The Inquisitive VC: Katherine Wu — Notation Capital
Katherine Wu is an investor at Notation Capital, a New York-based venture-capital fund that focuses on investing in pre-seed stage startups. Katherine started her early career in law and was previously the Director of Business Development at Messari.
We talk about her unplanned journey becoming a VC, due diligence, areas she's excited about and more!
Thanks to Aram Verdiyan for the introduction!
NA: Hi Katherine, thanks for joining me!
KW: Hey Nawaz, I checked out your site, you had a pretty great roster of people that you’ve interviewed so far. I’m definitely honoured to be included on that list.
NA: Yeah, I appreciate you taking the time as well. To start off, I’m really keen to understand your background a little bit, and how you ended up in venture capital. I read that it wasn’t something that you plan to do?
KW: Yes, but this is something that a lot of people say because I think very few people will tell you, “Oh my gosh, I’ve always dreamed of being a VC, ever since I was a child!” For myself, when I was younger and in college, I wanted to become a lawyer. Not because I had some deep burning passion for the law at the time, or because I did mock trial or anything like that; it was actually because when I was in college, I was thinking about the things that I could do well, and the two things that I always was able to do relatively well, and also enjoyed doing, was reading and writing.
But I was a bit lost in terms of really figuring out what I could have done with my skill set, and instead focused on what I “should” be doing. Unfortunately, I was in a trap where I thought that in order to make myself more valuable as an employee on the job market, being good at reading and writing meant that I should go to law school. In hindsight, it was not the most logical thing to do, but I also had no broad exposure to other industries outside of law, medicine, or traditional finance (like banking), so law made the most sense to me at the time to pursue.
I then worked for two years as a paralegal at a law firm before I attended law school to gain more exposure to the legal industry. I ended up in a group that specialized in private investment fund formation. The short of it was that we advised various hedge funds and private equity funds on their fund formation process- setting it up, structuring the fundraise, etc — very corporate, and definitely quite specific. I learned a ton in that job and I thought it was kind of interesting- it was also my first exposure to investment funds in general. When I finally got to law school, however, I realized (perhaps too late!) that being a corporate attorney wasn’t really something I wanted to dedicate the rest of my career to doing- I wanted to be on the business side of things, not on the legal side.
Luckily for me, I was able to avoid that legal path, and instead join an early-stage startup in New York called Messari out of law school. It is a company in the crypto space (and we can talk about that later), but I joined as a business hire as their Director of Business Development. It was a pretty crazy time to be working full-time in crypto, and I met a lot of really interesting people and got exposed to really creative ways of thinking- total day and night from my former life in the legal world.
Eventually, I crossed paths with Notation through a mutual contact of ours, Andy Weissman, who’s been an incredible mentor to me. I sat in his office shortly after I left Messari and I was like, “Andy, I don’t know what to do after this, because I went through my existential crisis with law, then I did this a BD role for a crypto startup and I’m ready for a new thing, but I don’t know what it looks like now.” And Andy told me: “You can do anything you put your mind to, but for now, just talk to a bunch of people and get as many perspectives as you can.”
He introduced me to Nick and Alex who ran Notation Capital. At the time I went to them, I had kind of hoped they would enlighten my career path a little bit. Through the months of getting to know them, they ended up offering me a job on the investment team with them! It was an amazing opportunity and though I never planned on being an investor, I knew by then that I wanted to work with Nick and Alex- and I’ve been at Notation for a bit over a year now.
NA: That’s an interesting journey. You recently announced the Notation Moonlight Program. What was the reason to start it and what do you hope to achieve from it?
KW: Notation Moonlight; it is born out of that same desire to build in New York — for so long, the predominant wisdom is always if you want to build a company, or if you want to be a VC, you go to the Bay Area. You just don’t really see the same kind of community at that large scale here in New York, and our hypothesis is that there’s a ton of talented people in New York who could be — and want to be!- amazing entrepreneurs, but just don’t have the connections or tools and resources to do that. And it’s so hard to take that first step for a lot of people — so maybe there is a need for something like a community of future founders.
So we just launched this first cohort of Moonlight with 20 people, in fact, we just ended the orientation yesterday! Long term, hopefully, we can do more classes and scale this program up. I have no doubt that there’s a huge demand for this- we got hundreds of applications for Moonlight, so much more than I ever imagined. And so many of them (who are in New York), all expressed the desire to build a company here but lacked the tools and resources to take those first steps. Ultimately we were only able to start with 20 people, but reading all those applications really left me so in awe and inspired about all the talent that is out there in New York City. I’m really excited to see where this goes.
NA: I definitely see the value of a program like that could provide. Circling back to you joining a crypto startup, I imagine that was the first kind of startup you worked at. How was that experience in the world of a really early-stage startup, but also a startup in crypto, which is quite different from other industries?
KW: Well, I joined Messari because I was so deep down the crypto rabbit hole at the time, and really wanted to work at a crypto company with a mission that I related to. It didn’t matter to me if it was a startup or a larger company. I first started to consider industries outside of law when I was in my third and last year of law school. I had a big corporate job waiting for me after graduation so I no longer had so much pressure with classes anymore, and I had a lot of free time on my hands.
More and more, I just wanted to do something that made me feel driven, excited and passionate because I didn’t feel that in law school, and didn’t feel that way about the corporate job I had waiting for me. It’s probably not hard for you to imagine why. When I first learned about Bitcoin, it was just very different from law, which is so structured. Bitcoin, on the other hand, was chaotic, creative and quite revolutionary.
Of course, as you get further — and you’ve probably heard this because you’ve interviewed a number of people who work in the crypto space — you just get so deep in it because it’s such a different way of thinking and touches so many areas of expertise (law, economics, politics, technology, etc.) and I just became obsessed and kept wanting to learn more, read more, and meet more people in the industry.
One of those people I met was the founder of Messari, Ryan Selkis, we got a coffee and he was like, “You’re clearly passionate about the space, I don’t know what you’re up to after law school, but if you want to work at a crypto company, I’m starting a crypto company” and I was just like, “This is so cool, sign me up, let’s do it — so as long as it’s not a legal role.” And that’s how I got started on the business and also community building side!
When I joined Messari, it was probably around six other employees. And it was really being part of taking something from an idea to making it happen, and I also got to travel the world and meet so many amazing and talented people in crypto. To me, there was nothing that could be more exciting than graduating law school and doing something in this really crazy, awesome, wild, new area that was getting talked about and noticed by some really smart people.
That was my first foray into tech, and it was just like, wow, this was a circle of people who are curious and driven- and who loved their jobs! I also met a lot of VCs, because I think crypto was (and still is) a very hot area of innovation that a lot of VCs were paying attention to at the time, so I started to learn what being a VC meant. When I left Messari and thought about what I wanted to do that could enable my continuous learning- kind of carry that same level of passion and energy into learning about different subject areas, and I eventually realized VC was the path there.
NA: I had a similar journey falling down the rabbit hole. I know that Notation has been investing in crypto for a while now. When you are looking at a crypto project in Notation, is there any difference in the type of due diligence that you perform? Is there anything specific that you look for in a crypto project that you don’t look for in other projects?
KW: Yeah. that’s a good question. First and foremost, we are a generalist fund, and we invest at the ‘pre-seed’ stage as traditional investors. When we evaluate the crypto companies, it becomes a little bit different, especially for protocols or networks, because not all of them are as straightforward as equity in a company in the traditional sense. That being said, I think there are some things that do remain true, regardless of what kind of industry you’re looking at- crypto or not.
Number one for us is just the team because when you’re investing in pre-seed, it is at the pre-product and pre-revenue stage of company building. Sometimes, all we have is a deck, and maybe a demo of a rough MVP. The only thing that I’m really validating is that the team can build, that the market is there, and that idea is sound.
Regardless of industry, those are three things that must remain true and comfortable for me to essentially place my bet on. Notation has traditionally been a very technical-focused fund, meaning that we are partial to technical founders. We have a few major areas of interest, including open-source, so it’s no surprise that crypto falls under that.
I can’t take credit for spearheading the Notation crypto investments, because it’s been going on before I even joined. We’ve done a lot of investments in crypto, but if you really look at the core investments we’ve made in crypto: they’re New York teams, engineers or builders by background and people that we’ve gotten to know and gotten comfortable with as founders.
With the DeFi craze that is happening right now with yield farming and the like, I think it is a little bit tough for traditional VC firms to get super deep in that because I do think you need to be specialized and dedicate so much time to doing that, that unless you’re super-specialized, there are a lot of nuances within all the hot trends that are happening. For example, there are definitely some DeFi companies that truly are very customizable ways to utilize otherwise idle crypto-assets via creative ways- like Compound and Balancer are really interesting. But then there are other “DeFi” companies that…well, harkens back to the ICO craze in 2017. Even for crypto ‘insiders’, or people who have been in crypto for a long time, it’s a lot of information and happenings to parse through on a daily basis.
But you asked about looking for specifics in a crypto company that is different: to be honest, the question is almost always “Is there a need for crypto to be in this business model?” In other words, for crypto companies — there’s the first-order question of your end-user actually using or needing your services in the long term, and then a second-order of having to enable crypto in order to use or access your product or services. And a lot of times, you realized you don’t actually need a token associated; or that there simply is still too much friction for users, because the first-order question is already tough to answer. Those are not new criticisms in crypto, and they are long-standing barriers that crypto companies have had to deal with for many many years- but I do believe that these remain quite important.
NA: Since you are a generalist VC, how do you actually go about doing due diligence and some of the technical aspects of the startup that your team doesn’t have a deep background in, for example, maybe if you’re looking at a healthcare startup, how do you do due diligence into that?
KW: Yeah, that’s a good question. First and foremost, we are really lucky to have Alex at Notation. Alex is very technical- he’s a software engineer by background with experience in distributed systems, and he’s been CTO for so many products and companies here in New York. So we can rely on him for a lot of the basic ‘sniff test’ of whether or not seems feasible off the bat. But, to go back on what I said earlier: no matter what you’re building — in health, in music, in crypto, etc — the core piece that we look for is in founders.
Of course, this is also the hardest thing to evaluate, because it’s so tough to measure. But if you’re building something in healthcare, maybe it’s because you’ve seen a gap in your previous work experience at a healthcare/healthtech company, or through your personal experience. And because you had that insight, now you want to now build a solution to solve a pain point that a “past you” really would have paid to use, since this solution really is some kind gamechanger. This is the best kind of founder you could ask for because these are people who truly understand the problem, truly understand the market (and the size of it!), know the players in the space, and can execute that solution.
Once you’ve gotten past those hurdles, then we rely on our founders and our own network, and part of why we like to invest in New York is that we can rely on our large and diverse network here in New York to validate some of the more industry-specific questions that we have.
NA: On your website, when you look at your team page, you list quite a lot of the Individual LPs, which is really cool, cause not a lot of VCs do that. I wanted to get an understanding on, how much of interaction happens between your LPs and your portfolio companies, post-investment? Is there a lot of interaction in terms of reaching out to them for advice, connections, how does that really play out?
KW: One of the things that we did with fund two was that, aside from our institutional LPs, we also made room for individuals- and they’re either founders (some of them our own!), or early startup employees, and most of them are also here in NYC. That goes back to the idea around building a community. Most of these people are in New York and it all goes back to building something in New York, for the long term and getting everyone aligned, having people feel like they’re all part of the New York community in New York. Very New York-centric, New York focused community is the better word for it.
We publicize that list because each and every single one of our individual LPs can provide so much value for our founders; whether it’s good perspective for them, being a potential customer, or having good experience to share. In fact, some of our speakers for Notation Moonlight are also our individual LPs. Ultimately, there’s nothing but good things that can come out of, facilitating meetings between high-quality people. And we love having such a large tech/ founder network here in NYC as part of the Notation family.
NA: I really love that aspect. Having these individual LPs and leveraging their experience to help out the startups is definitely really cool. What areas are you most excited about right now?
KW: To be honest, I realized recently that I tend to gravitate towards businesses that I can understand as a user. In ‘trendier’ VC terms, I guess you can call them “B2C” or “B2B2C”. I’ll give you an example: one of our recent investments is Circle: think of it as Facebook Groups, but take Facebook out of it. It’s a community for online creators, and that’s something I can understand, and something I can totally see myself using.
Or let’s take Indify, which is a music data platform that funds emerging music artists who have not yet signed with music labels. Think of it as an angel list, but for music artists. I bring Indify up because music is a personal interest of mine. It’s not a secret that music labels are the big gatekeepers in the music industry- Kanye West had a pretty crazy tweetstorm about this exact problem this morning actually.
These are really interesting problems and solutions that I think anyone outside of that industry can easily empathize with and understand. By the way, both the founders of Indify and Circle have really deep and relevant experience in those domains- music and online creators, respectively. That’s another thing that’s really wonderful to see about them: these are people with real expertise and insight who are now building and solving a real problem that has existed within an industry for many, many years now.
NA: I reckon that startup should try and get on Kanye’s radar somehow. You already mentioned a couple of startups that you’ve invested in. My final question was, what is the latest, publicly announced investment you’ve made and why did you make it?
KW: Circle was actually the last investment announcement we made! And that was a pretty compelling one. I know I keep mentioning this, but that founding team is truly such a great fit for what they’re building: the three founders spent the last several years as early employees at Teachable helping the company scale, they worked super closely with some of the largest creators on the Internet, and deeply understand them and their problems. And Circle is a solution that gives those creators direct access to their own communities, which is integral to a creator, particularly if that’s their full-time job.
Then you look at the specific market and trend, which is that there’s a rise in the “passion economy” and more and more people are kind of foregoing traditional jobs to…”create” full time! And I absolutely love that because it really leans into the basic question of: what can you do with your expertise, no matter how niche? And it truly provides so much creativity and how it totally upends the idea of working a ‘9 to 5’ corporate job to earn a living. I think this trend will only grow bigger and Circle is so well positioned to give these rising and future creators such an integral tooling.
NA: Definitely a great time for a product like that. That is all the stuff that I wanted to talk to you about. Well, I really appreciate you taking the time out to chat Katherine. I had a great time talking to you.
KW: I did as well, looking forward to reading more of the interviews that you do in the coming months!
