The Exchanges

Q Alex, to your You know, position on the board. When you think about and have that discussion, honestly, to what extent are you like, you know what? Fuck it. We're happier to win the market and be less profitable for longer than let's be super disciplined and get to profitability as soon as possible. How do you weigh that at the board?

A There's a few different levels of the analysis that we take into account. One is sort of the marginal transaction, right? So what are the unit economics on a marginal transaction? Is that a profitable? The second is at a country level, which was the question you just asked. How long is it going to take us to sort of get in the money at the country level? And it should be getting easier and easier over time because we have cross border network effects. We have lower shipping rates across Europe. We have more brand awareness, more inventory in different countries. So it should get faster. And the third levels of the company level, you know, including all your operating expenditures, how, what's the efficient frontier you're spending at? And the tricky thing about marketplaces is that you cannot grow arbitrarily fast. There is an efficient frontier. That, that you want to hit where you can balance supply and demand and fulfill a high quality experience for both sides of the marketplace. And if you, and so I think what one thing Thomas's team is really, really good at is veering out quantitatively, where are we on the efficient frontier for a given country? And that's the rate at which we're scaling. We have plenty of capital on our balance sheet. So we have to burn more, we'll burn more, but we want to prioritize being at that efficient frontier. And it turns out that if you do th…

AI assessment note: “if we have to burn more, we'll burn more, but we want to prioritize”

Q Alex, to your You know, position on the board. When you think about and have that discussion, honestly, to what extent are you like, you know what? Fuck it. We're happier to win the market and be less profitable for longer than let's be super disciplined and get to profitability as soon as possible. How do you weigh that at the board?

A There's a few different levels of the analysis that we take into account. One is sort of the marginal transaction, right? So what are the unit economics on a marginal transaction? Is that a profitable? The second is at a country level, which was the question you just asked. How long is it going to take us to sort of get in the money at the country level? And it should be getting easier and easier over time because we have cross border network effects. We have lower shipping rates across Europe. We have more brand awareness, more inventory in different countries. So it should get faster. And the third levels of the company level, you know, including all your operating expenditures, how, what's the efficient frontier you're spending at? And the tricky thing about marketplaces is that you cannot grow arbitrarily fast. There is an efficient frontier. That, that you want to hit where you can balance supply and demand and fulfill a high quality experience for both sides of the marketplace. And if you, and so I think what one thing Thomas's team is really, really good at is veering out quantitatively, where are we on the efficient frontier for a given country? And that's the rate at which we're scaling. We have plenty of capital on our balance sheet. So we have to burn more, we'll burn more, but we want to prioritize being at that efficient frontier. And it turns out that if you do th…

AI assessment note: “There's a few different levels of the analysis that we take into account.”

Q Alex, were you invested at this period or was this pre?

A This, this was, this was pre light speed, uh, investing. We were aware of Vinted because, um, a number of us had been involved in various resale companies before in various marketplaces before. And frankly, like, I think the prevailing opinion at the time was it was too hard to build a pan European marketplace. Like if you look, if you looked at Europe at the time, there were, there were sort of like, Sub regionally dominant companies. There was companies that were dominant in the UK or dominant in Germany or dominant in France, but the idea that you could build something that was truly pan European was a very controversial opinion and was not grounded in, in, in real data. And then on top of it, to Thomas's point, like they hadn't figured out the business model. They'd figure out how to, how to get a lot of people, you know, using the product and, and, and in a sort of listings marketplace kind of way, but they hadn't really Figure out the solid business model. So it was not well formed at the time.

AI assessment note: “This, this was, this was pre light speed, uh, investing.”

Q When, as a VC, you asked the question, if everything goes right, what could this be? When you were discussing this internally, making that decision, what was the discussion? If vintage goes right, what is vintage?

A There were a number of different points of view on this. Um, I think it's very easy to look at a business and say, what they do today is how big can that thing be? And that's going to be the base case return for a later stage investment. So we had that discussion and we said, well, how, how big is resale? Resale is really big. It's, it's, it's actually a lot of people think resale could be 20% of all apparel by 2030. So, you know, at a macro level, if we just did resale, if we just focused on peer to peer selling other people's clothing to each other, we could, we could probably be a ten billion dollar company. I think, I think the math pencils out, but you need to believe that that's a pan European company. So you need to believe that this company does something that almost no one's been able to do. And actually use the sort of lead they have in France to catalyze an ecosystem that goes across Europe. And the thing that we saw in the business when we really dug in was that, that, that Thomas and his team have been able to drive shipping costs down to the point where they were often the very cheapest option. And that this was a key strategic lever to not only winning countries, but to like extending between countries. And our theory of the case Was that that was going to be the strategic weapon that we use to sort of roll up the entire region that by being the sort of cheapest …

AI assessment note: “if we just focused on peer to peer... we could probably be a ten billion dollar company.”

Q I'm thrilled you said about leaning into it there. Once found in terms of product channel fit, is it a case of pouring fuel on the fire and really raising that war chest to dominate that channel, or is there a more conservative style recommended?

A You know, it's interesting. It depends on the channel. With the Zola example, that's not a channel that costs a lot of money to get right, but it requires a lot of insight and a lot of design of the product. Similarly, if you look at a company like Glossier, which is a, is a cosmetics company in New York, they get a lot of users through their Instagram community. It doesn't cost them a lot of money, but they have to be very thoughtful about how they build the products to be photographed. On the other hand, you might look at a company like Masterclass, which creates these celebrity-led Educational lessons. They're somewhere between entertainment and education. And for them, you know, they do some paid acquisition on Facebook, but that paid acquisition is assisted by the fact that these celebrities already have followings on Facebook. So they have resonance in that channel. So in that case, raising more money to do more paid acquisition, there's probably a lot of benefits to that. So, but what I will tell you is that even if you find that product channel fit, it's not going to last forever. And it's often the first thing you get right. And then you have to get a lot of other things, right? So it's almost always the case that when you hit product channel fit and you're scaling very quickly, you need to start thinking about what your second, third, and fourth channels are going to …

AI assessment note: “It depends on the channel... So the answer ultimately is yes”

Q I'm coming to SF soon, so I look forward to tweeting you a photo of me reading it, but then a question from Nicole. Why did you decide to start the newsletter that I love so much? What are the benefits?

A Well, thanks for mentioning it. Brief plug, it's, uh, drinking from the fire hose, uh, it's on tinyletter.com slash a tausig. But my newsletter, you know, I started about a year ago, and I just, I was getting frustrated with the state of discussion on social media, I guess is what I was saying. I wanted a place where I could, I could speak in longer sentences, and I could explore issues in greater depth, and frankly, have a chance to own my audience, and talk directly to them, and get feedback directly from them. So that was the main thing, but also, as you know, you know, you're creating content multiple times a week. I think the more you do it, the better you get at it, and for me, a goal of mine has always been to become a better writer. They don't teach you to write super well when you study physics. So this has been my, my excuse to force myself to write better.

AI assessment note: “I was getting frustrated with the state of discussion on social media”

Q Alex, were you invested at this period or was this pre?

A This, this was, this was pre light speed, uh, investing. We were aware of Vinted because, um, a number of us had been involved in various resale companies before in various marketplaces before. And frankly, like, I think the prevailing opinion at the time was it was too hard to build a pan European marketplace. Like if you look, if you looked at Europe at the time, there were, there were sort of like, Sub regionally dominant companies. There was companies that were dominant in the UK or dominant in Germany or dominant in France, but the idea that you could build something that was truly pan European was a very controversial opinion and was not grounded in, in, in real data. And then on top of it, to Thomas's point, like they hadn't figured out the business model. They'd figure out how to, how to get a lot of people, you know, using the product and, and, and in a sort of listings marketplace kind of way, but they hadn't really Figure out the solid business model. So it was not well formed at the time.

AI assessment note: “This, this was, this was pre light speed, uh, investing.”

Q Thomas, I'm about to pepper you with questions, but, and don't be offended by this answer from Alex, but Alex, internally, if you guys marked the one reason why Vinted wouldn't work, what was that reason?

A I would say the one reason Vinted wouldn't work at the time when we talked about it, we said, well, if we look back, you know, five years from now and this didn't work out, why did it not work out? The pre, the pre-mortem on this decision, right? It's probably because France was a unique thing that, that, that there was something unique about France. They, because it was very clear they had won France at that point in time. And it was, and France was, was, was like, it was a profitable region, right? So it was, it was clear that that was working. But the, the, the con was like, yeah, but that's, that's a unique thing. France is unique for all these reasons. People in France like fashion a lot. Like, that's not gonna work in other places.

AI assessment note: “It's probably because France was a unique thing”

Q When, as a VC, you asked the question, if everything goes right, what could this be? When you were discussing this internally, making that decision, what was the discussion? If vintage goes right, what is vintage?

A There were a number of different points of view on this. Um, I think it's very easy to look at a business and say, what they do today is how big can that thing be? And that's going to be the base case return for a later stage investment. So we had that discussion and we said, well, how, how big is resale? Resale is really big. It's, it's, it's actually a lot of people think resale could be 20% of all apparel by 2030. So, you know, at a macro level, if we just did resale, if we just focused on peer to peer selling other people's clothing to each other, we could, we could probably be a ten billion dollar company. I think, I think the math pencils out, but you need to believe that that's a pan European company. So you need to believe that this company does something that almost no one's been able to do. And actually use the sort of lead they have in France to catalyze an ecosystem that goes across Europe. And the thing that we saw in the business when we really dug in was that, that, that Thomas and his team have been able to drive shipping costs down to the point where they were often the very cheapest option. And that this was a key strategic lever to not only winning countries, but to like extending between countries. And our theory of the case Was that that was going to be the strategic weapon that we use to sort of roll up the entire region that by being the sort of cheapest …

AI assessment note: “we could probably be a ten billion dollar company”

Q Alex, what's the biggest disparity of opinion the board have had across topics?

A I mean, the US, the US was a, is, was a big one. I mean, I don't know, Thomas, can I, can I talk about at a high level? Like, I mean, we've, we've seen a lot of success in Europe and I think we've gone from being like, you know, having like, oh, maybe it worked in France. Maybe it's going to work in these other places to, to feeling actually really confident that we figure out a playbook that works. And it's a different model is we're the only ones who really do the model that we do. And so the natural next step is like, well, why shouldn't this work in the U.S.? And we've debated this a lot. There's some element of that that is just management time and attention. It's like, what? Europe isn't big enough? Like, why wouldn't we just focus on, on Europe and make Europe really successful? On the other hand, the U.S. is a massive, massive market. And, um, the model that we do hasn't been tried there. But I think that tension exists for, for a reason. You can only do so many things well. And the CEO's attention is, is the, is the bandwidth constraint.

AI assessment note: “the US, the US was a, is, was a big one”

Q Go back a long way. Uh, but like, you know, respectfully, we hail as VCs, founder led businesses, right or wrongly. To what extent did that hang on? It is not actually a founder led business. And Thomas is a CEO who's incredible, but has been brought in. Did that factor into discussions?

A I mean, Thomas, when we talked to the founders of the company, it became pretty clear that Thomas was as close to a founder of this company as you can be without actually being there at the very beginning. And I, I believe that Companies can have these refounding moments where, where a really outstanding individual comes in with the right set of skills for a given moment in time and takes a company on a, on a, on a different trajectory. So in my, in my view, there's like some people that have this discrete version of like, oh, so-and-so you had to be there on day one. You had to own like, I don't know, 10% of the company on day one to be qualified as a founder. And then there's a spectrum and there's people who, and Harry, you may have some in your portfolio who are like, Maybe they weren't there on day one, but they joined within the first year and they've been critical to the business. They, they've invented some product that transformed the company. And so I think of, you know, Thomas joining Vinted in roughly 20 16 ish as being a pivotal moment for the, for the company. And, and, and the fact that the founders eventually said to him, you should be the CEO, I think is as big of a vote of confidence as you can get.

AI assessment note: “Thomas was as close to a founder of this company as you can be”

Q Thomas, I'm about to pepper you with questions, but, and don't be offended by this answer from Alex, but Alex, internally, if you guys marked the one reason why Vinted wouldn't work, what was that reason?

A I would say the one reason Vinted wouldn't work at the time when we talked about it, we said, well, if we look back, you know, five years from now and this didn't work out, why did it not work out? The pre, the pre-mortem on this decision, right? It's probably because France was a unique thing that, that, that there was something unique about France. They, because it was very clear they had won France at that point in time. And it was, and France was, was, was like, it was a profitable region, right? So it was, it was clear that that was working. But the, the, the con was like, yeah, but that's, that's a unique thing. France is unique for all these reasons. People in France like fashion a lot. Like, that's not gonna work in other places.

AI assessment note: “It's probably because France was a unique thing”

Q Now, this is very harsh of me, because it is off schedule, but you mentioned that the incredible learning under your Highland partner who hired you as his apprentice. I'm intrigued having luckily been the receiver of many incredible learnings from BCs. What was your biggest learning from that seven years working with him and really gaining your chops in the industry, so to speak?

A I think one of those learnings is, is just how you approach analyzing companies. There's a lot of different lenses you can take. And I, he and I had similar paths in our careers. You know, he has started off as an engineer and had come into venture in his twenties and had basically been in the industry his entire career, which is now I think about 30 years. And so his approach is deductive, and he really tries to pick apart the market forces and the changes in the market and trying to understand the particular moment in time a company is starting and why a particular company has an advantage in a market. And then there's just, there's just this, um, the ethos of a work ethic that I think is independent of how successful someone is. That someone who could have been doing this for as long as he has and as well as he has still be interested in learning new things and really working hard for entrepreneurs. It's not the, it's not the specific things I learned, but it was more just, just watching someone go through the process of intellectually analyzing companies. And then once we've made the investment, you know, the tireless work ethic, I think the combination of those two things is really what I took away in terms of how to be a good venture capitalist.

AI assessment note: “the combination of those two things is really what I took away”

Q Can I ask, is there a length of time that you can kind of sustainably enjoy that peaceful period of enjoying that channel fit, or should it continuously be an upgrading of the next distribution channel?

A I would say that if you're lucky enough to find a channel where you have proprietary advantage that you can outperform your competition, I would pour as much gas on it as you can, but I always still have an experimental marketing budget that you're using to figure out what the next one's going to be. It's a little bit like managing a portfolio of investments. We often say when we talk about marketing, you have your things you're waiting heavily that are already working, and then you have your newer things you're experimenting with, things that have higher data, but if they hit, then you're going to make them one of your dominant things. So yes, you need to really lean into what's working because you only have a certain amount of resources. But you always also need to be testing. So it's somewhere in the middle. It's maybe something like an eighty-twenty split early on.

AI assessment note: “It's maybe something like an eighty-twenty split early on.”

Q Now, this is very harsh of me, because it is off schedule, but you mentioned that the incredible learning under your Highland partner who hired you as his apprentice. I'm intrigued having luckily been the receiver of many incredible learnings from BCs. What was your biggest learning from that seven years working with him and really gaining your chops in the industry, so to speak?

A I think one of those learnings is, is just how you approach analyzing companies. There's a lot of different lenses you can take. And I, he and I had similar paths in our careers. You know, he has started off as an engineer and had come into venture in his twenties and had basically been in the industry his entire career, which is now I think about 30 years. And so his approach is deductive, and he really tries to pick apart the market forces and the changes in the market and trying to understand the particular moment in time a company is starting and why a particular company has an advantage in a market. And then there's just, there's just this, um, the ethos of a work ethic that I think is independent of how successful someone is. That someone who could have been doing this for as long as he has and as well as he has still be interested in learning new things and really working hard for entrepreneurs. It's not the, it's not the specific things I learned, but it was more just, just watching someone go through the process of intellectually analyzing companies. And then once we've made the investment, you know, the tireless work ethic, I think the combination of those two things is really what I took away in terms of how to be a good venture capitalist.

AI assessment note: “the combination of those two things is really what I took away”

Q Alex, what's the biggest disparity of opinion the board have had across topics?

A I mean, the US, the US was a, is, was a big one. I mean, I don't know, Thomas, can I, can I talk about at a high level? Like, I mean, we've, we've seen a lot of success in Europe and I think we've gone from being like, you know, having like, oh, maybe it worked in France. Maybe it's going to work in these other places to, to feeling actually really confident that we figure out a playbook that works. And it's a different model is we're the only ones who really do the model that we do. And so the natural next step is like, well, why shouldn't this work in the U.S.? And we've debated this a lot. There's some element of that that is just management time and attention. It's like, what? Europe isn't big enough? Like, why wouldn't we just focus on, on Europe and make Europe really successful? On the other hand, the U.S. is a massive, massive market. And, um, the model that we do hasn't been tried there. But I think that tension exists for, for a reason. You can only do so many things well. And the CEO's attention is, is the, is the bandwidth constraint.

AI assessment note: “the US was a, is, was a big one”

Q Go back a long way. Uh, but like, you know, respectfully, we hail as VCs, founder led businesses, right or wrongly. To what extent did that hang on? It is not actually a founder led business. And Thomas is a CEO who's incredible, but has been brought in. Did that factor into discussions?

A I mean, Thomas, when we talked to the founders of the company, it became pretty clear that Thomas was as close to a founder of this company as you can be without actually being there at the very beginning. And I, I believe that Companies can have these refounding moments where, where a really outstanding individual comes in with the right set of skills for a given moment in time and takes a company on a, on a, on a different trajectory. So in my, in my view, there's like some people that have this discrete version of like, oh, so-and-so you had to be there on day one. You had to own like, I don't know, 10% of the company on day one to be qualified as a founder. And then there's a spectrum and there's people who, and Harry, you may have some in your portfolio who are like, Maybe they weren't there on day one, but they joined within the first year and they've been critical to the business. They, they've invented some product that transformed the company. And so I think of, you know, Thomas joining Vinted in roughly 20 16 ish as being a pivotal moment for the, for the company. And, and, and the fact that the founders eventually said to him, you should be the CEO, I think is as big of a vote of confidence as you can get.

AI assessment note: “Thomas was as close to a founder of this company as you can be”

Q The old note taking comes out again. You mentioned the efficient frontier. Have you ever got where you are on the efficient frontier wrong? And why did you get that wrong analysis?

A Well, I can talk about Vinted and I can talk about in general, because we have a lot of companies at Lightspeed where we have to make this judgment. I think we have something like four or 500 companies globally that were investors in at this point. One of the biggest errors in judgment on the efficient frontier Is when you're, you're attributing a lifetime value to a set of users that turns out to be wrong. The thing, you know, in the short term is your payback period kind of, but if you're making judgments as to like, well, this is going to be a user that pays off three to one or four to one, and the retention doesn't play out the way you thought it did, you can be in a bad spot. And the, the, the reason this is a really relevant question you just asked is we just came out of COVID and I guarantee you, if you look at any consumer company, in 2020 and 20 21 their cohorts look fundamentally different than they did in 2022 and 20 23 they just performed different people were adopting new behaviors a lot of those behaviors did not stick and a lot of projections at the end of 2021 going into 2022 before the collapse were based on cohorts that just were not the real thing and that caused a lot of this sort of misses to plan in 2022 and excess cash burn so you got to be really Confident that what your projections, uh, on a cohort basis are going to be or accurate. Um, and the more con…

AI assessment note: “One of the biggest errors in judgment on the efficient frontier Is when you're, you're attributing”

Q The old note taking comes out again. You mentioned the efficient frontier. Have you ever got where you are on the efficient frontier wrong? And why did you get that wrong analysis?

A Well, I can talk about Vinted and I can talk about in general, because we have a lot of companies at Lightspeed where we have to make this judgment. I think we have something like four or 500 companies globally that were investors in at this point. One of the biggest errors in judgment on the efficient frontier Is when you're, you're attributing a lifetime value to a set of users that turns out to be wrong. The thing, you know, in the short term is your payback period kind of, but if you're making judgments as to like, well, this is going to be a user that pays off three to one or four to one, and the retention doesn't play out the way you thought it did, you can be in a bad spot. And the, the, the reason this is a really relevant question you just asked is we just came out of COVID and I guarantee you, if you look at any consumer company, in 2020 and 20 21 their cohorts look fundamentally different than they did in 2022 and 20 23 they just performed different people were adopting new behaviors a lot of those behaviors did not stick and a lot of projections at the end of 2021 going into 2022 before the collapse were based on cohorts that just were not the real thing and that caused a lot of this sort of misses to plan in 2022 and excess cash burn so you got to be really Confident that what your projections, uh, on a cohort basis are going to be or accurate. Um, and the more con…

AI assessment note: “attributing a lifetime value to a set of users that turns out to be wrong”

Q You sound like a VC pricing their portfolio. Well, 200, maybe 300. Let's go 300. Fuck it. Fundraising is coming. And so we make those changes. Alex, talk to me then about how you re-interacted with the business. You said there about existing knowledge on the market. How did you and Thomas then build the relationship and just take me to that courting process?

A Yes. So we had actually at the time, um, we had a number of partners at Lightspeed who had, Uh, interacted with Vinted at, at prior firms before they had joined, uh, Lightspeed. Uh, one of them was actually Lithuanian. Um, so there was actually, there were, I mean, there, think about like how many Lithuanian VCs there are. It's, it's, it's, there's not that many. And, and he, and he had a really strong relationship with, with the founding team and then with, with Thomas. And so the, we started to reengage. We, we, we had, we had heard that this had been figured out And it was extremely counterintuitive for U S investors because in the U S there's, you know, four or five, um, relatively dominant resale marketplaces, you know, Thomas mentioned Poshmark, but there, but there, but there are others, they all have, you know, supply side oriented, you know, business models. And so for us to hear that there was this company that essentially made it free to sell and kind of had this listings origin, but was layering on these sort of demand side fees. Was, was, was very counterintuitive. And at the time that it got resurfaced, 90% of the GMV was in France.

AI assessment note: “he had a really strong relationship with, with the founding team and then with, with Thomas.”

Q You sound like a VC pricing their portfolio. Well, 200, maybe 300. Let's go 300. Fuck it. Fundraising is coming. And so we make those changes. Alex, talk to me then about how you re-interacted with the business. You said there about existing knowledge on the market. How did you and Thomas then build the relationship and just take me to that courting process?

A Yes. So we had actually at the time, um, we had a number of partners at Lightspeed who had, Uh, interacted with Vinted at, at prior firms before they had joined, uh, Lightspeed. Uh, one of them was actually Lithuanian. Um, so there was actually, there were, I mean, there, think about like how many Lithuanian VCs there are. It's, it's, it's, there's not that many. And, and he, and he had a really strong relationship with, with the founding team and then with, with Thomas. And so the, we started to reengage. We, we, we had, we had heard that this had been figured out And it was extremely counterintuitive for U S investors because in the U S there's, you know, four or five, um, relatively dominant resale marketplaces, you know, Thomas mentioned Poshmark, but there, but there, but there are others, they all have, you know, supply side oriented, you know, business models. And so for us to hear that there was this company that essentially made it free to sell and kind of had this listings origin, but was layering on these sort of demand side fees. Was, was, was very counterintuitive. And at the time that it got resurfaced, 90% of the GMV was in France.

AI assessment note: “he had a really strong relationship with, with the founding team and then with, with Thomas”

Q No, and, and seriously, it is absolutely my favorite, but what about MBAs? Why do MBAs make good hires and investments?

A So I'm not sure. I wrote this post a little while ago. There was sort of a response to something Paul Grant had said on Twitter, which was that effectively MBAs don't start companies and it's just patently not true. And I'm not sure an MBA really qualifies you for anything specific, but the counter argument that an MBA disqualifies you from participating Participating meaningfully in the startup ecosystem is just not true. And there's actually just in my class in business school, Harvard business school, 2009, you had rent the runway, thread up cloud flare and tough mutter. A few years later, you had stitch fix. You had birch box blue apron in a prior year. You can go down the list. There's many tens of billions of dollars of market capitalization that's been created just in the last 10 years from MBAs. We certainly enjoy working with them both as investors and backing them as founders.

AI assessment note: “many tens of billions of dollars of market capitalization that's been created”