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Albert Wenger on Global Venture Capital Firms · Masters in Business

0:00
Speaker 1: M. This is mesters in business with very results on
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Speaker 1: Bloombird Radio this weekend. On the podcast what Can I Say?
0:11
Speaker 1: I have yet another extra special guest, Albert Vennor, managing
0:15
Speaker 1: partner Union Square Ventures. He has a fascinating background in
0:19
Speaker 1: technology and software and is interested in all sorts of
0:22
Speaker 1: interesting things, ranging from climate change to humanism, to the
0:27
Speaker 1: huge transitions that humans have gone through as a species
0:32
Speaker 1: and what it means to society investing scarcity and just
0:37
Speaker 1: the quality of life that we will enjoy as a species.
0:41
Speaker 1: I found this conversation to be really intriguing if you're
0:44
Speaker 1: interested in venture capital, in technology, in how to think
0:49
Speaker 1: about early stage investing, well strap yourself in. This is
0:54
Speaker 1: a great one. With no further ado, my conversation with
0:58
Speaker 1: Union Square Ventures. Albert Wehner. You have quite a fascinating history.
1:04
Speaker 1: Let's delve into that. Starting with your background. You won
1:07
Speaker 1: a national German competition in computer science in high school.
1:12
Speaker 1: Tell us about that and where that led you. Well.
1:15
Speaker 1: I fell in love with computers very early on when
1:18
Speaker 1: I was a young teenager, and my parents were super
1:22
Speaker 1: indulgent of this at a time when that was very unusual,
1:25
Speaker 1: and they bobbed me an early Apple two computer. One
1:27
Speaker 1: of the earliest Apple two is to be sold in Europe. Actually,
1:31
Speaker 1: and I've stuck with that my entire life. I've studied
1:33
Speaker 1: computer science as an undergraded and as a grated student,
1:36
Speaker 1: and I've been investing in a lot of computer companies
1:39
Speaker 1: over the years. So it's been central to what I
1:41
Speaker 1: do and who I am. So let's talk about the
1:43
Speaker 1: timing of school. You graduate Harvard in an economics and
1:48
Speaker 1: computer science degree perfect for the explosion of the Internet,
1:52
Speaker 1: a PhD from m I T and Information Technology nine.
1:56
Speaker 1: So when you were leaving school, were you interested in
2:00
Speaker 1: the Internet or was it more hardware and software? No,
2:04
Speaker 1: the Web was really exploding while I was at m
2:06
Speaker 1: I T. And I actually finished my PhD n but
2:09
Speaker 1: I started a company in late nineties six early ninety seven,
2:12
Speaker 1: and I was kind of doing the company and the
2:14
Speaker 1: thesis at the same time, which wasn't great for either
2:16
Speaker 1: and also wasn't great for our marriage. We kind of
2:19
Speaker 1: managed to get through that. But I was really fascinated
2:24
Speaker 1: with the web from when I first discovered it, which
2:26
Speaker 1: was in a computer lab at M I T trying
2:28
Speaker 1: to do my stats homework. So so let's talk a
2:30
Speaker 1: little bit about some of the other companies you either
2:33
Speaker 1: founded or run. The most famous is probably Delicious, which
2:37
Speaker 1: ended up getting picked up by Yahoo. Tell us a
2:39
Speaker 1: little it was. It was an early whib to Darling.
2:42
Speaker 1: Joshua Schackter had started he was working in Morgan Stanley
2:45
Speaker 1: actually full time, and had started this as a side project.
2:48
Speaker 1: And it was kind of this idea that you would
2:50
Speaker 1: share your bookmarks with others because bookmarks were kind of
2:53
Speaker 1: an indication of something that was actually interesting on the Internet,
2:56
Speaker 1: and Joshua added tacks to that, and so you could
2:59
Speaker 1: browse things by bags. And at that time Unit Square Insures,
3:03
Speaker 1: Fred and Brad had started the firm. They had just
3:05
Speaker 1: raised the first fund. I had just finished another project
3:08
Speaker 1: I've been working on and they were like, hey, we're
3:11
Speaker 1: talking to this guy, Joshua what he thinks. So I
3:12
Speaker 1: met up with Joshua uh and they wound up investing
3:15
Speaker 1: and I wanted up becoming the president. So your president
3:17
Speaker 1: of Delicious, you see it through in order to be
3:20
Speaker 1: acquired by Yahoo in the early two thousand's. Tell us
3:24
Speaker 1: a little bit about that experience. The Delicious team was tiny,
3:28
Speaker 1: it was subt in people basically, and it was a
3:31
Speaker 1: very rapidly growing service. I made myself sufficiently unpopular during
3:35
Speaker 1: the acquisition, but because I insisted on certain things, I'm like,
3:38
Speaker 1: we're not doing this, We're not doing this, we're not
3:40
Speaker 1: doing this, um that. They at the end they were like,
3:42
Speaker 1: we want all of you except for this Winger guy.
3:44
Speaker 1: We don't want him, which was perfect for me, Mindy,
3:46
Speaker 1: because I didn't want to relocate to the West Coast,
3:49
Speaker 1: so I got to just take my marbles and start
3:51
Speaker 1: making angel investments. So is that what led you to
3:54
Speaker 1: Etsy and Tumbler was the Delicious acquisition? Yeah, exactly. I
3:58
Speaker 1: had a little bit of money and I met Rob Kalen,
4:01
Speaker 1: the founder of Etsy. He had just come back from
4:04
Speaker 1: the West Coast. He had tried to raise money on
4:05
Speaker 1: the West Coast, was unsuccessful with that, and so I
4:08
Speaker 1: wrote an angel check here and then I brought Union
4:11
Speaker 1: Square interest in as the first Series A investor. Is
4:14
Speaker 1: that what led to your transition from entrepreneur to well?
4:19
Speaker 1: I was basically hanging out at the USB offices after
4:22
Speaker 1: the sale of Delicious, and just because she had no place.
4:25
Speaker 1: Because I knew both Brand and Fred really well, and
4:28
Speaker 1: so it was kind of a natural thing to do
4:31
Speaker 1: I did these angel investments. I led the interest investment
4:35
Speaker 1: in Etsy, I became a venture partner for that and
4:37
Speaker 1: then became a GP in the two thus Nate Fund
4:40
Speaker 1: so et C. Also, Tumbler was another one. If Memory
4:42
Speaker 1: Serves were they acquired by they were also acquired So
4:46
Speaker 1: so you're working, you're working that contact list. What was
4:50
Speaker 1: that experience like now, not as a as a president
4:54
Speaker 1: but outside investor. It was a very very lucky landing
4:58
Speaker 1: for Tumbler because yeahoo really the only bidder and they
5:00
Speaker 1: were bidding against themselves, but they didn't really know that.
5:04
Speaker 1: So what eventually led you to say, you know, I
5:07
Speaker 1: think I could do this venture stuff full time. Let
5:10
Speaker 1: me let me hang my hat at Union Square Ventures
5:13
Speaker 1: and focus solely on on Yeah, that had really been
5:16
Speaker 1: my goal since my own first startup in seven, which
5:20
Speaker 1: was a company called W three Health that ultimately failed.
5:23
Speaker 1: From that experience, I realized that I really loved startups,
5:26
Speaker 1: but that I was never going to be a good operator. Um,
5:28
Speaker 1: but I thought I could maybe be a decent investor.
5:30
Speaker 1: Let me make a digression here, and since you're in
5:33
Speaker 1: front of me, I have to ask this question. So
5:36
Speaker 1: ideal with traders investors, fund managers, economists down the list.
5:41
Speaker 1: There is no group of people that seem to be
5:44
Speaker 1: prouder of their failures than venture capitalists. Why is that
5:49
Speaker 1: Because it's an integral part of the business, and if
5:51
Speaker 1: you can't deal with failure, you can't be a VC.
5:54
Speaker 1: Because many of the startups you invested and fail, it's
5:58
Speaker 1: statistically that's your spectations. Yes, absolutely so. It just seems
6:02
Speaker 1: like the healthiest way to think about what is unavoidable.
6:07
Speaker 1: Yet so many people within the world of finance kind
6:10
Speaker 1: of dance around it, trying not to deal with it.
6:13
Speaker 1: There's a little bit of denial. It's almost like an
6:16
Speaker 1: object of pride. Look here all the companies we invested
6:19
Speaker 1: in that didn't make it. Look here all the great
6:21
Speaker 1: companies we passed on. It's almost like a point of pride,
6:25
Speaker 1: this sort of self awareness. Well, it's also important to
6:30
Speaker 1: how the venture capital model works overall. Right, so the
6:33
Speaker 1: most you can ever lose in venture capitalist the amount
6:35
Speaker 1: of equity you've put in. But the upside is nearly limitless.
6:39
Speaker 1: I mean, it's what Notes seemed to let calls convicts tinkering. Right,
6:41
Speaker 1: it's the perfect example of that. You took many small
6:44
Speaker 1: relatively small positions, and any one of them can be
6:47
Speaker 1: become very, very large. But you also learn a lot
6:49
Speaker 1: from the things that don't work, you know. Um, sometimes
6:52
Speaker 1: you learn a lot more from that than you learn
6:54
Speaker 1: from the ones that do succeed. Sure, you tend to
6:56
Speaker 1: you tend to learn more from from losers than winners. Um. Usually,
7:01
Speaker 1: And and then I have to ask the same question,
7:04
Speaker 1: So Union Square ventures by definition union squares here in
7:07
Speaker 1: New York City. What's it like being a venture investor
7:11
Speaker 1: on this side of the country as opposed to what
7:14
Speaker 1: seems to be you know, the gravitational black Hole adventure
7:18
Speaker 1: out out in Silicon Valley in California. Well, first of all,
7:21
Speaker 1: it's no longer that. So you know, Sequoia just opened
7:24
Speaker 1: a New York City office. UM, Andrewson Harwitz has people
7:27
Speaker 1: on the ground here. So New York City is now
7:29
Speaker 1: today one of the epicenters when we started. That wasn't
7:32
Speaker 1: the case. When we started. People were like, oh, there's
7:35
Speaker 1: been no tech company in New York City. There's been
7:36
Speaker 1: no I p O. Of course, you know, we were
7:38
Speaker 1: involved with two of the major I p O s.
7:40
Speaker 1: We let the Series A and It's I also let
7:42
Speaker 1: the series A. We you know, Square Ventures. Let the
7:44
Speaker 1: series A in MONGREDI b you know, the big New
7:46
Speaker 1: York City based success story. So it was incredibly healthy though,
7:50
Speaker 1: because we were never caught up in the oh my god,
7:53
Speaker 1: fomo off, we have to have one of these or
7:55
Speaker 1: one of those and everybody else's investing in the sector.
7:58
Speaker 1: It was always a from our own thesis, let's figure
8:01
Speaker 1: out what we believe and then let's find companies that
8:04
Speaker 1: fit with that. And we've always been extremely competitive in
8:07
Speaker 1: winning deals on the West Coast. I mean Twilio, I
8:10
Speaker 1: let the series A UM for your grow interest and
8:13
Speaker 1: it was a you know, San Francisco Bays company. So
8:16
Speaker 1: last question on this topic, how different is venture in
8:20
Speaker 1: New York versus California or is there really no big
8:25
Speaker 1: There used to be a noticeable difference between East Coast
8:28
Speaker 1: and West Coast today I think that's completely erased. Quite interesting.
8:32
Speaker 1: So let's talk about the theses driven venture capital firm,
8:36
Speaker 1: which is how USV describes itself. Tell us what these
8:41
Speaker 1: theses are and how do they drive your investment? Yeah,
8:45
Speaker 1: so there's been an evolution over time. I would say
8:48
Speaker 1: the you know what we call thesis one that oh,
8:50
Speaker 1: was that we invest in large networks of engaged users
8:54
Speaker 1: differentiated by user experience, and those were investments like Twitter
8:58
Speaker 1: and Tumbler. And then wear to focus on companies that
9:01
Speaker 1: had less obvious network effects, so more data behind the
9:04
Speaker 1: scenes companies like Sift for example. UH. And then we
9:09
Speaker 1: added to our thesis sort of infrastructure and infrastructure investments
9:13
Speaker 1: included Twilio and mongredib cloud Flare, Stripe. There's a whole
9:19
Speaker 1: bunch of infrastructure investments infrastructures for building digital businesses. Our
9:25
Speaker 1: current iteration, what we call thesis three DOTO is about
9:29
Speaker 1: broadening access to knowledge, capital and well being by leveraging
9:33
Speaker 1: existing networks and protocols and building trusted brands. And each
9:37
Speaker 1: part of that thesis actually means something very concrete. So
9:40
Speaker 1: let me just pick one of them. Building trusted brands
9:43
Speaker 1: for us. A lot today is about is your business
9:45
Speaker 1: model fundamentally aligned with your customer or not. The advertising model,
9:49
Speaker 1: as we have learned, is not aligned with customers interests.
9:52
Speaker 1: Right You, If your YouTube you want to serve the
9:55
Speaker 1: most engaging videos so you can show more ads, you
9:57
Speaker 1: don't want to serve the most appropriate video, right So,
10:01
Speaker 1: but if you have a subscription model. Let's say, like Netflix,
10:03
Speaker 1: you want to show something that somebody actually, really, truly
10:06
Speaker 1: deeply is going to relate to so that they stay
10:08
Speaker 1: a subscriber long term. So each part of this thesis
10:11
Speaker 1: means something, and we we use these sort of high
10:14
Speaker 1: level thesis to then look for very concrete things. So,
10:16
Speaker 1: for example, I said broadening access to capital. So we've
10:19
Speaker 1: done a lot in lending, like how can we do
10:21
Speaker 1: better underwriting, better, cheaper, faster loans for instance, too small
10:25
Speaker 1: businesses investment like a company like Funding Circle, or two
10:28
Speaker 1: individuals like a company like Upgrade in a way that
10:31
Speaker 1: actually helps people, so where you're not dragging them into
10:34
Speaker 1: like a dead hole, but you're actually helping them build
10:36
Speaker 1: up their credit score while you're giving them extending them credit.
10:39
Speaker 1: So three point oh sounds a lot like World After Capital.
10:43
Speaker 1: I'm hearing some very similar themes. They're absolutely um there's
10:47
Speaker 1: a strong relationship between some of the ideas in the
10:49
Speaker 1: book and some of the ideas that inform our investing.
10:52
Speaker 1: We'll circle back to the book in a little bit.
10:54
Speaker 1: Let's talk about a couple of companies you invested in,
10:57
Speaker 1: because I'm picking up a theme there. Needable terror living carbon,
11:03
Speaker 1: marvel fusion, legendary food, climate sustainability. So those are all
11:10
Speaker 1: personal investments, not not theraventurous investments. But I made those
11:15
Speaker 1: investments in the run up to us forming a climate
11:18
Speaker 1: thesis and now a climate fund. So those are all
11:20
Speaker 1: investments that go back a few years when I sort
11:25
Speaker 1: of became really interested in what kind of opportunities come
11:29
Speaker 1: out of the climate crisis. The climate crisis, if we
11:31
Speaker 1: don't get on top of it, none of the other
11:33
Speaker 1: stuff of matter, none of the money we've made will matter.
11:35
Speaker 1: It's so big, it's so much bigger than COVID, for example,
11:38
Speaker 1: in ways that I think people still don't appreciate. And
11:42
Speaker 1: so I made some personal investments first, and then we
11:45
Speaker 1: started talking to our LPs about it. And then during
11:48
Speaker 1: COVID we raised the first climate fund, hundred sixty million
11:50
Speaker 1: dollar climate fund. We're almost done investing that. And so
11:53
Speaker 1: the climate thesis very simple. We want to invest in
11:56
Speaker 1: companies that either reduce emissions, draw it down existing emissions,
11:59
Speaker 1: or help with adaptation. So I'll give an example of
12:02
Speaker 1: an adaptation investment. We invest in a company out of
12:04
Speaker 1: Australia called flood Map, and what they do is they
12:07
Speaker 1: predict where things are going to flood. They also measure
12:10
Speaker 1: the actual flooding. Floods are one of the biggest problems
12:14
Speaker 1: coming out of the climate crisis, and they're here today.
12:15
Speaker 1: This is not some future problem with getting mega floods
12:18
Speaker 1: in Pakistan. A third of Pakistan is underwater as we speak.
12:21
Speaker 1: I don't think people understand how horrific the devastation there is.
12:25
Speaker 1: It's the other side of the droughts that are everywhere.
12:27
Speaker 1: It's what's dry gets dryer, what's what gets wetter. Absolutely
12:31
Speaker 1: talking about emissions reductions, we've made investments, for example, in
12:34
Speaker 1: our first every investment in Africa in a company called
12:36
Speaker 1: Shift ev. What shift DV does is it takes existing
12:40
Speaker 1: delivery vans and retrofits them in the space of a
12:42
Speaker 1: couple of hours from internal combustion engine to electric a
12:46
Speaker 1: couple of our couple of hours. Because if you want
12:48
Speaker 1: to take an old nine eleven and converted to e V,
12:51
Speaker 1: it'll take you about a year, assuming you can get
12:53
Speaker 1: on the list. It's that they have completely industrialized this process.
12:59
Speaker 1: They drive a minivan in and a couple of hours
13:01
Speaker 1: later it drives out as an EV. Wow, what do
13:03
Speaker 1: they do with the internal combustion engine. And that's a
13:06
Speaker 1: great question. I need to ask Ali what they do
13:08
Speaker 1: with that. I don't know. I mean, it seems like
13:10
Speaker 1: that's a lot of hardware to just throw away. I
13:12
Speaker 1: don't know. A great question. And then I'll talk about
13:15
Speaker 1: one of the drawdown investments we've invested in, a company
13:18
Speaker 1: called Brilliant Planet out of the uk Um. What they
13:21
Speaker 1: do is they build ponds in the desert and they
13:23
Speaker 1: pump seawater and then then they grow algae very very rapidly,
13:26
Speaker 1: continues algae blue and it takes a huge amount of
13:28
Speaker 1: carbon out of the atmosphere. Algae in ponds in the
13:31
Speaker 1: desert can can move the needle. Yes, absolutely, Huh. That's
13:35
Speaker 1: quite fascinating. Two questions come out of this. One is
13:40
Speaker 1: structural and one is fund based. Let's do the fund
13:42
Speaker 1: one first. So John Door had a climbed funds started
13:46
Speaker 1: about ten years ago at Cliner Perkins Um. Some people
13:50
Speaker 1: have said it kind of lagged other similar era venture funds.
13:55
Speaker 1: Was he just early? How do you look at this
13:58
Speaker 1: in terms of not just having a positive impact on
14:02
Speaker 1: the planet but generating a return on investor. The the
14:06
Speaker 1: early green tech funds they were too early in one sense,
14:10
Speaker 1: but in another sense they were actually crucial to our
14:14
Speaker 1: having a shot at overcoming the climate crisis, because if
14:18
Speaker 1: it hadn't been for the investments, we wouldn't have gotten
14:21
Speaker 1: on the cost curve, for instance, for solar PV. Right.
14:24
Speaker 1: So the reason we have really cheap PV today, the
14:26
Speaker 1: reason we have really relatively cheap batteries today, it's because
14:29
Speaker 1: of some of the investments that were made back there.
14:31
Speaker 1: And there's this pattern in the world where every big
14:35
Speaker 1: technological shift starts with a bubble. Right, So when we
14:39
Speaker 1: had ships, we had the South Sea bubble, right, And
14:41
Speaker 1: when we had railer was we had the railer bubble.
14:42
Speaker 1: There was an automotive bubble, there was the dot com bubble,
14:45
Speaker 1: multiple bubbles in crypto. There was a green tech bubble.
14:49
Speaker 1: But now it's a decade plus later and all the
14:52
Speaker 1: things that they were rightly concerned about are all coming
14:56
Speaker 1: true and we are now reaping some of the benefit.
15:00
Speaker 1: But we're also now building on with sort of standing
15:02
Speaker 1: on the shoulders of giants as we and and to clarify,
15:05
Speaker 1: I believe that fund doubled over seven or ten years,
15:09
Speaker 1: not like it was a sinkhole, but compared to what
15:12
Speaker 1: it could have done. Had that money been invested elsewhere,
15:15
Speaker 1: it might have seen better returns, but it wasn't. I
15:18
Speaker 1: don't want to make it sound like it was a
15:19
Speaker 1: total loss. So the second question is you're making seed investments.
15:25
Speaker 1: How does that work if you want to bring one
15:27
Speaker 1: of those seeds to your firm, to Union Square ventures
15:30
Speaker 1: it from a public market. That sounds like it's compliance
15:35
Speaker 1: and conflict nightmare. You guys approach it different. We in
15:38
Speaker 1: our lp A, we can write checks up two hundred
15:41
Speaker 1: thousand dollars, so we can't make massive investments in startups.
15:45
Speaker 1: So all of the companies you mentioned a sub hundred
15:48
Speaker 1: thousand dollar investment in, and then the only one where
15:51
Speaker 1: I've invested more is Marvel Fusion. We can invest more
15:55
Speaker 1: once the fund has passed on something. So if the
15:57
Speaker 1: fund says we're not doing this, then we can best interesting.
16:01
Speaker 1: So along those lines, there are some venture firms that
16:04
Speaker 1: don't really seem to care a lot about valuations and
16:07
Speaker 1: others seem to focus on a little bit. How do
16:10
Speaker 1: you fall in that spectrum? Is valuation significant or is it? Hey,
16:16
Speaker 1: we're gonna make a hundred investments and of two or
16:18
Speaker 1: three work out the valuations are irrelevant. Now, we've definitely
16:22
Speaker 1: always been disciplined on valuation, and we've let a number
16:25
Speaker 1: of things go. Sometimes you let them go and they
16:27
Speaker 1: do grading and like, well, we could have made money
16:30
Speaker 1: if we had invested, and sometimes you're very happy you
16:32
Speaker 1: did that. Our approaches, we've always kept our fund size
16:36
Speaker 1: as small so we don't need to be in everything
16:38
Speaker 1: that's out there. Um, our latest funds are our core
16:42
Speaker 1: fund is two fifty million dollars. So these aren't big
16:45
Speaker 1: funds in the scheme of things when you have other
16:46
Speaker 1: firms that raised three eight fifteen billion dollars per fund.
16:50
Speaker 1: And as a result, if we think the price is
16:53
Speaker 1: too high, we can just find something else. So let's
16:56
Speaker 1: talk a little bit about some of those bigger funds.
16:58
Speaker 1: And I guess we'll hold off Bank off to the
17:01
Speaker 1: side because that was really aberrational. But do you end
17:05
Speaker 1: up when you have lots of ten and twenty billion
17:08
Speaker 1: dollar venture funds with too much capital chasing too few
17:12
Speaker 1: good deals. How does this impact the whole ecosystem that's
17:15
Speaker 1: out there. Largely, it's great for us because we're early
17:18
Speaker 1: stage investors, so you know, it means there's lots of
17:21
Speaker 1: money to come in and fund later rounds of the
17:23
Speaker 1: companies we've invested in, so we haven't really spent much
17:26
Speaker 1: of our time worrying about it. And then every once
17:28
Speaker 1: in a while these firms go, we're gonna go really early,
17:30
Speaker 1: and some of them do spread money early. But we
17:33
Speaker 1: find because with thesis driven and because we are opinionated
17:37
Speaker 1: on deals that we're really interested in, we you know,
17:40
Speaker 1: can win those deals. Uh. Sometimes they'll take a small
17:43
Speaker 1: check from somebody else along for the ride, but they
17:46
Speaker 1: know that we work with early stage companies, that we
17:48
Speaker 1: roll our sleeps, upt that we're involved, and that we
17:51
Speaker 1: have a thesis, and you know, we take the approach
17:54
Speaker 1: we'd rather disagree with founder and then not invest then
17:57
Speaker 1: sort of like be like, oh, well, whatever it is
17:59
Speaker 1: you want to do, Like, we have a thesis as
18:01
Speaker 1: to why we think this is interesting. Let's talk about this.
18:04
Speaker 1: If it's aligned, great, and obviously things may change after
18:07
Speaker 1: we've invested. We're not like stubborn, you know, um, but
18:10
Speaker 1: let's talk about why we are excited and if that
18:13
Speaker 1: aligns with you, that's great, and if it doesn't, let's
18:15
Speaker 1: go separate ways. Right, So we take a kind of
18:18
Speaker 1: I call it a high alpha approach investing. We'd rather
18:20
Speaker 1: have really upfront conversations about what we like and don't like,
18:24
Speaker 1: then sort of get married as it were. And it
18:26
Speaker 1: actually it's harder to get rid of the VC than
18:27
Speaker 1: is to get a divorce. So like, we think it's
18:30
Speaker 1: good to have these conversations up front, right, What about
18:33
Speaker 1: follow up rounds or some firms that will do seed
18:35
Speaker 1: round and then participate in a or b around. Is
18:38
Speaker 1: that something that well we we we reserve a lot
18:41
Speaker 1: of funds for follow on and we have a very
18:43
Speaker 1: um sort of I think sophisticated reserves methodology that we've
18:47
Speaker 1: honed over many fund cycles now where we actually build
18:50
Speaker 1: kind of a Monte Carlo analysis of the portfolio to
18:53
Speaker 1: see how much money we think we need to keep
18:55
Speaker 1: in reserve. But eventually, when the valuations get too high,
18:58
Speaker 1: the rounds get too larger, we don't follow on. We
19:01
Speaker 1: have a separate vehicle called the Opportunity Fund, where we
19:04
Speaker 1: sometimes write bigger checks into late state trounts and some
19:06
Speaker 1: of our portfolio companies, but not always. So let's talk
19:09
Speaker 1: a little bit about this book, The World after Capital,
19:13
Speaker 1: starting with what is technological non linearity. I like that phrase.
19:20
Speaker 1: The basic idea is that um every once in a
19:23
Speaker 1: while in humanity's history, we invent things that radically change
19:30
Speaker 1: what we as society have as a binding constraint on us.
19:34
Speaker 1: So let me make that very concrete. For hundreds of
19:37
Speaker 1: thousands of years, our ancestors were foragers. They were hunt
19:39
Speaker 1: to gather as they would go out and find things
19:42
Speaker 1: and eat berries and kill little squirrels. And then roughly
19:46
Speaker 1: ten tho years ago we had a bunch of inventions.
19:49
Speaker 1: We figured out that you could plant seeds, that you
19:51
Speaker 1: could irrigate them, that you could domesticate animals, that you
19:55
Speaker 1: could use the dune from the animals too, as a fertilizer.
19:58
Speaker 1: We figured all those things out and we got agriculture,
20:01
Speaker 1: and the constraints shifted from how much food can you
20:04
Speaker 1: find how much land arable land do you have. And
20:07
Speaker 1: when that constraint shifted, we changed just about everything about
20:11
Speaker 1: how humanity lives like. We went from being migratory to
20:14
Speaker 1: being sedentary. We went from very flat tribal societies to
20:18
Speaker 1: very hierarchical agrarian societies. We went from being clearly like polygamous, polyamorous,
20:26
Speaker 1: whatever you wanna call it to being monogamous ish um.
20:29
Speaker 1: We went from having religions where you know, everything was
20:34
Speaker 1: a spirit, a tree or rock, everything had a spirit
20:37
Speaker 1: and it. We went from that to theistic religions, where
20:39
Speaker 1: there was some defined number of gods. Then fast forward
20:43
Speaker 1: to a couple hundred years ago, we had so the Enlightenment.
20:46
Speaker 1: With the Enlightenment, we had big scientific breakthroughs, and we
20:49
Speaker 1: figured out how to dig up stuff out of the
20:52
Speaker 1: ground and burn it and create energy and make heat
20:55
Speaker 1: and electricity and all those things. And the constraint shifted again.
20:58
Speaker 1: It shifted from you know how much you have to
21:00
Speaker 1: how much physical capital can you create? How many machines
21:04
Speaker 1: can you build, how many buildings, roads, railroads, et cetera.
21:08
Speaker 1: And we changed everything yet again. And so now the
21:12
Speaker 1: point of the book is guess what we have to
21:14
Speaker 1: change everything yet again because capital. This is why the
21:17
Speaker 1: book is called the World. If a capital, capital is
21:19
Speaker 1: no longer the binding come straight. Instead, it's human attention,
21:21
Speaker 1: human attention. So that's the third grade shift is So
21:25
Speaker 1: we went from agricultural scarcity to having enough food, and
21:29
Speaker 1: we went from forger to a grarian so from food
21:32
Speaker 1: scarcity to land scarcity. Then we went from land scarcity
21:35
Speaker 1: to capital scarcity, and now we're going from capital scarcity
21:38
Speaker 1: to attentional scarcity. Capital is no longer scarce, so now
21:41
Speaker 1: attension is the new scarcity. Which there's a line in
21:45
Speaker 1: the book that really caught my eye. Attention is time
21:49
Speaker 1: plus intentionality. Explain that. Yeah, so speech just tells you
21:54
Speaker 1: how fast you're going. Velocity to tells you how fast
21:56
Speaker 1: you're going towards something, towards some destinations ne plus direction
22:01
Speaker 1: speed plus direction list velocity and the same as true
22:03
Speaker 1: for attention. Time just tells you how much time has elapsed.
22:06
Speaker 1: You know, two hours. Attention is what was your mind
22:11
Speaker 1: and your body doing during those two hours? Um, were you,
22:15
Speaker 1: you know, just scrolling doom, scrolling Twitter? Or were you
22:18
Speaker 1: like working on a solution to the climate crisis. So
22:22
Speaker 1: you say something about these transitions that really jarred me.
22:26
Speaker 1: Previous transitions like agriculture emerged over thousands of years and
22:30
Speaker 1: was incredibly violent. Industrial Age lasted over hundreds of years
22:36
Speaker 1: and also involved lots of violence and bloody revolutions and
22:41
Speaker 1: to world wars, which raises the obvious question, what sort
22:46
Speaker 1: of violence is the next transition? Based on attention scarcity
22:51
Speaker 1: potentially going to involve well at the moment, the leading
22:54
Speaker 1: candida is the climate crisis. We have known about it
22:57
Speaker 1: for literally hundreds of years actually, and we have refused
23:01
Speaker 1: to do enough about it. And so now we have
23:04
Speaker 1: entered the state where we're getting extreme heat events, we're
23:07
Speaker 1: getting extreme drought events. The food supply is definitely in question, uh,
23:12
Speaker 1: something that we have taken for granted for many years now.
23:15
Speaker 1: We've taken for granted that you can go to the
23:16
Speaker 1: store and buy food unless we really course correct very hard,
23:22
Speaker 1: very dramatically. And by dramatically, I mean the level of
23:25
Speaker 1: government activation that we had in World War two. And
23:27
Speaker 1: World War two we spent roughly fifty of g d
23:29
Speaker 1: P on the war effort. We need to spend roughly
23:31
Speaker 1: fifty of GDP on the climate crisis for several years
23:35
Speaker 1: sustained in order to actually avert it. So that suggests
23:39
Speaker 1: that you do think there's going to be some technological
23:43
Speaker 1: magic bullet gonna appear out of nowhere. Well, if you
23:46
Speaker 1: look at World War two, the government went to Ford
23:50
Speaker 1: and said we need you to build airplanes, not cars.
23:53
Speaker 1: And actually there's a chart in my book that shows
23:54
Speaker 1: that the output of cars dropped. We need to get
23:57
Speaker 1: to a similar point where we say there's certain things
23:59
Speaker 1: but just not going to do for a while, because
24:01
Speaker 1: we need to do these other things. There are great technologies.
24:04
Speaker 1: We don't need to invent some magic bullet that doesn't exist.
24:07
Speaker 1: We just need to build a lot of what we
24:09
Speaker 1: already know how to build. Like we need to build
24:10
Speaker 1: a lot of nuclear power plants. We need to build
24:12
Speaker 1: a lot of these ponds in the desert that can
24:14
Speaker 1: draw down carbon. There's a thousand and one different things
24:19
Speaker 1: that we need to build. We just need to take
24:20
Speaker 1: our physical capital and pointed at that. And when you
24:24
Speaker 1: do that at that scale, incredible things become possible. So
24:28
Speaker 1: during World War two, for a motor company built a
24:31
Speaker 1: planet was called the willow Run Facility, and it willow Run.
24:34
Speaker 1: They built the B seventeen Liberator bomber. Now that's a
24:37
Speaker 1: four engine bomber with lots of gun turrets to defend
24:41
Speaker 1: against fires. At peak production, they finished they finished one
24:46
Speaker 1: of these every hour. They finished a complete airplane every hour.
24:52
Speaker 1: And my point is, once we decide to take our
24:56
Speaker 1: attention and allocate our attention to what the problem is,
25:00
Speaker 1: we can read alright, our physical capital we have plenty
25:03
Speaker 1: of physical coupital. People say, oh, you can't build nuclear
25:05
Speaker 1: power plants fast enough. That's if you built them in
25:07
Speaker 1: peacetime mode. If you built them in wartime mode, you
25:09
Speaker 1: could build them very rapidly. So when you say this
25:12
Speaker 1: requires a substantial commitment of capital, let's put a dollar
25:16
Speaker 1: amount on that, or you talk half of GDP. So
25:19
Speaker 1: I'm half trillion dollars just in the US alone. Now,
25:23
Speaker 1: we just passed a climate bill arguably, um that was
25:28
Speaker 1: a couple of billion dollars, a hundred billion dollars maybe
25:31
Speaker 1: over ten years. And it was like pulling teeth. It
25:34
Speaker 1: was a miracle that just managed to skate through. And
25:37
Speaker 1: that's a fraction of a trillion dollars. How are you
25:40
Speaker 1: going to get ten x or a hundred x that?
25:43
Speaker 1: Do things have to get much worse before they get
25:45
Speaker 1: much better? Yeah? I mean there's a book about the
25:48
Speaker 1: climate crisis called Ministry for the Future Kim Stanley Robinson,
25:52
Speaker 1: and the book starts with a devastating heat event in
25:55
Speaker 1: India where tens of millions of people die. I don't
25:59
Speaker 1: know what it takes, but I can tell you it's
26:02
Speaker 1: only going to get worse. It's going to get a
26:03
Speaker 1: lot worse, and at some point, hopefully people enough people
26:07
Speaker 1: will wake up and say no, no, we really actually
26:09
Speaker 1: have to get into a wartime footing. So up till now,
26:14
Speaker 1: a huge swath of the population has been that's my
26:17
Speaker 1: grandkids problems? What what wakes them up? Is it that
26:20
Speaker 1: sort of event? I mean, you see what's happening in California,
26:23
Speaker 1: you see what's going on in lots of the United
26:26
Speaker 1: States with droughts. It seems like people are starting to
26:30
Speaker 1: pay attention. How absolutely. The Yale does an incredible survey
26:33
Speaker 1: of climate attitudes, and it is very clear that even
26:37
Speaker 1: in the US, which has been lagging on this, a
26:40
Speaker 1: significant majority of people believe that the climate crisis is real,
26:43
Speaker 1: that is caused by humans, and that government should do
26:46
Speaker 1: something about it. So I actually believe this is going
26:49
Speaker 1: from a kind of losing proposition for politicians to a
26:51
Speaker 1: winning proposition, and I think politicians need to lean much
26:54
Speaker 1: more into it. Most of them still aren't willing to
26:57
Speaker 1: acknowledge the full extent of this, and the physics of
27:01
Speaker 1: this crisis are extraordinary. So because of all the CEO
27:05
Speaker 1: two we've put in the atmosphere, the amount of heat
27:08
Speaker 1: that we're now trapping that used to radiate out of
27:11
Speaker 1: the space. Do you know how much heat it is?
27:13
Speaker 1: It's four Hiroshima sized nuclear bombs every second. It's insane
27:18
Speaker 1: that I read that in your book and I was like, no, no,
27:20
Speaker 1: he must be in every week, every second, every second. Now,
27:24
Speaker 1: imagine for a moment you had alien spaceships above Earth
27:27
Speaker 1: throwing four here she mus as nuclear bombs into our
27:30
Speaker 1: atmosphere every second. That would put us on a wartime place.
27:33
Speaker 1: And what will we do? Yeah, we would drop everything, right,
27:35
Speaker 1: we would be like, they're trying to kill us. We
27:37
Speaker 1: have to get rid of them. I mean, we made
27:39
Speaker 1: a movie about it called Independence Day. Four nuclear bombs
27:42
Speaker 1: every second and it's just every minute of every hour
27:46
Speaker 1: of every day. It's a mind boggling amount of heat.
27:50
Speaker 1: So there's a couple of other things in the book
27:51
Speaker 1: I wanted to touch on. Um you mentioned alien visitors
27:56
Speaker 1: will hold off on the Fermi paradox discussion because what
28:00
Speaker 1: he wants to hear me babbel about that. But one
28:03
Speaker 1: of the things I thought was kind of interesting is
28:06
Speaker 1: the transition of the nature of scarcity. You right, it
28:10
Speaker 1: changes the way we measure human effort. It makes it
28:13
Speaker 1: more difficult, and we need increasingly more sophisticated ways of
28:18
Speaker 1: providing incentives to sustain unnecessary level of effort. Flesh that
28:22
Speaker 1: out a little more so if you think of hunter gatherers, right,
28:26
Speaker 1: I mean, you can see the results of effort immediately,
28:28
Speaker 1: Like you go out to the forest, you have to
28:30
Speaker 1: come back with something or not. So it's very easy
28:32
Speaker 1: to create incentives like if you don't find something, go
28:35
Speaker 1: back out and come back with something, where you go hungry.
28:37
Speaker 1: Right when you go to agriculture, you have these you
28:40
Speaker 1: need to see, you need to take care of it,
28:42
Speaker 1: and you don't know how big a harvest you're gonna get,
28:43
Speaker 1: so you need a little more sophisticated incentives. And a
28:47
Speaker 1: lot of those incentives were often provided via religion, religions
28:50
Speaker 1: saying you have to apply yourself to this backbreaking work
28:52
Speaker 1: because it's the word work of the lord, etcetera. And
28:55
Speaker 1: then when we went over to capital, now it gets
28:58
Speaker 1: even more complicated because you might not see results of
29:01
Speaker 1: some effort for many, many years. I actually think when
29:04
Speaker 1: I say more sophisticate incentives, in the book, I talk
29:07
Speaker 1: a lot about just freeing up humans to pursue their
29:10
Speaker 1: interests to make it so that you can freely allocate attention.
29:15
Speaker 1: And I'm always very inspired by mathematics, like, you can't
29:18
Speaker 1: get rich as I'm working mathematician basically. I mean, yes,
29:21
Speaker 1: if you wind up going to Wall Street, you can,
29:23
Speaker 1: but if you actually keep working as a mathematicians, that's
29:25
Speaker 1: not a you know, there's also no patents, and you know,
29:29
Speaker 1: the only thing math works on recognition by peers. And
29:32
Speaker 1: there's some prices. There's like the famous Fields Medal, and
29:35
Speaker 1: there's some other prices. And yet the amount of math
29:38
Speaker 1: that's been produced over the last you know, a few decades,
29:41
Speaker 1: it's just mind blowing extraordinary. And I believe we need
29:45
Speaker 1: to bring that type of model to many, many more
29:48
Speaker 1: parts of the economy and parts of activities. So in
29:51
Speaker 1: a way, what all of world after Capital is about
29:54
Speaker 1: is how can we shrink all the explicitly incentivized economic
29:59
Speaker 1: activity where there's an explicit okay, you go to work
30:03
Speaker 1: and you get paid a wage kind of thing, and
30:05
Speaker 1: here's a market transaction. How can we shrink that and
30:08
Speaker 1: make room for things that are super super important but
30:12
Speaker 1: cannot have prices, cannot be economically incentivized. Let me give
30:16
Speaker 1: concrete examples of that. Obviously, we've talked about the climate crisis,
30:19
Speaker 1: but let's talk about death from above. Like every million
30:22
Speaker 1: years or so, the Earth gets hit by something very
30:24
Speaker 1: large out of space. That's very, very bad when it happens,
30:28
Speaker 1: But there's no market for allocating resources to that. There's
30:31
Speaker 1: no supply and demand for it. So we as humanity
30:35
Speaker 1: need to decide that this is a real problem and
30:37
Speaker 1: we ought to be working on it now, aren't we
30:40
Speaker 1: tracking various large observed asteroids? And we are, But the
30:45
Speaker 1: amount of effort we're putting into this relative to the
30:47
Speaker 1: size of the problem is minuscule. The number of people
30:50
Speaker 1: who sort of truly globally work full time on this
30:54
Speaker 1: is a tiny fraction of the people we actually should have.
30:57
Speaker 1: And we're also not working sufficiently on Like what will
30:59
Speaker 1: we do if we detective one that's clearly headed for us? Right? Well,
31:03
Speaker 1: you send Bruce Willis up exactly he takes it. He does.
31:07
Speaker 1: I mean, it's not unknown. We know the regular major
31:12
Speaker 1: extinction events. There's a real interesting theory that as the
31:16
Speaker 1: Sun goes around the galaxy and passes over and above
31:20
Speaker 1: the galactic plane that affects the asteroid belt out and
31:23
Speaker 1: the famous sort cloud a lot of these objects, which
31:27
Speaker 1: is full three six around. So we know all of this.
31:30
Speaker 1: And here's the interesting thing. When we went from the
31:34
Speaker 1: Graian Age to the Industrial age, we didn't get rid
31:36
Speaker 1: of agriculture. This agriculture today, right, we all eat food
31:39
Speaker 1: that's grown in agriculture. But what we did is we
31:41
Speaker 1: shrunk how much human attention is required to do agriculture,
31:44
Speaker 1: and we took it from being like eight percent of
31:46
Speaker 1: human attention to like sub ten percent. It's less than
31:49
Speaker 1: two percent in the United States. It's tiny. So what
31:53
Speaker 1: I want to do is let's do the same with
31:54
Speaker 1: the rest of the economic sphere. I'm not an anti capitalist,
31:57
Speaker 1: I'm not a d growth person. I'm not suggesting we
32:00
Speaker 1: should get rid of markets. I'm just saying we should
32:02
Speaker 1: compress market based activity from observing much of human attention
32:05
Speaker 1: to observing maybe thirty percent of human attention, and we
32:08
Speaker 1: should free the rest up to work on these incredibly
32:11
Speaker 1: important things. Some of them are threats and some of
32:13
Speaker 1: them are opportunities, right, opportunities to cure cancer, opportunity to
32:18
Speaker 1: create incredible wildlife habitats, restore those wildlife habitats, opportunity to
32:22
Speaker 1: travel to space. I mean all these opportunities that were
32:25
Speaker 1: not paying attention to because they're not again, they're not
32:28
Speaker 1: really market price based and can't be market price based.
32:31
Speaker 1: There's just no prices for them. So the conclusion of
32:34
Speaker 1: the book had a list of action goals, which was
32:37
Speaker 1: not what I was expecting in a book on venture
32:40
Speaker 1: capital and the world after capital. Mindfulness, climate crisis, democracy, decentralization,
32:48
Speaker 1: improving learning, and humanism. Address whichever those you feel like. Well,
32:55
Speaker 1: these are all core components of how to have a
33:00
Speaker 1: hopefully a transition that's not a violent transition. Right. These
33:04
Speaker 1: are all about how could we get out of the
33:06
Speaker 1: industrial age into the knowledge age without some kind of
33:10
Speaker 1: colismic event, without a world war, without killing billions of
33:13
Speaker 1: people through the climate crisis. Right. They're also all components
33:17
Speaker 1: of what a knowledge age society might look like. Right,
33:20
Speaker 1: So let's talk about mindfulness for a second. We're constantly
33:24
Speaker 1: assaulted with new information. Now this you know, our brains
33:28
Speaker 1: evolved in a in an environment where when you saw
33:30
Speaker 1: a cat there was an actual cat. Now there's an
33:32
Speaker 1: infinity of cat pictures. So if you don't work on
33:36
Speaker 1: how you how much you're in control of your mind.
33:39
Speaker 1: External sources will control your mind. So mindfulness, which is
33:43
Speaker 1: a much abused word, but it has become much more
33:45
Speaker 1: important in the world where we're constantly assaulted by information flows. Right, Um,
33:50
Speaker 1: let's talk about humanism for a moment. Humanism is about
33:54
Speaker 1: recognizing that humans are the prime movers on this planet.
33:58
Speaker 1: We are the ones who brought about the climate crisis.
34:00
Speaker 1: We're the ones who could, in theory, solve it or
34:02
Speaker 1: wind up getting wiped up by it. And it's about
34:04
Speaker 1: this idea that you know, with great power it comes
34:07
Speaker 1: great responsibility, and so we are responsible for the whales,
34:11
Speaker 1: not the whales. For us, there is at the moment,
34:13
Speaker 1: because we're in this transition period already, and because things
34:16
Speaker 1: are going so poorly for so many people in this transition,
34:19
Speaker 1: there's now a flight back to religion. There's a flight
34:22
Speaker 1: to populism, and a big part of the book is
34:25
Speaker 1: about no, there is a secular alternative way of thinking
34:29
Speaker 1: about society that embraces science, that embraces progress, that embraces
34:36
Speaker 1: humans and all types of humans, and that recognizes that
34:40
Speaker 1: we are first and foremost human and only secondarily are
34:43
Speaker 1: we American or Russian, or male or female or something else.
34:46
Speaker 1: You know, these are all secondarily but primarily where humans
34:49
Speaker 1: and humans are fundamentally different from all the other species.
34:53
Speaker 1: Quite fascinating. So let's talk about the current state of
34:58
Speaker 1: the world for venture capitalists. We've seen valuations come way
35:02
Speaker 1: down for public companies. They're pretty reasonably price these days,
35:06
Speaker 1: about sixteen times for the SMP five. That's historically more
35:11
Speaker 1: or less average. Where do you see the state of
35:13
Speaker 1: the world in early stage valuations? How are they holding up?
35:18
Speaker 1: A year ago, late stage valuations had gone just bonkers.
35:22
Speaker 1: Tell us a little bit about what's going on today.
35:25
Speaker 1: The correction always basically is a trickle down type of correction.
35:28
Speaker 1: It happens very rapidly in the public markets. Then you
35:31
Speaker 1: still get some high price private rounds that either we're
35:33
Speaker 1: in the works or they have a lot of structure.
35:36
Speaker 1: On the later stage markets, you know, it's it's a
35:39
Speaker 1: there's a headline number, but then nobody talks about all
35:41
Speaker 1: the warr and coverage that's behind the scenes. So and
35:45
Speaker 1: then the early stage valuations tend to sort of lag
35:48
Speaker 1: behind all of that. But we're seeing early stage valuations
35:50
Speaker 1: come down. Um and as a firm, we've always been
35:54
Speaker 1: disciplined on valuations, so we we just let a lot
35:56
Speaker 1: of things go where we just thought it was are
35:58
Speaker 1: they down off the peak or are they cheap and attractive?
36:02
Speaker 1: The down off the peak. Whether they're cheap or attractive,
36:05
Speaker 1: I think, you know, time will tell. But we are
36:08
Speaker 1: back in a situation where you know, there are seed
36:11
Speaker 1: deals getting done that the low ten million dollars certainly
36:15
Speaker 1: below twenty million dollars, and you know seed rounds that
36:19
Speaker 1: have a reasonable size. So you know, for a while
36:21
Speaker 1: we were seeing these ten million dollars seed rounds um
36:25
Speaker 1: sounds pricey, Yeah, and and that's not happening anymore. But
36:30
Speaker 1: even scriventest, we've also always tried to basically be at
36:33
Speaker 1: the next era, at the next thesis, and evolve our
36:37
Speaker 1: thesis before everybody else gets there, and once everybody else
36:39
Speaker 1: gets there, trying to evolve our thesis. So, for example,
36:42
Speaker 1: in the Climate Fund, we've made any number of reasonably
36:44
Speaker 1: pressed investments, very reasonably presced. So I always assumed it
36:49
Speaker 1: was tied to the public markets. But sometimes you just
36:52
Speaker 1: don't realize when you have a good couple of years
36:55
Speaker 1: in a row in the public markets, like we saw
36:57
Speaker 1: in the tens, pretty much straight up through one. You
37:02
Speaker 1: see that impact in what people are looking for, what
37:04
Speaker 1: sort of deals get done, and and valuations generally. I
37:08
Speaker 1: always find it relatively surprising how much private early stage
37:13
Speaker 1: valuations are tied to public markets, because right, but but
37:18
Speaker 1: our holding periods are five, eight, ten years, and so
37:21
Speaker 1: like what's the current public and so there's a couple
37:24
Speaker 1: of different explanations. One obviously, it's just investor sentiment, right,
37:28
Speaker 1: you know, when investors are like bearish because of what
37:31
Speaker 1: they're seeing in the public markets, they take a bearish
37:33
Speaker 1: attitude towards their own investing. We try, as soon as graventest,
37:36
Speaker 1: we try to have a pretty steady pace as one
37:39
Speaker 1: way of contracting our own sort of you know, whatever
37:42
Speaker 1: our own emotions may be about the public markets. There is, however,
37:46
Speaker 1: another effect that sometimes is underestimated, which is that the
37:49
Speaker 1: people who give money interventure funds, so these are pension
37:52
Speaker 1: funds and endowments and so forth, they have a certain
37:56
Speaker 1: whips of from the public markets because when they're feeling
37:58
Speaker 1: flush on the public markets, then the private allocation, you know,
38:01
Speaker 1: as a percentage of their overall portfolio. They have a
38:03
Speaker 1: certain target in mind. Now, when the public markets come
38:06
Speaker 1: down a lot. All of a sudden, they're overallocated, so
38:08
Speaker 1: they want to pull back. So there is a mechanism
38:11
Speaker 1: by which the current public markets transmit into the private markets.
38:15
Speaker 1: There's a real financial mechanism. There's a psychological mechanism and
38:18
Speaker 1: a real financial mechanism by which some transmission, some contagion
38:21
Speaker 1: basically happens from the public markets into private But it
38:24
Speaker 1: doesn't make very much sense. Like if people were sort
38:27
Speaker 1: of more cognizant of both the emotional reaction and this mechanism,
38:30
Speaker 1: they'd be like, well, yeah, but innovation is happening at
38:33
Speaker 1: some pace in some area. There's some innovation that we
38:35
Speaker 1: should be funding that innovation. So I'm just I'm just
38:38
Speaker 1: making notes, and investors are irrational, so profound insight right here. Yeah,
38:46
Speaker 1: you've never heard this one before. So to put that
38:49
Speaker 1: into a little context, one very founder friendly deals. Now
38:56
Speaker 1: it seems like a little more investor friendly, fair assessment
38:59
Speaker 1: or not quite there yet. Well, when it comes to
39:02
Speaker 1: found a friendly versus investor friendly, there's a lot more
39:05
Speaker 1: to a deal than valuation is all the other terms.
39:09
Speaker 1: And while I believe we will see a h correction
39:13
Speaker 1: on valuation, that's pretty significant. I don't think we're gonna
39:18
Speaker 1: go back to where venture capital was twenty or thirty
39:21
Speaker 1: years ago that had all these super draconian terms. Certainly
39:25
Speaker 1: even at the early stage, even at the early stage,
39:27
Speaker 1: there were all these like there were redemption provisions in
39:30
Speaker 1: early stage deals. I don't think that's going to come back. Um,
39:34
Speaker 1: we are not fans of structure in later stage deals.
39:37
Speaker 1: Like just to give a good example, UM, And I
39:39
Speaker 1: was still on the board of Twilio. Um, Tweli, you
39:42
Speaker 1: had the option of doing a totally clean, no structure
39:45
Speaker 1: around and called it a billion one and a highly
39:48
Speaker 1: structured round with like you know, we're gonna have a
39:51
Speaker 1: full ratchet into an I p o at a billion five.
39:54
Speaker 1: And I was, you know, some of the other investors
39:56
Speaker 1: at the table really wanted the billion five number, bees
39:59
Speaker 1: at the bigger headline. And I talked to Jeff and
40:01
Speaker 1: I said, just make any sense. You don't actually know
40:04
Speaker 1: what you deal is until many years. Just take the
40:06
Speaker 1: deal where you know what the deal is today, and
40:08
Speaker 1: you know what the deal is a year from now
40:09
Speaker 1: and tiears from now, because it's not going to change
40:10
Speaker 1: based on circumstances. And so Jeff took the clean deal
40:14
Speaker 1: and that enabled Twiley to go public um when the
40:16
Speaker 1: I p O window reopened, whereas at the billion five
40:19
Speaker 1: deal they wouldn't have been able to go public. And
40:21
Speaker 1: it worked in probably well for Twiley to become a
40:23
Speaker 1: public company. Really interesting. So since we're comparing early stage
40:27
Speaker 1: investments to the public world, lately, everybody has been looking
40:32
Speaker 1: at different sectors. The past year, energy has done well,
40:34
Speaker 1: technology not so much. Within venture, do you see that
40:38
Speaker 1: same sort of segmentation different sectors have different Well, we
40:42
Speaker 1: we were basically the first sort of venture firm to
40:45
Speaker 1: have a dedicated climate fund, and now many of the
40:49
Speaker 1: venture firms are falling suit, either adding a climate pocket
40:52
Speaker 1: to the existing funds or a climate thesis or you know,
40:55
Speaker 1: some people call a sustainability fund. Hours is very focused
40:58
Speaker 1: on climate, so for instance, we don't deal with water waste.
41:01
Speaker 1: It's strictly about atmospheric carbon. So there's a lot money
41:06
Speaker 1: rotating into that sector. There's still a healthy set of
41:09
Speaker 1: activity around Web three so you know with three, there's
41:12
Speaker 1: still cryptow blockchain all that. Yeah, there's still a healthy
41:15
Speaker 1: set of activity. I do think that certain kind of
41:19
Speaker 1: software companies that had founded very easy to raise money.
41:23
Speaker 1: I think of finding it a lot harder, just because
41:25
Speaker 1: people have looked at and said, wow, I think we've
41:28
Speaker 1: reached some stage of normalization in this market. You know, like,
41:32
Speaker 1: not everything in this market is going to be a
41:34
Speaker 1: fifty billion dollar outcome, and there's going to be many
41:36
Speaker 1: much smaller outcomes, and so we need to adjust accordingly.
41:39
Speaker 1: And also, many of these markets had just too many
41:41
Speaker 1: companies raised venture capital doing basically more or less the
41:44
Speaker 1: same thing. So it was easy to raise money for
41:47
Speaker 1: a fund today a little more challenging even if you're
41:51
Speaker 1: a pretty decent sized VC with a ten twenty year history.
41:55
Speaker 1: Are they having difficulty going back to their clients saying, hey,
41:58
Speaker 1: we're doing another billion dollars. You know, I think that
42:02
Speaker 1: we will only see a year from an hour or
42:04
Speaker 1: two years from Uh. There were a lot of funds
42:07
Speaker 1: that had put out a lot of money very very rapidly. Uh,
42:10
Speaker 1: and we'll see just how big the hangover is, but
42:13
Speaker 1: we won't know that for some time. So some of
42:15
Speaker 1: the folks who give advice to founders, like Jamathan and
42:19
Speaker 1: Jason and the crew at the al In podcast, they've
42:22
Speaker 1: been talking about preaching really about cutting costs and reducing
42:26
Speaker 1: your burn rate and get ready for a tough year
42:29
Speaker 1: or two. How do you see this environment? Is that
42:32
Speaker 1: good advice or do you really have to, you know,
42:36
Speaker 1: go all out and get more funding as opposed to
42:39
Speaker 1: trying to make a more modest burn rate last longer.
42:43
Speaker 1: This very little, one size fits all advice that makes
42:45
Speaker 1: sense and fair. Nonetheless, we held a call earlier this
42:50
Speaker 1: year for all of our portfolio companies UM and we said,
42:53
Speaker 1: this really is a big adjustment, and it's not a
42:57
Speaker 1: one or two months blip does It's a long term adjustment.
43:01
Speaker 1: And it was great because we had some CEOs in
43:05
Speaker 1: our portfolio who had managed through the implosion of the
43:07
Speaker 1: dot com bubble, and they spoke about just how difficult
43:10
Speaker 1: the funding environment can get. So generally speaking, we did
43:14
Speaker 1: a lot in twenty one because we saw this coming.
43:17
Speaker 1: To me, the biggest sign of the bubble really was
43:21
Speaker 1: that we really were reaching the tail and was all
43:23
Speaker 1: these incubation efforts that we're being raised. And I knew
43:25
Speaker 1: this because I had raised money into an incubator towards
43:28
Speaker 1: the end of the dotcom bubble, and I think when
43:30
Speaker 1: investors think, oh, I don't even need the entrepreneur, I
43:32
Speaker 1: can just start the company myself. That's kind of when
43:34
Speaker 1: you know that it's gotten too easy, right, and that's
43:37
Speaker 1: not gonna last. So in twenty one, we took a
43:39
Speaker 1: lot of liquidity, we sold a lot of things that
43:41
Speaker 1: we were able to sell, and we told all of
43:43
Speaker 1: our portfolio companies to raise money. And so we last year. Yeah, well,
43:49
Speaker 1: it's it's best to do things before a right, So
43:53
Speaker 1: as a result, we have very few companies in our
43:56
Speaker 1: portfolio that need to raise We have some, but we
43:58
Speaker 1: have very few. And then you know, at the beginning
44:00
Speaker 1: of this year, we told everybody who had raised successfully,
44:02
Speaker 1: you've got to make this money last much longer than
44:04
Speaker 1: you thought when you raised it. And so yes, absolutely, Um,
44:09
Speaker 1: you know, companies were operating with very inefficient growth because
44:12
Speaker 1: it was easy to fund inefficient growth. You could be
44:16
Speaker 1: burning one to three four million dollars a month and
44:20
Speaker 1: you know, if you were growing fortent, that was good enough. Um,
44:24
Speaker 1: that's not going to be the case. So you'll either
44:27
Speaker 1: growing very fast or you have something very compelling, when
44:30
Speaker 1: which case you can raise money, or you are growing,
44:33
Speaker 1: you know, but you are growing very very efficiently, right,
44:37
Speaker 1: So being in this sort of fifty pc growth, but
44:40
Speaker 1: you are super inefficient. That's gonna be a really tough
44:42
Speaker 1: place to be, alright. So before I get to my
44:46
Speaker 1: favorite questions, I have two questions I've been sitting on
44:50
Speaker 1: sort of from the book and somewhe from your blog
44:53
Speaker 1: continuations that I want to hear where you go with this.
44:56
Speaker 1: And the first one is a quote from the book
44:59
Speaker 1: mal this could not foresee the scientific breakthrough that enabled
45:04
Speaker 1: the industrial revolution. I think you let him off the
45:07
Speaker 1: hook a little too easy. It's just an abject failure
45:11
Speaker 1: of imagination, and you are in the imagination business. The Malthusians.
45:17
Speaker 1: Weren't these folks just unable to imagine any sort of
45:21
Speaker 1: progress or technological development. Well, we have had more progress
45:28
Speaker 1: and more technological development than people were able to imagine.
45:32
Speaker 1: I think conversely, we're now in the opposite trap. We
45:35
Speaker 1: can't imagine that things could get really, really bad. We
45:39
Speaker 1: can't imagine that the climate crisis could disrupt our food
45:42
Speaker 1: supply to the point where billion people start. We simply
45:44
Speaker 1: can't wrap our head around this idea. So I think
45:47
Speaker 1: we're in the opposite trap at the moment. We've we've
45:49
Speaker 1: been so used to the successive progress, and we have
45:52
Speaker 1: so neglected the engines that produce progress that I think
45:57
Speaker 1: we're in the opposite trap at the moment. What what
45:59
Speaker 1: are the other engines? Is it early stage investing from
46:03
Speaker 1: governments when the project has a ten and twenty year
46:06
Speaker 1: r O I that the private science want to do it?
46:09
Speaker 1: Foundational research, we've not had a true breaks through in
46:13
Speaker 1: science since quantum mechanics. It's a hundred years ago, so
46:18
Speaker 1: general relativity and quantum mechanics a hundred years ago. Now,
46:21
Speaker 1: we've made some progress in biology. Biology, we've had some
46:24
Speaker 1: really good progress, but you know, you're talking fundamental science.
46:30
Speaker 1: Fundament like I immediately think of semi conductors was a
46:33
Speaker 1: giant Oh no, incredible progress, but fundamental science we've not
46:36
Speaker 1: had a true big unlock in a hundred years now.
46:41
Speaker 1: I think when we talk about engine of progress, this
46:43
Speaker 1: also how hard is it to start a business? How
46:46
Speaker 1: many regulations do you have to comply with? How expensive
46:49
Speaker 1: is it to comply with those regulations. We're also talking
46:53
Speaker 1: about we're still subsidizing oil and gas globally to the
46:57
Speaker 1: tune of trillions of dollars subsizing oil and gas. It's crazy,
47:02
Speaker 1: which by the way, helps to explain why so many
47:04
Speaker 1: people have an incentive to either question the impact, the
47:09
Speaker 1: source or the reality of climate change. Yes, there's forces
47:13
Speaker 1: at work there, and and so I believe we're in
47:15
Speaker 1: this sort of opposite trap today. And and you know,
47:18
Speaker 1: people like to make fun of Greta Thunberg, but young kids,
47:23
Speaker 1: young activists, understand the severity of the climate crisis in
47:29
Speaker 1: a way that most adults don't seem to be willing
47:32
Speaker 1: to accept. Right, I don't. I don't think climate change
47:35
Speaker 1: is gonna impact my life. You know, I'm sixty. I'm
47:39
Speaker 1: I'm going to run out the clock someone in our age.
47:42
Speaker 1: The reality is you're not. You're not going to escape
47:45
Speaker 1: You and I are not going to escape this. It's here,
47:48
Speaker 1: it's now, and it's only going to get worse. I
47:50
Speaker 1: don't doubt that for a second. But and here's the
47:53
Speaker 1: here's the thing I think I challenge. We could live
47:55
Speaker 1: in this amazing, incredible future, Like wouldn't you rather live
47:59
Speaker 1: in a city that has mostly electric or all electric
48:02
Speaker 1: cars in it? Like the air would be so much better.
48:05
Speaker 1: Wouldn't you rather live in the world that has huge
48:09
Speaker 1: like think of all the Midwest instead of growing corn
48:13
Speaker 1: to feed cows, super inefficient if we can grow the
48:17
Speaker 1: meat with the cows in the vat. Instead, we could
48:19
Speaker 1: have like incredible forests, we could have incredible wildlife areas
48:23
Speaker 1: in these airs, Like we could have this amazing, incredible future.
48:27
Speaker 1: We could have energy out of the wazoo. If we
48:28
Speaker 1: build more nuclear power, electricity could basically be almost free.
48:32
Speaker 1: So we have this amazing thing we can go. Instead,
48:35
Speaker 1: we're headed for this complete disaster, and we're mostly like,
48:40
Speaker 1: I think that's a fair assessment. I think you definitely
48:43
Speaker 1: have that, And I certainly see people my generation absolutely
48:49
Speaker 1: think it's not going to impact them more minimum impact.
48:52
Speaker 1: It's really their grandkids problem. Yeah, And it's just that's
48:55
Speaker 1: totally utterly wrong. Alright. One other curveball I have to
48:58
Speaker 1: ask you about, which in you've all know ah Harari
49:02
Speaker 1: who says in sapiens, all value systems are based on
49:07
Speaker 1: equally valid subjective narratives and humans have no privileged position
49:13
Speaker 1: as a species. You say, he's wrong. Explain not just wrong,
49:17
Speaker 1: it's completely dangerous because it opens the door to absolute
49:20
Speaker 1: moral relativism. It's sort of like, well, if you believe that,
49:23
Speaker 1: then you know the isis narrative is just as valid.
49:27
Speaker 1: You know, um, and I just think that's wrong. And
49:30
Speaker 1: I do think there's an objective thing, which is humans
49:33
Speaker 1: have knowledge. And by knowledge, I mean I can read
49:36
Speaker 1: a book today that somebody who else wrote in some
49:39
Speaker 1: other part of the world a thousand years ago. Right.
49:42
Speaker 1: No other species on the planet has this. I mean,
49:45
Speaker 1: other species have amazing things about them, but none of
49:47
Speaker 1: them has knowledge. And that puts us in a privileged position.
49:50
Speaker 1: By the way, privilege comes with obligation. That's usually what
49:54
Speaker 1: it used to mean. Today we think of privilege just
49:56
Speaker 1: let's you do whatever you want, But it used to
49:58
Speaker 1: mean that you had real obligations, right, And I believe
50:01
Speaker 1: because we have the power of knowledge, we have real
50:03
Speaker 1: obligations to other species. Other species don't have much of
50:06
Speaker 1: an obligation to us, but we have an obligation to them.
50:08
Speaker 1: And the interesting thing about what you said is, not
50:10
Speaker 1: only does no other species have the ability to access
50:14
Speaker 1: anything anybody has written any time in history, pretty much
50:18
Speaker 1: this is the first generation that had access that in
50:21
Speaker 1: that way, across pretty much across the whole board. Well,
50:24
Speaker 1: this is the amazing thing about digital technology, right. We
50:26
Speaker 1: could use it to make all the world knowledge accessible
50:30
Speaker 1: to everybody in the world, and great things could come
50:32
Speaker 1: from that, right. So there's some people like Ellen Musk
50:34
Speaker 1: and others who are like, oh my god, the population
50:37
Speaker 1: is gonna, you know, decrease a lot, and that will
50:39
Speaker 1: be bad. I'm like, no, we have eight billion people
50:42
Speaker 1: at the moment. Peak population at present trajectory might be
50:45
Speaker 1: eleven billion, although if we don't get in top of
50:46
Speaker 1: the climate crisis, it will decrease actually rapidly. But we're
50:50
Speaker 1: making such poor use of it. Why because so many
50:52
Speaker 1: people don't have access to knowledge, don't have a shot.
50:55
Speaker 1: I always love the story of Ramanuja and the famous
50:57
Speaker 1: mathematician who was to send a letter to Hardy, and
50:59
Speaker 1: Hardy like, we should bring this guy over to England
51:02
Speaker 1: and he wanted up being a very productive mathematician. There
51:05
Speaker 1: are Einstein's and Remanue Jones and Eleanor Ostrom's and Marie
51:11
Speaker 1: Carries all around the world today and we're not giving them.
51:16
Speaker 1: So we're vastly undertapping human potential. And we can use
51:19
Speaker 1: digital technology to change that and to give everybody access.
51:22
Speaker 1: And that's one of the things, one of the great
51:24
Speaker 1: opportunities that we have in this transition to the knowledge
51:26
Speaker 1: age quite quite fascinating. So let me jump to my
51:30
Speaker 1: favorite questions that I ask all of my guests, starting
51:34
Speaker 1: with tell us, what kept you entertained over the past
51:37
Speaker 1: couple of years? What have you been watching or or
51:40
Speaker 1: listening to? I really don't watch much um at the moment.
51:43
Speaker 1: The only thing I watched with any kind of regularity
51:45
Speaker 1: is to being Hastenfelder's YouTube series called Science without the Gobbledegook.
51:51
Speaker 1: I'll take a look at that. I'm a giant fan
51:54
Speaker 1: of YouTube premium, and I'm always astonished that people I
51:57
Speaker 1: know who are YouTube junkie spring for the eight bucks
52:01
Speaker 1: a month to pull out commercials and distractions. But YouTube
52:05
Speaker 1: is just endless rabbit hole. Well, YouTube is an example
52:10
Speaker 1: of the best and the worst of the Internet all
52:11
Speaker 1: in one place. Right, There's so much amazing knowledge, like
52:15
Speaker 1: Sabina's video, it's very tassium. I mean, there's you could
52:18
Speaker 1: learn almost anything from how to fix your dishwasher to
52:21
Speaker 1: how you know the theory of general relativity works. Um.
52:24
Speaker 1: At the same time, YouTube is also this place where
52:26
Speaker 1: tons of people you know become radicalized or red pilled
52:29
Speaker 1: or whatever it is because the algorithm. The algorithm has
52:33
Speaker 1: the wrong objective function, right, It's objective functions, engagement, it's
52:36
Speaker 1: not lifting people up. Tell us about some of your
52:39
Speaker 1: mentors who helped shape your career. I was super super
52:44
Speaker 1: fortunate when I was at early teenager. We talked about this.
52:46
Speaker 1: When I first fell in love with computers. I lived
52:49
Speaker 1: in a relatively small village in Germany, UM, and there
52:52
Speaker 1: was one computer science student there who was maybe ten
52:55
Speaker 1: years older than I was, and he just spend time
52:58
Speaker 1: with me, and he gave me his books, and he
53:02
Speaker 1: gave me his floppy disks with software, and he helped me.
53:06
Speaker 1: UM sort of understand all this, and I'm forever grateful
53:10
Speaker 1: to add Sturgen Gunta wherever you are in the world,
53:14
Speaker 1: that's really interesting. UM. Have you spoken to him any
53:17
Speaker 1: time recently? No, because I haven't been able to find him.
53:19
Speaker 1: He's basically he seems to have disappeared. Well, if you're listening,
53:23
Speaker 1: reach out to Albert tell us. We mentioned a number
53:26
Speaker 1: of books. Tell us about some of your favorite and
53:28
Speaker 1: what you're reading right now. Favorites, I would say, Um,
53:33
Speaker 1: David Deutsch The Beginning of Affinity is definitely one of
53:36
Speaker 1: my favorite. Just started that because of you. I'm reading
53:39
Speaker 1: at the moment a book by um Ada Palmer called
53:44
Speaker 1: Perhaps the Stars. It's the fourth book in a serious
53:48
Speaker 1: called the Terra Ignota series. She's a professor at the
53:50
Speaker 1: University of Chicago. What sort of advice would you give
53:54
Speaker 1: to a recent college grad who was interested in a
53:56
Speaker 1: career in either entrepreneurship or venture capital. Develop a mindfulness practice,
54:02
Speaker 1: you know, whatever works for you. Um, whether that's yoga, running,
54:07
Speaker 1: For me, it's conscious breathing. I just think it's such
54:10
Speaker 1: a superpower not to get hijacked by your emotions. It's
54:13
Speaker 1: a true superpower. And the more humans can cultivate it,
54:16
Speaker 1: the more we can achieve. That's that's really really intriguing.
54:20
Speaker 1: And our final question, what do you know about the
54:23
Speaker 1: world of venture today that you wish you knew thirty
54:26
Speaker 1: or so years ago when you were first getting started.
54:28
Speaker 1: There will always be another bubble. There will always be
54:31
Speaker 1: another bubble. That's amazing. Just human nature can't be avoided.
54:37
Speaker 1: And what should we do in anticipation of during and
54:41
Speaker 1: after bubbles. We should acknowledge that they will come, that
54:45
Speaker 1: they're part of how we operate, that you can make
54:48
Speaker 1: money before, during, and after. There you go really really
54:53
Speaker 1: fascinating stuff. We have been speaking with Albert Venner. He
54:57
Speaker 1: is managing partner at Union Square Ventures. If you enjoy
55:02
Speaker 1: this conversation, well, be sure and check out any of
55:04
Speaker 1: our previous four hundred or so discussions we've had over
55:08
Speaker 1: the past eight years. You can find those at iTunes, Spotify,
55:12
Speaker 1: or wherever you get your favorite podcast from. We love
55:15
Speaker 1: your comments, feedback and suggestions right to us at m
55:20
Speaker 1: IB podcast at Bloomberg dot net. Sign up from my
55:23
Speaker 1: daily reading list at ridals dot com. Follow me on
55:27
Speaker 1: Twitter at rid Halts. I would be remiss if I
55:30
Speaker 1: did not thank the crack team that helps put these
55:32
Speaker 1: conversations together each week. Sarah Livesey is my audio engineer.
55:37
Speaker 1: Sean Russo is my head of research. Paris Wald is
55:41
Speaker 1: my producer. Atico val Brand is my project manager. I'm
55:45
Speaker 1: Barry rich Halts. You've been listening to Masters in Business
55:49
Speaker 1: on Bloomberg Radio.