232. Network Effects; 9 Days Until a Funding Decision; Software as the Foundation for the Modern VC firm; and the Future of Social Media (James Currier)

232. Crisis Coverage w/ James Currier - Network Effects; 9 Days Until a Funding Decision; Software as the Foundation for the Modern VC firm; and the Future of Social Media
Nick Moran Angel List

James Currier of NFX joins Nick on a special Crisis Coverage installment to discuss Network Effects; 9 Days Until a Funding Decision; Software as the Foundation for the Modern VC firm; and the Future of Social Media. In this episode, we cover:

  • Background and path to venture
  • Thesis: Overview of the thesis and your specific focus at the firm
  • Pandemic:  Unique outcomes or behaviors you are observing as a result of the pandemic?
  • Overview of Software:  You’re a huge inspiration to me…  I love that you’re bringing innovation to venture — building software and tools that help founders and allow them to access more investors.  For those in the audience that don’t know, can you give a brief over of the major software and tolls that you’ve built.
  • FAST Program:  You launched the FAST Seed Financing Program ($1M, $1.5M or $2M for 15% of their company) which ran April 16-May 22…. were you allowed startups to apply for funding and you committed to responding in 9 days.  Why’d you launch the program?
  • What did you learn that was surprising?
  • Will you do it again and, if so, what will you change?
  • All this software focus could run the risk of investing in startups that look great on paper but could underestimate or not fully assess the founding team’s mindset.  How do you consider the qualitative?
  • Creators vs. Opportunists:  How do you insure that the founder’s you are backing on true creators with the right motivation instead of just opportunists with great skill addressing large markets?
  • Unusual vs. Conventional thinking:  You have said that exceptional outcomes are the result of unusual thinking and that conventional thinking is the death of many companies — explain what you mean by these types of thinking?
  • 1st time vs. 2nd time founders:  What’s the biggest challenge to working with second time founders?
  • Social:  One of your key observations was that social media is becoming less social and more media. What are some of the consequences of this shift?
  • It seems that social media is moving away from broadcasting towards intimacy and sharing. Does the pandemic accelerate any trends/behavior/psychology within in social?
  • Do you think business models and advertising as a primary revenue stream with have to change w/ it?
  • 3 Data Points…
    • Let’s say you are approached to invest in a consumer social business that has a network effect. Their user base is 20k DAUs and is growing 30% MoM and they have not yet monetized. Catch is you can only ask 3 questions (for 3 additional data points) to make your decision.
    • What 3 questions do you ask? 

Guest Links:

Transcribed with AI

Intro 0:03
welcome to the podcast about investing in startups, where existing investors can learn how to get the best deal possible. And those that have never before invested in startups can learn the keys to success from the venture experts. Your host is Nick Moran, and this is the full ratchet.

Nick Moran 0:23
James Currier joins us today from Palo Alto. He is managing partner at an effects an early stage VC firm that focuses on companies with network effects. Prior to NSX. James was an investor at battery in the late 90s. And went on to found and lead multiple companies including Jeff tickle, wonder Hill and iron pearl to name a few. James, welcome to the show.

James Currier 0:44
Thanks very much, Nick. Glad to be here.

Nick Moran 0:46
Yeah. So I’d give a very brief background. Can you talk us through kind of your path to venture?

James Currier 0:52
Yeah, I I came out of school, I had seen a job posting at Princeton about this company called Summit. And I went and tried to track them down. But they decided not to hire an analyst that year, kept in the back of my mind, heard from a friend that he had a friend who had been adventure a year and a half later, I called that friend up. He met me for lunch downstairs, he was working for Summit. And he took me upstairs and the next next weekend I got interviewed. In this incredible round robin tournament, that summit would run on a weekend. And I was the last man standing, they made me an offer. I turned them down to go back and work in Los Angeles where I’ve been working with my boss and they move on to Hong Kong and work at Star TV in Hong Kong, and then moved to China started learn Mandarin came back and tried to get a job with them again. And they said no, no, no one turns us down. Get out of here. Get out of here, pal. And at that time summit was sort of the top the top dog on the east coast of venture capital and in an industry with 80 venture capital firms at that time. And, and so, but my friend at Summit said, well, we can’t hire you. But it’s guy named Sean Callahan, who runs True Ventures now. And then he said, but you should go talk to battery, they’re looking for an associate. So I went and talked with battery ventures. And they hired me as their third associate on that team. And we hired a whole bunch of people while I was there to associate like Dennis Phelps was at IVP. And Ravi Mohan has been at Shasta or Dave Taylor’s who stayed at that battery. So we were involved in that generation of investors. And then, you know, did a bunch of investments while I was there, and then went off to HBS. After that, and then decided at the end of that not to take a general partner role at a venture firm in 99, when it was still hot, but rather to become an entrepreneur, because I had an idea I couldn’t get out of my head. I literally couldn’t not do it. I was not sleeping, because I was so excited about this idea. That’s the time to do it. Yeah. And so I became a founder. And that was that. And I was 20. That was 20 years. And then then I got back 15 years. And then I got back into venture. But five years ago, when we started an accelerator, then effects but in effects is actually a venture firm. Now we’ve, we’ve dropped that two and a half years ago, and now we’re just strictly a venture firm.

Nick Moran 3:03
Got it? Yeah. And the origin story on and effects. How did that come together with the founding partners, we,

James Currier 3:09
we had tried an incubator in the 2000s. And realized that was not a business model, it was just a way for us to find the next company we would run, which is a good thing to do. But it’s not a business model. And we looked at the lack of software in venture, we looked at the lack of really good content, we looked at the lack of network effects in venture capital, there are some scale effects for companies like Andreessen and Sequoia, but no real network effects except for Y Combinator. And so we thought, you know, if there’s going to be a new venture firm that’s going to really make some waves, it’s going to be a company that is both focused on network effects, as well as trying to build network effects itself, using software content and network. So that’s what we decided to do. And that was 2015. I had been living in Switzerland for a year and a half with my family on an adventure year. And when we came back, Stan Chudnovsky and I, who had founded four companies together, he and I decided to do it at the same time as like a bird called him and said, Will you come run messenger? And I said, Dude, you gotta go. It’s a historic company should do that. At the same time, gi Levy, Weiss, who, as we know, was the best earliest stage investor in Israel. He came over for dinner one night, we’d been angel investing with him for a few years. And, and he said, if you guys are going to do this skill thing, I’ll do it with you. And Stan, and I didn’t even have to hesitate. We said yes, right immediately. Give us an unbelievable heart and an unbelievable mind. Very, very rare human being. And a great guy. And, and then about a year later, giggy and I were looking for, you know, Stan was getting busier and busier with Facebook, San Diego, and we’re looking for a third partner here in San Francisco and Pete Flint, reached out to giggy. And he he I’d known Pete Flint for six years and said, Hey, you and James are doing this what’s going on? He says good talk to James. So after about eight months of talking with Pete Pete joined us and so the three We have us are basically the cofounders of FX stands off of Facebook. And and we’ve raised 150 million our first fund and then a $275 million second fund.

Nick Moran 5:12
Very good. Yeah, when one of the more inspiring firms in the Valley and I do want to talk about the software and the tools and a variety of the things that you guys have created to innovate around venture, but before we do that, can you kind of give the the overview of the thesis and also what you focus on?

James Currier 5:30
Yeah, so the thesis is that, if you look at the tech world, in the last 25 years, we did, we did a study, looking at all the market cap all the all the returns, if you will, in the tech space since 94, it’s since the internet came along and connected us all and changed the fabric of what tech investing really means. And in that time, 70% of all the returns have come from the 30% of businesses, which have network effects at their core. So we’re talking Facebook, eBay, you know, Google that, the companies that not Amazon, but but but the companies with network effects at their core account for 70% of all the returns while in the tech space. And so, you know, we had been building marketplaces, we’ve been building companies with network effects, and without them, and obviously building the wisdom was much better. So we, that was the thesis. And I focus on, we could do about 5050, consumer, with b2b. And we do probably 10% in the biotech area, probably an increasing amount over over time in that space. Because you can build these these these bio platforms, where the more customers you have, the more data you have in the system. And the further ahead you get, we’re starting to see that with a number of companies like mammoth biosciences, and whatnot. And there’s more computation in computational biology as the years go on. So there’s an opportunities for network effects there. And, yeah, that’s it, we focus on seats. So we make wonderful we invest one to $3 million for 15% of companies. And that’s our, that’s our sweet spot, we are very hands on, you know, we’ve for the three of us have founded and sold $15 billion worth of companies, 10 companies for 10 billion, and which is about twice as much as Andreessen Horowitz when they launched that firm back in 2008. And so we were very hands on with the companies were were pretty intensive and helping with every aspect of the business, having been through it many times ourselves, how

Nick Moran 7:20
was the pandemic affecting your approach,

James Currier 7:25
we felt as if this is a great time to invest. And we saw a lot of people pulling back. And so we actually took some software we had been building for the last few years and accelerated the launch of a thing we call the fast Seed Program to try to deploy capital faster. And, you know, fast is just a way to have founders say, Look, you know, this is the stage I’m at, if you give me a million bucks, I’ll give you 15% of my company, let’s and we try to respond to them within three days, and let them know whether we’ll meet with them. And then we try to make an investment decision within nine days. I think some of the companies, we’ve invested through this, we’ve reached the 90 day mark, but in others we’ve had to go past in order to do a little bit more due diligence, before we deploy a million and a half or $2 million. And that it’s worked out great. We’ve tripled the rate at which we’ve been investing by using this process. And by using the software. And I think the experience overall has been really great for the founders, they’re they’re getting more feedback from us faster. We’re more attentive, we’re on the clock, we’ve actually built software to so you know, we’re up till two in the morning, looking at deals and giving people feedback. Because we’re on the clock, we’ve given people an SLA, a service level agreement, and we want to hold to it. Yeah,

Nick Moran 8:39
it made a big splash in the the general community when you guys launched, I think it was 1,000,001.5, or 2 million for 15% of the company. You ran it from the 16th of April to May 22. This year, and you committed to getting back to founders in 90 days, which is remarkable. How many total companies applied?

James Currier 9:03
We’re not saying but it was it was a lot. And it was mostly from the US and Israel. Although some stragglers came from Europe and whatnot, which has been which has been interesting. You know, largely for us, it was a way of giving founders access to software tools, which are going to help them accelerate their fundraising. I think that the PowerPoint is now anachronistic. I think the intros that founders get from warm introductions are not very good. The introducers are not skilled at introducing companies to VCs. I think the inefficiency of the venture industry, while efficient in some ways, could be improved dramatically, I think was software. And so for us this was a way of stress testing our systems that we’ve been developing for a couple years and worked out pretty well. It was a lot of work. We were all cranking for for weeks. I’m trying to update the software, change the language, fix the bugs, fix any errors we made apologizing to certain entrepreneurs if didn’t go perfectly right. But it was a good experience for the firm. I think it brought us all together. And we, we’ve made some great investments out of it, which is up to the founders to announce. It’s not up to us to announce that we’ve invested in that.

Nick Moran 10:19
Sure, sure. Any surprising learnings through through that process?

James Currier 10:25
I think one thing that would be interesting for people to hear is we’re surprised at how similar many of the company ideas are. And I think, I think back to the year that two Robin Hood movies came out of LA, at the city in the same summer. And you think to yourself, how could they possibly have had two Robin Hood movies after no Robin Hood movies for 25 years in the same summer. And the reason is that within our ecosystem, the ideas are floating out there in the ether, if you will. And one of the challenges as a founder today is not only to figure out a good idea, and then get the right team and capitalization to make it happen. But it’s to find an idea that not everybody else also had. It’s as startup life becomes written about and it’s it becomes a thing. And people are deciding should I go work for an investment bank, or should I go do a startup, which would never was the case 20 years ago, like you either were on personality, or you’re the other you were the crazy and you’re gonna go do an entrepreneurial thing. Or you were you know, mainstream and talented and you would just go make a lot of money in the BCG and Goldman or whatever. And now, because people can read about founding and people can read about venture capital, because of the blogosphere, which has only existed for 15 years, it’s a thing. And so the the number of people who are trying to do startups, the number of people who feel like they understand startups enough to, to actually start a company is, you know, orders of magnitude bigger. And so what we’re seeing is a lot of people coming up with very similar ideas. And I think one of the next things will happen over the next four or five years is that there will be some sort of a software platform where these things you as a founder can go in and sort of take the temperature about how crowded is this idea? Okay, I’m doing telehealth, you know, for x, because the, you know, the CPT codes changed, the CIC codes changed, you know, the government, you know, 24 months ago? Well, it turns out, there’s a lot of people doing that, because everyone saw that those codes changed. So, as an example,

Nick Moran 12:29
do you think you’ll do it again? And if so, what will you change?

James Currier 12:34
I think we will do it again, I think we will make it more narrow, where we’ll go after a group of people, either geographically, or, you know, a founder type or a particular verb, you know, a particular type of sector, you know, we might do a bio, or do a biotech one, or we’ll do something like that,

Nick Moran 12:55
you know, all the software focus, in theory could run the risk of producing startups that look great on paper, but maybe under estimating are not fully assessing sort of that founding teams mindset and some of the qualitative factors like how do you add the qualitative into this?

James Currier 13:16
Yeah, it’s a good question. We, we do a lot of zoom time with people. I think that, you know, four hours a zoom is worth about 45 minutes of in person. Yeah. And, and so you have to do a lot more zoom time with the founders to get to know them. Number two, you know, knowing people in the network ends up helping, like, it turns out that a lot of the founders applied too fast, were people that we knew through other people. And so having back channels to hearing how these people are in real life, or how they’ve been, from people that we know, and trust continues to be helpful. I think that as we move toward digital and remote, it’s great, but I don’t think we should abandon the idea that trust networks matter. I think. And I think that the third thing that can happen is that because we have zoom, we can get in touch with more backchannel references, we can talk to more of the VPs of the company one on one, we can talk to more of the directors of the companies one on one. And we would rarely have asked that before, because the the two founders would be coming to our offices, and we wouldn’t get a chance to meet the rest of the team zoom has allowed us to meet more depth within the team to understand how they work to understand the quality of those people to understand what those people think of their founders, you know, offline. So there is there are areas where you can do more due diligence and get a more of a sense of teams. But that’s in the light of the fact that we’re losing a lot because we’re not actually meeting them in person right now. Yeah, the

Nick Moran 14:54
interpersonal dynamics between founding team members or founders and other partners is is tricky, tricky to tease out over, over zoom, at least from from our standpoint. So, you know, we talked about this a bit at the top. But NSX has been a big inspiration to us, we’ve built a bunch of software around capital raising. And that’s kind of become our calling card with founders. And very inspired by what what NSX has done as we continue to add and in and do more that scalable for founders. So I love the fact that you guys are bringing innovation to venture, whereas most firms are just, you know, collections of mercenary investors kind of doing deals. So I love that you’re building software, you’re building tools, can you give the audience a sense for some of these tools you’ve created? Just beyond the the FAST program, there’s a number of things that that I use on a daily basis. And I’d love for the audience to hear a bit about each one.

James Currier 15:58
Sure, sure. We, the first thing we launched was a thing called signal. If you go to signal dot and effects.com. It is essentially a network and directory of investors. So over 9000, people have built profiles there, so that they can bring their investing profiles to the world. LinkedIn isn’t a particularly great profile for that. The AngelList profiles are moribund at this point. So we figured that we needed a way for founders to be able to search for categorize and then list out the investors that they want to potentially raise money for. And so sort of the opposite of AngelList. And Angel, as you would put up your profile as a as a founder and say, Please Invest in me. Well, what that did was that led to not very good companies, and not very good founders wanted to use the AngelList platform. So we reversed that. We said no, let’s, let’s have the VCs have their profiles and say, Please let me invest in you. And so now the founders get to go in the privacy of their home, can they they can browse all the different investors and decide who they want to reach out to, and then hopefully find warm intros to them. And, and, and so that’s, that’s an ongoing project that that project grows, you know, 510 20% a month, depending on the month, and people using it more and more, more, more people are getting interconnected, we’re building a sort of a network effect around that. And, and I think it’s really useful 10s of 1000s of people use it a month. And that’s growing all the time. And so that’s sort of the the foundational basis for what we’ve built. The second thing we built was a thing called the company brief, and that’s at the company brief.com. And it’s a private brief. Think of it as a more advanced PowerPoint, it’s a it’s a digital object that you create, you own as a founder, you, you no one sees it, unless you send the link, it’s totally private to you, you can change it, modify it, it’s yours. We never look at it. If it’s, even though it’s on our servers, we don’t look at it. It’s not, it’s up to you. Okay. And, you know, we’ve all been in this industry for many years, it’s much more valuable for us to build tools and build our brand and help everyone than it is for us to look at little things in the background. So that’s not an issue. And you get to send that out to everyone that you want to see your brief. And that includes your PowerPoint, that includes your video. And it includes 14 questions that many founders don’t know, to ask themselves and make clear to investors. Because, you know, it’s hard to know what investors want. So we’ve simplified it to say, look, they want to know where you’re located, they want to know how many people are there, they want to know, you know, what the traction is, what is the business model, like break it out, because often these decks go from eight slides to 24 slides to 48 slides. And it’s, it’s, it’s mind numbing for the VCs, to look at seven or eight of these things a day, and try to fish through these PowerPoints to try to find out the information they need to figure out if they should take a meeting or not. And so the brief allows you to shortcut that, and get to the right VCs by giving them all the information so that they can make a good decision about Yes, this is near my sweet spot, this is something that would be appropriate generally, for my firm to invest in, I want to know more. And so that’s been very effective. We’ve had, you know, 10s of 1000s of founders now using that to help explain their business to to VCs. So that’s at the company brief. And those are the, the two main ones fast was basically a combination of the brief with with the rest of the tools that we’ve built on the back end for our own personal CRM that is not open to the world.

Nick Moran 19:27
Yeah, that I can see the value of the brief, just in trading deals with other VCs, you know, that’s like half my day. And typically they send over you know, Hey, there’s this interesting deal. Maybe they send a summary deck, and then it’s it’s email tech back and forth. Where are they located? How much have they raised previously? You know, what, what are they raising this round? There’s all these pre qualification filters that we go through. And if those could just be in a repository in the car I heard somewhere it would make everyone’s job a lot easier.

James Currier 20:02
Well, I agree with 90% of what you just said, I don’t want the founders to have to put their stuff. You’re right. If it was in the cloud, where where the the founder has x a founder has control, ultimately, the we must maintain founder control. That’s our whole premise of our software. We don’t want the VCs sending their information around without the founder approving it. So yes, once it’s in the cloud, once it’s in the brief format, and it’s sort of a manageable chunk, you can then the founder can then decide how they want that element used? And I think it would, I think it would speed up the whole process. And it would be helpful to the founder, and I think it would be helpful to the VCs in finding the right deals for them. Right.

Nick Moran 20:46
Right. Good. Good. So let’s talk a bit. Yeah, go ahead.

James Currier 20:50
And I would just like to say like, so many of the companies that we know of is the unicorns, are the really hot companies. A lot of venture firms passed on them. Yeah. You know, it, just because a venture firm passes on a founder doesn’t mean it’s not going to be a giant company happens all the time. And what is what is the right investment for one venture firm may not be for the other. And so finding the right Vc is the model here. You know, I, the LPS sometimes say to us, you know, you know, well, you guys know what the best deals are like, Well,

Nick Moran 21:25
if we did, we would, everything would be different. Right? Well, yeah, I know that you guys have passed on a startup in our portfolio. And you’re looking at another one now. And hopefully in a few years, we can be doing this again, James. And I could say, you know, you shouldn’t have passed on that one.

James Currier 21:41
That’s right. That’s right. That would be great. Well, good.

Nick Moran 21:44
Let’s talk about founders a bit. You know, when you’re looking at founders, how do you ensure that the founders are true creators, right, with the right motivation, the right level of passion, commitment, authenticity, instead of just, you know, these opportunists? We’ve all seen them, but they have great skills, they have great capabilities, good backgrounds, they’re addressing large markets, but they’re more of that opportunist.

James Currier 22:13
It’s, it’s, it’s hard to know. You know, you have to ask some pretty deep questions with people and spend more time with them to get a sense of that. You have to figure out if they’ve got a chip on their shoulder for some really good reason. You know, I think the the highest correlation someone could find in a study between founder success and, and personality type or life circumstances was that the founder had daddy problems. Wow. That, that there was some sort of rift in the relationship with their father. And that drove them to some sort of maddening level of ambition, and determination, and all the other attributes that we say we want, but where do those attributes come from? They often come from from strife or troubles. Right? And I mean, people who are content don’t start these companies. That’s just not the personality type. There has to be. I think, you know, back in the 90s, I think the literature said stuff like, the the highest attribute, the person, that highest personality attribute of an entrepreneur is just general dissatisfaction with everything. They’re always seeing what’s wrong with everything. Yeah. And that enables them to say, this is how I could make it better.

Nick Moran 23:27
I call them the optimistic contrarians. Okay? Yes, they see problems everywhere, but they see the potential, if they’re corrected,

James Currier 23:37
right? You have to be contrarian to see the problems. Otherwise, you just take the world as it is. But you have to be optimistic in order to not just complain about it. But to take that next psychological step of inventing what could be better? Yeah. Right. Right. So I think I think the other thing that that I try to suss out with people is, is this an idea that they have to do? Or is it an idea they’re doing because they want to be a founder? You know, how in love? Are they with the idea of being a successful founder? Or are they in love with a problem? Are they somehow driven mad at night where they can’t sleep unless they do the idea? Like don’t do the idea unless you cannot not do the idea?

Nick Moran 24:18
Yeah, you mentioned that earlier, you couldn’t get an idea out of your head. So you had to switch and the founder said, Yeah,

James Currier 24:25
I don’t have that idea. That idea, of course, was that the internet was going to be many to many media was gonna be media about us. It was going to be social media. That was the idea that in 1998 I couldn’t sleep about. It’s like, Oh, I get it. Radio and magazines and TV technology was one to many. But the internet is uniquely mended many and our favorite subjects are ourselves and our friends. And so, in the end, we’re going to make most of our media about that

Nick Moran 24:51
network effect. So that led to which business

James Currier 24:55
that led to a business called tickle, which was one of the early social media companies one of the first Do A B testing we invented the email address importer grew to about 150 million people when there were 600 million people on the internet had that those 100 50 million people answered 24 billion questions about themselves on these self assessment tests. And then from there flowed into social networking with about 30 million users. And matchmaking was another 25 million users. We just, we were kind of riding the social media wave through the early 2000s, we ended up selling the company to monster in 2004.

Nick Moran 25:26
Good, good. So just to finish out that point around sort of founder obsession, and people really addressing something that, you know, fundamentally, they can’t get it out of their head and out of their soul. How does that affect the way you look at serial founders, or second time founders.

James Currier 25:46
So we spend a lot of time with second time founders. I mean, I’ve been a second time founder three times. And the psychology the second time founder is they’ve got a bunch of advantages. Because they’ve seen more than know how to benchmark they know who to hire. They’ve been through the fire, they’ve been able to calibrate their own emotional state against the vulgarities and the suffering that’s involved with starting these things and trying to make them live. But especially if they’ve been successful, they are fighting an ego problem, lots of different types of lots of different flavors to the ego that comes with that. And they are fight fighting Miss attribution, like they probably don’t recognize how lucky they were, you know, they they’re a little too overconfident. They tend to spend money too quickly. Because they, they are remembering what it was like at the end of their last journey where they were spending a lot of money, and they’re forgetting what it was like to spend 40k A month again, and in pursuit of product market fit with your MVP. They make a lot of mistakes as well. And we spent a lot of time helping them through those things, and helping them see their own challenges in that. But, you know, we love second time founders. And the reason is, if you’ve suffered the first time through a failure or success, and you have a hands on taste of the pain, and you’re coming back for more than you’re our kind of person, because most people don’t understand how much it hurts. And I remember went back to my fifth Harvard Business School Reunion and having just sold tickle, maybe, you know, announced the sale two weeks before the reunion. And they said, What was one thing we did wrong at HBS. And I stood up and I said, you know, there’s no case study, there’s nothing you guys ever told us about how much it hurts? How much you worry how much you don’t sleep, how much when that VP of Sales quits, it just it slaughters you for six weeks, while you’re trying to get that revenue back. And when, when you’re worried everyone else is gonna leave. And then, you know, you forgot to pay the employment taxes in San Francisco. And now you’re suddenly on a $230,000 bill and you only have 4000 left. And it’s like, you just don’t know what that feels like, unless you’ve gone through it before. And if you felt that, and you still want more, then you’re doing the right thing. And that’s the kind of person that’s easier back. It’s better back, I can have better conversations with them. And they have their own challenges. But you know, we can help them through that.

Nick Moran 28:31
Often I see a break right, between first successful exit and founding of next company. And there might be some short term memory going on. forgetting how painful it really gets. Yeah, and how much you have to sacrifice.

James Currier 28:51
The house right, you have to sacrifice so much to bring one of these things to life. And, you know, I suppose there was one or two entrepreneurs in the last two years where it didn’t hurt the whole time because they just started something and it took off. But even then thing like Facebook, you know, we at least have the social network movie, which shows us that there was a lot of pain involved, even though that thing was just a rocket ship from day one.

Nick Moran 29:12
Yeah, I’ve got a call with Henry from Brax coming up in a couple of weeks. So I’ll be curious to hear you know, about his story. And, and if there was severe pain, or if it was because, you know, from the surface, it looks like a very fast growth story.

James Currier 29:29
Sure, sure. Good. Well, that’s the thing. Harvard Business School is funny, they say, you know, if you if you do Harvard, got a case study on tickle my company and and they showed the final draft to me and I said, you know, it’s really missing something. And they said what I said the suffering, so let’s add exhibit 14, and I gave them a page and a half of all the crap that happened. And I didn’t expect that. That case to be a big hit at HBS. That actually was one of the biggest most use cases for 10 years afterwards because of exhibit 14 where it actually laid out out how difficult it was and how much pain you have. And, and, and, and I was I was just surprised by this. And I asked Bill Solomon who was running the entrepreneurial section I said, Why is it so popular? He says, because everybody else comes in here and says, I was brilliant. And then we were successful. And they won’t actually talk about what it’s really like running one of these things. I said, that’s crazy. Why wouldn’t they admit it? And they said, Well, everyone just wants to look at this Alright, well, I don’t think I look bad by admitting suffering, I actually succeeded. Despite the suffering, I think that makes me look twice as good. And he’s like, Well, you have a unique perspective, most people don’t want to talk about it. So be interesting to see what you hear.

Nick Moran 30:35
You know, it’s related to a point I think you’ve made about social in the past, which is, you know, social is moving away from just broadcasting toward more intimacy and sharing real truth. You know, what’s your perspective there? And, you know, how do you how do you see it changing?

James Currier 30:55
If you look at the history of social media from 98 on, it’s a pretty steep diminishment of privacy. Okay, this is what the privacy was a reservoir that companies like Facebook exploited, they turned that societal reservoir into profits for themselves into growth for themselves into engagement for themselves. For instance, a year before Facebook launch, there was already probably 15, or 20, pretty sizable social networks, somewhere between, you know, 4 million and 50 million people. But none of them had real names other than LinkedIn. And LinkedIn at the time was maybe 700,000. People, it was really not growing quickly. But Facebook was able to launch with real names, because it was safe inside the college environment. Out in the rest of the world, people were not ready, from a privacy perspective to have their social media attached to their real name. couldn’t use real names, only LinkedIn had it. And then Facebook was the first one to get to it, because so they essentially, but the they essentially jumped a year and a half into the future by grabbing real names around a social network versus a professional network. Okay. When they then opened up, they had more real names than anyone, they ended up being the winner. This was a major driver of their success. But we’ve seen if you if you draw a line about how much privacy people expect, it’s been sort of a linear curve down over the years. And now as we get toward a time when social media might start to be reinvented after this ice age for the last eight years, you know, where we really haven’t seen much of anything new invented other than maybe discord and musically, you know, Meerkat almost went but didn’t house party almost went, but to a bunch of these things that almost went that. I expect, we are going to see a continuation of that same trend, which is that our privacy will diminish, meaning people will be more open about their depressions or their anxieties or about their breakups or about their loss of jobs or about their troubles about zoom itself, you know, allows us to see in people’s homes now, the cat walks across the keyboard, and everybody laughs You know, in 2017, that embarrassing BBC video of the man with the kid coming in, and the wife and everyone thought that was hilarious, because it was so embarrassing that he was, you know, with his coat and tie up top and in his underwear down below. But now that’s just totally normal. You know, you see someone get up from your zoom call, and they’ve got their shorts on and their flip flops and you’re like, Yeah, great. He’s just a human being too. He’s probably going to go to the bathroom. Take the dump. It’s okay. So we’re getting we’re getting more comfortable with the diminishment of privacy, just as we have been since 1998. And that’s going to continue. So I would expect a bunch of the new social media experiences to take advantage of that.

Nick Moran 34:01
Yeah, aside from the the Zoom factors, do you think the pandemic accelerates any other behaviors or psychologies? Really, yeah.

James Currier 34:12
Yeah. So we live in a society as a pack, animal, homosapien of, sort of mutual support, and commitment. And as a part of that, we have a lot of things which have built up over time, that show fitness example, in New York, you wear a coat and tie in really nice shoes. If you walk into a meeting not wearing that you are not demonstrating fitness for the deal. If you want to close the deal as a venture capitalist and the company is in Seattle and you live in San Francisco, you’ve got to get on a plane, fly up there, rent a car, drive out to their place, show fitness that you get to win the deal. Okay, the pandemic I think has been what I call the Great de escalation, where a lot of these demonstrations of fitness are no longer expected. Another example would be going to the, the auction for your kids school fundraiser, where you have to dress up and that 20s outfit. And you know, any, you gotta go fine, you gotta go figure out where is the costume place? And then, you know, can I go rent the 20s, you know, costume. And then you’ve got to get it before and then you’ve got to show up, and then you’ve got to put it back in the bag. And there’s a lot of work that goes into showing social fitness. Do I belong in this community? Do I get to get the job? Do I get to get the deal do I get. And the de escalation has been that it’s, it’s, we haven’t been able to do any of those demonstrations. Because we’ve been stuck in our houses, all you can do is get on the Zoom or get on the phone and talk to people or email them a PowerPoint with your great thoughts, or there’s other ways of demonstrating fitness, but a lot of them have been removed. And so I think that we will at least temporarily rethink what we as a society consider to be appropriate demonstrations of fitness.

Nick Moran 36:12
Any prognostications there.

James Currier 36:16
I think a lot of the traveling, you know, I would anticipate that a lot of the traveling will, will go down, it’ll be okay to or it might be that whoever travels wins, you know, and then there’ll be a great real escalation and a great advantage taking right, you know, just as things open up, I mean, that could also be the case. I think you’re seeing that a little bit with some of the venture deals in the last two, three weeks, which is, you know, most companies are having a hard time fundraising. But the very, very top 2% of startups are having frenzies around their valuations.

Nick Moran 36:54
I’ve got one right now it’s in Atlanta. It’s competitive deal three term sheets. And I was just talking to my team, her few minutes ago before this call about maybe getting on a plane getting down to Atlanta.

Unknown Speaker 37:06
There you go. The RE escalation? Let’s do it.

Nick Moran 37:10
Do advertising models survive in this new social world where everything’s more intimate? Less transactional?

James Currier 37:20
Advertising always survives, man. Always.

Nick Moran 37:26
The messaging? Yeah, yeah.

James Currier 37:27
And what worked three years ago won’t work this year. It’s constantly evolving. That’s why ad tech companies aren’t worth that much is because it’s, you know, the half life is so short on on the units, the half life on the channels is also short, the half life on the messaging is even shorter. The only ones that are that are really winning are the ones with the network effects like Google and Facebook.

Nick Moran 37:49
I will say, I will say whether it be ad tech or sales, I love when somebody reaches out to me, or put something in front of me that I’m getting benefit from benefit from immediately, and I’m engaging and loving it. And you know, at the end of that interaction, I’m purchasing something, of course. But it can be a very pleasant experience. It doesn’t have to feel like an assault.

James Currier 38:14
It can be it absolutely can be. You know, one interesting anecdote is about this is that we noticed years ago, that a place where advertising doesn’t work is in parent forums. Because parents are being vulnerable with each other parents are sharing intimate information. It was the it was an environment that proved really resistant to advertising parents do not want to be pushed into into some consumption. They really, really only trust other parents. And so it might be that more environments move along the spectrum and that toward that direction. But that was the first, the first notice I had about environments where you really couldn’t do much with advertising. It’s

Nick Moran 38:57
interesting. I wonder if that has some meaning for for next door. Interesting. So we got a quick segment here. We call it three data points. I’m going to give you a hypothetical. And then you’re going to tell me the three data points that you would like to know. So let’s say you’re approached to invest in a consumer social business that has a network effect. their user base, let’s say is 20,000 Do you use it’s growing 30% month over month, and they have not yet monetized the catches? You can only ask three questions for three specific data points. What three questions do you ask?

James Currier 39:34
What’s your k factor? Okay. So how fast are you growing without spending anything? What is show me your cohort data in terms of D seven D 30. D 90 retention? And tell me how many connections the average person has versus the average person who uses it daily. So I’m looking for network density. So looking for virality, looking for retention and density?

Nick Moran 40:07
What would be a key factor? That is interesting? Probably. Point 5.5.

James Currier 40:18
Yeah, it gets you something, it gets you something’s going on.

Nick Moran 40:23
And then do you want it? For the density? Do you want to see high connections for the average versus the daily actives? Or what are you looking for there?

James Currier 40:35
You can be looking for a lot of different things. It depends. If you see the average connection number being very high. And the percentage of people who are actually willing to go to that high level of connectivity being high enough, then you might say, Hey, you’re gonna have some power users here. And this is going to drive the market, like a Twitter. Or you might say, I want you know that the number of connections to be low for people who come and use a daily because that means it’ll be easier for me to get people to retain. challenge with that, of course, is that I mean, somebody else could do it as well. So then you have to look into other elements about what makes these things sticky. And what makes them be winner takes all.

Nick Moran 41:20
Yeah, I’ve noticed from my own behavior on a lot of social platforms, I find myself either being a creator, a contributor, or an observer. And depending on the platform, I kind of adopt one of those personas, and it’s different for each.

James Currier 41:36
That’s right. That’s right. And, and each medium can work. It’s just, you know, you do want to have a little bit more participation. But even Twitter, you know, they got to a $20 billion market cap with, with 3%, basically penetrating. Wow, in terms of producers.

Nick Moran 41:51
last final two quick questions. James, what do you know, you need to get better at?

James Currier 41:57
I think my weakness right now, I’ve been a venture capitalist. Now for two and a half years, I think my weakness is that I don’t say no fast enough. I get intrigued by these deals, I get intrigued by the potential as a founder myself, I could see what I would do if I were in their shoes. And I get really interested I, I love the creative process. I love working with founders. That’s the that’s the delight in the job for me, not in the saying no, which is what we do most of the time. And so I think I need to learn to say no more quickly, so that I can save the founders time, and that I can save myself time. And I think I think the delight of seeing a new founder and a new idea and whatnot is so strong for me that it draws me in. And I have to resist that more than I would have expected when I started this two and a half years ago,

Nick Moran 42:48
where do you draw the line between coaching a founder and, you know, subsidizing the team with your own strategy? Like, is there a line there that you don’t want to cross?

James Currier 42:59
Absolutely, I’m very clear that it’s the founders company, I, if I’m going to really be digging in on serious issues about strategy or product, or whatever I do that alone with the founder, or the founders, I don’t involve the rest of the team. It’s up to them how they want to communicate, it’s like each of these things only works. When they are artistic, whole pieces of art by the founders, they can’t be a piece from the founder and a piece from me that that machine will never work, they will never find its place in the world, it will never find its flow of energy, if it’s too much of an agglomeration of typically has to be a singular vision a singular piece of artwork by these founders. So I’m very aware that I do believe in the pointing out way I don’t believe in holding back. But I think how it’s delivered in what context and to whom, and what timing is very important. I know it was for me when when my investors and advisers were working with me for the last 20 years, and so I’m very sensitive to that.

Nick Moran 44:00
And finally, here, James, what’s the best way for listeners to follow along with you and with FX,

James Currier 44:06
go to fx.com and sign up for the weekly newsletter. We typically put out a new essay or video or podcast every week and do our best to make it concise and revealing.

Nick Moran 44:18
Well, thank you, James. This is a huge pleasure for me. Thanks for all that you do with the team and you know, bringing innovation and bringing some change for positive to venture.

Unknown Speaker 44:28
Thank you, Nick. Appreciate it.

Nick Moran 44:35
That we’ll wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose as always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently. Thanks for joining us.