20VC Lightspeed's Jeremy Liew on Being The First Investor in Snapchat, Why The Pessimism Around Consumer Is Wrong & Why Silicon Valley Is An Isolated Bubble and What Can Be Done To Change This

In this episode of "20 Minutes VC," host Harry Stebings interviews Jeremy Liew, a partner at Lightspeed Venture Partners and a prominent consumer investor known for being the first investor in Snapchat. Liew shares his journey from studying in Australia to becoming a leading figure in Silicon Valley, offering insights into his investment philosophy, the importance of following exceptional leaders, and the role of a board member in providing strategic guidance and peripheral vision. He discusses the optimism surrounding consumer investing despite concerns over market saturation and highlights the significance of word-of-mouth in driving company growth. Additionally, Liew touches upon valuation strategies, fund mechanics like reserve allocation and recycling, and the cultural influences on consumer behavior. The conversation also includes a mention of Lightspeed's recent investment in Rothies, a rapidly growing women's footwear brand.

• Jeremy Liu is a successful consumer investor and partner at Lightspeed Venture Partners.
• Known for being the first investor in Snapchat and has led investments in Stitch Fix, Affirm, Ripple, Giphy, and Bonaboss.
• Formerly served as SVP of corporate development and chief of staff to the CEO at AOL, and as general manager of Netscape.
• Featured on the Forbes Midas list multiple times.
• Prior guest Nicole Quinn and future guest Alex Tauzig mentioned with gratitude.

"And I know I'm always excited for guests on the show, but there are some that just really make me realize why I love what I do so much. And that's the case today with our guest being one of the most successful consumer investors of the last decade."

This quote introduces Jeremy Liu as a highly respected and successful consumer investor, highlighting the host's excitement about the interview.

• Grew up in Perth, Australia, and studied mathematics and linguistics at the Australian National University.
• Started his career at McKinsey in Sydney and volunteered to help set up a new office in South Africa post-apartheid.
• Moved to America in 1996 to work in the consumer Internet world.

"I got a lot of breaks along the way. I ended up studying mathematics and linguistics at the Australian National University in Canberra and started working for McKinsey in Sydney right out of school."

This quote outlines Jeremy Liu's educational background and his early career decisions, including the opportunity that led him to the United States.

• Followed people he admired early in his career due to a lack of clarity on his exact career path.
• Rode in the slipstream of their upward career mobility, including following Charles Khan to city search and later John Miller.
• Transitioned from following others to carving out his own path by joining Lightspeed in 2006.

"Early on in my career, I didn't really have clarity about exactly what I wanted to do. And so as a proxy for decision making, I just followed people that I really admired."

This quote explains Jeremy Liu's strategy of following admired leaders as a means to navigate his career before establishing his own direction at Lightspeed.

• Invested in learning and working with amazing people, which led to his own career growth.
• Decided to realize his own potential and joined Lightspeed to carve out his own career path.
• Created an impressive portfolio of consumer companies.

"I think that in your, you're really investing in learning how to sort of be good at something. And a lot of that I learned by working with these amazing people."

Jeremy Liu reflects on the importance of learning from successful individuals and how it contributed to his own development and eventual success in the venture capital industry.

• Reference to Elad Gil's article on the end of cycles, suggesting a period where new opportunities are sought.
• Discussion on Snapchat as one of the last significant discoveries in the consumer space.

"I do want to start today, though, by discussing an article that I love by Elad Gill on the end of cycles. And he stated that we're all entering a period where everyone's looking for the next truly deep vein to explore."

The host introduces a topic from Elad Gil's article about the search for new investment opportunities and ventures, setting the stage for a discussion on the future of the industry and Jeremy Liu's role in it.

• Snapchat's successful exit is acknowledged, but other significant exits have occurred since then.
• Musically sold for a billion dollars, and Stitch Fix went public, indicating ongoing exit opportunities in the consumer space.
• The real focus is on breakthroughs, not just exits, as they are indicative of significant value creation.
• Recent consumer breakthroughs include HQ Trivia, TBH, Sarah, Marco Polo, Musically, Cheddar, Prisma, and Pokémon Go, demonstrating the potential to top the App Store and enter popular culture.
• The challenge lies in maintaining engagement and retention after achieving initial scale.
• Companies like Allbirds, Rothies, and Away have shown rapid growth, reaching tens to hundreds of millions of dollars in scale within short timeframes, suggesting that pessimism around consumer investing may be unwarranted.

"Well, I would say that Snapchat was a terrific exit, but there have been other good exits since then as well. Musically, was sold for a billion dollars. Stitch fixed went public just recently."

This quote highlights the continued success in consumer investing with examples of significant company exits, countering the pessimistic view.

"And so there's been more exits than Snapchat on the consumer world in the past."

The speaker emphasizes that Snapchat is not an isolated case and that other consumer companies have also achieved successful exits.

"And I actually say that the evidence suggests that there's actually a lot of breakthroughs happening on the consumer side."

The speaker asserts that the consumer sector is experiencing numerous breakthroughs, indicating a vibrant and innovative market.

• There is a debate over the impact of dominant tech companies on distribution channels for consumer products.
• Platforms like Facebook and Amazon are seen as both potential obstacles and opportunities for distribution.
• Word of mouth remains a powerful, free, and open distribution method driven by the fun and enjoyment of the product.
• The success of apps like Snap, Instagram, Musically, Prisma, and Pokémon Go can be attributed to their ability to generate user excitement and encourage sharing with friends.

"Well, I would argue that they also offer platforms for distribution as well."

The speaker suggests that dominant tech companies can also serve as platforms for distributing consumer products, not just barriers.

"Facebook especially, people are starting to build businesses on top of Amazon as well."

This quote points out that businesses are leveraging platforms like Facebook and Amazon to grow, indicating the platforms' role in enabling distribution.

"Word of mouth is still free and open and it's driven by fun."

The speaker underscores the enduring power of word of mouth as a distribution method, highlighting its effectiveness when products are enjoyable.

• The speaker discusses the early investment in Snapchat and the factors that made it appealing.
• Snapchat's rapid growth, high retention, and engagement rates were clear indicators of its potential.
• Evan Spiegel's innovative perspective on social media storytelling, moving away from reverse chronological feeds to a more natural narrative order, was a key insight.
• The ability to repeatedly produce such insights made Snapchat a compelling investment opportunity.

"It was a $475,000 investment at a four and a quarter million dollar pre money valuation, when the company was just the two founders."

The speaker clarifies the details of the initial investment in Snapchat, indicating a significant early-stage investment based on the company's potential.

"Evan had this...We all think in metaphors, and sometimes you meet a person like Evan who changes the metaphor and therefore changes the way that you view the world."

This quote reflects on Evan Spiegel's influence on the speaker's perspective, particularly in how stories are told on social media, which contributed to the decision to invest in Snapchat.

• Silicon Valley is described as an isolated bubble with a skewed perception of reality compared to the rest of America.
• The speaker points out the disparity between Silicon Valley's lifestyle and that of middle America.
• There are no absolute rules for valuations, and early-stage investments should focus more on ownership percentages than absolute valuation figures.

"If you live here in Silicon Valley and you just judge from your own experience. You could reasonably believe that the most popular car in America is a Tesla Model s, and it's not."

The speaker emphasizes the disconnect between Silicon Valley's reality and the broader American experience, cautioning against using Silicon Valley as a benchmark for the rest of the country.

"I don't think there are any hard and fast rules about valuation or a valuation bubble or anything like that."

This quote indicates the speaker's view that valuation is not a straightforward matter and that there are no set rules to determine if there is a valuation bubble.

• Valuation relevance varies with the company's stage and potential.
• Absolute valuation becomes critical at later stages due to market size limitations.
• Companies with network effects may defy traditional valuation constraints.
• Market dynamics and competition influence the final valuation.
• Investment decisions are based on a balance of factors, including market size and competition.

"I think at a later stage, absolute valuation matters more because oftentimes there is sort of a ceiling as to what something could be worth."

This quote emphasizes that as companies grow and reach later stages of funding, valuation becomes increasingly important because the potential for growth may be constrained by the market size.

"Is it in a case where the upside is bounded because the market size is fixed and known?"

The quote suggests that in scenarios where market size is finite, the potential return on investment is limited, affecting valuation considerations.

"Right at the end, the market decides what the valuation is."

This quote underlines that ultimately, market demand and capital requirements dictate a company's valuation during fundraising.

• Investors may stretch valuations to secure deals with high conviction.
• Decisions to invest or walk away are based on multiple factors, including market potential and team capability.
• Valuation must be justified by the company's future performance and market opportunity.

"You have to weigh all these different factors that I just talked about and decide what you're willing to do for this particular deal."

The quote illustrates the complexity of investment decisions, which require consideration of various elements, such as market potential and competition.

"And there'll certainly be instances where we'll stretch our valuation because we believe, and there'll be instances where we might say, you know what? The opportunity here has some cap on it."

This quote conveys that investment decisions are not one-size-fits-all and must be tailored to each opportunity's unique circumstances.

• Reserve allocation is determined on a case-by-case basis.
• Anticipating future funding rounds helps in planning reserve requirements.
• Commitments to portfolio companies are serious, but not blind, and consider the company's trajectory.

"When we think about reserves again, I think you have to do it on a company by company basis."

The quote highlights the importance of individualized strategies for reserve allocation, tailored to each company's needs and investment stage.

"But when we back a company, look, we make a commitment to it."

This quote underscores the commitment investors make to support their portfolio companies through various stages, including difficult times.

• Fund recycling involves reinvesting returns from early exits into new investments within the same fund.
• Early exits usually offer smaller returns and have a minor impact on the fund's overall strategy.
• Changing market conditions can affect the predictability of exit timelines and recycling practices.

"So you're talking about the practice of like taking returns from an early exit and then putting it back into new investments within the same fund."

This quote defines the concept of fund recycling and its role in managing a venture capital fund's capital allocation.

• A good board member serves as a strategic thought partner to founders.
• Board members provide peripheral vision to focused executives.
• Experience with entrepreneurial paths allows board members to guide founders proactively.

"A good board member, I think, needs to be a thought partner to the founders and help them think through the most important strategic and tactical questions for the company."

The quote emphasizes the role of a board member as a strategic advisor who assists founders in critical decision-making processes.

"And a good board member should provide peripheral vision because a good founder, a good exec needs to be so focused and have their blinkers on, because they can only really drive perhaps three initiatives at the company at a time."

This quote highlights the importance of board members in offering broader perspectives to founders who may be deeply focused on specific initiatives.

• Working with knowledgeable board members is a valuable learning experience.
• Industry expertise and the ability to engage thoughtfully with CEOs are key traits of effective board members.
• Positive experiences with fellow board members can influence future collaboration desires.

"I've really enjoyed working with Kirsten Green. We sat on the board of the Nobos for many years, and I really admire her deep industry expertise."

The quote reflects on a personal experience of working with a fellow board member, praising her industry knowledge and engagement as a board member.

• Jeremy would take "World War Z" as his desert island book, suggesting it's enjoyable for multiple readings.
• For book recommendations to others, Jeremy suggests "Influence: The Psychology of Persuasion" by Robert Cialdini.

Well, maybe World War Z. That was a fun book to read. I would read that again.

• Jeremy finds "World War Z" entertaining and suitable for repeated reading.

There's a book called influence the Psychology of Persuasion by Robert Gildini.

• Jeremy recommends "Influence: The Psychology of Persuasion" for its insights into consumer behavior.

• Jeremy believes Silicon Valley needs to be more immersed in popular culture to understand a broader set of issues beyond its "first world problems."
• He observes that Silicon Valley has not historically been a leader in popular culture, which is more traditionally set in New York and LA.

I think it would probably be consumer technology has really become popular culture, and Silicon Valley has not historically been a leader in popular culture.

• Jeremy expresses a desire to see Silicon Valley more in tune with the popular culture that defines consumer technology today.

How can we get people to really understand a broader set of issues than the very first world problems that we face in Silicon Valley?

• Jeremy wishes for Silicon Valley to broaden its perspective and address a wider range of issues.

• Jeremy's inspiration for wearing colorful shirts came from his past experience living with a flamboyantly gay roommate, which gave him the freedom to wear what made him happy without concern for judgment.

That gave me the freedom to wear whatever I wanted without concern as to whether or not people were judging me for my sexuality, because you know what? They already thought I was gay.

• Jeremy's experience with his roommate allowed him to express himself freely through his clothing choices.

• Dara Khosrowshahi was Jeremy's mentor when Jeremy was an intern and later VP of Strategic Planning at IAC.
• Jeremy learned a lot from Dara's principled and strategic approach to business.

So I was Dara Khazra Shahi's summer intern when I was at business school back in 1999, building his Excel models when he was at what's now IAC.

• Dara Khosrowshahi played a significant role in Jeremy's professional development during his internship and subsequent role at IAC.

And he was such a principled strategic boss that I really learned a lot from him.

• Jeremy values the strategic principles he learned from Dara, which have influenced his own career.

• Jeremy reads almost everything from "The Information" due to their breaking tech news and in-depth analysis.

I read just about everything that the information writes. They break tech news and they add real analysis.

• "The Information" is Jeremy's go-to source for tech news and analysis.

• Jeremy believes young women and African Americans are the early adopters of popular culture and indicators of future trends.
• He looks for apps and services that are popular with these groups as a predictor of broader popularity.

I believe that if you follow what young women and young African Americans do today, you'll get a window into what we'll all do in the future.

• Jeremy sees young women and African Americans as trendsetters for popular culture.

• Jeremy's recent investment in Rothies was due to their rapid growth and the challenge of being constantly out of stock in popular sizes and colors.
• Rothies is a digitally native vertical brand that makes women's flats, growing through word of mouth.

We invested in a digitally native vertical brand called Rothies.

• Rothies' business model and growth potential influenced Jeremy's investment decision.

They were growing so rapidly that their only constraint was that they were constantly out of stock in the most popular sizes and colors.

• The high demand and inventory constraints presented an opportunity for investment to help the company scale.

• Harry thanks Nicole Quinn and Alex Towzig at Lightspeed for their contributions.
• Harry also endorses Cooley, a global law firm specializing in startups and venture capital, and Zoom, a video and web conferencing service.

I do also want to say again, a big thank you to Nicole Quinn at Lightspeed and Alex Towzig at Lightspeed.

• Harry expresses gratitude to his colleagues at Lightspeed for their support.

Cooley is a global law firm around startups and venture capital.

• Harry highlights Cooley's expertise and history in supporting startups and venture capital firms.

Zoom is the fastest growing video and web conferencing service.

• Harry recommends Zoom for its comprehensive conferencing services and user-friendly platform.