20VC What Happens To Growth Rounds in this New Environment Where is the Funding Crunch How Does This Impact M&A and Going Public How do Crossover Funds Respond What Does it Mean For Early Stage and more with Eric Liaw, General Partner @ IVP

In this episode of 20vc, host Harry Stebbings interviews Eric Liaw, a seasoned growth investor and General Partner at IVP, a leading late-stage venture capital and growth equity firm. Eric has a notable track record, having led investments in prominent companies like DataDog, GitHub, and Robinhood. He shares insights from his journey, starting from his eye-opening experience at Stanford during the internet bubble to his investment banking stint at Morgan Stanley, and eventually finding his niche in growth-stage venture capital. Eric discusses the importance of company culture, the impact of having children on work-life balance, and his approach to board membership, emphasizing guidance without overstepping. He also reflects on his investment misses, the competitive landscape of venture investing, and how the current public market volatility might affect private valuations across various stages. Eric's thoughts on maintaining work ethic and the significance of relationship-building in an increasingly transactional industry are also highlighted.

• Eric Liaw is a general partner at Institutional Venture Partners (IVP).
• IVP is a late-stage venture capital and growth equity firm.
• The firm has over $8.7 billion of committed capital and a 40-year IRR of 43.1%.
• Eric has led investments in companies such as DataDog, GitHub, Klarna, Robinhood, and UiPath.
• Prior to IVP, Eric worked at TCV with investments in Netflix, Zillow, and eHarmony.
• Eric was recognized by Growth Cap as one of the top 25 software investors in 2020 and 2021.

"Eric is a general partner at IVP. As I said, IVP, one of the leading, latest stage venture capital and growth equity firms with over $8.7 billion of committed capital and a 40 year IRR of 43.1%."

This quote establishes Eric Liaw's position at IVP and highlights the firm's significant capital commitment and impressive long-term internal rate of return (IRR).

• Eric attended Stanford during the Internet bubble, which sparked his interest in technology.
• He identified potential growth areas in information technology, biotechnology, and clean technology, but focused on information technology due to his skills and interest.
• His first exposure to venture capital was a lecture by John Doerr on Amazon.
• Recognizing he wasn't as skilled in software development as his peers, Eric sought a business perspective in technology.
• He worked at Morgan Stanley to learn about business, then joined TCV, focusing on later-stage investments.
• After 7.5 years at TCV, he joined IVP and considers it his best professional decision.

"I remember very vividly the first exposure I had to venture capital was a packed auditorium on the engineering side of campus. And John Doerr came on campus to talk about Amazon, and it had gone public a few years earlier."

Eric Liaw recalls the moment that sparked his interest in venture capital, highlighting a talk by John Doerr about Amazon's potential impact on the world.

• Eric believes that venture capital at the seed stage involves more picking, as companies need capital to survive.
• At later stages, such as pre-IPO, venture becomes more about access, as successful companies are well-known and investment opportunities are competitive.
• There's a spectrum in venture capital between picking and access, depending on the stage of the company.

"I think at earlier in seed stages, I think there's probably more picking going on... I think as you get much later sort of companies that are perhaps about to go public, they're no longer secrets or hidden secrets. And so then it's access."

Eric Liaw explains the difference between the importance of picking the right companies to invest in at the seed stage and having access to investment opportunities at later stages.

• Eric traveled to Helsinki in January 2013 to meet with Supercell before investing, experiencing the darkest place he'd ever been.
• He shared a humorous interaction at a traditional Finnish restaurant when inquiring about the best time to hunt a bear.
• Another travel story involves a last-minute trip to Bucharest to meet with UiPath's CEO, Daniel Dines, which included a delayed flight and a tight schedule.

"We were looking at Supercell, Helsinki, Finland, late December of 2012... I went there in January of 2013, pretty far north. It was the darkest place I had ever been."

This quote describes Eric Liaw's dedication to meeting with potential investment Supercell in person, despite the challenging travel conditions and location.

"We were really spending time on a company called Uipath, which was based in Romania... We got word that he would meet with us, but we had to come that weekend, and so we left."

Eric Liaw recounts a story of his determination to meet with UiPath's CEO, demonstrating the lengths to which he would go to secure an investment opportunity.## Unexpected Business Trip

• Harry Stebbings recounts a last-minute business trip from Bucharest to Barcelona.
• The trip involved a spontaneous flight and extended stay, allowing more time with the team and product presentations.
• Despite the unexpected length of the trip, it concluded with a successful investment and a humorous note on using laundry services.

"We jumped on an airline called Wizair, which is, you probably know, since you're over there, it's a low cost budget provider."

This quote illustrates the sudden nature of the trip and the choice of a budget airline for transportation, showcasing flexibility and adaptability in business travel.

"But that was also great because we spent more time with the team, saw how they were presenting the product out to the field, and ultimately made the investment."

This quote emphasizes the positive outcome of the trip, highlighting the value of spending time with the team and product, leading to a successful investment.

• Eric Liaw reflects on the previous year's record IPO volume and mixed performance, suggesting a cautious approach to new listings.
• The M&A market's activity levels are expected to be higher than the previous year, but concerns about regulatory scrutiny may dampen big tech company acquisitions.
• Microsoft's unique position compared to other big tech firms like Facebook, Google, Amazon, and Apple in terms of regulatory freedom to acquire is noted.

"I do think you'll still have some activity, but not like last year."

This quote indicates a prediction of continued IPO and M&A activity, but at a reduced level compared to the record-setting previous year.

"Fear of regulation and regulatory authority intervention is probably causing a lot of them to say this is probably not worth our time."

Here, Eric Liaw discusses how regulatory concerns are influencing the acquisition strategies of large tech companies, potentially slowing down their M&A activities.

• Harry Stebbings expresses a cynical view of the public market outlook and anticipates a trickle-down effect on early-stage investments.
• Eric Liaw predicts growth-stage investments will face the most significant impact due to alternative investment options becoming more attractive.
• The pressure on valuations is expected to propagate down to Series A and B, and eventually to seed rounds, but this is counterbalanced by the substantial funds raised for private investments.

"I think growth will be hit the hardest because the universe of alternatives, particularly for some of the largest investors, is private company a at multiple x or public company b at multiple y."

This quote suggests that growth-stage investments will be most affected by public market volatility due to investors having more appealing alternatives.

"But I do think you'll see a little bit of behavior change, not just in the pricing, but I think what we're also seeing now is you have a little more time, processes are taking longer, companies and investors are taking a little bit more time, which is probably a healthy pendulum swing."

Eric Liaw comments on the broader impact of market conditions on investment processes and decision-making, implying a potential positive aspect of a more deliberate approach.

• Eric Liaw discusses the dilemma of valuation sensitivity and the importance of assessing a company's potential market size and revenue growth.
• The conversation addresses the unpredictability of a company's success and the difficulty in estimating the future scale of investments.

"If something's five or 10 million, but you really have conviction, it can become three, 4500 million in revenue, then the 600 to a billion entry price is still fine."

This quote highlights the importance of conviction in a company's growth potential when considering investment valuations.

"Absolutely. And that's the thing that I still struggle with and my biggest mistakes, which I'm sure we'll talk about, because you talk about that with everybody."

Eric Liaw acknowledges the ongoing challenge of price sensitivity in investments and the potential for miscalculations.

• Eric Liaw discusses the balance between risk-taking and managing loss ratios in venture capital.
• The strategy of starting with smaller investments and increasing exposure as a company proves successful is considered a prudent approach to managing risk.

"With greater uncertainty, maybe start a little smaller in terms of dollar exposure."

This quote conveys the strategy of mitigating risk by initially investing smaller amounts in uncertain ventures.

"And then as things continue to work, you can invest more capital over time."

Here, Eric Liaw explains the practice of scaling investments as a company demonstrates success, aligning investment exposure with performance.

• The discussion covers the strategic challenges of investing early due to the competitive landscape and the necessity of evidence of product-market fit.
• Eric Liaw emphasizes the preference for investing in companies with some traction rather than purely speculative projects.

"How early will we go? We look for some evidence of product market fit."

This quote indicates the firm's criteria for early-stage investments, focusing on tangible signs of a product's viability in the market.

"It's meant to be more, and to use a word, relationship than transactional. That's what we'll invest, and then we are able to invest more over time, which we do."

Eric Liaw stresses the importance of building relationships rather than purely transactional interactions in the investment process, with the potential for increased investment over time.

• The pandemic's effect on the loss of personal interaction in business is lamented, with a shift towards more transactional and less relational engagements.

"And that's the thing that's been lost with all this pandemic."

This quote reflects on the diminished opportunity for personal connection in business dealings due to the pandemic's restrictions on in-person meetings.## Building Relationships in Venture Capital

• Venture capital is not just about financial investment, but also about relationships and trust.
• It's important to find a small group of people you respect and enjoy spending time with to build relationships in the industry.
• Diverse relationships across different stages of companies can lead to mutual benefits and good deal flow.

"My biggest advice to people entering venture is always find five people who you respect and admire and actually really enjoy spending time with and just invest in those relationships."

This quote emphasizes the importance of building a strong, small network of trusted individuals in the venture capital industry as a key to success.

• Reflecting on missed investment opportunities can shape future investment strategies.
• Price sensitivity can lead to missed opportunities, as seen in the regret over not investing early in Datadog.
• It's important to recognize the potential growth of companies and not underestimate their Total Addressable Market (TAM), even if they're initially serving small customers.

"Biggest regret in my career was not investing in datadog a lot earlier than when we ultimately did."

The quote highlights the speaker's regret over not investing earlier in Datadog due to price sensitivity, which is a learning point for future investments.

• Competition in the venture capital industry can lead to improved investment strategies.
• Building relationships with companies early on can be beneficial in a competitive market with compressed timelines.
• Understanding a company's business and market is crucial before making an investment decision.

"Competition forces you to improve your own game and your own skills and your own attributes."

This quote signifies that competition in the venture capital industry can lead to self-improvement and better investment practices.

• Personal interactions, such as going for a walk with an entrepreneur, can be more insightful than formal meetings.
• Building a rapport on a personal level can provide a deeper understanding of the individuals you may work with for many years.
• Venture capital is about more than just transactions; it's about forming meaningful partnerships.

"I feel like I know more about you and vice versa than I would have gotten out of 2 hours on a zoom running through spreadsheets and slide deck."

The quote illustrates the value of personal interactions over formal meetings in building a deeper understanding and connection with potential partners.

• Having self-awareness and recognizing one's own limitations is key to providing effective guidance.
• Board members should focus on offering insights on big-picture topics and long-term ramifications.
• It's important to trust the CEO's decision-making and provide options rather than directives.

"I've never run a company. I probably wouldn't be very good at it."

The quote reflects the speaker's self-awareness and humility in recognizing their role as a guide rather than an operator in the companies they invest in.

• When confidence in a CEO is lost, it's crucial to discuss concerns with other board members.
• The board has a responsibility to act in the best interest of shareholders and make tough decisions if necessary.
• A CEO serves at the pleasure of the shareholders, and the board must ensure the right leadership is in place.

"If the consensus view ends up being that a CEO has lost the confidence of the board, then I think the board has responsibility to make a tough decision."

This quote underscores the board's duty to intervene when a CEO no longer has the confidence of the board, reflecting the importance of strong leadership for the success of a company.

• Experience over time allows board members to offer more informed opinions and share their experiences.
• Earlier in a career, opinions are often grounded in data provided by the company.
• As experience grows, board members can link events and outcomes to provide guidance without overstepping.

"I've seen things go well, I've seen things go poorly. And parting in that sort of guiding, but not overstepping is sharing some of those experiences."

The quote demonstrates how experience informs the evolution of a board member's approach to providing guidance and sharing insights.

• Board members should focus on information that is deterministic to the outcome of a company's initiatives.
• It's important to trust the CEO's knowledge of the company and avoid having strong opinions on every detail.
• Prioritization is key to being an effective board member and partner to the company.

"There's no way, as a board member investor, I will know more about what's going on inside of a company than the CEO."

This quote acknowledges the importance of trusting the CEO's intimate knowledge of the company and focusing on critical information that can influence outcomes.

• Parenthood can help focus on what's important and force prioritization in both personal and professional life.
• It teaches that not everything is within one's control, which is applicable to investing as well.
• Parenthood can influence an investor's approach to risk and control in their professional decisions.

"It definitely helped me focus on the things that are important because you now have this part of your life that you want to spend a lot more time on."

The quote reflects on how having children can refine an investor's focus and approach to time management and decision-making.

• The concern of maintaining a strong work ethic while balancing family life is common among professionals.
• Parenthood necessitates a shift in prioritization and may influence professional performance.
• The key is to find a balance that allows for continued professional success without compromising family responsibilities.

"I worry that I will just become mediocre if suddenly you have kids and you have a family, and then you have the weekend with your family and your kids, which is wonderful."

This quote expresses a common concern about balancing the demands of a high work ethic with the responsibilities of parenthood.## Parenting and Priorities

• Having children shifts one's priorities, with kids becoming the new focus.
• The presence of children can reduce the time spent with friends, which can be disappointing.
• Despite the shift in priorities, the drive to work hard remains, though it may be deployed more thoughtfully.
• There is a sobering aspect to parenting when children mimic the behavior of parents, such as telling the parent they are busy.

"But there's, like I said, it's sort of forcing function. There's a new priority in your life, and that's your kids."

This quote emphasizes the significant change in priorities that come with having children, placing them at the center of one's life.

"And what sort of was a bit of funny, but also kind of like a knife to the heart and a twist is now there'll be times when I want to go play with him, and he's like, engaged, playing with his things or doing whatever he wants. He don't really want me around. He goes, no, daddy, you're busy, you're busy."

The quote reflects the bittersweet realization that children learn and replicate behaviors from their parents, in this case, the concept of being 'too busy', which can be both amusing and painful for the parent.

• One's work ethic is within their control, unlike innate attributes like intelligence or charm.
• There is a continuous drive to improve due to the fear of being outworked by others.
• The concept of outworking competitors is deeply ingrained and can lead to feelings of impostor syndrome or insecurity.

"I can't control whether people I'm competing against are smarter than me, more charming, but I can control how hard I work."

This quote underlines the speaker's belief in the power of work ethic as a controllable factor in success, as opposed to innate qualities.

"My insecurity is that probably a little like what you're saying. Someone else is going to come along and outwork me or do something better than I'm doing, and I have to figure out how to get better."

The speaker expresses the fear of being surpassed by someone more diligent or capable, highlighting a common insecurity among high achievers.

• Role models, like sports figures, can have a significant impact on one's work ethic and approach to career.
• Mentors can provide valuable insights and lessons, even if they are not formally recognized as such.
• Stories from successful individuals can reaffirm the importance of hard work and dedication.

"Somewhere out there, someone is practicing, and when you meet on the field of play, he will beat you."

The quote from a Nike poster serves as a motivational reminder that someone else's hard work could surpass one's own if they become complacent.

"This kid has put in the work."

Reflecting on Derek Jeter's proactive approach to his baseball career, the quote underscores the value of demonstrating work ethic to others, particularly superiors or decision-makers.

• Building and maintaining a company culture is crucial, especially for leaders.
• There is a responsibility to improve the organization for future generations.
• Leaders are stewards of their organizations and should aim to leave them in a better state.

"Culture enables organizations to survive and thrive across different individual people that come through."

The speaker highlights the importance of company culture in ensuring organizational longevity and success, regardless of individual contributions.

"My responsibility is to make sure that it's in a better place when I ultimately leave than it was when I got here."

This quote emphasizes the leadership philosophy of stewardship and the desire to positively impact an organization's future trajectory.

• Personal health devices like WHOOP can influence daily decisions and behaviors.
• Understanding the impact of lifestyle choices on productivity and health is beneficial.
• The tools provide quantifiable data that can lead to more efficient use of time.

"It's helped me think about how to get the most out of those 24 hours."

The speaker discusses how WHOOP has helped them optimize their daily routine for better productivity and health.

"Less work then means a little more sleep means you actually are more productive and efficient the next day."

Here, the speaker notes the counterintuitive idea that sometimes doing less work and getting more sleep can lead to greater efficiency and productivity.

• In venture capital, market opportunities can sometimes exceed initial expectations.
• When a company performs well and the market potential grows, it can lead to increased investment.
• Leaders in venture capital have to balance the excitement of new opportunities with the responsibility of their roles.

"The market opportunity is bigger than what we thought it was."

The speaker expresses excitement about a company's growth potential, which has expanded beyond initial projections, prompting further investment.

"I think the most recent one, probably the series C one at Ivan."

This quote introduces a specific investment example where the speaker's firm decided to invest more due to the company's strong performance and a growing market opportunity.