20VC Why Value Investing is BS, The Most Insane Elements of SPACs, Why Simplification is the Secret to High Margins & Why Good Values Should Make You Uncomfortable with Joey Levin, CEO @ IAC

Abstract
Summary Notes

Abstract

In this episode of "20 VC," host Harry Stebbings interviews Joey Levin, CEO of IAC, exploring the divergent realities of public and private market valuations and the challenges of navigating a shifting economic landscape. Levin reflects on his career, emphasizing the importance of having strong opinions and the ability to adapt to rapid changes, particularly in periods of financial adjustment. He discusses the role of capital in seizing opportunities, the flawed nature of SPACs, and the impact of upbringing on work ethic and ambition. Levin also touches on the concept of value investing, arguing that it's not confined to low multiples but includes growth potential, and stresses the power of simplification in business. Additionally, the conversation delves into the importance of company values in decision-making, the intricacies of work-life balance, and the influence of familial values on personal and professional development.

Summary Notes

Public and Private Market Valuations

  • Public markets accurately reflect the current environment, while private markets do not.
  • In private markets, there is less pressure to be honest about valuations daily due to the abundance of capital and incentives to maintain "pretend valuation."

"People raised a lot of capital when capital was easy. You don't need to be honest on valuation every day. There's no one forcing that when everyone in the ecosystem is incentivized and able to maintain pretend valuation."

This quote emphasizes the discrepancy between public and private market valuations, highlighting the lack of daily accountability in private markets which allows for inflated valuations.

Harry Stebbings' Introduction

  • Harry Stebbings hosts the podcast "20 vc."
  • Previous episode featured Kevin and Mike from Instagram.
  • Joey Levin, CEO of IAC, is introduced as the guest, with a notable career including overseeing the IPO and spinoff of Match Group, spinoff of Vimeo, and acquisitions of Angie's List and Care.com.
  • Joey Levin was appointed CEO of Angie Inc. in October 2022.
  • Joey Levin serves on the boards of IAC, Turo, and MGM Resorts International.
  • Harry Stebbings discusses the importance of consolidating information using tools like Coder and Brex for efficiency and financial management.
  • Intercom is promoted as a customer service software that helps businesses support their customers through messaging and automation.

"But I'm so excited today to be joined by Joey Levin, CEO of IAC, where he's overseen the constant evolution of the company, including the initial IPO and subsequent spinoff of Match Group, the spinoff of Vimeo, and the acquisitions of Angie's list and care.com."

The quote introduces Joey Levin and his significant accomplishments as the CEO of IAC, setting the stage for the discussion about his career and insights.

Joey Levin's Career Aspirations

  • As a child, Joey Levin aspired to be a lawyer like his father, inspired by Clarence Darrow, an iconic lawyer from the Midwest.
  • He didn't always feel that success was inevitable but acknowledges the importance of role models and being in environments where achievements are visible.
  • Mentors have played a significant role in Joey Levin's life, with Barry Diller and Jack Welch being notable figures.

"I actually wanted to be a lawyer because my dad's a lawyer. I wanted to be Clarence Darrow. I had read books about him and stories about him, and he's from the Midwest and iconic last in a lot of ways."

Joey Levin's quote reveals his early career aspirations influenced by his father and Clarence Darrow, suggesting the impact of family and role models on career choices.

Career Longevity and Advancement

  • Joey Levin has been at IAC for 20 years, a rare duration in today's job market.
  • Key factors for career advancement within IAC include doing the work to have information and understand things better, and having strong opinions, even if not always right.
  • Strong opinions, loosely held, is a philosophy both Joey Levin and Harry Stebbings agree with.

"One, doing the work to have the information, to understand things better is really important. And when I was doing mergers and acquisitions, it was to learn everything about a company that we were considering acquiring."

This quote underlines the significance of thorough research and understanding in career advancement, particularly in the context of mergers and acquisitions.

Current Business Challenges

  • IAC is experiencing a challenging period with rapid changes in valuations, revenue generation, expense management, and credit acquisition.
  • Adjusting to a downturn after a decade of growth is difficult, requiring changes in habits and perspectives within the organization.

"Valuations change really quickly, which is probably what's most acutely felt. But everything changes very quickly."

Joey Levin's quote highlights the swift and significant impact of market changes on business valuations and operations.

Generational Attitudes and Entitlement

  • The younger generation has grown accustomed to a bull market and government bailouts during crises, leading to a sense of entitlement and expectation of bailouts.
  • This sense of entitlement is seen as a dangerous trait, and a correction in attitudes is anticipated as market conditions become more cyclical.

"Both of those cases there was a government bailout. And I think the government did the right thing and saved jobs. But the lesson that's learned is there's a bailout."

The quote reflects on the impact of government interventions during crises and how it shapes the expectations and attitudes of the younger workforce.

Balancing Morale and Business Needs

  • Balancing employee demands with business needs is a challenge, especially when employees have high expectations for compensation and work-life balance.
  • Morale management involves leveraging the experience of long-tenured employees to guide and reassure those who have not faced economic downturns before.

"We're lucky to have something at IAC which is a lot of people with tenures."

This quote speaks to the value of having experienced employees at IAC who can help balance morale and provide guidance during challenging times.

Value Investing

  • Joey Levin challenges the concept of value investing, suggesting that the term is misused and that there's no such thing as value investing in the traditional sense.

"What I mean by that is people use the word value investing."

The quote introduces a discussion on the concept of value investing and its relevance in the modern investment landscape.## Value Investing

  • Value investing is not limited to purchasing at low multiples; it also applies to buying at high multiples if the growth and future potential justify it.
  • The term "value investor" is applicable to both traditional investors and venture capitalists or growth equity funds, as long as they see value relative to future expectations.
  • IAC (InterActiveCorp) practices value investing by paying both low and high multiples, depending on where they see value.

"But value investing also can be buying something at a very expensive multiple or a very high, I shouldn't say expensive, I should say a very high multiple. But that there's value there because of what you believe in the growth and the future."

This quote explains that value investing is not just about the price paid, but also the anticipated value based on future growth potential.

"They think they're a value investor. They are a value investor. They see value there relative to what they believe the future value is."

The speaker emphasizes that anyone who identifies potential future value in an investment, regardless of the price paid, can be considered a value investor.

"We could pay big multiples for things where we see value, and that can work out too."

Here, the speaker acknowledges that their investment strategy includes paying high multiples if they believe in the underlying value of the investment.

Market Sentiment and Investment Strategy

  • The adage "be greedy when others are fearful, and fearful when others are greedy" suggests taking a contrarian approach to investment opportunities.
  • Capital availability is crucial for taking advantage of market fear; investors must prepare and have sufficient capital to invest during these times.
  • IAC is well-capitalized with over a billion in cash and no debt at the parent level, positioning them to act on opportunities despite wishing for more capital.

"You hit on a very important point, which is you need capital to be greedy when others are fearful."

This quote highlights the necessity of having capital on hand to exploit market opportunities when others are acting fearfully.

"When capital is scarce, things are cheap, and when capital is abundant, things are expensive."

The speaker is explaining the basic economic principle that the availability of capital influences market prices.

"I think we certainly have plenty of cash right now, well over a billion of cash and no debt at the parent level."

The speaker is confirming that IAC is financially prepared to invest during market downturns due to their strong cash position and lack of debt.

Valuation Discrepancies Between Markets

  • There is often a significant gap between private and public market valuations during periods of transition.
  • Public markets may reflect the current economic environment more quickly, while private markets may lag due to various factors such as existing capital, valuation honesty, and ecosystem incentives.
  • In private markets, only the investors who believe in the value vote on valuations, unlike public markets, which also include short sellers and daily pricing.

"The private markets and the public markets are generally very far apart in moments of transition."

This quote indicates that valuation discrepancies between private and public markets are common during economic shifts.

"But in the private markets, only the people who do believe get to vote."

The speaker is pointing out that private market valuations are often more optimistic because they are determined by those who have an interest in maintaining higher valuations.

The New Normal in Valuations

  • The increased capital supply as a result of quantitative easing and government intervention has led to what some believe is a new normal in market valuations.
  • Growth in earnings and valuations is expected to be incremental rather than through multiple expansion, without specific catalysts like reduced interest rates or tax rates.

"I do agree with that are where we are right now. And now we need to grow from here."

The speaker agrees that the current market conditions are the new normal and suggests that growth will be gradual.

"Earnings take time to grow. Earnings don't typically at large, grow in multiples. They grow in increments, percentages."

This quote emphasizes that earnings and valuations are expected to grow steadily over time, not through sudden expansions in multiples.

Simplification as a Tool for Value Creation

  • Simplification is a powerful tool in value creation, extending beyond product design to pricing, presentations, and business processes.
  • Reducing complexity can improve conversion rates and create more value for customers, which in turn can justify higher margins for the business.

"The more you simplify, the more margin you're entitled to, because that's how you create value for your customers."

The speaker suggests that simplification leads to greater value creation for customers, which can result in higher margins for the company.

"There is not a moment in business where you can't think about that as an improvement opportunity and yield value from it."

This quote underlines the constant opportunity for improvement through simplification in all aspects of business.

Mistakes in Simplification and Messaging

  • A common mistake in business is taking on too many projects at once, which can lead to spreading resources too thin and complicating the business model.
  • Clear messaging is crucial, particularly in B2B, where websites or pitches that are unclear about what the business does can be detrimental.
  • Great messaging is succinct and free of unnecessary elements, as exemplified by the principles of "The Elements of Style" by William Strunk Jr. and E. B. White.

"That mistake was spreading yourself too thin, taking on too many competitors or markets at once."

The speaker is identifying a mistake businesses make by overextending themselves, which can lead to a lack of focus and simplification.

"A sentence should have no unnecessary words and a paragraph no unnecessary sentences, just as a drawing should have no unnecessary lines and a machine no unnecessary parts."

This quote from "The Elements of Style" is used to illustrate the importance of conciseness and simplicity in messaging.

Core Values and Decision Making

  • Company values should be unique and practical, guiding decision-making and differentiating opportunities from distractions.
  • Values should occasionally lead to uncomfortable decisions and discussions, ensuring that actions align with the company's principles.

"The values should make you uncomfortable, not olds, but there should be times where they force uncomfortable decisions and uncomfortable discussions where you have to call out colleagues, not in a mean way, but where you have to call out colleagues and say, wait a minute, has this been through the value filter or not?"

The speaker believes that company values should be challenging and actively used to evaluate decisions and actions within the company.

"I pushed hard when we redid them at Angie to make them unique."

This quote indicates the speaker's commitment to developing distinct and meaningful company values that influence business decisions.## Product Roadmap Prioritization

  • Prioritizing a product roadmap involves strategic choices that can shape the direction of a company.
  • Building lifelong customers is a goal that influences the prioritization of features, communication, and presentation strategies.
  • This goal has led to changes in the roadmap and priorities at Angie and will continue to do so.

"Build lifelong customers is a very challenging thing to do, and it has absolutely changed our roadmap and our priorities and will going forward."

The quote emphasizes the difficulty and importance of the goal to build lifelong customers, noting its significant impact on the company's strategic planning and future direction.

Balancing Multiple CEO Roles

  • Balancing roles as CEO of multiple companies can be challenging, but it's manageable if the roles feed into each other and are driven by passion.
  • Delegation and support from capable colleagues are crucial in managing multiple responsibilities.
  • Work-life balance can be affected, and personal life may be sacrificed, but enjoyment of the work can make it worthwhile.
  • The choice between focusing on work or life is a fundamental one, and different individuals prioritize differently.

"I have the time to do it. I have colleagues at IAC who are highly capable of helping out in other areas, and they've stepped up to help."

This quote highlights the speaker's ability to manage multiple CEO roles due to having time and support from competent colleagues who can assist in various areas.

SPACs as a Public Offering Mechanism

  • SPACs (Special Purpose Acquisition Companies) are criticized for their flawed structure.
  • The process of a SPAC involves giving an outsider a free option to sell the company to the public, which is seen as an irrational step for established companies.
  • SPACs can be a fundraising tool for ideas or early-stage ventures that lack a solid business structure.
  • The pressures of being a public company can be detrimental to the development of early-stage companies.
  • SPACs provided crucial capital to some companies but also exposed them to the challenges of public market expectations.
  • Misunderstandings about SPACs include the lack of appreciation for the option given away on the company and the one-sided nature of this option.
  • The influx of SPAC companies into the public market exceeded the capacity of investors to analyze and invest, leading to a lack of a 'home' for these companies.
  • Future outcomes for SPAC companies might include growing to a size that demands attention or potentially going private again.

"The way it works is you build a company for as long as it takes you to build a company, you get it to a position where you think it can maybe endure the public markets. And then in that critical moment, you give somebody else who doesn't know your company at all a free option on effectively selling that company to the public for three months."

This quote captures the core criticism of SPACs, where a critical decision about taking a company public is handed over to an outsider who is not intimately familiar with the business, creating a risky and potentially disadvantageous situation for the company.

Personal Relationship with Money

  • The speaker's relationship with money has evolved over time.
  • Money's value can fluctuate, and one's net worth can change rapidly.
  • Experiencing financial highs and lows can lead to a more relaxed attitude towards money.
  • There is a perspective that beyond a certain level, money becomes merely a scorecard rather than a necessity.
  • Instilling hunger and ambition in children who grow up in financially comfortable environments is a challenging aspect of parenting.
  • Parents often try to protect their children from adversity, which can conflict with the goal of building character through challenges.

"Money is around. Sometimes it rolls towards you, sometimes it rolls away from you, and you got to remember that that's true."

The quote reflects the speaker's philosophy on money, acknowledging its transient nature and the importance of maintaining perspective on its value.

Reflections on Financial Decisions

  • Hindsight can lead to regrets about not selling assets during financially prosperous times.
  • It is unhealthy to dwell on missed opportunities to buy low or sell high, as it is rare to time the market perfectly.
  • The focus should be on making sound financial decisions rather than aiming for perfection in timing the market.

"It's easy to look back and regret not having sold something, but people do this to themselves and it's very unhealthy and I don't recommend it."

The quote advises against the common regret of not selling assets at their peak value, emphasizing that such hindsight is unhealthy and unproductive.Investment Philosophy

  • Assessing the viability of a business, its team, and the market is crucial for long-term investment success.
  • Holding onto long-term winners is a strategy for enduring short-term market fluctuations.

It relates to investments, is it a business that you believe in? Is it a team that you believe in? Is it a market that you believe in? And if it is, then over time those things will balance out and you want to hold on to the long term winners and over time they'll continue to win.

The quote emphasizes the importance of belief in the fundamental aspects of an investment (the business, team, and market) for long-term success.

Family Influence on Leadership

  • Frugality and value-seeking behavior instilled by Joey Levin's mother played a significant role in shaping his ambition and drive.
  • The family enforced a culture of seeking the best deals and avoiding unnecessary expenses, which contributed to developing a goal-oriented mindset.

My mom was and remains incredibly frugal and did a wonderful job forcing that upon me and my siblings in ways that did drive us.

This quote explains how Joey Levin's mother's frugality was a key influence in developing his values and drive.

Persistence and Knowing When to Quit

  • Persistence is a hallmark of Joey Levin's character, with a focus on revisiting and revising business plans until success is achieved.
  • Deciding when to give up involves evaluating the business thesis and plans based on their current merits, rather than past beliefs or sunk costs.

In a lot of the things that we do, you got to go back to, what is your thesis? And do you have a viable thesis that you believe in it can't be because you believed in it previously. It has to be. Do you believe in it?

This quote underlines the necessity of continually re-evaluating one's business thesis to determine whether to persist or to give up.

CEO's Role as Resource Allocators

  • Balancing short-term and long-term interests is a critical and challenging component of a CEO's job.
  • Effective resource allocation involves making decisions that consider both immediate and future needs of the business.

It's balancing short term and long term. That's the hard part of the job. Anyone can do all short term or all long term. But balancing capital and resources against short and long term is the hardest and most important.

The quote highlights the difficulty and importance of a CEO's role in managing resources for both short-term and long-term objectives.

Work-Life Balance and Entitlement

  • Joey Levin agrees with the notion of an entitled generation, suggesting a cultural shift in expectations regarding work-life balance.

We live in an entitled generation. Do you agree? I do.

The quote reflects Joey Levin's agreement with the statement about entitlement in the current generation, suggesting a perspective on societal attitudes towards work-life balance.

Adaptability and Market Conditions

  • Joey Levin's expectations of a market reversal led to a realization that the previous market conditions were more pleasant.
  • Adjusting to market downturns is challenging, especially concerning job impacts.

I was expecting and in some way looking forward to the market reversal that we've seen and now in it. It was much more pleasant before that.

This quote reveals Joey Levin's change of perspective on market conditions and the associated challenges.

Strengths and Weaknesses

  • Persistence can be both a strength and a weakness, depending on the context and outcome.
  • Recognizing the duality of certain traits is important for personal and professional development.

Sometimes it's a strength, sometimes it's a weakness. For sure.

The quote acknowledges that the trait of persistence can have both positive and negative implications.

Ideal Board Member

  • Joey Levin would choose the late Jack Welch as a board member for his instincts, quick understanding, and empathy.
  • The qualities of a board member can significantly influence the direction and success of a company.

Jack Welch had the best instincts on things and quickest instinct on things and understanding of things. Incredible empathy.

The quote expresses admiration for Jack Welch's qualities, which Joey Levin considers ideal for a board member.

Secret to a Happy Marriage

  • Having opinions only when necessary and valuing mutual respect and love are key to a happy marriage.
  • Balancing when to express opinions and when to refrain is analogous to decision-making in business.

You don't need to lob in opinions when it's not necessary to have an opinion.

This quote suggests that restraint in expressing opinions can contribute to harmony in a marriage.

Venture Industry Reflections

  • An overabundance of cash can be detrimental to companies, a trend observed in the previous market environment.
  • Joey Levin is critical of the practice of overfunding, which may harm more than help companies.

I do think it was dangerous for a lot of companies to be overstuffed with cash.

The quote criticizes the excessive funding of companies, suggesting it can lead to negative consequences.

Long-Term Business Planning

  • Joey Levin contrasts his approach to personal life planning with business planning, emphasizing a long-term outlook for business.
  • Thinking in terms of a "forever timeline" for business is part of balancing short-term and long-term strategies.

In planning our business, we do think multiple years ahead... we think about businesses in a forever timeline.

The quote illustrates the focus on long-term planning within Joey Levin's business strategy, despite not applying the same approach to his personal life planning.

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