Which Startups (And VCs) Survive a Bear Market — With Nina Achadjian

Nina Achadjian is a partner at Index Ventures. She joins Big Technology Podcast to discuss how large declines in public market valuations impact startups and venture capitalists. Achadjian and I recorded with the S&P 500 down 13%. year to date. That was just last week! Now, we're in full-on bear market territory, with the S&P down more than 20%. Join us for a nuanced conversation on whether our period of oversized valuations was any good, and what to do now that it's over. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Kantrowitz?

  This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay?

• 0:43Alex Kantrowitz?

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• 1:03Speaker 01

  LinkedIn Presents.

• 1:27Alex Kantrowitz?

  Hello and welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. At this moment, the public markets are struggling. The S and P 500 is down 13% year-to-date. NASDAQ is down 23% year-to-date. These are the NASDAQ is the tech-heavy index. Now, you might think this just has an application to public companies, but of course, where are startup companies going to go if the exits are not as promising as they used to be on the public markets? We're going to discuss that and a whole lot more today. Joining us is the perfect person to discuss this. Nina Shadian is a partner at Index Ventures, someone who is super knowledgeable about the space,

• 2:11Alex Kantrowitz?

  someone who I think you're going to enjoy hearing from a lot, someone who I've enjoyed speaking to in the past about this stuff. Nina, welcome to the show.

• 2:18Speaker 02

  Thank you so much, Alex. Really appreciate you having me on.

• 2:21Alex Kantrowitz?

  Of course. Great to have you here. So let's just get right to it in terms of what's going to happen to startups. I mean, you hear these numbers, S and P down 13%, NASDAQ down 20 or 23%, and you say, ah, you know, pity for the public companies. Ah, it's really tough for people who've put their life savings into the public markets and want to cash out now. Of course, there's the argument that maybe, you know, people should be long-term investors and not watching this unless they have to leave right away. However, this does have a real implication to startup companies who, you know, the companies that you're investing in are eventually going to look to IPO. And IPOs might be a separate story from what's happening right now, but they're definitely caught up in what's going on with the market downturn. It seems like nobody wants to hit the public markets at the moment. So from your perspective,

• 3:05Alex Kantrowitz?

  what's going on and what does it mean for startups at the moment?

• 3:10Speaker 02

  Absolutely. Well, you know, I think it's important to set the stage of just the environment that we were in prior to this, right? We had historically low interest rates. We had a bunch of quantitative easing from the government. So the cost of capital was very cheap. In addition to that, we had some blockbuster IPOs in 2021. And, and even in 2020, when COVID happened, there was kind of a frozen moment in time in the markets. And then everybody seemed to get on this thesis that COVID brought forward digital transformation from a decade. You know, some things that were going to happen a decade from now happened in the course of 18 to 24 months.

• 3:49Speaker 02

  And so all of a sudden, everybody was an investor in startups, everybody from celebrities to, you know, more corporate strategics to, um, you know, uh, great operators that spun out to be solo GPs. So if you were an entrepreneur in the last two years, you had so many people knocking on your door and giving you very cheap capital. And what does cheap capital mean? I mean, we're talking about, you know, in the past, oftentimes you would sell 20% of your round in a seed or series A company. And some of the numbers got to less than 10% for seed and much less for even, you know, later stage rounds from that. And what that also forced was this compression of round timing.

• 4:34Speaker 02

  So in the past, typically you would raise your series A maybe 18 to 24 months after you raised your seed. And then from Series A.

• 4:43Alex Kantrowitz?

  Talk about like what seed and Series A are.

• 4:46Speaker 02

  Sure. So let's say, Alex, you're deciding to build a software that makes podcasters more successful. And you quit your day job and you go raise what people call a pre-seed round, where maybe you raised somewhere between like 500K to a million dollars. It could have some friends and family. It could have, you know, a couple of very small investors. And you start to think about the idea a little bit more. Maybe you bring on a technical co-founder. And then you start to bring, you know, have some more concrete ideas about your team and your market and your value proposition. And you say, you know what, if I hire, let's say, three or four engineers, I could really build this and get, you know, a handful of customers

• 5:27Speaker 02

  on this. And that's when you go and you raise your seed round. And typically, seed rounds were prior to this crazy market, you know, like two to three million dollar rounds. And in the last two years, we had seen seed rounds grow to like five to seven million dollars, because there was just so much demand. And if you're sitting there as an entrepreneur, you're like, wow, like, I might as well take this money, because, you know, my competitor raised four, and that means that they can hire more people than I can, or go to market, or spend more marketing dollars faster than I can. And so there was this dynamic to kind of take more money. And then Series A is typically the round where you have a handful of customers. Usually, you have some revenue. You definitely have a product. And you go

• 6:11Speaker 02

  out and you raise, again, in a prior life, it was like a seven to 10 million dollar round. In the last two years, it got from like 10 to 25 million dollar round. Now, what happened was, because there was so much capital, when a round would get announced, all of a sudden, all these VCs and solo GPs and even hedge funds and crossover funds, they would go to the entrepreneur and say, I know you just raised 10 million dollars, but why don't you take another 30 million dollars? Here you go. And what that did was made the valuations creep up so much far in it, so far in advance than what the traction of the company was. And I think today, in this market, there's just kind of a reality check where, oh, my

• 6:52Speaker 02

  goodness, I raised at a billion dollar valuation. I have 5 million dollars of revenue. And, you know, if I look in the public markets, there's companies that are doing 500 million dollars of revenue that are trading at 5 billion dollars. And I don't understand how this math works. So. Long answer to your question. I think in reality, what's happened right now is valuations just got way out of whack the last two years. I think we're seeing a cooling of that. And I think we're going back to a focus on fundamentals. You know, what demonstrates that you're an amazing company? It's not what price you raise that. It's how much revenue you grew year over year? And are you doing it in an efficient, eventually profitable way?

• 7:35Alex Kantrowitz?

  It always strikes me as odd that founders would want such high valuations. I mean, like you outlined it just now, with those higher valuations comes much higher expectations from the VCs and ultimately, you know, if you're going to go public from the market. And it always seems to me like it ends up putting a crushing amount of pressure on a company to end up taking all that money in. And I know it's really hard to resist, but it seems in some cases foolish to be able to take, you know, that much money when you're just, when you've just been able to stand up a product with a little bit of revenue. What do you think?

• 8:13Speaker 02

  Yeah, well, you know, there are some rational reasons to do it. One is dilution. So as a founder, when you think about, you know, you start out owning 100% of the company. And then in the past, typically you'd give up, you know, 20% and then another 20%. And by the time you got to IPO, if you own 10% of the company, you know, you were lucky. And so what happens was entrepreneurs were like, oh, wow, I could beef up my balance sheet and only give up less than 10%. This seems like a great deal. In addition to that, as you probably know, and as you've covered, there's been an explosion of new companies being formed every single day. Well, what does that mean? That means there's a lot more of your competitors out there as well. And if they're raising big dollars, like I

• 8:57Speaker 02

  said, it kind of puts some pressure on you to do it. The other dynamic, I don't think a lot of people have really talked about is what that does to your option pool. So all of a sudden, Your options are valued at a billion dollars. You go hire this like dream VP of engineering. And all the options are priced somewhere around, you know, your 409A, which is oftentimes pegged to your last round valuation. And so your VP of engineering is sitting there thinking like, oh, awesome. I have all these options. And then this year, a lot of these people are sitting here thinking, oh, my goodness, there's no way this company is actually worth what it raised that last year. And my options are probably going to be underwater. And I think that's a dynamic, unfortunately, a lot of founders just didn't have exposure to when they made the calculus to raise at, I think,

• 9:42Speaker 02

  these very high valuations.

• 9:44Alex Kantrowitz?

  Yeah, do you think there's going to be at this moment, a big exodus of talent? Because the, like you mentioned, the co-founders, the C-suite who were getting paid what they thought probably millions in stock, you know, now look up and they're like, oh, it's not actually worth that much.

• 10:01Speaker 02

  Yeah, well, a couple of things are happening, right? I'm sure you've read all about the layoffs and the hiring freezes and the slowing in hiring. What the public market focus has done is it has really shifted growth at all costs to show me growth, but show me you can make money doing it, essentially profitability. And so this has had a domino effect, much more so on later-stage startups than like a seed or series A. But the conversation in every boardroom at every growth-stage company is, how do we cut burn? And really, the North Star metric everybody is looking at is, if I spent $1 of burn, how much net new revenue or net new ARR did I unlock with that $1?

• 10:44Speaker 02

  And so that's, that really has accounted for a lot of these hiring freezes or slowing of hiring. And so, you know, I don't, I think that in uncertain times, people, people oftentimes flock to quality and safety. And so I think there's both dynamics. Startups will be slowing hiring for sure. But also maybe some executives will say, I don't really see like a 10x upside anytime soon from what I'm seeing in the public markets and maybe they go back to some of those safer companies like the Googles, Facebook, Amazons of the world.

• 11:19Alex Kantrowitz?

  Maybe this is good. I wrote recently, "Welcome to the Age of Building Brick by Brick", that was in Medium. And it is sort of, and I was listening, some examples of companies that just got way out of their skis in this raise a ton of money, you know, get high valuations stage and then try to justify them. And I cited like some of the most extreme examples. You have the WeWork where Jack Ma told Adam Neumann, not Jack Ma, it was Masayoshi Son told Adam Neumann, "You gotta be even crazier than you are." Adam Neumann was already crazy enough and handing in billions of dollars and be crazier. I mean, it's sort of emblematic of the era. Then there's also smaller movements like within Zenefits,

• 12:03Alex Kantrowitz?

  for instance, where Zenefits, you know, got this big valuation, was told it wasn't going fast enough, ended up making some ethically dubious choices to help the, some of their benefits agents pass these tests. And, you know, the company went through some really hard times then. These were both solid companies. Oh, WeWork was a great company in the right time until it, you know, got crazier. Zenefits seemed to make a lot of sense. But this push to have high valuations, get big fast, look at, you know, the competition and try to beat them at whatever cost it is, ended up creating a lot of crazy in the market. So do you think it's a good thing? Maybe we end up in this more rational market where companies start building brick by brick. And a lot of the companies that would have been great

• 12:47Alex Kantrowitz?

  companies initially, but ended up not becoming great companies because, you know, they tried to run a marathon after a five mile practice run, you know, might now actually be able to make it happen. What do you think?

• 12:58Speaker 02

  Yeah, I do think it's a healthy correction. I would say everybody was shocked at the speed of which this, at the speed and magnitude of this correction. And it's very different than 2008, where 2008, you know, you really had a huge platform shift in terms of mobile, you know, iPhone coming out and payments and all of that. And so I do think it has really refocused us back on the basics of business building. And I think people will be a lot more thoughtful around investing the cash that they have on their balance sheet. The things I don't think will change is, look, at the end of the day, venture capital

• 13:39Speaker 02

  valuations, yes, they're impacted by public market multiples, but they are truly a function of supply and demand. If there are five VCs out there that all want to invest in the same startup, oftentimes the highest price or, you know, close to the highest price will win. And so that drives up the price. It's natural bidding pressure. And so, you know, I don't want to over-correct by saying that this has impacted the entire private markets. I think if you're a seed or series A company, I don't think valuations have really come down that much relative to last year. If you're a growth stage company, it is completely different because you have going public on your horizon and, you know, your public investors are telling you they really

• 14:21Speaker 02

  care about profitability and high growth at the same time. And so I think for the companies that are just starting out today, it's actually a great time because you kind of get to see like, oh, wow, this is what could happen. And that's, that's, you know, good muscle memory for you as you're building your business, that it's not all times of like easy cash and maybe some decisions you make very early on will actually lead you to a much longer, durable, sustainable company as a result.

• 14:51Alex Kantrowitz?

  Right. And this, by the way, hasn't been just starting in terms of tech companies, especially going out and IPO-ing and not really meeting investor demands, VC demands. I mean, I think there's a stat that you talk about. After 2018, the number of tech companies to go public haven't done a great job returning late-stage investor capital. Can you expand upon that a bit?

• 15:15Speaker 02

  Yeah, sure. I haven't refreshed this data point in a few weeks and the market has moved so much, but I'm sure it's still true, given where the market is today. Yeah, was that like, I think a third of 2018 IPOs, or a good portion of 2018 IPOs, are actually trading below their original IPO price, which is pretty shocking to think, because those companies have grown, you know, they've thrown off a lot of cash on their balance sheet in some cases, and they're still trading below where, you know, you and I would have bought the stock in 2018.

• 15:49Alex Kantrowitz?

  I would imagine, so this is, it's great to be able to speak to someone, you know, working at a venture capital firm. I would imagine that there are alarms that go off inside at least the late-stage VC firms, the ones that put in money and, you know, the Series C and D, which is basically like, all right, we're ready to get this out the door. And they haven't been able to return their money in ways that they hoped, even in winning stocks, the ones that have, you know, actually made it out to the public market. So how do you think they are going to adjust? And do you think we're going to end up seeing less IPOs as a result? I mean, companies were already staying private forever. So what happens?

• 16:25Speaker 02

  I think late-stage, if you're only focused on late-stage, it is a really scary place to be right now. Because oftentimes, when you underwrite a late-stage growth investment, you're looking for at least a 3X return on your capital. And if you've paid, you know, something between $1 to $3 billion as your first check into the company, Then there's just not that many companies today that are valued, you know, over nine billion dollars in the same zip code of where you forecast the revenue to be of your company, you know, at the point of going public. And so I think it is a very scary place to be. I do think that is why the conversation has been preserve cash so you can grow into that valuation.

• 17:11Speaker 02

  And on the IPO market, you know, we did see Instacart come out and file their S1. There are rumors that they will still go public this year. We'll see. I think that some of the best companies can go out in this market. And I think there's a backlog of dozens, if not more, of companies that were planning on IPO-ing in 2022 and have just hit the brakes and said, you know what? It's all right. The goalposts have moved in terms of what the buy side, you know, public investors care about. We're going to spend a few quarters kind of beefing up the story on, again, showing that we can make money with this business model. And I think we'll probably see a bunch of IPOs come out next year as a result.

• 17:53Alex Kantrowitz?

  And what about the total pool of venture capital money that's going to be available to startups? Let me read you a little bit of the recent Wall Street Journal about Tiger Global, which I know is an outlier, but it's a fun thing to jump off on. So it's here it is. Tiger said in a note to investors that its hedge fund, which managed 23 billion at the end of 2021, was down, and this is an amazing number, 52% this year, 52%. That's one of the largest losses ever by a hedge fund. Its other large stock fund, a long-only fund that manages 11 billion at the end of '21 and doesn't short stocks, has lost 61.7%.

• 18:34Speaker 02

  Yeah, I read that same article as well. Well, look, I mean, I think the hedge fund world is very different than the VC world. And what's interesting about the venture capital world is last year you had $330 billion raised for venture capital. So what does that mean? That is committed capital that VCs have to deploy over the next two to three years. So the demand in a way, or I should say frankly, the supply of money is locked up on venture capital. And you can't redeem money. Like, once you commit to the VC, And once you invest, it's not like a hedge fund where you can ask for the money back or sell the public stock positions. You can't sell shares in startups most of the time.

• 19:18Speaker 02

  And so I do think the dollars are still there. I do think that will support the startup ecosystem. And I think over the next two to three years, you know, those dollars are going to have to be put to work. What it probably will do is again, flight towards quality. I think a lot of people will go after what are very obvious winners in the startup market for growth stage, which means those valuations will probably still be high. You know, I think it's, it is shocking to see the losses on the public side. And also probably some of the losses that will come on the private side if companies can't eventually turn profitable and go public.

• 19:58Alex Kantrowitz?

  Okay, so Tiger is a hedge fund, but it's still competing with venture capitalists try to put money into companies. So to put a finer point on it, do you think that there's going to be a contraction in the amount of money that goes into, that goes to venture capital firms to be able to invest in startups? Because again, like you mentioned at the top, zero interest rate policy is over. So companies or investors no longer need the riskiest options. Not to say that VC is the riskiest options, good track records in a lot of places. But like, it's, and it's among them. So yeah, what, what do you think that the level of money going into VC contracts? And what does that mean if so?

• 20:35Speaker 02

  Uh, probably, like, we probably won't see a lot of crossover funds come to super early stage.

• 20:41Alex Kantrowitz?

  What's a crossover fund?

• 20:43Speaker 02

  Crossover fund is a fund like Tiger Global that does private and public. Co2 is another great example of that. And that was a recent phenomenon, right? Like when I started in VC, there were no hedge funds that were investing in private startups at all. There was a pretty black line between the two. So I, I do think we will see some of that money go away. But I think given we're coming off a record year of the most committed capital to VC ever by an order of magnitude, I think there'll still be a healthy amount of money in the system to go around the next two to three years.

• 21:16Alex Kantrowitz?

  Right. And VCs are also kind of like startups in a way where the money that they get, they have to raise. Now, I, you know, we don't, in the public, really get a chance to hear a lot about that raising process, but I mean, I'm sure it's really interesting. Now, if you're, you know, in a position to raise a fund for a VC, and we'll talk generally here, you're gonna go to investors, they're gonna know that that stat that you talked about, that a third of companies, maybe it's a half now from 2018 onward, aren't returning the money from at least the late-stage valuations or dropping valuations. So what is the compelling, and now interest rates are going up, which means that all safer investments are returning something better, what is the compelling argument to

• 22:00Alex Kantrowitz?

  the people funding the funds to keep investing in venture capital?

• 22:04Speaker 02

  Look, I mean, I think at the end of the day, venture capital, although the riskiest, it has one of the highest returns if you get it right. And I think a lot of LPs, you know, most of them are institutions, endowments, pension funds, and oftentimes, they have 20-year-plus relationships with venture capital funds. So they've been through the dot-com bus, they've been through what happened in 2008, and they've seen this story. And I think the bull case is, this is actually the best time to invest in venture capital because the valuations have come down. And then layer on top of that, the fact that we are so early in digital transformation.

• 22:45Speaker 02

  I mean, think about all the things you and I still do with pen and paper, right? I mean, there are massive industries, healthcare, education, government, pharma, oil and gas, that still haven't been disrupted by technology. I heard this incredible stat by the AWSCO a few months ago, that 80 to 90% of workloads still happen on-premise. And so I think you sit there as, you know, an endowment or a pension fund, you know, chief investment officer, and you say, okay, well, you know, I can invest in real estate, I can invest in public markets, but if I really want something that's like shoot for the stars, I could invest in venture capital, and actually, this is probably the best time to do so.

• 23:31Alex Kantrowitz?

  Nina Shadian is with us. She's a partner at Index Ventures. We've been talking about the impacts of the downturn on venture capital. When we come back after the break, I want to pick up on the different type of downturns we've had, 2001, 2008, where does this play in? And then we'll also talk a little bit about what companies are hot these days. And maybe we talk about crypto as well. We'll be back right after this.

• 23:52Alex Kantrowitz?

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• 25:57Alex Kantrowitz?

  And we're back here on Big Technology Podcast with Nina Ashadyan, partner at Index Ventures, also a former financial planning and analysis lead at Google for the Big Tech Connection. We have it here. Nina, what do you think? So you mentioned dot com, 2008 downturns. How do you think this one actually compares to those? We're hearing all the time about how people are saying they're sure there's going to be a recession in 2023. I'm seeing people, respected analysts, expecting the S and P to drop another 50%. What's your perspective on it?

• 26:30Speaker 02

  Yeah, well, I think the story is very different than 2008, and I'll use that as the comparison. In 2008, what happened was we went from higher interest rates to basically zero. We went from no quantitative easing to quantitative easing of the government. And then we had, as I was mentioning earlier, the tectonic shift and incredible invention of the iPhone. And so actually, coming out of the financial crisis, there were the perfect ingredients for technology to take off. And that has led us to this incredible bull run that everybody talks about. Today, the directions of which we're going are the opposite, right?

• 27:12Speaker 02

  Interest rates are going up, not down. So money is getting harder, and the cost of capital is going higher, not lower. That said, I do think there still are incredible things like breakthroughs in AI. For example, crypto you mentioned that some people are very bullish on, that could be some of those tectonic platform shifts, as well as, as we also discussed, just the basic shift from doing things on premise and with pen and paper to the cloud. And so I think the ingredients are still there. It's just a different environment in terms of the fiscal policy that tech will need to thrive in going forward.

• 27:52Alex Kantrowitz?

  Wow, interesting. So I'm just reading between the lines. It kind of sounds like you're more pessimistic about what we're about to go through than what we went through after 2008.

• 28:01Speaker 02

  Well, 2008 wasn't really about tech stocks per se, right? It was much more, you know, the mortgage-backed securities blowing up and all of that. I think, I wouldn't say I'm pessimistic. I would say I'm pretty optimistic about the demand for tech. I would say the cost of capital undoubtedly is not going to be as cheap as it was in the past.

• 28:25Alex Kantrowitz?

  Yeah, and the AI stuff is interesting. I just got a chance to, well, sit in with OpenAI doing a demo of the Dolly program.

• 28:33Speaker 02

  Oh, yeah.

• 28:33Alex Kantrowitz?

  Which can just draw art. It's amazing. You just type in whatever you want and it'll nail it. It's pretty special. And I kind of think that Dolly is like one application where you're trying, where you're starting to see like, you know, real-world AI, yeah, AI application and the wonders that this stuff can do. However, it does also seem to me like it's more of like a backend thing, kind of like the technology behind the technology. So do you think it's going to be like more Dolly-type of stuff? Or more like enterprise stuff that's going to get AI inside it? Which is where AI is actually going to make a difference?

• 29:07Speaker 02

  Well, actually, one of the areas that I focus on is the enterprization of AI. So what does that mean? You know, today, like you said, a lot of the advancements of AI have benefited engineers, data scientists, maybe, you know, a lot of people working on machine learning models. But has it impacted a finance person, a salesperson, a product manager today? No. But what has happened, given some of the advancements in the last, I would say, really 18 months of AI, is that it has unlocked, especially because of natural language processing, a lot of front-end business applications. So I invested in a company called Gong. Gong provides AI-powered insights for salespeople.

• 29:51Speaker 02

  It basically listens to every customer call a salesperson has and tells you, and gives you analytics on what customers are actually telling you in terms of why they didn't buy the product, why they did buy the product, were they using a competitor? And I think we'll continue to see more and more use cases like that. I also invested in another company called DeepScribe, which uses AI to help doctors avoid doctor burnout. So today, if you're a physician, you meet back-to-back 12 patients a day. And then at the end of the day, it's a law that you have to input into an electronic medical record all of the patient notes that you took during the day. Well, doctors are so exhausted by the end of the day. They have to go back and look at all their notes.

• 30:35Speaker 02

  Remember what their chicken scratch, you know, said about this patient versus that patient. So oftentimes they end up having to hire a scribe for fifty to a hundred thousand dollars a year and dictate notes to them and the scribe just writes it in the EMR. Well, what this company, DeepScribe, does is they use AI to listen ambiently in the background to the doctor-patient conversation and summarizes the notes exactly in the fields for the EMR for the doctor. So the doctor can spend thirty seconds just reviewing it, saying, yep, this looks good, submit. And so I think we'll start to see a lot more real applications of AI for non-technical functions going forward.

• 31:12Alex Kantrowitz?

  You know, that's great. And, you know, my dad is a podiatrist and I think that he spent, you know, a significant percentage of his life, maybe like a, maybe fifteen to twenty percent of his waking hours doing paperwork. And I knew that AI one day was going to be able to do it. I have to send this to him.

• 31:30Speaker 02

  Yes, definitely.

• 31:31Alex Kantrowitz?

  Do you think that like, we're hearing a ton about AR and VR. My perspective is this is enterprise-first technology outside of gaming. Do you see it the same way or do you see it as a consumer technology?

• 31:45Speaker 02

  You know, my question on AR and VR has always been the hardware component of it. Actually, when I first got into venture capital, I remember meeting a company that had this headset that plumbers and electricians could wear when they were doing the job. And they could basically help with augmented reality. You know, they could pull up the manual of how to fix the shower right then and there. And I was like, oh, my gosh, this is going to be huge. But there were so many issues with the device that's where the battery, the weight, the heat, all of that and how expensive it was. And so I think I'm still waiting for the like aha moment on hardware.

• 32:30Speaker 02

  I know Oculus has gotten really great and, you know, from an entertainment standpoint, has offered some incredible breakthroughs. But I think

• 32:41Speaker 02

  On the enterprise side, I agree with you in terms of the killer application is probably on that side of the equation versus just entertainment. But I just haven't seen the adoption of hardware. The hardware hasn't kept up with necessarily the software advancements just yet.

• 32:57Alex Kantrowitz?

  So we've talked about AI for enterprise. We've talked a little bit about AR, VR. I'm curious, and also for a long time, especially Andreessen Horowitz, before they got onto this crypto binge, which we'll talk about in a second. They were talking about how tech was going to be big for construction and health and biosciences in a way that it had been for media and finance in the past. So I'm curious, from your perspective, where do you think the most opportunity is now with young tech? And maybe it's a trick question because it's everywhere. But maybe you could pick a couple of the categories that might surprise people that have the most potential and that you're most excited about.

• 33:40Speaker 02

  Well, I focus a lot of my time on investing in a theme called vertical software. Vertical software is software built for one particular industry. And in the past, a lot of VCs and also startup entrepreneurs didn't want to invest or start these companies because why would you want to invest in a company that only sells to one kind of customer? For example, like software for salon owners or software for car mechanics or software for moving companies. But actually, what happened was I think people got the market size of these a little bit wrong because in parallel to a lot of these business owners being passed, the businesses being passed to a younger generation

• 34:23Speaker 02

  who wants to run their whole business from their iPhone. We also had the advancements of fintech infrastructure like Stripe. So all of a sudden, a vertical software company like Toast is a great example, as is Shopify. They could charge a software fee for things like customer CRM, dispatch, scheduling, project management tools. And then they could also process every dollar that went in and out of those businesses. So Toast, for example, they provide these restaurants the ability to do like menu management, the scheduling of all the waiters and waitresses. But then also they provide the front end of enabling customers to pay from their phone. And then Toast keeps a very small fraction of the payment that goes through those restaurants.

• 35:06Speaker 02

  And so I'm really excited about where we are in. In building vertical specific solutions for a lot of industries that have been forgotten. I think a lot of these individuals are extremely amazing entrepreneurs that want to use technology, but they want a product that's built by people like them for people like them. They don't want someone who just comes out of Silicon Valley and shows up to their construction site and is like, hey, Alex, let me tell you how you can use technology to run your business.

• 35:35Alex Kantrowitz?

  I don't see how that can be off putting at all.

• 35:37Speaker 02

  They want someone who really understands their day to day. And that's been a theme that I'm extremely excited about. And actually, I think a lot of those businesses are durable through, you know, potential recessions and will focus on software to make them more efficient.

• 35:53Alex Kantrowitz?

  It's interesting hearing you, you know, throw that out and then also look at like Shopify, which is getting crushed in this moment, if that's an example. What do you think's happening there? Or I mean, I guess you'd be happy to invest in the seed round of that, but sorry.

• 36:04Speaker 02

  Yeah, exactly. It's probably one of the best venture investments of all time. Well, I think in the public markets, you know, there was a lot of question around would COVID growth rates continue because Shopify had insane adoption when COVID started. I mean, just think about it. If you owned a granola shop in San Francisco and you didn't have an online presence and then COVID happened, your only way of surviving was to build a website with a shopping cart. And Shopify was a perfect e-commerce business in the box solution. And so I think long term, you know, a lot of these businesses, while their stocks may be getting punished, you really have to look at the fundamentals. You have to look at how penetrated they are in their core markets to get the full picture

• 36:49Speaker 02

  of, you know, is there still upside from here?

• 36:52Alex Kantrowitz?

  Yeah, okay. Where do you stand on the crypto? I don't even know what to call it. Enthusiasm, fever dream. It does seem like a lot of VCs are, you know, talking about web three crypto. I've seen VCs talk about how like they're seeing the same ideas that they passed on in 2017, recycled and just have a web three at the front of their pitch deck. And all of a sudden they're getting funded. Where do you think, yeah, the crypto startup ecosystem stands today? Are you generally in the camp of the skeptics or the optimists?

• 37:27Speaker 02

  Well, I don't really focus on crypto, so I don't have a

• 37:30Alex Kantrowitz?

  But there must be a reason for that, yeah.

• 37:31Speaker 02

  Yeah, probably the reason is.

• 37:33Alex Kantrowitz?

  Yeah, sorry, go ahead.

• 37:35Speaker 02

  The reason is, I think there's so much opportunity in just straight B2B software that that's what I'm laser focused on. But that said, you know, I do think that there are many people out there that believe this is one of the greatest inventions in financial technology. And I think there's a lot of great promises behind it, but I think there's also questions around regulation. I think there's a lot of questions around visibility with end customers and how safe these assets really are. And so, you know, this is probably also just a healthy reality check of not everything that goes up into the right necessarily has the fundamentals to support it long term.

• 38:16Alex Kantrowitz?

  If someone that comes to you with a B2B idea that has blockchain involved, are they more or less likely to get funded by you than one that doesn't?

• 38:26Speaker 02

  As long as they can explain to me clearly in 30 seconds why blockchain is a powerful value proposition, I will always consider it. But I find that there's few and far between that can really do that.

• 38:40Alex Kantrowitz?

  Okay, yeah, that tends to be what I've seen as well. Not to say that it's not gonna, we just had Gavin Wood on the show, co-founder of Ethereum. I think that his vision is interesting and definitely was some of the more nuanced and like engaging conversations about this stuff. But then I kinda like contrast that with like a lot of what I see in Web 3, which are people who just will not listen to criticism and that worries me like. Suryam Krishnan, and I've had some good conversations with him over the years, but he recently tweeted, "One interesting vibe shift is the rise of the anti-crypto media personality. Folks who do the podcast, press, TV hit circuit purely on their opposition to Web 3,

• 39:25Alex Kantrowitz?

  even when their day job has nothing to do with crypto in any sense." Like, I tend to think that a field has much stronger, much, yeah, much more strength to it when it's saying, "All critics, come on, I'll engage with this and explain to you why, you know, my technology is better versus how, you know, it's, how dare the people criticize?" What do you think?

• 39:47Speaker 02

  I totally agree. I totally agree.

• 39:49Alex Kantrowitz?

  Yeah.

• 39:49Speaker 02

  I think it's a healthy to be.

• 39:51Alex Kantrowitz?

  So consumer stuff, we haven't really talked at all about consumer startups. You know, things that like, you know, millions or billions of people would use. It seems to be like a lot of the energy in tech, you know, is of course on the blockchain stuff, which we haven't really seen widespread deep results on yet. Or on the stuff that you're talking about, which is enterprise B to B. What happened to the consumer field? And do you think there's ever a chance that it will back, it bounce back?

• 40:21Speaker 02

  Well, I, I, I think that consumer is always interesting. It's a space that index also focuses on. We think a little, a lot about consumer marketplaces. We think a lot about the consumer experience on e-commerce. You know, we've thought a lot about the enterprization of the consumer, like the creator economy. So I do think there's some incredible entrepreneurs out there thinking about how to change things that you and I do on a daily basis outside of our day jobs.

• 40:52Speaker 02

  But consumer is tricky, right? It's very hard to invest in consumer. It's very binary. You really don't know what technology, let's say, a teenager is going to adopt today and continue adopting, you know, many years from now. And so it, it is one of the hardest and I think most respected type of investing there is out there.

• 41:12Alex Kantrowitz?

  Yeah, and it's, it's interesting, like the, you know, maybe there is room for, for something to come in. We thought Facebook was invincible. We think a lot less of that now. But the age of, you know, where there used to be a new fun app to try on your phone that was social. You know, like we're seeing Be Real right now. I don't know if you tried Be Real. It's this great app. You, it sends you a notification once a day and you have two minutes to post a photo and it takes a photo from the front and the back camera at the same time. And if you post late, then it's, it tells everybody that you posted late. And the idea is like, let's be as real as we can be. So, but again, like it just, that probably is going to be a flash in the pan as well.

• 41:56Alex Kantrowitz?

  All right, why don't we end with this? You mentioned earlier in the podcast, quality startups are going to be are going to be the ones that make it through this. Maybe you can tell us a little bit more about what you mean by quality startups? And what are the signs that a startup might be on the way out right now?

• 42:18Speaker 02

  Quality startups, in my opinion, are startups that are solving a mission-critical problem. Meaning, your customers literally could not live without your software. And they would be very upset if you went out of business. I think that, plus some thoughts around, okay, does the math work? Does my customer acquisition cost eventually pay for itself, given the size of the contracts that I'm signing? And then third, I think entrepreneurs that really are extremely thoughtful in terms of clarity of vision, but also very analytical in terms of execution and the core drivers of their business.

• 43:01Speaker 02

  I think those are some of the elements that when you see those around the table, you're like, wow, this is something that is very special. I think those that hire too far ahead of their growth, which by the way, was very much the norm the last two years. Now we've corrected that, but I think startups that will continue to say, the revenue is coming, the revenue is coming, but never actually put dollars in the bank and continue to burn really like large amounts of money. I think those are companies that you ask yourself, when does the music stop? And I think that's why a lot of board members and investors are taking a really hard look at their portfolio and having frank conversations with all of their entrepreneurs

• 43:44Speaker 02

  to make sure that everybody understands this new environment and this new paradigm that we're in today.

• 43:49Alex Kantrowitz?

  And what are the types of VC companies that are going to knock on their funders' doors and get turned away because it's going to have to happen for some?

• 43:58Speaker 02

  I think it depends on your investor base. You know, if you have, if you raised from all friends and family that have lost a lot of money in the stock market, maybe they just, they'd love to back you, but they don't have the capital to do so. I think funds that have, again, gone through numerous cycles and have demonstrated track records throughout different market conditions are probably the ones that would be able to raise capital the easiest. And I, I, I think you need to have a strategy. I need to, I think you need to commit to your LPs that times are different and this is how my playbook is different.

• 44:31Alex Kantrowitz?

  Okay. And then finally, I know I say last thing, this is a habit of mine on the show. Best case scenario, how do we, is there a way that you see the market and, you know, the tech world, startups, VC, actually not having so bad of, of a go of it, or at least a very, very short downturn, moving back into good times?

• 44:57Speaker 02

  Look, at the end of the day, it all comes back to what are you selling and how many people are willing to pay for it and how much are they willing to pay for it? And I do think, again, this might be the best time to invest in VC, the best time to start a company, because if you're able to sell to end customers in this market, that means you've really nailed it on a, a solution or a value proposition that they really want. And so I, I am really optimistic. I do think that we will see some of the best entrepreneurs be born, or the best companies be born in this environment. And I'm really excited to see what innovation takes us, where innovation takes us throughout the cycle.

• 45:40Alex Kantrowitz?

  Ina Shadian, thank you so much for joining.

• 45:43Speaker 02

  Thank you, Alex.

• 45:44Alex Kantrowitz?

  Great having you on. If people want to follow your, you on Twitter or anywhere that they can get your, your thoughts, where's the best place?

• 45:52Speaker 02

  Uh, probably Twitter and LinkedIn.

• 45:55Alex Kantrowitz?

  Yeah. Do you want to shout out your handles or anything?

• 45:59Speaker 02

  Uh, it's just at Nina Shadon on Twitter and just my first and last name for LinkedIn.

• 46:05Alex Kantrowitz?

  Okay, terrific. It's great. I actually like, we know we're talking with someone who knows their stuff when they're not like sitting on Twitter all day long. I know their exact follower count. Good thing.

• 46:14Speaker 02

  Oh, I am a, I am, I, my PR person yells at me all the time, our marketing person yells at me all the time that I'm not doing a good job on Twitter. So awesome. Well, Alex, I know you got to jump, but thank you so much. This was so fun.

• 46:26Alex Kantrowitz?

  Thank you. Always great to talk and I'm enjoying your more and more frequent appearances on CNBC tech check regulars. So going to look out for more of those. All right, everybody, that will do it for us here on Big Technology Podcast. Pleasure speaking with Nina as always. Thank you so much for listening. Thank you, Nate Goatney for editing and doing the audio as always. Really appreciate it. Sounds good. You like it. This is all up to Nate. So thank you, Nate, for delivering week in, week out. Thank you, LinkedIn, for having me as part of your podcast network. And oh, if you're a first time listener, please hit subscribe. I promise you will like it. We do these conversations every week with tech insiders and outside agitators. We have one coming next Wednesday. If you're a long time listener,

• 47:10Alex Kantrowitz?

  if you really like this show, rating would really go a long way. We'd love to have some more ratings. So if you're willing to rate us now, it only takes two seconds. That would be great. Otherwise, that'll do it for us here on Big Technology Podcast. Thanks again for listening. We will see you next Wednesday.

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