In this episode of "20 minutes VC," host Harry Stebbings interviews Jeremy Levine, a partner at Bessemer Venture Partners, a leading venture fund with investments in companies like Skype, Shopify, LinkedIn, and Yelp. Levine shares insights from his 16-17 years in venture capital, discussing his transition from a software startup to venture investing during the dot-com bubble burst. He emphasizes the importance of direct communication with entrepreneurs and being price-sensitive in investments. Levine also reflects on the evolution of his role as a board member, offering candid advice to aspiring VCs on finding unique investment opportunities and the significance of independent thinking. Additionally, he touches on the current state of consumer tech innovation, predicting a decrease in the emergence of new consumer tech companies due to the dominance of platforms like Facebook, Apple, and Google in controlling distribution. Levine concludes with his recent investment in Toss, a viral payment service in Korea, illustrating the potential for consumer tech despite a challenging landscape.
Hello and welcome back to the 20 minutes VC with me, your host, Harry Stebbings.
Harry Stebbings is the host of the 20 minutes VC podcast.
And joining us in the hot seat today from Bessemer, I'm thrilled to welcome Jeremy Levine.
Jeremy Levine is the featured guest from Bessemer Venture Partners.
I studied computer science in college and I started my career at McKinsey.
Jeremy's educational background is in computer science, and he began his career at McKinsey.
I joined a few founders. I wasn't a founder myself, but we raised a bunch of capital into the bubble and then shrank the business a bit.
Jeremy's experience with the startup world involved joining founders and dealing with the challenges of a shrinking business.
I think about that issue in a totally different way, which is there are a bunch of relatively new vc groups who are comprised of partners who created those firms on the heels of highly successful entrepreneurial or operating careers.
Jeremy provides a different perspective on the value of operational experience for venture capitalists.
But the way I think about it is most people, when they run a company, they run the company.
Jeremy emphasizes the difference between a CEO's role in running a company and a VC's role in supporting and challenging the CEO.
You want phenomenal operational experience on your board, but you want it in the form of somebody who sits in an independent seat or seat that's not contractually committed.
Jeremy advises founders to seek operational experience in independent board members, not in VCs who have a contractual right to be on the board.
"Whereas an investor, a great investor, looks at the mountain and says, screw this, I'm going to go in the other direction."
This quote illustrates the contrasting approaches between operators who tackle challenges head-on and investors who may strategically choose to avoid them.
"And so my sales pitch, if you will, to entrepreneurs early in my career was that I had the capacity and the ambition to work much harder than anybody else."
The quote reflects the initial value proposition of a young board member who compensates for lack of experience with hard work and resourcefulness.
"And so you can do more on your own. And also, once you've been part of few successful companies, your opinions tend to carry a little bit more weight."
This quote signifies the shift in a board member's role as they gain experience, becoming more autonomous and influential.
"You have one obligation to me. If you take capital from Bessemer and have me on your board or not on the board, and that is anytime something bad happens, I expect and deserve to be told immediately."
This quote emphasizes the necessity of immediate communication of bad news from entrepreneurs to board members to facilitate timely support and advice.
"But my commitment back in exchange for knowing when anything bad happens right away is to always call it like I see it and not to mince words."
The quote reflects the reciprocal commitment of the board member to provide candid feedback, regardless of whether it may be difficult for the entrepreneur to hear.
"I feel like we have entered within the past couple of years what is likely to be a much more fallow period for two reasons."
This quote suggests that the speaker anticipates a slowdown in consumer tech innovation, setting the stage for the explanation of the underlying reasons.
"The first, of course, was the arrival and going mainstream, if you will, of the consumer Internet."
By citing the mainstreaming of the consumer Internet as a past wave of innovation, the quote provides context for the current skepticism in the consumer tech landscape.
"Then, of course, the second, more recent wave was the shift from the desktop web to the mobile web, which enabled a whole bunch of other new kinds of applications that wouldn't really work in the desktop web, but became really powerful in the mobile web."
This quote explains the transformative impact of the transition from desktop to mobile web, highlighting the historical context of how technological shifts create new opportunities for applications and businesses.
"And today, virtually all consumer distribution is controlled by only three companies, Facebook, Apple and Google."
This quote emphasizes the current landscape of consumer distribution, where a few large companies hold significant control, presenting a challenge for new startups to achieve widespread visibility without being inherently viral.
"But when you can get a consumer to open up his wallet, the consumer's worth so much more to you that you can afford to spend money on marketing."
This quote suggests that businesses with direct consumer revenue models have the potential to justify marketing expenses, indicating a shift in investment interest towards these types of companies.
"But I don't think that will necessarily slow down an overall investment pace because there are other phenomenally interesting areas of the tech world that create or that generate interesting opportunities, even if they're not consumer related."
This quote indicates that despite a potential slowdown in consumer tech investments, there are other sectors within the tech industry that are generating interest and could maintain the overall investment pace.
"And so I'm looking forward to the day when there's not so much capital around because competition stinks."
This quote conveys an anticipation for a market correction where less available capital would lead to less competition and potentially more disciplined investment decisions.
"Absolutely. I'm very price sensitive. For a great business. I will stretch really hard and high. I think when we invested in LinkedIn, the two existing vcs thought the price we were paying was so crazy that they invested nothing in the round. I think that round ended up at something like 100 x return."
This quote exemplifies Jeremy's willingness to invest heavily in a company he believes in, despite others' skepticism, and highlights the success of the LinkedIn investment.
"But you can pay for a lot more mistakes with 100 extra turn than you can the 30 x return and therefore it matters. Absolutely."
Jeremy explains that higher returns allow investors to offset more losses, thus making the price at which an investment is made an important factor.
"Book is the outsiders. I can't remember who wrote it, but it's a book about unconventional ceos who didn't look like or talk like or smell like classic Hollywood ceos, but were unbelievably successful at what they did because they focused on generating returns for their shareholders."
Jeremy admires the book for its focus on CEOs who defied norms yet achieved great success through a shareholder-centric approach.
"Everyone's looking for the next consumer application that has a high dau over MAU ratio, which I think is sort of very much a rear view mirror way of looking at things underhyped."
Jeremy critiques the overemphasis on user engagement metrics in consumer apps as a backward-looking approach.
"I think there's still a lot of grubby business software, particularly software focused on really narrow verticals that's wildly underhyped."
He points out the overlooked opportunity in specialized business software sectors where companies can dominate the market.
"I read Dan Primax newsletter every morning, mostly because he adds a little bit of entertainment up front and then it's sort of like the index of what's happening in the VC industry."
Jeremy appreciates the newsletter for its engaging content and comprehensive coverage of the venture capital industry.
"But as a junior VC, it's virtually impossible to be successful fishing in a pond that lots of experienced vcs are fishing in because you've got no way to win those opportunities."
Jeremy stresses the difficulty for junior VCs to compete with experienced investors in popular areas and suggests finding unique investment opportunities.
"But if you can come up with your own ideas that turn out to be right that other people are somewhat dismissive of, you've got a shot."
He encourages junior VCs to develop their own investment theses on potentially successful, yet underrated ideas.
"Because the only people who read about new VC investments are other vcs and entrepreneurs and other VCs, if they see you've invested in a company, they either, if they think it was a good investment, will start dogging that company, trying to also invest in it, which isn't necessarily helpful."
Jeremy points out that announcing investments can lead to unwanted attention from other investors, potentially creating competition or interest in similar companies.
"So I have to think about that because several years ago it dawned on me that announcing investments was a bad strategy."
He reflects on his strategic shift away from publicizing investments to maintain a competitive edge and protect the interests of the companies he invests in.
"But it was a company in Korea called Toss, which could be simplistically described as a venmo like service for Korea with unbelievable organic growth."
Jeremy shares his excitement about Toss's growth and potential in the Korean market, likening it to Venmo's service model.
"Well, Jeremy, Byron told me it'd be a fantastic episode. You've more than lived up to expectations, so I can't thank you enough for what you've done for me in the show."
Harry thanks Jeremy for his contribution to the show and acknowledges the recommendation from Byron Dieter.
"Also, if you love the show today and would like to see more from us, then you can follow Jeremy on Twitter at Jeremy L. You can follow me on snapchat at hstebbings with two B's or on at Harry Stebings on Twitter."
Harry invites listeners to engage with them on social media for further content and updates.