The Contrarian Technocrat: The Founder Profile Behind Billion-Dollar Companies | Garnet S. Heraman

Garnett, I know you've invested in multiple ways, all the way from being an angel investor, that pre-seed space, to the VC route. So I'd be very interested in hearing about your successes. I know you've been very successful, the highest win rate I've seen, 29 out of 30 wins. And then also how that, how that's different than what you're focusing on now.

Hey, thanks for having me, first of all. And, you know, I'm excited to have this conversation. Our first phone call was pretty amazing because we just kept talking and talking and talking about all these shared experiences, right? So it's going to be fun to be able to share this with the audience. Maybe take a step back and start like where, because I don't think you can be a good investor without being a good operator. You know, I kind of came out of my business school experience in the late '90s, right at the beginning of the dot-com era in New York. And I fell into being a CEO 3 times in rapid succession. And we had 3 exits, 2 were cash and 1 was like an acquihire type thing. And that was kind of my path, right? And so everything I learned about being a good private investor, angel investor, pre-seed and seed investor stems from operating experience and the understanding of being, uh, on both sides of the table— founder, funder, right? So, you know, I'll say that as a preface to everything else. And by the way, it's not necessarily 29 out of 30. Yeah, I think I'm more like at 35 or 36 as far as individual investments, but really only one loss, um, and a major loss. And that was like a mid-six-figure loss in an AR/VR company. So go figure, right? So a lot of what I understood as a founder, I started to apply as a, I don't know, self-educating angel investor. And what I learned was one way to mitigate the highly risky business of early-stage investing was to just get out quickly. And so my formula was to put in pre-seed money, maybe get some advisory units or options or warrants because I could empathize with and speak to a young CEO in ways that VCs typically don't. And then by the time the company had grown to the point of like a Series A, let's say, would be the earliest opportunity, I would find a friendly investor. You know, with the approval of the CEO who I was advising, coaching, et cetera, and, you know, tender my shares, right? So what I was doing over and over and over again was very much like a precursor to the secondaries, you know, the rise of secondaries in the VC market that you've seen over the last 10 years. So really, that's, that's it. That's the entire formula. Not a whole lot. There's not a whole lot of analytical insight behind it. There's a lot of empirical insight, and then there's a lot of kind of immigrant fear of losing capital. I don't know how else to put it.

Yeah. So that's super interesting, sort of that fear of loss versus going for only seeing the positives. And I kind of hear both perspectives. Some people say focus on the abundance and maximizing your gains. But then others are super successful of minimizing those losses and turning what some people would consider the negative, that actually being a positive because that's your protection that keeps you from, if you go down to zero and lose everything, then it's pretty hard to have those successes if you have nothing left to put back in.

Yeah.

But I also like what you said about being on both sides of the story and Having those very different perspectives. I think that's a difference between someone who's very senior that's taken on multiple things versus the younger guys can come in and just do amazing things, but they're kind of seeing it through that hammer being one thing and not realizing that could have been, you had a big success there, but in other cases it might be different. Maybe you need a different tool or a different strategy or a different approach. And so when you said it doesn't really have a, forget your word, process, right? You're sort of like you're seeing the big picture and then the process is, it depends.

There's no real intellectual insight behind any of this, to be honest. It's just very empirical. Very, yeah. And then based on that, it became more heuristic, which is, you know, the word heuristic is probably more intellectual than any aspect of my actual investment process.

And so I'm curious, so my understanding is that your fund currently has a portfolio of 16 companies, is that correct? And what types of companies are you focusing on currently?

Yeah, so Aperture launched with the LP base, a unique LP base in '21, which is an odd vintage, right? That vintage is now becoming well known for its— a couple of things. One, it was a unique window of time where a lot of people who were previously non-investors were given, they were sort of given a shot at becoming investors, right? And so that's pretty different than my profile, which I worked my way up to becoming. And then the other thing that that vintage of fund is known for is Fast forward to '25, '26, the almost complete lack of liquidity and distribution of capital back to the LPs. So, you know, I'll say that to help frame the accomplishments that we have legitimately achieved. So it's a fund that is spearheaded by 7 Fortune 500 companies, which is unusual. And we had a very specific thesis. It now has 16 companies in it. One is a unicorn. The second one is a demi-unicorn, probably less than 12 months away from unicorn status. And then behind that, there are at least 2 others with a very strong trajectory towards unicorn status. So at the end of the day, we probably won't have any more than 20 companies in the portfolio because we're towards the end of the investment life. And I'm going to bet that we have somewhere between 3 and 5, you know, bona fide, like, you know, fund returners.

So to me, that's my understanding is that's, if it keeps going that route, that's a pretty insane success rate.

Oh, that's an insane, that's a rate.

Yeah. I mean, normally it's like 1 out of 10, right?

That you expect to get funded. 1 out of 10 is the average. And by the way, it gets worse. This is our debut fund. So these guys who have fund 5, fund 6, what you start to see is like, So our goal for fund 1 is like 5 to 7x. So if you put in a million bucks, you're going to get 7 back, right? By the time you get to fund 3, fund 4, that kind of thing, typically over the last 20 years, you're talking about like less than 2, right? So that maybe sounds okay on the one hand, but remember, people who put money into a fund, an LP, you're illiquid. For minimum 10 years. It's more like 12 or 13 now.

Yeah. 2x isn't great.

Yeah. 2x over 13 years.

If you want to do that.

That, like, that's not a, that's not a great accomplishment, right?

I mean, yeah.

So it's, it's a, it's a strange, the math on it is strange, but when it, when it, when you simplify it down to like basics, you, you start to see like, you know, how unusual it is, you know, what we're doing with our fund, right? So, and if we get lucky, we'll only have 5 out of 15 or 5 out of 16 or 17 rather, you know, that would be, that'd be crazy. I mean, you know, so we'll see. We'll see. God willing, it'll get there.

Yeah. You know what's interesting about that? When you say all of this, you think, oh, you evaluate the hell out of the, you know, their strategy, the tech and all that, which is certainly important. But my understanding is The more important for you is the people. Who are those founders? And I think you call it your contrarian technocrat or something to that effect of what are you like, how do you evaluate who you think's going to be successful?

Yeah, so there's two, there's two. I attribute the basic success that we're having to like two big things, right? One is more embedded in the fund thesis, so I'll just Comment on that as an end cap to the previous question. So the fund thesis of Aperture VC is this seamless marriage of financial capital, which we know is fungible, right? To what we're calling essentially relationship or operational operating capital. And that second piece is the really the secret sauce. That second piece comes from the corporations. that invested in the fund. So how this operationalizes is actually really simple and potentially intuitive. When we invest, we do this aggressive proactive alignment exercise between the investment and one or more of the LPs in the fund. So Bank of America, Truist, PayPal, FIS, MassMutual, Progressive Insurance, NextEra Energy, right? That's a lot to choose from. In terms of like the sort of resource base that they bring to the table. And that's a big piece of the success, you know, in the portfolios. You see that, you see, you're now starting to see the effect of that. Go on a personal basis, based on my, you know, operating experience and this kind of thing, I've had a lot of time to think about like what makes a good entrepreneur and what makes a good founder, you know, from, you know, a psychological profile standpoint to a competency standpoint to a skills base, all of this stuff. And as I had time to think about it, which is 20-plus years to think about it, it came together in this notion of a contrarian technocrat, right? And a contrarian technocrat is essentially almost never found in the same individual human being. It's usually, usually I look for it on the team, you know, in a human being, it would be someone who's equally skilled at, you know, the kind of evangelism, you know, um, you know, chip on your shoulder type, you know, visionary, you know, reimagining something. You can't, you can't believe the world works, you know, the way it does because it's so stupid. And you have a solution to it, right? That's that piece. That's pretty, that's maybe more obvious. The technocrat is the kind of engineering mindset to go from a plan to a full-blown implementation outcome. And so when you marry those 2 perspectives, you get the contrarian technocrat. And they essentially, they feed off each other. Right there, there's a nice virtuous circle around it. And it seems very like programmatic and maybe even simplistic, but it's not, it's not, it's not obvious to a lot of people. And maybe more importantly, I think a lot of people who even understand the basics of what I'm trying to get across are, are fearful of applying it to a human being, right? Because the framework is inherently limiting. It's an attempt to try to force people into a, into a, into a box. To try to understand them better. But, you know, it's just, it's just, it's just an attempt at clarity and it's attempt at reducing the cycle time that it takes to get to that clarity. And for me, it's worked magically. You know, multiple examples, including the 2, you know, high-performing companies I mentioned earlier, you know, they're both perfect examples of how this works in the real world. Right.

Yeah, that is, yeah. And applies to other things in life as well. Like, you know, at the beginning of the call, those different perspectives and not, you know, if you have a hammer, everything looks like a nail. And so, yeah, if you're too close to the problem and you see, you know, you've been trained in one specific way, it makes it really difficult to see outside of that lens. And so, yeah, complete different world of, you know, my design book Is that's a primary thesis there as well, is it's like bringing all these different perspectives together and thinking about what's trying to be accomplished. And in some cases, a concept doesn't apply. It's more like, you know, pick your different concepts and your different tools and apply where appropriate. But what applied for a previous CITO project may not apply to the new project. You sort of have to see the big enough picture to know where something's a good fit versus where it's not. And then getting feedback from others that, you know, that's the most biggest value of working with someone outside your space is seeing your blind spot and then realizing maybe you argue with them, but then you realize actually they're right. Right. Sort of give up the ego and realize, you know, I can be wrong at this.

You know, there's a toolbox argument, right? The more tools in the toolbox, the better off you should be. But even with the toolbox, you know, what I find is like there's an inability to apply the tools. And so this was an attempt to kind of reconcile that metaphor of tools, toolbox, and using the tools. And so, you know, you look at these 2 perspectives, the contrarian and the technocrat, and you realize that that's the near-perfect storm of tools in the toolbox and the ability to use it. Yeah.

Could you say a little bit more about that? Maybe like, I don't know, a specific example.

Yeah.

You have the tools, but you don't know how to use the tools.

Absolutely. So, or you have access to the tools, but you're not necessarily the person who's the most skilled at using the tools, right? So most contrarians, it's a solo founder and skewing towards the contrarian end of the spectrum, you know, that, that person, him or her ends up hiring, you know, people to sort of counteract that. You know, what, what do I mean by that? A chief of staff, a chief operating officer.

Yeah.

You know, a head of engineering, whatever, right? This kind of thing. And what, what happens is the, the ability to kind of like, not guarantee, but ensure the outcomes that you need from the implementation side of things, the technocrat side, dilutes, it diminishes with each successive hire, right? Because, because you're removed from, from the vision, right? You're—

And so you're not understanding the problem well enough to throw someone else on it.

So this is why at the highest level, at the founder level, you really need to see both of these things. Because they help everything that each of those, you know, potentially, let's just say 2 people in the org chart, everything that they do and they push down or push across the org chart becomes diluted the further away it is from the, the quote, source of power, right? You know, or the source of vision, the source of implementation.

So that's really interesting. I can think of an example and maybe get your feedback of, is this an example of what you're talking about or is it different? So, uh, one of our advisors for our company, he was a CTO at a company that, you know, was very successful, got acquired, all of that. But one of the reasons he said they were so successful is their CEO would learn about all the different functions that need to be done. So he would go spend, you know, a couple months with the engineering department and, you know, make sort of a disaster out of it because he's not an engineer and it would slow things down.

That's right. That's right. That's right.

Because they gotta get him up to speed. Maybe he starts with the wrong decisions, but making those mistakes, learning from those mistakes so he actually understands it. And then going to HR, which is like almost opposite, right? And kind of disrupting that and getting it wrong and learning from it. But the whole reason for doing that was to really understand the core components of the company. So he was smart enough to see these different perspectives and figure out how they all come together instead of just, you know, understanding it at a high level, naive level.

That is, that's a great permutation I hadn't thought about myself, but that, that's, that's, that fits into the framework really well, actually. So part of the test of any framework, right, is elasticity, variability, the ability to accommodate like many flavors, many permutations. That's why I knew that this was like a real thing, a real feel, like legit analytical framework. Because it not only sort of, it stood the test of like my own experiences over 25 years, but I, you know, the more I talk to people, I've shared this with like a couple of Harvard innovation professors, you know, people, people who like are investors at funds in different places around the country. And this is probably the 3rd or 4th time I've shared it with someone on a podcast. Every time I do it, there's a different permutation that comes out of the framework, right? Someone else has like a different vision of what the, uh, a potential flavor is from the, from the broader overarching framework. That's how, you know, it's like resilient and elastic.

And yeah, speaking of being elastic and, you know, the variability and all of that, what are your thoughts on the initial pitch? It sounds like it's great you're working with these investors, these larger companies that have specific problems they want solved and such. So you sort of have that very much subject matter expertise of what are the pain points and such. But also, we all know things change. And so have you seen, are they usually pretty spot on as far as their, you know, early direction they're taking? Or do you see people, obviously people pivot, but like, how big have those pivots been? Are they like huge pivots? Are they smaller pivots? How often are those, you know, the pivots to be elastic, like you're saying?

That's a great question. Well, I mean, the short answer, we see a lot of pivots. I don't think that we've seen a lot of successful pivots in the spirit of honesty and transparency, right? Now, pivot to me, I hate to parse the words this way, but a pivot to me is different than a course adjustment. If your overarching directional strategic approach is on point and it's winning, it doesn't preclude having to do a million little You know, course corrections.

Yeah.

Yeah. And in the spirit of sharing, like, you know, New Yorker jokes, you know, that, that style is a lot like driving in Manhattan, right? You don't, you point the car, point the car north or south, east or west, but you know, when you're driving, you have to move the steering wheel like a million times to like avoid pedestrians, you know, avoid, you know, uh, homeless people, avoid cars, buses. You know, so that's okay, right? The, the, the minute adjustments, course corrections and all this kind of thing. That's okay. But what, what I haven't seen is like a dramatic, in my portfolio only, right? You know, I do X and now I'm going to do Z or Y, right? Yeah. Completely flipping it. And then have the Z or Y succeed. Our very first investment had multiple pivots, uh, and is, you know, still to date a shitty investment.

So that—

And I have a couple of other examples like that, you know, of companies that pivoted and one of them is no, no longer in operation. And the other one is probably, I would say, 6 to 12 months out of being, you know, not in operation. I'm trying to find a nice way to say like dead or like bankrupt, but whatever it is.

Well, it happens if you have 100% success rate. Maybe you're not taking enough risks for the, you know, the bigger successes.

Yeah.

But this is very much—

Or you're defining success like, you know, the wrong way.

How do you define success?

In this game, there's only one way to succeed, right? Yeah. You have a certain amount of assets under management. And the portfolio has to, you know, upon liquidation, return everyone's money. And then have enough money left over to put in Garnett's pocket or in my fund partner, you know, William's pocket. I don't know how else you would, and there's a fiduciary responsibility to define it exactly like that, right? So I'm not, you know, I'm not like poetic or prosaic about like, you know, all the other things that need to happen, you know, all the human elements and stuff like this. You know, they are what they are, right? You try to be a good person, try to be as visionary as possible about macro market things, whatever. But those are not what define success in this business from a legal and a fiduciary standpoint.

Yeah. At the same time, balancing everything out so it's a win-win for everyone. I want to say about your sort of thoughts on pivoting for the end goal versus adjustments. I resonate so much for that because I've been re-listening to a book called psycho-cybernetics, which sounds like sort of this, you know, woo-hoo name, but it's really right on because it's about, you know, it comes from the 1950s.

Really?

You know, starting the concept of guided missiles, for example, right? Is you have your goal, but you're constantly course correcting. Now you're going in the general direction, but you know, you're not going to get it right. Because if, you know, you're 1 degree off, that's a huge, huge miss. You might be, it's fine if you move a little bit too far to the left, you simply course correct, but you're not changing that ultimate goal. And so, yeah, the importance of having the goal, being clear on that goal, which I guess for a company is maybe equivalent to the mission statement, right? How you get to that mission, to that final outcome, the details will change, but you still have that vision of what you're trying to accomplish. So that's really, I haven't thought about how that relates to businesses and investments. So that brings it together. So thanks for pointing that out.

I would say that's very different than in the US. It's worth taking a step back, right? After 25 years of looking at macro markets, I'm going to say this, and I think everyone in Europe is going to be pissed, but by and large, technology markets are roughly 2 to 3 years behind the US market. You know, European EU tech markets are roughly 2 to 3 years behind.

It just, so it got me thinking like, ah, I wonder if there's analogies between, you know, small companies being more disruptive, moving faster versus the behemoths, you know, with the enormous budgets in the US, even if it's, you know, not necessarily number of people, but, you know, compliance budgets. You know, if you're smaller, sometimes these smaller companies can move more quickly, but then they're behind us. So you would kind of think, well, if they're faster moving, why aren't they—

So remember, this was a very broad characterization that I made, right? So let me, let me give you an example that you'll, you'll appreciate because it's much more in line with what you were suggesting on the company-country, smaller, larger, faster, slower spectrum, right? I remember many years ago, I think he's— my buddy recently posted about his, his, his personalized medicine, personalized diagnostics company on LinkedIn, and he says he's been at it for 15 years. So I remember, I don't know how long ago, 10 years ago or something.

Yeah.

Reading something about Iceland and it, and it, and it actually might've been like, like all, all 3 or all 4 Scandinavian countries. I'm not sure, but I, I think it might've been Iceland. And there was this, so obviously small country, right? Very homogenous, right? You know, progressive, right? Intellectual, tech, tech forward, all these things. There was, I remember reading something about like, oh, the federal government of Iceland has decided that every citizen is going to donate their DNA to a countrywide database. And then that database is going to be used as a dataset for experimenting with diagnostics for personalized, to operationalize personalized medicine. Right? 10 years ago, right? That, that's It's huge. Very forward thinking.

Yeah.

Nothing like that could ever happen in the US, dude. Could not happen. Right. And I think, I think that the reasons are very much in line with what you're getting at about small versus big, fast versus slow, and this sort of thing. So that, that's one example I wanted to share because I think it fits your, your model, your framework really well.

Yeah. I personally think that's going to be one of the next big things is The health industry very much taking into account DNA and analyzing that, obviously with AI, but integrating the big picture, I guess the equivalent of multiple perspectives, right? You have your genetics, but you also have your diet. You have, you know, are you exercising and like bringing all those together and having massive data to be able to analyze it and also very much personalize it to you. I think that's going to be—

I can already, I can make you a prediction that, that like in this vision of the future, personalized medicine, personalized diagnostics, let's say you have an agent, health, you know, an AI health agent that's constantly scouring the world for things that are relevant to you or to me, you know, and analyzing aspects of our life. I can tell you with great certitude, anyone who's the founder of a startup, will, will have more medical problems and a shorter life.

Yeah. And that relates to moving fast versus slow, right? So in academics, you know, that's where I come from. My background is you run these user studies and especially when it comes to medicine can take years, right? And then you're also analyzing, you know, a strength of science is you're looking at averages, right? And, but averages aren't looking at the outliers. To me, the outliers are more important and each of us is individual humans, we're kind of our own outlier, right? Versus, you know, we don't fit in the middle on everything. And so, yeah, that's an advantage of a small company. You can get in here and move very quickly and use AI and different technologies and such. And maybe it's not done through the traditional route of going through your, you know, your traditional research.

Imagine if 23andMe was like an agentic AI. That thing would like scour the world to figure out what, you know, what the hell is wrong with your gene pool, what could possibly go wrong, and then scour the world with like, you know, clinical trials, established medical procedures, Eastern herbal medicines. I don't know, whatever. Right. You know, snake oil and, and it, and it, and it would come back with this holistic program just for you. Yeah.

Let's analyze the snake oil. What's legit versus not for you.

It might be.

Legit for someone else.

Yeah.

So yeah, I think that, and with, you know, longevity being a big thing now. Yeah. Who doesn't? Well, I guess some people don't want to live to be 500, but I do.

I'm not a pro-longevity guy, by the way. And it's not, it's not that I don't want to live longer. I don't want to live like, unless I'm completely mentally lucid.

Absolutely.

And completely like, you know, physically capable. Right.

Yeah. So it's not number of years, it's the quality of years. Yet these newer approaches, yeah, should be as much about, if not more about the quality, right, of improving how we feel, right? When I'm 500, I want to feel— I want to feel 50 years old, not 500 years old.

Yeah. The thing that I don't think any of these longevity, I don't know, protocols or wonder drugs or whatever, even now appliances, right? Like there's all, Like the Oura ring or whatever would claim it's a longevity tool, right? So I don't think any of them get this other thing right. The other thing is basic human contentment, even when the cause of that contentment is pathological. So what am I— I'm not talking about serial killers. I'm talking about like a double cheeseburger with bacon, you know? I'm talking about, I mean, Lucas is from the middle, from Eastern Europe. I'm talking about fucking pierogies with like caramelized onions and, and, you know, all sorts of stuff that's bad for you.

Yeah, you gotta love life for sure. And so, yeah, going to the extreme, you can always go the extreme, you know, cheeseburgers every day is maybe not good, but never having a cheeseburger is probably bad as well.

Indeed, as a, as a 20-something-year-old first-time founder running my company in New York, I don't know what I was thinking, but like as a badge of honor, I would have the same Like bacon, egg, and cheese sandwich every morning. And everybody would be like, oh, that's not healthy. And I'm like, well, you can get away with anything when you're young. Well, I mean, that's the thing that the, you know, it's just the illusion of indestructibility, right? Is like, is rampant in your 20s.

Yeah, absolutely. Okay. Well, Garnett, Thank you so much. There was some interesting insight and some things I wasn't expecting to hear on this call. So this was fascinating. And any of our listeners, tell us what, you know, let us know what, what you thought of this and also what you'd like to hear more about, whether it's topics here or maybe branching off from some of these topics. We would love to hear your feedback on that.

Thanks for having me.

Okay. Thanks again, Garnett.

Pleasure.