#886 How To Invest During The Fast Changing Macro Environment w/ Jeff Richards

Jeff Richards is a Managing Partner at GGV Capital In this conversation, we discuss the best advice for founders in this fast changing macro environment, to the performance of various asset markets, and what he's currently observing as potential investment opportunities. ======================= Fundrise is the largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That’s right, Fundrise is making high-end private market real estate investing accessible to everyone via an easy-to-use, automated platform. See for yourself how over 190,000 investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10. Go to http://Fundrise.com/Pomp today and, for a limited time, get $10 when you place your first investment. That’s Fundrise.com/Pomp ======================= DeFi Technologies represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U. S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at http://defi.tech ======================= This episode is sponsored by my favorite place to buy, trade, and stake crypto, Okcoin. They're the fastest growing US based exchange, serving over 190 countries globally with the easy onboarding and low fees. If you haven't tried them out yet, you should. They're on a mission to make learning about and buying crypto easier than ever, and they're all about bringing more financial literacy to everyone, something we can always use more of. From being the only exchange to integrate Lightning to contributing over $1M for Bitcoin core devs, they're doing incredible work to further the bitcoin ecosystem and they offer lots of other vetted utility assets from gaming to defi. With Okcoin, I feel confident that the future really will be ok. To get started, go to http://okcoin.com/pomp for some free bitcoin when you sign up.

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Jeff Richards is the managing partner at GGV Capital. Jeff and I discuss everything from the best advice for founders in the ever-changing current macro landscape, to the various asset markets and how they're performing, given all of the Fed policy decisions, and also what he's seeing in the variety of investment opportunities that he and his team begin to evaluate every single week. I really enjoyed this conversation with Jeff, and I hope you enjoy it as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Fundrise. You all know I

• 0:44Anthony Pompliano?

  believe that the best investors both understand and seek out extreme asymmetry. Fundrise is here to help you do just that. It's the largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals. That's right, Fundrise is making high-end, private market, real estate investing accessible to everyone via an easy-to-use automated platform. Its 1 million users already know that the investment with Fundrise is capable of producing strong appreciation returns and income generation while helping to stabilize a diversified portfolio. That's more important now than ever in our inflationary environment. See for yourself how over 190,000 other investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10.

• 1:29Anthony Pompliano?

  Go to fundrise.com/pomp today, and for a limited time, you'll get $10 when you place your first investment. Again, that's fundrise.com/pomp. Go check it out, and when you make your first investment, they'll give you $10 on top of it. Fundrise.com/pomp. This episode is brought to you by OkCoin. They are my favorite place to buy, trade, and stake crypto. They're the fastest-growing US-based exchange, serving over 190 countries globally, with the easy onboarding and low fees. If you haven't tried them out yet, you should. They're on a mission to make learning about and buying crypto easier than ever, and they're all about bringing more financial literacy to everyone, something we can always use more of.

• 2:10Anthony Pompliano?

  From being the only exchange to integrate Lightning to contributing over $1 million for Bitcoin core developers. They're doing incredible work to further the Bitcoin ecosystem and they offer lots of other vetted utility assets from gaming to DeFi. With OKCoin, I feel confident that the future really will be OK. To get started, go to OKCoin.com/pomp for some free Bitcoin when you sign up. Again, if you want free Bitcoin, go to OKCoin.com/pomp today. This episode is brought to you by DeFi Technologies. DeFi Technologies represents what's next in the digital economy. They're providing simplified, trusted access to crypto, decentralized finance, and Web 3 investment opportunities.

• 2:50Anthony Pompliano?

  Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols through a single stock purchase on a regulated exchange. DeFi Technologies is currently listed on the US exchange at DEFTF Stock ticker and the Canadian NEO exchange at DEFI. For more information or to subscribe to receive company updates and financial information, visit their website at DeFi.Tech. I'm really excited about what these guys are doing. I've become an advisor to the business and I highly suggest you go check them out. Go to their website at DeFi.Tech today. All right, let's get into this episode. I hope you guys enjoy this one.

• 3:31Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:54Anthony Pompliano?

  All right, we've got Jeff Richards joining us. We've got a whole bunch of stuff to talk to him. So Jeff, how are you doing?

• 3:59Speaker 02

  Good, man. How are you?

• 4:00Anthony Pompliano?

  I'm doing fantastic. All right, first I want to talk about kind of just macro market conditions. And I think some context for people that's important is you've seen multiple boom and bust cycles now as an investor. You pay attention to both public and private markets. And so you've got what I would consider a pretty good Good kind of contextual viewpoint, but also one of the more sobering views, not necessarily sobering in a bad way, just like you don't get too excited, you don't get too down, you kind of just, hey, it is what it is and I've got to navigate it. So what's your general read right now on like the macro environment and what a lot of these investors are kind of navigating?

• 4:40Speaker 02

  Yeah, I think, you know, it's funny when COVID hit, I remember it was like March 16th, 17th was when the market bottomed out. And I remember I was talking to Ryan Dennehy, who's the founder and CEO of a terrific company in New York called Electric. And I've told the story a few times. I said to Ryan, I said, Ryan, I could be crazy. I said, but I have, I was here for 9/11 when the market crashed in 2000. I was here for 08, 09, which was the great financial crisis. And I said, it feels like that again. And I'll tell you what, on the other side, when you get through these kinds of crises, things are good. You know, you got, you got, come out of 08, 09 and you had a 10-year bull market. And so I think what it does is when you, when you've been through a bunch of cycles and you have some experience and some seasoning, I'll call it, under your belt,

• 5:24Speaker 02

  it just gives you, like you said, it gives you a chance to not get too high and not get too, too low. And so, you know, we as a firm weren't getting too high last year when valuations were kind of nuts. And we're not too low right now. And I think that also helps you as an investor and a board member and working with these private companies that are trying to ride out some choppy markets. So, yeah, I, look, I, I get as excited about it as anyone when I meet a great company or a great founder. So don't get me wrong. But I'm also been through enough of these cycles and enough ups and downs. And, and I've been investing technically since I was about 12 years old. My dad was an investor and, and I, I remember I bought a share of Microsoft right after it went public. And I think it doubled or tripled and I sold it. So I thought it was, I thought it was a genius.

• 6:05Speaker 02

  I made like $40 or $50 and, you know, that went on to be worth, I don't know what it's worth today, probably 10,000, 15,000. So I also learned the value of buying and holding. So, yeah. And I think that the other thing is if you're not a trader, I always post this on, on Twitter. If you're an investor, not a trader, and to me traders are people that are watching the market day to day, moving in and out, not particularly concerned about wealth creation or long-term value creation and/or taxes, if you will. If you're an investor and you're investing over a five to 10-year time horizon, You know, when bad shit happens, you just kind of look at it and say, hey, that's just, that's just part of the drill. You gotta, you gotta write out the good times and the bad times. So you don't get too high when things are hot like they were last year. You don't get too low like they are when things are challenging like they are right now.

• 6:48Anthony Pompliano?

  Yeah. When you start to think about what's going on now, obviously, the big story is supply chain disruptions, inflation, like all these things that people see in the news. How do you think about inflation specifically as an investor? Is it something where you move your portfolio or just know if I'm an investor and I've got assets that aren't cash, then I'll benefit to some degree from the inflation?

• 7:10Speaker 02

  Well, I think there's two questions there. One, what do I think of inflation? And two, what do I do as an investor? And the second one is nothing. I always tell people it'd be really boring if you tuned into Bloomberg or CNBC every day and they just put a chart up that said, the best thing you can do today is just own the QQQ or the SPX or Bitcoin. Don't trade it, don't buy it, don't sell it, add more when it goes down. But it'd be very boring TV, right? If you just sat there for six hours doing that. I think, you know, the crazy thing to me on inflation is that so many people didn't see it coming. You know, I tweeted out a chat, a video chat with Elizabeth Warren last summer, I think it was in May or June, where the person interviewing asked her, hey, are you worried about inflation? Do you think it's a risk for the US economy? She said, no, it's

• 7:52Speaker 02

  not a risk, not an issue. You know, it's a boogeyman invented by the Republican Party. And it's just, to me, is so crazy that eight months later, or nine months later, we have the highest inflation we've had in decades. In hindsight, we could see it coming, right? You constrain, you constrain supply and you increase demand through stimulus and savings and people aren't able to go out and spend money on travel and commuting and things like that. So in hindsight, it's obvious to all of us, but I'm, I'm a little surprised that some of the, the key folks in Washington and even on Wall Street didn't see this coming. You know, much less folks like you and I who maybe don't pay as much attention to CPI and things like that. But I think it's a real challenge. I mean, I think you can't fix supply chains overnight.

• 8:34Speaker 02

  And demand is, you know, even if demand normalizes for things like cars, you've still got huge inflation around energy, oil and food. And that's probably going to spike even higher now that we have the conflict in Russian Ukraine. So I think it's a, I think it's a pretty worrying issue. And I'd love to see the Fed be as aggressive as they possibly can to take care of it. You know, the quarter point increase was, was a good signal. I, I, I kind of wish they'd done a half a point just to be a stronger signal to folks that were really taking this seriously. Because it sure looks to me like folks in DC weren't taking it seriously last year. And, you know, who does inflation impact, right? The, the, the guy that's worth a hundred million, he doesn't care what he pays for gas, you know, in his car or his plane.

• 9:19Speaker 02

  But the folks that are at the lower end of the income spectrum in the US, those are the folks who get hurt most by inflation. And particularly when you think about gas prices and food prices, because there's nothing you can do about it. Travel prices go up, okay, great, that affects middle and upper income. But when you're talking about food and gas, that, that impacts our middle and lower income folks the most. So it's, I think it's gonna be a pretty rough year. Honestly, I think there's a, you know, Goldman's got a 20 to 35% chance we go into recession. That's a pretty high percentage chance, you know, if you're a gambler. So I, I think there's a reasonable chance we go into recession. The only thing I, I keep in the back of my mind, and back to your point, you know, a sobering outlook. I also have a very long-term outlook.

• 10:00Speaker 02

  Our economy, you know, we had it last year at 3.9% unemployment, I think about 6% GDP. We haven't seen that in my lifetime. And so the underlying fundamentals, I think, are strong. It's just a question of what does inflation and rising interest rates do to, you know, particularly for folks like me who are investing in technology? What does that do for software demand, tech demand, cloud demand, e-commerce demand? We don't know the answer to that yet.

• 10:22Anthony Pompliano?

  Yeah, it's fascinating to hear you talk about like, how did they not see this coming? Because I think part of, while this was playing out over two years, we kept hearing, you know, hey, we're not gonna worry about inflation. It's gonna be transitory, you know, now there's kind of this like, oh, it's good for you, you know, type narrative in some of the mainstream publications. And I think that some technology people, but definitely like The Bitcoin crypto crowd, they were screaming and yelling, hey, you can't print trillions of dollars. And you know, there's also the balance of like, some of them may not even understand exactly how the legacy financial system works, but like, they just know print money is bad. And so it's a good thing to kind of, you know, serve as a punching bag on Twitter for. But with that said, I do wonder how many of the folks that are actually very intelligent, right? Regardless of what you think in their public positions, whether they're politicians,

• 11:04Anthony Pompliano?

  central bankers, or others that are involved in this, how much is it them trying to talk down inflation from actually ever happening? And they're like, oh shit, behind closed doors, like, this is going to be a huge problem. Like, let's go out and kind of, you know, set the expectation that it doesn't happen. And maybe people won't start right raising prices, trying to front run it, or move capital, or anything like that. And it's just, we'll never know. But but I do think that some of that is almost like, the public statements can't possibly be what they really thought in totality. Because if so, then like, we may need new people in these positions, like, very quickly, right?

• 11:37Speaker 02

  Well, I mean, you have to remember, two folks are pushing an agenda. So in the fall, you know, we were trying to pass this, I think it started at 3 trillion and ended at 1.5 trillion BBB plan. It would have been impossible to pass that if everybody saw inflation of 7% to 10% coming. It would have been DOA. It still ended up not passing. But you can't make the argument, we need to spend a trillion and a half dollars, or $3 trillion if inflation is spiking. And so I think a lot of the rhetoric last summer and fall was folks pushing an agenda of trying to get that, you know, get more of that legislation passed. It wasn't, like you said, it was probably in closed doors, people were actually starting to wonder and worry. And that kind of gets back to, like, you just, you just wish in our country, we'd go to a model of a centrist, you know,

• 12:22Speaker 02

  party, not the extreme left and not the extreme right. How do we get to the center where we have rational, intelligent people that understand economics and finance, running our country? And, you know, it's been tough. We went through four years of Trump, which was extreme right. I don't, I don't think Biden's on the extreme left. But there are folks like AOC and Warren and Bernie who are, and they tend to have a very loud voice. So, part of what we have to do as investors, whether you're investing in mutual funds, or ETFs, or Bitcoin, or stocks, cut through that noise, right? Same thing over the last 90 days, when folks ask me, hey, what are you doing with your portfolio? You know, I said, look, I don't see any lack of demand in cloud and some of the areas where I where I invest. Crypto, another good example. I don't see any lack of long term demand. Nothing's changed in my fundamental thesis.

• 13:08Speaker 02

  But the market largely trades on sentiment. So if you had a lot of hedge funds last year who were down, who were underwater, they couldn't come into the market and buy as things were dropping. You had people generally worried about interest rates. And then, of course, you had the Russia crisis. None of that, or most of that, had nothing to do with fundamentals on these businesses. So it's a great time to be investors when there's volatility. If you can crowd out the noise and just focus on what really matters over the long run. Pick your battles, buy some more QQQ, buy some more Bitcoin, buy some more of whatever stock you love. And just hunker down and know that everything's going to be okay over the long run. And then the short term, you you sort of wait it out.

• 13:43Anthony Pompliano?

  Yeah. One of the things that I don't know, you're much better versed in than I am, is obviously the public markets have that daily price. And we can see things, whether it's valuation multiples, etc. And it feels like going into the end of last year, there was a compression in the multiples in the public market and continued into the beginning of this year. But private markets don't necessarily have that kind of day to day, mark to market pricing. And so how do you think about public versus private? And it almost feels like although the businesses are supposed to be more mature in the public market. They are more susceptible to the sentiment changes and kind of more sensitive to that stuff. Rather than the private markets where they're kind of hidden on the day to day volatility.

• 14:28Anthony Pompliano?

  But they're much less sophisticated businesses, or at least less developed businesses. Like, how do you evaluate, you know, the two different markets?

• 14:35Speaker 02

  Yeah, it's a great question. And I get people on Twitter who are sort of like.

• 14:40Speaker 02

  Why are you commenting on public markets? You're a venture capitalist. Just stick to what you know, you know, sort of the shut up and dribble type idea. You know, if you think, let me just take take a step back. So our firm, we manage about, our funds are about a little over nine billion. We have a total of probably 15 to 20 billion at any given time, if you factor in our public. Securities. So we're, you know, we're a decent sized fund. Certainly in the private markets, we're a relatively large fund, but in the public markets, we'd be, you know, probably mid sized or small. And I think a couple of things I would highlight. One, you know, the majority of the investing we do is series A and B, which is early-stage companies. But a lot of the capital we deploy goes into growth-stage companies that are valued at 2, 3, 4, 500 million, you know, up to a billion or even higher.

• 15:23Speaker 02

  And so when we're making those follow-on investments or even new investments in growth-stage companies, we're trying to figure out, hey, what can this be worth? If this goes right, if this goes well, and this founder knocks it out of the park, what can this company be worth? And we're trying to calibrate that towards, well, what are the public comps? You know, if this is a company that's in the infrastructure space, where does Snowflake trade? Where does GitLab trade? Where does HashiCorp trade? We can look at these public comps and say, hey, where are those trading? And how do we evaluate the potential investments we're making? It's hard to do in a short-term window like we have right now, where valuations have come way down. But it was also hard to do last summer when valuations were way up. If you look at last summer, just I'll take a data point since you asked. You know, if you look at the cloud, in particular, software, we got to a point last summer where

• 16:07Speaker 02

  the top five software stocks were trading at roughly 65 times next year's revenue. That was an all-time high. If you look at the historical average, right now, we're at 31, so it's been cut in half. If you look at the historical average, it was about 15 to 20 for those top five. For the average software company post 2014, so the last eight, nine years, it's been 7.4X. We're back down to 8.4X for that group, for the average software company. It got up to about 15. So they've pulled back into a mode that's kind of more normal territory, if you will, for the last seven, eight years. And there are folks who'd say, well, you got to go back even further because that was, you know, pre-monetary, Fed monetary policy. But I would argue personally that post 2010, I kind of look at 2010 as a demarcation point

• 16:52Speaker 02

  for software and cloud because it's when the iPhone and the App Store rolled out. It's also when AWS really hit its stride and things like Stripe came into play where you could bundle fintech and software and internet and marketplaces. So I look at post 2010 as kind of this golden era for cloud and technology. And so we look at those as kind of the most relevant comps over the last 12 years. And then if you think about going forward, you know, what happens with multiples? We don't know. And so all we're trying to do is invest in great companies, invest in great founders. They're going to build sort of category-defining companies, and the multiples will take care of themselves. If the multiples stay where they are, we can make money. And so can you as a public market investor. If they go up, we'll make more money. If they go down, we won't make as much money. You know, the example I always give folks, I bought Salesforce in 2005.

• 17:36Speaker 02

  And I think my split adjusted cost basis is like $3 and today it's at 210. So now I didn't have a lot of money. I was a founder without any exits. It wasn't a huge amount of shares, but you're talking about a 70x return in 17 years. We're going to have other 50 to 70x returns from here in cloud and software. The trick is obviously to go find those companies and pick the right ones because every company didn't become Salesforce. But regardless of multiple expansion or contraction, you bet on great founders and great companies, whether they're private or public. We know you can make a ton of money in the long run. Our job is to go find those companies as early as we can.

• 18:15Speaker 02

  But that's the crossover that we see between private and public is, you know, we're trying to value these high growth private companies and understand what they could be worth in the public markets and make rational decisions about deploying our LP's capital. And then the other thing is trying to help the founders think about how they raise capital to scale their business and what it might be worth as a, as a public company. Cause that ultimately is the goal for most founders.

• 18:35Anthony Pompliano?

  Yeah. What's fascinating about this, I guess, is the value investor would tell you, hey, the return you get is based, you know, very much on the price you pay when you buy the asset. Here, there's a hint of truth to that in the private market, but for the most part, it's more either you're in the right company or you're not, right? It's much more binary from, from that standpoint. And so you guys do have, you know, it's called the nine billion or so in, in the funds to be allocated to the private market opportunities. There's a number of other funds that have shown up in the market with tons and tons of money, whether it's cloud focused or commerce focused, or it's just, you know, more generalized funds that have tens of billions of dollars in some cases. How has valuations kind of moving upwards, whether it's in the short, you know, last six, 12 months, or even just over the last 10 years?

• 19:21Anthony Pompliano?

  How have you guys changed your investing or do you just still just say, hey, look, we'll bite the bullet, pay a higher price, but we just want to back the best companies and that's where the returns are going to be?

• 19:30Speaker 02

  Well, I think everybody in venture capital has gotten religion around the idea that if you back the best company, whether you come in at a hundred or two, when you, if you were in Snowflake. At a hundred, you made more money than coming in at 500, but you made a lot of money coming in at 500. And so I would say we, like other funds, have religion around find the best founders and back them. And, you know, the, the short-term multiple and valuation, it matters. It certainly matters in terms of the kind of returns you're going to generate over the long run. But I think what you've seen most folks doing is just trying to put more capital to work in those companies. So still trying to get 10 or 15% ownership. It may cost you a bit more, but the, the outcomes are so much bigger.

• 20:10Speaker 02

  You know, when I first got into venture capital in 2008, you would model out a software outcome as maybe a $2 or $3 billion outcome. If you were wildly successful. Today, we can model these out and say, gosh, if we get this right, it could be a 10, 20, 30, 40, 50 billion dollar outcome. And I think that has changed the lens through which folks invest. And that happened for a couple of reasons. One, the companies are growing faster than they ever have. I mean, we're seeing public companies today whose growth rates are increasing. You know, it used to be that when a company went public 10 years ago, you would assume a declining growth rate over time. And we've actually seen growth rates increasing. And we're also seeing it, by the way, for companies like Microsoft and, and Google and Amazon and their cloud businesses are accelerating.

• 20:52Speaker 02

  Because cloud adoption around the world, this is a different topic we can get into, is accelerating. And the market is so big, the growth rates are actually accelerating so that the outcomes, when we underwrite a memo, we can say, gosh, I think if I really get this right, it could be a 10, 15, 20 billion dollar outcome. Versus 10 years ago where I might've said, I think we can maybe get a three or four billion dollar outcome. And so what you've seen is you've seen that trickle down into the, the private company valuations. And I don't think it's irrational. It's not irrational for the founders to ask for a higher valuation because they know the outcomes are bigger if they get it right. And it's not irrational for investors to pay those higher valuations. I think where the rubber meets the road is it's still a picking game. If you pick the wrong company at a high valuation, you're going to get crushed. And so to your, back to your original comment, picking the right companies is what matters.

• 21:37Speaker 02

  It could be, be two or three players in a category. If you get it wrong, you're not going to make money whether you pay 200 or 300 pre. And I do think we're going to see. We're going to go through a period here where a bunch of companies that were sort of valued between call it 500 and 2 billion that were thinking they'd go public this year are going to have to raise money in Q1 and Q2 in the private markets. There's going to be a little bit of a sanity check against the public market multiple. You know, if they're sitting at 20 or 30 times next year's sales and their public comp is at eight, that's a hard fundraising conversation because the people that are coming into investing in you are generally crossover investors who have both public and private investments. So I do think we're going to see a challenging fundraising environment for those later stage private companies that

• 22:21Speaker 02

  have to raise in Q1 and Q2. I balance that with saying, you know, look, if I look at our portfolio of companies in that valuation range, the majority of them raised a lot of capital last year, so they don't have to raise this year. They aren't planning on raising in the first half of this year and maybe not this year at all. So it'll be interesting. It'll be interesting to see how it plays out.

• 22:38Anthony Pompliano?

  One of the things that you're also hitting on here, which I feel like people just don't talk about that much, is there's way more information in the market. And I'll give you kind of three examples, right? So the first is there's all kinds of books and podcasts and people talking and all this stuff and the sharing of knowledge. And so I can think of just in the last couple of months, you know, the Power Law, the book about the history of venture capital. I could think about, you know, Sloopman's book Amp It Up. And we can go down the line of all these different books where people who have either documented history and kind of what works and what hasn't, or people who were the drivers of success have basically open source in some form or fashion. And that information, obviously entrepreneurs and investors read. The second thing is that there's just more people who have been investing

• 23:21Anthony Pompliano?

  over the last decade or so. So angel investing 20 years ago was like a really, really kind of esoteric thing. Now it seems like everyone's got some kind of fund and is trying to participate in the game. And so even people who are quote, quote, "early" in doing this, they've just got more experience now, you know, than they did five years ago. And then the last thing is the crossover funds. And so you get a bunch of these funds that have the public information. They've got kind of the muscle memory and the research and all those data points, and they're coming into the private market as well. And so it just feels like the market, both the entrepreneurs and founders have the information to be able to have a higher degree of success or a higher probability of success because they know what to do. But also the investors are better equipped to evaluate who the winners are and who they

• 24:04Anthony Pompliano?

  aren't. And so have you guys seen that like on the ground as you're continuing to deploy capital with some of these founders?

• 24:10Speaker 02

  Well, I'll give you a great example in the public market. We, we took a company public, I think it was in 08 or 09, I think it was 2009 called SuccessFactors, and it was one of the first SaaS companies to go public really since Salesforce. And the education that Lars had to do of public market analysts and, and investors on why SaaS was a really interesting business model, because they were used to a model, a licensed software model where you sold a million dollar contract, you recognized a million in revenue, and you captured all that cash flow right up front. I mean, now that's 13 years ago. It sounds like a long time ago, but think about today. Nobody asks that question when a software company goes public of how does your model work, and how does your pricing work, and when do you get paid, and why is this a

• 24:53Speaker 02

  good, why is this a good cash flow model? So we've come a long way in terms of people understanding these business models. A second component there, when, when SaaS companies went public five or six years ago, they never talked about net revenue retention, which from our standpoint is one of the absolute, absolute most important metrics you can look at when you're investing in a company. I've tweeted a million times, one of my, you know, I look for two things when I'm investing in a cloud software business. I want to see a growth rate north of 30%, and I want to see net revenue retention north of 110%. Well, five years ago, most companies didn't report net revenue retention, so there was no way to measure it, and there was no way to figure out which companies had the most staying power and most resiliency with their customers, which is really what that's a measure of. So today, it's, it's publicly reported by most companies, it's in their earnings statements,

• 25:38Speaker 02

  and it's on, you know, every analyst report, publiccomps.com, which is a website that I love that has a ton of information. You can look up net revenue retention for every software company. So I agree 100% with you. We've come a long way in terms of people understanding the business models, the information is more widely available. And then back to your point about Frank's book and the podcasts that are out there. I mean, as a founder, you know, I started my first company in 1997. There were no blogs. There were no podcasts. I mean, you just kind of had to wing it, or listen to your board member who, you know, was helpful, but in many cases hadn't, hadn't ever run a company. So I think it's never been a better time to be a founder. There's never been a better time to be an investor.

• 26:21Speaker 02

  We're also, we can get into this, but like, you know, one of the things that's really interesting to me about crypto is it's a very global phenomenon. I mean, think about the number of people in the world that own equities. It's probably two or 300 million, right? We have 7.3 billion people in the world. We talk a lot about 56% of the people in the US own equities. More have exposure through retirement accounts and pension funds, but you know, 56% not bad, it should be higher. But outside the US, Latin America, India, Africa, China, how many people in these markets own equities? Very, very, very, very small percentage. And I think what's really interesting about crypto is it is very quickly spreading into those markets.

• 27:02Speaker 02

  And has the ability to democratize access to investing in a way that we've just never been able to. Under the current, you know, sort of stock exchange model, and I think that's. When we look back in 10 years at crypto and say, hey, what did this really do? I don't think it's going to be the Board Ape Yacht Club that, that people look back on and say, that was, that was a, you know, a really defining moment. I think it's going to be the democratization of access to capital markets. Which we just haven't had. We just, there's no way, I don't, I don't know what the actual number is of people around the world who own equities. But it's a very small percentage of the world's population.

• 27:34Anthony Pompliano?

  Yeah, for sure. Absolutely. When you think about that global landscape, you guys are unique in that you have obviously a very deep expertise. A lot of capital deployed in the United States, but also abroad. Talk a little bit about kind of the international work you guys do, and then what are you seeing there that may be similar or different than what you're seeing in the United States?

• 27:53Speaker 02

  Yeah, so our firm has been global since day one, which was 2000. So we've been investing in. The original headquarters was in Singapore, so Southeast Asia, India, China. And the US are our predominant markets. We've got people all over the world investing. We've got about 110 people in the firm and about 40 are in the US. Everyone else is around the world. So. Our thesis has always been that as trends rise, whether it's software or e-commerce or cybersecurity or digital payments. Healthcare, whatever it is, as it shifts to digital, we would be able to see those trends rising around the world and bet on them in multiple markets. And so. You know, we've been able to do that. We were in Didi in China, we were in Grab in Singapore.

• 28:33Speaker 02

  You know, you look at a company that we were in Square in the US, we're in a company in India called Kada Book, which is a little bit similar to Square. So that's always been a key part of our thesis and. When you have that lens like we do, it's hard not to be bullish on technology. I mean, I just, I can't stress this enough. We take it for granted that we can walk down to an ATM, use a credit card, you know, get access to a doctor or a pharmacy. I mean, all these basic functions that we have as a first world economy in the US don't exist in other parts of the world. And in those other parts of the world, in many cases, they're going to skip all the stages we went through of, you know, the sort of offline version of whatever it is,

• 29:16Speaker 02

  whether it's banking or healthcare. They're going to go right to the digital version. And I think the opportunity there for not only companies that are based in the US, but companies based in these other markets to create the digital economies, it'll be, you know, payment will be digital. The interface with your physician will be digital. It's just, it's hard not to be bullish when you see that. And then, you know, back to your, I know you're bullish on crypto. Those, those markets don't care whether those, those systems and that software is built around the US dollar or Bitcoin. They don't care, right? They didn't grow up using the US dollar as their unit of monetization and investment because they've never been investors. And I think that's where crypto is going to play a big role. And I'm thrilled to see the US government finally,

• 29:59Speaker 02

  it's, you know, more about this than I do, but seemingly taking a positive view. Because I can tell you outside the US, a lot of governments outside the US are taking a very positive view on crypto. They're trying to kind of figure it out and understand the goods and bad parts about it. But I think we're going to see adoption rise really quickly outside the US. And, you know, we certainly believe that'll be an area we'll be able to invest in over the next decade heavily.

• 30:22Anthony Pompliano?

  Yeah, I completely agree. And it was, it was very encouraging, I think, when the executive order came out from President Biden, his administration, where they said, look, we want to be a leader. And what that looks like, we don't know yet. So like, let's go do the work and then we'll figure it out. I think that's exactly what you want to hear from the government if you're living in the United States. I've got my two brothers here, or two of my brothers. Joe, John, what questions you guys got?

• 30:42Speaker 03

  Jeff, I got the answer for you. You ready?

• 30:46Speaker 02

  Hit me.

• 30:47Speaker 03

  The Wiltshire Grand Center in Los Angeles. It is only 30 feet taller than the Salesforce Tower. Salesforce number two.

• 30:55Speaker 02

  That must be a big building because the Salesforce Tower sticks out. When you're in San Francisco, it is, it's the biggest by a mile. That's interesting. That's cool.

• 31:02Speaker 03

  Pretty obvious.

• 31:02Speaker 02

  Great data. You learn something every day.

• 31:04Speaker 03

  There you go. I'm glad I could help educate you on something there. Something very important. Okay, my question around is around what's happened over the last two years. Obviously, a lot has changed with COVID and people now aggressively starting to work from home. And just a bunch of trends have emerged out of this. You guys are obviously investing in mostly things digital wise, right? So maybe things haven't changed as much as you're kind of already positioned yourself to benefit from some of these changes. But just over the last two years, like, how has your philosophy and your investment strategy changed?

• 31:35Speaker 02

  It's a great question. I think when we, when COVID hit in kind of February, March of 2000, or sorry, 2020, I don't think anybody knew what to expect. And, you know, what was amazing about that, if you remember that time period, there was a lot of fear, right? And people saying, oh, my gosh, you know, we've never dealt with anything like this. The interesting thing is other parts of the world had, right? With SARS and Ebola and some of these pandemics that hit other countries really hard. We really hadn't experienced anything like that in the US. So there was this brief moment of panic. And then what we saw in a lot of our companies was, you know, immediately kind of back to business. I mean, everybody went to work from home, but the demand side didn't change,

• 32:16Speaker 02

  whether it was hiring or, you know, goods, services, obviously, the services industry, the restaurant industry, the travel industry, they got, they got hit pretty hard. But demand for goods spiked, which I'm not sure anybody forecast, whether it was, you know, home remodeling, furniture, people, whatever. I mean, you could, again, in hindsight, we could have forecasted this, but we didn't know it was coming. So for everybody, it was a little bit of a shift to how do we invest with founders? And we don't get to meet them in person. And, you know, I would say for the majority of folks we invested with, we did meet them in person at some point, whether it was a lunch or a dinner. And then, you know, we were able to do our diligence over Zoom and oftentimes have the first meeting over Zoom. The thing, you know, I would say the most interesting thing to me when we look back at it

• 32:56Speaker 02

  is we doubled down on a lot of the, a lot of the companies that we were investing in in 18, 19, 20, that we thought had big market opportunities in front of them accelerated, right? Whether it was e-commerce or healthcare or digital payments, cloud.

• 33:13Speaker 02

  Accelerated. And so we ended up doubling down on a lot more. It wasn't like we shifted and said, oh, my gosh, we have to go to this other category we've never invested in. We doubled down on the categories that we always, we already knew and loved. And we've seen those businesses accelerate. Back to my point about, you know, revenue growth accelerating. And you think about the cloud, there was a stat that I saw the other day from Accenture that, you know, banks spend $500 billion a year on, on IT, and only 12% of that's in the cloud. And they've all suddenly decided that they need to be more aggressive and move into the cloud. Who knows? I don't think that was related to COVID, but maybe work from home spurred some of that. And so you're just seeing this rush of spending into, into cloud technology. So I wish I had a more, a better answer for you. I think there are some categories, you know, I'm big on SMB tech. I think small businesses

• 33:59Speaker 02

  are going to be thriving when we come out of COVID for, for good. You know, move back past the sort of Omicron wave and whatever comes next. We saw five million new business applications in 19 or 20 and 21, which is a record. The businesses that went away unfortunately are going to be replaced by new small businesses that are built on technology. They're going to be built on toast and square and slice and electric and all these amazing companies that we've been funding. So I'm super bullish on the small business economy. I also think it's great for our country. 60% of Americans work for a small business. It's 43% of US GDP. So if that part of our economy gets stronger coming out of this, I think that's great for, for, for the US economy.

• 34:39Speaker 02

  And frankly, you know, you guys are like me. We love entrepreneurs, right? I'd love, I'd much rather have somebody go start a business, even if it only has five or 10 employees than be the, you know, 187,000th person working at IBM. So I just think it's a good shift for our country. I think the work from home shift was good for our country. People are able to spend more time with their kids. They're not commuting. Doesn't apply to everyone, obviously. We have an entire manufacturing sector that can't just go work from home. But I think that trend in the, you know, sort of white collar industries is going to be a positive one for our economy. And then the third thing that I think could be positive for the economy is just the spread of these technology companies out all over the US. I mean, we have founders that, you know, moved from New York to Miami. They moved from San Francisco to Salt Lake. They moved to Atlanta. They moved to Pittsburgh.

• 35:25Speaker 02

  It's not just Austin, Seattle, San Francisco, New York. We're now seeing entrepreneurs and their teams all over the country. And if that happens and we see that lift from employment and incomes all over the country from tech, man, that's, that'd be great for our economy over the next decade.

• 35:40Anthony Pompliano?

  John, what questions you got?

• 35:41Speaker 04

  Jeff, nice to meet you. So my question is around, you've obviously invested in a lot of businesses, Coinbase, Yak, Lambda School, et cetera. What are some specific companies now or just trends that you're seeing that founders are creating?

• 35:56Speaker 02

  You know, what I love about a lot of those examples is they're companies that went into categories that I think people thought the government was going to fix, right? The government will fix financial services, not going to happen. Government will fix higher education, not going to happen. You know, you look at Lambda School, which is now Bloom Tech, kind of reinventing the way higher ed works for people who don't have access to go to Yale or Princeton or Harvard. And, you know, I love, look at, one of my favorite stats is we've been talking about the government increasing minimum wage, or at least certain folks were. Government hasn't increased minimum wage since 2009, July of 2009, 13 years ago. Meanwhile, Amazon increased wages to 18, Walmart matched that. Walmart and Amazon are paying for, for education.

• 36:41Speaker 02

  You've got folks like, you know, Bloom Tech and others that are solving these issues. So I just think, you know, it kind of was ushered in with, with Airbnb and Uber sort of going after the government establishment and saying, hey, we're going to break the rules to build these new companies. And you can argue whether those companies did it right or wrong. But I think it has emboldened entrepreneurs to take on some of these categories that were sort of previously really hard to go after. Healthcare, financial services, education, you know, we haven't had much innovation in those, in those industries for decades. And all we've seen, any, almost in any industry that's regulated, the cost inflates faster than inflation, right? Think about healthcare, think about education. All these things are a tax and a cost on our, our consumers.

• 37:26Speaker 02

  So I just, I love the idea, you know, I love what's happening in crypto, the idea that we could lower the cost of financial services for the average person, not only in the U.S. but around the world. I love what Austin's doing at Bloom Tech. You know, obviously what Brian did with Coinbase, that was hard to do, right? They had to figure out a regulatory landscape that, that wasn't clear at all, still isn't clear, and built a, you know, multi-tens of billions of dollars company. So I hope that That lays the groundwork for a bunch of other great companies, BlockFi and FTX and others to do the same. Democratize access to financial services around the world and sort of, you know, that concept of rising tide lifting all boats. But I really look back at Airbnb and Uber as the founders had said, you know what?

• 38:06Speaker 02

  We're willing to tackle these really hard markets that are heavily regulated and sort of break the system. And I just think the more we can see of that, the better because I don't, I'm just not somebody who believes that our government will solve these, these big issues that we want to get, get our heads around.

• 38:23Speaker 04

  We agree there.

• 38:24Anthony Pompliano?

  Yeah, I was gonna say, I think we agree on that one. Last thing I want to leave people with is you're talking to these founders and CEOs, their executive teams on a daily basis. What are the things that you're having in those conversations around things they should be thinking about, market conditions? You talked a little bit about fundraising kind of at the end of last year so that you wouldn't have to do it this year. And anything else that you could share with folks as they think about building their own companies or even starting some?

• 38:51Speaker 02

  Yeah, and I'll put in a little plug for us more experienced investors and board members and founders. I think when you go through volatile times like we did in Q1, Q2 of 2020, like we're going through right now, you really, you really find out who's around the table with you, right? People, do they give you good advice? Are they honest with you? You know, are they giving you the hard feedback you may not want to hear? And so I really view that as a big part of our job and what you saw me doing and a lot of my partners doing in kind of Q4, January, February, March was sitting down with founders and saying, hey, let's look at the financial model for this year. You know, maybe given what's going on in the market, we make some game time adjustments. We decide to, to cut burn a little bit. We invest in a couple of different areas.

• 39:36Speaker 02

  We're certainly not advocating to anyone that they slow down investment or slow down growth because, you know, if you hit the gas, Mark Benioff famously says he wishes he wouldn't have pulled back as, as much as he did in 08, 09. And so we're not encouraging people to pull back, but we've definitely been encouraging founders really since Q4, you know, November, December, when we really saw things changing to say, hey, this is real. There is a shift happening and you should plan accordingly. And then the other one has been anybody that had to raise in Q1 or Q2, really trying to get ahead of that. Work with them on their pitch decks, work with them on introductions to the right co-investors. And I think we feel pretty good. We, you know, we do a pretty systematic analysis of the portfolio when we come into these market shifts. And I think we feel pretty good about where companies are sitting right now.

• 40:18Speaker 02

  I think what we don't know is what's the fundraising climate going to look like a year from now? So all these companies that we can say, hey, good news, you don't have to raise this year. Don't worry about it. Just focus on execution. What we don't know is what's it going to look like next year and we'll cross that bridge when we get to it. But the best place to be as a founder is to be able to crowd out all the noise around you. You know, which funds are coming in, getting out, valuations, blah, blah, blah. Don't worry about it. Just, just hire great people, execute, focus on your customers. That's a great place to be. And we've got a lot of companies that are in that position. But I think what you, you know, I, I had a conversation with a founder yesterday who unfortunately is not in that position. It's not one of our portfolio companies, but you know, it's basically running out of money. And I said, well, what was your board telling you in November, December and January?

• 41:01Speaker 02

  And it was one of these conversations where clearly they just weren't having the hard conversations. It was sort of rah rah rah, go, go, go, business as usual. And so, you know, obviously I'm, I'm a hammer looking for nails. I'm biased. I think that great founders should look for, for experienced VCs that can help them grow their business. But you know, in, when the market shifts is when you figure out who really gives, gives good advice and is willing to give you the, the, the tough love that you need to come out and have a great business on the other side. And, and you know, one of my big mantras, we tell founders is, hey, we're not building companies for March 22. We're building companies for March 27, March 20, you know, 32, right? I'm way more focused on where we are as a business in five or 10 years than where I am, than where we are this quarter.

• 41:45Speaker 02

  So let's, let's think with that hat on and invest in the right areas and do the right things to build a company over the long run.

• 41:51Anthony Pompliano?

  Jeff, it's the internet. Centrist viewpoints, rational thought and experience have been outlawed by everyone on the internet, my friend. Before I let you go, one of our sponsors is Eight Sleep. Have you gotten the Eight Sleep yet? Are you on the board yet?

• 42:09Speaker 02

  I need to. I talked to Mateo and I was super impressed and I think the product is amazing. I will tell you, as you get older, and I've been married now for almost 20 years, we have four kids, very happily married, I should add, you and your spouse have different temperatures when you sleep. And so I'm working on my wife. I want to get one. I think it'll solve some issues. I'm a big fan of the product. I know people love it.

• 42:37Anthony Pompliano?

  I will say that as a married man who now has a young daughter, I already can tell there are many things that happen where the saying of happy wife, happy life is more true than anyone could ever tell you. So I hear you on that. And I like the plug of happily married, which is a key part.

• 42:59Speaker 02

  I tell people, I've had several younger folks ask me, what's my best marriage advice? And I say, the only marriage advice I have is marry the right person.

• 43:06Anthony Pompliano?

  One of the most important life decisions.

• 43:09Speaker 02

  If you get that right, everything else takes care of itself. If you marry the wrong person, it's challenging. And that person marrying you.

• 43:16Anthony Pompliano?

  Jeff is pretty consistent in his advice. Invest in the right company, marry the right person. It's just the big macro decisions. If you get those right, everything else works out. All right. Where can we send people to find you on Twitter and find out more about GGV on the internet?

• 43:32Speaker 02

  Yeah, well, GGV, we're at GGVC.com. We're on Twitter, GGV Capital. And then my Twitter handle is at J Rich Live. So I'm fairly active and I do tweet about investing. I actually love Twitter for, you know, FinTwit, the conversations that happen, even the barbs and the jabs. I just think it's a fun place to play and share ideas and conversations with folks. And, you know, as you know, same with you guys, one of my ultimate goals is just to help more people. Learn about investing, right? The more people we can help learn about investing, the better off we'll be as a country.

• 44:05Anthony Pompliano?

  I could not agree with that anymore, my friend. Thank you so much for the time today. I think people learned a ton from what I'm seeing so far and we'll just get in the future.

• 44:13Speaker 02

  Thanks, guys. Great to see you.

• 44:15Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.