Businessweek Extra - Roger Lee

have invested heavily. The world is different, and yet it is rife with opportunity, Carol, So you know, life is I'd say life is complicated. Uh, you know, I'd say work from home has been pretty stable. School from homes a lot trickier. So I've got three young kids and so navigating all the challenges with with school work has been has been a little complicated. But our our work and what we're doing day to day as investors really hasn't shifted that much. We're staying very active. Have a

bunch of themes were very excited about. These are themes that we've been investing in a long time, you know, ranging from cloud computing, to consumer marketplaces and and believes either these are really durable opportunities, you know, kind of

pre COVID and post COVID. So we're continuing to stay very active and uh and looking for for you know, great entrepreneurs, building you know, transformative companies, and so we're going to continue to invest even during you know, what are you know, otherwise pretty challenging periods and the same types of entrepreneurs sort of coming at you. Is it a in the same flow or what's different about either

what you're seeing or who you're seeing? Rather Yeah, i'd say that, you know, the one big question a lot of us ask ourselves is, uh, you know, having meetings in person is virtually impossible these days. So are are we going to invest in an entrepreneur we've never met in person before? We we haven't had to cross that bridge just yet. There are a couple of opportunities we're looking at right now where where we are asking ourselves

that question. All of the investments we've made since Shelter in Place have been with companies that we we've known for a long time. We've had relationships with the entrepreneurs. They're part of themes we've been investigating for a while. So so we haven't had to address that issue just yet. But depending on how long this goes on, there's definitely a scenario where that question won't come up and we'll

have to figure it out. But you know, the the um in terms of the makeup and the composition of the entrepreneurs and the themes that that part hasn't changed too much. Again, we we tend to be a pretty thematic firm, and so we have a handful of of you know, product market spaces we we go very deep into and and invest in and and we you know, we're excited about the themes we've been investing in and the entrepreneurs that are are building companies in those categories.

So so that part hasn't actually changed too much. It's just the way we're you know, doing diligence and and how we're interacting with them purely over video. That's been the biggest, probably the biggest shift. It's X, right, So it stinks or its sticks, well, depending on depending on the day, if there's too many of them. But it's like here's a little bit of both. Yeah, Well we're

you know, we're kind of professional meeting takers. You know, if you look at the calendars of the average investor, we're you know, spending many many hours a day, um, you know, meeting with entrepreneurs doing diligence on those those investments. Um. And so we spend huge portions of our of our lives just literally sitting in conference rooms meeting with people.

And so that part has shifted a lot. And it's hard for sure, because you know, there's um, you know, there's a belief and I think there's a lot of logic to this that um, you know, you you have to develop a relationship, you have to have chemistry with the entrepreneurshi're gonna work with, because we're typically in these investments for eight ten years, it's not longer. And the only way you can really navigate the inevitable ups and downs what happens is if you have a really good,

you know, relationship and great chemistry with this person. I mean, it's it's easier to get divorced than it is to get rid of your investor. And so we take these relationships very seriously. We only make a handful of investments every year. Well, let's continue our conversation with Roger Lee, general partner at battery ventures. Who I'm so glad it's still with us because probably listening to us here about thousand dollar haircuts, He's like, I thought this was a

serious radiation. I'm done with these two was joining these two idiots, Jason. I can't believe you only spend a thousand dollars and was great. I would expected a lot more. Yeah, I appreciate that. Yeah, it sounds good. I'm just gonna say, Roger, like almost what every week, every every other week, every other week? Yeah, but I mean it's like I go to Lenny, you know, like down the street on Third Avenue, and many times all right, it's like twenty bucks a pop.

All right, let's bring in Rogers, all right. So Roger, Um, I mean, you know, one of the things in all series is like I haven't been to Lenny. I haven't been doing all the normal things that I've been doing. And you know, I do think about sort of where our lives were, especially as consumers, and all the things that we had done when we traveled, whether it was me and my family staying in an airbnb, whether it was Carol and I going to the airport and hopping

in an uber. You know, these marketplaces that we had come to rely on so much. I do wonder, as an investor in you know a lot of names around this sector as well as someone who is thinking about where to put future capital, how do you think of that business model going forward? Yes, so, we we've been active investors in marketplaces for a long time, over a decade now, and continue to think that that marketplaces well, you know, fundamentally changed the way consumers lived their lives

on a day to day basis. So we we are, you know, very enthusiastic about these businesses. But I will say the past year has been a really really interesting time. There's been a real kind of Darwinian separation between between the winners and the losers, and that's been you know taking place in both the public markets and the private markets.

You're seeing you know, companies that um, you know, really aren't aren't well known and aren't as well understood performing extraordinarily well, whereas some of the really big successful ones like the Ubers and the lifts that really have really struggled. And so as investors, we spent a lot of time trying to figure out what what is that recipe for success? What it what is separating the winners and the losers. So we we look a lot at the business model efficiency.

We think there's been a very strong investor change and sentiment from growth at all costs. This was the era of uber and lift, and we work a couple of years ago to now in an era of really efficient growth. Uh, and this is um you know, I think separated a lot of the winning marketplaces from the losing marketplaces, and the ones of adopted that mindset, the efficient growth mindset, have performed a lot better. So we spent a lot of time trying to find, you know, those companies and

trying to really focus on that. Do you think something like an uber and left their viability longer term is questionable or is it just a pause right now because of the backdrop. No, there's definitely no existential question. They

will continue to survive. I just think that their business model is harder to execute on and there's real questions about how profitable it is long term, and and the public markets have you know, have shown that to you know, have ever reflected that in terms of their stock performance?

And there you know, the multiples they trade at our a fraction of what some of their peers in in you know, the marketplace world trade at that you know, UM have performed much better over the past year and traded much higher multiples because they're running far more profitable companies. And so I don't I don't think they're going to go away, but I just think they really need to shift the operating model to be much more efficient businesses.

Talking about shifting models, Roger, you know, I do feel like with retail, I do wonder if it's a bit of a Barbell approach where people who can afford to will pay for companies that UM coincide with their beliefs, right, and whether it's their impact on the environment, who they hire, you know, UM and so on, or who's doing their manufacturing.

And then at the low end, I mean, the last couple of weeks, the last thirteen weeks with the virus, you know, we've seen a reminder of the inequalities in our world, and there's a lot of people who are at the lower end of the wage spectrum, in the economic spectrum, and so they need those retailers, whether it's

a Walmart or so on. Is that how you see in terms of the consumer space, retail space, does it continue to move along that line, I think so that what we've really seen is the separation is much more to do with how asset heavy the retail businesses and the ones that have really struggled, the ones that are the clearing bank or seeing the ones that that have really underperformed publicly are the asset heavy retailers, the big physical footprints and and um, you know, large kind of

fixed costs and how they operate, whereas the ones that have thrived are really asset light, if not totally digital. Uh. This is you know the obvious examples here Amazon and Wayfair and businesses like that that have performed extraordinarily well in this timeframe. Um, And so that that seems to be the kind of the clearest dividing line. And these were you know, trends we were already seeing over you know,

over the last you know, ten plus years. But what's really interesting is that, you know, it took us ten years, if not fifteen years, to get to ten percent you know, penetration of e commerce and total retail, and in the last twelve weeks alone, that numbers doubled. And so, uh, if there's been one seismic shift that we've seen from

shelter in place. It's just the adoption of you know, digital online s us is from e commerce to education to telehealth, all of these things that's been really redefined over the past couple of a couple of months here, and we've we've taken five to ten years of of you know, experimentation and shifted it into one quarter. And so all the companies that were kind of digitally native or really benefiting, the ones that that had you know,

old world assets, I think are really struggling. So Roger want to close our conversation just by asking a question We've been asking a lot of the smartest people we've had on this program, uh, and we've talked a little bit about sort of the practice of what you do and and maybe the theory as well in terms of

your investment thesis. But I do wonder on the other side of this, and this was a question we started asking in the pandemic, but I think it's even more relevant given what we've seen over the last couple of weeks with some of the civil unrest and some of the really deep thinking that we're doing about society. What do you think changes permanently on the other side of this as we get back to work or back to the office as it were, and we get back into sort of thinking about who we want to be in

what we want to be. What do you think sticks Well, I think there's a macro and a micro to that. I think on the macro you're going to see a far greater distribution of opportunity and a far broader distribution of capital. Historically, innovation, you know, is very closely correlated to GDP, and so most of the capital was concentrated in the big you know, kind of um, you know, kind of GDP centers of the country, so you know,

Silicon Valley, New York City, places like that. And if you look over time, that's shifting, and that's now being accelerated by work from home and people being comfortable working over video. So more and more opportunities are going to shift out of those markets as people look for less dense places to live, more affordable places to live. And so I think you'll see you know, really really exciting businesses being built all over the place and not just in some of these kind of dense you know, GDP

and innovation quarters. I think that that's going to the big macro shift, which which is very healthy, and I think at the micro level, UM, what I hope and what I expect is that every company will take a very hard look at their own hiring products, at their own kind of hiring and inclusion policies, and make a really concerted effort towards, you know, finding more diverse candidates, implementing the many rule UH and ensuring that people of

all color and backgrounds have the ability to be successful inside their companies. And I think that will have an equally profound impact. You've been listening to Bloomberg Business Week Extra, and be sure to tune into Bloomberg Business Week Radio Live Monday through Friday at two pm Wall Street Time on Bloomberg Radio. I'm Carol Nasser and I'm Jason Kelly. This is Bloomberg