208. Pre-Crisis Chat w/ Mark Suster – Mark Predicts the Crisis (Mark Suster)

Pre-Crisis chat w/ Mark Suster - Mark Predicts the Crisis
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Nick Moran Angel List

Mark Suster of Upfront Ventures joins Nick on a Pre-Crisis chat – Mark Predicts the Crisis. In this episode, we cover:

  • Last time we had you on the show was December 2016. Any notable updates or changes at Upfront since then?
  • Just chatting w/ Minnie Ingersoll and she was saying how great the Upfront Summit was and how I need to attend next year… what were the highlights for you this year?
  • Content companies are beginning to optimize for quick 1-5 minute gaps everyone has in their day, on their commute, between meetings, etc. where really short form content can be consumed beginning to end.  You had a chat w/ Meg Whitman, CEO of Quibi at the Summit… and I’m going to read a quote from your blog post about that interview “her analogy of content like “The Da Vinci Code” which had 464 pages and 105 bite-sized, fully realized chapters. In essence, you’re not intimidated by the size of each episode so you dig in and might just read 8 chapters in a sitting before realizing you read 35 pages. And so it is with video.”  Clearly Quibi is trying to capitalize on this short form video content w/ A-List celebrities and over $1.75B in venture funding…  Mark, do you believe this is significant emerging trend or is it overhyped and overfunded?
  • Quibi successfully sold out of $150m in first-year ad inventory even before they launched, which says a lot about the current marketing landscape. Channels like Google and Facebook are becoming saturated, and marketers are desperate to find that new channel that will give them an advantage… thoughts here on the macro digital marketing landscape?
  • Seen any great companies doing last-mile attribution? – Whether it be the corona virus, the election and/or a potential market correction… what do you think the next 6-12 months will hold and what effect will that have on early stage startups, funds and IPOs.
  • What’s the biggest mistake LPs or the VCs that are guiding them, make when co-investing?
  • Who haven’t you gotten yet as a featured guest at the Summit that you’d like to get in the future?
  • Since we last spoke, you’ve inserted an “Inclusion Clause” into your term sheets at the firm. Why’d you do it? 
  • Talk a bit about investing…  You wrote a blog post about key lessons since the first VC check you ever wrote.  Can you highlight the most critical things you’ve learned. – Assessing the intangibles are so important when evaluating an early stage founder ie. grit, personality, drive etc. Are there specifics methods you apply to assess for these intangibles?
  • Are there any traits or characteristics that you think are being over-indexed on by some investors?
  • Jason Calacanis was on recently and mentioned that you work harder for your startups than anyone else… what is your playbook for helping startups and what determines your level of involvement?
  • In early 2019, you wrote a post about why seed investing has declined. You ended the post saying “Seed investing is here to stay (although the firms may change — with some seed funds becoming A investors).” What are the biggest shifts you see happening in early stage VC?
  • It looks as though you took a 4 month “forced hiatus” from the blog.  What was the motivation for the break?

Guest Links:

Key Takeaways:

  1. At Upfront Ventures, they invest about 45% of their dollars in the greater LA region, from Santa Barbara to San Diego, about 25% in the Bay area and about 15% in New York City. 
  2. What’s most important about investing in general, is that you have an edge. That you do something, know somebody or have an unfair advantage in one particular area, that other people just don’t have.
  3. This year at the Upfront Summit they focused on showcasing everything that is uniquely great about Los Angeles, by highlighting LA based entrepreneurs, LA based funds, and also highlighting what unique things LA brings to the market. They also focused on raising awareness by taking on controversial topics such as gender equality, white privilege and sustainability. 
  4. How do you define a brand? A brand is not just your logo or your name, it’s how you represent yourself in the marketplace and how people and the market perceive you. 
  5. Fundamentally your customer is your LP because they’re giving you money, which is your sustenance. In the most simple of terms, a VC’s job is to give back more money than you received. Also from a returns standpoint, giving back more money than your LP’s could get by investing in another asset classes. The way to achieve that is with your product, and your product is a diversified portfolio.
  6. It’s important to understand how to create diversity in a portfolio fund and ultimately what you stand for. Upfront creates diversity across investment types by having market leaders who lead specific practice areas such as, computer vision, applied biology, marketing automation and security software, to name a few. Their goal is to dial in their investments on focused areas and avoid generically spraying dollars anywhere.
  7. For VC’s having an edge on geography matters because you truly never have a market all to yourself. If you do have a market to yourself, you’ll have a big competitive advantage, however those are typically the worst markets. 
  8. One of Mark’s biggest themes is playing offense, instead of defense. Knowing about deals before they’re being marketed and proactively figuring out which of those best fit his investment strategy. Furthermore, getting out and in front of them early, well before their fundraising and providing them with real value. 
  9. A common mistake Mark has seen in startups that build a great product, who have proven product market fit with users, won’t have the right monetization and fundamentally media. People consume more media today than they ever have, therefore the media business or media in general is not broken, the problem is that the economic model is broken.
  10. The single most important part of your job as a VC is to find, identify and have judgment on backing a founder. The other 25% of the job is working with them, getting to know their strengths, their weaknesses and being able to guide them over time to build out their staff in order to compensate for those weakness. 
  11. The industries that will be impacted the most by the coronavirus crisis include hotels, airplanes, trains and especially restaurants.
  12. The people who are most vulnerable are those of lower income who are on unfixed salaries, and dependent on their hourly wages. These impacts will spread from people in the service industry, to hospitality and healthcare. Mark predicts that society is going to be reasonably challenged by this, which will have a major effect on the economy.
  13. Often we operate with this idea of continuity until one day everything changes. Mark suspects that this will be a Black Swan event which will cause a resetting of things like valuations, while investors wait to see what happens.
  14. This time of uncertainty could last one month, three months or even 18 months. There are 2 things that are now changed in this equation, one is cash and the other is burn rate. Mark’s advice to founders it to load your balance sheet now, cut costs and extend your runway.
  15. Mark also predicts that valuation expectations may be greatly reduced after this period of uncertainty.