Quick Show Notes
In this episode, Keith interviews Kyle York, the Co-Founder, CEO & Managing Partner of York-IE. York-IE invests at the earliest stage through Series A startups. They are exclusively focused on business-to-business (B2B), subscription, and Software as a Service (SaaS) companies. In this discussion you’ll hear about:
- Kyle’s background and what lead him to create York-IE
- His experience at Oracle and how it impacts how he invests today
- York-IE’s investment thesis and what differentiates them from other VC firms
- What due diligence looks like with York-IE
- Vetro: What they do, how Kyle met them, and why he decided to invest
- Kyle’s advice for investors and founders
Kyle’s Background
Kyle grew up in New Hampshire as the middle child of five sons in a sports family. They were also an entrepreneurial family with his parents being the 2nd generation to run Indian Head Athletics, a sporting retailer business. After high school, Kyle moved away to go to Bentley University in Waltham, Massachusetts, just outside of Boston where he studied marketing and played defensive back on the football team.
The Career Path that Led to York-IE
Kyle graduated in the early 2000s and founded York in 2019. While at Bently he had an internship for a software company that was transitioning from licensed software maintenance to SaaS. His first job as an intern was to create a playbook, call customers, and get them to transition to SaaS. Since then, he has been all about SaaS, customer acquisition, and customer retention.
After graduating, he climbed the ladder at an EdTech company called Whipplehill (later sold to Blackbaud). He moved to California when he was promoted to Regional Director of Business Development there and lived in San Diego. Not long after, he was recruited back to New Hampshire by a high school classmate for a company called Dyn. They took Dyn to the enterprise level and used the DSN to hyper-scale web brands and build up their infrastructure. Kyle joined when there were 15 employees. As Chief Revenue Officer he spearheaded strategy and go-to-market to $100 million annual recurring revenue, with 5,000 enterprise customers, 1 million paid users, $100 million raised, 500 global employees, and 11 executed mergers and acquisitions. In 2016, about 8 years after Kyle joined Dyn, they were acquired by Oracle for $600 million.
After that acquisition, Kyle stayed with Oracle for three years as Vice President of Product Strategy for Oracle Cloud Infrastructure and General Manager of Oracle Dyn. During that time, he was also doing a lot of advising, angel investing, holding board roles, and running syndicates. This is when he realized that he was a good compliment to technology founders. He created York-IE so he would be able to have a portfolio of companies he could work with. Kyle says a lot of what they are building at York-IE is a manifestation of his past day job as an operator and moonlighting job as an investor to create a new school firm.
His Time at Oracle
Looking at the last 20 years of Oracle shows they have been one of the most acquisitive of public and private companies. They have bought over 125 different technology companies to become what we know today as Oracle. Kyle recalls every company looking for an exit would go inbound to Oracle. That was his number one takeaway: generate inbound deal flow. The number of inbound deals coming in allowed Kyle to hone in on the process they used to evaluate Mergers and Acquisitions (M&A).
That evaluation process was a big part of his job there. His team evaluated everything that came in for M&A and was tasked with finding sponsors for the deals they thought would be good. That process and methodology included analyzing thesis alignment, writing up strategic rationale, and pitching it to the executive team. That executive team included Safra Catz, Mark Hurd, and Larry Ellison. He says it was “a baptism by fire”. Before, he came from a start-up and knew startups. After the anointing, he was an expert on how large companies decide priorities. That experience plays a big part in the processes York-IE uses today to evaluate opportunities and investments.
Mentors and People of Significant Influence
Kyle says “number one is my parents”. He describes his mother as a very smart and savvy woman who grew up in the family shoe-manufacturing business. His Dad married in and was a tenacious hard-working former star athlete. Kyle sees in himself a mix of his mom’s thirst for learning and attention to education with his dad’s scrappy hustle, hard work, integrity, and “go for it” mantra. Kyle’s upbringing was well-rounded in a traditional sense. He also had the entrepreneurial “work for yourself and provide for yourself” ideology role modeled for him from a young age. He still keeps the basics of Mainstreet small business in mind when making decisions. It’s about building good, healthy, and sustainable businesses.
Outside of the mentors he grew up with, Kyle tells us he is also always studying the greats, like Richard Branson. He specifically mentioned Branson’s vision and pride in working on things he likes.
York-IE’s Investment Thesis and How you are Different from Other Firms
York-IE is focused exclusively on Business to Business Service as a Software (B2B SaaS) companies for investments. They look for recurring revenue businesses at the early stage, pre-seed, and seed stages up through Series A. York-IE invests “up and down the stack”. This means infrastructure, technology, cyber security, and data platforms all the way to vertical applications in specific industries. They consider the “market in” approach. This means studying markets, competitors, comparators, and differentiation relative to the market. Typically investors consider the “product out” of having a good idea for a product, building it, and seeing if it sticks.
York-IE is very focused on founder/market fit. This is the founders’ relevance to the market they are trying to enter. Even at the early stages, York-IE is looking for pragmatic business models, thoughtful scaling plans, and capital efficiency. Kyle says he hates to see a pitch deck with milestones that are all capital raises. He believes the founder should treat their company like their baby. They should build it their way with York-IE being the support mechanism for that vision.
To fill the top of the funnel York-IE puts out a tremendous amount of content. This includes podcasts, educational materials, inspirational materials, and curriculum which drives a lot of inbound deal flow to their website. When they launched York-IE they wanted the ability to influence start-ups at any stage of the lifecycle from a low to high touch. High touch comes in the form of investments, board seats, governance rights, and stocks. Low touch comes with content, podcasts, newsletters, blogs, and social media. They also have their own freemium SaaS platform, with a paid version for teams and enterprises, with a lot of tech-enabled advisory services for how to start and scale start-ups. Kyle compares it to the Deloitte model. This way York-IE has a way to engage with any start-up in the world whether they are investing with them or not.
York-IE’s Due Diligence Process
The due diligence process at York-IE starts at the top of the funnel. Kyle tells us his team sees anywhere from 100 to 150 inbound start-ups per month looking to raise capital. “That means that you better stand out on the first introduction” Kyle advises. Start-ups must do research before coming in the front door. York-IE makes it very clear they specialize in early-stage seed to series A b2b saas businesses.
Anyone who doesn’t fit that is automatically out. Due to those narrow qualifications, the York team can vet out a large chunk of inquiries right away. This brings the pool from 120 to 50 quickly. After that initial filter, the team begins to review pitch decks, and financials then makes some calls out to their network of investors, employees, and advisors to get a market perspective. The five main areas they focus on are broken out between product and technology, financials and business models, team traction overview, go-to-market strategy, and customer base.
The team pulls in several different resources to evaluate potential investments. Kyle says this is in contrast with the traditional fund model where all the different partners will look at the deal, show up to the partner meeting, pitch due diligence, then spare and squabble over it. Instead, York-IE borrows a page from what Kyle learned at Oracle. They run the process like a corporate venture with a series of different calls, notes, drafts of rationals, and bringing companies through the entire process.
After they clear the first round of due diligence, the next stage is unlocked and the VP gets pulled in, then Joe Raczka gets pulled in, and finally, Kyle gets pulled in. Kyle is only pulled into a handful of deals a month and they invest in 1 to 2 deals per month. Kyle tells us they use this more methodical and efficient process to cut through the noise and let founders know what to expect upfront. To get an investment from York-IE, founders have to be a thesis match and then make it through the gauntlet.
Vetro: Where Are They Based and What They Do
Vetro, a GIS mapping technology company, is based in Portland Maine. Kyle says Portland has an up-and-coming technology ecosystem. There has been a lot of investment in that region for new software and technology companies. Vetro runs a mapping infrastructure that helps carriers, municipalities, and governments build and deploy modern 5g and fiber networks. Vetro founders, Will Mitchell and Sean Dundon came from mapping and they previously ran an agency that used different off-the-shelf tools to help them build out networks. They decided to build a proprietary platform with proprietary IP that functions as a self-serve layered on a service basis.
York-IE invested in Vetro for their seed round in 2020. Vetro ended up raising a follow-up round from Resolve Group Partners later on, and in total, they have raised over $12 million and are growing very fast. Kyle says Vetro is a great fit for the York-IE thesis. They know their market and to who they sell. They have a good grasp of what their use case is and their value proposition for customers. York-IE now has a partner on the board and they assist Vetro with anything from advisory services, capital strategy, finance operations, communications, go to market strategies.
How Kyle Connect with the Vetro Team
Kyle and the York-IE team had been doing a lot of networking in Maine with the Maine Venture Fund, the Maine Technology Institute, and The Roux Institute at Northeastern University. Kyle tells us making these connections is interesting and nuanced. It took a few calls to learn Vetro was making a transition from a service model to this new SaaS model. Many of York-IE’s favorite companies required a little digging to learn about since many are making that transition. The transition happens when a company has proven they have good service but its scale is limited by time.
These cases are great investments because they have already proven the market demand and are now just trying to transition to enterprise value with software and data platforms. The first thing York-IE looked for were indications Vetro was serious about transitioning to SaaS. That included verifying they had proof points showing the market was ready to buy this as a subscription model. To find this, York-IE researched market tailwinds and looked at federal funding trends. Billions of federal dollars are going to the GIS sector and the legacy players have very antiquated tools. Because of this Vetro and York-IE saw there was a great opportunity to do something new. Kyle says “Sometimes we disrupt existing markets and sometimes we make new markets”. It comes down to solid execution and a good team.
How did Kyle determine Vetro was a Good Investment?
Of course, there are thesis fit and general factors to consider if companies qualify. However, when you get down to the 5 key areas York-IE looks at no start-up is a 100% performer in all 5 areas. So as an investor, you are just trying to determine what you think. At the end of the day, York-IE does look at terms, valuation, governance, and board but they look at it differently because they don’t come from financial services, venture capital, private equity, or banking. They come from the operator’s side. They can put themselves in the founders’ shoes and say “do we think we can help this company scale to be a success story?”. Kyle says his team is looking to see if there is enough opportunity if a company can execute, and if York-IE can be additive to the growth journey.
York-IE selects its investments through an operator lens rather than a portfolio engineering lens. According to Kyle, it comes down to intuition, experience as an active operator, and working in the evaluation of so many start-ups in the last 15-20 years. He tells us he has looked at 5,000+ companies and worked closely with hundreds to study business models, scaling operations, and plans. “You end up coming down to a feeling”.
“These Things aren’t Always Black and White”
Kyle expanded on this notion with a story of a company out of New York with a couple of young founders. Originally, York-IE turned them down because they thought they were too green and had thin finance models. Initially, the York-IE team didn’t believe in this company’s traction growth rates, where they were going in the upcoming year, and thought overall they were not quite strong enough. However, the main founder was not going to take no for an answer and he asked for another in-person meeting.
Kyle and his team met with the founders and the young men came prepared to defend themselves in all the areas York-IE was concerned about. The founder was able to give York-IE a clear narrative of what he was doing in those areas, why they should believe in him and his team, and why York-IE was the best partner for them. The York-IE team ended up changing their minds and doing the deal, going to show that “these things aren’t always black and white”.
Kyle tells us sometimes York-IE says no and regrets it after but that is the nature of the game when you have such a big top of the funnel and a limited capital pool. York-IE currently does 15 to 20 b2b software investments with just under 20 million a year. York-IE runs like a company with a 6-month budget and a strong thesis, so they can’t do every deal they see.
The Biggest Challenge in Closing the Vetro Transaction
Kyle tells us closing transactions can be tricky when the company is moving from services to software, like Vetro. Services businesses get a different multiple on revenue for their valuation as compared to SaaS, because services are time-based, have lower margins, and are less sticky (meaning not recurring and you have to win it every year). However, with software, if you land a subscription then payments are auto-renewing. This causes those businesses to have a higher margin of about 70%+ since they are more predictable. For Vetro, Kyle recalls it was tricky to give them credit for the business they had built up on the services side since York-IE was investing in the software with the expectation of the shift to recurring revenue.
So the questions became how do you evaluate that at the early stages when you put in half a million, how much ownership should you get, and how big should the round be? After York-IE decided they did want to invest in the deal, construction became a challenge. Kyle knows these are tough conversations and everyone is coming at them with different motivations. “In the end,” he says, “you need to align with them as best as possible.” Kyle advises the founder to remember “when you raise the capital you are selling a little bit of the company to an outsider. You need to come at it like a marriage where you both have the best intentions and you want to stay together”.
Kyle says he sees too often people are more concerned about money. Instead should treat their company like they are a free agent. “People need to flip the script. There is too much vanity with the VCs but at the end of the day, you can choose who your investors are. Hopefully, our founders feel positive about working with us.”
Kyle’s Advice for Investors and Founders
Kyle’s universal advice is to “know your role”. He recognizes that it is hard to build a company and be an operator. It’s never a straight line for companies to grow efficiently and effectively then to get to scale and get to monetization. Kyle says very often venture capital investors are “legacy” MBAs that worked in financial services, banking, or management consulting. Very few have worked a day in the shoes of an operator. There is no perfect playbook. They can study cases and sit on boards all day. Even if you try and pattern map to other companies every case is still so unique. You have to bob and weave to figure out a way to add value and understand what this specific company needs to grow.
There is a collaborative way to do that without creating unnecessary added pressure on the founders. Kyle tells us he has seen so many companies end up stumbling or staggering under the weight and pressure that they feel from the venture capital investor. The investor’s clients are their investors and they have a fiduciary duty to those investors. The firms are managing money and the incentives can become misaligned. Kyle advises firms to “remember that the company doesn’t exist or work without the operators, so you need to create an environment where they feel safe and comfortable and not always in fear.”
With anything, there are exceptions. Kyle recognizes that there are great investors who have never been operators and former operators who are bad investors. However, at the end of the day, Kyle knows “we can’t do anything if we don’t have a team and leaders to back, so prop them up and make them feel confident. Not to say you shouldn’t challenge the founder, you should, but do so from an aligned place.”
Contact
You can get in contact with York-IE by visiting their website, Facebook, Twitter, Instagram, Youtube, LinkedIn, Angel List
You can get in contact with Kyle York through his Twitter or LinkedIn
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