Thrive Capital's Kushner and Zaki on the VC Outlook

Yeah, so first off, thank you so much for having us. A decision that we wanted to not look like anyone else, we just wanted to be ourselves. And when we started the firm, one of our early investors spoke to us about how as firms scale, they start to lose a sense of who they are. And I had this conversation with him where I said, why don't I actually tell you who I want to be in 10 years? Why don't we just start there? So we took a very first principles approach to what we wanted to do, which was we wanted to be a firm that built companies and invested in companies at any stage, in any geography, and in any sector. And this was deeply controversial at the time because in 2011, when we raised our first institutional fund, you were either an early stage founder or a later stage fund, you're either a consumer fund or a... and really help them realize their full potential. And as we think about the firm today, it really works as a flywheel. We are building stuff ourselves, which really enables us to appreciate how hard it is to actually build. We are investing in early stage companies, and as a result of us building those early stage companies, actually want us to be their partners. And we also have the opportunity to invest in later stage companies because when we approach these founders who are building these really unique, already scaled businesses, they view us very similar to them. And then the fact that we get those incredible lessons from all the names that you mentioned, we can actually take those back to the things that we're building and the things that we're...

Yeah, I think we feel very grateful to have incredible partners at Thrive, and we feel really fortunate to work for incredible institutions that do a ton of good in the world: not-for-profits, university endowments, foundations, hospital systems. But when we started, many of them didn't really understand our strategy. But we had always believed that building something that worked in a flywheel, that actually enabled us to get these insights, get these lessons, to really ultimately be the most meaningful partner to our founders, was what we wanted to accomplish. And we figured it would enable us to... a new type of venture technology investment firm to be built. I think venture a long time ago was kind of viewed as a cottage industry. Maybe you're backing science projects. The life of a company was three to four years. You were maybe trying to sell it to Cisco. You were trying to just get through this one milestone. And now we're seeing that technology is not just a niche asset class. It is this transformation across every industry. And it's growing from just trying to build companies for a couple years to transforming industries over 10 years, sometimes decades. And when you kind of take that lens, this idea of just focusing on seed or just focusing on finance or healthcare or infrastructure misses a picture of what's happening behind these trends. And then these founders who want to... an investor, a partner who understands all the stages, and not just because the firm says they do it all, because even if a firm says they do it all, they have different teams: they have a seed team, they have an early team, they have a growth team, they have a public team. And so it's a really disjointed experience for the founder. And so what does it mean for us to align and not just say we're here for part of the journey, right, for all of the journey? And also, when you're trying to identify these trends, if you're just looking at what's right in front of you because my firm says they do this or we only look at this area, you only have one piece of the puzzle and maybe you're missing the broader picture of what's happening, which is a multi-decade, maybe a century-long trend around this ripoff technology transforming every aspect of the economy.

Amount of time doing, but I think the whole firm spends time on this. I think sometimes you talk to limited partners or people ask, is a former founder a better investor or a classically trained investor lead to better results? And I think our answer is both. These businesses are becoming much more complex. I think the investor needs to be much more multi-dimensional around it. And I think what's also really important is it allows you to take on more ambitious opportunities because as technology expands from just impacting other tech industries or selling tech to other tech companies, but going across industries, sometimes to innovate in healthcare and financial services needs to be bigger from day one. It needs to be multi-stakeholder. We need to work with the existing industry as well as the new innovators. And being able to build... on the stage, how do I get one company from one stage to another? You're going to bet on companies that have inflection points in six to 12 months. And sometimes that's true. Some of the most innovative companies take a couple years to build. And if you're really forced to think on a short-term horizon, you might be missing some of the most ambitious, exciting companies. And that's allowed us to innovate, I think, in financial services and healthcare right before most industries, we're investing behind that, or at the intersection of hardware and software, like investing companies like SpaceX, but earlier stage businesses now that are innovating in hearing aids or surgical devices.

Technologically, technological innovation is not monolithic, or these breakthroughs aren't monolithic. And so as we think about sometimes the consumer space, it's less around what do we think is most interesting consumer today, what are some of the most exciting and most powerful trends happening broadly? And I think one of the things that's really interesting is the growth and the power of the creator and having a direct voice to individuals. And that can be around already recognizable individuals like Kim Kardashian, Skims, which we're investors behind, but also new people coming up on new mediums and platforms. And we invested in Patreon and Twitch and things that enabled a whole new category of individuals to lead and have an authentic voice.

Developers and irritable and Slack are selling to enterprises. And we think brand coupled with an extraordinary product and a great go-to-market is important across all industries. And I think people focus on our investments in things like Instagram and Spotify and Twitch, but at the end of the day, there are a ton of shared lessons and learnings across all these businesses irrespective of the end customer.

I think for all of our businesses, we try our best to... that I mentioned, they had extraordinary products which enable them to ultimately realize incredible go-to markets. Those that have existing distribution, though, where a business that they're ultimately selling is very authentic to who they are, can lead to really extraordinary outcomes as well.

Multiples have kind of evolved over time, and it feels like everyone's obsessed right now talking about the multiples, the more prices trade, which we get, it's been a big shift, it's obviously jarring. It's things that we're aware of, but we're also aware that valuations of companies are multiples times earnings. And we spend a lot of time really thinking about what are the earning power of businesses and the real core operating metrics driving these businesses, not for the next quarter, not even for the next year, but over the next five years. And when you're trying to think about the next five years and the opportunities for companies around that to exit and grow and create value for their shareholders and for the employees and the founders who are building it, a model is not going to tell you that answer. It's too far out. It's really the market, the dynamic, the product, the... growth rates, which I think is one of the things that's challenging about venture. I think you have to have macro conviction: what's this big tailwind that I'm going to invest behind? But then actually have micro precision in the individual company. It could have been in the 90s and say e-commerce is going to be a really big deal, but if you didn't invest in Amazon or eBay, you didn't really participate in that trend in a meaningful way. And so how do you step back and identify the things that are really taking over? Which is why we try to keep this generous lens, be zoomed out, because we don't miss one of these really breakout trends. But at the end of the day, you have to make sure there's the building blocks, the environment, the setup, the team, the founder of the market to really get something out not just quickly but with real velocity to explode and take over an industry on the time horizons we're talking about. And that's where I think a lot of the founding and the building lens tied with really trying to be...

We're seeing kind of the intersection of software and hardware come together in new ways. We used to think about software as one element and hardware as a different element, and then they would try to come together. And now we have companies from day one thinking about building around this. And I think you could have seen Tesla and SpaceX being one of the first innovators in that, but we're really seeing acceleration now with all the founders who are coming through the door innovating across a lot of these different dimensions. I think healthcare is also having an interesting moment right now. Obviously we've been talking about digital health for a while. I think it's going to be kind of a reawakening of digital health post-COVID. One, physicians have a lot more interactions with the new ways that we can treat patients, but also patients have gotten a lot more comfortable with it, right? And it's not so formed because we were...

Yeah, we're starting to see a lot more on the medical device side in particular. Again, I think the Moore's Law components of hardware and chips has kind of reached a point that is actually enabling a greater percentage of people to ultimately focus on these problems. But I think coupling... computer on wheels. And I think as we start to think about lots of other things that are deeply impactful in our lives, we'll start to see a lot more transformation in that capacity. And one interesting example I think is Apple. Obviously think about as a hardware company, but increasingly it's a software ecosystem that keeps people tied into it as well.

No.

We have not spent time on that, so don't think we're the best to speak to it.

Yeah, I think from our lens, we're looking for technology companies. We're stage agnostic. I think increasingly we saw in the last couple of years a lot of those companies have gone public, right? So we care less if it's a public or private company. We want to find really innovative technology companies that are still early in their growth curve and kind of have it leveled off. And sometimes companies wait a long time to go public. In that journey, we can participate as private investors. But just because an interesting company... maybe you could look at Shopify went public in 2015, you know, two billion dollars. Is that a company that would be interesting to participate in and kind of follow its journey? Of course. And so we kind of think the distinction between...

We invested in Zoom at the IPO. Okay, because again, we thought Zoom was very early in its life cycle, incredible product market fit, and was very early in its adoption. But it's not something we do often. And when we do it, the return threshold for what we invest in on the public side is no different than what we do on the private side. We are technology investors, and we're very focused on making sure that we're working with really exceptional founders that we know extremely well that are building...

Yeah, Ryan is really an exceptional founder and has built an incredible product that has done exceptionally well for its end customer. And he's really scaled a business to an incredible point. As a firm, we've had a founder-first mindset. We've always been of the belief that we are investing in people, and those people are ultimately the ones that deserve all the credit. You won't see us on Twitter. We're not blogging. I think this is the first thing I've done like this in 10... think this thing could be so much bigger and how do I bring in someone who's exceptional? And he did exactly that. So this is his decision. He came to us, and we wanted to do our best to support him in that decision. And he's still full time at the business. He's the chairman of the business. He's probably working as hard, if not even harder, than he was prior. And we feel really fortunate to be partnered with him and with Jared Kaplan, the new CEO of the business.

I think every situation is unique, and every situation is specific to a specific company. So I think it's a hard thing to speak to. I think some founders in these...

I'm on the board of Oscar. And given that it's a public company, I'll let them speak for themselves.

I already see the phones going up. Yeah, getting called out by Kanye on Instagram was not on last week's bingo card for me. But you know, as a firm, we're incredibly heads down. We do our best to keep to ourselves and are entirely focused on doing whatever we can to be the most meaningful partner to our founders and supporting those founders. And we feel really fortunate to work with that business in particular and to support Kim and Jens and Emma and all the people involved. And feel very grateful for that on a personal level and a human level.

Is this TMZ or is this Daily Mail? Come on. Come on, come on. Inquiring minds want to know.

We are heads down and focused as a firm, and I think we've done a really good job of avoiding distractions. And I think that is our ethos as an organization. And we just keep our heads down and stay focused.

To have him and to learn from him. And I think what we're most excited about the idea of him being involved in the firm is a lot of our founders are building really audacious businesses. And having the capacity to spend time with him is something that those that have already done it have benefited tremendously from, and those that will in the future will benefit tremendously from. And we feel really honored to have him involved and truly humbled.

Yeah, so for all the college students who are watching this on their Bloomberg terminals right now... But my advice would not be what major you would take. You are not orienting the conversation towards, hi, this is who I am and this is what I've done. And my advice for anyone would just be: these are the friends that you're going to make for the rest of your life.