Predicting The Next Big Markets For Investment

Jason Kirby (00:03.056)
Hey everyone, welcome back to Fundraising Demystified. Today we have Caitlin Donnelly, GP and solo GP of Avalanche. I don't know why I butchered that, sorry. Cut that out. Everyone, welcome back to Fundraising Demystified. Today we have Caitlin Donnelly with us, GP over at Avalanche Ventures. Welcome to the show.

Katelyn Donnelly (00:13.646)
It's okay.

Katelyn Donnelly (00:24.536)
Thanks so much for having me.

Jason Kirby (00:26.626)
I'm excited to have you. I think you have a, why I brought you on is I think you have a unique thesis that you coined the concept of avalanche. And just to jump straight in, I want to talk about why you're not chasing unicorns and you're actually trying to either, I guess, create avalanches. Is that the mission there? So again, give the audience a little bit of context on what an avalanche is.

Katelyn Donnelly (00:45.528)
Sure, so an avalanche is a massive sector trend that is sort of inevitable and you can see the invisible changes underneath the surface, but people aren't sure exactly when the avalanche is going to be set off. And so what we hope to do is invest behind those massive tailwinds that can create huge outcomes for our investments. I think the unicorn moniker to me is less interesting because there are ways that you can manufacture

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a unicorn or even like the term itself is sort of meaningless now because it used to be this mythical creature that, you know, would be very rare and now they seem to be not so rare. And so I think a more useful way of thinking about early stage venture is being like, how can you find the big changes that are happening in society driven by technology and invest before other people see them?

Jason Kirby (01:39.002)
So let's talk about that a little bit. How do you find these markets? How do you find these sectors and identify them?

Katelyn Donnelly (01:46.636)
Well, I keep my ear to the ground and really think, I mean, first I, I been just like kind of obsessed with market trends. I don't know since like college, maybe even before and like making predictions about where the future is going and being like, how can I be at like the earliest stages of those predictions and see things before other people? and one of the areas.
that I've gone deep on traditionally as an education. And so one of the most powerful avalanches that we've been investing behind that we saw coming is the movement towards alternative education, which we call alternative education goes mainstream. And it's like, if you'd looked at the data, you could see this buildup of dissatisfaction with the public education system and a new class of parents wanting to give their kids a more personalized

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different set of experiences. And you never know exactly what the inflection point could be, but the big ones for that avalanche were COVID, where parents could see what they were getting at public schools and realize that they could potentially even homeschool or pursue alternative education. And then secondly, a new political administration that has made school choice front and center of its education agenda.
That's an example of like a big trend that you could see coming. And then there've been these inflection points in the last year that have made it a very obvious future.

Jason Kirby (03:36.077)
So yeah, I love that example and being able to kind of see, there's a bet or like there's like the inklings of what could become an avalanche. But a couple of things, guess, when it comes to like picking a winner or like kind of, well, they need to kind of identify, but timing the avalanche and then also being able to survive an avalanche. How do you think about when making investments as an investor into these markets that you've identified?

Katelyn Donnelly (03:36.077)
Yeah.

Katelyn Donnelly (03:42.979)
Yes.

Jason Kirby (03:52.360)
How do you think about the timing and the allocation to what you think the winner will be that survives?

Katelyn Donnelly (04:00.674)
Well, one of the things we look for and underwrite are founders that are building their life's work. So what that usually means is like they have committed their entire career to a sector and building behind it and believe that they've now found a, or they are finding a company that is building the future that they believe needs to come forth in their sector. like within the alternative education avalanche, we've backed
both Odyssey Education run by Joe Connor and Tether Education run by Chris Nielsen. And both of those founders are serial entrepreneurs who are building their life's work in school choice matching algorithm platforms to coordinate a more decentralized world. like both of them are people who have kind of like been through, have been in this space for over 10 years, actually their entire career. And then secondly,
they're like just never gonna give up because if they didn't do their company, like they would do, they would just start the company over again. And I think they would have just like found a way to be capital efficient and to like make resources go farther until the like proof points materialize in order for them to raise the capital to capitalize on the avalanche.

Jason Kirby (05:21.324)
I like that. And to kind of give the audience a little bit more context on you and how you got to building Avalanche Ventures, tell us a little bit about your background at Pearson and part of that what led you to building the firm.

Katelyn Donnelly (05:35.714)
Yeah. So I started my career at McKinsey doing tech and finance turnarounds after the great financial crisis, and then left with a senior partner to join Pearson in 2011, as they were really going from being a print publishing business to a full service education technology firm. And I then co-founded Pearson Ventures, where we invested in ed tech and education companies all over the world, but then also did a lot of thought leadership around where
the future of education was going both from K-12 and higher ed. And one of the papers I wrote was actually called an avalanche is coming higher education and the revolution ahead. And we predicted the rise of Teal Fellows and Y Combinator being a powerful brand on par with things like Harvard Business School, that MOOCs and technology would be a disruptive force to universities to challenge them to provide more than just the content. And so

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The success of that paper was one of the things that allowed me to think, well, if you can get these, if you can predict the future, you should be able to invest before it happens. There's a lot of upside in that. And then at the same time, coming from corporate venture, I wanted to get back into the industry from the vantage point of being an exited founder myself. So I saw a market opportunity
with my boss to co-found a company called Delivery Associates to work with governments to drive outcomes and implement technology. And we grew that to 200 plus people, clients all over the world, profitable and sold to private equity in November 22. So, and I should say Delivery Associates was definitively Michael Barber, my boss's life's work. He developed the methodology under Tony Blair. It was kind of an idea whose time had come. And I think you even see that too, you know, it was

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an avalanche in itself that we were very early to, because now you have DOGE is like, you know, maybe a more aggressive, less polite sort of like delivery associates type method. But the public dialogue is now centered on government efficiency and achieving results in the public sector. So both of those experiences at Pearson, seeing like how you can underwrite big trends that are coming,

Katelyn Donnelly (07:56.298)
And then also building a company and having a financial, a very successful financial exit to a financial buyer, put me in a spot to be able to partner with founders at the earliest stages when they're building companies that are part of their life's work.

Jason Kirby (08:11.480)
I guess tell us a little bit about Avalanche's thesis and check size and stage. So in case founders are listening that might be interested, they can have some context.

Katelyn Donnelly (08:22.700)
Yeah. So we are a relatively small fund around $5 million. We invest between a hundred to 300K in pre seed to early seed companies that are building behind an avalanche theme. And I've written a lot about what we consider avalanches on our blog called Obviously the Future. So you can go on the website – you can check that out. And then, kind of update them. Then, but beyond that, at least today, like we needed to start somewhere. I mean, there's a lot of avalanches out there in the world, but I wanted to start with ones that I felt I had a clear point of view on and could help founders tactically. So we invest primarily in companies that transform how people learn, earn or own.
That really serves under the umbrella of empowering people to be able to take charge of their lives and be successful in a capitalist society.

Jason Kirby (09:26.288)
I guess define the “learn, earn, and own” framework – or sorry, earn and own – what are some examples of the avalanches you see happening in those categories?

Katelyn Donnelly (09:29.816)
Yeah.

Katelyn Donnelly (09:33.262)
Let's earn. Yeah.

Katelyn Donnelly (09:42.072)
So in earn, we have one called “everyone is an entrepreneur or they'll have to learn to think like one.” I think Gen Z very much gets this – like, you know, there's no such thing as a career pathway anymore. Change is a constant that you're going to have to constantly be adapting to and that your career may look more like a portfolio career and a job that you have in five years may not even be invented yet. Like, no one – you probably use the term “prompt engineer” –
like more than three years ago, that wasn't something that existed. Like if you pegged your career and said, "I'm going to be a senior software engineer," the nature of that career and its progression has changed. So, the underlying ethos is that you have to be an entrepreneur, you have to be adaptable, you have to see where the opportunity is and position yourself accordingly. And so from that come a sort of series of entrepreneurial opportunities that we can underwrite at Avalanche.

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So like one company that's still very early and in stealth is called Loma, which stands for local marketplaces. They work with people who own very niche communities on social media to allow their community to transact in a marketplace, and then they take a cut of the commerce. For example, they've started with automotive sectors – so there might be someone on Instagram with a hundred thousand followers obsessed with Jeeps. And people who are obsessed with Jeeps probably have spare parts, accessories, or even want to sell their Jeep for a different Jeep. That sort of economic activity might've happened on Craigslist or Facebook Marketplace.

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But the key person convening both the buyers and the sellers is a curator of the content and ideas behind a niche. Traditionally, that person might not have earned any income from all the work they'd been doing on those platforms. And so we think that the future is that people will be compensated and find ways of earning a living for the work that they do, particularly online in the platform economy.

Jason Kirby (12:08.260)
Yeah. I guess to put a term around it, some might call it the “creator economy” – though you seem to prefer the term “curator.”

Katelyn Donnelly (12:20.908)
Yeah, I mean, we like the word “curator” a little more. I don't like “creator economy.” It could be another term, but I also like “digital native jobs.” Like, if you work on the internet or provide value online, how do you turn that into a job?

Jason Kirby (12:45.014)
And then when it comes to the own space – what's the thesis behind “own”?

Katelyn Donnelly (12:50.210)
Well, so “own” is potentially very broad. At its most concrete, it is about helping people gain access to home ownership, understanding RSUs, or starting businesses that they actually own. But for us it also includes GovTech because there's public ownership of lots of dollars that could be more efficient. We invest in government efficiency, procurement tech, and technology that allows people to own their own data or their online identity. For instance, we were seed investors in the decentralized social network Blue Sky. I think that's a really good example because most people didn't think it was important to own your Twitter handle or your Facebook account, and then, after the November election, people realized, "Maybe I actually want to be in charge of my own algorithm and not have my links throttled. If someone follows me online, I want to actually have access to them." And so they went from 5 million users to 32 million.

Jason Kirby (14:09.808)
That was a quick ramp up.

Katelyn Donnelly (14:11.522)
Yeah. Well, it's one of those that looks like it's an overnight success – really 10 years in the making.

Jason Kirby (14:17.902)
Yeah, no, there's that. Well, yeah, he's been around for a little while, but to see that ramp up and the dueling of social media platforms has been an interesting world to observe – big tech companies playing into that. So, you know, nothing you've done that's kind of unique about going solo as a GP. What's that experience like when it comes to both raising your fund and deploying capital as the one point person?

Katelyn Donnelly (14:51.022)
Yeah. I mean, when I started, I kind of wanted partners – I'm a bit more of a team player – but starting a fund is very hard and difficult. You basically have to forego a salary for a year or more. It's high risk – like starting a company – and not everyone is cut out to be a VC or has the same perspective. I had done quite a bit of GP dating over the years and never found the perfect match. I often say that business relationships are like romantic relationships: if you can be in a great marriage, that's amazing, but if you can't, it's better to be single than in a bad relationship.
For me, it's like I'm going to be single until I find the right partner. And I also believe that today's tools make it so much easier to be high-leverage as an individual because you're always collaborating with others in the ecosystem – my accounting and legal are handled by sector specialists. So it's easier than ever to be a solo GP, though the flip side is that all your strengths and weaknesses are amplified when you don't have someone to balance them out.

Jason Kirby (16:44.048)
How does AI help you with that?

Katelyn Donnelly (16:46.190)
I wish AI helped me more, actually.

Jason Kirby (16:51.248)
Yeah, I see it as an amazing tool to make me stronger at what I'm already good at, but for building those gaps – I'm not too sure.

Katelyn Donnelly (16:57.869)
Yeah. You can't be two places at the same time, right? That's still a struggle.

Jason Kirby (17:07.824)
So, going back to the areas of focus you have – when it comes to underwriting deals and seeing the unseeable in terms of an avalanche forming – how do you underwrite these opportunities and these markets?

Katelyn Donnelly (17:25.662)
What do you mean exactly?

Jason Kirby (17:27.886)
Yes. When you're digging and looking at a bunch of deals coming your way – analyzing founders adjacent to the learn, earn, and own space – how do you validate that there's an avalanche coming?

Katelyn Donnelly (17:33.260)
Yeah.

Katelyn Donnelly (17:40.003)
Yeah.

Katelyn Donnelly (17:45.410)
Well, to be frank, a lot of people can potentially see an avalanche – you know, school choice is coming, everyone is an entrepreneur or will have to think like one. But in venture, you're looking for outlier people who see the avalanche clearer than most, who push it forward faster and have really thought through the problem with detailed nuance. They’ve been in the trenches with customers, building technology and educating you. In early stage investing, many founders just don’t have it all together. There's an archetype of a founder who throws spaghetti at the wall to see what sticks. I probably get a hundred emails a day pitching companies, but the best opportunities are often those you seek out or come recommended by a trusted contact.

Jason Kirby (19:35.472)
So let's take a step back. You mentioned you get a hundred emails a day. Every founder is desperate to build connections and expand their network. But sometimes they make a desperate attempt to at least get in front of you. Has that ever led you to say, "Wow, I need to seriously consider this"?

Katelyn Donnelly (19:57.900)
Yeah, I think the right cold email can be incredibly effective. Before my current fund, when I had an even smaller demo fund and made a ton of angel investments, I remember one founder saying, "We have a hundred connections in common on LinkedIn; you could get a warm intro." But then he laid out why I’d be a fantastic investor for his company. He was a serial entrepreneur with a highly credible team, and he’d even read my writing. It really hit home, and we ended up meeting and I invested in that company. But the reality is that most emails aren’t that good – they're generic “congrats on your great work, let's explore synergies” messages. When I was first getting back into the game, I had more time and patience, but now, if I sense someone doesn’t understand the game, I simply don’t have time to respond.

Jason Kirby (20:42.372)
Not good.

Katelyn Donnelly (20:57.024)
Exactly – if it's not in the top 5% or 2%, I don't even have time to answer.

Jason Kirby (21:28.846)
I think that's incredibly valuable – it respects your time and sets the bar for founders. You mentioned something I want to unpack further: if someone doesn't understand the game, how do you identify that in an email as you skim through them?

Katelyn Donnelly (21:52.482)
Any email longer than about 250 words indicates they don’t understand the game. If someone uses my full name or sends a generic message – like med tech, egg tech, asking for a call without sending a deck or leading with traction – they don't get it.

Jason Kirby (22:28.912)
That’s great advice. Founders are often in their own little world, but as an investor, you get a hundred such emails a day. You have to stand out and speak the language to earn those crucial 15–30 seconds – not an hour-long call.

Katelyn Donnelly (23:03.628)
Yeah. Also, having bootstrapped Delivery Associates taught me that you should sell before you raise money – show traction and de-risk your business. A major red flag is when founders focus on raising money before focusing on customers.

Jason Kirby (23:41.070)
Completely agree. And when it comes to deals that make you take an extra five minutes, what’s an example of an email that convinced you to take a meeting?

Katelyn Donnelly (23:41.452)
(Laughs) Sometimes it's just the fact that they have strong traction and impressive previous work. When founders are building their life's work, you need to ask yourself: "Do I want to meet this person? Are they interesting? Do they have a unique point of view? Would I want them in my network?" Because even if I don't invest, tracking them could be valuable.

Jason Kirby (24:44.048)
It's a hard truth: if you haven't done something significant before, it's going to be a grind. Most founders never pass that initial filter.

Katelyn Donnelly (24:58.999)
Yeah.

Katelyn Donnelly (25:08.024)
Yeah.

Jason Kirby (25:11.576)
And then they take another swing at it – maybe there's something there. But it's important.

Katelyn Donnelly (25:17.198)
Yeah, I just want people to understand you don’t have to be old. There are many young, impressive founders. Think of the track record of investing in Thiel fellows and college dropouts – sometimes being young can even work to your advantage. But you do need to have something substantial.

Jason Kirby (25:49.080)
Yeah. You have to put yourself out there, build something unique, test ideas, have a cool side project, or demonstrate some ability to build. Switching gears, looking at the venture market overall – something we were discussing before – what's your take on the current ecosystem?

Katelyn Donnelly (25:54.829)
Yeah.

Katelyn Donnelly (26:08.334)
Mm.

Jason Kirby (26:10.052)
You're based in Austin now – a growing startup and venture ecosystem. What do you see in Austin compared to, say, San Francisco or New York?

Katelyn Donnelly (26:26.476)
Well, one of the great things about Austin is its cowboy mentality, which I think better suits the entrepreneurial experience. San Francisco has always been a bit clubby – you need to be in the right crowd or come from certain schools. Austin, on the other hand, is for cowboys. There are many solo GPs here and plenty of capital from family offices and larger funds looking to make an impact. You see a lot of defense tech, SpaceX, Tesla, and American dynamism in general. Even consumer firms like Knight Ventures and Mucker Capital have Austin-based partners.

Jason Kirby (27:43.344)
It's interesting – how do you view venture as an asset class from your perspective?

Katelyn Donnelly (27:51.862)
It's interesting when you see that over 60% of the capital has gone to just five firms this year. That tells you that early stage venture is a different asset class – think pre–product market fit – whereas later stage is more like growth equity. It used to be called “adventure capital,” but now venture is all about finding those markets that haven't been defined yet, the pre-avalanches. For example, a generalist investor asked me about crypto at the pre-seed/seed stage. I said that crypto, as an asset class, is kind of done at that level – either the projects come out with 10 to 20 million already in the bank due to enterprise software infrastructure or they're scammy consumer coins. The return profile just isn't what it was in the last 10 years.

Jason Kirby (29:33.226)
I'm glad you brought that up because I see funds with various allocation strategies, but venture is really about betting on the unproven. There's so much capital out there that it’s hard to maintain that emphasis – which might explain why, as an asset class, venture has underperformed, at least in terms of top-quartile returns.

Jason Kirby (30:23.140)
When it comes to early stage and the competitive nature of capital, how should founders pick the right investor – the right partner for the long run?

Katelyn Donnelly (30:39.308)
One key principle for both fund managers and entrepreneurs is that capital raising is a matching process, not a convincing process. You need to find investors who believe in you, not skeptics. And it's hard to generalize because every founder and company is different.

Jason Kirby (31:07.866)
So, what do you mean by matching and not convincing? Explain that to a founder.

Katelyn Donnelly (31:16.866)
You need to find believers – people who truly back what you're building. You're not going to convince skeptics. It also means being honest with yourself about where you stand in the venture ecosystem. If you haven't been part of a high-growth startup that delivered strong returns for investors, you're starting at a steep disadvantage. Look at examples like the PayPal or Uber mafia, or even Dylan Field from Figma. If you haven't been part of one of those big stories, you'll likely have to start with angels and first believers until you can show traction.

Jason Kirby (33:00.656)
I think that's valid. I also want to point out that when it comes to investing and writing checks, so many founders feel they have to convince investors with endless pages of details. What advice would you give those founders regarding spending time convincing versus matching?

Katelyn Donnelly (33:10.926)
(Pause)

Katelyn Donnelly (33:15.275)
Yeah.

Jason Kirby (33:28.154)
So maybe founders should reconsider how much time they spend trying to convince investors, and instead focus on growing their customer base and showing strong growth numbers. Venture is about finding fast-growing companies – once you prove strong customer demand and a big market, things can change quickly.

Katelyn Donnelly (33:34.008)
Go back to your customers, keep building, and post big growth numbers.

Jason Kirby (34:13.840)
With founders who haven't broken out yet, it's a challenge.

Katelyn Donnelly (34:27.234)
Venture capital isn’t for everyone. Many startup founders should bootstrap or use debt instead of raising venture money. VC is meant for high-growth, big market companies with a technological edge. If that’s not you, that's perfectly fine.

Jason Kirby (34:29.872)
That's very good.

Katelyn Donnelly (34:56.110)
But don't expect to raise venture – for instance, with Delivery Associates, the company I built, we never raised money, yet we achieved a fantastic economic outcome with a private equity exit. There's too much prestige placed on raising VC, when what matters is actually producing outcomes.

Jason Kirby (35:49.870)
And the point I was trying to make is: Are you in a market that's worth backing? Is it an avalanche market that hasn't been established yet – worth gambling on – or is it already overhyped with AI and the like? There are many good markets out there where you can build a solid business, but it might not be venture backable.

Katelyn Donnelly (35:53.528)
Yeah.

Katelyn Donnelly (36:05.516)
Yeah.

Katelyn Donnelly (36:14.284)
I will say that we have a couple of investments in our portfolio that are in that category – at lower valuations. I underwrote them expecting a 10X return with the potential to hit 100X. It’s lower risk and capped upside. I was comfortable with that because many venture-backed founders now start at such high valuations that it doesn’t make sense for my fund.

Jason Kirby (36:59.824)
You have the obligation to return the fund on each bet you make. A lot of founders don't realize that while others might be raising on a $15 million pre, if you sell for 50 to 100 times your valuation, that could be a great outcome – especially if everyone invested at a $3 million valuation. Also, founders might not realize the pressure that comes off when you come in at a lower valuation and treat your investors right.

Katelyn Donnelly (37:05.475)
Yeah.

Katelyn Donnelly (37:10.754)
Yeah.

Katelyn Donnelly (37:15.053)
Yeah.

Jason Kirby (37:29.584)
Coming in at a lower valuation and treating your investors right by giving them an appropriate valuation is a conversation that doesn’t happen enough. Too often, raising a super-high valuation is seen as a badge of honor, but it’s more important to build a company that produces outcomes.

Katelyn Donnelly (37:35.224)
Yeah.

Katelyn Donnelly (37:49.206)
Also, many founders – especially technologists – don't understand the expectations investors have to make a commercial case for funding.

Jason Kirby (38:07.396)
No, they don't. They just say, "Give me money, I need money." Not the best way to start a conversation with investors.

Jason Kirby (38:29.488)
As we wrap up, a fun question: In the next 12 months or so, with the current administration coming in and changing things, what markets or sectors are you paying attention to?

Katelyn Donnelly (38:46.897)
We – the latest election has been a great inflection point for many of our avalanches. We saw an influx into Blue Sky from people wanting to own their own instance on the internet. Also, GovTech, government efficiency, procurement tech – essentially, the private sector delivering public goods – are major megatrends. And then there's the shift toward everyone being an entrepreneur or having to think like one. The federal government is even starting to ask people, "What did you do this week?" because if you don't want to work in a traditional office, you'll need alternative arrangements as employers demand more flexibility.

Jason Kirby (40:11.920)
Your avalanche metaphor has so many layers – avalanches are powerful, even deadly, and they create momentum, but you need to be an expert to navigate them. That's what appeals to me about your thesis. If you're still crawling up the mountain when the avalanche comes, it’s going to be painful.

Katelyn Donnelly (40:19.298)
Yeah. Yeah.

Jason Kirby (40:41.456)
That's going to be a painful experience. You have to move quickly to be in the right place at the right time. Sometimes it might even involve a lot of waiting. I appreciate you coming on and sharing your insights. Before we wrap up, what’s the best way for founders or investors to learn more about you and what you're doing at Avalanche?

Katelyn Donnelly (40:48.376)
Yeah.

Katelyn Donnelly (41:02.796)
You should just go to our website, avalanche.vc. We post content and explain our investment theses there. I also write a weekly newsletter called Declarative Statements – you can find it at declarativestatements.com. And I write long-form essays about avalanches on obviouslythefuture.com. Someday, those will all be combined into one package.

Jason Kirby (41:26.564)
Very good. It did seem a little over-jointed, but yeah.

Katelyn Donnelly (41:31.746)
But today, as a solo GP, part of the excitement is that the future is unpredictable – you have to be adaptable and flexible to go where the avalanche pushes you.

Jason Kirby (41:53.008)
I think that's very valid. Well, Katelyn, it's been an absolute pleasure having you on the show. We'll include all the links in the description below. Thank you.

Katelyn Donnelly (42:00.930)
Thanks so much, thanks for having me.