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Google PodcastsParker Barrile of Norwest joins Nick to discuss Norwest’s New $3B Fund, the Effects of VC Capital Explosion, and Scaling LinkedIn’s Product 20x. In this episode we cover:
- Parker’s Background & Path to VC
- Norwest’s Largest Ever Fund
- The Capital Allocator’s Environment
- How Parker Scaled LinkedIn’s Product to $2B
- Compelling Customer Acquisition Strategies & Much More!
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The host of The Full Ratchet is Nick Moran, General Partner of New Stack Ventures, a venture capital firm committed to investing in the exceptions.
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0:18
Parker Barrile joins us today from San Francisco. Parker, is a partner at Norwest Venture Partners. Norwest recently announced their new $3 billion fund, Norwest’s largest ever. Prior to joining Norwest, Parker was VP of product at LinkedIn responsible for 80% of LinkedIn’s revenue. Parker, welcome to the show.
0:38
Thanks, Nick. Glad to be here.
0:40
Yeah, talk us through your background. You know, I did a quick, quick job there. But can you give us sort of the two to three minute background and path to venture?
0:47
Yeah, yeah, sort of the classic, you know, Silicon Valley story, I grew up in the Northwest, and you’re always had aspirations to, you know, to make my way to California and build a career in tech, I ended up getting into Stanford, and that’s what was sort of the springboard to the rest of my career. And that was in the late 90s. So I landed in Palo Alto, at the height of the.com, boom, in 98-99. And just was exhilarated by the energy and the potential for, you know, technology for the Internet to change the world. And, you know, really got focused on you being a part of that, that ecosystem. So coming out of school, spent some time working in San Francisco and then joined Google pre IPO. And this was in January of 2004. And it was just an incredible time to be at Google. I mean, obviously, it’s a generational company. We didn’t realize it at the time, but it was a pretty special experience. So that sort of, you know, set me on my way in tech, and you had a couple of jobs in the valley over, you know, between then and now spent five years at LinkedIn, as VP product running product for the recruiting business. And again, had the opportunity to be pre-IPO at LinkedIn. So having lived through the sort of a hyper growth experience at Google, at a relatively junior level, and then having lived it lived through it again, at LinkedIn, at a more senior leadership level. You know, it’s just an incredible, and frankly, quite lucky, you know, set of experiences to have at one point, I thought it’d be an operator forever, I love product. I love building products, I love leading teams of people who build products. But along the way, I started to do more advising coaching, spent some time coaching heads of product at other startups, and made some angel investments. And I started to find that side of things just as rewarding as building things. You know, on the one hand, you’re building products, on the other hand, you’re sort of helping other people become great at what they do. And then I, those threads sort of came together when I had this opportunity to join Norwest as a partner. And I thought, hey, you know, why don’t I have to have a fifth after spending 15 years as an operator, maybe it’s time to, you know, shift gears and try my hand at being a VC. And, you know, some people come into venture with the mindset of, hey, I’m from the finance side. And, and this is all about, you know, making returns on investments. And, you know, that’s fundamentally what we do. But I came into it through a different path, where, as a former operator, I was excited about partnering with founders and helping them build, you know, the next set of big and important companies. And I think that’s still, you know, I still over index on that side of things as an investor. And you know, so far in five years in having a blast, I mean, it’s a fun job. It’s a hard job. It’s a different job than I expected it to be, we can certainly talk about some of those things. It’s been a good ride.
3:42
Yeah, you know, I see that you’re co head of consumer at Norwest. Can you tell us more about maybe your specific focus there, you know, from a stage sector standpoint?
3:52
Yeah, yeah, fundamentally, I’m sort of an omnivore, I have a really diverse set of interests. You know, LinkedIn was a unique company, especially the side that I focused on, which was the recruiting business, because it was really a talent marketplace. So you were building products for employers who wanted to use LinkedIn to hire people. And you were building products for LinkedIn members who were using LinkedIn to find new jobs. So you had an enterprise, you know, one foot in the enterprise side, one foot on the consumer side. And so I don’t consider myself, you know, an enterprise investor or consumer investor. And frankly, I’ve invested across, you know, both sides of that line. Norwest is a big fund. You mentioned that we just raised a new fund. It’s a $3 billion fund. That’s a lot of capital. And so naturally, at that scale, Partners Group together into areas of focus, and you know, I’m on the consumer team, I help lead that team at Norwest. And that is my primary focus, but I’ve made a number of b2b investments over the past couple years. And you know, so I think I, you know, and I, and I think I’ll continue to do that to be an omnivore.
4:59
Very good You know, I do want to talk more about the new fund. But before we do that, so you mentioned your experience at LinkedIn, you led product, you know, you guys grew 20x, when you were there from 100 million to 2 billion, I’m curious, maybe if we could start with, what was the phase of growth that was most painful? And can you highlight maybe the hardest or riskiest decision that you had to make?
5:24
Yeah, you know, I think, you know, LinkedIn was a very special company, it still still is a very special company. And I just have incredibly fond memories of my time there. I think it, you know, LinkedIn brought together some very talented people. And I was just lucky to be a part of it. But we still had to work hard to grow like that. Yeah, I think I think growth came easier Google and LinkedIn execution really mattered, we had to make a lot of important decisions along the way, I actually think the hardest phase of growth at LinkedIn was sort of 10s of millions in revenue, to getting into the, to the low hundreds. And once we had scaled, you know, sort of past 100 million into the 100 $200 million scale, you know, then we sort of, there’s a more natural glide path up into the billions, because you can get to 10s of millions in revenue, by sort of having product market fit, you know, instead of just strong arming it, you can just sort of brute force your way to that, that amount of revenue, to get it to scale into hundreds of millions and billions, you really have to systematize, what’s going on with the way you structure your team, the way you hire people into the organization, the way you train them and make them effective, the way the go to market organization scales and, and, you know, acquires new clients, the way you you support those clients. And so that was a real challenging period for us. And you, if you go back into, you know, LinkedIn as one, you can actually see that revenue sort of plateaued a bit in the mid 10s, of millions, and then the growth decelerated again, I think that’s partly due to network effects. You know, we were, my team was, focused on the recruiting business, which was the revenue engine of the company. But we had incredible counterparts, who were making LinkedIn increasingly useful to the average consumer, the average member, and that was part of the, you know, that was an important part of the growth flywheel for the company overall. But yeah, it was challenging. I mean, it was challenging to figure out how to take these revenue generating products from, you know, again, early product market fit to, you know, operating it at massive scale, in terms of lessons learned, or challenges that we went through over that period. You know, my mindset back then was very product focused. And I think that probably the biggest breakthrough for us, over the course of my time at LinkedIn was thinking about, you know, what is our competitive advantage in this market? What’s what’s unique about this asset that we built? Which is this base of, you know, 100 million, and today, you know, probably close to a billion engaged members? And how can we build recruiting products that take advantage of that? And the insight we had was, members are looking for opportunities. Employers are looking to fill roles, how do we bring those two things together, at massive scale in a hyper personalized way. And it took a long time to crack that nut and to do it effectively. But we did, especially with job opportunities. And so you know, the company’s we have a mission, we developed the mission statement that was to connect talent with opportunity at massive scale. And, you know, that was happening at a massive scale, but to every member, it felt very, very bespoke. And that was, I think, the real breakthrough, and the real sort of challenge that we overcame during my time there.
8:46
It’s always amazing to me, you know, after being at this for many years now, how, conceptually something is obvious and makes sense, but how nuanced The details are, and execution, and how getting the decisions right in the staging of those decisions throughout the growth cycle. I mean, they really need to come together in the right way for us to, you know, know of LinkedIn the way that the way that we do now, even though it seems so obvious in retrospect.
9:14
Yeah, absolutely. I think I was always very bullish on LinkedIn, conceptually, which is why I voted with my feet and went there. You know, and I went there at a time in 2009, when the macro economy was in a tough spot. And there were some other really exciting startups out there that were attracting great talent. The value proposition of LinkedIn really resonated with me, I’d used the product a lot. I believed in it, and I wanted, you know, I felt like I had some ideas about how to make it better. So it was a really natural fit for me. And, you know, when you come out of the operating side into venture, you carry a lot of that decision making with you. Right, I think that one powerful litmus test for making investment is would you want to go and work at this company? That’s right. Yeah, yeah. And then obviously, coming from the product side, as an operator, you know, you, you definitely have this focus on the product and this tendency to, you know, if the, if you have emotion, if the product has emotional resonance for you, that, you know, goes a long way toward catalyzing an investment. But as you get into Vc, you have to layer on a lot of other factors beyond that, right? So that’s, I think, a good foundation for making an investment. But there’s this rational side of things. And you see it from the people who are career investors, and you learn it as someone who comes as a former operator, that you’ve got to layer on, you know, a lot of, you know, sort of rational, rigorous analysis about the potential for this investment to be successful, not just this product, to have emotional resonance.
10:51
I do want to talk more about social but while we’re on it, you know, how do you think about some of those major factors, and we don’t have to go into the weeds, but at a 30,000 foot level or framework level, you know, what are kind of the major factors you’re layering when you’re doing diligence and analyzing a prospective investment?
11:09
Yeah. So I, I, you know, everybody claims to have frameworks and models and things and, and so I certainly do, I think the challenge is, how do you take an investment and apply a framework to it, because any framework, sort of theoretically, can be very airtight. But then, you know, no plan survives first contact with the enemy sort of, but my framework is this classic sort of product two by two, where on one axis, you’ve got, you know, a spectrum from vitamin product, to painkiller product, right? A vitamin product is something that sort of, you know, it’s nice to have, it’s good for you, you should probably remind yourself to use it periodically. But it doesn’t provide immediate gratification. And so you know, there’s this constant struggle to stay engaged. A painkiller product is something that completely, you know, immediately solves a problem that you have, and you know, you’ve got the SPIRATION product, yeah, this product can, you know, can solve that problem for you. And I think, you know, the greatest products are typically painkillers. And so that is, you know, one dimension of this framework. The other dimension is, you know, whether the product has a moat or not, or at least whether the product can give it the business can create a moat as it scales and succeeds. And so the best companies, most impactful companies tend to have painkiller products, that over time as they succeed, and generate adoption, build a moat of some sort. And so then you’re looking at investments through the lens of, hey, is this a painkiller product? Or is this a vitamin product? And if things go right, if this product succeeds the way I think and hope it can, will they be able to build a moat, and it’s fascinating, because you can actually categorize a lot of the most successful products out there, according to this framework. And it doesn’t mean you can’t succeed. If you’re a vitamin product with a moat, or if you’re a, you know, painkiller product without a moat. But the truly great companies tend to be painkillers, wouldn’t that build a moat over time. And, you know, it’s funny not not to call out a product, but there’s, you know, a product I use, that’s a vitamin product that has a mode, there’s a very prominent one, that shall go unnamed. And that’s actually a powerful place to be, it takes forever to build up a product like that. Because it’s, you kind of have to fight and claw to convince people to join in and put information into your product. But over time, because you’ve built this moat, it’s just you’re highly unlikely to be disrupted. So that’s a very durable business, right? A painkiller product without a moat is sort of a transactional business. And, you know, that is you, those tend to scale really quickly, and can also become successful, but you sort of live in fear of disruption. And I think a lot of commerce businesses would fit into that bucket. Right. So, you know, how differentiated is, you know, the next DTC shoe company? Yeah, maybe they may manage to build a brand, but at the end of the day, you know, shoes or shoes and whatnot. The moat, you know, when you have a painkiller product with a moat, which, you know, typically comes from network effects. A great classic example is Uber. I mean, Uber is, you know, if you need to get from point A to point B, Uber is just a way better solution to that problem than anything that existed before. And, over time, they built an incredible moat through network effects, right? Riders want to be with the drivers, our drivers want to be where the users are. And there you go, now you’re in that quadrant. So
14:45
We’ve talked about this on the show before and I almost feel like we’ve got the pain, we’ve got the vitamin pill, and I almost feel like there’s a third which is desire. And it kind of ties in, you know, open dialogue here, but it kind of ties to social media. Right, because you’ve got these social media sites. And for me, those don’t fit neatly into pain or vitamin pill. But there’s this, you know, there’s this maybe feedback loop in your brain, or there’s, there’s this desire, like, you know, you got to get on the newsfeed and get the updates, and you’re kind of hooked, you know, I don’t know, how do you think about that? How do you think about social media fitting into that?
15:27
Yeah, that’s a good question. I think it varies by platform, honestly, you know, LinkedIn is, is kind of a vitamin product with a moat. On a daily basis, you know, the premise for building out your profile on LinkedIn was based on investing in your career, you should have a profile on LinkedIn, and you should connect with people. Because someday that will pay off, someday you’ll need a job, Someday, you’ll need to call up somebody for help or advice. And you’ll be glad you have a profile on LinkedIn. And you’ll be glad you have connections, whenever the word should come into play. That’s a classic example of a vitamin. But the thing about LinkedIn, we had to fight and claw for a decade, to convince people to build out their profiles, and to add where they went to school and to tell us about their work history. And there wasn’t gratification in it. When you added all that information to LinkedIn, you felt no reward for having done that. It was sort of an investment in your professional future. But man, LinkedIn may be the most undisrupted evil business, you know, in the world, because good luck to anyone else who tries to convince people to add all that information on some other platform, right? It’s game over. Never gonna do that again. Right. And so, you know, and I would say LinkedIn is a social platform. I mean, it’s in a professional context. So I think that’s truly a vitamin. You know, painkillers. I think pain is a sense of boredom is a pain, a sense of isolation, a sense of gang, a sense of FOMO? I mean, FOMO is an itch you gotta scratch, right? Fear is pain, fear of missing out. So I actually think the Instagrams of the world are very much a painkiller product. It’s more of this psychological, emotional thing that you’re, you know, because otherwise, you wouldn’t see that level of engagement. Right? I think that’s, but this is the challenge with this framework, it sounds so obvious and clever, and sounds like, Oh, if you just use that framework, you’ll get every investment decision, right. But the hard part is digging into the intrinsics of any given business and saying, what’s really going on here, where, you know, how would I categorize this one? And NMI? Right, you know, did I categorize it correctly? Or did I miss categorizing it? Because even with LinkedIn, if you’ve known you’re investing in a vitamin, he would have known it was gonna be a long road to building value. I mean, LinkedIn, you know, it took a lot of time, took a lot of work to get there. And then they build something incredibly valuable. So I’ve got
17:49
to ask Parker, well, I’ve got you, you know, some of the biggest news in the social context, captive audience here, so put you on the spot. We got Facebook, rebranding, and meta. They’ve launched a series of ad campaigns, introducing the public to this concept of the metaverse. What’s your initial reaction to Facebook? Now? metas rebrand?
18:10
Yeah, I think rebrands are kind of silly. I mean, I think that we’re going to see whether there’s real meaning behind the rebrand. I think that the concept of the metaverse is actually real, I think that it already exists. To some extent, you know, we already have, most people already have some sort of online identity that is either based on their real identity, or some or pseudonyms, or some combination thereof. I think that the intrinsics of humans wanting to, you know, connect with each other, spend time with each other, you know, they want to build an identity in some way through the things they own or the, you know, the clothes they wear. I do think all that is extensible into, you know, virtual context. I think it will take a while, you know, for that to become mainstream. I think you’ll see early adoption among young people and, sort of technology minded folks. Because I still think that humans would prefer to interact in the real world rather than through, you know, VR headset or or AR glasses. But look, I think it’s completely real. And, and so I think it’s pretty prescient on Facebook’s part, too lean in on that trend, which I think is real, but I think it could be a 10 or 20 year trend, not a two or three year trend
19:38
and the 20 years, because it does feel like we’ve had a false start with this before. I remember back in like 2015. We call it the metaverse, then we just kind of refer to it as VR right. But there were startups springing up there were a bunch of funds that got raised just around VR, and you know that that didn’t materialize. So it sounds like your opinion is that now is not the time for this category to break out.
20:06
I think timing is a really hard thing for anyone to get right for a platform like Facebook, although they’ve got time because they’re so big and embedded and profitable. I think it’s really hard for investors to get timing right, at least, it’s easy to be early on these things. And so I think that’s what we’re going through. Now, I remember being at Google back in 2004 2005. And there was a lot of hand wringing about mobile, and the need to get serious about it. And, you know, and we were, collectively, you know, sort of wringing our hands about how to allow people to search the web through a flip phone, you know, over SMS, and it just wasn’t, you know, the technology wasn’t ready it and so all that effort, didn’t yield much impact. But the thinking was still correct. It’s just that the anxiety and the focus was, you know, five years too early. Was it worth it? I don’t know, we, the company, was certainly attuned to the potential for mobile to be disruptive, before it became, you know, disruptive to Google’s business. And then Google was sort of ready to, you know, be on the front side of it. So that’s kind of how I see the metaverse at Facebook. I’m not sure that the metaverse is going to be meaningful, in you know, a year or two, but I think it probably will be in 10 or 15 years. And so better to get serious about it now, then, you know, then wait until you’re disrupted by it. And that’s what’s so amazing about these big platforms is that we were in the, you know, in the, in the 90s, we were taught about this cycle of disruption about the innovator’s dilemma, we were taught that the incumbents in any industry couldn’t innovate, and that they were ripe for disruption. And so you should always invest in, you know, in the next generation of any given industry, you know, retail will be disrupted, manufacturing will be disrupted, entertainment will be disrupted. But the modern platforms are so profitable, so voracious and their appetite, so aggressive, strategically, that they’re much harder to disrupt. I think it’s interesting, you know, the Googles and Facebooks of the world, they’ve attracted incredible talent. They’re very aggressive strategically. And it’s, it’s a, it’s a different world for up and comers.
22:27
The modes are broad and deep, or deeper now than they once were. Very, while we’re talking about social and other large Tech Trends. Any thoughts on, you know, bullish, bearish on web three in decentralization impact on social media?
22:44
Yeah, I think, you know, web, the, the web three movement is very real, I think it’s as much sort of a social movement as as a technology movement, because so many bright young people think it’s real, and are voting with their feet to be a part of it. And so whether the aspects of web three that get people excited, manifest in, in technology and product changes, is TBD. But I definitely think you’re going to see companies that focus on those aspects of technology. And what I mean is, you know, decentralized ownership, for example, as a fundamental premise of the way the next generation products get built, I think you’re gonna see that be really important. But the app layer may actually look and feel pretty similar to, you know, to the consumer. But whenever you throw a bunch of talent at something, a bunch of young, ambitious talent, you know, interesting things are going to happen. So I think at Norwest, we’re very, very bullish on web three. And you know, in crypto, I think that we would always prefer to play at the picks and shovels level in these markets. You know, in crypto, that means infrastructure infrastructure that makes crypto businesses possible. So that could be you know, the, the way that crypto intersects with the Fiat world, crypto on ramps, you know, companies that are making crypto investments possible through conventional investing platforms, you know, in providing the, you know, the technology and API’s to make that possible, that web three, even there, you know, we’re seeing companies that are building, you know, tools, platform tools for dowse. So, you know, the if you want to create a Dao and operate a Dao, there’s all sorts of things that you all sorts of technologies that you might need to stitch together to create it, maintain it, report on it, communicate with the people who participated in it. And so then you can have companies that are focused on building a platform for doing that building, building extensible tools for doing that. Those are the sorts of things Businesses that I think we’re most interested in and most bullish on at the moment. I think the app landscape looks a little bit murkier to me at the moment, but I think I think it’ll clarify over time.
25:12
Got it. Interesting. Want to talk a bit about the fun, maybe some quick questions on that. So a new $3 billion fund and how is this different from your previous fund? And what does it mean for the firm’s thesis?
25:23
Yeah, so fun. 16 is a $3 billion fund. Very, very proud of that aspect at Norwest. Our, you know, our longevity. It’s the largest fund we’ve ever raised. I think, you know, on one hand, that’s a sign of the times. If fun sizes have gone up, valuations have gone up, cheque sizes have gone up. But it’s also a reflection of the success we’ve had at Norwest. Over the years, we’ve just built a very durable, very successful platform, and it’s an honor to be part of it. You know, I think that the structure at Norwest remains the same, you know, we all all the partners and Norwest invest at one fund, and we execute, you know, a couple different strategies and focus on a handful of sectors within the fund. So we have a growth equity team that backs founders who have, you know, bootstrapped businesses to significant scale on their own, and are looking for a partner to take things to the next level, we have a healthcare team that focuses on you know, medical devices, pharma, life sciences, biotech, we have a team that focuses on to enterprise infrastructure. And then we have, you know, the consumer team that focuses on consumer facing businesses. And both of those last two teams collectively focused on b2b SaaS in different ways. So we definitely cover the entire landscape, you know, I’d say we invest across all sectors and all stages. What’s great about the structure is we’re very collaborative, because we all participate in the same fund. And this scale allows us to invest across all sectors and all stages, we’d love to invest early, you know, we’re a partner, former operators, I think, almost every partner at Norwest loves helping founders build companies. So our bread and butter historically has been series A rounds, and that won’t change, we’ll continue to do series A’s. But when you’ve got, you know, $3 billion to invest, you can be incredibly supportive across the company’s entire lifecycle. So whether that’s leading your rounds, whether that’s, you know, participating, you know, with pro rata investments, as the companies in our portfolio scale, you know, that it’s great to have a deep pocketed partner like Norwest around the table. And then, you know, sometimes we miss a company, you know, we love to keep in touch with companies when we pass. And if, you know, things continue to go well, and we regret passing, you know, we have the scale to come back later and lead a bigger, later stage round. And so we do all of that.
27:51
Got it? And then just from a structural standpoint, so that I understand, are there sub allocations to different stages and different sectors? You know, how does that work? Do you guys have earmarks? You know, for certain strategies, or?
28:06
No, we, I think, you know, historically, there’s been sort of a natural cadence to the amount that each team has invested. But those aren’t fixed rules, we want to be able to, you know, adapt to the market. And, uh, you know, if a certain space or sector is, you know, looks more exciting to us, then we’ll over index there, you know, but, but again, we’ve got, I think, 20 or 21, partners across the firm. So, you know, we’re a big fund. And so naturally, you know, each one of those folks is empowered to go out and find investments they’re excited about, and deploy capital into them. And so you get this sort of natural allocation across those sectors I described. That’s pretty consistent from fund to fund. But there are no hard and fixed rules. And that’s another thing that I think is an asset, you know, the world doesn’t work that way. So, you know, I think consumerism had its heyday in, you know, maybe the early 2000s through the mid teens. Its consumer has been challenging lately. And so we still make investments and consumers and are very bullish about that space. But you know, we also aren’t going to force it, we’re not going to force a certain percentage of the fund into a sector. That doesn’t merit it. Got it.
29:25
So counting Norwest fund, there’s been five funds of 3 billion plus this year with names like Softbank, Tiger, & Coatue. Is there too much supply of capital in the market?
29:34
Yes. Sure. I mean, I think there are a couple ways to look at it. But fundamentally, the supply of capital has grown much faster than the economy, obviously, and honestly, probably I haven’t done the math on whether the supply of venture capital has outpaced you know, the market caps of Public Tech. RG sector, but no question. There’s been a boom on the supply side in VC. There are a lot of new funds. The successful funds, like Norwest, have raised more and more capital, and we’re standing up new funds faster than ever. So yeah, I mean, capital is, there’s a lot of capital out there. And that I think, overall, I think it’s a good thing for the ecosystem. I think it’s a great thing for founders. And for innovation broadly. So I’m incredibly bullish, just on the economy, and the state of technology, and all the incredible things that startups are going to be doing in the coming years. But it definitely changed the game in venture because capital is incredibly commoditized. I mean, obviously, capital is inherently a commodity, that’s kind of what makes it useful. But it used to be much harder to come by. And now it’s not for, for strong founders with great ideas. And so, you know, investing is about adding value beyond the capital. And so different firms do that in different ways. And you know, Norwest number one, we have built a partnership of former operators that I think have a tremendous amount of real world, real world experience building companies and helping founders build companies. We also have an incredible portfolio services organization that helps with marketing and events, and, you know, connecting with the right vendors, we host executive briefings for our portfolio. But fundamentally, when, when you set all that aside, if I were a founder, and I were raising money from a VC, you’re entering into an intimate, long term relationship with with that investor, I’ve been in venture for five years, I’ve already been on a couple of boards for four and a half of those five years. That’s a long time that’s longer than a tour of duty as an operator. So I would as a founder, all else equal, really seek out investors that I enjoyed spending time with, because you’re going to be working together for a long time. And I think that the aspect of just being a good human being, and being someone that you know, that from the founders perspective, someone that they enjoy working with, is massively underrated.
32:24
I couldn’t agree more. These are long term engagements. And trust is one thing that often is maybe under appreciated. And if you really have true trust with your investors, things seem to go much more smoothly. Parker, you know, we’ve been talking about a bubble in tech on this podcast since inception in 2014. Where do you think we’re at in the cycle in the expected downturn?
32:50
I think what goes up has to come down at some point, again, I think that, you know, the overall economy can only grow so fast, I do think that we’re probably still mid Stage in, in the process of software eating the world. And that’s what’s allowing this incredible growth to continue for longer than anyone thought, no question, we’re pretty deep into a cycle. If anyone knows how deep I’d love to talk to them, because I think a lot of people have called the top incorrectly. So I’m not going to be one of those people who calls it on this podcast. But no question. You look at, you know, the growth in the stock market, you look at the multiples of which companies are trading, the multiples of which startups are raising money. And I just think that the multiple expansion probably can’t continue. I think people have said that before. But I’ll go on record saying that, you know, when you’re looking at companies in the private markets being valued at 100x, Arr, or 150x, Arr, when public companies are trading at 30 to 50x, Arr, I just don’t know that there’s a lot of room left for multiple expansion. And so then the appreciation comes from actual business growth. And that’s harder, right? Because, you know, you have to work hard to grow your business. And so I just think you’re gonna see a slowdown in the rate in which valuations grow. And that’s okay. Right. I mean, and I don’t think you’re gonna see a collapse, and a total bust because a lot of startups, a lot of technology startups, both the ones that are funded by VCs today and the ones that have recently gone public. There are a lot of these companies that are great companies, they’re high quality businesses with durable revenue. It’s just that there’s only so much growth out there. There are only so many dollars to consume. And so the multiples are going to plateau. That’s my bet. Yeah.
34:50
It’s an interesting environment. I mean, we’ve still had zoom recently take a huge hit in the stock market after a great quarter by all standards out there, but it wasn’t As exponentially wildly huge as previous quarters during the pandemic. So it’s just, it’s strange to kind of see that Parker Norwest has taken a stance with this fund on their worldview and contributing to society at large, both environmentally and socially. Personally, you know, I’m all for double bottom lines, and we have a handful in the portfolio. But, you know, how does one invest intentionally and strategically, with impact while prioritizing returns for LPS?
35:31
Yeah, so I think the Norwest has made a very public commitment to ESG. In as a matter of fact, along with announcing fun 16, we actually formalized and published our ESG policy, but it’s really not a change in strategy for us, because we’ve always had incredibly high standards for the ethics and the impact of our portfolio companies, I really is, you know, deeply embedded in the way we’ve always done business. I think, fundamentally, we get excited about companies that make a dent in the universe. And that has to come from your business success, and sort of a Do No Harm mentality. And, and so we are very much, you know, a for profit, you know, institution focused on generating returns, but we believe you can do that without, you know, without having a negative impact. And so, our ESG policy is based on ensuring that the companies we invest in adhere to the UN Global Compact principles. And, and so that is a, you know, a nice litmus test for us. But I think, you know, beyond that, again, we’re looking for companies that are just net positive in the world. I think it also, you know, all this starts with the people that we hire and Norwest that the partners that we have around the table, and the tone that said from the top of the partnership, that it’s not just how much economic value you create, it’s how you create it. And so I do think, you know, we are not solely an Impact Fund, but we do care deeply about the impact that our portfolio companies have on the world. And I think that matters. I think it matters today, more than ever, and I’m very proud of that.
37:17
It’s great. Parker, this question is called three data points. I’m going to give you a scenario. And I’m going to give you some data points. And you can ask me three questions for three data points in order to make your decision. Recognize this is not how investing works, but we’re gonna, we’re going to have some fun here. So let’s say your approach to invest in a series of consumer Fintech startups, companies based in New York, they have 750,000 da us, they’re growing 6% week over week. Again, the catches, you can ask me three questions for three data points, what three questions to ask,
37:51
Oh, what is the company’s biggest customer acquisition channel? Very good. How does the company monetize? Yeah? And who are the founders? And what’s their background?
38:06
When it comes to the channel? Your first question is? Are you looking for something there? I assume you’re looking for something that’s robust and sustainable. But, you know, are you also looking for diversification of customer acquisition? You know, tell me more?
38:19
Yeah, I think I’m looking for coherence, I’m looking for the fact that this didn’t happen by accident, that there’s some causality in the way that and some rationality in the way that the company is acquiring its users. So it can come through an organic channel, for example. But it should be something that was thoughtfully designed and intentional, and at least at this stage appears sustainable. Or it could be a paid acquisition. And in some ways, to your point, paid acquisition is more repeatable and durable. But even then, you know, I’m looking for something unique and, and almost clever about the way that the company is acquiring customers. That, again, I believe, is sustainable, and can scale, you know, 10x or 100x, beyond where the company is today.
39:08
And just on your third question there on the founders, are there certain common characteristics and founder profiles that you found? are a better fit in a relationship with you and the firm or, you know, what are you looking for there?
39:23
Yeah, I think we’ve been invested in a pretty diverse set of founders. Even within my own portfolio. Yeah, I’ve led eight or nine investments, at series a stage or later and among the boards of those companies, and, you know, pretty broad set of backgrounds there. But I do find it interesting. And again, I think most of all, I look for coherence between what the company is doing, and what the founders and how the founders came to found the company. So I think the best founders have some sort of emotional connection to the business that they’re trying to Believe it could be that they’ve spent a lot of time in that space. And that’s allowed them to understand things from the inside. And so they have a better thesis on what’s not working and how to disrupt incumbents, it could be that they’ve had an analogous experience that they think they can bring into this new space. It could just be that they have a chip on their shoulder from, you know, having failed or, or having, you know, been underestimated their whole career. But I definitely think that understanding the founder’s story is a really important part of any investment. And founders are a really important part of any company being successful to a degree that I didn’t even appreciate. When I got into investing. I’d say, Parker, if we can feature
40:41
anyone on the show, who would you like to see us interview and what topic would you like to hear them speak about?
40:47
Yeah, yeah, I could give you glamor names, but I’ll give you a sort of inside baseball name. There’s a guy named Ryan Falvey, who runs a seed fund called financial venture studio. And Ryan’s actually the one who introduced me to Jason Wilk, the founder of Dave, because Ryan had participated in Dave’s first sort of pre seed round. And Ryan’s just as he focused on FinTech investments, obviously, and he just has incredible access to early stage FinTech and great instincts about what’s next in FinTech. And I, you know, I think the people who need to know who he is know who he is, but not nearly enough, you know, he doesn’t have nearly the profile that he should have, based on his, you know, deal flow and the performance of his portfolio. So, here’s my plug for Ryan Falvey.
41:41
Parker, what do you know, you need to get better at it?
41:43
Oh, man so much. So much. I think the hardest part of venture for me, even though I’m an optimist, is the what could go right scenario. Because in VC, you’re seeing a lot of pitches, you’re meeting a lot of companies, and you have to filter, you can’t invest in every company you meet, you can’t even invest in one out of every 10 companies you meet. And so you get in this pattern of filtering and filtering and, and identifying why something’s not likely to succeed. But that’s dangerous, because you can lose sight of what could go right. And you know, why any given company meet could actually become really, really successful. And so that’s what I need to get better at is not letting that filtering that I do every day, sort of overwhelm the optimism and the and the sense of wonder, in the sense of, of creating the future that is, you know, the essence of venture capital.
42:46
And finally, here, Parker, what’s the best way for listeners to connect with you and follow along with Norwest?
42:51
Yeah, I mean, I’m a LinkedIn guy. I built my career there. And yeah, exactly. That’s definitely the best way to get in touch with me. You can message me on LinkedIn, I’m pretty responsive. And I think, believe it or not, VCs are people too. And so I just encourage anyone to have empathy that we get a lot of inbound and do our best to respond to everybody and I deeply believe in being courteous and communicative. So I’ll do my best. I’ll do my best to get back to you. But LinkedIn is the way to reach me. If you send me a message on LinkedIn, I will see it. Awesome.
43:26
Well, Parker, huge congrats on the new fun, you know, thanks for sharing some time with us today. And you know, hope you have a wonderful holiday with the family and with the team at Norwest.
43:35
Yeah, thank you, Nick, you too. I enjoyed it.
Transcribed by https://otter.ai
