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You can't be a founder of what will be a great technology franchise and do it part-time. It's impossible.
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Every great company goes through a desert of disillusionment.
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It will not be up and to the right in a linear fashion for the vast majority of these companies.
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You know, success has many fathers. Failure is an orphan.
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So Jay, we last did this four years ago, which is crazy to imagine how quickly that four years has passed.
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That was a strange world and a strange market.
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We're in another kind of interesting time today.
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I'm curious to start how today's market conditions feel the most different to you than the market of the rest of your investing career.
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What feels most distinctive about today? Yeah.
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Um, I mentioned, yeah, we did this, I think, in September of 2021.
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And as a longtime Chicago Cubs fan, I'm quite superstitious.
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So, I'm sure it didn't cause the tech reset in 2022, but let's hope hopefully that we will not that will not have a recurrence.
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Let's see what's different.
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There's always parallels and similarities to prior periods of time.
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I guess may you know maybe what is different is particularly as technology has gotten so big uh over you know now the 30 years at TCV and the 43 years of my career um the focus on macro which is not something I spent a lot of time focusing on really is different.
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is different. So regulation of tech um how do tariffs impact you know global trade all those issues which u really were never part of part of the lexicon or or focus for technology is probably something that's pretty new I think um
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it's very difficult to figure out a lot of people are talking uh with great authority about that which I think they know very little that includes myself um that's certainly something that's quite different What feels most opportune about this market? Where where do you
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Where where do you think that there's the most opportunity to earn strong returns making new investments starting today?
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investments starting today? the um world has shifted so strongly in the last um several years and again I'm I'm leaving co out for the moment because that that um was was such a unusual time um where I think as you think about technology investors huge focus on SAS huge focus
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on all things AI um and huge deemphasis of consumer-based uh internet businesses and so I think that's actually a pretty interesting opportunity everyone can be contrarian and we continue to see interest in private opportunities that I think most of the world's not focused on. I was
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I was talking to a founder actually building something new in consumer today.
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There's a heavy AI angle to it but nonetheless consumer and he made an interesting observation which was how hard it was for him to go find venture investors who are great who primarily focus on consumer.
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It's almost like a dying breed of people kind of to exactly to your point.
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Maybe you could describe why you think that is and what about consumer is interesting today because it does seem like a lot of the big consumer businesses started 15 20 years ago and have just dominated ever since and there seems to be less white space but maybe you think differently.
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I I don't think necessarily it's less white space um because you could argue that the big enormous internet franchises consumer internet franchises that have emerged are playing on the opportunity set of um you know 5 billion plus smartphone users.
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incredibly engaged audiences across gaming or music or entertainment or other other uh media, incredible consumer engagement with that those devices and and therefore that should create enormous opportunities for new consumer-based franchises.
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It's always been hard to break through sort of a virtual shelf space concept.
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virtual shelf space concept. Uh so I'm not saying it's it's easy to build consumer businesses but I think the fundamental reason why so many people are not focused on it is because of you know money sort of chases momentum or
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follows perceived momentum um at the risk of uh insult possibly like you know um sevenyear-olds playing soccer the ball goes over there everybody goes over there and so I think as far as SAS and AI it's super you know AI in particular is super shiny, uh, super interesting. That's where everybody's focused. And I
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That's where everybody's focused.
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And I just have a hard time believing there are there are not going to be any new consumer internet businesses founded over the built founded and built over the next 10 or 20 years.
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I'd love to hear you talk about the difference between investing in new technology versus investing in commercialization.
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Something you already mentioned a little a little bit.
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As a growth investor, of course, like things are working at that point typically.
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So things have become commercialized but but it's really an interesting it seems like the tech is really still being built now and it's changing really really fast.
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What have you learned about that difference?
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Many super interesting technologies have taken far longer to reach commercial scale from a revenue and monetization standpoint than predicted.
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standpoint than predicted. what you know what would be examples of recent vintage you know autonomous vehicles where the the pure technologists said it was ready for prime time you know five seven years ago uh and now you know appears to just
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be that AR and VR generally great you know great opportunity set but still really looking for commercialization um and so that's the to me that's the lesson um to keep in mind um that it's it's the applicability of technology, not just the availability of it. Um and then when I get into
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Um and then when I get into defensibility, how you know what is a monetization model?
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How big and defensible can it be?
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Um and how, you know, how can you build an enduring franchise, not just have the hot tool of the day?
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If you think across all 30 years of TCV, is there a most common type of what I'll call fool's gold investment that you've encountered?
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Something that a pattern that you see over and over again that you think of as like an invest exciting investing trap?
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You know, as a technology investor uh te technologists um and sometimes it feeds into technology investors, there is a often overestimating the near-term on your way to underestimating the long term.
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Um, and that's just something to be, you know, to be to be careful of the and the other thing I think we talked about last time and I was I was going back through any of the most valuable companies tech companies in the world today.
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Are they exceptions to this statement?
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and I don't think they are that every area and every great company goes through a desert of disillusionment in investor's minds where where it was great and then all of a sudden there's people are casting dispersions on the sustainability of it and that's you know you think about um Apple uh Apple was left for dead in 2000 uh Microsoft and again um I think m Apple and Microsoft the two three two companies worth three trillion dollars today.
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You know, Microsoft from an investor lens sort of wandered in that desert for for more than a decade.
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Um, and that's just worth keeping in mind.
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It will not be up and to the right in a linear fashion for the vast majority of these companies.
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I'd love to hear you opine on the public versus private market dynamics today, which are very, very different from most of your TCV's history.
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And it seems really important.
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You're a crossover investor.
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you're maybe the first major crossover investor, which has now become a popular style.
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But it seems like with the dynamics of private companies staying private for much longer, much more liquid private markets, uh people preferring the state of being private to being public, like there's a permanent shift that's happened.
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Do you think that that's true?
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Do you think that that's healthy?
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What do you think about that?
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So, I'm not sure it's a permanent shift.
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Um and I and I I'll get into the reasons uh for that in a minute.
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Um I mean clearly that um everything is bigger.
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So you know I I it's given that it is TCB's 30th year.
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Actually technically it's June 23rd is our 30-year anniversary.
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Um I went back and looked at some stats just to run just to give you diff the scale difference.
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Um the entire venture industry in 1994 raised $4 billion.
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um today, you know, that's a small fund for some um which is pretty staggering.
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Um the, you know, in terms of market cap, at the end of um 1994, the NASDAQ was at 751.
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Today, it's north of 17,000.
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So that's about a 23x uh increase in the in the uh NASDAQ value.
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Um, and I didn't have it from 94, but in 1991, as you looked at the large public technology companies, there were 31 companies north of a billion dollars and another 13 companies between 500 million and a billion.
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That was large tech back then.
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Um, and I mentioned, you know, today, today there are six companies north of a trillion.
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So, in addition to Microsoft and Apple, I mentioned uh, you know, Nvidia is at 2. 8 trillion.
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uh Amazon and Google at two two uh trillion. Pretty staggering.
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Dramatically different um uh market values than 30 years ago.
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Um today's market puzzles me for at least one reason.
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Um I understand it's sort of standard to say, oh, companies want to stay private longer, etc.
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want to stay private longer, etc. then that that would be that I think that's true in some cases although you know that was pre Google going public that was also the concern they were staying private too long um and and I understand
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if companies have specific things they want to invest in um under the kind of you know cloak of private being private prior to going public but I I'm old school in that I believe the best companies the vast majority of the best companies um will benefit by being public over the long run. Um the you
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Um the you know the discipline of being public these days you can you can manage uh the guidance expectations however you want including not providing guidance.
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Uh it provides a public currency.
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It provides a you know fully liquid uh stock for all your employees sort of you know on a persistent basis over time.
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Um I'm totally puzzled as to why the technology IPO market is just so more abundant.
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I mean, we're now in our fourth year of pathetic numbers overall.
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So, maybe I'm missing something, but um even in mediocre years, historically, there were 50 or 60 USbased tech IPOs.
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So, I I hearken for those years.
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Uh and part of their explanation for it is I think there is a lot of private capital in general, you know, in in real estate and credit and private equity and elsewhere, but certainly focused on tech.
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Um and to some extent that is creating liquidity for uh the best companies but not all companies you know the the tender offers at Stripe Stripe and others.
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Um but when you say it's a permanent shift I guess my my question back is well if you're investing billions of dollars into a private company today in some in some of those transactions that capital needs a return someday.
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So are you assuming that there will be a robust private liquidity uh market in in the future or that that capital will need an IPO market in the future you know or because I because at some level I think some of the values now are beyond um the scale where they can get get acquired rationally.
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Where are you seeing more opportunity between public and private today?
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Because if you just think about the supply demand dynamics of capital itself, like you said, there's tons of demand for stripe shares, you know, in private markets.
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I'm curious between the two where you operate and you're totally flexible between them.
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Are you seeing more or less opportunity in one versus the other today?
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So, we're we're we're not totally flexible.
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I you know, um we the C and TCB is crossover.
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Um but I tend to think we're more we were more one of the early players in growth distinct from early stage venture and private equity.
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Um and you know certain characteristic growth that we found attractive and and continue to find attractive.
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We will hold you know our private investments as they go public the best ones for a long period of time.
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That's an economically driven decision.
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you know, we may take one times our money out, but um the best companies over time like a Netflix, Spotify, etc.
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compound at high rates for a long period of time.
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So we're being hopefully economic economically selfish by retaining our stake and then we will selectively and opportunistically deploy capital publicly, you know, um the the um Netflix pipe in in 2011 being a great example or just situations where our view is if this was a private company is at a compelling value.
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there might and there might have been a dislocating event.
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Um but we you know we're trying to get actively involved and and treat it as as if it was private and ignore the day-to-day um public trading.
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Um so that's a little bit of a a little bit of a long answer.
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In today's world, I don't think of it as quite as much as public or private.
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I think of it very much as a um company selection criterion where we have a we have a very bifurcated private market, very bifurcated public market.
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Um you know, tech's always been a world where there are halves and have nots.
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The true category of leaders in a segment get very robust, you know, multiples and long-term uh value.
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and a lot of other companies don't get robust multiples and and don't necessarily generate a lot of long-term value, be it they private or public.
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What is it about growth that you still find attractive?
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And I know that was a key part of the early DNA, but fast forward 30 years, what what is still interesting to you about that category specifically?
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category specifically? So the original pitch which remains true today I think um and and you know everything was a lot smaller as I mentioned venture venture was a lot smaller private equity is a lot smaller in 95 um you know think about KKR others were still tiny enterprises and growth didn't really
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exist as wasn't viewed as a separate category um the way think about is early stage venture will invest in um to to some extent science science projects, meaning um undeveloped technology that they have to develop a product or service and prove that it works and it's cost- effective and then and then start to ramp um the monetization of the business. And inherent in that model is
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And inherent in that model is the successful ones can generate 50 or 100x return and return an entire fund.
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But I think inherent in the early stage model is very high loss rates.
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So it could be 30% 50% for a seed or early stage fund.
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And it um successful ones it's all baked in the model.
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You you can end up with great funds on the at the other end.
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This I'll get to growth in a second.
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The other end large private equity I tend to think of uh and and of course they they invest across all swasts of uh the economy not just tech.
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um they tend to be much bigger businesses, more slow growing and the way to generate returns could be through the fasil use of leverage.
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the fasil use of leverage. It could be through cost cutting and through could be through lots of different acquisitions and consolidations and the best of those firms also um generate good returns but um I think you know much more through financial um measures
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than otherwise and you know and in a world where rates went down you know for 10 years 15 years that was a huge tailwind and I'm not you know I'm not a I'm forecast of interest rates so I can't say whether that'll be a headwind or not, but I think that was a huge tailwind. Growth sits in between and the
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Growth sits in between and the original virtues were uh we're investing after um the technology risk has been eliminated.
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So a product or service is available, consumers are touching it or uh enterprises are touching it or small businesses are touching it.
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And our job then is to evaluate the rate of market adoption and then help grow those companies.
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companies. The benefit of growth is you're typically investing in a decent-sized business that hopefully means and and you know hopefully senior in the structure you your risk of principal loss is quite low and then if you're fortunate uh to stumble into the
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Expedia or Netflix or Spotify or Revolute in Europe or or uh others you're you're generating returns from very rapid growth ends up about half our businesses were profitable at the time we invest half are not but you know uh
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comp the compound effect of topline growth and um you know very high incremental operating margins uh means you know ultimately earnings are growing a lot faster and that's how we generate our growth ve very little leverage um all based on company building and and
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you know growth and a great product I found that this sort of game to be the most fun when you have the least competition and when you started like you said growth wasn't really its own category and so you had less competition. Today there's lots of
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Today there's lots of growth investors.
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Can you describe what the competitive dynamic feels like with other investors when you find a company that you really like?
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Like how has that changed and how do you manage it? Yeah.
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And it it does eb and flow.
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I mean back back in 95 when we started as you might imagine it wasn't like it wasn't just there was not much interest in growth.
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there actually wasn't that much interest in technology.
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So now it obviously is obvious to everyone but um it was a really really tiny tin you know people viewed it as a tiny prize.
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Um, as technology returns have been robust, you know, money follows.
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That's just it seems to be how capitalism works.
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And so there are a lot of um growth investors um and many of whom built very um successful firms.
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I'd say some have gone from success and growth to really scaling assets and becoming much more private equity-like, you know, with with big buyout funds, etc.
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And that's not bad, that's just um different.
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And many have gone from being purely focused on the tech vertical to other categories of growth, be it retail, um healthcare, I don't mean healthcare to it, just you know, um hospitals, etc.
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And you know we we've made the decision um to stay well I'd say relatively small although you know our first one was 100 million and our last fund was three billion so it's relative um but really to stay focused on technology because we think it's the greatest industry and it also requires a tremendous amount of expertise to uh to be able to execute
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against um so yes competition's increased but I'd say in the last three years it's actually or four years decreased if you if you hearken back to last time I was here it was virtually here um you know everybody had entered um technology and growth investing in 2021 and that led to its own you know its own challenges for for a lot of the
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capital that was deployed during that period of time um and you know um early many early stage funds doing growth um many public funds doing growth many private equity funs funds doing growth and um some will be successful but a lot you know a lot may not and I tend to think firms gener generally have a um center of gravity you know you can think
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about collecting assets across lots of different vehicles um but you have to make sure each of the disciplines you're exercising are great otherwise you won't continue to get capital um and so I I suspect that um a number of folks you know, have retrenched uh based upon having deployed a lot of capital in 2021 but not necessarily having a great return associated with that. I'd love to
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I'd love to talk about the history of the business.
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You mentioned 30-year anniversary is coming up.
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The life expectancy of new investment firms is definitely less than 30 years.
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It's hard to build an enduring investment franchise.
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If you if you think back on that time, what are the key moments or filters that you went through that allowed you to surv not just survive but scale and thrive across three decades?
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Because it's it's quite unusual.
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Well, it's it's interesting to reflect on I think when we um you know we're we are you know active participants in our industry but to to me all of the um credit and um blood, sweat and tears so to speak you know goes to the the founders who are um as we've spoken about before they have to be a little crazy to become a founder.
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Um and it I think it requires unbelievable sacrifice on their part, right?
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You can't be a founder of what will be a great um technology franchise and do it part-time and have a great you know great work life balances um often gets bantied about. It's impossible.
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Um as I reflect back on when when Rick Campbell and myself started um TCV, you know, we quit our jobs in '94.
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Um and you know so we we we are on that founder journey as well.
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Um not going to what it's worked out great um but I was thinking about um first of all it's a little bit of a shock to be sitting here 30 you know celebrating 30 years.
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Um thank you know we we we did a few more good things than than uh mistakes we made.
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So we're able to do that.
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made. So we're able to do that. um people you know back backed our first fund and continue to uh invest as we built the firm which is awesome um but it you know requires a lot of um I think resilience because we've been through so many in my investing career have been
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through so many crises so like a company founder you have to be ready ready ready to deal with adversity to deal with people thinking you're you're um you don't know what you're doing um and then I was I was reflecting personally you were to say well go back to that time period. So it's great that
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So it's great that our bet on technology paid off.
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It's great that our focus on growth paid off.
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And the third thing we talked about, you know, being a long-term patient investor in the best companies.
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We the last requires being invested in the best companies.
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So there's a little a little hopefully hard work but a lot of luck involved in that too.
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Um but I was sitting here today um a lot older, 30 years older obviously.
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So I was when I quit my job I was 35 and we closed our first fund. I had just turned 36.
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We had a son who was turning three, a son who was turning four and my wife was expecting our um daughter.
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Um we had just moved to PaloAlto.
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Um you know and and we're starting a new fund.
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I'm trying to think if there are any other they say like there are four or five main life stresses.
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You did them all at once.
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Just like just get it all on the table.
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In hindsight, it makes no, you know, it made no sense. Yeah.
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Um but uh again, thank thankfully it worked out.
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Um you know, last time I think we talked a little bit.
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So what what were the keys?
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I mean, think literally is this is a as you know, the investing business is I'm going to mix my sporting um metaphors.
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going to mix my sporting um metaphors. a batting average business and you can't you can't hit a thousand but you have to be a decent hitter or you know um using basketball example um you know Steph Curry who's in in the news after the game s last night greatest three-point
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shooter of all time greatest scorer of all time you know only makes 42 and a half% of his three-point shots now as an investor you have to be over 50% but it's still not you're not going to be perfect so part of it is you have to be willing to take some level of risk no matter how diligence you do. Um, and
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matter how diligence you do. Um, and then from a managing the firm standpoint, and again, we've I'm sure we've made we try not to repeat our mistakes either as a managing the firm or um investing, but but um we probably made every mistake in the books because we, you know, we we talk a lot about
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obviously Netflix and Spotify and others, but it's also, you know, we had plenty of bad investments, investments that didn't work out well, and then also in hindsight, ones where we kind of sit around say, well, you know, I'm not sure what we are thinking on that one particularly in the internet bubble bubble days. Um but it it comes down to
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Um but it it comes down to um internal talent and you know I think last time we talked about Reed Hastings and the concept of stunning colleagues and the fact that a great investor is not 30 or 40% better than a typical investor.
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Similar a great engineer is not 30 to 40% better than an average engineer.
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They're you know it's order magnitude.
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Um and so that that's been the focus and and uh on the internal side, people side um and you know, we've had a um enormous number of people over that 30-year period of time contribute to TCV and some have gone on to uh greatness at other firms as well.
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I'd love to do a little bit of how the firm works type questions and try to categorize them in the normal life cycle of an investing firm of this type, which I would say is see the company, you know, know it exists and start digging in.
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um pick which ones you want to invest in, win those investment, you know, be a good salesperson and then and then support them and maybe sell is the last uh criteria which is relevant because you hold for so long.
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So maybe we'll go in order.
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What have you learned about the sourcing side of the business?
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What does great look like versus good or something in making sure you see all the right businesses and engage them at the right time? Yeah.
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So that's one area where there's been many iterations I think for the industry and then for us.
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Um so see if I can walk through it.
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Um and and there there's a there's also a um sector overlay because that's in a sense that's how we go to market in different sectors.
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So consumer uh enterp you know application software infrastructure software in Europe four big sectors.
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Um but you know way back in the day um well before TCB there were outbound deal sourcing factories um TA Associates being a classic one and then the some of the folks spun out start Summit uh and they were you know they were it was it was phone it was cold calling to try to build a database of interesting companies get whatever financial metrics they could and then sort through all that and go chase x number of investment opportunities.
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ities started building that core in at TCB in 1999 because originally it was Rick and myself and we were you know doing everything we we knew some venture guys I mean it was not there was calling it a sourcing effort um was much sounded much more grandiose than it actually was but um uh you know so we we we went with
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that peopledriven um you know hordes of associates every you know and they would come in and you know commit to three years and then sometimes go off to business school and come back or go off to a portfolio company and come back or just you know go off to another firm or another company. Um but going back about 12
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Um but going back about 12 years, one of our associates um said, you know, we need to automate this, not just and it moved from, you know, phone work to email work to, you know, uh lots of uh scouring of the web and, you know, and going to trade shows and all this other stuff.
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And so we have a data intelligence group that um and I'll I'll stumble on some of the metrics that is the front end of our sourcing effort.
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Um and there's actually you know AI applied here where we have massive number of data sources tracking um employee growth uh app downloads um product and various product usage measures uh and it's ingested uh I think something like 11 million technology companies man many of whom are really really tiny obviously at this point um and but that that it's ingested and analyzed.
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We and we rate we score companies and that uh in addition to all the inbound leads we get from benefit of our 30 years, right?
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You know, if if Reed Hastings sends a note saying you should check XYZ company out, we're going to check it out.
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Um but but the data intelligence group is a automated tool that if just as applied to sourcing means we don't have to hire a thousand associates to go out and try to scour the world.
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we're it's a tool where we're much better as humans um allocating our time and prioritizing uh certain companies over others.
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So if if we have a list, you're you're aware of all these companies and then you start engaging the ones that seem the most interesting.
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What are the what is the process like like the actual internal investment process like at TCV?
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Like are individual investors allowed to just pick what they want?
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Is there some sort of committee process?
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like walk us through the actual process of selecting investments and I I realize we'll probably have to couple this answer with how you win them.
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Um because you know they're interrelated and you're building the relationship with the with the company as you evaluate it.
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Uh but maybe talk us through like the the nuts and bolts of how that actually works inside TC.
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TC. Each of those sectors meets at least weekly and often more and that that is where the uh all that data as well as an existing pipeline opportunities uh is discussed and you know near-term priorities long-term priorities um company XYZ we've had a tough time breaking into how can we leverage our
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extended network uh to get in uh and that's where the initial sorting out process comes um We also have a um weekly global pipe uh meeting where all investment professionals are involved where we're we're you know bubbling all that off stuff up to where uh what might be actionable in the next 6 to 12 months. The reason I say 6 to 12 months
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The reason I say 6 to 12 months there's there's thousands of um financings that happen all the time.
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But what we're really trying to do is get to know these companies over an extended period of time and be, you know, working today on what might be a 2026 investment.
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Uh because a young company is not yet in the growth stage.
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Um and that so that's uh that that's part of there by design.
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Um x number of things get through the sector screening process and get you know presented to the IC.
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um you know we we we say let's move forward with these let's not move forward with those then all and then we actually have a a three per threeperson sort of final investment committee uh that has to be unanimous on investments so it gets through it is unanimous like at the end it's it's you and two others presumably that say have to say yes on every single thing that you do. Yeah.
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And and how many is that a year typically like how many new investments would you make a year?
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We ultimately um on the we you know we have a velocity fund which is invested in expansion stage companies and the growth fund which is big fund.
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We might typically invest in six to 10 a year.
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You sort of start with tracking 11 million companies in automated fashion down to you know six to 10.
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It's a how many do you think you like barely say no to a year?
32:42
Like what is like right outside that six to 10?
32:46
Meaning like it's on the line.
32:46
you might you're excited about the company probably at this stage if you invest in six to 10 like how many are on the cutting room floor right before that final approval.
32:56
final approval. Um I don't I couldn't cite you actual percentage but you know it should be a reasonable robust number which may sound crazy but um because we're really re as a growth I think early stage investor and I'll use AI as an example
33:17
um but also in just in general if an early stage investor may have will have many more I'll call them bets, but investments in a given fund in part because they want to have as many chips on the, you know, betting table as possible to get that one or two that really will pay off big. Missing a significant portion of those,
33:39
Missing a significant portion of those, I think, for an early stage venture fund in any given vintage can be really problematic.
33:47
Um, as a growth investor, we we tend to run pretty concentrated.
33:50
So our typical fund might be 20 to 25 investments.
33:52
And so we really have to have conviction.
33:59
We're not and and we are focused on doing all that work ahead of time to say this is the one in this category.
34:03
So we're not betting on two or three players in a given segment.
34:08
Um and so it should be hard to get to a full yes.
34:11
And there should be a bunch of you know we're not sure and then they end up being nos.
34:19
Can you describe the taste of the three people that are on that final committee?
34:24
Like if you had to kind of describe how the taste is different between the three of you, how would you summarize it?
34:29
Um I would say well I think the similarity again as a growth investor you can be really rigorous.
34:35
Uh so I'd say the the similarity is rigor.
34:40
Um the differences probably have to like inherently um the degrees of um aggressive or conservative vary by practitioner.
34:49
So it's actually it's kind of a good mix.
34:53
Where do you fall in that spectrum?
34:53
Um, strangely, um, more on the aggressive side as it as it were, not not taking, um, you know, um, sort of unverified bets, but um, I'm not I'm not, um, turned off if it's different.
35:13
Um, you know, because it's sort of like non-conensus is good.
35:17
Again, a quadrant consensus, non-conensus, right, wrong.
35:24
If you're wrong and non-conensus, that's really bad.
35:25
But, um, if you're right, it's it's often where the excess returns are.
35:30
Um, and I think of course the world can come to an end and all the current macro stuff could be, you know, you know, a decade of um, unpleasantness in the world.
35:44
But you know many of the companies I mentioned earlier they they've shown they showed an ability to grow through any and all environments like if you look at if you look at churn rates for some of these subscription services during recessions you can't you can't you can't see any any difference.
36:02
So I think so I have a firm believer in the best quality technology companies.
36:06
One one may at different points in time have to be aggressive on valuation and pay more.
36:15
Um but it will be a long-term win.
36:19
So that's where the aggressiveness comes in as opposed to thinking well intellectually this should sell at x times revenues because that's the um that's where the you know median SAS company has sold over the last decade.
36:31
What's it like holding a company like Spotify or Netflix for a very long period of time?
36:36
I mean, those are two it's like easy to talk about those two because they're unbelievable companies CEOs like we know all this in hindsight, but certainly there's been periods if you study those companies history when pe tons of people or most people doubted them um where they had challenges that they had to overcome.
36:52
You know, you said earlier existential challenges often.
36:54
earlier existential challenges often. um what is but just maybe pick one and tell the story of what it's like actually holding something like that not just the fun part which is great return they're both huge companies but the the challenging parts of holding something
37:07
like that um for a long time yeah and um and actually you know I mean Netflix had also um it was challenging um there was there was a very challenging financing in 2001 that we led um so you know it's not just challenging staying with it publicly, but that predated the IPO. Um I think it's actually what made
37:27
Um I think it's actually what made it challenging just to Oh, I'm so so Netflix um founded in '98.
37:38
Um originally an alleart.
37:38
So it was it it was enabled because instead of a VHS tape which is heavy, yeah, a DVD can be mailed cost effectively for varass mail.
37:51
But the original model was um you you rent one, return it and and the unique economics on that were not attractive.
38:00
So subscription was what unlocked um the growth the pro the path to ultimate profitability but company filed to go public in 2000 market melted down you know it went sort of it went down 60% twice you that's not that's not very fun um and there was a financing in 2001 I'm dating myself uh that where um we had a discussion and huge supporter uh with Reed and conveyed we we will provide the financing but I'm not sure how to that price it because
38:35
the finan series A through E had been up and to the right uh and so he went and canvased the marketplace to see who what the price of Netflix was and there was no bit u no no equity provider zero so end up we did we did a kind of a
38:52
restructuring financing uh in 2001 um in order to get them through uh to the other side of uh of profitability and free cash flow positive and then they went public in 2002 although you know it traded down for a while and traded sideways for like six years. Um
39:08
Um so that that was the tough um part of the journey like why you know why are you staying with this company um was was part of the discussion at the time.
39:17
I think the you know one of the benefits of of experience is you can we you know we invest in these 20 25 companies in a fund and hopefully they're all the next Netflix or Spotify but after some period of time you realize well they aren't um but which you know which ones are have that um um you know decade or multi-deade growth really going to um be a dominant player and you know we we go through that sorting process.
39:49
Um is what so what's the challenge of a holding?
39:52
Um when they go through periods of material revaluation the public market you get second guessed at the wazoo and sometimes you second guess yourself like oh you know the correction in 2022 people like why hadn't you sold everything and everything in 2021.
40:11
If if you could predict when the market's going to sell off, that'd be a productive discussion to have.
40:16
But um I don't think one can predict that.
40:19
Public scrutiny and second guessing can make it hard, but that but that's really kind of it.
40:26
And um it's obviously proved to be really rewarding.
40:31
Now fun lives also mean you can't own it forever.
40:34
Um, you know, Netflix market cap Friday was $480 billion dollars.
40:40
Um, at the time of the IPO, TCB owned 43%. Oh my god.
40:43
43% of that would be a much bigger number than the what what you know what we uh realized.
40:51
But that's you know, but um that's just part of your Does that make you wonder if the whole structure is wrong?
40:59
like if if all of the returns come from a couple companies, should funds be set up to not have to sell? Um, sure. It'd be cool to own.
41:07
I don't think I don't think the structure is wrong because we, you know, we we entered into a contract with our limited partners and so, uh, we, you know, abide by it and and it's always easy to look back with to, you know, hindsight's just perfectly crystal clear.
41:21
Um but I think that is why some have explored um you know Sequoia or Sutter Hill or others explored kind of the permanent capital uh evergreen like vehicles.
41:31
Um did you ever consider that? No. Why not?
41:34
I just think it's a um you know the financial structure is great as it is. Not broke don't fix it.
41:44
don't fix it. often as a as a GP we can you know we're um uh we have we have a European waterfall structure so once we return all the limited partner capital then we start getting our carried interest and once we do that we're you
42:00
know and we're distributing stock we can choose to obtain the Spotify or Netflix shares um you know as it relates to our own financial uh holdings if you think about this interesting question of should or does the investment firm itself have lots of enterprise value. You know,
42:15
You know, KKR and Blackstone and all these things are publicly traded huge huge companies.
42:21
Whereas some investment partnerships explicitly target that the thing doesn't really have any value that you know it's sort of this ephemeral thing that partnership that may dissolve or isn't worth much.
42:31
They don't plan to sell any of it.
42:32
How do you think about that question?
42:34
Uh which which it seems like is important for every investment firm to answer about itself.
42:38
to answer about itself. Yeah, we um so what I personally think about I've never been um motivated to like let's go take it public globally dominate um I do think and I'm I'm only a casual observer or student say of a black stone I think they had a very simplifying uh organizational assumption which was they were on a path to you know to go
43:01
public and to maximize the public value they would go from being a buyout shop to um a smorgus board of financial services offerings offer that in a very compelling way to the large largest LPs in the world and so you know credit and um fund of funds and um you know they have growth vehicle etc and that seems that you know worked out superbly for them. Um
43:29
Um for for me that that that level of scrutiny and visibility is not appealing.
43:35
Um, so it's not something we've really ever ever contemplated.
43:37
The alternative too is sometimes people sell a piece of the GP, but that's mostly my casual analysis of it.
43:45
Um, frontloading economics that you you would otherwise get on. Yeah.
43:50
How do you think about setting the firm up for the circumstance where someone else leads it other than you? Succession. Yeah.
43:56
So that so that the success plan, you know, is is John Dorne.
44:00
He's uh 20 years younger um than I am, which is a lot.
44:03
Um and I I plan on having an active role, but he's he's running the dayto-day.
44:11
Um he's actually moving moving uh to the valley.
44:16
Uh he he lives in London uh with his family in July.
44:19
Um and so if I get hit by a bus, that's one level of succession planning.
44:24
I'm very careful around buses.
44:26
Um, and again, I uh um don't envision going anywhere, but that's that's the plan. Very simple. It's always 20 years.
44:33
It always seems to be a 20-year gap.
44:35
That's like the magic number for the younger partner. Yeah.
44:39
Well, well, there is something to be, you know, if you think about it's maybe way too um we talked about, you know, stunning colleagues earlier. Well, okay.
44:48
Then next question is how do you identify?
44:51
It's not not just being brilliant.
44:51
It's just are they a good investor? to be good investor.
44:56
You know, you somewhere in your 20s, you're maybe trying to figure things out and then you invest a certain number of companies when you're 30.
45:04
And then I mentioned when we started TCB, I was 36.
45:07
Um, you don't, you know, it's a long-term business.
45:10
Again, disasters can be very short-term measured, but it's really hard to know if somebody's a great investor except for the passage of time.
45:19
Does anything feel broken to you about the investing world and system today?
45:24
It could be anything in the triangle of GPS, LPS, companies, anything at all.
45:30
Like, does is there anything that you would change about the way the system itself works today?
45:37
Um, in a strange way, I kind of wish that the AI enthusiasm hadn't um, distracted everybody, meaning um, this there's a bit maybe a bit of a, you know, dinosaur approach.
45:56
This is really great business.
45:58
It's also really hard business.
46:00
I think there's a whole bunch of players who think it's easy and I invest in these 10 companies.
46:05
They all were marked up and all is great and a lot if you think about it you know the global financial crisis was a big reset in 0809 not not so much for tech but um for the financial system and with the exception of 2022 it had only been up and to the right for many people who were then you know 10 12 14 years into the business.
46:27
Um I think there was a there still might be a lot of pain to be felt um from some of the investments made during that period of time and there has really hasn't been a day of reckoning.
46:40
Um and a lot of investors have um jumped on the AI bandwagon, you know, not necessarily saying pay no attention to this stuff over here. We're an AI shop.
46:49
Um but I've worried a little bit about some of the 2020 2021 capital which is enormous sum.
46:56
um being by and large broken capital to be a broken part of the system.
47:03
Um and I used to describe when the internet bubble happened um venture returns went like this and venture egos went like logarithmically and then bubble burst and returns did this and egos for a lot of people in the best of business didn't didn't come down.
47:22
Um you know success has many fathers failure is an orphan.
47:28
um you know so uh I I wish there was a little bit more modesty in our business.
47:35
Any advice that you would give to a young investor maybe 30 years old or something having made some investments cresting into that you know that period you talked about earlier that wants to go launch a firm today based on the 30 years of success that you've had at TCV. Do it if you love it.
47:50
Don't do it don't don't do it because you think it's going to be financially rewarding.
47:54
Um it can be but you know success has to proceed has to precede that.
48:00
Um if you add people do it in a measured way and only add exceptional people and we you know we we have had a lot of exceptional people.
48:10
We also have had periods of time where we expanded too quickly.
48:12
um go try to find a segment that um is un relatively unexploited and and therefore may maybe has to be a little more contrarian which also then means the fundraising is going to be harder.
48:27
Um but don't you know don't don't follow the herd.
48:31
Anything else that we haven't touched on across our two conversations that you feel like is an an important ingredient in your story personal or professional?
48:41
I went to high school in a small town of Wisconsin.
48:42
my I we did an aptitude test and my best industry to go into was agriculture.
48:48
Um go going off to college etc.
48:52
But I was a huge John Wooden disciple co you know longtime coach at UCLA.
48:56
Uh and his pyramid of success is something I you know try to live by is is like you need to have your own definition of success not somebody else's.
49:06
um and that you know success is a peace of mind which is a direct result of the self-satisfaction of knowing you've done the best to become the best you're capable of becoming.
49:16
So to me um that's the arick I try to hold myself up to and maybe that's why I don't sleep that well in the morning because I want to get up and continue to uh try to be as as best I can.
49:28
The one other personal angle in a Netflix story which has never gotten uh much airtime um and thank God I thank God I paid attention to my uh first aid training as a kid.
49:41
Um I think it was in 2002.
49:47
Um I had I ended up having to do the Heimlick maneuver on Reed.
49:49
Um so if if value add is you save the life of a CEO.
49:57
Um he had a piece of meat that couldn't get dislodged.
49:59
There's two of us, two of us in a conference room.
50:01
So somewhat humorously, but um uh you know, pay attention to your first aid class. It may come in.
50:07
Say a little bit more about John Wooden.
50:09
So that that pyramid that you described, um you can pick which spot in the pyramid you think is hardest or you've seen people struggle with the le the most or you've seen be uncommon for people to actually pursue.
50:22
say more about your interest in him and and and how you actually do the thing that he advocates. Yeah.
50:27
Well, well, you know, it's it's the the component building blocks that lead up to um definite success.
50:33
And he you know, he had some funny lines like, you know, be quick but don't hurry to this day.
50:37
Not still not exactly sure. Sounds clever.
50:42
But, you know, I I as a youngster, I aspired to play in the NBA.
50:44
Um and so tried to, you know, preparedness was one of his uh key things.
50:49
Unfortunately, I um lacked athletic ability.
50:53
Uh my my career lasted um 15 minutes in college tryyous when a guy with cut off shorts um lasted longer than I did.
51:02
Um and it was re reinforced my um that I wasn't going to be an NBA player.
51:08
Um, in uh my senior year of high school, I was point guard on my team and in the sectional finals, guarded an individual named Bill Hanslick, who was averaging 25 points a game.
51:20
Uh, went on to play for um Notre Dame, which I think where you went, and then the Denver uh Nuggets.
51:29
And I like to joke that I held I I was trying so hard uh because I was always, you know, working hard and pretty savvy on the court.
51:36
I defended Bill Hansick and I held him to 10 points over his season average. So he scored 35 on me.
51:43
Um I said, "Okay, that's what that's what greatness looks like.
51:44
That's not not gonna be my path."
51:46
Um but you know, John was a um ethics and preparation and hard work.
51:54
Um we're all part of the pyramid.
51:56
Jay, so fun to do this with you. Congrats on 30 years.
51:58
Quite quite an achievement and accomplishment.
52:01
Incredible companies built along the way.
52:03
Thanks so much for your time. Thank you. Always a pleasure.