The Future of Work is Fractional and Outcome-Based: Katelyn Donnelly, Avalanche VC

“The future in hiring is freelance, flexible, and fractional.”

– Katelyn Donnelly

On this episode of the On Work and Revolution podcast, host Debbie Goodman and delves into the dynamic landscape of the future of work in EdTech with guest Katelyn Donnelly. Katelyn shares her expertise as a managing partner at Avalanche VC, emphasizing the importance of adaptability and outcome-oriented thinking in the modern workforce. They discuss the growing trend towards freelance and fractional work arrangements, highlighting the need for employers to rethink traditional hiring practices to attract top talent. Throughout the conversation, they explore innovative approaches to scaling startups, the role of technology in reshaping employment, and the imperative for individuals to cultivate entrepreneurial skills in navigating the evolving job market.

The 3 key themes that emerged in this conversation explore:

  1. Future of Work: The discussion revolves around the evolving landscape of work, emphasizing the shift towards freelance, flexible, and fractional hiring models. This includes the importance of outcome-oriented labor and the increasing demand for agency among workers.
  2. Education and Skill Development: There’s a critical examination of the traditional education system and its alignment with the needs of the modern job market. The conversation explores how younger generations are adapting to digital economies and the creator economy, suggesting a need for educational reform to prepare individuals for diverse career paths.
  3. Venture Capital and Innovation: The conversation delves into the world of venture capital, highlighting the investment trends in companies that transform how people learn, earn, and own. There’s an emphasis on the role of innovation in addressing societal challenges and the importance of visionary founders with unique solutions.

Give this conversation a listen, and don’t hesitate to Contact Us if you have any questions, comments, or feedback. 

About our guest, Katelyn Donnelly:

Katelyn is the Managing Partner of Avalanche VC, an early-stage venture firm investing in massive trends transforming how people learn, earn, and own.

Previously, she co-founded Delivery Associates, the leading public sector advisory and technology firm focused on government operations and achieving results. She served on the board of the company for ten years, grew the organization from 0 to 200+ employees serving clients globally, and brought on a Private Equity partner, Trill Impact.

Katelyn also co-founded and served as the Managing Director of Pearson Ventures (prior PALF), a $65M venture fund that invests in global EdTech companies. While at Pearson, she led the strategy and implementation of the company’s global efficacy strategy and was on the founding team of the FT125 Club, a division of the Financial Times.

Katelyn started her career as a consultant at McKinsey in San Francisco, working with technology and financial services companies in the Bay Area. 

Open for Full Episode Transcript

[00:00:00] Debbie Goodman: Welcome to On Work and Revolution, where we talk about what’s shaking up in the world of work and edtech. I’m your host, Debbie Goodman. I’m CEO of Jack Hammer Global, a global group of executive search and leadership coaching companies. I’m also an advisor to venture backed edtech founders. And for those of you in edtech who are hiring, we have launched a fractional leaders offering. I’ll put the link in the show notes. My main mission with all of my work is to help companies and leaders to create amazing workplaces where people and ideas flourish, which is why I’m really glad to have my guest here today, Katelyn Donnelly, and you’ll understand why in a second. So Katelyn is the managing partner of Avalanche VC, an early stage venture firm, investing in the trends that transform how people learn, earn, and own.

Now that’s a phrase one doesn’t hear very often. And we’re going to be digging into that in a bit. Katelyn started her career as a consultant at McKinsey. She then moved on to Pearson where she co-founded and served as the managing director of Pearson Ventures, which is a 65 million dollar venture fund investing in global edtech companies.

And then a few years later, she co-founded Delivery Associates. The leading public sector advisory and technology firm. She served on the board of the company for 10 years. She grew the organization from zero to 200 or so employees serving clients globally. So Katelyn is no stranger to scaling startups.

, and today we’re going to be talking to Katelyn about her strong views about the future of work, namely that the future is freelance or in my language, fractional. So welcome Katelyn. 

[00:01:44] Katelyn Donnelly: Thank you for having me. 

[00:01:46] Debbie Goodman: Okay. So firstly, I love how you describe Avalanche VC’s investment thesis or strategy, investing in companies that transform how people learn, earn, and own. So e labourate on this for listeners. 

[00:02:02] Katelyn Donnelly: Well, I thought I’d try to think about what was it that would make people successful, you know, throughout history and today. And I think everybody goes through the same journey in a capitalist society. They will have to learn in school, but also outside of school and then they learn to earn, so find a way to earn income. And then they turn that income into ownership in valuable assets. And so they can either do that by starting their own business by getting shares in the company that they work for by owning their home or getting retirement assets. But that progression from learning, earning to owning.

Is universal, and there’s now nuanced ways of ownership that are actually quite important, such as, you know, owning your data, digital identity, potentially cryptocurrency, uh, credentials in your own wallet, uh, that I think are really exciting. And given the sort of universal applicability of those three themes, I thought there was a tremendous amount of innovative ideas and system change to invest behind.

[00:03:13] Debbie Goodman: I really love that idea. As you were talking about learn, earn, and then the, the own part, I think there’s been somewhat of a disconnect in society, certainly amongst sort of your millennial and then Gen Z certainly coming into the workplace and starting to question how can they afford a home? How can they ever hope to buy the biggest asset that’s been, uh, the common denominator as the core foundation of what most people consider to be, well, I’m going to earn in order that I can own at least my home. And so I love what you’re saying that we should think about ownership in many dimensions.

[00:03:52] Katelyn Donnelly: Exactly. 

[00:03:53] Debbie Goodman: Okay. So you said there’s so many companies in your portfolio and as well, so many different nuances to what this, what could be included in your thesis. I’d love to hear about the types of companies that you’re investing in. 

[00:04:05] Katelyn Donnelly: Yeah. So I’m now on my second fund. My first fund, we had 36 companies that spanned learn, earn, own. Some of the breakouts of that portfolio included a company called Prisms of Reality, which is a math curriculum and VR, and they were really capitalizing on the idea that, uh, the way people learn math is using spatial reasoning and applying problems to real world settings. And the best way to do that is using immersive reality. So it’s a great example of one of our avalanche themes, which is efficacious edutainment, which is that you can measure the learning outcomes while using best in class technology systems. 

[00:04:48] Debbie Goodman: You have got some of the coolest phrases to describe your investment strategy, thesis and companies. I just love it. Okay, so what motivates you to invest? What is the rubric that you use to determine whether a company, first of all, is gonna be a good fit based on the philosophy that you have? It sounds like you’re very mission driven in one respect, but also that it’s going to be a successful company. 

[00:05:15] Katelyn Donnelly: Yeah, exactly. I’d say we, we look at two main things. First is we look at the founder and the founding team. And the first question I always ask is who are you and why are you doing this? Because we look for people who are building their life’s work. They understand the industry really well. They’ve seen the way it’s developed, and they think that they have a very unique differentiated take and solution and technology that they want to will into the world and on that founding team.

We also have a mantra, which is technology is built by technologists. So either the one founder or the second founder, or somehow in the founding team, there has to be technology or an innovation at its core, which means that the company will have a distinctive edge when they go to market and they can serve customers in a unique way.

I’d say the biggest reason I often pass on a company or, or don’t think that it’s a fit for the portfolio is it just looks a lot like everything else on the market or it’s something that is not truly defensible and it’s a very competitive and that doesn’t necessarily mean that it’s a bad business or that company won’t be successful. They just, it’s just not a good fit for venture capital, which is we’re looking for companies that can potentially take our dollars and scale it to be a billion dollar company and drive a hundred X return for our portfolio. So that level of ambition and vision and, uh, tech change all has to be there, which is pretty rare.

[00:06:45] Debbie Goodman: Okay. So I want to ask a few things about that. First of all, you mentioned that you’re looking for a founder where this is or founding team, where this is really their life’s work. They’re birthing this, they taking this to the world and they usually believe very strongly in what they’re creating and the impact that it can have in society.

And they, you know, changing the world. What do you actually give honest feedback to founders who’ve pitched to you, about the fact that actually what they’re doing is a bit also around, it’s a bit average, it’s a bit the same as everybody else. I mean, how do you break that news to people? 

[00:07:19] Katelyn Donnelly: I just tell them directly and I usually couch it in a you know, like I’ve been, I’ve been an investor for a long time. I’ve been an angel investor at 36 companies. My first portfolio, we’ve definitely had my share of failures and I usually couch it in saying, look, I’ve been there. I’ve lost money trying to do what you’re doing. And this is just my honest take on how I see things. And I found that founders really respect it because people don’t really want to waste their time.

And so few people are giving them honest feedback. Exactly. I’m usually not saying I think you’re terrible, or this is like out of your, you’re like out of line, especially because my blueprint for working with founders is that I’m a former founder myself. I worked with, co-founded a company with Sir Michael Barber to bring his IP around deliverology, uh, to market and scale it. And we, we didn’t ever raise any money. We, we bootstrapped it entirely. So I’ve seen all the ups and downs and the ways that you can go wrong. And I really say that it’s coming from a place of  empathy as a founder myself and wanting to see people be successful. 

[00:08:33] Debbie Goodman: Yeah, I just want to double down on this. I’m a startup founder myself. I’ve started several companies. Some have never, you know, have not really seen too much of the light of day because they were just not that great ideas, but it’s, you don’t always get good feedback or direct feedback or accurate feedback from the people that you’re pitching to. So I hope there are many more people like you out there who can deliver, even if it’s, you know, news that you don’t really want to hear, but that can certainly as a founder, you can use that. Either you’re going to continue to improve and enhance or you’re going to pivot or maybe you’re just going to keep on doing the same old, same old, maybe somebody else will decide to invest.

But if there are other investors out there listening to this, please give direct feedback as a founder. That’s what we really want, okay. And then there’s another thing that I want to ask you about. So you said you like making sure you make sure that there’s a technologist on the founding team. What about, how important is it to you that there’s also somebody who is sales and revenue driven, because I’ve spoken to a number of investors who will not invest if the founding team, a doesn’t have somebody who’s proficient at sales or is prepared to do it and is prepared to get good at it. 

[00:09:43] Katelyn Donnelly: Yeah, I agree. Sales is like, who is your customer and, you know, and product, like those two are the only things that matter. And usually there is a relation, like a symbiotic relationship between the two and they feed on each other. But you have to have both. 

[00:10:01] Debbie Goodman: Okay, so let’s change tack now because  I really want to get into a point that you spoke about when we spoke earlier, which is the future is freelance.

You’re pretty strong in your view about the future of work or the future of employment that it is going to be freelance or in my language. I call it fractional. Tell me more. Why are you so convinced about this? 

[00:10:27] Katelyn Donnelly: Well, I think it’s a fractional freelance, flexible, these are all human desires that we see increasing in every subsequent generation and in the 21st century, and there are things that people are requiring to integrate into their lives. And I think we saw it a lot through COVID and then we now see it in the data. So in the US, you can look at the business labour statistics, BLS, and the average number, the average amount of time that someone spends in a job has gone from an average of 10 years to now, like, I think it’s like 2 or 1 or something.

And so people are already switching jobs pretty regularly, and I think it’s a pretty natural transition to then turn that into more fractional roles. And that’s, and there’s strong demand on the employee side. And then I think there’s also demand on the employer side that is beginning to think about, well, how do I get outcome oriented labour force?

How do I minimize liability? You know, this sort of like the last, during the COVID era, many employers and workplaces really dialled up the well, we’re going to give our employees all these extra things and really make them feel like family and build a community. And then in, you know, in the last year with the rise of layoffs at many of the companies that really over hired people, you know, both companies, both employers and employees realized overnight that they weren’t family, that like they could just wake up and have all of their logins…

[00:12:01] Debbie Goodman: Terminated.

[00:12:03] Katelyn Donnelly: Terminated.

Yeah. And that project or that initiative that they thought they were, that they’d been told was so important that they were working on, that was a priority to management obviously, you know, had been cut. And so I think that humans want, we want agency and we want to be able to own our own destiny. And it’s clear that corporations are likely not the venue in which to do so, but there are different relationships that you can have with them, because you know, to do big things in the world, you need to coordinate humans at scale. But there are many mechanisms of doing that and I think freelance flexible arrangements, outcome oriented pieces are a perfect way of doing it. And I saw this on the front lines, uh, when I was building Delivery Associates. So Delivery Associates is a professional services firm that works with governments to drive big reform programs. And we had a remote, we were a remote first company. So there were no physical offices and we had people on, you know, every continent except Antarctica all over the world.

And then there were quite a few fractional people as well. I think at least like 40 percent of our employees were fractional, or flexible. And we got tremendous value out of that. And even a consultancy itself like Delivery Associates is. Fractional labour to work with the government on a very specific skill set. So you like the consulting industries, professional services have really boomed. And there’s so many layers to that sort of freelance cake. That is just obviously what’s already happening and will probably continue. 

[00:13:41] Debbie Goodman: I agree, which is why we launched a new division in addition to our full time executive search division, because absolutely we saw the need from both sides, from the founder side that needed to hire high level skills, but now budgets are under strain. And so you can hire somebody for just the work that you actually need them to do at a very high level at a much more affordable budget and get a piece of their time and then many more people, experienced, highly skilled workers who want to have the flexibility.

Not everybody’s cut out for that. So we definitely are seeing that what employers are looking for, want what founders want, is they want somebody who either knows how to work fractional and can kind of teach them how to work with a fractional leadership team because it doesn’t necessarily come naturally or somebody who either they have the fractional experience or they are very, they’re able to really kind of cut to the chase and become, you call it outcome oriented really quickly. And I think that’s kind of the key is that what we’re seeing in this fast moving world is that we don’t have a lot of luxury of time of sitting around and thinking up the strategy and getting things all nice and pretty and tied with a bow before we actually get into the weeds and into the work. We’ve got to be moving a lot quicker. And so where I’m seeing that where fractional execution  is  playing a big part is senior people with high level skills who can cut to the chase, who’ve got the experience and who can just get into the weeds right now and founders who can learn to work with people like that as part of their leadership teams are accelerating their growth really well.

So we’re talking the same language. You also spoke about some other key trends that were top of mind for you and I want to refer back to a statement you said that everyone is an entrepreneur or needs to learn to think like one. What about people who just want to go to a workplace and get a salary and don’t want to be entrepreneurial at all?

[00:15:40] Katelyn Donnelly: Well, then those people will probably be beholden to their employers and the sort of forces of the larger labour market. And you know, that can be in, when it’s a boom time, that could be great. And when it’s not, then they could find themselves, you know, unemployed or maybe not as valued as he, like their, their compensation or their, like their structures may not be as high as they would be if they took a more proactive approach. And it’s okay. I think that one of the things to think about is like how you define entrepreneurialism. I mean, even to be a good employee, like a full-time employee usually requires an understanding of how am I successful in this workplace? Like, what do I have to do to be a good employee. And that usually has some element of entrepreneurialism, whether it’s like finding a way to make your boss look good, like going above and beyond on a special project, like hitting your sales target out of the water by you know, doing like innovating on a script or finding something, finding a best practice and really applying it rigorously.

But those sort of behaviours compound over time and then, and the people that they’re compounding for will be excellent. And those that, you know, kind of sit back on their laurels and think, oh, I just want a job will probably, you know, be stagnant in their roles. 

[00:17:12] Debbie Goodman: Yeah, I agree that there is a shift and a move towards the, I mean, the gig economy has been coming on for a long time. What do you think needs to change in certainly American education system or just society at large in order to prepare people for what is essentially a future that with AI co-pilots and AI support and AI augmentation and all the technology that we know is coming down the stream is going to be a huge part of the future of AI and AI going to mean that there is greater fragmentation of our jobs, that we stay at workplaces  for much shorter times and that we’re going to need to be able to be a lot more nimble and flexible in the modes in which we work, maybe sometimes full time, maybe sometimes gig or freelance or fractional. But the system underpinning that is, is currently not really preparing all that many people for that future. 

[00:18:11] Katelyn Donnelly: Yeah, I mean, it’s interesting when you speak to younger people or the younger generation, because I actually think that they sometimes, they really get it more than the adults. And it’s like the existing sort of legacy education systems that have people who’ve never worked.

In the modern economy, you know, like most universities have professors who, you know, have jobs that are, that honestly have gone the way of the Dodo. Like you can’t get it, like getting a tenured academic job, like that doesn’t really exist as much anymore at a stable institution. And, you know, being an adjunct or, or a teaching professor, I mean, these are some of the most like lowest paid jobs now because of the economics of higher education.

And yet those are the people who are kind of sort of educating young people. But what I think young people really get is they see the creator economy, they see influencers, they’re playing video games where there are digital goods and services that are being sold to them. And they can operate in those digital economies and find ways of monetizing assets.

And so I think like starting a newsletter and beginning to place ads on it, doing videos on YouTube and getting ad revenue, building a community around something that you’re passionate about and then putting a marketplace that allows your community to transact with each other and taking a cut. These are all digital native job business models that  the world is kind of showing to young people and they, I think, get it more than the older generation they, but  I think the key is to  not like for the sort of like adults and, and the system among us to not  force  the old model and the old regime on young people.

[00:20:04] Debbie Goodman: Well I will definitely support the statement. I’ve got two teenagers at high school, and I see how sort of digitally native they are in the way that they go about solving problems and getting, getting access to information and promoting the stuff that they’re interested in. So it is definitely a different world of that generation that’s emerging into the college system, which  I know there’s efforts to transform, but they are just such slow moving beasts. So we’ll wait and see on that point to see what emerges in the next I’d say two to three years if the college system as a whole doesn’t really make some significant advances, I think the rest of the world’s just going to move on too quickly. So let’s put a pin in that and revisit in a little while.

[00:20:51] Katelyn Donnelly: I just want to make one point, which is it’s just too expensive for what it is. Like the ROI, you used to be able to go to a degree program and be able to amortize that over your career. And now the ROI is so disconnected from the job market and the investment is so high. It just doesn’t make. 

[00:21:09] Debbie Goodman: Yes, indeed. I am the mother of two teenagers who are about to need to get into college at some point, or maybe not. Maybe we’ll, maybe we’ll do something different. Okay. So, Katelyn, I want to ask you, what advice would you give founders right now? It’s Q1, 2024 emerging into Q2, it’s a tough and brutal landscape for anybody who’s looking for money, capital, anybody who’s, you know, maybe got their first bit of capital, but they’re struggling with growth.

What advice can you give? 

[00:21:44] Katelyn Donnelly: My advice is to really think about what it is that you’re trying to achieve with your company and take a hard look at whether what you have is truly serving the needs of a customer. And if not, like maybe take a, take a step back or, you know, decide that, uh, like it’s okay to decide it’s not for you. And the sooner that you like, like most startups, especially at an early stage, have a hypothesis that they need to prove out. And if you’ve gone through all the motions and you haven’t been able to prove that hypothesis, particularly any like inflection point of a super high growth, then it’s okay to, to declare failure and you don’t have to, you know, see it to the, to the end.

And so I would just have, I think that like having honest conversations about your capabilities and your customer and white and where your product is, is really important. And if you need to make changes, like make them fast and make them dramatic and make sure that the people who are on your core team, like the founders have enough of the skills to be able to serve the need, and they’re fully, you know, making the sacrifices probably necessary in order to continue to be at a startup.

I think in the last couple of years, I, you know, there was so much money. There’s kind of this idea that almost anyone could start a company and that being a founder was kind of like a job. Like people were paying themselves, like sometimes quite like founder salaries were like a hundred thousand dollars or, or higher.bAnd I think that those days are just over. And  you have to get to that product market fit or that growth trajectory, or that’s very distinctiveness quickly, or you’re not going to be able to be successful.

[00:23:45] Debbie Goodman: Which nobody wants to hear. But I think possibly in framing it around the opportunity costs of continuing on a path that doesn’t either change radically, or maybe stop and start again with something else, the opportunity cost of sticking with something a little too long. And we think we’ve been indoctrinated to believe that, you know, we’re not quitters. I’ve certainly been there numerous times where I’m like, I really love my product, but nobody wants to buy it. And then you go, okay, we’re done here. And it is such a hard thing to do, but sometimes you have to call it. And then the opportunity costs, if I would have stuck with that too long not going, okay, well, that was a great idea, but you know, let’s start, let’s think so many great ideas out there. Let’s just start with something else that’s fresh and that maybe gets traction a little quicker. So that’s good advice. It’s harsh and brutal, but man, Katelyn, you really direct with your, with your feedback. All right. What are you most excited about for the investment landscape in the year ahead? 

[00:24:48] Katelyn Donnelly: It’s impossible to predict because I want to be surprised. Like, I’m excited about the things that, that I don’t see that some brilliant entrepreneur sees and brings to my attention. So it’s like the serendipity and the like venture into the unknown, which I’m most excited about. I think the landscapes of learn, earn, own are all open. And obviously AI has surged ahead and that’s an exciting trend, but I think that some of the most more interesting place are the way that legacy institutions have to be reformed or changed and the technology companies that can be built to capitalize or deliver on like the missions of those legacy institutions that we need in our society that are currently not being served today. 

[00:25:39] Debbie Goodman: Well, I love the idea of serendipity as well as transformation, wholesale transformation of legacy. So may there be tons of that coming your way and have an amazing rest of 2024. Thank you so much. 

[00:25:54] Katelyn Donnelly: Thank you. Thanks for having me.

[00:25:56] Debbie Goodman: Bye now.


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