The Secret to Success in Venture: Ken Denman on Timing, Strategy, and Resilience

Remind us what year we're in.

Uh, this is like, uh, it's '88 through '92 or so where, you know, I'm telling my friends that, hey, in the future, your phone, you, you'll just have a phone number that goes with you everywhere. Now, back in those days, you know, people were like, whoa, no, And so, but long story short, I rose up through the finance area and then I became sort of an opportunity to be assistant to the president and CEO of US West Communications. So I had this lofty title, you know, executive director and assistant to the president and CEO. And it was a great staff job. You know, I was clearly on a good fast path. But I remember the CEO telling me, hey, look, you've got a great title and a lot of people are gonna know you and see you, but you have to remember you don't have any power. I have all the power. And, and so all of the people on my staff that you're gonna have to work with and say no to on my behalf are people you're gonna have to work with in the future. So be very humble. And it was great advice and I was, and, and I think I would've been anyway, but it was particularly good advice. And And it allowed me to, to, to learn how to build relationships and to navigate, you know, senior-level officers and senior-level issues. And so from there, I became a vice president of the wholesale wireless unit of US West. Got to meet great people who are friends today, including, you know, people like John Stanton, who was at the time CEO of Western Wireless, and before that McCaw, and who now is on the board with me at Costco. And, and, and, you know, as the president of the Seattle Mariners. So, you know, I've had good fortune through most of my career to be in interesting places, interesting jobs, meet interesting people who today are still friends of mine. I ultimately went to Europe as chief operating officer for chief operating officer wireless for Media One, where I was leading the building of multinational joint ventures. Basically building GSM companies, cellular companies in Central and Eastern Europe, really interesting places based in London, St. Petersburg, Lithuania, Poland, Czech Republic, Slovak Republic, Hungary, chasing licenses in Ukraine, Romania, Egypt, really a great job. And, you know, so that brings us up to the point that my LinkedIn starts.

Well, no shortage of amazing stories jam-packed in that amount of time. I love so many themes that you talked about, you know, in leadership, Ken, But also this love of looking around corners and being kind of on the cutting edge, being in mobile before mobile was what it is today. By the way, I remember the first time that I got to keep my cell phone number, and I was so ecstatic. I remember exactly where I was. I was like, whoa, you mean just because I'm moving from Cricket to AT&T, I'll never have to do it ever again? Amazing. Thank you for taking us along that journey. And so we're up to COO. After that, you founded a startup. So you also have a background as an entrepreneur, which I'm sure comes in so handy in your work today as an investor and general partner with Sway. So the thing about this startup, though, I love that you're so candid about it. You described this company on your LinkedIn as a a precursor and too early leader of cloud-based unified communication space. So what does that experience as a too early founder teach you that you still use today?

Yeah. Well, one of the things it taught me for sure was that, you know, in venture, timing is the magilla. Timing is everything at some level. There's one thing that can crush you or benefit you, it's timing. So I had joined Crosspoint Venture Partners as an entrepreneur in residence and, you know, great team there. You know, my buddy, lifelong friend to this day, Seth Nyman, was one of the, was the general partner that recruited me there. And we, you know, we had a great idea together. He asked me to write it up. I, you know, I pitched it at a partner meeting and asked for $10 million. And by the time I got out of the room, I had $15 million to start this fund. to start this company and we were doing well. We were meeting our plan. We were, you know, we had, you know, a really impressive number of customers and more in the pipeline and we were basically an early version of 8x8 or RingCentral, but it was more voice over ATM as opposed to voice over IP because the technology just wasn't there. We were early, but again, still making progress. There was a market there. There was signal that was clear. Well, then the first big, you know, so the internet bubble, the first internet bubble of '99, 2000, well, 2000 hit and I could not raise another round for Love No Money. And I, you know, even with Crosspoint backing us fully, it was just a dark time as most of you will remember. And so even though we had done well relative to the plan that we put forward, you know, at some point I realized that if I hit the wall at 10,000 miles an hour, we were basically the front door to a lot of companies and we would not only, you know, we would hurt a lot of our customers. So at some point realizing how difficult it was, frankly impossible for a telecom service provider to raise a round in that window, you know, with about $1.5 million, I, you know, chatted with Crosspoint, with Seth and just said, look, you know, this could end very badly if we are not thoughtful here. And so we decided to wind the company down. Crosspoint was very, very honorable in that decision process and support of that. And so, you know, we've severed a lot of employees and the management team went on no salary and we spent many months just moving customers to other solutions. And then, you know, I put a padlock on the building door. It gave the landlord the keys and took family on a Disney cruise. But it was a really, really difficult emotional time. And there was, you know, nothing harder than standing in front of employees and saying we were gonna wind the company down. And, you know, it was one of the most deeply emotional times in my life. And I remember talking to Seth and saying, you know, gosh, Seth, I don't know how I let this happen. I'm just, I'm devastated. I, you know, I can't believe that this is where this ended up and everybody worked so hard. And Seth was like, Ken, get over yourself. He said, Cisco's trading at $11. This is way bigger than you. You know, this is not about you. This is, you know, there are things that are bigger forces of nature and you got to understand that if you're going to learn from this experience. and move on to the next one. And so I had the benefit in that particular time of a great friend, coach, and investor who had lost a lot of money and was really kind of reading me the riot act about not capturing the real lesson here. And by the way, that same investor along with Accel pulled me into the next company, you know, to replace that team. And that was a team that we, a business that was troubled. But we took public like 2 and a half years later after I, after I took over.

Thank you, Ken, for being so vulnerable and sharing that story. It's, it's one that I think is on a lot of people's minds given the climate around fintech investing right now and what we're seeing. You know, people are just being told like, listen, you're not going to be able to raise a round. And, you know, a lot of that is because of everything that's going on with crypto. And there was a fintech decline before that. I'm curious from your position and having your background in an experience like this where timing is literally everything, what advice would you give to founders, companies that you're talking to these days?

I would say first and foremost, do everything you can to create as much runway as you can. We're in a wind tunnel here that's pretty tough and hard. And to the extent that you have to raise capital, understand that the market is extremely tough. You know, valuations I've seen cut, you know, as much as 60% in the best case. And so sometimes you just take the pain if you can, if you can raise around and buy yourself more runway, you know, do it. But if you can extend your, you know, your reach, you know, do it. I mean, 24 months of runway is the new, you know, is the new, you know, is the new 12 months of runway. And so, you know, We just don't know how long this wind tunnel is. And VCs are being very, very, very conservative. And so lots of folks are talking, taking meetings, but there's alligator arms out there. They're trying to understand when the windows for IPOs will open. They're trying to understand what's happening in capital flows. Even though they have capital dry powder, it's just a nervous time. So Deals are being done very carefully, if at all. So again, I come back to my beginning thesis here. Buy yourself as much runway as possible. And in the worst case, take the pain and give yourself a chance for victory later.

Awesome. Thanks, Ken. And you heard it here first, people. 24 months is the new 12 months of runway. So let's talk about something that is a little bit more bright, which is you, you are a turnaround artist. You take rough situations and make them better and save companies. You mentioned iPass a second— well, I don't know if you mentioned it by name. So your 2003 IPO with iPass, and before that, OpenWave, also did a major strategy transition with them in the mobile space. So can you tell us a little bit about those journeys and what What makes you the turnaround artist, I guess? And what skills do you think are the most helpful for that?

Well, I don't know if I would actually accept the turnaround artist. I've been engaged and involved in a couple of situations like that. And, you know, one went really well in terms of at least getting to an exit and an IPO in a very difficult time when there weren't many IPOs in '03. The other was more of a company that was kind of deeply harmed, deeply damaged by a nasty hostile takeover attempt. which the company survived, but it was almost, you know, kind of mortally wounded at that point. And, you know, the job then was to kind of right the ship and sort of figure out which way is up and which, what the real underlying assets and value was. And we organized it around IP and the 2 operating units, which eventually were parted out to private equity. And so You know, I don't know that I would consider that as much as a turnaround as much as sort of a diving catch, if you will, to kind of, you know, extract as much value as possible. But it, you know, the core of any of those situations when you're going into a turnaround is to, you know, really you've got to first right the ship, which means, you know, bond with the employees, listen really, really well. And and and figure out what you have to do to keep the the team intact, and and sort of very quickly develop the strategy for the go forward, and and build that strategy with the team, sell it to the board, and get to work. And I'm accelerating greatly the the time frame and the amount of work to be done. But the main job in in difficult situation is to provide the leadership. And the prioritization of effort that's needed to figure out the North Star and then sell that North Star internally and externally while sort of watching the unit economics very carefully. And also importantly, if it comes to it, picking the right point to take the exit. And if that means that if it's M&A or if it's, or if it's, you know, selling the company or whatever it is, you know, being eyes wide open around what the future holds and what's the best strategy for all concerned shareholders, employees, customers.

No small list of things to do for sure and to do really well and Probably on a razor's edge of margin error, right? You said something in there about—

You're managing a lot of anxiety, typically anxiety across the board, all the constituents, and anxiety within your own selves. And so, you know, figuring out a way to sort of suppress that anxiety to get to the real work that needs to be done. I think a lot of times, In difficult situations, there's, there's so much anxiety that, you know, there's actually too many points of focus. And, and your real goal is to get to, you know, just a couple of points of focus and go attack those. And, and trying to do too many things in a, in a hurricane is like the worst thing you can do.

That's— I'm glad that you elaborated on that because it actually ties right back into what I was going to point out about something that you said, which was Figure out your North Star and then sell it. First, you're speaking to this anxiety, creating a lot of distraction. Figuring out the North Star is the really difficult first part. I want to ask about the second part, though, the selling it part. What do you think are some of the key traits that make good leaders capable of selling, this is what we need to do, or this is what the vision is, and getting that buy-in that you need to make things happen?

I think one of the key traits is that you have to be a willing and able learner. You have to go into a situation, listen really well, ask great questions, and then coalesce around just a few points of emphasis. And I think that, you know, great leaders tend to be great translators of, you know, sort of understand sort of take in, ingest all of the, a lot of data and information, coalesce around a sort of a core set of principles and decisions, and then, you know, play those back in a way that people are not surprised because they've sort of participated already in building them, you know, through this whole question-answer debate conversation. And at that point, you know, many people both internally and at the board level, they kind of get to the point where it's like, you know, it's, they think it's their, it's actually their decision. They think it's their plan because, and it is because they've sort of participated in it. And yeah, there's always some hard calls that a CEO or a leader has to make that may be orthogonal to what people thought. But more often than not, If you do it right, you do it well, you do it relatively fast, the obvious answers kind of come to the surface. It's usually not non-obvious answers, it's more obvious answers and you just sort of focus the effort and people get to the point where they kind of go, yep, that makes sense. Absolutely. Wish we thought of this, you know, a year ago or yep, that's what I've been saying all along. However they get there, you just want them to get there.

Got it. And I'm sure that that happens a lot. People feel heard sometimes when those calls are finally made. Speaking of making big calls that CEOs and founders have to make, you also had a company acquired by Apple, Emotient, which I think was doing automated financial— automated facial, excuse me, expression analysis. Can you tell us a little bit about that company and That journey and, you know, what that experience of acquisition and wrestling with those big strategic decisions was like in the moment, maybe.

Well, I would say, first of all, the company was Emotient. That was the name of the—

Apologies, Emotient. That's okay.

Yeah, it's a combination of emotion and quotient, Emotient. And this was a company that was actually Myself and my co-investor, the lead investor was my friend, my former, and from Crosspoint Venture days, Seth Nyman was the lead investor in that deal. And we had had a lot of conversations about what was next, what was the next big thing. And generally, you know, the thesis was since the beginning of the machine age, machines have, people have adapted to machines and the proclivities of machine designers. And over several tequilas, we began going down this thread. Well, like maybe it's time now with the enabling technology or because of the enabling technology that machines could actually adapt to us. Well, if they were gonna do that, how would they do that? Well, they'd have to know how we feel in order to serve us. And so that led to a conversation. Okay, what would be, how would that happen? What would be the enabling technologies that could allow that? And what would be the sensor And what would be the signal? And between that, with cameras being everywhere and the resolution of cameras being so great, it was clear that computer vision would be a component. It was also— we also thought that it could be the face because, you know, if you look at how the facial expressions work with the limbic system, you know, when we feel a stimulus or when we are impacted by a stimulus, There are— the muscles of the face are impacted, whether we know it or not. And people talk about a poker face. To a lesser extent, the human eye can see changes in faces, but not as well, nowhere near as well as the computer vision capability that we have today. Cameras today at a 1080p by 1080p perspective, if you go to a pixel level, If you're interrogating a face at a pixel level, you can see things that the human eye can't see. So to the extent that someone feels an expression or has an emotion, and I will say has some sense or some reaction, there are muscle movements in the face that the human eye cannot see and the camera can see. So based on the facial action coding system that a famous scientist has developed, We knew that there was a potential there. So we found a team, an intact team at the University of California San Diego that was the most cited, most published team in the world on this sort of facial expression measurement area. And we're able to pull that team out of the university. We found, we funded the company. I did the deal with the University of California San Diego for the prior art. And we went down the path and we were We were, we, you know, we had a lot of great use cases, but ultimately there were companies, large companies with, you know, billions of devices in the market that had phones in it and they had a better idea. So long story short, we ended up being acquired by Apple. That's probably as much as I can say. As you know, Apple's—

Understood. I had to ask.

Pretty aggressive about privacy. And so I'm gonna stop there. It was a very, it was a good outcome. And, you know, and we were, you know, the team was really happy to be, you know, associated with such an amazing brand and an amazing company that, and, you know, I had told the team if they came with us and did this, that we would help them productize their life's work. And there's no better product company in the world. And so, yeah, it was a good outcome.

That's Incredible. And also, and it all started with a conversation with a friend, a really deep, amazing conversation with a friend that you had known again from a past life, which I think is the theme for what we've talked about today too. A lot of things you said, and then I knew this from this guy from there, and we did this together. That's just how it kind of unfolds, isn't it?

For, you know, I've had a lot of lives, and I, and I've been fortunate. And I would tell you that, you know, uh, relationships are ultimately the thing that determines the success or lack thereof for most of us across careers. The most important things in our lives are typically the relationships, both personal and in business. And so earning the trust and the confidence of people that you care for in either personal or business is sort of the key, one of the major keys to success in my view.

So I'm curious, with all of the work that you were doing at InMotion, if you have any strong opinions on AR, VR, the metaverse, all of those things that rely on trying to understand and replicate very complex human individuals and emotions and situations.

Generally, I would say the most important thing that I have observed is we often, you know, in a lot of technologies, the first place they're tried are more in sort of personal consumer areas. And absolutely gaming is like one of the biggest markets in the world, bigger than a lot of the content markets and media and advertising and movies, theaters. It's an amazing market, but it is, it's not often the first place to go with enabling technology, the next versions. I think that, you know, where we will see, quote unquote, Meta have success first is gonna be more in use cases that enterprises embrace. So, you know, whether it's training for, you know, precision instrumentation or some specific area where people have an opportunity to be better trained in more of a virtual setting, You know, something like that. Using, you know, digital twin technology to, you know, to solve problems or use cases that are more enterprise related. Absolutely, I can see that. I happen to be a co-founder and chairman of the board of an interesting company that was pre-Sway, ProprioVision, which is a Seattle-based company, and I call it virtual reality for surgeons. for lack of a better term. But, you know, where the use cases, you're solving a hard problem and delivering value down an enterprise lane, we'll see success there. And over time, there'll be an opportunity for more of the consumer-facing areas. But I think the willingness to pay is evident in the enterprise space where you solve current hard problems. Deliver more efficiency, less latency, more capability, and particularly where you can augment humans. I think we sometimes miss that opportunity where, you know, there's still a human in the loop, but you can dramatically augment humans and improve efficiency.

Bold, bold vision for the future. I, you know, I think it's really interesting, the medical applications that we have, not just from From AR, VR, Meta, but also robotics. And the combination of those is really exciting.

Yeah. Well, I did it just to add, tag onto that point. What we used to think a lot of these technologies as sort of individual siloed technologies, whether it's natural language processing, computer vision, machine learning, deep learning, etc. You could go on and on, AR, VR. The reality is a lot of these technologies now are mature enough where they're coming together. And they're coming together quickly and there's not as much sort of separation between them and there's now enough expertise where people can use them simultaneously to solve hard rock problems. And so it's one of the reasons I remain absolutely optimistic and excited about what's going to happen in the next 5 years. I think we're going to see so many cool things come to fruition.

It's always the hard problems that are the most exciting, I think. And you also invest in an area that has A ton of other hard problems that we talk about a lot on this show, which is finance and fintech. I saw that you had participated in an investment with— for Tally, which I don't know if you guys have seen their commercial where the girl's laying in bed and it talks about what it feels like to be in credit card debt. I love that commercial. It was so emotional, let's say.

Yeah.

But that was a really cool investment with folks like Cowboy Ventures, Andreessen Horowitz, Rex over at Cambrian, who's a friend of the show. What do you love about finance and fintech? What are you most excited about in that space right now?

Well, broadly, you know, my interest in fintech comes from just looking at which industries will be most disrupted in the next, you know, next 5 to 7 years. And financial services is absolutely one of those. It also comes from, you know, my background in mobile and mobile software because we kind of really are carrying banks around in our hand. You know, these things are the equivalent of the go-forward sort of expression of banking and a lot happens, you know, it's a lot of power in our hands. And so, you know, I started thinking a lot about the fintech space in the late aughts and combine that with some changes in legislation through the Durbin Act as an example that really I think was an accelerant to early-stage companies being able to get in the game, being able to sort of get at least a banking charter. And so I have had, you know, for more than a decade now an interest in where that was, where things were going to go in the financial services space. So, you know, the opportunity here is that, you know, I have a saying, you know, money wants to move at the speed of data. And largely it has not been able, been allowed to for a number of reasons. Many are related to sort of regulatory constraints, but also just, you know, not actually having the ability to put power in the hands of consumers. So, you know, I just think there's so much opportunity because the reality is that the average consumer is like a frog in boiling water. They have no idea really of the environment that they're working in. They, you know, most, many of us, we have financial advisors who are working to manage our financials and save money and get optimal returns. The average consumer doesn't have that. And unfortunately, in a lot of the financial services, there's little or no education for them. So I think that commercial was perfect because, you know, what Jason Brown and the team was able to do, in addition to being an amazing sort of deep technology company under the covers. Their machine learning, you know, heading the deep learning capability to do underwriting is unbelievably strong and good and deeply technical. But at the point of contact with the consumer, what they've been able to do is speak to a truth for the average consumer, which is they don't really understand finance. They know, they kind of have a sense that they're in trouble. But they don't really know how to solve it. And and and even more so, there's a lot of finance. There's a lot of anxiety out in in the in the market broadly, and that the the woman laying awake thinking about okay, I've got like four credit cards. I got this much debt. I got to make this payment on this date. I'm shuffling around the eng. We are suffering from a mental health crisis in many ways across the country, and consumers many of their much of their mental health. Challenges is around financial stress in the everyday family. So finding a way to use technology to help provide support, advice, really to actually step in and take control and take that weight off the shoulders of the consumer and add value. I mean, it's easy to say, you know, we can step in and be your advisor. But if you— are you really adding value? Are you really helping? Can you demonstrate that you're helping people reduce their credit card debt and improve their livelihood and improve their sort of anxiety. That's what Tally is attacking. And it's a beautiful mission. It's a powerful mission. It's a noble mission. But the reality of value, actually, you can say it, saying it is one thing. I'm a huge fan of sort of membership models. The fact that they're 48-month, you know, 60-month cohort retention is so high speaks to they're actually delivering value and actually are reducing the amount of debt that consumers are under, reducing the period of time which they can pay off debt, and frankly reducing the financial stress that consumers feel. So it's one of the reasons I'm so excited to be involved with Tally because I they're really adding value. They're doing good by doing good. It's a powerful thought.

Very powerful indeed. And Ken, you've just done so much good through all of your work and now investing in amazing companies. So tell us, is there anything that we should have asked you that didn't? And where can people find you? What would you like us to take away from today?

Well, you covered the waterfront pretty well. You know, I think that we're in a We're in an interesting time in this downtroff economically, sort of in the country and the world right now. But I would say this, so many great companies have been built in downturns. And part of the reason is I think it's because unlike maybe the last 3 or 4 years where capital was so abundant and kind of easy, when capital is constrained, you have to be really, really good and really, really focused. And I think we've got— I think there are gonna be some great companies built in this window at a time when in the next 5 to 7 years, we're gonna see more disruption, more benefit, more change to the good around capability, technology, underlying enabling technology transforming itself into better B2B models, better B2C models, better B2B2C models. You know, we're not gonna recognize We're not gonna recognize where we are today 5 to 7 years from now because it's gonna be such a big change. So I'm excited about the opportunity to find great companies, you know, who are looking at some of the hard problems in front of us with a clean sheet of paper. I'm excited to see large enterprise companies working harder to understand how do they get access to the data, the information, the perspective on what's being built around them because many big companies are now figuring out that they're not the best innovators. And so we're starting to see them leveraging relationships with the venture community. Some are still trying to do corporate venture, but a lot of folks are doing sort of outsourced venture capital because, you know, again, they're trying to stay in their lane. So I see great trends and I'm optimistic about where things are going. Even in this sort of economic dark times.

Ken, I feel like I just got the most uplifting masterclass ever. Thank you so much for coming on the show today. We really appreciate your time and wish you all the best in the holidays coming up.

Thank you, Amber. It was a pleasure to be here. And likewise, I wish you a great holiday season.

Thanks, Ken.

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