The Exchanges

Q And I look old, Kevin, but I'm rather useful, I must admit. I, I don't remember this as a professional. How was that, and what were some business lessons to you from that that you took with you?

A When two years ago people were, you know, complaining about it's hard to get money and things like that, I really felt like your, your grandfather talking about the depression. Where, like, you just don't understand. We had no food in the depression. Because in 2001, 2002, there was just no money. And when I mean no money, no money. And so, there were companies that went under that shouldn't have, uh, everyone pulled back. You know, in two years ago, or last year, you know, things were tighter, but the vast majority of our companies raised rounds. It was okay. Uh, so yeah, it was brutal. We did, by the way, we did seven rounds of layoffs. We went from 2000 people back down to a thousand, ah, doing layoff after layoff. 70% of our clients went bankrupt. If anyone's taking notes, don't do that. Uh, it's not helpful for your business.

AI assessment note: “it was brutal. We did, by the way, we did seven rounds of layoffs.”

Q Okay. How do you do resource allocation between incubations versus investments?

A So what I like is being industry focused. So the team in healthcare is doing both. And they, they, I'll give you an example. We look, decided to look at a vertical because we're doing deep research all the time. We're much more research driven than other firms. A person on our team started being interested in the shipping industry. So shipping industry is an enormous industry that needs a lot more technology. So she spends two months, interviews 50 people in that industry. What does she come away with? One, a new idea, because realizes that there's a lack of a procurement marketplace, and so we started a company in that space, uh, called Porkchop. And because she was at multiple shipping conferences, which most of us have not been at, she ran across a company that people were saying great things about called BoxHub, which is a marketplace for containers based in Toronto, which we never would have known about, and we invested in that as well. So it stems from if you know the industry and know the players and know the opportunities and know the holes, you both can start companies and invest in companies.

AI assessment note: “if you know the industry... you both can start companies and invest in companies.”

Q My worry with incubations, and tell me I'm wrong, the best founders won't want to be like a hired gun CEO to an idea that they're brought in on. How do you respond to my concern there?

A Well, let's not forget the data, which is that, you know, Business Insider was one of the most successful media companies ever started. MongoDB, one of the most successful databases companies ever started. Exactly another formula you just said can't work, where we started it and brought in a CEO. The question is, are you bringing in a great quality CEO? And the answer is yes. Uh, and then are you, uh, incenting them correctly and making sure that it works? So We've never had a CEO resign. My psychedelic company, I think, is one of the most valuable psychedelic companies started in the last four years in the United States. Transcend. So many, I mean, guilt was a big success. These are all examples where we have done that very, very successfully.

AI assessment note: “Business Insider was one of the most successful media companies... MongoDB”

Q How do you think about the importance of first to market? Everyone often talks about it, but then some alternatively suggests you learn from the first to market and can now execute them being second. How do you think about that today being an investor?

A It's true that sometimes the, uh, the early bird gets the worm, but the second mouse gets the cheese. Uh, so that, that can happen. Unfortunately, you never know. There are many, many examples where the first player who moves very quickly and gets critical mass, uh, is the winner. Now you have to see, is that a business where it matters? So in, in things like Uber, being five times bigger than Lyft ultimately does make the difference. And so it was worth it for them to just go, we're gonna be number one or we're gonna die. In other businesses, though, that's not true. You know, uh, you don't have to be scale isn't quite as important. Quality is important. And also, you have to adjust all of this to the capital available. It's all fine and good when people will give you a billion dollars. You know, Mongo, we lost a billion dollars before we had a profitable quarter. Over 10 years. And so that's, you know, a scary number. A scary number.

AI assessment note: “In things like Uber, being five times bigger than Lyft ultimately does make the difference.”

Q Doug Leone said recently to me that we have turned from a high boutique, uh, high margin industry to a low margin commoditized industry. Do you agree with that transition statement?

A No. Um, What is true is that when you are a late stage investor, uh, writing fifty million dollar checks, that you are what we used to call private equity. So you're competing on price. There's already an established board. You're not adding that much value. It's just a different world. You know, it's changed so much. When Apple went public, when they went public, they raised nine million dollars in the IPO. And, uh, so it's very different today. In the early stage business that Union Square Ventures does, that we do of, you know, the first check-in, um, that's not a commodity business. You have huge wins. You have some, a bunch of losses, and by the way, I was on the board of Yale and on the board of the Yale Endowment, so we were the lead investor in many of the best firms. And as you know, in VC, there's a huge difference between Returns that let's say a benchmark and a Greylock have, and I'll, 90% of the rest of the, uh, industry.

AI assessment note: “No. Um, What is true is that when you are a late stage investor”

Q Do you not think we're going to get worse from here?

A I do. I mean, right now the economy is very good. I think that there's, if we look over 30 years, uh, on average, if the stock market's at an all-time high and unemployment is at an all-time low, if you said, are the odds that things are gonna get better or worse, by definition, there's a reversion to the mean at some point. I don't plan for that. Things right now look, uh, pretty good, pretty stable. There's another characteristic in our business is there's actually a lot of VC money. You know, there's tons of cash sitting on the sidelines. That money is not going to be given back. That money is going to be spent. We're only debating whether people are going to spend it over two and a half years, which they were doing four years ago, or over five years, which they're probably going to do now. But there's a lot of money out there that is going to keep this industry going. And the second thing that independent of any macro factors you're talking about or thinking about, you know, most things happen at a micro level. So we started a company in assisted fertility. It says fertility is going to grow. I can guarantee you that 10 years from now, more women will have egg freezing, more women will be doing IVF than they do it today. That's just going to grow regardless of the economy. And so there's a lot of things like that that are going to happen and are going to be fine.

AI assessment note: “I do. I mean, right now the economy is very good.”

Q My worry with incubations, and tell me I'm wrong, the best founders won't want to be like a hired gun CEO to an idea that they're brought in on. How do you respond to my concern there?

A Well, let's not forget the data, which is that, you know, Business Insider was one of the most successful media companies ever started. MongoDB, one of the most successful databases companies ever started. Exactly another formula you just said can't work, where we started it and brought in a CEO. The question is, are you bringing in a great quality CEO? And the answer is yes. Uh, and then are you, uh, incenting them correctly and making sure that it works? So We've never had a CEO resign. My psychedelic company, I think, is one of the most valuable psychedelic companies started in the last four years in the United States. Transcend. So many, I mean, guilt was a big success. These are all examples where we have done that very, very successfully.

AI assessment note: “are you bringing in a great quality CEO? And the answer is yes.”

Q Do you worry about the centralization of AI talent in San Francisco?

A No, I think, uh, San Francisco absolutely has an advantage in AI. It stems from the fact that, you know, I, I just started a company in material science, AI, and, you know, the university that dominates that space is Berkeley, and so Berkeley and Stanford, uh, are stronger than New York, than Columbia and NYU, and they've had companies and deep talent, so absolutely San Francisco has an advantage in that area. But we're seeing, you know, 10 companies a week starting in New York. They're starting all over this country. Many of the smartest people are doing AI, and it will distribute more. What I always tell people when I'm traveling internationally, and they used to ask me, which cities are going to dominate in your country? It's no, there's, it has nothing to do with tax policy, has nothing to do with anything. I say people who went to the top 20 universities in your country, where do they want to live? Where are they going to move? That's going to be your tech center. And guess what? That number one place, those places people want to move is New York City. San Francisco is still a great place and, you know, has, has history and, uh, many things going for it, so it's an amazing, incredible place. But I'm not seeing the tech talent in Miami, and I don't think it's going to get there. Uh, I'm not seeing it in Chicago. Uh, I'm not seeing it in D.C. You know, don't forget, 15 years…

AI assessment note: “No, I think, uh, San Francisco absolutely has an advantage in AI.”

Q Okay. How do you do resource allocation between incubations versus investments?

A So what I like is being industry focused. So the team in healthcare is doing both. And they, they, I'll give you an example. We look, decided to look at a vertical because we're doing deep research all the time. We're much more research driven than other firms. A person on our team started being interested in the shipping industry. So shipping industry is an enormous industry that needs a lot more technology. So she spends two months, interviews 50 people in that industry. What does she come away with? One, a new idea, because realizes that there's a lack of a procurement marketplace, and so we started a company in that space, uh, called Porkchop. And because she was at multiple shipping conferences, which most of us have not been at, she ran across a company that people were saying great things about called BoxHub, which is a marketplace for containers based in Toronto, which we never would have known about, and we invested in that as well. So it stems from if you know the industry and know the players and know the opportunities and know the holes, you both can start companies and invest in companies.

AI assessment note: “if you know the industry and know the players... you both can start companies and invest”

Q Now, I know it's a weird question, but I just think we're so shaped by our early years in a lot of cases. When you think back to growing up, how would your parents and teachers have described the young Kevin Ryan?

A You know, in some ways, I haven't actually either progressed or changed that much from high school. So, you know, in high school, I was interested in, um, I was running student organizations. I was head of the student council. Uh, I did a lot of sports. I was very interested in public policy. And frankly, today, those are still a lot of my interests. You know, I have always been a CEO from a very early age. I was president of my fifth grade class and my sixth grade class. Um, So, you know, people wanted, thought I, I should be elected to do these things, and I love doing them. I love managing people. I love working with people. Uh, I'm still very interested in, in sports and athletics, uh, and in very interest in public policy.

AI assessment note: “people thought I should be elected to do these things”

Q You've mentioned, you know, some incredible wins and, you know, accumulated personal wealth. I have a lot of founders on the show who talk about challenges with their relationship to money. How has your relationship to money changed over time?

A So actually, you know, surprisingly little. I don't focus it on that much. You know, five years ago, uh, my, the only car I owned was a used minivan. Um, I'm not that into stuff. I am into experiences, so great travel, uh, things like that. I'm absolutely willing to spend money on, uh, but, uh, no, I mean, it's been a long time for me that I haven't had to worry about money, but I also just don't spend money to spend money, and so I don't have any problem with it all. I have no concern about the relationship with money. I, I, some people are so focused on money Which I'm not, that once they made money, they didn't know what to do. Whereas for me, that changed nothing. I enjoy what I'm doing. When people ask me, sometimes, you know, I'm at a college, a business school, they'll say, why are you still doing this? And my answer is, does anyone ask a really good NBA player who's 32, and who's made a ton of money, why are you still playing basketball? Why don't you retire? Like, no one would ask that question, right? Because he would say, yes, they do pay me a lot of money, but I love what I'm doing, and I can't think of anything else I'd rather do, so I'm gonna do it as long as I can, and then eventually it'll end, and I'll do something else. And that's exactly how I feel.

AI assessment note: “So actually, you know, surprisingly little. I don't focus it on that much.”

Q And I look old, Kevin, but I'm rather useful, I must admit. I, I don't remember this as a professional. How was that, and what were some business lessons to you from that that you took with you?

A When two years ago people were, you know, complaining about it's hard to get money and things like that, I really felt like your, your grandfather talking about the depression. Where, like, you just don't understand. We had no food in the depression. Because in 2001, 2002, there was just no money. And when I mean no money, no money. And so, there were companies that went under that shouldn't have, uh, everyone pulled back. You know, in two years ago, or last year, you know, things were tighter, but the vast majority of our companies raised rounds. It was okay. Uh, so yeah, it was brutal. We did, by the way, we did seven rounds of layoffs. We went from 2000 people back down to a thousand, ah, doing layoff after layoff. 70% of our clients went bankrupt. If anyone's taking notes, don't do that. Uh, it's not helpful for your business.

AI assessment note: “If anyone's taking notes, don't do that. Uh, it's not helpful for your business.”

Q What do you think is the biggest determination of whether a company gets product market fit from zero to one? Everyone always says speed is the single biggest determinator or determining factor. Do you agree with that?

A No, no, I don't think that speed is the most important thing. You do need to get out your product, you know, pretty quickly. But it has to be pretty good. I mean, if it's terrible, we'll never hear from you again. It needs to be good enough that some people are using it. It's starting to grow. You're getting feedback and you're going to make it much better. Um, by the way, you know, it depends on the product. You know, if you use a database and it's, it's doesn't function and you lose all your revenues, then we're in a lot of trouble. That's a much more mission critical product. And so it just can't be terrible. So for example, we had no revenues after three years at Mongo. Which is not great because we had to go slower. It had to work. It had to scale. It had to be secure. Whereas for consumer apps, it can be, you can, you can make mistakes.

AI assessment note: “No, no, I don't think that speed is the most important thing.”

Q What are the main reasons why companies plateau? Because you see quite a lot of companies that kind of 40 to sixty million in revenue and that they're sitting on a billion, a billion and a half valuations and you're looking at them going, It's probably 500. Why does that happen and what do you think will happen to them?

A So one, if they've plateaued their growth, they're not worth 500. Um, you know, they're not at all. I mean, 10 times revenue for a company that's not growing that much is, is not going to fly in today's market. That company's worth, you know, maybe 200 if they're starting to be quite profitable. Yeah, look, but that's normal. You should expect that out of every hundred companies that start whatever 20 got a business effort. Two years, a certain percentage get to 10, 20, thirty million. A smaller percentage get to 50, a smaller percentage get to a hundred. Uh, it just keeps funneling down. That's normal. Not every market is a trillion dollar market, and not every product is gonna get, you know, 30% of its market.

AI assessment note: “Not every market is a trillion dollar market, and not every product is gonna get”