Uri Kolodny On Raising $200 Million To Resolve Privacy And Scalability In Blockchain

Uri Kolodny is now on his third startup. He’s now working on his biggest and boldest tech venture so far. His startup, Starkware, has attracted funding from top-tier investors like Alameda Research, Coatue, Greenoaks, and Tiger Global Management.

In this episode, you will learn:

• How Starkware is making the blockchain more efficient and usable
• The pros and cons of ICOs
• Finding the right investors for your venture

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For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.

About Uri Kolodny:

Uri is a co-founder and CEO at StarkWare and a member of its Board of Directors. He has a B.Sc. (Magna cum Laude) in Computer Science from the Hebrew University, and an MBA from MIT Sloan.

Uri is a serial entrepreneur, who has co-founded several technology companies, among them OmniGuide (an MIT spinoff developing optical fibers for endoscopic surgery), and Mondria (developer of tools for visualization of big data).

Previously, Uri also served as an EIR with two Israeli VC firms, and as an analyst at McKinsey.

Connect with Uri Kolodny:

• Crunchbase
• LinkedIn
• Bloomberg
• TheOrg

Read the Full Transcription of the Interview:

Alejandro Cremades: Alrighty hello everyone and welcome to the dealmakerr show. So I’m very excited about the guests that we have today you know, joining us from startup nation. You know obviously founders. There are like absolutely incredible and I love founders that come from startup nation so we’re gonna be talking about building scaling. Financing exiting open sources. You name it I think that you’re gonna find this episode very inspiring so without farther. Do let’s welcome our guest today Uri Kolodny welcome to the show. So originally born in Israel.

Uri Kolodny: Um, thank you for having me all handle.

Alejandro Cremades: You know there? how is life growing up, give us a little of a walk through memory lane.

Uri Kolodny: Ah, life growing up was actually quite cool jerusalem in the seventy s um, my parents are academics so over the years a bunch of years spent in the us on sabbaticals. Um, and then sort of the quintessential israeli experience of you know the military service in an undergrad. Um at the hebrew you in in jerusalem studying computer science and and then went on to a business school in the us and basically got busy entrepreneurship.

Alejandro Cremades: So business school in the Us Why coming to the Us what trigger that.

Uri Kolodny: Oh that’s a terrific question so I was actually considering business school so I had an undergrad and in in cs and I really wanted to be an entrepreneur and I spoke to a family friend who was still is actually teaching. Business at at the Stanford business school and and he said look the intellectual content of an Mba you can pick up by reading old issues of business week when you go to the dentist but you know the networking and all that is is is quite something and it’s sort of. You know exactly it happened exactly that way meaning it. It was you know I’m I’m old enough to say intellectually it was underwhelming I was hoping for some something a little deeper in terms of content but I came away from from the whole experience with sort of exactly what I was hoping for meaning I came out of In fact, I spent my second year of business school. Starting my first company and you know oddly and sure.

Alejandro Cremades: So let’s talk about that. Let’s talk about that because you know you go there Obviously the content as you were saying was saying underwhelming but at least you got out what you wanted. You know you got you know the perhaps the path forward. So.

Uri Kolodny: Um, exactly.

Alejandro Cremades: Ah, what point does it become evident that starting your own business is the next ideal chapter after you know mit.

Uri Kolodny: Ah, no, no, there was that this was apparent to me for years before that that this is what I want to do I have no idea why I really don’t know why my dad is an academic. My grandfather was sort of you know one could say an entrepreneur. Um I don’t know why i. Just wanted to I think I so I’ve always optimized for independence and I think that my perception is that as an entrepreneur you have a fair bit of independence and that matters to me a lot.

Alejandro Cremades: So then so so then obviously it was a apparent but I guess it was the the push that you needed to come out of mit and and and perhaps you know that’s what got you to get going with omnigate your first company. So what were you guys doing with omniga.

Uri Kolodny: Yeah, so I um I met a new fellow israeli who at the time was at graduate school in graduate school at at mit and has been a professor there for many years since. And basically we we decided to commercialize his his doctoral thesis his ph d work and developed an a hollow corere optical fiber and first you know we focused on telecom applications and then we pivoted I guess well before we. We are others were’ using the word pivot in 2002 when the optical communications bubble burst. We pivoted to a medical device company and and brought a product to market so that was my first sort of entrepreneUri Kolodny: al experience very is some time.

Alejandro Cremades: And obviously at different time. No because the early two thousand s you know you guys raised for money there too and I’m sure it was absolutely different to the you know the landscape now of being able to raise and how the the perception is about Hypergrowth companies and. The way that you’re plugging in the network from the investors and the value that they bring to the table. So how was it like dealing with vcs back then.

Uri Kolodny: Um, um, it was quite vicious. The Boston scene. Um, it was very different from today and I think sort of the the.

Uri Kolodny: I think Facebook if sort of I have to look back Facebook and you know and Mark Zuckerberg and flipflopps in the hoodie and and all that that sort of changed the maybe y combinator changed the power dynamics between vcs and entrepreneurs. But back then? yeah, you know had to bend the knee and the the boston vcs were really sort of. Obsessive in terms of your desire to control your business in in sort of very fundamental ways we were fortunate enough to get seed funding from Ray State up who started analog devices and um and that was a very different experience for us in that regard meaning that that was sort of. The most patient and and intelligent and thoughtful investor one could hope to have on on your board is it for me as sort of a young entrepreneur that was really a wonderful sort of learning opportunity.

Alejandro Cremades: Well, hey, first company first exit. So um, so not bad reaching. The finish line is the promised land. You know oh an exit is always an exit. So I guess for you especially what kind of um I mean you you guys ended up selling the company to a p firm after about 6 Six six and change years of running this business. So what kind of disability would you say that he gave you being able to now have an exit and having gone through the whole cycle of ideation product market fit racing money scaling and finally you’re reaching the finish line.

Uri Kolodny: Um, it was my first experience hiring people you know and and and sort of this magical experience of trying to persuade very talented people that they want to drop whatever it is. They’re doing and join you as opposed to the many many other options they have in front of them so that was sort of. Was fun and building sort of ah, a team and a culture around that place that was fun. Um the fundraising stuff I didn’t like 1 bit but you know you have to know that you have to learn that and and you learn sort of the hard way now there are a lot of entrepreneurs who come you know to seek sort of. My my input and my thoughts on on their fundraising efforts and all that and you know by merit of having gone through all these fairly painful experiences back then you sort of you learn the hard way. You know that liquidation preferences deeply matter right. And that this isn’t some ah notion that you read on a Wikipedia page. This is something that sort of determines the outcome for your company. Um, so all these things you know I learned at the time I also learned you know the the importance of of you know the match between cofounders I think. How that and how important that is and the dynamics between the cofounding team and how does it, you know how is it impacted by people being full-time or not full-time you know the different levels of sort of of incentives and and focus that that brings to the table so there were a lot of learning that that came out of that.

Alejandro Cremades: But your next day journey with timna you know as they say you either succeed or you learn right? and with Tim now is he was not the desired outcome that you guys had hoped for and the company ended up. Yeah.

Uri Kolodny: Ah, no no I yeah I’ve had way more failures than successes over the years and every sort of dimension that you you can think of and so in that regard timno was one more form of failure. I was hoping to commercialize different form of research that came out of the same my my omnigade co-founders lab at mit his name is yo fink and we were hoping to commercialize another event invention of his I moved back to Israel and um. We were hoping to do this in the medical device field and after a good chunk of time twelve or eighteen months we concluded that this this just doesn’t have the ah we don’t see the the path forward in terms of product and and business model and just doesn’t compute. So.

Alejandro Cremades: So then what happened next.

Uri Kolodny: We put that on ice. So then there was this whole clean tech thing that was starting up and so I guess at this point it’s pretty obvious looking at my career path I’ve I’ve done a whole bunch of very different things in terms of. The underlying technology and the markets and all that and I think I’m fairly easy to sort of find interest and excitement and in stuff I like hard problems I like hard problems on the technology side. I’ve given it a fair bit of thought over the years you know why why? am I attracted to this. So if you know if we turn this into if you charge me I don’t know what the going rate is three four hundred dollars an hour for a shrink session. You know I think this is me compensating for the fact that I didn’t get a proper education. You know like. Ah, ph d and in some ah in some formal discipline. Um, so I’m I’m attracted to these topics and to the the people who are sort of 1 aggregates around these very difficult problems and challenges so clean tech fell to me like that kind of thing. And I decided to join I worked with 2 venture funds as an entrepreneur in residence for a few months. Um, and but we we were hoping to license some Ip from technion in Israel for a particular project. Ah.

Uri Kolodny: And that was the first time I I encountered a wildly rational licensing office. Many years later I encountered the same licensing office being equally irrational. so so ah we you know we didn’t come to ah an understanding and. We decided to put the whole thing once again on ice and I moved on.

Alejandro Cremades: Okay, now when when you did Manria you really experience their open source. So I’m sure that you learned quite a bit too on open source versus patents. So what was that whole experience with Andrea and what did you learn you know around open source as well. So.

Uri Kolodny: Um, yeah, no so Manria I ended up as of an an open source project. But but man was was different from from a different perspective and in that it was ah um, it was for for the most part self-funded and.

Uri Kolodny: And going through that experience. Um I think was sort of a reaction to the challenges of of and my my negative experiences previously in sort of the venture back companies. And I thought there’s something really sort of very attractive about you know about that the discipline and sort of frugality and and independence of a venture of ah of a self fund company and um.

Uri Kolodny: There are also many disadvantages to that that I experienced there and the obvious one is of course limited resources but beyond that um and I think we felt down that particular pothole is the fact that you are accountable only to yourself and.

Uri Kolodny: Given the sort of the cast of characters you could end up sort of optimizing for the wrong things and we optimized for the raw things and we were perpetually building. Um the perfect thing instead of sort of going out there and engaging the world and sort of iterating fast and and.

Uri Kolodny: In in hindsight you look at this and you say you know what were we thinking in real time you’re always saying to know that you know it’s just past that Hill and then and then the landscape will open up and then everything will be beautiful and powerful and efficient and fast and and ah, um. And I remember so talking to ah to my sister about this at the time and and and I said that you know this the independence that comes with self-funding is it’s something you know that we want to explore you know what does that offer us in terms of.

Uri Kolodny: And she she wisely said you you seem to be unable to do anything but explore that and I thought that was very very insightful that that that somehow stood in our way to. At least to fail quickly if not to to succeed. Yeah, you know.

Alejandro Cremades:
Yeah, move fast fail quickly now let’s talk about exploring because obviously now you finally you know launched what has been probably your biggest success today I mean what you guys say are doing.

Uri Kolodny: Um.

Alejandro Cremades: With starkware is pretty amazing. So how do you come across the problem and why did you guys think that it made sense that it was a problem that was meaningful enough to tackle it and and to bring the solution to cover it.

Uri Kolodny: Um, so back in say Twenty Fifteen eli benza son my my old old and close friend of of 35 years um came to me and said let’s start a company around my research at Technion he was working on. He had been working on 0 knowledge proofs for at that point over 15 years and 0 knowledge proofs is this field in theoretical computer science that was like completely theoretical when we were undergrads in the mid ninety s. And then over the years through the hard work of many including eli became increasingly practical and applicative and and he was one of the founding scientists of zcash which is one of like the the og projects of and the blockchain space. Um, and there the focus was on using 0 knowledge proofs for privacy. And we wanted to start starkware and the initial sort of impetus was just we didn’t want to sort of create so personal tension and and use the technology was his latest and greatest technology which is called Starks and we didn’t want to sort of. End up competing with zcash. We just thought that that doesn’t sort of that’s not the right thing to do that’s not the fair and right thing to do so he said let’s you know, let’s look elsewhere and pretty much instantly realized that using 0 ero-nowledge proof for scaling is a very very.

Uri Kolodny: Very ah, sort of interesting match where you find like this field of research that seemed to have nothing to do with the scaling of blockchains In fact, with blockchains prior to zcash sort of now meeting the needs of of permissionless blockchains which which have.

Alejandro Cremades: And what and what? and what? what? What is The what is the difference about blockchain. What is the difference there.

Uri Kolodny: Mass problem in terms of scale. So so blockchains are far worse than existing software systems in every possible way except for the fact that they can be completely trustless. Okay. And so in order to get that trustlessness and the the full decentralization meaning the ability not to rely on any centralized party like Facebook or Google or whatnot you give up on almost every other dimension of the network in terms of performance. And when we started working on Stark where ethereum was doing I don’t know something like 10 transactions a second and it’s not doing much more today and in fact, the the way it’s increased transactions is is not by any fundamental improvements to the technology. And so the the basic challenge there is the following. It’s not there isn’t any fundamental problem in in in hardware or software that prevents the given computer from doing more than 10 transactions a second as we know you can do there are monster machines that can do much more. But if the requirement is to run a monster machine.

Uri Kolodny: Then maybe al Handro and or you can’t participate in the network because we’re hobbists and we want to run our laptop in the kitchen and that’s all we want to spend so in order to get decentralization permissionlessness in order not to exclude participants. You need to to keep the the hardware requirements and software requirements of the network. Very very low. Okay, so this is essentially a social construct. It’s a social decision but that limits throughput of the network. So That’s the problem that we’re hoping to solve and and have solved.

Alejandro Cremades: So then let’s so then let’s let’s talk about that. Let’s talk about that real quick. So let’s double click on that What ended up being the business model of starkware. How do how do you guys make money.

Uri Kolodny: Beautifully. Yeah.

Uri Kolodny: So the ah we started out with Starkx which is a saas business model where we basically think of us as a compression service so entities that previously were interacting directly with the blockchain now we sort of compress with our technology. We compress their transactions. And write the compressed product onto the Blockchain. We’ve ah reduced the cost per transaction by anywhere ranging from 700 x to 20000 x and when I tell people that I you know I say that you know the first time I explain this to my kids that the surfboard’s on the back and the background is is. That’s not me that’s ah so um, you know I tried to explain to them that just sort of impressed this upon them that it’s not many times in life that you walk into sort of a situation where you get to improve something by 20000 x in fact, 10 x is quite fun and a hundred x is pretty rare and 20000 sort of. I’m unaware of you know too many examples of that and this is like a step function in technology and this is exactly enabled by 0 knowledge proofs. So so that’s ah ah so the initial sort of business model with ah stark x which is a saas business model. And then a couple of years ago we started working on starknet which is our layer 2 network and that’s been on maintenance for a good number of months now and actually today Kyra 1.0 which is the underlying language the programming language that we developed to power all of this is coming out.

Uri Kolodny: And so there’s a ah ton of excitement around the capabilities that this platform brings early. Ah February we had a starware sessions in Tel Aviv um 800 people from all over the world showed up and you know this is telviv this is in Paris so so I was I was sort of blown away by the excitement.

Alejandro Cremades: Wow.

Uri Kolodny: And the energy and and it’s all sort of authentic like like the core unit is is a lone developer or a duo of you know, young developers who are just excited by the software stack and eager to build all sorts of exciting applications that they couldn’t up till now on blockchains and now given the capability of Starknet. Suddenly becomes a reality.

Alejandro Cremades: For now now in this case I mean you guys have raised quite a bit of money. How much money have you guys raised for the company so far.

Uri Kolodny: Um, um, north of $200,000,000 actually yeah

Alejandro Cremades: And obviously now you know this is not your first rodeo so you’ve been at it for a while you know you’ve been able to also ah experience and exchange with different investors. So I guess why did you choose the people that you decided to choose ah for this journey. Ah, and they also how have you seen to the expectations shift from one cycle to the next.

Uri Kolodny: Um, um, so when we went out to raise our seeds in January of 2018. Um, it was sort of funny because this was like that in retrospect, this was the tail end of the twenty seventeen bubble meaning it was sort of deflating but people only a few months later sort of fully realized that you know that that was sort of. The market going down. Um, and that was right after a few projects phrased like absurd amounts of money of via icos like hundreds of millions of dollars and we were talking to a bunch of of of vcs and sort of on on the first date we said you know we’re not thinking of of of issuing you know doing an ico and all that and they said that’s terrific and on second date they they sort of said well you know why not actually and. And to us it made no sense and I think this was I’ll explain why? but well the why is actually easy. It’s it’s from our perspective that was like the equivalent of going public before it’s not before you’ve reached profitability. It’s going public before you have a product. And and going you know going public is sort of introduces an awful lot of noise into a startup sort of psyche and and we thought you know the sensible thing is actually first building the the tech stack you know, put out products and when the time comes consider.

Uri Kolodny: Maybe maybe not having a token to to coordinate the activity of that decentralized network and so that ruled out a bunch of folks. We were fortunate enough to find a bunch of investors who actually. Very excited by the power of the technology and the promise of the technology and the fact that you know that Eli with his vast experience and sort of thought leadership in the field was the 1 pushing this forward so we raised a seed round of $6,000,000 in january of 2018 um, now. The fact that that we were so you know we’d been working to together we we’d known one another sort of going back to our formative years in this sort of dynamic of vcs saying well why not an ico and all that you know if it’s if the cofounder is someone you met at a meet up two weeks ago it’s I think looking back on that it’s it’s far more difficult to say this is not what I want to do? This is not the company I want to build no thinking and it’s when it’s someone you’ve known since the age of 18 and you know. Went through all sorts of slept in tents and all sorts of stuff. Um, it becomes trivial you sort of look at one another and say you know this just makes no sense. You know, let’s move on and so we went for proper equity funding. Um, essentially.

Uri Kolodny: Over and over again and um and that’s proved out to be a very effective filter for those investors who share our sort of time horizons if you will meaning. We’re optimizing for the long term and in this regard. We’ve been very fortunate with the investors we’ve brought on board extremely. So.

Alejandro Cremades: Yeah, yeah, because they always the investors they always have their own limited partners that are the investors in their fund and their theses and they put all types of pressure tactics on founders too. So that they can accident so that they can return back the money to investors with The. Return So I can totally see the approach of betting on people that you know are more on the long term and that are going to be there with you in the journey and that really care about you and the project. So I can I can totally get that now quick question here talking about vision because obviously with those investors you had to really share the vision. So imagine if you were to go to sleep tonight and you wake up in a world where the vision of this project is fully realized what does that world look like.

Uri Kolodny: Oh that’s a beautiful question. Um, so oddly enough it looks exactly like this world except meaning that the the lives we lead. Essentially the same. Ah, we use the same apps and we have smartphones in our pockets and and we you know we we do all the things we do today except for 2 fundamental underlying like like silent. Well I should say this silent till it matters right? and then it becomes loud to the point of possibly sort of threatening your existence without relying nearly as much and I’m not naive to say without relying at all but without relying nearly as much on centralized entities. And with far far better control over your own data. Okay, so so you own your data you you you hold custody of your assets. You know um as Silicon Valley bank on Silverg Gate etc right? All these guys.

Alejandro Cremades: Yeah, no kidding. Yeah.

Uri Kolodny: Um, so you you have custody of your assets you own your data in the sense that maybe I want to share my shoe purchases with advertisers but not my t-shirt purchases and most importantly, you are not reliant on any centralized entity. Um, in a way that weak cans. You know that does not mean there aren’t any centralized entities. Okay, it does mean though that in that world Facebook may run monster machines for all sorts of computations. But you and I with the computational power that’s in our pockets on our phones. We can verify the integrity of that computation and that’s that’s quite remarkable meaning shifting the balance of power between individuals and these centralized entities in a way that empowers the individual that would be sort of the major change. In that world.

Alejandro Cremades: I love that now. We’ve been talking all the future. So let’s talk about the past but doing it with a lens of reflection. So if you were able to go back in time and go back in time and have a chat with your younger self. That younger you know self that is in mit already knowing that wants to start a business but you know it’s that that that push imagine you were able to give that younger yUri Kolodny: e 1 piece of advice before launching a business. What would that be and why given what you know now.

Uri Kolodny: So you know it’s a advice I I unfortunately can give myself today but I won’t out where I give others today but I still I still don’t fully heed. so so I’m far better at dispensing advice than acting on it. But umover the years so I would have tried to sort of decouple that now I’m fortun I would have tried to um. Keep a healthier balance you know work life balance. Um I’m still not very good at that. Um I I and my family we pay a price for that. Um I would have tried far better I would have tried I don’t know if I would have succeeded to ah to. Separate my identity from my from my you know my current project and an old friend of mine was an entrepreneur said the problem with entrepreneurs is that you know our vocation is tied so intimately to our identity. No.

Alejandro Cremades: Yeah.

Uri Kolodny: Is it the project that failed is it me that failed. Um and that’s given me a lot of heartburn ate enough to work with Ellie these past five years he’s far better and at both these things. So I just sort of. Look at him and try and emulate these these dimensions.

Alejandro Cremades: I Love that you know I Love this a last point because I think that founders they lose power. Ah when they’re completely attached to the company and they ultimately the fact that your project failed It doesn’t mean that you’re a failure.. It’s just the project failed. That’s it. And I I couldn’t agree more with the importance of being able to detach yourself from the project because ultimately you will be more effective in the long run. So So really thank you for sharing that I thought that was really profound.

Uri Kolodny: Um, yeah.

Alejandro Cremades: Now for the people that are listening that will love to reach out and say hi. What is the best way for them to do so.

Uri Kolodny: Um, um, I sort of disengaged from Twitter realized that’s not helping my mental health. Um, so I guess they can reach out over Linkedin or email my emails or at Stark where got Seo. So happy to sort of connect with people and see if I know and can help in anyway.

Alejandro Cremades: Amazing, amazing! Well already. Thank you? So so much for being on the deal maker show today. It has been an honor to have you with us.

Uri Kolodny: Um, thank you thank you for having me out of hundred.

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If you like the show, make sure that you hit that subscribe button. If you can leave a review as well, that would be fantastic. And if you got any value either from this episode or from the show itself, share it with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help, whether it is with your fundraising efforts or with selling your business, you can reach me at al*******@pa**************.com

 

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