On this episode of Okay, Computer, Dan and NEA partner Ann Bordetsky discuss why Ann is more optimistic about venture’s outlook compared to the rest of the market (1:30), AI’s breakthrough moment with ChatGPT & how the big tech giants will impact the AI industry’s future (7:00), why it’s not too late for Meta to course-correct (11:00), if Apple can achieve a platform shift with its expected AR headset (13:30), financial reality bringing a harsh end to the era of “magical thinking” (18:00), the rise of fractional work and Gen Z’s differing demands from tech (26:00), where Ann sees the biggest innovation arenas this year (33:00), and if Twitter will be the downfall of Tesla (40:00).
Check out the articles discussed in the episode:
-Ann’s Medium post: When doesn’t change in 2023
-The Information: Musk’s Twitter Saw Revenue Drop 35% in Q4, Sharply Below Projections
-NY Times: The Crypto Collapse and the End of the Magical Thinking That Infected Capitalism
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Show transcript:
Dan Nathan: [00:00:38] Welcome to Okay, Computer. I am Dan Nathan. I am here with Ann Bordetsky, she returns to Okay, Computer, she is a partner at NEA. Welcome to our new studios here at Current in New York City. [00:00:50][11.5]
Ann Bordetsky: [00:00:50] I’m so glad to be here in person. This place is amazing. [00:00:53][3.0]
Dan Nathan: [00:00:54] It’s pretty cool, right? [00:00:54][0.6]
Ann Bordetsky: [00:00:55] Yes yes [00:00:55][0.7]
Dan Nathan: [00:00:56] All right, so here’s the deal. Last time you came on the pod, I think it was late last year, we talked about a lot of things that I wanted to talk about. I kind of peppered you with a bunch of questions and I was like, really, actually happy to get a bit of pushback. You had a couple unpopular opinions you thought, as somebody who is a former operator in the Valley at some very innovative companies, Uber, Twitter, Rival, and now a VC starting back in 2021, you started your career at NEA? [00:01:18][22.2]
Ann Bordetsky: [00:01:18] Yeah, that’s right. Two years in, started at the peak. [00:01:23][4.8]
Dan Nathan: [00:01:24] Yeah, you got it right in there as crypto, as SPAC, as like unprofitable tech IPOs. They were just overtaking the financial world. You were like, I’m going to VC. [00:01:34][10.5]
Ann Bordetsky: [00:01:35] You know, the funny thing about crossing over during the peak, going from the company building the side [00:01:39][4.2]
Dan Nathan: [00:01:39] First of all you didn’t know it was the peak [00:01:39][0.0]
Ann Bordetsky: [00:01:40] Yeah, we thought it would go on forever, you know, wishful thinking there. But as a former operator, when I first went over to the venture side, it was kind of wild. I mean, I found myself in so many situations meeting with founders and just, you know, internal conversations about company that like, how does this hold up? Like how how does anyone justify these valuations? I mean, they’re just bonkers. They’re not rooted in real numbers, right? And everyone played the game and the ecosystem participated in this up and up and up market. And so none of us are immune to that. But I think the last couple years are just a really important lesson. And like first of all, trust your instincts. The fundamentals really matter in company building. I think now we’re being reminded of that in a really painful way in 2023 of like, yeah, startups are hard. It should be hard to raise your next round. Like passing through that crucible moment helps drive discipline in companies, helps founders really clarify their business models and the choices they’re making around product and go to market. And the hardship is actually part of how we help entrepreneurs kind of craft and hone and polish off their companies so that they can become enduring businesses and can become those publicly traded like iconic names that we all talk about. And so one thing I’m excited about going into this year, and I frankly found myself saying this to a founder earlier today, I’m like, you are so lucky to be starting right now. Not three years ago, not two years ago, not even 12 months ago, but to be starting today [00:03:12][91.7]
Dan Nathan: [00:03:13] At a reset you mean [00:03:14][0.1]
Ann Bordetsky: [00:03:15] At a reset yeah, because the discipline that you will gain by starting in this time is going to help you increase the probability of success for your company. [00:03:22][7.7]
Dan Nathan: [00:03:23] And when you think about VC backed companies and the timing of when they start and there’s plenty of examples post the dot com boom and bust and then post the financial crisis, it was to your point a great time to start companies that the interesting thing right now is that we really haven’t had a recession. We haven’t had something blow up. You could say there was no black swan events that occurred in and around the dot com situation. Everyone knew that there was an investment bubble that kept on getting bigger and bigger and sooner or later it was going to pop. It was the same thing around a lot of financial assets into the financial crisis. What happened here is that interest rates as a result of those prior to crises were too low for too long, pushing everybody out the risk curve. And so the one thing that is really different about 2023 versus 2009 10 versus 2003 04 is that interest rates are much higher than they were back then in both instances. And the other thing is that venture is so much bigger right now. Think about all the capital that was raised into 2021 and early 2022. And so those two dynamics to me could make for a VC winter or startup winter or something like that. What do you think about that? Does that make any sense to you? I’m sure you’ve gone back and you’ve looked at those prior two periods and, you know, plenty of people who were successful at starting businesses in those periods, but there was a lot more that failed. [00:04:44][81.5]
Ann Bordetsky: [00:04:45] There’s a lot there, and I’m trying to parse that myself as they think about just how bad is it going to be for the next couple of years. I think I’m slightly more optimistic about what’s going to happen in the venture ecosystem and venture more broadly for a couple of reasons. One, I think venture as an asset class and as an industry growing makes sense. The surface area of what technology companies, specifically software companies, can do around the world and across different industries, It is so broad right now and there is so much opportunity globally within specific verticals, automation of specific industries. The fact that venture is growing as an asset class, even if it wasn’t for the bubble that we’ve been in, essentially would still make sense based on the fundamentals of how much opportunity there is to build technology companies around the world. So I don’t think that’s going to go away. I think, though the disconnect right now is that while the world is sort of coming out of the perma crisis that we’ve been for the last couple of years, if you look at all of the different market outlooks, there is generally consensus around the fact that if we do have a recession, it’ll be a relatively mild recession. A lot of market volatility should fade because that expectation has already been priced in. Great. But the disconnect, if you’re in a startup, building a company right now is the effects of that. We’re still just beginning to come to terms with what that means in terms of venture funding for companies that are fundraising now and six months from now and 12 months from now. And so I think it will be tough for companies to fundraise in the next 12 months. But I’m optimistic, like I think for the right kinds of companies, there will be a lot of investor excitement and interest, and there’s plenty of capital in the ecosystem over the next couple of years, even if the pace of slowing down over the course of 2023. [00:06:33][107.6]
Dan Nathan: [00:06:34] Yeah so when you think about the end of last year, I mean, a lot of these machine learning models, I mean this chat GPT and there was a couple other things that just kind of really took the tech world by storm and it’s great to hear people talk about optimism. You need to have optimism, especially if you can invest early stage in things that are not going [00:06:48][14.2]
Ann Bordetsky: [00:06:48] Well venture is all about taking risk, that that that’s the business we’re in. We are taking risk in order to create something that hasn’t been built before and that could be really interesting and big and important. And we just have to take smart risks, right? [00:07:02][13.7]
Dan Nathan: [00:07:03] Yeah. So it’s interesting when you think of excitement around those sorts of innovations and just seeing this application, this chat GPT like take the World by storm. It’s funny, there’s a big debate about the best entrepreneurs are going to rush to these sort of models and figure out how to disrupt incumbents and do that sort of thing. But at the end of the day there was a whole host of articles, I’d say, in major publications over the last month or so, just saying that, you know, they even like Ben Thompson from Stratechery, it’s like it’s just going to be the big platform companies that basically harness these technologies and become more efficient and really broaden out their moats in a way. I’m just curious how you think about that, because it’s not so often that you have something that just comes onto the stage. Consumers can actually like physically use it right away, but there’s not going to probably be a lot of innovative startups that are going to be able to do it right now. I mean, just curious, do you see something different in that? [00:07:50][47.4]
Ann Bordetsky: [00:07:50] I think that Chat GPT in particular and conversational AI is a true moment of magic. When you put that in front of people, whether you’re creating an image or having a conversation and you see how different users react, even people who are not in tech, right? It is that moment of magic that tends to create really exciting companies like taking your first Uber ride, right? Like, Oh my God, I didn’t even know this was possible. This is great. Can’t wait to do it again, can’t live without it. And so I think that it’s incredibly promising. And the big debate and what I think most of us as investors are really trying to figure out don’t have a clear answer to that is who captures the value from this technology trends. So on the one hand, we’re all like quietly, you know, and to ourselves saying like, thank God there’s a new technology trend that we can ride. Because if it wasn’t for that, this might be a really depressing time for a venture. And so it’s great to have a truly technology driven trend and wave, an era that is opening up with AI and the fact that it has utility in consumer and enterprise, it has utility both things that are fundamentally creative, whether it’s creating games or movies or animations to boring, but essential industry is where you could potentially automate really laborious tasks, right, and work. The fact that it is so broadly applicable is incredibly exciting. The big question is who captures the value? And I do think that the big tech companies, they have so much cash on the balance books, despite all of the layoffs, they’ve got billions of dollars in cash on hand, whether it’s Apple, Google, Meta, Microsoft, any of them. They’ve got to make moves and they will make moves. And I think that they are going to supply a lot of the underlying infrastructure and developer tooling potentially for building AI enabled applications and software products. So we’ll be kind of like the new AWS. And the only question is will it be Microsoft, Will it be Google? Is Meta going to get in the game? I think there will be opportunities for startups in the application layer of AI, right? Taking the general models and the tooling that’s available and then honing that doing the last mile and getting proprietary data to make it really work for a specific industry or use case. [00:10:07][136.3]
Dan Nathan: [00:10:07] It’s so fascinating that you mentioned, will Microsoft get in the game? We know that they made this billion dollar investment in Open AI a few years ago and now they’re considering a $10 billion investment there. And when you think about their public cloud Azure and you think about Bing, which no one’s thought about in a very long time also, and all of a sudden you say if they really do have some sort of proprietary access to this technology, the way in which that they can unleash it across multiple different platforms, that maybe some have been nascent or they’ve been second or third players. If you think about Microsoft Cloud in particular there. So really interesting stuff. And I also suspect that any entrepreneurs who come up with some really dope application of it, they’re just going to get acquired by these big platforms. And the last one I’ll just say is that think about this. In late 2021, when Mark Zuckerberg repositioned Facebook to become Meta, they basically said that they’re going to spend tens of billions of dollars to pursue their vision of the metaverse. And if you think just a year later, in late 2022, that company had lost at its lows, it was down 70% or so from those highs prior year. But they also started reconsidering some of the spend after that market cap decimation. If you just think about this technology that we’re talking about is machine learning, some of those capabilities, what that could have done to kind of make their existing platforms a lot better, a lot more user friendly and offer different forms of growth. I’m just curious what you think about that, because Meta, at least on Wall Street here and here you are. You’re on my street. We’re not in Silicon Valley here. You’re in New York City. It seems like Wall Street is just stop talking about Meta right now. It was a really exciting story for a while. And then as soon as he kind of took that hard turn, it’s like Sheryl leaves and it’s like not a story anymore. [00:11:49][101.9]
Ann Bordetsky: [00:11:49] Yeah, You know, Meta, in that moment, I think of all the majors, it is really, truly vulnerable as a company because I think it’s like 3 billion people today. [00:12:00][10.5]
Dan Nathan: [00:12:00] Yeah, 3 billion. [00:12:01][0.6]
Ann Bordetsky: [00:12:02] Have some sort of Meta related account. That’s an incredible position to be in as a company. And so we can’t really discount Meta in any way. When you have 3 billion active users on this planet, that’s an incredible power base rate from which you can build almost anything and it’s not too late for them to course correct in terms of the future of the company. But yeah, they probably placed maybe the wrong bet with the metaverse and going all in on that. I think that it’ll be hard for them to save face on that and do something else. And I think they’re the most vulnerable because they’re getting pressure from all sides. If you’re a founder that’s building in consumer and consumer social, you realize that they’re vulnerable for the first time. They can’t take you out by buying you. They’re less able today than they were in the past to just copy and paste whatever you’re doing. So you’ve got some whitespace now to build. And Google and Microsoft are very well positioned on AI. Apple is launching their next reality headset this year. Right? Like, I mean, let’s see how that goes. But it’s going to be very, very hard for Meta. And I think they are bleeding a lot of talent that they need to move the company forward. So I think they’re in a rough spot. [00:13:10][68.1]
Dan Nathan: [00:13:10] It is amazing that you said that you see them as potentially vulnerable and I think the stock price reflects that. I think the sentiment around their products and just kind of a lot of the brain drain that they’ve had from there reflects that Apple is just a fascinating company. They keep their heads down. They’re never going to be first to market. I mean, could they have bought Oculus five years ago? Could they have made some big push? You would have never even seen it hit their balance sheet to do all that. They just kind of slow and steady. And I do think that’s interesting that I think it was The Information was reporting that they have been widely known. They’re working on a very high end, maybe $3,000 mixed reality headset, but there’s a lower end one, maybe the price of an iPhone. And when you think about how this company has been able to maintain their ASPs, like the high price point in the margin that they have on their hardware relative to all their competitors, and they just introduced this new watch that costs as much as a phone. I mean, they literally can just keep. How many pairs of AirPods have you bought over the last five years? [00:14:01][51.0]
Ann Bordetsky: [00:14:02] And lost I do not want to admit. [00:14:04][2.0]
Dan Nathan: [00:14:04] Probably $1,000 worth. And we just keep buying them and buying them. So it’s really interesting. I think actually that might be one of the most interesting stories in tech as far as the big platform companies are concerned is what they introduce as it relates to AR VR this year. Are you seeing a lot? [00:14:18][13.9]
Ann Bordetsky: [00:14:18] We buy a lot of Apple products, but we also buy PlayStations, right? And so I think consumers [00:14:23][4.2]
Dan Nathan: [00:14:24] Do you play games. [00:14:24][0.4]
Ann Bordetsky: [00:14:25] I don’t, my family does. Everyone but me [00:14:27][2.5]
Dan Nathan: [00:14:28] Do you know I’ve never owned a console in my life. [00:14:29][1.6]
Ann Bordetsky: [00:14:31] I didn’t grow up with one so [00:14:31][0.2]
Dan Nathan: [00:14:31] In like in the nineties, I had like probably that and I had two teenage daughters and we have never had a gaming console in our house[00:14:38][7.0]
Ann Bordetsky: [00:14:39] My parents would never allow it. Like classic family. [00:14:42][3.1]
Dan Nathan: [00:14:42] Wait, you didn’t have you didn’t have cable either[00:14:44][1.7]
Ann Bordetsky: [00:14:45] Exactly like, whatever you can get, just put the antenna up. And I just remember being so excited, going to a friend’s house to play Nintendo. It was like the forbidden fruit. I think gaming is amazing and I think it has much broader appeal now in terms of the types of audiences that it can serve and age demographics. But I think the reality is like there is always an appetite from consumers to spend on entertainment, on gaming, on media and exciting new experiences. So Apple does have to bring that price point down. I don’t know how many people are going to buy a $3,000 mixed reality set, but if anyone can do it, it’s Apple. And I think they have to push in that direction because they need to create some kind of platform shift for themselves to maintain relevance and to build new applications and to continue to compete essentially for consumer attention. [00:15:30][44.5]
Dan Nathan: [00:15:30] We’re just talking about monthly active users on Facebook’s platforms. I mean, Apple has over one and a half billion iOS installed devices around the world. And while the growth has slowed fairly dramatically, it’s a pretty remarkable number, especially considering that most of those people have their credit cards in there. We haven’t even talked about the financial crisis. [00:15:49][19.0]
Ann Bordetsky: [00:15:51] Apple Pay is for sure the quiet winner of the last probably five years. Everyone uses Apple Pay now. It’s the product that when it first came out, people said like, why do you need it? I can pull out a credit card. It’s not a problem. Why would I need Apple Pay? And now it’s the default payment method. [00:16:06][14.9]
Dan Nathan: [00:16:06] I think it’s excellent. [00:16:07][0.4]
Ann Bordetsky: [00:16:07] The power of the install base. [00:16:09][1.2]
Dan Nathan: [00:16:09] Yeah, but it makes me think that back. I remember a few years ago. I’m a heavy podcast listener, not just a podcaster. And I remember like the Cash app ads were on every other podcast that I listened to. It was just amazing. I just didn’t know anybody using the Cash app, you know, everyone was using Venmo and then peer to peer thing is a different thing. The point of sale is a different thing, and I think Apple is probably killing it at point of sale. And then when they get the peer to peer thing down and there’ll be some application that causes everybody who’s got an Apple device to start doing that, then it’s all over. [00:16:39][30.1]
Ann Bordetsky: [00:16:39] I think there’s something interesting about trying to get out of the tech mindset and into the consumer mindset. If you work in venture, if you work in startups, we are so saturated with startups and ideas, every place feels incredibly crowded. And so it’s easy to fall back into thinking like, like, does anyone really need this? Right? But I think in the eyes of the average consumer, Gen-z want something completely different. They want their own stuff for everything. They want to connect in different ways. They want to shop in different ways. They don’t even want to use periods. Exclamation marks are expensive to them, you know, no thumbs up. You know, that’s that’s definitely a microaggression to them. They want their own stuff and they want to live in a way that is relevant to them. And that means there is room for a new generation of companies across some enduring categories, right, of consumer product. And in general, I think consumers are always excited about like, Can you make my life better? What’s a new, exciting gadget that I can get? Is there an immersive experience I haven’t tried yet? Whether it’s physical and in the real world or digital, like there is appetite for more from consumers. And so I think we get a little bit jaded and tack will the new new thing work? But you know what? I think Apple will be able to succeed with a mixed reality headset. They will figure it out. They know what consumers love and they’re willing to put in the work to design products that are truly magical. I’m excited for them to launch something. [00:18:03][83.4]
Dan Nathan: [00:18:03] All right. You just said magical. And I want to kind of segway here. That was an op ed in The New York Times a couple of days ago. It was called The Crypto Collapse and the End of the Magical Thinking that infected Capitalism is by a Harvard professor Mihir Desai Harvard Business School and the Harvard Law School. I mean, that’s a pretty good combination. But there was a quote in there I thought was really interesting. The unwinding of magical thinking will dominate this decade in a painful but ultimately restorative way, and the unwinding will be most painful to the generation conditioned to believe these fantasies. He’s talking about that Gen Z that you just mentioned, that they have this sense of entitlement. They figure like if it’s out there, they can have it and they can do it under their own terms. That’s me recategorizing the way that you just talked about this new consumer behavior, and it’s funny because, listen, I’m an old man. I’m a 50 year old guy. Growing up when I did in the eighties, we just didn’t have a sense of entitlement to things, you know what I mean? And so it’s really funny that kids today are born into having a smartphone. They’re born into having digital payments thing. They have an Amazon account, they have an Uber account, you have a seamless account. They don’t know the value of a dollar. So I think that’s a really interesting thing. [00:19:12][68.9]
Ann Bordetsky: [00:19:12] I think that’s like the modern day equivalent of like back in the day I used to walk ten mile to school in the snow uphill both ways. [00:19:19][6.4]
Dan Nathan: [00:19:19] It is a little bit old man yells at cloud. But I think this is a really important theme that the more we become reliant on technology, the less grounded that we are as far as in the real world, and I often say this and just think about all of these think pieces about all the demands then that workers in tech, in finance that they had in a rip roaring economy when interest rates were zero. There’s a lot of competition for people. And you know what solves all that? You know, what solves this back to work thing is a good old fashioned recession. And you said something earlier that I thought is interesting. The consensus right now is that we are going to only have a soft landing. And if you take out the recession that we had into this black swan event, which was the pandemic in the spring, let’s call the first half of 2020, we haven’t had a recession in like ten years. You know why? Because monetary policy has been really easy. The Fed or the powers that be are really worried about something deep and lasting. And so I’m not trying to be the pessimistic guy, but I’m saying there’s always something lurking out there that’s likely to change some of these new magical narratives. [00:20:21][61.4]
Ann Bordetsky: [00:20:22] Yeah, there’s been a lot of magical realism. I would say it’s like a genre of fiction, but it’s a good way of describing, I think, of what we were living through the last couple of years, almost like forgetting that there is some gravity to what we do ultimately in building companies and investing. And I think we’re going to come down from there and it will take a couple of years probably to get to a point where everything is sort of on the uptick again, and hopefully we’ll get there sooner rather than later. I don’t feel like I can predict how long it will take to get out of this dip, but I think at the end of the day, we’re in the business of making very long term bets. And I think if you’re a very short term investor, it’s tough because you’ve probably made some bad calls. If you’re investing on a 5 to 10 year cycle, right, and you’re investing in enduring categories and business models that work, you should be able to ride out this time, even if it is unpleasant. [00:21:14][52.5]
Dan Nathan: [00:21:15] Let’s talk about that. I mean, and again, I’m not asking you. [00:21:17][2.1]
Ann Bordetsky: [00:21:17] And we have to go back and I have to defend Gen Z because I’m rooting for them [00:21:18][1.5]
Dan Nathan: [00:21:20] Are you Gen Z I don’t even know I don’t ask people their ages and stuff like that, but. But, but it’s interesting when you think about, like, enduring business models. I mean, what I’ve seen over the last ten years is a lot of really useful business models, especially as it relates to consumers. Okay. And again, this is that sense of entitlement. And so VC has actually subsidized a lot of that when I think of a company that you worked at. Uber is one of the best inventions of the last 25 years. And I remember pre-pandemic, it was supposed to transform how cities are built, how we think about car ownership, how we think about public transportatoin. I mean, the list went on and on and on, and then all of a sudden we have this pandemic black swan event and nobody wants to be in a car with some stranger. Nobody wants to be in public transportation. I just think it’s interesting when you think about here’s a company when they went public, I think they had like $10 billion in sales, but massive losses. They’ve never had a profitable year. They’re expected to have sales of over $30 billion, but keep losing. Sooner or later, someone’s got to pay that bill. I think it’s also interesting, we talked, I think, at our last pod about Twitter. I mean, Twitter is one of the most unique social properties that exists. No one’s been able to come close to it for what they do. But again, this is not a profitable company. And we’re going to we can talk about this a little bit. I mean, maybe this isn’t self-inflicted or not. I mean, in this Q4, I think The Information was reporting sales are going to be down 35 or 40%. Now, obviously, again, there’s other things going on here, but some of these social models are seeing massive amounts of pressure right now. And it’s funny, I was just looking at my FactSet machine here. SNAP is expected to have sales period over period from third quarter to the fourth quarter, up ten plus percent or something like that. So that seems way too high. So it’s just kind of interesting to me that some of these models seem to be hitting a wall. Some of these companies that have never figured out how to turn a profit, There might be a reckoning for that in the next few years, too. [00:23:13][113.2]
Ann Bordetsky: [00:23:13] There’s a couple of things going on here. I think that there’s a bit of an earnings adjustment lag for a lot of these companies, right? So the tech layoffs are happening, but I think there’s still kind of an aftershock that will happen in terms of companies, whether they’re SAS or consumer, coming to terms with the reality that they will fall under their projections for earnings and revenue because of the recessionary moment that we’re in, and that isn’t fully reflected yet. So it will be more pain before it gets better. I think the reason that investors continue to have confidence in Uber, though, is because it is the undeniable global category leader in mobility and it has successfully over the last couple of years under Dara’s leadership, shifted from being kind of a one or two trick pony with Uber rides an Uber eats into becoming a platform business that can provide you any kind of mobility, whether it’s a car rental or a scooter, whatever it is, or a bus ride across the world. Right? And so they have to figure out the economics, and I think they’ll optimize that over time. But the reality is, like you do get a premium when you continue to grow and you establish global dominance in the way that Uber has, you buy yourself more time to figure out how to run that company toward profitability, and they’re moving in that direction. And I think the fact that we’re now in a moment where you can do layoffs and kind of get away with it is giving permission to a lot of tech companies to cut costs and run more efficiently. And I think, yeah, it’s not pleasant to do layoffs, but I bet a lot of those CEOs are thinking, thank God we can now actually restructure, lean out and reduce costs for the next couple of years. You brought up another interesting point about whether we should take stock price beating. Right. That we’ve seen for Meta and SNAP and other advertising based business models as essentially, you know, a signal that the advertising model will decline. And I really don’t think it will the advertising business will continue to grow because it always has throughout time. First, we advertise in newspapers, then we advertise on television. Right? Brands want to reach consumers. Businesses want to reach consumers, and they’re constantly looking for better and better mediums and channels to be able to do that. Google Ads is another great example. And if you look at the data around Gen z, it’s actually really interesting. They’re not rejecting ads, they’re rejecting Meta. That’s two different things. They don’t want to use Facebook. They still like Instagram. Maybe they’ll move off of that over time, but they’re happy to watch ads or provide their personal data to a service if they really like it. Because unlike the generations that came before them, they actually understand that that is what is happening when they use an app. They are digital natives. They understand that their data is going to that company when they’re interacting with an app and they’re actually more okay with that, I think, net net than prior generations. So ads are not dead. Exchanging your data for a free services is definitely not dead, and so it’ll just find a new format. [00:26:07][173.5]
Dan Nathan: [00:26:07] One of the big tests of that will be Netflix this year as they move into this ad supported model and especially as they try to tamp down on password sharing. So that’ll be an interesting one because the kids and whatever generation you want to put the letter in the alphabet next to you look down and they’re looking at their iPhones or their iPads and they’re either watching YouTube, lots of ads there, you know, I mean, so like, I don’t know why that would change for Netflix, especially if it’s a much cheaper tier, that sort of thing. I want to go back to the layoffs for a second, because when you think about tech jobs, I think I read this the other day that about 2% of U.S. employment is high tech jobs and it’s about 5 million. And so we see companies like the headline was that Amazon is cutting 18,000 jobs at 1.5 or 6 million employees. They doubled in the last three years. But how many of those are working on the lines in, you know, in logistics centers and last mile delivery? I think these jobs are white collar jobs. Right. And so they could be engineers. They could be executives sort of. So what are you seeing? Because you again, you’ve been an operator in the Valley for a long time. You’ve seen companies that went on these hiring binges. They were like riding certain waves and then they kind of pulled back, maybe was micro, maybe it was macro. So you’ve seen that before. There was such competition for these sorts of workers over the last few years. What are you seeing now? I mean, like, are these people finding jobs? And I know that that is a pretty broad swath here. Are you all of a sudden because I know at NEA you guys sit at this nexus of public big tech companies and then because a lot of guys worked at these places, but then on the other side, your portfolio companies and you’re just in the mix here, are people finding homes quickly or are we going to be like in the post dot com bust? I mean, people went back to live with their parents in the basement and stuff. Is this going to be a thing? [00:27:44][96.7]
Ann Bordetsky: [00:27:44] You mentioned earlier the magical thinking, you know, that happened with crypto during the last couple of years, but I think it happened with hiring as well. Companies were way ahead of their skis, hiring for growth in the idea that they could sustain the kind of growth they saw during the pandemic was that’s kind of what you do when you’re in a head to head competition. You have to compete for talent. But the correction makes sense. Companies over hired, they probably lowered the bar for the hiring that they did because they hired at such a high volume over a very short period of time. And any operator knows, I mean, if you’re hiring 10,000 people in a year, chances are you’re going to make some mistakes. And so they’re correcting for that. I think the interesting trends for employers right now is there are still a lot of open jobs across the U.S. economy. Companies in tech are still hiring. I think the people that are getting laid off, I can’t speak for them, but I think a good percentage of them will land in other jobs intact. And so there will be continued talent movement. It’s not totally blocked in the system. But I think the other really interesting trend in The Economist is just had a great article on this as companies learned during the pandemic how to hire remote workers and fractional workers. And so as a percentage of the total employee pool for any one company, companies have shifted to having, you know, 25%, 30% of their overall talent pool be fractional workers, whether you call that freelancing or consulting or part time work. And I think that trend will continue. And companies are learning how to build and maintain a very flexible workforce, which is both cost effective, but also allows them to maintain productivity even if they’re doing structured layoffs of full time employees. [00:29:30][105.8]
Dan Nathan: [00:29:31] Yeah that’s not a great scenario, you think, for U.S. based workers right now, because the access to overseas workers in a fractionalized basis or remote basis and you think about where our unemployment rate is right now at three and a half percent, that is literally at a 40 year low. That is where we were pre-pandemic when we saw unemployment shoot up to 10% or so. So that’s going to be like a really interesting trend. And when you think about what the Federal Reserve’s trying to do by tightening interest rates the way that they have over the course of the last year, they really need the unemployment rate to go up, which is a really sad thing to think about because these are a lot of people that we know who had great paying jobs with good benefits. And again, this is people’s wherewithal. So hopefully it doesn’t get too much worse there. And then there are some new innovations that drive some rehiring of a lot of these workers. [00:30:13][42.1]
Ann Bordetsky: [00:30:14] The silver lining there, though, I think when we normalize fractional work and we learn how to leverage fractional talent to do sort of the core work of companies, essentially the product development, the marketing, all of those things, and not just outsourcing on the fringe. It kind of fits with something Gen Z wants as well to go back to capitalism and like what makes them weird and wonderful and different from prior generations. They want to work independently. They’re growing up with, you know, side hustles online. And it’s not just the creator economy in terms of a social media influencer. They want the autonomy and flexibility as knowledge workers of being independent and having lots of options for fractional work. And so there is an alignment there between something that Gen Z really wants and is seeking out and what employers are getting used to. So there could be some silver lining to that. [00:31:05][51.4]
Dan Nathan: [00:31:06] That seems like a very much you could end of that with bitcoin fixes this because that’s where they’re storing their money. They’re just buying Bitcoin and then they can do fractional work and they can be remote and they could do all that sort of stuff. All right. [00:31:17][10.5]
Ann Bordetsky: [00:31:17] We have to believe we have to believe that’s part of the job. [00:31:19][2.3]
Dan Nathan: [00:31:20] That was that was really cynical. I mean, I’m sorry about that listener. All right, here’s something that’s not cynical. This time it’s going to be cynical. You wrote a medium post. Why did you choose to write a medium post? I didn’t know the lights were still on over there at Medium. Is it still on over there or. [00:32:22][61.9]
Ann Bordetsky: [00:32:22] I believe they’re still on. But I did debate that with myself. [00:32:26][3.2]
Dan Nathan: [00:32:26] Did you really? [00:32:26][0.2]
Ann Bordetsky: [00:32:27] Oh, I did. [00:32:27][0.2]
Dan Nathan: [00:32:28] Today is the last day of review, which was basically a Medium competitor that Twitter had bought, I think a couple of years ago. They’re really encouraging people to use it and link it to their Twitter bios. It was a longer form option for Twitter users. And again, I’m not ragging on Medium because it’s a great platform and I know it’s been around for a bit and I think that this also speaks a little bit to the fact that when you think about some of these social or content creating platforms, there’s just been so few competitors to the ones that have gotten to hundreds of millions of users or in the case of Google and in Meta and such billions of users, it’s almost impossible to compete at those levels. Is that fair? [00:33:04][36.3]
Ann Bordetsky: [00:33:04] You know, when it comes to content creation, I think there’s an element to products that’s really important. I think Medium still has and the review probably never did. And you know, maybe some of the others don’t as well, which is how easy is it to open a page and write the question that I grapple with and I think a lot of professionals are grappling with is like Twitter engagement is declining and I no longer trust any of the platforms enough to allow my content, my thoughts to kind of live purely on those platforms. I don’t want to be beholden to Twitter. I don’t want to be beholden to Medium even. Right. [00:33:37][33.1]
Dan Nathan: [00:33:41] How do you move that content around? Because unless you’re going to start like, you know, like a new MailChimp or something like that, you know what I mean, like, like that. [00:33:48][7.0]
Ann Bordetsky: [00:33:48] I did have this moment where I was like, I think Twitter is over. I need to start a substack or I won’t be able to transfer my audience, such as it is to follow me, whatever happens next. And so I think the big platforms provide distribution. LinkedIn, Twitter, even TikTok, right? Like it’s a great place to distribute the content that you have. But I think all of us are coming around to the reality now that we’ve seen this play out over the last decade, you have to own your own content. You have to be in control whether or not you call yourself a creator because that is your intellectual property. These are your thoughts. It’s part of your career equity. You have to control your own content and it’s really hard to figure out how to do that when you know, the next, next thing is just another tech startup that could go out of business, whether it’s, you know, medium or I think Substack is a great product. Hopefully they’ll stick around. A lot of people have moved to Substack and they’re trying to make that more like a personal RSS, right? Not just the publishing platform, but I think that’s the big question. Like how do you control your own content on the Internet and make it super easy for people to create and distribute their content? And there’s a lot of friction there right now. [00:34:55][67.4]
Dan Nathan: [00:34:56] Yeah, well, Web3 baby, let’s come back here. I mean. [00:34:58][2.4]
Ann Bordetsky: [00:34:58] I don’t want to tokenize my content I just want to be really clear about that [00:34:59][0.4]
Dan Nathan: [00:35:01] You had a tough 2022 web3. Let’s get to this medium post When Doesn’t Change in 2023. The Constants in another year of flux this a great post and you set it up with a quote from Jeff Bezos. Why wouldn’t you set up with a quote from Jeff Bezos? You said Your remind is wonderful and wise quote, I do get asked, this is Jeff Bezos, quite frequently, what’s going to change in the next ten years. I really get asked, and it’s probably more important and I encourage you to think about this is the question, what’s not going to change? The answer to that question can allow you to organize your activities. You can work on those things with the confidence to know that all the energy you put into them today will still be going to pay dividends in the years to come. So I think that’s really interesting. And then you kind of lay out some of the things that you believe, okay, the constants in 2023 [00:35:45][43.5]
Ann Bordetsky: [00:35:46] You could go into 2023 with your hair on fire because there’s so many variables in venture and in start ups and a lot of things are constantly changing and the only constant is change. And that’s what we like to say. But I think it is very helpful in the spirit of the Bezos quote, to think long term and to think in a really grounded way about what are the things that we can sort of count on in building companies and investing in companies that don’t really change through time. Right. And in some ways they’re obvious. But like we forgot some of this over the last couple of years. And so number one on my list was really the market can’t kill you if the business is working. And it is that exercise of going back to the fundamentals. Have you built a product that is either magical for consumers or ten x better in utility for a business customer? Can you package that up in a business model that the market can uptake and that won’t be too high friction? Is there someone willing to pay for your product? Right? And like and can you do the talent arbitrage that is really required in startups? It’s not enough to be able to hire. You have to concentrate talent in your company that is super relevant to your business. And that, frankly, is a step above what your competitors are able to attract. And the talent arbitrage is often what really accelerates companies to become category leaders because you just build and ship faster and better than the competition. And so I think we do have to go back to the fundamentals. But the fundamentals shouldn’t be scary. They should be reassuring. If you follow a certain playbook, you will be able to build a meaningful company and hopefully an attractive exit for yourself as a founder and for your investors. And so I think the other piece there is just not what is the hype cycle for 2023, but what are technology frontiers or innovation frontiers that are going to persist so you don’t have to worry about fitting the hype cycle for the next six months or whatever is trending on Twitter. Build along the edge of one of these innovation frontiers. I think AI is a great one. Generative AI is just like that next iteration of it, right but AI’s everywhere now. It’s just sort of the foundational element of the next generation of software. So I applied to a particular industry. Amazing. You can probably build a big company just at that interface. Thinking about Gen Z and Consumer and that generational shift we were chatting about like, yes, they’re annoyingly different and that creates opportunity for entrepreneurs to build something new and to get their attention. And I think the third kind of enduring trend on my list was just digitization of really legacy industries and decarbonization of our economies. That’s like a massive landscape for companies. And so I think the more you can anchor yourself and like what’s going to be true a year from now and five years from now, I think the more successful you can be in building something that really matters. [00:38:42][175.8]
Dan Nathan: [00:38:43] So digitization, when you think about that and just digital transformation in general, it reminds me a lot of kind of the promise of the late nineties and what the Internet could do for all sorts of businesses. It wasn’t just tech businesses and there were like fits and starts to that, right? And so when you think about going back to Bezos in a way, I mean, that was his vision for disrupting commerce in retail. And, you know, the irony of it is that in December of 1999, Jeff Bezos was Time’s man of the year and the stock topped out within a month or two and lost 85% of its value over the next two years. But think about that. Like at in July of 2021, when he stepped down after like 25 years handing over the reins. I mean, they had a $2 trillion market cap. They were doing a half a trillion dollars in annual sales. He never let anything didn’t let the market kill you. Like to your point about the post, he just didn’t let these fits and starts and the innovators and upstarts who are coming at them he just kept on doing and I always love that one is that your margin is my opportunity. He just kept on doing that. So that point about Elon and again, I mean a little different, Bezos always was heads down, did very little media. Elon now is, you know, live tweeting his life every day. And I’m just curious something different this time about those two scenarios. Again, he’s got his hands full. It’s not just one company that he’s mission driven on. It’s Space X, Neuralink, it’s Twitter. I mean, there’s a lot of things going on. I’m just curious because you had an unpopular opinion to me. You push back a little bit a couple of months ago. I’m just curious, has it changed a little bit on Elon and the numbers about Twitter’s ad model in the way that advertisers have just been fleeing it, the engagement numbers are getting absolutely throttled. I think they have something to do with each other. Is Twitter going to be the downfall of the promise of Tesla? [00:40:24][101.7]
Ann Bordetsky: [00:40:25] I’ll answer your question this way. If a founder were to ask me, should they emulate Bezos or should they emulate Elon and building their company, I would pick Bezos every single time. Because he one, was methodical and relentless and optimistic in building the company. I don’t know him personally, but that’s how I perceive him as an entrepreneur and CEO. He ran the company with extraordinary rigor. Never heard of Amazon is a pleasant place to work, but they do get shit done and he saw the opportunity. You know, he didn’t just launch disparate businesses, he leveraged Amazon’s platform capabilities, built them over time and launched new categorie. On top of that. History kind of underestimated him. And now he built this massive company. I think Elon style is laudable and I’m glad we have him in the world, but it is very hard to replicate. These are moonshot projects. I think a founder is much more likely to be successful in the style of a Bezos than a style of an Elon. And Twitter may maybe kind of be the downfall that proves the point [00:41:33][68.5]
Dan Nathan: [00:41:34] 100%. I mean, we haven’t even talked about Space X When you think about the remarkable things that have gone on there and the markup, there’s very few companies on the planet year over year from 2021 to the end of 2022, that saw a meaningful mark up in valuation. Space X was one of them, still trades at a ridiculous valuation. You say, We don’t know what the TAM is. It’s probably going to be $1,000,000,000,000 market cap company in the not so distant future. I just think that the impact of his behavior on not only the value of Tesla, but also of Twitter, and I think that’s a story that’s left to be played out. And just the other thing, the brand value as it relates to Tesla and the sort of [00:42:09][34.6]
Ann Bordetsky: [00:42:10] I will say there’s one commonality between them. Again, not having worked under either of these CEOs, but just things that I’ve heard through the years, through the grapevine. No one has ever said, oh, you know, Elon was easy to work for or that it was terribly pleasant to be in one of his companies. And Amazon kind of has the same reputation and so [00:42:29][19.2]
Dan Nathan: [00:42:29] As at Apple under Steve Jobs. And I mean, the list goes on and I mean like I agree with that. I’m sure, you know Ballmer wasn’t that pleasant to work for. It sounds like Satya is a pretty good guy. Sundar seems like a pretty good guy, but we need some more females in the senior ranks. Where where are they? Are they already are they on the boards either like I know these guys are trying to solve too that a little bit. [00:42:50][20.7]
Ann Bordetsky: [00:42:50] I mean, I think we’re starting to see that we definitely need more high profile examples out there, but it reminds us of the reality that building really, really successful companies that break out and do something that no other competitor can plausibly catch up to like, it’s hard and it’s really rewarding interesting work, but it’s not always going to feel like really just like fun and easy and it shouldn’t, and I think they exact a certain level of performance from their teams, and that’s the one piece I would advise founders to emulate. Like exact the pull the execution and the performance out of your teams that you expect and need to build the company. It’s not a popularity contest. It’s about whether you get it done in kind of embracing that hard charging mindset can be very, very helpful. [00:43:38][48.2]
Dan Nathan: [00:43:38] I suspect the portfolio companies that you advise over at NEA are very happy to have your experience, especially when you consider some of the companies that you worked at over the last ten years or so Ann Bordetsky, this is our second Okay, Computer. I hope we have many more here. It’s great to see you face to face in New York City. So thanks a lot for being here and I hope you come back. [00:43:57][19.1]
Ann Bordetsky: [00:43:58] I had a blast. Thanks for having me on. [00:43:58][0.0]
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