Jason Illian is the Managing Director at Koch Disruptive Technologies. He has 20+ years of experience leading and building technology companies. Prior to assuming his role at Koch Disruptive Technologies, Jason was the Founder and CEO of BookShout.
Episode Transcript
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00:07 Matt Waller: Hi I'm Matt Waller Dean of the SAM M Walton College of Business welcome to Be Epic, the podcast where We explore excellence professionalism innovation and collegiality and what those values mean in business education and your life today. Today I have with me Jason Illian Managing Director Koch Disruptive technologies in Wichita Kansas Jason what is Koch Disruptive.
00:38 Jason Illian: Yeah, it's a great question. So probably step back a little bit and tell you who's Koch to start with it. So a lot of perceived notions of what Koch is but it's always good to hear from the horse's mouth, right Koch is One of the largest privately held companies in the world we're in 60 countries and with 130-000 employees across various industries, so we started as an oil and gas company, but since then it's grown into a number of different areas so if you use Dixie cups that's Koch, if you have some clothing on there's fabric in there that probably come from a Koch company. If you're walking around your house, the outside of the house could be from Georgia Pacific building products or any of those things. So that's the beginning of Koch.
01:16 Jason Illian: But Koch was really built on entrepreneurship. And so a lot of these companies from Charles Koch perspective is continue to encourage and stimulate entrepreneurship and growth of companies, not only within Koch but all throughout the US. And so, from that, as we've continued to grow, how do we focus on investing and spring on the next generation of companies? And that's how KDT Koch disruptive technology was born. We are a unique and flexible capital partner so kind of the venture and growth arm of Koch Industries.
01:50 Jason Illian: So we have the opportunity to look at everything from the next generation artificial intelligence and machine learning to Ag-tech to real estate tech, to medical technology. So as an example in one of our first investments, we invested in a company called Insightec, it is a non-invasive focused ultrasound company based out of Israel, and it helps people with Parkinson's and essential tremor. So, if you've ever seen somebody with lots of shakes it completely changes how they live their lives, they can't pick up a cup, they can't write. So, what Insightec does is you lie in MRI machine with a special helmet and they use a 1000 ultrasound waves to ablate or burn the part of the brain, not invasively, that deal with it. So two hours later, somebody will stand up and Their shakes are gone, permanently.
02:34 Matt Waller: Interesting, so... Just as a coincidence I was at the Milken Global Institute conference the year before last, so it would have been 2017 and I saw that demonstrated, and explained.
02:49 Jason Illian: The Milken Institute, and some of those are big supporters and partners, of Koch in many ways.
02:53 Matt Waller: Well and the Helmet has a whole bunch of ultrasonic transducers, and ultrasonic transducers have piezoelectric material that takes electricity and turns into like a vibration, a sound wave that goes in and so by having all these different transducers at different points, it creates heat at the focal point.
03:16 Jason Illian: Like when we heat the focal point correct.
03:18 Matt Waller: And so you don't have to cut into the brain to get to the...
03:22 Jason Illian: Yeah, well and you're hitting right on the disruptive and transformative Nature. There was a Matt Damon movie called Elysium, where somebody sits in it looks like an MRI thing and this magic arm waves over the top and it says like leukemia cured. Well, the reality is is Could we do that? Could we use things like ultrasound and other technologies to fight cancers? The blood has the blood-brain barrier, which is there to stop a lot of negative things that can come into the brain, but could we use it to open up the brain to allow medicines to be used better? There's all sorts of things we could do if we leverage technology and that's part of KDT's effort, is to invest in those companies, but not only just invest but come alongside them as Koch and it's a concept we call Koch lab it's our framework of saying, "How do we bring all of Koch's capabilities across all of our companies to bear with these entrepreneurs?" So besides the check, how can we really help you pour rocket fuel on your company?
04:22 Matt Waller: So in some ways you have a big advantage over the typical venture capital firm, because you have such a diversified company: You can leverage those to increase the probability of favorable outcomes on anything, right?
04:37 Jason Illian: And that's kind of how we think about it, is what's our comparative advantage? How do we differentiate it? Well, we can bring 130000 subject matter experts to bear, and help you grow your company. And it's not just about growing a specific company, it's about, How do we benefit society, by bringing something at a lower cost that will allow them to free up to do what they're created to do.
05:03 Matt Waller: I would think one challenge would be sourcing the companies. I mean, there's so many companies starting up or even there are growth if you just look at growth companies that are out there, right? There's so many of them. How do you bring that through a sieve to get it to a small set?
05:22 Jason Illian: Yeah, you're hitting on One of the big challenges, it's how do you take a million great entrepreneurs out there, and narrow it down to the 20, 30, 50, 100, whatever the number is that you can work with. We look at it through a filter of Are they principled entrepreneurs, right? So what are the principles that they stand on? Koch We hire first on values then on intellectual capabilities, that's different than other places.
05:47 Matt Waller: It is.
05:48 Jason Illian: We start with what are their values and do they display a sense of integrity, humility, things that will make them good teammates and players? Right? I often joke like, "It's a good thing they didn't hire only on intellectual capacity, I may not have made it." But fortunately, they're starting in a place of saying, "Hey, who wants to be collaborative?" Right? "Who wants to show a sense of authenticity, transparency?" then we look at how disruptive is the company and what's the transformative potential? We're not looking for companies that are incremental changes, we're looking for companies that are complete step changes. So, looking at another company that we invested in called Desktop Metal, it 3D metal Prints parts either on your desktop or in large room machines, so places like Tiffany and Fords and BMW they don't need to have those parts on hand, they can print them in real time with various different materials. So how can we change the way of supply chain? How could we make things cheaper for the end user, right?
06:47 Matt Waller: The idea of using 3D printing for spare parts makes so much sense because nobody has ever figured out how to manage spare parts, because it's impossible forecast the demand, and because with spare parts, you wind up having such a huge variety of possibilities, and over time, as new products... As products are improved and redesigned, they actually will create new parts that need to be kept in inventory.
07:20 Jason Illian: Sure. Correct.
07:21 Matt Waller: And so, one big question, especially in electronics that has always been a problem is, how many spare parts should you do on the last run? In some states there's laws that if you... After X number of years, if you don't have a spare part then you have to replace the product.
07:41 Jason Illian: That's right. Well, and also think about printing parts that we couldn't have manufactured any other way. So what if the machines using artificial intelligence could help us build a part in a design that couldn't be built any other way, but could only be printed. It could have a certain amount of torque or precision or just a completely new imaginative way of designing that part. Hey, we couldn't manufacture it that way, but if we 3D print it, we could do it that way. So now we can redesign and start to create things that we couldn't do in the past. And so, that unlocks a whole 'nother realm that we have just only begun to explore on regenerative parts.
08:21 Matt Waller: There's a number of companies... Not a lot, but there's a few companies like 3D Systems and Stratasys that have 3D printing capabilities currently. So how is this company more disruptive than existing 3D printing companies? Or is it...
08:40 Jason Illian: Yeah, I mean, there's a number of places out there that understand that this is a multi-trillion dollar market, right? And that I often come to say that the worlds of atoms and bits, the physical items as well as the computer world that we live in now or the digital world, they're colliding. And this is a perfect example of colliding, of saying, "Hey, we're taking the physical world of what can we actually make but we're also using innovative software and design, just start working about how do we have these two worlds start to create things we've never done before?" It's not gonna be a winner-take-all, it's not gonna be only desktop metal, our company wins, there's gonna be multiple players in this space that are working, some on the software side, some on the hardware side, some of them building entirely new models. Like today, at my house or your house, are we gonna be working with new next generation metal parts? No, because I can't afford a million dollar machine to put in my garage, but could you afford a machine if it was at 3000 or 5000, what would you create? The answer is, we don't know yet, but we will start doing that.
09:45 Matt Waller: So that's a good point. You can get into disruptive technologies where there's no competition, or you can get into disruptive technology where there is a lot of competition. And the good thing about going into markets where there is competitional rays it shows there's a market. You go into something that's completely new. Yeah, it might be disruptive, but there may be no demand for it, or the demand might be way out in the future.
10:14 Jason Illian: Yeah, and we change as a culture on what we are willing to do and how we live our lives. So if I had asked you 10 years ago, yeah, you're gonna get into strangers car and they're gonna take you some place. You're gonna say, "That's crazy." Or, "Hey, you can rent out the bedroom of my house." You're like, "Who are these lunatics?" But that's Uber and Airbnb, and that's just how we do things. Right? So that didn't change the fact that we still gotta stay somewhere, we still have to transport ourselves from A to B, but how we do it has changed, right? And so, the next generation of entrepreneurs have to figure out how to look around the corner, how are people going to act? How is culture going to change? And I think that's a great criteria is, can you see the value creation mechanism either today or in the future, or why a technology or process is truly disruptive? If you can, then that could be a company that could have significant impact. If you can't, it could be that it's just too early, or maybe that the real value creation or the economic exchange for that value creation isn't viable. And so, that company may not make it, right?
11:20 Matt Waller: Now, what stage do you prefer for Koch disruptive technologies?
11:26 Jason Illian: We have a lot of flexibility. So we can write checks as small as five to 10 million or as big as a couple hundred million dollars per check. So we typically will look at a company as early as pre-commercialization. So they got eyes towards the commercialized product, all the way up into a pre-IPO or later stage company. We're not as strong at the early stage of the seed and idea stage, I think that's highly important and I think there's lots of great university accelerators and incubators in places like TechStars, and plug and play and other ones that do that well. We don't do that quite as well. Now, in the future, maybe we will, but we often come in a little bit later, and that's partially because of what we discussed earlier, is we can bring Koch's capabilities to bear and to help, and it's harder to help at the idea stage. They're still trying to... "Hey, what's our go-to-market strategy? What's our value creation?" Once you're on that platform, or moving that direction, we can often bring expertise to bear to help.
12:24 Matt Waller: I noticed that you were also involved as an advisor with Rise of the Rest Fund.
12:31 Jason Illian: Yeah, so I met Steve Case probably 10 or 15 years ago, when I was an entrepreneur, a young and dumb kid. One of my friends suggested that I meet with Stephen, he was kind enough to give me about an hour of his time, and he didn't have to but he was just... It was his way of giving back and really helping other entrepreneurs. And at the time I was living in Dallas, and so even before his Rise of the Rest theme of, "Hey, great entrepreneurs and companies can rise up anywhere," he was already practicing that. And I saw it first-hand, because he was with me at the time. As I continued to grow, and my companies grew, and I moved over to Koch. And he started to launch Rise of the Rest, I thought, what a great opportunity for us to work alongside that? And since Koch is a mid-west company, what better way to support the growing of ecosystems and new economies all over, because people don't know is and there's a lot of interesting things happening in Northwest Arkansas, in Indianapolis, in Kansas City, in Boulder and all these other places where there's great entrepreneurs coming up with Next Generation companies and we want to be part of that.
13:36 Matt Waller: Have you met Ross DeVol? You did?
13:39 Jason Illian: Yeah.
13:39 Matt Waller: Good. So Heartland Forward, really has a focus on the Heartland and so he's taking that expertise and bringing it here to Northwest Arkansas, but applying it to the entire Heartland region which I think is really interesting and neat.
13:58 Jason Illian: So this year alone, something like 10 or 11000 new millionaires will be minted in San Francisco because of IPOs.
14:05 Matt Waller: Wow!
14:06 Jason Illian: So what happens? If there's a 10000 new millionaires, they're all fighting for the same apartment space and some... A lot of these people aren't from the Bay Area but they've made good capital now. So what do they do? Well, some of them wanna start families. Some of them don't wanna pay $2 million for few thousand square feet to live in and so people are starting to go home. Well, home's all over the place. So talent and capital are starting to move to other areas. Well, that's incredible because what it's gonna start to do is seed these other areas around the country and start to build other ecosystems. So what I think Steve Case is on too and I think Brad Feld is a big supporter out of Boulder as well and the guys at High Alpha and Indianapolis and a number of other great places are starting to say, "How do we support that? We don't necessarily have to seed it, I think the seeding it's happening, we will encourage that but how do we continue to support that with resources and capital and other great entrepreneurs that can mentor along the way?"
15:05 Matt Waller: You mentioned Israel, we started a study abroad to Israel that's focused on startups. And there's that book called 'Startup Nation' that really made that popular, but since then, I've really noticed there's so many startups from Israel and some of them are actually coming to Northwest Arkansas, but I saw quite a few of them at the Milken Institute conference Global conference in 2017. And one of our econ professors came up with the idea of start creating this kind of a study abroad. Our students loved it, it was fascinating to see how many startups there are in Israel.
15:51 Jason Illian: Yeah, well and some of it is because you're mandatory trained by the military, so everybody goes through this training and so, a lot of that training is cybersecurity, AgTech. When you live not far from people firing missiles at you, you... It's a defensive way and it's a forcing function of becoming good. If you don't have much land, you get real good at trying to figure out how do we grow crops on not much land or land that potentially doesn't get the either type of sun or water whatever it needs. And so, it has created this really vibrant ecosystem and it's compressed. So it has kept the talent close to one another so that it feeds on one another. It has created a great ecosystem of entrepreneurs, a lot of them with a high level of technical talent. And guess what? They're also willing to take risks. Why? Because they live in an environment that they live where they're being... Can potentially be attacked at any time. So they grow up in a high-risk environment. And so, it just seeds a lot of the things that make entrepreneurs great and strong and so, you see a lot of good activity coming out of Israel and it's one of the great ecosystems in the world right now.
17:00 Matt Waller: It is. I think the agglomeration factor has a lot to do with just the fact that you've got so many smart people close together.
17:09 Jason Illian: Yeah.
17:12 Matt Waller: And that's, I think that's true in Silicon Valley as well.
17:15 Jason Illian: It is.
17:18 Matt Waller: And the other thing, it seems like ecosystems really needs this ability for there to be a critical mass of firms to where if your company doesn't make it, you can go to another company and get involved.
17:32 Jason Illian: Yeah, Brad Feld was notorious for saying up in Boulder that if a company doesn't make it, the other companies would come together and they'll take them out to dinner kind of celebrate them trying, hear their story and then the other companies would come around and hire up all the talent into their other companies.
17:49 Matt Waller: Amazing.
17:51 Jason Illian: Well, if we all did that, we celebrated people that were trying to build something new and if it didn't work, we learned from them. We took those learnings and poured it back into the ecosystem because those people are now scattered in other companies, the chances of success go up, and it encourages people to take bigger leaps of faith on new technologies and businesses and processes that we all need. And so, when those ecosystems grow, whether that's in Northwest Arkansas or Wichita Kansas, I think great things can happen.
18:22 Matt Waller: Jason, thank you so much for taking time to visit with me about disruptive technologies and specifically Koch disruptive Technologies. I really appreciate it.
18:31 Jason Illian: Well, thanks for having me.
18:38 Matt Waller: Thanks for listening to today's episode of the Be Epic podcast from the Walton College. You can find us on Google SoundCloud, iTunes or look for us wherever you find your podcasts. Be sure to subscribe and rate us. You can find current and past episodes by searching BeEpic podcast one word, that's BEEPIC podcast and now, Be Epic.
