Rex Woodbury of Index joins Nick to discuss The Opportunity in Gen Z, Deciphering Signal From the Noise in Generative AI, and The Future of Work. In this episode we cover:
- Entrepreneurship vs. Work ethic.
- The power of questioning social constructs.
- Other trends to be excited about in tech.
- Connecting to people on the internet is similar to advertising.
- Comparing cloud vs. Generative AI
- Habits tactics and techniques for writing.
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0:18
Today we welcome Rex Woodbury to the show from New York City. Rex is a partner at Index Ventures where he has invested in companies such as Persona, Beam and Gather to name a few. Prior to joining Index, Rex worked in Growth at Airtable and Calm and previously invested in growth stage companies at TPG. Rex, welcome to the show!
0:36
Thank you. Thank you for having me. Of course,
0:38
I’ve been I’ve really been looking forward to doing this one i i know I’m not the only digital native reader that is going to be listening to this. But anyway, Could you walk us through your background and your path to Index Ventures? Yeah, no, I
0:51
Appreciate you saying that. Sometimes sending a newsletter is like sending it out into the void. And you never know who’s reading or if anyone’s reading, I reliably get a response from my dad each week, which is very sweet. But other than that, you know, it’s who knows who’s really out there. So I appreciate you saying that. Yeah, so I’ve been in index for a few years now. We’re a global multi stage multisector venture capital firm. It’s a little unique in that it’s one team investing from seed through growth. So we have three funds, we have a seed fund, a venture fund and a growth fund. And it’s one team across all of them. So our goal is kind of be partners early and be partners for the long run. But we do tend to be a little more domain focused and sector focused. And so I spend most of my time at index in the consumer and consumer adjacent world. So that’s a lot of super social marketplaces gaming, as well as sub kind of picks and shovels, sort of b2b, b2c companies. And I mean, I’ve always been, I think I was just lucky to come of age with the internet, and have always been fascinated with how people use technology and use the internet to interact with each other to make things to collaborate and have sort of caught my professional career sort of caught this interesting time of mobile and cloud. And now AI and the things that interests me are just, you know, how does slow changing human behavior collide with fast changing technology and this unique moment we live in. So I started my career in later stage investing, working growth, investing for a bit, worked on the growth team at a couple of startups before coming to index for a little bit. And then I’ve been here for, I guess, a few years now. And we’re very kind of collaborative between our three offices. I’m based in New York, but we also have San Francisco and London offices.
2:36
So you were a TPG for a little bit, is that right?
2:39
Yeah, I worked on the growth fund there and the Social Impact Fund there. So the growth side, we did a lot of consumer investing on the social impact side that was called The Rise fund. It is sort of a lot of edtech, digital health climate. And so those were kind of my my two interests of, I’d always geek out on kind of pop culture and media and a lot of the consumer investing we were doing, but then also like any good millennial, I think, felt an urge to have a mission driven career and was sort of compelled by how investing in technology and business could unlock social impact. And I think a pivotal part of my career was kind of a reframing that impact is a broad lens. And it’s not just limited to those categories. But it’s really about how technology is reinventing how people live and work and interact with each other. And, you know, you would never think of a company like Instagram or YouTube or Amazon or Google as a quote unquote, social impact investment. But, you know, I think you could easily make the argument that those have been the most transformative companies for better and for worse, and we can talk about where that nets out on sort of the externalities from those. But there’s no doubt that the sort of story of the 21st century is technology and innovation, and I wanted to make sure to play a part in that.
3:57
So you went from investing to operating back to investing? I’m curious if your experience as an operator, how that shifted your mindset as an investor or what that experience gave you in terms of making investments, building rapport with founders, whatever it might be, because it’s, it’s interesting to have investor experience without operating experience. And now that you have that operating experience, not not many people have that path. So it’d be curious to just hear how that shaped you as an investor and how that’s been helpful.
4:31
Yeah, I mean, I had a very sort of brief stint in operating I think I very much consider myself a lifelong investor. I think a lot of people at index are also sort of career investors. And the way we think about it is investing in operating are very different skill sets. And I think success at one doesn’t necessarily mean success at another, I think by surrounding myself with with operators by working in epic for a bit. I mean, I feel more of my perspective has been shaped by my partner who has worked at fair The sort of b2b marketplace for the past four or so years, I think we’ve learned a lot about what our own interests are and skill sets are and how that differs. And I tend to think of the world and zoomed out pictures of, you know, large trends and how the world is shifting. And I think it’s more of a product person who likes being sort of in the day to day. So that’s compared in contrast, but I think having been immersed in that environment, especially living in San Francisco for five years, I think gave me a lot of empathy just for what it takes to build a company. And it’s no easy thing to join a startup, let alone found one. And so at index, I mean, our philosophy is very much that we’re not here to tell you how to run your company. Most of us have never started a company or run a company, we’re here to unlock different ways for you to have a better chance at success, we sometimes refer to ourselves, as you know, almost professional recruiters to help you have the right talent venture around you, early engineers, your C suite down the road. But I think our philosophy is very much to be a partner, but not necessarily to be the one that’s telling you what to do, because you know, better than we do.
6:08
You talked about some of the areas that your focus briefly at index, I want to go into more detail. You said you’re interested in slow to evolve human society colliding with today’s rapid pace of technological change. Can you expand on what you mean by this and how it informs your investment thesis at index?
6:26
Yeah, I’ve always been someone who geeked out on consumer behavior and what people are, are doing online. And I think that kind of captures it, where you think about the human brain, it sort of has evolved in, I don’t know, 1000 5000 years, maybe more. But it basically takes a very long time, it turns out for human evolution to happen. But at the same time, and in the last 25 years or so you’ve had all of these kinds of seismic shifts and how we live with the internet connecting everyone around the world and social media. And now let’s having supercomputers in our pockets. And now generative AI I mean, we’re just living in this time where every year brings leaps and bounds forward and innovation. And I think it’s really interesting to see how, as people we react to that how our social constructs constructs adapt how our sort of innate behaviors and how we achieve status or meaning or fulfillment adapt in a digital world. So that’s kind of the guiding through line of a lot of my interest areas, both investing in index writing, talking to people and being part of this ecosystem, because we’re just living in this very unique moment where we as people haven’t changed much, but the world has never been changing faster.
7:37
One of the areas that I know you focus on is Gen Z. And for those that don’t know, first, before we go into Gen Z and areas that you’re interested in, specifically, how do you define Gen Z? Or what is the exact age rage? Just so the audience has some context?
7:53
That’s a great question. I think I think the oldest Gen Z is maybe an hour 26 or 27, I’d have to check on the youngest, maybe 18. But Gen Alpha comes after Gen Z. And I think Gen Z has kind of become a catch all for younger millennials, maybe older Gen. Alphas, you know, this, I called my newsletter digital native, because it’s sort of this generation that hasn’t known a world without the internet, social media, a lot of people now who are you know, in high school were were born after the iPhone was born. And so it’s really just this new generation that has emerged and come of age in a completely different world. And I think it’s very fascinating to think through what are the different behaviors shifts that carry through to every facet of the economy, and how people shop, how they communicate with each other the kind of jobs they expect to have, there are just a lot of different behaviors that are changing very rapidly because of this digital native cohort that’s coming of age.
8:46
So why why focus on Gen Z as an investor, despite them not having the same purchasing power of older generation such as that, as millennials are those that are getting ready to retire? Right. I’m curious how you think about that element from an investor lens? And specifically, what what gets you excited about the demographic? Yeah,
9:07
I mean, I think certainly, I’m just not I’m not just focused on Gen Z. I think there are many opportunities serving older cohorts. I think a classic example is Baby Boomers, to your point actually have much higher disposable income, are quite online now and have a huge breadth of problems that they’re facing, whether it’s loneliness, declining health, needing caretakers, so that I think is an underserved segment to build for if you’re an entrepreneur, but I do think that you know, in our job the success is measured in in years, if not decades. And so you want to focus on who are the next people that are going to shape society and the world that we live in? And that’s the people who are entering the job market now who are maybe even younger in high school and college but since the I think it’s the largest generation in the US by population now doing will be the largest by you know, income earning potential and a eventually disposable income and, you know, probably in five or 10 years, we’ll be talking about Gen alpha in the same way. But I think you always kind of have to have an eye to the future of these are the people who are about to inherit a lot of the jobs and income and different sort of positions of influence in society.
10:17
In from your observations and research, what are some of the unique characteristics for Gen Z compared to that of a demographic such as millennials, and you alluded to one, given that, you know, Gen Zers, have only grown up in a in a digital native environment, but specifically when it comes to their behavioral characteristics? I’m curious, what are what are some of those that might not be so obvious that you’ve observed? Yeah, I
10:46
think I’ll start with the obvious, I think the probably most overused word is authentic. And I think that’s been interesting. And seeing how Gen Z uses social media in a very different way. We’ve seen the rise of be real over the last year, which is a much more sort of, in the moment, spontaneous form of social connection that’s less kind of curated and performative. And, you know, the social media that I grew up with was sort of the Instagram influencer age where it was like Latte Art murals, and you know, the Museum of ice cream and sort of the contrived view of perfection on the grid. And now, you know, you see Snapchat and Tiktok, a lot of the filters there are actually purposely meant to not beautify, but to actually distort and make you look funny. And there’s just a huge shift online of moving away from this facade of perfection and into sort of really deep personal expression. So I think that’s an interesting trend. But I also think we touched a little bit on entrepreneurship and this generation kind of have a different views on work. And I think that’s probably one where I would argue that will have the most lasting impact. Because if you think about the world, that young people are coming into, a lot of them saw their parents or grandparents lose their jobs during the Great Recession. Some of them were maybe coming of age during COVID. And we’re again, sort of scarred by that experience of entering the workforce and being laid off or not having a job waiting for you. And again, now we’re in this macro downturn. So I think it’s been a relatively unforgiving, traditional job market for this young generation over the last 15 years. And so how will that manifest, it might manifest in more small businesses, maybe more digitally native jobs that people take on platforms like YouTube or Tik Tok, or Roblox or Patreon are different ways that people find a living online. And I think that’s very interesting to think about how this sort of architecture of work gets reinvented.
12:43
I’d be curious to talk about that a little bit more. I’ve read and heard, you know, some business owners have said that Gen Z employees, they’re the most entitled they’re the least hard work. Force. I first I’m curious to hear if you agree, or what you hear, when, when, or what you think when you hear this, and then we’ll go from there. But anyway, yeah. First off, do you agree with that statement? What comes to mind when you hear that? Because there’s there’s always more than meets the eye. And there’s also a cultural disconnect now between the baby boomers that own some of those businesses and Gen Z years and their expectations from work environment?
13:23
Yeah, well, I disagree. I think that there, if you start kind of looking at the history of older people bemoaning young people’s work ethic, there’s a very funny Twitter thread that actually looks at the past 100 years of newspaper clippings. And basically, every few years, there’s an article about how young people don’t have any work ethic and how, you know, people forgot how to work hard. And it’s very funny, because it’s like a 1923, who were like, young people today, like aren’t showing up for work on time. And it’s almost like this quiet quitting phenomenon that we’re seeing now, just applying, you know, 100 years ago. So I think why do you think that
14:01
is, by the way, why? Why do you think the older generations always looked down upon the younger generations? Do you think it’s just because they feel like they’re all the wiser, or, like you think about probably
14:12
comes down to self preservation of your own identity. And I think a lot of people just want to feel better about themselves. And I think one way to do that is to find an attribute that you value, like hard work, and, you know, hold it in high esteem for yourself and lesser for younger people. I think another aspect of it is self preservation of your entire identity and outlook on life, meaning that a lot of older people have made huge sacrifices in terms of time with family, vacations, just maybe things that they would have done differently if they were younger. And so I think they resent younger people who are foregoing that path or think that there’s a different path. You’re a ROM it reminds you of like investment banking culture or consulting culture where, you know, older people I want to almost haze younger people by making them work crazy hours and work crazy hard, because they went through that. And it’s sort of, you know, it’s kind of a cruel thing to do. It’s like, Well, you were miserable when you went through that. But you know, you kind of, it’s like, you want people to experience the same things that you did, or go through the pain through pain that you did, or just have the same outlook on sacrificing for capitalism and for work that that totally destroys your worldview, and I think be very destabilizing. If you look at young people, and they have a completely different perspective on what a career is, from what you are indoctrinated with from a young age. I think that’s probably part of it. And now I’m just on my soapbox here. But, you know, I think that generations generational views are changing around what the relationship is between life and work. And some of that was probably part of a long term shift and the rise of alternative jobs on the internet. And part of it, I think, was a near term shock of COVID, showing us that, did it make sense that we were spending eight hours a day with our coworkers and, you know, 10 minutes with our kids before bedtime, and a lot of people were just kind of re thinking a lot of those norms that we took for granted. And I think that’s a great thing for, you know, the productive path of, you know, family time and society and our healthy relationship with work. But I think for people who just spent, you know, 50 years commuting an hour, a day each way and barely seeing their families, it’s very tough to see younger people questioning a lot of those norms.
16:36
Yeah, it’s almost like they’re these contrived systems or structures. And younger generations questioning is this way that it needs to be because if there are elements where it’s illogical, or even times that irrational, and then to your point with COVID, it forces you to take upon a different structure. And I think everyone is resistant and fearful to change. But through that shift that that forest core shift, businesses realize that, hey, this, this is actually working and working quite well for some businesses, and maybe not so much for some others. But anyway, it’s interesting, because I think it helps break down some of those barriers or reshape some of those systems, and shows that things don’t always need to stay the way that they were. And just because that’s why that they weren’t, that doesn’t mean that’s what the way it has to be in the future.
17:32
Yeah, I wrote this piece called this as water which is it gets its title from a David Foster Wallace commencement speech that he gave at Kenyon College, I think he got some vibe, where he opens with this parable of, you know, two fish are swimming along, and they run into an older fish. And the older fish says, morning, boys, how’s the water, and the two fish keeps swimming. And then after a minute, one of them turns the other, he goes, What the hell is water. And it’s you know, it’s sort of a catch, it captures this idea that, you know, the most obvious things to us are often escape our attention. And so the jumping off point for the piece was about social constructs, and exactly what we’re talking about where, you know, you’re born into this world, where the expectation is that you go to this physical other building from the hours of nine to five, and you spend all this time they’re with your coworkers, and then you come see your family for an hour, and then go to bed. Or, you know, other things like car culture is a social construct gender, and like the fact that boys wear blue and pink. You know, as for girls, like all of these things that just are so ingrained women wearing makeup and not men, like all of them, you can go all day, if you just start kind of seeing the world through this lens of what is something that is totally constructed by society that I take as an absolute given. And I think a lot of the great businesses have been born by questioning norms, whether it’s Airbnb and opening your home to a stranger, Uber, getting in a car with a stranger, like a lot of these kinds of businesses, or, you know, Facebook, even broadcasting your life online, Twitch, same thing. I mean, these are very new concepts that were uncomfortable to people 10 or 20 years ago, and now our world changing businesses. But I also think to our earlier point, it’s it’s very destabilizing when you’re on the tail end of your life. And you see people questioning these things that you have taken sort of as gospel for your entire existence. I completely empathize that that would make you feel rudderless and a little frightened.
19:29
Yeah, absolutely. As you think about Gen Z in the workforce, and we talked about how things might be shifting, maybe there are more independent business owners, how else do you see work evolving over time here, it still feels like we’re we’re relatively early in the trajectory of what the future of work looks like, is not quite shaped. I’m curious, what from your lens. What is the future of work look like?
19:56
Yeah, I mean, I think one point I would make is that I actually think a lot Have you seen behaviors existed in millennials, the difference was that there were fewer opportunities for digitally native jobs 10 years ago or 20 years ago. So what I mean by that is now if you are a young person graduating high school, let alone College. First, you might be questioning whether you want to go to college to take on all this debt, and, you know, sort of have these handcuffs of, of your student loans. But there are so many options for you to do. I mean, you could write a substack newsletter, you could, you know, be a tick tock or a YouTuber or a Twitch streamer, you could launch a custom product line on piatra, you could be a Roblox game developer. Or you could design templates for figma and sell them there. I mean, you can really go all day with the different ways that you can find income streams online. And so I think that’s one part of it is sort of really thinking from first principles, more internet native jobs that people can do that are a more flexible, be have potentially higher upside, if you own your own equity. And see it can maybe achieve this holy grail of passive income, which is something that a lot of online entrepreneurs go after. So that’s one piece. And then related to that, I think we’re gonna see this sort of breakdown of what we view as a career where our parents or grandparents might have had one job their entire careers for people in my generation for people in their 30s. And for millennials, it’s maybe switch jobs every 235 years, which is already a novel concept to a lot of our parents. And for younger people, I think it might even be that you’ve never had one primary income, you stitch together a lot of different forms of making a living. And, you know, maybe you have a skincare line that you sell on Tik Tok, and do sponsored posts on Instagram, but then you do a podcast on the side, there are lots of creative examples out there of people that find really quirky ways to make a living off of their own specialized skills. And so I think the shift away from monolithic income streams to more kind of combination of tributaries that contribute to a bigger pool of income with high upside for you. That’s probably where I see the world of work going.
22:08
Got it? Are there any other or any other trends, specifically for Gen Z, that you’re especially excited about as of late, like, aside from their involvement in the workforce? And we’ll talk about gender AI in a minute, because I’d love to get your take on that. But I know you have your ear to the ground and would love to hear what are what are some of the other trends that you’re noticing or that you’re excited about?
22:30
Yeah, I mean, I guess, two that interests me that come to mind. One would be mental health, and sort of the result of growing up online, as well as sort of a combination of a lot of different societal consequences and events that have happened has been a very high level of stress and anxiety among young people. And so I think, a D stigmatization of mental health, awareness of that, and hopefully solutions to it. That’s one. And then the second is kind of a shift to more social impact and focus on mission driven businesses a huge emphasis on sustainability, which I’m very interested in both from climate investing, but also kind of second order effects like how that affects commerce, and secondhand and resale. So those are two that come to mind happy to dig deeper. But those that would be the ones that are top of mind.
23:21
Yeah, you know, from the mental health perspective, I’m curious if you feel that social media, specifically Instagram has a net negative or a net positive overall for society. And then maybe you feel that it differs from demographic, the demographic, but overall, I, you know, there’s more suicides today than there have been in a long time. Mental health issues are definitely on the rise in attribution, or at least from some psychologists, and psychiatrists attributed that to social media. I’m curious how you think about that. And I don’t think it tells the entire story, just taking a look at the data. But how do you think through that component in? Where do you shake out on it being a net negative or a net positive?
24:08
I feel very strongly that the internet writ large, isn’t that positive? I think for social media specifically is sort of a subset of that. It’s a much closer call. I still think that it’s a net positive externality, I will make the argument to the day I die, that the internet and technology are net positive. I think some of that is of course, self serving. Like I think you can’t be in venture capital and not be a tech optimist. And I’m very excited about the future. I mean, I think one of the privileges of this job is every day you’re exposed to really interesting and brilliant people building things with new technologies that completely blow your mind and show you a glimpse of where the world is going. And I think throughout history, you know, there’s a there are many examples of times when it would have been easy to be alive and be sort of apprehensive around innovation. And I think that can be very warranted and that you’re exactly right, that there are many downsides to these new technologies, and particularly the social media. But I think that the positives outweigh that. I’ll give you one example. One of the reasons that I fell in love with technology in the internet was how social media enables people to connect one another. So I came out as gay when I was a sophomore in college. And I think a huge part of that was being exposed to people on social media, especially Instagram, who were out living their life, I didn’t really know that many people in my day to day life in high school in Arizona, were openly gay. And so it was mostly through the internet that I was finding that kind of community and acceptance and learning about the LGBTQ community. And then when I was in college, I started this organization called worthy, which is a nonprofit that matches mentors and mentees in the queer community. So it’s kind of like, a lot of the mentees want help coming out to conservative parents or Catholic families. And so you might be matched with a mentor who, you know, had to navigate his own relationship with religion and his sexual orientation. And it was almost entirely through Instagram, that people were able to sign up for worthy and match with one at one another. And so I think that’s just one microcosm of one niche community that are not too niche. But there are so many more smaller communities online, where it’s like, even harder for you to find people who share the same interests and identities. And, you know, we like to point it at index, Discord is one of our investments. And I like to say that there are 19 million weekly active servers on Discord. So you would be hard pressed to, you know, not find one that you identify with and find people like you. And I think to me, that’s the power of the internet of being able to find community. And that’s not as always easy for everyone offline as it is for some people. And so the internet unlocks that potential. And, to me that in there are many stories like that, those kinds of are the examples that sway in my mind is to being a positive externality.
27:02
Yeah, and analog that I’m thinking about, in terms of connecting to people on the internet is similar to an advertiser connecting with their target audience, right? It’s the ability to match with who’s looking for your product is much easier when you’re able to capture in a digital real time fashion, what someone is searching for, or what products they might be interested in. And being able to take the entire world and funnel that down to present the perfect product to the right person at the right time, is very similar principle to what you’re talking about here, which is, I might have a particular interest. And it’s a very niche interest, or I have a large interest. But doing doing so or connecting in real life is not easy, right? So there are definitely many pros, at times, it feels like we’ve over rotated, right? Like where it’s, it’s, it’s hard, because when it comes to dating, for example, it’s great because you can meet someone very easily. But at the other side of the coin is because you can be someone so easily, relationships are most more transient these days, or it seemingly so. Right. So anyway, it’ll be interesting to see how things evolve. Obviously, I agree that it’s a big net positive, I don’t think you can be a VC to your point without being an optimist when it comes to technology, and that technology is overall very beneficial for the world. But in I mean, it can be fascinating.
28:32
So you’re up to I mean, I that’s not to say that there are complete downsides that we could do a better job protecting, whether that’s within the private companies, or now private sector, or as a government with regulation, I think there are strong arguments to be made around, you know, limiting social media use and younger people eliminating the types of content and algorithms that surfaced a lot of problematic things, content, moderation. I mean, that’s a whole other discussion. But I think that shouldn’t take away from the potential. And you also mentioned advertising. And I think it’s very easy to sort of sit on your armchair and criticize ad driven models. And some of that is warranted. And that, you know, when you’re not paying for a product, you’re not the customer, the advertiser is the customer on these platforms. But I also think, you know, for a lot of the vitriol aimed at Facebook recently, you know, Facebook advertising, their platform really did enable small businesses in a new way to be able to reach customers with a lesser level of rigor and specificity that they weren’t able to do in an analog world. Not everyone can buy a billboard. And so I think enabled this breadth of small business creation and that’s something that we don’t pay enough attention to or sort of give enough credit to.
29:51
I also wonder how many people does it truly bother versus how many people like the advertisement so one thing that I’ve found as of late, and one that I’ve heard this from numerous people is that they still have a Facebook account, or that they use Instagram, because it helps them discover products that they didn’t know about yet. And I think that’s very interesting, because it’s not the intended use case of the platform. That is the byproduct, the business model. Like, again, the the attention or the usage is the product for the advertiser. But there are some people that goes specifically to these platforms, because they are after a pair of shoes, and Instagram is showing them pairs of shoes or shoe brands that they didn’t even know existed. So it’s interesting, because there’s definitely a form of behavior among consumers that use these platforms, more so as tools, and they do entertainment.
30:45
Yeah, I mean, I think that’s exactly right. And I also think it’s just very difficult to separate away the impacts of the internet from the world we’re in today. I mean, we were talking about mental health after CPG. Well, at TPG, we invested in the series B of calm, the sort of mental health sleep meditation app, and then I went and worked there after and on the growth team. And I love that product, because it’s a product just completely aimed at trying to push forward time for people. It’s ironic in that it’s delivered through a phone, but it’s sort of tried to help you escape this chaotic world that we’re living in with, with the internet and cell phones. And that’s very core to the mission of the company. And we talk a lot about D stigmatization of mental health. But I think you’d be hard pressed to extract sort of the internet and social media from that decentralization. And what I mean by that is, if we didn’t have a venue or a place online, where we can debate and talk about these things, and people are exposed on Tik Tok, and YouTube and Instagram to each other, around the globe, would we have had so much progress on being candid with mental health talking about it, changing our conversation around it? I doubt it. Like, I think we used to live in this world. And you still see this in a lot of cultures, and in a lot of even homes and families in America is where you just don’t talk about going to therapy, or mental health or suffering from anxiety. And I really think the internet is to credit for changing that stigma. And you know, I just think that’s one where we would never say appreciably that the internet and social media are the reason that stigma is changing. And our mental health is at least being talked about more. But I fully believe that that’s probably the primary driver behind that the stigmatization, yeah,
32:31
that one of the other trends that I did want to pick your brain about was generative AI, because it seems as if we’ve gone from crypto and web three, now we’ve moved on to the next thing. And it’s really taking both the the business world and and tumors by storm. I mean, I think chat GPT created by open AI garnered a million users in five days, it’s it’s unheard of the fastest ever do so. And with web three, and crypto, it seemed as if the killer apps, everyone was always questioning exactly what those might be. With generative AI, it feels as if we’re already seeing them today. Right. So I’m curious to get your perspective on. How do you think generative AI is going to shape both the impact for the future of work, but also our lives as consumers?
33:26
Yeah, I mean, I think the last few years in the tech world have been a clamor for what’s next after mobile and cloud. So mobile and cloud have really been the two engines power in tech for over 10 years. Now. If you look at the 2009 to 2013 era, you know, on the consumer side, from mobile, you had, you know, Uber and Airbnb and Robin Hood. And from Cloud, you had, you know, Slack and air table and figma. I mean, these giant success stories, were really powered by those those two vectors. And I think a lot of worry over the last few years is those aren’t going away. But they’re certainly not as ripe for innovation as they once were. And they’re becoming a little more saturated. So there’s still opportunity there, but kind of what’s next? Is it VR and AR is it crypto slash web three is its autonomous vehicles, you know, what is the next platform? What’s the next tailwind? And I think, I mean, AI really has a pretty compelling why now in terms of how fast the language models and image models are improving. And to your point, I mean, the kind of incredible things that they’re already able to do. GBT to me is one of those magic moments in tech akin to using Google for the first time or connecting with your, you know, high school friend on Facebook. So I think to answer your question, I kind of separated in my head just to wrap my head around potential use cases into two buckets. One is AI amplifying creativity. And that’s maybe a little more than image models. And then the second is AI amplifying productivity, and that’s probably a little more kind of charged up He had a lot of the language model stuff. So that’s kind of how I think about it and happy to dive into more. But I think there’s no arguing that it’s going to be a pretty formative few years, as AI continues to improve, become more adopted.
35:15
It’s interesting to compare generative AI with cloud and mobile because I 100 Totally agree with you like those were the two factors that really drove a lot of the large companies that we see today. But when I think about mobile, and I think about cloud, I think about them as delivery mechanisms for many of the applications that we’re seeing today. And when I think about generative AI and these foundational models that applications are being built upon, almost requires a different framework, because it’s it’s not necessarily delivery mechanism. But it’s an infrastructure layer or, like a, it’s a platform to be built on top of but one that we haven’t exactly seen before. So as you’re thinking about one of the one of the one of the criticisms of generative AI today is that many of these applications are relatively easy to stand up. Because if you can build them on top of one of these foundational models, you’re able to build something very powerful, but do so very quickly. So as you think about analyzing the landscape of generative AI, and specifically that that issue that has been raised, or maybe it’s not an issue, but a level of skepticism among investors, just how defensible some of these applications are, how do you think about analyzing the landscape for generative AI? And the business models that are most exciting? Keeping in, in taking into account? Specifically, which ones are the most defensible?
36:46
Yeah, I mean, I think the way that we think about it index is that you these kind of the models like open AI, GPT, three GPT, four, and stable diffusion, Dali, like, a lot of value will potentially accrue there. But we think of it a little bit like cloud computing ecosystem where, you know, AWS, Azure, you know, people build on top of them. And they enable as a platform as a foundational layer, the infrastructure for a lot of innovation. And so I think, if you think about tech, I mean, there are very few companies that have a moat because of true tech differentiation. And so I think the challenge for generative AI companies is going to be finding different Moats. And it might come down to, you know, once we’ve seen in the past, like, you know, network effects first mover advantage, figuring out how to build into your product or the go to market that you have some sorts of defensibility I think it’s a big question. I mean, if you think about, like lenses, a great example where you like, blew up on the back of, of Instagram, Tik Tok and other social networks, but, you know, there’s no moat there. That doesn’t mean that it wasn’t wildly successful in, you know, earning a lot of income for the developers, or in pushing forward kind of the public’s understanding of, of what AI could do. But you know, to your point is a venture backed company, you question is that a 10 year sustainable model? Or is it gonna be a $10 billion company? And I think we’re in I saw one comparison that was like Lanza, and other early apps like that are kind of similar to like, the early age of iPhone apps when it was like, flashlights, and like, you know, silly things that were maybe also not defensible, then. But that were people just building on the App Store and trying to figure out different consumer applications. And so I do think we’re gonna see a lot of, you know, interesting things come about that might be blips in some will figure out ways to actually build competitive differentiation and over time, but it’s gonna go back to the same playbook from before of you know, if it’s not the tech, that’s the differentiator, you have to find something else. Yeah.
38:53
So would you Is it fair to say that you’re specifically interested in generative AI companies that are able to build a moat through something like a network effect or some other mechanism that they’re utilizing for defensibility? Or what what areas specifically within generative AI? Are you the most excited about today?
39:12
Yeah, I think one, one more point on that is the information. I had a great piece on Jasper, which is built on GPT three that sort of gives copywriters superpowers. And I, I think that they were quite taken by surprise by Chad GPT, which was offered as a free product by open AI and do your point blew up to, you know, a million users in five days. And that I think, was a great example of needing to figure out defensibility especially when open AI is being very fast moving and innovative in the space. And so, to answer your question, absolutely. I think from the investor perspective, you want to understand how a business is going to stay ahead and protect itself over time. That said like, I think that the the right businessman models in AI are probably going to be similar to the right business models over the last 10 or 15 years, I think there are probably going to be a lot of sass companies, there might be a lot of marketplaces, maybe some gaming sort of MMO type companies. And so I think, you know, the same business models that we like an index that I like, as an investor will apply here, we just have to think about how it actually carries forward into a new wave of innovation.
40:25
Rex, if we could feature anyone on the show? Who should we speak to? And what would you like to hear them talk
40:30
about? Hmm, that’s a great question. I mean, I will, I would have to give it deeper thought, I will tell you, the first person who jumped to my head was my friend Kyle Harrison, who has that contrary capital, maybe it’s because I had breakfast with him here in New York yesterday, but we had a lively debate just on what the future of the venture ecosystem looks like. And I really respect his his thinking and writing on it. He writes a newsletter called Investing one on one. And, you know, I think is just someone who challenges a lot of the norms of what’s its value additive from an investor on your cap table, how the art of ventures evolving over time, and I think these are major questions that a lot of funds are grappling with, and 2023. And so he’s the first one that came to mind and so happy to try to convince him to come visit the full ratchet. And I think you guys are severe compensation,
41:18
please do. Do you have any habits, tactics or techniques that you would consider to be a secret weapon,
41:25
um, habits, tactics techniques, I’m a big believer in sort of defensive calendaring, meaning blocking out time on my calendar to focus on, you know, even putting two hours on there for thinking time, or going for a walk and reflecting, writing time really just kind of living by the calendar and being sure that if I don’t build in time to think and breathe, and read, then I won’t get it. So that’s just one that has been really sort of transformative for me and making sure that, you know, if you think about the famous quadrants of urgency and importance, we often spend a lot of time on the urgent but not important, and too little time on the not urgent but important. And so I think making time and space on your calendar for the things that are very important, but not quite as urgent, as one thing that has helped me a lot. How do you organize
42:14
your schedule for writing? Like, what what have you found to be the most productive for you when you’re drafting a new piece?
42:21
That’s a good question. I mean, 99% of my week is meeting entrepreneurs. And so I try not to do it during work hours. So what I do is Sunday night, and Tuesday night, I block out a couple hours, we’re writing Sunday night is a little more outlining and thinking through the topic. And then Tuesday night, I kind of just try to hammer it out an hour or two, and I send it out every Wednesday morning. And the structure that I have I use notion to sort of organize my my future topics. And so I have right now, you know, a number of topics upcoming where, you know, I’m interested in health and wellness as a category. So I want to do a piece on health and wellness, I want to do a piece on social commerce and why Instagram shop has failed. And so those are examples where over the next couple of weeks, as I find relevant charts or stories and articles, I’ll put them into the sub page about that topic. And so when I go to write in a couple of weeks about those, I have a decent amount to go off of. So that’s kind of the one way I systematize it. Got it.
43:21
Rex, what do you know that you need to get better at?
43:23
Ah, that’s a great question. I mean, I think many things come to mind, I think I’m trying to pick one that’s not investing. I think one thing that someone can continually get better about, especially as a young investor is trusting your own intuition and sort of blocking out noise from the crowd. And I think you can get into a trap in this job. If you spend too much time reading what people are saying on Twitter, or even listening to people you respect, who might have old biases from the past. And pattern recognition can be a downside. So trusting your own view, you know, we have many examples of this head index and other funds to where I think, you know, because we saw X company that didn’t work out, we missed y company without realizing that the timing was different, or that we were biased from that prior experience. And so I think as a younger person in investing, you need to form your own views, and then have courage of your own convictions. And it’s something that I could continually get better at. I think it’s someone that everyone has room to improve on. But this is a job where I think, you know, you get successful by being opinionated, often contrarian, and just having a point of view and sticking with it. And so I think that’s not always easy to do, but it’s one thing that I’m in a constant quest to improve that.
44:42
Yeah, definitely. And last, what is the best way for listeners to connect with you?
44:47
Yeah, maybe shoot me a note on Twitter at I think it’s Rex underscore would vary by you know, you can shoot me a DM there and then also reply to my newsletter. I’m pretty responsible for email too.
44:58
Awesome. And I will So double down by saying anyone who has not checked out the digital native, please do your newsletter and I appreciate you taking time out of your week each week to craft such thoughtful pieces.
45:11
My My pleasure, it’s very self serving too, because I think it’s good at synthesizing my own thoughts and forcing myself to have clarity of thoughts. So I appreciate you reading. But yeah, I’d also recommend everyone turn to writing when it’s when there’s something you need to think through.
45:25
Absolutely. Well, thanks again for coming on. And we look forward to having you again in the future. Awesome,
45:30
thank you really appreciate it.
45:37
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest confidently thanks so much for listening
Transcribed by https://otter.ai
