Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. I'm Jason
Speaker 1: Kelly and I'm Carol Master. Welcome to the Bloomberg Business
Speaker 1: Week Extra. It's our weekly podcast bring you an in
Speaker 1: depth interview you will not hear anywhere else. And this
Speaker 1: week we caught up with Roger Lee. He's a general
Speaker 1: partner over at Battery Ventures, an entrepreneur and operator in
Speaker 1: his own right. He talked about the state of Silicon Valley,
Speaker 1: the state of the marketplace. It's a place where they
Speaker 1: have invested heavily. The world is different, and yet it
Speaker 1: is rife with opportunity, Carol, So you know, life is
Speaker 1: I'd say life is complicated. Uh, you know, I'd say
Speaker 1: work from home has been pretty stable. School from homes
Speaker 1: a lot trickier. So I've got three young kids and
Speaker 1: so navigating all the challenges with with school work has
Speaker 1: been has been a little complicated. But our our work
Speaker 1: and what we're doing day to day as investors really
Speaker 1: hasn't shifted that much. We're staying very active. Have a
Speaker 1: bunch of themes were very excited about. These are themes
Speaker 1: that we've been investing in a long time, you know,
Speaker 1: ranging from cloud computing, to consumer marketplaces and and believes
Speaker 1: either these are really durable opportunities, you know, kind of
Speaker 1: pre COVID and post COVID. So we're continuing to stay
Speaker 1: very active and uh and looking for for you know,
Speaker 1: great entrepreneurs, building you know, transformative companies, and so we're
Speaker 1: going to continue to invest even during you know, what
Speaker 1: are you know, otherwise pretty challenging periods and the same
Speaker 1: types of entrepreneurs sort of coming at you. Is it
Speaker 1: a in the same flow or what's different about either
Speaker 1: what you're seeing or who you're seeing? Rather Yeah, i'd
Speaker 1: say that, you know, the one big question a lot
Speaker 1: of us ask ourselves is, uh, you know, having meetings
Speaker 1: in person is virtually impossible these days. So are are
Speaker 1: we going to invest in an entrepreneur we've never met
Speaker 1: in person before? We we haven't had to cross that
Speaker 1: bridge just yet. There are a couple of opportunities we're
Speaker 1: looking at right now where where we are asking ourselves
Speaker 1: that question. All of the investments we've made since Shelter
Speaker 1: in Place have been with companies that we we've known
Speaker 1: for a long time. We've had relationships with the entrepreneurs.
Speaker 1: They're part of themes we've been investigating for a while.
Speaker 1: So so we haven't had to address that issue just yet.
Speaker 1: But depending on how long this goes on, there's definitely
Speaker 1: a scenario where that question won't come up and we'll
Speaker 1: have to figure it out. But you know, the the
Speaker 1: um in terms of the makeup and the composition of
Speaker 1: the entrepreneurs and the themes that that part hasn't changed
Speaker 1: too much. Again, we we tend to be a pretty
Speaker 1: thematic firm, and so we have a handful of of
Speaker 1: you know, product market spaces we we go very deep
Speaker 1: into and and invest in and and we you know,
Speaker 1: we're excited about the themes we've been investing in and
Speaker 1: the entrepreneurs that are are building companies in those categories.
Speaker 1: So so that part hasn't actually changed too much. It's
Speaker 1: just the way we're you know, doing diligence and and
Speaker 1: how we're interacting with them purely over video. That's been
Speaker 1: the biggest, probably the biggest shift. It's X, right, So
Speaker 1: it stinks or its sticks, well, depending on depending on
Speaker 1: the day, if there's too many of them. But it's
Speaker 1: like here's a little bit of both. Yeah, Well we're
Speaker 1: you know, we're kind of professional meeting takers. You know,
Speaker 1: if you look at the calendars of the average investor,
Speaker 1: we're you know, spending many many hours a day, um,
Speaker 1: you know, meeting with entrepreneurs doing diligence on those those investments. Um.
Speaker 1: And so we spend huge portions of our of our
Speaker 1: lives just literally sitting in conference rooms meeting with people.
Speaker 1: And so that part has shifted a lot. And it's
Speaker 1: hard for sure, because you know, there's um, you know,
Speaker 1: there's a belief and I think there's a lot of
Speaker 1: logic to this that um, you know, you you have
Speaker 1: to develop a relationship, you have to have chemistry with
Speaker 1: the entrepreneurshi're gonna work with, because we're typically in these
Speaker 1: investments for eight ten years, it's not longer. And the
Speaker 1: only way you can really navigate the inevitable ups and
Speaker 1: downs what happens is if you have a really good,
Speaker 1: you know, relationship and great chemistry with this person. I mean,
Speaker 1: it's it's easier to get divorced than it is to
Speaker 1: get rid of your investor. And so we take these
Speaker 1: relationships very seriously. We only make a handful of investments
Speaker 1: every year. Well, let's continue our conversation with Roger Lee,
Speaker 1: general partner at battery ventures. Who I'm so glad it's
Speaker 1: still with us because probably listening to us here about
Speaker 1: thousand dollar haircuts, He's like, I thought this was a
Speaker 1: serious radiation. I'm done with these two was joining these
Speaker 1: two idiots, Jason. I can't believe you only spend a
Speaker 1: thousand dollars and was great. I would expected a lot more. Yeah,
Speaker 1: I appreciate that. Yeah, it sounds good. I'm just gonna say, Roger,
Speaker 1: like almost what every week, every every other week, every
Speaker 1: other week? Yeah, but I mean it's like I go
Speaker 1: to Lenny, you know, like down the street on Third Avenue,
Speaker 1: and many times all right, it's like twenty bucks a pop.
Speaker 1: All right, let's bring in Rogers, all right. So Roger, Um,
Speaker 1: I mean, you know, one of the things in all
Speaker 1: series is like I haven't been to Lenny. I haven't
Speaker 1: been doing all the normal things that I've been doing.
Speaker 1: And you know, I do think about sort of where
Speaker 1: our lives were, especially as consumers, and all the things
Speaker 1: that we had done when we traveled, whether it was
Speaker 1: me and my family staying in an airbnb, whether it
Speaker 1: was Carol and I going to the airport and hopping
Speaker 1: in an uber. You know, these marketplaces that we had
Speaker 1: come to rely on so much. I do wonder, as
Speaker 1: an investor in you know a lot of names around
Speaker 1: this sector as well as someone who is thinking about
Speaker 1: where to put future capital, how do you think of
Speaker 1: that business model going forward? Yes, so, we we've been
Speaker 1: active investors in marketplaces for a long time, over a
Speaker 1: decade now, and continue to think that that marketplaces well,
Speaker 1: you know, fundamentally changed the way consumers lived their lives
Speaker 1: on a day to day basis. So we we are,
Speaker 1: you know, very enthusiastic about these businesses. But I will
Speaker 1: say the past year has been a really really interesting time.
Speaker 1: There's been a real kind of Darwinian separation between between
Speaker 1: the winners and the losers, and that's been you know
Speaker 1: taking place in both the public markets and the private markets.
Speaker 1: You're seeing you know, companies that um, you know, really
Speaker 1: aren't aren't well known and aren't as well understood performing
Speaker 1: extraordinarily well, whereas some of the really big successful ones
Speaker 1: like the Ubers and the lifts that really have really struggled.
Speaker 1: And so as investors, we spent a lot of time
Speaker 1: trying to figure out what what is that recipe for success?
Speaker 1: What it what is separating the winners and the losers.
Speaker 1: So we we look a lot at the business model efficiency.
Speaker 1: We think there's been a very strong investor change and
Speaker 1: sentiment from growth at all costs. This was the era
Speaker 1: of uber and lift, and we work a couple of
Speaker 1: years ago to now in an era of really efficient growth. Uh,
Speaker 1: and this is um you know, I think separated a
Speaker 1: lot of the winning marketplaces from the losing marketplaces, and
Speaker 1: the ones of adopted that mindset, the efficient growth mindset,
Speaker 1: have performed a lot better. So we spent a lot
Speaker 1: of time trying to find, you know, those companies and
Speaker 1: trying to really focus on that. Do you think something
Speaker 1: like an uber and left their viability longer term is
Speaker 1: questionable or is it just a pause right now because
Speaker 1: of the backdrop. No, there's definitely no existential question. They
Speaker 1: will continue to survive. I just think that their business
Speaker 1: model is harder to execute on and there's real questions
Speaker 1: about how profitable it is long term, and and the
Speaker 1: public markets have you know, have shown that to you know,
Speaker 1: have ever reflected that in terms of their stock performance?
Speaker 1: And there you know, the multiples they trade at our
Speaker 1: a fraction of what some of their peers in in
Speaker 1: you know, the marketplace world trade at that you know,
Speaker 1: UM have performed much better over the past year and
Speaker 1: traded much higher multiples because they're running far more profitable companies.
Speaker 1: And so I don't I don't think they're going to
Speaker 1: go away, but I just think they really need to
Speaker 1: shift the operating model to be much more efficient businesses.
Speaker 1: Talking about shifting models, Roger, you know, I do feel
Speaker 1: like with retail, I do wonder if it's a bit
Speaker 1: of a Barbell approach where people who can afford to
Speaker 1: will pay for companies that UM coincide with their beliefs, right,
Speaker 1: and whether it's their impact on the environment, who they hire,
Speaker 1: you know, UM and so on, or who's doing their manufacturing.
Speaker 1: And then at the low end, I mean, the last
Speaker 1: couple of weeks, the last thirteen weeks with the virus,
Speaker 1: you know, we've seen a reminder of the inequalities in
Speaker 1: our world, and there's a lot of people who are
Speaker 1: at the lower end of the wage spectrum, in the
Speaker 1: economic spectrum, and so they need those retailers, whether it's
Speaker 1: a Walmart or so on. Is that how you see
Speaker 1: in terms of the consumer space, retail space, does it
Speaker 1: continue to move along that line, I think so that
Speaker 1: what we've really seen is the separation is much more
Speaker 1: to do with how asset heavy the retail businesses and
Speaker 1: the ones that have really struggled, the ones that are
Speaker 1: the clearing bank or seeing the ones that that have
Speaker 1: really underperformed publicly are the asset heavy retailers, the big
Speaker 1: physical footprints and and um, you know, large kind of
Speaker 1: fixed costs and how they operate, whereas the ones that
Speaker 1: have thrived are really asset light, if not totally digital. Uh.
Speaker 1: This is you know the obvious examples here Amazon and
Speaker 1: Wayfair and businesses like that that have performed extraordinarily well
Speaker 1: in this timeframe. Um, And so that that seems to
Speaker 1: be the kind of the clearest dividing line. And these
Speaker 1: were you know, trends we were already seeing over you know,
Speaker 1: over the last you know, ten plus years. But what's
Speaker 1: really interesting is that, you know, it took us ten years,
Speaker 1: if not fifteen years, to get to ten percent you know,
Speaker 1: penetration of e commerce and total retail, and in the
Speaker 1: last twelve weeks alone, that numbers doubled. And so, uh,
Speaker 1: if there's been one seismic shift that we've seen from
Speaker 1: shelter in place. It's just the adoption of you know,
Speaker 1: digital online s us is from e commerce to education
Speaker 1: to telehealth, all of these things that's been really redefined
Speaker 1: over the past couple of a couple of months here,
Speaker 1: and we've we've taken five to ten years of of
Speaker 1: you know, experimentation and shifted it into one quarter. And
Speaker 1: so all the companies that were kind of digitally native
Speaker 1: or really benefiting, the ones that that had you know,
Speaker 1: old world assets, I think are really struggling. So Roger
Speaker 1: want to close our conversation just by asking a question
Speaker 1: We've been asking a lot of the smartest people we've
Speaker 1: had on this program, uh, and we've talked a little
Speaker 1: bit about sort of the practice of what you do
Speaker 1: and and maybe the theory as well in terms of
Speaker 1: your investment thesis. But I do wonder on the other
Speaker 1: side of this, and this was a question we started
Speaker 1: asking in the pandemic, but I think it's even more
Speaker 1: relevant given what we've seen over the last couple of
Speaker 1: weeks with some of the civil unrest and some of
Speaker 1: the really deep thinking that we're doing about society. What
Speaker 1: do you think changes permanently on the other side of
Speaker 1: this as we get back to work or back to
Speaker 1: the office as it were, and we get back into
Speaker 1: sort of thinking about who we want to be in
Speaker 1: what we want to be. What do you think sticks Well,
Speaker 1: I think there's a macro and a micro to that.
Speaker 1: I think on the macro you're going to see a
Speaker 1: far greater distribution of opportunity and a far broader distribution
Speaker 1: of capital. Historically, innovation, you know, is very closely correlated
Speaker 1: to GDP, and so most of the capital was concentrated
Speaker 1: in the big you know, kind of um, you know,
Speaker 1: kind of GDP centers of the country, so you know,
Speaker 1: Silicon Valley, New York City, places like that. And if
Speaker 1: you look over time, that's shifting, and that's now being
Speaker 1: accelerated by work from home and people being comfortable working
Speaker 1: over video. So more and more opportunities are going to
Speaker 1: shift out of those markets as people look for less
Speaker 1: dense places to live, more affordable places to live. And
Speaker 1: so I think you'll see you know, really really exciting
Speaker 1: businesses being built all over the place and not just
Speaker 1: in some of these kind of dense you know, GDP
Speaker 1: and innovation quarters. I think that that's going to the
Speaker 1: big macro shift, which which is very healthy, and I
Speaker 1: think at the micro level, UM, what I hope and
Speaker 1: what I expect is that every company will take a
Speaker 1: very hard look at their own hiring products, at their
Speaker 1: own kind of hiring and inclusion policies, and make a
Speaker 1: really concerted effort towards, you know, finding more diverse candidates,
Speaker 1: implementing the many rule UH and ensuring that people of
Speaker 1: all color and backgrounds have the ability to be successful
Speaker 1: inside their companies. And I think that will have an
Speaker 1: equally profound impact. You've been listening to Bloomberg Business Week Extra,
Speaker 1: and be sure to tune into Bloomberg Business Week Radio
Speaker 1: Live Monday through Friday at two pm Wall Street Time
Speaker 1: on Bloomberg Radio. I'm Carol Nasser and I'm Jason Kelly.
Speaker 1: This is Bloomberg