I was jaded by security. Like, oh, you're doing another firewall. Like, why was I wrong? But, you know, I have no regrets about that. And I'm sure they don't have any regrets. They found some great leaders. But that was when I got approached. And then I said, okay, let me do this. Let me interview a whole bunch of people. And let me understand this business. And I remember... Talking to general partners various firms actually one guy I spoke to is like phenomenal this is a guy called Quinn he's retired right now but he probably has forgotten more about venture capital than I will ever know And he was great. He really educated me on the business. My partners at NEA, Dick Kramlich, Peter Morris, Peter Barris, Scott, Forrest, all these guys were with me. Mr. Perry, the class act. These are all folks that I learned a lot from him. Chuck Newhall another legend. So these are all folks that I learned a lot from. And that's when I was like, okay, I have a rubric of what it takes to be successful in the venture capital. That's probably a topic for another podcast, but I assembled that based on those conversations. And then when I evaluated myself against that rubric, I was like, okay, I think I have a chance at being successful at this, a better than even chance at being successful at this. And I said, okay, it gives me a learning opportunity. You know, the two things that have always been very important to me in my career, John, one has been authenticity. That is, being authentic is really important. What you see should be what you get. I don't pretend to be somebody I'm not. The second Second thing that's very important to me is intellectual curiosity. So we talked about being a student for life. So that's something that I've always been. I'm all constantly learning. They may not have anything professional. I taught myself how to be a decent photographer. I taught myself golf because with some help, I taught myself poker. I sing. I taught myself how to be a good audio engineer. Good, not great. My son is even way better than I am. But these are the sorts of things like there are these mini pursuits. Once I latch onto something, I'll go. Try to teach myself so that's what this job also offers me, the opportunity. 

Jon - 00:29:07: And you mentioned you're getting interviews with multiple firms. What made you choose NEA specifically?

Kittu - 00:29:14: Good question. NEA was an investor in both Heliyon as well as Le-Nature’s Inc.. They were also an investor actually in Silicon Graphics. And they were investor in Juniper. So I worked at four companies that were funded by NEA, And there were a lot of ex-Silicon Graphics folks that were part of the NEA investment team. Mr. Perry was our CFO. Robby Baskett was our CTO. Dick Kramlich was on the board at both SGI as well as Lothian. Dick Kramlich and Scott were involved with Le-Nature’s Inc.. Scott was on my board, but Dick Kramlich was the original GP that we reached out to. So I had a lot of connections into NEA, and it just felt very organic. Felt like, okay I would fit in, they know me, and I knew them, and I felt I could just be myself. That's why I chose anchor.

Jon - 00:30:17: That's amazing. I didn't realize that they were present at kind of almost every step of the way. That's incredible.

Outro - 00:30:25: That's all for this episode of the Biotech Start-Up Market. We hope you enjoyed our discussion with Kittu Kolluri to learn more about his journey, tune in to part three of our conversation. If you enjoyed this episode, please subscribe, leave us a review and share it with your friends. Thanks for listening. We look forward to having you join us again on the Biotech Start-Up Market for part three of Kittu Kolluri's story The Biotech Start-Up Market is produced by Exodus. Don't want to miss an episode? Search for the Biotech Start-Up Market wherever you get your podcasts and click subscribe. Exodus provides research labs with equipment leases on founder-friendly terms to support paths to exceptional outcomes. To learn more, visit our website, www.excedr.com. On behalf of the team here at Exodus, thanks for listening. The Biotech Start-Up Market provides general insights into the life science sector through the experiences of its guests. The use of information on this podcast or materials linked from the podcast is at the user's own risk. The views expressed by the participants are their own and are not the views of Exodus or sponsors. No reference to any product, service or company in the podcast is an endorsement by Exodus or its guests.

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