20VC Learnings From Backing The Likes of Spotify and Airbnb, The World of Growth Investing Today and The Right Way For Investors To Think About Liquidity with Woody Marshall, General Partner @ TCV

Summary Notes


In this episode of "20 Minutes VC," host Harry Stebbings interviews Woody Marshall, General Partner at TCV, a growth fund with a portfolio featuring tech giants like Facebook, Airbnb, Spotify, and LinkedIn. With a venture career starting in 1995 at Trident Capital, Marshall is a Forbes Midas List awardee and has led investments in industry-disrupting companies such as Netflix and Peloton. The discussion delves into the evolution of the VC ecosystem, highlighting the globalization of the industry, the importance of quality over quantity in investments, and the trend of extended privatization periods. Marshall emphasizes the significance of supporting companies in making informed decisions quickly, the value of experienced management teams, and the strategic role of board members in guiding companies through growth phases. The conversation also touches on the nuances of IPOs, the art of valuation, and the competitive landscape shaped by mega-funds. Additionally, Stebbings briefly discusses startup-centric financial services from companies like Brex, Terminal, and Lattice.

Summary Notes

Introduction to the Podcast and Guest

  • Harry Stebbings introduces the episode of "20 Minutes VC" and invites suggestions for future guests and questions via Instagram.
  • Harry announces Woody Marshall, General Partner at TCV, as the special guest, highlighting TCV's successful growth fund and Woody's notable investments.

"And many of you know I started the show over four years ago now to learn the craft of venture from some of the very best areas in the business. And that is most certainly the case today as I'm very proud to welcome."

"A very special guest to a hot."

"Seat in the form of Woody Marshall, general partner at TCV, one of the most successful growth funds of the last decade, with a portfolio including the likes of check this out, Facebook, Airbnb, Spotify and LinkedIn, just to name a few."

The quotes express Harry's intent behind starting the podcast and the significance of Woody Marshall's presence on the show due to his impressive investment track record at TCV.

Sponsorship and Promotions

  • Harry promotes Brex, the corporate card for startups, highlighting its benefits such as instant sign-up and high credit limits.
  • Harry introduces Terminal, a company that helps in hiring remote technical teams, and Lattice, a people management solution for growing companies.

"And with Brax in place, we now need a team to really use them. And that's where terminal comes in."

"Finally, now we have the team in place. As a founder or operator, your next crucial job is people operations."

These quotes emphasize the importance of financial tools like Brex and the value of services like Terminal and Lattice in building and managing startup teams effectively.

Woody Marshall's Background and Venture Capital Experience

  • Woody Marshall shares his journey into venture capital, starting with a chance meeting at a cocktail party.
  • He discusses the importance of focusing on quality in businesses, especially during boom and bust cycles.

"It's actually kind of a random story. I was in graduate school. I was at a presentation that was being done by an environmentalist. And while I was at the cocktail hour, after I was introduced to a Chicago based VC, a guy that had just founded a firm called Trident Capital, as we were talking, he was interested in my background and offered me the opportunity to come and read some plans for him."

"Well, I think that the way that we think about it, the way that I think about it is that only quality is durable."

Woody reflects on his entry into venture capital and the enduring significance of investing in quality businesses.

Venture Ecosystem Changes

  • Woody notes the globalization of the venture business and the increasing number of experienced entrepreneurs worldwide.
  • He discusses how TCV operates globally, with investments focused outside of the Bay Area.

"I think the biggest one is the business is far more global than when I got into the business."

"Well, I mean, for TCV, one of the interesting stats is that less than 20% of the investments that we make are in the Bay Area."

These quotes highlight the shift towards a more global venture ecosystem and TCV's strategy of looking for investment opportunities worldwide.

Adding Value to Portfolio Companies

  • Woody talks about pattern recognition in venture capital and how it differs between early-stage and growth-stage investing.
  • He emphasizes TCV's experience in helping companies scale and make better decisions faster.

"Everybody talks about pattern recognition. And for the early stage guys, pattern recognition is about nailing product market fit."

"For us, what we're trying to help companies do is make better decisions faster."

Woody explains the role of pattern recognition in venture capital and TCV's approach to adding value to their portfolio companies by leveraging their experience.

Market Sizing and Investment Assessment

  • Market size is less of a concern in early-stage investments compared to growth-stage investments.
  • Growth investors need to ensure the market does not peter out and that the product-market fit is durable and not just niche.
  • Technology leverage in businesses for consumers or enterprises diminishes the worry about market size if it's already considered substantial.

We have the discussion a lot of times about is a market big enough? And I think if we're interested in a business and it's leveraging technology in an interesting way for either an enterprise or for a consumer, the last concern that you have is, is it a really big market?

The quote emphasizes that while market size discussions are common, the primary interest is in businesses that utilize technology in innovative ways, which often implies a significant market.

Globalization and Extended Privatization

  • Globalization is a notable trend influencing markets.
  • Extended periods of privatization and the associated lack of liquidity in the venture cycle present opportunities for growth equity investments.
  • Capital is provided for acceleration, strategic mergers and acquisitions, and to reconcile shareholder liquidity preferences.
  • Extended hold periods in private companies are sometimes by design and not necessarily a drawback.

For us, we look at that as an opportunity as opposed to a challenge.

Woody Marshall views the extended period of privatization, which can lead to a lack of liquidity, as an opportunity for strategic investment rather than a challenge to be overcome.

Liquidity and Hold Periods in Investments

  • The extended hold period is often intentional, with the understanding that a significant portion of the investment may be held even after a company goes public.
  • The decision to sell or hold when a company goes public involves re-evaluating the investment based on market size, competitive moats, management execution, and valuation.
  • Long-term perspectives can lead to longer hold periods than other investors might choose.

A lot of times we will underwrite an investment understanding that maybe half or more of the hold period could be as a public company.

This quote explains that the investment strategy often includes holding onto investments for a significant time after the company goes public, which is factored into the decision-making process from the start.

Decision Making for Selling or Holding Public Companies

  • Secondary liquidity options are now available for private companies, not just post-IPO.
  • The decision to sell or hold is akin to re-underwriting the investment, considering market, competitive differentiation, management, and valuation.
  • Long-term thinking focuses on the company's prospects well beyond the immediate future.

If you're excited about those three things, then why would you sell just because the company goes public now, there's always the question of valuation, and sometimes valuation may price in all of that goodness.

Woody Marshall discusses the rationale behind holding onto investments post-IPO, which is based on continuing excitement about the company's market, moats, and management, unless overvaluation prompts a sale.

Valuation Sensitivity and Price in Investments

  • Valuation is more of an art than a science, particularly at later investment stages.
  • High compounding rates of business growth can diminish valuation sensitivity.
  • The key is to accurately assess the durability of a company's value proposition, competitive moats, and management execution.

But if you get those right, I do agree, valuation in hindsight can be a little less relevant.

The quote reflects the idea that if the core aspects of a company's potential for growth and market position are correctly assessed, the exact valuation at the time of investment becomes less critical in retrospect.

Mega Funds and Capital Influx

  • The global technology market has grown, justifying increased capital deployment.
  • Mega funds face challenges in allocating large sums of capital due to fewer suitable opportunities.
  • The technology sector is more competitive with more players and diverse types of funds.

The size of the prize is bigger than it's ever been before.

Woody Marshall expresses that the growing value of the global technology market supports the trend of mega funds and the large amounts of capital they are deploying.

Competitive Market Dynamics

  • The rise of mega funds is one aspect of increased competition in the market.
  • The technology sector has seen an influx of various types of investment funds, each adding to the competitive landscape.
  • Domain expertise and informed decision-making are critical for navigating a more crowded investment environment.

There's just more capital that's come in that's obviously competitive.

The quote acknowledges the increase in competition due to more players and capital in the technology investment space.

Role of the CEO in Company Growth

  • The CEO's most important responsibility is to assemble a great team capable of executing the company's vision.
  • Product quality is insufficient without a skilled team to bring it to market and scale the business.

There's no more important responsibility for a CEO than putting together a great team.

Woody Marshall underscores the importance of team building as a primary responsibility for a CEO, critical to the success of the company.

Investment Philosophy

  • Importance of both the business (horse) and the management team (jockey) in investment decisions.
  • TCV emphasizes backing both aspects, not just the business potential.

I want to invest in a business that's so big that a management team can't get in the way of its success. I totally get that. That's just not the way that I look at it or I think the way that TCV looks at it, which is we're backing not only the horse, but we are backing the jockey.

This quote reflects the speaker's belief that a successful investment requires both a promising business and a capable management team. TCV invests with this dual focus.

CEO's Ability to Hire

  • The best CEOs can hire the best talent.
  • Examples from Spotify, Dollar Shave Club, and Minted demonstrate this ability.
  • The CEO's vision and culture creation are crucial for attracting top talent.
  • Talent competition is fierce, and companies must offer more than financial incentives.

The very best ceos have the ability to hire the very best. As you mentioned there. Thinking back over your portfolio, can you tell me a story of this happening, how it played out, and maybe what impressed you so much about the CEO's.

This quote highlights the importance of a CEO's ability to attract and hire top talent, which is a recurring theme in successful companies.

Mistakes in Scaling

  • Common mistake: Boards and CEOs wait too long to make necessary changes.
  • Hypergrowth requires quick and decisive action when personnel changes are needed.
  • The mantra "A players hire A players" emphasizes the need for quality hires at all levels.

I think the biggest mistake that boards and ceos can make is waiting too long sometimes to make changes.

This quote underlines the critical error of delaying crucial personnel changes, especially during periods of rapid growth, which can hinder a company's success.

Signs of Overstretching

  • Risks are inherent in business, and not all stretch positions will work out.
  • The key is to learn quickly from mistakes and pivot when necessary.
  • Successful businesses often pivot after recognizing and correcting errors.

Hindsight is obviously 2020. You could say, oh yeah, I should have seen that. Look, I think in these businesses you always have to take risk.

This quote acknowledges that while hindsight may reveal errors in judgment, taking risks and learning from them is part of business growth.

Focus During Hypergrowth

  • Team at all levels is crucial for executing during hypergrowth.
  • The economic model must be scalable and profitable.
  • Understanding the long-term value of a customer is essential for investment in customer acquisition.

I think the most important thing is team. And again, it's not just a senior team, but it's all levels of management.

The speaker emphasizes the importance of having a strong team across all management levels to ensure successful execution during hypergrowth.

Unit Economics and Margins

  • Importance of understanding different types of margins: gross, contribution, net income.
  • TCV focuses on businesses with proven commercial acceptance and viable economic models.
  • Timing for focusing on unit economics and margins depends on the business and market conditions.

With us at TCV, we're looking for commercial acceptance. So we're not taking the risk of whether there's a market or the answer in the question of will the dogs eat the dog food?

This quote explains TCV's investment approach, which seeks businesses with established market acceptance and sound unit economics.

Evolution as a Board Member

  • Experience and patience are key to evolving as a board member.
  • Learning from the collective experience of the company and its investments.
  • Helping CEOs and management teams make better decisions without interfering in operations.
  • Providing a broader perspective on what "great" looks like in business.

I think what I've tried to learn how to do is be a little bit more patient.

This quote reflects the speaker's personal development as a board member, emphasizing patience and the importance of guiding without micromanaging.

Role of Venture Capitalists in Company Decision-Making

  • Venture capitalists (VCs) aim to assist companies in making better decisions.
  • The focus is on identifying what an excellent head of product or chief marketing officer looks like.
  • The job of a VC is fundamentally about enhancing company decision-making.

"So it's Those types of things, but fundamentally, it's how are we going to help a company make better decisions? That's what our job is."

The quote emphasizes the primary role of venture capitalists, which is to guide and improve the decision-making processes within the companies they invest in.

Advice for New Institutional Investors on Board Responsibilities

  • Understanding the core drivers of the business is crucial for board members.
  • Listening and identifying crux problems are essential to add value.
  • The goal is to be a valuable board member by contributing to solving issues.

"I think to me, the most important thing is to really understand the core drivers of the business."

This quote underlines the importance for new board members, especially institutional investors, to have a deep understanding of the fundamental aspects that drive the business they are overseeing.

Being a Valuable Board Member

  • Valuable board members focus on listening and problem-solving.
  • They avoid dominating conversations and instead contribute meaningfully.
  • Engaging with the company's challenges and aiding in addressing them is key.

"It's about listening and then figuring out what some of the crux problems are and then figuring out there's a way that you can add value in solving some of those."

The quote relates to the active role a board member should play, which involves listening, understanding the core issues, and finding ways to provide solutions.

Management of Boards from an Entrepreneur's Perspective

  • CEOs should keep the board informed with up-to-date data.
  • Discussions should be focused on strategic questions or operational problems.
  • The approach should be engagement over reporting during board meetings.

"Keep the board informed with up to date data, and then your discussion should focus on strategic questions."

This quote suggests that entrepreneurs should manage their boards by ensuring they are well-informed and by steering discussions towards strategic and high-level operational issues rather than getting bogged down in routine reporting.

Exemplary Board Management Practices

  • Daniel Ek and Miriam Nafisi are highlighted for their clarity of vision and long-term focus.
  • Effective board management involves looking beyond the present and considering the ecosystem and stakeholders.
  • Visionary leadership exemplifies the best in board management and strategic direction.

"It's not focusing on what's happening today, but what you can do."

The quote captures the essence of forward-thinking leadership, which is not just about dealing with current issues but also planning and building for the future.

Woody Marshall's Personal Insights

  • Woody's favorite book is "Boys in the Boat," which represents American grit and determination.
  • His superpower is the ability to sleep on planes, aiding in managing travel demands.
  • The motto "keep your eyes on the stars and your feet on the ground" reflects his philosophy of dreaming big while staying grounded.
  • Patience and learning from near-death experiences are valuable lessons from his VC career.

"My favorite book now is a history book called Boys in the Boat."

This quote shares personal insight into Woody's source of motivation and the values of determination and resilience that resonate with him.

Views on Going Public (IPO)

  • Woody sees no cons to IPOs; they enforce discipline and accountability.
  • Going public requires crisp execution and clear storytelling.
  • The timing of an IPO is company-specific, but overall, it is seen as a positive milestone.

"I actually don't think there are cons. I think it's a positive."

The quote reflects Woody's positive stance on IPOs, emphasizing the benefits of the discipline and accountability that come with being a public company.

Investment in Peloton

  • TCV led the most recent funding round for Peloton, a connected fitness company.
  • Peloton is changing the concept of in-home fitness with an integrated consumer experience.
  • The investment aligns with trends in health, wellness, and the desire for personalized experiences.
  • Founder passion is a core criterion for TCV's investment decisions.

"They are changing the concept of in home fitness."

The quote explains the rationale behind the investment in Peloton, highlighting the company's innovative approach to fitness and the alignment with broader market trends.

Conclusion and Acknowledgments

  • The episode concludes with expressions of gratitude and enjoyment of the podcasting experience.
  • Woody is thanked for his participation and insights shared during the episode.
  • Listeners are directed to find more information about Woody on Twitter.

"But Woody, it's been such a pleasure to have you on the show."

This quote marks the end of the conversation, expressing appreciation for the guest's contribution to the podcast.

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