Howard Ko from Morpheus Ventures

Welcome to the Puck, Venture Capital and Beyond, a show that explores the evolving landscape of the venture capital world. We'll have candid conversations with today's VCs and entrepreneurs who are shaping those changes. I'm Jim Beer, managing partner of Bier and Troff and president of CMBG Advisors. This podcast brings change makers to the table to discover the inner workings behind decision making strategies and ultimately how they got to where they are today. For those of you who don't know Howard Koh, Howard is a principal at Morpheus Ventures focusing on sourcing new investments in portfolio companies.

His experience prior to Morpheus was in software and semiconductor investments at Mission Ventures. Howard's background also includes both public and private financings and m and a transactions with the technology investment banking group at Solomon Smith Barney. But fundamentally, I think venture capital, I think, is really about optimism when you think about it. We are funding at the earliest onset of new innovation. We're we're effectively always betting on the promise thereof and not something that's already arrived.

Venture capital should be optimistic in nature. Howard, it's great to see you. You have a really fascinating background as a venture capitalist. Can you share a little about the versatility of your path into the VC world? Yeah.

So I think the short version of my background is I'm I'm actually a trained electrical engineer from actually down to UCLA. And I actually did join Solomon kind of right after school. Kind of thereafter, I actually joined up with Mission Ventures as my first stint into venture capital. Then I decided to double dip my UCLA kind of grassroots. Went and got my MBA there.

But actually doing there, I actually started a search algorithm company with two PhD CS guys out of UCLA. So that was a bit of an adventure, and that actually provided, I think, a different perspective, I think, in venture capital actually from an operations point of view and from a founder's point of view. And I think that was a unique perspective that was helpful in terms of being able to relate to the challenges that founders have and not just simply from a an investor standpoint. So, you know, my background has kind of been on all three sides, be it from the advisory side, from investment banking, but also from the funding side, but also from an operator side. And so that's, I think, the confluence thereof, my zig zag path kinda back into venture capital has been enlightening.

So one of my questions is in terms of trying to understand where the LA venture market is going and what's unique about our system in general, can you give us a little information on what you think differentiates your firm from the other firms in LA? Kind of one of the things that we try to at least say that we differentiate ourselves with is most of kind of the guys here really have operations background. We've generally run companies, started companies before. And so we take an operator's point of view, I think, when working with companies or investing in companies. And so we definitely aren't the ivory tower approach.

We tend to roll up our sleeves and be active investors in the company as much as they want us to be. And we try to bring as much perspectives from the learnings of the good and the bad to the company so that they don't repeat either the same mistakes or at least learn from what's worked before. So I think that's kind of one of the biggest differences in terms of our approach and what we bring to the companies. As we're sitting here today and we're looking at your portfolio, can you give us a snapshot of some of the companies that you're excited about? Yeah.

I think if you look at our portfolio, it's actually quite diverse because we are not vertical specific in terms of investment. We don't have an investment thesis in that manner. Our portfolio ranges from Hyperloop to ground robot delivery to big data residential to digital life insurance to, CRM lights, marketing automation companies. It really spans the gamut. I would say that we're excited about all our portfolio companies frankly because they're all relatively new.

We've made those investments frankly in the past, call it, nine to twelve months. A lot of them, you know, still has that kinda shine at, you know, from first investments. I think a number of them are from a disruptive standpoint. I would say that probably the most disruptive potentially disruptive is probably Hyperloop company. And, obviously, that's also the one that's probably the most further out.

But fundamentally, changing and rethinking the transportation kind of paradigm. Right? It is a big idea. It's a big project. Right?

And changing how last mile logistics work kind of globally. So that's I think not saying that the other companies aren't as exciting as I think those may be kind of more landscape changing in terms of how they can affect day to day consumers and really infrastructure as a whole. So let's go back for a minute because this is talking about what's disruptive. So I understand what you're saying about your companies and I wasn't trying to favor one versus the other. But can we talk a little bit about Hyperloop?

Yeah. So just for my own curiosity, can you tell me a little bit more about what you're trying to do or what they're trying to do and what they're doing that could be disruptive? Well, I mean, if you think about transportation as it is. Right? People own cars.

People drive cars. I think the Hyperloop system technology overall is just changes the way a consumer could go about transportation and the speed of transportation from point a to point b. It's a different dynamic. Hyperloop could be above ground, underground. You can literally have a difference in terms of roadways, in terms of the efficiency of roadways, essentially.

And I think the hyperloop technology is still fairly nascent, I think, in its nature. And what it will be at implementation will probably be different than what we can see today in terms of a fast speed kind of transportation paradigm or infrastructure. So are you limiting are you shortening the transportation between two major metropolitan cities or are you really creating a much more efficient, let's say, from Port Of Los Angeles from a commercial perspective into, let's say, the rest of the country from a commercial cargo delivery basis. Right? So it's different.

Right? And so the adaptation of that technology is it's still super early. And I would say that if you ask me that in two years time, I think the answer probably be a little bit different. So this technology you're describing, is it related to autonomous cars? For instance, do you believe we're gonna get to a point where cars are so automated that we won't even need red lights or stop signs?

If we get to autonomous vehicles, you could theoretically eliminate kind of the red lights and whatnot even without Hyperloop. Right? Simply because it's just guidance. It's onboard guidance and kinda automated kinda traffic management and kinda overall. Right?

So I think it's to some extent, I think it's the speed at which it gets from point a to point b. I think it's kind of where the infrastructure could be. It could be below ground. So whereas all the space that we're utilizing for highways, for roadways, if that became green space, what would it look like? What would the landscape look like?

And so there's I think there's different visions potentially of kind of what the transportation infrastructure would be. I think a hyperloop is more changing the fundamental premise of what transportation is. Whereas, as I think from an autonomous vehicles perspective, it's really creating a more efficient price a system based upon the current infrastructure that we have today. That's really interesting. So Howard, switching gears for a second.

When you meet with these entrepreneurs, especially as you said with your background in operations, is there any particular advice you typically give them based on the mistakes that you see commonly made? Sure. There's a few that that you see all the time. One is really and truly understanding their competitive landscape. I think a lot of companies always think they're the only ones or they're the first ones.

And not knowing that the next guy in the next garage might actually be thinking of the same things. Right? I never had the hubris anymore of saying I'm the first. I'm the inventor of x. Right?

There's plenty of smart guys and I, I'm sure, are kind of kind of around. There's always the next smarter guy. And so that bit of hubris, I think, still pervades. And not not saying that they need to know every single one because you're not gonna know that the guy in the next garage is doing the same thing. But truly understanding their industry, their space, down to not just a surface level, but really, you know, that second, third, and fourth level.

I think it's critically important. It's kinda one of those things where you really need to know, understand the battlefield that you're on. Right? To truly be able to succeed in terms of both an execution perspective, execution on product, execution on go to market. All of that stuff is predicated upon if you truly understand the industry dynamic of who you're potentially competing against.

So I think that's one of the biggest mistakes and perceptions that I see kind of entrepreneurs come in with. So when you're inundated as you must be with people seeking to get you presentations and make their business plans known to you. Without you giving away, you know, your secret sauce, how do you evaluate a business plan and is there any magic on how you evaluate whether or not you want to invest in a company? Oh, I don't think there's magic per se. I think if you talk to most venture capitalist, I would say probably one a, one b, one c, was probably management team.

Right? Especially at the earlier stages. Products evolve, markets evolve. So it's about investing in the people, investing in the management team that they have the both the intelligence, the knowledge, the self awareness to be able to adapt to the market as it evolves, and their ability to take in the input, the data points that's available in the marketplace. Our perspective in terms of our knowledge that we've gathered all additional set of input points that they can utilize.

Right? And how they are able able to digest that and make a good call. Right? You're missing in the management team to make the final call on a direction of path. Be able to kind of execute on.

Right? It's nice to think in grandiose and verbose manners, but if you don't have the ability to to execute on that vision and to build a team, all your grandiose vision is kind of flutter on by. So once you found a company and you're invested in the company, how active and hands on is Morpheus as an investor? You mentioned that you do get involved in the day to day stuff from an operation perspective. Can you speak a little more about that?

I think in terms of how deep we go with the companies and how we roll up our sleeves, well, I think a little bit more so. Look, when it's literally two guys and a dog, they have no infrastructure. We actually help them with the infrastructure, at least in a temporary manner from accounting to back office, all that stuff. But also, we have a kind of I say operating executives within the fund as well that actually will go in and help with business development, with HR, with all of that stuff. And I think almost all of our portfolio companies, especially at the earlier stages, they come in for a full strategy session at the get go.

And we continue that process. So it's not a board meeting every three months. I'm literally talking to some of these companies every week, every two weeks in terms of an update call and to be able to provide that feedback. Certainly at the most formative stages. And to really help them out because usually they're not complete teams.

And we don't expect them to be fully complete teams at this early of a stage. Most of them are technologists. They're really, really great fundamentally genius engineers, but they may lack a feel for a go to market strategy. Maybe they need are they a hardware product, consumer product? They need to figure out distribution.

How do you get to the big box retailers? Should they go to the big box retailers? What should their strategy be? I think things like that, and sometimes when it gets into more of a complicated strategic partnership discussions, they've never done it before. So we try to kind of impart that if they need it at a time because they're not complete.

You know, maybe sometimes they have a CEO, sometimes they have a CTO together, but they don't have a COO. They don't have a CFO yet. So we try to supplement and augment their team as best we can, especially on the earlier stages. And so that's why I say we get a little bit more involved in how deep we go. It's really however deep that the companies need us to go.

And it's both I think it's a positive for the company and it's also risk mitigation for us from an investor standpoint. The more we can help, the more capital efficient they are, the further they can go to their next milestone before they need to go out for financing again if they need to. So there's a healthy competition between UCLA and Cal. I get that. But I know you're excited about our ecosystem in LA.

So can you tell us what's unique about our ecosystem? Why LA, for instance, and Southern California in terms of what's special? It's probably our diversity. I think if you look at the companies that are successful here. Right?

We span from e commerce to guys like Honest Company Dollar Shave Club to cybersecurity, which I think people don't realize we have such a strong cybersecurity with Cylance, with CrowdStrike who raised a large amount of financing, to transportation from an infrastructure perspective. Right? The Hyperloop companies are all based down here and SpaceX is based down here. And that's probably from a legacy of our aerospace and defense industry and the talent that's inherently here. That's not almost anywhere else with likes of Raytheon, Boeing, Northrop Grumman, Lockheed Martin.

That type of hard science engineering is not in very many places. And we still have a foundation that supports that. You know, to your point, there's an ecosystem of engineering talent that comes out of the LA Metropolitan Area from Caltech to UCLA, USC. We're probably the only metro that actually has three, call it, top 15, top 20 engineering universities. And I think on an absolute numbers basis, we actually push out more graduate level engineering than almost any other metropolitan area, including the Bay Area in any given year.

And we also stretch into Internet and mobile, right, with Snapchat. And so I'd say really is that diversity of companies that makes us so unique because we are also at the confluence of entertainment and real estate. All of the different ecosystem that goes into building up such a diverse foundation and framework that we can work out of. So let's take this one step further. How do you see companies in Southern California addressing the challenges that automation is causing with their new technologies?

I mean, we have a lot of displaced workers. Well, I think there's different segmentations. Right? One unique aspect I think of Southern California to some extent is the entertainment portion. You don't automate entertainment.

There's still production. Right? There's still people kinda within actually that framework. And the increased distribution channels that we have, be it from a Hulu perspective, which is based in LA, Netflix, Amazon, in addition to kind of the traditional television network and broadcast networks and whatnot. It actually creates more opportunities, but you actually are putting more creative artists to work.

You're not auditing creative content for the most part yet. I don't think AI is there yet on creative content. So you've touched on a lot of things and certain things that can be disruptive. Whether or not it's the last mile or the hyperloop. But But in terms of technology and giving us an idea of where we're going to be in five years, we know that there's things like AI and virtual reality.

But in terms of where the puck is going, can you paint a picture from your perspective what you think technology is going to do to change our lives in, for instance, five or ten years? The autonomous nature is probably gonna be one of the biggest factors that changes how consumers and enterprises live day to day, work day to day. And the speed and scale at which our computer systems learn is gonna be even more sped up. The computer AI is not even close to a typical human brain in terms of what it can do today and how fast you learn and how fast it can self learn. You have to provide a training set, a body corpus, but in a large enough set that it can actually determine context in a more meaningful way.

And or you have a more of an object or cluster approach, which, you know, less about what's in it, all you know about the relationship thereof. But as computer systems get much more advanced in terms of how it learns, that impacts fundamentally the autonomous nature of the infrastructure and economy that we live in today. So whether it's autonomous drones or autonomous pick and pack at a warehouse or autonomous pick and pack at a grocery store for delivery. All of that requires a level of intelligence, which I think these computer systems can actually learn. Not self aware, but simply learn cognition wise, understanding wise, and be able to take action on that.

Right? It's one thing to learn, another thing is to actually take action from that that is actually providing utility. In terms of Morpheus and where you're going, how many more companies you're going to invest in and your plans, there may be things of course that you don't wanna disclose. But as things are coming down the road, how much powder you have and how many more companies you're likely to invest in, is there anything you wanna share with us in terms of your current plan? Yeah.

We've been very active over the past nine to twelve months. We make probably more concentrated bets and investments. And we will look across the spectrum from a consumer perspective all the way to enterprise perspective. I'd say we cut our teeth in consumer. We naturally wait in an enterprise with companies like Climate Corp and DeepMind from before.

So we will have a confluence. We will actually stretch the gamut. And the nice thing is that we hopefully can bring kind of the learnings from the successes and as well as the failures to bear for our portfolio companies that are in our portfolio ready and obviously hopefully to come. Howard, what motivates you as an investor? I love talking to entrepreneurs.

I love looking at really new and interesting technologies. And I'm also a very big history buff. I'm a big believer in learning from the past so you don't repeat the same mistakes. But it's not just about the tech. It's about whether or not there's a business that can go behind it.

Tech for the sake of tech, to me, is not that interesting. I see buzzwords always being thrown around. I do AI. I do ML. I do big data.

My thing to entrepreneurs is to what end? Are you fundamentally providing a utility? Are you fundamentally providing a function that couldn't be done in any other matter? The value proposition that you offer that means something to somebody, be it consumer, be it enterprise, or whatnot. You'd be surprised how many companies can't fundamentally answer that question in a meaningful way.

There's an optimism in terms of the way you view technology and it gives you a lot of energy. And I hope people can get that sense because I know people are looking for that right now and there is a lot of complexity and a lot of despair and people wanna know how we're gonna solve these issues. And it seems like you and your team and the entrepreneurs of the companies you're investing in, they tackle these issues and they're not overwhelmed by them. I think you have to. Our fundamental premise is disruption as a firm or as a fund.

And I think when you're disrupting, it's never easy. You have to have the audacity to say we can change this. We can make it better. But fundamentally, I think venture capital, I think, is really about optimism if you think about it. We are funding at the earliest onset of new innovation.

We're we're effectively always betting on the promise thereof and not something that's already arrived. Venture capital should be optimistic in nature. We should be rational and realistic and pragmatic in terms of the way we deploy capital and investments that we make. But we fundamentally should be optimistic because we are always investing in the future. I think it's helpful for VCs and for entrepreneurs to be thinking about from a historical perspective where we're gonna be in a 100 years.

And we're going to solve a lot of challenges and we're going to disrupt a lot of things. But if we're not also creating and investing technology that helps the other guy, we're going to have an awfully lonely existence. Existence. So part of what comes across with you Howard, is that you do care about people and you do care about history and you do care about making the world a better place. So it's not just about disrupting and leaving a lot of skeletons in the closet but it's essentially having a conscience as well.

No. Absolutely. Look, I'm a big believer in win win wins. It's gotta be a win for all sides. If you're only taking from one, let's say, one segment of the population, that's never gonna last.

Shifting gears, earlier you were talking about the successful elements of a company. Can you give us an example of how this distinction made a difference? When you look back at the companies you funded, which ones were successful and which ones weren't? The ones that succeeded tends to be the management teams that you felt most strongly about in terms of their capabilities. And that's twenty twenty hindsight, obviously.

But sometimes you get off disappointed. Sometimes you've fallen off with the product. Sometimes you've fallen off with the market. And you let the management team checkbox slide a bit. I probably need to hire a CEO, or I need to surround this guy with a few more things.

I don't know about this guy, but I really like what they're doing right now. I think if you literally do a post mortem, I'd say that's where many of our failures work. It's generally the guy who best executes the product and service that ends up succeeding. It's not the inventor sometimes. It's the guy who's a faster who can do it better.

Was Uber the first right turn? No. Right? So obviously, brains are important. You have the team.

You have the oxygen. But there is something special about the Jeff Bezos of the world where these people like Sam Walton, Henry Ford, they start companies and so forth. But in your experience, are there people that stood out to you that without them, the company's results would have been different? For instance, the Steve Streets running Green Dot. I mean, getting to know some of these entrepreneurs, have there been any trends in your career and formative moments for you when you look at these people and you see what works and what doesn't?

I think, look, not every company goes through a point a to point b in a straight line. There's always generally some divergence. And sometimes it takes extraordinary teams to be able to cross that barrier. But some of it have it a little bit easier. Some have to make hard decisions.

That fundamentally changes the trajectory of companies. They could have taken the easy way out. The easy money. Right? But taking the easy money would have, I'd say, capped the ultimate growth of it.

I'd say one example would be the Skype founders, Nicholas and Yanez. Back when Skype was just forming and I wasn't there at the time, but founders, Nicholas and Yanez, back when Skype was just forming. And I wasn't there at the time, but I've gotten to know Nicholas and Yanez over the years. And it was a hard decision for them back then. When Skype was fairly nascent, they had a lot of different potential opportunities to drive revenue.

White label approach to major tel cos. But they decided to not take the easy money and say, you know what? That's a success. But they believed in building a bigger enterprise, bigger idea, and the brand that Skype could be. And I absolutely argue that the $3,000,000,000 acquisition by eBay bay of Skype, fundamentally, a large chunk of that value came from that decision that there was a consumer brand that consumer adopted into the network of Skype.

It was the fact that Skype had that direct connection with the consumer, had the adoption, had the brand awareness. But those are hard decisions. Right? I give them a lot of credit in making that hard decision. Right?

I think the value of Skype would have been fundamentally different had it just been a supporting technology and simply sold as a technology enabler versus the peer to peer solution. You're seeing CNN reporting always via Skype. You're seeing the brand of Skype has tremendous amount of value. And I think you see that historically, that's what builds value. Next on the Puck, we'll be heading into Downtown Santa Monica to talk with William Quigley, entrepreneur and CEO of OPSkins, the