20VC Bessemer's Ethan Kurzweil on How To View Pattern Recognition and Deal With The AntiPortfolio, The Next Frontier In Developer Focussed Businesses & Why eSports Is Interesting Again

In a dynamic episode of "20 Minutes VC," host Harry Stebbings converses with Ethan Kurzweil, a partner at Bessemer Venture Partners. Kurzweil, who specializes in consumer technology and developer platforms, shares his journey from pitching a business idea to eventually becoming a venture capitalist. He reflects on his entrepreneurial roots, the evolving landscape of developer-focused businesses, and the significance of bottom-up selling. Kurzweil also discusses the future of developer tools, emphasizing the potential of platforms that simplify complex technical challenges like AI and deep learning. Additionally, he delves into the esports industry, predicting growth and innovation in technologies that enable esports to rival traditional sports. Throughout the conversation, Kurzweil underscores the importance of learning from missed investment opportunities, recognizing the value of visionary entrepreneurs, and staying optimistic about the world's trajectory.

• Harry Stebbings hosts the 20 minutes vc podcast, featuring leading venture funds.
• Bessemer Venture Partners has backed companies like Pinterest, Yelp, LinkedIn, and Skype.
• Ethan Kurzweil, a partner at Bessemer, focuses on consumer technology and developer platforms.
• Investments include Twitch, Periscope, Dropcam, Twilio, Intercom, and Sendgrid.
• Thanks to Byron Dieter and Jeremy Levine for introducing Ethan to the podcast.

"Leading venture funds, Bessemer Venture Partners, the team that backed the likes of Pinterest, Yelp, LinkedIn and Skype, just to name a few."

The quote highlights the prominence of Bessemer Venture Partners in the venture capital industry and their successful track record of backing high-profile companies.

• EShares is a cap table management platform offering equity management, valuations, and liquidity.
• EShares is trusted by over 5000 companies, including Squarespace, Kickstarter, and Doordash.
• Fond provides an employee engagement suite with rewards, perks, and an engagement survey.

"EShares is the number one cap table management platform, allowing for equity management 409 a valuations and liquidity all in one place."

This quote emphasizes the importance and utility of EShares as a comprehensive tool for managing company equity and related financial aspects.

• Ethan Kurzweil joined Bessemer after a stint at Linden Lab, creator of Second Life.
• David Cowan of Bessemer advised Ethan against pursuing a business idea and suggested VC as a learning opportunity.
• Ethan has been with Bessemer for over nine years and enjoys his role.

"It's actually an interesting story how I got to Bessemer. I was finishing up a stint at a startup called Linden Lab, which actually still exists."

Ethan shares the backstory of his transition from working at a startup to entering the venture capital industry, which was influenced by a candid conversation with a future partner at Bessemer.

• Ethan's decision to remain in VC was gradual, with friends predicting his long-term career path.
• Hunter Walk, a friend of Ethan's, called him a "VC for life" early on, which Ethan initially resisted.
• Ethan realized he preferred backing others as a VC rather than being a founder himself.

"For me, it was a gradual process. My friends that knew me during that period probably called it before I did."

This quote reflects the personal journey Ethan went through in recognizing his passion and aptitude for venture capital, which was a process of self-realization over time.

• Ethan's familiarity with entrepreneur psychology helps him appreciate and understand founders.
• He recognizes the optimism required for startups and the statistical unlikelihood of success.
• The entrepreneurial experience aids in evaluating founders' abilities to succeed.

"Well, I think it's been an advantage for me in some ways in that I appreciate a little bit the entrepreneur psychology, having grown up with one."

Ethan credits his understanding of the entrepreneurial mindset to his upbringing, which provides him with a nuanced perspective when evaluating founders and their potential for success.

• Ethan created a developer roadmap that was controversial due to the perception that developers couldn't make purchasing decisions.
• The roadmap identified a shift where technologists were increasingly making technology buying decisions, even in non-tech companies.
• The traditional view favored CIOs or IT organizations as the primary technology purchasers.

"The traditional feeling about developers was that they can't spend money, that selling to developers is like selling to people with no income or something like that."

This quote captures the skepticism that existed around the idea of developers being a valuable target market for technology products, which Ethan's roadmap challenged.

• The concept of decentralization in spending power refers to the shift from traditional top-down IT budget control to a more distributed model.
• This shift has not necessarily increased the total addressable market (TAM) but rather changed how decisions are made within the existing market.
• Decentralization allows for more efficient use of products, potentially reducing overall TAM due to increased efficiency and waste reduction.
• Developers can now choose specific solutions that meet their needs, instead of comprehensive suites determined by non-users.

"I don't think it's increased the tam. The tam is quite large... It's a big pool of capital controlled by the budgets of IT organizations. And so I think it's more a decentralization of who makes those decisions... So I think if anything, these products are more efficient, there's less waste."

This quote explains that the overall market size remains the same, but the decision-making process has become more distributed among users, leading to potentially more efficient use of resources.

• The future of developer-focused businesses is expected to involve tackling deeper technical challenges through developer-friendly platforms.
• Innovations in various enterprise spend categories have been "developerized," such as communications, payments, and team management.
• Upcoming areas of focus include data science, artificial intelligence, neural networks, deep learning, and computer vision.
• The goal is to make complex technical problems accessible to developers through APIs, SDKs, and developer platforms.

"I think the next frontier is to take the deeper technical challenges... and expose the means of solving those problems to developers via APIs and sdks and other developer focused platforms."

This quote highlights the anticipated direction for developer-focused businesses, which involves making advanced technical challenges accessible and solvable through developer tools.

• New technologies can either create new go-to-market strategies or enhance existing ones.
• Examples like Sendgrid show that new technologies can improve existing processes without necessarily changing the overall go-to-market approach.
• Innovations can make it easier for developers to enhance what they are already doing, increasing efficiency and user-friendliness.

"I think new technologies open up new means of go to markets, but also they make existing ones more efficient."

The quote suggests that while new technologies can lead to new strategies, they can also streamline existing processes, thus not always necessitating a change in go-to-market strategies.

• Venture capitalists often seek patterns from past successes, but a nuanced approach is required for evaluating investments.
• Identifying enabling factors and criteria for success in developer platforms is key.
• Applying these criteria across various industries requires a bottom-up analysis, understanding the unique aspects of each market.
• History in venture capital does not repeat exactly, but patterns and principles can guide investment decisions.

"It's a great quote as it relates to venture capital, actually, because a lot of people do look for the exact repetition of history... And so there is a little bit of a bottoms up analysis to be done, but I think having some guidelines around these are the characteristics of interesting businesses and how do they apply to new industries."

This quote emphasizes the importance of understanding the underlying factors that contribute to a business's success and applying these principles across different sectors rather than looking for exact historical repetitions.

• Assessing investment opportunities in market creation is challenging due to the lack of established frameworks.
• Early-stage investments in new areas rely heavily on the vision and capability of entrepreneurs.
• Investors must independently validate the entrepreneur's vision and build their own understanding and framework.
• The people aspect of evaluation becomes more significant when the market is nascent and frameworks are still being developed.

"That's a very astute question, because it's very hard, because it's harder to have a framework before you have a know... But it's much harder and it requires much more of a leap of faith."

The quote acknowledges the difficulty in evaluating companies in emerging markets and the greater reliance on the entrepreneurs' vision and the investors' faith in their capabilities.

• The conversation touches on the evolution of esports, indicating an interest in how this market will develop in the future.
• The speaker's portfolio includes companies like Twitch, which is heavily involved in the esports industry.
• The future of esports is seen as an intriguing topic, but the transcript ends abruptly before the speaker can elaborate.

"How do you see esports evolving in the future? Let's start with a broad meta question."

This quote sets the stage for a discussion on the future of esports, suggesting it is a significant area of interest for the speaker, though the conversation does not continue on this topic within the provided transcript.

• The success of Twitch is significantly attributed to the rising popularity of esports as a viewing experience.
• Esports have evolved into a full-fledged sport with ecosystems, competitive gameplay, and interactive viewing experiences.
• The esports industry has seen the development of stable franchise systems, notably in League of Legends, which provides a model for professional aspiration.
• There is an increasing audience size, interest, and participation in esports, indicating the beginning of further developments in the sector.

"A big part of [the success of Twitch] was the rise of esports as a viewing experience for folks that weren't necessarily playing, but watching, and the rise of competition as a means of entertainment among gamers."

This quote emphasizes the role of esports as a spectator experience that contributed to Twitch's growth, highlighting the shift from gaming as an activity to a spectator sport.

• The value proposition in esports can be found in several areas, including technologies, personalities, players, and teams.
• From an investment standpoint, enabling technologies that elevate esports to the level of traditional sports are where significant equity value will likely be created.
• There is a current "land grab" moment where gaming developers and startups are establishing their positions within the esports industry.
• The shift from traditional television to online video platforms presents opportunities for growth and competition for audience attention.

"I think it is around the technology, around enabling esports to become on par with traditional sports."

Ethan Kurzweil suggests that the most substantial value creation in esports will come from the technologies that enable it to compete with traditional sports, indicating a focus on infrastructure and platform development.

• The esports industry requires further development in terms of norms for compensation, revenue sharing, and organizational structures.
• There may be regulatory issues related to gambling, but the primary need is for business development rather than regulation.
• Startups may emerge to claim portions of the esports industry by excelling in technology, audience engagement, or relationships.

"I think there needs to be some evolution as to what the norms are."

Ethan Kurzweil points out the necessity for establishing standard practices within the esports industry, similar to those in established sports leagues like the NFL.

• FOMO (Fear of Missing Out) in venture capital is linked to the fear of not making successful investments.
• The anti-portfolio is a reflective tool used to learn from missed opportunities and to remain humble.
• Reflecting on misses allows for self-improvement and maintaining a lighthearted approach to the unpredictability of investing.

"It's more of the psychology of how do you learn from the mistakes you make."

Ethan Kurzweil discusses the importance of learning from missed investment opportunities and using the anti-portfolio as a tool for growth and humility.

• Missing out on investments can lead to strategic shifts in how venture capitalists view industries, types of founders, and geographies.
• An example is the missed investment in Yammer, which led to a broader understanding of companies that "developerize the enterprise," targeting non-technical buyers.

"One early on in my career was a company called Yammer that we missed and had a number of opportunities to invest."

Ethan Kurzweil shares a personal anecdote about missing out on Yammer, which influenced a strategic shift in his investment approach, highlighting the significance of learning from such experiences.

• Technology adoption has shifted from requiring coding to more accessible solutions.
• Early misses with companies like Yarn highlighted the importance of tools that replace developer tasks.
• Appreciation grew for companies like Zapier, Intercom, and Pagerduty for their low customer acquisition costs and ease of adoption.
• The trend reflects a broader investment strategy pivot towards companies offering technical solutions without the need for developers.

"And so I remember we missed yarn, missed some other ones early on. And that was what led us in a way to appreciate companies like Zapier, companies like Intercom that you mentioned, companies like Pagerduty, where the product itself wasn't facilitating technology adoption, but it was replacing what would have required a developer to do."

This quote explains the shift in investment focus towards companies that offer solutions which traditionally required a developer, but now allow for broader technology adoption without the need for extensive coding.

• Reflecting on past investment decisions can provide valuable lessons.
• Dollar Shave Club and Jet.com are examples where the founders' impressive drive suggested a strong potential for success.
• Sometimes, the personal qualities of founders can outweigh concerns about business economics.

"Another I remember was dollar shave club meeting Michael, the founder there very early on, and I was always very, he was just an impressive guy... maybe jet.com is another case of this with Mark Lurie, you should just back them and they'll figure out all the details."

The quote highlights the speaker's realization that the determination and charisma of a founder can be a strong indicator of a company's success, potentially more so than immediate economic metrics.

• Ethan Kurzweil's favorite author is Jhumpa Lahiri, with "The Namesake" being a top choice.
• The book combines the immigrant experience with the elements of an engaging novel.
• It is appreciated for its lofty writing, social education, and page-turning quality.

"Favorite author is Jumpa Lahiri. I guess I would say the namesake. I love that she takes the immigrant experience, but also wraps it up in the intrigue of a really compelling novel at the same time."

This quote indicates the speaker's admiration for literature that combines cultural insight with compelling storytelling, specifically praising Jhumpa Lahiri's work.

• Blockchain could disrupt venture capital by enabling direct transactions between product creators and buyers before the product exists.
• ICOs (Initial Coin Offerings) allow for technical evaluation and pre-selling, similar to Kickstarter.
• This could provide a better indication of a company's potential success than venture capital interest alone.

"It allows folks to transact directly with the buyer of their product before they have said product... You do a campaign, pre sell it, if lots of people want it, they'll buy it Kickstarter style."

The quote discusses how blockchain technology could revolutionize the way products are funded and validated, emphasizing the potential for a more direct and democratic form of market validation.

• Ethan believes the world is improving despite current issues.
• Historical trends show progress in reducing poverty and improving health care.
• He maintains faith in the overall positive trajectory of global development.

"I believe the world is getting better all the time... Less people are living in poverty, people are living longer, healthier, more fulfilling lives."

This quote reflects the speaker's optimistic perspective on global progress, suggesting that despite challenges, there is an overall positive trend in human development.

• Ethan prefers using Nuzzel for news consumption over traditional newsletters.
• Nuzzel curates news based on what is popular among Twitter and Facebook contacts.
• This approach allows for a diverse cross-section of news based on social media trends.

"My favorite way of consuming news now is with nuzzle... I find if you follow the right people, you get a nice cross section of news."

The quote reveals the speaker's preference for curated news feeds that reflect the interests of his social network, which he finds more diverse and relevant than subscribing to specific newsletters.

• Ethan's recent investment is in Periscope Data, led by Harry Glazer.
• The company is appreciated for its strong culture and vision for treating data scientists and analysts as future developers.
• The investment decision was influenced by pattern matching, leadership, and market potential.

"Harry is an incredible guy... The company's got a very strong, healthy culture and then has a vision around treating data scientists like future and data analysts as future developers."

This quote explains the rationale behind the investment in Periscope Data, highlighting the founder's character and the company's culture and vision as key factors in the decision-making process.