Derek Zanutto General Partner CapitalG on Covid Crisis for Startups

PEMO: Derek. Thanks so much for joining us today. I was wondering if you could tell me a little bit about what you guys do at capital G, what sort of investments you like to look at?

DEREK: Absolutely, absolutely. And thank you for, uh, for making time today. That was great to connect. So, so capital G you know, we’re, Alphabet’s independent growth fund. Um, and our mandate is to go invest in companies that have established product market fit and are ready to scale. And we provide, you know, both in house and alphabet Y expertise to help those companies and those entrepreneurs achieve their growth potential. Um, to date, as an example, we’ve leveraged over 2000 Googlers over the past few years to help provide support to our portfolio companies. Um, over that time, we’ve deployed over $2 billion into businesses and currently have a, roughly 35 active portfolio companies, um, in our, in our, um, portfolio. Um, and our mandate is, and our strategy really is to be pretty selective with where we invest our time and resources. So for us in any given year, kind of finding four to five new companies to invest in is a good year.

DEREK: And we do that deliberately so that we can have a very concentrated portfolio where every investment matters to us. And we can have enough bandwidth across the team to really lean in with sort of the spoke engagements to really find the right resources within alphabet and Google to help our entrepreneurs and executive teams scale their businesses, um, in terms of what that means from a focus perspective. Um, we, we, we spend our time both covering enterprise security, um, and enterprise software, and then also more consumer companies. So both B2B NBDC, um, efforts, um, within the BDC side, we’ve been big investors in companies like Airbnb, convoy, credit karma, um, Duolingo Glassdoor and others, many others. Um, and on the B2B side, you know, big investors and early backers of companies like CrowdStrike, Looker, uh, Stripe UI path, as you scaler among others.

PEMO: I understand that you’ve been really successful in a lot of your investments. What’s the secret of your success as an investor,

DEREK: You know, uh, and yeah, it’s, uh, you know, in investing is a super tough and humbling business. Um, I, uh, I think there is a lot of incredible investors out there that I personally learned from, and that I look up to as mentors in my career. And I think, you know, the, the, in my view investing is, is obviously part art, part science. Um, and it’s a lot about pattern recognition and being willing to be an active learner, um, throughout your career. You’re never, you’re never done learning about a new category, a new company, a new trend, a new theme. And so from my perspective, the coolest part about being an investor is that you get paid effectively to learn something new every day, um, in a really dynamic environment. Um, and you get to you not only kind of make, um, hypotheses about the future state of the world, but then also get, uh, invest capital behind those hypotheses and then help the people who are actually, you know, the entrepreneurs out there and their teams are actually out there building companies and changing society and changing the way business gets done.

DEREK: You gotta be, you know, their partners in their journey and try to help them along the way with resources, your own network, um, that you can bring to bear as a, as they look to build a businesses and, and change, um, you know, the technological landscape. So I think that’s, it’s super rewarding, um, to, to in the central privilege to be a part of that, um, that, uh, that process. And it’s something that I think is a, it’s a, it’s a really intellectually challenging and really humbling experience at the same time. Cause there’s obviously, um, there’s a lot that can go wrong along the way, but, um, I think if you, if you find the right partners and the right network, um, within the investing community and with the, you know, entrepreneurs that you’re doing business with, um, you know, every, every company has its ups and downs, but over the long period of time, if you’re able to be there, be active, be are true partner to them and collaborator, um, it’s, it’s a longterm business and it’s something that can be incredibly rewarding. And, um, uh, I’ve been very blessed, uh, today

PEMO: It’s like changing the world really, isn’t it. Um, so tell me how you coping during the crisis. Um, are you still investing and how are you handling your portfolio current portfolio companies?

DEREK: It’s a good question. And it’s funny, it’s a certainly, I think top of mind for, uh, most of the investors in an executive, I spent a time with every day sort of, you know, what now do we do in this crisis? How are we changing our day to day and what should we be doing? And over the coming quarters and years, as a result of COVID, I’d say for, you know, for me and for us as a fund and capital G, we are, um, first and foremost, I was spending a bunch of time with our portfolio companies to support, you know, there are CEOs and executive teams as they navigate the current environment. Um, clearly very impressive dented times for everybody. We’re all, um, active learners in this, in this market environment, trying to figure out the right path forward. Um, and we’re really kind of leaning in there and trying to be a resource to our executive teams as they think through, um, how do they adjust either product strategies?

DEREK: How do they adjust kind of the go to market channels they’ve been leveraging historically and what needs to happen now that we’re in a, you know, remote work from home environment, what, what tools and resources can they leverage from us, a capital G and with Google more broadly as they kind of adapt to the new market reality from go to market perspective. Um, and then a lot of time, obviously seeing kind of the, uh, the financial aspects of the business and funding perspective, how do they think about budgets, cost structures, um, customer success and support in current market environment. And so those are the types of conversations that we’ll have every day with our portfolio companies and the teams at these businesses as they kind of navigate this challenging time. And I’d say, you know, one of the benefits of being a part of a platform with many portfolio companies is that you get to crosspollinate the learnings from one company to another and understanding, Hey, you may be facing this challenge in as an example, I’ll give you example, um, you know, uh, some of our software companies historically have gotten, you know, 30, 40% of their highly qualified leads from in person events and conferences.

DEREK: Um, obviously with COVID, uh, that that channel is dried up and, and used to move entirely online. And so companies are starting to learn how to do things in a digital format to generate leads and refill that pipeline. Um, and so that process, it, you know, has had to happen quite rapidly as we’ve all transitioned to a remote environment. And so the real time learnings we can take from our portfolio companies is they’re experimenting with new ways to generate leads top of funnel through these new digital events, and then understanding as they get those leads, how will they actually convert into sales down the road? Those data points are real time. They’re new, there’s not a great historical data set. You can look at to see how will this fall, because we’re in such times at the moment. And so being in a position where we can kind of understand trends across portfolio companies and share learnings and advice, you know, in a generalized fashion with our entrepreneurs and their CMOs, I think is really invaluable.

DEREK: And so it’s been a bunch of time around that. And then, you know, importantly also looking at Google’s businesses and how they’re adapting to this time is another kind of area we’ll draw insights and resources as we kind of try to act as good partners, thought, thought partners and collaborators with our executive teams and our portfolio companies. So we spend a bunch of our time, um, and then obviously from a, you know, investment perspective to continue to be just as active as we were pre COVID, you know, I’d say that, um, it’s certainly a challenging time, um, for the investment business more broadly, as you can imagine, we’re not, we didn’t grow up in this business, um, learning how to, how to invest in companies and bank teams, um, entirely over video conferencing. Um, and so I think we’re all kind of learning on the job and learning, how do you build rapport and build trust and relationships over a video that it’s certainly a challenge.

DEREK: And I can’t say that we’ve cracked the code and figured out a way to make that perfect, but I think we’re making progress there. And we’re certainly, um, having, you know, a lot of managers and a lot of very interesting and compelling entrepreneurs who are, um, you know, looking at their, their roadmap for the next year, two years and thinking about, you know, how do they, what kind of capital needs will they, and what kind of partner do they want to bring to the table to help them deploy that capital in an effective manner, Nelson scale. And so running a lot of those conversations now. And so from a conversation meeting perspective, I’d say it’s pretty, uh, it’s back to normal is what it feels like to the precut levels. Um, but the format of those interactions is obviously wildly different. So we’re, we’re, we’re still, you know, learning the best way to do that. I’m sure I could, I could get some advice from you, um, playing her on, around, uh, the best way to, to help, uh, build rapport in a remote fashion. Cause saying at this moment in time, any advice is good advice as we’re all kind of learning on the job here.

PEMO: So, um, tell me, uh, what about the, um, your portfolio, uh, companies, and as far as their, uh, state of mind, a lot of the VCs have been telling me, you know, they’ve had to really support a lot of founders, um, as regards, um, just, you know, how to cope really. Um, and I’m wondering if you’ve got any tips there.

DEREK): Yeah, yeah, no, that’s a good question. And spend a lot of time on that with our RTOs partnering with you. I think three things come to mind for me. The first is, um, health and safety first and foremost, for just to have that top of mind in any conversation you enter with your executive team, through your customers, your employees, any, it doesn’t matter who the constituency is, but I kind of helped remind myself to start every conversation, just sort of regrounding yourself on the fact that the current health crisis, right, is impacting many people on a very personal way, and just be aware of that dynamic and interactions you’re having and appreciating that people could be experiencing huge stressors in their personal life at the moment, um, that you may or may not be aware of. And so just be humble and self-aware to, to have an appreciation for where people are coming from.

DEREK: What else is on your mind inside of the day to day kind of office work that they’re doing? That’s kind of step one, I think, and going that personal connection and just start doing the best you can to, to, um, have that relationship with people. I think number two, I think is really increasing the frequency of communication with employees, I think is hugely important in this environment. You know, I’d say I, I was actually, it’s funny. I was just speaking with the CEO of one of my portfolio companies who I have huge respect for and has been a real, you know, teacher to me, um, around how he manages his team. And he mentioned to me that they pray, we pray a little bit, we’re doing all hands, executive team meetings once a month. They have a monthly cadence where they do a deep dive on where things were headed, what the issues were, what the bottlenecks were, where they needed cross functional collaboration, et cetera, et cetera, um, strategy of the company forward.

DEREK: And, you know, postcode is like, all right, once a month, it’s not going to cut if you need to do this weekly and then weekly or every other week, and just increase the frequency of communication in this environment. So that’s, that’s a pretty easy, obvious thing, but has been, I think, very helpful for him, for him and his team. Um, and I think the second important aspect of that is, you know, really, um, erring on the side of being more, not less transparent, um, with both good and bad news. So some of the mistakes that I see some executives making is painting too rosy of a picture, um, to their employees or to investors with board members and, um, and sort of, uh, living in a bit of a, uh, state of mind that suggests, Hey, we just don’t know. I got the back half of the year could be great or really be great.

DEREK: Like we don’t really know yet. Let’s just wait and see. And, um, in my experience in the competition, I’m having, I think those CEOs that haven’t been to that wait and see mentality, they, um, aren’t doing themselves or their employees any favors because I think, um, the more transparent they can be in either saying, I don’t know, but I have a scenario plan in place, and here’s what we’re going to do. If X, Y, Z happens, that’s a much more powerful. And I think comforting and reassuring message to hear if you’re an employee or a board member of the company, because then at least you understand that the leader of the organization, um, is self aware enough to know what they don’t know and is already thought through scenario planning so that if things get worse or if they get better, there was a plan of action ready to go that excused against to help the companies and the teams get through it.

DEREK: Um, and so I think the more people can get on the front foot with having scenario planning done, which hopefully at this point in time has been done already for most companies, but the more they can, um, continue to revisit those scenario planning exercises in the current environment, just given the rate of change of new information coming daily and weekly over the course of this crisis, the more they can do to revisit those plans and scenario planning to stay agile over this period, I think is a huge, is a huge positive. Um, so I think it’s really that frequency of communication and transparency emphasize for leaders of companies at the moment, the thing really, really important,

PEMO: Right. And this is a question I ask all the face say, so please, excuse me. I’ve just wondered what I, because I know it’s impossible actually, to predict that I’m still going to ask the question, what’s your prediction of where we’re heavy it headed as regards the startup world and, um, the investment in the next couple of years.

DEREK: Yeah, that’s a good question too. Yeah, no. And, um, uh, I wish I had a crystal ball, but all I’m happy to, uh, to give you some, some thoughts, you know, I think, um, a couple of observations that I’ve had over the past couple of years, and even more recently is trends accelerating, but a few things that I pointed out. So something to think about one is, um, the pools of capital that are chasing investment opportunities are increasingly employing together. So, um, the, the super late stage investors that historically would have done the pre IPO around or buying public stock and the open market are increasingly going earlier and earlier, um, saying, Hey, why am I going to buy, you know, one or two percentage points of the company when I can try to buy 10, 20 percentage points of the company in a much early on in its life cycle.

DEREK: Um, and part of that, and that’s a trend that people thought about people kind of know about it, you know, what’s maybe less obvious is that it’s indirect response to, I think what the later stage investors are seeing from some of the earlier stage investors, which, you know, funds that have historically done seed and series ideals are now how over the past number of years, when building up growth equity platforms and large pools of capital to go later stage. And so you’ve got the early stage investors, kind of cherry thinking their best deals and doubling down and, um, taking away opportunities for later stage investors down the line. And because of that, the later stage investors that haven’t been, you know, by that even if you wanna use that term by going earlier and tried to disrupt that, that process and going upstream. So we’ll grab on there earlier on.

DEREK: And that just means in my mind, that’s a, these pools of capital that early mid, late stage public stage, they’re starting to increasingly blurred together, creating a really interesting and dynamic competitive landscape where entrepreneurs now have a much wider range of options for where they raise their next round, where they raise capital. Um, and I think for, you know, for some entrepreneurs, there’ll be assumptions now where historically, if they had to raise an eight round, they had to give up a certain percentage of dilution to raise a certain amount of money. And they had to give up a board state to a series, a fund that would come with a network around them to help them scale the business. But now increasingly there’s an alternative, or they can choose the path that says, Hey, I’ll raise twice as much money at the same amount of tuition.

DEREK: And I don’t need to give them a board seat by taking capital. And from a later stage fund that from their perspective, because they’re managing a much larger pool of assets. They can write the same size check ins by company, um, but they can be hands off. And if my company does not make it and they don’t make a return on their investment, it’s not going to move the needle for them because they have a much larger pool of capital and stuff. They’re happy to get past with hands off. And so it’s just another option for entrepreneurs kind of pick it up and they’re raising capital in the earlier stages. And so I think one friend that I think will persist then become more, you know, um, uh, strengthened further is this idea of, you know, there’s just so many more places to go to raise capital.

DEREK: And so for a certain subset of entrepreneurs that’ll mean they want the active hands on value, add investor advisor. Um, and then others will also be initially hands off, fast and easy kind of way to do business. So I think there’s a bigger menu of choices than there would’ve been a few years ago. Um, and I don’t see that changing. I think that’s going to strengthen, and I think, you know, the impact of COVID-19 this whole environment, what that means for the market basket, for deals and competition and how founders are getting funded to scale their companies know, I, um, I’ve been surprised to tell you the truth, that there hasn’t been a bigger reset in the private market, valuations, everyone, you know, and even an early, as a coven when the market, the public markets are down 30%, the reality is that like lot of these private companies could just wait and not raise capital if they didn’t need to.

DEREK: And then we ended up and now public markets are up a flat for the year, has X up 20% of the year. And so like the public market is coming back, but the private markets in my experience, they tend to be like a one way ratchet. Like they don’t, they tend not to ever decline materially, but they do go up in terms of where the pricing. And I think a lot of that, just, you know, the LPs that are looking to get exposure to growth equity, to DC, to higher returning higher risk asset classes that has been a longterm secular trend that has continued. And the current environment I think will persist. Um, as interest rate interest rates stay incredibly low. You know, those LPs are looking at their own portfolio as a public stocks, you know, commercial real estate of a VC, whatever it is.

DEREK: And they’re saying, wow, over the past 10 years, my performance by asset class, private equity in VCA has been some of the best performing returns for me as an LLP and boy, like, I want to hear that past tenure data, like, let me do more of that. And they continue to want to put more capital into the strategies, putting up more, you know, more of a supply push into private equities asset class, VC growth, HPE. And as a result, all that capital is chasing a certain number of deals every year. And that, um, supply demand and balance is going to continue to prevent, I think, you know, asset prices in the private markets from declining, but I think we’ll continue a steady upward trajectory. So I think the fact that co had happened is a good reminder of the risks that we’re all taking in the private markets as we fund companies.

DEREK: I think for the past 10 years, it’s been up into the right, you know, and then it didn’t take a, a genius to make a ton of money over the past 10 years, is this, you know, valuation multiples across the industry, particularly in staff expanding quite interiorly. Um, but now with COVID happening, I think it’s a good reminder for people in the industry that there is real risk that we’re taking and therefore the types of underwriting that people are doing now, maybe changing a bit. So I think your question, another way they sell T is I do think in the private markets while valuation multiples are holding up well and are really declining. Um, I do think there’s a bit of a flight to quality now where, um, companies that are showing, you know, better meta economics, so shorter payback periods on customer acquisition, higher, gross margins, whatever metric you want to key in on.

DEREK: I think those companies are gonna continue to benefit from even more premium valuations because people want a flight to safety and the flight to quality. And then the companies that maybe are having a tougher time proving out this unit economics, um, will still get funded. And a lot of them will still get funded. But, um, you know, I get quite the same uplifting evaluation, but all in all still feels like there’s, there’s every reason to believe in my view that patients are continuing to find more artists to go out. And because of the supply demand the dollars from the LP community and the people chasing yields in a very low rate environment. Um, and, uh, so we’ll just continue to be a lot of competition for deals and getting paid and, uh, and I’m not sure code is going to materially change that.

PEMO: Well, that’s really interesting. It’s a great perspective and overview of the ecosystem. Thank you very much, Derek really appreciate your time today and I look forward to speaking to you down the line and we’ll see how you’re doing.

Patricia Nakache General Partner Trinity Ventures on Covid19 Crisis for Startups

Patricia Nakache invests in early-stage consumer and business tech startups with current investments including Bevi, EAT Club, Life House, Side, thredUP, and Turo, and previous investments in Care.com (CRCM), LoopNet (LOOP), PayScale (acq. Warburg Pincus), and Sabrix (acq. Thomson Reuters), among others. Patricia is a board member of the National Venture Capital Association and a Lecturer in Management at the Stanford Graduate School of Business where she teaches Startup Garage. She earned an M.B.A from Stanford University and an A.B. from Harvard University.

Transcription

PEMO: Welcome Patricia. So lovely to speak to you again, it’s been a long time. I was wondering how you and your family are weathering this crisis.

PATRICIA: Well, thanks for asking. I’d say on the whole pretty well you know, there’ve been, there’s been sort of that silver lining of, you know, spending a lot of time together as a family, which my kids are older. And so I have kids ranging from a couple years out of college and working to my youngest is going to be a freshman in college next year. And it’s, you know, it’s a rare for us all to be together these days prior to COVID and we’ve been together. So just on a personal side that’s been, that’s been a bit, you know, a silver lining.

PEMO: Great, fantastic. And and so what is your main focus for investments? Just if you want to just walk me through that again.

PATRICIA: Yeah, sure. So, so first of all yeah, I’m a general partner. Trinity ventures are our focus as a firm is early stage technology encompasses enterprise and consumer. And, and actually overlaying that we actually have a bunch of industry verticals that we spend time on. I have a partner Schwartz, Sacha Volo, who focuses almost exclusively on FinTech. And so my personal focus is that I focus on consumer driven tech, so kind of the consumer part of our, of our practice. And I also focus on real estate tech. So both from a consumer and an enterprise perspective, that’s been sort of the industry vertical that I have spent time on actually since the days we invested in LoopNet, which was a long, long time ago fast for us. And then each goes, we invest everywhere from kind of seed to series B is where, when we write our initial check.

PEMO: Okay, well, and I know there’s some exciting stuff happening, happening in real estate due to the blockchain. So I’ve had a few founders who’ve come along with great companies that are using the blockchain for real estate issues. So that’s great. And are you still investing and how are you managing to do that and how are you also managing your current investments in your portfolio?

PATRICIA: Yeah, I mean, I would say that, you know, managing our current investments is our number one priority and has been, you know, since the crisis started and, you know, it, it means, you know, unfortunately it’s not time in person, but a lot of time on zoom and on the phone with portfolio companies just really counseling them on how to control their own destiny. You know, I mean, survival is is the number one priority. And it just, you know, and, and we can kind of dive into that like different tactics for controlling your own destiny. I mean, it started off, I think, you know, almost immediately with portfolio companies focusing on hiring freezes and then, and then sort of, depending on the extent to which portfolio com is being impacted by the crisis, you know, getting into, you know, cutting burn trying to extend runway, trying to raise capital, that’s a bail available either equity or debt.

PATRICIA: And then, you know, I’d say, I feel like, you know, from from just, you know, supporting portfolio companies you know, we’ve been trying to do a lot as far as kind of sharing best practices across portfolio companies. Right. So, you know, which is helpful because, you know, I, you know, all our portfolio companies, the entrepreneurs in them are super creative, super sourceful people. They come up with really good ideas and then, and then, you know, the extent that they can share those ideas you know, it, it lifts, it lifts all boats. I actually believe it or not. I went to a board meeting in, in Boston last month in June. I know, I know it’s sort of like, you know, but I I was going to go to Boston anyway. There was you know, and, and the, the CEO told me that he was going to the office most days. And so we sat six feet apart we have now gone. And it was like, it was like, it felt great, great to be at a board meeting, you know?

PATRICIA: I felt super, I felt super, super brave, but also it might’ve been a, you know, I, I think I am super in the minority. I think most people traveling and I, and I, I’m not, I’m not, by the way I discovered one thing, which is that by showing up in person, I was sort of putting the founder CEO in a position of having to wear a mask. We were both wearing masks, which, and when all the other board members are on zoom, it could be a little tough to have the person presenting on zoom wearing a mask. So I actually am not sure I did him any favors ultimately, but it was great to see him.

PEMO: Yeah. Fantastic. cause I know a lot of the VCs I’ve spoken to have saying they’re not traveling until there’s a vaccine and things like that. So you’re very correct.

PEMO: Yeah, yeah. Yeah. Because I think really with venture and startups, it’s really all about the people. So I’m sure a lot of people are really suffering during this period.

PATRICIA: No, it’s interesting. I think one of the things you know, that I’m hearing about more and more is how important it is to focus on, you know, personal personal and sort of team wellness at this time. Right. I mean the neglected, there’s a lot of stress, there’s so much uncertainty. So, you know, and, and, and social connection is one of the ways to, to address, you know, it’s, it’s to help on the wellness front. So I think maintaining social connections are really important.

PEMO: I agree. I agree. It was my birthday on Tuesday and a friend took me out, we social distance and had breakfast and it was the first social thing I’d done for four months. And I was like water in a desert. Right. So happy. And I just had a whole day, I was just floating and I thought, well, you can tell you’re an extrovert. There you go. There you go. Well, happy birthday. Thank you. And it was a good step to the birthday. So what, you’ve obviously been thoughtful about this, what is, what’s the takeaway for you about what, you know, what this crisis has brought up really for, you

PATRICIA: Know, I mean, look, I think you know, one of, one of the takeaways, and this is this is a lesson that you learn repeatedly in venture, but that look, you know, capital intensive businesses have less flexibility in the time of retrenchment. I mean, you know and this was a lesson that was learned, you know, after kind of the.com/you know, telecom bust in the late nineties. And and then, you know, we learned to get after the financial crisis, but if in a capital intensive business, you know, when you, when you, when you when you are in a time of retrenchment, that that’s kind of like a yolk around your neck, you just can’t be as flexible. And even though I will say that in the past 10 years, which have been a really, you know, brilliant time for black companies, there has been more and more adoption of capital intensive business models because because you can write like you, you could, like the capital was available, it was relatively inexpensive.

PATRICIA: And and we were very much in a growth environment. But I think you’re finding companies and I, and I have some too that, you know, you know, have capital intensity, it could come from a number of different directions, right. It could be, it can be it could be leases like, you know, just to take an example, we’re all familiar with and we’re talking about real estate tech, right? Like we work, I mean, they’ve got lots and lots of of Lisa’s and you know, to the extent that their revenue model starts to suffer and they still have to carry the bag on those leases, it can be pretty devastating. And, you know, we saw open door which you’re familiar with you know, they had to stop, you know, they’d have to basically stop for awhile buying new homes because of just the Capitol testing.

PATRICIA: There was certainty of whether they could you know, resell those homes in the timeframes that they anticipate. So anyway, that’s one big lesson, one big take away, you know, I’d say another one, which is just kind of, Oh, by the way, here’s an interesting note though, with regard to capital intensity. I think one of the takeaways that we’ve we’ve learned is that remote working is entirely possible and very positive, right. And that’s, and that’s positive, and it means you can actually be less capital intensive, right. Because you don’t have have leases for your, your, so that’s kinda, that was kind of an interesting kind of yin and yang set of takeaways. I’d say, you know, just not letting a business buildup too much fat. I mean, I think, you know, we’ve all seen situations where you know, if, if, if your culture, you know, if you’ve kind of built up a lot of kind of fat in a business, in a startup and you have to, you have to retrain, you have to make cuts. It’s very hard culturally because it’s such a jarring experience, but, you know, I think companies that are stroke battle-hardened that have stayed pretty lean and mean it can adjust much more fluidly in these types of situations. But Nan, I mean, you know, who would have foreseen this, right? I mean,

PEMO: I didn’t even see it, like the day before the shelter in place came in California, I was still trying to put a panel together and then it just all felt apart. Right.

PATRICIA: I think from a planning perspective, I mean, pretty much all our portfolio companies, as I said, like first step with a hiring freeze, second step was kind of a replanning process, almost all of them replant. And I think we all sort of the consensus, I would say from a replanting perspective was that everybody was going to be very hard to hit in Q2, and then we’re going to bounce back. And obviously that’s not the case. And so there’s been a L but, but interestingly, the Q2 has not been as bad as people thought, but it’s just going to last longer. At least that’s generally the experience I’m seeing across our portfolio, which is, are, are beating their reforecast or their, their replan, if you will, this replant, they like, they like the butt, but the impact on, on revenue in their business model is just lasting way longer than they expected. Right. And

PEMO: Would you, I know it’s awfully hard to predict anything lightly, but I just wondered if you’ve got any sort of vision of how you think investing as a VC will go in the next year and possibly two years because

PATRICIA: Yeah, yeah, no, I it’s. It’s a good question. It’s a super important question for all venture backed companies out there. Yeah. I would say for the next 12 months, I, I think that venture funding will happen. It will ha it’s going to be slower but it can happen and it will happen largely around existing relationships. So, Hey, the good news as an entrepreneur is if you’ve had to pitch dozens of VCs to just secure pass, the good news is dozens of VCs know you. And so I think, you know, tapping into people who’ve met you face to face in the past may have met your team in the past though. I think those financings are going to be, that’s going to be easier to, to happen. Like I actually co-lead last month a series a in a company where I had a seed investment.

PATRICIA: And so I already knew the team and already trusted, trusted the team trusted the business that they’re pursuing and the numbers that are seeing. So I think existing relationships are going to be key. I would also say being highly targeted in who you approach over the next 12 months is going to be really key too, because I think having a very strong kind of investment thesis match will help, you know, sort of grease the wheels if you will. And so that even in a situation where you might not personally know the investor, the fact that there’s such a strong kind of confluence of interest around a thesis, a thesis match with what you’re doing could really help drive a financing to conclusion. The other thing I’d say, excuse me, my throat is I’m talking about, you’re talking too much.

PATRICIA: I say other, the other thing over the next 12 months is I am finding strategics many strategics to be more active than I had seen them previously. And so I think some strategics are viewing this as an opportunity to play offense and are getting more aggressive as far as funding companies that they might not have had an opportunity to fund in the past in terms they might not have had an opportunity to get in the past. So I do think strategics are an Avenue that entrepreneurs should think about because I, you know, rather than, you know, sort of experiencing them sort of, you know, running away at a time like this, I’m actually seeing quite a few of them engage and being being active. So that’s the next 12 months. I am very hopeful that over 24 months, we really do go back to, you know, some semblance of normal.

PEMO: And how are you finding valuations? Because 10 said that the valuations that he, you know, he’s getting like a better deal now with a series series eyes, let’s say to investments, I think that there is

PATRICIA: A downdraft on valuations because, you know, for investors and investing now there is additional risk they’re taking off. I mean, without question. Right. so I actually have a portfolio company that I led the seed investment and they just closed a series. A actually it’s been a few months, they closed it at, towards the beginning of the pandemic, I think maybe at the end of April with a new lead investor. And and the time between our initial term sheet to term sheet signing, like the term sheet arrived before, COVID the term she was signed after COVID and it was it, the valuation was cut. Let me think about this. I think it was cut around, you know, 20, 25%, something like that. So, but, you know, we were, I think the founder entrepreneur was delighted that the investor had enough conviction to close it. So even with all the craziness going on and and you know, the company’s going to live to, to, to see, to, to, you know, to fight and we’ll definitely survive the crisis. So that’s, what’s great.

PEMO: Yeah. Fantastic. Well that’s really positive stuff you’ve given us today, Patricia, and I’m sure all the listeners will really appreciate it. I certainly do. And it’s just wonderful to actually connect with you again.

PATRICIA: Nice to talk to you too. It has been awhile. Yeah. Stay safe and well, so yeah, yeah, you too. Take care. Bye.

Tim Draper Founder Draper Associates, DFJ & Draper Venture Network on Covid19 Crisis for Startups

Tim Draper is a top global venture capitalist, having founded Draper Associates, DFJ and the Draper Venture Network, a global network of venture capital funds. He is a leading spokesperson for Bitcoin, Blockchain, ICOs and cryptocurrencies. In promoting entrepreneurship, he created Draper University of Heroes, a residential and online school based in San Mateo, Ca to help extraordinary people accomplish their life missions. Tim Draper received a Bachelor of Science from Stanford University with a major in electrical engineering and a Master of Business Administration from the Harvard Business School

Transcription

PEMO: So wonderful to talk to you again, I’m wondering how you’re weathering this crisis?

TIM: Well, it’s a great opportunity for people to think a reset and some of our entrepreneurs are doing incredibly well in this crisis and some are really suffering. The ones that are doing very well and really run most of their business remotely anyway. And some are creating products that were sort of curiosities for a while. But now they have the ability to go mainstream. So like people we’re starting to use VR, people were starting to use remote education because they, the schools were closed. They’re starting to use remote healthcare because the hospitals were closed. And then they’re starting to open up and try Bitcoin wallets and Bitcoin cash, wallets, paizos wallets and whatever because they’re because they’re saying, well, wait, you know first of all, what is all this about?

TIM: They want to try it out. But the other part is that they’re saying, well, wait, if they’re going to print $9 trillion and shove that into the economy, then the dollars I have are going to be worth about 30% less. So I should move to another currency and one that’s more steady and, and will probably increase in value over time. And that’s where people are starting use some of those cryptocurrencies. And then it’s been very difficult for, for companies that are required to have large groups of people banding together. I’m sure that WeWork is having difficulty. I’m sure that I know Airbnb is having difficulty. And so that’s a, that’s a new thing that we’re all having to deal with. And then I’ve noticed people, you know, after two, for the first two weeks, this was kind of a vacation for everybody, but now, but now it’s, we’re six months in or something five months in and it’s it’s starting to really wear on people’s psyche.

TIM: I’m noticing that you were late. People are starting to drift. I think the pizza and pajamas is starting to set in and it’s just time. I forced myself every morning to get dressed up and go to work. And then I closed the door. I kissed my wife, goodbye. I closed the door and I’m all dressed up right now. I gotta go on a regular day at work, but I know some of the people I work with are having real emotional difficulties. They live alone sort of trapped there. This is not healthy. I mean, it’s not healthy in an obvious way, but it’s also really not healthy to be trapped in place. So you know, I think we should take the hit, rip off the rip off the mask, go out there, live your life. And I’m sure that there are a million people going, how would he ever say that? But I think it’s, I think otherwise you’re going to watch the slow, steady degrading of humanity.

TIM: Yeah. I have an attorney friend who told me that people have committed suicide and just because of the self isolation and he’s having to deal with some of the cases. So it’s just very sad and I agree, difficult time for everyone. How are you managing current investments and are you managing to invest in your investments? How are you doing that?

TIM: So we, we were lucky, very few of our companies had had too much difficulty because most of them were remote the ones that are they’re building hardware or transportation or whatever. Those are having more difficulty because they’re not allowed to work together. And that is that’s a painful thing if you’re trying to put a very complex piece of hardware together, but, but I think we’ve been able to at Draper associates, we’ve been able to pull our heads out of it and write checks. We’ve been very active during this time. Yeah, we’re finding that the series a companies are coming to us at, at seed pricing because they they’re realizing that they’re not many people are out there writing checks right now. And then going into August where partners all take a vacation. I think it’s going to be even tougher for entrepreneurs to get their money. And so fortunately, you know, well, the rest of the venture business sleeps were as active as we’ve ever been.

PEMO: Good work, Tim that’s fantastic news. What do you think of the takeaways from the current crisis? I know other VCs have told me their sort of insights because it’s almost like an enforced retreat. Do you have, you’ve managed to think of what you could get out of this, what learning?

TIM: Yeah. Well, clearly are a company that we have in China. That’s a psychology company where they, I think they’re going to do very well. What did I take out of it? I I take out of it a combination of things. Yes. The virus is real, but t he group think is the most dangerous thing we’ve ever had in humanity. It’s, it is dystopian group. Think, I, I think we have an opportunity right now to be either utopian or dystopian where the utopian view is, Hey, we’re global, we’re open. We’re all in this together. We’re transparent. We’re we’re the borders are meaning less and less. Let’s let’s have free trade around the world. Let’s have free markets around the world. Let’s let this thing go. And then there are these governments, some governments that are saying the dystopian word, which is, we’re telling you what to do, wear a mask, turn around three times, wash your hands, do your, you know, maybe it’s all good.

TIM: Maybe it’s all healthy for us. It’s a good idea. Maybe it’s not, maybe it isn’t. And w what if they’re telling us do something that is going to wipe out humanity, because the next one’s going to be bigger and we won’t have built up our herd immunity. I it’s weird playing with mother nature here, and I’m not sure it’s going to be so healthy. And what’s worse is it allows these dictators to start feeling like they can tell everybody what to do. And they’re all of our freedoms have been taken away. And that’s the beginning of the end. That’s horrible. So this fix this reset that we’ve got, we can either go back, become global build, build on that globalism build on the decentralized world. Or we can retreat back into being tribal with leaders who tell us all what to do, and we just follow their orders. I I mean, boy, a lot of people have fought for freedom in this country, in the U S and I know they have in other parts of the world and many, many times, and I, I hate to be letting them down by, by forcing people in place and forcing this kind of activity where certain kinds of businesses have to be shut down and other other businesses get to live. It’s not healthy. So time to time to free up.

PEMO: Yeah. Well, that’s a really interesting perspective, Tim and you’re always reliable in being able to think independently. Would you be able to give me your overview?

TIM: Probably one of the big problems is that I am thinking independently and people look at it and go, Oh, no, he’s thinking independently, because they’re all thinking, whatever they saw in the news that day, it’s like shiny object. Let’s just follow it. And whatever they told me in the news, that’s the way I’m supposed to think that is not healthy. It’s not healthy. It’s not certainly not helping be politically because it forces people into a box politically. And we really need to be able to, to work on issues, not work on, you know, which box we fit into. This is, yeah, this is so, yeah, when people say, be safe to me, it drives me crazy. I say, be brave, go out there, be scape. That’s just nasty. You’re being mean to me. I want to live my life.

PEMO: Good on you. It’s an inspiration. So I guess how do you think investment’s going to look in the next

TIM: Year or two years because of what’s happened already? Well, you’re going to see, you’re going to see a lot of interesting information coming out, say July 20th ish, because that’s when earnings reports are going to come out and those are, these reports are gonna say, wow, it was a really great quarter for Amazon and zoom. But for a lot of these businesses, we were expecting a lot. We didn’t get anything. And that could be that could be tough on the public markets. And so if you’re thinking of boy, what do I do with my money? I think the public markets are as dangerous, a place to put it as you could possibly imagine right now with PE ratios at, at absolute all time highs. I’ve never even in the.com boom, I have not seen PE ratios on companies like this ever this high.

TIM: In fact, sometimes they’re not even in either, they’re not even making any money. So I’d say to put more money into the stock market is probably not a good idea, but money into private companies might work because you’ll get the next cycle to put money into bonds. You know, where do you get? You get a 0% bond rating, but money into real estate. I think residential real estate, nice residential real estate might start creeping up. Commercial real estate is going to have a very difficult time. Cause you know, people are saying, you know, half the people are saying, I like working from home. The other half of the people are saying, I gotta get outta here. And so, so that would mean that real estate commercial real estate is the supply is twice what it needs to be. That’s not good for the price of real estate.

TIM: And then Bitcoin is a great place to put it. I mean, it’s like the new gold because you know, that, that as it spreads, it will increase in value. And I think we’re all gonna be benefiting from that anybody who owns any Bitcoin is going to benefit a lot from that. And also, you know, the reason Bitcoin was a big hit in Argentina and Nigeria. And some of those countries is their own currencies were unstable. They were their politicians were printing money. And so they, they, they had huge inflation. Well, we just printed $9 trillion in the U S and that is flooding the economy. That’s, I mean, there are only just to give you an idea of how big $9 trillion is. There are only $86 trillion worth of currency in the world. Floating around today. Trillion is like more than 10%.

TIM: So it is a huge number. And so we’re, I’m guessing we’re going to probably experience some serious inflation and people will look at dollars as hot potatoes to try to get rid of them. And people start looking at Bitcoin is something to hold on to just the way, you know, during inflationary times before people tried to buy commodities, anything they could, that was a physical object. They tried to buy during those times because then the money, the next day would be worth less and the price is gonna go up and that’s what they do and Nigeria and Argentina. Wow.

PEMO: Well, and that’s great news about Bitcoin and obviously cryptocurrencies and blockchain. I’ve been,

TIM: Yeah. You know, there’s something, something interesting. That’s I think just about to happen. Only one in 14 Bitcoin while it’s owned by a woman and and women do about 80% of the shopping. And if you put those two things together, as soon as women realize that they can save two and a half to 4%, every time they swipe a credit card, they are going to move to Bitcoin so fast. And if they’re sitting there decide to him and it’s easy to do now, it was never easy before and tend to grow as for the community. They’re always looking out for the best of the community. Well, Bitcoin’s going to be much better for the community. And then some, some currency that’s tied to some government entity. So we’re gonna, we’re gonna see a big flow of women buying moving their money to Bitcoin and starting to shop with it. And Bitcoin cash is so easy to use now. It’s really crazy, but Bitcoin is easy to use too. If if you’re shopping with Bitcoin, you want to use open node.

PEMO: That’s, what’s so exciting because I’ve been supporting that community for quite a few years. And it’s just great to hear that this could be really a great kickstart for it.

TIM: Oh yeah. I think this has been a kickstart and anybody who thinks at all about the future is sending will get me out of dollars and get me into Bitcoin.

PEMO: Yeah. Yeah. That’s great. Well, that’s a great note to finish on Tim. You’re always a delight to interview. Thank you so much for your time. Apologies again for being late. And I really appreciate your contribution and I’m sure the listeners will too. Thank you.

TIM: Great. Well, please send me a link. I’ll read the word. Thank you so much.

Ken Elefant Managing Director Sorenson Ventures Sorenson Ventures on Covid-19 crisis for startups

At Sorenson Ventures, Ken has partnered with entrepreneurs in market leading companies such as CyCognito (attack surface security), Openpath (access control), Octarine (cloud security), CloudKnox (authorization management), NS8 (anti-fraud), Bridgecrew (codified cloud security), Kenna (risk management), Paperspace (machine learning) and SupportLogic (customer support platform). Before joining Sorenson, Ken was Managing Director at Intel Capital and VP at Intel Corporation. Leading the software and security groups at Intel Capital, Ken invested in several companies including AtHoc (Blackberry), Prolexic (Akamai), DocuSign (IPO), Forescout (IPO), AlienVault (AT&T), Venafi, Vectra Networks, Gigya (SAP), and BrightEdge among many others. Prior to Intel Capital, Ken was a founding general partner at Opus Capital. While at Opus, he served on the boards of Spock Networks (Intelius), Transpond (Webtrends), Supersecret (Knowledge Adventure), Alert Enterprise, Jivox, and TrustedID (Equifax). Previously, Ken was a Senior Associate at both Lightspeed Venture Partners and Battery Ventures. Before business school, Ken worked at Radius, Claris Corporation (the software subsidiary of Apple), and RealNetworks, where he held various sales, marketing, finance, and business development positions. Ken received an MBA from Harvard Business School and holds a Bachelor of Science in economics from the Wharton School of Business. He is a Kauffman Fellow.

Transcription

PEMO: Welcome Ken. So nice to speak to you again. I was wondering if you could tell the listeners what your main focus is for your investments.

KEN: Right? So I co founded Sorenson ventures, which is an early stage venture fund back in 2017. And we focus on early stage security and software investments fund was $110 million fund. And we typically invest in companies that are pre-revenue or have just a little bit of revenue.

PEMO: Great. And such a name for the security pace I would imagine at the moment how you, you managing your portfolio companies at the moment with the crisis.

KEN: Great question Pemo. So, you know, from my point of view, I’ve been doing this for 21 years. So I got into the venture business back in 1999 and saw the real uplift at the internet age, and then the, the downturn in 2000, as well as the financial crisis in 2008 in my philosophy in terms of how to work with portfolio companies is that you, you need to be consistent. You need to look at what a product roadmap should look like or where their short term and medium term and long term, and you should look at your, go to market over the short term and medium term and long term. And when you don’t have good milestones that are set up, that are achievable, that’s when bad things happen. And so whether it’s good times or whether it’s bad times the way that I like to work with the startups that, that I’m on the board of is to make sure that we do have milestones for each part of our business. And if things aren’t working because we either have the wrong people or because there’s a financial crisis, then of course corrections need to happen. And that’s exactly what we’ve been seeing over the last four months with the COVID-19 issues.

PEMO: Right. And are you still investing in new companies and if so, how are you managing to do that?

KEN: Well, absolutely. So in the last four weeks, we’ve actually made two new investments in Sorenson ventures. And we also made one large follow on investment in one of our portfolio companies. So, you know, my point of view on this is also the same there’s companies that are going to succeed through both good times and bad. And in this type of environment, the entrepreneurs that we like to partner with are the ones that, that I just talked about that are milestone-based. And we, we think that right now there’s some really good startups that are yet to be born, that we will become market-leading companies. And what I’ve seen is that throughout every downturn, that’s when the best new companies are brought to market. So if you look at the, the downturn in 2000 there’s a security company called four Scouts. That’s in the network security space that I was involved with when I was at Intel capital. That one was started right after the 2000 downturn alien vault than other security company that built a product that really helped security for small and midsize. Customers was born right after the 2008 downturn. So now’s a great time to invest in really only the best entrepreneurs are starting new companies these days.

PEMO: So I guess it’s the whole everyone’s saying that there’s always challenges and opportunities in a crisis. And what I’m hearing you say is that definitely people come through and really shine out of a challenging time. So what are your personal thoughts about how to survive this current crisis? Obviously everything’s become virtual. I know for myself, I’m definitely appreciating the valuable human connections that I have because I can’t see them at the moment. But I was wondering if you’ve had any personal revelations yourself during this time shelter in place.

KEN: Yeah, certainly it’s, there’s a, there’s a human aspect to it. And obviously there’s a business aspect, you know, for me I, I’m definitely a people person, the way that I like to learn about startups is through people. And so that’s just part of my personality and I like networking with people. So with shelter in place that definitely has a huge effect on, on how I like to run my life. And so what have I done, you know, on Friday nights, I now do virtual poker with a bunch of buddies of mine. That’s been, that’s been awesome. So not only do we talk about our families, but we have, we have a little fun you know, it is a little lonely working from home and being on, on zoom calls all the time.

KEN: You know, I, I also think it gives, gives people a way to connect with other people and really appreciate what they are doing on the other side of, of the zoom call. So, you know, for the entrepreneurs that we backed, I’ve really gotten to see them interact with their families. You know, a lot of times they’ll have kids that interrupt a zoom call and it’s really cool to make that personal connection in that way as well. And then, you know, the third thing that I’ll say is, is that you can’t sit on your butt all day and do these zoom calls. So what I love doing is doing a socially distance hike with entrepreneurs and one of the new investments that we just did. I had done all of the due diligence with the entrepreneur on zoom, in on phone calls, and finally went on a socially distance hike with him up in San Francisco.

PEMO: Oh, really fun. You’ve been very creative. I’ve seen it as a enforced retreat. So, but I love all the things you are doing. That’s fabulous. What do you think startups should expect in the next 12 and 24 months? Because I know it is very hard to predict anything. I don’t think anyone really predicted what, what we went into in March, but I just wondered if you’ve got any ideas or thoughts about where we’re going.

KEN: Yeah, it is very, very hard to predict what’s around the corner. You know, there’s, there’s two thoughts for it first off is that for a lot of our investments that our insecurity security is going to be required and in good times and bad. And we’ve seen that while the pipelines for most companies slow down in March and April, we’re starting to see a really good pickup in, in may and June and hopefully beyond still having said that there’s another camp that would think that there’s going to be a lot of trickle down effects that we don’t even know what is, what is going to be those effects six to 12 months or beyond. Because if there’s a lot of businesses that are going out of business, obviously those businesses can’t pay their real estate landlord. And those real estate landlords cannot pay the bank.

KEN: And if that’s a regional bank, what kind of effect is that going to have on the local economy as an example? So I think there are, there are two camps. So what, what I’m planning on doing is, is what I discussed at the beginning is that for every startup they need to set milestones that they think are achievable. And when the metrics that they’ve put in place don’t seem to be working, then they need to change approaches. It could be that you have the wrong person in the seat. It could be that you are that you have too many people in the company and you need to cut back until you figure out what the right product market fit is in this environment. My sense is, is that most companies are going to do just fine, especially if they’re in the, in spaces that are considered a requirement and not a to have.

KEN: The second thing that I’ll say is that we focus on companies that are not that capital intensive. And so our companies have been very fortunate in that. If you do need to cut burn rate from 400 K a month to 300 K a month, it is not that difficult for a company to do that. Versus if you were burning $2 million a month, they need to come down to 600 K a month in burn. So that is another way that I, that I think PMO, that we’re looking at managing this through the shorter term and longer term.

PEMO: Got it. And I’m particularly interested in security because it’s just such a critical piece for all technology. So it’s wondering if you could give us a little of a view in your privileged seats that you have of what you think is coming as regards a security,

KEN: For sure. Yeah. I think there’s a few new trends that are happening. And I started seeing this about 10 years ago in that startups would have a very difficult time selling to enterprises because they would need to sell from a tops down perspective. And so what I’ve seen is that some of the best security startups out there are selling from the bottoms up. And what I mean by that is that these startups can sell initially an open source solution. That’s free to companies. They can see the usage and then they can build their paid for product on top of, on top of the open source solution. So an example of that in our portfolio would be a company called bridge crew, which has seen the trend in that enterprises are moving to cloud and putting a lot of operational apps in the cloud.

KEN: And now they need much better security around cloud. And they are leveraging an open source solution called checkoff that enterprises get a lot of value out of, and then they can partner with bridge crew to continue to codify security for the cloud. Other companies use a bottoms up premium model where you get the initial use of the product for free. And then there’s, there’s ways that enterprises get more and more involved in using the platform and then pay for it. Some companies security companies now have a completely agentless solution. And what that means is that enterprises don’t need to install any software on their servers or inside their network and by doing so it’s much easier to show value. And you’re not depending on an enterprise to implement anything for you to get the first step of value inside the enterprise.

KEN: So companies like psychotic Neato are doing a really good job of showing an enterprise what their attack surface map looks like. And then they can look at where there’s vulnerabilities and see dig down deep and do attack validation to see how far those vulnerabilities and what the context of those vulnerabilities are inside the enterprise. And then there’s, there’s other companies that are doing a really, really good job of leveraging the channel. So alien vault did that by leveraging a managed security services providers and companies like NSA, which is an anti-fraud company is leveraging the eCommerce platforms like Shopify and WooCommerce and so on, and as well as SAP HANA solution. And what they do is they integrate natively with these platforms and offer anti-fraud capabilities. So to answer your question PMO, the nature of security has changed completely. And I think the bottoms up sales process for security is an important trend to follow.

PEMO: So one last question that I’m interested in, a few of the VCs that I’ve interviewed have said that, you know, they won’t be having live meetings anytime soon, they won’t be flying. And that their portfolio companies are not going to be visiting clients. How do you think that scenario whether or not you’re, you’re implementing the same effect is going to affect business in Silicon Valley?

KEN: You know, it’s interesting. I think that some, some companies actually benefit by doing the sales remotely because when they were trying to go and sell inside of an enterprise and do it face to face, they needed to have all of the different constituents inside of an enterprise in one place. And that was always difficult. Whereas now it’s much easier to set up a zoom meeting and get different constituents involved in that and move the process forward. I think when you need to actually implement your software product and get it installed, and you don’t, and as a startup, you don’t make it easy enough to be able to do that for the, for the customers to be able to do that on their own. I think those are the types of companies that are going to be extremely hurt by not being able to go visit their customers physically do do the install. So, yes, yes,

PEMO: Because they’re saying most of the VCs are saying until there’s a vaccine and I did happen to see a a video of an Australian researcher who’s working on the TB vaccine that they’re trialing. He said that, you know, he didn’t think that there would ever be a successful vaccine because they’ve never been successful with flu vaccines. And he thinks it’ll just burn itself out that this virus. So that obviously means that it could be a long time before we go back to normal, if we ever do

KEN: Yeah. ah Pemo, I don’t think that is going to be normal the way we used to think about normal. You know, I think, you know, sadly I don’t think we’re going to be shaking hands or giving each other hugs as much as we used to. And you know, what I’ve been just completely jazzed about is the perseverance that I’m seeing from entrepreneur is not, you know, not only in our portfolio, but around the Valley and that they figured out a way to continue to add value to their customers. And even if you can’t visit a customer face to face they are still making a lot of progress these days. So I’m, I’m very heartened by that.

PEMO: Yes. Yep. That’s fabulous. And I guess the ones that are able to do that will be the ones that’ll still be here. When we find out what the new normal is and the ones that don’t probably be gone. So,

KEN: You know, the, the other thing that you didn’t ask is that, you know, in the past, I do think that there were too many startups that were funded in each space. And so it’s sad, but I do think that these, these startups that did not have complete differentiation that weren’t adding a lot of value to enterprises or, you know, that didn’t have good financial strategy and didn’t, didn’t raise enough money to meet milestones. Those are the ones that are, that are going to be hurt. And I actually think it’s going to be quite good for for customers as well as venture firms and, and the entrepreneurs to have a well down set of startups.

PEMO: Great. Well finishing on a positive note, there can always lovely to speak to you. Thank you so much for your time today and all the best.

KEN: Thank you very much. It was a pleasure chatting with you.

PEMO: Okay.

Edith Yeung General Partner Race Capital on Covid-19 crisis for startups

Edith Yeung General Partner Race Capital She is author and creator of the China Internet Report, an annual report on China technology trends widely popular among investors and corporate executives and Silicon.news – weekly briefing on Silicon Valley funding, merger, and acquisition news.  She has invested in over 50 startups including Lightyear/Stellar (valued $1.2B), Silk Labs (acquired by Apple), Chirp (acquired by Apple), Fleksy (acquired by Pinterest), Human (acquired by Mapbox), Solana, Oasis Labs, Nebulas, Hooked, DayDayCook, AISense, and many more.  Prior to Race Capital, Edith was a partner at 500 Startups, the world’s most active early-stage fund and incubator invested in Twilio, Credit Karma, Grab, and 2000 more companies. Before 500, Edith was the general manager at Dolphin Browser, a Sequoia-backed mobile browser with over 150 million installs worldwide. Edith also worked with many Fortune 500 companies such as Siebel, AMS, AT&T Wireless and Autodesk.

PEMO : Lovely to speak to you . I was wondering if you could tell me how things are going at your firm as regards this crisis?

EDITH: Well I think that the Pemo, I don’t know how you feel about it. I, I really feel that I really feel that the world literally turn upside down in the last, in the last 90 days. I think, you know, if, yeah, I think like all the changes we have experienced is just a beginning. There’s going to be a whole lot more changes to the world, to the society, to the economy, to how we live. We work and go back to particular to our fun for raise capital. I think we like our focus is, is this right? I would be curious how other VCs that you talked to and how they would answer it differently.

EDITH: But yeah, in terms of like our, our goals and thesis of focus of the funds is not going to change because there’s COVID, or there’s all these crisis going on that is not changing, but what, what is changing is the framework of how we work and how we sort of like structurally how like putting in a lot more, I would say practices on the day to day in terms of how we look at companies have changed. So just to start with, I just in terms of practice I normally will be seeing you at your event visits.

PEMO: Like we did last time. We did last time and that, that, that is normal and that is how I been living. And for the longest time they’re going to events and meeting companies face to face have able to look at somebody in the eyes where do you feel the energy? And you don’t really have that. Like as much as I actually wrote article, it’s kind of funny, I’ll tell you all the funny thing that happened experience I had with zoom for the last three months, but it’s really just, it’s not the same. So I found that as an industry I think our investment just sort of like an internal deal by deal basis to on making decisions to invest is taking definitely a lot longer. Not, not because we, we look at the company differently, but it really takes more due diligence, a lot more specific questions, a lot more homework.

EDITH: We do do that already, but now is everything is remote and not touchable literally. So, so in that sense, I feel like everything is taking longer from our side. And I’m sure like many of the founders CEO’s feeling more frustrated as well. And then, and then also like the way that we’d look at metrics. So the way that I look at B to B companies in terms of a churn sell cycle revenue, like conversion rate, those that doesn’t change a night, or if I will look at consumer, I don’t look at our consumer as much, but the sam e question, right? What’s your, if your mobile, what’s your install base Mau, auDA you turn all that. But I think that the key difference between, so the pre covert and now sort of still in it is a lot of the metrics. If you are in a specific category, let’s say you’re in gaming or online education or telemedicine, those numbers are skyrocketed, which is great, right?

EDITH: You’re really helping folks that needs it, like when they’re stuck at home or they’re not even getting an education or medical services, and now you can get it remotely. But what big question mark in my mind is would this phenomenon continue post COVID? I really hope so. I think that is long overdue particular for things that are telecom education and telemedicine because the industry is so old school and this time for disruption, but at the same time, as, as an investor, we want to know that, okay, like the way it’s being instrumented, this great, amazing to see entrepreneurs and companies being so adaptable because your customer needs probably it’s not public have changed. Whereas since covid at the same time, I think if I have a choice to have this conversation with you face to face versus I’m staring at a screen, I think I prefer face to face.

EDITH : So, so yeah. But more importantly, I think last thing I wanted to address also, regardless, all these for what’s been happening for the last week particular with all the protests. I think like my biggest thing, which as a fun particular for raise capital, we have looked very deeply into ourselves is like, is there anything we need to change? And I think what sometimes I feel like it’s great to, there is we need to voice and sometimes protests to basically there’s a lot of quality in this enough society at the same time. I think we, as an investor, we should be even more conscious in investing. We’re not just mechanically investing in robots or companies, robots, it’s not robot is actually a real human are our founders and CEO have that value system that we believe in like the, are they going to serve? Is it purely just for making money or do they have their own moral and or belief that, that we, we need to like be even more, more due diligence to find out about the person that’s really important? Isn’t it? Yup. Yup. So there’s definitely a lot of changes, but it’s not no pun intended. We can touch it. We don’t want to touch it, but it’s very like more fundamental about how we operate.

PEMO: Yeah. Okay. That’s really nice perspective because it’s totally true. Definitely has changed everything. And just while we’re on that subject, could you have you had any personal insights during this time? I see it as an enforced retreat, but I’m a Tibetan Buddhist, so it’s sort of like, Oh, it’s in enforced retreat while I’m still working. But I wonder what sort of insights personally you’ve had out of this

EDITH: But personally not necessarily related to work and then I’ll share with you some funny things. So so I’m born and raised in Hong Kong and actually a big portion of my time, especially the last few years is really looking at, you know deals in Asia and really kind of a particular helping, also a lot of portfolio portfolio companies to go to market in Asia particularly greater China. And I think more personal is it, you know, in March I was really thinking hard that, okay, maybe I should leave like fly back to Hong Kong because there was one weekend they’re gonna shut down if I don’t go, Oh, by the way, I’m so in San Francisco this summer, and I decide not to go have a lot to do with other than the plane is actually the most dangerous place in terms of cash. Otherwise I’m sure you, you originally from Australia right originally? Yes.

PEMO: Oh, my grownup kids were asking are you going to come back, come back home. I’m not getting on a plane

EDITH: Getting on a plane. I think. And then a few things I absolutely learned. One is we’re playing is one thing, but I will get to see my family in particular, my parents, but the back of her mind, if I catch something like we are healthy people probably won’t may not the chance of even getting really sick may not be that high, but more importantly is we could be carrying the virus without knowing it and still impact somebody else. Yeah. I think that sense of realizing that it’s not just about us or individual is about the grip, like the community, the collective, the collective, and that is something that I think we need to think hard about. And then second is, you know what, like if I don’t enjoy my own company who want to hang out with me anyway, so living with yourself and really enjoying and finding that in a piece almost so that’s more personal.

EDITH: But I have to say, I think from a mental sort of stimulation, Oh my God. Like basically zoom or in this case we’re using San Castro is assimilating and yeah. So the funny thing I want to share, which leads into the article I wrote about how do you actually conduct all these meetings and present on zoom, right? Cause yeah, I would say 90, 90% of my time on zoom is actually like talking to company, founder, CEO, and watching them pitch. And you cannot imagine like there are, there are founders, like we’ll zoom and drive like, Oh my God, goodness. It’s like, MultiTech stress. I’m not joking. I was fearful. Like I was scared for his I’m. Like I said, it’s okay not to talk now. And he’s like, don’t worry about it.

EDITH: And then it’s so funny. Like just a little thing cracks me up. I, I, my, to my, yeah, my partner is there particularly Chris and Alfred. They’re crazy about lighting and they are all expert photographers. So they using amazing DSLR camera for their zoom calls, which is cool. But a lot of the founders, like they will little things like there were sit bright behind it really bright windows. So it looks like they’re a dog Vader. Like I just can’t see their face is hilarious. And then I think more than ever, the good and bad is, is less, much less and less small talk. I feel like if you’re pitching on zoom, you really need to like, and I am trying to do the same thing for myself too, with any other meetings is you basically replaced a face to face, right? With different medium.

EDITH: You need to treat that as just like you’re doing face to face, set an agenda respectful of people’s time. And sometimes you will be funny. Like they think they, they didn’t mute yourself, but they could be doing a lot of funky thing in the bathroom, other places, you know, like, okay, I talked to Ann Winblad from this just before you, and she was saying, it’s amazing to see the inside of so many people’s living rooms and your reality. Could you tell me what you guys are or what you like to focus on and as far as your investments go? Yeah. So we in, in raise capital in terms of industry, we’ve been really focused on enterprise infrastructure, anything related to data, AI FinTech infrastructure. We’re really big on that. We, we have a very, we’re really excited actually this whole work from home phenomenon, because I think that it really and power, a lot of this doesn’t matter.

EDITH: You are a tech company or not of small businesses, be able to tap into the whole world in terms of talent. And because of that I call it enterprise, but really is also for smaller businesses too. But now you should be even more aware about like at home employee security at home sort of data privacy a lot of the infrastructure you don’t necessarily have to worry about when you’re at the office, because your it department pretty much take care of it. We still do, but now is sort of even more important, like, so I think more and more these sort of self service and the prize infrastructure sort of support this whole phenomenon. We do really well. We excited about that. And then in terms of stage we so focused on early to age our early check could be anywhere from, you know, a quarter of a million up to 2 million.

EDITH: We, we are mindful of that. And then I would say in terms of geography, seriously, postcode pre covert, I would say, Hey, yeah, majority of our investment will continue to be in Silicon Valley and now I’m thinking about it. Well, what difference does it make that you use sit in Palo Alto versus you could be, I don’t know, sitting in, I dunno, like Arizona is the same to me cause I don’t see you anyway. So, so in some sense, I think what’s going on is Broughton like the geography reach for, for us to like in terms type of companies where yeah. Maybe we need to loosen up a little, a little, like in terms of where these companies are. Yeah. And how, how did you manage your portfolio when the crisis hit? And, and how are you managing them as you go along now?

EDITH: Yeah, I, I think the good thing is, you know, our fund like really is so really young. So, so a lot of our existing portfolio company, we did a few things. One is immediately the first week. I’m happy to send you to we sent out a, almost say like a checklist in terms of, for all operations or area of operation. It’s not just, it’s not only about cutting costs, but obviously if you think about it, right, we, it doesn’t matter. I’m talking to somebody who, who built a McDonald’s versus building a SAS company, all of them need to think about their own products or product and engineering. So in that side of things, okay, do do is that certain product feature you may need to adjust change, or maybe either even accelerate because of, of the special times do you, probably many of them need to adjust their sales, target and revenue goal just because you’re, their customer is taking longer to make a decision and some of them are delaying pain is happening.

EDITH: And because of that, you see marketing, all right. Like if you, should you actually expand marketing or reduced it, this is not necessarily all about retract. It’s not about like reduce is it could be bullish on certain area too. So this is not just a, like a one way a formula of really depends on the vertical you focus on. So actually, which we talk about many things in type of operation for our existing portfolio company. But I think our key thing we wanted to emphasize to our company is that we don’t only wanted to invest in survivor. We want to invest in winners. So what are you doing now? Temporary is important, but even more importantly is how are you able to really like five, 10 years from now, how are you changing the way we work? We live, we operate and how your company going there.

EDITH: Take part of that. That’s actually really about mindset and taking care of their own people, I think is actually really unfortunate and sad to see that in Q1 there is over there. There’s a thing called I think the CEO that the tracking of like I have to look it up that literally statistic about over 200 corporate America CEO quit in Q1 year. Wow. And it’s so annoying in terms of how many captain literally abandoned the ship in the world in history. And I feel like it depends on what industry, I think some of our, our CEO they’re young, they never experienced any hardship whatsoever before, not like this. So I feel like sometimes I almost become like a psychotherapist dangerous territory. I know I am still not qualified. I’m doing it, but it’s about like, making sure that you are like hanging in there mentally. And, and, and if you are a captain of a ship, you are the one that needs to be still be there for all the employee, your teammates. Right. Yeah. And it’s just insane, like to see how many CEO jumps ship and how many in mature practice of layoff that’s been happening in our industry. So a lot of our, our, our beginning of it is really making sure our portfolio companies are okay.

PEMO: Yeah. Yeah. So we’d love to get that link to your article and the checklist. We can add it to the when I post the podcast, Edith look thank you so much for your time today and also for all, all this information it’s been really incredible. And I really wish you and Chris and your partner the best with the fund.

EDITH: Yeah. Thank you so much for having me and healthy back when the new normal is much more clear. I can’t wait. Thanks so much. Bye.

Ann Winblad, Managing Director Hummer Winblad Venture Partners on Covid-19 crisis for startups

Ann Winblad Managing Director Hummer Winblad Venture Partners, a venture capital firm she co-founded in 1989. She is a well-known and respected software industry entrepreneur and technology leader. Her background and years of experience in the software industry have been chronicled in many national and international business publications.  Hummer Winblad Venture Partners was the first venture firm focused exclusively on software. In her 30-year career as a venture capitalist, Ann’s firm has launched over 160 enterprise software companies and led investments that pioneered successful companies across the enterprise software sector: Business Intelligence, Analytics, Software Development, Integration, Data Center Optimization, Cloud Computing and Security.

Transcription

PEMO: Ann welcome, lovely to speak to you again after so long, I was wondering how you’re coping with this crisis.

ANN: Well, one of the things that we’re doing is holding weekly meetings with all of our CEOs through optional meetings. So we get a basic view of what’s going on in our companies, large and small. And we also get a chance to really understand what the challenges are running a company during this crisis.

PEMO: And can you also just cover briefly what kind of investments you’re focused on?

ANN: Well, we celebrated our 30th anniversary as a fund last September, so we’re in our 31st year with our same focus. We began as the first venture firm focused solely on software and enterprise software. So we are usually the first investor in a company, a venture investor. We start with the series a occasionally we’ll do a seed investment, and we always focus on enterprise software, which is business business software.

PEMO: Fantastic. Thanks for that. That’s just for those that don’t know what you’re, you’re focused on and how are you managing your current portfolio at the moment with what’s happened?

ANN: Well, our job is much easier than our CEO’s job. The company’s came off a very strong Q1 which was pretty much the end of the old economy, as we know it. We were fortunate that our companies were all in a pretty strong position entering into this very challenging time. Also enterprise software has been a sector that has done pretty well all in all, given that the majority of corporations worldwide, we’re still early on in their digital transformations. And as one CEO described to me, digital transformations that were lagging suddenly went into hurry up mode. So everybody is really been very focused on looking at their pipelines with a strong reality lens managing their finances, very tightly. Most companies have frozen hiring but there have not been massive layoffs as you know, enterprise software companies are not ones that employ tens of thousands. So it, and they’ve all for the most part had distributed workforces to start with, although not a hundred percent distributed. So they’ve had to pivot to being virtual companies as has everyone else.

PEMO: Right. and you still looking at new investments and and if so, how are you doing that?

ANN: Well, we had new investments in our pipeline. We recently closed a new investment in Canada, we fund North America based companies and that company is called smart access. And that, that was closed just in the last few weeks. However, I will say that the deals in the pipeline we’re actually in the pipeline before March, it does for early stage investing. We take, we give fast no’s and slow yeses. And what that means is that if we’re going to be involved in a company in the enterprise software space, a successful company like MuleSoft, which we funded at five people will be on those boards for 10 years. So we want to really understand the culture and composition of the teams. We really do a lot of due diligence on the marketplace, although we’re gazing into the future and that’s a little challenging to do so we still have a few deals and talk. We have three deals that are lined up to close in the next month or so. And those have gone through the pretty normal process of due diligence because they started on before the pandemic closing has always been something that’s done online and virtual. So that has not changed. So we’ll really see what happens when we started deal a fresh virtual we’re not in our offices because we’re based in San Francisco. So any auditions we’re doing, we’re doing virtually, but we were zoom users long before March.

PEMO: And so would you contemplate considering we don’t know how long this this effect self isolation and everything’s going to go on for it. Would you consider investing in a company just via virtual without any human contact?

ANN: Well, we’ll see you know, software is really such a people intensive business intellectual capital in a software company trumps the financial capital at all times. For me personally, I’ve always made a habit of taking three lunches a week and meeting an entrepreneur I’ve never met before. Not necessarily someone who’s pitching to me, but just to really be looking ahead at who are the new innovators. And I have to say after 12 weeks, I really do miss that a company that we’re closing shortly each of us had one-on-one lunches with the two founders. And we really feel like we know those people and that they know us. It’s a two way street here. I think you have to ask the entrepreneurs, would they take money from a venture capitalist they’d never met in person and put them on their board and do business with them for 10 years.

Speaker 3 (06:05):

So I think it’s going to be challenging and time will tell, but I think we’ll see the biggest pause in investing probably in the end of Q three Q four, but that has always been sort of a pause time. Anyway, if we look at years past and people may sort of wait until January of 2021 and see where we are, but for software investments, which are really, people-based not just invention based. We really do want to know who we’re investing in, not just what we’re investing in. And, and with that focus, I wonder what your own personal insight has come from this retreat. I call it of three months. Is there any like personal insights that you’ve come out of this with? Yeah, it’s been very interesting looking into people’s living rooms. And then I’ve had the opportunity to teach a couple of university classes over this period, which has been very revealing.

Speaker 3 (07:27):

I’ve spoken at an international to international conferences, which has also been very revealing. And it, there is an intimacy here which is refreshing and challenging at the same time. It’s you know, it’s a very, very different dynamic as time has gone on. I can see fatigue where people are, whether you’re a college professor, a CEO, a, a journalist no matter how much you love your spouse and children, 24 by seven is a lot in a recent conversation in a group of women board members. And these women have been on boards for a long time. And these are board members of fortune 500 companies. They say for the first time that childcare is really coming up at the board meeting and mostly male dominated boards. So I do think that we will see a much greater perspective on what it takes to not just run a business, but to raise a family teacher children, a greater appreciation for teachers.

PEMO: People have commented on how quickly everybody’s pivoted to online learning, but there is a real diversity of quality of the teachers and their ability to teach that way. I also think that it’s, it really is much more of a human connection in some ways to be looking into people’s homes and bedrooms Dan’s living but at the same time it makes leadership very challenging. As you have to extract yourself from this well, having an extraordinary amount of empathy, you still have a business to run, but you know, you’re in everyone’s homes. So it is really caused the bar to raise higher for a CEO during these times. And, you know, it’s not just about, you know, not seeing your team, but it is also about innovation and new ideas that happen when the team is together. Not just in plan meetings, it’s, it’s who walks by and sits down.

PEMO: And who will plan meetings has these great ideas. It really is. Innovation requires people to be together, not just virtually, but in the sort of non predetermined set theory, meaning ideas can come from anywhere in a company, not in just preplanned virtual meetings, wonderful insights, thanks for sharing those. What what do you expect in the next 12 to 24 months as regards investments generally in the Bay area?

Well, if we look at the investment data over the last few years last year and the year before were huge numbers, and much of that money was invested in the Bay area. However, the number of startups receiving a first round of investment was slowly going down over the last 10 years. In fact, last year’s total number was about equal to what it was 10 years ago. 50% of all the deals last year were over $50 million rounds.

ANN: A lot of the deals were done by non traditional venture capitalists, private equity, sovereign wealth funds corporations. And I don’t think that it has been easy for companies to get their first round of capital in the last few years and tell you’re a breakout company, and then there’s massive amounts of money. So there’s two questions here. What’ll happen at the starting line. And if you are a breaker company, will these mounds of money still be there? Will corporations still be investing? Will private equity be investing, will sovereign wealth funds be investing? And those are big questions. So I do think that companies can’t count on lots of money at the starting line or lots of money at the finish line, because there are a ton of companies now in the middle, there’s $120 billion of what we call powder fresh powder out there in the hands of venture capitalists in the U S however, if that was used, just to keep the current companies that are funding funded, it would be more than use job.

ANN: So there will be a triage happening in the middle. You won’t see most of it. Companies, some companies will just slowly fade away. I do think that at the, at the high end, you can’t count on 5,000, $200 million rounds being readily available. And that means that companies will have to either figure out how to approach the public markets earlier than 10 years, or have a different model where profitability is valued higher than growth, which has not been the case in recent years at the starting line. There’s always been a challenge for companies that are not based in Silicon Valley or in New York city or Boston. So I do think that the center of the country will suffer here. And that was just beginning to be more populated with entrepreneurs. Those are smaller funds. Less capital is getting in airplanes and flying around, which is another another challenge here we fund across the U S we have investments in Minnesota and Canada in Boston and New York and Oregon and all over California, but we’re not getting an airplanes right now, either. That means that we’re looking around the corners. And we’re, we’re not, we definitely are not looking as far a fields we have before. Although I will say that our most recent investment that we made is in Edmonton Canada, very cold day. Wow.

PEMO: Yeah, no huge changes and really hard to predict how it’s going to look, but thank you so much for all your insights, and you’re always very interesting and your experience in the industry goes way back, as you said. And it’s fascinating. So really appreciate your contribution today. Thank you so much.

ANN: Thank you yourself. And thanks for all the focus that you give entrepreneurs. We can’t forget that entrepreneurs are the backbone of our economy, so we need them to be very successful. Nicely put, thank you. Bye. See you. Bye.

Ben Narasin Venture Partner New Enterprise Associates (NEA) on Covid-19 crisis for startups

Ben Narasin is a prolific entrepreneur and early-stage investor with three decades of company-building expertise. His portfolio comprises of key early successes in fintech, digital marketplaces, mobile and connected devices. His seed investments include Dropcam, Lending Club, TellApart, Kabbage and Zenefits. Before NEA, Narasin most recently served as a General Partner at Canvas Ventures, and was previously with TriplePoint Capital, where he oversaw the firm’s seed funding investment activities.  He founded several consumer companies before launching his investing career, including Fashionmall.com which led to a successful IPO.  He holds a B.A. in Entrepreneurial Studies from Babson College.

Transcription

PEMO: Welcome Ben. So good to speak to you again, how’s it going in the crisis time,

BEN: Because as good as can be expected, staying busy.

PEMO: Right. And so can you tell me again what your main focus is for investments with NEA?

BEN: Sure. So maybe just a brief intro for those that don’t know me already. I’m Ben Harrison. I was an entrepreneur for 25 years and a seed investor for 10, have been a venture partner at NDA for the last three years. And so I focus on anything in technology at large, except for healthcare related med tech, adventures and security. Those are two categories I consciously don’t look at, but we have a phenomenal med tech team. You know, they do a great job, but that requires a whole different level of expertise. And security is one of those evolving spaces that I think if you don’t spend 50 to 80 or 100% of your life on it, you’re going to be behind. So beyond that, my goal is to find entrepreneurs that make me say wow, about something that is coming some vision they have with the future that I hadn’t thought of or a vision I have thought of it, but they’re going to execute against, and that can be consumer or enterprise or B to B, to C or a marketplace business or FinTech. So there’s not a lot of limits as long as it’s incredibly exciting.

PEMO: And how are you managing current investments, your portfolios at the moment?

BEN: Well, the time has been interesting. NEA was very early to recognize that COVID would be a challenge. And, you know, I’m really proud of the fact that the management team sort of started as early as the beginning of the year, February with some initial efforts. And by March it sort of curtailed travel of any substance and taking extra measures and then pretty quickly move to a work from home environment. And the teams executed quite well there. But the reason I bring that up is job one was protect your team and family job two was then do the same with your entrepreneurs. And so we spent an inordinate amount of time, very actively sort of weekly calls or staying in touch with it. I certainly did. And I know most of the partners that as well with their existing portfolio companies to make sure that they had the best possible resources in place, that they had a you know, whatever help we can give in the way of thinking about the go forward.

BEN: And, you know, that process took a period of time because each entrepreneur had different realities to deal with, you know, well-funded or needed to raise capital or had to think about different issues. And, you know, so over a period of many weeks, I sort of wanted to make sure everybody was safe and healthy both individually and financially to the best of our ability. And now that has been pretty much, it’s not complete, you know, it’ll, it’ll be an ongoing thing, but most of that work has heavy lifting has been done. It’s been very interesting for me. I think that entrepreneurs and all of us have treated this much in the way that people deal with other tragedies in life. There’s sort of the cycles of despair. The what is it? The four cycles grief. I think it goes denial, anger, negotiating, acceptance, and the sooner people can get to acceptance the sooner they can take an action. And the sooner they took action, the safer and better their organizations will be over time. So I think both people have primarily gotten through that process and are in the best place they can be.

PEMO: That’s a great way to look at it. Are you still investing and how are you managing to do that? Are you, is everything virtual now?

BEN: Totally open minded to investing. I’m actually working on a couple of deals. There’s there, isn’t something that’s gotten me so excited that I’m ready to do it yet. There’s one thing I’m working on now that might get there and yes, things have become all virtual in terms of zoom meetings. I’ve been recently talking internally a lot about, and sort of lobbying for the opportunity to quickly move. As soon as the counties allow it to walking meetings, obviously we’re going to follow the rules, but right now you officially can’t really have anybody over to your house or anything like that. But I don’t think we’re that far away from, you know, if you can wait in line in the grocery store, six feet from somebody, then you would likely be in the same situation, wearing a mask to be able to take a walking, beating six to eight feet from somebody.

BEN: So as soon as the local regulations allow that, you know, I’d argue, we’re a pretty conservative group and therefore will be and have been very protective of our, our team. But I’d like to believe that that’s coming in the not too distant future. And I think that’s going to be important, right? It’s hard for me to comprehend and this will be different for each person. I mean, people are making investments purely on a zoom based set of meetings, but you know, if I’m looking at deploying a material amount of capital and as somebody that’s new to me with an idea that’s new to me, I don’t know how I feel about doing that without having actually spent some time face to face with that person haven’t come across the ability of the companies I’m looking at now, I’ve actually had prior relationships with, I’m not, not taking meetings that are new. I’m definitely doing that. It’s just an open question as to whether I would get all the way across the finish line, without at least having some physical connection.

PEMO: It’s certainly affected everyone differently, the their self isolation and a lack of our human normal human context. So thanks for bringing that point up. What do you, what do you personally think of the takeaways from the whole deal?

BEN: Well, you know, I’ve spent a bunch of time as the group has thinking a lot about what things might be like on the go forward. And, you know, if you ever saw the movie a beautiful mind, I’m not quite at the string level yet, but I do have an enormous number of clippings, you know, just covering my office. You know, I read three papers a day and I take out the scissors and I cut out things that I think are the tea leaves. I want to understand to look for both opportunities and changes and I have a few theses and whether that will impact how I think about investment and it’s not yet clear, but you know, I’ve, I’ve found that in my own life, I’ve tended to be ahead of things historically. And I started a web business in 1993. I mean, you could probably count on one or two hands, the number of people that did that.

BEN: And I’ve always been ahead. And I’ve been not saying that braggadociously, it’s usually a challenge. Another way of saying it is I’ve been weird. You know, when people look at somebody that’s doing something they’ve never seen before, and it’s not normal for two years, that’s not something that people are used to. And so sometimes that’s been quite challenging having said that it’s worked out well for me over time. So I do spend a lot of time thinking about what things could look like, mainly because I just want to have a point of view. I’ll give you some examples, obviously, there’s this stuff that, yes, we’re going to have work from home as I go forward situation for companies of all sizes. And yes, you know, the digital ecosystem has expanded tremendously, but there’s, I want more than that. I want to get a little more granular than that on those two points though, two fascinating things I’ve come across recently on the business side, you know, Twitter came out and said, you can work from home forever if you want.

BEN: We’re very much in the mindset that people would only when we reopened would only come back on a voluntary basis if they wanted to. I was talking to a bank with 80,000 employees and they are totally fine with our people working from home now and for a bank, one of the most slow moving types of institutions to be there is amazing. They own seven buildings. They’re going to move that down to two. And their belief is that the people will work from home in many of the cases, but we’ll come together in the physical space for connectivity, for personal relationships. And I think that’s a really critical thing because, you know, when you move to a work from home environment, you, you lose a lot. There is a serendipity and human connection and casual conversation. There’s just all of it. And it moves things to you know, one, it does create a meritocracy because if you’re working from home or working remotely in any form, then it’s all a measurable where it should be, which means that there’s nowhere for you to hide, which means the best will rise to the top.

BEN: That also means the best will be the most poachable and it means the world will be flat. And if per job X a measure of 92 out of a hundred costs, know $1 in the United States and 50 cents in country, X and 12 cents in country, Y you can sort of see where that goes. Also from a personal advancement standpoint, you know, you can only learn from experience your own experience or someone else’s, it’s a lot cheaper to learn from someone else’s experience. That’s what mentorship is about. That’s what, you know, it is hard to do that remotely. I mean, you can create mechanisms. I’m not opposed to distance learning. I’m not opposed to, but, you know, zoom with 12 people, it’s different than me popping into somebody’s office. Second point of sort of digital adaptation. You know, we’re seeing companies where they’ve seen as many signups in the last eight weeks as I’ve seen in eight years.

BEN: I mean, one of my theses is that the, there has become a time now where all laggards are gone. It’s been the end of laggards, anybody that resisted technology in the past, they’re out of luck. Now they have to embrace it. And once they embrace it, you start to see what people are starting to turn the digital dividend. You know, it’s just more productive. It’s more powerful. Right. So if you were, let’s pretend you actually did things on paper and pen before, and you move to word or Excel, obviously I’m going back in time. Wow. How much better was that? Well, that’s true for pretty much every category of software. So, you know, for the people that used to say software is eating the world, I would say software ate the appetizer, and now it’s going to hit the rest of it for me.

PEMO: Very good. Very good. Do you, how do you think this is going to affect venture capital and investments here in Silicon Valley?

BEN): I don’t know that it’ll have a material effect except in that you will see, I guess a couple of things, one each from in person will handle how and when to invest differently. We all understand that great companies are created in all sorts of environments. Downturns are actually when some of the best companies in the world have been created. I’ve benefited from that. I started a company on black Monday that did quite well, you know, my investments in 2008 where some of my best but at the same time, this isn’t a, you know, two month blip. So I can see reasons to make investments. Now I can see reasons to observe for a quarter or two. I think each company will handle that differently. You know, a lot of funds had raised money. We were quite fortunate to have already closed on a three point $7 billion fund, which we announced right before COVID hit at least hit in a material way.

BEN: And that sort of general understanding, I think some firms are out there raising will probably be slowed down. I think you will see a winnowing of LPs also have had their world get upside down for a little bit. And, you know, so it’ll take longer to do things in general, at least for a period of time, in my opinion, both as an entrepreneur raising money, unless you’re at the very, very top tier and and the same thing for venture firms. And so you’ll probably see if you go pretty COVID there were all these micro VCs that were just starting out and going out there. Well, there’s an old saying in fundraising that I always enjoyed it sort of helped me understand what a new fund might look like. They said, look, first fund is good. Looks, you know, metaphorically. They look at the organization, they look at the metaphor, they look at the thinking, look at the history.

BEN: They look at the story and I say, that looks good to me. We’re going to put some money in fund two is, looks good so far. It’s too early to tell because you know, we’ve got some markups, but we’ve got no liquidity. We’re only a couple years in, but it looks good to me. So far, fund three, show me the money. Right? And so I think that this will likely cause a show me the money event for those earlier firms and funds. And that could be challenging. But I think by and large, when I think about venture, I, I tend to over standardize on is I always have, when I was at seed investor for 10 years, I totally focused on what are the top tier firms or the tier one firms doing? You know, what are they doing that helps me learn what they’re the best partners for me to have for my entrepreneurs.

BEN: And I think in those tier one firms, it’s not that it’s business as usual, it’s adaptive business as usual and venture will continue to adapt, but there’s a lot of capital available and that capital be deployed. I mean, we’re in the business of investing and we want to invest logically and logical risks for ridiculous reward. At least that’s my personal view. And none of that changes now having said that, I’m sure there are categories that we’ll see far more attention and that’s everything from things that will benefit from remote work. I mean, I’m not looking at server farms by any means, but you gotta believe that the capacity to serve farms is going to be, the demand is going way up. When people go from zoom, go from 10 million users to 300 million users, you know, that does require a lot more compute power and you multiply that by a lot of businesses. It’s going to be an interesting reality. I think a lot of the second order, second order and third order stuff we haven’t even started to see yet. And that’s why I’m trying to think about what things look like in the future in that way.

PEMO: Great. It’s good to hear from an advanced thinker. I appreciate it then. Well, look, thanks so much for all of that incredible information and wonderful oversight that you have on the crisis and on what’s happening in Silicon Valley at the moment. So really appreciate it. Thank you so much.

BEN: No problem. Thanks for having me on. It’s always good to talk to you.

Elizabeth Yin CoFounder/General Partner Hustle Fund on Covid-19 crisis for startups

Elizabeth Yin CoFounder/General Partner Hustle Fund which is a pre-seed fund for software entrepreneurs.  Previously, Elizabeth was a partner at 500 Startups where she invested in seed stage companies and ran the Mountain View accelerator.  In a prior life, Elizabeth co-founded and ran an adtech company called LaunchBit (acq 2014).  Elizabeth has a BSEE from Stanford and an MBA from MIT Sloan.

Leyla Seka Partner Operative Collective on Covid-19 crisis for startups

Leyla Seka Partner Operative Collective Leyla is a veteran enterprise executive, nationally recognized advocate for gender equality, and reluctant venture capitalist. For more than 11 years, Leyla’s work at Salesforce defined an industry. In multiple senior management roles she built and scaled iconic products including the AppExchange, Desk.com, and Salesforce Mobile. Leyla also pioneered Salesforce’s equal pay initiative, which led to raises for more than 10% of the women at the company. She is also a board director of Girls Who Code and Proofpoint.  Today, Leyla is investing in the next generation of enterprise technology as a partner at Operator Collective, a new VC fund and community designed to open the venture ecosystem to the people it needs most: tech leaders from diverse backgrounds with deep, present-day experience. Its limited partners include 100+ ultra-talented operators with decades of experience building, growing, and running the world’s most admired companies — from Zoom, Stripe, and PagerDuty to Salesforce, Slack, and beyond. Operator Collective launched its debut $45M+ fund on December 11, 2019.

Transcription

PEMO: Welcome Leyla. So nice to speak to you. We haven’t physically met yet, but I know you have a great track record in the ecosystem, so was wondering what Operator Collective focuses on with regards to investments?

LEYLA: Sure, and thank you for having me, Pemo. I’m excited to be here with you. So Operator Collective is the venture fund I helped launch with my partner Mallun Yen. Right now our focus from an investment perspective is on enterprise business to business, SaaS-based software that has product market fit and either has or is very quickly about to have repeatable revenue. So that’s a basic overview of what we invest in and what we look for.

PEMO: Okay. And how are you guys managing the current investments or your portfolio companies through the COVID19 crisis?

LEYLA: Listen, this is really a strange moment in time for all of us. And I think a hard one — so much loss of life and fear of the unknown. It’s a rough moment for sure. We tend to be pretty hands on with our portfolio companies and have fairly close relationships with them. So in the early stages we definitely worked with them and helped them think about how their current cash could stretch. You know, we want everyone to sort of be at least in an 18-month, or hopefully a 24-month, runway. And more is better given the fact that we’re in a fairly unsteady moment. And we’ve been doing a lot of talking about employee wellness, checking in on employees, assessing physical and mental health, during this time.

LEYLA: So spending a lot of time with the leadership teams and better understanding how they’re navigating things and how we might be able to help. But yeah, trying to be as available as possible, sharing information with our portfolio companies cause there’s a lot of different data coming at people. Like for example the paycheck protection program — that was very confusing in the initial days. It was hard to understand who is eligible and all the details. And we as a firm, you know, have this great community and one of our LPs is a former CFO. So she jumped in and helped us think through that and we were able to give our portfolio companies some good information and guidance to consider as they thought about whether or not to apply. So really Mallun and I, and really our whole team at Operator Collective, try to think all the time about how we can be most helpful to our portfolio companies to help them think through and weather the storm.

PEMO: That’s great. And are you investing in new companies at the moment?

LEYLA: Yes, we are actually. We just closed our fund at the end of last year at $50+ million. So yes, we’re still investing and in fact we’ve had some deals that were introduced to us in the last two months over Zoom and which we closed right in the midst of this crisis. So I certainly think that there are different things we’re looking at and different things people are considering at this moment. But you know, this crisis has driven all of us in our homes and you and I were talking earlier, even into like a retreat sort of mode that is really a moment where SaaS software helps facilitate communication amongst businesses and inside the community. So we’re seeing a lot of attention inside of our portfolio companies as well as people are looking for solutions to help them connect with their employees better.

PEMO: Yes, right. And so what are your thoughts about the new normal – what’s it going to be like? What are the investments people are going to be focused on and what are the ones that are going to drop by the wayside?

LEYLA: Yeah, I mean, it’s a really hard time to make protections, right? We’re sort of in uninsured territory to say the least. But I can speak from our perspective; we like unsexy, sort of boring things that solve really complicated problems. So you know, I built the AppExchange at Salesforce. Mallun worked at Cisco for years. She started two companies. So we’re definitely operators and come from that enterprise software background. So when we’re looking at things, we’re looking at interesting companies that are coming about a problem in a new way. For example, we recently invested in a company called Cube Software, that’s sort of a collaboration and good management software. And that’s one we felt very confident in because it’s just a place inside companies where there’s always a lot of communication going on and it’s hard to get the detail that you want as an executive.

LEYLA: So we’re looking for different ways, especially now that we’ll likely have a more distributed workforce. Several companies, you know, announced this week that their employees can stay home indefinitely. I’m on the board of a number of companies and we are all talking about what going back to work might look like. And, and every company has an optionality in their discussion around giving employees the choice, which I think makes a ton of sense. Different people have different obstacles in front of them. It’s not a one-size-fits-all dilemma. So I think also with that flexibility of coming back to work or what even going to work looks like, it’s not going to be like we’re all hanging out at our cubes and talking. It’s a distancing and masks and different protocols. So we think through that stuff – different types of software solutions will become maybe more important than they have been in the past because it will become the connective tissue that keeps organizations functioning through this distributed timeframe.

PEMO: And what do you think about accelerators, because obviously we’re chock-a-block with them on workspaces in the Bay area. How do you think that’s going to develop or not?

LEYLA: I think that’s going to be hard. I was part of a number of accelerators over my tenure at Salesforce and at different times in general. Those are really hard to run. I was never very successful at it myself. But I don’t think people are ready to spend a lot of time with groups of people that they don’t know yet. I certainly don’t want to do that right now. I’m not interested in going into a large space, especially an enclosed one with a whole bunch of strangers. It just doesn’t feel like a prudent thing to do right now from my vantage point. So, you know, I think we’re in an interesting moment where we can reimagine how we’ve been doing things.

LEYLA: Some things will stay the same. But there I was talking to Michelle Zatlyn, the COO of CloudFlare, she was on one of our, would do this series every week around, you know, facing challenges right now with senior leaders. And she and her team are thinking of it as going “back to better,” which is great. So I think for an incubator and accelerator, any kind of co-locating workspace like that, their business just totally shifted. But I do think there’s a way that maybe they could think about how they use the space differently. Some good ideas will be brought forth through innovation right now. It’s hard time.

PEMO: Okay. And again, I know so hard to predict and it’s sort of impossible actually, but I can still keep asking the questions. Because one question does interest me. Like do you think it’s all going to go back to normal or do you think there will be a new normal and what would that look like?

LEYLA: I think there will be a new normal like how after 9-11 you couldn’t walk to the gate and put your loved one on the airplane anymore. And then eventually we all had to start taking off our shoes and so I don’t, I think there will be a new normal. I think masks will be a lot more prevalent in our society than they have been in the past. There are a lot of, like, designer masks all over the place now. I think masks will be more normal. I wonder about, you know, shaking hands and hugging people. I have an overly gregarious personality most of the time. I like everyone. Can hugs happen again? Probably not until there’s a vaccine, but I think there will be a new normal with that. And for some people, if you have a compromised immune system, this is a much more challenging equation. So really, everyone sort of has to think about the best way to approach this for themselves. And then we as a community need to try to be as open and as understanding of that as we possibly can.

PEMO: Okay. So what should start-ups expect with regards to investment possibilities? Like in the next year and the next two years?

LEYLA: I think startups should run very lean. And my running philosophy on small companies, with some key exceptions, is you’re either building the product or selling the product. So with startups… You know it’s not the salad days right now. It’s definitely time to hunker down. Really every company I work with is running their budget right. And looking at ways to save money in different places and how they can stretch what they have and different types of options like that. I do think VC is a little different than everything else. It tends to lag of it. There’s still a lot of funding going on. I’m seeing deals all over the place – lots of great deals and awesome companies and interesting ideas. So I do think there’s quite a bit of activity still, but you know, in theory it will slow down if the economy doesn’t begin to recover.

LEYLA: I think founding teams should be looking for ways to be very frugal right now, while still looking at how they can hit growth targets or whatever those readjusted growth targets are in the face of COVID. But this is sort of like post 1990s – you know, no more Herman Miller chairs everywhere. Time to buckle down a little bit. And I lived through that. I was at one of those startups, and then our stock blew down. So I’ve experienced that myself and it’s a rough adjustment.

PEMO: Yeah. Yeah. And personally what is your the takeaway from that?

LEYLA: What’s my takeaway from this crisis? That’s a good great question. I mean, I left Salesforce about a year ago, so I’ve been spending a lot of time just reflecting over the last couple of years as I stayed there for 12 years. So I think that reflection has only deepened and continued through this period of time. I wished people were coming together more in certain ways, but in other ways I was beautifully surprised by the way they’re acting. It’s been a reminder to remember how lucky I am all the time. I think that’s been something been trying to focus on, especially when you see so much pain in the world. So I’m trying to figure out where and how I can help.

PEMO: Good to have gratitude despite all the fear that’s around us.

LEYLA: Indeed. It’s a hard time. It really is. This is probably the hardest thing I’ve lived through, and with kids and aging parents and all these different things. There are a lot of odd concerns. Like I hate going grocery shopping. It terrifies me. It used to be something I enjoyed, and now it’s like, Oh my gosh, I’m like a Ninja in and out. So I guess my hope is that things will feel more comfortable at some point, but I worry all the time right now. I think everyone does and that’s hard. Like I was saying to a friend, I think everyone has a low-grade depression right now. It’s just tough. So trying to keep things positive, look for positive things in the middle of a hard time. That’s what I keep trying to focus on.

PEMO: That’s great. One investor, a woman, said to me that she found that people weren’t thinking very clearly. Do you notice that as well?

LEYLA: Yeah, I there’s a concern for everyone’s safety, which a lot of other countries in the world have lived with a bit more than the United States has up until this point. I’m very much American – I grew up here – but it’s a change to be scared for your kids and scare for your parents all the time. And for the first time in a while, not terrified for the planet, which is actually a nice reprieve. But nevertheless, it’s unsettling, you know, and it continues to be unsettling. So yes, I think that causes people to be a little frazzled in their thinking. I sort of harken back to compassion. I’m giving people the benefit of the doubt as much as humanly possible right now, cause you don’t know what anyone’s facing.

PEMO: Yeah, it’s true. Yeah. Everyone’s under a lot of pressure and stress and like you said, grocery shopping’s become a nightmare.

LEYLA: So my husband and I Roshambo for who has to go, and then the one who has to go is in a bad mood for like a day and a half before they go. We hate it.

Duncan Davidson Founding Partner Bullpen Capital on Covid-19 crisis for startups

Duncan Davidson Founding Partner Bullpen Capital, the pioneer of Post Seed investing. Previously, two bubble era IPOs (InterTrust and Covad) and two other startups (SkyPilot and Xumii, the first mobile cloud app). Being the pitch person on one of them at the peak of the bubble, I learned firsthand that venture capital is a cyclical business. During the bubble, speed matters; during the downturn,  two successful strategies: long-term, deep tech; and short-term, value investing in oversold but otherwise solid companies. Bullpen was crafter for both bull and bear markets. The key: help the companies succeed, not focus on the deal.

Transcription

PEMO: Okay. Duncan, welcome. So good to hear your voice again. I was wondering how things are going there. With the crisis and the self isolation.

DUNCAN: Well, I’ve heard all these zoom jokes. I’m trying to spread the meme. I’m in the zoom where it happens for those watch Hamilton

PEMO: And and previous to this you were becoming a television star in Australia. I heard.

DUNCAN: Yeah, I went, I was sent down there slowing down to be the last episode in something called River Pitch so that the people behind the Shark Tank Australia started River Pitch and I was in the final episode and they wanted some Mark Cuban type to make fun of the founders. But I liked all the founders. I was actually trying to be very encouraging and nice to them. So I probably didn’t check the model.

PEMO: Yeah, you weren’t an asshole enough.

DUNCAN: That’s exactly right. I think these people with their hearts into doing something and I want to give them a reasonably good advice. In some cases it could have been go get a real job, but the cases they had separately hit your thing opportunities. So,

PEMO: Oh, that’s so great. Well, thanks for your contribution to the Australia Ozzy startup ecosystem. So I was wondering if you want to just briefly tell me what your main focus is on investments and and how that is affecting what’s happening at the moment.

DUNCAN: Well, Bullpen Capital is post seed. Our whole strategy is after a seed round, we will do a top off round, so to speak. It might be three to 5 million to try to set up an a round. Now the, the thinking here is the, a rounds today are B rounds of 10 years ago, right? So the stats are actually clear. A around 10 years ago it was 5 million beat around us. 15. Today the seed rounds in Toto are 5 million and the eight rounds are 15. So everything shifted out one more level. So our insight was given that phenomenon, how do you set up a $15 million round? Why play for five or seven when you could play for 15? So that’s, that’s how bullpen was started. Right.

PEMO: And how, how has the current crisis affecting your investments at the moment?

DUNCAN: There’s a huge irony here. We started Bullpen as a bare market fund, right? Because we started thinking of it, Oh nine and 10 and so the theory of post seed is you come in, you almost like a value investor, you get a very good value when you’re doing something essential, you roll your sleeves up to really help the company. We do a lot of hands on work with the founders and you get the big a, well it turns out that’s a bear market strategy and a bear market valuations drop the SIF to get to the next round as much finer, fewer people make it. The companies need a lot help how to handle a downturn and how to restructure a company. So we do all that.

PEMO: So it’s sort of perfect for what’s happening now.

DUNCAN: Right. It fell into our laps. We were actually were kind of surprised we went through our whole portfolio before the crisis yet actually we started doing it early March, then first looked at reserves and we did triage and then when the crisis hit we were good to go.

PEMO: How amazing. That’s like so forward thinking of you guys.

DUNCAN: There’s an article in Business Insider, actually three parts where I explained this whole process, but the key to it is to create something we call a default alive plan where you cut back enough, you change what you do, you pull back in your ambitions, but you get to positive cash flow or you get out far enough with enough metrics, you get to the next round in a bull market, everything’s momentum. Okay, we did a really, really high price seed round. Let’s get a high price day round in a bear market. It turns on its head. We were surprised how resilient our portfolio was. Many, many more companies could follow a default alive plan than we had thought, but that’s kind of a sidelight of doing post seed in a bull market. You still try to be very cash conscious. You don’t want companies that have raised too much money. You want the burn rate to be relatively lean. And when you do all of that, the companies are not to be resilient.

PEMO: That’s fantastic. And so reassuring. Do you envision investing this year as you would have last year or, or your expectation of this year before the crisis came?

DUNCAN: Well, we’ve been investing at a pace of roughly one a month and maybe who’s December cause it’s December and you lose July, August cause you’re on vacation. But 10, 12 a year has been our pace. We slowed down a bit in part to see how the crisis would shake out, but where we just put a term sheet out so we might’ve missed one month, I might’ve missed April, maybe two months when the dust settles. And we’re planning to keep on going at about one a month until the end of our current fund fund four and then we’ll flip over to fund five.

PEMO: Well that’s good work you guys. And what do you think as far as the overall investing in Silicon Valley at the moment, do you think that investors are continuing on as they have done and as their expectation was? Or do you think that they, like you have sort of slowed down to see what’s going to happen?

DUNCAN: Well, almost every VC publicly says we’re still in business, but almost no VCs were doing new deals. They were sort of filling out the deals that had already been in their pipeline. But, but having said that, there are still other people more aggressive than we are that have been doing a fully remote and talking about it, meaning they never meet the team. It’s all on zoom, zoom deal. So there, there’s some VCs are still out there, but I would conjecture that the data will show that the pace has dropped to about half what it used to be. Hmm.

PEMO: And do you think that doing remote or virtual introductions to companies and, you know, seeing the potential, do you think that’s viable and doable now moving forward? Because a lot of investors that I’ve spoken to already have said that, you know, that basically that that’s what it’s looking like more of a virtual environment as regards

DUNCAN: Investment. Well, I think we’re thinking like in California we will start phase two, phase three. I would say by July 4th independence day, we are potentially back to normal. I say potentially because human behavior might say skittish for awhile. While, just give you an analogy, I was here in 89 when the earthquake hit the big one right at the start of the Oakland, a San Francisco science world series game, which is funny to think about and I remember we used, we, I worked in a high rise in San Francisco and every time the elevator would go by and the floor would kind of jiggle over on a high floor, we’d all look at each other like, is this another one? And it took about a year for that little sort of ticklish sense in the back of your head. Oh my God. To go away. I think what’s going to happen here is as of July 4th of July, we could go back to normal, but we probably will won’t. We’ll still kind of be skiddish and it may take another year before or nine months for people feel really comfortable going back to where it used to be, any of the case, the consequences, the venture industry has to learn how to invest remotely without meeting the team. Yeah. Yeah.

PEMO: And you’ve got a very positive take on it. Because I know I just posted an article this morning that China has quarantined 109 million people because it’s been another outbreak there. So and a lot of the VCs I’ve been speaking to have said that you know, they’re not going to travel that they’ll be doing a lot of work remotely. You know, that the risk is just too great until they find a cure for this virus.

DUNCAN: Yeah. I can’t, who can project that? I think both sides have a reasonable viewpoint. Okay. it just, you know, we’re not going to keep the whole economy bottled up until we have a vaccine that is foolish thinking it may never be in vaccine. Vaccines are hard and the virus viruses are, are clever, agile, they mutate. But yeah, they have a better survival rate than us humans. Yeah, they do. But we’re already seeing a lot of people around the country rebelling against a lockdown and falling off to, it’s in. The lockdown is already breaking down. So I think on the one hand, the lockdown itself go away by July 4th, but on the other hand, as I said, people will behave more cautiously. Yes. skittish yes, that makes sense. Yeah. So that’ll continue. So then the question is can you really do venture with fully remote?

DUNCAN: You would think at some point in the food chain somebody has got to meet the team. Now maybe post seed is kind of interesting stage in that we always look for certain markers like good investors before us and buy good, not necessarily brand name, but we know them well enough to know they’ve done their homework on the deal and that gives you comfort. But if you have a deal that comes in, there’s nobody’s done sort of that check. Well you probably have to be the fun to do that check and whether you’re wearing mask or not meet the people.

PEMO: Yeah. Okay. Tentatively. And what do you what would your, your advice to startups at the moment who are looking for funding be?

DUNCAN: That’s a great question. I thought a lot about that question before this call because the most important part of the call and they’re all going to hear things like some of the greatest companies started in a downturn, which is true, but let’s take a look. Let me give you a context. This isn’t like 2000 when the bubble burst and I was there when the bubble burst in 2000 people had doubts about the internet. It sounds crazy today, but the internet is not real. I think people felt about the internet in 2001 like we feel about blockchain today. It didn’t feel real, but of course it was huge, bigger name, but that’s about the whole market and that made people slow to invest in 2008 we thought the financial system would melt down. The doubts were about that not technology in this time, nobody has any real doubts about the value of the technology.

DUNCAN: In fact, if you look at the S&P, the fangs sometimes call them fam. NGOs are the only stocks driving the whole growth in that stock market. Their tech is the only sector now producing real alpha in the marketplace. So there’s not just no doubt that it’s real. It’s actually where the money wants to go. Totally different than a 2000 and 2008 got it. So as a consequence of that, I think we’re going to see a unique pattern here. I sometimes try to call it a square root sign. Everybody’s got a letter, write a V, a U, a w, some crazy letter. Somebody came up with swoosh like a Nike swoosh, but I call it a square root sign, a sharp drop, look at the sign, sharp drop, and then a V recovery, but not all the way. And then a slower sort of flat period for about nine months.

DUNCAN: So we get back to where we were. Okay, whatever. If you can visualize it, maybe it’s a bad, it’s not a letter. I just want to pick something. It wasn’t a letter. So I can, and I think the balance is going to happen pretty quickly. For example, in China, the biggest balance right away where cars, why nobody in China wants to commute on a railroad anymore. They’re all buying cars like crazy. I think the auto industry might do very well over the next three or four months. We have to decide whether we’re commuting or not. A lot of people can really work remotely, but those that are committing will probably buy us to drive the car and then take a train. So cars may bounce. Things like that will create the bottom of the V for the venture side. I think what this means is for startups, you’re probably got a two quarter reset we’re living through and then things will begin to get interesting.

DUNCAN: So let me explain that in more detail. You want to be, let’s say you’re a SAS company and the rules are triple, triple, double, double grow by three. Basically get to 10 million ARR in two years. That’s a triple, triple and then go 20, 40, 60 or 80 70. So grow like that coming out of the 10 million range. ARR, triple, triple, double, double, double. All right. It’s hard to triple when everything fell apart. So those companies get a one or two quarter reset. If you survive this next two quarters, if you grow one X two X, it’s okay. Nobody’s going to hold it against you. It’s how you come out of it that matters. So you get like a reset for two quarters. Now for startups, if you’re already in the market, I’ll give you some advice. If you’re not in the market, I’ll give you other advice.

DUNCAN: If you’re in the market, this is the greatest thing for you in your time as a startup because the reset means you can now do the company you should have done. Most founders figure out things that would have done differently, things they would have added, but they got caught up in the rush to get to the next round and get venture money and the expectations of venture people so they sub optimize the real opportunity. You have a chance to reset, take it, really think through what you should have done and do it and you got two quarters to build the technology and get poised to do it. This is a freedom you’ll never get. Some companies got it in 2008 and took advantage of it. You got that reset card, play it. Okay. And then the messages will judge you and how you come out of it, how fast you grow coming out of the reset, not how you grew during the reset.

DUNCAN: And if they’re not in the market, what’s your advice? Well, what happens? What’s happening now is kind of a triaged across all ecosystem. So the really hot companies, especially ones like zoom that are surging in the covert world are everyone wants to put money in. And then the pretty good companies, some may not be surging, but they are very solid businesses. People put money in the ones I’ll call fliers, not quite the top tier, not even the middle tier, but interesting. Forget them. They’re not going to get funded. So it’s like the top companies get a lot of money. The ones in the middle still get funded. The bottom third, forget about it, bottom half, forget about it. So the number of startups that get funded I think is kind of shrink. I think it already has halved. It may expand a bit in Q four Q1 but it’s not going to expand to where it was.

DUNCAN: So the sieve to get through to be one of those startups to get the money is now much harder. Okay. Is this bad news? Not really. If you look at the most startups, they’re derivative. There’s some tweak on an idea somebody else has. So if you haven’t started a company, use the reset time to think through a bolder, more ambitious, more groundbreaking idea. It’s easy to say that, but people tend not to do that. They tend to do derivative products that are tweaked here. Tweak their 10% better. No, go for a hundred percent better. This is your chance. Yeah. Yeah.

PEMO: Real opportunity for sure. As well as the challenges.

DUNCAN: And let me give you a concrete example. Remote work is fascinating. Remote education, everybody gets half. How do you manage remote workers? Well, you can have dashboards and things like that, but dashboards are historical data. They’re not real time. Right? Wouldn’t you rather have a real time console? You’re the sales manager, you know immediately what meetings are being set up. It’s all remote. Who’s talking to whom? Who’s in their funnel, who’s scheduled, who isn’t scheduled? How did the meeting go with, you’ve got all this at your fingertips, right? So across the world of remote work, remote education, remote, this and that, think about the remote console to manage for the manager level because if the future is remote, then the future supervisors, managers are going to live in a console and that’s how they’re going to manage the, can’t walk down the floor, take that type of thinking and apply it to other markets. That’s just a particularly obvious one I think. But a lot of people haven’t thought it through that way. They still want to do analytics and a dashboard, no, do a console that’s real time and let people manage their far-flung workforce that way. Fantastic. Great advice. Yeah.

PEMO: And personally, Duncan, what have you taken out of this crisis in, obviously we’ve all had a lot of time to reflect and not be distracted by the noise out there.

DUNCAN: Well, I take in two, two big lessons out of this. So one of these are sort of prediction type of lessons. I think the trends are just accelerating, but everything I’ve spoken about is really been a trend that was already occurring. Okay. Like the, the number of startups peaked in 2015 it’s been going downhill ever since. Just kind of accelerate, money’s rotating to the later stage, mega rounds that’ll accelerate and so forth. So the first thing is assume you get two quarters of a reset and then an acceleration of prior trends. But here’s the other thing that’s going on. The boom we were in, which really started with the iPhone, let’s, let’s say it’s a got going in 2010, 2011 is mature. It matured several years ago. How many new iPhone apps have people gotten excited about? Not very many. It just, it’s a mature boom and one thing Colbert is going to do is accelerate the next boom.

DUNCAN: If you think about it, everybody’s still doing startups and the old phase, it kind of clogs up the pipeline for the new stuff they don’t get looked at. They’re not thought of as as interesting. When you sort of clean out the pipeline, you open up VC vision to what’s the new stuff truly new and a lot of people say the next big wave is so-called fourth industrial revolution, highfalutin words. If it’s true, it’s going to be huge. It’s going to be bigger than what we just went through. It’ll be more like what happened in the nineties and what happened in the in the teens, so I happen to believe they’re right, whether it’s the fourth industrial revolution or some other name doesn’t matter, but this is self-driving things. AI empowered is robotics, but I’ll put a more general word on it. It’s the reindustrialization of the Western world.

DUNCAN: We’re going to re industrialize and the world’s going to look so different. I mean, if we have all these cars commuting and then they become self-driving man, you free up a lot of time that’s now stuck in a traffic jam. Yeah. If we have more like micro mobility devices that are electric and more pleasant and they’re not spewing out fumes and all that, it’s going to be a better world. I can go down through a whole list of stuff, but I think the world is going to move quicker to the next range of deals to do. So. The other advice is think through what this reindustrialization of the Western world means and there’ll be a terrific number of opportunities there that are simply not visible today. Cause we’re all thinking of Uber and I phones and apps and cloud and stuff for the past boom, not the future. Boom.

PEMO: Wow. Thank you so much. It always neat, Duncan, when we speak and I really appreciate it and I’m sure all the listeners will too. Thank you so much for your time today and I’m wishing you and your family all the best until this crisis sort of finishes. Yeah. Look, and thank you very much and I love what you do and I’m so glad to be part of it. So just whenever you need me to do one of these things, just let me know. You’re very kind. Thanks again and stay safe and well, take care. Bye. Bye.

Susan Mason CoFounder/Partner Aligned Partners on Covid-19 crisis for startups

Susan Mason CoFounder/Partner Aligned Partners Susan has over 25 years of operating management and venture capital experience.Aligned Partners is an early stage venture capital firm focused on investing in capital efficient start-ups in the enterprise space. Prior to Aligned Partners, she was a General Partner with ONSET Ventures, an early stage venture capital firm. Susan specializes in investing in the information technology area, specifically communications, security and financial technology. As an investor and board member, Susan has played a pivotal role in the development of companies including Securent (acqd CSCO), Alteon (IPO), Gadzoox (IPO), SilverTail Systems (acqd EMC), Omney (acqd MA), and many others.

Transcription

PEMO: Welcome Susan. So good to speak to you. One of the bonuses that have come out of this crisis is an incredible increase in value of our human connections. I’m sure. And I do appreciate you. I was wondering if you could tell me a little bit about what you like to invest in.

SUSAN: Sure. at Align Partners, we invest in enterprise focused startups. We don’t invest in seed. We do invest in early stage, but our companies typically have initial revenue traction to validate customer adoption. And our companies tend to be capital efficient, meaning that they’ll use less than 15 million in total equity to achieve profitability and, and exit. Some of our companies have used as little as two and a half million total and there’s abuse the full 15. So it ranges between there. We are not focused on any particular vertical markets. So we are more agnostic with regard to vertical markets. That would include, FinTech is a oftentimes favorite for us, but we also have marketing IT, healthcare it, legal IT. So we have a number of different segments that we have had very successful companies grow and expand within.

PEMO: Fabulous. And so how are you managing your current portfolio with the crisis?

SUSAN: Well, in February when we had some visibility into what was happening in China and then the jump to Europe, we immediately pushed our companies into plan B operating plans to preserve capital. So they cut their burn rate pretty quickly. They streamlined, there were salary cuts. They renegotiated leases with their landlords. They got they basically removed any of the ancillary items that were nice to have but not must haves for the company’s survival. And that made all the difference in the world because they reacted very fast. They also reached out to their customers to let their customers know that they were in fine shape. They had plenty of capital. They were actually funded. Most of our companies are funded to profitability and that they would be there with the customers in the longterm. And that’s important because I think in a downturn like this, there are a lot of companies, startups in particular that will fail and the customers are going to be hit hard because they took a risk on that startup.

SUSAN: And so it’s really important that startups let their customers know that they’re going to be there for the long haul. Then the second element of course is your employees and making sure your employees are care of and, and ensuring not only their health, but that psychologically that they’re ready for the work from home. That ultimately happened. Most of our companies were quite fine shifting to work from home. In fact, what we’ve discovered is that credit activity is, is high and the employees were, are very much enjoying it because they don’t have hat, you know, 45 minutes to an hour commute each way. So so they’re actually, it’s ending up working out better. And we have a number of leases coming up for renewals at a a group of our companies. And they’re actually debating whether to get office space again or to just try to work from home for a year and see how it goes.

SUSAN): And if it does well then they’ll continue. So interesting changes underway and in kind of the capital market. And our companies responded well, so all of our companies will make it through this downturn. They have at least 18 months runway or cash to profitability. We did have them on the on the revenue plan anticipate that second quarter we asked them to do a kind of what we would call a worst case analysis, which was assumed second quarter had zero revenues. Third quarter you saw 25% of your plan of what you had thought you were going to do in 2020. And then your fourth quarter is maybe about 45% and figure out how to make the cash last at least 18 months or to profitability under a dramatically reduced revenue plan. And that has worked out well. It’s given them flexibility for, you know, some customers that are under duress have asked for, do you, we don’t want to pay a year upfront cause we’re trying to preserve cash. We want to pay quarterly. And that gives our startups the flexibility to say, yeah, we can do that. We’ll work with you. Because those customers will remember the startups that worked with them.

PEMO: Yeah. Well you’re such a forward thinker Susan who always amazes me because I have to say, I’m going to put my hand up this like totally took me by surprise and I was madly trying to put a a panel together in San Francisco and got it to the point where it was just going to be the panel and we were going to live stream at CapGemini and then everything happened. And and then a shelter in place came into effect in March. And it was all over.

SUSAN: Well, it was much more dramatic than I had ever anticipated because I really thought, well, you know, consumers would lose confidence in spending because of the illness. Therefore the economy was going to go down. Never in my wildest dreams did I think we would be under a what going weak lockup.

PEMO: Okay. But still still what you did with your portfolio companies that was amazing. And so, so ahead of the game I would say. And so hopefully their customers and them will survive much better. Are you still looking at other investments or are we managing that?

SUSAN: Yes, we are. We are active. So there are, there’s two groups. I would put the potential investments in, two groups. One are those investments, those companies that we have been considering before. And these might’ve been earlier stage than we would normally go in and we’ve just kept touch with them. And so we are retouching them to say, how are things going? Have you progressed to the point where we’re interested because we’ll have met with those entrepreneurs and those teams previously. And so we have a good feel for the company and the opportunity. So that’s one kind of bucket of investment opportunities that we’re looking at pretty seriously. And then the second bucket of opportunities are those entrepreneurs that we’ve not met except over video conferencing. And and so that’s going to take longer because it is difficult for us to do an investment without actually meeting the team and, and doing some white boarding and, and just being in the room with the team to see the unspoken dynamics. And so that will be hard for us if, if this con, I mean, let’s hope, you know, knock on wood here, that we’re not going to be in this lockdown for much longer. We’ll start to meet selectively with folks. But you know, we won’t be very active in that. And so those companies will have to really rise above our hurdle to get our attention to make us want to do that. But that’s not to say that we wouldn’t,

PEMO: Yeah, no problems. And on an overall sort of general level, how, how do you see the next couple of years? I mean, I know it’s very hard to predict for any of us because on many levels, this is all taken us all by surprise. But what are your thoughts? What are you, you’ve obviously are a person that prepares ahead of time, which is great. So how do you think it’s gonna look like in the next 12 months, next 24 months?

SUSAN: So for the startups I think there’s a plus and minus the plus is for those startups that can come through this downturn and prove that they are of significant value to their customer base because that’s the only reason customers are going to spend money on their products or services. Those companies will be very valuable. The companies that had a vitamin a or had had a, you know, a, a, a, a style or a or a trend, but not a need, those companies will be very challenged. And so I think for those startups that can prove their significant value to the customer base, that will make them valuable and they will be sought after for both investment as well as M. And a or so that, so that would be the positive side. And the other positives are, you know, salaries are going down.

SUSAN: The competition is decreasing in the Valley. So you’ll be able to hire really high quality talent at very reasonable prices. If you have a company that is one of those highly valued companies by customers, you are a safe Haven for employees, so you will, you will get first dibs on high quality employees. I think leases and subleases are definitely becoming available because startups are getting shut down left and right. And in fact Marty Pitchin son who lovingly is described as the undertaker of Silicon Valley he goes in and shuts down companies essentially is he told me that before this happened kind of in the January, February time frame, he was probably shutting down maybe four companies a week. He’s doing now between five and six companies a day. So that is a lot of fallout and those leases will become available as subleases.

SUSAN: Or those landlords are going to be looking for new renters and much better pricing. I think the fact that work from home is working for a number of companies is going to put more pressure and will reduce leases even more. So there are cost advantages that startups are going to see. I think the negatives are, you know, that the bubbly momentum times of easy money is gone for now. We have our cycles, right? We have our cycles and and so you’re really going to have to prove your wealth and your worth and your metal. Really prove why should your startup exist in this environment.

PEMO: So really what I’m hearing is that it’s very grounding this whole experience because things did get a little bit inflated and a bit out of control here in the Valley.

SUSAN: Yes.

PEMO: Yeah. And now from what you’re saying, I’m thinking, well that’s all good, really good stuff and brings us back down to earth and makes the companies more real. And as you said, providing real value. So

SUSAN: I think so. I mean that would be my take on it. I know there’s a lot of pain. I am empathetic with the pain, but I think ultimately it makes us stronger as entrepreneurs and investors.

PEMO: Yes. And so on that point, which is obviously brings me to my to be point, I, I really am interested in the whole human factor here because this isn’t just a business finance crisis like we’ve had in years gone past. We’re also far isolation and I’m wondering what your take is on this of how that’s going to affect our, you know, us working in the startup ecosystem here in Silicon Valley. And you know, for me, obviously it’s, it’s created a very high value on and significant value on my my connections with others. And made me more aware of that. But that’s always been a strong point for me. So I’m just wondering how you think, how you see this could affect us all generally.

SUSAN: Pemo, you do an excellent job of being on that forefront of things and really bringing people together, so I applaud you for doing that broadly and having such an excellent group of connections and your access. So you’ve done a great job. So yes, I talked to my CEO’s a lot more. I probably talked to them at least a couple of times a week, each one just to check in. Because when it, when we first had this kind of tidal wave come over us you know, you have to reach out and say, Hey, I know you’re scared. I know you’re scared for your company, for your employees, for your customers. And so let’s just talk it through. And make sure that we understand the proactive things we’re going to do to survive and then thrive. So that was that proactive reach out by us, by my partner, and I was very important and it set the stage, I think for them to be open and honest.

SUSAN: The other aspect is to coach them on how to help their employees through this. Employees are feeling isolated, they’re feeling vulnerable. They don’t have their cohorts with them, particularly if they’re the younger, you know, stuck at home alone. That can be pretty isolating. So having team conferences not just once a day, but multiple times a day just to check in, making sure that people are responsible for each other. Just as the, you know, the, the company’s family. You know, check in, have lunches together, schedule once a week. Everybody’s on the video with lunch and chit chatting, not talking about work. So I think those are things that can be done to help. Now the go back to work aspect cause we do have particularly the younger employees want to go someplace and be with others and and so our companies that made it completely voluntary as to when they feel comfortable doing that they are going to alternate days so that they can enforce the, the distancing aspect and, and have masks.

SUSAN: And then and then other employees that don’t want to do that, you know, as long as their productivity doesn’t decline or is it severely impacted, then, you know, our attitude is they should work from home as long as they want. I think that flexibility is important. And I think you’re seeing that in the ecosystem in general is people are being very flexible. The question is when we reopened you know, will we have those? Well, we’re certainly not going to have large gatherings until probably next year. And so you will see more small groups, which in many ways I think small groups together are more willing to share their vulnerabilities and advice across each other. And so I envision that this is an opportunity for, you know, the, the small breakfast group to get together the, the small coffee group to get together as opposed to these, you know, 200 person conferences. Unless you’re going to do that over video,

PEMO: Deeper engagement then. Yeah,

SUSAN: I think so. I would because there is a community for that and you know, I, you on the Vanguard here would be the perfect example to lead us off.

PEMO: Definitely. We’ll do little litmus test. So what do you think the new normal scatter look like? Ah, I know it’s really hard to predict, but everyone’s got different opinion about whether things will ultimately go back to the way they were or or whether they there will be a new normal and we’ll have to adjust to that.

SUSAN: Hmm. So, yeah, my crystal ball is not working today, but I can, I guess I can speak well for my, from my personal view is I will reduce travel until I feel very comfortable with the close engagement. I think the latest pictures coming on the cheek to jowl, kind of crowding on airplanes and you know so so that’s certainly one effect for me. I companies their customers actually are not necessarily going to want them coming to see them. So I think you will have to be very creative about how you establish rapport and relationship with your customers because the, the, you know, the closer contact, let’s, we’ll, we’ll come in and do a strategy meeting with you or something. I’m not sure customers are going to be comfortable with outsiders coming in for awhile. And and so that’s gonna put a lot of onus on how do you establish and, and build a relationship of trust with your customers. So that’s something that we’ve been working on as well. So yeah, many challenges and no shortage of challenges, but that’s why we have creative people to help us.

PEMO: Well, and still and Silicon Valley. I mean, that’s what we should be all about. So I guess it’s just, again, another litmus test to see if people can really do that. So

SUSAN: Yeah, I wouldn’t be surprised if we go into a w recruit recovery, you know, where we get out of lock up. Everybody goes back to work and, and we start coming out and then, you know, we get hit with a second wave of infection and then we go back down again. But this time I think it should not be nearly as much of a shock. You know, it’s like, okay, we’re going back into lockdown, we know how to do this. And and so I think folks will are, will be more battle hardened to do that. I do worry about our, our small businesses, our, you know, our lovely small business owners, restaurants, et cetera, that, that are really taking it hard right now. And, and so that does worry me that we will lose you know, a set of entrepreneurs, small business owners that, you know, it’s, it’s going to be hard to get them through this. And so that’s, that’s going to be too bad.

PEMO: That’s definitely about our community, isn’t it? The changes that are going to happen that we can’t really envision just yet, but yeah, definitely. So it’s always a delight talking to you and really have learned a lot appreciated and wishing you all the best and all your portfolio companies. And hopefully we’ll circle back and, and check out where we are a bit further down the line.

SUSAN: You bet. Pemo. If there’s anything you need, you just let me know. Okay, great work. Thank you so much again.

Chip Hazard, Partner Flybridge Capital on Covid-19 crisis for startups

Chip Hazard, Partner Flybridge Capital Chip’s investment interests and experience broadly cover companies and technologies in the information technology sector. He is also an investment partner in XFactor Ventures, a Flybridge community fund focused on investing in female founders.  Before co-founding the firm in 2002, Chip was a General Partner with Greylock Partners, a leading venture capital firm he joined in 1994. While at Greylock, Chip led or participated in numerous successful investments in the enterprise information technology field. Prior to Greylock, he was with Company Assistance Limited, an investment and consulting firm in Warsaw Poland; and Bain and Company, an international management consulting firm. Chip received a BA with honors from Stanford University and an MBA from Harvard Business School where he was a Baker Scholar and a Ford Scholar.

David Orban, Founder/Managing Partner Network Society Ventures on Covid-19 crisis for startups

David Orban Founder/Managing Partner Network Society Ventures David is an investor, entrepreneur, author, blogger, keynote speaker, and thought leader of the global technology landscape. His entrepreneurial accomplishments span several companies founded and grown over more than twenty years. An early adopter of blockchain technologies and an active Bitcoin investor since 2010, he was the first to own Ether during the Ethereum launch in 2014. He also led the adoption of Bitcoin and blockchain in start-ups and is an advisor and investor in numerous blockchain companies and funds, such as Bitnation, Neuromation, Sun Exchange, Wealth Migrate, Blockchain Capital, Bancor, Swarm Fund, and others

Transcription

PEMO: So could you tell me a little bit about I guess what’s happening in New York? I mean, we just heard pretty dire things about the crisis.

DAVID: Well, the, the, the interesting thing is that a network society ventures is a global firm and especially I personally commune moved to between Europe and New York or the U S in general, typically every couple of weeks. Right. And I will also speak at conferences all over the world. And at the end of February, I was supposed to fly to st Petersburg and add the time I was in Milan. And then I decided it was better not to go and to be even more precise, I was in Bergamo because I have a home in Bergamo when, when I’m in New York and, and we are at the night’s dinner around the table and people ask me, well, where is Bergamo or where’s your home? I invariably point to the bottle of Pellegrino on the table to kind of know that that is where that Springs, right?

DAVID: So I decided not to go to St Petersburg because I said I’d rather not spend a couple of weeks in a Russian current teen hospitality facility, whatever it would be, and then easily locked down. So for the past two months, I, I am, I’m stuck here. It’s wonderful. And, and as a, as a matter of fact, I was on, on air before the, the, the brunt of the situation arrived in New York. And some, some news you know, agencies picked up the interview that I gave because I was trying to alert the U S in general and New York in particular, or what was already happening here in Bergamo. And the situation was, was really terrible. So many people were dying that military convoys were peaking up the bodies in the night to be cremated elsewhere, 60, 70 military trucks and then coming back for more. And so now Italy is very slowly lifting the the, the heaviest log down. I literally didn’t leave my house for two months.

PEMO: Well, but I’m so glad that you’re in Italy and not in Russia. That’s right. I expect

DAVID: To get better. In the U S too. However, with such a large country, such diverse population cultures and behaviors, this is impossible to speak uniformly about what is going to happen all over the place. So I urge people to apply common sense to be very alert because the the, the, the sickness is, is, is real and, and we still don’t know, even if you don’t die from it, what potential longterm effects you have and whether you develop some secondary damage in your organs that appear to be traceable during autopsies and you don’t want that. And so being alert, wearing masks, washing hands, not being in close quarters with many other people altogether that is coming says that everybody should apply.

PEMO: Fantastic. Thanks for that. Feedback and yeah. I know that Italy was hard here to, and my daughter’s married to an Italian in Australia and

DAVID: Talking about daughters, my daughter is in Seoul. So the sequence was really mind boggling because she she has been there for many months and, and the Dan I was planning to, to, to fly to visit her. And then after VU hon, Seoul was the second hardest head place and then it came to Italy, then it went to New York. I mean it, it was psychologically really confusing. And, and that is also something that is under estimated how concrete and heavy, the psychological burden is both because either you work in an environment where people are sick or you are running the risk of, of getting sick or because you knew people that fell severely ill or died, but also the financial consequences on anything that you do. And we are all in the, in the same boat, in the, in the sands that we are exposed to the upheavals that are already here and that are potentially going to be amplified as cascading effects may and golf supply chains and complex systems that can be stopped but may not readily restart the way that they were before.

PEMO: Yes, it’s going to be a new normal I think. Thank you for that. I was wondering if you could tell me what you guys focus on as regards investments.

DAVID: So I started network society ventures based on my experience with singularity university where I was part of the group that designed it. 12 years ago at the university itself was born from a meeting between Peter Diamandis the creator of the X prize foundation that sponsored the contest for the first private space flight and Ray Kurzweil, the inventor, now director of engineering at Google and the author of the book, the singularity is near about sales modifying artificial intelligence and how transformative its impact is going to be on society. And at singularity university we study how exponentially accelerating technological change is it changing the world, changing business, changing communities and, and, and, and the entire society around us. But I was also able to ask myself what are the consequences if we take all of that for granted.

DAVID: And I concluded many years ago that decentralization was a natural, unavoidable consequence, which we could already observe in many industries independently being transformed by technology going in that direction, whether it is solar in energy, digital manufacturing, hydroponics, synthetic meat, personalized health, peer to peer learning, blockchain and Bitcoin in finance. Of course I published at the network society manifesto and then we had partners of mine in, in New York. We created our investment firm that looks at how the intersection of accelerating exponential technologies and the centralization creates opportunities where startups can thrive, going with the grain of history going and thriving in an environment that is extremely disruptive, but where they know that the transformation is going to go in their advantage. Great. And so how have you managed to keep investing like during this period of lockdown? And it’s funny because I, I recently spoke with a with a colleague not, not of our firm, but a, of another fund in, in the Valley.

DAVID: And he was very proud because just the day before they, the documents and he never physically met the founders that were, that they were investing in and, and, and wonderful hats off. Excellent. Then of course, it’s a very successful and procedures firm that has been investing for, for 20 years, but evidently they were privileged enough in Silicon Valley, in the, you know hottest, the investment periods of, of, of ever not to have to think about how to conduct business remotely, how to conduct business digitally. Evidently they would just hop in the car and, and drive to visit their investee companies, sit in their offices, waiting for the startups to show up to pitch. And if somebody was too far and it was inconvenient to drive to them, they would decline to invest. Now, in our case, that has never been like that.

DAVID: We were always the centralized, distributed geographically agnostic. We would invest in Africa, in Europe, in, in, in everywhere. And, and that is why, for, for us, the question wasn’t what we should be doing differently because apart from the fact that my wife is asking me, are you still here? What are you doing here? You haven’t been home for two months in a row for 20 years. It, the difference is really in, in, in in our investee companies in the portfolios. Are they able to cope with the changes? A friend of mine coined that, the neologism in analogy with pivoting, he says, how are you coveting? How are you adapting the business model, your roadmap, your outlook with Coveo 19 with the pandemic? And so we are asking our portfolio, how can we help enabling them, coveting better? And I think it is a very healthy exercise and, and necessary, you know, vitally so in, in many cases. And and I’m, I’m glad to say that most of them are, are able to adapt even though some of them are, you know, in in businesses that are extremely impacted. And, and, and some of them may not make it but in, in the world of investment that is that is also part of the game.

PEMO: Yes, exactly. So how do you think like what I’m hearing from you is that this is par for the course really because of the way you’ve set up your investments. And I’m wondering though, generally speaking, how you see the whole investing scene for the next 12 months because it’s obviously hard to predict. I know but you know, everyone’s in sort of still in a state of shock of how different life could be as it has been for the last few months.

DAVID: So, so network society ventures invests predominantly at the seed stage or even pre seed stage of startups. And one of the most important questions that we must ask ourselves to get to with our investee companies or the companies that we decide that we are about to decide that we want to invest in is how are you going to go about raising your next round and around after the next and so on until your liquidity event. And obviously we are there to help, but fundamentally it is the healthy growth of the business that must prove itself in the financial markets in front of those investors that are specialized in a rounds or B rounds or or whatever other stage of the growth of a, of a startup. And that is where the really tricky questions start arising because it is easy for me to say I am not impacted.

DAVID: I have the ability and the desire and the means and, and, and all the processes in place to keep investing. And, and then I look out and ask myself, okay, a community of eight round investors, how are you feeling? And then they ask, okay, community of be around investors. How are you feeling? And as soon as, at any point, one of the components of the virtuous circle stops operating or behaving the way that that would be otherwise expected. There is a cascading effect. And, and I could be forced to decide not to invest because of the fear that there would be a difficulty in raising the next round. So typically we don’t eh leaned investments or, or if we do, we do like to syndicate and typically we are very explicit with the startups to made sure that they understand that that we are specialized in, in, in seed and it is explicit with with not only them but with the next round investors that they may be in conversations with further on so that there is no negative signal around that at all.

DAVID: But as of right now, we are having a internal conversations, how to adapt our model and thesis so that we could counter act the potential freezing up of, of investments at some other stage. So we are looking at our own network to see whether we should be adapting our model. And, and do a further investment rounds. Exactly. In order to preserve the investments that we already did.

PEMO: Understood. so how do you think like how do you think we’re all gonna move forward, the startups and the investors with this very like this big circuit surprise, this big shock and then following that, trying to create a new normal what do you think are the things we need to watch out for? Like the dangers and what do you think at this point you do you see the opportunities?

DAVID: So, so I think it is important that everybody considers not only whether it is possible, but it is desirable to go back to where we were before. Many of the challenges and the tensions that were really building up in society were brought to the surface by the pandemic. But actually they have been brewing and accumulating for many years, even decades. And it is the, the, the, the difference between radical social changes happening or economic changes. As a matter of fact that happening in the past, that that are the result of, of all these tensions being eliminated through bloody Wars and revolutions or today where as a consequence of the pandemic and the common enemy that the alien virus represents. Well not the alien but alien, the us humans that that gives us the chance of confronting these stanchions without having had to resort to two Wars and revolutions.

DAVID: So that is the starting point point I think. And also the shock that all of us are feeling is in many ways liberating because it allows us in conversations with ourselves and with others to, to do away with the dogmatic views that we were parroting, assuming they were true, but without having necessarily examining them from first principles. So we are really able to ask, ask ourselves, can we have a new economic model? Can we have a new social contract? Can we build a different values? And one of them, and it is a principle very close to to, to, to network society ventures, which itself is a, is a benefit corporation. And I may explain what that means. If some of our listeners are not familiar with it, it is is sustainability for too many, too long. We pretended that we could count out to marketing and greenwash our companies and then the initiatives pretending to want to be sustainable without actually putting in the hard work.

DAVID: And now I think everybody realizes that sustainability is not only loving a pop or, or not killing lions. It sustainability is building and maintaining complex structures for the long term where the resilience and the robustness of the system that is able to withstand extreme variations of the parameters of functioning is approve that we can test in practice. So those organizations that are going to be born during the pandemic and out of the lessons of the pandemic, our module better suited to withstand whatever a future shock is going to come regardless of its source, whether biological or AI or, or economic or, or military, these sharks are going to come. And if you build your initiative, project business startup on those principles, you will be better positioned to be able to withstand those shocks than not the organizations that are not going to make it already today.

PEMO: Right. so one last question. This is fascinating to me but is we’re all been in self isolation for a couple of months. And here in California we’ve got it definitely for another month till the end of may. How do you think that’s going to affect the ecosystem with people having to spend time by themselves and not have that distraction of and the buzz of other people and other people’s ideas and stimulus. How do you think that’s going to affect us generally

DAVID: As an investor? For me it is fundamental to think about the physical and the mental health of founders. Often these are very young people who are told to burn themselves on the altar of success. And that is so wrong that from a human point of view, and it is preached by ecosystem participants, whether, you know, a law firm or an investor or their peer, whoever they are, who don’t realize that it doesn’t matter if you make it on average because anybody who lose in the meantime is Iraq irrecoverable. And whether it is due to a simple quotation marks, nervous brag, breakdown or it is leading to suicide, you must not drive somebody to those extremes of, of South neglect. So today the opportunity is for everybody to experience certain deprivations, certain degrees of, of trauma and to, to be able to observe how they themselves react and to analyze those emotions, analyze those reactions, and then decide how they want to face those about themselves and how they want their fellow startup ecosystem participants to to, to, to feel.

DAVID: Because we can support each other and, and, and keep each other well, or we can ignore each other’s issues and then everybody loses. So, yes, I am. I am very much on, on the side of, of sharing frustration, sharing defeat sharing the, the, the drama that is the daily life of all of us including our weaknesses. And I, I am privileged of, of, you know, having a thick skin. So, so I can afford, for example, to cry. I know I can afford to cry because I don’t mind the showing of weakness because I know I’m strong. And by showing that superficial weakness, I am transmitting the sense of, of fundamental strength to the others, letting them understand our humanity and the, the, the, the, the joint thrill of making it together at the end and the thriving together as humans.

PEMO: Fabulous. That’s a very nice, a little equate. Thank you so much. Look, absolutely delightful to talk to with you today, David. And I look forward to hopefully more in the future. Certainly I guess when things settle down, it’d be good to circle back and have another discussion.

DAVID:

Wonderful. And if any of our listeners want to reach out, I am very easy to find online. Just Google my name and I am a very liberal in all channels.

PEMO: Fantastic. Thank you so much David, and all the best for the new normal.

DAVID: Thank you. Thank you. And bye. Bye.

Fred Destin Founder Stride.VC on Covid-19 crisis for startups

Fred Destin Founder Stride.VC, a seed-stage fund focused operating in London and Paris, which he started with Harry Stebbings (a.k.a. the Twenty Minute VC) and Pia d’Iribarne. Prior to Stride, Fred was a General Partner at Accel and Accomplice (f.k.a. Atlas Venture). Of 17 investments he led, 10 have exited and 4 are active value drivers, including 5 companies in excess of $1BN in value (including Zoopla, Deliveroo and Pillpack). His portfolio has a total enterprise value of more than $10BN and he generated in excess of $700M in exit value to investors.

FRED: I’m good. I would say, I feel like I live the life of a monk, you get up, pray, work, sleep, repeat. It’s like every day is the same. So that’s a little bit boring. But I’m pretty good at getting a varied routine together. I’m actually fairly productive. I’m just bored. So boredom is my main enemy. I’m divorced, so I get my kids, you know, every other weekend, I take them for date nights during the week, but I’m alone a lot of the time, so that’s the only thing that’s hard.

PEMO: Oh, I know that one. But sometimes there’s wonderful teachings and learnings to be had from having to face all of your monsters and strengths.

FRED: Yeah, yeah, for sure. It’s nice to be with yourself. Yeah.

PEMO: Right. And lovely to talk to you again after so long. And so would you tell me a little bit about what’s happening in London? I used to live up in Tufnell Park for a couple of years, before I came over here.

FRED: Well it’s clear they implemented lock down about six weeks ago, but there are parts of the city where it’s still surprisingly active. I live close to a Moroccan Portuguese High street and the shops are open and and people are out and about. And so it’s quite mixed. I think some people are very respectful of the lockdown and some people don’t seem to care. So that’s partly why the cases are a bit like the U S. Its been on a plateau for a while because I don’t think the lockdown is super strict. They had shortages for a while, but they generally have performed ok.

PEMO: Right. And so tell me what’s happening in the startup ecosystem over there. And what’s it like for startups at the moment, people going to the wall

FRED: It’s mixed actually. So, you know, a lot of our portfolio has been doing surprisingly well. So we did careful assessment company by company and it’s really this acceleration of tech is no joke and you could see it across the results. So people have had a good month of April typically, and there’s been somewhere between the hiring freeze and 50% reduction in burn, so that, that’s roughly the scope. But nothing, nothing dramatic so far. My personal view is people are liking imaginations, how bad it’s going to be and don’t fully recognize the structural impact that’s, going to come. So I think it’ll be long and deep and it’s going to get worse. But I think there’s a sense of day to day normalities I think people forget, they read the data and they read what’s happening with it. They sort of think like it’s not, maybe not good impact I suppose.

PEMO: Well, it’s such a shock I guess. I mean in a way I was in denial initially I just thought, Oh, this is big hullabaloo about nothing. And then all of a sudden shelter in place was enforced in California and that was it. And I was like, Oh my God. So, you know, it took me by surprise. I’m sure a lot of people. So how can you prepare for something like that as far as being in a business? For me, all my events just shut down immediately and I can’t even go in live stream a panel or anything and then publish that. So you really have to think quickly on your feet about what people need and what sort of things that need to be offered. So yeah,

FRED: I mean my gym moved fully offline, fully online almost immediately. I go to a gym it’s sort of a procure gym only has 300 members. And it’s like a little community, but I mean everything. And I was just talking to the guy who runs it the other day and he said they haven’t lost a single member. So what they did was they reduced pricing a little bit to reflect online only but haven’t lost one. So I mean, long, long may that last. But I think people feel like it’s their responsibility to support and stuff.

PEMO: Yeah, yeah. Yeah. Wow. So what’s your advice to your portfolio at folio companies at the moment?

FRED: The first thing we talked about was getting yourself as a founder into the right mindset. And what I mean by that is it’s the mindset of the marathon runner. And I always talk about this Stockdale paradox, which is this famous, US Admiral. I think he was taken and tortured for seven years by the Vietcong, and he came out of there. Not only did he survive, but he came out of there in incredibly good shape mentally. And the reason for that is he said from the beginning, I’m not going to let this defeat me. I will survive. And not only that, but I will take the hardship that comes my way as a learning and improvement experience. And he came out stronger, more empathic, just a better person on the other side. And so the Stockdale paradox is that when he’s asked who died, he said, well, the people who died in captivity are the optimists, because the optimist would always think, Hey, we’ll be out by Christmas.

FRED: Well that will be Christmas. And then another Christmas would pass and it still be in. And he says they all died of a broken heart. So the first thing is sort of readjusting your mindset so that you can endure. And so that you view this as a way to strengthen your company. You learn and you know, and focus on, focus on the fact that you will prevail through this and you will build something. Great. Um, the second thing is, you know, helping them a little bit, manage their own emotions because they sort of have to be a Ray of sunshine to their team. You know, they can’t see that they’re stressed or down. They can’t be seen to be stressed or down by other members of the team. And so it’s really also, it’s important, I guess you can be a person that they can talk to without any form of agenda.

FRED: So one of the first thing that I tell them is, look, we don’t care about the forecasts. We don’t care about hitting numbers. All we care about is making the right decisions together because you know, God knows what’s coming, right? So you kind of try and release the pressure in that way and say, look, let’s just focus on, there’s a few key decisions we need to make. Let’s focus on having cool heads and making the right decisions together. And you can come to me with anything that’s going wrong, that’s tough, that is panicking you, decisions you’re having a hard time making, whatever it may be so that you can kind of be a little bit of a safe space. I suppose, to talk about these things openly. And then, we get into, okay, what is the right trade off between reducing our burn rate and extending our runway versus doing real damage to the company because you have to cut into muscle somewhat, but you don’t want to put too much operational risk on these businesses. And it’s kind of striking that balance between being more efficient with capital and conserving cash versus not damaging the assets or your ability to deliver.

PEMO: Hmm. So, um, and what’s the climate like in London as, um, after this, um, sort of crash? Um, I just remember it was a long time ago, but, um, you know, 12 years ago or so when I was in London, I just couldn’t get funded at all. Um, and uh, had some awful experiences there, but in those days they were very, um, you know, venture capital just sort of almost just wasn’t happening in London. So how has it now with this happening, because the thing I noticed about the, the English was that they are very risk averse and um, yeah. So that, that’s basically what contributed to the challenges in those days of trying to get any sort of venture capital or interest.

FRED: Well, so the venture industry in Europe in general has been exploding over the past 10 years. It’s about 25 years old, probably started around 1985 really, but it started gathering steam probably after 2000. So we’re sort of getting onto the 20th anniversary of the industry being relatively broad, let’s say, and 35 years altogether. But in the last five, eight, 10 years, you know, there’s been a Cambrian explosion in the number of practitioners and funds and also starting to see some really world class franchise franchisees emerged. So Index ventures, Accel, et cetera, as well as some amazing seed funds, local, global London and a much broader variety of funding sources. So the market’s pretty healthy and it was going full steam before the crisis hit. And my current sentiment is that the funding market itself remains generally quite healthy.

FRED: Actually, I think people are writing term sheets and deals are getting done. Now my personal assumption is that deal volumes will be down, you know, 50, 60% in the sense that the market will slow down. But I think people are active, people are investing, feels pretty healthy. They will be like everywhere. I suppose there’ll be a separation between some companies that everyone is fighting over and a large number of companies that really have trouble fundraising and have to cobble together internal rounds, some form of extension round and just muddle their way through to 2021 and see if they can then restart the engine. But I think that’s the same everywhere. I’m sure that’s the same in the US.

PEMO: Well, it was interesting because David Hornik said that he had seen a Fund of Funds survey asking investors how they were feeling about moving forward this year. And most of them came back and said they didn’t see any difference in their funding from the past, so it wasn’t going to cut their funding of startups. So would that be the same in, in Europe, do you think?

FRED: Well, so I think there’s a, there’s a mixed picture. 2008 and 2009 was a liquidity crisis and so there was a real evaporation of liquidity very broadly across all markets. This one is not a liquidity crisis per se. In fact, the banks are not as leveraged as they were and there was still a very healthy appetite for being in venture. I also think that the institutional investors recognize that this is probably a great time to invest in venture capital because these vintages are likely to be pretty good. And so fundamentally you have continued appetite and continued capacity. Now having said that I was on a podcast run by top tier, which is one of the best Fund of Funds out there and they clearly said liquidity is our premium.

FRED: Anything you can do to drive liquidity down, it’s helpful. The funds the institutional funds tend to have do two things. Number one:. There is a flight to quality. So people routinely will continue to fund the tier ones in the names. They will narrow down the portfolio of relationships on their key managers. And they also said it would be difficult for emerging managers unless they had a very clear differentiation to be successful in fundraising right now. So I think that you can look at the macro picture and say there is going to be continued influx of cash. You know, when you dig down, I do think it’s going to be quite a different environment, which makes sense. So nothing dramatic, but, um, but I still think it’s going to be a tough journey. Yep.

PEMO: Yeah. Yeah. And what about accelerators in the UK or in Europe? Do you think they are going to be affected a lot because obviously that’s boomed and so many accelerators and workspaces here in Silicon Valley?

FRED: Well, again, it’s a mixed picture. I think the best ones out there, like in Europe we have IES entrepreneur first, which is a deep tech talent discovery,network effectively an accelerator, we’ll be fine. And in fact, you know, for them, because they start companies at the preseed stage or foundational stage and they’re focused on deep tech in a way they’re in the perfect spot because their companies will need 18 months to two years to come to market anyway. What they’re at risk of is that as they push and if you push a cohort of 15, 18, 20, 25 companies out every program, you are reliant for sure on a pretty healthy angel and seed market. And so if that slows down you can bet that the capacity to get funded for their businesses is going to be hampered. Then we have a bunch of corporate accelerators. Some of them are great, you know, many of them I would say are fairly marginal and some people who built accelerators around physical spaces. And I think there’s going to be a cleanup because again, if you don’t have a very clear value proposition and the ability to get your company’s refinanced, the good days are over. So yeah, I would definitely expect a marked contraction in that segment for sure.

PEMO: I guess WeWork sort of heralded the nightmare to come, but no one knew what that was going to look like. I mean that was like such a travesty, that whole WeWork

FRED: Well so it’s interesting you mentioned WeWork, I can just to be contrarian for a second, I was on a Europe wide company showcase last week organized by WeWork Labs. The quality of the companies was high. There were 250 investors attending. And it was a real success. And so whilst we’re all focused on the corporate HQ story and all the abuses that happen there in the field, these people are actually doing really great work in terms of nurturing the ecosystem and helping companies get off the ground. And there’s still so far it’s still doing it, so I’m hoping somebody comes and picks up WeWork on the cheap probably jettisons half the assets but continues with the work they’ve been doing. Cause I think actually they were quite a clear net positive for the environment.

PEMO: Well that’s some positive feedback, which I have not heard about. WeWork for a long while, being on the ground as I am and the thing that I did object to was that they insisted on taking if you ran an event there, they’d insist on taking names and email addresses of attendees. And for me I’ve got strong privacy issues about people that I work with. So I just thought it was pretty mercenary really to expect that because really all they gotta do is send one person into the crowd and they can get business cards and contacts themselves and then there’s not an issue of privacy. So anyway tell me, what do you think’s going to happen as regards the startup domains, which ones do you think are going to be in a much better reception now? And the ones that maybe are going to fall a bit behind?

FRED: Well, so we always say, and I guess we pride ourselves a little bit on being anti thematic. What I mean by that is if you ask VCs what themes or sectors are gonna perform, everybody always says the same thing. So at the moment, you have clearly identified winners, right? And everybody says the same things, the same tune, which is, you know, remote work, remote learning, groceries, et cetera. And then underneath that, what I think is interesting is seeing, the large corporation acceleration towards, let’s call it digital. It’s just been accelerated at warp speed, which is also obvious what’s happening behind the scenes is the automation of a number of workflows through technology. So you don’t need to go all the way to machine learning and AI even though that’s part of it, but you’re just looking at claims processing insurance, you know, the back office of banking, a portion of how the law firms operate, which has been dramatically accelerated through tech.

FRED: Now that’s probably bad news for white collar jobs by the way, because I think in some ways it’s akin to the closing of the minds if you start destroying insurance, middle office jobs at scale, that’s going to be a lot of people. However for tech startups, I think there’s a lot of opportunity and, and very broad opportunities actually around the digitization of every single process inside enterprises. So simplest way to think about it is software robots. You know, the same way you had assembly robots in the factories, well now you can assemble processes through software. And it’s been going on for a while, of course, with AI enabled platforms, et cetera. But I think now it’s just moving to a whole different speed in terms of adoption and deployment.

PEMO: So this brings me to a subject close to my heart and that is the human factor. Do you think that there’s going to be more AI as you were saying, and how is that going to affect the human connection and engagement? Because my fear is that there could be a great loss around this, particularly in this ecosystem where, as you know, it can be a lonely, hardworking road. I think that the human factor in an ecosystem is really, really critical and important. And unfortunately this has all been about self isolation and more virtual, all of which is great. But I’m wondering what the costs will be on that human level.

FRED: Well, so again, there’s two aspects. I think you’re, if you’re thinking about there’s a, there’s a number of contacts we have with other people as users or clients that are not particularly pleasurable, one of them would be calling Comcast and being on hold for an hour to get your bill revised,

PEMO: or even at this point, Amazon to be an Amazon prime member and you just don’t feel like it anymore.

FRED: Right. So I think that’s the type of human contact, which again there’s a job impact here, which we should not minimize, but getting rid of call centers, et cetera it’s unavoidable. And again, it is not the type of human contact that you chose. So I think as with everything in technology, there’s no morality to technology. It’s neither good nor bad. It just is. And the question is being intentful about who you engage with and how you engage. So the silver lining for me in the containment has been that I’m quite a bit more selective about where I spend my time with people, but as a result, so I’m able to do more thinking work and more deep work and more long ranging projects. When I do engage with people though because I’ve been intentful about what I do, then I think the quality of my engagements is actually higher.

FRED: So I find myself generally a little bit more thoughtful I suppose in terms of how I run my life because of the choices imposed by self isolation and in particular, the fact that you have to be with yourself and sometimes be calm and sometimes being alone in silence is not a bad thing. And I found that to be the silver lining in this and I come out of it thinking, you know, there’s so much I appreciate about human contact that I definitely want to go back to right away. But also I think I’m going to be more selective, even more than before about where I spend my time, the days of being, from 7:30 AM breakfast to 10:00 PM dinner and being in meeting after meeting after meeting churning through people. I think these days for me at least are going to be modified. I’m not saying they’re going to be over, but I definitely could imagine my meeting frequency going down by half.

PEMO: And I guess part of that would be that you valuing this time to connect with yourself I would imagine?

FRED: Correct. But also I think what it’s allowed really is new social norms whereby you know, in the past if I responded to an entrepreneur and I asked two or three clarifying questions, then another set of questions. I mean, I would do it sometimes, but I always felt a little bit guilty. Whereas now I will have no hesitation to ask clarifying questions or screening questions. And then I will have no hesitation to say let’s have a 30 minute zoom call and we can cycle through whether we’re able to work together, et cetera. Fairly effective in that time. Now that means we go much faster towards the important questions, so there’s less chit chat and less niceties and we get to the essentials quickly. But again, if we get past that hurdle, then I’m going to spend significant time with you.

FRED: And I’m just thinking about how it’s modified by workflows and how it’s made. It’s kind of socially acceptable I suppose to kind of triage my interactions a bit more. I don’t view that as a negative. I think we interact too much with too many people. And I think this kind of flight to quality on human interaction is something that I kind of appreciate. It’s not a new learning, it’s just that it reemphasized for me, this notion of spending time with the people you care about or spending time with people who you really want to engage with and build a project together rather than this kind of endless habit of coffees and meetings, et cetera, which was kind of mind numbing frankly.

PEMO: Well, and of course being a venture capitalist that was sort of part of the territory before this crisis. So hopefully that may extend to other VCs as well? But that’s a really profound oversight overview of what can be taken away from this on a positive level. So I appreciate hearing that. Thank you so much. Is there anything else that you’ve thought of or see that you could leave us with as regards thoughts for moving forward through the rest of the crisis and after the crisis?

FRED: Where do you, where do you want to take this question? Cause it’s so open.

PEMO: Well, I’m just wondering if obviously all of us are having lots of self revelations because we don’t have the distraction of all the noise of social contact. And I’m just wondering do you have any sort of thoughts that you feel apart from what you’ve just shared that would be great to share with others?

FRED: Well, first of all, I think that when you’re in a specific situation, you can’t imagine how things would be different. So in other words, before when things were quote unquote normal, you couldn’t imagine that you’d ever be in containment and now that you’re in containment, you can’t imagine that things will be normal. Again. I’m convinced that we are going to go back to a level of quote unquote normality that is a lot more like what we had before than people realize and that it won’t take actually that long. So I’m not so gloomy on these predictions of fundamental change in how we interact, et cetera. I might be wrong, but I just don’t see that. Interesting, one of my concerns, I guess this is more at a societal level and it’s a loaded topic. So on the one hand you want to save as many lives as you can.

FRED: And you know I find for example, by the way it’s fairly abject when people are trying to trade off all the lives versus younger lives. I mean who does that? On the other hand though, which I think is a real question, there are two key questions I have. One is our tolerance for risk because effectively a pandemic, call it an act of God or an act of nature, but effectively it is something that exists outside of our systems and that hits us as a species and how do we react? We react by saying risk is unacceptable. Nobody should be exposed. The government’s responsibility is to save everyone and it’s sort of weird, right? Because you’re sort of saying we don’t tolerate death anymore and it’s kind of come back to us in a way that we didn’t expect and we are having a hard time dealing with it.

FRED: And I think that speaks to a larger truth about our relationship with end of life. You know, we are very bad at accompanying people when they get older without putting them in medical environments. We’re very bad about accepting death. We’re all obsessed with extension of life. And I don’t think any of that’s particularly healthy. So that’s one comment. And then the second comment is the notion that we’re willing or seem to be willing to suspend a lot of our fundamental freedoms, privacy, et cetera, in the face of a crisis because suddenly we’re, Hey, we are at war against an enemy called the virus. We cannot take any risks. And hence all the usual rules about what the state is allowed to do, not allowed to do, are out of the window.

FRED: And I think that’s understandable temporarily when you’re going through the war, but I’m sort of mildly concerned about the sort of open door policy towards more totalitarian behavior from governments, which by the way has been building up for many, many years. Right? Like we consider it acceptable that our faces are being recorded all day long as we move through the city of London, which kind of blows my mind. You know, the government can track you all the time in central London today and since when was that acceptable that the government would know your movements at times?

PEMO: Yeah, yeah, yeah, definitely. Our privacy and freedom should not be affected by this. Somehow let’s hope that that doesn’t happen, but it does take some consciousness to actually enforce that or to encourage that rather than just going with the herd mentality. And I think what I see particularly initially here, even in you know, so-called enlightened California, how fear gripped people massively. And you know, just even standing in a line in CVS, a woman goes, Oh my God, I heard, I heard a guy coughed in the shop. And I said don’t let the fear overcome as the fear is worse than the virus. It really sort of overcome many people and made them act irrationally. As Im a Tibetan Buddhist, I’ve had to do a death meditation since my late twenties and I have had to face my death a few times for real. And I guess it didn’t scare me. Oh everyone was sort of falling around around me here in Palo Alto. So I do think that a different attitude towards death could be a healthy because if you live as if you could die, then obviously you have a much richer experience and don’t take things for granted.

FRED: So your, your point is profound. A spot on which is life and death are intertwined. And so how you envisage your own death and how you choose to live your life are two facets of the same coin. And so the question really is, what kind of life do you want to live? I have no desire to live a close to life just because there is a risk that I get infected and die. Right? And so you have to be sensitive in how you present these arguments in the face of a raging pandemic. So that’s the philosophical point around it is, you know, life only has meaning because there’s an end to it fundamentally. And accepting that is important. Right. And it’s something that I think we’re losing the ability to do so in many cases.

PEMO: Yeah. Yeah. so wonderful to reconnect and to get to hear your thoughts on this and I’m wishing you all the best in London. Don’t hesitate to reach out if you’re visiting Silicon Valley.

FRED: Okay. Sounds good. Always a pleasure to talk to you. I really appreciate the conversation. Helped me think about a few things.

PEMO: Take care Fred.

FRED: Take care. Bye. Bye. Bye.

David Hornik, General Partner August Capital on Covid-19 crisis for startups

David Hornik is a General Partner at August Capital where he invests in consumer and enterprise software and services. He has worked closely with startups for the last 20 years. Prior to joining August, David was a litigator at Cravath Swaine & Moore, and corporate and licensing attorney at Venture Law Group and Perkins Coie. David is the author of the first venture capital blog, VentureBlog, and the first venture capital podcast, VentureCast. He is the founder and producer of The Lobby conferences, a series of events that gather the thought leaders in consumer and enterprise technology. David holds an AB in Computer Music from Stanford, an M.Phil in Criminology from Cambridge University, and a JD from Harvard Law School. David teaches entrepreneurship and venture capital at Harvard Law School and at Stanford Business School. Along with sitting on the boards of numerous technology startups, David also sits on the board of GLAAD.

DAVID: This is that entrepreneurs are you know, entrepreneurs are experts at the unknown. It’s their job. Their job is to try and take whatever data is available and then make good choices and then adapt as quickly as they can when they find out that this assumptions they made were wrong. And so we have a lot of businesses that were built being built on a set of assumptions that have changed dramatically. So they’re all having to adjust. And those are, you know, that that’s been an interesting time. And then now that we’ve gone through that first period, which is okay, the world has changed. Now everybody’s in the predict what the world becomes mode and there’s more uncertainty there. And so I think that you know, entrepreneurs are doing a whole lot of scenario planning, trying to figure out what are the possibilities and then how do those things affect them and what will they do depending on what happens.

PEMO; And, and as an investor, how are the investors coping?

DAVID: Well, you know, ultimately we’re just adjuncts of entrepreneurs, right? We are we are lucky enough to be alongside. And we also have the same challenges that they have. The biggest thing that investors are worried about is, is startups running out of money? Because the primary, you know, forcing function for startups is, is money. Right? And the reason that venture capital exists at all is because we’re funding companies that are unprofitable, right? We come in to help you accelerate your business with capital because it’s what you need. You don’t need people or technology or whatever. You need capital to be able to grow your business faster than the revenue that’s following your business. And so, so startups are always on the verge of running out of money and going out of business. And this has just accelerated that in lots of instances dramatically. And so the venture community is trying to figure out how can they help the companies not run out of money while continuing to meet their mission and continuing to create and build value. And those are hard things.

PEMO: And because the wonderful thing about the venture capital community is that so much experience and wisdom there yourself included with that. So I gather that it’s sort of challenging you all to get even more creative and get more wisdom out there to your portfolio companies, correct?

DAVID: Yeah. I mean, look there, it’s interesting, there are a lot of people who entered the venture business in the last, you know, five, 10 years and they have not seen a cycle like this before. Right. I, I’m about to hit 20 years in the venture business. I joined in 2000 right as we had the internet bubble burst and create a disruption. And then in 2008 when we had the housing crisis and a, a massive disruption. And so this is the third, you know, sort of challenging down economic cycle that I’ve, that I’ve encountered. I would say that there are a relatively small number of investors who have, who have seen that. And so that’s one of the tricky parts. On the other hand, it turns out they’re all different, right? It doesn’t, you know, the, the internet bubble bursting was a very different problem. It was an economic crisis of, you know, of belief.

The housing crisis was a very different crisis. It was a, it was a, an economic crisis that was driven by, by bad decision making and fraudulent behavior in the banking industry. This one, what, what we don’t know is when, you know, when we get some answers to the health crisis, do, how quickly can we help the economy recover and what impact that’ll have on the startup world. So I agree that ultimately having seen these cycles before, I, I think my partners and I were able to act more quickly and say this is not ever getting better, so don’t wait. And that I think has served our portfolio company as well. But there, but it’s always different.

PEMO: And I’m definitely with this one. It’s how long will this go on to? I mean, there’s a huge question there really. As far as business goes. So, you know, some people just won’t make it.

DAVID: No, I mean there, there was a recent pronouncement by, by a trade organization that three quarters of every New York city restaurant will not return after this down, you know, downturn. That’s an astonishing economic impact. And, and, and that’s just one teeny sector. And so if you look at it, the startup world is trying to serve all sorts of interesting pieces of the, of the economy, of the global economy. And there were companies out there that were serving that segment, right? There was a great company I saw that was dealing with contract workers for kitchen staff, for restaurants. How do you source great sushi chefs, etc. And, and the company was doing very well. Right now the company has zero business and when the economy returns, it will have a quarter of the available market. Does that mean they won’t succeed? I don’t know. But I can tell you that that makes it a lot harder. And that’s just one teeny piece of the, of the economy. So so you’re right, we don’t know what, we don’t know how long it’ll last. We don’t know how long this piece of it lasts. And then once we get out of it, once we get out of here, literally, you know, physically as well as metaphorically, then we don’t, what will, what the economy we will return to looks like and what we need to do from there.

PEMO: And I know that many people were talking to me over the last year and a half, maybe about a recession coming. But I don’t think anyone could have predicted this. Right.

DAVID: Well, Gates did. I don’t know if you’ve seen bill Gates had an a an amazing precious Ted talk several years ago where he said that there’s a global pandemic coming. He didn’t know about the economic repercussions of that, but I think you know, there are, there are folks in this world who have been predicting that the global economy and travel and population growth and all of these things would make it hard to imagine that we didn’t experience this moment, which theoretically is a once every hundred years moment. But there’s no reason it’s a once every a hundred years moment. I mean, as a Californian, I sit here in Palo Alto, California, having waited many, many years for the next big earthquake and nobody questions whether there will be another big earthquake here, it will happen. It’s just a question of when, if it happened to Morrow, you know, there’s no reason it wouldn’t also happen the following year. Although I guess tectonics might influence that because there’d been a release in, in a you know, or at least an intention in the, in the pandemic world, there’s nothing that will change, you know, I mean, maybe there’ll be fewer international flights for a period of time because of economic depression, but otherwise all of the things that have made this an a near certainty according to bill Gates and, and what we’re experiencing will still exist when we get out of this one.

PEMO: Right. Okay. So tell me, what would your advice be for startups who are looking for investment in the next 12 months?

DAVID: Well, if it is the next 12 months, that’s good news because it means that it’s not the next three months and it’s not the next six months. And like I said, I think that the biggest challenge is uncertainty. And when there is uncertainty, it’s very hard to go raise money and say, here is, here is what we’re doing. And here’s what, here’s the problem. We’re serving and here’s how the buyers will buy and we just don’t know how any of the buyers of anything will buy. Now there are some instances where there’s a lot of demand right now and there was a really smart young entrepreneur who who I’ve mentored for a while and he’s now in business school and he had started a business that was around food delivery that couldn’t be more timely and his and his business. You know, the, the fundamentals of his business have just gotten dramatically better.

The cost to acquire, the cost to serve because he’s got greater density. All these things have made his business better and so he needs to go pitch now because he has really great, great example of what the business can look like. The tricky problem for him is if I were listening and I was listening to the pitch, so that’s amazing. I wonder what happens when, you know, people get to go back to grocery stores with greater comfort, right? Do you then continue to use this service or not? Now you probably have experienced how great it is to not go to the grocery store in some regards. And so maybe retention is really strong and he gets to hang on to customers and then word of mouth results in lots and lots more customers, etc. Or maybe people are using this service because they have to and when they no longer have to, it’s more expensive than, than they’re willing to pay or whatever. So I just, so I think there are businesses that are getting benefit that should go have those conversations because they may be able to raise money. The others, if you can wait. I think waiting until you have great and greater certainty about what the future holds will make it a lot easier for you to raise capital.

PEMO: And as a result of what you’ve just told me, does that mean that investors really a sort of stepping back a bit from any more investing a pop from having to manage their own portfolio companies with this crosses?

DAVID: Well, there was just a survey done by by a big fund of funds that asked investors that question. Are, do you anticipate you’re investing more or less or the same? And the majority of people said the same. So at least investors are saying, no, we don’t anticipate that our rate of investment over 2020 is decreasing. We anticipate that it will stay the same. And that was my answer in the survey was there are now, I already only invest in a ha, you know, a couple of company personally, a couple of companies a year and the firm and I, you know, couple of companies times the number of partners. And so it’s a relatively tight funnel anyway. But but the truth is investors, folks who’ve been through cycles before know that there are amazing businesses that come out of downturns. Right? I mean, I funded Splunk, you know, in that, in the heart of that 2000 depression I funded Fastly out of the 2008 depression. So I, or I guess they were not technically depression suppressions whatever they were. So so I think good investors know that there are real opportunities and you, and if you shut off your funding during those downtimes, then you’re guaranteed not to have the great big winners in the next up cycle. And so, you know, so it’s harder to convince investors, but on the other hand, we’re all sitting around wanting to find that next grade company independent. Whether these are challenging times.

PEMO: And of course for startups, it’s important to pivot at the moment to make sure that they stay alive. I guess it’s the same for investors that they’ve gotta be looking now for new business models that will succeed or could succeed.

DAVID: Yeah, I mean, leading up to this moment, So I’m an investor in a company called get lab and get lab is, is the largest fully distributed, you know, tech company out there. You know, more than a thousand people and 65 countries. There is no headquarters. There were no offices. And so for months now I’ve been saying, gee, this, this distributed model is going to be the future of, of technology is. And so I’ve been looking for who’s going to build the tools to make that more accessible by the average company. And, and prior to coven, I had not found the company that I thought really answered that question. But I was excited about the idea of finding a company that, that fit that bill. Now we have companies that everybody’s home and everybody’s remote and they’re having to figure out which tools work, et cetera.

And so you would argue like, Oh, now’s an even better time to fund a company in this space, which I 100% agree, except there will now be a thousand companies built to solve this problem and distinguishing the one that’s going to be successful and the leader from the 999 others, which will not succeed, you know, I think will be a very challenging thing. And and so I now find it a less compelling area to focus on just because the circumstances. So, which is a strange outcome, right? The Mark is clear now and I missed it as far as I’m concerned.