Jan. 14, 2020

What Happens When the VC Music Stops?

You know what happens when you assume: you make an investment mistake. So why are so many startup founders and everyday investors assuming today’s endless well of venture capital is...actually endless?

You know what happens when you assume: you make an investment mistake. So why are so many startup founders and everyday investors assuming today’s endless well of venture capital is...actually endless?


This week on Morning Brew’s weekly podcast, Business Casual, Union Square Ventures managing partner Rebecca Kaden explains that, even though venture as a whole is armed with more capital than ever before, “nerves are spiking and we know change is coming.”


But what does that change look like? When the change does come, where’s the opportunity in a venture-funded world packed with potential WeWorks? And what are the long-term implications of today’s multibillion-dollar private check-writing?


In this episode, Kaden explains. Plus, we...

  • Determine why the inherent risk of venture capital is so misconceived by the market
  • Explain why recessions are good for venture capitalists and bad for you
  • Compare and contrast our economic predictions with those of Juicy J.


Don’t miss it. While you’re here, subscribe to Business Casual and leave us a rating and review.


Note: Business Casual transcripts are generated using speech recognition software and human transcription. They may contain errors, although we do our best to avoid them. Please check the corresponding audio before quoting a transcript in print. Questions? Errors found in a transcript? Email businesscasual@morningbrew.com


[00:00:01] [sound of coffee being poured]


[00:00:04] [intro music plays]


Kinsey Grant, Morning Brew business editor and podcast host [00:00:05] Hey there and welcome to Business Casual, the weekly podcast from Morning Brew that answers the biggest questions in business with the biggest names in business. I'm your host and Morning Brew business editor, Kinsey Grant. 


Kinsey [00:00:17] And now, let's get into it. So it might feel like we've been popping into your air pods for a while now, but it's only been a few months. And, you know, they say when you know, you know, and I know what we have is special, but I also know something else. Business Casual listeners, just like you, are so hungry for analysis and more information about the world of venture capital. I've gotten more emails, tweets, carrier pigeons [laughs], everything asking for VC analysis in the last couple of months, more than any other correspondence from you listeners. And I can’t really say I blame you. Venture capital, or as we'll call in this episode, VC, has been among the biggest, most important developments in business over the last decade, fullstop. I mean, aside from the fact that venture capitalists probably put $100 billion into startups in the U.S. alone this year, the trend is changing the status quo trajectory of newborn businesses as we speak. But in venture capital, as in life, nothing lasts forever, we think. So today, to help me answer one big question—how the boom in venture capital during this upswing of the economic cycle is going to impact the way businesses are founded and run in the long term. Rebecca Kaden, managing partner at Union Square Ventures, welcome. 


Rebecca Kaden, managing partner at Union Square Ventures [00:01:27] Hi. Thank you. Thanks for having me. 


Kinsey [00:01:29] Thank you for coming on. You, as I mentioned just a second ago [laughs], are at Union Square, which is one of the most respected VC funds in the business right now, on either coast, I would argue. You guys have invested in a ton of really interesting names, both since you've been there and even before, Twitter, Etsy, Tumblr, Foursquare, Kickstarter, kind of like you name the big cool ones you guys have probably been involved in some capacity. And you were their first female GP there, too, right? 


Rebecca [00:01:57] Yes.


Kinsey [00:01:58] It's got to be a cool feather to have in your cap. Also, just a great —


Rebecca [00:02:02] It's a lot of fun. I think the most we can all hope for is spending days with smart, interesting, kind people. And I've really gotten to do that at USV, so I'm feeling lucky. 


Kinsey [00:02:14] That's awesome. You started your career as a journalist, I read. 


Rebecca [00:02:16] I did. 


Kinsey [00:02:18] Like a kindred spirit.


Rebecca [00:02:20] I'm always a little jealous of being on this side [laughter]. 


Kinsey [00:02:23] There’s always room. You can always get on media—like the next big thing for VC. Get out of [indistinct] Twitter. 


Rebecca [00:02:27] That's true. 


Kinsey [00:02:28] Self-publishing. So like I said, today I want to talk a lot more about where we're going in venture capital. But I guess an easy place to start here with the beginning of a new year, the beginning of a new decade. Where should we expect venture capital to go in the next, say, couple of months? Couple of years? 


Rebecca [00:02:48] Sure. I think it's a really interesting moment in venture in general. On one hand, there's more capital in the market than there's ever been. It's wildly competitive. It's tumultuous. [chuckles] You're seeing the rise and the stumble of things like Softbank, huge funds being raised, huge rounds being raised. But at the other side of things, there's a ton of opportunity. It's easy to look at it and be frightened or criticize the crazy capital going on. And you can bet a lot of time doing it. But what we try to do is say there is a lot of opportunity to build really interesting businesses right now. And they may look really different than the decades that have come before. 


Rebecca [00:03:30] We've been very focused as a VC-driven firm on where we can invest in businesses that are broadening access, where is their opportunity to drive up value and down cost around big areas of customer spend. And we think those are areas like healthcare and financial services and education, which haven't really been where the mass venture returns have come from in the last 15 years. And so we think that you may see these categories emerge and create venture-scale businesses that haven't been the software-focused past of the last couple decades. 


Kinsey [00:04:07] So how do you convince investors that these companies that maybe haven't been the historic exits that we've been seeing, you know, giant IPOs, giant buyouts, that they should invest their money if that's where— 


Rebecca [00:04:17] Well, we think that they will reach that scale. So, software, SaaS, have dominated the exits of the last 10 or so years as well as big consumer internet platforms. We think that will continue to happen. We think software can always be recreated. We think consumers are hungry for new experiences, new brands [indistinct] generations act differently than the ones before. And there will always be opportunity there. But we also think there's opportunity in a different piece of the puzzle. There's a graph that we love that shows how prices have changed for consumers, and where they've gone down and where they've gone up. And where they've gone down, if you track time, have been software, have been toys, have been most of the groceries. Most of the things that we buy and that's great. 


Rebecca [00:05:05] And some of that innovation has come through technology. But you look at the top half of the graph where prices have gone up, and on the top you see healthcare and you see education. And that hasn't been where innovation has really been focused. Healthcare today, education today are two categories that, despite changes on the edges, look pretty remarkably similar to what they looked like 20 or 30 years ago. And we think there's massive opportunity for investors and technologists to turn their energy to reinventing categories like those and driving down the cost for consumers the way they have in other categories. 


Kinsey [00:05:43] So these categories, they're kind of ripe for innovation for someone to come in and do something differently. 


Rebecca [00:05:48] We think so, yeah. 


Kinsey [00:05:49] So if you had to sum up your investment thesis in one word, what word would you choose? 


Rebecca [00:05:55] Well, we publish our investment thesis. So we've done this before. In one word, I would say access. Our thesis is around where is there opportunity to provide new kinds of access. 


Kinsey [00:06:08] OK. So the USV’s 2004 fund is one that's like a little famous on venture web sites. It's still kind of considered one of the best performing funds to-date. It was, you know, as of 2018, 68% annual net rate of return, 13.87 times investment multiple on the total capital invested, which is astounding. How do you follow that up? Well, or do you? [laughs]. 


Rebecca [00:06:36] I'm hoping we do. [laughs] Because that's my job and what we're focused on now. I think there's a couple of things. I think one is the venture landscape looked quite different. A few learnings from that fund. One is the venture landscape looks quite different than it does today. Not only that, it's less competitive and fewer funds to compete with because, you know, we have to compete, but we feel confident that when we do and we come with ideas and with perspective, we're in a good spot to win. But also, rounds looked very different. Companies raised a lot less money. And as a result, you got diluted a lot less. So some of the dynamics look a little bit different. So I think what the second learning, which is the most important one, is they're built on outliers. 


Rebecca [00:07:25] A seed investment in Twitter multiplies your fund. Any individual investment can multiply the fund, which if you're managing in a $1 billion fund, a $2 billion dollar, really can't happen. So that's one of our strategies against it. But you look at some of those categories. We talked about healthcare, education or financial services, and the opportunity of the scale of businesses you could build at them is certainly as big and as wide open as software was in 1993. 


Kinsey [00:7:57] Interesting. 


Rebecca [00:7:58] And so they're harder, quote unquote. Not to say that building massive software companies isn't hard. It is. They’re quote unquote, harder, because they're regulated, they're uglier. They're complicated. They don't have the same virality quotient [chuckles] that Twitter does. But businesses that change how we learn in a mass way—a business that changes how we access healthcare in a way that's transparent, cheaper. There's no constraint on size of the potential there right now. 


Kinsey [00:08:33] So even with all of the regulatory headaches that something like healthcare breeds or the fact that we've been talking about MOOCs or massive online open courses for however many years and still haven't exactly reached scale, that has to be discouraging at some point. I would imagine that these things have been around for a while and yet Twitter is Twitter and Khan Academy is — 


Rebecca [00:08:58] Sure. Sure. But before there was Twitter, there were plenty of other attempts to talk online. 


Kiney [00:09:03] So you're just hoping that you bet on the right one. 


Rebecca [00:09:06] Well, and its innovation evolves, meaning things that work are for a combination of reasons. The right insight, the right team, and the right time matter a lot. And if you think—take education, for example. There have been lots of attempts at education. We're interested in, could education look really different? And if maybe, maybe not. 


Rebecca [00:09:31] And everything in venture, the chance of maybe not is always way higher than the chance of maybe. But we're in the business of the maybe. And I think to do so, you have to have a somewhat optimistic approach. And if it does, you would create a massive business and you would create a lot of change for students. And what I mean is the way you go to school today, the way you think about the role of college and the role of graduate programs, is basically the same. But, debt is higher than it's ever been before. Dissatisfaction with public education is higher than it's ever been before, and primarily the job gap of people graduating from schools in more debt than they've ever been and having a harder time getting a job on the other side is coming, we believe, is coming to a head. 


Rebecca [00:10:14] And it's a broader part of the conversation. And all of those things we think create timeliness to a different kind of structure, because eventually, if you continue to do the same thing and you don't get the outcomes you once did, meaning you continue to have education and you don't get the jobs you once did, something will break and change. And they are, we think, is opportunity. 


Kinsey [00:10:35] There has to be a straw to break this camel’s back. We would hope. OK. We will talk more in just a second about the venture landscape as a whole. But real quick. Let's take a short break to hear from our partner. — 


Kinsey [00:10:49] And now back to the conversation on venture capital with Rebecca Kaden. OK, so we've kind of covered a lot of the more specifics with what you're doing at USV and your general thoughts on venture capital. Now, I want to press a little bit. So I am going to read you a quote from a New York Times piece last year. 


Rebecca [00:11:07] All right. 


Kinsey [00:11:08] All right. Ready? Quote, the VC business model on which much of the modern tech industry was built is simple. Startups raise piles of money from investors and then use that cash to grow aggressively, faster than the competition, faster than regulators, faster than most normal businesses would consider sane. Larger and larger rounds of funding follow end-quote. 


Kinsey [00:11:29] Thoughts, feelings, concerns, do you agree with us, do you disagree with this? Do you think it's an accurate representation of your line of work? 


Rebecca [00:11:37] OK, let's break that down. Let's actually start at the end. Accurate representation. I think it is a very accurate presentation of the last six years in venture. Six is fuzzy. Five [indistinct], something like that. And I agreed with it until the end, which is piles and piles of money follow. So if you think about what venture as a tool is. It's the idea that upfront expensive investment, that initial capital, which is very expensive to raise, creates opportunity to grow exponentially. And pay back exponentially over time. Meaning that if you overinvest upfront, you create long-term exponential growth. Fundamentally, that only really makes sense if that expensive investment comes upfront. Once it starts coming throughout the lifecycle of a company, it doesn't make that much sense. 


Kinsey [00:12:34] OK. So it doesn't make as much sense from a business standpoint if you're trying to raise a ton of money after you're on a series D. 


Rebecca [00:12:42] It depends on what the cost of capital is. So it depends how expensive that capital is. And so in the last five, seven years, the cost of that capital at late stage has been enormously cheap. Because there's so much of it, all of these teams and firms and offices and families have come into this asset class seeing the wealth that's been created here, and that's created competitive pressure that's driven down that cost of capital in late stages. We believe that will change. Cycles don't last forever. I'm sure you've had lots of people on the show talk about this already. 


Rebecca [00:13:18] You know, anyone can sit here and predict when that happens. I have ideas, but no real idea [laughs] on when that will. But it will. That's the one thing we know. And all of that money that's not dedicated venture money, and some of which is, will go away, and the cost of capital at that later stage, one, it'll be harder to raise money. Businesses will struggle and some of those prices later stage will come down. 


Kinsey [00:13:44] OK. So when, you know—let's dig a little deeper into kind of some of these aspects that  we brought up with that competition. There is a decently large [laughs] contingent of people who think that venture isn't doing anything to help solve competition problems in the market. That's why we have an Uber and Lyft, and that's why we have a Seamless and GrubHub and Uber Eats and all of these different delivery services. That they have so much access to capital that the market hasn't done its job in terms of figuring out who the best competitor is, because they all have enough money to survive. What do you think that this is true? And if so, what's the lasting impact of something like that? 


Rebecca [00:14:24] It's an interesting perspective. So, I do think the market has enough capital that a larger range of businesses and a higher number of competitors in any given category are lasting longer than they would in a market with less capital. It's easier to get funded. It's still actually pretty hard to get funded, and particularly for women, for people of color, we can go into that too, but it's still hard, but it's easier than as it has been before. And so you have more companies in the market. 


Rebecca [00:14:52] However, I don't know that the point is that there should be total consolidation. The same way that in any other asset class, you know, small businesses, the idea isn't that there should be one massive pizza chain. It's positive for markets overall to have multiple players in them and competitive forces. In fact, it's mandated by the government. And so, I don't know that the issue is that Lyft and Uber exist. Actually for consumers, that's a very positive thing. It's probably that the number 50 to 100 of ridesharing companies raised and lost so much money in the race for ridesharing. Does that make sense? 


Kinsey [00:15:32] Yeah, but I mean, those are still people who put a lot of money into those companies that are losing out.


Rebecca [00:15:36] That are losing out what?


Kinsey [00:15:39] Return.


Rebecca [00:15:40] Yeah. So the market, if it was—when the market consolidates more, you'll have fewer of those invested. And so the issue isn't Lyft and Uber. It's a longer-tail rhythm. 


Kinsey [00:15:51] OK, OK. Interesting. So I guess a another, and I say this, having done a lot of episodes of Business Casual where venture capital has come out, because we do talk with a lot of startup founders, and one of the themes I've kind of gleaned in the last six or so months [chuckles] of my life is that venture capital can sometimes—not all the time—sometimes breed the sort of mentality of, you know, there's so much money to go around right now. But there's also a really high expectation for returns on that money from [indistinct]. 


Rebecca [00:16:22] 100%. That's why I say venture capital is a very useful tool. It's just not a tool for everything. And partly because of the glorification of it and the, you know, last bunch of years, it's extended its reign over a much broader swath of businesses. That probably makes sense. There is another style, the spilling that's emerged, which is capitalism. Outraise. Raise enough money that it's impossible for people to compete with you. That has worked somewhat in the last bunch of years. That is Uber. And it's worked. But we think it's a short-term strategy and that—not short-term strategy that it hasn't created companies that have worked because it clearly has—but that the music's kind of running out on that. And once that goes away, it'll reshape the asset cost a little bit. 


Kinsey [00:17:11] OK. What about the idea that some of these companies that maybe are using capital as a moat are spending all of that capital on short-term ideas like marketing, not on building a good customer experience, that they just want to be the shiniest, most awash-in-capital competitor in their asset or in their class. And then see what happens in five, 10 years. 


Rebecca [00:17:34] Well, marketing isn't a shiny thing if it works. So they're spending it on inefficient marketing. 


Kinsey [00:17:39] Right. I guess maybe I can be more specific—that the idea of this Away story—Away suitcases that we saw at the end of May of last year—that they'd raise so much money. They had really high expectations from their investors. A lot of thought leaders kind of thought, you know. Sure. This is because of maybe a tangential effect of all of the venture that they raised. I think it was something like $118 million or $181 million today, which it's not as much as some, but it's a lot. 


Rebecca [00:18:08] We should separate this out. So, spending money on inefficient marketing and inefficient channels, or poorly spent in burn, will run its course and eventually, if the capital markets—if acquirers and the public market doesn't reward the businesses that are being built off of that strategy, they'll go away. We starting to see that with WeWork. More or less like evolution. That's the story of WeWork. And these examples are powerful because they send shockwaves through a market in a lot of ways. The Away story, I think, is a little bit different because we sitting here have no idea whether Away’s marketing was efficient or inefficient. 


Rebecca [00:18:48] The only way to know whether it made sense to raise $118 million or whatever the number is, is what is the payback on that marketing spend. If the payback on that marketing spend was great, if for every dollar they spent on, you know, a subway ad or a bus wrapper or whatever it was, they got back two or three or five, then maybe they should have. But we don't know. 


Kinsey [00:19:13] I guess it's just, at what cost? You know, it's at what cost are they getting 5x returns on their marketing dollars? 


Rebecca [00:19:17] That's a different question. Can you do that? 


Kinsey [00:19:20] It doesn't to me—it doesn't build a sustainable business. 


Rebecca [00:19:23] Who knows? Maybe that's—I would separate that out. If they are spending money efficiently at scale, I would say in CBG, I find it difficult—I don't know the story. But I find it hard to believe you can spend a huge amount of capital efficiently for very long at scale. I think you can for a while. But look, Nike spends a lot more than that in a marketing budget. It's not impossible to do. The question is, is that efficient spend? And, are they running a company in a way that supports people effectively and builds an organization to last while spending that money. So I don't think it's only a capital problem. It's can you do the rest of it alongside of it? 


Kinsey [00:20:09] OK. Where do you see the role of the venture investor in determining whether or not they do successfully build out that business? 


Rebecca [00:20:20] I think this is a really important question. There has been a trend in the last number of years to cheerlead because the market’s so competitive. If you don't just support and cheerlead and play along with writing, you know, marking up all the rounds and what the founder wants to hear, are you going to get enough good references or you are to going to have enough good airwaves in the industry to win that next competitive deal down the line? And as a result, it seems like people have let slip things that maybe they shouldn't have let slip; that if you weren't as worried about reputational risk in a competitive industry, you may have been more on top of. Or if you didn't believe that capital was always plentiful and always around the corner, you meant you would have been more worried about. 


Rebecca [00:21:06] And we're starting to see that emerge like, you know, I'm arm's distance from WeWork. I have no investment in a real information, but, you look at that and the investors are accountable there for a lot. They overpriced an asset. And the team mismanaged it. But often these things go hand-in-hand. And so there's a lot of investor accountability out there. If you see bad acting inside companies or people not being treated the right way, your duty as a board member is to manage that company. And I think we're going to see people speak up a lot more about that. 


Kinsey [00:21:46] Do you think that's because we're in a post WeWork world? 


Rebecca [00:21:49] I think that helps. All of these stories help. And I don't think we want to chase [indistinct]. I don't think the role of anyone is to go try to out everything we can. But I do think—one thing that really interests me about social media in general is the idea that exceptions become norms. So, any extreme example is the one people point to because it's the thing that spreads. And so something like WeWork, even though [chuckles] it's a crazy story and certainly not representative of the mass number of companies, is on people's mind in a really significant way and it'll change how people start. 


Kinsey [00:22:26] OK. So I guess it's, to kind of tie it together, don't rock the boat, because if you do, you might miss out on the deal of a lifetime, down the line. 


Rebecca [00:22:34] I think that's been a theme. 


Kinsey [00:22:37] So when we talk about a lot of these big themes you've touched on, I feel like competition is a common thread. And, you know, kind of throughout that, not only are you competing with other funds to win deals with high-velocity startups, you're also competing for investors’ dollars with those other funds that you know, that you use those dollars to go and invest in those awesomes next, equal startups. Who do you think is your biggest competitor and outside of venture? Is it a different asset class? Is it trying to win people over in the top of a 10-year-long bull market? 


Rebecca [00:23:09] You know, I think maybe to a fault VC’s been a hot topic, asset class for people. Lots of individuals and firms and celebrities and all kinds of things that generally would invest in much lower risk assets have come in because I think risk has been misperceived a little bit by the market. But that will that will change. But I think one thing you're really talking about is, it's been much easier than it has been before to raise new funds. 


Kinsey [00:23:39] OK. I want to talk quickly here about profitability. [laughter] It’s a buzzword around here these days. You know, it's funny to think about the fact that now maybe being profitable is the next big trend in startups that are beyond me. Do you think there's any relationship between this surge in venture capital funding and trends in profitability, be that prioritizing growth instead of profitability or vice versa? There's a direct correlation, right? Explain it to me.


Rebecca [00:24:11] You need to be profitable to have cash to do the things you want to do. If you have external sources of infinite cash, that's way less important. Then profitability is not on your mind because you're not worried about not having capital to do what you want to do. If you become less—more worried that the external capital isn't there, you're gonna want to control your own destiny and manage the cash. So they're directly related that way. However, I think there's an undertalked-about other level, which is control. 


[00:24:47] There are entrepreneurs that I know—and I bring this up to the people I work with—which is, profitability is helpful at the right time, not only because it derisks fundraising, it increases control of your own company and your own destiny. How fast you want to scale, what way you want to scale. You know, it puts the lever in your hand. Where you are in the driver's seat on how this company is run. 


Kinsey [00:25:10] You, if you're the founder or the CEO. OK, I want to talk more about this idea of levers and control over your company's destiny in just a second. But really quickly, let's take a short break to hear from our partner. —And now back to the conversation on venture capital with Rebecca Kaden. So we're just talking about control and owning the future of your company if you're a founder CEO. In a recent episode of Business Casual with Gary Vaynerchuk, he made the assessment that he, quote, hates the whole game, hates everything about it when it comes, end quote, about venture capital, [laughs] that basically a lot of these founders, CEOs are given the same advice by venture capitalists and funds that have never been in the game. They've never been a founder CEO. Is that something that you have struggled with? 


Rebecca [00:26:01] Look, I think all life experiences are different toolsets. And if you're going to fund founders, having had that same experience as them is a massively useful one. I don't think it's the only massively useful one. One thing I love about venture is I think it has lots of different paths and values, lots of different attributes and mindsets. I think there are commonalities. Empathy and unique insights into new markets, high risk tolerance, a bunch of different things. But the professional roads are really varied. But do I think having been a founder is massively useful? Sure. 


Rebecca [00:26:44] The same way I think [Kinsey and Rebecca speaking at the same time]. The same way I think being a great marketer, who has a unique insight into how to acquire customers, is useful in its own way too, so I think it's all a trade-off. 


Kinsey [00:26:59] OK. A lot of these ideas that you just brought up are kind of like very big picture, pie-in-the-sky kind of thematic personality traits almost. Is it difficult to sort of reconcile the more meta aspects of venture with the there is a bottom line involved. You have to make money and return to your investors. 


Rebecca [00:27:20] I don't think it's difficult to reconcile them because that's the reality of what we're doing. At the end of the day, we spend a lot of time thinking about ideas, people, categories, but there's a very tactical part of the job, which is you write a check at some point, and over time, either that money disappears or it multiplies. And so the proof is in the pudding at some point. Now, that takes a long time. So there's a fair amount of time in between where things can look different than they'll wind up being. And the road is kind of winding. But, you know, at the end of the day, there are returns and numbers to look at. 


Kinsey [00:28:04] OK. So I think we've kind of talked a lot here about some of maybe the problems with all of this, you know, massive amounts of capital in the system right now in the venture system. And these companies getting huge checks every other month, it feels like. But the reality is, as you mentioned before, it's really tough to win venture funding. Not a lot of companies do it. I think even in 2015, there's a stat that there are about 600,000 new businesses started in the U.S. every year, less than 1% successfully make or succeed in raising venture capital. 


Rebecca [00:28:39] Sure. And a lot less than that depending on what you look like as a founder. 


Kinsey [00:28:42] Right. So that's what I would love to hear more from you about. What's been your experience in trying to remedy that problem, if any? 


Rebecca [00:28:51] Well, lots of experience to try to remedy that problem. So great investors, many of whom I admire, have an ability to look at markets that aren't their own or people that don't resemble themselves and understand them and relate to them and see the opportunity. However, we all know it's easier to relate to people that have similarities to ourselves. And that's just human nature. We should push on it. We should fight it. But it's part of it. And venture capital tables have looked extremely homogeneous. And as long as that's the case, it's going to be really hard to change what founder profiles look like. 


Kinsey [00:29:31] I feel like that's a blind spot that not a lot of people recognize—that we are physiologically drawn to people who look like us and sound like us. 


Rebecca [00:29:42] Yeah, I mean, we are, right, and relate to our life experiences, and we should push on that. I don't think we should use that as an excuse and say, OK, so I should just invest in people that are like me. But I think we should use every lever we have. And one is pushing on natural biases and another is changing the composition of check writers so that that will change the composition of founders too. 


Kinsey [00:30:04] OK. So I would argue that, hopefully, is one of the big things that we experience in the coming years of changes in venture. Another one, like you've mentioned already, this bull market is not going to last forever. The party is going to stop. The music is going to stop, like you mentioned. What happens to your job? 


Rebecca [00:30:25] I think a couple of things. I think it gets a lot harder. I think companies in our portfolio—the job is in a couple of different ways. It's our portfolio and it's new investments. On the portfolio side, I think for some it'll be a really challenging time, and it will force them to make hard choices and to figure out how to weather the storm. On the investing side, it creates some kinds of new opportunity. Many of the great investments that are playing out now, those checks were written in 2008 and 2009 because their 10-year cycles and you're starting to see that play out because competition goes away. 


Rebecca [00:31:03] All of those investors that have come into venture—that it's not their prime asset class—will go—will leave it because it's not their focus and they don't put in—they'll constrain their investing. So we see pros and cons in it. You know, there are very few pros in a recession in general because it's massively hard for people around the country. But in investing, if you're careful and can weather the storm, many great companies have started in those periods of time. 


Kinsey [00:31:36] OK. You mentioned earlier in this conversation that you didn't want to make any prediction about when the recession hits. I will say that the noted economist Juicy J tweeted last week, a recession is coming. Save your money. Are you saving your money right now?


Rebecca [00:31:52] For sure. I think there are lots of triggers to them. You know, the Fed has been pumping money into the system for a really long time. And that is a big factor here on how that goes. We are very focused at USV on the climate crisis. And we think that to put the right effort against that is going to require a huge amount of capital and a huge amount of attention and sacrifices on other things. And that, I think, plays a role here. 


Kinsey [00:32:27] So imminent recession and climate change head to head, which is the biggest worry for you today? 


Rebecca [00:32:36] There are very few words for me that are bigger than the climate change. I think without massive changes made we’re—my partner, Albert, likes to say, “Without focusing on the climate crisis, we're basically just rearranging chairs on the Titanic.” 


Kinsey [00:32:52] Wow. [laughter]


Rebecca [00:32:53] Yeah. He really believes it and has convinced the rest of us too. I think without major focus paid to it, very few of the other things we're working on matter that much. 


Kinsey [00:33:05] So it doesn't matter if we are going to end up in another great recession if we all burn before then. 


Rebecca [00:33:11] Yeah. 


Kinsey [00:33:12] Yeah. [laughter] Makes perfect sense. OK. So when we look ahead to the coming years beyond just a recession and the climate crisis coming to a head. What do you see exits looking like? Is it leaning more in one way toward acquisitions? Do you see more IPOs happening? Is there any way to sort of figure out what kind of trends we can expect out of exits? 


Rebecca [00:33:38] M&A is actually—I think we will see a pickup in M&A. Actually, it's been relatively slow. And the reason is, there are some massive industries, including financial services, for example, where there have been very few really big acquisitions. PayPal recently buying Honey is one of them for $4 billion. But we'll see some of the old institutions start to make significant bets on new products in some of these emerging industries, like fintech and healthcare. And I think that will revitalize M&A. 


Rebecca [00:34:17] I think the IPO window is basically tied to the recession question. [laughter] But for now, looks open and pretty good. I don't think WeWork breaking kills it. So I actually think there's—I think the biggest question on exits is less, is it M&A or IPOs. It's what happens to this profitability question. Meaning, is the window really closing to have a great exit without making money? 


Kinsey [00:34:49] OK. Is there any way to answer that question? 


Rebecca [00:34:51] [indistinct, plus laughter] 


Kinsey [00:34:52] OK. So I want to close out with this. If you had to say in one sentence what you expect the venture capital landscape to look like throughout 2020, now that we've finished this conversation, what would you say? 


Rebecca [00:35:07] Throughout 2020 I would say, still pretty good times, because there's a lot of capital remaining in the system and a lot of good ideas, but nerves are spiking and we know change is coming. 


Kinsey [00:35:21] OK. Perfect. [laughs] That that was pretty concise answer—appreciate it. So now that we have answered the hard stuff, talked about climate change, I am going to pull out, our well-known wheel. We'll hit the middle button and take it for a spin [sound of wheel spinning]. And—follow for follow. If you had to pick someone on Twitter to follow one person, who would it be? 


Rebecca [00:35:47] Whew. One person to follow on Twitter is my partner Andy Weisman, because he tweets both about actually pretty interesting trends in venture, but mostly about really cool cultural things, insights into observations of New York, great songs to listen to. So he actually makes you smarter and also have fun. 


Kinsey [00:36:13] OK. Love it. Take another spin. [sound of wheel spinning] All right. Oh shit. This is a new one for the wheel here. So tell us a story about either a good or a bad “oh shit” moment in your career, either when you realized something was going to change drastically or you made a big mistake. Floor is yours. 


Rebecca [00:36:34] Mm hmm. OK. I think the biggest one was probably my move to USV. I had spent about six years at a firm called Maveron, which I really loved, I was in San Francisco. And I'd gotten to know the USV partners over about nine or so months. And I was sitting in a restaurant not far from here with Andy Weissman when my partners [indistinct] And he was like, OK, so we'd like you to join this firm. And it was definitely a oh shit moment because it involved you making a big move and also the opportunity to move back to New York, where I'm from and which was really exciting. 


Kinsey [00:37:20] OK. Love that. All right. One more spin around the wheel [sound of wheel spinning] and it's going to be: call me crazy. So this is also a new wheel option. Congratulations. Share either a contrarian viewpoint that you've had that either came true or something you believe now that you feel like you are in the minority, a hot take, if you will. 


Rebecca [00:37:41] A hot take I have is despite all of the institutionalized brand and all of the benefit and the fact that I hugely benefited from it and really love it, I think there's a significant chance that when my 18-month-old is going to graduate from high school, that the college experience and the norm of going to college as we know it today looks very different than it does today. 


Kinsey [00:37:11] So, no college.


Rebecca [00:37:11] I don't think will be no college. I think what that educational period looks like in your life may just look different than how we think about college.  


Kinsey [00:38:21] OK. We'll check in and see what exactly [laughter] in 16½ years. OK. Well, Rebecca, thank you so much for coming on Business Casual. It's been such a pleasure to listen and learn from you. 


Rebecca [00:38:32] Thanks so much for having me. 


[00:38:34] [sound of coffee being poured]


[00: 38:35] [outro music starts]


Kinsey [00:38:37] Thank you so much for listening to this week's episode of Business Casual with the wonderful Rebecca Kaden. Next week on the show, I'm speaking with the CEO and co-founder of Rent the Runway, Jen Hyman. 


Kinsey [00:38:49] I'm so excited for you guys to hear this conversation. It is really, really incredible. Also, Morning Brew just made our first social media hire, and we are so excited. 


Kinsey [00:38:58] Sloan is taking the reins and revamping basically everything from Morning Brew and from Business Casual, so go follow us on Twitter and on Instagram to see all of the wonderful changes. And I will see you on Tuesday.