The Midas List Live (Video + Transcript)

A discussion about venture capital and the effects  Covid-19 has had on in the industry. Join Nicole Quinn, General Partner at Lightspeed Ventures, Ann Miura-Ko, Founding Partner at Floodgate, and Alex Konrad, Senior Editor at Forbes as they talk about what they have seen in the industry lately and how they are moving forward.

Nicole Quinn | General Partner @ Lightspeed

Ann Miura-Ko | Founding Partner @ Floodgate

Alex Konrad  | Senior Editor @ Forbes


Speaker 1:
Good afternoon and good morning wherever you are and tuning in on around the world. Welcome to the Midas List live. We are joined by Alex Konrad, senior editor of Forbes. Nicole Quinn, general partner of Lightspeed Venture Partners and Ann Miura-Ko, co-founding partner of Floodgate, and I’ll hand it over to you.

Alex Konrad:
Hello everyone, well it’s awesome to be here. I’m Alex Konrad, the editor of the Midas List at Forbes and Ann is a perennial Midas Lister and Nicole here joining us just made up and comer list of frankness people who are likely to make a Midas List in the future so you have the present and the future of the list hopefully here.

But yeah, I’d love if and Nicole… I’m sure a lot of our audience are familiar with your firms but you mind just kind of grounding us a little bit into terms of the size of the funds that you’re working with and the stage of companies that you’re typically partnering with.

Ann Miura-Ko:
Thanks, we are a very early stage firm. Floodgate is now 12 years old. We got started in 2008 when we first spotted this sort of new place in investing, which we called seed. At the time, there maybe four or five other firms doing this same strategy of investing somewhere between $500,000 and $2 million into companies that were just getting started we would call it pre-product market fit.

We like to say we invest early, way too early or questionably legal early, and we take that plunge with the founder, very early on, and we do participate in follow on financing. But we think of it as being sort of CO conspirators with the founder’s pre-product market fit.

Alex Konrad:

That’s almost on a sinister but exciting, the conspiracy. And Nicole, what about you at Lightspeed.

Nicole Quinn:
So, on the other side of the spectrum, at Lightspeed, we’re operating out of our 13th Fund, which is a $4.2 billion fund, which we closed a couple of months ago. And we do have an early stage fund. So within that, it’s 900 million for seed series A, series B, we then have a growth fund, which is 1.8 billion, and then a global growth fund as well as one a half billion.

The great thing about those growth funds is that we carry on investing into our current companies. The majority of those funds actually do go into current portfolio companies. So giving peace of mind to founders that can carry on investing, actually right up until IPO and the global aspect to us really important, likely we actually have nine offices globally.

So we’re constantly looking at interesting new trends. So when are trying to partner invest in pin Duo Duo and tells us this interesting trend and we should watch out for it. In Europe that’s tremendously helpful or when one of our portfolio companies is looking to expand India, we work with our team that do that. So we’re also in Southeast Asia, Israel, Europe, as well as all across the US a regular week, we on a plane a lot.

Alex Konrad:
Awesome, but obviously not so much lately with the planes I’m sure.

Nicole Quinn:

Alex Konrad:
So for everyone who’s joining us in the audience, I just want to make clear, we’re going to have a pretty open-ended chat for a few minutes with these two awesome investors, and then we will be opening up questions. So I think we just got our first one, which is amazing. We will get to those in a few minutes. So please in the q&a section, feel free to weigh in and we will We’ll be trying to get to the best questions.

In the meantime, one more sort of contextual piece of information, if you both don’t mind, could you give us a sense of kind of the companies that in recent months you’ve spent the most time working with or the sectors that you’ve been sort of spending a lot of time in because while I think we can then range from past those, it’ll be helpful for everyone just to get a sense of kind of know where you’ve been investing a lot of your time lately. So maybe, Nicole, we’ll start with you and we’ll go back the other direction this time.

Nicole Quinn:
Sure, so we’ve been investing wisely. One is two-thirds enterprise, one-third consumer, some healthcare as well now, and I would say, over the last few months, we have still continued with the same areas that we were excited about before so very much in marketplaces and consumer subscription and SAS. Within that, I would say there’s this really interesting trend towards thinking about this some new habits that are being built up in these times, and will they be sticky afterward? That to us is a really cool question.

And so if you look at like the slacks and the zooms of the world, yes, there’s tremendous growth that’s being seen. But I’m a big believer that habits are built up, and then they actually do stick with us afterward. I think we are literally part of one of the big trends that I’m seeing right now, which is virtual conferences. And so if you think about it, like the fact that we can take an hour out of our day and be here, there’s no travel time, no one needs to fly in from anywhere.

This is a really efficient way of doing things. Also, in addition to that, if you’re an introvert and you really don’t like networking, then this is like a much better way of being like, okay great. I can do this for in my pajamas from home. And so we think this is a trend that’s going be sticking around for a while. And so that’s definitely an area that we’re investing in.

Alex Konrad:
Awesome. I’d love us to come back to that in a little bit, but first… and do you mind just giving us a sense of either companies or areas where you’ve been spending a lot of time maybe you know, in the months leading up to current events?

Ann Miura-Ko:
Yeah, so I’ll talk about sort of where I’m spending time looking for future companies. And then where I spent some time in the recent past. So some of the more recent investments where we’ve doubled down or we’ve made new investments. One is in the area of discovery-oriented commerce, which is something that I’ve been interested in for probably 10 years or so.

I used to call it lean back commerce, how do you get entertained and then suddenly discover something that you want to buy? I think Instagram is sort of the best example of that. And we invested in a company called Popshop Live in that space, which is really leveraging live streaming, and streaming in the future to bring commerce to almost any retailer, in a live format.

Other areas that we’ve doubled down on knowledge management is a space that we think that with increased remote work with distributed teams, it is one of the areas that’s really sort of still the holy grail. People still haven’t solved that problem. It seems ridiculous that we haven’t. But we need to find better solutions in that space.

So we’ve been spending more time in that space. We have a team called supernote. That’s been doing some really interesting things in the note-taking space. And then a third area is just what I would call a calling of the future of joy. So where do you get actually, the fun back into your life and some people will say it’s education, entertainment. What’s the future there?

One example company I would point to right now is a company called Learn Monthly, where we made an investment, really, because we love the founder. And what we’ve discovered along with him is that this same way people engage in marathons and love to share it, you probably have had friends run a marathon and everyone in their friend’s circle knows that they’re running a marathon…

Alex Konrad:
I think that’s the top role of running a marathon is you have to tell everyone constantly that you’re running a marathon.

Ann Miura-Ko:
Talk about it all the time. Because what’s the point, right, and so I think the same thing will happen in creative pursuits. And this is what Learn Monthly is discovered. They’re doing this for music production and oil painting and singing. And people are spending $300 a month and this was pre-COVID. And you can imagine, now they’re doing it even more.

Sharing their endeavors online and with their friends and creating real products is spending 10-15 hours a week on these types of pursuits. And so I think there are lots of things in sort of what we’ve been seeing in the past which we will continue to double down on. I think there’s been A lot of problems expose because of COVID, where we’re doubling down as well.

I’ve been really interested in federated learning. So how do you combine artificial intelligence with privacy by allowing training at the end nodes? That’s something that I’ve always been interested in doubling down continuously on knowledge management, privacy, those are all areas that we think will continue to become more interesting in the future.

Alex Konrad:

Nicole Quinn:
I have to say future joy is such a good way of putting it. This is exactly how we’ve been thinking about some of the companies in our portfolio so if I think about Calm they’ve been doing terrifically well during this time because they’ve been there for people and you know, helping them get to sleep and reading them a bedtime story when otherwise you know, they can’t get to sleep with anxiety. And Cameo for me is one which is a marketplace and now very much in the like the at-home entertainment it’s like a whole lot of fun.

Alex Konrad:
We used Cameo for my 11-year-old son’s birthday.

Nicole Quinn:
Who did you get?

Alex Konrad:
We were able to get our friend from the Celtics to send him a birthday message. It was pretty awesome.

Nicole Quinn:
Now did it bring him joy? That is the important question.

Ann Miura-Ko:
It did, it was totally the future of joy.

Nicole Quinn:

Ann Miura-Ko:
Who wants to talk about your future of work when you can have the future of joy?

Nicole Quinn:

Ann Miura-Ko:
Yeah, I wonder how much VC messages would go for on Cameo?

Nicole Quinn:
Well, I’m $10 on Cameo.

Ann Miura-Ko:
Or it would be a negative amount.

Alex Konrad:
Well, we’ll just save that for Twitter. So one, a deeper question. I did have though since you’re both starting to riff a bit about areas you’re looking at is, Venture Capital and startups are a long term game where we talked about partnerships that could be seven or 10 years between investors and entrepreneurs and startups that could take that long to kind of reach some sort of outcome. How do you algin that long term time horizon with sort of short term excitement or changes that we’re seeing right now?

Because things that might be really popular in this moment aren’t necessarily going to be popular five or seven years from now. So how are you trying to keep those different time horizons in mind as investors?

Ann Miura-Ko:
I wouldn`t even say, either six to 10 months from now, you don’t even know have that same kind of product-market fit. One of the things that I think is really important, just as an investor and a board member, is that you aren’t in the weeds all the time, right. So the benefit that you have is sort of the 30,000-foot view of what’s happening in the market, and also what’s happening with this company. And so the place where we can tell you is there product-market fit in this company right now? And is it a sustainable product-market fit or in this circumstance is it really COVID market fit?

And I think that’s a conversation that we’re having a lot with our portfolio companies, specifically the ones that are having tremendous success right now, we want to make sure that we aren’t just growing and creating a comp that’s going to be really hard to beat next year. But rather, we’re building in something that’s sustainable that customers love and find joy in and ultimately will continue to use.

And I think that the really tricky part is a company could have had that product-market fit in January, they don’t have it today isn’t going to come back? They have it today, will it sustain itself in six months? They never had it, what’s going to happen now? They build for COVID market fit, because who knows how long this will last? Those are the real tough conversations that we’re having with our portfolio companies today.

Nicole Quinn:
I get asked this question a lot, especially on anything consumer-related, because I do feel like consumer behaviors do just change so rapidly. And so one important thing to note is the fact that nothing goes straight up into the right consistently. And so it’s really important to have investors you’re working with who are patient, and who do have a really long term view.

And so if I look at like Mulesoft or AppDynamics, they took 12 and 14 years respectively to go public. And that’s fine. It’s really important to have both GPs but also LPs, who are patient capital, and then it’s thinking, Okay, so maybe there’s a flat six month period, and then you’ve got to be thinking, what can we learn from this period? We actually… I personally believe you can learn more from when times don’t go well than when they do go well.

And so it really is important to like lean in and make sure to be pushing the team around like learning’s when you do have like a flat period and growth. And then also constantly to be thinking about R&D constantly be thinking about innovation. And so maybe you have something that’s working today, but the consumer behavior will change gradually over time.

We’re always thinking about the fact that we’re in between platforms right now. So that was wearables mobile, we don’t yet know what the next platform is going to be. And so we’ve been investing in marketplaces that I believe will transcend across platforms, to whatever that may be next. We’re pretty bullish on voice.

And so that’s super interesting. And then to Ann’s point, I agree with these companies that were pretty flat before or maybe even declining before, and then suddenly have seen a huge uptick because of this. And, again, you’ve got to ask yourself, well, is this something that will stay around afterward? And is there a way that they’re actually able to capture what’s going on?

So one terrific example of that is, Instacart. Where if you think about it, yeah, a lot more people are shopping online. And really taking advantage of being able to order this food from home. It’s also introducing new customers, like my 70-year-old, 80-year-old parents. And now shopping online. For Instacart is very cleverly done is they have a subscription plan.

So it’s sort of like, okay, we think these people will already shop online in the next couple of months over COVID. But let’s lock them into a year-long subscription or two-year long subscription so that we really capture them afterward as well. And make them lifelong customers. So I love it when companies are thinking that way.

Alex Konrad:
Do the metrics that stand out to you both change in this situation, or is there any sort of… Are there any warning signs that might for our audience as investors or entrepreneurs, are there sort of signals that are more powerful in this moment to try to guess if things are sticky and sort of lasting in that sort of COVID, benefitted, or at least doing well side of the ecosystem?

Ann Miura-Ko:
We’ve always spent a lot of time on cohort analysis, whether it’s enterprise software or consumer software, we find that sort of the best leading indicator for product-market fit and also a prediction of who is your best customer? You know, but one thing that’s interesting is just in COVID-19 I think the shift has become more around how do you survive long enough to get to either cashflow positive or get to a state where the market is a little bit more stable and investors are investing more freely.

And what that means to me is actually one of the things we’re paying attention to is just your ability to outlast and so it’s not really about outgrowing your competitors. And so spending to outgrow, but rather to conserve enough to outlast. And that’s a very different mentality in terms of how the entrepreneur even thinks about the business, and how the people that you even have around you.

And so, to us, it’s actually, it’s a very tricky way in which you need to start to build your business because we’ve over the last five years really rewarded growth, and in a very pure sense, and now it really is about the underlying operations of the business that you really need to pay attention to.

Nicole Quinn:
Whether we think about KPIs, especially during this time, is what are the sort of underlying leading indicators that a true brand is being built here. And I would apply that to Zoom or Slack are one of the companies in our portfolio better off and so those leading indicators are things like cohort analysis on point, but also engagement, retention, customer NPS, the way that people are talking about it, like it’s not always just the quantitative factors.

There’s also the qualitative ones, where you really got to be thinking about how are people talking about this. So people saying, like, “Hey, this is cool, while I’m doing this while I’m working from home. But, I know when I go back to work, it’s not going to be this way anymore.” Also, something that was really building up consistently before this time, and then we’ve never seen a spike, and a lot of that will be captured afterward. So I think that you’ve constantly got to be thinking about all of those different factors as well and, you know, looking at some of the numbers to support that.

Ann Miura-Ko:
One other thing I would say is also, just like the health of the customers is something that we’re also paying a lot of attention to. So we’ll do pipeline analysis where we look at first of all the characteristics that our companies believe are indicative of a best customer.

And then we look at that and we say, under current scenarios, are these businesses, healthy businesses, growing businesses? Or is this actually now suddenly shrinking and non-existent market? So the travel industry isn’t just going to be spending a ton of money on SAS services anymore. And so we need to rethink whether or not the pipeline itself is healthy. And that also in turn, impacts that sense of product-market fit.

Alex Konrad:
Got it, and then in terms of, sort of the luck factor here. For companies that maybe feel like, they just ran into a buzzsaw or there isn’t a need for them right now, but there might be in the future. Are those businesses interesting to VCs like yourselves right now? Or would you rather wait and see and kind of get those companies that next go around because I have to feel like there are businesses.

I saw someone talking about Airbnb and they said, “If Airbnb were to somehow fail, someone else would gladly redo Airbnb in the future because the idea is sound.” It’s just not super needed in this moment, right? And so for businesses that are just sort of unlucky per se, what happens for them, when they are either already backed by investors or meeting with potential new investors?

Nicole Quinn:
I mean, listen one of the companies in our portfolio, that is a terrific business, it’s true factions, and so they have been very directly impacted from what’s going on. But this is a tremendous business and this is a business that will absolutely be around afterward.

And so we look at the fact that the CEO is a wartime leader, and he makes those cuts very quickly. Another company in our portfolio, Carter, I don’t know whether anybody read the CEO’s blog around the firings that he had to do in the business.

But it was very admirable, I would encourage everybody to read it. I think that it’s so important to be thinking about, okay, yes, our business is hit now. But let’s just make sure that we have at least 24 months runway is what we’re saying to folks, hopefully, 20 to 30 months.

But we just don’t know how long this is going to persist for. So just making sure that you’re in it, we will say when you’ve got to be alive, you’ve got to be in it. So let’s just make sure that we’re in this and have enough runway to get through this.

And so that is making the tough decisions to cut people that is making the tough decisions to scale down from that fancy office that you had before to a smaller office or even no office. So many folks are moving to remote, which I think is very sensible. Just the other day concept to me that they feel like they have to stay remote to stay ahead in this game and to be able to hire the very best A-list, A-player in the industry.

And so I think it’s interesting just the way that different companies are responding to it. Some are thinking, okay this will get better in a few months. But the more realistic ones are like, ” No, we need to take drastic action now, we need to make these cuts, we need to do the tough thing.” I need to be doing these motivational talks to my company. The CEO Cameo is always doing these motivational talks every single week for the company to really stay ahead. And I just think that really builds morale in these tough times. And it’s exactly what you need.

Ann Miura-Ko:
Yeah, I just…I go to those comments and just say… I was in the venture industry back in 2001. And my second day of working in the venture was at 9/11. And I actually remember in that period, because that was such a text field bubble, you would actually see companies have to let go 90% of their workforce, it felt like it was happening every day right. And you would see some of these companies actually, five years later surviving.

And so there were companies that had to pull their IPO in 2001. And then they went out for their actual IPO in 2005, 2006 timeframe. And you can only imagine what those CEOs, what those companies went through, in that intervening time, because they were at the brink of being public, pulled it, recognize that they had to let go of a vast majority of their workforce, and then move into the future.

And, you’ll probably have to see some of that kind of action and we’ve already seen some of it already within the tech industry and throughout the economy. But, and some of it is like being deeply, deeply unlucky. But leadership is about what you do in those moments, not when you hit the lucky truck, and you’re able to ride a wave, right and you will see some really inspiring examples of leadership over the next 6,12,18 months.

Alex Konrad:
So we have a couple of really good questions that we’ll get to shortly. And for everyone in the audience, I do encourage you to ask questions in the q&a, we will get to those. I just have a couple more first that I’m dying to know the answer to and hopefully other people will agree. I think the first one is, Ann and Nicole when I do these VC chats.

Historically, one of the most popular questions would always be how to founders find you, how do they reach you and sort of where do the most interesting potential opportunities come in from in terms of sourcing I think that’s probably a more poignant or even like more pressing question today when we’re all sort of working from home. And so I’m curious, what would that answer be? And has it changed at all in recent weeks?

Nicole Quinn:
I guess I have a strong opinion on this, which is that if you’re a founder, and you’re building a business and you take time out of your day to email us, then the very least that we can do is read and reply to that email. So I reply to every single email, my husband doesn’t like it when even at 11 pm at night, I’m still emailing away. But I think it’s really important.

I think that not everybody has venture connections, and they’re building some really interesting businesses across the world. So sometimes something won’t be a fit for me, but I can forward it to our India partner. I would say that these seeds have great websites that really clearly say,” Hey, I’m the healthcare person, Hey, I’m in charge of Southeast Asia.”

So definitely do your research before and then target that specific individual. I think that they really appreciate it when you say something thoughtful, having done your research beforehand. But then yeah, email for me is definitely the keyway most of them Twitter or LinkedIn. Email is going to get the fastest reply.

Ann Miura-Ko:
Yeah, and I’m the same way I’ve gotten approached on Twitter, I get approached by email. And those are probably the best ways. And I think that the key is actually, as Nicole said, just the fit, right. And so, for me, I oftentimes have to explain back, what is actually a great seed investment. From my perspective, and then also, what are areas that I’m focused on. And partially, I recognize that changes a lot for me.

I’m a generalist investor. And so there are lots of different places where I’m investing and so now I’m trying to spend a little bit more time writing, so I can explain to other folks where I’m most interested in I think that’s one of the benefits of the shelter in place is that you just have a little bit more time to think, a little bit more time to write and get your thoughts out.

Alex Konrad:
The other question I had was… And then we’ll go to some of the questions is just, I’ve heard, throughout my career covering the space, investors and founders say that a downturn or a time of crisis is a good time, historically, for entrepreneurs to start businesses and a lot of the most successful tech, venture-backed businesses can’t start it in the financial crisis or after the .com bubble burst and sort of in these down cycles.

Have you all seen any companies getting started right now in sort of the current moment? Or is it too early for that to have, sort of happened and kind of and how will we gauge whether that’s true this time around?

Ann Miura-Ko:
We’re seeing ideas, so I’m seeing founders being very engaged about starting companies. I actually believe it’s not that there are better companies in a down cycle, I just think there is no such thing is a great time to birth a company in the same way as there’s no great time to birth a baby, right.

And so, in my mind, you suddenly discover, you’ve had this idea, and you love it, and you need to form the company. And it’s not like you’re waiting for the stock market to hit a certain number for you to get started with that company. There’s no time like the present.

And so most of the founders that I meet, they are looking about looking at it from such a short term perspective saying the markets not up I’m not going to go out and start my business. They’re doing it now.

And it may be the one reason I would say that you might find grittier entrepreneurs right now is that, it’s probably easier to apply to business school or go work at Google and have a little bit of security right now. And starting a startup right now can be a little bit more scary. And so it creates a better lens for someone starting a business for love and not for merit badges.

Nicole Quinn:
Yeah, I’m a believer that in these times, it does create a great opportunity for folks to building companies, because the world is always changing around us. But right now, the pace of change has increased. And so as I think about that second derivative of change that, therein lies the opportunity to me. And so our habits are changing. And the ways that we have like, gone about the last 10 years during this crazy bull run, are changing so rapidly.

And so I personally love this job because we’re always learning little nuggets of the future from every founder that we meet, who tells us this is actually
the way that I think the world will look like in the future. And that’s based on this tiny little thing right now that is changing.

And so we can’t always look at what’s happening in other countries. COVID and China have definitely shown us that. But quite often, there are things that happen in pockets. And that starts in a little pocket and it really starts to spread. And that’s when we get pretty excited about investing.

We primarily invest sort of series A stage. And so I love to look out for those opportunities. But even now, like the seed, the seed stage idea, as Ann said, is fascinating when it could be such a big opportunity.

Ann Miura-Ko:
You know, just reflecting on that. I was looking at numbers from the Department of Labor Statistics. And what was really interesting there was that if you look at consumer spend, it has been largely flat in terms of buckets of spending for the last 20 years, but then McKinsey has been publishing these reports of what happened in COVID-19.

Over the last two months, consumer spending has drastically changed and it just like this never happens, right? And so certain pieces have fallen off and other things have taken off. And to me, the reason why that’s exciting is it’s an opportunity to create a completely new category of spin that you’ve never seen before.

And part of the reason I think the future of joy is so interesting is that there’s an opportunity to say okay, in-person travel and concerts has gone to zero, effectively. So what replaces that spend, people don’t stay at zero for that spend. They replace it with something and what is that replacement? What is the replacement for the money you would have spent on a restaurant meal with friends.

There has to be a way of recreating those connections and that feeling of joy that you have. So what will those be on the consumer side? But then on the business side? I mean, there are so many vast problems that have been uncovered with COVID-19.

I mean, how stupid is it that you can’t get toilet paper, right, or paper towels or, Clorox wipes. It’s not that there are fundamental restrictions on product or manufacturing, it’s a supply chain problem. And so there’s such opportunities for an intelligence supply chain, or what will happen with, automation and just better systems for identity management.

And how do you know if someone has not… Instead of saying contacts tracing, is there a way of tracing exposure but maintaining privacy, right? We have to be able to solve these problems. And what I love about our state today is that we’ve uncovered all of this incredible surface area for opportunities.

And in the same time, we’ve discovered an enormous amount of pain and, and people losing their jobs and fundamental disruption. Out of that the ashes, there’s there’s potentially ways of creating real abundance for everyone. And the awareness of the fact that people are going through this pain hopefully creates opportunities for software to help create that abundance in the future.

Nicole Quinn:
The way that we’ve been thinking about this Ann, is that this pandemic, as sad as everything is what’s going on. But this pandemic is accelerating trends that were seen before. And so, to give one example, it took 10 years for e-commerce to go from 6% penetration of retail spend to 16%. And then it took 10 weeks for them to go 27%. Shopify, definitely benefiting from this. But there are so many other companies that I think are thinking in a really innovative way around like, wow that’s a trend that I was not expecting to be such a step change and I quickly jump on it.

Ann Miura-Ko:
Yeah, I mean I just look at my family and everyone from my eight-year-old to my who is on Zoom talking to a Spanish tutor and his class, to my 73-year-old mother who is literally taking Zumba classes over Zoom, imagine that. You have this incredible wide audience using the same technology, which hardly ever happens in the United States. And to me, that’s really exciting.

Alex Konrad:
So I’d like to open it up to the audience questions a bit? I’m going to start with one from… I’m going to take a question from Jose from a while back. And I’m going to kind of broaden it a little bit, which is, for international companies or companies that are not in Silicon Valley, in your backyard, rubber, that would be the, does that matter less right now? Can they be getting on the radar of, let’s say, California firms or other firms? Or do they need to be coming to the US and sort of in you know, planning to come to the local markets be interesting, to investors?

Nicole Quinn:
So, I would say the times that we’re in now mean that you guys, like anybody internationally starting a business is in a much stronger position than they were before. Because no one could jump on a flight, no one can meet up and so whether it be meeting somebody who’s in the peninsula, building a company, I’m doing that over Zoom, so I’m going to be having that exact same interaction. But the person down the road as I would somebody who’s building, an interesting company in France.

And so I would say, I personally believe that this is going stick around for a lot longer. And so I would say, take advantage of this and just set up a Zoom call with the founders. The time difference is really the only thing standing in our way right now, but we will work early so we can do things with Europe. So working around the clock.

Alex Konrad:
Would you all back founder without meeting them face to face? Like if they can’t travel? Or you can travel? Is that okay?

Nicole Quinn:
Yeah, we already have. I think that means they’ve got to do a few more meetings, and just spend a little bit more time getting to know them, maybe do a few more references. But we certainly have done and we’ll continue to.

Alex Konrad:
We have a bunch of questions about seed investing, whether bigger firms or bigger funds are still moving earlier and kind of, putting pressure on early-stage investors from sort of a check size perspective. We also had a question about sort of, has the definition of seed, or what might be considered a seed deal evolved at all in the current situation? I’m so curious if you either of you have any thoughts on sort of the state of seed investing right now?

Ann Miura-Ko:
Yeah, I mean, I’ll take that up. We are actually seeing larger firms come down to seed stage. And, seed stage investors go even earlier stage we’re definitely in that market of doing pre-seed to seed. Our argument would be mainly that for us, seed is what we do. You can’t come back to us later and say, can you write a series A check, it’s what we majored in. It’s our expertise.

And the only thing we know is the pre-product market fit and how you get to product market fit. And we’ve done it time and time again with great companies. And we feel like this is the thing that we know.

And so we’re great at helping companies go through pivots, we understand when the product that you’re working on is not the product that you’re going to be pitching for the series A. And so we have lots of reasons why a company should raise with a seed focused firm. We have also partnered actually, with larger firms at the seed stage as well.

So I have a very recent investment, where we’re actually in term sheet negotiations right now, where I did the pre-seed but we brought in a multi-stage firm, or the series seed, and those rounds are becoming larger, so they are typically anywhere between four and $6 million. From what I’ve seen, to me that is actually a very sort of traditional series A.

But what we’ve found is that that partnership can actually work pretty nicely. It reduces the financing risk because the company can get a slightly larger cheque than what we would normally write. But they’re still getting floodgate at the table, helping them through that pre-product market fit. Generally, the larger firms recognize that’s what we bring to the table and so they’re making room for us in the rounds.

Nicole Quinn:
I would just add on to that, because these rounds are getting so large at a point, that it really presents an opportunity to collaborate. And so we love partnering with great funds such as Floodgate to set aside. Okay, well, this is a $4 million seed round. This is larger than we typically call seeds, anything three and under and so it makes a lot of sense for one fun to do to us to do to, and then you get the benefit of both funds coming in.

So we typically collaborate at the seed stage and then also at the growth stage. And I think that these times only present a greater opportunity to do that, because funds, companies are thinking, hey, actually, I’m going to take a little bit more onto the balance sheet so that I can have a longer runway. So maybe instead of working with one fund, I’ll work with two, I think that’s very sensible thinking.

Alex Konrad:
We have a couple of questions about when we were talking about sort of cohort analysis and metrics earlier in the conversation. So to go back to that and to sort of distilling these two questions. How do you think about the sort of smaller sample sizes of users? Whether you’re either still a relatively small company with just thousands of users, or if your users tend to be fewer, but they’re big businesses so they’re larger contracts and a smaller user base, so I guess it’s a sampling question, I don’t know if either of you have a statistics background but it probably helps here.

Ann Miura-Ko:
Yeah, so, even with sampling. We still think about a larger company, it’s less about the account that you go back to the users so I’m usually looking at a per-seat basis so I had a company that was selling six-figure, seven-figure accounts into larger companies, but you could still observe how is the software actually used within the company. And based on that you have a pretty good assessment of whether or not you have product-market fit.

Because a company can pay seven figures and not use it at all. And, actually, when it comes time for renewal, that’s going to be a huge problem. And so those are things you need to track anyway.

Even in consumer at the pre product-market fit stage where a company will have thousands of users. We are actually still tracking to see 30-day usage so at the end of the month, what percentage of your users have you retained. Are you looking at it as a daily habit, is it a weekly habit, is it a monthly habit. Those are the types of things which will indicate to you whether or not someone loves your product, just kind of likes it or is it a throwaway.

Nicole Quinn:
I actually do have a math and statistics background so particularly love this question, but I would say for me, it’s far less about the absolute numbers and much more about the relative numbers. So, in SAS folks typically say I need to do a million dollars an hour for series a three to five four series being, and then in marketplaces, it’s more like, okay, a million a month in gross revenue. Those things to me don’t matter as much, it’s far more important that a product is sticky that customers love it and they’re coming back time and time again.

So, I’m always looking at, to the point about the cohorts, the retention, the engagement, but also our customers telling one another about it. So is the referral right there? Is the word of mouth there? Are you growing through organic means or are you just spending, spending, spending on marketing? And how are people talking about you? So those things to me are much more important you know especially at the early days where you may not have the sheer numbers to compare, but you can still see there’s something very special happening here.

Alex Konrad:
Here’s a question I really like, in the current climate, are there, alternatives to venture capital. That might be a better fit for certain types of businesses that you all come across or that you might see, and also if a founder is wondering if they’re going to get less attractive terms right now, should they be thinking about perhaps trying to hold off on raising venture capital in this moment, and getting no surviving longer to then raise it better terms in the future.

Ann Miura-Ko:
Yeah, I mean… I think look, if you don’t need venture capital, I question why you would raise it right because, on some level, you get a partner and you get, someone who’s going to be with you, as a co-conspirator I can market the heck out of venture capital, but at the same time you’re giving up equity in your company to bring someone in as a, as a partial owner of your business.

And so you have to have a reason for actually raising that money and hopefully what it gets you is to a stage where you actually are valued even greater. And so it was worth selling off that piece of your business. And so if you can actually hold off and grow your business in a capital-efficient way. I would actually say why not.

There are also you know a lot of other mechanisms now that we’re starting to see whether it’s debt products, you have different convertible note structures that we’re starting to see that align the investor alongside the founder, I think there are really interesting ways of actually going about and financing your business, and that should be the case because, really, if you look at the incentives for a venture capitalist we are in it to triple our fund, quadruple our fund right so if I have $100 million fund I’m here to return $300 to $400 million back to my investors.

What that means is if I own let’s say 10% of the company at exit. The whole portfolio market cap needs to be in the multi-billions of dollars, right. And that means that a company that exits at $100 million, $200 million has not made a debt in what I need to do to deliver returns for my investments. And so that that gives you a window into what the aspirations of the founder needs to almost have to be irrational, especially at the very, very early days they need to picture themselves as being the next Zoom for to really be worth taking that venture capital dollars for our incentives to be fully aligned.

Alex Konrad:
I guess one thought just there and maybe Nicole can weigh in on this is whether there’s any bifurcation where we see companies that are sort of buzzy or doing well able to top off and extend the runway because sort of so many investors want in, but then other founders are not getting that attention, and sort of seeing less interest you know where it’s sort of you’re either have or have not in this climate. So I guess the question would be, should folks who maybe don’t feel like they’re in that buzzy side hold off and hope that changes, basically?

Nicole Quinn:
I don’t think venture is right for everybody. I completely agree with what Ann said, and then this is probably more for the growth stage folks who are listening or anything sort of post-series A, and in relation to your question, Alex. This is a really interesting trend right now, where focusing on profitability actually is a pretty smart thing.

We’ve been in 10 years of like just grow, grow, grow time period and then the public markets are looking at companies and they’re like, hey, actually we don’t want to invest in Uber and Lyft and WeWork and these other companies. If they’re not profitable, or they don’t have a route to profitability.

And so, that to me is the important thing. It’s absolutely fine for companies not to be profitable, but I always push our CEOs, to say, do you know the four or five levers that you would pull to very quickly get to profitability if you needed to. And so if you’re not about the company then great that’s absolutely fine but those, you can still get to profitability and be a self-sustaining business. If you know those levers that you need to pull to be profitable.

And then you can go through these times and if there is a point where you’re okay actually now I really want to grow again now I can take money from VCs to really pick up the speed, then that’s fine but let that be your decision. And that can be your decision if he’s very carefully focused on the economics of your business.

Alex Konrad:
So, the last question from the audience for today and then I’m sure I at least will be on Twitter since I’m always there after this. So, we have one question that you know with unemployment so high and sort of social problems, facing US and other places.

Can seed investments in early-stage venture investments really make a difference, facing with these giant challenges and I think for me the broader question there as Venture Capitalists, how do you sort of see the social side or the sort of greater you know public good side of the investing that is available to you right now? Is that something that you think about is it something that matters when you’re, considering an investment?

Ann Miura-Ko:
Yeah, I absolutely think about it. One of the things I also do as I, I also teach at Stanford and so I feel like, one of the things that I’ve seen is that in Gen Z they don’t just want to work for a company right and I remember this feeling when I was actually coming out of college, my parents said,” Why don’t you go work for Hewlett Packard?” And I was like, “That’s just like crazy.”

And, I think kids these days, these young adults, they’re coming out and they want something so much more than work, they want purpose, and you can’t just sell them hey work hard for this company because you’re going to become rich because that’s not what they want.

They want to contribute and so every company that gets built needs to create that sense of purpose, not only to attract the very best employees but also actually to attract customers too. I think customers want to feel like there’s some purpose in what how they’re engaging with the companies that they engage with.

So from a larger standpoint, I definitely believe that idea of mission and vision, values is becoming more and more front and center. And if you don’t have that. It’s really hard. But the second thing is I think it’s more of a… it’s a narrative question actually for Silicon Valley and tech, in general, is that we’ve always loved talking about disruption. And we talk about efficiency. And the truth of the matter is, those two things are not valuable in and of themselves, and I think we’ve come to realize that right there’s a cost to valuing those things.

And so, what are other ways of building real businesses that actually have an impact on what I think of as abundance? How do you actually create abundance for the world? Do you believe that software has a role to play in that? I absolutely do, I think technology has a huge role to play in creating a better world, more abundance, more opportunity for the world.

You see how cellphones have created huge opportunities in many different economies and I think that same kind of principle of how do you get software into the hands of people who can then leverage it to create jobs and opportunities for themselves. I think there are huge investments to be made. I think of this concept of sort of the Iron Man suit for the solo-preneur.

There are so many ways in which the solo-preneur will actually be the driver of our economy in the future. And so, I think that it’s a huge area of investment, it’s valuable not only to investors and to the economy, but it’s actually going to create opportunities for so many of these people become unemployed or who are disenfranchised from the economy in general.

Nicole Quinn:
I also think about this question. I guess in twofold you know the first would be true diversity and inclusion I mean that in the broader sense of the word. So it’s like the diversity of background, diversity of opinion, diversity of experience. And I just think that any decision whether that be in a VC whether that be in a company is so much stronger as a result of having such diverse views around the table.

So for us, a third of our investors are women, over a third of our consumer investments are female founders, and they’re the customer at the end of the day, and they’re really making such strong terrific decisions and I think, really driving us forward. And that’s something I’m excited about.

And then the other thing I would say is I think about this question in terms of what are companies doing to really be there for their customers, especially in these tough times. And how can we as investors think about this a little bit more.

And I touched on this at the beginning but I would say that when everybody’s really suffering from anxiety in these times and can’t go to sleep being able to have Calm there as a resource and Calm have really been investing a lot of their time and capital in creating resource pages, and reduced or free resources for people, and just making sure that they’re, you know really there for the customer in the tough times. And, the same for Cameo.

Going back to Ann’s point on you know creating joy. These are tough times. And this is a depression of the recession that we’re going into this could be much longer lived. And so it really is thinking about, okay what can we do to make sure that people are in the best position they possibly can be in these times. I’m so grateful that we’re, working in technology where I do feel like that really is lifting people up in so many different ways and our companies are hiring. And so, I think that we’re grateful to be in this industry and we’ll have to see how the times are ahead.

Alex Konrad:
Well, really amazing answers to end on, thank you. We had a bunch more questions I hope we can keep the conversation going on LinkedIn or Twitter or sort of in the weeks to come. But I want to thank Nicole and Ann so much for these insights. And to everyone in the audience thank you for these really engaging questions you know this was a pleasure to moderate.

Ann Miura-Ko:
Thank you.

Alex Konrad:
All right, thanks everyone.

Nicole Quinn:
Thanks so much.

Published on July 22, 2020

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