Big Technology Podcast - Which Startups (And VCs) Survive a Bear Market — With Nina Achadjian

Episode Date: June 15, 2022

Nina Achadjian is a partner at Index Ventures. She joins Big Technology Podcast to discuss how large declines in public market valuations impact startups and venture capitalists. Achadjian and I recorded with the S&P 500 down 13%. year to date. That was just last week! Now, we're in full-on bear market territory, with the S&P down more than 20%. Join us for a nuanced conversation on whether our period of oversized valuations was any good, and what to do now that it's over.

LinkedIn Presents. At this moment, the public markets are struggling. The S&P 500 is down 13% year-to-date. NASDAQ is down 23% year-to-date. These are the NASDAQ is the tech-heavy index. Now, you might think this just has an application to public companies, but of course, where are startup companies going to go if the exits are not as promising as they used to be on the public markets? We're going to discuss that and a whole lot more today.

joining us is the perfect person to discuss this. Nina Ashadyan is a partner at Index Ventures, someone who is super knowledgeable about the space, someone who I think you're going to enjoy hearing from a lot, someone who I've enjoyed speaking to in the past about this stuff. Nina, welcome to the show. Thank you so much, Alex. Really appreciate you having me on.

Of course. Great to have you here. So let's just get right to it in terms of what's going to happen to startups. I mean, you hear these numbers, S&P down 13%, NASDAQ down 20 or 23. And you say, ah, you know, pity for the public companies. It's really tough for people who put their life savings into the public markets and want to cash out now. Of course, there's the argument that maybe, you know, people should be long-term investors and not watching this unless they have to leave right away.

However, this does have a real implication to startup companies who, you know, the companies that you're investing in are eventually going to look to IPO. And IPOs might be a separate story from what's happening right now. But they're definitely caught up in what's going on with the market downturn. it seems like nobody wants to hit the public markets at the moment. So from your perspective, what's going on and what does it mean for startups at the moment? Absolutely. Well, you know, I think it's important to set the stage of just the environment that we were in prior to this, right? We had historically low interest rates.

We had a bunch of quantitative easing from the government. So the cost of capital was very cheap. In addition to that, we had some blockbuster IPOs in 2021. And even in 2020, when COVID happened, there was kind of a frozen moment in time in the markets. And then everybody seemed to get on this thesis that COVID brought forward digital transformation from a decade, you know, some things that were going to happen. A decade from now happened in the course of 18 to 24 months. And so all of a sudden, everybody was an investor in startups, everybody from celebrities to, you know, more corporate strategics to, you know, know, great operators that spun out to be solo GPs. So if you were an entrepreneur in the last two

years, you had so many people knocking on your door and giving you very cheap capital. And what does cheap capital mean? I mean, we're talking about, you know, in the past, oftentimes you would sell 20% of your round in a seed or series A company. And some of the numbers got to less than 10% for seed and much less for even, you know, later stage rounds from that. And what that also forced was this compression of round timing. So in the past, typically you would raise your Series A, maybe 18 to 24 months after you raised your seat. And then from Series A, yeah. Can you quickly just talk about like what seed and series A are? Sure. So let's say, Alex, you're deciding to build a software that makes podcasters more successful. And you quit your day job and you go raise what people call a pre-seed

round where maybe you raise somewhere between like 500K to a million dollars. It could have some friends and family. It could have, you know, a couple of very small investors. And you start to think about the idea a little bit more. Maybe you bring on a technical co-a counter. And then you start to bring, you know, have some more concrete ideas about your team and your market and your value proposition. And you say, you know what? If I hire, let's say, three or four engineers, I could really build this and get, you know, a handful of customers on this. And that's when you go and you raise your seed rounds. And typically seed rounds were prior to this crazy market, you know, like two to three million dollar rounds. And in the last two years, we had seen

seed rounds grow to like five to seven million dollars because there was just so much demand. And if you're sitting there as an entrepreneur, you're like, wow, like I might as well take this money because, you know, my competitor raised four. And that means that they can hire more people than I can or go to market or spend more marketing dollars faster than I can. And so there was this dynamic to kind of take more money. And then Series A is typically the round where you have a handful of customers. Usually you have some revenue. You definitely have a product and you go out and you raise, again, in a prior life, it was like a $7 to $10 million round. In the last two years, it got from like $10 to $25 million round. Now, what happened was because there was

so much capital, when a round would get announced, all of a sudden, all these VCs and solo GPs and even hedge funds and crossover funds, they would go to the entrepreneur and say, I know you just raised $10 million, but why don't you take another $30 million? Here you go. And what that did was made the valuations creep up so much far in it, so far in advance than what the traction of the company was. And I think today in this market, there's just kind of a reality check where, oh my goodness, I raised at a billion dollar valuation. I have $5 million of revenue. And, you know, if I look in the public markets, there's companies that are doing $500 million of revenue that are treating at $5 billion. And I don't understand how this math works. So

a long answer to your question. I think in reality, what's happened right now is valuations just got way out of whack the last two years. I think we're seeing a cooling of that. And I think we're going back to a focus on fundamentals. You know, what demonstrates that you're an amazing company? It's not what price you raised that. It's how much revenue you grew year over year. And are you doing it in an efficient, eventually profitable way? It always strikes me as odd that founders would want such high valuations.

I mean, like you outlined it just now, with those higher valuations comes much higher expectations from the VCs. and ultimately, you know, if you're going to go public from the market. And it always seems to me like it ends up putting a crushing amount of pressure on a company to end up taking all that money in. And I know it's really hard to resist. But it seems in some cases foolish to be able to take, you know, that much money when you're just, when you've just been able to stand up a product with a little bit of revenue. What do you think?

Yeah, well, you know, there are some rational reasons to do it. One is dilution. So as a founder, when you think about, you know, you start out owning 100% of the company. And then in the past, typically you'd give up, you know, 20% and then another 20%. And by the time you got to IPO, if you own 10% of the company, you know, you were lucky. And so what happens was entrepreneurs were like, oh, wow, I could beef up my balance sheet and only give up less than 10%. This seems like a great deal. In addition to that, as you probably know, and as you've covered, there's a lot.

been an explosion of new companies being formed every single day. Well, what does that mean? That means there's a lot more of your competitors out there as well. And if they're raising big dollars, like I said, it kind of puts some pressure on you to do it. The other dynamic, I don't think a lot of people have really talked about is what that does to your option pool. So all of a sudden, your options are valued at a billion dollars. You go hire this like dream VP of engineering And all the options are priced somewhere around, you know, your 409A, which is oftentimes pegged to your last round valuation. And so your VP of engineering is sitting there thinking like, oh, awesome, I have all these

options. And then this year, a lot of these people are sitting here thinking, oh, my goodness, there's no way this company is actually worth what it raised that last year. And my options are probably going to be underwater. And I think that's a dynamic. Unfortunately, a lot of founders just didn't have exposure to when they made the calculus to raise at, I think. these very high valuations. Yeah, do you think there's going to be at this moment a big exodus of

talent? Because the, like you mentioned, the co-founders, the C-suite who were getting paid what they thought, probably millions in stock, you know, now look up and they're like, uh-oh, it's not actually worth that much. Yeah, well, a couple of things are happening, right? I'm sure you've read all about the layoffs and the hiring freezes and the slowing and hiring. What the public market focus has done is it has really shifted growth at all costs to show me growth, but show me you can make money doing it, essentially profitability. And so this has had a domino effect, much more so on later stage startups than like a seed or series A. But the conversation in every boardroom at every growth stage company is, how do we cut burn? And really, the North Star metric everybody is looking

at is if I spent $1 of burn, how much net new revenue or net new ARR did I unlock with that $1. And so that's, that really has accounted for a lot of these hiring freezes or slowing of hiring. And so, you know, I don't, I think that in uncertain times, people, people oftentimes flock to quality and safety. And so I think there's both dynamics. Startups will be slowing hiring for sure, but also maybe some executives will say, I don't really see like a 10x upside anytime soon from what I'm seeing in the public markets. And maybe they go back to some of those safer companies like the Google's, Facebook, Amazon's of the world. Maybe this is good. I wrote recently Welcome to the Age of Building Brick by Brick. That was in Medium. And it is sort of as,

and I was listening some examples of companies that just got way out of their skis in this, raise a ton of money, you know, get high valuations stage and then try to justify them. And I cited like some of the most extreme examples. You have the we work where Jack Ma told Adam Newman, not Jack Ma, it was Masayoshi's son told Adam Newman, you got to be even crazier than you are. Adam Neum was already crazy enough and handing him billions of dollars and be crazier. I mean, it's sort of emblematic of the era. Then there's also smaller movements like within Zenefits, for instance, where Zenefits, you know, got this big valuation, was told it wasn't going fast enough, ended up making some ethically dubious choices to help some of their benefits agents pass these tests.

And, you know, the company went through some really hard times then. These were both solid companies. I thought WeWork was a great company in the right time until, you know, got crazier. Zenefits seemed to make a lot of sense. but this push to have high valuations, get big fast, look at, you know, the competition and try to beat them at whatever cost it is, ended up creating a lot of crazy in the market. So do you think it's a good thing? Maybe we end up in this more rational market where companies start building brick by brick. And a lot of the companies that would have been great companies initially, but ended up not becoming great companies because, you know, they try to run a marathon after a five mile practice run, you know, might now actually be able to make it.

happen. What do you think? Yeah, I do think it's a healthy correction. I would say everybody was shocked at the speed of which this, at the speed and magnitude of this correction. And it's very different than 2008, where 2008, you know, you really had a huge platform shift in terms of mobile, you know, iPhone coming out and payments and all of that. And so I do think it has really refocused us back on the basics of business building. And I think people will be a lot more thoughtful around investing the cash that they have on their balance sheet. The things I don't think will change is, look, at the end of the day, venture capital evaluations, yes, they're impacted by public market multiples, but they are truly a function of supply and demand. If there are five VCs out there

that all want to invest in the same startup, oftentimes the highest price or close to the highest price will win. And so that drives up the price. It's natural bidding pressure. And so, you know, I don't want to overcorrect by saying that this has impacted the entire private markets. I think if you're a CED or Series A company, I don't think valuations have really come down that much relative to last year. If you're a growth stage company, it is completely different because you have going public on your horizon and, you know, your public investors are telling you, they really care about profitability and high growth at the same time. And so I think for the companies that are just starting out today, it's actually a great time because you kind of get to

see like, oh, wow, this is what could happen. And that's, that's, you know, good muscle memory for you as you're building your business, that it's not all times of like easy cash. And maybe some decisions you make very early on will actually lead you to a much longer, durable, sustainable company as a result. Right. And this, by the way, hasn't been just starting in terms of tech companies, especially going out and IPOing and not really meeting investor demands, VC demands. I mean, I think there's a stat that you talk about after 2018, the number of tech companies to go public haven't done a great job returning late stage investor capital. Can you expand upon that a bit? Yeah, sure. I haven't refreshed this data point in a few weeks and the market has moved so much.

but I'm sure it's still true, given where the market is today. Yeah, it was that like, I think a third of 2018 IPOs or a good portion of 2018 IPOs are actually trading below their original IPO price, which is pretty shocking to think, because those companies have grown, you know, they've thrown off a lot of cash on their balance sheet in some cases, and they're still trading below where, you know, you and I would have bought the stock in 2018.

I would imagine. So this is, it's great to be able to speak to someone, you know, working at a venture capital firm. I would imagine that there are alarms that go off inside at least the late stage VC firms, the ones that put in money and, you know, the series C and D, which is basically like, all right, we're ready to get this out the door. And they haven't been able to return their money in ways that they hoped, even in winning stocks, the ones that have, you know, actually made it out to the public market. So how do you think they're going to adjust? And do you think we're going to end up seeing less IPO? as a result. I mean, companies were already staying private forever. So what happens? I think late stage, if you're only focused on late stage, it is a really scary place to be right now. Because oftentimes when you underwrite a late stage growth investment, you're looking for at least a 3x return on your capital. And if you've paid, you know,

something between one to $3 billion as your first check into the company, then there's just not that many companies today that are valued, you know, over $9 billion in the same zip code of where you forecast the revenue to be of your company, you know, at the point of going public. And so I think it is a very scary place to be. I do think that is why the conversation has been preserved cash so you can grow into that valuation. And on the IPO market, you know, we did see Instacart come out and file their S-1. There are rumors that they, will still go public this year. We'll see. I think that some of the best companies can go out in this market. And I think there's a backlog of dozens, if not more, of companies that were planning on

IPOing in 2022 and have just hit the brakes and said, you know what? It's all right. The goalposts have moved in terms of what the buy side, you know, public investors care about. We're going to spend a few quarters kind of beefing up the story on, again, showing that we can make money with this business model. And I think we'll probably see a bunch of IPOs come out next year as a result. And what about the total pool of venture capital money that's going to be available to startups? Let me read you a little bit of the recent Wall Street Journal about Tiger Global, which I know is an outlier, but it's a fun thing to jump off on. So here it is. Tiger said in a note to investors that its hedge fund, which managed $23 billion at the end of 2021, was down.

and this is an amazing number, 52% this year, 52%. That's one of the largest losses ever by a hedge fund. It's other large stock fund, a long only fund that manages 11 billion at the end of 21 and doesn't short stocks has lost 61.7%. Yeah, I read that same article as well. Well, look, I mean, I think the hedge fund world is very different than the VC world. And what's interesting about the venture capital world is last year, you had $330 billion raised for venture capital. So what does that mean? That is committed capital that VCs have to deploy over the next two to three years.

So the demand in a way, or I should say frankly, the supply of money is locked up on venture capital. And you can't redeem money. Like once you commit to the VC and once you invest, it's not like a hedge fund where you can ask for the money back or sell the public stock positions. You can't sell shares in startups most of the time. And so I do think the dollars are still there. I do think that will support the startup ecosystem. And I think over the next two to three years, you know, those dollars are going to have to be put to work. What it probably will do is, again, flight towards quality. I think a lot of people will go after what are very obvious winners in the startup market

for growth stage, which means those valuations will probably still be high. You know, I think it's, it is shocking to see the losses on the public side and also probably some of the losses that will come on the private side if companies can't eventually turn profitable and go public. Okay, so Tiger is a hedge fund, but it's still competing with venture capitalists try to put money into companies. So to put a finer point on it, do you think that there's going to be a contraction in the amount of money that goes into that goes to venture capital firms to be able to invest in startups because

again like you mentioned at the top zero interest rate policy is over so companies or investors no longer need the riskiest options not to say that VC is the riskiest options good track riders in a lot of places but like it's and it's among them so yeah what do you think that the level of money going into VC contracts and what does that mean if so probably like we probably won't see a lot of crossover funds come to super early stage. What's a crossover fund? Crossover fund is a fund like Tiger Global that does private and public. KOTU is another great example of that.

And that was a recent phenomenon, right? Like when I started in B.C., there were no hedge funds that were investing in private startups at all. There was a pretty black line between the two. So I do think we will see some of that money go away. But I think given we're coming off a record year of the most committed. capital to VC ever by an order of magnitude, I think there'll still be a healthy amount of money in the system to go around the next two to three years. Right. And VCs are also kind of like

startups in a way where the money that they get, they have to raise. Now, you know, we don't in the public really get a chance to hear a lot about that raising process. But I mean, I'm sure it's really interesting. Now, if you're, you know, in a position to raise a fund for a VC, and we'll talk generally here. You're going to go to investors. They're going to know that that stat that you talked about that a third of companies, maybe it's a half now from 2018 onward aren't returning the money from at least the late stage valuations or dropping evaluations. So what is the compelling and now interest rates are going up, which means that all safer investments are returning something better. What is the compelling argument to the people funding the funds to keep

investing in venture capital? Look, I mean, I think at the end of the day, venture capital, although the riskiest, it has one of the highest returns if you get it right. And I think a lot of LPs, you know, most of them are institutions, endowments, pension funds, and oftentimes they have 20 year plus relationships with venture capital funds. So they've been through the dot-com bus. They've been through what happened in 2008. And they've seen this story. And I've seen this story. And I think the bull case is this is actually the best time to invest in venture capital because the valuations have come down. And then later on top of that, the fact that we are so early in digital transformation.

I mean, think about all the things you and I still do with pen and paper, right? I mean, there are massive industries, healthcare, education, government, pharma, oil and gas that still haven't been disrupted by technology. I heard this incredible staff by the AWSEO a few months ago that 80 to 90 percent of workloads still happen on premise. And so I think you sit there as an endowment or a pension fund, you know, chief investment officer and you say, okay, well, you know, I can invest in real estate, I can invest in public markets. But if I really want something that's like shoot for the stars, I could invest in venture capital. And actually, this is probably the best time to do so. Nina Shadian is with us.

She's a partner at Index Ventures. We've been talking about the impacts of the downturn on venture capital. When we come back after the break, I want to pick up on the different type of downturns we've had, 2001, 2008. Where does this play in? And then we'll also talk a little bit about what companies are hot these days. And maybe we talk about crypto as well. We'll be back right after this. Hey, everyone.

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like the one you're using right now. And we're back here on big technology podcast with Nina Ashadion, partner at Index Ventures, also a former financial planning analysis lead at Google for the big tech connection. We have it here. Nina, what do you think? So you mentioned, you know, dot com, 2008 downturns. How do you think this one actually compares to those? We're hearing all the time about, you know, how people are saying they're sure there's

going to be a recession in 2023. I'm seeing, you know, people respected analysts expecting the S&P to drop another. 50%. What's your perspective on it? Yeah, well, you know, I think the story is very different than 2008. And I'll use that as the comparison. You know, in 2008, what happened was we went from higher interest rates to basically zero. We went from no quantitative easing to quantitative easing of the government. And then we had, as I was mentioning earlier, the tectonic shift and incredible invention of the iPhone. And so actually, coming out of the financial crisis, there were the perfect ingredients for technology to take off. And that kind of has led us to this incredible bull run that

everybody talks about. Today, the directions of which we're going are the opposite, right? Interest rates are going up, not down. So money is getting harder and the cost of capital is going higher, not lower. That said, I do think there still are increasingly. incredible things like breakthroughs in AI, for example, crypto, you mentioned that some people are very bullish on. That could be some of those tectonic platform shifts, as well as, as we also discuss just the basic shift from, you know, doing things on premise and with pen and paper to the cloud. And so I think the ingredients are still there. It's just a different environment in terms of the fiscal policy that tech will need to thrive in going forward.

Wow, interesting. So I'm just reading between the lines. It kind of sounds like you're more pessimistic about what we're about to go through than what we went through after 2008. Well, 2008 wasn't really about tech stocks per se, right? It was much more, you know, the mortgage-backed securities blowing up and all of that. I think I'm, I wouldn't say I'm pessimistic. I would say I'm pretty optimistic about the demand for tech. I would say the cost of capital, undefatement. undoubtedly is not going to be as cheap as it was in the past. Yeah. And the AI stuff is interesting. I just got a chance to, well, sit in with Open AI doing a demo of the Dolly program. Oh, yeah. So cool.

It's amazing. You just type in whatever you want and it's, it'll nail it. It's pretty special. And I kind of think that Dolly is like one application where you're trying, where you're starting to see like, you know, real world AI. Yeah, AI application and wonders that this stuff can do. However, it does also seem to me like it's more of like a back-end thing, kind of like the technology behind the technology. So do you think it's going to be like more Dolly type of stuff or more like enterprise stuff that's going to get AI inside it, which is where AI is actually going to make a difference? Well, actually, one of the areas that I focus on is the enterpricization of AI.

So what does that mean? You know, today, like you said, a lot of the advancements of AI have benefited engineers, data scientists, maybe, you know, a lot of people. working on machine learning models. But has it impacted a finance person, a salesperson, a product manager today? No. But what has happened given some of the advancements in the last, I would say really 18 months of AI, is that it has unlocked, especially because of natural language processing, a lot of front-end business applications. So I invested in a company called Gong. Gong provides AI-powered insights for salespeople. It basically listens to every customer call a salesperson has and tells you and gives you

analytics on what customers are actually telling you in terms of why they didn't buy the product, why they did buy the product, were they using a competitor? And I think we'll continue to see more and more use cases like that. I also invested in another company called Deep Scribe, which uses AI to help doctors avoid doctor burnout. So today, if you're a physician, you meet back-to-back 12 patients a day, and then at the end of the day, it's a law that you have to input into an electronic medical record all of the patient notes that you took during the day. Well, doctors are so exhausted by the end of the day. They have to go back and look at all their notes. Remember what their

chicken scratch, you know, said about this patient versus that patient. So oftentimes, they end up having to hire a scribe for $50,000 to $100,000 a year and dictate notes to them and the scribe just writes it in the EMR. Well, what this company DeepScribe does is they use AI to listen ambiently in the background to the doctor-patient conversation and summarizes the notes exactly in the fields for the EMR for the doctor. So the doctor can spend 30 seconds just reviewing it saying, yep, this looks good, submit. And so I think we'll start to see a lot more real applications of AI for non-technical functions going forward. You know, that's great. And, you know, my dad is a podiatrist, and I think that he spent, you know, a significant percentage of his life,

maybe like maybe 15 to 20 percent of his waking hours doing paperwork. And I knew that AI one day was going to be able to do it. I have to send this to him. Yes, definitely. Do you think that like a, we're hearing a ton about AR and VR. My perspective is this is an enterprise first technology outside of gaming. Do you see it the same way or do you see it as a consumer technology? You know, my question on AR and VR has always been the hardware component of it.

Actually, when I first got into venture capital, I remember meeting a company that had this headset that plumbers and electricians could wear when they were doing the job. And they could basically help with augmented reality. they could pull up the manual of how to fix the shower right then and there. And I was like, oh, my gosh, this is going to be huge. But there were so many issues with the device that's where the battery, the weight, the heat, all of that and how expensive it was. And so I think I'm still waiting for the like aha moment on hardware. I know Oculus has gotten really great and, you know,

from an entertainment standpoint, has offered some incredible breakthroughs. But I think on the enterprise side, I agree with you in terms of the killer application is probably on, you know, that side of the equation versus just entertainment. But I just haven't seen the adoption of hardware, the hardware hasn't kept up with necessarily the software advancements just yet. So we've talked about, we've talked about AI for enterprise. We've talked a little bit about AR, VR. I'm curious, are there, you know, and also for a long time, especially Andreessen Horowitz,

before they got onto this crypto binge, which we'll talk about in a second, they were talking about how tech was going to be big for construction and health and biosciences in a way that it had been for like media and finance in the past. So I'm curious from your perspective, where do you think the most opportunity is now with young tech? And maybe it's a trick question because it's everywhere. But like maybe you could pick a couple of like the most categories that might surprise people that, you know, have the most potential and that you're most excited about.

Well, I focus a lot of my time on investing in a theme called vertical software. Vertical software is software built for one particular industry. And in the past, a lot of VCs and also startup entrepreneurs didn't want to invest or start these companies because why would you want to invest in a company that only sells to one kind of customer? For example, like software for salon owners or software for car mechanics or software for moving, companies. But actually what happened was I think people got the market size of these a little bit wrong because in parallel to a lot of these business owners being passed, you know, the

businesses being passed to a younger generation who wants to run their whole business from their iPhone. We also had the advancements of fintech infrastructure like Stripe. So all of a sudden, a vertical software company like Toast is a great example as is Shopify. They could charge a software fee for things like, you know, customer CRM, dispatch, scheduling, project management tools. And then they could also process every dollar that went in and out of those businesses. So Toast, for example, they provide these restaurants, the ability to do like menu management, the scheduling of all the waiters and waitresses. But then also they provide the front end of enabling customers to pay from their phone.

And then Toast keeps a very small fraction of the payment that goes through those restaurants. And so I'm really excited about where we are in building vertical-specific solutions for a lot of industries that have been forgotten. I think a lot of these individuals are extremely amazing entrepreneurs that want to use technology, but they want a product that's built by people like them for people like them. They don't want someone who just comes out of Silicon Valley and shows up to their construction site and is like, hey, Alex, let me tell you how you can use technology to run your business. I don't see how that could be off-putting at all. They want someone who really understands their day-to-day. And that's been a theme that I'm extremely excited about.

And actually, I think a lot of those businesses are durable through, you know, potential recessions. And we'll focus on software to make them more efficient. It's interesting hearing you, you know, throw that out and then also look at like Shopify, which is getting crushed in this moment, if that's an example. What do you think is happening there? I mean, I guess you'd be happy to invest in the seed round of that. Sorry, I mean to know. Yeah, exactly. It's probably one of the best venture investments of all time. Well, I think in the public markets, you know, there was a lot of question around, would COVID growth rates continue? Because Shopify had insane adoption when COVID started. I mean, just think about it. If you owned a granola shop in San Francisco and you didn't have an online presence and then COVID happened, your only way of surviving was to build a website with a shopping cart. And Shopify was a perfect e-commerce business.

in the box solution. And so I think long term, you know, a lot of these businesses, while their stocks may be getting punished, you really have to look at the fundamentals, you have to look at how penetrated they are in their core markets to get the full picture of, you know, is there still upside from here? Yeah. Okay. Where do you stand on the crypto?

I don't even know what to call it. Enthusiasm, fever dream. It does seem like a lot of VCs are, you know, talking about web. 3, Crypto. I've seen VCs talk about how like they're seeing the same ideas that they passed on in 2017, recycled and just have a Web 3 at the front of their pitch deck, and all of a sudden they're getting funded. Where do you think, yeah, the crypto startup ecosystem stands today? Are you generally in the camp of the skeptics or the optimists? Well, I don't really focus on crypto, so I don't have a super strong. But there must be a reason for that. Yeah. Yeah, probably the reason is. Yeah, sorry, go ahead. The reason is I think there's so much opportunity in just straight B2B software that that's what I'm laser focused on.

But that said, you know, I do think that there are many people out there that believe this is one of the greatest inventions in financial technology. And I think there's a lot of great promises behind it. But I think there's also questions around regulation. I think there's a lot of questions around visibility within customers and how safe these assets really are. are. And so, you know, this is probably also just a healthy reality check of not everything that goes up into the right necessarily has the fundamentals to support it long term. If someone that comes to you with a B2B idea that has blockchain involved, are they more or less likely to get funded by you than one that doesn't?

As long as they can explain to me clearly in 30 seconds, why blockchain is a powerful value proposition. I will always consider it. But I find that there's few and far between that can really do that. Okay. Yeah, that tends to be what I've seen as well. Not to say that it's not going to, we just had Gavin Wood on the show, co-founder of Ethereum. I think that his vision is interesting and definitely was some of the more nuanced and like engaging conversations about this stuff. But then I kind of like contrast that with like a lot of what I see in Web 3, which are people who just will not listen to criticism. And that worries me. Like, um, Sri Ram Krishna and I've had some good conversations with him over the years.

But, um, he recently tweeted, uh, one interesting vibe shift is the rise of the anti-crypto media personality, folks who do the podcast press TV hit circuit purely on their opposition to Web 3, even when their day job has nothing to do with crypto in any sense. I tend to think that a field has much stronger, much, yeah, much more strength to it when it's saying all critics come on. I'll engage with this and explain to you why, you know, my technology is better versus how, you know, it's, you know, how dare people criticize? What do you think? I totally agree. Yeah. I think it's a healthy debate. Mm-hmm.

So consumer stuff. We haven't really talked at all about consumer startups, you know, things that like, you know, millions or billions of people would use. It seems to be that a lot of the energy in tech is, of course, on the blockchain stuff, which we haven't really seen widespread deep results on yet, or on the stuff that you're talking about, which is enterprise B2B. What happened to the consumer field? And do you think there's ever a chance that it will bounce back?

Well, I think that consumer is always interesting. It's a space that index also focuses on. we think a lot about consumer marketplaces, we think a lot about the consumer experience on e-commerce, you know, we've thought a lot about the enterpricization of the consumer, like the creator economy. So I do think there's some incredible entrepreneurs out there thinking about how to change things that you and I do on a daily basis outside of our day jobs. But consumer is tricky, right? It's very hard to invest in consumer. It's very binary. You really don't know what technology, let's say a teenager is going to adopt today and continue adopting

many years from now. And so it is one of the hardest and I think most respected type of investing there is out there. Yeah. And it's interesting like the, you know, maybe there is room for something to come in. We thought Facebook wasn't invincible. We think a lot less of that now. But the age of, you know, where there used to be a new fun app to try on your phone, that was social, you know, like we're seeing Be Real right now. I don't know if you tried Be Real. It's this great app. It sends you a notification once a day and you have two minutes to post a photo and it takes a photo from the front and the back camera at the same time. And if you post late, then it's, it tells everybody that you posted late.

And the idea is like, let's be as real as we can be. So, but again, like, it just, that probably is going to be a flash in the pan as well. All right. Why don't we end with this? You mentioned earlier in the podcast, quality startups are going to be, are going to be the ones that make it through this. Maybe you can tell us a little bit more about what you mean by quality startups. And what are the signs that a startup might be on the way out right now? Quality startups, in my opinion, are startups that are solving a mission-critical problem,

meaning your customers literally could not live without your software. And they would be very upset if you went out of business. I think that plus some thoughts around, okay, does the math work? Does my customer acquisition cost eventually pay for itself, given the size of the contracts that I'm signing? And then third, I think entrepreneurs that really are extremely thoughtful in terms of clarity of vision, but also very analytical in terms of execution and the core drivers of their business. I think those are some of the elements that when you see those around the table, you're like,

wow, this is something that is very special. I think those that hire too far ahead of their growth, which by the way was very much the norm, the last two years. Now we've corrected that. But I think startups that will continue to say the revenue is coming, the revenue is coming, but never actually put dollars in the bank and continue to burn really like large amounts of money. I think those are companies that you ask yourself, when does the music stop? And I think that's why a lot of board members and investors are taking a really hard look at their portfolio and having frank conversations with all of their entrepreneurs to make sure that everybody understands this new environment and this new paradigm that we're in today.

And what are the types of VC companies that are going to knock on their funders' doors and get turned away? Because it's going to have to happen for some. I think it depends on your investor base. You know, if you have, if you raised from all friends and family that have lost a lot of money in the stock market, maybe they just, they'd love to back you, but they don't have the capital to do so. I think funds that have, again, gone through numerous cycles and have demonstrated track records throughout different market conditions are probably the ones that would be able to raise capital the easiest. And I think you need to have a strategy. I think you need to commit to your LPs that times are different and this is how my playbook is different.

Okay. And then finally, I know I say the last thing. This is a habit of mine on the show. Best case scenario, how do we, is there a way that you see the market and, you know, the tech world, startups, VC, actually not having so bad of a go of it or at least a very, very short downturn moving back into good times. Look, at the end of the day, it all comes back to what are you selling and how many people are willing to pay for it and how much are they willing to pay for it. And I do think, again, this might be the best time to invest in VC, the best time to start a company because if you're able to sell to end customers in this market, that means

you've really nailed it on a solution or a value proposition that they really want. And so I am really optimistic. I do think that we will see some of the best entrepreneurs be born or the best companies be born in this environment. And I'm really excited to see what innovation takes us, where innovation takes us throughout this cycle. Nina Shadion, thank you so much for joining. Thank you, Alex.

Great having you on. If people want to follow you on Twitter or anywhere that they can get your thoughts, where's the best place? Probably Twitter and LinkedIn. Yeah. Do you want to shout out your handles or anything? It's just at Nina Ashadion on Twitter and just my first and last name for LinkedIn. Okay, terrific.

It's great. We know we're talking with someone who knows their stuff when they're not like sitting on Twitter all day long. I know their exact follower accounts. That's a good thing. Oh, I am, my PR person yells at me all the time, our marketing person yells at me all the time that I'm not doing a good job on Twitter. So, awesome. Well, Alex, I know you got to jump, but thank you so much.

This was so fun. Thank you. Always great to talk. And I'm enjoying your more and more frequent appearances on CNBC, tech check regulars. So I'm going to look out for more of those. All right, everybody, that will do it for us here on Big Technology Podcast. Pleasure speaking with Nina, as always. Thank you so much for listening.

Thank you, Nate Gautany for editing and doing the audio, as always. Really appreciate it. If it sounds good, you like it, this is all up to Nate. So thank you, Nate, for delivering week in, week out. Thank you, LinkedIn, for having me as part of your podcast network. And, oh, if you're a first-time listener, please hit subscribe. I promise you will like it. We do these conversations every week with Tech Insiders and Outside Agitators.

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