In this episode of the 20 minutes VC, host Harry Stebbings interviews Brad Burnham, co-founder and managing partner at Union Square Ventures (USV). Burnham recounts his accidental entry into venture capital in 1995 and his journey to co-founding USV with Fred Wilson in 2003, emphasizing their complementary skills and shared investment ethos. He reflects on the importance of a focused thesis in venture capital, particularly when investing in the application layer of technology, and how this has facilitated the formation of a collaborative, knowledge-sharing environment among portfolio companies. Burnham also discusses the challenges and dynamics of the current venture landscape, including market consolidation, the trend of companies staying private longer, and the potential unhealthy dislocations caused by inflated private market valuations. He concludes by sharing his personal challenges in communicating complex ideas and USV's recent investment in OB1, highlighting its alignment with the core principles of an open internet.
"Brad and I founded USV together in the summer of 2003. We'd both been in the venture game for more than a decade. We'd made a fair bit of money, but were hungry to prove ourselves."
This quote sets the stage for the introduction of Brad Burnham, highlighting his experience, ambition, and partnership with Fred Wilson in founding USV.
"Brad is the strategist and the most principled investor in our firm."
The quote emphasizes Brad's role as a strategist and his reputation for principled investing within USV.
"It was Brad's idea to write a treatise on venture capital and the Internet before we set off to raise our first fund, and that exercise we did together continues to be our guiding light."
This quote explains Brad's forward-thinking approach to establishing a strong intellectual foundation for USV.
"I kind of backed into the venture business... ultimately spun two different companies out of Bell Labs."
This quote describes Brad's unconventional entry into venture capital through corporate innovation and entrepreneurship.
"Tadai, you're now a venture capitalist."
The quote humorously captures the unexpected moment when Brad was thrust into the role of a venture capitalist.
"In the 99 time frame, AT&T decided that they no longer wanted to have an independent venture capital partnership... That led to, ultimately to the dissolution of the partnership that was running that fund."
This quote provides context for the dissolution of AT&T's venture partnership, setting the stage for Brad's future endeavors.
"Fred and I enjoyed working with each other enough on that board that we said, gosh, we should go do more of this."
The quote reflects the strong working relationship and mutual respect between Brad and Fred, which was a catalyst for founding USV.
"We were certainly not interested in adding somebody that we didn't know. We wanted to preserve the very collegial feel of the partnership."
This quote highlights the importance of familiarity and a cohesive partnership in USV's team-building philosophy.## Venture Capital Partnership Dynamics
We liked the idea that we were together every Monday and talking about the portfolio and thinking about new opportunities and thinking about the market.
This quote emphasizes the importance of regular collaboration and strategic discussions within the partnership.
And so it's been a very slow process. It'll always be a slow process for us. We think these partnerships are, the dynamics of the partnerships are very important.
The quote reflects the partnership's philosophy of slow and careful growth, prioritizing team dynamics.
I think it's a combination of pragmatism, market knowledge, connections, willingness to invest time and energy.
This quote lists the essential qualities that make up a great board member according to Brad Burnham.
It's not about. I mean, it turns out that this is probably a truism in the business, that you end up investing more time in your losers than your winners. And the willingness to do that is what gets you invited into the next winner.
Brad Burnham highlights the counterintuitive aspect of venture capital, where more time is often invested in less successful companies, which is part of the commitment that defines a great board member.
I think it's a very good lesson, and I think that the key part of that is recognizing that it doesn't repeat itself.
Brad Burnham emphasizes the importance of recognizing that while patterns exist, history does not exactly repeat itself in venture capital.
The right move was to recognize that the fundamentals had changed so that, yes, there were a bunch of elements that repeated themselves, and we could talk about the way market consolidation happened, in the way it happened again more recently, and understanding those dynamics.
The quote explains the importance of understanding the changing fundamentals of the market and adapting investment strategies accordingly.
Fred's written a lot about kicking the can down the road, so to speak.
Harry Stebings references Fred's writing on the trend of companies delaying going public, which is a topic of interest in the venture capital community.
(Note: The transcript provided was incomplete, so the notes for the last theme could not be fully developed.)## Late-Stage Funding Environment
"Obviously, the access to private capital has been greater than it's ever been, and the ability for a company to raise the amount of money that someone like Uber has raised in the private markets is unprecedented."
This quote highlights the current state of the private capital market, where access to funds is abundant, allowing companies to raise significant amounts of money, exemplified by Uber's fundraising success.
"And so will that continue, should it continue? I'd argue it's probably not that healthy and that you're actually seeing some very weird dislocations when the scarcity of equity in the private capital markets for the real dominant market players, you end up bidding up the price for that to a price level that isn't sustained in the public markets."
The speaker expresses concern about the future sustainability of the current funding environment, noting that the limited availability of equity for dominant market players leads to inflated valuations that are not supported when companies go public.
"Are we in an era of expansion or are we in an era of consolidation? And I'd argue that in the 2006 seven time frame, when we were really beginning to discover for the first time what I would think of as the native opportunities for the web, these are opportunities that could not have existed prior to the Internet."
The quote contrasts the previous era of expansion, characterized by the rise of internet-based companies, with the current trend of consolidation.
"Creating a new set of unicorns in the face of that market power is going to be very difficult, certainly in the consumer-facing web services space."
This quote discusses the challenges new companies face in achieving high valuations due to the dominance of established tech giants, making it hard for new "unicorns" to emerge.
"I do think it changes the way that venture capital industry is investing."
The speaker acknowledges that the presence of dominant tech companies influences venture capital investment strategies.
"Having a thesis for why you think humans are going to interact with a certain set of services in a certain way, and how those services are ultimately going to be defensible and scalable, I think helps organize your investing activity."
The quote explains the importance of having a clear thesis to guide investment decisions, especially at the applications layer, where understanding human interaction with services is key.
"It's also turned out to be really helpful in the end as we've built a portfolio because we have a bunch of companies, have a bunch of similar characteristics and similar problems, similar opportunities, but because we make an effort not to invest in direct competitors, they're perfectly comfortable sharing ideas with each other."
This quote emphasizes the benefits of a thesis-driven approach in building a cohesive portfolio where companies can share ideas and support each other due to the absence of direct competition.
"We made investments in Zynga, Twitter, indeed, and Etsy within about a six month period in our 2004 fund. Each of those returned the fund."
The quote highlights a period of successful investments that significantly enhanced USV's reputation in the venture capital ecosystem.
"So that's the moment that I think about in terms of the learnings, I."
This incomplete quote suggests the speaker is reflecting on past experiences that contributed to the learning and growth of USV, though the specific learnings are not detailed in the transcript provided.## Venture Capital as a Learning Platform
"The fantastic thing about being in this business is you have this opportunity to become interested in an area. Some initial forays into that area, begin to identify companies in that area, and then these really smart people will come in and talk to you and explain how the world's going to be different as a result of these things that they're working on."
This quote emphasizes the dynamic and educational nature of venture capital, where conversations with entrepreneurs serve as a foundation for understanding emerging business landscapes.
"And so I am constantly in awe of the people that we work with, the entrepreneurs that we meet and that we talk to, and that we have the privilege of working with. They're the people that inspire me."
Brad Burnham expresses his admiration for entrepreneurs, highlighting their role as the true innovators who inspire his work in venture capital.
"I think that we have fantastic opportunity to participate in the evolution of markets in ways that can help to be a catalyst for positive social change and making some small contribution to that would be success."
Brad Burnham defines success for USV as having a meaningful impact on markets that leads to positive social outcomes.
"A challenge for me is becoming a little bit more open about communicating."
This quote reflects Brad Burnham's personal struggle with the communication aspect of his work, indicating a desire to improve his openness in sharing ideas.
"It's an open marketplace that allows anybody who runs a protocol stack to exchange goods and services with anybody else who runs that protocol stack with no central authority that arbitrates that marketplace."
The quote explains the rationale behind USV's investment in OB1, highlighting the company's innovative approach to decentralized commerce.