20VC Why Bots Are The New Black, Conversational Interface Is The Next of For Consumerisation and The Determinants Of A Successful Marketplace with Annie Kadavy, General Partner @ CRV

In the 200th episode of the 20 minutes VC podcast, host Harry Stebbings celebrates his birthday and the milestone by interviewing Annie Kadavi, a general partner at Charles River Ventures. Kadavi, who has a background with SV Angel and Warby Parker, shares her unconventional journey into venture capital and her focus on consumer technology, marketplaces, and mobile productivity. She discusses the importance of understanding the supply side in marketplaces, the anthropological approach to consumer investing, and the potential of bots as conversational interfaces. Additionally, Kadavi highlights the defensibility of marketplaces by scale, the value of SaaS marketplaces like Cratejoy, and her latest investment in Rome, a global network for communal living. The episode also touches on the VC Unlocked program and Lisa mattresses, demonstrating a blend of investment insights and entrepreneurial advice.

• The episode is a milestone, marking the 200th episode of the podcast.
• The host, Harry Stebbings, celebrates his birthday on the day of the recording.
• The podcast features an interview with Annie Kadavy, a general partner at Charles River Ventures (CRV).

"And today is a special day as it's my birthday. My word, I am getting old. And what better way to celebrate my birthday than with today's episode, which is our 200th. Can you believe it?"

This quote marks the significance of the episode as a celebratory moment for both the host's birthday and the 200th episode of the podcast.

• Annie Kadavy is a general partner at CRV, a well-known venture capital firm.
• She has a focus on consumer technology, marketplaces, mobile productivity, and consumer-related ventures.
• Annie has led or sourced investments in companies like Laurel and Wolf, ClassPass, and DoorDash.
• Her background includes time spent with SV Angel and Warby Parker.

"And Annie herself focuses on consumer technology, marketplaces, mobile productivity, and pretty much all things consumer. And she's led or sourced CRV's investments in some incredible companies, including Laurel and Wolf, class, Passpass, and DoorDash, again, just to name a few."

This quote outlines Annie Kadavy's areas of expertise and her notable contributions to the venture capital industry, highlighting her successful investments.

• VC Unlocked is a two-week crash course offered by Stanford Professional Development Center and 500 Startups.
• The program teaches the mechanics of investing and provides networking opportunities with Silicon Valley investors.
• Participants can interact with founders and screen pitches at exclusive investor events.

"The program is a two week crash course run by Stanford Professional Development center and 500 startups, and it teaches you about the mechanics of investing from Stanford faculty and 500 startups partners."

This quote emphasizes the educational value of the VC Unlocked program for aspiring investors and the opportunity to learn from established professionals in the field.

• Lisa Mattress is a sponsor of the 20 Minute VC Podcast.
• The mattresses are engineered with three unique layers, including memory foam and latex-like foam.
• The company utilizes science to ensure coolness at night and extends the mattress's life through a special compression delivery process.
• Lisa Mattress offers delivery to the UK, US, and Canada.

"And the science does not stop there as the mattress is specially compressed for delivery in a way that actually extends its life and it can be delivered to anyone in the UK, US or Canada."

This quote details the innovative approach Lisa Mattress takes in creating and delivering their products, highlighting the scientific and engineering efforts behind their mattresses.

• Annie Kadavy did not initially plan to enter the venture capital industry.
• She was introduced to venture capital while pitching her own business idea, which did not materialize.
• A partner at CRV noticed her potential and invited her to meet the team, leading to her joining the firm.
• Annie's journey into venture capital was unexpected and not part of her original career plan.

"I fell into venture because I had been, for really, as long as I could remember, kind of working on and towards being an entrepreneur myself."

This quote explains how Annie Kadavy's entrepreneurial background and a chance encounter led her to a career in venture capital.

• Annie Kadavy had initial reservations about fitting into the venture capital industry due to a perceived prototype of successful investors.
• She was advised to seek out examples of successful investors who did not fit the stereotype she had in mind.
• Annie now believes that diverse perspectives and trust are crucial for making the best decisions in venture capital.
• She emphasizes the value of speaking with a different point of view.

"And I think that in venture, one thing I've learned is that best decisions are made from diverse groups that have a high level of trust."

This quote reflects Annie Kadavy's realization that diversity and trust are fundamental to success in venture capital, challenging the notion of a one-size-fits-all investor prototype.

• Annie Kadavy considers the long feedback cycles in venture capital, where it can take a decade to know if one is successful in the role.
• Early in a VC career, the metric of success may not be the number of calls from entrepreneurs but rather the quality of relationships with those you say no to.
• Kadavy values integrity and respect in her interactions, aiming to be a positive reference even for those she declines to invest in.
• She kept a list of all companies she reviewed in her first years to track her decision-making process and outcomes.

"So for me, it is the number of people who I say no to, which in venture, you're saying no to investment 99% of the time, who I would still consider a reference on me or for something else, a positive reference."

This quote highlights the importance Annie Kadavy places on maintaining positive relationships and being a person of integrity in the venture capital industry, even when declining investment opportunities.## Initial Investment Perspectives

• Annie Kadavy discussed her early approach to evaluating investment opportunities.
• She would record her gut reactions to potential investments, noting reasons for interest or disinterest.
• Annie used these notes to review her decisions as companies succeeded or failed, refining her investment perspective.

"Whatever my reason was for not liking it or for liking it as an investment, I would just jot it down."

This quote explains Annie's method of documenting her initial thoughts on potential investments for future reference and learning.

"I could go back and basically start earlier, kind of fine tuning my own perspective on, oh wow, that's that thing I really missed."

Annie reflects on the value of her notes in helping her identify what factors she may have overlooked in her initial assessments.

• The process of saying no to investment opportunities is a significant part of a VC's job.
• Annie initially struggled with rejecting entrepreneurs but reframed it as providing a "gift of feedback."
• She emphasizes transparency and honesty in communicating the reasons for rejection.
• Common reasons for rejection include early-stage data, market understanding, and potential business size.

"I think that for me, and I know that for many other vcs, this idea of saying no so much is not what you expect when you come into this job."

Annie Kadavy highlights the unexpected frequency with which VCs have to reject investment proposals.

"What if I treat feedback as a gift?"

Annie proposes a shift in mindset towards rejection, viewing it as constructive feedback for the entrepreneur.

"You have to oftentimes believe that the market can support a larger company than that."

This quote underscores the venture capital requirement for businesses to have the potential for significant market impact and growth.

• Annie discusses the importance of experience in successful venture investing.
• She created her own data set to accelerate her learning and improve pattern recognition.
• Recognizing personal biases and asking hard questions became essential to her investment strategy.

"The only metric that is correlated with success in venture is time doing it."

This quote relays the perspective that success in venture capital is strongly linked to the amount of time spent in the field.

"How do I make myself more efficient such that my four years of sure can maybe feel like five or six or seven or eight?"

Annie discusses her proactive approach to learning and gaining experience more rapidly in venture capital.

• Annie Kadavy expresses enthusiasm for marketplaces and discusses their growth, driven by the Internet and mobile penetration.
• She identifies the "chicken and the egg" problem as a key challenge in building two-sided marketplaces.
• Marketplaces are seen as anthropological studies that require deep understanding of both supply and demand.
• Annie emphasizes the importance of empathizing with the supply side to define success in a marketplace.

"People are now carrying around phones in their pockets."

This quote highlights the role of mobile technology in the proliferation of marketplaces by enabling flexible work environments.

"They are understanding supply and understanding demand, and reconciling those two groups priorities and needs."

Annie Kadavy describes marketplaces as businesses that must balance the needs of both suppliers and consumers to succeed.

"To truly empathize specifically with the supply side first."

Annie stresses the importance of focusing on the supply side's perspectives and needs when building a successful marketplace.## Defensibility of Marketplaces

• Marketplaces gain defensibility primarily through scale.
• Branding can aid in achieving and maintaining market dominance.
• Even with suboptimal design, marketplaces can be incredibly difficult to unseat if they have strong liquidity in local markets.
• Examples like Craigslist demonstrate that user experience can be secondary to market liquidity.

Marketplaces, almost all of them, are defensible by scale.

This quote emphasizes that the primary factor in a marketplace's defensibility is its scale rather than other factors like branding or user experience.

• SaaS marketplaces are emerging and have not seen many excellent examples yet.
• Cratejoy is a SaaS tool for building subscription businesses.
• Supply side needs dictate the evolution of SaaS marketplaces.
• SaaS marketplaces enable merchants to run their businesses more effectively and can create a sense of community.
• From an investor's perspective, SaaS marketplaces offer attractive revenue streams combining predictable SaaS income with transactional income.

I think SaaS marketplaces are really interesting. And I don't believe that we've seen many excellent examples of them so far.

Annie Kadavy notes the nascent state of SaaS marketplaces and her interest in their potential, indicating that this area is ripe for innovation and growth.

• Predictable revenue from SaaS is highly valued in the investment community.
• Subscription models in consumer businesses can significantly extend the Lifetime Value (LTV) of a customer.
• Predictability can lead to higher investment multiples compared to less predictable revenue streams.

Your multiples on any sort of predictable revenue are going to be much higher than those when revenue is less predictable.

Annie Kadavy explains the financial advantage of predictable revenue, such as that from SaaS subscriptions, which is a factor in investment decisions.

• Bots are currently a popular trend in technology.
• The anthropological approach to consumer investing can be applied to bots, as they represent a conversational interface that is more natural for humans.
• Bots can reduce friction in interactions and enable 'superpowers' similar to other successful technologies.
• Examples like Snapchat and Uber illustrate how technology can mirror human behavior or enhance capabilities.

Bots are the new black.

Annie Kadavy uses a fashionable phrase to describe the current hype around bots, indicating their perceived potential and trendiness in the tech industry.

• Bots have existed for a long time in basic forms like customer service recordings.
• The integration and location of bots in our digital ecosystem is a key question for their future development.
• Bots may be integrated across various platforms and devices, potentially living "everywhere."
• The ability of bots to learn quickly is a notable feature that aligns with the data-sharing tendencies of the new generation.

My hypothesis is that at least at the beginning, for sure, and I think going forward, they will live everywhere.

Annie Kadavy hypothesizes that bots will be ubiquitous in the digital landscape, suggesting a seamless integration into various aspects of technology use.

• Strong data sets are crucial for the accuracy and effectiveness of bots.
• Companies like Facebook and Google have an incumbent advantage due to their vast data sets.
• The scale of data at these companies may make it challenging for others to compete in bot accuracy.

I absolutely believe that. I think that you just look at the sheer scale of Facebook messenger and Google specifically...

Annie Kadavy acknowledges the significant advantage that large companies with extensive data have in the development and accuracy of bots, which could influence the competitive landscape.## Accessing Data Sets for Startups

• Startups are building their own data sets for specific verticals or demographics.
• Creating Q&A interfaces can help build more personalized bots for both consumers and businesses.
• Building a data set requires a volume of data and it is becoming easier to launch a bot.
• Startups should focus on a high-value vertical to build depth and attract users.
• Partnerships with platforms like Messenger or Slack can help startups interface with consumers.
• The industry is still learning which platforms and approaches will be successful.

"Many, many startups out there that are building their own data sets, whether for a specific vertical or a specific demographic."

This quote emphasizes that startups are actively creating their own niche data sets tailored to specific markets or audience groups.

"You can build the data set in a number of different ways, and obviously you want a volume of data to run through that."

This quote highlights the importance of not only building a data set but also ensuring it has a sufficient volume of data to be effective.

"But it's becoming easier and easier to get a bot off the ground, and it's a matter of how quickly can you teach it or personalize it to the use cases that you're trying to build."

This quote suggests that the barrier to entry for creating and personalizing bots is lowering, making it more accessible for startups to innovate in this space.

"So my general sentiment would be to start with a vertical, ideally a vertical that is very high value to a consumer and build a depth of knowledge or experience there."

The speaker advises focusing on a specific, high-value vertical to create bots that are more likely to attract users due to their depth and effectiveness.

• Annie Kadavy's biggest mentor is a woman she met through her husband.
• The mentor has provided both professional and personal guidance.
• The relationship with the mentor is significant to Annie, highlighting the intertwined nature of personal and professional development.

"My biggest mentor is a woman who is about twenty some years older than I am."

This quote introduces Annie's mentor and indicates the mentor's significant life experience compared to Annie.

"I actually met her probably twelve years ago. She was a mentor at my husband's first, and I stole her from him because I liked her."

Annie explains how she came to know her mentor, indicating the organic development of their mentoring relationship.

"She's a person who has been a mentor both professionally and personally, which is utmost importance to me because I do believe that those two things are inherently woven together."

The importance of a mentor who provides support in both personal and professional spheres is underscored in this quote.

• "Mindset" by Carol Dweck is Annie's recent favorite book.
• The book discusses the growth versus fixed mindset, which is valuable in various contexts.
• Understanding and teaching a growth mindset is crucial for organizational development and personal growth.

"I recently finished a book that I had been meaning to read for a long time called Mindset by Carol Dweck."

Annie shares her recent reading experience, pointing out the significance of the book's subject matter.

"I think teaching and understanding a growth mindset is arguably one of the most important things that an organization can do for people."

This quote highlights the value of fostering a growth mindset within organizations for the benefit of their members.

• Venture capital can be a lonely job as it involves being an enabler rather than a leader.
• Keeping a list of reviewed opportunities and reactions can expedite learning.
• Building a support system within and outside one's firm is crucial due to long feedback cycles in venture capital.

"I think venture can be a lonely job."

Annie describes the nature of the venture capital profession and the emotional challenges it can entail.

"You are the enabler of people and ideas, which is something that I really love about the job."

The quote captures the essence of a venture capitalist's role as a facilitator for entrepreneurs and their innovations.

"Try to expedite your own learning to yourself."

Annie advises on the importance of self-reflection and tracking one's own progress and thoughts in the venture capital field.

"Build a support system around you of people within and outside your own firm."

The quote suggests the importance of a strong network for support and learning in the venture capital industry.

• Annie enjoys reading "the Skimm" for its humorous and educational content.
• The newsletter resonates with her demographic and presents global news in an approachable manner.

"I would say that my favorite one is the Skimm because it makes me laugh."

Annie expresses her preference for "the Skimm" and the enjoyment she gets from its comedic approach to news.

• Annie's most recent investment is in a company called Roam, which offers a global network for communal living.
• The investment was driven by the large and growing market for flexible, community-based living arrangements.
• The changing nature of work and the desire for community and experience influenced the investment decision.

"Most recent investment is a company called Roam, which is a global network for communal living."

This quote introduces Roam, the startup in which Annie recently invested, and its business concept.

"The idea that where we work is increasingly not tied to from what we do."

Annie explains the changing dynamic of work and living, which is a factor in her investment decision for Roam.

• Bots are increasingly becoming a focal point in the tech industry.
• Startups and investors are exploring the potential of bots in various applications.

"And you heard it here first. Bots are the new black."

This quote from the host implies that bots are currently a trendy and potentially transformative technology in the industry.